Focus on the Quarter

Focus on 12 Months

Brasilia, November 04, 2003 – Brasil Telecom Participações S.A. (BOVESPA: BRTP3/BRTP4; NYSE: BRP) announces its consolidated results for the third quarter of 2003 (3Q03). In this quarter, the financial statements of Brasil Telecom S.A., Brasil Telecom Participações´wholly-owned subsidiary, consolidate the iBest Group and the Globenet Group, besides BrT Serviços de Internet S.A. and Brasil Telecom Celular S.A.

• iBest holds, at the moment, an estimated market share of approximately 20% of the dial up internet access in Brazil, being the largest provider in Region II with 1.3 million active users and 4.3 million registered users.
  
• Globenet enables Brasil Telecom to carry international IP traffic, reduce interconnection costs and offer integrated packages to corporate clients.
  
• Brasil Telecom Celular continues to implement the GSM/GPRS/EDGE network and already has a suitable coverage in all capitals in Region II and the Federal District (Brasília).

Operating Performance

The installed plant of Brasil Telecom has reached 10,678 thousand lines, an increase of 0.2% and 1.3% in relation to 2Q03 and 3Q02, respectively.

The plant in service achieved 9,809 thousand lines, 0.7% and 6.3% above the one registered in 2Q03 and 3Q02, respectively.

Net addition of 68 thousand lines contributed to the increase in the utilization rate, which reached 91.9% at the end of September, 0.5 p.p. and 4.3 p.p. above the one registered in 2Q03 and in 3Q02, respectively.

At the end of 3Q03, Brasil Telecom reached 239.4 thousand ADSL accesses in service, meaning a growth of 22.9% and 120.9% in relation to 2Q03 and 3Q02, respectively.

The addition of 44,6 thousand ADSL accesses was a result of an analysis which enabled a more accurate identification of prospective clients, allowing the direct communication and marketing campaign to become more effective.

Brasil Telecom launched TVfone, a breakthrough service that connects the TV and telephone through ADSL access technology to the Internet at high speed.

Productivity was 1,859 LIS/employee at the end of 3Q03, against 1,832 in 2Q03. The higher productivity was due to an increase of 0.7% in the plant in service combined with a net reduction of 39 employees in 3Q03.

Financial Performance

Net revenue in 3Q03 reached R$2,053.4 million, a 7.2% and 12.8% growth when compared to the net revenue of 2Q03 and 3Q02, respectively.

Net revenue / Average LIS / month in 3Q03 reached R$69.9, against R$65.9 in 2Q03 and R$66.8 in 3Q02.

Revenues from data communication in 3Q03 continued its growing trend, reaching R$191.1 million, 5.5% and 34.3% ahead the registered in 2Q03 and 3Q02, respectively.

Revenue from local service increased by 14.4% and 10.9% in relation to 2Q03 and 3Q02, respectively.

In 3Q03, the EBITDA was R$959.9 million, a 6.5% and 11.7% growth compared to the 2Q03 and 3Q02, respectively.

EBITDA margin reached 46.7% in 3Q03. The EBITDA/Average LIS/month increased by 5.1% compared to 2Q03, reaching R$32.7.

Losses with accounts receivable in 3Q03 remained stable at 2.3%, when compared to 2Q03, totaling R$65.6 million in the 3Q03, against R$61.9 million in the previous quarter.

Brasil Telecom hedged 80,2% of that debt and all debt maturing on December, 2004 was hedged against exchange variations.

The average cost of debt accrued during the year of 2003 was 12.9% or 71.4% of Domestic Interbank Rate in the period, equivalent to 17.5% p.a.

The financial result in 3Q03 presented a R$63.1 million improvement in relation to 2Q03.

Net Debt

Consolidated net debt was reduced to R$2,383.9 million at the end of September.

The consolidated net debt/shareholders’ equity ratio was 37.4% at the end of 3Q03, against 42.0% at the end of 2Q03.

The dollar-denominated debt accounted for 3.9% of total debt, totaling R$152.1 million at the end of 3Q03, not considering the hedge adjustment.

In 3Q03, Brasil Telecom generated an operating cash flow of R$785.7 million, against R$751.7 million in 2Q03.

Free cash flow in 3Q03, was R$366.4 million, an increase of 44.4% and 48.2% in relation to 2Q03 and 3Q02, respectively.

Adjusted net income totaled R$147.6 million, a 48.0% increase in relation to 2Q03.

Table 1: Consolidated Income Statement

Table 2: Plant

The plant of ADSL in service achieved 239.4 thousand accesses in 3Q03, meaning a growth of 120.9% compared to 3Q02.

The addition of 44.6 thousand ADSL accesses in the period is due to a combination of the following strategies:

Besides these actions, Brasil Telecom developed, during the quarter, a process to encourage clients to migrate to higher-speed plans, aiming at the increase of the average revenue per user, currently at R$86.

Brasil Telecom launched in October 2003, the TVfone, a breakthrough service, which blends TV and telephone through high-speed ADSL technology internet access.

In order to have access to the service, the client only needs to have a conventional telephone, a TV set, a broadband access approved by Brasil Telecom and a special camera, leased by the carrier. The camera, which is connected to the TV set, captures the images of the speakers, who can then see each other through the TV screen while talking over the phone.

It is not necessary to own a computer in order to use TVfone, but if the client wishes, he/she can use the broadband access to connect his/her computer to the Internet at high speed.

In September of 2003, Brasil Telecom met with the quality indicators established by Anatel for the switched-fixed telephone service in the local and long-distance mode, except the maintenance request rate of non-residential users within eight hours in the Rondônia Branch, where an interruption occurred due to an atmospheric discharge at the Dom Pedro II Center in Porto Velho.

In continuation to the inspection process, Anatel concluded the field work, in which 940 localities at all the Brasil Telecom branches were evaluated. The Company awaits the official outcome from the regulatory body regarding the 2003 target accomplishment.

The inter-network traffic totaled 1.0 billion minutes in 3Q03, representing a 7.5% reduction in relation to the traffic registered in the previous quarter. Of the total fixed-mobile traffic, 90.5% refers to VC-1 calls, 8.0% to VC-2 and 1.5% to VC-3 calls.

The following factors were noticed during the period and they justify this outcome.

The discussions regarding tariff readjustment hindered service consumption.

In July, with the implementation of the Carrier Selection Code - CSC in calls originating from cell phones, Brasil Telecom, which had agreements with most of the mobile carriers in Region II to transport their long distance calls, noticed a decrease in traffic, given that besides the fixed carriers, it began to compete with mobile carriers.

Currently, due to advertising campaigns, Brasil Telecom has consistently expanded its share in long distance calls originating from cell phones. An example of this is the 49.3% share in CSC 14 for calls originating from cell phones in September.

In addition, the decrease in local inter-network traffic can be attributed to the increase in competition in the mobile telephony sector, which can be confirmed by the increase in the offers related to mobile service packages.

The Federal Public Ministry filed a Suit in the city of Fortaleza (Ceará state) against the tariff adjustment granted by Anatel, in accordance with the terms predicted in the Concession Contract, specifically in relation to the IGP-DI variation.

A tariff adjustment package, based on IPCA, was temporarily approved by the Federal Judge of the Second Court of Fortaleza. Subsequently, the Court of Appeals decided that the Second Federal Court of Brasília should be the court in charge of reviewing the case. The proceeding was transferred from Fortaleza to Brasilia and the Federal Judge of Brasilia changed the existing decision by applying the IPCA variation on the adjustment formula of the Concession Contracts.

The merit of the case has not yet been decided since all the decisions are based on preliminary orders.

The average percentage of tariff adjustment applied as of June 29, 2003, in light of the legal decisions, was: 16.0% in the local basket and 14.3% in the long-distance basket.

In 3Q03, Brasil Telecom consolidated the results of the iBest and Globenet groups.

Due to an increase in competition in the telecommunication sector, Brasil Telecom has been adopting strategies to “protect” its customer base through the integrated offer of voice, data and Internet services.

iBest has, at the moment, an estimated stake in the dial up internet access market of approximately 20%, the largest provider of Region II in terms of minute counts. In Region II, it holds 45% of the free access providers market and 27% of the total.

iBest has an important role in the dissemination of Internet in Brazil since it is a free access provider and is, at the same time, struggling against the so-called “traffic escape”, by reducing substantially, the interconnection expenses of Brasil Telecom.

Furthermore, iBest enables leverage in other data services, such as, the migration to Broadband Internet access, working as a gateway and inducing band consumption.

Globenet represented the acquisition of a strategic asset for a fraction of the amount invested and the opportunity for Brasil Telecom to position itself in an important international data and voice traffic route.

To Brasil Telecom, Globenet enables the following advantages:

• Capacity to carry international IP traffic;
• Reduction of interconnection costs;
• Reduction of interconnection costs;
  
• Capacity to offer an integrated package of services to the national and international corporate clients;
  
• Opportunity to capture the value generated by the data traffic growth (Internet and corporate) between Brazil and the United States.

In addition, Brasil Telecom can offer international long distance services without having to rely on third parties links. And, also considering the growth of IP traffic to the United States, Brasil Telecom will be able to channel this traffic to Globenet, which generates significant cost reductions.

Brasil Telecom Celular has already achieved a suitable coverage in all Capital Cities of Region II.

Brasil Telecom Celular has taken some important steps throughout the quarter towards defining the main platforms which will be used by the mobile service, such as the prepaid platforms, voice mail, short messages (SMS), multimedia messages (MMS) and other data service platforms (OTA, Middleware, fraud prevention).

Brasil Telecom Celular successfully concluded the detailing process of its strategy and outlined the fundaments of its offers and promotions in order to attract and maintain clients. Through this strategy, innovative offers related to synergy between fixed and mobile operations were developed.

As soon as Anatel certifies the anticipation of the Brasil Telecom targets, the PCS division will be ready to startup its commercial operations.

The revenue from local service reached R$1,180.8 million in 3Q03, an increase of 14.4% in relation to 2Q03, due to the 1.1% increase in the average plant in service allied to the tariff readjustment at the end of June.

Activation fee revenue totaled R$12.9 million in 3Q03, 64.4% higher than the registered in 2Q03. This performance reflects the average tariff readjustment in the period, allied to the higher lines activated in comparison to the previous quarter.

The revenue from basic subscription reached R$749.5 million in the quarter, a 12.5% boost in comparison to the R$666.5 million of 2Q03. This variation is explained by the 1.1% increase in the average lines in service combined with the average tariff readjustment in the basic residential subscription rate. In addition, Brasil Telecom has kept its strategy to offer alternative plans with discounts in the basic subscription to clients that requested line cancellations during the period and not to disconnect delinquent clients at switch centers with idle capacity, aiming at the increase of local traffic.

The revenue from measured service totaled R$388.5 million in 3Q03, a 17.3% increase in relation to 2Q03, basically due to the average tariff readjustment and the 4.7% increase in local traffic. This traffic increase was partially influenced by the introduction of voice chats, the service responsible for the generation of approximately 19 million minutes/month.

Public telephony revenue reached R$92.3 million in 3Q03, a 10.5% drop in relation to the registered in the previous quarter. This drop reflects the reduction of 18.8% in credits sold during the quarter (1.4 billion) combined with the average tariff readjustment.

The drop in credits sold is explained by retailers’ accumulated card inventories in June, anticipating the tariff readjustment.

The 9.6% increase in domestic long distance revenue in 3Q03 in relation to 2Q03 is explained by the 2.0% drop in traffic given the economic slowdown, allied to the average tariff readjustment of the domestic long distance basket.

Inter-network call revenue reached R$643.9 million in 3Q03, a 5.2% drop in relation to 2Q03, explained basically by a 7.5% shrink in traffic. The reduction in the number of sectors established by Anatel caused a migration from VC-2 traffic to VC-1 traffic, where the tariff is lower since it is a local call. The CSC 14 cellular operation contributed with revenues of R$42 million in 3Q03.

The Interconnection revenue in 3Q03 registered an increase of 5.6% in comparison to 2Q03, which reflects, mainly, the average tariff readjustment allied to a 0.4 p.p. decrease in the DLD intra-sector market share.

In the 3Q03, data communication revenue continued its growth path, reaching R$191.1 million, 5.5% above the amount registered in 2Q03.

• Growth of 22% in the number of ADSL accesses in service;
• Growth of 11% in the number of billed dedicated IP accesses; and
• Growth of 5% in the number of billed Frame-Relay accesses.

Revenue from supplementary and value-added services increased by 17.2% in 3Q03, totaling R$95.8 million.
The total intelligent services activated at the end of September 2003 reached a landmark of 5.4 million, against 5.0 million in June of 2003, which represents an increase of 7.6% in the period. Of the total amount of residential and non-residential lines in service in 3Q02, 32.6% of the lines were equipped with at least one activated intelligent service, against 30.9% in the previous quarter.

In 3Q03, Other Revenues reached R$26.6 million, a 93.1% growth in relation to 2Q03, mainly due to iBest and Globenet consolidation.

Gross revenue deductions reached R$823.7 million in 3Q03, representing 28.6% of gross revenue in the quarter, against 28.8% in 2Q03.

Net operating revenue/Average LIS/month in the 3Q03 was R$69.9, against R$65.9 in the 2Q03, an increase of 6.1%.

Costs and Operating expenses totaled R$1,623.4 in the 3Q03, against R$1,539.6 million in the previous quarter.

The cash cost (costs and operating expenses, excluding depreciation and amortization) was R$1,093.5 million in 3Q03, 7.9% above the amount registered in 2Q03.

At the end of 3Q03, 5,277 employees were working for the group, against 5,316 in the previous quarter. This drop is a result of the 117 admissions and 246 dismissals which occurred during the period. In addition, 90 iBest employees were added to the group’s headcount.

Personnel costs and expenses reached R$97.2 million, stable in relation to 2Q03.

Brasil Telecom reached a productivity ratio of 1.859 LIS/employee in 3Q03, representing an increase of 1.5% in relation to 2Q03.

Costs and expenses with subcontracted services, excluding interconnection and advertising & marketing, totaled R$330.7 million in 3Q03, a 7.1% increase in relation to 2Q03. The increase of R$21.8 million can be explained basically by the readjustment of the agreements for the printing and distribution of telephone bills and the printing of yellow pages as well as, by the consolidation of expenses with maintenance of submarine cables.

Interconnection costs totaled R$455.6 million in the 3Q03, 5.9% above the amount registered in the previous quarter. The increase is due basically to the introduction of CSC 14 in calls originating from cell phones, as of July.

The expenses with advertising and marketing totaled R$28.5 million in 3Q03, when Brasil Telecom launched the campaigns to encourage the use of CSC 14 in the cellular phones and strengthen those campaigns aimed at creating awareness of “14”, in preparation to the Company entrance into the domestic long distance market.

Losses with Accounts Receivable (PCCR) / Gross revenue ratio remained stable at 2.3%, when compared to the previous quarter and totaled R$65.6 million in 3Q03.

In 3Q03, the accounts receivable of Brasil Telecom presented an evolution below the one observed in revenue. While revenue varied 7.2%, gross accounts receivable varied only 5.2%, which reflects the tariff readjustment introduced at the end of June 2003 (16.0% on the local basket and 14.3% on the domestic long distance basket), as well as the introduction of CSC 14 on calls originating from cell phones, which generated the need for several co-billing agreements.

The ratio between the gross accounts receivable and gross revenue decreased by 1.1 p.p., reaching 74.4% in 3Q03, against 75.5% in 2Q03.

After deducting allowance for doubtful accounts in the amount of R$148.2 million, Brasil Telecom net accounts receivable totaled R$1,991.3 million at the end of September 2003.

In 3Q03, the provision for contingencies amounted to R$19.6 million, against R$13.7 million in the 2Q03.

Other Operating Costs and Revenues/Expenses totaled R$74.0 million in expenses in 3Q03, an increase of 24.5% in relation to 2Q03.

Brasil Telecom’s EBITDA was R$959.9 in the 3Q03, 6.5% over the one registered in the previous quarter.

In 3Q03, EBITDA margin reached 46.7%, stable in comparison to 2Q03.

In 3Q03, EBITDA/Average LIS/month reached R$32.7, 5.4% higher than the amount registered in 2Q03.

In 3Q03, Brasil Telecom registered a negative net financial result of R$129.3 million, against R$192.4 million in the previous quarter. This result was mainly due to interest expenses with debt, hedge expenses, expenses with CPMF, expenses with insurance, and financial revenue from cash investments of the Company.

In 3Q03, Brasil Telecom amortized R$31.0 million of reconstituted goodwill referent to the acquisition of CRT (without affecting the cash flow and the distribution of dividends), accounted for as non-operating expenses.

Net earnings totaled R$116.6 million (R$0.3270/1,000 shares), a 69.6% increase in relation to 2Q03. Net earnings/ADR was US$0.5593 in 3Q03.

Net earnings adjusted by goodwill totaled R$147.6 million, 48.0% above the amount registered in 2Q03.

The minority interests of Brasil Telecom in MTH do Brasil Ltda., worth R$61.5 million and in VANT, worth at R$36.0 million, are booked in the investments account.

The others account of current liabilities was reduced by R$114.4 million in comparison to the balance booked in June 2003. This reduction refers to the acquisition of iBest, which, although carried out at the end of June, was only paid at the beginning of July.

At the end of September, 2003, the total consolidated debt of Brasil Telecom was R$4,0 billion, flat in comparison to the previous quarter.

In 3Q03, the consolidated debt of Brasil Telecom had an average accrued cost in 2003 of 12.9% or 71.4% of the Domestic Interbank Rate, equivalent to 17.5% p.a.

Net debt totaled R$2,383.9 million, a 9.4% drop in relation to June 2003.

At the end of 3Q03, 64.4% of the total debt were registered in the long-term as shown in the following amortization schedule:

At the end of 3Q03, 64.4% of the total debt were registered in the long-term as shown in the following amortization schedule

At the end of September 2003, the dollar-denominated debt totaled R$152.1 million (R$197.6 million including the hedge adjustment) representing 3.9% of total debt, which is stable in comparison to June, 2003.

At the end of September 2003, Brasil Telecom had hedge agreements with notional equivalent to 80.2% of the dollar-denominated debt, of R$152.1 milhões, against 69.5% at the end of June. The total debt due by December 2004 is hedged. In addition, 98% of the dollar-denominated debt with installments due in 2005 is also hedged.

On September 30, 2003, Brasil Telecom’s financial leverage represented by the ratio of its net debt to the shareholders´ equity, was equal to 37.4%.

In 9M03, total investments amounted to R$1,389.8 million, of which R$972.5 million refers to fixed telephony operations, R$60.6 million to mobile telephony operations and R$356.7 million to the acquisition of Globenet, MetroRed and iBest. The investments of Brasil Telecom Celular, Globenet, MetroRed and iBest subsidiaries were included in the account “others”.

Investments in fixed telephony totaled R$317.5 million in the 3Q03, against R$300.6 million in 2Q03.

In light of the permanent search for efficiency and the economic slowdown which occurred throughout the year, Brasil Telecom decided to reduce its investment approved by the Board of Directors in 2003 from R$1.8 billion to R$1.4 billion.

Brasil Telecom’s operating generation reached R$785.7 million in 3Q03, surpassing by 4.5% the amount registered in the previous quarter. By deducting the flow of investments in the period, which is R$372.6 million lower in comparison to 2Q03 basically due to the acquisitions of iBest and Globenet, from the operating cash generation, the net cash operating generation of Brasil Telecom reached R$526.0 million, surpassing by R$406.6 million the one registered in 2Q03.

Brasil Telecom free cash flow in 3Q03 was R$366.4 million, against R$253.8 million in 2Q03, 44.4% above the amount registered in the previous quarter.

Given the increase in business and activities of the Group, Brasil Telecom restructured the Investor Relations area, in order to offer an even wider and more efficient range of communication with investors and shareholders, by expanding its participation in events related to the capital market. In September of 2003, the Investor and Shareholder Relations Management was structured in charge of Marcos Tourinho. Tourinho holds a Bachelor degree in Business Administration from University of Bahia, a Graduate degree in Finance from McGill University in Canada and a MBA in Finance from Hawaii Pacific University. Under the Investor and Shareholder Relations Management, there is the IR Department, led by Renata Fontes and the Shareholder Relations Coordination, in charge of Flávio Bernardes.

At an Extraordinary Shareholders’ Meeting held on September 8, 2003, the shareholders of Brasil Telecom S.A. approved by majority of vote, the following changes in the bylaws:

inclusion of Art. 27-A, with the following text:
“Art.27-A – The following people may not be elected to the Board of Directors (i) those that hold positions in companies which may be considered market competitors, in particular, in advisory boards, board of directors or statutory audit committees; or (ii) those who have conflicting interests with the Company.”

inclusion of Art. 49, with the following text:
“Art.49 – The corporate entities of the Company shall, within their scope, take all the measures required to prevent the Company from being impeded, through breach of the provisions of article 68 of Law no. 9.472, of 07/16/97, and its regulations, to explore, directly or indirectly, concessions or licenses for telecommunication services.”