“We started 2004 with confidence and fully aware of the challenges we faced, certain that we would progress in the deployment of our GSM network, enhancing the quality of our customer relations, pursuing new operating efficiency levels, focusing on tapping the group synergies and contributing to the development of our region.

The commitments made in 2004 were fulfilled. The GSM network was deployed in record time and the coverage already reaches 599 cities. It is currently the customers’ technology of choice.

In 2004 we achieved significant growth, adding 1,4 million customers to our base, maintaining the ARPU above the Brazilian average.

We faced accelerated growth and fierce competition in the South and Northeast Regions, but we kept the leading position in our regions. This is the result of our segmented, customized customer relations strategy. Our brand remains Top of Mind in both regions.

Our churn rate is below the Brazilian average, the gross revenue grew by 26% and the overall EBITDA grew by 10%. In line with our market, our SAC increased, but is kept at a rational level that allows return.

The TIM group synergy is a competitive edge that, among several other factors, enables us to develop products using the same technological platform, so that products developed in Italy are launched in our market in record time and at low cost”.

On August 19, 2004 and August 30, 2004, Tele Nordeste Celular Participações S.A. (TND) and Tele Celular Sul Participações S.A. (TSU) Shareholders’ Meetings, respectively, adopted the merger of TND into TSU, under which the first ceased to exist. Additionally, Tele Celular Sul Participações S.A. changed their name to TIM Participações S.A.

With the merger, TIM Participações S.A. became the holding company of TIM Nordeste Telecomunicações S.A. (formerly held by TND), together with the already held subsidiary TIM Sul S.A. Through those two operating subsidiaries, the Company offers cellular telecommunication services in six states in the Northeast, two states in the South as well as the region of Pelotas in Rio Grande do Sul State.

On October 11, 2004 TIM Participações S.A. shares started being traded on the Bovespa, under the ticker name TIM PART S/A, keeping the former Tele Celular Sul trading codes, i.e., TCSL3 for common shares and TCSL4 for preferred shares. As for the Company ADRs, shares of the merged company began trading on the New York Stock Exchange (NYSE) on October 15, 2004, keeping the TSU trading ticker.

In order to analyze TIM Participações S.A. economic/financial performance after the above-mentioned corporate restructuring, pro forma statements were prepared for 2003 only to enable a comparison with the Company’s 2004 information.

TIM Participações closed the year with 5,656,598 customers – 33.8% more than in 2003 , of which 76.4% were prepaid customers and 23.6% postpaid customers. The postpaid base grew by 7.9% when compared to 2003.


Net additions totaled 1,428,189 customers – 146.7% above the figure reached in 2003, of which 495,696 were realized in the 4Q04.

In 2004 the total penetration – South and Northeast Regions - was estimated at 29% versus 19% in 2003, below the average national penetration of 36.6%. As for regional performances, TIM Participações confirmed its leading position in both the South and Northeast. In particular, estimated penetration was 39% in the South where the Company achieved an estimated market share of 47.9%, while in the Northeast penetration reached 23% and the market share 39.9%.

GSM – Global System for Mobile Communications, the most widely used technology in the world – started being offered to the TIM Participações operating subsidiaries customers in the 2nd half of 2003, formerly operating only with TDMA. By late 2004, the GSM coverage already reached 599 cities, meaning that the services were extended to 91% and 82% of the urban population in the South and Northeast Regions, respectively.

Cities covered by the GSM have access to the GPRS, with the additional benefit of the EDGE technology across the South and part of Northeast Region. These innovations facilitated the use of data and multimedia services by customers all over Brazil. As an example, in the fourth quarter 2004, TIM Participações launched the TV access, TIM TV Access, enabling customers to access TV broadcasts. In 2005, new handsets will be launched with the EDGE technology supporting TIM TV Access.

TIM Participações is part of the TIM Group, which represents the major mobile communications operator in GSM technology in Brazil. Furthermore, TIM was the first Brazilian operator to close GPRS/MMS/EDGE data and multimedia roaming agreements abroad.

By year end, 36% of the total lines were using GSM – 2,049,456 customers, representing 46.4% and 24.8% of the customer base in the South and Northeast Regions, respectively.

The gross service revenue in 2004 was R$ 2.8 billion, 18.3% higher than the figures reached in 2003. This increase is mainly credited to the 33.8% expansion in the customer base and the 110.1% growth in Value-Added Services (VAS) revenue. In 4Q04, the gross revenue was R$ 773.0 million versus R$ 639.2 million in 4Q03, a 20.9% increase.

The annual gross handset revenue was R$ 646.8 million, a 70.5% increase over 2003, resulting from the higher growth of mobile communications in 2004. In the fourth quarter, the revenue amounted to R$ 228.6 million, 79.8% above the R$ 127.1 million in 4Q03


Thus, gross revenue totaled R$ 3.4 billion in 2004, 25.6% higher than in 2003.

TIM Participações average revenue per user (ARPU) in 2004 was R$ 35.03 compared to R$   38.09 registered in 2003. The decrease basically derives from the strong growth in the overall customer base, in particular the 44% expansion in the prepaid customer base. In the South Region, the annual ARPU was R$ 36.33, 7.2% below that registered in 2003, while in the Northeast it was R$ 33.72, recording a 9.4% drop. The decrease in the Northeast is also due to the effects of the late Bill & Keep adoption and tax increase in some States of the Region.

In the 4Q04, the ARPU was R$ 35.11, a decrease from the R$ 38.11 in 4Q03, manly due to the strong customer base growth and the increase in the proportion of prepaid lines year over year. Despite that scenario, the ARPU in the quarter increased 2.1% compared to the 3Q04.

In 2004, the cost of services (including network and interconnection costs, before depreciation, amortization and personnel expenses) amounted to R$ 410.0 million, a 0.5% lower than the R$ 411.9 million recorded in 2003, demonstrating further cost efficiency. The cost of services for the 4Q04 was R$ 102.3 million versus R$ 94.4 million in 4Q03.

The annual handset sales cost was $ 508.8 million, surpassing the R$ 316.7 million in 2003. For 4Q04, this cost was registered at R$ 161.2 million, an increase from the R$ 100.4 million seen in 4Q03. There was a marked expansion in the handset sales volume during the period in 2004 as 1.9 million handsets were sold versus 968.1 thousand in 2003. Of that total, 731.9 thousand handsets were sold in 4Q04 (92.9% above the 379.4 thousand sold in 4Q03). GSM has been chosen by most cell phone users, representing 98.7% of the handsets sold in 4Q04.

Considering the growth in mobile communications, the Company aimed its sales efforts at expanding its customer base. In this scenario, selling expenses (without depreciation, amortization, bad debt and personnel expenses) were R$ 433.4 million, 46.1% above those seen in 2003. This was due to the gross addition of 2,514,206 versus 1,465,004 recorded in 2003, representing a 71.6% increase. The strong growth of sales in the period mainly increased the selling expenses related to commissions and the Fistel tax charged on each new cell phone activation. For the quarter, selling expenses reached R$ 137.4 million versus R$ 86.3 million in the same period last year.


In 2004 the acquisition cost (SAC) went up 14% reaching R$ 124.4, versus R$ 109.5 in 2003, reflecting a more competitive environment, as well as the costs of the migration from TDMA to GSM.

In the 4Q04, the SAC was R$ 95.1 versus R$ 86.2 in the 4Q03, as result of the accelerated growth and fierce competition, which affected all operators. The SAC in the period was 31% bellow the R$ 137.8 in the 3Q04, due to the personalized campaigns and mostly focused on postpaid.

General and administrative expenses (G&A) – without depreciation, amortization and personnel expenses, totaled R$ 105.0 million, relatively in line with the R$ 102.0 million in 2003. G&A expenses for the quarter amounted to R$ 21.4 million, 10.3% below 4Q03, because of the decrease in third parties services.

Personnel expenses in 2004 added up to R$ 115.6 million of which R$ 31.0 million were recorded in 4Q04. This is an increase over the R$ 109.7 million registered in 2003 with R$ 28.2 million reported in 4Q03.

In 2004 bad debt expenses represented 3.2% of the total gross revenues, the same level of 2003. In absolute terms, the bad debt amounted R$ 112.6 million versus R$ 87.5 million in 2003. The increase was manly due to the business development in the period.

In the 4Q04 bad debt expenses represented 3.0% of gross revenues amounting to R$ 30.0 million, 14.3% above 4Q03.

In 2004, TIM Participações posted an EBITDA – earnings before interest, tax, depreciation and amortization – of R$ 886.2 million, an increase from the R$ 805.5 million reported in 2003. The EBITDA margin was 34.6%, that is, 3.6 p.p. below the 38.2% margin for 2003, mainly due to the increase in the handset selling costs and commercial expenses resulting from the increased gross additions, as well as the efforts to increase the GSM network in the period. The EBITDA margin, excluding handsets revenue and cost, was 44.9%, over the 45.7% registered in 2003 (- 0.8 p.p.).

The EBITDA for the 4Q04 was R$ 260.8 million, a 13.5% increase from the same period last year. The EBITDA margin for the period was 34.9%, versus 39.2% recorded in 4Q03. The EBITDA margin, excluding revenue and the handsets cost, was 44.9%, over 47.7% in the 4Q03 (- 2.8 p.p.), manly due to the increase in commercial expenses.

The depreciation and amortization for the year was R$ 498.1 million, versus R$ 439.7 million, a 13.3% increase over 2003, stemming from the network expansion and technological innovation. In 2004, the Depreciation of the TDMA-related assets were accelerated, in order to be fully depreciated by 2008.

The EBIT – earnings before interest and tax – was R$ 388.1 million, an increase over the R$ 365.8 million reported in 2003.

Our net financial income was R$ 60.6 million in 2004, over R$ 79.1 million in 2003. The average cash allotted to financial investment for the year decreased by 19.7%, and the interest rate (CDI) declined 7.1p.p. over 2003.

The consolidated net income was R$ 265.9 million, 4.3% below 2003. In 2003, the income included the non-operating revenue, amounted to R$ 25.1 million, concerning the profit from the sale of the interest in Blah company.

On December 31, 2004, our indebtedness amounted to R$ 104.1 million, of which 60.4% were short-term debts. The net cash by period end was R$ 752.2 million.

Investments in 2004 totaled R$ 675.0 million (R$ 308.9 million in 4Q04), basically aimed the expansion of the GSM network.

“This press release contains forward-looking statements and estimates. Such expectations are based on a series of assumptions, and subject to the risks and uncertainties inherent to forward-looking projections and/or estimates. The results may differ materially from the expectations expressed in the forward-looking statements or estimates if one or more of the assumptions and expectations prove to be incorrect or are not realized.”