The local service revenue reached R$1,063.5 million in the 1Q03, 4.1% below the obtained in the 4Q02.

The installation revenue totaled R$5.9 million in the 1Q03, 1.6% higher than the amount registered in the 4Q02. In the 1Q03, the selling of promotional and alternative plans was intensified, representing 38% of the lines added during the period.

Revenues from monthly subscription in the 1Q03 reached R$702.7 million, 11.6% higher than the 1Q02. This performance is due to growth of plant in service and to tariff readjustment.

The measured service revenue reached R$328.8 million in the 1Q03, 4.9% lower than the one observed in the previous quarter. The better revenue performance, when compared to the variation in traffic in the same period, is due to the higher tariff charged for exceeding pulses in the promotional plans, which can be up to 60% higher than the one charged in the basic plan.

Brasil Telecom sold 1.6 million credits throughout 1Q03, 6.7% above the number sold in the 4Q02. Public telephony revenue reached R$83.8 million in the 1Q03, a reduction of 3.8% when compared to the 4Q02, due to the higher revenue transferred to other operators on account of school vacation.

The domestic long distance revenue in the 1Q03 was R$325.6 million, against R$339.8 million in the previous quarter. This slight reduction was due to the lower traffic registered in the 1Q03.

Fixed-mobile revenue grew 4.6% in the 1Q03, reaching R$607.3 million, result of the average impact of 14.2% from tariff readjustment, which came into effect for 58 of the 90 days in the 1Q03, combined with a 7.5% reduction in the fixed-mobile traffic. The fixed-mobile tariff readjustment authorized by Anatel was 23.5% for VC-1 calls and 22% for VC-2 and VC-3 calls, and became effective on February 8, 2003.

Interconnection revenue in the 1Q03 remained stable in relation to the 4Q02. Mobile-fixed revenue increased by 11.3% in comparison to the 4Q02 reaching R$55.8 million, due to the increase in the fixed and mobile plants in Brasil Telecom's concession area. Cell phones in Brasil Telecom's region totaled 9.9 million at the end of March, according to Anatel's database.

Lease of means revenue in the 1Q03 was R$53.2 million, 2.9% below the R$54.8 million registered in the previous quarter, due to a reduction in the average number of leased circuits.

Data communication revenue in the 1Q03 grew 20.6% to R$171.4 million, which reflects Brasil Telecom's strategy to expand in data transmission.

    •

17.4% growth in the number of ADSL lines in service;

    •

13.7% growth in the number of IP accesses billed;

    •

12.1% growth in the number of Frame-Relay accesses billed;

    •

4.5% growth in the number of ATM accesses billed;

    •

22.8% reduction of Dialnet accesses billed; and

    •

2.3% reduction of SLDD billed.

During Telexpo 2003, Brasil Telecom launched services in an innovative way, aimed at keeping itself as reference in the data communication business.

The Smart Wi Fi is an Internet access services and Wireless LAN (Local Area Network) building package, which uses Wireless Fidelity (Wi Fi) technology. The launching, together with the Turbo Wireless solution, allows Brasil Telecom to become a Wireless LAN solution provider, using Wi Fi technology, and Wireless MAN (Metropolitan Area Network), using 1xEVDO, that is, in average, 10 times faster than the 1xRTT technology. The broadband access provider BrTurbo (Wireless Internet Service Provider) will offer to executives in travel or out of their offices, in airports, hotels or convention centers, the typical hot spot solution, with no limitations, since the metropolitan footprint will be based in Turbo Wireless.

The E-lite is a complete solution for large corporations and government. With the E-lite, the costs of acquisition and maintenance of the IT environment are reduced, since the solution is based on Thin Client terminals - a regular PC with virtual disk - with storing and program running centralized in the Cyber Data Centers of Brasil Telecom.

Through the Internet, the clients of Brasil Telecom can monitor, from any place in the world, if the SLA - Service Level Agreement is being achieved. The client can configure its web page, determining the name to be used in its network and the type of charts and reports to be shown.

This service allows the interconnection between local networks, with high quality and security, combining the Frame Relay, ATM and xDSL technologies. Brasil Telecom innovates with InterLAN since is the only company in Brazil and one of the three in the world to offer that solution. The InterLAN is focused mainly on the mid-size companies and can be used in applications of private corporate networks (VPNs) building, combining simple installation, configuration and maintenance.

Total number of intelligent services activated at the end of March 2003 - virtual answering machine, follow-me, call waiting, caller ID, among others - reached 4.6 million, compared to 4.1 million on December 2002, an increase of 13.0%. 29.7% of the lines in service at the end of 1Q03 had at least one intelligent service activated, compared to 27.5% in the previous quarter.

Revenues from supplementary and value-added services decreased 9.3% in the 1Q03, basically due to a 21.4% reduction in 0800 DDG traffic.

The billing of calls made in the 3Q02 influenced the 0800 traffic of the 4Q02. In 4Q02, 32% of the 0800 service billed was rendered in the 3Q02, while in the 1Q03 only 25% of the service billed was rendered in the 4Q02. This represents a reduction of 7.7 million minutes.

Gross revenue deductions reached R$735.6 million in the 1Q03, representing 28.2% of the gross revenue in the quarter, against 28.4% in the 4Q02.

Net operating revenue/Average LIS/month registered in the 1Q03 was R$65.5, against R$62.4 in the 1Q02.

Costs and operating expenses totaled R$1,525.7 million in the 1Q03, against R$1,473.2 million in the previous quarter.

The cash cost (costs and operating expenses excluding depreciation and amortization) was R$1,005.3 million in the 1Q03, an increase of 5.5% in relation to the 4Q02.

Brasil Telecom payroll was comprised of 5,548 employees at the end of 1Q03, against 5,571 at the end of December 2002. The net reduction of 23 employees in the quarter is a result of 192 dismissals and 169 admissions.

Personnel costs and expenses increased 7.5% in the 1Q03 in relation to the 4Q02, reaching R$93.8 million. This increase was due mainly to the dismissal costs of approximately R$3.4 million and to the average salary readjustment of 5.0%, which became effective on February 2003.

Brasil Telecom reached a productivity ratio of 1,729 LIS/employee in 1Q03, representing an increase of 1.8% in relation to the presented in the 4Q02.

Material costs and expenses reached R$20.3 million in the 1Q03, a reduction of 1.5% in relation to the previous quarter.

Costs and expenses with subcontracted services, excluding interconnection and advertising & marketing, reached R$292.3 million in 1Q03, representing a reduction of 4.1% in relation to the 4Q02, mainly due to the improved management over the contracts.

The main reduction were (i) R$1.4 million with security and receptionist services, (ii) R$2.1 million with consulting services, (iii) R$1.1 million with training, (iv) R$2.0 million with collection services, e (v) R$1.1 million with employees' transportation.

The costs with interconnection totaled R$424.9 million in the 1Q03, an increase of 4.6% in relation to the 4Q02. This variation is explained mainly by the average readjustment of 22% in the TU-M, combined with the 7.5% reduction in the fixed-mobile traffic in the 1Q03.

Losses with accounts receivable as a percentage of gross revenue reached 2.6%, stable in relation to the previous quarter. In the 1Q03, these losses amounted to R$67.9 million.

In the 1Q03, there was a reversal of R$1.2 million in the provision for doubtful accounts. The Christmas Campaign, that aimed the recovery of losses, was concluded on April 25, 2003, with a recovered balance of R$22.0 million. Total amount recovered in the 1Q03 reached R$11.0 million.

Deducting the provision for doubtful accounts of R$152.5 million, Brasil Telecom's net accounts receivable totaled R$1,737.6 million at the end of March of 2003.

Table 6: Gross Accounts Receivable

Provisions for contingencies in the 1Q03 increased by R$18.7 million due to monetary correction. In the 4Q02, the provisions for contingencies registered a positive net result of R$7.5 million due to agreements related to labor lawsuits.

Other costs and operating expenses/revenues in the 1Q03 totaled a net expense of R$77.8 million.

The main reduction were (i) R$1.1 million in revenues with billing/collection for third parties, (ii) R$4.8 million in revenues with rents, (iii) R$4.8 million in expenses with lease of means.

The main increases were (i) R$6.6 million in expenses with rental of domain ranges in highways to backbone passage, (ii) R$1.0 million in expenses with FISTEL, (iii) R$1.5 million in expenses with IPTU (real estate tax), (iv) R$1.8 million in expenses with dedicated lines services.

Brasil Telecom EBITDA was R$868.3 million in the 1Q03, representing a growth of 18.7% in relation to the 1Q02.

Brasil Telecom's EBITDA margin in the 1Q03 reached 46.3%, reflecting the 14.3% growth in net revenue, in conjunction with the 10.8% increase in cash cost, in relation to the amounts registered in the 1Q02.

EBITDA/Average LIS/month reached R$30.4, 9.0% higher than the amount registered in the 1Q02.

Financial revenue in local currency in the 1Q03 was R$95.4 million, resulting from the investment of cash position during the quarter.

Financial expenses in local currency reached R$197.5 million in the 1Q03, compared to R$166.6 million in the 4Q02. The R$30 million difference is related to the interest of the debentures, being R$8.0 million from the issuance of December 2002 and R$22.0 million from the debentures issued on May 2002.

The Interest on Shareholders' Equity of R$205.8 million accounted for as financial expense in 1Q03 refers to the credit of R$122.0 million relative to the period of 2003, as approved in the Brasil Telecom Participações S.A.'s Board of Directors Meeting held on January 28, 2003 and refer to the Minority Interest of R$83.8 million relative to the Interest on Shareholders' Equity, credited by Brasil Telecom S.A. in the 1Q03.

In 1Q03, Brasil Telecom amortized R$31.0 million in reconstituted goodwill from CRT acquisition (which has no impact on cash flow and on the distribution of dividends), accounted for as non-operating expenses.

Net earnings increased 42.6% in the 1Q03 in relation to the 1Q02, totaling R$101.4 million (R$0.2842/1,000 shares). Net earnings/ADR was US$0.4239 in the 1Q03.