Edgar Filing: BRASIL TELECOM SA

Prepared and filed by St Ives Burrups

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

THROUGH MARCH 21, 2003

(Commission File No. 1-15256)

BRASIL TELECOM S.A.

(Exact name of Registrant as specified in its Charter)

BRAZIL TELECOM COMPANY

(Translation of Registrant’s name into English)

SIA Sul, Área de Serviços Públicos , Lote D, Bloco B

Brasília, D.F., 71.215-000

Federative Republic of Brazil

(Address of Registrant’s principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F

Form 40-F checked box

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): checked box

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): checked box

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

PUBLIC FEDERAL SERVICE
CVM - Comissão de Valores Mobiliários (Brazilian Exchange Commission)
Standard Financial Statements		Corporate Law
Commercial, Industrial and Other Companies		12/31/2002

01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - ASSETS

Account Number	Description	12/31/2002		12/31/2001		12/31/2000

1	Total Assets		15,219,953		14,052,227		12,493,482
1.01	Current Assets		3,422,330		2,074,976		2,423,688
1.01.01	Cash and cash equivalents		1,377,432		331,258		801,642
1.01.02	Credits		1,548,634		1,230,937		1,198,214
1.01.02.01	Trade accounts receivable		1,548,634		1,230,937		1,198,214
1.01.03	Inventories		23,309		8,351		10,994
1.01.04	Other		472,955		504,430		412,838
1.01.04.01	Loans and financing		1,525		622		1,166
1.01.04.02	Deferred and recoverable taxes		313,041		310,022		225,629
1.01.04.03	Judicial deposits		724		58,663		76,846
1.01.04.04	Other Assets		157,665		135,123		109,197
1.02	Noncurrent Assets		1,170,201		992,317		487,042
1.02.01	Other Credits		0		0		0
1.02.02	Related Party Credits		65,654		33,367		0
1.02.02.01	Associated companies		1,809		30,000		0
1.02.02.02	Subsidiaries		63,845		3,367		0
1.02.02.03	Other Related Party Credits		0		0		0
1.02.03	Other		1,104,547		958,950		487,042
1.02.03.01	Loans and financing		6,554		5,169		1,314
1.02.03.02	Deferred and recoverable taxes		657,725		665,797		387,363
1.02.03.03	Judicial deposits		331,364		198,050		95,558
1.02.03.04	Inventories		39,862		50,576		0
1.02.03.05	Other Assets		69,042		39,358		2,807
1.03	Permanent Assets		10,627,422		10,984,934		9,582,752
1.03.01	Investiments		129,059		87,226		86,322
1.03.01.01	Associated companies		36,018		3,870		0
1.03.01.02	Subsidiaries		26,840		18,341		0
1.03.01.03	Other Investiments		66,201		65,015		86,322
1.03.02	Property, plant and equipment		9,846,140		10,333,900		8,846,980
1.03.03	Deferred charges		652,223		563,808		649,450

PUBLIC FEDERAL SERVICE
CVM - Comissão de Valores Mobiliários (Brazilian Exchange Commission)
Standard Financial Statements		Corporate Law
Commercial, Industrial and Other Companies		12/31/2002

01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - LIABILITIES

Account Number	Description	12/31/2002		12/31/2001		12/31/2000

2	Total Liabilities and Shareholders’ Equity		15,219,953		14,052,227		12,493,482
2.01	Current Liabilities		2,628,346		2,669,851		2,942,018
2.01.01	Loans and financing		553,431		431,786		1,253,861
2.01.02	Debentures		129,845		98,875		0
2.01.03	Suppliers		927,418		1,207,410		800,537
2.01.04	Taxes, duties and contributions		363,199		275,697		236,499
2.01.04.01	Indirect taxes		348,520		271,681		232,682
2.01.04.02	Tax on Income		14,679		4,016		3,817
2.01.05	Dividends Payable		310,297		230,483		236,591
2.01.06	Provisions		95,376		105,071		96,610
2.01.06.01	Provision for contingencies		3,232		63,403		96,610
2.01.06.02	Provision for pension plan		92,144		41,668		0
2.01.07	Related Party debts		0		0		0
2.01.08	Others		248,780		320,529		317,920
2.01.08.01	Payroll and related charges		43,808		91,459		65,601
2.01.08.02	Consignments in favor of third parties		78,609		83,809		121,431
2.01.08.03	Profit-sharing		39,060		50,101		35,181
2.01.08.04	Other Liabilities		87,303		95,160		95,707
2.02	Noncurrent Liabilities		5,617,040		4,507,072		2,393,388
2.02.01	Loans and financing		2,198,532		2,204,489		1,959,207
2.02.02	Debentures		2,200,000		1,300,000		0
2.02.03	Provisions		795,688		764,151		304,184
2.02.03.01	Provision for contingencies		385,992		315,075		294,264
2.02.03.02	Provision for pension plan		409,696		449,076		9,920
2.02.04	Related Party debts		0		0		0
2.02.05	Others		422,820		238,432		129,997
2.02.05.01	Payroll and related charges		11,439		0		0
2.02.05.02	Suppliers		4,123		0		0
2.02.05.03	Indirect taxes		344,452		182,815		75,932
2.02.05.04	Tax on Income		26,918		21,027		10,824
2.02.05.05	Other Liabilities		27,729		26,431		16,998
2.02.05.06	Fund for Capitalization		8,159		8,159		26,243
2.03	Deferred income		11,032		10,991		10,396
2.05	Shareholders Equity		6,963,535		6,864,313		7,147,680
2.05.01	Capital		3,335,770		3,296,179		3,290,815
2.05.02	Capital Reserves		1,591,454		1,647,290		1,657,182
2.05.03	Revaluation reserves		0		0		0
2.05.03.01	Company Assets		0		0		0
2.05.03.02	Subsidiaries/ Associated companies		0		0		0
2.05.04	Profit Reserves		273,244		251,238		237,176
2.05.04.01	Legal		273,244		251,238		237,176
2.05.04.02	Statutory		0		0		0
2.05.04.03	Contingency		0		0		0
2.05.04.04	Realizable profits reserve		0		0		0
2.05.04.05	Profit Retention		0		0		0
2.05.04.06	Special reserve for undistributed dividends		0		0		0
2.05.04.07	Other Profit Reserves		0		0		0
2.05.05	Retained earnings		1,763,067		1,669,606		1,962,507

PUBLIC FEDERAL SERVICE
CVM - Comissão de Valores Mobiliários (Brazilian Exchange Commission)
Standard Financial Statements		Corporate Law
Commercial, Industrial and Other Companies		12/31/2002

01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - INCOME STATEMENT

Account Number	Description	01/01/2002 a 12/31/2002			01/01/2001 a 12/31/2001			01/01/2000 a 12/31/2000

3.01	Gross Revenue		9,858,833			8,458,496			5,113,539
3.02	Revenue deductions		(2,759,951	)		(2,300,088	)		(1,303,836	)
3.03	Net Revenue		7,098,882			6,158,408			3,809,703
3.04	Cost of services rendered		(4,395,146	)		(3,989,177	)		(2,463,050	)
3.05	Gross Profit		2,703,736			2,169,231			1,346,653
3.06	Operating Income (Expenses)		(2,295,980	)		(1,832,712	)		(981,640	)
3.06.01	Selling expenses		(835,355	)		(722,556	)		(318,221	)
3.06.02	General and administrative expenses		(632,443	)		(585,329	)		(371,719	)
3.06.02.01	Management remuneration		(5,612	)		(4,384	)		(1,890	)
3.06.02.02	Other General and administrative expenses		(626,831	)		(580,945	)		(369,829	)
3.06.03	Financial		(945,286	)		(468,057	)		(224,369	)
3.06.03.01	Financial Income		199,508			178,120			138,475
3.06.03.02	Financial Expenses		(1,144,794	)		(646,177	)		(362,844	)
3.06.04	Other operating income		257,079			248,976			155,107
3.06.05	Other operating expenses		(138,474	)		(305,746	)		(201,584	)
3.06.06	Equity in subsidiaries		(1,501	)		0			(20,854	)
3.07	Operating Income		407,756			336,519			365,013
3.08	Nonoperating Income		(138,710	)		(141,736	)		34,364
3.08.01	Revenues		44,978			219,965			95,561
3.08.01.01	Gain on the acquisition of tax credits -REFIS		0			0			41,136
3.08.01.02	Other Revenues		44,978			219,965			54,425
3.08.02	Expenses		(183,688	)		(361,701	)		(61,197	)
3.08.02.01	PIS/COFINS on REFIS gain		0			0			(1,501	)
3.08.02.02	IRPJ/CSLL on REFIS gain		0			0			(13,476	)
3.08.02.03	Other Expenses		(183,688	)		(361,701	)		(46,220	)
3.09	Income before Taxes/Profit Sharing		269,046			194,783			399,377
3.10	Income and social contribution taxes		(112,192	)		(94,407	)		(129,162	)
3.11	Deferred Income Tax		0			0			0
3.12	Statutory participations/contributions		(41,387	)		(50,833	)		(22,780	)
3.12.01	Participations		(41,387	)		(50,833	)		(22,780	)
3.12.02	Contributions		0			0			0
3.13	Reversal of interest on capital		324,650			231,700			203,307
3.15	Net Income for the year		440,117			281,243			450,742

PUBLIC FEDERAL SERVICE
CVM - Comissão de Valores Mobiliários (Brazilian Exchange Commission)
Standard Financial Statements		Corporate Law
Commercial, Industrial and Other Companies		12/31/2002

01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Statements of Changes in Shareholders’ Equity

01/01/2002 to 12/31/2002

Account Number	Description	Capital		Capital Reserves			Revaluation Reserves		Profit Reserves		Retained earnings			Total of Shareholders’ Equity

5.01	Initial Balance		3,296,179		1,647,290			0		251,238		1,669,606			6,864,313
5.02	Prior-year adjustment		0		0			0		0		0			0
5.03	Capital increase/decrease		39,591		(39,591	)		0		0		0			0
5.04	Realization of reserves		0		0			0		0		0			0
5.05	Treasury Stock		0		(21,852	)		0		0		0			(21,852	)
5.06	Net Income for the year		0		0			0		0		440,117			440,117
5.07	Allocations		0		0			0		22,006		(346,656	)		(324,650	)
5.07.01	Transfers to reserves		0		0			0		22,006		(22,006	)		0
5.07.02	Proposed dividends/Interest on Capital		0		0			0		0		(324,650	)		(324,650	)
5.08	Others		0		5,607			0		0		0			5,607
5.08.01	Donations and Subsidies for Investments		0		554			0		0		0			554
5.08.02	Adjustment of social contribution tax additiona		0		5,053			0		0		0			5,053
5.09	Final Balance		3,335,770		1,591,454			0		273,244		1,763,067			6,963,535

Statements of Changes in Shareholders’ Equity

01/01/2001 to 12/31/2001

Account Number	Description	Capital		Capital Reserves			Revaluation Reserves		Profit Reserves		Retained earnings			Total of Shareholders’ Equity

5.01	Initial Balance		3,290,815		1,657,182			0		237,176		1,962,507			7,147,680
5.02	Prior-year adjustment		0		0			0		0		(328,382	)		(328,382	)
5.03	Capital increase/decrease		5,364		(5,364	)		0		0		0			0
5.04	Realization of reserves		0		0			0		0		0			0
5.05	Treasury Stock		0		0			0		0		0			0
5.06	Net Income for the year		0		0			0		0		281,243			281,243
5.07	Allocations		0		0			0		14,062		(245,762	)		(231,700	)
5.07.01	Transfers to reserves		0		0			0		14,062		(14,062	)		0
5.07.02	Proposed dividends/Interest on Capital		0		0			0		0		(231,700	)		(231,700	)
5.08	Others		0		(4,528	)		0		0		0			(4,528	)
5.08.01	Donations and Subsidies for Investments		0		15			0		0		0			15
5.08.02	Tax Incentives - FINAM		0		510			0		0		0			510
5.08.03	Adjustment of social contribution tax additiona		0		(5,053	)		0		0		0			(5,053	)
5.08.04	Reduction in treasury stock		0		0			0		0		0			0
5.09	Final Balance		3,296,179		1,647,290			0		251,238		1,669,606			6,864,313

Statements of Changes in Shareholders’ Equity

01/01/2000 to 12/31/2000

Account Number	Description	Capital		Capital Reserves		Revaluation Reserves		Profit Reserves			Retained earnings			Total of Shareholders’ Equity

5.01	Initial Balance		1,064,326		221,330		0		63,405			352,421			1,701,482
5.02	Prior-year adjustment		0		0		0		0			0			0
5.03	Capital increase/decrease		0		0		0		0			0			0
5.04	Realization of reserves		0		0		0		(54,312	)		54,312			0
5.05	Treasury Stock		0		0		0		0			0			0
5.06	Net Income for the year		0		0		0		0			450,742			450,742
5.07	Allocations		0		0		0		24,073			(227,380	)		(203,307	)
5.07.01	Transfers to reserves		0		0		0		24,073			(24,073	)		0
5.07.02	Proposed dividends/Interest on Capital		0		0		0		0			(203,307	)		(203,307	)
5.08	Others		2,226,489		1,435,852		0		204,010			1,332,412			5,198,763
5.08.01	Merger of STFC - Region II		1,778,527		860,482		0		204,010			1,407,242			4,250,261
5.08.02	Merger of CRT S.A.		447,962		573,548		0		0			(74,830	)		946,680
5.08.03	Donations and Subsidies for Investments		0		1,103		0		0			0			1,103
5.08.04	Tax Incentives		0		717		0		0			0			717
5.08.05	Adjustment of social contribution tax additiona		0		2		0		0			0			2
5.08.06	Reduction in treasury stock		0		0		0		0			0			0
5.09	Final Balance		3,290,815		1,657,182		0		237,176			1,962,507			7,147,680

PUBLIC FEDERAL SERVICE
CVM - Comissão de Valores Mobiliários (Brazilian Exchange Commission)
Standard Financial Statements		Corporate Law
Commercial, Industrial and Other Companies		12/31/2002

01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - STATEMENTS OF CHANGES IN FINANCIAL POSITION

Account Number	Description	01/01/2002 a 12/31/2002			01/01/2001 a 12/31/2001			01/01/2000 a 12/31/2000

4.01	Sources		4,341,645			4,526,700			4,069,221
4.01.01	From Operating Activity		2,975,808			2,485,410			1,839,404
4.01.01.01	Net Income/ Losses		440,117			281,243			450,742
4.01.01.02	Items not affecting working capital		2,535,691			2,204,167			1,388,662
4.01.01.02.01	Depreciation and amortization		2,125,609			1,998,466			1,281,129
4.01.01.02.02	Monetary variation and interest on long-term items		171,504			61,660			24,404
4.01.01.02.03	Equity in subsidiaries		1,501			0			20,854
4.01.01.02.04	Provision for contingencies		17,188			12,972			19,756
4.01.01.02.05	Effect of write-off of permanent assets		11,660			13,108			1,408
4.01.01.02.06	Indirects Taxes		154,751			73,895			26,234
4.01.01.02.07	Directs Taxes		42,039			53,986			17,194
4.01.01.02.08	Others		11,439			(9,920	)		(2,317	)
4.01.02	Shareholders		0			0			0
4.01.03	Third Parties		1,365,837			2,041,290			2,229,817
4.01.03.01	Increase of noncurrent liabilities		1,322,502			1,966,635			1,695,472
4.01.03.02	Reduction of noncurrent assets		10,714			43			14,545
4.01.03.03	CCL merger of STFC operators Reg. II		0			0			505,492
4.01.03.04	Others		32,621			74,612			14,308
4.02	Use of Funds		2,952,786			4,603,245			4,209,178
4.02.01	Increase of noncurrent assets		261,203			321,528			39,145
4.02.02	Increase of Permanent assets		1,773,284			3,445,540			3,250,149
4.02.03	Dividends / Interest on Capital		324,650			231,700			203,307
4.02.04	Transfer from noncurrent to current liabilities		571,797			504,009			133,508
4.02.05	Net contingencies for REFIS		0			0			65,652
4.02.06	CCL merger CRT S.A.		0			0			517,417
4.02.07	Other Uses		21,852			100,468			0
4.03	Increase (decrease) in working capital		1,388,859			(76,545	)		(139,957	)
4.04	Changes in Current Assets		1,347,354			(348,712	)		2,136,669
4.04.01	Current Assets at the beginning of the year		2,074,976			2,423,688			287,019
4.04.02	Current Assets at the end of the year		3,422,330			2,074,976			2,423,688
4.05	Changes in Current Liabilities		(41,505	)		(272,167	)		2,276,626
4.05.01	Current Liabilities at the beginning of the year		2,669,851			2,942,018			665,392
4.05.02	Current Liabilities at the end of the year		2,628,346			2,669,851			2,942,018

PUBLIC FEDERAL SERVICE
CVM - Comissão de Valores Mobiliários (Brazilian Exchange Commission)
Standard Financial Statements		Corporate Law
Commercial, Industrial and Other Companies		12/31/2002

01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - CONSOLIDATED ASSETS

Account Number	Description	12/31/2002		12/31/2001		12/31/2000

1	Total Assets		15,390,526		14,056,119		12,493,482
1.01	Current Assets		3,469,740		2,088,203		2,423,688
1.01.01	Cash and cash equivalents		1,422,899		331,363		801,642
1.01.02	Credits		1,542,851		1,230,937		1,198,214
1.01.02.01	Trade accounts receivable		1,542,851		1,230,937		1,198,214
1.01.03	Inventories		23,309		8,351		10,994
1.01.04	Other		480,681		517,552		412,838
1.01.04.01	Loans and financing		6,795		622		1,166
1.01.04.02	Deferred and recoverable taxes		314,058		310,025		225,629
1.01.04.03	Judicial deposits		724		58,663		76,846
1.01.04.04	Other Assets		159,104		148,242		109,197
1.02	Noncurrent Assets		1,106,357		988,950		487,042
1.02.01	Other Credits		0		0		0
1.02.02	Related Party Credits		1,809		30,000		0
1.02.02.01	Associated companies		1,809		30,000		0
1.02.02.02	Subsidiaries		0		0		0
1.02.02.03	Other Related Party Credits		0		0		0
1.02.03	Other		1,104,548		958,950		487,042
1.02.03.01	Loans and financing		6,554		5,169		1,314
1.02.03.02	Deferred and recoverable taxes		657,726		665,797		387,363
1.02.03.03	Judicial deposits		331,364		198,050		95,558
1.02.03.04	Inventories		39,862		50,576		0
1.02.03.05	Other Assets		69,042		39,358		2,807
1.03	Permanent Assets		10,814,429		10,978,966		9,582,752
1.03.01	Investiments		112,219		68,885		86,322
1.03.01.01	Associated companies		36,018		3,870		0
1.03.01.02	Subsidiaries		0		0		0
1.03.01.03	Other Investiments		76,201		65,015		86,322
1.03.02	Property, plant and equipment		10,040,469		10,333,924		8,846,980
1.03.03	Deferred charges		661,741		576,157		649,450

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - CONSOLIDATED LIABILITIES

Account Number	Description	12/31/2002		12/31/2001		12/31/2000

2	Total Liabilities and Shareholders’ Equity		16,102,429		14,678,908		14,208,837
2.01	Current Liabilities		2,478,708		2,622,056		2,862,816
2.01.01	Loans and financing		542,379		424,473		1,163,704
2.01.02	Debentures		49,495		24,305		23,517
2.01.03	Suppliers		919,486		1,210,838		793,805
2.01.04	Taxes, duties and contributions		371,399		281,107		236,956
2.01.04.01	Indirect taxes		356,720		277,091		233,139
2.01.04.02	Tax on Income		14,679		4,016		3,817
2.01.05	Dividends Payable		249,775		252,364		236,024
2.01.06	Provisions		95,376		105,071		96,610
2.01.06.01	Provision for contingencies		3,232		63,403		96,610
2.01.06.02	Provision for pension plan		92,144		41,668		0
2.01.07	Related Party debts		0		0		0
2.01.08	Others		250,798		323,898		312,200
2.01.08.01	Payroll and related charges		44,352		92,501		65,676
2.01.08.02	Consignments in favor of third parties		78,750		84,106		111,301
2.01.08.03	Profit-sharing		40,390		51,715		35,181
2.01.08.04	Other Liabilities		87,306		95,576		100,042
2.02	Noncurrent Liabilities		5,032,117		3,721,847		2,784,315
2.02.01	Loans and financing		2,090,400		2,126,804		1,799,958
2.02.02	Debentures		1,493,893		572,662		554,102
2.02.03	Provisions		795,688		764,151		304,184
2.02.03.01	Provision for contingencies		385,992		315,075		294,264
2.02.03.02	Provision for pension plan		409,696		449,076		9,920
2.02.04	Related Party debts		0		0		0
2.02.05	Others		652,136		258,230		126,071
2.02.05.01	Payroll and related charges		11,444		0		0
2.02.05.02	Suppliers		4,123		0		0
2.02.05.03	Indirect taxes		344,452		182,814		75,932
2.02.05.04	Tax on Income		81,238		39,530		23,649
2.02.05.05	License for operating telecoms services		174,991		0		0
2.02.05.06	Other Liabilities		27,729		26,431		16,999
2.02.05.07	Fund for Capitalization		8,159		9,455		9,491
2.03	Deferred income		11,032		10,991		10,396
2.04	Minority interests		2,355,025		2,323,040		2,438,862
2.05	Shareholders Equity		6,225,547		6,000,974		6,112,448
2.05.01	Capital		2,257,611		2,232,641		1,993,609
2.05.02	Capital Reserves		389,751		410,500		576,850
2.05.03	Revaluation reserves		0		0		0
2.05.03.01	Company assets		0		0		0
2.05.03.02	Subsidiaries/ Associated companies		0		0		0
2.05.04	Profit Reserves		978,085		1,309,572		1,569,139
2.05.04.01	Legal		187,865		165,693		152,979
2.05.04.02	Statutory		0		0		0
2.05.04.03	Contingency		0		0		0
2.05.04.04	Realizable profits reserves		790,220		1,143,879		1,416,160
2.05.04.05	Profit Retention		0		0		0
2.05.04.06	Special reserve for undistributed dividends		0		0		0
2.05.04.07	Other Profit Reserves		0		0		0
2.05.05	Retained earnings		2,600,100		2,048,261		1,972,850

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - CONSOLIDATED INCOME STATEMENT

Account Number	Description	01/01/2002 a 12/31/2002		01/01/2001 a 12/31/2001		01/01/2000 a 12/31/2000

3.01	Gross Revenue	9,839,680		8,458,496		5,113,539
3.02	Revenue deductions	(2,768,312	)	(2,300,088	)	(1,303,836	)
3.03	Net Revenue	7,071,368		6,158,408		3,809,703
3.04	Cost of services rendered	(4,446,632	)	(3,989,177	)	(2,463,050	)
3.05	Gross Profit	2,624,736		2,169,231		1,346,653
3.06	Operating Income (Expenses)	(2,217,746	)	(1,832,712	)	(981,640	)
3.06.01	Selling expenses	(761,753	)	(722,556	)	(318,221	)
3.06.02	General and administrative expenses	(630,939	)	(585,329	)	(371,719	)
3.06.02.01	Management remuneration	(5,612	)	(4,384	)	(1,890	)
3.06.02.02	Other General and administrative expenses	(625,327	)	(580,945	)	(369,829	)
3.06.03	Financial	(943,550	)	(468,057	)	(224,369	)
3.06.03.01	Financial Income	201,631		178,120		138,475
3.06.03.02	Financial Expenses	(1,145,181	)	(646,177	)	(362,844	)
3.06.04	Other operating income	257,008		248,976		155,107
3.06.05	Other operating expenses	(138,512	)	(305,746	)	(201,584	)
3.06.06	Equity in subsidiaries	0		0		(20,854	)
3.07	Operating Income	406,990		336,519		365,013
3.08	Nonoperating Income	(138,710	)	(141,736	)	34,364
3.08.01	Revenues	44,978		219,965		95,561
3.08.01.01	Gain on the acquisition of tax credits -REFIS	0		0		41,136
3.08.01.02	Other Revenues	44,978		219,965		54,425
3.08.02	Expenses	(183,688	)	(361,701	)	(61,197	)
3.08.02.01	PIS/COFINS on REFIS gain	0		0		(1,501	)
3.08.02.02	IRPJ/CSLL on REFIS gain	0		0		(13,476	)
3.08.02.03	Other Expenses	(183,688	)	(361,701	)	(46,220	)
3.09	Income before Taxes/Profit Sharing	268,280		194,783		399,377
3.10	Income and social contribution taxes	(111,426	)	(94,407	)	(129,162	)
3.11	Deferred Income Tax	0		0		0
3.12	Statutory participations/contributions	(41,387	)	(50,833	)	(22,780	)
3.12.01	Participations	(41,387	)	(50,833	)	(22,780	)
3.12.02	Contributions	0		0		0
3.13	Reversal of interest on capital	324,650		231,700		203,307
3.14	Minority interests	0		0		0
3.15	Net Income for the year	440,117		281,243		450,742

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION

Account Number	Description	01/01/2002 a 12/31/2002			01/01/2001 a 12/31/2001			01/01/2000 a 12/31/2000

4.01	Sources		3,990,820			4,526,700			4,069,221
4.01.01	From Operating Activity		2,976,290			2,485,410			1,839,404
4.01.01.01	Net Income/ Losses		440,117			281,243			450,742
4.01.01.02	Items not affecting working capital		2,536,173			2,204,167			1,388,662
4.01.01.02.01	Depreciation and amortization		2,126,677			1,998,466			1,281,129
4.01.01.02.02	Monetary variation and interest on long-term it		172,414			61,660			24,404
4.01.01.02.03	Equity in subsidiaries		0			0			20,854
4.01.01.02.04	Provision for contingencies		17,188			12,972			19,756
4.01.01.02.05	Effect of write-off of permanent assets		11,660			13,108			1,408
4.01.01.02.06	Indirects Taxes		154,751			73,895			26,234
4.01.01.02.07	Directs Taxes		42,039			53,986			17,194
4.01.01.02.08	Others		11,444			(9,920	)		(2,317	)
4.01.02	Shareholders		0			0			0
4.01.03	Third parties		1,014,530			2,041,290			2,229,817
4.01.03.01	Increase of noncurrent liabilities		969,324			1,966,635			1,695,472
4.01.03.02	Transfer from noncurrent to current assets		10,714			43			14,545
4.01.03.03	CCL merger of STFC operators Reg. II		0			0			505,492
4.01.03.04	Others		34,492			74,612			14,308
4.02	Use of Funds		2,559,463			4,593,910			4,209,178
4.02.01	Increase of noncurrent assets		191,636			318,161			39,145
4.02.02	Increase of Permanent assets		1,977,698			3,439,572			3,250,149
4.02.03	Dividends / Interest on Capital		324,650			231,700			203,307
4.02.04	Transfer from noncurrent to current liabilities		43,627			504,009			133,508
4.02.05	Net contingencies for REFIS		0			0			65,652
4.02.06	CCL merger CRT S.A.		0			0			517,417
4.02.07	Other Uses		21,852			100,468			0
4.03	Increase (decrease) in working capital		1,431,357			(67,210	)		(139,957	)
4.04	Changes in Current Assets		1,381,537			(335,485	)		2,136,669
4.04.01	Current Assets at the beginning of the year		2,088,203			2,423,688			287,019
4.04.02	Current Assets at the end of the year		3,469,740			2,088,203			2,423,688
4.05	Changes in Current Liabilities		(49,820	)		(268,275	)		2,276,626
4.05.01	Current Liabilities at the beginning of the year		2,673,743			2,942,018			665,392
4.05.02	Current Liabilities at the end of the year		2,623,923			2,673,743			2,942,018

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To:

The Board of Directors and Shareholders

Brasil Telecom S.A.

Brasília - DF

We have examined the balance sheet of Brasil Telecom S.A. and the consolidated balance sheet of the Company and its subsidiaries as of December 31, 2002, and the related statements of income changes in shareholders’ equity and changes in financial position for the year then ended which are the responsibility of its management. Our responsibility is to express an opinion on these financial statements.

Our examination was conducted in accordance with auditing standards applicable in Brazil and included: (a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal accounting controls of the Company and its subsidiaries; (b) verification, on a test basis, of the evidence and records which support the amounts and the accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by management of the Company and its subsidiaries, as well as the presentation of the financial statements taken as a whole.

In our opinion, the aforementioned financial statements present fairly, in all material respects the financial position of Brasil Telecom S.A. and the consolidated financial position of the Company and its subsidiaries as of December 31, 2002, and the results of their operations, changes in shareholders’ equity and changes in their financial position for the year then ended, in conformity with accounting practices adopted in Brazil.

Our examination was performed with the objective of expressing an opinion on the financial statements taken as a whole. The statement of cash flow represents supplementary information to the financial statements and is presented to enable additional analysis. This supplementary information was submitted to the same audit procedures applied to the financial statements, and in our opinion, is presented fairly in all material respects, in relation to the financial statements taken as a whole.

The financial statements of Brasil Telecom S.A and its subsidiary for the financial year ended December 31, 2001 were examined by other independent auditors, which issued an unqualified opinion dated March 11, 2002.

February 26, 2003

KPMG Auditores Independentes

CRC-SP-014.428/O-6-”F”-DF

Manuel Fernandes Rodrigues de Sousa

Contador CRC-RJ-052.428/O-S-DF

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT

BRASIL TELECOM S.A.

MANAGEMENT REPORT 2002

To our Shareholders,

In compliance with legal and statutory provisions, the Management of Brasil Telecom S.A. submits for your appreciation the Management Report and the Individual and Consolidated Financial Statements together with the Report of Independent Public Accountants, for the year ended December 31, 2002.

Economic Conditions

The year 2002 began with a positive outlook for the economic performance of the Brazilian economy. However, these expectations were not realized, mainly as a result of the turbulence occurring after the second quarter, which ended by reducing GDP growth to modest levels: approximately 1.5%.

The US economy, the world economy’s driving force, showed no signs of reversing the negative expectations; on the contrary, the corporate confidence crisis which afflicted the country ended by increasing risk aversion on the part of the main economic agents, thereby reducing capital flows to emerging countries. At the same time, the European and Japanese economies continued to make little progress, in other words, they also showed no sign of growth that could reactivate the world economy.

In addition, uncertainties arising from economic and political issues in Latin American countries, as well as the threat of an imminent war in the region of the Persian Gulf, also contributed to create a negative outlook.

In the domestic context, the 52.3% of the Real devaluation, arising from uncertainties as to the outcome of the presidential election and the policies to be introduced by the new government as well as the crisis in Argentina, ended by having a negative impact on the Brazilian economy. The main consequences were: aggravation of the inflationary spiral, with the IGP-DI reaching 26.4% in 2002, an increase in interest rates, represented by an actual SELIC rate reaching 24.9% in December 2002, against 19.05% in 2001, growth in public debt and a decline in economic activity.

In order to avoid an even more adverse situation, the monetary authorities were led to increase fiscal stringency with the objective of increasing the primary surplus. As a result, the negative impact on the already precarious ratio of net public debt to GDP (which reached 63.6%, but retreated to something around 55.9%) was minimized. Fiscal policies were directed to keeping the public debt sustainable and monetary policies aimed to offset the effects of the Real devaluation.

On the positive side, it is worth registering the performance of the trade balance, which recorded a surplus of US$13.1 billion in 2002 (US$2.6 billion in 2001).

For 2003, lower vulnerability is expected, with the domestic economy producing more favorable results. This seems to be possible because the new government has understood the issues and has given unmistakable signs that it will face up to the problems involved. A strong determination to pass pension and tax reforms are clear examples of this approach and clearly demonstrate that the direction initially sketched out by the new government’s team has not been discarded.

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT

Furthermore, the maintenance of inflation targeting, monetary stability and support for an independent Central Bank, are measures which have been restated by the government and should contribute to re-establish the confidence of the international market in the Brazilian economy during 2003. The prospect of new foreign investment and the reopening of international credit lines, as well as responsible management of public finance will contribute to economic stability, disinflation, reduction of real interest rates and, consequently, a return to growth.

The Telecommunications Sector

The growth curve of fixed telephony in Brazil clearly showed that this market reached its maturity in 2002. In terms of lines installed, plant increased by only 3.1%, from 47.7 million lines in December 2001 to 49.2 million in December 2002. At the same time, teledensity increased from 27.3% to 29.0%, in the same period. This maturity was already expected due to the anticipation of ANATEL’s targets from 2003 to 2001.

Competition in fixed telephony is still at low levels. The concessionaires still have total market hegemony. Mirror companies account for only 2.5% of the lines in service in Brazil and the “espelhinhos” have not succeeded in obtaining enough volume to change this scenario of limited competition.

The concessionaires that anticipated the goals for 2003 received from Anatel authorizations to operate new services: local, domestic and international long-distance, outside their original concession areas. However, in 2002 the operations of these companies were practically restricted to their respective original areas. Among the few actions taken in order to be more aggressive outside their concession areas, one was the approach to the corporate market, including long-distance calls originating in their respective areas and terminating in other regions.

In the data transmission segment, there was fiercer competition for corporate customers, leading to price reductions and progress in the quantity and quality of services provided. The supply of broadband services grew significantly, especially the Asymmetric Digital Subscriber Lines – ADSL, which reached approximately 500 thousand accesses in Brazil, showing its importance as a domestic and international reference.

Generally speaking, all the fixed telephony companies’ strategy was concentrated basically on the creation of mechanisms for traffic generation, reductions in capital expenditures, and the pursuit of operational efficiency.

Within this strategy, it is worth to stress the emphasis placed on ADSL and intelligent services, which have been playing an important role in providing incremental revenue, optimizing the infrastructure already installed.

In the mobile telephone segment, the effective introduction of Personal Mobile Service – SMP began with the start-up of the companies Oi and TIM, on the D and E-bands. Besides that, a successful auction of the remainder of the D and E-bands was held in the second half of the year. Brasil Telecom, Vésper and Telecom Américas made purchases at this auction and should start operating in 2003.

In 2003, greater competition is expected in the various different segments, involving all market players. During 2002, Anatel granted 11 licenses for local telephony with varied coverage and 14 authorizations for domestic and international long-distance, indicating companies’ willingness to enter the dispute for new markets.

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT

The companies best equipped to provide quality, price and complete solutions, suitable for the needs of each customer segment are those best placed to face this scenario of fiercer competition.

Regulatory Environment

During 2002, the telecommunications market sought to absorb the new regulations issued by Anatel at the end of 2001, whose basic purpose was to make the existing restrictions more flexible in order to eliminate the concessionaires’ monopoly. With these new regulations, Anatel sought to facilitate the entry of other operating companies, increasing competition in both local and long-distance services.

As part of this process Anatel intensified inspections of concessionaire companies, an activity which reached its peak in the second half of the year. Simultaneously, because of the declaration of the early achievement of goals by various companies, the agency concentrated considerable energy on the certification of these claims.

Definitely, local interconnection was the issue that demanded most intervention by the regulatory agency, as a controversial subject and over which remains many doubts. As a result of the questions raised by long-distance providers, the subject reached Anatel’s highest levels and continues to be in progress at the Administrative Council for Economic Defense – CADE.

Another issue considerably discussed, throughout the year, was the portability of non-geographic codes, involving the Brazilian Association of Switched Fixed Telephone Service Providers – ABRAFIX. Despite the efforts made by Anatel and the companies, a suitable methodology was not agreed, leaving the issue to be settled in 2003.

Continuing with the public placing of licenses for the D and E-bands, the agency closed the round of tenders for the radiofrequency spectrum allocated to SMP.

In the second half of the year, Anatel’s attention also turned into the holding of a public hearing on the extension of the concession contracts that, under the rules in force, must be published by December 31 2002, as in fact they were.

The Company

Area of Operation

The area of operation, comprising the following States: Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Goiás, Santa Catarina, Paraná and Rio Grande do Sul, in addition to the Federal District, corresponds to 24% of the population (approximately 41 million inhabitants), 25% of the GDP (approximately R$280 billion) and 33% of Brazilian territory (approximately 2.8 million Km²). Region II also contains four metropolitan areas with a population of over one million inhabitants and it borders on Peru, Bolivia, Paraguay, Argentina and Uruguay. It can be considered a Mercosur corridor.

Ownership Structure

Brasil Telecom S.A. is controlled by Brasil Telecom Participações S.A., holder of 97.7% of the common shares and 38.8% of the preferred shares, corresponding to 65.4% of total capital. Brasil Telecom Participações S.A., in turn, is controlled by Solpart Participações S.A., holder of 53.5% of the common shares, corresponding to 20.1% of total capital. Solpart Participações S.A. is controlled by Timepart Participações Ltda., Techold Participações S.A. and Telecom Italia International N.V.

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT

On August 28, 2002, Telecom Italia reduced its holding in the voting shares of Solpart Participações S.A., transferring 18.3% of the common shares to Techold and Timepart. In this way Telecom Italia’s holding in the Solpart voting shares was reduced from 37.3% to 19.0%, and Techold and Timepart’s holdings were increased to 19.0% and 62.0%, respectively.

Alterations were made to Solpart’s Shareholders’ Agreement, and Telecom Italia’s political rights were temporarily suspended in order to reflect the changes referred to above. Solpart’s holding in Brasil Telecom Participações S.A. remained unchanged, as shown in the diagram below:

Figure 1: Ownership Structure

Risk Factors

As part of the process of improving the Brazilian telecommunications model, during the last days of 2002 Anatel held a public hearing with a proposal of the new conditions, including new quality and universalization goals, which will act as a basis for the extension of fixed telephony concession contracts to come into effect from 2006. According to the General Telecommunications Law - LGT, the current concessionaires must

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01131-2 BRASIL TELECOM S.A.	76.535.764/0001-43

02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT

indicate their interest in extending their contracts until June 30, 2003, considering the new conditions, which will be approved prior to that date.

During 2003, competition will be fiercer, as the companies that anticipate their goals will aim to act in new regions, mainly in the corporate market and the residential market with high purchasing power. Brasil Telecom’s success in this scenario will depend on the outcome of its sales activity and its ability to bring forward and respond to competitive factors which affect the industry, including the introduction of new services, changes in consumer preferences, and demographic trends, economic conditions and discount policy.

The risk of losses caused by the difficulty in receiving amounts billed to customers has been observed in the telecommunications sector. As a provider of telecommunications public services, Brasil Telecom’s credit and collecting policy is subject to the regulations established by Anatel. Besides this credit policy, Brasil Telecom has introduced internal controls and permanent monitoring of the level of accounts receivable, as well as launching prepaid and hybrid terminals, as preventive action for combating delinquency and limiting the risk of loss.

Brasil Telecom’s financial risk is limited due to consolidated cash generation and low degree of leverage leading to a comfortable financial position. Exposure to exchange rate risks is also minimal, as the foreign currency debt represented 6.8% of consolidated total debt and all of that debt maturing in 2003 was hedged.

Competition

In 2002, with the liberalization of the market promoted by Anatel, the Switched Fixed Telephone Service – STFC, was exposed to greater competition. The regulatory agency increased the number of authorized companies granted new concessions authorizing entry into the market. Given that, not only local services, but also domestic and international long-distance would have a potentially larger number of competitors.

However, it was noticed that competition for local and long-distance services suffered no significant change during the year in Brasil Telecom’s concession area. There were several actions involving companies in the telecommunications market, but the local concessionaires were still able to set the rules.

Local Service

As realized in the rest of the world, creating competition in local services, especially in the voice market, is a difficult or even impossible task. In the countries, in which it has been attempted to introduce competition, even after several years of operation, the concessionaires have normally retained hegemony in the local market, with market shares over 80% and, in some markets, over 90%, as in the United States.

In its region, Brasil Telecom holds 96.5% of the local market share. However, this leadership is the result of a series of actions mainly focused on increasing customer fidelity. The more notable actions, taken for this purpose, include: spread of broadband access, expansion of intelligent services, alternative plans and permanently competitive prices.

In 2003, new competitors are expected to enter Region II to provide local services. It is believed that these new companies will only concentrate their efforts on the main cities, focusing on corporate customers and residential customers with high purchasing power.

Domestic Long-distance

Since the introduction of the Carrier Selection Code – CSP, in July 1999, competition has been introduced into this segment. Generally speaking, in the three regions, competition in the long-distance market is

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02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT

practically restricted to local concessionaires and Embratel. Intelig and the local mirror companies have insignificant market shares.

In the context of its concession area, Brasil Telecom retained its leadership in this market in 2002, as can be seen from the graph below:

Graph 1: Market Share – Quarterly Average

The increase in market share, either in the intra-sectorial and intra-regional segments, is due to the company’s firm positioning in order to offer always the lowest tariff combined with the plan that best fits the needs of each customer segment.

In 2003, however, with the release of new authorizations by Anatel, competition should grow further. The local concessionaires that obtained new licenses to provide a service in other regions will concentrate their activity, mainly due to economic reasons, on the corporate market and also the originating calls in their concession areas.

Interconnection

Brasil Telecom concentrated throughout 2002, in accordance with the regulations in effect, on signing agreements with all those interested in interconnection with its local or long-distance networks.

Companies operating in market niches made greater efforts to attract customers that demand more traffic, such as Internet access providers and call centers. These companies, relying on the regulations, created an artificial imbalance in traffic on the local interconnection routes. Brasil Telecom has constantly struggled this activity in various different spheres: regulatory, marketing and legal.

While this question has not yet been fully resolved, it has been minimized. This anomaly, however, will only be corrected when Anatel, through the regulation arising from Public Hearing 417/02, makes official the distinction between telecommunications services and added-value services.

Brasil Telecom monitored and permanently negotiated with the STFC and Cellular Mobile Service - SMC companies, aiming to protect its hegemony in Region II, as the provider of LDN transport services.

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The companies Telemar and Telefônica, having anticipated their 2003 universalization goals, obtained, as allowed by the regulations, new STFC authorizations, enabling them to operate in Region II. As a result, Brasil Telecom has settled with these companies the terms of relationship, based on the regulation, which included agreements for: interconnection, LDN transport, plant sharing, negotiated on principles of reciprocity. All this in order to assure, as of now, the terms for future relationship agreements with these companies, when Brasil Telecom has obtained new STFC authorizations for operating in Regions I and III, which are respectively, the original operating areas of Telemar and Telefônica.

Data Transmission

Definitely, this is the segment in which competition is already fierce and will tend to increase still further over the next few years. It is worth emphasizing, nevertheless, that voice transmission represents and will continue to represent the largest share of local concessionaires’ sales.

However, operating companies have noticed the need to take actions rapidly in order to extend the range of solutions in the data area and thus to increase their total revenue by acquiring new corporate customers, raising their share in this competitive market.

One of Brasil Telecom’s strategies to reinforce its position in the data area was ADSL. ADSL accesses in service increased from 34.4 thousand in 2001 to 140.7 thousand in 2002, representing a growth of 309% and showing that the greater demand in the data area is concentrated in Internet access. Besides ADSL, the company has emphasized the Dedicated Digital Line Service - SLDD, and Frame-Relay, which are becoming an interesting solution for the small and medium-sized corporate segment.

In 2003, the company’s expectations also include services based on IP technology, mainly Voice over Internet Protocol - VoIP and Virtual Private Network Internet Protocol- VPN IP.

Strategic Priorities

Organizations in general, and those of the telecommunications industry in particular, have been constantly demanding more from their executives: leadership, skill and a firm hand in day-by-day demands.

To satisfy these organization requirements, Brasil Telecom has been passing through an intensive but absolutely necessary transformation process since 2001, in order to position the company in the context of major changes.

The main objective of this process was and still is to change the culture of a company which was originally a state-owned monopoly, to something entirely new, directed towards the market and results. So the main priorities were: 1) to retain leadership in Region II, taking advantage of the network’s capillarity and positive image with its customers, 2) to seek consolidation in order to become one of the major national competitors, 3) to position itself strategically at all important points along the chain for generating telecommunications business value, 4) to develop integrated voice, data and image services, 5) to take actions leading to customer fidelity, and 6) to reflect the change in culture in its organization structure, bringing the company into line with a new competitive environment.

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Network

Brasil Telecom’s network received capital expenditure totaling R$1.0 billion in 2002, representing 53% of total investment. This made possible the installation of 533 thousand lines as well as the expansion of the data transmission and intelligent services network. In this way Brasil Telecom guarantees the quality of the service providers and is ready for traffic expansion.

Among the year’s main achievements is the introduction of four Points of Access to the Service - PAS in the cities of Campo Grande, Cuiabá, Maringá and Porto Alegre, as well as the enlargement of the five existing PAS’s. Because of that, new services were introduced, for example Internet Call Waiting and hybrid terminal.

The Calling Line Identification Verification- CLIV tool was introduced on the signaling network, aiming at blocking other operating companies’ users that use the CSP 14 and are in default with their bills.

In the transmission backbone, the first Dense Wavelength Digital Multiplexes - DWDMs were introduced between Blumenau and Florianópolis and between Porto Alegre and Caxias do Sul, making it possible to expand initial transmission capacity along these sections of state backbones by a factor of eight.

Evolution of Data Transmission Plant

The main actions were directed towards expansion of existing networks, in particular the installation of 124.7 thousand new ADSL gateways, to give a total of 225.3 thousand gateways installed. Plant in service totaled 140.7 thousand accesses, representing growth of 309% over 2001.

The DialNet service (dial-up access to the Internet) increased from 47.5 thousand gateways installed in December 2001 to 89.0 thousand at the end of 2002, in other words growth of 87.4%.

With regard to other data transmission services (ATM, Frame Relay, IP), there was growth of 24.4% in existing plant, as a result of the installation of 1.6 thousand new gateways, increasing the installed base to 8.2 thousand gateways.

During the last quarter of the year Multi Protocol Label Switching - MPLS along with aggregator equipment started to be installed on the IP network. These introductions will ensure the supply of superior services for corporate customers.

Changes in Quality and Universal Service Goals

Table 1 shows the results obtained in 2002 according to the indicators of the General Plan of Universal Service Goals. As can be seen, all goals have been fully achieved, except in the case of the indicator for supplying requests for individual access up to four weeks, which showed 1.2 million (98.23%) service orders completed within the time limit and only 21.4 thousand (1.77%) completed late.

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Table 1: Universal Service Goals

Indicators	JAN	FEB	MAR	APR	MAY	JUN	JUL	AUG	SEP	OCT	NOV	DEC
Quantity of fixed accesses installed (goal of 7,889 x thousand accesses)	10,266	10,408	10,442	10,472	10,480	10,505	10,537	10,541	10,544	10,546	10,575	10,548
Quantity of public telephones in service (goal of 216 x thousand TUP)	288	289	290	291	291	291	290	290	290	291	292	293
Quantity of locations which have less than 50% of TUP with capacity for originating and receiving local and long-distance domestic calls installed in places with 24 hour a day access	0	0	0	0	0	0	0	0	0	0	0	0
Quantity of locations which have less than 25% of TUP with capacity for originating and receiving local and long-distance domestic calls installed in places with 24 hour a day access	0	0	0	0	0	0	0	0	0	0	0	0
Quantity of locations attended by STFC, with individual accesses, with access to public telephones, in which the distance exceeds 500 m	0	0	0	0	0	0	0	0	0	0	0	0
Quantity of locations, with individual accesses, with less than three public telephones per 1,000 (thousand) inhabitants, evenly distributed	0	0	0	0	0	0	0	0	0	0	0	0
Quantity of locations with more than 1,000 (thousand) inhabitants, without individual accesses	0	0	0	0	0	0	0	0	0	0	0	0
Quantity of requests for TUP at regular teaching establishments and health institutions supplied in over 2 (two) weeks	3	10	5	0	0	0	0	0	0	0	0	0

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Quantity of requests for TUP made by individuals with hearing or speech deficiencies, or those using wheelchairs, supplied in over 2 (two) weeks	0	0	0	0	0	0	0	0	0	0	0	0
Number of requests for installation of individual accesses, supplied in over 1 (one) week, submitted by regular teaching establishments and health institutions	0	0	0	0	0	0	0	0	0	0	0	0
Quantity of requests for individual access made by individuals with hearing or speech deficiencies, supplied in over 3 (three) weeks	0	0	0	0	0	0	0	0	0	0	0	0
Locations with over 600 inhabitants without STFC, without at least one TUP with 24 hour access, capable of originating and receiving local calls, LDN and LDI	0	0	0	0	0	0	0	0	0	0	0	0
Installation of individual accesses, supplied within 4 (four) weeks- (goal of 100%)	99.93	98.5	97.47	96.76	99.72	99.74	99.56	99.17	97.43	97.47	96.84	95.03
Location served only by collective accesses, with at least one TUP with 24 hour access, capable of originating and receiving local calls, LDN and LDI	0	0	0	0	0	0	0	0	0	0	0	0
Quantity of locations with STFC, with less than 2% of TUPs adapted for persons with hearing and speech deficiencies and those using wheelchairs	0	0	0	0	0	0	0	0	0	0	0	0
Total number of goals achieved (goal of 13)	11	11	11	12	12	12	12	12	12	12	12	12

Goal achieved

Goal not achieved

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Brasil Telecom made a public announcement on January 28, 2003, stating that with effect from February 28, 2003 it will have achieved all the goals laid down by Anatel in the General Plan for Universal Service Goals. This process was submitted to an independent auditing company.

On January 22, 2003, Brasil Telecom announced that by February 28 of the same year its branches will have achieved all the goals for universal service laid down in the General Plan for Universal Service Goals for Switched Fixed Telephone Services, stipulated in its concession contracts to be achieved by December 31, 2003. From that day, the company will be submitting all the processes necessary for obtaining certification from Anatel that the goals have been achieved, in the shortest time possible.

Achievement of the goals for 2003 was accelerated due to the acquisition of licenses for Personal Mobile Service – SMP, for Brasil Telecom’s concession area. With certification that the goals have been achieved, besides enabling it to operate in other regions, Brasil Telecom will be able to provide its customers with a complete and integrated portfolio of products, services and solutions, including mobile telephony and domestic and international long-distance calls.

The company has reached or exceeded the goals set for 410 out of the 420 quality indicators laid down by Anatel in the General Plan for Quality Goals for STFC, as shown below in Table 2:

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Table 2: Quality Goals

GOALS FOR SERVICE QUALITY
Indicators	JAN	FEB	MAR	APR	MAY	JUN	JUL	AUG	SEP	OCT	NOV	DEC

Delay in obtaining dialing tone within a maximum waiting period of 3 seconds (goal of 98%) - Morning	99.96	99.99	99.97	99.92	99.92	99.98	99.96	99.97	99.97	99.97	99.94	99.98
Delay in obtaining dialing tone within a maximum waiting period of 3 seconds (goal of 98%) - Afternoon	99.96	99.99	99.96	99.96	99.95	99.98	99.96	99.96	99.97	99.98	99.96	99.98
Delay in obtaining dialing tone within a maximum waiting period of 3 seconds (goal of 98%) -Night	99.96	99.99	99.97	99.90	99.93	99.98	99.98	99.96	99.94	99.95	99.96	99.96
Local calls originated and completed (goal of 65%) – Morning	68.84	69.99	68.84	67.20	67.77	68.20	68.44	68.99	69.15	68.36	69.06	68.50
Local calls originated and completed (goal of 65%) – Afternoon	68.97	70.26	69.83	67.58	67.77	66.89	68.34	68.84	69.13	68.97	69.32	69.00
Local calls originated and completed (goal of 65%) – Night	67.43	68.72	67.76	66.73	66.28	66.58	66.24	66.67	67.59	66.95	67.43	66.18
Local calls originated but not completed on account of congestion (goal of 5%) - Morning	1.76	1.68	1.45	1.15	0.85	0.63	0.69	0.92	0.67	1.10	0.65	1.08
Local calls originated but not completed on account of congestion (goal of 5%) - Afternoon	1.83	1.82	1.39	1.00	0.71	0.96	0.73	0.73	0.75	0.68	0.67	0.88
Local calls originated but not completed on account of congestion (goal of 5%) - Night	2.96	2.71	2.63	0.97	0.95	0.80	0.89	1.32	0.77	0.82	1.02	1.58
LDN calls originated and completed - consolidated value (goal of 65%) – Morning	65.98	66.13	65.62	66.63	67.76	67.42	68.23	68.20	67.03	63.70	66.25	67.76
LDN calls originated and completed - consolidated value (goal of 65%) – Afternoon	65.80	65.12	66.58	67.78	68.23	66.49	68.21	69.16	67.39	66.68	67.82	67.84

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LDN calls originated and completed - consolidated value (goal of 65%) – Night	61.47	63.53	66.09	65.68	66.41	66.05	65.66	67.48	65.58	65.30	66.80	65.13
LDN calls originated but not completed on account of congestion –consolidated value (goal of 5%) – Morning	1.93	1.89	2.89	2.39	1.92	2.22	1.40	2.35	1.54	3.58	1.82	1.44
LDN calls originated but not completed on account of congestion –consolidated value (goal of 5%) – Afternoon	2.51	2.96	2.02	1.41	1.57	2.02	1.36	1.43	1.16	1.24	1.14	1.35
LDN calls originated but not completed on account of congestion –consolidated value (goal of 5%) – Night	5.05	2.80	2.40	2.08	2.06	2.06	1.67	1.33	1.27	1.43	1.43	2.54

GOALS FOR RESPONDING TO REQUESTS FOR REPAIR

Number of repair requests per 100 STFC accesses (goal of 2.5 requests)	2.30	2.01	2.49	1.99	2.07	1.76	1.95	1.93	1.98	1.99	1.93	1.95
Response to residential users’ requests for repair within 24 hours (goal of 96%)	98.73	98.52	96.38	98.70	99.02	99.18	98.30	99.21	98.46	98.92	99.32	99.28
Response to non-residential users’ requests for repair within 8 hours (goal of 96%)	97.71	97.53	94.03	98.33	98.77	98.74	98.36	98.82	98.28	97.99	98.71	98.85
Response to requests for repair from providers of public services within 2 hours (goal 98%)	100	96	100	97	100	100	100	100	100	100	100	100

GOALS FOR RESPONDING TO REQUESTS FOR CHANGE OF ADDRESS

Requests for change of address from residential users processed within 3 business days (goal of 96%)	98.99	99.24	93.76	97.08	99.29	99.58	99.32	99.43	99.66	99.71	99.67	99.60
Requests for change of address from non-residential users processed within 24 hours (goal of 96%)	98.08	98.23	88.40	92.99	98.51	99.01	98.77	98.35	99.41	98.99	98.50	98.97
Requests for change of address from users which are providers of public service processed within 6 hours (goal 98%)	100	100	NO	100	100	NO	100	100	100	100	100	100

GOALS FOR USER SERVICE BY TELEPHONE

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Telephone response to STFC user within 10 seconds (goal of 93%) – Morning	99.32	98.88	98.23	96.53	99.61	95.16	98.78	95.93	97.88	97.93	98.24	96.58
Telephone response to STFC user within 10 seconds (goal of 93%) – Afternoon	97.14	95.43	99.45	98.72	99.66	99.45	99.03	96.41	99.17	98.84	95.64	99.04
Telephone response to STFC user within 10 seconds (goal of 93%) – Night	97.11	99.44	99.45	99.69	99.67	99.45	99.35	98.23	98.88	98.84	98.63	98.48

QUALITY GOALS FOR PUBLIC TELEPHONES

Number of requests for repair of public telephones (TUP) per 100 TUP in service (goal of 12 requests)		8.52		7.46		8.54		8.19		8.67		7.19		8.16		9.08		8.06		8.13		8.13		11.99
Response to requests for repair of public telephones (TUP) within 8 hours (goal of 96%)		98.11		98.34		96.50		98.61		98.63		98.84		99.12		99.36		99.46		99.30		96.48		96.58

GOALS FOR INFORMING USER’S ACCESS CODE

User’s access code supplied within 30 seconds (goal of 96%)

98.11

98.25

98.75

98.41

98.45

98.58

98.60

98.66

97.90

98.26

98.52

98.44

GOALS FOR REPLYING TO USERS’ CORRESPONDENCE

Users’ letters answered within 5 business days (goal of 100%)

100

GOALS FOR PERSONAL SERVICE TO USERS

Waiting time less than 10 minutes (goal of 95%)

100

GOALS FOR ISSUE OF BILLS

Number of bills with error complaints in each 1,000 bills issued (goal of 3 bills) – local services		1.61		1.70		1.28		1.44		1.41		0.82		1.07		1.10		0.98		0.85		1.41		2.03
Number of bills with error complaints in each 1,000 bills issued (goal of 3 bills) – LDN		0.60		0.87		0.36		0.65		0.55		0.35		0.58		0.77		0.56		0.67		0.38		0.38

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Number of bills contested with credit returned to user (goal of 96%) – local services		100		100		100		100		100		100		100		100		100		100		100		100
Number of bills contested with credit returned to user (goal of 96%) – LDN		100		100		100		100		100		100		100		100		100		100		100		100

GOALS FOR NETWORK MODERNIZATION

Digitalization of local network (goal of 85%)		97.68		97.77		98.31		98.44		98.56		98.72		98.73		98.93		98.81		98.81		98.81		98.95
Number of goals achieved (goal of 35)		33		33		32		33		35		35		35		35		35		34		35		35

Goal achieved

Goal not achieved

NA = Not applicable

NO = Did not occur

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On February 12, 2003, Anatel published the results of its first customer satisfaction survey for telephone services, in which 84.2 thousand users were interviewed between July and December 2002. The customer satisfaction indices with the 34 fixed telephone service providers were divided into the residential, non-residential and public segments.

In the residential segment, out of a total of 34 providers, the Pelotas and Santa Catarina branches obtained first and second places respectively in the satisfaction index for Brazil. In the non-residential segment, the 10 providers of Brasil Telecom are amongst the 14 with the highest satisfaction indices, and in public telephony, the four best providers in the country form part of Brasil Telecom.

The Company’s performance shows its commitment with the quality of services provided to clients.

Marketing

Residential Market and SOHO

The Brasil Telecom initiatives in the residential market were concentrated on creating and providing higher added-value services, always aimed at a considerable increase in average revenues per line in service. To achieve this objective, the Company established partnerships to expand sales channels, especially for intelligent services, which still have a reduced penetration in the Brazilian market.

For this purpose Brasil Telecom signed a partnership with the principal manufacturers of call identifiers. Large retail chains were accredited by Brasil Telecom to facilitate the sale of these devices. During the year 6.5 million leaflets were sent with telephone bills to residential and Small Office, Home Office – SOHO clients.

Another important action initiated in 2002 was to segment fixed telephone residential clients into consumer groups according to their habits. This measure, when fully implemented, will enable the Company to offer products and services according to the profile of each group.

After satisfying 100% of the demand for conventional telephones, Brasil Telecom is studying and implementing alternative plans to better utilize the infrastructure available, and also offer more adequate solutions for the socioeconomic profile of each client.

Amongst the new services developed for the residential and SOHO segment, we can highlight: prepaid telephones, SOS Fone and Fale.com.

Company Market

Aiming to offer a differentiated service to the market for small and medium-sized companies, which definitely represent an important niche market, Brasil Telecom has expanded the channel of direct relationships with these clients and increased its capillarity to better serve the segment in its concession area. For example the number of authorized agents was increased by 54% in 2002. One of the permanent objectives or Brasil Telecom is to bring integrated solutions to clients that are adequate for their real needs.

To solidify the relationship with the small and medium-sized company market, a marketing campaign was launched during the period from August to November 2002, presenting a portfolio of products, services and solutions by Brasil Telecom, in addition to strengthening customer service channels.

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The company market also gained a new channel of communications: newsletter “14 Na Linha”, edited quarterly, the purpose of which is to maintain the market informed about the principal news, cases, products and services offerings, tips for day-by-day telecommunications services and other information of public interest.

In the customized service view, the highlight is the launching of the “IP Turbo” product, which has specific characteristics to serve the Internet needs of the small and medium-sized companies market.

Public Telephone Service Market

To Brasil Telecom, the public telephone service is not only an eminently social service, but also a market with a great potential to be exploited, in other words a strategic segment, due to its great external visibility and coverage of all social classes. Based on these premises, the Company developed initiatives towards increasing the average number of credits used per card. An example was the introduction of the 40 credit card, which achieved an excellent performance, becoming the principal product in the public telephone portfolio of Brasil Telecom.

In addition to this initiative, several successful campaigns were held, such as the: LigMania Sítio do Pica-Pau Amarelo, Criança Esperança, Natal - Fábrica do Papai Noel, Reveillon - Superstições de Ano Novo, and also the introduction of a new virtual telephone card shop.

Corporate and Government Market

Brasil Telecom’s strategy for the corporate and government market is based on an integrated supply of products and services, with complete and innovative solutions. Simultaneously the Company understands that it is fundamental to work with competitive price structures, linked with the most modern and security telecommunications technology.

One of Brasil Telecom’s priorities in 2002 was to seek excellence in relationships with corporate clients, to identify their needs and serve them with the best cost-benefit ratio.

For this purpose in May of 2002 Brasil Telecom held an event at Florianópolis that provided the opportunity to bring together its main clients and present the Company, its executives, and modern technology platform in more detail, based on which all services and solutions are made available with high quality and absolute security.

The focus on relationships, and also teamwork aimed at attending to and satisfying customers’ needs, was stressed creatively and in an innovative way at this event. The success of this initiative was repeated in Rio de Janeiro in September 2002 and potential clients were invited.

Currently an exclusive personalized client service structure is available for corporate and government clients, available 24 hours a day. In addition, these clients are served by a team of specialized consultants.

In order to strengthen the image of Brasil Telecom as the principal partner and provider of communications solutions to the governmental area, especially with respect to digitalization projects, the Company sponsored the 1^st International Electronic Government Forum, held in June of 2002 in Brasília.

Continually aware of the trend towards interactivity through telephony, Brasil Telecom takes an active part in tele-donation campaigns. The Criança Esperança and Teleton projects are the largest in the segment. This trend

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is also manifesting itself in other applications such as tele-voting, and indicates the Company’s focus on facilitating wide possibilities of community interactivity through the use of telecommunications resources.

Cyber Data Center - CyDC

Two data centers were inaugurated in 2002, one in Brasília and the other in Porto Alegre, which together with the existing center in Curitiba, have enabled Brasil Telecom to strengthen its strategy of providing complete high-technology solutions, totally adapted to customers’ needs.

By using a decentralized data infrastructure, Brasil Telecom understands that clients feel safer in knowing that their information is nearby their installations. However, it should be highlighted that the Cyber Data Centers - CyDC are interconnected by high-speed networks, guaranteeing high added-value services incorporating physical and logic security resources.

In order to strengthen initiatives to commercialize the CyDC’s, Brasil Telecom has established partnerships to enable products and services focused on market segments with specific approaches to be offered.

Broadband

As part of its strategy to improve the fidelity of its customer base, Brasil Telecom has expanded the sales effort of the Turbo service (ADSL technology) to residential clients with high earning power, making available the service from stations serving the A and B social classes, currently offering the service in 190 municipalities of Region II.

In order to differentiate its product and increase average revenues per access, the Company has repositioned its ADSL product line, creating the “Turbo” family, which provides access speeds varying between downstream speeds of 300Kbps and 1.0Mbps and upstream speeds of 150Kbps to 300Kbps. Also within the idea of increasing revenue from the broadband business, added-value services were developed using the infrastructure of the ADSL network. An example is the Turbo Video, which uses the broadband network to transmit Video on Demand and Regular VPN, which enables content to be exchanged by the Internet securely by means of a dedicated access.

To increase sales of the “Turbo” family products, contracts were signed with the principal suppliers to charge for the modem via the telephone bill. Also new brands of modems were approved to stimulate competition between manufacturers and reduce prices to clients.

In 2002 partnerships were made with regional and national providers. And, 319 contracts were signed, which in addition to authenticating users of the Turbo and Turbo Empresas products, also function as sales channels.

Strategy for Tariff Pricing and Increases

Local Basic Plan

The adjustment of the Local Basic Plan tariffs is based on a basket of services comprising: installation, subscription of each type of terminal and pulses. The strategy adopted by Brasil Telecom in the 2002 adjustment meant the concentration of the adjustment on residential subscription and pulses. Tariffs for installation, non-residential and PBX subscriptions were reduced, reaching with this combination the maximum average increase allowed for the basket of services: 8.3%. In addition to the basket of services, the following items also form part of the Basic Local Plan: change of address, increased by 9.4%, public

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telephone credit, readjusted by 8.0%, and local calls to the mobile service - VC-1, which have a different adjustment date from the others (as can be noticed in the item fixed-mobile calls).

DLD Basic Plan

For the tariffs of the Domestic Long Distance – DLD Basic Plan, which only considers originated calls and destined to fixed terminals, the 2002 increase was linear. The only difference was for the Rio Grande do Sul branch, where the tariff adjustment for Degrau 4 was higher. As a result all the branches of Brasil Telecom now use equivalent tariffs.

Brasil Telecom readjusted the DLD service basket by 4.97%, opting for a linear increase irrespective of distances and times, whereas previously, short distance and normal and reduced period tariffs had been readjusted at different rates.

Fixed-to-mobile calls, VC-2 and VC-3, are also part of the DLD Basic Plan, which were readjusted on different dates from the fixed-fixed tariffs (as can be seen in the item: Fixed-to-Mobile Calls).

Fixed-to-mobile Calls

For the readjustment of the fixed-to-mobile tariffs, VC-1, VC-2 and VC-3, Brasil Telecom has been applying the maximum adjustment rate authorized by Anatel, on a linear basis, due to the high costs of mobile network remuneration (TU-M/VU-M).

In February 2002, fixed-to-mobile tariffs were adjusted. The VC-1 tariff was adjusted by 9.9% and VC-2 and VC-3 by 8.8%.

Network Usage Tariffs

The tariffs for the use of local networks (TU-RL) and long-distance network (TU-RIU) were readjusted at the maximum rates allowed by Anatel, representing an increase of 1.65% for TU-RL and 5.02% for TU-RIU in 2002. In 2002, the concessionaires requested the readjustment in June, but Anatel only approved the increase in December, applying the new prices backdated to June.

The tariffs for the use of mobile network (TU-M/VU-M), which represent an expense to Brasil Telecom in the case of calls to mobile phones, are also being readjusted annually at the maximum percentage allowed by Anatel. In February of 2002, these tariffs were increased by an average of 11.0%.

Customer Relationship

This was a year to consolidate infrastructure and partnerships, within the customer relationship strategy. As an illustration, it is important to register that Brasil Telecom’s call centers receive an average of 31.5 million calls per month, which demonstrates the scale of the operation.

In 2002, the Company continued to implement theCustomer Relationship Management – CRM, Work Force Management and Data Warehouse systems, in addition to the implementation of new call center platforms and development of its new web page.

The CRM project, for example, was developed to better equip the Company with respect to customer relationship, since the tool enables the organization to storage important and strategic information on

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customer profiles, integrating them into a single base. This facilitates the analysis, enabling the establishment and maintenance of a mutually advantageous and lasting relationship.

Brasil Telecom’s website received 1.6 million accesses per month during the last quarter of 2002. By the end of the year, 207 thousand clients had registered in the Company homepage, which represented a 67% increase in relation to 2001, consolidating the strategy to make it becomes another channel for customer relationship.

During the year, the website was completely reformulated, focused principally on clients and their needs. The reformulation involved the creation of specific portals for each market segment: residential, SOHO, business, corporate and government, plus the development of new services such as: e-mail accounts, interactive accounts, online payments and consumption graphs.

In 2002, Brasil Telecom consolidated and expanded its partnership with the largest service networks in the country, the postal service company Empresa Brasileira de Correios e Telégrafos – ECT, lottery agencies and the Caixa Econômica Federal - CEF, offering certain kinds of services at more than 10 thousand points of attendance.

At the lottery agencies, 8.6 million online consultations of direct debt and 5.8 million payments without bills were made, with the automatic unblocking of telephone lines. At the postal service agencies in the Capitals of Region II, the client is already able to request various kinds of service from Brasil Telecom.

BrT Serviços de Internet S.A.

A BrT Serviços de Internet S.A. - BrTi, a wholly owned subsidiary of Brasil Telecom S.A., was incorporated in October 2001, with the mission of be the leader and the benchmark in the market for the distribution and access to interactive media and offering integrated solutions based on the Internet.

In November 2001, the company launched the BrTurbo portal, a high-speed Internet access provider, in order to expand sales of the Turbo product of Brasil Telecom. In 2002, the operations of BrTurbo can be divided into two principal phases. The purpose of the first phase was to consolidate the brand and the new concept of a 100% broadband portal. The second phase was characterized by reformulation of the portal and introduction of new broadband content, within which: live transmissions of new and entertainment channels, short movie video on demand channels and articles on radical sports can be highlighted, in addition to the exclusive channel for on line games.

In November the TurboMeeting service was launched, which enables videoconferences to be held between two points. All these initiatives increased the average daily audience from 1.5 million hits in January 2002 to 7.5 million hits in December of the same year.

BrTurbo reached the leading position in the number of active clients amongst providers operating high-speed access services based on the ADSL technology in the concession area of Brasil Telecom, reaching 54.7 5 clients in December. Around 39% of the Turbo clients of Brasil Telecom use BrTurbo as their Internet access provider.

In 2002, the implementation of a customer service strategy for business clients was also initiated, principally small and medium-sized companies and SOHO, which resulted in the launching of the portal BrTData, with the objective of serving the demand for backup space and storing information, e-mail accounts and the

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publication of sites on the Internet. BrT also won the tender for the Permanent Electronic Address of the Brazilian postal service agency, a project that envisages the provision of 4.2 million e-mails free over four years, representing the largest mailbox solution in Latin America.

GlobeNet

On November 15, 2002, Brasil Telecom signed a stock and asset purchase and sale contract with the affiliated companies of GlobeNet Communications Group Ltd., acquiring the entire system of submarine fiber-optic cables of GlobeNet Group, interconnecting points in the regions of New York and Miami (United States), St. David’s (Bermuda Islands), Fortaleza and Rio de Janeiro (Brazil) and Maiquetia (Caracas, Venezuela). The transaction will be realized by acquiring the assets located in the United States, the Bermuda Islands, Brazil and Venezuela.

Brasil Telecom executed the transaction, which is conditional on verifying certain requisites that are normal in operations of this nature, through its wholly-owned subsidiary BrTi, which may set up subsidiaries abroad to acquire the assets and stockholdings located abroad.

The value of the transaction will be equivalent to US$48 million, of which US$28.8 million payable on the closing date of the transaction and the remainder of US$19.2 million, payable within 18 months of the payment of the first installment.

The GlobeNet Group was created in 1998 to provide fiber-optic communications services in United States and internationally between the United States and South America. The GlobeNet Group comprises two rings of protected submarine cables, representing approximately 22,000 km of the best fiber-optic cable technology connecting Brazil with the United States, passing through Venezuela and the Bermuda Islands, with an installed capacity of 80Gbps, which can reach up to 1.36Tbps. With this installed capacity, no additional investments in fixed assets are expected in the short term.

With this transaction, Brasil Telecom proceeds with its strategy to consolidate and expand as a broadband IP service provider to residential and corporate markets, in addition to becoming the owner of an important fiber-optic connection between Brazil and United States, which is fundamental to the interests of Brazil.

Acquisition of SMP License

In line with the strategy of offering integrated solutions to customers, Brasil Telecom acquired licenses for the Personal Mobile Service – SMP for R$191.5 million at an auction held on November 19, 2002. In relation to the minimum ask price of R$182.9 million, Brasil Telecom paid a premium of 3.6%.

Brasil Telecom signed the term of authorization on December 19, 2002, when it paid the equivalent of 10% of the total offered. The remaining 90% will be paid in six equal annual installments, coming due in 36, 48, 60, 72, 84 and 96 months after signing the term of authorization. The installments will be restated by the IGP-DI index.

Compared to the amounts paid for the same licenses at the auction held on February 13, 2001, a favorable situation for Brasil Telecom can be noticed, which acquired licenses for an amount approximately R$350 million lower than the amount paid at that time.

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MetroRED

On February 18, 2003, Brasil Telecom announced the acquisition of 19.9% of the capital of MTH do Brasil Ltda., a company that holds 99.99% of the capital of MetroRED Telecomunicações Ltda. (MetroRED Brasil), for US$17.0 million. In addition, Brasil Telecom holds an option on the remaining 18.1% of the capital of MTH at the price of US$51.0 million, which can only be exercised after certification by Anatel of compliance with the 2003 targets stipulated in the Company’s concession contracts.

MetroRED Brasil will enable Brasil Telecom to continue with its strategy to position itself as the leader in the provision of data transmission services to the corporate market. The transport network of MetroRED Brasil is totally complementary to the network of Brasil Telecom and has excellent capillarity in the three main corporate markets outside Region II - São Paulo, Rio de Janeiro and Belo Horizonte. The system comprises 331 kilometers of local network and 1,496 km of long-distance network connected to the cities mentioned.

The Company also has an Internet Solution Center with an area of 3,500 m² in São Paulo, which offers co-location, hosting and added value services. In addition the company has a very experienced management team with an in-depth knowledge of the São Paulo, Rio de Janeiro and Belo Horizonte markets.

Operating Performance

Table 3: Operating Indicators

	2002			2001			2000			1999

Lines Installed (thousand)		10,548			10,015			8955	¹		5,243
Lines Installed Added (thousand)		533			1,060			3,712			1,060

Lines in Services - LIS (thousand)		9,465			8,638			7446	²		4,718
Residential		6,862			6,281			5,247			3,316
Non-Residential		1,540			1,540			1,457			959
Public Telephones		293			286			220	³		121
Pre-paid		206			0			0			0
Hybrid Terminals		0			0			0			0
Other (Includes PBX)		564			531			522			322
LIS Added (thousand)		827			1,192			2,728			941

Average LIS (thousand)		9,052			9,485			7,099			4,248
LIS/100 Inhabitants		23.1			21.5			19.2			16.6

Public Telephones/1,000 Inhabitants		7.2			7.1			5.7			4.3
Public Telephones/100 Lines Installed		2.8			2.9			2.5			2.3

Utilization Rate		89.7	%		86.3	%		83.2	%		90.0	%
Digitization Rate		99.0	%		97.3	%		93.1	%		84.7	%

¹	That includes 1.851 thousand lines referred to CRT acquisition, held on 07/31/2000.
²	That includes 1.732 thousand lines referred to CRT acquisition, held on 07/31/2000.
³	That includes 43 thousand public telephones referred to CRT acquisition, held on 07/31/2000.

During 2002, Brasil Telecom added 533 thousand lines to its installed plant, reaching a total of 10.5 million lines at the end of the year. The increase in relation to 2001 was equivalent to 5.3%, demonstrating that the Brasil Telecom plant was dimensioned to handle the demand in 2002.

In relation to the plant in service, Brasil Telecom closed 2002 with 9.5 million lines, which represents a net addition of 827 thousand lines. Basically the 9.6% increase compared to the plant in service 2001 can be mainly explained by the increase in residential lines as a result of marketing initiatives focused on selling promotional plans and the start of marketing of prepaid terminals, available only at switches with spare capacity and focused on clients with credit risk.

Another important factor that contributed towards the increase in plant in service was the Brasil Telecom’s policy adopted since July, not removing terminals from defaulting clients. As result of this policy, Brasil

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Telecom maintained the terminals partially blocked at switches with spare capacity, reducing costs with disconnecting and reinstalling terminals and increasing traffic in the network.

The increase in installed plant, combined with the expansion of the plant in service, resulted in a utilization rate (lines in service / lines installed) of 89.7%, exceeding by 3.4 p.p the ratio recorded in 2001.

Graph 2: Plant

At the end of December 2002, the digitalization rate reached 99.0%, 1.7 p.p. higher than in 2001.

The public telephone service plant of Brasil Telecom comprised of 293 thousand terminals on December 31, 2002, representing an increase of approximately 2.5% in relation to the previous year.

At the end of 2002, Brasil Telecom reached the figure of 168.4 thousand ADSL accesses sold, an increase of 314.4% in relation to 2001. During the year, Brasil Telecom put 106.3 thousand ADSL accesses in service, reaching 140.7 thousand at the year.

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Graph 3: ADSL Accesses

Productivity

At the end of 2002, Brasil Telecom had 5,565 employees, a reduction of 2,312 as compared to 2001. During 2002, Brasil Telecom hired a total of 694 employees and dismissed 3,006. The dismissals reflected the outsourcing of operational activities, principally with respect to maintenance of the internal and external plant, together with corporate restructuring.

In addition to the 29.4% reduction in the number of employees, the 9.6% plant expansion also contributed to increase Brasil Telecom’s productivity by 55.1%, which reached 1,701 lines in service (LIS)/employee against 1,097 in 2001.

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Graph 4: Productivity

Consolidated Financial and Economic Performance

Table 4: Financial Indicators

	2002			2001			2000			1999

Net operational revenue (R$Million)		7,071			6,158			3,810			977
Net operational revenue/average LIS¹/month (R$)		65.1			63.8			52.2			19.2

EBITDA - R$Million		3,353			2,674			1,879			460
Margin EBITDA		47.4	%		43.4	%		49.3	%		47.1	%
EBITDA/average LIS¹/month (R$)		30.9			27.7			25.7			9.0

Net earnings (R$million)		440			281			451			(46	)
Net margin		6.2	%		4.6	%		11.8	%		-4.7	%
Net earnings/average LIS¹/month (R$)		4.1			2.9			6.2			(0.9	)

Return on total assets average		3.0	%		2.1	%		6.0	%		-1.8	%
Return on equity average		6.4	%		4.0	%		10.2	%		-2.6	%

Total debt (R$million)		5,082			4,035			3,213			473
Cash (R$million)		1,423			331			802			41
Net debt (R$million)		3,659			3,704			2,411			433
Net debt/shareholders’ equity		52.5	%		54.0	%		33.7	%		25.4	%

Dividends/interest on shareholders’ equity (R$million)		325			232			203			—
Pay Out (Dividends and interest on shareholders’ equity/net		73.8	%		82.4	%		45.1	%		0.0	%

⁽¹⁾	LIS = Lines in Service

Revenue

In 2002, consolidated gross revenues reached R$9,840 million, 16.3% above the revenue registered in 2001. The revenue increase of R$1,381 million is basically due to the higher performance of local service(+ R$396 million), fixed-to-mobile call (+ R$372 million), long-distance service (+ R$279 million) and data

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communication (+ R$180 million). Consolidated net revenue reached R$7,071 million, 14.8% above the revenue recorded in 2001.

Table 5: Gross Revenue by Services

R$Million	2002			2001			Variation

Local Service		4,121.1			3,725.1			10.6	%
Long Distance Service		1,363.7			1,085.1			25.7	%
Fixed-Mobile Calls		2,176.8			1,805.3			20.6	%
Interconnection		785.8			789.6			-0.5	%
Lease of Means		235.5			204.8			15.0	%
Public Telephony		341.8			274.2			24.6	%
Data Communication		505.0			324.7			55.5	%
Supplementary and Value Added Services		278.8			216.5			28.8	%
Other		31.2			33.2			-6.1	%
Gross Revenues		9,839.7			8,458.4			16.3	%

Deductions		(2,768.3	)		(2,300.1	)		20.4	%
Net Revenues		7,071.4			6,158.4			14.8	%

Graph 5: Gross Revenue Breakdown

2002	2001

Consolidated local service revenue reached R$4,121 million, 10.6% above the revenue recorded in 2001. The increase in the share of local service revenue is due to the 12.6% expansion of the average plant in service, added to the average tariff adjustment of 8.3% in the local services basket, which became effective from June 28, 2002. It should be considered that during the year, Brasil Telecom stimulated the sale of promotional plans, which offer free registration, in addition to giving discounts on the subscription charge. Basic subscription and measured services accounted for R$2,657 million and R$1,315 million, corresponding to 64.5% and 31.9% of local service gross revenue, respectively.

The consolidated long-distance revenue reached R$1,364 million, 25.7% above the revenue reached in 2001. This higher share reflects the 12.6% expansion of the average plant in service, added to the average tariff adjustment of 4.97% in the long-distance services basket, which became effective from June 28, 2002. In