Record in
net additions:
  + 177% y-0-y

Tele Celular Sul ended the year with 2,055,884 customers – 19% more than in 2002 – of which 1,522,071 were prepaid and 533,813 were postpaid customers. The postpaid base grew by 5% year over year from 2002, reversing the downward trend of the preceding years.

Total net additions reached 332,224 customers, 168,854 of which were reached in the fourth quarter alone, a new quarterly record. The level of additions remains strong and well above last year's, when 119,747 customers were added.

Despite the competitive scenario, the Company remained the leader in sales, with 51% of the new acquisitions. The market share was 55% and the total penetration rate 24%.

Customers

137%
Increase in
VAS revenues

Total operating revenue in 2003 amounted to R$ 1.4 billion, 23.5% above 2002. This increment is mainly derived from the expanded customer base, increased handset sales and the growth in value-added services (VAS) revenues.

Value added services (VAS) revenues totaled R$ 34.6 million, representing 3.0% of the gross services revenue. The results obtained in the VAS segment confirmed our expectations of the potential of this segment for the mobile business; the number of messages grew by 156% when compared to 2002.

Increase in
ARPU:
+ 5% y-0-y

Average Revenue per User (ARPU) went from R$ 38.00 in 2002 to R$ 40.00 in 2003, despite the marked growth in the prepaid base, thus overcoming the downward trend in the market.

On July 6, 2003, the Company launched the Carrier Selection Code (CSP), allowing users to choose the long distance carrier. The choice of the carrier for calls made from handsets is part of the requirements of the new system with which the Company has been operating since December 2002, the Personal Communications Service (PCS).

Accelerated
growth of
customer
base

In 2003, cost of services – before depreciation and amortization – amounted to R$ 185.4 million. The 15.3% growth over the preceding year mirrors the marked expansion of the customer base, with the consequent increase in interconnection costs.

Cost of handset sales amounted to R$ 222.1 million in 2003, higher than the R$ 161.2 million in 2002, because of the greater sales volume. In 2003, more than 750 thousand handsets were sold, 71% increase compared to 2002.

18%
decrease
of SAC

Selling expenses – before depreciation, amortization and bad debt – were R$ 186.5 million, 32.4% higher than in 2002, resulting from the gross additions in the period – 844,989 customers in 2003 versus 502,639 in 2002, a 68.1% increment. It is worth pointing out that the subscriber acquisition cost (SAC) dropped by 18% year over year.

Subscriber Acquisition Cost – SAC

Stable Bad
Debt level

Bad debt totaled R$ 30.0 million, very close to the 2002 figure. In 2003, however, bad debt expenses represented 2.1% of the total gross revenue, while in 2002 they were equivalent to 2.7%. The decrease, constant over the past years, is the result of effective collection practices and overdue debt control by the Company in order to maintain customer base quality.

Bad debt

General and administrative expenses - before depreciation and amortization - totaled R$ 71.3 million, 15.8% above the figure for the same period in the preceding year. The, increase was due to the expenses associated with the maintenance of IT equipment past the warranty period, as well as extraordinary expenses incurred with the implementation of the PCS.

Depreciation and Amortization expenses, including the amortization of the privatization premium, amounted to R$ 237,1 million, 4.4% more than in 2002, because of the investments made in recent periods.

Depreciation & Amortization- R$ Million

10%
increase of
EBITDA

At the end of 2003, EBITDA – earnings before income tax, depreciation and amortization – reached R$ 383.5 million, a 10.1% increase over 2002. The EBITDA margin was 43.1% over the net services revenue, 3.4 percentage points below the 2002 figure, mainly because of the increase in gross additions in the period and the extraordinary expenses originating from the implementation of the Personal Communications Service (PCS).

EBIT – earnings before income tax – totaled R$ 142.1 million, versus R$ 116.9 million in 2002.

EBITDA and EBITDA Margin

Record in
net
income

The consolidated income for the year increased by 83.7%, reaching R$ 120.8 million, the highest since 1999. The income per lot of 1,000 shares was R$ 0.30 versus R$ 0.19 in 2002.

Low level of
indebtedness

Gross indebtedness at the end of 2003 was significantly below that of 2002: R$ 82.2 million versus R$ 321.1 million, respectively. The Company ended the year with R$ 418.7 million in cash ­– equivalent to almost five times the debt value. The drop in debt was due to the repayment of a loan with debentures, totaling R$ 224.1 million. Those figures place Tele Celular Sul among the least indebted mobile telecommunications companies in Brazil.

Of the total R$ 82.2 million debt, R$ 39.4 million is in long-term debt maturing from 2005 to 2007. The debt in foreign currency amounts to R$ 23.9 million and is fully hedged against exchange rate variations.

In 2003, net financial income was R$ 38.1 million versus net financial expenses of R$ 18.9 million in 2002. These results originate from the interest on cash investment.

Positive
Cash
Flow

30.9% Payout over net income