PURC CASE Analyzing Telecommunications Finances In

PURC CASE

Analyzing Telecommunications Finances in Brazil (B)

MARK A. JAMISON 1 KRITTIPOHN SRIYABHANDHA

Recent Events same service in Region I. Fixed-line incumbents were forbidden from offering fixed-line services in In December 2007 Brazil’s 3G spectrum auction more than one region. The decree authorizes the took place and by the second day of the auction, fixed-line incumbents to offer services in more the revenue had reached the sum of R$5 billion. than one region, making the acquisition possible. The main mobile operators who received the 3G The acquisition was finally completed on January licenses (with roll out requirements) were Claro, 12, 2009 when Oi acquired 61.2% of the voting CTBC, TIM and Vivo. capital of Brasil Telecom for R$5.37 billion. The president approved the decree, arguing that the According to Anatel, the sector regulator in Brazil, new company, majority-owned by Brazilians, as of November 2009 Brazil had more than 169 would be able to compete on an equal footing with million mobile subscribers. Of these, the net the foreign telecom operators with significant additions totaled 19.1 million compared to 29.0 power in Brazil, namely Telefonica and million net additions in November 2008. The Telmex/America Movil. mobile penetration rate was 88.43%. Prepaid lines accounted for 82.34% of the total as of November Brazil, the fifth largest mobile market in the world 2009. in terms of subscribers, is one of the most competitive markets globally. By some measures, Anatel implemented number portability for fixed rivalry has further intensified over 2008 and 2009 and mobile users within the same local calling area due to a wave of consolidation, which saw larger (code) in 14 phases. Implementation began in operators acquire smaller players in order to September 2008 and was completed by March 2, expand their geographic reach and service 2009. Number portability is now available to 193 portfolio. million fixed and mobile subscribers. Anatel imposed a five-working-day limit to port the Of the second quarter of 2009 Brazil’s broadband numbers and a maximum fee of R$4 to be charged penetration rate was 5.6%. The rate is low in to the end user. In one year since implementation comparison with other South and Central (September 2008 to September 2009), number American countries such as Chile (9.0%) and portability was requested by 2.8 million users. Mexico (8.1%). Considering that and the economic Number portability has intensified a price war in growth that increased broadband penetration can Brazil. bring the Brazilian regulator and government launched several initiatives to promote the On November 20, 2008 the Brazilian president, expansion of broadband access in 2009. The three Luiz Inacio Lula da Silva, approved a decree main initiatives were the proposal of a National through which the acquisition of Brasil Telecom Broadband Plan, Anatel’s approval of the by Oi was legally possible. Brasil Telecom was the provision of broadband over power line concessionaire for fixed-telephony service in communications (PLC), and the Popular Region II and Oi was the concessionaire for this Broadband Programme in Sao Paulo state.

1 The authors are Director, PURC, University of Florida, PO Box 117142, Gainesville, Florida 32611-7142, USA, http://www.purc.ufl.edu, and PURC Intern from the National Telecommunications Commission of Thailand.

December 14, 2010 Brasil Telecom S.A. broadband services provide a good opportunity for revenue growth. Oi hopes to leverage its large Brasil Telecom was created in 1998 with Brazil’s fixed-line subscriber base for expanding telecommunications reforms and has operations in broadband operations. 30% of the country. In 2007 the company launched Internet television (IPTV) service, announced a Since the launch of its 3G services in the third strategic partnership between IG and Google, quarter of 2008, Oi has expanded its 3G coverage created Brasil Telecom Call Center, and had more from 96 at the end of 2008 to 168 cities, covering than 4 million mobile clients after three years of 42% of the population, as of April 2010. operations. After the Brasil Telecom acquisition, Oi undertook In 2008 Brasil Telecom introduced its 3G and operational and marketing integration in an attempt convergence offering packages. It also launched to capture synergies between the two companies, Unico Wi-Fi telephone, TV Movel through mobile lower costs, and improve operations. It rebranded phones, GlobeNet’s subsidiary in Columbia, and Brasil Telecom’s products and services under the its Digital Education Program. “Oi”, integrated Brasil Telecom’s product portfolio to enable its existing customers to subscriber to In 2009 Brasil Telecom began restructuring its Oi's services, and unified the two companies’ companies to merge with Oi. network management centers.

Oi With the integration process completed by the end of 2009, Oi is now the largest telecoms player After the acquisition of Brasil Telecom, Oi became (fixed and mobile) in Brazil with 71.2 million Brazil’s largest telecommunication company in subscribers (as of March 2010). revenues and South America’s largest fixed telephony company in total number of lines. VIVO Participacoes S.A.

Oi is the umbrella brand under which Tele Norte Vivo Participacoes is a joint venture between the Leste Participacoes operates, and is the market Portuguese incumbent Portugal Telecom and the leader in the Brazilian telecoms market. Oi offers Spanish incumbent Telefonica. The company is the triple- and quad-play services in hopes of leader in the Brazilian mobile market. It focuses on generating additional revenues from its existing adding and retaining high-value customers and customers and of attracting customers from other data initiatives is expected to drive subscriber service providers. growth.

Oi has identified mobile as a high-growth market Vivo is focusing on improving customer retention. and is taking several initiatives to participate in It has launched several incentive programs and that growth. It is targeting postpaid subscribers loyalty initiatives to retain high-value post-paid with its bundled offerings, reducing costs in the customers. With the implementation of number pre-paid market by moving completely to a SIM- portability, the incentives also serve as a means to only model. However, Oi's overall market share attract the existing customers of other service has declined. providers. The success of its retention initiatives has enabled it to expand its overall customer Oi believes that with only 6% broadband market share. penetration (as of September 2009) and the decreasing cost of personal computers in Brazil, Vivo has established the largest mobile network in

December 14, 2010 Brazil, covering 3,478 cities and reaching 89% of an increase of 19.3% in one year. the population (as of December 2009). The company continues to lead its peers in Anatel's The company provides mobile, fixed and long operator rankings based on quality of service distance telephony as well as data transmission parameters with the highest (99.7%) accomplished services, using GSM. It also provides data targets in 2009. coverage services, 100% of it using GPRS, 77% using EDGE, and Third Generation (3G) network. Vivo’s parent company, Telefonica, is seeking to The company has international roaming fully acquire Vivo with plans to merge it with its agreements for its clients with more than 430 fixed-line subsidiary, Telecomunicacoes de Sao networks available in more than 200 countries Paulo (Telefonica Brazil). The combined entity across six continents. could offer bundled services as well as to cross-sell and upsell services. TIM Participacoes acquired all the shares of TIM Sul and TIM Nordeste in 2005. In the following Given the low fixed broadband penetration in year, the company acquired TIM Celular. Brazil, Vivo hopes to the mobile data services Consequent to the transaction, TIM Celular segment with the company’s high-speed mobile became the wholly owned subsidiary of TIM broadband offerings based on both WCDMA and Participacoes. EV-DO platforms, which are a part of its 3G service portfolio. In 2006, TIM Celular acquired TIM Sul and Maxitel acquired TIM Nordeste Vivo initially operated analog and TDMA Telecomunicacoes. Subsequently Maxitel changed networks before selecting CDMA as the its name to TIM Nordeste. TIM Participacoes technology for its future network evolution in acquired the nationwide fixed telephony license in 2003. However, in 2006, Vivo initiated the 2007. In the same year, the company launched deployment of a countrywide GSM network to TIM Web, a mobile internet access in laptops or pursue the international roaming services market. desktops. The company also acquired the 3G frequencies at 1.9 GHz and 2.1 GHz for the entire In 2006, Vivo integrated its 14 operating country, except the Triangulo Mineiro region. subsidiaries and five holding companies into one single company, Vivo Participacoes. In 2008, the company began providing 3G services, launching such services as: mobile TIM Participacoes S.A. broadband, video calling, and mobile TV. It also launched TIM Web Banda Larga (TIM Broadband TIM Participacoes is headquartered in Rio de Web) and high-speed wireless connection to Janeiro and employs around 9,233 people. Its key Internet in the plug and play concept. services include consumer solutions, business solutions, long distance and roaming, fixed-line In December 2009, the company acquired Intelig telephony, value-added services (vas). Telecomunicacoes, a fixed, long distance and data transmission carrier. In the same month, the The company recorded revenues of B$18,157 company also merged TIM Nordeste into TIM million in the fiscal year ended December 2009, a Celular. decrease of 0.9% compared to one year earlier. The company's operating profit was B$477 million in fiscal 2009, a decrease of 2.8% compared to 2008. Its net profit was B$214.9 million in fiscal 2009,

December 14, 2010

Bibliography

Marcela Perez Sirio, “Brazil “country regulation overview”, 27 January 2010, www.ovum.com http://www.brasiltelecom.com.br/ri

Anubhuti Belgaonkar, “Oi”, 01 July 2010, www.ovum.com

Anubhuti Belgaonkar, “Vivo”, 24 May 2010, www.ovum.com

TIM Participacoes S.A. Company Profile, Publication Date: 14 June 2010, www.datamonitor.com

Financial information is from the 2007, 2008 and 2009 annual reports of the companies pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934.

December 14, 2010 Exhibit 1. Financial Statements of Brazil Telecom 1

Brazil Telecom Consolidated Balance Sheet (In thousands of Brazilian Reais) 2009 2008 2007 Change 2008-2009 Change 2007-2008 Current Assets 6,107,462 5,673,881 5,976,667 7.64% -5.07% Cash, banks and Cash Equivalents 63,074 63,074 583,992 0.00% -89.20% Cash Investments 381,951 561,867 1,846,595 -32.02% -69.57% Trade Accounts Receivables 1,992,141 2,210,090 2,189,701 -9.86% 0.93% Inventories 42,063 54,048 32,711 -22.17% 65.23% Deriveratives - 29,179 - Deferred and Recoverable Taxes 1,001,255 935,689 820,907 7.01% 13.98% Judicial Deposits 359,561 678,972 329,357 -47.04% 106.15% Other Assets 179,469 159,058 173,404 12.83% -8.27% Non Current 17,082,195 11,432,476 9,558,207 49.42% 19.61% Long Term Assets 8,511,012 3,894,390 2,606,878 118.55% 49.39% Loans and Financing 1,674,750 - 6,218 Deferred and Recoverable Taxes 5,052,839 1,523,773 1,453,296 231.60% 4.85% Judicial Deposits 1,596,736 2,224,993 1,063,512 -28.24% 109.21% Other Assets 145,625 186,687 83,852 -22.00% 122.64% Permanent 8,571,183 7,538,086 6,951,329 13.71% 8.44% Investments 5,374 3,744 24,218 43.54% -84.54% Property, Plant, and Equipment 6,993,405 5,902,124 5,690,434 18.49% 3.72% Intangible 1,572,404 1,632,218 1,236,677 -3.66% 31.98% Deferred Charges ---

Total Assets 22,756,076 17,539,938 15,534,874 29.74% 12.91% Current Liabilities 4,506,378 4,759,943 4,411,935 -5.33% 7.89% Payroll and Related Charges 83,608 110,157 103,550 -24.10% 6.38% Accounts Payable and Accrued Expenses 1,554,278 1,889,543 1,614,432 -17.74% 17.04% Indirect Taxes 691,861 700,019 746,216 -1.17% -6.19% Taxes on Income 29,683 4,434 74,707 569.44% -94.06% Dividends/JSCP and Profit Sharing 141,253 424,022 846,169 -66.69% -49.89% Loans and Financing 869,963 670,707 399,231 29.71% 68.00% Derivatives 133,389 89,920 118,752 48.34% -24.28% Licenses to Exploit Services 99,240 160,074 78,844 -38.00% 103.03% Provisions for Contingencies 433,390 218,297 197,457 98.53% 10.55% Provisions for Pension Plans 104,533 148,391 101,467 -29.56% 46.25% Advances from Clients --- Other liabilities 365,180 344,379 131,110 6.04% 162.66%

Non-Current 7,154,283 6,544,699 5,608,967 9.31% 16.68% Long-Term Liabilities 7,154,283 6,544,699 5,608,967 9.31% 16.68% Indirect Taxes 273,552 259,960 97,683 5.23% 166.13% Taxes on Income 355,051 713 62651 49696.77% -98.86% Loans and Financing 3,572,606 3,993,198 3,602,633 -10.53% 10.84% Derivertives 64,891 132,153 287,762 -50.90% -54.08% Licenses to Exploit Services 609,848 623,585 174,632 -2.20% 257.09% Provisions for Contingencies 1,440,105 710,380 695,228 102.72% 2.18% Provisions for Pension Plans 575,180 607,400 586,278 -5.30% 3.60% Other liabilities 263,050 217,310 102,100 21.05% 112.84%

Total Liabilities 11,660,661 11,304,642 10,020,902 3.15% 12.81%

Non-Controlling Shareholders' Interest 514 (5,656) 8,510 -109.09% -166.46%

Shareholders' Equity and Fund For Capitalizaion 11,094,901 6,240,952 5,505,462 77.78% 13.36% Shareholders' Equity 11,094,901 6,240,952 5,505,462 77.78% 13.36% Share Capital 3,731,059 3,470,758 3,470,758 7.50% 0.00% Capital Reserves 6,980,315 1,338,246 1,328,799 421.60% 0.71% Income Reserves 383,527 1,431,948 705,905 -73.22% 102.85% Retained Earnings --- Shares held in Treasury --- Total 22,756,076 17,539,938 15,534,874 29.74% 12.91%

December 14, 2010 Consolidated Statement of Income of Brasil Telecom (In thousands of Brazilian Reais) Change 2008- Change 2007- 2009 2008 2007 2009 2008 Net Operating Revenue 10,878,562 11,581,182 11,215,878 -6.07% 3.26% Costs of Services and sales (5,905,598) (6,180,293) (6,362,124) -4.44% -2.86% Gross profit 4,972,964 5,400,889 4,853,754 -7.92% 11.27%

Operating expenses: (6,243,819) (3,409,476) (3,392,696) 83.13% 0.49% Selling expenses (1,391,535) (1,338,360) (1,464,203) 3.97% -8.59% General and Administrative Expenses (1,434,808) (1,339,567) (1,266,942) 7.11% 5.73% Other Operating Expenses, Net (3,417,476) (731,549) (661,551) 367.16% 10.58%

Operating Income Before Net Financial Expenses (1,270,855) 1,991,413 1,461,058 -163.82% 36.30% Financial Expenses, Net (281,349) (411,980) (368,110) -31.71% 11.92% Operating Income /(loss) (1,552,204) 1,579,433 1,092,948 -198.28% 44.51% Non-operating income/(expense), net - - - Income before Taxes and Minority Interests (1,552,204) 1,579,433 1,092,948 -198.28% 44.51% Income and Social Contibution taxes benefit (expenses) 411,515 (551,468) (294,727) -174.62% 87.11% Income/(loss) before Minority Interest (1,140,689) 1,027,965 798,221 -210.97% 28.78% Minority Interest (2,000) 1,851 1,830 -208.05% 1.15% Net income/(loss) (1,142,689) 1,029,816 800,051 -210.96% 28.72% Shares outstanding at balance sheet date 589,788,990 547,498,889 547,272,189 7.72% 0.04%

Income (loss) per share outstanding at the balance sheet date - R$² (1.94) 1.88 1.46 -203.19% 28.77%

December 14, 2010 Exhibit 2. Financial Statements of Oi 2

Consolidated Balance Sheet of Oi (In millions of reais) Change 2008- Change 2007- Assets 2009 2008 2007 2009 2008 Current Assets 18,385 17,811 12,725 3.22% 39.97% Cash and Cash Equivalents 6,206 9,498 3,461 -34.66% 174.43% Short-term Investment 1,819 1,240 3,229 46.69% -61.60% Accounts Receivable 5,942 3,896 3,286 52.52% 18.56% Deferred and recoverable taxes 2,510 1,884 2,083 33.23% -9.55% Juridicial deposit and blockings 855 368 - 132.34% Prepaid Expenses 534 514 352 3.89% 46.02% Inventories 163 153 124 6.54% 23.39% Other Current Assets 356 258 160 37.98% 61.25%

Long-Term Assets 8,439 3,846 4,580 119.42% -16.03% Credits Receivable - - - Deferred and recoverable taxes 5,333 2,377 2,250 124.36% 5.64% Judicial Deposits 2,590 1,048 1,741 147.14% -39.80% Prepaid Expenses 246 275 430 -10.55% -36.05% Other 271 146 159 85.62% -8.18%

Permanent Assets 34,102 19,111 13,545 78.44% 41.09% Investments 55 3,320 38 -98.34% 8636.84% Property,Plant,Equipment 22,470 12,670 11,580 77.35% 9.41% Intangible Assets 11,305 2,758 1,597 309.90% 72.70% Deferred Charges 272 363 330 -25.07% 10.00%

Total Assets 60,926 40,767 30,850 49.45% 32.15%

Liabilities and Shareholders' Equity Current Liabilities 15,313 7,456 6,812 105.38% 9.45% Suppliers 4,055 1,903 1,774 113.08% 7.27% Loans and financing 8,552 3,956 1,990 116.18% 98.79% Payroll and related acrruals 362 274 198 32.12% 38.38% Taxes other than on income 1,266 519 637 143.93% -18.52% Payable and deferred taxes 218 464 772 -53.02% -39.90% Provision for contingencies 755 340 - 122.06% Provision for pension plans 105 - - Tax Financing Program REFIS 176 143 135 23.08% 5.93% Dividends and interest on capital 361 1,522 917 -76.28% 65.98% Debentures - - 76 Authorizations payable 315 267 150 17.98% 78.00% Other 756 382 163 97.91% 134.36%

Long Term Liabilities 28,653 19,586 10,889 46.29% 79.87% Loans and financing 21,366 16,288 5,205 31.18% 212.93% Taxes other than on income 623 100 225 523.00% -55.56% Tax Financing Program REFIS 948 504 683 88.10% -26.21% Contingency provisions 3,214 1,623 2,334 98.03% -30.46% Debentures - - 2,171 Authorizations payable 1,517 904 127 67.81% 611.81% Other 410 167 144 145.51% 15.97%

Unrealized Earnings - - -

Minority Interest 7,357 1,820 2,491 304.23% -26.94%

Shareholders' Equity 7,995 9,591 10,658 -16.64% -10.01% Share Capital 5,449 5,449 4,689 0.00% 16.21% Capital reserve 42 38 29 10.53% 31.03% Investment Reserve 380 380 5,999 0.00% -93.67% Unrealized Income Reserve - - - Legal Reserve 2,483 4,092 325 -39.32% 1159.08% Treasury stock (359) (368) (373) -2.45% -1.34% Accumulated Deficit - - (11) Total Liabilities and Shareholders' Equity 60,926 40,767 30,850 49.45% 32.15%

December 14, 2010 Consolidated Income Statement of Oi Change Change (in millions of Reais) 2009 2008 2007 2008-2009 2007-2008

Net Operating Revenue 29,881 18,736 17,584 59.48% 6.55%

Cost of services and goods sold (17,215) (9,668) (9,256) 78.06% 4.45%

Gross Income 12,666 9,068 8,328 39.68% 8.89%

Operating Expense Selling Expense (5,335) (3,547) (2,691) 50.41% 31.81% General and administrative expenses (3,067) (1,613) (1,223) 90.14% 31.89% Other operating expenses, net (2,624) (617) (479) 325.28% 28.81% (11,026) (5,777) (4,393) 90.86% 31.50%

Operating Income 1,640 3,291 3,935 -50.17% -16.37%

Financial expenses, net (2,385) (1,384) (478) 72.33% 189.54% operations before tax and non- controlling interests (745) 1,907 3,457 -139.07% -44.84%

Income tax and social contribution (311) (475) (615) -34.53% -22.76%

Non-controlling interest 620 (278) (524) -323.02% -46.95%

Net income (loss) for the year (436) 1,154 2,318 -137.78% -50.22%

Shares outstanding at the balance sheet date (in thousands) 382,523 382,289 382,122 0.06% 0.04%

Net income (loss) per share at the end of the year (in Brazillian Reais) (1.14) 3.02 6.07 -137.75% -50.25%

December 14, 2010 Exhibit 3. Financial Statements of Vivo 3 Vivo Balance Sheet (consolidated) Change Change (In thousands of Brazilian Reais) 2009 2008 2007 2008-2009 2007-2008 Assets Current Assets Cash and cash equivalents 1,258,574 2,182,913 2,190,990 -42.34% -0.37% Short-term investments pledged as collateral 39,197 41,487 32,359 -5.52% 28.21% Trade accounts receivable, net 2,546,806 2,578,498 2,178,745 -1.23% 18.35% Inventories 423,634 778,704 376,624 -45.60% 106.76% Advances to suppliers - - 832 Recoverable taxes 1,186,231 1,238,124 709,812 -4.19% 74.43% Deferred income taxes 796,460 1,120,523 912,177 -28.92% 22.84% Derivative contracts 14,700 347,448 1,530 -95.77% 22609.02% Prepaid Expenses 311,328 316,622 228,922 -1.67% 38.31% Other Assets 246,028 322,934 197,578 -23.81% 63.45% Total Current Assets 6,822,958 8,927,253 6,829,569 -23.57% 30.71% Non Current Assets Long-term Assets Long-term portion of investments pledged as collateral 51,344 47,335 27,108 8.47% 74.62% Recoverable taxes 968,398 905,896 744,511 6.90% 21.68% Deferred income taxes 1,802,511 1,826,126 1,668,893 -1.29% 9.42% Derivative Contracts 137,060 285,303 8,965 -51.96% 3082.41% Prepaid expenses 74,383 80,206 59,870 -7.26% 33.97% Other assets 118,635 46,402 26,623 155.67% 74.29% Goodwill 2,700,578 1,440,429 667,369 87.48% 115.84% Goodwill on merged subsidiary,net - - 24,578 Property, Plant and Equipment, net 6,445,109 7,183,908 6,316,855 -10.28% 13.73% Intangible, net 2,866,289 2,998,553 1,666,352 -4.41% 79.95% Deferred assets, net 29,864 55,393 58,393 -46.09% -5.14% Total noncurrent assets 15,194,171 14,869,551 11,269,957 2.18% 31.94% Total Assets 22,017,129 23,796,804 18,099,526 -7.48% 31.48%

Liabilities and Shareholders' Equity Current Liabilities Payroll and related accruals 161,366 185,471 173,472 -13.00% 6.92% Trade accounts payable 3,053,587 3,726,324 3,069,308 -18.05% 21.41% Taxes Payable 892,893 785,603 577,935 13.66% 35.93% Loans and Financing 688,397 2,006,972 1,453,700 -65.70% 38.06% Debentures 266,256 1,112,876 539,912 -76.07% 106.12% Interest on shareholders' equity and dividends 934,358 545,864 22,219 71.17% 2356.74% Reserve for contingencies 70,396 91,136 81,395 -22.76% 11.97% Derivative Contracts 30,970 105,352 438,876 -70.60% -76.00% Other liabilities 834,824 820,233 546,169 1.78% 50.18% Total current liabilities 6,933,047 9,379,831 6,902,986 -26.09% 35.88% Non Current Liabilties Long-term liabilities Taxes payable 317,063 275,272 183,890 15.18% 49.69% Loans and financing 2,306,632 3,826,385 1,391,857 -39.72% 174.91% Debentures 1,863,209 1,056,923 1,000,000 76.29% 5.69% Reserve for contingencies 98,409 102,947 118,009 -4.41% -12.76% Derivative Contracts 131,418 97,971 10,292 34.14% 851.91% Other liabilities 176,527 202,144 196,153 -12.67% 3.05% Total noncurrent liabilities 4,893,258 5,561,642 2,900,201 -12.02% 91.77%

Total Liabilities 11,826,305 14,941,473 9,803,187 -20.85% 52.41% Minority Interest - 587,804 -

Shareholders' equity Capital stock 8,780,150 6,710,526 6,347,784 30.84% 5.71% Treasury shares (11,070) (11,070) (11,070) 0.00% 0.00% Capital reserves 518,678 708,574 1,071,316 -26.80% -33.86% Income reserves 903,066 859,497 889,547 5.07% -3.38% Accumulated earnings (losses) - - (1,238) Total Shareholders' equity 10,190,824 8,267,527 8,296,339 23.26% -0.35%

Funds for Capitalization - - -

Total Liabilities and shareholders' equity 22,017,129 23,785,104 18,099,526 -7.43% 31.41%

December 14, 2010

Change Change Income Statement of Vivo (consolidated) 2009 2008 2007 2008-2009 2007-2008

Net operating revenue 16,363,186 15,469,664 12,492,494 5.78% 23.83% Cost of services and goods sold (8,954,570) (8,179,024) (6,623,290) 9.48% 23.49% Gross Profit 7,411,616 7,290,640 5,869,204 1.66% 24.22% Selling expenses (4,357,422) (4,107,055) (3,532,783) 6.10% 16.26% General and Administrative Expenses (1,334,190) (1,164,178) (1,207,195) 14.60% -3.56% Other Operating expenses,net 240,812 (469,861) (509,442) -151.25% -7.77%

Operating income(expenses) (5,450,800) (5,741,094) (5,249,420) -5.06% 9.37% Operating income(loss) before financial expenses 1,960,816 1,549,546 619,784 26.54% 150.01% Net Financial Expenses (487,229) (637,699) (462,789) -23.60% 37.79% Operating income (loss) Nonoperating expenses, net Income(loss) before income taxes and minority interest 1,473,587 911,847 156,995 61.60% 480.81% Income and social contribution taxes (590,453) (469,502) (256,825) 25.76% 82.81% Minority Interest (25,648) (52,662) - -51.30% Net income(loss) for year 857,486 389,683 (99,830) 120.05% -490.35% Shares outstanding at December 31 (In thousands) 399,590 367,396 1,437,623 8.76% -74.44% Earning(Loss)per share outstanding at the balance sheet date(In Brazilian reais) 2.1500 1.0600 (0.07) 102.83% -1614.29%

December 14, 2010 Exhibit 4. Financial Statements of TIM 4 Consolidated Balance Sheet of TIM Change 2008- Change 2007- (In thousands of Reais) 2009 2008 2007 2009 2008 Assets Current Assets Cash and cash equipvalents 2,413,032 1,531,543 1,117,410 57.56% 37.06% Short-term investments 146,145 23,048 55,255 534.09% -58.29% Accounts receivable,net 2,480,143 2,635,355 3,029,930 -5.89% -13.02% Inventories 406,434 548,514 278,126 -25.90% 97.22% Recoverable taxes 906,153 603,353 495,932 50.19% 21.66% Deferred Income and social contribution taxes 32,709 49,451 29,429 -33.86% 68.03% Prepaid expenses 238,270 155,825 240,087 52.91% -35.10% Operations with derivatives 49,237 260,925 17,661 -81.13% 1377.41% Other assets 94,398 26,839 23,981 251.72% 11.92% Total Current 6 ,766 ,521 5 ,834 ,853 5,287,811 15.97% 10.35% Non-Current Assets Long-term Long-term investments 16,567 9,911 3,989 67.16% 148.46% Account Receivablle 41,269 - - Recoverable taxes 221,738 226,975 233,482 -2.31% -2.79% Deferred Income and social contribution taxes 196,886 110,763 - 77.75% Related-party - - 102,402 Judicial deposits 227,521 143,924 7,806 58.08% 1743.76% Prepaid expenses 9,847 13,693 - -28.09% Operations with deriviatives 29,027 126,648 - -77.08% Other noncurrent assets 11,863 7,268 7,274 63.22% -0.08% Permanent Assets Property, plant, and equipment,net 5,323,174 4,799,092 4,839,037 10.92% -0.83% Intangibles,net 4,605,321 4,966,341 4,082,185 -7.27% 21.66% Total Permanent 9,928,495 9,765,433 8,921,222 1.67% 9.46% Total Assets 17,449,734 16 ,239 ,468 14,563,986 7.45% 11.50%

Liabilities Current Liabilities Accounts payable and accrued expenses 3,099,983 3,328,714 3,143,331 -6.87% 5.90% Loans and financing 1,347,463 1,431,219 769,357 -5.85% 86.03% Accrued interest 69,900 51,486 29,268 35.77% 75.91% Operations with derivatives 48,122 52,448 15,589 -8.25% 236.44% Salaries and related charges 106,811 106,991 110,553 -0.17% -3.22% Taxes,charges and contributions 724,105 601,778 570,346 20.33% 5.51% Authroizations payable - - 34,791 Dividends and interest on shareholders'equity payable 224,652 193,365 239,508 16.18% -19.27% Related-party - - - Other 115,853 113,639 115,518 1.95% -1.63% Total Current Liabilities 5,736,889 5,879,640 5,028,261 -2.43% 16.93% Non-current liabilities Long-term Loans and financing 2,742,595 2,066,514 1,327,997 32.72% 55.61% Operations with derivatives 113,200 10,814 - 946.79% Taxes, charge and contributions 29,141 - - Provision for contingencies 208,167 253,370 215,740 -17.84% 17.44% Pension plan 7,527 6,425 7,377 17.15% -12.90% Authroizations payable - - - Asset retirment obligations (ARO) 237,094 211,802 192,137 11.94% 10.23% Other noncurrent liabilities 52,406 20,447 20,669 156.30% -1.07% Total Non Current 3,390,130 2,569,402 1,763,920 31.94% 45.66% Total Liabilities 9 ,127 ,019 8 ,449 ,042 6,792,181 8.02% 24.39% Stockholders' Equity Capital 8,149,096 7,613,610 7,550,525 7.03% 0.84% Capital reserves 15,569 34,330 97,415 -54.65% -64.76% Income reserves 158,050 142,516 123,865 10.90% 15.06% Total shareholders' equity 8,322,715 7,790,456 7,771,805 6.83% 0.24% Total Liabilities and shareholders' equity 17,449,734 16,239,468 14,563,986 7.45% 11.50%

December 14, 2010

TIM Consolidated Income Statement Change Change (in thousands of reais) 2009 2008 2007 2008-2009 2007-2008 Gross Operating Revenue 18,156,662 18,320,931 17,258,386 -0.90% 6.16% Telecommunications Service 16,395,036 16,554,531 15,420,284 -0.96% 7.36% Sale of goods 1,761,626 1,766,400 1,838,102 -0.27% -3.90%

Deductions from gross revenue (5,050,727) (5,173,756) (4,774,606) -2.38% 8.36% Net operating revenue 13,105,935 13,147,175 12,483,780 -0.31% 5.31%

Cost of services rendered (5,393,356) (5,658,009) (5,297,428) -4.68% 6.81% Cost of goods sold (1,329,826) (1,405,788) (1,434,430) -5.40% -2.00% Gross Profit 6,382,753 6,083,378 5,751,921 4.92% 5.76%

Operating Revenues (expenses) (5,905,728) (5,592,505) (5,235,282) 5.60% 6.82% Selling (4,449,972) (4,098,389) (3,890,925) 8.58% 5.33% General and administrative (1,070,536) (1,127,426) (1,032,793) -5.05% 9.16% Other operating expenses - net (385,220) (366,690) (311,565) 5.05% 17.69%

Income (loss) before financial results 477,025 490,873 516,638 -2.82% -4.99%

Financial income 137,336 173,313 104,123 -20.76% 66.45% Financial expenses (340,681) (445,564) (378,638) -23.54% 17.68% Foreign exchange variations, net (53,271) (102,724) (6,984) -48.14% 1370.85% (256,616) (374,975) (281,499) -31.56% 33.21%

Operating Income (loss) 220,409 115,898 235,139 90.17% -50.71%

Non operating income ---

Income (loss) before income tax, social contribution taxes and minority interest ---

Income tax and social contribution tax benefit(expense) (5,516) 64,254 (166,837) -108.58% -138.51%

Net income (loss) before minority interest --- Minority interest ---

Net income (loss) for the year 214,893 180,152 68,302 19.28% 163.76% Earnings per share 0.09 0.08 0.03 12.50% 166.67%

December 14, 2010 Endnotes

1 http://secwatch.com/filings/view.jsp?formid=1150489#page_f8 http://www.mzweb.com.br/oi/web/arquivos/BTM_20F_2007_eng.pdf http://www.mzweb.com.br/oi/web/arquivos/BTM_20F_2008_eng.pdf http://www.mzweb.com.br/oi/web/arquivos/BRT_20F_2009_eng.pdf

2 http://secwatch.com/tele-norte-leste-participacoes-sa/20f/annual-and-transition-report-o/2007/6/15/1150815 http://secwatch.com/tele-norte-leste-participacoes-sa/20f/annual-and-transition-report-o/2008/5/6/316412 http://secwatch.com/tele-norte-leste-participacoes-sa/20f/annual-and-transition-report-o/2009/7/13/2263825 http://secwatch.com/filings/view.jsp?formid=7285818#fin67436_3

3 http://vivo.mediagroup.com.br/eng/download/sec/VIVO_20F_2006.pdf http://vivo.mediagroup.com.br/eng/download/DFP/VIVO_DFP_2007.pdf http://google.brand.edgar- online.com/DisplayFiling.aspx?TabIndex=2&FilingID=6553713&companyid=376763&ppu=%252fdefault.aspx%2 53fcompanyid%253d376763%2526amp%253bformtypeId%253d53 http://google.brand.edgar- online.com/DisplayFiling.aspx?TabIndex=2&FilingID=7158230&companyid=376763&ppu=%252fdefault.aspx%2 53fsym%253dVIV

4 http://secwatch.com/tim-participacoes-sa/20f/annual-and-transition-report-o/2007/6/22/1150827 http://secwatch.com/tim-participacoes-sa/20f/annual-and-transition-report-o/2008/6/3/316425 http://secwatch.com/tim-participacoes-sa/20f/annual-and-transition-report-o/2007/6/22/1150827 http://www.mediagroup.com.br/host/tim/2009/eng/downloads/TIM_DF_09.pdf

December 14, 2010