UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

OR

OR

Commission file number 001-14493

TELESP CELULAR PARTICIPAÇÕES S.A.

Telesp Cellular Holding Company
(Translation of Registrant’s name into English)

The Federative Republic of Brazil
(Jurisdiction of incorporation or organization)

Av. Doutor Chucri Zaidan 860, 04583-110
São Paulo, SP, Brazil
(Address of principal executive offices)

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

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

The number of outstanding shares of each class of stock of Telesp Celular Participações S.A, as of December 31, 2003:

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

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

TABLE OF CONTENTS

i

INTRODUCTION

     All references in this annual report to:

ii

     Unless otherwise specified, data relating to the Brazilian telecommunications industry included in this annual report was obtained from Anatel.

PRESENTATION OF FINANCIAL INFORMATION

     Our consolidated financial statements as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001, have been prepared in accordance with the accounting practices adopted in Brazil, as prescribed by the Brazilian Corporate Law, or Brazilian Corporate Law Method, which differs in certain significant respects from generally accepted accounting principles in the United States, or U.S. GAAP. Note 37 to our financial statements appearing elsewhere in this annual report describes the principal differences between the Brazilian Corporate Law Method and U.S. GAAP as they relate to us, and provides a reconciliation to U.S. GAAP of net loss and shareholders’ equity. These consolidated financial statements have been audited by Deloitte Touche Tohmatsu Auditores Independentes.

     The consolidated financial statements included in this annual report, and the selected financial data presented herein, have been prepared on the same basis of accounting as that used in our annual and interim financial statements published in Brazil.

     Our consolidated financial statements include the results of Telesp Celular. In addition, beginning December 27, 2002, we have consolidated 100% of the results of Global Telecom, and, since May 1, 2003, we have also consolidated TCO’s results due to acquisition of its control.

     This annual report also contains the audited combined financial statements of Globaltelcom Telecomunicações S.A., Daini do Brasil S.A. and Inepar S.A. – Participações em Investimentos de Telecomunicações (which, as of December 31, 2002, is known as GTPS S.A. Participações em Investimentos de Telecomunicações), collectively known as Global Telecom Holdings, as of December 31, 2001, and for the periods from February 6, 2001 to December 31, 2001 and from January 1, 2002 to December 27, 2002. These combined financial statements have been audited by Deloitte Touche Tohmatsu Auditores Independentes.

     The combined financial statements of Global Telecom Holdings included in this annual report have been prepared in accordance with the Brazilian Corporate Law Method. A discussion of the principal differences between the Brazilian Corporate Law Method and U.S. GAAP relevant to Global Telecom Holdings is set out in Note 27 to Global Telecom Holdings’s audited combined financial statements.

iii

FORWARD-LOOKING STATEMENTS

     Certain sections in this annual report, principally in “Item 3D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects,” contains information that is forward-looking, including but not limited to:

     Forward-looking statements may also be identified by words such as “believe,” “expect,” “anticipate,” “project,” “intend,” “should,” “seek,” “estimate,” “future” or similar expressions. Forward-looking information involves risks and uncertainties that could significantly affect expected results. The risks and uncertainties include, but are not limited to:

     We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

iv

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

     A. Selected Financial Data

     The selected financial data as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 included in this annual report have been derived from, and should be read in conjunction with, our audited consolidated financial statements and notes thereto included elsewhere in this annual report and audited by Deloitte Touche Tohmatsu Auditores Independentes. The selected financial data as of December 31, 2000 and for the years ended December 31, 2000 and 1999 included in this annual report have been derived from our audited financial statements and notes thereto audited by Deloitte Touche Tohmatsu Auditores Independentes, which are not included in this annual report. The selected financial data as of December 31, 1999 included in this annual report have been derived from our audited financial statements and notes thereto audited by Arthur Andersen S/C, which are not included in this annual report. See “Presentation of Financial Information” above for more information about it.

     In February 2001, we acquired an interest of 49% of the outstanding common stock and 100% of the outstanding preferred shares in Globaltelecom Telecomunicações S.A., Daini do Brasil S.A. and GTPS S.A. Participações em Investimentos de Telecomunicações, or Global Telecom Holdings, that held 95% of the voting shares and 100% of the non–voting shares of Global Telecom for aggregate consideration of approximately R$902 million. On December 27, 2002, we purchased the remaining 51% of the outstanding common stock of each of the holding companies and we now own directly and indirectly 100% of the capital of Global Telecom. In September 2002, we made advances for future capital increases in Global Telecom and in December 2002, most of these advances for future capital increases were capitalized. The selected financial information reflects our investment in Global Telecom Holdings since the date of acquisition until December 27, 2002 under the equity method of accounting. As of December 31, 2002, the balance sheets of Global Telecom and the holding companies that became TCP’s subsidiaries on December 27, 2002 were fully consolidated. Results of Operations of Global Telecom and the holding companies for the year ended December 31, 2002 are reflected in the statement of income under the equity method of accounting and were fully consolidated for the year ended December 31, 2003.

     In April 2003, we acquired 64.03% of the outstanding voting capital stock of TCO. We acquired additional shares of voting capital stock of TCO in a public tender offer, bringing the percentage of TCO’s outstanding voting capital stock we own to 90.73%. Since May 1, 2003, TCP has consolidated TCO’s results due to the acquisition of its control.

Brazilian Corporate Law Method and U.S. GAAP

     Our consolidated financial statements are prepared in accordance with the Brazilian Corporate Law Method, which differs in certain material respects from U.S. GAAP. See Note 37 to our consolidated financial statements for a summary of the differences between the Brazilian Corporate Law method and U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP of shareholders’ equity as of December 31, 2003 and 2002, and net loss for the years ended December 31, 2003, 2002 and 2001.

1

Selected Financial Data

     The following tables present a summary of our selected financial data at the dates and for each of the periods indicated. You should read the following information together with our financial statements and the notes thereto included elsewhere in this annual report and with “Item 5. Operating and Financial Review and Prospects.”

2

(1) Interest on Shareholder’s equity is includes as part of the dividens and presented net of taxes.

(2) Basic net income (loss) per share for the year ended December 31, 1999 because the Company did not have any potencially diluted shares outstanding. As a result of the corporate restructuring completed on January 2000, the Company was obligated to issue shares to the controlling shareholder for the amount of the tax benefit on the amortization of the intangible related to concession that was transferred in the merger. The numbers of issuable shares, which are determined on the basis of estimates using the Company’s share price at the date of the balance sheet, are considered dilutive and are included on the basis of purposes of calculating dilutives earnings per share for the year ended December 31, 2000,2001, 2002 and 2003. The potencially dilutives shares, consisting solely of the estimate of issuable shares mentioned above, have been excluded from the computation for 2001, 2002 and 2003 as their effect would have been anti-dilutive.

Exchange Rates

     There are two principal legal foreign exchange markets in Brazil:

     Most trade and financial foreign-exchange transactions are carried out on the commercial rate exchange market. These transactions include the purchase or sale of shares or payment of dividends or interest with respect to shares. Foreign currencies may only be purchased through a Brazilian bank authorized to operate in these markets. In both markets, rates are freely negotiated but may be influenced by Central Bank intervention. In 1999, the Central Bank placed the commercial exchange rate and the floating rate exchange market under identical operational limits, which led to a convergence in the pricing and liquidity of both markets. Since February 1, 1999, the floating market rate has been the same as the commercial market rate, and the system relying on the foreign exchange rate band has been eliminated. However, there is no guarantee that these rates will continue to be the same in the future. Despite the convergence in pricing and liquidity of both markets, each market continues to be regulated separately.

3

     Since 1999, the Central Bank has allowed the real/U.S. dollar exchange rate to float freely, and during that period, the real/U.S. dollar exchange rate has fluctuated considerably. In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to let the real float freely or will intervene in the exchange rate market through a currency band system or otherwise. The real may depreciate or appreciate substantially in the future. For more information on these risks, see “Risk Factors—Risks relating to Brazil”.

     The following tables set forth the commercial selling rate, expressed in reais per U.S. dollar (R$/U.S.$), for the periods indicated.

B. Capitalization and Indebtedness

     Not applicable.

C. Reasons for the Offer and Use of Proceeds

     Not applicable.

D. Risk Factors

     This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. The risks described below are not the only ones we face. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of the ADSs could decline.

Risks Relating to Brazil

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

4

     In the past, the Brazilian government has intervened in the Brazilian economy and occasionally made drastic changes in policy. The Brazilian government’s actions to control inflation and affect other policies have often involved wage and price controls, currency devaluations, capital controls, and limits on imports, among other things. Our business, financial condition, results of operations and the market price of our preferred shares and ADSs may be adversely affected by changes in government policies, as well as general economic factors, including:

     Inflation and certain government measures to curb inflation may have adverse effects on the Brazilian economy, the Brazilian securities market and/or our business and operations.

     Brazil has historically experienced extremely high rates of inflation. Inflation and certain of the Brazilian government’s measures taken in the attempt to curb inflation have had significant negative effects on the Brazilian economy. Since 1994, Brazil’s inflation rate has been substantially lower than in previous periods. However, inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market. In 2003, the general price index, or the IGP-DI (the #ndice Geral de Preços – Disponibilidade Interna), an inflation index developed by the Fundação Getúlio Vargas, a private Brazilian economic organization, reflected inflation of 7.7%, compared to 26.4% in 2002 and 10.4% in 2001. If Brazil experiences significant inflation, we may be unable to increase service rates to our customers in amounts that are sufficient to cover our increasing operating costs, and our business may be adversely affected.

     Fluctuations in the value of the real against the value of the U.S. dollar may adversely affect our ability to pay U.S. dollar-denominated or U.S. dollar-linked obligations and could lower the market value of our preferred shares and ADSs.

     The Brazilian currency has historically experienced frequent devaluations. The real devalued against the U.S. dollar by 18.7% in 2001. During 2002, the real continued to undergo significant devaluation due in part to the political uncertainty in connection with the elections and the global economic slowdown. In 2002, the real devalued against the U.S. dollar by 52.3%. In 2003, the internal economy showed inflation stabilization and the dissipation about uncertainty in the Governmental economic team, which resulted in an appreciation of the real by 18.2%. However, there is no guarantee that this trend will continue or that the exchange rate will remain at current levels. Devaluations of the real would reduce the U.S. dollar value of distributions and dividends on preferred shares and the ADSs and may also reduce the market value of the preferred shares and the ADSs. See “—Selected Financial Data—Exchange Rates” for more information on exchange rates.

5

     As of December 31, 2003, we had R$6,279.2 million in total debt, of which 77.3% was denominated in foreign currencies, primarily the U.S. dollar and the euro. As of December 31, 2003, we had currency derivatives in place to hedge 106.5% of our foreign currency-denominated financial debt. This hedge in excess was a consequence of foreign-currency commitments against exchange variations (such as the leasing, long-term hedging inefficiency, and suppliers). At the same time, while we may derive income from derivative transactions denominated in foreign currencies, all of our operating revenues are generated in reais. To the extent that the value of the real decreases relative to the U.S. dollar, our debt becomes more expensive to service and it becomes more costly for us to import the technology and the goods that are necessary to operate our business.

     Deterioration in economic and market conditions in other countries, especially emerging market countries, may adversely affect the Brazilian economy and our business.

     The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging market countries. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the capital markets in other countries to fluctuate. Developments or conditions in other emerging market countries have at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil.

     Adverse developments in other emerging market countries could lead to a reduction in both demand and the market price for our preferred shares and ADSs.

Risks Relating to the Brazilian Telecommunications Industry and Us

     Extensive government regulation of the telecommunications industry may limit our flexibility in responding to market conditions, competition and changes in our cost structure.

     Our business is subject to extensive government regulation, including any changes that may occur during the period of our authorization to provide telecommunication services. Anatel, which is the main telecommunications industry regulator in Brazil, regulates, among other things:

     This extensive regulation and the conditions imposed by our authorization to provide telecommunication services may limit our flexibility in responding to market conditions, competition and changes in our cost structure.

6

     Our results may be affected in the medium or long term as a result of the new SMP rules.

     In 2002, Anatel changed the SMP regime (first enacted in December 2000), thus encouraging companies operating under the SMC system to migrate to the SMP system. Under the SMP regime, we no longer receive payment from our customers for outbound long distance traffic, but we receive payment for the use of our network, in accordance with the network usage remuneration plan. In 2003, this change had little impact on us, but we cannot assure that in the next years the interconnection fees that we will receive from long distance operators will compensate us for the revenues that we would have received from our customers for outbound long distance traffic.

     Until June 30, 2004, SMP service providers may choose to establish a price cap or freely negotiate their interconnection charges. After that date, free negotiation will be the rule, subject to Anatel regulations to be issued relating to the traffic capacity and interconnection infrastructure that must be made available to requesting parties.

     In addition, under the SMP regime, an SMP cellular operator will pay for the use of another SMP cellular operator’s network in the same registration area only if the traffic carried from the first operator to the second exceeds 55% of the total traffic exchanged between them. In that case, only those calls that have surpassed the 55% level will be subject to payment for network usage. This rule is valid until June 30, 2005, after which no payments will be due for network usage between SMP networks, regardless of the amount of traffic. As a result, if the traffic we terminate for other SMP cellular operators exceeds the traffic they terminate for our company, our revenues and results of operations may be adversely affected.

     The new rules may negatively affect our revenues and results of operations.

     If the inflation adjustment index now applied to our tariffs is changed, the new index may not be adequate.

     The Brazilian government is considering replacing the IGP-DI, the monetary adjustment index currently used in connection with the tariffs applied in the telecommunications industry, with another index, which has not yet been identified. We cannot assure you that a new index, if any, would adequately reflect the effect of inflation on our tariffs.

     We face substantial competition that may reduce our market share and harm our financial performance.

     There is substantial competition in the telecommunications industry. We not only compete with companies that provide wireless services and trunking, but also with companies that provide fixed-line telecommunications and Internet access services, due to the trend towards the convergence and substitution of mobile services for these other services.

     We expect competition to intensify as a result of the entrance of new competitors and the rapid development of new technologies, products and services. Our ability to compete successfully will depend on our marketing techniques, as well as on our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by our competitors. To the extent that we do not keep pace with technological advances, or fail to timely respond to changes in competitive factors in our industry, we could lose a portion of our market share or experience a decline in our revenue. Competition from other mobile communications service providers in the region in which we operate may also affect our financial results by causing, among other things, the rate of our customer growth to decline and bring about decreases in tariff rates and increases in selling expenses. This could have a material adverse effect on our results of operations.

     There has been consolidation in the Brazilian telecommunications market, and we believe this trend may continue. Consolidations may result in increased competitive pressures within our market. We may be unable to

7

adequately respond to pricing pressures resulting from consolidation, which would adversely affect our business, financial condition and results of operations.

     Our results of operations would be affected by a high rate of customer turnover or a decrease in our customer growth.

     A high rate of customer turnover and/or a decrease in our customer growth could adversely affect our results of operations as well as our competitive position. The rate of customer turnover may be the result of several factors, including limited network coverage and lack of sufficient reliability of our services, as well as increased competition in the region in which we operate and the economic conditions in Brazil.

     The industry in which we conduct our business is subject to rapid technological changes and these changes could have a material adverse effect on our ability to provide competitive services.

     The telecommunications industry is subject to rapid and significant technological changes. Our success depends, in part, on our ability to anticipate and adapt in a timely manner to technological changes. We expect that new products and technologies will emerge and that existing products and technologies will be further developed.

     The advent of new products and technologies could have a variety of consequences for us. These new products and technologies may reduce the price of our services by providing lower-cost alternatives, or they may be superior to, and render obsolete, the products and services we offer and the technologies we use, requiring investment in new technology. The cost of upgrading our products and technology in order to continue to compete effectively could be significant, and our ability to fund this upgrading may depend on our ability to obtain additional financing.

     Our controlling shareholders have a great deal of influence over our business.

     PT Móveis SGPS, S.A. and Telefónica Móviles, S.A., our principal shareholders, currently own, through Brasilcel, approximately 93.66% of our common shares and 65.12% of our total capital. PT Móveis SGPS, S.A. is 100% controlled by Portugal Telecom, SGPS, S.A. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.” Due to their share ownership, our principal shareholders have the power to control us and our subsidiaries, including the power to elect our directors and officers and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations and the timing and payment of our dividends. In addition, as Portugal Telecom and Telefónica Móviles share their participation in us equally, any disagreement or dispute between them may have an impact on the decision-making capabilities of our management.

     The wireless industry, including us, may be harmed by reports suggesting that radio frequency emissions cause health problems and interfere with medical devices.

     Media and other reports have suggested that radio frequency emissions from wireless handsets and base stations may cause health problems. If consumers harbor health-related concerns, they may be discouraged from using wireless handsets. These concerns could have an adverse effect on the wireless communications industry and, possibly, expose wireless providers, including us, to litigation. We cannot assure you that further medical research and studies will refute a link between the radio frequency emissions of wireless handsets and base stations and these health concerns. Government authorities could increase regulation of wireless handsets and base stations as a result of these health concerns or wireless companies, including us, could be held liable for costs or damages associated with these concerns, which could have an adverse effect on our business. The expansion of our network may be affected by these perceived risks if we experience problems in finding new sites to expand our network, which in turn may delay the expansion and may affect the quality of our services.

     Our investment in Global Telecom S.A. has adversely affected, and is expected to continue to adversely affect, our financial performance.

8

     Our investment in Global Telecom S.A. presents operational and financial risks. Global Telecom started operations in 1999, and its principal competitor in its concession area has been in operation for a longer period of time and has a larger market share in that area. Global Telecom has had substantial net losses (R$436.0 million in 2003, R$771.1 million in 2002 and R$856.1 million in 2001) resulting in significant part from indebtedness and increased expenses in connection with the rapid expansion of its network infrastructure and upgrading its marketing and commercial capabilities.

     In 2003, our financial results were adversely affected by our R$436.0 million of losses in Global Telecom S.A. and by the interest expenses arising from indebtedness we incurred to finance our acquisition of Global Telecom, which resulted in a net loss of R$640.2 million in 2003, compared to a net loss of R$1,140.7 million in 2002.

     Our investment in Global Telecom S.A. is expected to continue to have a material effect on our financial condition and results because of the indebtedness we incurred to make the investment. In addition, Global Telecom (which began operations in December 1998) has reported net losses for the last years, but we expect it will become profitable by the end of 2005.

Risks Relating to Our Preferred Shares and Our ADSs

     Our preferred shares and our ADSs generally do not have voting rights.

     In accordance with Brazilian corporate law and our by-laws, holders of our preferred shares, and therefore of our ADSs, are not entitled to vote at meetings of our shareholders, except in limited circumstances. See “Item 10B. Memorandum and Articles of Association.”

     Our bylaws state that holders of preferred shares will have full voting rights if we do not pay minimum dividends for three consecutive fiscal years, and the preferred shareholders will retain those voting rights until the minimum dividends are paid. Because we did not pay minimum dividends for the years ended December 31, 2003, 2002 and 2001, the holders of preferred shares are able to exercise voting rights since the 2004 general shareholders’ meeting and until we pay the minimum dividends for 2003 or any subsequent year. However, this has no significant impact, since our controlling shareholders own more than 50% of our total capital. Once we pay the minimum dividends for 2003 or any subsequent year, those voting rights will cease.

     You might be unable to exercise preemptive rights with respect to our preferred shares unless there is a current registration statement in effect that covers those rights or unless an exemption from registration applies.

     You will not be able to exercise the preemptive rights relating to our preferred shares underlying your ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respect to those rights, or unless an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement. Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the depositary, or, if the preemptive rights cannot be sold, they will lapse and you will not receive any value for them. For more information on the exercise of your rights, see “Item 10. Additional Information.”

     An exchange of ADSs for preferred shares risks loss of certain foreign currency remittance and Brazilian tax advantages.

     The ADSs benefit from the certificate of foreign capital registration, which permits The Bank of New York, as depositary, to convert dividends and other distributions with respect to preferred shares into foreign

9

currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs for preferred shares will then be entitled to rely on the depositary’s certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under Resolution 2,689 of the Central Bank of Brazil, dated January 26, 2000, known as Resolution 2,689, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration.

     If holders of ADSs do not qualify under Resolution 2,689, they will generally be subject to less favorable tax treatment on distributions with respect to our preferred shares. There can be no assurance that the depositary’s certificate of registration or any certificate of foreign capital registration obtained by holders of ADSs will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.

     The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of ADSs.

     Investments in securities, such as the preferred shares or the ADSs, of issuers from emerging market countries, including Brazil, involves a higher degree of risk than investing in securities of issuers from more developed countries.

     The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. These features may substantially limit the ability to sell the preferred shares underlying the ADSs at a price and time at which holders wish to do so.

ITEM 4. INFORMATION ON THE COMPANY

A. Our History and Development

General

     We are incorporated under the laws of the Federative Republic of Brazil under the name Telesp Celular Participações S.A., known as TCP. We have the legal status of a sociedade por ações, or a stock corporation, operating under the Brazilian corporate law. Our principal executive offices are located at Avenida Doutor Chucri Zaidan, 860, 04583-110, São Paulo, SP, Brazil. Our telephone number is +55 11 5105-1182, our facsimile number is +55 11 5105-2247, and our website is www.vivo.com.br. The information on our website is not part of this annual report. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011.

     According to market share data published by Anatel, we are a leading provider of cellular telecommunications services in Brazil through our subsidiaries Telesp Celular S.A., or Telesp Celular, Global Telecom S.A. or Global Telecom, and Tele Centro Oeste S.A., or TCO. The following chart shows our corporate structure as of December 31, 2003:

10

(1) The participation of TCP into TCO was calculated by excluding the treasury stocks.

Telebrás and the Privatization

     TCP was created as a result of a restructuring of Telebrás in May 1998. Before 1972, there were more than 900 telecommunications companies operating throughout Brazil. Between 1972 and 1975, Telebrás and its operating subsidiaries, known as the Predecessor Companies, and collectively known as the Telebrás System, were created, acquiring almost all of the telecommunication companies in Brazil, and creating a near monopoly over the provision of public telecommunications services in Brazil.

     In 1995, the federal government began a comprehensive reform of Brazil’s telecommunications regulatory system. In July 1997, Brazil’s national congress adopted the General Telecommunications Law, which provided for the establishment of a new regulatory framework, the introduction of competition and the privatization of the Telebrás System.

     In January 1998, in preparation for the restructuring and privatization of the Telebrás System, the cellular telecommunications operations of the Telebrás System were spun off into separate companies. In May 1998, the Telebrás System was restructured to form, in addition to Telebrás, 12 new holding companies. Virtually all of the

11

Predecessor Companies’ assets and liabilities were allocated to the new holding companies, which we refer to as the New Holding Companies.

     TCP was one of the New Holding Companies. TCP was allocated all of the share capital held by Telebrás in Telesp Celular, one of the cellular operating companies that had provided cellular telecommunications service in the state of São Paulo since 1993.

     The federal government’s common shares of Telep’s capital stock were purchased by Portugal Telecom group.

Global Telecom

     Global Telecom is a B Band cellular concessionaire in the states of Paraná and Santa Catarina. Global Telecom began commercial operations in December 1998. In February 2001, we acquired an 81.61% indirect economic interest in Global Telecom for R$902 million. On December 27, 2002, we acquired the remaining shares of Global Telecom for R$290.3 million.

Brasilcel

     On January 23, 2001, Portugal Telecom and Telefónica Móviles entered into a strategic agreement to create a mobile services company in Brazil that would aggregate all of their investments in cellular telecommunications businesses to the extent permitted under Brazilian law. In December 2002, Anatel approved the joint venture between Portugal Telecom and Telefónica Móviles. This joint venture, named Brasilcel N.V., or Brasilcel, with headquarters in the Netherlands, has 56.2% of the total market in Brazil with 20.7 million customers at December 31, 2003, according to market share data published by Anatel. Its operations cover an area of approximately 130 million inhabitants, or 73% of the Brazilian population, and approximately 83% of its GDP. Portugal Telecom and Telefónica Móviles are managing the joint venture on an equal basis.

     In December 2002, Portugal Telecom and Telefónica transferred to Brasilcel all of their direct and indirect interests in:

Acquisition of TCO

     On April 25, 2003, TCP acquired 64.03%, of the outstanding voting capital stock of TCO from Fixcel S.A. for approximately R$1,505.6 million, corresponding to R$19.48719845 per each lot of 1,000 shares acquired. As of December 31, 2003, we have paid R$1,355.7 million of the total amount and the remaining will be paid in installments. TCO is an A Band operator providing cellular telecommunications services in the Federal District of Brazil, as well as in the Brazilian states of Goiás, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and Tocantins. The agreement also included the acquisition of TCO’s B Band subsidiary NBT, which provides cellular telecommunications service in the Brazilian states of Amapá, Amazonas, Maranhão, Pará and Roraima.

     On May 25, 2003, in compliance with Brazilian legislation, we launched a tender offer for the common shares of TCO not owned by us. The acceptance period ended on November 18, 2003. As a result of the shares tendered, we acquired 74.2% of the outstanding available common shares at the price of R$ 16.73 per 1,000 common shares. The total purchase price for the new shares amounted to R$538.8 million. At December 31, 2003 we held 90.73% of TCO’s ordinary shares, representing a 29.31% interest in TCO, excluding treasury stocks. We

12

also announced the intention to launch an exchange offer for the remaining shares of TCO through which we would have become TCO ´s sole shareholder. This would have been followed by a merger of TCO into TCP. After the launch of the exchange offer, the CVM raised questions on to its compliance with Brazilian law. Although TCP and TCO believed, and believe, that the exchange offer complied with applicable law, TCP and TCO decided to terminate the exchange offer in January, 2004.

Vivo

     All of the operating companies participating in the joint venture between Portugal Telecom and Telefónica Móviles, named Brasilcel, have been operating under the brand name “Vivo” since April 2003. The consolidation of a unified commercial model for the whole country centered on the Vivo brand, substituting the different brands under which the different companies offered their services in their respective states. The commercial strategy of Vivo is to increase their customer base as well as revenues, by retaining customers as well as maintaining their distribution channels. The launching of the Vivo brand was accompanied by loyalty programs and other measures designed to contribute to the success of the commercial strategy.

TCO’ s corporate restructuring

     On May 14, 2004, the management of TCP and TCO announced a proposal for corporate restructuring involving TCO and its subsidiaries Telegoiás Celular S.A., Telems Celular S.A., Telemat Celular S.A., Teleacre Celular S.A. and Teleron Celular S.A. The purposes of such restructuring are to provide for: (i) an improvement in the cash flow of TCO and its subsidiaries, resulting from the transfer of the tax benefit corresponding to R$511 million from TCP to TCO, generated by the amortization of a goodwill at the amount of R$1,503 million, originally paid upon the acquisition of TCO and its subsidiaries by TCP in 2003 and (ii) a simplification of the corporate structure of TCO’s subsidiaries, whose minority shareholders will receive shares issued by TCO of the same type and class in substitution for the shares held by them respectively in TCO’ subsidiaries. TCO ´s subsidiaries will, therefore, become wholly-owned subsidiaries of TCO, which will improve the capitalization conditions of TCO and will benefit the minority shareholders of TCO’ subsidiaries.

     The intended restructuring shall be made in such a manner as to avoid any and all negative impacts over the future profits of both TCO and its subsidiaries, on account of the referred goodwill. The involved companies expect that the restructuring will be completed by July, 2004.

     To the extent that the tax benefits corresponding to the amortization of the deferred assets transferred to the TCO’ subsidiaries are realized, the respective especial premium reserves shall be capitalized, through the issuance of additional shares to TCP.

     On May 31, 2004, the first step of the restructuring process took place, concerning the merger of WXYZ0059 Holdings S.A., the holder of the investment and goodwill of TCO, into TCO.

     On June 14, 2004, TCO released a relevant fact regarding the 2nd and 3rd Stages of the corporate restructuring transaction, as following: (i) TCO’s partial spin-off, capital stock and share of the spinned-off company; and (ii) Merger of TCO operators’ shares into TCO, whereby the TCO Operators shall become wholly-owned subsidiaries of TCO. These steps shall be approved in special meeting of shareholders in the involved companies for the conclusion of the restructuring process.

Capital Expenditures

     The primary focus of our capital expenditure program has been, and continues to be, the improvement of the capacity of the services we currently offer and the provision of new services as well as the development of information systems.

13

     The following table sets forth our total capital expenditures for the periods indicated:

     The following table sets forth the total capital expenditures of Telesp Celular for the periods indicated:

     The following table sets forth the total capital expenditures of Global Telecom for the periods indicated:

     The following table sets forth the total capital expenditures of TCO from its consolidation with TCP to year-end 2003:

14

     Our capital expenditure estimatives for 2004 is approximately R$1,037.0 million, including investments in network expansion, introduction of products and services that aim at maximizing the use of cellular telephony, besides seeking the constant improvement of the quality of services provided to our customers.

     We intend to fund these capital expenditures mostly with cash generated from operations. See “Item 5B. Liquidity and Capital Resources.”

B. Business Overview

Overview

     We are a leading provider of cellular telecommunications services in Brazil through our subsidiaries Telesp Celular, Global Telecom and Tele Centro Oeste, according to data regarding market share published by Anatel. Telesp Celular is the leading cellular operator in the state of São Paulo and in Brazil. Global Telecom is one of the cellular operators in the states of Paraná and Santa Catarina. Tele Centro Oeste Celular is the leading cellular operator in the states of Acre, Amazonas, Amapá, Distrito Federal, Goiás, Maranhão, Mato Grosso, Mato Grosso do Sul, Pará, Rondônia, Roraima, and Tocantins.

     Telesp Celular uses a frequency range known as A Band that covers 77% of the municipalities in the state of São Paulo and 98% of the population of the metropolitan area of São Paulo. At December 31, 2003, Telesp Celular had 7.5 million cellular lines in service, which represented a 23.7% increase from December 31, 2002, and a market share of approximately 63.4% in São Paulo.

     Global Telecom uses a frequency range known as B Band that covers 29% of the municipalities in the states of Paraná and Santa Catarina and 76% of the population of Paraná and Santa Catarina. At December 31, 2003, Global Telecom had 1.7 million cellular lines in service, which represented a 43.7% net increase from December 31, 2002, and a market share of approximately 45% in those states.

     Tele Centro Oeste Celular is the leading cellular operator, by number of customers, in its authorization area. TCO uses a frequency range known as A Band that covers 49% of the municipalities in the states of Acre, Distrito Federal, Goiás, Mato Grosso, Mato Grosso do Sul, Rondônia and Tocantins, and 89% of the population of those states. Tele Centro Oeste Celular also uses a frequency range known as B Band that covers 27% of the municipalities in the states of Amazonas, Amapá, Maranhão, Pará and Roraima, and 65% of the population of those states. At December 31, 2003, Tele Centro Oeste Celular had 4.1 million cellular lines in service, which represented a 34.1% net increase from December 31, 2002, and a market share of approximately 56% in those states.

Our Operations

     The following tables set forth information of Telesp Celular, Global Telecom and Tele Centro Oeste’s cellular telecommunication base, coverage and related matters at the dates and for the years indicated.

15

     Telesp Celular

Global Telecom

Tele Centro Oeste Celular

16

Our Services

     We provide cellular telecommunications services using both digital and analog technologies. Our network provides both CDMA digital service and AMPS, or analog services. At TCO we provide cellular telecommunications services in the frequency of 850 MHz using digital technology CDMA/TDMA and analog technology AMPS. All our services are provided in the frequency of 850 MHz.

     We provide voice service and ancillary services, including voicemail and voicemail notification, call forwarding, three-way calling, caller identification, short messaging, limitation on the number of used minutes, cellular chat room, and data service such as wireless application protocol service through which clients can access WAP sites and portals. We offer direct access to the Internet through either PCMCIA (Personal Computer Memory Card International Association, an organization consisting of some 500 companies that has developed standardized small, credit card-sized devices, called PC Cards) cards designed to connect compatible PDA’s (Personal Digital Assistant, a handheld device that combines computing, telephone/fax, Internet and networking features) and laptops or cellular phones by cable connection that offers to corporate subscribers secure access to their intranet and office resources.

     In addition, we launched in 2003 MMS (Multimedia Message Service) and MExE (Mobile Execution Environment) that enable the handset to download applications and execute them at the mobile. We also launched a user interface with icons at the handset to identify the main services, such as Voice Mail, Downloads, SMS, etc, for a friendlier access to our services.

     We offer roaming services, through agreements with local cellular service providers throughout Brazil and other countries that allow our subscribers to make and receive calls while out of our concession areas. We also provide reciprocal roaming services to subscribers of those cellular service providers while they are in our concession areas.

Our Region

     Telesp Celular provides mobile telecommunications services on the A Band frequency range in the State of São Paulo, covering approximately 248,209 square kilometers, representing approximately 2.9% of Brazil’s territory, or our Region. This area includes more than 39.3 million people, representing 22.0% of Brazil’s population, and 63 municipalities with populations in excess of 100,000, including the City of São Paulo, Brazil’s largest city, with more than ten million people.

     Global Telecom provides mobile telecommunications services on a frequency range known as B Band in its authorization area, which encompasses the states of Paraná and Santa Catarina. This area is composed of 294,661 square kilometers, representing approximately 3.5% of Brazil’s territory, with a population of approximately 15.6 million people, representing 8.8% of Brazil’s population, and 22 municipalities with populations in excess of 100,000 people.

     TCO provides mobile telecommunications services in Brazil’s Federal District and in 11 Brazilian states: Federal District, Acre, Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul and Rondônia as a frequency range known as A Band and Pará, Amazonas, Amapá, Roraima, and Maranhão on a frequency range known as B Band. Both frequencies comprising altogether 5.8 million Km² and 31.8 million people, representing 68.0% of Brasil ´s territory and 18.0% of Brazil’s population, and 34 municipalities with populations in excess of 100,000 people.

17

     The following tables set forth population, gross domestic product (GDP), and per capita income statistics for each state in our Regions at the dates and for the year indicated.

     Telesp Celular

     Global Telecom

     TCO

     Our business, financial condition, results of operations and prospects depend in part on the performance of the Brazilian economy and on the economy of the Region in particular. See “Item 3D. Risk Factors.”

Marketing and Sales

     We closely follow the developments in the markets where we operate and constantly launch new promotions.

     A strong customer acquisition policy has been implemented across all the company’s operators through aggressive mass sales promotions and segmented actions. Efforts to acquire new customers for prepaid and postpaid services have mostly been made through joint promotions designed to increase intranet traffic and stimulate the use of data services.

18

     With the premise of keeping a sustainable customer base, the acquisition promotions have also been open to current customers who wished to change their cell phones. The company is strongly involved in a high-value customer loyalty program by offering aggressive discounts on cell phones through direct marketing actions.

     TCP currently has 94 shops and kiosks of its own, and an authorized third-party network, on an exclusive or nonexclusive basis, with 3,161 service points capable of selling services and cell phones. The credit recharges are available for customers in more than 20,000 sites.

Customer Service

     As part of the strategy for standardizing service provided by TCP operators to their customers, we have outsourced 100% of the customer services while keeping full management control. These services are available on a 24-hour basis from our call center and our website.

     Satisfaction evaluation

     Customer satisfaction is evaluated by regular satisfaction surveys. More than 8,700 Vivo customers were interviewed all over the country in 2003 for aspects such as customer assistance, technical assistance, products and services. The overall satisfaction mark was 8.25 on a range from 1 to 10. Several actions have since been carried out in order to increase our customer satisfaction.

     Assistance to customer claims

     TCP is provided with a qualified staff to assist and provide explanations to customers in any and all requests or doubts concerning services provided. All customers are given a feedback to their requests.

     Vivo was ranked first in 2003 in a survey entitled “Companies that most respect consumers”, carried out by the IBRC (Brazilian Institute of Customer Relations) for the Consumidor Moderno (Modern Consumer) issue.

Our Network

     Before November 1998, our network used only AMPS analog technology. After our privatization in 1998, we began to use CDMA digital and TDMA digital technologies. Digitalization offers certain advantages, such as greater network capacity and additional revenue through the sale of value-added services. Digital cellular telecommunications service also reduces the risk of fraud. We continue to increase network capacity and coverage to improve the quality of service and to meet customer demand.

     At December 31, 2003, Telesp Celular’s telecommunications network, which provides both CDMA digital and AMPS analog services, covered 76.7% of the municipalities in the state of São Paulo, or 98,44% of the population, in its Region. Telesp Celular’s network is connected primarily through a fiber-optic transmission system leased from Telecomunicações de São Paulo S.A. — Telesp, consisting of cellular switches, base stations and other network elements, such as voicemail, prepaid service, Short Message Service, Home Location Registers, Signalling Transfer Point, PDSN and gateways. NEC do Brasil S.A., Nortel Networks – Northern Telecom do Brasil, Motorola do Brasil Ltda., Lucent Technologies do Brasil, Ind. e Com. Ltda. and Ericsson Telecomunicações S.A. are Telesp Celular’s main suppliers.

     Global Telecom began its activities in December 1998 and only offers services through CDMA digital technology. At December 31, 2003, Global Telecom’s telecommunications network covered 28.6% of the municipalities, or 76% of the population, in its Region. Global Telecom’s network is primarily connected by a fiber-optic transmission system leased from fixed operating companies (Brasil Telecom and Embratel) and Copel—Companhia Paranaense de Energia S.A., consisting of cellular switches, base stations and other network elements, such as: voicemail, prepaid service, Short Message Service, Home Location Registers, Signalling Transfer Point and gateways, as of December 31, 2003. Motorola do Brasil Ltda. and Ericsson Telecomunicações S.A. are Global Telecom’s main suppliers.

19

     As of December 31, 2003, TCO covered 40% of the municipalities, or 76.3% of the population in its Region. The network provides CDMA Digital, TDMA digital and AMPS analog services and it is composed of cellular switches, base-stations and other network elements, such as voicemail, prepaid service, Short Message Service, Home Location Registers, Signalling Transfer Point and gateways. Nortel Networks – Northern Telecom do Brasil, Motorola do Brasil Ltda. (presently Motorola Industrial Ltda. and Motorola Services Ltda.) and Ericsson Telecomunicações S.A. are TCO ´s are principal suppliers.

     Our advanced network management technology ensures global management and supervision of all our network processes and network performance. The network management centers are located at São Paulo and Brasilia. The network management center of São Paulo monitors the critical network operational parameters of Telesp Celular and Global Telecom .Likewise the network management center of Brasília monitors TCO and NBT’s critical network operational parameters These centers are able to identify abnormalities in both our network and in third-parties networks, using the failure and signalling monitoring systems. In addition, quality and service standards are constantly monitored. The network management centers are integrated with the maintenance and operation teams that maintain and operate the cellular network elements, as well as cellular infrastructure and transmission, in addition to the radio network elements and computing bases, service platforms and communications backbone.

     Our network is prepared to provide continuity of service for our customers in the event of network interruptions. We have developed contingency plans for potential catastrophes in our switching centers, power supply interruptions and security breaches.

     Under our authorizations, we are obligated to meet certain requirements for service quality and annual network expansion. See “—Regulation of the Brazilian Telecommunications Industry—Obligations of Telecommunications Companies.” We have already achieved all of our required network expansion obligations.

     Sources of Revenue

      We generate revenue from:

     Our rates are subject to approval by Anatel. See “—Regulation of the Brazilian Telecommunications Industry—Rate Regulation.”

     The tables below set forth the total net operating revenues in each of our operating subsidiaries for the last three years (or, in the case of TCO, its total net operating revenues from its consolidation with TCP to year-end 2003):

20

     Telesp Celular

     Global Telecom

     TCO

21

     Contract Customers

     Since October 1994, cellular telecommunications service in Brazil has been offered on a “calling party pays” basis, under which the customer pays only for calls that it originates. In addition, customers pay roaming charges on calls made or received outside their home registration area.

     Customer charges are calculated based on the customer’s calling plan, the location of the party called, the place from which the call originates and certain other factors, as described below. Our Region is divided into 18 areas, called registration areas, designated for payment purposes.

     Interconnection Charges

     We earn revenues from any call that originates from another cellular or fixed-line service provider network connecting one of our customers. We charge the service provider from whose network the call originates a network usage charge for every minute that our network is used in connection with the call. See “Item 4—Information on the Company—Business Overview——Operating Agreements—Interconnection Agreements.” Tariff increases are subject to Anatel’s review and approval.

     Bill and Keep

     Under the SMP system, usage of the network remuneration between SMP mobile operators will only be due if traffic carried in the same registration area between two networks, in a given direction, exceeds 55% of the total traffic exchanged between them. In this case, only those calls which have surpassed the 55% threshold will be subject to payment for network usage. This rule is valid until June 30, 2005. Thereafter, SMP operators will adopt full Bill and Keep, by which no remuneration will be due for network usage among SMP networks, regardless of the amount of carried traffic.

     Roaming Fees

     We receive revenue pursuant to roaming agreements with other cellular service providers. When a customer of another cellular service provider makes a call within our area, that service provider pays us for the call at the applicable rate. Conversely, when one of our customers makes a cellular call outside of our Region, we must pay the charges associated with that call to the cellular service provider in whose Region the call originates. See “Item 4—Information on the Company—Business Overview——Operating Agreements—Roaming Agreements.”

Handset Sales

     We sell dual-mode (800MHz CDMA-1xRTT/AMPS and 800MHz CDMA/AMPS) and tri-mode (1900MHz CDMA and 800MHz CDMA/AMPs) cellular handsets and PCMCIA cards through our own stores and dealers. Although we still have some customers using analog service (approximately 0.9% of our total customer base at December 31, 2003), we have implemented a series of actions, such as providing discounts on digital handsets, discounts on monthly fees for digital services, digital handset rentals and free digital handsets to our high value customers, to encourage analog customers to transfer to digital service. Our current suppliers for handsets are Motorola, LG, Samsung, Nokia and Toshiba.

Operating Agreements

     TCP has an agreement with Telesp and both TCO and Global Telecom have agreements with Brasil Telecom to lease physical space, real estate, air conditioning, energy, security and cleaning services. TCP leases from Telesp and both TCO and Global Telecom lease from Brasil Telecom transmission capacity necessary to complete the construction of our network infrastructure.

22

     Interconnection Agreements

     The terms of our interconnection agreements include provisions with respect to the number of connection points and traffic signals. See ”—Regulation of the Brazilian Telecommunications Industry—Obligations of Telecommunications Companies” and “—Interconnection.”

     We believe that our subsidiaries have adequate interconnection agreements with all the fixed line operators they need to provide of their services. We also believe that our subsidiaries have all the necessary interconnection agreements with local distance carriers.

     Roaming Agreements

     We are a member of the Brazilian Roaming Committee, a group comprised of 21 companies providing cellular services in Brazil through either A and B bands. The Committee was created to standardize roaming services in Brazil and elsewhere. The roaming agreements require us and the other cellular service providers to provide service to roaming customers on the same basis that each member provides service to its own customers, and to carry out a monthly reconciliation of roaming customer usage charges.

     We offer automatic international roaming in the United States, Mexico, Canada, the Caribbean, Argentina, Uruguay and South Korea. Since 1999 we provide international GSM services through the use of GSM handsets in most parts of Europe, Africa, Asia and Oceania.

Taxes on Telecommunications Services and Handset Sales

     The cost of telecommunications services and handset sales to customers incorporates a variety of taxes, including:

23

     The FISTEL tax is comprised of two different fees:

     The installation and inspection fee is assessed based on the net activation of cellular numbers, i.e., the number of new cellular activations subtracted from the number of cancelled subscriptions, as well as on the basis of the net additions of radio base stations.

Billing and Collection

     Pursuant to Brazilian law, customers must receive a bill at least five days before the due date, and companies must allow customers at least 15 days from the due date before suspending outgoing service for nonpayment. Customers may choose from a number of billing options, including traditional paper bills, direct withdrawal from the customer’s bank account and some deferred payment options. We have also introduced a new billing service through which customers can receive and pay bills via the Internet.

     Telesp Celular, Global Telecom and TCO have established a uniform policy for dealing with delinquent customer accounts. Service may only be suspended after notice has been provided to the customer. In the cases of Telesp Celular and Global Telecom, if a customer’s payment is more than 15 days past due, outgoing service is suspended, and if payment is more than 40 days past due, both outgoing and incoming services are suspended until full payment for all outstanding charges is received. If a customer’s payment is more than 90 days past due, service is discontinued. In the case of TCO, if a subscriber ´s payment is more than 15 days past due, service may be partially suspended and if it is more than 30 days past due, service may be totally suspended until payment is received. After 90 days delinquency, the subscriber ´s name is filed with credit protection agencies. If a subscriber ´s payment is more than 90 days past due, the subscriber ´s contract may be cancelled. After 90 days delinquency, the debts are referred to independent collection agencies.

     Telesp Celular, TCO and Global Telecom’s collection system has a mechanism for tracking customers who are delinquent in making payments, and their collections department has had a high rate of success in the collection of payments from customers. In addition, Telesp Celular employed six outside collection agencies to recover payments from accounts from customers that were over 95 days past due. After 90 days delinquency, the debts are referred to independent collection agencies.

     We make provisions for customer accounts when we determine that the likelihood of collection is no longer probable, and write off customer accounts that are over 180 days past due. We wrote off R$ 55.4 million in Telesp Celular, R$ 23.2 million in TCO and R$ 8.8 million in Global Telecom for accounts more than 180 days past due in 2003 related to telecommunication service charges.

     Telesp Celular’s provisions for doubtful accounts (Provision for doubtful accounts including handsets/Gross operating revenue) were 0.8%, 1.6% and 2.5% of gross operating revenue of service in 2003, 2002 and 2001, respectively. Global Telecom Holdings’s provisions for doubtful accounts (Allowance for doubtful accounts including handsets/Gross operating revenue) were 1.5%, 1.4% and 6.0% of gross operating revenue of service in 2003, 2002 and 2001, respectively. TCO’s provisions for doubtful accounts (Provision for doubtful accounts including handsets/Gross operating revenue) were 1.9% of gross operating revenue of service for the period of twelve months ended December 31, 2003. See “Item 5A. Operating Results–Results of Operations for 2003, 2002 and 2001 for TCP–Operating Expenses.”

24

     After each collection cycle, we and other telecommunications service providers settle the roaming and network usage fees outstanding balances. See ”—Sources of Revenue—Roaming Fees” and “—Sources of Revenue—Network Usage Charges.” For international calls made by our customers, we forward the gross amounts collected for such calls to the international long distance carrier and charge them a fee for the use of our cellular telecommunications network. Domestic long distance fees are reconciled and distributed to each Brazilian telecommunication operating company by a clearinghouse operated by Embratel – Empresa Brasileira de Telecomunicações S.A.

Fraud Detection and Prevention

     We incur costs associated with the unauthorized use of our wireless networks, particularly our analog cellular networks. These costs include administrative and capital costs associated with detecting, monitoring and reducing the incidence of fraud. Fraud also affects interconnection costs, capacity costs, administrative costs and payments to other carriers for unbillable fraudulent roaming.

     The two most prevalent types of fraud are cloning fraud and subscription fraud. Cloning fraud consists of duplicating the cellular signal of a bona fide customer, enabling the perpetrator of the fraud to make calls using the customer’s signal. We ultimately bear the costs of all fraudulent calls originating from our cell phone base. We have installed a fraud detection system that analyzes various aspects of customers’ usage in order to detect cloning fraud. In addition, the introduction of digital service is significantly reducing the incidence of cloning fraud. We do not consider cloning fraud a significant problem.

     Subscription fraud occurs when a person, typically using false or stolen documents, obtains cellular telecommunications service, and then incurs substantial charges that are billed to a customer who does not exist or who did not request the service.

     In order to safeguard ourselves against these fraudulent activities, we review documentation provided by customers and conduct a credit check prior to initiating service. We use credit bureaus to enhance our reviews.

     We have implemented certain detection and prevention measures to reduce fraud-related losses, including the automatic review of call detail records in the state of São Paulo, Paraná and Santa Catarina to identify abnormal calling patterns. Fraud prevention measures include restrictions on international calls from a given number, restrictions on international calls to certain high-risk destinations, automatic blocking of calls to certain high-risk destinations and restrictions on three-way calling by customers with international direct-dial access.

     We have installed, and are a part of, a nationwide fraud detection system. This system aids in fraud detection in various ways, including identifying simultaneous usage by a single customer, call frequency and unusually high usage patterns. We are able to monitor telecommunication usage by our customers even when they are located outside of our areas.

Competition

     We face intense competition in all the areas in which we operate, principally from other cellular service providers and also from fixed line operators. Many of these competitors are part of large, national or multinational groups and therefore have access to financing, new technologies and other benefits that derives from being owned by such a group. Fixed line operators generally charge much lower tariffs than cellular service providers.

     TC’s principal cellular competitors are: Claro (BCP Telecomunicações S.A.), which operates in the metropolitan area of the state of São Paulo, and Tess, which operates in the rest of São Paulo. The main fixed line operator in its area is Telecomunicações de São Paulo S.A. – Telesp, known as Telefónica.

     Global Telecom’s principal cellular competitor is: Tele Celular Sul Participações S.A, or TIM Sul. The main fixed line operator in its area is Brasil Telecom S.A.

25

     TCO’s principal cellular competitors are: Americel S.A., in the region encompassing the states of Mato Grosso do Sul, Mato Grosso, Goiás, Tocantins, Rondônia and Acre and the Federal District, and Amazônia Celular S.A., in the region encompassing the states of Amazonas, Roraima, Pará, Amapá and Maranhão. The main fixed line operators in its area are: Brasil Telecom S.A., in the region encompassing the states of Mato Grosso do Sul, Mato Grosso, Goiás, Tocantins, Rondônia and Acre and the Federal District, and Telemar Norte Leste S.A. — Telemar, in the region encompassing the states of Amazonas, Roraima, Pará, Amapá and Maranhão.

     We estimate that Telesp Celular’s, Global Telecom’s and TCO’s market share in their respective Regions as of December 31, 2003 were approximately 63%, 45% and 56%.

     We also compete with certain other wireless telecommunications services, such as mobile radio (including digital trunking technology, offered by Nextel), paging and beeper services, which are used by some in our areas as a substitute for cellular telecommunications services. Satellite services, which provide nationwide coverage, are also available in Brazil. Although satellite services have the benefit of covering a much greater area than cellular telecommunications services, they are considerably more expensive than cellular telecommunications services and do not offer comparable coverage inside buildings. We do not plan to offer mobile satellite services (other than pursuant to a roaming arrangement with a satellite service provider). Finally, we also face intra-company competition, when we offer services that may be used by our customers in substitution for mobile calls, such as SMS and Personal Digital Assistance.

Regulation of the Brazilian Telecommunications Industry

     General

     Our business, the services we provide and the prices we charge are subject to regulation under the General Telecommunications Law and various administrative enactments, which regulate the services provided by Brazilian telecommunications operators.

     Anatel is the agency that regulates telecommunications under the General Telecommunications Law and the July 2001 Regulamento da Agência Nacional de Telecomunicações, known as the Anatel Decree. Anatel is financially autonomous, and administratively independent of the federal government. Anatel maintains a close relationship with the Ministry of Communications. Any regulation proposed by Anatel is subject to a period of public comment, which may include public hearings. Anatel’s actions may be challenged in the Brazilian courts. On November 25, 1998, Anatel enacted “Resolution 73—Regulation of Telecommunication Services,” which regulates in detail the new comprehensive framework for the provision of telecommunications services in Brazil established by the General Telecommunications Law.

     Concessions and Authorizations

     Before January 2000, Anatel had only authorized two mobile service providers in each of the ten franchise areas under A Band and B Band. A Band and B Band mobile service providers were granted concessions pursuant to the Lei Mínima, or the Minimum Law. Each concession is a specific grant of authority to supply cellular telecommunications services, subject to certain requirements contained in the applicable list of obligations appended to each concession. If a mobile service provider wishes to offer any telecommunications service other than those authorized by its concession, it may apply to Anatel for an authorization to offer such other services.

     In accordance with the General Telecommunications Law, a concession relates to the provision of telecommunication services under the public regime, as determined by the public administration. A concession may only be granted upon a prior auction bidding process. As a result, regulatory provisions are included in the relevant concession agreements and the concessionaire is subject to public service principles of continuity, changeability and equal treatment of customers. Also, Anatel is empowered to direct and control the performance of the services, to apply penalties and to declare the expiration of the concession and the return of assets of the concessionaire to the government authority upon termination of the concession. Another distinctive feature is the right of the concessionaire under the concession agreement to be able to maintain certain economic and financial standards. The concession is granted for a fixed period of time and is generally renewable only once.

26

     An authorization is a permission granted by the public administration under the private regime, which may or may not be granted upon a prior auction bidding process, to the extent that the authorized party complies with the objective and subjective conditions deemed necessary for the rendering of the relevant type of telecommunication service in the private regime. The authorization is granted for an indeterminate period of time. Under an authorization, the government does not guarantee to the authorized company the economic-financial equilibrium, as is the case under concessions.

     SMP Regulation

     In November 2000, Anatel adopted certain regulations for the issuance of new licenses, which are authorizations to provide wireless communication services through SMP, personal mobile service, to compete with the then existing cellular operators in the various regions of Brazil. These regulations divided Brazil into three main regions covering the same geographic areas as the concessions for the fixed-line telecommunication services. Anatel organized auctions for three new licenses for each of those regions. The new licenses provided that the new services would be operated in the 1,800 MHz radio frequency bands, and they were denominated C Band, D Band and E Band. These new licenses were auctioned by Anatel and awarded during the first quarter of 2001 and at the end of 2002.

     Under these new licenses:

     Pursuant to the SMP services regulation, each of the three main regions is divided into registration areas, or tariff areas.

     On February 3, 2003, TCO chose to replace its SMC Concession Contracts for Personal Mobile Service Agreements (Termos de Autorização do Serviço Móvel Pessoal, or SMP) in Regions I (sub-range of “B” frequencies) and II (sub-range of “A” frequencies) of the General Granting Plan (Plano Geral de Outorgas, or PGO). In addition, TCO has full control of TCO IP S.A., which holds a national authorization for Multimedia Communication Services (Serviços de Comunicação Multimídia, or SCM).

     In order to transfer our services to SMP, we were required to comply with several technical and operational conditions, including, among others, the adoption of a carrier selection code for long distance calls originating from our network.

     Under the General Telecommunications Law, all mobile telecommunications service providers must provide interconnection upon the request of any other mobile or fixed-line telecommunications service provider. Until June 30, 2004, SMP service providers may opt to establish a price cap or freely negotiate their interconnection charges. The conditions of the network usage fee negotiation will be regulated by Anatel. Thereafter, the terms and conditions of the interconnection are freely negotiated between wireless and fixed-line operators, subject to compliance with regulations to be established by Anatel relating to the traffic capacity and interconnection infrastructure that must be made available to requesting parties. If a service provider offers any party an interconnection tariff below the price cap, it must offer the same tariff to any other requesting party on a

27

nondiscriminatory basis. If the parties cannot reach an agreement on the terms of interconnection, including with respect to the interconnection tariff, Anatel will act as the final arbiter. Because Anatel considers us to be affiliated with Telefónica, which already provides wireline long distance services in the state of São Paulo and was awarded a license to provide these services nationwide, Anatel will not award a wireline long distance license to us. Though we and other mobile operators have requested that Anatel revise the current SMP regime, there can be no assurance it will do so. Under the SMP regime, we will receive revenues from interconnection fees paid to us by wireline long distance operators due to long distance traffic originating and terminating on our network.

     The authorizations consist of two licenses—one to provide mobile telecommunications services, and another to use the frequency spectrum for a period of 15 years. The frequency license is renewable for another 15-year period upon the payment of an additional license fee.

     Benefit of the SMP System

     According to the General Telecommunications Law and Decree No. 2056/96, control of the concessionaire can only be transferred after five years from the date of the privatization in the case of A Band concessionaires or the commencement of services in the case of B Band concessionaires. On the other hand, under the SMP system, the authorization or control of the authorized party can be transferred through merger of the relevant cellular mobile service provider, whether it is providing services under the A Band or the B Band.

     Obligations of Telecommunications Companies

     As a telecommunications service provider, we are subject to regulations concerning quality of service and network expansion, as established in our authorizations and our original concession agreements.

     Any breach by the companies of telecommunications legislation or of any obligation set forth in their authorizations may result in a fine of up to R$50 million.

     Telesp Celular’s, Global Telecom’s and TCO’s authorizations impose obligations to meet some quality of service standards such as: the system’s ability to make and receive calls, call failure rates, the network’s capacity to handle peak periods, failed interconnection of calls and customer complaints. Anatel published the method for collecting these quality service standards data on April 23, 2003 (Anatel Resolution No. 335/03).

     Interconnection

     Under the General Telecommunications Law, telecommunications service providers are classified as providers of either collective or restricted services. All cellular operators, including SMP service providers, are classified by Anatel as collective service providers. All providers of collective services are required to provide interconnection upon request to any other collective service provider. The terms and conditions of interconnection are freely negotiated between parties, subject to price caps and other rules established by Anatel. Providers must enter into interconnection agreements, regarding, among other things, tariffs, commercial conditions and technical issues, with all requesting parties on a nondiscriminatory basis. If the parties cannot agree upon the terms and conditions of interconnection, Anatel may determine terms and conditions by arbitration.

     Interconnection agreements must be approved by Anatel and may be rejected if they are contrary to the principles of free competition and the applicable regulations.

     Rate Regulation

     Our authorizations continue to provide for a price-cap mechanism to set and adjust rates on an annual basis. The cap is a maximum weighted average price for a package of services. The package consists of the services in our Basic Plan, including monthly subscription fees, and certain roaming charges, which are charged for the use of

28

mobile services under the SMP regime. The price cap is revised annually to reflect the rate of inflation as measured by the IGP-DI. However, mobile operators are able to freely set the rates for alternative service plans.

     The initial price cap agreed to by Anatel and us in our authorizations had been based on the previously existing or bidding prices, and was adjusted annually on the basis of a formula contained in our authorizations. The price cap has been revised to reflect the rate of inflation as measured by the IGP-DI. The weighted average price for the entire package of services may not exceed the price cap, but the price for individual services within the package may be increased.

     Other telecommunications companies that interconnect with and use our network must pay certain fees, primarily an interconnection fee. The interconnection fee is a flat fee charged per minute of use. The interconnection fee charged by us and other A and B Band service providers is still subject to a price cap stipulated by Anatel. This price cap is valid until June 30, 2004 and, thereafter, the terms and conditions of the interconnection are freely negotiated among the operators. Anatel will regulate the conditions of the network usage fee negotiation. The price cap for the interconnection fee varies from company to company, on the basis of the underlying cost characteristics of each company’s network. B Band service providers are subject to price caps established during the auction process for their licenses.

     Internet and Related Services in Brazil

     In Brazil, Internet service providers, or ISPs, are deemed to be suppliers of value-added services and not telecommunications service providers. Anatel’s Resolution 190 requires cable operators to act as carriers of third-party Internet service providers. The Brazilian House of Representatives is considering a law that would penalize Internet service providers for knowingly providing services that allow illegal goods or services to be sold on the Internet, and would impose confidentiality requirements on Internet service providers regarding nonpublic information transmitted or stored on their networks.

C. Organizational Structure

     As of December 31, 2002, our voting shares were indirectly controlled by two major shareholders: Portugal Telecom and Telefónica Móviles, through Brasilcel N.V., with 93.7% of our voting stock, 49.8% of our preferred shares and 65.1% of our total capital stock. Portugal Telecom and Telefónica Móviles share their participation in Brasilcel in equal percentages.

     Our subsidiaries are: Telesp Celular, Global Telecom and TCO. Substantially all our assets consist of shares in our subsidiaries. We rely very substantially on dividends from our subsidiaries to meet our needs for cash, including cash to pay dividends to its shareholders. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

     For a more detailed description of our ownership structure and the joint venture between Portugal Telecom and Telefónica Móviles, see “—Our History and Development.”

D. Property, Plant and Equipment

     Our principal physical property consists of transmission equipment, switching equipment, base stations, and other communication devices, such as voicemail, prepaid service, SMS, Home Location Registers, Signalling Transfer Point, PDSN and gateways. All switches, cell sites, administrative buildings, administrative facilities, warehouses and stores are insured against damages for policy operation risks.

     At December 31, 2003, Telesp Celular had 47 cellular switches and other equipment installed in nine owned spaces and 29 leased spaces. Telesp Celular leases almost all of the sites in which its cellular telecommunications network equipment is installed. Its 2.921 base stations were installed in 2.330 cell sites, administrative buildings, administrative facilities and warehouses, and the average term of these leases is five years

29

(subject to renewal for over five years). In addition, Telesp Celular leases administrative facilities (approximately 41,063 square meters), warehouse space (approximately 4,483 square meters) and 66 retail stores (1 of which is under construction) throughout its Region.

     At December 31, 2003, Global Telecom had eight cellular switches and other equipment installed in five owned spaces. Global Telecom leases almost all of the sites in which its cellular telecommunications network equipment is installed. Its 720 base stations and other network equipment were installed in 789 cell sites, and the average term of these leases is five years (subject to renewal for over five years). In addition, Global Telecom has one administrative building (approximately 5,272 square meters) in which it has one store, and leases administrative facilities (approximately 6,420 square meters), one kiosk and 25 retail stores (one of which is under construction) throughout its Region.

     At December 31, 2003, TCO had 26 cellular switches and other equipment installed in 25 owned spaces and one shared space. TCO leases almost all of the sites in which its cellular telecommunications network equipment is installed. Its 1,099 base stations and other network equipments were installed in 1,024 cell sites, administrative buildings, administrative facilities and warehouses, and the average term of these leases is five years (subject to renewal for over five years). In addition, TCO owns administrative buildings (approximately 33,929 square meters), warehouse space (approximately 2,666 square meters) and four stores, and also leases administrative facilities (approximately 6,828 square meters), warehouse space (approximately 7,128 square meters), eight kiosks and 52 retail stores throughout its region.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes and other financial information included elsewhere in this annual report, and in conjunction with the financial information included under “Item 3A. Selected Financial Data.”

Critical Accounting Policies

     In preparing our consolidated financial statements, we have relied on estimates and assumptions derived from historical experience and various other factors that we deemed reasonable and relevant. “Critical accounting policies” are those that are important to the portrayal of our financial condition and results and utilize management’s most difficult, subjective or complex judgments, estimates and assumptions. The significant accounting policies that we believe are critical to aid in fully understanding and evaluating our reported financial position and results of operations reported under Brazilian Corporate Law Method are described in Note 3 to our consolidated financial statements. A description of the differences in accounting policies between Brazilian Corporate Law Method and U.S. GAAP is included in Note 37 to our consolidated financial statements. The application of these critical accounting policies often requires judgments made by our management regarding the effects of matters that are inherently uncertain on the carrying value of our assets and liabilities and the results of our operations. Our results of operation and financial condition may differ from those set forth in our consolidated financial statements, if our actual experience differs from management’s assumptions and estimates. The following is a discussion of our critical accounting policies, including some of the variables, assumptions and sensitivities underlying the estimates relating to:

30

a. Goodwill Impairment

     In connection with SFAS No. 142’s transitional goodwill impairment evaluation, we are required to perform an assessment of whether there was an indication that goodwill is impaired as of the date of adoption. To accomplish this, we were required to identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. We were required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit within six months of January 1, 2002. To the extent the carrying amount of a reporting unit exceeded the fair value of the reporting unit, we would be required to perform the second step of the transitional impairment test, as this would be an indication that the reporting unit goodwill may be impaired. Under Brazilian Corporate Law Method, the amount of goodwill and other intangible asset impairment, if any, is measured based on projected undiscounted future operating cash flows.

     A determination of the fair value and the undiscounted future operating cash flows of our cellular business require management to make certain assumptions and estimates with respect to projected cash inflows and outflows related to future revenues and expenditures and expenses. These assumptions and estimates can be influenced by different external and internal factors, such as economic tendencies, industry trends, and interest rates, changes in our business strategies and changes in the type of services we offer to the market. The use of different assumptions and estimates could significantly change our financial statements. For example, if we had used more conservative assumptions and estimates the expected future net cash flow may have lead us to recognize impairment charges on goodwill, which would have decreased our results of operations and shareholders’ equity. In viewing all of our assets and liabilities as one reporting unit and performing an initial assessment on this reporting unit including the assumptions and estimates that we considered appropriate, we were not required to recognize any impairment loss under either, U.S. GAAP or Brazilian Corporate Law Method as of December 31, 2003.

b. Revenue recognition

     Under Brazilian Corporate Law Method and U.S. GAAP, revenues from customer calls are based on time used, according to Brazilian Corporate Law Method, and recognized when services are provided. Considering their high turnover and average short life, under Brazilian Corporate Law Method revenues from pre-paid phone cards for public telephones are recognized when the cards are sold. Under U.S. GAAP, revenues from sales of such pre-paid phone cards are recognized when the cards are used. Under Brazilian Corporate Law Method, revenues from sales of such pre-paid phone cards are recognized when the cards are used since January 1, 2003.

     We consider revenue recognition to be a critical accounting policy, because of the uncertainties caused by different factors such as the complex information technology required, high volume of transactions, fraud and piracy, accounting regulations, management’s determination of collectibility and uncertainties regarding our right to receive certain revenues (mainly revenues for usage of our network). Significant changes in these factors could cause us to fail to recognize revenues or to recognize revenues that we may not be able to realize in the future, despite our internal controls and procedures. We have not identified any significant need to change our revenue recognition policy for U.S. GAAP or for Brazilian Corporate Law Method.

c. Depreciation and Amortization

     Depreciation on property, plant and equipment is calculated on a straight-line method of the estimated useful lives of the underlying assets, which consider historical information available to us, as well as known industry trends. The sensitivity of an impact in changes in the useful lives of property, plant and equipment was assessed by applying a hypothetical decrease of 10% to the useful lives of switching and transmission equipment existing at December 31, 2003. This hypothetical change would result in an incremental increase in the annual depreciation expense of R$55.6 million in the year of the change.

d. Valuation of property, plant and equipment

     In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying

31

amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Under Brazilian Corporate Law Method, the recoverability of assets as mentioned above, if negative, would indicate the amount that would be considered impaired.

     A determination of the fair value of an asset requires management to make certain assumptions and estimates with respect to projected cash inflows and outflows related to future revenues and expenditures and expenses. These assumption and estimates can be influenced by different external and internal factors, such as economic tendencies, industry trends, interest rates and changes in the marketplace. The use of different assumptions and estimates could significantly change our financial statements, for example, if we had used more conservative assumptions and estimates the expected future net cash flow may have led us to recognize impairment charges on our property, plant and equipment, which would have decreased our results of operations and shareholders’ equity. No impairment losses have been recognized for any of the periods presented.

e. Provisions for contingencies

     We are subject to proceedings, lawsuits and other claims related to tax, labor and civil matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue, based on legal advice. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. Future possible changes in the recorded reserve amounts would impact our results of operations in the period that such changes are recorded.

f. Deferred income taxes

     We compute and pay income taxes based on results of operations under Brazilian Corporate Law Method. Under U.S. GAAP, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review the deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that the deferred tax assets will not be realized, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. When performing such reviews, we are required to make significant estimates and assumptions about future taxable income. In order to determine future taxable income, we need to estimate future taxable revenues and deductible expenses, which are subject to different external and internal factors, such as economic tendencies, industry trends, interest rates, changes in our business strategies and changes in the type of services we offer to the market. The use of different assumptions and estimates could significantly change our financial statements. For example, if we had used more conservative assumptions and estimates with respect to our expected future taxable income, we would be required to recognize valuation allowance charges on deferred income tax assets, which would decrease our results of operations and shareholders’ equity. If we operate at a loss or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or any change in our future projections, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase of our effective tax rate and a material adverse impact on our operating results.

g. Financial instruments

     With respect to financial instruments, we must make assumptions as to future foreign currency exchange and interest rates. For a discussion of the possible impact of fluctuations in the foreign currency exchange and interest rates on our principal financial instruments and positions, see “Item 11—Quantitative and Qualitative Disclosures About Market Risk.”

     We have no majority-owned subsidiaries that are not included in our consolidated financial statements, nor do we have any interests in, or relationships with, any special purpose entities that are not reflected in our consolidated financial statements.

32

U.S. GAAP Reconciliation

     We prepare our consolidated financial statements in accordance with the Brazilian Corporate Law Method, which differs in significant respects from U.S. GAAP. Net losses for 2003, 2002 and 2001 were R$98,8 million, R$1,495.7 million and R$1,204.1 million under U.S. GAAP, compared to net losses of R$640.2 million , R$1,140.7 million and R$1,113.6 million respectively under the Brazilian Corporate Law Method. Shareholders’ equity at December 31, 2003, 2002 and 2001 was R$3,232.0 million, R$3,307.3 million and R$2,430.9 million respectively under U.S. GAAP, compared to R$3,393.2 million, R$4,010.0 million and R$2,742.6 million respectively under the Brazilian corporate law method.

     See Note 37 to our audited consolidated financial statements for a description of the principal differences between the Brazilian corporate law method and U.S. GAAP as they relate to us, and a reconciliation to U.S. GAAP of net income/loss and total shareholders’ equity. See Note 27 to the combined financial statements of Global Telecom Holdings for a description of the principal differences between Brazilian Corporate Law and U.S. GAAP as they relate to Global Telecom Holdings and a reconciliation to U.S. GAAP of its results of operations and total shareholders’ deficit.

New Accounting Pronouncements

     In April 2003, the FASB issued SFAS No.149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. The provisions of this statement are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS 149 did not result in any impact on the Company’s financial statements.

     In April 2003, the FASB issued SFAS No. 150, “Accounting for certain Financial Instruments with Characteristics of Both Liabilities and Equity”. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The adoption of SFAS 150 did not result in any impact on the Company’s financial statements.

     In December 2003, the FASB issued a revision to Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46R” or the “Interpretation”). FIN 46R clarifies the application of ARB No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires the consolidation of these entities, known as variable interest entities (“VIEs”), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both.

     Among other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the Interpretation for public companies, to the end of the first reporting period ending after March 15, 2004, except that all public companies must at a minimum apply the provisions of the Interpretation to entities that were previously considered “special-purpose entities” under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. The Company does not anticipate that the adoption of FIN 46R will have a material impact on its financial position, cash flows and results of operations.

     In December 2003, the FASB issued SFAS No. 132, Revised 2003, (“SFAS 132R”), which requires an

33

entity to make additional disclosures about pensions and other postretirement benefits. These disclosures include information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows and components of net periodic benefit cost. SFAS 132R would be effective for any domestic plans beginning with fiscal years ending after December 15, 2003 and any foreign plans beginning with fiscal years ending after June 15, 2004. The Company has adopted these additional disclosures for the year ended December 31, 2003 (See Note 38.a).

     In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB 104 updates portions of the interpretive guidance included in Topic 13 of the codification of Staff Accounting Bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The company believes it is currently following the guidance of SAB 104.

     In November 2002, the Emerging Issues Task Force (“EITF”), of the FASB reached a consensus on EITF 00-21. EITF 00-21 provides guidance on how to account for arrangements that may involve multiple revenue-generating activities, for example, the delivery of products or performance of services, and/or rights to use other assets. The requirements of EITF 00-21 will be applicable to agreements entered into for periods beginning after June 15, 2003 and will therefore first apply to the Company for any arrangements entered into from April 1, 2004. The adoption of this EITF had no impact on the Company’s financial position or results of operations.

     In May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The guidance in the consensus is designed to mandate reporting revenue as rental or leasing income that otherwise would be reported as part of product sales or service revenue. EITF Issue No. 01-08 requires both parties to an arrangement to determine whether a service contract or similar arrangement is, or includes, a lease within the scope of SFAS No. 13, “Accounting for Leases.” The Company does not anticipate that the adoption of EITF Issue No. 01-08 will have a material effect on its consolidated results of operations, cash flows or financial position.

     In July 2003, the EITF reached consensus in EITF Issue No. 03-11 that determining whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances and the economic substance of the transaction. In analyzing the facts and circumstances, EITF Issue No. 99-19, and Opinion No. 29, “Accounting for Nonmonetary Transactions,” should be considered. EITF Issue No. 03-11 is effective for transactions or arrangements entered into after September 30, 2003. The Company does not anticipate that the adoption of EITF Issue No. 03-11 will have a material effect on its consolidated results of operations, cash flows or financial position.

A. Operating Results

     In February 2001 and December 2002 we completed a series of transactions to acquire 100% of the ownership interests in Global Telecom Holdings, which owned 100% of the ownership interests in Global Telecom. See “Item 4A. Our History and Development—Global Telecom.” Until December 27, 2002, we accounted for Global Telecom by the equity method, and we included our initial 83.0% equity in its net results on our income statement as equity in losses of unconsolidated subsidiaries. Beginning December 27, 2002, we have consolidated 100% of the results of Global Telecom.

     We acquired 64.03% of the outstanding voting capital stock of TCO on April 25, 2003. We acquired additional shares of voting capital stock of TCO in a public tender offer, bringing the percentage of TCO’s outstanding voting capital stock we own to 90.73%. Since May 1, 2003, TCP has consolidated TCO’s results due to acquisition of its control.

     Therefore, all TCP figures for the fiscal year ended December 31, 2003 were affected by the consolidation of the operating results of Global Telecom as from January 1, 2003 and the consolidation of the operating results of TCO as from May 01, 2003.

     In 2002 and 2001, our results of operations were significantly impacted by our investment in Global Telecom Holdings. We recorded our equity in the losses of Global Telecom of R$890.7 million and R$653.6

34

million, respectively. In addition, we recognized additional losses on our investment in Global Telecom Holdings of R$170.9 million and R$278.8 million for the same periods.

     Our investment in Global Telecom is expected to continue to have a material effect on our financial condition and results because of the indebtedness we incurred to make the investment. In addition, Global Telecom (which began operations in December 1998) has reported net losses for the last years, but we expect it will become profitable by the end of 2005.

Results of Operations for 2003, 2002 and 2001 for TCP

     The following table sets forth certain components of our loss for the years ended December 31, 2003, 2002 and 2001, as well as the percentage change of each year from the prior year.

     Statement of Income

Operating Revenues

     Our operating revenues consist of the following:

     The composition of our operating revenues has been affected by the shift toward prepaid services (which generate usage charges and interconnection charges but do not generate monthly subscription charges, and which

35

have attracted lower income customers to our services) by our strategic focus on profitability and selective customer growth, and by the change in the recognition of revenues related to these services. These revenues used to be recognized at the time of the sale of the prepaid minutes, but, since January 1, 2003, these revenues have been deferred and amortized as the prepaid minutes are used. This change had a negative impact on the operating revenues of 2003 of approximately R$ 94 million. Telesp Celular’s net additions increased the number of contract customers by 3.4% to 1.475 million in 2003, and by 4.2% to 1.426 million in 2002, from 1.369 million in 2001. Net additions increased the number of prepaid customers by 29.9% to 6.020 million, and by 24.1% to 4.634 million in 2002, from 3.735 million in 2001. Interconnection charges increased by 23.0% since February 2003 and 11.1% in February 2002 for the region that excludes Global Telecom’s operating area, while in Global Telecom’s operating region interconnection charges increased by 22.0% since February 2003 and 14.5% in February 2002. Anatel authorizes cellular operators to increase tariffs based upon the prior 12-month period’s cumulative inflation, measured by the IGP-DI variation from February to January of each year.

     As of July 6, 2003, cellular telecommunications operators in Brazil were required by the SMP rules to implement long distance Carrier Selection Codes (Códigos de Seleção de Prestadora, or CSP) used by customers to choose their carrier for domestic long distance services (VC2 and VC3) and international cellular calls. As a result, TCP no longer receives revenues from VC2 or VC3 calls or international calls.

     Additionally, in accordance with Anatel regulations, “Bill & Keep” rules were adopted for interconnection charges in July 2003. The rules provide that companies under the SMP regime are not required to pay tariffs for the use of the local network of another SMP provider as long as customers use local service (i.e., make calls in the same registration area) and as long as there is a traffic balance between them. However, when traffic from the SMP provider that originates the call to the SMP provider that terminates the call represents more than 55% of the local traffic between the two providers, the SMP provider who originates the higher traffic must pay the other provider the local usage tariff for the portion of the traffic that exceeds 55%.

     The composition of operating revenues by category of service is presented in our consolidated financial statements and discussed below. We do not determine operating revenues on a net basis (i.e., after deduction of taxes) by category of service.

     The following table sets forth the components of our net operating revenues for each of the years ended December 31, 2003, 2002 and 2001, as well as the percentage change of each year from the prior year.

     Net operating revenues increased by 77.1% to R$6,046.3 million in 2003 from R$3,415.0 million in 2002, which in turn represented a 15.1% increase from R$2,966.1 million in 2001. The growth in 2003 reflects the consolidation of R$669.0 million of net operating revenues attributable to Global Telecom and the consolidation of R$1,390.9 million of net operating revenues attributable to TCO for the months of May through December 2003. TCP’s (excluding GT and TCO) net operating revenue increased 16.9% to R$3,993.2 million in 2003, from R$3,415.0 million in 2002, primarily due to an increase in revenues from sales of handsets and accessories, interconnection revenues and monthly subscription revenues. The increase of net operating revenues of TCP in 2002 was mainly due to the reversal of the trend towards decreasing contract customers and due to the increase of the average revenue per customer.

36

     Usage charges. Revenues from usage charges increased by 78.6% to R$2,271.6 million in 2003, from R$1,272.1 million in 2002, which in turn represented a 9.8% increase from R$1,158.1 million in 2001. The increase in 2003 was primarily due to the consolidation of R$194.2 million in revenues from usage charges attributable to Global Telecom and the consolidation of R$778.8 million in revenues from usage charges attributable to TCO for the months of May through December 2003. TCP’s (excluding GT and TCO) revenues increased 2.1% to R$1,298.8 million in 2003, from R$1,272.1 million in 2002. This increase was due to the increase of outgoing traffic caused by a 23.7% increase in Telesp Celular’s customer base to 7,495 thousand lines in service in 2003, from 6,060 thousand lines in service in 2002. Beginning July 2003, this increase was offset by the impact of the new rules relating to the long distance Carrier Selection Code described above, as well as by a change in accounting practices related to prepaid services. Before January 1, 2003, revenues from prepaid services were recognized on a cash basis, and the related costs were estimated and accrued based on past gross margins. As of January 1, 2003, Telesp Celular began to defer revenues from prepaid services and amortize that revenue based on subscriber airtime usage. This change in accounting practices had a negative impact of R$94.0 million in 2003. Management believes this new accounting practice better reflects Telesp Celular’s operating performance and industry practices. In 2002, the increase was principally attributable to the growth in the customer base.

     Sales of handsets and accessories. Revenues from sales of handsets and accessories increased by 117.7% to R$1,563.2 million in 2003 from R$717.9 million in 2002, which in turn represented a 1.7% increase from R$706.2 million in 2001. The increase in 2003 was primarily due to a consolidation of R$177,3 million and R$315.8 million in revenues from sales of handsets and accessories attributable to GT and TCO respectively. TCP’s (excluding GT and TCO) revenues from sales of handsets and accessories increased 49.0% to R$1,070.0 million in 2003 from R$717.9 million in 2002. The increase in 2003 was mainly due to the sale of more sophisticated and expensive models and an increase in the number of handsets sold. The increase of TCP’s revenues from sales of handsets and accessories in 2002 was a result of an increase in the number of handsets and accessories sold and an increase in prices.

     Revenues from handset sales are reported before commissions and promotional discounts, and include value-added taxes. In general, the purpose of handset sales is to encourage growth in customers and traffic, as opposed to generating profits on the sales, and we therefore subsidize portions of the costs of handsets. Although profit margins vary from one handset model to another and from time to time, on average profit margins are negative after taxes and discounts. The subsidy strategy resulted in a gross loss (calculated as the difference from net operating revenues from sales minus the cost of goods sold) for TCP (excluding GT and TCO) of R$92.7 million, R$ 78.5 million and R$ 113.1 million in 2003, 2002 and 2001 respectively.

     Monthly subscription charges. Revenues from monthly subscription charges increased by 29.5% to R$1,259.7 million in 2003, from R$972.5 million in 2002, which in turn represented a 18.5% increase R$820.7 million in 2001. The consolidation of revenues from monthly subscription charges attributable to Global Telecom had a positive impact of R$124.6 million and the consolidation of revenues from monthly subscription charges attributable to TCO for the months of May through December 2003 had a positive impact of R$103.2 million. TCP’s (excluding GT and TCO) revenues from monthly subscription charges increased 6.1% to R$1,031.9 million in 2003, from R$972.5 million in 2002. The increase in 2003 was mainly due to tariffs hikes and increase in our contract customer base by 3.4% to 1.475 million in 2003, from 1.436 million in 2002. The increase in 2002 was due to the introduction of new monthly plans, which, together with the loyalty plans, attracted new contract customers, increasing our contract customer base by 4.2% to 1.426 million.

     Interconnection charges. Revenues from interconnection charges increased by 85.5% to R$2,497.8 million in 2003, from R$1,346.7 million in 2002, which in turn represented a 20.2% increase from R$1,120.0 million in 2001. In 2003, the consolidation of revenues from interconnection fees of Global Telecom had a positive impact of R$282.2 million, and the consolidation of revenues from interconnection fees of TCO for the months of May through December 2003 had a positive impact of R$536.1 million. TCP’s (excluding GT and TCO) revenues from interconnection fees increased 25.2% to R$1,686.3 million, from R$1,346.7 million in 2002, principally due to an increase in tariffs in February 2003 and an increase in incoming traffic. This increase was partially offset by discounts in contracts with Telecomunicações de São Paulo S.A. — Telesp on certain tariffs for local calls during off-peak hours under an agreement with Anatel signed in February 2003. This increase was also due to the higher volume of incoming calls from outside our network due to the increase in our custumer base. The increase in 2002

37

was due to the higher volume of incoming calls from outside our network due to the increase in our customer base as well as due to a rate increase in interconnection charges.

     Other. Revenues from other services increased 530.5% to R$271.1 million in 2003, from R$43.0 million in 2002, which in turn represented an 18.8% increase from R$36.2 million in 2001. The increase in 2003 was principally due to the increase of TCP’s (excluding GT and TCO)other revenues to R$205.8 million in 2003, from R$43.0 million in 2002, resulting principally from an increase in use of data services, including short message services, or SMS, and an increase in use of other value-added services. In addition, as a result in the change in accounting practices described under “— Usage Charges” above, Telesp Celular began as of January 1, 2003 to record prepaid minutes that expired as other revenues. The consolidation of revenues from other services of Global Telecom also had a positive impact of R$32.5 million, and the consolidation of revenues from other services of TCO for the months of May through December 2003 had a positive impact of R$32.8 million.

     Value-added and other indirect taxes. Value-added and other indirect taxes increased 74.8% to R$1,334.8 million in 2003, from R$763.5 million in 2002, which in turn represented a 16.4% increase from R$655.9 million in 2001. The increase in 2003 was principally due to the increase of TCP’s (excluding GT and TCO) value-added to R$858.3 million in 2003, from R$763.5 million in 2002, Value-added taxes and other indirect taxes on operating revenues were 16.2.0% of our gross operating revenues in 2003, 17.5% in 2002 and 17.1% in 2001. The effective rate of taxes on gross operating revenues varies depending upon the composition of our revenues, since the interconnection charges are not subject to ICMS.

     Sales and services discount and return of goods sold. Deductions from operating revenues include discounts on cellular handset sales, discounts on services and returns of goods sold. Discounts and returns increased by 177.7% in 2003 to R$482.3 million, from R$173.7 million in 2002, which in turn represented a 20.8% decrease from R$219.2 million in 2001. The increase in 2003 was principally due to a 162.0% increase in TCP’s (excluding GT and TCO) deductions from operating revenues to R$441.3 million in 2003, from R$173.7 million in 2002, resulting from an increase in the discounts granted on the sales of handsets and accessories and the change in accounting practices described under “—Usage Charges” above. This change in accounting practices had a negative impact of R$130.4 million in 2003. In connection with this change in accounting practices, Telesp Celular began to record prepaid service revenues on a gross basis and to recognize free minutes offered to prepaid customers as service discounts. Before the change in accounting practices, Telesp Celular had recognized prepaid services net of service discounts offered to customers. The consolidation of deductions from operating revenues were in the amount of R$9.1 million for Global Telecom and in the amount of R$32 million for TCO in 2003.

     Cost of Services and Goods

     The following table sets forth the components of our costs of services and goods sold for 2003, 2002 and 2001, as well as the percentage change of each year from the prior year.

38

     Cost of services and goods increased by 73.7% in 2003 to R$3,020.5 million, from R$1,739.4 million in 2002, which in turn represented a 0.9% increase from R$1,724.2 million in 2001. The increase in 2003 was principally due to the consolidation of costs of R$478.9 million attributable to Global Telecom and the consolidation of costs of R$644.7 million attributable to TCO for the months from May through December 2003. TCP’s (excluding GT and TCO) cost of services and goods increased 9.4% to R$1,903.6 million in 2003, from R$1,739.4 million in 2002, mainly due to an increase in the cost of goods sold as a result of the sale of more sophisticated and expensive models, an increase in the number of handsets sold and an increase in depreciation and amortization, partially offset by a decrease in costs of material and services. The increase in 2002 was mainly due to an increase in depreciation and amortization and in Fistel and other taxes, which was partially offset by a decrease in material and services and in the cost of goods sold. Gross margin, which is defined as gross profit as a percentage of net revenues, remained practically flat at 50.0% in 2003 when compared with 49.1% in 2002, from 41.9% in 2001.

     Depreciation and amortization. Depreciation and amortization expenses increased 54.3% to R$870.2 million in 2003, from R$564.1 million in 2002, which in turn represented an increase of 8.5% from R$519.8 million in 2001. In 2003, the consolidation of depreciation and amortization expenses of Global Telecom had a negative impact of R$160.8 million, and the consolidation of depreciation and amortization expenses of TCO for the months of May through December 2003 had a negative impact of R$109.6 million. TCP’s (excluding GT and TCO) depreciation and amortization expenses decreased by 6.3% to R$599.8 million in 2003, from R$564.1 million in 2002, principally due to the expiration of most of the equipment depreciation period, particularly the analog network. In 2002, an increase of 8.5% resulted from the growth of our network.

     Material and services. Cost of material and services increased 38.8% to R$586.9 million in 2003, from R$422.9 million in 2002, which in turn represented a decrease of 7.5% from R$457.0 million in 2001. In 2003, the consolidation of costs of material and services of Global Telecom had a negative impact of R$84.1 million, and the consolidation of costs of material and services of TCO for the months of May through December 2003 had a negative impact of R$139.9 million. TCP’s (excluding GT and TCO) cost of materials and services decreased 12.6% to R$369.7 million in 2003, from R$422.9 million in 2002, principally because (1) Telesp Celular’s network usage charges decreased 20.5% to R$184.0 million in 2003 from R$231.5 million in 2002, mainly due to a decrease in the usage of other networks by Telesp Celular subscribers despite an overall increase in traffic on Telesp Celular’s network and (2) Telesp Celular’s leased line charges decreased 15% to R$61.8 million in 2003 from R$72.4 million in 2002, mainly due to favorable renegotiations of existing contracts. This decrease in the cost of materials and services was partially offset by an increase in the cost of maintaining Telesp Celular’s network. The decrease in 2002 was mainly due to the decrease in the amounts of leased lines to R$72.4 million in 2002 from R$113.0 million in 2001, which was partially offset by the increase in the costs of interconnection fees to R$231.5 million in 2002 to R$ 211.0 million in 2001, and by the decrease in maintenaince, repair and others costs.

     Personnel. Personnel expenses increased 78.7% to R$48.6 million in 2003, from R$27.2 million in 2002, which in turn represented an increase of 7.1% from R$25.4 million in 2001. In 2003, the consolidation of personnel expenses of Global Telecom had a negative impact of R$4.9 million, and the consolidation of personnel expenses of TCO for the months of May through December 2003 had a negative impact of R$13.2 million. TCP’s (excluding GT and TCO) personnel expenses increased 12.1% to R$30.5 million in 2003, from R$27.2 million in 2002, principally due to a 7.5% average increase in personnel salaries, in line with the inflation rate. The increase in 2002 was mainly due to an increase in personnel salaries pursuant to a collective-bargaining agreement.

     Rental, insurance and condominium fees. Rental, insurance and condominium fees increased 12.5% to R$90.2 million in 2003, from R$80.2 million in 2002, which in turn represented an increase of 14.4% from R$70.1 million in 2001. In 2003, the consolidation of rental and insurance of Global Telecom had a negative impact of R$9.0 million, and the consolidation of rental and insurance of TCO for the months of May through December 2003 had a negative impact of R$10.2 million. TCP’s (excluding GT and TCO) rental, insurance and condominium fees decreased 11.5% to R$71.0 million in 2003, from R$80.2 million in 2002, principally due to favorable renegotiations of existing contracts. The increase in 2002 was mainly due to the instalation of new transmission and switching equipments.

39

     Cost of goods sold. Cost of goods sold increased 122.7% to R$1,222.3 million in 2003, from R$548.9 million in 2002, which in turn represented a decrease of 5.5% from R$580.6 million in 2001. In 2003, the consolidation of cost of goods sold of Global Telecom had a negative impact of R$194.6 million, and the consolidation of cost of goods sold of TCO for the months of May through December 2003 had a negative impact of R$305.3 million. TCP’s (excluding GT and TCO) cost of goods sold increased 31.6% to R$722.4 million in 2003, from R$548.9 million in 2002, principally due to the sale of more sophisticated and expensive handset models and an increase in the number of handsets sold. The decrease in 2002 was mainly a result of bargainings with our handsets suppliers.

     Fistel and other taxes. TCP recorded Fistel and other taxes of R$202.3 million in 2003, compared to R$96.1 million in 2002, which in turn represented a 34.8% increase from R$71.3 million in 2001. In 2003, the increase was primarily attributable to the consolidation of Fistel and other taxes of Global Telecom in the amount of R$25.6 million and of TCO for the months of May through December 2003 in the amount of R$66.5 million. The increases in 2003 in TCP (excluding TCO and GT) and in 2002 were mainly due to an expansion of our equipments and an increase in the number of handsets sold.

     Operating Expenses

     The following table sets forth the components of our operating expenses for each of the years ended December 31, 2003, 2002 and 2001, as well as the percentage change of each year from the prior year.

     TCP’s operating expenses increased 116.6% to R$1,971.2 million in 2003, from R$909.9 million in 2002, which in turn represented an increase of 1.6% from R$895.9 in 2001. The increase in 2003 resulted from the consolidation of operating expenses of Global Telecom and TCO at the amounts of R$297.3 million and R$363.4 million, respectively, as well as a R$400.6 million increase in TCP’s (excluding GT and TCO) operating expenses, which in turn represents a 44% increase in such TCP’s (excluding GT and TCO) expenses.

     Selling expenses. Selling expenses increased 140.1% to R$1,264.9 million in 2003, from R$526.9 million in 2002, which in turn represented a 1.9% decrease from R$537.3 million in 2001. In 2003, the consolidation of selling expenses of Global Telecom had a negative impact of R$178.9 million, and the consolidation of selling expenses of TCO for the months of May through December 2003 had a negative impact of R$219.0 million. TCP’s (excluding GT and TCO) selling expenses increased 64.5% to R$867.0 million in 2003, from R$526.9 million in 2002, principally due to expenses related to the launch of the Vivo brand, an increase in dealers’ commissions, an exclusivity fee that Telesp Celular negotiated with its dealers, an increase in the expenses related to Telesp Celular’s call center and an increase in the depreciation expenses. There was a 91.7% growth in marketing expenses to R$ 144.9 million in 2003 from R$75.6 million in 2002, due to the launch of the trademark VIVO in 2Q03. The increase in depreciation was principally due to a decrease as of January 1, 2003 in the estimated useful life of handsets loaned to customers from 36 months to 18 months to match the terms of the related subscription contracts, resulting in an increase in depreciation expenses of R$34.9 million in 2003. The 1.9% decrease in 2002 when compared to 2001 was mainly due to the 27.3% decrease in the allowance for doubtful accounts to R$68.3 million in 2002 from R$94.0 million in 2001, resulting from the adoption of more effective credit standards and the continued growth in our prepaid customer base. This decrease was offset in large part by a substantial increase in depreciation and amortization expense, from R$21.8 million in 2001 to R$55.9 million in 2002, due to (i) the amortization of the premiums we pay to our dealers in order to guarantee the exclusivity of our products and services, and (ii) the larger number of loaned handsets resulting from our emphasis on corporate customers.

40

     Provisions for doubtful accounts increased 25.1% to R$85.5 million in 2003, from R$68.3 million in 2002, which in turn represented a decrease of 27.3% from R$ 94.0 million in 2001. The increase in 2003 was principally due to the consolidation of provisions for doubtful accounts of Global Telecom in the amount of R$12.1 million and the consolidation of provisions for doubtful accounts of TCO for the months of May through December 2003 in the amount of R$33.3 million. TCP’s provisions for doubtful accounts, excluding GT and TCO, decreased 41.3% to R$40.1 million in 2003, from R$68.3 million in 2002. These provisions were 1.1% of gross revenues in 2003, compared to 1.6% of gross revenues in 2002 and 2.4% in 2001. The decrease in the ratio of provisions for doubtful accounts to gross revenues was principally due to the adoption of more effective methods of evaluating customer credit and the growth of TCP’s prepaid customer base.

     General and administrative expenses. General and administrative expenses increased by 63.5% in 2003 to R$561.3 million from R$343.2 million in 2002, which in turn represented an increase of 8.1% in 2002 from R$317.5 million in 2001. In 2003, the consolidation of general and administrative expenses of Global Telecom had a negative impact of R$74.5 million, and the consolidation of general and administrative expenses of TCO for the months of May through December 2003 had a negative impact of R$131.7 million. TCP’s general and administrative expenses, excluding GT and TCO, increased 3.5% to R$355.1 million in 2003, from R$343.2 million in 2002, principally due to an increase in outsourced services. The R$25.7 million increase in 2002 was due principally to higher personnel costs and higher depreciation and amortization costs.

     Other net operating expenses. The net amount of other operating expenses increased by 264.3% to R$145.0 million in 2003, from R$39.8 million in 2002, which in turn represented a decrease of 3.2% from R$41.1 million in 2001. In 2003, the increase resulted mainly from the consolidation of other net operating expense of Global Telecom of R$43.9 million, and of TCO’s in the amount of R$12.6 million for the months of May through December 2003. TCP (excluding GT and TCO) recorded other net operating expense of R$88.5 million in 2003, compared to other net operating expense of R$39.8 million in 2002. This increase was principally due to the amortization of TCO goodwill at the amount of R$96.1 million, which was partially offset by the reversal of a R$ 68.5 million provision relating to litigation over the assessment of ICMS tax on activation fees. Telesp Celular had established the provision in connection with litigation in the Treasury Court of the State of São Paulo seeking a decision that the ICMS tax does not apply to cellular activation fees. Telesp Celular reversed the provision on March 31, 2003 when the Higher Justice Court (Superior Tribunal de Justiça) determined in an action filed by Telamazon Celular, another wireless operating company, that the ICMS tax could not be assessed on activation fees. The changes in all items of other net operating expenses from 2001 to 2002 were not relevant.

     Net Financial Expense

     The following table sets forth certain components of our net financial expenses, as well as the percentage change of each component from the prior year, for each of the years in the three-year period ended December 31, 2003.

     Net financial expense increased 40.2% to R$1,133.5 million in 2003, from R$808.4 million in 2002, which in turn represented an increase of 49.3% from R$541.5 million in 2001. The increase in 2003 reflected (1) an increase in the consolidated debt of TCP to R$6,279.2 million at December 31, 2003 compared to R$4,460.8 million

41

at December 31, 2002, which generated a R$325.1 million increase in net financial expenses; and (2) the consolidation of R$328.1 million in financial expense of Global Telecom and R$67.9 million in financial income of TCO for the months of May through December 2003.

     The increase in 2002 was mainly due to a R$267.0 million provision for foreign exchange losses on those derivatives contracts that bear carrying costs indexed to the U.S. dollar. Some of our hedging contracts carry premium payments linked to the CDI that applies to the notional value in U.S. dollars. In previous years, increases in interest rates have been compensated by decreases in the exchange rate (or vice versa), in such a way that these contracts behaved and were accounted for essentially like a regular fixed U.S. dollar-floating real swap. With both the rising interest rates and the depreciation of the real in 2002, we decided to create this provision. Also, we had no capitalization of interests in 2002, compared to R$55.7 million of interest expenses that were capitalized in 2001.

     Our foreign currency-denominated debt produced a gain of R$368.4 million in 2003, a loss of R$ 1,475.5 million in 2002 and a loss of R$165.5 million in 2001). In all cases, this was offset by our derivatives, which produced a loss of R$873.2 million in 2003, a gain of R$945.1 million in 2002 and a loss of R$178.3 million in 2001.

     Net non-operating income (expense)

     The net non-operating income (expense) decreased by 357.0% to an expense of R$25.7 million in 2003, from an income of R$10.0 million in 2002, which in turn represented an increase of R$10.4 million from an expense of R$0.4 million in 2001. The net non-operating expense refers mainly to sale of assets.

     Extraordinary Items

     As a result of the significant operating losses incurred by Global Telecom during 2002 and 2001, we elected to record provisions for losses on our investment amounting to R$170.8 million for 2002 and R$278.8 million for 2001. This provision was recorded as an extraordinary item in the statement of income, accounted as net non-operating expense.

     Income and Social Contribution Taxes

     We incurred income and social contribution taxes at the amount of R$277.9 million in 2003, a 497.6% increase from R$46.5 million in 2002, which in turn represented a 416.3% decrease from an income tax expense at the amount of R$14.7 million in 2001. Despite our net losses, we recorded income taxes in 2003 and 2002, because of the operating results of Telesp Celular and TCO. According to Brazilian tax law, losses from consolidated entities cannot be used to offset income of other consolidated entities. See Note 11 to our consolidated financial statements.

     Minority Interests

     Represent the participation of minority shareholders on the net income of TCO, from May through December, 2003.

Results of Operations for 2001 and 2002 for Global Telecom Holdings

     As discussed in “Item 3. Key Information,” on February 6, 2001 we acquired 49% of the voting shares and 100% of the non-voting shares of Global Telecom Holdings, which collectively held 95% of the voting shares and 100% of non-voting shares of Global Telecom. Global Telecom Holding’s financial results of operation were incorporated into our Brazilian corporate law method financial results on the basis of equity method of accounting

42

until December 27, 2002, when we purchased the remaining 51% of the outstanding common stock of Global Telecom Holdings and began to consolidate it.

     The audited combined financial statements of Global Telecom Holdings have been presented in this annual report for the period that Global Telecom Holdings was a non-consolidated equity investment in order to comply with the requirement of Rule 3-09 of Regulation S-X of the Commission. The following discussion compares Global Telecom Holdings’s results of operations and capital expenditures for the period from February 6, 2001 to December 31, 2001 with the period from January 1, 2002 to December 27, 2002. The variations are affected by the fact that the 2001 period presented is shorter than the 2002 period presented.

     The table below presents the combined statements of operations of Global Telecom Holdings for the periods indicated:

     Global Telecom Holdings’s financial results of operations are incorporated into our Brazilian corporate law method financial results on the basis of the equity method of accounting. See “—Equity Losses in Subsidiaries” and “—U.S. GAAP Reconciliation” above.

     On December 31, 2002, our results include our equity participation of R$771.3 million in Global Telecom Holdings.

     Global Telecom’s net operating revenues increased 31.1% to R$512.2 million in 2002 from R$390.8 million in 2001, primarily as a result of an increase in the number of customers.

     Global Telecom’s new initiatives included: (i) acquisition of a new prepaid platform; (ii) expansion of the coverage of its network service; and (iii) increase of owned stores and qualification of reliable points of sale. These initiatives were undertaken in order to accommodate a significant growth in subscribers, from 862 thousand to 1.177 million lines in service between December 31, 2002 and December 31, 2001, as well as an expansion of the coverage area from 71% to 74% over the same period. Investments in network infrastructure also benefit us in two ways: (i) they enable us to use Global Telecom’s existing network more efficiently and (ii) they enable Global Telecom to offer mobile data services to its subscribers (especially business subscribers who generate higher average revenue per customer as a result of more stable postpaid service arrangements), an important component of future revenue growth.

     Global Telecom’s expenses, other than net interest expenses, increased at a lower rate than its net operating revenues. The costs of services and merchandise increased 3.9% to R$423.8 million in 2002 from R$407.9 million. Selling expenses decreased 11% to R$124.4 million in 2002 from R$139.7 million in 2001. General and administrative expenses decreased 2.4% to R$45.7 million in 2002 from R$46.8 million in 2001. Net operating losses before interest decreased 57.8% to a loss of R$107.8 million in 2002 from a loss of R$255.4 million in 2001.

     In 2002 there were significant structural and organizational changes in Global Telecom, which resulted in a decrease in selling expenses, general and administrative expenses and other operational expenses. Despite the