Total of
Account Capital Revaluation Profit Retained Shareholders'
Number Description Capital Reserves Reserves Reserves earnings Equity
---------------------------------------------------------------------------------------------------------
5.01 Initial Balance 2,232,641 410,500 0 1,309,572 2,066,527 6,019,240
---------------------------------------------------------------------------------------------------------
5.02 Prior-year 0 0 0 0 0 0
adjustment
---------------------------------------------------------------------------------------------------------
5.03 Capital 24,970 (24,970 ) 0 0 0 0
increase/decrease
---------------------------------------------------------------------------------------------------------
5.04 Realization of 0 0 0 (353,659 ) 353,659 0
reserves
---------------------------------------------------------------------------------------------------------
5.05 Treasury Stock 0 0 0 0 (9,175 ) (9,175 )
---------------------------------------------------------------------------------------------------------
5.06 Net Income for the 0 0 0 0 443,441 443,441
year
---------------------------------------------------------------------------------------------------------
5.07 Allocations 0 0 0 22,172 (239,799 ) (217,627 )
---------------------------------------------------------------------------------------------------------
5.07.01 Transfers to 0 0 0 22,172 (22,172 ) 0
reserves
---------------------------------------------------------------------------------------------------------
5.07.02 Proposed
dividends/Interest
on Capital 0 0 0 0 (217,627 ) (217,627 )
---------------------------------------------------------------------------------------------------------
5.08 Others 0 4,221 0 0 0 4,221
---------------------------------------------------------------------------------------------------------
5.09 Final Balance 2,257,611 389,751 0 978,085 2,614,653 6,240,100
---------------------------------------------------------------------------------------------------------
|
Statements of Changes in Shareholders' Equity
01/01/2001 to 12/31/2001
Total of
Account Capital Revaluation Profit Retained Shareholders'
Number Description Capital Reserves Reserves Reserves earnings Equity
---------------------------------------------------------------------------------------------------------
5.01 Initial Balance 1,993,609 576,850 0 1,569,139 1,994,388 6,133,986
---------------------------------------------------------------------------------------------------------
5.02 Prior-year
adjustment 0 0 0 0 (215,942 ) (215,942 )
---------------------------------------------------------------------------------------------------------
5.03 Capital
increase/decrease 239,032 (162,152 ) 0 0 (76,880 ) 0
---------------------------------------------------------------------------------------------------------
5.04 Realization of
reserves 0 0 0 (272,281 ) 272,281 0
---------------------------------------------------------------------------------------------------------
5.05 Treasury Stock 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------
5.06 Net Income for the
year 0 0 0 0 254,266 254,266
---------------------------------------------------------------------------------------------------------
5.07 Allocations 0 0 0 12,714 (146,672 ) (133,958 )
---------------------------------------------------------------------------------------------------------
5.07.01 Transfers to
reserves 0 0 0 12,714 (12,714 ) 0
---------------------------------------------------------------------------------------------------------
5.07.02 Proposed
dividends/Interest
on Capital 0 0 0 0 (133,958 ) (133,958 )
---------------------------------------------------------------------------------------------------------
5.08 Others 0 (4,198 ) 0 0 (14,914 ) (19,112 )
---------------------------------------------------------------------------------------------------------
5.08.01 Adjustment of
social
contribution tax
additional 0 (4,221 ) 0 0 0 (4,221 )
---------------------------------------------------------------------------------------------------------
5.08.02 Tax Incentives -
FINAM 0 23 0 0 0 23
---------------------------------------------------------------------------------------------------------
5.08.03 Additional
dividends - 2000 0 0 0 0 (14,914 ) (14,914 )
---------------------------------------------------------------------------------------------------------
5.09 Final Balance 2,232,641 410,500 0 1,309,572 2,066,527 6,019,240
---------------------------------------------------------------------------------------------------------
|
Statements of Changes in Shareholders' Equity
01/01/2000 to 12/31/2000
Total of
Account Capital Revaluation Profit Retained Shareholders'
Number Description Capital Reserves Reserves Reserves earnings Equity
---------------------------------------------------------------------------------------------------------
5.01 Initial Balance 1,936,659 1,057,454 0 1,630,989 1,641,518 6,266,620
---------------------------------------------------------------------------------------------------------
5.02 Prior-year
adjustment 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------
5.03 Capital
increase/decrease 56,950 0 0 0 0 56,950
---------------------------------------------------------------------------------------------------------
5.04 Realization of
reserves 0 0 0 (82,282 ) 82,282 0
---------------------------------------------------------------------------------------------------------
5.05 Treasury Stock 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------
5.06 Net Income for
the year 0 0 0 0 408,643 408,643
---------------------------------------------------------------------------------------------------------
5.07 Allocations 0 0 0 20,432 (138,055 ) (117,623 )
---------------------------------------------------------------------------------------------------------
5.07.01 Transfers to
reserves 0 0 0 20,432 (20,432 ) 0
---------------------------------------------------------------------------------------------------------
5.07.02 Proposed )
dividends 0 0 0 0 (117,623 ) (117,623
---------------------------------------------------------------------------------------------------------
5.08 Others 0 (480,604 ) 0 0 0 (480,604 )
---------------------------------------------------------------------------------------------------------
5.08.01 Effects of CVM )
349/01Instruction 0 (695,944 ) 0 0 0 (695,944
---------------------------------------------------------------------------------------------------------
5.08.02 Payment of
subscription
bonus 0 215,340 0 0 0 215,340
---------------------------------------------------------------------------------------------------------
5.09 Final Balance 1,993,609 576,850 0 1,569,139 1,994,388 6,133,986
---------------------------------------------------------------------------------------------------------
|
P: 1
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian
Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and 12/31/2002
Other Companies
01768-0 BRASIL TELECOM 02.570.688/0001-70
PARTICIPAES S.A
02.01 - FINANCIAL STATEMENTS -
STATEMENTS OF CHANGES IN
FINANCIAL POSITION
Account 01/01/2002 a 01/01/2001 a 01/01/2000 a
Number Description 12/31/2002 12/31/2001 12/31/2000
4.01 Sources 378,892 304,123 1,438,682
4.01.01 From Operating
Activity 291,309 53,231 150,939
4.01.01.01 Net Income/
Losses 443,441 254,266 408,643
4.01.01.02 Items not
affecting working
capital (152,132 ) (201,035 ) (257,704 )
4.01.01.02.01 Depreciation and
amortization 2,758 3,107 4,815
4.01.01.02.02 Monetary
variation and
interest on
long-term it (51,440 ) (138,210 ) 7,379
4.01.01.02.03 Equity in
subsidiaries (297,992 ) (181,482 ) (354,738 )
4.01.01.02.04 Dividends
receivable 181,362 129,511 128,401
4.01.01.02.05 Effect of
write-off of
permanent assets 2,327 5,938 (4,800 )
4.01.01.02.06 Investiment
losses/ gains 4,970 (19,899 ) (38,751 )
4.01.01.02.07 Taxes, duties and
contributions 5,883 0 0
4.01.01.02.08 Others 0 0 (10 )
4.01.02 Shareholders 0 0 272,290
4.01.02.01 Capital 0 0 56,950
4.01.02.02 Premium on
subscription of
shares 0 0 215,340
4.01.03 Third Parties 87,583 250,892 1,015,453
4.01.03.01 Increase of
noncurrent
liabilities 0 0 549,119
4.01.03.02 Transfer from
noncurrent to
current assets 47,558 220,882 297,978
4.01.03.03 Effects on
Working Capital -
IN CVM 349/91 0 0 144,043
4.01.03.04 Others 40,025 30,010 24,313
4.02 Use of Funds 252,070 1,509,655 238,649
4.02.01 Increase of
Permanent assets 23,791 466 17,968
4.02.02 Reduction of
Shareholders'
Equity
(Dividends) 217,627 148,872 117,623
4.02.03 Increase of
noncurrent assets 0 1,312,020 102,945
4.02.04 Transfer from
noncurrent to
current
liabilities 1,477 139 113
4.02.05 Other Uses 9,175 48,158 0
4.03 Increase
(decrease) in
working capital 126,822 (1,205,532 ) 1,200,033
4.04 Changes in
Current Assets 96,687 (1,183,215 ) 1,169,907
4.04.01 Current Assets at
the beginning of
the year 365,839 1,549,054 379,147
4.04.02 Current Assets at
the end of the
year 462,526 365,839 1,549,054
4.05 Changes in
Current
Liabilities (30,135 ) 22,317 (30,126 )
4.05.01 Current
Liabilities at
the beginning of
the year 184,324 162,007 192,133
4.05.02 Current
Liabilities at
the end of the
year 154,189 184,324 162,007
P: 1
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and Other Companies 12/31/2002
01768-0 BRASIL TELECOM PARTICIPAES S.A 02.570.688/0001-70
02.01 - FINANCIAL STATEMENTS - CONSOLIDATED ASSETS
Account
Number Description 12/31/2002 12/31/2001 12/31/2000
1 Total Assets 16,102,429 14,678,908 14,208,837
1.01 Current Assets 3,749,326 2,324,326 3,821,805
1.01.01 Cash and cash equivalents 1,596,163 465,530 2,018,892
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 587,003 619,508 593,705
1.01.04.01 Loans and financing 6,795 622 1,166
1.01.04.02 Deferred and recoverable taxes 416,015 406,388 407,799
1.01.04.03 Judicial deposits 724 58,663 76,847
1.01.04.04 Other Assets 163,469 153,835 107,893
1.02 Noncurrent Assets 1,497,323 1,362,649 803,520
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 1,495,514 1,332,649 803,520
1.02.03.01 Loans and financing 155,412 99,724 76,220
1.02.03.02 Deferred and recoverable taxes 893,460 936,125 613,731
1.02.03.03 Judicial deposits 331,366 198,052 95,559
1.02.03.04 Inventories 39,862 50,576 0
1.02.03.05 Other Assets 75,414 48,172 18,010
1.03 Permanent Assets 10,855,780 10,991,933 9,583,512
1.03.01 Investiments 165,163 101,248 105,935
1.03.01.01 Associated companies 3,870 3,870 0
1.03.01.02 Subsidiaries 0 0 0
1.03.01.03 Other Investiments 161,293 97,378 105,935
1.03.02 Property, plant and equipment 10,023,579 10,314,316 8,828,080
1.03.03 Deferred charges 667,038 576,369 649,497
P: 1
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and Other Companies 12/31/2002
01768-0 BRASIL TELECOM PARTICIPAES S.A 02.570.688/0001-70
02.01 - FINANCIAL STATEMENTS - CONSOLIDATED LIABILITIES
P: 1
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and Other Companies 12/31/2002
01768-0 BRASIL TELECOM PARTICIPAES S.A 02.570.688/0001-70
02.01 - FINANCIAL STATEMENTS - CONSOLIDATED LIABILITIES
Account
Number Description 12/31/2002 12/31/2001 12/31/2000
Total Liabilities
2 and Shareholders' 16,102,429 14,678,908 14,208,837
Equity
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 371,399 281,107 236,956
contributions
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 3,232 63,403 96,610
contingencies
2.01.06.02 Provision for 92,144 41,668 0
pension plan
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 44,352 92,501 65,676
charges
Consignments in
2.01.08.02 favor of third 78,750 84,106 111,301
parties
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 5,032,117 3,721,847 2,784,315
Liabilities
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 385,992 315,075 294,264
contingencies
2.02.03.02 Provision for 409,696 449,076 9,920
pension plan
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 11,444 0 0
charges
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
License for
2.02.05.05 operating telecoms 174,991 0 0
services
2.02.05.06 Other Liabilities 27,729 26,431 16,999
2.02.05.07 Fund for 8,159 9,455 9,491
Capitalization
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/ 0 0 0
Associated companies
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 790,220 1,143,879 1,416,160
reserves
2.05.04.05 Profit Retention 0 0 0
Special reserve for
2.05.04.06 undistributed 0 0 0
dividends
2.05.04.07 Other Profit 0 0 0
Reserves
2.05.05 Retained earnings 2,600,100 2,048,261 1,972,850
P: 2
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and Other Companies 12/31/2002
01768-0 BRASIL TELECOM PARTICIPAES S.A 02.570.688/0001-70
02.01 - FINANCIAL STATEMENTS - CONSOLIDATED INCOME STATEMENT
01/01/2002 01/01/2001 01/01/2000
Account a a a
Number Description 12/31/2002 12/31/2001 12/31/2000
3.01 Gross Revenue 9,839,680 8,458,496 6,045,924
3.02 Revenue deductions (2,768,312 ) (2,300,088 ) (1,535,756 )
3.03 Net Revenue 7,071,368 6,158,408 4,510,168
3.04 Cost of services rendered (4,441,340 ) (3,983,885 ) (3,004,183 )
3.05 Gross Profit 2,630,028 2,174,523 1,505,985
3.06 Operating Income (Expenses) (1,898,500 ) (1,514,299 ) (838,477 )
3.06.01 Selling expenses (761,753 ) (722,556 ) (353,996 )
3.06.02 General and administrative (656,885 ) (604,483 ) (468,655 )
expenses
3.06.02.01 Management remuneration (7,961 ) (7,498 ) (4,685 )
3.06.02.02 Other General and (648,924 ) (596,985 ) (463,970 )
administrative expenses
3.06.03 Financial (601,043 ) (126,385 ) 39,803
3.06.03.01 Financial Income 313,752 310,320 301,648
3.06.03.02 Financial Expenses (914,795 ) (436,705 ) (261,845 )
3.06.04 Other operating income 262,546 253,100 202,630
3.06.05 Other operating expenses (141,365 ) (313,975 ) (258,259 )
3.06.06 Equity in subsidiaries 0 0 0
3.07 Operating Income 731,528 660,224 667,508
3.08 Nonoperating Income (144,129 ) (125,865 ) 80,767
3.08.01 Revenues 44,997 451,856 376,044
3.08.01.01 Gain on the acquisition of tax 0 0 22,649
credits -REFIS
3.08.01.02 Other Revenues 44,997 451,856 353,395
3.08.02 Expenses (189,126 ) (577,721 ) (295,277 )
3.08.02.01 PIS/COFINS on REFIS gain 0 0 (827 )
3.08.02.02 IRPJ/CSLL on REFIS gain 0 0 (7,419 )
3.08.02.03 Minority Interests on REFIS 0 0 (4,973 )
gain
3.08.02.04 Other Expenses (189,126 ) (577,721 ) (282,058 )
3.09 Income before Taxes/Profit 587,399 534,359 748,275
Sharing
3.10 Income and social contribution (221,686 ) (203,610 ) (282,177 )
taxes
3.11 Deferred Income Tax 0 0 0
3.12 Statutory (42,619 ) (52,783 ) (30,155 )
participations/contributions
3.12.01 Participations (42,619 ) (52,783 ) (30,155 )
3.12.02 Contributions 0 0 0
3.13 Reversal of interest on capital 270,583 79,334 53,499
3.14 Minority Interests (150,696 ) (96,298 ) (79,829 )
3.15 Net Income for the year 442,981 261,002 409,613
P: 1
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian
Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and Other 12/31/2002
Companies
01768-0 BRASIL TELECOM 02.570.688/0001-70
PARTICIPAES S.A
02.01 - FINANCIAL STATEMENTS -
CONSOLIDATED STATEMENT OF
CHANGES IN FINANCIAL POSITION
01/01/2002 a 01/01/2001 a 01/01/2000 a
Account Number Description 12/31/2002 12/31/2001 12/31/2000
4.01 Sources 4,161,556 2,915,226 4,850,598
4.01.01 From Operating 3,099,991 2,529,735 2,112,294
Activity
4.01.01.01 Net Income/ 442,981 261,002 409,613
Losses
Items not
4.01.01.02 affecting working 2,657,010 2,268,733 1,702,681
capital
4.01.01.02.01 Depreciation and 2,124,143 1,996,280 1,590,203
amortization
Monetary,
Exchange
4.01.01.02.02 variation and 130,222 44,056 15,321
interest on
long-term items
4.01.01.02.03 Provision for 17,188 12,972 12,581
contingencies
Effect of
4.01.01.02.04 write-off of 14,096 19,046 (4,120 )
permanent assets
4.01.01.02.05 Taxes, duties and 204,251 129,900 62,055
contributions
4.01.01.02.06 Investment Gain 4,970 (19,899 ) 0
4.01.01.02.07 Minority 150,696 96,298 31,303
Interests
4.01.01.02.08 Others 11,444 (9,920 ) (4,662 )
4.01.02 Shareholders 0 0 272,290
4.01.03 Third parties 1,061,565 385,491 2,466,014
Increase of
4.01.03.01 noncurrent 969,324 285,686 2,164,803
liabilities
Increase of
4.01.03.02 Shareholders' 0 0 144,043
Equity
Transfer from
4.01.03.03 noncurrent to 47,390 18,037 119,036
current assets
4.01.03.04 Others 44,851 81,768 38,132
4.02 Use of Funds 2,593,208 4,171,945 4,454,155
4.02.01 Increase of 191,636 383,895 92,646
noncurrent assets
4.02.02 Increase of 2,005,985 3,449,032 3,473,702
Permanent assets
Reduction of
4.02.03 Shareholders' 328,910 228,206 171,122
Equity
(Dividends)
Reduction of
Shareholders'
4.02.04 Equity - CCL 0 0 544,008
merger CRT and
TBS
Transfer from
4.02.05 noncurrent to 45,104 6,288 172,677
current
liabilities
4.02.06 Other Uses 21,573 104,524 0
Increase
4.03 (decrease) in 1,568,348 (1,256,719 ) 396,443
working capital
4.04 Changes in 1,425,000 (1,497,479 ) 1,776,800
Current Assets
Current Assets at
4.04.01 the beginning of 2,324,326 3,821,805 2,045,005
the year
Current Assets at
4.04.02 the end of the 3,749,326 2,324,326 3,821,805
year
Changes in
4.05 Current (143,348 ) (240,760 ) 1,380,357
Liabilities
Current
4.05.01 Liabilities at 2,622,056 2,862,816 1,482,459
the beginning of
the year
Current
4.05.02 Liabilities at 2,478,708 2,622,056 2,862,816
the end of the
year
P: 1
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and Other Companies 12/31/2002
01768-0 BRASIL TELECOM PARTICIPAES S.A 02.570.688/0001-70
02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT
To
The Board of Directors and Shareholders
Brasil Telecom Participaes S.A.
We have examined the balance sheet of Brasil Telecom Participaes 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 Participaes 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 Participaes S.A and its subsidiaries
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
P: 1
<<
PUBLIC FEDERAL SERVICE
CVM - Comisso de Valores Mobilirios (Brazilian Exchange Commission)
Standard Financial Statements Corporate Law
Commercial, Industrial and Other Companies 12/31/2002
01768-0 BRASIL TELECOM PARTICIPAES S.A 02.570.688/0001-70
02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT
To our Shareholders,
In compliance with legal and statutory provisions, the Management of Brasil
Telecom Participaes 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.
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.
Brasil Telecom Participaes S.A. 2
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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, Vsper and
Telecom Amricas 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.
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.
Brasil Telecom Participaes S.A. 3
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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, Rondnia, Mato
Grosso, Mato Grosso do Sul, Tocantins, Gois, Santa Catarina, Paran 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 Participaes S.A. is controlled by Solpart Participaes S.A.,
holder of 53.5% of the common shares, corresponding to 20.1% of total capital.
Solpart Participaes S.A. on its turn, is controlled by Timepart Participaes
Ltda., Techold Participaes S.A. and Telecom Italia International N.V.
On August 28, 2002, Telecom Italia reduced its holding in the voting shares of
Solpart Participaes 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 Participaes S.A. remained
unchanged, as shown in the diagram below:
Brasil Telecom Participaes S.A. 4
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Figure 1: Ownership Structure
[[Image Removed]]
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 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 Telecoms 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 Participaes S.A. 5
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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
5.4% 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 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:
Brasil Telecom Participaes S.A. 6
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Graph 1: Market Share - Quarterly Average
[[Image Removed]]
The increase in market share, either in the intra-sectorial and intra-regional
segments, is due to the companys 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.
The companies Telemar and Telefnica, 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 Telefnica.
Brasil Telecom Participaes S.A. 7
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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.
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, Cuiab, Maring 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 Florianpolis 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.
Brasil Telecom Participaes S.A. 8
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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.
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:
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.
Brasil Telecom Participaes S.A. 9
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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.
Small & Medium Entreprises
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.
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 Telephony
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 Stio do Pica-Pau Amarelo, Criana Esperana, Natal - Fbrica do Papai
Noel, Reveillon - Supersties de Ano Novo, and also the introduction of a new
virtual telephone card shop.
Brasil Telecom Participaes S.A. 10
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Corporate and Government Market
Brasil Telecoms 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 Florianpolis
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 1st International
Electronic Government Forum, held in June of 2002 in Braslia.
Continually aware of the trend towards interactivity through telephony, Brasil
Telecom takes an active part in tele-donation campaigns. The Criana Esperana and
Teleton projects are the largest in the segment. This trend 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 Braslia 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.
Brasil Telecom Participaes S.A. 11
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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
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%.
Brasil Telecom Participaes S.A. 12
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02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT
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 the Customer 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 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 Telgrafos - ECT, lottery agencies and the Caixa
Econmica 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 Servios de Internet S.A.
A BrT Servios 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
publication of sites on the
Brasil Telecom Participaes S.A. 13
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02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT
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.
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 Telecomunicaes 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
Brasil Telecom Participaes S.A. 14
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01768-0 BRASIL TELECOM PARTICIPAES S.A 02.570.688/0001-70
02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT
outside Region II - So 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 So
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 So Paulo, Rio de Janeiro and Belo Horizonte markets.
Operating Performance
Table 1: 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 %
1That includes 1.851 thousand lines referred to CRT acquisition, held on
07/31/2000.
2That includes 1.732 thousand lines referred to CRT acquisition, held on
07/31/2000.
3That 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 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.
Brasil Telecom Participaes S.A. 15
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Graph 2: Plant
[[Image Removed]]
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.
Graph 3: ADSL Accesses
[[Image Removed]]
Brasil Telecom Participaes S.A. 16
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02.01 - FINANCIAL STATEMENTS - MANAGEMENT REPORT
Productivity
At the end of 2002, Brasil Telecom had 5,571 employees, a reduction of 2,319 as
compared to 2001. During 2002, Brasil Telecom hired a total of 705 employees and
dismissed 3,024. 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 55.2%,
which reached 1,699 lines in service (LIS)/employee against 1,095 in 2001.
Graph 4: Productivity
[[Image Removed]]
Consolidated Financial and Economic Performance
Table 2: Financial Indicators
2002 2001 2000 1999
Net operational revenue (R$ 7,071 6,158 4,510 3,058
Million)
Net operational revenue/average 65 64 62 60
LIS1 /month (R$)
EBITDA R$ Million 3,335 2,656 2,218 1,494
EBITDA Margin 47.2% 43.1% 49.2% 48.8%
EBITDA/average LIS1/month (R$) 30.7 27.5 30.4 29.3
Net earnings (R$ million) 443 261 410 218
Net margin 6.3% 4.2% 9.1% 7.1%
Net earnings/average LIS1/month 4.1 2.7 5.6 4.3
(R$)
Return on total assets average 2.9% 1.8% 3.5% 2.5%
Return on equity average 7.2% 4.3% 6.6% 3.8%
Net debt/shareholders equity 41.4% 44.7% 24.9% 9.2%
Dividends/interest on shareholders 271 134 118 133
equity (R$ million)
Pay Out2 61.1% 51.3% 28.7% 61.0%
1LIS: Lines in service
2Dividends and interest on
shareholders equity/net earnings
Brasil Telecom Participaes S.A. 17
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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 communication (+ R$180 million). Consolidated net revenue reached
R$7,071 million, 14.8% above the revenue recorded in 2001.
Table 3: Gross Revenue by Services
R$ 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 |