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Reference Form – Brasil Telecom S.A.

REFERENCE FORM

Brasil Telecom S.A.

Base date: June 30, 2010

Identification BRASIL TELECOM S.A., a joint-stock company with headquarters at SIA/Sul, ASP, Lote D, Bloco B, CEP 71215-000, Setor de Indústria, Brasília – DF1Corporate Taxpayer's ID (CNPJ/MF) 76.535.764/0001-43, with articles of incorporation duly filed with the Registry of Commerce of the State of Rio de Janeiro (―JUCERJA‖) under No. 5.330.000.622.9, and registered as a publicly

held company with the Brazilian Securities and Exchange Commission (―CVM‖) under No. 01131-2 (―Company‖)2.

Headquarters Our headquarters are located at SIA/Sul, ASP, Lote D, Bloco B, CEP 71215-000, Setor de Indústria, Brasília – DF.

Investor Relations Department

Our Investor Relations Department is located at Rua Humberto de Campos 425/8º andar – Leblon - CEP 22430-190 – Rio de Janeiro – RJ. Alex Waldemar Zornig is responsible for this department. Investor Relations contacts: telephone – (55 21) 3131-1212; fax – (55 21) 3131-1155; e-mail – [email protected].

The Company's Independent Auditors

Deloitte Touche Tohmatsu Auditores Independentes, located at Avenida Presidente Wilson, nº 231, 22nd floor, 20030-021, in the City of Rio de Janeiro, State of Rio de Janeiro, telephone (55 21) 3981-0500 and fax (55 21) 3981-0600.

Bookrunner and Custodian Banks for the Company's securities

Shares issued by the Company: Banco Bradesco S.A. 5th issuance of debentures: Banco do Brasil S.A. Bonds: The Bank of New York

Newspapers the Company uses for information disclosure

Our information is published on the Official Gazette (―Diário Oficial‖) of the State of Rio de Janeiro and on the Valor Econômico newspaper.

Website Our website is www.novaoi.com.br. Information included on our website is not an integral part of this Reference Form.

Shareholder Support Support to our shareholders is available via telephone (55 21) 3131-1211, fax (55 21) 3131-1155, and e-mail [email protected].

1 At the EGM held on 06/16/2010, the Company's shareholders approved the transfer of the Company's headquarters to Rua General

Polidoro, 99, 5º andar – Botafogo, CEP: 22280-001, Rio de Janeiro, RJ. The Registration Minutes approving the transfer is still pending filing with the Registry of Commerce of Distrito Federal and Rio de Janeiro. 2 Depending on the context, the references ―Company‖, ―our company‖, ―we‖, ―our‖, ―ours‖ and ―us‖ refer to Brasil Telecom S.A. and its direct and indirect subsidiaries that are consolidated for accounting purposes

mailto:[email protected]

http://www.novaoi.com.br/

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INDEX

1. IDENTIFICATION OF THE PERSONS RESPONSIBLE FOR THE FORM'S CONTENT .... 9

1.1 Statement of the Chief Executive Officer and Investor Relations Officer, affirming: (a) they have reviewed the Reference Form; (b) all information contained in the Reference Form is in compliance with the provisions in CVM Rule 480, specifically articles 14 to 19; and (c) the information contained herein offers a complete, accurate and faithful representation of the financial position and the risks associated with the business and securities of the Issuer. .............................................................. 9

2. AUDITORS ...................................................................................................... 10

2.1. Identification of the Auditors. ......................................................................................... 10

2.2. Total amount of compensation paid to independent auditors in the last fiscal year, informing the fees for auditing services and fees for any other service provided. .......................................... 11

2.3. Other material information ............................................................................................. 11

3. SELECTED FINANCIAL INFORMATION ........................................................... 12

3.1. Selected Financial Information ........................................................................................ 12

3.2. Non-Accounting Information ........................................................................................... 12

3.3. Events following the closing of the year ended December 31, 2009. ................................. 14

3.4 Describe the policy on allocation of income for the last 3 fiscal years ................................ 15

3.5. In a table, indicate, for each of the last 3 fiscal years: ..................................................... 18

3.6. Inform if dividends were declared from the retained earnings account and reserves accrued in prior years, for the last 3 fiscal years ....................................................................................... 18

3.7. In a table, describe the Company's indebtedness level ..................................................... 19

3.8 In a table, separated by debts with actual guarantee, debts with floating guarantee and unsecured debts, indicate the amount of liabilities of the Company per maturity ........................... 19

3.9 Other material information ............................................................................................. 19

4. RISK FACTORS ................................................................................................ 20

4.1. Risk factors that may influence investment decisions: ...................................................... 20

4.2. Expected reduction or increase in the issuer‘s exposure to the risks abovementioned ........ 31

4.3. Describe any court, administrative or arbitration proceedings the issuer or its subsidiaries are parties to, separating them into labor, tax, civil and other: (i) that are non-confidential, and (ii) that are relevant for the businesses of the issuer or its subsidiaries ..................................................... 31

4.4. Non-confidential court, administrative or arbitration proceedings involving officers, former officers, controlling shareholders, former controlling shareholders or investors of the issuer and its subsidiaries ............................................................................................................................... 35

4.5. Regarding relevant confidential lawsuits the issuer or its subsidiaries are parties to, and that have not been included in items 4.3 and 4.4 above, analyze the impact in case of loss and inform the amounts involved ...................................................................................................................... 41

4.6. Describe any relevant non-confidential court, administrative or arbitration proceedings that are repetitive or joined, based on similar legal facts and causes, the issuer or its subsidiaries are parties to, separating them into labor, tax, civil and other ............................................................ 41

4.7. Other Relevant Contingencies ......................................................................................... 46

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4.8. Regarding the rules in force in the home jurisdiction of the foreign issuer and the rules of the jurisdiction in which the issuer's securities are held in escrow, in case they differ from the home jurisdiction, identify: .................................................................................................................. 47

5. MARKET RISKS ............................................................................................... 48

5.1. Describe, quantity and quality wise, the main market risks the issuer is exposed to, including exchange and interest rate risks. ................................................................................................ 48

5.2. Describe the market risk management policy adopted by the issuer, its objectives, strategies and instruments, indicating: ....................................................................................................... 52

a. Risks the issuer seeks protection against ......................................................................... 52

b. Asset Protection Strategy (Hedging) ............................................................................... 65

c. Asset Protection Instruments (Hedging) .......................................................................... 65

d. Risk Management Criteria .............................................................................................. 65

e. Does the issuer employ financial instruments for purposes other than asset protection (hedging)? Please state any other purposes, where applicable. .................................................... 65

f. Structure of Risk Management Functions ......................................................................... 65

g. How adequate are the organizational structure and the internal controls in confirming the effectiveness of the adopted policy? ........................................................................................... 66

5.3. With respect to the last fiscal year, please state significant changes in key market risks to which the issuer is exposed, or to the adopted risk management policy. ....................................... 66


6. ISSUER’S HISTORY ......................................................................................... 67

6.1. Data on the incorporation of the issuer: .......................................................................... 67

6.2. Duration ........................................................................................................................ 67

6.3. Issuer‘s history .............................................................................................................. 68

6.4. Date of Registration with CVM ........................................................................................ 69

6.5. Describe the main corporate events, such as merger, amalgamation, spin-offs, merger of shares, disposal and purchase of controlling stock, disposal and purchase of major assets, to which the issuer or any of its controlled or related companies has been submitted, with indication of the following: a. event; b. main conditions of the transaction; c. companies involved; d. effects on corporate structure resulting from the transaction; e. corporate structure before and after the transaction. ............................................................................................................................... 69

MTH VENTURES DO BRASIL LTDA .............................................................................. 69

6.6. Information on request for bankruptcy based on material amount, or court or out-of-court restructuring of the issuer and the current status of such requests ............................................... 73


7. ISSUER’S ACTIVITIES ..................................................................................... 73

7.1. Summary of the activities developed by the issuer and its subsidiaries .............................. 73

7.2. Regarding each operating segment reported in the latest year-end financial statements or, when applicable, the consolidated financial statements, provide the following information: ............ 75

7.3. Regarding the products and services described above, describe: ...................................... 88

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7.4. Customers responsible for over 10% of the total net revenue, including a. total revenue generated by the customer; b. operating segments affected by the revenues generated by the customer ................................................................................................................................... 94

7.5. Effects of federal government regulation on the Company's activities .............................. 94

7.6. Material revenues originating in foreign countries. ........................................................ 108

7.7. Inform the extent the issuer is subject to foreign regulation, and how it affects the issuer‘s business .................................................................................................................................. 108

7.8. Description of the issuer‘s material long-term relationships that are not included elsewhere in this Reference Form ................................................................................................................. 108

7.9. Other material information ........................................................................................... 108

8. ECONOMIC GROUP ....................................................................................... 113

8.1. Description of the issuer‘s economic group, including: ................................................... 113

a. direct and indirect controlling shareholders ................................................................... 113

b. subsidiaries and affiliate companies .............................................................................. 114

c. interest held by the issuer in the group's companies ...................................................... 115

d. interest held by other companies in the issuer‘s group in the issuer‘s capital ................... 115

e. Jointly-owned companies ............................................................................................. 115

8.2. Organization Chart of the economic group of the issuer, provided that it is compatible with the information presented in item 8.1 ....................................................................................... 116

8.3. Describe the main corporate events, such as merger, amalgamation, spin-offs, merger of shares, disposal and purchase of controlling stock, disposal and purchase of major assets, occurred within the group ..................................................................................................................... 116


9. MAJOR ASSETS ............................................................................................. 118

9.1. Non-Current Assets. ..................................................................................................... 118

a. fixed assets, including those that are leased, including the location of each such asset .... 118

b. Patents, trademarks, licenses, concessions, franchises and technology transfer agreements 126

c. information on the companies the issuer holds interest in .............................................. 128


10. MANAGEMENT’S COMMENTS ........................................................................ 135

10.1 MANAGEMENT‘S COMMENTS ........................................................................................ 135

10.2. Management's comments ............................................................................................. 172

10.3. Comments of the Executive Officers on the potential impact of the events below on the issuer's financial statements and results: ................................................................................... 180

10.4. Management's comments ............................................................................................. 182

10.5. Critical accounting standards, especially with regard to accounting estimates made by the management concerning uncertain, relevant concerns having an impact of the financial position and bottom line that require subjective or complex judgment, such as: provisions, contingencies, revenue recognition, tax credits, long-lived assets, life of non-current assets, pension plans, exchange

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currency conversion adjustments, environmental recovery costs, impairment test criteria and financial instruments ............................................................................................................................. 184

10.6. Comments of the Executive Officers on internal controls implemented for reliable financial reporting ................................................................................................................................. 189

10.7. Aspects referring to public offers for the distribution of securities: .................................. 190

10.8. Relevant items not included in the Company‘s financial statements ................................. 190

10.9 Executive Officers‘ comment on each item not included in the financial statements indicated in item 10.8: ........................................................................................................................... 191

10.10. Executive Officers‘ comments on key elements of the issuer‘s business plan: .................. 191

10.11. Executive officers‘ comments on other drivers that had a material influence on the operating performance and that were not identified or explained in other items herein contained ................ 192

11. PROJECTIONS .............................................................................................. 194

11.1 Projections and Estimates ............................................................................................ 194

11.2 Projections of the past 3 fiscal years ............................................................................. 194

12. GENERAL MEETING AND MANAGEMENT ...................................................... 195

12.1. Describe the administrative structure of the issuer, pursuant to its bylaws and statute, including: ................................................................................................................................ 195

12.2 Describe the rules, policies and practices related to the general meetings, including: ....... 202

12.3. Dates and Newspapers used for disclosure .................................................................... 204

12.4. Describe the rules, policies and practices related to the board of directors ...................... 204

12.5. Description of an arbitration clause included in the issuer's bylaws addressing the resolution of conflicts among shareholders, and between shareholders and the issuer through arbitration. ... 206

12.6. Executives and members of the supervisory board. ........................................................ 207

12.7. Information on the issuer's committees ......................................................................... 212

12.8. Members of the Board of Directors, Board of Executive Officers, and Supervisory Board .. 222

12.9. Marital Relationship, Stable Relationship, or Kinship ....................................................... 228

12.10 Information regarding the existence of any hierarchy, service agreements or control relationships in the last 3 fiscal years between directors of the issuer and: .................................. 229

12.11. Describe the provisions of any agreement, including insurance policies, contemplating payment or refunding of expenses supported by any of the issuer‘s directors, on account of compensation for damages to third parties or the issuer, or due to penalty exacted by government agents, or of agreements with the purpose of closing administrative proceedings or lawsuits, by virtue of the exercise of their duties .......................................................................................... 229


13. MANAGEMENT COMPENSATION ................................................................... 232

13.1. Policy and practice for the compensation of the board of directors, the statutory and non-statutory board of executive officers, the supervisory board, the statutory committees, and the audit, risk, financial and compensation committees, including: ............................................................. 232

13.2 Regarding the compensation recognized in the balance sheets for the last 3 fiscal years and the compensation anticipated for the current year, payable to members of the board of directors, statutory board of executive officers and supervisory board: ...................................................... 236

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13.3 Regarding the variable compensation recognized in the balance sheets for the last 3 fiscal years and the compensation anticipated for the current year, payable to members of the board of directors, statutory board of executive officers and supervisory board: ....................................... 237

13.4 Regarding the stock-based compensation plans of the Board of Directors and Board of Executive Officers in force last year and proposed for the current year: ...................................... 237

13.5 Number of stock or equity units directly or indirectly held by members of the board of directors, board of executive officers or audit committee, in Brazil and overseas, and other convertible securities issued by the Company, its direct or indirect controlling shareholders, subsidiaries or companies under common control, grouped per corporate body, on the closing date of the last fiscal year ................................................................................................................... 237

13.6 Stock-based compensation recognized in the profit or loss for the last 3 fiscal years and stock-based compensation estimated for the current fiscal year for the board of directors and statutory board of executive officers: ........................................................................................ 243

13.7 Outstanding options of the board of directors and statutory board of executive officers at the end of the last fiscal year: ........................................................................................................ 243

13.8 Exercised options and shares delivered referring to stock-based compensation of the Board of Directors and Board of Executive Officers, in the last three fiscal years ................................... 243

13.9 Brief description of the information necessary for the understanding of the data disclosed in items 13.6 to 13.8, and explanation of the pricing method used for the shares and options. ........ 243

13.10 Information on pension plans in effect granted to the members of the board of directors and statutory board of executive officers: ......................................................................................... 244

13.11 Average Management Compensation ............................................................................ 244

13.12 Agreement-based compensation ................................................................................... 244

13.13 Indicate the percentage of the total compensation allocated to each corporate body recognized in the balance sheets for the last three fiscal years of the issuer, referring to members of the board of directors, the board of executive officers or the audit committee that are parties related directly or indirectly to any controlling shareholders, as defined by the accounting standards governing such relationship ...................................................................................................... 244

13.14 Indicate the amounts recognized in the balance sheets for the last three fiscal years of the issuer as compensation paid to members of the board of directors, the board of executive officers or the audit committee, grouped by corporate body, where the payment of any such amount was not related to holding office with the issuer, i.e. any fees or compensation paid for advisory or consulting services rendered .................................................................................................................... 244

13.15 Indicate any amounts recognized in the balance sheets for the last three fiscal years of any direct or indirect controlling shareholders, companies under common control and of subsidiaries of the issuer, as compensation paid to members of the board of directors, the board of executive officers or the audit committee, grouped per body, including the reason for payment of any such amounts to said individuals ............................................................................................................................... 244

13.16 Any other information that the issuer may deem relevant: ............................................ 245

14. HUMAN RESOURCES ..................................................................................... 246

14.1. Issuer's human resources ............................................................................................. 246

14.2. Comments on any significant change in the figures reported in item 14.1 above ............. 251

14.3. Description of the issuer‘s policy on employee compensation, including .......................... 251

14.4. Our relations with labor unions ..................................................................................... 254

15. CONTROL ...................................................................................................... 255

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15.1 Identification of the controlling shareholder or group of controlling shareholders ............. 255

15.2 List of the shareholders, or group of shareholders acting together or representing the same interest, that hold an interest equal to or higher than 5% of a same class or species of stock, and that have not been listed in item 15.1, including: (a) name; (b) nationality; (c) Individual Taxpayer‘s ID (CPF)/Corporate Taxpayer‘s ID (CNPF): (d) number of shares held, per class and type; (e) percentage of shares held in relation to the respective class or type, and in relation to the total capital stock; (f) if the shareholder is a party to a shareholders' agreement; (g) date of latest change: 262

15.3 Describe how the capital is broken down, as ascertained at the latest shareholders‘ general meeting: ................................................................................................................................. 263

15.4 Organizational chart showing the shareholders of the issuer, identifying all direct and indirect controlling shareholders, as well as all shareholders with interest equal to or higher than 5% of one class or type of stock, provided that it is compatible with the information in items 15.1 and 15.2. (optional): ............................................................................................................................... 263

15.5 Information on shareholders' agreements governing the exercise of voting rights or transfer of stock of the issuer, filed with the issuer's headquarters and that the controlling shareholder is a party to: ................................................................................................................................. 263

15.7 Other material information ........................................................................................... 270

16. TRANSACTIONS WITH RELATED PARTIES ................................................... 270

16.1. Describe the issuer‘s rules, policies and practices regarding transactions with related third parties (as defined in the accounting rules addressing this subject): ........................................... 270

16.2. Regarding transactions with related parties that, pursuant to the accounting standards in force, should be disclosed in the issuer's individual or consolidated financial statements, and have been performed in the past three years or are in effect in the current year, inform: .................... 271

16.3. Regarding each of the transactions or set of transactions referred to in item 16.2 carried out in the past fiscal year: a) identify the actions taken to handle conflicts of interests and b) demonstrate the strictly commutative character of the conditions agreed or the appropriate compensatory payment ................................................................................................................................. 309

17. CAPITAL STOCK ............................................................................................ 310

17.1. Capital Stock Breakdown .............................................................................................. 310

17.2. CAPITAL INCREASE ..................................................................................................... 310

17.3. Stock splits, reverse stock splits, bonus ......................................................................... 311

17.4. Decrease in capital stock .............................................................................................. 311


18. SECURITIES .................................................................................................. 312

18.1. Describe the rights entitled to each class and type of share issued ................................. 312

18.2. Describe, if any, the provisions limiting the voting rights of significant shareholders, or any rule requiring the same to perform any public offering ............................................................... 314

18.3. Exceptions and suspensive clauses concerning equity or political rights provided for in the bylaws 314

18.4. Draw up a table informing the trading volume as well as highest and lowest prices of securities traded on a stock exchange or organized OTC market, in each quarter of the last three fiscal years .............................................................................................................................. 315

18.5. Describe any securities issued other than shares ........................................................... 317

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18.6. Brazilian markets in which securities of the issuer are listed for trading ........................... 318

18.7. Regarding each class and type of security listed for trading on foreign markets, indicate: 318

18.8. Describe the public offers made by the issuer or third parties, including the controlling shareholders and affiliates and subsidiaries, of issuer‘s securities ............................................... 318

18.9. Describe the public offers made by the issuer for the acquisition of shares issued by third parties 319


19. BUYBACK PLANS AND SECURITIES HELD IN TREASURY ............................. 320

19.1. Buyback plans and securities held in treasury ................................................................ 320

19.2. Changes in securities held in treasury: .......................................................................... 320

19.3. Securities held in treasury: ........................................................................................... 323


20. POLICY ON THE TRADING OF SECURITIES .................................................. 324

20.1. Inform whether the issuer has adopted a policy on the trading of securities by its direct or indirect controlling shareholders, executive officers, directors, members of the supervisory board or audit committee and of any bylaw-designated bodies with technical and consulting functions, including: a) date of approval; b) bound persons; c) main characteristics; and d) blackout periods for trading and description of the procedures adopted to monitor trading during these periods: ........ 324


21. INFORMATION DISCLOSURE POLICY .......................................................... 326

21.1. Describe the norms, rules or internal procedures adopted by the issuer to make sure information to be disclosed to the public is gathered, processed, and released accurately and in a timely manner ......................................................................................................................... 326

21.2. Describe the policy for the disclosing of material act or fact adopted by the issuer, indicating the procedures adopted for the maintenance of confidentiality of undisclosed material information327

21.3. Executives in charge of the issuer‘s information disclosure policy. ................................... 327


22. EXTRAORDINARY BUSINESSES .................................................................... 329

22.1. Acquisition or sale of any significant asset that does not fall within the regular operations of the issuer. ............................................................................................................................... 329

22.2. Significant changes in the manner the issuer conducts its businesses ............................. 329

22.3. Significant agreements executed by the issuer and its subsidiaries that are not directly connected with their operating activities: .................................................................................. 330

22.4. Other material information .......................................................................................... 330

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1. IDENTIFICATION OF THE PERSONS RESPONSIBLE FOR THE FORM'S CONTENT

GENERAL NOTES ON THIS REFERENCE FORM

This Reference Form is prepared based on CVM Rule 480.

The date of the latest update to this Reference Form does not necessarily mean all information contained herein is updated to that date, but that some or all information contained herein has been updated pursuant to paragraphs 1,

2 and 3 of Article 24 caput of CVM Rule 480.

This Reference Form does not constitute a public offer of Company securities, nor a sale offer or request for the purchase of securities in Brazil or overseas.

Capitalized words are included in a glossary available at Company´s website at http://www.oi.com.br/ri, under Investor Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking

on the first letter of the word to be consulted.

1.1 Statement of the Chief Executive Officer and Investor Relations Officer, affirming: (a) they have reviewed the Reference Form; (b) all information contained in the Reference Form is in compliance with the provisions in CVM Rule 480, specifically articles 14 to 19; and (c) the information contained herein offers a complete, accurate and faithful representation of the financial position and the risks associated with the business and securities of the Issuer.

I, Luiz Eduardo Falco Pires Corrêa, Chief Executive Officer of the Company, declare that I have reviewed the Reference Form, and state that all information contained herein is in compliance with CVM Rule 480, especially articles 14 to 19; and that the information contained herein offers a complete, accurate and faithful representation of the financial position and the risks associated with the business and securities issued by the Company.

I, Alex Waldemar Zornig, Chief Investor Relations of the Company, declare that I have reviewed the Reference Form, and state that all information contained herein is in compliance with CVM Rule 480, especially articles 14 to 19; and that the information contained herein offers a complete, accurate and faithful representation of the financial position and the risks associated with the business and securities issued by the Company.

http://www.oi.com.br/ri

http://www.mzweb.com.br/oi/web/conteudo_pt.asp?idioma=0&tipo=30462&submenu=&img=30459&conta=28

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2. AUDITORS

Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking on the first letter of the word to be consulted.

2.1. Identification of the Auditors.

2007 2008 2009 2010

a) Corporate name Deloitte Touche Tohmatsu Auditores Independentes

Deloitte Touche Tohmatsu Auditores Independentes



b) Name of the persons in charge, Individual Taxpayer ID (CPF), and contact information

Marco Antonio Brandao Simurro

CPF: 755,400,708-44

Tel.: (55 21) 3981-0500

E-mail: [email protected]


CPF: 755,400,708-44

Tel.: (55 21) 3981-0500



CPF: 755,400,708-44

Tel.: (55 21) 3981-0500



CPF: 755,400,708-44

Tel.: (55 21) 3981-0500


c) Date of Engagement

March 01, 2007 April 01, 2008 April 23, 2009

March 11, 2010

d) Description of services provided

Auditing of the financial statements for the year ended December 31, 2007.



Auditing of the financial statements for the year to end on December 31, 2010.

e) Occasional substitution of Auditor, including: 1) justification for substitution, and 2) reasons of the auditor

There was no substitution.










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2.2. Total amount of compensation paid to independent auditors in the last fiscal year, informing the fees for auditing services and fees for any other service provided.

The table below informs the total compensation paid to independent auditors in the last fiscal year and in the current fiscal year:

2008 2009

(in R$ thousand)

Auditing Services Fees 2,100 5,090

Other Services Fees1 - -

TOTAL 2,100 5,090

1 The fees charged for other audit services consist of total fees charged by the Independent Auditor referring to the revision of our internal controls and to tax consulting.

2.3. Other material information.

There is no further relevant information regarding item ―2‖.

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3. SELECTED FINANCIAL INFORMATION Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking on the first letter of the word to be consulted.

3.1. Selected Financial Information

2007 2008 2009

a) Shareholders' Equity (R$ thousand) 5,505,462 6,240,952 11,094,901

b) Total Assets (R$ thousand) 15,461,393 17,539,938 22,756,076

c) Net Revenue (R$ thousand) 11,215,878 11,581,182 10,878,562

d) Gross Profit (R$ thousand) 4,853,754 5,400,889 4,972,964

e) Net Result (R$ thousand) 800,051 1,029,816 (1,142,689)

f) Number of Ex-Treasury Shares (thousand)

547,272 547,499 589,789

g) Book Value per Share (R$) 10.06 11.40 18.81

h) Net Income or Loss per Share (R$) 1.46 1.88 (1.94)

3.2. Non-Accounting Information

a) non-accounting measurements, and b) conciliation between the amounts disclosed and the

amounts of the audited financial statements:

The table below shows the reconciliation of the net income and adjusted EBITDA of the Company:

Year ended December 31

2007 2008 2009

(in R$ million, except percentages)

Net Income (Loss) 800.1 1,029.8 (1,142.7)

Net Financial Result 368.1 412.0 281.3

Income Tax and Social Contribution 294.6 551.4 (411.4)

Depreciation and amortization 2,435.7 2,066.0 1,980.5

Minority Interest (1.8) (1.9) 2.0

Equity Accounting - - -

Adjusted EBITDA 3,896.7 4,057.3 709.7

Adjusted EBITDA Margin* 34.74% 35.03% 6.52%

Net Operating Revenue 11,215.9 11,581.2 10,878.6

* Calculated through the division of Adjusted EBITDA by Net Operating Revenues.

The table below shows the reconciliation of the cash flow from operating activities and Adjusted EBITDA:



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2007 2008 2009


Net cash – operating activities 3,134.8 3,055.1 3,237.1

Items not affecting cash (3,883.6) (3,832.9) (6,442.3)

Changes in assets and liabilities 897.4 1,188.3 625.3

Other 944.3 1,168.8 1,027.8

Net Financial Result 368.1 412.0 281.3

Depreciation and amortization 2,435.7 2,066.0 1,980.5

Equity Accounting - - -

Adjusted EBITDA 3,896.7 4,057.3 709.7

Adjusted EBITDA Margin* 34.74% 35.03% 6.52%

Net Operating Revenue 11,215.9 11,581.2 10,878.6

* Calculated through the division of Adjusted EBITDA by Net Operating Revenues.


2007 2008 2009


Short-term debt 518.0 760.6 1,003.4

Long-term debt 3,890.4 4,125.4 3,637.5

Total debt 4,408.4 4,886.0 4,640.9

Cash and cash equivalents, and financial investments

2,430.6

2,040.4 2,099.4

Net Debt 1,977.8 2,845.6 2,541.5

Short-term debt (%)(1) 11.8 15.6 21.6

Long-term debt (%)(2) 88.2 84.4 78.4

(1) The short-term debt percentage is calculated through the division of the short-term debt by the total debt.

(2) The long-term debt percentage is calculated through the division of the long-term debt by the total debt.

c) Reason why the Company understands such measurement is more appropriate for the correct

understanding of its financial condition and the result of its operations.

We calculate Adjusted EBITDA as net profit or loss before the net financial result, income tax and social contribution, depreciation and amortization, minority interests and equity accounting.

Adjusted EBITDA is not recognized in the accounting practices accepted in Brazil, in the IFRS or U.S. GAAP, and it does not represent the cash flow for the reported periods. Therefore, it cannot be considered as an operating performance indicator or a substitute for the cash flow as a measurement of liquidity. Adjusted EBITDA has no standard meaning, and our methodology for calculating Adjusted EBITDA may not be comparable to that used by other companies to calculate their EBITDA or Adjusted EBITDA.

Even though Adjusted EBITDA is not an operating cash flow indicator pursuant to the accounting practices adopted in Brazil, the IFRS and the U.S. GAAP, Management understands it is an important indicator of our operating economic performance and liquidity because it is not affected by (1) interest rate fluctuations, (2) changes in income tax and social contribution rates, and (3) depreciation and amortization levels. Adjusted EBITDA is therefore an indicator that is usually analyzed by investors and market analysts.

14


Additionally, Adjusted EBITDA is used by certain investors and financial analysts as an indicator of a company‘s operating performance and/or cash flow.

We calculate net debt as the balance of loans and financings net of cash and cash equivalents and financial investments balances. Other companies may calculate their net debt differently than we do.

Net debt is not an indicator pursuant to the accounting practices accepted in Brazil, the IFRS or the U.S.GAAP, but Management understands Net Debt is useful both for us and investors and financial analysts to assess our financial leverage in relation to our operating cash flow.

3.3. Events following the closing of the year ended December 31, 2009.

Due to our additional provisions for civil legal contingencies referring to demands related to rights of expansion plan holders, new share exchange ratios have been proposed, following the discussion of all aspects relevant to the matter and the preparation of an analysis by Banco de Investimentos Credit Suisse (Brasil) S.A., the content of which is available at www.oi.net.br/ri and in the IPE information system of the Brazilian Securities and Exchange Commission at www.cvm.gov.br. For further information on demands related to rights of expansion plan holders, please refer to item 4.6 – Civil Proceedings – Stock – Capital Contribution Agreements – Companhia Rio Grandense.

The exchange ratio would be 0.3955 of a common share of Telemar Norte Leste S.A. for each common share of

BrT, and 0.2191 of a class C preferred share of Telemar Norte Leste S.A. for each preferred share of BrT. This ratio was the basis for the calculation of the number of shares issued by Telemar Norte Leste S.A. the current shareholders of Brasil Telecom S.A. would receive in case all stages of the ongoing corporate restructuring were completed. For further information on the corporate restructuring, please refer to item 6.5 – Corporate Restructuring.

In an extraordinary shareholders‘ meeting held on June 16, 2010 to resolve on the proposal for the share exchange ratios between us and TMAR, with no vote from our controlling shareholder and by a decision of the majority of the minority shareholders, holders of 111,536,636 of our common and preferred shares, the new proposed share exchange ratios that would have been applied during the final stage of the Corporate Restructuring were not approved.

In view of the rejection of the proposed exchange ratios, as informed in a Material Fact published on the same date of the shareholders‘ meeting, the simplification of the corporate structure, as disclosed in a Material Fact dated April 25, 2008, is suspended indefinitely.

15


3.4 Describe the use of proceeds policy for the last 3 fiscal years

Year ended on 12.31.2007 Year ended on 12.31.2008 Year ended on 12.31.2009 a) Rules applying to retained earnings

Pursuant to the Brazilian Corporate Law, our shareholders may resolve,

at a general meeting and as proposed by Management, to

retain part of the net income to be used in our capital expenditures. No profit was retained in the year

ended December 31, 2007.

Pursuant to the Brazilian Corporate Law, our shareholders may resolve,

at a general meeting and as proposed by Management, to retain

part of the net income to be used in our capital expenditures. Profit was retained in the amount of R$654

million in the year ended December 31, 2008.

Pursuant to the Brazilian Corporate Law, our shareholders may

resolve, at a general meeting and as proposed by Management, to

retain part of the net income to be used in our capital expenditures. No profit was retained in the year

ended December 31, 2009.

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b) Rules applying to dividends

distribution

At least 25% of the year's net

income will be allocated to pay dividends to shareholders, provided

that (i) class ―A‖ preferred shares are entitled to: (a) after priority dividends attached to class ―B‖

preferred shares have been paid and on equal terms as those

applying to class ―C‖ preferred shares until the minimum dividend

attached thereto is paid, precedence in receiving a non-cumulative minimum dividend of

3% per annum, which is calculated on the amount that results after

dividing the shareholders' equity by the total number of shares of the Company; (b) upon payment of

priority dividends attached to all preferred shares, the right to

receive dividends 10% higher than those attached to common stock; (ii) class ―B‖ preferred shares are

entitled to: (a) precedence in receiving a fixed non-cumulative

minimum dividend of 10% per annum, which is calculated on the amount that results after dividing

the capital stock by the total number of shares of the Company;

and (ii) class ―C‖ preferred shares are entitled to: (i) after priority

dividends attached to class ―B‖ preferred shares have been paid and on equal terms as those

applying to class ―A‖ preferred shares until the minimum dividend



dividing the shareholders' equity by the total number of shares of the Company; (ii) right to share in

distributed profits on the same terms and conditions applicable to

shares of common stock, after these have been paid a dividend

equal to the priority minimum described in item (i) of this paragraph.

Except as otherwise established at

general meetings, dividends are paid prorated on a daily basis. Moreover, the dividends payable to

the shareholders, as well as any other yield or income, will be paid

in such amount as is determined at general meeting, as of the closing of the fiscal year and by or before

the date fixed for actual payment thereof.


income will be allocated to pay dividends to shareholders, provided

that (i) class ―A‖ preferred shares are entitled to: (a) after priority dividends attached to class ―B‖

preferred shares have been paid and on equal terms as those

applying to class ―C‖ preferred shares until the minimum dividend



dividing the shareholders' equity by the total number of shares of the Company; (b) upon payment of

priority dividends attached to all preferred shares, the right to

receive dividends 10% higher than those attached to common stock; (ii) class ―B‖ preferred shares are

entitled to: (a) precedence in receiving a fixed non-cumulative

minimum dividend of 10% per annum, which is calculated on the amount that results after dividing

the capital stock by the total number of shares of the Company;

and (ii) class ―C‖ preferred shares are entitled to: (i) after priority

dividends attached to class ―B‖ preferred shares have been paid and on equal terms as those

applying to class ―A‖ preferred shares until the minimum dividend



dividing the shareholders' equity by the total number of shares of the Company; (ii) right to share in

distributed profits on the same terms and conditions applicable to

shares of common stock, after these have been paid a dividend

equal to the priority minimum described in item (i) of this paragraph.

Except as otherwise established at

general meetings, dividends are paid prorated on a daily basis. Moreover, the dividends payable to

the shareholders, as well as any other yield or income, will be paid

in such amount as is determined at general meeting, as of the closing of the fiscal year and by or before

the date fixed for actual payment thereof.


income will be allocated to pay dividends to shareholders,

provided that (i) class ―A‖ preferred shares are entitled to: (a) after priority dividends

attached to class ―B‖ preferred shares have been paid and on

equal terms as those applying to class ―C‖ preferred shares until the

minimum dividend attached thereto is paid, precedence in receiving a non-cumulative

minimum dividend of 3% per annum, which is calculated on the

amount that results after dividing the shareholders' equity by the total number of shares of the

Company; (b) upon payment of priority dividends attached to all

preferred shares, the right to receive dividends 10% higher than those attached to common stock;

(ii) class ―B‖ preferred shares are entitled to: (a) precedence in

receiving a fixed non-cumulative minimum dividend of 10% per annum, which is calculated on the

amount that results after dividing the capital stock by the total

number of shares of the Company; and (ii) class ―C‖ preferred shares

are entitled to: (i) after priority dividends attached to class ―B‖ preferred shares have been paid

and on equal terms as those applying to class ―A‖ preferred

shares until the minimum dividend attached thereto is paid, precedence in receiving a non-

cumulative minimum dividend of 3% per annum, which is calculated

on the amount that results after dividing the shareholders' equity by the total number of shares of

the Company; (ii) right to share in distributed profits on the same

terms and conditions applicable to shares of common stock, after

these have been paid a dividend equal to the priority minimum described in item (i) of this

paragraph.

Except as otherwise established at general meetings, dividends are paid prorated on a daily basis.

Moreover, the dividends payable to the shareholders, as well as any

other yield or income, will be paid in such amount as is determined at general meeting, as of the

closing of the fiscal year and by or before the date fixed for actual

payment thereof.

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c) Frequency of dividend

distributions

The Company regularly distributes

dividends on an annual basis, and it may declare interim dividends

charged to retained earnings or any profits accumulated in reserves existing as of the date of the last

annual or bi-annual balance sheet approved by shareholders.

Additionally, the Company may declare dividends against the net

income stated on the last bi-annual balance sheet, or a balance sheet for any shorter period of time,

provided that the total amount of dividends paid in each semester of

a fiscal year may not exceed the amount of capital reserves. Interim dividend distributions may be offset

against the amount of statutory dividends charged to the net

income reported at the end of the year for which interim dividends are distributed.



charged to retained earnings or any profits accumulated in reserves existing as of the date of the last

annual or bi-annual balance sheet approved by shareholders.

Additionally, the Company may declare dividends against the net

income stated on the last bi-annual balance sheet, or a balance sheet for any shorter period of time,

provided that the total amount of dividends paid in each semester of

a fiscal year may not exceed the amount of capital reserves. Interim dividend distributions may be offset

against the amount of statutory dividends charged to the net

income reported at the end of the year for which interim dividends are distributed.



charged to retained earnings or any profits accumulated in reserves existing as of the date of

the last annual or bi-annual balance sheet approved by

shareholders. Additionally, the Company may declare dividends

against the net income stated on the last bi-annual balance sheet, or a balance sheet for any shorter

period of time, provided that the total amount of dividends paid in

each semester of a fiscal year may not exceed the amount of capital reserves. Interim dividend

distributions may be offset against the amount of statutory dividends

charged to the net income reported at the end of the year for which interim dividends are

distributed.

d) Restrictions applying to dividends distribution

Pursuant to article 193 of the Brazilian Corporate Law, 5% of the net income earned may be set

aside every year and allocated to a capital reserve, which reserve may

not exceed 20% of the paid-in capital or the limit set forth in

paragraph one of said article 193.









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3.5. In a table, indicate, for each of the last 3 fiscal years:


2007 2008(1) 2009(2)

a) Adjusted Net Income for purposes of Dividends (R$ million) 797.3 1,029.8 N/A

b) Dividend paid (R$ million) 704.9 275.6 N/A

Mandatory Dividend 407.0 0.0 N/A

Interest on Equity 297.8 275.6 N/A

Minimum dividend (25%) 189.4 244.6 N/A

c) Dividend Paid as a ratio of Adjusted Net Income (%) 88.4 26.8 N/A

d) Dividend paid per (R$ million) 407.0 N/A N/A

Common Shares (R$) 0.74 N/A N/A

Preferred Shares (R$) 0.74 N/A N/A

d) Interest on equity paid per (R$ million) 350.4 324.3 N/A

Common Shares (R$) 0.64 0.59 N/A

Preferred Shares (R$) 0.64 0.59 N/A

e) Date Dividends are payable April 16, 2008 August 10, 2009 N/A

f) Return rate as a ratio of the issuer's shareholders' equity 12.8% 4.4% N/A

g) Retained net income N/A 654.0 N/A

h) Date Retention was Approved N/A April 08, 2009 N/A

(1) Dividends were restated at the Reference Rate (TR) from January 1, 2008, up to the date payment began, on April 16, 2008.

(2) Dividends were restated at the Reference Rate (TR) from January 1, 2009, up to the date payment began.

3.6. Inform if dividends were declared from the retained earnings account and reserves accrued in prior years, for the last 3 fiscal years

The shareholders convened at general annual meeting on April 10, 2007, and approved that the year's net income in the amount of four hundred thirty-two million three hundred ninety-one thousand three hundred seventy-eight reais and eighty-six centavos (R$432,391,378.86) be allocated as follows: (1) the amount of twenty-one million six hundred nineteen thousand five hundred sixty-eight reais and ninety-four centavos (R$21,619,568.94) was allocated to the statutory reserve; (2) a portion of the year's adjusted net income in the amount of three hundred fifty-eight million four hundred thirty-six thousand eight hundred and nine reais and ninety-two centavos (R$358,436,809.92) was distributed in the form of dividends, of which R$163,473,992.97 were paid out to holders of common stock and R$194,962,816.95 to holders of preferred stock.

The shareholders convened at general annual meeting on April 8, 2009, approved that the year's net income in the amount of one billion twenty-nine million eight hundred sixteen thousand two hundred sixteen reais and fifty-nine centavos (R$1,029,816,216.59) be allocated as follows: (1) the amount of fifty-one million four hundred ninety thousand eight hundred and ten reais and eighty-three centavos (R$51,490,810.83) was allocated to the statutory reserve; (2) the payment of interest on shareholders' equity (ISE) in the amount of three hundred twenty-four million three hundred thousand reais (R$324,300,000) was ratified, of which the net amount of two hundred seventy-five million six hundred fifty-five thousand reais (R$275,655,000) was charged to the dividend account; (3) the amount of six hundred fifty-four million twenty-five thousand four hundred and five reais and seventy-six centavos (R$654,025,405.76) was allocated to the investment reserve required to implement the Company's capital budget; (4) further, a transfer of the balance of retained earnings to the investment reserve was approved in the amount of three hundred seventy-seven million two hundred seventy-five thousand eight hundred thirty reais and forty-two centavos (R$377,275,830.42).

19


No dividends were declared out of earnings from prior years in the Company's last three fiscal years.

3.7. In a table, describe the Company's indebtedness level

The table below shows our consolidated indebtedness, which includes our current and non-current liabilities at

December 31, 2007, 2008 and 2009, as reported in our Consolidated Financial Statements.

December 31,

(Amounts in R$ million) 2007 2008 2009

Current liabilities ........................................................... 4,396.9 4,759.9 4,506.4

Non-current liabilities .................................................... 5,550.5 6,544.7 7,154.3

Total debt ............................................................... 9,947.4 11,304.6 11,660.7

Shareholders' equity.......................................................... 5,505.5 6,241.0 11,094.9

Indebtedness Level(1) 1.81 1.81 1.05

(1) Total debt divided by shareholders' equity.

3.8 In a table, separated by debts with actual guarantee, debts with floating guarantee and unsecured debts, indicate the amount of liabilities of the Company per maturity

The table below shows our loans, financings and debentures per maturity, at December 31, 2009:

Maturity

One year or less 1 to 3 years 3 to 5 years 5 years and beyond Total

(in R$ million)

Actual Guarantee 690.6 1,011.8 761.3 273.4 2,737.1

Floating Guarantee - - - - -

Unsecured Debt 312.5 811.9 734.3 44.9 1,903.5

Total 1,003.1 1,823.7 1,495.5 318.3 4,640.6

3.9 Other material information There is no further information to be added to this item 3.9.

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4. RISK FACTORS


4.1. Risk factors that may influence investment decisions:

a. risks affecting the Company:

We have a substantial amount of existing debt, which could restrict our financing and operating flexibility and have other adverse consequences.

At December 31, 2009, we had total consolidated indebtedness of R$4,640.8 million and a debt-to-equity ratio of 0.42:1.

We are subject to certain financial covenants that limit our ability to incur additional debt. Our existing level of indebtedness and the requirements and limitations imposed by our debt instruments could adversely affect our

financial condition or results of operations. In particular, the terms of some of these debt instruments restrict our ability, and the ability of our subsidiaries, to incur additional debt, grant liens, pledge assets, sell or dispose of assets, and make certain acquisitions, mergers and consolidations. Furthermore, some of these instruments include restrictions to us and to our subsidiaries that affect the maintenance of certain financial indicators. Default in some of our debt instruments may lead to early maturity of other debt instruments.

Several financial agreements and securities issuance agreements executed by us or our subsidiaries demand the achievement of certain financial ratios.

In November 2009, financing agreements executed with the Brazilian Development Bank (BNDES) by Telemar, by us and by BrT Celular were amended to include the biannual ascertainment of certain financial ratios (in June and December), using our consolidated figures. On December 31, 2009, we achieved the ratios determined in the agreements executed with the BNDES.

On December 31, 2009, the Company failed to comply with the covenants relating to EBITDA/Financial Expenses and Debt/EBITDA ratios, under an agreement with JBIC and under a fifth series of debentures. However, JBIC waived its rights for the ascertainment of results of December 31, 2009. On March 11, 2010, the Meeting of Debenture Holders of the 5th Issuance approved the waiver of the ratios until June 2010, inclusive.

On March 31, 2010, the Company failed to comply with the covenants relating to EBITDA/Financial Expenses and Debt/EBITDA ratios, under an agreement with JBIC. However, JBIC waived its rights for the ascertainment of results of March 31, 2010.

We believe we will achieve, by June 30, 2010, the financial ratios of debt and interest servicing coverage determined in the agreement we executed with JBIC, since the events that caused non-compliance with such ratios will no longer affect the 12-month calculation, which is the period determined in the agreement for the ascertainment of the ratios.

Any early maturity could lead to the early maturity of other financial agreements, and materially and significantly affect our business and financial condition.

If we are unable to incur additional debt, we may be unable to invest in our business and make necessary or advisable capital expenditures, which could reduce future operating revenue and adversely affect our profitability. In addition, cash required to serve our existing indebtedness reduces the amount available to us to make capital expenditures.

If our growth in net operating revenue slows or declines in a significant manner, for any reason, we may not be able to continue servicing our debt. If we are unable to meet our debt service obligations or comply with our debt covenants, we could be forced to renegotiate or refinance our indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sell assets on satisfactory terms, or at all. Please refer to item 10.1.h of this form.

We are subject to numerous legal and administrative proceedings, which could adversely affect our business, results of operations and financial condition.



21


We are subject to numerous legal and administrative proceedings, which could adversely affect our business. Based on the opinion of our external legal advisers, we classify our risk of loss from legal and administrative proceedings as ―probable,‖ ―possible‖ or ―remote.‖ We make provisions for probable losses but do not make provisions for possible and remote losses. At December 31, 2009, we had provisioned R$1,873.5 million for probable losses relating to various tax, labor and civil legal and administrative proceedings against us.

At December 31, 2009, we had claims against us of approximately R$2,711.9 million in tax proceedings, R$1,616.9 in labor proceedings and R$2,256.6 million in civil proceedings with a risk of loss classified as ―possible‖ or ―remote‖ and for which we had made no provisions.

If we are subject to unfavorable decisions in any legal or administrative proceedings and the losses in those proceedings significantly exceed the amount for which we have provisioned, our results of operations may be materially and adversely affected.

Our businesses could be adversely and materially affected if key members of the Management left the Company, or if we are unable to attract and retain skilled talents in our Management.

Our ability to remain competitive and meet strategic growth goals depends on our management. We cannot assure you we will keep on attracting and retaining skilled members in our Management. If any key member of our

Management leaves the Company, or if we are unable to attract and retain skilled personnel in our Management, our business, financial situation and results of operations could be adversely and materially affected.

Our operations depend on our ability to maintain, upgrade and efficiently operate our accounting, billing, customer service, information technology and management information systems, and to rely on the systems of other carriers under co-billing agreements.

Sophisticated information and data processing systems are vital to our growth and our ability to monitor costs, render monthly invoices for services, process customer orders, provide customer service and achieve operating efficiencies. We cannot assure you that we will be able to operate successfully and upgrade our accounting, information and data processing systems or that these systems will continue to perform as expected. If we are not able to operate successfully and upgrade our accounting and information systems, our business, financial condition and results of operations could be adversely affected. We currently have a daily routine of information back-up in place, which could minimize such impacts. But we cannot assure you these systems will be enough to completely neutralize such adverse impacts. We have entered into co-billing agreements with each long-distance carrier that is interconnected to our networks to include in our invoices the long-distance services rendered by these providers, and they have agreed

to include charges owed to us in their invoices. Any failure in our accounting, information and processing systems, or any problems with the execution of invoicing and collection services by other carriers with whom we have co-billing agreements, could impair our ability to collect payments from customers and respond satisfactorily to customer needs, which could adversely affect our business, financial condition and results of operations.

Improper use of our network could adversely affect our costs and results of operations.

We incur costs associated with the unauthorized and fraudulent use of our networks, including administrative and capital costs associated with detecting, monitoring and reducing the incidence of fraud.

Fraud also affects interconnection costs and payments to other carriers for non-billable fraudulent roaming. Improper use of our network could also adversely impact our results of operations if we need to increase our provision for doubtful accounts to reflect amounts we do not believe we can collect for improperly made calls. Any increase in the improper use of our network in the future could materially and adversely affect our costs and results of operations.

Our operations are dependent upon our networks. A system failure could cause delays or interruptions of service, which could cause us to suffer losses.

Damage to our networks and backup mechanisms may result in service delays or interruptions and limit our ability to provide customers with reliable service over our networks. Some of the risks to our networks and infrastructure include: (1) physical damage to access lines; (2) power surges or outages; (3) software defects; (4) disruptions beyond our control; (5) breaches of security; and (6) natural disasters. The occurrence of any such event could cause interruptions in service or reduce capacity for customers, either of which could reduce our gross operating revenues

22


or cause us to incur additional expenses. In addition, the occurrence of any such event may subject us to penalties and other sanctions imposed by ANATEL and may adversely affect our business and results of operations.

The insurance coverage taken out by us may be insufficient to cover occasional damages.

The insurance coverage taken out by us may be insufficient to cover occasional damages. Occurrence of any damage(s) in excess of the insured amounts or that are not insured at all may give rise to unexpected, significant additional costs and adversely affect our business, results of operations and financial position.

Proposed changes to the Brazilian labor laws may impact our labor relations.

On April 2003 the House of Representatives resumed debates concerning proposed changes to the Brazilian labor laws. Representatives are also discussing additional review of union relations in Brazil. The extent of the impact caused by any of these proposed changes in our labor relations cannot be foreseen yet, but they could adversely affect our businesses and financial position.

b. risks affecting the Company’s controlling shareholder

Our controlling shareholder, Telemar Participações S.A., has control over us and our controlled companies.

We are controlled directly by TmarPart, which holds 79.6% of our voting shares. TmarPart‘s shareholders are parties to two shareholders‘ agreements governing their equity interests in TmarPart. Our controlling shareholder is entitled to appoint a majority of the members of our board of directors Our board of directors has the power to determine the decisions to be taken at our shareholders‘ meetings on matters of our management that require the prior authorization of our shareholders, including in respect of the authorization of related party transactions, corporate restructurings and the date of payment of dividends and other capital distributions. The decisions of our controlling shareholder and its controlling shareholders on these matters may be contrary to the expectations or preferences of our other shareholders or holders of debt instruments issued by the Company.

c. risks affecting the Company’s Shareholders

We may require additional capital in the future through issuance of securities, which may lead to dilution in the interest of holders of our stock.

We may raise funds through issuance of stock and/or public or private offerings of convertible securities. Additional fund raising through public offerings of stock, which may not convey preemptive rights to our existing shareholders, may lead to dilution in the interest held by investors in our capital stock.

Our shareholders may not receive dividends or payment of interest on equity.

According to our bylaws, we must pay shareholders an annual mandatory dividend at the rate of no less than 25% of the year's net income, which dividend is determined and adjusted in accordance with the Brazilian Corporate Law. Our bylaws allows for the payment of interim dividends charged to retained earnings or profit reserves existing as of the date of the closing annual or bi-annual balance sheet. We may further pay interest on equity subject to the provisions of applicable laws. Interim dividends and interest on equity declared in each accounting period may count towards the minimum statutory dividend for the accounting period in which they are distributed. Earnings may be capitalized, used to offset losses or retained as provided for in the Brazilian Corporate Law, and hence may not be available for the purpose of paying dividends or interest on equity. We may not pay dividend to our shareholders on any given year if we deems any such payment inexpedient in light of our current financial position.

d. risks affecting the Company’s subsidiaries and affiliated companies

The risks associated with our subsidiaries and affiliates are the same affecting us, as follows:

Any difficulties faced by us, our subsidiaries or affiliates in connection with the timely implementation of our projects at no additional costs may hinder or restrain the implementation of our business plan and adversely affect our subsidiaries and affiliates.

23


Any merger or acquisition of any business by us, our subsidiaries or affiliates as part of our growth strategy may expose our financial position, and adversely affect us and our subsidiaries and affiliates.

Our level of indebtedness and that of our subsidiaries and affiliates may restrict our financial and operating flexibility, adversely affecting our businesses.

Court and administrative proceedings involving us, our subsidiaries and affiliates may adversely affect our businesses, results of operations and financial position.

Our businesses, and those of our subsidiaries and affiliates, could be adversely and materially affected if key members of the Management left the Company, or if we are unable to attract and retain skilled talents in our Management.

Our operations, and those of our subsidiaries and affiliates, depend on our ability to maintain, upgrade and efficiently operate our accounting, billing, customer service, information technology and management information systems, and to rely on the systems of other carriers under co-billing agreements.

Improper use of our network, or that of our subsidiaries and affiliates, could adversely affect our costs and results of operations.

Our operations, and those of our subsidiaries and affiliates, depend on our networks, and any system failure may cause delays or interruptions of services and cause us, our subsidiaries and affiliates to sustain unexpected losses.

The insurance coverage taken by us, our subsidiaries and affiliates may be insufficient to cover occasional damages, and therefore adversely affect our businesses, results of operations and financial position, and those of our subsidiaries and affiliates.

Proposed changes to the Brazilian labor laws may impact our labor relations, and those of our subsidiaries and affiliates.

For further information on the risk exposures described above, please refer to item 4.1 ―a‖ of this Form.

e. risks affecting the Company’s suppliers

We depend on key suppliers and vendors to provide equipment that we need to operate our business.

We depend upon various key suppliers and vendors, including Alcatel-Lucent, Nokia and Huawei, to provide us with network equipment and handsets, which we need in order to expand and operate our business. These suppliers may, among other things, extend delivery times, raise prices or limit supply due to their own shortages and business requirements. If these suppliers or vendors fail to provide equipment or service to us on a timely basis, we could experience disruptions, which could have an adverse effect on our revenues and results of operations, and we might be unable to satisfy the requirements contained in our concession and authorization agreements.

We are subject to potential contingencies arising from engagement of third-party service providers. These contingencies, if materialized, may adversely affect our business.

We are exposed to certain potential contingencies arising from our framework of third-party service provider and vendor contracts. It is difficult to determine the outcome or impact of an administrative or court proceeding that may ensue if any such contingency occurs. If a substantial portion of a contingency will materialize with unfavorable outcomes for us, this may result in a liability for which we set up no provision and that may adversely affect our business.

The Labor Public Attorney's Office challenged the legality of the use of outsourced work by public utilities in the Federal Labor Courts of the 18th Circuit. The Labor Public Attorney's Office filed a public civil action against Companhia Elétrica de Goiás ("CELG") on the ground that the company allegedly violated Precedent Digest No. 331 of the Superior Labor Court by hiring outsourced workers to carry out core business activities. On October 16, 2009, a ruling entered by the Superior Labor Court was published that held certain provisions of Law No. 8,987/1995 inapplicable. These provisions authorized the use of outsourced work by public utilities. Even though this ruling is not conclusive, it can set an important precedent, if ultimately maintained by the court, and reverberate in decisions entered in similar cases now pending in other Brazilian courts. We cannot assure you that such a precedent will not have consequences on other labor suits brought against us. In case the aforesaid precedent is applied to our other labor suits, we may be forced to hire existing outsourced workers as own employees. In this case, our financial position and results of operations may be adversely and substantially affected.

24


f. risks affecting the Company’s customers

We are subject to delinquencies of our accounts receivables.

Our business significantly depends on our customers‘ ability to pay their bills and comply with their obligations to us. In the years ended December 31, 2007, 2008, and 2009, we recorded service selling cost for doubtful accounts in the amounts of R$348.0 million, R$370.2 million, and R$549.6 million, respectively, primarily due to subscribers‘ delinquencies. As a percentage of our gross operating revenue, our provision for doubtful accounts was 2.2% at December 31, 2007, 2.2% at December 31, 2008 and 3.1% at December 31, 2009.

The balance of the provision for doubtful accounts recorded to our assets at December 31, 2009 was R$567.2 million (R$394.4 million at December 31, 2008 and R$375.4 million at December 31, 2007).

ANATEL regulations prevent us from implementing certain policies that could have the effect of reducing delinquency, such as service restrictions or limitations on the types of services provided based on a subscriber‘s credit record. If we are unable to successfully implement policies to limit subscriber delinquencies or otherwise select our customers based on their credit records, persistent subscriber delinquencies and bad debt will continue to adversely affect our operating and financial results.

In addition, if the Brazilian economy declines due to, among other factors, a reduction in the level of economic activity,

depreciation of the real, an increase in inflation or an increase in domestic interest rates, a greater portion of our customers may not be able to pay their bills on a timely basis, which would increase our provision for doubtful accounts and adversely affect our financial condition and results of operations.

Brazilian carriers completed the process of implementing fixed-line and mobile number portability in March 2009. This may result in a reduction in the number of our fixed-line subscribers.

The rules establishing the process for implementing number portability for fixed-line and mobile subscribers was set in motion in late 2006. Number portability allows subscribers to change telephone service operators without changing their fixed-line and/or mobile numbers.

According to ANATEL regulations, a subscriber may change its carrier/operator within the same registration area, i.e. served by the same area code (DDD), as well as the registration address within that same area, without having to change its telephone numbers. The goal of ANATEL in introducing number portability was to foster competition among carriers in the industry.

Implementation of number portability may adversely affect our business in two main respects: (1) portability rules allowing subscribers to switch carriers without changing numbers may increase attrition of fixed-line subscribers to the

competition, and at the same time increase the number of subscribers acquired from other mobile telephony operators; and (2) the costs associated with new technologies and vendors required to implement and maintain number portability are expected to be borne by the carriers.

High subscriber churn rates may adversely affect revenues and profitability in the mobile telephony industry.

Our ability to generate revenue in the mobile phone industry is contingent upon our ability to increase and maintain our customer base. Every additional customer that uses services provided by us entails certain costs such as sales commission and marketing costs. Whether or not said costs are recovered is contingent upon our ability to retain such customers. Therefore, high subscriber churn rates may adversely affect the profitability of our mobile telephony business. During 2009, the average monthly subscriber churn rate, representing the number of subscribers disconnected each month, whether voluntarily or involuntarily, divided by the number of subscribers at the beginning of the relevant month, was 4.6%. It is not possible to guarantee that this rate will not increase in future periods. If the churn rate should increase beyond a certain level, this may adversely affect our revenues and profitability.

g. risks affecting industries in which the Company operates

Our fixed-line telecommunication services face increasing competition from mobile service providers, other fixed-line service providers and, more recently, cable television service providers, which may adversely affect our results.

Our fixed-line telecommunication services in Region II (which consists of the Federal District of Brazil and nine states

25


of Brazil located in the western, central and southern regions of Brazil) face increasing competition from mobile services as the prices for mobile services have been reduced for on-net calls (those made within a mobile provider‘s

network), approaching those of fixed-line telecommunication services. Based on information available from ANATEL, from December 2006 to December 2009, the number of fixed lines in service in Brazil increased from 38.8 million to 41.5 million. But we expect the number of fixed-lines in service in Brazil to continue to stagnate or decline, as certain customers eliminate their fixed-line services in favor of mobile services, and the use of existing fixed-lines to decrease as customers make more mobile calls as a result of on-net promotional mobile rates (such as free or cheaper calls within a mobile provider‘s network). The rate at which the number of fixed-lines in service in Brazil declines depends on many factors beyond our control, such as economic, social, technological and other developments in Brazil.

In addition, new fixed-lines that we install are expected to be less profitable than existing ones because new fixed-line customers generally have lower average incomes than our existing customers, subscribe to our lower cost service plans and generate fewer chargeable minutes of usage. Our traditional local fixed-line telecommunication services, excluding data communication and broadband services, represented 37% of our gross operating revenue for the year ended December 31, 2009. Because we derive a significant portion of our operating revenue from our traditional local fixed-line telecommunications services, a reduction in the number of our fixed-lines in service would negatively affect our operating revenue and margins.

We also compete in the market for local fixed-line services with other fixed-line service providers, primarily with Embratel, and GVT. Embratel competes with us for residential customers through services that it provides using the cable infrastructure of its affiliate Net. In addition, we compete with smaller companies that have been authorized by ANATEL to provide local fixed-line services. In March 2007, ANATEL adopted the General Regulation on Portability (Regulamento Geral de Portabilidade), establishing the deadlines and general rules regarding portability, allowing for customers to keep their fixed-line or mobile telephone numbers even when changing providers or moving to another address. Number portability was implemented in stages, from August 2008 to March 2009, when all regions of the country had number portability. We believe number portability may adversely affect our local fixed-line businesses, especially services to corporate customers, since portability allows for customers to overcome their resistance regarding changing their fixed-line numbers, consequently being attracted by the competition.

Our loss of a significant number of fixed-line customers would adversely affect our gross operating revenue and may adversely affect our results of operations. In addition, because callers in Brazil placing long-distance calls from their fixed-line telephones generally tend to select the long-distance carrier affiliated with the provider of their fixed-line service, our loss of a significant number of fixed-line customers may adversely affect our revenues from long-distance services and our results of operations.

Also, several providers, such as Embratel/Net (affiliates of Telmex) have been adopting the strategy of selling bundled services (voice, broadband and pay-TV) using a single infrastructure. This bundled services strategy has increased the competition in the fixed-line services and broadband market, which may increase our marketing expenses and

investments in the future or lead us to reduce our rates to maintain our market share, thus reducing our profitability.

The broadband market has also become more aggressive with the entry of new competitors and the expansion in activities of the current players, such as GVT, in the fixed-line and broadband businesses. To date, cable TV operators have been our key competition, especially Net. Local providers also have operations in this market through wireless technologies. Mobile carriers have recently entered this market offering broadband services through their third-generation (3G) networks. Even though our growth is fast-paced in this business, we believe competition will increase because we operate different technologies, which could reduce our market share, leading to lower margins and increased customer acquisition costs, and this could adversely affect our results of operations.

Our mobile services face strong competition from other mobile services providers, which may adversely affect our revenues.

The mobile services market in Brazil is extremely competitive. We had an estimated 16.0% share of the mobile services market (total number of subscribers) in Region II as of December 31, 2009, based on information available from ANATEL. We face competition in Region II from large competitors such as Vivo, Claro and TIM, which had estimated market shares of 31.5%, 28.3% and 23.9% in Region II, respectively, as of December 31, 2009, based on information available from ANATEL. Vivo, TIM and Telecom Americas Group are each controlled by multinational companies that may have more significant financial and marketing resources, and greater abilities to access capital on a timely basis and on more favorable terms, than our company.

Our ability to generate revenues from our mobile services business depends on our ability to increase and retain our customer base. Each additional customer subscribing to our service entails costs, including sales commissions and marketing costs. Recovering these costs depends on our ability to retain such customers. Therefore, high rates of

26


customer churn could have a material adverse effect on the profitability of and revenue from our mobile services business. At December 31, 2009, the average monthly customer churn rate, representing the number of subscribers

disconnected each month, whether voluntarily or involuntarily, divided by the number of subscribers at the beginning of such month, was 4.6%.

We have experienced increased pressure to reduce our rates in response to pricing competition. This pricing competition often takes the form of special promotional packages, which may include, among other things, mobile handset and services subsidies. Competing with the service plans and promotions offered by our competitors may cause an increase in our marketing expenses and customer-acquisition costs, which could adversely affect our results of operations. Our inability to compete effectively with these packages could result in our loss of market share and adversely affect our operating revenue and profitability.

For further details on the competition affecting our operations, see item 7.9 of this Form.

Our long-distance services face significant competition, which may adversely affect our revenues.

In Brazil, unlike in the United States and other countries, a caller chooses its preferred long-distance carrier for each long-distance call, whether originated from a fixed-line telephone or a mobile handset, by dialing such carrier‘s long-distance carrier selection code (Código da Operadora). The long-distance services market in Brazil is highly

competitive. Our principal competitors for long-distance services originating on fixed-line telephones in Region II are Embratel and GVT.

We compete for long-distance services originating on mobile telephones in Region II with Embratel/Claro, Telesp (an affiliate of Vivo), and TIM.

Generally, callers placing long-distance calls in Brazil from their fixed-line telephones or mobile handsets tend to select the long-distance carrier affiliated with the provider of their fixed-line or mobile service.

Competition in the long-distance market may require us to increase our marketing expenses and provide services at lower rates than those we currently expect to charge for such services. If competition in the domestic long-distance market increases, it could have a material adverse effect on our revenues.


Data transmission services are not subject to significant regulatory restrictions and, as a result, we face an increasing amount of competition in this business.

Competition in data transmission services is not subject to significant regulatory restrictions and, therefore, the market is open to a large number of competitors. Some competitors, such as cable operators, offer telephone and broadband services, which do not require them to use our fixed-line network, thereby allowing them to reach our customers without paying interconnection fees or mobile network use fees to our company. Additionally, we anticipate that ANATEL will auction, in 2010, radio frequency licenses that may be used to establish WiMax networks. The implementation of WiMax networks may allow other internet service providers, or ISPs, to deploy wireless Internet Protocol, or IP, networks over a much greater area, for a much lower cost, than previously possible. This reduced deployment cost may give our competitors, or new entrants into the data transmission market, the ability to provide Voice over Internet Protocol, or VoIP, and other data services over WiMax networks at lower rates than we are able to offer.

Increasing competition in data transmission services may lead to rate reductions in this segment, adversely affecting the operating revenue we generate from this business. Additionally, increased competition for data transmission customers may require us to increase our marketing expenses and our capital expenditures and may lead to the loss of broadband customers, in each case leading to a decrease in our profitability.


The telecommunications industry is subject to frequent changes in technology. Our ability to remain competitive depends on our ability to implement new technology, and it is difficult to predict how new technology will affect our business.

Companies in the telecommunications industry must adapt to rapid and significant technological changes that are usually difficult to anticipate. The mobile telecommunications industry in particular has experienced rapid and significant technological development and frequent improvements in capacity, quality and data-transmission speed.

27


Technological changes may render our equipment, services and technology obsolete or inefficient, which may adversely affect our competitiveness or require us to increase our capital expenditures in order to maintain our

competitive position. For example, we made significant investments in 2008 and 2009 in connection with the implementation of our 3G services.

While we have been upgrading our fixed-line networks with technologically advanced fiber optic cable for use in our long-distance services, it is possible that alternative technologies may be developed that are more advanced than those we currently provide. If ANATEL auctions radio frequency spectra for use in the development of WiMax networks, we expect that we may be required to participate in these auctions and deploy a WiMax network to remain competitive in the broadband services market. Even if we adopt new technologies in a timely manner as they are developed, the cost of such technology may exceed the benefit to us, and we cannot assure you that we will be able to maintain our level of competitiveness.

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

Media and other entities frequently suggest that the electromagnetic emissions from mobile handsets and base stations may cause health problems. If consumers harbor health-related concerns, they may be discouraged from

using mobile handsets. These concerns could have an adverse effect on the mobile telecommunications industry and, possibly, expose mobile services providers to litigation. We cannot assure you that further medical research and studies will refute a link between the electromagnetic emissions of mobile handsets and base stations, including on frequency ranges we use to provide mobile services, and these health concerns. Government authorities could increase regulation on electromagnetic emissions of mobile handsets and base stations, which could have an adverse effect on our business, financial condition and results of operations.

The expansion of our network may be affected by these perceived risks if we experience problems in finding new sites, which in turn may delay the expansion and may affect the quality of our services. In July 2002, ANATEL enacted Rule 303 that limits emission and exposure for fields with frequencies between 9 kHz and 300 GHz. New laws or regulations regarding electromagnetic emissions and exposure may be adopted, and that could have an adverse effect on our business.

Power shortages may adversely affect our net income.

In 2001 Brazil experienced a large-scale energy crisis. This situation led to the imposition of a power rationing plan that had adverse effects on the Brazilian economy. It is not possible to guarantee that a similar energy crisis will not occur in the future.

The services we provide could be disrupted by any occasional power shortage. This could adversely affect our results of operations and financial position on account of reduced revenues, increased maintenance or repair costs associated with failure of equipment due to power shortages, as well as additional expenses incurred with indemnification claims lodged by customers that may feel themselves adversely affected due to disruption of our services.

We may be unable to implement our plans to expand and enhance our existing mobile networks in a timely manner or without unanticipated costs, which could hinder or prevent the successful implementation of our business plan and result in revenues and net income being less than expected.

Our ability to achieve our strategic objectives relating to our mobile services depends in large part on the successful, timely and cost-effective implementation of our plans to expand and enhance our mobile networks. Factors that could affect this implementation include:

• our ability to generate cash flow or to obtain future financing necessary the implementation of our projects;

• delays in the delivery of telecommunications equipment by our vendors;

• the failure of the telecommunications equipment supplied by our vendors to comply with the expected capabilities; and

• delays resulting from the failure of third-party suppliers or contractors to meet their obligations in a timely and cost-effective manner.

Even though we believe our cost estimates and implementation schedule are reasonable, we cannot assure you that

28


the actual costs or time required to complete the implementation of these projects will not substantially exceed our current estimates. Any significant cost overrun or delay could hinder or prevent the successful implementation of our

business plan and result in revenues and net income being less than expected.

h. risks associated with regulation of industries in which the issuer operates

Our industry is highly regulated. Changes in laws and regulations may adversely impact our results of operations.

Our industry is highly regulated by ANATEL. ANATEL regulates, among other things, rates, quality of service and universal service goals, as well as competition among telecommunications carriers. Changes in laws and regulations, grants of new concessions, authorizations or licenses or the imposition of additional universal service obligations, among other factors, may adversely affect our business, financial condition and results of operations.

In October 2008, ANATEL published items that are on its regulatory agenda in the short-term (up to two years), medium-term (up to five years) and long-term (up to 10 years), that include, among other things, the following: (1) review of and amendments to concession agreements to include additional obligations to expand existing networks; (2) assessment of the adequacy of fixed-line regulations in light of the convergence of telecommunications services; (3) regulation of fixed-line providers with significant market power; and (4) establishment of additional obligations to extend mobile networks, including broadband services, to rural areas.

In furtherance of ANATEL‘s short-term regulatory agenda:

• ANATEL has proposed amendments to our concession agreements that are expected to become effective on January 1, 2011.

• ANATEL has proposed new regulations under which it would grant licenses to use radio spectrum in the 450 MHz band to telecommunications providers that agree to provide mobile services in rural areas. The public consultation period for these regulations has expired and we expect that ANATEL will adopt final regulations by the end of 2010.

• ANATEL is developing criteria for the evaluation of telecommunications providers to determine which providers have significant market power. We expect that these criteria will be submitted for public comment by the end of 2010.

• We expect that ANATEL will submit additional proposed regulations for public comment by the end of 2010 to address the remaining items on its announced short-term agenda.

We cannot predict when regulations regarding these matters will be proposed or adopted or whether these regulations will be adopted as proposed. Some of these regulations, if adopted, may have adverse effects on our revenues, costs and expenses, results of operations or financial position.

In May 2010, Executive Decree No. 7,175/10 was adopted which created the National Broadband Plan. The goal of the National Broadband Plan is to make broadband access available at low cost, regardless of technology, throughout Brazil. The Brazilian government is studying options to achieve this goal, including mandating Telecomunica es Brasileiras S.A., or Telebrás, to manage all of the broadband infrastructure owned by the Brazilian government and to build or otherwise acquire the use of the infrastructure necessary to implement this plan. Executive Decree No. 7,175/10 also instructed ANATEL to adopt new regulations relating to unbundling of telecommunications services and the pricing of backhaul services. As a result of the adoption of the National Broadband Plan, we expect that ANATEL will propose additional modifications to the General Universal Service Plan (Plano Geral de Metas de Universaliza o) as part of the pending modifications of these concession agreements. We cannot predict when regulations regarding these matters will be proposed or adopted or whether these regulations will be adopted as proposed. Some of these regulations, if adopted, may have adverse effects on our revenues, costs and expenses, results of operations or financial position.

We cannot predict whether ANATEL, the Brazilian Ministry of Communications (Minist rio das Comunica es) or the Brazilian government will adopt other telecommunications sector policies in the future or the consequences of such policies on our business and the business of our competitors.

Proposed laws seeking the termination of monthly subscription fees for local fixed-line services may adversely affect our business and financial condition.

The Consumer Defense Committee of the Brazilian House of Representatives approved, in May 2004, Bill No. 5,476/2001, that proposes the termination of monthly subscription fees charged by Brazilian telephony concessionaires, including us, for fixed-line services. This bill is subject to approval by the House of Representatives, the Senate and the President of the Republic before it comes into force. In March 2008, a special committee was

29


formed in the Brazilian House of Representatives to discuss the various proposed bills on this issue. As of the date of this annual report, no action had been taken by the committee.

In the year ended December 31, 2009, monthly subscription fees charged for fixed-line services represented 21.9% of our consolidated gross operating revenue. The enactment of legislation terminating the monthly subscription fees would have a material adverse effect on our current fee structure and results of operations.

Temporary requisition or permanent expropriation of our assets

The federal government may retake the telecommunication service provided by us in the public interest, through specific laws that authorize such retaking in exchange for prior indemnification. Reasons that could qualify as public interest include natural disasters, wars, riots, threats against domestic peace, economic reasons or national security. Any such requisition or retaking of services could adversely affect our results of operations and financial situation. We cannot determine whether the indemnification obtained in any such case will be adequate or that it will be paid out in due time.

The benefits captured through concession contracts are an essential part of our financial performance. Our ability to maintain continued operations could be significantly affected if we lost any or all of our concession contracts.

Our local fixed-line and domestic long-distance concession agreements are subject to periodic modifications by ANATEL and expire on December 31, 2025. Our bids for new concessions upon the expiration of our existing concessions may not be successful.

We provide fixed-line telecommunication services in Region II pursuant to concession agreements with the Brazilian government. Our concession agreements expire on December 31, 2025, and may be amended by the parties every five years prior to the expiration date. The amendments to the concession agreements are expected to become effective on January 1, 2011. In connection with each of these amendments, we are currently discussing modifications to our concession agreements with ANATEL.

On March 30, 2009, ANATEL published a public notice of the proposed modifications to these concession agreements. In this public notice, ANATEL proposed an amendment to the General Universal Service Plan that would require us to:

• double the backhaul capacity to the 20 municipalities (municípios), which are analogous to counties in the U.S., affected by the April 2008 amendment to our concession agreements;

• provide high-speed transmission lines (2.5 gigabytes per second (Gbps)) to the 1,400 municipalities in our concession area where we have provided internet service as of April 2008;

• provide service to a large number of additional areas, including indigenous villages, rural schools, public health clinics, military bases, federal and state highway police stations, and environmental conservation organizations, which would require the fixed-line concessionaires to install an aggregate of up to approximately 110,000 additional public telephones (Terminais de Uso P blico), mostly in rural areas.

In order to mitigate the costs related to the General Universal Service Plan, ANATEL proposed a reduction in the number of public telephones required per inhabitant from 6.0 per 1,000 inhabitants to 4.5 per 1,000 inhabitants. The public consultation period in connection with the March 30, 2009 public notice ended on June 22, 2009, although the final amendments to our concession agreements have not yet been determined. The final modifications will become effective on January 1, 2011. As a result of the adoption of the National Broadband Plan, we expect that ANATEL will propose additional modifications to the General Universal Service Plan as part of the pending modifications of these concession agreements.

Our obligations under the concession agreements may be subject to revision in connection with each amendment. We cannot assure you that any of these amendments will not impose requirements on our company that will require us to undertake significant capital expenditures or will not modify the rate-setting procedures applicable to us in a manner that will significantly reduce the gross operating revenue that we generate from our fixed-line businesses. If the amendments to our concession agreements have these effects, our business, financial condition and results of operations could be materially adversely affected.

Our concession agreements will expire on 2025. We expect the Brazilian government to offer new concessions in competitive auctions prior to the expiration of our existing concession agreements. We may participate in such auctions, but our existing fixed-line and domestic and international long-distance concession agreements will not entitle us to preferential treatment in these auctions. If we do not secure concessions for our existing service areas in any future auctions, or if such concessions are on less favorable terms than our current concessions, our business,

30


financial condition and results of operations would be materially adversely affected.

Our local fixed-line and domestic long-distance concession agreements, as well as our authorizations to provide personal mobile services, contain certain obligations, and our failure to comply with these obligations may result in various fines and penalties imposed on us by ANATEL.

Our local fixed-line and domestic long-distance concession agreements contain terms reflecting the General Universal Service Plan, the General Quality Goals Plan (Plano Geral de Metas de Qualidade) and other regulations adopted by ANATEL and implemented in 2006, the terms of which could affect our financial condition and results of operations. Our local fixed-line concession agreements also require us to meet certain network expansion, quality of service and modernization obligations in each of the states in Region II. In the event of noncompliance with ANATEL targets in any one of these states, ANATEL can establish a deadline for achieving the targeted level of such service, impose penalties and, in extreme situations, terminate our concession agreements for noncompliance with its quality and universal service obligations.

On an almost weekly basis, we receive inquiries from ANATEL requiring information from us on our compliance with the various service obligations imposed on us by our telecommunication services concession agreements. If we are unable to respond satisfactorily to those inquiries or comply with our service obligations under our concession agreements, ANATEL may commence administrative proceedings in connection with such noncompliance. We have

received numerous notices of the commencement of administrative proceedings from ANATEL, mostly due to our inability to achieve certain targets established in the General Quality Goals Plan and the General Universal Service Plan, among others. We have recorded provisions in the amount of R$201 million as of December 31, 2009 in connection with fines sought to be imposed by ANATEL. Additional fines from ANATEL or fines in excess of the provisioned amount could adversely impact our financial condition and results of operations.

In addition, our authorizations to provide personal mobile services contain certain obligations requiring us to meet network scope and quality of service targets. If we fail to meet these obligations, we may be fined by ANATEL until we are in full compliance with our obligations and, in extreme circumstances, our authorizations could be revoked by ANATEL.

For further information, please refer to items 7.5 and 7.9 of this Form.

Our concession contracts may be subject to termination under different scenarios, all of which may adversely affect our financial position.

Under the General Telecommunications Law and the concession contracts signed by us, a concession may be canceled,

among other reasons, if ANATEL will not renew it upon expiration, by decree of the federal government enacted in response to extraordinary circumstances where the public interest is under threat, or in the event of stock splits, spin-offs, mergers, acquisitions, capital reductions or change in our control without the prior authorization of ANATEL. The cancellation of any of our concessions may adversely affect our revenues, financial position and results of operations.

Any increase in the rates of taxes levied on Brazil's telecommunication industry may adversely affect our results of operations.

Companies operating in the country's telecommunication industry are subject to certain taxes that apply specifically to this business segment. The contributions currently levied or charged to industry carriers and operators are as follows: (1) Contributions to the Telecommunication Service Universalization Fund ("FUST"); and (2) to the Brazilian Telecommunication Technological Development Fund ("FUNTTEL"). Contributions to FUST and FUNTTEL took effect in 2000 and are levied at the rates of 1% and 0.5%, respectively, on revenues derived from telecommunication services. The expense associated with these contributions cannot be passed through to subscribers. If new taxes are created specifically to levy telecommunication services, or if the rates of existing taxes are increased, our margins will be adversely affected due to the already high overall taxation levels we are subject to.

i. risks affecting any foreign jurisdiction in which the issuer has businesses

Not applicable.

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4.2. Expected reduction or increase in the issuer’s exposure to the risks mentioned above

We regularly assess our exposure to risks that could adversely affect our business, financial position and results of operations. We monitor key performance indicators in the macroeconomic and industry scenarios on an ongoing basis for changes that may impact our business. We continuously focus on financial discipline and conservative cash management. We currently expect no increase or decrease in exposure to the risks described in item 4.1.

4.3. Describe any court, administrative or arbitration proceedings the issuer or its subsidiaries are parties to, separating them into labor, tax, civil and other: (i) that are non-confidential, and (ii) that are relevant for the businesses of the issuer or its subsidiaries

We are party in several court and administrative proceedings, including civil, administrative, tax and labor

proceedings, which originate in the regular course of our business. We classify court and administrative

proceedings according to the risk of loss as ―remote‖, ―possible‖ or ―probable‖. All provisions established and shown

in the financial statements in respect of such proceedings reasonably reflect estimates of probable losses as

determined by our management based on the opinion of our legal counsels. For actions brought in small claims

courts, provisions are determined based on a statistic model which factors the potential success, the average award

amount and the moving average for the last 14 months. The same methodology is applied with regard to labor-

related claims, but considering a moving average for the last thirty (30) months.

We maintain provisions only for amounts in actions ranked ―probable‖ as to risk of loss. This risk assessment is

performed by our legal department together with our external counsels, except for assessments related to labor

claims, which are performed internally by the legal department alone. To the best of its knowledge and belief based

on our history of loss of suit, our management is of the opinion that the amounts currently provisioned are

sufficient to cover any liabilities resulting from proceedings in which we are a party.

The loss provision balance make-up in connection with court proceedings as of December 31, 2009 (consolidated)

is described as follows:

Consolidated

2009

(in R$ million)

Tax

ICMS 470.2

ISS 9.6

INSS (joint responsibility,

fees and indemnification amounts) 0.3

FUST 3.8

32


Other Claims 2.7

Bounded judicial deposits (23.4)

463.2

Labor

Overtime 180.9

Salary Differences/Equalization of salary scales 118.3

Hazardous work conditions 104.3

Indemnities 49.3

Claims by outsourced personnel 78.6

Contractual rescissions 50.8

Additional post-retirement benefits 40.3

Labor fines 4.1

Stability/Reintegration 75.7

Fees for legal counsel and expert opinions 2.5

FGTS 30.3

Employment relationship 2.0

Other Claims 56.5

Bounded judicial deposits (384.9)

408.7

Civil

Corporate Law 2,664.9

ANATEL fines 62.3

ANATEL estimates 139.0

Small Claims Courts 90.4

Other claims 417.7

33


Bounded judicial deposits (2,372.7)

1,001.6

1,873.5

Current 433.4

Non-current 1,440.1

Below is a table with the breakdown of the claims per level of risk, net of judicial deposits at December 31, 2009

(consolidated):

(Amounts in R$

million)

At December 31, 2009

Tax Labor Civil Total

Probable 463.2 408.7 1,001.6 1,873.5

Possible 1,778.5 1,129.0 1,256.9 4,164.4

Remote 933.4 487.9 999.7 2,421.0

Total 3,175.1 2,025.6 3,258.2 8,548.9

Administrative proceedings

Denunciation of cartel – Lawsuit No. 08012.001851/2004-84

a. Judging Authority CADE/SDE

b. Instance First instance

c. Date filed March 2004

d. Parties to proceeding Embratel x Brasil Telecom, Telemar et al.

e. Amounts, goods or rights

in dispute

Currently there is no way to determine the assets, amounts and rights involved in

this case, except in regard to item ―h‖ below.

f. Background and status of

case

Embratel filed two objections with CADE, ANATEL and the Economic Law Bureau

(―SDE‖) addressing anti-competition practices allegedly performed by the three

companies that formed the Calais consortium to bid on the offering of a

controlling interest in Embratel (the three being our company itself, BrT and

Telesp). The anti-competition practices objected by Embratel included, among

others: (i) discriminatory rate policies; (ii) bid-rigging strategies employed with

the purpose of unduly influencing prices; and (iii) deceptive business practices,

34


such as omitting relevant information from customers with regard to selection of

more favorable long-distance carrier codes. In April 2004 SDE began a

preliminary investigation to verify the merit of such allegations. SDE has yet to

issue an opinion on the matter. Embratel, then a subsidiary of MCI, brought its

charges as part of a wider agenda designed to prevent the Calais consortium

from acquiring an interest in Embratel. At the time, Embratel was offered to

Telmex as part of its restructuring process. The preliminary investigation is

underway even though Telmex successfully acquired Embratel.

g. Chance of loss Remote

h. Impact in case of loss in

the proceeding

While it is the management's belief that the objections raised are groundless, an

unfavorable decision by CADE may result in a fine at a gross rate between 1%

and 30% of gross revenues recorded in the last year.

i. Provisioned amount No amount has been provisioned.

Antitrust Proceeding – Lawsuit No. 08012.004552/2005-82

a. Judging Authority CADE/SDE

b. Instance First instance

c. Date filed March 2004

d. Parties to proceeding ISP Terra Networks x BrT and BrT Serviços de Internet


in dispute

Currently there is no way to determine the assets, amounts and rights involved in

this case, except in regard to item ―h‖ below


case

In 2005 the Terra Networks ISP lodged a complaint against BrT with SDE for

alleged anti-competition practices carried out in the businesses of (i) connection

and (ii) provision of ADSL broadband access in Region II (as defined in item 6.3

below). Of all counts preliminary raised by the ISP, only those related to review

of the broadband service customer call center and third-party vendors were not

dismissed. BrT filed its plea to refute all charges on the understanding that we

adopt fair practices in providing our services. No decision has been entered at

this time on the matter, nor has any anti-trust agency issued an opinion thereon.

g. Chance of loss Remote


the proceeding

While it is the management's belief that the objections raised are groundless, an

unfavorable decision by CADE may result in a fine at a gross rate between 1%

and 30% of gross revenues recorded in the last year.


35


4.4. Non-confidential court, administrative or arbitration proceedings involving officers, former officers, controlling shareholders, former controlling shareholders or investors of the issuer and its subsidiaries

One controlling shareholder appears as plaintiff in the following civil actions brought against former executive

officers, and as defendant in one labor complaint brought by a former executive officer, as described below:

Lawsuit No. 002406120090-3

a. Court 26th Civil Court, District of Belo Horizonte – Minas Gerais.

b. Instance 1st instance.

c. Date filed 7/4/2006.

d. Parties to proceeding Plaintiffs: Brasil Telecom S.A. and Brasil Telecom Participações S.A.

Defendant: Carla Cicco

This action was brought originally against the following defendants: Humberto

José da Rocha Braz, Carla Cicco, Paulo Pedrão do Rio Branco, Verônica Valente

Dantas, Maria Amália Delfim de Melo Coutrim, Danielle Silbergleid Ninio, Eduardo

Penido Monteiro, Arthur Joaquim de Carvalho and Carlos Bernardo Torres

Rodemburg.


in dispute

R$ 4,000,000.00.


case

This action seeks relief against former executive officers of the VOA consortium,

acting as agents for Opportunity, in the form of indemnity for damages caused as

a result of breach of statutory duties of executive officers in respect of said

consortium.

The case is currently pending an expert assessment.

g. Chance of loss Possible.


the proceeding

BrT sues as plaintiff, therefore it might have to pay attorneys' fees determined on

the amount in controversy (R$ 4,000,000) in case the suit is dismissed.


Lawsuit No. 2006.001.086474-0

a. Court 6th Corporate Matters Court, District of the Capital of Rio de Janeiro.

b. Instance 2nd instance (as of now).



36



This action was brought originally against the following defendants: Banco

Opportunity S/.A, Opportunity Equity Partners Administradora de Recursos Ltda.

Opportunity Invest II Ltda. Verônica Valente Dantas, Daniel Valente Dantas,

Carla Cicco, Paulo Pedrão do Rio Branco, Danielle Silbergleid Ninio, Elie Jaques

Sherique, Gabriel Felipe Correa de Andrade, Carlos Bernardo Torres Rodemburg

and Isídio José dos Santos Filho


in dispute

R$ 2,000,000.00.


case

This action was brought against former officers of BT and BTP – who were

appointed by Opportunity – to obtain relief in the form of payment for amounts

spent as rent, condominium fees, taxes, renovation, furniture, maintenance and

other direct and indirect expenses associated with the leasing of the premises

wherein defendants maintain their office space.

The case is currently pending review of the appeal lodged by BrT.



the proceeding


the amount in controversy (R$2,000,000) in case the suit is dismissed.


Lawsuit No. 2006.001.093114-4


b. Instance Superior Court of Justice (as of now).





Opportunity S.A. Opportunity Equity Partners Administradora de Recursos Ltda.

Opportunity Invest II LTDA. Verônica Valente Dantas, Daniel Valente Dantas and

Carla Cicco.


in dispute

R$ 3,465,000.00.


case

This action was filed to compel defendants to indemnify the first plaintiff for any

and all amounts paid to Opportunity employees who, although registered in the

payroll of BT, never rendered any service to the company whatsoever.

The case is currently at the STJ pending review of a special appeal filed by the

37


plaintiffs.



the proceeding


the amount in controversy (R$3,465,000) in case the suit is dismissed.


Lawsuit No. 2006.001.117756-1

a. Court 1st Corporate Matters Court, District of the Capital of Rio de Janeiro.




Defendants: Carla Cicco and Luís Octávio da Motta Veiga;



Daniel Valente Dantas, Carla Cico, Luis Octávio da Motta Veiga, Maria Amália

Delfim de Melo Coutrim, Eduardo Cintra Santos, Ricardo Wiering de Barros,

Daniela Malluf Pfeiffer, Rodrigo Bhering Andrade, Humberto José Rocha Braz and

Gabriel Filipe de Andrade


in dispute

R$ 46,947,396.16.


case

This action was brought against former officers of BT and BTP – who were

appointed by Opportunity – to obtain relief in the form of compensation for

damages arising from the engagement of security firm Kroll. Plaintiff sought to

recover any and all amounts paid to Kroll and other expenditures made by

plaintiff on account of ensuing criminal implications of illicitly engaging Kroll,

which forced plaintiff to hire law firms to assist in the associated criminal

investigation and prosecution.

The case is currently undergoing pre-trial discovery.



the proceeding


the amount in controversy (R$46,947,396.16) in case the suit is dismissed.


Lawsuit No. 2006.001.117746-9

38









Daniel Valente Dantas, Carla Cico, Verônica Valente Dantas, DNA Propaganda

Ltda. and SMP&B Comunicação Ltda.


in dispute

R$ 100,000.00.


case

This action was brought against defendants to establish their joint and several

liability for damages caused to plaintiff as a result of unduly hiring and

misemployment of advertising firms SMP&B and DNA Propaganda.

The case is currently pending an examination and trial hearing.



the proceeding


the amount in controversy (R$100,000.00) in case the suit is dismissed.


Lawsuit No. 2006.001.142082-0

a. Court 1st Corporate Matters Court, District of the Capital of Rio de Janeiro.

b. Instance 2nd instance (as of now).



Defendants: Carla Cicco and Luís Octávio da Motta Veiga;



Daniel Valente Dantas, Carla Cicco, Luis Octávio Carvalho da Motta Veiga, Maria

Amália Delfim de Melo Coutrim, Eduardo Cintra Santos, Ricardo Wiering de

Barros, Daniela Malluf Pfeiffer, Rodrigo Bhering Andrade, Humberto José Rocha

Braz and Gabriel Filipe de Andrade

e. Amounts, goods or rights R$ 3,606,800.36.

39


in dispute


case

This action was brought against the defendants to recover damages caused to

plaintiff as a result of unduly hiring and misemployment of financial consultancy

firms Nera and FTI (the engagement of which was defrayed by Brasil Telecom) to

estimate the amount of losses and damages allegedly sustained by Opportunity

with a ―libelous campaign‖ launched in the media by Telecom Italia. Plaintiffs also

seek to void and vacate all approvals given to the former executives of BT in

connection with managerial actions taken in respect of this particular case.

The case is currently pending review of the appeal lodged by plaintiffs against

the dismissal of their complaint.



the proceeding


the amount in controversy (R$3,606,800.36) in case the suit is dismissed.


Lawsuit No. 2006.001.089658-2

a. Court 2nd Corporate Matters Court, District of the Capital of Rio de Janeiro.



d. Parties to proceeding Plaintiff: Brasil Telecom S.A.




Daniel Valente Dantas, Carla Cicco, Paulo Pedrão Rio Branco and Sami Arap

Sobrinho.


in dispute

R$ 1,927,501.50.


case

This action was brought against former executives officers of BT – who were

appointed by Opportunity – to recover damages in the form of costs and

expenses incurred by plaintiff with hiring law firms to defend and pursue

exclusive interests of Grupo Opportunity in court.

A settlement has been made and ratified in court (except for defendant Carla

Cicco, who refused to enter into settlement). The case is currently pending

expert examination.


h. Impact in case of loss in BrT sues as plaintiff, therefore it might have to pay attorneys' fees determined on

40


the proceeding the amount in controversy (R$1,927,501.50) in case the suit is dismissed.


Lawsuit No. 114-2006-020-10-00-3 (in connection with lawsuit 782-2006-020-10-00-0)

a. Court 20th Labor Court, District of Brasília.

b. Instance Superior Labor Court.


d. Parties to proceeding Carla Cicco vs. Brasil Telecom SA, Ricardo Knoepfelmacher and Charles Laganá

Putz.


in dispute

In this action plaintiff seeks to recover actual damages plus pain and suffering in

the amount of US$2,269,174.90, bonuses, legal costs (court and attorneys' fees),

in addition to having the court decision published in media outlets.


case

The trial court awarded the claim in part to order defendant pay compensation

for pain and suffering in the amount of R$100,000, actual damages in the

amount of R$635,017.50, and a fine of R$10,000 for abuse of process. The court

also established the joint and several liability of the second and third defendants

in the award, and an amount equivalent to 20% of the sums awarded as

attorneys' fees. Appeals were filed by the parties of record. The appeal lodged by

plaintiff was granted in part to held defendant liable for the payment of a

notional fraction of the annual bonus for year 2005 only. The appeal of BrT was

granted in part to exclude actual damages and the fine for abuse of court from

the award, and to have plaintiff liable for the payment of attorneys' fees.

The parties each filed for motion to review, which were subsequently rejected by

the court. As a result, an interlocutory appeal was filed and assigned to Justice

Pedro Paulo Teixeira Manus. This appeal is currently pending a decision as of

6/25/2009. The Regional Labor Court in Brasília granted motions to recognize the

lack of standing to be sued of defendants Ricardo Knopfelmacher and Charles

Laganá Putz.

g. Chance of loss Probable.


the proceeding

Financial impact.

i. Provisioned amount R$ 4,814,981.12

Lawsuit No. 782-2006-020-10-00-0 (in connection with lawsuit 114-2006-020-10-00-3)

41


a. Court 20th Labor Court, District of Brasília.

b. Instance Superior Labor Court.


d. Parties to proceeding Carla Cicco vs. Brasil Telecom SA, Ricardo Knoepfelmacher and Charles Laganá

Putz.


in dispute

Fine of 40% on the balance of FGTS plus FGTS contributions on the amount of

severance pay claimed in case No. 114/2006.


case

The trial court dismissed the complaint in full and held plaintiff liable to pay court

and attorneys' fees. The parties filed ordinary appeals, which were granted in

part to establish the company's liability for making deposits toward the FGTS

calculated only on the proportional annual bonus paid in 2005, as well as to

award attorneys' fees to defendant. The parties each filed for motion to review,

but the court rejected both motions. As a result, an interlocutory appeal was filed

and assigned to Justice Pedro Paulo Teixeira Manus. This appeal is currently

pending a decision as of 6/25/2009.

g. Chance of loss Probable.


the proceeding

Financial impact.

i. Provisioned amount R$ 288,460.61.

4.5. Regarding relevant confidential lawsuits the issuer or its subsidiaries are parties to, and that have not been included in items 4.3 and 4.4 above, analyze the impact in case of loss and inform the amounts involved

We and our subsidiaries are not parties to any confidential lawsuit to date.

4.6. Describe any relevant non-confidential court, administrative or arbitration proceedings that are repetitive or joined, based on similar legal facts and causes, the issuer or its subsidiaries are parties to, separating them into labor, tax, civil and other3

We and our subsidiaries appear as defendants in recurrent court proceedings, including consumer law, labor law

and civil cases, that do not represent relevant financial impact. At least one of our subsidiaries appears as

defendant in several court proceedings involving corporate law issues that represent a substantial contingency risk.

Administrative Proceedings

Lawsuits against ANATEL

On an almost weekly basis, we receive inquiries from ANATEL requiring information from us on our compliance with

3 If any, describe the amounts, provisioned amounts, and the issuer’s or its subsidiaries’ practice that

caused such contingency.

42


the various service obligations imposed on us by our telecommunication services concession agreements. If we are

unable to respond satisfactorily to those inquiries or comply with our service obligations under our concession

agreements, ANATEL may commence administrative proceedings in connection with such noncompliance. We have

received numerous notices of the commencement of administrative proceedings from ANATEL, mostly due to our

inability to achieve certain targets established in the General Quality Goals Plan and the General Universal Service

Plan, such as achieving the indicators for complaints on billing errors, attending repair requests in due time, and

serving localities with collective and individual access. We have recorded provisions in the amount of R$712.6 million

as of December 31, 2009 in connection with fines sought to be imposed by ANATEL. Additional fines from ANATEL or

fines in excess of the provisioned amount could adversely impact our financial condition and results of operations.

Civil Proceedings

Telebrás Spin-Off

Telebrás, our predecessor, appears as defendant in several court proceedings and is subject to several claims and

contingencies. Pursuant to the terms and conditions governing the spin-off process of Telebrás, as provided in Bid

Notice MC/BNDES No. 01/98 which outlined the rules applying to the privatization of companies incorporated and

organized following the partial spin-off of Telebrás, liability for any and all claims resulting from or in connection with

actions taken by Telebrás before the effective date of such spin-off remain with Telebrás, except for labor- and tax-

related claims and proceedings (for which Telebrás and the new controlling companies are jointly and severally liable

by operation of law) and other proceedings representing a liabilities not recorded as contingency as of the spin-off

effective date. Thus, and chiefly because no provision for contingencies has been transferred from Telebrás to its

successor companies, including us, the risk of such contingencies actually taking place and/or resulting in adverse

financial impacts on our business is considered to be remote.

Stock – Capital Contribution Agreements – Companhia Rio Grandense de Telecomunicações

Capital contribution agreements were created and regulated by Ministerial Ordinances No. 415/1972, 1,181/1974,

1,361/1976, 881/1990, 86/1991 and 1,028/1996. Under these regulations, subscribers could acquire a financial

interest in carrier companies by making money contributions. These contributions would at first be posted as

capitalizable funds and subsequently, upon approval of a capital increase at general annual meeting, recorded under

the shareholders' equity, thus leading to issues of stock. Actions brought against former CRT, a corporation merged

by BrT, discuss the method used to determine the stock compensation in connection with said capital contribution

agreements.

In the past, BrT would set up provisions to counter the risk of loss of suit upon consideration and review of certain

legal doctrines. During the first quarter of 2009, certain appellate court decisions led BrT to review amount and risk

estimates associated with litigation of this matter. BrT reviewed its estimates regarding the likelihood of loss

associated with litigating this matter, from possible to probable, naturally upon considering the particulars of each

individual decision and the expert opinion of both its internal and independent counsels. As a result, for the first

quarter of 2009 BrT set up additional provisions in the amount of R$1,153 million (R$761 million, net of tax effects).

As discussed in note 1 (e) to the financial statements as of December 31, 2009, our management, supported by the

opinions of our internal and independent legal counsels, reviewed the methodology for establishing provisions for

contingencies associated with capital contribution agreements litigation. Such review included additional

considerations related to the doctrines which ultimately resulted in final and unappealable decisions, and the dates on

which such decisions became 'res judicata', as of the date the controlling interest in BrT was acquired. Statistical

criteria were also employed to estimate the amount of provisions for contingencies in respect of the relevant

proceedings. Although available, the data used in the aforementioned refining process was not included in the

calculation of the probable loss estimate recorded for the first quarter of 2009. As a result of the improved

calculations, the amount of the provision was increased by R$2,326 million during 2009 (R$1,535 million, net of tax

43


effects). As of December 31, 2009 this provision totaled R$2,665 million, this amount relating to potential liabilities

associated with claims involving the rights of Expansion Plan subscribers (financial contribution agreements). This

matter is currently being litigated in several courts: Trial courts, appellate courts and in the Superior Court of Justice.

The material fact disclosed by us and our subsidiaries on January 14, 2010 makes reference to the gross total

adjustment in the amount of R$2,535 million in respect of contingencies relative to court litigation involving rights of

Expansion Plan subscribers. The amount then disclosed was not recorded in full, and the amount of the gross total

adjustment made in 2009 was R$2,325 million.

Small Claims Courts

Several customer claims based on consumer protection laws relating mostly to the basic service subscription.

Individual claim amounts in actions filed with small claims courts do not exceed 40 minimum wages. As of December

31, 2009 the total amount set up as provision to counter such claims, i.e. ranked as ―probable‖ losses, was R$90.4

million, and the total amount associated with claims of this nature was R$133.1 million.

Possible Contingencies (Not Provisioned)

We and our subsidiaries are also part in several actions for which the risk of loss has been ranked as ―possible‖ based

on the opinion of our legal counsels and no provision for loss of suit has been established.

These actions have no court decisions associated therewith and their causes of action relate mostly to network

expansion plans, claims for actual damages and pain and suffering, collection suits, bidding procedures, among

others. The total amount involved with said issues is approximately R$1,256.9 million (2008 – R$1,220.4 million).

This amount has been determined solely against the values of claims made by individual plaintiffs (typically much

greater than what the case is actually worth). Currently no final decision has been entered in any such action.

Other claims

These refer to several pending actions, including without limitation actions involving agreement termination,

indemnification of former vendors and contractors, essentially on account of claims brought by equipment suppliers

against us, review of contractual terms and conditions to balance the effects of subsequent economic stabilization

plans, and claims of breach of contract, of which the risk of loss has been ranked by management and our legal

counsels as probable. As of December 31, 2009 the total amount set up as provision to counter such claims was

R$761.7 million, and the total amount associated with claims of this nature was R$4,744.4 million.

Labor Lawsuits

Following our acquisition of a controlling interest in BrT on January 8, 2009, BrT changed the method of assessing

the risk of loss of suit relative to labor-related actions so as to bring such method in line with that adopted by us and

taking into account the merit of pending lawsuits. As a result of such changes, BrT increased the provision

established in connection with labor lawsuits in the year ended December 31, 2009 by R$334.1 million.

Hazardous work conditions

Pursuant to Brazilian labor laws, employees working under hazardous conditions as defined by law are entitled to

44


receive an extra allowance corresponding to 30% of their base salary on account of their exposure to hazardous work

environments (hazard pay). We appear as defendant in a number of significant actions that discuss the hazard pay

due as a result of adjustments in the amount of this allowance as mandated by collective bargaining agreements

entered into with unions representing employees who work in environments deemed hazardous, particularly near

electricity lines, and the full payment of said additional allowance. According to precedents of the Superior Labor

Court, this additional allowance must be paid in full even where exposure to hazardous conditions only happens

occasionally. Since the allowance we pay under the agreement is not in keeping with precedents of the Superior

Labor Court, Management deemed that we will probably lose the relevant actions. As of December 31, 2009 the

aggregate amount of provisions set up in connection with said actions was R$104.3 million, and the total amount in

controversy associated with such actions was R$363.1 million.

Salary Differences/Equalization of salary scales

We also face litigation involving wage equalization between certain employees assigned to do the same task in a

given period of time and who exhibit the same labor productivity and technical performance levels. This kind of

litigation typically involves significant amounts as the differences apply to monthly wages paid in a single whole year.

Furthermore, these cases are contingent upon fact-finding issues and the interpretation assigned by the courts to

such factual evidence. As of December 31, 2009 the aggregate amount of provisions set up in connection with said

actions was R$118.3 million, and the total amount in controversy associated with such actions was R$602.2 million.

Indemnity Claims

These refer to claims for compensation or recovery of damages occurred during the term of employment based on a

number of causes of action, including without limitation work-related accidents, occupational diseases, employee

stability, pain and suffering, reimbursement of payroll deductions, day-care allowance and productivity standards as

provided in collective bargaining agreements. As of December 31, 2009 the aggregate amount of provisions set up in

connection with said actions was R$49.3 million, and the total amount in controversy associated with such actions

was R$725.6 million.

Overtime

We appear as defendant in several actions involving overtime pay. The recurring allegation in such actions is that we

paid an employee less than what would be required for overtime work. We also allegedly failed to adjust the normal

salary of claimants in such way as to reflect the special overtime compensation, which resulted in adverse

implications on other labor rights afforded by law to said claimants. As of December 31, 2009 the aggregate amount

of provisions set up in connection with said actions, including any and all proceedings related thereto, was R$180.9

million, and the total amount in controversy associated with such actions was R$1,098.1 million.

Labor fines

These refer to fines applicable under the CLT on account of default on certain amounts payable to employees, or

which were paid on an untimely fashion. The aggregate amount of the relevant provision was R$4.1 as of December

31, 2009, and the total amount in controversy associated with labor law fines was R$167.3 million.

45


Fees for legal counsel and expert opinions

These refer to attorneys' fees awarded by the court to the other party's attorneys where the other party prevailed,

including where an employee was afforded legal assistance by the relevant labor union, as well as fees payable to

court expert and their assistants. As of December 31, 2009, the provision recorded in connection with issues relating

to attorneys' and experts' fees awarded against us totaled R$2.5 million, and the total amount in controversy

associated with these issues was R$246.4 million.

Claims by outsourced personnel

We appear as defendant in several actions brought by former employees of contractors hired by us, where we

assisted in recruiting said employees. Due to this association, we may be held secondarily liable where a contractor

fails to pay the amount of any award granted in a labor claim brought against that contractor. Our actual liability in

respect of any such claim will only be established if the party that was held primarily liable does not have sufficient

funds to pay the sums awarded. As of December 31, 2009 the aggregate amount of provisions set up in connection

with said actions, including any and all proceedings related thereto, was R$78.6 million, and the total amount in

controversy associated with such actions was R$338.5 million.

Additional post-retirement benefits

These claims discuss certain differences in private pension payments due to former employees that resulted after

certain wages and allowances were successfully incorporated but disregarded in the calculation of the retirement pay.

The aggregate amount of the relevant provision was R$40.3 as of December 31, 2009, and the total amount in

controversy associated with these claims was R$192.2 million.

FGTS

Contingencies involving the FGTS relate to labor complaints that discuss differences in contributions toward claimants'

FGTS funds, and also to differences resulting from application of understated inflation to FGTS accounts and the

ensuing monetary losses generated by economic plans in the 1980s and 1990s, as well as the implications of such

differences and understated inflation with regard to the payment of the 40% fine on the FGTS fund balance, required

when an employee's employment is terminated without cause. The aggregate amount of the relevant provision was

R$30.3 as of December 31, 2009, and the total amount in controversy associated with these claims was R$116.8

million.

Employment relationship

We appear as defendant in several labor claims brought by former outsourced workers. These workers establish their

claims in co-employment tests and demand recognizance of employment status directly with us on the ground of

unlawful outsourcing and/or presence of employment elements, such as direct subordination to employer. Our liability

with regard to such claims could be established if the assets of third-party contractors are unable to satisfy the

amounts awarded by the courts. The aggregate amount of the relevant provision was R$2.0 million as of December

31, 2009, and the total amount in controversy associated with these claims was R$39.4 million.

46


Other Claims

We also appear as defendant in several labor including without limitation claims based on seniority allowances,

noxious work pay, profit sharing, night work, travel allowances, reinstatement, among others. The aggregate amount

of the relevant provision was R$183.0 million as of December 31, 2009, and the total amount in controversy

associated with these claims was R$757.4 million.

Tax Proceedings

ICMS

We were assessed additional ICMS on certain transactions. In our opinion, these additional assessments are

groundless because the relevant transactions were not subject to ICMS taxation. There are also certain issues

involving ICMS credits captured by us, the validity or legality of which has been challenged by state revenue services,

which have been re-ranked as to their risk of loss upon new assessments made by our current management and

legal counsels and now rank as probable losses. This change led to an increase in provisions for tax contingencies by

approximately R$345.2 million. The aggregate year-to-date amount at year end was R$227.8, net of tax effects. A

total of R$708.9 million remains ranked as potential losses.

Municipal Taxes

We were served several notices of infringement ranked possible as to risk of loss that address the alleged obligation

to pay service tax on services that are ancillary to communication services, as well as whether said services fall into

municipal levy categories outlined in Complementary Law No. 116/2003. The total amount in controversy is

approximately R$282.2 million (2008 – R$179.3 million).

INSS

We were served several notices of infringement ranked possible as to risk of loss that address inclusion of certain

amount items for the purpose of calculating the taxable wage, which amounts allegedly were not included by us. The

total amount in controversy is approximately R$285.9 million (2008 – R$274.1 million).

Federal Taxes

We set up a provision in the amount of R$3.8 million in respect of several notices demanding federal taxes and

contributions on transactions allegedly incorrectly classified by us, or on discrepancies in determining the balance

payable for such taxes and contributions. There are several proceedings concerning notices of infringement involving

federal taxes, most of which address official adjustments made for determination of balances due, errors in

performing ancillary tax duties, and the payment of PIS, COFINS and FUST withheld after ANATEL changed its

interpretation on how to calculate the taxable basis of these taxes. The total amount involved is approximately

R$501.4 million (2008 – R$487.9 million).

4.7. Other Relevant Contingencies

There are no other relevant contingencies

47


4.8. Regarding the rules in force in the home jurisdiction of the foreign issuer and the rules of the jurisdiction in which the issuer's securities are held in escrow, in case they differ from the home jurisdiction, identify:

a. restrictions imposed to the exercise of political and economic rights

Not applicable.

b. restrictions to trading and transfer of securities

Not applicable.

c. factors that cause registry cancellation

Not applicable.

d. other matters that may be of investors' interest

Not applicable.

48


5. MARKET RISKS Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor

Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking on the

first letter of the word to be consulted.

5.1. Describe, quantity and quality wise, the main market risks the issuer is exposed to, including exchange and interest rate risks. We are mainly exposed to the market risk arising from changes in foreign exchange and interest rates, which has

an impact on our financial operations‘ fair value and cash flow.

Below you will find details on the key market risk factors.

The Brazilian Federal Government has had a significant influence on the Brazilian economy. This

involvement, as well as Brazilian political and economic conditions, could adversely impact our

business, results of operations and financial condition.

Substantially all of our operations and customers are located in Brazil, except for minor services provided outside of

Brazil. Accordingly, our financial condition and results of operations are substantially dependent on Brazil‘s economy.

The Brazilian government frequently intervenes in the Brazilian economy and makes significant changes in monetary,

credit, tax policies and others.

The Brazilian government‘s actions to control inflation and implement macroeconomic policies have often involved

increases in interest rates, wage and price controls, currency devaluations, blocking access to bank accounts,

imposing capital controls and limits on imports, among other things. We do not have any control over, and are

unable to predict, which measures or policies the Brazilian government may adopt in the future. Our business, results

of operations and financial condition may be adversely affected by changes in policies or regulations, or by other

factors such as:

interest rates increase;

political instability;

increase in inflation;

foreign exchange policies and variations;

price instability;

reduced liquidity in the domestic capital and debt markets;

energy shortages;

foreign exchange controls;

changes to the regulatory framework governing our industry;

monetary policy;

tax policy and changes to tax laws; and

other political, diplomatic, social and economic developments in or affecting Brazil or the international markets.

Uncertainty over whether possible changes in policies or rules affecting these or other factors may contribute to



49


economic uncertainties in Brazil and to heightened volatility in the Brazilian securities markets of and securities issued

abroad by Brazilian issuers. The President of Brazil has considerable power to determine governmental policies and

actions that relate to the Brazilian economy and, consequently, affect the operating and financial results of

businesses such as our company. The term of Brazil‘s current President, Luiz Inácio Lula da Silva, expires in January

2011, and under Brazilian law he is not permitted to run for another four-year term in the October 2010 elections.

Uncertainty regarding the election of President Lula‘s successor and speculation about the policies that may be

implemented by the Brazilian federal or state governments could adversely affect our business, results of operations

and financial condition.

Fluctuations in interest rates could increase the cost of servicing our debt and negatively affect our

overall financial performance.

Our financial expenses are affected by changes in the interest rates that apply to our floating rate debt. At December

31, 2009, we had, among other debt obligations, R$1,095.4 million of loans, financing and debentures that were

subject to the Interbank Certificate of Deposit (Certificado Depositário Interbancário), or CDI rate, an interbank rate,

R$2,675.1 million of loans, financing and debentures that were subject to the Taxa de Juros de Longo Prazo, or TJLP,

a long-term interest rate, R$122.7 million of loans, financing and debentures that were subject to Japanese Yen

LIBOR, and R$37.7 million of loans, financing and debentures subject to the BNDES Currency Basket, or UMBNDES.

The TJLP includes an inflation factor and is determined on a quarterly basis by the Brazilian Monetary Council. In

particular, the TJLP and the CDI rate have fluctuated significantly in the past in response to the expansion or

contraction of the Brazilian economy, inflation, Brazilian government policies and other factors. Even though the CDI

dropped from 2007 to 2009, a significant increase in any of these interest rates, particularly the CDI rate, could

adversely affect our financial expenses and negatively affect our overall financial performance.

Depreciation of the real may lead to substantial losses on our liabilities denominated in or indexed to

foreign currencies.

During the four decades prior to 1999, the Central Bank periodically devalued the Brazilian currency. Throughout this

period, the Brazilian government implemented various economic plans and used various exchange rate policies,

including sudden devaluations (such as daily and monthly adjustments), exchange controls, dual exchange rate

markets and a floating exchange rate system.

Since 1999, exchange rates have been set by the market. The exchange rate between the real and the U.S. dollar

has varied significantly in recent years. For example, the real/U.S. dollar exchange rate increased from R$1.9554 per

U.S. dollar on December 31, 2000 to R$3.5333 on December 31, 2002. The real appreciated against the U.S. dollar

by 11.8% in 2005, 8.7% in 2006 and 17.1% in 2007. In 2008, primarily as a result of the international financial crisis,

the real depreciated by 31.9% against the U.S. dollar and prompted foreign investors to remove billions of reais from

the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e

Futuros), which we refer to as the BM&FBOVESPA. At December 31, 2009, the real/U.S. dollar exchange rate was

R$1.7412 per U.S. dollar. During 2009, the real appreciated by 25.5% versus the U.S. dollar.

A significant amount of our financial liabilities are denominated in real or indexed to foreign currencies, primarily U.S.

dollars and Japanese Yen. As of December 31, 2009, R$531.7 million, or 12.0% of our financial indebtedness, was

denominated in a foreign currency, excluding swap adjustments. When the real depreciates against foreign

currencies, we incur losses on our liabilities denominated in or indexed to foreign currencies, such as our long-term

debt. We incur gains on our monetary assets indexed to foreign currencies, as the liabilities and assets are translated

into reais. If significant depreciation of the real were to occur when the value of such liabilities significantly exceeds

the value of such assets, including any financial instruments entered into for hedging purposes, we could incur

significant losses, even if the value of those assets and liabilities has not changed in their original currency. This could

50


adversely affect our ability to meet certain of our payment obligations. A failure to meet certain of our payment

obligations could trigger a default under certain financial covenants in our debt instruments, which could have a

material adverse effect on our business and results of operations. Additionally, we currently have currency swaps and

foreign currency investments in place to hedge a significant portion of our foreign currency debt.

Depreciation of the real relative to the U.S. dollar could create additional inflationary pressures in Brazil by increasing

the price of imported products and requiring recessionary government policies, including tighter monetary policy. On

the other hand, appreciation of the real versus the U.S. dollar may lead to a deterioration of the country‘s current

account and balance of payments, as well as to a dampening of export-driven growth.

In addition, a portion of our capital expenditures requires us to acquire assets at prices denominated in foreign

currencies, some of which are financed by liabilities denominated in foreign currencies, principally the U.S. dollar. We

generally do not hedge against these risks. To the extent that the value of the real decreases relative to the U.S.

dollar, it becomes more costly for us to purchase these assets, which could adversely affect our business and

financial performance.

If Brazil experiences substantial inflation in the future, our margins and our ability to access foreign

financial markets may be reduced. Government measures to curb inflation may have adverse effects on

the Brazilian economy, the Brazilian securities market and, consequently, our business and results of

operations.

Brazil has, in the past, experienced extremely high rates of inflation, with annual rates of inflation reaching as high as

2,708% in 1993 and 1,093% in 1994 (Source: FGV – IGP-DI). Inflation and some of the Brazilian government‘s

measures taken in an attempt to curb inflation have had significant negative effects on the Brazilian economy.

Since the introduction of the real in 1994, Brazil‘s inflation rate has been substantially lower than in previous periods.

However, actions taken in an effort to control inflation, coupled with speculation about possible future governmental

actions, have contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market.

More recently, Brazil‘s rates of inflation, as measured by the General Market Price Index – Internal Availability ( ndice

Geral de Pre os – Domestic Supply), or IGP-DI, published by Funda o Get lio Vargas, or FGV, were 1.2% in 2005,

3.8% in 2006, 7.9% in 2007, 9.1% in 2008 and (1.4)% in 2009. According to the Broad Consumer Price Index

( ndice Nacional de Pre os ao Consumidor Ampliado), or IPCA, published by the Brazilian Institute for Geography and

Statistics (Instituto Brasileiro de Geografia e Estat stica), or IBGE, the Brazilian consumer price inflation rates were

5.7% in 2005, 3.1% in 2006, 4.5% in 2007, 5.9% in 2008 and 4.3% in 2009.

If Brazil experiences substantial inflation in the future, our costs may increase and our operating and net margins

may decrease. Inflationary pressures may also curtail our ability to access foreign financial markets and may lead to

further government intervention in the economy, including the introduction of government policies that may

adversely affect the overall performance of the Brazilian economy.

Economic developments and the perception of risk in other countries, mostly emerging market

economies, could have an adverse effect on the market price of Brazilian securities, including ours.

Economic and market conditions in other emerging market countries, especially those in Latin America, may influence

the market for securities issued by Brazilian companies. Even though the economic conditions in these countries may

considerably differ from the economic conditions in Brazil, investors response to developments in these other

emerging countries may adversely affect our businesses, financial conditions and results of operations. In 2008,

certain Brazilian and Mexican companies reported significant losses in connection with currency derivatives as a result

51


of the depreciation of the Mexican peso and the real against the U.S. dollar. In addition, in October 2008, the

Argentine government nationalized the Argentine private pension funds. These emerging economies have become

even more sensitive to uncertainties due to the worldwide financial crisis. This has led to strong capital flight and,

consequently, a retraction in foreign investment and depreciation of currencies in emerging countries versus the

dollar.

The economic issues faced by some emerging countries in recent years (such as the financial crises in Asia in 1997,

Russia in 1998, and Argentina in 2001) have made investors more cautious when evaluating investments in emerging

markets. The global financial crisis has led to higher fundraising costs for Brazilian companies, both in Brazil and

overseas, making it difficult for these companies to access the capital markets. We cannot assure you the

international capital market will remain open to Brazilian companies or that the funding costs in that market will be

favorable for us. Crises in other emerging countries or the economic policies of other countries, in particular the

United States, may adversely affect investors‘ demand for securities issued by Brazilian companies, including our

securities. Any of these factors could adversely affect the market price of our securities.

Also, the Brazilian economy is affected by general market conditions and international economic conditions, especially

the economic conditions in the United States. Stocks listed on the BM&FBOVESPA, for instance, have shown to be

historically sensitive to interest rate instability in the United States, as well as to the behavior of the major stock

indices in the United States.

Any of these factors could adversely affect the market price of our securities, and impede our ability to access the

capital and financial markets on terms acceptable to us or at all.

Restrictions on the movement of capital out of Brazil may impair our ability to service certain debt

obligations.

Brazilian law provides that whenever there exists, or there is a serious risk of, a material imbalance in Brazil‘s balance

of payments, the Brazilian government may impose restrictions for a limited period of time on the remittance to

foreign investors of the proceeds of their investments in Brazil as well as on the conversion of the real into foreign

currencies. The Brazilian government imposed such a restriction on remittances for approximately six months in 1989

and early 1990. The Brazilian government may in the future restrict companies from paying amounts denominated in

foreign currency or require that any such payment be made in reais. Many factors could affect the likelihood of the

Brazilian government imposing such exchange control restrictions, including the extent of Brazil‘s foreign currency

reserves, the availability of sufficient foreign exchange on the date a payment is due, the size of Brazil‘s debt service

burden relative to the economy as a whole, and political constraints to which Brazil may be subject. There can be no

certainty that the Brazilian government will not take such measures in the future.

A more restrictive policy could increase the cost of servicing, and thereby reduce our ability to pay, our foreign

currency-denominated debt obligations and other liabilities. Our foreign-currency denominated debt represented

12.0% of our consolidated indebtedness at December 31, 2009. If we fail to make payments under any of these

obligations, most of these debts could have their maturity advanced, which could adversely affect our liquidity.

The global economic downturn may adversely affect economic growth in Brazil or limit our access to

the financial markets and, therefore, negatively impact our business and financial condition.

The global economic downturn and related instability in the international financial system have had, and may

continue to have, a negative effect on economic growth in Brazil. The ongoing economic downturn has reduced the

liquidity and the credit availability to fund the continuation and expansion of industrial business operations worldwide.

Such a liquidity and credit shortage, coupled with the recent substantial losses in worldwide equity markets, including

in Brazil, could lead to an extended worldwide economic recession or depression. A prolonged slowdown in economic

52


activity in Brazil could reduce demand for some of our services, particularly broadband services, in the event that the

rate of computer sales in Brazil declines, which would adversely affect our results of operations.

We could face significant liquidity problems if the financial market conditions do not improve or if they deteriorate

even further. Our ability to access the capital markets or the commercial bank lending markets may be severely

restricted at a time when we would like, or need, to access such markets, which could have an impact on our

flexibility to react to changing economic and business conditions. The global economic downturn could have an

impact on the lenders under our existing credit facilities, on our customers or on the ability of our suppliers to meet

scheduled deliveries, causing them to fail to meet their obligations to us. If the financial and credit downturn deepens

further, it could have an adverse effect on the demand for our services and our ability to fund our planned growth.

Changes in Brazilian GAAP in connection with the process of convergence to International Financial

Reporting Standards (IFRS) may adversely impact our results of operations.

The enactment of Law No. 11,638/07 and Law No. 11,941/09, which amended the Brazilian Corporation Law and

changed certain accounting policies under Brazilian GAAP, created conditions for the alignment between Brazilian

GAAP and International Financial Reporting Standards, or IFRS, issued by the International Accounting Standards

Board.

The changes in Brazilian GAAP could have a significant effect on our reported results of operations, including effects

on our net income and on the indicators our creditors use to monitor our performance under our debt instruments.

Any reduction in our net income would potentially harm our ability to distribute dividends on our preferred and

common shares. In addition, an adverse effect under the ratios contained in the covenants in our debt instruments as

a result of the changes introduced by the abovementioned laws could adversely affect our ability to comply with

these covenants, to obtain financing to fund our growth plans or to refinance our indebtedness on terms satisfactory

to us.

5.2. Describe the market risk management policy adopted by the issuer, its objectives, strategies and instruments, indicating:

a. Risks the issuer seeks protection against We are mainly exposed to the market risk arising from changes in foreign exchange and interest rates, which has

an impact on our financial operations‘ fair value and cash flow.

Market Risk

Foreign exchange and interest rate risks are detailed below:

Interest Rate Risk

Assets

53


Cash equivalents and short-term investments in local currency are kept in investment funds exclusively managed

for us and our subsidiaries, and investments in our own portfolio of private securities (fixed and floating rate bank

certificates of deposit – CDBs) issued by prime financial institutions.

We have also granted a loan to the company that manufactures telephone directories, which earns interest based

on the IGP-DI (General Price Index – Domestic Supply). Fixed income bonds (CDBs) are kept in applications at

Banco de Brasília S.A., related to the guarantee to credit incentive granted by the Federal District Government, in a

program called PRO-DF - Program for the Economic and Sustainable Development Promotion of the Federal

District, with such bonds remuneration being 94% to 97% of the SELIC rate.

The interest rate risk linked to such assets arises from the possibility of fluctuations in these rates and consequent

decrease in return on these assets.

Such assets are presented on our balance sheet on December 31, 2009, as follows:

At December 31, 2009

Consolidated

Book Fair

Value Value

(in R$ thousand)

Assets

Cash and cash equivalents 1,542,545 1,542,545

Financial investments 381,951 381,951

Loans and Financing – Private Debenture 1,674,750 1,864,563

Other Assets 16,692 16,692

Total 3,615,938 3,805,751

Current 1,926,476 2,027,603

Non-current 1,689,462 1,778,148

Liabilities

We have loans and financings that are pegged to the following indexes: Long-term Interest Rate (TJLP), Monetary

Unit of the National Bank for Economic and Social Development (UMBNDES), Interbank Certificate of Deposit (CDI)

and General Price Index – Domestic Supply (IGP-DI), as well as financing in foreign currency subject to the YEN

LIBOR and LIBOR indexes. We are also exposed to CDI rate resulting from swap transactions contracted to hedge

our Yen-pegged liabilities, as mentioned in Note 23 (b). We have no other derivative transactions to hedge our

liabilities against interest rate risk.

Furthermore, we have issued public debentures, non-convertible into or exchangeable for shares. Such liability was

contracted at interest rate connected to the CDI plus 3.5% p.a. spread. The risk inherent to such liabilities arises

54


from the possibility that these rates increase. But we continuously monitor market rates in order to evaluate the

possibility of contracting derivatives to hedge against fluctuations in these rates.

Interest rate sensitivity analysis

We believe that risk of changes in interest rates arises from our liabilities pegged to the TJLP, LIBOR (USD and

JPY), and mainly to the CDI. Therefore, the risk relates to an increase in these rates.

At balance sheet date, management estimated scenarios of changes in CDI, TJLP, and LIBOR USD. The rates

prevailing at balance sheet date were used in the probable scenario. These rates have been stress tested by 25%

and 50%, and used as benchmark to determine possible and remote scenarios.

Interest Rate Scenarios

Probable Scenario Possible Scenario Remote Scenario

CDI TJLP CDI TJLP CDI TJLP

8.55% p.a. 6.00% p.a. 10.68% p.a. 7.50% p.a. 12.83% p.a. 9.00% p.a.

As of December 31, 2009, management estimated a future outflow for the payment of interest and principal of its

debts pegged to CDI and TJLP based on the interest rates above, also assuming that all interest and principal

payments would be made timely. Flows of debts contracted among companies of the Oi Group were not

considered. The impact of hypothetical increases in interest rates can be measured by the difference in future flows

in the possible and remote scenarios compared to the probable scenario, where there is no estimate of increase.

This sensitivity analysis takes into consideration payment outflows on future dates. Thus, the aggregate of the

amounts for each scenario is not equivalent to the fair value, or even the present value of these liabilities. The fair

value of these liabilities, should our credit risk remain unchanged, would not be impacted in the event of

fluctuations in interest rates, as the interest rates used to estimate future cash outflows would be the same that

adjust such flows to present value.

In addition, cash equivalents and financial investments are held in post-fixed bonds whose remuneration would be

increased in the possible and remote scenarios, thus neutralizing part of the impact of increasing interest rates on

debt payment flows. However, given that the maturities are not predictable like those of financial liabilities, the

impact of the scenarios on these assets has not been considered. We present the cash equivalents and financial

investments balances on note 9 to our standardized financial statements.

The table below shows the future interest payment outflows per period:

Parent Company – 2008

in R$ thousand

Transaction

Individual

risk

Up to 1

year

1 to 3

years

3 to 5

years

Beyond

5 years Total

55


Probable Scenario

CDI Debts CDI increase 128,491 173,093 21,095 322,679

Derivatives (Net

Position – CDI) CDI increase 113,631 61,888 175,519

TJLP Debts TJLP increase 188,906 217,687 51,902 5,783 464,278

Total pegged to

interest rates 431,028 452,668 72,997 5,783 962,476

Possible Scenario


Derivatives (Net



Total pegged to

interest rates 459,256 516,592 112,842 9,411 1,098,101

Remote Scenario


Derivatives (Net



Total pegged to

interest rates 487,229 580,748 154,094 13,366 1,235,437

Impacts

Possible Scenario –

Probable Scenario 28,228 63,924 39,845 3,628 135,625

CDI 23,378 32,660 3,651 58,690

TJLP 5,850 31,265 36,193 3,628 76,935

Remote Scenario –


CDI 44,529 65,042 7,267 116,837

56


TJLP 11,673 63,039 73,830 7,583 156,124

Consolidated – 2009

in R$ thousand

Transaction

Individual

risk

Up to 1

year

1 to 3

years

3 to 5

years

Beyond

5 years Total

Probable Scenario


Derivatives (Net



Total pegged to

interest rates 476,411 534,473 130,114 44,356 1,185,354

Possible Scenario


Derivatives (Net



Total pegged to

interest rates 505,128 604,046 181,348 74,675 1,365,197

Remote Scenario


Derivatives (Net



Total pegged to

interest rates 533,588 673,951 234,496 107,624 1,549,659

Impacts

57


Possible Scenario –


CDI 22,378 32,660 3,652 58,690

TJLP 6,339 36,913 47,582 30,319 121,153

Remote Scenario –


CDI 44,528 65,042 7,267 116,837

TJLP 12,649 74,436 97,115 63,268 247,468

58


Foreign exchange risk

We have loans and financings denominated in foreign currency. The risk associated with these liabilities arises from

fluctuations in exchange rates that could increase their respective balances. In 2009, the loans subject to this risk

represent approximately 12% (2008 – 17%) of total loans and financing liabilities, disregarding foreign exchange

hedge operations. In order to minimize this type of risk, we have been entering into foreign exchange hedging

contracts with financial institutions. In 2009, 39% of our foreign currency-denominated and UMBNDES-pegged debt

was hedged by exchange rate swap and foreign currency-denominated cash investments, compared to 61% in

2008. The unrealized positive or adverse effects of exchange rate swap transactions are recorded in the income

statement as earnings or losses, depending on the status of each contract.

Derivatives amounts are summarized as follows:

Parent Company and Consolidated

Notional value

Fair value

Index

Matu

rity

Credits

(payable)/receivable

December 31, December 31,

2009 2008 2009 2008

(in R$ thousand)

Swap contracts

Asset position

Foreign currency – Yen

(1) VC + 1.9%

Mar/201

0 to

Mar/201

1 165,342 280,703 122,845 277,774

Liability position

Interest rate –

Interbank Certificate of

Deposit (1)

93.2% to

97.0% CDI

Mar/201

0 to

Mar/201

1 (165,342) (280,703) (321,124) (499,428)

Net Value (198,280) (221,654)

Option Contracts

Call options

Foreign currency –

Dollar

Feb/200

9 US$80,000 29,179

Put options

59


Foreign currency –

Dollar

Feb/200

9

US$(64,00

0) (419)

(1) Swap of Yen to CDI (plain vanilla).

In 2004, we contracted foreign exchange swap transactions (plain vanilla) in order to hedge cash flows related to

our yen-denominated liabilities with final maturity in March 2011. Under these contracts, we have an asset position

in yens, plus fixed interest rate, and a liability position tied to a percentage of a one-day interest rate (CDI), thus

hedging against the foreign exchange fluctuation risk of the yen against the Brazilian real, which in effect

represented a swap of yen cost of 1.9% p.a. with an average weighted rate of 95.9% of CDI at balance sheet date.

Such contracts were entered into with the following prime financial institutions: Citibank N.A. – Brazilian branch,

Citibank DTVM S.A., Banco Citibank S.A., Banco JP Morgan S.A. and Banco Santander Brasil S.A. These transactions

were duly registered with the Clearing House for the Custody and Financial Settlement of Securities (CETIP S.A.)

and there is no required guarantee margin on these contracts.

Considering that the flows of asset position of swap contracts shall be offset by liability flows of the Yen-

denominated debt, we consider that the risk of being in a liability position in one-day interest rate (CDI) is an

increase in the CDI.

Exchange Risk Sensitivity Analysis

At the end of the accounting period, management estimated scenarios in which the Brazilian real depreciates

versus other currencies, based on the U.S. dollar (short PTAX) at the end of the year. For the probable scenario,

we used the same dollar rate recorded at year-end. The probable rate was then devalued by 25% and 50%, and

served as benchmark for the possible and remote scenarios.

Exchange Rate Scenarios

Description Rate Devaluation

Probable Scenario

Dollar 1.7412 0%

Yen 0.018832 0%

Currency basket 0.033995 0%

Possible Scenario

Dollar 2.1765 25%

Yen 0.02354 25%


60


Remote Scenario

Dollar 2.6118 50%

Yen 0.028248 50%


As of December 31, 2009, management estimated a future outflow for the payment of interest and principal of

foreign currency-denominated debt based on interest rates prevailing at the balance sheet date and the foreign

exchange rates above, also assuming that all interest and principal payments would be made on scheduled

maturity dates. The impact of hypothetical devaluation of the Brazilian real in relation to other currencies can be

measured by the difference in the future flows in the possible and remote scenarios compared to the probable

scenario, where there is no estimate of devaluation. This sensitivity analysis takes into consideration payment

outflows on future dates. Thus, the aggregate of the amounts for each scenario is not equivalent to the fair value,

or even the present value of these liabilities.

61


Future payment outflows:

(in R$ thousand)

Parent Company

2009

Individual

Transaction Risk Up to 1

year

1 to 3

years

3 to 5

years Total

Probable scenario

Dollar debts Dollar

increase

43,988 77,085 404,506 525,579

Yen debts Yen increase 83,824 41,131 124,955

Derivatives (net position – Yen) Yen decrease (83,143) (40,977) (124,120)

Currency basket debts Currency

basket

increase

30,578 9,575 40,153

Total pegged to exchange rates 75,247 86,814 404,506 566,567

Possible Scenario

Dollar debts Dollar

increase

54,985 96,356 505,633 656,974




basket

increase

38,223 11,969 50,192


Remote Scenario

Dollar debts Dollar

increase

65,982 115,628 606,759 788,369




basket

increase

45,867 14,363 60,230


Impacts

Possible scenario – Probable

scenario

18,812 21,704 101,127 141,643

Dollar 10,997 19,271 101,127 131,395

Yen 170 39 209

Currency basket 7,645 2,394 10,039

Remote scenario – Probable

scenario

37,623 43,408 202,253 283,284

Dollar 21,994 38,543 202,253 262,790

Yen 340 77 417


There are no outflows for periods beyond 5 years.

62


(in R$ thousand)

Impacts on the fair value of liability instruments Parent Company

Transaction Risk Balance on 2009

Probable scenario

Dollar debts Dollar increase 371,475

Yen debts Yen increase 122,709

Derivatives (net position – Yen) Yen decrease (122,845)

Currency basket debts Currency basket

increase

37,689

Total pegged to exchange rates 409,028

Possible Scenario





increase

47,111


Remote Scenario





increase

56,534


Impacts

Possible scenario – Probable scenario 102,257

Dollar 92,869

Yen (34)

Currency basket 9,422

Remora scenario – Probable scenario 204,515

Dollar 185,738

Yen (68)


63


Future payment outflows:

(in R$ thousand)

Consolida

ted

2009

Risk

Transaction Risk Up to 1

year

1 to 3

years

3 to 5

years Total

Probable scenario

Dollar debts Dollar

increase

43,988 77,085 404,506 525,579

Cash in dollar (*) Dollar

decrease

(87,151) (87,151)




basket

increase

30,578 9,575 40,153

Total pegged to exchange rates (11,904) 86,814 404,506 479,416

Possible Scenario

Dollar debts Dollar

increase

54,985 96,356 505,632 656,974


decrease

(108,939) (108,939)




basket

increase

38,222 11,968 50,190


Remote Scenario

Dollar debts Dollar

increase

65,982 115,628 606,759 788,369


decrease

(130,726) (130,726)




basket

increase

45,867 14,362 60,229


Impacts Possible scenario – Probable

scenario

(2,977) 21,704 101,126 119,853

Dollar (10,791) 19,271 101,126 109,606

Yen 170 39 209


Remora scenario – Probable

scenario

(5,952) 43,407 202,253 239,708

Dollar (21,581) 38,543 202,253 219,215

Yen 340 77 417


(*) Cash in dollars for hedge.

64


The fair value of liability instruments subject to exchange risk would suffer the following impacts in the estimated

scenarios:

(in R$ thousand)

Impacts on the fair value of liability instruments Consolidated

Transaction Risk Balance on 2009

Probable scenario


Cash in dollar (*) Dollar decrease (87,151)




increase

37,689


Possible Scenario






increase

47,111


Remote Scenario






increase

56,534


Impacts

Possible scenario – Probable scenario 80,469

Dollar 71,081

Yen (34)


Remora scenario – Probable scenario 160,939

Dollar 142,162

Yen (68)

65



(*) Cash in dollars for hedge.

b. Asset Protection Strategy (Hedging) On October 1, 2009 the Board of Directors of TNL approved the Oi Group‘s Financial Risk Management Policy ("Risk

Management Policy"), which officially outlines standards for managing the exposure to market risks resulting from

financial transactions (financial assets and liabilities) performed by Oi Group‘s companies. According to the Risk

Management Policy, market risks are identified based on the characteristics of financial transactions performed and

to be performed within the relevant accounting period. Several scenarios for each risk factor are then simulated

using statistical models that will give the baseline for determining the impacts of such transactions on Oi Group‘s

income. Based on this assessment, the our Board of Executive Officers and Board of Directors will jointly agree on

and approve the Risk Guidelines to be followed in each accounting period (―Risk Guidelines‖). These Risk Guidelines

represent the worst expected impact of financial results on Oi Group‘s net income and have a 95% accuracy rate.

Thus, the Risk Management Policy attempts to determine, for each given accounting period, the maximum net

financial expenses of the Group.

c. Asset Protection Instruments (Hedging) Pursuant to the Risk Guidelines, proper risk management requires our treasury to purchase hedging instruments,

including financial investments and derivatives such as swaps, foreign currency forward contracts and options.

Leveraging with derivatives is not allowed. Transactions involving derivatives are performed with the sole purpose

of countering exposure associated with foreign exchange and/or interest rates.

d. Risk Management Criteria According to the Risk Management Policy, market risks are identified based on the characteristics of financial

transactions performed and to be performed within a given accounting period. Several scenarios for each risk factor

are then simulated using statistical models that will give the baseline for determining the impacts of such

transactions on Oi Group‘s income.

e. Does the issuer employ financial instruments for purposes other than asset protection (hedging)? Please state any other purposes, where applicable. We do not use derivatives for any other purposes except for hedging against foreign exchange and/or interest

rates. We do not use financial instruments for speculative purposes.

f. Structure of Risk Management Functions Financial risk management is performed in a three-level structure: strategic, tactical and operational. In the

strategic level, our Board of Executive Officers and Board of Directors will jointly agree on and approve the Risk

Guidelines to be followed in each accounting period. Additionally, the Board of Executive Officers reports every two

months to the Board of Directors on the application of the Risk Management Policy.

In the tactical level, the Financial Risk Management Committee oversees compliance and enforces the Risk

Guidelines, financial risk exposure levels and application of the Risk Management Policy. The Financial Risk

Management Committee comprises the chief executive officers, chief financial officers, chief technology and

strategy development officers and chief treasury officers of Oi Group‘s companies. This committee convenes on a

monthly basis.

66


Operating-level control is carried out by the Financial Risk Organization, which is responsible for monitoring

compliance of financial transactions to the Risk Management Policy. This organization has enable controls to ensure

its objectives are met.

g. How adequate are the organizational structure and the internal controls in confirming the effectiveness of the adopted policy? Following approval of the Risk Management Policy, the Financial Risk Committee was established and organized to

oversee application of the policy. To do this, the committee analyses and reviews presentations delivered on

monthly meetings. These presentations are prepared by the Financial Risk Organization, which monitors compliance

of key financial transaction aspects to the limits established in the Risk Management Policy, including concentration

limits, counterparty creditworthiness and compliance with the levels of authority applicable to transaction approval.

Furthermore, simulations and statistical tests are employed to measure the market risk exposure of financial

transactions performed by Grupo Oi in order to ensure effective risk management. These controls and reviewed

and audited on an ongoing basis.

5.3. With respect to the last fiscal year, please state significant changes in key market risks to which the issuer is exposed, or to the adopted risk management policy. Until November 30, 2009 TNL's policy was to enforce a maximum foreign currency exposure limit equal to 12% of

Oi Group‘s gross indebtedness. On October 1, 2009 TNL's Board of Directors approved the Oi Group Financial Risk

Management Policy, which officially outlines standards for managing the exposure to market risks resulting from

financial transactions performed by Oi Group companies.

In addition to our exposure to foreign exchange rate fluctuations, the Risk Management Policy also addresses and

considers interest rates and the correlations of risk factors associated with financial assets and liabilities of Grupo

Oi.

The 2009 Risk Guidelines represented a maximum expected impact on net income of R$ 150 million, with an

accuracy rate of 95% (please see item 5.2.b of this Form). Given that approval of the Risk Management Policy took

place on October 1, 2009, the 2009 Risk Guidelines only contemplated the expected impact of financial results in

the net income realizable in 2009, namely, the impact of financial transactions expected for the period of

September through December 2009.

5.4. Other material information There is no further relevant information regarding item ―5‖.

67


6. ISSUER’S HISTORY Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking on the first letter of the word to be consulted.

6.1. Data on the incorporation of the issuer:

a. Date: November 27, 1963.

b. Form: Incorporated as a joint-stock company.

c. Country: Brazil.

6.2. Duration

Our company‘s duration is indeterminate.



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6.3. Issuer’s history

Prior to the formation in 1972 of Telebrás, there were more than 900 telecommunications companies operating throughout Brazil. Between 1972 and 1975, Telebrás and its operating subsidiaries acquired almost all of the other telecommunications companies in Brazil and thus achieved a monopoly in providing public telecommunications services in almost all areas of the country.

Brasil Telecom S.A. was founded on November 27, 1963, under the name Companhia de Telecomunicações do Paraná S.A. – TELEPAR, and later had its corporate name changed to Telecomunicações do Paraná S.A. Privatization of Telebrás Beginning in 1995, the Brazilian government undertook a comprehensive reform of Brazil‘s telecommunications regulations. In July 1997, Brazil‘s Congress passed Law 9,472 (the Brazilian General Telecommunications Law), which, together with the regulations, decrees, orders and plans on telecommunications issued by Brazil‘s executive branch, provided for the establishment of a comprehensive regulatory framework introducing competition into the Brazilian telecommunications industry and promoting the privatization of Telebrás and its subsidiaries. The General Telecommunications Law also provided for the creation of an independent regulating agency for the telecommunications industry, ANATEL.

In January 1998, in preparation for its restructuring and privatization, Telebrás spun-off its previously integrated mobile telecommunications operations from its fixed-line operations into separate companies.

In April 1998, the General Concession Plan, approved by Decree 2,534, divided the Brazilian territory into four Regions for the provision of PSTN services, as follows:

Region I: corresponds to the states of Rio de Janeiro, Minas Gerais, Espírito Santo, Bahia, Sergipe, Alagoas, Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí, Maranhão, Pará, Amapá, Amazonas and Roraima;

Region II: Corresponds to Federal District the states of Rio Grande do Sul, Santa Catarina, Paraná, Mato Grosso do Sul, Mato Grosso, Goiás, Tocantins, Rondônia and Acre;

Region III: corresponds to the state of São Paulo; and

Region IV: corresponds to the whole Brazilian territory.

In May 1998, Telebrás was restructured to form 12 new holding companies, or the New Holding Companies, by means of a procedure under Brazilian Corporation Law called ―cis o‖, or spin-off. Virtually all of the assets and liabilities of Telebrás were allocated to the New Holding Companies, including Telebrás‘s interest in its operating subsidiaries. The New Holding Companies consisted of:

eight holding companies each of which controlled one or more mobile carriers, each operating in one of the ten service regions into which Brazil had been divided for mobile telecommunications services and using the frequency range called Band A (except for one company that had operations in a region that was not part of the Telebrás system);

three regional holding companies, including Tele Centro Sul Participações S.A., each controlling one fixed-line service provider that provided local and intraregional long-distance services in one of the three service regions; and

a holding company, which controlled Embratel, a provider of domestic (including interstate and interregional) and international long-distance service throughout Brazil.

In August 1998, the Brazilian government privatized Telebrás by selling most of the shares it held in the New Holding Companies, including Tele Centro Sul Participações S.A., to private-sector buyers.

In 2000, Telecomunica es do Paraná S.A. (―TELEPAR‖), the predecessor of Brasil Telecom S.A., acquired the following corporations: Telecomunicações do Acre S.A. Telecomunicações de Rondônia S.A. Telecomunicações do Mato Grosso S.A. Telecomunicações do Mato Grosso do Sul S.A. Telecomunicações de Goiás S.A. Telecomunicações de Brasília S.A. Telecomunicações de Santa Catarina S.A. and Companhia Telefônica Melhoramento e Resistência (―CTMR‖).

Our core business is to provide telecommunication services and engage in other activities that are necessary or expedient relative to said services, under such concessions, authorizations or licenses as may be granted to Brasil Telecom S.A.. To achieve our goals, we may absorb assets and interests of third parties into our equity, and also: (i) hold equity interests in other companies, so as to comply with national telecommunication policy guidelines; (ii)

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incorporate and organize wholly-owned subsidiaries to carry on certain activities included in our business purpose that are deemed to be best engaged in a decentralized fashion; (iii) import any goods and services that are necessary to carry on our business purpose; (iv) provide technical support services to other telecommunication companies, where such services are in the companies' mutual best interests; (v) carry out studies and surveys to foster development of the telecommunication industry; (vi) enter into agreements and joint ventures with other telecommunication industry players or any individual or legal entities, for the purpose of assuring continued service operations, without derogating from our duties and responsibilities; and (vii) perform other activities or business that are similar or related to our business purpose.

6.4. Date of Registration with CVM

We registered our company as a publicly-held corporation with the CVM on March 27, 1980.

6.5. Describe the main corporate events, such as merger, amalgamation, spin-offs, merger of shares, disposal and purchase of controlling stock, disposal and purchase of major assets, to which the issuer or any of its controlled or related companies has been submitted, with indication of the following: a. event; b. main conditions of the transaction; c. companies involved; d. effects on

corporate structure resulting from the transaction; e. corporate structure before and after the transaction.

MTH VENTURES DO BRASIL LTDA

The merger of subsidiary MTH Ventures do Brasil LTDA (―MTH‖) by and into our company on April 10, 2007, was justified because it integrates the corporate restructuring project of the companies that are direct or indirectly controlled by us. MTH had no operational activity then, as it was a holding company, and for that reason its merger simplified our corporate structure, increasing our administrative and operational efficiency and cutting costs. - Goodwill The goodwill we recorded in the amount of R$ 110,366,049.36 (one hundred and ten million, three hundred and sixty six thousand, forty nine reais and thirty six cents of real) originated from the acquisition of MTH‘s quotes and their expected future profitability, was, due to the Merger, fiscally amortized by us, in compliance with the terms of the tax legislation in effect, within 05 (five) years. Since we hold all of MTH‘s quotas, new shares were not issued to replace the rights for the shares that were extinguished and, consequently, article 264 of Law 6,404/76 was not applicable. For the same reason, there was no assumption for recess, once there were no minority shareholders in MTH. MTH‘s shareholders‘ equity was assessed as of January 31, 2007 (―Base Date‖), based on the balance sheet issued specifically for this purpose, based on its accounting value (worth value), by Instituto T cnico de Consultoria e Auditoria – ITECON, with offices at SCS Quadra 05, Bloco B, Sobreloja 127, in Bras lia, Federal District, registered under Corporate Taxpayer ID (CNPJ) 24.927.253/0001-73 and registered with the Brazilian Securities and Exchange Commission (Comiss o de Valores Mobiliários) in compliance with Declaratory Act number 3,245, dated January 5, 1995, whose contracting was subject to deliberation by the Company‘s General Shareholders‘ Meeting held on April 10, 2007. MTH‘s equity was transferred to our company at its accounting value, with the mere replacement by book value, in our accounting books, since we held all of MTH‘s capital stock at the time. MTH‘s operations and asset related changes, verified between the Base Date and our General Shareholders‘ Meeting held on April 10, 2007, were included. With the approval of the merger, the repercussion of the effects of these operations and changes recorded in MTH, as of the Base Date, were absorbed by us. - Company‘s Capital Stock after the Merger Since we held all of MTH‘s capital stock, the Merger was executed without capital increase in our company, and MTH‘s quotes held by us were extinguished, in compliance with article 226, 1st paragraph of Law 6,404/76. Therefore, our bylaws were not amended following the Merger.

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The completion of the Merger led to the extinction of MTH, which was succeeded by our company for universal purposes, in all its assets, rights and obligations.

Acquisition of Brasil Telecom S.A. (“Company”) and Brasil Telecom Participações S.A. (“BrT Part”)

Company Overview

In April 2008 each shareholder of Invitel and Credit Suisse, the later acting as agent for Telemar Norte Leste S.A., entered into a Invitel Stock Purchase and Sale Agreement whereby Credit Suisse agreed to acquire all outstanding shares of Invitel and part of the shares of Brasil Telecom Participações S.A. held by shareholders of Invitel. At the time Invitel held all outstanding shares of Solpart, which in turn held as of April 23, 2008 a 18.93% equity interest in, including 51.41% of the voting stock of, Brasil Telecom Participações S.A.. In April 2008, the latter held a 65.64% equity interest in the Company, including 99.09% of its voting stock.

The price agreed in the purchase and sale agreement for the shares representing the controlling interest in Brasil Telecom Participações S.A. was R$5.86 billion, corresponding to a per share purchase price of R$72.3058. As disclosed in the material fact we released on April 25, 2008 with subsidiaries Telemar Norte Leste S.A and Tele

Norte Leste Participações S.A., the price paid for Telemar Norte Leste S.A. was as follows:

R$4.98 billion as Invitel's enterprise value, determined based on a price of R$72.3058316215 per share of Brasil Telecom Participações S.A. directly or indirectly held by Invitel, deducted of Invitel's net debt as determined at the third business day prior to the closing of the transaction; and

R$881.11 million, which corresponded to a price of R$72.3058316215 per share issued by Brasil Telecom Participações S.A. under any shareholders' agreements governing the exercise of a controlling interest in Brasil Telecom Participações S.A.

In November 2008 the federal government issued Decree No. 6,654/2008, which altered the General Concession Plan (PGO) to mitigate some restrictions imposed on the ability of a PSTN carrier to acquire a controlling interest in another PSTN carrier operating in a different geographic area as defined in said concession plan. On the same day, Telemar Norte Leste S.A. applied to obtain the prior consent of ANATEL in connection with the acquisition of a controlling interest in Brasil Telecom Participações S.A. and in our company, which consent was granted in Statement No. 7,828, published on the Federal Gazette in December 2008.

Acquisition of our company

As at December 31, 2009, we were the largest telecommunications service provider in Region II in terms of revenue and number of customers, according to data by ANATEL and information disclosed to the general public. We provided a range of integrated telecommunication services substantially similar to those provided by Telemar Norte Leste S.A.. We posted net operating revenues of R$11,058.5 million, R$11,581.2 and R$10,878.6 for the years ended December 31, 2007, 2008 and 2009, respectively.

Having a local fixed-line customer base of 8 million subscribers as of December 31, 2009, we were the leading fixed-line carrier in Region II, and held an estimated market share of 78.5% of the total number of fixed-lines in operation at the time according to data by ANATEL. In 2009 Telemar Norte Leste S.A. derived R$10,686 million gross operating revenues in this widely-consolidated segment.

We also provide mobile telephony services in Region II through our subsidiary BrT Celular, which had 7.2 million mobile subscribers as of December 31, 2009. This figure corresponds to an estimated market share of 16.0% in the relevant region according to data by ANATEL. In 2009 Telemar Norte Leste S.A. derived R$2,112 million gross operating revenues in the mobile telephony segment.

Additionally, we offer a range of high-speed data transmission services, including services provided through our subsidiaries BrT Serviços, BrT Multimídia and Vant. Our broadband services, largely offered through ADSL technology, were marketed in Region II under the ―Turbo‖ brand until late in third quarter 2009. Beginning on October 2009, we started to market our broadband services under the ―Oi Velox‖ brand, thus combining with the service brand marketed in Region I. As of December 31, 2009, we had 2 million subscribers in our broadband services business. Also, Telemar Norte Leste S.A. provides data and voice services to corporate clients throughout Brazil using its own network in Region II, the network of Telemar Norte Leste S.A. in Region I and in association with other telecommunication network carriers in Region III.

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In 2009 Telemar Norte Leste S.A. derived R$4,974 million gross operating revenues in the data transmission segment.

We also operate a network of optical fiber cables connecting the United States, Bermuda, Brazil and Venezuela through our subsidiaries BrT CS, BrT Subsea, BrT America and BrT Venezuela. Furthermore, we operate the ―iG‖ web portal through our subsidiary iG Brasil. According to a survey carried out by Ibope/NetRatings, the iG web portal ranks second in daily visits in Brazil.

Financial Impact of Acquisition of our company

With the acquisition of the whole capital stock of Invitel on January 8, 2009, the incomes of Invitel, Solpart, Brasil Telecom Participações S.A. and of our company were consolidated in the financial statements of Telemar Norte Leste S.A. as of the fiscal year beginning on January 1, 2009.

As of December 31, 2009 the total consolidated assets of Invitel were R$20,226 million, while its consolidated liabilities totaled R$5,842 million. In the year ended December 31, 2008 Invitel reported net operating revenues of R$11,297, results of operations of R$1,214 million and R$69 million in losses.

Open-Market Purchases of Preferred Shares of Brasil Telecom Participações S.A. and of our company

Between April and June 2008, Telemar Norte Leste S.A. acquired (i) 55,819,400 preferred shares corresponding to a 15.4% equity interest in, and 24.3% of the total outstanding preferred shares of Brasil Telecom Participações

S.A. at the aggregate purchase price of R$1,425.2 million; and (ii) 45,590,200 preferred shares corresponding to a 8.3% equity interest in, and 15.3% of the total outstanding preferred shares of our company at the aggregate purchase price of R$1,425.2 million; all in transactions performed at BM&FBOVESPA.

Tender Offers for Acquisition of Preferred Shares of Brasil Telecom Participações S.A. and of our company

In July 2008 Telemar Norte Leste S.A. announced commencement of PTOs to acquire up to (i) 20,826,442 preferred shares of Brasil Telecom Participações S.A. at a bid price of R$30.47 per share; and (ii) 13,366,365 preferred shares of our company at a bid price of R$23.42 per share. Auctions in connection with said PTOs were performed at BM&FBOVESPA in July 2008. In these auctions, Telemar Norte Leste S.A. acquired: (a) 20,826,442 preferred shares corresponding to a 5.7% equity interest in, and 9.1% of the total outstanding preferred shares of Brasil Telecom Participações S.A. at the aggregate purchase price of R$634.6 million; and (ii) 13,366,365 preferred shares corresponding to a 2.4% equity interest in, and 4.5% of our total outstanding preferred shares at the aggregate purchase price of R$313.0 million.

Invitel Stock Purchase and Sale Agreement Completed

On November 21, 2008, pursuant to an agency agreement entered into with Credit Suisse, Credit Suisse assigned to Telemar Norte Leste S.A. any and all rights, interests and obligations it had acquired under the Invitel Stock

Purchase and Sale Agreement. On January 8, 2009 Telemar Norte Leste S.A. acquired all outstanding shares of Invitel, and 12,185,836 shares of common stock of Brasil Telecom Participações S.A. that were held by shareholders of Invitel, at an aggregate price of R$5,371 million.

As a result, Telemar Norte Leste S.A. now holds 43.5% of the outstanding shares of Brasil Telecom Participações S.A., including 61.2% of the outstanding common shares thereof. In addition to 67.2% of the outstanding capital stock, including 99.1% of our voting stock, which is directly held by Brasil Telecom Participações S.A., Telemar Norte Leste S.A. holds 19.8% of the outstanding preferred shares, which corresponds to 10.7% of our outstanding capital stock.

Tender Offers for Acquisition of Common Stock of Brasil Telecom Participações S.A. and of our company

Telemar Norte Leste S.A. performed a public tender offer to acquire all shares of common stock of Brasil Telecom Participações S.A. and of our company held by minority shareholders. In February 2009, Telemar Norte Leste S.A. applied for registration of said offers with the CVM. As provided by the applicable regulations, Telemar Norte Leste S.A. tendered to pay a price equivalent to at least 80.0% of the price previously paid by the shares of common stock of Brasil Telecom Participações S.A. and of BrT.

On May 22, 2009, Telemar Norte Leste S.A. announced commencement of mandatory tender offers for (i) any and

all outstanding shares of common stock of Brasil Telecom Participações S.A.; and (ii) any and all of our outstanding shares of common stock. The auctions in connection with said offers were held on June 23, 2009 at BM&FBOVESPA. In these auctions, Telemar Norte Leste S.A. acquired: (a) 40,452,227 common shares of Brasil Telecom Participações S.A., corresponding to 30.5% of its outstanding common stock and 11.2% of its capital stock, for an aggregate price of R$2,618 million, and (b) 630,872 of our common shares, corresponding to 0.3% of our outstanding common stock and 0.1% of our capital stock, for an aggregate price of R$38 million.

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As a result, Telemar Norte Leste S.A. now holds 54.7% of the outstanding shares of Brasil Telecom Participações S.A., including 91.7% of the outstanding common shares thereof. In addition to 67.2% of the outstanding capital stock, including 99.1% of our voting stock, which is directly held by Brasil Telecom Participações S.A., Telemar Norte Leste S.A. holds 10.9% of the outstanding preferred stock, including 0.3% of our voting stock.

Regulatory Approvals Applying to the Acquisition of our Company – ANATEL

On December 22, 2008, ANATEL issued the regulatory statement whereby it approved the acquisition of our company, subject to compliance with certain requirements. To date all such requirements have been duly and timely complied with by Telemar Norte Leste S.A.. The following are some of the most relevant conditions yet unfulfilled:

Telemar Norte Leste S.A. must keep until April 25, 2011 at least the same headcount of contractor employees as hired by its Group and our company (including any subsidiaries) in February 2008;

infrastructure must be deployed to offer Internet dial-up access using local fixed-line calls through the ISP operated by Telemar Norte Leste S.A. in: (i) 39.0% of Region I municipalities, by or before December 2010; and (i) 56.0% of Region I municipalities, by or before December 2011;

Telemar Norte Leste S.A. must by or before December 2010 establish such an alternative long distance plan comprising consistent rates as approved by ANATEL for the purpose of providing dial-up Internet access to

customers living in municipalities not served by its local fixed-line dial-up ISP services;

Telemar Norte Leste S.A. must expand its optical fiber cable network to serve the cities of: (i) Manaus, by or before December 2010, and (ii) Macapá, within six (6) months from deployment of specific infrastructure by local electric power utilities connecting it to the city of Tucuruí;

Telemar Norte Leste S.A. must expand its optical fiber cable network to serve 100 unique municipalities in Regions I and II by or before December 2010, and an additional 200 unique municipalities within five (5) years following acquisition of our company (40 unique municipalities per year);

Telemar Norte Leste S.A. must provide broadband services in: (i) 50.0% of municipalities whose backhauls Telemar Norte Leste S.A. is required to connect to its optical fiber cable network, within five (5) months from such connection; and (ii) all municipalities whose backhauls Telemar Norte Leste S.A. is required to connect to its optical fiber cable network, within ten (10) months from such connection. (The charges for said services cannot exceed the highest rate charged for broadband services provided by Telemar Norte Leste S.A. in the relevant state);

Telemar Norte Leste S.A. must provide the Ministry of Defense with 66 data and voice system access points and each respective equipment and installation by or before June 2010;

infrastructure must be deployed to offer Internet dial-up access using local fixed-line calls through the ISP operated by Telemar Norte Leste S.A. in: (i) 39.0% of Region I municipalities, by or before December 2010; and (i) 56.0% of Region I municipalities, by or before December 2011; and

for the next ten (10) years, Telemar Norte Leste S.A. must invest in R&D the equivalent of at least 50.0% of the amounts paid as contributions to FUNTTEL.

Regulatory Approvals Applying to the Acquisition of our company – CADE

According to the applicable laws, ANATEL has preliminary jurisdiction to review potential adverse implications the acquisition of our company might have regarding competition in the markets in which Telemar Norte Leste S.A. and our company operate, as well as potential implications of such transaction to consumers in these industries. Following its review, ANATEL will submit the transaction to CADE for final approval. To date, ANATEL has yet to submit a report to CADE concerning the acquisition of our company.

On December 10, 2008, Telemar Norte Leste S.A. entered into a Transaction Reversal Assurance Memorandum ("APRO") with CADE in connection with the acquisition of our company. The APRO was a requirement enforced by CADE to allow completion of the acquisition even before CADE issue its final approval, on proviso that the transaction would be undone if such approval was not ultimately obtained. According to the APRO, Telemar Norte Leste S.A. agreed to:

submit any future authorizations it may receive to provide WiMax, 3G and MMDS services for review of CADE;

maintain the iG and Oi Internet ISPs as independent business units until CADE issues its final approval in respect of the acquisition of our company; and

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maintain, until CADE issues its final approval in respect of the acquisition of our company, free dial-up ISP services in all municipalities where Oi Internet, iG and iBest already provided such services on a free-of-charge

basis.

Corporate Restructuring

On April 25, 2008, Telemar Norte Leste S.A. announced that it intended to reorganize its subsidiaries controlling Brasil Telecom Participações S.A. in an effort to simplify corporate structures. As part of this restructuring process, Telemar Norte Leste S.A. merged Brasil Telecom Participações S.A. into our company on September 30, 2009. Telemar Norte Leste S.A. intends to subsequently (i) have Coari acquire our shares and then (ii) merge Coari into Telemar Norte Leste S.A..

This corporate restructuring process also involved certain intermediate steps, as announced in a material fact released July 15, 2009 by Tele Norte Leste Participações S.A. and other related corporations. These intermediate steps were also intended to achieve simpler corporate structures. Said intermediate steps consisted in the mergers of: (i) Invitel, into its subsidiary Solpart, (ii) Solpart, into its subsidiary Copart 1, (iii) Copart 1, into Brasil Telecom Participações S.A., and (iv) Copart 2, into our company.

On July 31, 2009 the relevant mergers associated with the intermediate steps were completed and resulted in the closure of Invitel, Solpart, Copart 1 and Copart 2, however without any increase in the capital stock of the acquiring companies, nor in the number of shares of stock of BrT Participações S.A. and of our company. Also, the quantity of shares of stock of Brasil Telecom Participações S.A. and of our company directly or indirectly held by Telemar Norte Leste S.A. were not affected by the foregoing mergers. Following completion of these merger transactions, Coari, an indirect subsidiary of Telemar Norte Leste S.A., now exercises direct control on Brasil Telecom Participações S.A. and therefore indirectly controls us. Step 2 of the 2nd corporate restructuring phase was completed on September 30, 2009, resulting in the merger of Brasil Telecom Participações S.A. into our company. This merger corresponded to a capital increase of R$260.3 million in our capital stock, plus R$1,413.6 million recorded as capital reserves, and R$3,861.4 million as special goodwill reserve pursuant to CVM Statement No. 319 dated December 3, 1999, as amended.

6.6. Information on request for bankruptcy based on material amount, or court or out-of-court restructuring of the issuer and the current status of such requests To date, no request for bankruptcy has been filed against us based on material amounts, nor requests for court or out-of-court reorganization against us.

6.7. Other material information The other stages of the corporate restructuring described in item 6.5 above and disclosed in notices to the market published on November 27 and 30 and December 2, 2009, have been suspended for an undetermined period, following the rejection of the new exchange ratios proposed at the Extraordinary General Meeting of Brasil Telecom S.A. held on June 16, 2010. For further information on the proposal for new exchange ratios, please refer to item 3.3 – Events following the closing of the year ended December 31, 2009 in this Form.

7. ISSUER’S ACTIVITIES


7.1. Summary of the activities developed by the issuer and its subsidiaries Brasil Telecom S.A. is a PSTN (Public Switched Telephony Network) concessionaire. We have provided PSTN services both for local and long-distance intraregional calls, since July 1998, in Region II of the PGO – General Concession Plan. Region II includes the Brazilian states of Acre, Rond nia, Mato Grosso, Mato Grosso do Sul,

Tocantins, Goiás, Paraná, Santa Catarina and Rio Grande do Sul, and the Federal District. Since January 2004, we have also been providing domestic and international long-distance services in all Regions and, as from January 2005, local calls outside Region II. Our businesses, the services we provide and the rates we charge are regulated by ANATEL, the Brazilian Telecommunications Agency.



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The concession contracts in force for local and long distance calls came into effect on January 1, 2006, with validity until December 31, 2025. Information on service quality universal service goals is available to shareholders at ANATEL‘s website: www.anatel.gov.br. We are registered with the Brazilian Securities and Exchange Commission (CVM) and the US Securities and Exchange Commission (SEC), and our shares are traded on the BOVESPA, and on the New York Stock Exchange (NYSE) as American Depositary Receipts (ADRs). We have been directly controlled, since September 30, 2009, by Coari Participa es S.A. (Coari), which holds 79.63% of our voting capital and 48.20% of our total capital. Until then, we were controlled by Brasil Telecom Participa es S.A. (BrT Part), a company constituted on May 22, 1998 during the privatization of the Telebrás System. The corporate restructuring resulted in Coari directly controlling our company. The restructuring began with the acquisition of Brasil Telecom by Telemar Norte Leste S.A. (Telemar). On January 8, 2009, Telemar acquired the stock control of BrT Part and of our company through its indirect subsidiary Copart 1 Participa es S.A. (Copart 1). The control of Brasil Telecom was transferred to Telemar through the acquisition of 100% of the shares of Invitel S.A. (Invitel), which held, at the time, 99.99% of the shares of Solpart Participa es S.A. (Solpart). In its turn, Solpart held 51.41% of BrT Part‘s voting capital and 18.93% of its total capital. The Share Acquisition Agreement, executed on April 25, 2008, was disclosed through a Material Fact by the involved companies published on the same date, and supplemental material facts were issued on events or facts inherent to the Agreement. All material facts are available online at www.brasiltelecom.com.br/ri. Our main direct and indirect subsidiaries 14 Brasil Telecom Celular S.A. (BrT Celular) A wholly-owned subsidiary that has provided Personal Mobile Services (SMP) since the fourth quarter of 2004. It has a permit to operate in Region II of the general concession plan. BrT Servi os de Internet S.A. (―BrTI‖) A wholly-owned subsidiary that holds the control of the following entities:

iG Companies The iG companies comprise Internet Group (Cayman) Limited (iG Cayman), iG Participa es S.A. (iG Part) and Internet Group do Brasil S.A. (iG Brasil). iG Brasil operates as a dialup and broadband Internet access provider. It also provides value-added services targeted for the home and corporate markets, including an Internet connection accelerator. In addition, iG also sells advertising space on its portal. iG Cayman is a holding company that controls iG Part, which in its turn holds a 32.53% interest in iG Brasil‘s capital stock. Brasil Telecom Cabos Submarinos Ltda. (BrT CS) BrT CS, together with its subsidiaries, operates a system of underwater optical fiber cables, with hubs in the United

States, Bermuda, Venezuela and Brazil, offering data traffic through integrated service packages, offered to domestic and foreign corporate customers. BrT Comunica o Multim dia Ltda. (BrT Multim dia) We hold a 90.46% interest in the capital of BrT Multim dia, whereas the remaining 9.54% is held by BrTI.

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BrT Multim dia provides private telecommunications network services through local optical fiber digital networks in S o Paulo, Rio de Janeiro and Belo Horizonte, and a long-distance network connecting these metropolitan business centers. It operates nationwide through commercial agreements with other telecommunications companies to offer services to the other regions in Brazil. It also has Internet Solution Centers in S o Paulo, Brasilia, Curitiba, Porto Alegre, Rio de Janeiro and Fortaleza, which offer co-location and hosting services and other value-added services. Brasil Telecom Call Center S.A. (BrT Call Center) Our wholly-owned subsidiary BrT Call Center provides call center services to third parties, including customer service, outbound and inbound telemarketing, training, support, consulting services and related activities, among other services. This company‘s startup was in November 2007 by providing call center services to BrT and its subsidiaries that require this type of service. Prior to that date, call center services used to be outsourced. BrT Card Servi os Financeiros Ltda. (BrT Card) BrT Card was established to provide management, control and support services for the development and sale of financial products and services. We hold 99.99% of this company‘s stock capital. At balance sheet date, BrT Card only had highly liquid cash investments resulting from capital payment, and had not started its operations yet.

7.2. Regarding each operating segment reported in the latest year-end financial statements or, when applicable, the consolidated financial statements, provide the following information:

a. products and services sold

Local Fixed-line Services

Our traditional fixed-line business (except for data transmission) in Region II includes local and long-distance services, network usage services (interconnection) and public telephones, in accordance with the concessions and authorizations granted to us by ANATEL.

As of December 31, 2009, we had approximately 7.7 million local fixed-line customers, corresponding to a 68.5% market share of the total fixed lines in service, according to data by ANATEL.

Local fixed-line services include installation, monthly subscription, metered services, collect calls and supplemental local services. Metered services include local calls that originate and terminate within a single local area. ANATEL has divided Region II into 1,772 local areas.

Under our concession agreements, we are required to offer two local fixed-line plans to users: the Basic Minute Plan (Plano Básico de Minutos) and the Mandatory Alternative Service Plan (Plano Alternativo de Servi os de Oferta Obrigat ria), each including installation charges, monthly subscription charges, and charges for local minutes.

In addition to the Basic Minute Plan and the Mandatory Alternative Service Plan, we offer a variety of alternative fixed-line plans that are designed to meet our customers‘ usage profiles. As of December 31, 2009, 77.0% of our fixed-line customers were subscribers of alternative plans.

In 2009, we launched a new portfolio of alternative fixed-line plans under the Oi brand and discontinued offers of our old portfolio of alternative fixed-line plans. We offer (1) voice and internet plans that allow subscribers to purchase a fixed number of local minutes per month for calls to fixed-lines and for use to establish dial-up internet connections, (2) voice-only plans that allow subscribers to purchase a fixed number of local minutes per month for calls to fixed-lines, and (3) budget plans that allow subscribers to purchase a fixed number of local minutes, either on a prepaid basis or a monthly basis, but restrict local calls after the purchased minutes have been consumed and require the purchase of a prepaid card to make long-distance calls or calls to mobile handsets, such as our ―Oi Fixo Controle‖ and ―Oi Fixo Economia‖ plans. By the end of 2010, we expect to offer bundled plans so that subscribers (a) can make unlimited local calls to other fixed-line customers, (b) have a fixed number of minutes per month to be used for long-distance calls or local calls to mobile subscribers, and (c) can use broadband services or minutes

to establish dial-up internet connections. We expect to market these plans under the ―Oi Conta Total‖ brand name.

Local fixed-line services also include in-dialing services (direct transmission of external calls to extensions) for corporate clients. For corporate clients in need of a large quantity of lines, we offer digital trunk services, which optimize and increase the speed of the customer‘s telephony system.

76


Long-Distance Services

For each long-distance call, whether originating from a fixed-line or a mobile handset, a caller chooses its preferred long-distance carrier by dialing such carrier‘s long-distance carrier selection code. The caller pays the long-distance carrier for the call and the long-distance carrier pays interconnection fees to the service providers on whose fixed-line or mobile networks the call originated and terminated.

Our domestic and international long-distance services have consisted primarily of calls originated in Region II.

Fixed-line-to-Fixed-line Calls

Interregional long-distance calls are calls between two different Regions. Intra-regional calls are calls made between two different local areas within one same Region, except for calls between two local areas within specified metropolitan regions that are charged as local calls under ANATEL regulations Calls between locations in Brazil and locations outside Brazil are international long-distance calls.

We provide domestic long-distance services for calls originating from Region II through co-billing agreements executed mainly with Telemar in Region I and Telesp in Region III. These agreements allow for us to interconnect directly with these companies‘ local fixed-line networks. We provide international long-distance services originating from Region II through agreements to interconnect our network with those of the main telecommunications service

providers worldwide.

Mobile Long-Distance

Each mobile subscriber in Brazil is registered in a geographic area, identified by the corresponding area codes, such as 11 (S o Paulo) and 61 (Bras lia). A call originated by a mobile subscriber registered in one home registration area to a mobile subscriber registered in another home registration area sharing the same first digit (for example, Brasilia – 61, and Goi nia – 62), is referred to as an intra-regional mobile call. A call originated by a mobile subscriber registered in one home registration area to a mobile subscriber registered in another home registration area that does not share the same first digit (for example, Brasilia – 61, and S o Paulo – 11), is referred to as an interregional mobile call. Different rates apply to intra-regional and interregional mobile calls.

We provide mobile long-distance services originating from Region II through co-billing agreements with Telemar in Region I, Telesp in Region III, and each of the leading mobile carriers operating in Brazil that permit us to interconnect directly with their local fixed-line and mobile networks.

We provide international long-distance services originating or terminating on our customers‘ mobile handsets through agreements to interconnect our network with those of the main telecommunications service providers worldwide.

Mobile Telecommunications Services

As of December 31, 2009, we had approximately 7.2 million subscribers located in 1,120 municipalities in Region II. As of December 31, 2009, we had a 16.0% share of the mobile services market in Region II based on the total number of subscribers as of that date, according to data by ANATEL. As of December 31, 2009, 86% of our mobile telephony customers subscribed to prepaid plans and 14.5% subscribed to postpaid plans.

Prepaid Customers Prepaid customers activate their Oi or BrT Celular mobile numbers through the purchase and installation of a SIM card in their mobile handsets. Our prepaid customers are able to add credits to their accounts through the purchase of prepaid cards at prices that vary based on the number of minutes available, or through the purchase of additional credits over the phone that can be charged to the customer‘s credit card or to their bill for fixed-line

services. These credits are valid for a fixed period of time following activation.

Following the integration with Telemar, in May 2009 we began offering the ―Oi Ligadores‖ and ―Oi Cart o Total‖ programs to our prepaid customers in Region II. ―Oi Ligadores‖ allows a prepaid subscriber to receive bonus minutes with each purchase of additional credits. We charge a nominal registration fee in this program, and customers are given bonus minutes that may be used in local calls to our fixed-line or mobile subscribers or long-distance calls to our fixed-line subscribers.

77


―Oi Cart o Total‖ is a service that integrates mobile, fixed-line and public telephone services through a single card. Particularly focused on our prepaid customers and on public telephone users, ―Oi Cart o Total‖ allows these customers to use their available credits to make any type of call from mobile, fixed-line or public telephones. We believe that ―Oi Cart o Total‖ is an important step towards the convergence of our telecommunications services and meets the needs of a common profile of our prepaid customers who use a mobile phone to receive calls and public telephones to make calls. We have made aggressive service offerings in order to promote and stimulate the use of ―Oi Cart o Total,‖ including bonus minutes for calls made by our prepaid customers.

Translated Subtitle:

(Net Additions – Prepaid)

Million users in Region II

Postpaid Customers

Postpaid customers pay a monthly subscription fee and are billed on a monthly basis for services provided during the previous month. Postpaid plans include voicemail, caller ID, conference calling, call forwarding, calls on hold and special services, including Wireless Application Protocol (WAP), General Packet Radio Service (GPRS), which allows speeds in the range of 115 kilobytes per second (Kbps), and Enhanced Data Rates for Global Evolution, or EDGE, which allows speeds in the range of 230 Kbps.

The GPRS and EDGE services we include in our postpaid plans are available to customers with advanced mobile handset models. These services allow for internet access through mobile handsets, laptops or personal digital assistants. They also enable customers to simultaneously use voice and data services, because the connection to

the internet remains active even when the customer is speaking on the phone. This means the customer is online at all times and can, at the same time, place or receive calls.

The WAP portal is another service and content channel available to our postpaid plan customers. Some of its features include sending and receiving e-mails, creating contact groups, accessing banks and buying tickets. The WAP portal can also be used on the internet, for instance, to schedule personal activities and join or create contact groups.

Adições líquidas de Pré-pagos

Milhões de usuários na Região II

2006 2007 2008 2009

0,91,0

1,2

1,5



2006 2007 2008 2009



2006 2007 2008 2009

0,91,0

1,2

1,5

0,91,0

1,2

1,5

78


Under applicable regulation, we are required to offer a basic postpaid mobile plan that includes monthly subscription rates and charges for local calls. As of December 31, 2009, 2.3% of our mobile customers subscribed to our basic postpaid plan. In addition to the basic plan, we offer a variety of alternative postpaid plans designed to meet our customers‘ usage profiles.

Under Telemar‘s authorization from ANATEL to acquire control of our company, we were required to offer to our customers the same plans that Telemar offers to its customers by December 31, 2009. As part of our program to integrate our offers with those of Telemar, in June 2009 we started offering ―Oi Controle‖ and ―Oi Conta‖ plans to our postpaid customers. ―Oi Controle‖ is a postpaid plan available to our mobile customers that seek a fixed monthly rate for a fixed number of minutes in order to limit their expenditures on mobile calls. We launched our ―Oi Conta‖ postpaid plan as a promotional offer: customers subscribing to this plan have a bonus of 1,000 free mobile minutes every month for 31 months to make local calls to any of our mobile or fixed-line subscribers.

We offer (1) plans for subscribers to purchase a fixed number of minutes per month for local calls to other fixed-line or mobile subscribers, (2) family plans for subscribers to purchase a fixed number of minutes per month for local calls that can be shared by up to four individuals, (3) budget plans for subscribers to purchase a fixed number of local and long-distance minutes per month, but with restricted outgoing calls (except calls made using a prepaid card) after the purchased minutes have been consumed; and (4) 3G plans providing data transmission at speeds ranging from 300 Kbps to 1 megabyte per second (Mbps).

Roaming

We have roaming agreements with TNL PCS S.A. (Oi), CTBC, and Sercomtel, providing our customers with automatic access to roaming services whenever they are traveling outside of Region II in areas of Brazil where GSM mobile telecommunications services are available.

We generate revenues from roaming when one of our mobile subscribers receives a call while at a location outside the sector that includes their home registration area. In addition, we generate revenues when subscribers of another mobile services provider places a call from a location that is outside their registration area and the call is originated on our mobile networks. Conversely, when one of our mobile subscribers places a call from outside of Brazil, we pay the applicable roaming rate to the mobile services provider on whose network the call originated.

3G Broadband Services

In 2007, we were granted an authorization and the related frequency licenses by ANATEL to offer 3G mobile services in Region II. The deployment of our 3G network allows us to offer data communication services to our

personal mobile services customers at greater speeds than those made available by our previously existing 2G networks. As of December 31, 2009, we had launched 3G services in the Federal District and the nine state capitals in Region II, and we had approximately 139,000 3G mobile broadband users.

Data Transmission Services

Broadband Services

We provide high-speed ADSL internet access services to residential customers and businesses in the primary cities in Region II under the brand name ―Oi Velox,‖ brand we adopted with the purpose of joining our portfolio with Telemar‘s. As of December 31, 2009, we offered high-speed internet access services in 1,585 municipalities in Region II and we had 1.9 million ADSL customers.

ADSL technology allows high-speed transmission of voice and data signals on a single copper wire pair for access to the network. Since voice transmission through telephone lines uses only one of many available frequency bands, the remaining frequency bands are available for data transmission. An ADSL modem is installed using the customer‘s conventional line, which, in turn, is connected to a Digital Subscriber Line Access Multiplexer, or DSLAM, equipment at the switching station. As a result, customers can use the telephone line simultaneously with the

internet. Customers pay a fixed monthly subscription fee, irrespective of their actual connection time to the internet.

ADSL2 is a data communications technology that allows data transmission at speeds of up to 24 Mbps downstream and 1 Mbps upstream, which is much faster than data transmission through conventional ADSL. ADSL2 permits us to offer a wider range of services, including Internet Protocol Television, which we refer to as IPTV.

79


We charge monthly fees to our broadband users that choose iBest or iG as their ISP. We do not charge fees to our fixed-line customers that choose iBest or iG as their ISP for dial-up internet access. As of December 31, 2009, iBest and iG had an aggregate of approximately 1.4 million registered dial-up users. In the beginning of 2007, we launched a flat-fee dial-up service, called ―Internet Toda Hora‖ (―Internet all the time‖) under which our fixed-line subscribers can access the internet through dial-up connections during evening and weekend hours for a flat fee without using the local minutes that they purchase under their fixed-line plans.

Translated Subtitle:

Region II

Millions, % of fixed-lines in service

Broadband customers and Penetration (?)

Coverage

Cities covered

% over total

Commercial Data Transmission Services

We provide a variety of customized, high-speed data transmission services through various technologies and means of access to other carriers, ISPs and corporate customers. Our data transmission services include interconnection between local area networks at data transmission speeds of 34 Mbps, 155 Mbps and 1 Gbps, videoconferencing, video/image transmission and multimedia applications. Our principal commercial data transmission services are:

Industrial Exploitation of Dedicated Lines (Explora o Industrial de Linha Dedicada), or EILD, under which we lease trunk lines to other carriers, primarily mobile carriers, which use these trunk lines to link their radio base stations to their switching centers;

Dedicated Line Services (Servi os de Linhas Dedicadas), or SLD, under which we lease dedicated lines to

other carriers, ISPs and corporate customers for use in private networks that link different corporate websites;

IP services, consisting of dedicated private lines and dial-up internet access that we provide to most of the leading ISPs in Brazil, as well as Virtual Private Network, or VPN, services that enable our customers to operate private intranet and extranet networks; and

Clientes de

Banda

Larga e Penetração

nas Les

Cobertura

Cidades com cobertura 1.586

% sobre o total 85%

REGIÃO II

1,321,57

1,811,99

15,7%19,5%

22,2% 25,0%

2006 2007 2008 2009

Milhões, % das linhas fixas em serviço

Clientes de

Banda


nas Les

Cobertura


% sobre o total 85%

REGIÃO II

1,321,57

1,811,99

15,7%19,5%

22,2% 25,0%

2006 2007 2008 2009


Clientes de

Banda


nas Les

Cobertura


% sobre o total 85%

REGIÃO II

1,321,57

1,811,99

15,7%19,5%

22,2% 25,0%

2006 2007 2008 2009

1,321,57

1,811,99

15,7%19,5%

22,2% 25,0%

2006 2007 2008 2009


Clientes de

Banda


nas Les

Cobertura


% sobre o total 85%

REGIÃO II

1,321,57

1,811,99

15,7%19,5%

22,2% 25,0%

2006 2007 2008 2009

1,321,57

1,811,99

15,7%19,5%

22,2% 25,0%

2006 2007 2008 2009


80


Frame relay services we provide to our corporate customers to allow them to transmit data using protocols based on direct use of our transmission lines, enabling the creation of VPNs.

We provide these data transmission services using our service network platform in Region II and our nationwide fiber optic cable network and microwave links.

In order to provide complete solutions to our corporate clients, we have entered into service agreements for the joint supply of international data services with a number of important international data services providers. These commercial relationships with international data services providers are part of our strategy of offering telecommunications services packages to our customers.

In addition, we provide services at our six cyber data centers located in Brasilia, S o Paulo, Curitiba, Porto Alegre and Fortaleza. We provide hosting, and IT outsourcing services at these centers, enabling our customers to outsource their IT structures to us or to use these centers to provide backup for their IT systems. These centers were transferred to Telemar after it acquired the control of our company.

We also operate a submarine fiber optic network that connects Brazil with the United States, Bermuda and Venezuela. Through this network, we offer international data transportation services, primarily leased lines to other carriers.

Interconnection Services

All telecommunications service providers in Brazil are required, if technically feasible, to make their networks available for interconnection on a non-discriminatory basis whenever a request is made by another telecommunications services provider. Interconnection permits a call originated on the network of a requesting local fixed-line, mobile or long-distance carrier‘s network to be terminated on the local fixed-line or mobile services network of the other carrier.

Use of Our Fixed-line Network

We are authorized to charge for the use of our local fixed-line network on a per-minute basis for (1) all calls terminated on our local fixed-line network in Region II that originate on the networks of other local fixed-line, mobile and long-distance service providers, and (2) all long-distance calls originated on our local fixed-line network in Region II that are terminated by other long-distance service providers.

Conversely, other local fixed-line service providers charge us interconnection fees (1) to terminate calls on their

local fixed-line networks that are originated on our local fixed-line, mobile or long-distance networks, and (2) for long-distance calls originated on their local fixed-line networks that are terminated on our long-distance network.

We also charge network usage fees to long-distance service providers and trunk line operators that connect switching stations to our local fixed-line networks.

Use of Our Long-Distance Network

We are authorized to charge fees for the use of our long-distance network on a per-minute basis for all calls that use our long-distance networks, regardless of whether the caller has selected us as the long-distance carrier or not. Conversely, other long-distance carriers charge us interconnection fees on a per-minute basis for all calls that use their long-distance networks whenever the caller has selected us as the long-distance carrier.

Use of Our Mobile Network

We are authorized to charge for the use of our mobile network on a per-minute basis for all calls terminated on our mobile network that originate on the networks of other local fixed-line, mobile and long-distance service providers. Conversely, other mobile providers charge us interconnection fees to terminate calls on their mobile networks that are originated on our local fixed-line, mobile or long-distance networks.

81


Traffic Transportation Services

Long-distance and mobile carriers may avoid paying us interconnection fees for the use of our long-distance network by establishing an interconnection to our local fixed-line networks. In order to retain these customers of our long-distance services, we offer a long-distance usage service, called national transportation, under which we offer discounts based on the volume of traffic and geographic distribution of calls generated by a long-distance or mobile carrier.

We also offer international telecommunications service providers the option to terminate their Brazilian inbound traffic through our network, as an alternative to Embratel and Intelig. We charge international telecommunications service providers a per-minute rate, based on whether a call terminates on a fixed-line or mobile telephone and the location of the local area in which the call terminates.

Public Telephone Services

We own and operate public telephones throughout Region II. As of December 31, 2009, we had approximately

277,900 public telephones in service, all of which using prepaid cards.

Value-Added Services

Value-added services include voice, text and data applications, including voicemail, caller ID, and other services, such as customization (download of videos, games, ring tones and wallpaper), SMS subscription services (horoscope, soccer teams and ―I‖), chat, mobile television, location-based services and applications (mobile banking, mobile search, email and instant messaging).

Advanced Voice Services

We provide advanced voice services to our corporate customers, mainly 0800 (toll free) services, as well as voice portals where customers can participate in real-time chats and other interactive voice services.

iG Internet Portal

We operate internet portal ―iG,‖ one of the largest internet portals in Brazil in number of unique visitors up to December 31, 2009, according to data by Ibope/NetRatings. In 2009, iG recorded 22.2 million visits per month, and as of December 31, 2009, iG had approximately 2.0 million registered subscribers and hosted 5.2 million e-mail accounts. iG offers high quality content to the visitors of the iG website, as well as a large and diversified portfolio of products and services. We are in the process of repositioning the iG brand to promote the launch of content channels covering the economy, women‘s topics, entertainment, education, news, celebrities and sports, among others. We generate revenue through the iG portal from (1) monthly subscription fees that we charge to registered users of this portal, (2) fees charged to place advertisements on this portal, and (3) fees that we receive from fixed-line service providers based on the number of minutes that their subscribers are connected to iG.

Rates

Our rates for local fixed-line services, domestic long-distance services, mobile services, interconnection, EILD and SLD services are subject to regulation by ANATEL, except for some specific rates we charge under alternative fixed-line and mobile plans.

Many of the services we provide are charged on a per-minute basis. For these services, we charge for calls based

on the period of use. The charge unit is a tenth of a minute (six seconds), and rounding is permitted to the next succeeding tenth of a minute. There is a minimum charge period of 30 seconds for every call.

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Fixed-line Rates

Local fixed-line Rates

Our revenues from local fixed-line services consist mainly of monthly subscription charges, charges for local calls and charges for the activation of lines for new subscribers or subscribers that have changed addresses. Monthly subscription charges are based on the plan the customer subscribes to and whether the customer is a residential, commercial or trunk line customer.

Under our concession agreements, we are required to offer two local fixed-line plans to users: the Basic Minute Plan and the Mandatory Alternative Service Plan, each including installation charges, monthly subscription charges, and charges for local minutes. As of December 31, 2009, 23.0% of our local fixed-line customers subscribed to the basic fixed-line plan or the mandatory alternative fixed-line plan.

The monthly subscription fees under the Basic Minute Plan and the Mandatory Alternative Service Plan vary in accordance with the subscribers‘ profiles, as defined in the applicable ANATEL regulations. The monthly subscription fee for the Basic Minute Plan includes the use of 200 local minutes per month by residential customers and 150 local minutes per month by commercial customers and trunk line customers. The monthly subscription fee for the Mandatory Alternative Service Plan includes the use of 400 local minutes per month by residential customers and 360 local minutes per month by commercial customers and trunk line customers. If the minute limits are exceeded, customers will incur additional metered-minute charges. The number of minutes in the monthly subscription is not cumulative and differs depending on the customer profile, pursuant to the applicable regulation. The monthly subscription fee is the same for the Basic Minute Plan and the Mandatory Alternative Service Plan.

Calls are charged per duration. The charge unit is a tenth of a minute (six seconds), and rounding is permitted to the next succeeding tenth of a minute. There is a Minimum Charging Time of 30 seconds, and the so-called Answered Call Charge. During cheaper rate hours (Monday through Friday from midnight to 6 a.m., Saturdays from midnight to 6 a.m. and from 2 p.m. to midnight, and Sundays and national holidays from midnight to midnight), each call is charged a fixed rate, regardless of duration (Answered Call Rate). The Answered Call Rate and the local minute rate differ for the Basic Minute Plan and the Mandatory Alternative Service Plan. Making a call during cheaper rate hours discounts two minutes from the minute package available to Basic Minute Plan subscribers, and four minutes to Mandatory Alternative Service Plan subscribers. Calls lasting three seconds or less, except as otherwise provided for in the regulation, are not billed.

In addition to the Basic Minute Plan and the Mandatory Alternative Service Plan, we are permitted to offer non-discriminatory alternative plans to the basic service plans.

The rates applicable to alternative plans (e.g., monthly subscription rates and charges for local and long-distance calls) must be submitted for ANATEL approval prior to the offering of those plans to our customers. In general, ANATEL does not raise objections to the terms of these plans. As of December 31, 2009, 77.0% of our fixed-line customers subscribed to alternative plans.

Prior to January 2006, calls were measured and charged per pulses, consisting of a single charge per call and an additional charge for each four-minutes used. In January 2006, our new concession agreements established a per-minute billing system for local fixed-line telecommunications services, which we implemented by July 2007. In localities where we have not implemented the minute-based rates due to technical or economic infeasibility, we do not charge fees for additional minutes on local calls made to another fixed-line telephone. In these localities we charge only basic monthly subscription fees.

On an annual basis, ANATEL increases or decreases the maximum rates we are authorized to charge for our basic service plans. In July 2006, ANATEL reduced our basic plans rates by an average 0.43%. Later, ANATEL increased these rates by an average 2.14% in July 2007, 3.01% in July 2008, and 0.98% in September 2009.

In addition, we are authorized to adjust the rates applicable to our alternative plans annually by no more than the rate of inflation, as measured by the Telecommunications Services Index ( ndice de Servi os de Telecomunica es), or IST. Discounts on basic service plans rates may be granted to customers without prior approval by ANATEL .

The table below shows selected information on the basic fixed-telephony rates of our company, a PSTN concessionaire, on the following dates:

83


Year ended December 31,

Monthly subscription rates for Basic Minute Plans (1) (R$) 2007 2008 2009

Company

Basic Minute Plan (residential) 27.86 28.69 28.97

Basic Minute Plan (commercial) 41.23 42.48 42.89

Basic Minute Plan (trunk lines) 40.85 42.09 42.50

_____________

(1) Amounts representing the weighted average monthly rates, net of tax.

Local Fixed-line-to-Mobile Rates

When one of our fixed-line customers makes a call to a mobile subscriber of our company or another mobile services provider that terminates in the mobile registration area in which the call was originated, we charge our fixed-line customer per-minute charges for the duration of the call based on rates designated by ANATEL as VC1

rates. In turn, we pay the mobile services provider a per- minute charge based on rates designated by ANATEL as VU-M rates for the use of its mobile network in completing the call.

VC1 rates vary depending on the time of the day and day of the week, and are applied on a per-minute basis. Like fixed-line calls, the charge unit is a tenth of a minute (six seconds), and rounding is permitted to the next succeeding tenth of a minute. There is a minimum charge period of 30 seconds for every call.

On an annual basis, ANATEL may increase or decrease the maximum VC1 rates we are authorized to charge. In 2006, the maximum VC1 rate we were authorized to charge, as a PSTN carrier, was not changed. ANATEL authorized us to increase our VC1 rates by an average 3.34% in July 2007, and 3.03% in July 2008. Up to December 2009, our VC1 rates were not changed. Discounts on VC1 rates may be granted to customers without prior approval by ANATEL.

The table below shows the rates we charged per minute for fixed-line-to-mobile calls in the following periods:


Per-minute rates for local fixed-line-to-mobile calls (1) 2007 2008 2009

Company (R$) 0.50 0.51 0.51

___________


Domestic long-distance rates

Fixed-line-to-fixed-line

If a caller selects us as the carrier for a long-distance call that originates and terminates on fixed-line telephones, we receive the revenues from the call and must pay interconnection fees to the service providers that operate the networks on which the call originates and terminates.

Rates for these long-distance calls are based, among other factors, on the physical distance separating callers (separated into four distance ranges), time of the day and day of the week, and are applied per minute for the

duration of the call. Like local fixed-line calls, the charge unit is a tenth of a minute (six seconds), and rounding is permitted to the next succeeding tenth of a minute. There is a minimum charge period of 30 seconds for every call.

On an annual basis, ANATEL increases or decreases the maximum domestic fixed-line-to-fixed-line long-distance rates we are authorized to charge. In July 2006, ANATEL increased our domestic long-distance rates by an average 2.77%. Later, ANATEL increased these rates by an average of 2.14% in July 2007, 3.01% in July 2008, and 0.98% in September 2009.

84


Discounts on domestic fixed-line-to-fixed-line long-distance rates may be granted to customers without prior approval by ANATEL.

The following table contains selected information on the domestic fixed-line-to-fixed-line long-distance rates our company was permitted to charge per minute during peak hours (i.e., from 9 a.m. to noon, and from 2 p.m. to 6 p.m. on weekdays) during the periods indicated.


Per-minute charges for domestic long-distance calls (1) (R$) 2007 2008 2009

Company

0 to 50 km 0.24 0.24 0.24

50 to 100 km 0.33 0.35 0.35

100 to 300 km 0.35 0.36 0.36

Over 300 km 0.36 0.37 0.37

________________


Mobile Long-Distance

Rates for long-distance calls that originate or terminate on mobile telephones are based on whether the call is an intra-regional long-distance call, which is charged at rates designated by ANATEL as VC2 rates, or an interregional long-distance call, which is charged at rates designated by ANATEL as VC3 rates.

If the caller selects us as the long-distance carrier, we receive the revenues from the call and must pay interconnection fees to the carriers that operate the networks on which the call originates and terminates. The same rule applies to BrT.

The applicable VC2 and VC3 rates vary depending on the time of the day and day of the week, and are applied on a per-minute basis. Like local fixed-line calls, the charge unit is a tenth of a minute (six seconds), and rounding is permitted to the next succeeding tenth of a minute. There is a minimum charge period of 30 seconds for every call.

On an annual basis, ANATEL may increase or decrease the maximum VC2 and VC3 rates we are authorized to charge. In July 2006, ANATEL authorized us to increase our VC2 and VC3 rates by an average 7.99%. Later, ANATEL authorized us to increase our VC2 and VC3 rates by an average of 3.29% in July 2007, 3.01% in July 2008, and 0.98% in February 2010.

The following table shows the average VC2 and VC3 rates our company has charged per minute during peak hours (i.e., from 9 a.m. to noon, and from 2 p.m. to 6 p.m. on weekdays) during the periods indicated.


Per-minute monthly charges for mobile long-distance calls (1) (R$) 2007 2008 2009

Company

VC2 1.08 1.11 1.11

VC3 1.23 1.26 1.26

_________________


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Mobile Rates

Mobile telecommunications service in Brazil is offered on a ―calling-party-pays‖ basis under which a mobile subscriber pays only for calls that he or she originates. Subscribers also pay roaming charges on incoming or outgoing calls outside their home registration area, and on calls made outside the region where we have operations. Incoming collect calls are also paid by the recipient.

Our revenues from mobile services consist mainly of charges for local and long-distance calls paid by our prepaid and postpaid mobile subscribers, and monthly subscription charges paid by our postpaid plan subscribers. Monthly subscription charges are based on a postpaid subscriber‘s service plan. If one of our mobile subscribers places or receives a call from a location outside of his or her home registration area, we are permitted to charge that customer the applicable roaming rate.

Under ANATEL regulations, we were required to submit a basic postpaid service plan and a basic prepaid service plan to ANATEL for approval.

Under the basic postpaid service plan, customers pay monthly subscription charges (which include a predetermined number of minutes) and pay fees based on usage of excess minutes that were not included in the monthly subscription charge. Under the basic prepaid service plan, customers pay one-time activation charges as well as charges for the minutes that they use. The rates applicable to these plans‘ services (e.g., activation charges, monthly subscription charges, charges for local and long-distance calls and roaming charges) were approved by ANATEL at the time that the plans were authorized.

We charge for all mobile calls made by our prepaid customers, and for mobile calls made by our postpaid customers in excess of their allocated monthly number of minutes, on a per-minute basis.

In addition to the basic service plans, we are permitted to offer non-discriminatory alternative plans to the basic service plans. In general, ANATEL does not raise objections to the terms of these plans. As of December 31, 2009, substantially all of our mobile customers subscribed to these alternative plans.

Even though subscribers of a plan cannot be forced to migrate to new plans, existing plans may be discontinued as long as all subscribers of the discontinued plan receive a notice to that effect and are allowed to migrate to new plans within six months of such notice.

Rates under our basic and alternative mobile plans may be adjusted annually by no more than the rate of inflation for that year, as measured by the IST. The rate of inflation as measured by the IST was 3.17% in 2007, 6.56% in 2008 and 2.06% in 2009. These rate adjustments occur on the anniversary dates of the approval of the specific plans.

Network Usage (Interconnection) Rates

Fixed-line Networks

Our revenues from the use of our local fixed-line networks consist primarily of payments on a per-minute basis, which are charged at rates set by ANATEL every year (TU-RL rates).

We derive TU-RL rate revenues mainly from:

long-distance carriers to complete calls terminating on our local fixed-line network;

long-distance carriers for the transfer of calls originating on our local fixed-line network to their fixed or mobile networks;

mobile carriers to complete calls terminating on our local fixed-line network;

and other fixed-line carriers for local calls that originate on their networks and terminate on our local network.

TU-RL rates vary depending on the time of the day and day of the week, and are applied on a per-minute basis.

Charges for the use of our local fixed-line network to terminate local calls originating on the network of another local fixed-line service provider are only billed and due when usage of our network exceeds 55% of the total traffic (in minutes) registered between our network and the network of the other telecommunications service provider.

On January 1, 2007, our TU-RL rate was reduced to 40% of the rate included in our Basic Minute Plan for a local fixed-line call. As a result of the adjustment of 0.98% for local services, that took place in September 2009, our TU-RL rates have also been adjusted. Therefore, our current TU-RL rate during peak hours (i.e., from 9 a.m. to noon, and from 2 p.m. to 6 p.m. on weekdays) is R$0.03112 per minute.

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ANATEL announced that beginning in 2010, the method used to determine the TU-RL rates will be based on a cost methodology, known as long-run incremental costs.

Our revenues from the use of our long-distance network consist primarily of payments on a per-minute basis, which are charged at rates designated by ANATEL as TU-RIU rates, from other long-distance carriers that use a portion of our long-distance networks to complete calls initiated by their users.

TU-RIU rates vary depending on the time of the day and day of the week, and are applied on a per-minute basis. On January 1, 2007, we reduced our TU-RIU rate to 30% of our domestic fixed-line-to-fixed-line long-distance rates for calls in which callers are no more than 300 km apart. Our current TU-RIU rate during peak hours is R$0.12 per minute.

The following table shows the average per-minute rates we charged for the use of our fixed-line networks during the periods indicated.


Per-minute monthly charges for mobile long-distance calls (1) (R$) 2007 2008 2009

Company

TU-RL 0.030 0.031 0.031

TU-RIU 0.083 0.087 0.088

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Mobile Networks Our revenues from the use of our mobile networks consist primarily of payments on a per-minute basis from (1) local fixed-line, long-distance and mobile carriers to complete calls terminating on our mobile network, and (2) long-distance service providers for the transfer to their networks of calls originating on our mobile network.

The terms and conditions of interconnection to our mobile network, including the rates charged to terminate calls on our mobile network (which are designated by ANATEL as VU-M rates), commercial conditions and technical

issues, are freely negotiated between us and other mobile and fixed-line telecommunications service providers, subject to compliance with regulations established by ANATEL relating to traffic capacity and interconnection infrastructure that must be made available to requesting providers, among other things. We must offer the same VU-M rates to all requesting service providers on a nondiscriminatory basis. Like local fixed-line calls, the charge unit is a tenth of a minute (six seconds), and rounding is permitted to the next succeeding tenth of a minute. There is a minimum charge period of 30 seconds for every call.

If we are not able to establish interconnection rates for use of our mobile network with other mobile and fixed-line service providers, ANATEL is empowered to arbitrate, at its discretion, the interconnection rates that we may charge. In 2005, mobile service providers and fixed-line service providers in Brazil were unsuccessful in negotiating an agreement for new VU-M rates. All mobile service providers and fixed-line service providers in Brazil commenced arbitration proceedings before ANATEL to establish the applicable VU-M rates. The mobile service providers and fixed-line service providers entered into a provisional agreement establishing provisional rates applicable to each mobile service provider, and after the providers entered into this agreement, ANATEL approved the adjusted VC1 rates that the fixed-line service providers were permitted to charge at that time based on the provisional VU-M rates.

We and the other mobile carriers will keep on negotiating provisional agreements each year to establish rate increases for the VU-M charged by the mobile carriers.

In March 2006, a provisional agreement among the incumbent fixed-line service providers (Telesp and us) and certain mobile carriers, including BrT Celular, was submitted to ANATEL that increased the VU-M rate for calls terminated on a mobile services provider‘s network by 4.5% over the previously existing VU-M rate.

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In July 2007, a provisional agreement among the incumbent fixed-line service providers, as well as CTBC and Sercomtel, and certain mobile carriers, including BrT Celular, was submitted to ANATEL that provided for an annual increase of the VU-M rates of 1.97143% for calls terminated in Region I, and an annual increase of the VU-M rates of 2.25356% for calls terminated in Region II or Region III.

In July 2008, a provisional agreement among the incumbent fixed-line service providers and certain mobile carriers, including BrT Celular, was submitted to ANATEL that established an average increase in the VU-M rates of 2%, and provided that the VU-M rates would be increased by an amount equal to 68.5% multiplied by the percentage increase in VC1 approved by ANATEL in 2008.

Under the rules established for the 3G auctions in December 2007, all mobile carriers were required to establish uniform VU-M rate schedules that would apply in all states of each service region no later than October 30, 2009. This requirement did not affect Oi or Brasil Telecom because these companies had already established uniform VU-M rates in each of their service regions. As of October 30, 2009, none of the other mobile carriers had established uniform VU-M rate schedules and we and Oi commenced arbitration proceedings before ANATEL with respect to the VU-M rates charged by our competitors. In January 2010, ANATEL set provisional reference rates for each mobile services provider for each region based on the mean V-UM previously charged in the respective service regions.

The following table shows the average per-minute VU-M rates that we charged during the periods indicated.


Per-minute charges for local fixed-line calls made to mobile telephones (1) (R$) 2007 2008 2009

Company 0.41 0.42 0.41

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Data Transmission Rates

Broadband, IP, and frame relay services are deemed to be value-added services under ANATEL regulations and, therefore, the rates and prices for these services are not subject to regulation and are market-driven. We offer broadband services subscriptions at prices that vary depending on the download speeds available under the purchased subscription.

A significant portion of our revenues from commercial data transmission services is generated by monthly charges for EILD subscriptions and dedicated line services. Such amounts are based on contractual arrangements between our customers and us.

Under ANATEL regulations, because we are deemed to have significant market power in the fixed-line business, we are required to make publicly available the forms of agreements that we use for EILD and SLD services, including the applicable rates, and are only permitted to offer these services under these forms of agreements.

We are allowed to increase these rates on an annual basis by no more than the rate of inflation, as measured by the IST. ANATEL also publishes reference rates for these services and if one of our customers objects to the rates that we charge for these services, that customer is entitled to seek to reduce the applicable rate through arbitration before ANATEL.

Our revenue from IP services is based on the number of data ports the customer is granted access to. Our revenue from frame relay services consists mainly of subscription charges for access to the data transmission network and metered service charges based on the amount of data transmitted. Such services are offered as bundles, and

charged on a pay-per-use or volume basis. Our revenue from cyber data center services is based on contractual arrangements that are tailored to the specific services provided, based on the customer‘s needs.

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b. revenues from the segment and its stake in the issuer's net revenues

We do not do segment reporting in our financial statements. The table below contains information on the nominal and relative contribution of products and services we market in relation to our gross operating revenue in the following periods:

December 31,

2007 (%) 2008 (%) 2009 (%)


Fixed-line Telephony 10,417 65% 10,251 60% 9,734 55%

Mobile Telephony 1,919 12% 1,966 12% 1,886 11%

Data Transmission Services 3,231 20% 4,343 26% 5,583 31%

Other Services 429 3% 448 2% 570 3%

Total 15,997 100

% 17,007 100% 17,772 100%

c. income or loss from the segment and its stake in the issuer's net income

We do not do segment reporting in our financial statements. We and our subsidiaries recorded net income of R$800 million in 2007; net income of R$1,030 million in 2008; and net loss of R$1,143 million in 2009.

7.3. Regarding the products and services described above, describe:

Billing and Collection

Local fixed-line Services

We send each of our fixed-line customers a monthly bill covering all the services provided during the prior monthly period. Customers are grouped in billing cycles based on the date their bills are issued. Each bill separately itemizes local calls, long-distance calls, calls terminating on a mobile network, toll-free services and other services such as call waiting, voicemail and call forwarding. We have agreements with several banks and other vendors, such as drugstores, lottery houses and government agencies, for the receipt and processing of payments from our customers.

We are required to include in our monthly bills charges incurred by our customers for long-distance services provided by other long-distance carriers upon the request of these carriers. We have billing agreements with each long-distance telecommunications service provider that interconnects with our networks under which we bill our customers for any long-distance calls originated on our network that are carried by another long-distance service provider and transfer the balance to the relevant provider after deducting any applicable fees. Payments are due within an average of 13 days after the billing date. We charge late-payment interest at a rate of 1% per month plus a one-time late charge of 2% of the amount outstanding.

At December 31, 2009, 53.2% of all accounts receivable due from our fixed-line customers were outstanding for more than 30 days and 28.6% were outstanding for more than 90 days.

ANATEL regulations permit us to restrict outgoing calls made by a fixed-line customer when the customer‘s account is more than 31 days past due, restrict incoming calls received by a fixed-line customer when the customer‘s account is more than 61 days past due, and disconnect a fixed-line customer when the customer‘s account is more than 91 days past due, provided in each case that 15-days‘ prior notice has been given to that customer prior to the imposition of each restriction.

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The disconnection process thus comprises several stages, including customer notification regarding the referral of their delinquency to credit bureaus, before the fixed-line customer may be ultimately disconnected due to non-payment. Notices range from voice messages to active calls for negotiation with the customer.

Our collection system enables us to access delinquent subscribers‘ accounts according to their payment profile. This profile takes into consideration, among other things, the length of subscription, the outstanding balance of the account and the longest payment delays.


We bill our mobile postpaid customers on a monthly basis and itemize charges in the same manner as we bill our fixed-line customers. In addition, the monthly bills also provide details regarding minutes used and roaming charges.

Payments are due within an average of 13 days after the billing date. We charge late-payment interest at a rate of 1% per month plus a one-time late charge of 2.0% of the amount outstanding.

At December 31, 2009, 66.9% of all accounts receivable due from our mobile customers were outstanding for more than 30 days and 37.5% were outstanding for more than 90 days.

ANATEL regulations permit us to partially suspend services to a mobile customer when the customer‘s account is more than 15 days past due, restrict all incoming and outgoing calls when the customer‘s account is more than 45 days past due, and cancel services to a mobile customer when the customer‘s account is more than 75 days past due, provided in each case that 15-days‘ prior notice has been given to that customer prior to the imposition of each restriction.

The cancellation process thus comprises several stages, including customer notification regarding the referral of their delinquency to credit bureaus, before services to the mobile customer may be ultimately cancelled due to non-payment. Notices range from voice messages to active calls for negotiation with the customer.

Our collection system enables us to access delinquent subscribers‘ accounts according to their payment profile. This profile takes into consideration, among other things, the length of subscription, the outstanding balance of the account and the longest payment delays.

a. the characteristics of the production process

We and our subsidiaries have a production process that is characterized by networks of physical and logistic infrastructure we use to provide fully integrated fixed-line and mobile services, and voice, data and video transmission services, allowing for the highest optimization of our existing resources.

These networks are remotely monitored from an operations center, which counts on operation and management platforms used to constantly check the network for failures, manage and configure databases, manage the security of our networks, and analyze the networks‘ performance.

For further information, please refer to items 7.1.a. and 7.2.c. of this Form.

b. the characteristics of the distribution process

In the year ended December 31, 2009, we incurred R$158 million in marketing expenses, primarily to promote our bundled service plans and diversify our sales efforts. In the year ended December 31, 2009, we continued to offer integrated promotions by bundling our various services, such as mobile communications, ADSL services, fixed-line services and public telephone services. Since February 2008, ANATEL regulations have required mobile carriers to unblock the mobile handsets of their customers, permitting mobile users to choose a different service provider than the handset supplier. As a result and in line with our integration of our marketing efforts with Telemar, we have adopted a strategy of selling SIM cards alone.

We use a broad range of marketing channels, including television, radio, billboards, exterior signage, telemarketing, direct mail and internet advertising to market our fixed-line, mobile, long-distance and broadband services. We also sponsor sports events and individual athletes, as well as cultural events, such as fashion shows, theatrical performances and popular music concerts. The goal of our marketing initiatives is to increase brand awareness in our targeted customer base and expand the use of our distribution channels.

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Following Telemar‘s acquisition of control of our company in January 2009, we have integrated our marketing and distribution programs with those of Telemar. We target our marketing efforts to three separate segments of the telecommunications services market: (1) retail customers; (2) high-value residential customers and medium and small commercial customers; and (3) large commercial customers.

Distribution to Retail Customers

The retail marketing segment generated approximately 21% of our net operating revenues in 2009. Our principal distribution channels in the retail segment in the year ended December 31, 2009, were:

telemarketing, which accounted for approximately 64% of our sales of fixed-line plans and 61% of our sales of broadband service subscriptions and approximately 61% of our sales of postpaid mobile plans in the year ended December 31, 2009. Our telemarketing sales channel consists of approximately 1,100 sales representatives that answer more than 500,000 calls per month. This channel provides us with the ability to pro-actively reach new customers, thereby increasing our client base and revenues, and also receive calls prompted by offers in numerous types of media.

34 exclusive agents with 787 salespeople trained to sell our services door-to-door in Region II in places where customers are generally not reachable by telemarketing. This channel accounted for approximately

14% of our sales of fixed-line plans and approximately 3% of our sales of broadband services in 2009.

approximately 40,000 large and small retail stores (drug stores, supermarkets, and kiosks) through which we primarily sell SIM cards and prepaid mobile cards. This channel accounted for approximately 67% of our sales of prepaid mobile cards in 2009.

Distribution to High-Value Residential Customers and Medium and Small Commercial Customers

The marketing segment for high-value residential customers and medium and small commercial customers generated approximately 19% of our net operating revenues in 2009. Our principal distribution channels in this marketing segment in the year ended December 31, 2009 were:

our telemarketing channel described above, which accounted for approximately 59% of our sales of fixed-line plans and 55% of our sales of broadband service subscriptions in 2009.

49 ―Oi Atende‖ service stores and kiosks located in the largest shopping malls and other high density areas; these stores focus on sales of higher value-added services (postpaid mobile plans and broadband services). This channel accounted for approximately 1% of our sales of broadband services subscriptions, 12% of our sales of postpaid mobile plans, and 7% of our sales of prepaid mobile cards in 2009.

503 exclusive stores through which we sell postpaid mobile plans and SIM cards. This channel accounted for approximately 29% of our sales of broadband services subscriptions and 14% of our sales of postpaid mobile plans in 2009.

a network of approximately 115 non-exclusive commissioned sales agents dedicated mainly to marketing to small- and medium-sized commercial customers.

Distribution to Large Commercial Customers

The marketing segment focused on large commercial customers generated approximately 15% of our net operating revenues in 2009. Our principal distribution channel in this marketing segment in the year ended December 31, 2009 was our direct sales force.

c. the characteristics of the markets where the issuer has operations, especially:

(i) share in each market

The table below shows our market share in each segment we operate in the following periods:

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December 31,

Region II 2007 2008 2009

(in %)

Fixed-line Telephony 89.0% 85.0% 68.5%

Mobile Telephony 13.2% 14.4% 16.0%

Prepaid 13.2% 14.8% 16.9%

Postpaid 13.1% 12.7% 12.2% Source: Anatel, Teleco

(ii) competitive conditions in the markets

Our industry is highly competitive. The competitive environment is significantly affected by key trends, including technology and service convergence, market consolidation and combined service offerings by service providers.

Local Fixed-line Services

In the local fixed-line telecommunications services market, competition is focused on high-value and corporate customers. In addition, competition from other telecommunications services has been increasing, particularly from mobile telecommunications services, which has led to traffic migration from fixed-line traffic to mobile traffic and the substitution of mobile services in place of fixed-line services, encouraged by offers of aggressively-priced packages from some mobile telecommunications service providers for on-net calls.

We are the leading provider of local fixed-line services and mobile services in Region II, according to data by ANATEL, as at December 31, 2009. On that date we had 7.7 million local fixed-line customers, which make us the largest fixed-line provider in Region II, according to data by ANATEL and Teleco.

Finally, the decrease in interconnection rates has discouraged the construction of new fixed-line networks and has led to decreases in market prices for telecommunications services by enabling telecommunications service providers that use the local fixed-line networks of incumbent fixed-line providers to offer lower prices to their customers.

We have 68.5% of the total fixed-lines installed in Region II, and our principal competitors are: (1) GVT, which has an estimated market share of 11.5% of the total fixed lines in service in this region as of December 31, 2009, based on information by ANATEL, and (2) Embratel, which has an estimated market share of 9.3% of the total fixed lines in service in this region as of December 31, 2009.

Embratel provides local fixed-line services to residential customers through the cable network owned by its affiliate Net in certain areas of Region II where Net provides cable television services. As a result, Net is able to bundle cable television, broadband and telephone services and market them at a very competitive price. Net has engaged in efforts to promote Embratel‘s fixed-line service by offering free local fixed-line service to its customers for a period of one year. As this promotion is still ongoing, we cannot predict the number of fixed-line customers served by Embratel through Net that will cancel their subscriptions when the promotion expires.

TIM has entered the local fixed-line services market by offering wireless voice services that, unlike traditional mobile services, only permit a subscriber to place and receive calls nearby a specific radio base station. These

services allow TIM to offer fixed-line service without installing a network of fixed-lines directly to the homes or businesses of their customers.

We expect to continue to face competition from mobile carriers, which represent the main source of competition in the local fixed-line service market. As of December 31, 2009, there were 44.7 million mobile subscribers (including our mobile customers) in Region II, a 14.8% increase over December 31, 2008, according to data by ANATEL. The increase in the number of mobile users, even though at a lower pace than we had been observing since the end of 2008, is expected to continue to adversely affect the number of fixed-line subscribers and the volume of local fixed-

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line traffic. In addition, because mobile carriers offer promotions and service plans that permit subscribers to make calls within the mobile provider‘s network at rates that are lower than those charged for calls from a fixed-line to a mobile telephone, we believe that we may be vulnerable to traffic migration as customers with both fixed-line and mobile telephones use their mobile devices to make calls to other mobile subscribers. We believe number portability (implemented in Brazil from August 2008 to March 2009) may adversely affect our fixed-line business, because portability breaks the customers‘ resistance to changing their fixed-line numbers, and therefore they can be attracted by our competition.

We believe that major technological innovations, such as instant messaging services and VoIP, may impact local fixed-line traffic in the future. In Brazil, those services have become increasingly popular, which could put further pressure on the local fixed-line telecommunications market.


The long-distance services market is highly competitive. For the year ended December 31, 2009, based on internal data and publicly available information by ANATEL, we were the leader in long-distance services provided to customers in Region II in terms of volume of traffic from calls originated in this region. Our principal competitors for long-distance services originating on fixed-line telephones in Region II are Embratel and GVT.

Generally, callers placing fixed-line long-distance calls in Brazil tend to select the long-distance carrier affiliated with the provider of their fixed-line service. Similarly, callers placing mobile long-distance calls in Brazil tend to select the long-distance carrier affiliated with the provider of their mobile or fixed-line service. However, increased competition from long-distance service providers has resulted in pressure on our long-distance rates and adversely affected our revenue from these services.

In addition, the offering of plans by other mobile service providers that include free minutes for calls to other subscribers of those mobile service providers may adversely impact our revenues from mobile long-distance calls if our mobile customers migrate to our competitors to remain within the network of the people to whom they plan to place long-distance calls.

New technologies that serve as an alternative to traditional long-distance telephone calls, such as VoIP, may start to capture part of Brazil‘s long-distance traffic. However, in contrast to what has occurred in other countries, such as the United States, we do not expect intense competition from VoIP providers in the near term due to (1) the low level of broadband penetration in Brazil due to the population‘s relatively low per capita GDP, and (2) the expected adverse effect of the success of this technology on long-distance call margins of Embratel, which is an affiliate of Net, the main service provider with the ability to offer alternatives through VoIP.


The mobile telecommunications services market in Brazil is characterized by intense competition among carriers.

We compete primarily with the following mobile carriers, all of them providing services throughout Brazil:

Vivo, a joint venture between Telefônica and Portugal Telecom, which markets its services under the brand name ―Vivo‖;

TIM, a subsidiary of Telecom Italia, which markets its services under the brand name ―TIM‖; and

Am rica M vil S.A.B. de C.V., an affiliate of Telmex, which markets its services under the brand name ―Claro.‖

Competitive efforts in the Brazilian mobile telecommunications services market generally take the form of handset subsidies in the postpaid market and traffic subsidies in both the prepaid and postpaid markets. For example, TIM has recently initiated a promotion under which its mobile subscribers can make long-distance calls for a fixed fee, regardless of the duration of the call. The aggressiveness of promotions is generally driven by the desire of the provider offering the promotion to increase market share; however, these promotions are usually offered for a short period of time as the pricing terms are not sustainable in the long run.

As of December 31, 2009, based on information by ANATEL, we had a market share of 16.0% of the total number of subscribers in Region II, ranking behind Vivo with 31.5%, Claro with 28.3% and TIM with 23.9%, and we captured 26.9% of all net additions of mobile subscribers in Region II during 2009. We started marketing Oi‘s mobile portfolio in this Region in May 2009.

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Data Transmission Services

Cable television providers that offer broadband services, particularly Net, are our key competition in the broadband market. We face competition from these providers that offer bundled services (pay-TV, broadband and voice services) to subscribers who, in general, have a higher purchasing power than other consumers.

Our principal competitors in the commercial data transmission services market are Embratel, GVT and Intelig. Because the commercial data transmission services market is significantly less regulated than the fixed-line, long-distance and mobile services markets and, therefore, presents fewer barriers to entry, this market is open to a large number of players, including specialized services companies, competing in this high-growth market and focused on large- and medium-sized business customers.

Along with growth in traffic volume and increasing demand for broadband capacity, we expect significant price reductions in data transmission services as competitors expand their networks. We also anticipate a shift in competition towards value-added services provided over IP platforms.

d. contingent seasonality

Our main activity, the provision of fixed-line services, is usually not affected by key seasonal market changes, except for the first quarter of the year, when the economic activity is usually slower in Brazil. Our mobile services

are affected by a seasonal increase in the number of customers in the second and fourth quarters of the year, due to Mothers‘ Day and year-end vacations in Brazil, respectively.

e. key inputs and raw materials, including:

(i) description of the relationship with suppliers, including whether they are subject to governmental control or regulation, identifying the agencies and the respective legislation

We and our subsidiaries have developed a strong relationship with our key suppliers. For example, we have prepared surveys with our suppliers‘ support since 2006. Also, we and our subsidiaries have entered into agreements for the acquisition and installation of network equipment with specialized suppliers. Such agreements are key for the beginning of operation, maintenance of service quality, and expansion of the coverage area of the telecommunications services we and our subsidiaries provide our customers.

Our ten major suppliers are listed below:

Name Purpose

Nokia Siemens Networks Networking services, mobile networking equipment, technical support.

Alcatel-Lucent Brasil S.A. Networking services, mobile and local networking equipment, technical support.

Huawei Serviços do Brasil Ltda. Mobile and fixed plant equipment, technical support. Networking equipment and routers to BrT.

PPR - Profissionais de publicidade Advertising

Accenture do Brasil Ltda. Consulting and software house.

Empresa Bras. Correios e Telégrafos Postage of billing statements and mail

NEC do Brasil S.A. Plant equipment

B2BR – Business to Business Inform.

technical support and monitoring of operating systems, databases, basic products, network, logical security and mainframe.

Copel Distribuição S.A. Pole leasing, right-of-way, electric power

Ericsson Gestão e Serviços Networking services, fixed and mobile plant equipment, technical support

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Our relationship with suppliers is subject to ANATEL regulation.

(ii) possible dependence on few suppliers

We depend on key suppliers and vendors, including Alcatel-Lucent S.A., Nokia and Huawei, to provide us with networking equipment and services, and handsets, which we need in order to expand and operate our business.

For further information on the risks related to dependence on suppliers, please refer to item 4.1.e of this Form.

(iii) possible volatility in prices

We constantly seek new supply alternatives in order to minimize any volatility. However, this is not always possible, since in addition to key suppliers we use products that are pegged to the international market.

7.4. Customers responsible for over 10% of the total net revenue, including a. total revenue generated by the customer; b. operating segments affected by the revenues generated by the customer

We do not have, and have not had for the past three fiscal years, customers responsible for over 10% of our total net revenues.

7.5. Effects of federal government regulation on the Company's activities

a. the need of a government authorization for the performance of activities and historical relationship with the public administration obtaining such permits

Our business, including the nature of the services we provide and the rates we charge, is subject to comprehensive regulation under the General Telecommunications Law and a comprehensive regulatory framework for the provision of telecommunications services promulgated by ANATEL.

ANATEL, which was created by the General Telecommunications Law on July 16, 1997, is the regulatory agency in charge of inspecting telecommunications services in Brazil, and it exercises its activities pursuant to the General Telecommunications Law and the ANATEL statute, as established by Decree 2,338 of October 7, 1997. ANATEL is administratively independent and is financially autonomous. However, it is required to report on a yearly basis on its activities to the Brazilian Ministry of Communications, the Brazilian Congress and the President of the Republic. ANATEL has authority to propose and issue regulations, subject to public comment pursuant to the law, that are legally binding on telecommunications service providers. ANATEL also has the authority to grant concessions and licenses for all telecommunications services, other than broadcasting services. Any regulation or action proposed by ANATEL is subject to a period of public comment, which may include public hearings, and ANATEL's decisions may be challenged administratively before the agency itself or through the Brazilian judicial system.

Concessions and Authorizations

General aspects

The right to provide telecommunications services is granted either through a concession under the public regime or a license under the private regime. A concession is granted for a fixed period of time following a public auction, and is generally renewable only once. A license is granted for an indeterminate period of time, and public auctions are held for some licenses. Concessionaires (public regime) are subject to requirements regarding quality of service, continual and universal access to their services, network expansion and modernization, and their rates are supervised by ANATEL. Licensees (private regime), although not generally subject to the requirements concerning continuity and universality of service and network modernization, are subject to certain network expansion and quality of service obligations set forth in their respective licenses.

Concessionaires also offer certain private-regime services, especially data transmission services.

Regulation of fixed-line telephony services

General policies for the regulation of the telecommunications industry

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In June 2003, Decree 4,733 established goals and guidelines for public telecommunications policies, including the universal access to telecommunications services, which consists of: ensuring all-inclusive individual access to at least one kind of telecom service, and at reasonable rates; ensuring all-inclusive access to the global computer network (Internet); catering to the needs of rural communities; fostering service development in order to improve and expand all-inclusive access to telecom services, under

fair and reasonable pricing and rate terms; fostering design and implementation of service rate pricing, reviewing and restatement policies to ensure that

service costs will consistently and fairly match service rates, subject to a carrier's right to negotiate alternative contractual terms in the event of hardship;

ensuring that the communities' needs will be properly catered to with regard to quality telecom services; and telecom services are to be organized in such way as to be socially inclusive.

The guidelines set forth in this decree reflected, in part, in the revision of concession agreements and several relevant regulations effective as of January 1, 2006.

In 2008 a new General Concession Plan (Decree No. 6,654/2008) was issued that lifted the ban on a carrier's or corporate group's ability to hold PSTN concessions in different Regions. Based on this new regulation, ANATEL granted its prior consent to the acquisition of a controlling interest in BrT by Telemar. This transaction was completed in December 2008.

A number of bills affecting telecommunications services have been submitted to the Brazilian Congress. These bills have proposed to (1) eliminate the monthly subscription fee for fixed-lines, which compensates telecommunications companies for extending and maintaining 24/7 fixed-line services for their customers, and (2) impose inexpensive fixed-line plans (the so-called ―social telephone‖) that PSTN carriers would be required to provide to certain eligible low-income residential customers. Even though these bills, once approved, may reduce the operating margins of the concessionaires, none of them has been approved to date.

Licenses (Private Regime)

With the goal of introducing competition in fixed-line services in Brazil, the federal government granted four private-regime licenses in 1999 to permit PSTN providers to compete with the incumbent fixed-line concessionaires. Three of these PSTN licenses were granted to providers of local and interregional long-distance services in the three fixed-line service regions determined in the General Concession Plan. The fourth license was granted for domestic and international long-distance services. Effective 2002, the limit on the number of PSTN licenses was lifted and currently there is a large number of PSTN carriers operating as licensees, including Embratel, GVT, TIM, and countless other smaller carriers. Licensee PSTN carriers are not bound by the same universal service goals as, and are subject to a substantially smaller number of obligations than concessionaires. We also obtained licenses to operate as a licensee PSTN carrier in areas and under regimes not applicable to concessionaires. As a result of the acquisition of our Company by Telemar, concession overlapping must be eliminated. This will lead to part of the existing licenses being cancelled.

Concessions (Public Regime)

Each of the PSTN providers operates under a concession agreement that will expire on December 31, 2025. In June 2003 ANATEL approved a new General Universal Service Plan and submitted to public consultation the draft concession agreements scheduled to become effective January 1, 2006 and other associated documentation, such as the General Universal Service Plan, that will also become effective on that date. The concession agreements may be amended in 2010, 2015 and 2020. As a result, in 2009 public consultations were called in connection with these new draft agreements, as well as for draft General Universal Service Plan and General Quality Goals Plan scheduled to become effective January 1, 2011. Every two years, beginning in 2006 and during the remaining term of their concession agreements, concessionaire carriers will be required to pay for renewal of their contracts a yearly amount corresponding to 2.0% of their net operating revenues derived from telecom services in the immediately preceding year.

2006 Concession Agreements

On June 2, 1998 the concessionaire carriers entered into PSTN Local and Long Distance Concession Agreements with ANATEL covering the states of Rio de Janeiro, Minas Gerais, Bahia, Ceará, Pernambuco, Espírito Santo, Pará, Rio Grande do Norte, Amazonas, Maranhão, Alagoas, Piauí, Paraíba, Sergipe, Amapá and Roraima.

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Old concession agreements expired on December 31, 2005. The new 2006 Concession Agreements entered into force on January 1, 2006 covering nation-wide local and long distance call telephony services. These agreements will govern such services for a term of 20 years. An integral part of each 2006 Concession Agreement is the PSTN General Universal Service Plan. This plan was introduced in Decree No. 4,769, published in the Federal Gazette on June 28, 2003, together with the General Quality Goals Plan and the General Competition Goals Plan. The latter two will be regulated by ANATEL.

The key changes introduced in the 2006 Concession Agreements are as follows:

old fixed-line pulse-based billing standard replaced by a new customer fixed-line minute-based billing standard;

new telecom industry rate restatement index and fixed-line rate adjustment methodology;

a new productivity metric has been introduced that can reduce the value of the index applied by telecom carriers to restate rates charged to their customers;

a fixed-line prepaid service plan offering subscription rates lower than those applying to the our basic plan for home users (Special-Class Individual Access – SCIA); and

obligation to set up customer service stations, including service stations at low-income communities. On the other hand, we were authorized to reduce the number of public telephones to be installed in fulfillment of Universal Service goals. In April 2008 the local concessionaires agreed to swap their obligation to set up

customer service bureaus for the obligation to provide backhauls (i.e. transmission networks connecting different cities) and IP connectivity at schools, as described below.

In April 2008 local PSTN concessionaires executed amendments to their 2006 Concession Agreements, waiving certain contractual provisions that set forth the new Universal Service goals to become effective in 2010. As a result, the Brazilian Executive branch issued Decree No. 6,424 setting out new Universal Service goals for local PSTN concessionaires. The new goals consist in installing backhauls (i.e. inter-city transmission networks) in a significant number of locations.

Still in respect of the goal swap, local concessionaires also agreed to make IP connectivity available in all local, state and federal urban schools in Brazil. This undertaking was made official in signed amendments to the Multimedia Communication Services authorization memoranda of each local concessionaire.

Until 2005, telephone calls were metered and charged by the pulse. In this system, customers were charged a single call connection fee, and again every four minutes after connection. With the 2006 Concession Agreements, a new billing methodology based on the length (in minutes) of calls was established in an attempt to provide customers with a more straightforward, transparent billing methodology. The goal of ANATEL in switching to a minute-based billing scheme was not to reduce rates, but rather that customers were provided with a more

transparent billing methodology.

With regard to the new restatement index, ANATEL began to employ a specific restatement methodology based on a mix of telecom service prices ("IST"). The IST provides a more consistent history of retail prices than the former inflation index used to restate prices in the telecom industry, the IGP-DI, which is used to track wholesale prices. In recent years, owing to the stability of the Brazilian currency, IGP-DI trends have closely reflected consumer-targeted indexes. This suggests that the difference between IST and IGP-DI may not reach a significant figure, as long as currency stability is maintained.

A new calculation method for the productivity discount metric (Factor X) was introduced in the 2006 Concession Agreements that is applied to limit telecom rate restatements as provided in the IST. According to the original concession contracts, ANATEL would enforce pre-determined productivity metrics in respect of each telecom concessionaire. In the 2006 Concession Agreements, however, the Factor X was changed and no longer determined based on arbitrary productivity metrics set by ANATEL, but rather through a method that now attempts to benchmark the productivity of a given carrier against the actual results obtained by all other concessionaires in the telecom industry. This new Factor X computation methodology was used in 2006 and 2007. Since 2008 the Factor X computation method is based on operating costs specific to the telecom industry.

The 2006 Concession Agreements introduced a special pre-paid fixed-line plan known as Special-Class Individual Access, or SCIA, that bills customers at lower subscription rates than the basic service plan. The goal of this SCIA is to allow for the ongoing provision of individual universal telecom access in low-income homes through specific terms and conditions, usage guidelines, billing, payment method, call treatment, service quality, and in pursuance of social responsibility objective. The SCIA plan is a low-cost fixed-line subscription alternative to home customers. Under this plan, customers are allowed a single fixed line per household only and cannot apply for additional fixed lines.

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The minute rate for calls originated under a SCIA plan is the same charged under the PSTN basic plan, except that it also includes a call connection charge equal to the value of two minutes. Sign-up and change-of-address costs are the same as under the household basic plan. Concessionaires can also offer post-paid service plans using the SCIA methodology.

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The table below shows the rates for the basket of Special-Class Individual Access services currently in effect:

(In R$)

Installation fee /

Change of address Subscription Rate per minute Connection rate

Concessionaires No tax Tax

included No tax Tax

included No tax Tax

included No tax Tax

included

Brasil Telecom/SC 36.53 51.19 17.44 24.44 0.07782 0.10906 0.15564 0.21813

Brasil Telecom/PR 7.18 10.66 17.47 25.93 0.07782 0.11554 0.15564 0.23109

Brasil Telecom/MS 27.22 40.41 17.43 25.87 0.07782 0.11554 0.15564 0.23109

Brasil Telecom/MT 27.03 40.73 17.34 26.13 0.07782 0.11728 0.15564 0.23457

Brasil Telecom/GO 19.69 29.23 17.44 25.89 0.07782 0.11554 0.15564 0.23109

Brasil Telecom/DF 13.14 18.41 17.47 24.48 0.07782 0.10906 0.15564 0.21813

Brasil Telecom/RO 110.73 180.48 15.87 25.86 0.07782 0.12684 0.15564 0.25369

Brasil Telecom/AC 101.00 141.55 15.97 22.38 0.07782 0.10906 0.15564 0.21813

Brasil Telecom/RS (CRT)

67.54 94.66 17.32 24.27 0.07782 0.10906 0.15564 0.21813

Brasil Telecom/RS (CTMR)

31.69 44.41 17.53 24.56 0.07782 0.10906 0.15564 0.21813

The 2006 Concession Agreements mandated that concessionaires should ensure number portability, pursuant to the regulation in force.

Public-regime service rates

Pursuant to the concession agreements, PSTN concessionaires of local services must offer a basic service plan that includes (1) installation, (2) monthly subscription, (3) change of address, (4) included minutes for fixed-line-to-

fixed-line calls, and (5) included minutes for fixed-line-to-mobile calls. Under PSTN concession agreements, there are 16 rates for domestic long-distance fixed-line calls. These rates vary according to (1) physical distance separating callers, (2) time of the day, and (3) day of the week the call is made. Rates charged for fixed-line-to-mobile calls vary depending on the location of the fixed-line caller, the registration area of the mobile recipient, and the time of the day and day of the week the call is placed. Local calls to fixed-lines originating in public telephones are charged every two minutes according to the rates set out in the concession agreements. Likewise, the rates for international long-distance services provided by Embratel, the incumbent international long-distance concessionaire, are regulated by the concession agreement. However, the rates charged by other PSTN providers, which operate under licenses rather than concessions, are not subject to ANATEL regulation.

The concession agreements establish a price-cap for annual rate adjustments for basic PSTN service plans based on a formula set forth in the concession agreements. The formula provides for rate adjustments based on the IST inflation index (telecommunications services index) as ascertained by ANATEL, applied over a basket containing the key items of the basic plan (monthly subscription, included minutes). The formula also has a transfer factor (Factor X), which reduces the rate according to the productivity ascertained pursuant to another formula, created by a Resolution by ANATEL. The rates charged for individual services included in the basic service mix can be increased provided that the average weighted increase applicable to the whole basic service mix does not exceed IST less Factor X. A provider may increase rates for any specific service by up to 5% for local fixed-lines and long-distance

services provided that the rates for other services in that rate basket are reduced to the extent necessary to ensure that the weighted average increase for the entire rate basket does not exceed the permitted annual rate adjustment.

We may also offer alternative plans in addition to the basic service plan. Alternative plans must be submitted for ANATEL‘s approval. The rates offered under the alternative plans may be adjusted annually based on the IST, without applying the productivity factor.

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General Universal Service Plan

The General Universal Service Plan was approved by ANATEL in June 2003 and became effective in January 2006. The General Universal Service Plan sets forth the principal network expansion and modernization obligations of the public regime providers, such as providing public telephones in localities with a population in excess of 100, and installing residential fixed-lines within seven days of a request in localities with a population in excess of 300.

An additional network expansion requirement included in the 2006 Concession Agreements has to do with the obligation imposed on concessionaires to set up public telecom stations that serve as business centers for low-income communities. Such centers must provide: (i) at least four (4) Internet-enabled computers for public use; (ii) at least four (4) telephones for public use; (iii) a fax machine; and (iv) service support from 8:00 a.m. to 8:00 p.m., seven days a week.

Additionally, concessionaires must offer the Special-Class Individual Access (SCIA), a fixed-line plan with a subscription fee lower than that charged for household-class subscriptions under the basic plan, but without included minutes. All SCIA-generated traffic is prepaid traffic.

Failure to comply with the universal service goals can render concessionaire carriers liable to pay up to R$50 million in fines to ANATEL.

In 2008, Decree No. 6,424 replaced the Universal Service goals for the obligation to install PSTN support network infrastructure for broadband access. This infrastructure would connect access networks to the concessionaires' backbones, in accordance with such schedule and capacity requirements as set out in the foregoing decree.

No subsidy nor any other financing mechanism have been implemented to fund and support the investments required to satisfy the General Universal Service Plan. Notwithstanding, introduction of additional goals must identify each respective source of funding.

In 2009 ANATEL called for a public consultation in respect of a proposed draft General Universal Service Plan to become effective January 1, 2011. The outcome of this consultation is pending review by the regulatory agency, however it must be stressed that a recent initiative of the federal government to launch a National Broadband Plan, also under review by several departments and organizations within the Executive branch, is expected to influence certain goals that are going to be included in the proposed General Universal Service Plan. As mentioned above, each new goal introduced must identify the respective source of funding. In the proposed draft submitted for public consultation, ANATEL reduced the minimum mandatory public telephone density aiming at freeing up funds and direct them to other commitments.

Unbundling of Local Fixed-line Networks

In May 2004, ANATEL established some terms and conditions so local fixed-line networks are shared among telecommunications service providers.

This unbundling process requires local fixed-line networks to be shared among providers; therefore, telecommunications service providers must make their networks available to other providers. This order (1) establishes a deadline for providers to comply with the order to provide such access, (2) limits the rates service providers can charge for line sharing and full unbundling of services, (3) addresses related matters such as co-location space requirements, and (4) requires a public offer for full unbundling (with no price cap). This regulation was designed to increase competition in the local fixed-line and broadband internet access markets by making it easier for new telecommunications service providers to enter this market. In practice, this has not occurred. Instead, competition developed in other networks (cable TV and mobile networks), or through the duplication of infrastructure.

Service Limits

As mentioned elsewhere, concessionaire carriers are subject to several restrictions, specially in respect of providing additional services other than those included in their original concession scope. Until 2008 a restriction existed preventing acquisition of a controlling interest in concessionaires located in other geographic areas under the General Concession Plan. This restriction was mitigated in November 2008 following the enactment of Decree No. 6,654, which introduced the new General Concession Plan and allowed for the acquisition of BrT by Telemar.

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A restriction remains, however, that forbids concessionaire sister companies from providing cable television services.

Termination of a Concession

ANATEL may terminate the concession of any public regime telecommunications service provider upon the occurrence of any of the following:

no renewal upon expiration;

expropriation: an extraordinary situation jeopardizing the public interest, in which case the Brazilian government is authorized to start rendering the services set forth under the concession in lieu of the concessionaire, subject to congressional authorization and payment of adequate indemnification to the owner of the terminated concession;

termination by the provider (through an agreement with ANATEL or pursuant to legal proceedings) as a consequence of an act or omission of the Brazilian government that makes the rendering of the services excessively burdensome to the provider;

annulment of the concession due to a contractual term, which is deemed by subsequent law to be illegal;

material failure to comply with the provider‘s universal service targets or insurance requirements provided for in the concession agreement;

forfeiture;

a split-up, spin-off, amalgamation, merger, capital reduction or transfer of the provider‘s control without ANATEL‘s authorization;

transfer of the concession without ANATEL‘s approval;

an extraordinary situation in which Brazilian government intervention, although legally permissible, is not undertaken, as such intervention would prove to be inconvenient, unnecessary or would result in an unfair benefit to the provider. In the event a concession is terminated, ANATEL is authorized to administer the provider‘s properties and its employees in order to continue rendering services; and

dissolution or bankruptcy of the provider.

In the event a concession is terminated, ANATEL is authorized to administer the provider‘s properties and its employees in order to continue rendering services.

Quality of Service – General Quality Goals Plan

The General Quality Goals Plan was approved by ANATEL in June 2003 and became effective in January 2006. Each fixed-line service provider operating under the public regime or the private regime must comply with the provisions of the General Quality Goals Plan in addition to the terms and conditions of the relevant concessions and authorizations. All costs related to compliance with the quality goals established by the General Quality Goals Plan must be borne exclusively by the service provider. The General Quality Goals Plan establishes minimum quality standards with regard to:

responses to repair requests;

availability of services to customers;

quality of public telephones;

operator availability;

personal services to customers;

issuance of billing statements;

responses to change of address requests;

modernization of the network; and

responses to mail received from customers.

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These quality standards are measured according to the definitions and quality indicators established by ANATEL. Every month, fixed-line service providers are required to report their compliance with quality goals to ANATEL. Additionally, they are obligated to provide ANATEL with an in-depth report and analysis on each quality goal that is not satisfied. ANATEL may also collect such data from fixed-line service providers at any time without prior notice.

Fixed-line service providers that fail to meet quality goals established by ANATEL may be subject to warnings, fines, intervention by ANATEL, temporary suspensions of service or cancellation of their concessions and authorizations.

ANATEL measures our performance in each individual State in which we operate. As a result, our performance in any particular State may not meet one or more quality performance targets even our overall performance is satisfactory. In this case, we if we fail to meet the quality of service goals in one or more States, we may be subject to fines and penalties of up to R$40 million.

The new draft General Universal Service Plan was submitted to public consultation in 2009. The new plan is scheduled to take effect in 2011.

Mobile Personal Service regulation and rates

In September 2000 ANATEL introduced certain policies to regulate mobile personal services ("MPS"). These policies were updated in 2002 and 2007. In 2003 all carriers migrated from the old Mobile Wireless Service ("MWS") to the MPS. As with fixed-line telephony, the MPS General License Plan ("GLP") divides Brazil into three

different regions, each corresponding respectively to Regions I, II and III of the public switched telephone network.

A total of four nation-wide and three regional carriers currently operate wireless bands auctioned by the regulatory agency.

In 2007 and 2008 ANATEL auctioned the frequencies that are going to be used with third-generation (3G) MPS. Winning bidders are subject to certain scope requirements which, among other things, call for provision of MPS in the seats of all 5000 Brazilian municipalities, third-generation services in all localities having more than 100,000 inhabitants and also in a significant portion of smaller municipalities.

Carriers holding authorization to provide MPS may define, at their own discretion, what rates will be charged for their wireless telephony services, provided that such rates are tied in existing service plans authorized by ANATEL and that they are restated yearly based on official restatement indexes.

Auction of the 3G Spectrum

In preparation for auctions of spectrum in Bands F, G, I and J (2.1 GHz), ANATEL issued regulations that divide the Brazilian territory into nine regions for purposes of operations using these frequency bands. In December 2007, ANATEL auctioned radio frequency licenses for operation and use of each of these frequency bands in each of the

nine regions. In this auction, we acquired the radio frequency licenses necessary to offer 3G services in two of the nine regions (corresponding to Region II under the personal mobile services regime). The use of these frequency bands will allow personal mobile service providers to offer 3G services to their customers.

According to the auction rules, carriers must serve 25% of non-served municipalities included in each batch acquired in the auction within 2 years. In complying with the foregoing requirement, carriers may offer second-generation (GSM) wireless services.

Fines and penalties

Failure to comply with network expansion and modernization requirements included in the list of obligations assigned to our Company may result in the imposition of fines and penalties up to R$50 million, plus forfeiture of authorization. Failure to comply with service quality requirements included in the list of obligations assigned to our Company may result in the imposition of fines and penalties up to R$40 million.

Obligations of Personal Mobile service providers

In August 2007, ANATEL adopted revisions to the personal mobile services regulations that became effective in February 2008. These revised regulations imposed additional obligations on personal mobile service providers, particularly in connection with customers‘ rights. These obligations require personal mobile service providers to:

establish at least one customer service center in each registration area served that has more than 100,000 inhabitants;

upgrade customer service centers to improve access by people with hearing disabilities;

increase the term applicable to prepaid cards from 90 to 180 days or more;

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provide prepaid customers with a detailed report of service use upon request;

reimburse unused pre-paid credits;

limit the duration of contracts with prepaid customers to 12 months;

permit customers to change service plans without penalties;

unlock mobile handsets so that customers may use their purchased handsets with other wireless carriers' service plans; and

implement partial service suspension at 15 and 45 days from default before total service suspension.

Interconnection Rates

The general interconnection rules are described in the General Interconnection Regulation approved by ANATEL. Under the General Telecommunications Law, all telecommunications service providers are required, if technically feasible, to make their networks available for interconnection on a non-discriminatory basis whenever a request is made by another telecommunications service provider. ANATEL ratifies interconnection rates charged by fixed-line concessionaires on an annual basis, while interconnection rates of wireless networks are agreed upon, also on an annual basis.

In 2006 the termination fees concessionaires may charge for the use of their local networks were limited to 50.0% of the public rate under the local basic plan. Based on the rates charged for local calls in Region I, the relevant restriction led to a reduction of 27.0% in the termination charged to other carriers for the use of our network while terminating calls originated in the networks of these other carriers. In 2007 this limit fell to 40.0% of the public rate under the local basic plan. This latter limitation led to an additional reduction of 20.0% in termination fees charged to other carriers for the use of our access network. Initially, the expectation was that beginning in 2008 the methodology used to determine these termination rates would be based upon the actual operating costs of telecom carriers. However, in October 2007 the proposed change was postponed to 2010.

Transition from Bill-and-Keep to Full Billing System

Prior to July 2006, a personal mobile service provider was only required to pay interconnection fees to another personal mobile service provider for traffic in the same registration area that exceeded 55% of the total traffic between the providers in the respective registration area.

In July 2006, ANATEL adopted new regulations under which personal mobile service providers must pay 100% of the remuneration for the intraregional traffic originating in its own network.

Regulation of Interconnection Rates Charged by Providers with Significant Market Power

ANATEL has issued regulations defining a series of cost-based methods, including the fully allocated cost methodology, for determining interconnection fees charged by telecommunications service providers belonging to economic groups with significant market power. All incumbent fixed-line service providers and all personal mobile service providers are deemed by ANATEL to belong to economic groups with significant market power until ANATEL finalizes its evaluation of each provider according to the following criteria:

that provider‘s market share in the mobile interconnection market and in the personal mobile services market;

the economies of scope and scale available to that provider;

that provider‘s dominance over infrastructure that is not economically viable to be duplicated;

the existence of that provider‘s power to negotiate the acquisition of equipment and services;

the existence of vertical integration in that provider‘s operations;

the existence of barriers to entry in the mobile interconnection market and the personal mobile services market served by that provider; and

that provider‘s access to funding sources.

In 2007, ANATEL developed a cost-based methodology that is expected to take effect in 2010 to determine reference values for the VU-M rates of mobile service providers having significant market power, which will be used in cases of arbitration by ANATEL on VU-M rates. In 2008, mobile service providers began providing ANATEL with annual operating data, which is intended to support ANATEL‘s cost-based methods for determining interconnection fees .

New 2008 Regulations

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Ten years after privatization of the Telebrás System, and following revision of the concession agreements, the General Universal Service Plan, and the General Quality Goals Plan, among others, the General Concession Plan needed to be updated and thus more closely reflect international competition and technologic developments.

In October 2008 ANATEL published the General Brazilian Telecommunication Regulation Revision Plan ("General Revision Plan"), which laid out planning standards for regulations to be issued in short-, mid- and long-term timeframes. The General Revision Plan covered regulations such as, without limitation, the General Concession Plan, the General MPS Authorization Plan, the General Competition Goals Plan, and the restructuring of ANATEL. The following are some key short-term actions included in Resolution No. 516 dated October 30, 2008, scheduled to be implemented on a 2-year schedule:

revision of the General Concession Plan focusing on groups that control PSTN local concessionaires (this has already been implemented);

revision of the General Quality Goals Plan setting out customer perception-driven quality standards, inspection improvements and addressing customer complaints;

revision of concession agreements focusing, among other aspects, on reviewing the terms and conditions applicable to provision of cable TV services by any group holding control of local concessionaires in the concession area, in compliance with the laws then in force;

revision of PSTN regulations in order to adapt them to a new convergent telecom scenario;

drafting of the General Competition Goals Plan;

revision of the General MPS Authorization Plan in order to adapt it to a new telecom scenario in keeping with the notion of Group;

opening of radio frequencies for the purpose of enabling mass fixed and mobile broadband access (new bands were offered, such as 450MHz, 2.5GHz, 3.5GHz and MPS unassigned bands);

regulation of services focusing on increased availability and competition, enabling retail business models for PSTN services, Multimedia Communication Services, and for providing satellite capacity, as well as operation of virtual companies in MPS retail;

regulation of telecom network element unbundling (full unbundling, line sharing and bitstream) and implementation of a network usage pricing model;

streamlined implementation of a cost model, including broadband access;

revision of cable TV service concession regulations and planning in order to meet the new concession backlog

within Brazilian jurisdictions, including in least attractive locations;

regulation of Significant Market Power (SMP) situations;

updating regulations to eliminate a requirement that had authorized carriers obtain the prior consent of ANATEL before making less important contractual changes;

lay out specific terms and conditions in future public biddings to enable expanded coverage of access networks, including broadband networks, in rural or border areas, using wireless network and satellite resources;

revision and implementation of MCS regulations, i.e. quality, numbering, compensation for network usage and consumers' rights;

revision of the General Universal Service Plan to include new goals covering expansion of PSTN networks in support of broadband access (use of backhauls, i.e. inter-city transmission networks); and

carry out studies to identify the impact of functional, corporate and structural separation.

Regulatory inconsistencies existing until late 2008 prevented merging among PSTN concessionaires operating in different Regions covered in the General Concession Plan, although several business combinations have already occurred in the industry, specially in the mobile and cable TV segments. As mentioned above, in November 2008 the new General Concession Plan was introduced via Decree No. 6,654, which allowed for the ability of a same economic group to own PSTN concessionaires in up to two Regions. The new General Concession Plan allowed our company to acquire a controlling interest in BrT.

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a. the need of a government authorization for the performance of activities, and the issuer’s historical relationship with the public administration obtaining such permits

We hold the following concessions and licenses:

10 concessions granted to our company to provide domestic long-distance services in Region II (except for excluded areas in the States of Goiás, Mato Grosso do Sul and Paraná);

authorizations granted to BrT Celular to provide personal mobile services in Region II;

radio frequency licenses granted to BrT Celular to provide 3G mobile services in Region II;

authorizations to provide international long-distance services originating from any location in Brazil; and

authorizations to provide Multimedia Communication Services (Serviço de Comunicação Multimídia) throughout Brazil.

These concessions and authorizations allow us to provide specific services in designated geographic areas and set forth certain goals we must meet.

Below you will find further detail on our historical relationship with the public administration to obtain such licenses.

Fixed-line and domestic long-distance services concession agreements

We hold 10 concessions covering domestic long-distance services in Region II (except sectors 20, 22 and 25, which correspond to small localities in the states of Goiás, Mato Grosso and Paraná).

These concession agreements were entered into with ANATEL and govern concessions of fixed-line and domestic long-distance services in the Federal District and in each of the states comprised in Region II. Each of these concession agreements:

expires on December 31, 2025;

sets out terms and conditions governing restatement of our rates for fixed-line and domestic long-distance telephony services;

requires our company to meet certain network expansion goals set out in the General Universal Service Plan;

requires our Company to meet certain service quality goals in addition to the goals set out in the General Quality Goals Plan; and

requires that every two years our Company pays a fee equal to 2.0% of our net operating revenues derived from local fixed-line and domestic long-distance services (net of taxes and the social contribution), as applicable, in the immediately preceding year.

These fixed-line service concession agreements required us to render services in public telecommunications offices that serve as business centers for low-income populations. In April 2008, the concession agreements were amended to remove the obligation to construct new public telecommunications offices and replace this obligation with obligations to provide (1) transmission lines connecting our fiber-optic internet backbones to municipalities in our concession area that had no internet service, which we refer to as backhaul; and (2) Internet service to schools located in urban areas. In view of these changes, we are now required to implement backhauls in 452 municipalities and provide Internet services to 15,099 urban schools in Region II. We were required to implement backhauls in 40.0% of these municipalities and provide Internet services to 40.0% of such schools by or before December 2008. However, our obligation to implement backhauls is contingent upon the outcome of a lawsuit filed to establish concession-asset status of certain facilities built for the purpose of implementing backhaul functionality, and as such transferable to the Union upon expiration of the relevant concession contracts. Thus, owing to changes made to the concession agreement, the applicable deadlines were modified and we (1) had to provide, by or before December 2009: Backhauls in 80.0% of municipalities and Internet services to 80.0% of said schools; and (2) shall

provide, by or before December 2010: Backhauls in all municipalities and Internet services to all said schools.

These concession agreements provide that ANATEL may modify their terms in 2010, 2015 and 2020 and may revoke them prior to expiration under certain circumstances. The modification right permits ANATEL to impose new terms and conditions in response to changes in technology, competition in the marketplace and domestic and international economic conditions. ANATEL is obligated to engage in public consultation in connection with each of these potential modifications.

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We are currently discussing amendments to our concession agreements with ANATEL. On March 30, 2009, ANATEL published a public notice of the proposed modifications to these concession agreements. In this public notice, ANATEL proposed an amendment to the General Universal Service Plan that would require (1) the expansion of the fixed-line network to all municipalities with population in excess of 30,000; (2) the provision of services to a large number of additional areas, including indigenous villages, rural schools, health clinics, military bases, federal and state highway police stations, public aerodromes and environmental conservation organizations; and (3) fixed-line concessionaires to install approximately 110,000 additional public telephones. This figure can be reduced as a result of ongoing changes to ANATEL regulations, which reduce the required number of inhabitants per public telephone booth. The public consultation period in connection with the March 30, 2009 public notice ended on June 22, 2009, but the final amendments to our concession agreements have not yet been determined. The final modifications will become effective on January 1, 2011.

Local PSTN Service Authorization Memorandum

In August 2002 ANATEL issued a memorandum authorizing our Company to provide local PSTN services in Region II.

PSTN services use telephony processes to establish telecommunications between set fixed points and enable transmission of voice and other signals. The memorandum authorizes us to implement, expand and operate trunks, networks and telephone exchanges in connection with the relevant authorization, as well as to operate the PSTN in industrial scale as provided in the applicable regulations.

The amounts paid in compensation for such authorizations are included in the sum paid for the license to operate MPS as stated in Authorization Memorandum No. 001/2001/SPV-ANATEL. These authorizations are not subject to expiration, they are rather terminated by forfeiture, lapsing, decline, relinquishment or cancellation.

Personal mobile services authorization agreements and radio frequency spectrum licenses

In 2001, ANATEL carried out a bidding for the granting of authorizations to companies that intend to provide mobile telephony services within the scope of the Personal Mobile Service. In this process, BrT Celular was authorized to provide personal mobile services in Region II. These authorizations permit us to provide personal mobile services for an indeterminate period of time, but do not provide us with the right to use specific radio frequency spectrum.

We hold licenses to use radio frequency spectrum in specific geographic regions. These licenses grant us permission to use the applicable radio spectrum for 15 years from the date of grant and are renewable for additional 15-year terms. We will be required to pay an amount equal to 2.0% of the prior year‘s net operating revenue from personal mobile services upon renewal of the license and on every second anniversary of the renewal. The radio frequency spectrum licenses expire between 2017 and 2022.

Our authorizations are subject to network scope and service performance obligations set forth in these authorization agreements. Our failure to meet these targets may result in the imposition of penalties established in ANATEL regulations and, in extreme circumstances, in termination of our personal mobile service licenses by ANATEL.

In August 2007, ANATEL adopted a revision of the personal mobile services regulations that became effective in February 2008. These revised regulations imposed additional obligations on personal mobile service providers, in particular in connection with customers‘ rights.

3G radio frequency licenses

We have been granted radio frequency licenses by ANATEL that govern the use of the frequencies necessary for BrT Celular to provide 3G services in Region II. Each of these licenses grants us permission to use the applicable radio spectrum for 15 years from the date of grant and is renewable for additional 15-year terms. We will be required to pay an amount equal to 2.0% of the prior year‘s net operating revenue from personal mobile services upon renewal of the license and on every second anniversary of the renewal. These licenses expire in 2023.

These radio frequency licenses include network scope obligations. Regarding Region II, we are required to provide the services listed below. To date, all services have been provided within the deadlines and pursuant to the requirements, as follows:

serve 168 municipalities, that currently have no mobile services, with either 2G or 3G mobile telecommunications services. Half of these municipalities must be served up to April 2009 and the remainder, before April 2010;

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provide 3G services to all state capitals, the Federal District and all municipalities with a population in excess of 500,000 up to April 2010;

provide 3G services to all municipalities with a population in excess of 200,000 by April 2012;

provide 3G services to (1) all municipalities with a population in excess of 100,000 and to (2) 50% of the municipalities with 30,000 to 100,000 inhabitants by April 30, 2013;

provide 3G services to 60% of the municipalities with a population in excess of 30,000 by April 2016; and

provide 3G services to 242 municipalities with a population of less than 30,000 by April 30, 2016.

A municipality is considered "served" when the covered service area contains at least 80% of that municipality‘s urban area. Our failure to meet these targets may result in the imposition of penalties established in ANATEL regulations and, in extreme circumstances, in termination of our personal mobile service licenses by ANATEL.

Auction of the 3G Spectrum

In preparation for auctions of spectrum in Bands F, G, I and J (2.1 GHz), ANATEL issued regulations that divide the

Brazilian territory into nine regions for purposes of operations using these frequency bands. In December 2007, ANATEL auctioned radio frequency licenses for the provision of 3G services within these nine areas. In this auction, BrT Celular acquired radio frequency licenses in two of the nine regions (corresponding to Region II under the personal mobile services regime). The use of these frequency bands will allow personal mobile service providers to offer 3G services to their customers.

Multimedia communication services authorizations

In May 2003, ANATEL granted us a Multimedia Communication Services authorization, together with the corresponding spectrum license, permitting us to provide high speed data service in Region II.

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Road mobile telephony service authorization memorandum

In July 1998 ANATEL signed certain memoranda with each predecessor companies, authorizing them to operate road mobile telephony services. With the spin-off of Telebrás, the exploration of road mobile telephony services in each state was assigned to the respective concessionaires.

Road mobile telephony services enable mobile handsets located in public and freight transportation vehicles to communicate among each other and with other telecom service subscribers.

The relevant authorizations have no expiration date, but their effectiveness is dependent upon compliance with certain requirements set out in each authorization memorandum and with the rights of users of the authorized service.

b. Issuer's environmental policy and costs incurred to comply with environmental regulations and, if applicable, with other environmental practices, including the adhesion to international environmental protection standards

The environmental licensing process in Brazil is governed primarily by Resolution No. 237/97 issued by the National Environment Council ("CONAMA"). Annex I of Resolution No. 237 lists those activities that are subject to environmental licensing requirements. The list classifies activities according to their effective or potential polluting status and whether they can cause environmental degradation. Provision of telecom services is not listed among those activities of Annex I. Therefore, we are in compliance with the applicable environmental regulations prevailing in Brazil, including in respect of our assets (real properties).

Our parent company, Tele Norte Leste Participações S.A., and its subsidiaries adopt as policy to promote ethics, corporate governance, transparency and social and environmental responsibility in their relationships with suppliers, customers, shareholders and communities by committing to:

promote, implement and propagate sustainable development initiatives as part of continued investment strategies;

engage ethical and fair marketing and advertising practices that respect consumers, citizens, and the environment;

establish and enforce best corporate governance practices to honor the commitments we made to our shareholders;

comply with any and all legal requirements applying to our businesses;

ban any and all practices related to child labor, sexual abuse of children and teenagers, slave-like, forced or mandatory labor, discrimination, or illegal punishment;

use water and energy resources in a conscientious, controlled and managed fashion by replacing obsolete equipment in order to achieve better resource performance;

whenever possible, reduce, reuse or recycle the waste we generate;

raise the awareness of employees and business associates concerning the importance of our relationship with the environment; and

create mechanisms to resolve conflicts of interests without harming the collective interests of our society.

In addition to the sustainability commitments undertaken, in August 2009 Tele Norte Leste Participações S.A. signed up and joined the Global Compact. The Global Compact initiative aims at encouraging worldwide business communities to adopt fundamental and globally accepted values in the areas of human rights, labor relations, the environment and anti-corruption in their business practices.

c. dependence on patents, trademarks, licenses, concessions, franchises, royalty agreements that are relevant to the development of its activities

We understand the brands described in item 9.1.b of this Form are of material importance for the performance of our activities.

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7.6. Material revenues originating in foreign countries.

a. revenues derived from customers in the issuer’s home country, and these same revenues as a ratio of the issuer’s total net revenues

We do not derive material revenues from countries other than Brazil.

b. revenues derived from customers in each foreign country, and these same revenues as a ratio of the issuer’s total net revenues

Not applicable.

c. total revenue derived from foreign countries, and these same revenues as a ratio of the issuer’s total net revenues

Not applicable.

7.7. Inform the extent the issuer is subject to foreign regulation, and how it affects the issuer’s business

We are not subject to foreign regulations.

7.8. Description of the issuer’s material long-term relationships that are not included elsewhere in this Reference Form

Our long-term relationships are mainly the concession agreements and licenses to provide telecommunications services, granted in the public or private regime by the Federal Government. These agreements and licenses are described in item 7.5.a of this Form.

We also have material long-term relationships with our subsidiaries, described in item 16.2 of this Form.

7.9. Other material information

Our Strengths and Competitive Edges

We believe our key strengths and competitive edges are as follows:

Strong Presence in Relevant Markets

Grupo Oi is the single largest Brazilian telecommunication group in terms of gross revenues, according to data provided by Teleco. It is the opinion of Grupo Oi that its position as fixed-line service concessionaire of Region II represents a strong competitive factor, whether because of the relevant geographical area or the scale of its operations. Grupo Oi's integrated telephony carrier operations span over almost the entire Brazilian territory (except for the State of São Paulo and the regions under concession of CTBC and Sercomtel). Grupo Oi offers mobile telephony services throughout the country, including in the State of São Paulo. It is the opinion of Grupo Oi that the domestic backbone interconnection with the United States introduces important advantages in the corporate market.

Wide ―Oi‖ Brand Recognition

In February 2007 Telemar announced that the company would combine all of its products and services under one single brand: the Oi brand. It is the opinion of Grupo Oi that brand unification promotes significant consistency in advertising Oi's products and services to the market, thus resulting in strong recognition of its service mix and also in potential growth of share in its several markets through service convergence, ease of use and effectiveness. Furthermore, it is the opinion of Grupo Oi that the robustness and recognition of the Oi brand in Brazil will be of utmost importance in furtherance of its businesses in the mobile telephony market of Region II.

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Strong Financial Position and Cash Generation

The Brazilian telecommunication industry has undergone a significant consolidation process in recent years. This consolidation process led to the establishment of four large conglomerates (Oi, Vivo, Claro and TIM), according to data provided by ANATEL. It is the opinion of Grupo Oi that the recent acquisition of the Company will ensure scale, national coverage and operating and financial robustness to compete in the Brazilian telecommunication industry, and enable the group to leverage economies of scale obtained to achieve cost savings and expand and integrate the mix of services offered in the market.

Furthermore, fixed-line service operations represent a major source of revenues that Grupo Oi uses to comfortably manage its financial commitments, and that provide leverage that adds increased value to its shareholders and a flow of investments to secure its long-term growth.

Integrated Services

Grupo Oi provides fixed-line, mobile and broadband services through integrated service bundles under the Oi brand. It is the opinion of Grupo Oi that its convergence strategy based on the offer of integrated service bundles results in increased customer loyalty and therefore in lower churn rates associated with certain services. Moreover,

total convergence is a factor not reproducible by current competitors of Grupo Oi in Brazil in regard to customer retention. In addition, total convergence also introduces the possibility of employing upselling/cross-selling strategies. Grupo Oi will deploy this integrated services differentiator strategy in Region II aiming at operating with a single portfolio. It is the opinion of Grupo Oi that there is great room for expansion of this kind of service offering in this region.

Highly telecom-industry experienced management team

Grupo Oi believes that its businesses are led by recognized professionals with vast expertise in the telecommunications industry. The top management at Grupo Oi has made a substantial contribution to secure and establish the group's position as the leading integrated telecom services provider in Region II. Furthermore, the top management of Grupo Oi plays an important role in strengthening the group's service portfolio through strategic mergers, such as that of our Company. This strategy allows Grupo Oi to more effectively compete in its industry and carry on with its business expansion and growth plans.

Strategy

The initiatives implemented by Grupo Oi aim at securing a leading position to the group's businesses in the domestic market and adding value to its shareholders. The management style of Grupo Oi is marked by a set of actions that provide guidance and support in the group's quest for success. All initiatives of Grupo Oi reflect the positions of its management team, which are grounded in swiftness, simplicity and directness.

Our general strategy has been designed to help maintain a leading position in the regions where we conduct our businesses, consolidate national leadership, increase competitiveness and improve the group's financial performance to afford increased added value to shareholders. To achieve these goals, the strategy centers around five key points as follows: (i) maintain focus on convergence; (ii) increase offering of broadband services; (iii) engage in new businesses and markets; (iv) explore opportunities for growth as a domestic carrier; and (v) improve cost efficiency and control while maintaining service quality.

Maintaining Focus on Convergence

It is the opinion of Grupo Oi that convergence of media and services is a general trend in the global telecom industry. Through convergence, market players that until then focused on a single segment or network type now have the ability to offer services from other segments. In addition to ease of use, this strategy translates in an array of benefits for consumers.

According to data provided by ANATEL, Telemar pioneered the offer of fixed-line-mobile convergence in the Brazilian market through integration of its operations and offers. Together with such transition, we also changed our market approach to place greater focus on customers rather than on products. The goal of this approach is to offer tailored services that better suit the needs of each consumer. Grupo Oi began to offer service bundles

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consistent with the real needs of its customers by integrating fixed-line, mobile, and broadband services with other data applications.

In addition to being an important synergy driver, thus reducing operating costs and the need for investments, this convergence strategy creates potential for increased revenues through a cross-sales approach, which may also translate into lower acquisition costs. Still, the offering of integrated bundles can lead to increased loyalty of our customer base. This has a direct impact on the churn rate associated with certain services.

In July 2009 Grupo Oi introduced its own satellite cable TV services. In addition to capturing value by tapping into a market that was not served at the time, this move is critical to the strategy that builds on the offering of complete service bundles to increase benefits extended to Grupo Oi's customers, and also to maintain the group's competitiveness relative to services offered by its competitors, particularly cable TV companies.

Increase the offering of broadband services

Grupo Oi launched its own set of broadband services in 2001. As of now, such services are provided through fixed-line networks in over 2.8 thousand municipalities in Regions I and II and in several locations of all three regions through third-generation wireless networks. Grupo Oi anticipates that the current penetration of broadband services relative to the total number of households is suggestive of a high potential for growth in short and mid

terms.

As of December 31, 2009, Grupo Oi had over 4.1 million broadband subscribers (including fixed-line and wireless broadband services). This figure represents a 12.5% increase year-on-year.

The broadband services (Oi Velox) offered by Grupo Oi are among its chief revenue drivers. The broadband market is perceived by Grupo Oi as a strategic one, whether for its rapid growth rates, whether for the perceived importance of broadband capability as a means of enabling other communication services that are likely to experience intense customer demand as our develops into a full-fledged information society. In this context, Grupo Oi has been focusing on offering higher speeds and increasing the coverage of its broadband services. Grupo Oi expects to achieve 100% municipality coverage in Regions I and II by late 2010, and has plans to expand its ultra broadband project in several capital cities, in the same way as the 2009 service roll-out in Recife.

New Businesses and Markets

Grupo Oi has over 60 million RGUs (Revenue Generating Unit) in Regions I, II and III, all served under a single brand (Oi) that provides convergence, ease of use and an assorted portfolio comprising a range of services to its customers. Despite its broad presence in the telecommunications industry, Grupo Oi expects to increasingly seek

engagement in new businesses owing to declining growth rates of conventional businesses and the advancement of players from adjacent markets. Grupo Oi continually reviews new business opportunities in the telecommunications industry and in key adjacent segments, such as Internet, IT, and others, that show potential for creating synergies with the group's current businesses. In doing so, Grupo Oi expects to secure and leverage new sources of revenue and strengthen its position in both the domestic and foreign telecom arenas. Key examples of the group's initiatives in this respect are cable TV services and payment method services.

Exploring Growth Alternatives as Domestic Carrier

Mobile Services

Introduced in June 2002, Telemar's mobile operations were intensely focused on customer acquisition through special service offers and handset subsidies until 2005. This marketing strategy secured Oi's leading market position in Region I. The wide range of GSM handsets available in the market allowed Grupo Oi to shift its strategy and reduce handset subsidies, specially in respect of the prepaid service segment. On the other hand, the offering of integrated service bundles in the post-paid segment has allowed Grupo Oi to increase loyalty in a large portion of its customer base, thus reducing average churn rates and the ensuing costs with customer acquisition and

retention. Together, these two initiatives allowed Telemar achieve an operating margin level that was among the highest seen in the Brazilian market in 2007. Grupo Oi intends to carry on with this profitability strategy and secure an outstanding market position through specialized service offerings.

Using such strategy to allow its entry in Region III, the group managed to achieve a 5.3% market share by the end of 2008 (according to ANATEL data), just over two months after the commencement of its operations. According to data provided by ANATEL, after the first year of operations we already had a 12.0% share of said market.

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These results consolidate the entry of Oi in São Paulo as one of the most successful global greenfield GSM product roll-out ever. Together with its Region III operations, the acquisition of BrT has secured domestic mobile coverage for Grupo Oi. As a result, Grupo Oi became one of the four groups that can offer such service differentiator to its customers. As with Regions I and III, adoption of its successful special service offering strategy in Region II will secure an additional growth driver for Grupo Oi.

In addition, Grupo Oi will increasingly explore value-added services and mobile broadband services in all regions by expanding the 3G networks deployed in 2008.

Corporate Data Market

Grupo Oi intends to expand its share in the corporate data market. The acquisition of BrT has secured a domestic backbone, with the added benefit of interconnection with overseas facilities, thus introducing the capabilities required to carve out a leading position in the market of integrated data and service for large private or state-owned corporations. Also, Grupo Oi has a tremendous opportunity to expand its presence and support the small and medium business market by leveraging its capillarity potential and taking advantage of its integrated service offerings.

Increased Cost Efficiency and Control & Service Quality

Grupo Oi will continue its strategy of taking initiatives to improve its internal business practices and therefore streamline costs and service quality. As part of its strategy to achieve improved operating efficiency, the group intends to continually improve its resource allocation methods in order to capture cost savings by establishing economies of scale. Exploiting and maximizing the synergies obtained from acquired businesses is also an important element of this strategy.

In this respect, the group will continue to focus efforts on business practice standardization, contractor work efficiency and contingency management.

Improving the quality of the services offered to its customers will continue to be another important element in Grupo Oi's business strategy.

Sustainability

For the second year in a row, Grupo Oi was included in the portfolio of BM&FBovespa's Corporate Sustainability

Index ("ISE"), effective December 1, 2009 through November 30, 2010.

In December 1, 2008, Grupo Oi was one of the first telecommunication industry groups to participate in BM&FBovespa's ISE.

The BM&FBovespa Corporate Sustainability Index employs a thorough assessment methodology to highlight companies based on their commitment to sustainable development practices. The index was conceived to measure yield of stock portfolio comprising corporations with long-standing commitment to social responsibility and corporate sustainability, and also in furtherance of best business practices in the Brazilian corporate communities.

Created in 2005 by BM&FBovespa in collaboration with the FGV Center for Sustainability Studies, the ISE is built around the worldwide triple bottom line concept, an approach that evaluates business environmental, social, and financial and economic elements in an integrated manner Three other metrics were added to the foregoing evaluation elements: corporate governance, product general characteristics and nature.

We promote ethics, corporate governance, transparency, and social and environmental responsibility in our relationships with suppliers, customers and communities. Since 2009 we have published and disclosed our Sustainability Policy, which is built around the following principles:

Promotion, implementation and propagation of sustainable development initiatives as part of our continued

investment strategies.

Establishment and pursuance of best corporate governance practices to honor commitments made to our shareholders.

Pursuance of respect for consumers, other companies, citizens, and the environment in all stages of our marketing, business and operations. Respect is shown through compliance with guidelines based around ethics

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and social and environmental responsibility, so that our actions will not have any adverse impact on society and the environment while meeting their long-term needs.

Use of sustainability-related education to raise awareness of employees and other stakeholders to the importance of our relationship with the environment.

Increase consideration of sustainability-related practices in our business through regular meetings of a Corporate Governance, Reporting and Sustainability Committee.

Seek engagement of and encourage creation of relationships among stakeholders and adopt an open-minded stance in respect of criticism directed toward our practices, products and services.

Emphasize the importance of learning and applying our Code of Ethics in our key decision-making processes and in the daily work of our employees and suppliers.

Identify and consider social, financial and environmental aspects and risks in our processes and projects.

Pursuance of new financially-feasible technologies and improve our operations and practices in order to minimize potential impacts to the environment.

Emphasize the importance of using sustainability criteria in selection and managing our suppliers and vendors.

Development of internal activities to contribute to the physical and emotional well-being of our employees and their families.

Ensure respect for diversity by fighting discrimination, emotional and sexual harassment and corruption in all its forms.

Respect for the right of our employees to freely join labor unions and enter into collective bargaining.

Promote and expand our social responsibility practices.

Establish guidelines for the management of intangible assets as a way to increase our company's worth.

Compliance with any and all legal requirements applying to our businesses.

Ban any and all practices related to child labor, sexual abuse of children and teenagers, slave-like, forced or mandatory labor, discrimination in all of its forms, or illegal punishment.

Use water and energy resources in a conscientious, controlled and managed fashion by replacing obsolete equipment in order to achieve better resource performance.

Whenever possible, reduce, reuse or recycle the waste we generate.

Create mechanisms to resolve conflicts of interests without harming the collective interests of our society.

Develop new business by identifying sustainability-related opportunities.

Take strategic decisions in keeping with the 10 principles of the United Nations Global Compact. In addition to the sustainability commitments undertaken, in August 2009 Tele Norte Leste Participações S.A. signed up and joined the Global Compact. The Global Compact initiative aims at encouraging worldwide business communities to adopt fundamental and globally accepted values in the areas of human rights, labor relations, the environment and anti-corruption in their business practices.

This initiative will also contribute to build a positive reputation for Grupo Oi and our company, and to strengthen our brand among stakeholders and customers.

In addition, we have implemented certain actions that reflect our responsibility toward the environment, as follows: (i) reduced consumption of water and energy resources; (ii) selective waste disposal and battery and handset disposal facilities in all main premises; (iii) default two-sided printing for all printers; (iv) use of compressed natural gas (CNG) to fuel 25.0% of our automotive fleet; and (v) use of facilities designed to capture rain water.

Social Projects – Oi Futuro

Oi Futuro is Oi's social responsibility voice reverberating the focus of Grupo Oi in communication and information technologies. In 2009 the institute virtually increased its scope twofold when it incorporated the area formerly operated by us.

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Approximately 4 million people nationwide are served by and benefit from programs such as Oi Tonomundo, the Advanced Education Center ("NAVE"), Oi Conecta, the Oi Kabum! Art and Technology Schools, and the Oi Futuro arts and media venues in Rio de Janeiro and Belo Horizonte. In addition to the foregoing, Oi Futuro supports social, sports and cultural initiatives through other institutions (via Oi Novos Brasis rules), and is also responsible for managing the Oi Program for Qualified Cultural Sponsorships. The commitment remains the same throughout the country, even in far-flung locations: to contribute for the country's social development and for the universal access to information.

Research and Development

We conduct independent telecommunications research and development, but we have historically not independently developed new telecommunications technologies. We depend primarily on suppliers of telecommunications equipment for the development of new technology.

As part of the privatization of Telebrás, the newly formed telecommunications service providers, including our company and Telemar, contributed to the creation of the Telecommunications Research and Development Foundation (Fundação Centro de Pesquisa e Desenvolvimento das Telecomunicações), formerly operated by Telebrás. We made disbursements of R$12 million in 2007, and R$14 million in 2008 for investments in innovation, research and development.

As part of our integration with Telemar, Telemar has created a division to manage research and development projects with the mission of coordinating and promoting efforts and projects that we develop. In addition, our technology lab has been integrated with Telemar‘s. The lab is in charge of, among other things, operating support systems, business support systems and information security.

Since 2006, we have performed research in cooperation with equipment and systems suppliers for the development of new technologies and services. In 2007, we modified our "Exclusivo" service (a service enabling subscribers to use their mobile devices on our fixed-line network through a wireless local area network, or Wi-Fi, connection) to include Wi-Fi access and GSM integration. As a result, we believe that we were the first Brazilian carrier to launch services that use next generation network architecture.

We participate in telecommunications standards bodies, technical associations, committees and forums such as the European Telecommunication Standards Institute (ETSI), the Telecommunication and Internet Services and Protocols for Advanced Networking (TISPAN), the Third Generation Partnership Project (3GPP), and the Fixed Mobile Convergence Alliance (FMCA) in order to contribute and gather expertise in the telecommunications industry.

8. ECONOMIC GROUP Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking on the first letter of the word to be consulted.

8.1. Description of the issuer’s economic group, including:

a. direct and indirect controlling shareholders

We are directly controlled by Coari Participações S.A., a company that holds equity interests in our affiliates, such as Copart 3 Participações S.A.

In turn, Coari Participações S.A. is controlled by Telemar Norte Leste S.A. through a 100% equity interest therein.

Telemar Norte Leste S.A. is directly controlled by Tele Norte Leste Participações S.A., the holding company of Grupo Oi. Telemar Norte Leste S.A. holds equity interests in affiliates of Telemar Norte Leste S.A. such as: TNL

Trading S.A.; TNL.Net Participações S.A.; TNL Exchange S.A.; and TNL PCS Participações S.A.

In turn, Tele Norte Leste Participações S.A. is controlled by Telemar Participações S.A., which holds 52.45% of its common stock, with 45.2% of its stock being publicly traded.

The core business of Telemar Participações S.A. is to directly or indirectly hold interests in equity of Tele Norte Leste Participações S.A. and of other companies, in Brazil or abroad, and to provide managerial and administrative services to companies and businesses under its control.


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The following are the shareholders of Telemar Participações S.A.: AG Telecom Participações S.A, holds a 12.88% common equity interest. Luxemburgo Participações S.A, holds a 6.44% common equity interest. LF Tel S.A., holds a 19.33% common equity interest. Fundação Atlântico de Seguridade Social, holds an 11.49% common equity interest. BNDES Participações S.A., holds a 31.35% common equity and 100% preferred equity interests. PREVI – Caixa de Previdência dos Funcionários do Banco do Brasil, holds a 12.95% common equity interest. FUNCEF – Fundação dos Economiários Federais, holds a 2.79% common equity interest, and PETROS – Fundação Petrobrás de Seguridade Social, holds a 2.74% common equity interest. Please see item 15.6 of this Form to obtain further information on the corporate restructuring of Telemar Participações S.A.

Please see item 15.1 of this Form to obtain a complete hierarchy breakdown of our direct and indirect controlling shareholders.

b. subsidiaries and affiliate companies

Companies BrT Serviços de Internet S.A., Nova Tarrafa Inc. Brasil Telecom Call Center S.A., and 14 Brasil Telecom S.A. are our wholly-owned subsidiaries. Companies Brasil Telecom Comunicação Multimídia Ltda, Nova Tarrada Participações LTDA, Vant Telecomunicações S.A. Brasil Telecom Cabos Submarinos S.A. and BrT Card Serviços Financeiros LTDA are our subsidiaries.

Please see item 7.1 of this Form to obtain a description of our main subsidiaries.

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c. interest held by the issuer in the group's companies

The table below shows the material direct and indirect interest we hold in other companies:

Company Direct Interest Indirect Interest

2009 2008 2007 2009 2008 2007

BrT Celular 100% 100% 100% N/A N/A N/A

BrT Serviços de Internet S.A. 100% 100% 100%

N/A N/A N/A

iG Brasil 13.54 13.54 N/A 86.35% 86.35% 83.28%

iG Cayman N/A N/A N/A 100% 100% 100%

iG Part N/A N/A N/A 100% 100% 100%

BrT Cabos Submarinos Ltda. 100% 100% 100%

N/A N/A N/A

BrT Subsea Cable Systems (Bermuda) Ltd. 100% 100% 100%

N/A N/A N/A

Brasil Telecom Comunicação Multimídia Ltda. 90.45 90.45 90.45

9.54% 9.54% 9.54%

Brasil Telecom Call Center S.A. 100% 100% 100%

N/A N/A N/A

BrT Card 100% 100% 100% N/A N/A N/A

Vant Telecomunicações S.A. 100% 100% 100%

N/A N/A N/A

d. interest held by other companies in the issuer’s group in the issuer’s capital

Coari Participações S.A. holds a 48.20% interest in our voting capital stock.

e. Jointly-owned companies

Our jointly-owned subsidiary is Copart 3 Participações S.A..

For further information on our jointly-owned subsidiaries, please refer to item 9.1 of this Form.

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8.2. Organization Chart of the economic group of the issuer, provided that it is compatible with the information presented in item 8.1

The organization below shows our consolidated ownership structure in May 2010.

100% 100% 100% 100%

Telemar Norte Leste

S.A. TNL Trading S.A.

TNL.Net Participações

S.A.

TNL PCS

Participações S.A.

50,0% 19,40% 50,0% 100% 100% 100% 100% 100%

Tele Norte Celular


Companhia

AIX de ParticipaçõesHispamar Satélite S.A.

Companhia ACT de

ParticipaçõesTelemar Internet Ltda.

Calais Participações

S.A.

Coari Participações

S.A.

SEREDE -

Serviços de Rede S.A.

Way TV Belo

Horizonte S.A.

100%

100%

TNL PCS S.A. Brasil Telecom S.A. Copart 3


100%

Paggo

Empreendimentos S.A

100% 90,45%(1) 100% 100% 99,99%(1) 99,99%(1) 99,99%(1) 99,99%(1)

9,54%

9,54%

0,16% 100,00%

90,42% 9,41%

99,9935% 100% 100% 100%

30% 0,0065%

32,53%

(1) A BrTI é detentora de uma ON (ou de uma quota, no caso de Ltda.)

53,82% 13,64%

100%

Internet Group

(Cayman) Limited

Brasil Telecom de

Colombia E.U.

Brasil Telecom de

Venezuela S.A.

BrT Card Serviços

Financeiros Ltda.

100% 100%

Brasil Telecom Call

Center S.A.

14 Brasil Telecom

Celular S.A.

Telemar Participações S.A.

IG Participações

S.A.

Brasil Telecom of

America Inc.

Paggo Administradora

de Crédito Ltda.

Paggo Acquirer

Gestão de Meios de

Pagamentos Ltda.

Brasil Telecom Cabos

Submarinos Ltda

Vant Telecomunicações

S.A.

Brasil Telecom

Comunicação

Multimídia Ltda.

Brt Serviços de

Internet S.A.

("BrTI")

Agência O Jornal da

Internet Ltda.

Internet Group do

Brasil S.A.

Brasil Telecom Subsea

Cable Systems

(Bermudas) Ltd.

Tele Norte Leste Participações S.A.

(TNL)

Nova Tarrafa Inc. Nova Tarrafa

Participações LTDA

52,45% - Telemar Participações

2,31% - Ações em Tesouraria

45,2% - Mercado

100,00%

(ON)

Tele Norte Leste Participações S.A.

Estutura societária - Maio de 2010

TNL Exchange

S.A.

97,35% - TNL

2,65% - Mercado

100,00%

(ON)

Percentual de participação nas ações ordinárias:

12,888% - AG Telecom Participações S.A.

6,444% - Luxemburgo Participações S.A.

19,332% - LF Tel S.A.

11,494% - Fass

31,358% - BNDES Participações S.A.

12,953% - Previ

2,791% - Funcef

2,740% - Petros

100,00%

99,57% - Telemar Norte Leste

0,004% - Ações em Tesouraria

0,43% - Mercado

100,00%

(ON)

79,63% (ON)

32,20% (PN)

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8.3. Describe the main corporate events, such as merger, amalgamation, spin-offs, merger of shares, disposal and purchase of controlling stock, disposal and purchase of major assets, occurred within the group 4 For a description of the main corporate events, such as merger, amalgamation, spin-offs, merger of shares, disposal and purchase of controlling stock, disposal and purchase of major

assets, occurred within the group, please refer to items 6.5 and 15.6 of this Form.

8.4. Other material information There is no further relevant information regarding item ―8‖.

4 Information referring to the last three accounting periods ad the current accounting period.

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9. MAJOR ASSETS

Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and

can be accessed by clicking on the first letter of the word to be consulted.

9.1. Non-Current Assets.

a. fixed assets, including those that are leased, including the location of each such asset

Property, Plant and Equipment Our principal properties, owned and leased, are located in Region II. Grupo Oi owned 8,050 real properties as of December 31, 2009, and 4,890 as of December 31, 2008. The

difference in the number of properties owned can be explained by the acquisition of BrT in January 2009.

As of December 31, 2009 we had 2,082 operating premises leased from third parties, of which 944 were used in connection with fixed-line services and 1,138 used in connection with

mobile telephony services.

As of December 31, 2009, we held 1,999 third-party properties in possession, either as free lease or assignment, for which we are not required to pay any rent. Most of these properties

are used as operating premises.

As of December 31, 2009 the consolidated net carrying value of our property, plant and equipment was R$6,993.4 million (R$5.902,1 million as of December 31, 2008).

Our main equipment consists of transmission equipment, trunking and switching stations (including local, tandem and transit telephone exchanges), metallic and fiber-optic cable

networks and lines, underground ducts, posts and towers, data communication equipment, network systems and infrastructure (including alternating and direct current supply

equipment) and motor-generator groups.

In 2009, we invested R$1,397 million (R$1,438 million and R$1,318 at December 31, 2008 and 2007, respectively) in property, plant and equipment.



119


The table below shows the percentage our property, plant and equipment represent in relation to their consolidated net book value, for the periods indicated:

December 31,

2007 2008 2009

In %

Buildings 8.39 7.75 9.85

Infrastructure 23.04 20.00 17.31

Automatic switching equipment 3.99 4.66 8.21

Transmission equipment and other 49.39 44.18 51.34

Construction works in progress 8.09 17.11 7.75

Other fixed assets 7.10 6.30 5.54

All property, plant and equipment that are essential in providing the services described in our concession agreements are considered "reversible assets," which means that, should our

2006 concession agreements expire or terminate without being renewed, these assets will automatically revert to ANATEL. There are no other encumbrances that may affect the

utilization of our property, plant and equipment.

Below we list the main properties of Grupo Oi as at December 31, 2009:

Type Location Built Area

(in sq.m.)

Insurance Mortgage Rented,

Owned, or

Leased

Office Building Belo Horizonte 58.019 YES NO Owned


120



(in sq.m.)


Owned, or

Leased


Switching Center Brasília 18.922 YES NO Owned

Switching Center Brasília 11.72 YES NO Owned

Offices / Switching Center Campo Grande 23.079 YES NO Owned

Switching Center Campo Grande 7.825 YES NO Owned

Offices / Operating Building

Campos dos

Goitacazes 4.449 YES NO Owned

Offices / Switching Center Corumbá 1.879 YES NO Owned

Office Building Cuiabá 0.428 YES NO Rented

Offices / Switching Center Cuiabá 12.833 YES NO Owned

Switching Center Cuiabá 0.23 YES NO Owned

Switching Center Cuiabá 1,615.00 YES NO Owned

Office Building Curitiba 24.699 YES NO Rented

Switching Center Curitiba 0.119 YES NO Owned



Offices / Switching Center Curitiba 7.555 YES NO Rented

121



(in sq.m.)


Owned, or

Leased

Offices / Switching Center Dourados 3.627 YES NO Owned

Offices / Operating Building Duque de Caxias 5.756 YES NO Owned

Office Building Florianópolis 11.018 YES NO Owned

Switching Center Florianópolis 4.657 YES NO Owned

Switching Center Florianópolis 4.225 YES NO Owned

Office Building Goiânia 2.101 YES YES Owned

Switching Center Goiânia 31.096 YES YES Owned

Switching Center Goiânia 7.934 YES YES Owned

Switching Center Goiânia 1.3 YES NO Owned

Office Building Guará 31.22 YES NO Rented

Offices / Operating Building Niterói 17.623 YES NO Owned

Office Building Nova Iguaçu 9.344 YES NO Owned

Offices / Switching Center Palmas 2.373 YES YES Owned

Offices / Switching Center Porto Alegre 15.436 YES YES Owned

Offices / Switching Center Porto Alegre 2.849 YES YES Owned

Office Building Porto Velho 4.25 YES NO Owned

122



(in sq.m.)


Owned, or

Leased

Switching Center Porto Velho 0.947 YES NO Owned

Switching Center Porto Velho 1.91 YES NO Owned

Office Building Recife 22.268 YES NO Owned

Office Building Recife 0 YES NO Rented

Offices / Switching Center Rio Branco 2.751 YES NO Owned

Switching Center Rio Branco 0.301 YES NO Owned

Switching Center Rio Branco 0.339 YES NO Owned

Office Building Rio de Janeiro 8.215 YES NO Owned

Offices / Operating Building Rio de Janeiro 21.552 YES NO Owned





Operating Building Rio de Janeiro 18.088 YES NO Owned



123



(in sq.m.)


Owned, or

Leased








Office Building Rio de Janeiro 0 YES NO Rented

Office Building Rio de Janeiro 0 YES NO Rented

Office Building Salvador 21.694 YES NO Owned

Office Building São Paulo 0 YES NO Rented

Office Building Vitória 0 YES NO Owned

Office Building Vitória 5.79 YES NO Owned

Network and Facilities

Our network is comprised of a physical and logical infrastructure through which we provide fully-integrated fixed-line or mobile telephony, and voice, data or image transmission

services, thereby optimizing available resources.

124


Our networks are remotely monitored from a network operations center located in Rio de Janeiro. Network operating and configuration platforms, located at the network operations

center, perform failure monitoring, database configuration and management, security management and performance analysis for each network.

Fixed-line Network

Our fixed-line network includes a network of access lines connecting customers to different services, such as telephony and data communication. As of December 31, 2009, our access

network served approximately 7.7 million fixed-line subscribers and approximately 1.9 million ADSL subscribers. As of December 31, 2009, we provided ADSL services in 1,585

municipalities.

In 2009, we provided fixed-line services at 82 new localities, 36 of which were provided with group access and 46 with individual access, and we visited approximately 1,580 localities to

confirm data on our record of localities. As of December 31, 2009, we offered fixed-line services in approximately 8,900 localities, either with public or residential telephony services.

The following table shows selected information on our wireline networks as of the dates and for the periods indicated.


Wireline Networks 2007 2008 2009

Access lines – installed (in millions) 10.8 10.4 10.4

Access lines in service (in millions) 8.0 8.1 7.7

Payphones in service (in thousands) 281.8 277.9 277.9

Broadband connections (in thousands) 1,567.8 1,805.5 1,943.2

Our fixed-linefixed-line network is fully digitalized. Our transmission infrastructure connects these digital switches to two international gateway switches. Additionally, our network

supports advanced services, including prepaid and toll-free services.

125


Our long-distance network consists of fiber-optic cable networks and microwave and radio links that we use to provide long-distance services within Region II. We have extended long-

distance fiber optic networks that connect the state capitals in Region II and the Federal District. Most of the large urban areas of Region II are also connected by our fiber optic

networks.

Our long-distance network is modern, has an infrastructure prepared to support a capacity of 400 Gbps and is equipped with an automatic control system that provides for a high level

of availability, and flexibility for configuration and provisioning. Our transmission infrastructure has the capacity to accommodate our customers‘ demand for long-distance, internet and

data transmission services and other telecommunications service providers‘ demand for transmission facilities.

Mobile Network

Our mobile network is a GPRS based network. We offer GPRS/EDGE technology for data and 1,800/900 MHz for voice. We have GPRS coverage in 100% of the localities covered and

EDGE in all capitals of the states in our service areas. Our mobile networks have unique data cores that are fully integrated with data from our fixed-linefixed-line networks. As of

December 31, 2009, our mobile network, consisting of 3,499 active radio base stations, covered 1,120 municipalities, or 93.0% of the urban population in Region II.

With the acquisition of new radio frequencies and the authorization to provide 3G services in Region II, we have started implementing our new 3G network. Our 3G projects are

designed to provide the necessary capacity for up to 120,000 customers and include the installation of 1,435 active radio base stations, Node-Bs and systems provided by Ericsson and

Nokia. These projects also involve the connection of 19 3G control units and the expansion of our data transmission network. Our mobile networks are directly interconnected to the

domestic and international long-distance networks of all long-distance and mobile carriers operating in Regions I, II and III.

Data Transmission Network

Broadband Services

Our broadband network is based on the ADSL and ADSL2 technology currently in use on our existing wireline networks. Speeds reach up to 8 Mbps (download) and 1 Mbps (upload).

We are currently implementing VDSL and fiber optic technologies in some capital cities in Brazil in order to offer ultra high-speed broadband, with speeds of up to 100Mbps.

We believe we are one of the first telecommunications service providers in Latin America to implement the Metro Ethernet technology, which supports high-speed internet access. Metro

Ethernet is a network that covers a metropolitan area to connect users to the internet. This technology enables us to offer triple-play services.

126


Our dial-up IP platform supports dial-up access from fixed-linefixed-line networks. We operate an internet backbone network and a fully IP-routed network, which provides a backbone

for all broadband and dial-up services and VPN offerings. Our internet backbone connects to the public internet via international links we maintain abroad. With these international links,

we do not need to rely on other companies to connect our outbound internet traffic with the internet backbones of international ISPs.

Commercial Data Transmission Services

Our Asynchronous Transfer Mode, or ATM, network, with its fully-integrated management system, provides:

64 Kbps to 34 Mbps frame relay data services;

ATM data services supporting access rates from 2 Mbps to 622 Mbps;

bundled network services for ADSL platforms.

These features allow our integrated ATM network to service each of the different types of data applications used by our customers. ATM is a technology that converts existing twisted-

pair telephone lines into access paths for high-speed communications.

b. Patents, trademarks, licenses, concessions, franchises and technology transfer agreements Our company, including BrT and its subsidiaries, has 630 trademarks registered with the National Institute of Industrial Property (Instituto Nacional de Propriedade Industrial), or INPI,

and 835 pending trademark applications. Our main trademark, "BRASIL TELECOM" is registered with the INPI under various different classes, which enables us to use this brand in

different markets, including fixed-linefixed-line and mobile telephony, and broadband services. We have 802 domain names registered with the DotBr–NIC.Br Coordination and

Information Center, the agency in charge of domain names registration in Brazil.

We have submitted 16 patent applications to the INPI, including four patent applications submitted by BrT Celular.

(i) Duration

Once examination is completed, a decision accepting or rejecting the application will be issued. If granted, the patent will expire in 20 years from the date of filing and no less than ten

years from the date the application is granted, and the trademarks will expire in ten years from the date the registration is granted. These deadlines can be extended for successive

periods.

127


(ii) Territory involved

All of our trademarks and patents registered with INPI have, or will have, upon completion of the relevant application review, force in Brazilian jurisdiction.

(iii) events that may cause the loss of rights referring to such assets

Applications for trademark and patent registrations pending review by the INPI may be denied administratively. Moreover, it is not possible, even in respect of granted trademark

registrations, to ensure that no third party (or the INPI itself) will try and challenge our registrations (for instance, by initiating a proceeding for cancellation or lapse). Although we hold

registration of most of our patents and trademarks and also own several domain names and one industrial design, it is not possible to ensure that no third party will claim that we are

infringing their intellectual property rights and eventually obtain relief in any court.

Moreover, maintenance of valid trademark, patent, industrial design and domain name registrations depends on the regular payment of certain fees to depositary institutions, upon

expiration of each respective effective term. Also, payment of the applicable fees is necessary to avoid cancellation of a registration and the consequent forfeiture of a holder's rights

and interests to intellectual property rights.

We believe that the chances of not obtaining renewal of a license to use our registered trademarks are very unlikely.

Among the several trademarks that have been registered with the INPI, 111 are being challenged by third parties.

We believe that the chances of a third party obtaining success in any of the foregoing claims are very unlikely. Success of a third party in any such claim would result in loss of our

rights and interests to the challenged trademark(s).

(iv) Likely consequences of the loss of such rights

Any such loss of right and interest to our registered trademarks would result in the exclusive right to use the same in the relevant jurisdictions being terminated, and also hinder our

efforts to prevent third parties from using identical or similar trademarks to sell similar services.

Although we believe that our pending trademark and patent applications will be granted registration, and also that we will not lose right and interest to any trademark and patents now

being challenged by third parties, we also believe that any denial of trademark or patent applications will not substantially and adversely impact our operations and financial

position. There is chance, however slight, that we might lose certain trademarks deemed of strategic importance to our business. Our company would face substantial asset losses in

any such case.

128


c. information on the companies the issuer holds interest in The table below shows the corporate name, headquarters, activities developed, the interest we hold, book value, book value valuation or devaluation, and amount of dividends paid by

the companies directly controlled by us:

129


(i) Corporate

Name

(ii)

Headquarters

(iii) Activities (iv) Interest

(%)

(vii) Book value of such Interest

(in R$ thousand)

(xi) Dividends

(in R$ thousand)

(ix) Val./Deval.

(book value – R$ thousand)

2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009

14 Brasil

Telecom

Celular S.A.

SIA/SUL - ASP -

Lote D - Bloco

B - Térreo

(Parte) -

Brasília, Distrito

Federal; CEP:

01,448-901

Mobile carrier

in Region II.

100 100 100 3,247,04

2

3,074,177 2,926,321 N/A N/A N/A (181,534) (125,952) (147,946)

Brasil

Telecom Call

Center S.A.

SIA/SUL - ASP -

Lote D - Bloco

B (Subsolo) -

Brasília, Distrito

Federal; CEP:

01,448-901

Customer

service

99.99 99,99 99.99 88 21,880 19,635 N/A N/A N/A (311) (5,119) (2,245)

Br T Serviços

de Internet

S.A.

SCN – Quadra 3

– Bloco A –

Sobreloja

(parte) -

Brasília, Distrito

Federal; CEP:

70,310-500

Provides

integrated

internet-based

solutions

though a

broadband

port.

100 100 100 423,039 332,993 362,888 N/A N/A N/A (49,421) (70,245) 29,895

Vant

Telecomunica

ções S.A.

Av. Borges de

Medeiros, 512,

11º andar -

Porto

Alegre/RS; CEP:

90,020-022

Voice and data

products for

corporate

customers.

99.99 99.99 99.99 7,720 4,462 (239) N/A N/A N/A (2,146) (3,257) (4,701)

130


131


(i) Corporate

Name

(ii) Headquarters (iii) Activities (iv) Interest

(%)

(vii) Book value of such Interest

(in R$ thousand)

(xi) Dividends

(in R$ thousand)

(ix) Val./Deval.

(book value – R$ thousand)

2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009

BrT Cabos

Submarinos Ltda.

Av. Doutor

Cardoso de Melo

nº. 1155, 2º andar

- São Paulo/SP

Submarine

fiber optic

cables

interconnectin

g countries in

the Americas.

99.99 99.9

9

99.9

9

159,64

1

266,307 318,943 N/A N/A N/A 29,963 106,666 52,636

Brasil Telecom

Comunicação

Multimídia Ltda.

Av. das Nações

Unidas nº 12,901,

27º andar,

Conjunto 2701,

Torre Oeste,

Centro Empresarial

Nações Unidas -

São Paulo; CEP:

84,578-000

Fiber optic

data

transmission

90.46 90.4

6

90.4

6

189,69

2

254,530 276,514 N/A N/A N/A 6,631 38,977 21,984

Nova Tarrafa

Ltda.

Rua Humberto de

Campos, 425, 5º

andar – Parte –

Leblon – Rio de

Janeiro/RJ CEP:

22430-190

Its purpose is

to hold an

interest at

Internet

Group

(Cayman)

Limited

N/A N/A 99.9

9

N/A N/A 3,460 N/A N/A N/A N/A N/A 694

132


BrT Card Serviços

Financeiros Ltda.

Calçada Antares,

249 – Sala 23,

Centro de Apoio II,

Alphaville –

Santana de

Parnaíba/SP CEP:

06541-065

Provides

financial

services

management

solutions

N/A 99.9

9

99.9

9

N/A 32,845 8,135 N/A N/A N/A N/A 6,421 459

Nova Tarrafa Inc. Ugland House,

P.O. Box 309,

George Town,

Grand Cayman,

Cayman Islands,

British West Indies

Holding N/A N/A 100 N/A N/A 270 N/A N/A N/A N/A N/A 6

132

(vi) Registration with CVM, (viii) market cap; (x) valuation and devaluation according to market cap.

Not applicable.

(xii) Reasons for acquisition and maintenance of such interest.

With the goal of expanding its original businesses, Telemar Norte Leste completed the acquisition of BrT on January 8,

2009. By acquiring a controlling interest in BrT, Telemar, which then held 33.3% of BrT's preferred stock, now holds a

43.5% share in the outstanding capital stock of, or a 61.2% common equity interest in, Brasil Telecom Holding. Also,

Telemar Norte Leste now indirectly holds a 78.0% equity interest in, corresponding to 99.1% of the common stock of, BrT

(carrier company).

According to data disclosed by ANATEL and other public sources, as a result of this acquisition Telemar became the

leading telecom service provider in Region II of Brazil, both in terms of revenues and number of customers. Also,

according to data disclosed by ANATEL and other public sources, Telemar is the leading telecom service provider in Brazil

and the largest provider in Region I, both in terms of revenues and number of customers.

For further information on our subsidiaries and affiliate companies, please refer to item 8.2.b of this Form.

134



Insurance

Pursuant to requirements in our concession agreements, we maintain the following insurance policies: (1)

all-risk property insurance covering all insurable assets pertaining to the concessions; (2) business

interruption insurance covering loss of revenues deriving from property damage and business interruption,

which preserves our economic conditions so that we can ensure the continuity of our telecom business;

and (3) performance bond insurance to assure compliance with our obligations related to quality of service

and universal service targets set forth in our 2006 concession agreements.

In addition to the above policies, we maintain civil liability insurance. Our assets that are of material value

and/or exposed to high degrees of risks are also insured. We and our subsidiaries have insurance policies

that cover material damage and loss of revenue as a result of such damage (business interruption),

among other policies.

We understands the amount of the insurance coverage we have contracted is sufficient to ensure the

integrity of our assets and business continuity, as well as compliance with the rules set forth in our

concession agreements. All of our insurance coverage was purchased from established insurance

companies in Brazil, such as Bradesco and Itaú Seguros.

135


10. MANAGEMENT’S COMMENTS

Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor

Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking


10.1 MANAGEMENT’S COMMENTS

a) Overall financial position

Our board of executive officers believes that our Company enjoys satisfactory financial and asset standing

to offer a range of integrated telecom services, including fixed-linefixed-line, mobile, data transmission

(including broadband), Internet, ISP, and other services to household customers, small, medium and large

businesses, and government agencies, as well as to meet our short- and mid-term liabilities.

Our current working capital is enough to meet our current requirements, and our available cash, including

the proceeds of third-party loans, is enough to meet our fund and activity financing needs at least for the

next twelve (12) months.

As disclosed in a material fact released on January 14, 2010, in 2009 we reevaluated the amount and level

of exposure in connection with certain lawsuits brought against the former CRT. Accordingly, we changed

the likelihood of loss in these lawsuits from potential to likely and set up additional provisions in the

amount of R$2,325,578, which had an impact of R$1,534,882 on our net income and net worth, net of tax

effects. Despite the impact on our net worth, the expectation of management is that such provisions will

not bear any material effect on our available cash, even where loss of suit is considered, as there are

court deposits linked to most of these lawsuits.

b) Capital structure and potential stock or quota redemption, including: (i) cases for redemption; (ii) formula for the calculation of the redemption amount

The fully subscribed and paid-in capital is R$3,731 million. The capital stock is divided into common shares

and class-A and class-B preferred shares. Preferred shares do not carry voting rights, but are entitled

priority in the payment of dividends as per our by-laws. Stock redemption is not allowed, except as

provided in article 45 of the Brazilian Corporate Law and in any such case by the economic value of the

relevant shares.

Our aggregate shareholders' equity as of December 31, 2009 was R$11,095 million (R$6,241 million in

2008 and R$5,505 million in 2007).

136


Minority interests as of December 31, 2009 were R$514 thousand (R$5,656 million in 2008 and R$8,510

million in 2007).

The chart below outlines our consolidated short- and long-term financial indebtedness:

December 31,

(Amounts in R$ million) 2007 2008 2009

Short-Term Financing and Loans 518 761 1,003

Short-term – Total 518 761 1,003

Long–term financing and loans 3,890 4,125 3,638

Long-term – Total 3,890 4,125 3,638

Total debt 4,408 4,886 4,641

For further information on our third-party funding, please refer to item 10.1.f of this Form.

c) Ability to repay debts

Our principal cash requirements consist of the following:

working capital;

servicing of our indebtedness;

capital expenditures related to investments in operations, expansion of our networks and enhancements of

the technical capabilities and capacity of our networks;

dividends on our shares, including in the form of interest on equity.

137


We anticipate expenditures of approximately R$2.1 billion to meet short-term indebtedness and equity

investments in 2010, and of approximately R$5.4 million to meet long-term indebtedness and equity

investments in 2011 and 2012.

Our fixed-linefixed-line service operations represent a major source of cash flow which allows for the

comfortable management of our financial liabilities. Moreover, we expect that the investments made in

recent years, coupled with any future investments, will allow for increased cash generation and gradually

strengthen our cash flow and credit metrics, as well as improve the solvency of our company. Additionally,

we believe that our creditworthiness is such that it allows us to take out loans at this time, if it is

necessary to resort to any such facility as a means to meet our liabilities.

Therefore, in view of our cash generation and fund-raising abilities and history, our solvency status and

our indebtedness profile, we believe that we will have no difficulties in honoring our financial liabilities.

d) Funding sources for working capital and investments in non-current assets used by the issuer e) Funding sources for working capital and investments on non-current assets the issuer intends to use for covering liquidity shortcomings Our principal sources of liquidity have traditionally consisted of the following:

cash flows from operating activities;

long-term borrowings; and

sale of bonds in domestic and international capital markets.

Our primary source of operating funds is cash flow generated from our operations. Cash flow from our

operating activities was R$3.1 billion in 2007, R$3.1 billion in 2008, and R$3.2 billion in 2009.

Also, we generally finance our investments in property, plant and equipment through credit facilities,

vendor financing, capital markets and other funding sources. In doing so, we always seek leverage that

allows for an investment flow that ensures our long-term growth and increased value creation to our

shareholders.

f) Indebtedness levels & debt breakdown, including: (i) significant loan and financing

agreements; (ii) other long-term arrangements with financial institutions; (iii) degree of debt

subordination; and (iv) restrictions imposed to the issuer, especially with regard to

indebtedness limits, taking of new loans, distribution of dividends, disposal of assets, issue of

new securities, and sale of controlling interest.

As of December 31, 2009 our total consolidated indebtedness was R$4,641 million. The level of our

indebtedness drives up our financial expenses significantly, and this reflects in our statement of income.

Financial expenses include interest expense, exchange rate variation of U.S. dollar or other currency

138


denominated debts, exchange rate gains or losses, among others. In 2009 we reported aggregate

financial expenses of R$858 million, of which R$205 million corresponded to interest paid on loans, and

R$653 million to other financial expenses. The rates of interest we pay on our loans depend upon a series

of factors, which include interest rates prevailing in the Brazilian and international markets, and the

assessment of our credit standing, our industry and the Brazilian economy made by potential lenders,

bond purchasers and rating agencies that evaluate our company and our debt instruments.

Standard & Poor's and Fitch maintain ratings of our company and our bonds, and Moody's maintains

ratings of Brasil Telecom. Any rating downgrades in the future would likely result in increased interest and

other financial expenses relating to borrowings and debt securities, and could adversely affect our ability

to obtain such credit facilities on satisfactory terms or in amounts required by us.

The table below shows changes in our consolidated indebtedness on the respective dates:

Loans and financing broken down by nature

In millions of reais

2009 2008 IRR Maturity

BNDES 2,738 2,656

Local Currency 2,700 2,565 11.7%

Feb/2011 to

Dec/2018

Currency basket, including dollar 38 91 2.6% Apr/2011

Financial institutions 619 916

Local Currency 126 126 5.9%

Apr/2011 to

Dec/2033

Foreign Currency 493 790 1.0%

Jul/2010 to

Feb/2014

Mutual with subsidiary – local currency 12.9%

Public debêntures 1,091 1,092 13.3% Jun/2013

Derivatives 198 222 Mar/2011

Trade accounts payable – foreign currency 1 1 1.0% Feb/2014

Commercial leasing 5 14 11.3% Oct/2010

Subtotal 4,652 4,901

Transaction costs (11) (15)

Total 4,641 4,886

139


Debt broken down by currency / index


2009 2008

TJLP 2,675 2,564

CDI 1,095 1,106

U.S. dollars 371 510

Yen 123 282

Derivatives 198 222

UMBNDES – BNDES's basket of currencies 38 91

INPC 46 32

Pre-fixed rate 106 94

Transaction costs (11) (15)

Total 4,641 4,886

Payment schedule

Our long-term debt is scheduled to be paid in the following years:


2009 2008

2010 859

2011 948 924

2012 879 772

2013 880 772

2014 612 665

2015 and beyond 318 133

Total 3,637 4,125

140


(i) Description of the major loans and financings.

In December 2009, we and our subsidiary BrT Celular secured a R$1,389 million credit facility with the

Brazilian Development Bank (BNDES) to finance the expansion and improvement of the quality of our

network, as well as to ensure compliance with regulatory obligations, from 2009 to 2011. This contract is

divided in two sub-loans: (i) sub-loan A, bearing interest at TJLP (Brazil's long-term interest rate) plus

3.95% p.a.; and (ii) sub-loan B, bearing interest at 4.50% p.a.. In December 2009, the BNDES disbursed

R$300 million related to this credit facility. Financial charges are due every quarter until December 2011,

and due every month from January 2012 to December 2018. The principal is payable in 84 monthly

installments, from January 2012 to December 2018.

In February 2008, BrT Celular secured a R$259 million credit facility with the BNDES, with effective

disbursement of R$259 million, to be invested in the improvement of the mobile telecommunications

network so that it supports the growth in traffic, with the implementation of new services to improve the

quality of service to customers. This facility bears interest at TJLP plus 3.52% p.a.. Financial charges are

due every quarter until September 2010, and due every month from October 2010 to September 2017.

The principal is payable in 84 monthly installments, from October 2010 to September 15, 2017.

In November 2006, BrT secured a R$2,004 million credit facility with the BNDES, with effective

disbursement of R$2,055 million, bearing interest at TJLP plus 4.3% p.a.. Financial charges are due every

quarter until May 2009, and due every month from June 2009 to May 2014. The principal is payable in 60

monthly installments, from June 2009 to May 15, 2014.

Also in November 2006, BrT secured a R$100 million credit facility with the BNDES, with effective

disbursement of R$55 million, bearing interest at TJLP plus 2.3% p.a.. The principal is payable in 60

monthly installments, from June 2009 to May 15, 2014.

In March 2004 we entered into a syndicated loan agreement for a facility of up to ¥27.5 billion (twenty-

seven billion five hundred million yen). In April 2004 we drew down a total sum of ¥21.6 billion (twenty-

one billion six hundred million yen) with a goal of funding our 2003 Equity Investment Program. JBIC

guaranteed the payment of 97.5% of the loan principal plus interest, and regularly receives 1.25% p.a.

interest on 97.5% of the principal balance for the guarantee posted. This loan bears interest of 1.92% p.a.

above Libor Yen, payable biannually in March and September every year. The principal amount is to be

repaid in ten equal biannual installments, the first being due in March 2011.

In September 2004, we issued and sold a total of US$200 million in 9.375% senior notes due in 2014. The

interest due on such notes is payable in February and August every year. We may redeem such notes at

our discretion, in full or in part, by paying a premium over the principal amount, plus interest and other

charges, if applicable.

141


On the issue of debentures

Issue of Debentures

Fifth tranche (the fourth tranche was public): 108,000 non-convertible debentures, with no renegotiation

clause, worth a nominal R$10.00 per unit, totaling R$1,080,000; transaction carried out on June 1, 2006.

Maturity is in seven years, on June 1, 2013. These debentures carry charges at DI Rate plus spread of

3.5% p.a., payable on a biannual basis. Amortization, for all debentures, will be made once a year as of

June 1, 2011, in three installments of 33.3%, 33.3% and 33.4% of the unit's nominal value, respectively.

On the balance sheet date, there were no debentures of this batch in treasury.

Further information on our indebtedness

Guarantees

The credit facilities extended by BNDES are secured by receivables of our company and our subsidiary BrT

Celular, and surety from parent companies, totaling R$2,727 million.

Certain credit facilities are secured by collateral (receivables from the provision of fixed-linefixed-line

services), sureties and guarantees. After the merger of BrT Part by our company, the sureties and

guarantees provided by BrT Part were replaced, as authorized by the creditors, by TNL sureties and

guarantees, pursuant to authorization of our Board of Directors.

The public debentures had unsecured guarantees, through a surety granted by BrT Part. Under the

indenture, the parent company, as guarantor and jointly liable party, committed to guarantee and pay all

the obligations assumed by our company with the debenture holders. After the merger of BrT Part into our

company, holders of debentures of the 5th tranche approved TNL as the guarantor, in replacement of BrT

Part. Our company‘s Board of Directors approved TNL's guarantee in the amount of R$1,080 million.

Covenants

The credit facilities extended by the BNDES and other financial institutions, as well as the debentures

issued by our company and BrT Celular, require us to maintain certain financial ratios, namely: (a)

capitalization ratio (Shareholders' Equity/Assets); (b) EBITDA/Net Revenues; (c) Total Financial

Debt/EBITDA; (d) EBITDA/Financial Expenses; and (e) (Short-term interest-bearing debt net of Available

Cash)/EBITDA

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On December 31, 2009, we failed to comply with the EBITDA/Financial Expenses and Debt/EBITDA ratios

provided for in the agreement with JBIC and in the indenture of the 5th tranche of debentures. However,

JBIC waived its rights for the ascertainment of results of December 31, 2009. On March 11, 2010, holders

of 5th tranche debentures approved the non-applicability of the ratios mentioned above up to June 2010,

inclusive.

We estimate that, on March 31, 2010, we will fail to comply with the EBITDA/Financial Expenses and

Debt/EBITDA ratios provided for in the agreement executed by and between JBIC and our company.

Therefore, we have already requested JBIC to waive this right, for this period. However, we may not be

successful regarding this request.

Also, agreements referring to most of our long-term debt contain cross acceleration maturity covenants.

Early maturity of one of the agreements may lead to the early maturity of other agreements.

(ii) other long-term arrangements with financial institutions;

Leasing

Liabilities from financial leasing agreements mature in 36 months and are recorded at current value.

Financial charges, which refer mostly to changes in the CDI rate, are recorded in the profit or loss for the

whole duration of the leasing agreement.

The current value of future minimum payments is broken down as follows:

2009 2008

Up to one year 5 10

One to five years 4

Total 5 14

(iii) degree of debt subordination

Except for secured debts, there is no subordination among our debts.

(iv) restrictions on indebtedness limits, taking of new loans, distribution of dividends,

disposal of assets, issuance of new securities, and sale of controlling interest

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We are subject to certain financial covenants that limit our ability to incur additional debt. Our

indebtedness level and the requirements and limitations of some of our debt instruments may adversely

affect our results of operations and financial position. The covenants in some of our debt instruments

restrict our ability, and that of our subsidiaries, to:

- incur additional debt;

- provide guarantees;

- use assets as collateral;

- sell or otherwise dispose of assets; and

- make certain acquisitions, mergers and restructurings.

g) limits for the use of the credit facilities already secured

On November 12, 2009 the board of directors of TNL approved a proposed BNDES facility to secure

financing for part of our company's and BrT Celular's capex needs in the period of 2009-2011. This

financing arrangement has a term of 9 years, including an initial 24-month deferral period (quarterly

interest payments) and 84 months to amortize principal and interest. We took a loan of up to R$623

million, and effectively drew down R$71 million in December 2009. 14 Brasil Telecom Celular S.A. took a

loan of up to R$766 million, and effectively drew down R$229 million in December 2009.

h) significant changes in each item of the financial statements

Financial Reporting

Preparation of Financial Statements

Our books and records are kept in reais.

Our consolidated financial statements were prepared and are presented in accordance with accounting

principles generally accepted in Brazil, as provided for by the following:

Brazilian Corporate Law

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rules and standards issued by the CVM

accounting standards issued by the IBRACON

Consolidated Financial Statements

Our Company and its subsidiaries adopt consistent accounting policies.

The consolidated statements were prepared in accordance with CVM Statement No. 274/1996 and include

the financial statements of our direct and indirect subsidiaries. The main consolidation policies are as

follows:

Sum of asset, liability, income and expense account balances is made according to their accounting

classification.

Elimination of consolidated intercompany asset and liability accounts and relevant receipt and expenditure

transactions.

Elimination of investments and corresponding equity interests in consolidated companies.

Disclosure of minority interests in the liabilities and income for the period; and

Consolidation of exclusive investment funds (note 9).

Overview of the Company's Financial Information

The financial information relating to the years ended December 31, 2009, 2008 and 2007 was prepared in

accordance with accounting principles generally accepted in Brazil, including the changes introduced by

Law No. 11,638 and Law No. 11,941/09, formerly Provisional Measure No. 449/08.

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Convergence with International Financial Reporting Standards – IFRS – Law No. 11,638/07 and Provisional

Measure No. 449/08

In December 2007 Law No. 11,638/07 was enacted, effective January 1, 2008, which updated certain

provisions of the Brazilian Corporate Law and introduced several changes in the manner of preparing

financial statements, so as to enable convergence with the International Financial Reporting Standards

("IFRS"). This law placed full normative jurisdiction in the CVM to regulate the matter for publicly-held

companies.

In December 2008 MP No. 449/08 was enacted with force of law, which instituted a Provisional Taxation

Regime ("RTT") for determining the taxable income and addressed certain tax adjustments required as a

result of the new accounting methodologies and criteria introduced by Law No. 11,638/07. It also

amended some provisions of the Brazilian Corporate Law.

Also in December 2008, the CVM issued Statement No. 565 to implement the changes introduced by Law

No. 11,638/07 and MP 449/08 in the accounting policies of publicly-held companies.

In order to have our financial statements for the year ended December 31, 2007 comparable to the

financial statements for the year ended December 31, 2008, we re-presented our financial statements

already published on December 31, 2007 to accommodate the changes introduced in our accounting

policies by Law No. 11,638/07 and Law No. 11,941/09, formerly MP No. 449/08.

Listed below are the main changes introduced by Law No. 11,638/07 and Law No. 11,941/09 (formerly MP

No. 449/08) that have had impacts on our financial statements and on those of our subsidiaries:

Elimination of the need to publish statements of changes in the financial position.

Regulation of financial instrument evaluation and classification criteria.

Recognition of assets and liabilities resulting from commercial lease transactions (capital lease).

Mandatory impairment testing of non-current assets.

Change in the recognition criteria applicable to donations and investment allowances.

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Introduction of present value adjustment for long-term and relevant short-term asset and liability

transactions.

Elimination of non-operating income (loss).

Elimination of deferred income (loss).

Accounting for stock-based compensations.

The impacts resulting from the changes introduced by Law No. 11,638/07 and Law No. 11,941/09,

formerly MP No. 449/08, are presented in the notes accompanying our consolidated financial statements

for the year ended December 31, 2008.

Financial Statements of the Company

The financial information presented in this Reference Form relative to the balance sheets and statements

of income for years ended December 31, 2007, 2008 and 2009 were derived from our individual and

consolidated financial statements.

The financial statements for the periods ended December 31, 2009 were prepared in accordance with

accounting principles generally accepted in Brazil, including the changes introduced by Law No. 11,638/07,

and audited by Deloitte Touche Tohmatsu Auditores Independentes pursuant to the applicable Brazilian

auditing standards. The opinion of the independent auditor firm includes a paragraph stressing the fact

that, as mentioned in note 2, the balance sheets and the statements of income and of cash flows for the

year ended December 31, 2008, presented for comparison purposes, were reclassified to accommodate

best reporting practices and then re-presented. The financial statements and relevant accompanying notes

for the year ended December 31, 2008, as reclassified, were reviewed by other independent auditors, who

submitted an unqualified report on March 4, 2009, except for the matter described in note 2, which is

dated March 11, 2010.

The financial statements for the years ended December 31, 2008 and 2007 were prepared in accordance

with accounting principles generally accepted in Brazil, including the changes introduced by Law No.

11,638/07, and audited by BDO Trevisan Auditores Independentes pursuant to the applicable Brazilian

auditing standards. The opinion of the independent auditor firm includes emphasis paragraphs as

described below and in the relevant report of the auditor firm.

The auditor firm's report on the financial statements for years ended December 31, 2008 and 2007, dated

March 4, 2009, was issued on an unqualified basis and includes certain paragraphs stressing that the

147


adjusted financial statements for the year ended December 31, 2007 were re-presented pursuant to NPC

12 – Accounting Principles, Changes in Accounting Estimates and Error Correction, on account of the

changes made to the accounting principles accepted in Brazil in 2008, and that statements of cash flow

and of value added (parent company) were included relative to the year ended December 31, 2007, and

prepared in connection with the financial statements for 2008.

Financial Information comparison for the years ended December 31, 2009, 2008 and 2007

Comparison of the accounts of our result for the years ended 2009, 2008 and 2007 – Brasil

Telecom S.A. (Consolidated)

2009 2008 2007

2009 x

2008

2008 x

2007

Gross operating revenues 17,772 17,007 15,997 4.5 6.3

Taxes and deductions (6,893 ) (5,426 ) (4,782 ) 27.0 13.5

Net operating revenues 10,879 11,581 11,216 (6.1 ) 3.3

Cost of goods sold and services rendered (5,906 ) (6,180 ) (6,362 ) (4.4 ) (2.9 )

Gross profit 4,973 5,401 4,854 (7.9 ) 11.3

Operating income (expenses)

Selling expenses (1,392 ) (1,338 ) (1,464 ) 4.0 (8.6 )

General and administrative (1,435 ) (1,340 ) (1,267 ) 7.1 5.8

Other operating income (expenses), net (3,417 ) (732 ) (662 ) 366.8 10.6

(6,244 ) (3,410 ) (3,393 ) 83.1 0.5

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Operating income (loss) before financial result (1,271 ) 1,991 1,461 (163.8 ) 36.3

Financial revenues 576 697 436 (17.4 ) 59.9

Financial expenses (857 ) (1,109 ) (804 ) (22.7 ) 37.9

Financial result (281 ) (412 ) (368 ) (31.8 ) 12.0

Profit (loss) before tax (1,552 ) 1,579 1,093 (198.3 ) 44.5

Income tax and social contribution (450 ) (638 ) (295 ) (29.5 ) 116.3

Deferred income tax 861 87 - 889.7 n/d

Profit (loss) before non-controlling interest (1,141 ) 1,028 798 (211.0 ) 28.8

Non-controlling interest (2 ) 2 2 (200.0 ) 0.0

Net income (loss) for the period (1,143 ) 1,030 800 (211.0 ) 28.8

Outstanding shares on balance sheet date

(thousands) 589,789 547,499 547,272

Net income (loss) per outstanding share

at year end (R$) (1.94 ) 1.88 1.46

Comparison of our Gross Operating Revenues for the years ended December 31, 2009, 2008

and 2007

Year ended December 31, % Variation % Variation

2007 (%) 2008 (%) 2009 (%) 2008/2007 2009/2008

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Gross Operating Revenues 15,997 100.0 17,007 100.0 17,772 100.0 6.3 4.5

Fixed-lineFixed-line service 14,078 88.0 15,042 88.4 15,886 89.4 6.8 5.6

Local 6,566 41.0 6,550 38.5 6,481 36.5 (0.2) (1.1)

Subscription 3,536 22.1 3,676 21.6 3,888 21.9 3.9 5.8

Local traffic 1,101 6.9 920 5.4 741 4.2 (16.5) (19.4)

Fixed-lineFixed-line to mobile

calls 1,882 11.8 1,926 11.3 1,819 10.2 2.3 (5.6)

Other 47 0.3 28 0.2 33 0.2 (40.4) 17.9

Long-Distance 2,947 18.4 2,853 16.8 2,544 14.3 (3.2) (10.8)

Payphone calling cards 546 3.4 475 2.8 352 2.0 (13.1) (25.9)

Network usage 358 2.2 374 2.2 358 2.0 4.4 (4.4)

Data services 3,231 20.2 4,343 25.5 5,583 31.4 34.4 28.5

Other services 429 2.7 448 2.6 570 3.2 4.4 27.2

Mobile telephony 1,919 12.0 1,966 11.6 1,886 10.6 2.4 (4.1)

Services 1,024 6.4 1,078 6.3 1,127 6.3 5.2 4.6

Handsets 270 1.7 226 1.3 114 0.6 (16.4) (49.6)

Network usage 625 3.9 662 3.9 645 3.6 6.0 (2.7)

Gross Operating Revenues

Fixed-lineFixed-line service

Our revenues from fixed-linefixed-line services increased by 5.6% in 2009 versus 2008. The increase of

28.5% in revenues from data services and of 27.2% in revenues from other services was substantially

offset by the decrease of 10.8% in revenues from long-distance services, of 25.9% in revenues from

payphone calling cards and of 1.1% in revenues from local calls.

Our revenues from fixed-linefixed-line services increased by 6.8% in 2008 versus 2007. The increase of

34.4% in revenues from data services, of 4.4% in revenues from network usage, and of 4.4% in revenues

from other services was substantially offset by the decrease of 3.2% in revenues from long-distance

services and of 13.1% in revenues from payphone calling cards.

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The increase seen in our gross revenues continues to be driven by the expansion of data communication

services and continued stabilization of our fixed-linefixed-line customer base owing to a more flexible

credit policy which contributes to secure the low-income segment of our customer base. Low-income

customers, although providing smaller margins, still generate value for our company.

Local

Gross revenues derived from local services totaled R$6,481 million in 2009 (R$6,550 million in 2008), a

year-on-year decrease of 1.1%. This decrease resulted mainly from a reduction in local traffic and a

decrease of 4.7% in our fixed-linefixed-line customer base, despite the positive impact of the 0.98% rate

restatement performed in September 2009. This reduction in local traffic reflects a continued trend of

traffic migration from fixed-linefixed-line to mobile networks.

Gross revenues derived from local services totaled R$6,550 million in 2009 (R$6,566 million in 2007), a

year-on-year decrease of 0.2%. This decrease was primarily due to a 16.6% decline in gross operating

revenues from metered services, the effects of which were partially offset by a 4.0% increase in gross

operating revenues from monthly subscription fees and a 2.3% increase in gross operating revenue from

local fixed-linefixed-line-to-mobile traffic.

Monthly Subscription

Our revenues from monthly subscriptions increased by 5.8% to R$3,888 million in 2009 (R$3,676 in

2008). This variation is due mainly to the increase of 0.98% in basic service plan rates introduced in

September 2009, and the increase of 35.1% in the number of subscriptions to out alternative plans, from

4.2 million on December 31, 2008 to 5.6 million on December 31, 3009. These results were partially offset

by the reduction of 4.7% in the number of lines in service, from 8.1 million on December 31, 2008 to 7.7

million on December 31, 2009.

In 2008, revenues from monthly subscription fees increased by 3.9% to R$3,676 million (R$3,536 million

in 2007), primarily as a result of (1) rate increases of 2.14% and 3.01% for our basic service plans

implemented in July 2007 and July 2008, respectively, and rate increases for our alternative plans that

reflected increases in inflation of 2.14% in 2007 and 3.01% in 2008, as measured by the IST; (2) a 1.2%

increase in the number of fixed-linefixed-lines in service to 8.1 million at December 31, 2008 from 8.0

million at December 31, 2007; and (3) a 17.6% increase in the number of subscriptions to our alternative

plans to 4.2 million at December 31, 2008 from 3.5 million at December 31, 2007.

Local traffic

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Revenues from local traffic declined by 19.4% in 2009 versus 2008, and by 16.5% in 2008 versus 2007,

mostly as a result of (1) the migration of our fixed-linefixed-line customers from our basic plans to our

alternative plans that include more minutes, and (2) the migration of local traffic origination to mobile

handsets as callers take advantage of mobile plans and promotions under which mobile service providers

offer minutes for mobile-to-mobile calls within their own networks at lower rates than those charged for

minutes for fixed-linefixed-line-to-mobile calls.

Fixed-lineFixed-line-to-Mobile Calls (VC1)

Revenues from local fixed-linefixed-line-to-mobile calls (VC1 calls) consist of charges for local calls made

from a fixed-linefixed-line to a mobile phone.

Our revenues from VC1 calls declined by 5.6% in 2009, principally as a result of a decline in traffic due to

the migration to mobile phones of fixed-linefixed-line outgoing calls, and the reduction of 4.7% in our

fixed-linefixed-line customer base. VC1 rates were not adjusted in 2009.

Gross operating revenues from local fixed-linefixed-line-to-mobile calls (VC1 calls), increased by 2.3% in

2008, mostly as a result of increases of 3.29% and 3.01% in the VC1 rate that were implemented in July

2007 and July 2008, respectively. The effects of these increases were partially offset by a 0.2% decline in

the total number of minutes in local fixed-linefixed-line-to-mobile calls in 2008 as our fixed-linefixed-line

customers opted to take advantage of mobile service plans under which mobile-to-mobile calls cost less

than fixed-linefixed-line-to-mobile calls. The average number of minutes used in fixed-linefixed-line-to-

mobile calls per month by our fixed-linefixed-lines increased by 0.6% in 2008.


Our revenues from long-distance calls decreased by 10.8% to R$2,544 million in 2009 (R$2,853 million in

2008), primarily due to (1) a 10.3% decline in gross operating revenues from long-distance calls

originating or terminating on mobile devices, (2) a 9.9% decline in gross operating revenue from intra-

sector fixed-linefixed-line-to-fixed-linefixed-line long-distance calls, and (3) a 13% decline in gross

operating revenues from inter-sector fixed-linefixed-line-to-fixed-linefixed-line long-distance calls. These

decreases were partially offset by the increase of 0.98% in rates in September 2009. Intra-sector calls are

those in which callers are located in the same region and in the same sector. A sector is a set of local

areas within one region, as established by ANATEL, and usually corresponds to a Brazilian state. Inter-

sector calls are those in which callers are located in the same region, but in different sectors.

Our revenues from long-distance services declined by 3.2% to R$2,853 million in 2008 (R$2,947 million in

2007), primarily due to (1) a 2.7% decline in gross operating revenues from long-distance calls originating

or terminating on mobile devices, (2) a 3.4% decline in gross operating revenues from intra-sector fixed-

linefixed-line-to-fixed-linefixed-line long-distance calls, and (3) a 3.4% decline in gross operating revenues

from inter-sector fixed-linefixed-line-to-fixed-linefixed-line long-distance calls.

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Payphone calling cards

Our revenues from the sale of calling cards to be used in payphones decreased by 25.9% to R$352 million

in 2009 (R$475 million in 2008). This decrease resulted from the promotion campaigns made by mobile

carriers in 2009, offering cheaper rates for calls within their networks, which led to a migration in traffic

from TUP to the mobile network.

These revenues decreased by 13.1% in 2008 to R$475 million (R$546 million in 2007), mostly due to a

decline of R$15.7% in the number of calling cards sold, to 4.3 billion units (5.1 billion units in 2007), since

callers have chosen to use their mobile phones instead of payphones and take advantage of carriers'

promotions in the prepaid segment (including bonus minutes and cheaper prepaid credit). This decline

was partially offset by rate increases of 2.14% and 2.53% for payphone calls introduced in July 2007 and

July 2008, respectively.

Network usage

The compensation payable for the use of our network consists in the fees received for completing calls

originated from other carriers. Calls from other mobile carriers in our region represented 47.1% of this

kind of revenue as of December 31, 2009, with the remainder coming from fixed-linefixed-line network

carriers.

The revenues derived from use of our fixed-linefixed-line network in 2009 totaled R$358 million, an year-

on-year drop of 4.4%. This can be explained mainly by a 9.9% reduction in fixed-linefixed-line-only traffic,

which in turn reflects a shift of fixed-linefixed-line-to-mobile calls. This migration has been partially offset

by a 2.7% increase in fixed-linefixed-line-to-mobile traffic.

Our gross operating revenues from the use of our fixed-line network increased by 4.4% in 2008,

principally as a result of a 26.8% increase in gross operating revenues from interconnection fees paid to

us for completing calls on our fixed-line network that were originated on the networks of mobile carriers.

This increase is chiefly due to (1) increased traffic as a result of callers taking advantage of plans and

promotions offered by mobile carriers, involving discounts on minutes for mobile-to-fixed-line calls, and (2)

to a lesser extent, increases of 3.01% and 4.9% in the TU-RL and TU-RIU rates, respectively,

implemented in July 2008.

Data Services

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Our gross operating revenues from data services increased by 28.5% to R$5,583 million in 2009, up from

R$4,343 million in 2008. This increase was chiefly attributable to an increase of 54.1% in gross operating

revenues from ADSL subscriptions, an increase of 25.6% in gross operating revenues from IP services,

and an increase of 11% in gross operating revenues from dedicated line services (SLDD/SLDA). Our gross

operating revenues from ADSL subscriptions increased in 2009 due to the increase of 8.8% in the number

of ADSL subscriptions to 1.9 million at December 31, 2009 from 1.8 million at December 31, 2008, as a

result of our continued focus on increasing the penetration of our ADSL services in the internet market.

These increases were partially offset by the reduction of 14.9% in the gross operating revenues from EILD

services and of 12.7% in gross operating revenues from switching packs and frame relay.

Our revenues from data services increased by 34.4% to R$4,343 million in 2008, up from R$3,231 million

in 2007. This variation was chiefly due to an increase of 66.4% in gross operating revenues from ADSL

subscriptions, and an increase of 16.5% in gross operating revenues from EILD services. Our gross

operating revenues from ADSL subscriptions increased in 2008 due to the increase of 15.2% in the

number of ADSL subscriptions to 1.8 million at December 31, 2008 from 1.6 million at December 31, 2007,

as a result of our continued focus on increasing the penetration of our ADSL services in the internet

market. Our gross operating revenues from EILD services increased in 2008 chiefly due to the higher

number of leased circuits as a result of the increase in the demand by other service providers that require

additional backbones to increase their penetration in the relevant market.

Mobile Telephony

The revenues derived from mobile services in December 2009 were R$1,886 million, a decrease of 4.1%

compared to the R$1,966 million recorded in 2008. This drop in revenues resulted primarily from a 49.6%

decrease in gross operating revenues of mobile handset and accessory sales, in turn explained by our

accommodation of Telemar's strategy of marketing SIM cards alone in the prepaid segment to cut down

on acquisition costs incurred by customers. The impact of this reduction was partially offset by the

expansion experienced during the year by our customer base, which included 36.1 million customers as of

December 31. This figure represents a 20.4% increase compared to the 30.0 million customer base

reported on December 31, 2008. The restatement of rates in September 2009 also contributed to offset

the impact of reduced gross operating revenues. The expansion of our customer base resulted in an

increase of 9.5% in subscription gross operating revenues, and of 9.5% in value-added service gross

operating revenues.

The revenue from mobile telephony services was R$1,966 million in 2008, a 2.4% increase compared to

the R$1,919 million recorded in 2007. This increase resulted primarily from an 15.1% increase in the gross

operating revenues from charged minutes, which is the sum of the minutes used by prepaid and post-paid

customers with local calls in excess of plan minutes, in turn resulting from (1) a 31.5% increase in the

number of mobile service customers, from 4.3 million on December 31, 2007 to 5.6 million on December

31, 2008, and (2) an increase in the rates applicable to charged minutes against inflation rates of 3.17%

in 2007 and 6.56% in 2008, as measured by the IST. Additionally, our revenues from mobile services were

impacted by a 47.9% increase in the gross operating revenues from added-value services, due primarily to

an increase in our mobile customer base and increased SMS traffic and GRPS services. The effects of these

increases were partially offset by (1) a 16.4% reduction in gross operating revenues from mobile handset

and accessory sales, on account of reduced demand for mobile handsets after an upward price adjustment

caused by cancellation of sales subsidies, and (2) a 7.3% reduction in our gross operating revenues from

subscriptions, owing to the migration of post-paid customers to cheaper plans, the impact of which was

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partially offset by post-paid plan rate restatements against a inflation rate of 3.17% in 2007 and 6.56% in

2008, as measured by the IST.

Comparison of Cost of Goods Sold and/or Services provided for the years ended December 31,

2009, 2008 and 2007


2007 (%) 2008 (%) 2009 (%) 2007/2008 2008/2009


Interconnection 2,319 36.3 2,203 35.6 2,026 34.3 (5.0) (8.0)

Depreciation/Amortization 2,034 31.9 1,683 27.2 1,529 25.9 (17.3) (9.2)

Other operating costs and expenses

2,030 31.8

2,294 37.1

2,351 39.8 13.0 2.5

Labor 162 2.5 338 5.5 397 6.7 108.6 17.5

Materials 70 1.1 64 1.0 76 1.3 (8.6) 18.8

Costs of handsets and accessories 255 4.0 237 3.8 87 1.5 (7.1) (63.3)

Outsourced services 934 14.6 971 15.7 1,101 18.6 4.0 13.4

Lease and insurance 314 4.9 395 6.4 386 6.5 25.8 (2.3)

Other costs and expenses 274 4.3 289 4.7 304 5.1 5.5 5.2

Total 6,362 100.0 6,180 100.0 5,906 100.0 2.9 (4.4)

In 2009 the cost of goods and/or services sold dropped by 4.4% year on year, mainly because of a 63.3%

reduction in the cost of handsets and accessories resulting from compliance with Telemar's strategy of

selling SIM cards alone, as well as a 9.2% depreciation line reduction and a 8.0% reduction in

interconnection costs. These reductions are being partially offset by an increase of 17.5% in labor costs,

18.8% in materials costs, and 13.4% in contractor costs.

In 2008 the cost of goods and/or services sold dropped by 2.9% year on year, mainly because of a 17.3%

reduction in depreciation costs and a 5.0% reduction in interconnection costs. These reductions are being

partially offset by an increase of 108.6% in labor costs, 25.8% in rent and insurance costs, and 4.0% in

contractor costs.

Interconnection

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Interconnection costs, which correspond to amounts paid to other fixed-line and mobile network carriers

(mostly mobile carriers) for call completion, totaled R$2,026 million in 2009, and accounted for 34.3% of

our costs of services sold. These costs dropped by 8.0% compared to 2008 interconnection costs. This

reduction in cost resulted primarily from our integration with Telemar, when network use between the two

companies ceased to be charged.

Interconnection costs totaled R$2,203 million in 2008, and accounted for 35.6% of our costs of services

sold. These costs dropped by 5.0% compared to 2007 interconnection costs. This reduction in cost

resulted primarily from the increase in the mobile service customer base, which in turn resulted in less

traffic originating from our mobile customers terminating in other carriers' networks.

Depreciation/Amortization

Depreciation and amortization costs in 2009 dropped by 9.2% year on year, from R$1,683 million on

December 31, 2008 to R$1,529 million on December 31, 2009, and 17.3% compared to 2007 figures, from

R$2,034 million on December 31, 2007 to R$1,683 million on December 31, 2008. Decreased depreciation

costs in 2008 resulted from an increase in the number of fixed-line service equipment that were

completely depreciated. The effects of this reduction in depreciation costs was partially offset by an

increase in depreciation associated with mobile services, owing to (1) an increase in fixed assets resulting

from expansion of our mobile network, and (2) increased amortization costs resulting from the purchase of

3G radiofrequency licenses in 2008.

Labor

In 2009 our costs with the workforce increased 17.5%, from R$338 million on December 31, 2008 to

R$397 million on December 31, 2009. This difference resulted primarily from higher severance costs

incurred by our company on account of the administrative restructuring process and the retirement

stimulus program focusing on employees with over 20 of service.

In 2008 our costs with the workforce increased 108.6%, from R$162 million on December 31, 2007 to

R$338 million on December 31, 2008. This difference resulted primarily on account of bringing call center

service in house by late 2007, the Internet Group an on the first quarter of 2008, as well as from

compliance with Decree No. 6,523, effective December 1, 2008.

Materials

In 2009 our costs with materials were 18.8% higher than those recorded in 2008, increasing from R$64

million in 2008 to R$76 million in 2009. This increase was due primarily to an increase in the amount of

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materials used in providing ADSL-related services, mainly on account of a 8.8% increase in our ADSL

customer base.

In 2008 our costs with materials were 8.6% lower than those recorded in 2007, going from R$70 million in

2007 down to R$64 million in 2009. This drop resulted primarily to a reduction in the amount of materials

used in connection with maintenance of our fixed-line network, and to a decrease in fuel costs associated

with maintenance of our fixed-line network.

Costs of handsets and accessories

In 2009 our costs with handsets and accessories were 63.3% lower than those recorded in 2008, going

from R$237 million in 2007 down to R$87 million in 2009. This drop resulted from compliance with

Telemar's strategy of selling SIM cards alone in the prepaid segment, in an attempt to reduce acquisition

costs incurred by customers.

In 2008 our costs with handsets and accessories were 7.1% lower than those recorded in 2007, going

from R$255 million in 2007 down to R$237 million in 2008. This drop resulted from decreased handset

sales due to our strategy of reducing subsidies in this business and focusing on the sale of SIM cards

separately from handsets, mainly in the prepaid segment, with the goal of reducing acquisition costs

incurred by customers.

Third-Party Services

Our third-party service costs increased by 13.4% from R$971 million in 2008 to R$1,101 million in 2009.

This increase was essentially due to a 24.5% increase in electricity costs resulting from restated rates, and

a 15.2% increase in plant maintenance expenses.

Our third-party service costs increased by 4.0% from R$934 million in 2007 to R$971 million in 2008. This

increase was essentially due to a 8.5% increase in marketing and advertising expenses, which was

partially offset by reduced expenses in connection with bringing call center functionality in house.

Rents and Insurance

Consolidated 2009 rent and insurance costs remained virtually unchanged compared to 2008 figures, and

only decreased 2.3%, or R$9 million, year on year.

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In 2008 our consolidated rent and insurance costs increased 25.8% compared to 2007 figures, from

R$314 million on December 31, 2007 to R$395 million on December 31, 2008. This increase was driven

essentially by the expansion of our broadband customer base and our Internet network, which led to an

increase in the number of third-party circuit leases.

Comparison of our Selling, General and Administrative Expenses for the years ended December 31, 2009,

2008 and 2007

Selling expenses


2007 2008 2009 2007/2008 2008/2009


Depreciation 19 9 9 (52.6) 0.0

Labor 229 238 176 3.9 (26.1)

Materials 51 91 82 78.4 (9.9)

Third-Party Services 736 547 539 (25.7) (1.5)

Lease and insurance 57 50 29 (12.3) (42.0)

Allowance for Doubtful Accounts 348 370 550 6.3 48.6

Other expenses (revenues), net 24 33 7 (37.5) (78.8)

Total 1,464 1,338 1,392 (8.6) 4.0

General and Administrative Expenses


2007 2008 2009 2007/2008 2008/2009


Depreciation 298 291 443 (2.3) 52.2

Labor 172 220 295 27.9 34.1

Materials 4 4 3 0.0 (25.0)

Third-Party Services 757 804 673 6.2 (16.3)

Lease and insurance 35 20 20 (42.9) 0.0

Other expenses (revenues), net 1 1 1 0.0 0.0

Total 1,267 1,340 1,435 5.8 7.1

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Overall, our selling, general and administrative expenses increased 5.6% in 2009 compared to 2008

figures, from R$2,678 million on December 31, 2008 to R$2,827 million on December 31, 2009. Higher

expenditure levels were identified in selling expenses, primarily in allowances for doubtful accounts

(+48.6%), as well as in general and administrative expenses, particularly depreciation (+52.2%) and

payroll (+34.1%) expenses. These were partially offset by reductions of operating expenses, specially staff

(-26.1%) and rent and insurance (-42.0%) expenses, as well as general and administrative expenses,

specially third-party service expenses (-16.3%).

A top driver of sales expenses in 2009 were the increased allowance for doubtful account levels, reflecting

primarily our strategy of implementing more flexible credit policies in the low-income fixed-line customer

market. Main drivers increasing general and administrative expenses in 2009 were higher depreciation

expenses on account of increased amortization costs in connection with acquisition of 3G radio frequency

licenses in 2008, and increased payroll expenses in connection with increased employment termination

and severance expenditures.

Overall, selling, general and administrative expenses dropped 1.9% in 2008 compared to 2007 figures,

from R$2,731 million on December 31, 2007 to R$2,678 million on December 31, 2008. Expense declines

were seen in selling expenses, primarily in third-party service (-25.7%), rent and insurance (12.3%) and

depreciation (52.6%) expenses, which were partially offset by an increase in operating expenses related

with materials (+74.4%). General and administrative expenses remained virtually stable in 2008, and

increased by 5.8% compared to 2007 figures.

Main elements driving down selling expenses in 2008 were third-party service expenses on account mainly

of reduced marketing expenses due to a reduction in the number of promotional and advertising

campaigns in the Internet services business. The main drivers of general and administrative expenses in

2008 were increased payroll-related expenses, such as increased profit-sharing expenses driven by our

higher income levels, and increased salaries and benefits expenses as mandated by our collective

bargaining agreement, which were partially offset by a reduction in depreciation expenses due to an

increase in the amount of fully-depreciated fixed assets.

Comparison of our Other Operating Expenses, Net for the years ended December 31, 2009,

2008 and 2007


2007 2008 2009 2007/2008 2008/2009


Other operating revenues

Proceeds from settlement of litigation (i) - 170 - n/a n/a

159


Infrastructure rentals 87 87 90 0.0 3.4

Fines 78 103 108 32.1 4.9

Recovery of pension plan expenses 81 61 40 (24.7) (34.4)

Settlement of dispute with

telecommunications companies 17 21 - 23.5 n/a

Technical and administrative services 57 61 51 7.0 (16.4)

Recovery of tax and expenses 96 145 213 51.0 46.9

Subventions and donations received 17 15 9 (11.8) (40.0)

Reversal of other provisions 32 n/a n/a

Other revenues - 49 111 (66.4) 126.5

465 712 622 53.1 (12.6)

Other operating expenses

Provision for contingencies 650 573 3,340 (11.8) 482.9

Provision for pension plans 90 81 6 (10.0) (92.6)

Tax (except over gross revenue, Income Tax

and Social Contribution) 244 430 325 76.2 (24.4)

Fines - - 94 n/a n/a

Write-off of property, plant and equipment 3 40 78 1,233.3 95.0

Donations and sponsoring 11 23 16 109.1 (30.4)

Amortization of goodwill on acquisition of

investments 85 82 - (3.5) n/a

Court fees 51 59 50 15.7 (15.3)

Loss with investments - 35 - n/a n/a

Other expenses (7) 121 130 (1,828.6) 7.4

1,127 1,444 4,039 28.1 179.7

662 732 3,417 10.6 366.8

(i) These refer to the amount received as a result of the Litigation Release and Settlement Instrument

entered into by our company, our subsidiary BrT Celular and our parent company Opportunity Fund/Banco

Opportunity and their associates, and Telemar. Such settlement was in the common interest of the parties

relating to the change of control of our company.

160


Overall, other net operating expenses, net increased by 366.8% from R$732 million on December 31,

2008 to R$3,417 million on December 31, 2009. Other operating revenues decreased by 12.6% to R$622

million on December 31, 2009 from R$712 million on December 31, 2008, while other operating expenses

increased by 179.7% to R$4,039 million on December 31, 2009 from R$1,444 million on December 31,

2008. This decrease in other operating revenues was mainly due to receipts in connection with the

settlement of certain claims in the amount of R$170 million in 2008 that not recorded in 2009. The

increase in other operating expenses is mainly due to the increase of 482.9% in expenses with

contingencies to R$3,340 million on December 31, 2009 from R$573 on December 31, 2008, owing to the

revaluation of the amount and level of exposure in connection with certain lawsuits brought against the

former CRT. Accordingly, we changed the likelihood of loss in these lawsuits from possible to probable and

set up additional provisions in the amount of R$2,325,578, which had an impact of R$1,534,882 on our

net income and shareholders' equity, net of tax effects. For further detail, please refer to Material Fact

dated January 1, 2010.

Overall, other net operating expenses increased 10.6% in 2008 compared to 2007 figures, from R$662

million on December 31, 2007 to R$732 million on December 31, 2008. Other operating revenues

increased 53.1% in 2008, recording R$712 million on December 31, 2008, compared to R$465 million on

December 31, 2007, while other operating expenses increased 28,1% in 2008 compared to 2007 figures,

from R$1,127 million on December 31, 2007 to R$1,444 million on December 31, 2008. This increase in

other operating revenues was due mainly to receipts in connection with the settlement of certain claims

which totaled R$170 million in 2008 but were not recorded in 2007. The increase in other operating

expenses can be primarily explained by a 76.2% increase in our tax expenses, raising from R$244 million

on December 31, 2007, to R$430 million on December 31, 2008.

Comparison of our Net Financial Income (Loss) for the years ended December 31, 2009, 2008

and 2007

The net financial income in 2009 dropped by 31.8%, or R$131 million, recording a negative balance of

R$281 million after R$576 million in revenues and R$857 million in expenses. In 2009 our financial

expenses were 22.7% smaller than in 2008, mainly due to loan and borrowing monetary and exchange

variations, which recorded expenses in the amount of R$232 million in 2008 and revenues of R$186

million in 2009 (corresponding to a negative variation of 180.5%). Our financial revenues in 2009 were

17.4% smaller than 2008 figures, mainly due to a decrease of 29.4% in the income from financial

investments, and of 64.2% in interest revenues and monetary variation on taxes and contributions.

The net financial income in 2008 dropped by 12.0%, or R$44 million, recording a negative balance of

R$412 million after R$697 million in revenues and R$1,109 million in expenses. In 2008 our financial

expenses were 37.9% greater than in 2007, mainly due to the effect of exchange rate variations on our

indebtedness. Our financial revenues in 2008 were 59.9% greater than 2007 figures, mainly due to an

increase of R$111 million in interest revenues and active monetary variation resulting from an increase in

the number of existing active court deposits.

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Comparison of the Net Income (Loss) for Years Ended December 31, 2009, 2008 and 2007

In 2009 we recorded a net loss of R$1,143 million, compared to a net income of R$1,030 million in 2008.

Compared to the previous year, the main reasons for this net loss in 2009 were variations seen in the

main revenue streams, and in operating costs and expenses. The latter relate to expenses incurred with

the merger of BrT Participações, as well as to increased net operating expenses resulting from higher

contingency expenses.

Our net income in 2008 was R$1,030 million against R$800 million in 2007, owing to the better operating

income seen in that year. Compared to the previous year, the main reasons affecting our net income in

2008 were variations seen in the main revenue streams, and in operating costs and expenses.

Comparison of Asset and Liability Balances on December 31, 2009, 2008 and 2007 – Brasil

Telecom S.A. (consolidated)

Pursuant to Law No. 11,638/2007 and Law No. 11,941/09, formerly MP No. 449/2008, and to regulations

issued by the CVM, our Company and its subsidiaries hereby expressly and unqualifiedly represent that

January 1, 2007 has been designated as transition date for the purposes of and in compliance with the

foregoing laws and regulations. The initial adjustments at the transition date resulting from compliance

with Law No. 11,638/2007 and Law No. 11,941/09, formerly MP No. 449/2008, were posted to the

retained earnings account pursuant to paragraph 1, article 186 of Law No. 6,404/1976.

December 31,

%

Variation

%

Variation

2007 % 2008 % 2009 % 2007/2008 2008/2009


Balance sheet assets

Total Assets 15,461 100.0 17,540 100.0 22,756 100.0 13.4 29.7

Current Assets 5,962 38.5 6,108 34.8 5,674 24.9 2.4 (7.1)

Cash and cash equivalents 584 3.8 1,479 8.4 1,717 7.5 153.2 16.1

Financial investments 1,847 11.9 562 3.2 382 1.7 (69.6) (32.0)

Accounts Receivable 2,190 14.1 2,210 12.6 1,992 8.8 0.9 (9.9)

Deferred & Recoverable Taxes 806 5.3 936 5.3 1,001 4.4 16.1 6.9

Court Deposits 329 2.1 679 3.9 360 1.6 106.4 (47.0)

162


Other 206 1.3 242 1.4 222 1.0 17.5 (8.3)

Non-current assets 9,500 61.5 11,432 65.2 17,082 75.1 20.3 49.4

Loans to parent company - - 0.0 1,675 7.4 n/d n/d

Deferred and Recoverable Taxes 1,395 9.0 1,524 8.7 5,053 22.2 9.2 231.6

Court Deposits 1,064 6.8 2,225 12.7 1,597 7.0 109.2 (28.2)

Other 90 0.6 146 0.8 187 0.8 61.6 28.2

Investments 24 0.2 4 0.0 5 0.0 (83.3) 25.0

Property, Plant and Equipment 5,690 36.8 5,902 33.6 6,993 30.7 3.7 18.5

Intangibles 1,237 8.0 1,632 9.3 1,572 6.9 32.0 (3.7)

Balance sheet liabilities

Total liabilities 15,461 100.0 17,540 100.0 22,756 100.0 13.4 29.7

Current liabilities 4,397 28.4 4,760 27.1 4,506 19.8 8.3 (5.3)

Financing and Loans 509 3.3 749 4.3 992 4.4 47.1 32.4

Debentures 9 0.1 12 0.1 11 0.0 33.3 (8.3)

Suppliers 1,483 9.5 1,890 10.8 1,554 6.8 27.4 (17.8)

Deferred and Payable Taxes 801 5.3 700 4.0 692 3.0 (12.6) (1.2)

Dividends and interest on equity 846 5.5 424 2.4 141 0.6 (49.9) (66.7)

Provisions 299 1.9 367 2.1 538 2.4 22.7 46.6

Other 450 2.9 619 3.5 578 2.5 (37.6) (6.7)

Non-Current Liabilities 5,551 35.9 6,545 37.3 7,154 31.4 17.9 9.3

Financing and Loans 2,810 18.1 3,045 17.4 2,558 11.2 8.4 (16.0)

Debentures 1,080 7.0 1,080 6.2 1,080 4.7 0.0 0.0

Provisions 1,282 8.2 1,318 7.5 2,015 8.9 2.8 52.9

Deferred and Payable Taxes 101 0.7 260 1.5 274 1.2 157.4 5.4

Authorizations Payable 175 1.1 624 3.6 610 2.7 256.6 (2.2)

Advances from Customers 72 0.5 189 1.1 241 1.1 162.4 27.5

Other 30 0.2 29 0.2 377 1.7 (3.3) 1,200.0

Minority Interest 9 0.1 (6) 0.0 1 0.0 (166.7) (116.7)

Shareholders' Equity 5,506 35.6 6,241 35.6 11,095 48.8 13.4 77.8

163


ASSETS

Current

Cash, Cash Equivalents and Financial Investments

As of December 31, 2009 the aggregate amount in the cash and cash equivalents, and cash and financial

investments accounts was R$2,099 million. This figure remained virtually stable compared to that recorded

December 31, 2008, and corresponded to a 2.8% increase due mainly to a 17.7% increase in the balance

of financial investments exclusive of cash, a R$320 million bank deposit certificate investment, which was

partially offset by a R$180 million reduction in the balance of investment funds exclusive of financial

investments and R$639 million in withdrawals of investments in securities of other companies. In addition

to the foregoing, additional funds were raised through loans and borrowings in the amount of R$757

million, which were partially offset by financial charges paid during the year in the amount of R$581

million, and by the payment of dividends and interest on shareholders' equity in the amount of R$275

million.

As of December 31, 2008 the aggregate amount in the cash and cash equivalents, and cash and financial

investments accounts was R$2,041 million. This figure corresponded to a reduction of R$390 million

compared to that recorded December 31, 2007, a drop of 16.0% due mainly to a 69.6% reduction in the

balance of financial investments, which fell from R$1,847 million on December 31, 2007 to R$562 million

on December 31, 2008. The main reason for this reduction were the withdrawals of large sums made

against exclusive funds, which were subsequently invested in securities issued by other companies. Also,

these results were impacted by the payment of financial charges, and income tax and social contribution

during the year in the amounts of R$525 million and R$620 million, respectively, in addition to the

payment of dividends and interest on shareholders' capital in the sum of R$685 million, which were

partially offset by new loans and borrowings taken in the amount of R$757 million.

Accounts Receivable

Our accounts receivable registered a balance of R$1,992 million as of December 31, 2009. This represents

a drop by 9.9%, or R$218 million, compared to December 31, 2008 (R$2,210 million), due mainly to a

reduction of R$102 million in billable services and a R$172 million increase in the allowance for doubtful

accounts as a result of bringing our credit and collection policies in line with Telemar's. This reduction in

the accounts receivable balance was partially offset by a R$63 million increase in services invoiced.

Our accounts receivable registered a balance of R$2,210 million as of December 31, 2008. This amount

remained virtually stable compared to that recorded December 31, 2007 (R$2,190 million), an increase of

0.9%, or R$20.0 million. This was driven mainly by a 7.0% increase in billable services, which raised from

164


R$892 million on December 31, 2007 to R$954 million on December 31, 2008. This increase was driven

mainly by expansion of our existing customer base.

Deferred & Recoverable Taxes

The deferred and recoverable taxes account recorded a R$1,001 million balance on December 31, 2009,

an increase of 6.9%, or R$65 million, compared to December 31, 2008. This variation comprises a R$81

million increase the amount of recoverable income tax and social contribution on net income, a R$17

million increase in the amount of recoverable ICMS, and of R$23 million in the amount of income tax and

social contribution on net income withheld at source, which were partially offset by a R$44 million

reduction in the amount of income tax and social contribution payable as a result of timing differences.

The deferred and recoverable taxes account recorded a R$936 million balance on December 31, 2008, an

increase of 16.1%, or R$130 million, compared to December 31, 2007. This variation comprises a R$51

million increase in the amount of recoverable ICMS, plus a R$43 million increase in the amount of

recoverable income tax and social security on net income, and an increase of R$52 million in the amount

of income tax and social security payable as a result of timing differences, which were partially offset by a

R$9 million decrease in the amount of income tax and social security withheld at source.

Court Deposits

The court deposits account recorded a R$360 million balance on December 31, 2009, which corresponded

to a year-on-year reduction of R$319 million, or 47.0%. This reduction was driven by a decrease in court

deposits associated with civil claims in the amount of R$391 million, partially offset by an increase of R$75

million in court deposits associated with tax litigation.

The court deposits account recorded a R$679 million balance on December 31, 2008, which corresponded

to a year-on-year increase of R$350 million, or 106.4%. This increase was driven by n increase in court

deposits associated with civil claims in the amount of R$353 million, partially offset by a decrease of R$3

million in court deposits associated with labor litigation.

Other

The other current assets account recorded a R$222 million balance on December 31, 2009, which

corresponded to a year-on-year decrease of R$20 million. This was due mainly to a R$24 decrease in the

derivative financial instruments account.

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The other current assets account recorded a R$242 million balance on December 31, 2008, which

corresponded to a year-on-year increase of R$36 million, or 17.5%. This increase was due mainly to a

R$21 million increase in inventories, plus R$29 million in derivative financial instruments.

Non-current

Loans to parent company:

Loans to the parent company recorded a balance of R$1,675 million on December 31, 2009, corresponding

to a year-on-year increase in the same amount. This increase is the result of the subscription by BrT Part

on February 17, 2009, of 11,648 non-convertible debentures issued by indirect controlling shareholder

Telemar at a par value of R$103 each, totaling R$1,200,000. These debentures will mature in five years,

precisely on December 11, 2013. The transaction will yield the DI rate plus a 4.0% p.a. spread, payable at

the same date of debenture maturity. This transaction, originally subscribed by BrT Part, was assigned to

our company on account of the merger of BrT Part.

Deferred and Recoverable Taxes


an increase of 231.6%, or 3,529 million, compared to December 31, 2008. This difference comprises an

increase of R$3,268 million resulting from income tax and social contribution on net income payable on

timing differences, R$165 million in recoverable income tax and R$96 million in recoverable ICMS and

other taxes.


an increase of 9.2%, or R$129 million, compared to December 31, 2007. This increase comprises an

increase of R$92 million in recoverable ICMS.

Court Deposits

The court deposits account recorded a R$1,597 million balance on December 31, 2009, which

corresponded to a year-on-year reduction of R$628 million, or 28.2%. This reduction reflects a decrease in

court deposits related to tax litigation in the amount of R$16 million, labor litigation in the amount of

R$105 million and civil litigation in the amount of R$506 million.

The court deposits account recorded a R$2,225 million balance on December 31, 2008, which

corresponded to a year-on-year increase of R$1,161 million, or 109.2%. This increase was driven by an

166


increase in court deposits associated with civil claims in the amount of R$52 million, partially offset by a

decrease of R$3 million in court deposits associated with tax litigation.

Other

Other non-current assets remained virtually stable and recorded a R$187.0 million balance on December

31, 2009, an increase of R$41.0 million, or 28.2%, year on year. This increase was driven by a reduction

in the promissory notes receivable account.

Other non-current assets recorded a R$146 million balance on December 31, 2008, which corresponded to

a year-on-year increase of R$90 million, or 61.6%. This increase was driven by an increase in the pension

fund account.

Property, Plant and Equipment

Property, plant and equipment recorded a R$6,993 million balance on December 31, 2009, which

corresponded to a year-on-year increase of R$1,091 million. Main drivers of this variation were the

additions made to fixed assets during the year ended December 31, 2009, including the amount of

goodwill paid upon acquisition of BrT Part, which resulted from appreciation of our fixed assets, in the

original amount of R$2,105 million.

Property, plant and equipment recorded a R$5,902 million balance on December 31, 2008, which

corresponded to a year-on-year increase of R$212 million, or 3.7%. Main drivers of this variation were

new additions related to works underway in the amount of R$1,586 million, and R$286 million in data

transmission and communication equipment, which were partially offset by fixed asset depreciation and

amortization in the amount of R$1,619 million.

Intangibles

Intangible assets recorded a R$1,572 million balance on December 31, 2009, which corresponded to a

year-on-year decrease of R$60 million. Main drivers for this variation were the amortizations performed in

the year in the amount of R$374 million, which were partially offset by additions and transfers in the

amount of R$135 million and R$180 million, respectively.

Intangible assets recorded a R$1,632 million balance on December 31, 2009, which corresponded to a

year-on-year increase of R$395 million, or 32.0%. Main drivers for this variation were the new additions to

data processing systems in the amount of R$243 million and added regulatory permits in the amount of

167


R$490 million, which were partially offset by amortization of intangible assets in the amount of R$466

million.

LIABILITIES

Current

Loans and Borrowings

On December 31, 2009, the debt balance of Issuer was R$992 million, which corresponded to a year-on-

year increase of R$243 million. The main component driving this increase was the credit facility agreement

we made with BNDES in December 2009, and the reclassification of long-term liabilities as short-term

liabilities. The foregoing was partially offset by amortization of short-term debt balances, including

payments of financial charges in connection with debt classified in current liabilities.

On December 31, 2008, the debt balance of Issuer was R$749 million, which corresponded to a year-on-

year increase of R$240 million. The main component driving this increase was the new agreement entered

by our company, its subsidiaries and Banco do Brasil in July 2008 in the amount of R$75 million to secure

financing for the network infrastructure expansion project, at a cost of 10.0% and but with a

performance-related bonus equal to 15% of the interest payable. The remaining component driving the

increase was the reclassification of long-term liabilities as short-term liabilities. This reclassification was

partially offset by amortization of short-term debt balances, including payments of financial charges in

connection with debt classified in current liabilities.

Suppliers

The suppliers account recorded a R$1,554 million balance on December 31, 2009, which corresponded to

a year-on-year reduction of R$336 million. The main driver for this variation were payments made in

connection with certain agreements entered into in 2008 and reduced supply and installation of network

and post maintenance, expansion and servicing equipment.

The suppliers account recorded a R$1,890 million balance on December 31, 2008, which corresponded to

a year-on-year increase of R$407 million, or 27.4%. The main driver for this variation were the new

agreements made in 2008 for the supply and installation of 3G network equipment and expansion of our

2G network.

Deferred and Payable Taxes

Deferred and payable taxes remained virtually stable and recorded a R$692 million balance on December

31, 2009, an increase of R$8 million year on year. Main drivers of this variation were reductions of R$15

million in ICMS payable and of R$8 million in PIS and COFINS payable, which were partially offset by an

increase of R$12 million in the amount of social contribution on net income payable.

Deferred and payable taxes recorded a R$700 million balance on December 31, 2008, a reduction of

R$101 million, or 12.6%, year on year. Main drivers of this variation were reductions of R$65 million in

ICMS payable, R$40 million in income tax and social contribution on net income payable, and R$16 million

PIS and COFINS payable.

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Dividends and Interest on Shareholders' Equity

The dividends and interest on shareholders' equity account recorded a R$141 million balance on December

31, 2009, which corresponded to a year-on-year decrease of R$283 million. This variation was due to the

payment in 2009 of dividends and interest on shareholders' equity in the amount of R$275 million.

The dividends and interest on shareholders' equity account recorded a R$424 million balance on December

31, 2008, which corresponded to a year-on-year decrease of R$283 million, or 49.9%. This variation was

due to the payment in 2008 of dividends and interest on shareholders' equity in the amount of R$685

million, which was partially offset by an approved distribution of R$324 during the year.

Provisions

The provisions account recorded a R$538 million balance on December 31, 2009, which corresponded to a

year-on-year increase of R$171 million. This increase was due mainly to more provisions being set up for

civil and tax contingencies in the amounts of R$217 million and R$8 million, respectively, which were

partially offset by a decrease in provisions for labor contingencies in the amount of R$10 million.

The provisions account recorded a R$367 million balance on December 31, 2008, which corresponded to a

year-on-year increase of R$68 million, or 22.7%. This increase was due mainly to reassessment of

contingency risks in the amount of R$393 million, which was partially offset by provision payments made

during the year.

Others:

The others account remained virtually stable and recorded a R$578 million balance on December 31,

2009, a decrease of R$41 million year on year. This was mainly due to a decrease of R$61 million in

connection with authorizations and concessions payable, which was partially offset by an increase of R$25

million in the tax refinancing program account.

The others account recorded a R$619 million balance on December 31, 2008, which corresponded to a

year-on-year increase of R$169 million, or 37.6%. This difference essentially comprised an increase of

R$76 in payroll, charges and social benefits payable, and of R$16 million in advances from customers.

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Non-Current Liabilities

Loans and Borrowings

Debts recorded a R$2,558 million balance on December 31, 2009, which corresponded to a year-on-year

decrease of R$487 million. This decrease was due mainly to the repayment of loan principals in the

amount of R$771 million and to reclassification of certain loans as short-term liabilities. This increase was

partially offset by a credit agreement entered with BNDES in December 2009 for the purpose of financing

network expansion and quality projects, as well as support compliance with regulatory requirements

scheduled for the 2009-2011 period, with an outlay in the amount of R$300 million in December 2009.

Debts recorded a R$3,045 million balance on December 31, 2008, which corresponded to a year-on-year

increase of R$235 million, or 8.4%. This increase can be explained by fund-raising activities in the period,

mainly in connection with a R$560 million credit agreement made with the BNDES. This increase was

partially offset by amortizations and reclassifications as short-term liabilities.

Provisions

The provisions account recorded a R$2,015 million balance on December 31, 2009, which corresponded to

a year-on-year increase of R$697 million. This difference can be explained by an increase in the number of

existing provisions set up in connection with civil, labor and tax litigation in the amounts of R$318 million,

R$205 million and R$207 million, respectively. Provisions for civil claims increased mainly on account of

the re-estimation of amount and risk of loss in connection with lawsuits brought against former CRT.

The provisions account remained virtually stable and recorded a R$1,318 million balance on December 31,

2008, an increase of R$36 million, or 2.8%, year on year. This increase was due mainly to the restatement

of provisions in the amount of R$97 million and the setting up of a provision for new lawsuits in the

amount of R$131 million, which were partially offset by variations seen in court deposits during the period

in the amount of R$75 million.

Deferred and Payable Taxes

Deferred and payable taxes remained virtually stable and recorded a R$274 million balance on December

31, 2009, an increase of R$14 million year on year. This variation can be explained mainly by an increase

of R$11 million in PIS and COFINS payable.

The deferred and recoverable taxes account recorded a R$260 million balance on December 31, 2008, an

increase of R$159 million, or 157.4%, year on year. The main driver of this variation was an increase of

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R$161 million in PIS and COFINS payable, which was partially offset by a reduction of R$58 million in

income tax and social contribution payable.

Authorizations Payable

The authorizations payable account remained virtually stable and recorded a R$578 million balance on

December 31, 2009, a decrease of R$14 million year on year. This decrease was due to amortization of

outstanding balances.

The authorizations payable account recorded a R$624 million balance on December 31, 2008, which

corresponded to a year-on-year increase of R$449 million, or 256.6%. This increase was due mainly to the

purchase of new authorizations for operating 3G networks in the amount of R$488 million, which was

partially offset by amortization of outstanding balances.

Advances from Customers

Advances from customers recorded a R$241 million balance on December 31, 2009, which corresponded

to a year-on-year increase of R$52 million. This increase was due mainly to an increase in assignment of

means of telecommunication.

Advances from customers recorded a R$189 million balance on December 31, 2008, which corresponded

to a year-on-year increase of R$52 million, or 162.4%. This increase was due mainly to an increase of

R$62 million in assignments of means of telecommunication.

Other

The other non-current liabilities account recorded R$377 million as balance on December 31, 2009, which

corresponded to a year-on-year increase of R$36 million, or 17.5%. This difference was due mainly to an

increase of R$354 million in the tax repayment program established by Law No. 11,941/2009. Pursuant to

this law, our company and its subsidiaries reset their respective tax debts to the balances outstanding

before the existing repayment arrangement and subsequently applied the reduction factors set forth in the

law.

The other non-current liabilities account remained virtually stable and recorded a R$29 million balance on

December 31, 2008, a decrease of R$1 million, or 3.3%, year on year. This decrease was due mainly to a

R$13 million reduction in suppliers, which was partially offset by an increase of R$11 million in payroll,

charges and social benefits.

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Shareholders' Equity

The shareholders' equity recorded a R$11,095 million balance on December 31, 2009, which corresponded

to a year-on-year increase of R$4,854 million. This increase was due mainly to the merger of Cop art 2

and of Brasil Telecom Participações, which impacted our shareholders' equity in R$369 million and

R$5,535 million, respectively. This impact was partially offset by a net loss of R$1,143 million recorded for

the year.

The shareholders' equity recorded a R$6,241 million balance on December 31, 2008, which corresponded

to a year-on-year increase of R$735 million, or 13.4%. This increase was due mainly to income accrued at

year-end in the amount of R$1,030 million, which was partially offset by a proposed payment of interest

on the shareholders' equity in the amount of R$324 million.

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10.2. Management's comments

a) Issuer’s results of operations, including: i) description of any important element of the revenue;

Our telecom services include the following:

local fixed-line services, chiefly in Region II but also in Regions I and III, including installation,

monthly subscription, metered services, collect calls and local complementary services;

domestic and international long-distance call services mainly from Region II areas using fixed-line

and mobile services through carrier selection codes (in our case, code is 14);

2G and 3G mobile services;

data transmission services, including (1) ADSL services; (2) leasing of exclusive digital and analog

lines to other carriers, ISPs and corporate accounts; (3) IP solutions; and (4) other data

transmission services;

use of own network to (1) connect calls made by customers of other carriers (interconnection

services); or (2) carriers lacking necessary network resources;

traffic transport services;

public telephones;

added-value services including voice mail, caller ID and directory services, among others;

advanced voice services to corporate accounts such as 0800 services (toll-free calls);

the iG web portal.

(ii) factors that have materially affected the issuer's operating results

Key factors affecting our financial position and results of operations

Rate of Growth of Brazil’s Gross Domestic Product and Demand for Telecommunications

Services

As a Brazilian company with substantially all of our operations in Brazil, we are affected by economic

conditions in Brazil. GDP in Brazil is estimated to have increased by 3.2% in 2009, by 5.1% in 2008 and

5.4 in 2007. While we believe that growth in Brazil‘s GDP stimulates demand for telecommunications

services, we believe that demand for such services is relatively inelastic in periods of economic stagnation

and that the effect of low growth or a recession in Brazil on our revenues would not be material, given the

current international conditions. However, a substantial and prolonged deterioration of economic

conditions in Brazil could have a material adverse effect on the number of subscribers to our services and

the volume of usage of our services by our subscribers and, as a result, our operating revenues.

Based on information available from ANATEL, (1) the number of fixed-lines in service in Brazil increased

from 20 million as of December 31, 1998 to 41.7 million as of December 31, 2009, and the number of

mobile subscribers in Brazil increased from 7.4 million as of December 31, 1998 to 175.6 million as of

December 31, 2009. Even though the demand for telecommunications services has substantially

increased for the past ten years, the tastes and preferences of Brazilian consumers of these services have

shifted. In the three years ended December 31, 2009, the number of telephone subscribers in Brazil

increased by an average 2.9% per year. As the incumbent provider of fixed-line services and a mobile

carrier in Region II, we are both the key target and a beneficiary of this trend. In the three years ended

December 31, 2009, the number of mobile subscribers in our base increased by an average 108.8% per

year from 3.4 million at December 31, 2006 to 7.1 million at December 31, 2009, while the number of

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fixed-lines in service in our base declined by an average 8.3% per year from 8.4 million at December 31,

2006 to 7.7 million at December 31, 2009.

Demand for Our Telecommunications Services

Demand for Our Local Fixed-line Services

Fixed-line penetration in Brazil is now similar to that of other countries with similar per capita income, and,

like in such other countries, the fixed-line customer base has remained stable. Demand for our local fixed-

line services has reached a plateau in recent years. The new lines we have connected between December

31, 2006 and December 31, 2009 generally represent customers that have changed addresses or low-

income customers from whom we derive revenues at a rate below our average revenue per customer.

Because the number of disconnections has exceeded new connections during this period, our number of

lines in service has declined by 0.7 million since December 31, 2006.

We have sought to combat a general trend in the Brazilian telecommunications industry of users

substituting mobile services for local fixed-line services by offering value-added services to our fixed-line

customers, primarily subscriptions for broadband services. As a result of these service offerings, we

expect our number of fixed-lines in service to remain stable or slightly decrease in the near future. As of

December 31, 2009, 25% of our access lines in service also subscribed to ADSL services.

We are required under ANATEL regulations and our concession contracts to offer a basic service plan to

our fixed-line residential customers that includes 200 minutes to be used in local calls. A basic plan

customer pays a monthly fee for this service, and when the customer makes local calls in excess of this

limit, we charge the customer for the excess minutes. We offer alternative local fixed-line plans that

include more minutes for higher monthly fees, but these monthly fees are lower than the amount the

customer would be charged if he exceeded the number of minutes included in the basic plan. As our

customers have increasingly shifted to these alternative plans, we have recorded increased revenues from

monthly subscription fees, offset by declines in revenues for the use of excess minutes. Subscribers to our

alternative fixed-line plans, which we started offering in the second quarter of 2006, represented 25% of

our access lines in service at December 31, 2009. We believe that our alternative local fixed-line plans

contribute to an increase in our revenues from local fixed-line services as many subscribers of our

alternative plans do not use all minutes included in their plans.

The substantial increase in the number of mobile subscribers in Brazil has also negatively impacted the use

of payphones. As the incumbent local fixed-line carrier in Region II, we are required under ANATEL

regulations and our concession contracts to meet specified targets with respect to the number of

payphones available throughout our concession area. However, as a larger portion of the population of

Region II uses mobile handsets to make calls when they find no payphone nearby, the use of our

payphones declined by 34.9% from 2006 to 2009.

Demand for Our Mobile Services

We believe the primary reason for our mobile customer base in Region II to have grown from 3.4 million

subscribers at December 31, 2006 to 7.1 million at December 31, 2009 is the success of our marketing

and promotion campaigns.

Building on the synergy between the companies, Oi has re-launched all its portfolio in Region II, starting

with the rollout of a pre-paid plan dubbed ―Ligadores‖ in May 2009 and ending with ―Oi Fixo‖ and ―Oi

Velox‖ (fixed-line and mobile services). Our convergent product, ―Oi Conta total‖, is scheduled for rollout

in late 2010. We earned one million customers in the first month of our pre-paid service in Region II. The

strategy of our sales channel has been to unify and integrate these offers.

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We expect our overall mobile services business to continue to grow in terms of customer base, traffic

volumes and revenues from value-added services. However, due to market saturation, we expect future

growth in our mobile services business in Region II to occur at lower rates than we have historically

achieved.

Demand for Our Data Transmission Services

Our broadband services customer base in Region II increased from 1.3 million subscribers at December

31, 2006 to 1.9 million at December 31, 2009. We believe this growth to be a result of (1) our marketing

and promotional campaigns, (2) the growth in the number of households in Region II that own personal

computers, and (3) a shift in consumer preferences that has led an increasing number of our fixed-line

customers to value the data transmission speeds available through our broadband services. We expect

the number of wireline customers that subscribe to our broadband services to continue to increase in the

short term. However, if the current international economic downturn leads to low growth rates or a

recession in Brazil, the rate of growth of computer ownership in Brazil may decline and, consequently, the

rate of growth of our broadband services customer base may be adversely affected.

Effects of Competition on the Rates that We Realize and the Discounts We Record

The Brazilian telecommunications industry is highly competitive. The competitive environment is

significantly affected by key trends, including the following:

Technological and service convergence: The convergence of technology and services enables

telecommunications service providers that used to be limited to providing a single service to offer

services in other industry segments, such as broadband services provided by cable television

providers and by mobile carriers (using 3G technology) and traditional wireline voice services

offered by mobile carriers.

Consolidation: Consolidation has taken place in the telecommunications industry throughout Latin

America, including Brazil. This consolidation has led to the formation of large conglomerates that

benefit both from economies of scale and the ability to undertake coordinated action across

different industry segments, granting them competitive advantages in an environment that is also

characterized by the convergence of media and telecommunications services.

Bundled service offerings: Telecommunications service providers have started offering bundled

services that they could not offer separately. For example, in 2005 Embratel, our principal

competitor in fixed-line services, and Net, our principal competitor in broadband services, both

controlled by Telmex, entered into an agreement to start offering a bundled package including

voice, broadband and pay-TV services to the Brazilian residential market.

In response to these competitive pressures, (1) we may offer our services at rates below the rate caps

established by ANATEL, and (2) from time to time we may offer our services with promotional discounts or

offer additional services free of charge with the purchase of some of our services. We record the services

sold at lower rates than those established under our service plans or those approved by ANATEL, and the

value of services offered with discounts or free of charge as Discounts and Refunds in our financial

statements.

Launch of 3G services

In December 2007, we acquired the radio frequency authorizations and licenses we needed to start

offering 3G services in Region II. During 2008, we commenced capital expenditure projects to acquire

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and install the network equipment necessary to offer these services. In addition, we engaged in

marketing and promotional campaigns in connection with the launch of these services in April 2008.

During the fourth quarter of 2009 we activated approximately 115,127 3G accounts Region II. We expect

these services to generate significant additions to our mobile customer base and lead to long-term

increases in our revenues and operating income.

The cost of these radio frequency authorizations and licenses was R$448 million, which we will pay to

ANATEL in installments through 2015. We financed the purchase and installation of such network

equipment through vendor financing arrangements, which contributed to an increase in our financial

expenses in 2008.

Under our 3G radio frequency licenses, we are required to meet certain service expansion obligations that

will require capital expenditures through 2015. If we are unable to fund these capital expenditures with

our operating cash flows, we may incur additional indebtedness or vendor financing obligations, which

would increase our outstanding indebtedness and net financial expenses.

Effects of Adjustments to Our Regulated Rates and Inflation Adjustments

Brazilian telecommunications services rates are subject to comprehensive regulation by ANATEL. Our

rates for local fixed-line, domestic long-distance, mobile, interconnection with our wireline network, and

EILD and SLD services are subject to regulation by ANATEL. We are required to obtain ANATEL approval

prior to offering new alternative fixed-line or mobile plans. The rates established or approved by ANATEL

for our services serve as caps for the rates we charge for these services, and we are permitted to offer

these services at a discount from the rates approved by ANATEL. After ANATEL establishes or approves

rate caps for these services, these rate caps are subject to annual adjustment at the rate of inflation, as

measured by the IST. Rate caps for local fixed-line plans are adjusted at inflation, as measured by the

IST, less an amount that serves as a proxy for productivity gains achieved by our company and the local

fixed-line services industry as a whole.

Because substantially all of our cost of services and operating expenses are incurred in reais in Brazil,

these rate increases are a natural hedge against inflation and, as a result, our operating margins have not

been materially affected by inflation. However, because these rate adjustments are only made on an

annual basis, we may not be able to pass our increased costs, as soon as they are incurred, through to

our customers during periods of severe inflation.

A significant portion of our real-denominated debt bears interest at the TJLP or the CDI rates, which are

partially adjusted at inflation, and, as a result, inflation results in increases in our financial expenses and

debt service obligations.

Effects of Changes in Regulatory Requirements

Compliance with new regulations applicable to the telecommunications industry adopted by ANATEL from

time to time and compliance with the obligations included in our concession contracts executed in 2006

have required us to make capital expenditures, affected the revenues that we generate, and imposed

additional costs of service on our company. For example:

In January 2006 and January 2007, ANATEL cut the rates charged by fixed-line carriers for

interconnection services using their networks. ANATEL also set a cap for such rates equal to a

percentage of a local fixed-line-to-fixed-line call. This reduction in rates led to less

interconnection revenues being generated by our fixed-line business, and reduced

interconnection costs incurred in our mobile services business.

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Certain amendments to ANATEL regulations became effective in July 2006 relating to

interconnection between mobile networks. According to the former regulations, mobile carriers

charged for interconnection with their networks on a bill-and-keep basis; under the amended

regulations, mobile carriers now charge for interconnection with their networks on a full-billing

basis. These changes resulted in a significant increase in interconnection revenues generated by

our mobile business, as well as in interconnection costs incurred by our fixed-line and mobile

businesses. For further information on full billing and bill and keep, please refer to Item 4 –

Information about the Company – Brazilian Telecom Industry Regulations – Interconnection

Regulations – Transition between Bill and Keep and Full Billing Systems.

Our concession agreements that became effective at the beginning of 2006 required us to

convert our billing system for local fixed-line calls from a pulse-based system to a minute-based

system by July 2007. As a result of such conversion, the volume of local fixed-line traffic for the

years ended December 31, 2009, 2008 and 2007 are not properly comparable.

In March 2007, ANATEL adopted number portability regulations requiring us to permit our mobile

and fixed-line customers to maintain their telephone numbers if they change carriers.

Implementation of the systems necessary to comply with this regulation required us to make

capital expenditures in the aggregate amount of R$221 million. Implementation of these systems

was completed in March 2009. We have not been able to determine the impact of the newly

introduced portability for all carriers operating in Brazil, but we generally believe that portability

will have a negative impact on revenues derived from our fixed-line and data transmission

businesses. On the other hand, we expect this negative impact to be countered by a positive

effect on our revenues from mobile services.

In September 2009 ANATEL did not approve a 0.9767% increase for fixed-line-mobile call rates

(VC1, VC2 and VC3) that was called for by fixed-line servers pursuant the relevant concession

agreement. We estimate to have lost R$6 million in fixed-line-to-mobile call revenues in 2009.

This increase in rates was approved in February 2010.

Effects of Fluctuations in Exchange Rates between the Real and the U.S. Dollar or Japanese

Yen

Substantially all of our cost of services and operating expenses are incurred in reais in Brazil. As a result,

appreciation or depreciation of the real against the U.S. dollar does not have a material effect on our

operating margins. However, the costs of a substantial portion of the network equipment that we

purchase for our capital expenditure projects are denominated in U.S. dollars or pegged to the U.S. dollar.

This network equipment is recorded in our balance sheet at its cost in reais based on the applicable

exchange rate on the date the purchase was made. Therefore, depreciation of the real against the U.S.

dollar results in this network equipment being more costly in reais and leads to increased depreciation

expenses. Conversely, appreciation of the real against the U.S. dollar results in this network equipment

being less costly in reais and leads to lower depreciation expenses.

Our consolidated U.S. dollar-denominated and Japanese Yen-denominated indebtedness represented 8.0%

and 2.6%, respectively, of our outstanding indebtedness at December 31, 2009. As a result, when the

real depreciates against the U.S. dollar or the Japanese Yen:

the interest costs on our U.S. dollar- or Japanese Yen-denominated indebtedness increase in

reais, which negatively affects our results of operations in reais;

the amount of our U.S. dollar- or Japanese Yen-denominated indebtedness increases in reais, and

our total liabilities and debt service obligations in reais increase; and

our net financial expenses tend to increase as a result of foreign exchange losses that we must

record.

An appreciation of the real against the U.S. dollar has the opposite effects.

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In order to mitigate the effects of foreign exchange variations, we have established a hedging policy. At

December 31, 2009, we had entered into hedging transactions for 39.4% of our indebtedness affected by

exchange rate variations. The purpose of these hedging transactions is to seek to ―match‖ the currency of

our debt with that of our revenues.

Effect of Level of Indebtedness and Interest Rates

At December 31, 2009, our total consolidated indebtedness, excluding swap adjustments, was R$4,443

million. The level of our indebtedness drives up our financial expenses significantly, and this reflects in

our statement of income. Financial expenses consist of interest expense, exchange variations of U.S.

dollar- and other foreign currency-denominated debt, foreign exchange losses or gains, and other items as

explained in note 3(s) to our consolidated financial statements included in this annual report. In 2009, we

recorded total financial expenses of R$857 million, R$411 million of which corresponded to interest

expenses, and R$211 million to monetary and exchange rate variations on loans and financings. The

interest rates that we pay depend on a variety of factors, including interest rates prevailing in Brazil and

overseas, and risk assessments of our company, our industry and the Brazilian economy made by potential

lenders to our company, potential purchasers of our debt securities and the rating agencies that assess

our company and its debt securities.

Standard & Poor's and Fitch maintain ratings of our company and our debt securities, and Moody's

maintains ratings of Brasil Telecom. Any rating downgrades in the future would likely result in increased

interest and other financial expenses relating to borrowings and debt securities, and could adversely affect

our ability to obtain such credit facilities on satisfactory terms or in amounts required by us.

Seasonality

Our key activity (providing wireline services) is usually not affected by major seasonal variations in the

market, except for the first quarter of the year, when economic activity is generally reduced in Brazil.

b) changes in revenues due to changes in prices, exchange rates, inflation, volumes, and the introduction of new products and services.

Prices, Change in volumes, and Introduction of new products and services

We have experienced increased pressure to reduce our rates in response to pricing competition. This

pricing competition often takes the form of special promotional packages, which may include, among other

things, mobile handset subsidies, traffic usage promotions and incentives for calls made within a mobile

carrier‘s own network. Competing with service plans and promotions offered by our competitors may

cause an increase in our marketing expenses and customer-acquisition costs, which could adversely affect

our results of operations. Our inability to effectively compete with these packages could result in our loss

of market share and adversely affect our operating revenue and profitability.

This competitive environment is significantly affected by key trends, including the following:

Technological and service convergence: The convergence of technology and services enables

telecommunications service providers that used to be limited to providing a single service to offer

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services in other industry segments, such as broadband services provided by cable television

providers and by mobile carriers (using 3G technology) and traditional wireline voice services

offered by mobile carriers.

Consolidation: Consolidation has taken place in the telecommunications industry throughout Latin

America, including Brazil. This consolidation has led to the formation of large conglomerates that

benefit both from economies of scale and the ability to undertake coordinated action across

different industry segments, granting them competitive advantages in an environment that is also

characterized by the convergence of media and telecommunications services.

Bundled service offerings: Telecommunications service providers have started offering bundled

services that they could not offer separately. For example, in 2005 Embratel, our principal

competitor in fixed-line services, and Net, our principal competitor in broadband services, both

controlled by Telmex, entered into an agreement to start offering a bundled package including

voice, broadband and pay-TV services to the Brazilian residential market.

In response to these competitive pressures, (1) we may offer our services at rates below the rate caps

established by ANATEL, and (2) from time to time we may offer our services with promotional discounts or

offer additional services free of charge with the purchase of some of our services. We record the services

sold at lower rates than those established under our service plans or those approved by ANATEL, and the

value of services offered with discounts or free of charge as Discounts and Refunds in our financial

statements.

Inflation

Brazilian telecommunications services rates are subject to comprehensive regulation by ANATEL. Our

rates for local fixed-line, domestic long-distance, mobile, interconnection with our wireline network, and

EILD and SLD services are subject to regulation by ANATEL. We are required to obtain ANATEL approval

prior to offering new alternative fixed-line or mobile plans. The rates established or approved by ANATEL

for our services serve as caps for the rates we charge for these services, and we are permitted to offer

these services at a discount from the rates approved by ANATEL. After ANATEL establishes or approves

rate caps for these services, these rate caps are subject to annual adjustment at the rate of inflation, as

measured by the IST. Rate caps for local fixed-line plans are adjusted at inflation, as measured by the

IST, less an amount that serves as a proxy for productivity gains achieved by our company and the local

fixed-line services industry as a whole.

Inflation as measured by the IGP-DI was 7.89% in 2007; 9.10% in 2008 and -1.4% in 2009. Adjustments

can only be implemented on the anniversary dates of the approval of such plans.

Foreign exchange rate

We maintain substantially all of our operations in Brazil, and our revenues are not materially affected by

changes in foreign exchange rates.

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c) impact of inflation, changes in prices of key inputs and products, exchange and interest rates on the issuer's operating and financial result

Inflation

If Brazil experiences substantial inflation in the future, our costs may increase and our operating and net

margins may decrease. Inflationary pressures may also curtail our ability to access foreign financial

markets and may lead to further government intervention in the economy, including the introduction of

government policies that may adversely affect the overall performance of the Brazilian economy and,

consequently, our performance.

Interest rates

Our financial expenses are affected by changes in the interest rates that apply to our floating rate debt.

At December 31, 2009, we had, among other debt obligations, R$2,675 million in loans and financing

subject to the Taxa de Juros de Longo Prazo, or TJLP, a long-term interest rate, R$1,095 million in

domestic commercial papers and debentures subject to the Interbank Certificate of Deposit (Certificado

Depositário Interbancário), or CDI, and R$371 million in loans and financing subject to changes in the U.S.

dollar rate.

The TJLP includes an inflation factor and is determined on a quarterly basis by the Brazilian Central Bank.

In particular, the TJLP and the CDI rate have fluctuated significantly in the past in response to the

expansion or contraction of the Brazilian economy, inflation, Brazilian government policies and other

factors. For example, the CDI rate decreased from 12.38% per annum at December 31, 2008 to 9.9% per

annum at December 31, 2009. A significant increase in any of these interest rates, especially the CDI

rate, could adversely affect our financial expenses and negatively affect our overall financial performance.

Foreign exchange rate

A significant portion of our assets and liabilities are denominated in or indexed to foreign currencies,

primarily U.S. dollars and Japanese Yen. As of December 31, 2009, R$532 million, or 11.4% of our

financial indebtedness, was denominated in a foreign currency, excluding swap adjustments. When the

real depreciates against foreign currencies, we incur losses on our liabilities denominated in or indexed to

foreign currencies, such as our U.S. dollar-denominated long-term debt and foreign currency loans, and

we incur gains on our monetary assets denominated in or indexed to foreign currencies, as the liabilities

and assets are translated into reais. If significant depreciation of the real were to occur when the value of

such liabilities significantly exceeds the value of such assets, including any financial instruments executed

for hedging purposes, we could incur significant losses, even if the value of those assets and liabilities has

not changed in their original currency. This could adversely affect our ability to meet certain of our

payment obligations. A failure to meet certain of our payment obligations could trigger a default under

certain financial covenants in our debt instruments, which could have a material adverse effect on our

business and results of operations. Additionally, we currently have currency swaps in place for a portion

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of our foreign currency debt. If the cost of currency swap instruments substantially increases, we may be

unable to maintain our hedge policy, resulting in an increased foreign currency exposure which could in

turn lead to substantial foreign exchange losses.

In addition, a portion of our capital expenditures requires us to acquire assets at prices denominated in

foreign currencies, some of which are financed by liabilities denominated in foreign currencies, mostly the

U.S. dollar. We generally do not hedge against these risks. As the real devaluates relative to the U.S.

dollar, purchasing assets becomes more costly to us, which could adversely affect our business and

financial performance.

Substantially all of our cost of services and operating expenses are incurred in reais in Brazil. As a result,

appreciation or depreciation of the real against the U.S. dollar does not have a material effect on our

operating margins. However, the costs of a substantial portion of the network equipment that we

purchase for our capital expenditure projects are denominated in U.S. dollars or pegged to the U.S. dollar.

This network equipment is recorded on our balance sheet at its cost in reais based on the applicable

exchange rate on the date the purchase was made. Therefore, appreciation of the real against the U.S.

dollar results in this network equipment being less costly in reais and leads to lower depreciation

expenses. Conversely, depreciation of the real against the U.S. dollar results in this network equipment

being more costly in reais and leads to increased depreciation expenses.

Our consolidated U.S. dollar-denominated indebtedness represented 8.0% of our outstanding

indebtedness at December 31, 2009. As a result, when the real depreciates against the U.S. dollar:

the interest costs on our U.S. dollar--denominated indebtedness increase in reais, which

negatively affects our results of operations in reais;

the amount of our U.S. dollar-denominated indebtedness increases in reais, and our total

liabilities and debt service obligations in reais increase; and

our net financial expenses tend to increase as a result of foreign exchange losses that we must

record.

An appreciation of the real against the U.S. dollar has the opposite effects.

In order to mitigate the effects of foreign exchange fluctuation, we have a hedging policy in place

according to which our exposure to foreign currencies is subject to the limits determined by our Board of

Directors. In compliance with this policy, we usually execute transactions with derivatives to swap our

exposure to foreign exchange variation for exposure to the CDI variation. At December 31, 2009, we had

entered into hedging transactions for 39.9% of our indebtedness affected by exchange rate variations.

The purpose of these hedging transactions is to seek to ―match‖ the currency of our debt with that of our

revenues.

10.3. Comments of the Executive Officers on the potential impact of the events below on the issuer's financial statements and results:

a) introduction or disposal of businesses

Not applicable.

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b) constitution, acquisition or sale of equity interests

Merger of BrT Participações into Telemar

In January 8, 2009 Telemar acquired a controlling interest in BrT Part, and therefore in BrT, through

indirect subsidiary Cop art 1. The aggregate price of this transaction was R$5,371 million, corresponding

to R$77.04 per share of common stock of BrT Part. This amount corresponds to the price agreed upon in

the Purchase and Sale Agreement, restated against the average daily CDI rate, less the net debt of Invitel

in the amount of R$998 million, plus adjustments related to the income posted between January 1, 2008

and the effective date of the transaction.

On December 19, 2008 ANATEL, the Brazilian telecom industry regulatory body, issued Order No. 7,828

through which the agency's board of governors granted preliminary consent to subsequent corporate

actions in connection with the merger or combination of the stock of Invitel, Solpart and BrT Part by

TMAR.

The change of control in BrT to Telemar consisted essentially in the acquisition of 100% of the stock of

Invitel S.A., which in turn held a 100% equity interest in Solpart, which in turn held direct control of BrT

Part.

The foregoing purchase transaction was accounted for by Telemar at the fair value of assets and liabilities

identified at the transaction date, January 8, 2009, including intangible assets and contingent liabilities.

Tender offers for the acquisition of the common stock of BrT Part and BrT were held on June 23, 2009,

and duly registered with the CVM pursuant to mandatory tender offers regulations. Minority shareholders

were secured a minimum price equal to 80% of the price paid for shares in the control block under these

tender offers, being R$61.63 for shares of BrT Part, and R$57.76 for the shares of BrT, plus adjustment

against the income posted and the variation of the average daily CDI rate from January 1, 2008 until the

auction settlement date. The final share prices were R$64.71 and R$60.64, respectively. Cop art 1

acquired 40,452,227 common shares of BrT Part, and now directly and indirectly holds, through a

controlling interest in Invitel, 54.45% of the total stock and 90.68% of the voting stock of BrT Part. In

turn, Cop art 2 acquired 630,872 common shares of BrT, thus holding 10.62% of the total capital stock

and 0.25% of the voting stock of BrT.

Existing assets and liabilities, including contingent liabilities of BrT, were recognized in the consolidated

financial statements by their respective percent fraction of the fair value at transaction date.

In accordance with the material fact released on July 15, 2009, later amended on July 21, 2009, and with

the material fact released August 12, 2009, the 1st and 2nd corporate restructuring process phases took

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place on July 31 and September 30 2009, respectively. Pursuant to articles 230 and 252 of the Brazilian

Corporate Law, this restructuring comprised a series of mergers by companies under the control of TMAR.

Pursuant to the U.S. Securities Act of 1993 on September 2, 2009 SEC declared the effectiveness of the

registration statement for stock issued by our company in connection with incorporation of shares of BrT

Part.

As of September 30, 2009 our company is controlled by Coari Participações S.A. ("Coari") through a

79.63% interest in our voting stock and a 48.20% interest in our total capital stock. Until the foregoing

date, our company was controlled by Brasil Telecom Participa es S.A(―BrT Part‖), a company

incorporated on May 22, 1998 following the privatization of the Telebrás system.

As informed by Telemar in the material fact released on August 12, 2009, in pursuance of the corporate

restructuring process the boards of directors of Coari and of BrT approved step 3 of the 2nd phase of the

restructuring process on September 25, 2009. However, this process was halted due to certain events

made public in the material fact released on January 14, 2010.

c) unusual events or transactions

We have been through no unusual event or transaction that may have an impact on our financial

statements or results of operations.

10.4. Management's comments a) Significant changes in accounting standards The financial statements have been prepared and are presented in accordance with Brazilian accounting practices, provisions of the Brazilian Corporate Law and CVM regulations, and the changes introduced by Laws 11638/07 and 11941/09. With the enactment of Law 11638/07, which was designed to update the Brazilian Corporate Law, so as to enable the convergence of Brazilian accounting practices with the International Financial Reporting Standards (IFRS), new accounting standards and technical pronouncements have been issued by the Accounting Pronouncements Committee (CPC), in conformity with such international accounting standards. In 2009, 26 new pronouncements (CPCs) and 12 technical interpretations (ICPCs) were issued by CPC and approved by CVM Resolutions for mandatory adoption beginning 2010. The CPCs and ICPCs that may be applicable to our company, considering the nature of our operations, are as follows: CPC Title 15 Business Combinations 16 Inventories 20 Borrowing Costs 21 Interim Financial Reporting 22 Segment Reporting 23 Accounting Policies, Changes in Accounting Estimates and Errors 24 Events after the Balance Sheet Date

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25 Provisions, Contingent Liabilities and Contingent Assets 26 Presentation of Financial Statements 27 Property, Plant and Equipment 30 Revenue 32 Income Taxes 33 Employee Benefits ICPC Title 04 Scope of Technical Pronouncement CPC 10 Share-based Payment 05 Technical Pronouncement CPC 10 Share-based Payment – Treasury and Group Share

Transactions 08 Accounting for Proposed Dividend Payments 10 Clarifications on Technical Pronouncements CPC 27 - Property, Plant and Equipment

and CPC 28 - Investment Property Management is currently analyzing the effects of the changes introduced by these new pronouncements and, in the event of adjustments arising from the adoption of new accounting practices beginning January 1, 2010, we will analyze the need to reassess the impacts that would affect its 2009 financial statements, for comparative purposes, in case the new procedures were already in effect at the beginning of the year ended December 31, 2009. b) Significant effects of the changes to accounting standards Changes to accounting standards produced no significant effect on our 2009 financial statements compared to 2008. Our 2008 financial statements compared to 2007 reflect changes to accounting standards introduced by Law 11638/07, the effects of which are presented in notes to the relevant financial statements. c) Qualifications and key concerns of the independent auditor’s opinion The financial statements for the periods ended December 31, 2009 were prepared in accordance with accounting principles generally accepted in Brazil, including the changes introduced by Law No. 11,638/07, and audited by Deloitte Touche Tohmatsu Auditores Independentes pursuant to the applicable Brazilian auditing standards. The opinion of the independent auditor firm includes a paragraph stressing the fact that, as mentioned in note 2, the balance sheets and the statements of income and of cash flows for the year ended December 31, 2008, presented for comparison purposes, were reclassified to accommodate best reporting practices and then re-presented. The financial statements and relevant accompanying notes for the year ended December 31, 2008, as reclassified, were reviewed by other independent auditors, who submitted an unqualified report on March 4, 2009, except for the matter described in note 2, which is dated March 11, 2010. The financial statements for the years ended December 31, 2008 and 2007 were prepared in accordance with accounting principles generally accepted in Brazil, including the changes introduced by Law No. 11,638/07, and audited by Deloitte Touche Tohmatsu Auditores Independentes pursuant to the applicable Brazilian auditing standards. The opinion of the independent auditor firm includes emphasis paragraphs as described below and in the relevant report of the auditor firm. The auditor firm's report on the financial statements for years ended December 31, 2008 and 2007, dated March 4, 2009, was issued on an unqualified basis and includes certain paragraphs stressing that the adjusted financial statements for the year ended December 31, 2007 were re-presented pursuant to NPC 12 – Accounting Principles, Changes in Accounting Estimates and Error Correction, on account of the changes made to the accounting principles accepted in Brazil in 2008, and that statements of cash flow and of value added (parent company) were included relative to the year ended December 31, 2007, and prepared in connection with the financial statements for 2008.

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10.5. Critical accounting standards, especially with regard to accounting estimates made by the management concerning uncertain, relevant concerns having an impact of the financial position and bottom line that require subjective or complex judgment, such as: provisions, contingencies, revenue recognition, tax credits, long-lived assets, life of non-current assets, pension plans, exchange currency conversion adjustments, environmental recovery costs, impairment test criteria and financial instruments 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 portray our financial condition and results of operations, and they require our management to make the most difficult, subjective or complex judgments, estimates and assumptions. 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 operations 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. SIGNIFICANT ACCOUNTING PRACTICES

Significant accounting practices adopted in the preparation of the financial statements are as follows: (a) Cash and cash equivalents Comprise cash, banks, and highly liquid short-term investments, immediately convertible to known cash amounts, and are stated at fair value at the balance sheet date, do not exceed their market value, and their classification is determined as shown in item (b) below. (b) Financial investments Classified according to their purpose as: (i) trading securities; (ii) held-to-maturity; and (iii) available-for-sale. Trading securities are measured at fair value and their effects are recognized in income. Held-to-maturity investments are measured at cost of acquisition plus income earned, less the allowance for adjustment to probable realizable value, when applicable. Available-for-sale investments are measured at fair value and their effects are recognized in valuation adjustments to equity, when applicable.

(c) Accounts Receivable Receivables from telecommunications services are stated at the rate or service amount on the date they were provided and do not differ from their fair value. Service receivables include receivables from services provided and not billed by the balance sheet date, whose amount is calculated based on the measurements made on the balance sheet date or estimates considering historic performance. Relevant taxes are also calculated on an accrual basis. Receivables from sales of handsets and accessories are stated at sale price and recorded when the products are delivered and accepted by the customers. Charges of past-due bills are recognized when the bill of the first billing cycle subsequent to the payment of the past-due bill is issued. (d) Allowance for doubtful accounts An allowance for write-down to the recoverable value is recorded when there is objective evidence that we will not be able to collect all amounts due within the original terms of our receivables.

In the year ended December 31, 2009, the criterion adopted for recording the allowance for doubtful accounts takes into consideration the actions taken to restrict the services provided to customers with bills past due and to collect such bills, for receivables past-due for more than 60 days and increasing progressively, as follows:

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% Loss Past-due receivables Accrued

1 to 60 days Zero 61 to 90 days 40 91 to 120 days 60 121 to 150 days 80 Over 150 days 100 In the year ended December 31, 2008, the criterion adopted for recording the allowance for doubtful accounts takes into consideration the calculation of the historic loss percentages incurred on each maturity of accounts receivable. Future losses on the current receivables balance are estimated based on these loss percentages. (e) Inventories Our inventories are segregated and classified as follows:

Maintenance material inventories classified in current assets in accordance with the period in

which they will be used are stated at average cost of purchase, not exceeding replacement cost;

Inventories for plant expansion, classified under property, plant and equipment, are stated at average cost of purchase and are used to expand the telephony plant.

Inventories of goods for resale are classified in current assets and stated at average cost of

purchase, and basically consist of handsets and accessories. For handsets and accessories, adjustments to probable realizable value are recorded in those cases in which the purchases are made at amounts exceeding sales prices. These losses are considered efforts to gain new customers. Recoverable losses are recognized for obsolete inventories.

(f) Investments Investments in subsidiaries are assessed using the equity accounting methodology, plus goodwill to be amortized, provided that they are based on the appreciation of assets. Other investments are stated at cost, less an allowance for adjustment to realizable value, when applicable.

(g) Property, Plant and Equipment Stated at cost of purchase or construction and includes the step-up in fair value arising from the corporate restructuring (see note 1 (b)), less accumulated depreciation. Historical costs include expenses directly attributable to the acquisition of assets. Financial charges on liabilities from the financing of assets and construction works in progress are capitalized. Subsequent costs are included in the carrying amount of the asset, as appropriate, only when those assets generate economic benefits in the future and can be reliably measured. The residual balance of the replaced asset is written off. Maintenance and repair costs are recorded in income (loss) for the period when they are incurred and are capitalized only when they clearly represent an increase in installed capacity or the useful lives of the assets. Assets under finance leases are recorded in property, plant and equipment, as prescribed by CVM Resolution 554/2008, at the lower of fair value or the present value of the minimum lease payments, from the initial date of the agreement.

Depreciation is calculated on a straight-line basis, based on the estimated economic useful lives of the assets, which are annually reviewed by us. (h) Intangible assets Stated at cost, less accumulated amortization and allowance for impairment losses, when applicable.

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Consist basically of regulatory permits for the use of radio frequencies and the provision of Personal Mobile Services (SMP), software use rights and goodwill on the acquisition of investments, calculated based on expected future economic benefits. Amortization of intangible assets is calculated under the straight-line method and considers, in the case of: (i) permit terms––the effective term of the permit, and (ii) software––a maximum period of five years. Goodwill calculated based on expected future earnings is not amortized from 2009. (i) Impairment of long-lived assets An assessment is performed annually or whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. Long-lived assets may be identified as assets that have indefinite useful lives and assets subject to depreciation and amortization (property, plant and equipment and intangible assets). Impairment losses, if any, are recognized in the amount by which the carrying amount of an asset exceeds its recoverable value. Recoverable value is the higher of fair value less cost to sell and value in use. In order to be tested for impairment, the assets are grouped into the smallest identifiable group for which there are cash generating units (CGUs), and projections are made based on discounted cash flows, supported by expectations on our operations in our various business segments. CGUs are our operating segments, as they are the smallest separable cash generating units. Net Present Value (NPV) projections for the CGUs are prepared taking into consideration the following assumptions: Entity-related information sources: evidence of obsolescence or damage, discontinuation plans,

performance reports, etc.; Outside information sources: fair values of the assets, technological environment, market

environment, economic environment, regulatory environment, legal environment, interest rates, return on investment rates, market value of our shares, etc.

The recovery of these assets is supported by projections for assets with indefinite useful lives. Additionally, according to tests performance by our company, there is no evidence of impairment that could result in the realization of projections for assets with finite useful lives.

(i) Discount to present value

The Company values its financial assets and financial liabilities to identify whether the discount to present value is applicable. In general terms, when applicable, the discount rate used is the average return of investments for financial assets or interest charged on our borrowings financial liabilities. The contra entry is the asset or liability that originated the financial instrument, when applicable, and the deemed financial charges are allocated to income (loss) using the rate used for their calculation. We concluded that there are no assets and liabilities recorded as of December 31, 2009 and 2008 subject to the discount to present value, in view of the following: (i) their nature; (ii) short-term realization of certain balances and transactions; (iii) absence of cash assets and cash liabilities with embedded or disclosed interest. When financial instruments are measured at the amortized costs, they are adjusted for inflation at the relevant contractual interest. (k) Impairment of financial assets

We measure, at the balance sheet date, whether there is objective evidence that financial assets or a group of financial assets is impaired. A financial asset or group of financial assets is considered impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of the asset, that the estimated future cash flows have been impacted.

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(l) Loans and financing

Stated at amortized cost, plus inflation adjustment of exchange rate changes and interest incurred through the balance sheet date.

Transaction costs incurred are measured at amortized cost and recognized in liabilities, as a reduction to the balance of loans and financing, and are expensed over the contract term.

We and our subsidiaries do not use hedge accounting.

(m) Derivative financial instruments

We contract derivatives to mitigate the exposure to market risks arising from changes in exchange rates on foreign currency-denominated debts and, therefore, these are classified under ‗Loans and financing‘.

Derivatives are initially recognized at market value on the date a derivative contract is entered into and are subsequently measured at fair value. Changes in the fair value of any of these derivatives are recorded directly in the statement of income.

(n) Reserve for contingent liabilities Recorded for contingent risks assessed by management and our in-house and outside legal counsel as probable loss, based on the expected outcome of ongoing lawsuits.

(o) Employee benefits

Benefits offered are as follows:

Pension plans – the private pension plans and other post retirement benefits sponsored by us for the

benefit of our employees are managed by three foundations. Contributions are determined based on actuarial calculations, when applicable, and charged to income (loss) on the accrual basis.

We sponsor predetermined benefit and predetermined contribution plans. In the predetermined contribution plan, the sponsor makes fixed contributions to a fund managed by a separate entity. The sponsor does not have the legal or constructive obligation of making additional contributions, in the event the fund lacks sufficient assets to pay all employees the benefits related to the services provided in the current period and prior periods. The contributions are recognized as employee benefit expenses as incurred.

The obligation recognized in the balance sheet as regards the predetermined benefit pension plans presenting a deficit corresponds to the present value of the predetermined benefits at the balance sheet date, less the fair value of the plan‘s assets. The predetermined benefit is annually calculated by independent actuaries, using the projected unit credit method. The present value of the predetermined benefit is determined by discounting the estimated future cash outflows, using the projected inflation rate plus long-term interest. After the acquisition of BrT, on January 8, 2009, management started to review and reconcile the accounting practices and estimates of our company and its parent, which was completed at the end of 2009, and we changed our practice to use the recognition of actuarial gains and losses under the corridor approach.

Stock Options – The Company has a stock option plan for its management and employees, and

options granted are settled in shares. The fair value of the services received from employees in

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exchange for stock options is determined based on the fair value of the stock options, established on grant date.

Until the change in control of our company, in January 2009, we maintained a stock option plan for our officers and employees for the purchase of shares of our parent company at the time (BrT Part), classified as settled in shares and cash. These options were fully exercised in the current year as a result of the change in the control of our company.

The fair value of the services received from employees and management in exchange for the options is recognized as an expense during the vesting period. We review the estimate of the number of options expected to be exercised and recognize the impacts of this review in the statement of income. The options settled in shares are recorded as an expense as a contra entry to an increase in shareholders‘ equity.

Employee profit sharing – the provision that includes the employee profit sharing program is

accounted for on the accrual basis and involves all eligible employees, proportionately to the period of time worked in the year, according to the Plan‘s rules. The amount, which is paid by April of the year

subsequent to the year profit sharing is accrued, is determined based on the target program established with the employees‘ unions, under a collective bargaining agreement, pursuant to Law 10101/00 and the bylaws.

(p) Use of estimates

The preparation of financial statements requires Management to make estimates to record certain assets, liabilities and other transactions. Therefore, the financial statements include estimates related to the useful lives of property, plant and equipment, the recoverable amount of long-lived assets, the reserve for contingent liabilities, the calculation of the provisions for income tax, the fair value measurement of financial instruments, and the calculation of employee benefits. Actual results could differ from those estimates. (q) Revenue recognition

Revenues refer mainly to the amount of payments received or receivable from sales of services in the regular course of our activities. Revenue is stated at the gross amount, less taxes, returns and discounts.

Revenue is recognized when it can be reliably measured, when it is probable that future economic benefits will be transferred to our company, when the transaction costs incurred can be measured, when the risks and rewards have been substantially transferred to the buyer, and whenever certain specific criteria have been met for each of our activities.

Service revenue is recognized when services are provided. Local and long distance calls are charged based on time measurement pursuant to the legislation in effect. The services charged based on monthly fixed amounts are calculated and recorded on a straight- line basis. Prepaid services are recognized as advances from customers and recognized in revenue as they are used by the customers.

Revenue from sales of payphone calling cards (Public Use Telephony – TUP), and cell phones and accessories is recognized when these items are delivered and accepted by the customers. Discounts on

services provided and sales of cell phones and accessories are taken into consideration in the recognition of the related revenue. Revenues involving transactions with multiple elements are identified in relation to each one of their components and the recognition criteria are applied on an individual basis. Revenue is not recognized when there is significant uncertainty as to its realization.

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(r) Expense recognition

Expenses are recognized on the accrual basis, considering their relation with revenue realization. Prepaid expenses relating to future years are deferred.

(s) Financial income and expenses

Financial income is recognized on the accrual basis and comprises interest on receivables settled after due date, gains on short-term investments and gains on derivatives. Financial expenses consist of interest and other charges on loans, financing, derivative contracts, and other financial transactions.

Interest on capital to be attributed to mandatory minimum dividends is recorded as financial expenses and reversed to retained earnings, as it substantially consists of allocation of net income. To avoid impacting financial ratios and allow for comparability between reporting periods, reversals are being presented under financial expenses, thus annulling their impacts.

(t) Income tax and social contribution - current and deferred

Income tax and social contribution on income are recorded on the accrual basis. Said taxes attributed to temporary differences and tax loss carryforwards are recorded in assets or liabilities, as applicable, only under the assumption of future realization or payment. We prepare technical studies that consider the future generation of taxable income, according to management exaltations, considering the continuity of our operations. Future earnings are compared to the nominal value of recoverable taxes over a period of up to ten years and reduces the deferred tax credit as it identifies that future taxable income sufficient for the partial or total utilization of deferred taxes is less than probable. Technical studies are updated annually and tax credits are adjusted based on the results of these reviews. (u) Accounting for government grants and disclosure of government assistance Government grants and assistance are recorded in income (loss) for the year as a reduction of related expenses.

(v) Earnings (loss) per share

Earnings (loss) per share are calculated based on the amount of outstanding shares at the balance sheet date. Outstanding shares are represented by the total shares issued, less the shares held in treasury.

10.6. Comments of the Executive Officers on internal controls implemented for reliable financial reporting

a) Effectiveness of internal controls, including eventual issues and actions taken to correct such issues:

We adopt corporate governance practices with a goal to ensure the best procedures and internal controls

of our businesses, and pursue full transparency by establishing and maintaining a strong flow of public

information, including the preparation and reporting of: (i) quarterly results; (ii) material facts and actions;

(iii) annual reports; (iv) filings with SEC, CVM and BM&FBovespa; (v) public presentations; (vi) our

website; and (vii) relations with industry analysts, investors, credit rating agencies, news agencies and

other disclosure channels for the purpose of securing alignment of the interests of shareholders,

represented by the board of directors, and the responsibilities of our executive officers.

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Among many other initiatives to improve corporate governance practices, in January 2009 we created a

Risk Management Function designed around the GRC model (Governance, Risks and Controls). The

implementation of a methodology integrated with a corporate risk management and control system,

structured through ERM (Enterprise Risk Management) functionality, has enabled us match best industry

practices and align with the guidelines established in the Brazilian Risk Management Standards (ABNT –

NBR ISO 31000).

Our management evaluated the effectiveness of our internal controls applicable to all of its support

practices in the preparation and reporting of financial information on December 31, 2009, based on certain

criteria set out in the Internal Control – Integrated Framework of the Committee of Sponsoring

Organizations of the Treadway Commission (COSO), and also the Control Objectives for Information and

Related Technology of the IT Governance Institute. In the opinion of our management, our control

environment was effective concerning the preparation and reporting of financial information.

b) Issues found in internal controls and recommendations made in the independent auditor’s report

We have established a process to follow up on the work of the independent auditors relative to FY 2009 in

order to address and take appropriate action to improve any issues highlighted in the auditing. However,

we have yet to receive a summary letter from the independent auditor firm with their comments regarding

our internal controls for that year.

10.7. Aspects referring to public offers for the distribution of securities: a) How the resulting proceeds were employed Not applicable. b) Any relevant variance between the actual allocation of proceeds and the proposed allocation as reported in relevant offering prospectuses There was no variance between the actual allocation of proceeds and the proposed allocation described in relevant offering prospectuses.

c) In the event of any variance, the reasons for any such variance There was no variance between the actual allocation of proceeds and the proposed allocation described in relevant offering prospectuses.

10.8. Relevant items not included in the Company’s financial statements a) Off-balance sheet assets and liabilities held by the issuer, directly or indirectly, including operating leases, taken and extended; receivable portfolio write-offs that create any risks or responsibilities for the issuer, plus all relevant liabilities where applicable; future goods and services purchase and sale agreements; incomplete building agreements; and future loan proceeds agreements. We do not have off-balance sheet assets and liabilities. b) other items not included in the financial statements There are no other relevant items that have not been included in our consolidated financial statements.

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10.9 Executive Officers’ comment on each item not included in the financial statements indicated in item 10.8:

a) How such items change, or may subsequently change, revenues, expenses, operating result, financial expenses and other items of the issuer’s financial statements

There are no other relevant items that have not been included in our consolidated financial statements.

b) Nature and purpose of each transaction There are no other relevant items that have not been included in our consolidated financial statements.

c) Nature and amount of any liabilities incurred by and rights created for the issuer as a result of each transaction

There are no other relevant items that have not been included in our consolidated financial statements.

10.10. Executive Officers’ comments on key elements of the issuer’s business plan:

a) Investments, including: i) quantitative and qualitative review of ongoing and proposed investments; Our management expects that investments will be made in 2010 concerning Region II and in the implementation of 3G functionality. We fund these investments using cash from our operations and long-term loans. The investments expected for 2010 are intended for mobile and fixed-line telephony services, meeting ANATEL goals and new businesses. It is our policy not to disclose figures of expected investments. ii) Investment funding sources; Historically, our company and its subsidiaries have used long-term debt financing extended by development organizations and multilateral banks as the source of funds for our capital expenditures. This strategy should remain prevalent in the years ahead. Atualmente, a Companhia e BrT Celular possuem Currently, our company and BrT Celular are using BNDES credit facilities to finance part of our capex projects in the 2009-2011 period, with a total amount of up to R$1,389 million. In December 2009 a drawdown was made in the amount of R$300 million. An additional R$1,089 million remain to be withdrawn as required by our investment strategy. iii) Any relevant ongoing or proposed divestitures.

We made no divestiture in the last three years, and we do not have ongoing divestitures. b) Indicate the acquisition of any plant, equipment, patents or any other asset that may materially affect the productive capacity of the issuer

Our capital expenditures on property, plant and equipment and intangible assets were R$1,107 million in 2009, R$2,678 million in 2008 and R$1,398 million in 2007. The following table sets forth our capital expenditures on plant expansion and modernization for the periods indicated:

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Year ended December 31, 2007 2008 2009 (In millions of reais) Mobile network and systems 279 1,145 440 Data transmission equipment 240 275 170 Voice transmission 146 389 174 Telecommunications services infrastructure 226 236 15 Information technology services 127 143 63 Other 381 490 177 Total capital expenditures 1,398 2,678 1,111 . c) New products and services, including a description of the findings of any ongoing and already disclosed research; total amounts spent with Research and Development for new products and services; disclosed ongoing projects; and total amounts spent by the Company in the development of new products or services. Research and Development We conduct independent research and development in areas of telecommunications services but historically have not independently developed new telecommunications technology. We depend primarily on suppliers of telecommunications equipment for the development of new technology. As part of the privatization process of Telebrás, the newly formed telecommunications service providers, including our company, contributed to the Foundation for Research and Development of Telecommunications (Fundação Centro de Pesquisa e Desenvolvimento em Telecomunicações), or CPqD, which is a research and development center formerly operated by Telebrás that develops telecommunications technology to be applied in Brazil. Our agreement with CPqD grants us access to telecommunications software developed by CPqD and technology services provided by the foundation, including equipment testing, consulting and training. We made investments of R$12 million in 2007, and R$14 million in 2008 in Innovation, Research and Development projects. Since 2006, we have performed research in cooperation with equipment and systems suppliers for the development of new technologies and services. In 2007, we modified our ―Exclusivo‖ service (a service enabling subscribers to use their mobile device on our fixed-line network through a wireless local area network, or Wi-Fi, connection) to include Wi-Fi access and GSM seamless integration. As a result, we believe that we were the first Brazilian carrier to launch services that use next generation network architecture. We also have a technology laboratory for equipment testing and assembly. This laboratory performs a variety of functions, such as operation support systems, business support systems and IT. We conduct trials of technologies from different vendors in this laboratory to evaluate these technologies for deployment. We participate in telecommunications standards bodies, technical associations and committee forums such as the European Telecommunication Standards Institute (ETSI), the Telecommunication and Internet Services and Protocols for Advanced Networking (TISPAN), the Third Generation Partnership Project (3GPP), and the Fixed Mobile Convergence Alliance (FMCA) in order to contribute and gather expertise in globally applicable technical specifications, technical reports and telecommunications standards.

10.11. Executive officers’ comments on other drivers that had a material influence on the operating performance and that were not identified or explained in other items herein contained All information relevant to this section has been disclosed in the items above.

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11. PROJECTIONS 5 Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor Services>Glossary>Telecom Terms or Financial and Capital Market Terms, and can be accessed by clicking on the first letter of the word to be consulted.

11.1 Projections and Estimates a. purpose of the projection

Not applicable.

b. period involved in the projection, and projection's expiration

Not applicable.

c. assumptions of the projection, including an indication of which assumptions may be influenced by management

Not applicable.

d. amounts of the indicators purpose of the projection

Not applicable.

11.2 Projections of the past 3 accounting periods a. Inform which of the projections is being replaced by new projections included in this Reference Form, and which is being repeated

Not applicable.

b. regarding projections of past years, compare projected data with the actual performance of the indicators, including the factors that led to any variance in projections

Not applicable.

c. regarding projections for ongoing periods, inform whether such projections remain valid on this Reference Form's date and, when applicable, explain why such projections have been abandoned or replaced

Not applicable.

5Disclosure of projections and estimates is optional. if the issuer has disclosed projections and estimates, these should

be included in this section.



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12. GENERAL MEETING AND MANAGEMENT


12.1. Describe the administrative structure of the issuer, pursuant to its bylaws and statute, including:

a. duties of each body

We are managed by a board of directors, a board of executive officers and a supervisory board. We have no statutory committees in place. Additionally, six non-statutory committees were established to provide support to our company and other affiliates in our economic group with respect to multidisciplinary matters and to provide due reporting for the information generated by our operating and tactical organizations. None of our executive officers holds more than 1.0% of any kind of class of shares of our company's stock, either directly or indirectly.

Board of Directors

Pursuant to our by-laws, the board of directors must have at least three and a maximum of seven actual members and the same number of deputy members.

Currently the board of directors is formed by five actual members and the same number of deputies, all serving a term of three years in office. Members may run for reelection. The board of directors meets regularly once a month, and exceptionally whenever convened by the chair or any two of its members.

In addition to its statutory duties, it is the responsibility of the board of directors to:

I. approve our annual budget, and the goal and business strategy plans for the effective term of the budget;

II. resolve as to capital increases up to the limit of our authorized capital, issues of stock or subscription bonuses, including with regard to exemption of the shareholders' preemptive rights, as well as set the terms and conditions applicable to any issue or placement of stock or subscription bonuses;

III. authorize any issue of commercial papers for public underwriting;

IV. upon designation at a general meeting, resolve as to the terms and conditions governing any issue of debentures pursuant to paragraph 1, article 59 of Law No. 6,404/76;

V. authorize the sale of debentures issued by our company, including convertible debentures, that are in treasury;

VI. resolve as to the purchase of shares of our company's stock for the purpose of canceling or holding the same in treasury for subsequent divestiture;

VII. approve investments and divestments in the equity of other companies, in an amount exceeding the authority of the board of executive officers;

VIII. authorize the sale or encumbering of any property in our permanent assets with an individual value exceeding the authority of the board of executive officers;

IX. authorize any purchase of goods to our permanent assets, or entering into an agreement, with an individual value exceeding the authority of the board of executive officers;

X. within the limit of our authorized capital, approve the grant of stock options to our company's

officers, employees or any individual providing services to our company;

XI. authorize our company to pledge any collateral or give surety for the benefit of a third party, in any amount exceeding the authority of the board of executive officers;

XII. in view of our social responsibilities, approve our company's sponsorship policy and authorize any gratuity for the benefit of our employees or any community, provided that the extension of



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any allowance for an employee in connection with his or her transfer and/or relocation to another state or city is not subject to the prior approval of the board of directors;

XIII. set limits of authority for the board of executive officers in respect of acquisition, disposal or encumbering of any permanent assets, pledging of any guarantees in general, entering into agreements, making investments and divestments, waiver of any rights and transactions of any kind, as well as loans, borrowings, commercial leasing and issuance of promissory notes (except as provided for item III above);

XIV. authorize investments in new businesses or the creation of subsidiaries;

XV. resolve as to the approval of any program covering depositary receipts issued by our company;

XVI. authorize our company to enter into, amend, or terminate any shareholders' agreement;

XVII. approve our company's private pension policy and collective bargaining;

XVIII. approve its own rules;

XIX. approve any proposal submitted by the board of executive officers with regard to our company's by-laws, including any proposal addressing its organizational structure and the duties and responsibilities of our executive officers;

XX. at any time appoint and remove our executive officers, including the chief executive officer, and set their duties and responsibilities subject to the provisions of our company's by-laws;

XXI. apportion the aggregate compensation amount fixed at general meeting and set the individual compensation payable to directors and executive officers;

XXII. do and perform any other thing or action as may be determined at general meeting;

XXIII. enforce the obligation of our company, during the term of our concession or any renewal thereof, to effectively establish and maintain within Brazilian jurisdiction centers for determination and implementation of strategic, managerial and technical decisions in connection with performance of the PSTN Concession Agreement, the Telecommunication Transport Network Authorization Memorandum, and the Road Mobile Service Authorization Memorandum, including by integrating this obligation in the constitution and decision-making process of our management bodies;

XXIV. establish technical and advisory committees, whether permanent or not, to provide advice to and as the board of directors sees fit, the duties and tasks of which will be fixed in specific

rules;

XXV. appoint, dismiss, and resolve as to the compensation payable to any independent auditors submitted by the supervisory board.

Board of Executive Officers

Pursuant to our by-laws, the board of executive officers is formed by at least five and no more than nine members, including a chief executive officer, while the other officers are assigned no specific title. The board of directors appoints the members of our top management team.

It is the responsibility of the board of executive officers to:

I. set the specific policies and guidelines in connection with general business policies established by the board of directors;

II. prepare the budget, provide for the manner of its implementation and our company's general plans, and submit the same for approval of the board of directors;

III. from time to time provide a general status of our company's businesses to the board of directors;

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IV. submit to the board of directors a proposal for the appointment or removal of any member of the internal audit team;

V. submit to the board of directors any proposal for sale of any permanent assets of our company;

VI. submit to the board of directors a proposal for our company's by-laws, including the relevant organizational structure;

VII. review the general balance sheet, financial statements and the annual report of our company, as well as any proposed allocation of income, and submit the same to the supervisory board, the independent auditors and the board of directors;

VIII. submit to the board of directors proposals concerning our company's career plan, employee rules, workforce, and the benefit and perquisite plant;

IX. resolve as to deployment and implementation of its plans and programs concerning human resources training and management activities;

X. open and close down affiliates, bureaus, branches, offices, departments and agencies;

XI. submit to the board of directors a proposal for taking out insurance coverage in the interest of our company where the insured amount is equal to or greater than R$10,000,000;

XII. submit to the board of directors detailed reports on the status of any legal or administrative proceedings related to our company;

XIII. subject to the provisions of item XVI, article 14 of our company's by-laws, submit for approval of the board of directors before entering into agreements of any kind, including any compromise and waiver or rights, that may create obligations in excess of R$10,000,000, whether or not appropriated in the company's budget;

XIV. resolve as to any other matters deemed under the collective jurisdiction of the board of executive officers, or delegated thereto by the board of directors.

Supervisory Board

Pursuant to our company's by-laws, the supervisory board is the body charged with oversight of our company's management. The supervisory board is a standing board of the company.

The supervisory board is formed by three to five actual members and the same number of deputy members. Members are appointed to a term equal to one accounting period, ending on the first annual general meeting following that at which they were appointed to office. Re-appointment is allowed, and the members remain in office until the investiture of their successors.

The duties and responsibilities of the supervisory board are outlined in the applicable law.

Non-Statutory Committees Advising the Company and Other Affiliates in the Same Economic Group

Financial Risk Management Committee

Pursuant to a resolution adopted October 1, 2009 by the board of directors of our controlling shareholders, Tele Norte Leste Participações S.A. and Tele Norte Leste Participações S.A., the Financial Risk Management Committee is to be formed by the following four executives officers: the chief executive officer, the chief financial officer, the chief development, technology and strategy officer, and the treasurer.

The Financial Risk Management Committee meets every month. The following are the responsibilities of

the Financial Risk Management Committee:

(a) oversee compliance with the Grupo Oi Risk Management Policy approved on October 1, 2009 by the board of directors of Telemar Norte Leste S.A. and Tele Norte Leste Participações S.A., by reviewing the communications referred to in the Risk Management Policy and the presentations delivered in regular meetings;

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(b) vet and approve in advance any derivative transactions in over-the-counter markets that have not been engaged by Grupo Oi following implementation of the Policy referred to in item (a) above; and

(c) approve the office of investment fund managers and veto or remove managers of investment funds.

Human Resources Committee

Pursuant to a resolution adopted by the board of directors of Tele Norte Leste Participações S.A., the Human Resources Committee, which also advises our company, is formed by a minimum of three and a maximum of seven members of the same hierarchic level.

The Human Resources Committee meets once every quarter, but may convene additional meetings if necessary. The following are the responsibilities of the Human Resources Committee:

(a) review, recommend and follow up on talent and human capital qualification and management strategies;

(b) assist the board of directors concerning any proposed large-scale changes to the organizational structure (first and second tiers below the chief financial officer);

(c) review the global compensation strategy, including the fixed, variable, benefit program and stock option components;

(d) review and recommend guidelines for the bonus program;

(e) prepare the performance assessment of the chief financial officer of Tele Norte Leste Participações S.A., review the performance assessments of our executive officers and submit the same for review by the board of directors;

(f) review and recommend performance assessment systems;

(g) follow up on the succession plan for our key officers, recommend actions for top management and set out succession planning guidelines covering other organizational levels in our company;

(h) review, recommend and follow up on special programs such as severance plan, accelerated retirement, etc.;

(i) review the strategy for qualification and education of contractors;

(j) oversee implementation of any recommendation above.

Finance Committee

The Finance Committee is formed by a minimum of three and a maximum of nine members of the same hierarchic level.

The Finance Committee meets once every month, one week before the meeting of the board of directors. Additional meetings can be convened if necessary. The following are the responsibilities of the Finance Committee:

(a) supervise the financial aspects of our strategic planning;

(b) oversee the financial strategy;

(c) oversee stewardship of the annual budget;

(d) oversee tax planning activities;

(e) oversee business performance; and

(f) oversee other financial matters.

Executive Committee

In accordance to a resolution adopted by the former president, the Executive Committee is formed by the top executive officers of Telemar Norte Leste S.A.: the president, chief market officer, chief financial

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administrative officer, chief regulation officer, chief customer relations officer and the chief technology development and strategy officer. This committee also has one member from the board of directors in charge of recording minutes of meetings, reporting any decisions and the occasional attendance of other executives, depending on the matter being discussed by the committee.

The Executive Committee convenes every week and is responsible for:

(a) resolving as to matters and issues strategic to the business;

(b) reviewing and resolving as to matters that may pose risks or cause impact on the business and the strategy;

(c) resolving as to the application of investment funds;

(d) following up on key strategic actions; and

(e) resolving as to people management in respect of executive succession.

Corporate Governance, Reporting and Sustainability Committee

The Corporate Governance, Reporting and Sustainability Committee is formed by the controller, general

counsel, and by the chief corporate & M&A, chief risk management, chief investors relations and chief management and quality officers.

The responsibilities of this committee are as follows:

(i) ensure and establish guidelines covering the process of preparing reports as well as other submissions for the Brazilian Securities and Exchange Commission (CVM), the U.S. Securities and Exchange Commission (SEC) and, where required, to the National Telecommunications Agency (ANATEL) and other reporting and communication channels, subject to prior review and approval by the Executive Committee;

(ii) define the scope and content of quarterly and annual reports, subject to prior review and approval by the Executive Committee;

(iii) set out maintenance and destruction policies for reports filed with the CVM and SEC, as well as for work papers and audit reports, among others documentation;

(iv) enforce compliance with laws and regulations applicable to the preparation and disclosure of information to the market, focusing on information security;

(v) determine whether any disclosed information requires revision or confirmation by external sources;

(vi) review the outcome of regular revisions of the risk and internal controls structure of relevant business practices;

(vii) evaluate the effectiveness of any action plans designed to improve practices and controls involving strategic, tactical or operating risks ranking medium or high in terms of impact/likelihood according to risk management procedures;

(viii) ensure that devices are in place to secure the integrity, reliability and confidentiality of managerial, financial and operating data and information used internally;

(ix) oversee the annual evaluation process of internal controls applicable to relevant practices, assisting our Executive Committee in performing such evaluation;

(x) report to the Executive Committee any conclusion or opinion concerning the annual evaluation of internal controls for relevant practices and reporting and communication procedures;

(xi) designate focus points in target areas and enforce compliance with reporting and communication

procedures by the same, as well as enforce compliance with official procedures and from time to time confirm the effectiveness of our controls, in addition to pursuing continuous process improvement and risk mitigation;

(xii) from time to time submit to the board of directors, supervisory board and contingency committee the mapping and status of risk and control management activities, upon approval of the same by the Executive Committee;

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(xiii) participate in the designing of the internal control structure for any relevant practice, and evaluate the same in such fashion and at such frequency as are required by the applicable laws in force;

(xiv) discuss any actions related to corporate sustainability (social and environmental responsibility) in line with out development, and that of our society and country, pursuing a balance between economic growth, social fairness and environmental preservation;

(xv) ensure creation of new business opportunities building on the principles of corporate eco-efficiency and social responsibility by creating en encouraging environment for growth and innovation;

(xvi) comply with and enforce compliance with undertakings related to corporate sustainability, as well as see that any actions agreed upon in this respect are implemented;

(xvii) from time to time invite members of Oi Futuro, and of the engineering and IT, administrative and people management organizations to discuss and follow up on environmental metrics and social projects.

Risk and Contingency Committee

The Risk and Contingency Committee is formed by a minimum of three and a maximum of seven members of the same hierarchic level. The following are the responsibilities of this committee, among others that may be designated by our board of directors: i) oversee and evaluate internal audit procedures;

ii) review the annual internal audit map and recommend it to the board of directors for approval; iii) review the activities, organizational structure and qualifications in the internal audit organization; iv) report to the board of directors any significant frauds identified by internal audits and

recommend appropriate action if necessary; v) monitor implementation of any recommendations made by both internal and independent

auditors; vi) oversee compliance with laws, regulations, ethics standards, among others;

vii) evaluate the suitability of and monitor our internal control mechanisms; viii) review any actions taken by our company to address issues raised by regulatory and inspection

agencies and recommend corrective action if necessary; ix) evaluate and recommend actions in response to any relevant violation of our Code of Ethics; x) oversee the reporting process;

xi) monitor and regularly evaluate any report procedures used by our Reporting Committee and

recommend corrective action if necessary; xii) assist the supervisory board in monitoring the work of independent auditors;

xiii) assist the board of directors and the supervisory board in electing and overseeing the work of

independent auditors; xiv) follow up on any opinion of the independent auditors and their recommendations;

xv) evaluate any changes to prevailing accounting policies proposed by our company and/or

independent auditors;

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xvi) supervise our global risk identification process and any system put in place to manage such risks;

xvii) evaluate the scope and extent of our risk identification process; xviii) from time to time review our corporate risk management system; xix) review and recommend to the board of directors the limits and tolerance levels concerning

significant risks to which we are exposed; xx) evaluate whether our risk exposure is globally and widely considered and integrated to our

strategic planning; xxi) recommend any action to the board of directors, where required; xxii) assess the suitability of our risk management practices;

xxiii) monitor development of our corporate risk management practices and evaluate alignment with

best risk management practices; xxiv) evaluate the suitability of our internal control mechanisms in respect of minimizing risk exposure; xxv) recommend any action to the board of directors, where required; xxvi) supervise and manage contingencies;

xxvii) monitor development and obtain debrief on the root-causes of any contingencies; xxviii) monitor any action taken to reduce the inventory and flow of new contingencies, and recommend

appropriate action if necessary; xxix) from time to time review our accounting policies and those employed by any independent

auditors in connection with a contingency and recommend changes as applicable; xxx) recommend any action to the board of directors, where required; xxxi) monitor implementation of any recommendation above.

b. Supervisory Board Installation Date. Committee Creation Dates.

The supervisory board is a standing body of our company. The board was installed on November 27, 1963. (On this date Companhia de Telecomunicações do Paraná S.A. was incorporated and the first members of the supervisory board were appointed to office).

The Financial Risk Committee was created on October 1, 2009 upon resolution carried by the Executive Committee, duly recorded in the appropriate minutes.

The Human Resources Committee was created on December 19, 2007 upon resolution of the board of directors of Tele Norte Leste Participações S.A., duly recorded in the appropriate minutes.

The Finance Committee was created on December 19, 2007 upon resolution of the board of directors of Tele Norte Leste Participações S.A., duly recorded in the appropriate minutes.

The Executive Committee was created on June 26, 2006 upon resolution of the president of Telemar Norte Leste S.A..

The Corporate Governance, Reporting and Sustainability Committee was created on December 19, 2008.

c. Performance Evaluation Mechanisms of Each Body or Committee

As of the date of this Reference Form, we did not have any mechanism in place to evaluate the performance of the board of directors or of any committee as such, except for the Human Resources and

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Finance Committees. Upon request by the board of directors, these committees can perform self-assessment every year as part of the committee performance evaluation process.6.

Notwithstanding, the members of any body or committee are subject to regular individual assessments, as described in item 13 (particularly in item 13.1) below.

Additionally, the rules of the Corporate Governance, Reporting and Sustainability Committee do not provide for any performance assessment mechanisms applicable to committees as such. There is, however, regular monitoring of actions taken by the committee in respect of any matters discussed in regular monthly meetings. As of March 31, 2010 a new procedure entitled ―Past Meeting Planned Action Follow-Up Procedure‖ was introduced as an important tool to monitor and implement any items and matters approved by the Corporate Governance, Reporting and Sustainability Committee. The goal of this procedure is to ensure review, continued action or completion of any action in respect of such items. This procedure consists in listing all actions that were planned but not implemented and/or resolutions in chronological order so that the committee members may determine whether to monitor, revise or decide on any item anew.

d. Duties and Responsibilities of the Members of the Board of Executive Officers

Chief Executive Officer (President): (a) convene our general annual meeting and appoint members to the relevant presiding boards; (b) convene meetings of our board of executive officers; (c) fix the specific duties of each executive officer, subject to the limits determined by our board of directors;

Chief Investor Relations Officer: (a) represent our company at regulatory bodies with jurisdiction over capital markets pursuant to CVM Statement No. 202/93, as amended by Statement No. 309/99.

Chief Financial Officer (CFO): perform any duties or responsibilities from time to time assigned by the chief executive officer. Neither our by-laws nor other corporate charters lay down any specific duties of the chief financial officer (CFO).

Executive officers without a specific title: these assist the chief executive officer in performing any tasks assigned to them by the latter.

e. mechanisms in place to evaluate the performance of members of the board of directors, committees, and board of executive officers

As of the date of this Reference Form, we did not have any mechanism in place to evaluate the performance of members of the board of directors or the committees.

With regard to evaluation of the board of executive officers, we would like to stress that executive officers are evaluated annually as part of a process assessing their compliance with Grupo Oi skill set. This assessment takes the form of a 360º evaluation. The outcome of this process, in addition to providing input to the Individual Development Plan (IDP) of each executive officer, is taken into account in determining the amount of bonus an officer is entitled on account of his or her individual performance. Another consideration in this respect is their compliance with the yearly goals agreed upon directly with the chief executive officer.

Lastly, as regards the supervisory board, there is a self-assessment mechanism in place. This mechanism was set up in compliance with the Sarbanes-Oxley Act in order to confirm the effectiveness of internal controls, operation efficiency and compliance with the applicable laws and regulations.

12.2 Describe the rules, policies and practices related to the general meetings, including: a. call deadlines

The Brazilian Corporate Law requires all general meetings are called via three notices published in the official gazette of the State of Rio de Janeiro and in any other widely-circulated newspaper, which, in the case of our company, is the Valor Econômico newspaper. The fist call must be made at least fifteen (15)

6To date, the board of directors has requested no self-evaluation from any members of the Finance and

Human Resources Committees. Should the board of directors request such self-evaluation be conducted, this last committee will be responsible for laying down the appropriate self-assessment criteria and procedures.

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days before the date of the general meeting, and the second call must be published not later than eight (8) days before the meeting. General meetings are called to order by our chief executive officer, following which a chair and a secretary will be appointed from among the attending shareholders to preside the board. Any general meeting at which a proposal for deregistration as publicly-held company is discussed, or which has been called to review certain transactions that command thorough examination due to their complexity before any approval is given by shareholders, must be convened at least thirty (30) days in advance. The CVM may, however, upon request of any shareholder and following confirmation by our company, postpone the date of a general meeting under certain circumstances so that the meeting will be held within thirty (30) days from the date of the call notice.

b. competences

It shall be incumbent upon the General Meeting, in addition to the attributions set forth by law, to:

I. Determined the overall compensation of the members of the Board of Directors and Board of Executive Officers, and the individual compensation of the members of the Supervisory Board;

c. addresses (physical or electronic) where the documents concerning the general meeting will be at the disposal of the shareholders for analysis

Documents are available at our head office7 at Rua General Polidoro, nº 99, 5º andar, 22280-004, Rio de Janeiro, RJ, or at www.novaoi.com.br.

d. identification and management of conflicts of interests

Conflicts of interest are identified and handled pursuant to the Brazilian Corporate Law.

e. request for powers of attorney by the Management to exercise the right to vote

Requests for powers of attorney are in compliance with legal and regulatory requirements. f. necessary formalities for the acceptance of powers of attorney granted by shareholders, pointing out whether the issuer admits powers of attorney granted by shareholders via electronic means

We do not accept any proxy issued via electronic means.

We will only accept the original of a proxy or duly notarized copies thereof. Proxies must grant specific powers to attend a general meeting. Furthermore, the authority granted is reviewed as to whether it conforms to the provisions of the by-laws or articles of incorporation (in case the shareholder is a body corporate) and whether the person signing the document has due authority to do so. All documents subject to review are requested in advance in the call notices.

Additionally, we also confirm whether the proxy complies with the provisions of article 126, paragraph 1 of the Brazilian Corporate Law. g. maintenance of forums and pages on the internet with the purpose of receiving and sharing shareholders’ comments on the agendas of the meetings

We maintain no forums and pages on the internet with the purpose of receiving and sharing shareholders‘ comments on the agendas of the meetings.

h. live broadcasting of the video and/or audio of the meetings

7 In the EGM held June 16, 2010 a proposition was carried to change our head office to Rua General

Polidoro, 99, 5º andar – Botafogo, CEP: 22280-001, Rio de Janeiro – RJ. The minute of the minute

containing details of this change of address is still pending filing with the registries of companies of the

Federal District and Rio de Janeiro.

http://www.novaoi.com.br/

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We do not broadcast the video and/or audio of the meetings live.

i. mechanisms that allow for the inclusion of proposals made by shareholders in the agenda

Not applicable.

12.3. Dates and Newspapers used for disclosure

2009 2008 2007

Notice to shareholders on the availability of the financial statements for the years ended

Date(s) of publication on newspapers

March 26, 29 and 30, 2010

There was no publication

There was no publication

Newspaper(s) Official Gazette of the Federal Executive, Jornal de

Brasília, and Valor Econômico

Call of the annual

general meeting that analyzed the financial statements for the years ended


March 26, 29 and 30

March 09, 10 and 11, 2009

January 31, and

February 1 and 6, 2008

Newspaper(s) Official Gazette of the Federal Executive (1); Valor

Econômico (2); and Jornal de Brasília (3)

Minutes of the annual general meeting that analyzed the financial statements for the years ended


There has been no publication to

date* 06/19/2009 03/20/2008

Newspaper(s) Official Gazette of the Federal Executive (1); Valor

Econômico (2); and Jornal de Brasília (3)

Financial statements for the years ended


03/22/2010 02/13/2009 01/31/2008

Newspaper(s) Official Gazette of the Federal Executive (1); Valor Econômico (2); and Jornal de Brasília (3)

* The AGM was held on April 27, 2010, and the dates of publication have not been determined yet.

12.4. Describe the rules, policies and practices related to the board of directors

The board of directors is formed by a minimum of three and a maximum of seven actual members and the same number of deputy members.

Directors are elected at general meetings. Holders of preferred shares of both classes are entitled to jointly elect one director on a separate voting.

Directors are elected for an office term equal to three accounting periods, one year being the period of time between two subsequent annual general meetings of the company.

The board of directors must appoint one of its members to be the chair of the board.

a. frequency of meetings

Board meetings happen regularly once every calendar month, and extraordinarily upon being convened by the chair of the board or any two directors. Minutes of board meetings are drafted and recorded in the appropriate book.

Board meetings are convened by letter, wire or fax, at least ten (10) days in advance of the meeting. Directors may participate in any meeting of the board through teleconference, videoconference or any other medium allowing directors to see and/or listen to each other. Attendance through any such form of communication is deemed a valid attendance, and meetings so held are recorded in minutes that must be signed by all attending members before the date of the subsequent meeting.

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b. if any, the provisions of the shareholders’ agreement that establish the restriction or binding to exercise the right to vote by board members

In April 2008, Tmar Part‘s shareholders entered into two shareholders‘ agreements following the changes in that company‘s shareholding structure. We refer to the Shareholders‘ Agreement entered into by and between the shareholders of AG TELECOM PARTICIPAÇÕES S.A., L.F TEL, ASSECA PARTICIPAÇÕES S.A., BNDES PARTICIPAÇÕES S.A. – BNDESPAR, FIAGO PARTICIPAÇÕES S.A., FUNDAÇÃO ATLANTICO DE SEGURIDADE SOCIAL and Tmar Part as Telemar Participa es‘ Global Shareholders‘ Agreement. We refer to the Shareholders‘ Agreement entered into by and between AG Telecom Participa es S.A., L.F. Tel S.A., Fundação Atlântico de Seguridade Social, and Asseca Participações S.A.—with Tmar Part and Andrade Gutierrez Investimentos em Telecomunicações S.A. as intervening parties—as Tmar Part‘s Control Group Shareholders‘ Agreement.

(i) Tmar Part‘s Global Shareholders‘ Agreement

In April 2008 Andrade Telecom Participações S.A. LF Tel, Asseca, BNDESPar, Fiago, Fundação Atlântico de

Seguridade Social, and, as consenting intervenors, Tmar Part, PREVI, PETROS, FUNCEF and Andrade

Gutierrez Investimentos em Telecomunicações S.A., representing all current shareholders of Tmar Part,

entered into a certain global shareholders' agreement effective initially until April 2048 or until termination

of the last concession or license held by Tmar Part or any subsidiary thereof. This agreement lays down

rules for: (a) exercise of voting rights at general meetings of Tmar Part's shareholders at which matters

related to the business purposes of the company are discussed, including appointment of members of

management and the responsibility of management of Tmar Part to comply with the company's business

purposes; (b) holding of prior meetings of Tmar Part's shareholders before general meetings and meetings

of the boards of Tmar Part, Tele Norte Leste Participações S.A., and our company, as well as any relevant

subsidiary, as well as rules for casting a vote at any such meeting; provided, however, that the parties to

the Tmar Part Global Shareholders' Agreement have undertaken to cause their representatives, directors

of Tmar Part, Tele Norte Leste Participações S.A. and our company, to votes in accordance with whatever

is decided at any such prior meeting and endeavor to implement any resolution carried thereat; (c)

appointment of directors and executive officers of Tmar Part; (d) entering into shareholders' agreements

other than that referred to in item (ii) below, which agreement cannot be amended without the prior

consent of each of the remaining shareholders of Tmar Part; (e) creating bonuses on stock of Tmar Part;

(f) exercise of preemption rights in the event of any sale or subscription of stock of Tmar Part; (g)

exercise of ―tag along‖ rights; and (h) sale of stock of Tmar Part to other shareholders in the event of any

transfer of a controlling interest by any of the company's shareholders.

(ii) Tmar Part Control Group Shareholders' Agreement

In April 2008 a Andrade Telecom Participações S.A. LF Tel, Fundação Atlântico de Seguridade Social,

Asseca and, as consenting intervenors, Tmar Part and Andrade Gutierrez Investimentos em

Telecomunicações S.A., entered into a shareholders' agreement effective initially until April 2048,

renewable thereafter for consecutive periods of ten (10) years upon the mutual agreement of the parties.

This agreement lays down rules for: (a) holding of prior meetings of Tmar Part's shareholders that are

parties to the relevant agreement, which are to take place before the prior meetings provided for under

the shareholders' agreement referred to in item (i) above; (b) prohibition on entering into any

shareholders' agreement other than that described in item (i) above; and (c) sale of stock of Tmar Part

among its shareholders and the corresponding obligation of having all shares of stock subject to the terms

and conditions of this shareholders' agreement. Although it does not explicitly provide that the right to

vote on our directors is bound, any resolution adopted at prior meetings held under the Tmar Part Control

Group Shareholders' Agreement will bind the vote any parties thereto may cast at prior meetings held

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under the Tmar Part Global Shareholders' Agreement, which, as pointed out in item (i)(b) above, binds the

right to vote in our directors.

c. rules for the identification and management of conflicts of interests

Our by-laws do not contain any explicit provision or rules to identify a conflict of interest. To do so, we

follow the rules set forth in the Brazilian Corporate Law. Under this law, a member of the management is

forbidden to act or intervene in any corporate transaction in which that person may have an interest

conflicting with those of the company, as well as in any resolution other members of management may

adopt regarding the matter. The person having a conflict of interest must notify the others members of

management of his or her conflict and cause the nature and scope of his or her interest to be recorded on

the minutes of any meeting of the board directors or of the board of executive officers.

Additionally, members of our management must have faultless reputation. Unless the shareholders at

general meeting so waive, no person can be appointed to office that has a conflict of interest with those of

the company or holds any office in any of our competitors.

12.5. Description of an arbitration clause included in the issuer's bylaws addressing the resolution of conflicts among shareholders, and between shareholders and the issuer through arbitration. Not applicable.

Erro! Código op desconhecido para a condição.=

12.6. Executives and members of the supervisory board. The current composition of our Board of Directors is as follows:

Sitting members Age Occupation

Individual

Taxpayers' ID

(CPF) Position

Appointment

date

Investiture

date Term of office

Other

positions/offices at

the company

Appointed by

Controlling

Shareholder

José Mauro Mettrau

Carneiro da Cunha 59 Engineer 299.637.297-20

Chairman of the

Board of Directors 02/17/2009 02/17/2009 03/18/ 2011

Member of the

Human resources,

Finance, Risks and

Contingencies

Committees yes

José Augusto da

Gama Figueira 61 Engineer 242.456.667-49 Sitting member 02/17/2009 02/17/2009 03/18/ 2011

Member of the

Human Resources

Committee yes

João de Deus

Pinheiro de Macêdo 61 Engineer 060.055.275-68 Sitting member 02/17/2009 02/17/2009 03/18/ 2011 N/A yes

Eurico de Jesus

Teles Neto 53 Lawyer 131.562.505-97 Sitting member 02/17/2009 02/17/2009 03/18/ 2011 N/A yes

Antonio Cardoso dos

Santos 60

Business

administrator 189.372.688-68 Sitting member 03/18/2008 03/18/2008 03/18/ 2011 N/A no

Deputies Age Occupation

Individual

Taxpayers' ID

(CPF) Position

Appointment

date

Investiture

date Term of office

Other


the company

Appointed by

Controlling

Shareholder

Maxim Medvedovsky 37 Engineer 016.750.537-82 Deputy 02/17/2009 02/17/2009 03/18/ 2011

Member of the

Executive Committee Yes

Otávio Marques de

Azevedo 58 Engineer 129.364.566-49 Deputy 02/17/2009 02/17/2009 03/18/ 2011 Member of the

Human Resources Yes

208


Committee

João José de Araújo

Pereira Pavel

28 Economist 092.798.377-02

Deputy 02/17/2009 02/17/2009 03/18/ 2011

Member of the

Finance Committee Yes

Pedro Jereissati 31

Business

administrator 273.475.308-14 Deputy 02/17/2009 02/17/2009 03/18/ 2011 N/A Yes

209


The current composition of our Board of Executive Officers is as follows:

Members Age Occupation

Individual

Taxpayers' ID

(CPF) Position

Appointment

date

Investiture

date Term of office

Other


the company

Appointed by

Controlling

Shareholder

Luiz Eduardo Falco

Pires Corrêa 49 Engineer 052.425.988-75 CEO 06/26/2009 06/26/2009

Up to the 1st meeting of the

Board of Directors that

follows the Annual General

Meeting of 2012

Member of the

Financial Risk

Management and

Executive

Committees Yes

Alex Waldemar

Zornig 51 Accountant 919.584.158-04

Executive officer with

no specific

designation, and Chief

Investor Relations

Officer 06/26/2009 06/26/2009




Meeting of 2012

Member of the

Financial Risk

Management and

Executive

Committees Yes

Júlio Cesar Pinto 58 Accountant 205.088.327-72


no specific designation 06/26/2009 06/26/2009




Meeting of 2012 N/A Yes

João Francisco da

Silveira Neto 45 Engineer 050.399.958-06


no specific designation 03/11/2010 03/11/2010




Meeting of 2012

Member of the

Executive Committee Yes

210


The current composition of our Supervisory Board is as follows:

Sitting members Age Occupation

Individual

Taxpayers' ID

(CPF) Position

Appointment

date

Investiture

date Term of office

Other


the company

Appointed by

Controlling

Shareholder

Eder Carvalho Magalhães

42 Accountant 637.838.356-15

Sitting member 04/27/2010 04/27/2010

Up to the Annual General

Meeting of 2011

Member of the Risks

and Contingencies

Committee Yes

Aparecido Carlos Correia

Galdino

58 Business

administrator

666.708.708-25

Sitting member 04/27/2010 04/27/2010



Marcos Duarte Santos 40 Engineer 014.066.837-36 Sitting member 04/27/2010 04/27/2010 Up to the Annual General

Meeting of 2011

N/A No

Allan Kardec de Melo

Ferreira

62 Lawyer 054.541.586-15 Chairman of the

Board of Directors

04/27/2010 04/27/2010 Up to the Annual General

Meeting of 2011

N/A Yes

Deputies Age Occupation

Individual

Taxpayers' ID

(CPF) Position

Appointment

date

Investiture

date Term of office

Other


the company

Appointed by

Controlling

Shareholder

Sidnei Nunes 49

Business

administrator 011.355.928-37 Deputy

04/27/2010 04/27/2010


Meeting of 2011

Member of the Risks

and Contingencies

Committee Yes

Dênis Kleber Gomide

Leite 63 Lawyer 125.011.406-30 Deputy

04/27/2010 04/27/2010 Up to the Annual General


Carlos Eduardo Parente

de Oliveira Alves 32 Engineer 079.968.627-10

Deputy 04/27/2010 04/27/2010 Up to the Annual General

Meeting of 2011

N/A No

211


Sérgio Bernstein 72 Engineer 007.296.208-91

Deputy 04/27/2010 04/27/2010 Up to the Annual General

Meeting of 2011

N/A Yes

212


12.7. Information on the issuer's committees Current composition of the Financial Risk Management Committee:


Individual

Taxpayers' ID (CPF) Position

Appointment

date

Investiture

date Term of office

Other positions/offices

at the company

Appointed by

Controlling

Shareholder

Luiz Eduardo

Falco Pires Corrêa 49 Engineer 052.425.988-75

Member (with no

specific

designation) N/A(1) N/A(1) Undetermined(1)

Chief Executive

Officer and member

of the Executive

Committee N/A

Alex Waldemar

Zornig 51 Accountant 919.584.158-04

Member (with no

specific


Member of the

Executive Committee;


no specific

designation, and Chief

Investor Relations

Officer N/A

Pedro dos Santos

Ripper 37 Engineer 012.277.917-71

Member (with no

specific


Member of the

Executive Committee;

Chief Technology and

Strategy Officer of

Telemar Norte Leste

S.A. N/A

Tarso Rebello Dias 39 Economist 021.455.577-17

Member (with no

specific


Chief Treasury Officer

of Telemar Norte

Leste S.A. N/A

(1)The Management Committee is made up of statutory and non-statutory executive officers that do not have any other elective position at the Company. In both

cases there is no formal member appointment or investiture formality, nor a specified term for their tenure as members of said committee.


Current composition of the Corporate Governance, Reporting and Sustainability Committee:


Individual Taxpayers'

ID (CPF) Position

Appointment

date Investiture date Term of office

Other

positions/offices

at the company

Appointed by

Controlling

Shareholder

João Carlos Orzzi Lucas 49

Business

administrator 000.939.668-30

Member (with no

specific


Chief Risk

Management

Officer of

Telemar Norte

Leste S.A. N/A

Maria Gabriela Campos

Da Silva Menezes Cortes 36 Lawyer 016.706.607-29

Member (with no

specific


Executive Officer

– Corporate Legal

and Agreements

of Telemar Norte

Leste S.A. N/A

Marcia Andrea de Matos

Leal 45 Psychologist 546.093.216-53

Member (with no

specific


Chief

Management and

Quality Officer of

Telemar Norte

Leste S.A. N/A

Marco Norci Schroeder 46 Economist 407.239.410-68

Member (with no

specific


Chief Accounting

Officer of

Telemar Norte

Leste S.A. N/A

Bayard de Paoli Gontijo 38

Business


Member (with no

specific


Chief Investor

Relations Officer

of Telemar Norte

Leste S.A. N/A

214


(2)The Corporate Governance, Reporting and Sustainability Committee is made up of non-statutory executive officers who have no elective positions in our

company, and there is no formal member appointment or investiture formality, nor a specified term for their tenure as members of said committee.

215


Current composition of the Human Resources Committee:



ID (CPF) Position

Appointment

date Investiture date Term of office

Other


the company Appointed by

José Mauro Mettrau C.

da Cunha 59 Engineer 299.637.297-20

Member (with no

specific

designation) N/A(3) N/A(3)

Annual General

Meeting of 2013

Chairman of the

Board of Directors;

member of the

Finance, and Risks

and Contingencies

Committees N/A

Otávio Marques de

Azevedo 58 Engineer 129.364.566-49

Member (with no

specific


Annual General

Meeting of 2013

N/A N/A

Carlos Jereissati 62 Economist 000.365.013-87

Member (with no

specific


Annual General

Meeting of 2013

N/A N/A

José Augusto da Gama

Figueira 61 Engineer 242.456.667-49

Member (with no

specific


Annual General

Meeting of 2013 Sitting member of the

Board of Directors N/A

Fábio de Oliveira Moser 42

Private bank and

government-

owned bank

clerk 000.699.217-09

Member (with no

specific


Annual General

Meeting of 2013

N/A N/A

Julio Cesar N. Ferreira e

Costa 34

Degree in

Foreign Trade 011.733.276-30 Member (with no

specific N/A(3) N/A(3)

Annual General

Meeting of 2013 N/A N/A

216


designation)

Bruno Oliva Girardi 35 Economist 086.071.937-59

Member (with no

specific


Annual General

Meeting of 2013

N/A N/A

(3)The Human Resources Committee is made up of non-statutory employees who do not necessarily have elective positions in our company, and there is no formal

member appointment or investiture formality.

217


Current composition of the Finance Committee:



ID (CPF) Position

Appointment

date

Investiture

date Term of office

Other


the company

Appointed by

Controlling

Shareholder

José Mauro Mettrau C.

da Cunha 59 Engineer 299.637.297-20

Member (with no

specific


Annual General

Meeting of 2013

Annual General

Meeting of 2013 N/A

Alexandre Jereissati

Legey 39 Engineer 954.529.077-34

Member (with no

specific


Annual General

Meeting of 2013

Annual General

Meeting of 2013 N/A

Marcel Cecchi Vieira 35 Engineer 143.917.738-48

Member (with no

specific


Annual General

Meeting of 2013

Annual General

Meeting of 2013 N/A

Joaquim Dias de Castro 30 Economist 909.933.140-15

Member (with no

specific


Annual General

Meeting of 2013

Annual General

Meeting of 2013 N/A

João José de Araújo

Pereira Pavel 28 Economist 092.798.377-02

Member (with no

specific


Annual General


Fernando Magalhães

Portella 58 Engineer 748.442.108-15

Member (with no

specific


Annual General


Ricardo Ferraz Torres 42

Private bank

and

government-043.287.827-68 Member (with no

specific N/A(4) N/A(4)

Annual General


218


owned bank

clerk

designation)

Marcos Rocha de

Araújo

42 Economist 381.665.501-72

Member (with no

specific


Annual General


Alcinei Cardoso

Rodrigues 46 Economist 066.206.228-01

Member (with no

specific


Annual General


(4)The Finance Committee is made up of non-statutory employees who do not necessarily have elective positions in our company, and there is no formal member

appointment or investiture formality.

219


Current composition of the Executive Committee:



ID (CPF) Position Appointment date Investiture date Term of office

Other


the company

Appointed by

Controlling

Shareholder

Luiz Eduardo Falco Pires

Corrêa 49 Engineer 052.425.988-75

Member (with no

specific

designation) N/A(5) N/A(5) N/A(5)

CEO and member of

the Financial Risks

Management

Committee N/A

Alex Waldemar Zornig 51 Accountant 919.584.158-04

Member (with no

specific



no specific

designation and Chief

Investor Relations

Officer; and member

of the Financial Risks

Management

Committee N/A

Maxim Medvedovsky 37 Engineer 016.750.537-82

Member (with no

specific


Statutory executive

officer with no

specific designation N/A

Francisco Aurélio

Sampaio Santiago 55 Engineer 145.053.631-04

Member (with no

specific


Statutory executive

officer with no

specific designation N/A

João Francisco da

Silveira Neto 45 Engineer 050.399.958-06

Member (with no

specific


Chief Market Officer

of Telemar Norte

Leste S.A. N/A

220


Paulo Mattos 36 Lawyer 23.655.438-4

Member (with no

specific


Chief Regulation

Officer of Telemar

Norte Leste S.A. N/A

Pedro Ripper 37 Engineer 012.277.917-71

Member (with no

specific


Member of the

Financial Risks

Management

Committee; Chief

Technology and

Strategy Officer of

Telemar Norte Leste

S.A. N/A

(5)The Executive Committee is made up of non-statutory employees who do not necessarily have elective positions in our company, and there is no formal

member appointment or investiture formality, nor a specified term for their tenure as members of said committee.

Current composition of the Risks and Contingencies Committee:



ID (CPF) Position Appointment date Investiture date Term of office

Other


the company

Appointed by

Controlling

Shareholder

José Mauro Mettrau

carneiro da Cunha 59 Engineer 299.637.297-20

Member (with no

specific designation) N/A(6) N/A(6)

Annual

General

Meeting of

2013

Chairman of the

Board of Directors;

member of the

Finance, and Human

Resources

Committees N/A

221


Sidnei Nunes 49

Business


Member (with no


Annual

General

Meeting of

2013

Deputy member of

the Supervisory

Board N/A

Eder Carvalho

Magalhães 41 Accountant 637.838.356-15

Member (with no


Annual

General

Meeting of

2013 N/A N/A

Renata Eichler Ribeiro 28 Economist 092.920.817-05

Member (with no


Annual

General

Meeting of

2013 N/A N/A

Ricardo Carvalho

Giambroni 53 Economist 466.383.007-25

Member (with no


Annual

General

Meeting of

2013 N/A N/A

Teresa Rodriguez Cao 45 Economist 891.882.767-91

Member (with no

specific


Annual

General

Meeting of

2013 N/A N/A

Heglehyschynton

Valério Marçal 36 Economist 589.425.301-25

Member (with no

specific


Annual

General

Meeting of

2013 N/A N/A

(6)The Risks and Contingencies Committee is made up of non-statutory employees who do not necessarily have elective positions in our company, and there is no

formal member appointment or investiture formality.

222


12.8. Members of the Board of Directors, Board of Executive Officers, and Supervisory Board

a. résumés

José Mauro Mettrau Carneiro da Cunha – Chairman of the Board of Directors

José Mauro Mettrau Carneiro da Cunha, born December 4, 1949. Mr. Cunha was a member of the board of

directors of telecommunications company Tele Norte Leste Participações S.A. (TNL) from December 1999

to July 2002, before he rejoined the board of directors of TNL, as chairman, in April 11, 2007. Mr. Cunha

has held several executive positions at BNDES, and was a member of its board of executive officers from

1991 to 2002. He was the vice president of strategic planning of Braskem S.A. from February 2003 to

October 2005, and a member of that company‘s board of directors from March 26, 20087 to April 30,

2010. Braskem is a company specializing in thermoplastic resins and petrochemicals. He was a member of

the board of directors several companies, such as LIGHT Serviços de Eletricidade S.A. (December 1997 to

July 2000), Aracruz Celulose S.A. (June 1997 to July 2002), FUNTTEL – Fund for the Technological

Development of Telecommunications (December 2000 to January 2002), FUNCEX – Foundation for Foreign

Trade Studies (June 1997 to January 2002), and Politeno Indústria e Comércio S.A., a petrochemicals

company specializing in thermoplastic resins (sitting member as of April, 10, 2003, and deputy member as

of April 2005). In addition to TNL, Mr. Cunha is currently the chairman of the board of directors of

telecommunications companies Telemar Norte Leste S.A., Brasil Telecom S.A., Tele Norte Celular

Participações S.A., and TNL PCS S.A.; and of holding companies Coari Participações S.A. and Calais

Participações S.A.. He is also a member of the board of directors of Telemar Participações S.A., of Log-in

Logistica Intermodal S.A. (from March 12, 2007 to date), and Lupatech S.A. (from March 24, 2008 to

date). Mr. Cunha holds a bachelor‘s degree in mechanical engineering from Universidade Cat lica de

Petrópolis in Rio de Janeiro, and he has attended the Executive Program in Management of Anderson

School/University of California, in Los Angeles.

João de Deus Pinheiro de Macêdo – Sitting member of the Board of Directors

Born March 8, 1948. Mr. Macêdo holds a bachelor‘s degree in electric and electronic engineering from

Universidade Federal da Bahia (UFBA). He attended a course in Transmission Systems (NEC/OKI – Japan),

Digital Switching (NTT – Japan) and Quality Management (Japan). He is currently the executive planning

officer of telecommunications company Telemar Norte Leste S.A.. In 1971, he started his career at

Telebahia as supervisor of implementation and maintenance. At Telebahia, he managed the equipment

division, the department of capital operations and the department of marketing and services. From 1985

to 1998, he served as the operations officer at Telebahia, and was responsible for customer service, sales,

operations and plant maintenance. Mr. Macêdo served as business officer of Tele Norte Leste Participações

S.A. (headquarters), and later served as individual client officer at the Rio de Janeiro branch. He is a

member of the Board of Directors of Coari Participações S.A., Calais Participações S.A., Telemar Norte

Leste S.A., Tele Norte Celular Participações S.A., and BrT.

Eurico de Jesus Teles Neto – Sitting member of the Board of Directors

Born December 29, 1956, Mr. Neto was elected sitting as a member of BrT‘s board of directors on

February 17, 2009, and of our company on April 9, 2007. Mr. Neto holds a bachelor‘s degree in economics

and law from Universidade Católica de Salvador (1980 and 1992), and a graduate degree in labor law from

Universidade Estácio de Sá. Mr. Neto served as manager of the securities division at Telecomunicações da

Bahia S.A., starting in 1980, where he went on to hold the position of legal consultant in 1990. Later, he

served as legal manager of our company, where he currently holds the position of chief legal officer.

223


Antonio Cardoso dos Santos – Sitting member of the Board of Directors

Born October 27, 1949, he has been a member of the Board of Directors of Brasil Telecom since April

2005, and of Telemig Celular Participações S.A.. Mr. Cardoso holds a Latu Sensu Graduate degree in

Business Management from Associação de Ensino Unificado do Distrito Federal (AEUDF). He has also held

several positions at Telebrás Telecomunicações Brasileiras S.A. Mr. Cardoso has also served as auditing

supervisor at Arthur Young Auditores Associados S/C Ltda., and he has already been a college professor of

accounting and auditing.

José Augusto da Gama Figueira – Deputy member of the Board of Directors

Born September 20, 1947, he has been a sitting member of the Board of Directors of holding company

Telemar Participações S.A. since April 25, 2008. He was an executive officer of Telemar Participações S.A.

from June to September 1999, and from February 2000 to November 2009. He has been a member of the

Board of Directors of Telemar Norte Leste S/A since August 2001, and the chairman of the Oi Futuro

Institute since August 2001. He has been an executive officer at CTX Participações S.A. since April

2008. He was an executive officer of Pegasus, a company in the Andrade Gutierrez Group, from July 1997

to August 1999, and a member of the supervisory board of Telecomunicações do Espírito Santo S.A.

(Telest), Telecomunicações do Piauí S.A. (Telepisa), and Telecomunicações do Amazonas S.A.

(Teleamazon) from April to December 1999. He is also a member of the Board of Directors of

telecommunications companies Tele Norte Celular Participações S.A., BrT, and TNL PCS S.A.. He holds a

bachelor‘s degree in electrical engineering from Universidade do Estado do Rio de Janeiro (1972), and a

latu sensu graduate degree in business administration from Fundação Getúlio Vargas (FGV – 1996-1997).

Pedro Jereissati – Deputy member of the Board of Directors

Born May 24, 1978, he has worked at the Jereissati Group since 1995. He holds a bachelor‘s degree in

business administration from Fundação Armando Álvares Penteado and has an MBA from the Kellogg

School of Management, in Chicago, United States. He is currently the chairman of Telemar Participações

S.A., parent of TNL. At the Jereissati Group, he worked in the real estate division, consisting basically of

shopping malls and office buildings. In 1998, after the acquisition of the control of Telemar Participações

S.A., he was transferred to the Group‘s telecommunications company, LF Tel S.A. He was the vice-

president of finance at Iguatemi Empresa de Shopping Centers AS, a company that manages shopping

malls, from 2005 to 2007. He was a member of the board of directors of Pegasus Telecom, and is

currently a member of the board of directors of holding companies Telemar Participações S/A, Coari

Participações S/A, Calais Participações S/A, CTX Participações S/A, Privatinvest Participações S/A, and

Alium Participações S/A; of telecommunications companies Telemar Norte Leste S/A, Tele Norte Celular

Participações S/A, TNL PCS S/A, Tele Norte Leste Participações S/A, and BrT; and of Iguatemi Empresa de

Shopping Centers S.A and Contax Participações S/A, the latter a company specializing in providing call

center services. He is also a director of the Telemar Institute.

Otávio Marques de Azevedo – Deputy member of the Board of Directors

Born May 31, 1951, he was the chairman of the Board of Directors of Tele Norte Leste Participações S.A.

(TNL) from October 29, 2003 to October 31, 2004. He served as the executive vice president of TNL, and

CEO from August 1998 to February 1999, and he was responsible for the implementation of TNL‘s first

business plan. In February 2009, Mr. Azevedo was elected a member of ANATEL‘s consulting board, and

he served as that entity‘s chairman from February 2001 to February 2002. He is the chief executive officer

of holding company AG Telecom Participações S.A., which is one of the largest shareholders of Telemar

Participações S.A. (TmarPart). He has also been the president of Grupo Andrade Gutierrez S.A. and

224


Andrade Gutierrez Telecomunica es Ltda. since 1993. He was the vice president of Telebrás S.A. from

1991 to 1993. Mr. Azevedo is the chairman of the board of director of holding companies TmarPart, CTX

Participações S.A, Privatinvest Participações S.A and Alium Participações S.A., and a member of the board

of directors of Telemar Norte Leste S.A., TNL PCS S.A., Tele Norte Celular Participações S.A., BrT, and

Contax Participações, the latter a company specializing in providing call center services. Mr. Azevedo

holds a bachelor‘s degree in electrical engineering from Pontif cia Universidade Cat lica de Minas Gerais

(1974), and he has extensive experience in the Brazilian telecommunications industry.

Maxim Medvedovsky – Deputy member of the Board of Directors

Born July 27, 1972, Mr. Medvedovsky has served as the administrative officer of Grupo Oi since January

2009.

Mr. Medvedovsky was the officer responsible for the shared services center of Grupo Oi from March 2006

to December 2008, the officer responsible for relations with service providers of Telemar Group from 2004

to 2006, and the officer responsible for interconnection and roaming of Oi from 2001 to 2004. He joined

Telemar in September 1998 as corporate planning manager. Mr. Medvedovsky worked on the privatization

process of Telebrás at Banco Patrimônio / Salomon Brothers, and was responsible for the appraisal of TNL.

He also previously served as telecommunications analyst at Banco Patrimônio in 1998 and as

telecommunications analyst and resources manager of Banco Icatu from 1994 to 1998.

João José de Araújo Pereira Pavel – Deputy member of the Board of Directors

Mr. Pavel started his career at the Andrade Gutierrez Group, where he worked for three years in the

investment division. He worked at Light S.A. as manager of financial projects from August 2006 to April

2008 following the investment of the Andrade Gutierrez Group in Light S.A. in 2006. He returned to the

investment area of the Andrade Gutierrez Group in 2008. Mr. Pavel is a deputy member of the Board of

Directors of telecommunications companies Tele Norte Leste Participações S.A., Telemar Norte Leste S.A.,

Tele Norte Celular Participações S.A., and Brasil Telecom S.A.. He is also an executive officer at holding

company CTX Participações S.A.. He holds a bachelor‘s degree in economics from Instituto Brasileiro de

Mercado de Capitais (IBMEC) in Rio de Janeiro.

Julio César Pinto – Executive Officer

Born October 7, 1951, Mr. Pinto joined Tele Norte Leste Participações S.A. as controller in 2002, and later

became that company‘s chief audit executive (2007), a position he holds to date. Mr. Pinto has held

several positions in the financial areas of large companies. He was the chief financial officer of MRS

Logística S.A., a railway cargo transportation company; ATL – Algar Telecom Leste S.A. (Claro), a

telecommunications company; and Globex Utilidades S.A., a company that sells home appliances. He was

the general treasury manager of Aracruz Celulose S.A., a pulp and paper company. He was the

accounting, treasury, and planning & budget manager and field controller of Xerox do Brasil S.A., a

225


document processing technology company. He was an accountant at Minerações Brasileiras Reunidas S.A.,

a company specializing in the extraction and production of iron ore. He holds a bachelor‘s degree in

accounting from Faculdade Moraes Júnior, and he attended several courses in the United States, including

the Stanford University Financial Management Program, the Xerox Corporation Middle Management

Program, and the Bourse Game of Citibank N.A. He is currently a bylaw executive officer of holding

company Coari Participações S.A., and telecommunications companies Tele Norte Leste Participações S.A.,

Telemar Norte Leste S.A., and BrT. He is a member of the Board of Directors of Calais Participações S.A.

and Tele Norte Celular S.A..

João Francisco da Silveira Neto

Born February 26, 1964 in Lagoa Vermelha, Rio Grande do Sul. He holds a bachelor‘s degree in

mechanical engineering from ITA. He began working in 2002 for the Telemar group as corporate manager.

Mr. Silveira Neto has held positions at several large corporations. He was a business unit officer at Hewlett

Packard, a computing technology company; executive officer at Casa Centro; general manager at Inacom

Cone Sul, where he was in charge of the company‘s operations in Brazil, Argentina and Chile; and CEO of

Supermercados ABC.

Luiz Eduardo Falco Pires Corrêa – CEO

Born August 13, 1960, he has a bachelor‘s degree in aeronautical engineering from the Aeronautical

Technology Institute (ITA) and completed an extension program in Marketing and Finance at the Getúlio

Vargas Foundation. He was appointed as deputy member to the Board of Directors on March 1, 2004, and

as Managing Director of TNL on October 2, 2002. He had been the CEO of TNL PCS S.A. (Oi) since

October 2001. On April 29, 2005, he was appointed as Executive Officer of Telemar Norte Leste S.A. He

has also worked at airline TAM, having served as Production Manager between 1986 and 1989, Chief

Technical Officer from 1989 to 1992, and Vice President of Sales and Marketing between 1992 and 2001.

His key roles at TAM were in maintenance, production, production management, pilots (flight groups),

reservation (call center), network operations, purchasing, supplies, major contracts (aircraft and services),

sales/marketing and strategic planning. He is currently the CEO of holding companies Calais Participações

S.A., and Coari Participações S.A., and of telecommunications companies Tele Norte Leste Participações

S.A., Telemar Norte Leste S.A., Tele Norte Celular Participações S.A., and BrT. He is a member of the

Board of Directors of Telemar Norte Leste S.A., Calais Participações, and Tele Norte Celular Participações.

Alex Waldemar Zornig – Executive officer with no specific designation, and Chief Investor Relations Officer

Born June 11, 1958, he had a bachelor‘s degree in accounting from the University of S o Paulo and

completed a specialization program at FGV. He began his career at PriceWaterhouseCoopers where he

worked for 14 years, 3 of them in London. His last position at that company was as an executive officer.

He was the CFO of BankBoston, where he worked for 13 years, including 2 years in Boston. He was also

an Executive Officer at Banco Itaú. Mr. Zornig has recently been the Executive Vice President of Banco

Safra, where he was responsible for all operational support areas.

Allan Kardec de Melo Ferreira – Chairman of the Supervisory Board

Mr. Ferreira was an internal advisor at construction company Andrade Gutierrez from 1971 to 1993, being

responsible for the bidding and contracts division from 1971 to 1980, and for the international legal

department from 1980 to 1993. He has provided consulting services in business administration for several

companies in the civil, commercial and tax fields. He has also participated in restructuring processes

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(mergers, spin-offs, sales, asset sales) of the Andrade Gutierrez Group‘s telecommunication companies

and in several auctions held by the Highways Department of Minas Gerais (DNER-MG), the Transportation

and Traffic Company of Belo Horizonte (BHTRANS), the Ministry of Communications, and ANATEL. He

obtained a law degree from the Pontifical Catholic University of Minas Gerais (PUC – MG) in 1970, and has

attended several extension programs on foreign trade, especially on exports of services at the Foreign

Trade Foundation (FUNCEX), Dom Cabral Foundation, Ministry of Foreign Relations and the Andrade

Gutierrez Construction Company. He is a member of the supervisory board of telecommunications

companies Tele Norte Celular Participações S.A., and Tele Norte Leste Participações S.A., and of holding

companies Telemar Participações S.A., and Coari Participações S.A..

Aparecido Carlos Correia Galdino – Sitting member of the Supervisory Board

Mr. Galdino, 55, has a bachelor‘s degree in business administration from Faculdades Integradas Princesa

Isabel (1978).

He began his career in 1971 at the Jereissati Group, and has, since then, participated in the group‘s

development and growth.

He serves as chief financial officer of La Fonte Participações S/A, a holding company, and also as member

of the supervisory board of Iguatemi Empresa de Shopping Centers S/A, a company that engages in

management of shopping malls. He is also a director at La Fonte Telecom S/A and of LF Tel S/A, holding

companies, and at Grande Moinho Cearense S/A, a large wheat mill providing feedstock for bakery and

pasta producers. He is a director of telecom carriers Tele Norte Celular Participações S.A., Brasil Telecom

S.A., and of holding companies Telemar Participações S.A. and Coari Participações S.A.. I am also a

deputy member in the supervisory board of Contax Participações S.A., a company that provides call center

services.

Éder Carvalho Magalhães – Sitting member of the Supervisory Board

Born July 1, 1968, in Brazil. He has been an accountant at construction company Andrade Gutierrez since

1995. Mr. Magalhães began his career as a trainee at PriceWaterhouse in 1987, and served as audit

supervisor from 1992 to 1993. He was the controller of Fiat Finanças Brasil Ltda., a company in the

financial industry, from 1993 to 1995. Since 1995, Mr. Magalhães has been directly responsible for the

accounting of all companies of the Andrade Gutierrez Group. In January 2002, he also became an officer

of the real estate division of the Andrade Gutierrez Group. He is a member of the supervisory board of

telecommunications company Brasil Telecom S.A., and of holding company Coari Participações S.A..

Magalh es holds a bachelor‘s degree in accounting from Instituto Cultural Newton Paiva Ferreira and an

MBA from IBMEC. He speaks English and Spanish.

Marcos Duarte Santos – Sitting member of the Supervisory Board

Born March 4, 1969, Mr. Santos worked at the Bankers Trust Company as vice president of stock trading

(Rio de Janeiro) from January 1994 to July 1996, and vice president for fixed-income trading (New York)

from June 1996 to August 1997. Also, he worked at CSFB – Garantia, as vice president for fixed-income

trading from August 1997 to November 1998. Mr. Santos was also a member of the supervisory boards

of Tele Norte Celular Participações S.A., Telecomunicações do Ceará S.A., and Telecomunicações do

Espírito Santo S.A. from 2001 to 2002. He is currently an executive officer at asset management company

227


P lo Capital, where he has worked since 2002. He holds a bachelor‘s degree in production engineering

from the Universidade Federal do Rio de Janeiro (UFRJ).

Sérgio Bernstein – Deputy member of the Supervisory Board

Mr. Bernstein is a member of the Board of Directors at holding company Jereissati Participações S.A.. He

holds a degree in civil engineering from the National School of Engineering of Rio de Janeiro, and has held

executive positions in Brazilian companies over many years. He started his career as a finance trainee in

1961, and was Chief Controller for 6 years and Vice-President of Finance for 4 years at General Electric of

Brazil, a company that provides technology and financial services in the country. Later on, he was the

vice-president of finance of the Jereissati Group for 16 years. He is a member of the supervisory boards of

telecommunications companies Telemar Norte Leste S.A., Tele Norte Celular Participações S.A., Tele Norte

Leste Participações S.A., and Brasil Telecom S.A., and of holding company Coari Participações S.A.

Sidnei Nunes – Deputy member of the Supervisory Board

Born September 28, 1959, Mr. Nunes holds bachelor‘s degrees in business administration (1982) and

accounting (1984) from Faculdade de Administração Paulo Eiró and an MBA in finance from the University

of São Paulo (1998). He worked at Iguatemi Empresa de Shopping Centers S/A from February 1990 to

March 2008, including as controller (February 1990 to May 1999) and chief financial officer (June 1999 to

March 2008). He has been managing officer of Jereissati Participações S.A., managing officer of L.F. Tel

S.A., and chief financial officer of La Fonte Telecom S.A. since April 2008. His key positions at the

companies are finance and controls management, and accounting and audit management. He has also

been a member of the Board of Directors of Iguatemi Empresa de Shopping Centers S/A since November

8, 2006. On April 24, 2008 he was reelected for a 2-year term-of-office. Mr. Nunes has been a member of

the boards of directors of Jereissati Participações S.A., La Fonte Telecom S.A., LF Tel S.A., and Grande

Moinho Cearense S.A. since April 24, 2008 and until April 2010. He has also been a sitting member of the

supervisory board of Contax Participações S.A. since April 2009. Contax specializes in call center services.

Mr. Nunes is currently a deputy member of the supervisory boards of telecommunications companies Tele

Norte Celular Participações S.A., Tele Norte Leste Participações S.A., Telemar Norte Leste S.A., and Brasil

Telecom S.A., and holding companies Telemar Participações S.A., and Coari Participações S.A..

Dênis Kleber Gomide Leite – Deputy member of the Supervisory Board

Mr. Leite has been the Coordinator of Institutional Relations at the Information Technology Company of

Minas Gerais (PRODEMGE) since December 2004. PRODEMGE is the company responsible for the

information technology development of the State of Minas Gerais. He has been Executive Secretary of the

Sector Chamber of the Minas Gerais Industry Federation (FIEMG) since 2002 and Member of the

Governing Council and the Ethics and Discipline Council of the Minas Tennis Club since 1998. He has held

executive positions in such companies as CERTEGY (the successor to Unnisa Soluções em Meios de

Pagamentos), the Brazilian Institute for the Development of Telecommunications - IBDT (5 years),

Fertilizantes Fosfatados - FOSFÉRTIL, and Cia. de Distritos Industriais de Minas Gerais - CDI-MG (15

years), whose purpose is to support small, medium and large businesses interested in implementing their

activities in one of the 46 industrial districts of Minas Gerais. He has a law degree from the Federal

University of Minas Gerais - UFMG (OAB/MG 22,338), and a business administration degree from the União

de Negócios e Administração - UNA (CRA/MG 2,549). He has a graduate degree in financial management

from the Getúlio Vargas Foundation (FGV). He is a member of the supervisory boards of

telecommunications companies Tele Norte Celular Participações S.A., Tele Norte Leste Participações S.A.,

Telemar Norte Leste S.A., and Brasil Telecom S.A., and holding companies Telemar Participações S.A., and

Coari Participações S.A..

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Carlos Eduardo Parente de Oliveira Alves – Deputy member of the Supervisory Board

Born June 20, 1977, Mr. Alves worked at Banco UBS as an analyst for the electricity and sanitation sector

from 2000 to March 2003. He has worked since 2003 at Polo Capital, where he currently is a variable

income manager. Mr. Alves is currently a member of the supervisory board of telecommunications

company Telemar Norte Leste S.A.. Mr. Alves holds a bachelor‘s degree in production engineering from

Pontificia Universidade Católica do Rio de Janeiro (PUC-Rio).

b. description of any of the following events that may have occurred in the last 5 years:

(i) any criminal conviction; (ii) any judgment entered or penalty imposed in any

administrative proceeding pending at the CVM; and (iii) conviction in any final and

unappealable court sentence or administrative judgment that resulted in suspension of the

ability to, or inability to, engage in any professional or business activities.

Messrs. Julio César Pinto and Luis Eduardo Falco Pires Corrêa, members of our management team, were

admonished for allegedly neglecting their duty of diligence in the CVM administrative proceeding No.

25/03, adjudicated in March 2008. This proceeding discussed the sale to our company of a 99.99%

interest Tele Norte Leste Participações S.A. held in the equity of TNL PCA S.A. (PAS CVM No. 25/03).

Currently this proceeding is pending a decision of the Appeals Committee for the National Financial System

on mandatory and voluntary appeals, both of which stayed execution of the adjudication.

Furthermore, regarding administrative proceeding No. 051288484 of BACEN, initiated in 2005 and

adjudicated in December 2007, Mr. Alex Waldemar Zornig, member of the management team of

BankBoston Banco Múltiplo S.A. at the time of the alleged faults, was sentenced to three years of

temporary inability to hold office in the management of institutions under jurisdiction of the enforcement

bureau of the Brazilian Central Bank pursuant to article 44, §2 of Law No. 4,595/64. This proceeding was

initiated to probe the alleged grant of letters of credit in violation of Resolution No. 2519/1998. The case is

currently pending decisions on an appeal and motion to stay judgment at the Appeals Committee for the

National Financial System.

12.9. Marital Relationship, Stable Relationship, or Kinship a. Directors of the issuer

Not applicable.

b. (i) directors of the issuer and (ii) directors of direct or indirect subsidiaries of the

issuer

Not applicable.

c. (i) Directors of the issuer or of its direct or indirect subsidiaries and (ii) direct or

indirect controlling shareholders of the issuer

Messrs. Pedro Jereissati and Carlos Jereissati are siblings.

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Mr. Alexandre Legey is nephew of Mr. Carlos Francisco R. Jereissati and cousin of Messrs. Pedro Jereissati

and Carlos Jereissati.

Mr. Carlos Francisco R. Jereissati is the father of Messrs. Carlos Jereissati and Pedro Jereissati.

d.(i) Directors of the issuer and (ii) directors of direct or indirect parent companies of the

issuer

Kinship among directors, and between our directors and our controlling shareholders

Mr. Pedro Jereissati, a director of our company, is a son of Mr. Carlos Francisco Ribeiro Jereissati and

brother of Mr. Carlos Jereissati, both directors of Tele Norte Leste Participações S.A., one of our indirect

controlling shareholders.

12.10 Information regarding the existence of any hierarchy, service agreements or control relationships in the last 3 accounting periods between directors of the issuer and: a. Any direct or indirect subsidiary of the issuer

Not applicable.

b. Direct or indirect controlling shareholder of the issuer

- Mr. Sidnei Nunes serves as managing director at Jereissati Participações S.A. and at LF Tel S.A., and as

chief financial officer at La Fonte Telecom S.A..

- Mr. Pedro Jereissati is an executive officer of LF TEL S/A and chief executive officer of Telemar

Participações S.A.;

- Mr. José Augusto da Gama Figueira served in the board of executive officers of Telemar Participações

S/A until 2009;

- Mr. João José de Araújo Pereira Pavel works as investment manager at Andrade Gutierrez S/A;

c. If relevant, any supplier, client, debtor or creditor of the issuer, of a subsidiary or parent or

subsidiary company of any of such persons

Not applicable.

12.11. Describe the provisions of any agreement, including insurance policies, contemplating payment or refunding of expenses supported by any of the issuer’s directors, on account of compensation for damages to third parties or the issuer, or due to penalty exacted by government agents, or of agreements with the purpose of closing administrative proceedings or lawsuits, by virtue of the exercise of their duties We have directors and officers liability insurance (D&O) taken from Zurich Brasil Seguros, valid from

January 13, 2010 through January 13, 2011. The term of this policy can be renewed for subsequent

periods of 1 year.

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12.12. Other Material Information According to the IBGC, corporate governance is system for managing and monitoring corporate, and it

involves relationship with and among shareholders, the board of directors, executive officers, independent

auditors and the supervisory board. Basic principles guiding corporate governance practices are: (i)

transparency; (ii) fairness; (iii) accountability; and (iv) corporate responsibility.

Transparency means that management must cultivate a desire to disclose information not only about a

company's financial performance, but also information associated with all other aspects, however

intangible, of corporate affairs. Fairness means reasonable and fair treatment dispensed to all minority

groups, employees, customers, suppliers or creditors of a company. Accountability, on the other hand,

means that any agents assigned with corporate governance duties must take full responsibility for their

actions in the management of the company and answer to those who appointed them over corporate

affairs. Lastly, the principle of corporate responsibility translates a broader view of corporate strategy by

incorporating elements of a social and environmental nature in the businesses and operations of the

company.

Following is a list of corporate governance practices recognized by the IBGC in its Code of Best Corporate

Governance Practices that are embraced and adopted at our company:

in addition to other responsibilities provided for in the Brazilian Corporate Law, shareholders

convened at general meetings have authority to decide matters regarding: (i) appointment or

removal at any time of any director or deputy director and members of the company's

supervisory board; (ii) set the global or individual compensation payable to directors or members

of our board of executive officers or supervisory board; (iii) amendments to our by-laws; (iv)

transformation, merger, combination, split-up, dissolution and liquidation of our company, as well

as appointment or removal of liquidators and examination of a liquidator's management; (v) any

proposal tendered by management or the board of directors regarding allocation of net income

for the year and distribution of dividends; and (viii) any other matter assigned to it by the board

of directors;

retaining of independent auditor firms for the purpose of reviewing balance sheets and other

financial statements;

by-law provision governing constitution of a supervisory board;

choice of a venue for general meetings so as to facilitate attendance by all shareholders or their

proxies;

clear by-law definitions of the manner for appointing, removing, and the tenure of directors and

members of the board of executive officers;

transparent relationship between the chief executive officer and other executive officers and

individuals or entities assuming any kind of risk, either directly or indirectly, relative to our

company;

transparent disclosure of the annual management report;

annual report that in addition to mandatory information includes all aspects of our businesses in

one full year compared on an year-on-year basis, except for any information deemed reasonably

sensitive; and

free access to our information and premises to members of the board of directors.

Additionally, we adopt corporate governance practices with a goal to ensure the best procedures and

internal controls of our businesses, and pursue full transparency by establishing and maintaining a strong

flow of public information, including reporting of: (i) quarterly results; (ii) material facts and actions; (iii)

annual reports; (iv) filings with SEC, CVM and BM&FBovespa; (v) public presentations; (vi) our website;

and (vii) relations with industry analysts, investors, credit rating agencies, news agencies and other

disclosure channels for the purpose of securing alignment of the interests of shareholders, represented by

the board of directors, and the responsibilities of our executive officers.

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In addition to the foregoing, several measures have been taken to improve our corporate governance

practices, including (i) creation of a Corporate Governance, Reporting and Sustainability Committee

formed by five executive officers of Tele Norte Leste Participações S.A. (the chief risk management officer,

general counsel, chief investor relations officer, controller and chief management and quality officer)

under the Executive Committee of Tele Norte Leste Participações S.A.; (ii) adoption of a 'Code of Ethics

and Transparency for Disclosure and Use of Information and Trading with Company Securities'; (iii)

policies addressing transparency of company information; and (iv) a Code of Ethics reflecting

organizational principles and values applicable to attitudes and behavior of all employees, suppliers and

business associates.

In support of our corporate governance model, we are Sarbanes-Oxley certified since 2006. This reflects

compliance and efficiency of our internal control and risk management framework. Compliance with SOX

requirements has introduced many benefits to our company, such as overall strengthening or our internal

control framework, consolidation of risk management principles and corporate governance practices, all in

attempt to improve our perception in and by the market.

Grupo Oi has as a policy of pursuing close relationships with investors and industry analysts. To this end,

Grupo Oi holds meetings at the Capital Market and Investment Professional and Analyst Association

(―Apimec‖) and videoconferences to disclose our results. During the year, analysts and investors are

invited to know our facilities and attend talks in which the metrics of Grupo Oi are explained.

Our investors relations department regularly sends out information in electronic format to the market

containing material facts and results of Grupo Oi. Moreover, the information related to our company is

updated daily on our website and made available to any interested party. These steps have been taken in

pursuance of an ongoing and transparent relationship between Grupo Oi and both domestic and foreign

capital markets.

In so doing we attempt to maintain a consistent and positive relationship with markets, prevent certain

groups of persons from gaining selective or privileged access to our information, and endeavor to ensure

that our information will be disclosed simultaneously across the market.

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13. MANAGEMENT COMPENSATION Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor



13.1. Policy and practice for the compensation of the board of directors, the statutory and non-statutory board of executive officers, the supervisory board, the statutory committees, and the audit, risk, financial and compensation committees, including:

a) Goals of the compensation policy or practices

Board of Directors and Supervisory Board

Our compensation philosophy and policy apply to directors and members of any committee created by the

board of directors, as well as to members of the supervisory board.

The corporate governance framework in place at Oi and its subsidiaries calls for a board of directors

capable of strong actions and consistent with the interests of shareholders in the short, middle and long

terms. Our directors bring value to our company by combining their different expertise, skills and

specialties.

Our directors and the members of each committee and of the supervisory board represent the interests of

our shareholders, and are all distinguished professionals in their fields of work. Because of their

qualifications, members of our management team receive monthly fees in line with the best market

practices.

The fixed compensation payable to our directors, members of committees created by the board of

directors and members of the supervisory board is determined against market research comparing

companies of a similar structure and size, and taking into account time of service dedicated their duties in

office.

Statutory and Non-Statutory Officers

Oi adopts the same philosophy in respect of the compensation payable to both statutory and non-statutory

officers. Under these premises, we offer our executives fair compensation compared to other market

players, considering the scope of their work and their seniority in the company. Our compensation scheme

generates an unique opportunity for real gain based on short- and long-term results of our business, as

well as in the individual performance of each officer. This policy is designed to ensure our ability to attract,

maintain and motivate our executive officers and ensure alignment with the interests of our shareholders.

To achieve this goal, Oi uses a tiered approach to define a specific strategy for each level of

compensation, so as to balance the impact of each compensation component on industry practices and

business objectives thus ensuring total competitiveness of our compensation practices.

b) Compensation breakdown

The compensation policy in place at Oi is applied with the same compensation elements across all of its all

subsidiaries.



233


i. Description and purpose of each compensation element

Base salary: This component remunerates officers based on the scope of their position, also taking into

account their seniority.

The strategy of Oi is to put base salaries of executives in line with the market average (P50) in order to

balance fixed costs and ensure fairness among internal peers.

We employ the Hay job evaluation method to establish internal balance by defining different compensation

levels based on groups of relevant roles, complexity and business impact, as well as to establish accurate

comparisons with industry compensation practices.

Salary brackets are defined against industry benchmarks within a certain range (with caps and thresholds)

that allows for recognition of the seniority of an executive against the market value of the relevant

position.

Oi employs compensation surveys carried out by independent expert firms in order to determine

competitiveness of each compensation level (salaries, benefits, short- and long-term incentives included).

Short-Term Incentives (Bonuses): The goal of short-term incentives is to provide stimulus and reward

executives based on performance of the business plan for any given year, and to recognize the individual

performance and merit of our executives.

In addition to recognition and reward, the short-term incentive plan (SIP) acts as a tool to ensure clarity

and focus on key performance indicators (KPIs) that ensure excellence in implementation of the business

plan.

The strategy of Oi is to place the opportunity to generate gains with the program in the third industry

quartile (P75) for results in line with the business plan. This can generate additional opportunity for higher

gains on account of better business results and individual executive performance.

High reward levels for expected results, as well as the maximum reward, are determined around

organizational levels as a function of amounts and the compensation mix used in the industry.

The plan provides that every year, following approval of our business plan, financial and/or operating

excellence key performance indicators will be determined and monitored for compensation purposes.

The main performance metrics taken into account in determining short-term incentives are the Economic

Value Added (EVA), Customer Satisfaction, to name a few. These are determine every year by the board

of directors.

Long-Term Incentives (LTI): These incentives encourage expansion of our company and compliance with

long-term corporate goals. Long-term incentives are designed to provide executives with a share of Oi's

development and align their interests with those of the shareholders.

In addition, the LTI program allows us attract and retain first-class professionals by offering them an

opportunity to be rewarded for generating value to our shareholders.

Currently Oi has a long-term incentive plan in place whose strategy is to offer opportunity for gain in line

with the third industry quartile (P75).

However, this plan does not apply to our directors nor to members of our supervisory board.

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Stock-based compensation plan of the board of directors and statutory board of executive

officers in effect in the last accounting period and that expected for the current accounting

period:

The shareholders of Tele Norte Leste Participações S/A, our controlling entity, convened at general

meeting on April 11, 2007 and approved the Stock Option Plan of Tele Norte Leste Participações S/A (the

―Plan‖). Following this approval, the Plan Management Committee launched the 2007 Tele Norte Leste

Participa es S/A Stock Option Program (the ―2007 Program‖) on a meeting held April 12, 2007.

The members of our management were not included in the 2007 Program.

ii. Proportion of each element in the aggregate compensation

The total compensation payable to our directors and to members of the supervisory board is a 100% fixed

compensation (salary).

This information does not apply on account of resignation of the statutory board of executive officers.

iii. Calculation and restatement methodology for each compensation element

The compensation policy employs the following calculation methodologies:

Fixed Compensation: Fixed compensation payable to the statutory board of executive officers is

determined based on a monthly salary x 13.33, taking into account as fixed compensation both the

Christmas bonus and the additional 1/3 on vacation pay. The fixed compensation payable to members of

the board of directors and of the supervisory board is calculated as fees x 12.

Bonuses: The bonus component is calculated based on the bonus target, corresponding to the amount

payable in the event of results that are 100% in line with the targets set for any given year.

Long-Term Incentives: These consider the annualized fair value of options granted for both common and

preferred stock. Long-term incentives are calculated using the Hay group valuation methodology using the

binomial three concept considering the following pricing criteria:

Annualization Criteria: The methodology principle considers options granted in the current year, but Oi

made one single jumbo grant for the 2007-2011 business cycle. In this case, for the purpose of

participation in the compensation mix, the amount of the options granted for common and preferred stock

is annualized over a five (5) year period.

Exercise Criteria: For the purpose of calculating the plan fair value, we considered that executives will

exercise options under the vesting schedule rather than by the average or maximum exercise periods, due

to the obligation of exercise at least 50% of the net bonus at the end of the option vesting period.

It is important to point out that the fair value of options is determined solely for the purpose of

demonstrating the balance among the several compensation components using one single review base.

This calculation in no way ensures that the statutory executive officers will effectively earn any gains.

235


iv. Explanation for the compensation make-up

Compensation elements are defined against industry benchmarks that allow for recognition of the seniority

of an executive against the market value of the relevant position.

Oi employs compensation surveys carried out by independent expert firms in order to determine

competitiveness of each compensation level (salaries, benefits, short- and long-term incentives included).

c) Key performance indicators considered in determining each compensation element:

The main performance metrics taken into account in determining short-term incentives are the Economic

Value Added (EVA), Customer Satisfaction, to name a few. These are determine every year by the board

of directors.

d) How is compensation structured to reflect performance indicator trends?

Short-Term Incentives: The goal of short-term incentives is to provide stimulus and reward executives

based on performance of the business plan for any given year, and to recognize the individual

performance and merit of our executives. The short-term incentive plan (SIP) acts as a tool to ensure

clarity and focus on key performance indicators (KPIs) that ensure excellence in implementation of the

business plan.

Long-Term Incentives: These incentives encourage expansion of our company and compliance with long-

term corporate goals. Long-term incentives are designed to provide executives with a share of Oi's

development and align their interests with those of the shareholders. In addition, the LTI program allows

us attract and retain first-class professionals by offering them an opportunity to be rewarded for

generating value to our shareholders.

e) The way the compensation policy or practice is aligned with the issuer’s short, medium and

long-term interests

Oi offers its executives fair compensation compared to other market players, considering the scope of their

work and their seniority in the company. Our compensation scheme generates an unique opportunity for

real gain based on short- and long-term results of our business, as well as in the individual performance of

each officer. This policy is designed to ensure our ability to attract, maintain and motivate our executive

officers and ensure alignment with the interests of our shareholders.

f) Existence of compensation supported by subsidiaries or direct or indirect controlling

shareholders

Not applicable.

g) Existence of any compensation or benefit connected to the occurrence of corporate events,

such as the divestiture of the issuer’s controlling interest

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Not applicable.

13.2 Regarding the compensation recognized in the balance sheets for the last 3 accounting periods and the compensation anticipated for the current year, payable to members of the board of directors, statutory board of executive officers and supervisory board:

Year ended December 31, 2010

Board of Directors


Supervisory Board Total

Number of Members 5 4 4 13 Fixed compensation (in R$) - - - - Salaries or management fees 150,000 - 90,000 240,000 Direct and indirect benefits - - - - Compensation payable for committee activities - - - - Other - - - - Variable compensation (in R$) - - - - Bonus - - - - Profit sharing - - - - Compensation paid for attendance at meetings - - - - Commissions - - - - Other - - - - Post-employment benefits - - - - Benefits payable upon termination of office - - - - Stock-based compensation - - - - Total 150,000 - 90,000 240,000 Note: Nine of the 13 members have waived this compensation.


Board of Directors


Supervisory Board Total

Number of Members 5 4 4 13 Fixed compensation (in R$) - - - - Salaries or management fees 150,000 - 90,000 240,000 Direct and indirect benefits - - - -

Compensation payable for committee activities - - - - Other - - - - Variable compensation (in R$) - - - - Bonus - - - - Profit sharing - - - -

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Compensation paid for attendance at meetings - - - - Commissions - - - - Other - - - - Post-employment benefits - - - - Benefits payable upon termination of office - - - - Stock-based compensation - - - - Total 150,000 - 90,000 240,000 Note: Nine of the 13 members have waived this compensation.

13.3 Regarding the variable compensation recognized in the balance sheets for the last 3 accounting periods and the compensation anticipated for the current year, payable to members of the board of directors, statutory board of executive officers and supervisory board: There is no variable compensation payable to members of our Board of Directors and Supervisory Board.

13.4 Regarding the stock-based compensation plans of the Board of Directors and Board of Executive Officers in force last year and proposed for the current year: Not applicable to members of our Board of Directors and Supervisory Board.

We did not grant stock options to our executive officers in 2009. No grant is expected to take place in

2010.

13.5 Number of stock or equity units directly or indirectly held by members of the board of directors, board of executive officers or audit committee, in Brazil and overseas, and other

convertible securities issued by the Company, its direct or indirect controlling shareholders, subsidiaries or companies under common control, grouped per corporate body, on the closing date of the last accounting period

Board of Directors:

Board Member Company Common

Shares

Preferred

Shares

Total Quotas

José Mauro

Mettrau Carneiro

da Cunha

Brasil Telecom

S.A.

1 1 2 -

Tele Norte

Leste

Participações

S.A.

4,399 - 4,399 -

Telemar Norte 1 11 12 -

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Leste S.A.

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Coari

Participações

S.A.

- 1 1 -

Calais

Participações

S.A.

1 - 1 -

TNL PCS S.A. 1 - 1 -

João de Deus

Pinheiro de

Macedo

Brasil Telecom

S.A.

5 4 9 -

Tele Norte

Leste

Participações

S.A.

5,055 - 5,055 -

Telemar Norte

Leste S.A.

- 25 25 -

Tele Norte

Celular

Participações

S.A.

1 - 1 -

Coari

Participações

S.A.

- 1 1 -

Calais

Participações

S.A.

1 - 1 -


Eurico de Jesus

Teles Neto

Brasil Telecom

S.A.

1 1 2 -

Tele Norte

Leste

Participações

S.A.

4,344 - 4,344 -

Telemar Norte

Leste S.A.

32 49 81 -

239


Coari

Participações

S.A.

- 1 1 -

José Augusto da

Gama Figueira

Brasil Telecom

S.A.

1 1 2 -

Tele Norte

Leste

Participações

S.A.

5,033 - 5,033 -

Telemar Norte

Leste S.A.

- 200 200 -

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Coari

Participações

S.A.

- 1 1 -

Calais

Participações

S.A.

1 - 1 -

TNL PCS S.A. 11 - 11 -

Antônio Cardoso

dos Santos

Brasil Telecom

S.A.

136 62,037 62,173 -

Tele Norte

Leste

Participações

S.A.

1,100 - 1,100 -

Telemar Norte

Leste S.A.

- 4,600 4,600 -

Coari

Participações

S.A.

- 1 1 -

Maxim

Medvedovski

Brasil Telecom

S.A.

- 1 1 -

Tele Norte

Leste

Participações

S.A.

822 - 822 -

Coari - 1 1 -

240


Participações

S.A.

Pedro Jereissati Brasil Telecom

S.A.

- 1 1 -

Tele Norte

Leste

Participações

S.A.

1 - 1 -

Telemar Norte

Leste S.A.

1 - 1 -

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Coari

Participações

S.A.

- 1 1 -

Calais

Participações

S.A.

1 - 1 -


Otávio Marques

de Azevedo

Brasil Telecom

S.A.

18 1 19 -

Tele Norte

Leste

Participações

S.A.

15 2 17 -

Telemar Norte

Leste S.A.

6 6 12 -

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Coari

Participações

S.A.

- 1 1 -

Calais

Participações

S.A.

1 - 1 -

TNL PCS S.A. 11 - 11 -

241


João José de

Araujo Pavel

Brasil Telecom

S.A.

1 1 2 -

Tele Norte

Leste

Participações

S.A.

1 - 1 -

Telemar Norte

Leste S.A.

1 200 201 -

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Coari

Participações

S.A.

- 1 1 -

Calais

Participações

S.A.

1 - 1 -


Supervisory Board

Board Member Company Common

Shares

Preferred

Shares

Total Quotas

Aparecido Carlos

Correia Galdino

Brasil Telecom

S.A.

1 - 1 -

Tele Norte

Leste

Participações

S.A.

1 1 2 -

Marcos Duarte

Santos

Tele Norte

Leste

Participações

S.A.

- 100 100 -

Telemar Norte

Leste S.A.

- 1 1 -

Sérgio Bernstein Tele Norte

Leste

6 54 60 -

242


Participações

S.A.


Executive

Officer

Company Common

Shares

Preferred

Shares

Total Quotas

Luiz Eduardo

Falco Pires

Corrêa

Brasil Telecom

S.A.

1 - 1 -

Tele Norte Leste

Participações

S.A.

30,107 - 30,107 -

Telemar Norte

Leste S.A.

1 - 1 -

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Calais

Participações

S.A.

1 - 1 -

TNL PCS S.A. 11 - 11 -

Alex Waldemar

Zornig

Brasil Telecom

S.A.

2 1 3 -

Tele Norte Leste

Participações

S.A.

3 2 5 -

Telemar Norte

Leste S.A.

1 - 1 -

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Julio Cesar

Pinto

Brasil Telecom

S.A.

1 - 1 -

243


Tele Norte Leste

Participações

S.A.

4,385 - 4,385 -

Telemar Norte

Leste S.A.

1 - 1 -

Tele Norte

Celular

Participações

S.A.

2 - 2 -

Calais

Participações

S.A.

1 - 1 -


Telemar

Internet

- - - 1

João Francisco

da Silveira Neto

(*)

Tele Norte Leste

Participações

S.A.

2,762 - 2,763 -

Way TV Belo

Horizonte S.A.

1 - 1 -

(*) Elected on March 11, 2010 to replace Mr. Paulo Altmayer, who held 1,818 common shares of Tele

Norte Leste Participações S.A. and 60 preferred shares of Brasil Telecom S.A. on December 31, 2009.

13.6 Stock-based compensation recognized in the profit or loss for the last 3 accounting periods and stock-based compensation estimated for the current accounting period for the board of directors and statutory board of executive officers: Not applicable. See item 13.4.

13.7 Outstanding options of the board of directors and statutory board of executive officers at the end of the last accounting period: Not applicable. See item 13.4.

13.8 Exercised options and shares delivered referring to stock-based compensation of the Board of Directors and Board of Executive Officers, in the last three accounting periods Not applicable. See item 13.4.

13.9 Brief description of the information necessary for the understanding of the data disclosed in items 13.6 to 13.8, and explanation of the pricing method used for the shares and options. Not applicable.

244


13.10 Information on pension plans in effect granted to the members of the board of directors and statutory board of executive officers: Brasil Telecom S/A is a sponsor of private pension/alternative plans Brtprev e TCSPREV. However, no

director, statutory officer or member of the supervisory board are included in said plans. In addition, these

plans have closed for new applications since December 31, 2009.

13.11 Average Management Compensation Effectiveness of this item is suspended in respect of IBEF members, and, as result, in respect of their

relevant companies, due to a preliminary order entered by the 5th Federal District Court of Rio de Janeiro

in civil suit No. 2010.5101002888-5 filed by IBEF.

13.12 Agreement-based compensation We have no agreement-based compensation.

13.13 Indicate the percentage of the total compensation allocated to each corporate body recognized in the balance sheets for the last three accounting periods of the issuer, referring to members of the board of directors, the board of executive officers or the audit committee that are parties related directly or indirectly to any controlling shareholders, as defined by the accounting standards governing such relationship


Board of Directors 4.3% Statutory Board of Executive Officers - Supervisory Board 26.1%

13.14 Indicate the amounts recognized in the balance sheets for the last three accounting periods of the issuer as compensation paid to members of the board of directors, the board of executive officers or the audit committee, grouped by corporate body, where the payment of any such amount was not related to holding office with the issuer, i.e. any fees or compensation paid for advisory or consulting services rendered No compensation was paid to members of the Board of Directors, Board of Executive Officers and

Supervisory Board for any reason but the position they hold.

13.15 Indicate any amounts recognized in the balance sheets for the last three accounting periods of any direct or indirect controlling shareholders, companies under common control and of subsidiaries of the issuer, as compensation paid to members of the board of directors, the board of executive officers or the audit committee, grouped per body, including the reason for

payment of any such amounts to said individuals Not applicable.

245


13.16 Any other information that the issuer may deem relevant: There is no further relevant information regarding item ―13‖.

246


14. HUMAN RESOURCES Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor



14.1. Issuer's human resources a. number of employees (total, per groups based on activity performed and per

geographical location)

As of December 31, 2009, we had a total of 3,619 employees. All of our employees are employed on a

full-time basis, divided into the following functions: installation, maintenance, expansion and

modernization operations, sales and marketing, administrative support, corporate management, budget,

and finances.

Number of company

employees 2007 2008 2009

At February

2010

Total 9,936 10,982 12,331 12,014

The table below sets forth a breakdown of our employees by main category of activity and geographic

location as of the dates indicated:

December 31,

At

February

2010

2007 2008 2009 2010

Number of employees per category of activity

Plant operation, maintenance, expansion and

modernization 6,435 6,684

5,468 5,274

Sales and marketing 1,765 2,403 3,704 3,583

Administrative support 825 923 1,614 1,635

Corporate management, budget and finance 911 972 1,545 1,522

Total 9,936 10,982 12,331 12,014



247


December 31,

At

February

2010

2007 2008 2009 2010

Number of employees per geographic location

Rio de Janeiro 6,000 6,760 5,897 5,803

Minas Gerais's Regional Office:

Minas Gerais 1,416 1,185 1,170 1,148

Espírito Santo 144 140 105 107

Bahia's Regional Office:

Alagoas 74 70 54 53

Sergipe 58 57 44 46

Bahia 447 428 352 341

Pernambuco's Regional Office:

Rio Grande do Norte 98 97 74 74

Paraíba 107 107 88 86

Pernambuco 336 327 253 251

Ceará's Regional Office:

Amazonas 96 146 87 86

Roraima 19 31 21 21

Pará 199 367 236 233

Amapá 19 36 25 25

Maranhão 117 161 109 109

Piauí 88 83 66 66

Ceará 318 308 259 252

São Paulo 321 588 972 968

Porto Alegre 1 1 473 456

Brasília 71 84 683 590

Paraná 7 6 419 406

Goiás 0 0 214 205

248


Tocantins 0 0 35 36

Mato Grosso do Sul 0 0 140 132

Mato Grosso 0 0 148 139

Rondônia 0 0 91 85

Santa Catarina 0 0 290 272

Acre 0 0 26 24

Total 9,936 10,982 12,331 12,014

b. number of outsourced employees (total, per groups based on activity performed and

per geographical location)

Number of outsourced employees

2007 2008 2009

At February

2010

Plant operation, maintenance, expansion and modernization 29,835 36,811 56,467 52,888

Sales and marketing 7,107 11,975 24,074 11,477

Administrative support 4,680 6,229 6,977 6,651

Corporate management, budget and finance 1,219 2,685 4,695 4,403

2,350

Total 42,841 57,700 92,213 77,769

249


Number of employees per geographic location

2007 2008 2009

At February

2010

Acre 0 0 300 298

Alagoas 536 561 557 361

Amapá 176 173 190 87

Amazonas 991 893 893 643

Bahia 4,756 5,317 5,112 3,031

Brasília 32 28 4,391 6,201

Ceará 2,172 2,740 3,041 2,330

Espírito Santo 1,273 1,685 1,760 1,270

Goiás 0 0 2,772 2,515

Maranhão 1,039 1,323 1,414 818

Mato Grosso 0 0 2,051 1,935

Mato Grosso do Sul 0 0 1,892 2,001

Minas Gerais 8,273 10,550 10,709 8,166

Pará 1,517 1,862 2,085 1,208

Paraíba 851 888 957 789

Paraná 0 4 5,518 5,597

Pernambuco 2,705 2,990 2,681 2,049

Piauí 567 697 841 657

Rio de Janeiro 16,313 22,612 22,596 19,648

Rio Grande do Norte 731 861 879 526

Rio Grande do Sul 1 11 9,356 9,283

Rondônia 0 0 917 891

Roraima 100 118 133 70

Santa Catarina 0 0 4,931 4,971

São Paulo 182 3,845 5,121 1,612

Sergipe 626 542 487 213

Tocantins 0 0 629 599

250


Total 42,841 57,700 92,213 77,769

c. Turnover rate

Our turnover rates for 2007 and 2008 were 14.2% and 19.1%, respectively.

In 2009 our turnover rate reached approximately 24.93%, or 3,355 employees per year. The increase in

this metric can be largely explained by the number of employees who left the company following the

retirement incentive plan launched upon our merger with BrT.

At late February 2010, the average turnover rate was approximately 30.9% for the first two months of the

year.

251


d. Issuer’s exposure to labor liabilities and contingencies

Labor contingencies


2007 2008 2009

(in R$ million)

Probable 213.7 213.7 408.7

Possible 540.7 632.8 1,129.0

Remote n/a 413.9 487.9

TOTAL 754.4 1,260.4 2,025.6

For further information on our labor contingencies, please refer to items 4.3 to 4.7 of this Form.

14.2. Comments on any significant change in the figures reported in item 14.1 above Not applicable.

14.3. Description of the issuer’s policy on employee compensation, including a. Salary and variable compensation policy

Career and Salary Plan

Our career and salary plan was designed in accordance with the Hay methodology and takes into account

the qualification of our employees and their ability to solve problems and assume responsibilities. The

main goal of this plan is to establish an internal balance and competitiveness with industry wages, in

addition to attracting and retaining key talents in a manner consistent with our cost management policies.

Profit sharing plan

Our collective bargaining agreements with several labor unions require us to pay bonuses to employees

who reach certain operational targets.

As of December 31, 2008, we had provisioned R$99 million to be distributed in bonuses with respect to

2008.

Following the merger of Oi and Brasil Telecom in 2009, the profit sharing plan applied to our company has

been the same adopted by Oi. This plan is an incentive for employees to pursue company goals, aligning

the interests of our workers and shareholders. As of December 31, 2009, we had provisioned R$29.3

million to be distributed in bonuses with respect to 2009.

252


b) Benefits policy

Medical, Dental and Employee Assistance Benefits

We provide our employees with medical and dental assistance, group life insurance, meal and food

assistance, and others, which added to the fixed and variable compensation make the overall

compensation attractive and competitive in the market.

We and our employees share the costs of these benefits. Our meal assistance program is implemented in

line with the Worker‘s Food Program (Programa de Alimenta o do Trabalhador), or PAT. In 2009, we

contributed R$21.83 million to the medical and dental assistance plans, R$23.11 million to the PAT, and

R$7.44 million to the other programs.

Profit Sharing Plans

Our collective bargaining agreements with several labor unions require us to pay bonuses to employees

who reach certain operational targets.

As of December 31, 2008, we had provisioned R$99 million to be distributed in bonuses with respect to

2008.

Following the merger of Oi and Brasil Telecom in 2009, the profit sharing plan applied to our company has

been the same adopted by Oi. This plan is an incentive for employees to pursue company goals, aligning

the interests of our workers and shareholders. As of December 31, 2009, we had provisioned R$29.3

million to be distributed in bonuses with respect to 2009.

Career and remuneration plan

Our career and salary plan was designed in accordance with the Hay methodology and takes into account

the qualification of our employees and their ability to solve problems and assume responsibilities. The

main goal of this plan is to establish an internal balance and competitiveness with industry wages, in

addition to attracting and retaining key talents in a manner consistent with our cost management policies.

Education and training

We contribute to the professional qualification of our employees by offering training for the development

of organizational and technical skills. Approximately 15,915 hours of training were offered in the nine

months to December 31, 2009.

In 2009, our MBA Scholarships Program provided 106 employees from all over Brazil with scholarships to

improve their technical and managerial performance at our company. We have also developed the

University Scholarship Program for employees with no college degree. In 2009, approximately R$6 million

was invested in the qualification and training of our employees.

Our relations with labor unions

Our relations with labor unions

253


As of December 31, 2009, approximately 15% of our employees were members of state labor unions

associated either with the National Federation of Telecommunications Workers (Federação Nacional dos

Trabalhadores em Telecomunicações – FENATTEL), or with the Interstate Federation of

Telecommunications Workers (Federação Interestadual dos Trabalhadores em Telecomunicações –

FITTEL). Some employees in certain job categories are affiliated with other unions specific to such

categories. We negotiate separate collective bargaining agreements with the local unions in each of the

states in Regions I and II for our company and each of our subsidiaries operating in such states.

New collective bargaining agreements with these unions are negotiated every year. Negotiations with

labor unions are conducted under oversight and guidance of our company, on one hand, and of FENATTEL

or FITTEL on the other. All collective bargaining agreements have been duly executed and ratified by our

company and each union representing the respective trade, and are in full force and effect as of the

applicable reference date (December 1).

We have never experienced a strike that had a material effect on our operations.

Private pension plans

Fundação Sistel (PBS-A Plan)

Sistel is a not-for-profit private pension fund created by Telebrás in November 1977 to supplement the

benefits provided by the federal government to employees of the former Telebrás System. Since the

privatization of Telebrás, the Sistel Benefits Plan (Plano de Benefícios da Sistel – Assistidos), or PBS-A

plan, a pre-determined benefit plan, has been sponsored by the fixed-line carriers that resulted from the

privatization of Telebrás, including our company. The PBS-A plan is self-funded and has been closed to

new members since January 2000. Even though we have no longer been making contributions to Sistel,

we are jointly and severally liable, along with other wireline carriers, for 100% of any insufficiency in

payments owed to members of the PBS-A plan. As of December 31, 2009, the PBS-A plan had a surplus of

R$2,300 million and we were not required to make contributions to the PBS-A plan in 2007, 2008 or 2009.

Fundação Sistel (PAMA Plan and PCE Plan)

Since the privatization of Telebrás, the Health Insurance Plan to the Retired (Plano de Assistência Médica

ao Aposentado), or PAMA, a health insurance plan managed by Sistel, has been sponsored by the wireline

carriers that resulted from the privatization of Telebrás, including our company. The PAMA plan is a pre-

determined contribution plan and has been closed to new members since January 2000, except for

employees that are covered by the PBS-A plan who have not yet elected to join the PAMA plan.

In December 2003, we and the other telecommunications companies that resulted from the privatization

of Telebrás began sponsoring the PCE – Special Coverage Plan, or the PCE plan, a pre-determined

contribution health insurance plan managed by Sistel. The PCE plan is open to employees that are covered

by the PBS-A plan who have not yet elected to join the PCE plan. From March to July 2004, December

2005 to April 2006 and June to November 2008, we offered incentives for our employees to migrate from

the PAMA plan to the PCE plan. As of December 31, 2009, the PAMA plan had a deficit of R$3 million and

we were required to make contributions to the PAMA plan of less than R$1 million in 2008 and 2009.

Fundação Atlântico de Seguridade Social (TCSPREV Plan)

In February 2000, we began sponsoring the TCSPREV Plan, a private pension plan offered to our

employees that participated in the PBS-A plan and new employees who were employed by our company

after the privatization of the Telebrás System. The TCSPREV plan offers two categories of benefits to its

254


members: (1) risk benefits, funded according to the pre-determined benefit method; and (2)

programmable benefits, funded according to the pre-determined contribution method. We are liable for

any deficits incurred by the TCSPREV plan according to the existing proportion of the contributions we

make to this plan. We also offer health insurance to our retired employees. As of December 31, 2009, the

TCSPREV plan had R$823 million in assets under management. We made no contributions to this plan in

2008.

Fundação Atlântico de Seguridade Social (Fundador/Alternativo Plan and BrTPREV Plan)

In 2000, as a result of our acquisition of CRT, we assumed liability for retirement benefits to CRT‘s

employees. In October 2002, approximately 96% of CRT‘s employees and retired employees migrated to

the BrTPREV plan. This is a pre-determined contribution and benefits plan. In February 2005 it was closed

to new participants. In March 2005, Fundação BrTPREV began managing these plans. In January 2010,

FASS began managing the Fundador/Alternativo plan and the BrTPREV plan.

The BrTPREV plan offers three categories of benefits to its members: (1) risk benefits, funded according to

the pre-determined benefit method; (2) programmable benefits, funded according to the pre-determined

contribution method; (3) proportionally paid benefits, applicable to those employees who migrated to a

pre-determined contribution method with their rights as contributors to the pre-determined benefit system

preserved. We are liable for any deficits incurred by the Fundador/Alternativo plan or the BrTPREV plan

according to the existing proportion of the contributions we make to these plans. As of December 31,

2009, the Fundador/Alternativo plan and the BrTPREV plan had an aggregate deficit of R$687 million,

which is being amortized through 2022. Since February 2003, we have been making additional monthly

contributions to the Fundador/Alternativo plan and the BrTPREV plan to reduce this deficit. During 2009,

we contributed an aggregate of R$161 million to the Fundador/Alternativo plan and the BrTPREV plan,

including R$148 million contributed to reduce the deficit.

PAMEC-BrT Plan

We also provide health care benefit for some retirees and pensioners that are members of the TCSPREV

plan under the PAMEC-BrT plan, a pre-determined benefit plan. Contributions to the PAMEC-BrT plan were

fully paid in July 1998, through a single payment. In November 2007, the assets and liabilities of PAMEC-

BrT were transferred from Fundação 14 to us and we began managing the plan. As a result of the

transfer, we do not recognize assets to cover current expenses as long as liabilities are fully recognized As

of December 31, 2009, the PAMEC-BrT plan had a deficit of R$3 million and we were required to make

contributions to the PAMEC-BrT plan of less than R$1 million in 2008 and 2009.

c) Characteristics of the stock-based compensation plans for non-executives

Not applicable.

14.4. Our relations with labor unions Relations between the Company and Labor Unions

As of December 31, 2009, approximately 15% of our employees were members of state labor unions

associated either with the National Federation of Telecommunications Workers (Federação Nacional dos

Trabalhadores em Telecomunicações – FENATTEL), or with the Interstate Federation of

Telecommunications Workers (Federação Interestadual dos Trabalhadores em Telecomunicações –

FITTEL). Some employees in certain job categories are affiliated with other unions specific to such

categories. We negotiate separate collective bargaining agreements with the local unions in each of the

states in Regions I and II for our company and each of our subsidiaries operating in such states.

255


New collective bargaining agreements with these unions are negotiated every year. Negotiations with

labor unions are conducted under oversight and guidance of our company, on one hand, and of FENATTEL

or FITTEL on the other. All collective bargaining agreements have been duly executed and ratified by our

company and each union representing the respective trade, and are in full force and effect as of the

applicable reference date (December 1).

We have never experienced a strike that had a material effect on our operations.

15. CONTROL


15.1 Identification of the controlling shareholder or group of controlling shareholders

a) Shareholder

b) Nationality

c) CNPJ/CPF

d) Number of shares e) % f) %

held in relation

to capital stock

g) Party to shareholders'

agreement

i) Date of latest

change Common Preferred Common Preferred

Coari Participações S.A.

Brazil 04.030.087/0001-

09 161,990,001 128,675,049 79.63% 32.20 48.20% yes 11/17/2009

h) Information on the direct and indirect controlling shareholders of the issuer's corporate shareholders, including controlling shareholders that are individuals:

Below is a list of our controlling shareholders, including any individual shareholder, as applicable.

COARI PARTICIPAÇÕES S.A.

1.1) TELEMAR NORTE LESTE S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 33.000.118/0001-79, holder of 161,990,001 shares of common stock, or 100% of the common stock of Coari Participações S.A.

1.2) JOSÉ MAURO METTRAU CARNEIRO DA CUNHA, Brazilian, enrolled with the CPF/MF under No. 299.637.297-20, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

1.3) JOÃO DE DEUS PINHEIRO DE MACEDO, Brazilian, enrolled with the CPF/MF under No. 060.055.275-68, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

1.4) EURICO DE JESUS TELES NETO, Brazilian, enrolled with the CPF/MF under No. 131.562.505-97, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

1.5) JOSÉ AUGUSTO DA GAMA FIGUEIRA, Brazilian, enrolled with the CPF/MF under No. 242.456.667-49, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

1.6) ANTONIO CARDOSO DOS SANTOS, Brazilian, enrolled with the CPF/MF under No. 189.372.688-68, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

1.7) MAXIM MEDVEDOVSKY, Brazilian, enrolled with the CPF/MF under No. 016.750.537-82, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.



256


1.8) PEDRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 273.475.308-14, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

1.9) JOÃO DE DEUS PINHEIRO DE MACEDO, Brazilian, enrolled with the CPF/MF under No. 060.055.275-68, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

1.10) JOÃO JOSÉ DE ARAUJO PEREIRA PAVEL, Brazilian, enrolled with the CPF/MF under No. 092.798.377-02, holder of 1 preferred share, or 0.00% of the capital stock of Coari Participações S.A.

Corporate Structure Details

BNDES PARTICIPAÇÕES S.A. has a sole shareholder, BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL – BNDES, organized and existing under Brazilian law and enrolled with the CNPJ/MF under No. 33.657.248/0001-89, holder of 1 preferred share, or 100% of the capital stock of BNDES PARTICIPAÇÕES S.A.

- Corporate structure of BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL – BNDES, detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

UNION/NATIONAL TREASURY, holds 6,273,711,452 shares or 100% of the capital stock of BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL – BNDES.

FUNDAÇÃO ATLÂNTICO DE SEGURIDADE SOCIAL, a private pension fund organized and existing under Brazilian law as a foundation.

FUNDAÇÃO DOS ECONOMIARIOS FEDERAIS, a private pension fund organized and existing under Brazilian law as a foundation.

FUNDAÇÃO PETROBRAS DE SEGURIDADE SOCIAL, a private pension fund organized and existing under Brazilian law as a foundation.

CAIXA DE PREVIDÊNCIA DOS FUNCIONÁRIOS DO BANCO DO BRASIL – PREVI, a private pension fund organized and existing under Brazilian law as a foundation.

LUXEMBURGO PARTICIPAÇÕES S.A., detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars

and the number of shares held by each shareholder:

AG TELECOM PARTICIPAÇÕES S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 03.260.334/0001-92, holder of 340,613,400 shares of common stock and 340,613,399 preferred shares, or 100% of the stock issued by LUXEMBURGO PARTICIPAÇÕES S.A.

- Corporate structure of AG TELECOM PARTICIPAÇÕES S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

ANDRADE GUTIERREZ TELECOMUNICAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 71,057,921/0001-39, holder of 340,637,819 shares of common stock, or 100% of the capital stock of AG TELECOM PARTICIPAÇÕES S.A.

- Corporate structure of ANDRADE GUTIERREZ TELECOMUNICAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

ANDRADE GUTIERREZ TELECOMUNICAÇÕES E PARTICIPAÇÕES S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 11,616,840/0001-08, holder of 339,392,383 units or a 99.99% equity interest in ANDRADE GUTIERREZ TELECOMUNICAÇÕES LTDA.

- Corporate structure of ANDRADE GUTIERREZ TELECOMUNICAÇÕES E PARTICIPAÇÕES S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

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ANDRADE GUTIERREZ S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 17.262.197/0001-30, holder of 100,540,782 shares of common stock and 201,081,572 preferred shares, or 100% of the capital stock of ANDRADE GUTIERREZ TELECOMUNICAÇÕES E PARTICIPAÇÕES S.A.

- Corporate structure of ANDRADE GUTIERREZ S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

ADMINISTRADORA SANTO ESTEVÃO S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 27.157.783/0001-78, holder of 238,663,825 shares of common stock and 477,336,173 preferred shares, or 33.33% of the capital stock of ANDRADE GUTIERREZ S.A.

ADMINISTRADORA SANT‘ANA LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 16.741.134/0001-01, holder of 238,663,825 shares of common stock and 477,336,173 preferred shares, or 33.33% of the capital stock of ANDRADE GUTIERREZ S.A.

ADMINISTRADORA SÃO MIGUEL LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 19,135,623/0001-08, holder of 238,663,825 shares of common stock and 477,336,173 preferred shares, or 33.33% of the capital stock of ANDRADE GUTIERREZ S.A.

- Corporate structure of ADMINISTRADORA SANTO ESTEVÃO S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

SÉRGIO LINS ANDRADE, Brazilian, enrolled with the CPF/MF under No. 235.755.577-72, holder of 4,986,587 shares of common stock or 99.72% of the capital stock of ADMINISTRADORA SANTO ESTEVÃO S.A.

YARA SANCHES DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 13,776 shares of common stock or 0.28% of the capital stock of ADMINISTRADORA SANTO ESTEVÃO S.A.

- Corporate structure of ADMINISTRADORA SANT‘ANA LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

ÂNGELA GUTIERREZ, Brazilian, enrolled with the CPF/MF under No. 222.329.906-72, holder of 99,998 units or a 33.34% equity interest in ADMINISTRADORA SANT‘ANA LTDA.

CRISTIANA GUTIERREZ, Brazilian, enrolled with the CPF/MF under No. 436.097.836-72, holder of 99,998 units or a 33.34% equity interest in ADMINISTRADORA SANT‘ANA LTDA.

THE ESTATE OF ROBERTO GUTIERREZ, Brazilian, holder of de 99,970 units or a 33.32% equity interest in ADMINISTRADORA SANT‘ANA LTDA.

- Corporate structure of ADMINISTRADORA SÃO MIGUEL LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

GUVIDALA PARTICIPAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.154.488/0001-50, holder of 1,497,200 units or a 7.88% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

TRAVESSIA PARTICIPAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.154.469/0001-24, holder of 1,455,200 units or a 7.66% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

CRISTÁLIA PARTICIPAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.147.738/0001-25, holder of 1,431,200 units or a 7.54% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

NADJA PARTICIPAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.154.477/0001-70, holder of 1,404,800 units or a 7.40% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

ÁGUA BRANCA PARTICIPAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.151.347/0001-84, holder of 1,392,800 units or a 7.33% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

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VERDIGRIS PARTICIPAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.149.689/0001-60, holder of 1,372,400 units or a 7.23% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

MORROTE PARTICIPAÇÕES LTDA., a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.154.654/0001-19, holder of 1,196,000 units or a 6.30% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

PAULO FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 327.316.986-91, holder of 1,390,800 units or a 7.32% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA., of which 1,200,000 units are encumbered by a lifetime usufruct for the benefit of Gabriel Donato de Andrade and Vera Furtado de Andrade.

ÁLVARO FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 449.005.116-68, holder of 1,376,400 units or a 7.25% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA., of which 1,200,000 units are encumbered by a lifetime usufruct for the benefit of Gabriel Donato de Andrade and Vera Furtado de Andrade.

LUCIANA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 510.568.016-20, holder of 1,368,000 units or a 7.20% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA., of which 1,200,000 units are encumbered by a lifetime usufruct for the benefit of Gabriel Donato de Andrade and Vera Furtado de Andrade.

LAURA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 420.750.176-20, holder of 1,320,000 units or a 6.95% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA., of which 1,200,000 units are encumbered by a lifetime usufruct for the benefit of Gabriel Donato de Andrade and Vera Furtado de Andrade.

HELOISA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 325.305.956-15, holder of 1,320,000 units or a 6.95% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA., of which 1,200,000 units are encumbered by a lifetime usufruct for the benefit of Gabriel Donato de Andrade and Vera Furtado de Andrade.

MARÍLIA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 264.910.446-53, holder of 1,261,200 units or a 6.64% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA., of which 1,200,000 units are encumbered by a lifetime usufruct for the benefit of Gabriel Donato de Andrade and Vera Furtado de Andrade.

FLÁVIO FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 124.947.986-04, holder of 1,203,600 units or a 6.34% equity interest in ADMINISTRADORA SÃO MIGUEL LTDA., of which 1,200,000 units are encumbered by a lifetime usufruct for the benefit of Gabriel Donato de Andrade and Vera Furtado de Andrade.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 200 quotas units, or a 0.00% equity interest8 in ADMINISTRADORA SÃO MIGUEL LTDA.

VERA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 538.598.206-72, holder of 200 units or a 0.00%3 equity interest in ADMINISTRADORA SÃO MIGUEL LTDA.

- Corporate structure of GUVIDALA PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

ÁLVARO FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 449.005.116-68, holder of 1,497,200 units or a 99.99% equity interest in GUVIDALA PARTICIPAÇÕES LTDA.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 1 unit or a 0.01% equity interest in GUVIDALA PARTICIPAÇÕES LTDA.

8 3 Members Gabriel Donato de Andrade and Vera Furtado de Andrade are the usufructuaries of 8,400,000 units held by other individual members of Administradora São Miguel Ltda., and as such hold a 44.24% equity interest in Administradora São Miguel Ltda. It is important to mention that this interest calculation takes into account the 400 units owned by Gabriel Donato de Andrade and Vera Furtado de Andrade.

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- Corporate structure of TRAVESSIA PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

PAULO FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 327.316.986-91, holder of 1,455,200 units or a 99.99% equity interest in TRAVESSIA PARTICIPAÇÕES LTDA.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 1 unit or a 0.01% equity interest in TRAVESSIA PARTICIPAÇÕES LTDA.

- Corporate structure of CRISTÁLIA PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

HELOISA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 325.305.956-15, holder of 1,431,200 units or a 99.99% equity interest in CRISTÁLIA PARTICIPAÇÕES LTDA.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 1 unit or a 0.01% equity interest in CRISTÁLIA PARTICIPAÇÕES LTDA.

- Corporate structure of NADJA PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including

names, full particulars and the number of shares held by each shareholder:

LUCIANA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 510.568.016-20, holder of 1,404,800 units or a 99.99% equity interest in NADJA PARTICIPAÇÕES LTDA.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 1 unit or a 0.01% equity interest in NADJA PARTICIPAÇÕES LTDA.

- Corporate structure of ÁGUA BRANCA PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

LAURA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 420.750.176-20, holder of 1,392,800 units or a 99.99% equity interest in ÁGUA BRANCA PARTICIPAÇÕES LTDA.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 1 unit or a 0.01% equity interest in ÁGUA BRANCA PARTICIPAÇÕES LTDA.

- Corporate structure of VERDIGRIS PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership

interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

MARÍLIA FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 264.910.446-53, holder of 1,372,400 units or a 99.99% equity interest in VERDIGRIS PARTICIPAÇÕES LTDA.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 1 unit or a 0.01% equity interest in VERDIGRIS PARTICIPAÇÕES LTDA.

- Corporate structure of MORROTE PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

FLÁVIO FURTADO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 124.947.986-04, holder of 1,196,000 units or a 99.99% equity interest in MORROTE PARTICIPAÇÕES LTDA.

GABRIEL DONATO DE ANDRADE, Brazilian, enrolled with the CPF/MF under No. 000.411.816-20, holder of 1 unit or a 0.01% equity interest in MORROTE PARTICIPAÇÕES LTDA.

Corporate structure of LF TEL S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

LA FONTE TELECOM S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 53,790,218/0001-53, holder of 352,852,659 shares of common stock (100.00% of the common stock and 50.00% of the capital stock) and 340,469,223 preferred shares (96.49% of the preferred stock and 48.25% of the capital stock) of LF TEL S.A.

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JEREISSATI PARTICIPAÇÕES S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 60.543.816/0001-93, holder of 110,000 preferred shares, or 0.03% of the preferred stock and 0.02% of capital stock of LF TEL S.A.

- Corporate structure of LA FONTE TELECOM S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

JEREISSATI PARTICIPAÇÕES S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 60.543.816/0001-93, holder of 269,674,301 shares of common stock (80.10% of the common stock and 49.59% of the capital stock) and 161,942,478 preferred shares (78.19% of the preferred stock and 29.78% of the capital stock) of LA FONTE TELECOM S.A.

PREVI – CAIXA DE PREVIDÊNCIA DOS FUNCIONÁRIOS DO BANCO DO BRASIL, a private pension fund organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 33.754.482/0001-24, holder of 66,846,109 shares of common stock (19.85% of the common stock and 12.29% of the capital stock) and 40,718,059 preferred shares (19.66% of the preferred stock and 7.49% of the capital stock) of LA FONTE TELECOM S.A.

- Corporate structure of JEREISSATI PARTICIPAÇÕES S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

SOCIEDADE FIDUCIÁRIA BRASILEIRA SERVIÇOS, NEGÓCIOS E PARTICIPAÇÕES LTDA. a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 00.257.427/0001-70, holder of 118,232,423 shares of common stock (30.64% of the common stock and 12.27% of the capital stock) and 164,465,571 preferred shares (28.45% of the preferred stock and 17.10% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

PREVI – CAIXA DE PREVIDÊNCIA DOS FUNCIONÁRIOS DO BANCO DO BRASIL, a private pension fund organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 33.754.482/0001-24, holder of 50,713,221 shares of common stock (13.14% of the common stock and 5.26% of the capital stock) and 126,869,033 preferred shares (21.95% of the preferred stock and 13.16% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

SOUTHMALL HOLDING LTDA. a limited liability company organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 61.224.572/0001-49, holder of 87,612,636 shares of common stock (22.71% of the common stock and 9.09% of the capital stock) and 792,000 preferred shares (0.14% of the preferred stock and 0.08% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

FUNDAÇÃO ATLÂNTICO DE SEGURIDADE SOCIAL, a private pension fund organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 007.110.214/0001-60, holder of 44.549.576 shares of common stock (11.55% of the common stock and 4.62% of the capital stock) and 80,620,065 preferred shares (13.95% of the preferred stock and 8.36% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

JP SUL PARTICIPAÇÕES E REPRESENTAÇÕES COMERCIAIS S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 53.344.297/0001-79, holder of 39,780,942 shares of common stock (10.31% of the common stock and 4.13% of the capital stock) and 2,576,576 preferred shares (0.45% of the preferred stock and 0.27% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

CARLOS FRANCISCO RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 000.365.013-87, holder of 22,796,077 shares of common stock (5.91% of the common stock and 2.36% of the capital stock) and 9,326,693 preferred shares (1.61% of the preferred stock and 0.97% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

ITATINGA SOCIEDADE COMERCIAL, INDUSTRIAL E AGRÍCOLA S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 60.956.638/0001-22, holder of 7,466,202 shares of common stock (1.94% of the common stock and 0.77% of the capital stock) and 39,032,322 preferred shares (6.75% of the preferred stock and 4.05% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

FUNDO FATOR DE SINERGIA III FIA - FUNDO DE INVESTIMENTO EM AÇÕES, a non-pension, non-realty investment fund organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07,644,055/0001-83, holder of 1,000 shares of common stock (0.0003% of the common stock and

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0.0001% of the capital stock) and 34,241,400 preferred shares (5.92% of the preferred stock and 3.55% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A. FUNDO FATOR DE SINERGIA IV FIA - FUNDO DE INVESTIMENTO EM AÇÕES, a non-pension, non-realty investment fund organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 07.796.185/0001-31, holder of 6,988,600 preferred shares, or 1.21% of the preferred stock and 0.73% of the capital stock, of JEREISSATI PARTICIPAÇÕES S.A.

Banco Fator manages FUNDOS FATOR DE SINERGIA III and IV, which jointly own 1,000 shares of common stock (0.0003% of the common stock and 0.0001% of the capital stock) and 41,230,000 preferred shares (7.13% of the preferred stock and 4.28% of the capital stock) of JEREISSATI PARTICIPAÇÕES S.A.

- Corporate structure of SOCIEDADE FIDUCIÁRIA BRASILEIRA SERVIÇOS, NEGÓCIOS E PARTICIPAÇÕES LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

CARLOS FRANCISCO RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 000.365.013-87, holder of 28,200,579 units or a 57.70% equity interest in SOCIEDADE FIDUCIÁRIA BRASILEIRA SERVIÇOS, NEGÓCIOS E PARTICIPAÇÕES LTDA.

ANWOLD INVESTIMENTOS INC, a foreign corporation organized and existing under the laws of the British Virgin Islands, having its registered office at Pasea Estate, P.O. Box 3149, Road Town, Tortola, British Virgin Islands, enrolled with the CNPJ/MF under No. 05.560.090/0001-99, holder of 20,666,589 units or a 42.28% equity interest in SOCIEDADE FIDUCIÁRIA BRASILEIRA SERVIÇOS, NEGÓCIOS E PARTICIPAÇÕES LTDA. l

- Corporate structure of SOUTHMALL HOLDING LTDA. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

DORSET DOWN LLC., a foreign limited liability company organized and existing under U.S. law, having its registered office at 2711 Centerville Road, Suite 400, City of Wilmington, 19808, County of New Castle, State of Delaware, United States of America, enrolled with the CNPJ/MF under No. 08,982,762/0001-42, holder of 4,158,134,587 units or a 99.99% equity interest in SOUTHMALL HOLDING LTDA.

- Corporate structure of JP SUL PARTICIPAÇÕES E REPRESENTAÇÕES COMERCIAIS S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

JEREISSATI SUL PARTICIPAÇÕES S.A., a corporation organized and existing under Brazilian law, enrolled with the CNPJ/MF under No. 53.390.035/0001-40, holder of 1,447,880 shares of common stock, or 94.97% of the capital stock of JP SUL PARTICIPAÇÕES E REPRESENTAÇÕES COMERCIAIS S.A.

CARLOS FRANCISCO RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 000.365.013-87, holder of 286,666 shares of common stock (57.33% of the common stock and 19.11% of the capital stock) and 213,334 preferred shares (21.33% of the preferred stock and 14.22% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

DIANA JEREISSATI LEGEY, Brazilian, enrolled with the CPF/MF under No. 010.328.603-91, holder of 53,334 shares of common stock (10.67% of the common stock and 3.56% of the capital stock) and 196,666 preferred shares (19.67% of the preferred stock and 13.11% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

VERA JEREISSATI SANTOS, Brazilian, enrolled with the CPF/MF under No. 043.131.943-04, holder of 53,333 shares of common stock (10.67% of the common stock and 3.56% of the capital stock) and 196,667 preferred shares (19.67% of the preferred stock and 13.11% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

HUGO RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 068.961.703-87,, holder of 53,333 shares of common stock (10.67% of the common stock and 3.56% of the capital stock) and 196,667 preferred shares (19.67% of the preferred stock and 13.11% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

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LIA RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 113.005.073-49, holder of 53,334 shares of common stock (10.67% of the common stock and 3.56% of the capital stock) and 196,666 preferred shares (19.67% of the preferred stock and 13.11% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

- Corporate structure of JEREISSATI SUL PARTICIPAÇÕES S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

CARLOS FRANCISCO RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 000.365.013-87, holder of 286,6663 shares of common stock, or 57.33% of the voting stock of JEREISSATI SUL PARTICIPAÇÕES S.A.

DIANA JEREISSATI LEGEY, Brazilian, enrolled with the CPF/MF under No. 010.328.603-91, holder of 53,3344 shares of common stock (10.67% of the voting stock) and 196,666 preferred shares (19.67% of the preferred stock and 16.67% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

VERA JEREISSATI SANTOS, Brazilian, enrolled with the CPF/MF under No. 043.131.943-04, holder of 53,3335 shares of common stock (10.67% of the voting stock) and 196,666 preferred shares (19.67% of the preferred stock and 16.67% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

HUGO RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 068.961.703-87, holder of 53,3336 shares of common stock (10.67% of the voting stock) and 196,666 preferred shares (19.67% of the preferred stock and 16.67% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

LIA RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 113.005.073-49, holder of 53,3347 shares of common stock (10.67% of the voting stock) and 196,666 preferred shares (19.67% of the preferred stock and 16.67% of the capital stock) of JEREISSATI SUL PARTICIPAÇÕES S.A.

- Corporate structure of ITATINGA SOCIEDADE COMERCIAL, INDUSTRIAL E AGRÍCOLA S.A. detailing any shareholders holding ownership interests equal to or greater than five percent (5.0%) of any kind or class of shares of stock, including names, full particulars and the number of shares held by each shareholder:

CARLOS FRANCISCO RIBEIRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 000.365.013-87, holder of 568,676,758 shares of common stock (74.12% of the common stock and 45.19% of the capital stock) and 391,198,413 preferred shares (79.66% of the preferred stock and 31.10% of the capital stock) of ITATINGA SOCIEDADE COMERCIAL, INDUSTRIAL E AGRÍCOLA S.A.

CARLOS JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 146.626.458-67, holder of 69,282,678 shares of common stock (9.03% of the common stock and 5.51% of the capital stock) and 34,853,483

preferred shares (7.10% of the preferred stock and 2.77% of the capital stock) of ITATINGA SOCIEDADE COMERCIAL, INDUSTRIAL E AGRÍCOLA S.A.

PEDRO JEREISSATI, Brazilian, enrolled with the CPF/MF under No. 273.475.308-14, holder of 64,612,719 shares of common stock (8.42% of the common stock and 5.13% of the capital stock) and 32,504,204 preferred shares (6.62% of the preferred stock and 2.58% of the capital stock) of ITATINGA SOCIEDADE COMERCIAL, INDUSTRIAL E AGRÍCOLA S.A.

ERIKA JEREISSATI ZULLO, Brazilian, enrolled with the CPF/MF under No. 135.520.678-25, holder of 64,612,719 shares of common stock (8.42% of the common stock and 5.13% of the capital stock) and 32,504,204 preferred shares (6.62% of the preferred stock and 2.58% of the capital stock) of ITATINGA SOCIEDADE COMERCIAL, INDUSTRIAL E AGRÍCOLA S.A.

15.2 List of the shareholders, or group of shareholders acting together or representing the same interest, that hold an interest equal to or higher than 5% of a same class or species of stock, and that have not been listed in item 15.1, including: (a) name; (b) nationality; (c) Individual Taxpayer’s ID (CPF)/Corporate Taxpayer’s ID (CNPF): (d) number of shares held,

per class and type; (e) percentage of shares held in relation to the respective class or type, and in relation to the total capital stock; (f) if the shareholder is a party to a shareholders' agreement; (g) date of latest change:

Since Telemar Participações S.A., one of our controlling shareholders, is also a shareholder of Tele Norte Leste Participações S.A., another of our controlling shareholders, all shareholders having a direct or

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indirect equity interest equal or greater than five percent (5%) of the same class or kind of stock were indicated in item 15.1 above.

There are no other shareholders, or group of shareholders, acting jointly or representing one and same equity interest equal to or greater than five percent (5%) of the same class or kind of stock.

15.3 Describe how the capital is broken down, as ascertained at the latest shareholders’ general meeting:

Description Breakdown, based on EGM held on 09/30/2009

a) number of individual Shareholders 351,189

b) number of corporate shareholders 61,567

c) number of institutional investors 1,379

d) number of outstanding shares, per class and type(*)

Common: 1,648,997

Preferred: 118,192,615

(*)Outstanding shares are all shares of stock, except any share held (i) by a controlling shareholder, any person related to a controlling shareholder, or by its executive officers, and treasury shares, and (ii) any related person, individual or body corporate, fund or estate acting on behalf of or in the interest of a controlling shareholder.

15.4 Organizational chart showing the shareholders of the issuer, identifying all direct and indirect controlling shareholders, as well as all shareholders with interest equal to or higher than 5% of one class or type of stock, provided that it is compatible with the information in items 15.1 and 15.2. (optional):

Not applicable.

15.5 Information on shareholders' agreements governing the exercise of voting rights or transfer of stock of the issuer, filed with the issuer's headquarters and that the controlling shareholder is a party to:

There are no Shareholders‘ Agreements filed with our headquarters.

However, in April 2008, the shareholders of Telemar Participações S.A. entered into two shareholders‘ agreements following the changes in that company‘s shareholding structure, including (1) one by and between all shareholders of Telemar Participa es S.A., which we refer to as Telemar Participa es‘ Global Shareholders‘ Agreement; and (2) another by and between AG Telecom Participações S.A., L.F. Tel S.A., Fundação Atlântico de Seguridade Social, and Asseca Participações S.A.—with Telemar Participações S.A. and Andrade Gutierrez Investimentos em Telecomunicações S.A. as intervening parties—which we refer to as Telemar Participa es‘ Control Group Shareholders‘ Agreement.

(i) Telemar Participações’ Global Shareholders’ Agreement

a) Parties and b) Effective Date

On April 25, 2008, AG Telecom Participações S.A., L.F. Tel S.A., Fundação Atlântico de Seguridade Social, Asseca Participações S.A., BNDES Participações S.A. (BNDESPar), and Fiago Participações S.A.—with Telemar Participações S.A., Caixa de Previdência dos Funcionários do Banco do Brasil, Fundação Petrobras de Seguridade Social, Fundação dos Economiários Federais (FUNCEF), and Andrade Gutierrez Investimentos em Telecomunicações S.A. as intervening parties—, all of which representing all current shareholders of Telemar Participações, entered into the Global Shareholders‘ Agreement.

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c) Effective Term

The initial term of the Global Shareholders‘ Agreement expires on the later of April 25, 2048 or the expiration date of the last to expire of the concessions or authorizations held by Telemar Participações S.A. or its subsidiaries.

Also, the term of the Global Shareholders‘ Agreement may be extended for successive periods of 10 years with the consent of Telemar Participa es S.A.‘s shareholders, in a decision made at least six months prior to the expiration of each term.

d) clauses addressing the exercise of voting rights and control power

The parties to Telemar Participa es‘ Global Shareholders‘ Agreement agree to make use of the voting right related to their shares to fully comply with the agreement, and no party is allowed to enter into any other voting agreements. The shares affected by this agreement include our shares. The parties to the agreement exercised their respective voting rights pursuant to the guidelines determined at the Preliminary Meetings provided for in item (g) below.

In the event any of the parties or its parent company enters in a process of bankruptcy, arrangement with creditors (concordata), court or out-of-court winding up, public intervention, or if its dissolution has been resolved, all affected shares shall remain subject to all the sections and conditions of the Shareholders‘ Agreement; however, the exercise of its respective voting rights shall be suspended at the Preliminary Meetings while the event that has caused this suspension lasts. Other terms and conditions applying to the voting rights of shareholders are in the Telemar Participações Global Shareholders' Agreement.

e) provisions governing the appointment of executive officers

Telemar Participa es‘ Global Shareholders‘ Agreement determines that each of the parties shall be entitled to elect one member, and respective deputy, of the Boards of Directors of the Company and its Relevant Subsidiaries, at each nine percent (9%) of the voting capital stock they own in Telemar Participações S.A.. In addition, BNDES Participações S.A., Fiago Participações S.A., Caixa de Previdência dos Funcionários do Banco do Brasil, Fundação Petrobras de Seguridade Social, and Fundação dos Economiários Federais (FUNCEF) shall be entitled to add their percentage of voting shares in order to reach nine percent (9%).

BNDES Participações S.A., Fiago Participações S.A., Caixa de Previdência dos Funcionários do Banco do Brasil, Fundação Petrobras de Seguridade Social, and Fundação dos Economiários Federais (FUNCEF) shall also be entitled to appoint members of the boards of directors of the subsidiaries, relevant or not, whenever AG Telecom Participações S.A., LF Tel S.A., and Fundação Atlântico de Seguridade Social have appointed members for the same boards. For purposes of Telemar Participa es‘ Global Shareholders‘ Agreement, ―Relevant Subsidiary‖ or ―Relevant Subsidiaries‖ means the companies controlled by the Company, by Tele Norte Leste Participações S.A., or Telemar Participações S.A., whose net revenue was no less than R$100,000,000.00 in the annual balance sheet of the previous year.

The process for appointing the chief executive officers of the Company and Subsidiaries shall be conducted by the Committee for Selection of CEOs. The Committee shall be comprised of three (3) members. One (1) representative shall be jointly appointed by BNDES Participações S.A., Fiago Participações S.A., Caixa de Previdência dos Funcionários do Banco do Brasil, Fundação Petrobras de Seguridade Social, and Fundação dos Economiários Federais (FUNCEF), and the other two (2) representatives shall be appointed by AG Telecom Participações S.A., LF Tel S.A., and Fundo Atlântico de Seguridade Social.

The Committee shall recommend, by majority, the name of one of the candidates for approval by

shareholders representing, at least, 2/3 of the shares at a Preliminary General Meeting.

The other executive officers of the Company shall be appointed by the Chief Executive Officer (CEO) of Tele Norte Leste Participações S.A. jointly with the Company‘s CEO, and the other executive officers of the Relevant Subsidiaries shall be appointed by Tele Norte Leste Participa es S.A.‘s CEO jointly with the CEO of the respective Relevant Subsidiary.

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f) provisions governing share transfers and preemptive rights

The Global Shareholders' Agreement of Telemar Participações only governs transfers of shares issued by Telemar Participa es S.A.. As such, item ―f‖ does not apply to us.

g) provisions restricting or qualifying the voting rights of directors

The resolutions of the general meeting or of the board of directors of the Company on certain matters shall be determined at a preliminary shareholders‘ meeting (―Preliminary General Meeting‖). At that meeting, each Affected Share shall be entitled to one vote and the resolutions taken shall be recorded in writing and bind the votes of all the parties to Telemar Participa es‘ Global Shareholders‘ Agreement at the respective general meeting. Moreover, the parties undertake to make sure that the vote of their representatives at the meetings of the board of directors of the Company is in accordance with the decision made at the Preliminary General Meetings. For purposes of Telemar Participa es‘ Global Shareholders‘ Agreement, ―Affected Shares‖ means all common and preferred shares issued by the Telemar Participa es S.A. held by the parties to Telemar Participa es‘ Global Shareholders‘ Agreement, and shall include all shares of any class or type that are subscribed, allocated or acquired for any reason by the parties during the term of effectiveness of the agreement, be it by means of acquisition, stock splits, bonus distribution, dividend distribution with payment in shares, capitalization of profits or other reserves, conversion of shares, or arising out of incorporations, mergers or spin-offs or any other corporate reorganization operations. The definition of Affected Shares also comprises all the rights derived from holding the Affected Shares, such as subscription rights in capital increases, purchase of securities convertible into shares or subscription bonus.

The matters described below, before being submitted to the board of directors and the general meetings of the Company, shall be mandatorily resolved in a Preliminary General Meeting, and they shall only be approved through the favorable vote of shareholders, through their representatives, when reaching the percentages below:

1 – 66.67% of the Affected Shares

a. any amendment to the bylaws of the Company and its Relevant Subsidiaries, except for the bylaw-related matters referred to in items II and III of below, which shall comply with the quorums stipulated thereon. ―Relevant Subsidiary‖ or ―Relevant Subsidiaries‖ means the companies controlled by the Company, by Telemar Participações S.A. or Tele Norte Leste Participações S.A., whose net income is no less than one hundred million reais (R$100,000,000.00), determined in the annual balance sheet of the previous year;

b. approval of contracts of any nature whose aggregate value imply obligations amounting to more than fifty million reais (R$50,000,000.00) and that have not been estimated in the annual budget;

c. any individual transaction between the Company and its Relevant Subsidiaries, on one side, and its shareholders and any related parties, on the other side, in an amount of no less than ten million reais (R$10,000,000); This matter shall only be approved at the respective Preliminary General Meeting if there is favorable vote by the representatives of the shareholders that represent the quorum indicated in this item, with abstention by the interested party;

d. any agreement executed between CONTAX PARTICIPA ES S.A (CONTAX) and the Company or any of its Relevant Subsidiaries, irrespective of the amount of the transaction;

e. approval of the policy for donation of goods and funds;

f. annual investments of any nature, which have not been estimated on the respective budgets, in projects exceeding, either individually or cumulatively, the amount of fifty million reais (R$50,000,000.00);

g. approval of the names appointed by the Committee for Selection of CEOs for the positions of Chief Executive Officers of the Company or of the Relevant Subsidiaries, pursuant to item 15.5.i.e below, as well as approval of the headhunting companies appointed by the Committee for Selection of CEOs, which will be in charge of selecting executives;

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h. capital increase or issue of convertible securities aiming to raise funds for the acquisition of companies; and

i. creation of subsidiary or acquisition of control of other companies as well as authorization for any type of association or execution of shareholders‘ agreements.

2 – 70% of the Affected Shares

a. approval and change of the annual budget and multiannual investment plans of the Company and of its Relevant Subsidiaries, including the policy for management compensation;

b. annual or multiannual investments of any nature, which have not been estimated on the respective budgets, in projects exceeding, either individually or cumulatively, an amount equal to five percent (5%) of the approved investment budget, considering the overall value of the Company, of Telemar Participações S.A., Tele Norte Leste Participações S.A., and of their Relevant Subsidiaries;

c. capital increase, capital reduction or the issue of any securities, except for the case set forth in item 1.h above;

d. creation of preferred shares or increase in an existing class of stock, without keeping the proportion with the other types or classes of stock;

e. change to the preferences, advantages and terms for redemption or amortization of one or more classes of preferred shares, or creation of a new and more favorable class of stock;

f. any proposal to pay or allocate dividends or interest on capital that is lower than twenty five percent (25%) of the net income;

g. any proposal to create reserves, provisions or to change the accounting criteria that imply, individually or cumulatively, a variation of Telemar‘s Net Income in an amount higher than two hundred and fifty million reais (R$250,000,000.00);

h. any proposal to allocate dividends, interest on capital or amounts allocated, in which the reduction of cash implies an increase of the Net Debt/EBITDA ratio above 2.5;

i. approval of any loan, financing or the concession of any separate or cumulative real or personal guarantee within the budget period in force, in amount higher than two percent

(2%) of the shareholders‘ equity;

j. authorization to the Company‘s board of executive officers to purchase or sell permanent assets, create in rem guarantees, grant guarantees to third-party obligations, take out loans, waive rights, compromise or encumber in any way goods or values that represent a liability equal to or higher than two percent (2%) of the shareholders‘ equity;

k. approval of proposal for acquisition by the Company or any of its Relevant Subsidiaries of shares issued by the Company itself or issued by other Relevant Subsidiaries implying the increase of the Net Debt/EBTIDA ratio above 2.5;

l. selection of independent auditors; and

m. amendment to the bylaws of the Company or of its Relevant Subsidiaries as a result of the matters and resolutions listed in this item 2.

3 – 84% of the Affected Shares

a. sale or encumbrance of shares issued by its Relevant Subsidiaries or the issue by the Company or its Relevant Subsidiaries of shares or securities convertible into shares that results or might result in loss of the equity control of the Company and of its Relevant Subsidiaries;

b. adoption of any procedure that results in the loss by the Company of the equity control of its Relevant Subsidiaries due to facts other than the ones indicated in item (i) above, such as

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not exercising the preemptive right to the subscription of shares or securities convertible into shares, or not taking part in mergers, incorporations or spin-offs;

c. merger, spin-off, amalgamation, merger of shares or transformation involving the Company or its Relevant Subsidiaries, including the swap or payment in kind by using shares issued by these companies;

d. the Company or its Relevant Subsidiaries going public or going private;

e. amendment to the corporate purpose of the Company or of its Relevant Subsidiaries;

f. stake in group of companies;

g. dissolution of the Company or of any of its Relevant Subsidiaries; and

h. amendment to the bylaws of the Company or of its Relevant Subsidiaries as a result of the matters and resolutions listed in this item 3.

No party to the Global Shareholders' Agreement of Telemar Participações may enter into any voting agreement other than the Telemar Participações Control Group Shareholders' Agreement, as described below.

(ii) Tmar Part Control Group Shareholders' Agreement

a) Parties and b) Effective Date

On April 25, 2008 AG Telecom Participações S.A., LF Tel S.A., Fundação Atlântico de Seguridade Social, Asseca Participações S.A. and, in the capacity of consenting intervenors, Telemar Participações S.A. and Andrade Gutierrez Investimentos em Telecomunicações S.A., all entered into the Telemar Participações Control Group Shareholders' Agreement.

c) Effective Term

The agreement shall be in force and effect as of execution date until April 2048, and may be renewed for subsequent 10-year periods if the parties to the shareholders' agreement so agree at least six (6) months before the end of the original term or any renewal thereof.

d) clauses addressing the exercise of voting rights and control power

The parties to Tmar Part‘s Control Group Shareholders‘ Agreement agree to exercise their respective voting rights within the scope of that agreement, so as to follow the Company‘s and its subsidiaries‘ general and business management principles.

The parties to Tmar Part‘s Control Group Shareholders‘ Agreement agree to make use of the voting right related to their shares to fully comply with that agreement, and none of the parties is allowed to enter into any other agreements, except for that described in item (i) above.

In the event any of the parties or its parent company enters in a process of bankruptcy, arrangement with creditors (concordata), court or out-of-court winding up, public intervention, or if its dissolution has been resolved, all affected shares shall remain subject to all the sections and conditions of the Shareholders‘ Agreement; however, the exercise of its respective voting rights shall be suspended at the Preliminary Meetings while the event that has caused this suspension lasts. The parties agreed also that the quorums for opening and transacting business at any prior meeting shall be determined without regard to the percent interest of any party whose shares have had their voting rights suspended.

e) provisions governing the appointment of executive officers

There are no provisions governing appointment of corporate officers in the Telemar Participações Control Group Shareholders' Agreement.

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f) provisions governing share transfers and preemptive rights

The Telemar Participações Control Group Shareholders' Agreement contains certain provisions that govern the transfer of shares issued by Telemar Participa es S.A. only. Therefore, item ―f‖ does not apply to us.

g) provisions restricting or qualifying the voting rights of directors

Pursuant to the Telemar Participações Control Group Shareholders' Agreement, matters carried at a prior meeting will bind the votes of parties at a general prior meeting, provided, however, that any shareholder who fails to attend a prior meeting shall cast his or her vote at the general prior meeting in accordance with whatever matter is decided at the prior meeting.

A party's voting rights will be suspended if that party, or its controlling shareholder, files for or is declared bankrupt, enters into any arrangement with creditors, court or out-of-court liquidation, or becomes under the management of any public authority or agency, or is dissolved.

The parties to the Telemar Participa es‘ Control Group Shareholders‘ Agreement shall meet prior to any Preliminary General Meeting to be held within the scope of the Global Shareholders‘ Agreement, so as to establish the vote to be cast at said meetings. At the Preliminary Meetings held within the scope of Telemar Participa es‘ Control Group Shareholders‘ Agreement, each Affected Share shall be entitled to

one (1) vote and the resolutions taken shall be recorded in writing and bind the votes of all parties to Telemar Participa es‘ Control Group Shareholders‘ Agreement at said Preliminary General Meeting.

For purposes of Telemar Participa es‘ Control Group Shareholders‘ Agreement, ―Affected Shares‖ means all common shares issued by Telemar Participa es S.A. held by the parties to Telemar Participa es‘ Control Group Shareholders‘ Agreement, and shall include all shares of any class or type that are acquired for any reason by the parties to the agreement, be it by means of capital reduction, stock redemption, subscription of new shares, exercise of option to buy and/or sell stock or of preemptive right, conversion of debentures or any other security, stock split, issue of subscription rights, merger, spin-off, amalgamation, and others.

No party to the Telemar Participações Control Group Shareholders' Agreement may enter into any voting agreement other than the Telemar Participações Global Shareholders' Agreement, as described above.

Other terms and conditions applying to the voting rights of shareholders are in the Telemar Participações Global Shareholders' Agreement.

15.6. Material changes in the interest held by members of the controlling group and directors of the issuer:

There have been no changes in the constitution of our control group for the current accounting period.

Below are key relevant changes in the constitution of our control (both direct and indirect) group occurred over our last three accounting periods:

Purchase and Sale of the Company:

On April 25, 2008 a certain purchase and sale agreement was made for the acquisition of indirect controlling interests in Brasil Telecom Participa es S.A. (―BrT Part‖) and in Brasil Telecom S.A. (―BrT‖). The parties to this agreement were the controlling shareholders holding (a) all stock issued by Invitel S.A. (―Invitel Stock‖ and ―Invitel‖), holder of all stock issued by Solpart S.A. (Solpart S.A. in turn a direct controlling shareholder of BrT Part), and (b) stock issued by BrT Part (the ―Sellers‖); and Banco de Investimentos Credit Suisse (Brasil) S.A. (―Credit Suisse‖), in the capacity as agent (―Agent‖), acting on behalf and at order of Telemar, the latter in the capacity as principal (―Purchase and Sale Agreement‖).

As a result of the foregoing transaction, on January 8, 2009 TMAR became the indirect holder of 81,092,986 shares of common stock, or 61.2% of the voting stock, of BrT Part, in consideration of an aggregate sum of R$5,371,098,527.04 (five billion three hundred seventy-one million ninety-eight thousand five hundred twenty-seven reais and four centavos), corresponding to R$77.04 (seventy-seven reais and four centavos) per share of BrT Part.

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Restructuring of Telemar Participações S.A.

Merger of Lexpart and of Alutrens Participações S.A.

Following the withdrawal of shareholders Citibank and Opportunity from our control group, Telemar Participações S.A. acquired 696,020,702 shares of its own common stock, or 20.275% of its own capital stock (10.275% were acquired from Lexpart Participações S.A., and 10.0% from Alutrens Participações S.A.), to be subsequently cancelled without capital reduction.

Total Spin-Off of Asseca

Following the withdrawal of shareholder GP Investimentos (Brazil Development Equity) from our control group, Asseca Participações S.A. was fully split up. As a result, the equity interest therein held by Telemar Participações S.A. (10.275%) was absorbed equally by Andrade Gutierrez Investimentos em Telecomunicações S.A. (5.1375%) and L.F. Tel S.A. (5.1375%).

Fiago

Subject to certain conditions occurring, our controlling shareholders Caixa de Previdência dos Funcionários do Banco do Brasil, Fundação Petrobras de Seguridade Social, Fundação dos Economiários Federais - FUNCEF and Fundação Atlântico de Seguridade Social, in the capacity as controlling shareholders of Fiago Participações S.A., a direct shareholder of Telemar Participações S.A., undertook to do anything and perform any and all actions in order that the same will become direct holders of the interest now held by Fiago Participações S.A. in the equity of Telemar Participações S.A.

Following this transaction, BNDES Participações S.A. – BNDESPar will perform a public auction of stock issued by Telemar Participações S.A., at which Caixa de Previdência dos Funcionários do Banco do Brasil, Fundação Petrobras de Seguridade Social and Fundação dos Economiários Federais - FUNCEF will have the opportunity to acquire interests of 12.5%, 10.0% and 10.0%, respectively, in the equity of Telemar Participações S.A..

BNDESPAR

Public Auction of Company Stock by BNDES Participações S.A.

As provided for in the Restructuring Agreement and disclosed in the material fact released June 21, 2010,

on June 17, 2010 BNDESPAR held a special public auction for purchase and sale of our stock. FUNCEF and PETROS were the winning bidders and acquired each a tranche of our stock.

BNDESPAR made it clear that there was no intervention in the purchasing of said tranches. As a result, each tranche of our stock and of CTX Participações S/A was purchased at the price of R$ 2.25 (two reais and twenty-five centavos), considering a price of R$ 2.15 (two reais and fifteen centavos) for each of our stock, and of R$ 0.10 (ten centavos) for each stock of CTX Participações S/A.

Additionally, BNDESPAR informed that the transfer of stock of the two unique and indivisible tranches comprising our stock and of CTX Participações S.A. for the respective purchasers is subject to certain conditions as provided for in the rules of each respective auction, including: (i) entering into purchase and sale agreements as provided for in Annex I of the relevant bidding rules; (ii) prior approval of the National Telecommunications Agency (ANATEL), authorizing the transfer of our common stock to the relevant purchaser.

Only when the above conditions have been satisfied PETROS and FUNCEF will each become holders of a 10% interest in our equity, as the chart below.

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SHAREHOLDERS INTEREST HELD IN TELEMAR PARTICIPAÇÕES S.A.

% Common shares % Preferred shares

AG Telecom Participações S/A 19.33 529,095,885 - -

Luxemburgo Participações S/A

LF Tel S/A 19.33 529,095,885 - -

FASS 11.49 314,569,805 - -

Sub Total 1 50.16 1,372,761,575 - -

BNDESPAR 16.89 462,234,643 100.00 1,000,000

PREVI 12.95 354,506,325 - -

FUNCEF 10.00 273,688,938 - -

PETROS 10.00 273,688,937 - -

Sub Total 2 49.84 1,364,118,843 100.00 1,000,000

TOTAL (1 +2) 100.00 2,736,880,418 100.00 1,000,000

Therefore, until the conditions described above are fully met, our corporate structure will remain as informed in item 8.1.a of this Form.

15.7 Further information the issuer deems material:


16. TRANSACTIONS WITH RELATED PARTIES


16.1. Describe the issuer’s rules, policies and practices regarding transactions with related third parties (as defined in the accounting rules addressing this subject):

Transactions involving parties related to our company are always performed on an arm's length basis in respect of prices and applicable terms and conditions, and therefore do not create any benefit to, or harm our company or any other third parties. In addition to the foregoing, all transactions performed by our company, including transactions involving related parties, are always made in reliance of prior review of underlying terms and conditions and in view of our strictest interest in the particular transaction. As such, we negotiate any agreement proposed to be entered with a related party on an individual basis, reviewing the applicable terms and conditions against industry standards customary for a given transaction, as well as the particulars of each transaction, such as effective term, amounts involved, compliance with quality standards, etc.).

Where necessary, the decision-making process in respect of proposed transactions with related parties will comply with the provisions of the Brazilian Corporate Law. Under this law, a shareholder or executive officer, as applicable, is forbidden to cast vote at general meetings or board meetings in respect of matters such as: (i) appraisal report of any asset that is a component of the capital stock; (ii) approval of his or her own management; and (iii) any matter that may benefit the same in a particular way or bring his or her interests in conflict with the interests of the company. As provided for in article 14, XVI of our

charters, any agreement proposed to be entered by the company and any of its related parties shall be subject to the prior approval of the shareholders convened at general meeting. Additionally, any individual transaction with a related party with an amount in excess of R$10 million must be approved by our board of directors in accordance with article 22, XXVII of our charter.

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16.2. Regarding transactions with related parties that, pursuant to the accounting standards in force, should be disclosed in the issuer's individual or consolidated financial statements, and have been performed in the past three years or are in effect in the current year, inform:

The balances informed in this item refer to the our (Parent Company) closing balance as at December 31, 2009.

related party's name: Brasil Telecom S/A and Telemar Norte

Leste S.A

relationship of the parties with

the issuer

Indirect Subsidiary

execution date 12/19/2002

purpose of the agreement Provides invoicing, billing, collection, fund

transfer and support to CSP 14 users.

amount involved in the

transaction

Rate is R$0.0963 per billed call

existing balance No defined amount. Amounts are

determined on a monthly basis against

services effectively metered.

amount corresponding to the

interest of such related party in

the transaction, whenever

assessable

The company cannot determine the amount

corresponding to the interest of the related

party.

Relevant guarantees and

insurance

N/A

duration The agreement will be in effect for twelve

(12) months, and may be renewed

automatically.

Termination or extinction

conditions

The agreement may be terminated by

mutual agreement of the parties or

following any breach not cured within thirty

(30) days.

if such relationship is a loan or

another type of debt, also

include:

N/A

1. nature of and reasons for

operation

N/A

2. interest rate charged N/A

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related party's name: Brasil Telecom S/A ,Telemar Norte Leste

S.A. and TNL PCS S.A.


the issuer

Indirect Subsidiary and Affiliated





transaction

Rate is R$0.0963 per billed call. We cannot

determine the aggregate amount.







assessable



party.


insurance

N/A



automatically.


conditions




(30) days.

k. if such relationship is a loan

or another type of debt, also

include:

N/A


operation

N/A


related party's name: Brasil Telecom S/A and 14 Brasil Telecom

Celular S.A.


the issuer

Direct Subsidiary




273



transaction

Rate is R$0.0963 per billed call



services effectively metered




assessable



party.


insurance

N/A



automatically.


conditions




(30) days.



include:

N/A


operation

N/A


related party's name: Brasil Telecom S/A , and TNL PCS S.A


the issuer

Affiliate Companies


purpose of the agreement Sales Partnership to Roll Out the OiTV + Oi

Fixo Combo


transaction

N/A







assessable



party.

274



insurance

N/A

duration The agreement will be in force for twelve

(12) months. After this term, the

agreement may be renewed automatically

upon sixty (60) days' advance written

notice by the interested party.


conditions

The agreement may be terminated upon

several events, including following any

breach not cured within sixty (60) days, or

in case any party is rendered bankrupt.



include:

N/A


operation

Sales Partnership



Leste S.A


the issuer

Indirect Subsidiary


purpose of the agreement Call Interception Partnership


transaction

N/A







assessable

N/A


insurance

N/A

duration The agreement calls for a term of twelve

(12) months.

275



conditions

The agreement may be terminated upon

several events, including following any

breach of contract or in case any party is

rendered bankrupt.



include:

N/A


operation

Sales Partnership



Leste S.A.


the issuer

Indirect Subsidiary

execution date March 23, 2004

purpose of the agreement Interconnection


transaction

There is no determined sum, amounts are



existing balance N/A




assessable

No defined amount. Amounts are




insurance

N/A


(12) months, and may be automatically

renewed for subsequent periods of twelve

(12) months.


conditions

Either party may terminate the agreement

at any time upon court notice or otherwise

in case the other party defaults on

performance of any of its obligations under

the contract and fails to cure the same

within sixty (60) days, or in the event of

bankruptcy, arrangement with creditors,

insolvency or court dissolution, among

others.

276




include:

N/A


operation

Compliance with Anatel Regulations.



Celular S.A


the issuer

Direct Subsidiary




transaction

N/A







assessable

Cannot be determined.


insurance

N/A

duration The term of this agreement is twelve (12)

months. This agreement may be extended

or renewed automatically for subsequent

periods of twelve (12) months.


conditions

This agreement may be terminated at any

time by either party, upon court notice or

otherwise, in the event the other party fails

to perform its contractual obligations and

provided such breach is not cured within

the period of time designated for that

purpose.



include:

N/A


operation

N/A

277




Celular S.A


the issuer

Direct Subsidiary




transaction








assessable

We cannot determine the relevant amount.


insurance

N/A

duration The term of this agreement is twelve (12)

months. This agreement may be renewed

automatically for subsequent periods of

twelve (12) months.


conditions

This agreement may be terminated at any

time by either party, upon court notice or

otherwise, in the event the other party fails

to perform its contractual obligations and

provided such breach is not



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect Subsidiary


278




transaction








assessable



insurance

N/A




(12) months.


conditions






within sixty (60) days from receipt of a

notice from ANATEL, or in the event of



other reasons.



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect Subsidiary

execution date October 3, 2007



transaction




279






assessable



insurance

N/A




(12) months.


conditions

The agreement may be terminated by the

mutual agreement of the parties, by

operation of any applicable law or

regulation, by forfeiture or expiration of the

concession, as well as in the event a party

is rendered bankrupt or fully dissolved.



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect Subsidiary

execution date June 30, 2004



transaction








assessable



insurance

N/A

280





(12) months.


conditions






within thirty (30) days from receipt of the

relevant notice, or in the event of



other reasons.



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect Subsidiary

execution date June 30, 2004



transaction






assessable

We cannot determine the interest of any

related parties.


insurance

Not applicable




(12) months.

281



conditions


upon court notice or otherwise in case the

other party defaults on performance of any

of its obligations under the contract and

fails to cure the same within thirty (30)

days from receipt of the relevant notice, or

in the event of bankruptcy, arrangement

with creditors, insolvency or court

dissolution.



include:

N/A


operation

N/A


related party's name: Brasil Telecom S/A and Brasil Telecom

Comunicação e Multimídia Ltda


the issuer

Direct Subsidiary


purpose of the agreement The scope of this agreement is the

provision of the EILD service (―Service‖),

consisting in the availability of a Dedicated

Link (―Dedicated Link‖) for industrial

applications.


transaction

The net monthly amount payable for the

capacity made available by the service

provider was R$94,919.33.





assessable



insurance

N/A

duration This agreement calls for a term of one

hundred and twenty (12) months from

execution date, and it may be automatically

renewed for a term of equal length, unless

either party will notify the other sixty (60)

days in advance of the expiration date.

282



conditions

This agreement can be terminated upon

several events, including breach of any of

its provisions if such breach is not cured

within sixty (60) days from receipt of a

notice given by the injured party, and in

the event the other party's license is

cancelled or terminated.



include:

N/A


operation

N/A

2. interest rate charged 1% per month


Celular S.A


the issuer

Direct Subsidiary


purpose of the agreement Infrastructure Sharing


transaction

The applicable monthly amount is

R$3,257,140.50.





assessable

N/A


insurance

N/A

duration This agreement calls for a term of sixty

(60) months and it may be automatically

renewed for a term of equal length, unless

either party will notify the other sixty (60)

days in advance of the expiration date.


conditions

The agreement may be terminated in the

event of any default that is not cured within

thirty (30) days.



include:

N/A

283



operation

N/A



Leste S.A.


the issuer

Indirect Subsidiary


purpose of the agreement Provision of the EILD service (―Service‖),

consisting in the availability of a Dedicated

Link (―Dedicated Link‖) for industrial

applications.


transaction

The relevant monthly amount is

R$5,724.60.





assessable

N/A


insurance

N/A

duration This agreement has a term of twelve (12)

months, and may be renewed upon the

mutual agreement of the parties.


conditions

This agreement can be terminated, among

others, in the event of breach of any of its

provisions if such breach is not cured by

the defaulting party within sixty (60) days

from receipt of a notice given by the

injured party, or in the event of license

cancellation or termination.



include:

N/A


operation

N/A



Leste S.A.

284



the issuer

Indirect Subsidiary




transaction








assessable



insurance

N/A




(12) months.


conditions

The agreement may be terminated for

several reasons, including mutual

agreement of the parties or should either

party have its license terminated by Anatel.



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect Subsidiary




transaction




285


existing balance Not applicable




assessable



insurance

N/A




(12) months.


conditions

The agreement may be terminated for

several reasons, including mutual

agreement of the parties or should either

party have its license terminated by Anatel.



include:

N/A


operation

N/A


related party's name: Brasil Telecom S/A and TNL PCS S.A.


the issuer

Affiliate Companies


purpose of the agreement International Traffic Transport Service


transaction






assessable



insurance

N/A

duration This agreement has a term of twelve (12)

months, and may be renewed upon the

mutual agreement of the parties.

286



conditions

The agreement may be terminated, among

other reasons, in any event of default not

cured within sixty (60) days. In addition to

the foregoing, the agreement may be

terminated in the event either party is

rendered bankrupt.



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect Subsidiary




transaction








assessable



insurance

N/A




(12) months.


conditions


other reasons, upon any event of breach of

contract or upon sixty (60) days' advance

notice of either party.



include:

N/A

287



operation

N/A



Leste S.A


the issuer

Indirect Subsidiary




transaction






assessable



party


insurance

Not applicable


(12) months, and may be renewed for a

period of the same length.


conditions


other reasons, in the event of breach by

either party that is not cured within ninety

(90) days.



include:

N/A


operation

N/A




the issuer

Affiliate Companies


purpose of the agreement International Traffic Service

288



transaction








assessable



insurance

N/A


(12) months, and may be renewed for two

(2) months if the parties so decide.


conditions


other reasons, upon the mutual agreement

of the parties or in the event the license is

forfeited to Anatel.



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect Subsidiary


purpose of the agreement Local Call Transport


transaction

Amounts are determined on a monthly

basis against services effectively metered.

existing balance Cannot be determined.




assessable



party.


insurance

Not applicable

289





(12) months.


conditions



of the parties, provided that the party

intending to do so gives the other at least

sixty (60) days' advance notice, as well as

in the event of breach or if the license is

forfeited to Anatel.



include:

N/A


operation

N/A



Leste S.A


the issuer

Indirect subsidiary


purpose of the agreement Long-Distance Call Transport


transaction








assessable



party.


insurance

N/A


(12) months, and may be renewed for

successive periods of twelve (12) months.


conditions

The agreement can be terminated, among

other reasons, by default, breach of

contract and in the event a party is

rendered bankrupt.

290




include:

N/A


operation

N/A




the issuer

Affiliate Companies


purpose of the agreement Local Traffic Transport


transaction








assessable



party.


insurance

N/A


(12) months, and may be renewed for

successive periods of two (2) months.


conditions



of the parties, in any event of default not

cured within sixty (60) days, and in the

event of



include:

N/A


operation

N/A


related party's name: Brasil Telecom S/A, 14 Brasil Telecom

Celular S.A and Telemar Norte Leste S.A

291



the issuer

Direct and Indirect Subsidiaries


purpose of the agreement Minutes Partnership


transaction








assessable

Cannot be determined


insurance

Not applicable

duration The agreement calls for a term of six (6)

months, and may be renewed automatically

for periods of the same length unless either

party gives the other notice otherwise.


conditions



of the parties of in the event either party is

rendered bankrupt or enters into any

composition with creditors.



include:

N/A


operation

N/A


related party's name: Telemar Norte Leste S.A. and Brasil

Telecom S.A


the issuer

Indirect Controlling Shareholder

execution date July 2, 2009 (amendment)

purpose of the agreement Credit facility extended by Telemar


transaction

Up to R$80 million

292


existing balance R$ 230k




assessable



insurance

N/A




(12) months.


conditions


at any time upon the prior consent of the

other.



include:


operation

Scope is to provide working capital for our

operating activities.

2. interest rate charged 115% of CDI p.a.

related party's name: Brasil Telecom Call Center S.A. and Brasil

Telecom S.A


the issuer

Direct Subsidiary


purpose of the agreement Credit facility extended to Brasil Telecom

Call Center


transaction

Up to R$100 million

existing balance R$27.3 million




assessable



insurance

Not applicable

293





(12) months.


conditions



other.



include:


operation




related party's name: Brasil Telecom S.A and 14 Brasil Telecom

Celular S.A.


the issuer

Direct Subsidiary

execution date August 26, 2009 (amendment)

purpose of the agreement Credit facility extended by 14 Brasil

Telecom Celular


transaction

Up to R$800 million

existing balance R$514 million




assessable



insurance

Not applicable




(12) months.


conditions



other.



include:

294



operation



2. interest rate charged 101.75% of CDI p.a.

related party's name: Brasil Telecom S.A and 14 Brasil Telecom

Celular S.A.


the issuer

Direct Subsidiary


purpose of the agreement Credit facility extended by 14 Brasil

Telecom Celular


transaction

Up to R$800 million





assessable



insurance

Not applicable




(12) months.


conditions



other.



include:


operation




related party's name Brasil Telecom S.A, Brasil Telecom

Comunicação e Multimídia, Brasil Telecom

Subsea Cables and Brasil Telecom America

Inc.


the issuer

Direct and indirect subsidiaries

295


execution date November 2008

purpose of the agreement Communication Services Agreement


transaction

US$3 million/month

existing balance Recurrent Services Agreement




assessable

We cannot determine the interest of the

parties to the transaction.


insurance

N/A

duration The agreement calls for a term of five (5)

years, and may be renewed automatically

for subsequent periods of one (1) year.


conditions



of the parties and thirty (30) days' advance

notice, as well as in the event of breach of

contract.



include:

N/A

nature and reasons for such

transaction

N/A

interest rate charged N/A

related party's name BNDES and 14 Brasil Telecom Celular S/A


the issuer

BNDES is the controlling shareholder of

BNDESPart, which in turn holds 31.4% of

the voting stock of Telemar Participações

S.A.. The latter is a controlling shareholder

of TNL, the group's holding company.

execution date December 8, 2009

purpose of the agreement Finance 14 Brasil Telecom Celular S/A's

network expansion and quality

improvement project and compliance with

regulatory requirements scheduled for the

2009-2011 period.

296



transaction

R$766 million





assessable



insurance

Surety by TNL and own receivables of 14

Brasil Telecom Celular S/A

duration Until December 2018


conditions


at any time in the event of breach of any of

its terms and conditions, termination of the

concession agreement, and in any other

event as provided for in the POLICY

APPLICABLE TO BNDES AGREEMENTS.



include:


transaction

Finance projects supporting Brazilian

development projects, by BNDES, and

CAPEX financing by 14 Brasil Telecom

Celular S.A.

interest rate charged TJLP + 3.95% p.a. pre-fixed at 4.50% p.a.



the issuer






execution date February 19, 2008

purpose of the agreement Finance 14 BrT's mobile network traffic

scaling project and implement new quality

improvements in support of customer

services


transaction

R$260 million


297





assessable



insurance



duration Until September 2017


conditions









include:


transaction




Celular S.A.

interest rate charged TJLP + 3.52% p.a.

related party's name BNDES and Brasil Telecom S/A


the issuer






execution date September 21, 2006

purpose of the agreement Finance Brasil Telecom S/A's network

infrastructure (voice, data and images) and

information technology expansion project.


transaction

R$2,004 million

existing balance R$1,167 million




assessable



insurance

Surety by TNL and own receivables of

Brasil Telecom S.A.

298


duration Until May 2014


conditions









include:


transaction



CAPEX financing by Brasil Telecom S.A.

interest rate charged TJLP + 4.30% p.a. TJLP + 2.30% p.a.

related party's name BNDES and Brasil Telecom S/A


the issuer






execution date August 13, 2004

purpose of the agreement Finance Brasil Telecom S/A's Telecom

(Voice, Data and Images) Plant Expansion

Project and other improvements in

compliance with the General Universal

Service Plan (PGMU) and the General

Quality Goals Plan (PGMQ) of ANATEL.


transaction

R$1,014 million





assessable



insurance

Surety by TNL and own receivables of

Brasil Telecom S.A.

duration Until April 2011

299



conditions









include:


transaction



CAPEX financing by Brasil Telecom S.A.

interest rate charged TJLP + 5.50% p.a. Currency mix + 5.50%

p.a.

related party's name Telemar Norte Leste and Brasil Telecom

S/A


the issuer

Indirect Subsidiary


purpose of the agreement Credit facility extended to Brasil Telecom

S/A


transaction

Up to R$80 million





assessable



insurance

Not applicable




(12) months.


conditions



other.



include:

300



transaction



interest rate charged 115% of CDI p.a.

related party's name Telemar Norte Leste S.A. and Brasil

Telecom S/A


the issuer

Indirect Subsidiary

execution date February 17, 2009 (date merged by BrTP;

securities assigned to Brasil Telecom S.A.

due to the merger of BrTP)

purpose of the agreement Subscription of debentures issued by our

company on December 11, 2008


transaction

R$1,200 million





assessable



insurance

Not applicable



conditions

Not applicable



include:


transaction

Funds used to support certain corporate

purposes of our company

interest rate charged CDI + 4.0% p.a.

related party's name Telemar Norte Leste S.A and 14 Brasil

Telecom Celular S/A


the issuer

Indirect Subsidiary


301


purpose of the agreement Subscription of debentures issued by our

company on December 11, 2008


transaction

R$300 million





assessable



insurance

Not applicable



conditions

Not applicable



include:


transaction


purposes of our company

2. interest rate charged CDI + 4.0% p.a.

related party's name Brasil Telecom Cabos Submarinos Ltda x

Brasil Telecom S.A and BrT Multimídia


the issuer

Direct Subsidiaries

c. execution date January 1, 2006

purpose of the agreement Telecommunications and/or value-added

services


transaction

Set out in work order





assessable

N/A


insurance

N/A

302


duration Undetermined


conditions

Without cause/convenience: Upon thirty

(30) days' advance notice and payment of

30% of monthly payments yet to fall due;

With cause: Default by either party,

bankruptcy, arrangement with creditors or

liquidation.



include:

N/A

1. nature and reasons for such

transaction

N/A


related party's name Brasil Telecom Cabos Submarinos Ltda x

Tele Norte Leste S.A, TNLPCS, Brasil

Telecom S.A and Brasil Telecom

Comunicação e Multimídia Ltda


the issuer

Indirect subsidiaries, direct subsidiaries and

affiliate companies

execution date November 2008

purpose of the agreement PSTN and/or MCS Services


transaction

Set out in work order





assessable

N/A


insurance

N/A

duration Work order term renewable for consecutive

twelve- (12) month periods.


conditions

Without cause/convenience: Upon notice

within legal timeframe; With cause: Default

or misapplication.



include:

N/A

303



transaction

N/A


related party's name 360Americas (later changed company name

to BrT Cabos Submarinos) and Tele Norte

Leste S.A


the issuer

Indirect subsidiary


purpose of the agreement Telecommunication services


transaction

As set out in work orders





assessable

N/A


insurance

N/A

duration Work order term renewable for consecutive

one- (1) month periods.


conditions

Without cause/convenience: Upon thirty

(30) days' advance notice; With cause:

Default or misapplication.



include:

N/A


transaction

N/A


related party's name BNDES


the issuer







304


purpose of the agreement Finance our network expansion and quality



2009-2011 period.


transaction

R$623.4 million





assessable



insurance

Surety by TNL and our own receivables



conditions









include:


transaction



CAPEX financing by our company



(direct subsidiary)


the issuer







d. purpose of the agreement Finance 14 Brasil Telecom Celular S/A's

network expansion and quality



2009-2011 period.

305



transaction

R$766 million





assessable



insurance





conditions









include:


transaction




Celular S.A.



(direct subsidiary)


the issuer






execution date February 19, 2008

d. purpose of the agreement Finance 14 BrT's mobile network traffic

scaling project and implement new quality

improvements in support of customer

services

e. amount involved in the

transaction

R$260 million


306





assessable



insurance



duration Until September 2017


conditions









include:


transaction




Celular S.A.

interest rate charged TJLP + 3.52% p.a.



the issuer






execution date September 21, 2006

d. purpose of the agreement Finance our network infrastructure (voice,

data and images) and information

technology expansion project.


transaction

R$2,004 million





assessable



insurance


307


duration Until May 2014


conditions









include:


transaction




interest rate charged TJLP + 4.30% p.a. TJLP + 2.30% p.a.



the issuer






execution date August 13, 2004

d. purpose of the agreement Finance our Telecom (Voice, Data and

Images) Plant Expansion Project and other

improvements in compliance with the

General Universal Service Plan (PGMU) and

the General Quality Goals Plan (PGMQ) of

ANATEL.


transaction

R$1,014 million





assessable



insurance


duration Until April 2011

308



conditions









include:


transaction




interest rate charged TJLP + 5.50% p.a. Currency mix + 5.50%

p.a.

related party's name Telemar Norte Leste S/A


the issuer

Indirect Controlling Shareholder

execution date February 17, 2009 (date merged by BrTP;

securities assigned to our company due to

the merger of BrTP)

purpose of the agreement Subscription of debentures issued by

Telemar Norte Leste S.A. on December 11,

2008


transaction

R$1,200 million





assessable



insurance

Not applicable



conditions

Not applicable



include:

309



transaction


purposes of Telemar Norte Leste S.A.

interest rate charged CDI + 4.0% p.a.

16.3. Regarding each of the transactions or set of transactions referred to in item 16.2 carried out in the past accounting period: a) identify the actions taken to handle conflicts of interests and b) demonstrate the strictly commutative character of the conditions agreed or the appropriate compensatory payment Pursuant to our by-laws, any transactions involving related parties are also subject to approval of our

decision-making bodies. Thus, transactions engaged by our company, particularly those involving related

parties, were duly submitted to the relevant decision-making bodies with authority to decide on the

matter, as required in our by-laws. Our by-laws provide (i) in item XVI of article 14 that it is under the

authority of shareholders convened at general meetings to approve any proposed long-term agreement

between our company and any subsidiary, on one hand, and a controlling shareholder or subsidiary,

affiliated company, company under common control, parent company thereof or otherwise, on the other

hand, except to the extent such agreement is governed by standard terms and conditions; and (ii) in item

XXVII of article 22, that, subject to the provisions of the aforementioned item XVI of article 14, it is the

authority of the board of directors to approve any individual transaction in excess of R$10,000,000.00 (ten

million reais) between the company and any subsidiaries, on one hand, and a shareholder, or a subsidiary,

affiliated company, parent company or company under common control thereof, on the other hand.

Therefore, all transactions of our company, specially those involving related parties, were duly submitted

to the relevant decision-making bodies with authority to decide on the matter as required in our by-laws.

Furthermore, in accordance with Brazilian Corporate Law shareholders or members of the board of

directors are forbidden from casting vote in respect of any matter in which their interests conflict with

those of our company. In this case, the voting will be carried out by the other shareholders or directors

that have no interest on the matter under examination.

Our transactions involving related parties are supported by prior review of the relevant terms and

conditions and of the strictest interests of each party involved, as indicated in the charts describing credit

facilities, loans and borrowings in item 16.2 above. In order to confirm the arm's length status of a

transaction, we evaluate the feasibility of each transaction in respect of its financial characteristics vis-a-vis

similar market transactions. We employ comparative analysis methods, although we cannot demonstrate

whether a transaction engaged with a related party would yield a different outcome had it been engaged

with an unrelated party.

310


17. CAPITAL STOCK Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor



17.1. Capital Stock Breakdown

Type of stock Number of

shares

a) capital stock

issued

b) subscribed

capital stock

c) paid-up capital

stock

d) deadline for

payment

Common 203,423,176 1,258,636,818.50 1,258,636,818.50 1,258,636,818.50 -

Preferred 399,597,370 2,472,422,131.78 2,472,422,131.78 2,472,422,131.78 -

Total 603,020,546 3,731,058,950 3,731,058,950 3,731,058,950 -

* Our stock has no par value. Therefore, it is not possible to determine the issued, subscribed and paid-up

capital stock in reais per type and class of stock.

e) authorized capital f)

convertible

securities

g)

conversion

conditions Number of shares

Value

Date of

authorization

Up to 800,000,000

shares, either common or

preferred shares, without

need to establish

proportion between the

two, subject to a 2/3

statutory limit for the

issue of preferred shares

without voting rights.

Not applicable.

EGM held on

4/10/2007 None

Not

applicable

17.2. CAPITAL INCREASE Capital increases in the last three accounting periods

On April 10, 2007 our shareholders convened at extraordinary general meeting approved a merger with

MTH Ventures do Brasil LTDA. In pursuance of this merger, our shareholders resolved to increase our

company's capital by R$349,705.84.

On September 30, 2009 our shareholders convened at extraordinary general meeting approved the

merger of Brasil Telecom Participações S.A.. In pursuance of this merger, our shareholders resolved to

increase our company's capital by R$260,300,598.32 through issue of 201,143,307 common stock and

209,155,151 preferred stock, all registered and at no par value. This capital increase corresponded to a

7.49% increase in our fully paid-up capital.



311


Capital stock increase without issuance of new shares

17.3. Stock splits, reverse stock splits, bonus

On April 10, 2007 our shareholders convened at extraordinary general meeting approved a reverse split of

our shares with a ratio of 1,000 (thousand) existing shares to one (1) share of the respective kind.

Accordingly, our capital was divided into 560,950,289 shares, being 249,597,049 shares of common stock

and 311,353,240 preferred shares.

17.4. Decrease in capital stock Not applicable

17.5. Other Material Information There is no further relevant information regarding item 17.

312


18. SECURITIES




18.1. Describe the rights entitled to each class and type of share issued

a) right to dividends

In accordance with the provisions of article 40, sole paragraph of our by-laws, we distribute a mandatory

dividend equivalent to 25% of our net income.

Dividends are paid first to holders of preferred shares up to the limit of preference, and then to holders of

common stock, again up to the limit of preference. The balance is prorated on equal terms among all

shares.

Each of our preferred stock has precedence in the payment of a minimum non-cumulative 6%

p.a. dividend, determined by dividing our stock capital by the total number of shares, or of 3%

p.a., determined by dividing the carrying value of shareholders' equity by the total number of

shares of stock, whichever is greater.

b. voting right

Each share of common stock entitles its holder to cast one vote at general meetings.

Preferred shares will acquire voting rights if our company fails to pay the minimum dividends entitled to

holders of such shares for a period of three consecutive years, as described in item 18.1(a) above.

Additionally and notwithstanding the provisions of paragraph 1, article 115 of the Brazilian Corporate Law,

preferred shares carry voting rights in respect of those matters listed in paragraph 2, article 12 of our by-

laws.

c. convertibility into another class or type of stock

Not applicable

d. capital refund rights

Not applicable

e. right to take part in a public offering for sale of a controlling interest

Pursuant to Law No. 6,404 dated December 15, 1976 in the event of sale of a controlling interest in our

company, all holders of common stock are entitled to include their stock in a tender offer to be placed by

the relevant bidder, and to receive 80% of the price paid for each share carrying voting rights included in

the control block.



313


f. restrictions to trading

Pursuant to CVM Statement No. 358 dated January 3, 2002, as amended (―CVM Statement No. 358‖), our

company, its controlling shareholders, directors, and any members of the board of executive officers,

supervisory board, corporate committee or any other body assigned technical or advisory responsibilities in

our by-laws, as well as any other individual possessing knowledge of any material fact or action, knowing

that such information has not yet been publicly disclosed, are forbidden from trading with securities issued

by the company, including any securities underlying derivative transactions, before disclosure of a material

fact or action relative to the businesses of our company.

The foregoing restriction also applies to:

directors, members of the board of executive officers and the supervisory board that resign from

management positions with our company before disclosure of any business or fact initiated

during their term in office, for a period of six (6) months from the date such individual resigns

from their office;

any proposed merger, combination, total or partial split-up transaction or corporate restructuring

of our company;

in the event any agreement or arrangement has been entered into or made for the purpose of

transferring a controlling interest in our company, or if an option or proxy has been granted for

the same purpose;

the period of fifteen (15) days prior to disclosure of quarterly (QIF) and annual (Reference Form

and DFP) information as required by the Brazilian Securities and Exchange Commission (CVM);

and

our controlling shareholders, directors and executive officers, whenever our company is

purchasing or selling shares of its own stock, or when any subsidiary, affiliate or a company

under common control is purchasing or selling our shares, or if an option or proxy has been

granted for the same purpose.

g. conditions for changes to rights granted by the relevant securities

Pursuant to Law No. 6,404 dated December 15, 1976, no provision of our by-laws nor any shareholders'

resolution carried at a general assembly may strip the same from any of the following rights:

a. right to a share of the profits;

b. right to a share of any asset remaining following liquidation of the company, proportionate to a

shareholder's equity interest;

c. preemptive rights in the subscription of stock, convertible debentures or subscription bonuses,

except in certain circumstances provided in Law No. 6,404 dated December 15, 1976;

d. right to inspect and examine management of company affairs, as per Law No. 6,404 dated

December 15, 1976;

e. right to cast vote at general assemblies; and

f. right to withdraw from the company, as provided in Law No. 6,404 dated December 15, 1976.

The terms and conditions applying to any change in the rights attached to securities of the company are in

line with the applicable laws. Therefore, any of the following changes requires approval of shareholders

holding at least half of the voting stock before it can take effect:

(i) creation of preferred shares or increase of an existing class of preferred shares without need to

maintain proportion in regard to other classes of preferred shares, unless provided for or

authorized by our by-laws;

314


(ii) change in the preferences, benefits and redemption or amortization terms and conditions of one

or more classes of preferred shares, or creation of an additional, more favored class; and

(iii) reduction of mandatory dividends.

To take effect, any change described in the foregoing items (i) and (ii) needs to be approved or ratified in

no later than one year by the holders of more than half of the shares in each class of preferred shares

affected by such change, duly gathered at a special meeting convened by the management and opened in

accordance with the formalities of the Brazilian Corporate Law, as per article 136 of said law.

In the event any change is approved to the rights attached to said securities of the company, the

dissenting shareholder may withdraw from the company and will be repaid the amount of his or her

shares in accordance with the rule of article 137 of the Brazilian Corporate Law. Pursuant to article 12 of

our by-laws, the amount of the reimbursement payable by the company in each case provided by law will

be the economic value of our company divided by the total number of shares, such economic value to be

determined through appraisal pursuant to the Brazilian Corporate Law.

h. other characteristics

Not applicable.

i. foreign issuers must identify the differences between the characteristics described on items

"a" to "i" and those usually attributed to similar securities issued by Brazilian issuers,

describing which characteristics are inherent to the described security and which are imposed

by rules of the issuer's country of origin or the country where the securities are held in

custody.

Not applicable.

18.2. Describe, if any, the provisions limiting the voting rights of significant shareholders, or any rule requiring the same to perform any public offering Our by-laws do not contain any provision limiting the voting rights of significant shareholders, nor any rule

requiring the same to perform any public offering.

Please refer to items 12.2(e), 12.2(f), 15.5(i)(d), 15.5(ii)(d) and 18.1(b) of this Form to obtain further

information regarding the exercise of voting rights in our company.

18.3. Exceptions and suspensive clauses concerning equity or political rights provided for in the bylaws Refer to items 18.1 and 18.2 above for information regarding the exception to voting rights attached to

preferred shares.

Our by-laws do not contain any provision making exception to or suspending any right to property or

assets.

315


18.4. Draw up a table informing the trading volume as well as highest and lowest prices of securities traded on a stock exchange or organized OTC market, in each quarter of the last three accounting periods The table below shows the maximum, average and minimum adjusted trading prices of our preferred and

common shares on the São Paulo Stock, Commodities and Futures Exchange – BM&FBOVESPA, per year,

for the last five years:

Year Maximum Price (R$) Average Price (R$) Minimum Price (R$)

BRTO3 BRTO4 BRTO3 BRTO4 BRTO3 BRTO4

2005 18.79 10.38 15.53 10.46 10.59 6.32

2006 26.24 9.76 20.98 9.54 15.31 6.25

2007 36.10 17.64 31.89 13.79 23.10 8.38

2008 59.99 21.17 47.53 17.65 30.03 9.87

2009 61.00 18.49 29.54 14.14 25.70 10.98

Source: Economática

316


The table below shows the maximum, average and minimum adjusted trading prices of our preferred and

common shares on the São Paulo Stock, Commodities and Futures Exchange – BM&FBOVESPA, per

quarter, for the last two years:

Quarter Maximum Price (R$) Average Price (R$) Minimum Price (R$)


1Q/2007 28.77 10.60 27.13 10.48 23.08 8.38

2Q/2007 32.96 13.03 32.12 12.75 27.81 9.72

3Q/2007 34.64 16.62 33.38 16.01 27.91 12.03

4Q/2007 36.10 17.64 31.97 17.23 26.06 13.97

1T/2008 41.66 19.10 38.91 17.61 30.03 12.82

2T/2008 49.87 21.17 47.40 19.51 38.49 16.33

3T/2008 49.77 19.69 47.10 16.76 45.88 11.56

4T/2008 59.99 17.61 51.11 13.51 42.87 9.87

1Q/2009 60.00 14.90 57.62 12.23 54.05 10.98

2Q/2009 61.00 15.18 59.21 13.36 55.50 11.73

3T/2009 46.00 15.72 32.42 13.56 26.90 11.98

4T/2009 32.00 18.49 28.27 16.79 25.70 14.36

1T/2010 28.65 17.70 21.24 13.20 15.26 11.30


The table below shows the maximum, average and minimum daily trading volumes of our preferred and

common shares on the São Paulo Stock, Commodities and Futures Exchange – BM&FBOVESPA, per year,

for the last five years:

Year Maximum Volume (R$) Average Volume (R$) Minimum Volume (R$)


2005 449,511 133,801,984 33,577 17,216,087 1,220 3,778,004

2006 313,210 47,407,299 24,264 13,281,434 1,700 4,090,306

317


2007 3,675,748 92,039,405 58,681 18,674,369 2,570 4,527,425

2008 4,385,100 152,083,707 181,279 18,732,308 3,110 3,014,639

2009 45,135,385 37,204,122 1,090,237 8,493,918 2,700 930,254


The table below shows the maximum, average and minimum daily trading volumes of our preferred and

common shares on the São Paulo Stock, Commodities and Futures Exchange – BM&FBOVESPA, per

quarter, for the last two years:

Quarter Maximum Volume (R$) Average Volume (R$) Minimum Volume (R$)


1Q/2007 322,490 43,041,134 28,160 15,171,350 2,570 5,248,405

2Q/2007 267,300 51,187,855 53,998 20,630,750 3,089 6,607,689

3Q/2007 3,675,748 44,759,565 139,073 19,811,094 2,981 4,527,425

4Q/2007 194,907 92,039,405 34,337 19,026,487 3,150 8,156,427

1Q/2008 299,500 119,274,212 420,47 23,253,688 3,110 8,355,652

2Q/2008 3,696,000 152,083,707 335,619 32,779,514 4,845 8,062,723

3Q/2008 4,385,100 32,871,190 167,929 11,371,851 4,650 3,296,990

4Q/2008 1,713,941 18,456,144 165,502 8,026,182 4,700 3,014,639

1Q/2009 3,697,239 18,245,347 314,861 5,840,406 5,405 1,494,482

2Q/2009 353,943 17,374,139 70,250 8,191,913 5,932 930,254

3Q/2009 123,232 21,633,273 16,367 8,542,348 2,700 3,280,167

4Q/2009 45,135,385 37,204,122 3,140,272 11,447,037 2,800 3,411,154

1Q/2010 22,854,622 58,658,848 2,756,392 13,229,987 143,293 4,616,119

18.5. Describe any securities issued other than shares Not applicable.

318


18.6. Brazilian markets in which securities of the issuer are listed for trading Our common and preferred shares are primarily traded on the BM&FBOVESPA – São Paulo Stock,

Commodities and Futures Exchange. Our ―BRTO3‖ common shares and ―BRTO4‖ preferred shares were

listed on the São Paulo Stock Exchange in July 1992.

18.7. Regarding each class and type of security listed for trading on foreign markets, indicate: a. Country: Luxembourg

b. Market: Euro MTF Market E PORTAL Market

c. Administrative entity: Luxembourg Stock Exchange

d. Listing date: April 16, 2009

e. Listing segment: Not applicable.

f. Listing on this segment: April 16, 2009.

g. Percentage of trading volume on foreign markets in relation to the total volume of trades for each class

and type of stock in the last accounting period Not applicable.

h. If any, proportion of deposit certificates overseas in relation to each class and type of stock Not

applicable.

i. and j. if any, depositary bank and custodian institution The Bank of New York Mellon is the trustee,

payment agent and bookrunner of the bonds. The Bank of New York Mellon Trust (Japan) Ltd. is the main

payment agent, and The Bank of New York (Luxembourg) S.A. is the main payment agent and listing

agent of the bonds in Luxembourg.

18.8. Describe the public offers made by the issuer or third parties, including the controlling shareholders and affiliates and subsidiaries, of issuer’s securities 9 We have issued no securities in the current accounting period.

Issues of commercial papers

Not applicable.

Bonds

Not applicable.

9 Information referring to the last three accounting periods and the current accounting period.

319


Debentures

Not applicable.

18.9. Describe the public offers made by the issuer for the acquisition of shares issued by third parties Not applicable.

18.10. Other Material Information There is no further relevant information regarding item ―18‖.

320


19. BUYBACK PLANS AND SECURITIES HELD IN TREASURY Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor



19.1. Buyback plans and securities held in treasury Not applicable. Our buyback plan was discontinued in 2004.

19.2. Changes in securities held in treasury: Currently we do not have any policy in place used by our management to govern trading of securities

issued by our company. Shares held in treasury may be used in the stock-option program of executive

officers, or cancelled. As provided for in article 22, item XIV of our by-laws, our board of directors has

authority to consent to the acquisition of shares issued by our company for the purpose of cancelling and

holding the same in treasury for subsequent sale or use in any stock-option program of our executive

officers. All cancellation of shares are subject to approval of shareholders at general meeting.

The charts below describe transactions involving securities held in treasury during for the relevant periods:




Common shares

2007 2008 2009 May 2010

Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price

Opening

Balance 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Purchased 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Sold 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Cancelled 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Closing

balance 0 0 0 0 0 0 0 0

Preferred Class A shares

2007 2008 2009 February 2010

Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price

Opening

Balance

13,678,10

0

154,693,05

9 11.31

13,678,10

0

154,693,05

9 11.31

13,451,40

0

152,129,08

2 11.31

13,231,55

6

149,642,64

6 11.31

322


Purchased 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Sold

0 0 0.00

(226,700)

(2,563,977

)

(11.31)

(219,844)

(2,486,436)

(11.31) 0 0 0.00

Cancelled 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Closing

balance

13,678,10

0

154,693,05

9 11.31

13,451,40

0

152,129,08

2 11.31

13,231,55

6

149,642,64

6 11.31

13,231,55

6

149,642,64

6 11.31

Preferred Class B shares

2007 2008 2009 May 2010

Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price Amount

Total

amount

Weighted

average

acquisition

price

Opening

Balance 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Purchased 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Sold 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Cancelled 0 0 0.00 0 0 0.00 0 0 0.00 0 0 0.00

Closing

balance 0 0 0 0 0 0 0 0 0 0 0 0

323


19.3. Securities held in treasury: In January 2008 our shareholders convened at general meeting approved the conversion of 47,000 class

"B" preferred shares in 47,000 class "A" preferred shares, as well as the cancelling of all shares held in

treasury as of December 31, 2007, these being 2,929 thousand class "A" preferred shares, 1,000 class "B"

preferred shares and 124,000 common shares, in contra entry to the investment reserve account.

The chart below lists securities held in treasury:

Common shares December 31, 2009

a. Number of common shares held in treasury None

b. Weighted average acquisition price n/a

c. Purchase date n/a

d. Percentage in relation to common outstanding

shares

n/a

Preferred class A shares December 31, 2009

a. Number of preferred class A shares held in

treasury

13,231,556

b. Weighted average acquisition price 11.31

c. Purchase date 2002/2003/2004/2005

d. Percentage in relation to preferred class A

outstanding shares

3.42%

Preferred class B shares December 31, 2009

a. Number of preferred class B shares held in

treasury

None

b. Weighted average acquisition price n/a

c. Purchase date n/a

d. Percentage in relation to preferred class B

outstanding shares

n/a

19.4. Other Material Information


324


20. POLICY ON THE TRADING OF SECURITIES Capitalized words are included in a glossary available online at http://www.oi.com.br/ri, under Investor



20.1. Inform whether the issuer has adopted a policy on the trading of securities by its direct or indirect controlling shareholders, executive officers, directors, members of the supervisory board or audit committee and of any bylaw-designated bodies with technical and consulting functions, including: a) date of approval; b) bound persons; c) main characteristics; and d) blackout periods for trading and description of the procedures adopted to monitor trading during these periods:

a. Date of approval

July 10, 2002.

b. bound persons

Our company, its direct or indirect controlling shareholders, including any shareholder who appointed a

director or member of the supervisory board, directors (incumbents and deputies), executive officers,

members of the supervisory board (incumbents and deputies), member of a corporate committee or any

body assigned technical or advisory responsibilities in our by-laws, as well as any employee who by force

of his or her employment, position or role, or occasionally, has access to relevant information, or whoever

who on account of employment, position or role in the company, any parent company, subsidiary and

affiliate company thereof, has access or knowledge of relevant information, including any contractors and

other person who has explicitly agreed to the Trading Policy.

c. main characteristics

We adopt the rules set out in CVM Statement No. 358 dated January 3, 2002, as amended, in respect of

the trading of our securities. Therefore, the restricted persons listed in the foregoing item (b) are

forbidden from trading with securities issued by our company, including securities underlying any

derivative transactions, during the periods and subject to the conditions described in item (d) hereinafter.

Our Security Trading Policy was designed to outline and clarify the criteria and procedures to be followed

by restricted persons to avoid any trading of our securities using privileged information and thus prevent

insider trading practices, that is, using such privileged information held by any restricted person and in

respect of which the same is required to ensure strict confidence by operation of article 155, paragraphs 1

through 4 of the Brazilian Corporate Law and CVM Statement No. 358, that if traded by such person on his

own behalf or on behalf of any third party is capable of generating any unfair advantage that person or to

any third party.

The aforementioned policy was designed around the applicable laws. Our chief investor relations officer is

the person responsible for monitoring and enforcing compliance with its provisions, as well as informing

restricted persons and the competent authorities about security trading lockout periods.



325


d. blackout periods for trading and description of the procedures adopted to monitor

trading during these periods

Pursuant to the Code of Ethics and Transparency for Disclosure and Use of Information and Trading With

Company Securities ("Code of Ethics"), managers, shareholders, controlling shareholders (both direct and

indirect), the company itself, members of the supervisory board, employees and members of any other

corporate committee assigned technical or advisory responsibilities, or any other person who on account

of his or her employment, position or role in the company, or in any controlling shareholder, subsidiary or

affiliate company, has executed a Statement of Consent ("Restricted Persons") must: Refrain from trading

securities during the following periods:

(i) the period of one month prior to disclosure or publication, as the case may be, of quarterly and annual

information that the company is required to make by operation of the applicable CVM regulations; and

(ii) the period running between a decision made by the relevant corporate body to increase or reduce the

stock capital, distribute dividends or stock bonuses or issue other securities, and the publication of the

relevant rules, releases or material facts.

The Code of Ethics also provides that:

(i) a restricted person must refrain, except in extraordinary circumstances prior and duly explained to the

chief investor relations officer, from trading with securities before the end of the period of one hundred

and eighty (180) days from acquisition of any such security;

(ii) if resigning from office before the public disclosure of any business or fact initiated during their term in

office, our executive officers must refrain from trading with securities for a period of six (6) months from

such resignation.

Additionally, pursuant to the Code of Ethics, whenever a proposed merger, total or partial split-up,

combination, transformation or corporate restructuring transaction is under consideration, the company,

its management, members of the supervisory board, employees with knowledge of relevant information

and members of any other corporate body assigned technical or advisory responsibilities, and also

whoever on account of employment, position or role in any controlling shareholder, subsidiary and affiliate

company, who have executed a Statement of Consent and have knowledge of relevant information about

our company, are forbidden to trade with securities until the public disclosure of a material fact or action.

The foregoing restriction will cease twenty-four (24) hours after public disclosure of such material fact or

action by the company, except where any trading with securities of our company intended by any of the

foregoing persons may, following any such public disclosure, interfere with the businesses of our company

in such way as to harm any shareholder or the company itself.

Lastly, no direct or indirect controlling shareholder or managers of the company may trade with any of our

securities whenever an option is pending, has been granted or proxy has been given for the purpose of

acquiring or selling shares issued by the company, or by any controlling shareholder, affiliate company or

any other company under common control with our company.



326


21. INFORMATION DISCLOSURE POLICY




21.1. Describe the norms, rules or internal procedures adopted by the issuer to make sure information to be disclosed to the public is gathered, processed, and released accurately and in a timely manner We adopt corporate governance practices with a goal to ensure the best procedures and internal controls

of our businesses, and pursue full transparency by establishing and maintaining a strong flow of public

information, including reporting of: (i) quarterly results; (ii) material facts and actions; (iii) annual reports;

(iv) filings with SEC, CVM and BM&FBOVESPA; (v) public presentations; (vi) our website; and (vii) relations

with industry analysts, investors, credit rating agencies, news agencies and other disclosure channels for

the purpose of securing alignment of the interests of shareholders, represented by the board of directors,

and the responsibilities of our executive officers.

In addition to the foregoing, several measures have been taken to improve our corporate governance

practices, including (i) creation of a Corporate Governance, Reporting and Sustainability Committee

formed by five executive officers of Tele Norte Leste Participações S.A. (the chief risk management officer,

general counsel, chief investor relations officer, controller and chief management and quality officer)

under the Executive Committee of Tele Norte Leste Participações S.A.; (ii) adoption of a 'Code of Ethics

and Transparency for Disclosure and Use of Information and Trading with Company Securities'; (iii)

policies addressing transparency of company information; (iv) a Code of Ethics reflecting organizational

principles and values applicable to attitudes and behavior of all employees, suppliers and business

associates; and (v) Supervisory Board's ombudsman; (vi) an information security policy; and (vii) a limits

of authority and delegation policy.

In support of our corporate governance model, we are Sarbanes-Oxley certified since 2006. This reflects

compliance and efficiency of our internal control and risk management framework. Compliance with SOX

requirements has introduced many benefits to our company, such as overall strengthening or our internal

control framework, consolidation of risk management principles and corporate governance practices, all in

attempt to improve our perception in and by the market.

Grupo Oi has as a policy of pursuing close relationships with investors and industry analysts. To this end,

Grupo Oi holds meetings at the Capital Market and Investment Professional and Analyst Association

(―Apimec‖) and videoconferences to disclose our results. During the year, analysts and investors are

invited to know our facilities and attend talks in which the metrics of Grupo Oi are explained.

Our investors relations department regularly sends out information in electronic format to the market

containing material facts and results of Grupo Oi. Moreover, the information related to our company is

updated daily on our website and made available to any interested party. These steps have been taken in

pursuance of an ongoing and transparent relationship between Grupo Oi and both domestic and foreign

capital markets.

In so doing we attempt to maintain a consistent and positive relationship with markets, prevent certain

groups of persons from gaining selective or privileged access to our information, and endeavor to ensure

that our information will be disclosed simultaneously across the market.



327


21.2. Describe the policy for the disclosing of material act or fact adopted by the issuer, indicating the procedures adopted for the maintenance of confidentiality of undisclosed material information On June 10, 2002 our board of directors approved the Code of Ethics and Transparency for Disclosure and

Use of Information and Trading with Company Securities with a view to ensuring the highest procedure

and transparency standards. Compliance with the code is mandatory to (i) executive officers and directors;

controlling shareholders, shareholders who appointed any director or member of our supervisory board,

directors (incumbents and deputies), employees and executive officers with access to confidential

information and members of any other body assigned technical or advisory responsibilities now existing or

subsequently created by the by-laws of Telemar Participações S.A., Tele Norte Leste Participações S.A.,

Telemar Norte Leste S.A., Coari Participações S.A. or our company, and by anyone who on account of

employment, position or role in the company, or in any controlling shareholder, subsidiary or affiliate

company, has knowledge of any relevant information about our company. This code has been designed to

match our internal policies to principles of transparency and good relevant information use and disclosure,

as well as security trading practices, in such a way as to enforce compliance with the applicable laws.

Pursuant to the laws applicable to security markets, we must notify the CVM and the BM&FBOVESPA

should any material fact or action occur in connection with our businesses. CVM Statement No. 358

governs disclosure and use of information related to a material fact or action associated with publicly-held

corporations. As such, this statement: (i) establishes the concept of 'material fact', which includes any

resolution adopted by a controlling shareholder, carried at general meeting or made by any management

body of a publicly-held corporation, as well as any other fact or action of a political, administrative,

technical, business, economic or financial nature affecting or related to the business thereof, capable of

significantly impacting (a) security quotations; (b) an investor's decision as to whether buy, sell or hold

such securities; and (c) an investor's decision as to whether exercise any of his rights associated with the

holding of securities issued by a corporation; (ii) provides examples of potential material facts or actions,

including without limitation execution of any agreement or arrangement for the purpose of transferring a

controlling interest in a corporation, the joining or withdrawal of any member with whom the corporation

has an agreement or other association of an operating, financial, technological or administrative nature, or

any merger, combination, or split-up involving the corporation or any affiliates; (iii) requires the chief

investor relations officer, as well as any controlling shareholders, executive officers, directors and

members of the supervisory board and of any other body assigned technical or advisory responsibilities to

disclose any material fact to the CVM; (iv) requires disclosure of any material fact simultaneously across all

markets wherein the corporation has securities listed for trading; (v) requires the acquirer of a controlling

interest in a publicly-held corporation to disclose a material fact, including their intention to deregister the

corporation, within one (1) year from such acquisition; (vi) sets out rules for disclosure of any acquisition

or sale of a relevant equity interest in a publicly-held corporation; and (vii) restricts the use of privileged

information.

Pursuant to CVM Statement No. 358, under certain extraordinary circumstances we may apply that

confidential status is attached to any of our material facts or actions if, in the opinion of our controlling

shareholders or management, any disclosure of such information could raise potential risk to a legitimate

interest of our company.

21.3. Executives in charge of the issuer’s information disclosure policy. Investor Relations Officer.

21.4. Other Material Information There is no further relevant information regarding item ―21‖.

328


329


22. EXTRAORDINARY BUSINESSES




22.1. Acquisition or sale of any significant asset that does not fall within the regular operations of the issuer.

On April 25, 2008 (the ―Agreement‖), TMAR, acting through its direct subsidiary Copart 1 Participa es

S.A. (―Copart 1‖), acquired a controlling interest in Brasil Telecom Participa es S.A. (―BrT Part‖) and in

Brasil Telecom S.A. (―BrT‖).

With the goal of simplifying the control structure of said corporations, Telemar will begin implementation

of a corporate restructuring process as disclosed in said material fact. This process, once completed, will

result in the consolidation of their share capital by Telemar (―Corporate Restructuring‖).

On July 31, 2009 the mergers comprised in the Interim Corporate Restructuring (Phase 1) were

completed, as disclosed in the material fact release April 25, 2008. This phase saw termination of interim

companies within the control structure of BrTP and of BrTO. As a result, Coari, a direct subsidiary of

Telemar, became a direct controlling shareholder of BrTP and consequently an indirect controlling

shareholder of BrTO.

On September 30, 2009 the second phase of the Corporate Restructuring process was completed with the

approval of the merger of Brasil Telecom Participa es S.A. (―BrTP‖) by BrT. This merger resulted in the

assets of BrTP being absorbed by BrT, migration of BrTP shareholders to BrT and in the winding up of

BrTP.

22.2. Significant changes in the manner the issuer conducts its businesses On January 8, 2009 Telemar Norte Leste S.A. - TMAR, acting through indirect subsidiary Copart 1

Participações S.A., acquired a 100% equity interest in Invitel, which in turn held an indirect controlling

interest in Brasil Telecom S.A.. As a result of this acquisition, in January 2009 TMAR began implementation

of the operating integration project involving the two companies.

Thus, the management of our business was revamped and brought in line with the business strategy of its

new controlling shareholder. We now focus on what we believe is our competitive advantage, our edge in

relation to our competitors – the fact that we are the single truly integrated carrier that pioneered the

convergent service industry in Brazil. We have a diverse portfolio targeting different market segments,

allowing us to develop convergent offers with a view to establish customer loyalty, and increase our

average per-customer revenues and our cash flow capabilities.

330


22.3. Significant agreements executed by the issuer and its subsidiaries that are not directly connected with their operating activities: On February 10, 2009, Telemar, TNL PCS S.A, Tele Norte Leste Participações S.A. and the Instituto

Telemar, as licensors, entered into a license agreement granting use of certain trademarks by our

company. As a result, our company was granted a non-exclusive right to use certain trademarks of the

licensors within Brazilian jurisdiction. The term of this agreement expired June 30, 2009 but it was

renewed for an additional term of one year.

22.4. Further information the issuer deems material: There is no further relevant information regarding item ―22‖.