As Filed with the Securities and Exchange Commission on July 11, 2007.

 

 

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

 

**Form20-F**

**o**** REGISTRATIONSTATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THESECURITIES EXCHANGE ACT OF 1934**

**OR**

**x**** ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**Forthe fiscal year ended December 31, 2006**

**OR**

**o**** TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**Forthe transition period from            to**

**OR**

**o**** SHELL COMPANYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**Dateof event requiring this shell company report**

**Commissionfile number**

----

 

**TevecapS.A.**

(Exact name ofRegistrant as specified in its charter)
| **TEVECAP INC.**                                     | **THE  FEDERATIVE REPUBLIC OF BRAZIL**           |
|------------------------------------------------------|--------------------------------------------------|
| (Translation of Registrant’s name into English) | (Jurisdiction of  incorporation or organization) |

 

**Av. dasNações Unidas, 7221 - 7o andar**

**SãoPaulo, SP Brazil**

**05425-902**

**(Telephone:  55-11-3037-5127)**

(Address andtelephone number of principal executive offices)

----

 

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

**None**

(Title of Class)

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

**None**

(Title of Class)

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

**12-5/8%Senior Notes due 2009 of Tevecap S.A. and guarantees thereof by each of TVASistema de Televisão S.A., TVA Communications Ltd., Comercial Cabo TV São PauloS.A., TVA Sul Paraná S.A. and CCS Camboriú Cable System de TelecomunicaçõesLtda.**

**Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report:**

**485,220,440Common Shares**

**Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.**

**YES  ****o      NO****x**

**Ifthis report is an annual or transitional report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.**

**YES  ****o       NO****x**

**Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days:**

**YES  ****x      NO****o**

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act (Check one):**
| **LARGE ACCELERATED FILER ****o** | ** ** | **ACCELERATED FILER ****o** | ** ** | **NON-ACCELERATED FILER****x** |
|----------------------------------------|------------|----------------------------------|------------|--------------------------------|

 

**Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).**

**YES  ****o       NO****x**

**Indicateby check mark which financial statements item the registrant has elected tofollow:**

**ITEM 17 ****o  ITEM18 ****x**

 

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**TABLEOF CONTENTS**
| ITEM 1.               | IDENTITY OF  DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        |   |
|-----------------------|-------------------------------------------------------------------------------|--------|
|                  |                                                                          |   |
| ITEM 2.               | OFFER  STATISTICS AND EXPECTED TIMETABLE                                      |   |
|                  |                                                                          |   |
| ITEM 3.               | KEY INFORMATION                                                               |   |
|                  |                                                                          |   |
| ITEM 4.               | INFORMATION ON  THE COMPANY                                                   |   |
|                  |                                                                          |   |
| ITEM 4A.              | UNRESOLVED STAFF  COMMENTS                                                    |   |
|                  |                                                                          |   |
| ITEM 5.               | OPERATING AND  FINANCIAL REVIEW AND PROSPECTS                                 |   |
|                  |                                                                          |   |
| ITEM 6.               | DIRECTORS, SENIOR  MANAGEMENT AND EMPLOYEES                                   |   |
|                  |                                                                          |   |
| ITEM 7.               | MAJOR SHAREHOLDERS  AND RELATED PARTY TRANSACTIONS                            |   |
|                  |                                                                          |   |
| ITEM 8.               | FINANCIAL  INFORMATION                                                        |   |
|                  |                                                                          |   |
| ITEM 9.               | THE OFFER AND  LISTING                                                        |   |
|                  |                                                                          |   |
| ITEM 10.              | ADDITIONAL  INFORMATION                                                       |   |
|                  |                                                                          |   |
| ITEM 11.              | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |   |
|                  |                                                                          |   |
| ITEM 12.              | DESCRIPTION  OF SECURITIES OTHER THAN DEBT SECURITIES                         |   |
|                  |                                                                          |   |
| 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                                       |   |
|                  |                                                                          |   |
| ITEM 17.              | FINANCIAL  STATEMENTS                                                         |   |
|                  |                                                                          |   |
| ITEM 18.              | FINANCIAL  STATEMENTS                                                         |   |
|                  |                                                                          |   |
| ITEM  19.             | EXHIBITS                                                                      |   |
|                  |                                                                          |   |
| GLOSSARY              |                                                                          |
|                  |                                                                          |   |
| FINANCIAL  STATEMENTS |                                                                          |

 

i

----

**EXPLANATORYNOTE**

**Presentationof Certain Information**

This Annual Reporton Form 20-F for the year ended December 31, 2006 is referred to herein as theAnnual Report.

Tevecap S.A.,which we refer to as Tevecap and, together with our subsidiaries, TVA or the Company,is a corporation (*sociedade anônima)*organized under the laws of the Federative Republic of Brazil.  Unless the context otherwise requires, “we,” “our,”or “us” refers to TVA.  Our accounts,which are maintained in Brazilian *reais*,were prepared in accordance with the accounting principles generally acceptedin the United States of America, or U.S. GAAP, and translated into U.S. dollarson the basis set forth in Note 2.3 of our consolidated financial statements, orthe Tevecap Financial Statements and, together with the financial statements ofCCS Camboriú Cable System de Telecomunicações Ltda. included in this AnnualReport, the Financial Statements. Certain amounts stated herein in U.S. dollars (other than as set forthin the Financial Statements and financial information derived therefrom) havebeen translated, for the convenience of the reader, from *reais* at the rate in effect onDecember 31, 2006 of R$2.1380 = U.S.$1.00. Such translations should not be construed as a representation that *reais* could have been converted at suchrate on such date or at any other date. See Item 3, “Key Information—Selected Financial Data—Exchange Rates.”

Capitalized termsused in this Annual Report are defined, unless the context otherwise requires,in the Glossary attached hereto.  Allreferences in this Annual Report to (i) ”U.S. Dollars,” “dollars,” or “U.S.$”are to United States dollars and (ii) “*reais,*”**“*real*”or “R$” are to Brazilian *reais*.

Unless otherwisespecified, data regarding population or homes in a licensed area areprojections based on 2000 population census figures compiled by the *Instituto Brasileiro de Geografia e Estatística*,or IBGE and our knowledge of our markets. There can be no assurance that the number of people or the number ofhouseholds in a specified area has not increased or decreased by a higher orlower rate than those estimated by the IBGE since the 2000 census.  Unless otherwise indicated, references to thenumber of our subscribers are based on our data as of December 31,2006.  Data concerning total MMDS andcable subscribers and penetration rates represent estimates made by us based onthe data of Pay TV Survey, Associação Brasileira de Telecomunicações porAssinatura (ABTA), Kagan World Media, Inc., IBGE data, our knowledge of our paytelevision systems and public statements of other Brazilian pay televisionproviders.  Although we believe suchestimates are reasonable, no assurance can be made as to their accuracy.

**Forward-LookingStatements**

This Annual Reportcontains statements which are forward-looking within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These statements appear in a number of places in this Annual Report andinclude statements regarding the intent, belief or current expectations of theCompany or our officers.  Investors arecautioned that any such forward-looking statements are not guarantees of futureperformance and involve risks and uncertainties, and that actual results maydiffer materially from those in the forward-looking statements as a result ofvarious factors.  Neither our independentauditors, nor any other independent accountants, have compiled, examined, orperformed any procedures, with respect to the prospective financial informationcontained herein, nor have they expressed any opinion or any other form ofassurance on such information or its achievability, and assume noresponsibility for, and disclaim any association with, the prospectivefinancial information.

ii

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**PARTI**

**ITEM1.  IDENTITY OF DIRECTORS, SENIORMANAGEMENT AND ADVISORS.**

Not applicable.

**ITEM2.  OFFER STATISTICS AND EXPECTEDTIMETABLE.**

Not applicable.

**ITEM3.  KEY INFORMATION**

**A.  Selected Financial Data**

The selectedfinancial data presented herein as of December 31, 2006 and 2005 and foreach of the three years in the period ended December 31, 2006 have beenderived from, and should be read in conjunction with, the Tevecap FinancialStatements included in this Annual Report. The selected financial data as of December 31, 2004, 2003 and 2002and for each of the two years in the period ended December 31, 2003 havebeen derived from our audited financial statements that are not includedelsewhere in this Annual Report.

On October 29,2006, we, TVA Sistema, Comercial Cabo TV São Paulo S.A., TVA Sul ParanáS.A., Abril Comunicações (our shareholder) and certain entities affiliatedwith Abril Comunicações entered into certain convergence and saleagreements with Telecomunicações de São Paulo S.A.-Telesp (an affiliate ofTelefonica, the Spanish telecommunications concern), including an interimoperating agreement for the period up to the approval of the transaction.  Under these agreements, we expect to transferall of our MMDS licenses and operations to a company to be owned by Telesp andto transfer our Cable operations and licenses (other than those related to CCSCamboriú Cable System de Telecomunicações Ltda., a Cable operator in the cityof Camboriú, in which we hold a 60% equity interest) to certain entities to beowned by a joint venture company formed between Telesp and certainaffiliates of Abril Comunicações.  Thetransaction was structured such that upon consummation Telesp will become theowner of a minority stake in the Cable entities, within the limits set forth inapplicable regulations and in Telesp’s concession agreement for telephonyservices, while certain affiliates of Abril Comunicações will continue to havea majority stake in the Cable entities. We may also transfer CCS Camboriú under the agreements described aboveif we are able to reach an agreement with our minority shareholder in CCSCamboriú regarding such transfer.  Thedisposition of assets under these agreements is not expected to result in a lossto us.

The closing of thetransaction described above is subject to regulatory approvals and certainother conditions precedent, including: (i) prior approval of ANATEL (the Brazilian National TelecommunicationsAgency) and (ii) the implementation of a corporate reorganization in order totransfer all target assets free and clear of encumbrances.   In addition, the transaction is also subjectto the analysis of CADE (the Brazilian Administrative Council for EconomicDefense), Brazil’s federal antitrust authority. Our agreements with Telesp provide that Telesp and Tevecap will begin tojointly market their telephony, pay television and/or broadband internet andpay television services during the approval process period.

In addition, underour agreements with Telesp, we and our parent company, Abril Comunicações S.A.,have assumed responsibility for potential contingencies that may arise afterthe sale of the operations described above relating to periods prior to theconsummation of the sale.

On December 28,2006, Telesp made an advance payment to us in the amount of U.S.$93.5 million(R$200.0 million).   In addition, Telesphas granted us a line of credit of up to U.S.$52.6 million (R$112.5 million)for capital expenditure purposes, of which we have already borrowed U.S.$38.4million (R$82.0 million) as of June 30, 2007. In the event the transaction does not close, we are obligated to returnby April 30, 2008 the advance payment and any amounts borrowed under the lineof credit together with, in each case, interest accrued thereon at the rate of103% of the CDI rate (the interbank certificate of deposit rate in Brazil) fromthe date of the determination that the transaction will not close.  Our obligation to repay these amounts wasguaranteed by a pledge of our Cable networks. In addition, our operating agreements with Telesp will terminate on July31, 2007 in the event the transaction does not close.

1

----

The Senior Notesare not being transferred under the above agreements and will remainobligations of ours together with the following liabilities:  (i)  U.S.$119.1 million inobligations with respect to transactions with related companies (see note 6 tothe Tevecap Financial Statements), (ii) U.S.$31.2 million in provisions forfiscal contingencies (see note 17 to the Tevecap Financial Statements) and(iii) US$59.5 million in deferred tax liabilities (see note 7.2 to the TevecapFinancial Statements).

Our direct andindirect subsidiaries TVA Sistema de Televisão S.A., TVA Communications Ltd.,Comercial Cabo TV São Paulo Ltda., TVA Sul Paraná Ltda. and CCS Camboriú CableSystem de Telecomunicações Ltda. are Guarantors of our Senior Notes.   We expect that as a result of ourtransaction with Telesp, substantially all of the assets of TVA Sistema deTelevisão S,A., Comercial Cabo TV São Paulo S.A. and TVA Sul Paraná S.A.(other than TVA Sul Paraná’s equity interests in CCS Camboriú Cable System deTelecomunicações Ltda.), will be transferred to the purchasers under the aboveagreements, although Comercial Cabo TV São Paulo S.A. and TVA Sul Paraná S.A.will not continue to be Guarantors under the Senior Notes.  Our management is analyzing the effects ofthe transaction as a whole on the Senior Notes and firmly expects that,following the consummation of the transaction, we will continue to honor ourpayment obligations under the Senior Notes.

As a result ofthis anticipated disposition and the materiality of the operations beingtransferred, we have classified the operations being transferred as“Discontinued Operations,” the selected financial data of which is discussedseparately under “Selected Financial and Other Data – Discontinued Operations”below.  For more information on thistransaction, see Item 4, “Information on the Company” and note 20 to theTevecap Financial Statements included in this Annual Report.

As required byBrazilian law, and in accordance with local accounting practices, our financialrecords are maintained in the applicable Brazilian currency, or the *real*. However, the Financial Statements are presented in U.S. dollars inaccordance with U.S. GAAP.  In order toprepare the Financial Statements, our accounts have been translated fromBrazilian *reais*, on the basisdescribed in Note 2.3 to the Tevecap Financial Statements included in thisAnnual Report.  Because of thedifferences between the evolution of the rates of inflation in Brazil and thechanges in the rates of devaluation, amounts presented in U.S. dollars may showdistortions when compared on a period-to-period basis.

2

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**SELECTEDFINANCIAL AND OTHER DATA – CONTINUED OPERATIONS**
| ** **                                                                | ** ** | **Year  Ended December 31,**                            | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                | ** ** | **(in  thousands of US$ unless otherwise stated)** | ** ** |
| **Consolidated Statement of  Operation:**                                 | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Gross revenues**                                                        | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Monthly subscriptions                                                     |       | $                                                       | 4,518      |   | $ | 3,556 |   | $ | 2,447 |   | $ | 3,241 |   | $ | 4,139 |   |
| Installation                                                              |       | 51                                                      |       | 32 |   | 26 |   | 50 |   | 81 |   |
| Advertising                                                               |       | 107                                                     |       | 110 |   | 16 |   | 609 |   | 158 |   |
| Additional services (a)                                                   |       | 102                                                     |       | 69 |   | 45 |   | 291 |   | 637 |   |
| Taxes on revenue (b)                                                      |       | (706                                                    | )          | (519 | ) | (367 | ) | (482 | ) | (550 | ) |
| **Net revenue**                                                           | ** ** | **4,072**                                               | ** ** | **3,248** | ** ** | **2,167** | ** ** | **3,709** | ** ** | **4,465** | ** ** |
| Direct operating expenses (c)                                             |       | 1,422                                                   |       | 1,329 |   | 1,090 |   | 1,861 |   | 3,387 |   |
| Selling, general and administrative expenses                              |       | 1,656                                                   |       | 948 |   | 766 |   | 1,774 |   | 752 |   |
| Depreciation                                                              |       | 579                                                     |       | 161 |   | 195 |   | 1,012 |   | 1,138 |   |
| Amortization                                                              |       | 238                                                     |       | 430 |   | 428 |   | 410 |   | 400 |   |
| Other operating expense, net                                              |       | 4,609                                                   |       | 341 |   | 216 |   | — |   | — |   |
| **Income (loss) from  operations**                                        | ** ** | **(4,432**                                              | **)**      | **39** | ** ** | **(528** | **)** | **(1,348** | **)** | **(1,212** | **)** |
| Interest income                                                           |       | (1,190                                                  | )          | (523 | ) | (367 | ) | (1,503 | ) | (1,114 | ) |
| Interest expense                                                          |       | 25,108                                                  |       | 22,977 |   | 16,252 |   | 10,860 |   | 11,273 |   |
| Foreign Currency transaction (income) loss, net                           |       | (3,819                                                  | )          | (6,157 | ) | (3,496 | ) | (9,549 | ) | 23,321 |   |
| Other nonoperating expenses (income), net                                 |       | —                                                  |       | — |   | (8,443 | ) | 6,414 |   | 74 |   |
| **Loss before income taxes,  equity in affiliates and minority interest** | ** ** | **(24,531**                                             | **)**      | **(16,258** | **)** | **(4,474** | **)** | **(7,570** | **)** | **(34,766** | **)** |
| Equity in (losses of) affiliates, net (d)                                 |       | —                                                  |       | — |   | 468 |   | (3,585 | ) | 6,338 |   |
| Minority interest                                                         |       | 341                                                     |       | 240 |   | 255 |   | 82 |   | 64 |   |
| **Loss from continuing  operations before income taxes**                  | ** ** | **(24,872**                                             | **)**      | **(16,498** | **)** | **(5,197** | **)** | **(4,067** | **)** | **(41,168** | **)** |
| Income tax from continuing operations - current                           |       | 493                                                     |       | 308 |   | 304 |   | 328 |   | 79 |   |
| Income tax from continuing operations – deferred                     |       | 8,613                                                   |       | 27,424 |   | 8,866 |   | 19,054 |   | — |   |
| **Loss from continuing  operations**                                      | ** ** | **(33,978**                                             | **)**      | **(44,230** | **)** | **(14,367** | **)** | **(23,449** | **)** | **(41,247** | **)** |
| **Discontinued operations**                                               | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (loss) from discontinued operations, before income taxes           |       | 5,326                                                   |       | (18,782 | ) | (5,276 | ) | (16,550 | ) | (30,169 | ) |
| Income taxes on discontinued operations                                   |       | (962                                                    | )          | (314 | ) | — |   | — |   | — |   |
| Income (loss) from discontinued operations                                |       | 4,364                                                   |       | (19,096 | ) | (5,276 | ) | (16,550 | ) | (30,169 | ) |
| **Net loss**                                                              | ** ** | **(29,614**                                             | **)**      | **(63,326** | **)** | **(19,643** | **)** | **(39,999** | **)** | **(71,416** | **)** |
|                                                                           |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

3

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| ** **                                                         | ** ** | **Year Ended December 31,**                                      | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                         | ** ** | **(in thousands of US$ unless otherwise stated)** | ** ** |
|                                                               |       |                                                                            |       |   |   |   |   |   |   |   |   |
| **Other data:**                                                    | ** ** | ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                         | ** ** | ** **                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchase of property, plant and equipment                          |       | 161                                                                             |       | 26,583 |   | 13,608 |   | 11,223 |   | 11,195 |   |
|                                                               |       |                                                                            |       |   |   |   |   |   |   |   |   |
| **Ratio of earnings to fixed  charges (e)**                        |       | —                                                                          |       | — |   | — |   | — |   | — |   |
|                                                               |       |                                                                            |       |   |   |   |   |   |   |   |   |
| **Select Operating Data:**                                         |       |                                                                            |       |   |   |   |   |   |   |   |   |
| **Pay TV**                                                         |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Number of Subscribers (f)                                          |       | 11,330                                                                          |       | 10,535 |   | 9,802 |   | 9,070 |   | 9,334 |   |
| Average monthly revenue per Subscriber (g)                         |       | $                                                                               | 37.71      |   | $ | 32.16 |   | $ | 26.60 |   | $ | 22.04 |   | $ | 14.86 |   |
|                                                               |       |                                                                            |       |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheet  Data:**                              |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                          |       | 1,754                                                                           |       | 9,753 |   | 1,368 |   | 292 |   | 245 |   |
| Current assets held for sale                                       |       | 135,647                                                                         |       | — |   | — |   | — |   | — |   |
| Property, plant and equipment, net                                 |       | 2,352                                                                           |       | 71,898 |   | 68,220 |   | 76,317 |   | 76,907 |   |
| Total assets                                                       |       | 246,932                                                                         |       | 118,853 |   | 102,564 |   | 107,931 |   | 111,475 |   |
| Liabilities directly associated with current  assets held for sale |       | 97,113                                                                          |       | — |   | — |   | — |   | — |   |
| Loans payable to related companies                                 |       | 119,122                                                                         |       | 68,196 |   | 49,634 |   | 39,712 |   | 12,117 |   |
| Long-term liabilities                                              |       | 240,417                                                                         |       | 231,175 |   | 152,084 |   | 69,380 |   | 86,298 |   |
| Redeemable common stock                                            |       | —                                                                          |       | 30,380 |   | 27,599 |   | 24,201 |   | 99,365 |   |
| Total shareholders’ deficiency                                |       | 216,067                                                                         |       | 199,655 |   | 120,317 |   | 89,431 |   | 119,618 |   |
|                                                                    |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

**Notes to Selected Financial and Other Data**

(a)          Includes revenues (such as cable modem fee, frequencies lease, wholesaleand technical assistance).

(b)         Represents various non-income based taxes paid on certain of our grossrevenue items with rates ranging from 3.65% to 15.15%.

(c)          Represents costs directly related to the subscriber base and newinstallations evolution.

(d)         Represents our pro rata share of the Net loss or income of our equityinvestments and minority interest.

(e)          For the five years ended December 31, 2006, earnings were insufficientto cover fixed charges by U.S.$24,531 U.S.$16,259, U.S.$4,475, U.S.$7,570 andU.S.$34,766, respectively.  Incalculating the Ratio of earnings to fixed charges, earnings represents pre-taxNet loss from continuing operations before minority interest, Equity income in(losses of) affiliates, plus fixed charges.

(f)            Represents the number of subscribers as of thelast day of each period.

(g)         Average monthly revenue per subscriber refers to the average monthlysubscription fee as of the last day of each period.

4

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**SELECTEDFINANCIAL AND OTHER DATA – DISCONTINUED OPERATIONS**
| ** **                                      | ** ** | **Year Ended December 31,**                                      | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                      | ** ** | **(in thousands of US$ unless otherwise stated)** | ** ** |
| Monthly subscriptions revenues                  |       | $                                                                               | 150,353    |   | $ | 123,085 |   | $ | 91,616 |   | $ | 80,553 |   | $ | 78,999 |   |
| Installation revenues                           |       | 2,713                                                                           |       | 2,053 |   | 964 |   | 1,160 |   | 1,018 |   |
| Advertising revenues                            |       | 5,037                                                                           |       | 3,534 |   | 1,833 |   | 1,976 |   | 1,466 |   |
| Additional services revenues (a)                |       | 9,767                                                                           |       | 6,725 |   | 6,151 |   | 3,491 |   | 3,270 |   |
| Taxes on revenue (b)                            |       | (23,842                                                                         | )          | (19,466 | ) | (14,026 | ) | (12,556 | ) | (11,894 | ) |
| Direct operating expenses (c)                   |       | (47,207                                                                         | )          | (42,670 | ) | (36,116 | ) | (35,358 | ) | (40,575 | ) |
| Selling, general and administrative expenses    |       | (47,596                                                                         | )          | (47,015 | ) | (24,101 | ) | (19,575 | ) | (17,906 | ) |
| Depreciation                                    |       | (25,197                                                                         | )          | (23,146 | ) | (19,634 | ) | (17,482 | ) | (20,103 | ) |
| Amortization                                    |       | (3,508                                                                          | )          | (5,800 | ) | (4,099 | ) | (4,778 | ) | (6,376 | ) |
| Other operating expenses, net                   |       | (986                                                                            | )          | (6,587 | ) | (3,096 | ) | (3,671 | ) | (4,281 | ) |
| Interest income                                 |       | 1,566                                                                           |       | 487 |   | 333 |   | 8 |   | 594 |   |
| Interest expense                                |       | (16,140                                                                         | )          | (10,205 | ) | (5,165 | ) | (7,274 | ) | (5,668 | ) |
| Foreign Currency transaction income (loss), net |       | 366                                                                             |       | 223 |   | 64 |   | 1,469 |   | (8,199 | ) |
| Other nonoperating income, net                  |       | —                                                                          |       | — |   | — |   | (4,513 | ) | (514 | ) |
| Income tax expense                              |       | (962                                                                            | )          | (314 | ) | — |   | — |   | — |   |
| **Income (loss) from discontinued operations**  | ** ** | **4,364**                                                                       | ** ** | **(19,096** | **)** | **(5,276** | **)** | **(16,550** | **)** | **(30,169** | **)** |
|                                                 |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                 | ** ** | **Year Ended December 31,**                                      | ** ** |
|--------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                 | ** ** | **(in thousands of US$ unless otherwise stated)** | ** ** |
| **Select Operating Data:**                 |       |                                                                            |       |   |   |   |   |   |   |   |   |
| **Pay TV**                                 |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Number of Subscribers (d)                  |       | 315,950                                                                         |       | 290,040 |   | 283,746 |   | 275,120 |   | 291,287 |   |
| Average monthly revenue per Subscriber (e) |       | $                                                                               | 39.25      |   | $ | 35.51 |   | $ | 29.67 |   | $ | 25.61 |   | $ | 21.44 |   |
| **Internet Broadband -  Residential**      |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Number of Subscribers (d)                  |       | 58,159                                                                          |       | 42,202 |   | 28,410 |   | 18,773 |   | 14,116 |   |
| Average monthly revenue per Subscriber (e) |       | $                                                                               | 30.64      |   | $ | 30.73 |   | $ | 28.31 |   | $ | 27.39 |   | $ | 21.65 |   |
| **Internet Broadband – SOHO**         |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Number of Subscribers (d)                  |       | 3,739                                                                           |       | 2,174 |   | 1,780 |   | 1,410 |   | 839 |   |
| Average monthly revenue per Subscriber (e) |       | $                                                                               | 151.87     |   | $ | 185.79 |   | $ | 167.56 |   | $ | 161.12 |   | $ | 162.59 |   |

 

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**Notes to Selected Financial and Other Data**

(a)          Includes revenues (such as cable modem fee, frequencies lease, wholesaleand technical assistance).

(b)         Represents various non-income based taxes paid on certain of our grossrevenue items with rates ranging from 3.65% to 15.15%.

(c)          Represents costs directly related to the subscriber base and newinstallations evolution.

(d)         Represents the number of subscribers as of the last day of each period.

(e)          Average monthly revenue per subscriber refers to the average monthlysubscription fee as of the last day of each period.

**ExchangeRates**

Until March 2005,there were two legal foreign exchange markets in Brazil: the commercial rateexchange market, or the Commercial Market, and the floating rate exchangemarket, or the Floating Market.  The ratefor the Commercial Market, or the Commercial Market Rate, was reservedprimarily for foreign trade transactions and transactions that generallyrequired prior approval from Brazilian monetary authorities, such as thepurchase and sale of registered investments by foreign persons and relatedremittances of funds abroad.  The ratefor the Floating Market, or the Floating Market Rate, generally applied totransactions to which the Commercial Market Rate did not apply.  On March 4, 2005, the National MonetaryCouncil issued Resolution No. 3,265 unifying the Floating Market and theCommercial Market.  Despite suchunification of the foreign exchange markets, the transactions that used to becarried out in the Commercial Market generally still require prior registrationwith and the approval of the Central Bank.

Foreign exchangerates are freely negotiated but are strongly influenced by the CentralBank.  After the implementation of the *Real* Plan in 1994, the Central Bankinitially allowed the *real* tofloat with minimal intervention.  OnMarch 6, 1995, the Central Bank announced that it would intervene in the marketand buy or sell U.S. dollars, establishing a trading band (*faixa de flutuação*) in which the exchangerate between the *real* and theU.S. dollar would fluctuate.  From 1995through 1998, the Central Bank periodically adjusted the trading band upward.

OnJanuary 13, 1999, the Central Bank attempted a limited devaluation of the *real* by modestly elevating the band widthin which the *real* was allowed totrade.  When this limited devaluationproved unsuccessful, the

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Central Bank announcedthat it would no longer use its foreign currency reserves to protect the valueof the *real* (with the exceptionof limited interventions to restrain abrupt fluctuations in the exchange rate),thereby allowing the *real* tofloat freely against other currencies. Consequently, in the weeks following the initial devaluation, the *real* lost more than 40% of its valueagainst the U.S. dollar.  There can be noassurance that the Central Bank will not institute a new band in the future orthat the *real* will not devaluefurther.

On January 25,1999, in the wake of the devaluation and the adoption of a floating exchangeregime, the National Monetary Council adopted Resolution No. 2588, effective asof February 1, 1999.  Pursuant to suchresolution, the Central Bank ordered the banks authorized to operate in theCommercial Market to unify their positions in the two different markets then inplace.  During the period from theunification of the banks’ positions in the Commercial Market and the FloatingMarket until the final unification of such markets into one single foreignexchange market in 2005, the exchange rates offered in both markets hadidentical pricing and liquidity.

The following tableprovides the foreign exchange rate for the purchase of U.S. dollars expressedin *reais* per U.S. dollar for theperiods and dates indicated.

|                    | ** ** | **Exchange Rates of reais per U.S.$1.00** | ** ** |
|--------------------|------------|--------------------------------------------------------------------|------------|
| ** **         | ** ** | **Low**                                                            | ** ** | **High** | ** ** | **Average(1)** | ** ** | **Period End** | ** ** |
| **Year  Ended:**   |       |                                                               |       |   |   |   |   |   |   |
|               |       |                                                               |       |   |   |   |   |   |   |
| December 31,  2002 |       | 2.2709                                                             |       | 3.9552 |   | 2.9236 |   | 3.5333 |   |
| December 31,  2003 |       | 2.8219                                                             |       | 3.6623 |   | 3.0783 |   | 2.8892 |   |
| December 31,  2004 |       | 2.6544                                                             |       | 3.2051 |   | 2.9262 |   | 2.6544 |   |
| December 31,  2005 |       | 2.1633                                                             |       | 2.7621 |   | 2.4352 |   | 2.3407 |   |
| December 31,  2006 |       | 2.0586                                                             |       | 2.3711 |   | 2.1761 |   | 2.1380 |   |
|               |       |                                                               |       |   |   |   |   |   |   |
| **Month  Ended:**  | ** ** | ** **                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|               |       |                                                               |       |   |   |   |   |   |   |
| January 31, 2007   |       | 2.1247                                                             |       | 2.1556 |   | 2.1385 |   | 2.1247 |   |
| February 28,  2007 |       | 2.0766                                                             |       | 2.1182 |   | 2.0963 |   | 2.1182 |   |
| March 31, 2007     |       | 2.0504                                                             |       | 2.1388 |   | 2.0882 |   | 2.0504 |   |
| April 30, 2007     |       | 2.0231                                                             |       | 2.0478 |   | 2.0320 |   | 2.0339 |   |
| May 31, 2007       |       | 1.9289                                                             |       | 2.0309 |   | 1.9816 |   | 1.9289 |   |
| June 30, 2007      |       | 1.9047                                                             |       | 1.9638 |   | 1.9319 |   | 1.9262 |   |

 

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(1)  Calculated as the average of the month-endexchange rates during the relevant period.

Source:Central Bank.

On July 10, 2007,the Commercial Market rate (sell) as reported by the Central Bank was R$1.8947per U.S.$1.00.

For a descriptionof certain applicable exchange controls, see Item 10, “AdditionalInformation—Exchange Controls.”  See alsoItem 3, “Key Information—Risk Factors—Factors Relating to Brazil.”

**B.  Capitalization and Indebtedness**

Not applicable.

**C.  Reasons for the Offer and Use of Proceeds**

Not applicable.

**D.  Risk Factors**

*Thefollowing discussion is based on our operations as of December 31, 2006 and isqualified in its entirety by reference to the convergence and sale agreementsentered into as of October 29, 2006, by us, TVA Sistema, Comercial Cabo TV SãoPaulo S.A ., TVA Sul Paraná S.A., Abril Comunicações (our shareholder),certain entities*

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*affiliated with AbrilComunicações and Telecomunicações de São Paulo S.A.-Telesp (an affiliate ofTelefonica, the Spanish telecommunications concern) pursuant to which, subjectto regulatory approvals and other conditions precedent, we have agreed totransfer substantially all of our operating assets to certain entitiescontrolled by Telefonica and certain affiliates of AbrilComunicações.  We expect that our grossrevenues will significantly decrease as a result of this transaction.  For more information on this transaction, seeItem 3, “Key Information—Selected Financial Data,” Item 4, “Information on theCompany*” *and note 20 to the TevecapFinancial Statements included in this Annual Report.*

Before making anyinvestment decision, investors should carefully read this entire Annual Reportand should consider carefully, in light of their own financial circumstancesand investment objectives, all the information set forth herein and, inparticular, certain matters with respect to debt securities issued by Braziliancompanies, including, without limitation, those set forth below.

**Factors Relating to the Company**

*In theevent our transaction with Telesp is consummated, substantially all of ourassets, including substantially all of the assets of the Guarantors, will betransferred to entities that are not obligors of our Senior Notes.*

OurSenior Notes are obligations of Tevecap S.A. and are guaranteed by ourGuarantors (TVA Sistema de Televisão S.A., TVA Communications Ltd.,Comercial Cabo TV São Paulo S.A., TVA Sul Paraná S.A. and CCS Camboriú CableSystem de Telecomunicações Ltda.).  Weexpect that as a result of our agreements with Telesp, substantially all of theassets of TVA Sistema de Televisão S,A., Comercial Cabo TV São Paulo S.A.and TVA Sul Paraná S.A. (other than TVA Sul Paraná’s equity interests inCCS Camboriú Cable System de Telecomunicações Ltda.), will be transferred tothe purchasers under these agreements. As a result, following the consummation of our transaction with Telesp,we expect that our gross revenues will significantly decrease, and investorswill have no recourse to the assets being transferred, or the cash flowgenerated by these assets.

*We haveincurred substantial operating losses and have a working capital deficiency.*

Since our inception in1989, we have been developing our businesses and continue to sustainsubstantial operating losses due primarily to insufficient revenue with whichto fund build-out, interest expense and charges for depreciation andamortization.  Net losses incurred havebeen funded principally by capital contributions from shareholders, borrowingsunder shareholder loans, dispositions of non-strategic assets, bank loans andother borrowings made from time to time. Our management has undertaken efforts to generate the cash flownecessary to meet our cost structure, including the sale of non-strategicassets, the reduction of indebtedness and internal cost-cutting measures.  We cannot assure that these efforts will besuccessful in the long term.

*Voice over Internet Protocol is an uncertain regulatoryarea, and changes in regulation may affect our ability to succeed in thismarket.*

Voice overInternet Protocol, or VoIP, is a new industry in Brazil, and the regulatoryenvironment with respect to this technology is still uncertain.  Changes in the regulation of our businessactivities with respect to VoIP, including decisions by regulators affectingour operations (such as the granting or renewal of licenses or decisions as tothe telephone rates we may charge our customers) or changes in interpretationsof existing regulations by courts or regulators, could adversely affect ourability to succeed in the VoIP market and hurt our financial position.  Although we have attempted to minimize thisrisk by utilizing our own SCM license and entering into a partnership with atelephony provider licensed for STFC services by the Brazilian federaltelecommunications agency (*Agência Nacionalde Telecomunicações* or ANATEL) in the provision of VoIP services,any new regulations could have a material adverse effect on the VoIP industryas a whole and on us in particular.

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*Wemust experience growth in our subscriber base in order to sustain our businessoperations and prospects.*

Over the pastthree years, we have pursued a strategy of reduction of the number ofunprofitable customers, allowing us to improve the programming and customerservice that we are able to provide to profitable customers.  In 2004 our pay television subscriber basereturned to growth, with a 3% increase during the year (7% in our cableoperations in São Paulo), while the broadband internet customer base grew by51% (71% in São Paulo).  This growthcontinued in 2005 and 2006, with a growth of 2.5% and 8.9%, respectively, inour pay television subscriber base and a growth of 47% and 38%, respectively,in our internet customer base.  In orderfor us to sustain our business operations and prospects, we must continue toexperience growth in the ensuing years. We cannot assure you that we will experience growth in our subscriberbase, or that the rate of growth will be sufficient to allow us to continue ouroperations.

*Ouractivities are extensively regulated.*

Substantially allof our business activities are regulated by ANATEL.  Such regulation relates to, among otherthings, licensing, local access to cable and MMDS systems, commercialadvertising, and foreign investment in cable and MMDS systems.  Changes in the regulation of our businessactivities, including decisions by regulators affecting our operations (such asthe granting or renewal of licenses or decisions as to the subscription rateswe may charge our customers) or changes in interpretations of existingregulations by courts or regulators, could adversely affect us.  ANATEL has the authority to grant cable andMMDS licenses pursuant to public bidding processes.  We are unable to predict what impact, if any,such public bidding will have on our ability to launch and operate newsystems.  Any new regulations could havea material adverse effect on the subscription television industry as a wholeand on us in particular.

*Wehave a high level of indebtedness and a current deficit.*

We hadapproximately U.S.$81.3 million of net consolidated indebtedness tounaffiliated third parties as of December 31, 2006.  As of the same date, we had current assets ofapproximately U.S.$138.1 million and current liabilities of approximatelyU.S.$221.8 million, resulting in negative working capital of approximatelyU.S.$83.7 million.   In the event ourtransaction with Telesp is not consummated, we may not be able to repay ourdebts, implement our business strategy or obtain financing for working capitalor investments or other purposes. Furthermore, our indebtedness may limit our ability to implementstrategies or adapt to market changes, such as downturns in economic activity,which would adversely affect our ability to face those competitors of lowerleverage, resulting in adverse effects on our financial condition and resultsof operations.

*We mayrequire additional financing, which may not be readily available whennecessary.*

If we fail to generate sufficient operating results,or if our capital needs exceed our projected capital requirements, we mayrequire substantial additional investment on a continuing basis to finance ourcorresponding capital expenditures.  Inaddition, in order to implement our business strategies, we may requiresubstantial additional capital to acquire new pay television licenses orentities holding such licenses, or to make any investments in or acquire otherexisting pay television operations. Also, our future cash requirements may increase as a result ofunexpected developments in the Brazilian pay television or broadband internetmarkets and the amount and timing of our future capital requirements willdepend on a number of factors, many of which are not within our control,including subscriber growth and retention, capital costs, currency devaluation,regulatory changes and competitive conditions. Our failure to obtain any needed financing in the future may adverselyaffect our financial condition and results of operations.

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*Ourdebt obligations are subject to foreign exchange risk.*

A significant portion ofour debt obligations (i.e., our senior notes) are denominated in U.S. dollars,while we generate revenues only in Brazilian *reais.*  We also incur a significant portion of ourprogramming costs in U.S. dollars. Consequently, a significant devaluation of the *real* against the U.S. dollar cansignificantly affect our ability to meet our obligations and fund our capitalexpenditures, and could adversely affect our results of operations.  In addition, shifts in currency exchangerates may have a material adverse effect on us and may force us to seekadditional capital, which may not be available to us.  While we may consider entering intotransactions to hedge or otherwise share with programmers the risk of exchangerate fluctuations, it may not be possible for us to obtain such arrangements oncommercially satisfactory terms.

*Tevecap has limited assets and depends on its subsidiariesto repay indebtedness.*

Tevecap’soperations are conducted through, and substantially all of Tevecap’s assets areowned by, Tevecap’s direct and indirect subsidiaries.  In the event our transaction with Telesp isnot consummated, the ability of Tevecap to meet its obligations in respect ofits indebtedness, including the Senior notes, will depend on, among otherthings, the future performance of such subsidiaries (including the Guarantors)and the ability of Tevecap to refinance such indebtedness at maturity (or uponearly redemption or otherwise).  Inaddition, the ability of Tevecap’s subsidiaries to pay dividends and make otherpayments to Tevecap may be restricted by, among other things, applicablecorporate and other laws and regulations and by the terms of agreements to whichsuch subsidiaries may become subject.  Inparticular, Brazilian companies are allowed to distribute dividends only if,after a given fiscal year, their net profits exceed accumulated losses.  In addition, the property and assets(including receivables) of certain of Tevecap’s subsidiaries have, and may inthe future have, liens placed upon them pursuant to existing and futurefinancings.

*Becausewe have engaged in a significant number of related party transactions, ourfinancial statements may not be truly representative of our financial position.*

We have engaged ina significant number and variety of related party transactions, including,without limitation, transactions with respect to administrative services,including payroll, human resources, accounting, tax, finance and legalservices; publishing and advertising; financing transactions; andlicenses.  Although we believe suchtransactions are conducted on an arm’s-length basis, we have not performed anystudies or analyses to determine whether the terms of past transactions withrelated parties have been equivalent to arm’s-length transactions and cannotstate with any certainty the extent to which such transactions are comparableto those which might have been obtained from a non-affiliated third party.  If we were to be unable to obtain theseservices from our affiliates, our financial position may be adversely orpositively affected.

*Wemay experience high churn rates among our pay television and internetsubscribers.*

Our ability to generatepay television and broadband internet subscription revenues is dependent on ourattraction and retention of subscribers, which requires us to incur acquisitionand installation costs, including sales commissions, marketing costs andequipment installation costs.  Ourability to recover these costs requires us to retain our clients as subscribersof our services.

High rates ofsubscriber churn could have a material adverse effect on our revenues andprofitability given the costs that we incur to attract each new subscriber.  We may experience high churn rates in thefuture and we cannot assure you that we will experience growth in oursubscriber base that will offset subscriber customer churn rates.  If this occurs, our financial condition andresults of operations may be adversely affected.

*We face significant competition inthe pay television and broadband internet industries.*

The pay television industry and broadband internetsegment in Brazil are, and are expected to continue to be, highlycompetitive.  New competitors may emergeas a result of changing technology, changes in regulations governing the paytelevision and high-speed data industries or as a result of new licensesgranted by ANATEL in markets in which we currently operate.  Similarly, if we expand into additionalservices, we will face competition from other service providers.

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For pay television services, we primarily compete withother main pay television service providers in the markets in which we operate,as well as with satellite direct-to-home, or DTH, service providers andBrazilian broadcast networks and their local affiliates.  For broadband internet services, we competewith fixed line telephony carriers that provide digital subscriber line, orDSL, service, a technology that transmits data through copper lines used intelephone networks, and with other dial-up internet service providers.  For pay television and broadband internetservices, cable and MMDS services, we compete indirectly with movie theatersand video rental stores, as well as with other entertainment and leisureactivities.

For VoIP services, we presently compete with fixedline telephony carriers, including *Telecomunicaçõesde São Paulo S.A. – Telesp* in the State of São Paulo and *Telemar Norte Leste S.A*. in the State ofRio de Janeiro, in addition to other pay television and broadband internetservice providers.

Some of our competitors have greater financialresources than we do.  In addition,further consolidation among our competitors may increase the economies of scaleof certain of our competitors.  As aresult, we cannot assure you that we will be able to compete successfully,which could adversely affect our business and results of operations.

*Existing and future technologicaldevelopments may allow new competitors to emerge.*

Technology in the communications industry is subjectto rapid and significant change. Technological advances could require us to expend substantial financialresources to develop or implement new technologies or to upgrade our existingequipment in order to ensure that our existing equipment and services do notbecome obsolete.  We may not havesufficient financial resources to fund new technology or access newresources.  Our failure to introduce newtechnology and services as rapidly as those of our competitors could adverselyaffect our financial condition and results of operations.

We have upgradedour cable and MMDS systems to offer digital services and believe that, for theforeseeable future, existing and developing alternative technologies will notmaterially adversely affect the viability or competitiveness of our paytelevision business.  Although we believethat our recently implemented technological changes have produced and willcontinue to produce positive results, future technological advances may requireus to expend substantial financial resources in the development orimplementation of new competitive technologies.

*We maybe subject to substantial additional taxes or obligations.*

We may be subject to substantial additional taxes onour network, the most significant of which is a charge (*preço público* or *tarifa)* on the use of public thoroughfares(which includes the installation and passage of cables, as well as the use ofsoil, subsoil and aerial space) which has been approved by several Brazilianmunicipalities.  This tax is assessed permeter of cable installed in the relevant municipality, with the tax ratevarying widely by municipality.  We haveover 4,394 kilometers of installed cable in municipalities that have approvedthis tax.  We have challenged theapplication of this tax and have not made any judicial deposits or provisionsfor our payment based on the favorable opinion of our lawyers as to the meritsof the challenge.  In a related lawsuit,the Brazilian Superior Court of Justice (*SuperiorTribunal de Justiça*) recently ruled that municipalities do not havethe power to create charges or taxes on the use of public thoroughfares.

In addition, the Brazilian Superior Court of Justicerecently judged that internet service is not a communication service, andtherefore, is not subject to state value-added tax (*Imposto sobre a Circulação de Mercadorias e Serviços* orICMS).  If this decision is confirmed, itmay result in our being subject to municipal services tax (*Imposto sobre Serviços de Qualquer Natureza*orISS) taxation at a rate of 5.0% on our gross revenues, for as long as internetservices are included on a list of services under Supplementary Law No.116/03.  On the other hand, if internetservices are deemed to be a type of communication services, these activitieswould be subject to ICMS taxation, with a rate that is currently reduced.  If we become subject to increased taxobligations as a result of the taxes described above or otherwise, ourfinancial condition and results of operations may be adversely affected.

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*We may have to remove our aerialcables and transfer them underground.*

The municipalities in which we operate may require usto remove our aerial cables and transfer them underground.  In July 2005, the municipality of São Pauloenacted Municipal Law No. 14,023, requiring that all cables and wire (includingthe electricity, telecommunications and pay television cables) poles betransferred underground to the extent of 250 kilometers per year.   This law was followed by a regulatory decreestipulating that the burying costs should be borne entirely by the owners ofsuch cable and wire networks.  TVA andother telecommunications and electricity companies intend to challenge, administrativelyor judicially, as the case may be, the validity of this decree.  Currently, all of our cable network in SãoPaulo is installed through aerial poles. In addition, we cannot assure that other municipalities in which weoperate will not enact similar laws.  Ifwe are required to transfer a significant portion of our cables underground,our financial condition and results of operations may be adversely affected.

**FactorsRelating to Brazil**

*TheBrazilian government has exercised, and continues to exercise, significantinfluence over the Brazilian economy.*

Sincesubstantially all of our operations and customers are located in Brazil, ourfinancial condition and results of operations are substantially dependent onBrazil’s economy and may be negatively affected as a result of the interventionby the Brazilian government in the economy.

The Brazilianeconomy has been characterized by significant volatility and by frequent andsignificant interventions by the Brazilian government.  During the 1980s and the beginning of the1990s, in response to periods of high inflation, recession and fiscalimbalances, the Brazilian government often changed monetary, tax, credit,tariff and other policies to influence the course of Brazil’s economy.  Governmental actions to control inflation andimplement other policies have, at times, involved wage and price controls aswell as other interventionist measures, such as raising interest rates,freezing bank accounts, imposing capital controls and inhibiting internationaltrade in Brazil.  Changes in policyinvolving tariffs, exchange controls, regulation and taxation could adverselyaffect our business and financial results, as could inflation, currencydevaluation, social unrest and other political, economic or diplomaticdevelopments, and the Brazilian government’s response to suchdevelopments.  In particular, a number ofmembers of the Brazilian Congress and the administration of President LuizInácio Lula da Silva are presently under investigation regarding allegations ofcorruption.  In October 2006, presidentialelections were held and President da Silva was re-elected.  We cannot predict what policies will bemaintained or adopted by the Brazilian government and whether these policieswill negatively affect the Brazilian economy or our results of operations.

Governmentintervention in the Brazilian economy may increase our costs and restrict ourcapacity to conduct our business as presently being conducted.  Moreover, social, political or economicdevelopments resulting from the Brazilian government’s imposition of neweconomic policies, or the Brazilian government’s response to thosedevelopments, could also adversely affect our operations.

*Brazilian political and economic conditions have beenunstable in the past.*

The Braziliangovernment’s political and economic policies may have important effects onBrazilian corporations and other entities, including us, and on marketconditions and prices of Brazilian securities. Our financial condition and results of operations may be adverselyaffected by the following factors and the Brazilian government’s response tothese factors:

·             devaluationsand other exchange rate movements;

·             inflation;

·             exchangecontrol policies;

·             socialinstability;

·             priceinstability;

·             energyshortages;

·             interestrates;

·             liquidityof domestic capital and lending markets;

 

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·             taxpolicy; and

·             otherpolitical, diplomatic, social and economic developments in or affecting Brazil.

 

*The Brazilian currency has fluctuated significantly inthe past.*

The Brazilian currency has been devalued repeatedlyduring the last four decades primarily as a result of inflationarypressures.  Throughout this period, theBrazilian government has implemented various economic plans and utilized anumber of exchange rate policies, including sudden devaluations, periodicmini-devaluations (with the frequency of adjustments ranging from daily tomonthly), floating exchange rate systems, exchange controls and dual exchangerate markets.  Although over long periodsof time devaluations of the Brazilian currency generally have correlated withthe rate of inflation in Brazil, such governmental actions over shorter periodshave resulted in significant fluctuations in the *real* exchange rate between the Brazilian currency and theU.S. dollar.

The exchange rate betweenthe *real* and the U.S. dollar, therelative rates of real devaluation and the prevailing rates of inflation haveaffected our financial results and may continue to do so in the future.  A substantial portion of our indebtedness andsome of our operating expenses and capital expenditures are, and are expectedto continue to be, denominated in or indexed to the U.S. dollar and otherforeign currencies.  See Item 3, “KeyInformation—Selected Financial Data—Exchange Rates.”

Devaluations of the *real* relative to the U.S. dollar alsocreate additional inflationary pressures in Brazil that may negatively affectus.  In addition, a significantdevaluation generally results in a curtailment of access to foreign financialmarkets for Brazilian issuers and can lead to government intervention,including recessionary government policies.

*The Brazilian economy has experienced extremeinflation in the past.*

Until mid-1994 Brazilexperienced extremely high rates of inflation, with annual rates of inflationreaching as high as 2,708.6% in 1993 and 909.61% in 1994, as measured by theGeneral Price Index—Domestic Availability (*ÍndiceGeral de Preços Disponibilidade Interna*, or the IGP-DI).  Inflation contributed materially to economicuncertainty in Brazil and to heightened volatility in the Brazilian securitiesmarkets.

After the introduction ofthe *Real* Plan in 1994, the rateof inflation as measured by the IGP-DI fell steadily to 1.71% in 1998.  Inflation increased to 19.98% in 1999 as aresult of the devaluation of the real in January 1999, decreased to 9.81% for2000, and reached 10.40% in 2001 and 26.41% in 2002.  In 2003, 2004, 2005 and 2006 the annualinflation rate was 7.7%, 12.1%, 1.2% and 3.79%, respectively.  Inflation itself and governmental actionstaken to combat inflation have in the past had significant negative effects onthe Brazilian economy.  Inflation,actions taken to combat inflation and public speculation about possible futureactions have also contributed to economic uncertainty in Brazil and heightenedvolatility in the Brazilian securities markets. In an effort to control the inflationary pressures derived from thedevaluation of the *real*, theBrazilian government has taken deflationary actions, such as raising interestrates and imposing credit restrictions, which are highly unpopular and may beunsustainable for long periods of time. Periods of substantial inflation may in the future have material adverseeffects on the Brazilian economy, the Brazilian market for televisionadvertising and on our business, condition (financial or other), properties,prospects and results of operations.

*Theavailability of credit in the Brazilian market may be limited by externalevents.*

A number ofdevelopments or conditions have significantly affected the availability ofcredit in the Brazilian economy. External events have from time to time resulted in considerable outflowsof funds and declines in the amount of foreign currency invested inBrazil.  Such events include thedevaluation of the Mexican peso in December 1994, the Asian economic crisis of1997, the Russian currency crisis of 1998, the currency instability that Brazilfaced in 1999, and the recent recession in Argentina.  To defend the *real* during such events and to control inflation, theBrazilian government has maintained a tight monetary policy, with associatedhigh interest rates, and has constrained the growth of credit.  It is uncertain whether these disruptions inthe Brazilian economy will adversely affect our financial condition or resultsof operations.

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*The Brazilian government has enacted tax and socialsecurity reforms in the past.*

To implement its fiscalpolicies, the Brazilian government regularly enacts reforms to the tax andother assessment regimes to which we are subject.  These reforms include the enactment of newtaxes or assessments, changes in the bases of calculation or rates ofassessment and, occasionally, enactment of temporary taxes, the proceeds ofwhich are earmarked for designated governmental purposes.  The effects of these changes and any otherchanges that could result from enactment of additional tax reforms cannot bequantified but may reduce our volume of transactions, increase our costs orlimit our profitability.  There can be noassurance that these changes will occur in the future.  If these changes do occur, they may adverselyaffect our operations or financial condition.

President da Silva’scoalition controls less than a majority of the Senate and less than the 60%required in each house to approve constitutional amendments.  President da Silva’s success in enacting hisinitiatives will, therefore, depend on his ability to form and maintainalliances with other major parties in the Brazilian Congress.  The success of President da Silva’s initiativeswill also be influenced by public opinion toward the reforms and the strengthof any opposition to the reforms by affected interest groups.  If the reforms are not approved by theCongress, Brazil’s economic growth may be impeded, which in turn could have anegative impact on our business.

*The Brazilian currency is subject to exchange controlsand restrictions.*

The purchase and sale offoreign currency in Brazil is subject to governmental control through theCentral Bank.  Brazilian law providesthat, in the event of a serious imbalance in Brazil’s balance of payments or aforeseeable likelihood of such an imbalance, the Brazilian government may, fora limited period of time, impose restrictions on the remittance of foreigncurrency and on the conversion of Brazilian currency into foreign currencies.  Brazil has not restricted the remittance offoreign currency since 1990.  However, noassurance can be given that such measures, which could affect our ability to makeprincipal and interest payments with respect to the Senior notes will not beinstituted in the future.

Many factors beyond ourcontrol could affect the likelihood of the Brazilian government imposingexchange control restrictions.  Amongthese factors are:

·                  thelevel of Brazil’s foreign currency reserves;

·                  theavailability of sufficient foreign exchange on the date a payment is due;

·                  thesize of Brazil’s debt service burden relative to the economy as a whole; and

·                  politicalconstraints to which Brazil may be subject.

**ITEM4.  INFORMATION ON THE COMPANY**

*Thefollowing discussion is based on our operations as of December 31, 2006 and isqualified in its entirety by the following information:*

On October 29,2006, we, TVA Sistema, Comercial Cabo TV São Paulo S.A., TVA Sul ParanáS.A., Abril Comunicações (our shareholder) and certain entities affiliatedwith Abril Comunicações entered into certain convergence and saleagreements with Telecomunicações de São Paulo S.A.-Telesp (an affiliate ofTelefonica, the Spanish telecommunications concern), including an interimoperating agreement for the period up to the approval of the transaction. Underthese agreements, we expect to transfer all of our MMDS licenses and operationsto a company to be owned by Telesp and to transfer our Cable operations andlicenses (other than those related to CCS Camboriú Cable System deTelecomunicações Ltda., a Cable operator in the city of Camboriú, in which wehold a 60% equity interest) to certain entities to be owned by a joint venturecompany formed between Telesp and certain affiliates of Abril Comunicações.The transaction was structured such that upon consummation Telesp will becomethe owner of a minority stake in the Cable entities, within the limits setforth in applicable regulations and in Telesp’s concession agreement fortelephony services, while certain affiliates of Abril Comunicações willcontinue to have a majority stake in the Cable entities. We may also transferCCS Camboriú under the agreements described above if we are able to reach anagreement with our minority shareholder in CCS Camboriú regarding suchtransfer.  The disposition of assetsunder these agreements is not expected to result in a loss to us.

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The closing of thetransaction described above is subject to regulatory approvals and certainother conditions precedent, including: (i) prior approval of ANATEL (the Brazilian National TelecommunicationsAgency) and (ii) the implementation of a corporate reorganization in order totransfer all target assets free and clear of encumbrances.  In addition, the transaction is also subjectto the analysis of CADE (the Brazilian Administrative Council for EconomicDefense), Brazil’s federal antitrust authority.  Our agreements with Telesp provide that Telespand Tevecap will begin to jointly market their telephony, pay television and/orbroadband internet and pay television services during the approval processperiod.

In addition, underour agreements with Telesp, we and our parent company, Abril Comunicações S.A.,have assumed responsibility for potential contingencies that may arise afterthe sale of the operations described above relating to periods prior to theconsummation of the sale.

On December 28,2006, Telesp made an advance payment to us in the amount of U.S.$93.5 million(R$200.0 million).  In addition, Telesphas granted us a line of credit of up to U.S.$52.6 million (R$112.5 million)for capital expenditure purposes, of which we have already borrowed U.S.$38.4million (R$82.0 million) as of June 30, 2007. In the event the transaction does not close, we are obligated to returnby April 30, 2008 the advance payment and any amounts borrowed under the lineof credit together with, in each case, interest accrued thereon at the rate of103% of the CDI rate (the interbank certificate of deposit rate in Brazil) fromthe date of the determination that the transaction will not close.  Our obligation to repay these amounts wasguaranteed by a pledge of our Cable and MMDS networks.  In addition, our operating agreements withTelesp will terminate on July 31, 2007 in the event the transaction does notclose.

The Senior Notesare not being transferred under the above agreements and will remainobligations of ours following the corporate reorganization of the Abril groupmentioned above, together with the following liabilities:  (i) U.S.$119.1 million in obligations with respect to transactionswith related companies (see note 6 to the Tevecap Financial Statements), (ii)U.S.$31.2 million in provisions for fiscal contingencies (see note 17 to theTevecap Financial Statements) and (iii) US$59.5 million in deferred taxliabilities (see note 7.2 to the Tevecap Financial Statements).

Our direct andindirect subsidiaries TVA Sistema de Televisão S.A., TVA Communications Ltd.,Comercial Cabo TV São Paulo Ltda., TVA Sul Paraná Ltda. and CCS Camboriú CableSystem de Telecomunicações Ltda. are Guarantors of our Senior Notes.  We expect that as a result of our transactionwith Telesp, substantially all of the assets of TVA Sistema de Televisão S,A.,Comercial Cabo TV São Paulo S.A. and TVA Sul Paraná S.A. (other than TVASul Paraná’s equity interests in CCS Camboriú Cable System de TelecomunicaçõesLtda.), will be transferred to the purchasers under the above agreements,although Comercial Cabo TV São Paulo S.A. and TVA Sul Paraná S.A. will notcontinue to be Guarantors under the Senior Notes.  Our management is analyzing the effects of thetransaction as a whole on the Senior Notes and firmly expects that, followingthe consummation of the transaction, we will continue to honor our paymentobligations under the Senior Notes.

For more information in respect of the assets and liabilities beingtransferred under our agreements with Telesp, please refer to Item 3, “KeyInformation—Selected Financial Data” and note 20 to the Tevecap Financial Statements included in thisAnnual Report.

**A.  History and Development**

We areone of the major multiservice telecommunications operators in Brazil.  We provide the following services to oursubscribers:

·                  pay television services (through digital and analog MMDS andcable technologies);

·                  broadband internet services; and

·                  VoIP and other telecommunications services.

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In1991 we launched the first pay television service in Brazil and, in 1999,became the first high speed internet services provider in Brazil under the name*Ajato. *Today *Ajato*offers broadband internet access and Editora Abril content to residential andcorporate subscribers.  In 2004 we becamethe first Brazilian pay television operator to offer digital services bylaunching *TVA Digital*, ourdigital pay television service, to our cable subscribers in São Paulo.  In 2005 we digitalized our MMDS network inSão Paulo, which permitted the supply of digital service to the city’s entiremetropolitan region.  In February andApril 2007 we also digitalized our MMDS networks in Rio de Janeiro andCuritiba, respectively.

Withthe launching of *TVA Voz* (“TVAVoice,” a VoIP service) in 2005, we became the first “triple-play” operator inthe Brazilian market, offering pay television, broadband internet and voiceservices.  In 2005 we also became thefirst Brazilian pay television operator to offer digital video recorder (DVR)service, which is a first step towards the launch of video-on-demand (VOD)services for our digital TVA subscribers. Being the triple-play pioneer in Brazil strengthens our reputation as aninnovator in the segments in which we operate.

Interms of number of subscribers, according to Pay TV Survey, as of December 31,2006 we were among the largest terrestrial pay television companies and digitaltelevision operators in Brazil, and one of the main broadband internetproviders in the country.

Throughour digital and analog MMDS and cable networks, we serve both residential andcorporate customers.  We offer servicesin seven cities (São Paulo, Rio de Janeiro, Curitiba, Porto Alegre, Foz doIguaçu, Florianópolis and Balneário Camboriú), with a total population ofapproximately 26.9 million people as of December 31, 2006.  In Balneário Camboriú, we are the onlyterrestrial pay television operator. According to IBGE statistics, the States of São Paulo, Rio de Janeiroand Paraná (the capital of which is Curitiba) alone represented approximately51% of Brazil’s GDP in 2004.  Residentsof these areas have substantially higher average household income, *per capita*consumption and receptivity toproducts with technological innovations than the respective nationalaverages.  In addition, the populationdensity in these states is substantially higher than the national average andhas a higher concentration of classes with greater purchasing power.  Thus, we believe we are active in the largestand most attractive markets in Brazil.

From2001 to 2003 we implemented a strategic and financial restructuring, followingwhich we significantly improved our results, increased our profitability andsubscriber base and created a new business model with the launch of newproducts and services focused on the triple-play concept.

Webelieve that the profitability of our operations in São Paulo, where we operatein the triple play business model, is in line with benchmarks worldwide.  With the recent digitalization of MMDSnetworks in Rio de Janeiro and Curitiba (and the expected digitalization of ourMMDS network in Porto Alegre, where we expect to roll out services in the nearfuture), we expect significant improvements in our profitability through ouroffer of bundled services and new products to our subscriber base.

Webelieve that there is high potential for growth in the markets in which weoperate because, with the digitalization of our MMDS network in São Paulo(2005), Rio de Janeiro (2007) and Curitiba (2007), we will have a highlycompetitive product in metropolitan areas with more than 4.5 million class ABChouseholds, of which more than 3.2 million did not have pay television servicesas of December 31, 2006. In addition, when compared with cable, our MMDSnetwork requires lower infrastructure development and operating costs, whileallowing us to supply the same services as cable, plus mobile services.

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The chart below shows theevolution of our subscriber base in each of the services that we provide:

Webelieve the increase in our subscriber base and profitability is due in largepart to the flexibility of options we offer to our subscriber base and ourdedication to customer service.  We takea long-term approach to our relations with our subscribers by offering bundledvideo, voice and data services, with a wide variety of pricing options.

Wehope to expand our portfolio of innovative and quality products and serviceswith WiMAX technology, which will add restricted portability and mobility toour video, data and voice services.  In2006 we tested WiMAX technology in São Paulo, thereby becoming the firstcompany to conduct such tests in Latin America using the IEEE standard 802.16e,which allows the offer of fixed access broadband service with wirelesstechnology.

Webelieve that MMDS has gained increasing importance as a distribution platform.Our digital MMDS network, together with the use of WiMAX technology, makes itpossible to add portability and restricted mobility to the video, voice anddata services we already offer.  Thisshould provide a new experience and entertainment concept for our subscribers,as we will be able to offer access to our content in different platforms andterminals (“anytime, anywhere, any device”). This development of our business model will expand the market ofconsumers for our services beyond households as a whole and into differentconsumers in each household.  We alsobelieve that there are significant barriers to entry for new service providersin this segment, including regulatory issues (such as the limited MMDS radiofrequencyspectrum available to new providers, especially in São Paulo and Rio deJaneiro, where we hold concessions for the entire MMDS spectrum.

Throughour cable and MMDS licenses, we are able to provide multiservices in our majormarkets until the expiration date of these licenses.  We believe that, as we use the MMDS spectrumin an efficient manner, and satisfy other applicable requirements, we willobtain the renewal of each of our licenses for a further 15 years.  In 2006, we requested renewal of our MMDSlicenses (which presently expire in 2009) by ANATEL, together with thepermission to supply wireless multiservices with portability and restrictedmobility in the 2.5GHZ band of the MMDS spectrum.  To date there has been no final decision ofANATEL on the renewal of our MMDS licenses. With the renewal of these MMDS licenses, we expect to obtain the firstwireless multiservices license in Brazil.

Asof December 31, 2003, we also held a minority interest in several companiesknown as “Canbras TVA”, which collectively provided cable television servicesto an additional 19 cities in southern Brazil with a total population of 2.9million.  In October 2003, we entered into an agreement to sell our entireequity interest in each of the Canbras TVA companies to Horizon Cablevision doBrasil S.A.  The federal Agência Nacional de Telecomunicações (BrazilianTelecommunications Agency, or ANATEL) approved this sale on June 16, 2004,and all other conditions precedent to the closing of the sale were waived bythe parties during the first half of 2004.  Abril Comunicações S.A., ourmain shareholder, received the entire proceeds of the sale in the amount ofUS$5.5 million, for which we recognized a shareholders’receivable.  In addition, upon the consummation of this sale, we andthe Canbras TVA companies terminated our Association Agreement, dated June 14,1995.

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Duringthe three years ended December 31, 2006, we incurred capital expenditures of$82.0 million, primarily in connection with the purchase of reception equipment,converters for installation throughout our cable and MMDS systems, otherequipment required to upgrade our cable and MMDS networks (including theintroduction of digital services in São Paulo) and the increase of our paytelevision and internet subscriber base.  We estimate that approximately$85.0 million will be required in 2007, principally in connection with thepurchase of installation materials and equipment, technological upgrades(including the introduction of digital services in Rio de Janeiro) and theincrease of our pay television and internet subscriber base.  We estimatethat approximately 85% of these investments are variable (due to growth of thesubscriber base and Churn replacement) and that the payback for suchinvestments will occur within a six-month period (for analog services andbroadband internet services) or a 12 to 15-month period (for digital services).

OnOctober 29, 2006 we, TVA Sistema, Comercial Cabo TV São Paulo S.A., TVASul Paraná S.A., Abril Comunicações (our shareholder) and certain entitiesaffiliated with Abril Comunicações entered into certain convergence andsale agreements with Telecomunicações de São Paulo S.A.-Telesp (an affiliate ofTelefonica, the Spanish telecommunications concern), as described above.  For more information on this transaction, seeItem 3, “Key Information—Selected Financial Data” and note 20 to the TevecapFinancial Statements included in this Annual Report.

TevecapS.A. is a corporation of unlimited duration under the laws of the FederativeRepublic of Brazil.  Our registered office is located at Av. dasNações Unidas, 7221 - 7o andar, São Paulo, 05425-902 SP, Brazil (telephone:+55-11-3037-5127).

**B.Business Overview**

**OurStrategy**

Ourbusiness strategy is focused on creating long-term relationships with ourcustomers by offering quality programming and multiple communications servicesfor all age groups.  We are taking advantage of technologicaldevelopments to use our core cable and MMDS infrastructure to provide highspeed data transmission, interactive services and other telecommunicationsservices and expect to take advantage of possible deregulation and the growingdemand for these services in Brazil.  We were the first company in Brazilto provide customers with a single source of “triple-play” (video, data andvoice) multimedia services, and through the development of our WiMAX serviceswe expect to become the first company in Brazil to provide a single source of “quadruple-play”(video, data, voice and portability) services.

**TheBrazilian Pay Television Market**

Brazil is the largest television and video market in Latin America withan estimated 51.8 million TV Homes which, as of December 31, 2006, watched onaverage approximately 3.4 hours of television per day.  In residences thathave access to free television, pay television, Internet services, newspapersand magazines, pay television is the leader in terms of share of time, with a24% share, in spite of its relatively recent entry into the market. Approximately 11 million television sets (10.5 million common television setsand 350,000 plasma and LCD television sets) and 8 million DVD players were soldin Brazil in 2006.

The pay television industry in Brazil began in 1989 with thecommencement by TVA of UHF service in São Paulo (which was followed by theintroduction by TVA of MMDS services in São Paulo in 1991).  As of December 31, 2006, there were anestimated 4.5 million pay television subscribers, representing approximately8.8% of Brazilian TV Homes.  By comparison, as of December 31, 2006, 75%of TV Homes in Argentina, 18.9% of TV Homes in Mexico and 82% of TV Homes inthe United States of America subscribed to pay television.  Managementbelieves that the number of pay television subscribers in Brazil will continueto grow as pay television reaches more households both through the expansion ofexisting and new MMDS and cable systems and through development of nationwideKu-Band transmission systems.  In addition, management expects that thepay television industry in Brazil will undergo a period of consolidation in thenear future due to the failure of the industry to grow as expected since itsinception and the need by pay television companies to increase numbers ofsubscribers and revenue in order to reach or maintain profitability.

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**OurServices**

***Pay television***

We offer diverse pay television and video services,catering to various audiences in a flexible manner.  We deliver these services through digital andanalog MMDS and cable distribution networks.

The following table sets forth information regardingthe markets in which we operate pay television systems and distributeprogramming, as of December 31, 2006:
| ** **                             | ** ** | **Service Launch  Date** | ** ** | **TV  Homes(a)** | ** ** | **Class ABC  TV  Homes(a)** | ** ** | **Subscribers** | ** ** | **Average Revenue  per Month per  Subscriber** | ** ** | **Pay Television  Programming  Channels  Offered** | ** **              |
|----------------------------------------|------------|-------------------------------|------------|------------------|------------|----------------------------------|------------|-----------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------|-------------------------|
| **MMDS:**                              | ** ** | ** **                    | ** ** | ** **       | ** ** | ** **                       | ** ** | ** **      | ** ** | ** **                                                    | ** ** | ** **                                              | ** **              |
|                                   |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |
| TVA Sistema                            |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |
| São Paulo  (digital & analog) |       | September

1991               |       | 3,042,126        |       | 2,472,619                        |       | 51,530          |       | U.S.$                                                         | 44.49      |                                                    | 10 analog/

108 digital |   |
| Rio de Janeiro                         |       | March  1992                   |       | 1,193,311        |       | 1,618,809                        |       | 64,821          |       | U.S.$                                                         | 35.36      |                                                    | 29                      |   |
|                                   |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| TVA Sul                                |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| Curitiba                               |       | March  1992                   |       | 542,620          |       | 445,826                          |       | 4,948           |       | U.S.$                                                         | 25.69      |                                                    | 15                      |   |
|                                   |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| **Cable(b):**                          | ** ** | ** **                    | ** ** | ** **       | ** ** | ** **                       | ** ** | ** **      | ** ** | ** **                                                    | ** ** | ** **                                              | ** **              | ** ** |
|                                   |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| TVA Sistema                            |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| São Paulo  (analog & digital) |       | October 1994                  |       | 3,042,126        |       | 2,472,619                        |       | 157,724         |       | U.S.$                                                         | 40.57      |                                                    | 69 analog/  108 digital |   |
|                                   |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
|                                   |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| TVA Sul                                |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| Curitiba                               |       | January  1995                 |       | 542,620          |       | 445,826                          |       | 22,575          |       | U.S.$                                                         | 38.07      |                                                    | 69                      |   |
| Camboriú                          |       | June  1996                    |       | 32,008           |       | 26,863                           |       | 11,330          |       | U.S.$                                                         | 37.71      |                                                    | 61                      |   |
| Foz do Iguaçu                     |       | June  1996                    |       | 85,475           |       | 65,043                           |       | 7,950           |       | U.S.$                                                         | 26.77      |                                                    | 66                      |   |
| Florianópolis                     |       | September  1996               |       | 127,526          |       | 107,707                          |       | 6,402           |       | U.S.$                                                         | 34.10      |                                                    | 63                      |   |
|                                   |       |                          |       |             |       |                             |       |            |       |                                                          |       |                                                    |                    |   |
| Total MMDS and Cable  Subscribers      |       |                          |       |             |       |                             |       | 327,280         |       |                                                          |       |                                                    |                    |   |
| Subscribers Awaiting  Installation     |       |                          |       |             |       |                             |       | 1,004           |       |                                                          |       |                                                    |                    |   |
| Total Subscribers                      |       |                          |       |             |       |                             |       | 328,284         |       |                                                          |       |                                                    |                    |   |

 

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(a)          Thisdata is based on information provided by Pay TV Survey and IBGE.

(b)         TVA’scable systems in São Paulo, Curitiba, Camboriú, Foz do Iguaçú and Florianópolishave approximately 668,191, 201,615, 19,890, 18,060 and 29,822 Homes Passed,respectively, as of December 31, 2006.

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*MMDS*

We operate Brazil’slargest MMDS network and serve the country’s major metropolitan areas.  Weown four MMDS licenses and operate MMDS systems in São Paulo, Rio de Janeiro,Curitiba and Porto Alegre, which have an aggregate population of approximately26.1 million.  As of December 31, 2006, we served 121,299 MMDS subscribersin these cities.  All of our MMDS systems use addressable converters,which allow us to offer tiered pricing options that allow us to attract newcustomers, retain existing customers and reduce Churn.

In2005 we launched our digital MMDS service in São Paulo.  Our digital MMDS service offers 108 paytelevision channels plus 20 audio channels. Our analog MMDS systems offer 10analog channels in São Paulo and 29 analog channels in Rio de Janeiro, althoughin the São Paulo and Rio de Janeiro metropolitan areas our concession permitsus to use all 31 frequencies currently available in these markets.

MMDSsystems are typically easier to deploy and require relatively little capitalinvestment for construction and maintenance as compared to cable systems. Content is broadcast by signals through the air from microwave transmitters toa small receiving antenna located at a subscriber’s home or dwellingunit.  At the subscriber’s location, the microwave signals are convertedto frequencies that can pass through a conventional coaxial cable into adecoder located near a television set.

Inaccordance with Brazilian regulations, each MMDS license allows an MMDSoperator to provide service to households in a circular area within a radius of35 kilometers, expandable to 50 kilometers, depending on operator’s technicalcapability and viable economic business models.  Tall buildings and othertall structures may block reception of MMDS signals, although we areexperimenting transmissions with NLOS (non-line of sight) MMDS technology thatwould avoid such blockages and allow us to defer costly investments, inparticular for Internet services.

Since 2000 we havealso had ANATEL authorization to utilize, under our MMDS licenses, thefrequencies corresponding to the return channels of our MMDS systems in SãoPaulo and Rio de Janeiro.  We use these frequencies, which range from 2170to 2182 MHz, to provide bi-directional broadband Internet services.

*Cable*

Throughour subsidiaries TVA Sistema, Comercial Cabo TV São Paulo S.A., CCS CamboriúCable System de Televisão Ltda. and TVA Sul,, we own five cable licenses andoperate cable systems in São Paulo, Curitiba, Camboriú, Florianópolis and Fozdo Iguaçú, which have an aggregate population of approximately 15.9million.  As of December 31, 2006, weserved 205,981 cable subscribers in these cities.  Our cable systems usefully addressable converters in São Paulo and Curitiba (85% of our cablesubscriber base), which allow the provision of pay-per-view services and enableTVA to upgrade, downgrade or disconnect a subscriber’s service from the headendon short notice.

In2004 we launched our digital cable service in São Paulo.  Our digital cable service offers 108 paytelevision channels plus 20 audio channels. We currently offer between 61 to 69 analog channels of programming(including off-air channels) on our cable systems, depending on the market, andhave the capability of offering up to 77 analog and digital channels using upto 550 MHz and 110 analog and digital channels using up to 750 MHz.  In 2006 the number of net subscribers grew byapproximately 40%.  Following arestructuring period, during which we eliminated unprofitable subscribers, ourcable subscriptions have grown at a profitable and sustainable pace.

Cableservice involves a broadband network employing radio frequency transmissionthrough coaxial and/or fiber optic cable.  Cable systems consist of fourmajor parts: a headend, a distribution network, a subscriber network and ahouse terminal.  The content is collected from providers in the headend,then processed and fed into the distribution path (trunk and distributioncable), which consists of coaxial and/or fiber optic cables.  The signalis then fed into a subscriber network that is either located in an apartmentbuilding or a subscriber’s house.  Most of our cable systems areconstructed with 750 MHz bandwidth capacity, which allow a larger datatransmission as compared to other Brazilian operators and enables us to provideinteractive services, including Internet and telecommunications services. In São Paulo, our entire network is constructed with 750 MHz capacity. Those systems that are not constructed with 750 MHz capacity are equipped with550 MHz capacity, which is readily 

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upgradeable to 750MHz capacity.  We have used our cable system in São Paulo to provide ourAjato high-speed internet service since 1999.

Asof December 31, 2006, we had deployed approximately 4,394 kilometers of ourcable network, including 819 kilometers of fiber optic cable, consisting of a701 kilometer fiber optic loop in São Paulo and a 118 kilometer fiber opticnetwork serving Curitiba, Camboriú, Foz do Iguaçú and Florianópolis.  Asof December 31, 2006, our cable systems passed 937,578 homes, consisting of668,191 homes in São Paulo, 201,615 homes in Curitiba and 67,772 homes inFlorianópolis, Camboriú and Foz do Iguaçu.

*TVADigital*

We offer digitalpay television services to our cable and MMDS subscribers under the brand name “TVADigital”. Digital services allow customers to access an electronic programmingguide, view additional channels, including pay-per-view and audio channels, andselect a number of languages and subtitles in which to view programs.

The digitalizationof the cable and MMDS networks in São Paulo increased ARPU and reduced thedisconnection rate, as well as permit renewed growth in the areas covered byMMDS, at competitive prices. In the cable network in São Paulo, theavailability of already amortized analog decoders, together with the largenumber of households covered by our cable network, permits the supply oflow-cost products targeted at classes B- and C+.

Thedevelopment of Digital TVA was based on various studies and usabilitysurveys.  The principal innovations ofour digital service are:

·                  programsynopses on the screen;

·                  DolbyDigital 5.1 audio;

·                  *mosaico TVA*, a channel selection systemwhich arranges channels by various types;

·                  optionto change the audio and subtitle language;

·                  pay-per-viewwith purchase by remote control;

·                  programmingguide of all channels;

·                  timerprogramming**/ notices of favoriteprograms;

·                  creationof favorite channel lists; and

·                  20audio channels of various kinds (with the name of the author and music on thescreen).

Weoffer our digital subscribers a number of programming package options and theflexibility to choose channels in accordance with their user profiles.

Weperiodically launch innovative video products and premium products, designedfor our customers with greater purchasing power, who have high definitiontelevision sets or who desire greater interaction and control of theirprogramming. Among these products are included digital video recording (DVR)and high definition television (HDTV).

Welaunched our DVR service in 2005, allowing our digital subscribers toexperience a high level of interactivity with our programming.

Amongthe principal functions of DVR, are:

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·                  recordingof Digital TVA programming events, which permit the customer to watch them atthe most convenient time;

·                  pausingevents (including live television), at any time, which allows the customer towatch them later, as of the pause point;

·                  instantreplay (including live television) with the touch of a button;

·                  possibilityof recording an event while watching another (dual tuner);

·                  picturein picture features (two channels at the same time, one of which displays on asmaller screen);

·                  enhancednavigability (TVA Portal and guides), and

·                  setup of a “Digital Videolibrary” with favorite programs to watch when and asoften as desired.

Welaunched the first transmission of HDTV in Brazil in June 2006 with a broadcastof the World Cup for subscribers with high definition television sets (such asplasma and LCD sets).  Transmission inHDTV brings the following innovations to the Brazilian market:

·                  highimage definition - “Full HD” (1920 x 1080i);

·                  HDMIinterface – video and audio digital quality in a unique digital interface, and

·                  transmissionof television signals in HDTV.

*Programming*

Weoffer more than 120 channels throughout our pay television network, catering tosubstantially all interest groups (films, series, documentaries, sports,children’s programming, adult programming, news and variety, including audiochannels, Pay-per-view, *a la carte*,and others).  We offer a series of tieredprogramming options, with more than 70 packages ranging from 35 – 108 channelsfor digital service and 10-69 channels for analog service, depending on asubscriber’s marketplace.  This providesour subscribers with a large range of programming, platform and pricingchoices.

Our main content suppliers are HBO, Discovery, Turner,Fox, ESPN, Viacom and Digital Latin America.

Amongothers, we offer ten HBO/Cinemax channel together with TNT, Sony, Warner andFOX channels, with more than 1,000 movie titles shown per month. The newssegment includes such channels as CNN, BBC and Band News (Brazilian and worldnews) and, in the sports segment, ESPN, ESPN Brasil, Bandsports, RAI, RTPi, TV5and local broadcast television channels, which among other events, broadcastthe World Cup and other international soccer matches.

Thesynergies between our programming area and the other areas of the Abril Group(our controlling shareholder), in particular in relation to content, permit thedevelopment of local channels based on Abril’s magazine brands, such as *Veja SP Recommends* and *Placar Cup*.

In 2002, in partnership with other pay television operators,we created Associação Neo TV (“NeoTV”), with the objective of purchasingcontent from programmers under more favorable conditions.  Today the association has various members,which, together, have more than 910,000 subscribers in various states inBrazil.

In recent years Neo TV has led a movement againstGlobosat to end an exclusivity arrangement that has prevented us from makingavailable Brazilian soccer games that are not available on broadcast televisionto our pay television subscribers.  In May2006 the Administrative Council for Economic Defense**(***ConselhoAdministrativo de*

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*Defesa Econômica* – CADE) entered into an agreement withGlobosat under which other pay television providers will be able to acquiresoccer games from Globosat.

The majority of our programming contracts have aduration of two to three years.  Most ofour programming comes from international programmers, whose prices aregenerally denominated in U.S. dollars or other foreign currencies, with theremainder being furnished by domestic programmers.  Our contracts with international programmersgenerally contain clauses protecting us against exchange rate losses above acertain determined level in the event of a significant devaluation of the *real* in relation to the currency in whichthe programming agreement is denominated.

***Broadband Internet***

InJuly 1999, we launched Brazil’s first broadband internet service and anInternet service provider (ISP), offering broadband access and a contentportal, in a package providing centralized service.  We presently provide bi-directional broadbandInternet access and service using our MMDS and cable networks in themetropolitan areas of São Paulo and Rio de Janeiro under the “Ajato”brand.  Unlike****our primary competitors, Ajato provides both Internet accessand Internet service, thereby avoiding the need for our customers to contract aseparate access provider.  With thedigitalization of our MMDS network, we will be offering broadband Internetservices in new areas covered by our wireless infrastructure.

Ajatocan be purchased with or without a pay television subscription and permits theuser to make live video transmissions and downloads.  Ajato currently offers users thirteen speedoptions, ranging from 200 Kbps to 2 Mbps, access to the *Veja São Paulo* portal (using content basedon Editora Abril’s *Veja*magazine,Brazil’s most widely-read news magazine) and to the diversified content ofother Editora Abril magazines, as well as e-mail services.  In addition to residential customers, Ajatoalso provides services to the corporate market, through *Ajato Empresas* and *Ajato Negócios*.

Ajatoalso offers pay-per-band services to its corporate and residential customers,which enables customers to increase connection speed for a specific period,without the need to the customer’s originally contracted speed.

Asof December 31, 2006, we had 58,159 residential Internet subscribers and 3,739corporate Internet clients with a monthly subscription fee of $30.64 and$151.87, respectively, for unlimited internet service.  In the São Paulometropolitan area, where bidirectional cable services are provided,approximately 48% of our cable pay television subscribers also subscribe toAjato.

***VoIP***

Wealso offer telephony service under the “TVA Voz” (*TVA Voice)* brand using VoIP technology, which is the thirdelement of our “triple-play” strategy (i.e., pay television (TVA), broadbandinternet (Ajato) and telephony (TVA Voz)). This technology permits the customerto make calls using a broadband internet connection, instead of a standardtelephone line. With this service, customers receive and make calls from and toany telephone, including local, long-distance, mobile and internationalnumbers.  TVA Voz customers may also makecalls free of charge to other TVA Voz customers.  With an adapter connected to a commontelephone and a broadband internet connection, there is no need to use acomputer to make or receive calls.  Thechief advantage of this technology is the extremely low cost in comparison tothe prices charged for long distance calls using conventional telephony.

In2006, we signed an agreement with Telemar and Neo Voice pursuant to which weprovide VoIP service that offers domestic and international coverage, theoption of numbers in Brazil and the world, account control with fixed minuteplans per month and portability, which permits a user to take his or her numberto any place in Brazil or the world.

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**Commercialand Marketing Strategy**

We operate in anintegrated and segmented manner, based on our knowledge of household profilesand the characteristics of each of the markets in which we operate, exploitingthe following concepts:

·      jointoffer of various services (bundling);

·      qualityin the provision of services;

·      flexibleprogramming packages with a variety of content and pricing options (over 70programming packages for pay television and 17 broadband internet plans), and

·      leadershipin the launch of innovative services.

Wehave a commercial team of approximately 450 sales consultants, distributed inactive and receptive telemarketing, field team and website channels and alsoplanning launch TVA services in biggest retail chain, looking for exposure andTVA experiences in theirs sales office. We have developed a sales and service concept for condominiums (includingpre-wiring arrangements with residential housing developers) in differentiatedoffers and personalized after-sale service. In Brazil a “condominium” refers to residential and non-residentialbuildings or building complexes that have entered into a legalassociation.  This collective subscriberbase currently accounts for 35% of our total subscribers, with a highsatisfaction index, a low delinquency rate and reduced churn rate compared withour total subscriber base.

Inaccordance with Brazilian law, we can adjust the pricing on our contracts withcurrent subscribers every 12 months based on the general market price index(IGPM) index.

**CustomerService**

We use a callcenter, operated by CSU Cardsystem, one of the largest call center companies inBrazil, where calls from São Paulo, Rio de Janeiro and other areas of thesouthern region of Brazil are answered. As of December 31, 2006, we had 254 service consultants, segmented incells by type of product and customer characteristics

Wealso have back office areas, personal service and exclusive service forcollective and corporate contracts. Communication with the customer is donethrough the programming magazine, web sites, chat, customer relationship centerand local channels.

In2000 we launched an innovative customer loyalty program in the pay televisionmarket in which we offer to our subscribers the ability to attend events (suchas theater shows, movie premieres and children’s events) and redeem points forbenefits (such as magazine subscriptions and movie tickets).  In 2006 more than 150,000 subscribersparticipated in this program, which allows us to conduct cross-selling andup-selling of products and services and secure subscriber loyalty, all of whichsignificantlycontribute to retaining subscribers.

**ChurnRate**

Churnis measured through spontaneous cancellation requests and delinquency ofsubscribers.  Our monthly average churnfell from 2.4% in 2002 to 1.5% in both 2005 and 2006, reaching a level webelieve to be consistent with international standards.  The churn rate for our digital technologysubscribers is lower than the overall averages stated above.

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#### **Suppliers and Partners**

Theprovision of our services depends on the licensing of content, the contractingof network and equipment installation and maintenance services and postinstallation and rental services with suppliers.

Ourmain suppliers are:

·      programmingcontent: HBO, Turner, Discovery, ESPN, Bandsports, Disney, FOX, among others;

·      technology:Samsung, Intel and NAGRA;

·      infrastructure:Cisco, Furukawa, GI, and Pirelli;

·      supplierof IP ports for access to internet: Global Crossing and Embratel.;

·      outsourcedservices: Telefônica (network maintenance); and

·      customerservice and sales: CSU and SERCOM.

Weentered into a contract with Samsung in March 2006 to test the commercialfeasibility and implementation in São Paulo of WiMAX technology through ourdigital MMDS distribution network.  Inaddition, we have worked with other companies in the development of innovativeproducts for our market.  For example, wehave worked with Intel in the utilization of WiMAX technology and thedigitalization of content, and with NAGRA, a leading supplier of conditionalaccess solutions, in the development of our digital service and DVR service. Inaddition, we also developed a new High Definition Set Top Box with NAGRA andPRIME which was launched during 2006 Word Cup. We are currently studying the possibility of expanding our portfoliowith a new product by the name of Sling Box to be provided by SlingMediaCorporation.  This product would enablesubscribers to watch their pay television channels through a standard broadbandinternet connection regardless of their geographical location.

**Infrastructure**

***Distribution Infrastructure***

*AddressableNetwork*

Unlike many other pay televisionoperators, our network in the cities of São Paulo, Rio de Janeiro, and Curitibaare fully addressable, thus enabling flexible programming options andminimizing the ratio of irregular connections, in addition to a more effectivecollection of fees and lower operational costs related thereto.

*Adaptingnetwork capacity*

Wedesigned and built our distribution network with a view to satisfying currentand future market requirements.  To thisend, our network allows us to:

·                  adaptthe network to adequately distribute the volumes of information characteristicof current market requirements;

·                  rapidlyexpand capacity, in line with market requirements;

·                  introduceupgrades and technological innovations with the minimum possible disturbancefor subscribers.

As aresult, our network allows users to have one source of digital and analog paytelevision services and broadband internet services and VoIP.  In addition, our network will allow users toaccess future interactive services, including video on demand, games, homebanking and home shopping.

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*CableNetwork*

Our cable networkuses HFC (Hybrid Fiber Coaxial) topology, which uses fiber optic technology totransport signals from the various optical nodes of the network.  From this point it uses coaxial cable for thedistribution of signals to subscribers. The coaxial cables transport radiofrequency signals and, in some cases, also feed amplifiers.

Ourcable network in São Paulo covers approximately 670,000 homes passed (HPs),implemented in 2,000 HP per node and prepared for segmentation in 500 HPs withthe addition of optical transmitters. The network, which consists of 2400 km of coaxial cable, 701 km of fiberoptic cable in optical ring and sub-ring topology distributed in 330 optical nodes,is designed to ensure reliability and eliminate the risk that one single eventmight affect the provision of services on a widespread basis.  We believe that this distribution networkstructure allows us to offer all video and telecommunications services.

Webelieve that we occupy a unique position in the multiservices area because ofthe following factors:

·                  nodearchitecture, which permits expansion, introduction of updatings andtechnological innovations without affecting the services offered, as well asthe location of failures in the network, through the checking of the centersresponsible for each area;

·                  expandablenetwork, which permits the increase of band IP with the installation of IPequipment in the Network Operations Center (NOC).

·                  highpenetration of pay television and broadband internet subscribers;

·                  allthe equipment is of open technology of the principal internationalmanufacturers (Harmonic, Philips, GI, Cisco.);

·                  centralizedmanagement and monitoring, which reduces operating costs and places our networkwithin international standards of reliability and availability, and

·                  opticalring with a separate structure for pay television and data with 10 GigabitEthernet technology.

Ournetwork was designed with a transport capacity of 750 MHz, sufficient for theprovision of pay television services, permitting roughly 70 analog channels andthe distribution of digital video, using 64QAM and 256 QAM modulation with40Mbps band capacity per channel of 6 MHz, in addition to broadband internetaccess and voice.

Thedigital distribution is allocated in the 500 to 700MHz band, permitting roughly250 digital channels; the telephony services are allocated in the 700 to 750MHzband. Systems equipped with 550 MHz capacity (Curitiba, Camboriú, Foz do Iguaçúand Florianópolis) are immediately upgradable to 750 MHz capacity.

Asof December 31, 2006, our cable network consisted of 4,394 km, of which 819 kmare constructed of fiber optic cables. In São Paulo, we constructed a fiber optic loop of 55 km, plus 7 opticalsub-rings, totaling 701 km.

Asof December 31, 2006, our cable network reached a total of 937,578 homes,consisting of 668,191 homes in São Paulo, 201,615 homes in Curitiba and 67,772homes in Florianópolis, Camboriú and Foz do Iguaçu.

*MMDS Network*

MMDStechnology has been acquiring greater importance in recent years, with largecompanies investing in research and development in the wirelesstechnology.  The frequency plandesignated in Brazil for MMDS services consists of the band between 2500 to2686 MHz, comprising 31 frequencies of 6 MHz (plus 12 MHz for return channels),modulated and codified.  The codifiedsignal is irradiated from the transmission system (principal 

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station) andcaptured by the subscriber’s receiving antenna. Next, it is converted into another frequency, which is amplified anddemodulated to be delivered and processed by the subscriber’s televisionreceiver.

Manyleading companies have invested in digital MMDS networks for such newtechnologies as WiMAX in the 2.5 to 2.7GHz spectrum. This distribution networkis of great importance for convergence, portability and mobility. MMDS requiresa lower capital investment for the construction of its infrastructure, and hasa lower operating cost than those of the cable and DTH systems, besidespermitting rapid service in areas not covered by the physical network (time tomarket) and the supply of bundles with innovative services such as:

·                  Fixedand mobile broadband with QoS (quality of service);

·                  WiMAXfor mobile, portable and fixed devices;

·                  VoIPwith restricted mobility;

·                  multimediaservices, and

·                  mobilebusiness*.*

Wehave a license in the most “noble” band of 2.5GHz and operate the largest MMDSnetwork in Brazil (198 MHz in São Paulo and Rio de Janeiro and 90 MHz inCuritiba and in Porto Alegre).

Tooptimize signal reception in shady areas (i.e., areas not reached by the signalof the principal station), signal reinforcers (repeaters) are installed, whichcan only be installed within the service rendering area.  The WiMAX NLOS (non-line of sight) technologyin the digital MMDS network avoids shady areas, permitting greater coverage,operations in new areas and better quality services, as well as the possibilityof multiservices with restricted portability and mobility.

OurMMDS network in São Paulo was digitalized in 2005. In February 2007 and April2007 we digitalized our MMDS networks in Rio de Janeiro and Curitiba,respectively.  With the digitalization ofour MMDS networks in these additional markets, we now offer the same qualitydigital services in the São Paulo, Rio de Janeiro and Curitiba markets.

In themetropolitan areas of São Paulo and Rio de Janeiro, we hold all the 31currently available MMDS frequencies, and, in Curitiba, we have 15frequencies.  Each frequency permits thesupply of up to 8 digital channels, through the use of compressiontechnology.  The MMDS frequencies canalso be allocated to the data traffic for broadband internet.

In2000, we obtained authorization from ANATEL to use the frequencies correspondingto the return channels of our MMDS systems in São Paulo and Rio de Janeiro. Wecurrently use these frequencies, which vary between 2170 and 2182 MHz, toprovide broadband internet services.

*IP Network*

Thetechnology used for our IP network is DOCSIS, with an open standard and adoptedworldwide by multiple service operators (MSOs). The DOCSIS cable modems permit the supply of high-speed broadband with10 Mbps of downstream**per user.This capacity permits high quality multimedia services and differentiatesitself from the ADSL networks installed in São Paulo.

Thedecentralized topology of the network and the five points of presence (POP) ofthe distribution of data minimize noise and interference.

Themain technologies deployed in our network are:

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·                  CMTS- Cable Modem Termination System: this equipment is responsible for connectingbroadband users to our core back bone. We currently have 200 downstream portsand 46 upstream ports*;*

·                  Coreback-bone: responsible for transporting the data from the IP port with thecarriers (Embratel, Globalcrossing, Brasil Telecom, etc.) to the CMTS.  Our core uses Ethernet technology.  We are expanding this core tenfold, from 1Giga Bit to 10 GigaBit Ethernet; and

·                  QoS/TrafficShapping:  These tools provide networkanalysis and control, and are responsible for analyzing all the protocols andapplications that are transmitted in our core individually by subscriber,supplying detailed information of the consumer profile by user, day and time ofthe week, as well as accounting information including the volume of trafficused per hour/day/week. These tools allow us to comply with our QoS levelagreement.

*NOC / IDC*

To guarantee aquality level of internet services, we are the only pay television operator inBrazil that maintains a sophisticated Network Operations Center (NOC) andInternet Data Center (IDC), based in São Paulo, which monitors all activenetwork equipment, including CMTS, routers, switches, multiplexers, etc.  This management platform is supported by asoftware system developed in-house.  Itis possible to also monitor the volume of users and data by equipment, thenumber of on-line and provisioned users, signal/noise level of the network, andthe opening and monitoring of trouble tickets between the various areas includingthe relationship center, Engineering, headend, external and internalnetwork.  The platform is alsoresponsible for the provisioning and diagnosis of network users, working as anOperation Support System – OSS, an interface between the billing system and theDHCP servers, which is responsible for the IP addressing assignment policy andAjato users.

*Monitoringand Management*

Ournetwork command and control is conducted by the Network Operations Center, oneof the largest and most advanced network management centers in the world,operated by Telefônica, which provides us with the following:

·                  SLA– Service Level Agreement of 99.98% for hosting and infrastructure services;

·                  datacenter**with 250m2 of area, with total capacityof 80 racks (Racks 19” x 44U);

·                  professionalinfrastructure for feeding electrical current, electrical fixtures, airconditioning system, security and maintenance.

UnderBrazilian law, the providers of public electric power, telecommunications andpetroleum services have the right to share with one another the necessaryinfrastructure for the rendering of these services, in a non-discriminatorymanner and at just and reasonable prices and conditions.  As such, we have entered into non-exclusivecontracts with various electricity distribution service providers for the useof part of the excess occupation capacity of the light posts belonging to theelectricity distribution system. Currently, 99.6% of our cable network is aerial.  These are long term contracts (normally fiveyears, renewable for an equivalent period) and establish a fixed monthly price,calculated per fixing point used by us. Pursuant to our contracts, the prices we pay are adjusted annually inaccordance with the IGP-M (general market price index) or INPC (national consumerprice index) and was R$2.21 per fixing point in São Paulo as of December 31,2006.

*Installation and Technical Assistance*

Theobjective of our installation and technical assistance process is for sales andtechnical assistance requests made prior to 3:00 p.m. to be concluded on thesame day, and sales and technical assistance requests made after 3:00 p.m. tobe concluded up to 24 hours from the moment of the respective request.

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Weoutsource installation services in all the cities where we are present.  We contract with eight different companies,divided by operating area, to assure the highest quality and lowest costspossible.

***IT Infrastructure***

*Subscription System*

Ourintegrated subscription system (Si@) was developed in web technology, inconformity with advanced standards, using Oracle technology, thus enablingsignificant productivity gains.

Thearchitecture of our system meets our needs derived from the entry of newproducts and services, from the prospecting of new subscribers to self-service(via internet or telephone service).  TheSi@ system is equipped to serve the entire organization, incorporatinginformation in real time in support of the operating and financial areas.  It also has functions relating to billing,collection, CRM, provisioning and management of the relationship with thesubscriber.

*Collections*

Our collectionprocess is completely automated and integrated with Si@.  Its objective is the retention and loyalty ofcustomers, as well as the recovery of debtors’ balances.  It is a segmented process, based on theprofile and past records of each subscriber. The methods of approach vary fromletters and telephone contacts to offers of packages with more affordableprices and automatic payment plans.

Allthe information relating to the collection process is stored in the system,which permits us to have a complete history of each subscriber for customerservice, relationship actions and cross promotion.

Wehave a high recovery index of subscribers that enter the collection process,which contributed towards our having a churn rate that is comparable withinternational rates and relatively low delinquency rates.

**Competition**

***Pay television***

The pay televisionindustry in Brazil is presently undergoing a consolidation phase, with recentmergers between NET and Vivax in the cable and MMDS market and Sky and DirecTVin the DTH satellite market.  Inaddition, the pay television industry is being affected by the participation oflarge telephony providers, such as the investment of Telmex in NET and theproposed transaction between us and Telesp.

We compete withproviders of pay television services that use cable, MMDS and DTH cabletransmission technologies.  We expect tocontinue facing competition from existing and future operators, including possiblecompetition derived from new and developing technologies and the easing ofregulations in the pay television industry. We believe that competition is and will continue to be primarily basedon program offerings, customer satisfaction, network quality and price ofservices.  We believe our competitiveposition will improve significantly as a result of the May 2006 decision byCADE requiring Globosat to provide soccer programming rights to pay televisionoperators other than NET.

Wealso compete with national broadcast networks and regional and local broadcaststations.

*MMDSand Cable Service*

Wecompete with other major cable and MMDS operators in each of our principalmarkets, with the exception of Camboriú, where we are the only provider of paytelevision service.  Our main competitorsare cable and MMDS systems operated by Net, which is controlled by Globopar andTelmex.  Net competes with cable systemsin the metropolitan areas of São Paulo, Rio de Janeiro, Curitiba, Foz do Iguaçuand Florianópolis.  In the overbuiltcable areas (i.e., areas where customers have a choice between providers), theNet and TVA cable systems 

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have similarpenetration rates. We are the leaders of the MMDS market in the metropolitanarea of Curitiba, with a market share of 91% in 2005, as compared to Net’s 9%in the same period.  We also compete withthe cable system of TV Cidade in the metropolitan area of Rio de Janeiro.

With the digitalizationof our MMDS services and the resulting increase in coverage area, we began to competewith other operators in pay television services.  In the “ABCDOG” region, a region of the stateof São Paulo comprising the cities of Santo André, São Bernardo do Campo, SãoCaetano do Sul, Diadema, Osasco and Guarulhos, we compete with NET/Vivax, Adateland Big TV.

*DTHSatellite Service*

Wealso compete with DTH satellite service operators in Brazil, especially Sky, aswell as TECSAT.  Sky is controlled byNews Corporation Plc, a subsidiary of The News Corporation Limited andGlobopar. Sky currently offers 123 audio and video programming channels(including pay-per-view channels). After the acquisition of DirecTV in theUnited States by News Corporation, DirecTV was absorbed by Sky Brasil (thistransaction was approved by ANATEL in November 2005 and CADE in May 2006).

*BroadcastTelevision*

Broadcasttelevision services are currently available to substantially all of theBrazilian population without payment of a subscription fee by sixprivately-owned national broadcast television networks and a government-ownednational public television network.  The national broadcast televisionnetworks and local broadcast stations receive nearly all of their revenues fromthe sale of television advertising, the price of which is based in part on theaudience share and ratings for the networks’ programs.  Programmingoffered by pay television providers, including us, directly competes foraudience share and ratings with the programming offered by broadcast televisionnetworks as well as regional and local television broadcasters.  The sixnational broadcast television networks are Globo, SBT, TV Band, Rede TV, TVRecord and CNT.  The national television networks utilize one or moresatellites to retransmit their signals to their local affiliates throughout Brazil.

***Broadband Internet Services***

Wecompete with fixed telephony carriers, cable television operators and otherbroadband providers in the broadband internet market, in addition to providersof dial-up internet on a smaller scale. We believe that competition dependsespecially on the speed, price, technical support and quality of the network.

In2006, approximately 80% of all residential broadband internet service in Brazilwas provided by ADSL providers, while approximately 20% was provided by cableproviders (such as our Ajato).  Our maincompetitors in this market are Internet providers of companies from GrupoTelefonica (Speedy), with a market share of approximately 28.4%, Brasil Telecom(Br Turbo), with a market share of 23.3%, Telemar (Velox), with a market shareof 19.9%, and NET-Virtua, with a market share of approximately 12.9%. Ajatocurrently has a market share of approximately 1.1%.

***Voice Services***

In voice servicewe compete with fixed telephony carriers, such as Telefônica, that utilizefixed residential and commercial lines, and with carriers that offer fixedtelephony and VoIP, as is the case of GVT, which supplies integrated local andlong distance voice, data, internet and VoIP services.

Embratelrecently formalized the acquisition of an equity interest in Net, with the hopeof unifying their service infrastructure and preparing Net to supply VoIP tothe residential segment.

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**RegulatoryFramework**

The subscriptiontelevision industry in Brazil is subject to regulation by the *Agência Nacional de Telecomunicações*(ANATEL), an independent federal agency, pursuant to Law No. 9472/97 (“Law 9472”),Law No. 9295/96 (“Law 9295”) and Law No. 8977/95 (“Law 8977”).  ANATEL isauthorized to grant concessions for MMDS, cable, and DTH licenses.

*MMDSRegulations*

*General.* Law 9472 authorizes ANATEL, among other things, to issue, revoke, modify andrenew licenses within the spectrum available to MMDS systems, to approve theassignments and transfer of control of such licenses, to approve the locationof channels that comprise MMDS systems, to regulate the kind, configuration andoperation of equipment used by MMDS systems, and to impose certain otherreporting requirements on channel license holders and MMDS operators.  Thelicensing and operation of MMDS channels are currently governed by Decree No.2196/97 (“Decree 2196”), Ordinance No. 254/97 (as amended by Ordinance No.319/97, “Ordinance 254”), Rule No. 002/Rev. 97 (“Rule 002”) and Resolution429/2006.  Under these regulations, MMDS is defined as the special serviceof telecommunication which uses microwaves to transmit codified signals to bereceived in pre-established points on a contractual basis.

*Licenses.*  ANATEL grants licenses andregulates the use of channels by MMDS operators to transmit video programming,entertainment services and other information.  A maximum of 31 MMDSchannels (constituting a spectrum bandwidth of 186 MHz) may be authorized foruse in an MMDS market, employing analog technology.  With the adoption of digital technology, oneMMDS analog channel can be turned into approximately five or six digitalchannels in standard definition.  Whilelicenses are usually granted for the use of up to 16 channels, depending ontechnical feasibility and the existence of competition, ANATEL can grant alicense for all 31 channels available in one specific area.  If thelicense is for 16 or more channels, at least two channels must be reserved foreducational and cultural programming.  If the license involves 15 or fewerchannels, there is no obligation to reserve any channel for educational andcultural purposes.  In each of the Company’s São Paulo and Rio de Janeiromarkets, up to 31 MMDS channels are available for MMDS (in addition to anylocal off-air VHF/UHF channels which are offered).  Employing digital technology in the provisionof MMDS, as of December 31, 2006, TVA offered 108 pay TV digital channels inSão Paulo, and had 10 analog channels and five channels for Internet servicesand trials of new technologies.

Alicense to use MMDS frequencies is granted for a renewable period of up to 20years.  TVA’s MMDS licenses were grantedfor a renewable period of 15 years.  Theapplication for renewal of a license must be filed with ANATEL during theperiod beginning three years before the end of the license term.  To renewthe license, the license holder must (i) meet applicable legal and regulatoryrequirements, (ii) have complied with all legal and contractual obligationsduring the term of such license and (iii) meet certain technical and financialrequirements.  Our MMDS licensespresently expire in 2009, and we filed requests for their renewal with ANATELin February 2006.  To date there has beenno final decision of ANATEL on the renewal of our MMDS licenses.

Underthe provisions of Rule 002, each license holder and its affiliates may begranted permission to operate MMDS systems in different areas of Brazil,provided that no holder may be granted licenses for (i) more than sevenmunicipalities with a population equal to or exceeding 700,000 inhabitants and (ii)more than 12 municipalities with a population between 300,000 and 700,000inhabitants.  The restrictions only apply to areas in which the MMDSsystem operator (or an affiliate thereof) faces no competition from other paytelevision services, excluding services that utilize a satellite to transmittheir signal.  Rule 002 grants ANATEL full discretion to alter oreliminate the restrictions.  The term affiliate is defined by Rule 002 asany legal entity that directly or indirectly holds at least 20% of the votingcapital.  We currently control four MMDS licenses in cities of more than700,000 inhabitants (São Paulo, Rio de Janeiro, Curitiba and Porto Alegre), butin each of these cities we have at least one competitor.  Prices for paytelevision services may be freely established by the system operator, althoughANATEL may interfere in the event of abusive pricing.  ANATEL may imposepenalties including fines, suspension or revocation of the license if thelicense holder fails to comply with applicable regulations or becomes legally,technically or financially unable to provide MMDS service.  ANATEL alsomay intervene to the extent operators engage in unfair practices intended toeliminate competition.

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ANATELawards licenses to use MMDS channels based upon applications demonstrating thatthe applicant is qualified to hold the license, that the proposed market isviable and that the operation of the proposed channels will not causeimpermissible interference to other permitted channels.  After ANATEL determinesthat an application has met these requirements, it publishes a noticerequesting comments from all parties interested in providing the same servicesin the same or a near area.  Depending on the comments received, ANATELmay decide to open a public bid for the service in that area, although it hasnot done so in the past.  In the case of a public bid, applicants would beevaluated based on a number of factors including the applicant’s proposedschedule for implementing commercial operations, the applicant’s commitment tolocal programming and the extent to which the applicant provides freeprogramming to local cultural and educational institutions.  Once an MMDSlicense application is granted by ANATEL, the license holder must finalizeconstruction and begin operations within 12 months, which period may beextended by an additional 12 months.

Inaddition to qualifying under the application process described above, a licenseholder must also demonstrate that its proposed signal does not violateinterference standards in the area of another MMDS channel licenseholder.  To this end, existing license holders are given a 30-day periodin which to ascertain and comment to ANATEL whether the new license holder’sproposed signal will interfere with existing signals.  The area covered bythe services is to a radius of five to 50 kilometers around the transmissionsite, depending on the technical capability of the operator.

*Other Regulations*.  MMDS licenseholders are subject to regulation with respect to the construction, marketingand lighting of transmission towers pursuant to the Brazilian Aviation Code andcertain local zoning regulations affecting construction of towers and otherfacilities.  There may also be restrictions imposed by local authorities. The subscription television industry also is subject to the Brazilian ConsumerCode.  The Consumer Code entitles the purchasers of goods or services tocertain rights, including the right to discontinue a service and obtain arefund if the services are deemed to be of low quality or not renderedadequately.  For instance, in case of a suspension of the transmission fora given period, the subscriber shall be entitled to a discount on the monthlyfees.  Rule No. 002 contains certain provisions relating to consumer rights,including a provision for mandatory discounts in the event of interruption ofservice.

Dueto the regulated nature of the subscription television industry, the adoptionof new, or changes to existing, laws or regulations or the interpretationsthereof may impede our growth and may otherwise have a material adverse effecton our results of operations and financial condition.

*CableRegulation*

*General.* Cable services in Brazil are licensed and regulated by ANATEL pursuant to LawNo. 8977/95 (“Law 8977”), Decree No. 2206/97 (“Decree 2206”), which authorizedthe regulation of cable services, and Ordinance 256/97 (“Ordinance 256”), whichapproved the Norma Complementar do Serviço de TV a Cabo regulating the grantingof licenses for, and the operation of, cable services.  Until Law 8977 wasenacted in 1995, the Brazilian cable industry had been governed by twoprincipal regulatory measures since its inception in 1989: Ordinance No. 250,issued by the Ministry of Communications on December 13, 1989 (“Ordinance 250”),and its successor, Ordinance No. 36, issued by the Ministry of Communicationson March 21, 1991 (“Ordinance 36”).

Ordinance250 regulated the distribution of television signals (“DISTV”) by physicalmeans (i.e., by cable) to end-users.  DISTV services generally are limitedonly to the reception and transmission of signals without any interference by aDISTV operator with the signal content.  Under Ordinance 250, 101authorizations were granted by the Ministry of Communications to local operatorsto commercially exploit DISTV services.  Although Ordinance 250 did notspecifically address cable services, a number of DISTV operators (including theCompany’s cable systems) began to offer cable services based on DISTVauthorizations.

*Licenses*.  Under Law 8977, a cableoperator must obtain a license from ANATEL in order to provide cable servicesin Brazil.  All cable licenses are nonexclusive licenses to provide cableservices in a service area.  Cable licenses are granted by ANATEL for aperiod of 15 years and are renewable for equal and successive periods. Renewal of the cable license by ANATEL is mandatory if the cable systemoperator has (i) complied with the terms of the license grant and applicablegovernmental regulations and (ii) agrees to meet certain technical and economicrequirements relating to the furnishing of adequate service to subscribers,including system modernization standards.

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OrdinanceNo. 256/97 (“Ordinance 256”) imposes restrictions on the number of areas thatcan be served by a cable television system operator (or an affiliatethereof).  Pursuant to Ordinance 256, a cable system operator (or anaffiliate thereof) may only hold licenses with respect to (i) a maximum ofseven areas with a population of 700,000 and above and (ii) a maximum of 12areas with a population of 300,000 or more and less than 700,000.  Therestrictions only apply to areas in which the cable system operator (or anaffiliate thereof) faces no competition from other pay television services,excluding services that utilize a satellite to transmit their signal. Ordinance 256 grants ANATEL full discretion to alter or eliminate therestrictions.  The term affiliate is defined by Ordinance 256 as any legalentity that directly or indirectly holds at least 20% of the voting capital ofanother legal entity or any of two legal entities under common ownership of atleast 20% of their respective voting capital.  The Company currentlycontrols two cable licenses in cities of more than 700,000 inhabitants (SãoPaulo and Curitiba), but in each such city TVA has at least one competitor.

Generally,only legal entities that are headquartered in Brazil and that have 51% of theirvoting capital by Brazilian-born citizens or persons who have held Braziliancitizenship for more than 10 years are eligible to receive a license to operatecable systems in Brazil.  In the event that no private entity displays aninterest in providing cable services in a particular service area, ANATEL maygrant the local public telecommunications operator a license to provide cableservices.

Cableoperators that previously provided cable services under a DISTV authorizationgranted under Ordinance 250 were required under Law 8977 to file applicationsto have their DISTV authorizations converted into cable licenses. Ordinance 256 grants a one year period from the date a DISTV authorization isconverted into a cable television license for any cable system operator tocomply with the restrictions.  Our cable systems, all of which wereoperating under DISTV authorizations, applied for conversion of their DISTVauthorizations and received approval for such conversion from the Ministry ofCommunications.

Cablelicenses for service areas not covered by existing authorizations are grantedpursuant to a public bidding process administered by ANATEL after prior publicconsultation.  All such licenses are nonexclusive licenses.  In orderto submit a bid for a license, a bidder must meet certain financial and legalprerequisites.  After such prerequisites are met, a bidder must thensubmit a detailed bid describing its plan to provide cable services in theservice area.  In the qualification phase of the bidding process, ANATELassigns a number of points to each bid based on certain weighted criteria,including the timetable for offering subscription programming; the timeallocated to local public interest programming; the number of channelsallocated to educational and cultural programming; and the number ofestablishments, such as schools, hospitals and community centers, to whichbasic service programming will be offered free of charge.  Aftercalculating the number of points awarded to each bidder, ANATEL will then applya formula based on the population of the service area to select the winning bidfrom among those bidders that meet certain defined minimum qualifyingthresholds.  For service areas with a population of 700,000 or moreinhabitants, the qualified bidder that submits the highest bid for the licensewill be selected.  For service areas with a population between 300,000 and700,000 inhabitants, the winning bid is selected based on the highest productobtained by multiplying the number of points awarded in the qualification phaseand the amount bid for the license.  For service areas with less than300,000 inhabitants, the winning bid is selected on the basis of the number ofpoints awarded in the qualification phase and the payment of a fixed fee.

Oncea cable license is granted, the licensee has an 18 month period from the dateof the license grant to complete the initial stage of the installation of thecable system and to commence providing cable services to subscribers in theservice area.  The 18 month period is subject to a single 12 monthextension for cause at the discretion of ANATEL.

Anytransfer of a cable license is subject to the prior approval of ANATEL.  Alicense generally may not be transferred by a licensee until it has commencedproviding cable services in its service area.  Transfers of shares causinga change in the control of a license or the legal entity which controls alicense also is subject to the prior approval of ANATEL.  ANATEL mustreceive notice of any change in the capital structure of a licensee, includingany transfer of shares or increase of capital that do not result in a change ofcontrol.

Alicense can be revoked, upon the issue of a judicial decision, in the event thelicensee lacks technical, financial or legal capacity to continue to operate acable system; is under the management of individuals, or under 

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the control of individualsor corporations who, according to Law 8977, do not qualify for such positions;has its license transferred, either directly or by virtue of a change incontrol, without the prior consent of ANATEL; does not start to provide cableservices within the time limit specified by Law 8977; or suspends itsactivities for more than thirty consecutive days without justification, unlesspreviously authorized by ANATEL.

*CableRelated Service Regulation*

*General*. Brazilian telecommunications services are governed primarily by (i) Article 21of the Federal Constitution, as amended by Amendment No. 8 of August 15,1995 (“Amendment 8”), (ii) Law 9472, (iii) Law 9295 and (iv) Law 8977. The Brazilian Government also has issued detailed regulations covering specificareas of telecommunications services, including radio broadcasting, paging,trunking, subscription television, cable television, cellular telephony andmultimedia communications services.  ANATEL is responsible for theregulation of telecommunications services in Brazil.  Prior to itsamendment in 1995, Article 21 of the Federal Constitution required theBrazilian Government to operate directly, or through concessions granted tocompanies whose shares are controlled by the Brazilian Government, all telephone,telegraph, data transmission and other public telecommunicationsservices.  This constitutional requirement was the basis for theestablishment of the state-owned telephone monopoly, Telebrás, which heldcontrolling interests in 27 regional telephone operating companies.  Withthe adoption of Amendment 8, Article 21 was modified to permit the BrazilianGovernment to operate telecommunications services either directly or throughauthorizations, concessions or permissions granted to private entities. In particular, Amendment 8 removed the constitutional requirement that theBrazilian Government must either directly operate or control the shares ofcompanies which operate telecommunications services.  Even with theadoption of Amendment 8, the Brazilian Government still retains broadregulatory powers over telecommunications services.

Privatecompanies have been permitted under Brazilian law to provide a number oftelecommunications services, including telephony, radio broadcasting, paging,trunking, subscription television, cable television services and SCM (Serviçode Comunicação Multimídia).  In 1998 the Ministry of Communications andANATEL concluded the privatization of all public fixed and cellular telephonecompanies.

*High-Speed Cable Data Services*.  Law8977 and Decree 2206, among other things, authorize cable television operators,such as the Company, in addition to furnishing video and audio signals on theircable networks, to utilize their networks for the transmission ofmeteorological, banking, financial, cultural, price and other data.  Thisbroad grant of authority is understood to permit cable television operators tofurnish services such as interactive home banking and high-speed cable dataservices to subscribers through their cable television networks, although asimplified licensing procedure for high-speed cable data services may beinstalled by ANATEL in the future.

OnNovember 29, 1999, ANATEL issued Regulation 190, which authorized the use ofsubscriber communication networks (such as cable systems) by unidirectional orbi-directional value-added service providers.  Regulation 190 alsoregulates certain terms between value-added service providers and subscribernetwork operators.  Initially, we weresubject to Resolution 190 both as a cable operator (through TVA Sistema) and aprovider of high speed internet service (through Ajato).  With the passageof Anatel Resolution 272/2001, which regulated SCM (multimedia communicationsservices), our Internet service began to be provided directly by TVA Sistema(and Ajato became a division of TVA Sistema).

*Cable Telephony*.  In accordance withLaw 8977, no entity is permitted to furnish fixed telephone services in Brazilwithout a specific license to do so.  There are, however, certain limitedregulatory exceptions pursuant to which private entities other than telephoneoperating companies have been permitted to provide limited fixed telephonyservices in Brazil.

InNovember 2001 ANATEL revised regulations concerning the provision of fixedtelephony services to the general public (*ServicoTelefônico Fixo Comutado*, or “STFC”).  These regulationsprovide that any company meeting certain criteria can provide STFC servicesthroughout Brazil.  In March 2002 we requested authorizations to provideSTFC services in the cities of São Paulo, Rio de Janeiro, Curitiba and PortoAlegre.  In November 2002 we received ANATEL approval to offer STFCservices in these areas.  In February 2004 we voluntarily returned ourSTFC license to ANATEL due to the lack of investment opportunity partners inthis sector and our focus on other strategic investments.  The license canbe returned to us upon request.

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In August 2001ANATEL revised regulations concerning the provision of telecommunicationsservices other than STFC, radio and television broadcasting, pay television andcellular services to the general public (*Servicode Comunicação Multimídia*, or “SCM”).  In January 2002 werequested that our existing license for such services be converted into an SCMlicense.  This request was approved by ANATEL in November 2002.

OnJuly 14, 2005, ANATEL issued Resolution 411, which established qualitystandards to be followed by pay television operators.  As a result, since January 2006, TVA has beenproviding information monthly to ANATEL relating to the quality standardsadopted by TVA in connection with its pay television operations in São Paulo,Rio de Janeiro, Curitiba, Foz do Iguaçu, Florianópolis, Balneário de Camboriúand Porto Alegre.

*Other.*  On November 24, 1999, ANATELand ANEEL (*Agência Nacional de EnergiaElétrica*, or National Electric Energy Agency) published JointResolution No. 001, which sets guidelines for the use of infrastructure amongthe electric energy, telecommunications and oil industries in order to maximizethe use of resources and reduce operating costs.  We are involved in legalproceedings against Centrais Elétricas de Santa Catarina—CELESC and CompanhiaParanaense de Energia Elétrica—COPEL in order to resolve certain questionsrelating to our contracts with these entities, particularly with respect toincreases in pole rental fees requested by these entities.  We discussthese proceedings in more detail below under “Legal Proceedings.”

InJuly 2005, the municipality of São Paulo enacted Municipal Law No. 14,023,requiring that all cables and wire (including the electricity,telecommunications and pay television cables) poles be transferred undergroundto the extent of 250 kilometers per year. This law was followed by a regulatory decree stipulating that theburying costs should be borne entirely by the owners of such cable and wirenetworks.  In addition, othermunicipalities in which we operate may enact similar laws.  TVA and other telecommunications andelectricity companies intend to challenge, administratively or judicially, asthe case may be, the validity of this decree and any other decree passed byother municipalities.

**LegalProceedings**

Weare party to certain legal actions arising in the ordinary course of ourbusiness which, individually or in the aggregate, are not expected to have amaterial adverse effect on our consolidated financial position.  As ofDecember 31, 2006, we had provisioned approximately $31.2 million inconnection with certain litigation contingencies, involving primarily claims bypersons arising in connection with the termination of their employment and ICMS(state value-added tax), for which the likelihood of loss is probable.

Weare involved in litigation against Centrais Elétricas de Santa Catarina–CELESCand Companhia Paranaense de Energia Elétrica–COPEL in order to resolve certainquestions relating to our contracts with these entities, particularly withrespect to increases in pole rental fees requested by these entities.

UntilMay 2006 we were challenging before Conselho Administrativo de Defesa Econômica–CADE,the Brazilian antitrust authority, certain exclusivity rights with respect toBrazilian soccer programming enjoyed by Globosat, an affiliate of one of ourmain competitors.  During the first half of 2004, we received twofavorable decisions from Secretaria de Direito Econômico, the Secretariat ofEconomic law, and in 2006 CADE entered into an agreement with Globosat underwhich other pay television providers will have the right to purchase rights tobroadcast Brazilian soccer programming. We believe our purchase of Brazilian soccer will significantly help usattract new subscribers and maintain current subscribers.

Weare judicially disputing the payment of ICMS (sales tax on operations relatingto the provision of goods and services) before the São Paulo Court ofJustice.  The State of São Paulo asserts that ICMS is due at the rate of25% with respect to the provision of advertising on pay television.  Onthe other hand, the Municipality of São Paulo asserts that the provision ofadvertising on pay television constitutes the rendering of services andtherefore that only ISS (tax over services), and not ICMS, is due at the rateof 5.0%.  We consider an unfavorable outcome in this claim to be probableand have made a provision of $14.3 million with respect thereto. Currently, we pay ICMS in connection with advertising on pay television.

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Inaddition, in November 1998, in response to an assessment by Brazilian taxauthorities, we filed a lawsuit challenging the constitutionality of ICMS oncable television services.  The amount ofthe contingency, which was fully provisioned as of December 31, 2005, is $11.2million as of December 31, 2006.  We madejudicial deposits amounting to $8.3 million in 2005 related to thiscontingency.

We received a tax assessment notice from Brazilianfederal tax authorities demanding the payment of income tax in the amount of$12.2 million and social contribution charges of $4.5 million (in each case asof December 31, 2006) relating to the deductibility of financial expensesarising from exchange variation on dividends receivable, profits of foreignsubsidiaries and uncollected interest on loans granted to our subsidiaries forthe years ended December 31, 1998, 1999 and 2001.  We recorded a provision for this contingencyin the amount of $16.7 million as of December 31, 2006, as the likelihood ofloss was determined as probable based on the opinion of our external legalcounsel.

Certainmunicipalities in the States of São Paulo, Paraná and Santa Catarina haveannounced their intention to charge us for the use of public highways wheretelecommunication equipment necessary for the rendering of our services isinstalled.  We are currently involved in seven claims relating to thisissue.  Five of these claims are in the appeals phase in the Courts ofJustice of São Paulo, Paraná and Santa Catarina, and two of these claims are inthe Appeal Court of the State of São Paulo.  We have made no provision inthis respect.  Based on the opinion of our external counsel, we believethat the likelihood of an unfavorable outcome relating to these claims isremote.

Ouroperating companies are currently defending a lawsuit brought by the EscritórioCentral de Arrecadação e Distribuição (Central Collection and DistributionOffice, or “ECAD”), entity authorized to enforce copyright laws relating tomusical works.  ECAD filed a lawsuit in 1993 against all pay-televisionoperators in Brazil seeking to collect royalty payments in connection withmusical works broadcast by the operators.  ECAD is seeking a judgmentaward of 2.55% of all past and present revenues generated by theoperators.  The suits are currently being submitted to the SuperiorTribunal de Justiça in order to determine whether ECAD is entitled to benefitfrom the copyrights relating to musical works broadcast on paytelevision.  Suits were filed against TVA Sul in the 1a Vara Cível Forum Central de Curitiba andagainst TV Brasil in the 14a Vara Cível Forum Central de São Paulo. The suit against TVA Sul has been initially ruled in TVA’s favor, while thesuit against TVA Brasil is currently awaiting judgment.  Our maximumliability in respect of these lawsuits was $0.7 million as of December 31,2006.  Based on the opinion of ourattorneys, we believe that the likelihood of loss in these lawsuits is remote.

In addition, weare party to several *administrativeproceedings*before ANATEL, which may result in the imposition ofpenalties.  These proceedings relateprimarily to

·      licensetransfers;

·      areairradiation limit;

·      signaldistribution;

·      stoppageof services;

·      approvalof equipment;

·      communicationof corporate acts; and

·      channelinclusion.

**Tax Recovery Program**

OnApril 5, 2000, we and our subsidiaries opted to participate in the Government’sTax Recovery Program (REFIS), implemented by Decree No. 3,342 dated January 25,2000, later converted into Law No. 9,964 dated April 10, 2000.  In addition, TVA Sistema used its credits fortax loss carryforwards amounting to $7.1 million for 

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amortization ofinterest and fines.  As guarantee of the payment of the debts included inthe program, TVA Sistema pledged property with an aggregate value of $16.4 millionas collateral.

OnJuly 31, 2003, certain of our subsidiaries, including TVA Sistema, through aprotocol filed with the Federal Revenue Service, opted to refinance certain taxobligations under the Federal Tax Financing Program (PAES), established by LawNo. 10,684 dated May 30, 2003.  The main reasons for this action were theextension of maturity dates, refinancing through PAES (special installmentprogram), inclusion of new taxes, and the use of TJLP (long-term interest rate)for monetary restatement.  Management believes that this payment willbe made in approximately 99 monthly installments, adjusted by TJLP.

**UHFLicenses**

On December 17,2003, we signed an agreement of intent to sell the licenses of Televisão ShowTime Ltda., TVA Brasil Radioenlaces Ltda. and TV Delta Curitiba Ltda. relatingto UHF services to an unrelated party.  We received advances of $2.7million which are recorded as advances from customers.  This balance hasbeen monetarily restated using the IGPM + CDI indexes and amounted to U.S.$7.0million as of December 31, 2006 (US$5.4 million as of December 31, 2005). The consummation of the transaction is still subject to the approval of ANATEL.

**C. Organizational Structure**

The following chart setsforth the significant subsidiaries comprising the corporate structure of ourcable, MMDS and Internet businesses as of December 31, 2006.

TVASistema and TVA Sul operate our MMDS and cable businesses.  TVA Sistemaoperates our MMDS operations in São Paulo and Rio de Janeiro and cable operationsin São Paulo.  TVA Sistema also operates the business of Ajato, our highspeed Internet service.  TVA Sul operates our MMDS operations in Curitibaand cable operations in Curitiba, Foz do Iguaçú and Florianópolis.  TVASul holds a 60% equity interest in CCS-Camboriú 

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Cable SystemTelecomunicações Ltda., the operating company for our services in Balneário deCamboriú.  An unaffiliated third partyholds the remaining 40% equity interest in CCS.

**D. Property, Plant and Equipment**

Weown most of the assets essential to our operations.  Our major fixedassets are coaxial and fiber optic cable, converters for subscribers’ homes,electronic transmission, receiving, processing and distribution equipment,microwave equipment and antennae.  We lease certain distributionfacilities from third parties, including space on utility poles, roof rightsand land leases for the placement of certain of our hub sights and head endsand space for other portions of our distribution system.  We lease officesfrom third parties, with the exception of certain offices of TVA Sul, locatedin Curitiba, State of Paraná, which are owned by us.  We also own our dataprocessing facilities and test equipment.

**ITEM 4A. UNRESOLVED STAFF COMMENTS**

Not applicable.

**ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

*Thefollowing discussion is based on our operations as of December 31, 2006 and isqualified in its entirety by the following information:*

On October 29,2006 we, TVA Sistema, Comercial Cabo TV São Paulo S.A., TVA Sul Paraná S.A.,Abril Comunicações (our shareholder) and certain entities affiliatedwith Abril Comunicações entered into certain convergence and saleagreements with Telecomunicações de São Paulo S.A.-Telesp (an affiliate ofTelefonica, the Spanish telecommunications concern) pursuant to which, subjectto regulatory approvals and other conditions precedent, we have agreed totransfer substantially all of our operating assets to certain entitiescontrolled by Telefonica and certain affiliates of Abril Comunicações.  As a result of this anticipated disposition,we have classified these operations as “Discontinued Operations,” the operatingreview and prospects of which we discuss below under “Discontinued Operations.”  The operating review and prospects of ourcontinuing operations are discussed below under “Continuing Operations.”  For more information on this transaction, seeItem 3, “Key Information—Selected Financial Data,” Item 4, “Information on theCompany” and note 20 to the Tevecap Financial Statements included in thisAnnual Report.

The followingdiscussion should be read in conjunction with the Financial Statements(including the notes thereto) included in this Annual Report.  For the purposes of the following discussion,all dollar amounts, with the exception of average installation and subscriberfees, are set forth in thousands of U.S. dollars.

**A.  Results of Operations**

**Overview**

Since ourinception in 1989, we have been developing our businesses.  Despite positive operating cash flows since2002, we continued to sustain substantial net losses until 2006 due primarilyto insufficient revenue with which to fund build-out, interest expense andcharges for depreciation and amortization. Our operations have been funded principally by (i) net contributionsfrom our shareholders, (ii) borrowings from Editora Abril S.A., or EditoraAbril, under a revolving credit facility, dated December 6, 1995, between us,as the borrower, and Editora Abril, as the lender, or the Abril CreditFacility, (iii) dispositions of non-strategic assets, and (iv) bank loans andother borrowings made from time to time.

Our results ofoperations for the year ended December 31, 2006 were significantly affected bythe following factors:  (i) theacquisition costs related to the growth of our subscriber base in our paytelevision and internet businesses; (ii) non-recurring costs and expensesassociated with the migration of our MMDS subscribers in Rio de Janeiro to ourdigital service and our planned initial public offering in Brazil, which wassuspended upon the 

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execution of theconvergence and sale agreements with Telesp described above; (iii) thedepreciation of investments in the construction and modernization ofinfrastructure used to improve current services and develop new services, (iv) therelatively high cost of local financing, (v) the impact of theappreciation of the *real*, asdiscussed below, and (vi) an increase in income tax expense.

**Critical Accounting Policies**

Our financialstatements are presented in accordance with U.S. GAAP.  As such, we are required to make certainestimates, judgments and assumptions that management believes are reasonablebased upon the information available. These estimates, judgments and assumptions affect the reported amountsof assets and liabilities at the dates of the financial statements and thereported amounts of revenues and expenses during the periods presented.  The significant accounting policies whichmanagement believes are the most critical to aid in fully understanding andevaluating our reported financial results include the following:

*Deferredincome taxes*.  Werecognize deferred tax assets and liabilities based on the differences betweenthe financial statement carrying amounts and the tax bases of assets andliabilities as well as operating loss and tax credit carryforwards.  We regularly review the deferred tax assetsfor recoverability and establish a valuation allowance if it is more likelythan not that the deferred tax assets will not be realized, based on historicaltaxable income, projected future taxable income, and the expected timing of thereversals of existing temporary differences. As of December 31, 2006, we had approximately U.S.$382.4 million ofaccumulated tax losses to offset against regular taxes.  These accumulated tax losses do notexpire.  We have a limited operatinghistory and have generated losses since our inception.  In view of this, we have established a fullvaluation allowance for the amount of the deferred tax assets attributable tothe accumulated tax losses carryforwards and other deductible differences.

*Impairmentof long-lived assets*. We review our property, plant and equipment for impairment wheneverevents or circumstances indicate that the carrying amount may not berecoverable.  In order to estimate thefair value of long-lived assets, we typically make various assumptions aboutthe future prospects for the business that the asset relates to, considermarket factors specific to that business and estimate future cash flows to begenerated by that business.  Based onthese assumptions and estimates, we determine whether we need to take animpairment charge to reduce the value of the asset stated on our balance sheetto reflect its estimated fair value. Assumptions and estimates about future values and remaining useful livesare complex and often subjective.  Theycan be affected by a variety of factors, including external factors such asindustry and economic trends, and internal factors such as changes in our businessstrategy and internal forecasts.  Achange in assumptions and estimates in the future could materially impact ourreported financial results in the event that we are required to recognizeimpairment charges, which would decrease net income and result in lower assetvalues on our balance sheet.

*Depreciationof property, plant and equipment*.  Depreciation of property, plant and equipmentis provided using the straight-line method based on the estimated useful livesof the underlying assets disclosed in Note 8 to the Tevecap Financial Statements.  Given the complex nature of our property,plant and equipment, the estimates of useful lives require considerablejudgment and are inherently uncertain. In the event that we change our estimates of useful lives, the amount offuture depreciation expense could be materially different and have asignificant impact on our results of operations.

*Provisionfor doubtful accounts.* A provision for doubtful accounts is established on the basis of ananalysis of the accounting receivable, in light of the risks involved, and isconsidered sufficient to cover any losses incurred in realization ofcredits.  If the financial condition ofour customers were to deteriorate, resulting in an impairment of their abilityto make payments, additional allowances may be required, having a negativeimpact on our results of operations.

*Provisions for contingencies.*Weare subject to proceedings, lawsuits and other claims related to tax, labor andcivil matters. We are required to assess the likelihood of any adversejudgments or outcomes to these matters as well as potential ranges of probablelosses. A determination of the amount of reserves required, if any, for thesecontingencies is made after careful analysis of each individual issue, based onlegal advice. The required reserves may change in the future due to newdevelopments in each matter or changes in our approach in dealing with thesematters, such as a change in settlement strategy. Future possible changes inthe recorded reserve amounts would impact our results of operations in theperiod that such changes are recorded.

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**Impact of *Real*Fluctuation**

All forms of ourrevenue were affected in dollar terms as a result of the significantfluctuation of the Brazilian *real* againstother major currencies.  The devaluationof the *real*, which occurred primarily in 1999and continued through 2002, resulted in a loss in the value of the *real* against the U.S. dollar of approximately 18.7% duringthe year ended December 31, 2001 and approximately 52.3% during the year endedDecember 31, 2002.  This devaluation alsoresulted in an increase in our U.S. dollar-denominated liabilities.

For the yearsended December 31, 2004, 2005 and 2006, however, the *real*appreciated approximately 8.1%, 11.8% and 8.7%, respectively, against the U.S.dollar.  The average *real*/U.S.dollar exchange rate in 2004, 2005 and 2006 was R$2.9262/U.S.$1.00,R$2.4352/U.S.$1.00 and R$2.1761/U.S.$1.00, respectively, reflecting an averageappreciation of the *real* of 16.8%from 2004 to 2005 and 10.6% from 2005 to 2006.

This appreciationresulted in an increase in all amounts presented in our consolidated statementof operations.  In particular, thisappreciation significantly affected our foreign currency gains and losses,which represented in our consolidated income statement (considering bothcontinued and discontinued operations) a gain of U.S.$3.6million (or 4% ofconsolidated net revenue) in 2004, a gain of U.S.$6.4 million (or 5% ofconsolidated net revenue) in 2005, and a gain of U.S.$4.2 million (or 3% ofconsolidated net revenue) in 2006.  SeeItem 3, “Key Information—Risk Factors—Factors Relating to the Company” and “—FactorsRelating to Brazil.”

**RecentAccounting Pronouncements**

In September 2006, the SECissued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements (“SAB 108”).SAB 108 provides guidance on how prior yearmisstatements should be considered when quantifying misstatements in currentyear financial statements for purposes of assessing materiality. SAB 108requires that registrants quantify errors using both a balance sheet and incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when relevant quantitative and qualitative factors areconsidered, is material. SAB 108 is effective for fiscal years ending afterNovember 15, 2006. SAB 108 permits companies to initially apply its provisionsby either restating prior financial statements or recording a cumulative effectadjustment to the carrying values of assets and liabilities as of January 1,2006 with an offsetting adjustment to retained earnings for errors that werepreviously deemed immaterial but are material under the guidance in SAB 108.The adoption of SAB 108 did not have any impact on the Company’s consolidatedfinancial statements.

In September 2006, the FASBissued SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”). SFAS 157 definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles,and expands disclosures about fair valuemeasurements. The provisions of this standard apply to other accountingpronouncements that require or permit fair value measurements. SFAS 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007. Upon adoption, the provisions of SFAS 157 are to be appliedprospectively with limited exceptions. The Company is in the process ofevaluating the financial impact of adopting SFAS 157.

In June 2006, the FASBissued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”This interpretation prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. This interpretation alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. The interpretation iseffective for fiscal years beginning after December 15, 2006. While we arestill evaluating our tax positions, we do not anticipate it will have amaterial impact on our retained earnings at the time of adoption.

In February 2007, theFASB issued SFAS No. 159 “The Fair Value Option for Financial Assets andFinancial Liabilities” (SFAS No. 159), which permits entities to choose tomeasure many financial instruments and certain other items at fair value.For us, SFAS No. 159 is effective as of1, 2008 and will have no impact on amountspresented for periods prior to the effective date. We cannot currently estimatethe impact of SFAS No. 

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159 on ourconsolidated results of operations, cash flows or financial position and havenot yet determined whether or not we will choose to measure items subjectto SFAS No. 159 at fair value.

**CONTINUINGOPERATIONS**

The followingsection highlights the operating review and prospects of our continuingoperations.  As a result of ouranticipated disposition and the materiality of the operations being transferredunder our transaction with Telesp as described above, we have classified theoperations being transferred as “Discontinued Operations,” the operating reviewand prospects of which are discussed separately under “Discontinued Operations”below.

**Consolidated Statements ofOperations Data**
| ** **                                                            | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                            | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                            | ** ** | **Amount**                                 | ** ** | **% of Net   Revenue** | ** ** | **Amount** | ** ** | **% of Net   Revenue** | ** ** | **Amount** | ** ** | **% of Net   Revenue** | ** ** |
|                                                                  |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Monthly  subscriptions                                                |       | $                                          | 4,518      |   | 111.0 | % | $ | 3,556 |   | 109.5 | % | $ | 2,447 |   | 112.9 | % |
| Installation                                                          |       | 51                                         |       | 1.3 | % | 32 |   | 1.0 | % | 26 |   | 1.2 | % |
| Adverting                                                             |       | 107                                        |       | 2.6 | % | 110 |   | 3.4 | % | 16 |   | 0.7 | % |
| Additional  services                                                  |       | 102                                        |       | 2.5 | % | 69 |   | 2.1 | % | 45 |   | 2.1 | % |
| Taxes on revenue                                                      |       | (706                                       | )          | (17.3 | )% | (519 | ) | (16.0 | )% | (367 | ) | (16.9 | )% |
| Net revenue                                                           |       | 4,072                                      |       | 100.0 | % | 3,248 |   | 100.0 | % | 2,167 |   | 100.0 | % |
| Direct operating  expenses                                            |       | 1,422                                      |       | 35.0 | % | 1,329 |   | 40.9 | % | 1,090 |   | 50.3 | % |
| Selling, general  and administrative expenses                         |       | 1,656                                      |       | 40.6 | % | 948 |   | 29.2 | % | 766 |   | 35.3 | % |
| Depreciation                                                          |       | 579                                        |       | 14.2 | % | 161 |   | 5.0 | % | 195 |   | 9.0 | % |
| Amortization                                                          |       | 238                                        |       | 5.8 | % | 430 |   | 13.2 | % | 428 |   | 19.8 | % |
| Other operating  expense, net                                         |       | 4,609                                      |       | 113.2 | % | 341 |   | 10.5 | % | 216 |   | 10.1 | % |
| Income (loss)  from operations                                        |       | (4,432                                     | )          | (108.8 | )% | 39 |   | 1.2 | % | (528 | ) | (24.4 | )% |
| Interest income                                                       |       | (1,190                                     | )          | (29.2 | )% | (523 | ) | (16.1 | )% | (367 | ) | (17.0 | )% |
| Interest expense                                                      |       | 25,108                                     |       | 616.6 | % | 22,977 |   | 707.4 | % | 16,252 |   | 750.1 | % |
| Foreign currency  transaction income, net                             |       | (3,819                                     | )          | (93.8 | )% | (6,157 | ) | (189.5 | )% | (3,496 | ) | (161.3 | )% |
| Other  nonoperating income, net                                       |       | —                                     |       | 0.0 | % | — |   | 0.0 | % | (8,443 | ) | (389.6 | )% |
| Loss before  income taxes, equity in affiliates and minority interest |       | (24,351                                    | )          | (598.0 | )% | (16,258 | ) | (500.6 | )% | (4,474 | ) | (206.5 | )% |
| Equity in  (losses of) affiliates, net                                |       | —                                     |       | 0.0 | % | — |   | 0.0 | % | 468 |   | 21.6 | % |
| Minority  interest                                                    |       | 341                                        |       | 8.4 | % | 240 |   | 7.4 | % | 255 |   | 11.7 | % |
| Loss from  continuing operations before income taxes                  |       | (24,872                                    | )          | (610.8 | )% | (16,498 | ) | (507.9 | )% | (5,197 | ) | (239.8 | )% |
| Income tax from  continuing operations - current                      |       | 493                                        |       | 12.1 | % | 308 |   | 9.5 | % | 304 |   | 14.0 | % |
| Income tax from  continuing operations - deferred(1)   |       | 8,613                                      |       | 211.5 | % | 27,424 |   | 844.3 | % | 8,866 |   | 409.2 | % |
| Loss from continuing operations                                       |       | (33.978                                    | )          | (834.4 | )% | (44,230 | ) | (1,361.8 | )% | (14,367 | ) | (663.0 | )% |
| Income (loss) from discontinued operations  before income taxes       |       | 5,326                                      |       | 130.8 | % | (18,782 | ) | (578.3 | )% | (5,276 | ) | (243.4 | )% |
| Income taxes on discontinued operations                               |       | (962                                       | )          | (23.6 | )% | (314 | ) | (9.7 | )% | — |   | 0 | % |
| Income (loss)  from discontinued operations                           |       | 4,364                                      |       | 107.2 | % | (19,096 | ) | (587.9 | )% | (5,276 | ) | (243.4 | )% |
| Net loss                                                              |       | (29,614                                    | )          | (727.3 | )% | (63,326 | ) | (1,949.7 | )% | (19,643 | ) | (906.3 | )% |
|                                                                       |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)    Includesprovision for deferred income taxes in 2006, 2005 and 2004 due to foreigncurrency gains in respect of our senior notes.

41

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**Year Ended December 31, 2006 Compared to YearEnded December 31, 2005**

The table below setsforth the number of our cable subscribers in the city of Camboriú atDecember 31, 2006 and December 31, 2005.
| Cable Subscribers                  | ** ** | **December 31,   2006** | ** ** | **December 31,   2005** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
|                                    |       |                              |       |                              |       |
| Cable                                   |       | 11,330                            |       | 10,535                            |       |
|                                    |       |                              |       |                              |       |
| Paid subscribers  awaiting installation |       | 20                                |       | 2                                 |       |
| Total                                   |       | 11,350                            |       | 10,537                            |       |

 

*Grossrevenues*.  Grossrevenues consist primarily of monthly subscription revenue (which principallyconsists of monthly fees paid by subscribers to us for video services),installation revenue and additional services and others (which consist ofadvertising revenues and other revenues). For the year ended December 31, 2006, gross revenues for the paytelevision segment in Camboriú were U.S.$4.8 million (or 100% of totalrevenues), as compared with U.S.$3.8 million for the previous year.

*Monthlysubscription revenue.*For the year ended December 31, 2006was U.S.$4.5 million, an increase of 27.1%, as compared to U.S.$3.6 million forthe same period in 2005.  The increase inrevenue was due to the growth in our pay television subscriber base in Camboriúof 8% and in average monthly fees of 17.3%, from U.S.$32.16 in 2005 toU.S.$37.71 in 2006.

*Installationrevenue.* For the yearended December 31, 2006 was U.S.$0.05 million, as compared to U.S.$0.03 millionfor the same period in 2005, an increase of 59.4%.  This increase was primarily due to theincrease of 60% in the average hook-up fee, which was U.S.$19.89 in 2006 ascompared to U.S.$12.43 in 2005.

*Advertising,additional services and other revenues* for the year endedDecember 31, 2006 remained the same at U.S.$0.2 million for 2006 and 2005.

*Taxes onrevenue* consist of a 3.65% tax on advertising revenue and a15.15% tax on revenues other than advertising revenue.  Taxes on revenue for the year ended December31, 2006 were U.S.$0.7 million, as compared to U.S.$0.5 million for the sameperiod in the prior year, an increase of 36%. The increase in taxes on revenue is attributable to our increase inrevenues.  Taxes on revenue as apercentage of gross revenues were 14.8% in 2006, as compared to 13.8% in 2005.

Net revenue forthe year ended December 31, 2006 was U.S.$4.1 million, as compared to U.S.$3.2million for the same period in 2004, an increase of U.S.$0.9 million or 25.4%.

*Directoperating expenses*. Direct operating expenses include expenses in connection with payrolland benefits for non-administrative employees, programming, technicalassistance, TVA magazine, pole rental, network and other operations.  These expenses are variable and related tothe subscriber base evolution and are also dependent on the type of service subscribersselect.  Direct operating expenses forthe year ended December 31, 2006 were U.S.$1.4 million, as compared to U.S.$1.3million for the same period in 2005, an increase of U.S.$0.1 million, or 7.1%.  As a percentage of net revenues, direct operatingexpenses represented 35% in 2006, as compared to 41% in 2005.  This significant decrease in direct operatingexpenses demonstrates the positive results of our restructuring efforts withgains in productivity being incorporated into our cost structure.

*Selling,general and administrative expenses*.  Selling, general and administrative expensesinclude payroll and benefits for administrative and selling employees,advertising and promotion expense, rent, and other general and administrativeexpenses.  Selling, general andadministrative expenses for the year ended December 31, 2006 were U.S.$1.7million, as compared to U.S.$0.9 million for the same period in 2005, anincrease of U.S.$0.8 million or 74%,

42

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*Depreciationand amortization*. Depreciation and amortization includes depreciation of systems,equipment and installation materials and amortization of concessions.  Depreciation and amortization for the yearended December 31, 2006 was U.S.$0.8 million, as compared to U.S.$0.6 millionfor the same period in 2005, an increase of U.S.$0.2 million or 38%.

*Operatingincome(loss)*. Operating losses for the year ended December 31, 2006 were U.S.$4.4million as compared to U.S.$0.04 million income for the same period in 2005, aincrease in loss of U.S.$4.4 million. The improvement in 2006 was primarily a consequence of the increase ofU.S.$4.0 million in general and administrative expenses in 2006 related to ourplanned initial public offering in Brazil, which was suspended upon theexecution of the convergence and sale agreements with Telesp described above.

*Interestincome*.  Interestincome for the year ended December 31, 2006 was U.S.$1.2 million, as comparedto U.S.$0.5 million for the same period in 2005, a increase of U.S.$0.7million, or 127.5%.

*InterestExpense*.  Interestexpense for the year ended December 31, 2006 was U.S.$25.1 million, as comparedto U.S.$23.0 million for the same period in 2005, an increase of U.S.$2.1million or 9.1%, principally attributable to fluctuations in prime interestrates in Brazil (14.82% in 2006 and 19.12% in 2005) and the appreciation of the*real*.

*Foreigncurrency transaction (gain) loss, net*.  Foreign currency transaction loss, netdecreased from U.S.$6.2 million in 2005 to U.S.$3.8 million in 2006 as a resultof the appreciation of the *real* againstthe dollar of 8.7% in 2006 compared to an appreciation of 11.8% in 2005.

*Minorityinterest*.  Minorityinterest was U.S.$0.3 million in 2006, as compared to U.S.$0.2 million in 2005due to the operational performance in our Camboriú operation.

*Incometaxes*.  Income taxexpense in 2005 was U.S.$27.7 million compared to U.S.$9.1 million in 2006.Income tax expense is principally related to the impact of the appreciation ofthe *real* against the dollar, which reducedour U.S. dollar-denominated indebtedness.

*Netincome (loss). *Netloss for the year ended December 31, 2006 was U.S.$29.6 million, as compared toa net loss of U.S.$63.3 million for the same period in 2005, an improvement ofU.S.$33.7 million, primarily related to a reduction in income taxes ofU.S.$18.6 million and an increase in net income from discontinued operations ofU.S.$23.5 million.

**YearEnded December 31, 2005 Compared to Year Ended December 31, 2004**

The table belowsets forth the number of our cable subscribers in the city of Camboriú atDecember 31, 2005 and December 31, 2004.
| Cable Subscribers                  | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                                    |       |                        |       |                        |       |
| Cable                                   |       | 10,535                      |       | 9,802                       |       |
|                                    |       |                        |       |                        |       |
| Paid Subscribers  Awaiting Installation |       | 2                           |       | 4                           |       |
| Total                                   |       | 10,537                      |       | 9,806                       |       |

 

*Grossrevenues*.  For the yearended December 31, 2005, gross revenues for the pay television segment inCamboriú were U.S.$3.8 million (or 100% of total revenues), as compared withU.S.$2.5 million for the previous year.

43

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*Monthlysubscription revenue* for the year ended December 31, 2005 wasU.S.$ 3,6 million, an increase of 45.3%, as compared to U.S.$2.4 million forthe same period in 2004.  The increase inrevenue was due to the growth in our pay television subscriber base in Camboriúof 7.5% and in the average monthly fees of 20.9%, from U.S.$26.60 in 2004 toU.S.$32.16 in 2005.

*Installationrevenue*, *advertising, additionalservices and other revenues* for the year ended December 31, 2005 wasU.S.$0.2 million as compared to U.S.$0.09 million for the previous year.

*Taxes onrevenue* for the year ended December 31, 2005 were U.S.$0.5million, as compared to U.S.$0.4 million for the same period in the prior year,an increase of 41%.  The increase intaxes on revenue is attributable to our increase in revenues.  Taxes on revenue as a percentage of grossrevenues were 13.8% in 2005, as compared to 14.5% in 2004.

*Netrevenue* for the year ended December 31, 2005 was U.S.$3.2million, as compared to U.S.$2.2 million for the same period in 2004, anincrease of U.S.$1.0 million or 49.8%.

*Directoperating expenses*. Direct operating expenses for the year ended December 31, 2005 wereU.S.$1.3 million, as compared to U.S.$1.1 million for the same period in 2004,an increase of U.S.$0.2 million, or 21.9%. As a percentage of net revenues, direct operating expenses represented41% in 2005, as compared to 50.3% in 2004. This decrease in direct operating expenses demonstrates the positiveresults of our restructuring efforts with gains in productivity beingincorporated into our cost structure.

*Selling,general and administrative expenses*.  Selling, general and administrative expensesfor the year ended December 31, 2005 were U.S.$0.9 million, as compared toU.S.$0.8 million for the same period in 2004.

*Depreciationand amortization*. Depreciation and amortization for the year ended December 31, 2005 and2004 remained the same at U.S.$0.6 million.

*Operatingincome(loss)*. Operating income for the year ended December 31, 2005 was U.S.$0.04million compared to U.S.$0.5 million loss for the same period in 2004, anincrease in income of U.S.$0.5 million.

*Interestincome*.  Interestincome for the year ended December 31, 2005 was U.S.$0.5 million, as comparedto U.S.$0.4 million for the same period in 2004, an increase of U.S.$0.1 million,or 42.5%.

*InterestExpense*.  Interestexpense for the year ended December 31, 2005 was U.S.$23.0 million, as comparedto U.S.$16.3 million for the same period in 2004, an increase of U.S.$6.7million or 41.4%, principally attributable to fluctuations in prime interestrates in Brazil (19% in 2005 and 18% in 2004) and the appreciation of the *real*.

*Foreigncurrency transaction (gain) loss, net*.  Foreign currency transaction loss, netincreased from U.S.$3.5 million in 2004 to U.S.$6.2 million in 2005 as a resultof the appreciation of the *real* againstthe dollar of 11.8% in 2005 compared to an appreciation of 8.1% in 2004.

*Othernonoperating expenses*. Other nonoperating expenses (income), net for the year ended December31, 2004 was an income of U.S.$8.4 million, principally attributable to thesale of our Canbras investment.  Werecorded no other nonoperating expenses (income), net in 2005.

*Minorityinterest*.  Minorityinterest was U.S.$0.2 million in 2005, as compared to U.S.$0.3 million in 2004due to our operating performance in Camboriú.

*Incometaxes*.  Income taxexpense in 2004 was U.S.$9.2 million compared to U.S.$27.7 million in 2005.Income tax expense is principally related to the impact of the appreciation ofthe *real* against the dollar, which reducedour U.S. dollar-denominated indebtedness.

*Netincome (loss). *Netloss for the year ended December 31, 2005 was 63.3 million, as compared to anet loss of U.S.$19.6 million  for thesame period in 2004, an increase of U.S.$43.7 million, primarily related tonon-

44

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operating expenses(U.S.$8.4 million), the increase in income taxes (U.S.$18.5 million) and lossesfrom discontinued operations (U.S.$13.8 million).

**DISCONTINUED OPERATIONS**

As a result of ouranticipated disposition and the materiality of the operations being transferredunder our transaction with Telesp as described above, we have classified theoperations being transferred as “Discontinued Operations,” the operating reviewand prospects of which are discussed below.
|                                               | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Monthly  subscriptions revenues               |       | $                                          | 150,353    |   | $ | 123,085 |   | $ | 91,616 |   |
| Installation  revenues                        |       | 2,713                                      |       | 2,053 |   | 964 |   |
| Advertising  revenue                          |       | 5,037                                      |       | 3,534 |   | 1,833 |   |
| Additional  services revenues                 |       | 9,767                                      |       | 6,725 |   | 6,151 |   |
| Taxes on revenue                              |       | (23,842                                    | )          | (19,466 | ) | (14,026 | ) |
| Direct operating  expenses                    |       | (47,207                                    | )          | (42,670 | ) | (36,116 | ) |
| Selling, general  and administrative expenses |       | (47,596                                    | )          | (47,015 | ) | (24,101 | ) |
| Depreciation                                  |       | (25,197                                    | )          | (23,146 | ) | (19,634 | ) |
| Amortization                                  |       | (3,508                                     | )          | (5,800 | ) | (4,099 | ) |
| Other operating  expenses, net                |       | (986                                       | )          | (6,587 | ) | (3,096 | ) |
| Interest income                               |       | 1,566                                      |       | 487 |   | 333 |   |
| Interest expense                              |       | (16,140                                    | )          | (10,205 | ) | (5,165 | ) |
| Foreign currency  transaction income, net     |       | 366                                        |       | 223 |   | 64 |   |
| Income tax  expense                           |       | (962                                       | )          | (314 | ) | — |   |
| Income (loss) from  discontinued operations   |       | 4,364                                      |       | (19,096 | ) | (5,276 | ) |
|                                               |            |                                            |            |  |  |  |  |  |  |  |

 

**Year Ended December 31, 2006 Compared to YearEnded December 31, 2005**

The table below setsforth the number of our cable and MMDS subscribers at December 31, 2006and December 31, 2005.
| Cable/MMDS Subscribers             | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| MMDS(1)                                 |       | 121,299                     |       | 99,742                      |       |
| Cable                                   |       | 194,651                     |       | 190,298                     |       |
|                                    |       | 315,950                     |       | 290,040                     |       |
| Paid subscribers  awaiting installation |       | 984                         |       | 815                         |       |
| Total                                   |       | 316,934                     |       | 290,855                     |       |

 

----

(1)   Includes UHF subscribers.

The table belowsets forth the number of our internet subscribers at December 31, 2006 andDecember 31, 2005.
| Internet Subscribers               | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Ajato(1)                                |       | 61,898                      |       | 44,376                      |       |
| Paid Subscribers  Awaiting Installation |       | 795                         |       | 249                         |       |
| Total internet  Subscribers             |       | 62,693                      |       | 44,625                      |       |

 

----

(1)          Excludes subscribersthat formerly subscribed separately to Acesso for internet access, and who nowreceive both internet access and internet service through Ajato.

*Monthlysubscription revenue* for the year ended December 31, 2006 wasU.S.$150.4 million, an increase of 22.2%, as compared to U.S.$123.1 million forthe same period in 2005.  The increase inrevenue was due to the 

45

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large growth in ourinternet subscriber base of 39%, together with a growth of 9% in the paytelevision subscriber base.  Averagemonthly fees for existing pay television subscribers increased 11%, fromU.S.$35.51 in 2005 to U.S.$39.25 in 2006, largely due to the upgrade in ourprogramming offerings and higher ARPUs for digital subscribers, whichrepresented 39% of total pay television subscribers (as opposed to 18% in2005).  The average monthly subscriptionprice for the year ended December 31, 2006 was U.S.$38.84 for MMDSservice, U.S.$39.50 for cable service, U.S.$ 30.64 for residential internetservice and U.S.$151.87 for corporate internet service, as compared toU.S.$33.89, U.S.$36.36, U.S.$30.73 and U.S.$185.79, respectively, for the sameperiod of 2005.

*Installationrevenue* for the year ended December 31, 2006 was U.S.$2.7 million,as compared to U.S.$2.1 million for the same period in 2005, an increaseof U.S.$0.6 million or 32.1%.  Thisincrease was primarily due to the increase of 29% in new sales, the higheraverage hook-up fee charged to new digital subscribers and the one time hook-upfee charged for the digital subscribers in Rio de Janeiro, which reduced thesubsidy for installing a new set top box. The average installation fee in 2006 was U.S.$24.63 for MMDS service andU.S.$5.63 for cable service, as compared to U.S.$16.33 and U.S.$10.12,respectively, in 2005

*Advertising,additional services and other revenues* for the year endedDecember 31, 2006 was U.S.$14.8 million, as compared to U.S.$10.3 million forthe same period in 2005, an increase of 44%. This increase was due primarily to an increase in advertising revenue of42.5%, from U.S.$3.5 million in 2005 to U.S.$5.0 million in 2006 due to a newsegmented approach in the market. Additionally, other revenues increased 45.2% from U.S.$6.7 million in2005 to U.S.$9.8 million in 2006, principally due to the increase in theinternet subscriber base and related cable modem rental and new contracts forthe wholesale segment.

*Taxes onrevenue* consist of a 3.65% tax on advertising revenue and a15.15% tax on revenues other than advertising revenue.  Taxes on revenue for the year ended December31, 2006 were U.S.$23.8 million, as compared to U.S.$19.5 million for the sameperiod in the prior year, an increase of 22.5%. The increase in taxes on revenue is attributable to our increase inrevenues and a new valued added tax (ICMS) applied to adverting revenue.

*Directoperating expenses*. Direct operating expenses include expenses in connection with payrolland benefits for non-administrative employees, programming, technicalassistance, TVA magazine, pole rental, network and other operations.  These expenses are variable and related tothe subscriber base evolution and are also dependent on the type of servicesubscribers select.  Direct operatingexpenses for the year ended December 31, 2006 were U.S.$47.2 million, ascompared to U.S.$42.7 million for the same period in 2005, an increase ofU.S.$4.5 million, or 10.6%.  As apercentage of monthly subscriptions revenues, direct operating expensesrepresented 31% in 2006, as compared to 35% in 2005.  This significant decrease in direct operatingexpenses demonstrates the continuing positive results of our restructuringefforts with gains in productivity being incorporated into our cost structure.

*Selling,general and administrative expenses*.  Selling, general and administrative expensesinclude payroll and benefits for administrative and selling employees,advertising and promotion expense, rent, and other general and administrativeexpenses.  Selling, general andadministrative expenses for the year ended December 31, 2006 were U.S.$47.6million, as compared to U.S.$47.0 million for the same period in 2005, anincrease of U.S.$0.6 million or 1%.

*Depreciationand amortization*. Depreciation and amortization includes depreciation of systems,equipment and installation materials and amortization of concessions.  Depreciation and amortization for the yearended December 31, 2006 was U.S.$28.7 million, as compared to U.S.$28.9 millionfor the same period in 2005, a decrease of U.S.$0.2 million, due primarily tonew capital expenditures of U.S.$42.7 million during 2006 which were partiallyoffset by the fact that certain items of property, plant and equipment werefully depreciated and by the depreciation of investments made in the last twoyears.  In addition, this decreasereflects the investment made to digitize our cable operations in São Paulo in2004.

*Interestincome*.  Interestincome for the year ended December 31, 2006 was U.S.$1.6 million, as comparedto U.S.$0.5 million for the same period in 2005, an increase of U.S.$1.1million, or 222%.

*InterestExpense*.  Interestexpense for the year ended December 31, 2006 was U.S.$16.1 million, as comparedto U.S.$10.2 million for the same period in 2005, an increase of U.S.$5.9million, principally attributable 

46

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to fluctuations in primeinterest rates in Brazil (14.82% in 2006 and 19.12% in 2005) and theappreciation of the *real*.

*Foreigncurrency transaction (gain) loss, net.*  Foreign currency transaction gain, net increasedfrom U.S.$0.2 million in 2005 to U.S.$0.4 million in 2006 as a result of theappreciation of the *real* againstthe U.S. dollar of 8.7% in 2006 compared to an appreciation of 11.8% in 2005.

*Netincome (loss). *Netincome for the year ended December 31, 2006 was U.S.$4.4 million income, ascompared to a net loss of U.S.$19.1 million loss for the same period in 2005,an increase of U.S.$23.5 million.  Thisimprovement is primarily due to an increase in our pay television and internetsubscriber bases and ARPU, resulting in a 22% increase in monthly subscriptionsrevenues (U.S.$27.3 million).

**YearEnded December 31, 2005 Compared to Year Ended December 31, 2004**

The table belowsets forth the number of our cable and MMDS subscribers at December 31,2005 and December 31, 2004.
| Cable/MMDS Subscribers             | ** ** | **December 31,  2005** | ** ** | **December 31,   2004** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|
| MMDS(1)                                 |       | 99,742                      |       | 102,966                           |       |
| Cable                                   |       | 190,298                     |       | 180,780                           |       |
|                                    |       | 290,040                     |       | 283,746                           |       |
| Paid Subscribers  Awaiting Installation |       | 815                         |       | 402                               |       |
| Total                                   |       | 290,855                     |       | 284,148                           |       |

 

----

(1)   IncludesUHF subscribers

The table belowsets forth the number of our internet subscribers at December 31, 2005 andDecember 31, 2004.
| Internet Subscribers               | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Ajato(1)                                |       | 44,376                      |       | 30,044                      |       |
| Paid Subscribers  Awaiting Installation |       | 249                         |       | 394                         |       |
| Total internet  Subscribers             |       | 44,625                      |       | 30,438                      |       |

 

----

(1)          Excludessubscribers that formerly subscribed separately to Acesso for internet access,and who now receive both internet access and internet service through Ajato.

*Monthlysubscription revenue* for the year ended December 31, 2005 wasU.S.$123.1 million, an increase of 34.3%, as compared to U.S.$91.6 million forthe same period in 2004.  The increase inrevenue was due to the large growth in our internet subscriber base of 39%,together with a growth of 2% in the pay television subscriber base.  Average monthly fees for existing paytelevision subscribers increased 20%, from U.S.$29.67 in 2004 to U.S.$35.51 in2005, largely due to the upgrade in our programming offerings and higher ARPUsfor digital subscribers, which represented 18% of total pay televisionsubscribers (as opposed to 1.4% in 2004). The average monthly subscription price for the year ended December 31,2005 was U.S.$33.85 for MMDS service, U.S.$36.36 for cable service, U.S.$30.73for residential internet service and U.S.$185.79 for corporate internetservice, as compared to U.S.$27.74, U.S.$30.78, U.S.$28.31 and U.S.$167.56,respectively, for the same period of 2004. In November 2005 our MMDS operation in São Paulo was fully digitized,thereby impacting favorably our ARPU and churn indicators.

*Installationrevenue* for the year ended December 31, 2005 was U.S.$2.1 million,as compared to U.S.$1.0 million for the same period in 2004, an increase ofU.S.$1.1 million or 113%.  This increasewas primarily due to the increase of 8% in new sales  and the higher average hook-up fee charged tonew digital subscribers (including charges to analog subscribers to migrate todigital), which reduced the subsidy for installing a new set top box.  The 

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average installation feein 2005 was U.S.$16.33 for MMDS service and U.S.$10.12 for cable service, ascompared to U.S.$ 14.67 and U.S.$ 23.49, respectively, in 2004 (2005 averageinstallation fee does not consider the analog migration into digital charge).

*Advertising,additional services and other revenues* for the year endedDecember 31, 2005 was U.S.$10.3 million, as compared to U.S.$ 8.0 million forthe same period in 2004, an increase of 28%. This increase was due primarily to an increase in advertising revenue of93%, from U.S.$ 1.8 million in 2004 to U.S.$ 3.5 million in 2005 due to a newsegmented approach in the market. Additionally, other revenues increased 9.3%from U.S.$6.2 million in 2004 to U.S.$6.7 million in 2005, principally due tothe increase in the internet subscriber base and related cable modem rental andnew contracts for the wholesale segment.

*Taxes onrevenue* for the year ended December 31, 2005 were U.S.$ 19.5million, as compared to U.S.$14.0 million for the same period in the prioryear, an increase of 39%.  The increasein taxes on revenue is attributable to our increase in revenues and a newvalued added tax (ICMS) applied to adverting revenue.

*Directoperating expenses*. Direct operating expenses for the year ended December 31, 2005 wereU.S.$42.7 million, as compared to U.S.$36.1 million for the same period in2004, an increase of U.S.$6.6 million, or 18.1%.  As a percentage of monthly subscriptionsrevenues, direct operating expenses represented 35% in 2005, as compared to 39%in 2004.  This relative decrease indirect operating expenses demonstrates the positive results of ourrestructuring efforts with gains in productivity being incorporated into ourcost structure.

*Selling,general and administrative expenses*.  Selling, general and administrative expensesfor the year ended December 31, 2005 were U.S.$47.0 million, as compared toU.S.$24.1 million for the same period in 2004, an increase of U.S.$22.9 millionor 95%, primarily due to higher sales commission expenses attributed to anincrease in the subscriber base level, resulting in 6,294 new net paytelevision connections and 14,332 new net Internet connections in 2005. Withthe migration of our MMDS customers from analog to digital service in 2005, weencouraged the cancellation of approximately 5,000 relatively unprofitablecustomers. Marketing expenses also increased in 2005 due to the launching ofnew digital products for our São Paulo MMDS operation and new communication andinstitutional strategies. As a percentage of net revenues, selling, general andadministrative expenses represented 29.9% in 2005, as compared to 27.9% in2004.  Fixed costs were practically thesame in 2005 as compared to 2004 (in local currency adjusted for inflation), animpact of the continuous cost control program that we have implemented since2002. The increase was primarily due to a non-recurring provision of U.S.$12.2million in 2005 in respect of value added taxes (ICMS) applicable toadvertising revenues.

*Depreciationand amortization*. Depreciation and amortization for the year ended December 31, 2005 wasU.S.$28.9 million, as compared to U.S.$23.7 million for the same period in2004, an increase of U.S.$5.2 million due primarily to new capital expendituresof U.S.$25.5 million during 2005 which were partially offset by the fact thatcertain items of property, plant and equipment were fully depreciated in2005.  In addition, this increasereflects the investment made to digitize our cable operations in São Paulo in2004.

*Interestincome*.  Interestincome for the year ended December 31, 2005 was U.S.$0.5 million, as comparedto U.S.$0.3 million for the same period in 2004, an increase of U.S.$0.2million, or 46%.

*InterestExpense*.  Interestexpense for the year ended December 31, 2005 was U.S.$10.2 million, as comparedto U.S.$5.2 million for the same period in 2004, an increase of U.S.$5.0million, principally attributable to fluctuations in prime interest rates inBrazil (19.12% in 2005 and 16.24% in 2004) and the appreciation of the *real*.

*Foreigncurrency transaction (gain) loss, net*.  Foreign currency transaction gain, netincreased from U.S.$0.1 million in 2004 to U.S.$0.2 million in 2005 as a resultof the appreciation of the *real* againstthe U.S. dollar of 11.8% in 2005 compared to an appreciation of 8.1% in 2004.

*Netincome (loss). *Netloss for the year ended December 31, 2005 was U.S.$19.1 million, as compared toa net loss of U.S.$5.3 million for the same period in 2004, an increase ofU.S.$13.8 million.  The increase in netloss was primarily due to a non-recurring provision of U.S.$12.2 million in2005 in response to a assessment by Brazilian tax autorities related to valueadded taxes (ICMS).

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**B.  Liquidity and Capital Resources**

Since our inception,we have sustained losses primarily due to insufficient revenue to fund start-upcosts, interest expense and charges for depreciation and amortization arisingfrom the development of our pay television and broadband internet systems.  As of December 31, 2006, we had cumulativenet losses of U.S.$696.3 million and cumulative tax losses of U.S.$382.4million (these cumulative tax losses will not be transferred in the event ourtransaction with Telesp is consummated). During the periods under review, we required external funds to financeour capital expenditures and operating activities and make payments ofprincipal and interest on our indebtedness. The sources of such funds have been as follows:  (i) borrowings from Editora Abril under theAbril Credit Facility, of which U.S.$77.4 million was outstanding as ofDecember 31, 2006, (ii) borrowings under short/long-term revolving creditfacilities, of which U.S.$ 33.0 million was outstanding as of December 31,2006, (iii) net capital contributions of approximately U.S.$515.8 million fromshareholders and (iv) an aggregate principal amount of U.S.$48.3 million insenior notes outstanding to unaffiliated parties as of December 31, 2006.

As of December 31,2006, we had U.S.$ 200.4 million of indebtedness outstanding, consisting ofsenior notes held by third parties in the aggregate principal amount ofU.S.$48.3 million, U.S.$77.4 million outstanding under the Abril CreditFacility, loans amounting U.S.$41.7 million from related parties, andshort/long-term revolving credit facilities in an aggregate principal amount ofU.S.$33.0 million.  We will likelyrequire capital for (i) the continued funding of losses and working capitalrequirements, (ii) the installation of equipment at subscribers’ locations,(iii) the construction/maintenance of additional/existing transmission and headend facilities and related equipment purchases, (iv) the launching of digitalservices for analog MMDS customers and related expenses, (v) the development ofour internet businesses and (vi) the payment of the principal amount of ourindebtedness.

We made purchasesof fixed assets in the aggregate amount of U.S.$ 42.9 million and U.S.$26.6million in 2006 and 2005, respectively. Management estimates that approximately U.S.$ 85.0 million (assuming anexchange rate of U.S.$1.00 = R$2.0) of capital expenditures will be required in2007, principally related to new subscriber installations and set-top boxes,which expenditures are variable in accordance with the increase in new paytelevision and internet subscribers.

Our principalsources of liquidity are borrowings under the Abril Credit Facility and ourshort-term revolving credit facility, together with net cash provided byoperating activities.  In addition, wereceived an advance payment of U.S.$93.5 million (R$200 million) from Telespunder the convergence and sale agreements described above.  In addition, Telesp has granted us a line ofcredit of up to U.S.$52.6 million (R$112.5 million) for capital expenditure purposes, of which we havealready borrowed U.S.$38.4 million (R$82.0 million) as of June 30, 2007.  In the event the transaction does not close,we are obligated to return by March 31, 2008 the advance payment and anyamounts borrowed under the line of credit together with, in each case, interestaccrued thereon at the rate of 103% of the CDI rate (the interbank certificateof deposit rate in Brazil) from the date of the determination that thetransaction will not close.  Ourobligation to repay these amounts was guaranteed by a pledge of our Cable andMMDS networks.

Our liquidityneeds arise primarily from capital expenditures, debt service requirements and,during certain periods, the funding of our working capital requirements.  Until sufficient net cash flow is generatedto satisfy our liquidity needs, we will be required to utilize our currentsources of debt funding to supplement our cash flow.  We had approximately U.S.$1.8 million of cashand cash equivalents as of December 31, 2006.

For the year endedDecember 31, 2006, net cash provided by operating activities was U.S.$37.0million. For the year ended December 31, 2006, net cash used in investingactivities was U.S.$49.0 million (taking into account the advance payment ofUS$ 93.5 million received from Telesp), as the result of capital expendituresfor the purchase of fixed assets.  Thepurchases of fixed assets were principally related to the beginning of thedigitalization of our MMDS operation in Rio de Janeiro, our subscriber basegrowth, the maintenance of cable and MMDS networks and the subscriber base, thepurchase of reception equipment (spare parts), which includes hardware, 

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materials and labor usedfor new subscriber installations, and the development of our internetoperations. For the year ended December 31, 2006, net cash used in financingactivities was U.S.$83.4 million.

For the year endedDecember 31, 2005, net cash provided by operating activities was U.S.$31.9million.  For the year ended December 31,2005, net cash used in investing activities was U.S.$26.6 million, as theresult of capital expenditures for the purchase of fixed assets.  The purchases of fixed assets wereprincipally related to the digitalization of our MMDS operation in São Paulo,our subscriber base growth, the maintenance of cable and MMDS networks and thesubscriber base, the purchase of reception equipment (spare parts), whichincludes hardware, materials and labor used for new subscriber installations,and the development of our internet operations. For the year ended December 31, 2005, net cash provided by financingactivities was U.S.$4.1 million.

For the year endedDecember 31, 2004, net cash provided by operating activities was $24.4million.  For the year ended December 31, 2004, net cash used in investingactivities was $13.1 million, as the result of capital expenditures for thepurchase of fixed assets.  The purchases of fixed assets were principallyrelated to the maintenance of cable and MMDS networks and the subscriber base,the purchase of reception equipment (spare parts), which includes hardware,materials and labor used for new subscriber installations, and the developmentof our internet operations.  For the year ended December 31, 2004, netcash used in financing activities was $10.1 million, reducing our indebtedness levels.

Our liquidity mayalso be adversely affected by statutory minimum dividend requirements, whichare 25% of profits under applicable Brazilian law.

**C. Research and Development**

We are engaged inresearch and development activities with respect to the digitalization of ourcable and MMDS systems and the introduction of new technologies, such as DVR,pay-per-view and WiMAX technologies through our distribution networks.  For the years ended December 31, 2004, 2005and 2006, we incurred expenses of approximately U.S.$1.5 million, U.S.$12.0million and U.S.$8.4 million, respectively, in connection with theseactivities.

**D.  Trend Information**

Our results ofoperations for the year ended December 31, 2006 have been affected by Brazilianeconomic conditions.  In 2006, the *real* appreciated by 8.7% to R$2.138 perU.S.$1.00.  During 2006, the Brazilianeconomy performed favorably, with the rate of increase in industrial productionincreasing from 2.5% in 2005 to 3.0% in 2006 and GDP growth increasing from2.3% in 2005 to 2.9% in 2006.  Ourresults of operations for the year ending December 31, 2007 will beinfluenced generally by Brazilian economic conditions, including the effectsarising from policies implemented by the administration of Luiz Inácio Lula daSilva, the performance of the Brazilian *real*against other major currencies, and the roll-out of our new digitalservices.  See Item 3, “KeyInformation—Risk Factors—Factors Relating to Brazil.”

In addition, wehave invested substantial amounts in the development of “triple-play” digitaltechnology through which we can offer to our customers a single source ofvideo, data and voice services through our cable and MMDS systems, as well asthe deployment of digital video recorders, or DVRs and HDTV.  In addition, we expect to launch new MMDSservices incorporating wireless and worldwide interoperability for microwaveaccess, or WiMAX, technologies.  As aresult, our results of operations for the year ending December 31, 2007and thereafter will be significantly affected by the development andmarketability of “triple-play” and other new technologies in our principalmarkets.

**E.  Off-Balance Sheet Arrangements**

We do not have anyoff-balance sheet arrangements.

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**F.  Contractual Obligations**

The followingtable sets forth our principal contractual obligations during the periodsindicated. As a result of our anticipated disposition and the materiality ofthe operations being transferred under our transaction with Telesp as describedabove, we have classified the operations being transferred as “DiscontinuedOperations,”.
| ** **                         | ** ** | ** ** | ** ** | **Payment due by Period  (thousands of dollars)** | ** ** |
|------------------------------------|------------|------------|------------|----------------------------------------------------------------------------|------------|
| **Contractual Obligations**   | ** ** | **Total**  | ** ** | **Less than 1  year**                                            | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **Over 5  years** | ** ** |
| Debt  obligations(1)               |       | 59,815     |       | 21,948                                                                     |       | 37,867 |   | — |   | — |   |
| Purchase obligations(2)            |       | 2,335      |       | 1,157                                                                      |       | 1,178 |   | — |   | — |   |
| Other  liabilities                 |       | 227        |       | 126                                                                        |       | 101 |   | — |   | — |   |
| Total from continued operations    |       | 62,377     |       | 23,231                                                                     |       | 39,146 |   | — |   | — |   |
| Debt  obligations(3)               |       | 33,012     |       | 13,220                                                                     |       | 19,792 |   | — |   | — |   |
| Operating lease  obligations       |       | 9,732      |       | 2,787                                                                      |       | 6,945 |   | — |   | — |   |
| Purchase  obligations(2)           |       | 51,520     |       | 24,537                                                                     |       | 26,983 |   | — |   | — |   |
| Other  liabilities                 |       | 5,599      |       | 3,445                                                                      |       | 2,154 |   | — |   | — |   |
| Total from discontinued operations |       | 99,863     |       | 43,989                                                                     |       | 55,874 |   | — |   | — |   |
| Total                              |       | 162,240    |       | 67,220                                                                     |       | 95,020 |   | — |   | — |   |

 

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| (1)    |   | This debt obligation refers to the Senior Notes and  includes interests until the maturity date.                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (2)    |   | Purchase obligations include primarily obligations  under programming agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (3)    |   | Not including interest payments on debt  obligations.  We are not able to determine  such future interest payments because we cannot accurately predict future  interest rates nor our future cash generation and future business decisions  that could significantly affect our debt levels and consequently this  estimate.  For an understanding of the  impact of a change in interest rates applicable to our debt obligations, see  Item 11, “Quantitative and Qualitative Disclosures About Market Risk.” |

 

In addition to theobligations described above, we will be obligated to repay the advance payment(U.S.$93.5 million) and drawings under the line of credit ($38.4 million)granted to us by Telesp in the event our transaction with Telesp does notclose.  See “Liquidity and CapitalResources.”

The figures setforth above represent estimates made by us using various assumptions for theyears indicated, including (i) that our present programming and supplycontracts will remain in effect at the current rates set forth in suchcontracts during such years, (ii) that our subscriber base will not fall below itspresent level during such years and (iii) that the *real*/U.S. dollar exchange rate will remain stable duringsuch years.  As a result, our actualcontractual obligations during the years indicated above could vary materiallybased upon, among other things, changes in our programming line-up, capitalexpenditure needs, subscriber base and the *real*/U.S.dollar exchange rate.

**ITEM6.  DIRECTORS, SENIOR MANAGEMENT ANDEMPLOYEES**

**A. Directors and Senior Management**

We are managed by ourboard of directors (*Conselho deAdministração*) and committee of officers (*Diretoria*).  Ourday-to-day operations are managed by our executive officers (*Executivos*).  See Item 10, “Additional Information—EstatutoSocial.” 

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**Board of Directors**

 
| **Member**                             | ** ** | **Position** | ** ** | **Current Position Held Since** | ** ** |
|----------------------------------------|------------|--------------|------------|------------------------------------------------|------------|
| Roberto Civita                         |       | President    |       | 2006                                           |       |
| Victor Civita                          |       | Member       |       | 2007                                           |       |
| Leila Abraham  Loria                   |       | Member       |       | 2004                                           |       |
| Arnaldo  Figueiredo Tibyriçá |       | Member       |       | 2003                                           |       |
| Douglas Duran                          |       | Member       |       | 2007                                           |       |
| Francisco Sávio  Couto Pinheiro   |       | Member       |       | 1995                                           |       |
| Marcelo Vaz Bonini                     |       | Member       |       | 2004                                           |       |

 

**Committee of Officers**

 
| **Member**                               | ** ** | **Position** | ** ** | **Current Position Held Since** |
|------------------------------------------|------------|--------------|------------|---------------------------------|
| Carlos Eduardo  Malagoni                 |       | Member       |       | 2004                            |
| Virgílio José  Carreira Amaral |       | Member       |       | 2004                            |
| Marcelo Vaz  Bonini                      |       | Member       |       | 2001                            |

 

**Executive Officers**

 
| **Member**                               | ** ** | **Position**                              | ** ** | **Current Position Held Since** |
|------------------------------------------|------------|-------------------------------------------|------------|---------------------------------|
| Leila Abraham  Loria                     |       | Chief Executive Officer                   |       | 1999                            |
| Carlos Eduardo  Malagoni                 |       | Chief Financial Officer                   |       | 2002                            |
| Antonio Vieira  de Araujo Filho          |       | Customer Relationship & Sales Officer |       | 2006                            |
| Virgílio José  Carreira Amaral |       | Strategy & Technology Officer         |       | 1999                            |
| Alex Bonalda  Jucius                     |       | Programming Officer                       |       | 2006                            |
| Leila Cocito                             |       | Marketing and Advertisement Officer       |       | 2004                            |

 

*RobertoCivita.* Mr. Civita wasappointed as president of our board of directors in 2006 and has been a memberof the board of directors of the Abril Group since 2001.  He has been president and editor-in-chief ofEditora Abril since 1990.  He was thefirst publisher of *Veja*, which hecreated and launched in 1968.  He wasborn in Italy in 1936, and holds a bachelor’s degree in journalism and economicsfrom Wharton School of the University of Pennsylvania and a postgraduate degreein sociology from Columbia University.

*VictorCivita* became a member of our board of directors in2007.  Mr. Civita also became a member ofthe board of directors of the Abril Group and Managing Director of AbrilDigital in 2006.  He joined Abril in 1990as Programming and Production Director of MTV, having been responsible for theimplementation of the broadcasting company in Brazil.  He also served as Programming and ProductionDirector of TVA, Director of Abril Produções and Vice-President of the YouthUnit at Editora Abril.  He is a politicalscience graduate of Columbia University.

*LeilaAbraham Loria* has been our Chief Executive Officer since June1999 and a member of our board of directors since 2004.  Previously, Ms. Loria was Business Directorat the retail operation of Mesbla Lojas de Departamentos S.A.  Ms. Loria also held managing positions atWal-Mart Brasil and Galaxy Brasil and was responsible for the development andimplementation of these operations in Brazil. Ms. Loria has also been the President of the Brazilian Association ofPay Television Operators (ABTA) and currently presides over Neo TV (anassociation dedicated to matters of programming and content) and Neotec (anassociation of MMDS systems operators). She is also in charge of the Abril Group’s Electronic DistributionDivision, which includes us, Abril Sem Fio and the coordination of the AbrilGroup’s internet activities.  Ms. Loriagraduated with a degree in business administration from the Fundação GetulioVargas and received a master’s degree in business administration from theUniversidade Federal do Rio de Janeiro.

*ArnaldoFigueiredo Tibyriçá*****hasbeen a member of our board of directors since March 2003.  Mr. Tibiryçá previously served as VicePresident of Legal, Regulatory, and Institutional Affairs of BCP S.A.  He has also been associated with Grupo C& A and Banco Itaú.  Mr. Tibyriçareceived his law degree from Pontifícia Universidade Católica de São Paulo.

*DouglasDuran*became amember of our board of directors in 2007. Mr. Duran has been the Shared Services Vice-President of Abrilsince 2006 and in 2007 also assumed the role of Vice-President of Finance andControl of the Abril Group.  He joinedthe Abril Group in 1978 and has served as Chief Treasurer of Abril, CFO of TVA,Planning and Business Director of Abril Entertainment, Managing Director ofDinap and International 

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Relations Director ofAbril.  He received a finance degree fromUSP (University of São Paulo), having also attended the Program for ManagementDevelopment at Harvard Business School.

*FranciscoSávio Couto Pinheiro* has been a member of our board ofdirectors since 1995.  Mr. Pinheiro is aformer Secretary of Communications who has also held posts at Embratel andRadiobrás, the Brazilian government-owned broadcasting company.  He has also been appointed twice as a memberof the ANATEL Consulting Committee, acting as its chairman for two terms.  Mr. Pinheiro was elected chairman of theWorld Telecommunication Standardization Conference (WTSA), a sector of theUnited Nations’ International Telecommunication Union.  He is currently aconsultant and General Manager of SP Communications.  Mr. Pinheiro is an engineer and holds a mastersof science in telecommunications.

*MarceloVaz Bonini* has been a member of our board of directors since2004 and a member of our committee of officers since 2001.  Mr. Bonini joined TVA in 1993 and has sincethen participated in joint ventures with strategic partners, the launching ofbond offerings in the U.S. market, and various corporate reorganizations(mergers, acquisitions and takeovers). Prior to his involvement with TVA, he was an auditor at Cooper &Lybrand.  Mr. Bonini received a degree inaccounting sciences from the Pontifícia Universidade Católica de São Paulo.

*CarlosEduardo Malagoni* has been our Chief Financial Officer sinceNovember 2002 and a member of our committee of officers in 2004.  Mr. Malagoni joined TVA in 1993 and hasparticipated in our new businesses development, bond offerings, and mergers andacquisitions.  Prior to his involvementwith TVA, Mr. Malagoni was associated with Unibanco and Samsung.  Mr. Malagoni received a degree in economicsfrom the Fundação Armando Álvares Penteado, or FAAP, and a master’s degree inbusiness administration from IBMEC.

*VirgílioJosé Carreira Amaral* has been with TVA since 1995, and hasserved as our Strategy and Technology Officer since 1999 and as a member of ourcommittee of officers since 2004.  Mr.Amaral has participated in the implementation of DirecTV (Galaxy Brasil), AjatoBroadband and the expansion of MMDS and cable infrastructure.  Prior to joining TVA, Mr. Amaral worked for18 years at TV Globo, holding management positions.  Mr. Amaral received a degree in electricengineering from the Universidade de São Paulo.

*AntonioVieira de Araujo Filho*has been our Customer Relationship and Sales Officer since 2006. Mr. Araujo graduatedin social communication from the Universidade Gama Filho in Rio deJaneiro.  Mr. Araujo was previouslyassociated with Ediouro for eight years. He started his career at TVA working as São Paulo Relationship Manager.  He has also worked as the General Manager ofour operations in Rio de Janeiro for 3 years. Since July 2005 he has been the São Paulo Commercial Manager, where hewas in charge of managing the sales process, including administering channels,installation and technical assistance. At TVA Mr. Filho is responsible for sales operations in Rio de Janeiroand the south of Brazil.

*AlexBonalda Jucius* hasbeen our Programming Officer since 2006. Mr. Jucius graduated in Engineering from the Universidade of SãoPaulo and has an MBA in Corporate Finance from IBMEC.  For the previous four years he worked at Vivoas the New Product and Services Development Manager of the MarketingDepartment.  Mr. Jucius also worked forfour years as a management consultant at Accenture, focusing on the internet,retail and telecommunications industries. At TVA, Mr. Jucius is responsible for the new business and programmingareas, where he is in charge of negotiations with partners and programmers andidentifying expansion opportunities for new business and services

*LeilaCocito*has been our Marketing and Advertisement Officer sinceApril 2004.  Ms. Cocito has participatedin marketing and communication development and advertisement sales.  Prior to her involvement with TVA, Mrs.Cocito was associated with Louis Dreyfus Group and worked for eight years atthe Abril Group.  Ms. Cocitoreceived a master’s degree in business administration from the PontifíciaUniversidade Católica de São Paulo and post-graduate degree from the EscolaSuperior de Propaganda e Marketing.

**B.  Compensation**

For the year endedDecember 31, 2006, the aggregate compensation, including bonuses, of all ourdirectors, officers and executive officers was U.S.$0.5 million.  Members of our board of directors and ourcommittee of officers do not receive a salary from us.

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For the year endedDecember 31, 2006, we did not set aside any amounts to provide pension,retirement or similar benefits to our directors, officers and executiveofficers.

**C.  Board Practices**

Members of ourboard of directors and committee of officers are elected for a two-year period,currently expiring on April 2008. Executive officers are appointed and removed by the board of directorsand do not have a stated term of office. Directors, officers and executive officers do not enter into servicecontracts with us.  See Item 7, “MajorShareholders and Related Party Transactions—Major Shareholders—Board ofDirectors” and Item 10, “Additional Information—Estatuto Social.”

**D.  Employees**

The followingtable sets forth the number of our officers, managers and other permanentemployees as of the dates indicated.
| ** **              | ** ** | **As of December 31,** | ** ** |
|-------------------------|------------|---------------------------------------|------------|
| ** **              | ** ** | **2006**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| **City**                | ** ** | **Officers**                          | ** ** | **Management** | ** ** | **Others** | ** ** | **Officers** | ** ** | **Management** | ** ** | **Others** | ** ** | **Officers** | ** ** | **Management** | ** ** | **Others** | ** ** |
| São Paulo          |       | 12                                    |       | 25 |   | 399 |   | 11 |   | 21 |   | 359 |   | 7 |   | 17 |   | 363 |   |
| Rio de Janeiro          |       | 1                                     |       | 1 |   | 108 |   | — |   | 1 |   | 78 |   | — |   | 2 |   | 78 |   |
| Curitiba                |       | —                                |       | 1 |   | 64 |   | — |   | 1 |   | 60 |   | — |   | 1 |   | 60 |   |
| Camboriú           |       | —                                |       | 1 |   | 10 |   | — |   | 1 |   | 10 |   | — |   | 1 |   | 11 |   |
| Florianópolis      |       | —                                |       | 1 |   | 9 |   | — |   | 1 |   | 9 |   | — |   | 1 |   | 10 |   |
| Foz do Iguaçú |       | —                                |       | 1 |   | 10 |   | — |   | 1 |   | 8 |   | — |   | 1 |   | 12 |   |
| Total                   |       | 13                                    |       | 30 |   | 600 |   | 11 |   | 26 |   | 524 |   | 7 |   | 23 |   | 534 |   |

 

As of December 31,2006, we also employed 20 interns and 23 temporary employees, as compared to 18interns and 5 temporary employees as of December 31, 2005 and 21 interns and 12temporary employees as of December 31, 2004. Most of our interns and temporary employees are located in São Paulo andRio de Janeiro.

**E.  Share Ownership**

No director,officer or executive officer listed above owns more than 1% of the commonshares of Tevecap.  See Item 7, “MajorShareholders and Related Party Transactions.”

**ITEM7.  MAJOR SHAREHOLDERS AND RELATED PARTYTRANSACTIONS**

**A.  Major Shareholders**

Tevecap has oneclass of capital stock, common shares, authorized and outstanding.  As of December 31, 2006, 485,220,440common shares were outstanding, representing authorized social capital ofR$837,601,700 (equivalent to U.S.$446.0 million).  The following table sets forth, as ofDecember 31, 2006, information regarding the beneficial ownership ofTevecap’s common shares:
| Shareholder                                      | ** ** | **Number of  Common   Shares  Owned** | ** ** | **Percentage** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|----------------|------------|
| ** **                                       | ** ** | ** **                                      | ** ** | ** **     | ** ** |
| Abril Comunicações  S.A.               |       | 485,220,432                                     |       | 99.99          | %          |
| All directors  and executive officers as a group |       | 8                                               |       | —         | (1)        |
| Total                                            |       | 485,220,440                                     |       | 100.0          | %          |

 

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(1)          Less than 1%.

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In December 2006 AbrilComunicações S.A. purchased from Falcon International and the JP Morgan Partiesthe 5.7% and 3.7% equity interests in TVA held by Falcon International and theJP Morgan Parties, respectively.  As aresult, the stockholders agreement dated December 6, 1995, among us,Robert Civita, Abril Comunicações, the JPMorgan Parties and FalconInternational was terminated.

In the first half of2004, the board of directors of Abril Comunicações approved a capital increasein TVA.  This amount corresponds toexisting indebtedness between us and Editora Abril which will be cancelled oncethe capital increase is effected. Accordingly, if this capital increase is effected it will not beavailable for our use in future investments.

*Requireddividend.*  We arerequired by the terms of the Stockholders Agreement to pay annual dividendsequal to our net cash flow or 25% of our net consolidated profit (as defined byBrazilian law).  Since inception, we havenever declared a dividend.

**B. Related Party Transactions**

**Overview**

We are engaged in asignificant number and variety of related party transactions, including,without limitation, the transactions described below.  Although we believe such transactions areconducted on an arm’s-length basis, we have not performed any studies oranalyses to determine whether the terms of past transactions with relatedparties have been equivalent to arm’s-length transactions and cannot state withany certainty the extent to which such transactions are comparable to those whichmight have been obtained from a non-affiliated third party.

**TransactionsAmong Related Parties**

*EditoraAbril service agreement*

We outsource a number ofadministrative services, including payroll, human resources, accounting, tax,finance and legal services, to Editora Abril pursuant to a servicesagreement.  Under this service agreement,we pay to Editora Abril a monthly fee of approximately U.S.$201,000 as ofDecember 31, 2006 (compared to U.S.$184,000 and U.S.$130,000 as of December 31,2005 and 2004, respectively).

*Publishingand advertising*

We publish a monthlyprogramming guide detailing our programming options in a given month.  In connection with this magazine, TVA Sistemahas entered into an agreement with Editora Abril, dated September 1992, pursuantto which Editora Abril publishes approximately 155,000 copies of our monthlyprogramming guide in return for a monthly payment of approximately U.S.$230,000as of December 31, 2006 (compared to U.S.$173,000 and U.S.$127,000 as ofDecember 31, 2005 and 2004, respectively).

TVA Sistema and EditoraAbril also have a reciprocal advertising agreement in which we publishadvertisements for Editora Abril in our monthly magazine in exchange foradvertisements for us (and third parties through us) in the magazines publishedby Editora Abril.

*AbrilCredit Facility*

We have entered, asborrower, into a revolving credit facility with Editora Abril as lender.  The Abril Credit Facility, effectiveDecember 6, 1995, allows us to draw down amounts not to exceed a maximumaggregate principal amount of U.S.$60.0 million.  Since June 1996, we have from time totime requested, and Editora Abril has provided, funding in excess of theaggregate maximum principal amount.  Theloans provided under the Abril Credit Facility are denominated in *reais*, unless the loan is a pass-throughloan that Editora Abril has funded in U.S. dollars, in which case the loan isfunded in a *real*-equivalentamount.  Editora Abril has agreed to useits reasonable 

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commercial efforts toobtain the lowest possible interest rates for its loans to us under the AbrilCredit Facility.  In 2006 we intend tocapitalize our indebtedness under the Abril Credit Facility, which willsignificantly reduce our total outstanding indebtedness.  The aggregate principal amount outstandingunder the Abril Credit Facility was U.S.$77.1 million as of December 31,2006 (compared to U.S.$59.5 million as of December 31, 2005 and U.S.$41.7 millionas of December 31, 2004).

*Other intercompany/shareholder loans*

We have used the proceedsfrom loans under the Abril Credit Facility to make capital contributions to TVASistema and TVA Sul, as well as to extend loans to various subsidiaries.  The aggregate outstanding amount under theseloans as of December 31, 2006 was U.S.$119.1 million (compared toU.S.$68.2 million as of December 31, 2005 and U.S.$28.4 million as ofDecember 31, 2004).

*Serviceagreement with license holders*

Pursuant to a serviceagreement dated July 22, 1994, as amended, Abril Comunicações, TVA Brasiland TV Show Time (referred to as the license holders) agreed to transfer to usall the rights and benefits associated with their current and futurepay-television licenses, with the exception of licenses operated by companiesin which we have minority interests. While the license holders retained the title to such licenses, thelicense holders promised to take all steps necessary to transfer the title ofsuch licenses to us.  Such steps includedthe appropriate procedures required by the Ministry of Communications and anyother governmental authority regulating the transfers.  The transfer of the title to such licenses iscurrently either pending, subject to approval by Anatel, or waiting for thepassage of certain statutory or regulatory waiting periods.

**ITEM8.  FINANCIAL INFORMATION**

Item 19 contains allfinancial statements required to be filed as part of this Annual Report.

**ITEM 9.  THE OFFER AND LISTING**

**A.  Offer Listing and Details**

We have one class ofcapital stock, common shares, authorized and outstanding.  Our common stock is not listed on anyexchange and is not publicly traded.  SeeItem 7, “Major Shareholders and Related Party Transactions—Major Shareholders.”

**B.  Plan of Distribution**

Not applicable.

**C. Markets**

Our outstandingregistered securities consist of our senior notes that were originallyregistered under the Securities Act pursuant to exchange offers which expiredin May 1997, December 1997, December 2004 and December 2005.  There is no formal trading market for suchsecurities.

We do not have anypublicly traded class of equity securities. See Item 9(A) above, “The Offer and Listing – Offer Listing and Detail”.

**D.  Selling Shareholders**

Not applicable.

**E.  Dilution**

Not applicable.

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**F.  Expenses of the Issue**

Not applicable.

**ITEM 10.  ADDITIONAL INFORMATION**

**A.  Share Capital**

Not applicable.

**B. Estatuto Social**

1.                                        Our corporate purpose, as set forth inSubsection 3 of Chapter I of our *EstatutoSocial,*is as follows: (i) the production, acquisition, licensing,distribution, import and export of television programs; (ii) the rendering oftelecommunication services, in particular pay television services, as well asother services relating to signal transmission, reception and distributionsystems and television programs; (iii) advertisement and publicityexploitation; and (iv) investment in other companies, especially those in thetelecommunication field.

2.                                       Weare managed by our board of directors and our committee of officers.  Day-to-day management, however, is carriedout by our executive officers.  See Item6, “Directors, Senior Management and Employees.”

Our board of directors can be composed of up to nine regular members,and can include up to nine alternates, each elected by the general shareholdersmeeting.  Our board of directors meetswhenever necessary and at least every three months, upon the request in writingby any of its regular or alternate directors (such request to be delivered atleast ten business days before the date of the meeting and upon presentation ofthe agenda to be discussed).  The meetingof our board of directors shall be convened only with the attendance of atleast six of its regular members, in person or as represented by theirrespective alternates.  The resolutionsshall be taken by the favorable vote of the majority of the directors presentat the meeting.

Our committee of officers comprises a minimum of two and a maximum offive members.  The committee of officersmanages our business in general and practices any and all acts necessary oradvisable, except those which, pursuant to applicable law and the *Estatuto Social,* are the responsibility ofthe shareholders or our board of directors.

(a)                                  Thereare no provisions in the *Estatuto Social*relating to the power of directors or officers to vote on a proposal in which aconflict of interest exists or may exist.

(b)                                 Theaggregate compensation of the board of directors and the committee of officersis fixed pursuant to a general shareholders meeting and is distributed amongthe directors and officers as determined by our board of directors at a dulyconvened meeting.

(c)                                  Pursuantto Subsection 20 of Chapter V of the *EstatutoSocial*, the incurrence of the following indebtedness must beapproved by all directors appointed by minority shareholders:  (i) indebtedness with a maturity of less thanone year and in an amount greater than U.S.$1,000,000; and (ii) indebtednesswith a maturity of more than one year (except trade debt in an aggregate amountlower than U.S.$500,000).  Any other incurrenceof indebtedness can be approved by a majority of the directors present at ameeting of the board of directors or by any two officers in the ordinary courseof business.  Notwithstanding theforegoing: (i) our expenditures or projects that are included in approvedBusiness Plans do not require any additional board of directors or shareholderapproval and (ii) we are allowed to incur indebtedness of up to U.S.$10,000,000(or the *reais*equivalent) orguarantee loans in such amounts, without the need to obtain specific 

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approval from the board of directors or shareholders, *provided*such loans or guarantees arewithin the limits of approved Business Plans and are in the ordinary course ofbusiness.

(d)                                 Thereare no provisions in the *Estatuto Social*setting forth age limits or retirement requirements for directors andofficers.  Directors are elected for aperiod of two years (with the opportunity of reelection) by a shareholdersmeeting and remain as directors until the appointment of their respective successors.  In case of a vacancy, a general shareholdersmeeting shall be called to elect a substitute.

Officers are elected by the board of directors for a period of twoyears and can be reelected.  In case of avacancy, a meeting of the board of directors shall be immediately called toelect the substitute, who shall complete the term of the officer so replaced.

(e)                                  Alldirectors, pursuant to Brazilian Law, whether regular or alternates, must beshareholders of Tevecap, although the *EstatutoSocial* does not require ownership of a minimum number of shares toqualify as a director.  Officers do notneed to be shareholders of Tevecap.

3.                                       Ourcapital is divided into and represented by 485,220,440 shares, all of which arecommon shares entitled to one vote in shareholders meetings.

(a)                                  Thereare no provisions in the *Estatuto Social*setting forth a time limit for dividend entitlements to lapse.  All shares are entitled to the same dividendpayments.  Under Brazilian law, we arerequired to pay dividends in an amount equal to 25% of our net consolidatedprofit (as defined by Brazilian law).  Inaddition, upon resolution of the board of directors, interim dividends may bedistributed out of net profits declared in annual or semiannual financialstatements.

(b)                                 Thereare no provisions in the *Estatuto Social*concerning staggered intervals for the reelection of directors or permitting orrequiring cumulative voting.

(c)                                  Allshares have the right to share in our net profits.  At the end of any fiscal year, from the netprofits earned, 5% shall be deducted to from the legal reserve (which shall notexceed 20% of outstanding social capital).

(d)                                 Allshares have the same right to share any surplus in case of our liquidationafter settlement of all outstanding debts. In the event of liquidation, a general shareholders meeting shalldetermine the form of liquidation, appoint the liquidator and an auditcommittee to operate during the liquidation period.

(e)                                  Thereare no sinking fund provisions in the *EstatutoSocial*.

(f)                                    Allof our shares are issued and fully paid. Consequently, the shareholders are not subject to further capital calls.

(g)                                 Thereare no provisions in the *Estatuto Social*discriminatingagainst any existing or prospective holder of such securities as a result ofsuch shareholder owning a substantial number of shares.

4.                                       Inorder to modify the rights of shareholders, the *Estatuto Social* must be amended to reflect suchmodification.  The *Estatuto Social* can be amended onlythrough a resolution passed at a general shareholders meeting.

5.                                       Generalshareholders meetings can be ordinary or extraordinary.  Ordinary general shareholders meetings shallbe held within four months following the closing of the fiscal year, whereasthe extraordinary general shareholders meetings are held whenevernecessary.  All general shareholdersmeetings shall be called by the board of directors.  Only the shareholders whose shares aresubscribed to in their respective names, in the applicable register, up tothree days before the date fixed for the general shareholders meeting, mayparticipate and vote in such meeting.

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6.                                       UnderBrazilian law, non-Brazilians are not entitled to own on a combined basis morethan 49% of our voting stock.

7.                                       Thereare no provisions in the *Estatuto Social*that would have the effect of delaying, deferring or preventing our change incontrol.

8.                                       Thereare no provisions in the *Estatuto Social*governing the ownership threshold above which shareholders ownership must bedisclosed.

9.                                        Brazilian corporate law issignificantly different from U.S. corporate law in a number of areas.  The Brazilian form of articles ofincorporation (*Estatuto Social*)includes both the Anglo-Saxon concept of articles of incorporation and theconcept of “by-laws.”  We, like otherlarge Brazilian companies, have a two-tier governance system, which typicallyinvolves a management or executive board (committee of officers) and asupervisory board (board of directors). The committee of officers is the executive body.  Its members are appointed by the board ofdirectors and are employed by Tevecap. The board of directors has supervising and advising functions only.  Its members are representatives ofshareholders and cannot be employed by us. The board of directors’ duties include supervision of the committee ofofficers and the general course of our business.  The board of directors also performs advisoryfunctions vis-à-vis the committee of officers.

10.                                 Thereare no provisions in the *Estatuto Social*imposing more stringent conditions than those required by law to change ourcapital.

**C.  Material Contracts**

On October 29, 2006 weexecuted certain convergence and sale agreements with Telesp, as describedabove.  For more information on thistransaction, see Item 3, “Key Information—Selected Financial Data,” Item 4, “Informationon the Company” and note 20 to the Tevecap Financial Statements included inthis Annual Report.

**D.  Exchange Controls**

Brazilian law providesthat, whenever there is, or is a serious risk of, a material imbalance inBrazil’s balance of payments, the Brazilian government may, for a limitedperiod of time, impose restrictions on the remittance to foreign investors ofthe proceeds of their investments in Brazil, as it did for approximately sixmonths in 1989 and early 1990, as well as on the conversion of the Braziliancurrency into foreign currencies.

The Brazilian governmentcurrently restricts the ability of Brazilian or foreign persons or entities toconvert *reais* into foreigncurrencies other than in connection with certain authorized transactions.  There can be no assurance that the Braziliangovernment will not in the future impose more restrictive foreign exchangeregulations that would have the effect of eliminating or restricting our accessto foreign currency that would be required to meet its foreign currencyobligations, including payments under our senior notes.  The likelihood of the imposition of suchrestrictions by the Brazilian government may be affected by, among otherfactors, the extent of Brazil’s foreign currency reserves, the availability ofsufficient foreign currency on the date a payment is due, the size of Brazil’sdebt service burden relative to the economy as a whole, Brazil’s policy towardsthe International Monetary Fund and political constraints to which Brazil maybe subject.

For a description of theforeign exchange markets in Brazil, see Item 3, “Key Information—SelectedFinancial Data—Exchange Rates.”  See also“Risk Factors—Factors Relating to Brazil.”

**E.  Taxation**

**Brazil**

The following is asummary of our material Brazilian income tax consequences in connection withthe sale and repayment of our senior notes including any interest thereon andto beneficial owners of our senior notes that are 

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non-residents of Brazilin connection with the purchase, ownership and disposition of such seniornotes.  This summary is limited to us andto non-residents of Brazil which acquire our senior notes at the original issueprice, and does not address investors who purchase our senior notes at apremium or market discount.  In addition,this summary is based on the Brazilian tax regulations as presently in effectand does not take into account possible future changes in such tax laws.

Individuals domiciled inBrazil and Brazilian companies are taxed in Brazil on the basis of theirworldwide income (which includes earnings of Brazilian companies’ foreignsubsidiaries, branches and affiliates). The earnings of branches of foreign companies and non-Brazilianresidents in general are taxed in Brazil only when derived from Braziliansources.  Interest, fees, commissions andany other income (which for the purposes of this paragraph includes any deemedincome on the difference between the issue price of our senior notes and theprice at which our senior notes are redeemed) payable by a Brazilian obligor toan individual, company, entity, trust or organization domiciled outside Brazilis considered derived from Brazilian sources and is therefore subject to incometax withheld at the source.  Braziliantax laws expressly authorize the paying source to pay the income or earningsnet of taxes and, therefore, to assume the cost of the applicable tax.  The rate of withholding is 15% or such otherlower rate as is provided for in an applicable tax treaty between Brazil andsuch other country where the recipient of the payment has its domicile.  If the beneficiary of the payment is locatedin a country in which the effective tax rate on net income is lower than 20%,the withholding rate is 25%. Notwithstanding the foregoing, the applicable withholding tax rate fornegotiable instruments such as our senior notes was reduced to zero, pursuantto Resolutions 1853 of July 31, 1991 and 644 of October 22, 1980 ofthe Central Bank, subject to Central Bank Circular 2661 of February 8,1996, which restricts such withholding tax reductions to negotiable instrumentshaving a minimum maturity of 96 months. As a result, since our senior notes have an original maturity of 96months, such reduction will apply to payments of interest and other income withrespect to our senior notes.

Any earnings or capitalgains resulting from the sale (whether inside or outside Brazil) of any seniornotes by a non-resident of Brazil to another non-resident of Brazil are notsubject to tax in Brazil.  Earnings orcapital gains resulting from the sale (whether inside or outside Brazil) of anysenior notes by a non-resident of Brazil to a resident of Brazil should not besubject to tax in Brazil, although the matter is not free from doubt.

On February 8, 1996,the Brazilian federal government issued Decree No. 1,815, which imposed a taxon Brazilian issuers with respect to foreign exchange transactions, or IOF tax,related to the entering into Brazil of proceeds resulting from foreign loans(including the issue of securities such as our senior notes).  The rate of IOF tax paid by us with respectto the issuance of our senior notes was 0%. Decree No. 1,815 was revoked by Decree No. 2,219 of May 2, 1997which currently regulates the IOF tax. The IOF tax rate was reduced to zero upon the adoption of Ordinance No.85 on April 24, 1997.  However,under Law No. 8.894 dated June 21, 1994, such tax rate may be increased upto 25%.

On August 15, 1996,the Brazilian Congress approved Constitutional Amendment No. 12 creating a newtemporary tax, the*Contribuição Provisóriasobre Movimentação Financeira* or CPMF.  Based on such amendment,Law No. 9,311 of October 24, 1996, or Law 9,311, was enacted, creating theCPMF tax.  Under Law No. 9,311, asamended, all financial debit and money transfers through Brazilian bank accountseffected as from January 23, 1997 until December 31, 1998, includingpayments made by us with respect to our senior notes, will be subject to theassessment of the CPMF tax at the rate of 0.2%. Funds arising from the collection of CPMF tax will be applied only inthe public health system.  SinceJanuary 23, 1999, CPMF was extinguished and Congress approvedConstitutional Amendment No. 21, on March 19, 1999, in order toreestablish CPMF at the rate of 0.38%, starting on June 19, 1999, for aperiod of one year, and subsequently at the rate of 0.38%, for a period of twoyears.  The Constitutional Amendment No.37 of June 2001 extended the CPMF leviance until December 31, 2004 at 0.38%.This rate is still in effect as of the date hereof.

There is no stamp,transfer or other similar tax in Brazil with respect to the transfer,assignment or sale of any debt instrument outside Brazil (including our seniornotes).

**UnitedStates**

The following is asummary of the material U.S. federal income tax consequences to a beneficialowner of our senior notes that is a citizen or resident of the United States ora corporation created or organized in or under the 

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laws of the UnitedStates, any state thereof or the District of Columbia, as well as other personssubject to U.S. federal income taxation on a net income basis in respect of thepurchase, ownership and disposition of a senior note, or U.S. Holders.  Such tax treatment may vary depending uponthe particular situation of a U.S. Holder. This summary does not discuss all of the tax consequences that may berelevant to certain types of investors subject to special treatment under theU.S. federal income tax laws (such as individual retirement accounts and othertax deferred accounts, banks, securities broker-dealers, life insurancecompanies, tax-exempt organizations, non-U.S. persons, persons whose “functionalcurrency” is other than the U.S. dollar or persons that hold senior notes aspart of a “straddle” or “conversion transaction” or otherwise as part of a “syntheticsecurity” or other integrated transaction) and is limited to investors thathold senior notes as capital assets.  Inaddition, this summary is limited to U.S. Holders that acquire our senior notesat their issue price and does not address investors that purchase senior notesat a premium or market discount.  Thissummary is based on the Internal Revenue Code of 1986, as amended, or the Code,final, temporary and proposed U.S. Treasury regulations thereunder, or theRegulations, revenue rulings, court cases, and other legal authorities as nowin effect (or proposed) and as currently interpreted, and does not take intoaccount possible changes in such tax laws or other legal authorities or suchinterpretations, which changes may have retroactive effect.  No rulings on any of the issues discussedbelow will be sought from the United States Internal Revenue Service, or theIRS.

PROSPECTIVE PURCHASERS OFTHE SENIOR NOTES ARE ADVISED TO CONSULT THEIR TAX ADVISERS AS TO THECONSEQUENCES OF A PURCHASE AND SALE OF SENIOR NOTES, INCLUDING, WITHOUTLIMITATION, (I) THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR NON-U.S.TAX LAWS TO WHICH THEY MAY BE SUBJECT, AND OF ANY POSSIBLE LEGISLATIVE ORADMINISTRATIVE CHANGES IN LAW, (II) THE U.S. FEDERAL INCOME TAX CONSEQUENCES OFOUR POSSIBLE DEDUCTION OF BRAZILIAN TAXES (AND OF THE PAYMENT BY US OFADDITIONAL AMOUNTS WITH RESPECT THERETO) FROM PAYMENTS ON THE SENIOR NOTES,(III) THE AVAILABILITY, FOR U.S. FEDERAL INCOME TAX PURPOSES, OF A CREDIT ORDEDUCTION FOR ANY BRAZILIAN TAXES SO DEDUCTED AND (IV) THE CONSEQUENCES OFPURCHASING THE SENIOR NOTES AT A PRICE OTHER THAN THEIR ISSUE PRICE.

*Intereston our senior notes*

Interest on our seniornotes will be taxable to a U.S. Holder as ordinary income at the time itaccrues or is received in accordance with the U.S. Holder’s method ofaccounting for U.S. federal income tax purposes.  The amount includible in the income of a U.S.Holder will be the gross amount of interest, including any Additional Amounts,if any, payable to holders of senior notes (*i.e.*,the amount before deduction of any Brazilian withholding taxes).

*Disposition of a senior note*

Generally, any sale,redemption or other taxable disposition of a senior note by a U.S. Holder willresult in taxable gain or loss equal to the difference between (1) the sumof the amount of cash and the fair market value of other property received withrespect to such taxable sale, redemption or other taxable disposition (otherthan consideration attributable to accrued interest not previously taken intoaccount, which consideration would be treated as interest received) and(2) the U.S. Holder’s tax basis in the senior note.  Any gain or loss upon a sale, redemption orother taxable disposition of a senior note will be capital gain or loss (whichwill be long-term if the senior note is held for more than one year).

*Effectof Brazilian withholding taxes*

Any Brazilian taxwithheld generally will be treated as a foreign income tax that U.S. Holdersmay elect to deduct in computing their taxable income or, subject to thelimitations on foreign tax credits generally, to credit against their U.S.federal income tax liability.  No suchdeduction or credit will be available to the extent Brazil pays a subsidy to aU.S. Holder, a related person or us, the amount of which is determined(directly or indirectly) by reference to the amount of the withholdingtax.  While Brazil does not have aprogram or policy of paying such subsidies at present, it has had programs ofthat nature in the past and could implement such programs again in the future.

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For purposes ofdetermining a U.S. Holder’s U.S. foreign tax credit, the gain or loss on thesale, redemption or other taxable disposition of a senior note will generallyconstitute U.S. source income.  Interest(including any Additional Amounts payable by us) will generally constituteforeign source passive income or financial services income for U.S. foreign taxcredit purposes.

In any event, because theamount of foreign taxes for which the foreign tax credit may be taken for thetaxable year is generally limited to an amount equal to the U.S. Holder’s U.S.federal income tax rate multiplied by its foreign source income for the taxableyear, a U.S. Holder may have insufficient foreign source income to utilizefully any foreign tax credit attributable to such Brazilian withholding taxes(but such U.S. Holder may be entitled to utilize the foreign tax creditattributable to such withholding taxes for the holder’s previous two orsucceeding five taxable years, or such withholding taxes may instead bedeductible by the U.S. Holder).  A U.S.Holder may be required to provide the IRS with a certified copy of the receiptevidencing payment of withholding tax imposed in respect of payments on oursenior notes in order to claim a foreign tax credit in respect of suchwithholding tax.

*Informationreporting and backup withholding*

For each calendar year inwhich our senior notes are outstanding, each Depository Trust Corporation, orDTC, participant or indirect participant holding an interest in a senior noteon behalf of a U.S. Holder and each paying agent making payments in respect ofa senior note will generally be required to provide the IRS with certaininformation, including such U.S. Holder’s name, address and taxpayeridentification number (either such U.S. Holder’s social security number or itsemployer identification number, as the case may be), and the aggregate amountof interest and principal paid to such U.S. Holder during the calendaryear.  These reporting requirements,however, do not apply with respect to certain U.S. Holders, includingcorporations, securities dealers, other financial institutions, tax-exemptorganizations, qualified pension and profit sharing trusts, and individualretirement accounts.

In the event that a U.S.Holder fails to establish its exemption from such information reportingrequirements or is subject to the reporting requirements described above andfails to supply its correct taxpayer identification number in the mannerrequired by applicable law, or underreports its tax liability, the direct orindirect DTC participant holding such interest on behalf of such U.S. Holder orpaying agent making payments in respect of a senior note may be required to “backup”withhold a tax (currently at a rate of 28%) from each payment of interest andprincipal with respect to our senior notes. This backup withholding tax is not an additional tax and may be creditedagainst the U.S. Holder’s U.S. federal income tax liability if the requiredinformation is furnished to the IRS.

**F.  Dividends and Paying Agents**

Not applicable.

**G.  Statement by Experts**

Not applicable.

**H.  Documents on Display**

We are a foreign issuersubject to the reporting requirements of the Exchange Act and the rules andregulations thereunder.  We file reportswith the Securities and Exchange Commission, or the Commission, in electronicformat via EDGAR.  These reports can beaccessed through the Commission’s website (www.sec.gov) and can also beinspected at the public reference facilities maintained by the Commission at100 F Street, N.E., Washington, DC 20549. You may call the Commission at (800) SEC-0330 for further information onits public reference facilities.  Copiesof such materials may be obtained at prescribed rates.  Other information regarding us can beaccessed through our website (www.tevecap.com.br).  All information obtained through our websiteis expressly not incorporated by reference herein.

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**I.  Subsidiary Information**

Not applicable.

**ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

We are subject to foreigncurrency exchange rate risk and interest rate risk.  As of December 31, 2006, we haddollar-denominated debt of U.S.$48.3 million, which is due in three equalannual installments commencing November 26, 2007 and ending November 26, 2009.

During January 1999,the Brazilian *real* experienced a significantdevaluation after the Central Bank abandoned the exchange band within which the*real* was permitted to trade.  Since that time, the exchange rate has beenvolatile, ranging up to R$3.9552 per U.S. dollar in 2002 but appreciating toR$2.138 as of December 31, 2006.  SeeItem 3, “Key Information—Selected Financial Data—Exchange Rates.”

Although our reportingcurrency is the U.S. dollar, the cash flow required to service our indebtednessis generated in local currency, Brazilian *reais*(R$).  Using the year end 2006 exchangerate R$2.138 per U.S.$1.00), the cash flow in *reais*to pay the interest due in 2007 would be R$12.9 million.  A 25% devaluation of the *real*to R$2.673 per U.S. dollar would require cash flow of R$16.1 million.  If the *real* devalued50% to R$3.207 per U.S. dollar, the cash flow in *reais*to pay the interest due in 2007 would be R$ 19.4 million.

We are also subject tointerest rate risk on our loans in local currency.  As of December 31, 2006, we hadU.S.$119.1 million of loans from an affiliate denominated in Brazilian *reais*, which bears interest at the average cost of funds ofthe affiliate.  The majority of theaffiliate’s debt is in *reais* and bearsinterest at the CDI rate (the interbank certificate of deposit rate in Brazil).

During 2006, the CDI rateranged from 17.94% to 13.08%.  Theaverage rate for the year was 15.2%, and the rate at December 31, 2006 was13.17%.  If the CDI rate rose to 20%,interest payments on the U.S.$ 119.1 million would be approximatelyU.S.$18.8 million annually.  If theCDI rate rose to 35%, the annual interest payments would be U.S.$21.2 million.  Most of the interestdue on these loans in the past has been added to principal rather than paid incash.

We do not hedge any ofour market risks (other than entering into certain programming agreements thatplace ceilings on the U.S. dollar/*real* exchangerate used to calculate monthly programming costs) and do not utilize derivativefinancial instruments.

**ITEM12.  DESCRIPTION OF SECURITIES OTHER THANDEBT SECURITIES**

Not applicable.

**PARTII**

**ITEM13.  DEFAULTS, DIVIDEND ARREARAGES ANDDELINQUENCIES**

In October 2004 welaunched an exchange offer for our 12 5/8% Senior Notes due 2004 in theaggregate principal amount of U.S.$48.0 million that were held by thirdparties.  On November 26, 2004, theoriginal maturity date of such senior notes, the exchange offer was still outstanding,as a result of which we did not pay the outstanding principal amount of suchnotes (although we paid interest accrued until such date).  The exchange offer was consummated inDecember 2004, as a result of which approximately U.S.$40.7 million of thesenior notes due 2004 were exchanged for senior notes due 2009.  We subsequently conducted a second exchangeoffer, launched in March 2005 and consummated in May 2005, under which anadditional U.S.$7.0 million in senior notes due 2004 were exchanged forsenior notes due 2009.  We subsequently repaidthe U.S.$0.3 million in outstanding senior notes due 2004.  As of December 31, 2006, we were not indefault under the terms of our senior notes due 2009.

**ITEM 14.  MATERIALMODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**

Not applicable.

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**ITEM15.  CONTROLS AND PROCEDURES**

As of December 31,2006, we carried out an evaluation under the supervision and with theparticipation of our management, including the Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures. There are inherent limitations to the effectiveness of any system ofdisclosure controls and procedures, including the possibility of human error andthe circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosurecontrols and procedures can only provide reasonable assurance of achievingtheir control objectives.  Based upon andas of the date of our evaluation, the Chief Executive Officer and Chief FinancialOfficer concluded that the disclosure controls and procedures are effective.

There has been no changein our internal control over financial reporting during 2006 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

**ITEM16.  [RESERVED]**

**ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT.**

We do not presently have,and are not required to have, an audit committee.

**ITEM16B.  CODE OF ETHICS**

We do not presently havea code of ethics applicable to our senior executive officers.  We are presently considering the adoption ofa code of ethics, and will, upon its adoption, either: (i) provide a copythereof to the Commission, (ii) post the text thereof on our website(www.tevecap.com.br) or (iii) provide a copy thereof to any person uponrequest.

**ITEM16C.  PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

**Auditand Non-Audit Fees**

The following tablesummarizes the aggregate fees billed to us by Deloitte Touche Tohmatsu, or DTT,during the fiscal years ended December 31, 2006 and 2005:

|                     | ** ** | **Year ended December 31,**   | ** ** |
|---------------------|------------|----------------------------------------------|------------|
| ** **          | ** ** | **2006**                                     | ** ** | **2005** | ** ** |
| ** **          | ** ** | **(in thousands of dollars)** | ** ** |
| Audit fees          |       | 247.0                                        |       | 385.0 |   |
| Audit-related  fees |       | 513.3                                        |       | 0 |   |
| Tax fees            |       | 0                                            |       | 0 |   |
| All other fees      |       | 0                                            |       | 0 |   |
| Total               |       | 760.1                                        |       | 385.0 |   |

 

Audit fees**are the aggregate fees billed by DTT forthe audit of our consolidated annual financial statements that are provided inconnection with regulatory filings.

Audit-related fees in theabove table for fiscal year 2006 are fees billed by Deloitte Touche TohmatsuAuditores Independentes for services rendered in connection with our initialpublic offering in Brazil, which was aborted upon the execution of theconvergence and sale agreements with Telesp described above.

**Pre-ApprovalPolicies and Procedures**

We have adoptedpre-approval policies and procedures under which all audit and non-auditservices provided by our external auditors must be pre-approved by our board ofdirectors.  Any service proposalssubmitted by external auditors need to be discussed and approved by our boardof directors during its meetings, which take 

64

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place at least four timesa year.  Once the proposed service isapproved, we or our subsidiaries formalize the engagement of services.  The approval of any audit and non-auditservices to be provided by our external auditors is specified in the minutes ofour board of directors meetings.

**ITEM16D.  EXEMPTION FROM THE LISTINGSTANDARDS FOR AUDIT COMMITTEES**

Not applicable.

**ITEM16E.  PURCHASE OF EQUITY BY THE ISSUERAND AFFILIATED PURCHASERS**

Not applicable.

**PARTIII**

**ITEM17.  FINANCIAL STATEMENTS**

We are furnishingfinancial statements pursuant to the instructions in Item 18 of Form 20-F.

**ITEM18.  FINANCIAL STATEMENTS**

See Item 19(a) (Exhibits –Financial Statements) for a list of financial statements filed as part of thisForm 20-F.

**ITEM19.  EXHIBITS**

(a)           **FinancialStatements.** The followingfinancial statements and schedules are filed as part of this Annual Report,together with the report of the independent registered accounting firm.

65

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**INDEXTO THE FINANCIAL STATEMENTS**

**TEVECAPS.A. AND SUBSIDIARIES - Consolidated Financial Statements for the Years EndedDecember 31, 2006, 2005 and 2004 and Report of Independent RegisteredAccounting Firm**

**CCS—CAMBORIÚCABLE SYSTEM DE TELECOMUNICAÇÕES LTDA. -**

**FinancialStatements for the Years Ended December 31, 2006, 2005 and 2004 and Reportof Independent Registered Accounting Firm**

(b)**           OtherExhibits**
| Exhibit 12. |       | Sarbanes-Oxley Act Section 302 Certifications |
|-------------|------------|-----------------------------------------------|
| ** **  | ** ** | ** **                                    |
| Exhibit 13. |       | Sarbanes-Oxley Act Section 906 Certifications |

 

66

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**SIGNATURES**

Pursuant to therequirements of Section 12 of the Securities Exchange Act of 1934, theregistrant certifies that it meets all of the requirements for filing on Form 20-Fand has duly caused this annual report to be signed on its behalf by theundersigned, thereunto duly authorized.
| **TEVECAP S.A.** |                        |
|------------------|-----------------------------|
|             |                        |   |   |
| By:              | /s/ Leila Abraham Loria     |   |
| Name:            | Leila Abraham Lória    |   |
| Title:           | Chief Executive Officer     |   |
|             |
|             |
| By:              | /s/ Carlos Eduardo Malagoni |   |
| Name:            | Carlos Eduardo Malagoni     |   |
| Title:           | Chief Financial Officer     |   |
|             |                        |   |
|             |                        |   |
| Date:            | July 11, 2007               |   |

 

67

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**Tevecap S.A. andSubsidiaries**

**ConsolidatedFinancial Statements as of December 31, 2006 and 2005 and for the Three Years in the Period Ended**

**December31, 2006 and**

**Report of Independent Registered Public Accounting Firm**

Deloitte Touche TohmatsuAuditores Independentes

F-1

----

**TEVECAP S.A.**

**AND SUBSIDIARIES**

**Index to Consolidated Financial Statements**

**Contents**
|                                                                                                                                                                     | ** ** | Page   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------|
|                                                                                                                                                                |       |   |
| Report  of Independent Registered Public Accounting Firm                                                                                                            |       | F-3    |
|                                                                                                                                                                |       |   |
| Consolidated  Balance Sheets as of December 31, 2006 and 2005                                                                                                       |       | F-4    |
|                                                                                                                                                                |       |   |
| Consolidated Statements of  Losses for each of the three years in the period ended December 31, 2006                                                                |       | F-6    |
|                                                                                                                                                                |       |   |
| Consolidated Statements of  Changes in Shareholders’ Deficiency and Redeemable Common Stock for each of  the three years in the period ended December 31, 2006 |       | F-7    |
|                                                                                                                                                                |       |   |
| Consolidated Statements of  Cash Flows for each of the three years in the period ended December 31, 2006                                                            |       | F-8    |
|                                                                                                                                                                |       |   |
| Notes  to The Consolidated Financial Statements                                                                                                                     |       | F-10   |

 

F-2

----

**TEVECAP S.A.**

#### **ANDSUBSIDIARIES**

#### **REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directorsand Shareholders of

TEVECAP S.A.

São Paulo — SP -Brazil

1.               Wehave audited the accompanying consolidated balance sheets of TEVECAP S.A. andsubsidiaries (the “Company”) as of December 31, 2006 and 2005, and the relatedconsolidated statements of losses, change in shareholders’ deficiency andredeemable common stock and cash flows for each of the three years in theperiod ended December 31, 2006, all expressed in United States dollars. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

2.               Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

3.               In our opinion,such consolidated financial statements present fairly, in all materialrespects, the financial position of the Company and subsidiaries as of December31, 2006 and 2005, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2006, in conformitywith accounting principles generally accepted in the United States of America.

4.               As discussed inNote 20, on October 29, 2006, the Company entered into a binding agreement tosell principally all of its operations. The sale is subject to approval by theAgência Nacional de Telecomunicações — Anatel, the Brazilian TelecommunicationsAgency, and the Conselho Administrativo de Defesa Econômica — CADE(Administrative Council for Economic Defense or “CADE”), the Braziliananti-trust governmental entity.

5.               As discussed inNote 6, the Company has recorded intercompany receivables and loans amountingto $106 million. The realization of these amounts is contingent upon thecompletion of the sale of principally all of its operations and the corporaterestructuring that is currently in progress as described in Note 6.
| /s/ Deloitte Touche Tohmatsu  Auditores Independentes |   |
|-------------------------------------------------------|--------|
|                                                  |   |
| Sao Paulo,  Brazil,                                   |   |
|                                                  |   |
| June 30, 2007                                         |   |

 

 

 

F-3

----

**TEVECAP S.A.**

**AND SUBSIDIARIES**

**Consolidated Balance Sheets**

*December 31, 2006 and 2005in thousands of U.S. dollars*
| ** **                                        | ** ** | **December 31, ** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|
| ** **                                        | ** ** | **2006**                    | ** ** | **2005** | ** ** |
| **ASSETS**                                        | ** ** | ** **                  | ** ** | ** ** | ** ** |
|                                              |       |                        |       |   |   |
| Current assets                                    |       |                        |       |   |   |
| Cash and cash  equivalents                        |       | $                           | 1,754      |   | $ | 9,753 |   |
| Accounts  receivable, net (Note 3)                |       | 172                         |       | 3,846 |   |
| Inventories, net  (Note 4)                        |       | 97                          |       | 8,478 |   |
| Recoverable taxes                                 |       | 458                         |       | 552 |   |
| Prepaid and  other assets (Note 5)                |       | 11                          |       | 984 |   |
| Other accounts  receivable                        |       | —                      |       | 82 |   |
| Current assets  held for sale (Note 20)           |       | 135,647                     |       | —   |   |
|                                              |       |                        |       |   |   |
| Total current  assets                             |       | 138,139                     |       | 23,695 |   |
|                                              |       |                        |       |   |   |
| Property, plant and  equipment, net (Note 8)      |       | 2,352                       |       | 71,898 |   |
| Recoverable taxes                                 |       | 47                          |       | 81 |   |
| Intangible assets, net  (Note 9)                  |       | —                      |       | 3,165 |   |
| Loans receivable from  related companies (Note 6) |       | 105,845                     |       | 8,127 |   |
| Judicial deposits (Note  17.2)                    |       | 549                         |       | 11,887 |   |
|                                              |       |                        |       |   |   |
| Total assets                                      |       | $                           | 246,932    |   | $ | 118,853 |   |

 

**The accompanying notes are an integralpart of the consolidated financial statements**

F-4

----

* *
| ** **                                                                                                                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                              | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**                                                                                      | ** ** | ** **            | ** ** | ** ** | ** ** |
|                                                                                                                                    |       |                  |       |   |   |
| Current liabilities                                                                                                                     |       |                  |       |   |   |
| Loans (Note 10)                                                                                                                         |       | $                     | 16,488     |   | $ | 26,836 |   |
| Film suppliers                                                                                                                          |       | 194                   |       | 5,322 |   |
| Other suppliers                                                                                                                         |       | 213                   |       | 8,027 |   |
| Tax recovery program –  PAES/REFIS (Note 12)                                                                                       |       | 32                    |       | 1,963 |   |
| Taxes payable other  than income taxes (Note 11)                                                                                        |       | 314                   |       | 4,434 |   |
| Income tax payable                                                                                                                      |       | 491                   |       | 589 |   |
| Deferred income tax  (Note 7.2)                                                                                                         |       | 1,960                 |       | — |   |
| Accrued payroll and  related liabilities                                                                                                |       | 26                    |       | 2,553 |   |
| Advances from customers  (Note 2.12)                                                                                                    |       | 7,029                 |       | 5,375 |   |
| Advance on sale of  Tevecap’s operations (Note 20)                                                                                 |       | 93,545                |       | — |   |
| Other accounts payable                                                                                                                  |       | 4,396                 |       | 918 |   |
| Liabilities  directly associated with current assets held for sale (Note 20)                                                            |       | 97,113                |       | — |   |
|                                                                                                                                    |       |                  |       |   |   |
| Total current  liabilities                                                                                                              |       | 221,801               |       | 56,017 |   |
|                                                                                                                                    |       |                  |       |   |   |
| Long-term liabilities                                                                                                                   |       |                  |       |   |   |
| Loans (Note 10)                                                                                                                         |       | 31,838                |       | 54,309 |   |
| Loans payable to  related companies (Note 6)                                                                                            |       | 119,122               |       | 68,196 |   |
| Taxes payable other  than income taxes (Note 11)                                                                                        |       | 494                   |       | 3,906 |   |
| Accrual for contingencies  (Note 17.1)                                                                                                  |       | 31,234                |       | 43,190 |   |
| Tax recovery program –  PAES/REFIS (Note 12)                                                                                       |       | 339                   |       | 15,697 |   |
| Deferred income tax  (Note 7.2)                                                                                                         |       | 57,390                |       | 45,877 |   |
|                                                                                                                                    |       |                  |       |   |   |
| Total long-term  liabilities                                                                                                            |       | $                     | 240,417    |   | $ | 231,175 |   |
|                                                                                                                                    |       |                  |       |   |   |
| Minority interest                                                                                                                       |       | 781                   |       | 936 |   |
| Redeemable common  stock, no par value 46,294,949 shares authorized, issued and outstanding as  of December 31, 2006 and 2005 (Note 15) |       | —                |       | 30,380 |   |
|                                                                                                                                    |       |                  |       |   |   |
| Shareholders’  deficiency                                                                                                          |       |                  |       |   |   |
| Common stock, no par  value, 485.220.440 shares authorized, issued and outstanding as of December  31, 2006 and 2005. (Note 16)         |       | 515,776               |       | 446,026 |   |
| Accumulated other  comprehensive income                                                                                                 |       | (35,538               | )          | (18,360 | ) |
| Accumulated deficit                                                                                                                     |       | (696,305              | )          | (627,321 | ) |
|                                                                                                                                    |       |                  |       |   |   |
| Total shareholders’  deficiency                                                                                                    |       | (216,067              | )          | (199,655 | ) |
|                                                                                                                                    |       |                  |       |   |   |
| Total liabilities and  shareholders’ deficiency                                                                                    |       | $                     | 246,932    |   | $ | 118,853 |   |

 

**The accompanying notes are an integralpart of the consolidated financial statements**

F-5

----

**TEVECAP S.A.**

**AND SUBSIDIARIES**

**Consolidated Statements of Losses**

*for the years ended December 31, 2006, 2005and 2004in thousands of U.S. dollars*
| ** **                                                                                   | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Gross revenues                                                                               |       |                                       |       |   |   |   |   |
| Monthly  subscriptions                                                                       |       | $                                          | 4,518      |   | $ | 3,556 |   | $ | 2,447 |   |
| Installation                                                                                 |       | 51                                         |       | 32 |   | 26 |   |
| Advertising                                                                                  |       | 107                                        |       | 110 |   | 16 |   |
| Additional  services                                                                         |       | 102                                        |       | 69 |   | 45 |   |
| Taxes on revenues                                                                            |       | (706                                       | )          | (519 | ) | (367 | ) |
|                                                                                         |       | 4,072                                      |       | 3,248 |   | 2,167 |   |
| Direct operating  expenses (excluding depreciation and amortization stated separately below) |       |                                       |       |   |   |   |   |
| Payroll and  benefits                                                                        |       | 33                                         |       | 65 |   | 32 |   |
| Programming                                                                                  |       | 1,190                                      |       | 1,058 |   | 834 |   |
| Technical  assistance                                                                        |       | 45                                         |       | 14 |   | 3 |   |
| TVA magazine                                                                                 |       | 14                                         |       | 14 |   | 28 |   |
| Pole rental                                                                                  |       | 37                                         |       | 36 |   | 25 |   |
| Other costs                                                                                  |       | 103                                        |       | 142 |   | 168 |   |
|                                                                                         |       | 1,422                                      |       | 1,329 |   | 1,090 |   |
| Selling, general and  administrative expenses                                                |       |                                       |       |   |   |   |   |
| Payroll and  benefits                                                                        |       | 118                                        |       | 70 |   | 49 |   |
| Advertising and  promotion                                                                   |       | 27                                         |       | 20 |   | 12 |   |
| Rent                                                                                         |       | 39                                         |       | 6 |   | — |   |
| Other selling,  general and administrative expenses                                          |       | 1,472                                      |       | 852 |   | 705 |   |
|                                                                                         |       | 1,656                                      |       | 948 |   | 766 |   |
| Depreciation                                                                                 |       | 579                                        |       | 161 |   | 195 |   |
| Amortization                                                                                 |       | 238                                        |       | 430 |   | 428 |   |
| Other operating  expense, net (Note 13)                                                      |       | 4,609                                      |       | 341 |   | 216 |   |
| Income (loss) from  operations                                                               |       | (4,432                                     | )          | 39 |   | (528 | ) |
|                                                                                         |       |                                       |       |   |   |   |   |
| Interest income                                                                              |       | (1,190                                     | )          | (523 | ) | (367 | ) |
| Interest expense                                                                             |       | 25,108                                     |       | 22,977 |   | 16,252 |   |
| Foreign currency  transaction income, net                                                    |       | (3,819                                     | )          | (6,157 | ) | (3,496 | ) |
| Other  nonoperating income, net (Note 14)                                                    |       | —                                     |       | — |   | (8,443 | ) |
|                                                                                         |       |                                       |       |   |   |   |   |
| Loss before income  taxes, equity in affiliates and minority interest                        |       | (24,531                                    | )          | (16,258 | ) | (4,474 | ) |
|                                                                                         |       |                                       |       |   |   |   |   |
| Losses of  affiliates, net                                                                   |       | —                                     |       | — |   | 468 |   |
| Minority  interest                                                                           |       | 341                                        |       | 240 |   | 255 |   |
|                                                                                         |       |                                       |       |   |   |   |   |
| Loss from continuing  operations before income taxes                                         |       | (24,872                                    | )          | (16,498 | ) | (5,197 | ) |
|                                                                                         |       |                                       |       |   |   |   |   |
| Income tax from  continuing operations–current (Note 7.1)                               |       | 493                                        |       | 308 |   | 304 |   |
| Income tax from  continuing operations–deferred (Note 7.1)                              |       | 8,613                                      |       | 27,424 |   | 8,866 |   |
| Loss from continuing  operations                                                             |       | (33,978                                    | )          | (44,230 | ) | (14,367 | ) |
| Discontinued operations  (Note 20)                                                           |       |                                       |       |   |   |   |   |
| Income (loss)  from discontinued operations, before income taxes                             |       | 5,326                                      |       | (18,782 | ) | (5,276 | ) |
| Income taxes on  discontinued operations                                                     |       | (962                                       | )          | (314 | ) | — |   |
| Income (loss) from  discontinued operations                                                  |       | 4,364                                      |       | (19,096 | ) | (5,276 | ) |
| Net loss                                                                                     |       | (29,614                                    | )          | (63,326 | ) | (19,643 | ) |
|                                                                                         |       |                                       |       |   |   |   |   |
| Other comprehensive  loss - Foreign currency translation adjustment                          |       | (17,178                                    | )          | (13,231 | ) | (7,845 | ) |
|                                                                                         |       |                                       |       |   |   |   |   |
| Comprehensive loss                                                                           |       | $                                          | (46,792    | ) | $ | (76,557 | ) | $ | (27,488 | ) |

 

The accompanying notesare an integral part of the consolidated financial statements

F-6

----

**TEVECAP S.A.**

**AND SUBSIDIARIES**

***ConsolidatedStatements of Changes in Shareholders’ Deficit and Redeemable***

***CommonStock***

*for the years ended December31, 2006, 2005 and 2004*

*in thousands of U.S. dollars*
| ** **                                                  | ** ** | ** ** | ** ** | ** **      | ** ** | **Accumulated**        | ** ** | ** **             | ** ** | ** **     | ** ** |
|-------------------------------------------------------------|------------|------------|------------|-----------------|------------|------------------------|------------|------------------------|------------|----------------|------------|
| ** **                                                  | ** ** | ** ** | ** ** | ** **      | ** ** | **Other**              | ** ** | **Total**              | ** ** | **Redeemable** | ** ** |
| ** **                                                  | ** ** | **Common** | ** ** | **Accumulated** | ** ** | **Comprehensive**      | ** ** | **Shareholders’** | ** ** | **Common**     | ** ** |
| ** **                                                  | ** ** | **Stock**  | ** ** | **Deficit**     | ** ** | **Income (Loss)** | ** ** | **Deficit**            | ** ** | **Stock**      | ** ** |
| ** **                                                  | ** ** | ** ** | ** ** | ** **      | ** ** | ** **             | ** ** | ** **             | ** ** | ** **     | ** ** |
| Balance as of December  31, 2003                            |       | 446,026    |       | (538,173        | )          | 2,716                  |       | (89,431                | )          | 24,201         |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Foreign currency translation  adjustments, net of tax of $0 |       |       |       |            |       | (7,845                 | )          | (7,845                 | )          |           |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Net loss                                                    |       |       |       | (19,643         | )          |                   |       | (19,643                | )          |           |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Adjustment of  redeemable common stock to redemption price  |       |       |       | (3,398          | )          |                   |       | (3,398                 | )          | 3,398          |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Balance as of December  31, 2004                            |       | 446,026    |       | (561,214        | )          | (5,129                 | )          | (120,317               | )          | 27,599         |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Foreign currency  translation adjustments, net of tax of $0 |       |       |       |            |       | (13,231                | )          | (13,231                | )          |           |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Net loss                                                    |       |       |       | (63,326         | )          |                   |       | (63,326                | )          |           |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Adjustment of  redeemable common stock to redemption price  |       |       |       | (2,781          | )          |                   |       | (2,781                 | )          | 2,781          |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Balance as of December  31, 2005                            |       | 446,026    |       | (627,321        | )          | (18,360                | )          | (199,655               | )          | 30,380         |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Foreign currency  translation adjustments, net of tax of $0 |       |       |       |            |       | (17,178                | )          | (17,178                | )          |           |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Net loss                                                    |       |       |       | (29,614         | )          |                   |       | (29,614                | )          |           |       |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Adjustment of  redeemable common stock to redemption price  |       |       |       | 7,082           |       |                   |       | 7,082                  |       | (7,082         | )          |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Redemption of  redeemable common stock                      |       | 69,750     |       | (46,452         | )          |                   |       | 23,298                 |       | (23,298        | )          |
|                                                        |       |       |       |            |       |                   |       |                   |       |           |       |
| Balance as of December  31, 2006                            |       | $          | 515,776    |            | $          | (696,305               | )          | $                      | (35,538    | )              | $          | (216,067 | ) | $ | — |   |
|                                                             |            |            |            |                 |            |                        |            |                        |            |                |            |  |  |  |  |  |

 

The accompanying notesare integral part of the consolidated financial statements

F-7

----

**TEVECAP S.A.**

**AND SUBSIDIARIES**

***ConsolidatedStatements of Cash Flows***

*for theyears ended December 31, 2006, 2005 and 2004in thousands of U.S. dollars*

* *
| ** **                                               | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                               | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Cash flows from operating  activities:**               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                                 |       | $                                          | (29,614    | ) | $ | (63,326 | ) | $ | (19,643 | ) |
| Adjustments to  reconcile net loss to net cash           |       |                                       |       |   |   |   |   |
| Provided by operating  activities:                       |       |                                       |       |   |   |   |   |
| Depreciation                                             |       | 579                                        |       | 161 |   | 195 |   |
| Amortization                                             |       | 238                                        |       | 430 |   | 428 |   |
| Net gain on sale of  equity method investments           |       | —                                     |       | — |   | (8,443 | ) |
| Allowance for doubtful  accounts                         |       | 61                                         |       | 19 |   | 21 |   |
| Provision for inventory  obsolescence                    |       | 2                                          |       | 33 |   | — |   |
| Loss on sale of  obsolete inventories                    |       | 6                                          |       | — |   | — |   |
| Minority interest                                        |       | 341                                        |       | 240 |   | 255 |   |
| Allowance for loans  receivable from related companies   |       | 460                                        |       | — |   | — |   |
| Disposal and write-off  of property, plant and equipment |       | 50                                         |       | — |   | — |   |
| Equity in (income)  losses of affiliates                 |       | —                                     |       | — |   | 468 |   |
| Foreign currency  transaction loss, net                  |       | (3,819                                     | )          | (6,157 | ) | (3,496 | ) |
| Current income taxes                                     |       | 493                                        |       | 308 |   | 304 |   |
| Deferred income taxes                                    |       | 8,613                                      |       | 27,424 |   | 8,866 |   |
| Accrued interest                                         |       | 23,180                                     |       | 35,055 |   | 16,125 |   |
| Changes in operating  assets and liabilities:            |       |                                       |       |   |   | — |   |
| Accounts receivable                                      |       | 662                                        |       | 480 |   | (196 | ) |
| Prepaid expenses and  other assets                       |       | 641                                        |       | 761 |   | (215 | ) |
| Recoverable taxes                                        |       | (135                                       | )          | — |   | — |   |
| Inventories                                              |       | 11                                         |       | (2 | ) | 103 |   |
| Suppliers                                                |       | 150                                        |       | (359 | ) | 244 |   |
| Accrual for  contingencies                               |       | (410                                       | )          | 6,061 |   | 6 |   |
| Taxes payable other than  income taxes                   |       | (165                                       | )          | (242 | ) | (120 | ) |
| Current income taxes                                     |       | (3                                         | )          | — |   | — |   |
| Accrued payroll and  related liabilities                 |       | 1                                          |       | 7 |   | (3 | ) |
| Advances received from  subscribers                      |       | (485                                       | )          | (389 | ) | — |   |
| Judicial deposits                                        |       | (66                                        | )          | (112 | ) | (28 | ) |
| Other                                                    |       | 4,755                                      |       | (408 | ) | (1,342 | ) |
| **Cash Flow from Discontinued  operations**              | ** ** | **31,473**                                 | ** ** | **31,928** | ** ** | **30,880** | ** ** |
| **Net cash provided by operating  activities**           | ** ** | 37,019                                     |       | 31,912 |   | 24,409 |   |
| **Cash flows from investing  activities:**               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchases of property,  plant and equipment              |       | (161                                       | )          | (88 | ) | 262 |   |
| Short-term investments                                   |       | —                                     |       | — |   | (1 | ) |
| Advance on sale of  Tevecap’s operations            |       | 93,545                                     |       | — |   | — |   |
| **Cash Flow from Discontinued  operations**              | ** ** | **(44,382**                                | **)**      | **(26,495** | **)** | **(13,346** | **)** |
| **Net cash provided by (used in)  investing activities** | ** ** | $                                          | 49,002     |   | $ | (26,583 | ) | $ | (13,085 | ) |
| **Cash flows from financing  activities:**               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from bank  loans                                |       | —                                     |       | — |   | 30 |   |
| Repayment of loans from  banks                           |       | (6,034                                     | )          | (5,972 | ) | (6,186 | ) |
| Repayments of program  PAES/REFIS                        |       | (200                                       | )          | (56 | ) | (73 | ) |
| Loans to related  parties                                |       | (112,644                                   | )          | 6 |   | — |   |
| Repayment of loans made  to related parties              |       | 4,991                                      |       | — |   | — |   |
| Dividends paid                                           |       | (1,489                                     | )          | (674 | ) | — |   |
| Proceeds from loans  from related parties                |       | 53,211                                     |       | 10,569 |   | 54,117 |   |
| Repayments of loans  from related parties                |       | (11,910                                    | )          | (11,090 | ) | (46,894 | ) |
| **Cash Flow from Discontinued  operations**              | ** ** | **(9,340**                                 | **)**      | **11,345** | ** ** | **(11,125** | **)** |
| **Net  cash provided by (used in) financing activities** | ** ** | (83,415                                    | )          | 4,128 |   | (10,131 | ) |
|                                                     |       |                                       |       |   |   |   |   |
| Effect of exchange rate  changes                         |       | (5,966                                     | )          | (1,072 | ) | (117 | ) |
| Net increase (decrease)  in cash and cash equivalents    |       | (3,360                                     | )          | 8,385 |   | 1,076 |   |
| Cash and cash equivalents  at beginning of the period    |       | 9,753                                      |       | 1,368 |   | 292 |   |
| **Cash  and cash equivalents at end of the period**      | ** ** | $                                          | 6,393      |   | $ | 9,753 |   | $ | 1,368 |   |
|                                                     |       |                                       |       |   |   |   |   |
| Cash and cash  equivalent - continuing operation         |       | 825                                        |       | 701 |   | 165 |   |
| Cash and cash  equivalent - discontinued operation       |       | 8,928                                      |       | 667 |   | 127 |   |
| Cash and cash  equivalent at beginning of the period     |       | 9,753                                      |       | 1,368 |   | 292 |   |
|                                                     |       |                                       |       |   |   |   |   |
| Cash and cash  equivalent - continuing operation         |       | 1,754                                      |       | 825 |   | 701 |   |
| Cash and cash  equivalent - discontinued operation       |       | 4,639                                      |       | 8,928 |   | 667 |   |
| Cash and cash equivalent at end of the period            |       | 6,393                                      |       | 9,753 |   | 1,368 |   |

 

*The accompanying notes are an integral partof the consolidated financial statements*

F-8

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* *
| ** **                                                     | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                     | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                     | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Supplemental cash disclosure:**                              | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest paid                                                  |       | $                                          | 6,144      |   | $ | 6,885 |   | $ | 6,123 |   |
| Income tax paid                                                |       | $                                          | 411        |   | $ | 252 |   | $ | 281 |   |
|                                                           |       |                                       |       |   |   |   |   |
| **Supplemental non-cash financing  and investing activities:** | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accrued interest bank  loans                                   |       | —                                     |       | 785 |   | 597 |   |
| Accrued interest on  loans from related parties                |       | 14,412                                     |       | 11,476 |   | — |   |
| Accrued interest on tax payable other income tax               |       | 1,477                                      |       | 127 |   | — |   |

 

*The accompanying notes are an integral partof the consolidated financial statements*

F-9

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**TEVECAP S.A.**

**AND SUBSIDIARIES**

**NOTES TOTHE CONSOLIDATED FINANCIAL STATEMENTS**

**(Amounts expressed in thousandsof U.S. dollars,**

**Unlessotherwise indicated)**

**1.**                            The Company and its principaloperations

**1.1.****                 ****General**

Theconsolidated financial statements have been prepared to reflect theconsolidated results of Tevecap S.A. (“Tevecap”) and its subsidiaries (the “Company”).

Tevecapis a holding company, the subsidiaries of which render services related towireless cable, cable and high-speed internet, including marketing andadvertising, production, distribution and licensing of domestic and foreigntelevision programs. The Company has wireless cable channel rights primarily inmajor urban markets in Brazil.

Asdescribed in Note 20, on October 29, 2006 the Company entered into an agreementwith Telecomunicações de São Paulo S.A. – Telesp (“Telesp”) for the sale ofprincipally all of the operations of the Company.

As ofDecember 31, 2006, the Company was wholly-owned by Abril Comunicações S.A. (“Abrilcom”),a printing and distribution company.

**2.**                            Summary of significant accounting policies

Significantpolicies followed in the preparation of the consolidated financial statementsare described below:

**2.1.**                  Basis of presentation and consolidation

**a) Basis of presentation**

Theconsolidated financial statements are presented in United States dollars andhave been prepared in accordance with accounting principles generally acceptedin the United States of America (“U.S. GAAP”), which differ in certain respectsfrom accounting principles applied by the Company in its local currencyfinancial statements, which are prepared in accordance with accountingprinciples generally accepted in Brazil (“Brazilian GAAP”).

The preparation of financial statements in accordance with U.S. GAAPrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosures of contingent assets andliabilities as of the financial statement dates and the reported amount ofrevenues and expenses during the reporting

F-10

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periods.Since management’s judgment involves making estimates concerning the likelihoodof future events, the actual results could differ from these estimates.

**b) Principles ofconsolidation**

Theconsolidated financial statements include the accounts of Tevecap and allmajority-owned subsidiaries.

Investmentsin affiliated companies of from, 20% to 50%, are accounted for using the equitymethod of accounting. Intercompany transactions and accounts are eliminated inconsolidation.

Asdescribed in Note 20, on October29, 2006, the Company entered into an agreement with, Telecomunicações de SãoPaulo S.A. – Telesp (“Telesp”) for the sale of principally all of theoperations of the Company. These financial statements present the portion ofthe Company subject to this agreement as discontinued operations.

**2.2.**      Accounting records

Asrequired by Brazilian Law and in accordance with local accounting practices,the accounting records of the Company are maintained in Brazilian currency(real). In order to present the consolidated financial statements in conformitywith U.S. GAAP, the Company maintains additional accounting records thatare used solely for this purpose.

**2.3.**      Currency remeasurement

As of January 1,2000, based on changes in the Company’s capital and operational structure and amove to using the Brazilian real for a substantial portion of the Company’sbusiness, the Company changed its functional currency from the United Statesdollar to the Brazilian real (R$). This change was made in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign CurrencyTranslation.”

Assets and liabilities are translated into U.S.dollars at the exchange rate in effect at the end of the reporting period, andrevenues, expenses, gains and losses are translated into U.S. dollars at theaverage rates prevailing in the period. The shareholder’s deficit wastranslated into U.S. dollars at the exchange rate of the transaction date andthe resulting net translation gains and losses are reported in accumulatedother comprehensive income (loss) in shareholders’ deficit.

**2.4.**      Consolidatedfinancial statements

TheCompany’s operating subsidiaries are as follows:

F-11

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|                                                                     | ** ** | **Ownership Interest as of  December 31,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2006**                                                       | ** ** | **2005** | ** ** |
| OwnedSystems                                                        |       |                                                           |       |   |   |
| TVA Sistema de Televisão S.A.                                  |       | 100.00                                                         | %          | 100.00 | % |
| TVA Sul Paraná Ltda.                                           |       | 100.00                                                         | %          | 100.00 | % |
| CCS Camboriú Cable Systems de Telecomunicações Ltda. |       | 60.00                                                          | %          | 60.00 | % |
| Rede Ajato S.A.                                                     |       | 100.00                                                         | %          | 100.00 | % |
|                                                                |       |                                                           |       |   |   |
| License  Subsidiary                                                 |       |                                                           |       |   |   |
| Comercial Cabo TV São Paulo Ltda. (a)                          |       | 99.99                                                          | %          | 99.99 | % |
|                                                                |       |                                                           |       |   |   |
| Programming  Ventures                                               |       |                                                           |       |   |   |
| TVA Inc.                                                            |       | 100.00                                                         | %          | 100.00 | % |
| TVA Overseas Ltd.                                                   |       | 100.00                                                         | %          | 100.00 | % |
| TVA Communications Ltd.                                             |       | 100.00                                                         | %          | 100.00 | % |
| TVA Continental S.A.                                                |       | 100.00                                                         | %          | 100.00 | % |
| TVA Pelicano S.A.                                                   |       | 100.00                                                         | %          | 100.00 | % |
| TVA Network  Participações S.A.                           |       | 100.00                                                         | %          | 100.00 | % |

 

----

**(a).****   **0.00149% of the commonshares in this entity is owned by the controlling shareholder of the parentcompany Roberto Civita, pursuant to local legislative requirements.

As described in Note 20, onOctober 29, 2006, the Company entered into an agreement with, Telecomunicaçõesde São Paulo S.A. – Telesp (“Telesp”) for the sale of principally all of theoperations of the Company, representing TVA Sistema de Televisão S.A. and TVASul Paraná Ltda. These companies are presented as discontinued operations inthese financial statements.

**2.5.**      Cash and cash equivalents

Cash andcash equivalents are defined as cash and cash in banks and short-terminvestments in interest-bearing securities. Such short-term investments haveoriginal maturities of three months or less at the time of purchase and arereadily convertible to cash.

F-12

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**2.6.**      Financial instruments

Inaccordance with SFAS No. 107, “Disclosures about Fair Value of FinancialInstruments” (“SFAS 107”), information is provided about the fair value ofcertain financial instruments for which it is practicable to estimate thatvalue.

For thepurposes of SFAS 107, the estimated fair value of a financial instrument is theamount at which the instrument could be exchanged in a current transactionbetween willing parties, other than in a forced or liquidation sale. Thefollowing methods and assumptions were used to estimate the fair value of eachclass of financial instrument for which it is practicable to estimate that value:

·              The fair value of certain financialassets carried at cost, including cash and cash equivalents, accountsreceivable, other accounts receivable and certain other short-term assets, isconsidered to approximate their respective carrying value due to theirshort-term nature.

·              The fair value of payables to filmsuppliers and other suppliers, other accounts payable and certain othershort-term liabilities are considered to approximate their respective carryingvalue due to their short-term nature.

·              The fair value of loans receivable fromand loans payable to related companies approximates the carrying value, asinterest on these loans is variable and based on market rates.

·              The fair value of third party loans,except for Senior Notes, approximates the carrying value as the interest rateson these loans are either fixed at a rate comparable with the current marketrate or variable based on market rates.

·              The fair value of Senior Notes represents****104.5% of its carrying value as of December 31, 2006 (105%of its carrying value as of December 31, 2005). Fair value is estimated basedon quoted market prices.

**2.7.**      Accounts receivable

Allowancefor doubtful accounts is recorded based on an analysis of historical losses, onthe knowledge and monitoring of the individual situation of its customers andof the canceling of pay TV subscribers, and is considered sufficient to coverpossible losses on the realization of credits.

**2.8.**      Inventories

Inventoriesconsist of materials and supplies and imports in transit. Materials andsupplies are used to provide service to new customers, and to ensure continuityof service to existing 

F-13

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customers.Imports in transit represent materials purchased from foreign countries thathave not yet been received.

Inventoriesare stated at the lower of cost or market. Cost is determined principally underthe average cost method.

Aprovision for obsolescence has been established on the basis of an analysis ofslow-moving materials and supplies.

**2.9.**      Property, plant and equipment

Property,plant and equipment are stated at cost and depreciated using the straight-linemethod, over the remaining useful lives of the assets, as described in Note 8.

TheCompany evaluates its long-lived assets and identifiable intangible assets forimpairment whenever events or changes in circumstances indicate that thecarrying amount of such assets may not be recoverable. Recoverability of assetsto be held and used is measured by a comparison of the carrying amount of theasset to future undiscounted net cash flows expected to be generated by theasset. In estimating future undiscounted net cash flows, assets are grouped atthe level of each cable television system. If an asset is considered to beimpaired, the impairment to be recognized is measured as the amount by whichthe carrying amount of the asset exceeds the fair value of the asset. TheCompany has not recognized any impairment as a result of the application ofthis policy.

**2.10.**    Advertising and promotion expenses

Costs ofadvertising and promotion are expensed as incurred. For the years endedDecember 31, 2006, 2005 and 2004, advertising and promotion expenses amountedto $5,010, $5,143 and $1,475 respectively.

**2.11.**    Revenue recognition

Subscriptionrevenues are recognized monthly at the amount billed to subscribers for servicesubscribed to and earned during the month.

Installationfees are recognized as revenue on the equipment installation date to the extentof direct selling costs incurred, which are higher than the revenue.

Advertisingrevenues are recognized, and the production cost of commercials and programmingare charged to expense, when the commercial is telecast.

Othersrevenues are recognized as services are rendered.

F-14

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**2.12.**    Licenses

TelevisãoShow Time Ltda. (“TV Show Time”) and TVA Brasil Radioenlaces Ltda. (“TVA Brasil”)hold licenses covering certain operations of the Company. The use of suchlicenses is provided to the Company, for a nominal fee, under a ServiceAgreement dated July 22, 1994, as amended, among Tevecap, TV Show Time, TVA Brasiland Abril S.A. Since TV Show Time and TVA Brasil are under common control withthe Company, the financials statements of these companies have been combinedwith the Company’s financial statements for all periods presented.

OnDecember 17, 2003, the Company signed an agreement of intent to sell thelicenses of Televisão Show Time Ltda., TVA Brasil Radioenlaces Ltda. and TVDelta Curitiba Ltda. relating to the “Pay TV Special Service” to an unrelatedparty. The Company received an advance of $2,723 which is recorded as advancesfrom customers. This balance has been monetarily restated using the IGPM + CDIand amounted to $7,029 as of December 31, 2006 ($5,375 as of December 31,2005). The consummation of the transaction is still subject to the approval of ANATEL(Brazilian Telecommunications Agency).

**2.13**.    **Intangible assets**

Concessions represent the right toengage in various telecommunications services in defined areas or cities inBrazil. The cost of these concessions is being amortized on the straight-linebasis over 10 years, representing the term of the respective concessions. Suchcosts were fully amortized on December 31, 2006.

Software is stated at cost andamortized on a straight-line basis over its estimated useful life, which is 5years.

**2.14.****   ****Deferred income taxes**

**Deferredtax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases as well as operatingloss and tax credit carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date.Valuation allowances are established when it is more likely than not that someor all of the deferred tax assets will not be realized.**

F-15

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**2.15.****   ****Debt issuance costs**

Debt issuance costs are amortizedover the term of the underlying debt on a straight-line basis. The results ofamortization on a straight-line basis do not differ materially from thoseobtained by using the interest method.

**2.16.**    Comprehensiveincome (loss)

**SFAS no. 130“Reporting Comprehensive Income” establishes standards for reporting anddisclosing comprehensive income and its components in a full set of financialstatements. Comprehensive income/loss is being presented together with thestatements of losses.**

**2.17.**    Bartertransactions

**TheCompany enters into transactions that exchange advertising for advertising andfor products and services. Such transactions are recorded at the estimated fairvalue of the advertising received or given in accordance with the provisions ofthe EITF Issue No. 99-17, “Accounting for Advertising Barter Transactions”.**Revenue from bartertransactions is recognized when advertising is provided, and services receivedare charged to expense when used. For the years ended December 31, 2006, 2005and 2004, revenue from barter transactions amounted to $991, $600 and $1,608respectively and expenses to $1,941, $632 and $1,298, respectively.

**2.18.**    Accrualfor contingencies

**Anaccrual for contingence is recognized by management of the Company based ontheir assessment of probable losses, supported by external legal opinions onlawsuits and other contingent events known at the balance sheet date.**

**2.19.****   ****Reclassifications**

Certain reclassifications havebeen made to the prior year financial statements to conform to the current yearpresentation.

**3.**         Accounts receivable, net

As ofDecember 31, 2006 and 2005, accounts receivable were comprised of:

F-16

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|                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Subscriptions  and installation fees | ** ** | $        | 473        |     | $          | 9,498 |   |
| Advertising                          |       | 9        |       | 512      |       |
| Barter  transactions                 |       | —   |       | 13       |       |
| Provision for  doubtful accounts     |       | (310     | )          | (6,177   | )          |
|                                 |       | $        | 172        |     | $          | 3,846 |   |

 

Nosingle customer accounted for more than 10% of total accounts receivable as ofDecember 31, 2006 and 2005.

**4.**         Inventories, net

As ofDecember 31, 2006 and 2005, inventories were comprised of:
|                             | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Materials and  supplies     |       | $        | 137        |     | $          | 11,289 |   |
| Provision for  obsolescence |       | (40      | )          | (2,811   | )          |
|                        |       | $        | 97         |     | $          | 8,478 |   |

 

**5.**         Prepaid and other assets

As ofDecember 31, 2006 and 2005, prepaid expenses were comprised of:
|                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
| Advances to  employes |       | $        | 1          |     | $          | 581 |   |
| Other                 |       | 10       |       | 403      |       |
|                  |       | $        | 11         |     | $          | 984 |   |

 

F-17

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**6.**         Related party transactions

Thefollowing tables summarize the transactions between the Company and its relatedparties as of December 31, 2006 and 2005 and for the three years ended December31, 2006: 

 
|                                    | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2006**              | ** ** | **2005** | ** ** |
|                               |       |                  |       |   |   |
| Editora Abril  S.A.                |       |                  |       |   |   |
| Accounts receivable                |       | $                     | —     |   | $ | 181 |   |
| Accounts payable                   |       | —                |       | 1,223 |   |
| Loans payable                      |       | 77,418                |       | 59,500 |   |
|                               |       |                  |       |   |   |
| Abril  Comunicações S.A. |       |                  |       |   |   |
| Accounts receivable                |       | —                |       | 57 |   |
| Loans receivable                   |       | 105,779               |       | 8,070 |   |
| Loans payable                      |       | 1,403                 |       | 1,282 |   |
|                               |       |                  |       |   |   |
| Abril  Investments Corporation     |       |                  |       |   |   |
| Loans payable                      |       | 8,015                 |       | 7,414 |   |
|                               |       |                  |       |   |   |
| Abril S.A.                         |       |                  |       |   |   |
| Loans payable                      |       | 32,286                |       | — |   |
|                               |       |                  |       |   |   |
| Others                             |       |                  |       |   |   |
| Accounts receivable                |       | —                |       | 52 |   |
| Accounts payable                   |       | —                |       | 5 |   |
| Loans receivable                   |       | 66                    |       | 57 |   |
|                               |       |                  |       |   |   |
| Accounts receivable                |       | $                     | —     |   | $ | 290 |   |
| Accounts payable                   |       | $                     | —     |   | $ | 1,228 |   |
| Loans receivable                   |       | $                     | 105,845    |   | $ | 8,127 |   |
| Loans payable                      |       | $                     | 119,122    |   | $ | 68,196 |   |

 

F-18

----

 
|                                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Editora Abril  S.A.                            |       |     |       |     |       |     |       |
| Net interest expense                           |       | $        | 13,095     |     | $          | 12,443   |       | $ | 7,330 |   |
| Administrative services                        |       | 40       |       | —   |       | —   |       |
| Printing costs and distribution                |       | 14       |       | 12       |       | 5        |       |
| Advertising                                    |       | 1        |       | 1        |       | —   |       |
|                                           |       |     |       |     |       |     |       |
| Paraná  Participações S/C Ltda. |       |     |       |     |       |     |       |
| Interest income                                |       | (460     | )          | (395     | )          | (175     | )          |
|                                           |       |     |       |     |       |     |       |
| Abril  Investments Corporation                 |       |     |       |     |       |     |       |
| Interest expense (income)                      |       | (73      | )          | (288     | )          | 55       |       |
|                                           |       |     |       |     |       |     |       |
| Abril S.A.                                     |       |     |       |     |       |     |       |
| Interest expense  (income)                     |       | 2,168    |       | —   |       | —   |       |
|                                                |            |          |            |          |            |          |            |  |  |  |

 

TheCompany and its related parties maintain a cash management system centralizedat Editora Abril S.A. (affiliated company). The centralized cash managementsystem results in accounts receivable from and payable to related partiesdepending on the cash needs of the companies.

Loans granted to or obtained fromrelated companies, under loan agreements, are denominated in Reais and subjectto variable interest of 1.69% per month as of December 31, 2006 (2.04% permonth as of December 31, 2005 and 2.03% per month as of December 31, 2004).These loans do not have defined maturity dates.

Asdescribed in Note 20, on December 28, 2006 the Company received $93,545 as anadvance on the sale of substantially all of the Company’s operations. On thesame date, the Company transferred $93,078 to its controlling shareholder,Abril Comunicações S.A.

The realization of the loansgranted to the Company’s controlling shareholder amounting to $105,779 issubject to the conclusion of the sale of substantially all of the Company’soperations as described in Note 20 and the corporate restructuring that iscurrently in progress. The Company’s management does not expect the recognitionof losses relating to these receivables.

*Related PartyTransactions*

*Publishing andAdvertising*

The Company publishes a monthly programming guidedetailing the Company’s programming options in a given month. In connectionwith this magazine, TVA Sistema has entered into an agreement with Abril, datedSeptember 1992, pursuant to which Abril 

F-19

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publishes copies of the Company’s monthly programmingguide in return for a monthly payment of approximately $2 during the year endedDecember 31, 2006 ($1 and $1 during the years ended December 31, 2005 and 2004)to printing costs, distribution and advertising. TVA Sistema and Abril alsohave a reciprocal advertising agreement in which the Company publishesadvertisements for Abril in the Company’s monthly magazine in exchange foradvertisements for the Company (and third parties through the Company) in themagazines published by Abril.

*Abril CreditFacility*

Tevecap has entered, as the borrower, into a revolvingcredit facility (the “Abril Credit Facility”) with Editora Abril S.A., as thelender. The Abril Credit Facility, effective December 6, 1995, allows theCompany to draw down amounts not to exceed a maximum aggregate principal amountof $60,000. Since June 1996, Tevecap has from time to time requested, andAbril has provided, funding in excess of the aggregate maximum principal amount.The loans provided under the Abril Credit Facility are denominated in reais,unless the loan is a “pass-through” loan that Abril has funded in U.S.dollars, in which case the loan is funded in a real equivalent amount. Abrilhas agreed to use its reasonable commercial efforts to obtain the lowestpossible interest rates for its loans to Tevecap under the Abril CreditFacility. In 2007, Tevecap intends to capitalize its indebtedness under theAbril Credit Facility, which will significantly reduce its total outstandingindebtedness. The aggregate principal amount outstanding under the Abril CreditFacility was $77,148 as of December 31, 2006, ($59,500 as of December 31,2005).

*Service Agreementwith License holders*

Pursuant to a Service Agreement, dated July 22,1994, as amended, Abril Comunicações S.A., TVA Brasil and TV Show Time (the “Licenseholders”) agreed to transfer to TVA all the rights and benefits associated withtheir current and future pay-television licenses, with the exception oflicenses operated by companies in which TVA has minority interests. While theLicense holders retained the title to such licenses, the License holderspromised to take all steps necessary to transfer the title of such licenses tothe Company. Such steps included the appropriate procedures required by theMinistry of Communications and any other governmental authority regulating thetransfers. The transfer of the licenses is currently subject to approval by theMinistry of Communications or subject to the passage of certain statutory orregulatory waiting periods.

**7.**         Incometaxes

7.1.                    The amounts chargedto the provision for income tax in results for the year ended December 31,2006, 2005 and 2004, are comprised as follows:

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|                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                          |       |     |       |     |       |     |       |
| Current income  tax provision |       | 493      |       | 308      |       | 304      |       |
| Deferred income  taxes        |       | 8,613    |       | 27,424   |       | 8,866    |       |
|                          |       |     |       |     |       |     |       |
|                          |       | 9,106    |       | 27,732   |       | 9,170    |       |

 

7.2.              The tax effects of temporary differences that giverise to deferred tax assets as of December 31, 2006 and 2005 are as follows:

|                                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                         |       |     |       |     |       |
| Deferred tax  assets:                                                        |       |     |       |     |       |
| Net operating loss carryforwards                                             |       | $        | 54,335     |     | $          | 119,268 |   |
| Provision for obsolescence                                                   |       | 11       |       | 3,185    |       |
| Provision for claims                                                         |       | (461     | )          | 9,342    |       |
| Other                                                                        |       | (2,356   | )          | 8,185    |       |
|                                                                         |       |     |       |     |       |
| Total gross deferred tax asset                                               |       | 51,529   |       | 139,980  |       |
|                                                                         |       |     |       |     |       |
| Less valuation allowance                                                     |       | (51,360  | )          | (139,869 | )          |
|                                                                         |       |     |       |     |       |
| Deferred tax asset                                                           |       | $        | 169        |     | $          | 111 |   |
|                                                                         |       |     |       |     |       |
| Deferred tax  liability:                                                     |       |     |       |     |       |
| Foreign currency exchange gains on Senior Notes  taxable on final settlement |       | (59,519  | )          | (45,988  | )          |
|                                                                         |       |     |       |     |       |
| Deferred tax liability                                                       |       | $        | (59,350    | )        | $          | (45,877 | ) |

 

7.3.                    Management has established a full valuation allowanceagainst the deferred tax assets as it is more likely than not that the deferredtax assets will not be realized, with exception of the deferred tax assetsrecorded on CCS Camboriú Cable Systems de Telecomunicações Ltda.

As of December 31, 2006 the Company and itssubsidiaries have accumulated tax losses of $382,376 ($ 333,469 in 2005) thatdo not expire.

 

7.4.                    The consolidated income taxes are different from theamount computed using the Brazilian statutory income tax rate for the reasonsset forth in the following table:

F-21

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|                                                                     | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                |       |     |       |     |       |     |       |
| Loss before  income taxes                                           |       | $        | (24,872    | )        | $          | (16,498  | )          | $ | (5,197 | ) |
| Statutory income  tax rate                                          |       | 34       | %          | 34       | %          | 34       | %          |
| Computed income  tax benefit                                        |       | (8,456   | )          | (5,609   | )          | (1,767   | )          |
| Amortization of  deferred charges                                   |       | 238      |       | 430      |       | 428      |       |
| Translation  (gain) loss on tax losses                              |       | (299     | )          | (1,875   | )          | (2,622   | )          |
| Losses in  foreign affiliates                                       |       | 7,833    |       | 12,419   |       | 1,238    |       |
| Provision for  income tax contingencies (note 19 c)                 |       | —   |       | 14,431   |       | —   |       |
| Other                                                               |       | 520      |       | 269      |       | 442      |       |
| Increase in  valuation allowance                                    |       | 9,271    |       | 7,667    |       | 11,450   |       |
| Total income tax  expense per consolidated statements of operations |       | $        | 9,106      |     | $          | 27,732   |       | $ | 9,170 |   |

 

Incometax expense represents amounts owed by subsidiaries calculated on a stand-alonebasis, as Brazilian income tax law does not allow consolidated tax returns.

**8.**                            Property, plant and equipment,net

As ofDecember 31, 2006 and 2005, property, plant and equipment were comprised of:
| ** **                | ** ** | **Annual **           | ** ** | ** **            | ** ** |
|---------------------------|------------|----------------------------|------------|-----------------------|------------|
|                           | ** ** | **Depreciation Rate** | ** ** | **December 31,** | ** ** |
| ** **                | ** ** | **%**                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
|                      |       |                       |       |                  |       |   |   |
| Reception  equipment      |       | 20                         |       | 1,152                 |       | 137,035 |   |
| Cable plant               |       | 10                         |       | 1,354                 |       | 64,406 |   |
| Machinery and  equipment  |       | 10                         |       | 5,966                 |       | 54,465 |   |
| Decoders                  |       | 10                         |       | 153                   |       | 79,419 |   |
| Leasehold  improvements   |       | 25                         |       | 329                   |       | 2,208 |   |
| Furniture and  fixtures   |       | 10                         |       | 59                    |       | 1,515 |   |
| Premises                  |       | 10                         |       | —                |       | 1,376 |   |
| Vehicles                  |       | 20                         |       | 28                    |       | 797 |   |
| Building                  |       | 4                          |       | 2,756                 |       | 2,901 |   |
| Other                     |       | 0                          |       | 31                    |       | 1,148 |   |
| Accumulated  depreciation |       |                       |       | (9,476                | )          | (273,372 | ) |
|                      |       |                       |       |                  |       |   |   |
|                      |       |                       |       | $                     | 2,352      |   | $ | 71,898 |   |
|                           |            |                            |            |                       |            |  |  |  |  |

 

F-22

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**9.**                            Intangible assetssubject to amortization

Following is a summary ofthe Company’s intangible assets subject to amortization
|                                   | ** ** | **2006**     | ** ** | **2005**       | ** ** |
|-----------------------------------|------------|--------------|------------|----------------|------------|
| ** **                        | ** ** | **Software** | ** ** | **Concession** | ** ** | **Total** | ** ** | **Software** | ** ** | **Concession** | ** ** | **Total** | ** ** |
| Gross                             |       | $            | 23         |           | 6,973      |   | $ | 6,996 |   | $ | 17,161 |   | $ | 12,977 |   | $ | 30,138 |   |
| Accumulated  amortization         |       | (23          | )          | (6,973         | )          | (6,996 | ) | (14,545 | ) | (12,435 | ) | (26,980 | ) |
| Net                               |       | $            | —     |           | $          | — |   | $ | — |   | $ | 2,616 |   | $ | 542 |   | $ | 3,158 |   |
|                              |       |         |       |           |       |   |   |   |   |   |   |   |   |
| **Net  subject to amortization:** |       |         |       |           |       |   |   |   |   |   |   |   |   |
| Trademarks and  patents           |       | —       |       | —         |       | — |   | — |   | — |   | 7 |   |
| ** **                        | ** ** | **$**        | **—** | ** **     | **$**      | **—** | ** ** | **$** | **—** | ** ** | **$** | **2,616** | ** ** | **$** | **542** | ** ** | **$** | **3,165** | ** ** |

 

Aggregateamortization expense for the above intangible assets amounted to $238, $430 and$428 for the years ended December 31, 2006, 2005 and 2004, respectively.

**10.**                      Loans

As of December 31, 2006 and 2005,loans were comprised of:
|                  | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **       | ** ** | **Short-term**                  | ** ** | **Long-term**                   | ** ** | **Short-term** | ** ** | **Long-term** | ** ** |
|             |       |                            |       |                            |       |   |   |   |   |
| Senior Notes (a) |       | $                               | 16,488     |                            | $          | 31,838 |   | $ | 569 |   | $ | 47,764 |   |
| Bank loans (b)   |       | —                          |       | —                          |       | 26,002 |   | 6,545 |   |
| Accrued interest |       | —                          |       | —                          |       | 265 |   | — |   |
|             |       | $                               | 16,488     |                            | $          | 31,838 |   | $ | 26,836 |   | $ | 54,309 |   |

 

----

(a)                        On November26, 1996, Tevecap raised funds in the foreign market through a privateplacement of Senior Notes amounting to $250,000. These Senior Notes matured onNovember 26, 2004 and were guaranteed by certain subsidiaries of Tevecap (seeNote 23). Interest accrues at 12.625% per annum and is payable on May 25 andNovember 25 of each year commencing on May 25, 1997.

On July28, 1999, the subsidiary TVA Communications Ltd. repurchased in the foreignmarket $201,978 aggregate principal amount of Tevecap’s Senior Notes. At thetime the 

F-23

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Senior Notes were repurchased,Tevecap obtained consent from the remaining note holders to eliminatesignificant restrictive covenants of the Senior Notes agreements.

On October 13, 2004, Tevecap filed aregistration statement with the United States Securities and ExchangeCommission to exchange the original Senior Notes due November 26, 1996,amounting to $48,022, to extend the 12.625% Senior Notes due 2009. On November26, 2004, the original maturity date of the senior notes, the exchange offerwas still outstanding, as a result of which the Company did not pay the outstandingprincipal amount of such notes, although the Company paid interest accrueduntil such date. The new Notes are payable in three annual installmentscommencing November 26, 2007. The new Senior Notes are denominated in U.S.dollars and accrue interest at a rate of 12.625% per year, with interestpayable on May 26 and November 26.

On December 21, 2004, the Companycompleted the exchange offer with the participation of 85% of the Note holders,which held Notes amounting to $40,749 as of December 31, 2005 and 2004. The newNotes are jointly and severally guaranteed by certain subsidiaries of Tevecap(see Note 23). One of the conditions for the exchange of the notes was that thematurity of the $201,978 in Notes held by the subsidiary TVA Communications Ltd.,should be modified on terms less favorable than the terms offered to the othernoteholders. On March 3, 2005, the renegotiation of the Notes held by TVACommunications Ltd. was registered with the SEC, retroactive to November 26,2004, changing the maturity to November 26, 2011, with annual interest based onLIBOR plus 3%, limited to 12.625% per year, above exchange variation, to bepaid upon the payment of the principal of the debt.

**OnNovember 7, 2005, an exchange offer proposal was filed with SEC (US- Securitiesand Exchange Comission) for the residual balance in the amount of $7,008. Theconditions for this renegotiation were similar to those determined on October13, 2004.**

**OnSeptember 13, 2005, the Company paid $265 to the creditors for which renegotiationhad not been made. This amount is available to the creditors in an account ofthe depositary bank, JP Morgan Trust Bank.**

**Short-termfinancing in local currency is collateralized by 41% of receivables of theCompany’s subsidiaries as of December 31, 2005.**

F-24

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The Company’slong-term financing matures as follows:

 
| Maturity | ** ** | **US$** | ** ** | **% of total** | ** ** |
|----------|------------|---------|------------|--------------------------|------------|
|     |       |    |       |                     |       |
| 2008     |       | $       | 15,919     |                     | 50.0       | % |
| 2009     |       | 15,919  |       | 50.0                     | %          |
|     |       |    |       |                     |       |
|     |       | $       | 31,838     |                     | 100.00     | % |

 

b)                           Bank loansare comprised of the following:
|                                                                                                                          | ** ** | **2006**       | ** ** | **2005**      | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------|------------|---------------|------------|
| ** **                                                                                                               | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** |
| ** **                                                                                                               | ** ** | ** **     | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Banco ABC do  Brasil S.A. - interest of 0.53% L-T. and 0.60% S-T. plus CDI rate per month  1.39% as of December 31, 2005 |       | —         |       | —        |       | 5,222 |   | 2,563 |   |
|                                                                                                                     |       |           |       |          |       |   |   |   |   |
| Banco Safra –  annual interest 0.37% Plus CDI rate per month 1.39% as of December 31, 2005                          |       | —         |       | —        |       | 6,418 |   | — |   |
|                                                                                                                     |       |           |       |          |       |   |   |   |   |
| Banco J.Safra –  interest of 0.57% plus CDI rate per month 1.39% as of December 31, 2005                            |       | —         |       | —        |       | 8,233 |   | — |   |
|                                                                                                                     |       |           |       |          |       |   |   |   |   |
| Banco Bic –  interest of 0.60% plus CDI rate per month 1.39% as of December 31, 2005                                |       | —         |       | —        |       | 2,138 |   | — |   |
|                                                                                                                     |       |           |       |          |       |   |   |   |   |
| Banco  HSBC–interest of 0.64% plus CDI rate per month 1.39% as of December 31, 2005                                 |       | —         |       | —        |       | 2,176 |   | — |   |
|                                                                                                                     |       |           |       |          |       |   |   |   |   |
| Banco GM –  interest of 1.77% per month                                                                             |       | —         |       | —        |       | 34 |   | 15 |   |
| Banco Pine – interest  of 1.10% per month                                                                           |       | —         |       | —        |       | 823 |   | 2,198 |   |
| Banco ABC do  Brasil S.A. interest of 1.14% per month                                                                    |       | —         |       | —        |       | 958 |   | 1,769 |   |
|                                                                                                                     |       |           |       |          |       |   |   |   |   |
| Total                                                                                                                    |       | $              | —     |          | —     |   | $ | 26,002 |   | 6,545 |   |
|                                                                                                                          |            |                |            |               |            |  |  |  |  |  |  |

 

F-25

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**11.**                     Taxes payable other than income taxes

As of December 31, 2006 and 2005,taxes payable other than income taxes were comprised of:

 
|                          | ** ** | **2006**       | ** ** | **2005**      | ** ** |
|--------------------------|------------|----------------|------------|---------------|------------|
| ** **               | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** |
|                     | ** ** | ** **     | ** ** | ** **    |       |   | ** ** | ** ** | ** ** |
| Tax on revenue  (COFINS) |       | $              | 14         |          | —     |   | $ | 458 |   | — |   |
| VAT state tax  (ICMS)    |       | 54             |       | —        |       | 3,473 |   | 3,906 |   |
| Tax on revenue  (PIS)    |       | 4              |       | —        |       | 101 |   | — |   |
| Other                    |       | 242            |       | 494           |       | 402 |   | — |   |
|                     |       | $              | 314        |          | 494        |   | $ | 4,434 |   | 3,906 |   |

 

On July28, 1999, as a result of the agreement for sale of 100% in Galaxy Brasil Ltda.and TVA Banda C Ltda., the Company assumed liabilities referring to taxes thatwere accrued as a charge on the gain recognized on the sale of these companies.The balance related to these taxes as of December 31, 2006 is presented indiscontinued operations in Note 20 in the amount of $3,728 classified as ICMS($4,728 as of December 31, 2005). The payment terms of these taxes wereapproved in 2004, under which the balance will be settled in 54 monthlypayments commencing in May, 2004. The balance classified as long-term amountedto $1,859 at December 31, 2006 in discontinued operations in Note 20.

**12.**                  Tax recovery program (REFIS) and specialinstallment program (PAES)

On April 5, 2000, TevecapS.A. and its subsidiaries opted for the Government’s Tax Recovery Program(REFIS), implemented by Decree No. 3,342 of January 25, 2000, later convertedinto Law No. 9,964 of April 10, 2000. In addition, the direct subsidiary TVASistema de Televisão S.A. used its credits for tax loss carryforwards amountingto $7,113 for amortization of interest and fines.

In guarantee of the payment of the debts included inthe program, the subsidiary pledged property items as collateral in the amountof $16,440.

On July 31, 2003, certain subsidiaries of the Company,including TVA Sistema de Televisão S.A., through a protocol filed with theFederal Revenue Service, opted for the Federal Tax Financing Program (PAES),established by Law No. 10,684 of May 30, 2003.

The main reasons for thisoption were the extension of maturity dates, refinancing through PAES (SpecialInstallment Program), inclusion of new taxes, and the use of TJLP (long-terminterest rate) for monetary restatement.

Management believes thatthis payment will be made in approximately 99 monthly installments, adjusted byTJLP.

F-26

----

As of December 31, 2006 and 2005, this accountspayable is segregated between short and long-term as follows: 
|            | ** ** | **2006**   | ** ** | **2005** | ** ** |
|------------|------------|------------|------------|----------|------------|
|       | ** ** | ** ** |       |     | ** ** |
| Short-term |       | 32         |       | 1,963    |       |
| Long-term  |       | 339        |       | 15,697   |       |
|       |       |       |       |     |       |
| Total      |       | 371        |       | 17,660   |       |

 

**13.**                     Other operating expense , net
|                                             | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                        |       |     |       |     |       |     |       |
| Loss on disposal  of property and equipment |       | $        | 50         |     | —     |     | —     |   |
| Provision for  inventory obsolescence       |       | 2        |       | 33       |       | —   |       |
| Expenses with  commissions                  |       | 4,199    |       | —   |       | —   |       |
| Other                                       |       | 358      |       | 308      |       | 216      |       |
|                                        |       | $        | 4,609      |     | $          | 341      |       | $ | 216 |   |
|                                             |            |          |            |          |            |          |            |  |  |  |

 

**14.**                     Other nonoperating income, net
|                                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                           |       |     |       |     |       |     |       |
| Net gain on sale  of equity method investments |       | —   |       | —   |       | (8,443   | )          |
|                                           |       |     |       |     |       |     |       |
|                                           |       | $        | —     |     | $          | —   | ** ** | $ | (8,443 | ) |
|                                                |            |          |            |          |            |          |            |  |  |  |

 

As ofDecember 31, 2003**,** TVA also held a minorityinterest in each of Canbras TVA Cabo Ltda., TV Cabo Santa Branca Comércio Ltda.and Canbras Paraná Ltda. (collectively, “Canbras TVA”), which together providecable television services to an additional 19 cities with a total population of2.9 million. In October 2003, the Company entered into an agreement to sell itsentire equity interest in Canbras TVA to Horizon Cablevision do Brasil S.A.Anatel approval was received on June 16, 2004, at which time the sale wasrecognized. The proceeds from the sale were paid directly to Abril ComunicaçõesS.A. in 2003, the Company’s principal shareholder for which the Companyrecognized a receivable from its 

F-27

----

shareholder.In connection with the sale, the Company recognized a gain of approximately$8,811 during 2004.

OnSeptember 27, 2004, ANATEL – Agência Nacional de Telecomunicações approved thecontract dated October 08, 2003 for the sale of the Company’s investments inParaná Participações Ltda, Zerelda Participações S/C Ltda and its whollysubsidiary TVA Cabo Guarapuava Ltda, and TV Jacarandá Ltda. The net loss onsale of these investment recorded in 2005 amounted to $368.

**15.**                     Redeemable Stock

As of December 31, 2005,9.5% of the common stock of Tevecap was subject to an event put, i.e., “triggeringevent” under the Stockholders’ Agreement pursuant to which each of thestockholders (other than Abril Comunicações S.A. (“Abril”)) may, in certain circumstances,demand that Tevecap purchase all or a portion of its shares, unless the sharesof capital stock held by such stockholders becomes publicly registered, listedor traded. In addition, as of December 31, 2006 and 2005, 5.8% of the samecommon stock of Tevecap (27,930 thousand shares) are also subject to a time putwhereby, pursuant to the Stockholders’ Agreement, Falcon InternationalCommunications (“Falcon”) may also demand that Tevecap buy all or a portion ofFalcon’s shares of capital stock held in Tevecap if such shares are notpublicly registered, listed or traded by September 22, 2002. On July 15, 2005,the Stockholders Agreement was amended to change the term of the time put toSeptember 22, 2006. The time put is redeemable at fair value as determined byappraisal. In the event that Tevecap does not have the funds to pay the amountsdue under the time put, subject to certain conditions, Abril becomes ultimatelyresponsible payment under the terms of the put.

On December 22, 2006, Abril acquired 9.5% of theCompany’s shares held by minority shareholders pursuant to an event put andbecame owner of 100% of the Company. The minority shareholders signed anagreement under which the obligation under the time put was cancelled.Accordingly, the balance relating to the time put amounting to $30,380,recorded as Redeemable Common Stock, was reversed against the shareholders’deficiency for the year ended December 31, 2006.

**16.**                     Capital Stock

The capital stock of the Company as of December 31,2006 and 2005, held entirely by Brazilian stockholders, is comprised of485,220,440 common shares.

F-28

----

The shares of Tevecap held by Abril have been pledgedin connection with certain debentures issued by Abril.

The Company’s bylaws provide that stockholders areentitled to a minimum dividend of 25% of annual net income in accordance withBrazilian Corporate Law, after deduction of the allocation to the legalreserve.

Additionally, LawNo. 9,249/95 introduced the option of paying interest on capital, calculatedbased on the TJLP in effect for the period, which may also be considered aspart of the minimum mandatory dividend.

On December 22, 2006 Abrilacquired 9.5% of the Company’s shares from the minority shareholders, andbecame the owner of 100% of the Company outstanding common shares.

**17.**                     Accrual for contingencies

The Company records provisions for contingences forprobable estimable losses based on the opinion of management and external legalcounsel.

17.1.              The accrued amounts of the contingenciesunder litigation, as of December 31, 2006 and 2005, are as follows:
|                                            | ** ** | **2006**      | ** ** | **2005**      | ** ** |
|--------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                 | ** ** | **Long-term** | ** ** | **Long-term** | ** ** |
|                                       |       |          |       |          |       |
| Labor lawsuits  (a)                        |       | 93            |       | 2,740         |       |
| Civil lawsuits  (b)                        |       | —        |       | 199           |       |
| Income tax (c)                             |       | 12,240        |       | 10,566        |       |
| Social  contribution tax (c)               |       | 4,470         |       | 3,865         |       |
| VAT state tax  (ICMS) (d)                  |       | 14,346        |       | 23,246        |       |
| Social security  compulsory deposit (FGTS) |       | —        |       | 19            |       |
| Other                                      |       | 85            |       | 2,555         |       |
|                                       |       | $             | 31,234     |          | $          | 43,190 |   |
|                                            |            |               |            |               |            |  |  |

 

----

(a)              Labor lawsuits

These are part of variouslabor claims against certain subsidiaries, especially due to terminationsoccurred in the normal course of their businesses. The most frequent claimsrefer to proportional vacation pay, salary differences, night shift premiums,overtime, social charges, among others. There are no individual claims ofsignificant amounts.

F-29

----

**(b)**             Civillawsuits

Certainsubsidiaries are defendants in civil claims at various legal levels, there areno individual claims of significant amounts.

**(c)**              Incometax

December 18, 2003 for the year 1998 and in March 11, 2004 for the years1999 and 2001, the Company was served a tax assessment notice demanding thepayment of income tax ($12,240 in 2006, $10,566 in 2005) and the socialcontribution tax ($4,470 in 2006, $3,865 in 2005) for the years ended December31, 1998, 1999 and 2001, relating to the deductibility of financial expensesarising from exchange variation on dividends receivable, profits of foreignsubsidiaries and uncollected interest on loans granted to its subsidiaries.During 2005, the Company recorded a provision for this contingency amonting to$16,710 in 2006 ($14,431 in 2005), since the likelihood of loss waschanged from possible to probable based on the opinion of the Company’sexternal legal counsel.

**(d)**             ICMS

d.1)        In November 05, 1998, in response to a fiscal inquiry, the Companyfiled a lawsuit challenging the constitutionality of ICMS on cable televisionservices. During the year ended December 31, 2005, the Company recorded aprovision amounting to $110 in 2006 ($11.191 in 2005). The Company has madefiscal deposits amounting to $208 in 2006 ($8,264 in 2005) related to thiscontingency as described in Note 17.2.

d.2)        In January 23, 2001, TVA Sistema de TelevisãoS.A. consulted with the Brazilian tax authorities as to whether ICMS should beapplied to advertising revenues in response to a fiscal inquiry. Prior to 2005,the probability of loss relating to this matter was remote. During the yearended December 31, 2005, the Company recorded a provision amounting to $14,236in 2006 ($12.055 in 2005) based on the opinion of its external legal counsel,which determined that the likelihood of loss relating to this item changed fromremote to probable.

F-30

----

17.2.              With respect to certain claims for whichprovisions have been recorded. The Company’s subsidiaries have judicialdeposits as of December 31, 2006 and 2005, as follows:

** **
|                         | ** ** | **2006**      | ** ** | **2005**      | ** ** |
|-------------------------|------------|---------------|------------|---------------|------------|
| ** **              | ** ** | **Long-term** | ** ** | **Long-term** | ** ** |
|                    |       |          |       |          |       |
| Labor lawsuits          |       | 18            |       | 1,510         |       |
| Civil lawsuits          |       | —        |       | 737           |       |
| Income tax              |       | —        |       | 119           |       |
| Social security (INSS)  |       | 28            |       | 335           |       |
| Tax on revenue (PIS)    |       | —        |       | 32            |       |
| Tax on revenue (COFINS) |       | —        |       | 59            |       |
| VAT state tax (ICMS)    |       | 208           |       | 8,264         |       |
| Other                   |       | 295           |       | 831           |       |
|                    |       | 549           |       | 11,887        |       |

 

17.3.              Following are the contingencies for which theCompany has not recorded a provision since the likelihood of loss is possible:
|                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
|                  |       |     |       |     |       |
| Civil contingency (a) |       | 6,850    |       | 6,267    |       |
| Tax contingency (b)   |       | 3,993    |       | 4,952    |       |
|                  |       |     |       |     |       |
|                  |       | 10,843   |       | 11,219   |       |

 

(a)     Civil contingencies

Certainsubsidiaries are defendants in civil claims at various legal levels refers tothe sum of many requests for indemnities for pain and suffering and/or materialdamages and claim for occupational damages. There are no individual claims ofsignificant amounts needing specific disclosure.

(b)    Taxcontingencies

Tax contingencies forwhich no provisions have been recorded are dispersed and Management understandsthat there are no individual claims of significant amounts needing specificdisclosure.

17.4.              Followingare the contingencies for which the Company has not recorded a provision sincethe likelihood of loss is remote:

F-31

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a)         Tax on use of publicroads, and aerial and underground space

Certain municipalities inthe States of São Paulo, Paraná and Santa Catarina which the Company isoperating promulgated orders or laws levying contributions on the utilizationof public, aerial and underground spaces, including laying and passage ofcables, also known as the “Shadow Tax”. Power and telecommunications companies,among others, are liable for this tax. The Company currently involved in sevenclaims relating to this issue and has taken legal action questioning theconstitutionality and legality of this tax. Five of these claims are in theappeals phase in the Courts of Justice of São Paulo, Paraná and Santa Catarina,and two of these claims are in the Appeal Court of the State of São Paulo.  If our appeals fail and we are forced to paythis tax, our operational earnings may be adversely and substantially affected.The maximum potential loss relating to this lawsuit amounted to $43 million asof December 31, 2006. The Company based on the opinion of its external counselthat classify the likelihood of an unfavorable outcome relating to these claimsare remote.

b)        ECAD

The Company’soperating companies are currently defending a lawsuit brought by the EscritórioCentral de Arrecadação e Distribuição (Central Collection and DistributionOffice, or “ECAD”), entity authorized to enforce copyright laws relating tomusical works.  ECAD filed a lawsuit in1993 against all pay-television operators in Brazil seeking to collectroyalty payments in connection with musical works broadcast by theoperators.  ECAD is seeking a judgmentaward of 2.55% of all past and present revenues generated by theoperators.  The suits are currently beingsubmitted to the Superior Tribunal de Justiça in order to determine whetherECAD is entitled to benefit from the copyrights relating to musical worksbroadcast on pay television.  Suits werefiled against TVA in the 1 Vara Cível Forum Central de Curitiba (against TVASul) and the 14 Vara Cível Forum Central de São Paulo (against TVABrasil).  The suit against TVA Sul hasbeen initially ruled in TVA’s favor, while the suit against TVA Brasil iscurrently awaiting judgment. The maximum potential loss relating to thislawsuit amounted to $686 as of December 31, 2006. The Company based on theopinion of its external counsel that classify the likelihood of loss is remoterelated to these lawsuits.

F-32

----

**18.       Abril Health Care Plan**

In February 1996, the Abril HealthCare Plan, Associação Abril de Benefícios (the "Health Care Plan"),was created to provide health care to Abril companies' employees and theirdependents. Both the companies forming part of the Abril Group and theemployees thereof contribute monthly to Associação Abril de Benefícios, thecompany responsible for management of the plan.

In 2006, contributions made byTevecap’s subsidiaries of Associação Abril de Benefícios amounted to $11 ($11in 2005 and $8 in 2004).

** 19.      Valuationand qualifying accounts and reserves**
|                                  | ** ** | **Provision** | ** ** | **Provision**    | ** ** | **Deferred**  | ** ** | ** **        | ** ** | **Provision**    | ** ** |
|----------------------------------|------------|---------------|------------|------------------|------------|---------------|------------|-------------------|------------|------------------|------------|
| ** **                       | ** ** | **for**       | ** ** | **for**          | ** ** | **taxation**  | ** ** | **Accrual**       | ** ** | **for**          | ** ** |
| ** **                       | ** ** | **doubtful**  | ** ** | **inventory**    | ** ** | **valuation** | ** ** | **for**           | ** ** | **equipment**    | ** ** |
| ** **                       | ** ** | **accounts**  | ** ** | **obsolescence** | ** ** | **allowance** | ** ** | **contingencies** | ** ** | **obsolescence** | ** ** |
|                             |       |          |       |             |       |          |       |              |       |             |       |
| Balance as of December  31, 2003 |       | 3,248         |       | 263              |       | 92,807        |       | 11,272            |       | 5,625            |       |
| Additions                        |       | 1,414         |       | 368              |       | 21,842        |       | 1,953             |       | 2,117            |       |
| Effect of exchange rate          |       | 432           |       | 61               |       | —        |       | 1,319             |       | 691              |       |
| Balance as of December  31, 2004 |       | 5,094         |       | 692              |       | 114,649       |       | 14,544            |       | 8,433            |       |
| Additions                        |       | 385           |       | 1,948            |       | 25,220        |       | 25,660            |       | 3,519            |       |
| Effect of exchange rate          |       | 698           |       | 171              |       | —        |       | 2,986             |       | 2,281            |       |
| Balance as of December  31, 2005 |       | $             | 6,177      |             | $          | 2,811         |       | $                 | 139,869    |             | $          | 43,190 |   | $ | 14,233 |   |
| Additions                        |       | 1,922         |       | —           |       | 13,965        |       | 500               |       | —           |       |
| Deductions                       |       | —        |       | (459             | )          | —        |       | —            |       | —           |       |
| Effect of exchange rate          |       | 619           |       | 258              |       | —        |       | 4,102             |       | 1,350            |       |
| Discontinued operations          |       | (8,408        | )          | (2,570           | )          | (102,474      | )          | (16,558           | )          | (15,583          | )          |
| Balance as of December 31, 2006  |       | $             | 310        |             | $          | 40            |       | $                 | 51,360     |             | $          | 31,234 |   | $ | — |   |
|                                  |            |               |            |                  |            |               |            |                   |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**20.       Discontinued Operations**

On October 29, 2006, the Company entered into certain agreements withTelesp for the sale of principally all of the operations of the Company. Underthese agreements, the Company expects to transfer its MMDS, SCM (Internet andtelephony) licenses and operations to Telesp and to transfer our Cableoperations and licenses (other than those related to CCS Camboriú Cable Systemde Telecomunicações Ltda.) to certain entities to be owned by a 

F-33

----

joint venture company formed between Telesp and certain affiliates ofAbril Comunicações. The transaction was structured such that upon consummationTelesp will become the owner of a minority stake in the Cable entities, withinthe limits set forth in applicable regulations and in Telesp’s concessionagreement for telephony services, while certain affiliates of AbrilComunicações will continue to have a majority stake in the Cable entities. Theagreements also stipulate the sale of CCS Camboriú if the Company is able toacquire the minority shareholders of CCS Camboriú. This sale of Tevecap’soperations is subject to approval by the Agência Nacional de Telecomunicações*– Anatel*, the Brazilian Telecommunications Agency, and the *Conselho Administrativo de Defesa Econômica – CADE*(Administrative Council for Economic Defense or “CADE”), the Braziliananti-trust governmental entity. The sale is also subject to the implementationof a corporate reorganization by the Company and Abril and the ability totransfer the related assets free and clean of encumbrances. The Company’s Boardof Directors believes that it is highly probable that the sale (other than CCSCamboriú) will be approved. The Company does not expect to recognize a loss inconnection with the sale of the above operations of Tevecap. Additionally, thebook values of the assets of these operations do not exceed their fair values.

The agreements also stipulate that Telesp and Tevecap will begin toparticipate in joint telephony, broad band and subscription TV services duringthe approval process period. In connection with these services, the Company andTelesp have established certain contractual commercial and operationalrelationships.

On December 28, 2006, Telesp made an advance payment of $93,545million. In addition, Telesp granted the Company a line of credit of up to$52,619 million for capital expenditures, of which the Company had borrowed$38,371 million up to June 30, 2007. In the event the sale does not occur, theCompany is obligated to return by April 30, 2008 the advance payment and anyamounts borrowed under the line of credit together with, in each case, interestaccrued thereon at the rate of 103% of the CDI rate (the interbank certificateof deposit rate in Brazil) from the date of the determination that thetransaction will not close. Our obligation to repay these amounts wasguaranteed by a pledge of our Cable networks. In addition, our operatingagreements with Telesp will terminate on July 31, 2007 in the event that thetransaction does not close.

TheSenior Notes are not being transferred under the above agreements and willremain obligations of ours following the corporate reorganization mentionedabove. Additionally, Tevecap S.A. and/or Abril, have assumed responsibility forpotential contingencies that arise after the sale of Tevecap’s operationsdescribed above relating to periods prior to completion of the sale.

F-34

----

In addition, the Company expects that as a result of the transaction,substantially all of the assets of TVA Sistema de Televisão S.A., ComercialCabo TV São Paulo S.A. and TVA Sul Paraná S.A. (other than TVA SulParaná’s equity interests in CCS Camboriú Cable System de TelecomunicaçõesLtda.), will be transferred to the purchasers under the above agreements,although they will not continue to be Guarantors under the Senior Notes. The Company’smanagement is analysing the effects of the transaction as a whole on the SeniorNotes.

Following is selected financial information relating to Tevecap’soperations that are classified as discontinued operations as a result of thisagreement:

|                                     | ** ** | **December 31,** | ** ** |
|-------------------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                          | ** ** | ** **            | ** ** | ** ** | ** ** |
| Cash and cash  equivalents          |       | $                     | 4,639      |   | $ | 8,928 |   |
| Accounts receivable,  net           |       | 8,300                 |       | 3,371 |   |
| Inventories, net                    |       | 11,822                |       | 8,381 |   |
| Recoverable taxes                   |       | 974                   |       | 293 |   |
| Prepaid and other  assets           |       | 300                   |       | 780 |   |
| Property, plant and  equipment, net |       | 91,492                |       | 69,299 |   |
| Intangible assets, net              |       | 3,356                 |       | 2,943 |   |
| Judicial deposits                   |       | 14,764                |       | 11,448 |   |
|                                |       |                  |       |   |   |
| **Current assets held for sale**    |       | $                     | 135,647    |   | $ | 105,443 |   |

 
|                                                                                | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| Loans                                                                          |       | $                     | 33,012     |   | $ | 32,819 |   |
| Film suppliers                                                                 |       | 5,280                 |       | 5,226 |   |
| Other suppliers                                                                |       | 10,030                |       | 7,708 |   |
| Tax recovery program –  PAES/REFIS                                        |       | 17,139                |       | 16,588 |   |
| Taxes payable other  than income taxes                                         |       | 10,081                |       | 8,062 |   |
| Income tax payable                                                             |       | 895                   |       | 297 |   |
| Accrued payroll and  related liabilities                                       |       | 2,847                 |       | 2,531 |   |
| Advances from customers                                                        |       | —                |       | 441 |   |
| Other accounts payable                                                         |       | 1,271                 |       | 387 |   |
| Accrual for  contingencies                                                     |       | 16,558                |       | 16,507 |   |
|                                                                           |       |                  |       |   |   |
| **Current Liabilities directly associated with  current assets held for sale** |       | $                     | 97,113     |   | $ | 90,566 |   |

 

F-35

----

 

|                                                                                                  | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                       | ** ** | **2006**                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                       | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gross revenues                                                                                   | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Monthly subscriptions                                                                            |       | $                           | 150,353    |   | $ | 123,085 |   | $ | 91,616 |   |
| Installation                                                                                     |       | 2,713                       |       | 2,053 |   | 964 |   |
| Advertising                                                                                      |       | 5,037                       |       | 3,534 |   | 1,833 |   |
| Additional services                                                                              |       | 9,767                       |       | 6,725 |   | 6,151 |   |
| Taxes on revenues                                                                                |       | (23,842                     | )          | (19,466 | ) | (14,026 | ) |
| Direct operating expenses (excluding depreciation and and  amortization stated separately below) |       |                        |       |   |   |   |   |
| Payroll and benefits                                                                             |       | (1,780                      | )          | (1,620 | ) | (1,988 | ) |
| Programming                                                                                      |       | (31,652                     | )          | (29,462 | ) | (25,483 | ) |
| Technical assistance                                                                             |       | (1,782                      | )          | (1,470 | ) | (1,246 | ) |
| TVA magazine                                                                                     |       | (571                        | )          | (305 | ) | (1,265 | ) |
| Pole rental                                                                                      |       | (2,137                      | )          | (2,090 | ) | (1,419 | ) |
| Other costs                                                                                      |       | (9,285                      | )          | (7,723 | ) | (4,715 | ) |
| Selling, general and administrative expenses                                                     |       |                        |       |   |   |   |   |
| Payroll and benefits                                                                             |       | (11,276                     | )          | (8,500 | ) | (5,503 | ) |
| Advertising and  promotion                                                                       |       | (4,983                      | )          | (5,123 | ) | (1,463 | ) |
| Rent                                                                                             |       | (1,815                      | )          | (1,170 | ) | (1,355 | ) |
| Other selling, general  and administrative expenses                                              |       | (29,522                     | )          | (32,222 | ) | (15,780 | ) |
| Depreciation                                                                                     |       | (25,197                     | )          | (23,146 | ) | (19,634 | ) |
| Amortization                                                                                     |       | (3,508                      | )          | (5,800 | ) | (4,099 | ) |
| Other operating expense, net                                                                     |       | (986                        | )          | (6,587 | ) | (3,096 | ) |
| Interest income                                                                                  |       | 1,566                       |       | 487 |   | 333 |   |
| Interest expense                                                                                 |       | (16,140                     | )          | (10,205 | ) | (5,165 | ) |
| Foreign currency  transaction income, net                                                        |       | 366                         |       | 223 |   | 64 |   |
| Income (loss) from discontinued operations, before income taxes                                  |       | 5,326                       |       | (18,782 | ) | (5,276 | ) |
| Income tax expense                                                                               |       | (962                        | )          | (314 | ) | — |   |
| **Income (loss) from discontinued operations**                                                   |       | 4,364                       |       | (19,096 | ) | (5,276 | ) |
|                                                                                                  |            |                             |            |  |  |  |  |  |  |  |

 

F-36

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**CASH FLOW INFORMATION**
|                                                                | ** ** | **Year Ended December 31,** | ** **  |
|----------------------------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                                     | ** ** | **2006**                                   | ** **  | **2005** | ** ** | **2004** | ** ** |
| ** **                                                     | ** ** | ** **                                 | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Amounts of cash flow relating  to discontinued operations:** | ** ** | ** **                                 | ** **  | ** ** | ** ** | ** ** | ** ** |
| Provided by  operating activities:                             |       |                                       |        |   |   |   |   |
| Depreciation                                                   |       | $                                          | 25,197      |   | 23,146 |   | 19,634 |   |
| Amortization                                                   |       | 3,508                                      |        | 5,800 |   | 4,099 |   |
| Allowance for  doubtful accounts                               |       | 1,757                                      |        | 366 |   | 1,393 |   |
| Provision for  inventory obsolescence                          |       | 460                                        |        | — |   | — |   |
| Loss on sale of  obsolete inventories                          |       | 1,495                                      |        | 1,172 |   | 480 |   |
| Write-off of  assets related to cancellation of subscriptions  |       | —                                     |        | 3,519 |   | 2,117 |   |
| Disposal and  write-off of property, plant and equipment       |       | 197                                        |        | 771 |   | 382 |   |
| Foreign currency  transaction loss, net                        |       | (366                                       | )           | (223 | ) | (64 | ) |
| Current income  taxes                                          |       | 962                                        |        | 314 |   | — |   |
| Accrued interest                                               |       | 6,158                                      |        | (11,506 | ) | 361 |   |
| Changes in  operating assets and liabilities:                  |       |                                       |        |   |   |   |   |
| Accounts  receivable                                           |       | (6,211                                     | )           | (3,062 | ) | 1,615 |   |
| Prepaid expenses  and other assets                             |       | 573                                        |        | 409 |   | 480 |   |
| Recoverable  taxes                                             |       | (660                                       | )           | — |   | — |   |
| Inventories                                                    |       | (2,143                                     | )           | 2,177 |   | (334 | ) |
| Suppliers                                                      |       | 832                                        |        | 1,545 |   | (1,373 | ) |
| Accrual for  contingencies                                     |       | 1,138                                      |        | 5,547 |   | 1,955 |   |
| Taxes payable  other than income taxes                         |       | 142                                        |        | 741 |   | 919 |   |
| Accrued payroll  and related liabilities                       |       | 75                                         |        | 973 |   | (192 | ) |
| Advances  received from subscribers                            |       | —                                     |        | 1,296 |   | — |   |
| Judicial  deposits                                             |       | (2,177                                     | )           | (1,765 | ) | (1,376 | ) |
| Other                                                          |       | 536                                        |        | 708 |   | 784 |   |
| **Cash  flow from discontinued operations**                    | ** ** | **31,473**                                 | ** **  | **31,928** | ** ** | **30,880** | ** ** |
| **Cash flows from investing  activities:**                     | ** ** | ** **                                 | ** **  | ** ** | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                    |       | (42,739                                    | )           | (26,495 | ) | (13,346 | ) |
| Purchase of  intangible assets                                 |       | (1,643                                     | )           | — |   | — |   |
| **Cash  flow from discontinued operations**                    | ** ** | **$**                                      | **(44,382** | **)** | **$** | **(26,495** | **)** | **$** | **(13,346** | **)** |
| **Cash flows from financing  activities:**                     | ** ** | ** **                                 | ** **  | ** ** | ** ** | ** ** | ** ** |
| Proceeds from  bank loans                                      |       | 37,264                                     |        | 48,661 |   | 36,192 |   |
| Repayment of  loans from banks                                 |       | (45,195                                    | )           | (33,226 | ) | (43,084 | ) |
| Repayments of  program PAES/REFIS                              |       | (1,409                                     | )           | (4,090 | ) | (4,233 | ) |
| **Cash flow from discontinued  operations**                    | ** ** | **(9,340**                                 | **)**       | **11,345** | ** ** | **(11,125** | **)** |
|                                                                |            |                                            |             |  |  |  |  |  |  |  |

 

F-37

----

*RelatedParty Transactions*

*Editora Abril Service Agreement*

*InJanuary 2002, pursuant to a Service Agreement with its affiliate Editora Abril,the Company outsourced a number of administrative services, including payroll,human resources, accounting, tax, finance and legal services, to Editora Abril.Under this Service Agreement, the Company pays to Editora Abril a monthly feeof approximately $201 as of December 31, 2006 ($184 and $130 as of December 31,2005 and 2004).*

*Publishing and Advertising*

The Company publishes a monthly programming guidedetailing the Company’s programming options in a given month. In connectionwith this magazine, TVA Sistema has entered into an agreement with Abril, datedSeptember 1992, pursuant to which Abril publishes copies of the Company’smonthly programming guide in return for a monthly payment of approximately $228during the year ended December 31, 2006 ($172 and $126 during the years endedDecember 31, 2005 and 2004) to printing costs, distribution and advertising.TVA Sistema and Abril also have a reciprocal advertising agreement in which theCompany publishes advertisements for Abril in the Company’s monthly magazine inexchange for advertisements for the Company (and third parties through theCompany) in the magazines published by Abril.

**Accounts receivable, net**

As of December 31, 2006 and 2005, accounts receivable werecomprised of:
|                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Subscriptions and  installation fees |       | $        | 14,163     |     | $          | 8,669 |   |
| Advertising                          |       | 869      |       | 626      |       |
| Barter transactions                  |       | 1,676    |       | 13       |       |
| Provision for doubtful  accounts     |       | (8,408   | )          | (5,937   | )          |
|                                 |       | $        | 8,300      |     | $          | 3,371 |   |

 

No single customer accounted for morethan 10% of total accounts receivable as of December 31, 2006 and 2005.

F-38

----

**Inventories, net**

As ofDecember 31, 2006 and 2005, inventories were comprised of:

 
|                             | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Materials and supplies      |       | $        | 13,083     |     | $          | 11,154 |   |
| Imports in transit          |       | $        | 1,309      |     | $          | — |   |
| Provision for  obsolescence |       | (2,570   | )          | (2,773   | )          |
|                        |       | $        | 11,822     |     | $          | 8,381 |   |

 

**Property, plant and equipment, net**

As ofDecember 31, 2006 and 2005, property, plant and equipment were comprised of:
|                           | ** ** | **Annual **           | ** ** | ** **            | ** ** |
|---------------------------|------------|----------------------------|------------|-----------------------|------------|
|                           | ** ** | **Depreciation Rate** | ** ** | **December 31,** | ** ** |
| ** **                | ** ** | **%**                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
|                      |       |                       |       |                  |       |   |   |
| Reception  equipment      |       | 20                         |       | 167,579               |       | 135,940 |   |
| Cable plant               |       | 10                         |       | 71,467                |       | 63,481 |   |
| Machinery and  equipment  |       | 10                         |       | 54,446                |       | 49,482 |   |
| Decoders                  |       | 10                         |       | 101,847               |       | 79,280 |   |
| Leasehold  improvements   |       | 25                         |       | 2,103                 |       | 1,907 |   |
| Furniture and  fixtures   |       | 10                         |       | 1,732                 |       | 1,461 |   |
| Premises                  |       | 10                         |       | 1,499                 |       | 1,376 |   |
| Vehicles                  |       | 20                         |       | 704                   |       | 748 |   |
| Building                  |       | 4                          |       | 421                   |       | 385 |   |
| Other                     |       | 0                          |       | 5,730                 |       | 1,087 |   |
| Accumulated  depreciation |       |                       |       | (316,036              | )          | (265,848 | ) |
|                      |       |                       |       |                  |       |   |   |
|                      |       |                       |       | $                     | 91,492     |   | $ | 69,299 |   |
|                           |            |                            |            |                       |            |  |  |  |  |

 

F-39

----

**Intangible assets subject to amortization**

Following is a summary of the Company’s intangibleassets subject to amortization:

 
|                                  | ** ** | **2006**     | ** ** | **2005**       | ** ** |
|----------------------------------|------------|--------------|------------|----------------|------------|
| ** **                       | ** ** | **Software** | ** ** | **Concession** | ** ** | **Total** | ** ** | **Software** | ** ** | **Concession** | ** ** | **Total** | ** ** |
| Gross                            |       | $            | 20,433     |           | $          | 7,235 |   | $ | 27,668 |   | $ | 17,140 |   | 6,608 |   | $ | 23,748 |   |
| Accumulated  amortization        |       | (17,085      | )          | (7,235         | )          | (24,320 | ) | (14,524 | ) | (6,288 | ) | (20,812 | ) |
| Net                              |       | $            | 3,348      |           | $          | — |   | $ | 3,348 |   | $ | 2,616 |   | $ | 320 |   | $ | 2,936 |   |
|                             |       |         |       |           |       |   |   |   |   |   |   |   |   |
| **Net subject to amortization:** | ** ** | ** **   | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trademarks and patents           |       | —       |       | —         |       | 8 |   | — |   | — |   | 7 |   |
| ** **                       | ** ** | **$**        | **3,348**  | ** **     | **$**      | **—** | ** ** | **$** | **3,356** | ** ** | **$** | **2,616** | ** ** | **$** | **320** | ** ** | **$** | **2,943** | ** ** |

 

Aggregateamortization expense for the above intangible assets amounted to $3,508,$5,800, and $4,099 for the years ended December 31, 2006, 2005 and 2004,respectively.

Theestimated aggregate amortization expense for the next five years is as follows:

|       | ** ** | **Amount** | ** ** |
|-------|------------|------------|------------|
| 2007  |       | $          | 1,038      |   |
| 2008  |       | 1,038      |       |
| 2009  |       | 664        |       |
| 2010  |       | 441        |       |
| 2011  |       | 167        |       |
| Total |       | 3,348      |       |
|       |            |            |            |  |

 

**Loans**
|                  | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **       | ** ** | **Short-term**                  | ** ** | **Long-term**                   | ** ** | **Short-term** | ** ** | **Long-term** | ** ** |
|             |       |                            |       |                            |       |   |   |   |   |
| Bank loans (a)   |       | $                               | 13,220     |                            | $          | 19,792 |   | $ | 26,002 |   | $ | 6,552 |   |
| Accrued interest |       | —                          |       | —                          |       | 265 |   | — |   |
|             |       |                            |       |                            |       |   |   |   |   |
|             |       | $                               | 13,220     |                            | $          | 19,792 |   | $ | 26,267 |   | $ | 6,552 |   |

 

F-40

----

----

**(a) As of December 31,2006 and 2005, loans were comprised of:**
|                                                                                                    | ** ** | **2006**       | ** ** | **2005**      | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------|------------|---------------|------------|
| ** **                                                                                         | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** |
| ** **                                                                                         | ** ** | ** **     | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Banco ABC do  Brasil SA - interest of 0,25% plus CDI rate per month 1,04% as of December  31, 2006 |       | $         | 2,340      |          | —     |   | 5,222 |   | 2,563 |   |
| Banco Safra –  annual interest 0,37% plus CDI rate per month 1,39% as of December 31, 2005    |       | —         |       | —        |       | 6,418 |   | — |   |
| Banco J.Safra –  interest of 0,21% plus CDI rate per month 1,04% as of December 31,2006       |       | 49             |       | 6,782         |       | 8,233 |   | — |   |
| Banco Bic –  interest of 0,60% plus CDI rate per month 1,39% as of December 31,2005           |       | —         |       | —        |       | 2,138 |   | — |   |
| Banco  HSBC–interest of 0,64% plus CDI rate per month 1,04% as of December 31, 2006           |       | 3,775          |       | —        |       | 2,176 |   | — |   |
| Banco GM –  interest of 1,77% per month                                                       |       | —         |       | —        |       | 34 |   | 22 |   |
| Banco Pine –  interest of 1,10% per month                                                     |       | 1,407          |       | 1,056         |       | 823 |   | 2,198 |   |
| Banco ABC do  Brasil SA interest of 1,14% per month                                                |       | 3,351          |       | 4,704         |       | 958 |   | 1,769 |   |
| Banco Itaú –  interest of 0,17% plus CDI rate per month 1,04% as of December 31, 2006    |       | 2,170          |       | 7,250         |       | — |   | — |   |
| Teeleap –  interest of 2,2% per month                                                         |       | 128            |       | —        |       | — |   | — |   |
| Total                                                                                              |       | $              | 13,220     |          | 19,792     |   | $ | 26,002 |   | 6,552 |   |
|                                                                                                    |            |                |            |               |            |  |  |  |  |  |  |

 

TheCompany’s long-term financing matures as follows:
| Maturity | ** ** | **US$** | ** ** | **% of total** | ** ** |
|----------|------------|---------|------------|---------------------|------------|
|     |       |    |       |                |       |
| 2008     |       | $       | 14,880     |                | 75.2       | % |
| 2009     |       | 4,912   |       | 24.8                | %          |
|     |       |    |       |                |       |
|     |       | $       | 19,792     |                | 100.00     | % |

 

F-41

----

**Taxes payable other thanincome taxes**

As ofDecember 31, 2006 and 2005, taxes payable other than income taxes werecomprised of:

 
|                          | ** ** | **2006**       | ** ** | **2005**      | ** ** |
|--------------------------|------------|----------------|------------|---------------|------------|
| ** **               | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** |
|                     |       |           |       |          |       |   |   |   |   |
| Tax on revenue  (COFINS) |       | $              | 602        |          | —     |   | $ | 443 |   | — |   |
| VAT state tax  (ICMS)    |       | 4,510          |       | 4,465         |       | 3,322 |   | 3,908 |   |
| Tax on revenue  (PIS)    |       | 135            |       | —        |       | 99 |   | — |   |
| Other                    |       | 369            |       | —        |       | 290 |   | — |   |
|                     |       | $              | 5,616      |          | 4,465      |   | $ | 4,154 |   | 3,908 |   |

 

On July28, 1999, as a result of the agreement for sale of 100% in Galaxy Brasil Ltda.and TVA Banda C Ltda., the Company assumed liabilities referring to taxes thatwere accrued as a charge on the gain recognized on the sale of these companies.The balance related to these taxes as of December 31, 2006 is $3,728 classifiedas ICMS ($4,728 as of December 31, 2005). The payment terms of these taxes wereapproved in 2004, under which the balance will be settled in 54 monthlypayments commencing in May, 2004. The balance classified as long-term amountedto $1,859 at December 31, 2006.

**Tax recovery program(REFIS) and special installment program (PAES)**

On April 5, 2000, TevecapS.A. and its subsidiaries opted for the Government’s Tax Recovery Program(REFIS), implemented by Decree No. 3,342 of January 25, 2000, later convertedinto Law No. 9,964 of April 10, 2000. In addition, the direct subsidiary TVASistema de Televisão S.A. used its credits for tax loss carryforwards amountingto $7,113 for amortization of interest and fines.

In guarantee of the payment of the debts included inthe program, the subsidiary pledged property items as collateral in the amountof $16,440.

On July 31, 2003, certain subsidiaries of the Company,including TVA Sistema de Televisão S.A., through a protocol filed with theFederal Revenue Service, opted for the Federal Tax Financing Program (PAES),established by Law No. 10,684 of May 30, 2003.

The main reasons for thisoption were the extension of maturity dates, refinancing through PAES (SpecialInstallment Program), inclusion of new taxes, and the use of TJLP (long-terminterest rate) for monetary restatement.

Management believes that this payment will be made inapproximately 99 monthly installments, adjusted by TJLP.

F-42

----

As of December 31, 2006 and 2005, this accountspayable is segregated between short and long-term as follows:

|            | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------|------------|----------|------------|----------|------------|
|       |       |     |       |     |       |
| Short-term |       | 2,052    |       | 1,841    |       |
| Long-term  |       | 15,087   |       | 14,747   |       |
|       |       |     |       |     |       |
| Total      |       | 17,139   |       | 16,588   |       |

 

**Other costs**
|                                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                    |       |     |       |     |       |     |       |
| Telephone and  internet                 |       | $        | 2,981      |     | $          | 2,205    |       | $ | 1,109 |   |
| Outside services  – legal entities |       | 2,168    |       | 2,371    |       | 666      |       |
| Power sources                           |       | 1,094    |       | 992      |       | 838      |       |
| External network  maintenance           |       | 1,846    |       | 1,403    |       | 1,162    |       |
| Ancillary and  consumable materials     |       | 276      |       | 191      |       | 459      |       |
| Other                                   |       | 920      |       | 561      |       | 481      |       |
|                                    |       |     |       |     |       |     |       |
|                                    |       | $        | 9,285      |     | $          | 7,723    |       | $ | 4,715 |   |

 

**Other operating expense, net**
|                                                              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                         |       |     |       |     |       |     |       |
| Write-off of  assets related to cancelation of subscriptions |       | $        | —     |     | $          | 3,519    |       | $ | 2,117 |   |
| Loss (Gain) on  disposal of property and equipment           |       | (61)     |       | 771      |       | 384      |       |
| Loss on sale of  obsolete inventories                        |       | 1,472    |       | 1,172    |       | 480      |       |
| Provision for  inventory obsolescence                        |       | —   |       | 1,916    |       | 49       |       |
| Other                                                        |       | (425)    |       | (791)    |       | 66       |       |
|                                                         |       | $        | 986        |     | $          | 6,587    |       | $ | 3,096 |   |

 

**Accrual for contingencies**

Theaccrued amounts of the contingencies under litigation, as of December 31, 2006and 2005, are as follows:

F-43

----

 
|                                            | ** ** | **2006**      | ** ** | **2005**      | ** ** |
|--------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                 | ** ** | **Long-term** | ** ** | **Long-term** | ** ** |
| ** **                                 | ** ** | ** **    | ** ** | ** **    | ** ** |
| Labor lawsuits  (a)                        |       | 3,034         |       | 2,723         |       |
| Civil lawsuits  (b)                        |       | 112           |       | 199           |       |
| VAT state tax  (ICMS) (c)                  |       | 11,074        |       | 11,089        |       |
| Social security  compulsory deposit (FGTS) |       | 36            |       | 19            |       |
| Other                                      |       | 2,302         |       | 2,477         |       |
|                                       |       | $             | 16,558     |          | $          | 16,507 |   |
|                                            |            |               |            |               |            |  |  |  |

 

----

(a)              Labor lawsuits

These are part of variouslabor claims against certain subsidiaries, especially due to terminationsoccurred in the normal course of their businesses. The most frequent claimsrefer to proportional vacation pay, salary differences, night shift premiums,overtime, social charges, among others. There are no individual claims ofsignificant amounts.

(b)             Civil lawsuits

Certainsubsidiaries are defendants in civil claims at various legal levels, there areno individual claims of significant amounts.

**(c)**              ICMS

In November 05, 1998, in response to a fiscal inquiry, the Companyfiled a lawsuit challenging the constitutionality of ICMS on cable televisionservices. During the year ended December 31, 2005, the Company recorded aprovision amounting to $11,074 in 2006 ($11,089 in 2005). The Company has madefiscal deposits amounting to $10.392 in 2006 ($8,088 in 2005) related to thiscontingency.

With respect to certainclaims for which provisions have been recorded, the Company’s subsidiaries havejudicial deposits as of December 31, 2006 and 2005, as follows:

F-44

----

 
|                         | ** ** | **2006**      | ** ** | **2005**      | ** ** |
|-------------------------|------------|---------------|------------|---------------|------------|
| ** **              | ** ** | **Long-term** | ** ** | **Long-term** | ** ** |
|                    |       |          |       |          |       |
| Labor lawsuits          |       | 2,165         |       | 1,506         |       |
| Civil lawsuits          |       | 1,294         |       | 734           |       |
| Income tax              |       | 139           |       | 119           |       |
| Social security (INSS)  |       | 188           |       | 311           |       |
| Tax on revenue (PIS)    |       | 35            |       | 32            |       |
| Tax on revenue (COFINS) |       | 65            |       | 59            |       |
| VAT state tax (ICMS)    |       | 10,392        |       | 8,088         |       |
| Other                   |       | 486           |       | 599           |       |
|                    |       | 14,764        |       | 11,448        |       |

 

Additionally, fixed assetsin the amount of $1,385 as of December 31, 2006 ($10,028 in 2005), consolidatedamounts, were offered as collateral in connection with the judicial proceedingsdescribed above.

**Commitments**

As of December 31, 2006, the Companyhas purchase obligations for programming costs through the year 2010 andminimum payments due under operating leases as follows:
|        | ** ** | **Programming  costs** | ** ** | **Operating  leases and others** | ** ** |
|--------|------------|------------------------|------------|--------------------------------------------|------------|
| 2007   |       | 25,694                 |       | 6,358                                      |       |
| 2008   |       | 19,739                 |       | 5,042                                      |       |
| 2009   |       | 8,422                  |       | 2,787                                      |       |
| 2010   |       | —                 |       | 1,371                                      |       |
|   |       |                   |       |                                       |       |
| Total  |       | $                      | 53,855     |                                       | 15,558     |   |
|        |            |                        |            |                                            |            |  |

 

F-45

----

**Pension plan**

In April1996, the Company became a co-sponsor of the private pension entity namedAbrilprev Sociedade de Previdência Privada (“Abrilprev”), the primary objectiveof which is to grant employees benefits other than those provided by SocialSecurity. The plan is optional to all employees of the sponsoring entities.Abrilprev operates as a Defined Contribution Plan. Company contributions aremade based on a fixed percentage applied to the payroll of the sponsoringentities based on actuarial calculations. Contribution expenses amounted to $89for the year ended December 31, 2006 ($45 in 2005 and $33 in 2004).

**Abril Health Care Plan**

In February 1996, the Abril HealthCare Plan, Associação Abril de Benefícios (the “Health Care Plan”), was createdto provide health care to Abril companies’ employees and their dependents. Boththe companies forming part of the Abril Group and the employees thereofcontribute monthly to Associação Abril de Benefícios, the company responsiblefor management of the plan.

In 2006,contributions made by Tevecap’s subsidiaries of Associação Abril de Benefíciosamounted to $1,731 ($578 in 2005 and $454 in 2004).

**Valuation and qualifyingaccounts and reserves**
|                                  | ** ** | **Provision** | ** ** | **Provision**    | ** ** | **Deferred**  | ** ** | ** **        | ** ** | **Provision**    | ** ** |
|----------------------------------|------------|---------------|------------|------------------|------------|---------------|------------|-------------------|------------|------------------|------------|
| ** **                       | ** ** | **for**       | ** ** | **for**          | ** ** | **taxation**  | ** ** | **Accrual**       | ** ** | **for**          | ** ** |
| ** **                       | ** ** | **doubtful**  | ** ** | **inventory**    | ** ** | **valuation** | ** ** | **for**           | ** ** | **equipment**    | ** ** |
| ** **                       | ** ** | **accounts**  | ** ** | **obsolescence** | ** ** | **allowance** | ** ** | **contingencies** | ** ** | **obsolescence** | ** ** |
|                             |       |          |       |             |       |          |       |              |       |             |       |
| Balance as of  December 31, 2003 |       | 3,150         |       | 259              |       | 75,334        |       | 11,026            |       | 5,625            |       |
| Additions                        |       | 1,402         |       | 368              |       | 6,573         |       | 1,948             |       | 2,117            |       |
| Effect of  exchange rate         |       | 422           |       | 61               |       | —        |       | 1,296             |       | 691              |       |
| Balance as of  December 31, 2004 |       | 4,974         |       | 688              |       | 81,907        |       | 14,270            |       | 8,433            |       |
| Additions                        |       | 284           |       | 1,948            |       | 22,599        |       | 313               |       | 3,519            |       |
| Deductions                       |       | —        |       | (33              | )          | —        |       | —            |       | —           |       |
| Effect of  exchange rate         |       | 679           |       | 170              |       | —        |       | 1,924             |       | 2,281            |       |
| Balance as of  December 31, 2005 |       | $             | 5,937      |             | $          | 2,773         |       | $                 | 104,506    |             | $          | 16,507 |   | $ | 14,233 |   |
| Additions                        |       | 1,875         |       | —           |       | —        |       | —            |       | —           |       |
| Deductions                       |       | —        |       | (458             | )          | (2,032        | )          | (1,488            | )          | —           |       |
| Effect of  exchange rate         |       | 596           |       | 255              |       | —        |       | 1,539             |       | 1,350            |       |
| Balance as of December  31, 2006 |       | $             | 8,408      |             | $          | 2,570         |       | $                 | 102,474    |             | $          | 16,558 |   | $ | 15,583 |   |

 

F-46

----

**21.**                     Recent accounting pronouncements

In September 2006, the SEC issued Staff AccountingBulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements (“SAB108”). SAB 108 provides guidance on how prior year misstatements should beconsidered when quantifying misstatements in current year financial statementsfor purposes of assessing materiality. SAB 108 requires that registrantsquantify errors using both a balance sheet and income statement approach andevaluate whether either approach results in quantifying a misstatement that, whenrelevant quantitative and qualitative factors are considered, is material. SAB108 is effective for fiscal years ending after November 15, 2006. SAB 108permits companies to initially apply its provisions by either restating priorfinancial statements or recording a cumulative effect adjustment to thecarrying values of assets and liabilities as of January 1, 2006 with anoffsetting adjustment to retained earnings for errors that were previouslydeemed immaterial but are material under the guidance in SAB 108. The adoptionof SAB 108 did not have any impact on the Company’s consolidated financialstatements.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements,” (“SFAS 157”). SFAS 157 defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair value measurements.The provisions of this standard apply to other accounting pronouncements thatrequire or permit fair value measurements. SFAS 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007. Uponadoption, the provisions of SFAS 157 are to be applied prospectively withlimited exceptions. The Company is in the process of evaluating the financialimpact of adopting SFAS 157.

In June 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes.” This interpretationprescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. This interpretation also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. The interpretation is effective for fiscalyears beginning after December 15, 2006. While we are still evaluating our taxpositions, we do not anticipate it will have a material impact on our retainedearnings at the time of adoption.

In February 2007, the FASB issued SFAS No.159 “The Fair Value Option for Financial Assets and Financial Liabilities”(SFAS No. 159), which permits entities to choose to measure many financialinstruments and certain other items at fair value. For us, SFAS No. 159 iseffective as of 1, 2008 and will have no impact on amounts presented forperiods prior to the effective date. We cannot currently estimate the impact ofSFAS No. 159 on our consolidated results of losses, cash flows orfinancial position and have not yet determined whether or not we will chooseto measure items subject to SFAS No. 159 at fair value.

F-47

----

**22.       Segment information**

TheCompany’s continuing operations relate to one operating segment, PayTelevision.

**23.**                     **Financial information for subsidiary guarantors and non-guarantorsubsidiaries**

Tevecapconducts a significant portion of its business through subsidiaries. The$250,000 12 5/8% Senior Notes issued to institutional buyers in November 1996are jointly and severally, irrevocably and fully and unconditionally guaranteedon a senior basis by all of Tevecap's direct and indirect subsidiaries exceptfor TVA Communications Aruba N.V., TVA Channels Ltda., Rede Ajato Ltda., YpêRadio and Televisão Ltda., TVA Inc, TVA Overseas Ltd. and TVA TCG Sistema deTelevisão Porto Alegre.

Presentedbelow is condensed consolidating financial information for: i) Tevecap on aparent company only basis; ii) the Wholly Owned Guarantor Subsidiaries; iii)the Majority-Owned Guarantor Subsidiaries; iv) Non-guarantor Subsidiaries; v) Eliminations;and vi) Consolidated Tevecap S.A. and subsidiaries.

Theequity method has been used by Tevecap, the Wholly Owned Guarantor Subsidiariesand the Majority-Owned Guarantor Subsidiaries with respect to investments intheir subsidiaries.

Asdiscussed in Note 20, in the event that Tevecap sells substantially all of itsassets to Telesp, substantiallyall of the assets of TVA Sistema de Televisão S.A., Comercial Cabo TV São PauloS.A. and TVA Sul Paraná S.A. (other than TVA Sul Paraná’s equity interestsin CCS Camboriú Cable System de Telecomunicações Ltda.), will be transferred tothe purchasers under the above agreements, although they will not continue tobe Guarantors under the Senior Notes. The Company’s management is analysing theeffects of the transaction as a whole on the Senior Notes.

The following sets forth the WhollyOwned Guarantor Subsidiaries, the Majority-Owned Guarantor Subsidiaries and theNon-Guarantor Subsidiaries:

**a)    Wholly-OwnedGuarantor Subsidiaries**

·                TVACommunications Ltd.

·                ComercialCabo TV São Paulo Ltda.

·                TVA Sistemade Televisão S.A.

·                TVA SulParaná Ltda.

**b)    Majority-OwnedGuarantor Subsidiaries**

·                CCS CamboriúCable System de Telecomunicações Ltda.

**c)    Non-GuarantorSubsidiaries**

·                TVACommunications Aruba N.V.

·                Rede AjatoLtda.

F-48

----

·                TVA OverseasLtd.

·                TVA Inc

·                TVAContinental S.A.

·                TVA PelicanoS.A.

·                TVA NetworkParticipações S.A.

Separate financialstatements have been presented for CCS Camboriú Cable System TelecomunicaçõesLtda. as of December 31, 2006 and 2005 and for each of the three years inthe period ended December 31, 2006.

F-49

----

**23.          Financial information for subsidiaryguarantors and non-guarantor subsidiaries (Continued)**

**ConsolidatedBalance Sheetsas of December 31, 2006**
| ** **                               | ** ** | ** **  | ** ** | **Wholly-**      | ** ** | **Majority-**    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------|------------|-------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                               | ** ** | ** **  | ** ** | **Owned**        | ** ** | **Owned**        | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                               | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | **guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Assets**                               | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                     |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Current assets                           |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Cash and cash  equivalents               |       | $           | 493        |             | $          | 47               |       | $                | 1,214      |             | $          | —           |       | $ | — |   | $ | 1,754 |   |
| Accounts  receivable, net                |       | 78          |       | 22               |       | 33               |       | 2,095            |       | (2,056           | )          | 172              |       |
| Inventories, net                         |       | —      |       | —           |       | 97               |       | —           |       | —           |       | 97               |       |
| Recoverable  taxes                       |       | —      |       | 47               |       | 411              |       | —           |       | —           |       | 458              |       |
| Prepaid and  other assets                |       | 242         |       | —           |       | 2                |       | —           |       | (233             | )          | 11               |       |
| Current assets held for  sale            |       | —      |       | 136,318          |       | —           |       | —           |       | (671             | )          | 135,647          |       |
| Total current  assets                    |       | 813         |       | 136,434          |       | 1,757            |       | 2,095            |       | (2,960           | )          | 138,139          |       |
|                                     |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Property, plant and equipment,  net      |       | —      |       | 334              |       | 2,018            |       | —           |       | —           |       | 2,352            |       |
| Investments                              |       | (1,250      | )          | 1,172            |       | —           |       | —           |       | 78               |       | —           |       |
| Recoverable taxes                        |       | (5          | )          | —           |       | 7                |       | 45               |       | —           |       | 47               |       |
| Loans receivable from related  companies |       | 168,986     |       | 421,039          |       | 236              |       | 54,260           |       | (538,676         | )          | 105,845          |       |
| Dividends receivable                     |       | 446,471     |       | —           |       | —           |       | —           |       | (446,471         | )          | —           |       |
| Judicial deposits                        |       | —      |       | 43               |       | 506              |       | —           |       | —           |       | 549              |       |
|                                     |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Total assets                             |       | $           | 615,015    |             | $          | 559,022          |       | $                | 4,524      |             | $          | 56,400           |       | $ | (988,029 | ) | $ | 246,932 |   |

 

F-50

----

 

**23.       Financialinformation for subsidiary guarantors and non-guarantor subsidiaries(Continued)**

**ConsolidatedBalance Sheetsas of December 31, 2006**
| ** **                                                         | ** ** | ** **  | ** ** | **Wholly-**      | ** ** | **Majority-**    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------|------------|-------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                         | ** ** | ** **  | ** ** | **Owned**        | ** ** | **Owned**        | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Liabilities and Shareholders’**                   | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Equity (Deficiency)**                                       | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Current Liabilities                                                |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Loans                                                              |       | $           | 16,488     |             | $          | —           |       | $                | —     |             | $          | —           |       | $ |   |   | $ | 16,488 |   |
| Filmsuppliers                                                      |       | —      |       | —           |       | 194              |       | —           |       | —           |       | 194              |       |
| Other suppliers                                                    |       | 238         |       | 2,471            |       | 42               |       | 2                |       | (2,540           | )          | 213              |       |
| Tax recovery  program - PAES/REFIS                                 |       | —      |       | 32               |       | —           |       | —           |       | —           |       | 32               |       |
| Taxes payable  other than income taxes                             |       | 33          |       | 33               |       | 246              |       | 2                |       | —           |       | 314              |       |
| Income tax  payable                                                |       | —      |       | —           |       | 491              |       | —           |       | —           |       | 491              |       |
| Deferred income  tax                                               |       | 1,960       |       | —           |       | —           |       | —           |       | —           |       | 1,960            |       |
| Accrued payroll  and related liabilities                           |       | —      |       | —           |       | 26               |       | —           |       | —           |       | 26               |       |
| Advances from  customers                                           |       | —      |       | 7,030            |       | —           |       | —           |       | —           |       | 7,030            |       |
| Advance on sale  of Tevecap’s operations                      |       | 93,545      |       | —           |       | —           |       | —           |       | —           |       | 93,545           |       |
| Other accounts  payable                                            |       | 3,808       |       | 600              |       | 1,019            |       | —           |       | (1,032           | )          | 4,395            |       |
| Liabilities directly  associated with current assets held for sale |       | 10,920      |       | 86,193           |       | —           |       | —           |       | —           |       | 97,113           |       |
|                                                               |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Total current  liabilities                                         |       | 126,992     |       | 96,359           |       | 2,018            |       | 4                |       | (3,572           | )          | 221,801          |       |
|                                                               |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Long-term liabilities                                              |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Loans                                                              |       | 31,838      |       | —           |       | —           |       | —           |       | —           |       | 31,838           |       |
| Loans payable to  related companies                                |       | 450,863     |       | 179,278          |       | —           |       | 27,657           |       | (538,676         | )          | 119,122          |       |
| Taxes payable  other than income                                   |       | —      |       | —           |       | 494              |       | —           |       | —           |       | 494              |       |
| Accrual for  contingencies                                         |       | 16,760      |       | 14,246           |       | 228              |       | —           |       | —           |       | 31,234           |       |
| Tax recovery  program - PAES/REFIS                                 |       | —      |       | 339              |       | —           |       | —           |       | —           |       | 339              |       |
| Liability to  fund equity investee                                 |       | 126,599     |       | —           |       | —           |       | —           |       | (126,599         | )          | —           |       |
| Deferred income  tax                                               |       | 57,559      |       | —           |       | (169             | )          | —           |       | —           |       | 57,390           |       |
| Dividends  payable                                                 |       | —      |       | 381,147          |       | —           |       | 65,324           |       | (446,471         | )          | —           |       |
|                                                               |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Total long-term  liabilities                                       |       | 683,619     |       | 575,010          |       | 553              |       | 92,981           |       | (1,111,746       | )          | 240,417          |       |
| Minority interest                                                  |       | —      |       | —           |       | —           |       | —           |       | 781              |       | 781              |       |
| Shareholders’ deficit                                         |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Common stock                                                       |       | 515,774     |       | 283,365          |       | 1,860            |       | 15,068           |       | (300,291         | )          | 515,776          |       |
| Accumulated  other comprehensive income (loss)                     |       | (39,284     | )          | 189,231          |       | (45              | )          | (1,794           | )          | (183,646         | )          | (35,538          | )          |
| Accumulated  deficit                                               |       | (672,086    | )          | (584,943         | )          | 138              |       | (49,859          | )          | 610,445          |       | (696,305         | )          |
| Total  shareholders’ equity (deficiency)                      |       | (195,596    | )          | (112,347         | )          | 1,953            |       | (36,585          | )          | 126,508          |       | (216,067         | )          |
| Total liabilities and shareholders’  equity (deficiency)      |       | $      | 615,015    |             | $     | 559,022          |       | $           | 4,524      |             | $     | 56,400           |       | $  | (988,029 | ) | $  | 246,932 |   |

F-51

----

**23.       Financialinformation for subsidiary guarantors and non-guarantor subsidiaries(Continued)**

**ConsolidatedStatements of Operationsfor the year ended December 31, 2006**
| ** **                                                                     | ** ** | ** **  | ** ** | **Wholly-**      | ** ** | ** **    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------------------|------------|-------------|------------|------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                     | ** ** | ** **  | ** ** | **Owned**        | ** ** | **Majority-** | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                     | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Owned**     | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Description**                                                                | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Guarantor** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                           |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Gross revenues                                                                 |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Monthly  subscriptions                                                         |       | $           | —     |             | $          | 32            |       | $                | 4,486      |             | $          | —           |       | $ | — |   | $ | 4,518 |   |
| Installation                                                                   |       | —      |       | 7                |       | 44            |       | —           |       | —           |       | 51               |       |
| Advertising                                                                    |       | —      |       | 101              |       | 6             |       | —           |       | —           |       | 107              |       |
| Addtional  services                                                            |       | —      |       | 232              |       | 102           |       | —           |       | (232             | )          | 102              |       |
| Taxes on  revenues                                                             |       | (6          | )          | (26              | )          | (674          | )          | —           |       | —           |       | (706             | )          |
|                                                                           |       | (6          | )          | 346              |       | 3,964         |       | —           |       | (232             | )          | 4,072            |       |
|                                                                           |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Direct operating  expenses                                                     |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Payroll and  benefits                                                          |       | —      |       | —           |       | 33            |       | —           |       | —           |       | 33               |       |
| Programming                                                                    |       | —      |       | —           |       | 1,190         |       | —           |       | —           |       | 1,190            |       |
| Technical  assistance                                                          |       | —      |       | —           |       | 45            |       | —           |       | —           |       | 45               |       |
| TVA magazine                                                                   |       | —      |       | —           |       | 14            |       | —           |       | —           |       | 14               |       |
| Rent                                                                           |       | —      |       | —           |       | 37            |       | —           |       | —           |       | 37               |       |
| Other costs                                                                    |       | —      |       | 1                |       | 102           |       | —           |       | —           |       | 103              |       |
|                                                                           |       | —      |       | 1                |       | 1,421         |       | —           |       | —           |       | 1,422            |       |
|                                                                           |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Selling, general and  administrative expenses                                  |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Payroll and  benefits                                                          |       | —      |       | —           |       | 118           |       | —           |       | —           |       | 118              |       |
| Advertising and  promotion                                                     |       | —      |       | —           |       | 27            |       | —           |       | —           |       | 27               |       |
| Rent                                                                           |       | 2           |       | 4                |       | 33            |       | —           |       | —           |       | 39               |       |
| Other selling,  general and administrative expenses                            |       | 561         |       | 535              |       | 599           |       | 9                |       | (232             | )          | 1,472            |       |
|                                                                           |       | 563         |       | 539              |       | 777           |       | 9                |       | (232             | )          | 1,656            |       |
| Depreciation                                                                   |       | —      |       | 646              |       | 345           |       | —           |       | (412             | )          | 579              |       |
| Amortization                                                                   |       | 238         |       | —           |       | —        |       | —           |       | —           |       | 238              |       |
| Other operating  expense, net                                                  |       | 4,564       |       | —           |       | 45            |       | —           |       | —           |       | 4,609            |       |
| Income (loss) from  operations                                                 |       | (5,371      | )          | (840             | )          | 1,376         |       | (9               | )          | 412              |       | (4,432           | )          |
| Interest income                                                                |       | (1,733      | )          | (15,347          | )          | (49           | )          | —           |       | 15,939           |       | (1,190           | )          |
| Interest expense                                                               |       | 30,935      |       | 8,743            |       | 131           |       | 1,238            |       | (15,939          | )          | 25,108           |       |
| Foreign currency  transaction (income) loss, net                               |       | (36,634     | )          | 29,578           |       | 15            |       | 3,222            |       | —           |       | (3,819           | )          |
| Income (loss) before  income taxes, equity in affiliates and minority interest |       | 2,061       |       | (23,814          | )          | 1,279         |       | (4,469           | )          | 412              |       | (24,531          | )          |
|                                                                           |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Equity in  (losses of) affiliates, net                                         |       | (23,963     | )          | 512              |       | —        |       | (1,678           | )          | 25,129           |       | —           |       |
| Minority  interest                                                             |       | —      |       | —           |       | —        |       | —           |       | 341              |       | 341              |       |
| Income (loss) from  continuing operations before income taxes                  |       | (21,902     | )          | (23,302          | )          | 1,279         |       | (6,147           | )          | 25,200           |       | (24,872          | )          |
|                                                                           |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Income tax from  continuing operations - current                               |       | —      |       | 10               |       | 483           |       | —           |       | —           |       | 493              |       |
| Income tax from  continuing operations - deferred                              |       | 8,671       |       | —           |       | (58           | )          | —           |       | —           |       | 8,613            |       |
| Income (loss) from  continuing operations                                      |       | (30,573     | )          | (23,312          | )          | 854           |       | (6,147           | )          | 25,200           |       | (33,978          | )          |
| Discontinued operations                                                        |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Income from  discontinued operations before income taxes                       |       | 803         |       | 4,523            |       | —        |       | —           |       | —           |       | 5,326            |       |
| Income taxes on  discontinued operations                                       |       | —      |       | (962             | )          | —        |       | —           |       | —           |       | (962             | )          |
| Income from  discontinued operations                                           |       | 803         |       | 3,561            |       | —        |       | —           |       | —           |       | 4,364            |       |
|                                                                           |       |        |       |             |       |          |       |             |       |             |       |             |       |
| Net income (loss)                                                              |       | (29,770     | )          | (19,751          | )          | 854           |       | (6,147           | )          | 25,200           |       | (29,614          | )          |
|                                                                                |            |             |            |                  |            |               |            |                  |            |                  |            |                  |            |  |  |  |  |  |  |

 

 

F-52

----

**23.       Financialinformation for subsidiary guarantors and non-guarantor subsidiaries(Continued)**

**ConsolidatedStatement's of Cash Flowsfor the year ended December 31, 2006**
| ** **                                                                                     | ** ** | ** **  | ** ** | **Wholly-**      | ** ** | **Majority-**    | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                     | ** ** | **Parent**  | ** ** | **Owned**        | ** ** | **Owned**        | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                     | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Cash  flows from operating activities:**                                                     | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net income  (loss)                                                                             |       | $           | (29,770    | )                | $          | (19,751          | )          | $                | 854        |             | $          | (6,147           | )          | $ | 25,200 |   | $ | (29,614 | ) |
|                                                                                           |       |        |       |             |       |             |       |             |       |             |       |             |       |
| **Adjustments  to reconcile net loss to net cash (used in) provided by operating activities:** | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Depreciation                                                                                   |       | —      |       | 646              |       | 345              |       | —           |       | (412             | )          | 579              |       |
| Amortization                                                                                   |       | 238         |       | —           |       | —           |       | —           |       | —           |       | 238              |       |
| Allowance for  doubtful accounts                                                               |       | —      |       | (28              | )          | 89               |       | —           |       | —           |       | 61               |       |
| Provision for  inventory obsolescence                                                          |       | —      |       | (1               | )          | —           |       | 3                |       | —           |       | 2                |       |
| Loss on sale of  obsolete inventories                                                          |       | —      |       | —           |       | 6                |       | —           |       | —           |       | 6                |       |
| Minority  interest                                                                             |       | —      |       | —           |       | —           |       | —           |       | 341              |       | 341              |       |
| Allowance for  loans receivable from related companies                                         |       | 460         |       | —           |       | —           |       | —           |       | —           |       | 460              |       |
| Disposal and  write-off of property, plant and equipment                                       |       | —      |       | —           |       | 50               |       | —           |       | —           |       | 50               |       |
| Equity in  (income) losses of affiliates                                                       |       | 23,963      |       | (512             | )          | —           |       | —           |       | (23,451          | )          | —           |       |
| Foreign currency  transaction loss, net                                                        |       | (36,634     | )          | 29,578           |       | 15               |       | 3,222            |       | —           |       | (3,819           | )          |
| Current income  taxes                                                                          |       | —      |       | 10               |       | 483              |       | —           |       |             |       | 493              |       |
| Deferred income  taxes                                                                         |       | 8,671       |       | —           |       | (58              | )          | —           |       | —           |       | 8,613            |       |
| Accrued interest                                                                               |       | 26,729      |       | (4,768           | )          | 18               |       | 1,201            |       | —           |       | 23,180           |       |
| **Changes  in operating assets and liabilities:**                                              | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Accounts  receivable                                                                           |       | 225         |       | 44               |       | (94              | )          | 4                |       | 483              |       | 662              |       |
| Prepaid expenses  and other assets                                                             |       | (228        | )          | —           |       | 729              |       | —           |       | 140              |       | 641              |       |
| Recoverable  taxes                                                                             |       | —      |       | —           |       | (135             | )          |             |       |             |       | (135             | )          |
| Inventories                                                                                    |       | —      |       | —           |       | 11               |       | —           |       | —           |       | 11               |       |
| Suppliers                                                                                      |       | 234         |       | 129              |       | 39               |       | 2                |       | (254             | )          | 150              |       |
| Accrual for  contingencies                                                                     |       | 3           |       | (410             | )          | (3               | )          | —           |       | —           |       | (410             | )          |
| Taxes payable  other than income taxes                                                         |       | (154        | )          | (20              | )          | 11               |       | (2               | )          | —           |       | (165             | )          |
| Current income  taxes                                                                          |       | —      |       | —           |       | —           |       | (3               | )          | —           |       | (3               | )          |
| Accrued payroll  and related liabilities                                                       |       | —      |       | —           |       | 1                |       | —           |       | —           |       | 1                |       |
| Advances  received from customers                                                              |       | —      |       | (485             | )          | —           |       | —           |       | —           |       | (485             | )          |
| Judicial  deposits                                                                             |       | —      |       | (16              | )          | (50              | )          | —           |       | —           |       | (66              | )          |
| Other                                                                                          |       | 3,741       |       | 966              |       | 46               |       | 1,681            |       | (1,679           | )          | 4,755            |       |
| **Cash  flow from Discontinued operations**                                                    |       | 803         |       | 30,670           |       | —           |       | —           |       | —           |       | 31,473           |       |
| ** **                                                                                     | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Net  cash provided by (used in) operating activities**                                       | ** ** | **(1,719**  | **)**      | **36,052**       | ** ** | **2,357**        | ** ** | **(39**          | **)**      | **368**          | ** ** | **37,019**       | ** ** |
|                                                                                           |       |        |       |             |       |             |       |             |       |             |       |             |       |
| **Cash  flows from investing activities:**                                                     | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Purchases of  property, plant and equipment                                                    |       | —      |       | —           |       | (161             | )          | —           |       | —           |       | (161             | )          |
| Advances on sale  of Tevecap’s operation                                                  |       | 93,545      |       | —           |       | —           |       | —           |       | —           |       | 93,545           |       |
| Purchases of  intangible assets                                                                |       | —      |       | —           |       | —           |       | —           |       | —           |       | —           |       |
| **Cash  flow from Discontinued operations**                                                    |       | —      |       | (44,382          | )          | —           |       | —           |       | —           |       | (44,382          | )          |
| **Net  cash provided by (used in) investing activities**                                       | ** ** | **93,545**  | ** ** | **(44,382**      | **)**      | **(161**         | **)**      | **—**       | ** ** | **—**       | ** ** | **49,002**       | ** ** |
|                                                                                           |       |        |       |             |       |             |       |             |       |             |       |             |       |
| **Cash  flows from financing activities:**                                                     | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Repayment of  loans from banks                                                                 |       | (6,034      | )          | —           |       | —           |       | —           |       | —           |       | (6,034           | )          |
| Repayment of  program PAES/REFIS                                                               |       | —      |       | (30              | )          | (170             | )          | —           |       | —           |       | (200             | )          |
| Loans to related  parties                                                                      |       | (93,773     | )          | (18,526          | )          | (345             | )          | —           |       | —           |       | (112,644         | )          |
| Repayments of  loans made to related parties                                                   |       | 228         |       | 4,418            |       | 345              |       | —           |       | —           |       | 4,991            |       |
| Dividends paid                                                                                 |       | —      |       | —           |       | (1,489           | )          | —           |       | —           |       | (1,489           | )          |
| Proceeds from  loans from related parties                                                      |       | 15,391      |       | 37,782           |       | —           |       | 38               |       | —           |       | 53,211           |       |
| Repayments of  loans from related parties                                                      |       | (4,418      | )          | (7,492           | )          | —           |       | —           |       | —           |       | (11,910          | )          |
| **Cash  flow from Discontinued operations**                                                    |       | (2,405      | )          | (6,935           | )          | —           |       | —           |       | —           |       | (9,340           | )          |
| **Net  cash provided by (used in) financing activities**                                       | ** ** | **(91,011** | **)**      | **9,217**        | ** ** | **(1,659**       | **)**      | **38**           | ** ** | **—**       | ** ** | **(83,415**      | **)**      |
|                                                                                           |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Effect of  exchange rate changes                                                               |       | (327        | )          | (5,138           | )          | (133             | )          | —           |       | (368             | )          | (5,966           | )          |
| Net increase  (decrease) in cash and cash equivalents                                          |       | 488         |       | (4,251           | )          | 404              |       | (1               | )          | —           |       | (3,360           | )          |
| Cash and cash  equivalents at beginning of the period                                          |       | 5           |       | 8,937            |       | 810              |       | 1                |       | —           |       | 9,753            |       |
| ** **                                                                                     | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Cash  and cash equivalents at end of the period**                                            | ** ** | **$**       | **493**    | ** **       | **$**      | **4,686**        | ** ** | **$**            | **1,214**  | ** **       | **$**      | **—**       | ** ** | **$** | **—** | ** ** | **$** | **6,393** | ** ** |
| ** **                                                                                     | ** ** | ** **  | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
| Cash and cash  equivalent - continuing operation                                               |       | 5           |       | 9                |       | 810              |       | 1                |       | —           |       | 825              |       |
| Cash and cash  equivalent - discontinued operation                                             |       | —      |       | 8,928            |       | —           |       | —           |       | —           |       | 8,928            |       |
| Cash and cash  equivalent at beginning of the period                                           |       | 5           |       | 8,937            |       | 810              |       | 1                |       | —           |       | 9,753            |       |
|                                                                                           |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Cash and cash  equivalent - continuing operation                                               |       | 493         |       | 47               |       | 1,214            |       | —           |       | —           |       | 1,754            |       |
| Cash and cash  equivalent - discontinued operation                                             |       | —      |       | 4,639            |       | —           |       | —           |       | —           |       | 4,639            |       |
| Cash and cash  equivalent at end of the period                                                 |       | 493         |       | 4,686            |       | 1,214            |       | —           |       | —           |       | 6,393            |       |

 

F-53

----

**23.       Financialinformation for subsidiary guarantors and non-guarantor subsidiaries(Continued)**

**ConsolidatedBalance Sheetsas of December 31, 2005**
| ** **                               | ** ** | ** **  | ** ** | **Wholly-**      | ** ** | **Majority-**    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------|------------|-------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                               | ** ** | ** **  | ** ** | **Owned**        | ** ** | **Owned**        | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                               | ** ** | **Parent**  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | **guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Assets**                               | ** ** | **Company** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                     |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Current assets                           |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Cash and cash  equivalents               |       | $           | 5          |             | $          | 8,937            |       | $                | 810        |             | $          | —           |       | $ | 1 |   | $ | 9,753 |   |
| Accounts  receivable, net                |       | 280         |       | 4,033            |       | 25               |       | 1,917            |       | (2,409           | )          | 3,846            |       |
| Inventories, net                         |       | —      |       | 8,381            |       | 97               |       | —           |       | —           |       | 8,478            |       |
| Recoverable  taxes                       |       | —      |       | 299              |       | 250              |       | 3                |       | —           |       | 552              |       |
| Prepaid and  other assets                |       | 8           |       | 1,090            |       | 681              |       | —           |       | (795             | )          | 984              |       |
| Other accounts  receivable               |       | —      |       | 82               |       | —           |       | —           |       | —           |       | 82               |       |
| Total current  assets                    |       | 293         |       | 22,822           |       | 1,863            |       | 1,920            |       | (3,203           | )          | 23,695           |       |
|                                     |       |        |       |             |       |             |       |             |       |             |       |             |       |
| Property, plant and equipment,  net      |       | —      |       | 69,562           |       | 2,077            |       | —           |       | 259              |       | 71,898           |       |
| Investments                              |       | (6,254      | )          | 1,404            |       | —           |       |             |       | 4,850            |       | —           |       |
| Recoverable taxes                        |       | —      |       | 35               |       | 6                |       | 40               |       | —           |       | 81               |       |
| Intangible assets, net                   |       | 222         |       | 2,943            |       | —           |       | —           |       | —           |       | 3,165            |       |
| Loans receivable from related  companies |       | 67,738      |       | 386,854          |       | 187              |       | 54,260           |       | (500,912         | )          | 8,127            |       |
| Dividends receivables                    |       | 407,807     |       | —           |       | —           |       | —           |       | (407,807         | )          | —           |       |
| Judicial deposits                        |       | —      |       | 11,473           |       | 414              |       | —           |       | —           |       | 11,887           |       |
| Total assets                             |       | $           | 469,806    |             | $          | 495,093          |       | $                | 4,547      |             | $          | 56,220           |       | $ | (906,813 | ) | $ | 118,853 |   |

 

F-54

----

**23. Financial information forsubsidiary guarantors and non-guarantor subsidiaries (Continued)**

** **

**ConsolidatedBalance Sheet**

**as ofDecember 31, 2005**

** **

** **
| **Liabilities and Shareholders’  Equity (Deficiency)** | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Majority-  Owned  Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
|                                                                       |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Current Liabilities                                                        |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Loans                                                                      |       | $                   | 569        |                                        | $          | 26,267                                        |       | $                                 | —     |             | $          | —           |       | $ |   |   | $ | 26,836 |   |
| Film suppliers                                                             |       | —              |       | 5,183                                       |       | 139                                           |       | —                            |       | —           |       | 5,322            |       |
| Other suppliers                                                            |       | —              |       | 10,184                                      |       | 40                                            |       | 1                                 |       | (2,198           | )          | 8,027            |       |
| Tax recovery  program - PAES/REFIS                                         |       | 541                 |       | 1,328                                       |       | 94                                            |       | —                            |       | —           |       | 1,963            |       |
| Taxes payable  other than income taxes                                     |       | 1,759               |       | 2,617                                       |       | 57                                            |       | 1                                 |       | —           |       | 4,434            |       |
| Income tax  payable                                                        |       | —              |       | 279                                         |       | 307                                           |       | 3                                 |       | —           |       | 589              |       |
| Accrued payroll  and related liabilities                                   |       | —              |       | 2,530                                       |       | 23                                            |       | —                            |       | —           |       | 2,553            |       |
| Advances from  customers                                                   |       | —              |       | 5,779                                       |       | —                                        |       | —                            |       | (404             | )          | 5,375            |       |
| Other accounts  payable                                                    |       | —              |       | 636                                         |       | 885                                           |       | —                            |       | (603             | )          | 918              |       |
|                                                                       |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Total current  liabilities                                                 |       | 2,869               |       | 54,803                                      |       | 1,545                                         |       | 5                                 |       | (3,205           | )          | 56,017           |       |
|                                                                       |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Long-term liabilities                                                      |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Loans                                                                      |       | 47,757              |       | 6,552                                       |       | —                                        |       | —                            |       | —           |       | 54,309           |       |
| Loans payable to  related companies                                        |       | 413,132             |       | 130,282                                     |       | —                                        |       | 25,694                            |       | (500,912         | )          | 68,196           |       |
| Taxes payable  other than income taxes                                     |       | 3,143               |       | 763                                         |       | —                                        |       | —                            |       | —           |       | 3,906            |       |
| Accrual for  contingencies                                                 |       | 14,476              |       | 28,571                                      |       | 143                                           |       | —                            |       | —           |       | 43,190           |       |
| Tax recovery  program - PAES/REFIS                                         |       | 6,222               |       | 8,842                                       |       | 633                                           |       | —                            |       | —           |       | 15,697           |       |
| Liability to  fund equity investee                                         |       | 93,076              |       | —                                      |       | —                                        |       | —                            |       | (93,076          | )          | —           |       |
| Deferred income  tax                                                       |       | 45,988              |       | —                                      |       | (111                                          | )          | —                            |       | —           |       | 45,877           |       |
| Dividends  payable                                                         |       | —              |       | 348,140                                     |       | —                                        |       | 59,667                            |       | (407,807         | )          | —           |       |
|                                                                       |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Total long-term  liabilities                                               |       | 623,794             |       | 523,150                                     |       | 665                                           |       | 85,361                            |       | (1,001,795       | )          | 231,175          |       |
|                                                                       |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Minority interest                                                          |       | —              |       | —                                      |       | —                                        |       | —                            |       | 936              |       | 936              |       |
| Redeemable common stock                                                    |       | 30,380              |       | —                                      |       | —                                        |       | —                            |       | —           |       | 30,380           |       |
|                                                                       |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Shareholders’ deficit                                                 |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Common stock                                                               |       | 445,313             |       | 284,076                                     |       | 1,860                                         |       | 15,068                            |       | (300,291         | )          | 446,026          |       |
| Accumulated  other comprehensive income (loss)                             |       | (23,020             | )          | 198,233                                     |       | (157                                          | )          | 1,179                             |       | (194,595         | )          | (18,360          | )          |
| Accumulated  deficit                                                       |       | (609,530            | )          | (565,169                                    | )          | 634                                           |       | (45,392                           | )          | 592,136          |       | (627,321         | )          |
| Total  shareholders’ equity (deficiency)                              |       | (187,237            | )          | (82,860                                     | )          | 2,337                                         |       | (29,145                           | )          | 97,250           |       | (199,655         | )          |
| Total liabilities and  shareholders’ equity (deficiency)              |       | $                   | 469,806    |                                        | $          | 495,093                                       |       | $                                 | 4,547      |             | $          | 56,221           |       | $ | (906,814 | ) | $ | 118,853 |   |

 

F-55

----

**23. Financial information forsubsidiary guarantors and non-guarantor subsidiaries (Continued)**

**Consolidated Statements ofOperations**

**for the year ended December 31,2005**

 
| **Description **                                            | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Majority-  Owned  Guarantor** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|---------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| Gross revenues                                                   |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Monthly subscriptions                                            |       | $                   | —     |                                        | $          | —                          |       | $                                 | 3,556      |             | $          | —           |       | $ | — |   | $ | 3,556 |   |
| Installation                                                     |       | —              |       | —                                      |       | 32                              |       | —                            |       | —           |       | 32               |       |
| Advertising                                                      |       | —              |       | 110                                         |       | —                          |       | —                            |       | —           |       | 110              |       |
| Addtional services                                               |       | —              |       | 127                                         |       | 69                              |       | —                            |       | (127             | )          | 69               |       |
| Taxes on revenues                                                |       | —              |       | 8                                           |       | (527                            | )          | —                            |       | —           |       | (519             | )          |
| Net revenue                                                      |       | —              |       | 245                                         |       | 3,130                           |       | —                            |       | (127             | )          | 3,248            |       |
|                                                             |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Direct operating  expenses                                       |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Payroll and benefits                                             |       | —              |       | —                                      |       | 65                              |       | —                            |       | —           |       | 65               |       |
| Programming                                                      |       | —              |       | —                                      |       | 1,058                           |       | —                            |       | —           |       | 1,058            |       |
| Technical assistance                                             |       | —              |       | —                                      |       | 14                              |       | —                            |       | —           |       | 14               |       |
| TVA magazine                                                     |       | —              |       | —                                      |       | 14                              |       | —                            |       | —           |       | 14               |       |
| Rent                                                             |       | —              |       | —                                      |       | 36                              |       | —                            |       | —           |       | 36               |       |
| Other costs                                                      |       | —              |       | —                                      |       | 142                             |       | —                            |       | —           |       | 142              |       |
|                                                             |       | —              |       | —                                      |       | 1,329                           |       | —                            |       | —           |       | 1,329            |       |
|                                                             |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Selling, general  and administrative expenses                    |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Payroll and benefits                                             |       | —              |       | —                                      |       | 70                              |       | —                            |       | —           |       | 70               |       |
| Advertising and promotion                                        |       | —              |       | —                                      |       | 20                              |       | —                            |       | —           |       | 20               |       |
| Rent                                                             |       | —              |       | —                                      |       | 6                               |       | —                            |       | —           |       | 6                |       |
| Other general and administrative expenses                        |       | 454                 |       | 379                                         |       | 141                             |       | 5                                 |       | (127             | )          | 852              |       |
|                                                             |       | 454                 |       | 379                                         |       | 237                             |       | 5                                 |       | (127             | )          | 948              |       |
|                                                             |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Depreciation                                                     |       | —              |       | 229                                         |       | 308                             |       | —                            |       | (376             | )          | 161              |       |
| Amortization                                                     |       | 430                 |       | —                                      |       | —                          |       | —                            |       | —           |       | 430              |       |
| Other operating  expense, net                                    |       | 301                 |       | —                                      |       | 40                              |       | —                            |       | —           |       | 341              |       |
| Income (loss)  from operations                                   |       | (1,185              | )          | (363                                        | )          | 1,216                           |       | (5                                | )          | 376              |       | 39               |       |
|                                                             |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Interest income                                                  |       | (1,550              | )          | (11,802                                     | )          | (51                             | )          | (19                               | )          | 12,899           |       | (523             | )          |
| Interest expense                                                 |       | 27,881              |       | 6,479                                       |       | 343                             |       | 1,173                             |       | (12,899          | )          | 22,977           |       |
| Foreign currency transaction (income) loss,net                   |       | (51,573             | )          | 40,832                                      |       | 10                              |       | 4,574                             |       | —           |       | (6,157           | )          |
|                                                             |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Income (loss)  before income taxes, equity and minority interest |       | 24,057              |       | (35,872                                     | )          | 914                             |       | (5,733                            | )          | 376              |       | (16,258          | )          |
| Equity in (losses of) affiliates, net                            |       | (60,000             | )          | 360                                         |       | —                          |       | (1,580                            | )          | 61,220           |       | —           |       |
| Minority interest                                                |       | —              |       | —                                      |       | —                          |       | —                            |       | (240             | )          | (240             | )          |
|                                                             |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Income (loss)  from continuing operations before income taxes    |       | (35,943             | )          | (35,512                                     | )          | 914                             |       | (7,313                            | )          | 61,356           |       | (16,498          | )          |
| Income tax from continuing operations - current                  |       | —              |       | —                                      |       | 305                             |       | 3                                 |       | —           |       | 308              |       |
| Income tax from continuing operations - deferred                 |       | 27,416              |       | —                                      |       | 8                               |       | —                            |       | —           |       | 27,424           |       |
| Income (loss)  from continuing operations                        |       | (63,359             | )          | (35,512                                     | )          | 601                             |       | (7,316                            | )          | 61,356           |       | (44,230          | )          |
| Discontinued  operations                                         |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Income (loss) from discontinued operations before  income taxes  |       | (1,081              | )          | (17,701                                     | )          | —                          |       | —                            |       | —           |       | (18,782          | )          |
| Income taxes on discontinued operations                          |       | —              |       | (314                                        | )          | —                          |       | —                            |       | —           |       | (314             | )          |
| Income (loss)  from discontinued operations                      |       | (1,081              | )          | (18,015                                     | )          | —                          |       | —                            |       | —           |       | (19,096          | )          |
|                                                             |       |                |       |                                        |       |                            |       |                              |       |             |       |             |       |
| Net income (loss)                                                |       | $                   | (64,440    | )                                           | $          | (53,527                         | )          | $                                 | 601        |             | $          | (7,316           | )          | $ | 61,356 |   | $ | (63,326 | ) |

 

F-56

----

 

**23. Financial information forsubsidiary guarantors and non-guarantor subsidiaries (Continued)**

**ConsolidatedStatements of Cash Flowsfor the year ended December 31, 2005**
| ** **                                                                                     | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Subsidiaries** | ** ** | **Majority-  Owned  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------|------------|----------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| **Cash flows from operating  activities:**                                                     |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Net income (loss)                                                                              |       | $                   | (64,440    | )                                | $          | (53,527                            | )          | $                                 | 601        |             | $          | (7,316           | )          | $ | 61,356 |   | $ | (63,326 | ) |
|                                                                                           |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| **Adjustments to reconcile net  loss to net cash (used in) provided by operating activities:** |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Depreciation                                                                                   |       | —              |       | 229                              |       | 308                                |       | —                            |       | (376             | )          | 161              |       |
| Amortization                                                                                   |       | 430                 |       | —                           |       | —                             |       | —                            |       | —           |       | 430              |       |
| Allowance for  doubtful accounts                                                               |       | —              |       | —                           |       | 19                                 |       | —                            |       | —           |       | 19               |       |
| Provision for  inventory obsolescence                                                          |       | —              |       | 33                               |       | —                             |       | —                            |       | —           |       | 33               |       |
| Minority  interest                                                                             |       | —              |       | —                           |       | —                             |       | —                            |       | 240              |       | 240              |       |
| Equity in  (income) losses of affiliates                                                       |       | 60,000              |       | (360                             | )          | —                             |       | 1,580                             |       | (61,220          | )          | —           |       |
| Foreign currency  transaction loss, net                                                        |       | (51,573             | )          | 40,832                           |       | 10                                 |       | 4,574                             |       | —           |       | (6,157           | )          |
| Current income  taxes                                                                          |       | —              |       | —                           |       | 305                                |       | 3                                 |       | —           |       | 308              |       |
| Deferred income  taxes                                                                         |       | 27,416              |       | —                           |       | 8                                  |       | —                            |       | —           |       | 27,424           |       |
| Accrued interest                                                                               |       | 22,322              |       | 11,387                           |       | 232                                |       | 1,114                             |       | —           |       | 35,055           |       |
| **Changes in operating assets and  liabilities:**                                              |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Accounts  receivable                                                                           |       | (17                 | )          | 21                               |       | (59                                | )          | 28                                |       | 507              |       | 480              |       |
| Prepaid expenses  and other assets                                                             |       | —              |       | —                           |       | (3                                 | )          | —                            |       | 764              |       | 761              |       |
| Inventories                                                                                    |       | —              |       | —                           |       | (2                                 | )          | —                            |       | —           |       | (2               | )          |
| Suppliers                                                                                      |       | (110                | )          | 176                              |       | (122                               | )          | —                            |       | (303             | )          | (359             | )          |
| Accrual for  contingencies                                                                     |       | 6,061               |       | —                           |       | —                             |       | —                            |       | —           |       | 6,061            |       |
| Taxes payable  other than income taxes                                                         |       | (165                | )          | (12                              | )          | (69                                | )          | 4                                 |       | —           |       | (242             | )          |
| Accrued payroll  and related liabilities                                                       |       | —              |       | (1                               | )          | 8                                  |       | —                            |       | —           |       | 7                |       |
| Advances  received from subscribers                                                            |       | —              |       | —                           |       | —                             |       | —                            |       | (389             | )          | (389             | )          |
| Judicial  deposits                                                                             |       | —              |       | —                           |       | (112                               | )          | —                            |       | —           |       | (112             | )          |
| Other                                                                                          |       | 314                 |       | (266                             | )          | 24                                 |       | (47                               | )          | (433             | )          | (408             | )          |
| **Cash  flow from Discontinued operation**                                                     |       | —              |       | 31,928                           |       | —                             |       | —                            |       | —           |       | 31,928           |       |
| **Net cash provided by (used in)  operating activities**                                       |       | 238                 |       | 30,440                           |       | 1,148                              |       | (60                               | )          | 146              |       | 31,912           |       |
|                                                                                           |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| **Cash flows from investing  activities:**                                                     |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Purchases of  property, plant and equipment                                                    |       | —              |       | 43                               |       | (131                               | )          | —                            |       | —           |       | (88              | )          |
| **Cash  flow from Discontinued operation**                                                     |       | —              |       | (26,495                          | )          | —                             |       | —                            |       | —           |       | (26,495          | )          |
| **Net cash used in investing  activities**                                                     |       | —              |       | (26,452                          | )          | (131                               | )          | —                            |       | —           |       | (26,583          | )          |
|                                                                                           |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| **Cash flows from financing  activities:**                                                     |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Repayment of  loans from banks                                                                 |       | (5,972              | )          | —                           |       | —                             |       | —                            |       | —           |       | (5,972           | )          |
| Repayment of  program PAES/REFIS                                                               |       | —              |       | —                           |       | (56                                | )          | —                            |       | —           |       | (56              | )          |
| Loans to related  parties                                                                      |       | —              |       | —                           |       | 6                                  |       | —                            |       | —           |       | 6                |       |
| Dividends                                                                                      |       | —              |       | 375                              |       | (674                               | )          | —                            |       | (375             | )          | (674             | )          |
| Proceeds from  loans from related parties                                                      |       | 12,949              |       | (2,407                           | )          | —                             |       | 27                                |       | —           |       | 10,569           |       |
| Repayments of  loans from related parties                                                      |       | (2,035              | )          | (9,055                           | )          | —                             |       | —                            |       | —           |       | (11,090          | )          |
| Cash flow from  Discontinued operation                                                         |       | —              |       | 11,345                           |       | —                             |       | —                            |       | —           |       | 11,345           |       |
| **Net cash provided by (used in)  financing activities**                                       |       | 4,942               |       | 258                              |       | (724                               | )          | 27                                |       | (375             | )          | 4,128            |       |
|                                                                                           |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Effect of exchange rate  changes                                                               |       | (5,178              | )          | 4,023                            |       | (172                               | )          | 26                                |       | 229              |       | (1,072           | )          |
| Net increase (decrease)  in cash and cash equivalents                                          |       | 2                   |       | 8,269                            |       | 121                                |       | (7                                | )          | —           |       | 8,385            |       |
| Cash and cash  equivalents at beginning of the period                                          |       | 3                   |       | 668                              |       | 689                                |       | 8                                 |       | —           |       | 1,368            |       |
| ** **                                                                                     |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| **Cash and cash equivalents at  end of the period**                                            |       | $                   | 5          |                             | $          | 8,937                              |       | $                                 | 810        |             | $          | 1                |       | $ | — |   | $ | 9,753 |   |
|                                                                                           |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Cash and cash  equivalent - continuing operation                                               |       | 3                   |       | 1                                |       | 689                                |       | 8                                 |       | —           |       | 701              |       |
| Cash and cash equivalent  - discontinued operation                                             |       | —              |       | 667                              |       | —                             |       | —                            |       | —           |       | 667              |       |
| Cash and cash  equivalent at beginning of the period                                           |       | 3                   |       | 668                              |       | 689                                |       | 8                                 |       | —           |       | 1,368            |       |
|                                                                                           |       |                |       |                             |       |                               |       |                              |       |             |       |             |       |
| Cash and cash  equivalent - continuing operation                                               |       | 5                   |       | 9                                |       | 810                                |       | 1                                 |       | —           |       | 825              |       |
| Cash and cash  equivalent - discontinued operation                                             |       | —              |       | 8,928                            |       | —                             |       | —                            |       | —           |       | 8,928            |       |
| Cash and cash  equivalent at end of the period                                                 |       | 5                   |       | 8,937                            |       | 810                                |       | 1                                 |       | —           |       | 9,753            |       |

 

F-57

----

 

**23. Financial information forsubsidiary guarantors and non-guarantor subsidiaries (Continued)**

**ConsolidatedBalance Sheetas of December 31, 2004**
| **Assets **                         | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Majority-  Owned  Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
|                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Current assets                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Cash and cash equivalents                |       | $                   | 3          |                                        | $          | 668                                           |       | $                                 | 689        |             | $          | 8                |       | $ | — |   | $ | 1,368 |   |
| Accounts receivable, net                 |       | 234                 |       | 1,270                                       |       | (16                                           | )          | 1,713                             |       | (1,506           | )          | 1,695            |       |
| Inventories, net                         |       | —              |       | 9,510                                       |       | 86                                            |       | —                            |       | (124             | )          | 9,472            |       |
| Prepaid and other assets                 |       | 8                   |       | 1,312                                       |       | 3                                             |       | —                            |       | —           |       | 1,323            |       |
| Other accounts receivable                |       | 49                  |       | 247                                         |       | 281                                           |       | —                            |       | —           |       | 577              |       |
|                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Total current assets                     |       | 294                 |       | 13,007                                      |       | 1,043                                         |       | 1,721                             |       | (1,630           | )          | 14,435           |       |
|                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Property, plant  and equipment, net      |       | —              |       | 67,012                                      |       | 2,083                                         |       | —                            |       | (875             | )          | 68,220           |       |
| Investments                              |       | 16,066              |       | 1,319                                       |       | —                                        |       | —                            |       | (17,385          | )          | —           |       |
| Recoverable  taxes                       |       | —              |       | 102                                         |       | —                                        |       | 35                                |       | 1                |       | 138              |       |
| Intangible  assets, net                  |       | 598                 |       | 3,933                                       |       | —                                        |       | —                            |       | —           |       | 4,531            |       |
| Loans receivable  from related companies |       | 55,504              |       | 18,314                                      |       | 146                                           |       | 54,258                            |       | (121,742         | )          | 6,480            |       |
| Dividends  receivable                    |       | 362,063             |       | —                                      |       | —                                        |       | —                            |       | (362,063         | )          | —           |       |
| Judicial  deposits                       |       | —              |       | 8,497                                       |       | 263                                           |       | —                            |       | —           |       | 8,760            |       |
|                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Total assets                             |       | $                   | 434,525    |                                        | $          | 112,184                                       |       | $                                 | 3,535      |             | $          | 56,014           |       | $ | (503,694 | ) | $ | 102,564 |   |

 

F-58

----

 

**23. Financial information forsubsidiary guarantors and non-guarantor subsidiaries (Continued)**

**ConsolidatedBalance Sheet**

**as ofDecember 31, 2004**

 
| **Liabilities and Shareholders’  Equity (Deficiency)** | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Majority-  Owned  Guarantor**

**Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
|                                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Current  Liabilities                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Loans                                                                 |       | $                   | 7,846      |                                        | $          | 11,628                                            |       | $                                 | —     |             | $          | —           |       | $ | — |   | $ | 19,474 |   |
| Film suppliers                                                        |       | —              |       | 4,766                                       |       | 230                                               |       | —                            |       | —           |       | 4,996            |       |
| Other suppliers                                                       |       | 102                 |       | 7,174                                       |       | 40                                                |       | —                            |       | (1,629           | )          | 5,687            |       |
| Tax recovery program - PAES/REFIS                                     |       | 439                 |       | 1,082                                       |       | 60                                                |       | —                            |       | —           |       | 1,581            |       |
| Taxes payable other than income taxes                                 |       | 1,427               |       | 1,988                                       |       | 45                                                |       | 2                                 |       | —           |       | 3,462            |       |
| Income tax payable                                                    |       | —              |       | —                                      |       | 328                                               |       | —                            |       | —           |       | 328              |       |
| Accrued payroll and related liabilities                               |       | —              |       | 1,339                                       |       | 13                                                |       | —                            |       | —           |       | 1,352            |       |
| Advances from customers                                               |       | —              |       | 3,939                                       |       | —                                            |       | —                            |       | —           |       | 3,939            |       |
| Other accounts payable                                                |       | —              |       | 1,288                                       |       | 172                                               |       | 40                                |       | —           |       | 1,500            |       |
|                                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Total current liabilities                                             |       | 9,814               |       | 33,204                                      |       | 888                                               |       | 42                                |       | (1,629           | )          | 42,319           |       |
|                                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Long-term  liabilities                                                |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Loans                                                                 |       | 385,384             |       | (344,324                                    | )          | —                                            |       | —                            |       | —           |       | 41,060           |       |
| Loans payable to related companies                                    |       | 34,595              |       | 113,027                                     |       | —                                            |       | 23,753                            |       | (121,741         | )          | 49,634           |       |
| Taxes payable other than income taxes                                 |       | 3,390               |       | 324                                         |       | —                                            |       | —                            |       | —           |       | 3,714            |       |
| Accrual for contingencies                                             |       | —              |       | 14,277                                      |       | 267                                               |       | —                            |       | —           |       | 14,544           |       |
| Tax recovery program - PAES/REFIS                                     |       | 5,530               |       | 8,248                                       |       | 302                                               |       | —                            |       | —           |       | 14,080           |       |
| Liability to fund equity investee                                     |       | 47,497              |       | —                                      |       | —                                            |       | —                            |       | (47,497          | )          | —           |       |
| Deferred income tax                                                   |       | 29,171              |       | —                                      |       | (119                                              | )          | —                            |       | —           |       | 29,052           |       |
| Dividends payable                                                     |       | —              |       | 309,448                                     |       | —                                            |       | 52,615                            |       | (362,063         | )          | —           |       |
|                                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Total long-term liabilities                                           |       | 505,567             |       | 101,000                                     |       | 450                                               |       | 76,368                            |       | (531,301         | )          | 152,084          |       |
|                                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Minority  interest                                                    |       | —              |       | —                                      |       | —                                            |       | —                            |       | 879              |       | 879              |       |
| Redeemable  common stock                                              |       | 27,599              |       | —                                      |       | —                                            |       | —                            |       | —           |       | 27,599           |       |
|                                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Shareholders’  deficit                                           |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Common stock                                                          |       | 445,313             |       | 284,076                                     |       | 1,860                                             |       | 15,068                            |       | (300,291         | )          | 446,026          |       |
| Accumulated other comprehensive income (loss)                         |       | (10,380             | )          | 204,466                                     |       | (298                                              | )          | 4,194                             |       | (203,111         | )          | (5,129           | )          |
| Accumulated deficit                                                   |       | (543,388            | )          | (510,562                                    | )          | 635                                               |       | (39,658                           | )          | 531,759          |       | (561,214         | )          |
|                                                                  |       |                |       |                                        |       |                                              |       |                              |       |             |       |             |       |
| Total shareholders’ equity (deficiency)                          |       | (108,455            | )          | (22,020                                     | )          | 2,197                                             |       | (20,396                           | )          | 28,357           |       | (120,317         | )          |
| Total  liabilities and shareholders’ equity (deficiency)         |       | $                   | 434,525    |                                        | $          | 112,184                                           |       | $                                 | 3,535      |             | $          | 56,014           |       | $ | (503,694 | ) | $ | 102,564 |   |

 

F-59

----

 

**23. Financial information forsubsidiary guarantors and non-guarantor subsidiaries (Continued)**

**ConsolidatedStatements of Operationsfor the year ended December 31, 2004**
| **Description **                                            | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Majority-  Owned  Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
|                                                             |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Gross revenues                                                   |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Monthly subscriptions                                            |       | $                   | —     |                                        | $          | 164                                           |       | $                                 | 2,447      |             | $          | —           |       | $ | (164 | ) | $ | 2,447 |   |
| Installation                                                     |       | —              |       | —                                      |       | 26                                            |       | —                            |       | —           |       | 26               |       |
| Advertising                                                      |       | —              |       | 16                                          |       | —                                        |       | —                            |       | —           |       | 16               |       |
| Other                                                            |       | —              |       | —                                      |       | 45                                            |       | —                            |       | —           |       | 45               |       |
| Taxes on revenue                                                 |       | —              |       | (10                                         | )          | (357                                          | )          | —                            |       | —           |       | (367             | )          |
| Net revenue                                                      |       | —              |       | 170                                         |       | 2,161                                         |       | —                            |       | (164             | )          | 2,167            |       |
|                                                             |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Direct operating  expenses                                       |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Payroll and benefits                                             |       | —              |       | —                                      |       | 32                                            |       | —                            |       | —           |       | 32               |       |
| Programming                                                      |       | —              |       | —                                      |       | 834                                           |       | —                            |       | —           |       | 834              |       |
| Technical assistance                                             |       | —              |       | —                                      |       | 3                                             |       | —                            |       | —           |       | 3                |       |
| TVA Magazine                                                     |       | —              |       | —                                      |       | 28                                            |       | —                            |       | —           |       | 28               |       |
| Rent                                                             |       | —              |       | —                                      |       | 25                                            |       | —                            |       | —           |       | 25               |       |
| Other costs                                                      |       | —              |       | —                                      |       | 168                                           |       | —                            |       | —           |       | 168              |       |
|                                                             |       | —              |       | —                                      |       | 1,090                                         |       | —                            |       | —           |       | 1,090            |       |
|                                                             |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Selling, general  and administrative expenses                    |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Payroll and benefits                                             |       | —              |       | (3                                          | )          | 52                                            |       | —                            |       | —           |       | 49               |       |
| Advertising and promotion                                        |       | —              |       | —                                      |       | 12                                            |       | —                            |       | —           |       | 12               |       |
| Other general and administrative expenses                        |       | 507                 |       | 209                                         |       | 149                                           |       | 4                                 |       | (164             | )          | 705              |       |
|                                                             |       | 507                 |       | 206                                         |       | 213                                           |       | 4                                 |       | (164             | )          | 766              |       |
|                                                             |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Depreciation                                                     |       | —              |       | 266                                         |       | 261                                           |       | —                            |       | (332             | )          | 195              |       |
| Amortization                                                     |       | 428                 |       | —                                      |       | —                                        |       | —                            |       | —           |       | 428              |       |
| Other operating  expense, net                                    |       | 258                 |       | —                                      |       | —                                        |       | (42                               | )          | —           |       | 216              |       |
| Income (loss)  from operations                                   |       | (1,193              | )          | (302                                        | )          | 597                                           |       | 38                                |       | 332              |       | (528             | )          |
|                                                             |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Interest income                                                  |       | (1,031              | )          | (25,893                                     | )          | (223                                          | )          | —                            |       | 26,780           |       | (367             | )          |
| Interest expense                                                 |       | 36,833              |       | 5,451                                       |       | 63                                            |       | 685                               |       | (26,780          | )          | 16,252           |       |
| Foreign currency transaction (income) loss, net                  |       | (35,006             | )          | 27,994                                      |       | (63                                           | )          | 3,579                             |       | —           |       | (3,496           | )          |
| Other nonoperating income                                        |       | (8,443              | )          | —                                      |       | —                                        |       | —                            |       | —           |       | (8,443           | )          |
|                                                             |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Income (loss)  before income taxes, equity and minority interest |       | 6,454               |       | (7,854                                      | )          | 820                                           |       | (4,226                            | )          | 332              |       | (4,474           | )          |
| Equity in (losses of) affiliates, net                            |       | (17,039             | )          | 382                                         |       | —                                        |       | (874                              | )          | 17,063           |       | (468             | )          |
| Minority interest                                                |       | —              |       | —                                      |       | —                                        |       | —                            |       | 255              |       | 255              |       |
|                                                             |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Income (loss)  from continuing operations before income taxes    |       | (10,585             | )          | (7,472                                      | )          | 820                                           |       | (5,100                            | )          | 17,140           |       | (5,197           | )          |
| Income tax from continuing operations - current                  |       | —              |       | —                                      |       | 304                                           |       | —                            |       | —           |       | 304              |       |
| Income tax from continuing operations - deferred                 |       | 8,985               |       | —                                      |       | (119                                          | )          | —                            |       | —           |       | 8,866            |       |
| Income (loss)  from continuing operations                        |       | (19,570             | )          | (7,472                                      | )          | 635                                           |       | (5,100                            | )          | 17,140           |       | (14,367          | )          |
| Discontinued  operations                                         |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Loss from discontinued operations before income  taxes           |       | (556                | )          | (4,720                                      | )          | —                                        |       | —                            |       | —           |       | (5,276           | )          |
| Income taxes on discontinued operations                          |       | —              |       | —                                      |       | —                                        |       | —                            |       | —           |       | —           |       |
| Loss from  discontinued operations                               |       | (556                | )          | (4,720                                      | )          | —                                        |       | —                            |       | —           |       | (5,276           | )          |
| Net income  (loss)                                               |       | (20,126             | )          | (12,192                                     | )          | 635                                           |       | (5,100                            | )          | 17,140           |       | (19,643          | )          |
|                                                                  |            |                     |            |                                             |            |                                               |            |                                   |            |                  |            |                  |            |  |  |  |  |  |  |

 

F-60

----

 

**23. Financial information forsubsidiary guarantors and non-guarantor subsidiaries (Continued)**

**ConsolidatedStatement's of Cash Flows****for the year ended December 31, 2004**

 
| ** **                                                                                     | ** ** | **Parent  Company** | ** ** | **Wholly-  Owned  Guarantor  Subsidiaries** | ** ** | **Majority-  Owned  Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| **Cash flows from operating  activities:**                                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Net income (loss)                                                                              |       | $                   | (19,721    | )                                           | $          | (12,597                                       | )          | $                                 | 635        |             | $          | (5,100           | )          | $ | 17,140 |   | $ | (19,643 | ) |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| **Adjustments to reconcile net  loss to net cash (used in) provided by operating activities:** |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Depreciation                                                                                   |       | —              |       | 266                                         |       | 261                                           |       | —                            |       | (332             | )          | 195              |       |
| Amortization                                                                                   |       | 428                 |       | —                                      |       | —                                        |       | —                            |       | —           |       | 428              |       |
| Net Gain on sale  of equity method investments                                                 |       | (8,443              | )          | —                                      |       | —                                        |       | —                            |       | —           |       | (8,443           | )          |
| Allowance for  doubtful accounts                                                               |       | —              |       | —                                      |       | 21                                            |       | —                            |       | —           |       | 21               |       |
| Minority  interest                                                                             |       | —              |       | —                                      |       | —                                        |       | —                            |       | 255              |       | 255              |       |
| Equity in  (income) losses of affiliates                                                       |       | 17,039              |       | (382                                        | )          | —                                        |       | 874                               |       | (17,063          | )          | 468              |       |
| Foreign currency  transaction loss, net                                                        |       | (35,006             | )          | 27,994                                      |       | (63                                           | )          | 3,579                             |       | —           |       | (3,496           | )          |
| Current income  taxes                                                                          |       | —              |       | —                                      |       | 304                                           |       | —                            |       | —           |       | 304              |       |
| Deferred income  taxes                                                                         |       | 8,985               |       | —                                      |       | (119                                          | )          | —                            |       | —           |       | 8,866            |       |
| Accrued interest                                                                               |       | 35,479              |       | 6,190                                       |       | (364                                          | )          | 710                               |       | (25,890          | )          | 16,125           |       |
| **Changes in operating assets and  liabilities:**                                              |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Accounts  receivable                                                                           |       | (212                | )          | (39                                         | )          | (4                                            | )          | (81                               | )          | 140              |       | (196             | )          |
| Prepaid expenses  and other assets                                                             |       | (9,848              | )          | 466                                         |       | 15                                            |       | 123                               |       | 9,029            |       | (215             | )          |
| Inventories                                                                                    |       | —              |       | —                                      |       | (9                                            | )          | —                            |       | 112              |       | 103              |       |
| Suppliers                                                                                      |       | 79                  |       | 48                                          |       | 83                                            |       | —                            |       | 34               |       | 244              |       |
| Accrual for  contingencies                                                                     |       | —              |       | 6                                           |       | —                                        |       | —                            |       | —           |       | 6                |       |
| Taxes payable  other than income taxes                                                         |       | (146                | )          | 48                                          |       | (25                                           | )          | 3                                 |       | —           |       | (120             | )          |
| Accrued payroll  and related liabilities                                                       |       | —              |       | (2                                          | )          | (1                                            | )          | —                            |       | —           |       | (3               | )          |
| Judicial  deposits                                                                             |       | —              |       | (6                                          | )          | (22                                           | )          | —                            |       | —           |       | (28              | )          |
| Other                                                                                          |       | 2,464               |       | 8,288                                       |       | 36                                            |       | (41                               | )          | (12,089          | )          | (1,342           | )          |
| **Cash  flow from Discontinued operation**                                                     |       | —              |       | 30,880                                      |       | —                                        |       | —                            |       |             |       | 30,880           |       |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| **Net cash provided by (used in)  operating activities**                                       |       | (8,902              | )          | 61,160                                      |       | 748                                           |       | 67                                |       | (28,664          | )          | 24,409           |       |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| **Cash flows from investing  activities:**                                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Purchases of  property, plant and equipment                                                    |       | —              |       | 349                                         |       | (87                                           | )          | —                            |       | —           |       | 262              |       |
| Short-term  investments                                                                        |       | —              |       | 2,476                                       |       | —                                        |       | —                            |       | (2,477           | )          | (1               | )          |
| **Cash  flow from Discontinued operation**                                                     |       | —              |       | (13,346                                     | )          | —                                        |       | —                            |       | —           |       | (13,346          | )          |
| **Net cash used in investing  activities**                                                     |       | —              |       | (10,521                                     | )          | (87                                           | )          | —                            |       | (2,477           | )          | (13,085          | )          |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| **Cash flows from financing  activities:**                                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Proceeds from  bank loans                                                                      |       | 25,988              |       | —                                      |       | —                                        |       | —                            |       | (25,958          | )          | 30               |       |
| Repayment of  loans from banks                                                                 |       | (32,144             | )          | —                                      |       | —                                        |       | —                            |       | 25,958           |       | (6,186           | )          |
| Repayment of  program PAES/REFIS                                                               |       | —              |       | —                                      |       | (73                                           | )          | —                            |       | —           |       | (73              | )          |
| Loans to related  parties                                                                      |       | —              |       | —                                      |       | (7                                            | )          | —                            |       | 7                |       | —           |       |
| Repayment of  loans made to related parties                                                    |       | —              |       | —                                      |       | 1,302                                         |       | —                            |       | (1,302           | )          | —           |       |
| Proceeds from  loans from related parties                                                      |       | 9,136               |       | 45,428                                      |       | —                                        |       | 29                                |       | (476             | )          | 54,117           |       |
| Repayments of  loans from related parties                                                      |       | 175                 |       | (50,864                                     | )          | —                                        |       | (15                               | )          | 3,810            |       | (46,894          | )          |
| Capital  Distribution                                                                          |       | —              |       | —                                      |       | (940                                          | )          | —                            |       | 940              |       | —           |       |
| Dividends                                                                                      |       | —              |       | —                                      |       | (576                                          | )          | —                            |       | 576              |       | —           |       |
| **Cash  flow from Discontinued operation**                                                     |       | —              |       | (11,125                                     | )          | —                                        |       | —                            |       | —           |       | (11,125          | )          |
| **Net cash provided by financing  activities**                                                 |       | 3,155               |       | (16,561                                     | )          | (294                                          | )          | 14                                |       | 3,555            |       | (10,131          | )          |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Effect of exchange rate  changes                                                               |       | 5,654               |       | (33,537                                     | )          | 261                                           |       | (81                               | )          | 27,586           |       | (117             | )          |
| Net increase (decrease)  in cash and cash equivalents                                          |       | (93                 | )          | 541                                         |       | 628                                           |       | —                            |       | —           |       | 1,076            |       |
| Cash and cash  equivalents at beginning of the period                                          |       | 96                  |       | 127                                         |       | 61                                            |       | 8                                 |       | —           |       | 292              |       |
| ** **                                                                                     |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| **Cash and cash equivalents at  end of the period**                                            |       | $                   | 3          |                                        | $          | 668                                           |       | $                                 | 689        |             | $          | 8                |       | $ | — |   | $ | 1,368 |   |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Cash and cash  equivalent - continuing operations                                              |       | 96                  |       | —                                      |       | 61                                            |       | 8                                 |       | —           |       | 165              |       |
| Cash and cash  equivalent - discontinued operations                                            |       | —              |       | 127                                         |       | —                                        |       | —                            |       | —           |       | 127              |       |
| Cash and cash  equivalent at beginning of the period                                           |       | 96                  |       | 127                                         |       | 61                                            |       | 8                                 |       | —           |       | 292              |       |
|                                                                                           |       |                |       |                                        |       |                                          |       |                              |       |             |       |             |       |
| Cash and cash  equivalent - continuing operations                                              |       | 3                   |       | 1                                           |       | 689                                           |       | 8                                 |       | —           |       | 701              |       |
| Cash and cash  equivalent - discontinued operations                                            |       | —              |       | 667                                         |       | —                                        |       | —                            |       | —           |       | 667              |       |
| Cash and cash  equivalent at end of the period                                                 |       | 3                   |       | 668                                         |       | 689                                           |       | 8                                 |       | —           |       | 1,368            |       |

 

* * *

F-61

----

**CCS – CAMBORIÚ CABLE SYSTEM**

**TELECOMUNICAÇÕES LTDA.**

Financial Statements for theYears EndedDecember 31, 2006, 2005 and 2004 and

Report of IndependentRegistered Public Accounting Firm

Deloitte Touche Tohmatsu Auditores Independentes

 

F-62

----

**CCS - CAMBORIÚ CABLESYSTEM TELECOMUNICAÇÕES LTDA.**

**INDEX TO FINANCIALSTATEMENTS**

**Contents**
|                                                                                                                       | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                                                                                                  |       |     |
| Report  of Independent Registered Public Accounting Firm                                                              |       | F-64     |
|                                                                                                                  |       |     |
| Balance Sheets as of  December 31, 2006 and 2005                                                                      |       | F-65     |
|                                                                                                                  |       |     |
| Statements of Income  for each of the three years in the period ended December 31, 2006                               |       | F-67     |
|                                                                                                                  |       |     |
| Statements of Changes in Shareholders’ Equity for each  of the three years in the period ended December 31, 2006 |       | F-68     |
|                                                                                                                  |       |     |
| Statements of  Cash Flows for each of the three years in the period ended December 31, 2006                           |       | F-69     |
|                                                                                                                  |       |     |
| Notes to Financial  Statements                                                                                        |       | F-70     |

 

F-63

----

#### **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Shareholders of**CCS - CAMBORIÚ****CABLE SYSTEMTELECOMUNICAÇÕES LTDA.**São Paulo – SP - Brasil

 

We have audited the accompanying balance sheets of CCS– CAMBORIÚ CABLE SYSTEM TELECOMUNICAÇÕES LTDA. (the “Company”) as of December31, 2006 and 2005, and the related statements of income, change inshareholders’ equity and cash flows for each of the three years in the periodended December 31, 2006, all expressed in United States dollars. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion,such financial statements present fairly, in all material respects, thefinancial position of the Company as of December 31, 2006 and 2005, and theresults of its operations and its cash flows for each of the three years in theperiod ended December 31, 2006, in conformity with accounting principlesgenerally accepted in the United States of America.

 

/s/ Deloitte Touche Tohmatsu Auditores Independentes

 

Sao Paulo, Brazil

 

June 30, 2007

F-64

----

**CCS - CAMBORIÚ CABLESYSTEM TELECOMUNICAÇÕES LTDA.**

**Balance Sheets**

*December 31, 2006 and2005(in thousands of U.S. dollars)*
| ** **                                   | ** ** | **December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **ASSETS**                                   |       |                  |       |   |   |
| Current assets                               |       |                  |       |   |   |
| Cash and cash  equivalents                   |       | $                     | 1,214      |   | $ | 810 |   |
| Accounts  receivable                         |       | 34                    |       | 25 |   |
| Inventories                                  |       | 96                    |       | 97 |   |
| Prepaid and  other assets                    |       | 2                     |       | 681 |   |
| Recoverable  taxes                           |       | 418                   |       | 256 |   |
|                                         |       |                  |       |   |   |
| Total current  assets                        |       | 1,764                 |       | 1,869 |   |
|                                         |       |                  |       |   |   |
| Property, plant and  equipment, net (Note 5) |       | 2,018                 |       | 2,077 |   |
| Deferred income taxes  (Note 4)              |       | 169                   |       | 111 |   |
| Loans to related  companies (Note 3)         |       | 236                   |       | 187 |   |
| Judicial deposits                            |       | 506                   |       | 414 |   |
|                                         |       |                  |       |   |   |
| Total assets                                 |       | $                     | 4,693      |   | $ | 4,658 |   |

 

**The accompanying notes are an integral part of the financialstatements**

F-65

----

 
| ** **                                                                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **2006**              | ** ** | **2005** | ** ** |
|                                                                                      |       |                  |       |   |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                            | ** ** | ** **            | ** ** | ** ** | ** ** |
|                                                                                      |       |                  |       |   |   |
| Current liabilities                                                                       |       |                  |       |   |   |
| Film suppliers                                                                            |       | $                     | 194        |   | $ | 139 |   |
| Other suppliers                                                                           |       | 42                    |       | 40 |   |
| Taxes payable  other than income taxes                                                    |       | 246                   |       | 149 |   |
| Accrued payroll  and related liabilities                                                  |       | 26                    |       | 23 |   |
| Income taxes  payable                                                                     |       | 491                   |       | 307 |   |
| Dividends  payable                                                                        |       | 725                   |       | 651 |   |
| Other accounts  payable - rentals                                                         |       | 294                   |       | 236 |   |
|                                                                                      |       |                  |       |   |   |
| Total current  liabilities                                                                |       | 2,018                 |       | 1,545 |   |
|                                                                                      |       |                  |       |   |   |
| Long-term liabilities                                                                     |       |                  |       |   |   |
| Taxes payable  other than income taxes                                                    |       | 494                   |       | 633 |   |
| Provision for  claims (Note 10)                                                           |       | 228                   |       | 142 |   |
|                                                                                      |       |                  |       |   |   |
| Total long-term  liabilities                                                              |       | 722                   |       | 775 |   |
|                                                                                      |       |                  |       |   |   |
| Shareholders’ equity                                                                 |       |                  |       |   |   |
| Common stock, no  par value, 2,248,712 shares authorized, issued and outstanding (Note 6) |       | 1,860                 |       | 1,860 |   |
| Accumulated  other comprehensive loss                                                     |       | 93                    |       | (157 | ) |
| Accumulated  income                                                                       |       | —                |       | 635 |   |
|                                                                                      |       |                  |       |   |   |
| Total  shareholders’ equity                                                          |       | 1,953                 |       | 2,338 |   |
|                                                                                      |       |                  |       |   |   |
| Total liabilities and  shareholders’ equity                                          |       | $                     | 4,693      |   | $ | 4,658 |   |

 

**Theaccompanying notes are an integral part of the financial statements**

F-66

----

**CCS - CAMBORIÚ CABLESYSTEM TELECOMUNICAÇÕES LTDA.**

**Statements of Income**

**for the years endedDecember 31, 2006 , 2005 and 2004(in thousands of U.S. dollars)**
| ** **                                                                   | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Gross revenues                                                               |       |                                       |       |   |   |   |   |
| Monthly  subscriptions                                                       |       | $                                          | 4,486      |   | $ | 3,556 |   | $ | 2,447 |   |
| Installation                                                                 |       | 44                                         |       | 32 |   | 26 |   |
| Advertising                                                                  |       | 6                                          |       | — |   | — |   |
| Additional  services                                                         |       | 102                                        |       | 69 |   | 45 |   |
| Taxes on  revenues                                                           |       | (674                                       | )          | (527 | ) | (357 | ) |
|                                                                         |       |                                       |       |   |   |   |   |
|                                                                         |       | 3,964                                      |       | 3,130 |   | 2,161 |   |
| Direct operating  expenses (excluding depreciation stated separately below)  |       |                                       |       |   |   |   |   |
| Payroll and  benefits                                                        |       | 33                                         |       | 65 |   | 32 |   |
| Programming                                                                  |       | 1,190                                      |       | 1,058 |   | 834 |   |
| Other costs                                                                  |       | 198                                        |       | 206 |   | 224 |   |
|                                                                         |       |                                       |       |   |   |   |   |
|                                                                         |       | 1,421                                      |       | 1,329 |   | 1,090 |   |
|                                                                         |       |                                       |       |   |   |   |   |
| Selling, general and  administrative expenses                                |       |                                       |       |   |   |   |   |
| Payroll and  benefits                                                        |       | 118                                        |       | 70 |   | 52 |   |
| Advertising and  promotion                                                   |       | 27                                         |       | 20 |   | 12 |   |
| Other selling,  general and administrative expenses                          |       | 632                                        |       | 147 |   | 149 |   |
|                                                                         |       |                                       |       |   |   |   |   |
|                                                                         |       | 777                                        |       | 237 |   | 213 |   |
|                                                                         |       |                                       |       |   |   |   |   |
| Depreciation                                                                 |       | 345                                        |       | 308 |   | 261 |   |
| Other operating  expense, net                                                |       | 45                                         |       | 40 |   | — |   |
|                                                                         |       |                                       |       |   |   |   |   |
| Operating income                                                             |       | 1,376                                      |       | 1,216 |   | 597 |   |
|                                                                         |       |                                       |       |   |   |   |   |
| Interest income                                                              |       | (49                                        | )          | (51 | ) | (223 | ) |
| Interest expense                                                             |       | 131                                        |       | 343 |   | 63 |   |
| Foreign currency  transaction (gain) loss, net                               |       | 15                                         |       | 10 |   | (63 | ) |
|                                                                         |       |                                       |       |   |   |   |   |
| Income before  income taxes                                                  |       | 1,279                                      |       | 914 |   | 820 |   |
|                                                                         |       |                                       |       |   |   |   |   |
| Income tax expense –  current (Note 4)                                  |       | 483                                        |       | 305 |   | 304 |   |
| Income tax (benefit)–  deferred (Note 4)                                |       | (58                                        | )          | 8 |   | (119 | ) |
|                                                                         |       |                                       |       |   |   |   |   |
| Net income                                                                   |       | $                                          | 854        |   | $ | 601 |   | $ | 635 |   |
| Other  comprehensive income (loss) - Foreign currency translation adjustment |       | 250                                        |       | 141 |   | 1,151 |   |
| Comprehensive income                                                         |       | $                                          | 1,104      |   | $ | 742 |   | $ | 1,786 |   |

 

**The accompanying notes are an integral part of the financialstatements**

F-67

----

**CCS - CAMBORIÚ CABLESYSTEM TELECOMUNICAÇÕES LTDA.**

**Statements of Changes in Shareholders’ Equity**

*for the years endedDecember 31, 2006, 2005 and 2004(in thousands of U.S. dollars)*
| ** **                                                 | ** ** | **Common   Stock** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | ** **              | ** ** | ** **             | ** ** | ** **                                                | ** ** | ** ** | ** ** |
| Balance as of December  31, 2003                           |       | $                       | 4,012      |                   | $          | 288                                                       |       | $          | (1,449     | ) | $ | 2,851 |   |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Foreign currency  translation adjustment, net of tax of $0 |       | —                  |       | —                 |       | 1,151                                                     |       | 1,151      |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Capital distribution                                       |       | (2,152                  | )          | (288                   | )          | —                                                    |       | (2,440     | )          |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Net income                                                 |       | —                  |       | 635                    |       | —                                                    |       | 635        |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Balance as of December  31, 2004                           |       | 1,860                   |       | 635                    |       | (298                                                      | )          | 2,197      |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Foreign currency  translation adjustment, net of tax of $0 |       | —                  |       | —                 |       | 141                                                       |       | 141        |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Capital distribution                                       |       | —                  |       | (601                   | )          | —                                                    |       | (601       | )          |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Net income                                                 |       | —                  |       | 601                    |       | —                                                    |       | 601        |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Balance as of December  31, 2005                           |       | 1,860                   |       | 635                    |       | (157                                                      | )          | 2,338      |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Foreign currency  translation adjustment, net of tax of $0 |       | —                  |       | —                 |       | 250                                                       |       | 250        |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Capital distribution                                       |       | —                  |       | (1,489                 | )          | —                                                    |       | (1,489     | )          |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Net income                                                 |       | —                  |       | 854                    |       | —                                                    |       | 854        |       |
|                                                       |       |                    |       |                   |       |                                                      |       |       |       |
| Balance as of December  31, 2006                           |       | $                       | 1,860      |                   | $          | —                                                    |       | $          | 93         |   | $ | 1,953 |   |

 

**Theaccompanying notes are an integral part of the financial statements**

F-68

----

**CCS - CAMBORIÚ CABLE SYSTEMTELECOMUNICAÇÕES LTDA.**

**Statements of Cash Flows**

*for the years endedDecember 31, 2006, 2005 and 2004(in thousands of U.S. dollars)*
| ** **                                                                             | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                             | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Cash flows from operating  activities:**                                             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                             |       | $                                          | 854        |   | $ | 601 |   | $ | 635 |   |
|                                                                                   |       |                                       |       |   |   |   |   |
| **Adjustments to reconcile net  income to net cash provided by operating activities:** | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Depreciation                                                                           |       | 345                                        |       | 308 |   | 261 |   |
| Provision for  doubtful accounts (Note 10)                                             |       | 89                                         |       | 19 |   | 21 |   |
| Loss on sale of  obsolete inventories                                                  |       | 6                                          |       | — |   | — |   |
| Disposal and  Write-off of property, plant and equipments                              |       | 50                                         |       | — |   | — |   |
| Foreign currency  transaction (gain) loss, net                                         |       | 15                                         |       | 10 |   | (63 | ) |
| Current income  taxes                                                                  |       | 483                                        |       | 305 |   | 304 |   |
| Deferred income  taxes                                                                 |       | (58                                        | )          | 8 |   | (119 | ) |
| Accrued interest                                                                       |       | 18                                         |       | 232 |   | (364 | ) |
| **Changes in operating assets and  liabilities:**                                      | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accounts  receivable                                                                   |       | (94                                        | )          | (59 | ) | (4 | ) |
| Prepaid and  other assets                                                              |       | 729                                        |       | (3 | ) | 15 |   |
| Recoverable  taxes                                                                     |       | (135                                       | )          | — |   | — |   |
| Inventories                                                                            |       | 11                                         |       | (2 | ) | (9 | ) |
| Suppliers                                                                              |       | 39                                         |       | (122 | ) | 83 |   |
| Accrual for  contingencies                                                             |       | (3                                         | )          | — |   | — |   |
| Taxes payable other  than income taxes                                                 |       | 11                                         |       | (69 | ) | (25 | ) |
| Judicial  deposits                                                                     |       | (50                                        | )          | (112 | ) | (22 | ) |
| Accrued payroll  and related liabilities                                               |       | 1                                          |       | 8 |   | (1 | ) |
| Other                                                                                  |       | 46                                         |       | 24 |   | 36 |   |
|                                                                                   |       |                                       |       |   |   |   |   |
| Net cash  provided by operating activities                                             |       | 2,357                                      |       | 1,148 |   | 748 |   |
|                                                                                   |       |                                       |       |   |   |   |   |
| **Cash flows from investing  activities:**                                             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                                            |       | (161                                       | )          | (131 | ) | (87 | ) |
|                                                                                   |       |                                       |       |   |   |   |   |
| Net cash used in  investing activities                                                 |       | (161                                       | )          | (131 | ) | (87 | ) |
|                                                                                   |       |                                       |       |   |   |   |   |
| **Cash flows from financing  activities:**                                             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Repayments of  program PAES/REFIS                                                      |       | (170                                       | )          | (56 | ) | (73 | ) |
| Loans to related  parties                                                              |       | (345                                       | )          | 6 |   | (7 | ) |
| Repayments of  loans made to related parties                                           |       | 345                                        |       | — |   | 1,302 |   |
| Capital  Distribution                                                                  |       | —                                     |       | — |   | (940 | ) |
| Dividends paid                                                                         |       | (1,489                                     | )          | (674 | ) | (576 | ) |
|                                                                                   |       |                                       |       |   |   |   |   |
| Net cash used in  financing activities                                                 |       | (1,659                                     | )          | (724 | ) | (294 | ) |
|                                                                                   |       |                                       |       |   |   |   |   |
| Effect of exchange rate  changes on cash and cash equivalents                          |       | (133                                       | )          | (172 | ) | 261 |   |
|                                                                                   |       |                                       |       |   |   |   |   |
| Net increase in cash  and cash equivalents                                             |       | 404                                        |       | 121 |   | 628 |   |
| Cash and cash  equivalents at beginning of year                                        |       | 810                                        |       | 689 |   | 61 |   |
|                                                                                   |       |                                       |       |   |   |   |   |
| Cash and cash equivalents  at end of the year                                          |       | $                                          | 1,214      |   | $ | 810 |   | $ | 689 |   |

 

**The accompanying notes are an integral part of thefinancial statements**

F-69

----

**CCS - CAMBORIÚ CABLE SYSTEM TELECOMUNICAÇÕES LTDA.**

**Notes to Financial Statements**

**(in thousands of U.S. dollars)**

**1.**                            The Company and its principaloperations

CCS –Camboriú Cable System Telecomunicações Ltda. (the “Company”) renders servicesrelated to wireless cable and cable television systems, including marketing andadvertising, production, distribution and licensing of domestic and foreigntelevision programs. The Company has wireless cable channel rights primarily inthe city of Camboriú. The Company’s operations are substantially dependent onthe Tevecap Group regarding programming, marketing, financial andadministrative systems.

**2.**                            Summary of significantaccounting policies

Significant policies followed in the preparation ofthe financial statements are described below:

**2.1.**               Basis of presentation

Thefinancial statements are presented in United States dollars and have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America (“U.S. GAAP”), which differ in certain respects fromaccounting principles applied by the Company in its local currency financialstatements, which are prepared in accordance with accounting principlesgenerally accepted in Brazil (“Brazilian GAAP”).

Thepreparation of financial statements in accordance with U.S. GAAP requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesas of the financial statement dates and the reported amount of revenues andexpenses during the reporting periods. Since management’s judgment involvesmaking estimates concerning the likelihood of future events, the actual resultscould differ from these estimates.

**2.2.**               Accounting records

As required by Brazilian Law, and inaccordance with local accounting practices, the accounting records of theCompany are maintained in Brazilian currency (*“real”*).In order to present the financial statements in conformity with U.S. GAAP, theCompany maintains additional accounting records that are used solely for thispurpose.

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**2.3.     Currencyremeasurement**

The Company uses the Brazilian real as its functionalcurrency. Assets and liabilities are translated into U.S. dollars at theexchange rate in effect at the end of the reporting period, and revenues,expenses, gains and losses are translated into U.S. dollars at the averagerates prevailing in the period. The shareholder’s deficit was translated intoU.S. dollars at the exchange rate of the transaction date and the resulting nettranslation gains and losses are reported in accumulated other comprehensiveincome (loss) in shareholders’ deficit.

**2.4.**      Cashand cash equivalents

Cash and cash equivalents are definedas cash and cash in banks and short-term investments in interest-bearingsecurities. Such short-term investments have original maturities of threemonths or less at the time of purchase and are readily convertible to cash.

**2.5.**      Financialinstruments

In accordance with SFAS No. 107, “Disclosuresabout Fair Value of Financial Instruments” (“SFAS 107”), information isprovided about the fair value of certain financial instruments for which it ispracticable to estimate that value.

For the purposes of SFAS 107, theestimated fair value of a financial instrument is the amount at which theinstrument could be exchanged in a current transaction between willing parties,other than in a forced or liquidation sale. The following methods andassumptions were used to estimate the fair value of each class of financialinstrument for which it is practicable to estimate that value:

·             The fairvalue of current financial assets and liabilities, including cash and cashequivalents, accounts receivable, other accounts receivable, accountsreceivable from related parties, film suppliers, and other accounts payableapproximates their respective carrying value due to their short-term nature.

·             The fairvalue of loans to and from related companies approximates their respectivecarrying value as interest on these loans is at market rates.

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**2.6.     Accountsreceivable**

Allowance for doubtful accounts is recorded based on ananalysis of historical losses, on the knowledge and monitoring of theindividual situation of its customers and of the canceling of pay TVsubscribers, and is considered sufficient to cover possible losses on therealization of credits.

**2.7.**     Inventories

Inventoriesconsist of materials and supplies and imports in transit. Materials andsupplies are used to provide service to new customers, and to ensure continuityof service to existing customers. Imports in transit represent materials purchasedfrom foreign countries that have not yet been received. 

Inventoriesare stated at the lower of cost or market. Cost is determined principally underthe average cost method. 

**2.8.**               Property, plant and equipment

Property, plant and equipment are stated at cost anddepreciated using the straight-line method, over the remaining useful lives, asdescribed in Note 5.

**2.9.     Recoverabilityof long-lived assets to be held and used**

The Company evaluates its long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountof such assets may not be recoverable. Recoverability of assets to be held andused is measured by a comparison of the carrying amount of the asset to futureundiscounted net cash flows expected to be generated by the asset. Inestimating future undiscounted net cash flows, assets are grouped at the levelof each cable television system. If an asset is considered to be impaired, theimpairment to be recognized is measured as the amount by which the carryingamount of the asset exceeds the fair value of the asset. There were noimpairment write-downs made during the years ended December 31, 2006, 2005 and2004.

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**2.10.**    Revenue recognition

Subscriptionrevenues are recognized monthly at the amount billed to subscribers for servicesubscribed to and earned during the month. 

Installationfees are recognized as revenue on the equipment installation date to the extentof direct selling costs incurred which are higher than the revenue.

Otherrevenues are recognized as services are rendered.

**2.11.**    Advertising and promotion costs

Costs ofadvertising and promotion are expensed as incurred.

**2.12.****   ****Deferred income taxes**

**Deferred income tax assets and liabilities are recognizedfor the future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities andtheir respective tax bases as well as operating loss and tax creditcarryforwards. Deferred income tax assets and liabilities are measured using enactedtax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The effect ondeferred income tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. Valuationallowances are established when it is more likely than not that some or all ofthe deferred tax assets will not be realized.**

**2.13     Comprehensive income (loss)**

**SFAS no. 130 “Reporting Comprehensive Income” establishesstandards for reporting and disclosing comprehensive income and its componentsin a full set of financial statements. Comprehensive income/loss is beingpresented together with the statements of income. As of December, the Companyaccumulated comprehensive income (loss) is represented by the effects offoreign currency translation adjustments.**

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**2.14.****   ****Reclassifications**

Certain reclassifications have been made to theprior year financial statements to conform to the current year presentation.

**3.         Related party transactions**

The following tables summarize the transactions between theCompany and related parties as of December 31, 2006 and 2005:
|                                             | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2006**              | ** ** | **2005** | ** ** |
| TVA Sul Paraná  Ltda. (parent company) |       |                  |       |   |   |
| Loans receivable                            |       | $                     | 236        |   | $ | 187 |   |
|                                             |            |                       |            |  |  |  |  |

 

**The Company and itsrelated parties maintain a cash management system centralized at TVA Sul ParanáLtda. The centralized cash management system results in accounts receivablefrom and payable to related parties depending on the cash needs of thecompanies.**

Loans granted to or obtained from related companies, underloan agreements, are denominated in Reais and subject to variable interest of1,04% per month as of December 31, 2005 (2.02% per month as of December 31,2004 and 1.96% per month as of December 31, 2003). These loans do not havedefined maturity dates.

**4.**                            Income taxes

Deferredincome taxes reflect the future tax consequences of net operating losscarryforwards and differences between the tax basis and the financial reportingbasis of assets and liabilities.  Avaluation allowance has not been established against the net deferred tax asset(primarily consisting of provisions) as management believes it is more likelythan not that the deferred tax assets will be realized.  Accordingly, a benefit has been recognized forthe Company’s net operating income and other deferred tax assets. As ofDecember 31, 2006 and 2005, the Company had no net operating losscarryforwards.

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The tax effects of temporary differences that give rise todeferred tax assets as of December 31, 2006 and 2005 are as follows:
|                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:           |       |     |       |     |       |
| Provision for  claims           |       | 29       |       | 4        |       |
| Other                           |       | 140      |       | 107      |       |
|                            |       |     |       |     |       |
| Total gross deferred  tax asset |       | 169      |       | 111      |       |

 

Theincome tax expense was different from the amount computed using the Brazilianstatutory income tax for the reasons set forth in the following table:
|                                                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                          |       |     |       |     |       |     |       |
| Income (loss)  before income taxes                            |       | $        | 1,279      |     | $          | 914      |       | $ | 820 |   |
| Statutory income  tax rate                                    |       | 34       | %          | 34       | %          | 34       | %          |
| Computed income  tax expense (benefit)                        |       | 435      |       | 311      |       | 278      |       |
| Deductible  devaluation loss for Brazilian statutory purposes |       | —   |       | (4       | )          | 1        |       |
| Other                                                         |       | (10      | )          | 6        |       | (17      | )          |
| Change in  valuation allowance                                |       | —   |       | —   |       | (77      | )          |
|                                                          |       |     |       |     |       |     |       |
| Income tax expense per  statements of operations              |       | $        | 425        |     | $          | 313      |       | $ | 185 |   |

 

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**5.         Property,plant and equipment, net**

As of December 31, 2006 and 2005, property, plant andequipment were comprised of:
| ** **                   | ** ** | **Annual**       | ** ** | ** **            | ** ** | ** ** | ** ** |
|------------------------------|------------|------------------|------------|-----------------------|------------|------------|------------|
| ** **                   | ** ** | **Depreciation** | ** ** | ** **            | ** ** | ** ** | ** ** |
| ** **                   | ** ** | **Rate**         | ** ** | **December 31,** | ** ** |
| ** **                   | ** ** | **%**            | ** ** | **2006**              | ** ** | **2005**   | ** ** |
|                         |       |             |       |                  |       |       |       |
| Reception  equipment         |       | 20               |       | $                     | 1,010      |       | $          | 965 |   |
| Cable plant                  |       | 10               |       | 991                   |       | 906        |       |
| Machinery and  equipment     |       | 10               |       | 279                   |       | 253        |       |
| Decoders                     |       | 10               |       | 151                   |       | 137        |       |
| Leasehold  improvements |       | 25               |       | 6                     |       | 6          |       |
| Building                     |       | 4                |       | 2,756                 |       | 2,517      |       |
| Furniture and  fixtures      |       | 10               |       | 59                    |       | 54         |       |
| Vehicles                     |       | 20               |       | 28                    |       | 49         |       |
| Software                     |       | 20               |       | 13                    |       | 12         |       |
| Other                        |       |             |       | 8                     |       | 8          |       |
| Accumulated  depreciation    |       |             |       | (3,283                | )          | (2,830     | )          |
|                         |       |             |       |                  |       |       |       |
|                         |       |             |       | $                     | 2,018      |       | $          | 2,077 |   |

 

**6.****        ****Shareholder’s equity**

Common stock as of December 31, 2006 and 2005 was comprisedof:
|                             | ** ** | **2006** | ** ** | **2005**   | ** ** |
|-----------------------------|------------|----------|------------|------------|------------|
| ** **                  | ** ** | **$**    | ** ** | **Shares** | ** ** | **$** | ** ** | **Shares** | ** ** |
|                        |       |     |       |       |       |   |   |   |   |
| Construtora ENE  ESSE Ltda. |       | $        | 744        |       | 899,485    |   | $ | 744 |   | 899,485 |   |
| TVA Sul Paraná  Ltda.  |       | 1,116    |       | 1,349,227  |       | 1,116 |   | 1,349,227 |   |
|                        |       |     |       |       |       |   |   |   |   |
|                        |       | $        | 1,860      |       | 2,248,712  |   | $ | 1,860 |   | 2,248,712 |   |

 

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**7.****        ****Loan guarantees**

InNovember 1996, Tevecap, the Company’s parent company, issued $250,000 12-5/8%Senior Notes to institutional buyers in a private placement. The Notes, whichmature in November 2004, were subsequently registered with the Securities andExchange Commission in May 1997. These Notes are jointly and severally,irrevocably and fully unconditionally guaranteed, on a senior basis, by Tevecap’sdirect and indirect subsidiaries, including the Company. On July 28, 1999 therelated company TVA Communications Ltd. repurchased 80.79% of these Notes.

OnOctober 13, 2004, Tevecap filed a registration statement with the United StatesSecurities and Exchange Commission to exchange the original Senior Notes dueNovember 26, 1996, amounting to $48,022, for new 12.625% Senior Notes due 2009.On December 21, 2004, Tevecap completed the exchange offer with theparticipation of 85% of the Note holders, which held Notes amounting to$40,749. On November 7, 2005, an exchange offer proposal was filed with SEC(US-Securities and Exchange Commission) for the residual balance in the amountof $7,008 the conditions for this renegotiation were similar to thosedetermined on October 13, 2004. On September 13, 2005, Tevecap paid $265 to thecreditors for which renegotiation had not been made. This amount is availableto the creditors in an account of the depositary bank, JP Morgan TrustBank.  The new Notes are jointly andseverally guaranteed by certain subsidiaries of Tevecap, including the Company.

**8.****        ****Litigation contingencies**

Certainclaims and lawsuits arising in the ordinary course of business have been filedor are pending against the Company which were not recognized in the financialstatements. The Company has provided for losses on all cases where, based onopinion of management and external legal counsel, the likelihood of loss isprobable. Management believes that such legal matters will not have a materialadverse effect on the Company’s results of income, financial condition or cashflows.

**9.**         AbrilHealth Care Plan

In February 1996, the Abril Health Care Plan, AssociaçãoAbril de Benefícios (the “Health Care Plan”), was created to provide healthcare to Abril S.A. Group employees and their dependents. Both the companiesforming part of the Abril Group and the employees 

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thereof contribute monthly to the Health Care Plan, which isresponsible for the management of the plan. In 2006, contributions made by theCompany to the Health Care Plan amounted to $11 ($10 in 2005 and $7 in 2004).

**10.**       Supplementaryinformation - valuation and qualifying accounts and reserves
|                                      | ** ** | **Deferred  Taxation  Valuation  Allowance** | ** ** | **Provision  for  Doubtful  Accounts** | ** ** | **Provision  for  Claims** | ** ** |
|--------------------------------------|------------|----------------------------------------------|------------|----------------------------------------|------------|----------------------------|------------|
| **Balance  as of December 31, 2003** | ** ** | **77**                                       | ** ** | **97**                                 | ** ** | **165**                    | ** ** |
| Additions                            |       | 42                                           |       | 21                                     |       | 102                        |       |
| Deductions                           |       | —                                       |       | —                                 |       | —                     |       |
| **Balance  as of December 31, 2004** | ** ** | **119**                                      | ** ** | **118**                                | ** ** | **267**                    | ** ** |
| Additions                            |       | —                                       |       | 19                                     |       | —                     |       |
| Deductions                           |       | (8                                           | )          | —                                 |       | (155                       | )          |
| Effect of  exchange rate             |       | —                                       |       | 17                                     |       | 30                         |       |
| **Balance  as of December 31, 2005** | ** ** | **111**                                      | ** ** | **154**                                | ** ** | **142**                    | ** ** |
| Additions                            |       | 58                                           |       | 88                                     |       | 70                         |       |
| Deductions                           |       | —                                       |       | —                                 |       | —                     |       |
| Effect of  exchange rate             |       | —                                       |       | 17                                     |       | 16                         |       |
| **Balance as of December 31, 2006**  | ** ** | **$**                                        | **169**    | ** **                             | **$**      | **259**                    | ** ** | **$** | **228** | ** ** |
|                                      |            |                                              |            |                                        |            |                            |            |  |  |  |

 

**11.**       Recent accountingpronouncements

In September 2006, the SECissued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements (“SAB 108”). SAB 108 provides guidance on how prior yearmisstatements should be considered when quantifying misstatements in currentyear financial statements for purposes of assessing materiality. SAB 108requires that registrants quantify errors using both a balance sheet and incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when relevant quantitative and qualitative factors areconsidered, is material. SAB 108 is effective for fiscal years ending afterNovember 15, 2006. SAB 108 permits companies to initially apply its provisionsby either restating prior financial statements or recording a cumulative effectadjustment to the carrying values of assets and liabilities as of January 1, 2006with an offsetting adjustment to retained earnings for errors that werepreviously deemed

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immaterial but are materialunder the guidance in SAB 108. The adoption of SAB 108 did not have any impacton the Company’s consolidated financial statements.

In September 2006, the FASBissued SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”). SFAS 157 definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles, and expands disclosures about fair value measurements.The provisions of this standard apply to other accounting pronouncements thatrequire or permit fair value measurements. SFAS 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007. Uponadoption, the provisions of SFAS 157 are to be applied prospectively withlimited exceptions. The Company is in the process of evaluating the financialimpact of adopting SFAS 157.

In June 2006, the FASBissued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”This interpretation prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. This interpretationalso provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. Theinterpretation is effective for fiscal years beginning after December 15, 2006.While we are still evaluating our tax positions, we do not anticipate it willhave a material impact on our retained earnings at the time of adoption.

In February 2007, theFASB issued SFAS No. 159 “The Fair Value Option for Financial Assets andFinancial Liabilities” (SFAS No. 159), which permits entities to choose tomeasure many financial instruments and certain other items at fair value.For us, SFAS No. 159 is effective as of 1, 2008 and will have no impacton amounts presented for periods prior to the effective date. We cannotcurrently estimate the impact of SFAS No. 159 on our consolidated resultsof income, cash flows or financial position and have not yet determined whetheror not we will choose to measure items subject to SFAS No. 159 at fairvalue.

** * * * * *

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**GLOSSARY**

*AbrilComunicações:*  AbrilComunicações S.A.

*AbrilCredit Facility:*  Arevolving credit facility, dated December 6, 1995, between us, as theborrower, and Editora Abril, as the lender.

*ADSL: *Asymmetrical DigitalSubscriber Line.

*ANATEL:*  National Telecommunications Agency (*Agência Nacional de Telecomunicações*), anindependent Brazilian federal agency authorized to regulate the Braziliansubscription television industry.

*AverageRevenue per User (ARPU):* Total revenue derived from a subscriber television system divided by theaverage number of subscribers for that period.

*BBC:*  British Broadcasting Corporation.

*C-Band:*  A satellite transmission system whichprovides a signal on the “c” bandwidth.

*Cable:*  A cable network employs electromagnetic transmissionover coaxial and/or fiber optic cable to transmit multiple channels carryingimages, sound and data between a central facility and individual customers’television sets.  Networks may allowone-way (from a head end to a residence and/or business) or two-waytransmission from a head end to a residence and/or business with a data returnpath for the head end.

*CableLicense:*  A licensethat is granted by the applicable governing body pursuant to its authorityunder the communications laws of a particular country for the purpose ofproviding cable services for a specific franchise/license area.

*CableModem:*  A type of modemdesigned to operate over cable television infrasturcture.

*CADE:*  Conselho Administrativo de Defesa Econômica(Brazilian Antitrust Authority).

*Carriers:*  Companies offering telephone and datacommuncations between points in a state or country.

*Celesc: *Centrais Elétricas de SantaCatarina.

*CentralBank:*  Central Bank ofBrazil (Banco Central do Brasil).

*Churn:*  With respect to a pay television system for agiven period, the quotient expressed as a percentage of (i) the number ofsubscribers disconnected from such system less the number of formerlydisconnected subscribers reconnected to the system divided by (ii) thenumber of subscribers to the system as of the beginning of the period plus thenumber of subscribers added to the system.

*CMTS: *Cable Modem TerminationSystem.

*CoaxialCable:*  Cableconsisting of a central conductor surrounded by and insulated from anotherconductor.  It is the standard materialused in traditional cable systems. Signals are transmitted through it at different frequencies, givinggreater channel capacity than is possible with twisted pair cable, but lessthan is allowed by optical fiber.

*Company:*  Tevecap, together with our consolidatedsubsidiaries.

*Copel: *Companhia Paranaense deEnergia Elétrica.

*CPCT:*  *CentraisPrivadas de Comutação Telefônica*, certain private telephone networkscomparable to private branch exchanges, or PBX, found in larger apartment complexes,hotels and businesses in the United States.

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*CVM:*  Comissão de Valores Mobiliários (BrazilianSecurities Commission)

*DBS:*  Direct broadcast satellite service, operatingin C-Band or Ku-Band width, by which television programming is transmitted to individualdwellings, each served by a single satellite dish.

*Decoder:*  A device or program that translates encodedmessages so that the original information can be retrieved.

*DHCP:* Dynamic HostConfiguration Protocol, used for assigning dynamic IP addresses to devices on anetwork.

*DISTV:*  The distribution of television signals byphysical means (i.e., by cable) to end users, generally limited to signalswithout interference by a DISTV operator with the signal content.

*DOCSIS:*  Data Over Cable Services InterfaceSpecification; a technology that defines interface requirements for cablemodems involved in high-speed data distribution over cable television systemnetworks.

*DTH:*  Direct To Home.

*ECAD:*  Escritório Central de Arrecadação eDistribuição (Central Collection and Distribution Office), an entity authorizedto enforce copyright laws relating to musical works.

*EditoraAbril*:  Editora AbrilS.A., a Brazilian corporation controlled by Robert Civita.

*EthernetTechnology:*  A localarea network technology which supports high data transfer rates.

*FalconInternational:*  FalconInternational Communications (Bermuda L.P.), a subsidiary of FalconInternational Communications, L.L.C., a Delaware limited liability company.

*FiberOptic Cable:*  Cablemade of glass fibers through which signals are transmitted as pulses oflight.  Fiber optic cable has thecapacity for a large number of channels.

*FinancialStatements:*  Theaudited financial statements of Tevecap and our subsidiaries and the notesthereto included herein.

*Globo:*  Globopar and TV Globo, the owners of a numberof Brazil’s over the air channels.

*Globopar:*  Globo Comunicações e Participações Ltda.

*Guarantors:*  TVA Sistema de Televisão S.A., TVACommunications Ltd., Comercial Cabo TV São Paulo S.A., TVA Sul Paraná S.A. andCCS Camboriú Cable System de Telecomunicações Ltda.

*HeadEnd:*  A collection ofhardware, typically including satellite receivers, modulators, amplifiers andvideocassette playback machines. Signals, when processed, are then combined for distribution within theCable network.

*HomesPassed:*  Homes that canbe connected to a Cable distribution system without further extension of thedistribution network.

*IBGE:*  Instituto Brasileiro de Geografia eEstatística.

*ICMS:*  Imposto sobre Circulação de Mercadorias eServiços (State Value-added Tax).

*IDC:*  Internet Data Center.

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*IGP-M:*  Índice Geral de Preços de Mercado (GeneralMarket Price Index).

*INPC: * Índice Nacional de Preços ao Comsumidor(National Consumer Price Index).

*InteractiveServices:*  Servicescommonly referred to as pay-on-demand, shop-at-home, video games, ATM services,or such other interactive services as video phone and telephony which can bemore easily provided with the development of high-capacity hybrid fiberoptic/coaxial distribution networks.

*IP:*  * *Internet protocol.

*ISS:*  Imposto sobre Serviços (Sales tax onoperations relating to the provision of goods and services).

*JPMorganParties:*  Two whollyowned subsidiaries of JPM JPMorgan Partners LLC, an affiliate of JPMorgan ChaseBank.

*Ku-Band:*  A satellite transmission system whichprovides a signal over the “ku” bandwidth.

*MMDS(multi-channel multi-point distribution system):*  A one-way radio transmission of televisionchannels over microwave frequencies from a fixed station transmitting tomultiple receiving facilities located at fixed points.

*MMDSlicense:*  A licensethat is granted by the applicable governing body pursuant to its authorityunder the communications laws of a particular country for the purpose ofproviding MMDS services for a specific franchise/license area.

*MSO:*  Multiple Service Operator.

*NLOS*:  Non-line of sight.

*NOC:*  Network Operations Center, the command andcontrol center for our network.

*OSS:*  Operating Support System.

*Pay-per-view:*  Payment made for individual programs ratherthan a monthly subscription for a whole channel or group of channels.  Pay-per-view channels currently providecertain popular sporting events or major motion pictures for which customersmay be prepared to make a special payment.

*PenetrationRate:*  The measurementof the take-up of cable services.  Thepenetration rate as of a given date is calculated by dividing the number ofsubscribers connected to a system on such date by the total number of homespassed in such system.

*POP:*  Point of Presence.

*QoS:*  Quality of Service.

*RealPlan:*  A Braziliangovernment stabilization program, announced in December 1993, aimed atcurtailing inflation and building a foundation for sustained economic growth.

*SAP:*  Second Audio Programming, which provides theoption of audio in a second language for the programming on channels for whichit is offered.

*SCM*:  Serviço de Comunicação Multimídia (multimediacommunication services, including broadband Internet services).

*SecuritiesAct:*  United StatesSecurities Act of 1933, as amended.

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*SeniorNotes:* our 12 5/8% Senior Notes due 2009.

*Si@:*  Sistema Integrado de Assinaturas (IntegratedSubscription System).

*SLA:*  Service Level Agreement.

*STFC:*  Serviço Telefônico Fixo Comutado.

*TelecommunicationsCode:*  The BrazilianTelecommunications Code of 1962, as amended.

*Tevecap:*  Tevecap S.A.

*TJLP:*Taxa de juros de longo prazo (Long term interest rate).

*TVHomes:*  The number ofhouseholds in a given area possessing at least one television set.

*TVShow Time:*  TelevisãoShow Time Ltda., a Brazilian *limitada*in which the estate of Matias Machline and an associate currently hold a 53%equity interest and in which the remaining 47% is currently held by variousAbril Comunicações shareholders.

*TVA:*  Tevecap S.A. and its consolidatedsubsidiaries and affiliates.

*TVABrasil:*  TVA BrasilRadioenlaces S.A., a Brazilian *limitada*in which the estate of Matias Machline currently holds a 50% equity interestand in which the remaining 50% is currently held by various Abril Comunicaçõesshareholders.

*TVASistema:*  TVA Sistemade Televisão S.A., a Brazilian corporation in which we hold a 100% equityinterest.

*TVASul:*  The operations ofTVA Sul Paraná S.A., a Brazilian corporationin which we hold a 100% equityinterest, and CCS-Camboriú Cable System de Telecomunicações Ltda., a Brazilian *limitada*in which TVA Sul Paraná S.A.holds a 60% equity interest and an unaffiliated third party holds the remaining40% equity interest.

*UHF:*  Broadcast of a television signal at anultra-high frequency over a given geographical area.

*VOD:*Video on Demand.

*VoIP:* Voice over InternetProtocol.

*WiMAX*:  Worldwide Interoperability for MicrowaveAccess.

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