<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1998.
THIS REGISTRATION STATEMENT HAS NOT BEEN MADE EFFECTIVE. INFORMATION CONTAINED
HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 20-F
(MARK ONE)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B)
OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
COMMISSION FILE NUMBER:
TELESP PARTICIPACOES S.A.
(Exact name of Registrant as specified in its charter)
TELESP HOLDING COMPANY
(Translation of Registrant's name into English)
THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)
SCN-QUADRA CN2, LOTE F, 2(degrees) ANDAR, SALA 206
BRASILIA-DF, BRAZIL
(Address of principal executive offices)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE
ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Preferred Shares, without par
value.......................... New York Stock Exchange*
</TABLE>
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* Not for trading, but only in connection with the listing of American
Depositary Shares on the New York Stock Exchange.
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE
ACT: None
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the last fiscal year covered by
this Registration Statement: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 Item 18 X
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
THIS PRELIMINARY REGISTRATION STATEMENT ON FORM 20-F HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") BUT HAS NOT BEEN DECLARED
EFFECTIVE AND IS SUBJECT TO COMMENT BY THE COMMISSION.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<C> <S> <C>
PRESENTATION OF INFORMATION................................... ii
GLOSSARY OF TERMS............................................. vi
EXCHANGE RATES................................................ ix
PART I
ITEM 1. Description of Business....................................... 1
ITEM 2. Description of Property....................................... 29
ITEM 3. Legal Proceedings............................................. 29
ITEM 4. Control of Registrant......................................... 30
ITEM 5. Nature of Trading Market...................................... 31
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders....................................................... 34
ITEM 7. Taxation...................................................... 35
ITEM 8. Selected Financial Data....................................... 40
ITEM 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 44
ITEM 9A. Quantitative and Qualitative Disclosures about Market Risk.... 58
ITEM 10. Directors and Officers of Registrant.......................... 58
ITEM 11. Compensation of Directors and Officers........................ 60
ITEM 12. Options to Purchase Securities from Registrant or
Subsidiaries.................................................. 60
ITEM 13. Interest of Management in Certain Transactions................ 60
PART II
ITEM 14. Description of Securities to be Registered.................... 61
PART III
ITEM 15. Defaults upon Senior Securities............................... 74
ITEM 16. Changes in Securities and Changes in Security for Registered
Securities.................................................... 74
PART IV
ITEM 17. Consolidated Financial Statements............................. 74
ITEM 18. Consolidated Financial Statements............................. 74
ITEM 19. Consolidated Financial Statements and Exhibits................ 74
</TABLE>
i
<PAGE>
PRESENTATION OF INFORMATION
OVERVIEW
Telesp Participacoes S.A. (the "Registrant"), a corporation organized under
the laws of the Federative Republic of Brazil ("Brazil"), was formed upon the
reorganization of Telecomunicacoes Brasileiras S.A.--Telebras ("Telebras"), a
corporation organized under the laws of Brazil that, together with its
operating subsidiaries (the "Telebras System"), was the primary supplier of
public telecommunications services in Brazil. On May 22, 1998, the
shareholders of Telebras approved the restructuring of the Telebras System to
form, in addition to Telebras, twelve new telecommunications companies (the
"New Holding Companies") by means of a procedure under Brazilian corporate law
called cisao or "split-up". The New Holding Companies were allocated virtually
all the assets and liabilities of Telebras, including the shares held by
Telebras of the operating companies of the Telebras System. The New Holding
Companies, together with their respective subsidiaries, comprise (a) three
regional fixed-line operators, (b) eight regional cellular operators and (c)
one national long-distance carrier. The separation of the Telebras System into
the New Holding Companies and their respective subsidiaries is referred to in
this Registration Statement on Form 20-F (the "Registration Statement") as the
"Breakup" of Telebras. Prior to the Breakup, Telebras, through its operating
subsidiaries, was the primary supplier of public telecommunications services
in Brazil. See "Description of Business--Background" and "--The Company."
The Registrant is one of the New Holding Companies formed upon the Breakup
of Telebras. In the Breakup, all of the share capital held by Telebras of
Telecomunicacoes de Sao Paulo S.A.--Telesp ("Telesp") (71.4% of Telesp's total
share capital, including 87.3% of its voting stock) and of Companhia
Telefonica da Borda do Campo--CTBC ("CTBC") (69.8% of CTBC's total share
capital, including 86.7% of its voting stock) was transferred to the
Registrant. Telesp is the principal provider of fixed-line public
telecommunications services in the Brazilian state of Sao Paulo. Prior to
January 1, 1998, Telesp also had a cellular telephone business. In preparation
for the Breakup of Telebras, on January 30, 1998 the cellular telephone
business of Telesp was "spun off" effective January 1, 1998 to a newly formed
company called Telesp Cellular S.A. See "Description of Business--Background"
and "--The Company."
A substantial part of the Registrant's assets are shares of its operating
subsidiaries. The Registrant relies largely on dividends from its subsidiaries
to meet its need for cash, including for the payment of dividends to its
shareholders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
As used herein, the "Company" refers to the Registrant and its consolidated
subsidiaries Telesp and CTBC, except that any references to the Company, its
financial condition, its results of operations and other statistical
information concerning the Company at any date or for any period ended before
January 1, 1998 are to the fixed-line telecommunications operations of Telesp
and CTBC.
PRESENTATION OF FINANCIAL INFORMATION
FINANCIAL STATEMENTS AND MINORITY INTERESTS
The audited consolidated balance sheets included herein as of December 31,
1996 and 1997 and the related consolidated statements of income, cash flows
and changes in shareholders' equity for each of the years ended December 31,
1995, 1996 and 1997, (including the notes thereto, the "Consolidated Financial
Statements") are the consolidated financial statements of the Registrant and
its subsidiaries, Telesp and CTBC. The portion of the consolidated equity and
net income of Telesp and CTBC attributable to shareholders of Telesp and CTBC
other than Telebras at December 31, 1996 and 1997, and for each of the years
in the three-year period ended December 31, 1997 is reflected as "minority
interests" in the Consolidated Financial Statements. At December 31, 1997,
such minority shareholders directly and indirectly owned 28.6% and 30.2% of
the share capital of Telesp and CTBC, respectively. Substantially all such
share capital is comprised of preferred shares originally issued from time to
time by the Registrant's subsidiaries in connection with such subsidiaries'
auto-financing activities. The consideration paid for such preferred shares
was the higher of market or book value at the time of issuance, for
ii
<PAGE>
shares issued after August 1996, and book value for shares issued prior to
August 1996. A secondary trading market has developed in such preferred shares
in which institutional and other investors participate. For a discussion of
such auto-financing activities, see "Description of Business--Rates--Local
Services."
The Consolidated Financial Statements present the fixed-line
telecommunications business of the Registrant and its subsidiaries, Telesp and
CTBC, as the continuing operations and the cellular telephone business as
discontinued operations for all periods. The assets and liabilities of the
cellular telephone business are presented as net assets of discontinued
operations.
FORMATION OF REGISTRANT
The separation of the fixed and cellular telecommunications businesses and
the formation of the Registrant has been accounted as a reorganization of
entities under common control in a manner similar to a pooling of interests.
The assets and liabilities of the cellular telephone business were transferred
from Telesp to Telesp Cellular at their indexed historical cost. The
Consolidated Financial Statements are not necessarily indicative of the
financial position and results of operations that would have occurred for the
three-year period ended December 31, 1997 had the fixed-line
telecommunications businesses of its subsidiaries Telesp and CTBC been
separate legal entities during such periods. See "Description of Business--
Background," "--The Company" and Notes 1, 2 and 31 to the Consolidated
Financial Statements.
At the May 22, 1998 Telebras shareholders' meeting, the shareholders also
approved a specific structure for the shareholders' equity of each New Holding
Company, which included an allocation of a portion of the retained earnings of
Telebras. In this manner, the balances of capital, reserves and retained
earnings, together with the corresponding assets and liabilities, for the
formation of Telesp Participacoes S.A. were established. Telebras retained
within its own shareholders' equity sufficient retained earnings from which to
pay certain dividends and other amounts. Telebras allocated to each New
Holding Company the balance of its Retained Earnings in proportion to the
total net assets allocated to each such Company. This value of allocated
retained earnings does not represent the historical retained earnings of the
New Holding Companies and resulted in an increase of R$171,236,000 in relation
to the Company's historical retained earnings. See Note 31 to the Consolidated
Financial Statements. Allocated retained earnings and future retained earnings
will be the basis from which future dividends will be payable.
Prior to December 31, 1997 cash and certain non-specific debt of the
cellular telecommunications business could not be segregated from Telesp.
Accordingly, these amounts are included in the financial statements for
periods ended before January 1, 1998. As a result, interest income and expense
relating to the cellular telecommunications business could not be identified
and, consequently, income from discontinued operations is presented before
unallocated interest income/expense and income tax expense. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations for the years ended December 31, 1995, 1996 and 1997--
Allocated and unallocated interest expense and unallocated interest income."
In connection with the formation of the Registrant, certain assets and
liabilities of Telebras in addition to its interests in Telesp and CTBC were
spun off to the Registrant. The principal such assets and liabilities were
certain loans and other financings (which comprised substantially all the
external indebtedness of Telebras), cash and other current assets, noncurrent
assets and certain investments. See Note 31 to the Consolidated Financial
Statements, which includes a consolidated balance sheet of the Registrant
reflecting all the assets and liabilities spun off to the Registrant as of
February 28, 1998. The Registrant received R$479.9 million of Telebras
indebtedness and R$729.9 million of Telebras current assets, including R$439.2
million in cash and cash equivalents. A substantial amount of the assets
received from Telebras (principally investment in subsidiaries) is eliminated
upon consolidation.
EFFECTS OF INFLATION
The Consolidated Financial Statements contained herein were prepared in
accordance with generally accepted accounting principles in Brazil ("Brazilian
GAAP") and are presented in Brazilian reais. Pursuant to Brazilian GAAP, the
Consolidated Financial Statements and the other financial information
presented herein
iii
<PAGE>
recognize certain effects of changes in the purchasing power of Brazilian
currency due to inflation and, unless otherwise specified, have been indexed
and expressed in constant reais of December 31, 1997 purchasing power by using
the daily changes or the monthly average values of the Unidade Fiscal de
Referencia (the Tax Reference Unit or the "UFIR") through December 31, 1995.
Until December 31, 1995, the relevant inflation index selected by the
Comissao de Valores Mobiliarios (the Brazilian Securities Commission or "CVM")
and the one used for the constant currency method under Brazilian GAAP was the
UFIR. Effective January 1, 1996, the CVM, no longer requires Brazilian
companies to restate their financial statements for reporting purposes in
constant currency by indexing historical amounts using the UFIR. Restatement
in constant currency is now optional and any general price index may be used.
The Brazilian Institute of Accountants has recommended that the Indice Geral
de Precos--Mercado (the General Prices Index-Market or the "IGP-M") be used
for this purpose. The Company's management believes that the IGP-M is the most
appropriate measure of the general price inflation in Brazil and has elected
the IGP-M for purposes of preparing its financial statements in accordance
with the constant currency method as of January 1, 1996. See Note 2 to the
Consolidated Financial Statements.
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%; however, for accounting purposes, the constant currency method has
continued to be applied. The Brazilian Institute of Accountants has not yet
published definitive rules regarding when the constant currency method of
accounting may no longer be used to prepare the Consolidated Financial
Statements. If the Brazilian Institute of Accountants determines that the
constant currency method may no longer be used to prepare the Consolidated
Financial Statements beginning January 1, 1998, the restated balances of
nonmonetary assets and liabilities of the Company as of December 31, 1997 will
become the new basis for accounting, and income statement items will no longer
be restated for inflation.
CURRENCY TRANSLATIONS
All references herein to (i) the "real," "reais" or "R$" are to Brazilian
reais (plural) and to the Brazilian real (singular), the official currency of
Brazil and (ii) "U.S. dollars," "dollars" or "US$" are to United States
dollars. As of July 1, 1994, the denomination of the Brazilian currency unit
was changed to the real from the cruzeiro real (each real being equal to 2,750
cruzeiros reais at such time). All amounts in cruzeiros reais have been
restated in reais in this Registration Statement. Certain amounts herein may
not sum due to rounding.
This Registration Statement contains translations of certain real amounts
into U.S. dollars solely for the convenience of the reader. These translations
should not be construed as representations that the real amounts actually
represent such U.S. dollar amounts or could be or could have been converted
into U.S. dollars at the rate indicated. Unless otherwise indicated, such U.S.
dollar amounts have been translated from reais at the commercial buying rate
for the purchase of U.S. dollars (the "Commercial Market Rate") published by
Banco Central do Brasil (the "Central Bank of Brazil") for December 31, 1997,
which was 1.1164 to US$1.00. The noon buying rate in New York City for cable
transfers in reais as certified by the Federal Reserve Bank of New York has
not been consistently reported for Brazilian currency during the periods for
which data are presented in this Registration Statement. See "Exchange Rates"
for information regarding rates of exchange.
MARKET INFORMATION
Upon the Breakup of Telebras, holders of common and preferred Telebras
shares ("Telebras Common Shares" and "Telebras Preferred Shares" and,
together, "Telebras Shares") were deemed under Brazilian law to own, in
addition to such Telebras Shares, one common or preferred share, as
applicable, of each New Holding Company for each such Telebras Share held by
them. Following the Breakup, the Telebras Common Shares and the common shares
of the New Holding Companies have been traded as a unit on the Bolsa de
Valores de Sao Paulo (the "Sao Paulo Stock Exchange"), the Bolsa de Valores do
Rio de Janeiro (the "Rio de Janeiro Stock Exchange") and the seven other
Brazilian stock exchanges (together with the Sao Paulo Stock Exchange and the
Rio de Janeiro Stock Exchange, the "Brazilian Stock Exchanges"). Similarly,
the Telebras Preferred Shares and the preferred shares of the New Holding
Companies have been traded as a unit on the Brazilian Stock Exchanges.
iv
<PAGE>
Telebras American Depositary Shares ("Telebras ADS"), each originally
representing ownership of 1,000 Telebras Preferred Shares, have continued to
trade on the New York Stock Exchange, Inc. (the "NYSE") except that since the
Breakup, each Telebras ADS has represented 1,000 Telebras Preferred Shares and
deemed ownership of 1,000 preferred shares of each of the New Holding
Companies. On September 21, 1998, the common shares and preferred shares of
each New Holding Company are expected to commence trading separately on the
Brazilian Stock Exchanges. It is expected that during or before October 1998
American Depositary Shares representing preferred shares of each New Holding
Company will be issued and will commence trading separately on the NYSE. See
"Nature of Trading Market" and "Description of Securities to be Registered--
Description of American Depositary Receipts in respect of Preferred Shares."
References herein to the "Preferred Shares" and "Common Shares" are to the
preferred shares and common shares, respectively, of the Registrant.
References to the American Depositary Shares or "ADSs" are to American
Depositary Shares, each representing 1,000 Preferred Shares. The ADSs will be
evidenced by American Depositary Receipts ("ADRs").
v
<PAGE>
GLOSSARY OF TERMS
The following explanations are not intended as technical definitions, but to
assist the general reader to understand certain terms as used in this
Registration Statement.
Access charge: Amount paid per minute charged by network operators for the
use of their network by other network operators. Also known as an
"interconnection charge" or "network usage charge".
Access gates: The points of interface between the network equipment (either
dedicated or switched) and the transmission media that connect network
equipment to the end user. The quantity of service is directly related to the
quantity of network access gates.
AMPS (Advanced Mobile Phone Service): An analog cellular telephone service
standard utilizing the 850 MHz band, in use in North America, parts of South
America, Australia and various other areas.
Analog: A mode of transmission or switching which is not digital, e.g., the
representation of voice, video or other modulated electrical audio signals
which are not in digital form.
Analog network: A network using analog technology with circuit switching,
capable of connecting one user with all the users, but with limited
transmission capacity.
ATM (Asynchronous Transfer Mode): A broadband switching technology that
permits the use of one network for different kinds of information (e.g.,
voice, data and video).
Automatic international roaming: A service which permits a subscriber to use
his or her cellular phone on a foreign cellular operator's network. The
subscriber may receive calls made to the subscriber's regular cellular number
(such calls are "automatically" passed to the foreign operator's network).
Band A Operator: A former Telebras cellular operating subsidiary that has
been granted a concession to provide cellular telecommunications services in a
particular area within a radio spectrum frequency range referred to by Anatel
as "Band A".
Band B Operator: A cellular operator that has been granted a concession to
provide cellular telecommunications services in a particular area within a
radio spectrum frequency range referred to by Anatel as "Band B".
Base station: In cellular mobile telecommunications, a radio
transmitter/receiver that maintains communications with the cellular
telephones within a given cell. Each base station in turn is interconnected
with other base stations and with the public switched telephone network.
Broadband services: Services characterized by a transmission speed of 2
Mbit/s or more. According to international standards, these services are
divided into two categories: (i) Interactive services, including
videotelephone/videoconferencing (both point-to-point and multipoint);
videomonitoring; interconnection of local networks; file transfer; CAD;
highspeed fax; e-mail for moving images or mixed documents; broadband
videotext; video on demand; retrieval of sound programs or fixed and moving
images; and (ii) Broadcast services, such as sound programs, television
programs (including high-definition TV and pay TV) and selective document
acquisition.
CATV (Cable television): Cable or fiber-based distribution of TV programs.
CDMA (Code Division Multiple Access): A standard of digital cellular
technology.
Cell: The geographic area covered by a single base station in a cellular
mobile phone system.
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Cell splitting: The process of dividing cells into smaller coverage areas by
reducing their power output and the antenna height of the station transmitter.
Cell splitting increases capacity in a particular area by allowing for the
further reuse of frequencies by a mobile communications system.
Cellular service: A mobile telephone service provided by means of a network
of interconnected low-powered base stations, each of which covers one small
geographic cell within the total cellular system service area.
Channel: One of a number of discrete frequency ranges utilized by a base
station.
Digital: A mode of representing a physical variable such as speech using
digits 0 and 1 only. The digits are transmitted in binary form as a series of
pulses. Digital networks allow for higher capacity and higher flexibility
through the use of computer-related technology for the transmission and
manipulation of telephone calls. Digital systems offer lower noise
interference and can incorporate encryption as a protection from external
interference.
Digital penetration: The substitution of equipment capable of transmitting
digital signals for equipment limited to analog transmission.
Exchange: See Switch.
Frame relay: A data transmission service using fast protocols based on
direct use of transmission lines.
Internet: A collection of interconnected networks spanning the entire world,
including university, corporate, government and research networks from around
the globe. These networks all use the IP (Internet Protocol) communications
protocol.
ISDN (Integrated Services Digital Network): A system in which several
services (e.g., speech and data) may be simultaneously transmitted end-to-end
in digital form.
Leased high-speed data communication: The digital exchange of information at
speeds exceeding 64Kbps transmitted through mediums that are leased to users
for their exclusive use.
Local loop: The system used to connect the subscriber to the nearest switch.
It generally consists of a pair of copper wires, but may also employ fiber-
optic circuits, microwave links or other technologies.
Manual international roaming: A service that permits a subscriber to use his
or her cellular phone on a foreign cellular operator's network. The subscriber
may only receive calls made to a temporary number issued to the subscriber by
the foreign operator for use while roaming.
Microcells: A small cell covered by a low-power base station. Microcells can
cover small areas such as a single building.
Network: An interconnected collection of elements. In a telephone network,
these consist of switches connected to each other and to customer equipment.
The transmission equipment may be based on fiber optic or metallic cable or
point-to-point radio connections.
Network usage charge: Amount paid per minute charged by network operators
for the use of their network by other network operators. Also known as an
"access charge" or "interconnection charge".
Optical fiber: A transmission medium which permits extremely high
capacities. It consists of a thin strand of glass that provides a pathway
along which waves of light can travel for telecommunications purposes.
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Packet-switched data communication services: Data services based on
parceling or breaking the data stream into packets and switching the
individual packets. Information transmitted is segmented into cells of a
standardized length, which are then transmitted independently of one another,
allowing maximization of available capacity and usage of a single transmission
path for multiple communications. The cells are then reassembled upon reaching
their destination.
PBX (Private Branch Exchange): Telephone switchboard for private use, but
linked to the national telephone network.
Penetration: The measurement of the take-up of services. As of any date, the
penetration is calculated by dividing the number of subscribers by the
population to which the service is available and multiplying the quotient by
100.
Private leased circuits: Voice, data or image transmission mediums leased to
users for their exclusive use.
PSTN (Public Switched Telephone Network): The public telephone network that
delivers basic telephone service and, in certain circumstances, more advanced
services.
Repeaters: A device that amplifies an input signal for retransmission.
Roaming: A function that enables cellular subscribers to use their cellular
phone on networks of operators other than the one with which they signed their
initial contract.
Satellite services: Satellites are used, among other things, for links with
countries that cannot be reached by cable or to provide an alternative to
cable and to form closed user networks.
SDH (Synchronous Digital Hierarchy): A hierarchy set of digital transport
structures, standardized for the transport of suitably adapted payloads over
physical transmission networks.
Sectorization: The process of dividing cells into sectors by using
directional antennae at the base station. Sectorization reduces co-channel
interference which permits smaller cells and increases network capacity.
Switch: These are used to set up and route telephone calls either to the
number called or to the next switch along the path. They may also record
information for billing and control purposes.
TDMA (Time Division Multiple Access): A standard of digital cellular
technology.
Universal service: The obligation to supply basic service to all users
throughout the national territory at reasonable prices.
Value Added Services: Value Added Services provide a higher level of
functionality than the basic transmission services offered by a
telecommunications network.
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EXCHANGE RATES
There are two legal foreign exchange markets in Brazil--the commercial rate
exchange market (the "Commercial Market") and the floating rate exchange
market (the "Floating Market"). The Commercial Market is reserved primarily
for foreign trade transactions and transactions that generally require prior
approval from Brazilian monetary authorities, such as the purchase and sale of
registered investments by foreign persons and related remittances of funds
abroad. Purchases and sales of foreign exchange in the Commercial Market may
be carried out only through a financial institution in Brazil authorized to
buy and sell currency in that market. As used herein, the "Commercial Market
Rate" for any day is the commercial selling rate for Brazilian currency into
U.S. dollars, as reported by the Central Bank of Brazil. As used herein, the
"Floating Market Rate" is the prevailing selling rate for Brazilian currency
into U.S. dollars which applies to transactions to which the Commercial Market
Rate does not apply, as reported by the Central Bank of Brazil. Prior to the
implementation of the Real Plan, the Commercial Market Rate and the Floating
Market Rate differed significantly at times. Since the introduction of the
real, the two rates have not differed significantly, although there can be no
assurance that there will not be significant differences between the two rates
in the future. Both the Commercial Market Rate and the Floating Market Rate
are freely negotiated but are strongly influenced by the Central Bank of
Brazil.
On July 1, 1994 the real replaced the cruzeiro real as the unit of Brazilian
currency, with each real being equal to 2,750 cruzeiros reais. The issuance of
reais was initially subject to quantitative limits backed by a corresponding
amount of U.S. dollars in resources, but the Federal Government subsequently
expanded those quantitative limits and allowed the real to float, with parity
between the real and the U.S. dollar (R$1.00 to US$1.00) as a ceiling. On
March 6, 1995, the Central Bank of Brazil announced that it would intervene in
the market and buy or sell U.S. dollars, and established a trading band (faixa
de flutuacao) for the Commercial Market Rate (which is defined through
auction) within which the exchange rate between the real and the U.S. dollar
could fluctuate. The Central Bank of Brazil initially set the band with a
floor of R$0.86 per US$1.00 and a ceiling of R$0.90 per US$1.00 and provided
that, from and after May 2, 1995, the band would fluctuate between R$0.86 and
R$0.98 per US$1.00. Shortly thereafter, the Central Bank of Brazil issued a
new directive providing that the band would be between R$0.88 and R$0.93 per
US$1.00. On June 22, 1995, the Central Bank of Brazil issued another directive
providing that the band would be between R$0.91 and R$0.99 per US$1.00 and
subsequently reset the band on January 30, 1996 to between R$0.97 and R$1.06
per US$1.00. Upon resetting the band on January 30, 1996, the Central Bank of
Brazil adjusted the exchange rate within such band on a number of occasions,
generally in increments of R$0.001, by means of buying and selling U.S.
dollars in electronic auctions. On February 18, 1997, the band was reset by
the Central Bank of Brazil to float between R$1.05 and R$1.14 per US$1.00. On
May 5, 1998, the band was reset by the Central Bank of Brazil to float between
R$1.12 to R$1.22 per US$1.00. As of September 11, 1998, the trading band has
not been reset by the Central Bank of Brazil. There can be no assurance that
the band will not be altered in the future or that the real will maintain its
current exchange rate in future periods.
The following table sets forth the Commercial Market Rate expressed in reais
per U.S. dollar for the periods and dates indicated. Prior to July 14, 1994,
the Federal Reserve Bank of New York did not publish a noon buying rate for
customs purposes in the City of New York for cable transfers in the Brazilian
real and its predecessor currencies (the "Noon Buying Rate").
<TABLE>
<CAPTION>
COMMERCIAL MARKET RATE:
NOMINAL REAIS PER US$1.00(1)
-----------------------------------
YEAR ENDED DECEMBER 31,(1) LOW HIGH AVERAGE(2) PERIOD-END
- -------------------------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
1993....................................... 0.0044 0.1186 0.0369 0.1186
1994....................................... 0.1204 0.9815 0.6754 0.8490
1995....................................... 0.8340 0.9726 0.9227 0.9726
1996....................................... 0.9726 1.0394 1.0080 1.0394
1997....................................... 1.0395 1.1164 1.0555 1.1164(3)
1998 (through September 11)................ 1.1165 1.1793 1.1519 1.1793
</TABLE>
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Source: Central Bank of Brazil
(1) Amounts expressed in nominal reais have been translated from the
predecessor Brazilian currencies in effect during the relevant period at
the rates of exchange at the times the successor currencies became the
lawful currency of Brazil.
(2) Represents the average of the month-end exchange rates during the relevant
period.
(3) The Noon Buying Rate on December 31, 1997 was R$1.1165 per U.S. dollars.
ix
<PAGE>
PART I
ITEM 1: DESCRIPTION OF BUSINESS
BACKGROUND
TELEBRAS AND THE TELEBRAS SYSTEM
Until 1972, telephone services in Brazil were provided by more than 900
independent companies, which supplied non-integrated basic telephone services.
Telebras was incorporated on November 9, 1972, pursuant to special
legislation, for the principal purposes of (i) acting as a holding company for
operating companies providing public telecommunications services in Brazil and
(ii) implementing the policies of the federal government of Brazil (the
"Federal Government") in the modernization and expansion of the Brazilian
telecommunications system. Between 1972 and 1975, Telebras, through its
subsidiaries, acquired almost all the other telephone companies in Brazil.
Telebras and its operating subsidiaries are referred to collectively herein as
the "Telebras System." Only four operating companies remained outside the
Telebras System at December 31, 1997, representing approximately 9% of all
lines in service in Brazil at that date. Telebras is controlled by the Federal
Government, and the operations of the Telebras System are subject to
regulation by the Federal Government. The operating subsidiaries of Telebras
were controlled by the Federal Government until August 4, 1998. See "--
Regulatory Reform and Privatization."
At December 31, 1997, Telebras, through 28 operating subsidiaries, was the
primary supplier of public telecommunications services in Brazil. Empresa
Brasileira de Telecomunicacoes S.A.--Embratel ("Embratel"), a subsidiary of
Telebras, owned and operated all of the interstate and international telephone
transmission facilities in Brazil. Through the other 27 subsidiaries, the
Telebras System was the primary provider of local and intrastate
telecommunications service and the leading provider of cellular mobile
telephone service. The Telebras System also provided telecommunications-
related services, such as data communication, sound and image transmission and
other value-added services throughout Brazil. On January 30, 1998, each of the
operating subsidiaries other than Embratel and Companhia Telefonica da Borda
do Campo--CTBC ("CTBC") spun off its cellular telephone operations into a
separate company.
In 1997, Telebras was the second largest company in Brazil as measured by
gross revenues of R$20.7 billion.
REGULATORY REFORM AND PRIVATIZATION
Beginning in 1995, the Federal Government undertook a comprehensive reform
of regulation of the telecommunications industry. In August 1995, the federal
Constitution was amended to permit the Federal Government to grant concessions
to private companies to provide telecommunications services. In July 1997, the
federal Congress adopted Law No. 9,472 of July 16, 1997, the Lei Geral de
Telecomunicacoes (the "Telecommunications Law"), which provided for the
establishment of a new regulatory framework, the introduction of competition
and the privatization of the Telebras System. The Telecommunications Law
established an independent regulatory agency called Agencia Nacional de
Telecomunicacoes ("Anatel"), which has begun to adopt a series of regulatory
enactments that implement the provisions of the Telecommunications Law
(together with the regulations, decrees, orders and plans issued by the
President of Brazil on telecommunications, the "Telecommunications
Regulations"). See "--Regulation of the Brazilian Telecommunications
Industry."
On May 22, 1998, in preparation for the privatization, the Telebras System
was restructured to form, in addition to Telebras, the twelve New Holding
Companies. Virtually all the assets and liabilities of Telebras were allocated
to the New Holding Companies, which, together with their respective
subsidiaries, now comprise (a) three regional fixed-line operators (including
the Company), (b) eight regional cellular operators and (c) one domestic and
international long-distance carrier. Prior to the Breakup of the Telebras
System, Embratel provided all interstate telephone service and the other
subsidiaries of Telebras provided fixed-line and cellular service in
1
<PAGE>
their respective territories, which, subject to limited exceptions,
corresponded to the separate Brazilian states. Following the Breakup, each of
the eight cellular operators provides cellular telephone service on Band A in
one of eight regions into which Brazil has been divided for purposes of
cellular telephone service and each of the three fixed-line operators provides
local fixed-line telephone service and intra-regional long-distance fixed-line
telephone service in one of three regions into which Brazil has been divided
for the purposes of fixed-line telephone service.
On July 29, 1998, the Federal Government sold to twelve buyers (the "New
Controlling Shareholders") its rights to receive Shares of the twelve New
Holding Companies upon the distribution. The total consideration to be paid to
the Federal Government for the twelve New Holding Companies is R$22.1 billion.
In connection with this sale, the Federal Government assigned to the New
Controlling Shareholders substantially all its economic and voting rights with
respect to the New Holding Companies and, as a consequence, the New
Controlling Shareholders now control the New Holding Companies. Following the
distribution of the shares of the New Holding Companies, Telebras is expected
to be delisted from the NYSE and liquidated.
The New Controlling Shareholder of the Registrant is Tele Brasil Sul
Participacoes S.A. ("Tele Brasil Sul"), a company owned by Telefonica
Internacional S.A. (56.66%), Portugal Telecom S.A. (23.00%), Banco Bilbao
Vizcaya (7.00%), Iberdrola S.A. (7.00%) and RBS Participacoes S.A. (6.34%).
For a description of the business activities of the shareholders of Tele
Brasil Sul, see "Control of Registrant." Tele Brasil Sul agreed to pay R$5.78
billion for the Federal Government's stake in the Registrant, R$2.31 billion
of which was paid on August 3, 1998 and the remainder of which will be paid in
two equal installments over the next two years. The entire proceeds of the
sale of the Federal Government's stake in the Registrant will be retained by
the Federal Government.
On August 20, 1998, Brazil's Minister of Communications determined that
Telebras would be dissolved and liquidated. The Minister announced that
Telebras will prepare, within the next twelve months, a liquidation plan to be
submitted to a shareholders' meeting convened to approve the dissolution of
Telebras and its subsequent liquidation.
The adoption of the Telecommunications Law and the Telecommunications
Regulations has led, and the privatization of the Telebras System will lead,
to sweeping changes in the operating, regulatory and competitive environment
for Brazilian telecommunications. The changes include (a) the establishment of
an independent regulator and the development of comprehensive regulation of
the telecommunications sector, (b) the Breakup of Telebras, (c) the sale of a
controlling interest in the Registrant to one or more new investors and (d)
the introduction of competition in the provision of all telecommunications
services. All of these developments will materially affect the Company and the
other New Holding Companies, and the Company cannot predict the effects of
these changes on its business, financial condition, results of operations or
prospects. The extensive changes in the structure and regulation of the
Brazilian telecommunications industry must also be carefully considered in
reviewing historical information and in evaluating the future financial and
operating performance of the Company.
THE COMPANY
The Registrant is one of the New Holding Companies formed upon the Breakup
of Telebras. It owns 71.4% of the share capital (including 87.3% of the voting
stock) of Telesp, which is the principal provider of fixed-line public
telecommunications services in the Brazilian state of Sao Paulo. The
Registrant also owns, directly and through Telesp, 69.8% of the share capital
(including 86.7% of the voting stock) of CTBC, which provides local public
fixed-line telecommunications services in an area near the city of Sao Paulo.
See "Presentation of Information--Overview." The shares of Telesp and CTBC are
listed on the Brazilian stock exchanges. The minority interests in the Company
are held by pension funds sponsored by public companies, regional development
funds, mutual funds and individuals who obtained shares in the Company
pursuant to the prior system of "auto-financing" in which each new customer
was required to invest in shares of Telebras or its subsidiaries. For a
discussion of auto-financing see "--Rates--Local Services." In 1997, Telesp
generated 91%
2
<PAGE>
of the Company's net operating revenue and 91% of the Company's net income. In
1997, CTBC generated 9% of the Company's net operating revenue and 9% of the
Company's net income.
As a result of the Breakup of Telebras on May 22, 1998 and the privatization
of the New Holding Companies on July 29, 1998, the Company is in default under
substantially all of the credit agreements to which it is a party. The Company
is currently under negotiations with the appropriate creditors with respect to
the indebtedness in default. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Defaults upon Senior Securities."
Telesp was established in April 1973, as a successor to the formerly
foreign-controlled Companhia Telefonica Brasileira--CTB, which had been
purchased by the Federal Government. It also acquired a controlling interest
in CTBC in 1973. CTBC was founded in 1954 to provide telephone services in the
"ABC" region of the greater Sao Paulo metropolitan area, which consists
primarily of the municipalities of Santo Andre, Sao Bernardo do Campo and Sao
Caetano do Sul.
The Company provides public fixed-line telecommunications services pursuant
to concessions granted to Telesp and CTBC by the Federal Government (the
"Concessions"). Each Concession will expire on December 31, 2005 and may be
renewed for a further term of 20 years if the Company meets certain
obligations set forth in the Concessions. The Concessions may also be revoked
by Anatel prior to 2005 under certain circumstances. See "--Regulation of the
Brazilian Telecommunications Industry--Obligations of Telecommunications
Companies." If the Company elects to renew a Concession, the Company will be
required to pay a biannual fee equal to 2% of its annual net revenue from the
provision of fixed-line public telecommunications services in the Concession
area for the prior year (excluding taxes and social contributions) during the
20-year renewal period. See "--Regulation of the Brazilian Telecommunications
Industry--Concessions and Licenses."
The Concessions authorize the Company to operate in concession areas
covering a region consisting of the entire state of Sao Paulo, excluding a
small area where two operators that were not part of the Telebras System
continue to operate independently (the "Region"). The portion of the state of
Sao Paulo that is excluded from the Region represents approximately 4% of
total lines in service and 2% of the population in the state. Within the
Region, the Company is currently the only supplier of local and intra-regional
fixed-line telecommunications services, but the Telecommunications Law and
Telecommunications Regulations contemplate the introduction of limited
competition following the privatization and full competition beginning after
December 31, 2001. See "--Competition."
The Company's Concessions have been granted under the Public Regime. For a
description of the Public Regime, see "--Regulation of the Brazilian
Telecommunications Industry--Concessions and Licenses." The Company, together
with Embratel and the two other regional fixed-line companies, is one of four
companies in Brazil operating under Public Regime Concessions. As an operator
under the Public Regime, the Company is subject to certain obligations,
principally concerning the continuous provision of service throughout the
Region ("universal service"), quality of service, and network expansion and
modernization. Anatel has the power, if certain of these obligations are not
met, to impose penalties including revocation of the Company's Concessions.
See "--Regulation of the Brazilian Telecommunications Industry--Obligations of
Telecommunications Companies."
The Registrant's headquarters are located at SCN-Quadra CN2, Lote F,
2(degrees) Andar, Sala 206, Brasilia-DF, 70710-500, Brazil, and its telephone
number is (011) (55) (61) 327-5500 or 327-5505.
THE STATE OF SAO PAULO
The state of Sao Paulo covers an area of 248,600 square kilometers,
representing 2.9% of the country's total area. Its population of approximately
34 million represents 21% of the total population of Brazil, and it has 60
metropolitan areas with populations in excess of 100,000 people. Per capita
income in the state of Sao Paulo is approximately US$8,000 per year and the
state generates approximately 35% of Brazil's gross domestic product. The
unemployment rate for the Sao Paulo metropolitan area is approximately 15%.
Approximately 35% of all domestic long-distance telecommunications traffic in
Brazil originates or terminates within the state of Sao Paulo.
3
<PAGE>
Set forth below is a map showing the location of the state of Sao Paulo
within Brazil.
MAP OF BRAZIL
The Company's business, financial condition, results of operations and
prospects depend in part on the performance of the Brazilian economy, in
general, and of the state of Sao Paulo, in particular. See "--Brazilian
Economic Environment."
CUSTOMER SERVICES
OVERVIEW
The services the Company provides and the composition of its revenues have
changed significantly as a result of the Telecommunications Law, the
Telecommunications Regulations and the Breakup and Privatization of the
Telebras System. The Company's current services include principally: (i) local
services, including installation charges, monthly subscription charges,
measured service and public telephones, (ii) intra-regional long-distance
service, (iii) data transmission, (iv) network services, including
interconnection and leasing of facilities, and (v) other services. The Company
does not sell, rent or otherwise provide telephone equipment such as handsets
or switchboards. Currently, the interconnection revenues the Company receives
include fees paid by Embratel, cellular companies and other telecommunications
companies for the use of the Company's network. Prior to April 1, 1998, the
Company's interconnection revenues did not include any revenues from Embratel.
4
<PAGE>
Rather than charging Embratel for interconnection, the Company retained a
fixed percentage of revenue from each interregional and international long-
distance call that originated on the Company's network. See "--Interregional
and International Service." The Company's revenues will be affected by
increased competition, the new regulatory environment and opportunities to
offer a broader range of services. See "--Competition" and "--Regulation of
the Brazilian Telecommunications Industry."
The following table breaks down the Company's revenue by type of service for
each of the years in the three-year period ended December 31, 1997. The
Company's tariffs for each category of service are described below under "--
Rates." Trends and events affecting the Company's operating revenue are
discussed under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
<S> <C> <C> <C>
1995 1996 1997
----- ------ ------
(IN MILLIONS OF
REAIS)
Local services........................................... 1,310 1,962 2,637
Intra-regional long-distance service..................... 1,097 1,206 1,032
Interregional long-distance service...................... 716 840 666
International long-distance service...................... 258 261 192
Data transmission........................................ 192 226 170
Network services......................................... 74 430 669
Other.................................................... 58 52 70
----- ------ ------
Total.................................................... 3,705 4,977 5,436
Taxes and discounts...................................... (961) (1,267) (1,349)
----- ------ ------
Net operating revenue.................................... 2,744 3,710 4,087
===== ====== ======
</TABLE>
LOCAL SERVICES
Local services include principally installation, monthly subscription,
measured service and public telephones. Measured service includes all calls
that originate and terminate within a single local area of the Region ("local
calls"). The Company is the sole provider of local services within the Region.
After the privatization of the Company, a new entrant will be granted a
license to provide local services in competition with the Company. See "--
Competition."
The Company owns and operates public telephones and telephone booths
throughout the Region. At December 31, 1997, the Company had 168,600 public
telephones, of which 54% could be operated with a prepaid debit card. The
Company had planned to replace all of its coin operated telephones with card
operated telephones in 1997 but was unable to carry out the plan because of
government limits on capital expenditures. See "--Capital Expenditures." The
targets proposed by Anatel require the Company to increase the number of
public telephones to 217,500 by 1999. See "--Network and Facilities--Network
Expansion" and "--Regulation of the Brazilian Telecommunications Industry--
Obligations of Telecommunications Companies--Network Expansion--General Plan
on Universal Service."
INTRA-REGIONAL LONG-DISTANCE SERVICE
Intra-regional long-distance service consists of all calls that originate
within one local area and terminate within another local area of the Region
(together with interregional long-distance service, "interurban" service).
Prior to the privatization of the Telebras System, the Company was the sole
provider of intra-regional long-distance service within the Region. After the
privatization of the Company, Embratel will also be authorized to provide
intra-regional long-distance service within the Region, and Anatel will grant
two new licenses for the provision of intra-regional long-distance service to
new entrants. See "--Competition."
5
<PAGE>
INTERREGIONAL AND INTERNATIONAL SERVICE
Interregional long-distance service consists of calls between a point
located within the Region and a point in Brazil outside the Region.
International long-distance service consists of calls between a point within
the Region and a point outside of Brazil. The Company is not itself authorized
to provide interregional long-distance or international service. Beginning in
2002, the Company may seek a license to provide interregional and
international long-distance service provided that it has met certain
obligations contained in the Concessions. See"--Competition" and "--Regulation
of the Brazilian Telecommunications Industry--Obligations of
Telecommunications Companies."
Prior to April 1, 1998, Embratel and the operating subsidiaries of the
Telebras System divided the revenue from outgoing interregional and
international long-distance calls. The revenue sharing arrangement with
Embratel was designed to equalize the return of investment of the operating
subsidiaries. Under this system, the Company retained a fixed percentage of
the customer charges for outgoing interregional and international long-
distance calls and paid the balance to Embratel. The Company generally
received no revenue from incoming interregional or international long-distance
calls. The Company's percentage of revenues from outgoing calls was reset
annually effective as of April 1. Telesp's percentage was 70.48% from April
1996 to April 1997 and 53.94% from April 1997 to April 1998, while CTBC's
percentage was 87.59% and 90% for each such period, respectively. In the case
of interregional collect calls, the Company and the other regional operator
divided equally the portion of the customer charge not paid to Embratel.
Effective on April 1, 1998, the system of revenue-sharing was discontinued.
The Company's relationship with Embratel, or any other provider of
interregional and international services, is now governed by interconnection
agreements regulated by Anatel under which the providers of interregional and
international long-distance services will pay the Company fees for the use of
its network. See "--Regulation of the Brazilian Telecommunications Industry"
and "--Network Services." However, in order to soften the impact of the
discontinuation of the revenue sharing arrangement, the Company receives from
Embratel a supplemental per-minute rebate (Parcela Adicional de Transicao or
"PAT") that supplements the network usage charge. This supplemental per-minute
rebate from Embratel will be gradually phased out over the next three years.
Except for the revenue from Embratel that the Company receives during the
three year transitional period and revenue from network usage fees, the
Company no longer recognizes revenues from interregional and international
long-distance services. Embratel is now the only carrier of interregional and
international calls. However, the Telecommunications Regulations provide that
another long-distance carrier will be licensed following the privatization of
the Telebras System and, beginning in 2002 at the earliest, the Company may be
permitted to provide such long-distance services. See "--Competition."
NETWORK SERVICES
The Company provides access to its network to other telecommunications
companies and leases certain network facilities to other telecommunications
and non-telecommunications companies as part of its network services business.
The Company increasingly provides interconnection services to other
telecommunications service providers as a result of the spin-off of Telesp's
cellular business, the Breakup of the Telebras System and the advent of
competition. Cellular companies, Embratel and certain licensees that operate
telecommunications networks interconnect with the Company's network in order
to receive calls that originate on the Company's network, to deliver calls
that terminate on the Company's network and to transport over the Company's
network calls that originate and terminate outside of the Company's network.
Interconnection revenues consist of fees collected by the Company for such use
of its network by other telecommunications network operators (network usage
fees) and for providing a physical connection to the network. See "--Rates--
Network Services." Since July 1996, following the introduction of competition
in cellular services, the terms of interconnection between fixed-line and
cellular operators have been subject to regulation. See "--Regulation of the
Brazilian Telecommunications Industry--Rate Regulation--Network Usage
Charges."
6
<PAGE>
Currently, the Company provides interconnection services to two cellular
providers, including the company it spun off on January 30, 1998, and some
operators of trunking services. Effective in April 1998, the Company also
entered into an interconnection agreement with Embratel under which Embratel
pays network usage fees to the Company for the use of its network. See "--
Interregional and International Service." The Company expects to be a net
recipient of fees under this agreement in the near future because the Company
is not permitted to provide interregional or international long-distance
service until 2002 at the earliest. See "--Competition." There can be no
assurance that the interconnection agreement with Embratel will not result in
lower revenue for carrying interregional and international long distance calls
than under the prior regime.
The terms of interconnection, particularly pricing and technical
requirements, may affect the Company's results of operations, its competitive
environment and its capital expenditure policies. Under the current regulatory
framework, all telecommunications service providers must provide
interconnection services on a non-discriminatory basis. Subject to certain
requirements, providers are free to negotiate the terms of interconnection
but, in the event the parties fail to reach an agreement, Anatel will
establish the terms of interconnection. See "--Regulation of the Brazilian
Telecommunications Industry--Obligations of Telecommunications Companies--
Interconnection."
The Company also leases facilities. Other telecommunications companies,
particularly cellular companies, lease trunk lines from the Company for use
within their stand-alone networks and large corporate customers lease lines
from the Company for use within private networks connecting different internal
corporate sites.
DATA TRANSMISSION SERVICE
The Company provides low- and high-speed data transmission services through
private leased circuits, public network infrastructure exchanges and access to
Embratel's data transmission network. The Company has provided data
transmission services since October 1991. At December 31, 1997, the Company
had more than 80,000 accesses for data transmission, voice and image
applications. The Company invested in data transmission capacity in response
to the growing demand in Brazil for services that require high velocity
dedicated digital circuits, such as data, image and text transmission,
corporate networking and video conferencing. The Company is implementing
30,000 access gates (17,000 dedicated and 13,000 switched) to provide
additional services in data transmission, including SPPAC, SPDADOS, SPFAST and
SPVIP.
SPPAC is a line of services providing the user multiple access databases,
home banking services, and internet providers. SPDADOS is a line of digital
services dedicated to voice applications, data and image interlinking to
computers, corporate video conferencing, CAD/CAM software applications, and
other uses characterized by high velocity communication. SPFAST is a line of
services based on the Frame Relay protocol directed to applications that
require high speed and short response time. SPVIP is the provision of
telecommunications services tailored to the specific needs of corporate
customers and may include such services as interconnection of data processing
centers, local networks, digital PBXs and corporate video conferencing.
OTHER SERVICES
The Company provides a variety of other telecommunications services that
extend beyond basic telephone service. The Company also provides interactive
banking services, electronic mail and other similar services.
7
<PAGE>
QUALITY OF SERVICE
Since the beginning of 1990, the quality of certain telecommunications
services provided by the Company has been improved through network upgrading
and the addition of automatic operational support systems. The following table
gives certain basic measures of the quality of telecommunications services for
each year in the five-year period ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Repair requests per 100 installed access lines....... 2.1 1.9 2.3 2.6 2.8
Response rate to repair requests (percentage)(1)..... 93.7 92.9 84.6 86.0 81.1
Rate of obtaining dialing tone within 3 seconds (per-
centage)............................................ 98.2 98.9 99.0 99.1 99.0
Call completion rate (direct-dialed domestic long-
distance calls) (percentage) ....................... 50.7 52.7 54.1 54.5 56.5
</TABLE>
- --------
(1) Response within 24 hours after request was made.
The Company is required under the Telecommunications Regulations to meet
certain quality of service targets, including call completion rates, repair
requests and response rate to such requests, operator response periods and
other measures of service quality. See "--Regulation of the Brazilian
Telecommunications Industry--Obligations of Telecommunications Companies--
Quality of Service--General Plan on Quality." The Company has identified the
quality of service targets that the Company expects will be most difficult to
meet, those the Company expects to meet with medium difficulty and those the
Company expects to meet with relative ease. The targets the Company expects
will be most difficult to meet are maximum public telephone repair requests
and targeted response times to nonresidential and public telephone repair
requests. Currently, the Company receives .29 public telephone repair requests
per month per line. The Company is obligated by year end 1999 to reduce repair
requests to .15 per line. Currently, the Company responds within eight hours
to 47% of nonresidential repair requests and 44% of public telephone repair
requests. The Company is obligated by year end 1999 to respond within eight
hours to 95% of nonresidential and public telephone repair requests. In order
to meet these targets, the Company is developing software that will enable the
Company to test the functioning of public telephones from a centralized
automatic supervision center. The Company is also increasing maintenance
operations in order to repair public telephones at night. All other targets
the Company expects to meet with medium difficulty except for the target for
obtaining a dial tone within three seconds which the Company has already met.
RATES
Rates for telecommunications services provided by the Company are subject to
comprehensive regulation. See "--Regulation of the Brazilian
Telecommunications Industry--Rate Regulation." Since the relative
stabilization of the Brazilian economy in mid-1994, there have been two major
changes in rates for local and long-distance services. Effective in January
1996, rates for all services were increased, primarily to compensate for
accumulated effects of inflation. Effective in May 1997, the rate structure
was modified through a tariff rebalancing that resulted in higher charges for
measured service and monthly subscription, and lower charges for intra-
regional, interregional and international long-distance services. Monthly
subscription charges, for example, were increased by 270% for residential
customers and 59% for commercial customers. The Company believes that monthly
subscription charges are now generally in line with such charges in other
countries.
LOCAL SERVICES
The Company's revenue from local services consists principally of activation
and installation charges, monthly subscription charges, measured service
charges and public telephone charges.
Users of measured service, both residential and nonresidential, pay for
local calls depending on usage. Usage is measured in pulses. Pulses occur
system-wide every four minutes for most local calls and every sixty
8
<PAGE>
seconds for local calls made between certain municipalities. These system-wide
pulses are recorded independently of when individual calls are actually made.
In addition to system-wide pulses, the system records one pulse for every call
when the call is connected. After the first pulse, only system-wide pulses are
used in determining the charge for a call. As a result, the time between the
first pulse and the second (system-wide) pulse may vary. For example, for a
call being charged using four-minute pulse increments, the time between the
first pulse and the second (system-wide) pulse may vary between one second and
four minutes.
For normal weekday calls, local call charges are determined by multiplying
the number of pulses by the charge per pulse. For calls being made any day
between midnight and 6:00 a.m., in addition to Saturdays from 2:00 p.m. to
midnight and all day Sunday and holidays, a caller is charged for only one
pulse regardless of the duration of a call. Each customer receives a total of
90 free pulses per month. Approximately 91.5% of the Company's customers use
over 90 pulses per month. Measured service charges are the same for all
customers.
Since May 1997, the monthly subscription charge in nominal terms (including
taxes) has been R$13.82 for residential customers, R$20.73 for commercial
customers and R$27.64 for users of PBX systems and the price of one pulse
(including taxes) has been R$0.08. The following table illustrates changes in
subscription charges and measured service charges for local telephone service
for each year in the three-year period ended December 31, 1997 in constant
reais of December 31, 1997 purchasing power.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
(IN REAIS)
<S> <C> <C> <C>
Average rates for local telephone service(1):
Monthly subscription:
Residential......................................... 0.82 3.00 7.78
Commercial.......................................... 7.28 10.46 13.50
Measured service (per local pulse).................... 0.025 0.038 0.054
</TABLE>
- --------
(1) Average of monthly average rates, net of value-added taxes.
Prior to May 1997, under a system called "auto-financing," each new customer
was required to invest in shares of Telebras or of its subsidiaries. The
amount to be invested varied from time to time but was very substantial. In
1996, for example, the required investment for a new line was R$1,117.63.
Auto-financing was phased out in 1997, and since July 1997 the installation
charge, which was initially R$300, has been reduced to R$80 in October 1997
and to R$50 in March 1998. The Company also charges an activation fee of R$48
when a customer changes addresses.
INTRA-REGIONAL LONG-DISTANCE SERVICE
Rates for intra-regional long-distance calls are computed on the basis of
the time and day, duration and distance of a call and use of special services,
such as operator assistance. Some intra-regional calls made within the same
area code may also be measured by pulses. Rates for domestic long-distance
(whether intra-regional or interregional) are uniform throughout Brazil. See
"--Regulation of the Brazilian Telecommunications Industry--Rate Regulation."
The following table illustrates changes in the Company's domestic long-
distance rates for the periods indicated in constant reais of December 31,
1997 purchasing power.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN R$)
<S> <C> <C> <C> <C> <C>
Domestic long-distance rates(1):
0 to 50 km........................................... 0.79 0.46 0.46 0.42 0.32
50 to 100 km......................................... 1.32 0.78 0.76 0.70 0.54
100 to 300 km........................................ 1.98 1.18 1.16 1.07 0.81
over 300 km.......................................... 2.65 1.57 1.53 1.40 1.08
</TABLE>
- --------
(1) Rates for a domestic long-distance call, three minutes in duration between
the hours of 9 a.m. and 12 p.m. and 2 p.m. and 6 p.m. (peak hours) on
weekdays, net of value-added taxes.
9
<PAGE>
NETWORK SERVICES
The Company's revenue from network services consists primarily of two basic
categories: payments from other providers on a per-minute basis to complete
calls using the Company's network and payments from other providers on a
contractual basis to use part of the Company's network. On a per-minute basis,
other providers pay the Company a network usage charge to complete a call on
the Company's network. The network usage charge varies depending on whether
the provider uses the Company's local or long-distance network. Similarly, the
Company pays other fixed-line providers a network usage charge to complete a
call on another fixed-line network and the Company pays cellular providers a
network usage charge to complete a call on a cellular network.
Cellular telephone service in Brazil, unlike in North America, is offered on
a "calling party pays" basis. Under the policy of a calling party pays, a
cellular service subscriber generally pays cellular usage charges only for
calls made by the cellular subscriber and not for calls received. Calls
received by a cellular subscriber are paid for by the party that places the
call in accordance with a rate based on cellular per minute charges. For
example, a fixed-line customer pays a rate based on cellular per minute
charges for calls made to a cellular subscriber. The cellular base rate per
minute charges are generally VC1, for calls within the locality, VC2, for
calls outside the cellular subscriber's registration area, and VC3, for calls
outside the concession region in which the registration area is located. The
Company charges its fixed-line customers per minute charges based on either
VC1, VC2, or VC3 rates when a fixed-line customer calls a cellular subscriber.
In turn, the Company pays the cellular service provider the mobile network
usage charge.
For calls made by the Company's customers that terminate on the networks of
Band B cellular operators, the network usage charges the Company must pay to
the Band B operator to complete such calls exceed the retail measured usage
charges the Company is permitted to collect from its customers. This results
in a loss for certain calls made by the Company's customers that terminate on
a Band B network, particularly for calls made during reduced-rate evening
hours. The Company has requested that Anatel either increase the Company's
network usage rates or decrease the cellular providers' cellular network usage
rates. Anatel has not yet provided a response to the Company's request for
rate adjustments and there can be no assurance that Anatel will adjust network
usage rates in a way that will be favorable for the Company. For a discussion
of the Company's payments to cellular provisions see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations for the years ended December 31, 1995, 1996 and 1997--Cost of
services--Services."
The Company's revenue from network services also includes payments from
other telecommunications providers arranged on a contractual basis to use part
of the Company's network. Other providers, such as providers of trunking and
paging services, may use the Company's network to connect a central switching
station to the Company's network. Some cellular providers use the Company's
network to connect cellular central switching stations to the cellular radio
base stations. The Company also leases transmission lines, certain
infrastructure and other equipment to other providers of telecommunications
services.
The table below sets forth the average rates charged by the Company for
network services charged on a per-minute basis in the three year period ended
December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
(IN REAIS)
<S> <C> <C> <C>
Network usage rate (local)(1)......................... 0.031 0.031 0.036
Network usage rate (long-distance)(1)................. 0.062 0.062 0.066
Per minute charges for calls made to the cellular
network:
VC1................................................. 0.37 0.37 0.37
VC2................................................. 0.80 0.80 0.80
VC3................................................. 0.91 0.91 0.91
</TABLE>
- --------
(1) Net of taxes.
10
<PAGE>
DATA TRANSMISSION
The majority of revenue from data transmission services is generated by
monthly line rental charges for private leased circuits. The balance consists
mainly of nominal charges for access to the data transmission network and
measured charges based on the amount of data transmitted. Effective in May
1997, line rental charges for private leased circuits were reduced by 42%. The
following table illustrates the Company's average monthly line rental charges
for private leased circuits service for each year in the three-year period
ended December 31, 1997 in constant reais of December 31, 1997 purchasing
power.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
--------- --------- ---------
(IN REAIS)
<S> <C> <C> <C>
Average rates for monthly line rental per leased
circuit: (1)
9.6 kbits/second capacity..................... 3,236.94 2,427.69 1,011.92
64 kbits/second capacity...................... 9,178.15 5,940.72 2,335.00
2 Mbits/second capacity....................... 58,829.47 45,844.62 29,088.43
</TABLE>
- --------
(1) Average of monthly average rates, net of value-added taxes, assuming a
transmission distance between 300 and 500 kilometers.
TAXES ON TELECOMMUNICATIONS SERVICES
The cost of all telecommunications services to the customer includes a
variety of taxes. The Company deducts the amount of such taxes to present net
operating revenue. The principal tax is a state value-added tax, the Imposto
sobre Circulacao de Mercadorias e Servicos ("ICMS"), which the Brazilian
states impose at varying rates on revenues from the provision of
telecommunications services. The rate in the state of Sao Paulo is 25% for
domestic telecommunications services.
On June 19, 1998 the secretaries of the treasury of the individual Brazilian
states approved an agreement to interpret existing Brazilian tax law to
broaden the application of the ICMS to cover not only telecommunications
services, but also other services, including cellular activation, which had
not been previously subject to such tax. Pursuant to this new interpretation
of existing tax law, the ICMS tax may be applied retroactively for such
telecommunications services rendered during the last five years.
The Company believes that the attempt by the state treasury secretaries to
extend the scope of ICMS tax to services which are supplementary to basic
telecommunications services is unlawful because: (i) the state secretaries
acted beyond the scope of their authority; (ii) their interpretation would
subject certain services to taxation which are not considered
telecommunications services; and (iii) no new taxes may be applied
retroactively. Accordingly, no provision for loss has been made in the
accompanying consolidated financial statements.
There can be no assurance that the Company will prevail in its position that
the new interpretation by the state treasury secretaries is unlawful. If the
25% ICMS tax were applied retroactively for five years, it would have a
material negative impact on the financial condition and results of operations
of the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations for the years ended
December 31, 1995, 1996 and 1997--Gross operating revenues--Value-added taxes
and other taxes."
Other taxes on operating revenues include two federal social contribution
taxes, the Programa de Assistencia aos Servidores de Empresas Publicas
("PASEP") (0.65%) and the Contribuicao para Financiamento da Seguridade Social
("COFINS") (2.0%). The average rate of all such taxes, as a percentage of the
Company's gross operating revenues, was 24% in 1997.
NETWORK AND FACILITIES
GENERAL
The Company's network consists of installed lines and exchanges, a network
of access lines connecting customers to exchanges, and long-distance related
systems. At December 31, 1997, the Company's regional telephone network
included approximately 6.0 million installed lines, of which 5.5 million were
lines in service. Of the access lines in service at that time, 68.1% were
residential lines, 29.2% were commercial lines and 2.7% were public telephone
lines. Intra-regional long-distance transmission is provided by a microwave
network and by fiber optic cable.
11
<PAGE>
The following table gives certain basic measures of the development of the
Company's network service for each year in the five-year period ended December
31, 1997.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Installed access lines (millions)............... 4.3 4.5 4.9 5.4 6.0
Access lines in service (millions).............. 4.1 4.3 4.5 5.1 5.5
Average access lines in service (millions)...... 4.1 4.1 4.4 4.8 5.3
Lines in service per 100 inhabitants............ 12.8 13.1 13.7 15.2 16.5
Percentage of installed access lines connected
to digital exchanges........................... 26.2 33.3 43.4 51.1 57.6
Employees per 1,000 access lines installed...... 6.2 5.8 5.1 4.3 4.0
Number of public telephones (thousands)......... 102.0 120.6 126.6 146.7 168.6
Local call pulses (billions).................... 21.5 22.2 23.3 24.3 23.5
Domestic long-distance call minutes (billions).. 5.3 6.3 7.9 9.0 9.9
International call minutes (millions)........... 79.3 94.5 145.5 165.5 202.6
</TABLE>
The Company believes that the unmet demand for fixed-line telecommunications
services in the Region is substantial. At December 31, 1997, 37% of the
households and 68% of the businesses in the Region had local telephone
service. Prior to the privatization, growth of lines in service was restricted
by government limits on capital expenditures. See "--Capital Expenditures." In
1997, the Company experienced a significant increase in applications for new
lines because the cost to the customer of installing new lines significantly
decreased following the elimination of auto-financing. See "--Rates--Local
Services." The customer waiting period for the installation of a new line
varies significantly depending on the capacity of the switching center that
serves the locality.
The Company began to install digital exchanges in 1982 and fiber optic cable
in 1984. Compared to the older analog technology, digital systems improve the
quality and efficiency of the network, accommodate higher traffic levels,
require less maintenance and permit the Company to offer a broad range of
value added services simultaneously on the same network, such as voice, text
and data applications. Optical fiber provides greater transmission capacity
and significantly reduces the fading of signals, and requires less frequent
amplification, thereby reducing the cost of providing service and increasing
traffic capacity and network reliability. Beginning in 1997, all new lines
installed by the Company were connected to digital exchanges and, during 1997,
14.7% of existing analog lines were converted to digital lines. At December
31, 1997, 57.6% of all installed lines were connected to digital exchanges. By
year end 1997, the Company installed 198,217 kilometers of fiber optic cable.
By the end of 2005, the Company plans to have replaced almost all of its
analog exchanges with digital exchanges.
The Company's network strategy is to develop an integrated broadband network
supporting all types of telecommunications services and multimedia, data and
image applications. It is incorporating new digital-based technologies in its
network with a view to providing integrated services. It is also developing
plans to install ATM-Asynchronous Transfer Mode technology network and
transmission platforms for high-speed switched services that will accommodate
image transmission. Beginning this year, it plans to establish an ISDN-
Integrated Services Digital Network that will provide high-quality, high-speed
capacity at competitive prices to residential and small business customers,
which are increasingly demanding such services. The Company is also developing
a digital-based systems architecture for the basic local and regional network
with a 2.5 Gbit SDH-Synchronous Digital Hierarchy transmission network linking
transit and tandem switches that will improve service delivery by placing the
digital accesses as close as possible to the user.
NETWORK EXPANSION
The Company is required under the Telecommunications Regulations to meet
certain targets regarding network expansion and modernization. See "--
Regulation of the Brazilian Telecommunications Industry--Obligations of
Telecommunications Companies--Network Expansion--General Plan on Universal
Service."
12
<PAGE>
The Company has identified the targets that the Company expects will be most
difficult to meet, those the Company expects to meet with medium difficulty
and those the Company expects to meet with relative ease. The targets the
Company expects will be most difficult to meet are maximum waiting periods for
the installation of a line, network digitalization and public telephone
availability. The Company is obligated to reduce the maximum waiting time for
installation of a line by year end 2001 to four weeks. Currently, the average
waiting time is 76 weeks, although the Company believes that a significant
portion of the persons on its waiting list are seeking to obtain a phone line
for resale on the secondary market rather than for personal use. The Company
believes that prior to privatization, the Company would not have been able to
comply with this target. However, following privatization, demand will be met
more readily as competitors enter the market and the Company expands its own
network without government-imposed restrictions on investments. See "--
Competition" and "--Capital Expenditures." The Company is obligated by year
end 1999 to achieve a 75% level of digital penetration. Currently, the
Company's network is 64% digital. Through investment in its network, the
Company plans to achieve 100% digital penetration by 1999. The Company is
obligated by year end 1999 to have 50% of public telephones available 24 hours
per day with local and domestic long-distance direct-dial capability and 25%
of such phones with international long-distance direct-dial capability.
Currently, the Company has 46% of such phones available with local and
domestic long-distance direct-dial capability and 0.05% with international
long-distance direct-dial capability. The Company's future plans for capital
expenditures include development of the public telephone network in order to
meet the Anatel targets. The Company expects to meet with medium difficulty
the targets requiring increases in total number of lines in service and
general increases in public telephones. All other targets the Company expects
to meet with relative ease.
BILLING AND ADMINISTRATION
The Company bills its customers for all calls made by its customers. The
Company receives network usage fees when calls from cellular carriers or other
fixed-line carriers terminate calls on its network and conversely, the Company
must pay network usage fees when calls from its customers terminate on the
network of a cellular carrier or one of the other fixed-line carriers. See "--
Rates--Network Services." After the collection cycle is over, the Company, the
cellular carriers and the other fixed-line carriers jointly reconcile the
amounts collected from customers against the amounts due to each carrier and
pay the net amounts outstanding to the appropriate parties. For international
and domestic long distance calls, the Company charges Embratel a fee for the
use of its local network and forwards the amount collected from its customers
for such calls to Embratel.
The Company sends each customer a monthly telephone bill covering all the
services provided during the prior period. Customers are grouped in fourteen
billing cycles based on the date the bill is issued. The telephone bill
separately itemizes long distance calls, calls made on a cellular network,
0800 and 0900 services and other services such as call waiting, voice mail and
call forwarding. Customer payments are effected under agreements with various
banks, either by debiting the customer's checking account or by direct payment
to a bank. The method of payment is at the option of each customer.
In 1997, the Company blocked the service of approximately 1.7 million lines,
and approximately 94.8% of such lines were unblocked following payment of the
overdue amounts. The Company charges interest at a rate of 1% per month plus a
one-time late charge of 2% of the total amount outstanding.
At December 31, 1997, 7.8% of all receivables were outstanding between 30
and 90 days and 4.8% of all receivables were outstanding for more than 90
days. Under previous regulations, the Company was not permitted to disconnect
a customer until a receivable was outstanding for over 90 days. The Company's
Concession agreements now authorize the Company to disconnect a customer after
30 days. The Company's future disconnection policy will depend on factors such
as the level of unmet demand, the level of competition and regulations
governing disconnection. The Company may take future measures that result in a
higher level of late payments or defaults. For a discussion of provisions for
past due accounts, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations for the years ended
December 31, 1995, 1996 and 1997--Operating expenses--Selling expense."
13
<PAGE>
COMPETITION
Since 1995, Brazil has adopted sweeping regulatory changes intended to
foster competition in the provision of telecommunications services. See "--
Background--Regulatory Reform and Privatization." Under the Telecommunications
Law and Telecommunications Regulations, Anatel is required, promptly after the
privatization, to open the markets to competition for local, intra-regional
long-distance, interregional long-distance and international long-distance
services by granting licenses to new entrants. Anatel is required to authorize
three new entrants to provide local telephone service and intra-regional long-
distance telephone service, with each of the three new entrants receiving two
licenses to provide such services in a single fixed-line Region, in addition
to authorizing one new entrant to provide intra-regional, interregional and
international telephone long-distance service by granting licenses to provide
such services throughout Brazil. These licenses will be issued in the Private
Regime and, as a result, the licensees will not be subject to the same
obligations to which concessionaires operating in the Public Regime are
subject. See "--Regulation of the Brazilian Telecommunications Industry--
Concessions and Licenses." In addition, Anatel is required to authorize
Embratel to provide full intra-regional long-distance service, including any
calls between local calling areas. Beginning in 2002, Anatel may grant an
unlimited number of additional licenses for the provision of local,
intraregional long-distance, interregional long-distance and international
long-distance services. See "--Regulation of the Brazilian Telecommunications
Industry--Concessions and Licenses."
The Company is currently the exclusive provider of local service in the
Region, but the new operator to be authorized by Anatel will compete with the
Company in the provision of local service. The Company is also currently the
exclusive provider of intra-regional long-distance service in the Region, but
following the privatization, Embratel will be authorized to compete with the
Company in the provision of intra-regional long-distance service in the
Region. In addition, the Company will face competition in intra-regional long-
distance from two new entrants. Beginning in 2002, the Company may face an
unlimited number of competitors in local and intra-regional long-distance, and
it may itself seek a license to provide interregional and international long-
distance service provided that it has met certain obligations contained in the
Concession. See "--Regulation of the Brazilian Telecommunications Industry--
Obligations of Telecommunications Companies."
The Company expects that Embratel will enter the intra-regional long-
distance business and begin to compete directly with the Company, although it
cannot predict the scope of Embratel's activities or the effect of competition
from Embratel. Embratel, the former long-distance carrier of the Telebras
System, is a potentially powerful competitor, with an extensive transmission
network, extensive experience and financial resources. The Company's fixed-
line services are also subject to competition from providers of cellular
telephone service. There are currently three cellular telephone service
operators in the Region: Telesp Cellular, which was spun off from the Company
in January 1998, BCP (a consortium including Bell South Corporation of the US,
the media group OESP, Safra Bank and Splice) and Tess (a consortium including
Telia of Sweden, two Brazilian construction firms and Unibanco).
The exact identity of other new entrants, the scope of increased competition
and any adverse effects on the Company's results and market share will depend
on a variety of factors that cannot now be assessed with precision and that
are beyond the Company's control. Among such factors are the business
strategies and capabilities of potential competitors, prevailing market
conditions at the time increased competition is permitted, the regulations
applicable to new entrants and the Company, and the effectiveness of the
Company's efforts to prepare for increased competition. One or more new
competitors may have technical or financial resources greater than those of
the Company. There can be no assurance that the entry of new competitors will
not have a material adverse effect on the Company's business, financial
condition, results of operations or prospects.
The Company is subject to comprehensive regulations that limit its ability
to set tariffs for its various services and that may limit its ability to
engage in activities that are considered to be anti-competitive. Such
regulations may limit the Company's ability to confront competition. See "--
Regulation of the Brazilian Telecommunications Industry."
14
<PAGE>
EMPLOYEES
As of February 28, 1998, the Company had 22,728 employees. All of the
Company's employees are employed on a full time basis, grouped according to
the following functions: 0.7% in corporate management, 1% in marketing, 8% in
plant expansion and modernization, 43% in plant operation and maintenance, 24%
in client services, 3% in human resources, 4% in budget and finance, 3% in
supplies, 4% in information services, 4% in administrative support and 5% in
general administration.
Approximately 54.3% of all employees are members of state labor unions
associated either with the Federacao Nacional dos Trabalhadores em
Telecomunicacoes ("Fenattel") or with the Federacao Interestadual dos
Trabalhadores em Telecomunicacoes ("Fittel"). Some employees in particular job
categories are affiliated with other unions specific to such categories. Each
operating subsidiary of the Company negotiates a new collective labor
agreement every year with the local union. These negotiations are carried out
with the supervision and guidance of the Company, on one side, and Fenattel or
Fittel, on the other. The collective agreements currently in force expire on
November 30, 1998. The Company's management considers the relations of the
Company with its work force to be satisfactory. The Company has never
experienced a work stoppage that had a material effect on its operations.
The Company participates in a pension fund established by Telebras, Fundacao
de Seguridade Social ("Sistel"), the primary purpose of which is to supplement
government-provided retirement benefits. The Company participates in Sistel
and makes monthly contributions to Sistel currently equal, on average, to
13.5% of the total salaries of all employees who are Sistel members. Each
employee member also makes a monthly contribution to Sistel based on age and
salary (currently around 7.4% of their salaries). Members of Sistel qualify
for full pension benefits after reaching age 57 and having completed at least
35 years of service for men and 30 years of service for women. Sistel operates
independently from the Company and Telebras, and its assets and liabilities
are fully segregated from those of the Company and Telebras. See Note 24 to
the Consolidated Financial Statements. Employees of the Company at the time of
the privatization have the right to maintain their rights and benefits in
Sistel in accordance with the terms in place at that time.
RESEARCH AND DEVELOPMENT
Until the Breakup of Telebras, the Company and the other companies of the
Telebras System were required to contribute to the research and development
center operated by Telebras (Centro de Pesquisa e Desenvolvimento da
Telebras--CPqD or the "Center") and also conducted some of their own
independent research and development. The Company's aggregate expenditures on
research and development were R$26.0 million, R$27.7 million and R$23.6
million for 1995, 1996 and 1997, respectively.
Following the Breakup of Telebras, the Center will become a private
independently administered non-profit foundation financed with resources from
the public and private sector and will continue to develop telecommunications
technology. Pursuant to an agreement signed in May 1998 between the Center and
the Company, the Company is obligated to contribute R$107 million to the
Center during a three-year period ending May 2001. During the effectiveness of
this agreement, the Company has access to telecommunications software
developed by the Center and other technological services provided by the
Center such as equipment testing and consulting and training services. Each of
the other New Holding Companies has entered into a similar contract with the
Center which entitles it to equal access to such services and requires it to
make contributions to the Center based on its revenues and its anticipated
need for such services. It is possible that the Center will also provide such
services to third parties on a fee-for-service basis. The Company may request
additional technological support from the Center than contemplated in the
agreement by contributing additional funds to the Center.
The Company conducts independent research and development in areas of
telecommunications services but does not independently develop new
telecommunications hardware. The Company primarily depends on manufacturers of
telecommunications products for the development of new hardware.
15
<PAGE>
CAPITAL EXPENDITURES
The primary focus of the Company's capital expenditure program has been the
expansion, modernization and digitalization of the network. For the future,
the Company expects to emphasize the development of the integrated broadband
network, as described under "--Network and Facilities."
Prior to the Breakup of Telebras, capital expenditures were planned and
allocated on a system-wide basis and were subject to approval by the Ministry
of Communications. In addition, the budget for capital expenditures of the
Telebras System was included in the annual budget of the Federal Government
and had to be approved by the federal Congress. In 1995, the Federal
Government instituted a broad investment program for public and private
businesses in the communications and postal sectors for the years 1995 through
1999 (Programa de Recuperacao e Expansao dos Sistemas de Telecomunicacoes e
Postal--PASTE or "PASTE"). The Telebras System was required to conform its
annual capital expenditure budget to the guidelines set by PASTE. The
companies that comprised the Telebras System were further required to comply
with public bidding processes prior to hiring third party contractors.
Since the Breakup and privatization of Telebras, the Company's capital
expenditures have not been subject to prior government approval nor
government-imposed spending limits nor public bidding processes. The Company
is now permitted to determine its own capital expenditure budget, subject to
compliance with certain obligations to expand services under the Concessions.
See "--Regulation of the Brazilian Telecommunications Industry--Obligations of
Telecommunications Companies." In addition, the financing of capital
expenditures is no longer carried out on a system-wide basis, and the Company
is required to obtain its own financing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The 1998 annual capital expenditure budget for the Telebras System includes
capital expenditures of the Company. The Company anticipates that capital
expenditures for the first eight months of 1998 will be R$1,710 million, which
is expected to be funded with internally generated funds from operations. The
Company expects, however, that as a result of the privatization, all capital
expenditures will be subject to revision by management and the new controlling
shareholders of the Company.
The following table sets forth, in constant reais of December 31, 1997
purchasing power, the Company's capital expenditures for each year in the
three-year period ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
(IN MILLIONS OF REAIS)
<S> <C> <C> <C>
Operational investments (1)............................. 246.2 253.7 148.5
Telephone equipment:
Exchanges........................................... 241.7 309.1 364.7
Transmission........................................ 173.5 87.9 122.2
Infrastructure...................................... 64.3 79.0 239.5
External network.................................... 381.5 452.3 496.2
Other............................................... 95.7 91.2 58.6
Data transmission equipment............................. 45.7 50.1 49.9
------- ------- -------
Total capital expenditures(2)........................... 1,248.6 1,323.3 1,479.6
======= ======= =======
</TABLE>
- --------
(1) Operational investments include investments to replace plant equipment and
other fixed assets generally without altering the capacity of the asset
replaced and certain investments in operational and technical support such
as telecommunications management network systems.
(2) The records on which the figures in the above table are based do not
include capitalized interest nor, for 1995, community expansion plan
investments (See Note 26 to the Consolidated Financial Statements).
Accordingly, Management has included these items within the identified
expenditure categories on an estimated basis.
16
<PAGE>
REGULATION OF THE BRAZILIAN TELECOMMUNICATIONS INDUSTRY
GENERAL
The Company's business, including the services it may provide and the rates
it charges for telecommunications services, is regulated by Anatel pursuant to
the Telecommunications Law, the regulations, decrees, orders and plans issued
thereunder and the Concessions granting the Company the right to provide
certain telecommunications services, subject to certain obligations contained
in the Concessions (the "List of Obligations").
BACKGROUND
From 1962 until 1967, the Brazilian telecommunications sector was regulated
by the Conselho Nacional de Telecomunicacoes (the "National Council of
Telecommunications"), and from 1967 until 1997 by the Ministry of
Communications, pursuant to Law No. 4,117 of August 27, 1962, as well as
certain regulations issued pursuant thereto from 1962 to 1996.
In August 1995, the Brazilian Congress amended the Brazilian Constitution to
allow the restructuring of the telecommunications sector. On July 19, 1996,
the Congress passed Law 9,295, the Lei Minima (the "Minimum Law"). The Minimum
Law began the process of opening up the cellular market to competition. The
Minimum Law was largely replaced by the Telecommunications Law, although
current cellular concessions for the former Telebras companies ("Band A") and
the private companies that were authorized to compete with the Band A
companies ("Band B") contain certain provisions derived from the Minimum Law.
In July 1997, the Congress passed the Telecommunications Law, which replaced
Law 4,117 and became the main basis for regulation of the telecommunications
sector, except for regulation of broadcasting, which was not addressed by the
Telecommunications Law.
REGULATORY AGENCY--ANATEL
The Telecommunications Law provides a framework for telecommunications
regulation. Article 8 of the Telecommunications Law established Anatel to
develop regulations and to enforce such regulations. The specific functions of
Anatel were set forth by the President of Brazil in Decree No. 2338 of October
7, 1997, the Regulamento da Agencia Nacional de Telecomunicacoes (the "Anatel
Decree"). Pursuant to the Telecommunications Law and the Anatel Decree, Anatel
replaces the Ministry of Communications as the regulatory agency for the
telecommunications sector. Anatel, unlike the Ministry of Communications, is
an independent regulatory agency. Anatel is administratively independent,
financially autonomous and not hierarchically subordinated to any organ of the
Brazilian Government, including the Ministry of Communications, in the area of
telecommunications regulation. While independent, Anatel does maintain a close
working relationship with the Ministry of Communications and informs the
Ministry of its activities. Article 19, Section XXIX of the Telecommunications
Law requires Anatel to submit an annual report summarizing its activities to
the Ministry of Communications.
Anatel is managed by a five-member Conselho Diretor ("Board of Directors"),
headed by an executive president. The directors of Anatel are nominated by the
President of Brazil, subject to approval by the Senate. Each director serves
for a single fixed term of 5 years; directors may not be reappointed. In order
further to ensure Anatel's independence, the first directors have been
appointed for different terms, from 3 to 7 years, so that only one director's
mandate will expire per year, ensuring a staggered appointment of directors in
the future. The directors may not exercise any other professional, business
(other than university professor), union or political function, nor may they
hold a significant interest, whether direct or indirect, in any company
related to telecommunications.
Anatel is financed through the Fundo de Fiscalizacao das Telecomunicacoes
("Fistel"). Fistel is a fund administered by Anatel and its funds are
currently the sole source of financing for Anatel's activities. Fistel
17
<PAGE>
receives the proceeds of, among other things, a tax imposed on concessionaires
and fees charged for licenses and concessions.
Any proposed regulation of Anatel is subject to a period of public comment,
including public hearings. Anatel's actions may ultimately be challenged in
Brazilian courts.
CONCESSIONS AND LICENSES
Companies wishing to offer telecommunications services to consumers are
required to apply to Anatel for a concession or license. Concessions and
licenses are granted for services in the public regime ("Public Regime") and
services in the private regime ("Private Regime"). The Public Regime is
differentiated from the Private Regime primarily by the obligations imposed on
the companies in the Public Regime rather than the type of services offered by
those companies. There are only four companies in the Public Regime: Embratel
and the three regional fixed-line companies. All other telecommunications
companies, including other companies providing the same telecommunications
services as the four companies in the Public Regime, operate in the Private
Regime.
Fixed-line Services--Public Regime. There are four providers of services in
the Public Regime: Embratel and the three regional fixed-line companies. These
four companies are the primary providers of the following fixed-line services
to the general public: local, intra-regional long-distance, interregional
long-distance and international long-distance. Each of these four companies
holds concessions, as required by the Telecommunications Law. Each Public
Regime concession is a specific grant of authority that allows the
concessionaire to offer a wide variety of telecommunications services but
specifically prohibits the concessionaire from offering certain
telecommunications services and imposes certain obligations on the
concessionaire concerning network expansion and modernization, quality and
continuity of service. The main restriction is that, until December 31, 2003,
the regional fixed-line companies will be prohibited from offering
interregional and international long-distance service, while Embratel will be
prohibited from offering local service unless certain obligations are met as
described below. Anatel is required, some time after the privatization process
is complete, to grant Embratel the right to offer full intra-regional long-
distance service, which is currently restricted to the regional fixed-line
companies. See "--Obligations of Telecommunications Companies--Public Regime--
Service Restrictions."
Concessions for Embratel and the three regional fixed-line companies are
granted for a fixed number of years, subject to certain obligations, with the
possibility of full renewal or revocation. See "--Obligations of
Telecommunications Companies--Public Regime--Service Restrictions." The
initial concessions for Embratel and the regional fixed-line companies have
been granted until 2005. After 2005, the concessions may be renewed. The
renewal period is currently 20 years. The current concessions granted to the
four companies in the Public Regime have not required the payment of a fee.
While terms for the grant of concessions to new entrants have not yet been
determined by Anatel, Embratel and the regional fixed-line companies are
required to pay biannual renewal fees after 2005 equal to 2% of annual net
revenues from the provision of fixed-line public telecommunications services
in the prior year (excluding taxes and social contributions) during the 20-
year renewal period.
Fixed-line Services--Private Regime. Licenses will be granted to new
competitors wishing to offer fixed-line-based services, including local,
intra-regional long-distance, interregional long-distance and international
long-distance, in the Private Regime. Licensees are not subject to the same
obligations as Public Regime concessionaires, although individual licenses may
contain certain obligations. After the privatization process for Embratel and
the three regional fixed-line companies is complete, Anatel is required to
authorize three new entrants to provide local telephone service and intra-
regional long-distance telephone service, with each of the three new entrants
receiving two licenses to provide such services in a single fixed-line Region,
in addition to authorizing one new entrant to provide intra-regional,
interregional and international telephone long-distance by granting three
licenses to provide such services throughout Brazil. The bidding requirements
are expected to contain certain minimum technical and financial standards. The
effective result of the license auction will be that
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<PAGE>
two companies compete in each of the markets for local service (one regional
fixed-line concessionaire and one licensee), four companies compete in the
markets for intra-regional long-distance service (one incumbent regional
fixed-line company, Embratel, and two licensees), and two companies compete in
the markets for interregional long-distance and international long-distance
(Embratel and one licensee). See "--Competition."
Until December 31, 2001, the four existing Public Regime concessionaires and
the new Private Regime licensees will be the only companies authorized to
offer local, intra-regional long-distance, interregional long-distance and
international long-distance services. Beginning January 1, 2002, the
Telecommunications Regulations require Anatel to end this period of
exclusivity and authorize new licensees wishing to offer such services. See
"--Competition."
Non-fixed Services--Private Regime--Concessions. The Band A and Band B
cellular companies are in the Private Regime. Pursuant to the Minimum Law and
the Telecommunications Law, the cellular companies in Band A and Band B have
been granted concessions. Each cellular concession is a specific grant of
authority to operate cellular services, subject to certain obligations
contained in the List of Obligations. If a cellular company wishes to offer
any telecommunications service other than the cellular service authorized by
its concession, it may apply to Anatel for a license to offer such other
services. See "--Non-fixed Services--Private Regime--Licenses."
Each cellular concession has been granted for an initial period of 15 years,
subject to renewal for further periods of 15 years if the List of Obligations
contained in a concession has been met. The Band A cellular concessions did
not require the payment of a fee. Terms of payment for renewal of the Band A
and Band B cellular concessions have not yet been established.
Currently, there is a limit on the number of cellular companies. One company
may operate in Band A and one company in Band B for each cellular region.
Under the cellular concessions, Anatel may not authorize additional providers
of cellular service until December 31, 1999.
Non-fixed Services--Private Regime--Licenses. Except for cellular service,
for which no new licenses may be granted until December 31, 1999, licenses may
be granted to any company wishing to offer non-fixed telecommunications
services in the Private Regime. Licensees are not subject to the same
obligations as Public Regime concessionaires, although individual licenses may
contain certain obligations.
OBLIGATIONS OF TELECOMMUNICATIONS COMPANIES
Providers of telecommunications services are subject to certain obligations
contained in the List of Obligations of their concessions and licenses. The
four providers of telecommunications services in the Public Regime are subject
to a set of special restrictions regarding the services they may offer,
contained in the Plano Geral de Outorgas ("General Plan of Concessions and
Licenses"), and special obligations regarding service quality, network
expansion and modernization contained primarily in the Plano Geral de Metas de
Qualidade ("General Plan on Quality") and the Plano Geral de Metas de
Universalizacao ("General Plan on Universal Service"). These restrictions and
obligations are also contained in the concessions of the four companies,
particularly in the List of Obligations.
Public Regime--Service Restrictions. Under the General Plan on Concessions
and Licenses, Embratel and the regional fixed-line companies are prohibited
from offering certain basic fixed-line telecommunications services until they
fulfill the List of Obligations as described below. Embratel is prohibited
from offering local or cellular services and the regional fixed-line companies
are prohibited from offering cellular, interregional long-distance and
international long-distance services. Anatel is required, some time after the
privatization is effected, to grant Embratel the right to enter the market for
full intra-regional long-distance service, including service within the
states, as a competitor to the regional fixed-line companies and to grant the
fixed-line companies the right to offer interstate intra-regional long-
distance service, which they were not authorized to offer in the past.
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<PAGE>
The General Plan of Concessions and Licenses provides certain incentives to
encourage Embratel and the three regional fixed-line companies to fulfil the
service quality, network expansion and modernization obligations contained in
the List of Obligations quickly. Under the General Plan of Concessions and
Licenses, the progress of Embratel and the regional fixed-line companies
towards attaining their List of Obligations will be measured annually by
Anatel. Two measuring dates, December 31, 2001 and December 31, 2003 are of
particular importance (the "2001 Targets" and the "2003 Targets"). See tables
in "--Network Expansion--General Plan on Universal Service" and "--Quality of
Service--General Plan on Quality." In the period before the 2001 Targets are
measured, Anatel will regularly monitor the progress of Embratel and the
regional fixed-line companies and communicate with them. If they fail to meet
the 2001 Targets, Anatel may, at its discretion, revoke their concessions. If
they meet the 2001 Targets, they may continue to operate. In the period before
the 2003 Targets are measured, Anatel will regularly monitor the progress of
the four companies and communicate with them. If Embratel and the regional
fixed-line companies meet the 2003 Targets, the restrictions on the services
the four companies may offer will be eliminated and the companies will be
allowed to apply for licenses to offer any other service. In addition, if, in
its review for the 2001 Targets, Anatel finds that any of the four companies
has met the 2003 Targets, Anatel will immediately eliminate the restrictions
on the telecommunications services that company may offer. Anatel may also
eliminate the restrictions on a date other than the official measuring dates
of December 31, 2001 and December 31, 2003 if it finds that a company has met
the 2003 Targets. Failure to meet the 2003 Targets could result in revocation
of the Concessions.
In order to attract new entrants and ensure competition, there are also
certain restrictions on alliances, joint ventures, mergers and acquisitions
involving Public Regime concessionaires, including:
. A concessionaire is prohibited from holding more than 20 percent of the
equity in any other concessionaire
. Concessionaires offering different services in the Public Regime in
either the same or different regions are prohibited from offering
services jointly
. Concessionaires offering the same service in the Public Regime in
different regions are prohibited from offering services jointly
. Mergers between fixed-line regional companies and cellular companies are
prohibited
. Companies offering telephony services are prohibited from offering cable
television
Anatel has not yet determined whether the restrictions under its control
will expire in the future or under what conditions they would expire.
Network Expansion--General Plan on Universal Service. Under the General Plan
on Universal Service, the regional fixed-line companies are required to expand
switched, fixed-line service to cover the entire national territory of Brazil
in accordance with the List of Obligations. Embratel is also subject to the
universal service requirement of providing access to direct-dial interregional
and international long-distance service by installing public telephones in
remote regions and isolated communities. Since universal service requirements
are restricted to the provision of switched, fixed-line basic telephony
services, formal universal service requirements do not apply to cellular
companies, although the cellular companies are subject to certain similar
requirements under the cellular List of Obligations and certain cellular
regulations, including obligations to expand their networks and to provide
cellular services without pricing discrimination within customer categories.
Universal service will be financed through two primary mechanisms: (a) the
normal capital expenditure budgets of Embratel and the regional fixed-line
companies, and (b) a universal service fund.
Embratel and the regional fixed-line companies are themselves responsible
for financing their universal service obligations of network expansion from
their own revenues. No subsidies or other supplemental financing is
anticipated to finance the network expansion obligations contained in the List
of Obligations. However, the General Plan on Universal Service allows Anatel
to waive the network expansion requirements once a company succeeds in meeting
the 2001 Target for maximum waiting time for installation of a line of four
weeks. If a
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<PAGE>
regional fixed-line company fails to meet its obligations in a particular
region, Anatel may grant licenses to competing companies to provide the
service and may compel the regional fixed-line company to make its network
available for the competitor's use.
The Telecommunications Law also provides for a universal service fund to
contribute to the costs of providing universal service. While the exact nature
of the universal service fund is not yet known, a bill has been submitted to
the Congress that states that if a company, after meeting its universal
service obligations, finds that it cannot operate a certain service in a
certain region at a profit, the company may apply to receive a subsidy from
the universal service fund--for costs incurred beyond costs necessary to meet
its obligations--to ensure that it covers its costs in providing the service.
The following table sets forth the network expansion and modernization
obligations of the Company as stated in the List of Obligations for the period
1999-2005 and the Company's status with respect to each obligation as of
December 31, 1997.
NETWORK EXPANSION AND MODERNIZATION
<TABLE>
<CAPTION>
COMPANY STATUS BY DECEMBER 31,
AS OF DECEMBER 31, --------------------------------------
1997 1999 2000 2001 2002 2003 2004 2005
------------------ ----- ----- ----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum total number of
installed lines in
millions............... 5.9 7.8 9.2 10.7 -- -- -- --
Fixed switched service
fully available if
population greater
than:.................. 300 inhabitants -- -- 1,000 -- 600 -- 300
Maximum waiting time for
installation of a line
(in weeks)(1).......... 76 -- -- 4 3 2 1 --
Minimum number of public
telephones in service
(in thousands)......... 168.6 217.5 242.9 271.3 -- -- -- --
Public telephones per
1,000 inhabitants...... 5.0 -- -- -- 7.5 -- 8.0
Minimum ratio of public
telephones to fixed
terminals (%).......... 0.03 -- -- -- -- 0.025 -- 0.03
Minimum digitalization
level
(% of network)......... 64.2 75 -- 85 -- 95 -- 100
Maximum distance to a
public telephone
(meters)(1)............ 500 800 -- 500 -- 300 -- --
Full-Service public
telephone
availability(2):
as a % of total number
of public telephones:
international long-
distance............. 61% 25 -- -- -- -- -- --
local and domestic
long-distance........ 100% 50 -- -- -- -- -- --
in areas with no fixed
switched service (# of
inhabitants).......... 200 1000 -- 600 -- 300 -- 100
</TABLE>
- --------
(1) Applies only to areas where fixed switched service is fully available.
(2) Public telephones available 24 hours a day with direct-dial capability.
Quality of Service--General Plan on Quality. The General Plan on Quality
contains a series of service quality obligations that are incorporated into
the List of Obligations of Embratel and each regional fixed-line company.
These include attainment of certain targets such as reducing average dial tone
delay, achievement of certain call completion rates for local, intra-regional
long-distance, and interregional and international long-distance calls,
reducing average operator assistance delay, reducing trouble reports per 100
lines, reducing average time of repair, reducing average time of installation,
increasing billing accuracy, and achieving certain customer satisfaction
levels for public payphones, residential telephony and nonresidential
telephony.
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<PAGE>
The following table sets forth the quality of service obligations of the
Company as stated in the List of Obligations for the period 1999-2005 and the
Company's status with respect to each obligation as of December 31, 1997.
QUALITY OF SERVICE
<TABLE>
<CAPTION>
BY DECEMBER 31,
----------------------------------
COMPANY STATUS
AS OF
DECEMBER 31,
1997 1999 2000 2001 2002 2003 2004 2005
-------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dial tone within 3 seconds
(% of cases)............... 99 98 -- 99 -- 99.5 -- --
Call completion rate during
peak periods (% of calls
attempted)(1).............. 56 60 -- 65 -- 70 -- --
Maximum busy circuit rate
during peak periods(1) (%
of calls attempted)........ 6 6 -- 5 -- 4 -- --
Maximum monthly repair
requests per line.......... .027 .03 -- .025 -- .02 -- .015
Maximum monthly public
telephone repair requests
per line................... 0.29 .15 -- .12 -- .10 -- .08
Residential repair response
speed (% within 24
hours)(2).................. 82 95 -- 96 -- 97 -- 98
Nonresidential repair
response speed (% within 8
hours)(3).................. 47 95 -- 96 -- 97 -- 98
Public telephone repair
response speed (% within 8
hours)..................... 44 95 -- 96 -- 97 -- 98
Operator availability during
peak periods (%
answer/within 10 seconds).. 61 92 -- 93 -- 94 -- 95
Billing inaccuracy
(inaccurate bills per 100
bills)(4).................. 0.6 .4 -- .3 -- .2 -- --
Credit issued within one
billing cycle for claimed
inaccuracies (% of cases).. 90 95 -- 96 -- 97 -- 98
</TABLE>
- --------
(1) For local and domestic long-distance calls.
(2) Must always be within 48 hours.
(3) Must always be within 24 hours.
(4) A bill is considered inaccurate for this purpose if a customer claims it
is inaccurate.
Failure to meet both network expansion and modernization obligations and the
quality of service obligations in the List of Obligations may result in fines
and penalties of up to R$50,000,000 as well as potential revocation of the
Company's Concession. The Company's ability to meet the quality of service
obligations in the List of Obligations will depend upon certain factors
outside its control. While there can be no assurances, the Company believes
that it will be able to meet these requirements.
Interconnection. Interconnection is mandatory between all telecommunications
networks upon request by any party. Interconnection tariffs are subject to a
price-cap established by Anatel. Rates below the applicable price-cap may be
negotiated between the parties. If a company offers an interconnection tariff
below the price-cap, it must offer that price to any other requesting party on
a non-discriminatory basis.
Anatel has stated that it does not expect to grant parties requesting
interconnection the right to co-locate their equipment at this time. Co-
location means that a party requesting interconnection may place its switching
equipment in or near the local exchange of the network operator whose network
the requesting party wishes to use and connect to the network at this point of
presence. Co-location is currently a matter of negotiation between the
parties.
22
<PAGE>
Anatel does not currently mandate unbundling of network elements and
services by the providers of such elements and services, although Anatel has
stated that it plans to review the issue on a regular basis and may introduce
unbundling in the future. In an unbundled regime, every network operator is
required to provide a detailed list of network services and elements which may
be purchased by a party requesting interconnection and the requesting party
then has the right to select and purchase a subset of the network elements and
services available.
Number Portability. Number portability is the ability of a customer to move
to a new home or office or switch service providers while retaining the same
telephone number. Full number portability is mandatory within a local area.
RATE REGULATION
General. In May 1997, a tariff rebalancing was implemented pursuant to which
monthly subscription charges and measured service charges for all customers
increased, while domestic and international long-distance rates were lowered.
In addition, the previous mechanism for financing the installation of new
lines (auto-financing), which required customers to purchase shares of
Telebras, was eliminated and replaced with a flat installation charge. With
retroactive effect as of April 1, 1998, the regime used to divide domestic and
international long-distance revenues between Embratel and the regional fixed-
line companies was replaced with a network usage fee for interconnection such
as already existed for use of cellular networks by the fixed-line companies
and for use of the fixed networks by cellular operators. In addition to the
network usage charge, Embratel is also required to pay a supplemental per-
minute charge called Parcela Adicional de Transicao ("PAT") that supplements
the network usage charge. Embratel is the only company that is required to pay
PAT charges. Embratel will be required to pay PAT charges for three years,
after which time the PAT charges will be phased out.
Price-Caps. Concessions with the regional fixed-line companies and Embratel,
including the Concessions with the Company, provide for a price-cap mechanism
to set and adjust rates on an annual basis. The price-cap mechanism consists
of a maximum amount, or price-cap, stipulated by Anatel, that may be charged
for a particular service and on a weighted average rate for a basket of basic
services. The services include all of the services in the basic service plan,
such as installation charges, monthly subscription fees, switched local
service, intra-regional long-distance, interregional long-distance and
international long-distance service, as well as public telephone service and
interconnection charges, including network usage fees. The main baskets for
the regional fixed-line companies are for local services, including
installation charges, the monthly subscription fee, and measured usage
charges, and for interconnection services, including network usage fees and
equipment rental charges. The main baskets for Embratel are interregional
long-distance, international long-distance and interconnection.
The initial price-cap established by Anatel in the Concessions is based on
the previously existing tariffs. The initial price-cap will be adjusted on an
annual basis under a formula contained in the Concessions. The formula allows
two adjustments to the price-cap. First, the price-cap is revised upward to
reflect increases in inflation by multiplying the price-cap by (1+1(y)), where
y represents the rate of inflation as measured by the Indice Geral de Precos--
Disponibilidade Interna ("IGP-DI"), an inflation index developed by the
Fundacao Getulio Vargas, a private Brazilian economic research organization.
Second, the inflation-adjusted price-cap is adjusted downward to ensure
productivity gains by multiplying the inflation-adjusted price-cap by (1-X),
where X represents a set productivity factor (the "X-factor").
23
<PAGE>
In order to provide an incentive to Embratel and the regional fixed-line
companies to increase their efficiency and to reward consumers of
telecommunications services, Anatel applies an X-factor representing annual
productivity adjustments to the tariffs of Embratel and the regional fixed-
line companies. In the period 1998 to December 31, 2005, the tariffs of
Embratel and the regional fixed-line companies will be adjusted downward as
follows:
<TABLE>
<CAPTION>
X-FACTOR ANNUAL PRODUCTIVITY
ADJUSTMENTS
---------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-line companies--local and intra-
regional long-distance............... 0% 0% 0% 0% 2% 2% 4% 4%
Fixed-line companies--interconnec-
tion................................. 10% 10% 10% 10% 10% 15% 15% 15%
Embratel--interregional long-dis-
tance................................ 2% 2% 2% 4% 4% 4% 5% 5%
Embratel--international long-dis-
tance................................ 5% 5% 5% 7% 7% 7% 10% 10%
</TABLE>
The price-cap covers a basket of basic services. While the weighted average
tariff for the entire basket may not exceed the price-cap, the tariffs for
individual services within the basket may be increased. The Company may
increase the tariff for any individual service by up to 5%, subject to a
downward adjustment for inflation effects already captured in the annual
upward adjustments of the overall price-cap for the basket, so long as it
adjusts other prices downward to ensure that the weighted average tariff does
not exceed the price-cap.
The Company may also offer alternative plans in addition to the basic
service plan. For instance, a customer might wish to choose an alternative
plan that allows unlimited calling for a set fee rather than pay the per-
minute fee under the basic service plan. Alternative plans must be submitted
to Anatel for approval, but are not currently subject to a price-cap.
For information on the Company's current tariffs and service plans, see "--
Rates."
Installation Charges. Installation charges for connection to the fixed-line
telephone network have been reduced to a maximum flat rate of R$80 for all
customers, both residential and nonresidential as of October 1997. All
regional fixed-line companies are subject to this maximum for installation
uniformly in every local calling area throughout Brazil. Local areas include
those areas currently connected to the fixed-line network and correspond
largely to urban areas. Customers outside of the local areas must negotiate
the price of installation with the Company. Currently, the Company is charging
an installation charge of R$50, rather than R$80. This fee replaces the
autofinancing mechanism which had been in place, which required customers to
purchase shares in Telebras. See "--Rates--Local Services."
Monthly Subscription Charges. Residential and nonresidential customers must
pay a monthly access fee for connection to the fixed-line telephone network.
There are currently three levels of monthly access fees in Brazil, R$10, R$15
and R$20, excluding taxes, depending on customer characteristics, with all
residential customers paying R$10 and most business customers paying R$15. See
"--Rates--Local Services."
Measured Service Charges. Users of local service, both residential and
nonresidential, pay for local calls depending on usage. Usage is measured in
pulses. Pulses occur system-wide every four minutes for local calls. These
system-wide pulses are recorded independently of when individual calls are
actually made. In addition to system-wide pulses, the system records one
individualized pulse for every call when the call is connected. After the
first individualized pulse, only system-wide pulses are used in determining
the charge for a call. The result of this system is that, while the time
between the second and every subsequent pulse is always in increments of four
minutes, the time between the first (individualized) pulse and the second
(system-wide) pulse may vary. For example, the time between the first
(individualized) pulse and the second (system-wide) pulse may vary between one
second and four minutes.
For normal weekday calls, local call charges are determined by multiplying
the number of pulses by the charge per pulse. For calls being made any day
between midnight and 6:00 a.m., in addition to Saturdays from 2:00 p.m. to
midnight and all day Sunday and holidays, a caller is charged for only one
pulse regardless of the duration of a call.
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<PAGE>
All users of local service currently receive 90 free pulses per month as
part of their monthly subscription, equivalent to about 140 minutes per month
in the case of an average user. Through the tariff rebalancing of May 1997,
measured usage charges increased by approximately 61%. See "--Rates--Local
Services."
Anatel has stated that, as a consequence of its tariff restructuring in May
1997, cross-subsidies among various telecommunications services have been
largely eliminated.
Intra-Regional Long-Distance. Users of service pay differing rates for local
measured service and intra-regional long-distance service. Intra-regional
long-distance consists of interurban calls originating and terminating within
the calling area of a regional fixed-line company. The Company is allowed to
carry such calls entirely over its own network. When it does so, the Company
receives all of the revenues from such calls. As part of the May 1997 tariff
rebalancing, intra-regional long-distance rates were lowered, with an
effective reduction of approximately 32%. Intra-regional calls are billed
based on the duration of a call and distance. There are currently 20 intra-
regional long-distance tariffs based on combinations of four day/time
categories and five distance categories. Certain intra-regional long-distance
calls are made within an area code and are measured in pulses.
For a breakdown of the Company's current intra-regional long-distance
tariffs, see "--Rates--Intra-Regional Long-Distance Service."
Network Usage Charges. Other telecommunications companies wishing to
interconnect with and use the Company's network--primarily to gain access to
the Company's customers for call origination and completion--must pay certain
fees, primarily a network usage fee. In addition, other telecommunications
operators rent equipment, such as trunk lines, from the Company for use within
their own internal networks. Fees for network usage and equipment rental are
subject to price-caps stipulated by Anatel.
The price-cap for the network usage fee specified by Anatel varies from
company to company based on the underlying cost characteristics of each
company's network. The fee is a flat fee charged per minute of use which
represents an average charge for a basket of network elements and services.
Embratel, the cellular companies and any future new entrants into the market
must pay the network usage fee if they access end customers via the network of
a regional fixed-line company. In practical terms, even though the network
usage fee includes the costs of a variety of network elements and services,
the network usage fee primarily reflects the use of certain facilities of the
Company for which Embratel and the cellular companies do not have adequate
substitutes, particularly the local loop between local exchanges and end
customers. Anatel has stated that Embratel is likely to be the primary
provider of network usage fees since it will need to use at least the local
loop to access end customers for the provision of long-distance service and
since Embratel is under an obligation to provide universal long-distance
service.
In the past, the Company shared revenues for interstate and international
long-distance calls with Embratel rather than charging Embratel a network
usage fee for the use of the Company's network. Under this system, the Company
retained a fixed percentage of the revenues associated with such calls and
paid the balance of the revenues associated with such calls to Embratel. This
system was replaced with retroactive effect as of April 1, 1998 with the
interconnection charge regime that had already been in place for
interconnection of the Company's network with cellular networks, under which
the Company charges for connection to its network and usage of its network.
The total level of interconnection charges in the future is likely to depend
greatly on the interconnection regime adopted by Anatel and how it is
enforced. See "--Obligations of Telecommunications Companies--
Interconnection."
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<PAGE>
BRAZILIAN POLITICAL ENVIRONMENT
The Brazilian political environment was marked by high levels of uncertainty
after the country returned to civilian rule in 1985, ending 20 years of
military government. The death of a President-elect in 1985 and the
resignation of another President in the midst of impeachment proceedings in
1992, as well as rapid turnover at and immediately below the cabinet level,
adversely affected the implementation of consistent economic and monetary
policies, including consistent policies in the areas of government-owned
enterprises and telecommunications.
Mr. Fernando Henrique Cardoso, the Finance Minister at the time of
implementation of Brazil's latest economic stabilization plan (the "Real
Plan"), was elected President of Brazil in October 1994 and took office in
January 1995. He has generally sought to continue the economic stabilization
and liberalization policies he had developed as Finance Minister from May 1993
through April 1994. Although some important groups remain opposed to
significant elements of his program and the implementation of policies of
economic stabilization and liberalization is subject to significant
compromises and accommodations, President Cardoso is the leader of a coalition
of political parties that represents a majority of the federal Congress. His
party controls the state governments of the States of Sao Paulo, Rio de
Janeiro and Minas Gerais, and his policies have broad political support.
Elections will be held in October of 1998 in which the President, Vice-
President, state Governors and the members of the Chamber of Deputies, as well
as one third of the members of the Senate, will be elected. The outcome of
these elections could have a strong impact on whether the economic reforms of
the Cardoso administration can continue. Although the Brazilian Constitution
was amended in June 1997 so as to permit President Cardoso to run for a second
term in office, there can be no assurance that President Cardoso will be re-
elected and, more generally, there can be no assurance that the political
consensus in favor of the economic reform program pursued by the Cardoso
administration can or will be sustained following the elections.
BRAZILIAN ECONOMIC ENVIRONMENT
The financial condition and results of operations of the Company are
dependent on general economic conditions in Brazil, and in particular on (i)
economic growth and its impact on demand for telecommunications services, (ii)
the cost and availability of financing and (iii) exchange rates between
Brazilian and foreign currencies.
For many years, the Brazilian economy was extremely volatile, and the
Federal Government implemented a succession of programs intended to stabilize
the economy and provide a basis for sustainable, non-inflationary growth. The
Company was affected by economic instability and by such programs in a variety
of ways, particularly when they have resulted in contractions in demand or
very high real interest rates or prevented the Company from raising rates to
keep pace with the rate of inflation.
Until the introduction of the Real Plan, measures by the Federal Government
intended to influence the course of Brazil's economy, such as changes in
monetary, credit, tariff and other policies, were frequent and occasionally
drastic. See "Exchange Controls and Other Limitations Affecting Security
Holders." In particular, actions to control inflation, interest rates or
consumption included freezing bank accounts, imposing capital controls,
introducing high tariffs and other strong measures. Changes in policy, social
instability and other political and economic developments, and the Brazilian
government's responses to such developments, not infrequently have had a
material adverse effect on the Company's business, financial condition and
results of operations.
Beginning in December 1993, the Federal Government introduced the Real Plan,
an economic stabilization program intended to reduce the rate of inflation by
reducing certain public expenditures, collecting liabilities owed to the
Federal Government, increasing tax revenues, continuing to privatize
government-owned entities and introducing a new currency. The real was
introduced as Brazil's currency on July 1, 1994, based on a new unit of
account, the URV, introduced earlier in the year. Since taking office in
January 1995, President Cardoso has
26
<PAGE>
continued to implement the Real Plan. The real generally appreciated through
January 1995 and thereafter gradually declined in value against the dollar,
reaching R$1.1164 to US$1.00 at December 31, 1997. Under the Real Plan, the
rate of inflation has decreased significantly and there has been sustained
growth in real gross domestic product. See "--Inflation and Devaluation."
Notwithstanding the success of the Real Plan in lowering inflation and
stabilizing the Brazilian economy, the Real Plan also led to an economic
slowdown, a rise in unemployment in some regions and specific sectors of the
economy, and adversely impacted certain sectors of the economy.
Beginning in August 1998, following the devaluation of the Russian Ruble,
Brazil has experienced substantial capital outflows, significant declines in
its stock markets and speculative attacks on the Brazilian currency. In
response, the Federal Government has raised interest rates and stated that it
will continue to support the value of the real and to abide by the principles
inherent in the Real Plan. Previously, in the fourth quarter of 1997, Brazil
experienced a financial crisis following the financial and economic crisis in
Asia. In response, the Federal Government adopted several economic measures to
protect the Real Plan and the stability of the Brazilian currency. These
measures included (i) an increase in interest rates, including a near doubling
of short-term interest rates, (ii) an increase in certain tax rates, (iii) a
reduction in Federal Government spending for 1998 and (iv) restrictions on
imports. Government policies to control inflation and to reduce budget and
trade deficits could also result in further actions that could slow or halt
Brazilian economic growth. It is not possible to foresee how measures like
these will affect the business, financial condition and results of operations
of the Company.
Brazil's trade deficit for 1997 increased to US$8.37 billion compared to
US$5.54 billion for 1996. There can be no assurance that the Brazilian
government will not introduce credit restrictions to subdue domestic demand in
order to reduce the trade deficit, nor that any such credit restrictions will
not have a material adverse effect on the business, operations, financial
condition or results of operations of the Company. A continuing increase in
the trade deficit would substantially reduce Brazil's approximately US$50.8
billion of reserves at December 31, 1997 and could negatively affect Brazil's
economic development as a whole.
PRIVATIZATION
The Federal Government, directly or through various state-owned enterprises,
owns many companies and controls a major portion of activities in the oil and
gas sectors. Most of the energy production and postal services companies are
directly or indirectly controlled by the Federal Government.
To reduce its participation in the economy, the Federal Government has
engaged in the privatization of certain state enterprises. The objectives of
the privatization program are (i) to reduce the role of the state in the
economy and allocate more resources to social investment, (ii) to reduce
public sector debt, (iii) to encourage increased competition and thereby raise
the standards and efficiency of Brazilian industry and (iv) to strengthen the
capital markets and promote wider share ownership. As originally presented the
Real Plan contemplated constitutional amendments which would permit private
participation in the state-controlled petroleum and telecommunications sectors
and in other areas that had constitutionally mandated monopolies, such as
pipeline distribution of gas and the shipping industry. These amendments were
approved by Congress in 1995. A council directly subordinate to the President,
the Conselho Nacional de Privatizacao (the "Privatization Council"), and Banco
Nacional de Desenvolvimento Economico e Social (the "National Development
Bank" or "BNDES") are responsible for administering the privatization program.
As of December 31, 1996, a total of 52 state enterprises or divisions
thereof had been privatized, and several minority interests held by Federal
Government companies had been sold for nominal consideration totaling US$13.7
billion (including payment made in Brazilian currency and payment made by
means of qualified debt instruments issued to the federal government, its
agencies and state-controlled companies). To date, the privatizations have,
for the most part, been effected through share auctions conducted on Brazil's
stock exchanges. Although the majority of such share auctions have been
successful, there have been instances in which a share auction has failed due
to lack of bidders. Although the majority of such share auctions have been
successful, there have been instances in which a share auction has failed due
to a lack of bidders. Privatization revenues for 1997 exceeded $26.0 billion.
Some of the Brazilian states, such as Sao Paulo, Minas Gerais, Pernambuco,
Paraiba and Maranhao are also conducting privatization programs in relation to
state services.
27
<PAGE>
Brazilian labor unions have opposed certain of the privatization measures
proposed by the Brazilian Government, but the Federal Government has, to date,
been able to move forward with its program despite such opposition.
DEVELOPMENTS IN OTHER EMERGING MARKET COUNTRIES; BRAZILIAN AUSTERITY PROGRAM
The Brazilian securities markets are, to varying degrees, influenced by
economic and market conditions in other emerging market countries. Although
economic conditions are different in each country, investors' reactions to
developments in one country can have an effect on the securities of issuers in
other countries, including Brazil. For example, since the fourth quarter of
1997, the international financial markets have experienced significant
volatility, and a large number of financial market indices, including those in
Brazil, have declined significantly. The current market volatility in Latin
America and other emerging market countries' securities markets has also been
attributed, at least in part, to the effects of the Asian economic crisis.
There can be no assurance that the Brazilian securities markets will not
continue to be affected negatively by events elsewhere, especially in emerging
markets, or that such events will not adversely affect the value of the ADSs.
In reaction to the growing market volatility in Asia, the Federal Government
implemented several measures intended to curtail the outflow of foreign
investment, as Central Bank reserves were reduced from U.S.$61.2 billion in
September 1997 to U.S.$52.9 billion by the end of October 1997. On October 30,
1997, the Central Bank raised the benchmark interest rate from 20.7% to 43.4%
in order to retain investment funds in the country. On November 10, 1997 the
Federal Government presented a series of fiscal measures aimed at reducing the
budget deficit and bolstering economic conditions. The measures included
certain tax increases, eliminations of budget expenses and reductions in
available fiscal incentives. The package of measures was intended to produce a
savings of R$20 billion, due to the decrease in expenses and the increase in
revenue. These fiscal measures have been substantially implemented.
Constitutional reforms affecting civil servants and social security have also
been accelerated and may result in lower government deficits. However, there
can be no assurance that such measures will be successful in protecting the
Federal Government's present currency exchange rate policy and price stability
program.
Additionally, the decrease in economic activity caused by the increase in
interest rates and the fiscal measures may have substantial negative effects on
companies doing business in Brazil. Projected GDP growth for Brazil for 1998
has been reduced from approximately 4% to approximately 1%. It is expected that
these events may have the effect of reducing the purchasing power of Brazilian
consumers in general. Since the increase in interest rates, the Central Bank
has gradually reduced its benchmark interest rate, setting its rates at 40.9%
on December 1, 1997, at 38.0% on January 2, 1998, at 34.5% on January 29, 1998,
at 28.0% on March 5, 1998, at 21.8% on May 20, 1998, at 21.0% on June 25, 1998
and at 19.75% on July 29, 1998. There can be no assurance that a decrease in
interest rates will not cause further investment outflows.
Events in Asia also may affect the competitiveness of Brazilian exports. In
addition, the proceeds from scheduled privatizations may not reach expected
levels, in which case the current account deficit would cause a deterioration
in foreign reserves, adversely affecting the currency exchange rate policy.
28
<PAGE>
INFLATION AND DEVALUATION
Brazil experienced extremely high and generally unpredictable rates of
inflation and of devaluation of Brazilian currency for many years until the
implementation of the Real Plan. Inflation itself, as well as certain
governmental measures to combat inflation, and public speculation about
possible future actions have also historically contributed to economic
uncertainty in Brazil and to heightened volatility in the Brazilian securities
markets. The following table sets forth Brazilian inflation, as measured by
the UFIR for 1995 and the IGP-M for 1996-1998, and the devaluation of the
Brazilian currency against the U.S. dollar for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, FIRST QUARTER SECOND QUARTER
-------------- ENDED MARCH 31, ENDED JUNE 30,
1995 1996 1997 1998 1998
---- ---- ---- --------------- --------------
(IN PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Inflation (UFIR for 1995; IGP-M
for 1996-1998)................. 22.5 9.2 7.7 1.3 1.8
Devaluation (Brazilian currency
vs. US$)....................... 15.0 6.9 7.4 1.9 3.6
</TABLE>
Since the introduction of the Real Plan in July 1994, the rate of inflation
has decreased considerably. As measured by the IGP-M, the rate of inflation
was 7.7% for 1997 and 1.3% for the first quarter of 1998. Despite this
reduction, the rate of inflation remains high compared to other countries, and
the potential for distortions or dislocations attributable to changing prices
continues to exist. The exchange rate between the real and the U.S. dollar has
also been relatively stable since early July 1994, compared to prior periods,
although the potential for devaluation or volatility persists. See "Exchange
Rates."
ITEM 2: DESCRIPTION OF PROPERTY
The principal properties of the Company consist of transmission plants
(including outside plant and trunk lines), exchange equipment and switching
equipment. The Company's land and buildings principally consist of its
telephone exchanges and other technical, administrative and commercial
properties. Exchanges include local exchanges, "toll" exchanges that connect
local exchanges to long-distance transmission facilities and "tandem"
exchanges that connect local exchanges with each other and with toll
exchanges.
The Company's properties are located throughout the state of Sao Paulo. At
March 31, 1998, the Company utilized 1,673 properties, of which 1,392 sites
were owned by the Company. Telesp owns the building in Sao Paulo from which
the majority of its management activities are conducted. Pursuant to Brazilian
legal procedures, liens have been placed on several of the Company's
properties pending the outcome of various legal proceedings to which the
Company is a party.
At December 31, 1997, plant and equipment related to switching stations
represented approximately 25.0%, transmission equipment represented 32.5%,
construction in progress represented approximately 11.0%, buildings,
underground equipment and lines represented approximately 23.4% and other
fixed assets represented approximately 8.1% of the net book value of the
Company's total fixed assets. At December 31, 1997, the net book value of the
Company's property, plant and equipment was R$12,589.4 million.
ITEM 3: LEGAL PROCEEDINGS
The Breakup of Telebras is subject to several lawsuits in which the
plaintiffs have requested, and in certain cases obtained, preliminary
injunctions against the Breakup. All of these preliminary injunctions have
been quashed by decisions of the relevant Federal Court, although several of
such decisions are currently on appeal. If any such appeal is successful, the
shareholders of Telebras will be required to reapprove the Breakup or other
legislative action may be required.
The lawsuits to which the Breakup has been subjected are based on a number
of legal theories, the principal among which are that (i) Brazil's
Constitution requires that the creation of the twelve New Holding Companies be
specifically authorized by the Telecommunications Law--the Breakup is not so
authorized; (ii) the
29
<PAGE>
shareholders' meeting of Telebras held on May 22, 1998 which approved the
Breakup was not properly convened; (iii) national sovereignty will be
threatened if the country's telecommunications companies are controlled by
foreign entities; and (iv) the Telecommunications Law requires that certain
matters, such as the entry of new competitors and the administration of
development and technology funds, be regulated prior to the Breakup and
privatization either by an executive order of the President or by an act of
Congress. If any of the plaintiffs in the above-described lawsuits ultimately
prevails, the Breakup will have to be reinitiated. This could require,
depending upon the prevailing plaintiff's theory, any combination of (i)
amendment of the Telecommunications Law, (ii) reconvening the May 22, 1998
Telebras shareholders' meeting and (iii) the passage of additional laws by
Congress or issuance of executive orders by the President. It is theoretically
possible under Brazilian law for a court to require that the Breakup be
unwound, although the Company believes that this would not be likely to occur.
The Company is a party to certain legal proceedings arising in the normal
course of business, including civil, administrative, tax, social security and
labor proceedings. The Company has provided for or deposited in court amounts
to cover its estimated losses due to adverse legal judgments. In the opinion
of management, such actions, if decided adversely to the Company, would not
have a material adverse effect on the Company's business and financial
condition.
The Company is a party to several lawsuits filed by the National Institute
of Social Security in 1997 before the Federal Courts of Sao Paulo relating to
the collection of the Contribuicoes devidas ao Seguro de Acidente de Trabalho
(Workers Accident Insurance Tax or "SAT") for the period between January 1986
and June 1996. The aggregate amount involved in such lawsuits is approximately
R$100 million. The Company has allowed judicial liens to be placed on five of
its properties, valued at approximately R$61.6 million in the aggregate,
pursuant to Brazilian legal procedures pending the outcome of such lawsuits.
In the event the Company prevails in such lawsuits, such liens will be lifted
from the properties.
A class action suit was filed against the Company in 1995 seeking an
injunction against the Company's "servicos 900" (code 900 services). While the
Company believes that it will prevail on the merits in this civil action, the
Company faces an estimated loss in revenues of approximately R$72 million per
year if an injunction is granted.
Telebras is the legal predecessor of the Registrant and is a defendant in a
number of legal proceedings and subject to certain other claims and
contingencies.
Under the terms of the Breakup, liability for any claims arising out of acts
committed by Telebras prior to the effective date of the Breakup remains with
Telebras, except for labor and tax claims (for which Telebras and the New
Holding Companies are jointly and severally liable by operation of law) and
any liability for which specific accounting provisions have been assigned to
the Registrant or one of the other New Holding Companies. Creditors of
Telebras may challenge this allocation of liability until September 14, 1998.
Management of the Company believes that the chances of any such claims
materializing and having a material adverse financial effect on the Company
are remote.
ITEM 4: CONTROL OF REGISTRANT
Of the Company's two classes of capital stock outstanding, only the Common
Shares have full voting rights. The Preferred Shares have voting rights under
limited circumstances. See "Description of the Securities to be Registered--
Capital Stock--Voting Rights." Tele Brasil Sul owns 51.8% of the Common
Shares. Accordingly, Tele Brasil Sul has the ability to control the election
of the Company's Board of Directors and the direction and future operations of
the Company.
30
<PAGE>
The following table sets forth information concerning the ownership of
Common Stock by Tele Brasil Sul and by the Company's officers and directors as
a group. The Company is not aware of any other shareholder owning more than
10.0% of the Common Shares.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
COMMON OUTSTANDING
NAME OF OWNER SHARES OWNED COMMON SHARES
------------- -------------- -------------
<S> <C> <C>
Tele Brasil Sul.................................. 64,405,151,125 51.79%
All directors and executive officers as a group
(6 persons)..................................... 37,857 0.00%
</TABLE>
The following is a brief description of the shareholders of Tele Brasil Sul.
TELEFONICA INTERNACIONAL S.A. Telefonica Internacional S.A. is a subsidiary
of Telefonica de Espana S.A. ("Telefonica"). Telefonica is dedicated to the
telecommunications sector, with activities in Spain and Portugal and in the
Americas. Telefonica provides a comprehensive range of telecommunications
services, including fixed, mobile and public telephone services to the
residential and business markets, as well as international calls, data
transmission and infrastructure services. Its shares are listed on the Madrid
Stock Exchange and on the New York Stock Exchange. Telefonica is also a
participant in the consortia that acquired control of three other New Holding
Companies: Tele Leste Celular Participacoes S.A., Telesp Celular Participacoes
S.A. and Tele Sudeste Celular Participacoes S.A.
PORTUGAL TELECOM S.A. Portugal Telecom is part of the Portugal Telecom Group
("Portugal Telecom"). Portugal Telecom is a company dedicated to the
telecommunications sector, more specifically to the establishment, management
and exploration of the telecommunications' infrastructures and the supply of
telecommunications services. It also provides the services of distribution of
telecommunications diffusion signals. Portugal Telecom is also a participant
in the consortia that acquired control of another New Holding Company: Telesp
Celular Participacoes S.A.
BANCO BILBAO VIZCAYA. Banco Bilbao Vizcaya ("BBV") is part of a Spanish
financial group with presence in 35 countries. BBV's principal business is
retail banking, in which BBV accounts more than 6.5 million clients. It also
provides other services related to retail banking, such as telephone and
computer banking. In addition to retail banking, BBV has six other core
business areas, each of which focuses on a certain group of clients or
markets, or has its own geographic responsibilities. These areas include banks
in Spain, banks abroad, wholesale banking, private banking and asset
management and diversification.
IBERDROLA S.A. Iberdrola is an electric power company whose major activity
is the generation, transportation, distribution and marketing of electricity.
Iberdrola is also engaged in sectors such as new energy, engineering,
consultancy, telecommunications, information systems, real estate, and added
value services to customers. In Spain, it provides electricity to its more
than eight million customers, which represent 40% of the peninsular domestic
market. Iberdrola performs activities in 23 companies set up in Argentina,
Bolivia, Brazil, Colombia, Chile and Guatemala, and participates in the
management of electricity, gas and telecommunications supply to over ten
million customers in those countries. Iberdrola is also a participant in the
consortia that acquired control of two other New Holding Companies: Tele Leste
Celular Participacoes S.A. and Tele Sudeste Celular Participacoes S.A.
RBS PARTICIPACOES S.A. RBS Participacoes S.A. is a family-owned holding
company dedicated to investing in the telecommunication, television and media
businesses.
ITEM 5: NATURE OF TRADING MARKET
There has never been a trading market for the Common Shares, the Preferred
Shares or the ADSs. The common shares and preferred shares of Telesp have
traded on the Bolsa de Valores de Sao Paulo (the "Sao Paulo Stock Exchange"),
the Bolsa de Valores do Rio de Janeiro (the "Rio de Janeiro Stock Exchange")
and the seven other Brazilian stock exchanges (together with the Sao Paulo
Stock Exchange and the Rio de Janeiro Stock Exchange, the "Brazilian Stock
Exchanges") since May 18, 1998. Prior to that date, Telesp shares traded on
such exchanges as units with shares of Telesp Cellular. Prior to the spin-off
of Telesp's cellular operations to
31
<PAGE>
Telesp, common shares and preferred shares of Telesp traded on the Brazilian
Stock Exchanges. Management believes that the market prices of Telesp shares
and units comprised of Telesp Cellular and Telesp shares are not indicative of
the eventual market price, if any, of the Preferred Shares.
The table below sets forth, for the periods indicated, the high and low
closing sales prices for the preferred shares of Telesp as reported on the Sao
Paulo Stock Exchange. The eventual market price of the Preferred Shares, if
any, is expected to differ materially from the market price of the preferred
shares of Telesp, which are set forth below. Two factors accounting for this
difference are expected to be (i) that the Registrant has certain assets and
liabilities that Telesp does not (see Note 23 to the Consolidated Financial
Statements) and (ii) that the capital structure of Telesp differs
significantly from that of the Registrant. As of May 18, 1998, Telesp had
29,662,618,749 common shares and 27,659,105,063 preferred shares outstanding.
Telesp's capital structure is different from that of the Registrant. See
"Description of Securities to be Registered--Capital Stock--General."
<TABLE>
<CAPTION>
PRICES PER 1,000
PREFERRED SHARES OF
TELESP (1)
-------------------
HIGH LOW
-------------------
<S> <C> <C>
May 18, 1998 through May 31, 1998........................ R$ 300.00 R$ 220.00
June 1, 1998 through June 30, 1998....................... R$ 282.00 R$ 232.00
July 1, 1998 through July 31, 1998....................... R$310.00 R$ 257.00
August 1, 1998 through September 16, 1998................ R$197.00 R$ 77.00
</TABLE>
- --------
(1) Share prices are for Telesp, a subsidiary of the Registrant, and not for
the Registrant itself.
The preferred shares of each of the New Holding Companies, including the
Preferred Shares, have been traded together with the preferred shares of
Telebras as a unit on the Brazilian Stock Exchanges since the Breakup of the
Telebras System. Additionally, Telebras ADSs, each representing 1,000 Telebras
preferred shares and, since the Breakup, each also representing deemed
ownership of 1,000 preferred shares of each of the New Holding Companies, have
continued to trade on the NYSE.
On September 21, 1998, common shares and preferred shares of each New
Holding Company, including the Preferred Shares, will commence trading
separately on the Brazilian Stock Exchanges. It is expected that during or
before October 1998 American Depositary Shares representing preferred shares
of each New Holding Company will be issued and commence trading separately on
the NYSE. The ADSs, each representing 1,000 Preferred Shares of the
Registrant, will be issued to the holders of Telebras ADSs pursuant to a
Deposit Agreement (the "Deposit Agreement") among the Registrant, The Bank of
New York as Depositary (the "Depositary") and the holders of the ADSs from
time to time. See "Description of Securities to be Registered--Description of
American Depositary Receipts in respect of Preferred Shares."
Application to list the Preferred Shares on the Brazilian Stock Exchanges
has been granted subject to distribution of the Preferred Shares, and trading
on the Brazilian Stock Exchanges is expected to commence on September 21,
1998. Application has been made to list the ADSs on the NYSE upon issuance
under the symbol TSP. Prices at which the Preferred Shares and the ADSs may
trade cannot be predicted. There can be no assurance that an active trading
market for the Preferred Shares in Brazil or for the ADSs in the United States
or elsewhere will develop or be sustained.
TRADING ON THE BRAZILIAN STOCK EXCHANGES
Of Brazil's nine stock exchanges, the Sao Paulo Stock Exchange and the Rio
de Janeiro Stock Exchange are the most significant. During 1997, the Sao Paulo
Stock Exchange accounted for approximately 93% of the trading value of equity
securities on all Brazilian stock exchanges, and the Sao Paulo Stock Exchange
and the Rio de Janeiro Stock Exchange together accounted for approximately 99%
of the trading value of equity securities on all Brazilian stock exchanges.
Each Brazilian stock exchange is a non-profit entity owned by its member
brokerage firms. Trading on each exchange is limited to member brokerage firms
and a limited number of authorized non-members. The Sao Paulo Stock Exchange
and the Rio de Janeiro Stock Exchange have two open outcry trading sessions
each day, from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 5:00 p.m. Trading
is also conducted during this time on an
32
<PAGE>
automated system on the Sao Paulo Stock Exchange and on the National
Electronic Trading System ("SENN"), a computerized system that links the Rio
de Janeiro Stock Exchange electronically with the seven smaller regional
exchanges. Market makers exist on the Sao Paulo Stock Exchange, but are only
authorized to make markets in options for stock indices which are traded on
that exchange and to engage in transactions on META (Mercado de Empresas
Teleassistidas), an electronic trading system operating at the Sao Paulo Stock
Exchange and permitting trading in the securities of companies registered for
that purpose. These companies must appoint the market makers authorized to
deal in their securities. There are no specialists or market makers for the
Company's shares on the Sao Paulo Stock Exchange. The Comissao de Valores
Mobiliarios (the Brazilian Securities Commission or "CVM") and each of the
Brazilian stock exchanges have discretionary authority to suspend trading in
shares of a particular issuer under certain circumstances. Trading in
securities listed on the Brazilian stock exchanges may be effected off the
exchanges in certain circumstances, although such trading is very limited.
Settlement of transactions is effected three business days after the trade
date without adjustment of the purchase price for inflation. Payment for
shares is made through the facilities of separate clearinghouses for each
exchange, which maintain accounts for member brokerage firms. The seller is
ordinarily required to deliver the shares to the exchange on the second
business day following the trade date. The clearinghouse for the Sao Paulo
Stock Exchange is Calispa S.A., which is owned by the member brokerage firms.
The clearinghouse for the Rio de Janeiro Stock Exchange is CLC-Camara de
Liquidacao e Custodia S.A., which is 99% owned by that exchange.
At December 31, 1997, the aggregate market capitalization of the 536
companies listed on the Sao Paulo Stock Exchange was approximately R$285.0
billion. Substantially the same securities are listed on the Sao Paulo Stock
Exchange and on the Rio de Janeiro Stock Exchange. Although all the
outstanding shares of an exchange-listed company may trade on a Brazilian
stock exchange, in most cases less than half of the listed shares are actually
available for trading by the public, the remainder being held by small groups
of controlling persons that rarely trade their shares. This is particularly
true in the case of mixed-capital companies, such as the Company before the
privatization, of which more than half of the voting shares must by law be
owned by Brazilian governmental entities. For this reason, data showing the
total market capitalization of Brazilian stock exchanges tends to overstate
the liquidity of the Brazilian equity securities market.
Although the Brazilian equity market was Latin America's largest in terms of
market capitalization, it is relatively small and illiquid compared to major
world markets. In 1997, the combined daily trading volumes on these two
exchanges averaged approximately R$945.4 million. In 1997, the five most
actively traded issues represented approximately 72.9% of the total trading in
the cash market on the Sao Paulo Stock Exchange and approximately 50.5% of the
total trading in the cash market on the Rio de Janeiro Stock Exchange.
Trading on Brazilian stock exchanges by non-residents of Brazil is subject
to certain limitations under Brazilian foreign investment legislation. See
"Description of Securities to be Registered."
REGULATION OF BRAZILIAN SECURITIES MARKETS
The Brazilian securities markets are regulated by the CVM, which has
authority over stock exchanges and the securities markets generally, and by
the Central Bank of Brazil, which has, among other powers, licensing authority
over brokerage firms and regulates foreign investment and foreign exchange
transactions. The Brazilian securities market is governed by Law No. 6,385
dated December 7, 1976, as amended (the "Brazilian Securities Law"), and the
Brazilian Corporation Law.
Under the Brazilian Corporation Law, a company is either public, a
"companhia aberta," such as the Company, or private, a "companhia fechada."
All public companies are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded
either on the Brazilian stock exchanges or in the Brazilian over-the-counter
("Brazilian OTC") market. The shares of a public company, including the
Company, may also be traded privately, subject to certain limitations. To be
listed on the Brazilian stock exchanges, a company must apply for registration
with the CVM and the stock exchange where the head office of the company is
located. Once this stock exchange has admitted a company to listing
33
<PAGE>
and the CVM has accepted its registration as a public company, its securities
may be traded on all other Brazilian stock exchanges.
Trading in securities on the Brazilian stock exchanges may be suspended at
the request of a company in anticipation of a material announcement. Trading
may also be suspended on the initiative of a Brazilian stock exchange or the
CVM, among other reasons, based on or due to a belief that a company has
provided inadequate information regarding a material event or has provided
inadequate responses to inquiries by the CVM or the relevant stock exchange.
The Brazilian Securities Law provided for, among other things, disclosure
requirements, restrictions on insider trading and price manipulation, and
protection of minority shareholders. However, the Brazilian securities markets
are not as highly regulated and supervised as the United States securities
markets or markets in certain other jurisdictions.
ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no restrictions on ownership of Preferred Shares or Common Shares
of the Registrant by individuals or legal entities domiciled outside Brazil.
Until the Registrant was privatized, it was subject to provisions of
Brazilian corporate law applicable to mixed-capital companies under Brazilian
law. These provisions ceased to apply after the Registrant was privatized. As
a mixed-capital company, the Registrant was not subject to bankruptcy and the
Federal Government was contingently liable for the obligations of the
Registrant for so long as its assets were encumbered and attached. However,
substantial limitations applied to the attachment or sale of assets of the
operating subsidiaries of the Registrant that were used to provide
telecommunications services pursuant to the Company's concession. Similarly,
the sale of shares representing voting control of operating subsidiaries
providing public telecommunications services was subject to government
authorization. The sale of preferred shares of operating subsidiaries, or of
assets not used to provide telecommunications services, was not subject to
these restrictions.
The right to convert dividend payments and proceeds from the sale of shares
into foreign currency and to remit such amounts outside Brazil is subject to
restrictions under foreign investment legislation which generally requires,
among other things, that the relevant investments have been registered with
the Central Bank of Brazil. Such restrictions on the remittance of foreign
capital abroad may hinder or prevent Banco Itau S.A. (the "Custodian"), as
custodian for the Preferred Shares represented by ADSs, or holders who have
exchanged ADRs for Preferred Shares from converting dividends, distributions
or the proceeds from any sale of such Preferred Shares, as the case may be,
into U.S. dollars and remitting such U.S. dollars abroad. Holders of ADSs
could be adversely affected by delays in, or refusal to grant any, required
government approval for conversions of Brazilian currency payments and
remittances abroad of the Preferred Shares underlying the ADSs.
Under Annex IV to Resolution No. 1,289 of the National Monetary Council, as
amended (the "Annex IV Regulations"), qualified foreign investors (which
principally include foreign financial institutions, insurance companies,
pension and investment funds, charitable foreign institutions and other
institutions that (i) seek to invest in financial markets and (ii) meet
certain minimum capital and other requirements) registered with the CVM and
acting through authorized custody accounts managed by local agents may buy and
sell shares on Brazilian stock exchanges without obtaining separate
Certificates of Registration for each transaction. Investors under the Annex
IV Regulations are also entitled to favorable tax treatment. See "Taxation--
Brazilian Tax Considerations." Resolution No. 1,927 of the National Monetary
Council, which is the restated and amended Annex V to Resolution No. 1,289 of
the National Monetary Council (the "Annex V Regulations"), provides for the
issuance of depositary receipts in foreign markets in respect of shares of
Brazilian issuers. The ADS program will be approved under the Annex V
Regulations by the Central Bank of Brazil and the CVM prior to the issuance of
the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR holders
outside Brazil are free of Brazilian foreign investment controls and holders
of the ADSs will be entitled to favorable tax treatment. See "Taxation--
Brazilian Tax Considerations."
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A Certificate of Registration will be issued in the name of the Depositary
with respect to the ADSs prior to the issuance of the ADSs and will be
maintained by the Custodian on behalf of the Depositary. Pursuant to the
Certificate of Registration, the Custodian and the Depositary are able to
convert dividends and other distributions with respect to the Preferred Shares
represented by ADSs into foreign currency and remit the proceeds outside
Brazil. In the event that a holder of ADSs exchanges such ADSs for Preferred
Shares, such holder will be entitled to continue to rely on the Depositary's
Certificate of Registration for five business days after such exchange,
following which such holder must seek to obtain its own Certificate of
Registration with the Central Bank of Brazil. Thereafter, any holder of
Preferred Shares may not be able to convert into foreign currency and remit
outside Brazil the proceeds from the disposition of, or distributions with
respect to, such Preferred Shares, unless such holder (i) qualifies under the
Annex IV Regulations or (ii) obtains its own Certificate of Registration, and
in the case of (ii), it will be subject to less favorable Brazilian tax
treatment than a holder of ADSs. See "Taxation--Brazilian Tax Considerations."
Under current Brazilian legislation, the Federal Government may impose
temporary restrictions on remittances of foreign capital abroad in the event
of a serious imbalance or an anticipated serious imbalance of Brazil's balance
of payments. For approximately six months in 1989 and early 1990, the Federal
Government froze all dividend and capital repatriations held by the Central
Bank of Brazil that were owed to foreign equity investors, in order to
conserve Brazil's foreign currency reserves. These amounts were subsequently
released in accordance with Federal Government directives. The imbalance in
Brazil's balance of payments increased during 1997, and there can be no
assurance that the Federal Government will not impose similar restrictions on
foreign repatriations in the future.
ITEM 7: TAXATION
The following summary contains a description of the principal Brazilian and
U.S. federal income tax consequences of the acquisition, ownership and
disposition of Preferred Shares or ADSs, but it does not purport to be a
comprehensive description of all the tax considerations that may be relevant
to a decision to purchase Preferred Shares or ADSs. The summary is based upon
the tax laws of Brazil and regulations thereunder and on the tax laws of the
United States and regulations thereunder as in effect on the date hereof,
which are subject to change. This summary is also based upon the
representations of the Depositary and on the assumption that each obligation
in the Deposit Agreement relating to the ADRs and any related documents will
be performed in accordance with its terms. PROSPECTIVE PURCHASERS OF PREFERRED
SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF PREFERRED SHARES
OR ADSs.
Although there is at present no income tax treaty between Brazil and the
United States, the tax authorities of the two countries have had discussions
that may culminate in such a treaty. No assurance can be given, however, as to
whether or when a treaty will enter into force or how it will affect the U.S.
holders of Preferred Shares or ADSs. Prospective holders of Preferred Shares
or ADSs should consult their own tax advisors as to the tax consequences of
the acquisition, ownership and disposition of Preferred Shares or ADSs in
their particular circumstances.
BRAZILIAN TAX CONSIDERATIONS
The following discussion summarizes the principal Brazilian tax consequences
of the acquisition, ownership and disposition of Preferred Shares or ADSs by a
holder that is not domiciled in Brazil for purposes of Brazilian taxation and,
in the case of a holder of Preferred Shares, that has registered its
investment in Preferred Shares with the Central Bank of Brazil as a U.S.
dollar investment (in each case, a "non-Brazilian holder"). It is based on
Brazilian law as currently in effect. Any change in such law may change the
consequences described below. The following discussion summarizes the
principal tax consequences applicable under current Brazilian law to non-
Brazilian holders of Preferred Shares or ADSs; it does not specifically
address all of the Brazilian tax considerations applicable to any particular
non-Brazilian holder, and each non-Brazilian holder should consult his or her
own tax advisor concerning the Brazilian tax consequences of an investment in
Preferred Shares or ADSs.
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TAXATION OF DIVIDENDS
Dividends, including dividends paid in kind, paid by the Company (i) to the
Depositary in respect of the Preferred Shares underlying the ADSs or (ii) to a
non-Brazilian holder in respect of Preferred Shares will generally not be
subject to Brazilian withholding tax in the case of distributions of profits
earned as from January 1, 1996. Stock dividends relating to profits generated
prior to December 31, 1995 are not subject to withholding tax in Brazil unless
the stock is redeemed by the Company within five years from such distribution
or the non-Brazilian holder sells the stock in Brazil within such five-year
period.
Brazil has entered into tax treaties with several countries. However, there
is currently no tax treaty between the United States and Brazil. The only
Brazilian tax treaty now in effect that, if certain conditions are met, would
reduce the rate of the withholding tax on dividends in respect of profits
generated prior to December 31, 1995 below the generally applicable 15% rate
is the treaty with Japan, which would reduce such rate to 12.5% under the
circumstances stated in such treaty.
TAXATION OF GAINS
Gains realized outside Brazil by a non-Brazilian holder on the disposition
of ADSs to another non-Brazilian holder are not subject to Brazilian tax.
The withdrawal of Preferred Shares in exchange for ADSs is not subject to
Brazilian tax. The deposit of Preferred Shares in exchange for ADSs is not
subject to Brazilian tax provided that the Preferred Shares are registered
under the Annex IV Regulations. In the event the Preferred Shares are not so
registered, the deposit of Preferred Shares in exchange for ADSs may be
subject to Brazilian capital gains tax at the rate of 10% or 15% as described
below. On receipt of the underlying Preferred Shares, a non-Brazilian holder
who qualifies under the Annex IV Regulations will be entitled to register the
U.S. dollar value of such shares with the Central Bank of Brazil as described
below under "--Registered Capital."
Non-Brazilian holders are not subject to tax in Brazil on gains realized on
sales of Preferred Shares that occur abroad or on the proceeds of a redemption
of, or a liquidating distribution with respect to, Preferred Shares. As a
general rule, non-Brazilian holders are subject to a withholding tax imposed
at a rate of 15% on gains realized on sales or exchanges of Preferred Shares
that occur in Brazil to or with a resident of Brazil outside of a Brazilian
stock exchange. Non-Brazilian holders are generally subject to a withholding
tax at a rate of 10% on gains realized on sales or exchanges in Brazil of
Preferred Shares that occur on a Brazilian stock exchange but will not be
subject to tax if either such a sale is made within five business days of the
withdrawal of such Preferred Shares in exchange for ADSs and the proceeds
thereof are remitted abroad within such five-day period, or such a sale is
made under the Annex IV Regulations by certain qualified institutional non-
Brazilian holders that register with the CVM. Gains realized by an investor
under the Annex IV Regulations are not subject to tax, provided certain
conditions are met. The "gain realized" is the difference between the amount
in Brazilian currency realized on the sale or exchange and the acquisition
cost, measured in Brazilian currency without any correction for inflation, of
the shares sold. The "gain realized" as a result of a transaction with respect
to shares registered as an investment with the Central Bank of Brazil (and not
subject to the Annex IV Regulations) will be calculated based on the foreign
currency amount registered with the Central Bank of Brazil. There can be no
assurance that the current preferential treatment for holders of ADSs and non-
Brazilian holders of Preferred Shares under the Annex IV Regulations will not
be changed. Reductions in the tax rate provided for by Brazil's tax treaties
do not apply to tax on gains realized on sales or exchanges of Preferred
Shares.
Any exercise of preemptive rights relating to the Preferred Shares or ADSs
will not be subject to Brazilian taxation. Any gain on the sale or assignment
of preemptive rights relating to the Preferred Shares by the Depositary will
not be subject to Brazilian taxation.
DISTRIBUTIONS OF INTEREST ON NET WORTH
In accordance with Law No. 9,249, dated December 26, 1995, Brazilian
corporations may make payments to shareholders characterized as distributions
of interest on the Company's net worth. Such interest is limited to
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the Federal Government's long-term interest rate (the "TJLP") as determined by
the Central Bank of Brazil from time to time (10.63% per annum for the three
month period starting June 1, 1998), and cannot exceed the greater of (i) 50%
of net income (before taking such distribution and any deductions for income
taxes into account) for the period in respect of which the payment is made or
(ii) 50% of retained earnings.
Distributions of interest on net worth in respect of the Preferred Shares
paid to shareholders who are either Brazilian residents or non-Brazilian
residents, including holders of ADSs, are subject to Brazilian withholding tax
at the rate of 15% (except for interest due to the Federal Government, which
is exempt from tax withholding) and shall be deductible by the Registrant for
purposes of the Corporate Income Tax ("IRPJ") and Social Contribution on
Profit ("CSLL") (both of which are levied on the Company's profits) as long as
the payment of a distribution of interest is approved in the Registrant's
annual shareholders' meeting. The amount of distributions of interest on net
worth will be determined by the Board of Directors of the Registrant. No
assurance can be given that the Board of Directors of the Registrant will not
determine that future distributions of profits will be made by means of
interest on net worth instead of by means of dividends.
Under Brazilian law and regulations, the amount paid to shareholders as
interest on net worth (net of any withholding tax) may be treated as payment
in lieu of the Mandatory Dividend and Preferred Dividend (as defined under
"Description of Securities to be Registered--Capital Stock--Dividends"). In
addition, any Brazilian corporation distributing interest on net worth is
obligated to distribute to shareholders an amount sufficient to ensure that
the net amount received (after payment of withholding taxes) is at least equal
to the Mandatory Dividend.
Distributions of interest on net worth in respect of the Preferred Shares,
including to holders of ADSs, may be converted into U.S. dollars and remitted
outside of Brazil to U.S. holders, subject to relevant exchange restrictions.
See "Description of Securities to be Registered--Capital Stock--Payment of
Dividends" and "--Description of American Depositary Receipts in respect of
Preferred Shares--Dividends, Other Distributions and Rights."
OTHER BRAZILIAN TAXES
There are no Brazilian inheritance, gift or succession taxes applicable to
the ownership, transfer or disposition of Preferred Shares or ADSs by a non-
Brazilian holder except for gift and inheritance taxes levied by some States
in Brazil on gifts made or inheritances bestowed by individuals or entities
not resident or domiciled in Brazil or in the relevant State to individuals or
entities that are resident or domiciled within such State in Brazil. There are
no Brazilian stamp, issue, registration, or similar taxes or duties payable by
holders of Preferred Shares or ADSs.
Pursuant to Decree 2,219, dated May 2, 1997, a financial transaction tax
(the "IOF") may be imposed on the conversion into Brazilian currency of the
proceeds of a foreign investment in Brazil (including investments in Preferred
Shares and ADSs and investments made under the Annex IV Regulations) and may
also be imposed upon the conversion of Brazilian currency into foreign
currency (e.g., for purposes of paying dividends and interest). The IOF tax
rate is currently 0%. Although the Minister of Finance has the legal power to
increase the rate to a maximum of 25%, any such increase will be applicable
only to transactions occurring after such increase becomes effective.
On January 24, 1997, a temporary tax was enacted. The Contribuicao
Provisoria sobre Movimentacao Financeira ("CPMF Tax"), which was created by
Constitutional Amendment No. 12 of August 16, 1996 and regulated by Law No.
9,311 of October 24, 1996, is levied on debits on bank accounts and certain
other payments made by a bank, at a rate of 0.2%, which may be raised at any
time to 0.25%. The CPMF Tax was initially scheduled to be collected until
February 22, 1998; the CPMF Tax was subsequently extended until January 27,
1999 by Law No. 9,539 of December 12, 1997.
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REGISTERED CAPITAL
The amount of an investment in Preferred Shares held by a non-Brazilian
holder who qualifies under the Annex IV Regulations and obtains registration
with the CVM, or by the Depositary representing such holder, is eligible for
registration with the Central Bank of Brazil; such registration (the amount so
registered is referred to as "Registered Capital") allows the remittance
outside Brazil of foreign currency, converted at the Commercial Market Rate,
acquired with the proceeds of distributions on, and amounts realized with
respect to disposition of, such Preferred Shares. The Registered Capital for
each Preferred Share purchased in the form of an ADS, or purchased in Brazil,
and deposited with the Depositary in exchange for an ADS, will be equal to its
purchase price (in U.S. dollars) to the purchaser. The Registered Capital for
a Preferred Share that is withdrawn upon surrender of an ADS will be the U.S.
dollar equivalent of (i) the average price of the Preferred Share on the
Brazilian stock exchange on which the greatest number of Preferred Shares was
sold on the day of withdrawal, or (ii) if no Preferred Shares were sold on
that day, the average price on the Brazilian stock exchange on which the
greatest number of Preferred Shares were sold in the fifteen trading sessions
immediately preceding such withdrawal. The U.S. dollar value of the Preferred
Shares is determined on the basis of the average Commercial Market Rates
quoted by the Central Bank of Brazil on such date (or, if the average price of
Preferred Shares is determined under clause (ii) of the preceding sentence,
the average of such average quoted rates on the same fifteen dates used to
determine the average price of the Preferred Shares).
A non-Brazilian holder of Preferred Shares may experience delays in
effecting such registration, which may delay remittances abroad. Such a delay
may adversely affect the amount, in U.S. dollars, received by the non-
Brazilian holder.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The statements regarding U.S. tax law set forth below are based on U.S. law
as in force on the date of this Registration Statement, and changes to such
law subsequent to the date of this Registration Statement may affect the tax
consequences described herein. This summary describes the principal tax
consequences of the ownership and disposition of Preferred Shares or ADSs, but
it does not purport to be a comprehensive description of all of the tax
consequences that may be relevant to a decision to hold or dispose of
Preferred Shares or ADSs. This summary applies only to purchasers of Preferred
Shares or ADSs who will hold the Preferred Shares or ADSs as capital assets
and does not apply to special classes of holders such as dealers in securities
or currencies, holders whose functional currency is not the U.S. dollar,
holders of 10% or more of the shares of the Registrant, tax-exempt
organizations, financial institutions, holders liable for the alternative
minimum tax, securities traders who elect to account for their investment in
Preferred Shares or ADSs on a mark-to-market basis, and persons holding
Preferred Shares or ADSs in a hedging transaction or as part of a straddle or
conversion transaction.
Each holder should consult such holder's own tax advisor concerning the
overall tax consequences to it, including the consequences under foreign,
state and local laws, of an investment in Preferred Shares or ADSs.
In this discussion, references to "ADSs" also refer to Preferred Shares,
references to a "U.S. holder" are to a holder of an ADS (i) that is a citizen
or resident of the United States of America, (ii) that is a corporation
organized under the laws of the United States of America or any state thereof,
or (iii) that is otherwise subject to U.S. federal income taxation on a net
basis with respect to the ADS.
For purposes of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), holders of ADRs will be treated as owners of the ADSs represented by
such ADRs.
TAXATION OF DIVIDENDS
A U.S. holder will recognize ordinary dividend income for U.S. federal
income tax purposes in an amount equal to the amount of any cash and the value
of any property distributed by the Registrant as a dividend to the extent that
such distribution is paid out of the Registrant's current or accumulated
earnings and profits ("e&p"), as determined for U.S. federal income tax
purposes, when such distribution is received by the Custodian or by
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the U.S. holder, in the case of a holder of Preferred Shares. To the extent
that such a distribution exceeds the Registrant's e&p, it will be treated as a
non-taxable return of capital, to the extent of the U.S. holder's tax basis in
the ADS (or Preferred Shares, as the case may be), and thereafter as capital
gain. The amount of any distribution will include the amount of Brazilian tax
withheld on the amount distributed and the amount of a distribution paid in
reais will be measured by reference to the exchange rate for converting reais
into U.S. dollars in effect on the date the distribution is received by the
Custodian, or by a U.S. holder in the case of holders of Preferred Shares. If
the Custodian or U.S. holder, in the case of a holder of Preferred Shares,
does not convert such reais into U.S. dollars on the date it receives them, it
is possible that the U.S. holder will recognize foreign currency loss or gain,
which would be ordinary loss or gain, when the reais are converted into U.S.
dollars. Dividends paid by the Registrant will not be eligible for the
dividends received deduction allowed to corporations under the Code.
Distributions out of e&p with respect to the ADSs generally will be treated
as dividend income from sources outside of the United States and generally
will be treated separately along with other items of "passive" (or, in the
case of certain U.S. holders, "financial services") income for purposes of
determining the credit for foreign income taxes allowed under the Code.
Subject to certain limitations, the Brazilian withholding tax paid in
connection with any distribution with respect to the ADSs may be claimed as a
credit against the U.S. federal income tax liability of a U.S. holder if such
U.S. holder elects for that year to credit all foreign income taxes, or such
Brazilian withholding tax may be taken as a deduction. Under new rules enacted
by Congress in 1997 and other guidance recently released by the U.S. Treasury,
foreign tax credits will not be allowed for withholding taxes imposed in
respect of certain short-term or hedged positions in securities or in respect
of arrangements in which a U.S. holder's expected economic profit, after non-
U.S. taxes, is insubstantial. U.S. holders should consult their own tax
advisors concerning the implications of these rules in light of their
particular circumstances.
Distributions of additional shares to holders with respect to their ADSs
that are made as part of a pro rata distribution to all shareholders of the
Registrant generally will not be subject to U.S. federal income tax.
A holder of an ADS that is a foreign corporation or non-resident alien
individual (a "non-U.S. holder") generally will not be subject to U.S. federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for U.S. federal income tax purposes, and generally
will not be subject to U.S. federal income tax or withholding tax on
distributions with respect to ADSs that are treated as capital gain for U.S.
federal income tax purposes unless such holder would be subject to U.S.
federal income tax on gain realized on the sale or other disposition of ADSs,
as discussed below.
TAXATION OF CAPITAL GAINS
Upon the sale or other disposition of an ADS, a U.S. holder will recognize
gain or loss for U.S. federal income tax purposes in an amount equal to the
difference between the amount realized in consideration for the disposition of
the ADS (excluding the amount of any distribution paid to the Custodian but
not distributed by the Custodian prior to the disposition) and the U.S.
holder's tax basis in the ADS. Such gain or loss generally will be subject to
U.S. federal income tax and will be treated as capital gain or loss. Under
recently enacted legislation, long-term capital gains recognized by an
individual holder generally are subject to a maximum rate of 20 percent in
respect of property held for more than one year, effective for amounts
properly taken into account on or after January 1, 1998. The deductibility of
capital losses is subject to certain limitations. Gain realized by a U.S.
holder on a sale or disposition of ADSs generally will be treated as U.S.
source income. Consequently, in the case of a disposition of Preferred Shares
in Brazil (which, unlike a disposition of ADSs, would be taxable in Brazil),
the U.S. holder might not be able to use the foreign tax credit for Brazilian
tax imposed on gain.
A non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless (i) such gain is effectively connected with the conduct by the holder
of a trade or business in the United States, or (ii) such holder is an
individual who is present in the United States of America for 183 days or more
in the taxable year of the sale and certain other conditions are met.
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U.S. BACKUP WITHHOLDING AND INFORMATION REPORTING
The information reporting requirements of the Code generally will apply to
distributions to a U.S. holder. Distributions to non-U.S. holders generally
will be exempt from information reporting and backup withholding under current
law but a non-U.S. holder may be required to establish its non-U.S. status in
order to claim such exemption.
ITEM 8: SELECTED FINANCIAL DATA
GENERAL
The following table presents selected financial information for the Company
as of and for the periods indicated. The information as of December 31, 1996
and 1997 and for the three year period ended December 31, 1997 is derived from
and should be read in conjunction with, and is qualified in its entirety by
reference to, the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Registration Statement. These Consolidated
Financial Statements have been audited by KPMG Peat Marwick, independent
auditors, and their report on such Consolidated Financial Statements appears
elsewhere in this Registration Statement. The Consolidated Financial
Statements are prepared in accordance with Brazilian GAAP, which differ in
certain material respects from generally accepted accounting principles in the
United States ("U.S. GAAP"). See Note 32 to the Consolidated Financial
Statements for a summary of the differences between Brazilian GAAP and U.S.
GAAP as of and for the years ended December 31, 1996 and 1997. All other
selected financial information has been derived from the Company's accounting
records.
The Consolidated Financial Statements present the financial condition and
results of operations of the Registrant and its subsidiaries, Telesp and CTBC.
The portion of the consolidated equity and net income of Telesp and CTBC
attributable to shareholders of Telesp and CTBC other than Telebras at
December 31, 1996 and 1997, and for each of the years in the three-year period
ended December 31, 1997 is reflected as "minority interests" in the
Consolidated Financial Statements. At December 31, 1997, such minority
shareholders directly and indirectly owned 28.6% and 30.2% of the share
capital of Telesp and CTBC, respectively.
The Consolidated Financial Statements present the fixed-line
telecommunications business of the Registrant and its subsidiaries, Telesp and
CTBC, as continuing operations and the cellular telephone business as
discontinued operations for all periods. The assets and liabilities of the
cellular telephone business are presented as net assets of discontinued
operations.
The separation of the fixed and cellular telecommunications businesses has
been accounted as a reorganization of entities under common control in a
manner similar to a pooling of interests. See Note 31 to the Consolidated
Financial Statements. The assets and liabilities of the cellular telephone
business were transferred from Telesp to Telesp Celular S.A. at their indexed
historical cost. The Consolidated Financial Statements are not necessarily
indicative of the financial position and results of operations that would have
occurred for the three-year period ended December 31, 1997 had the fixed-line
telecommunications businesses of the subsidiaries Telesp and CTBC been
separate legal entities during such period. See "Description of Business--
Background," "--The Company" and Notes 1, 2 and 31 to the Consolidated
Financial Statements.
Prior to December 31, 1997 cash and certain non-specific debt of the
cellular telecommunications business could not be segregated from Telesp.
Accordingly, these amounts are included in the financial statements for
periods ended before January 1, 1998. As a result, interest income and expense
relating to the cellular telecommunications business could not be identified
and, consequently, income from discontinued operations is presented before
unallocated interest income/expense and income tax expense. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations for years ended December 31, 1995, 1996 and 1997--
Allocated and unallocated interest expense and unallocated interest income."
Certain of the constant real-denominated information herein has been
translated into U.S. dollars using the December 31, 1997 Commercial Market
Rate published by the Central Bank of Brazil of R$1.1164 to US$1.00. These
translations are presented solely for the convenience of the reader and should
not be construed as implying that local currency amounts represent, or could
have been, or could be, converted into U.S. dollars at such rates or any rate.
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The Consolidated Financial Statements and, unless otherwise specified, all
financial information included in this Registration Statement, have been
restated to recognize certain effects of inflation and expressed in constant
reais of December 31, 1997 purchasing power. Such restatement has been
effected in accordance with Brazilian GAAP using the integral restatement
method (correcao integral) required by the CVM to be used for Consolidated
Financial Statements of public corporations through December 31, 1995.
Inflationary gains or losses on monetary assets and liabilities have been
allocated to their corresponding income or expense caption in the income
statement. Inflationary gains or losses without a corresponding income or
expense caption have been allocated to other net operating income. See Note 2a
to the Consolidated Financial Statements.
Until December 31, 1995, the relevant inflation index selected by the CVM
and the one used for the constant currency method under Brazilian GAAP was the
UFIR. Effective January 1, 1996, the CVM no longer requires Brazilian
companies to restate their financial statements for reporting purposes is
constant currency by indexing historical amounts using the UFIR. Restatement
in constant currency is now optional and any general price index may be used.
The Brazilian Institute of Accountants has recommended that the IGP-M be used
for this purpose. The Company's management believes that the IGP-M is the most
appropriate measure of the general price inflation in Brazil and has elected
the IGP-M for purposes of preparing its Consolidated Financial Statements in
accordance with the constant currency method as of January 1, 1996.
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%; however, for accounting purposes, the constant currency method has
continued to be applied. The Brazilian Institute of Accountants has not yet
published definitive rules regarding when the constant currency method of
accounting may no longer be used to prepare Consolidated Financial Statements.
If the Brazilian Institute of Accountants determines that the constant
currency method may no longer be used to prepare Consolidated Financial
Statements beginning January 1, 1998, the restated balances of nonmonetary
assets and liabilities of the Company as of December 31, 1997 will become the
new basis for accounting, and income statement items will no longer be
restated for inflation.
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SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- ---------- ----------------
(IN THOUSANDS
(IN THOUSANDS OF CONSTANT OF U.S. DOLLARS,
REAIS OF DECEMBER 31, 1997, EXCEPT PER
EXCEPT PER SHARE DATA) SHARE DATA(1))
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
BRAZILIAN GAAP
Net operating revenue
from telecommunications
services............... 2,554,725 2,852,772 2,743,902 3,710,205 4,086,668 3,660,577
Cost of services........ (1,330,632) (1,620,142) (1,835,493) (2,202,000) (2,387,337) (2,138,424)
---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 1,224,093 1,232,630 908,409 1,508,205 1,699,331 1,522,153
Operating expenses...... (469,585) (686,716) (588,228) (606,915) (689,975) (618,035)
---------- ---------- ---------- ---------- ---------- ----------
Operating income from
continuing operations
before interest
income/expense......... 754,508 545,914 320,181 901,290 1,009,356 904,118
Allocated interest
expense(2)............. -- -- (27,651) (32,880) (19,353) (17,335)
---------- ---------- ---------- ---------- ---------- ----------
Operating income from
continuing operations
before unallocated
interest income
(expense)(3)(4)(2)..... 754,508 545,914 292,530 868,410 990,003 886,783
Net non-operating income
(expense).............. (4,271) (16,889) (4,001) 94,716 15,233 13,645
Employees' profit
share.................. -- -- -- (32,465) (52,940) (47,420)
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
unallocated interest
income (expense), taxes
and minority
interests.............. 750,237 529,025 288,529 930,661 952,296 853,008
Income from discontinued
cellular operations
before unallocated
interest income
(expense), taxes and
minority
interests(3)(4)(2)..... -- -- 196,410 328,741 537,377 481,348
Unallocated interest
income(3)(4)(2)........ -- -- 48,585 98,405 202,751 181,611
Unallocated interest
expense(3)(4)(2)....... (265,746) (37,377) (66,234) (51,500) (3,332) (2,985)
---------- ---------- ---------- ---------- ---------- ----------
Income before taxes and
minority interests..... 484,491 491,648 467,290 1,306,307 1,689,092 1,512,982
Income and social
contribution taxes..... 409,997 (164,831) (122,354) (330,591) (528,672) (473,551)
---------- ---------- ---------- ---------- ---------- ----------
Income before minority
interests.............. 894,488 326,817 344,936 975,716 1,160,420 1,039,431
Minority interests(5)... (209,668) (82,898) (83,326) (249,855) (360,296) (322,730)
---------- ---------- ---------- ---------- ---------- ----------
Net income.............. 684,820 243,919 261,610 725,861 800,124 716,701
========== ========== ========== ========== ========== ==========
U.S. GAAP:
Income from continuing operations before unallocated
interest income (expense), income taxes and minority
interests............................................... 1,074,168 1,085,383 972,217
Income from discontinued cellular operations before
unallocated interest income (expense), income taxes and
minority interests ..................................... 334,489 537,426 481,392
Net income............................................... 714,153 918,505 822,738
Net income per thousand
shares:
Common shares-Basic(6)................................... 2.86 2.23 2.00
Common shares-Diluted(6)................................. 1.96 2.75 2.46
Preferred shares-Basic(6)................................ 2.86 2.23 2.00
Preferred shares-Diluted(6).............................. 1.96 2.75 2.46
</TABLE>
42
<PAGE>
SELECTED FINANCIAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- ---------- ----------------
(IN THOUSANDS
(IN THOUSANDS OF CONSTANT OF U.S. DOLLARS,
REAIS OF DECEMBER 31, 1997, EXCEPT PER
EXCEPT PER SHARE DATA) SHARE DATA(1))
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Brazilian GAAP
Property, plant and
equipment, net......... 9,835,829 11,791,280 12,056,545 12,334,860 12,589,455 11,276,832
Total assets............ 12,509,467 12,672,320 13,101,934 14,490,650 15,907,149 14,248,610
Loans and financing--
current portion........ 1,305,914 679,967 580,917 633,352 28,397 25,436
Loans and financing--non
current portion........ 1,302,284 896,591 659,116 494,106 472,599 423,324
Shareholders' equity.... 6,494,865 6,730,448 7,365,088 8,168,335 8,876,672 7,951,157
U.S. GAAP
Property, plant and equipment, net....................... 12,135,970 12,357,272 11,068,857
Total assets............................................. 14,418,783 15,811,970 14,163,355
Loans and financing--current portion..................... 608,790 484,229 433,741
Loans and financing--non current portion................. 494,106 -- --
Shareholders' equity..................................... 8,784,256 9,320,076 8,348,330
</TABLE>
<TABLE>
<CAPTION>
MAY 22, 1998
-------------
(IN THOUSANDS
OF CONSTANT
REAIS)
<S> <C>
NEW HOLDING COMPANY--BRAZILIAN GAAP SHAREHOLDERS' EQUITY(7):
Share capital.................................................... 3,238,421
Income reserves.................................................. 3,260,766
Retained earnings................................................ 1,778,980
---------
Total shareholders' equity...................................... 8,278,167
=========
</TABLE>
- --------
(1) The translation of Brazilian reais amounts into US dollar amounts is
unaudited and included solely for the convenience of readers outside of
Brazil and has been performed using the closing selling exchange rate
published by the Central Bank of Brazil of R$1.1164 to US$1.00 as of
December 31, 1997. This translation should not be construed as a
representation that Brazilian reais amounts could be converted to US
dollars at this or any other rate.
(2) Allocated interest expense represents interest expense attributable to
continuing operations. As discussed in note 3, the Company is unable to
present cellular operations as discontinued operations for 1993 and 1994.
Therefore, interest income and expense in 1993 and 1994 have been
presented as unallocated.
(3) The Company is unable to present cellular operations as discontinued
operations for 1993 and 1994. Accordingly, cellular operations results for
1993 and 1994 are included in "Operating income from continuing
operations."
(4) Unallocated interest income and expense represents interest income and
expense that could not be allocated between continuing and discontinued
operations.
(5) Minority interests represent the portion of net income attributable to
shareholders other than Telebras.
(6) Reflects net income per thousand shares of the Registrant. The Registrant
was not formed until subsequent to December 31, 1997. Accordingly, the
equity structure utilized for the earnings per share computations is that
of the Registrant as of May 22, 1998 (the date of its formation). At the
date of formation, the Registrant had 124,351,903 thousand common shares
(net of 17,128 thousand common shares in treasury) and 196,311,647
thousand preferred shares outstanding (exclusive of 13,718,350 thousand
preferred shares resulting from the settlement in April 1998 with
Telebras). See Note 32(e) to the Consolidated Financial Statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share." This new statement became effective for financial
statements for periods ending after December 15, 1997, and provides
computation, presentation and disclosure requirements for earnings per
share.
Since the preferred and common stockholders have different dividend, voting
and liquidation rights, Basic and Diluted earnings per share have been
calculated using the "two-class" method. The "two-class" method is an
earnings allocation formula that determines earnings per share for preferred
and common stock according to the dividends to be paid as required by the
Company's by-laws and participation rights in undistributed earnings. Basic
earnings per share is computed by dividing income available to common and
preferred shareholders, respectively, by the weighted-average number of
common and preferred shares outstanding, respectively, during the period.
The weighted-average number of Common and Preferred Shares used in computing
basic earnings per share for 1997 was 124,351,903 thousand and 196,311,647
thousand, respectively.
43
<PAGE>
As explained in Note 26 to the Consolidated Financial Statements the Company
has received expansion plan contributions from companies and individuals
wishing to be connected to the national telephone network and has also
sponsored Community Expansion Plan agreements. These activities are dilutive
in nature to the Shareholders of the Registrant, whether the shares to be
issued are those of the Subsidiaries (which will impact the minority
interest recognized) or of the Registrant itself. If subsidiary shares had
been issued historically, the reduction to net income to increase in net
earnings allocated to minority shareholders for 1996 and 1997 would have
been approximately R$84,427 thousand and R$37,922 thousand, respectively.
Earnings per share has been presented for net income only since interest
income, certain interest expense and social contribution taxes have not been
allocated between income from continuing operations and income from
discontinued operations.
(7) On May 22, 1998 the shareholders of Telebras approved Telebras' division
into the New Holding Companies, whereby existing shareholders received
shares in the New Holding Companies in proportion to their holdings in
Telebras. In addition to approving the allocation of assets and
liabilities to the New Holding Companies at the May 22, 1998 meeting, the
shareholders also approved a specific structure for the shareholders'
equity of each New Holding Company which included an allocation of a
portion of the retained earnings of Telebras. Consequently, the amounts of
the balances of capital, reserves and retained earnings were established.
For U.S. GAAP purposes, the "retained earnings" allocated from Telebras
would be referred to as Distributable Capital as this amount represents
capital allocated from Telebras. See Note 31 to the Consolidated Financial
Statements.
ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1995, 1996 and 1997
should be read in conjunction with the Consolidated Financial Statements of
the Company and the Notes thereto included elsewhere in this Registration
Statement. The Consolidated Financial Statements have been prepared in
accordance with Brazilian GAAP, which differs in certain significant respects
from U.S. GAAP. Note 32 to the Consolidated Financial Statements provides a
description of the principal differences between U.S. GAAP and Brazilian GAAP
as they relate to the Company, and a reconciliation to U.S. GAAP of net income
for the two years ended December 31, 1996 and 1997 and total shareholders'
equity as of December 31, 1996 and 1997.
FORMATION OF THE REGISTRANT AND PRESENTATION OF FINANCIAL INFORMATION
On May 22, 1998, in preparation for the privatization of the Telebras
System, the Telebras System was restructured to form, in addition to Telebras,
the twelve New Holding Companies. The restructuring of the Telebras System was
accomplished by means of a procedure under Brazilian law called cisao or
"split-up". Virtually all the assets and liabilities of Telebras were
allocated to the New Holding Companies which, together with their respective
subsidiaries, comprise (a) three regional fixed-line operators, (b) eight
regional cellular operators and (c) one domestic and international long-
distance operator. The Registrant is one of the New Holding Companies that was
formed on May 22, 1998 as part of the Breakup of Telebras. In the Breakup,
certain assets and liabilities of Telebras, including 71.4% of the total share
capital of Telesp and 69.8% of the share capital of Telesp's subsidiary CTBC,
were transferred to the Registrant.
At the May 22, 1998 Telebras shareholders' meeting, the shareholders also
approved a specific structure for the shareholders' equity of each new holding
company, which included an allocation of a portion of the retained earnings of
Telebras. In this manner, the balances of capital, reserves and retained
earnings, together with the corresponding assets and liabilities, for the
formation of Telesp Participacoes S.A. were established. Telebras retained
within its own shareholders' equity sufficient retained earnings from which to
pay certain dividends and other amounts. Telebras allocated to each New
Holding Company the balance of its Retained Earnings in proportion to the
total net assets allocated to each such Company. This value of allocated
retained earnings does not represent the historical retained earnings of the
New Holding Companies and resulted in an increase of R$171,236,000 in relation
to the Company's historical retained earnings. See Note 31 to the Consolidated
Financial Statements. Allocated retained earnings and future retained earnings
will be the basis from which future dividends will be payable.
The Consolidated Financial Statements present the financial condition and
results of operations of the Registrant and its subsidiary, Telesp, and
Telesp's subsidiary, CTBC. The portion of the equity and net income of Telesp
and CTBC attributable to shareholders of Telesp and CTBC other than Telebras
at December 31, 1996 and 1997, and for each of the years in the three-year
period ended December 31, 1997, is reflected as "minority interests" in the
Consolidated Financial Statements. At December 31, 1997, such minority
shareholders directly and indirectly owned 28.6% and 30.2% of the share
capital of Telesp and CTBC, respectively.
44
<PAGE>
The Consolidated Financial Statements present the fixed-line
telecommunications business of the Registrant and its subsidiaries, Telesp and
CTBC, as continuing operations and the cellular telephone business as
discontinued operations for all periods. The assets and liabilities of the
cellular telephone business are presented as net assets of discontinued
operations.
The separation of the fixed and cellular telecommunications businesses has
been accounted as a reorganization of entities under common control in a
manner similar to a pooling of interests. The assets and liabilities of the
cellular telephone business were transferred from Telesp to Telesp Cellular at
their indexed historical cost. The Financial Statements are not necessarily
indicative of the financial position and results of operations that would have
occurred for the three-year period ended December 31, 1997 had the fixed-line
telecommunications businesses of the subsidiaries, Telesp and CTBC, been
separate legal entities during such periods. See "Description of Business--
Background," "--The Company" and Notes 1, 2 and 31 to the Consolidated
Financial Statements.
Prior to December 31, 1997 cash and certain non-specific debt of the
cellular telecommunications business could not be segregated from Telesp.
Accordingly, these amounts are included in the financial statements for
periods ended before January 1, 1998. As a result, interest income and expense
relating to the cellular telecommunications business could not be identified
and, consequently, income from discontinued operations is presented before
unallocated interest income/expense and income tax expense.
In connection with the formation of the Registrant, certain assets and
liabilities of Telebras in addition to its interests in Telesp and CTBC were
spun off to the Registrant. The principal such assets and liabilities were
certain loans and other financings (which comprised substantially all the
external indebtedness of Telebras), cash and other current assets, noncurrent
assets and certain investments. See Note 31 to the Consolidated Financial
Statements, which includes a balance sheet of the Registrant. The Registrant
received R$479.9 million of Telebras indebtedness and R$729.9 million of
Telebras current assets, including R$439.2 million in cash and cash
equivalents. A substantial amount of the assets received from Telebras
(principally investment in subsidiaries) is eliminated upon consolidation.
EFFECTS OF INFLATION
In accordance with Brazilian GAAP, the Financial Statements recognize
certain effects of inflation and restate data from prior periods in constant
reais of December 31, 1997 purchasing power. Such restatement has been
effected using the integral restatement method (correcao integral), which was
required by the CVM to be used for Consolidated Financial Statements of public
corporations through December 31, 1995. In periods of inflation, monetary
assets generate inflationary loss and monetary liabilities generate
inflationary gain, due to the decline in purchasing power of the currency. In
the Consolidated Financial Statements, inflationary gains or losses on
monetary assets and liabilities have been allocated to their corresponding
income or expense captions in the income statement. Inflationary gains or
losses without a corresponding income or expense caption have been allocated
to other net operating income. See Note 2a to the Consolidated Financial
Statements.
Until December 31, 1995, the relevant inflation index selected by the CVM
and the one used for the constant currency method under Brazilian GAAP was the
UFIR. Effective January 1, 1996, the CVM no longer requires Brazilian
companies to restate their financial statements for reporting purposes is
constant currency by indexing historical amounts using the UFIR. Restatement
in constant currency is now optional and any general price index may be used.
The Brazilian Institute of Accountants has recommended that the IGP-M be used
for this purpose. The Company's management believes that the IGP-M is the most
appropriate measure of the general price inflation in Brazil and has elected
the IGP-M for purposes of preparing its consolidated financial statements in
accordance with the constant currency method as of January 1, 1996.
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%; however, for accounting purposes, the constant currency method has
continued to be applied. The Brazilian Institute of Accountants has not yet
published definitive rules regarding when the constant currency method of
accounting may no longer be used to prepare Consolidated Financial Statements.
If the Brazilian Institute of Accountants determines that the
45
<PAGE>
constant currency method may no longer be used to prepare Consolidated
Financial Statements beginning January 1, 1998, the restated balances of
nonmonetary assets and liabilities of the Company as of December 31, 1997 will
become the new basis for accounting, and income statement items will no longer
be restated for inflation. See "Selected Financial Data."
Because financial information for the Company is presented in constant
currency, reported revenues reflect average real rates (i.e., nominal rates as
restated in constant currency in accordance with variations in the applicable
index) rather than nominal rates. Inflation results in decreases in real rates
to the extent that nominal rate increases fail to keep pace with the rate of
inflation. See "Description of Business--Rates."
POLITICAL, ECONOMIC, REGULATORY AND COMPETITIVE CONSIDERATIONS
The following discussion should be read in conjunction with the "Description
of Business" section included elsewhere in this Registration Statement. As set
forth in greater detail below, the Company's financial condition and results
of operations are significantly affected by Brazilian telecommunications
regulation, including regulation of tariffs. See "Description of Business--
Regulation of the Brazilian Telecommunications Industry." The Company's
financial condition and results of operations also have been, and are expected
to continue to be, affected by the political and economic environment in
Brazil. See "'Description of Business-- Brazilian Political Environment" and
"--Brazilian Economic Environment." In particular, the Company's financial
performance will be affected by (i) national economic growth and its impact on
demand for telecommunications services, (ii) the cost and availability of
financing and (iii) the exchange rates between Brazilian and foreign
currencies. In addition, the Presidential and Congressional elections to be
held in October 1998 could have a significant impact on whether the economic
stabilization and liberalization policies of the current administration can or
will be sustained following the elections.
In April and May 1997, a tariff rebalancing was implemented pursuant to
which certain rates were adjusted and the percentage of revenues retained by
the fixed-line companies for domestic and international long distance calls
pursuant to the division of revenues system in place prior to April 1998 was
lowered. The principal rate increases occurred with respect to monthly
subscription charges and local measured service charges. These increases were
partially offset by a decrease in domestic long distance and international
long distance rates. The monthly subscription charge increased from R$3.73 to
R$13.82 and the local measured service charge increased from R$0.05 per pulse
to R$0.08 per pulse. Average domestic long-distance and international long-
distance rates were reduced by approximately 16.7% and 17%, respectively. If
the tariff rebalancing had been effective as of January 1, 1997, the
composition of the Company's net operating revenues would have been
significantly affected and its total net operating revenues may have been
higher. Pro forma information reflecting the April and May 1997 rate changes
as if they had been in effect from January 1, 1997 has not been presented
because management believes that it is not possible to quantify with any
reasonable degree of certainty the influence on the volume of telephone use
that would have been caused by such changes in the first quarter of 1997.
Until April 1, 1998, revenues for fixed-line domestic and international
long-distance calls were divided between Embratel and the regional fixed-line
companies. Under this system, the Company and each regional fixed-line company
billed its customers for all domestic and international long-distance
telephone calls and retained a fixed percentage of the revenue, transferring
the remainder of the revenue to Embratel. The fixed percentage varied by
regional fixed-line company. As of March 31, 1998, the regional fixed-line
companies transferred an average of 33% of the total revenue for such calls to
Embratel.
As part of the liberalization of the Brazilian telecommunications sector,
this revenue-sharing system was eliminated as of April 1, 1998. Under the new
system, Embratel receives 100% of the revenues from domestic and international
long distance calls but must pay certain per-minute interconnection charges to
the Company and the other regional fixed-line companies for connection to and
use of their networks. In addition, until June 30, 2001, Embratel must pay a
supplemental per-minute charge for such interconnection, the Parcela Adicional
Temporaria (the "PAT"). The Company does not expect that implementation of
this new system will have a material impact on its net income. However, it is
expected that the allocation to Embratel of 100% of the
46
<PAGE>
revenues generated by fixed-line domestic and international long distance
calls will cause certain operating revenues to decrease. This decrease is
expected to be offset by increased revenues resulting from the network usage
charges and PAT paid to the Company by Embratel.
Following the privatization of the telecommunications sector and, provided
that the obligations of the General Plans on Universal Service and Quality of
Service are met, the Company, currently the exclusive provider of local and
intra-state intra-regional long-distance service in the region, will be
authorized to offer interstate intra-regional long-distance service, which
represents a significant expansion of the services the Company may offer, and
the Company will face competition. Embratel and a new operator will be
authorized to provide local service beginning December 31, 2003 and December
31, 2002, respectively. Embratel will also be authorized to provide intra-
state, inter-regional long-distance service and two new licenses will be
granted to up to two new entrants to provide intra-regional long-distance
service. Beginning in 2002, the Company may face an unlimited number of
competitors in local and intra-regional long-distance, and it may itself seek
a license to provide inter-regional and international long-distance service.
The Company anticipates that, as a consequence of the competition, rates may
decline. The exact identity of new entrants, the scope of increased
competition and any adverse effects on the Company's results and market share
will depend on a variety of factors that cannot now be assessed with precision
and that are beyond the Company's control. See "Description of Business--
Competition."
FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE
The Company's financial condition and results of operations may be affected
by changes in foreign currency exchange rates (primarily the U.S. dollar/real
rate) and market rates of interest (primarily the London Interbank Offered
Rate (LIBOR) and medium-and long-term U.S. interest rates).
The principal foreign exchange risk faced by the Company arises from the
excess of interest-bearing foreign currency liabilities over foreign currency
income generating assets. At December 31, 1997, the Company had R$501 million
of financial liabilities (primarily long-term bank debt) denominated in
foreign currencies (primarily U.S. dollars (71.5%)). The Company's revenues
are earned almost entirely in reais and the Company has no material dollar-
denominated assets. During the three years ended December 31, 1997, any losses
arising from the devaluation of the real against the U.S. dollar were more
than offset by net inflationary gains on monetary assets and liabilities.
Should the Company cease using the constant currency method of accounting in
the future, such inflationary gains would no longer be recognized. The Company
does not hedge its foreign currency exposure and, accordingly, any decrease in
the value of the real relative to the dollar could have a material adverse
effect on the Company's results of operations.
The Company's financial condition and results of operations may also be
affected by changes in market rates of interest (primarily LIBOR). The Company
is exposed to interest rate risk as a consequence of its floating rate
interest earning assets. At December 31, 1997, all of the Company's interest
bearing liabilities bore interest at fixed rates. The Company has not entered
into derivative contracts or made other arrangements to hedge against this
risk. Accordingly, should market interest rates rise (principally LIBOR), the
Company's financing expenses will increase.
YEAR 2000 COMPLIANCE
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that some computer programs have
traditionally used two digits rather than four to define the applicable year.
As a consequence, any of the Company's computer programs that have date-
sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in a system failure or miscalculations causing
disruption of operations, including a temporary inability to process
transactions, send invoices or engage in normal business activities.
At the beginning of 1997 the Company began to address the year 2000 problem.
The Company has identified the hardware and software that could be affected by
the year 2000 problem and is in the process of
47
<PAGE>
identifying and addressing potential problems. Specifically, the Company
identified and diagnosed the year 2000 problem in all of the Company's 937
central switching centers, has completed an inventory of the Company's 13,000
terminals (including 8,000 microprocessors), and is in the process of
diagnosis, after completing identification, of the Company's 27,000 computer
programs and 13 million lines of code. The Company has identified 697
switching centers and 5,400 programs that do not need to be adapted. The
Company expects its switching centers to be year 2000 compliant by September
1999. The Company expects its computer terminals and computer programs to be
Year 2000 compliant by December 1998.
The Company has contracted third party service providers who work together
with Company employees to address the year 2000 problem. The Company has
established executive and technical committees to oversee year 2000 compliance
and report monthly to the executive officers. The Company's information
services department coordinates the Company's efforts, including the hiring of
third parties. The Company estimates that to achieve year 2000 compliance, the
Company will spend approximately R$11.45 million on its information systems,
including the hiring of third parties, and approximately R$31 million on its
telecommunications hardware and software. The Company is in the process of
formulating contingency plans in collaboration with the Company's primary
suppliers of telecommunications equipment. Although the Company expects to be
fully year 2000 compliant by September 1999, the Company is still in the
process of adapting and implementing solutions to address the year 2000
problem and can give no assurance that the business and financial condition of
the Company will not be materially affected.
The Company may also be affected by year 2000 problems to the extent that
other entities not affiliated with the Company, including government entities
and businesses, are unsuccessful in addressing this issue. The Company depends
primarily on large multinational suppliers for its telecommunications products
and computer services. The majority of the Company's suppliers, however, have
formally advised the Company that they expect to be year 2000 compliant by
September 1998.
As of August 30, 1998, the Company had not determined its most probable
worst case scenarios in relation to the year 2000 problem. The Company is
arranging a plan with its suppliers to have around-the-clock technical support
provided jointly by employees of the Company and of its suppliers during the
period of the turn of the millennium.
48
<PAGE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
The following table sets forth, for each of the years in the three-year
period ended December 31, 1997, certain components of the Company's net
income, the percentage of gross operating revenues represented by each
component and the percentage increase (decrease) thereof during the three year
period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, % CHANGE
------------------------------------------------------------- -------------------------
1995 % 1996 % 1997 % 1995 V. 1996 1996 V. 1997
------------ ----- ------------ ----- ------------ ----- ------------ ------------
(IN THOUSANDS OF REAIS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross operating
revenues:
Local services:
Monthly charges........ R$ 397,397 10.7 R$ 660,037 13.3 R$ 985,928 18.1 66.1 49.4
Measured service....... 730,479 19.7 1,063,738 21.4 1,355,632 24.9 45.6 27.4
Public telephones...... 107,581 2.9 133,270 2.7 174,216 3.2 23.9 30.7
Other.................. 74,111 2.0 105,242 2.1 121,500 2.2 42.0 15.4
------------ ----- ------------ ----- ------------ ----- ------- -----
Total................. 1,309,568 35.4 1,962,287 39.4 2,637,276 48.5 49.8 34.4
------------ ----- ------------ ----- ------------ ----- ------- -----
Non-local services:
Interurban............. 1,813,416 49.0 2,046,021 41.1 1,697,626 31.2 12.8 (17.0)
International.......... 257,496 7.0 260,943 5.2 192,335 3.5 1.3 (26.3)
------------ ----- ------------ ----- ------------ ----- ------- -----
Total................. 2,070,912 55.9 2,306,964 46.4 1,889,961 34.8 11.4 (18.1)
------------ ----- ------------ ----- ------------ ----- ------- -----
Data transmission...... 192,555 5.2 225,823 4.5 170,344 3.1 17.3 (24.6)
Network services....... 74,384 2.0 429,700 8.6 668,839 12.3 477.7 55.7
Other.................. 57,543 1.6 52,059 1.1 69,840 1.3 (9.5) 34.2
------------ ----- ------------ ----- ------------ ----- ------- -----
Total gross operating
revenue................ 3,704,962 100.0 4,976,833 100.0 5,436,260 100.0 34.3 9.2
Value added and other
taxes................. (919,523) (24.8) (1,212,111) (24.4) (1,298,722) (23.9) 31.8 7.1
Discounts.............. (41,537) (1.1) (54,517) (1.1) (50,870) (0.9) 31.2 (6.7)
------------ ----- ------------ ----- ------------ ----- ------- -----
Net operating revenue... 2,743,902 74.1 3,710,205 74.6 4,086,668 75.2 35.2 10.1
------------ ----- ------------ ----- ------------ ----- ------- -----
Cost of services:
Depreciation and
amortization.......... (1,101,913) (29.7) (1,223,573) (24.6) (1,274,710) (23.5) 11.0 4.2
Personnel.............. (454,953) (12.3) (504,810) (10.1) (488,611) (9.0) 11.0 (3.2)
Materials.............. (53,513) (1.4) (81,887) (1.7) (67,540) (1.2) 53.0 (17.5)
Services............... (215,491) (5.8) (366,802) (7.4) (528,482) (9.7) 70.2 44.1
Other:
Rent and insurance.... (7,832) (0.6) (18,602) (0.9) (21,649) (0.8) 137.5 16.4
Taxes................. (1,710) (0.1) (6,211) (0.3) (6,091) (0.2) 263.2 (1.9)
Miscellaneous......... (81) -- (115) -- (254) -- 42.0 120.9
------------ ----- ------------ ----- ------------ ----- ------- -----
Total cost of
services........... (1,835,493) (49.5) (2,202,000) (44.3) (2,387,337) (43.9) 20.0 8.4
------------ ----- ------------ ----- ------------ ----- ------- -----
Gross profit............ 908,409 24.5 1,508,205 30.3 1,699,331 31.3 66.0 12.7
Operating expenses:
Selling expense........ (209,672) (5.7) (250,307) (5.0) (331,162) (6.1) 19.4 32.3
General and
administrative
expense............... (643,163) (17.4) (585,468) (11.8) (580,918) (10.7) (9.0) (0.8)
Other net operating
income................ 264,607 7.1 228,860 4.6 222,105 4.1 (13.5) (3.0)
------------ ----- ------------ ----- ------------ ----- ------- -----
Total operating
expenses............. (588,228) (15.9) (606,915) (12.2) (689,975) (12.7) 3.2 13.7
------------ ----- ------------ ----- ------------ ----- ------- -----
Operating income before
interest .............. 320,181 8.6 901,290 18.1 1,009,356 18.6 181.5 12.0
Net non-operating income
(expense).............. (4,001) (0.1) 94,716 1.9 15,233 0.3 2,467.3 (83.9)
Employees' profit
share.................. -- -- (32,465) (0.7) (52,940) (1.0) -- 63.1
Income from discontinued
cellular operations
before interest, tax
and minority
interests.............. 196,410 5.3 328,741 6.6 537,377 9.9 67.4 63.5
Unallocated interest
income................. 48,585 1.3 98,405 2.0 202,751 3.7 102.5 106.0
Allocated and
unallocated interest
expense(1)............. (93,885) (2.5) (84,380) (1.7) (22,685) (0.4) (10.1) (73.1)
Income before taxes and
minority interests..... 467,290 12.6 1,306,307 26.2 1,689,092 31.1 179.5 29.3
Income and social
contribution taxes..... (122,354) (3.3) (330,591) (6.6) (528,672) (9.7) 170.2 59.9
------------ ----- ------------ ----- ------------ ----- ------- -----
Income before minority
interests.............. 344,936 9.3 975,716 19.6 1,160,420 21.3 182.9 18.9
Minority interests...... (83,326) (2.2) (249,855) (5.0) (360,296) (6.6) 199.9 44.2
------------ ----- ------------ ----- ------------ ----- ------- -----
Net income.............. 261,610 7.1 725,861 14.6 800,124 14.7 177.5 10.2
============ ===== ============ ===== ============ ===== ======= =====
</TABLE>
- --------
(1)In the Consolidated Financial Statements, allocated and unallocated
interest expense are presented separately.
49
<PAGE>
GROSS OPERATING REVENUES
The Company generates operating revenue from (i) local services, including
monthly charges, measured service and public telephones, (ii) non-local
services, including interurban service (which includes both intra-regional
long-distance and interregional long-distance) and international long-distance
service, (iii) network services, including interconnection and leasing high-
capacity lines, and (iv) other services. Operating revenues are offset by
discounts to customers and by value added and other taxes.
Gross operating revenues increased by 9.2% to R$5,436 million in 1997 from
R$4,977 million in 1996, which in turn represented a 34.3% increase from
R$3,705 million in 1995. The growth in revenues in the three-year period was
principally due to increases in the average number of lines in service,
increases in charges for local services and increased interconnection revenues
due to growth of cellular services using the Company's network. Average lines
in service increased by 10.1% to 5,268 thousand lines in 1997 from 4,784
thousand lines in 1996, which in turn represented a 9.7% increase from 4,363
thousand lines in 1995.
The structure of tariffs has changed substantially as part of a tariff
rebalancing process designed to eliminate cross-subsidies from long-distance
services to local services. Effective in May 1997, the rate structure was
modified through a tariff rebalancing that resulted in higher charges for
measured service and monthly subscription, and lower charges for long-distance
services. Effective in January 1996, rates for all services were increased in
nominal terms, primarily to compensate for accumulated effects of inflation,
with the largest increases for local rates.
Local services. Gross operating revenues from local services increased by
34.4% to R$2,637 million in 1997 from R$1,962 million in 1996, which in turn
represented a 49.8% increase from R$1,310 million in 1995. The increase over
the three-year period primarily reflects increased monthly subscription
revenues associated with increases in the number of lines in service and
tariff increases as well as increased measured service revenues associated
with tariff increases. These increases were partly offset in 1997 by a decline
in the overall volume of local calls.
Monthly subscription revenues increased by 49.4% to R$986 million in 1997
from R$660 million in 1996, which in turn represented an increase of 66.1%
from R$397 million in 1995. The monthly subscription charge increased,
effective January 1, 1996, by 511.5% for residential customers, 80.6% for
nonresidential customers and 87.2% for customers using PBX systems. Effective
May 1, 1997, monthly subscription charges increased by a further 270.5% for
residential customers, 59.2% for nonresidential customers and 59.3% for
customers using PBX systems.
Measured service revenues increased by 27.4% to R$1,356 million in 1997 from
R$1,064 million in 1996, which in turn represented a 45.6% increase from R$730
million in 1995. The price per pulse increased by 89.5% effective January 29,
1996, and by 61.1% effective April 4, 1997. The increase in measured service
revenue from 1996 to 1997 due to the tariff increase was partially offset by a
decrease in overall local volume. Local volume decreased by 3.5% to 23,463
million pulses in 1997 from 24,317 million pulses in 1996, which in turn
represented a 4.1% increase from 23,362 million pulses in 1995. The growth
reflects primarily increases in the number of lines in service and tariff
increases. Overall local volume decreased 3.5% in 1997 compared to 1996
largely due to higher tariffs offsetting the increase in the number of lines
in service. Overall local volume increased, however, by 4.1% in 1996 compared
to 1995. Usage per line remained relatively stable over the three year period
with average pulses per line reaching 4,454, 5,083 and 5,355 in 1995, 1996 and
1997 respectively. Management does not anticipate further large increases in
local rates in the future.
Non-local services. Non-local services consist of interurban (intra-regional
long-distance and interregional long-distance) calls and international long-
distance calls. Interurban calls include intra-regional and interregional
long-distance calls. For intra-regional long-distance calls, the Company
carries the calls entirely over its own network and receives 100% of the call
revenue. For interregional and international long-distance calls, the Company
delivers the calls to Embratel, generally at a local switching center, and
Embratel transports the call for the bulk of the call distance over its
network. For such calls, the Company bills the customer for the full
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<PAGE>
retail price of the call and pays a fixed percentage of the call revenue to
Embratel. For accounting purposes, the Company books only its percentage of
the revenue attributable to such calls.
Gross revenues from non-local services declined from 1996 to 1997. This
decline was largely due to reductions in tariffs for intra-regional,
interregional and international long-distance calls, a reduction in the fixed
percentage of interregional and international long-distance call revenue
retained by the Company and a change in the billing structure for such calls
whereby calls were billed in 6-second increments rather than whole minute
increments. The decrease was offset in part by a 9.45% increase in the volume
of intra-regional and interregional long-distance calls to 9,875 million
minutes in 1997 from 9,022 million minutes in 1996. The average basic
interurban tariff, represented by the Company's principal operating company,
Telesp, was reduced in May 1997 to R$0.25 from R$0.30 and the fixed percentage
of interregional and international long-distance revenue per call retained by
the Company was reduced from 70.48% to 53.94%. These reductions were part of
the tariff rebalancing process described above. See "--Local services," and
"Description of Business--Customer Services--Interregional and International
Service."
Of the Company's interurban revenues, revenues derived from the fixed
percentage retained for inter-regional long-distance calls declined by 20.7%
to R$666 million in 1997 from R$840 million in 1996, which in turn represented
an increase of 17.3% from R$716 million in 1995. The decrease from 1996 to
1997 occurred even as call volume increased, due to tariff reductions and the
reduction in the fixed percentage retained by the Company. Revenues from
international long-distance declined by 26.3% to R$192 million in 1997 from
R$261 million in 1996, which in turn represented an increase of 1.3% from
R$257 million in 1995. The reduction in the fixed percentage retained by the
Company's principal operating subsidiary for such calls to 53.94% has resulted
in a substantial decline in their contribution to operating revenues. For
example, interregional and international long-distance declined to 15.8% of
the Company's gross operating revenue in 1997 from 22.1% in 1996 and 26.3% in
1995. Anatel replaced the system for sharing revenues between Embratel and the
Company for inter-regional and international long-distance services on April
28, 1998. Instead of retaining a fixed percentage of revenue for all
interregional and international long-distance calls, the Company now charges
Embratel per minute of use of the Company's network. See "Description of
Business--Regulation of the Brazilian Telecommunications Industry--Rate
Regulation." There can be no assurance that the interconnection agreement with
Embratel will not result in lower revenues from carrying interregional and
international long-distance calls than under the prior regime.
Gross revenues from non-local services increased from 1995 to 1996. This
increase resulted principally from an increase in intra-regional and
interregional tariffs and growth in intra-regional and interregional call
volume. The average basic interurban tariff, represented by the Company's
principal operating subsidiary, Telesp, increased by 20% in November 1995 to
R$0.30 from R$0.25 and the volume of intra-regional and interregional calls
increased by 15.0% to 9,022 million minutes in 1996 from approximately 7,845
million minutes in 1995. In addition, revenues from international calls
increased slightly to R$261 million in 1996 from R$257 million in 1995, due
principally to an increase in the number of international minutes.
Data transmission. Gross operating revenues from data transmission decreased
by 24.6% to R$170 million in 1997 from R$226 million in 1996. This reduction
was largely due to a 42.0% reduction in rates charged for high-capacity leased
lines. The number of such lines increased during this period by 11.4% to
88,624 lines in 1997 from 79,526 in 1996. Revenues increased by 17.3% to R$226
million in 1996 from R$193 million in 1995, when tariffs were stable, due
largely to increases in the number of lines in service, which increased by
5.6% to 79,526 lines in service in 1996 from 75,287 in 1995.
Network services. The Company provides access to its network to other
telecommunications companies and leases certain network facilities to other
telecommunications and non-telecommunications companies as part of its network
services business. The network service revenues include primarily
interconnection fees from cellular companies paid for the use of the Company's
network and equipment rental fees from cellular companies, which rent
equipment from the Company, such as transmission facilities, for use in
transporting cellular calls within their own internal networks. Gross revenues
from network services increased by 55.7% to
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<PAGE>
R$669 million in 1997 from R$430 million in 1996, which in turn represented a
477.7% increase from R$74 million in 1995. The increase over the three-year
period was principally due to an increase in the use of the Company's network
by cellular operators and an expansion of the number of cellular operators.
The increase in 1996 also reflected a reclassification of interconnection fees
from other operating income in 1995 to network services revenues in 1996 and
1997. See "Description of Business--Customer Services--Network Services" and
"--Rates--Network Services." Management expects continued growth in revenues
from network services as other cellular operators grow.
Value-added taxes and other taxes. The principal taxes deducted from gross
operating revenue are a Sao Paulo state value-added tax, the ICMS, on
operating revenues from the provision of telecommunications services and
federal social contribution taxes, including the PASEP and COFINS. The Company
collects these taxes from its customers and transfers them to the appropriate
governmental activity. The rate of ICMS is 25.0%, except for international
service for which the rate was 13.0% from April 1994 to September 1996 and has
been zero since September 1996. The PASEP and COFINS aggregate 2.65% of gross
operating revenues.
On June 19, 1998 the secretaries of the treasury of the individual Brazilian
states approved an agreement to interpret existing Brazilian tax law to
broaden the application of the ICMS to cover not only telecommunications
services, but also other services, including cellular activation, which had
not been previously subject to such tax. Pursuant to this new interpretation
of existing tax law, the ICMS tax may be applied retroactively for such
telecommunications services rendered during the last five years.
The Company believes that the attempt by the state treasury secretaries to
extend the scope of ICMS tax to services which are supplementary to basic
telecommunications services is unlawful because: (i) the state secretaries
acted beyond the scope of their authority; (ii) their interpretation would
subject certain services to taxation which are not considered
telecommunications services; and (iii) no new taxes may be applied
retroactively. Accordingly, no provision for loss has been made in the
accompanying consolidated financial statements.
There can be no assurance that the Company will prevail in its position that
the new interpretation by the state treasury secretaries is unlawful. If the
25% ICMS tax were applied retroactively for five years, it would have a
material negative impact on the financial condition and results of operations
of the Company.
COST OF SERVICES
Costs which are incurred as part of offering the Company's
telecommunications services to the public include primarily depreciation and
amortization costs, materials and services and personnel costs. Cost of
services as a percentage of gross revenues decreased steadily over the three
year period but increased in absolute terms by 8.4% to R$2,387 million in 1997
from R$2,202 million in 1996, which in turn represented a 20.0% increase from
R$1,835 million in 1995. The following discussion addresses the principal
elements comprising cost of services.
Depreciation and amortization. Depreciation and amortization expenses
increased by 4.2% to R$1,275 million in 1997 from R$1,224 million in 1996,
which in turn represented an 11.0% increase from R$1,102 million in 1995. The
increase over the three-year period principally reflected growth of the
network. The Company's operating assets had a net book value of R$12,057
million, R$12,335 million and R$12,589 million at December 31, 1995, 1996 and
1997, respectively. The Company's accounting policies and assumptions with
respect to depreciation did not change during this period.
Personnel. Personnel expenses decreased slightly by 3.2% to R$489 million in
1997 from R$505 million in 1996, while such expenses increased 11.0% from
R$455 million in 1995. The slight decrease in 1997 was principally due to a
decrease in costs associated with benefits to employees of the Company
including health and other fringe benefits and an overall decrease in wages of
4.4% when adjusted for inflation. Although the number of employees slightly
decreased in 1996 compared to 1995, such personnel reductions were
substantially outweighed by increases in wages of approximately 10%.
52
<PAGE>
Materials. Expenses relating to materials decreased 17.5% to R$68 million in
1997 from R$82 million in 1996 and increased 53% from R$54 million in 1995.
The decrease in 1997 compared to 1996 related to such expenses partially
offset the increase in the cost of services in 1997 compared to 1996. The
substantial increase in material costs in 1996 compared to 1995 was due to
growth of the network and the refurbishment of public telephones.
Services. The primary components of these costs are services provided by
third parties and materials. Expenses related to services by third parties
increased 44.1% to R$528 million in 1997 from R$367 million in 1996 which, in
turn, represented a 70.2% increase from R$215 million in 1995. The increases
over the three year period were principally due to increased maintenance costs
due to network growth, refurbishment of public telephones and increased
interconnection payments primarily to cellular companies for calls originating
on the Company's network and terminating on cellular networks.
Other. Other costs of services primarily include rental and insurance
expense and municipal tax expense. Expenses relating to rental of commercial
properties and insurance payments increased 16.4% to R$21.6 million in 1997
from R$18.6 million in 1996, which in turn represented an increase of 137.5%
from R$7.8 million in 1995. Municipal tax expense was R$1.7 million, R$6.2
million and R$6.1 million in 1995, 1996 and 1997, respectively. The increase
in 1996 reflected an increase in the rate of municipal taxes and higher
vehicle registration fees.
OPERATING EXPENSES
Operating expenses increased by 13.7% to R$690 million in 1997 from R$607
million in 1996, which in turn represented an increase of 3.2% from R$588
million in 1995. The increase over the three-year period principally reflected
greater selling expense, which was partly offset by lower general and
administrative expense.
Selling expense. Selling expense increased by 32.3% in 1997 to R$331 million
from R$250 million in 1996, which in turn represented a 19.4% increase from
R$210 million in 1995. The increase in selling expense over the three-year
period primarily reflected increased third-party services costs and materials.
Third-party services expense increased by 42.9% to R$120 million in 1997 from
R$84 million in 1996, which in turn represented a 75.0% increase from R$48
million in 1995. The increase was largely associated with increased
advertising expense and commissions to sales agents. Materials expense
increased by 80.0% to R$54 million in 1997 from R$30 million in 1996, which in
turn represented a 15.4% increase from R$26 million in 1995. The increases
were due largely to costs associated with printing and selling prepayment
cards for public telephones.
Selling expense also includes provisions for past due accounts, which were
R$1.1 million, R$9.0 million and R$9.0 million in 1995, 1996 and 1997,
respectively. It has been the Company's policy to maintain an allowance for
past due accounts receivable equal to management's estimate of probable future
losses on such accounts, based on historical losses on accounts receivable and
the Company's current level of overdue accounts receivable. As part of
implementing such policy, the Company adopted in late 1996 certain guidelines
pursuant to which accounts that are 60 to 89 days past due are 40%
provisioned, accounts 90 to 199 days past due are 60% provisioned, accounts
120 to 149 days past due are 80% provisioned and accounts 150 days or more
past due are 100% provisioned. In the first six months of 1998, the Company
recorded R$12.2 million of provisions to the allowance for accounts that are
not probable of collection. Although the Company has experienced a significant
amount of past due accounts, the majority of those accounts have been
successfully collected along with appropriate penalties on past due amounts.
The Company's policy to disconnect service after 90 days minimizes the amount
of uncollectible accounts.
General and administrative expense. General and administrative expense
decreased by 0.8% to R$581 million in 1997 from R$585 million in 1996, which
in turn represented a 9.0% decrease from R$643 million in 1995. The decrease
principally reflected decreased salary costs and depreciation over the three
year period in addition to a decrease in insurance and leasing costs from 1995
to 1996. Salary expense decreased by 9.4% to
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<PAGE>
R$269 million in 1997 from R$297 million in 1996, which in turn represented a
0.7% decrease from R$299 million in 1995. Depreciation decreased by 4.1% to
R$47 million in 1997 from R$49 million in 1996, which in turn represented a
37.2% decrease from R$78 million in 1995. Salary costs decreased principally
due to employee transfers and early retirement.
Other net operating income. Other net operating income slightly decreased by
3.0% in 1997 to R$222 million from R$229 million in 1996, which in turn
represented a 13.5% decrease from R$265 million in 1995. The decrease in 1997
compared to 1996 principally reflected a 59.3% decrease in revenue generated
from certain fines received from delinquent customers offset in part by an
82.2% increase in revenues from technical and administrative services.
Revenues from technical and administrative services are comprised primarily of
revenues arising from the provision of administrative and sales services to
Telesp Cellular, as well as the leasing of certain administrative services-
related equipment to Telesp Cellular. The decrease in fines from delinquent
customers resulted from a reduction mandated by Brazilian law in the amount of
such fines from 10% of the overdue account to 2%. The decrease from 1995 to
1996 was due principally to a decrease in revenue from technical and
administrative services and a decrease in fines and tax-related expenses
recovered by the Company, offset in part by a decrease in provisions for
certain contingencies and increased miscellaneous other net operating income.
See Note 7 to the Financial Statements. The 1996 decrease in revenue from
technical and administrative services principally reflected a reclassification
of interconnection fees from other operating income in 1995 to operating
income--network services in 1996 and 1997. The 1996 decrease in fines and
expenses recovered principally reflected the nonrecurrence in 1996 of a R$54
million reversal of provisions for FINSOCIAL and PASEP taxes in 1995.
ALLOCATED AND UNALLOCATED INTEREST EXPENSE AND UNALLOCATED INTEREST INCOME
As described in Note 2 to the Consolidated Financial Statements, prior to
December 31, 1997, cash and certain nonspecific debt relating to the cellular
telephone business could not be segregated. As a consequence, interest income
and certain interest expense relating to the cellular telephone business could
not be segregated and such interest income and expense are presented in the
Consolidated Financial Statements as "unallocated interest income" and
"unallocated interest expense", respectively. The following discussion
analyzes the Company's combined allocated and unallocated interest expense, as
well as its unallocated interest income.
Unallocated interest income increased by 106% to R$203 million in 1997 from
R$98 million in 1996, which in turn represented a 100% increase from R$49
million in 1995. These increases were largely due to interest income earned on
greater amounts of cash on hand. Allocated and unallocated interest expense
decreased by 73.1% to R$23 million in 1997 from R$84 million in 1996
principally reflecting a 54.5% decline in average indebtedness from R$924.6
million in 1996 to R$420.7 million in 1997 as a consequence of the prepayment
of certain long-term debt and other debt financings. Allocated and unallocated
interest expense decreased by 10.1% to R$84.4 million in 1996 from R$93.9
million in 1995, principally reflecting a 24.4% decline in average
indebtedness, offset in part by decreased net inflationary gains on the
Company's dollar-denominated debt.
EMPLOYEES' PROFIT SHARE
All Brazilian companies are required under Brazilian law to compensate
employees, in addition to their salary and benefits, with profit sharing. The
amount of such profit sharing is determined by negotiation between the Company
and the labor unions representing the employees. For state owned companies,
such profit sharing payments are limited to 25% of total proposed dividends.
Telebras has established two additional limits. In addition to the 25% limit
imposed on all state owned companies, companies in the Telebras System must
limit employees' share of profits to the lower of (i) the aggregate of the
employees' annual compensation and (ii) 50% the Company's net income adjusted
for dividends. Following the expected privatization of the Company, employee
profit share will be limited only by the 25% of dividends limit and will be
renegotiated by the Company and the unions representing its employees. The
Company's employees' profit share was R$32.5 million and R$52.9 million in
1996 and 1997, respectively. The Company did not record any employees' profit
share in 1995.
54
<PAGE>
MINORITY INTERESTS
Minority interest in Telesp and in CTBC was R$83.3 million, R$249.9 million
and R$360.3 million in 1995, 1996 and 1997, respectively, reflecting 24.1%,
25.6% and 31.0% of income before minority interest, respectively. The 1997
increase in minority interest as a percentage of income before such interest
principally reflected the issuance and sale by the Company of preferred shares
to new subscribers pursuant to a system called "auto-financing." Under such
system, each new subscriber was required to invest in shares of the Company
and the proceeds from such investment were used by the Company to finance
network expansion. The Company discontinued auto-financing as of April 1997.
See "--Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
The Registrant is a holding company and its principal assets are the shares
of its operating subsidiaries. The Registrant relies largely on dividends from
its subsidiaries to meet its need for cash, including for the payment of
dividends to shareholders. Under Law No. 6,404 of December 15, 1976, as
amended (the "Brazilian Corporation Law"), dividends may be paid only out of
retained earnings or accumulated profits in any given fiscal year. See
"Description of Securities to be Registered--Capital Stock--Dividends."
Management believes that the Registrant's shareholding in Telesp and CTBC is
sufficient to allow the Registrant to control the payment of dividends by such
companies. The Registrant currently is able to nominate and elect all the
members of the boards of directors of Telesp and CTBC. However, under
Brazilian law and the regulations of the Brazilian Securities Commission,
persons holding more than 10% of the voting stock of a company (a percentage
that may decrease up to 5% in the case of listed companies) may require the
company to adopt cumulative voting. Management believes that, based on current
holdings in its operating subsidiaries, if cumulative voting were required,
the Registrant would still be able to control the payment of dividends by
Telesp and CTBC which, with respect to the Mandatory Dividend, could be
limited only under very strict circumstances. Board members, even if elected
by one specific shareholder, have fiduciary duties toward the company and all
its shareholders. The preferred shareholders and the minority voting
shareholders of Telesp and CTBC, in each case voting as a single class of such
preferred shareholders and a single class of such minority voting
shareholders, elect one member each of the Audit Committee. The remaining
members of the Audit Committee are selected by the controlling shareholder.
The Company's principal liquidity and capital resource requirements are to
finance capital expenditures and investments related to the expansion,
improvement and maintenance of its property, plant and equipment.
Historically, the Company has financed its capital expenditures and
investments primarily with internally generated funds and with proceeds from
the required sale of the Company's shares to new customers ("auto-financing").
As of April 1997 the Company discontinued autofinancing. See "Description of
Business--Rates--Local Services."
The Company made capital expenditures of R$1,248.6 million, R$1,323.3
million and R$1,479.6 million in 1995, 1996 and 1997, respectively. The
principal expenditures related primarily to the expansion and modernization of
the Company's network. See "Description of Business--Capital Expenditures." In
addition, the Company paid dividends of R$135.5 million, R$220.5 million and
R$258.1 million in 1995, 1996 and 1997, respectively.
The Company's primary source of funds is cash flow generated from continuing
operations, net of taxes applicable to both continuing and discontinued
operations. Net cash flow generated from operating activities was R$1,284.3
million, R$1,342.6 million and R$2,151.3 million in 1995, 1996 and 1997,
respectively.
The Company's total indebtedness for loans and financing was R$1,127.5
million and R$501.0 million as of December 31, 1996 and 1997. The principal
categories of indebtedness at December 31, 1997 were the following:
Loans payable to Telebras (R$143.4 million). Loans payable to Telebras
arise from the onlending by Telebras of proceeds of an issue of Eurobonds
denominated in Italian Lire. The Company pays Telebras the contractual
interest rate of 13% plus an administrative fee of 1%.
55
<PAGE>
Upon the Breakup of the Telebras System and the formation of the Registrant,
approximately R$6.5 million of Telesp's indebtedness, representing loans from
Telebras, became intercompany loans payable by Telesp to the Registrant.
Accordingly, these intercompany loans and the market risk and interest expense
relating to such loans will be eliminated in the preparation of the
Registrant's consolidated financial statements in the future.
In connection with the formation of the Registrant, certain assets and
liabilities of Telebras in addition to its interests in Telesp and CTBC were
spun off to the Registrant. The principal such assets and liabilities were
certain loans and other financings (which comprised substantially all the
external indebtedness of Telebras), cash and other current assets, noncurrent
assets and certain investments. See Note 31 to the Financial Statements, which
includes a balance sheet of the Registrant. The Registrant received R$479.9
million of Telebras indebtedness and R$729.9 million of Telebras current
assets, including R$439.2 million in cash and cash equivalents.
Other financing (R$357.6 million). Other financing relates to equipment
financing from Comtel Brasileira Ltda. (denominated in U.S. dollars). The
financing bears interest at 10.75% and matures in 2004. This financing is
guaranteed by Telebras. The proceeds of this financing were loaned to
Telesp Cellular.
R$126.5 million and R$346.1 million of interest and principal payments on
the Company's indebtedness as of December 31, 1997 will be due in 1999 and in
2003 and thereafter, respectively. The Company has no committed lines of
credit.
The Company anticipates that capital expenditures for the first eight months
of 1998 will be R$1,710 million, which is expected to be funded with
internally generated funds from operations. See "Description of Business--
Capital Expenditures." The Company expects to finance its capital
expenditures, debt service obligations and dividend payments from internally
generated funds and from its existing sources of debt financing.
The Company is party to certain credit agreements that contain covenants
restricting, among other things, (i) the ability of Telebras to dispose of all
or a substantial part of its assets or to cease to control a company that was
an operating subsidiary of the Telebras System and (ii) the ability of the
Federal Government to dispose of its controlling interest in the Telebras
System. The Breakup of Telebras on May 22, 1998 and the privatization of the
Company on July 29, 1998 constituted events of default under such credit
agreements. In addition, most of the Company's other credit agreements include
cross-default provisions and cross-acceleration provisions that would permit
the holders of such indebtedness to declare the indebtedness to be in default
and to accelerate the maturity thereof if a significant portion of the
principal amount of the Company's debt is in default or accelerated. The total
amount of the Company's outstanding debt in default or expected to be in
default is approximately R$483.5 million as of December 31, 1997. The Company
is currently in negotiations with the appropriate creditors with respect to
this indebtedness. Although none of the Company's creditors have notified the
Company that they intend to pursue their rights and remedies with respect to
these defaults, there can be no assurance that the Company will be able to
obtain waivers or that the creditors will not exercise their rights and
remedies under the credit agreements.
RECONCILIATION TO U.S. GAAP
The Company prepares its consolidated financial statements in accordance
with Brazilian GAAP, which differs in significant respects from U.S. GAAP. The
principal differences between Brazilian GAAP and U.S. GAAP as they affected
the Company's results of operations are: (i) under Brazilian GAAP, loans and
financing balances in default are not always classified as current liabilities
while under U.S. GAAP, loans and financings in default or expected to be in
default within a year of the balance sheet date are classified as current
obligations unless creditors have provided the Company waivers for such
defaults; substantially all of the Company's outstanding debt at December 31,
1997 is in default or expected to be in default as a result of its
privatization and the Breakup of the Telebras System (see "--Liquidity and
Capital Resources"); (ii) under Brazilian GAAP, interest on loans to finance
construction in progress is capitalized at the rate of 12% per annum of the
total value of construction in progress, regardless of the total amount of
interest actually incurred on such loans while under U.S. GAAP interest is
capitalized at the interest rate on the debt incurred up to the lower of the
amount of
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construction in progress and the total loans incurred; (iii) until December
31, 1993 capitalized interest under Brazilian GAAP was not added to individual
assets but was capitalized separately and amortized over a time period
different from the estimated useful lives of the related assets while under
U.S. GAAP capitalized interest is added to the cost of individual assets and
is amortized over their estimated useful lives; (iv) under Brazilian GAAP the
issuance of shares of the Company to finance capital investments was recorded
at the book value of the shares while under U.S. GAAP the sale of shares must
be recorded at their market value resulting in a gain carried as deferred
income and amortized into current income on the same schedule as the plant
financed with the proceeds from the sale of the shares; (v) under Brazilian
GAAP proposed dividends are accrued for in the financial statements in
anticipation of their approval at the shareholders' meeting while under U.S.
GAAP, dividends are not accrued until they are formally declared; and (vi)
under Brazilian GAAP, the deferred tax liability arising from the indexation
of assets and liabilities for financial reporting purposes was recorded
against retained earnings while under U.S. GAAP such effects would be charged
to income and social contribution taxes in the statements of income. Net
income under U.S. GAAP was R$714.2 million and R$918.5 million in 1996 and
1997, respectively. See Note 32 to the Consolidated Financial Statements.
RECENT RESULTS
The Company has reported consolidated net operating revenues of R$2,152.1
million and consolidated net income of R$322.9 million for the six months
ended June 30, 1998. Such amounts are unaudited, have been determined in
accordance with the Brazilian Corporation Law and standards issued by the CVM
and have not been indexed for inflation occurring after December 31, 1995 or
been expressed in constant reais. Accordingly, such amounts are not comparable
to the amounts included in the Consolidated Financial Statements, which have
been so indexed and expressed. See "Presentation of Information." However,
management believes that had consolidated net operating revenue and
consolidated net income for the six months ended June 30, 1998 been indexed
for inflation and expressed in constant reais on the same basis as the amounts
presented in the Consolidated Financial Statements, such adjustments would
have had no material effect.
The Company had consolidated net operating revenues, excluding discontinued
cellular operations, as reported in the Consolidated Financial Statements, of
R$4,086.7 million for the year ended December 31, 1997. On an annualized
basis, consolidated net operating revenue for the first six months of 1998
increased somewhat compared to consolidated net operating revenue in 1997
(excluding discontinued operations). This increase was principally due to an
increase in monthly subscription revenue associated with an increase in the
number of lines in service, as well as increases in the Company's network
service business principally attributable to an increase in the use of the
Company's network by cellular operators, and an expansion of the number of
cellular operators during the period.
A comparison of consolidated net income for 1997 and the first six months of
1998 is not presented because 1997 net income includes discontinued
operations, unallocated interest income and expense and taxes paid with
respect to discontinued cellular operations. See Note 2 to the Consolidated
Financial Statements. In the first six months of 1998, cost of services,
selling expense and general and administrative expense declined, principally
due to the renegotiation of service contracts with third parties.
Results for the first six months of 1998 are not necessarily indicative of
results for any other period or for the full year.
Management believes that the material adjustments that would be required to
reconcile the first six months net income figure given above to U.S. GAAP are
comparable in nature to those discussed in Note 32 to the Consolidated
Financial Statements except that indexation for inflation subsequent to
December 31, 1995 and through December 31, 1997 would be required under U.S.
GAAP and the cessation of indexation as from January 1, 1998 will eliminate
the need for the recognition of an additional charge to income under U.S. GAAP
for the deferred income tax effects of indexation for financial reporting
purposes.
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Comparative interim period net operating revenues and net income are not
presented herein. The Registrant was not formed prior to May 22, 1998 and did
not publish interim financial results for the first half of 1997. In addition,
the Registrant's operating subsidiaries, published interim 1997 results (if
any) were for the combined cellular and fixed line entities.
ITEM 9A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in both foreign currency
exchange rates and interest rates. The Company is exposed to foreign exchange
rate risk because certain of its costs are denominated in currencies
(primarily the U.S. dollar) other than those in which it earns revenues
(primarily the real). Similarly, the Company is subject to market risk
deriving from changes in interest rates which may affect the cost of its
financing. The Company does not use derivative instruments, such as foreign
exchange forward contracts, foreign currency options, interest rate swaps and
forward rate agreements, to manage these market risks, nor does it hold or
issue derivative or other financial instruments for trading purposes.
EXCHANGE RATE RISK
The Company has exchange rate exposure with respect to the U.S. dollar and,
to a lesser extent, other currencies. Approximately R$358 million of the
indebtedness of the Company is denominated in U.S. dollars, and approximately
R$143 million of the Company's indebtedness is indexed to the Italian Lira.
The potential immediate loss to the Company that would result from a
hypothetical 10% change in foreign currency exchange rates would be
approximately R$50 million. In addition, if such a change were to be
sustained, the Company's cost of financing would increase in proportion to the
change. This sensitivity analysis assumes an unfavorable 10% fluctuation in
all of the exchange rates affecting all the foreign currencies in which the
indebtedness described above is denominated. Since consistently and
simultaneously unfavorable movements in all relevant exchange rates are
unlikely, this assumption may overstate the impact of exchange rate
fluctuations on the Company's results of operations.
INTEREST RATE RISK
At December 31, 1997, the Company had approximately R$501 million in loans
and financing outstanding, all of which bore interest at fixed rates. The
Company invests its excess liquidity (R$858 million at December 31, 1997)
mainly in short-term instruments. The potential loss to the Company over one
year that would have resulted from a hypothetical, instantaneous and
unfavorable change of 100 basis points in the interest rates applicable to
financial assets and liabilities on December 31, 1997 would be approximately
R$9 million. The above sensitivity analyses are based on the assumption of an
unfavorable 100 basis point movement of the interest rates applicable to each
homogenous category of financial assets and liabilities and sustained over a
period of one year. A homogenous category is defined according to the currency
in which financial assets and liabilities are denominated and assumes the same
interest rate movement within each homogenous category (e.g. U.S. dollars). As
a result, the Company's interest rate risk sensitivity model may overstate the
impact of interest rate fluctuation for such financial instruments as
consistently unfavorable movements of all interest rates are unlikely. See
Note 19 to the Consolidated Financial Statements.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
BOARD OF DIRECTORS
The Registrant is administered by a Board of Directors (Conselho de
Administracao) and a Board of Executive Officers (Diretoria). The Board of
Directors is comprised of four members serving for a term of three years. The
Board of Directors holds a regular meeting once a month and holds special
meetings when called by the Chairman or by two members of the Board of
Directors.
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The following are the current members of the Board of Directors and their
respective positions. Unless otherwise indicated, all current members were
appointed in August 1998.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Fernando Maria Fournon Gonzalez-Barcia............................ Chairman
Fernando Xavier Ferreira.......................................... Director
Luis Eduardo Jimenez Lopez........................................ Director
Jose Joao Sottomayor Roque de Pinho............................... Director
</TABLE>
Set forth below are brief biographical descriptions of the Directors.
Fernando Maria Fournon Gonzalez-Barcia, 40 years old, has served as Chairman
of the Board of Directors since August 1998. He served as an associate and
research professor at Polytechnic University of Madrid, a systems engineer at
the European Space Agency, a projects engineer at Ericsson S.A. and as Head of
Projects and Director of New Projects at Telefonica Internacional. Since
February 1997 he has served as chief executive officer at CRT--Companhia
Riograndense de Telecomunicacoes. In addition to his position as Chairman of
the Board of Directors of the Company, he is also a member of the Board of
Directors of Companhia Telefonica da Borda do Campo--CTBC, CRT--Companhia
Riograndense de Telecomunicacoes, Tele Leste Celular Participacoes S.A., Tele
Sudeste Celular Participacoes S.A. and Portugal Telecom. He holds a degree in
telecommunications engineering from the Polytechnic University of Madrid.
Fernando Xavier Ferreira, 49 years old, has served as a member of the Board
of Directors since September 1998. Beginning in 1971, he held various
positions at Telecomunicacoes do Parana S.A. ("Telepar"), including Vice-
President, Director of Market Relations and President. Since that time he has
served as Chairman of the Board of Directors of Telebras, Telesp and Embratel.
In February 1995, he was appointed Board Member and President of Telebras;
from March to August 1998 he served as Board Member and President of the
Registrant and from May to August 1998 he was appointed Executive President
and Board Member of Embratel. He is also a member of the Consultive Board of
ANATEL--Agencia Nacional de Telecomunicacoes, the Latin American Committee at
the New York Stock Exchange and the Global Information Infrastructure
Commission--GIIC. In September 1998 he was appointed Executive President and
Board Member of the Registrant and Tele Sudeste Celular Participacoes S.A. He
holds a degree in electrical engineering from the Catholic University of Rio
de Janeiro.
Luis Eduardo Jimenez Lopez, 43 years old, has served as a member of the
Board of Directors since August 1998. He worked in Chile at the Projects
Analysis and Evaluation Department of Banco Interamericano de Desarollo (BID)
and at the Investment Projects Analysis and Evaluation Department of
Consultoria Claudio Barriga Associados. At Banco do Chile he served as
financial projects analyst, supervisor of the Risk Analysis Department,
manager of Medium and Large Companies Accounts and account manager of the Debt
Renegociation Team. He served as administrative and financial manager of
Impresora y Comercial Publiguias S.A., a subsidiary of Telefonica de Espana
and Compania Telefonica de Chile S.A., and chief financial officer at CRT--
Companhia Riograndense de Telecomunicacoes in Brazil. He is also a member of
the Board of Directors of Companhia Telefonica da Borda do Campo--CTBC, Tele
Sudeste Celular Participacoes S.A. and Telecomunicacoes de Sao Paulo S.A.--
Telesp, the operating subsidiary of the Company. He holds a degree in agronomy
engineering, a post graduate degree in economy and a masters degree in
business administration from the Catholic University of Chile and a degree in
financial analysis from the University of Chile.
Jose Joao Sottomayor Roque de Pinho, 54 years old, has served as a member of
the Board of Directors since August 1998. He served as the representative and
director of marketing of Marconi S.A. in North and Central America through the
company CPRM North America. In addition to his position as a member of the
Board of Directors of the Company, he is President of Portugal Telecom do
Brasil and a member of the Board of Directors of Companhia Telefonica da Borda
do Campo--CTBC, Telesp Celular Participacoes S.A. and Telecomunicacoes de Sao
Paulo S.A.--Telesp (the operating subsidiary of the Company). He holds a
degree in mechanical engineering from the University of Porto--Portugal.
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BOARD OF EXECUTIVE OFFICERS
The Board of Executive Officers consists of one President and one Vice
President elected by the Board of Directors for a term of three years. An
Executive Officer may be removed from office at any time. The President must
be chosen from among the members of the Board of Directors.
The following are the Executive Officers and their respective positions. All
current members were appointed in August 1998.
<TABLE>
<CAPTION>
NAME POSITION
---- --------------
<S> <C>
Fernando Xavier Ferreira.................................... President
Manuel Amado Sepena......................................... Vice-President
</TABLE>
Set forth below is a brief biographical description of the Executive Officer
not included above.
Manuel Amado Sepena, 59 years old, has served as Vice President since August
1998. He joined Telefonica de Espana in 1958 and was responsible for network
maintenance in Barcelona and southern Spain and served as assistant director
of the Barcelona area. He also served as general manager of Telefonica del
Peru, director of operations at CRT--Companhia Riograndense de
Telecomunicacoes and general sub-director of Client Assistance for Telefonica
de Espana in Madrid.
ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS
For the year ended December 31, 1997, the aggregate amount of compensation
paid by the Registrant's subsidiaries to all directors and executive officers
of the Registrant's subsidiaries as a group was approximately R$ 1.1 million.
For the year ended December 31, 1997, the aggregate amount set aside or
accrued by the Registrant's subsidiaries to provide pension, retirement or
similar benefits for officers and directors of the Registrant's subsidiaries
was approximately R$161.6 thousand. The Registrant did not have any officers
or directors for the year ended December 31, 1997 because it was not formed
until May 22, 1998 as part of the Breakup of Telebras.
ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
None.
ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
None.
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PART II
ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED
CAPITAL STOCK
Set forth below is a brief summary of the material provisions concerning the
Preferred Shares and Common Shares, the By-laws and the Brazilian Corporation
Law. This description is qualified by reference to the By-laws, which have
been filed (together with an English translation) as an exhibit to this
Registration Statement and to the Brazilian Corporation Law. A copy of the By-
laws (together with an English translation) is available for inspection at the
principal office of the Depositary. Information on the trading market for the
Preferred Shares is set forth under "Nature of Trading Market" and information
on ownership of the Registrant's shares is set forth under "Control of
Registrant."
GENERAL
The capital stock of the Registrant is comprised of Preferred Shares and
Common Shares, all without par value. At May 22, 1998, there were 210,029,997
thousand outstanding Preferred Shares and 124,351,903 thousand outstanding
Common Shares. The Company's share capital may be increased only by
shareholder vote.
The Preferred Shares are non-voting except under limited circumstances and
are entitled to a preferential, noncumulative dividend and to priority over
the Common Shares in the case of liquidation of the Registrant.
Under the Brazilian Corporation Law, the number of non-voting shares or
shares with limited voting rights, such as the Preferred Shares, may not
exceed two-thirds of the total number of shares. The Federal Government was
required by law prior to the privatization to own more than 50% of the voting
stock of the Registrant.
The majority of the members of the Board of Directors will be elected by the
controlling shareholders of Common Stock of the Registrant. Board members,
even if elected by one specific shareholder, have fiduciary duties towards the
Registrant and all its shareholders.
DIVIDENDS
Pursuant to its By-laws, the Registrant is required to distribute as
dividends in respect of each fiscal year ending on December 31, to the extent
amounts are available for distribution, an aggregate amount equal to at least
25% of Adjusted Net Income (as defined below) on such date (the "Mandatory
Dividend"). The annual dividend distributed to holders of Preferred Shares
(the "Preferred Dividend") has priority in the allocation of Adjusted Net
Income. Remaining amounts to be distributed are allocated first to the payment
of a dividend to holders of Common Shares in an amount equal to the Preferred
Dividend and the remainder is distributed equally among holders of Preferred
Shares and Common Shares. Under the Brazilian Corporation Law, a company is
permitted to suspend the Mandatory Dividend in respect of common shares and
preferred shares not entitled to a fixed or minimum dividend if its Board of
Directors and Audit Committee report to the shareholders' meeting that the
distribution would be incompatible with the financial circumstances of such
company and the shareholders ratify this conclusion at the shareholders'
meeting. In this case, (i) the Board of Directors must forward to the CVM
within five days of the shareholders' meeting an explanation justifying the
information transmitted at the meeting and (ii) the profits which were not
distributed for such reason are to be recorded as a special reserve and, if
not absorbed by losses in subsequent fiscal years, are to be paid as dividends
as soon as the financial situation of such company permits. The Preferred
Shares of the Registrant are entitled to a minimum dividend and thus the
Mandatory Dividend may be suspended only with respect to the Common Shares.
See "--Priority and Amount of Preferred Dividends." Dividends may be paid by
the Registrant out of retained earnings or accumulated profits in any given
fiscal year.
For the purposes of the Brazilian Corporation Law, accumulated profits are
defined as net income after income tax and social contribution for such fiscal
year, net of any accumulated losses from prior fiscal years and
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any amounts allocated to founders' shares, income bonds, employees' and
management's participation in a company's profits.
At each annual shareholders' meeting, the Board of Directors is required to
recommend how net profits for the preceding fiscal year are to be allocated.
Under the Brazilian Corporation Law, the Registrant is required to maintain a
statutory reserve, to which it must allocate 5% of net profits for each fiscal
year until the amount of such reserve equals 20% of the Registrant's paid-in
capital (the "Statutory Reserve"). Net losses, if any, may be charged against
the statutory reserve.
The Brazilian Corporation Law also provides for two additional discretionary
allocations of net profits that are subject to approval by shareholders at the
annual shareholders' meeting. First, a percentage of net profits may be
allocated to the contingency reserve for anticipated losses that are deemed
probable in future years (the "Contingency Reserve"). Any amount so allocated
in a prior year must be either (i) reversed in the fiscal year in which the
loss was anticipated if such loss does not in fact occur or (ii) written off
in the event that the anticipated loss occurs. Second, if the amount of
Unrealized Revenue exceeds the sum of (i) the statutory reserve, (ii) the
Contingency Reserve and (iii) retained earnings, such excess may be allocated
to the reserve (the "Unrealized Revenue Reserve"). Such allocations may not
hinder the payment of dividends on the Preferred Shares. "Unrealized Revenue"
is defined under the Brazilian Corporation Law as the sum of (i) the share of
equity earnings of affiliated companies which is not paid as cash dividends
and (ii) profits from installment sales to be received after the end of the
next succeeding fiscal year.
For the purposes of the Brazilian Corporation Law, and in accordance with
the Registrant's By-laws, the "Adjusted Net Income" is an amount equal to the
Registrant's net profit adjusted to reflect allocations to and from (i) the
Statutory Reserve; (ii) the Contingency Reserve and (iii) the Unrealized
Revenue Reserve.
The amounts available for distribution are determined on the basis of
Financial Statements prepared in accordance with the Brazilian Corporation
Law, which differ from financial statements, such as the Financial Statements
included herein, that are prepared using the constant currency method
according to Brazilian GAAP.
In order to allow the payment of dividends after the Breakup, the
shareholders of Telebras approved, as a part of the Breakup, the allocation of
a proportional part of the retained earnings and reserves of Telebras
transferred to the Registrant as retained earnings of Registrant. These
earnings and reserves (which amount to R$5.040 million) are available for
payment of future dividends by the Registrant, if so decided by the
shareholders, although the Registrant is not legally obligated to do so.
PRIORITY AND AMOUNT OF PREFERRED DIVIDENDS
The Registrant's By-laws provide for a minimum dividend for the Preferred
Shares equal to 6% of the amount obtained by dividing the total share capital
by the total number of shares of the Company. As a result of such provision,
holders of Preferred Shares are entitled to receive in any year distributions
of cash dividends prior to the holders of Common Shares receiving any
distribution of cash dividends in such year. In addition, distributions of
cash dividends in any year are made (i) first, to the holders of Preferred
Shares, up to the amount of the Preferred Dividend of the Preferred Shares for
such year, (ii) then, to the holders of Common Shares, until the amount
distributed in respect of each Common Share is equal to the amount distributed
in respect of each Preferred Share, and (iii) thereafter, to the Common Shares
and Preferred Shares on a pro rata basis. If the Mandatory Dividend in any
year is less than or equal to the Preferred Dividend payable to the holders of
Preferred Shares in such year, the holders of Common Shares will not be
entitled to receive any cash dividends from the Registrant in such year,
unless the holders of Common Shares approve dividends in excess of the
Preferred Dividend. In such circumstances, however, holders of Preferred
Shares will be entitled to the amount available for payment of dividends up to
an aggregate amount equal to the Preferred Dividend plus, in the event the
Preferred Dividend is higher than the amount available for payment of
dividends for such year, any retained earnings from previous years may be used
to make up for such shortfall. If the minimum dividend is not paid for a
period of three years, holders of Preferred Shares shall be entitled to full
voting rights until such time as the minimum dividend is paid in full for any
year.
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PAYMENT OF DIVIDENDS
The Registrant is required by law and its By-laws to hold an annual
shareholders' meeting by April 30 of each year at which, among other things,
an annual dividend may be declared by decision of the shareholders on the
recommendation of the Executive Officers, as approved by the Board of
Directors. The payment of annual dividends is based on the Financial
Statements prepared for the fiscal year ending December 31. Under the
Brazilian Corporation Law, dividends are required to be paid within 60 days
following the date the dividend is declared to shareholders of record on such
declaration date, unless a shareholders' resolution sets forth another date of
payment, which must occur prior to the end of the fiscal year in which such
dividend was declared. A shareholder has a three-year period from the dividend
payment date to claim dividends in respect of its shares, after which the
Registrant has no liability for such payment. Because the Registrant's shares
are issued in book-entry form, dividends with respect to any share are
automatically credited to the account holding such share and no action is
required on the part of the shareholder. The Registrant is not required to
adjust the amount of paid-in capital for inflation. Annual dividends may be
paid to shareholders on a pro rata basis according to the date when the
subscription price is paid to the Registrant.
Shareholders who are not residents of Brazil must register with the Central
Bank of Brazil in order for dividends, sales proceeds or other amounts with
respect to their shares to be eligible to be remitted outside of Brazil. The
Preferred Shares underlying the ADSs are held in Brazil by the Custodian, as
agent for the Depositary, which is the registered owner of the Registrant's
shares. See "--Description of American Depositary Receipts in respect of
Preferred Shares."
Payments of cash dividends and distributions, if any, will be made in
Brazilian currency to the Custodian on behalf of the Depositary, which will
then convert such proceeds into U.S. dollars and will cause such U.S. dollars
to be delivered to the Depositary for distribution to holders of ADRs. In the
event that the Custodian is unable to convert immediately the Brazilian
currency received as dividends into U.S. dollars, the amount of U.S. dollars
payable to holders of ADRs may be adversely affected by devaluations of the
Brazilian currency that occur before such dividends are converted and
remitted. Dividends in respect of the Preferred Shares paid to resident and
non-resident shareholders, including holders of ADSs, are not currently
subject to Brazilian withholding tax. See "Taxation--Brazilian Tax
Considerations."
VOTING RIGHTS
Each Common Share entitles the holder thereof to one vote at meetings of
shareholders of the Registrant. Preferred Shares do not entitle the holder to
vote except as set forth below. Holders of Preferred Shares are entitled to
attend or to address meetings of shareholders.
One of the three members of the permanent Audit Committee of the Registrant
and his or her alternate are elected by majority vote of the holders of
Preferred Shares present at the annual meeting of shareholders at which
members of the Audit Committee are elected.
Brazilian Corporation Law provides that certain non-voting shares, such as
the Preferred Shares, acquire voting rights in the event the Registrant fails
for three consecutive fiscal years to pay the Preferred Dividend to which such
shares are entitled until such payment is made.
The Preferred Shares are entitled to full voting rights with respect to (i)
the approval of any long-term contract between the Company and its affiliates,
on the one hand, and any controlling shareholder of the Company, such
shareholder's affiliates and related parties, on the other hand and (ii)
resolutions modifying certain provisions of the By-laws. The Preferred Shares
are entitled to full voting rights with respect to any resolution submitted to
the shareholders' meeting for the delisting of the Registrant ("going
private") or during liquidation of the Registrant.
Any change in the preference, benefits, conditions of redemption and
amortization of the Preferred Shares, or the creation of a class of shares
having priority or preference over the Preferred Shares, would require the
approval of holders of a majority of the outstanding Preferred Shares at a
special meeting of holders of Preferred
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Shares. Such a meeting would be called by publication of a notice in the
Gazeta Mercantil and the Diario Oficial da Uniao at least thirty days prior to
the meeting but would not generally require any other form of notice.
In any circumstances in which holders of Preferred Shares are entitled to
vote, each Preferred Share will entitle the holder thereof to one vote.
PREEMPTIVE RIGHTS
Each shareholder of the Registrant has a general preemptive right to
subscribe for shares in any capital increase, in proportion to its
shareholding. A period of 30 days following the publication of notice of the
capital increase is allowed for exercise of the right, and the right is
negotiable. However, a shareholders' meeting is authorized to eliminate
preemptive rights with respect to the issuance of new shares, debentures,
warrants and founders' shares convertible into new shares up to the limit of
the authorized share capital, provided that the distribution of these
securities is effected (i) on a stock exchange or in a public offering, (ii)
through an exchange of shares in a public offering the purpose of which is to
acquire control of another company or (iii) through the use of certain tax
incentives.
In the event of a capital increase which would maintain or increase the
proportion of capital represented by Preferred Shares, holders of ADSs, or of
Preferred Shares, would have preemptive rights to subscribe only to newly
issued Preferred Shares. In the event of a capital increase which would reduce
the proportion of capital represented by Preferred Shares, holders of ADSs, or
of Preferred Shares, would have preemptive rights to subscribe to Preferred
Shares, in proportion to their shareholdings and to Common Shares only to the
extent necessary to prevent dilution of their interest in the Registrant.
Preemptive rights to purchase shares may not be offered to U.S. holders of
ADSs unless a registration statement under the Securities Act is effective
with respect to the shares underlying such rights, or an exemption from the
registration requirements of the Securities Act is available. Consequently,
holders of ADSs who are U.S. persons or are located in the United States may
be restricted in their ability to participate in the exercise of preemptive
rights. See "--Description of American Depositary Receipts in respect of
Preferred Shares--Dividends, Other Distributions and Rights."
RIGHT OF REDEMPTION
Neither the Common Shares nor the Preferred Shares are redeemable, subject
to the right of a dissenting shareholder to seek redemption upon a decision
made at a shareholders' meeting by shareholders representing over 50% of the
voting shares to seek redemption upon a decision made at a shareholders'
meeting (i) to change the preference of the Preferred Shares or to create a
class of shares having priority or preference over the Preferred Shares, (ii)
to modify the mandatory distribution of dividends, (iii) to change the
corporate purposes of the Registrant, (iv) to dissolve or liquidate the
Registrant, (v) to transfer all of the shares of the Registrant to another
company in order to make the Registrant a wholly-owned subsidiary of such
company (incorporacao de acoes), (vi) to approve the acquisition of another
company, the price of which exceeds certain limits set forth in the Brazilian
Corporation Law, and (vii) to merge or consolidate the Registrant with another
company, if certain liquidity standards provided in the Brazilian Corporation
Law are not met. The right to redemption lapses 30 days after publication of
the minutes of the relevant shareholders' meeting or, whenever the resolution
requires the approval of the holders of Preferred Shares by vote taken in a
special meeting of a majority of the holders of Preferred Shares affected by
the resolution, within 30 days from the publication of the minutes of such
special meeting. The Registrant would be entitled to reconsider any action
giving rise to redemption rights within 10 days following the expiration of
such rights if the redemption of shares of dissenting shareholders would
jeopardize the financial stability of the Registrant.
Unless otherwise provided in the By-laws (which is not the case with the
Registrant), shares are redeemable at their book value, determined on the
basis of the last annual balance sheet approved by the shareholders. If the
shareholders' meeting giving rise to redemption rights occurs more than 60
days after the date of the last annual balance sheet, a shareholder may demand
that its shares be valued on the basis of a new balance sheet that is as of a
date within 60 days of such shareholders' meeting.
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FORM AND TRANSFER
Shares of the Registrant are maintained in book-entry form with a transfer
agent (the "Transfer Agent") and the transfer of such shares is made in
accordance with the applicable provisions of the Brazilian Corporation Law,
which provides that a transfer of shares is effected by an entry made by the
Transfer Agent on its books, debiting the share account of the seller and
crediting the share account of the purchaser, against presentation of a
written order of the seller, or judicial authorization or order, in an
appropriate document which remains in the possession of the Transfer Agent.
The Preferred Shares underlying the ADS will be registered on the Transfer
Agent's records in the name of the Depositary.
Transfers of shares by a foreign investor are made in the same way and
executed by such investor's local agent on the investor's behalf except that,
if the original investment was registered with the Central Bank of Brazil
pursuant to the Annex IV Regulations, the foreign investor should also seek
amendment, if necessary, through its local agent, of the certificate of
registration to reflect the new ownership.
Each of the Sao Paulo Stock Exchange and the Rio de Janeiro Stock Exchange
operates a central clearing system. A holder of shares of the Registrant may
choose, at its discretion, to participate in these systems and all shares
elected to be put into the system will be deposited in custody with the
relevant stock exchange (through a Brazilian institution duly authorized to
operate by the Central Bank of Brazil having a clearing account with the
relevant stock exchange) and the fact that such shares are subject to custody
with the relevant stock exchange will be reflected in the Registrant's
register of shareholders. Each participating shareholder will, in turn, be
registered in the register of beneficial shareholders of the Registrant
maintained by the relevant stock exchange and will be treated in the same way
as registered shareholders.
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS IN RESPECT OF PREFERRED SHARES
The following is a summary of the material provisions of the deposit
agreement (the "Deposit Agreement"), dated as of July 27, 1998 among the
Registrant, the Depositary, and the registered holders (the "Owners") and
beneficial owners from time to time of ADSs (the "Beneficial Owners"),
pursuant to which the ADSs representing Preferred Shares are to be issued.
This summary is subject to and qualified in its entirety by reference to the
Deposit Agreement, including the form of ADRs. Terms used in this description
and not otherwise defined shall have the meanings set forth in the Deposit
Agreement. A copy of the Deposit Agreement has been filed as an exhibit to
this Registration Statement. Copies of the Deposit Agreement are available for
inspection at the Corporate Trust Office of the Depositary, currently located
at 101 Barclay Street, New York, NY 10286, and at the office of the agent of
the Custodian, currently located at the principal Sao Paulo, Brazil office of
Banco Itau. The Depositary's principal executive office is located at 1 Wall
Street, New York, NY 10015.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing ADSs are issuable by the Depositary pursuant to the Deposit
Agreement. Each ADR is in registered form and evidences a specified number of
ADSs, each ADS representing 1,000 Preferred Shares, or evidence of the right
to receive 1,000 Preferred Shares deposited with the Custodian and registered
in the name of the Depositary or its nominee (together with any additional
Preferred Shares at any time deposited or deemed deposited under the Deposit
Agreement and any and all other securities, cash and other property received
by the Depositary or the Custodian in respect of such Preferred Shares and at
such time held under the Deposit Agreement, the "Deposited Securities"). Only
persons in whose names ADRs are registered on the books of the Depositary are
treated by the Depositary and the Registrant as Owners.
DEPOSIT, TRANSFER AND WITHDRAWAL
The By-laws provide that ownership of capital generally must be evidenced
only by a record of ownership maintained by the Registrant or an accredited
intermediary, such as a bank, acting as a registrar for the shares. Currently,
such function is performed by the Registrant as registrar (the "Registrar").
Accordingly, all references to the deposit, surrender and delivery of the
Preferred Shares refer only to book-entry transfers of the Preferred
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Shares in Brazil. See "--Capital Stock" for a description of the
characteristics and rights of the Preferred Shares. All references to the
deposit, surrender and delivery of the ADS or the ADRs refer not only to the
physical transfer of any certificates representing such ADRs but also to any
book-entry transfers.
The Preferred Shares represented by ADSs were deposited pursuant to the
Deposit Agreement by book-entry transfer to an account of the Custodian and
registered in the name of the Custodian. The Depositary is the holder of
record on the books of the Custodian of all such Preferred Shares.
The Depositary has agreed, subject to the terms and conditions of the
Deposit Agreement, that upon delivery (including by book-entry credit) to the
Custodian of the Preferred Shares (or evidence of rights to receive Preferred
Shares) and pursuant to appropriate instruments of transfer in a form
satisfactory to the Custodian, the Depositary will, upon payment of the fees,
charges and taxes provided in the Deposit Agreement, execute and deliver at
its Corporate Trust Office to, or upon the written order of, the person or
persons named in the notice of the Custodian delivered to the Depositary or
requested by the person depositing such Preferred Shares with the Depositary,
an ADR or ADRs, registered in the name or names of such person or persons, and
evidencing any authorized number of ADSs requested by such person or persons.
The Depositary will refuse to accept Preferred Shares for deposit whenever
it is notified in writing that such deposit would result in any violation of
applicable laws. Neither the Depositary nor the Custodian, nor any nominee or
person on their behalf, will accept any Restricted ADR evidencing Restricted
ADSs issued pursuant to the Restricted Deposit Agreement, or Preferred Shares
withdrawn pursuant to the Restricted Deposit Agreement for the purpose of
deposit under the Deposit Agreement, or issue ADSs or ADRs against delivery
thereof, as long as such Restricted ADSs, Restricted ADRs or Preferred Shares
are or may be deemed restricted securities within the meaning of Rule
144(a)(3) under the Securities Act.
Upon surrender at the Corporate Trust Office of the Depositary of an ADR for
the purpose of withdrawal of the Deposited Securities represented by the ADSs
evidenced by such ADR, and upon payment of the fees of the Depositary,
governmental charges and taxes provided in the Deposit Agreement, and subject
to the terms and conditions of the Deposit Agreement, the By-laws, the
Deposited Securities and applicable law, the Owner of such ADR will be
entitled to book-entry credit with the Registrar together with physical
delivery (if physical delivery is permitted under the By-laws), to him or upon
his order, as permitted by applicable law, of the amount of Deposited
Securities at the time represented by the ADS or ADSs evidenced by such ADR.
Any forwarding of share certificates (if any), other securities, property,
cash and other documents of title for such delivery will be at the risk and
expense of the Owner.
Subject to the terms and conditions of the Deposit Agreement and any
limitations that may be executed and established by the Depositary and unless
requested by the Registrant to cease doing so, the Depositary may execute and
deliver ADRs prior to the receipt of Preferred Shares (a "Pre-Release"), may
deliver Preferred Shares upon the receipt, and cancellation of ADRs which have
been Pre-Released, whether or not such cancellation is prior to the
termination of such Pre-Release or the Depositary knows that such ADR has been
Pre-Released, and may receive ADRs in lieu of Preferred Shares in satisfaction
of a Pre-Release.
Each Pre-Release must be (a) preceded or accompanied by a written
representation and agreement from the person to whom the ADRs are to be
delivered (the "Pre-Releasee") that the Pre-Release or its customer (i) owns
the Preferred Shares or ADRs to be remitted, as the case may be, (ii) assigns
all beneficial right, title and interest in such Preferred Shares or ADRs, as
the case may be, to the Depositary for the benefit of the Owners and (iii)
agrees in effect to hold such Preferred Shares or ADRs, as the case may be,
for the account of the Depositary until delivery of the same upon the
Depositary's request, (b) at all times fully collateralized with cash or U.S.
government securities, (c) terminable by the Depositary on not more than five
business days' notice and (d) subject to such further indemnities and credit
regulations as the Depositary deems appropriate. The Depositary will set
limits with respect to Pre-Release transactions to be entered into hereunder
with any particular Pre-Releasee on a case by case basis as the Depositary
deems appropriate. The collateral referred to in clause (b) above shall be
held by the Depositary for the benefit of the Owners as security for the
performance of the
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Pre-Releasee's obligations to the Depositary in connection with a Pre-Release
transaction, including the Pre-Releasee's obligation to deliver Preferred
Shares or ADRs upon termination of a Pre-Release transaction.
The Depositary will also limit the number of ADRs involved in such Pre-
Release transactions so that Preferred Shares not deposited but represented by
ADSs outstanding at any time as a result of Pre-Releases will not normally
exceed thirty percent (30%) of the ADSs outstanding (without giving effect to
ADSs evidenced by ADRs outstanding as a result of the Pre-Release), but the
Depositary reserves the right to disregard such limit from time to time as it
deems appropriate and may, with the prior written consent of the Registrant,
change such limit for purposes of general application. The Depositary may
retain for its own account any compensation received by it in connection with
the foregoing. Neither the Registrant nor the Custodian shall incur any
liability to Owners of ADRs as a result of such transactions.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
The Depositary is required to convert, as promptly as practicable and, in
any event, within one business day of its receipt thereof, into U.S. dollars,
all cash dividends or other distributions, net proceeds from the sale of
securities, property or rights, denominated in any currency other than U.S.
dollars that it receives in respect of the deposited Preferred Shares if
permitted under applicable laws and the Depositary determines that such
conversion into U.S. dollars and transfer to the United States can be effected
on a reasonable basis. If at the time of conversion, the resulting U.S.
dollars can, pursuant to applicable law, be transferred out of Brazil for
distribution, the Depositary will as promptly as practicable distribute the
amount received to the Owner entitled thereto in proportion to the number of
ADSs evidenced by such Owner's ADRs without regard to any distinctions among
Owners on account of exchange restrictions or otherwise. The amount
distributed will be reduced by any amounts to be withheld by the Registrant,
the Depositary or the Custodian, including amounts on account of any
applicable taxes and certain other expenses. For further details about
applicable taxes, see "Taxation."
If such conversion, transfer or distribution can be effected only with the
approval or license of any government or agency thereof, the Depositary will
file as promptly as practicable such application for approval or license;
however, the Depositary will be entitled to rely upon Brazilian local counsel
in such matters, which counsel will be instructed to act as promptly as
possible. If, pursuant to applicable law, any foreign currency received by the
Depositary or the Custodian cannot be converted to U.S. dollars, or if any
approval or license of any government or agency thereof that is required for
such conversion is denied or, in the opinion of the Depositary, cannot be
promptly obtained at a reasonable cost, the Depositary will, (a) as to the
portion of the foreign currency that is convertible into U.S. dollars, make
such conversion and (i) if permitted by applicable law, transfer such U.S.
dollars to the United States and distribute them to the Owners entitled
thereto or (ii) to the extent that such transfer is not permitted, hold such
U.S. dollars for the benefit of the Owners entitled thereto, uninvested and
without liability for interest thereon and (b) as to the nonconvertible
balance, if any, (i) if requested in writing by an Owner, distribute or cause
the Custodian to distribute the foreign currency (or an appropriate document
evidencing the right to receive such foreign currency) received by the
Depositary or the Custodian to such Owner and (ii) the Depositary shall hold
or will cause the Custodian to hold any amounts of nonconvertible foreign
currency not distributed pursuant to the immediately preceding subclause (i)
uninvested and without liability for the interest thereon for the respective
accounts of the Owners entitled to receive the same uninvested and without
liability for the interest thereon.
If the Registrant declares a dividend in, or free distribution of,
additional Preferred Shares with respect to the Preferred Shares represented
by the ADSs, the Depositary may, or will if the Registrant so requests,
distribute as promptly as practicable to the Owners of outstanding ADRs
entitled thereto, in proportion to the number of ADSs evidenced by their
respective ADRs, additional ADRs evidencing an aggregate number of ADSs that
represents the number of Preferred Shares received as such dividend or free
distribution, subject to the terms and conditions of the Deposit Agreement
with respect to the deposit of Preferred Shares and the issuance of ADSs
evidenced by ADRs, including the withholding of any tax or other governmental
charge and the payment of fees of the Depositary.
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The Depositary may withhold any such distribution of ADRs if it has not
received satisfactory assurances from the Registrant that such distribution
does not require registration under the Securities Act or is exempt from
registration under the provisions of such Act. In lieu of delivering ADRs for
fractional ADSs in the event of any such dividend or free distribution, the
Depositary will sell the amount of Preferred Shares represented by the
aggregate of such fractions and distribute the net proceeds in accordance with
the Deposit Agreement. If additional ADRs are not so distributed, each ADS
will thereafter also represent the additional Preferred Shares distributed
upon the Deposited Securities represented thereby.
If the Registrant offers, or causes to be offered, to the holders of
Preferred Shares any rights to subscribe for additional Preferred Shares or
any rights of any other nature, the Depositary, after consultation with the
Registrant, will have discretion as to the procedure to be followed in making
such rights available to Owners or in disposing of such rights for the benefit
of such Owners and making the net proceeds available to such Owners. If, by
the terms of such rights offering or for any other reason, it would be
unlawful for the Depositary to either make such rights available to any Owners
or dispose of such rights and make the net proceeds available to such Owners,
then the Depositary will allow the rights to lapse. If at the time of the
offering of any rights, the Depositary determines in its discretion that it is
lawful and feasible to make such rights available to all or certain Owners,
the Depositary may, and at the request of the Company will, distribute to any
Owners to whom it determines the distribution to be lawful and feasible, in
proportion to the number of ADSs held by such Owner, warrants or other
instruments therefor in such form as it deems appropriate.
If the Depositary determines that it is not lawful or feasible to make such
rights available to all or certain Owners, it may, and at the request of the
Registrant, will use its best efforts that are reasonable under the
circumstances to, sell the rights, warrants or other instruments in proportion
to the number of ADSs held by the Owners to whom it has determined it may not
lawfully or feasibly make such rights available, and allocate net proceeds of
such sales for the account of such Owners otherwise entitled to such rights,
warrants or other instruments, upon an averaged or other practical basis
without regard to any distinctions among such Owners because of exchange
restrictions or the date of delivery of any ADR or ADRs or otherwise. The
Depositary will not be responsible for any failure to determine that it may be
lawful or feasible to make such rights available to Owners in general or any
Owner or Owners in particular.
In circumstances in which rights would not otherwise be distributed, if an
Owner requests the distribution of warrants or other instruments in order to
exercise the rights allocable to the ADSs of such Owner, the Depositary will
promptly make such rights available to such Owner upon written notice from the
Registrant to the Depositary that (a) the Registrant has elected in its sole
discretion to permit such rights to be exercised and (b) such Owner has
executed such documents as the Registrant has determined in its sole
discretion are reasonably required under applicable law. Upon instruction
pursuant to such warrants or other instruments to the Depositary from such
Owner to exercise such rights, upon payment by such Owner to the Depositary
for the account of such Owner of an amount equal to the purchase price of the
Preferred Shares to be received in exercise of the rights, and upon payment of
the fees of the Depositary as set forth in such warrants or other instruments,
the Depositary will, on behalf of such Owner, exercise the rights and purchase
the Preferred Shares, and the Registrant will cause the Preferred Shares so
purchased to be delivered to the Depositary on behalf of such Owner. As agent
for such Owner, the Depositary will cause the Preferred Shares so purchased to
be deposited, and will execute and deliver ADRs to such Owner, pursuant to the
Deposit Agreement. Such a disposal of rights may reduce the Owners'
proportionate equity interest in the Registrant.
The Depositary will not offer rights to Owners having an address of record
in the United States unless a registration statement under the Securities Act
is in effect with respect to such rights and the Securities to which such
rights relate or unless the offering and sale thereof to such Owners are
exempt from registration under the Securities Act; however, the Registrant
will have no obligation to file a registration statement under the Securities
Act to make available to Owners any right to subscribe for or to purchase any
of the Securities.
Whenever the Depositary receives any distribution other than cash, Preferred
Shares or rights in respect of the Deposited Securities, the Depositary will,
as promptly as practicable, cause the securities or property received
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by it to be distributed to the Owners entitled thereto, after deduction or
upon payment of any fees and expenses of the Depositary or any taxes or other
governmental charges, in proportion to their holdings, respectively, in any
manner that the Depositary may deem equitable and practicable for
accomplishing such distribution; provided, however, that if in the opinion of
the Depositary such distribution cannot be made proportionately among the
Owners entitled thereto, or if for any other reason (including, but not
limited to, any requirement that the Registrant or the Depositary withhold an
amount on account of taxes or other governmental charges or that such
securities must be registered under the Securities Act, in order to be
distributed to Owners) the Depositary deems such distribution not to be
feasible, the Depositary may, after consultation with the Registrant, adopt
such method as it may deem equitable and practicable for the purpose of
effecting such distribution, including, but not limited to, the public or
private sale of the securities or property thus received, or any part thereof,
and the net proceeds of any such sale (net of the fees and expenses of the
Depositary) will be distributed by the Depositary to the Owners entitled
thereto as in the case of a distribution received in cash.
In connection with any distribution to Owners, the Registrant will remit to
the appropriate governmental authority or agency all amounts (if any) required
to be withheld by the Registrant and owing to such authority or agency by the
Registrant; and the Depositary and the Custodian will remit to the appropriate
governmental authority or agency all amounts (if any) required to be withheld
and owing to such authority or agency by the Depositary or Custodian. If the
Depositary determines that any distribution of property other than cash
(including Preferred Shares and rights to subscribe therefor) is subject to
any tax or governmental charge that the Depositary is obligated to withhold,
the Depositary may, by public or private sale, dispose of all or a portion of
such property in such amounts and in such manner as the Depositary deems
necessary and practicable to pay such taxes or governmental charges, and the
Depositary will distribute the net proceeds of any such sale or the balance of
any such property after deduction of such taxes or governmental charges to the
Owners entitled thereto in proportion to the number of ADSs held by them,
respectively.
Upon any change in nominal or par value, or split-up, consolidation or any
other reclassification of Deposited Securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting the
Registrant or to which it is a party, any Preferred Shares or other securities
that will be received by the Depositary or the Custodian in exchange for, in
conversion of, or in respect of Deposited Securities will be treated as new
Deposited Securities under the Deposit Agreement, and ADSs will thenceforth
represent, in addition to the existing Deposited Securities, the right to
receive the new Deposited Securities so received in exchange or conversion,
unless additional ADRs are delivered pursuant to the following sentence. In
any such case the Depositary may, and will if the Company so requests, execute
and deliver additional ADRs as in the case of a distribution in Preferred
Shares, or call for the surrender of outstanding ADRs to be exchanged for new
ADRs specifically describing such new Deposited Securities.
RECORD DATES
Whenever any cash dividend or other cash distribution shall become payable,
or whenever any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever for any
reason the Depositary causes a change in the number of Preferred Shares that
are represented by each ADS or whenever the Depositary shall receive notice of
any meeting of holders of Preferred Shares or other Deposited Securities, or
whenever the Depositary shall find it necessary or convenient, the Depositary
will fix a record date, which date shall, to the extent practicable, be either
the same date as the record date fixed by the Registrant or, if different from
the record date fixed by the Registrant, fixed after consultation with the
Registrant, (a) for the determination of the Owners who will be (i) entitled
to receive such dividend, distribution of rights, or the net proceeds of the
sale thereof, or (ii) entitled to give instructions for the exercise of voting
rights at any such meeting, or (b) on or after which such ADS will represent
the changed number of Preferred Shares, all subject to the provisions of the
Deposit Agreement.
VOTING OF THE DEPOSITED SECURITIES
Preferred Shares do not entitle the holders thereof to vote on any matter
presented to a vote of shareholders of the Registrant except as set forth
under "--Capital Stock--Voting Rights." With respect to the circumstances
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set forth thereunder and if, in the future, the terms of the Preferred Shares
should be revised or amended so as to provide for voting rights, or should the
Preferred Shares obtain voting rights pursuant to the Brazilian Corporation
Law or through any change in the laws, rules, or regulations applicable to
such shares or through any change in interpretation of such laws, the
following shall apply.
As soon as practicable after receipt of notice of any meeting or
solicitation of consents or proxies of holders of Preferred Shares or other
Deposited Securities, if requested in writing by the Registrant, the
Depositary will, as soon as practicable thereafter, mail to all Owners a
notice, the form of which notice will be in the sole discretion of the
Depositary, containing (a) the information included in such notice of meeting
received by the Depositary from the Registrant (or a summary in English of the
notice of such meeting), (b) a statement that the Owners as of the close of
business on a specified record date will be entitled, subject to any
applicable provision of Brazilian law, the By-laws and the provisions of the
Deposited Securities, to instruct the Depositary as to the exercise of the
voting rights, if any, pertaining to the Preferred Shares or other Deposited
Securities represented by their respective ADSs and (c) a statement as to the
manner in which such instructions may be given, including an express
indication that instructions may be given or deemed given in accordance with
the last sentence of this paragraph if no instruction is received, to the
Depositary to give a discretionary proxy to a person designated by the
Registrant. Upon the written request of an Owner on such record date, received
on or before the date established by the Depositary for such purpose, the
Depositary will endeavor, insofar as practicable, to vote or cause to be voted
the amount of Preferred Shares or other Deposited Securities represented by
the ADSs evidenced by such ADRs in accordance with the instructions set forth
in such request. The Depositary may not itself exercise any voting discretion
over any Preferred Shares. If the Depositary does not receive instructions
from an Owner on or before the date established by the Depositary for such
purpose, the Depositary will deem such Owner to have instructed the Depositary
to give a discretionary proxy to a person designated by the Registrant to vote
the underlying Preferred Shares, provided that no such discretionary proxy
will be given with respect to any matter as to which the Registrant informs
the Depositary that (i) the Registrant does not wish such proxy given, (ii)
substantial opposition exists or (iii) the rights of holders of Preferred
Shares will be materially and adversely affected. Under Brazilian law the
Depositary may vote the Preferred Shares or other Deposited Securities
represented by ADSs and evidenced by ADRs in accordance with the instructions
of the Owners even if those instructions differ among such Owners.
Owners are not entitled to attend meetings of shareholders. An Owner of ADRs
wishing to do so must cancel its ADRs and obtain delivery of the underlying
shares, registered in the name of such Owner, prior to the record date for
attendance at such meeting.
REPORTS AND OTHER COMMUNICATIONS
The Depositary will make available for inspection by Owners at its Corporate
Trust Office any reports and communications, including any proxy soliciting
material, received from the Registrant, which are both (a) received by the
Depositary as the holder of the Deposited Securities and (b) made generally
available to holders of such Deposited Securities by the Registrant. The
Depositary will also send to Owners copies of such reports when furnished by
the Registrant pursuant to the Deposit Agreement. Any such reports and
communications furnished to the Depositary by the Registrant will be furnished
in English, to the extent that such materials are required to be translated
into English pursuant to any regulations of the Commission.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the ADRs and any provision of the Deposit Agreement may at any
time and from time to time be amended by agreement between the Registrant and
the Depositary in any respect which they may deem necessary or desirable. Any
amendment that imposes or increases any fees or charges (other than taxes and
other governmental charges, registration fees, cable, telex or facsimile
transmission costs, delivery costs or other such expenses), or which otherwise
prejudices any substantial existing rights of Owners, will not take effect as
to the outstanding ADRs until the expiration of 30 days after notice of such
amendment has been given to the Owners of outstanding ADRs. Every Owner and
Beneficial Owner at the time such amendment becomes effective will be deemed,
by continuing to hold such ADR, to consent and agree to such amendment and to
be bound by the
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Deposit Agreement as amended thereby. In no event will any amendment impair
the right of any Owner to surrender his ADR and receive therefor the Preferred
Shares and other property represented thereby, except to comply with mandatory
provisions of applicable law.
The Depositary will at any time at the direction of the Registrant terminate
the Deposit Agreement by mailing notice of such termination to the Owners then
outstanding at least 30 days prior to the date fixed in such notice for such
termination. The Depositary may likewise terminate the Deposit Agreement by
mailing notice of such termination to the Registrant and the Owners, if at any
time after 60 days have expired after the Depositary shall have delivered
written notice of its election to resign to the Registrant, a successor
depositary shall not have been appointed and accepted its appointment, in
accordance with the terms of the Deposit Agreement. If any ADRs remain
outstanding after the date of termination, the Depositary thereafter will
discontinue the registration of transfer of ADRs, will suspend the
distribution of dividends to the holders thereof and will not give any further
notices or perform any further acts under the Deposit Agreement, except for
(1) the collection of dividends and other distributions pertaining to the
Deposited Securities, (2) the sale of rights and other property and (3) the
delivery of Preferred Shares, together with any dividends or other
distributions received with respect thereto and the net proceeds of the sale
of any rights or other property, in exchange for surrendered ADRs (after
deducting, in each case, the fees of the Depositary for the surrender of an
ADR and other expenses set forth in the Deposit Agreement and any applicable
taxes or governmental charges).
At any time after the expiration of one year from the date of termination,
the Depositary may sell the Deposited Securities then held thereunder and hold
uninvested the net proceeds of such sale, together with any other cash,
unsegregated and without liability for interest, for the pro rata benefit of
the Owners that have not theretofore surrendered their ADRs, such Owners
thereupon becoming general creditors of the Depositary with respect to such
net proceeds. After making such sale, the Depositary will be discharged from
all obligations under the Deposit Agreement, except to account for net
proceeds and other cash (after deducting, in each case, the fee of the
Depositary and other expenses set forth in the Deposit Agreement for the
surrender of an ADR and any applicable taxes or other governmental charges)
and certain indemnification obligations. Upon termination of the Deposit
Agreement, the Registrant will also be discharged from all obligations
thereunder, except for certain obligations to the Depositary.
CHARGES OF DEPOSITARY
The Depositary will charge (to the extent permitted by applicable law) any
party depositing or withdrawing Preferred Shares or any party surrendering
ADRs or to whom ADRs are issued (including, without limitation, issuance
pursuant to a stock dividend or stock split declared by the Company or an
exchange of stock regarding the ADRs or Deposited Securities or a distribution
of ADRs pursuant to the Deposit Agreement), whichever is applicable: (1) taxes
and other governmental charges, (2) such registration fees as may from time to
time be in effect for the registration of transfers of Preferred Shares
generally on the register of the Registrant or the Registrar and applicable to
transfers of Preferred Shares to the name of the Depositary or its nominee or
the Custodian or its nominee on the making of deposits or withdrawals under
the Deposit Agreement, (3) such cable, telex and facsimile transmission
expenses as are expressly provided in the Deposit Agreement to be at the
expense of persons depositing Preferred Shares or Owners, (4) such expenses as
are incurred by the Depositary in the conversion of foreign currency pursuant
to the Deposit Agreement, (5) a fee not in excess of $5.00 per 100 ADSs (or
portion thereof) for the execution and delivery of ADRs pursuant to the
Deposit Agreement and the surrender of ADRs pursuant to the Deposit Agreement,
(6) a fee for the distribution of proceeds of sales of securities or rights
pursuant to the Deposit Agreement, such fee (which may be deducted from such
proceeds) being in an amount equal to the lesser of (i) the fee for issuance
of ADSs referred to above which would have been charged as a result of the
deposit of such securities (for purposes of this clause treating all such
securities as if they were Preferred Shares) or Preferred Shares received in
exercise of rights distributed to them pursuant to the Deposit Agreement but
which securities or rights are instead sold by the Depositary and the net
proceeds distributed and (ii) the amount of such proceeds.
The Depositary, pursuant to the Deposit Agreement, may own and deal in any
class of securities of the Company and its affiliates and in ADRs.
71
<PAGE>
LIABILITY OF OWNERS OR BENEFICIAL OWNERS FOR TAXES OR OTHER CHARGES
If any tax or other governmental charge shall become payable by the
Custodian, the Depositary or its nominee with respect to any ADR or any
Deposited Securities represented by the ADSs evidenced by such ADR, such tax
or other governmental charge will be payable by the Owner or Beneficial Owner
of such ADR. The Depositary may refuse to effect registration of transfer of
such ADR or any split-up or combination thereof or any withdrawal of Deposited
Securities underlying such ADR until such payment is made, and may withhold
any dividends or other distributions or may sell for the account of such Owner
or Beneficial Owner any part or all of the Deposited Securities underlying
such ADR and may apply such dividends or distributions or the proceeds of any
such sale in payment of any such tax or other governmental charge (and any
taxes or expenses arising out of such sale) and the Owner or Beneficial Owner
of such ADR will remain liable for any deficiency.
LIMITATION ON EXECUTION, DELIVERY, TRANSFER AND SURRENDER OF ADRS
The ADRs are transferable on the books of the Depositary, provided that the
Depositary may close the transfer books after consultation with the Registrant
to the extent practicable at any time or from time to time when deemed
expedient by it in connection with the performance of its duties or at the
request of the Registrant.
As a condition precedent to the execution and delivery, registration of
transfer, split-up, combination or surrender of any ADR, the delivery of any
distribution thereon or the withdrawal of Deposited Securities, the
Depositary, the Registrant, the Custodian or the Registrar may require payment
from the depositor of Preferred Shares or the presenter of the ADR of a sum
sufficient to reimburse it for any tax or other governmental charge and any
stock transfer or registration fee with respect thereto (including any such
tax, charge or fee with respect to Preferred Shares being deposited or
withdrawn) and payment of any other applicable fees provided for in the
Deposit Agreement. The Depositary may refuse to deliver ADRs, register the
transfer of any ADR or make any distribution of, or related to, the Preferred
Shares until it has received such proof of citizenship, residence, exchange
control approval, compliance with all applicable laws or regulations, or other
information as it may reasonably deem necessary or proper. The delivery,
transfer, registration of transfer, split-up, combination and surrender of
ADRs generally may be suspended or refused during any period when the transfer
books of the Depositary, the Registrant or the Registrar are closed or if any
such action is deemed necessary or advisable by the Depositary or the
Registrant, at any time or from time to time.
The Depositary will keep books, at its Corporate Trust Office, for the
registration and transfer of ADRs, which at all reasonable times will be open
for inspection by the Owners, provided that such inspection will not be for
the purpose of communicating with Owners in the interest of a business or
object other than the business of the Registrant or a matter related to the
Deposit Agreement or the ADRs.
The Depositary may upon notice to the Registrant appoint one or more co-
transfer agents reasonably acceptable to the Registrant for the purpose of
effecting transfers, combinations and split-ups of ADRs at designated transfer
offices on behalf of the Depositary. In carrying out its functions, a co-
transfer agent may require evidence of authority and compliance with
applicable laws and other requirements by Owners or persons entitled to ADRs
and will be entitled to protection and indemnity to the same extent as the
Depositary.
LIMITATION OF LIABILITY
Neither the Depositary nor the Registrant nor any of their respective
directors, employees, agents or affiliates will be liable to any Owners or
Beneficial Owners of ADRs if by reason of any provision of any present or
future law or regulation of the United States, Brazil or any other country, or
of any other governmental or regulatory authority or stock exchange, or by
reason of any provision, present or future, of the By-laws, or by reason of
any act of God or war or other circumstance beyond its control, the Depositary
or the Registrant or any of their respective directors, employees, agents, or
affiliates shall be prevented, delayed or forbidden from, or be subject to any
civil or criminal penalty on account of, doing or performing any act or thing
which by terms of the Deposit Agreement it is provided will be done or
performed; nor will the Depositary or the Registrant incur any liability to
any Owner or Beneficial Owner of any ADR by reason of any nonperformance or
delay,
72
<PAGE>
caused as aforesaid, in the performance of any act or thing which by the terms
of the Deposit Agreement it is provided will or may be done or performed, or
by reason of any exercise of, or failure to exercise, any discretion provided
for under the Deposit Agreement. Where, by the terms of a distribution
pursuant to the Deposit Agreement, or an offering or distribution pursuant to
the Deposit Agreement, or for any other reason, the Depositary is prevented or
prohibited from making such distribution or offering available to Owners, and
the Depositary is prevented or prohibited from making such distribution or
offering on behalf of such Owners and making the net proceeds available to
such Owners, then the Depositary, after consultation with the Registrant, will
not make such distribution or offering, and will allow the rights, if
applicable, to lapse.
The Registrant and the Depositary assume no obligation nor will they be
subject to any liability under the Deposit Agreement to Owners or Beneficial
Owners of ADRs, except that they agree to perform their respective obligations
specifically set forth under the Deposit Agreement without negligence or bad
faith.
GOVERNING LAW
The Deposit Agreement is governed by the laws of the State of New York.
73
<PAGE>
PART III
ITEM 15: DEFAULTS UPON SENIOR SECURITIES
The Company is party to certain credit agreements that contain covenants
restricting, among other things, (i) the ability of Telebras to dispose of all
or a substantial part of its assets or to cease to control a company that was
an operating subsidiary of the Telebras System and (ii) the ability of the
Federal Government to dispose of its controlling interest in the Telebras
System. The Breakup of Telebras on May 22, 1998, the privatization of the New
Holding Companies on July 29, 1998 and the announced liquidation of Telebras
constitute events of default under such credit agreements. In addition, most
of the Company's other credit agreements include cross-default provisions and
cross-acceleration provisions that would permit the holders of such
indebtedness to declare the indebtedness to be in default and to accelerate
the maturity thereof if a significant portion of the principal amount of the
Company's debt is in default or accelerated. The total amount of the Company's
outstanding debt as of December 31, 1997 which is currently or is expected to
be in default is approximately R$483.5 million. The Company is currently in
negotiations with the appropriate creditors with respect to this indebtedness.
Although none of the Company's creditors have notified the Company that they
intend to pursue their rights and remedies with respect to these defaults,
there can be no assurance that the Company will be able to obtain waivers or
that the creditors will not exercise their rights and remedies under the
credit agreements.
ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable.
PART IV
ITEM 17: CONSOLIDATED FINANCIAL STATEMENTS
The Registrant has responded to Item 18 in lieu of responding to this Item.
ITEM 18: CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-43.
ITEM 19: CONSOLIDATED FINANCIAL STATEMENTS AND EXHIBITS
(a) The following Financial Statements are filed as part of this Form 20-F:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1996 and 1997
Notes to the Consolidated Financial Statements
(b) Exhibits
1.1 Charter of the Registrant
1.2 Charter of the Registrant (English translation)
2.1 Deposit Agreement dated as of July 27, 1998 among the Registrant, The
Bank of New York, as Depositary, and Owners and Beneficial Owners of
American Depositary Receipts issued thereunder
10.1 Standard Concession Agreement for Local, Switched, Fixed-Line
Telephone Service and Schedule of Omitted Concession Agreements
10.2 Standard Concession Agreement for Local, Switched, Fixed-Line
Telephone Service (English translation)
10.3 Standard Concession Agreement for Domestic Long-Distance, Switched,
Fixed-Line Telephone Service and Schedule of Omitted Concession
Agreements
10.4 Standard Concession Agreement for Domestic Long-Distance, Switched,
Fixed-Line Telephone Service (English translation)
23.1 Consent of KPMG Peat Marwick
74
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for
filing this registration statement on Form 20-F and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
Telesp Participacoes S.A.
/s/ Fernando Xavier Ferreira
By: _________________________________
Name: Fernando Xavier Ferreira
Title:President
/s/ Manuel Amado Sepena
By: _________________________________
Name: Manuel Amado Sepena
Title:Vice-President
Dated: September 18, 1998
75
<PAGE>
TELESP PARTICIPACOES S.A.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report.................................. F-2
Consolidated Balance Sheets................................... F-3
Consolidated Statements of Income............................. F-4
Consolidated Statements of Cash Flows......................... F-5
Consolidated Statements of Changes in Shareholders' Equity.... F-6
Notes to the Consolidated Financial Statements................ F-7 through F-43
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Telesp Participacoes S.A.
Brasilia--DF
We have audited the accompanying consolidated balance sheets of Telesp
Participacoes S.A. as of December 31, 1996 and 1997, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Brazil, which do not differ in any material respects from
generally accepted auditing standards in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Telesp
Participacoes S.A. as of December 31, 1996 and 1997, and the results of its
operations and cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with accounting principles generally accepted
in Brazil, including continued recognition of the effects of changes in the
purchasing power of the Brazilian currency as discussed in Note 2.
Generally accepted accounting principles in Brazil vary in certain respects
from generally accepted accounting principles in the United States of America.
Application of generally accepted accounting principles in the United States
of America would have affected results of operations for each of the years in
the two-year period ended December 31, 1997 and shareholders' equity as of
December 31, 1996 and 1997 to the extent summarized in Note 32 of the
consolidated financial statements.
July 17, 1998
Brasilia, Brazil
KPMG Peat Marwick
F-2
<PAGE>
TELESP PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 29)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$ OF
DECEMBER 31, 1997 AND THOUSANDS OF US DOLLARS--US$)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1996 1997 1997
NOTE R$ R$ US$
----- ---------- ---------- --------------
(UNAUDITED SEE
NOTE 2B)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents:
Deposits with Banco do Brasil
S.A............................... 27 716,111 801,748 718,155
Other cash and cash equivalents.... 11 17,040 56,597 50,696
Accounts receivable:
Trade, net......................... 12 464,492 482,856 432,512
Receivable from related parties.... 25 8,127 4,540 4,067
Deferred and recoverable taxes...... 12 46,143 31,054 27,816
Other assets:
Other accounts receivable from
related parties................... 25 20,954 14,633 13,107
Other.............................. 14 162,570 175,186 156,920
---------- ---------- ----------
Total current assets............... 1,435,437 1,566,614 1,403,273
---------- ---------- ----------
Noncurrent assets:
Deferred and recoverable taxes..... 13 21,536 11,323 10,142
Other assets:
Other accounts receivable from
related parties................... 25 347,175 346,084 310,000
Other.............................. 14 14,004 40,264 36,066
---------- ---------- ----------
Total noncurrent assets............ 382,715 397,671 356,208
---------- ---------- ----------
Permanent assets:
Investments........................ 15 63,133 93,590 83,832
Property, plant and equipment,
net............................... 16 12,334,860 12,589,455 11,276,832
---------- ---------- ----------
Total permanent assets............. 12,397,993 12,683,045 11,360,664
Net assets of discontinued
operations......................... 2d 274,505 1,259,819 1,128,465
---------- ---------- ----------
Total assets....................... 14,490,650 15,907,149 14,248,610
========== ========== ==========
Current liabilities:
Payroll and related accruals....... 17 196,144 194,025 173,795
Accounts payable and accrued
expenses.......................... 18 233,359 264,785 237,178
Taxes other than income taxes...... 19 208,390 226,147 202,568
Dividends:
Payable to Telebras................ 20,27 177,223 181,186 162,296
Other.............................. 20 86,246 137,386 123,061
Income taxes........................ 9 61,056 133,956 119,989
Loans and financing:
Payable to Telebras................ 22,27 631,848 28,397 25,436
Other financing.................... 22 1,504 -- --
Provisions for contingencies........ 23 13,063 51,623 46,241
Other liabilities:
Due to related parties............. 21,27 86,002 73,472 65,812
Other liabilities.................. 21 87,566 143,110 128,188
---------- ---------- ----------
Total current liabilities.......... 1,782,401 1,434,087 1,284,564
---------- ---------- ----------
Noncurrent liabilities:
Income taxes....................... 9 408,424 565,846 506,849
Loans and financing:
Payable to Telebras................ 22,27 135,315 114,985 102,996
Other financing.................... 22 358,791 357,614 320,328
Provisions for contingencies........ 23 64,110 34,240 30,670
Other liabilities................... 21 29,706 25,491 22,832
---------- ---------- ----------
Total noncurrent liabilities....... 996,346 1,098,176 983,675
---------- ---------- ----------
Minority interests in Telesp and
CTBC............................... 2c,31 2,820,415 3,984,723 3,569,261
---------- ---------- ----------
Shareholders' equity:
Capital and reserves............... 6,987,757 7,268,928 6,511,043
Retained earnings.................. 1,180,578 1,607,744 1,440,114
---------- ---------- ----------
Total shareholders' equity......... 25 8,168,335 8,876,672 7,951,157
---------- ---------- ----------
Funds for capitalization:
Expansion plan contributions....... 26 721,222 490,740 439,574
Other funds........................ 1,931 22,751 20,379
---------- ---------- ----------
Total funds for capitalization..... 723,153 513,491 459,953
---------- ---------- ----------
Total liabilities and shareholders'
equity............................ 14,490,650 15,907,149 14,248,610
========== ========== ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-3
<PAGE>
TELESP PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 29)
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$ OF DECEMBER 31, 1997 AND
THOUSANDS OF US DOLLARS--US$)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------
1995 1996 1997 1997
NOTE R$ R$ R$ US$
---- ---------- ---------- ---------- ----------
(UNAUDITED
SEE
NOTE 2B)
<S> <C> <C> <C> <C> <C>
Net operating revenue from
telecommunications
services:
Services provided to third
parties.................. 2,553,392 3,512,597 3,734,928 3,345,511
Services provided to the
Telebras operating
companies................ 27 190,510 197,608 351,740 315,066
---------- ---------- ---------- ----------
4 2,743,902 3,710,205 4,086,668 3,660,577
Cost of services:
Provided by third
parties.................. (1,833,240) (2,073,443) (2,146,465) (1,922,666)
Provided by the Telebras
operating companies...... 27 (2,253) (128,557) (240,872) (215,758)
---------- ---------- ---------- ----------
(1,835,493) (2,202,000) (2,387,337) (2,138,424)
Gross profit.............. 5 908,409 1,508,205 1,699,331 1,522,153
Operating expenses:
Selling expense........... 6 (209,672) (250,307) (331,162) (296,634)
General and administrative
expense.................. (643,163) (585,468) (580,918) (520,349)
Other net operating
income................... 7 264,607 228,860 222,105 198,948
---------- ---------- ---------- ----------
Operating income from
continuing operations
before interest
income/expense........... 320,181 901,290 1,009,356 904,118
Allocated interest
expense.................. (27,651) (32,880) (19,353) (17,335)
---------- ---------- ---------- ----------
Operating income from
continuing operations
before unallocated
interest income/expense.. 292,530 868,410 990,003 886,783
Net nonoperating income
(expense)................ 8 (4,001) 94,716 15,233 13,645
Employees' profit share... - (32,465) (52,940) (47,420)
---------- ---------- ---------- ----------
Income from continuing
operations before
unallocated interest
income/expense, taxes and
minority interests....... 288,529 930,661 952,296 853,008
Income from discontinued
cellular operations
before unallocated
interest income/expense,
taxes and minority
interests................ 196,410 328,741 537,377 481,348
Unallocated interest
income................... 48,585 98,405 202,751 181,611
Unallocated interest
expense.................. (66,234) (51,500) (3,332) (2,985)
---------- ---------- ---------- ----------
Income before taxes and
minority interests....... 467,290 1,306,307 1,689,092 1,512,982
Income and social
contribution taxes....... 9 (122,354) (330,591) (528,672) (473,551)
---------- ---------- ---------- ----------
Income before minority
interests................ 344,936 975,716 1,160,420 1,039,431
Minority interests in
CTBC..................... 2 (97) (25,797) (30,084) (26,947)
---------- ---------- ---------- ----------
Income attributable to
shareholders of Telesp... 344,839 949,919 1,130,336 1,012,484
Minority interests in
Telesp................... 2 (83,229) (224,058) (330,212) (295,783)
---------- ---------- ---------- ----------
Net income................ 261,610 725,861 800,124 716,701
========== ========== ========== ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-4
<PAGE>
TELESP PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 29)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$ OF DECEMBER 31, 1997 AND
THOUSANDS OF US DOLLARS--US$)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------
1995 1996 1997 1997
R$ R$ R$ US$
---------- ---------- ---------- ----------
(UNAUDITED
SEE NOTE
2B)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................... 261,610 725,861 800,124 716,701
Less: Income from discontinued
cellular operations before
unallocated interest
income/expense, taxes and
minority interests........... (196,410) (328,741) (537,377) (481,348)
---------- ---------- ---------- ----------
Income from continuing
operations, net of
unallocated interest
income/expense and taxes
applicable to both continuing
and discontinued operations.. 65,200 397,120 262,747 235,353
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and
amortization................ 1,180,412 1,316,306 1,459,858 1,307,648
Minority interests........... 83,326 249,855 360,296 322,730
Loss (gain) on permanent
asset disposals............. 4,709 (82,628) (9,958) (8,920)
Loss from changes in equity
holding of subsidiary....... 14,049 1,252 721 646
Other provisions............. 20,323 9,189 14,107 12,636
Allowance for doubtful
accounts.................... 1,061 9,006 8,957 8,023
Others....................... 10,059 (11,351) (8,760) (7,847)
(Increase) decrease in income
tax rate.................... 95,283 (7,872) - -
(Increase) in trade accounts
receivable.................. (19,758) (69,142) (23,734) (21,259)
(Increase) in other current
assets...................... (45,583) (29,740) (6,295) (5,639)
(Increase) decrease in other
noncurrent assets........... 329 (358,320) (13,902) (12,453)
Increase (decrease) in
payroll and related
accruals.................... (7,313) 36,416 (2,119) (1,898)
Increase (decrease) in
accounts payable and accrued
expenses.................... (92,382) 34,750 31,426 28,149
Increase in taxes other than
income taxes................ 11,906 50,796 17,757 15,906
Increase in other current
liabilities................. 77,045 13,177 38,915 34,858
Increase (decrease) in
accrued interest............ (3,989) 11,257 (7,115) (6,373)
Increase (decrease) in income
taxes....................... (186,298) (158,205) 23,926 21,431
Increase (decrease) in
provisions for
contingencies............... 79,425 (62,788) 8,690 7,784
Decrease in other noncurrent
liabilities................. (3,492) (6,459) (4,215) (3,776)
---------- ---------- ---------- ----------
1,284,312 1,342,619 2,151,302 1,926,999
---------- ---------- ---------- ----------
INVESTING ACTIVITIES:
Additions to property, plant,
and equipment................ (1,248,643) (1,323,330) (1,479,615) (1,325,345)
Capitalized interest.......... (156,631) (10,618) (8,252) (7,392)
Proceeds from asset
disposals.................... 76,919 15,556 5,210 4,667
---------- ---------- ---------- ----------
(1,328,355) (1,318,392) (1,482,657) (1,328,070)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES:
Loans repaid.................. (466,483) (369,568) (619,393) (554,813)
New loans obtained............ 317,821 245,736 46 41
Expansion plan contributions
received..................... 226,940 698,896 818,992 733,601
Dividends paid................ (135,535) (220,544) (258,148) (231,233)
---------- ---------- ---------- ----------
(57,257) 354,520 (58,503) (52,404)
---------- ---------- ---------- ----------
Increase (decrease) in cash and
cash equivalents from
continuing operations......... (101,300) 378,747 610,142 546,525
Net cash provided by (used in)
discontinued operations before
unallocated interest
income/expense and taxes...... 183,471 217,893 (484,948) (434,385)
Cash and cash equivalents at
beginning of year............. 54,340 136,511 733,151 656,711
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of year................... 136,511 733,151 858,345 768,851
========== ========== ========== ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-5
<PAGE>
TELESP PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 31)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS -- R$ OF DECEMBER 31, 1997)
<TABLE>
<CAPTION>
CAPITAL AND RETAINED
RESERVES EARNINGS TOTAL
----------- --------- ---------
<S> <C> <C> <C>
Balances at December 31, 1994............... 6,011,650 718,798 6,730,448
Capital increase:
Expansion plan contributions............... 203,471 - 203,471
Resources from Telebras.................... 183,874 - 183,874
Donations and subsidies for investments..... 31,567 - 31,567
Capitalized interest on construction in
progress................................... 86,344 - 86,344
Change in tax rates......................... 91,863 - 91,863
Tax incentive investment credits............ 2,040 - 2,040
Consolidation adjustments:
Capitalized interest....................... - 11,762 11,762
Others..................................... - (1,530) (1,530)
Net income.................................. - 261,610 261,610
Realization of unrealized income............ (109,422) 109,422 -
Appropriations:
Transfers to reserves...................... 233,458 (233,458) -
Dividends.................................. - (231,034) (231,034)
Minority interest movements................. (97,204) 91,877 (5,327)
--------- --------- ---------
Balances at December 31, 1995............... 6,637,641 727,447 7,365,088
Capital increase:
Expansion plan contributions............... 412,278 - 412,278
Donations and subsidies for investments.... 10,886 - 10,886
Capitalized interest on construction in
progress................................... 172,469 - 172,469
Change in tax rates......................... (7,872) - (7,872)
Tax incentive investment credits............ 16,530 - 16,530
Unclaimed dividends......................... - 476 476
Consolidation adjustments:
Capitalized interest....................... - 8,600 8,600
Others..................................... - (3,898) (3,898)
Net income.................................. - 725,861 725,861
Realization of unrealized income............ (242,240) 242,240 -
Deferred tax on full indexation............. - (307,024) (307,024)
Appropriations:
Transfers to reserves...................... 43,792 (43,792) -
Dividends.................................. - (263,469) (263,469)
Minority interest movements................. (55,727) 94,137 38,410
--------- --------- ---------
Balances at December 31, 1996............... 6,987,757 1,180,578 8,168,335
Capital increase:
Expansion plan contributions............... 1,028,654 - 1,028,654
Donations and subsidies for investments..... 8,763 - 8,763
Capitalized interest on construction in
progress................................... 148,308 - 148,308
Tax incentive investment credits............ 53,016 - 53,016
Unclaimed dividends......................... - 1,223 1,223
Consolidation adjustments:
Capitalized interest....................... - 10,833 10,833
Expansion plan direct contributions........ - 32,621 32,621
Others..................................... - 33 33
Net income.................................. - 800,124 800,124
Realization of unrealized income............ (206,511) 206,511 -
Deferred tax on full indexation............. - (271,469) (271,469)
Appropriations:
Transfers to reserves...................... 72,992 (72,992) -
Dividends.................................. - (318,572) (318,572)
Minority interest movements................. (824,051) 38,854 (785,197)
--------- --------- ---------
Balances at December 31, 1997............... 7,268,928 1,607,744 8,876,672
========= ========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-6
<PAGE>
TELESP PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 29)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of constant Brazilian reais of December 31,
1997)
1. OPERATIONS AND BACKGROUND
Beginning in 1995, the federal government of Brazil (the "Federal
Government") undertook a comprehensive reform of the telecommunications
industry. In July, 1995 the Federal Congress adopted a General
Telecommunications Law providing for the privatization of Telecomunicacoes
Brasileiras S.A. ("Telebras") which, through its 28 operating subsidiaries,
was the primary supplier of public telecommunications services in Brazil.
In preparation for the privatization of the Telebras system, the operating
subsidiaries have been divided into twelve separate groups, (a) three regional
fixed line operators, (b) eight regional cellular operators and (c) one
national long-distance operator. The cellular telecommunications businesses
have firstly been separated from the operating subsidiaries and subsequently
the fixed-line businesses, the new cellular businesses and the long-distance
operator have been combined into the twelve separate groups. Both the
separation of the cellular businesses and the subsequent grouping of the
former Telebras subsidiaries have been performed using a procedure under
Brazilian corporate law called cisao or "spin-off". As part of this process
Telesp Participacoes S.A. (the "Holding Company") was formed.
Telesp Participacoes S.A. was formed on May 22, 1998, through the spin-off
of certain assets and liabilities of Telebras, including the 71.4% of the
share capital of Telecomunicacoes de Sao Paulo S.A. ("Telesp") and the 29.6%
of the share capital of Telesp's subsidiary Company Telefonica da Borda do
Campo ("CTBC"), owned by Telebras. The Holding Company and its subsidiaries,
Telesp and CTBC (the "Company") are the principal providers of fixed-line
telecommunications services in the state of Sao Paulo under the terms of the
concessions to be granted by the Federal Government which will expire on
December 31, 2005 and may be renewed for a further term of 20 years. Until
August 4, 1998, the Company was controlled by the Federal Government (see Note
31d).
On January 30, 1998 the cellular telecommunications business of Telesp was
spun off into a new company, Telesp Celular S.A., effective January 1, 1998.
The Company's business, including the services it may provide and the rates
it charges, is regulated by the Agencia Nacional de Telecomunicacoes
("Anatel"), the regulatory authority for the Brazilian telecommunications
industry pursuant to Law No. 9,472 of July 16, 1997 and the related
regulations, decrees, orders and plans.
2. PRESENTATION OF THE FINANCIAL STATEMENTS
The consolidated financial statements present the consolidated financial
condition and results of operations of the Holding Company and its
subsidiaries Telesp and CTBC. The portion of equity and net income
attributable to shareholders other than Telebras at December 31, 1996 and
1997, and for each of the years in the three year period ended December 31,
1997 is reflected as "minority interests." At December 31, 1997, such minority
shareholders owned 28.6% and 30.2% of the share capital of Telesp and CTBC,
respectively.
The fixed line telecommunications business of the Company is presented as
continuing operations and the cellular telecommunications business is
presented as discontinued operations for all periods. The assets and
liabilities of the cellular telecommunications business are presented as net
assets of discontinued operations. The formation of the Holding Company and
the transfer of assets and liabilities from the Company to Telesp Celular S.A.
have been accounted for as a reorganization of entities under common control
in a manner similar to a pooling of interests.
F-7
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
The assets and liabilities of the cellular telecommunications business were
transferred from Telesp to Telesp Celular S.A. at their indexed historical
cost. The associated revenues and expenses were also allocated to Telesp
Celular S.A. The consolidated financial statements are not necessarily
indicative of the financial position and results of operations that would have
occurred for the three-year period ended December 31, 1997 had the fixed-line
telecommunications business of the Holding Company and its subsidiaries Telesp
and CTBC been a separate legal entity during such period.
As separate records of revenues and costs of services were maintained for
the cellular business, the actual amounts could be identified and transferred.
With respect to costs other than cost of services, the methodologies employed
in transferring the assets and liabilities included the specific
identification of costs associated with those assets and liabilities, and the
allocation of costs where specific identification was not possible.
Allocations were made using criteria established by management that were
designed to ensure that all relevant costs were appropriately included in the
results of operations for the periods presented. The allocation criteria
included: square footage (in relation to land and building related expenses),
number of terminals (in relation to general management, accounting, data
processing, legal department and other general staff functions), number of
employees (in relation to human resource related expenses), number of
requisitions issued (in relation to office material costs) and miles driven
(in relation to certain transport costs). Management believes that the amounts
included in the financial statements fairly reflect the operating results of
the business.
Prior to December 31, 1997 cash and certain non-specific debt of the
cellular telecommunications business could not be segregated from Telesp.
Accordingly, these amounts are included in the financial statements for
periods ended before January 1, 1998. As a result, interest income and expense
relating to the cellular telecommunications business could not be identified
and consequently, income from discontinued operations is presented before
unallocated interest income/expense and income tax expense.
The presentation of the consolidated financial statements is consistent with
the presentation of the published financial statements of Telesp, except for
certain reclassifications within the consolidated balance sheets and the
consolidated statements of income which have been made to conform previously
published financial statements to the 1997 presentation within this
registration statement, for the presentation of the cellular business of the
Company as discontinued operations and to reflect the portion of equity and
net income attributable to shareholders other than Telebras as minority
interests.
The accompanying consolidated financial statements were prepared on a fully
indexed basis to recognize the effects of changes in the purchasing power of
the Brazilian currency during the periods presented.
F-8
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
A. FULL INDEXATION TO DECEMBER 31, 1997
The principal criteria adopted to prepare the fully indexed consolidated
financial statements maintained in accordance with the practices described in
Note 3, are as follows:
i. Inflation restatement index
The consolidated financial statements were indexed and expressed in currency
of constant purchasing power of December 31, 1997 by using the monthly average
values of the Unidade Fiscal de Referencia (the Tax Reference Unit or "UFIR")
through December 31, 1995 and the Indice Geral de Precos-Mercado (the General
Prices Index-Market or the "IGP-M") of the Fundacao Getulio Vargas in 1996 and
1997 following the cessation of the widespread use of the UFIR which resulted
from the change in Brazil's corporate law. Inflation for the three year period
ended December 31, 1997, as measured by the UFIR and the IGP-M, was as
follows:
<TABLE>
<CAPTION>
ANNUAL
PERIOD INDEX INFLATION
------ ----- ---------
%
<S> <C> <C>
Year ended December 31, 1995................................. UFIR 22.5
Year ended December 31, 1996................................. IGP-M 9.2
Year ended December 31, 1997................................. IGP-M 7.7
</TABLE>
Management believes that these indices are appropriate indications of
general price level inflation to be used under Brazilian and US GAAP, for the
years indicated.
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%. However, for accounting purposes, the constant currency method continued
to be applied through December 31, 1997. The Brazilian Institute of
Accountants has not yet published definitive rules regarding when the constant
currency method of accounting may no longer be used to prepare financial
statements. If the Brazilian Institute of Accountants determines that the
constant currency method may no longer be used to prepare financial statements
beginning January 1, 1998, the restated balances of nonmonetary assets and
liabilities of the Company as of December 31, 1997 will become the new basis
for accounting, and income statement items will no longer be restated for
inflation.
ii. Consolidated statements of income
Items in the consolidated statements of income are adjusted to the balance
sheet date by:
. allocating inflationary holding gains or losses on interest bearing
monetary assets and liabilities to their corresponding interest income
and expense captions;
. allocating inflationary holding gains and losses from other monetary
items to their corresponding income or expense captions. Amounts without
a corresponding income or expense caption were allocated to "other net
operating income."
iii. Deferred income tax effects of indexation adjustments in 1996 and 1997
As a result of legislation mandating the discontinuation of the indexation
system for Brazilian corporate law and most fiscal purposes as from January 1,
1996, the indexation of assets and liabilities for financial reporting
purposes herein is not permitted for tax purposes. Accordingly, a deferred tax
liability arises for the excess of net assets shown for financial reporting
purposes over the tax basis of these net assets. The charge relating to the
additional deferred tax liability of R$307,024 in 1996 and R$271,469 in 1997
was recorded directly against retained earnings.
F-9
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
B. TRANSLATION OF CONSTANT BRAZILIAN REAL AMOUNTS INTO US DOLLAR AMOUNTS
The translation of Brazilian Real amounts into US dollar amounts is
unaudited and included solely for the convenience of readers outside of Brazil
and has been performed using the closing selling exchange rate published by
the Central Bank of Brazil of R$1.1164 to US$1.00 as of December 31, 1997.
This translation should not be construed as a representation that Brazilian
Real amounts could be converted to US dollars at this or any other rate.
C. PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the financial records of the
Holding Company and its subsidiaries Telesp and CTBC. All material
intercompany accounts and transactions have been eliminated.
Minority interests relate to the interest of shareholders other than Telesp
in the financial position and results of operations of CTBC and the interest
of shareholders other than Telebras in the Company.
D. DISCONTINUED OPERATIONS
The consolidated financial statements reflect the cellular
telecommunications business of Telesp as discontinued operations. Accordingly,
the revenues, costs and expenses, assets and liabilities, and cash flows of
these discontinued operations have been excluded from the respective captions
in the consolidated statements of income, balance sheets and statements of
cash flows and have been reported as "Income from discontinued cellular
operations before unallocated interest income/expense, taxes and minority
interests"; as "Net assets of discontinued operations" and as "Net cash
provided by (used in) discontinued operations" for all periods presented.
Summarized financial information for the discontinued operations is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- --------- ---------
<S> <C> <C> <C>
Net operating revenues......................... 524,415 773,936 1,296,265
Income before unallocated interest
income/expense, taxes and minority interests.. 196,410 328,741 537,377
Current assets......................................... 128,912 391,475
Property, plant and equipment, net..................... 1,195,581 1,892,685
Total assets........................................... 1,334,272 2,291,625
Current liabilities.................................... 252,026 311,644
Total liabilities...................................... 1,059,767 1,031,806
Net assets of discontinued operations.................. 274,505 1,259,819
</TABLE>
3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES
A. CASH AND CASH EQUIVALENTS
Cash equivalents are considered to be all highly liquid temporary cash
investments with original maturity dates of three months or less.
B. TRADE ACCOUNTS RECEIVABLE
Accounts receivable from telephone subscribers are calculated at the tariff
rate on the date the services were rendered and discounted to their present
value at the balance sheet date by applying the interest rate published
F-10
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
by the National Association of Investment Bankers ("ANBID"). Trade accounts
receivable also include services provided to customers up to the balance sheet
date but not yet invoiced.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Provision is made for trade accounts receivable for which recoverability is
considered improbable.
D. FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currency are recorded at the prevailing exchange
rate at the time of the related transactions. Foreign currency denominated
assets and liabilities are translated using the exchange rate at the balance
sheet date. Exchange differences are recognized in the statement of income as
they occur.
E. INVENTORIES
Inventories are stated at the lower of indexed cost or replacement value.
Cost of inventories is determined principally on the average cost basis.
Inventories are separated into network expansion and maintenance inventories.
Inventories for use in network expansion are classified as "Construction-in-
progress" under "Property, plant and equipment". Maintenance inventories are
classified as other current assets.
F. INVESTMENTS
Other investments, which comprise items held to maturity or for investment
purposes, are recorded at indexed cost, less a provision for losses when
considered necessary.
G. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at indexed cost. Improvements to
existing property are capitalized while maintenance and repair costs are
charged to expense as incurred. Materials allocated to specific projects are
added to construction-in-progress. Depreciation is provided using the
straight-line method based on the estimated useful lives of the underlying
assets as determined by the public telecommunications service regulators. The
principal depreciation rates are shown in Note 16(b).
Interest, calculated monthly at a rate of 12% per annum on construction-in-
progress, is capitalized as part of property, plant and equipment until the
asset is placed in service.
H. ACCOUNTS PAYABLE
Accounts payable to suppliers are discounted to their present value using
the ANBID interest rate.
I. VACATION PAY ACCRUAL
Cumulative vacation pay due to employees is accrued as earned.
J. INCOME AND SOCIAL CONTRIBUTION TAXES
Income and social contribution taxes comprise federal income tax and social
contribution tax. Deferred taxes are provided on temporary differences.
K. LOANS AND FINANCING
Loans and financing include accrued interest to the balance sheet date.
L. PROVISIONS FOR CONTINGENCIES
Provisions for contingencies are based on legal advice and management's
opinion as to the likely outcome of the outstanding matters at the balance
sheet date.
F-11
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
M. REVENUE RECOGNITION
Revenues for all services are recognized when the service is provided.
Revenues from local services consist of line rental charges, service charges
based on the number of calls, network services, including interconnection and
leasing high-capacity lines, maintenance charges and charges for other
customer services. In 1997 revenue from local services also includes
installation fees which are recognized when the installation is complete.
Charges to customers for domestic, long-distance and international calls are
based on time, distance and use of services. Billings are monthly; unbilled
revenues from the billing date to the month end are estimated and recognized
as revenue during the month in which the service was provided. The revenues
from outgoing interregional and international long distance calls are divided
between the Company and Empresa Brasileira de Telecomunicacoes S.A.
("Embratel"), a subsidiary of Telebras. The Company retains a fixed percentage
of the customer charges for outgoing interregional and international long
distance calls and pays the balance to Embratel.
N. INTEREST INCOME
Interest income represents interest earned and gains and losses on
investments after adjusting for the effects of inflation as measured by the
variation in the inflation index. Unallocated interest income represents
interest income that could not be allocated between continuing and
discontinued operations.
O. INTEREST EXPENSE
Interest expense represents interest incurred and gains and losses on loans
and financing after adjusting for the effects of inflation as measured by the
variation in the inflation index and net exchange gains of R$36,398, R$14,089
and R$22,684 in 1995, 1996 and 1997, respectively. Unallocated interest
expense represents interest expense that could not be allocated between
continuing and discontinued operations.
P. RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. Total
research and development costs were R$26,000, R$27,745, and R$23,610 for 1995,
1996 and 1997, respectively.
Q. PENSION AND POST-RETIREMENT BENEFITS
The Company sponsors a separate entity that provides pensions and other
post-retirement benefits for its employees through a multi-employer plan.
Current contributions and costs are determined actuarially and are recorded on
the accrual basis.
R. EMPLOYEE'S PROFIT SHARE
The Company has made a provision for granting employees the right to a share
of its profits. The amount recorded is the employee's profit share
attributable to the continuing fixed-line telecommunications business.
S. EARNINGS PER THOUSAND SHARES
Earnings per thousand shares has not been calculated as the capital
structure of Telesp Participacoes S.A. was not in place at December 31, 1997.
T. SEGMENT INFORMATION
The business operates solely in the segment of local and regional fixed-line
telecommunications. All revenues are generated in relation to services
provided in the state of Sao Paulo.
F-12
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
U. USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
Brazilian and US GAAP requires management to make estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the
period reported. Actual results could differ from those estimates.
4. OPERATING REVENUE FROM FIXED TELECOMMUNICATIONS SERVICES
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Local services:
Monthly charges......................... 397,397 660,037 985,928
Measured service charges................ 730,479 1,063,737 1,355,632
Public telephones....................... 107,581 133,270 174,216
Other................................... 74,111 105,243 121,500
--------- ---------- ----------
Total................................... 1,309,568 1,962,287 2,637,276
--------- ---------- ----------
Non-local services
Intra-and interregional................. 1,813,416 2,046,021 1,697,626
International........................... 257,496 260,943 192,335
--------- ---------- ----------
Total................................... 2,070,912 2,306,964 1,889,961
--------- ---------- ----------
Data transmission......................... 192,555 225,823 170,344
Network services.......................... 74,384 429,700 668,839
Other..................................... 57,543 52,059 69,840
--------- ---------- ----------
Gross operating revenues.................. 3,704,962 4,976,833 5,436,260
Value added and other indirect taxes...... (919,523) (1,212,111) (1,298,722)
Discounts................................. (41,537) (54,517) (50,870)
--------- ---------- ----------
Net operating revenue..................... 2,743,902 3,710,205 4,086,668
========= ========== ==========
</TABLE>
There are no customers who contribute more than 5% of gross operating
revenues.
5. COST OF SERVICES
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Depreciation and amortization.................. 1,101,913 1,223,573 1,274,710
Personnel...................................... 454,953 504,810 488,611
Materials...................................... 53,513 81,887 67,540
Services....................................... 215,491 366,802 528,482
Other.......................................... 9,623 24,928 27,994
--------- --------- ---------
1,835,493 2,202,000 2,387,337
========= ========= =========
</TABLE>
6. SELLING EXPENSE
Included in selling expense are provisions for doubtful customer accounts
receivable of R$1,061, R$9,006 and R$8,957 in 1995, 1996 and 1997,
respectively.
F-13
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
7. OTHER NET OPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Taxes other than income taxes.................... (2,721) (1,353) (3,788)
Technical and administrative services............ 212,857 103,990 189,478
Provision for contingencies (Note 23)............ (100,952) (48,972) (58,819)
Fines and expenses recovered..................... 169,867 111,461 49,353
Other............................................ (14,444) 63,734 45,881
-------- ------- -------
264,607 228,860 222,105
======== ======= =======
</TABLE>
Fines and expenses recovered primarily represent penalties collected on past
due accounts receivable and recovery of sales taxes of prior periods. The
amount of penalties collected on past due accounts receivable amounted to
approximately R$86,154, R$106,633 and R$43,381 in 1995, 1996 and 1997,
respectively.
8. NET NONOPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Gain(loss) on disposal of permanent assets............. (4,709) 82,628 9,958
Other income........................................... 708 12,088 5,275
------ ------ ------
(4,001) 94,716 15,233
====== ====== ======
</TABLE>
9. INCOME AND SOCIAL CONTRIBUTION TAXES
As explained in Note 2, as a result of non specific cash and certain non
specific debt not being allocated to the cellular telecommunications business,
the associated interest income and expense was not allocated. As a result,
income tax expense and current tax liabilities have not been allocated to the
discontinued cellular operations in the accompanying financial statements.
Brazilian income taxes comprise federal income tax and the social
contribution tax. In 1995, 1996 and 1997 the rates for income tax were 43%,
25% and 25%, respectively, and social contribution tax were 9.09%, 7.41% and
8.00%, respectively. As a result of legislation enacted in 1996, the social
contribution tax in 1997 was no longer deductible from its own computation
base, nor was it deductible for income tax purposes. The changes produced a
combined statutory rate of 48.18%, 30.56% and 33.00% in 1995, 1996 and 1997,
respectively.
Deferred taxes are provided on temporary differences which include the
effects of indexation adjustments that will not give rise to deductions when
subsequently depreciated, amortized or disposed of.
In prior years the indexation adjustments to permanent assets and
shareholders' equity in accordance with the tax law gave rise to a tax
deductible expense, if the indexation of equity exceeded the indexation of
permanent assets, and to taxable income, called "inflationary profit", if the
indexation of permanent assets exceeded that of equity. In the latter case,
payment of the related tax liability could be deferred until it had been
deemed to have been realized either through depreciation or disposal of the
permanent assets in existence at the time the liability was recorded subject
to a minimum realization rate of 10% per annum (5% per annum prior to 1995).
In 1995, 1996 and 1997, management elected to prepay income taxes on
inflationary profit that it had previously deferred. Brazilian companies
making such a prepayment in relation to 1997 were entitled to utilize
F-14
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
an income tax rate of 10% instead of the then current rate of 25%. Similar
reductions applied to the prepayments in 1995 and 1996. The result was a gain
of R$56,932 and R$6,998 for 1996 and 1997, respectively, from the reduction in
deferred tax liabilities.
The following is an analysis of the income tax expense (benefit):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Social contribution charge........................ 42,918 108,087 136,553
Income tax........................................ 125,587 270,304 399,117
Deferred taxes.................................... 672 - -
Effect of rate changes on deferred tax............ (46,823) 9,132 -
Early payment incentives.......................... - (56,932) (6,998)
------- ------- -------
Total tax expense................................. 122,354 330,591 528,672
======= ======= =======
</TABLE>
Supplementary information regarding taxes posted directly to shareholders'
equity:
<TABLE>
<CAPTION>
1995 1996 1997
------ -------- --------
<S> <C> <C> <C>
Deferred taxes.................................... - (307,024) (271,469)
Effect of rate changes on deferred tax............ 91,863 (7,872) -
------ -------- --------
91,863 (314,896) (271,469)
====== ======== ========
</TABLE>
The following is a reconciliation of the amount calculated by applying the
combined statutory tax rates to the reported income before taxes and the
reported income tax expense:
<TABLE>
<CAPTION>
1995 1996 1997
------- --------- ---------
<S> <C> <C> <C>
Income before taxes as reported in the
accompanying financial statements.......... 467,290 1,306,307 1,689,092
======= ========= =========
Tax charge at the combined statutory rate... 225,140 399,207 557,400
Permanent additions:
Non-deductible expenses................... 1,628 413 4,936
Permanent exclusions:
Tax exempt income......................... - - (372)
Capitalized interest...................... (59,117) (7,007) (7,734)
Other items:
Effect of rate changes on deferred tax.... (46,823) 9,132 -
Early payment incentives.................. - (56,932) (6,998)
Other incentives.......................... (9,622) (14,427) (20,912)
Other, net................................ 11,148 205 2,352
------- --------- ---------
Income and social contribution taxes as
reported in the accompanying financial
statements................................. 122,354 330,591 528,672
======= ========= =========
Effective rate.............................. 26.2% 25.3% 31.3%
======= ========= =========
</TABLE>
F-15
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
In 1997, the Company characterized part of its dividends proposed for
payment at the end of 1997 as interest on shareholders' funds. As a result,
under Brazilian tax law, it was entitled to treat this part of the dividend as
a deduction for income tax purposes.
The composition of deferred tax assets and liabilities, based on temporary
differences is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Provisions for contingencies............................... 23,250 24,338
Provision for pensions..................................... 4,182 8,454
------- -------
Total (see Note 13)........................................ 27,432 32,792
======= =======
DEFERRED TAX LIABILITIES:
Additional indexation expense from 1990.................... 6,525 -
Additional indexation expense from pre-1990................ 127,201 25,224
Others..................................................... 301,048 578,493
------- -------
Total...................................................... 434,774 603,717
======= =======
</TABLE>
All of the other deferred tax liabilities relate to the difference between
the tax basis of permanent assets, which was not indexed for inflation
subsequent to December 31, 1995, and the reporting basis, which includes
indexation through December 31, 1997.
The composition of tax liabilities is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Social contribution tax payable.............................. 34,447 26,415
Federal income tax payable................................... 259 69,670
Deferred tax liabilities..................................... 434,774 603,717
------- -------
Total........................................................ 469,480 699,802
======= =======
Current...................................................... 61,056 133,956
Noncurrent................................................... 408,424 565,846
</TABLE>
10. CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Income and social contribution tax paid.......... 155,833 523,719 545,336
Interest paid.................................... 91,892 62,295 8,168
Cash paid against provisions for contingencies... 21,527 111,760 50,129
Non cash transactions:
Conversion of loans into shares................ 183,874 - -
Tax incentive investment credits received...... 2,040 16,530 53,016
Donations received of property, plant and
equipment..................................... 31,567 10,886 66,769
Conversion of capitalizable funds into share
capital and share premium..................... 203,471 412,278 1,028,654
</TABLE>
11. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Cash........................................................... 448 288
Bank accounts.................................................. 16,592 56,309
------ ------
17,040 56,597
====== ======
</TABLE>
F-16
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
12. TRADE ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accrued amounts............................................ 247,241 230,662
Billed amounts............................................. 225,317 268,315
Allowance for doubtful accounts............................ (8,066) (16,121)
------- -------
464,492 482,856
======= =======
</TABLE>
The changes in the allowance for doubtful accounts were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Beginning balance..................................... 1,082 1,263 8,066
Provision charged to selling expense.................. 1,061 9,006 8,957
Write-offs............................................ (880) (2,203) (902)
----- ------- -------
Ending balance........................................ 1,263 8,066 16,121
===== ======= =======
</TABLE>
13. DEFERRED AND RECOVERABLE TAXES
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Tax deducted at source....................................... 9,370 602
Social contribution tax...................................... 1,011 1,377
Recoverable income tax....................................... 20,246 4,525
Deferred tax assets.......................................... 27,432 32,792
Sales and other taxes........................................ 9,620 3,081
------- -------
67,679 42,377
======= =======
Current...................................................... 46,143 31,054
Noncurrent................................................... 21,536 11,323
</TABLE>
14. OTHER ASSETS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Other debtors................................................ 15,408 14,565
Maintenance inventories...................................... 57,503 58,976
Prepayments.................................................. 18,970 8,775
Recoverable advances......................................... 63,031 58,640
Fiscal incentive investments................................. 6,243 31,120
Other........................................................ 15,419 43,374
------- -------
176,574 215,450
======= =======
Current...................................................... 162,570 175,186
Noncurrent................................................... 14,004 40,264
</TABLE>
F-17
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
15. INVESTMENTS
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Fiscal incentive investments................................... 59,467 90,120
Other investments.............................................. 3,666 3,470
------ ------
63,133 93,590
====== ======
</TABLE>
16. PROPERTY, PLANT AND EQUIPMENT, NET
A. COMPOSITION:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Construction-in-progress........................... 1,374,160 1,383,731
Automatic switching equipment...................... 8,079,031 7,646,253
Other equipment.................................... 9,312,850 9,948,052
Buildings.......................................... 4,739,214 5,011,257
Other assets....................................... 1,917,020 1,989,900
----------- -----------
Total cost......................................... 25,422,275 25,979,193
Accumulated depreciation........................... (13,087,415) (13,389,738)
----------- -----------
Property, plant and equipment, net................. 12,334,860 12,589,455
=========== ===========
</TABLE>
Other equipment includes: Aerial, underground and building cables,
teleprinters, private automatic exchanges, generating equipment and furniture.
Other assets include: Underground cables, computer equipment, vehicles, land
and other assets. Within "Other assets" the book value of land is R$165,889 at
December 31, 1996 and R$170,457 at December 31, 1997.
B. DEPRECIATION RATES
The annual depreciation rates applied to property, plant and equipment are
as follows:
<TABLE>
<CAPTION>
%
----------
<S> <C>
Automatic switching equipment..................................... 7.69
Transmission and other equipment.................................. 10.00
Buildings......................................................... 4.00
Other assets (excluding land)..................................... 5.00-20.00
</TABLE>
C. RENTALS
The Company rents equipment and premises through a number of operating
agreements that expire at different dates. Total annual rent expense under
these agreements was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Rent expense............................................ 32,840 35,136 41,638
====== ====== ======
</TABLE>
F-18
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
Rental commitments relate primarily to facilities where the future minimum
rental payments under leases with remaining noncancelable terms in excess of
one year are:
<TABLE>
<S> <C>
Year ending December 31,
1998................................................................ 13,170
1999................................................................ 7,760
2000................................................................ 5,239
2001................................................................ 4,090
2002................................................................ 2,234
2003 and thereafter................................................. 1,392
------
Total minimum payments.............................................. 33,885
======
</TABLE>
17. PAYROLL AND RELATED ACCRUALS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Wages and salaries........................................... 14,527 31,314
Accrued social security charges.............................. 88,533 92,533
Accrued benefits............................................. 90,698 67,965
Payroll withholdings......................................... 2,386 2,213
------- -------
196,144 194,025
======= =======
</TABLE>
18. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Suppliers................................................... 175,297 196,718
Other accrued expenses...................................... 58,062 68,067
------- -------
233,359 264,785
======= =======
</TABLE>
19. TAXES OTHER THAN INCOME TAXES
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Value-added taxes............................................ 196,815 208,817
Other indirect taxes on operating revenues................... 11,575 17,330
------- -------
208,390 226,147
======= =======
</TABLE>
20. DIVIDENDS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Payable to Telebras.......................................... 177,223 181,186
Other........................................................ 86,246 137,386
------- -------
263,469 318,572
======= =======
</TABLE>
F-19
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
21. OTHER LIABILITIES
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Prior year dividends not claimed............................. 20,792 30,710
Employees' profit share...................................... 33,342 43,176
Other........................................................ 63,138 94,715
------- -------
117,272 168,601
======= =======
Current...................................................... 87,566 143,110
Noncurrent................................................... 29,706 25,491
</TABLE>
22. LOANS AND FINANCING
<TABLE>
<CAPTION>
1996 1997
--------- -------
<S> <C> <C>
Loans payable to Telebras.................................. 767,163 143,382
Other financing............................................ 360,295 357,614
--------- -------
1,127,458 500,996
========= =======
Current.................................................... 633,352 28,397
Noncurrent................................................. 494,106 472,599
</TABLE>
A. LOANS PAYABLE TO TELEBRAS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Eurobonds, originally issued by Telebras..................... 289,842 142,535
Debentures, originally issued by Telebras.................... 1,487 -
Loans and financing from Telebras............................ 474,985 -
Other debt................................................... 849 847
------- -------
767,163 143,382
======= =======
</TABLE>
A.1 EUROBONDS ORIGINALLY ISSUED BY TELEBRAS
These are represented by three issues, two denominated in US dollars and one
in Italian Lira, as follows:
<TABLE>
<CAPTION>
PRINCIPAL ANNUAL INTEREST
REPAYMENT ORIGINAL INTEREST PAYMENT
ISSUE TERM SCHEDULE VALUE RATE SCHEDULE 1996 1997
----- ---- ------------- ---------------- -------- ----------- ------- -------
(US$ THOUSANDS)
<C> <S> <C> <C> <C> <C> <C> <C>
1 1992/1997............... upon maturity 38,000 10.000% semi annual 42,557 -
2 1992/1997............... upon maturity 54,877 10.375% annual 78,851 -
<CAPTION>
(LIRA THOUSANDS)
<C> <S> <C> <C> <C> <C> <C> <C>
3 1996/1999............... upon maturity 198,167,397 13.000% annual 145,363 125,768
------- -------
Principal.......................................................................... 266,771 125,768
Accrued interest................................................................... 23,071 16,767
------- -------
Total.............................................................................. 289,842 142,535
======= =======
</TABLE>
In addition to the contractual interest, in connection with the Eurobonds,
the Company pays Telebras a 1% per year administrative fee on the outstanding
balances.
F-20
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
A.2 DEBENTURES ORIGINALLY ISSUED BY TELEBRAS
These are represented by two issues, denominated in Brazilian Reais as
follows:
<TABLE>
<CAPTION>
ORIGINAL
ISSUE QUANTITY ISSUANCE MATURITY 1996 1997
----- -------- -------- -------- ----- ----
(UNITS)
<S> <C> <C> <C> <C> <C>
1...................................... 1,874 1988 1998 571 -
4...................................... 120,000 1993 2005 339 -
----- ---
Principal......................................................... 910 -
Accrued interest.................................................. 577 -
----- ---
Total............................................................. 1,487 -
===== ===
</TABLE>
The debentures are subject to an annual correction by the ANBID rate minus
5% points. In addition to these financial expenses, the Company pays Telebras
a 1% per year administrative fee on the outstanding balances.
A.3 LOANS AND FINANCING FROM TELEBRAS
<TABLE>
<CAPTION>
1996 1997
------- ----
<S> <C> <C>
Short term loans with Telebras.................................. 474,071 -
Accrued interest................................................ 914 -
------- ---
474,985 -
======= ===
</TABLE>
The short-term loans were subject to the interest rate on federal treasury
bills (the "Remuneracao Diaria dos Titulos Publicos") plus 0.25%.
B. OTHER FINANCING
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Equipment financing from Comtel.............................. 358,063 356,872
Other........................................................ 2,232 742
------- -------
360,295 357,614
======= =======
</TABLE>
The loan with Comtel Brasileira Ltda. ("Comtel"), a supplier of
telecommunications equipment, is repayable in full on September 26, 2004. The
loan is denominated in US dollars and bears interest at a rate of 10.75% per
annum. The loan is guaranteed by Telebras. As of December 31, 1996 and 1997,
the amount due to Comtel includes R$9,186 and R$9,866 of accrued interest,
respectively.
C. REPAYMENT SCHEDULE
Noncurrent debt is scheduled to be repaid as follows:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
1999................................................................. 126,514
2003 and thereafter.................................................. 346,085
-------
472,599
=======
</TABLE>
F-21
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
D. CURRENCY ANALYSIS
Total debt is denominated in the following currencies:
<TABLE>
<CAPTION>
EXCHANGE RATE
AT DECEMBER 31, 1997 1996 1997
-------------------- --------- -------
(UNITS OF ONE
BRAZILIAN REAL)
<S> <C> <C> <C>
Brazilian Reais....................... - 476,472 -
US dollars............................ 1.1164 485,294 358,462
Italian lira.......................... 0.0006342 165,692 142,534
--------- -------
1,127,458 500,996
========= =======
</TABLE>
The Company does not hedge its foreign currency liabilities.
E. CREDIT AGREEMENT DEFAULTS
The Company is party to certain credit agreements that contain covenants
restricting, among other things, (i) the ability of Telebras to dispose of all
or a substantial part of its assets or to cease to control a company that was
an operating subsidiary of the Telebras System and (ii) the ability of the
Federal Government to dispose of its controlling interest in the Telebras
System. The Breakup of Telebras on May 22, 1998 and the privatization of the
Company constituted, an event of default under such credit agreements. In
addition, most of the Company's other credit agreements include cross-default
provisions and cross-acceleration provisions that would permit the holders of
such indebtedness to declare the indebtedness to be in default and to
accelerate the maturity thereof if a significant portion of the principal
amount of the Company's debt is in default or accelerated. Substantially all
of the Company's outstanding debt as of December 31, 1997 is in default or
expected to be in default as a result of the privatization. The Company is
currently in negotiations with the appropriate creditors with respect to this
indebtedness.
The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities
that might be necessary should the Company be unable to renegotiate its credit
agreements. The Company believes that once the privatization is finalized, the
Company's creditors will renegotiate the terms of these credit agreements
and/or provide appropriate waivers regarding such defaults.
23. PROVISIONS FOR CONTINGENCIES
The Company is a party to certain legal proceedings arising in the normal
course of business, including civil, administrative, tax, social security and
labor proceedings. The Company has provided for the amounts to cover its
estimated losses due to adverse legal judgments. In the opinion of management,
such actions, if decided adversely to the Company, would not have a material
adverse effect on the Company's financial condition.
The components of the charge included in the consolidated statements of
income for contingent liabilities are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Additional provisions.................................. 75,814 32,101 44,761
Payments in excess of provisions....................... 25,138 16,871 14,058
------- ------ ------
100,952 48,972 58,819
======= ====== ======
</TABLE>
F-22
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
Provisions for contingent liabilities were as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Labor claims................................................... 31,258 63,740
Disputed taxes................................................. 20,495 21,530
Civil claims................................................... 25,420 593
------ ------
77,173 85,863
====== ======
Current........................................................ 13,063 51,623
Noncurrent..................................................... 64,110 34,240
</TABLE>
Labor claims
The provision for labor claims comprises management's estimate of the most
probable loss in relation to various suits filed by current and former
employees.
Tax contingencies
i. Workers Accident Insurance Tax
The Company is a party to several lawsuits filed by the National Institute
of Social Security in 1997 before the Justica Federal of Sao Paulo relating to
the collection of the Seguro de Acidente de Trabalho (Workers Accident
Insurance Tax or "SAT") for the period between January 1986 and June 1996. The
aggregate amount involved in such lawsuits is approximately R$100 million. The
Company has allowed judicial liens to be placed on five of its properties,
valued at approximately R$61.6 million in the aggregate, pursuant to Brazilian
legal procedures pending the outcome of such lawsuits. In the event the
Company prevails in such lawsuits, such liens will be lifted from the
properties. As management believes that the Company will prevail, no provision
has been recorded.
ii. Other taxes
The determination of the manner in which the various federal, state and
municipal Brazilian taxes apply to the operations of the Company is subject to
varying interpretations arising from the unique nature of the Company's
operations. Management believes that its interpretation of the Company's tax
obligations is substantially in compliance with legislation. Accordingly, any
changes in the tax treatment afforded to the Company's operations will be the
result of new legislation or interpretive rulings of the tax authorities that
will, in the opinion of management, not have any retroactive impact. The
amount of disputed taxes provided as of December 31, 1997, relates primarily
to two cases with the tax authorities regarding INSS (an employee compensation
tax) and ICMS (a sales tax). Management believes the likelihood of an
unfavorable outcome is probable and accordingly have made a provision of
R$21,530 at December 31, 1997, representing the total amount of the dispute.
iii. ICMS on activation fees and other services
On June 19, 1998 the secretaries of the treasury of the individual Brazilian
states approved an agreement to interpret existing Brazilian tax law to
broaden the application of the ICMS (Imposto sobre Circulacao de Mercadorias e
Servicos), a state value-added tax, to cover not only telecommunications
services, but also other services, including cellular activation fees, which
had not been previously subject to such tax. Pursuant to this new
interpretation of tax law, the ICMS tax may be applied retroactively for such
services rendered during the last five years.
The Company believes that the attempt by the state treasury secretaries to
extend the scope of ICMS tax to services which are supplementary to basic
telecommunications services is unlawful because: (i) the state
F-23
<PAGE>
secretaries acted beyond the scope of their authority; (ii) their
interpretation would subject certain services to taxation which are not
considered telecommunications services; and (iii) new taxes may not be applied
retroactively. Accordingly, no provision for such taxes has been made in the
accompanying consolidated financial statements.
There can be no assurance that the Company will prevail in its position that
the new interpretation by the state treasury secretaries is unlawful. If the
25% ICMS tax was applied retroactively for five years to the discontinued
cellular operations, it would have a material negative impact on the financial
condition and results of operations of the Company.
Other
A class action suit was filed against the Company in 1995 seeking an
injunction against the Company's "servicos 900" (code 900 services). While the
Company believes that it will prevail on the merits in this civil action, the
Company faces an estimated loss in revenues of approximately R$72 million
annually if an injunction is granted.
Telebras, the legal predecessor of the Company, is a defendant in a number
of legal proceedings and subject to other claims and contingencies. Under the
terms of the breakup, liability for any claims arising out of acts committed
by Telebras prior to the effective date of the breakup remains with Telebras,
except for labor and tax claims (for which Telebras and the New Holding
Companies are jointly and severally liable) and any liability for which
specific accounting provisions have been assigned to the Holding Company or
one of the other New Holding Companies. Creditors of Telebras may challenge
this allocation of liability. Management of the Company believes that the
chances of any such claims materializing and having a material adverse
financial effect on the Company are remote and, accordingly, no provision has
been recorded.
Litigation
Management believes it has meritorious defenses to all lawsuits and legal
proceedings in which the Company is a defendant. Based on its evaluation of
such matters, and after consideration of reserves established, management
believes that the resolution of such matters will not have a material adverse
effect on the Company's financial position or results of operations.
24. PROVISION FOR PENSIONS
The Company participates in a multi-employer defined benefit pension and
other post retirement benefit plans administered by the Fundacao Telebras de
Seguridade Social ("Sistel").
Approximately 90% of the Company's employees are covered by these plans. The
Company contributed and charged to expense R$60,112, R$70,014 and R$67,547, in
1995, 1996 and 1997, respectively, in respect of pension fund contributions.
Information from the plan's administrators is not available to permit the
Company to determine its share of unfunded vested benefits, if any. Management
has no intention of withdrawing from these plans, nor is there any intention
to terminate the plans. As a member of a multi-employer plan, the Company's
contributions are not segregated in separate accounts or restricted to provide
benefits only to employees of the Company. The Company is also contingently
liable for the total obligations of the plans. The funded status of the Sistel
Plan is presented below.
As a member of the multi-employer plans, the Company's contributions are not
segregated in separate accounts or restricted to provide benefits only to
employees of the Company. The Company is also contingently liable for the
total obligations of the plans. The funded status of the Sistel plan is
presented below.
The pension benefit is generally defined as the difference between (i) 90%
of the retiree's average salary during the last 36 months indexed to the date
of retirement and (ii) the value of the retirement pension paid by the
Brazilian social security system. For retired employees the initial pension
payment is subsequently adjusted upwards to recognize cost of living increases
and productivity awards granted to active employees. In addition to the
pension supplements, post-retirement health care and life insurance benefits
are provided to eligible pensioners and their dependents.
F-24
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
Contributions to the plans are based on actuarial studies prepared by
independent actuaries under Brazilian regulations. The actuarial studies are
revised periodically to identify whether adjustments to the contributions are
necessary. A summary relating to the overall Sistel plan, in compliance with
accounting principles generally accepted in Brazil, is as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Accumulated pension and other post retirement benefit
obligations.......................................... 3,235,223 3,775,898
Other obligations..................................... 244,724 255,751
--------- ---------
Total obligations................................. 3,479,947 4,031,649
========= =========
Combined plan assets:
Interest bearing deposits........................... 1,849,298 1,714,153
Stocks and shares................................... 1,548,629 2,360,786
Investment properties............................... 376,805 363,305
Loans to beneficiaries.............................. 115,921 123,428
Other investments................................... 56,229 52,195
--------- ---------
Total plan assets................................. 3,946,882 4,613,867
========= =========
Excess of total plan assets over total obligations.... 466,935 582,218
========= =========
</TABLE>
In addition to the formal Sistel plan, the Company pays pension benefits to
684 former employees of CTB, a predecessor company, in accordance with
agreements approved in 1971 and 1972. The Company accounts for the expense of
this agreement on the cash basis because it believes that the actuarially
computed liability and the annual expense are not material to its financial
position or results of operations.
25. SHAREHOLDERS' EQUITY
The consolidated financial statements reflect the shareholders' equity of
the Company, after segregating as minority interests the participation of
minority shareholders in the Company at the historical percentages applicable
to shareholders other than Telebras. The shareholders' equity has been
segregated between capital, reserves and retained earnings.
26. EXPANSION PLAN CONTRIBUTIONS
Expansion plan contributions are the means by which Telesp has financed the
growth of its telecommunications network. The contributions were made by
companies or individuals to be connected to the national telephone network.
Such contributions were paid directly to Telesp and interest received, when
payments were made in installments, was transferred to Telebras. The capital
value received from the prospective telephone subscribers was treated as
follows:
. 80% was capitalized by Telesp in the name of Telebras, with the value
per share issued to Telebras being equal to the equity value per share
of Telesp at the end of the year preceding the capitalization.
. 20% was remitted by Telesp to Telebras in the month following receipt.
. Until December 31, 1995 the total capital value received was indexed
from the month of receipt to the date of the next audited balance sheet
and then capitalized in the name of the prospective subscriber by
Telebras or by Telesp, at a value per share equal to the equity value
per share shown in the audited balance sheet. From January 1, 1996
indexation was no longer applied and, for contracts signed as from that
date, Telebras or Telesp were allowed the option of using a market value
per share, when that was higher than the equity value. Also, as from
June, 1995, the capitalization of expansion plan contributions was
effected by Telesp issuing its own shares to expansion plan subscribers.
F-25
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
Expansion plan contributions of R$406,147, R$698,896, and R$818,992 in 1995,
1996 and 1997, respectively, were received. Expansion plan contributions
approved by the general meeting of shareholders for capitalization and
transfer to shareholders' equity amounted to R$203,471, R$412,278, and
R$1,028,654 in 1995, 1996 and 1997, respectively. The Company's expansion plan
contribution program has been terminated with no new contracts being signed
after June 30, 1997.
In addition to the expansion plans which it promoted directly, Telesp also
sponsored agreements between companies or individuals in a particular
community and independent contractors who undertook the development of the
telecommunications infrastructure required to connect them to the national
telephone network (Community Expansion Plan). The companies or individuals
paid the contractor. On completion of the project Telesp incorporated the
completed equipment into its fixed assets at the appraised value and credited
expansion plan contributions which are then treated in the same manner as the
capital values received from prospective telephone subscribers, as described
above.
27. TRANSACTIONS WITH RELATED PARTIES
The principal related party transactions take place with Embratel in respect
of long-distance telecommunication. The Company has an operating agreement
with Embratel, which defines the charge per minute for inter-or intrastate
long-distance or international telephone calls with origin or destination in
the area specified by the telecommunications concession granted to the Company
by the Federal Government. All charges to customers, including long-distance
are billed by the Company, who transfers the long-distance portion of the
charges to Embratel. As a result, the Company normally has a payable to
Embratel.
Embratel and the cellular companies of Telebras must pay a network usage fee
if they access end customers via the network of the Company. In practical
terms, even though the network usage fee includes the costs of a variety of
network elements and services, the network usage fee primarily reflects the
use of certain facilities of the Company for which Embratel and the cellular
companies do not have adequate substitutes, particularly the local loop
between local exchanges and customers.
In the past, the Company shared revenues for interregional and international
long-distance calls with Embratel rather than charging Embratel a network
usage fee for the use of the Company's network. Under this system, the Company
retained a fixed percentage of the revenues associated with such calls and
paid the balance of the revenues associated with such calls to Embratel. This
system was replaced on April 28, 1998 with the interconnection charge that had
already been in place for interconnection of the Company's network with
cellular networks, under which the Company charges for connection to its
network and usage of its network.
Additionally, as a result of telephone calls to and from the service areas
of other telephone operators, the Company has receivable and payable positions
with other telecommunications service providers in Brazil within the Telebras
group of companies relating to charges for the use the networks belonging to
those telecommunications service providers.
F-26
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
A summary of the balances and transactions with these related parties is as
follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current assets:
Trade accounts receivable.................................. 8,127 4,540
Other assets............................................... 20,954 14,633
Non current assets
Other assets............................................... 347,175 346,084
Current liabilities:
Loans and financing........................................ 631,848 28,397
Other liabilities.......................................... 86,002 73,472
Dividends.................................................. 177,223 181,186
Non current liabilities:
Loans and financing........................................ 135,315 114,985
Other liabilities.......................................... 85 23
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net operating revenues............................. 190,510 197,608 351,740
Cost of services................................... 2,253 128,557 240,872
Operating expenses................................. 693 683 2,931
Net interest expense............................... 185,108 77,093 28,785
</TABLE>
Until the breakup of Telebras, the Company and the other companies of the
Telebras system were required to contribute to the research and development
center operated by Telebras and also conducted their own independent research
and development. Following the breakup of Telebras, a private independently
administered research and development center was established. Pursuant to an
agreement signed in May 1998 between the research and development center and
the Company, the Company is obligated to contribute R$107 million to the
center during the three years ending May 2001.
Additionally, Telebras charges a 1% per annum administration fee on the
allocation to the Holding Company of debt originally contracted by Telebras.
Telebras has also charged interest on inter company loans at a rate which is
currently the interest rate on federal treasury bills plus 0.25%. These
interest charges are included in the above table as net interest expense.
Other related parties are Federal, State and Municipal Governments. Revenues
from telephone calls made by government bodies and related organizations have
not been included above because details of the type of telephone user were not
maintained.
The balances of amounts invested in government securities or through
government controlled entities are:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Cash and cash equivalents:
Deposits with Banco do Brasil S.A.......................... 716,111 801,748
</TABLE>
The Company believes that all the costs of doing business are reflected in
the financial statements and that no additional expenditures will be incurred
as a result of the cessation of the activities previously performed by
Telebras.
F-27
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
28. COMMITMENTS
At December 31, 1997 the Company had approximately the following capital
expenditure commitments:
<TABLE>
<CAPTION>
EXPECTED YEAR OF EXPENDITURE
----------------------------
<S> <C>
1998............................................................... 1,421,000
1999............................................................... 436,000
</TABLE>
These commitments are to be spent on continuing expansion and modernization
of the system, transmission equipment and data transmission equipment.
29. INSURANCE
At December 31, 1997, in the opinion of management, all significant and high
risk assets and obligations were insured.
30. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Estimated fair values of the Company's financial assets and liabilities have
been determined using available market information and appropriate valuation
methodologies. However, considerable judgment was required in interpreting
market data to produce the estimated fair values. Accordingly, the estimates
presented below are not necessarily indicative of the amounts that could be
realized in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair values.
The fair value information as of December 31, 1996 and 1997 presented below
is based on pertinent information available to management as of those dates.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts at December 31, 1996, such amounts
have been fully indexed to December 31, 1997 and current estimates of fair
values may differ significantly from the amounts shown.
Where no comparison of book versus fair value is presented for a financial
asset or liability line item in the schedule below, no significant difference
in values is believed to exist.
<TABLE>
<CAPTION>
1996 1996 1997 1997
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Assets:
Other assets:
Deferred tax assets...................... 27,432 16,406 32,792 30,261
Liabilities:
Income taxes............................... 469,480 186,787 699,802 508,502
Loans and financing:
Loans payable to Telebras................ 767,163 784,948 143,382 151,803
Other financing.......................... 360,295 357,084 357,614 373,372
</TABLE>
Cash, cash equivalents, trade accounts receivable and other assets, accounts
payable and accrued liabilities
The carrying value of cash and cash equivalents, trade accounts receivable
and other assets, accounts payable and accrued liabilities are a reasonable
estimate of their fair values. Cash equivalents are represented principally by
overnight-deposits for which the fair values were also considered to be the
same as the carrying value, as also customer accounts receivable, other
assets, accounts payable and accrued liabilities.
F-28
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
Loans and financing
Interest rates that are currently available to the Company for issuance of
debt with similar terms and maturities were used to estimate fair value.
31. EVENTS SUBSEQUENT TO DECEMBER 31, 1997
A. INCORPORATION OF TELESP CELULAR S.A.
At December 31, 1997, Telebras, through its operating subsidiaries was the
principal supplier of public telecommunications services in Brazil, which
included being the leading provider of fixed-line telephone services. On
January 30, 1998 as part of a separation of the telephone business between
fixed and cellular businesses by all of Telebras' subsidiaries, Telesp spun
off the assets and liabilities at December 31, 1997 of its cellular
telecommunications business into a separate company. This new company, called
"Telesp Celular S.A.", was incorporated on January 5, 1998.
B. INCORPORATION OF TELESP PARTICIPACOES S.A.
On May 22, 1998 the shareholders of Telebras approved Telebras' division
into twelve new holding companies using a procedure under Brazilian corporate
law called a cisao ("spin-off"), whereby existing shareholders received shares
in the new companies in proportion to their holdings in Telebras. The new
companies contain the assets and liabilities previously recorded in the
accounts of Telebras, except for the following, which will remain on the books
of Telebras and not be allocated to the new holding companies:
. approximately R$98,000 of net assets which have been attributed to a
newly constituted research foundation that will take over the activities
previously performed by the Telebras Campinas Research and Development
Center; and,
. R$370,000 of net assets that will provide the funds required to
liquidate Telebras, including approximately R$132,000 of retroactive
dividends to be paid to the holders of new shares issued in April 1998,
as a result of the resolution of the disputed capital increase of 1990,
approximately R$50,000 of indemnity payments to employees and
approximately R$87,000 of expenses arising out of the privatization
process.
In addition to approving the allocation of assets and liabilities to the new
holding companies at the May 22, 1998 meeting, the shareholders also approved
a specific structure for the shareholders' equity of each new holding company,
which included an allocation of a portion of the retained earnings of
Telebras. Consequently, the amounts of the balances of capital, reserves and
retained earnings, together with the corresponding assets and liabilities for
the formation of Telesp Participacoes S.A. were established. After Telebras
retained within its own shareholders' equity sufficient retained earnings from
which to pay dividends on its 1997 earnings and in settlement of dividends as
a result of settlement of the 1990 disputed share increase, Telebras allocated
to each New Holding Company the balance of its Retained Earnings in proportion
to the allocated total net assets. This value of allocated retained earnings
does not represent the historical retained earnings of the Holding Companies
and resulted in an increase of R$171,236 in relation to the Company's
historical retained earnings. These values are shown in the "Spin-off from
Telebras" column in the following table. The first column summarizes the
December 31, 1997 consolidated historical balances of the Company, and the
"Holding Company Consolidated Statement" column summarizes the consolidated
balance sheet of Telesp Participacoes S.A. after the spin-off.
As a result of the legal structure of the spin-off and as allowed under
Brazilian GAAP, a company formed as a result of a cisao will have such
retained earnings in its balance sheet as the parent company shareholders'
resolution adopting the cisao allocates from the parent company to the new
company. Accordingly, upon
F-29
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
formation, Telesp Participacoes S.A.'s legal capital structure was defined by
the resolutions approved by the Telebras shareholders' meeting of May 22, 1998
so that its shareholders' equity of R$8,278,167 includes retained earnings of
R$1,778,980. The allocated retained earnings and future retained earnings will
be the basis from which future dividends will be payable.
The "Adjustments and Eliminations" column includes (i) the elimination of
the Holding Company's investment in the operating company, (ii) the
elimination of inter company loans, payables and receivables, (iii) the
elimination of the net assets of the discontinued cellular operations and (iv)
the elimination of the minority shareholdings in the discontinued cellular
operations.
<TABLE>
<CAPTION>
HOLDING
DECEMBER 31, 1997 ADJUSTMENTS COMPANY
HISTORICAL SPIN-OFF AND CONSOLIDATED
BALANCES FROM TELEBRAS ELIMINATIONS STATEMENT
----------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equiva-
lents.................. 858,345 439,216 -- 1,297,561
Intercompany receiv-
ables.................. 4,540 1,405 (1,405) 4,540
Other current assets.... 703,729 289,231 (184,080) 808,880
---------- --------- ---------- ----------
Total current assets.. 1,566,614 729,852 (185,485) 2,110,981
Intercompany receiv-
ables.................. 346,084 5,135 (5,135) 346,084
Other noncurrent as-
sets................... 51,587 6,456 -- 58,043
---------- --------- ---------- ----------
Total noncurrent
assets............... 397,671 11,591 (5,135) 404,127
Investment in subsidiar-
ies.................... -- 7,977,188 (7,977,188) --
Other Investment........ 93,590 89,460 -- 183,050
Advances for future cap-
ital increase.......... -- 435,648 (435,648) --
Property, plant and
equipment, net......... 12,589,455 16,011 -- 12,605,466
---------- --------- ---------- ----------
Total permanent
assets............... 12,683,045 8,518,307 (8,412,836) 12,788,516
Discontinued opera-
tions.................. 1,259,819 -- (1,259,819) --
---------- --------- ---------- ----------
Total assets............ 15,907,149 9,259,750 (9,863,275) 15,303,624
========== ========= ========== ==========
LIABILITIES
Intercompany loans and
financing.............. 28,397 343,921 (1,405) 370,913
Other................... 1,405,690 -- (184,080) 1,221,610
---------- --------- ---------- ----------
Total current
liabilities.......... 1,434,087 343,921 (185,485) 1,592,523
Loans and financing..... 472,599 135,996 (5,135) 603,460
Other................... 625,577 -- -- 625,577
---------- --------- ---------- ----------
Total noncurrent
liabilities.......... 1,098,176 135,996 (5,135) 1,229,037
Minority interests...... 3,984,723 -- (360,335) 3,624,388
Share capital........... -- 3,238,421 -- 3,238,421
Capital and reserves.... 7,268,928 -- (7,268,928) --
Income reserves......... -- 3,260,766 -- 3,260,766
Retained earnings....... 1,607,744 1,778,980 (1,607,744) 1,778,980
---------- --------- ---------- ----------
Total shareholders'
equity............... 8,876,672 8,278,167 (8,876,672) 8,278,167
Funds for capitaliza-
tion................... 513,491 501,666 (435,648) 579,509
---------- --------- ---------- ----------
Total liabilities and
shareholders' equity... 15,907,149 9,259,750 (9,863,275) 15,303,624
========== ========= ========== ==========
</TABLE>
The separation of the fixed and cellular telecommunications business and the
formation of the Holding Company have been accounted for as reorganizations of
entities under common control in a manner similar to a pooling of interests.
Brazilian corporate and tax law allows state controlled companies which are
participating in the government's privatization program a three month delay
between the accounting base date for a spin-off and the date on which the
shareholders' meeting approves the spin-off, including the related accounting
basis for the
F-30
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
net assets spun-off. Furthermore, as allowed by Brazilian corporate law, the
amount shown in the "Spin-off from Telebras" column as "Investment in
subsidiaries" was determined based on the balance sheets of those subsidiaries
as of December 31, 1997. As a result, the consolidated financial statements of
the Holding Company for 1998 will include the results of operations and
changes in financial condition of the subsidiaries from January 1, 1998 and
the effects of the cash, other assets and loans and financing allocated from
Telebras as of March 1, 1998.
The capital stock of the Holding Company is comprised of preferred shares
and common shares, all without par value. At May 22, 1998, there were
210,029,997 thousand outstanding preferred shares (inclusive of 13,718,350
thousand preferred shares resulting from the settlement in April 1998 with
Telebras as discussed below) and 124,351,903 thousand outstanding common
shares (net of 17,128 thousand common shares in treasury). The capital may be
increased only by a decision taken at a shareholders' meeting or by the Board
of Directors in connection with the capitalization of profits or reserves
previously allocated to capital increases at a shareholders' meeting.
The preferred shares are non-voting except under limited circumstances and
are entitled to a preferential, noncumulative dividend and to priority over
the common shares in the case of liquidation of the Holding Company.
Under the Brazilian Corporation Law, the number of non-voting shares, such
as the preferred shares, may not exceed two-thirds of the total number of
shares.
Dividends
Pursuant to its By-laws, Telesp Participacoes S.A. is required to distribute
as dividends in respect of each fiscal year ending on December 31, to the
extent amounts are available for distribution, an aggregate amount equal to at
least 25% of Adjusted Net Income (as defined) on such date (the "Mandatory
Dividend"). The annual dividend distributed to holders of preferred shares
(the "Preferred Dividend") has priority in the allocation of Adjusted Net
Income. Remaining amounts to be distributed are allocated first to the payment
of a dividend to holders of common shares in an amount equal to the Preferred
Dividend and the remainder is distributed equally among holders of preferred
shares and common shares.
For purposes of Brazilian Corporation Law, and in accordance with Telesp
Participacoes S.A.'s By-laws, the "Adjusted Net Income" is an amount equal to
Telesp Participacoes S.A.'s net profits adjusted to reflect allocations to or
from (i) the statutory reserve, (ii) a contingency reserve for anticipated
losses, if any, and (iii) an unrealized revenue reserve, if any.
On June 7, 1990 the Board of Directors of Telebras authorized an increase in
the Company's share capital by public offer. During the offer period the CVM
initiated an investigation as to whether Brazilian securities law and
regulations regarding the correct pricing of the new shares issued had been
violated because the shares were issued at a discount to equity value per
share. After its investigation the CVM notified the Federal Prosecutor's
Office that it believed no violation occurred since the price was established
in line with market prices for Telebras shares traded on the Brazilian stock
exchanges. Nevertheless, the Federal Prosecutor decided to pursue the issue
through judicial channels. In April 1998, resolution was reached on the
disputed Telebras capital increase of 1990. In connection with the resolution,
Telebras issued 13,718,350 thousand shares of preferred stock.
F-31
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
Loans and Financing
The loans and financing transferred from Telebras comprise financing from
various banks and suppliers of telecommunications equipment, as follows:
<TABLE>
<CAPTION>
BALANCE AT
ANNUAL DECEMBER 31,
CURRENCY INTEREST RATE MATURITY 1997
--------------- ------------- -------- ------------
<S> <C> <C> <C> <C>
Medio credito U.S. Dollar 1.75% 2014 49,819
Citibank U.S. Dollar Various 2024 6,004
EDC--Tranche A U.S. Dollar 11.55% 2001 4,215
EDC--Tranche B U.S. Dollar LIBOR + 1.5% 2001 848
EDC II U.S. Dollar LIBOR + 1.0% 2002 62,098
EDC III U.S. Dollar LIBOR + 1.0% 2002 36,416
CIDA Canadian Dollar 3.00% 2005 1,095
J.P. Morgan Italian Lira 13.00 1999 319,462
-------
479,917
=======
Current portion 343,921
Non-current portion 135,996
</TABLE>
C. NEW REGULATORY ENVIRONMENT
On April 28, 1998 the revenue sharing regime used to divide interregional
and international long-distance revenues between Embratel and the Company was
replaced with a network usage fee for interconnection, based on the terms of
an interconnection agreement with Embratel which became effective in April
1998.
The terms of this interconnection agreement, particularly pricing and
technical requirements, will significantly affect the Company's results of
operations, competitive environment and capital expenditure policies. Under
the current regulatory framework, all telecommunications service providers
must provide interconnection services on a non-discriminatory basis. Subject
to certain requirements, providers are free to negotiate the terms of
interconnection but, in the event the parties fail to reach an agreement,
Anatel will establish the terms of interconnection.
The Company does not expect the terms of the interconnection agreement to
have a material impact on net income initially as reduced net operating
revenues under the new structure are expected to be offset by a supplemental
per-minute rebate from Embratel called Parcela Adicional de Transicao ("PAT")
that supplements the network usage charge. Under the General Plan on
Concessions and Licenses, the fixed-line companies and Embratel, an affiliate
providing long distance services, are prohibited from offering certain basic
fixed-line telecommunications services until they fulfill certain specified
obligations. Embratel is prohibited from offering local or cellular services
and the regional fixed-line companies are prohibited from offering cellular,
interregional long-distance and international long-distance services. After
the privatization is effected, Embratel will be allowed to enter the market
for intraregional long-distance service as a competitor to the regional fixed-
line companies once the privatization of Telebras is completed.
D. CHANGE IN CONTROL (UNAUDITED)
On July 29, 1998, the Federal Government sold to twelve separate buyers (the
"New Controlling Shareholders") its rights to receive shares of the twelve New
Holding Companies upon the distribution of such shares. In connection with
this sale, the Federal Government assigned to the New Controlling Shareholders
substantially all its economic and voting rights with respect to the New
Holding Companies and, as a consequence, effective August 4, 1998 the New
Controlling Shareholders control the New Holding Companies.
F-32
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
32. SUMMARY OF THE DIFFERENCES BETWEEN BRAZILIAN AND US GAAP
The Company's accounting policies comply with generally accepted accounting
principles in Brazil ("Brazilian GAAP"). Accounting policies which differ
significantly from generally accepted accounting principles in the United
States of America ("US GAAP") are described below:
A. DIFFERENT CRITERIA FOR CAPITALIZING AND DEPRECIATING CAPITALIZED INTEREST
Until December 31, 1993 capitalized interest was not added to the individual
assets in property, plant and equipment, instead it was capitalized separately
and amortized over a time period different from the useful lives of the
related assets. Under US GAAP, capitalized interest is added to the individual
assets and is amortized over their useful lives. Also, under Brazilian GAAP as
applied to companies in the telecommunications industry, interest attributable
to construction-in-progress is computed at the rate of 12% per annum of the
balance of construction-in-progress and that part which relates to interest on
third party loans is credited to interest expense based on actual interest
costs with the balance relating to own capital being credited to capital
reserves.
Under US GAAP, in accordance with the provisions of SFAS 34, interest
incurred on borrowings is capitalized to the extent that borrowings do not
exceed construction-in-progress. The credit is a reduction of interest
expense. Under US GAAP, the amount of interest capitalized excludes the
monetary gain associated with the borrowings and the foreign exchange gains
and losses on foreign currency borrowings. The US GAAP differences between the
accumulated capitalized interest on disposals and in accumulated amortization
on disposals relate to the differences between capitalized interest and
related accumulated amortization under Brazilian and US GAAP which is included
in the net book value of disposed property, plant and equipment.
F-33
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
The effects of these different criteria for capitalizing and depreciating
capitalized interest are presented below:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
CAPITALIZED INTEREST DIFFERENCE
US GAAP capitalized interest:
Interest which would have been capitalized and credited
to income under US GAAP (Being interest incurred on
loans from the Company's parent and from third
parties, except in years where total loans exceeded
total construction in progress, when capitalized
interest is reduced proportionately).................. 117,428 88,600
Difference in accumulated capitalized interest on
disposals............................................. 2,854 15,275
-------- --------
120,282 103,875
-------- --------
Less Brazilian GAAP capitalized interest:
Interest capitalized and credited to income under
Brazilian GAAP (Up to the limit of interest incurred
on loans obtained for financing capital investments).. (20,864) (15,013)
Interest capitalized and credited to reserves under
Brazilian GAAP (Difference between total capitalized
interest and interest capitalized and credited to
income)............................................... (172,469) (148,308)
-------- --------
Total capitalized interest under Brazilian GAAP (12%
per annum, applied monthly to the balance of
construction-in-progress)........................... (193,333) (163,321)
-------- --------
US GAAP Difference..................................... (73,051) (59,446)
======== ========
AMORTIZATION OF CAPITALIZED INTEREST DIFFERENCE
Amortization under Brazilian GAAP...................... 204,360 228,727
Less: Amortization under US GAAP....................... (175,639) (187,299)
US GAAP difference in accumulated amortization on
disposals........................................... (2,854) (15,275)
-------- --------
US GAAP Difference..................................... 25,867 26,153
======== ========
</TABLE>
B. REVERSAL OF PROPOSED DIVIDENDS
Under Brazilian GAAP proposed dividends are accrued for in the financial
statements in anticipation of their approval at the shareholders' meeting.
Under US GAAP, dividends are not accrued until they are formally declared.
C. PENSION AND OTHER POST-RETIREMENT BENEFITS
The Company participates in a multi-employer plan ("Sistel") and provides
for the costs of pensions and other post retirement benefits based on a fixed
percentage of remuneration, as recommended annually by independent actuaries.
For the purposes of US GAAP, the Company is considered to contribute to a
multiemployer plan and consequently is required to disclose its annual
contributions and the funded status of the plan in accordance with US GAAP.
Note 33 shows the funded status of Sistel. The provisions of SFAS No. 87, for
the purposes of calculating the funded status, were applied with effect from
January 1, 1992, because it was not feasible to apply them from the effective
date specified in the standard.
F-34
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
D. ITEMS POSTED DIRECTLY TO SHAREHOLDERS' EQUITY ACCOUNTS
Under Brazilian GAAP various items are posted directly to shareholders'
equity accounts, that, under US GAAP, would be posted to the income statement.
Examples include capitalized interest, the effects of adjustments to tax rates
and tax incentive investment credits received. The posting of such items to
shareholders' equity in the subsidiaries gives rise to consolidation
adjustments in the statements of changes in shareholders' equity. Since the
original postings equity accounts would, under US GAAP, be made directly to
the income statement, these consolidation adjustments must be included in the
reconciliation of net income in accordance with US GAAP. The effects of
changes in income tax rates posted directly to shareholders' equity accounts
arises from applying increases or decreases in tax rates to the deferred tax
liability relating to the special reserve arising from pre-1990 indexation
adjustments to property, plant and equipment.
E. EARNINGS PER SHARE
Under Brazilian GAAP, net income per share is calculated on the number of
shares outstanding at the balance sheet date. Since the capital structure of
the Holding Company was not in place at December 31, 1997, earnings per share
is not presented for Brazilian GAAP.
In these consolidated financial statements, information is disclosed per lot
of one thousand shares, because this is the minimum number of shares that can
be traded on the Brazilian stock exchanges. Each American Depositary Share
("ADS") is equivalent to one thousand shares.
As discussed in Note 1, the Company was not formed until subsequent to
December 31, 1997. For US GAAP purposes, the equity structure utilized for the
earnings per share computations is that of the new entity formed in May 1998.
The Holding Company's equity structure has been used for all years presented.
At the date of formation, the company had 124,351,903 thousand common shares
(net of 17,128 thousand common shares in treasury) and 196,311,647 thousand
preferred shares outstanding (exclusive of the 13,718,350 thousand preferred
shares resulting from the settlement in April 1998 with Telebras).
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share". This new statement became effective December 15,
1997, and provides computation, presentation and disclosure requirements for
earnings per share.
Since the preferred and common stockholders have different dividend, voting
and liquidation rights, Basic and Diluted earnings per share have been
calculated using the "two-class" method. The "two-class" method is an earnings
allocation formula that determines earnings per share for preferred and common
stock according to the dividends to be paid as required by the Company's by-
laws and participation rights in undistributed earnings.
Basic earnings per common share is computed by reducing net income by
distributable and undistributable net income available to preferred
shareholders and dividing net income available to common shareholders by the
weighted-average number of common shares outstanding during the period. Net
income available to preferred shareholders is the sum of the preferred stock
dividends up to a minimum of 6% of adjusted net income (as defined in the
Company's by-laws) (distributable net income) and the preferred shareholders'
portion of undistributed net income. Undistributed net income is computed by
deducting preferred stock dividends and common stock dividends from net
income. Undistributed net income is shared equally by the preferred and common
shareholders on a pro rata basis. Common stock dividends are calculated as up
to 25% of adjusted net income or an amount equal to the preferred stock
dividend, whichever is less. Diluted earnings per share is computed by
reducing net income for an increase to net earnings allocated to minority
shareholders and dividing such net income available to common and preferred
shareholders by the monthly weighted-average number of common and preferred
shares outstanding during the period. The weighted-average (thousand) shares
outstanding
F-35
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
for diluted earnings per share is not greater than such shares used in the
basic earnings per share calculation since the dilutive share issue is that of
the Holding Company's subsidiary Telesp, as indicated below.
The weighted-average number of common and preferred shares used in computing
basic earnings per share for 1997 was 124,351,903 thousand and 196,311,647
thousand (exclusive of the 13,718,350 thousand preferred shares resulting from
the settlement in April 1998 with Telebras), respectively. The Company has
received certain contributions from customers or customers have independently
paid suppliers of telecommunications equipment and services for the
installation of fixed line services. These amounts are reflected as "funds for
capitalization" in the accompanying consolidated balance sheets. Once the
installation is essentially complete and the contributions have been received,
the funds will be converted into equity (see Note 26 to the consolidated
financial statements). These activities are dilutive in nature to the
shareholders of the Company, whether the shares to be issued are those of the
Holding Company's subsidiary, Telesp (which will impact the minority interest
recognized) or of the Company itself. If subsidiary shares had been issued
historically, the reduction to net income to increase net earnings allocated
to minority shareholders for 1996 and 1997 would have been $84,427 and
$37,922, respectively.
The Company's preferred shares are non-voting except under certain limited
circumstances and are entitled to a preferential, noncumulative dividend and
to priority over the common shares in the event of liquidation of the Company.
The preferred shareholders were entitled to a non-cumulative dividend of
R$0.82 and R$0.99 per preferred share in 1996 and 1997, respectively. The
preferred shareholders would share equally in the undistributed earnings of
the Company in the amount of R$1.41 and R$1.87 per preferred share in 1996 and
1997, respectively.
In April 1998, resolution was reached on the disputed capital increase of
1990 (see Note 31b). In connection with the resolution, the Company issued
13,718,350 shares of preferred stock. For Brazilian GAAP and US GAAP, such
shares are considered outstanding when issued.
Earnings per share has been presented for net income only since interest
income, certain interest expense and social contribution taxes have not been
allocated between income from continuing operations and income from
discontinued operations.
F. DISCLOSURE REQUIREMENTS
US-GAAP disclosure requirements differ from those required by Brazilian
GAAP. However, in these consolidated financial statements, the level of
disclosure has been expanded to comply with US-GAAP.
G. INCOME TAXES
Telesp fully accrues for deferred income taxes on temporary differences
between tax and reporting records. The existing policies for providing for
deferred taxes are substantially in accordance with SFAS 109, "Accounting for
Income Taxes", except in connection with the deferred income tax effects of
indexation adjustments in 1996 and 1997 (see Note 2(a)(iii)). Under US GAAP
the deferred tax effects of the 1996 and 1997 indexation for financial
reporting purposes would be charged to income and social contribution taxes in
the statement of income. Consequently, this is the only material difference in
the implementation of SFAS 109 other than in relation to the US GAAP
adjustments described in this note to the financial statements, and for the
fact that deferred income taxes are shown gross rather than being netted as
required by US GAAP. Additionally, for US GAAP purposes, deferred tax assets
and liabilities are classified as current or non current based on the
classification of the asset or liability attributing to the temporary
difference.
F-36
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
H. INTEREST INCOME (EXPENSE)
Brazilian GAAP requires interest to be shown as part of operating income.
Under US GAAP interest income (expense) would be shown after operating income.
I. EMPLOYEES' PROFIT SHARE
Brazilian GAAP requires employees' profit share to be shown as an
appropriation of net income for the year. Under US GAAP employee profit
sharing is included as an expense in arriving at operating income.
J. PERMANENT ASSETS
Brazilian GAAP has a class of assets called permanent assets. This is the
collective name for all assets on which indexation adjustments were calculated
in the corporate and fiscal law accounts of Brazilian companies. Under US GAAP
the assets in this classification would be noncurrent assets.
Gains on the disposal of permanent assets were R$82,628 and R$9,958 in 1996
and 1997, respectively. For Brazilian GAAP, the gain on disposal of permanent
assets includes the difference between the net book value of the assets
retired from service and the values of the refurbished assets returned to
service at replacement cost values. Such gains are classified as non-operating
income for Brazilian GAAP. Under US GAAP refurbishment costs meeting the
criteria of capitalization would be added to the cost of the related asset and
amortized over its remaining useful life. The net book value of the
refurbished equipment under Brazilian GAAP does not exceed that under US GAAP,
accordingly, no US GAAP adjustment is reflected in the US GAAP reconciliation.
Additionally, under US GAAP, the difference between the net book value of the
assets retired from service and the value of the refurbished assets returned
to service, amounting to R$88,145 and R$6,182 in 1996 and 1997, would be a
reduction of the corresponding refurbishment expenses (classified as cost of
services under Brazilian GAAP) rather than a credit to gains on the disposal
of permanent assets (classified as nonoperating income (expense) under
Brazilian GAAP).
K. PRICE-LEVEL ADJUSTMENTS AND US GAAP PRESENTATION
The effects of price-level adjustments have not been eliminated in the
reconciliation to US GAAP nor are the monetary gains or losses associated with
the various US GAAP adjustments separately identified, because the application
of inflation restatement as measured by the UFIR and the IGP-M represents a
comprehensive measure of the effects of price level changes in the Brazilian
economy and, as such, is considered a more meaningful presentation than
historical cost-based financial reporting for both Brazilian and US accounting
purposes.
L. FUNDS FOR CAPITALIZATION
i. Expansion plan contributions
Under Brazilian GAAP, expansion plan contributions received are included in
the consolidated balance sheet below equity until proposed subscribers have
paid for their telephone connection in full and a general meeting of
shareholders approves the capital increases. Until December 31, 1995 expansion
plan contributions were indexed from the month received to the date of the
next audited balance sheet and transferred to equity when capital stock was
issued to the subscriber, at a value per share equal to the equity value per
share shown on the latest audited balance sheet.
From January 1, 1996 indexation was no longer applied and, for contracts
signed as from that date, Telesp was allowed the option of using a value per
share equal to the market value, when this is higher than the equity value.
For US GAAP purposes, a portion of the expansion plan contributions would be
allocated to shareholders'
F-37
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
equity based on the market value of the shares to be issued to subscribers.
The remainder of the expansion plan contributions would be classified as a
deferred credit and amortized to reduce depreciation expense from the time the
related construction-in-progress is completed.
ii. Donations and subsidies for investments
Under Brazilian GAAP those amounts, which comprise principally the excess of
the value of property, plant and equipment incorporated into the Company's
assets over the corresponding credits to expansion plan contributions
received, are recorded as a credit to other capital reserves. For US GAAP
purposes, the credit to capital reserves would be classified as a deferred
credit and amortized to reduce depreciation expense.
M. LOANS AND FINANCING
For US GAAP, loans and financing balances in default or expected to be in
default within a year of the balance sheet date would be classified as current
obligations unless creditors had provided the Company waivers for such
defaults. For Brazilian GAAP, loans and financing balances in technical
default are not always classified as current liabilities. All (R$483,487) of
the Company's outstanding debt at December 31, 1997 is currently in default or
is expected to be in default as a result of the privatization and accordingly,
for US GAAP, would be classified as current liabilities.
N. VALUATION OF LONG-LIVED ASSETS
For US GAAP, effective January 1, 1996 the Company adopted SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." In accordance with this standard, the Company periodically
evaluates the carrying value of long-lived assets to be held and used, when
events and circumstances warrant such a review. The carrying value of long-
lived assets is considered impaired when the anticipated undiscounted cash
flow from such assets is separately identifiable and is less than their
carrying value. In that event, a loss is recognized based on the amount by
which the carrying value exceeds the fair market value of the assets. The
adoption of this standard did not have a material effect on the Company's
results or financial condition.
Brazilian GAAP does not require cash flow computations in order to determine
potential asset impairment.
O. RETAINED EARNINGS
For Brazilian GAAP, a company formed as a result of a cisao may have
retained earnings in its balance sheet if the parent company shareholders'
resolution adopting the cisao allocates retained earnings from the parent
company to the new company. Under US GAAP, "retained earnings" allocated in
the cisao would not be considered historical retained earnings as such amount
would represent capital allocated from the parent company and would be
described as "distributable capital." As a result of the May 22, 1998 spin-
off, the Company will have US GAAP distributable capital of R$1,778,980.
P. REVENUE RECOGNITION
Until December 31, 1997, under both Brazilian and US GAAP, revenues from
activation fees were recognized upon activation of a customer's services.
Under US GAAP, effective January 1, 1998, net revenues from activation fees
will be deferred and amortized over the estimated effective contract life.
F-38
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in millions of Brazilian Reais, of December 31, 1996)
NET INCOME RECONCILIATION OF THE DIFFERENCE BETWEEN US AND BRAZILIAN GAAP
<TABLE>
<CAPTION>
1996 1997
R$ R$
----------- -----------
<S> <C> <C>
Income from continuing operations, before unallocated
interest income/expense, taxes and minority
interests........................................... 930,661 952,296
Add (deduct):
Different criteria for:
Capitalized interest............................. (73,051) (59,446)
Amortization of capitalized interest............. 25,867 26,153
Contributions to plant expansion:
Amortization of deferred credit.................. 18,543 19,709
Donations and subsidies for investment........... -- (32,621)
Interest on construction in progress............... 167,446 135,805
Consolidation adjustments.......................... 4,702 43,487
----------- -----------
US GAAP income from continuing operations before
unallocated interest income/expense, income taxes
and minority interests.............................. 1,074,168 1,085,383
----------- -----------
Income from discontinued operations before
unallocated interest income/expense, income taxes
and minority interests as reported.................. 328,741 537,377
Effect of US GAAP differences on income from
discontinued operations........................... 5,748 49
----------- -----------
US GAAP income from discontinued operations before
unallocated interest income/expense, income taxes
and minority interests.............................. 334,489 537,426
----------- -----------
Items relating to continuing and discontinued
operations:
Unallocated interest income......................... 98,405 202,751
Unallocated interest expense........................ (51,500) (3,332)
Income and social contribution taxes................ (330,591) (528,672)
Minority interests, Brazilian GAAP basis............ (249,855) (360,296)
Add (deduct):
Items posted directly to shareholder's equity:
Effects of changes in income tax rates........... (7,872) --
Deferred tax on full indexation.................. (307,024) (271,469)
Tax incentive investment credits................. 16,530 53,016
Deferred tax effects of the above adjustments:
In respect of continuing operations.............. 21,916 18,326
In respect of discontinued operations............ (212) 4,110
CTBC minority interests in the above adjustments... 6,207 11,931
Telesp minority interests in the above
adjustments....................................... 109,492 169,331
----------- -----------
US GAAP net income................................... 714,153 918,505
=========== ===========
NET INCOME PER THOUSAND SHARES IN ACCORDANCE WITH US
GAAP
Common shares--Basic................................. 2.86 2.23
=========== ===========
Weighted average (thousand) common shares outstand-
ing............................................... 124,351,903 124,351,903
Common shares--Diluted............................... 1.96 2.75
=========== ===========
Weighted average (thousand) common shares outstand-
ing............................................... 124,351,903 124,351,903
Preferred shares--Basic.............................. 2.86 2.23
=========== ===========
Weighted average (thousand) Preferred shares out-
standing.......................................... 196,311,647 196,311,647
Preferred shares--Diluted............................ 1.96 2.75
=========== ===========
Weighted average (thousand) Preferred shares out-
standing.......................................... 196,311,647 196,311,647
</TABLE>
F-39
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
SHAREHOLDERS' EQUITY RECONCILIATION OF THE DIFFERENCE BETWEEN US AND BRAZILIAN
GAAP
<TABLE>
<CAPTION>
1996 1997
R$ R$
----------- -----------
<S> <C> <C>
Total shareholders' equity as reported................ 8,168,335 8,876,672
Add (deduct):
Different criteria for:
Capitalized interest.............................. (344,315) (403,761)
Amortization of capitalized interest.............. 145,425 171,578
Reversal of proposed dividends...................... 263,469 318,572
Contributions to plant expansion:
Amortization of deferred credit................... 55,727 75,436
Subscribed capital stock.......................... 559,710 328,661
Donations and subsidies for investment............ (81,113) (122,497)
Deferred tax effects of above adjustments........... 127,310 145,636
CTBC minority interest in the above adjustments..... 39,653 60,561
Adjustments in respect of discontinued operations:
Adjustments before income taxes..................... (430) (12,884)
Deferred tax effects of these adjustments........... 143 4,252
Telesp minority interest in the above adjustments... (209,658) (122,150)
----------- -----------
US GAAP shareholders' equity.......................... 8,784,256 9,320,076
=========== ===========
US GAAP supplementary information:
Total assets........................................ 14,418,783 15,811,970
=========== ===========
Property, plant and equipment....................... 25,077,960 25,575,432
Accumulated depreciation............................ (12,941,990) (13,218,160)
----------- -----------
Net property, plant and equipment................... 12,135,970 12,357,272
=========== ===========
</TABLE>
The deferred tax effect of the US GAAP adjustments noted above would be
classified mainly as a noncurrent asset in the balance sheet.
F-40
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH
US GAAP
<TABLE>
<CAPTION>
CAPITAL AND RETAINED
RESERVES EARNINGS TOTAL
----------- --------- ---------
<S> <C> <C> <C>
Balances at December 31, 1995................ 6,155,597 1,568,790 7,724,387
Capital increase:
Expansion plan contributions................ -- -- --
Expansion plan contributions:
Received.................................... 696,965 -- 696,965
Deferred credits............................ (1,384) -- (1,384)
Net income................................... -- 714,153 714,153
Realization of unrealized income............. (242,240) 242,240 --
Transfers to reserves........................ 43,792 (43,792) --
Dividends paid............................... -- (230,556) (230,556)
Minority interest in Telesp on all movements
in shareholders' equity, except for net
income...................................... (79,536) (39,772) (119,309)
--------- --------- ---------
Balances at December 31, 1996................ 6,573,194 2,211,062 8,784,256
Capital increase:
Expansion plan contributions................ -- -- --
Expansion plan contributions:
Received.................................... 798,172 -- 798,172
Deferred credits............................ (567) -- (567)
Net income................................... -- 918,505 918,505
Realization of unrealized income............. (206,511) 206,511 --
Transfers to reserves........................ 72,992 (72,992) --
Dividends paid............................... -- (262,247) (262,247)
Minority interest in Telesp on all movements
in shareholders' equity, except for net
income ..................................... (667,710) (250,333) (918,043)
--------- --------- ---------
Balances at December 31, 1997................ 6,569,570 2,750,506 9,320,076
========= ========= =========
</TABLE>
F-41
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
33. ADDITIONAL DISCLOSURES REQUIRED BY US GAAP
A. PENSION AND POST-RETIREMENT BENEFITS
The Company, together with other companies in the Telebras group, sponsor
multi-employer defined benefit pension and other post-retirement benefit
plans, which are operated and administered by Sistel. The funded status of the
Sistel pension and other post-retirement benefit plans and the related
actuarial assumptions in accordance with US GAAP are as follows:
Pension benefit plan
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Funded status:
Accumulated benefit obligation:
Vested......................................... 1,793,943 1,919,975
Non vested..................................... 3,250,909 3,479,300
---------- ----------
Total........................................ 5,044,852 5,399,275
========== ==========
Projected benefit obligation..................... 6,636,907 7,258,074
Fair value of plan assets........................ (3,430,572) (3,897,051)
---------- ----------
Projected obligation in excess of assets......... 3,206,335 3,361,023
========== ==========
The actuarial assumptions used were as follows:
Discount rate for determining projected benefit
obligations..................................... 6.00% 6.00%
Rate of increase in compensation levels.......... 3.25% 3.25%
Expected long-term rate of return on plan
assets.......................................... 6.00% 6.00%
</TABLE>
The above are real rates and exclude inflation.
Amortization of the unrecognized liability at transition: 18.94 years
commencing on January 1, 1991.
OTHER POST-RETIREMENT BENEFITS PLAN
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Funded status:
Accumulated post-retirement benefit obligations:
Retirees and dependents............................ 371,125 380,561
Fully eligible active plan participants............ 32,631 34,589
Other active plan participants..................... 885,917 997,791
--------- ---------
1,289,673 1,412,941
Fair value of plan assets............................ (76,600) (96,141)
--------- ---------
Funded status........................................ 1,213,073 1,316,800
========= =========
</TABLE>
Amortization of the unrecognized liability at transition: 18.84 years
commencing on January 1, 1992.
Health care cost trend rates of increase were projected at annual rates
excluding inflation ranging from 6.48% in 1998 decreasing to 2.00 % in 2047.
The effect of a one percent annual increase in the assumed health care cost
trend rates would increase the accumulated post-retirement benefits obligation
at December 31, 1997 by R$237,063. Measurement of the accumulated post-
retirement benefit obligation was based on the same assumptions as were used
in the pension calculations.
F-42
<PAGE>
TELESP PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Amounts expressed in thousands of Brazilian Reais, of December 31, 1997)
The funded status of the pension and post retirement plans under Brazilian
and US GAAP differ. Benefit obligations differ because they have been prepared
using different actuarial assumptions permitted under Brazilian and US GAAP.
The net assets of the plans differ under Brazilian and US GAAP principally
due to the accrual of income tax contingencies of the pension fund for US GAAP
purposes in the amount of R$400,370 and R$487,269 in 1996 and 1997,
respectively.
B. CONCENTRATION OF RISK
The Company is prohibited from investing any surplus cash balances in
financial instruments other than government securities controlled by the
Central Bank of Brazil or the Federal Government owned bank, Banco do Brasil
S.A. There have been no losses in cash equivalents.
Credit risk with respect to customer accounts receivable is diversified. The
Company continually monitors the level of customer accounts receivable and
limits the exposure to bad debts by cutting access to the telephone network if
any invoice is one month past due. Exceptions comprise telephone services that
must be maintained for reasons of safety or national security.
For conducting its business, the Company is fully dependent upon the fixed-
line telecommunications concession as granted by the Federal Government.
Approximately 54% of all employees are members of state labor unions
associated either with the Federacao Nacional dos Trabalhadores em
Telecomunicacoes--Fenattel, or with the Federacao Interestadual dos
Trabalhadores em Telecomunicacoes--Fittel. Management negotiates a new
collective labor agreement every year with the local union. The collective
agreement currently in force expires in November 1998.
There is no concentration of available sources of labor, services,
concessions or rights, other than those mentioned above, that could, if
suddenly eliminated, severely impact the Company's operations.
C. NEW ACCOUNTING PRONOUNCEMENTS
SFAS NO. 130, "REPORTING COMPREHENSIVE INCOME"
SFAS No. 130 establishes the standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
as part of a full set of financial statements. This statement requires that
all elements of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.
SFAS NO. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION"
SFAS No. 131 establishes the standards for the manner in which public
enterprises are required to report financial and descriptive information about
their operating segments. The standard defines operating segments as
components of an enterprise for which separate financial information is
available and evaluated regularly as a means for assessing segment performance
and allocating resources to segments. A measure of profit or loss, total
assets and other related information are required to be disclosed for each
operating segment. In addition, this standard requires the annual disclosure
of: information concerning revenues derived from the enterprise's products or
services; countries in which it earns revenues or hold assets, and major
customers.
SFAS NO. 132, "EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT
BENEFITS"
SFAS No. 132 revises and standardizes employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans.
The Company will comply with the requirements of SFAS 130, 131 and 132 in
1998.
F-43
<PAGE>
TELESP PARTICIPACOES S.A.
EXHIBIT VOLUME
SEPTEMBER 18, 1998
<PAGE>
TELESP PARTICIPACOES S.A.
EXHIBIT INDEX
Exhibit
Number
1.1 Charter of the Registrant
1.2 Charter of the Registrant (English translation)
2.1 Deposit Agreement dated as of July 27, 1998 among the Registrant, The
Bank of New York, as Depositary, and Owners and Beneficial Owners of
American Depositary Receipts issued thereunder
10.1 Standard Concession Agreement for Local, Switched, Fixed-Line
Telephone Service and Schedule of Omitted Concession Agreements
10.2 Standard Concession Agreement for Local, Switched, Fixed-Line
Telephone Service (English translation)
10.3 Standard Concession Agreement for Domestic Long-Distance, Switched,
Telephone Service and Schedule of Omitted Concession Agreements
10.4 Standard Concession Agreement for Domestic Long-Distance, Switched,
Telephone Service (English translation)
23.1 Consent of KPMG Peat Marwick
<PAGE>
EXHIBIT 1.1
ESTATUTO SOCIAL DA
TELESP PARTICIPACOES S.A.
CAPITULO I
DAS CARACTERISTICAS DA COMPANHIA
Art. 1 - TELESP PARTICIPACOES S.A. e uma sociedade anonima,
vinculada ao Ministerio das Comunicacoes, controladora de Sociedades
exploradoras de servicos publicos de telefonia fixa, na Regiao III a que se
refere o Plano Geral de Outorgas aprovado pelo Decreto n 2.534, de 02 de abril
de 1998.
Paragrafo Unico - A Companhia se rege pela Lei das Sociedades por
Acoes, pelas disposicoes especiais de lei federal, pela legislacao de
telecomunicacoes, pelo presente Estatuto, pelas leis e usos do comercio e demais
dispositivos legais aplicaveis.
Art. 2 - A Companhia tem por objeto:
I. exercer o controle das sociedades exploradoras de servicos
publicos de telefonia fixa na Regiao III a que se refere o
Plano Geral de Outorgas aprovado pelo Decreto n 2.534, de 02
de abril de 1998;
II. promover, atraves de sociedades controladas ou coligadas, a
expansao e implantacao de servicos de telefonia fixa, em sua
respectiva area de concessao;
III. promover, realizar ou orientar a captacao, em fontes internas
e externas, de recursos a serem aplicados pela Companhia ou
pelas suas controladas;
IV. promover e estimular atividades de estudos e pesquisas visando
ao desenvolvimento do setor de telefonia fixa;
V. executar, atraves de sociedades controladas ou coligadas,
servicos tecnicos especializados afetos a area de telefonia
fixa;
VI. promover, estimular e coordenar, atraves de suas Sociedades
controladas ou coligadas, a formacao e o treinamento do
pessoal necessario ao setor de telefonia fixa;
VII. realizar ou promover importacoes de bens e servicos para as
suas Sociedades controladas e coligadas;
VIII. exercer outras atividades afins ou correlatas ao seu objeto
social; e
<PAGE>
2
IX. participar do capital de outras sociedades.
Art 3. - A Companhia tem sede no Distrito Federal, podendo criar e
extinguir, por decisao do Conselho de Administracao, filiais, agencias e
sucursais, escritorios, departamentos e representacoes em qualquer ponto do
territorio nacional e no exterior.
Art. 4. - O prazo de duracao da Companhia e indeterminado.
CAPITULO II
DO CAPITAL SOCIAL
Art. 5. - O capital social subscrito, totalmente integralizado, e de
R$ 3.236.420.616,47 (tres bilhoes, duzentos e trinta e seis milhoes,
quatrocentos e vinte mil, seiscentos e dezesseis reais e quarenta e sete
centavos), representado por 334.399.027.592 (trezentos e trinta e quatro
bilhoes, trezentos e noventa e nove milhoes, vinte e sete mil, quinhentos e
noventa e duas) acoes, sendo 124.369.030.532 (cento e vinte e quatro bilhoes,
trezentos e sessenta e nove milhoes, trinta mil, quinhentos e trinta e dois)
ordinarias nominativas e 210.029.997.060 (duzentos e dez bilhoes, vinte e nove
milhoes, novecentos e noventa e sete mil e sessenta) preferenciais nominativas,
todas sem valor nominal.
Art. 6. - A Companhia esta autorizada a aumentar seu capital social,
mediante deliberacao da Assembleia Geral, ate o limite de 700.000.000.000
(setecentos bilhoes) de acoes, ordinarias ou preferenciais.
Paragrafo Unico - Dentro do limite do capital autorizado de que
trata o caput deste artigo, a Assembleia Geral pode aprovar a outorga de opcao
de compra de acoes a seus administradores, empregados e a pessoas naturais que
prestem servicos a Companhia ou a empresas por ela controladas.
Art. 7. - O capital social e representado por acoes ordinarias e
preferenciais, sem valor nominal, nao havendo obrigatoriedade, nos aumentos de
capital, de se guardar proporcao entre elas, observadas as disposicoes legais e
estatutarias.
Art. 8. - Por deliberacao da Assembleia, pode ser excluido o direito
de preferencia para emissao de acoes, debentures conversiveis em acoes e bonus
de subscricao cuja colocacao seja feita mediante:
I. subscricao publica ou venda em bolsa de valores;
II. permuta por acoes em oferta publica de aquisicao de controle,
nos termos dos arts. 257 e 263 da Lei das S/A;
III. gozo de incentivos fiscais, nos termos de lei especial.
Art. 9. - A cada acao ordinaria corresponde o direito a um voto nas
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deliberacoes da Assembleia Geral.
Art. 10 - As acoes preferenciais nao tem direito a voto, exceto na
hipotese do paragrafo unico do art. 13 deste estatuto, sendo a elas assegurada
prioridade no reembolso de capital, sem premio, e no pagamento de dividendos
minimos, nao cumulativos, de 6% (seis por cento) ao ano, sobre o valor
resultante da divisao do capital subscrito pelo numero total de acoes da
Companhia.
Paragrafo Unico - As acoes preferenciais adquirirao o direito a voto
se a Companhia, por um prazo de 3 (tres) anos consecutivos, deixar de pagar os
dividendos minimos a que fazem jus nos termos do caput deste artigo.
Art. 11 - As acoes da Companhia serao escriturais, sendo mantidas em
conta de deposito, em instituicao financeira, em nome de seus titulares, sem
emissao de certificados.
CAPITULO III
DA ASSEMBLEIA GERAL
Art. 12 - A Assembleia Geral e o orgao superior da Companhia, com
poderes para deliberar sobre todos os negocios relativos ao objeto social e
tomar as providencias que julgar convenientes a defesa e ao desenvolvimento da
Companhia.
COMPETENCIA PRIVATIVA
Art. 13 - Compete privativamente a Assembleia Geral:
I. reformar o Estatuto Social;
II. autorizar a emissao de debentures e de debentures conversiveis
em acoes ou vende-las, se em tesouraria, bem como autorizar a
venda de debentures conversiveis em acoes de sua titularidade
de emissao de empresas controladas, podendo delegar ao
Conselho de Administracao a deliberacao sobre a epoca e as
condicoes de vencimento, amortizacao ou resgate, a epoca e as
condicoes de pagamento dos juros, da participacao nos lucros e
de premio de reembolso, se houver e o modo de subscricao ou
colocacao bem como o tipo de debentures;
III. deliberar sobre a avaliacao de bens com que o acionista
concorrer para a formacao do capital social;
IV. deliberar sobre transformacao, fusao, incorporacao e cisao da
Companhia, sua dissolucao e liquidacao, eleger e destituir
liquidantes e julgar-lhes as contas;
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4
V. autorizar a prestacao de garantias pela Companhia a obrigacoes
de terceiros, nestes nao incluidas as sociedades controladas;
VI. suspender o exercicio dos direitos do acionista que deixar de
cumprir obrigacoes impostas pela lei ou pelo Estatuto;
VII. eleger ou destituir, a qualquer tempo, os membros do Conselho
de Administracao e os membros do Conselho Fiscal;
VIII. fixar a remuneracao, global ou individual, dos membros do
Conselho de Administracao, da Diretoria e do Conselho Fiscal;
IX. tomar, anualmente, as contas dos administradores e deliberar
sobre as demonstracoes financeiras por eles apresentadas;
X. deliberar sobre promocao de acao de responsabilidade civil a
ser movida pela Companhia contra os administradores, pelos
prejuizos causados ao seu patrimonio, na conformidade do
disposto no art. 159 da Lei das S/A;
XI. autorizar a alienacao, no todo ou em parte, das acoes de
sociedades controladas;
XII. deliberar sobre o aumento do capital social por subscricao de
novas acoes;
XIII. autorizar a renuncia a direitos de subscricao de acoes ou
debentures conversiveis em acoes de empresas controladas;
XIV. deliberar sobre a emissao de quaisquer outros titulos ou
valores mobiliarios, no Pais ou no exterior;
XV. autorizar a permuta de acoes ou outros valores mobiliarios;
XVI. resolver sobre a emissao de acoes e bonus de subscricao dentro
dos limites do capital autorizado, observadas as disposicoes
legais e estatutarias;
XVII. aprovar previamente a celebracao de quaisquer contratos de
longo prazo entre a Companhia ou suas controladas, de um lado,
e o acionista controlador ou sociedades controladas,
coligadas, sujeitas a controle comum ou controladoras deste
ultimo, ou que de outra forma constituam partes relacionadas a
Companhia, de outra parte, salvo quando os contratos
obedecerem a clausulas uniformes.
Paragrafo Unico - Sem prejuizo do disposto no (S) 1 do art. 115 da
Lei n 6.404/76, os titulares de acoes preferenciais terao direito a voto nas
deliberacoes
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5
assembleares referidas no inciso XVII deste artigo, assim como naquelas
referentes a alteracao ou revogacao dos seguintes dispositivos estatutarios:
I. inciso XVII do art. 13;
II. paragrafo unico do art. 14; e
III. art. 46.
Art. 14 - A Assembleia Geral sera convocada pelo Conselho de
Administracao, cabendo ao Presidente consubstanciar o respectivo ato, ou na
forma prevista no Paragrafo unico do art. 123 da Lei n 6.404/76.
Paragrafo Unico - Nas hipoteses do art. 136 da Lei n 6.404/76, a
primeira convocacao da Assembleia Geral sera feita com 30 (trinta) dias de
antecedencia, no minimo, e com antecedencia minima de 10 (dez) dias, em segunda
convocacao.
Art. 15 - A Assembleia Geral sera instalada pelo Presidente da
Companhia, que procedera a eleicao da mesa Diretora, composta de um presidente e
um secretario, escolhidos dentre os acionistas presentes.
Art. 16 - Dos trabalhos e deliberacoes da Assembleia Geral sera
lavrada ata, assinada pelos membros da mesa e pelos acionistas presentes, que
representem, no minimo, a maioria necessaria para as deliberacoes tomadas.
(S) 1 - A ata sera lavrada na forma de sumario dos fatos, inclusive
dissidencias e protestos.
(S) 2 - Salvo deliberacao em contrario da Assembleia, as atas serao
publicadas com omissao das assinaturas dos acionistas.
Art. 17 - Anualmente, nos quatro primeiros meses subsequentes ao
termino do exercicio social, a Assembleia Geral se reunira, ordinariamente,
para:
I. tomar as contas dos administradores; examinar, discutir e
votar as demonstracoes financeiras;
II. deliberar sobre a destinacao do lucro liquido do exercicio e a
distribuicao de dividendos;
III. eleger os membros do Conselho Fiscal e, quando for o caso, os
membros do Conselho de Administracao.
Art. 18 - A Assembleia Geral se reunira, extraordinariamente, sempre
que os interesses da Companhia o exigirem.
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CAPITULO IV
DA ADMINISTRACAO DA COMPANHIA
SECAO I
ORGAOS DA ADMINISTRACAO
CONSELHO E DIRETORIA
Art. 19 - A Administracao da Companhia sera exercida pelo Conselho
de Administracao e pela Diretoria.
(S) 1 - O Conselho de Administracao, orgao de deliberacao colegiada,
exercera a administracao superior da Companhia.
(S) 2 - A Diretoria e orgao executivo da administracao da Companhia,
atuando cada um de seus membros segundo a respectiva competencia.
(S) 3 - As atribuicoes e poderes conferidos por lei a cada um dos
orgaos da administracao nao podem ser outorgados a outro orgao.
SECAO II
DO CONSELHO DE ADMINISTRACAO
Art. 20 - Compete ao Conselho de Administracao:
I. fixar a politica geral dos negocios da Companhia e acompanhar
sua execucao;
II. convocar a Assembleia Geral;
III. aprovar e submeter a Assembleia Geral as demonstracoes
financeiras e o Relatorio da Administracao da Companhia, neles
incluidas as demonstracoes consolidadas;
IV. eleger e destituir, a qualquer tempo, os diretores da
Companhia, fixando-lhes as atribuicoes, observadas as
disposicoes legais e estatutarias;
V. aprovar, mediante proposta da Diretoria, a indicacao ou
destituicao de titular da Auditoria Interna;
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VI. aprovar os planos gerais da Companhia;
VII. resolver sobre as condicoes de emissao de debentures, por
delegacao da Assembleia Geral;
VIII. aprovar o Regimento da Companhia, definindo sua estrutura
organizacional e especificando as atribuicoes de cada diretor,
observadas as disposicoes legais e estatutarias;
IX. autorizar a alienacao dos bens imoveis da Companhia;
X. fiscalizar a gestao dos diretores da Companhia, examinar, a
qualquer tempo, os livros da Companhia, solicitar informacoes
sobre contratos celebrados ou em via de celebracao ou sobre
quaisquer outros atos;
XI. escolher e destituir os auditores independentes;
XII. aprovar e alterar o Regimento Interno do Conselho;
XIII. conceder licenca e ferias aos membros do Conselho, indicando o
respectivo substituto;
XIV. aprovar a participacao da Companhia no capital de outras
empresas ou a cessacao dessa participacao, inclusive a
constituicao de empresas subsidiarias;
XV. autorizar a aquisicao de acoes de emissao da Companhia, para
efeito de cancelamento ou permanencia em tesouraria e
posterior alienacao;
XVI. autorizar a emissao de notas promissorias comerciais
("commercial papers");
XVII. executar outras atividades que lhe sejam cometidas pela lei,
pelo Estatuto, pela Assembleia Geral ou pelo Miisterio das
Comunicacoes.
Art. 21 - O Conselho de Administracao sera composto de 4 (quatro)
membros, ai incluidos um representante dos acionistas minoritarios eleito na
forma do art. 239 da Lei n 6.404/76 e outro representante do Ministro de Estado
do Planejamento e Orcamento.
Paragrafo Unico - Eleitos pela Assembleia Geral, os membros do
Conselho de Administracao terao mandato de 3 (tres) exercicios anuais,
considerando-se exercicio anual o periodo compreendido entre 2 (duas)
Assembleias Gerais Ordinarias.
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Art. 22 - Os membros do Conselho de Administracao, a excecao dos
representantes dos acionistas minoritarios e do representante do Ministro de
Estado do Planejamento e Orcamento, serao indicados pelo Ministro de Estado das
Comunicacoes, dentre brasileiros de notorios conhecimentos e experiencia,
idoneidade moral e reputacao ilibada, cabendo a um destes a presidencia do
Conselho.
Art. 23 - O substituto eventual do Presidente do Conselho de
Administracao sera escolhido pelo proprio Conselho de Administracao, entre os
seus membros que integrem a Diretoria.
Paragrafo Unico - No caso de ausencias ou impedimentos que obstem a
tomada de deliberacao, os Conselheiros presentes poderao convocar membros da
Diretoria para compor o Conselho.
Art. 24 - O Conselho de Administracao reunir-se-a, ordinariamente,
uma vez por mes e, extraordinariamente, mediante convocacao do Presidente ou de
2 (dois) Conselheiros, lavrando-se ata de suas deliberacoes.
Art. 25 - O Conselho de Administracao deliberara por maioria de
votos, presente a maioria de seus membros, tendo o Presidente, alem do voto
comum, o de qualidade e cabendo-lhe baixar os atos que consubstanciem essas
deliberacoes, quando for o caso.
SECAO III
DA DIRETORIA
Art. 26 - A Diretoria sera composta de 1 (um) Presidente e 1 (um)
Vice-Presidente.
Paragrafo Unico - Os membros do Conselho de Administracao, ate o
maximo de 1/3 (um terco), poderao ser eleitos para cargos de Diretores.
Art. 27 - Cabera ao Conselho de Administracao eleger os membros da
Diretoria, escolhendo obrigatoriamente o seu Presidente entre os membros do
Conselho.
Art. 28 - E de 3 (tres) exercicios anuais o mandato da Diretoria,
podendo seus membros ser reeleitos ou destituidos, a qualquer tempo.
Paragrafo Unico - Para os efeitos deste artigo, considera-se como
exercicio anual o periodo compreendido entre duas assembleias gerais ordinarias.
Art. 29 - Em suas ausencias e impedimentos, o Presidente sera
substituido pelo Vice-Presidente, independentemente de qualquer designacao e o
Vice-Presidente sera substituido pelo Presidente.
Art. 30 - Compete a Diretoria Colegiada:
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9
I. estabelecer politicas especificas e diretrizes decorrentes da
orientacao geral dos negocios fixada pelo Conselho de
Administracao;
II. aprovar convenios entre empresas controladas e entidades
prestadoras de servicos de telecomunicacoes e submeter a
Assembleia Geral, atraves do Conselho de Administracao, os
contratos referidos no art. 13, XVII, zelando para que as
sociedades controladas tambem o facam;
III. apreciar o orcamento e os planos gerais da Companhia,
submetendo-os a aprovacao do Conselho de Administracao;
IV. aprovar as propostas de empresas controladas relativas a
estrategia corporativa, as diretrizes gerais para a
organizacao, as diretrizes corporativas para o desenvolvimento
da estrategia de mercado e de rede, e ao plano de
investimentos e orcamento;
V. apresentar periodicamente ao Conselho de Administracao a
evolucao geral dos negocios da Companhia;
VI. aprovar a agenda de propostas da Companhia e de empresas
controladas, para negociacao com o orgao regulador;
VII. resolver sobre a participacao da Companhia no capital de
empresas concessionarias de servicos de telecomunicacoes, de
acordo com as atividades e areas de concessao da Companhia,
ouvido previamente o orgao regulador;
VIII. indicar os representantes da Companhia na administracao das
empresas de que participe;
IX. submeter ao Conselho de Administracao proposta de indicacao ou
destituicao de titular da Auditoria Interna;
X. propor os criterios de remuneracao dos Diretores, dos membros
do Conselho de Administracao e dos membros do Conselho Fiscal
de empresas controladas;
XI. propor ao Conselho de Administracao a alienacao dos bens
imoveis da Companhia e autorizar a alienacao dos demais bens
do ativo permanente, exceto quaisquer titulos ou valores
mobiliarios, no Pais ou no exterior;
XII. aprovar proposta ao Conselho de Administracao do Regimento da
Companhia com a respectiva estrutura organizacional e opinar
quanto as de suas controladas;
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XIII. autorizar a pratica de atos gratuitos razoaveis, em beneficio
dos empregados ou da comunidade, tendo em vista as
responsabilidades sociais da Companhia;
XIV. apreciar o Balanco Geral e demais demonstracoes financeiras e
o Relatorio Anual da Companhia, bem como a proposta de
destinacao de resultado, submetendo-os ao Conselho Fiscal, aos
Auditores Independentes e ao Conselho de Administracao;
XV. resolver sobre representacoes da Companhia em qualquer ponto
do territorio nacional e, ouvido o Conselho de Administracao,
no exterior;
XVI. submeter ao Ministro das Comunicacoes, para cada exercicio
social, ouvido o Conselho de Administracao, o plano de
aplicacao de recursos;
XVII. definir a competencia do Presidente, do Vice-Presidente e de
empregados para:
a) praticar atos que constituam ou alterem obrigacoes da
Companhia, bem como aqueles que desonerem terceiros para
com ela;
b) autorizar dispensas de licitacao e de aplicacao de
multas ou outras penalidades;
c) autorizar o pagamento de multas imputadas a Companhia,
bem como indagar as causas e estabelecer as medidas
administrativas que se fizerem necessarias;
d) aprovar aquisicoes;
e) aprovar propostas de progressao de empregados.
XVIII. aprovar proposta ao Conselho de Administracao do plano de
cargos e salarios, do regulamento de pessoal, o quadro de
pessoal e do plano de beneficios e vantagens da Companhia;
XIX. aprovar e submeter ao Ministro das Comunicacoes o seu Plano de
Cooperacao Internacional e os de empresas controladas;
XX. decidir sobre a operacionalizacao e a implementacao de seus
planos e programas relativos as atividades de treinamento e
administracao de recursos humanos;
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XXI. aprovar a contratacao de seguros de interesse da Companhia;
XXII. aprovar tabelas e respectivos reajustamentos das remuneracoes
e dos beneficios concedidos aos empregados e seus dependentes;
XXIII. deliberar sobre proposicoes relativas a administracao e
desenvolvimento de recursos humanos formuladas pelas suas
empresas controladas, incluindo os respectivos quadros de
pessoal;
XXIV. aprovar a abertura de contas em instituicoes financeiras e a
contratacao de emprestimos pela Companhia, no Pais e no
exterior, obedecida a legislacao em vigor;
XXV. aprovar a constituicao de onus reais sobre bens da Companhia,
para concessao de garantia em operacoes de credito da
Companhia e de empresas controladas;
XXVI. deliberar sobre financiamentos, emprestimos e concessao de
avais, fiancas e outras garantias semelhantes e repasse de
recursos as suas empresas controladas;
XXVII. aprovar proposta, a ser submetida a Agencia Nacional de
Telecomunicacoes - ANATEL, de reajuste das tarifas e precos
dos servicos de telecomunicacoes, de acordo com as atividades
e areas de concessao da Companhia;
XXVIII. aprovar normas para concessao, com interveniencia da
Companhia, de emprestimos aos empregados por instituicoes
financeiras;
XXIX. autorizar a alienacao, pelas empresas controladas, de bens do
ativo permanente vinculados a prestacao de servicos de
telecomunicacoes, de acordo com as atividades e areas de
concessao da Companhia, e a constituicao de onus reais sobre
eles;
XXX. deliberar sobre outros assuntos julgados como de competencia
coletiva da Diretoria, ou a ela atribuidos pelo Conselho de
Administracao.
COMPETENCIA DOS DIRETORES
Art. 31 - E a seguinte a competencia especifica de cada um dos
membros da Diretoria:
I - DO PRESIDENTE:
1. representar a Companhia em juizo ou fora dele, perante
as suas
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controladas, os acionistas e o publico em geral, podendo
nomear procuradores e designar prepostos;
2. exercer supervisao sobre todas as atividades da Empresa;
3. manter o Ministro das Comunicacoes e o Conselho de
Administracao permanentemente informados dos negocios da
Companhia e de controladas;
4. delegar competencia ao Vice-Presidente e a empregados
para a pratica de atos especificos;
5. baixar os atos que consubstanciem as resolucoes da
Diretoria, ou delas decorram;
6. designar representantes da Companhia nas assembleias de
empresas controladas e de outras de cujo capital
participe;
7. determinar a publicacao do Relatorio Anual das
Atividades da Companhia;
8. dirigir as atividades referentes ao gerenciamento da
regulamentacao, orientacao juridica e auditoria;
9. convocar as reunioes de Diretoria;
10. deliberar sobre pedidos de colocacao de empregados da
Companhia a disposicao do Ministerio das Comunicacoes,
do orgao regulador, de empresas controladas ou de orgaos
ou entidades cujo atendimento seja obrigatorio por lei
ou decreto federal, vedada a disposicao em quaisquer
outros casos, salvo afastamento, por no maximo 2 (dois)
anos, sem onus para a Companhia, cabendo a deliberacao
neste caso a Diretoria Colegiada;
11. acompanhar o cumprimento das diretrizes governamentais
relacionadas a atuacao da Companhia e de suas
controladas;
12. decidir sobre materia especifica de sua area de
competencia, em conformidade com as politicas e
diretrizes estabelecidas pela Diretoria Colegiada,
ressalvados os casos previstos no art. 30;
13. praticar atos de urgencia "ad referendum" da Diretoria.
II - DO VICE-PRESIDENTE:
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1. substituir o Presidente em suas ausencias e
impedimentos;
2. auxiliar o Presidente no desempenho das suas funcoes;
3. dirigir as atividades de coordenacao do planejamento e
desenvolvimento empresarial, no ambito da Companhia e de
suas controladas;
4. avaliar o desempenho das controladas;
5. administrar as participacoes acionarias da Companhia em
suas controladas;
6. elaborar o Relatorio Anual das Atividades da Companhia;
7. decidir sobre materia especifica de sua area de
competencia, em conformidade com as politicas e
diretrizes estabelecidas pela Diretoria Colegiada,
ressalvados os casos previstos no art. 30.
8. executar outras atividades delegadas pelo Presidente.
SECAO IV
DISPOSICOES COMUNS AOS ADMINISTRADORES
Art. 32 - Aos administradores da Companhia e vedado pertencer, sob
qualquer forma ou titulo, aos quadros dirigentes ou de empregados de empresas
fabricantes, fornecedoras de material, executoras de obras ou prestadoras de
servicos publicos de telecomunicacoes, exceto quando se tratar de empresa do
Sistema TELEBRAS.
Paragrafo Unico - E vedado aos administradores que integrem a
administracao ou o quadro de pessoal de outra empresa do Sistema TELEBRAS a
acumulacao de remuneracao, ressalvados casos especiais aprovados pelo Ministro
das Comunicacoes, ou de rateio, ou complementacao de remuneracao.
Art. 33 - Alem dos casos de morte, renuncia, destituicao e outros
previstos em lei, dar-se-a a vacancia do cargo quando o administrador deixar de
assinar o termo de investidura no prazo de 30 (trinta) dias de eleicao ou deixar
o exercicio da funcao por mais de 30 (trinta) dias consecutivos ou 90 (noventa)
intercalados durante o prazo do mandato, tudo sem justa causa, a juizo do
Conselho de Administracao.
ss. 1 - Ocorrendo a vacancia de cargo de conselheiro, a substituicao
se fara segundo o disposto no art. 23 deste Estatuto, ate a realizacao da
primeira Assembleia que eleger o novo titular para completar o mandato em curso.
ss. 2 - No caso de vacancia de 2/3 (dois tercos) dos cargos do
Conselho de
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Administracao, os membros remanescentes convocarao imediatamente a Assembleia
Geral.
(S) 3 - No caso de vacancia de cargo da Diretoria, o Conselho
promovera a eleicao do substituto para completar o mandato do substituido.
(S) 4 - A renuncia ao cargo de administrador e feita mediante
comunicacao escrita ao orgao a que o renunciante integrar, tornando-se eficaz, a
partir desse momento, perante a Companhia e, perante terceiros, apos o
arquivamento do documento de renuncia no registro do comercio e sua publicacao.
Art. 34 - A remuneracao dos administradores sera fixada pela
Assembleia Geral, global ou individualmente.
Paragrafo Unico - O empregado da Companhia ou de empresa do Sistema
TELEBRAS eleito administrador da Companhia podera optar por seu salario, segundo
criterios definidos pelo Conselho de Administracao.
CAPITULO V
CONSELHO FISCAL
Art. 35 - O Conselho Fiscal e o Orgao de fiscalizacao da
administracao da Companhia, devendo funcionar permanentemente.
Art. 36 - O Conselho Fiscal sera composto de 3 (tres) membros
efetivos e 3 (tres) suplentes, acionistas ou nao, eleitos pela Assembleia Geral,
sendo um dos membros efetivos e respectivo suplente indicados pelo Ministro da
Fazenda, como representantes do Tesouro Nacional, nao computados os eleitos
pelas acoes ordinarias minoritarias e pelas acoes preferenciais.
(S) 1 - Eleitos pela Assembleia Geral Ordinaria, os membros do
Conselho Fiscal terao o mandato de 1 (um) exercicio anual, assim considerado o
periodo compreendido entre 2 (duas) Assembleias Gerais Ordinarias, podendo ser
reeleitos.
(S) 2 - Os membros do Conselho Fiscal, em sua primeira reuniao,
elegerao o seu Presidente, a quem cabera dar cumprimento as deliberacoes do
orgao.
(S) 3 - O Conselho Fiscal podera solicitar a Empresa a designacao de
pessoal qualificado para secretaria-lo e prestar-lhe apoio tecnico.
Art. 37 - Ao Conselho Fiscal compete:
I. fiscalizar os atos dos administradores e verificar o
cumprimento dos seus deveres legais e estatutarios;
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II. opinar sobre o relatorio anual da administracao, fazendo
constar do seu parecer as informacoes complementares que
julgar necessarias ou uteis a deliberacao da Assembleia Geral;
III. opinar sobre as propostas dos orgaos da administracao, a serem
submetidas a Assembleia Geral, relativas a modificacao do
capital social, emissao de debentures ou bonus de subscricao,
planos de investimento ou orcamentos de capital, distribuicao
de dividendos, transformacao, incorporacao, fusao ou cisao;
IV. denunciar aos orgaos de administracao e, se estes nao tomarem
as providencias necessarias para a protecao dos interesses da
Companhia, a Assembleia Geral, os erros, fraudes ou crimes que
descobrir e sugerir providencias uteis a Companhia;
V. convocar a Assembleia Geral Ordinaria, se os orgaos da
administracao retardarem por mais de 1 (um) mes essa
convocacao, e a extraordinaria, sempre que ocorrerem motivos
graves ou urgentes, incluindo na ordem do dia das assembleias
as materias que considerar necessarias;
VI. analisar, ao menos trimestralmente, o balancete e demais
demonstracoes financeiras elaboradas periodicamente pela
Companhia;
VII. examinar as demonstracoes financeiras do exercicio social e
sobre elas opinar;
VIII. exercer as atribuicoes previstas em lei ou definidas pela
Assembleia Geral, no caso de liquidacao da Companhia.
Art.38 - O Conselho Fiscal se reunira, ordinariamente, uma vez por
mes e, extraordinariamente, quando necessario.
(S) 1 - As reunioes serao convocadas pelo Presidente da Companhia ou
por qualquer dos membros do Conselho.
(S) 2 - O Conselho se manifesta por maioria de votos, presente a
maioria dos seus membros.
Art. 39 - Os membros do Conselho Fiscal serao substituidos, em suas
faltas e impedimentos, pelo respectivo suplente.
Art. 40 - Alem dos casos de morte, renuncia, destituicao e outros
previstos em lei, dar-se-a a vacancia do cargo quando o membro do Conselho
Fiscal deixar de comparecer, sem justa causa, a 2 (duas) reunioes consecutivas
ou 3 (tres) intercaladas,
<PAGE>
16
no exercicio anual.
(S) 1 - Ocorrendo a vacancia do cargo de membro do Conselho, a
substituicao se fara na forma do disposto no art. 39 deste Estatuto.
(S) 2 - Vagando mais da metade dos cargos e nao havendo suplentes a
convocar, a Assembleia Geral sera convocada para eleger os seus substitutos.
Art. 41 - A remuneracao dos membros do Conselho Fiscal sera fixada
pela Assembleia Geral Ordinaria que os eleger, e nao podera ser inferior, para
cada membro em exercicio, a um decimo da que, em media, for atribuida a cada
membro da Diretoria, nao computada a participacao nos lucros.
(S) 1 - A remuneracao sera paga de forma como o for aos membros da
Diretoria.
(S) 2 - O suplente em exercicio fara jus a remuneracao do efetivo,
no periodo em que ocorrer a substituicao, contado mes a mes.
CAPITULO VI
DO EXERCICIO SOCIAL E DAS DEMONSTRACOES FINANCEIRAS
Art. 42 - O exercicio social tera a duracao de 12 (doze) meses,
iniciando-se a 1 (primeiro) de janeiro de cada ano e terminando no ultimo dia do
mes de dezembro.
Art. 43 - Juntamente com as demonstracoes financeiras, os orgaos da
administracao da Companhia apresentarao a Assembleia Geral Ordinaria proposta
sobre a participacao dos empregados nos lucros, nas bases e condicoes
autorizadas pelo Conselho de Coordenacao e Controle das Empresas Estatais - CCE,
e sobre a destinacao do lucro liquido do exercicio.
(S) 1 - Os lucros liquidos terao a seguinte destinacao:
a) 5% (cinco por cento) para a reserva legal, ate atingir 20% (vinte
por cento) do capital social integralizado;
b) 25% (vinte e cinco por cento) do lucro liquido ajustado na forma
dos incisos II e III do art. 202 da Lei n 6.404/76 serao
obrigatoriamente distribuidos como dividendos minimo obrigatorio a
todos os acionistas, respeitado o disposto no artigo seguinte, sendo
este valor aumentado ate o montante necessario para o pagamento do
dividendo prioritario das acoes preferenciais.
(S) 2 - O saldo do lucro liquido nao alocado ao pagamento do
dividendo minimo obrigatorio ou ao dividendo prioritario das acoes preferenciais
sera destinado a uma reserva suplementar para expansao dos negocios sociais, que
nao podera ultrapassar 80% (oitenta por cento) do capital social. Atingido este
limite, cabera a Assembleia Geral deliberar sobre o saldo, procedendo a sua
distribuicao aos acionistas
<PAGE>
17
ou ao aumento do capital social.
Art. 44 - O valor correspondente ao dividendo minimo obrigatorio
sera destinado prioritariamente ao pagamento do dividendo prioritario das acoes
preferenciais ate o limite da preferencia; a seguir, serao pagos aos titulares
de acoes ordinarias ate o mesmo limite das acoes preferenciais; o saldo, se
houver, sera rateado por todas as acoes, em igualdade de condicoes.
(S) 1 - Os valores dos dividendos ou dos lucros ou dos resultados,
que sao devidos ao Tesouro Nacional e aos demais acionistas, sofrerao incidencia
de encargos financeiros equivalentes a Taxa Referencial (TR), a partir da data
do encerramento do exercicio social e ate a data do seu efetivo recolhimento ao
Tesouro Nacional e a distribuicao aos demais acionistas.
(S) 2 - Salvo deliberacao em contrario da Assembleia Geral, os
dividendos serao pagos "pro rata" dia, subsequente ao da realizacao do capital.
(S) 3 - Os orgaos da administracao poderao pagar ou creditar juros
sobre o capital proprio nos termos do (S) 7 do artigo 9 da Lei 9.249/95, de
26/12/95 e legislacao e regulamentacao pertinentes, ate o limite dos dividendos
minimos obrigatorios de que trata o artigo 202, da Lei 6404/76, os quais serao
imputados a esses mesmos dividendos, mesmo quando incluidos no dividendo minimo
das acoes preferenciais.
(S) 4 - Os dividendos nao reclamados no prazo de 3 (tres) anos
reverterao em favor da Companhia.
CAPITULO VII
DA LIQUIDACAO DA COMPANHIA
Art. 45 - A Companhia entrara em liquidacao nos casos previstos em
lei, ou por deliberacao da Assembleia Geral, que estabelecera a forma da
liquidacao, elegera o liquidante e instalara o Conselho Fiscal, para o periodo
da liquidacao, elegendo seus membros e fixando-lhes as respectivas remuneracoes.
CAPITULO VIII
DISPOSICOES GERAIS E TRANSITORIAS
Art. 46 - A aprovacao, pela Companhia, atraves de seus
representantes, de operacoes de fusao, cisao, incorporacao ou dissolucao de suas
controladas sera precedida de analise economico-financeira por empresa
independente, de renome internacional, confirmando estar sendo dado tratamento
equitativo a todas as sociedades interessadas, cujos acionistas terao amplo
acesso ao relatorio da citada analise.
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18
Art. 47 - Vindo a Companhia a ser desestatizada, nos termos dos
artigos 188 a 195 da Lei n 9.472 de 16 de julho de 1997, e sem prejuizo de
outras modificacoes que venham a ser deliberadas apos a referida desestatizacao:
I - estarao revogados de pleno direito:
a) o art. 21 (no tocante a eleicao de membros do Conselho
de Administracao na forma do art. 239 da Lei no.
6.404/76 e por indicacao dos Ministros de Estado das
Comunicacoes e do Planejamento e Orcamento);
b) o art. 22;
c) os incisos XVI, XVII, letra "b" (esta ultima quanto a
dispensa de licitacao) e XIX (quanto a submissao ao
Ministro das Comunicacoes do Plano de Cooperacao
Internacional) do art. 30;
d) o art. 31, inciso I, numeros 3 (quanto a referencia ao
Ministro das Comunicacoes) e 10;
e) o art. 32 e seu Paragrafo unico;
f) o Paragrafo unico do art. 34;
g) o art. 43 (no tocante a referencia ao CCE); e
h) os (S)(S) l e 2 do art. 44.
II - o Conselho Fiscal passara a ser composto de 3 (tres) a 5
(cinco) membros efetivos e igual numero de suplentes, deixando
de vigorar a referencia constante do artigo 36 a indicacao de
Conselheiro Fiscal pelo Ministro da Fazenda, e mantendo-se o
seu carater permanente.
Confere com o original lavrado em livro proprio.
- ----------
Raimunda Nonata Pires
Secretaria
Visto do advogado:
<PAGE>
EXHIBIT 1.2
CHARTER OF
TELESP PARTICIPACOES S.A.
CHAPTER I
CHARACTERISTICS OF THE COMPANY
Art. 1 TELESP PARTICIPACOES S.A., a corporation, is subject to the
jurisdiction of the Ministry of Communication and is the controlling shareholder
of Companies providing public fixed-line telephone services in Region III, as
referred to in the General Concession Plan approved by Decree No. 2,543 of
April 2, 1998.
Sole Paragraph The Company is governed by the Corporation Law, special
provisions of federal law, telecommunications legislation, this Charter,
commercial law and practices and other applicable legal provisions.
Art. 2 The purposes of the Company are:
I. to exercise control over the companies providing public fixed-line
telephone services in Region III, as referred to in the General
Concession Plan approved by Decree No. 2,543 of April 2, 1998;
II. to promote, through subsidiaries or affiliates, the expansion and
establishment of fixed-line telephone services in its concession
area;
III. to promote, carry out or direct the acquisition of funds from
external sources to by used by the Company or by its subsidiaries;
IV. to promote and foster study and research activities aimed at the
development of the fixed-line telephone sector;
V. to provide, through subsidiaries or affiliates, specialized
technical services in the fixed-line telephone sector;
VI. to promote, foster, and coordinate, through its subsidiaries or
affiliates, the education and training of the personnel required
in the fixed-line telephone sector;
VII. to carry out and promote the importation of goods and services for
its subsidiaries or affiliates;
VIII. to carry out other activities that are similar or related to its
corporate purposes; and
IX. to invest in shares of other companies.
Art. 3 The principal office of the Company is situated in the Federal
District, and the Company may, by decision of the Board of Directors, open or
close subsidiaries, agencies, branches, offices, departments and representative
offices anywhere in Brazil or abroad.
<PAGE>
2
Art. 4 The duration of the Company is indefinite.
CHAPTER II
CORPORATE CAPITAL
Art. 5 The corporate capital, fully subscribed and paid in, is
R$3,236,420,616.47 (three billion, two hundred thirty six million, four hundred
twenty thousand, six hundred sixteen reais and forty seven centavos),
represented by 334,399,027,592 (three hundred thirty four billion, three hundred
ninety nine million, twenty seven thousand, five hundred and ninety two) shares,
consisting of 124,369,030,532 (one hundred twenty four billion, three hundred
sixty nine million, thirty thousand, five hundred and thirty two) registered
common shares and 210,029,997,060 (two hundred ten billion, twenty nine million,
nine hundred ninety seven thousand and sixty) registered preferred shares, all
without par value.
Art. 6 The Company is authorized to increase its capital, by decision of
the Meeting of Shareholders, up to 700,000,000,000 (seven hundred billion)
shares of common or preferred stock.
Sole Paragraph Within the limit on the authorized capital provided for
herein, the Meeting of Shareholders may grant stock purchase options to its
managers and employees and to individuals who perform services on behalf of the
Company or its subsidiaries.
Art. 7 The corporate capital is represented by common and preferred
shares, without par value, and the Company is not required to maintain the
proportions of common and preferred shares when the corporate capital is
increased, subject to applicable law and this Charter.
Art. 8 The shareholders may decide to eliminate preemptive rights to
subscribe to shares, convertible debentures and subscription rights that are to
be:
I. placed by public issue or sale on a stock exchange;
II. exchanged for shares in a public offer for acquisition of control,
as provided in Arts. 257 and 263 of the Corporation Law; or
III. issued to take advantage of tax incentives, as provided by special
law.
Art. 9 Each common share is entitled to one vote at meetings of
shareholders.
Art. 10 Preferred shares are not entitled to voting rights except as
provided in the sole paragraph of Art. 13 of this Charter but are entitled to
priority in the repayment of corporate capital, without premium, and in the
payment of minimum non-cumulative dividends of 6% (six percent) per year, on the
amount computed by dividing the corporate capital by the total number of shares
of the Company.
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3
Sole Paragraph Preferred shares will become entitled to vote if the
Company fails to pay the minimum dividends as provided herein for a period of 3
(three) consecutive years.
Art. 11 Shares of the Company shall be in book entry form, shall be
held on deposit, with a financial institution in the names of the owners and
shall not be certificated.
CHAPTER III
MEETINGS OF SHAREHOLDERS
Art. 12 The Meeting of Shareholders is the highest body of the Company,
with the power to make decisions regarding all matters related to the corporate
purposes and to take the steps that is deems advisable for the protection and
development of the Company.
EXCLUSIVE POWERS
Art. 13 Only the Meeting of Shareholders shall have the power:
I. to amend this Charter;
II. to authorize the issuance of debentures or convertible debentures,
or sell them from treasury, or to authorize the sale of
convertible debentures of subsidiaries owned by the Company; the
Meeting of Shareholders may delegate to the Board of Directors the
power to decide on maturity and repayment and redemption terms,
the interest terms and timing of interest payments, equity
participations, and redemption premiums, if any, and the method of
subscription or placement, as well as the type of debentures;
III. to consider appraisals of assets being contributed by shareholders
to the Company's capital;
IV. to decide on changes of corporate form, mergers, consolidations
and split-ups of the Company and its dissolution and liquidation,
and to appoint liquidators, remove them from office and approve
their accounts;
V. to authorize the issuance of guaranties by the Company of
obligations of third parties other than its subsidiaries;
VI. to suspend the rights of shareholders who do not comply with
obligations imposed by law or this Charter;
VII. to elect members of the Board of Directors and members of the
Statutory Audit Committee and remove them from office at any time;
VIII. to decide on the aggregate or individual compensation of the
members of the Board of Directors, the Executive Officers, and the
members of the Statutory Audit Committee;
<PAGE>
4
IX. to receive the annual accounts from management and decide on the
financial statements that they submit;
X. to decide on the institution by the Company of proceedings against
members of management for damages caused to its assets, as
provided in Art. 159 of the Corporation Law;
XI. to authorize the disposition, in whole or in part, of shares of a
subsidiary;
XII. to decide on increases in capital through the issuance of new
shares;
XIII. to authorize waivers of rights to subscribe to shares or
convertible debentures of its subsidiaries;
XIV. to decide on the issuance of any other instruments or securities,
in Brazil or abroad;
XV. to authorize the exchange of shares or other securities;
XVI. to decide on the issuance of shares and subscription rights within
the limits of the authorized capital, as provided by law and in
this Charter; and
XVII. to approve before execution any long-term contracts between the
Company or its subsidiaries, on the one hand, and the controlling
shareholder or subsidiaries, affiliates, entities under common
control or controlling shareholders of the latter, or companies
that are otherwise related parties with respect to Company, on the
other hand, except when the contracts consist of standard forms.
Sole Paragraph Without prejudice to the provisions of (S) 1 of Art. 115
of Law No. 6,404/76, preferred shareholders shall have the right to vote on
decisions taken at Meetings of Shareholders of the kind referred to in item XVII
of this article, as well as those relating to the amendment or revocation of the
following provisions of this Charter:
I. item XVII of Art. 13;
II. the sole paragraph of Art. 14; and
III. Art. 46.
Art. 14 Meetings of Shareholders shall be called by the Board of
Directors, and minutes of meetings shall be approved by the Chairman or as
provided in the Sole Paragraph of Art. 123 of Law No. 6,404/76.
Sole Paragraph In the cases provided for in Art. 136 of Law No.
6,404/76, the first notice of the Meeting of Shareholders shall be given at
least 30 (thirty) days in advance and the second notice shall be given at least
10 (ten) days in advance.
Art. 15 The Meeting of Shareholders shall be opened by the President of
the Company and shall proceed to the election of the officers of the meeting,
consisting of a chairman and a secretary selected from among the shareholders
present at the meeting.
<PAGE>
5
Art. 16 Minutes of Meetings of Shareholders shall be prepared and shall be
signed by the officers and by shareholders present at the meeting who represent
at least the minimum required for the decisions made.
(S) 1 The minutes shall be prepared in summary factual form and shall
reflect dissenting opinions and protests.
(S) 2 Unless the meeting decides to the contrary, the minutes shall be
published without the signatures of the shareholders.
Art. 17 An Annual Meeting of Shareholders shall be held within four months
of the end of each fiscal year for the purpose of:
I. receiving the accounts of management and reviewing, discussing and
voting on the financial statements;
II. deciding on the allocation of the net profits for the fiscal year and
the distribution of dividends; and
III. electing the members of the Statutory Audit Committee and, when
applicable, the members of the Board of Directors.
Art. 18 A Special Meeting of Shareholders shall held whenever the
interests of the Company so require.
CHAPTER IV
MANAGEMENT OF THE COMPANY
SECTION I
MANAGEMENT BODIES
BOARD OF DIRECTORS
Art. 19 The Company shall be managed by the Board of Directors and by the
Executive Officers.
(S) 1 - The Board of Directors, acting as a collegiate body, shall be
responsible for managing the policies of the Company.
(S) 2 - The Board of Executive Officers is the executive body for corporate
management, with each Executive Officer acting in accordance with his or her
powers.
(S) 3 - The authority and powers conferred by law upon each of the
management bodies may not be granted to any other body.
SECTION II
BOARD OF DIRECTORS
<PAGE>
6
Art. 20 The Board of Directors shall:
I. set the general business policy of the Company and ensure the
execution thereof;
II. call Meetings of Shareholders;
III. approve and submit to the Meeting of Shareholders the financial
statements and the report of management, including the
consolidated financial statements;
IV. elect the Company's Executive Officers and remove them from office
at any time, and establish their powers, in accordance with
applicable law and the provisions of this Charter;
V. approve, on the basis of a recommendation of the Board of
Executive Officers, the appointment or removal from office of the
Internal Auditor;
VI. approve the general plans of the Company;
VII. decide on the terms for the issuance of debentures, by delegation
of the Meeting of Shareholders;
VIII. approve the Internal Regulations of the Company, define its
organizational structure and specify the powers of each Executive
Officer, in accordance with applicable law and the provisions of
this Charter;
IX. authorize disposals of real property of the Company;
X. supervise the management of the Company by the Executive Officers;
examine the Company's books at any time; and request information
regarding contracts that have been concluded or that are in the
process of being concluded, or any other documents;
XI. appoint the independent auditors and remove them from office;
XII. approve or amend the Internal Regulations of the Board;
XIII. grant leaves of absence and vacations to members of the Board,
indicating the respective alternates;
XIV. approve equity investments by the Company in other companies and
disposals thereof, including the formation of subsidiaries;
XV. authorize purchases of shares of the Company for cancellation or
retention in treasury and subsequent disposal;
XVI. authorize the issuance of commercial paper; and
XVII. carry out other activities assigned to it by law, by this Charter,
by the Meeting of Shareholders or by the Ministry of
Communications;
Art. 21 The Board of Directors shall be composed of 4 (four) members,
including a representative of minority shareholders elected in accordance with
Art. 239 of Law No. 6,404/76 and a representative of the Minister of State for
Planning and Budget.
<PAGE>
7
Sole Paragraph The members of the Board of Directors shall be elected by
the Meeting of Shareholders for a term of 3 (three) years, a year consisting of
the period between 2 (two) Annual Meetings of Shareholders.
Art. 22 The members of the Board of Directors, except the representatives
of minority shareholders and of the Minister of State for Planning and Budget,
shall be appointed by the Minister of State for Communications and shall be
Brazilians of recognized knowledge and experience, moral integrity, and
unblemished reputation, one of whom shall be designated as Chairman of the
Board.
Art. 23 The alternate Chairman of the Board, if any, shall be selected by
the Board of Directors itself from among its members who are also Executive
Officers.
Sole Paragraph In the event of absences or abstentions that prevent a
decision from being made, the Board members present at the meeting may call upon
on Executive Officers to join the Board.
Art. 24 The Board of Directors shall hold a regular meeting once a month
and shall hold special meetings when they are called by the Chairman or by 2
(two) members of the Board of Directors, and minutes of meetings shall be
prepared.
Art. 25 The Board of Directors shall act by majority vote, with a majority
of the members present; the Chairman shall have a casting vote in addition to
his regular vote, and he shall be responsible for approving the minutes of
meetings, as necessary.
SECTION III
BOARD OF EXECUTIVE OFFICERS
Art. 26 The Board of Executive Officers shall consist of 1 (one) President
and 1 (one) Vice President.
Sole Paragraph Up to 1/3 (one third) of the members of the Board of
Directors may be elected as Executive Officers.
Art. 27 The Executive Officers shall be elected by the Board of Directors;
the President must be chosen from among the members of the Board.
Art. 28 The term of the Board of Executive Officers shall be 3 (three)
years, and the Executive Officers shall be eligible for reelection and may be
removed from office at any time.
Sole Paragraph For the purposes of this article, a year shall consist of
the period between two Annual Meetings of Shareholders.
Art. 29 In the event of absences or impediments, the President shall be
automatically replaced by the Vice President, and the Vice President shall be
replaced by the President.
<PAGE>
8
Art. 30 The Board of Executive Officers shall have the power:
I. to establish specific policies and guidelines within the general
business policies established by the Board of Directors;
II. to approve agreements between its subsidiaries and entities that
provide telecommunications services and to submit to the Meeting
of Shareholders, through the Board of Directors, contracts of the
kind referred to in Art. 13, XVII, and to ensure that its
subsidiaries do the same;
III. to evaluate the budget and general plans of the Company and submit
the budget and plans to the Board of Directors for approval;
IV. to approve proposals of its subsidiaries relating to corporate
strategy, general organizational guidelines, corporate guidelines
for developing market and network strategies, capital investment
plans and budgets;
V. to report periodically to the Board of Directors on the general
progress of the Company's business;
VI. to approve lists of proposals of the Company and its subsidiaries
for negotiations with the regulatory agency;
VII. to decide on investments by the Company in telecommunications
services concessionaires in accordance with the activities and
concession areas of the Company, after consultation with the
regulatory agency;
VIII. to appoint representatives of the Company to participate in the
management of companies in which it has invested;
IX. to submit to the Board of Directors proposals regarding the
appointment or removal from office of the Internal Auditor;
X. to propose compensation criteria for the executive officers,
members of the boards of directors and members of statutory audit
committees of its subsidiaries;
XI. to make proposals to the Board of Directors regarding disposals of
real property of the Company, and to authorize the disposal of
other permanent assets, with the exception of instruments or
securities, in Brazil or abroad;
XII. to approve proposals of the Board of Directors regarding the
Internal Regulations of the Company and the related organizational
structure, and to express views on those of the Company's
subsidiaries;
<PAGE>
9
XIII. to authorize reasonable contributions for the benefit of employees
or the community, bearing in mind the Company's social
responsibilities;
XIV. to evaluate the balance sheet and the other financial statements
and the Company's Annual Report, and to make recommendations
regarding distributions of profits, submitting them to the
Statutory Audit Committee, the Independent Auditors and the Board
of Directors;
XV. to decide on representative offices of the Company anywhere in
Brazil or abroad, after consultation with the Board of Directors;
XVI. to submit to the Minister of Communications an investment plan for
each fiscal year, after consultation with the Board of Directors;
XVII. to define the powers of the President, Vice President and
employees:
a) to take actions that create or amend obligations of the
Company, and those that release third parties;
b) to authorize exemptions from bidding rules and the
application of fines or other penalties;
c) to authorize the payment of fines imposed on the Company, and
to investigate the causes and implement any necessary
administrative measures;
d) to approve purchases; and
e) to approve proposals relating to promotions of employees;
XVIII. to approve proposals to the Board of Directors regarding the
chart of staff positions and salaries, work rules, the workforce
chart, and the Company's employee benefits plan;
XIX. to approve and submit to the Ministry of Communications the
Company's International Cooperation Plan and those of its
subsidiaries;
XX. to decide on the structuring and implementation of training and
human resources management plans and programs;
XXI. to approve purchases of insurance for the Company;
XXII. to approve pay schedules and adjustments and benefits granted to
employees and their families;
XXIII. to decide on proposals regarding the management and development
of human resources that are formulated by its subsidiaries,
including those concerning workforce charts;
<PAGE>
10
XXIV. to approve the opening of accounts with financial institutions
and borrowings by the Company, in Brazil or abroad, in
accordance with applicable law;
XXV. to approve the creation of liens on property of the Company to
secure financings of the Company and its subsidiaries;
XXVI. to decide on financings, borrowings, and the granting of
sureties, bonds and other similar guaranties and the relending
of funds to its subsidiaries;
XXVII. to approve proposals, to be submitted to the National
Telecommunications Agency ANATEL (Agencia Nacional de
Telecomunicacoes ANATEL), for the adjustment of tariffs and
prices for telecommunications services in accordance with the
activities and the concession areas of the Company;
XXVIII. to approve rules for the extension of loans to employees by
financial institutions with the participation of the Company;
XXIX. to authorize the disposal, by the Company's subsidiaries, of
permanent assets used in providing telecommunications services
in accordance with the activities and concession areas of the
Company and the constitution of liens on such assets; and
XXX. to decide on other matters deemed to be under the collective
jurisdiction of the Board of Executive Officers, or matters
referred by the Board of Directors.
POWERS OF THE MEMBERS OF THE EXECUTIVE OFFICERS
Art. 31 The specific powers of each member of the Board of Executive
Officers are as follows:
I PRESIDENT:
1. to represent the Company in court or otherwise, vis-a-vis its
subsidiaries, the shareholders and the general public, with power to
appoint attorneys in fact or name representatives;
2. to supervise the Company's activities;
3. to keep the Minister of Communications and the Board of Directors
informed at all times on the business of the Company and its
subsidiaries;
4. to delegate authority to the Vice President and to employees to
carry out specific actions;
5. to draw up documents that reflect the decisions of the Board of
Executive Officers or that derive from those decisions;
<PAGE>
11
6. to appoint persons to represent the Company at meetings of
shareholders of subsidiaries and of other companies in which it has
an equity interest;
7. to authorize the publication of the Annual Report on the Company's
Activities;
8. to direct activities related to the management of regulations, legal
advice and auditing;
9. to call meetings of the Board of Executive Officers;
10. to decide on requests to second employees of the Company to the
Ministry of Communications, the regulatory agency, subsidiaries, or
bodies or entities entitled by law or federal decree to request
secondment (secondment being prohibited in all other cases unless
the employee leaves the Company's employ), for a maximum of 2 (two)
years, without cost to the Company, such cases to be decided on by
the Board of Executive Officers;
11. to supervise compliance with governmental guidelines related to the
activities of the Company and its subsidiaries;
12. to decide on matters within his jurisdiction, in accordance with the
policies and guidelines established by the Board of Executive
Officers, with the exception of the cases referred to in Art. 30;
and
13. to carry out emergency actions referred to him by the Board of
Executive Officers.
II VICE PRESIDENT:
1. to replace the President in the event of absence or impediment;
2. to assist the President in the performance of his duties;
3. to direct the coordination of business planning and development for
the Company and its subsidiaries;
4. to evaluate the performance of its subsidiaries;
5. to administer the Company's shareholdings in its subsidiaries;
6. to draft the Annual Report on the Company's Activities;
7. to decide on matters within his jurisdiction, in accordance with the
policies and guidelines established by the Board of Executive
Officers, with the exception of the cases referred to in Art. 30;
and
8. to carry out other tasks delegated to him by the President.
SECTION IV
PROVISIONS COMMON TO MEMBERS OF MANAGEMENT
<PAGE>
12
Art. 32 Members of the Company's management are prohibited from belonging,
in any manner whatsoever, to the management or staffs of manufacturing
companies, equipment suppliers, contractors or service providers, other than
TELEBRAS System companies.
Sole Paragraph Members of management who are also part of the management
or staff of other TELEBRAS System companies are prohibited from receiving double
compensation, with the exception of special cases approved by the Minister of
Communications, or pro rata apportionment or supplemental compensation.
Art. 33 Besides cases of death, resignation and removal from office and
other cases provided for by law, a position shall be deemed vacant when a member
of management fails to take office within 30 (thirty) days after his election or
fails to perform his duties for more than 30 (thirty) consecutive days or a
total of 90 (ninety) days during the term of office without just cause in the
opinion of the Board of Directors.
(S) 1 - Board vacancies shall be filled as provided in Art. 32 of this
Charter until the next Meeting of Shareholders, at which time a new member shall
be elected to complete the current term.
(S) 2 - If 2/3 (two thirds) of the positions of the Board positions
become vacant, the remaining members shall immediately call a Meeting of
Shareholders.
(S) 3 - In the event of a vacancy in an Executive Officer position, the
Board shall elect a replacement to complete the member's term.
(S) 4 - Resignation from a management position shall be accomplished by
written notice to the body to which the resigning party belongs and shall be
effective vis-a-vis the Company at that time, and vis-a-vis third parties after
the notice of resignation is filed with the commercial registry and published.
Art. 34 The compensation of members shall be determined in the aggregate
or individually by the Meeting of Shareholders.
Sole Paragraph An employee of the Company or of a TELEBRAS System company
who is elected as a member of management of the Company may opt to continue to
be paid his salary, in accordance with criteria established by the Board of
Directors.
CHAPTER V
STATUTORY AUDIT COMMITTEE
Art. 35 The Statutory Audit Committee is the body that audits the
management of the Company, and it shall function on a permanent basis.
Art. 36 The Statutory Audit Committee shall be composed of 3 (three)
regular members and 3 (three) alternates, who need not be shareholders, elected
by the Meeting
<PAGE>
13
of Shareholders; one of the regular members and his alternate shall be named by
the Minister of Finance, as representative of the National Treasury, in addition
to those elected by minority shareholders of common and by the preferred shares.
(S) 1 - The members of the Statutory Audit Committee shall be elected at
the Annual Meeting of Shareholders for a term of 1 (one) year, consisting of the
period between two Annual Meetings of Shareholders, and they shall be eligible
for reelection.
(S) 2 - At the first meeting of the members of the Statutory Audit
Committee, they shall elect a Chairman, who shall be responsible for
implementing the decisions of the committee.
(S) 3 - The Statutory Audit Committee may ask the Company to appoint
qualified personnel to act as secretary and to provide technical support.
Art. 37 The duties of the Statutory Audit Committee shall be:
I. to audit the actions of management and verify compliance with
the requirements of law and this Charter;
II. to provide opinions regarding the annual report of management,
indicating any additional information that it deems necessary or
useful for the Meeting of Shareholders;
III. to provide opinions regarding the proposals of the management
bodies to be submitted to the Meeting of Shareholders, regarding
changes to the corporate capital, the issuance of debentures or
subscription rights, capital investment plans and budgets,
distributions of dividends, changes in corporate form,
consolidations, mergers or split-ups;
IV. to report to the management bodies and, if the latter do not
take the necessary steps to protect the interests of the
Company, to the Meeting of Shareholders, on any errors, frauds,
or crimes that it discovers and to recommend necessary steps to
the Company;
V. to call the Annual Meeting of Shareholders if the management
bodies delay in calling it for more than 1 (one) month, and to
call a special meeting if serious or urgent reasons exist,
including in the agendas of the meetings the matters that it
deems necessary;
VI. to analyze, not less frequently than quarterly, the interim
balance sheet and other financial statements prepared
periodically by the Company;
VII. to examine the financial statements for the fiscal year and
provide an opinion regarding them; and
VIII. to carry out the duties stipulated by law or defined by the
Meeting of Shareholders in the event of the liquidation of the
Company.
Art. 38 The Statutory Audit Committee shall hold a regular meeting once
a month and shall hold special meetings as necessary.
<PAGE>
14
(S) 1 - Meetings shall be called by the President of the Company or by
any member of the Committee.
(S) 2 - The Committee shall act by majority vote, with a majority of the
members present.
Art. 39 Each member of the Statutory Audit Committee shall be replaced,
in the event of absence or impediments, by the respective alternate member.
Art. 40 Besides cases of death, resignation and removal from office and
other cases provided for by law, a position shall be deemed vacant when a member
of the Statutory Audit Committee fails, without just cause, to attend 2 (two)
consecutive meetings or a total of 3 (three) meetings during a year.
(S) 1 - Vacancies shall be filled as provided in Art. 39 of this
Charter.
(S) 2 - If more than half of the positions become vacant and there are
no alternates to meet, a Meeting of Shareholders shall be called to elect
replacements.
Art. 41 The compensation of the members of the Statutory Audit Committee
shall be determined by the Meeting of Shareholders that elects them, and it
shall not be less, for each active member, than one tenth, on average, of the
compensation of each Executive Officer, not including profit sharing.
(S) 1 - The compensation shall be paid in the same manner as that of the
Executive Officers.
(S) 2 - Active alternate members shall be entitled to compensation
during the periods in which they act as replacements, counting from month to
month.
CHAPTER VI
FISCAL YEAR AND FINANCIAL STATEMENTS
Art. 42 The fiscal year shall have a duration of 12 (twelve) months,
beginning on the 1st (first) of January of each year and ending on the last day
of December.
Art. 43 Along with the financial statements, the management bodies of
the Company shall submit to the Meeting of Shareholders proposals regarding the
employees' share in the profits, on the terms and conditions authorized by the
Council for Coordination and Supervision of State-Owned Companies CCE (Conselho
de Coordenacao e Controle das Empresas Estatais CCE), and regarding the
distribution of the net profits for the year.
(S) 1 - The net profits shall be allocated as follows:
a) 5% (five percent) to the legal reserve, up to 20% (twenty
percent) of the paid-in capital; and
<PAGE>
15
b) 25% (twenty five percent) of the net profits adjusted in
accordance with items II and III of Art. 202 of Law No. 6,404/76
shall be distributed as minimum mandatory dividends to all
shareholders, in accordance with the provisions of the following
article, and this amount shall be increased until it equals the
amount to be paid as preferred dividends on the preferred
shares.
(S) 2 - The balance of the net profits not allocated to the payment of
the minimum mandatory dividend or the preferred dividends on preferred shares
shall be allocated to an additional reserve for expansion of the Company's
businesses, which may not exceed 80% (eighty percent) of the corporate capital.
Once this limit is reached, the Meeting of Shareholders shall allocate the
balance, proceeding with distributions to the shareholders or an increase in the
corporate capital.
Art. 44 The minimum mandatory dividend amount shall be allocated first
to payment of the preferred dividends on preferred shares, up to the preferred
limit, and thereafter by payments to the holders of common shares up to the same
limit as the preferred shares. The balance, if any, shall be paid pro rata to
all the shares on equal terms.
(S) 1 - Amounts owed to the National Treasury and the remaining
shareholders as dividends or profits or earnings shall bear interest at a rate
equal to the Reference Rate (Taxa Referencial TR), beginning at the close of the
fiscal year and ending on the date of actual payment to the National Treasury
and distribution to the remaining shareholders.
(S) 2 - Unless otherwise decided by the Meeting of Shareholders, the
dividends shall be paid pro rata on a daily basis counting from the date shares
are paid in.
(S) 3 - The management bodies are authorized to pay or credit interest
on capital as provided in (S) 7 of Article 9 of Law 9,249/95 of 12/26/95 and
applicable law and regulations, up to the limit of the minimum mandatory
dividends provided for in Article 202 of Law 6,406/76, which shall be credited
against said dividends, even when included in the minimum dividend for preferred
shares.
(S) 4 - Dividends not claimed within 3 (three) years shall revert to the
Company.
CHAPTER VII
LIQUIDATION OF THE COMPANY
Art. 45 The Company shall be liquidated in the cases provided for by law,
or by decision of the Meeting of Shareholders, which shall determine the manner
of liquidation, shall select the liquidator, and shall install a Statutory Audit
Committee for the period of the liquidation, elect its members and determine
their compensation.
CHAPTER VIII
GENERAL AND TRANSITORY PROVISIONS
<PAGE>
16
Art. 46 Approval by the Company, through its representatives, of
mergers, split-ups, consolidations, or dissolutions of its subsidiaries shall be
preceded by an economic-financial analysis performed by an independent company
of recognized international standing, to confirm that all of the companies
involved are being treated equitably; the shareholders of the companies involved
shall have full access to the report on the analysis.
Art. 47 If government control of the Company is relinquished as provided
in Arts. 188 to 195 of Law No. 9,472 of July 16, 1997, and without prejudice to
any other modifications that may be decided after the aforementioned
privatization:
I the following shall be automatically revoked:
a) Art. 21 (regarding the election of the members of the Board of
Directors in accordance with Art. 239 of Law No. 6,404/76 and by
appointment of the Minister of State for Communications and the
Minister for Planning and Budget);
b) Art. 22;
c) items XVI, XVII(b) (the latter regarding exemptions from bidding)
and XIX (regarding submission of the International Cooperation Plan
to the Minister of Communications) of Art. 30;
d) Art. 31, item 1, numbers 3 (regarding the reference to the Minister
of Communications) and 10;
e) Art. 32 and its Sole Paragraph;
f) the Sole Paragraph of Art. 34;
g) Art. 43 (regarding the reference to the CCE); and
h) (S)(S) 1 and 2 of Art. 44.
II. The Statutory Audit Committee shall then be composed of 3
(three) to 5 (five) regular members and an equal number of
alternates, the reference in Art. 36 to the appointment of a member
of the Committee by the Minister of Finance shall cease to have
effect, and the permanent character of the Committee shall be
maintained.
<PAGE>
EXHIBIT 2.1
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TELESP PARTICIPACOES S.A.
AND
THE BANK OF NEW YORK
As Depositary
AND
OWNERS AND BENEFICIAL OWNERS OF
AMERICAN DEPOSITARY RECEIPTS
Deposit Agreement
Dated as of July 7, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
PARTIES ............................................................. 1
RECITALS ............................................................ 1
ARTICLE 1
DEFINITIONS
SECTION 1.01. American Depositary Shares .................. 1
SECTION 1.02. Beneficial Owner ............................ 2
SECTION 1.03. Business Day ................................ 2
SECTION 1.04. Commission .................................. 2
SECTION 1.05. Company ..................................... 2
SECTION 1.06. Custodian ................................... 2
SECTION 1.07. Deposit Agreement ........................... 2
SECTION 1.08. Depositary; Corporate Trust Office .......... 2
SECTION 1.09. Deposited Securities ........................ 2
SECTION 1.10. Dollars; Reais .............................. 3
SECTION 1.11. Foreign Currency ............................ 3
SECTION 1.12. Foreign Registrar ........................... 3
SECTION 1.13. Owner ....................................... 3
SECTION 1.14. Pre-Release ................................. 3
SECTION 1.15. Receipts .................................... 3
SECTION 1.16. Registrar ................................... 3
SECTION 1.17. Regulation S ................................ 3
SECTION 1.18. Securities Act of 1933 ...................... 3
SECTION 1.19. Shares ...................................... 3
ARTICLE 2
FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND
DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
SECTION 2.01. Form of Transferability of Receipts ......... 4
SECTION 2.02. Deposit of Shares ........................... 5
SECTION 2.03. Execution and Delivery of Receipts .......... 6
SECTION 2.04. Transfer of Receipts; Combination
and Split-up of Receipts .................. 7
SECTION 2.05. Surrender of Receipts and Withdrawal
of Shares ................................. 7
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<PAGE>
SECTION 2.06. Limitations on Execution and
Delivery, Transfer and
Surrender of Receipts ...............................9
SECTION 2.07. Lost Receipts, etc ...................................10
SECTION 2.O8. Cancellation and Destruction
of Surrendered Receipts ............................10
SECTION 2.09. Pre-release of Receipts ..............................10
SECTION 2.10. Maintenance of Records ...............................11
ARTICLE 3
CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS
SECTION 3.01 Filing Proofs, Certificates
and Other Information ..............................12
SECTION 3.02. Liability of Owner or
Beneficial Owner for Taxes .........................12
SECTION 3.03. Warranties on Deposit of
Shares .............................................13
SECTION 3.04. Disclosure of Interests ..............................13
ARTICLE 4
THE DEPOSITED SECURITIES
SECTION 4.01. Cash Distributions ...................................14
SECTION 4.02. Distributions Other Than
Cash, Shares or Rights .............................15
SECTION 4.03. Distributions in Shares ..............................16
SECTION 4.04. Rights ...............................................16
SECTION 4.05. Conversion of Foreign
Currency ...........................................18
SECTION 4.06. Fixing of Record Date ................................20
SECTION 4.07. Voting of Deposited Securities .......................20
SECTION 4.08. Changes Affecting Deposited
Securities .........................................22
SECTION 4.09. Reports ..............................................22
SECTION 4.10. Lists of Owners ......................................23
SECTION 4.11. Withholding ..........................................23
ARTICLE 5
THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY
SECTION 5.01. Maintenance of Office and
Transfer Books by the Depositary ...................24
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<PAGE>
SECTION 5.02. Prevention or Delay in Performance by the
Depositary or the Company ..........................25
SECTION 5.03. Obligations of the Depositary,
the Custodian and the Company ......................25
SECTION 5.04. Resignation and Removal of the Depositary ............27
SECTION 5.05. The Custodian ........................................27
SECTION 5.06. Notices and Reports ..................................28
SECTION 5.07. Distribution of Additional Shares, Rights, etc. ......29
SECTION 5.08. Indemnification ......................................29
SECTION 5.09. Charges of Depositary ................................30
SECTION 5.10. Exclusivity ..........................................31
ARTICLE 6
AMENDMENT AND TERMINATION
SECTION 6.01 Amendment ............................................32
SECTION 6.02 Termination ..........................................32
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Counterparts .........................................33
SECTION 7.02. No Third Party Beneficiaries .........................34
SECTION 7.03. Severability .........................................34
SECTION 7.04. Binding Effect on Owners and Beneficial Owners .......34
SECTION 7.05. Notices ..............................................34
SECTION 7.06. Governing Law ........................................35
SECTION 7.07. Headings .............................................35
TESTIMONIUM ..................................................................36
SIGNATURES ...................................................................36
EXHIBIT A
FORM OF RECEIPT
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<PAGE>
DEPOSIT AGREEMENT
DEPOSIT AGREEMENT, dated as of [ILLEGIBLE], 1998, among TELESP
PARTICIPACOES S.A., a sociedade anonima de economia mista (a limited liability
company) organized under the laws of the Federative Republic of Brazil (herein
called the Company), THE BANK OF NEW YORK, a New York banking corporation
(herein called the Depositary), and all Owners and Beneficial Owners from time
to time of American Depositary Receipts issued hereunder.
W I T N E S S E T H
WHEREAS, the Company desires to provide, as hereinafter set forth in
this Deposit Agreement, for the deposit of Shares (as hereinafter defined) of
the Company from time to time with the Depositary or with the Custodian (as
hereinafter defined), as agent of the Depositary for the purposes set forth in
this Deposit Agreement, for the creation of American Depositary Shares
representing the Shares so deposited and for the execution and delivery of
American Depositary Receipts evidencing the American Depositary Shares; and
WHEREAS, the American Depositary Receipts are to be substantially in
the form of Exhibit A annexed hereto, with appropriate insertions, modifications
and omissions, as hereinafter provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the premises, it is agreed by
and between the parties hereto as follows:
ARTICLE 1
DEFINITIONS
The following definitions shall for all purposes, unless otherwise
clearly indicated, apply to the respective terms used in this Deposit Agreement:
SECTION 1.01. American Depositary Shares. The term "American
Depositary Shares" shall mean the securities representing the interests in the
Deposited Securities and evidenced by the Receipts issued hereunder. Each
American Depositary Share shall represent [ILLEGIBLE] Shares, until there shall
occur a distribution upon Deposited Securities covered by Section 4.03 or a
change in Deposited Securities covered by Section 4.08 or otherwise with respect
to which additional Receipts are not executed and delivered, and thereafter
American Depositary Shares shall evidence the
<PAGE>
amount of Shares or Deposited Securities specified in such Sections.
SECTION 1.02. Beneficial Owner. The term "Beneficial Owner" shall be
any person who has a beneficial interest in any American Depositary Share.
SECTION 1.03. Business Day. The term "Business Day" shall mean any
day on which both banks in Brazil and banks in New York, New York are not
required or authorized by law to close.
SECTION 1.04. Commission. The term "Commission" shall mean the
Securities and Exchange Commission of the United States or any successor
governmental agency in the United States.
SECTION 1.05. Company. The term "Company" shall mean Telesp
Participacoes S.A., incorporated under the laws of Brazil, and its successors.
SECTION 1.06. Custodian. The term "Custodian" shall mean the
principal Sao Paulo, Brazil office of Banco Itau, as agent of the Depositary for
the purposes of this Deposit Agreement, and any other firm or corporation which
may hereafter be appointed by the Depositary pursuant to the terms of Section
5.05, as substitute or additional custodian or custodians hereunder, as the
context shall require and shall also mean all of them collectively.
SECTION 1.07. Deposit Agreement. The term "Deposit Agreement" shall
mean this Deposit Agreement, including the Exhibits hereto, as the same may be
amended from time to time in accordance with the provisions hereof.
SECTION 1.08. Depositary; Corporate Trust Office. The term
"Depositary" shall mean The Bank of New York, a New York banking corporation,
and any successor as depositary hereunder. The term "Corporate Trust Office",
when used with respect to the Depositary, shall mean the office of the
Depositary which at the date of this Deposit Agreement is 101 Barclay Street,
New York, New York 10286.
SECTION 1.09. Deposited Securities. The term "Deposited Securities"
as of any time shall mean Shares at such time deposited or deemed to be
deposited (including as contemplated under Section 2.09) under this Deposit
Agreement and any and all other securities, property and cash received or deemed
to be received by the Depositary or the Custodian in respect or in lieu of such
deposited Shares
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<PAGE>
and at such time held hereunder, subject as to cash to the provisions of
Section 4.05.
SECTION 1.10. Dollars; Reais. The term "Dollars" shall mean United
States dollars. The term Reais shall mean the lawful currency of Brazil.
SECTION 1.11. Foreign Currency. The term "Foreign Currency" shall
mean currency other than Dollars.
SECTION 1.12. Foreign Registrar. The term "Foreign Registrar" shall
mean the entity that presently carries out the duties of registrar for the
Shares or any successor as registrar for the Shares and any other appointed
agent of the Company for the transfer and registration of Shares.
SECTION 1.13. Owner. The term "Owner" shall mean the person in whose
name a Receipt is registered on the books of the Depositary maintained for such
purpose.
SECTION 1.14. Pre-Release. The term "Pre-Release" shall have the
meaning set forth in Section 2.09.
SECTION 1.15. Receipts. The term "Receipts" shall mean the American
Depositary Receipts issued hereunder evidencing American Depositary Shares, as
the same may be amended from time to time in accordance with the provisions
hereof.
SECTION 1.16. Registrar. The term "Registrar" shall mean any bank or
trust company having an office in the Borough of Manhattan, The City of New
York, which shall be appointed to register Receipts and transfers of Receipts as
herein provided.
SECTION 1.17. Regulation S. The term "Regulation S" shall mean Rules
901 through 904, inclusive, under the Securities Act of 1933, as such Rules may
from time to time be amended.
SECTION 1.18. Securities Act of 1933. The term "Securities Act of
1933" shall mean the United States Securities Act of 1933, as from time to time
amended.
SECTION 1.19. Shares. The term "Shares" shall mean shares of the
Company's non-voting preferred stock, without par value, in registered form,
heretofore validly issued and outstanding and fully paid, nonassessable and free
of any pre-emptive rights of the holders of outstanding Shares or hereafter
validly issued, subscribed and
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<PAGE>
outstanding and fully paid, nonassessable and free of any pre-emptive rights
of the holders of outstanding Shares or interim certificates representing such
Shares.
ARTICLE 2
FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND
DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
SECTION 2.01. Form and Transferability of Receipts. Definitive
Receipts shall be engraved or printed or lithographed on steel-engraved borders
or such other form as may be acceptable to the New York Stock Exchange and shall
be substantially in the form set forth in Exhibit A annexed to this Deposit
Agreement, with appropriate insertions, modifications and omissions, as
hereinafter provided. No Receipt shall be entitled to any benefits under this
Deposit Agreement or be valid or obligatory for any purpose, unless such Receipt
shall have been executed by the Depositary by the manual signature of a duly
authorized signatory of the Depositary; provided, however, that such signature
may be a facsimile if a Registrar for the Receipts shall have been appointed and
such Receipts are countersigned by the manual signature of a duly authorized
officer of the Registrar. Receipts may be issued in denominations of any whole
number of American Depositary Shares. The Depositary shall maintain books on
which each Receipt so executed and delivered as hereinafter provided and the
transfer of each such Receipt shall be registered. Receipts bearing the
facsimile signature of a duly authorized signatory of the Depositary who was at
any time a proper signatory of the Depositary shall bind the Depositary,
notwithstanding that such signatory has ceased to hold such office prior to the
execution and delivery of such Receipts by the Registrar or did not hold such
office on the date of issuance of such Receipts.
The Receipts may be endorsed with or have incorporated in the text
thereof such legends or recitals or modifications not inconsistent with the
provisions of this Deposit Agreement or with any provisions of the Company's
charter or Brazilian law as may be reasonably required by the Depositary in
order to comply with any applicable law or regulations thereunder or with the
rules and regulations of any securities exchange upon which American Depositary
Shares may be listed or to conform with any usage with respect thereto, or to
indicate any special limitations or restrictions to which any particular
Receipts are subject by reason of the date of issuance of the underlying
Deposited Securities or otherwise.
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<PAGE>
Title to a Receipt (and to the American Depositarv Shares evidenced
thereby), when properly endorsed or accompanied by proper instruments of
transfer, shall be transferable by delivery with the same effect as in the case
of a negotiable instrument; provided, however, that the Depositary and the
Company, notwithstanding any notice to the contrary, may treat the Owner thereof
as the absolute owner thereof for the purpose of determining the person entitled
to distribution of dividends or other distributions or to any notice provided
for in this Deposit Agreement and for all other purposes.
SECTION 2.02. Deposit of Shares. Subject to the terms and conditions
of this Deposit Agreement, Shares, or evidence of rights to receive Shares to
the extent permitted by Section 2.09, may be deposited by book-entry delivery
thereof to any Custodian hereunder, accompanied by any appropriate instrument or
instruments of transfer, or endorsement, in form satisfactory to the Custodian,
together with all such certifications as may be required by the Depositary, the
Custodian or the Company in accordance with the provision of this Deposit
Agreement, and, if the Depositary requires, together with a written order
directing the Depositary to execute and deliver to, or upon the written order
of, the person or persons stated in such order, a Receipt or Receipts for the
number of American Depositary Shares representing such deposit. No Share shall
be accepted for deposit unless accompanied by evidence satisfactory to the
Depositary that any necessary approval has been granted by the governmental body
or bodies in Brazil which is or are then regulating currency exchange. If
required by the Depositary, Shares presented for deposit at any time, whether or
not the transfer books of the Company or the Foreign Registrar, if applicable,
are closed, shall also be accompanied by (i) an agreement or assignment, or
other instrument satisfactory to the Depositary, which will provide for the
prompt transfer to the Custodian of any dividend, or right to subscribe for
additional Shares or to receive other property which any person in whose name
the Shares are or have been recorded may thereafter receive upon or in respect
of such deposited Shares, or in lieu thereof, such agreement of indemnity or
other agreement as shall be satisfactory to the Depositary and (ii) if the
Shares are registered in the name of the person on whose behalf they are
presented for deposit, a proxy or proxies entitling the Custodian to vote such
deposited Shares for any and all purposes until the Shares are registered in the
name of the Custodian or its nominees.
At the request and risk and expense of any person proposing to
deposit Shares, and for the account of such
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<PAGE>
person, the Depositary may receive certificates for shares to be deposited,
together with the other instruments herein specified, for the purpose of
forwarding such Share certificates to the Custodian for deposit hereunder.
Upon each delivery to a Custodian of Shares to be deposited
hereunder, together with the other documents above specified, such Custodian
shall, as soon as transfer and recordation can be accomplished, present such
evidence of ownership to the Company or the Foreign Registrar, if applicable,
for transfer and recordation of the Shares being deposited in the name of the
Depositary or its nominee or such Custodian or its nominee at the cost and
expense of the person making such deposit (or for whose benefit such deposit is
made) and shall obtain evidence satisfactory to it of such registration.
Deposited Securities shall be held by the Depositary or by a
Custodian for the account and to the order of the Depositary or at such other
place or places as the Depositary shall determine.
SECTION 2.03. Execution and Delivery of Receipts. Upon receipt by
any Custodian of any deposit pursuant to Section 2.02 hereunder (and in
addition, if the transfer books of the Company or the Foreign Registrar, if
applicable, are open, the Depositary may in its sole discretion require a proper
acknowledgment or other evidence from the Company or the Foreign Registrar, as
the case may be, that any Deposited Securities have been recorded upon the books
of the Company or the Foreign Registrar, if applicable, in the name of the
Depositary or its nominee or such Custodian or its nominee), together with the
other documents required as above specified, such Custodian shall notify the
Depositary of such deposit and the person or persons to whom or upon whose
written order a Receipt or Receipts are deliverable in respect thereof and the
number of American Depositary Shares to be evidenced thereby. Such notification
shall be made by letter or, at the request, risk and expense of the person
making the deposit, by cable, telex or facsimile transmission. Upon receiving
such notice from such Custodian, or upon the receipt of Shares by the
Depositary, the Depositary, subject to the terms and conditions of this Deposit
Agreement, shall, as promptly as practicable, execute and deliver at its
Corporate Trust Office, to or upon the order of the person or persons entitled
thereto, a Receipt or Receipts, registered in the name or names and evidencing
any authorized number of American Depositary Shares requested by such person or
persons, but only upon payment to the Depositary of the fees of the Depositary
for the execution and delivery of such
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Receipt or Receipts as provided in Section 5.09, and of all taxes and
governmental charges and fees, if any, payable in connection with such deposit
and the transfer of the Deposited Securities. The Depositary shall not issue
Receipts except in accordance with this Section 2.03 and Sections 2.04, 2.07,
2.09, 4.03, 4.04 and 4.08.
SECTION 2.04. Transfer of Receipts; Combination and Split-up of
Receipts. The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall register transfers of Receipts on its transfer books from time
to time, upon any surrender of a Receipt, by the Owner in person or by a duly
authorized attorney, properly endorsed or accompanied by proper instruments of
transfer, and duly stamped as may be required by the laws of the State of New
York and of the United States of America. Thereupon the Depositary shall execute
a new Receipt or Receipts and deliver the same to or upon the order of the
person entitled thereto.
The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall upon surrender of a Receipt or Receipts for the purpose of
effecting a split-up or combination of such Receipt or Receipts, execute and
deliver a new Receipt or Receipts for any authorized number of American
Depositary Shares requested, evidencing the same aggregate number of American
Depositary Shares as the Receipt or Receipts surrendered.
The Depositary may appoint, upon at least 20 days' written notice to
the Company, one or more co-transfer agents, reasonably acceptable to the
Company, for the purpose of effecting transfers, combinations and split-ups of
Receipts at designated transfer offices on behalf of the Depositary. In carrying
out its functions, a co-transfer agent may require evidence of authority and
compliance with applicable laws and other requirements by Owners or persons
entitled to Receipts and will be entitled to protection and indemnity to the
same extent as the Depositary.
SECTION 2.05. Surrender of Receipts and Withdrawal of Shares. Upon
surrender at the Corporate Trust Office of the Depositary of a Receipt for the
purpose of withdrawal of the Deposited Securities represented by the American
Depositary Shares evidenced by such Receipt, and upon payment of the fee of the
Depositary for the surrender of Receipts as provided in Section 5.09 and payment
of all taxes and governmental charges, if any, payable in connection with such
surrender and withdrawal of the Deposited Securities, and subject to the terms
and conditions of this Deposit Agreement and the Company's
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Charter, the Owner of such Receipt shall be entitled to delivery, to him or upon
his order, of the amount of Deposited Securities at the time represented by the
American Depositary Shares evidenced by such Receipt. Delivery of such Deposited
Securities may be made by (a) (i) the delivery of certificates in the name of
such Owner or as ordered by him or certificates properly endorsed or accompanied
by proper instruments of transfer to such Owner or as ordered by him, or (ii)
book-entry transfer of the Shares represented by such Receipt to an account in
the name of such Owner or as ordered by him, and (b) delivery of any other
securities, property and cash to which such Owner is then entitled in respect of
such Receipts to such Owner or as ordered by him. Such delivery shall be made,
as promptly as practicable, as hereinafter provided.
A Receipt surrendered for such purposes may be required by the
Depositary to be properly endorsed in blank or accompanied by proper instruments
of transfer in blank, and if the Depositary so requires, the Owner thereof shall
execute and deliver to the Depositary a written order directing the Depositary
to cause the Deposited Securities being withdrawn to be delivered to or upon the
written order of a person or persons designated in such order. Thereupon the
Depositary shall, as promptly as practicable, direct the Custodian to deliver at
the Sao Paulo office of such Custodian, subject to Sections 2.06, 3.01 and 3.02
and to the other terms and conditions of this Deposit Agreement and the
Company's Charter, to or upon the written order of the person or persons
designated in the order delivered to the Depositary as above provided, the
amount of Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt, except that the Depositary may make delivery to such
person or persons at the Corporate Trust Office of the Depositary of any
dividends or distributions with respect to the Deposited Securities represented
by the American Depositary Shares evidenced by such Receipt, or of any proceeds
of sale of any dividends, distributions or rights, which may at the time be held
by the Depositary.
At the request, risk and expense of any Owner so surrendering a
Receipt, and for the account of such Owner, the Depositary shall direct the
Custodian to forward any cash or other property (other than rights) comprising,
and forward a certificate or certificates and other proper documents of title
for, the Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt to the Depositary for delivery at the Corporate Trust
Office of the Depositary. Such direction shall be given by letter
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or, at the request, risk and expense of such Owner, by cable, telex or facsimile
transmission.
Neither the Depositary nor the Custodian shall deliver Shares, by
physical delivery, book entry or otherwise (other than to the Company or its
agent as contemplated by Section 4.08), or otherwise permit Shares to be
withdrawn from the facility created hereby, except upon the receipt and
cancellation of Receipts.
SECTION 2.06. Limitations on Execution and Delivery, Transfer and
Surrender of Receipts. As a condition precedent to the execution and delivery,
registration of transfer, split-up, combination or surrender of any Receipt, the
delivery of any distribution thereon, or withdrawal of any Deposited Securities,
the Company, Depositary, Custodian or Registrar may require payment from the
depositor of Shares or the presenter of the Receipt of a sum sufficient to
reimburse it for any tax or other governmental charge and any stock transfer or
registration fee with respect thereto (including any such tax, charge or fee
with respect to Shares being deposited or withdrawn) and payment of any fees of
the Depositary as provided in Section 5.09, may require the production of proof
satisfactory to it as to the identity and genuineness of any signature and may
also require compliance with such reasonable regulations the Depositary may
establish consistent with the provisions of this Deposit Agreement, including,
without limitation, this Section 2.06.
The delivery of Receipts against deposits of Shares generally or
against deposits of particular Shares may be suspended, or the transfer of
Receipts in particular instances may be refused, or the registration of transfer
of outstanding Receipts or the combination or split-up of Receipts generally may
be suspended, during any period when the transfer books of the Depositary are
closed, or if any such action is deemed necessary or advisable by the Depositary
or the Company at any time or from time to time because of any requirement of
law or of any government or governmental body or commission, or under any
provision of this Deposit Agreement, or for any other reason, subject to the
provisions of the following sentence. Notwithstanding any other provision of
this Deposit Agreement or the Receipts, the surrender of outstanding Receipts
and withdrawal of Deposited Securities may be suspended only for (i) temporary
delays caused by closing the transfer books of the Depositary or the Company or
the deposit of Shares in connection with voting at a shareholders' meeting, or
the payment of dividends, (ii) the payment of fees, taxes and similar charges,
(iii) compliance with any U.S. or foreign laws or
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governmental regulations relating to the Receipts or to the withdrawal of the
Deposited Securities, or (iv) any other reason that may at any time be specified
in paragraph I(A) (1) of the General Instructions to Form F-6, as from time to
time in effect, or any successor provision thereto. Without limitation of the
foregoing, the Depositary shall not knowingly accept for deposit under this
Deposit Agreement any Shares required to be registered under the provisions of
the Securities Act of 1933, unless a registration statement is in effect as to
such Shares. The Depositary will comply with written instructions of the Company
that the Depositary shall not accept for deposit hereunder any Shares identified
in such instructions at such times and under such circumstances as may
reasonably be specified in such instructions in order to facilitate the
Company's compliance with the securities laws in the United States.
SECTION 2.07. Lost Receipts, etc. In case any Receipt shall be
mutilated, destroyed, lost or stolen, the Depositary shall execute and deliver a
new Receipt of like tenor in exchange and substitution for such mutilated
Receipt upon cancellation thereof, or in lieu of and in substitution for such
destroyed, lost or stolen Receipt. Before the Depositary shall execute and
deliver a new Receipt in substitution for a destroyed, lost or stolen Receipt,
the Owner thereof shall have (a) filed with the Depositary (i) a request for
such execution and delivery before the Depositary has notice that the Receipt
has been acquired by a bona fide purchaser and (ii) a sufficient indemnity bond
and (b) satisfied any other reasonable requirements imposed by the Depositary.
SECTION 2.08. Cancellation and Destruction of Surrendered Receipts.
All Receipts surrendered to the Depositary shall be cancelled by the Depositary.
The Depositary is authorized to destroy Receipts so cancelled, subject to
Section 2.10.
SECTION 2.09. Pre-Release of Receipts. The Depositary may issue
Receipts against rights to receive Shares from the Company (or any agent of the
Company recording Share ownership). No such issue of Receipts will be deemed a
"Pre-Release" subject to the restrictions of the following paragraph.
Unless requested by the Company to cease doing so, the Depositary
may, notwithstanding Section 2.03 hereof, execute and deliver Receipts prior to
the receipt of Shares pursuant to Section 2.02 ("Pre-Release"). The Depositary
may, pursuant to Section 2.05, deliver Shares upon the
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receipt and cancellation of Receipts which have been Pre-Released, whether or
not such cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such Receipt has been Pre-Released. The Depositary may
receive Receipts in lieu of Shares in satisfaction of a Pre-Release. Each
Pre-Release will be (a) preceded or accompanied by a written representation and
agreement from the person to whom Receipts are to be delivered (the
"Pre-Releasee") that the Pre-Releasee, or its customer, (i) owns the Shares or
Receipts to be remitted, as the case may be, (ii) assigns all beneficial right,
title and interest in such Shares or Receipts, as the case may be, to the
Depositary for the benefit of the Owners, and (iii) agrees in effect to hold
such Shares or Receipts, as the case may be, for the account of the Depositary
until delivery of the same upon the Depositary's request, (b) at all times fully
collateralized with cash or U.S. government securities, (c) terminable by the
Depositary on not more than five (5) business days notice, and (d) subject to
such further indemnities and credit regulations as the Depositary deems
appropriate. The number of American Depositary Shares which are outstanding at
any time as a result of Pre-Releases will not normally exceed thirty percent
(30%) of the American Depositary Shares outstanding (without giving effect to
American Depositary Shares evidenced by Receipts outstanding as a result of
Pre-Release); provided, however, that the Depositary reserves the right to
disregard such limit from time to time as it deems appropriate and may, with the
prior written consent of the Company, change such limit for purposes of general
application. The Depositary will also set limits with respect to the number of
Pre-Released Receipts involved in transactions to be done hereunder with any one
person on a case by case basis as it deems appropriate. The collateral referred
to in clause (b) above shall be held by the Depositary for the benefit of the
Owners as security for the performance of the obligations to deliver Shares or
Receipts set forth in clause (a) above (and shall not, for the avoidance of
doubt, constitute Deposited Securities hereunder).
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
SECTION 2.10. Maintenance of Records. The Depositary agrees to
maintain or cause its agents to maintain records of all Receipts surrendered and
Deposited Securities withdrawn under Section 2.05, substitute Receipts delivered
under Section 2.07, and of cancelled or destroyed Receipts under Section 2.08,
in keeping with procedures ordinarily followed by stock transfer agents located
in The
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City of New York or as required by the laws or regulations governing the
Depositary. Prior to destroying any such records, the Depositary will notify the
Company and will turn such records over to the Company upon its request.
ARTICLE 3
CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS
SECTION 3.01. Filing Proofs, Certificates and Other Information. Any
person presenting Shares for deposit or any Owner of a Receipt may be required
from time to time to file with the Depositary or the Custodian such proof of
citizenship or residence, exchange control approval, legal or beneficial
ownership of Receipts, Deposited Securities or other securities, compliance with
all applicable laws or regulations or terms of this Deposit Agreement or the
Receipts, or such information relating to the registration on the books of the
Company or the Foreign Registrar, if applicable, to execute such certificates
and to make such representations and warranties, as the Depositary may deem
necessary or proper. The Depositary may withhold the delivery or registration of
transfer of any Receipt or the distribution of any dividend or sale or
distribution of rights or of the proceeds thereof or the delivery of any
Deposited Securities until such proof or other information is filed or such
certificates are executed or such representations and warranties made. The
Depositary shall from time to time advise the Company of the availability of any
such proofs, certificates or other information and shall provide copies thereof
to the Company as promptly as practicable upon request by the Company, unless
such disclosure is prohibited by law.
SECTION 3.02. Liability of Owner or Beneficial Owner for Taxes. If
any tax or other governmental charge shall become payable by the Custodian or
the Depositary with respect to any Receipt or any Deposited Securities
represented by any Receipt, such tax or other governmental charge shall be
payable by the Owner or Beneficial Owner of such Receipt to the Depositary. The
Depositary may refuse to effect any transfer of such Receipt or any combination
or split-up thereof or any withdrawal of Deposited Securities represented by
American Depositary Shares evidenced by such Receipt until such payment is made,
and may withhold any dividends or other distributions, or may sell for the
account of the Owner or Beneficial Owner thereof any part or all of the
Deposited Securities represented by the American Depositary Shares evidenced by
such Receipt, and may apply such dividends or other distributions or the
proceeds of any
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such sale in payment of such tax or other governmental charge (and any taxes or
expenses arising out of such sale) and the Owner or Beneficial Owner of such
Receipt shall remain liable for any deficiency.
SECTION 3.03. Warranties on Deposit of Shares. Every person
depositing Shares under this Deposit Agreement shall be deemed thereby to
represent and warrant that such Shares and each certificate therefor are validly
issued, fully paid, nonassessable and free of any preemptive rights of the
holders of outstanding Shares and that the person making such deposit is duly
authorized so to do. Every such person shall also be deemed to represent that
(i) the Shares presented for deposit are not, and the Receipts issuable upon
such deposit will not be, restricted securities within the meaning of Rule
144(a) (3) under the Securities Act of 1933, and (ii) the deposit of such Shares
and the sale of Receipts evidencing American Depositary Shares representing such
Shares by that person are not otherwise restricted under the Securities Act of
1933. Such representations and warranties shall survive the deposit of Shares
and issuance of Receipts.
SECTION 3.04. Disclosure of Interests. To the extent that provisions
of or governing any Deposited Securities (including the Company's Charter or
applicable law) may require the disclosure of beneficial or other ownership of
Deposited Securities, other Shares and other securities to the Company and may
provide for blocking transfer and voting or other rights to enforce such
disclosure or limit such ownership, the Depositary shall use its best efforts
that are reasonable under the circumstances to comply with Company instructions
as to Receipts in respect of any such enforcement or limitation, and Owners and
Beneficial Owners shall comply with all such disclosure requirements and
ownership limitations and shall cooperate with the Depositary's compliance with
such Company instructions.
The Depositary and the Company hereby confirm to each other that,
for as long as this Deposit Agreement is in effect, they shall furnish to the
Comissao de Valores Mobiliarios (the "CVM") and the Central Bank of Brazil any
information and documents related to the Receipts and the Depositary's
obligations hereunder as may be requested by such authorities from time to time,
whether such information and documents are requested from the Depositary or the
Company. In the event that the Depositary or the Custodian shall be advised (in
writing) by reputable independent Brazilian counsel that the Depositary or
Custodian reasonably could be subject to criminal or material, as
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reasonably determined by the Depositary, civil liabilities as a result of the
Company having failed to provide such information or documents reasonably
available only through the Company, the Depositary has the right to immediately
resign as Depositary and will not be subject to any liability hereunder for such
resignation or such determination, except that (i) the Depositary shall
promptly, but in no event later than three business days, if permitted by
applicable law, duly assign, transfer and deliver all right, title and interest
in and to the Deposited Securities held on account or on behalf of Owners to the
Company or its nominee and (ii) to the extent reasonably requested by the
Company and not prohibited by applicable law, the Depositary shall provide the
Company or any successor depositary hereunder with access, during normal
business hours, to such records as may be reasonably necessary to enable the
Company or such successor depositary to fulfill the obligations that the
Depositary would have had hereunder but for such resignation. Upon effectiveness
of such resignation the Depositary shall otherwise be discharged from all of its
obligations under this Deposit Agreement. In the event that the Depositary
resigns pursuant to this paragraph either (i) the Company will appoint a new
depositary, in which case the Company will assume the obligations stated as the
obligations of the Depositary under Section 5.04 herein or (ii) if the Company
fails to appoint a new depositary within 60 days of such resignation, this
Deposit Agreement shall be terminated in accordance with Section 6.02 herein and
the Company or its designated agent will assume the obligations stated as the
obligations of the Depositary in such section.
ARTICLE 4
THE DEPOSITED SECURITIES
SECTION 4.01. Cash Distributions. Whenever the Depositary, or on its
behalf, its agent, shall receive any cash dividend or other cash distribution on
any Deposited Securities, the Depositary shall, or shall cause its agent, as
promptly as practicable (and in any event within one Business Day) after its
receipt of such dividend or distribution (unless otherwise prohibited or
prevented by law), subject to the provisions of Section 4.05, to convert such
dividend or distribution into Dollars and shall, as promptly as practicable,
distribute the amount thus received (net of the expenses of the Depositary as
provided in Section 5.09) to the Owners entitled thereto, in proportion to the
number of American Depositary Shares representing such Deposited Securities held
by them respectively;
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provided, however, that in the event that the Company or the Depositary shall be
required to withhold and does withhold from such cash dividend or such other
cash distribution am amount on account of taxes, the amount distributed to the
Owner of the Receipts evidencing American Depositary Shares representing such
Deposited Securities shall be reduced accordingly. The Depositary shall
distribute only such amounts as can be distributed without distributing to any
Owner a fraction of one cent and any balance that is not so distributed shall be
held by the Depositary (without liability for the interest thereon) and shall be
added to and be part of the next sum received by the Depositary for distribution
to the Owners of Receipts then outstanding. The Company or its agent will remit
to the appropriate governmental agency in Brazil all amounts withheld and owing
to such agency. The Depositary will forward to the Company or its agent in a
timely manner such information from its records as the Company may reasonably
request to enable the Company or its agent to file necessary reports with
governmental agencies, and the Depositary or the Company or its agent may file
any such reports necessary to obtain benefits under the applicable tax treaties
for the Owners.
SECTION 4.02. Distributions Other Than Cash, Shares or Rights.
Subject to the provisions of Section 4.11 and 5.09, whenever the Depositary
shall receive any distribution other than a distribution described in Sections
4.01, 4.03 or 4.04, the Depositary shall, as promptly as practicable, cause the
securities or property received by it to be distributed to the Owners entitled
thereto, in proportion to the number of American Depositary Shares representing
such Deposited Securities held by them respectively, in any manner that the
Depositary may deem equitable and practicable for accomplishing such
distribution; provided, however, that if in the opinion of the Depositary such
distribution cannot be made proportionately among the Owners entitled thereto,
or if for any other reason (including, but not limited to, any requirement that
the Company or the Depositary withhold an amount on account of taxes or other
governmental charges or that such securities must be registered under the
Securities Act of 1933 in order to be distributed to Owners) the Depositary
deems such distribution not to be feasible, the Depositary may, after
consultation with the Company, adopt such method as it may deem equitable and
practicable for the purpose of effecting such distribution, including, but not
limited to, the public or private sale of the securities or property thus
received, or any part thereof, and the net proceeds of any such sale (net of the
fees of the Depositary as provided in Section 5.09 and any expenses in
connection with such sale) shall be distributed by the Depositary to
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the Owners entitled thereto as in the case of a distribution received in cash
pursuant to Section 4.01; provided, however, no distribution to Owners pursuant
to this Section 4.02 shall be unreasonably delayed by any action of the
Depositary or any of its agents.
SECTION 4.03. Distributions in Shares. If any distribution upon any
Deposited Securities consists of a dividend in, or free distribution of, Shares,
the Depositary may or shall, if the Company shall so request, distribute, as
promptly as practicable, to the Owners of outstanding Receipts entitled thereto,
in proportion to the number of American Depositary Shares representing such
Deposited Securities held by them respectively, additional Receipts evidencing
an aggregate number of American Depositary Shares representing the amount of
Shares received as such dividend or free distribution, subject to the terms and
conditions of the Deposit Agreement with respect to the deposit of Shares and
the issuance of American Depositary Shares evidenced by Receipts, including the
withholding of any tax or other governmental charge as provided in Section 4.11
and the payment of the fees of the Depositary as provided in Section 5.09. In
lieu of delivering Receipts for fractional American Depositary Shares in any
such case, the Depositary shall sell the amount of Shares represented by the
aggregate of such fractions and distribute the net proceeds, all in the manner
and subject to the conditions described in Section 4.01; provided, however, no
distribution to Owners pursuant to this Section 4.03 shall be unreasonably
delayed by any action of the Depositary or any of its agents. If additional
Receipts are not so distributed, each American Depositary Share shall
thenceforth also represent the additional Shares distributed upon the Deposited
Securities represented thereby. In addition, the Depositary may withhold any
distribution of Receipts under this Section 4.03 if it has not received
satisfactory assurances from the Company that such distribution does not require
registration under the Securities Act or is exempt from registration under the
provisions of such Act; provided that, in any such event, the Depositary may
sell the Shares distributed upon the Deposited Securities and distribute the net
proceeds, all in the manner and subject to the conditions described in Section
4.01.
SECTION 4.04. Rights. In the event that the Company shall offer or
cause to be offered to the holders of any Deposited Securities any rights to
subscribe for additional Shares or any rights of any other nature, the
Depositary, after consultation with the Company, shall have discretion as to the
procedure to be followed in making such rights available to any Owners or in
disposing of such
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rights on behalf of any Owners and making the net proceeds available to such
Owners or, if by the terms of such rights offering or for any other reason it
would be unlawful for the Depositary either to make such rights available to any
Owners or dispose of such rights and make the net proceeds available to such
Owners, then the Depositary shall allow the rights to lapse. If at the time of
the offering of any rights the Depositary determines in its discretion that it
is lawful and feasible to make such rights available to all or certain Owners
but not to other Owners, the Depositary may, and at the request of the Company
shall, distribute to any Owner to whom it determines the distribution to be
lawful and feasible, in proportion to the number of American Depositary Shares
held by such Owner, warrants or other instruments therefor in such form as it
deems appropriate.
In circumstances in which rights would otherwise not be distributed,
if an Owner requests the distribution of warrants or other instruments in order
to exercise the rights allocable to the American Depositary Shares of such Owner
hereunder, the Depositary will promptly make such rights available to such Owner
upon written notice from the Company to the Depositary that (a) the Company has
elected in its sole discretion to permit such rights to be exercised and (b)
such Owner has executed such documents as the Company has determined in its sole
discretion are reasonably required under applicable law.
If the Depositary has distributed warrants or other instruments for
rights to all or certain Owners, then upon instruction from such an Owner
pursuant to such warrants or other instruments to the Depositary from such Owner
to exercise such rights, upon payment by such Owner to the Depositary for the
account of such Owner of an amount equal to the purchase price of the Shares to
be received upon the exercise of the rights, and upon payment of the fees of the
Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall, on behalf of such Owner, exercise the rights
and purchase the Shares, and the Company shall cause the Shares so purchased to
be delivered to the Depositary on behalf of such Owner. As agent for such Owner,
the Depositary will cause the Shares so purchased to be deposited pursuant to
Section 2.02 of this Deposit Agreement, and shall, pursuant to Section 2.03 of
this Deposit Agreement, execute and deliver Receipts to such Owner. In the case
of a distribution pursuant to this paragraph, such Receipts shall be legended in
accordance with applicable U.S. laws, and shall be subject to the appropriate
restrictions on sale, deposit, cancellation, and transfer under such laws.
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If the Depositary determines that it is not lawful or feasible to
make such rights available to all or certain Owners, it may, and at the request
of the Company will use its best efforts that are reasonable under the
circumstances to, sell the rights, warrants or other instruments in proportion
to the number of American Depositary Shares held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales (net of the fees of the Depositary as
provided in Section 5.09, any expenses in connection with such sale and all
taxes and governmental charges payable in connection with such rights and
subject to the terms and conditions of this Deposit Agreement) for the account
of such Owners otherwise entitled to such rights, warrants or other instruments,
upon an averaged or other practical basis without regard to any distinctions
among such Owners because of exchange restrictions or the date of delivery of
any Receipt or otherwise. Such proceeds shall be distributed as promptly as
practicable in accordance with Section 4.01 hereof.
If a registration statement under the Securities Act of 1933 is
required with respect to the securities to which any rights relate in order for
the Company to offer such rights to Owners and sell the securities represented
by such rights, the Depositary will not offer such rights to Owners having an
address in the United States (as defined in Regulation S) unless and until such
a registration statement is in effect, or unless the offering and sale of such
securities and such rights to such Owners are exempt from registration under the
provisions of such Act.
The Depositary shall not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner in particular.
SECTION 4.05. Conversion of Foreign Currency. Whenever the
Depositary or the Custodian shall receive Foreign Currency, by way of dividends
or other distributions or the net proceeds from the sale of securities, property
or rights, and if at the time of the receipt thereof the Foreign Currency so
received can, pursuant to applicable law, be converted on a reasonable basis
into Dollars and the resulting Dollars transferred to the United States, the
Depositary or the Custodian shall convert or cause to be converted as promptly
as practicable (and in any event within one Business Day of its or its agent's
receipt of such Foreign Currency), by sale or in any other manner that it may
determine in accordance with applicable law, such Foreign Currency into Dollars.
If, at the time of
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conversion of such Foreign Currency into Dollars, such Dollars can, pursuant to
applicable law, be transferred outside of Brazil for distribution to Owners
entitled thereto, such Dollars shall be distributed as promptly as practicable
to the Owners entitled thereto or, if the Depositary shall have distributed any
rights, warrants or other instruments which entitle the holders thereof to such
Dollars, then to the holders of such rights, warrants and/or instruments upon
surrender thereof for cancellation. Such distribution or conversion may be made
upon an averaged or other practicable basis without regard to any distinctions
among Owners on account of exchange restrictions, the date of delivery of any
Receipt or otherwise and shall be net of any expenses of conversion into Dollars
incurred by the Depositary as provided in Section 5.09.
If such conversion, transfer or distribution can be effected only
with the approval or license of any government or agency thereof, the Depositary
shall file as promptly as practicable such application for approval or license;
however, the Depositary shall be entitled to rely upon Brazilian local counsel
in such matters, which counsel shall be instructed to act as promptly as
possible.
If at any time Foreign Currency received by the Depositary or the
Custodian is not, pursuant to applicable law, convertible, in whole or in part,
into Dollars, or if any approval or license of any government or agency thereof
which is required for such conversion is denied or in the opinion of the
Depositary cannot be promptly obtained, the Depositary shall, (a) as to that
portion of the Foreign Currency that is convertible into Dollars, make such
conversion and, if permitted by applicable law, transfer such Dollars to the
United States for distribution to Owners in accordance with the first paragraph
of this Section 4.05 or, if such transfer is not so permitted, hold such Dollars
uninvested and without liability for interest thereon for the respective
accounts of the Owners entitled to receive the same, and (b) as to the
nonconvertible balance, if any, (i) if requested in writing by an Owner,
distribute or cause the Custodian to distribute the Foreign Currency (or an
appropriate document evidencing the right to receive such Foreign Currency)
received by the Depositary or Custodian to such Owner and (ii) the Depositary
shall hold or shall cause the Custodian to hold any amounts of nonconvertible
Foreign Currency not distributed pursuant to the immediate preceding subclause
(i) uninvested and without liability for interest thereon for the respective
accounts of the Owners entitled to receive the same.
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SECTION 4.06. Fixing of Record Date. Whenever any cash dividend or
other cash distribution shall become payable or any distribution other than cash
shall be made, or whenever rights shall be issued with respect to the Deposited
Securities, or whenever for any reason the Depositary causes a change in the
number of Shares that are represented by each American Depositary Share, or
whenever the Depositary shall receive notice of any meeting of holders of Shares
or other Deposited Securities, or whenever the Depositary shall find it
necessary or convenient, the Depositary shall fix a record date, which date
shall, to the extent practicable, be either (x) the same date as the record date
fixed by the Company, or (y) if different from the record date fixed by the
Company, be fixed after consultation with the Company (a) for the determination
of the Owners who shall be (i) entitled to receive such dividend, distribution
or rights or the net proceeds of the sale thereof or (ii) entitled to give
instructions for the exercise of voting rights at any such meeting, or (b) on or
after which each American Depositary Share will represent the changed number of
Shares. Subject to the provisions of Sections 4.01 through 4.05 and to the other
terms and conditions of this Deposit Agreement, the Owners on such record date
shall be entitled, as the case may be, to receive the amount distributable by
the Depositary with respect to such dividend or other distribution or such
rights or the net proceeds of sale thereof in proportion to the number of
American Depositary Shares held by them respectively and to give voting
instructions and to act in respect of any other such matter. The Company agrees
to provide the Depositary with 10 days' prior notice of any meeting of
shareholders or of the Board of Directors of the Company, the agenda for which
includes authorization for the declaration of a dividend; provided, however,
that if the date for any such meeting is fixed less than 10 days prior to such
meeting or the Company does not know, 10 days prior to such meeting, that a
dividend may be declared at any such meeting, then the Company shall give such
notice to the Depositary as promptly as practicable after such date is fixed or
the Company learns that a dividend may be declared.
SECTION 4.07. Voting of Deposited Securities. At any time that the
Depositary has the right to vote the Shares represented by the American
Depositary Shares, the Depositary will comply with the following provisions.
As soon as practicable after receipt of notice of any meeting or
solicitation of consents or proxies of holders of Shares or other Deposited
Securities, if requested in writing by the Company, the Depositary shall, as
soon as practicable thereafter, mail to the Owners a
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notice, the form of which notice shall be in the sole discretion of the
Depositary, which shall contain (a) such information as is contained in such
notice of meeting (or if requested by the Company a summary of such information
provided by the Company), (b) a statement that the Owners as of the close of
business on a specified record date will be entitled, subject to any applicable
provision of Brazilian law and of the Charter of the Company, to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to the
amount of Shares or other Deposited Securities represented by their respective
American Depositary Shares and (c) a statement as to the manner in which such
instructions may be given, including an express indication that instructions may
be given or deemed given in accordance with the last sentence of this paragraph
if no instruction is received, to the Depositary to give a discretionary proxy
to a person designated by the Company. Upon the written request of an Owner on
such record date, received on or before the date established by the Depositary
for such purpose, the Depositary shall endeavor, in so far as practicable, to
vote or cause to be voted the amount of Shares or other Deposited Securities
represented by the American Depositary Shares evidenced by such Receipt in
accordance with the instructions set forth in such request. The Depositary shall
not itself exercise any voting discretion over any Deposited Securities. If no
instructions are received by the Depositary from any Owner with respect to any
of the Deposited Securities represented by the American Depositary Shares
evidenced by such Owner's Receipts on or before the date established by the
Depositary for such purpose, the Depositary shall deem such Owner to have
instructed the Depositary to give a discretionary proxy to a person designated
by the Company with respect to such Deposited Securities and the Depositary
shall give a discretionary proxy to a person designated by the Company to vote
such Deposited Securities, provided that no such instruction shall be deemed
given and no such discretionary proxy shall be given with respect to any matter
as to which the Company informs the Depositary (and the Company agrees to
provide such information as promptly as practicable in writing) that (x) the
Company does not wish such proxy given, (y) substantial opposition exists or (z)
such matter materially and adversely affects the rights of holders of Shares.
Subject to the rules of any securities exchange on which American
Depositary Shares or the Deposited Securities represented thereby are listed,
the Depositary shall if requested by the Company deliver, at least two Business
Days prior to the date of such meeting, to the Company, to the attention of its
Secretary, copies of all instructions
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received from Owners in accordance with which the Depositary will vote, or cause
to be voted, the Deposited Securities represented by the American Depositary
Shares evidenced by such Receipts at such meeting. Delivery of instructions
will be made at the expense of the Company (unless otherwise agreed in writing
by the Company and the Depositary) provided that payment of such expense shall
not be a condition precedent to the obligations of the Depositary under this
Section.
SECTION 4.08. Changes Affecting Deposited Securities. In
circumstances where the provisions of Section 4.03 do not apply, upon any change
in nominal value, change in par value, split-up, consolidation or any other
reclassification of Deposited Securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting the Company
or to which it is a party, any securities which shall be received by the
Depositary or a Custodian in exchange for or in conversion of or in respect of
Deposited Securities shall be treated as new Deposited Securities under this
Deposit Agreement, and American Depositary Shares shall thenceforth represent
the new Deposited Securities so received in exchange or conversion, unless
additional Receipts are delivered pursuant to the following sentence. In any
such case the Depositary may, and shall if the Company shall so request, execute
and deliver additional Receipts as in the case of a dividend in Shares, or call
for the surrender of outstanding Receipts to be exchanged for new Receipts
specifically describing such new Deposited Securities.
SECTION 4.09. Reports. The Depositary shall make available for
inspection by Owners at its Corporate Trust Office any reports and
communications, including any proxy soliciting material, received from the
Company which are both (a) received by the Depositary as the holder of the
Deposited Securities and (b) made generally available to the holders of such
Deposited Securities by the Company. The Depositary shall also send to the
Owners copies of such reports when furnished by the Company pursuant to Section
5.06. Any such reports and communications, including any such proxy soliciting
material, furnished to the Depositary by the Company shall be furnished in
English, to the extent such materials are required to be translated into English
pursuant to any regulations of the Commission. The Company agrees to provide to
the Depositary, at the Company's expense (unless otherwise agreed in writing by
the Company and the Depositary) all documents that it provides to the Custodian.
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In the event the Receipts are listed or quoted on a national
securities exchange in the United States, the Company will promptly transmit to
the Custodian English language versions of any reports and other communications
that are made generally available by the Company to holders of its Shares or
other Deposited Securities and the Depositary will, at the Company's expense
(unless otherwise agreed in writing by the Company and the Depositary), arrange
for the prompt transmittal by the Custodian to the Depositary or such notices,
reports and other communications and arrange for the mailing, at the Company's
expense (unless otherwise agreed in writing by the Company and the Depositary),
of copies thereof (or if requested by the Company, a summary of any such notice
provided by the Company) to all Owners or, at the request of the Company, make
such notices, reports and other communications available to all Owners on a
basis similar to that for holders of Shares or other Deposited Securities, or on
such other basis as the Company may advise the Depositary may be required by any
applicable law, regulation or stock exchange requirement. The Company has
delivered to the Depositary and the Custodian a copy of the provisions of or
governing the Shares and any other Deposited Securities issued by the Company or
any affiliate of the Company, and promptly upon any amendment thereto or change
therein, the Company shall deliver to the Depositary and the Custodian a copy of
such provisions as so amended or changed. The Depositary may rely upon such copy
for all purposes of this Deposit Agreement. The Depositary will, at the expense
of the Company (unless otherwise agreed in writing by the Company and the
Depositary), make such copy and such notices, reports and other communications
available for inspection by Owners at the Depositary's office, at the office of
the Custodian and at any other designated transfer offices.
SECTION 4.10. Lists of Owners. Promptly upon request by the Company,
the Depositary shall, at the expense of the Company (unless otherwise agreed in
writing by the Company and the Depositary), furnish to it a list, as of a recent
date, of the names, addresses and holdings of American Depositary Shares by all
persons in whose names Receipts are registered on the books of the Depositary.
SECTION 4.11. Withholding. In connection with any distribution to
Owners, the Company will remit to the appropriate governmental authority or
agency all amounts (if any) required to be withheld by the Company and owing to
such authority or agency by the Company; and the Depositary and the Custodian
will remit to the appropriate governmental authority or agency all amounts (if
any) required to be withheld and owing to such authority or agency by the
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Depositary or the Custodian. In the event that the Depositary determines that
any distribution in property other than cash (including Shares and rights to
subscribe therefor) is subject to any tax or other governmental charge which the
Depositary is obligated to withhold, the Depositary may by public or private
sale dispose of all or a portion of such property (including Shares and rights
to subscribe therefor) in such amounts and in such manner as the Depositary
deems necessary and practicable to pay any such taxes or charges and the
Depositary shall distribute the net proceeds of any such sale after deduction of
such taxes or charges to the Owners entitled thereto in proportion to the number
of American Depositary Shares held by them respectively, all in accordance with
applicable provisions of this Deposit Agreement.
ARTICLE 5
THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY
SECTION 5.01. Maintenance of Office and Transfer Books by the
Depositary. Until termination of this Deposit Agreement in accordance with its
terms, the Depositary shall maintain in the Borough of Manhattan, The City of
New York, facilities for the execution and delivery, registration, registration
of transfers, combinations and split-ups and surrender of Receipts in accordance
with the provisions of this Deposit Agreement.
The Depositary shall keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners, provided that such inspection shall not be for the purpose of
communicating with Owners for an object other than the business of the Company,
including without limitation a matter related to this Deposit Agreement or the
Receipts.
The Depositary may close the transfer books after consultation with
the Company to the extent practicable, at any time or from time to time, when
deemed expedient by it in connection with the performance of its duties
hereunder or at the request of the Company, provided that any such closing of
the transfer books shall be subject to the provisions of Section 2.06 which
limit the suspension of withdrawals of Shares.
If any Receipts or the American Depositary Shares evidenced thereby
are listed on one or more stock exchanges in the United States, the Depositary
shall act as Registrar or, with the written approval of the Company, appoint a
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Registrar or one or more co-registrars for registry of such Receipts in
accordance with any requirements of such exchange or exchanges.
The Company shall have the right, upon reasonable request, to
inspect the transfer and registration records of the Depositary relating to the
Receipts, to take copies thereof and to require the Depositary and any
co-registrars to supply copies of such portions of such records as the Company
may request.
SECTION 5.02. Prevention or Delay in Performance by the Depositary
or the Company. Neither the Depositary nor the Company nor any of their
respective directors, employees, agents or affiliates shall incur any liability
to any Owner or Beneficial Owner, if by reason of any provision of any present
or future law or regulation of the United States or any other country, or of any
governmental or regulatory authority or stock exchange, or by reason of any
provision, present or future, of the Charter of the Company, or by reason of any
act of God or war or other circumstance beyond its control, the Depositary or
the Company shall be prevented or forbidden from, or be subject to any civil or
criminal penalty on account of, doing or performing any act or thing which by
the terms of this Deposit Agreement it is provided shall be done or performed;
nor shall the Depositary or the Company nor any of their respective directors,
employees, agents or affiliates incur any liability to any Owner or Beneficial
Owner by reason of any nonperformance or delay, caused as aforesaid, in the
performance of any act or thing which by the terms of this Deposit Agreement it
is provided shall or may be done or performed, or by reason of any exercise of,
or failure to exercise, any discretion provided for in this Deposit Agreement.
Where, by the terms of a distribution pursuant to Sections 4.01, 4.02, or 4.03
of the Deposit Agreement, or an offering or distribution pursuant to Section
4.04 of the Deposit Agreement, or for any other reason, the Depositary is
prevented or prohibited from making such distribution or offering available to
Owners, and the Depositary is prevented or prohibited from disposing of such
distribution or offering on behalf of such Owners and making the net proceeds
available to such Owners, then the Depositary, after consultation with the
Company, shall not make such distribution or offering, and shall allow any
rights, if applicable, to lapse.
SECTION 5.03. Obligations of the Depositary, the Custodian and the
Company. The Company assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to Owners or Beneficial Owners, except
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that it agrees to perform its obligations specifically set forth in this Deposit
Agreement without negligence or bad faith.
The Depositary assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to any Owner or Beneficial Owner
(including, without limitation, liability with respect to the validity or worth
of the Deposited Securities), except that it agrees to perform its obligations
specifically set forth in this Deposit Agreement without negligence or bad
faith.
Neither the Depositary nor the Company shall be under any obligation
to appear in, prosecute or defend any action, suit or other proceeding in
respect of any Deposited Securities or in respect of the Receipts, which in its
opinion may involve it in expense or liability, unless indemnity satisfactory to
it against all expense and liability shall be furnished as often as may be
required, and the Custodian shall not be under any obligation whatsoever with
respect to such proceedings, the responsibility of the Custodian being solely to
the Depositary.
Neither the Depositary nor the Company shall be liable for any
action or nonaction by it in reliance upon the advice of or information from
legal counsel, accountants, any person presenting Shares for deposit, any Owner
or any other person believed by it in good faith to be competent to give such
advice or information.
The Depositary shall not be liable for any acts or omissions made by
a successor depositary whether in connection with a previous act or omission of
the Depositary or in connection with any matter arising wholly after the removal
or resignation of the Depositary, provided that in connection with the issue out
of which such potential liability arises the Depositary performed its
obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be responsible for any failure to carry out
any instructions to vote any of the Deposited Securities, or for the manner in
which any such vote is cast or the effect of any such vote, provided that any
such action or nonaction is in good faith.
No disclaimer of liability under the Securities Act of 1933 is
intended by any provision of this Deposit Agreement.
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The Depositary, subject to Sections 2.05 and 2.09 hereof, may own
and deal in any class or securities of the Company and its affiliates and in
Receipts.
SECTION 5.04. Resignation and Removal of the Depositary. The
Depositary may at any time resign as Depositary hereunder by written notice of
its election so to do delivered to the Company, such resignation to take effect
upon the appointment of a successor depositary and its acceptance of such
appointment as hereinafter provided.
The Depositary may at any time be removed by the Company by written
notice of such removal effective upon the appointment of a successor depositary
and its acceptance or such appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall resign or
be removed, the Company shall use its best efforts that are reasonable under the
circumstances to appoint a successor depositary, which shall be a bank or trust
company having an office in the Borough of Manhattan, The City of New York.
Every successor depositary shall execute and deliver to its predecessor and to
the Company an instrument in writing accepting its appointment hereunder, and
thereupon such successor depositary, without any further act or deed, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor; but such predecessor, nevertheless, upon payment of all sums due it
and on the written request of the Company shall execute and deliver an
instrument transferring to such successor all rights and powers of such
predecessor hereunder, shall duly assign, transfer and deliver all right, title
and interest in the Deposited Securities to such successor, and shall deliver to
such successor a list of the Owners of all outstanding Receipts. Any such
successor depositary shall promptly mail notice of its appointment to the
Owners.
Any corporation into or with which the Depositary may be merged or
consolidated shall be the successor of the Depositary without the execution or
filing of any document or any further act.
SECTION 5.05. The Custodian. The Custodian shall be subject at all
times and in all respects to the directions of the Depositary and shall be
responsible solely to it and the Depositary shall be responsible for the
compliance by the Custodian with the applicable provisions of this Deposit
Agreement. Any Custodian may resign from its duties hereunder by notice of such
resignation delivered to the Depositary at least 30 days prior to the date on
which such resignation is to become effective. If upon such
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resignation there shall be no Custodian acting hereunder, the Depositary shall,
promptly after receiving such notice, appoint a substitute custodian or
custodians approved by the Company (such approval not to be unreasonably
withheld), each of which shall thereafter be a Custodian hereunder. The
Depositary may discharge any Custodian at any time upon notice to the Custodian
being discharged with the approval of the Company (such approval not to be
unreasonably withheld). Whenever the Depositary in its discretion determines
that it is in the best interest of the Owners to do so, it may appoint
substitute or additional custodian or custodians, which shall thereafter be one
of the Custodians hereunder. The Depositary shall notify the Company of the
appointment of a substitute or additional Custodian at least 30 days prior to
the date on which such appointment is to become effective. Upon demand of the
Depositary any Custodian shall deliver such of the Deposited Securities held by
it as are requested of it to any other Custodian or such substitute or
additional custodian or custodians. Each such substitute or additional custodian
shall deliver to the Depositary, forthwith upon its appointment, an acceptance
of such appointment satisfactory in form and substance to the Depositary.
Promptly after any such change, the Depositary shall give notice thereof in
writing to all Owners.
Upon the appointment of any successor depositary hereunder, each
Custodian then acting hereunder shall forthwith become, without any further act
or writing, the agent hereunder of such successor depositary and the appointment
of such successor depositary shall in no way impair the authority of each
Custodian hereunder; but the successor depositary so appointed shall,
nevertheless, on the written request of any Custodian, execute and deliver to
such Custodian all such instruments as may be proper to give to such Custodian
full and complete power and authority as agent hereunder of such successor
depositary.
SECTION 5.06. Notices and Reports. On or before the first date on
which the Company gives notice, by publication or otherwise, of any meeting of
holders of Shares or other Deposited Securities, or of any adjourned meeting of
such holders, or of the taking of any action in respect of any cash or other
distributions or the offering of any rights, the Company agrees to transmit to
the Depositary and the Custodian a copy of the notice thereof in the form given
or to be given to holders of Shares or other Deposited Securities.
The Company will arrange for the translation into English, if not
already in English, to the extent required pursuant to any regulations of the
Commission, and the
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prompt transmittal by the Company to the Depositary and the Custodian of such
notices and any other reports and communications which are made generally
available by the Company to holders of its Shares. If requested in writing by
the Company, the Depositary will arrange for the mailing, as promptly as
practicable and at the Company's expense (unless otherwise agreed in writing by
the Company and the Depositary), of copies of such notices, reports and
communications to all Owners. The Company will timely provide the Depositary
with the quantity of such notices, reports, and communications, as requested by
the Depositary from time to time, in order for the Depositary to effect such
mailings.
SECTION 5.07. Distribution of Additional Shares, Rights, etc. The
Company agrees that in the event of any issuance or distribution of (1)
additional Shares, (2) rights to subscribe for Shares, (3) securities
convertible into or exchangeable for Shares, or (4) rights to subscribe for such
securities, the Company will take all steps reasonably necessary to ensure that
no violation by the Company or the Depositary of the Securities Act of 1933 will
result from such issuance or distribution.
The Company agrees with the Depositary that neither the Company nor
any company controlled by the Company will at any time deposit any Shares,
either originally issued or previously issued and reacquired by the Company or
any such affiliate, unless a Registration Statement is in effect as to such
Shares under the Securities Act of 1933 or the Company furnishes to the
Depositary a written opinion from U.S. counsel for the Company, which counsel
shall be reasonably satisfactory to the Depositary, stating that the offer and
sale of the Receipts evidencing the American Depositary Shares representing such
Shares are exempt from registration under that Act. The Company will advise each
person who, to the best knowledge of the Company, controls, or is under common
control with, the Company that such person is subject to the same restrictions
on the deposit of Shares as the Company and persons controlled by the Company.
SECTION 5.08. Indemnification. The Company agrees to indemnify the
Depositary, its directors, employees, agents and affiliates and any Custodian
against, and hold each of them harmless from, any liability or expense
(including, but not limited to, the reasonable fees and expenses of counsel)
which may arise out of acts performed or omitted, in accordance with the
provisions of this Deposit Agreement and of the Receipts, as the same may be
amended, modified or supplemented from time to time,
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(i) by either the Depositary or a Custodian or their respective directors,
employees, agents and affiliates, except for any liability or expense arising
out of the negligence or bad faith of either of them, and except to the extent
that such liability or expense arises out of information relating to the
Depositary or the Custodian, as applicable, furnished in writing to the Company
by the Depositary or the Custodian, as applicable, expressly for use in any
registration statement, proxy statement, prospectus (or placement memorandum) or
preliminary prospectus (or preliminary placement memorandum) relating to the
Shares, or omissions from such information; or (ii) by the Company or any of its
directors, employees, agents and affiliates. The indemnities contained in this
paragraph shall not extend to any liability or expense which may arise out of
any Pre-Release.
The Depositary agrees to indemnify the Company, its directors,
employees, agents and affiliates and hold them harmless from any liability or
expense which may arise out of acts performed or omitted by the Depositary or
its Custodian or their respective directors, employees, agents and affiliates
due to their negligence or bad faith.
The obligations set forth in this Section 5.08 shall survive the
termination of this Deposit Agreement and the succession or substitution of any
indemnified person.
Any person seeking indemnification hereunder (an "Indemnified
Person") shall notify the person from whom it is seeking indemnification (the
"Indemnifying Person") of the commencement of any indemnifiable action or claim
promptly after such Indemnified Person becomes aware of such commencement and
shall consult in good faith with the Indemnifying Person as to the conduct of
the defense of such action or claim, which defense shall be reasonable under the
circumstances. No Indemnified Person shall compromise or settle any such action
or claim without the consent in writing of the Indemnifying Person.
SECTION 5.09. Charges of Depositary. The Company agrees to pay the
fees and reasonable out-of-pocket expenses of the Depositary and those of any
Registrar only in accordance with agreements in writing entered into between the
Depositary and the Company from time to time. The Depositary shall present
detailed statements for such expenses to the Company at least once every three
months. The charges and expenses of the Custodian are for the sole account of
the Depositary.
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The following charges (to the extent permitted by applicable law or
the rules of any securities exchange on which the American Depositary Shares are
admitted for trading) shall be incurred by any party depositing or withdrawing
Shares or by any party surrendering Receipts or to whom Receipts are issued
(including, without limitation, issuance pursuant to a stock dividend or stock
split declared by the Company or an exchange of stock regarding the Receipts or
Deposited Securities or a distribution of Receipts pursuant to Section 4.03),
whichever applicable: (1) taxes and other governmental charges, (2) such
registration fees as may from time to time be in effect for the registration of
transfers of Shares generally on the Share register of the Company or Foreign
Registrar and applicable to transfers of Shares to the name of the Depositary or
its nominee or the Custodian or its nominee on the making of deposits or
withdrawals hereunder, (3) such cable, telex and facsimile transmission expenses
as are expressly provided in this Deposit Agreement, (4) such expenses as are
incurred by the Depositary in the conversion of foreign currency pursuant to
Section 4.05, (5) a fee not in excess of $5.00 or less per 100 American
Depositary Shares (or portion thereof) for the execution and delivery of
Receipts pursuant to Sections 2.03 or 4.03 and the surrender of Receipts
pursuant to Section 2.05 and (6) a fee for the distribution of proceeds of sales
of securities or rights pursuant to Section 4.02 or 4.04, respectively, such fee
(which may be deducted from such proceeds) being in an amount equal to the
lesser of (i) the fee for the issuance of American Depositary Shares referred to
above which would have been charged as a result of the deposit by Owners of
securities (for purposes of this clause 6 treating all such securities as if
they were Shares) or Shares received in exercise of rights distributed to them
pursuant to Section 4.02 or 4.04, respectively, but which securities or rights
are instead sold by the Depositary and the net proceeds distributed and (ii) the
amount of such proceeds.
SECTION 5.10. Exclusivity. The Company agrees not to appoint any
other depositary for issuance of American Depositary Receipts so long as The
Bank of New York is acting as Depositary hereunder, subject, however, to the
rights of the Company under Section 5.04.
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ARTICLE 6
AMENDMENT AND TERMINATION
SECTION 6.01. Amendment. The form of the Receipts and any provisions
of this Deposit Agreement may at any time and from time to time be amended by
agreement between the Company and the Depositary in any respect which they may
deem necessary or desirable. Any amendment which shall impose or increase any
fees or charges (other than taxes and other governmental charges, registration
fees, cable, telex or facsimile transmission costs, delivery costs or other such
expenses), or which shall otherwise prejudice any substantial existing right of
Owners, shall, however, not become effective as to outstanding Receipts until
the expiration of thirty days after notice of such amendment shall have been
given to the Owners of outstanding Receipts. Every Owner at the time any
amendment so becomes effective shall be deemed, by continuing to hold such
Receipt, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby. In no event shall any amendment impair the right
of the Owner of any Receipt to surrender such Receipt and receive therefor the
Deposited Securities represented thereby, except in order to comply with
mandatory provisions of applicable law.
SECTION 6.02. Termination. The Depositary shall at any time, at the
direction of the Company, terminate this Deposit Agreement by mailing notice of
such termination to the Owners of all Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Depositary may
likewise terminate this Deposit Agreement by mailing notice of such termination
to the Company and the Owners of all Receipts then outstanding, such termination
to be effective on a date specified in such notice not less than 30 days after
the date thereof, if at any time 60 days shall have expired after the Depositary
shall have delivered to the Company a written notice of its election to resign
and a successor depositary shall not have been appointed and accepted its
appointment as provided in Section 5.04. On and after the date of termination,
the Owner of a Receipt will, upon (a) surrender of such Receipt at the Corporate
Trust Office of the Depositary, (b) payment of the fee of the Depositary for the
surrender of Receipts referred to in Section 2.05, and (c) payment of any
applicable taxes or governmental charges, be entitled to delivery, to the Owner
or upon the Owner's order, of the amount of Deposited Securities represented by
the American Depositary Shares evidenced by such Receipt. If any Receipts shall
remain outstanding after the date of termination, the Depositary thereafter
shall discontinue the registration of transfers
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of Receipts, shall suspend the distribution of dividends to the Owners thereof,
and shall not give any further notices or perform any further acts under this
Deposit Agreement, except that the Depositary shall continue to collect
dividends and other distributions pertaining to Deposited Securities, shall sell
rights as provided in this Deposit Agreement, and shall continue to deliver
Deposited Securities, together with any dividends or other distributions
received with respect thereto and the net proceeds of the sale of any rights or
other property, in exchange for Receipts surrendered to the Depositary (after
deducting, in each case, the fee of the Depositary for the surrender of a
Receipt, any expenses for the account of the Owner of such Receipt in accordance
with the terms and conditions of this Deposit Agreement, and any applicable
taxes or governmental charges). At any time after the expiration of one year
from the date of termination, the Depositary may sell the Deposited Securities
then held hereunder and may thereafter hold uninvested the net proceeds of any
such sale, together with any other cash then held by it hereunder, unsegregated
and without liability for interest, for the pro rata benefit of the Owners of
Receipts which have not theretofore been surrendered, such Owners thereupon
becoming general creditors of the Depositary with respect to such net proceeds.
After making such sale, the Depositary shall be discharged from all obligations
under this Deposit Agreement, except to account for such net proceeds and other
cash (after deducting, in each case, the fee of the Depositary for the surrender
of a Receipt, any expenses for the account of the Owner of such Receipt in
accordance with the terms and conditions of this Deposit Agreement, and any
applicable taxes or governmental charges) and except as provided in Section
5.08. Upon the termination of this Deposit Agreement, the Company shall be
discharged from all obligations under this Deposit Agreement except for its
obligations to the Depositary under Sections 5.08 and 5.09 hereof.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Counterparts. This Deposit Agreement may be executed
in any number of counterparts, each of which shall be deemed an original and all
of such counterparts shall constitute one and the same instrument. Copies of
this Deposit Agreement shall be filed with the Depositary and the Custodian and
shall be open to inspection by any Owner during business hours.
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SECTION 7.02. No Third Party Beneficiaries. This Deposit Agreement
is for the exclusive benefit of the parties hereto and shall not be deemed to
give any legal or equitable right, remedy or claim whatsoever to any other
person.
SECTION 7.03. Severability. In case any one or more of the
provisions contained in this Deposit Agreement or in the Receipts should be or
become invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein or therein shall
in no way be affected, prejudiced or disturbed thereby.
SECTION 7.04. Binding Effect on Owners and Beneficial Owners. The
Owners and Beneficial Owners shall be bound by all of the terms and conditions
of this Deposit Agreement and of the Receipts by acceptance thereof.
SECTION 7.05. Notices. Any and all notices to be given to the
Company shall be deemed to have been duly given if personally delivered or sent
by mail or cable, telex or facsimile transmission confirmed by letter, addressed
to
Telesp Participacoes S.A.
SCN - Quadra CN2
Lote F - 2- Andar
Sala 206
Brasilia - DF, Brazil
Attention: __________
or any other place to which the Company may have transferred its principal
office.
Any and all notices to be given to the Depositary shall be deemed to
have been duly given if in English and personally delivered or sent by mail or
cable, telex or facsimile transmission confirmed by letter, addressed to The
Bank of New York, 101 Barclay Street, New York, New York 10286, Attention:
American Depositary Receipt Administration, or any other place to which the
Depositary may have transferred its Corporate Trust Office.
Any and all notices to be given to any Owner shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to such Owner at the
address of such Owner as it appears on the transfer books for Receipts of the
Depositary, or, if such Owner shall have filed with the Depositary a written
request that notices
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intended for such Owner be mailed to some other address, at the address
designated in such request.
Delivery of a notice sent by mail or cable, telex or facsimile
transmission shall be deemed to be effective at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a cable,
telex or facsimile transmission) is deposited, postage prepaid, in a post-office
letter box, provided, however, that delivery of a notice to the Company or the
Depositary shall be deemed to be effective when actually received by the Company
or the Depositary, as the case may be. The Depositary or the Company may,
however, act upon any cable, telex or facsimile transmission received by it,
notwithstanding that such cable, telex or facsimile transmission shall not
subsequently be confirmed by letter as aforesaid.
SECTION 7.06. Governing Law. This Deposit Agreement and the Receipts
shall be interpreted and all rights hereunder and thereunder and provisions
hereof and thereof shall be governed by the law of the State of New York.
SECTION 7.07. Headings. Headings contained herein are included for
convenience only and are not to be used in construing or interpreting any
provision hereof.
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<PAGE>
IN WITNESS WHEREOF, TELESP PARTICIPACOES S.A. and THE BANK OF NEW
YORK have duly executed this agreement as of the day and year first set forth
above and all Owners shall become parties hereto upon acceptance by them of
Receipts issued in accordance with the terms hereof.
TELESP PARTICIPACOES S.A.
By: /s/ Fernando Xavier Ferreira
-------------------------------
Fernando Xavier Ferreira
President and Director of
Investor Relations
By: /s/ Leoncio Vieira de Resende Neto
-------------------------------
Leoncio Vieira de Resende Neto
Vice President
THE BANK OF NEW YORK,
as Depositary
By: /s/ David S. Stueber
-------------------------------
David S. Stueber
Vice President
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<PAGE>
EXHIBIT A
AMERICAN DEPOSITARY SHARES
(Each American Depositary
Share represents ______
deposited Shares)
THE BANK OF NEW YORK
AMERICAN DEPOSITARY RECEIPT
FOR NON-VOTING PREFERRED STOCK
WITHOUT PAR VALUE OF
TELESP PARTICIPACOES S.A.
(ORGANIZED UNDER THE LAWS OF THE FEDERATIVE REPUBLIC OF BRAZIL)
The Bank of New York, as depositary (hereinafter called the
"Depositary"), hereby certifies that___________________________________________
________, or registered assigns IS THE OWNER OF_________________________________
AMERICAN DEPOSITARY SHARES
representing deposited non-voting preferred stock (herein called "Shares") of
Telesp Participacoes S.A., a sociedade anonima de economia mista (a limited
liability company) organized under the laws of The Federative Republic of Brazil
(herein called the "Company"). At the date hereof, each American Depositary
Share represents ___ Shares deposited or subject to deposit under the Deposit
Agreement (as such term is hereinafter defined) at the Sao Paulo office of Banco
Itau (herein called the "Custodian"). The Depositary's Corporate Trust Office is
located at a different address than its principal executive office. Its
Corporate Trust Office is located at 101 Barclay Street, New York, N.Y. 10286,
and its principal executive office is located at 48 Wall Street, New York, N.Y.
10286.
THE DEPOSITARY'S CORPORATE TRUST OFFICE ADDRESS IS
101 BARCLAY STREET, NEW YORK, N.Y. 10286
1. THE DEPOSIT AGREEMENT.
This American Depositary Receipt is one of an issue (herein called
"Receipts"), all issued and to be issued upon the terms and conditions set
forth in the deposit agreement, dated as of ____________ __, 1998 (herein
called the "Deposit Agreement"), by and among the Company, the Depositary, and
all Owners and Beneficial Owners from
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time to time of Receipts issued thereunder, each of whom by accepting a Receipt
agrees to become a party thereto and become bound by all the terms and
conditions thereof. The Deposit Agreement sets forth the rights of Owners and
Beneficial Owners of the Receipts and the rights and duties of the Depositary in
respect of the Shares deposited thereunder and any and all other securities,
property and cash from time to time received in respect of such Shares and held
thereunder (such Shares, securities, property, and cash are herein called
"Deposited Securities"). Copies of the Deposit Agreement are on file at the
Depositary's Corporate Trust Office in New York City and at the office or the
Custodian.
The statements made on the face and reverse of this Receipt are
summaries of certain provisions of the Deposit Agreement and are qualified by
and subject to the detailed provisions of the Deposit Agreement, to which
reference is hereby made. Capitalized terms defined in the Deposit Agreement and
not defined herein shall have the meanings set forth in the Deposit Agreement.
2. SURRENDER OF RECEIPTS AND WITHDRAWAL OF SHARES.
Upon surrender at the Corporate Trust Office of the Depositary of
this Receipt for the purpose of withdrawal of the Deposited Securities
represented by the American Depositary Shares evidenced hereby, and upon payment
of the fee of the Depositary provided in this Receipt, and subject to the terms
and conditions of the Deposit Agreement, the Owner hereof is entitled to
delivery, to him or upon his order, of the Deposited Securities at the time
represented by the American Depositary Shares for which this Receipt is issued.
Delivery of such Deposited Securities may be made by (a) (i) the delivery of
certificates in the name of the Owner hereof or as ordered by him or
certificates properly endorsed or accompanied by proper instruments of transfer
to such Owner or as ordered by him, or (ii) book-entry transfer of the Shares
represented by this Receipt to an account in the name of such Owner or as
ordered by him, and (b) delivery of any other securities, property and cash to
which such Owner is then entitled in respect of this Receipt to such Owner or as
ordered by him. Such delivery will be made at the option of the Owner hereof,
either at the office of the Custodian or at the Corporate Trust Office of the
Depositary, as provided in the Deposit Agreement; provided that the forwarding
of certificates for Shares or other Deposited Securities for such delivery at
the Corporate Trust Office of the Depositary shall be at the risk and expense of
the Owner hereof.
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3. TRANSFERS, SPLIT-UPS, AND COMBINATIONS OF RECEIPTS.
The transfer of this Receipt is registrable on the books of the
Depositary at its Corporate Trust Office by the Owner hereof in person or by a
duly authorized attorney, upon surrender of this Receipt properly endorsed for
transfer or accompanied by proper instruments of transfer and funds sufficient
to pay any applicable transfer taxes and the expenses of the Depositary and upon
compliance with such regulations, if any, as the Depositary may establish for
such purpose. This Receipt may be split into other such Receipts, or may be
combined with other such receipts into one Receipt, evidencing the same
aggregate number of American Depositary Shares as the Receipt or Receipts
surrendered. As a condition precedent to the execution and delivery,
registration of transfer, split-up, combination, or surrender of any Receipt,
the delivery of any distribution thereon, or withdrawal of any Deposited
Securities, the Company, the Depositary, the Custodian, or Registrar may require
payment from the depositor of the Shares or the presentor of the Receipt of a
sum sufficient to reimburse it for any tax or other governmental charge and any
stock transfer or registration fee with respect thereto (including any such tax
or charge and fee with respect to Shares being deposited or withdrawn) and
payment of any applicable fees as provided in this Receipt, may require the
production of proof satisfactory to it as to the identity and genuineness of any
signature and may also require compliance with such reasonable regulations the
Depositary may establish consistent with the provisions of the Deposit Agreement
or this Receipt, including, without limitation, this Article 3.
The delivery of Receipts against deposits of Shares generally or
against deposits of particular Shares may be suspended, or the transfer of
Receipts in particular instances may be refused, or the registration of transfer
of outstanding Receipts, or the combination or split-up of Receipts generally
may be suspended, during any period when the transfer books of the Depositary
are closed, or if any such action is deemed necessary or advisable by the
Depositary or the Company at any time or from time to time because of any
requirement of law or of any government or governmental body or commission, or
under any provision of the Deposit Agreement or this Receipt, or for any other
reason, subject to the provisions of the following sentence. Notwithstanding any
other provision of the Deposit Agreement or this Receipt, the surrender of
outstanding Receipts and withdrawal of Deposited Securities may be suspended
only for (i) temporary delays caused by closing the transfer books of the
Depositary or the Company or the deposit of Shares in
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connection with voting at a shareholders' meeting, or the payment of dividends,
(ii) the payment of fees, taxes and similar charges, and (iii) compliance with
any U.S. or foreign laws or governmental regulations relating to the Receipts or
to the withdrawal of the Deposited Securities, or (iv) any other reason that may
at any time be specified in paragraph I(A) (1) of the General Instructions to
Form F-6, as from time to time in effect, or any successor provision thereto.
Without limitation of the foregoing, the Depositary shall not knowingly accept
for deposit under the Deposit Agreement any Shares required to be registered
under the provisions of the Securities Act of 1933, unless a registration
statement is in effect as to such Shares.
4. LIABILITY OF OWNER OR BENEFICIAL OWNER FOR TAXES.
If any tax or other governmental charge shall become payable by the
Custodian or the Depositary with respect to any Receipt or any Deposited
Securities represented hereby, such tax or other governmental charge shall be
payable by the Owner or Beneficial Owner hereof to the Depositary. The
Depositary may refuse to effect any transfer of this Receipt or any combination
or split-up hereof or any withdrawal of Deposited Securities represented by
American Depositary Shares evidenced by such Receipt until such payment is made,
and may withhold any dividends or other distributions, or may sell for the
account of the Owner or Beneficial Owner hereof any part or all of the Deposited
Securities represented by the American Depositary Shares evidenced by this
Receipt, and may apply such dividends or other distributions or the proceeds of
any such sale in payment of such tax or other governmental charge (and any taxes
or expenses arising out of such sale), and the Owner or Beneficial Owner hereof
shall remain liable for any deficiency.
5. WARRANTIES OF DEPOSITORS.
Every person depositing Shares hereunder and under the Deposit
Agreement shall be deemed thereby to represent and warrant that such Shares and
each certificate therefor are validly issued, fully paid, non-assessable, and
free of any preemptive rights of the holders of outstanding Shares and that the
person making such deposit is duly authorized so to do. Every such person shall
also be deemed to represent that (i) the Shares presented for deposit are not,
and the Receipts issuable upon such deposit will not be, restricted securities
within the meaning of Rule 144(a) (3) under the Securities Act of 1933, and (ii)
the deposit of such Shares and the sale of Receipts evidencing American
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Depositary Shares representing such Shares by that person are not otherwise
restricted under the Securities Act of 1933. Such representations and warranties
shall survive the deposit of Shares and issuance of Receipts.
6. FILING PROOFS, CERTIFICATES, AND OTHER INFORMATION.
Any person presenting Shares for deposit or any Owner of a Receipt
may be required from time to time to file with the Depositary or the Custodian
such proof of citizenship or residence, exchange control approval, legal or
beneficial ownership of Receipts, Deposited Securities or other securities,
compliance with all applicable laws or regulations or terms of the Deposit
Agreement or such Receipt, or such information relating to the registration on
the books of the Company or the Foreign Registrar, if applicable, to execute
such certificates and to make such representations and warranties, as the
Depositary may deem necessary or proper. The Depositary may withhold the
delivery or registration of transfer of any Receipt or the distribution of any
dividend or sale or distribution of rights or of the proceeds thereof or the
delivery of any Deposited Securities until such proof or other information is
filed or such certificates are executed or such representations and warranties
made. The Depositary shall from time to time advise the Company of the
availability of any such proofs, certificates or other information and shall
provide copies thereof to the Company as promptly as practicable upon request by
the Company, unless such disclosure is prohibited by law.
7. CHARGES OF DEPOSITARY.
The Company agrees to pay the fees and reasonable out-of-pocket
expenses of the Depositary and those of any Registrar only in accordance with
agreements in writing entered into between the Depositary and the Company from
time to time. The Depositary shall present detailed statement for such expenses
to the Company at least once every three months. The charges and expenses of the
Custodian are for the sole account of the Depositary.
The following charges (to the extent permitted by applicable law or
the rules of any securities exchange on which the American Depositary Shares are
admitted for trading) shall be incurred by any party depositing or withdrawing
Shares or by any party surrendering Receipts or to whom Receipts are issued
(including, without limitation, issuance pursuant to a stock dividend or stock
split declared by the Company or an exchange of stock regarding
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<PAGE>
the Receipts or Deposited Securities or a distribution of Receipts pursuant to
Section 4.03 of the Deposit Agreement), whichever applicable: (1) taxes and
other governmental charges, (2) such registration fees as may from time to time
be in effect for the registration of transfers of Shares generally on the Share
register of the Company or Foreign Registrar and applicable to transfers of
Shares to the name of the Depositary or its nominee or the Custodian or its
nominee on the making of deposits or withdrawals under the terms of the Deposit
Agreement, (3) such cable, telex and facsimile transmission expenses as are
expressly provided in the Deposit Agreement, (4) such expenses as are incurred
by the Depositary in the conversion of foreign currency pursuant to Section 4.05
of the Deposit Agreement, (5) a fee not in excess of $5.00 or less per 100
American Depositary Shares (or portion thereof) for the execution and delivery
of Receipts pursuant to Sections 2.03 or 4.03 of the Deposit Agreement and the
surrender of Receipts pursuant to Section 2.05 of the Deposit Agreement and (6)
a fee for the distribution of proceeds of sales of securities or rights pursuant
to Sections 4.02 or 4.04, respectively, of the Deposit Agreement, such fee
(which may be deducted from such proceeds) being in an amount equal to the
lesser of (i) the fee for the issuance of American Depositary Shares referred to
above which would have been charged as a result of the deposit by Owners of
securities (for purposes of this clause 6 treating all such securities as if
they were Shares) or Shares received in exercise of rights distributed to them
pursuant to Sections 4.02 or 4.04, respectively, but which securities or rights
are instead sold by the Depositary and the net proceeds distributed and (ii) the
amount of such proceeds.
The Depositary, subject to Article 8 hereof, may own and deal in any
class of securities of the Company and its affiliates and in Receipts.
8. PRE-RELEASE OF RECEIPTS.
Neither the Depositary nor the Custodian shall deliver Shares, by
physical delivery, book entry or otherwise (other than to the Company or its
agent as contemplated by Section 4.08 of the Deposit Agreement), or otherwise
permit Shares to be withdrawn from the facility created hereby, except upon the
receipt and cancellation of Receipts.
The Depositary may issue Receipts against rights to receive Shares
from the Company (or any agent of the Company recording Share ownership). No
such issue of
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<PAGE>
Receipts will be deemed a "Pre-Release" subject to the restrictions of the
following paragraph.
In its capacity as Depositary, the Depositary will not deliver
Shares held under the Deposit Agreement prior to the receipt and cancellation by
the Depositary of Receipts. The Depositary may execute and deliver Receipts
prior to the receipt of Shares pursuant to Section 2.02 of the Deposit Agreement
("Pre-Release"). The Depositary may, pursuant to Section 2.05 of the Deposit
Agreement, deliver Shares upon the receipt and cancellation of Receipts which
have been Pre-Released, whether or not such cancellation is prior to the
termination of such Pre-Release or the Depositary knows that such Receipt has
been Pre-Released. The Depositary may receive Receipts in lieu of Shares in
satisfaction of a Pre-Release. Each Pre-Release will be (a) preceded or
accompanied by a written representation and agreement from the person to whom
Receipts or Shares are to be delivered (the "Pre-Release") that the Pre-Release,
or its customer, (i) owns the Shares or Receipts to be remitted, as the case may
be, (ii) assigns all beneficial right, title and interest in such Shares or
Receipts, as the case may be, to the Depositary for the benefit of the Owners,
and (iii) agrees in effect to hold such Shares or Receipts, as the case may be,
for the account of the Depositary until delivery of the same upon the
Depositary's request, (b) at all times fully collateralized with cash or U.S.
government securities, (c) terminable by the Depositary on not more than five
(5) business days notice, and (d) subject to such further indemnities and credit
regulations as the Depositary deems appropriate. The number of American
Depositary Shares which are outstanding at any time as a result of Pre-Releases
will not normally exceed thirty percent (30%) of the American Depositary Shares
outstanding (without giving effect to American Depositary Shares evidenced by
Receipts outstanding as a result of Pre-Releases); provided, however, that the
Depositary reserves the right to disregard such limit from time to time as it
deems appropriate and may, with the prior written consent of the Company, change
such limit for purposes of general application. The Depositary will also set
limits with respect to the number of Pre-Released Receipts involved in
transactions to be done hereunder with any one person on a case by case basis as
it deems appropriate. The collateral referred to in clause (b) above shall be
held by the Depositary for the benefit of the Owners as security for the
performance of the obligations to deliver Shares or Receipts set forth in clause
(a) above (and shall not, for the avoidance of doubt, constitute Deposited
Securities hereunder).
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The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
9. TITLE TO RECEIPTS.
It is a condition of this Receipt, and every successive holder and
Owner of this Receipt by accepting or holding the same consents and agrees, that
title to this Receipt when properly endorsed or accompanied by proper
instruments of transfer, is transferable by delivery with the same effect as in
the case of a negotiable instrument, provided, however, that the Depositary and
the Company, notwithstanding any notice to the contrary, may treat the person in
whose name this Receipt is registered on the books of the Depositary as the
absolute owner hereof for the purpose of determining the person entitled to
distribution of dividends or other distributions or to any notice provided for
in the Deposit Agreement or for all other purposes.
10. VALIDITY OF RECEIPT.
This Receipt shall not be entitled to any benefits under the Deposit
Agreement or be valid or obligatory for any purpose, unless this Receipt shall
have been executed by the Depositary by the manual signature of a duly
authorized signatory of the Depositary; provided, however, that such signature
may be a facsimile if a Registrar for the Receipts shall have been appointed and
such Receipts are counter-signed by the manual signature of a duly authorized
officer of the Registrar.
11. REPORTS; INSPECTION OF TRANSFER BOOKS.
The Company currently furnishes the Securities and Exchange
Commission (hereinafter called the "Commission") with certain public reports and
documents required by foreign law or otherwise under Rule 12g3-2(b) under the
Securities Exchange Act of 1934. Such reports and communications will be
available for inspection and copying by Beneficial Owners and Owners at the
public reference facilities maintained by the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Depositary will make available for inspection by Owners of
Receipts at its Corporate Trust Office any reports and communications, including
any proxy soliciting material, received from the Company which are both (a)
received by the Depositary as the holder of the Deposited Securities and (b)
made generally available to the
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holders of such Deposited Securities by the Company. The Depositary will also
send to Owners of Receipts copies of such reports when furnished by the Company
pursuant to the Deposit Agreement. Any such reports and communications,
including any such proxy soliciting material, furnished to the Depositary by the
Company shall be furnished in English to the extent such materials are required
to be translated into English pursuant to any regulations of the Commission. The
Company agrees to provide to the Depositary, at the Company's expense (unless
otherwise agreed in writing by the Company and the Depositary), all documents
that it provides to the Custodian.
In the event the Receipts are listed or quoted on a national
securities exchange in the United States, the Company will promptly transmit to
the Custodian English language versions of any reports and other communications
that are made generally available by the Company to holders of its Shares or
other Deposited Securities and the Depositary will, at the Company's expense
(unless otherwise agreed in writing by the Company and the Depositary), arrange
for the prompt transmittal by the Custodian to the Depositary of such notices,
reports and other communications and arrange for the mailing, at the Company's
expense (unless otherwise agreed in writing by the Company and the Depositary),
of copies thereof (or if requested by the Company, a summary of any such notice
provided by the Company) to all Owners or, at the request of the Company, make
such notices, reports and other communications available to all Owners on a
basis similar to that for holders of Shares or other Deposited Securities, or on
such other basis as the Company may advise the Depositary may be required by any
applicable law, regulation or stock exchange requirement. The Company has
delivered to the Depositary and the Custodian a copy of the provisions of or
governing the Shares and any other Deposited Securities issued by the Company or
any affiliate of the Company, and promptly upon any amendment thereto or change
therein, the Company shall deliver to the Depositary and the Custodian a copy of
such provisions as so amended or changed. The Depositary may rely upon such copy
for all purposes of this Deposit Agreement. The Depositary will, at the expense
of the Company (unless otherwise agreed in writing by the Company and the
Depositary), make such copy and such notices, reports and other communications
available for inspection by Owners at the Depositary's office, at the office of
the Custodian and at any other designated transfer offices.
The Depositary will keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners
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of Receipts provided that such inspection shall not be for the purpose of
communicating with Owners of Receipts for an object other her than the business
of the Company, including, without limitation, a matter related to the Deposit
Agreement or the Receipts.
The Depositary may close the transfer books after consultation with
the Company to the extent practicable, at any time or from time to time, when
deemed expedient by it in connection with the performance of its duties under
the Deposit Agreement or at the request of the Company, provided that any such
closing of the transfer books shall be subject to the provisions of Section 2.06
of the Deposit Agreement which limit the suspension of withdrawals of Shares.
12. DIVIDENDS AND DISTRIBUTIONS.
Whenever the Depositary or on its behalf, its agent, receives any
cash dividend or other cash distribution on any Deposited Securities, the
Depositary will, if at the time of receipt thereof any amounts received in a
foreign currency can in the judgment of the Depositary be converted on a
reasonable basis into United States dollars transferable to the United States,
and subject to the Deposit Agreement, convert or will cause its agent to
convert, as promptly as practicable (and in any event within one Business Day)
after its receipt of such dividend or distribution (unless otherwise prohibited
or prevented by law), such dividend or distribution into dollars and will, as
promptly as practicable, distribute the amount thus received (net of the
expenses of the Depositary as provided in Article 7 hereof and Section 5.09 of
the Deposit Agreement) to the Owners of Receipts entitled thereto, provided,
however, that in the event that the Company or the Depositary is required to
withhold and does withhold from such cash dividend or other cash distribution in
respect of any Deposited Securities an amount on account of taxes, the amount
distributed to the Owners of the Receipts evidencing American Depositary Shares
representing such Deposited Securities shall be reduced accordingly.
Subject to the provisions of Section 4.11 and 5.09 of the Deposit
Agreement, whenever the Depositary receives any distribution other than a
distribution described in Sections 4.01, 4.03 or 4.04 of the Deposit Agreement,
the Depositary will, as promptly as practicable, cause the securities or
property received by it to be distributed to the Owners of Receipts entitled
thereto, in any manner that the Depositary may deem equitable and practicable
for accomplishing such distribution; provided, however, that if in the opinion
of the Depositary such distribution cannot be
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made proportionately among the Owners of Receipts entitled thereto, or if for
any other reason the Depositary deems such distribution not to be feasible, the
Depositary may, after consultation with the Company, adopt such method as it may
deem equitable and practicable for the purpose of effecting such distribution,
including, but not limited to, the public or private sale of the securities or
property thus received, or any part thereof, and the net proceeds of any such
sale (net of the fees of the Depositary as provided in Article 7 hereof and
Section 5.09 of the Deposit Agreement and any expenses in connection with such
sale) shall be distributed by the Depositary to the Owners of Receipts entitled
thereto as in the case of a distribution received in cash, all in the manner and
subject to the conditions set forth in the Deposit Agreement.
If any distribution consists of a dividend in, or free distribution
of, Shares, the Depositary may or shall, if the Company shall so request,
distribute, as promptly as practicable, to the Owners of outstanding Receipts
entitled thereto, additional Receipts evidencing an aggregate number of American
Depositary Shares representing the amount of Shares received as such dividend or
free distribution subject to the terms and conditions of the Deposit Agreement
with respect to the deposit of Shares and the issuance of American Depositary
Shares evidenced by Receipts, including the withholding of any tax or other
governmental charge as provided in Section 4.11 of the Deposit Agreement and the
payment of the fees of the Depositary as provided in Article 7 hereof and
Section 5.09 of the Deposit Agreement. In lieu of delivering Receipts for
fractional American Depositary Shares in any such case, the Depositary will sell
the amount of Shares represented by the aggregate of such fractions and
distribute the net proceeds, all in the manner and subject to the conditions set
forth in the Deposit Agreement. If additional Receipts are not so distributed,
each American Depositary Share shall thenceforth also represent the additional
Shares distributed upon the Deposited Securities represented thereby. In
addition, the Depositary may withhold any distribution of Receipts under this
paragraph and Section 4.03 of the Deposit Agreement if it has not received
satisfactory assurances from the Company that such distribution does not require
registration under the Securities Act or is exempt from registration under the
provisions of such Act; provided that, in any such event, the Depositary may
sell the Shares distributed upon the Deposited Securities and distribute the net
proceeds, all in the manner and subject to the conditions described in this
Article and Section 4.01 of the Deposit Agreement.
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In the event that the Depositary determines that any distribution in
property other than cash (including Shares and rights to subscribe therefor) is
subject to any tax or other governmental charge which the Depositary is
obligated to withhold, the Depositary may by public or private sale dispose of
all or a portion of such property (including Shares and rights to subscribe
therefor) in such amounts and in such manner as the Depositary deems necessary
and practicable to pay any such taxes or charges, and the Depositary shall
distribute the net proceeds of any such sale after deduction of such taxes or
charges to the Owners of Receipts entitled thereto.
13. RIGHTS.
In the event that the Company shall offer or cause to be offered to
the holders of any Deposited Securities any rights to subscribe for additional
Shares or any rights of any other nature, the Depositary, after consultation
with the Company, shall have discretion as to the procedure to be followed in
making such rights available to any Owners or in disposing of such rights on
behalf of any Owners and making the net proceeds available to such Owners or, if
by the terms of such rights offering or for any other reason it would be
unlawful for the Depositary either to make such rights available to any Owners
or to dispose of such rights and make the net proceeds available to such Owners,
then the Depositary shall allow the rights to lapse. If at the time of the
offering of any rights the Depositary determines in its discretion that it is
lawful and feasible to make such rights available to all or certain Owners but
not to other Owners, the Depositary may, and at the request of the Company
shall, distribute to any Owner to whom it determines the distribution to be
lawful and feasible, in proportion to the number of American Depositary Shares
held by such Owner, warrants or other instruments therefor in such form as it
deems appropriate.
In circumstances in which rights would otherwise not be distributed,
if an Owner requests the distribution of warrants or other instruments in order
to exercise the rights allocable to the American Depositary Shares of such Owner
hereunder, the Depositary will promptly make such rights available to such Owner
upon written notice from the Company to the Depositary that (a) the Company has
elected in its sole discretion to permit such rights to be exercised and (b)
such Owner has executed such documents as the Company has determined in its sole
discretion are reasonably required under applicable law.
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If the Depositary has distributed warrants or other instruments for
rights to all or certain Owners, then upon instruction from such an Owner
pursuant to such warrants or other instruments to the Depositary from such
Owners to exercise such rights, upon payment by such Owner to the Depositary for
the account of such Owner of an amount equal to the purchase price of the Shares
to be received upon the exercise of the rights, and upon payment of the fees of
the Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall, on behalf of such Owner, exercise the rights
and purchase the Shares, and the Company shall cause the Shares so purchased to
be delivered to the Depositary on behalf of such Owner. As agent for such Owner,
the Depositary will cause the Shares so purchased to be deposited pursuant to
Section 2.02 of the Deposit Agreement, and shall, pursuant to Section 2.03 of
the Deposit Agreement, execute and deliver Receipts to such Owner. In the case
of a distribution pursuant to this paragraph, such Receipts shall be legended in
accordance with applicable U.S. laws, and shall be subject to the appropriate
restrictions on sale, deposit, cancellation, and transfer under such laws.
If the Depositary determines that it is not lawful or feasible to
make such rights available to all or certain Owners, it may, and at the request
of the Company will use its best efforts that are reasonable under the
circumstances to, sell the rights, warrants or other instruments in proportion
to the number of American Depositary Shares held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales (net of the fees of the Depositary as
provided in Section 5.09 of the Deposit Agreement, any expenses in connection
with such sale and all taxes and governmental charges payable in connection with
such rights and subject to the terms and conditions of the Deposit Agreement)
for the account of such Owners otherwise entitled to such rights, warrants or
other instruments, upon an averaged or other practical basis without regard to
any distinctions among such Owners because of exchange restrictions or the date
of delivery of any Receipt or otherwise. Such proceeds shall be distributed as
promptly as practicable in accordance with Section 4.01 of the Deposit
Agreement.
If a registration statement under the Securities Act of 1933 is
required with respect to the securities to which any rights relate in order for
the Company to offer such rights to Owners and sell the securities represented
by such rights, the Depositary will not offer such rights to Owners having an
address in the United States (as defined in
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Regulation S) unless and until such a registration statement is in effect, or
unless the offering and sale or such securities and such rights to such Owners
are exempt from registration under the provisions of such Act.
The Depositary shall not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner in particular.
14. CONVERSION OF FOREIGN CURRENCY.
Whenever the Depositary or the Custodian shall receive foreign
currency, by way of dividends or other distributions or the net proceeds from
the sale of securities, property or rights, and if at the time of the receipt
thereof the foreign currency so received can, pursuant to applicable law, be
converted on a reasonable basis into Dollars and the resulting Dollars
transferred to the United States, the Depositary or the Custodian shall convert
or cause to be converted as promptly as practicable (and in any event within one
Business Day of its or its agent's receipt of such Foreign Currency), by sale
or in any other manner that it may determine in accordance with applicable law,
such Foreign Currency into Dollars. If, at the time of conversion of such
Foreign Currency into Dollars, such Dollars can, pursuant to applicable law, be
transferred outside of Brazil for distribution to Owners entitled thereto, such
Dollars shall be distributed as promptly as practicable to the Owners entitled
thereto or, if the Depositary shall have distributed any rights, warrants or
other instruments which entitle the holders thereof to such Dollars, then to the
holders of such rights, warrants and/or instruments upon surrender thereof for
cancellation. Such distribution or conversion may be made upon an averaged or
other practicable basis without regard to any distinctions among Owners on
account of exchange restrictions, the date of delivery of any Receipt or
otherwise and shall be net of any expenses of conversion into Dollars incurred
by the Depositary as provided in Section 5.09 of the Deposit Agreement.
If such conversion, transfer or distribution can be effected only
with the approval or license of any government or agency thereof, the Depositary
shall file as promptly as practicable such application for approval or license;
however, the Depositary shall be entitled to rely upon Brazilian local counsel
in such matters, which counsel shall be instructed to act as promptly as
possible.
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If at any time foreign currency received by the Depositary or the
Custodian is not, pursuant to applicable law, convertible, in whole or in part,
into Dollars transferable to the United States, or if any approval or license of
any government or agency thereof which is required for such conversion is denied
or in the opinion of the Depositary cannot be promptly obtained, the Depositary
shall, (a) as to that portion of the foreign currency that is convertible into
Dollars, make such conversion and, if permitted by applicable law, transfer such
Dollars to the United States for distribution to Owners in accordance with the
first paragraph of this Article 13 or, if such transfer is not so permitted,
hold such Dollars uninvested and without liability for interest thereon for the
respective accounts of the Owners entitled to receive the same, and (b) as to
the nonconvertible balance, if any, (i) if requested in writing by an Owner,
distribute or cause the Custodian to distribute the foreign currency (or an
appropriate document evidencing the right to receive such foreign currency)
received by the Depositary or Custodian to such Owner and (ii) the Depositary
shall hold or shall cause the Custodian to hold any amounts of nonconvertible
foreign currency not distributed pursuant to the immediate preceding subclause
(i) uninvested and without liability for interest thereon for the respective
accounts of the Owners entitled to receive the same.
15. RECORD DATES.
Whenever any cash dividend or other cash distribution shall become
payable or any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever for any
reason the Depositary causes a change in the number of Shares that are
represented by each American Depositary Share, or whenever the Depositary shall
receive notice of any meeting of holders of Shares or other Deposited
Securities, or whenever the Depositary shall find it necessary or convenient,
the Depositary shall fix a record date, which date shall, to the extent
practicable, be either (x) the same date as the record date fixed by the
Company, or (y) if different from the record date fixed by the Company, be fixed
after consultation with the Company (a) for the determination of the Owners of
Receipts who shall be (i) entitled to receive such dividend, distribution or
rights or the net proceeds of the sale thereof or (ii) entitled to give
instructions for the exercise of voting rights at any such meeting, or (b) on or
after which each American Depositary Share will represent the changed number of
Shares, subject to the provisions of the Deposit Agreement.
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16. VOTING OF DEPOSITED SECURITIES.
At any time that the Depositary has the right to vote the Shares
represented by the American Depositary Shares, the Depositary will comply with
the following provisions.
As soon as practicable after receipt of notice of any meeting or
solicitation of consents or proxies of holders of Shares or other Deposited
Securities, if requested in writing by the Company, the Depositary shall, as
soon as practicable thereafter, mail to the Owners of Receipts a notice, the
form of which notice shall be in the sole discretion of the Depositary, which
shall contain (a) such information as is contained in such notice of meeting,
(or, if requested by the Company a summary of such information provided by the
Company), (b) a statement that the Owners of Receipts as of the close of
business on a specified record date will be entitled, subject to any applicable
provision of Brazilian law and of the Charter of the Company, to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to the
amount of Shares or other Deposited Securities represented by their respective
American Depositary Shares and (c) a statement as to the manner in which such
instructions may be given, including an express indication that instructions may
be given or deemed given in accordance with the last sentence of this paragraph
if no instruction is received, to the Depositary to give a discretionary proxy
to a person designated by the Company. Upon the written request of an Owner of a
Receipt on such record date, received on or before the date established by the
Depositary for such purpose, the Depositary shall endeavor insofar as
practicable to vote or cause to be voted the amount of Shares or other Deposited
Securities represented by such American Depositary Shares evidenced by such
Receipt in accordance with the instructions set forth in such request. The
Depositary shall not itself exercise any voting discretion over any Deposited
Securities. If no instructions are received by the Depositary from any Owner
with respect to any of the Deposited Securities represented by the American
Depositary Shares evidenced by such Owner's Receipts on or before the date
established by the Depositary for such purpose, the Depositary shall deem such
Owner to have instructed the Depositary to give a discretionary proxy to a
person designated by the Company with respect to such Deposited Securities and
the Depositary shall give a discretionary proxy to a person designated by the
Company to vote such Deposited Securities, provided that no such instruction
shall be deemed given and no such discretionary proxy shall be given with
respect to any matter as to which
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the Company informs the Depositary (and the Company agrees to provide such
information as promptly as practicable in writing) that (x) the Company does not
wish such proxy given, (y) substantial opposition exists or (z) such materially
and adversely affects the rights of holders of Shares.
Subject to the rules of any securities exchange on which American
Depositary Shares or the Deposited Securities represented thereby are listed,
the Depositary shall if requested by the Company deliver, at least two Business
Days prior to the date of such meeting, to the Company, to the attention of its
Secretary, copies of all instructions received from Owners in accordance with
which the Depositary will vote, or cause to be voted, the Deposited Securities
represented by the American Depositary Shares evidenced by such Receipts at such
meeting. Delivery of instructions will be made at the expense of the Company
(unless otherwise agreed in writing by the Company and the Depositary)
17. CHANGES AFFECTING DEPOSITED SECURITIES.
In circumstances where the provisions of Section 4.03 of the Deposit
Agreement do not apply, upon any change in nominal value, change in par value,
split-up, consolidation, or any other reclassification of Deposited Securities,
or upon any recapitalization, reorganization, merger or consolidation, or sale
of assets affecting the Company or to which it is a party, any securities which
shall be received by the Depositary or a Custodian in exchange for or in
conversion of or in respect of Deposited Securities shall be treated as new
Deposited Securities under the Deposit Agreement, and American Depositary Shares
shall thenceforth represent the new Deposited Securities so received in exchange
or conversion, unless additional Receipts are delivered pursuant to the
following sentence. In any such case the Depositary may, and shall if the
Company shall so request, execute and deliver additional Receipts as in the case
of a dividend in Shares, or call for the surrender of outstanding Receipts to be
exchanged for new Receipts specifically describing such new Deposited
Securities.
18. LIABILITY OF THE COMPANY AND DEPOSITARY.
Neither the Depositary nor the Company nor any of their respective
directors, employees, agents or affiliates shall incur any liability to any
Owner or Beneficial Owner, if by reason of any provision of any present or
future law or regulation of the United States or any other country, or
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of any other governmental or regulatory authority, or by reason of any
provision, present or future, of the Charter of the Company, or by reason of any
act of God or war or other circumstances beyond its control, the Depositary or
the Company shall be prevented or forbidden from or be subject to any civil or
criminal penalty on account of doing or performing any act or thing which by the
terms of the Deposit Agreement it is provided shall be done or performed; nor
shall the Depositary or the Company nor any of their respective directors,
employees, agents or affiliates incur any liability to any Owner or Beneficial
Owner of a Receipt by reason of any non-performance or delay, caused as
aforesaid, in the performance of any act or thing which by the terms of the
Deposit Agreement it is provided shall or may be done or performed, or by reason
of any exercise of, or failure to exercise, any discretion provided for in the
Deposit Agreement. Where, by the terms of a distribution pursuant to Sections
4.01, 4.02 or 4.03 of the Deposit Agreement, or an offering or distribution
pursuant to Section 4.04 of the Deposit Agreement, such distribution or offering
may not be made available to Owners of Receipts, and the Depositary may not
dispose of such distribution or offering on behalf of such Owners and make the
net proceeds available to such Owners, then the Depositary shall not make such
distribution or offering, and shall allow any rights, if applicable, to lapse.
Neither the Company nor the Depositary assumes any obligation or shall be
subject to any liability under the Deposit Agreement to Owners or Beneficial
Owners of Receipts, except that they agree to perform their obligations
specifically set forth in the Deposit Agreement without negligence or bad faith.
The Depositary shall not be subject to any liability with respect to the
validity or worth of the Deposited Securities. Neither the Depositary nor the
Company shall be under any obligation to appear in, prosecute or defend any
action, suit, or other proceeding in respect of any Deposited Securities or in
respect of the Receipts, which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all expenses and
liability shall be furnished as often as may be required, and the Custodian
shall not be under any obligation whatsoever with respect to such proceedings,
the responsibility of the Custodian being solely to the Depositary. Neither the
Depositary nor the Company shall be liable for any action or nonaction by it in
reliance upon the advice of or information from legal counsel, accountants, any
person presenting Shares for deposit, any Owner or Beneficial Owner of a
Receipt, or any other person believed by it in good faith to be competent to
give such advice or information. The Depositary shall not be responsible for any
failure to carry out any instructions to vote any of the Deposited
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Securities, or for the manner in which any such vote is cast or the effect of
any such vote, provided that any such action or nonaction is in good faith. The
Depositary shall not be liable for any acts or omissions made by a successor
depositary whether in connection with a previous act or omission of the
Depositary or in connection with a matter arising wholly after the removal or
resignation of the Depositary, provided that in connection with the issue out of
which such potential liability arises, the Depositary performed its obligations
without negligence or bad faith while it acted as Depositary.
The Company agrees to indemnify the Depositary, its directors,
employees, agents and affiliates and any Custodian against, and hold each of
them harmless from, any liability or expense (including, but not limited to, the
reasonable fees and expenses of counsel) which may arise out of acts performed
or omitted, in accordance with the provisions of the Deposit Agreement and of
the Receipts, as the same may be amended, modified, or supplemented from time to
time, (i) by either the Depositary or a Custodian or their respective directors,
employees, agents and affiliates, except for any liability or expense arising
out of the negligence or bad faith of either of them, and except to the extent
that such liability or expense arises out of information relating to the
Depositary or the Custodian, as applicable, furnished in writing to the Company
by the Depositary or the Custodian, as applicable, expressly for use in any
registration statement, proxy statement, prospectus (or placement memorandum) or
preliminary prospectus (or preliminary placement memorandum) relating to the
Shares, or omissions from such information; or (ii) by the Company or any of its
directors, employees, agents and affiliates. The indemnities contained in this
paragraph shall not extend to any liability or expense which may arise out of
any Pre-Release.
No disclaimer of liability under the Securities Act of 1933 is
intended by any provisions of the Deposit Agreement.
The Depositary, subject to Sections 2.05 and 2.09 of the Deposit
Agreement, may own and deal in any class of securities of the Company and its
affiliates and in Receipts.
19. RESIGNATION AND REMOVAL OF THE DEPOSITARY; APPOINTMENT OF
SUCCESSOR CUSTODIAN.
The Depositary may at any time resign as Depositary hereunder by
written notice of its election so to do
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delivered to the Company, such resignation to take effect upon the appointment
of a successor depositary and its acceptance of such appointment as provided in
the Deposit Agreement. The Depositary may at any time be removed by the Company
by written notice of such removal, effective upon the appointment of a successor
depositary and its acceptance of such appointment as provided in the Deposit
Agreement. Whenever the Depositary in its discretion determines that it is in
the best interest of the Owners of Receipts to do so, it may appoint a
substitute or additional custodian or custodians.
20. AMENDMENT.
The form of the Receipts and any provisions of the Deposit Agreement
may at any time and from time to time be amended by agreement between the
Company and the Depositary in any respect which they may deem necessary or
desirable. Any amendment which shall impose or increase any fees or charges
(other than taxes and other governmental charges, registration fees and cable,
telex or facsimile transmission costs, delivery costs or other such expenses),
or which shall otherwise prejudice any substantial existing right of Owners of
Receipts, shall, however, not become effective as to outstanding Receipts until
the expiration of thirty days after notice of such amendment shall have been
given to the Owners of outstanding Receipts. Every Owner of a Receipt at the
time any amendment so becomes effective shall be deemed, by continuing to hold
such Receipt, to consent and agree to such amendment and to be bound by the
Deposit Agreement as amended thereby. In no event shall any amendment impair the
right of the Owner of any Receipt to surrender such Receipt and receive therefor
the Deposited Securities represented thereby except in order to comply with
mandatory provisions of applicable law.
21. TERMINATION OF DEPOSIT AGREEMENT.
The Depositary at any time, at the direction of the Company, shall
terminate the Deposit Agreement by mailing notice of such termination to the
Owners of all Receipts then outstanding at least 30 days prior to the date fixed
in such notice for such termination. The Depositary may likewise terminate the
Deposit Agreement by mailing notice of such termination to the Company and the
Owners of all Receipts then outstanding, such termination to be effective on a
date specified in such notice not less than 30 days after the date thereof, if
at any time 60 days shall have expired after the Depositary shall have delivered
to the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and
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accepted its appointment as provided in the Deposit Agreement. On and after the
date of termination, the Owner of a Receipt will, upon (a) surrender of such
Receipt at the Corporate Trust Office of the Depositary, (b) payment of the fee
of the Depositary for the surrender of Receipts referred to in Section 2.05 of
the Deposit Agreement, and (c) payment of any applicable taxes or governmental
charges, be entitled to delivery, to the Owner or upon the Owner's order, of the
amount of Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt. If any Receipts shall remain outstanding after the
date of termination, the Depositary thereafter shall discontinue the
registration of transfers of Receipts, shall suspend the distribution of
dividends to the Owners thereof, and shall not give any further notices or
perform any further acts under the Deposit Agreement, except that the Depositary
shall continue to collect dividends and other distributions pertaining to
Deposited Securities, shall sell rights as provided in the Deposit Agreement,
and shall continue to deliver Deposited Securities, together with any dividends
or other distributions received with respect thereto and the net proceeds of the
sale of any rights or other property, in exchange for Receipts surrendered to
the Depositary (after deducting, in each case, the fee of the Depositary for the
surrender of a Receipt, any expenses for the account of the Owner of such
Receipt in accordance with the terms and conditions of the Deposit Agreement,
and any applicable taxes or governmental charges). At any time after the
expiration of one year from the date of termination, the Depositary may sell the
Deposited Securities then held under the Deposit Agreement and may thereafter
hold uninvested the net proceeds of any such sale, together with any other cash
then held by it thereunder, unsegregated and without liability for interest, for
the pro rata benefit of the Owners of Receipts which have not theretofore been
surrendered, such Owners thereupon becoming general creditors of the Depositary
with respect to such net proceeds. After making such sale, the Depositary shall
be discharged from all obligations under the Deposit Agreement, except to
account for such net proceeds and other cash (after deducting, in each case, the
fee of the Depositary for the surrender of a Receipt, any expenses for the
account of the Owner of such Receipt in accordance with the terms and conditions
of the Deposit Agreement, and any applicable taxes or governmental charges) and
except as provided in Section 5.08 of the Deposit Agreement. Upon the
termination of the Deposit Agreement, the Company shall be discharged from all
obligations under the Deposit Agreement except for its obligations to the
Depositary with respect to indemnification, charges, and expenses.
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EXHIBIT 10.1
MODELO DE
CONTRATO DE CONCESSAO DO SERVICO TELEFONICO FIXO COMUTADO LOCAL
(EMPRESAS DO STB, EXCETO EMBRATEL)
Pelo presente instrumento, de um lado a Agencia Nacional de
Telecomunicacoes, doravante denominada ANATEL, entidade integrante da UNIAO e
nos termos da Lei Federal n 9.472 de 16 de Julho de 1997, Lei Geral de
Telecomunicacoes - LGT, incumbida do exercicio do Poder Concedente, ora
representada pelo seu Presidente Renato Navarro Guerreiro, [qualificar]
conjuntamente com o Conselheiro **** [qualificar], conforme aprovacao do seu
Conselho Diretor constante da Resolucao n ****, e, de outro a [nome e
qualificacao da concessionaria], por seu representante legal, doravante
denominada CONCESSIONARIA, consoante o disposto no art. 207 da referida Lei
Geral de Telecomunicacoes, por este instrumento e na melhor forma de direito,
celebram o presente CONTRATO DE CONCESSAO, que sera regido pelas normas adiante
referidas e pelas seguintes clausulas:
CAPITULO I - DO OBJETO
Clausula 1.1. - O objeto do presente Contrato e a concessao do Servico
Telefonico Fixo Comutado, destinado ao uso do publico em geral, prestado em
regime publico, na modalidade de servico local, na area geografica definida na
clausula 2.1, nos termos do Plano Geral de Outorgas.
PARAGRAFO UNICO - Compreende-se no objeto da presente concessao o
Servico Telefonico Fixo Comutado, prestado em regime publico, em areas
limitrofes e fronteiricas, em conformidade com a regulamentacao editada pela
ANATEL, consoante disposicao contida no Plano Geral de Outorgas.
CLAUSULA 1.2. - Servico Telefonico Fixo Comutado e o servico de
telecomunicacoes que, por meio da transmissao de voz e de outros sinais,
destina-se a comunicacao entre pontos fixos determinados, utilizando processos
de telefonia.
CLAUSULA 1.3. - Mediante previa aprovacao por parte da ANATEL, a
Concessionaria podera implantar e explorar utilidades ou comodidades
relacionadas com a prestacao do servico objeto da presente concessao.
PARAGRAFO UNICO - Serao consideradas relacionadas com o objeto da
presente Concessao aquelas prestacoes, utilidades ou comodidades que, a juizo da
ANATEL, sejam consideradas inerentes a plataforma do servico ora concedido, sem
caracterizar nova modalidade de servico, observadas as disposicoes da
regulamentacao.
<PAGE>
CLAUSULA 1.4. - A Concessionaria tem direito a implantacao, expansao e
operacao dos troncos, redes e centrais de comutacao necessarios a sua execucao,
bem assim sua exploracao industrial, nos termos da regulamentacao.
CLAUSULA 1.5. - E indissociavel da prestacao do servico concedido, a
obrigacao de atendimento as metas de universalizacao e qualidade previstas neste
Contrato.
CLAUSULA 1.6.- A Concessionaria se obriga a fornecer a seus
assinantes, diretamente ou por intermedio de terceiros, de forma gratuita,
listas telefonicas dos assinantes de todas as prestadoras do Servico Telefonico
Fixo Comutado, em sua area de concessao, observada a regulamentacao.
CLAUSULA 1.7. - A Concessionaria devera assegurar a todos os
solicitantes e usuarios do servico concedido a realizacao das instalacoes
necessarias a prestacao do servico, nos termos da regulamentacao.
CLAUSULA 1.8. - A Concessionaria devera manter acesso gratuito para
servicos de emergencia estabelecidos na regulamentacao.
CAPITULO II - DA AREA DE PRESTACAO DO SERVICO
CLAUSULA 2.1. - A area geografica de prestacao do servico objeto da
presente concessao e aquela abrangida pelo(s) territorio(s) contido(s) no Setor
de numero *** constante do Anexo 2 do Plano Geral de Outorgas.
CAPITULO - III - DO PRAZO E DAS CONDICOES DE PRORROGACAO DO CONTRATO
Clausula 3.1. - O prazo da presente concessao, outorgada a titulo
gratuito, tera seu termo final em 31 de dezembro de 2005, assegurado o direito a
prorrogacao unica por vinte anos, de acordo com as clausulas 3.2, 3.3 e 3.4.
CLAUSULA 3.2. - A presente concessao sera prorrogada, a pedido da
Concessionaria, a titulo oneroso, uma unica vez por 20 (vinte) anos, desde que a
Concessionaria atenda as condicoes constantes deste Contrato, podendo o novo
Contrato incluir novos condicionamentos, estabelecer novas metas para
universalizacao e de qualidade, tendo em vista as condicoes vigentes a epoca da
prorrogacao, definindo, no caso de metas de universalizacao, recursos
complementares, nos termos do art. 81 da Lei n 9.472, de 1997.
(S) 1 - A ANATEL, 36 (trinta e seis) meses antes do termo
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final previsto na clausula 3.1, fara publicar consulta publica com sua proposta
de novos condicionamentos e de novas metas para qualidade e universalizacao do
servico, submetidas estas ultimas a aprovacao, por meio de Decreto, do
Presidente da Republica, nos termos do art. 18, inciso III, da Lei n 9.472, de
1997.
(S) 2 - Para a prorrogacao prevista nesta clausula, a Concessionaria
devera manifestar seu expresso interesse com antecedencia minima de 30 (trinta)
meses antes do termo final previsto na clausula 3.1.
CLAUSULA 3.3. - Para prorrogacao do prazo da presente concessao, nos
termos do previsto na clausula anterior, a Concessionaria devera pagar, a cada
bienio, durante o periodo de prorrogacao, onus correspondente a 2% (dois por
cento) da sua receita, do ano anterior ao do pagamento, do Servico Telefonico
Fixo Comutado, liquida de impostos e contribuicoes sociais incidentes.
(S) 1 - No calculo do valor referido no caput desta clausula sera
considerada a receita liquida decorrente da aplicacao dos planos de servico,
basico e alternativos, objeto da presente concessao.
(S) 2 - O calculo do percentual referido no caput desta clausula sera
feito sempre relativamente a receita liquida das deducoes de impostos e
contribuicoes incidentes, apurada entre janeiro e dezembro do ano anterior e
obtida das demonstracoes financeiras elaboradas conforme legislacao societaria e
principios fundamentais de contabilidade, aprovadas pela administracao da
Concessionaria e auditadas por auditores independentes, e o pagamento tera
vencimento em 30 de abril do ano subsequente ao da apuracao do onus.
(S) 3 - A primeira parcela do onus tera vencimento em 30 de abril de
2007, calculada considerando a receita liquida apurada de 1 de janeiro a 31 de
dezembro de 2006, e as parcelas subsequentes terao vencimento a cada 24 (vinte e
quatro) meses, tendo como base de calculo a receita do ano anterior.
(S) 4 - O atraso no pagamento do onus previsto nesta clausula
implicara a cobranca de multa moratoria de 0,33% (zero virgula trinta e tres por
cento) ao dia, ate o limite de 10% (dez por cento), acrescida da taxa
referencial SELIC para titulos federais, a ser aplicada sobre o valor da divida
considerando todos os dias de atraso de pagamento.
CLAUSULA 3.4. - A prorrogacao do prazo do presente Contrato ensejara a
prorrogacao no direito de uso das radiofrequencias referidas na clausula 4.1 que
sejam necessarias a continuidade da prestacao do servico.
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Paragrafo unico - O retorno a ANATEL de radiofrequencias que nao sejam
necessarias a continuidade da prestacao dos servicos nao implicara modificacao
do valor do onus da prorrogacao fixado na clausula 3.3.
CAPITULO IV - DO MODO, FORMA E CONDICOES DE PRESTACAO
Clausula 4.1. A utilizacao de radiofrequencias na prestacao do
servico objeto desta concessao sera autorizada pela ANATEL, a titulo oneroso e
sem exclusividade, salvo se existir disposicao em contrario na regulamentacao,
consoante o disposto nos artigos 83 e 163 da Lei n 9.472, de 1997.
(S) 1 - A Concessionaria tera direito de utilizacao, sem
exclusividade, das radiofrequencias autorizadas anteriormente a data da
assinatura deste Contrato, independente do pagamento de qualquer onus, exceto as
taxas de fiscalizacao, observadas as condicoes estabelecidas nas respectivas
licencas de funcionamento das estacoes.
(S) 2 - O direito de utilizacao de radiofrequencias referido nesta
clausula nao elide a prerrogativa conferida a ANATEL pelo art.161 da Lei n
9.472, de 1997.
(S) 3 - As novas radiofrequencias que venham a ser requeridas pela
Concessionaria terao seu uso autorizado, a titulo oneroso, com observancia dos
procedimentos definidos pela ANATEL para autorizacoes similares.
(S) 4 - O prazo das autorizacoes de uso de radiofrequencias
requeridas nos termos do paragrafo anterior sera igual ao prazo da presente
Concessao, devendo sua prorrogacao ser feita a titulo oneroso, independente do
pagamento do onus referido na clausula 3.3. do presente.
CLAUSULA 4.2. - A Concessionaria se obriga a prestar o servico objeto
da concessao de forma a cumprir plenamente as obrigacoes de universalizacao e
continuidade inerentes ao regime publico, que lhe e inteiramente aplicavel,
observados os criterios, formulas e parametros definidos no presente Contrato.
PARAGRAFO UNICO - O descumprimento das obrigacoes relacionadas a
universalizacao e a continuidade ensejara a aplicacao das sancoes previstas no
presente Contrato, permitira a decretacao de intervencao pela ANATEL e, conforme
o caso e a gravidade ou quando a decretacao de intervencao for inconveniente,
inocua, injustamente benefica a Concessionaria ou desnecessaria, implicara a
caducidade da concessao, nos termos do disposto na clausula 26.4.
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CLAUSULA 4.3. - A Concessionaria explorara o servico objeto da
concessao por sua conta e risco, dentro do regime de ampla e justa competicao
estabelecido na Lei n 9.472, de 1997, e no Plano Geral de Outorgas, sendo
remunerada pelas tarifas cobradas e por eventuais receitas complementares ou
acessorias que perceba nos termos do presente Contrato.
PARAGRAFO UNICO - A Concessionaria nao tera direito a qualquer especie
de exclusividade, nem podera reclamar direito quanto a admissao de novos
prestadores do mesmo servico, no regime publico ou privado.
CLAUSULA 4.4. - Ao longo de todo o prazo de vigencia da concessao, a
Concessionaria se obriga a manter os compromissos de qualidade, abrangencia e
oferta do servico constantes do presente Contrato, independentemente do ambiente
de competicao existente na area geografica de exploracao do servico.
CLAUSULA 4.5. - A Concessionaria se compromete a manter e conservar
todos os bens, equipamentos e instalacoes empregados no servico em perfeitas
condicoes de funcionamento, conservando e reparando suas unidades e promovendo,
nos momentos oportunos, as substituicoes demandadas em funcao do desgaste ou
superacao tecnologica, ou ainda promovendo os reparos ou modernizacoes
necessarias a boa execucao do servico e a preservacao do servico adequado,
conforme determinado no presente Contrato.
CAPITULO V - DAS REGRAS PARA IMPLANTACAO, EXPANSAO, ALTERACAO E MODERNIZACAO DO
SERVICO
CLAUSULA 5.1. - Constituem pressupostos basicos da presente concessao
a expansao e a modernizacao do servico concedido, observadas as metas e os
criterios constantes do presente Contrato.
PARAGRAFO UNICO - A ANATEL podera determinar a alteracao de metas de
implantacao, expansao e modernizacao do servico, respeitado o direito da
Concessionaria de nao ser obrigada a suportar custos adicionais nao recuperaveis
com a receita decorrente do atendimento dessas metas por meio da exploracao
eficiente do servico.
CLAUSULA 5.2. - A alteracao nas condicoes de prestacao do servico
somente podera ocorrer por determinacao da ANATEL ou mediante sua previa e
expressa aprovacao.
CLAUSULA 5.3. - A modernizacao do servico sera buscada atraves da
constante introducao de equipamentos, processos e meios aptos a prestar ao
usuario um servico compativel com a atualidade em
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face das tecnologias disponiveis no mercado.
CAPITULO VI - DOS CRITERIOS E INDICADORES DE QUALIDADE E CONTINUIDADE DO
SERVICO.
CLAUSULA 6.1. - Constitui pressuposto da presente Concessao a adequada
qualidade do servico prestado pela Concessionaria, considerando-se como tal o
servico que satisfizer as condicoes de regularidade, eficiencia, seguranca,
atualidade, generalidade, cortesia e modicidade das tarifas.
(S) 1 - A regularidade sera caracterizada pela prestacao continuada
do servico com estrita observancia do disposto nas normas baixadas pela ANATEL.
(S) 2 - A eficiencia sera caracterizada pela consecucao e preservacao
dos parametros constantes do presente Contrato e pelo atendimento do usuario do
servico nos prazos previstos neste Contrato.
(S) 3 - A seguranca na prestacao do servico sera caracterizada pela
confidencialidade dos dados referentes a utilizacao do servico pelos usuarios,
bem como pela plena preservacao do sigilo das informacoes transmitidas no ambito
de sua prestacao, observado o disposto no Capitulo XIV.
(S) 4 - A atualidade sera caracterizada pela modernidade dos
equipamentos, das instalacoes e das tecnicas de prestacao do servico, com a
absorcao dos avancos tecnologicos advindos ao longo do prazo da concessao que,
definitivamente, tragam beneficios para os usuarios, respeitadas as disposicoes
do presente Contrato.
(S) 5 - A generalidade sera caracterizada com a prestacao nao
discriminatoria do servico a todo e qualquer usuario, obrigando-se a
Concessionaria a prestar o servico a quem o solicite, no local indicado pelo
solicitante, nos termos do presente Contrato e de acordo com a regulamentacao.
(S) 6 - A cortesia sera caracterizada pelo atendimento respeitoso e
imediato de todos os usuarios do servico concedido, bem como pela observancia
das obrigacoes de informar e atender pronta e polidamente todos que, usuarios ou
nao, solicitem da Concessionaria informacoes, providencias ou qualquer tipo de
postulacao nos termos do disposto no presente Contrato.
(S) 7 - O principio da modicidade das tarifas sera caracterizado pelo
esforco da Concessionaria em praticar tarifas inferiores as fixadas pela ANATEL.
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CLAUSULA 6.2. A Concessionaria devera observar os parametros e
indicadores do Plano Geral de Metas de Qualidade.
PARAGRAFO UNICO - A Concessionaria devera divulgar, anualmente, quadro
demonstrativo das metas e parametros estabelecidos e realizados do Plano Geral
de Metas de Qualidade e do Plano Geral de Metas de Universalizacao, sem prejuizo
do fornecimento destes dados, sempre que solicitados pela ANATEL.
CLAUSULA 6.3. - A continuidade do servico ora concedido, elemento
essencial ao regime de sua prestacao, sera caracterizada pela nao interrupcao do
servico, observada a suspensao por inadimplencia do usuario nos termos do
disposto na clausula 8.3. e no art. 3, inciso VII da Lei n 9.472, de 1997.
PARAGRAFO UNICO - Nao sera considerada violacao da continuidade a
interrupcao circunstancial do servico decorrente de situacao de emergencia,
motivada por razoes de ordem tecnica ou de seguranca das instalacoes, mediante
comunicacao aos usuarios afetados e, nos casos relevantes, tambem mediante aviso
circunstanciado a ANATEL.
CLAUSULA 6.4. - A Concessionaria nao podera, em hipotese alguma,
interromper a prestacao do servico alegando o nao adimplemento de qualquer
obrigacao por parte da ANATEL ou da Uniao, nao sendo invocavel, pela
Concessionaria, a excecao por inadimplemento contratual.
CLAUSULA 6.5. - Alem da gerencia e auditoria dos indicadores de
qualidade, a ANATEL avaliara, periodicamente, o grau de satisfacao dos usuarios
com o servico ora concedido, podendo divulgar os resultados da Concessionaria,
abrangendo, pelo menos, os seguintes aspectos:
I - atendimento ao usuario, especialmente no que tange a facilidade
de acesso, presteza, cordialidade, rapidez e eficacia na resposta a
solicitacoes e reclamacoes;
II - tarifas cobradas e descontos oferecidos;
III - qualidade tecnica do servico prestado; e
IV - adequacao dos servicos oferecidos as necessidades dos usuarios.
CAPITULO VII - DAS METAS DE UNIVERSALIZACAO
CLAUSULA 7.1. - A universalizacao constitui traco essencial
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do regime de prestacao do servico ora concedido e sera caracterizada pelo
atendimento uniforme e nao discriminatorio de todos os usuarios e pelo
cumprimento das metas constantes do Plano Geral de Metas de Universalizacao,
aprovado pelo Poder Executivo, nos termos dos artigos 18, inciso III, e 80 da
Lei n 9.472, de 1997, e as do Anexo 02, atribuidas a Concessionaria.
CLAUSULA 7.2. - A excecao do disposto na clausula 7.4. deste Contrato
e observado o (S) 2 do art. 4 do Plano Geral de Metas de Universalizacao,
aprovado pelo Decreto n 2.592, de 15 de maio de 1998, a implementacao das metas
de universalizacao previstas neste Contrato sera financiada exclusivamente pela
Concessionaria, atraves da exploracao do servico, nao lhe assistindo direito a
ressarcimento ou subsidio.
CLAUSULA 7.3. - A Concessionaria assume a obrigacao de implementar
metas de universalizacao nao previstas no presente Contrato e que venham a ser
requeridas pela ANATEL, em observancia ao disposto no (S) 2 do art. 2 do Plano
Geral de Metas de Universalizacao, aprovado pelo Decreto n 2.592, de 1998,
respeitado o seguinte procedimento para definicao do montante e criterio de
ressarcimento:
I - a ANATEL consultara a Concessionaria sobre os custos totais da
implantacao das metas adicionais pretendidas e sobre a parcela
destes que nao podera ser amortizada pela receita de exploracao,
sendo coberta por pagamento especifico, indicando especificamente os
objetivos a serem atingidos, as tecnologias selecionadas, bem como o
local e prazo de implementacao;
II - se decorrido o prazo fixado na consulta, inexistir manifestacao
da Concessionaria, a ANATEL tomara as providencias necessarias para
determinar os onus e custos da implementacao destas metas bem como
para estimar a correspondente geracao de receita;
III - se respondida a Consulta pela Concessionaria, a ANATEL
avaliara se os custos e as estimativas de receitas apresentados sao
adequados e compativeis, levando em conta as tecnologias
disponiveis, o preco dos insumos e mao-de-obra, as caracteristicas
geograficas e socio-economicas da demanda a ser atendida, os precos
praticados no mercado alem de outras variaveis que considere
relevantes;
IV - nao considerando razoaveis os custos e/ou a estimativa de
receita propostos, a ANATEL podera, motivadamente, imputar a
implementacao das metas a Concessionaria, estabelecendo o valor do
ressarcimento,
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observado o disposto no Capitulo XXX; e
V - estando os valores de ressarcimento adequados e compativeis no
entendimento da ANATEL, esta confirmara a Concessionaria a imputacao
da implementacao destas metas especificas, nos termos da proposta de
ressarcimento encaminhada pela Concessionaria.
(S) 1 - Se, apos o procedimento previsto nesta clausula, a ANATEL
considerar inconveniente ou inviavel a implementacao da meta especifica de
universalizacao atraves da Concessionaria, contratara junto a outrem a
incumbencia, podendo faze-lo por meio de outorgas especificas e delimitadas do
servico, observados os parametros economicos obtidos no procedimento previsto
nesta clausula.
(S) 2 - A criterio da ANATEL, o procedimento previsto nesta clausula
tambem podera ser utilizado para fins de fixacao dos valores a serem ressarcidos
com a utilizacao dos recursos do Fundo de Universalizacao dos Servicos de
Telecomunicacoes, quando da antecipacao das metas previstas no Plano Geral de
Metas de Universalizacao, aprovado pelo Poder Executivo, nos termos dos artigos
18, inciso III, e 80 da Lei n 9.472, de 1997.
(S) 3 - A utilizacao de recursos do Fundo de Universalizacao dos
Servicos de Telecomunicacoes, conforme paragrafo anterior, implica a exclusao do
aproveitamento dos beneficios da antecipacao de metas previstos no (S) 2 do
artigo 10, do Plano Geral de Outorgas, exceto no caso de ressarcimento a ANATEL
pelos valores que tenha utilizado desse Fundo, acrescidos da remuneracao devida.
CLAUSULA 7.4. - A adocao dos procedimentos previstos na clausula
anterior constitui faculdade da ANATEL, que podera adota-la a seu criterio e
consoante o melhor atendimento do interesse publico, nao assistindo a
Concessionaria direito de preferencia na implementacao destas metas.
CAPITULO VIII - DAS REGRAS SOBRE SUSPENSAO DO SERVICO POR INADIMPLENCIA E A
PEDIDO DO ASSINANTE
CLAUSULA 8.1. - O assinante do servico objeto da presente concessao
podera solicitar, a qualquer tempo, o desligamento do terminal de que faca uso,
devendo a Concessionaria atender a solicitacao em prazo a ser estabelecido pela
ANATEL, o qual nao sera superior a 48 (quarenta e oito) horas, ressalvados os
casos de aprazamento por parte do assinante.
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PARAGRAFO UNICO - A Concessionaria nao podera exigir pagamento pelo
desligamento a que se refere o caput desta clausula.
CLAUSULA 8.2. - O assinante que estiver adimplente com a
Concessionaria e requerer a suspensao do servico, por prazo superior a 30
(trinta) dias e inferior a 120 (cento e vinte) dias, tera assegurada a religacao
do terminal no mesmo endereco e a manutencao do prefixo e da numeracao ao final
do prazo de suspensao solicitado, na forma da regulamentacao.
CLAUSULA 8.3. - A Concessionaria somente podera proceder ao
desligamento do terminal cujo assinante nao honrar o pagamento de debito
diretamente decorrente da utilizacao do servico concedido, apos transcorridos 30
(trinta) dias de inadimplencia e observando o procedimento estabelecido em
regulamentacao propria editada pela ANATEL e seguindo os seguintes criterios:
I - devera ser assegurado prazo para o assinante questionar os
debitos contra ele lancados; e
II - o assinante inadimplente tera direito a preservacao do seu
codigo de acesso, por, no minimo, 60 (sessenta) dias contados do
desligamento.
(S) 1. A Concessionaria devera informar o desligamento ao assinante
com antecedencia minima de 15 (quinze) dias.
(S) 2. O inadimplemento de debitos nao relacionados diretamente com o
servico objeto desta concessao, conforme paragrafo unico da clausula 10.6, nao
ensejara a interrupcao de que trata a presente clausula.
CLAUSULA 8.4. A Concessionaria assegurara ainda ao assinante o direito
a ter bloqueado temporaria ou permanentemente o acesso a comodidades ou
utilidades oferecidas, bem como a servicos de valor adicionado, sempre que por
ele solicitado, nos termos da regulamentacao.
CLAUSULA 8.5. Caso a inadimplencia do assinante se referir
exclusivamente ao pagamento dos servicos prestados por prestador de Servico
Telefonico Fixo Comutado diverso do ora concedido que seja objeto de faturamento
conjunto pela Concessionaria, o bloqueio devera obedecer ao procedimento
especifico objeto de regulamentacao pela ANATEL.
CAPITULO IX - DO PLANO DE NUMERACAO
CLAUSULA 9.1. - Observada a regulamentacao, a
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Concessionaria se obriga a obedecer ao Regulamento de Numeracao para o Servico
Telefonico Fixo Comutado editado pela ANATEL, devendo assegurar ao assinante do
servico a portabilidade de codigos de acesso no prazo definido nesse
Regulamento.
(S) 1 - A Concessionaria arcara com os custos necessarios a adaptar-
se ao Regulamento de Numeracao referido no caput desta Clausula.
(S) 2 - Os custos referentes aos investimentos necessarios para
permitir a portabilidade de codigos de acesso serao divididos entre a
Concessionaria e os demais prestadores de servico de telecomunicacao, em regime
publico ou privado.
(S) 3 - Os custos referentes a administracao do processo de
consignacao e ocupacao de codigos de acesso do Regulamento de Numeracao serao
imputados a Concessionaria, nos termos do Regulamento da Administracao da
Numeracao.
CAPITULO X - DO REGIME TARIFARIO E DA COBRANCA DOS USUARIOS
CLAUSULA 10.1. - A Concessionaria devera ofertar a todos os usuarios,
obrigatoriamente, o Plano Basico do Servico Local, Anexo 03, parte integrante
deste Contrato.
PARAGRAFO UNICO - O Plano Basico do Servico Local sera unico para toda
a area referida na clausula 2.1. e devera conter, nos termos do estabelecido
pela ANATEL, valores maximos para cada item da estrutura tarifaria definida para
a prestacao do Servico Telefonico Fixo Comutado, valores estes que serao
revistos e reajustados, observadas as normas aplicaveis.
CLAUSULA 10.2. - A Concessionaria podera ofertar aos seus assinantes
Planos Alternativos de Servico Local com criterios de tarifacao diferentes
daqueles constantes do Plano Basico do Servico Local.
(S) 1 - Sera garantida ao assinante a transferencia entre os diversos
Planos de Servico Local ofertados pela Concessionaria, nos termos da
regulamentacao.
(S) 2 - A estrutura de tarifas e valores dos Planos Alternativos de
Servico Local sao de livre proposicao da Concessionaria, observado o disposto na
clausula 10.1.
(S) 3 - A Concessionaria e obrigada a ofertar, de forma nao
discriminatoria, ao assinante seus Planos Alternativos de Servico Local
homologados pela ANATEL.
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(S) 4 - Os Planos Alternativos de Servico Local deverao ser
homologados pela ANATEL antes de sua oferta ao publico em geral.
(S) 5 - A ANATEL devera se pronunciar sobre os Planos Alternativos de
Servico Local em ate 15 (quinze) dias apos seu recebimento, considerando-se os
mesmos homologados caso, ate este prazo, nao haja pronunciamento da ANATEL.
CLAUSULA 10.3. - A Concessionaria podera praticar descontos nas
tarifas dos Planos de Servico Local desde que de forma equanime e nao
discriminatoria, vedada a reducao subjetiva de valores, e observado o principio
da justa competicao.
PARAGRAFO UNICO A Concessionaria se obriga a divulgar, com
antecedencia, aos seus usuarios os descontos tarifarios, dando-lhes ampla e
previa divulgacao, comunicando sua decisao a ANATEL, ate 7 (sete) dias apos o
inicio da vigencia da reducao das tarifas.
CLAUSULA 10.4. - A Concessionaria se obriga a dar ampla publicidade as
tarifas praticadas pelo servico objeto da presente concessao, na forma
regulamentada pela ANATEL.
CLAUSULA 10.5. - Quando da implantacao de novas prestacoes, utilidades
ou comodidades relacionadas ao servico objeto da concessao, a Concessionaria
submetera previamente a pretensao de cobranca para aprovacao da ANATEL, sem a
qual nao podera ser cobrada qualquer tarifa ou preco.
CLAUSULA 10.6. - Os documentos de cobranca emitidos pela
Concessionaria deverao ser apresentados de maneira detalhada, clara,
explicativa, indevassavel e deverao discriminar o tipo e a quantidade de cada
servico prestado ao assinante, na forma da regulamentacao.
PARAGRAFO UNICO - A Concessionaria podera lancar no documento de
cobranca, desde que de forma clara e explicita, os valores devidos pelo
assinante em funcao da prestacao de servicos de valor adicionado, bem como de
outras comodidades ou utilidades relacionadas com o servico concedido.
CLAUSULA 10.7. - A Concessionaria cobrara dos demais prestadores de
servicos de telecomunicacoes tarifas de uso de redes, observadas as normas
editadas pela ANATEL.
CLAUSULA 10.8 A Concessionaria oferecera desconto ao assinante
afetado por eventuais descontinuidades na prestacao do servico concedido, desde
que nao sejam por ele motivadas, o qual sera proporcional ao periodo em que se
verificar a interrupcao, na forma da regulamentacao.
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CAPITULO XI - DO REAJUSTAMENTO DAS TARIFAS
CLAUSULA 11.1. - A cada intervalo nao inferior a 12 (doze) meses, por
iniciativa da ANATEL ou da Concessionaria, observadas as regras da legislacao
economica vigente, as tarifas constantes do Plano Basico do Servico Local -
Anexo 03, poderao ser reajustadas mediante a aplicacao da seguinte formula:
<TABLE>
<S> <C>
(HAB\t\ + Ass\t\ + n\to\ x P\t\) is less than or equal to (1-k) Ft (HAB\to\ + Ass\to\ + n\to\ x P\to\)
--- ---
36 36
Sendo:
HAB\t\=PRes\to\x HABRes\t\ + PNRes\to\ x HABNRes\t\+ PTronco\to\ x HABTronco\t\
HAB\to\= PRes\to\x HABRes\to\+ PNRes\to\x HABNRes\to\ + PTronco\to\ x HABTronco\to\
Ass\t\ = PRes\to\ x AssRes\t\ + PNRes\to\ x AssNRes\t\ + PTronco\to\ x AssTronco\t\
Ass\to\ = PRes\to\ x AssRes\to\ + PNRes\to\x AssNRes\to\ + PTronco\to\ x AssTronco\to\
HABRes\t\ is less than or equal to HABRes\to\ x 1,09 x IGP-DI \t\
------
IGP-DI \to\
HABNRes\t\ is less than or equal to HABNRes\to\ x 1,09 x IGP-DI \t\
------
IGP-DI \to\
HABTronco\t\ is less than or equal to HABTronco\to\ x 1,09 x IGP-DI \t\
------
IGP-DI \to\
P\t\ is less than or equal to P\to\ x 1,09 x IGP-DI \t\
------
IGP-DI \to\
AssRes \t\ is less than or equal to AssRes \to\ x 1,09 x IGP-DI \t\
------
IGP-DI \to\
AssNRes \t\ is less than or equal to AssNRes \to\ x 1,09 x IGP-DI \t\
------
IGP-DI \to\
AssTronco \t\ os less than or equal to AssTronco \to\ x 1,09 x IGP-DI \t\
------
IGP-DI to
</TABLE>
13
<PAGE>
Onde:
/t/ = data proposta para o reajuste
/to/ = data do ultimo reajuste ou, para o primeiro reajuste, 1 de abril de 1998.
HAB = valor medio da taxa de habilitacao, liquido de tributos incidentes.
HABRes = valor da taxa de habilitacao do terminal residencial, liquido de
tributos incidentes.
HABNRes = valor da taxa de habilitacao do terminal nao residencial, liquido dos
tributos incidentes.
HABTronco = valor da taxa de habilitacao do terminal tronco, liquido dos
tributos incidentes.
P = valor do Pulso.
PRes/to/ = percentual de assinantes residenciais do Plano Basico do Servico
Local observados no total de assinantes da Concessionaria, desde o ultimo
reajuste ou, para o primeiro reajuste, desde 1 de abril de 1998 .
PNRes/to/ = percentual de assinantes nao residenciais do Plano Basico do Servico
Local observados no total de assinantes da Concessionaria, desde o ultimo
reajuste ou, para o primeiro reajuste, desde 1 de abril de 1998 .
PTronco/to/ = percentual de assinantes tronco do Plano Basico do Servico Local
observados no total de assinantes da Concessionaria, desde o ultimo reajuste ou,
para o primeiro reajuste, desde 1 de abril de 1998 .
Ass = valor da Assinatura media
AssRes = valor da Assinatura Residencial, liquido de tributos incidentes.
AssNRes = valor da Assinatura Nao Residencial, liquido de tributos incidentes.
AssTronco/t/ = valor da Assinatura Tronco, liquido de tributos incidentes.
n/to/ = numero medio de pulsos faturados por assinatura do Plano Basico do
Servico Local, considerado o intervalo de tempo compreendido entre o ultimo
reajuste ou, no caso do primeiro reajuste, entre abril de 1998 e o mes anterior
a data da proposta do reajuste; e
Ft = IGP-DI\t\
------
IGP-DI\to\
14
<PAGE>
Onde:
IGP-DI = Indice Geral de Precos, Disponibilidade Interna, divulgado pela
Fundacao Getulio Vargas, ou outro indice que venha a substitui-lo.
k = fator de transferencia.
(S) 1 - O fator de transferencia sera aplicado ao longo da
concessao da seguinte forma:
I ate 31 de dezembro de 2000 sera igual a 0 (zero); e
II de 1 de janeiro de 2001 a 31 de dezembro de 2005 sera igual a
0,01 (zero virgula zero um).
(S) 2 - Caso o periodo de reajuste envolva valores diferentes de
fator de transferencia, devera ser efetuada, para sua aplicacao, uma media
ponderada considerando os meses de incidencia de cada valor de fator de
transferencia.
(S) 3 - Caso o reajuste seja efetuado em periodos superiores a doze
meses, a formula em que consta o fator de transferencia devera ser aplicada de
forma progressiva, considerando periodos de doze meses e, finalmente, o residuo
de meses, se houver.
(S) 4- Apos 2005 novos valores dos fatores de transferencia poderao
ser estabelecidos pela ANATEL quando da prorrogacao do prazo deste Contrato,
considerando as condicoes vigentes na epoca.
CLAUSULA 11.2. - As tarifas de uso de redes serao reajustadas
mediante a aplicacao das seguintes formulas:
<TABLE>
<S> <C>
24 24
SIGMA (TU-RLj\t\ x Mj\to\ ) less than or equal to (1-k) Ft SIGMA (TU-RLj\to\ x Mj\to\)
j=1 j=1
</TABLE>
Onde:
TU-RLj tarifa de uso de rede local no horario "j".
Mj\to\ - minutos dos servicos de longa distancia nacional e internacional que
utilizam a rede local da Concessionaria no horario "j", observados desde o
ultimo reajuste tarifario ou, no caso do primeiro reajuste, desde 1 de abril de
1998.
\t\ = data do reajuste proposto.
15
<PAGE>
\to\ = data do ultimo reajuste ou, no caso do primeiro reajuste, 1 de abril de
1998; e
F\t\ = IGP-DI\t\
------
IGP-DI\to\
Onde:
IGP-DI = Indice Geral de Precos, Disponibilidade Interna, divulgado pela
Fundacao Getulio Vargas, ou outro indice que venha a substitui-lo.
k = fator de transferencia.
(S) 1. - O fator de transferencia sera aplicado ao longo da
concessao da seguinte forma:
I ate 31 de dezembro de 2000 sera igual a 0 (zero);
II de 1 de janeiro de 2001 ate 31 de dezembro de 2001 sera igual a
0,05 (zero virgula zero cinco);
III de 1 de janeiro de 2002 ate 31 de dezembro de 2002 sera igual
a 0,1 (zero virgula um);
IV de 1 de janeiro de 2003 ate 31 de dezembro de 2003 sera igual a
0,15 (zero virgula quinze); e
V de 1 de janeiro de 2004 ate 31 de dezembro de 2005 sera igual a
0,2 (zero virgula dois).
(S) 2 - Caso o periodo de reajuste envolva valores diferentes de
fator de transferencia, devera ser efetuada, para sua aplicacao, uma media
ponderada considerando os meses de incidencia de cada valor de fator de
transferencia.
(S) 3 - Caso o reajuste seja efetuado em periodos superiores a doze
meses, a formula em que consta o fator de transferencia devera ser aplicada de
forma progressiva, considerando periodos de doze meses e, finalmente, o residuo
de meses, se houver.
(S) 4- Apos 2005 novos valores dos fatores de transferencia poderao
ser estabelecidos pela ANATEL quando da prorrogacao do prazo deste Contrato,
considerando as condicoes vigentes na epoca.
CAPITULO XII - DA PROTECAO DA SITUACAO ECONOMICA DA CONCESSIONARIA E DA REVISAO
DAS TARIFAS
16
<PAGE>
CLAUSULA 12.1. - Constitui pressuposto basico do presente Contrato a
preservacao, em regime de ampla competicao, da justa equivalencia entre a
prestacao e a remuneracao, vedado as partes o enriquecimento imotivado as custas
de outra parte ou dos usuarios do servico, nos termos do disposto neste
Capitulo.
(S) 1 - A Concessionaria nao sera obrigada a suportar prejuizos em
decorrencia do presente Contrato, salvo se estes decorrerem de algum dos
seguintes fatores:
I - da sua negligencia, inepcia ou omissao na exploracao do servico;
II - dos riscos normais a atividade empresarial;
III - da gestao ineficiente dos seus negocios, inclusive aquela
caracterizada pelo pagamento de custos operacionais e
administrativos incompativeis com os parametros verificados no
mercado; ou
IV - da sua incapacidade de aproveitar as oportunidades existentes
no mercado, inclusive no atinente a expansao, ampliacao e incremento
da prestacao do servico objeto da concessao.
(S) 2 - E tambem vedado o enriquecimento imotivado da Concessionaria
decorrente da apropriacao de ganhos economicos nao advindos diretamente da sua
eficiencia empresarial, em especial quando decorrentes da edicao de novas regras
sobre o servico.
(S) 3 - Fara jus a Concessionaria a recomposicao da sua situacao
inicial de encargos e retribuicoes quando circunstancias de forca maior ou
calamidades afetarem de forma significativa a exploracao do servico, observado
sempre, como parametro, o reflexo destas situacoes nos prestadores de servicos
no regime privado.
(S) 4 - Na avaliacao do cabimento da recomposicao de que trata o
paragrafo anterior sera considerada, entre outros fatores, a existencia de
cobertura do evento motivador da alteracao da situacao economica inicial pelo
Plano de Seguros previsto na clausula 23.1.
CLAUSULA 12.2. - Cabera o restabelecimento da situacao economica do
Contrato quando ficar demonstrada a inocorrencia dos fatores indicados no (S) 1
da clausula anterior, o qual dar-se-a preferencialmente pela revisao de tarifas
ou por qualquer outro mecanismo que, a criterio da ANATEL, seja considerado apto
a neutralizar a situacao verificada.
(S) 1 - A revisao das tarifas afastara qualquer outro
17
<PAGE>
mecanismo de neutralizacao do enriquecimento imotivado das partes, tornando
superado o evento ao qual ela se referia.
(S) 2 - A providencia adotada para neutralizar uma distorcao sera
unica, completa e final relativamente ao evento que lhe deu origem.
CLAUSULA 12.3. - Independentemente do disposto na clausula 12.1.,
cabera revisao das tarifas integrantes do Plano Basico do Servico Local em favor
da Concessionaria ou dos usuarios, nos termos do art. 108 da Lei n 9.472, de
1997, quando verificada uma das seguintes situacoes especificas:
I - modificacao unilateral deste Contrato imposta pela ANATEL, que
importe variacao expressiva de custos ou de receitas, para mais ou
para menos, de modo que a elevacao ou reducao de tarifas seja
imposta pela necessidade de evitar o enriquecimento imotivado de
qualquer das partes;
II - alteracao na ordem tributaria posterior a assinatura deste
Contrato que implique aumento ou reducao da lucratividade potencial
da Concessionaria;
III - ocorrencias supervenientes, decorrentes de fato do principe ou
fato da Administracao que resultem, comprovadamente, em alteracao
dos custos da Concessionaria;
IV - alteracao legislativa de carater especifico, que tenha impacto
direto sobre as receitas da Concessionaria de modo a afetar a
continuidade ou a qualidade do servico prestado; ou
V - alteracao legislativa que acarrete beneficio a Concessionaria,
inclusive a que concede ou suprime isencao, reducao, desconto ou
qualquer outro privilegio tributario ou tarifario, consoante do
previsto no (S) 3 do art. 108 da Lei n 9.472, de 1997.
(S) 1 - Nao importara na revisao de tarifas o prejuizo ou a reducao
de ganhos da Concessionaria decorrente da livre exploracao do servico em
condicoes de competicao ou da gestao ineficiente dos seus negocios.
(S) 2 - Nao sera aplicavel a hipotese de revisao prevista no inciso
II do caput desta clausula quando a alteracao na ordem tributaria implicar
criacao, supressao, elevacao ou reducao em impostos incidentes sobre a renda ou
o lucro da Concessionaria, como o Imposto sobre a
18
<PAGE>
Renda, que nao impliquem oneracao administrativa ou operacional.
(S) 3 - Nao cabera revisao de tarifas nas hipoteses previstas nesta
clausula quando os eventos ensejadores da revisao ja estiverem cobertos pelo
plano de seguros previsto na clausula 23.1.
(S) 4 - As contribuicoes da Concessionaria ao Fundo de
Universalizacao dos Servicos de Telecomunicacoes e ao Fundo para o
Desenvolvimento Tecnologico das Telecomunicacoes nao ensejarao revisao das
tarifas.
CLAUSULA 12.4. - Nao sera aplicavel a revisao de tarifas quando ficar
caracterizado que os impactos motivadores do pedido por parte da Concessionaria
puderem ser neutralizados com a eficiente exploracao do servico, pela expansao
do mercado ou pela geracao de receitas alternativas ou complementares associadas
ao objeto do presente Contrato, observadas as condicoes competitivas verificadas
no momento.
PARAGRAFO UNICO - A diminuicao da receita decorrente de descontos ou
reducao de tarifas nao dara ensejo a revisao das mesmas.
CLAUSULA 12.5. - O procedimento de revisao de tarifas podera ser
iniciado por requerimento da Concessionaria ou por determinacao da ANATEL.
(S) 1 - Quando o procedimento de revisao das tarifas for iniciado
pela Concessionaria deverao ser obedecidos os seguintes requisitos:
I - ser acompanhado de relatorio tecnico ou laudo pericial que
demonstre cabalmente o impacto da ocorrencia na formacao das tarifas
ou na estimativa de receitas da Concessionaria;
II - ser acompanhada de todos os documentos necessarios a
demonstracao do cabimento do pleito;
III - a Concessionaria devera indicar a sua pretensao de revisao
tarifaria, informando os impactos e as eventuais alternativas de
balanceamento das tarifas; e
IV - todos os custos com diligencias e estudos necessarios a plena
instrucao do pedido correrao por conta da Concessionaria.
(S) 2 - O procedimento de revisao das tarifas iniciado pela ANATEL
devera ser objeto de comunicacao a Concessionaria consignando prazo para sua
manifestacao, acompanhada de copia dos laudos e estudos realizados para
caracterizar a situacao ensejadora da revisao.
19
<PAGE>
(S) 3 - O procedimento de revisao das tarifas sera concluido em prazo
nao superior a 120 (cento e vinte) dias, ressalvada a hipotese em que seja
necessaria a prorrogacao deste para complementacao da instrucao.
(S) 4 - O requerimento devera ser aprovado pela ANATEL, devendo a
Concessionaria providenciar a ampla divulgacao dos novos valores maximos das
tarifas revistas, nos termos do que reza o presente Contrato.
CAPITULO XIII - DAS RECEITAS ALTERNATIVAS, COMPLEMENTARES E ACESSORIAS
Clausula 13.1. - A Concessionaria podera obter outras fontes
alternativas de receitas, desde que isso nao implique o descumprimento das
normas constantes do Regulamento Geral dos Servicos e das demais normas editadas
pela ANATEL.
(S) 1 - Ressalvadas as hipoteses previstas em lei especifica,
concessao ou autorizacao de servico de TV a Cabo, na mesma area referida na
clausula 2.1, nao sera outorgada nem transferida pela ANATEL a Concessionaria,
suas coligadas, controladas ou controladora, ate que seja expressamente revogada
tal vedacao.
(S) 2 - A Concessionaria, suas coligadas, controladas ou
controladoras nao poderao condicionar a oferta do servico ora concedido ao
consumo casado de qualquer outro servico, nem oferecer vantagens ao usuario em
virtude da fruicao de servicos adicionais aquele objeto do presente Contrato,
ainda que prestados por terceiros.
CLAUSULA 13.2. - A ANATEL podera determinar que a Concessionaria
ofereca aos usuarios comodidades ou utilidades correlacionadas ao objeto da
concessao, devendo neste caso as partes ajustarem os precos unitarios destes
servicos, observados os parametros de mercado e o direito a justa remuneracao.
CAPITULO XIV - DOS DIREITOS E GARANTIAS DOS USUARIOS E DEMAIS PRESTADORES
Clausula 14.1. - Respeitadas as regras e parametros constantes deste
Contrato, constituem direitos dos usuarios do servico objeto da presente
concessao:
I - o acesso ao servico e a sua fruicao dentro dos padroes de
qualidade, regularidade e eficiencia previstos no presente Contrato,
em seus anexos e nas normas vigentes;
20
<PAGE>
II - a possibilidade de solicitar a suspensao ou a interrupcao do
servico prestado pela Concessionaria;
III - o tratamento nao discriminatorio quanto as condicoes de acesso
e fruicao do servico;
IV - a obtencao de informacoes adequadas quanto as condicoes de
prestacao do servico e as tarifas e aos precos praticados;
V - a inviolabilidade e o segredo de sua comunicacao, respeitadas as
hipoteses e condicoes constitucionais e legais de quebra de sigilo
de telecomunicacoes;
VI - obter, gratuitamente, mediante solicitacao encaminhada ao
servico de atendimento dos usuarios mantido pela Concessionaria, a
nao divulgacao do seu codigo de acesso;
VII - a nao suspensao do servico sem sua solicitacao, ressalvada a
hipotese de debito diretamente decorrente de sua utilizacao ou por
descumprimento dos deveres constantes do art. 4 da Lei n 9.472, de
1997;
VIII - o conhecimento previo de toda e qualquer alteracao nas
condicoes de prestacao do servico que lhe atinjam direta ou
indiretamente;
IX - a privacidade nos documentos de cobranca e na utilizacao de
seus dados pessoais pela Concessionaria;
X - a resposta eficiente e pronta as suas reclamacoes pela
Concessionaria, nos termos do previsto na clausula 15.7.;
XI - o encaminhamento de reclamacoes ou representacoes contra a
Concessionaria junto a ANATEL e aos organismos de defesa do
consumidor;
XII - a reparacao pelos danos causados pela violacao dos seus
direitos;
XIII - ver observados os termos do Contrato de Assinatura pelo qual
tiver sido contratado o servico;
XIV - escolher livremente o prestador dos servicos telefonicos de
longa distancia nacional e internacional;
XV - ter respeitado o seu direito de portabilidade de codigos de
acesso, observadas as disposicoes do Regulamento de Numeracao
editado pela ANATEL;
21
<PAGE>
XVI - nao ser obrigado a consumir servicos ou a adquirir bens ou
equipamentos que nao sejam de seu interesse, bem como a nao ser
compelido a se submeter a condicao para recebimento do servico
objeto da presente concessao, nos termos da regulamentacao; e
XVII a substituicao de seu codigo de acesso nos termos da
regulamentacao.
(S) 1 - A Concessionaria observara o dever de zelar estritamente
pelo sigilo inerente ao servico telefonico e pela confidencialidade quanto aos
dados e informacoes, empregando meios e tecnologias que assegurem este direito
dos usuarios.
(S) 2 - A Concessionaria tornara disponiveis os recursos
tecnologicos necessarios a suspensao de sigilo de telecomunicacoes determinada
por autoridade judiciaria, na forma da regulamentacao.
CLAUSULA 14.2. - Aos demais prestadores de servicos de
telecomunicacoes serao assegurados, alem dos direitos referidos na clausula
anterior, os seguintes direitos:
I - a interconexao a rede da Concessionaria em condicoes economicas
e operacionais nao discriminatorias, sob condicoes tecnicamente
adequadas e a precos isonomicos e justos que atendam estritamente ao
necessario a prestacao do servico, observada a regulamentacao
editada pela ANATEL;
II - a receber o servico solicitado junto a Concessionaria sem
qualquer tipo de discriminacao, pelos precos de mercado ou por
precos negociados pelas partes e com as reducoes que forem
aplicaveis em funcao dos custos evitados em virtude do consumo em
larga escala, respeitada a regulamentacao; e
III - a obter todas as informacoes que sejam necessarias para a
prestacao do servico por eles operados, inclusive aquelas relativas
ao faturamento, ressalvado o direito da Concessionaria a preservacao
dos seus dados recobertos pelo sigilo empresarial, bem como os
direitos de terceiros.
(S) 1 - Os conflitos entre Concessionaria e demais prestadores serao
resolvidos administrativamente pela ANATEL, nos termos da regulamentacao a ser
por ela editada.
(S) 2 - A ANATEL acompanhara permanentemente o relacionamento entre
os prestadores que se utilizem do servico ora concedido e a Concessionaria, de
modo a coibir condutas que possam
22
<PAGE>
implicar prejuizo injusto para qualquer das partes ou que importem em violacao a
ordem economica e a livre concorrencia, comunicando, nestas hipoteses, tais
condutas ao Conselho Administrativo de Defesa Economica - CADE, apos o exercicio
de sua competencia, na forma do disposto no art. 19, inciso XIX, da Lei n
9.472, de 1997.
CLAUSULA 14.3. Observada a regulamentacao, sera assegurado o direito
de qualquer usuario a prestacao e fruicao de servicos de valor adicionado, que
devera se dar em condicoes tecnicamente adequadas e a precos isonomicos e
justos, sendo defeso a Concessionaria o estabelecimento de qualquer entrave ou
restricao a fruicao do servico ora concedido.
PARAGRAFO UNICO - Entende-se por servico de valor adicionado toda a
atividade que acrescentar ao servico objeto desta concessao, sem com ele se
confundir, novas utilidades relacionadas ao acesso, armazenamento, apresentacao,
movimentacao ou recuperacao de informacoes.
CAPITULO XV - DOS DIREITOS, GARANTIAS E OBRIGACOES DA CONCESSIONARIA
CLAUSULA 15.1. - Alem das outras obrigacoes decorrentes deste
Contrato e inerentes a prestacao do servico, incumbira a Concessionaria :
I - prestar o servico com absoluta observancia do disposto no
presente Contrato, submetendo-se plenamente a regulamentacao editada
pela ANATEL;
II - implantar todos os equipamentos e instalacoes necessarios a
prestacao, continuidade, modernizacao, ampliacao e universalizacao
do servico objeto da concessao, dentro das especificacoes constantes
do presente Contrato;
III - manter em perfeitas condicoes de operacao e funcionamento a
rede de telecomunicacoes, em quantidade, extensao e localizacoes
pertinentes e suficientes a adequada prestacao do servico;
IV - prover recursos financeiros necessarios ao atendimento dos
parametros de universalizacao e continuidade constantes do presente
Contrato e a prestacao adequada do servico;
V - prestar a ANATEL, na forma e periodicidade previstas
23
<PAGE>
na regulamentacao, contas e informacoes de natureza tecnica,
operacional, economica, financeira e contabil, bem como fornecer-lhe
todos os dados e elementos referentes ao servico que sejam
solicitados;
VI - manter os terminais de uso publico, permanentes ou temporarios,
na forma prevista neste Contrato;
VII - submeter-se a fiscalizacao da ANATEL, permitindo o acesso de
seus agentes as instalacoes integrantes do servico bem como a seus
registros contabeis;
VIII - manter registros contabeis separados por servico, bem como
ter em dia o inventario dos bens e dos componentes do ativo
imobilizado da empresa;
IX - manter sistema de informacao e atendimento do usuario, nos
termos da clausula 15.7.;
X - zelar pela integridade dos bens vinculados a prestacao do
servico;
XI - submeter a aprovacao da ANATEL, previamente a sua utilizacao, a
minuta de Contrato- Padrao a ser celebrado com os assinantes, bem
como todas as alteracoes, aditamentos ou variantes a ele aplicaveis;
XII - submeter a aprovacao previa da ANATEL os acordos operacionais
ou contratos de prestacao de servicos, de associacao ou de parceria,
que pretenda firmar com entidades estrangeiras;
XIII - encaminhar para publicacao na Biblioteca da ANATEL copia de
acordos e contratos relativos a prestacao do servico ora concedido
com prestadores nacionais e estrangeiros de servicos de
telecomunicacoes;
XIV - divulgar, diretamente ou atraves de terceiros, o codigo de
acesso dos seus assinantes e dos demais assinantes de prestadores do
Servico Telefonico Fixo Comutado, em regime publico e privado, na
area de concessao, com exclusao daqueles que requererem
expressamente a omissao dos seus dados pessoais;
XV - fornecer, em prazos e a precos razoaveis e de forma nao
discriminatoria, a relacao de seus assinantes a quem queira divulga-
la;
XVI - respeitar rigorosamente o dever de sigilo e confidencialidade
das telecomunicacoes, observadas as
24
<PAGE>
prescricoes legais e contratuais;
XVII - respeitar a privacidade dos assinantes com relacao aos
documentos de cobranca e a todas as informacoes pessoais a eles
referentes;
XVIII - cumprir, as suas proprias expensas, observado o disposto na
clausula 7.2 deste Contrato, todas as metas de universalizacao
expressamente constantes deste Contrato;
XIX - implementar projetos de expansao e universalizacao do servico
que venham a ser determinados pela ANATEL, segundo patamares de
ressarcimento, prazos e condicoes de implementacao estabelecidos,
observado o disposto na clausula 7.3.;
XX - submeter previamente a ANATEL toda e qualquer alteracao que
pretenda fazer nos seus estatutos quanto a cisao, fusao,
transformacao, incorporacao, bem como a transferencia de controle ou
alteracao no capital social;
XXI - assegurar a qualquer outro prestador de servico de
telecomunicacoes a interconexao com sua rede, observadas a
regulamentacao especifica e as normas do presente Contrato;
XXII - tornar disponivel aos demais prestadores do Servico
Telefonico Fixo Comutado os servicos de faturamento e arrecadacao,
cobrando por estes precos justos e compativeis nos termos do
presente Contrato e da regulamentacao;
XXIII - observar todos os direitos dos demais prestadores de
servicos de telecomunicacoes, omitindo-se de praticar qualquer
conduta discriminatoria ou voltada a obstar a atividade destes;
XXIV - utilizar, sempre que exigido pela regulamentacao,
equipamentos com certificacao expedida ou aceita pela ANATEL;
XXV - observar as normas e os padroes tecnicos vigentes no Brasil,
omitindo-se de qualquer pratica discriminatoria em relacao a bens e
equipamentos produzidos no pais;
XXVI - colocar a disposicao das autoridades e dos agentes da defesa
civil, nos casos de calamidade publica, todos os meios, sistemas e
disponibilidades que lhe forem solicitados com vistas a dar-lhes
suporte ou a amparar as
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populacoes atingidas;
XXVII - atender com prioridade o Presidente da Republica, seus
representantes protocolares, sua comitiva e pessoal de apoio, bem
como os Chefes de Estado estrangeiros, quando em visitas ou
deslocamentos oficiais pelo territorio brasileiro, tornando
disponiveis os meios necessarios para adequada comunicacao destas
autoridades, observada a regulamentacao editada pela ANATEL;
XXVIII - arcar com o onus fixado pela ANATEL no caso de prorrogacao
do prazo da concessao, nos termos do art. 207, (S) 1, da Lei n
9.472, de 1997, e da clausula 3.3.;
XXIX - pagar todas as taxas de fiscalizacao e funcionamento das suas
instalacoes, na forma da regulamentacao;
XXX - publicar anualmente, independente do regime juridico a que
esteja sujeita, balanco e demonstracoes financeiras levantadas ao
final de cada exercicio social, observadas as disposicoes da
legislacao vigente e da regulamentacao editada pela ANATEL;
XXXI - observar as normas vigentes no pais quanto a utilizacao de
mao-de-obra estrangeira, inclusive nos cargos de maior qualificacao;
XXXII - indenizar os usuarios pelos danos efetivamente decorrentes
da nao prestacao do servico que seria exigivel frente aos parametros
de continuidade e as metas de universalizacao previstas no presente
Contrato;
XXXIII - nao despender com contratos de prestacao de servicos de
gerencia, inclusive assistencia tecnica, com entidades estrangeiras,
em relacao a receita anual do Servico Telefonico Fixo Comutado,
liquida de impostos e contribuicoes, valores superiores a:
a) 1% (um por cento) ao ano, ate 31/12/2000;
b) 0,5% (zero virgula cinco por cento) ao ano, de 01/01/2001 a
31/12/2002; e
c) 0,2% (zero virgula dois por cento) ao ano, a partir de
01/01/2003;
XXXIV dar cumprimento a acordos firmados entre o Brasil e outros
paises e organismos internacionais, na
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forma regulamentada pela ANATEL; e
XXXV dar cumprimento aos contratos celebrados com a TELEBRAS, cujos
objetos sejam a prestacao de servicos pelo Centro de Pesquisa e
Desenvolvimento CPqD ou seu sucessor.
PARAGRAFO UNICO As decisoes relativas ao inciso XXXIII desta
clausula em contratos de prestacao de servicos e assistencia tecnica, entre a
Concessionaria e terceiros vinculados aos acionistas controladores, deverao ser
tomadas em assembleia geral extraordinaria, devendo a Concessionaria fazer
constar no seu estatuto social, ate 31.12.98, que as acoes preferenciais terao
direito a voto nessas decisoes, sem prejuizo do disposto no (S) 1 do artigo 115
da Lei n 6.404, de 15 de dezembro de 1976.
CLAUSULA 15.2. - Sem prejuizo das demais disposicoes constantes
deste Contrato e das garantias asseguradas em lei constituem direitos da
Concessionaria:
I - explorar o servico concedido dentro de sua estrategia
empresarial, definindo livremente seus investimentos, respeitadas a
regulamentacao editada pela ANATEL e as disposicoes deste Contrato;
II - indicar representante para acompanhar a atividade
fiscalizatoria da ANATEL;
III - interromper, nos termos da clausula 8.3 deste Contrato, ou nao
atender a solicitacao de prestacao de servico para o assinante
inadimplente com as suas obrigacoes contratuais com a
Concessionaria;
IV - solicitar a instauracao do procedimento de arbitragem nas
hipoteses e na forma prescrita no Capitulo XXX deste Contrato;
V - ter preservadas as condicoes economicas de exploracao do servico
contra alteracoes que importem em enriquecimento imotivado da Uniao
ou dos usuarios nos termos do disposto no Capitulo XII;
VI - solicitar a revisao das tarifas aplicadas ao servico concedido,
na forma do disposto neste Contrato;
VII - solicitar da ANATEL a confidencialidade de informacao colhida
no exercicio da atividade fiscalizatoria, nos termos do disposto
neste Contrato;
VIII - empregar na execucao dos servicos equipamentos e
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infra-estrutura que nao lhe pertencam, observado o disposto na
clausula 21.1. deste Contrato; e
IX - contratar com terceiros o desenvolvimento de atividades
inerentes, acessorias ou complementares ao servico, bem como a
implementacao de projetos associados.
CLAUSULA 15.3. - Durante a vigencia do Contrato, a Concessionaria sera
a unica responsavel, perante terceiros, pelos atos praticados pelo seu pessoal,
prepostos e contratados, na prestacao do Servico Telefonico Fixo Comutado, bem
como pelo uso dos equipamentos, instalacoes ou redes, excluidas a Uniao e a
ANATEL de quaisquer reclamacoes e/ou indenizacoes.
CLAUSULA 15.4. - A Concessionaria nao podera opor embaracos a obras de
interesse publico, qualquer que seja a sua natureza, sempre que se tornar
necessaria a remocao de instalacoes ou de redes telefonicas para viabilizacao de
intervencoes promovidas, direta ou indiretamente, por qualquer orgao ou entidade
da Administracao publica.
CLAUSULA 15.5. - A Concessionaria devera pactuar diretamente com cada
Prefeitura Municipal das areas de exploracao do servico bem como com as demais
Concessionarias de servicos publicos as condicoes para colocacao de postes e
cruzetas para suspensao de suas linhas e cabos aereos, bem como dutos e
canalizacoes subterraneos destinados a passagem de cabos sob ruas e logradouros
publicos.
(S) 1 - A Concessionaria diligenciara junto aos titulares de bens
publicos ou privados sobre ou sob os quais tenha que passar dutos ou
canalizacoes ou ainda instalar suportes para colocacao dos mesmos, obtendo o
respectivo consentimento ou servidao para tal fim.
(S) 2 - A Concessionaria devera promover junto as respetivas
autoridades municipais as tratativas necessarias ao estabelecimento das
condicoes para superacao das interferencias na rede necessaria a prestacao do
servico, inclusive quanto ao corte e poda de arvores.
CLAUSULA 15.6. - Nos termos do disposto no art. 73 da Lei n 9.472, de
1997, a Concessionaria podera utilizar postes, dutos, condutos e servidoes
pertencentes ou controlados por outros prestadores de servicos de
telecomunicacoes ou de outros servicos de interesse publico.
(S) 1 - A utilizacao dos meios referidos no caput desta clausula
devera ser realizada de forma nao discriminatoria e a precos justos e razoaveis.
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(S) 2 - A Concessionaria devera tornar disponivel aos demais
prestadores de servicos de telecomunicacoes, classificados pela ANATEL como de
interesse coletivo, os meios de sua propriedade ou por ela controlados,
referidos no caput desta clausula, respeitadas as mesmas condicoes previstas no
paragrafo anterior.
(S) 3 - Sempre que a Concessionaria nao chegar a um acordo com os
demais prestadores de servicos acerca da utilizacao dos meios referidos nesta
clausula, cabera a ANATEL, isoladamente ou em conjunto com os demais orgaos
reguladores envolvidos, definir as condicoes desta utilizacao.
CLAUSULA 15.7. - A Concessionaria mantera durante todo o prazo da
presente concessao, central de informacao e de atendimento do usuario,
funcionando 24 (vinte e quatro) horas por dia, capacitada para receber e
processar solicitacoes, queixas e reclamacoes encaminhadas pelos usuarios
pessoalmente ou por qualquer meio de comunicacao a distancia.
(S) 1 - A Concessionaria devera divulgar a todos os usuarios os
enderecos e codigos de acesso a sua central de informacao e de atendimento do
usuario, os quais deverao constar necessariamente do Contrato - Padrao com eles
firmado para prestacao do servico.
(S) 2 - A Concessionaria devera tornar disponivel e divulgar codigo
de acesso facil e gratuito para o encaminhamento de solicitacoes dos usuarios
por via telefonica.
(S) 3 - Todas as solicitacoes, reclamacoes ou queixas encaminhadas
pelos usuarios, por qualquer meio, deverao receber um numero de ordem, que sera
informado ao interessado para possibilitar seu acompanhamento.
(S) 4 - O usuario sera informado pela Concessionaria nos prazos
definidos no Plano Geral de Metas de Qualidade, quanto as providencias adotadas
em funcao da sua solicitacao, reclamacao ou queixa.
(S) 5 - Caso a ANATEL constate existir dificuldade de acesso pelos
usuarios da central de informacao e de atendimento podera determinar a
Concessionaria a ampliacao dos meios de acesso disponiveis, sob pena de
considerar desatendida a obrigacao prevista nesta clausula.
CLAUSULA 15.8 - Na contratacao de servicos e na aquisicao de
equipamentos e materiais vinculados ao servico objeto deste Contrato, a
Concessionaria se obriga a considerar ofertas de fornecedores independentes,
inclusive os nacionais, e basear suas decisoes, com respeito as diversas ofertas
apresentadas, no cumprimento de criterios
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objetivos de preco, condicoes de entrega e especificacoes tecnicas estabelecidas
na regulamentacao pertinente.
(S) 1 - Nos casos em que haja equivalencia entre ofertas, a empresa
Concessionaria se obriga a utilizar como criterio de desempate, a preferencia a
servicos oferecidos por empresas situadas no Pais, equipamentos e materiais
produzidos no Pais, e, entre eles, aqueles com tecnologia nacional. A
equivalencia referida nesta clausula sera apurada quando, cumulativamente:
I - o preco nacional for menor ou igual ao preco do importado, posto
no territorio nacional, incluidos os tributos incidentes;
II - o prazo de entrega for compativel com as necessidades do
servico; e
III - sejam satisfeitas as especificacoes tecnicas estabelecidas na
regulamentacao pertinente e possuam certificacao expedida ou aceita
pela ANATEL, quando aplicavel.
(S) 2 - Compreende-se como servicos aqueles relacionados com a
pesquisa e desenvolvimento, planejamento, projeto, implantacao e instalacao
fisica, operacao, manutencao, supervisao e testes de avaliacao de sistemas de
telecomunicacoes.
(S) 3 - A operacionalizacao do disposto nesta clausula sera objeto
de regulamentacao por parte da ANATEL, incluindo sancoes aplicaveis.
CAPITULO XVI - DAS OBRIGACOES E PRERROGATIVAS DA ANATEL
CLAUSULA 16.1. - Alem das outras prerrogativas inerentes a sua funcao
de orgao regulador e das demais obrigacoes decorrentes do presente Contrato,
incumbira a ANATEL:
I - acompanhar e fiscalizar a prestacao do servico e a conservacao
dos bens reversiveis, visando ao atendimento das normas,
especificacoes e instrucoes estabelecidas neste Contrato e em seus
anexos;
II - proceder as vistorias para a verificacao da adequacao das
instalacoes e equipamentos, determinando as necessarias correcoes,
reparos, remocoes, reconstrucoes ou substituicoes, as expensas da
Concessionaria;
III - regulamentar permanentemente a prestacao do servico
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concedido;
IV - intervir na execucao do servico quando necessario, a fim de
assegurar sua regularidade e o fiel cumprimento do Contrato e das
normas legais pertinentes;
V - aplicar as penalidades previstas na regulamentacao do servico e,
especificamente, neste Contrato;
VI - deliberar sobre os Planos Alternativos de Servico Local
apresentados pela Concessionaria;
VII - autorizar o reajuste e proceder a revisao das tarifas, nos
termos e conforme o disposto neste Contrato;
VIII - atuar dentro dos limites previstos neste Contrato com vista a
impedir o enriquecimento imotivado das partes, nos termos deste
Contrato;
IX - zelar pela boa qualidade do servico, receber, apurar e
solucionar queixas e reclamacoes dos usuarios, cientificando-os, em
ate noventa dias, das providencias tomadas com vista a repressao de
infracoes a seus direitos;
X - declarar extinta a Concessao nos casos previstos neste Contrato;
XI - zelar pela garantia de interconexao, dirimindo eventuais
pendencias surgidas entre a Concessionaria e demais prestadores;
XII - zelar pelo atendimento das metas de universalizacao previstas
neste Contrato, e as metas que vierem a ser estabelecidas nos Planos
de Metas posteriores;
XIII - acompanhar permanentemente o relacionamento entre a
Concessionaria e demais prestadores de servicos de telecomunicacoes,
dirimindo conflitos surgidos entre eles;
XIV - coibir condutas da Concessionaria contrarias ao regime de
competicao, observadas as competencias legais do CADE;
XV - propor, por solicitacao da Concessionaria, ao Presidente da
Republica, por intermedio do Ministerio das Comunicacoes, a
declaracao de utilidade publica para fins de desapropriacao ou
instituicao de servidao administrativa, dos bens necessarios a
implantacao ou
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manutencao do servico objeto deste Contrato;
XVI - exercer a atividade fiscalizatoria do servico nos termos do
disposto neste Contrato; e
XVII - arrecadar as taxas relativas ao FISTEL, adotando as
providencias previstas na legislacao vigente.
CAPITULO XVII - DA CONCESSIONARIA
CLAUSULA 17.1. - A Concessionaria e empresa constituida segundo as
leis brasileiras, sob natureza de sociedade por acoes, tendo por finalidade
exclusiva a exploracao do servico objeto da presente concessao, ressalvados os
servicos nos termos do disposto no (S) 3 do art. 207 da Lei n 9.472, de 1997.
PARAGRAFO UNICO - Se aprovada alteracao estatutaria da Concessionaria,
os documentos que a formalizarem serao encaminhados a ANATEL para arquivamento,
passando a fazer parte integrante do presente Contrato.
CLAUSULA 17.2. - A Concessionaria e seus controladores se obrigam a
manter, durante todo o prazo da concessao e de sua prorrogacao, no minimo, todas
as condicoes de prestacao do servico e de capacitacao existentes a epoca da
entrada em vigencia do presente Contrato.
CLAUSULA 17.3. A Concessionaria e seus controladores se obrigam a
assegurar, durante o prazo da concessao e sua prorrogacao, a efetiva existencia,
em territorio nacional, dos centros de deliberacao e implementacao das decisoes
estrategicas, gerenciais e tecnicas envolvidas no cumprimento do presente
Contrato, inclusive fazendo refletir tal obrigacao na composicao e nos
procedimentos decisorios de seus orgaos de administracao.
PARAGRAFO UNICO A Concessionaria devera inserir, no seu estatuto, ate
31 de dezembro de 1998, disposicoes que garantam o cumprimento do disposto no
caput desta clausula.
CAPITULO XVIII - DA TRANSFERENCIA DA CONCESSAO E DO CONTROLE DA CONCESSIONARIA
Clausula 18.1. - A transferencia da concessao ou do controle, direto
ou indireto, da Concessionaria so sera autorizada pela ANATEL, observados o
Plano Geral de Outorgas e o art. 202 da Lei n 9.472, de 1997, quando:
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I - o cessionario preencha todos os requisitos estabelecidos nos
termos do art. 200 da Lei n 9.472, de 1997; e
II - a medida nao prejudique a competicao e nao coloque em risco a
execucao do Contrato e as normas gerais de protecao a ordem
economica.
PARAGRAFO UNICO - O descumprimento de qualquer disposicao constante
desta clausula importara na caducidade da presente concessao.
CLAUSULA 18.2. - Poderao ser livremente dadas em caucao as acoes da
Concessionaria cuja transferencia nao altere seu controle.
PARAGRAFO UNICO - No caso de caucao de acoes que importem oneracao do
patrimonio da Concessionaria, deverao ser previstos nos contratos de
financiamento dispositivos que submetam os credores, em caso de execucao, as
regras constantes deste Capitulo.
CAPITULO XIX - DO REGIME DE FISCALIZACAO
CLAUSULA 19.1. - A ANATEL exercera a fiscalizacao do servico ora
concedido a fim de assegurar o cumprimento dos pressupostos de universalizacao e
continuidade inerentes ao regime publico de sua prestacao, bem como para zelar
pelo cumprimento das metas e dos compromissos constantes do presente Contrato.
(S) 1 - A fiscalizacao a ser exercida pela ANATEL compreendera a
inspecao e o acompanhamento das atividades, equipamentos e instalacoes da
Concessionaria, implicando amplo acesso a todos os dados e informacoes da
Concessionaria ou de terceiros.
(S) 2 - As informacoes colhidas no exercicio da atividade
fiscalizatoria serao publicadas na Biblioteca, a excecao daquelas que, por
solicitacao da Concessionaria, sejam consideradas pela ANATEL como de carater
confidencial.
(S) 3 - As informacoes que venham a ser consideradas de carater
confidencial nos termos do paragrafo anterior, somente serao utilizadas nos
procedimentos correlacionados ao presente Contrato, respondendo a ANATEL e
aqueles por ela indicados por qualquer divulgacao, ampla ou restrita, de tais
informacoes fora deste ambito de utilizacao.
CLAUSULA 19.2. - A Concessionaria, por intermedio de representante
indicado, podera acompanhar toda e qualquer atividade da fiscalizacao da ANATEL,
nao podendo obstar ou impedir a atuacao da
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fiscalizacao, sob pena de incorrer nas penalidades previstas neste Contrato.
CAPITULO XX - DA PRESTACAO DE CONTAS PELA CONCESSIONARIA
Clausula 20.1. - Na forma da regulamentacao, a Concessionaria devera
enviar periodicamente a ANATEL relatorios estatisticos e circunstanciados de
todo o servico prestado, contendo, entre outros elementos, os indicadores de
expansao e abrangencia da rede de telefonia, bem como noticiando o estagio
tecnologico dos equipamentos utilizados.
CAPITULO XXI - DOS BENS VINCULADOS A CONCESSAO
Clausula 21.1. - Integram o acervo da presente concessao, sendo a ela
vinculados, todos os bens pertencentes ao patrimonio da Concessionaria e que
sejam indispensaveis a prestacao do servico ora concedido, especialmente aqueles
qualificados como tal no Anexo 01 - Qualificacao dos Bens Reversiveis da
Prestacao do Servico Telefonico Fixo Comutado Local.
(S) 1 - Integram tambem o acervo dos bens vinculados a concessao as
autorizacoes de uso do espectro de radiofrequencias que lhe sejam outorgadas e,
quando couber, o direito de uso de posicoes orbitais, observado o disposto nos
artigos 48 e 161 da Lei n 9.472, de 1997, e ainda o constante da clausula 4.1.
do presente Contrato.
(S) 2 - Em relacao aos bens vinculados a concessao, a Concessionaria
somente podera empregar diretamente na prestacao do servico ora concedido
equipamentos, infra-estrutura, logiciarios ou qualquer outro bem que nao sejam
de sua propriedade mediante previa e expressa anuencia da ANATEL, que podera
dispensar tal exigencia nos casos e hipoteses dispostas na regulamentacao.
(S) 3 - Havendo risco a continuidade dos servicos ou impedimento da
reversao dos bens vinculados a concessao, a ANATEL podera negar autorizacao para
utilizacao de bens de terceiros ou exigir que o respectivo Contrato contenha
clausula pela qual o proprietario se obriga, em caso de extincao da concessao, a
manter os Contratos e em subrogar a ANATEL nos direitos dele decorrentes.
CAPITULO XXII - DO REGIME DE REVERSAO
CLAUSULA 22.1. - Quando da extincao da concessao
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reverterao automaticamente a ANATEL todos os bens vinculados a concessao na
forma do Capitulo XXI supra, resguardado a Concessionaria o direito as
indenizacoes previstas na legislacao e neste Contrato.
PARAGRAFO UNICO - Ate 180 (cento e oitenta) dias apos o advento da
extincao da concessao sera procedida uma vistoria dos bens que a integram e
lavrado um Termo de Devolucao e Reversao dos Bens, com indicacao detalhada do
estado de conservacao dos mesmos, facultado o acompanhamento por
representante(s) da Concessionaria.
CLAUSULA 22.2. - A Concessionaria se obriga a entregar os bens
reversiveis em perfeitas condicoes de operacionalidade, utilizacao e manutencao,
sem prejuizo do desgaste normal resultante do seu uso.
PARAGRAFO UNICO - Os bens reversiveis serao transferidos a ANATEL
livres de quaisquer onus ou encargos, observada a hipotese do paragrafo 2 da
clausula seguinte.
CLAUSULA 22.3. - A reversao dos bens de que trata o Capitulo XXI
supra, ao final do prazo contratual, sera feita sem indenizacao, ressalvado o
disposto nesta clausula.
(S) 1 - Somente cabera indenizacao em favor da Concessionaria caso
existam, ao final da Concessao, bens ainda nao integralmente amortizados, cuja
aquisicao tenha sido previamente autorizada pela ANATEL, ou adquiridos antes da
assinatura deste Contrato, com o objetivo de garantir a continuidade e a
atualidade do servico concedido.
(S) 2 - Alternativa ou supletivamente a indenizacao disposta no
paragrafo anterior, a ANATEL podera admitir a transferencia de bens que tenham
sido dados em garantia do seu proprio financiamento, subrogando-se na parcela
financiada ainda inadimplida.
CLAUSULA 22.4. - Ao final da Concessao a ANATEL procedera a avaliacao
dos bens referidos na clausula 21.1, podendo recusar a reversao de bens que
considere prescindiveis ou inaproveitaveis para aplicacao na exploracao do
servico, garantido o direito da Concessionaria ao contraditorio, inclusive
atraves da elaboracao e apresentacao, as suas expensas, de laudos ou estudos
demonstradores da necessidade de reversao.
PARAGRAFO UNICO - Caso a Concessionaria nao concorde com a decisao da
ANATEL quanto ao disposto nesta clausula admitir-se-a o recurso ao processo de
solucao de divergencias prescrito neste Contrato.
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CAPITULO XXIII - DO PLANO DE SEGUROS
CLAUSULA 23.1. - Durante todo o prazo de vigencia da concessao, a
Concessionaria devera manter com Companhia Seguradora de porte compativel com o
objeto segurado, registrada junto aos orgaos regulatorios do setor, as seguintes
apolices de seguros necessarias para garantir a efetiva e abrangente cobertura
de riscos inerentes ao desenvolvimento de todas as atividades contempladas no
presente Contrato:
I - seguro do tipo "todos os riscos" para danos materiais cobrindo a
perda, destruicao ou dano em todos ou em qualquer bem integrante da
concessao, devendo tal seguro contemplar todas as coberturas
compreendidas de acordo com os padroes internacionais;
II - seguro de preservacao de condicoes economicas para continuidade
da exploracao do servico, cobrindo, no minimo, os custos
operacionais contra variacoes nas receitas da Concessionaria,
decorrentes de sinistros ou modificacoes nas condicoes de exploracao
do Contrato que nao sejam cobertas pelos seguros de danos materiais,
desde que a pactuacao desta modalidade de seguro seja admitida pelas
normas brasileiras e expressamente autorizada pelo Instituto de
Resseguros do Brasil IRB ou orgao equivalente; e
III - seguro garantia do cumprimento das obrigacoes relativas a
qualidade e a universalizacao previstas neste Contrato ("Performance
Bond", carta de credito e valor mantido em caucao) no valor
correspondente a 10% do montante de investimentos estimado a cada
ano para cumprimento das metas previstas no presente Contrato.
(S) 1 - A Concessionaria devera fazer constar das apolices de seguro
a obrigacao de a Seguradora informar, por escrito, com antecedencia minima de 10
(dez) dias, a Concessionaria e a ANATEL, quaisquer fatos que possam implicar o
cancelamento total ou parcial das apolices contratadas, reducao de coberturas,
aumento de franquias ou reducao dos valores segurados.
(S) 2 - As apolices emitidas em atendimento ao disposto nesta
clausula nao poderao conter obrigacoes, restricoes ou disposicoes que colidam
com as disposicoes do presente Contrato ou com a regulamentacao e deverao conter
declaracao expressa da Seguradora que conhece integralmente o presente ajuste,
inclusive no tocante aos limites dos direitos da Concessionaria.
(S) 3 - No caso de descumprimento, pela Concessionaria,
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da obrigacao de manter em plena vigencia as apolices de seguro previstas, a
ANATEL, independentemente da sua faculdade de decretar a intervencao ou a
caducidade da presente concessao, podera proceder a contratacao e ao pagamento
direto dos premios respectivos, correndo os custos por conta da Concessionaria.
(S) 4- Anualmente, ate o final do mes de Janeiro, a Concessionaria
devera apresentar certificado emitido pela(s) seguradora(s) confirmando que
todos os premios vencidos no ano precedente encontram-se quitados e que as
apolices contratadas estao em plena vigencia ou foram renovadas.
(S) 5 - As apolices referidas nesta clausula deverao obedecer aos
seguintes prazos de apresentacao e vigencia:
I a apolice referida no inciso I do caput desta clausula devera ser
apresentada em ate 90 (noventa) dias, contados da assinatura do presente
Contrato e tera vigencia imediata;
II a apolice referida no inciso II do caput desta clausula devera ser
apresentada ate 30 de novembro de 1999, com vigencia a partir de 1 de janeiro
de 2000; e
III a apolice referida no inciso III do caput desta clausula devera
ser apresentada ate 30 de novembro de 2000, com vigencia a partir de 1 de
janeiro de 2001.
(S) 6 - A ANATEL podera alterar as coberturas ou os prazos de
apresentacao das apolices referidas nesta clausula, com vistas a adequar tais
exigencias a regulamentacao editada pela Superintendencia de Seguros Privados
SUSEP ou as condicoes estabelecidas pelo Instituto de Resseguros do Brasil IRB,
bem como quando forem editadas normas que obstem a contratacao dos seguros aqui
referidos ou quando nao existam condicoes de mercado amplo e competitivo que
permitam a sua contratacao a custos razoaveis.
CAPITULO XXIV - DA INTERCONEXAO
Clausula 24.1. - A Concessionaria tem obrigacao de permitir,
facilitar, tornar disponivel e efetivar a interconexao, a rede por ela operada,
de redes de outros prestadores de servicos de telecomunicacoes, em regime
publico ou privado, sempre que estes o solicitem, observando e fazendo observar
as normas e regulamentos editados pela ANATEL a este respeito.
CLAUSULA 24.2. - As tarifas de uso de rede vigentes na assinatura do
presente Contrato sao aquelas constantes da Portaria n.
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2.505, de 20 de dezembro de 1996, do Ministerio das Comunicacoes e poderao ser
atualizadas e revistas consoante o disposto neste Contrato e na regulamentacao.
CLAUSULA 24.3. A Concessionaria tera os mesmos direitos e obedecera as
mesmas condicoes de interconexao a que estejam sujeitos os demais prestadores.
PARAGRAFO UNICO - A Concessionaria devera tornar disponivel para
interconexao os elementos da rede com maior nivel de desagregacao tecnicamente
possivel, observada a regulamentacao da ANATEL.
CAPITULO XXV - DAS SANCOES
CLAUSULA 25.1. - Na execucao do presente Contrato, a Concessionaria se
sujeita as seguintes sancoes, que serao aplicadas mediante decisao fundamentada
da ANATEL, assegurado o seu direito de defesa nos termos do disposto no seu
Regimento Interno e sem prejuizo das demais penalidades previstas na
regulamentacao:
I - por violacao das disposicoes do presente Contrato que importe em
nao atendimento de metas de universalizacao; multa de ate
R$50.000.000,00 (cinquenta milhoes de reais);
II - por ato ou omissao contrario as disposicoes constantes deste
Contrato que acarrete prejuizo a competicao no setor de
telecomunicacoes; multa de ate R$ 50.000.000,00 (cinquenta milhoes
de reais);
III - por violacao as disposicoes contratuais que importe em nao
cumprimento das metas e parametros de qualidade na prestacao do
servico; multa de ate R$40.000.000,00 (quarenta milhoes de reais);
IV - por outro ato ou omissao nao enquadrado nos incisos anteriores
que importe em violacao aos direitos do usuario definidos neste
Contrato ou acarrete-lhe prejuizo; multa de ate R$30.000.000,00
(trinta milhoes de reais);
V por ato ou omissao que viole o disposto na clausula 15.8 deste
Contrato, referente a contratacao de servicos e aquisicao de
equipamentos e materiais produzidos no Pais; multa de R$
30.000.000,00 (trinta milhoes de reais);
VI - por qualquer ato ou omissao que traga obice ou dificuldade ao
exercicio da atividade fiscal da ANATEL
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prevista neste Contrato; multa de ate R$20.000.000 (vinte milhoes de
reais);
VII - por ato, omissao ou negligencia que coloque em risco a
seguranca das instalacoes; multa de ate R$15.000.000,00 (quinze
milhoes de reais);
VIII - por ato ou omissao que acarrete dano ou ponha em risco bens
ou equipamentos vinculados a concessao; multa de ate R$
10.000.000,00 (dez milhoes de reais); e
IX - pelo descumprimento de qualquer obrigacao prevista
expressamente neste Contrato, exceto as indicadas nos incisos
anteriores, cujas sancoes ja estao neles estabelecidas; multa de ate
R$ 10.000.000,00 (dez milhoes de reais).
(S) 1 - A infracao prescrita no inciso I desta clausula estara
caracterizada quando a Concessionaria nao cumprir, nos prazos previstos neste
Contrato, suas obrigacoes quanto a expansao do servico, ampliacao da prestacao
do servico, atraves de telefones de uso publico e atendimento a localidades,
consoante o disposto no Plano Geral de Metas de Universalizacao e no Anexo 02
Metas de Universalizacao, integrante do presente Contrato, e a sancao sera
aplicada levando em consideracao, alem dos principios gerais constantes deste
Capitulo, os seguintes fatores:
a) a diferenca entre o estagio de implementacao verificado e a meta
definida no Contrato;
b) a possibilidade de recuperacao do cronograma de implementacao as
expensas da Concessionaria;
c) o prejuizo para a politica refletida no Plano Geral de Metas para
a Universalizacao;
d) os danos trazidos aos beneficiarios diretos das metas
desatendidas; e
e) eventuais circunstancias de ordem tecnica ou economica que possam
atenuar a responsabilidade da Concessionaria, sem elidi-la.
(S) 2 - A infracao prescrita no inciso II supra tera sua gravidade
definida exclusivamente em funcao dos criterios gerais prescritos na clausula
25.2 e sera caracterizada pela conduta da Concessionaria que, direta ou
indiretamente, possa importar prejuizo a competicao no setor, especialmente:
a) oferecimento de obice ou dificuldade a opcao por outro
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prestador do servico concedido ou do servico de longa distancia
nacional e internacional;
b) recusa em dar interconexao a prestador de servico de
telecomunicacoes;
c) oferecimento de obices ou dificuldades a atividade de prestadores
de servico de valor adicionado;
d) condicionamento da prestacao do servico concedido ou oferecimento
de vantagens em funcao de aquisicao, pelo usuario, de servico
estranho ao presente Contrato;
e) execucao de qualquer servico de telecomunicacoes que nao seja
objeto de concessao ou autorizacao outorgadas pela ANATEL em seu
favor;
f) pela nao preservacao dos niveis de qualidade praticados quanto a
interconexao; e
g) procrastinacao na entrega de informacoes essenciais a atividade
dos demais prestadores, especialmente no que tange as bases
cadastrais.
(S) 3 - A infracao prescrita no inciso III desta clausula sera
caracterizada pela prestacao reiterada do servico concedido aquem dos parametros
de qualidade definidos no Plano Geral de Metas de Qualidade ou pela comprovada
violacao dos indicadores referidos no Capitulo VI, sendo na primeira hipotese
considerada infracao grave, especialmente:
a) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
qualidade; e
b) negligencia na modernizacao da rede que afete a qualidade do
servico.
(S) 4 - A infracao prescrita no inciso IV supra tera sua escala de
gravidade definida em funcao do numero de usuarios atingidos e dos prejuizos
causados, ficando caracterizada pela violacao, comissiva ou omissiva, direta ou
indireta, de obrigacao prevista neste Contrato, que nao implique afronta aos
deveres quanto a universalizacao e qualidade, mas que acarrete violacao dos
direitos dos usuarios, especialmente:
a) a interrupcao na prestacao dos servicos por prazo superior ao
estabelecido no Plano de Metas de Qualidade, salvo a ocorrencia das
situacoes previstas no paragrafo unico da clausula 6.3;
b) a recusa em prestar o servico concedido a qualquer
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interessado;
c) o nao cumprimento do dever de prestar informacoes ao usuario;
d) a violacao do sigilo de telecomunicacoes, fora das hipoteses
legais, ainda que praticada por terceiros nas instalacoes sob
responsabilidade da Concessionaria;
e) o nao cumprimento do dever de fornecer gratuitamente listas
telefonicas;
f) a nao manutencao de central de informacao e de atendimento ao
usuario na forma prescrita neste Contrato;
g) a cobranca de tarifa ou preco em desacordo com as regras
estipuladas neste Contrato e na regulamentacao; e
h) a restricao ao exercicio do direito a livre escolha entre planos
de servico;
(S) 5 - A sancao prevista no inciso V sera caracterizada pela
verificacao de violacao da obrigacao contida na clausula 15.8 e tera sua
gravidade definida conforme dispuser a regulamentacao.
(S) 6 - A infracao prescrita no inciso VI supra tera sua gravidade
definida em funcao da relevancia da atividade fiscal obstada e sera
caracterizada pela violacao, comissiva ou omissiva, direta ou indireta, da
Concessionaria ou de seus prepostos, que impeca ou dificulte a atividade de
fiscalizacao exercida pela ANATEL, seus prepostos, agentes ou mesmo pelos
usuarios, especialmente:
a) recusa da Concessionaria em atender pedido de informacao
formulado pela ANATEL relacionada ao servico concedido ou aos bens a
ele afetos;
b) oferecimento de entrave a atuacao dos agentes de fiscalizacao da
ANATEL;
c) omissao em cumprir obrigacao de publicidade prevista neste
Contrato, ou na regulamentacao; e
d) nao envio ou envio intempestivo de qualquer informacao, dado,
relatorio ou documento que, por forca da regulamentacao ou deste
Contrato, deveria ser remetida a ANATEL.
(S) 7 - A infracao prescrita no inciso VII desta clausula tera sua
gravidade definida em funcao da proporcao do risco ensejado e sera caracterizada
pela conduta da Concessionaria que afronte as regras
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dispostas no presente Contrato e na regulamentacao, viole as normas e padroes
tecnicos de seguranca ou que coloquem em risco as instalacoes afetas ao servico
concedido, especialmente:
a) o emprego, no servico concedido, de equipamento nao certificado
pela ANATEL, quando exigida a certificacao;
b) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
seguranca; e
c) nao adocao de precaucoes que sejam recomendadas para o servico
ora concedido.
(S) 8 - A infracao prescrita no inciso VIII desta clausula tera sua
gravidade definida em funcao da relevancia, do vulto economico e da
essencialidade dos bens envolvidos e sera caracterizada pela conduta da
Concessionaria que contraria o disposto neste Contrato ou na regulamentacao e
que possa por em risco bens ou equipamentos vinculados a presente concessao ou
dificultar a reversao dos mesmos, em especial:
a) a nao manutencao de inventario e registro dos bens referidos na
clausula 21.1.;
b) pelo emprego, diretamente na prestacao do servico objeto da
presente concessao, de bens de terceiros sem previa anuencia da
ANATEL ou sem que esta seja dispensada em regulamento; e
c) pela negligencia na conservacao dos bens reversiveis, observada a
regulamentacao.
(S) 9 - A sancao prevista no inciso IX sera caracterizada pela
verificacao de violacao de obrigacao contratual nao compreendida nos incisos
anteriores, em especial aquela prevista no inciso XXXI da clausula 15.1.
(S) 10 - A sancao prevista no inciso II supra tem carater contratual
e sera aplicada pela ANATEL independentemente das providencias que venham a ser
adotadas pelo CADE.
(S) 11 - O nao recolhimento de qualquer multa fixada nos termos do
disposto na presente clausula no prazo fixado pela ANATEL caracterizara falta
grave, ensejando a intervencao na Concessionaria nos termos do disposto no
Capitulo XXVIII, alem de implicar a cobranca de multa moratoria de 0,33% (zero
virgula trinta e tres por cento) ao dia, ate o limite de 10% (dez por cento),
acrescida da taxa referencial SELIC para titulos federais, a ser aplicada sobre
o valor da divida, considerando
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todos os dias de atraso de pagamento.
CLAUSULA 25.2. - Para aplicacao das multas contratuais previstas
neste Capitulo serao observadas as regras contidas no Titulo VI do Livro III da
Lei n 9.472, de 1997, e na regulamentacao.
(S) 1 - Na definicao da gravidade das sancoes e na fixacao das
multas, a ANATEL observara as seguintes circunstancias:
I - a proporcionalidade entre a intensidade do apenamento e a
gravidade da falta, inclusive quanto ao numero dos usuarios
atingidos;
II - os danos resultantes da infracao para o servico e para os
usuarios;
III - a vantagem auferida pela Concessionaria em virtude da
infracao;
IV - a participacao da Concessionaria no mercado dentro de sua area
geografica de prestacao do servico;
V - a situacao economica e financeira da Concessionaria, em especial
a sua capacidade de geracao de receitas e o seu patrimonio;
VI - os antecedentes da Concessionaria;
VII - a reincidencia especifica, assim entendida a repeticao de
falta de igual natureza apos o recebimento de notificacao anterior;
e
VIII - as circunstancias gerais agravantes ou atenuantes da
infracao.
(S) 2 - Independente dos criterios especificos de graduacao
previstos em cada inciso da clausula anterior e de outros previstos na
regulamentacao, a gradacao das penas observara a seguinte escala:
I - a infracao sera considerada leve quando decorrer de condutas
involuntarias ou escusaveis da Concessionaria e da qual ela nao se
beneficie;
II - a infracao sera considerada de gravidade media quando decorrer
de conduta inescusavel, mas que nao traga para a Concessionaria
qualquer beneficio ou proveito, nem afete numero significativo de
usuarios; e
III - a infracao sera considerada grave quando a ANATEL constatar
presente um dos seguintes fatores:
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a) ter a Concessionaria agido com ma-fe;
b) da infracao decorrer beneficio direto ou indireto para a
Concessionaria;
c) a Concessionaria for reincidente na infracao;
d) o numero de usuarios atingido for significativo; e
e) na hipotese prevista no (S) 10 da clausula anterior.
(S) 3 - A criterio da ANATEL, nas infracoes classificadas como leves,
quando da sua primeira ocorrencia, podera ser aplicada a pena de advertencia a
Concessionaria, que sera comunicada formalmente da sancao, sem prejuizo da
publicacao da decisao na Imprensa Oficial.
(S) 4 - Para aplicacao das sancoes previstas neste Capitulo sera
observado o Procedimento Sancionatorio previsto no Regimento Interno da ANATEL.
(S) 5 - Nas infracoes previstas no inciso IV da clausula 25.1. a
ANATEL podera determinar que a Concessionaria abata do valor a ser recolhido, a
titulo de multa, montantes a serem pagos como ressarcimento aos usuarios
atingidos, fixando no ato de aplicacao da pena os criterios para o
ressarcimento, o prazo em que deve ser pago e o valor maximo do abatimento.
(S) 6 - A hipotese prevista no paragrafo anterior so podera ser
adotada quando verificado que o interesse ou a necessidade dos usuarios nao
elidira a responsabilidade da Concessionaria pelas demais indenizacoes civis
devidas.
CLAUSULA 25.3. - As multas previstas nesta clausula serao aplicadas
sem prejuizo da caracterizacao das hipoteses de intervencao ou declaracao de
caducidade previstas no presente Contrato.
PARAGRAFO UNICO - Em caso de inexecucao total ou parcial do ajuste ou
de atrasos injustificados superiores a 120 (cento e vinte) dias no cumprimento
das metas previstas neste Contrato, a Concessionaria estara sujeita a decretacao
de caducidade da Concessao nos termos do disposto na clausula 26.4.
CLAUSULA 25.4. - Os valores das multas previstas neste Capitulo serao
reajustados, anualmente, mediante a aplicacao do IGP-DI, vencendo o primeiro
reajuste apos um ano da assinatura do presente Contrato.
CAPITULO XXVI - DA EXTINCAO DA CONCESSAO
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Clausula 26.1. - Considerar-se-a extinto o Contrato de concessao nas
seguintes hipoteses:
I - termino do prazo de concessao do servico, desde que nao tenha
sido prorrogado nos termos do presente Contrato;
II - encampacao, consoante o Art. 113 da Lei n 9.472, de 1997;
III - caducidade, nos termos do disposto no artigo 114 da Lei n
9.472, de 1997, e no presente Contrato;
IV - rescisao amigavel ou judicial, nos termos do art. 115 da Lei
n 9.472, de 1997; e
V - anulacao.
(S) 1 - Extinta a concessao, retornarao a ANATEL os direitos e
deveres relativos a prestacao do servico concedido, com reversao dos bens
referidos na clausula 22.1, resguardado a Concessionaria o direito as
indenizacoes previstas na legislacao e neste Contrato.
(S) 2 - Apos a extincao da concessao, a ANATEL procedera aos
levantamentos, avaliacoes e liquidacoes necessarios, no prazo de 180 (cento e
oitenta) dias contados da assuncao do servico, salvo na hipotese de termino do
prazo contratual, quando estas providencias deverao ser adotadas pela ANATEL com
antecedencia.
(S) 3 - Extinta a concessao antes do termo contratual, a ANATEL,
sem prejuizo de outras medidas cabiveis, podera:
I - ocupar, temporariamente, bens moveis e imoveis e valer-se de
pessoal empregado na prestacao do servico necessarios a sua
continuidade; e
II - manter os Contratos firmados pela Concessionaria com terceiros
pelo prazo e nas condicoes inicialmente ajustadas.
CLAUSULA 26.2. - A reversao ao termino do prazo contratual sera
feita sem indenizacao, salvo quando ocorrer a hipotese prevista na clausula
22.3.
CLAUSULA 26.3. - Nos termos do art. 113 da Lei n 9.472, de 1997,
considera-se encampacao a retomada do servico pela ANATEL durante o prazo de
concessao, em face de razao extraordinaria de interesse publico, mediante lei
autorizativa especifica e precedida de pagamento de indenizacao.
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CLAUSULA 26.4. - O presente Contrato podera ter sua caducidade
declarada por ato do Conselho Diretor da ANATEL, precedido de processo
administrativo que assegure ampla defesa a Concessionaria, nas hipoteses de :
I - transferencia do controle societario, cisao, fusao,
transformacao da Concessionaria ou ainda incorporacao ou reducao do
seu capital sem a previa aprovacao da ANATEL;
II - transferencia irregular do Contrato;
III - nao cumprimento do compromisso de transferencia referido na
clausula 18.1. e no art. 87 da Lei n 9.472, de 1997;
IV - falencia ou dissolucao da Concessionaria;
V - nao atendimento das exigencias de cobertura por planos de
seguros em afronta as obrigacoes previstas na clausula 23.1. e tal
omissao nao puder, a criterio da ANATEL, ser suprida com a
intervencao; e
VI - quando, nos termos do art. 114, inciso IV, da Lei n 9.472, de
1997, ocorrer qualquer das hipoteses previstas na clausula 28.1. e,
a criterio da ANATEL, a intervencao for considerada inconveniente,
inocua ou ainda injustamente benefica a Concessionaria.
(S) 1 - Sera considerada desnecessaria a intervencao quando a
demanda pelo servico objeto da concessao puder ser atendida, mediante permissao,
por outras prestadoras de modo regular e imediato.
(S) 2 - A declaracao de caducidade nao elidira a aplicacao das
penalidades cabiveis nos termos deste Contrato pelas infracoes praticadas pela
Concessionaria, nem prejudicara o direito a indenizacao definida nos termos do
Capitulo seguinte.
CLAUSULA 26.5. - A Concessionaria tera direito a rescisao
contratual, judicial ou amigavel, quando por acao ou omissao do Poder Publico, a
execucao do Contrato se tornar excessivamente onerosa, nos termos do art. 115 da
Lei n 9.472, de 1997.
PARAGRAFO UNICO - Nao constitui motivo para a rescisao contratual a
introducao ou a ampliacao da competicao entre os diversos prestadores do servico
objeto da concessao, sendo certo que a Concessionaria assume a presente
concessao ciente de que exercera suas atividades sem qualquer reserva ou
exclusividade de mercado.
CLAUSULA 26.6. - A anulacao sera decretada pela ANATEL
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em caso de irregularidade insanavel e grave verificada no presente Contrato.
CAPITULO XXVII- DA INDENIZACAO
CLAUSULA 27.1. - Para fins de calculo de indenizacao, devida pela
ANATEL a Concessionaria nos casos expressamente previstos no presente Contrato,
observar-se-a o seguinte:
I - Termino do prazo contratual - nao cabera indenizacao, exceto se
comprovado que o nao pagamento significa enriquecimento imotivado
por parte da Uniao em funcao da reversao de bens ainda nao
integralmente amortizados, observado o disposto na clausula 22.3.;
II - Encampacao - observado o disposto no art. 113 da Lei n 9.472,
de 1997, a indenizacao, que sera paga previamente ao ato, deve
corresponder ao valor dos bens que reverterem ao poder concedente,
descontada a sua depreciacao.
III - Caducidade - independentemente da aplicacao das penalidades e
da reparacao dos danos decorrentes do inadimplemento, nos termos do
Contrato, a Concessionaria somente podera postular indenizacao se
comprovadamente estiver a ocorrer enriquecimento imotivado por parte
da Uniao pela reversao de bens nao integralmente amortizados ou
depreciados, descontando o valor dos danos causados e das multas
cominadas, bem como, quando o caso, das obrigacoes financeiras nao
satisfeitas;
IV - Rescisao amigavel ou judicial - nao cabera indenizacao, exceto
se contrariamente for fixado em sentenca judicial; e
V - Anulacao - somente quando comprovado que a Concessionaria nao
concorreu para a ilegalidade, cabera indenizacao correspondente
apenas ao valor efetivo dos bens que reverterem para a Uniao,
calculado na data da decretacao da anulacao, desde que estes bens
ainda nao estejam integralmente amortizados pela exploracao dos
servicos.
(S) 1 - O valor provisorio a ser antecipado pela ANATEL para os
casos de encampacao sera calculado na forma prescrita na lei autorizativa
especifica.
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(S) 2 - Quando advier a caducidade por culpa comprovada da
Concessionaria, esta acarretara tambem:
a) retencao dos creditos decorrentes do Contrato, inclusive com
apropriacao de receitas decorrentes de pagamentos feitos pelos
usuarios do servico;
b) responsabilizacao por prejuizos causados a Uniao e aos usuarios;
c) aplicacao de multas nos termos do disposto no presente Contrato e
na legislacao vigente; e
d) perda do seguro garantia previsto na clausula 23.1.
(S) 3 - Excetuada a hipotese de encampacao, a indenizacao cabivel
para os demais casos de extincao do Contrato sera calculada nos termos deste
capitulo e parcelada pelo numero de meses a que ainda seria vigente a concessao,
devendo a primeira parcela vencer apos um ano da extincao do Contrato.
(S) 4 - A ANATEL podera transferir para o prestador que suceder a
Concessionaria na exploracao do servico, o onus de pagamento das respectivas
indenizacoes, assumindo novamente a obrigacao de pagamento, caso o novo
prestador atrase em mais de 90 (noventa) dias os pagamentos.
CAPITULO XXVIII - DA INTERVENCAO
CLAUSULA 28.1. - A intervencao na Concessionaria podera ser
decretada pela ANATEL, a seu criterio e no interesse publico, atraves de ato
especifico e motivado do seu Conselho Diretor, sempre que, por falha da
Concessionaria, houver risco quanto a continuidade e seguranca do servico e em
especial nas seguintes situacoes:
I - paralisacao injustificada do servico, assim entendida a
interrupcao da prestacao fora das hipoteses previstas no presente
Contrato e sem a apresentacao de razoes tidas pela ANATEL como aptas
a justifica-la;
II - inadequacao ou insuficiencias reiteradas no servico prestado,
caracterizadas pelo nao atendimento dos parametros de qualidade
previstos no presente Contrato e na regulamentacao, mesmo apos
notificacao de prazo, pela ANATEL, para regularizacao da situacao;
III - pratica de ma administracao que coloque em risco a
continuidade do servico;
48
<PAGE>
IV - pratica reincidente de infracoes definidas como graves nos
termos da clausula 25.1 supra;
V - nao atendimento das metas de universalizacao, assim entendido o
descumprimento injustificado do cronograma de implementacao das
obrigacoes de universalizacao presentes neste Contrato;
VI - recusa injustificada de interconexao, assim entendida a
negativa, delonga ou qualquer atitude protelatoria na negociacao ou
efetivacao da ligacao a sua rede solicitada por outro prestador,
observadas as condicoes de interconexao arbitradas pela ANATEL;
VII - infracao da ordem economica, caracterizada pela aplicacao de
sancoes por pratica contraria a concorrencia; e
VIII - omissao em prestar contas a ANATEL ou oferecimento de obice a
atividade fiscalizatoria que pressuponham a pratica de qualquer das
ocorrencias previstas nos incisos anteriores.
CLAUSULA 28.2. - O ato de intervencao devera, necessariamente,
indicar o prazo, os motivos, os objetivos e limites, alem de designar o
interventor.
PARAGRAFO UNICO - O prazo e os limites da intervencao deverao ser
compativeis e proporcionais aos motivos que a ensejaram.
CLAUSULA 28.3. - A intervencao sera precedida de procedimento
administrativo instaurado pela ANATEL, no qual sera assegurado o amplo direito
de defesa da Concessionaria.
PARAGRAFO UNICO - Quando imprescindivel a intervencao imediata,
podera ela ser decretada cautelarmente pela ANATEL, sem previa manifestacao da
Concessionaria, devendo, neste caso, o procedimento ser imediatamente instaurado
na data da decretacao e concluido em ate cento e oitenta dias, prazo em que
podera a Concessionaria exercer seu direito amplo a defesa.
CLAUSULA 28.4. - A decretacao da intervencao nao afetara o curso
regular dos negocios da Concessionaria nem seu normal funcionamento, produzindo,
contudo, o imediato afastamento de seus administradores.
CLAUSULA 28.5. - A funcao de interventor podera recair sobre agente
dos quadros da ANATEL, pessoa especificamente nomeada, colegiado ou empresa,
assumindo a Concessionaria os custos da
49
<PAGE>
remuneracao.
(S) 1 - Dos atos do interventor cabera recurso a ANATEL.
(S) 2 - O interventor prestara contas e respondera pelos atos que
praticar.
(S) 3 - Para os atos de alienacao e disposicao do patrimonio da
Concessionaria, o interventor necessitara de previa autorizacao da ANATEL.
CLAUSULA 28.6. - Nao sera decretada a intervencao quando, a juizo da
ANATEL, ela for considerada desnecessaria .
PARAGRAFO UNICO - A intervencao sera considerada desnecessaria nas
hipoteses prescritas no (S) 1 da clausula 26.4. supra, bem como naquelas
previstas no art. 114, inciso IV da Lei n 9.472, de 1997.
CAPITULO XXIX - DAS EXPROPRIACOES E IMPOSICOES ADMINISTRATIVAS
Clausula 29.1. - Caso haja a necessidade, para implementacao,
prestacao ou modernizacao do servico, de realizar alguma desapropriacao ou
servidao administrativa, os onus serao suportados integralmente pela
Concessionaria, devendo a ANATEL solicitar do Presidente da Republica a emissao
do ato de decretacao de utilidade publica.
CAPITULO XXX - DA ARBITRAGEM
Clausula 30.1. - Os eventuais conflitos que possam surgir em materia
da aplicacao e interpretacao das normas da concessao serao resolvidos pela
ANATEL no exercicio da sua funcao de orgao regulador conforme prescrito nos
artigos 8 e 19 da Lei n 9.472, de 1997, podendo a Concessionaria recorrer ao
procedimento de arbitragem disposto no presente Capitulo exclusivamente quando
inconformada com a decisao da ANATEL relativa as seguintes materias:
I - violacao do direito da Concessionaria a protecao de sua situacao
economica, conforme prescrito no Capitulo XII;
II - revisao das tarifas, prevista no Capitulo XII; e
III - indenizacoes devidas quando da extincao do presente Contrato,
inclusive quanto aos bens revertidos.
50
<PAGE>
PARAGRAFO UNICO - A submissao de qualquer questao a arbitragem nao
exime a ANATEL e a Concessionaria da obrigacao de dar integral cumprimento a
este Contrato, nem permite a interrupcao das atividades vinculadas a concessao.
CLAUSULA 30.2. - O processo de arbitragem tera inicio mediante
comunicacao remetida por uma parte a outra, requerendo a instalacao do Tribunal
Arbitral de que trata este Capitulo e indicando detalhadamente a materia em
torno da qual gira a controversia.
PARAGRAFO UNICO - A ANATEL podera rejeitar a instalacao do Tribunal
Arbitral se, motivada e justificadamente, demonstrar que a controversia nao se
enquadra no rol de materias prevista na clausula 30.1.
CLAUSULA 30.3. - O Tribunal Arbitral sera composto por 5 (cinco)
membros, assim nomeados:
I - 2 (dois) membros efetivos e respectivos suplentes indicados pelo
Conselho Diretor da ANATEL dentre especialistas nas areas afetas a
materia controvertida, nao pertencentes aos seus quadros, sendo pelo
menos um, que o presidira, detentor de conhecimentos especificos em
regulamentacao juridica de telecomunicacoes;
II - 2 (dois) membros efetivos e respectivos suplentes indicados pela
Concessionaria, dentre especialistas nas areas afetas a materia
controvertida, que nao sejam seus empregados, sendo pelo menos um
detentor de conhecimentos especificos em regulamentacao juridica de
telecomunicacoes; e
III - 1 (um) membro efetivo e respectivo suplente indicado pelos
membros referidos nos incisos anteriores.
(S) 1 - O Tribunal Arbitral podera ser assistido pelos peritos
tecnicos que considere conveniente designar.
(S) 2 - Considera-se constituido o Tribunal na data em que todos os
arbitros aceitarem as suas indicacoes e comunicarem a ambas as partes as suas
aceitacoes.
(S) 3 - O Tribunal julgara segundo o direito constituido e suas
decisoes tem forca cogente, independentemente de homologacao judicial.
CLAUSULA 30.4. - Nao tendo sido rejeitado pela ANATEL ou sendo
superado tal questionamento, sera iniciado o Processo versado no presente
Capitulo, o qual obedecera ao seguinte procedimento:
51
<PAGE>
I - as partes terao 10 (dez) dias contados do recebimento da
comunicacao de que trata o caput da clausula anterior, para indicar
os membros do Tribunal Arbitral, o qual sera instalado imediatamente
apos a aceitacao de todos os seus membros;
II - estando inerte uma das partes ou tendo oferecido resistencia a
instalacao do Tribunal Arbitral, a outra parte podera se utilizar da
faculdade prevista no art. 7 da Lei n 9.307, de 23 de setembro de
1996;
III - instalado o Tribunal Arbitral, sera aberto prazo sucessivo de
25 (vinte e cinco) dias para que as partes apresentem suas razoes
sobre a materia controvertida, podendo nesta oportunidade apresentar
laudos, pericias, pareceres, juntar documentos ou informacoes que
entendam relevantes para sustentar sua posicao;
IV - apresentados os memoriais, o Tribunal analisara as razoes
expostas e podera, por requerimento de um de seus membros,
determinar a elaboracao de laudos, pericias ou pareceres, solicitar
informacoes ou documentos para as partes, bem como realizar
diligencias e tomar as providencias que entenda necessarias para a
perfeita instrucao da materia controvertida;
V - durante a coleta dos elementos a que se refere o inciso
anterior, serao sempre permitidos as partes a manifestacao e o
contraditorio, obedecidos os principios da informalidade, da
consensualidade e da celeridade que pautarao o procedimento;
VI - declarada encerrada a instrucao, sera concedido prazo comum de
15 (quinze) dias para que as partes apresentem suas alegacoes
finais;
VII - transcorrido o prazo prescrito no inciso anterior,
independentemente da apresentacao das alegacoes finais, o Tribunal
proferira sua decisao em prazo nao superior a 30 (trinta) dias;
VIII - da decisao do Tribunal Arbitral nao cabera recurso, exceto
pedido de reconsideracao, cabivel apenas na hipotese da decisao ter
sido adotada por maioria de apenas um voto; e
IX - so cabera invalidacao do processo de arbitragem nas hipoteses
prescritas no art. 32 da Lei n 9.307/96.
52
<PAGE>
PARAGRAFO UNICO - As despesas com o processo de arbitragem,
abrangendo, inclusive, as custas de laudos, pareceres e pericias, bem como os
honorarios dos membros do Tribunal, serao imputadas a Concessionaria ou a
ANATEL, conforme decisao do Tribunal Arbitral.
CAPITULO XXXI - DO REGIME LEGAL APLICAVEL E DOS DOCUMENTOS APLICAVEIS
CLAUSULA 31.1. - Regem a presente concessao, sem prejuizo das demais
normas integrantes do ordenamento juridico brasileiro, a Lei n 9.472 de 16 de
Julho de 1.997 e a regulamentacao dela decorrente, em especial a de competencia
do Poder Executivo, conforme disposto no art. 18 da referida Lei, prevalecendo
sempre estas no que colidir com aquelas.
CLAUSULA 31.2. - Na prestacao do servico ora concedido deverao ser
observadas as politicas nacionais de telecomunicacoes e regulamentacao da
ANATEL, como parte integrante deste Contrato, em especial os documentos
relacionados a seguir:
I - Plano Geral de Outorgas;
II - Plano Geral de Metas de Universalizacao;
III - Plano Geral de Metas de Qualidade;
IV - Regulamento Geral dos Servicos de Telecomunicacoes;
V - Regulamento do Servico Telefonico Fixo Comutado;
VI - Regulamento Geral de Interconexao;
VII- Regulamento de Numeracao para o Servico Telefonico Fixo
Comutado;
VIII Regulamento da Administracao da Numeracao; e
IX - Regulamento sobre Remuneracao pelo Uso das Redes das
Prestadoras do STFC.
CLAUSULA 31.3. Na interpretacao das normas e disposicoes constantes do
presente Contrato deverao ser levadas em conta, alem dos documentos referidos no
item anterior, as regras gerais de hermeneutica e as normas e principios
contidos na Lei n 9.472/97.
53
<PAGE>
CAPITULO XXXII - DO FORO
CLAUSULA 32.1. - Para solucao de questoes decorrentes do presente
Contrato que nao puderem ser resolvidas atraves do procedimento de solucao de
divergencias constante do Capitulo XXX - Da Arbitragem, sera competente o Foro
da Secao Judiciaria da Justica Federal de Brasilia, Distrito Federal.
CAPITULO XXXIII - DAS DISPOSICOES FINAIS E GERAIS
CLAUSULA 33.1. - O Contrato ora assinado entrara em vigencia quando da
publicacao do seu extrato no Diario Oficial da Uniao.
PARAGRAFO UNICO - A Concessionaria tera prazo de 6 (seis) meses
contados da edicao da regulamentacao referida na clausula 31.2, a qual devera
estar totalmente editada ate 31 de dezembro de 1998, quando passara a ser
exigido integralmente o cumprimento das obrigacoes constantes deste Contrato.
E por assim estarem de pleno acordo com as disposicoes e condicoes do presente
Contrato, as partes o assinam em 03 (tres) vias de igual teor e forma, na
presenca das testemunhas, que tambem o assinam, para que se produzam seus legais
e juridicos efeitos.
Brasilia, 26 de maio de 1998.
Pela ANATEL:
__________________________
__________________________
Pela Concessionaria:
__________________________
__________________________
Testemunhas:
__________________________
Nome:
RG:
__________________________
Nome:
RG:
54
<PAGE>
ANEXO N 01
QUALIFICACAO DOS BENS REVERSIVEIS DA PRESTACAO DO
a. SERVICO TELEFONICO FIXO COMUTADO LOCAL
a) Infra-estrutura e equipamentos de comutacao, transmissao incluindo
terminais de uso publico;
b) Infra-estrutura e equipamentos de rede externa;
c) Infra-estrutura de equipamentos de energia e ar condicionado;
d) Infra-estrutura e equipamentos de Centros de Atendimento e de Prestacao de
Servico;
e) Infra-estrutura e equipamentos de sistemas de suporte a operacao;
f) Outros indispensaveis a prestacao do servico.
55
<PAGE>
ANEXO N 02
METAS DE UNIVERSALIZACAO
1. As metas de universalizacao sao aquelas estabelecidas no Plano Geral de Metas
de Universalizacao, mais as seguintes:
1. Acessos plenos individuais instalados no setor citado na clausula 2.1 deste
Contrato :
a) ate 31/12/1999
b) ate 31/12/2000
c) ate 31/12/2001
2. Instalar telefone de uso publico no setor citado na clausula 2.1 deste
Contrato:
a) ate 31/12/1999
b) ate 31/12/2000
c) ate 31/12/2001
56
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ANEXO N 03
PLANO BASICO DO SERVICO LOCAL
1 Generalidades
1.1 O Plano Basico do Servico Local e regido pelas Portarias citadas neste
anexo, demais regulamentacoes vigentes e por outras que venham a sucede-las.
1.2 As tarifas apresentadas sao maximas, liquidas de impostos e contribuicoes
sociais.
2- ACESSO AO SERVICO TELEFONICO FIXO COMUTADO - STFC
2.1 Para o acesso ao Servico Telefonico Fixo Comutado, a Prestadora podera
cobrar Tarifa de Habilitacao, cujo valor e limitado a R$ 80,00 (oitenta reais),
conforme definido na Portaria n 508, de 16/10/97, do Ministro de Estado das
Comunicacoes;
2.2 Para manutencao do direito de uso as Prestadoras estao autorizadas a cobrar
tarifa de assinatura, segundo a tabela abaixo, conforme Portarias ns 217 e 226,
ambas de 03/04/97, do Ministro de Estado das Comunicacoes.
Classe de Assinantes R$
- ------------------------------------------------
Residencial 10,00 (dez reais)
- ------------------------------------------------
Nao Residencial 15,00 (quinze reais)
- ------------------------------------------------
Tronco de CPCT 20,00 (vinte reais)
- ------------------------------------------------
2.2.1 A assinatura do STFC Local inclui uma franquia de 90 pulsos.
2.3 A mudanca de endereco de assinante habilitado podera ser cobrada, sendo o
valor limitado a R$ 62,40 (sessenta e dois reais e quarenta centavos);
3 A UTILIZACAO DO STFC
3.1 STFC Local
3.1.1 O STFC Local e regulamentado pela Portaria n. 216, de 18.09.91, do
Secretario Nacional de Comunicacoes, alterada pela Portaria n 218, de 03 de
abril de 1997, do Ministro de Estado das Comunicacoes, que dispoe sobre os
processos de tarifacao das chamadas locais no Servico Telefonico Publico.
3.1.2 O STFC Local sera tarifado:
57
<PAGE>
a) pelo metodo Karlsson Acrescido - KA - 240 (multimedicao), onde a cobranca e
feita pela aplicacao de uma unidade de tarifacao (pulso) por chamada
estabelecida e de unidades adicionais a cada 240 segundos, sendo a primeira
cobranca efetuada ao acaso em relacao ao inicio da chamada.
b) pelo Metodo de Medicao Simples, onde a cobranca e feita pela aplicacao de uma
unidade de tarifacao (pulso) por chamada atendida, independentemente de sua
duracao.
<TABLE>
<CAPTION>
Dias Sistema de Medicao
- -------------------------------------------------------------------------------------------------------
<S> <C>
De Segunda a Sexta-feira das 06:00h as 24:00 h Multimedicao (KA 240)
- -------------------------------------------------------------------------------------------------------
De Segunda a Sexta-feira das 00:00h as 06:00 h Medicao Simples
- -------------------------------------------------------------------------------------------------------
Sabados das 06:00 h as 14:00 h Multimedicao (KA 240)
- -------------------------------------------------------------------------------------------------------
Sabados das 00:00 h as 06:00 h e das 14:00 h as 24:00 h Medicao Simples
- -------------------------------------------------------------------------------------------------------
Domingos e Feriados das 00:00 as 24:00 horas Medicao Simples
- -------------------------------------------------------------------------------------------------------
</TABLE>
3.1.3 A unidade de tarifacao do STFC Local e o Pulso, cujo valor medio,
estabelecido pela Portaria n. 226, de 03.04.97, do Ministro de Estado das
Comunicacoes, e R$ 0,058.
3.1.4 Nas Chamadas Locais a Cobrar poderao ser aplicados os principios de
tarifacao do STFC Longa Distancia Nacional relativos ao Degrau 1 da Matriz de
Degraus Tarifarios do STFC Longa Distancia Nacional, conforme determina a
Portaria n. 218, de 03.04.97, do Ministro de Estado das Comunicacoes;
3.1.5 Nas chamadas locais originadas em telefones publicos, sera adotado o
metodo de medicao por tempo, em que incide uma unidade de tarifacao,
sincronizadamente, ocorrendo a primeira no completamento da chamada, denominado
metodo Karlsson Puro, conforme determina a Portaria n. 216, de 18.09.91, do
Secretario Nacional de Comunicacoes, com o periodo de tempo para a unidade de
tarifacao de 120 segundos, conforme preve a Portaria n. 218, de 03.04.97, do
Ministro de Estado das Comunicacoes.
3.1.6 O Valor da Ficha Local/Credito do Cartao Telefonico e de R$ 0,043,
conforme fixado pela Portaria n226, de 03.04.97, do Ministro de Estado das
Comunicacoes;
3.2 Servico Movel Celular
3.2.1 Os criterios e procedimentos de tarifacao de chamadas para o Servico Movel
Celular sao os regulamentados pela Norma n 23/96, aprovada pela Portaria n
1536, de 04.11.96, do Ministro de Estado das Comunicacoes.
58
<PAGE>
3.2.2 A unidade de tarifacao e o decimo de minuto (seis segundos).
3.2.3 A tarifacao minima e de 30 (trinta) segundos.
3.2.4 A Portaria n 2503, de 20.12.96, do Ministro de Estado das Comunicacoes,
fixou os valores maximos das tarifas, por minuto, conforme tabela abaixo:
Areas do SMC Tarifa Tarifa
Normal Reduzida
----------------------
VC-1 VC-1
- --------------------------------------------------
1 0,27000 0,18900
- --------------------------------------------------
2 0,27000 0,18900
- --------------------------------------------------
3 0,28000 0,19600
- --------------------------------------------------
4 0,28000 0,19600
- --------------------------------------------------
5 0,27000 0,18900
- --------------------------------------------------
6 0,27000 0,18900
- --------------------------------------------------
7 0,27000 0,18900
- --------------------------------------------------
8 0,27000 0,18900
- --------------------------------------------------
9 0,26000 0,18200
- --------------------------------------------------
10 0,26000 0,18200
- --------------------------------------------------
3.2.5 O horario de tarifa reduzida para as chamadas destinadas ao Servico Movel
Celular sera de segunda a sabado de 0:00h as 7:00h e das 21:00h as 24:00h e aos
domingos e feriados, de 0:00h as 24:00h, conforme o disposto na Norma n 23/96,
aprovada pela Portaria n 1536, de 04/11/96, do Ministro de Estado das
Comunicacoes.
59
<PAGE>
EXHIBIT 10.1SCH
SCHEDULE IDENTIFYING OMITTED CONCESSION AGREEMENTS AND SETTING FORTH THE
MATERIAL DETAILS IN WHICH SUCH AGREEMENTS DIFFER FROM THE STANDARD CONCESSION
AGREEMENT FILED AS EXHIBIT 10.1
1. Agreement: Concession Agreement between Agencia Nacional de
Telecomunicacoes ("ANATEL") and Telecomunicacoes doe Sao Paulo S.A. -
Telesp.
Material Differences:
(a) Name of concessionaire (see pages 1 and 47): Telecomunicacoes do Sao
Paulo S.A.- Telesp.
(b) Geographical area of service (see page 2): 31
(c) Annex 2 - Universal Service Objectives (see page 49):
1. a) by 12/31/1999 - 7,003,000
b) by 12/31/2000 - 8,320,000
c) by 12/31/2001 - 9,727,000
2. a) by 12/31/1999 - 193,680
b) by 12/31/2000 - 216,040
c) by 12/31/2001 - 241,010
<PAGE>
Exhibit 10.2
STANDARD CONCESSION AGREEMENT
FOR
LOCAL, SWITCHED, FIXED-LINE TELEPHONE SERVICE
(BRAZILIAN TELECOMMUNICATIONS COMPANIES, WITH THE EXCEPTION OF EMBRATEL)
The National Telecommunications Agency ANATEL (Agencia Nacional de
Telecomunicacoes), hereinafter referred to as ANATEL, a Brazilian federal
agency, responsible for granting concessions as provided in Federal Law No.
9,472 of July 16, 1997, the General Telecommunications Law GTL, represented
herein by its President, Renato Navarro Guerreiro, [identification], and its
Counsellor **** [identification], acting in accordance with Resolution No. ****
of its Board of Directors, on the one hand, and [name and identification of the
concessionaire], represented by its authorized representative, hereinafter
referred to as the Concessionaire, hereby enter into this Concession Agreement
as provided in Art. 207 of the above-mentioned General Telecommunications Law,
which shall be governed by the legal provisions referred to above and the
following provisions:
CHAPTER I PURPOSE
CLAUSE 1.1. The subject matter of this Agreement is the concession of
public local Switched Fixed-line Telephone Service in the geographic area
defined in clause 2.1, as provided in the General Concession Plan.
SOLE PARAGRAPH This concession includes public Switched Fixed-line
Telephone Service in border or frontier areas as provided by regulations issued
by ANATEL as provided in the General Concession Plan.
CLAUSE 1.2. Switched Fixed-line Telephone Service is the
telecommunications service which, through the transmission of voice and other
signals, is used for communications between fixed and determined points, using
processes of telephony.
CLAUSE 1.3. With the prior approval of ANATEL, the Concessionaire may
establish and carry out useful or convenient activities related to providing the
service which is the subject matter of this concession.
SOLE PARAGRAPH Services and useful or convenient activities shall be
considered to be related to the subject matter of this Concession if, in the
view of ANATEL, they may be considered an inherent part of the platform for the
service granted hereby, and not a new type of service, as provided by
regulation.
CLAUSE 1.4. The Concessionaire is entitled to establish, expand and
operate the trunk lines, networks and switching centers required to implement
the Concession and operate it as a business, as provided by regulation.
1
<PAGE>
CLAUSE 1.5. The provision of the service granted hereby may not be
separated from the obligations to fulfill the universal service and quality
objectives provided for in this Agreement.
CLAUSE 1.6. The Concessionaire agrees to provide its subscribers,
either directly or through third parties, with telephone directories, without
charge, listing the subscribers of all the providers of Switched, Fixed-line
Telephone Service in its concession area, in accordance with regulation.
CLAUSE 1.7. The Concessionaire must provide to all applicants and
customers the installations that are necessary for the supply of the service
granted hereby, as provided by regulation.
CLAUSE 1.8. The Concessionaire must provide free access to emergency
services, as provided by regulation.
CHAPTER II SERVICE AREA
CLAUSE 2.1. The geographical area of the service which is the subject
matter of this concession is the territory in Sector number *** set forth in
Annex 2 to the General Concession Plan.
CHAPTER III TERM OF THE AGREEMENT AND CONDITIONS FOR EXTENSIONS
CLAUSE 3.1. This concession, which is granted without charge, shall
expire on December 31, 2005, with a guaranteed one-time extension of twenty
years, as provided in clauses 3.2, 3.3 and 3.4.
CLAUSE 3.2. This concession shall be extended once, at the request of
the Concessionaire, for 20 (twenty) years, in return for consideration, provided
the Concessionaire complies with the terms set forth in this Agreement, and the
new Agreement may include new conditions and establish new universal service and
quality objectives, in light of the conditions prevailing at the time of the
extension, and establish, in the case of universal service objectives,
supplementary resources, as provided in Art. 81 of Law No. 9,472 of 1997.
(S) 1 Thirty six (36) months before the expiration date provided in
clause 3.1, ANATEL shall make available for public comment its proposals for new
conditions and new quality and universal service objectives, which shall be
submitted to the President of the Republic for approval by Decree, as provided
in Art. 18, paragraph III of Law No. 9,472 of 1997.
(S) 2 In order to obtain the extension provided for by this clause,
the Concessionaire must indicate its interest the at least 30 (thirty) months
before the expiration date provided in clause 3.1.
CLAUSE 3.3. In order to extend this concession as provided in the
preceding clause, the Concessionaire shall pay a fee every two years during the
extension period
2
<PAGE>
corresponding to 2% (two percent) of its revenue for the year prior to the
payment, net of income taxes and payroll taxes, derived from Switched Fixed-line
Telephone Service.
(S) 1 The amount referred to in the preceding paragraph shall be
calculated on the basis of the net revenue generated through the execution of
the service plans, both basic and supplemental, which are the subject matter of
this concession.
(S) 2 The percentage referred to in the first paragraph of this
clause shall always be calculated on the basis of revenue, net of income tax and
payroll tax deductions, generated between January and December of the previous
year as shown in the financial statements prepared in accordance with corporate
law and basic accounting principles, approved by the management of the
Concessionaire and audited by independent auditors, and payment shall be due on
April 30 of the year following the year for which the fee was determined.
(S) 3 The first fee payment shall be due on April 30, 2007,
calculated on the basis of net revenue from January 1 and December 31, 2006, and
subsequent payments shall be due every 24 (twenty four) months, calculated on
the basis of revenue from the preceding year.
(S) 4 Late payment of the fee provided for in this clause shall be
subject to a fine of 0.33% (zero point thirty three percent) per day, up to a
maximum of 10% (ten percent), plus the SELIC reference rate for federal
securities, to be levied upon the amount owed based on the number of days it is
past due.
CLAUSE 3.4. The extension of the duration of this Agreement shall
entail the extension of the right to use those radio frequencies referred to in
clause 4.1 which are required to continue providing the service which is the
subject matter of this concession.
SOLE PARAGRAPH The return of radio frequencies to ANATEL that are not
required to continue providing services shall not change the amount of the
extension fee as determined in clause 3.3.
CHAPTER IV MANNER, FORM AND TERMS OF SERVICE
CLAUSE 4.1. The use of radio frequencies to provide the service which
is the subject matter of this concession shall be authorized by ANATEL, in
exchange for payment and without exclusive rights, unless otherwise stated in
the regulations, in accordance with the provisions of Articles 83 and 163 of Law
No. 9,472 of 1997.
(S) 1 The Concessionaire shall have the nonexclusive right to use
the radio frequencies authorized prior to the signing of this Agreement, which
shall not be contingent upon the payment of any fee, with the exception of audit
fees, in accordance with the terms set forth in the respective station operation
licenses.
(S) 2 The right to use the radio frequencies referred to in this
clause does not preclude the prerogative granted to ANATEL by Art. 161 of Law
No. 9,472 of 1997.
3
<PAGE>
(S) 3 The use of new radio frequencies that may be required by the
Concessionaire shall be authorized in exchange for payment, in observance of the
procedures defined by ANATEL for such authorizations.
(S) 4 The use of the radio frequencies required under the terms of
the preceding paragraph shall be authorized for the same amount of time as this
Concession, and any extension of their use must be made in exchange for payment,
independently of the fee payment referred to in clause 3.3 herein.
CLAUSE 4.2. The Concessionaire agrees to provide the service which is
the subject matter of the concession in such a way as to comply fully with the
applicable universal service and continuity requirements inherent to the
provision of a public service, in accordance with the criteria, formulas and
parameters set forth in this Agreement.
SOLE PARAGRAPH Failure to comply with the obligations pertaining to
the universalization and continuity of service shall result in the application
of the penalties provided for in this Agreement, entitle ANATEL to issue an
intervention decree and, depending upon the circumstances and seriousness of the
situation, or in the event that issuing an intervention decree is unsuitable,
ineffective, unfairly benefits the Concessionaire or useless, lead to the
forfeiture of the concession, as set forth in clause 26.4.
CLAUSE 4.3. The Concessionaire shall operate the service which is the
subject matter of the concession on its own behalf and at its own risk, under
the system of full and fair competition established by Law No. 9,472 of 1997,
and by the General Concession Plan, and shall be remunerated by the rates
charged and any additional or incidental revenue it receives under the terms of
this Agreement.
SOLE PARAGRAPH The Concessionaire shall not be entitled to any type
of exclusive right, nor shall it claim any rights as to the admission of new
providers of the same service, whether in the public or private sector.
CLAUSE 4.4. Throughout the duration of the concession, the
Concessionaire agrees to maintain its commitments to quality, availability and
supply of the service granted hereby, as stated in this Agreement, regardless of
the competitive environment in the geographic area where it operates the
service.
CLAUSE 4.5. The Concessionaire agrees to conserve and maintain in
perfect operating condition all of the goods, equipment and facilities used to
provide the service granted hereby; to maintain and repair them; and to promote,
when appropriate, their replacement when required, either due to wear and tear
or to technological obsolescence; and to promote the repairs and modernizations
required to provide and maintain proper service, as set forth in this Agreement.
4
<PAGE>
CHAPTER V RULES FOR THE ESTABLISHMENT, EXPANSION, MODIFICATION AND
MODERNIZATION OF SERVICE
CLAUSE 5.1. The expansion and modernization of the service granted
hereby, while observing the goals and criteria set forth in this Agreement, are
fundamental tenets of this concession.
SOLE PARAGRAPH ANATEL may modify the objectives regarding the
establishment, expansion and modernization of the service granted hereby,
provided it respects the right of the Concessionaire to not be forced to sustain
additional expenses which cannot be recovered through the revenue resulting from
compliance with such objectives and through the efficient operation of the
service.
CLAUSE 5.2. Changes to the terms under which the service granted
hereby is provided may only be decided by ANATEL, or with its prior express
approval.
CLAUSE 5.3. Modernization of the service granted hereby shall be
sought by the continual introduction of equipment, processes and means capable
of providing users with service compatible with the current technologies
available in the market.
CHAPTER VI CRITERIA AND INDICATORS OF QUALITY AND CONTINUOUS SERVICE
CLAUSE 6.1. A fundamental tenet of this Concession is the provision
of adequate quality service by the Concessionaire, meaning service which is
satisfactory in terms of consistency, efficiency, security, contemporaneity,
universal availability, courtesy and reasonable rates.
(S) 1 Consistency is characterized by the continuous provision of
the service granted hereby, in strict observance of the standards laid down by
ANATEL.
(S) 2 Efficiency is characterized by the application and
preservation of the parameters set forth in this Agreement, and by the service
granted hereby provided to users within the timeframes provided for in this
Agreement.
(S) 3 Security is characterized by the confidentiality of data
regarding use of the service granted hereby by users, as well as the complete
safeguarding of all information communicated within the ambit of providing such
service, in accordance with Chapter XIV.
(S) 4 Contemporaneity is characterized by the up-to-date nature of
the equipment, facilities and techniques used to provide the service granted
hereby, achieved by incorporating technological advances, which clearly benefit
users, occurring during the term of the concession, in keeping with the
provisions of this Agreement.
(S) 5 Universal availability is characterized by the provision of
the service granted hereby to each and every user without discrimination,
whereby the Concessionaire
5
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commits itself to provide the service to whomever requests it, at the location
indicated by the latter, under the terms of this Agreement and as provided by
regulation.
(S) 6 Courtesy is characterized by respectful and immediate
assistance given to all users of the service granted hereby, as well as by full
compliance with the obligation to inform and assist promptly and politely all
those who, regardless of whether they are users, request information or
arrangements, or make any other type of request, under the terms set forth in
this Agreement.
(S) 7 The principle of reasonable rates is characterized by the
Concessionaire's efforts to charge rates lower than the maximum rates determined
by ANATEL.
CLAUSE 6.2. The Concessionaire must comply with the parameters and
indicators of the General Plan on Quality.
SOLE PARAGRAPH The Concessionaire must annually release a chart
demonstrating the objectives and parameters, established and realized, of the
General Plan on Quality and the General Plan on Universal Service,
notwithstanding the requirement to supply this data whenever ANATEL so requests.
CLAUSE 6.3. The continuity of the service granted hereby, an
essential element of the system under which it is provided, is characterized by
the provision of service without interruption, while taking into account
suspension of service due to default on the part of the user under the terms set
forth in clause 8.3 of this Agreement and Art. 3, paragraph VII of Law No. 9,472
of 1997.
SOLE PARAGRAPH Consistency shall not be considered to have been
violated in the event the service granted hereby is interrupted because of an
emergency situation, technical problems or circumstances involving the security
of installations. The affected users are to be notified and, when appropriate,
explanatory notification is to be given to ANATEL.
CLAUSE 6.4. The Concessionaire may not, under any circumstances,
interrupt the service granted hereby on the allegation that ANATEL or the
federal government have not complied with any obligation, and the Concessionaire
may not invoke any exception arising from breach of contract.
CLAUSE 6.5. In addition to managing and monitoring quality
indicators, ANATEL shall periodically evaluate the degree of customer
satisfaction with the service granted hereby, and may release the following
results concerning the Concessionaire:
I Customer service, especially with regard to availability,
promptness, politeness, speed and effectiveness in responding to
requests and complaints;
II Rates charged and discounts offered;
III Technical quality of the service provided; and
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IV Adequacy of the services offered in relation to users' needs.
CHAPTER VII UNIVERSAL SERVICE OBJECTIVES
CLAUSE 7.1. Universal service is an essential aspect of the system
under which the service granted hereby is provided. It is characterized by the
provision of uniform and nondiscriminatory assistance to all users, and by the
Concessionaire's achievement of the objectives set forth in the General Plan on
Universal Service, approved by Executive authority, under the terms of Article
18, paragraph III and Article 80 of Law No. 9,472 of 1997, and those of Annex 2
of this Agreement.
CLAUSE 7.2. With the exception of clause 7.4 of this Agreement and in
keeping with (S) 2, Art. 4, of the General Plan on Universal Service, approved
by Decree No. 2,592 of May 15, 1998, the implementation of the universal service
objectives provided for in this Agreement shall be financed exclusively through
the operation of the service by the Concessionaire, which shall not be entitled
to any compensation or subsidy.
CLAUSE 7.3. The Concessionaire agrees to implement those universal
service objectives which are not provided for in this Agreement, but which may
be required by ANATEL, in compliance with the provisions of (S) 2, Art. 2 of
the General Plan on Universal Service, approved by Decree No. 2,592 of May 15,
1998, and the following procedure shall be observed when defining compensation
amounts and criteria:
I ANATEL shall consult the Concessionaire regarding the total cost of
implementing the planned additional objectives, the extent to which
they cannot be amortized by operating revenue, and by which specific
payments they are covered. The objectives to be achieved, the
technologies selected, and the location and timeframe of
implementation are to be specifically indicated;
II Should the stated timeframe for consultation lapse without a
response by the Concessionaire, ANATEL shall take the necessary steps
in order to determine the charges and expenses involved in
implementing the additional objectives, and estimate the corresponding
revenue generated;
III Should the Concessionaire issue a response following
consultation, ANATEL shall determine whether the expenses and
estimated revenue presented are adequate and reasonable, taking into
account available technologies, the cost of materials and labor, the
geographical, social and economic characteristics of the market demand
to be met, market prices, and other variables it considers relevant;
IV In the event ANATEL does not consider the proposed expenses and/or
estimated revenue to be reasonable, it may, with justification, make
the Concessionaire responsible for implementing the additional
objectives, and determine the amount of compensation, in accordance
with the provisions of Chapter XXX; and
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<PAGE>
V Should ANATEL consider the amount of compensation to be adequate
and reasonable, it shall confirm to the Concessionaire that the latter
is charged with implementing such additional objectives, under the
terms of the compensation proposal issued by the Concessionaire.
(S) 1 Upon following the procedure set forth in this clause, should
ANATEL consider the implementation of the specific universal service objective
by the Concessionaire to be unsuitable or unfeasible, it shall contract such
undertaking out to another party, which it may do by granting specific and
defined parts of the service, in accordance with the economic parameters derived
from the procedures provided for in this clause.
(S) 2 At the discretion of ANATEL, the procedure provided for in
this clause may also be used to determine the amounts to be compensated
utilizing the resources of the Fund for Universal Telecommunications Services,
when it fulfills the objectives set forth in the General Plan on Universal
Service, approved by Executive authority, under the terms of Article 18,
paragraph III and Article 80 of Law No. 9,472 of 1997.
(S) 3 The use of resources of the Fund for Universal
Telecommunications Services, pursuant to the preceding paragraph, excludes the
utilization of the benefits provided for in (S) 2, Article 10 of the General
Concession Plan, except in the case of compensation to ANATEL for amounts it has
used from said Fund, in addition to the compensation owed.
CLAUSE 7.4. The adoption of the procedures provided for in the
preceding clause is the prerogative of ANATEL, which may adopt them at its
discretion and in keeping with the best interests of the public, and the
Concessionaire shall not have the right to choose how it prefers to implement
the aforementioned universal service objectives.
CHAPTER VIII RULES GOVERNING THE SUSPENSION OF SERVICE DUE TO NONCOMPLIANCE, OR
AT THE REQUEST OF THE SUBSCRIBER
CLAUSE 8.1. Subscribers of the service which is the subject matter of
this concession may request, at any time, the disconnection of the line they
make use of, and the Concessionaire must respond to their request within the
timeframe to be established by ANATEL, which shall be no greater than 48 (forty
eight) hours, unless postponed by the subscriber.
SOLE PARAGRAPH The Concessionaire may not demand payment for the
disconnection referred to above.
CLAUSE 8.2. Subscribers in compliance with their contract with the
Concessionaire, and who request the suspension of their service for more than 30
(thirty) and less than 120 (one hundred twenty) days, shall be guaranteed the
reconnection of their lines at the same address, and may keep the same area code
and number at the end of the requested suspension period, as provided by
regulation.
8
<PAGE>
CLAUSE 8.3. The Concessionaire may only proceed to disconnect the
line of a subscriber who is at least 30 (thirty) days in default of payment,
such debt resulting directly from the use of the service granted hereby, and in
compliance with the procedures set forth by regulation published by ANATEL and
with the following criteria:
I Subscribers must be allowed time to challenge the amounts claimed
from them;
II Subscribers in default shall be entitled to keep their access code
for at least 60 (sixty) days following disconnection.
(S) 1 The Concessionaire must give subscribers at least 15 (fifteen)
days' notice prior to disconnection.
(S) 2 Failure to pay amounts outstanding that are not directly
related to the service which is the subject matter of this concession, in
accordance with the sole paragraph of clause 10.6, shall not be cause for the
cancellation of service provided for in this clause.
CLAUSE 8.4 The Concessionaire shall also guarantee subscribers the
right to block access temporarily or permanently to available conveniences or
features, as well as to premium services, provided they so request, as provided
by regulation.
CLAUSE 8.5 In the event the default of the subscriber exclusively
involves the nonpayment of services supplied by a provider of Switched, Fixed-
line Telephone Service other than the service conceded herein, and which is
billed jointly with the Concessionaire's services, the disconnection must follow
the specific procedure laid down in regulation by ANATEL.
CHAPTER IX NUMBERING PLAN
CLAUSE 9.1. As provided by regulation, the Concessionaire agrees to
obey the Numbering Regulations for Switched, Fixed-line Telephone Service
published by ANATEL, and must guarantee subscribers portability of access codes
within the timeframe defined in such Regulations.
(S) 1 The Concessionaire shall assume all expenses required to
conform to the Numbering Regulations referred to above.
(S) 2 The expenses pertaining to the investments required in order to
enable portability of access codes shall be shared by the Concessionaire and the
other providers of telecommunications services, whether in the public or private
sector.
(S) 3 The expenses pertaining to the administration of the process of
assigning and holding access codes pursuant to the Numbering Regulations shall
be borne by the Concessionaire, under the terms of the Numbering Administration
Regulations.
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CHAPTER X RATE AND PAYMENT STRUCTURE
CLAUSE 10.1. The Concessionaire is required to offer all users the
Basic Local Service Plan, as provided in Annex 3, which is an integral part of
this Agreement.
SOLE PARAGRAPH The Basic Local Service Plan shall be the sole plan
for the entire area referred to in clause 2.1 and must state, under the terms
set forth by ANATEL, maximum amounts for each item of the rate structure defined
for the provision of Switched, Fixed-line Telephone Service. Said amounts shall
be revised and adjusted, in accordance with applicable standards.
CLAUSE 10.2. The Concessionaire may offer its subscribers
Supplemental Local Service Plans with rate criteria different from those in the
Basic Local Service Plan.
(S) 1 Subscribers shall be guaranteed the right to switch between the
various Local Service Plans offered by the Concessionaire, as provided by
regulation.
(S) 2 The Concessionaire is free to propose the rate structure for
the Supplemental Local Service Plans, provided it complies with clause 10.1 of
this Agreement.
(S) 3 The Concessionaire is required to offer its Supplemental Local
Service Plans, approved by ANATEL, to subscribers in a nondiscriminatory manner.
(S) 4 Supplemental Local Service Plans must be authorized by ANATEL
before being offered to the general public.
(S) 5 ANATEL must decide whether to approve Supplemental Local
Service Plans within 15 (fifteen) days of their having been submitted, and they
shall be considered to have been approved if ANATEL makes no decision within
this timeframe.
CLAUSE 10.3. The Concessionaire may offer discounts on the rates for
Local Service Plans provided it does so in an egalitarian and nondiscriminatory
manner. The Concessionaire shall not reduce amounts subjectively and must
observe the principles of fair competition.
SOLE PARAGRAPH The Concessionaire agrees to give its users ample and
prior notice of discounted rates for the service, and to communicate its notice
of discounted rates to ANATEL within 7 (seven) days after the rate reduction
takes effect.
CLAUSE 10.4. The Concessionaire agrees to publicize the rates charged
for the service which is the subject matter of the concession, in the manner
required by ANATEL.
CLAUSE 10.5. When new services, conveniences or features are
introduced in relation to the service granted hereby, the Concessionaire shall
submit its proposed rates to ANATEL for approval, without which no rate or price
may be charged.
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<PAGE>
CLAUSE 10.6. Billing documents issued by the Concessionaire must be
presented in a detailed, clear, explanatory and self-evident manner, and must
distinguish the type and quantity of each service provided to the subscriber, as
provided by regulation.
SOLE PARAGRAPH The Concessionaire may list the amounts owed by the
subscriber within the billing document for premium services, as well as for
other conveniences or features related to the service granted hereby, provided
it does so in a clear and explicit manner.
CLAUSE 10.7. The Concessionaire shall collect network usage fees from
other providers of telecommunications services, in keeping with the standards
published by ANATEL.
CLAUSE 10.8 The Concessionaire shall offer a discount to those
subscribers affected by any discontinuance of the service granted hereby,
provided the subscriber was not the cause of discontinuance, and the discount
shall be prorated for the period during which the interruption occurred, as
provided by regulation.
CHAPTER XI RATE ADJUSTMENTS
CLAUSE 11.1. The rates listed in the Basic Local Service Plan Annex
3, may be adjusted by applying the formula below. This may be done no more than
once every 12 (twelve) months, at the initiative of ANATEL or the
Concessionaire, in keeping with the rules of economic legislation in force.
<TABLE>
<S> <C>
((}HAB/t/ + Sub/t/ + n/to/ x P/t/))} less than or equal to (Pounds)} (1-k) Ft ((}HAB/to/ + Sub/to/ + n/to/ x P/to/))
----- ------
36 36
Let:
HAB/t/=PRes/to/ x HABRes/t/ + PNRes/to/ x HABNRes/t/+ PTrunk/to/ x HABTrunk/t/
HAB/to/= PRes/to/ x HABRes/to/ + PNRes/to/ x HABNRes/to/ + PTrunk/to/ x HABTrunk/to/
Sub/t/ = PRes/to/ x SubRes/t/ + PNRes/to/ x SubNRes/t/ + PTrunk/to/ x SubTrunk/t/
Sub/to/ = PRes/to/ x SubRes/to/ + PNRes/to/ x SubNRes/to/ + PTrunk/to/ x SubTrunk/to/
</TABLE>
HABRes/t/ less than or equal to (Pounds)} HABRes/to/ x 1.09 x GPI-DA /t/
----------
GPI-DA /to/
HABNRes/t/ less than or equal to (Pounds)} HABNRes/to/ x 1.09 x GPI-DA /t/
----------
GPI-DA /to/
HABTrunk/t/ less than or equal to (Pounds)} HABTrunk/to/ x 1.09 x GPI-DA /t/
----------
GPI-DA /to/
11
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P/t/ less than or equal to (Pounds)} P/to/ x 1.09 x GPI-DA /t/
----------
GPI-DA /to/
SubRes /t/ less than or equal to (Pounds)} SubRes /to/ x 1.09 x GPI-DA /t/
----------
GPI-DA /to/
SubNRes /t/ less than or equal to (Pounds)} SubNRes /to/ x 1.09 x GPI-DA /t/
----------
GPI-DA /to/
SubTrunk /t/ less than or equal to (Pounds)} SubTrunk /to/ x 1.09 x GPI-DA /t/
----------
GPI-DA /to/
Where:
/t/ = proposed date of adjustment.
/to/ = date of the last adjustment or, in the case of the first adjustment,
April 1, 1998.
HAB = mean value of the installation fee, net of taxes.
HABRes = value of the installation fee for residential lines, net of taxes.
HABNRes = value of the installation fee for non-residential lines, net of taxes.
HABTrunk = value of the installation fee for trunk lines, net of taxes.
P = value of a pulse.
PRes/to/ = percentage of residential Basic Local Service Plan subscribers of the
total number of the Concessionaire's subscribers, since the last adjustment or,
in the case of the first adjustment, since April 1, 1998.
PNRes/to/ = percentage of non-residential Basic Local Service Plan subscribers
of the total number of the Concessionaire's subscribers since the last
adjustment or, in the case of the first adjustment, since April 1, 1998.
PTrunk/to/ = percentage of trunk line subscribers of the Basic Local Service
Plan of the total number of the Concessionaire's subscribers, since the last
adjustment or, in the case of the first adjustment, since April 1, 1998.
Sub = mean Subscription value
SubRes = value of the Residential Subscription, net of taxes.
SubNRes = value of the Non-Residential Subscription, net of taxes.
SubTrunk/t/ = value of the Trunk Subscription, net of taxes.
n/to/ = mean number of pulses billed per subscription of the Basic Local Service
Plan, considering the length of time since the last adjustment or, in the case
of the first adjustment, between April 1998 and the month prior to the proposed
date of the adjustment;
and
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Ft = GPI-DA/t/
--------
GPI-DA/to/
Where:
GPI-DA = General Price Index, Domestic Availability, issued by the Getulio
Vargas Foundation, or its successor index.
k = transfer factor.
(S) 1 The transfer factor shall be applied during the duration of the
concession in the following manner:
I Until December 31, 2000 it shall be equal to 0 (zero); and
II From January 1, 2001 until December 31, 2005, it shall be equal to
0.01 (zero point zero one).
(S) 2 In the event the adjustment period includes different transfer
factor values, a weighted average must be calculated thereof taking into account
the months during which each transfer factor value occurred.
(S) 3 In the event an adjustment takes place after more than twelve
months have gone by, the formula including the transfer factor must be applied
progressively, taking into account twelve-month periods, and then any remaining
months.
(S) 4 After 2005, new transfer factor values may be determined by
ANATEL in the event this Agreement is extended, depending upon the conditions
which exist at that time.
CLAUSE 11.2. Network usage fees shall be adjusted by applying the
following formulas:
<TABLE>
<S> <C>
24 24
SigmaA} (UF-LNj/t/x Mj/to/) less than or equal to (Pounds)} (1-k) Ft SigmaA}
(UF-LNj/to/ x Mj/to/)
Where:
UF-LNj usage fee for the local network during the "j" period.
Mj/to/ Number of minutes of use of the Concessionaire's local network during the
"j" period by domestic and international long distance carriers, either since
the last rate adjustment or, in the case of the first adjustment, since April 1,
1998.
/t/ = date of the proposed adjustment.
/to/ = date of the last adjustment or, in the case of the first adjustment, April
1, 1998; and
/Ft/ = GPI-DA/t/
--------
GPI-DA/to/
</TABLE>
13
<PAGE>
Where:
GPI-DA = General Price Index, Domestic Availability, issued by the Getulio
Vargas Foundation, or its successor index.
k = transfer factor.
(S) 1 The transfer factor shall be applied during the duration of the
concession in the following manner:
I Until December 31, 2000 it shall be equal to 0 (zero);
II From January 1, 2001 until December 31, 2001, it shall be equal to
0.05 (zero point zero five);
III From January 1, 2002 until December 31, 2002, it shall be equal
to 0.1 (zero point one);
IV From January 1, 2003 until December 31, 2003, it shall be equal to
0.15 (zero point fifteen); and
V From January 1, 2004 until December 31, 2005, it shall be equal to
0.2 (zero point two).
(S) 2 In the event the adjustment period includes different transfer
factor values, a weighted average must be calculated thereof taking into account
the months during which each transfer factor value occurred.
(S) 3 In the event an adjustment takes place after more than twelve
months have gone by, the formula including the transfer factor must be applied
progressively, taking into account twelve-month periods, and then any remaining
months.
(S) 4 After 2005, new transfer factor values may be determined by
ANATEL in the event this Agreement is extended, depending upon the conditions
which exist at that time.
CHAPTER XII SAFEGUARDING THE ECONOMIC WELLBEING OF THE CONCESSIONAIRE AND
REVISION OF RATES
CLAUSE 12.1. - Preserving a fair balance, under a fully competitive
system, between the service provided by the Concessionaire and its remuneration
is a basic tenet of this Agreement. It is forbidden for any party to unjustly
enrich itself at the expense of any other party or the users of the service,
under the terms set forth in this Chapter.
(S) 1 The Concessionaire shall not be required to suffer any damages
resulting from this Agreement, unless they result from any of the following
factors:
I From its negligence, ineptitude or oversight in operating the
service granted hereby;
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II From the normal risks of business activity;
III From the inefficient management of its business, including the
payment of operating and administrative expenses which are
incompatible with the parameters demonstrated in the market; or
IV From its failure to take advantage of existing opportunities in
the market, including expanding, extending and increasing the service
provided.
(S) 2 The Concessionaire is prohibited from unjustly profiting from
any economic gain not resulting directly from its operational efficiency,
especially that which results from the issuance of new rules governing the
service granted hereby.
(S) 3 The Concessionaire is entitled to restructure its initial
obligations and compensation scheme in the event that a force majeure or other
disaster significantly affects the operation of the service granted hereby.
However, the actions of private-sector service providers in such a situation
shall serve as the standard of reasonable conduct.
(S) 4 When evaluating the appropriateness of the restructuring
addressed in the preceding paragraph, it shall be taken into account whether,
among other factors, the Insurance Plan provided for in clause 23.1 covers the
event which caused the initial economic situation to change.
CLAUSE 12.2. The economic basis of the Agreement shall be re-
established when it can be demonstrated that none of the factors listed in (S) 1
of the previous clause have occurred. This shall preferably be accomplished by
the revision of rates, or through any other mechanism which, in the view of
ANATEL, is capable of correcting the situation.
(S) 1 The revision of rates precludes any other mechanism used to
deter unjust enrichment by any party, which is displaced by the event to which
the rate revision refers.
(S) 2 A single, complete and final measure shall be taken in order to
correct the event that gave rise to the distortion.
CLAUSE 12.3. Independent of clause 12.1, revising the rates listed in
the Basic Local Service Plan in favor of the Concessionaire or the users shall
be called for, under the terms of Art. 108 of Law No. 9,472 of 1997, in the
following specific situations:
I Unilateral modification of this Agreement imposed by ANATEL,
involving significant upward or downward variations in expenses or
income, for instance, when the raising or lowering of rates is
required in order to prevent any of the parties from making
unjustified profits;
II A change in tax law subsequent to the signing of this Agreement
which involves an increase or reduction in the potential profitability
of the Concessionaire;
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III Supervening events resulting from acts of governance or the
Administration which demonstrably affect the expenses of the
Concessionaire;
IV Specific changes in legislation which have a direct impact upon
the income of the Concessionaire in such a way as to affect the
continuity or quality of the service provided;
V Legislative changes which benefit the Concessionaire, including
those which grant or cancel exemptions, reductions, discounts or any
other tax or rate-related privileges, in keeping with the provisions
of (S) 3, Art. 108 of Law No. 9,472 of 1997.
(S) 1 When reviewing rates, any damage or profit losses sustained by
the Concessionaire shall not be taken into account if they result from the free
operation of the service granted hereby under competitive conditions, or from
the inefficient management of its business.
(S) 2 The revision scenario anticipated in paragraph II of this
clause shall not be applicable in the event the change in the tax law involves
the creation, elimination, increase or lowering of incidental taxes on the
Concessionaire's income or profits, and not involving and administrative or
operational tax.
(S) 3 The rate revision scenarios anticipated by this clause shall
not apply if the events leading to the revision are already covered by the
Insurance Plan provided for in clause 23.1.
(S) 4 The Concessionaire's contributions to the Fund for Universal
Telecommunications Services and to the Fund for the Development of
Telecommunications Technology shall not occasion the revision of rates.
CLAUSE 12.4. Rate revisions shall not be applicable if the cause
motivating the Concessionaire's request can be neutralized through the efficient
operation of the service granted hereby, market expansion, or the generation of
alternative or supplementary revenue in associated with the subject matter of
this Agreement, in keeping with current competitive conditions.
SOLE PARAGRAPH Reductions in revenue which result from discounts or
rate reductions shall not occasion the revision of rates.
CLAUSE 12.5. The rate revision procedure may be initiated at the
request of the Concessionaire, or by a decision of ANATEL.
(S) 1 In the event the revision procedure is initiated by the
Concessionaire, the following requirements must be observed:
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I The request must be accompanied by a technical or expert report
demonstrating the precise impact of the occurrence upon the
determination of rates or the estimated revenue of the Concessionaire;
II The request must be accompanied by all documents required to
substantiate the claim;
III The Concessionaire must explain its claim for rate revision, and
report on the impact and possible rate-balancing alternatives;
IV The Concessionaire shall bear all expenses for the research and
studies needed to fully back its claim.
(S) 2 Rate-revision procedures initiated by ANATEL must be
communicated to the Concessionaire, allowing it time to respond, and shall be
accompanied by copies of the reports and studies carried out in order define the
circumstances occasioning the revision.
(S) 3 The rate-revision procedure shall be concluded within 120 (one
hundred twenty) days, unless it becomes necessary to extend it in order to
conclude the proceedings.
(S) 4 The request must be approved by ANATEL, and the Concessionaire
must fully divulge the new maximum amounts of the revised rates, under the terms
stated in this Agreement.
CHAPTER XIII ALTERNATIVE, SUPPLEMENTARY AND ANCILLARY REVENUE
CLAUSE 13.1. The Concessionaire may obtain other, alternative sources
of revenue, provided this does not involve noncompliance with the standards set
forth in the General Services Regulations and other standards published by
ANATEL.
(S) 1 With the exception of circumstances provided for in specific
legislation, the concession or authorization of cable television service in the
same area referred to in clause 2.1 shall not be granted by nor transferred from
ANATEL to the Concessionaire, or its affiliates (an entity that the
Concessionaire controls, or by which it is controlled) until such time as said
prohibition is expressly revoked.
(S) 2 The Concessionaire and its affiliates may not make the
provision of the service granted herein contingent upon the consumption of any
other service, nor may they offer advantages to users who benefit from services
in addition to the service that is the subject matter of this Agreement,
including those provided by third parties.
CLAUSE 13.2. ANATEL may order the Concessionaire to offer users
conveniences or features related to the subject matter of the concession, in
which case the parties must adjust the unit prices of said services, taking into
account market parameters and the right to fair compensation.
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CHAPTER XIV RIGHTS AND PRIVILEGES OF USERS AND OTHER SERVICE PROVIDERS
CLAUSE 14.1. In accordance with the rules and guidelines set forth in
this Agreement, users of the service granted by this concession are entitled to
the following rights:
I To access and use the service in accordance with the standards of
quality, regularity and efficiency provided for by this Agreement, in
its annexes and according to current standards;
II The possibility of requesting the suspension or cancellation of
the service provided by the Concessionaire;
III To receive nondiscriminatory treatment with regard to the terms
of access and use of the service;
IV To obtain adequate information regarding the terms under which the
service is provided and the rates charged;
V The inviolability and secrecy of communications, respecting
constitutional and legal provisions regarding the privacy of
telecommunication;
VI To arrange, without charge, for their access code not to be
disclosed, by placing a request with the Concessionaire's customer
service department;
VII The non-suspension of service unless requested, except in the
case of nonpayment of the debt resulting directly from its use, or
noncompliance with the duties set forth in Art. 4 of Law No. 9,472 of
1997;
VIII Prior notification of any and all changes to the terms of
service that affect them directly or indirectly;
IX Confidentiality of billing documents and the use of their personal
information by the Concessionaire;
X To receive an efficient and prompt response from the Concessionaire
to their complaints, under the terms provided for in clause 15.7;
XI To lodge claims or petitions against the Concessionaire with
ANATEL and consumer rights organizations;
XII To receive compensation for harm sustained due to the violation
of their rights;
XIII Compliance with the terms of the Subscription Agreement which
they entered into for the service;
XIV Freedom to choose their domestic and international long distance
carrier;
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XV Respect for their right to portable access codes, in accordance
with the provisions of the Numbering Regulations published by ANATEL;
XVI Not to be required to consume services or acquire goods or
equipment in which they have no interest, as well as not to be
compelled to satisfy certain conditions in order to receive the
service which is the subject matter of this concession, as provided by
regulation; and
XVII Replacement of their access code as provided by regulation.
(S) 1 The Concessionaire shall comply with the duty to safeguard the
privacy inherent to telephone service and the confidentiality of data and
information. Moreover, it shall employ the means and technology to guarantee
users this right.
(S) 2 Upon the order of judicial authorities, the Concessionaire
shall make available the technological resources required to access private
telecommunications, as provided by regulation.
CLAUSE 14.2. In addition to the rights referred to in the preceding
clause, other providers of telecommunications services shall be guaranteed the
following rights:
I To interconnect with the Concessionaire's network under
nondiscriminatory business and operating conditions, under technically
suitable conditions, and at equally-applied and fair prices which
strictly consider the necessity of offering the service, in accordance
with the regulations published by ANATEL;
II To receive the service requested from the Concessionaire without
any kind of discrimination, at market prices or prices negotiated
between the parties, and at any discount which may apply owing to
savings from bulk consumption, in accordance with regulation;
III To obtain all information required to provide the service they
themselves operate, including billing information, except as regards
the Concessionaire's right to protect its trade secrets, as well as
the rights of third parties.
(S) 1 Conflicts between the Concessionaire and other service
providers shall be resolved administratively by ANATEL, under the terms of
regulations to be published by ANATEL.
(S) 2 ANATEL shall always oversee the relations between the
Concessionaire and the carriers using the service granted herein, in such a way
as to discourage conduct that may involve unfair harm to any of the parties, or
that undermines economic order and free competition. In these instances, once it
has exercised its authority, it shall notify the Administrative Council of
Economic Defense CADE of such conduct, in the manner provided for in Art. 19,
paragraph XIX of Law No. 9,472 of 1997.
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CLAUSE 14.3. In accordance with regulation, all users shall be
guaranteed the right to receive and use premium services, which must be provided
in adequate technical condition, and at equally-applied and fair prices. The
Concessionaire is prohibited from blocking or restricting the use of the service
granted herein in any way.
SOLE PARAGRAPH A premium service is understood to be any activity
that enhances the service which is the subject matter of this concession, but
should not be confused with new features related to access, storage,
presentation, transfer or recovery of information.
CHAPTER XV RIGHTS, PRIVILEGES AND OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 15.1. In addition to the other obligations arising from this
Agreement and inherent to the provision of the service granted hereby, it is the
duty of the Concessionaire:
I To provide the service granted hereby in strict compliance with the
provisions of this Agreement, and to comply fully with the regulations
published by ANATEL;
II To install all equipment and facilities needed to provide the
service which is the subject matter of the concession and ensure its
continuity, contemporaneity, expansion and universality, following the
specifications set forth in this Agreement;
III To keep the telecommunications network in optimum operating
condition, with quantities, configurations and locations which are
proper and sufficient to provide suitable service;
IV To provide the financial resources required to comply with the
standards for universal service and continuity set forth in this
Agreement, and to provide adequate service;
V To provide ANATEL, in the manner and as often as provided by
regulation, with reports and information of a technical, operational,
business, accounting and financial nature, as well as to provide it
with all requested data and elements regarding the service granted
hereby;
VI To maintain all public-use lines, whether permanent or temporary,
in the manner prescribed in this Agreement;
VII To submit to audits by ANATEL and allow its agents access to its
company facilities as well as to its accounting records;
VIII To keep separate accounting records for each department, as well
as to keep an up-to-date inventory of the goods and components that
make up the fixed assets of the company;
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IX To maintain a system for providing service and information to
users, under the terms of clause 15.7;
X To safeguard the assets involved in providing the service granted
hereby;
XI To submit to ANATEL for prior approval the draft as well as all
changes, amendments or variations applicable to the Standard Agreement
entered into with subscribers;
XII To submit for prior approval from ANATEL the operating agreements
or service, partnership or joint-venture agreements it wishes to sign
with foreign entities;
XIII To send for publication in the ANATEL library copies of the
agreements and contracts pertaining to the provision of service to
Brazilian and non-Brazilian providers of telecommunications services;
XIV To divulge, directly or through third parties, the access numbers
of its own subscribers and other subscribers to Switched, Fixed-line
Telephone Service providers, whether in the public or private sector,
in the concession area with the exception of those subscribers who
specifically request that their personal information not be given out;
XV To provide a list of its subscribers to whomever it wishes, at
prices and within timeframes which are reasonable, and in a
nondiscriminatory manner;
XVI To rigorously respect the secrecy and confidentiality of
telecommunications, in accordance with legal and contractual
obligations;
XVII To respect the privacy of subscribers as regards billing
documents and all personal information pertaining to them;
XVIII To comply, at its own expense and in accordance with the
provisions of clause 7.2 of this Agreement, with all universal service
objectives which are expressly stated herein;
XIX To implement any projects for the expansion and universalization
of service which may be ordered by ANATEL, in conformity with the
established level of compensation, timeframe and terms of
implementation, in accordance with the provisions of clause 7.3;
XX To submit to ANATEL for prior approval any and all changes it
wishes to make to its bylaws regarding company spin-offs, mergers,
transformations and incorporations, as well as any transfer of
control, or change in its capital stock;
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XXI To guarantee interconnection with its network to any other
telecommunications service provider, in keeping with specific
regulation and the standards of this Agreement;
XXII To make its billing and collection services available to other
providers of Switched, Fixed-line Telephone Services, and charge them
fair and compatible prices under the terms of this Agreement and the
regulations;
XXIII To respect all the rights of other telecommunications service
providers and refrain from any discriminatory conduct towards them or
attempt to obstruct their activity;
XXIV To use equipment with certification either issued or accepted by
ANATEL, whenever required to do so by regulation;
XXV To comply with the norms and technical standards in force in
Brazil, refraining from any discriminatory practice with regard to
goods and equipment manufactured therein;
XXVI In the case of disasters, to make available to civil defense
authorities and agents all requested facilities, systems and access
thereto, with a view to providing them with support or protecting
affected populations;
XXVII To give priority to assisting the President of the Republic,
his official representatives, his support team and staff, as well as
to foreign heads of state making official visits or trips through
Brazilian territory, for whom it shall make available the means
required to communicate adequately, in keeping with the regulations
published by ANATEL;
XXVIII To pay the fee set by ANATEL in the event the duration of the
concession is extended, under the terms of (S) 1, Art. 207 of Law No.
9,472 of 1997, and clause 3.3 of this Agreement;
XXIX To pay all inspection and operating costs for its installations,
as provided by regulation;
XXX To publish annually, regardless of the legal system to which it
is subject, the balance sheet and year-end financial statements, as
set forth in the legislation in force and the regulations published by
ANATEL;
XXXI To comply with current Brazilian standards as regards the use of
non-Brazilian labor, including in positions requiring advanced
qualifications;
XXXII To compensate users for damages which have in fact resulted
from the failure to provide service which would have been expected in
view of the
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continuity guidelines and universal service objectives provided for in
this Agreement;
XXXIII When entering into contracts for management services,
including technical assistance, with non-Brazilian entities not to
spend more than the following amounts, as a percentage of the annual
revenue from Switched, Fixed-line Telephone Service:
a) 1% (one percent) per year, until 12/31/2000;
b) 0.5% (zero point five percent) per year, from 01/01/2001 until
12/31/2002; and
c) 0.2% (zero point two percent) per year, as of 01/01/2003;
XXXIV To comply with agreements between Brazil and other countries
and international organizations, in the manner laid down by ANATEL;
and
XXXV To comply with the contracts entered into with TELEBRAS, the
subject matter of which is the provision of services by the Research
and Development Center CPqD or its successor.
SOLE PARAGRAPH Decisions concerning paragraph XXXIII of this clause
and involving service and technical assistance contracts between the
Concessionaire and third parties with ties to the majority shareholders, must be
made at extraordinary shareholder meetings, and the Concessionaire must state in
its corporate bylaws, until 12/31/98, that preferred stock shall have voting
rights in such decisions, without detriment to the provisions of (S) 1, Article
115 of Law No. 6,404, of December 15, 1976.
CLAUSE 15.2. Without detriment to the other provisions set forth in
this Agreement, and those privileges guaranteed by law, the Concessionaire has
the following rights:
I To operate the conceded service within the framework of its
corporate strategy, and to define freely its investments, in
accordance with the regulations published by ANATEL and the provisions
of this Agreement
II To appoint a representative to monitor the inspection activities
of ANATEL;
III To interrupt, according to the terms of Clause 8.3 of this
Agreement, the service granted hereby, or not fulfill the service
requests, of subscribers who fail to fulfill their contractual
obligations towards the Concessionaire;
IV- To request arbitration proceedings under the circumstances and in
the manner prescribed by Chapter XXX of this Agreement;
V To operate the service granted hereby under business conditions
without being subject to changes involving unjustified enrichment of
the government or users, under the terms provided for in Chapter XII;
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VI To request the revision of the rates applied to the conceded
service, in the manner provided for in this Agreement;
VII To request that ANATEL keep confidential the information it
gathers during its inspection/audit activities, under the terms
provided for in this Agreement;
VIII To use equipment and infrastructure which do not belong to it
when carrying out services, in accordance with clause 21.1 of this
Agreement; and
IX To contract with third parties to develop activities that are an
inherent part of, incidental to or which supplement the service
granted hereby, as well as to implement associated projects.
CLAUSE 15.3. For as long as this Agreement is in force, the
Concessionaire shall be solely liable, with regard to third parties, for the
actions of its personnel, employees and contractors involved in the provision of
Switched, Fixed-line Telephone Service, as well as for the use of equipment,
installations and networks, and the government and ANATEL are held exempt from
all claims and/or indemnities.
CLAUSE 15.4. The Concessionaire may not obstruct works in the public
interest, regardless of their nature, in the event it becomes necessary to
remove installations or telephone networks in order to render feasible
interventions promoted, either directly or indirectly, by any body or
organization of the public Administration.
CLAUSE 15.5. The Concessionaire must execute agreements directly with
each Municipal government in the areas it operates the service granted hereby,
as well as with other public service utilities, as regards the location of the
poles and cross bars used to hang aerial lines and cables, and the underground
conduits and pipes used to run cables under streets and public parks.
(S) 1 The Concessionaire shall make arrangements with the holders of
public or private property over or under which it has to run conduits or pipes,
or install supports to hold said conduits and pipes, and shall obtain the
corresponding consent or easements for such purposes.
(S) 2 The Concessionaire must seek arrangements with the respective
municipal authorities in order to maintain conditions required to overcome
interference in the network required to provide the service granted hereby,
including the felling and pruning of trees.
CLAUSE 15.6. Under the terms of the provisions of Art. 73 of Law No.
9,472 of 1997, the Concessionaire may use poles, pipes, conduits and easements
belonging to or controlled by other providers of telecommunications services or
other public utilities.
(S) 1 The use of the facilities referred to in the preceding
paragraph must be carried out in a nondiscriminatory way, and at fair and
reasonable prices.
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(S) 2 The Concessionaire must make the facilities it owns or
controls, referred to in the first paragraph of this clause, available to the
other providers of telecommunications services, classified by ANATEL as public
utilities, and do so in accordance with the same conditions provided for in the
preceding paragraph.
(S) 3 In the event the Concessionaire does not reach an agreement
with other service providers regarding the use of the facilities referred to in
this clause, it shall be ANATEL's duty, either alone or together with other
involved regulatory bodies, to define the conditions of said use.
CLAUSE 15.7. During the entire duration of this concession, the
Concessionaire shall maintain a user information and service center operating 24
(twenty-four) hours a day, capable of receiving and processing requests,
complaints and claims from users, either in person or via any form of long
distance communication.
(S) 1 The Concessionaire must make available to all users the
addresses and access codes of its information and service center, which are
required to be listed in the Standard Contract entered into with service
subscribers.
(S) 2 The Concessionaire must make available and announce an easy-to-
dial, toll-free number for users to make requests via telephone.
(S) 3 All requests, claims or complaints made by users, by whatever
means, must be assigned an order number, which shall be given to the concerned
party so that he or she can be assisted.
(S) 4 The user shall be informed, within the timeframe defined in the
General Plan on Quality, of the measures taken in response to his or her
request, claim or complaint.
(S) 5 In the event that ANATEL notes that users are having difficulty
obtaining access to the information and service center, it may order the
Concessionaire to increase the availability of access, or risk being found
guilty of not complying with the obligation provided for in this clause.
CLAUSE 15.8 When hiring services and acquiring equipment and
materials associated with the provision of the service which is the subject
matter of this Agreement, the Concessionaire commits itself to field offers from
independent suppliers, including those which are state-run, and to base its
decisions, with regard to the various offers submitted, on the objective
criteria of price, conditions of delivery and technical specifications set forth
in the relevant regulations.
(S) 1 In the event of equivalent offers, the Concessionaire agrees to
use as the deciding criteria, the preference of services offered by companies
located in Brazil, and equipment and materials produced in Brazil, particularly
those produced using Brazilian technology. The issue of equivalent offers shall
be automatically decided if, cumulatively:
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I The price in Brazil of the domestic product is lower than or equal
to that of the imported product, tax included;
II The delivery schedule meets the Concessionaire's needs; and
III The technical specifications established by relevant regulation
are met and the product has certification that has either been issued
or accepted by ANATEL, when applicable.
(S) 2 Services are understood to mean those relating to research and
development, planning, setting up and physically installing, operating,
maintaining, supervising and performing evaluation tests of telecommunication
systems.
(S) 3 ANATEL shall formulate regulations governing the execution of
the provisions in this clause, including applicable penalties.
CHAPTER XVI OBLIGATIONS AND PREROGATIVES OF ANATEL
CLAUSE 16.1. In addition to the prerogatives that are an inherent
part of its function as a regulatory body, and other obligations under this
Agreement, ANATEL shall be responsible for:
I Overseeing and monitoring the provision of the service granted
hereby and the safeguarding of revertible assets, ensuring compliance
with the standards, specifications and instructions set forth in this
Agreement and its annexes;
II Carrying out site visits to inspect the adequacy of installations
and equipment, and ordering any necessary rectifications, repairs,
removals, reconstruction or replacements, at the expense of the
Concessionaire;
III Continually regulating the execution of the conceded service;
IV Intervening when necessary in the execution of the service granted
hereby in order to ensure its regularity and faithful compliance with
the Agreement and relevant legal standards;
V Applying the penalties provided for by regulation of the service
and specifically, by this Agreement;
VI Reviewing the Supplemental Local Service Plans submitted by the
Concessionaire;
VII Authorizing the adjustment of rates and revising them, under the
terms of, and in accordance with, the provisions of this Agreement;
VIII Acting within the limits set forth in this Agreement to prevent
the parties from unjustified enrichment, under the terms of this
Agreement;
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IX Ensuring the high quality of the service granted hereby,
accepting, processing and resolving complaints and claims from users,
and informing them, within ninety days, of the measures taken to curb
infringements upon their rights;
X Declaring the termination of the Concession in the cases provided
for in this Agreement;
XI Guaranteeing interconnectivity, and settling any disputes which
arise between the Concessionaire and other service providers;
XII Ensuring compliance with the universal service objectives
provided for in this Agreement, and with any objectives set forth in
future Objectives Plans;
XIII Continually overseeing the relations between the Concessionaire
and other providers of telecommunications services, and settling any
disputes arising among them;
XIV Discouraging conduct by the Concessionaire that runs contrary to
the system of free competition, in keeping with the legal authority of
the Administrative Council of Economic Defense CADE;
XV Submitting to the President of the Republic, at the request of the
Concessionaire and through the intermediary of the Ministry of
Communications, proposals for declarations of public interest, with a
view to exercising eminent domain or implementing public easements
over the property needed to establish or maintain the service which is
the subject matter of this Agreement;
XVI Auditing the service granted hereby under the terms set forth in
this Agreement; and
XVII Collecting fees for FISTEL and adopting the measures provided
for in current legislation.
CHAPTER XVII THE CONCESSIONAIRE
CLAUSE 17.1. The Concessionaire is a company incorporated under
Brazilian law, as a corporation (sociedade anonima), with the sole purpose of
operating the service that is the subject matter of this concession, with the
exception of those services provided for under the terms of (S) 3, Art. 207 of
Law No. 9,472 of 1997.
SOLE PARAGRAPH In the event that changes to the Concessionaire's
bylaws are approved, the documents formalizing such changes shall be sent to
ANATEL for filing, and shall be fully incorporated into this Agreement.
CLAUSE 17.2. The Concessionaire and those entities which control it
agree to maintain, for the entire duration of the concession and its extension,
all of the service conditions and capabilities which existed at the time this
Agreement entered into force.
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CLAUSE 17.3. The Concessionaire and those entities which control it
agree to ensure the actual existence on Brazilian territory, during the
concession period and the extension thereof, of centers for decision-making and
the implementation of strategic, managerial and technical decisions involved in
carrying out this Agreement, as well as to ensure this obligation is reflected
in the make-up and decision-making processes of its governing bodies.
SOLE PARAGRAPH The Concessionaire must include provisions in its
bylaws, until December 31, 1998, which guarantee compliance with the provisions
of the preceding paragraph.
CHAPTER XVIII ASSIGNMENT OF THE CONCESSION AND CHANGE OF CONTROL OF THE
CONCESSIONAIRE
CLAUSE 18.1. Assignment of the concession, or the change of direct or
indirect control over the Concessionaire, may only be authorized by ANATEL, in
keeping with the General Concession Plan and Art. 202 of Law No. 9,472 of 1997,
provided that:
I The assignee fulfills all of the requirements established under the
terms of Art. 200 of Law No. 9,472 of 1997; and
II The assignment or change does not undermine competition, or
threaten the execution of this Agreement or the general standards for
the protection of economic order.
SOLE PARAGRAPH Failure to comply with any provision of this clause
shall result in the forfeiture of this concession.
CLAUSE 18.2. The capital stock of the Concessionaire may be pledged
freely, and such an assignment does not affect its control.
SOLE PARAGRAPH If the pledging of stock results in the taxation of
the assets of the Concessionaire, provisions must be made in the financing
agreements in order to submit the creditors, in the event of foreclosure, to the
rules set forth in this Chapter.
CHAPTER XIX INSPECTION SYSTEM
CLAUSE 19.1. - ANATEL shall carry out inspections of the service
granted herein in order to ensure compliance with the prerequisites of universal
service and continuity, which are an inherent part of the public service being
provided. It shall also ensure fulfillment of the objectives and commitments set
forth in this Agreement.
(S) 1 The inspections to be performed by ANATEL shall involve
inspecting and monitoring the Concessionaire's activities, equipment and
facilities, which in turn requires complete access to all of the
Concessionaire's or third parties' data and information.
(S) 2 The information gathered during its inspection activities shall
be published by its library, with the exception of information which, at the
Concessionaire's request, is considered by ANATEL to be confidential in nature.
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(S) 3 Any information judged confidential in nature under the terms
of the preceding paragraph shall only be used in proceedings related to this
Agreement, and any requests for further dissemination of such information,
whether broad or restricted, must be made to ANATEL, or whomever it has
indicated.
CLAUSE 19.2. The Concessionaire, through the intermediary of a named
representative, may monitor any and all of ANATEL's inspection activities. It
may not obstruct or prevent said inspection activities, at the risk of being
subject to the penalties provided for in this Agreement.
CHAPTER XX REPORTING OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 20.1. As provided by regulation, the Concessionaire must
periodically send ANATEL statistical and status reports on all services
provided, including, among other elements, figures on the expansion and scope of
the telephone network. The Concessionaire must also report on the technological
status of the equipment used.
CHAPTER XXI CONCESSION-RELATED ASSETS
CLAUSE 21.1. The assets related to this concession consist of all
assets owned by the Concessionaire and required to provide the service conceded
herein, especially those classified as such in Annex 1 Classification of
Revertible Assets Used to Provide Local, Switched, Fixed-Point Telephone
Service.
(S) 1 Concession-related assets also include permits that have been
granted for the use of the radio frequency spectrum and, where applicable, usage
rights for orbital positions, in accordance with Articles 48 and 161 of Law No.
9,472 of 1997 and the provisions of clause 4.1 of this Agreement.
(S) 2 With regard to concession-related assets, the Concessionaire
must receive the prior and express consent of ANATEL for the direct use of
equipment, infrastructure, software systems, or any other type of asset that is
not its property, in order to provide the service conceded herein. ANATEL may
exempt it from this requirement in the cases and circumstances provided for by
regulation.
(S) 3 If the continuity of service is at risk, or there is an
impediment to the reversion of a concession-related asset, ANATEL may withhold
authorization to use third-party assets, or require that the corresponding
Agreement contain a clause stipulating that the owner agrees, in the event of
termination of the concession, to uphold the Agreement and transfer to ANATEL
the rights pertaining thereto.
CHAPTER XXII THE SYSTEM OF REVERSION
CLAUSE 22.1. In the event of the termination of the concession, all
concession-related assets shall revert automatically to ANATEL, as indicated in
Chapter XXI above, and the Concessionaire shall retain its right to the
compensation provided for by law and this Agreement.
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SOLE PARAGRAPH Within 180 (one hundred eighty) days following the
termination of the concession, an inventory shall be taken of the assets
pertaining thereto, and an Asset Restitution and Reversion Statement shall be
drawn up, with a detailed account of the condition of said assets. One or more
representatives of the Concessionaire shall be authorized to monitor the
foregoing.
CLAUSE 22.2. The Concessionaire commits itself to remit revertible
assets in a perfect state of operation, utilization and maintenance, except as
regards normal wear and tear through usage.
SOLE PARAGRAPH Revertible assets shall be transferred to ANATEL free
of any charge or encumbrance, while taking into account the scenario stated in
paragraph 2 of the following clause.
CLAUSE 22.3. The reversion of assets, as addressed in Chapter XXI
above, which occurs at the end of the contractual term, shall be carried out
without compensation, except as provided for in this clause.
(S) 1 The Concessionaire shall only be compensated if, upon the
termination of the Concession, there exist partially-amortized assets, the
acquisition of which had been previously authorized by ANATEL, or which were
acquired prior to the signing of this Agreement, for the purpose of guaranteeing
reliable, up-to-date service.
(S) 2 In place of or in addition to the compensation provided for in
the preceding paragraph, ANATEL may allow the assignment of assets that have
been pledged as security for its own financing needs, and assume any financed
portion which is still outstanding.
CLAUSE 22.4. Upon termination of the Concession, ANATEL shall assess
the assets referred to in clause 21.1, and may refuse the reversion of assets it
considers dispensable to, or useless in the operation of the service granted
hereby. The Concessionaire is guaranteed the right to contest the foregoing,
including by way of reports or studies prepared and presented at its expense,
demonstrating the need for reversion.
SOLE PARAGRAPH In the event the Concessionaire disagrees with
ANATEL's decision regarding the provisions of this clause, recourse to the
dispute-resolution process provided for in this Agreement shall be allowed.
CHAPTER XXIII INSURANCE PLAN
CLAUSE 23.1. During the entire time the concession is in force, the
Concessionaire must subscribe to the insurance policies listed below in order to
ensure effective and comprehensive coverage of the inherent risks involved in
carrying out all of the activities contemplated within this Agreement. The
selected Insurance Company must be registered with insurance industry regulatory
agencies, and its coverage capacity must be in keeping with the corporate
purpose being insured:
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I Comprehensive insurance against material damage, covering the loss,
destruction or damage of any and all assets associated with the
concession. Said insurance must provide blanket coverage, in
accordance with international standards;
II Business interruption insurance which covers, at a minimum,
variations in the Concessionaire's income resulting from accidents, or
changes in the operating terms of the Agreement, which affect
operating costs and which are not covered by insurance against
material damage, provided that taking out this type of insurance is
allowed by Brazilian standards and expressly authorized by the
Brazilian Reinsurance Institute - IRB or an equivalent organization;
and
III Insurance covering the achievement of the quality and universal
service requirements provided for in this Agreement (i.e., a
performance bond, a letter of credit and the amount kept as a deposit)
with a value corresponding to 10% of the estimated annual amount
invested in order to achieve the objectives provided for in this
Agreement.
(S) 1 The Concessionaire must arrange to have its insurance policies
include the requirement that the Insurer inform the Concessionaire and ANATEL,
in writing and with at least 10 (ten) days' notice, of any information which may
entail the complete or partial cancellation of the policies taken out, a
reduction in coverage, an increase in deductibles, or a lowering of the values
covered.
(S) 2 Policies taken out in order to comply with the provisions of
this clause may not contain obligations, restrictions or provisions which
contradict the provisions of this Agreement or regulations, and must contain an
express statement by the Insurer that it is completely familiar with this
Agreement, specifically as regards the limits of the Concessionaire's rights.
(S) 3 In the event the Concessionaire fails to comply with the
requirement to keep the required insurance policies in effect, then ANATEL,
notwithstanding its ability to order intervention in or the termination of this
concession, may then take out said insurance and directly pay for the
corresponding premiums, at the expense of the Concessionaire.
(S) 4 Every year, by the end of the month of January, the
Concessionaire must submit a certificate issued by the insurers, confirming that
all the premiums due for the preceding year have been paid, and that the
policies have taken full effect or been renewed.
(S) 5 The policies referred to in this clause must comply with the
following deadlines for presentation and activation:
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I The policy referred to in item I of the first paragraph of this
clause must be presented within 90 (ninety) days as of the signing of
this Agreement, and must take immediate effect;
II The policy referred to in item II of the first paragraph of this
clause must be presented by November 30, 1999, and take effect as of
January 1, 2000; and
III The policy referred to in item III of the first paragraph of this
clause must be presented by November 30, 2000, and take effect as of
January 1, 2001.
(S) 6 ANATEL may change the coverage or the presentation deadlines
for the policies referred to in this clause so as to adapt said requirements to
the regulations published by the Private Insurance Commission - SUSEP, or to the
terms established by the Brazilian Reinsurance Institute - IRB. It may also do
so if standards are published which interfere with the contracting of the
insurance referred to herein, or if the market is not ample or competitive
enough to allow the insurance to be taken out at a reasonable cost.
CHAPTER XXIV - INTERCONNECTION
CLAUSE 24.1. The Concessionaire is required to allow, facilitate,
provide and implement the interconnection of other telecommunications service
providers' networks with the network it operates, whether they are in the public
or private sector, and whenever they so request. In so doing, it shall enforce
and observe the regulations published by ANATEL pertaining thereto.
CLAUSE 24.2. The network usage fees required as of the signing of
this Agreement are those listed in Administrative Ruling No. 2,505 of December
20, 1996, issued by the Ministry of Communications, and may be updated and
reviewed in keeping with the provisions of this Agreement as provided by
regulation.
CLAUSE 24.3. The Concessionaire shall enjoy the same rights, and
observe the same terms of interconnection, as the ones applying to other service
providers.
SOLE PARAGRAPH The Concessionaire must maintain the elements of its
network for interconnection at the most technically advanced level possible, in
accordance with ANATEL regulations.
CHAPTER XXV - PENALTIES
CLAUSE 25.1. In the execution of this Agreement, the Concessionaire
shall be subject to the following penalties, notwithstanding other penalties
provided for by regulation, which shall be applied by way of justified decisions
by ANATEL, and the former shall be guaranteed the right to defend itself under
the terms of the Internal Regulations.
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I For violations of the provisions of this Agreement resulting in
non-fulfillment of universal service objectives, there shall be a fine
of up to R$50,000,000.00 (fifty million Brazilian reais);
II For acts or omissions contrary to the provisions set forth in this
Agreement, and which cause harm to competitors in the
telecommunications industry, there shall be a fine of up to
R$50,000,000.00 (fifty million Brazilian reais);
III For any violation of contractual provisions which results in the
non-fulfillment of quality of service objectives or guidelines, there
shall be a fine of up to R$40,000,000.00 (forty million Brazilian
reais);
IV For any other act or omission not covered by the preceding
paragraphs, and which involves the violation of users' rights as set
forth in this Agreement, or which causes them harm, there shall be a
fine of up to R$30,000,000.00 (thirty million Brazilian reais);
V For any act or omission which violates the provisions of clause
15.8 of this Agreement, involving the hiring of services and the
acquisition of equipment and materials manufactured in Brazil, there
shall be a fine of up to R$30,000,000.00 (thirty million Brazilian
reais);
VI For any act or omission which obstructs or hinders the inspection
activities of ANATEL as provided for in this Agreement, there shall be
a fine of up to R$20,000,000.00 (twenty million Brazilian reais);
VII For any act, omission or negligence which threatens the security
of the facilities, there shall be a fine of up to R$15,000,000.00
(fifteen million Brazilian reais);
VIII For any act or omission which brings harm or poses a risk to
concession-related assets or equipment, there shall be a fine of up to
R$10,000,000.00 (ten million Brazilian reais); and
IX For failure to comply with any express requirement in this
Agreement, with the exception of the requirements stated in the
preceding paragraphs, for which penalties have already been
determined, there shall be a fine of up to R$10,000,000.00 (ten
million Brazilian reais).
(S) 1 The infraction specified in paragraph I of this clause shall be
characterized by the failure of the Concessionaire to fulfill its obligations,
within the timeframes set forth in this Agreement, with regard to the expansion
and increased availability of the service granted hereby by supplying public
telephones and assistance to localities, in keeping with the provisions of the
General Plan on Universal Service and of Annex 2 Universal Service Objectives,
included in this Agreement. When applying the penalty, the following factors
shall be taken into consideration, in addition to the general principles laid
forth in this Chapter:
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a) The difference between the objective defined in the Agreement and
its degree of implementation;
b) The possibility for the Concessionaire catch up on the
implementation schedule, at its own expense;
c) The harm done to the policy reflected in the General Plan on
Universal Service;
d) The harm done to the intended direct beneficiaries of the
unfulfilled objectives; and
e) Any attenuating circumstances of a technical or economic nature
which may lessen the responsibility of the Concessionaire,
although not exonerate it.
(S) 2 The seriousness of the infraction indicated in paragraph II of
this clause shall be defined solely on the basis of the general criteria
indicated in clause 25.2, and shall be characterized by conduct of the
Concessionaire which, directly or indirectly, could inflict harm upon its
competitors in the industry, particularly:
a) Obstructing or hindering the option to use another provider of the
service or domestic and international long distance service.
b) Refusing to provide interconnection to a provider of
telecommunications services;
c) Obstructing or hindering the activity of providers of premium
services;
d) Placing conditions upon the availability of the conceded service,
or offering advantages to users in exchange for their acquiring
services other than the service which is the subject matter of
this Agreement;
e) Supplying any telecommunications service that is not a purpose of
the concession or authorized by ANATEL;
f) Failing to uphold quality standards regarding interconnection; and
g) Delaying the supply of information vital to the activities of
other service providers, especially involving user-related
information.
(S) 3 - The infraction specified in paragraph III of this clause shall
either be characterized by repeatedly providing service which is below the
quality parameters defined in the General Plan on Quality, or by demonstrably
contravening the quality indicators listed in Chapter VI. In the first case,
the following are considered particularly serious infractions:
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a) Failure to allocate the human and material resources required to
maintain minimum quality standards in the operation and
maintenance of the service granted hereby; and
b) Negligence in modernizing the network which impacts the quality of
service.
(S) 4 The seriousness of the infraction indicated in paragraph IV of
this clause shall be defined on the basis of the number of users affected and on
the damage caused. It shall be characterized by the violation, whether directly
or indirectly, through commission or omission, of an obligation stipulated in
this Agreement, and which does not involve a violation of duties pertaining to
universal service and quality, but rather a violation of the rights of users,
particularly:
a) Interruption of service for periods longer than allowed by the
General Plan on Quality, except under the circumstances indicated
in the sole paragraph of clause 6.3;
b) Refusal to provide the conceded service to any interested party;
c) Failure to fulfill the duty of providing information to users;
d) Breach of the secrecy of telecommunications, outside of legally-
mandated circumstances, even in the case of breaches committed by
third parties using facilities over which the Concessionaire has
responsibility;
e) Failure to fulfill the duty of supplying telephone directories
without charge;
f) Failure to maintain a user information and service center as
stipulated in this Agreement;
g) Charging rates or prices which are against the rules stipulated in
this Agreement and as provided by regulation; and
h) Restricting the right to freely choose among service plans.
(S) 5 The penalty provided for by paragraph V of this clause shall be
characterized by a verifiable violation of the obligation indicated in clause
15.8, and its seriousness shall be determined in accordance with regulatory
provisions.
(S) 6 The seriousness of the infraction indicated in paragraph VI of
this clause shall be defined on the basis of the significance of the inspection
activity obstructed, and shall be characterized by a violation committed by the
Concessionaire or its employees, whether directly or indirectly, through
commission or omission, which impedes or hinders the inspection activities
carried out by ANATEL, by its employees, or even by users, particularly:
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a) The refusal of the Concessionaire to comply with requests for
information made by ANATEL regarding the conceded service or the
assets allocated to it;
b) Hindering the actions of ANATEL's inspectors;
c) Failure to fulfill the publicity obligations provided for in this
Agreement, or as provided by the regulation; and
d) Failure to send, or to send in a timely manner, information, data,
reports or documents which, as determined by regulation or this
Agreement, should have been conveyed to ANATEL.
(S) 7 The seriousness of the infraction indicated in paragraph VII
of this clause shall be defined on the basis of the degree of risk posed, and
shall be characterized by conduct of the Concessionaire which runs counter to
the rules set forth in this Agreement and as provided by regulation, violates
norms and standards of technical safety, or which poses a risk to the facilities
allocated to the conceded service, particularly:
a) The use of equipment not certified by ANATEL to provide the
service, when such certification is required;
b) Failure to allocate the human and material resources required to
maintain minimum safety standards in the operation and maintenance
of the service; and
c) Failure to take the precautions recommended for the service
conceded herein.
(S) 8 The seriousness of the infraction indicated in paragraph VIII
of this clause shall be defined on the basis of the significance, the economic
importance and the indispensability of the assets involved, and shall be
characterized by conduct of the Concessionaire which runs counter to the
provisions of this Agreement or the regulations, and which could pose a risk to
assets or equipment associated with this concession, or make their reversion
difficult, particularly:
a) Failure to keep inventory and records of the assets referred to in
clause 21.1;
b) The direct use of the assets of third parties in providing the
service, without prior authorization from ANATEL, or without a
regulatory dispensation; and
c) Negligence in maintaining revertible assets, as provided by
regulation.
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(S) 9 The penalty provided for in paragraph IX of this clause shall
be called for in the case of a demonstrable violation of a contractual
obligation which is not included among the preceding paragraphs, particularly
the violation indicated in paragraph XXXI of clause 15.1.
(S) 10 The penalty provided for in paragraph II above is of a
contractual nature and shall be applied by ANATEL regardless of any measures
taken by the Administrative Council of Economic Defense - CADE.
(S) 11 Failure to pay any fine which has been determined under the
provisions in this clause, and within the timeframe determined by ANATEL, shall
constitute a serious violation, and shall occasion intervention in the affairs
of the Concessionaire, under the terms set forth in Chapter XXVIII. It shall
also entail payment of a late fee of 0.33% (zero point thirty-three percent) per
day, up to a maximum of 10% (ten percent), plus the SELIC reference rate for
federal securities, to be levied upon the amount owed on the basis of the number
of days it is past due.
CLAUSE 25.2. When applying the contractual fines provided for in this
Chapter, the rules stated in Title VI, Book III of Law No. 9,472 of 1997, and
those provided by regulation, shall be observed.
(S) 1 When defining the seriousness of penalties and determining
fines, ANATEL shall take the following factors into account:
I Whether the severity of the punishment is in proportion to the
seriousness of the violation, while also taking into account the
number of users affected;
II The damage inflicted upon the service and users as a result of the
infraction;
III Any advantage which the Concessionaire has reaped as a result of
the infraction;
IV The market share of the Concessionaire in its geographical service
area;
V The economic and financial situation of the Concessionaire,
especially its potential to generate revenue, and its assets;
VI The Concessionaire's past record;
VII Whether the violation is a repeat offense, that being a repeat of
a violation of the same nature after having received notification
previously; and
VIII Whether the infraction involved aggravating or attenuating
circumstances.
(S) 2 Regardless of the specific ranking criteria provided for in
each paragraph of the preceding clause, and others provided for by regulation,
penalties shall be ranked using the following scale:
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I The infraction shall be considered minor if it results from
unintentional or excusable conduct of the Concessionaire, and from
which it does not benefit;
II The infraction shall be considered moderately serious if it
results from inexcusable conduct, but which does not provide the
Concessionaire with any benefit or gain, or affect a significant
number of users; and
III The infractions shall be considered serious if ANATEL finds
evidence that:
a) The Concessionaire has acted in bad faith;
b) The infraction has resulted in a direct or indirect benefit for
the Concessionaire;
c) The Concessionaire's infraction is a repeat offense;
d) A significant number of users were affected; and
e) There were circumstances of the kind anticipated in (S) 10 of the
preceding clause.
(S) 3 At ANATEL's discretion, in the case of first-time occurrences
of infractions classified as minor, it may apply the disciplinary measure of
issuing a warning to the Concessionaire, which shall be formally notified of the
sanction, regardless of the publication of the ruling in the Official Journal.
(S) 4 When applying the disciplinary measures provided for in this
Chapter, the Disciplinary Proceedings provided for in the Internal Regulations
of ANATEL shall be observed.
(S) 5 In the case of the infractions provided for in paragraph IV of
clause 25.1, ANATEL may reduce the amount the Concessionaire would pay in fines
from the amount to be paid as compensation to the affected users, and the
compensation criteria, the payment schedule and the maximum amount of the
abatement shall be stated within the sentencing document.
(S) 6 The measure provided for in the preceding paragraph may only be
adopted if it can be proved that respecting the rights or demands of users shall
not exonerate the Concessionaire from its liability for other civil damages
owed.
CLAUSE 25.3. The fines provided for in this clause shall be applied
notwithstanding scenarios involving intervention or declaration of forfeiture,
as provided for in this Agreement.
SOLE PARAGRAPH In the event of complete or partial failure to carry
out an adjustment, or unjustified delays of over 120 (one hundred twenty) days
in complying with the objectives set forth in this Agreement, the Concessionaire
shall be subject to a declaration of forfeiture of the Concession, under the
terms set forth in clause 26.4.
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CLAUSE 25.4. The amounts of the fines provided for in this Chapter
shall be adjusted annually by applying the GPI-DA, and the first adjustment
shall take place one year after the signing of this Agreement.
CHAPTER XXVI TERMINATION OF THE CONCESSION
CLAUSE 26.1. The Concession Agreement shall be considered terminated
in the event of the following:
I Expiration of the concession period for the service granted hereby,
in the event it has not been extended under the terms of this
Agreement;
II Expropriation, in accordance with Art. 113 of Law No. 9,472 of
1997;
III Forfeiture, under the terms set forth in Article 114 of Law No.
9,472 of 1997 and in this Agreement;
IV Amicable or judicial rescission, under the terms of Art. 115 of
Law No. 9,472 of 1997; and
V Annulment.
(S) 1 Upon termination of the concession, the rights and duties
pertaining to the provision of the conceded service shall revert to ANATEL,
along with the assets referred to in clause 22.1, and the Concessionaire shall
retain the right to the compensation provided for by law and within this
Agreement.
(S) 2 Following the termination of the concession, ANATEL shall
undertake all necessary inventories, assessments and settlements within 180 (one
hundred eighty) days of taking over the service granted hereby, except in the
case of expiration of the agreement, in which case these steps are to be taken
in advance by ANATEL.
(S) 3 If the concession is terminated prior to its contractual
expiration date, ANATEL may do the following, notwithstanding other suitable
measures:
I Make temporary use of fixed and intangible assets, and avail itself
of the personnel required to continue providing the service granted
hereby; and
II Maintain the Contracts signed between the Concessionaire and third
parties for the duration and under the terms initially agreed upon.
CLAUSE 26.2. Reversion upon the expiration of the Agreement shall be
carried out without compensation, except under the circumstances provided for in
clause 22.3.
CLAUSE 26.3. Under the terms of Art. 113 of Law No. 9,472 of 1997,
expropriation is understood to be the repossession of the service by ANATEL
during the
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concession period, due to extraordinary motives of public interest, by way of a
specific authorizing law and subsequent to the payment of compensation.
CLAUSE 26.4. In the circumstances listed below, the forfeiture of
this Agreement may be declared by an act of the Board of Directors of ANATEL,
preceded by administrative proceedings which guarantee the Concessionaire an
ample defense:
I Transfer of corporate control, spin-offs, mergers or transformation
of the Concessionaire, as well as raising or lowering its capital
stock without the prior approval of ANATEL;
II Improper assignment of the Agreement;
III Failure to fulfill a commitment to an assignment, as referred to
in clause 18.1 of this Agreement and Art. 87 of Law No. 9,472 of 1997;
IV Bankruptcy or dissolution of the Concessionaire;
V Noncompliance with insurance coverage requirements, in violation of
the obligations provided for in clause 23.1, which, in the judgment of
ANATEL, cannot be dealt with through intervention; and
VI The occurrence, under the terms of Art. 114, paragraph IV of Law
No. 9,472 of 1997, of any of the situations stipulated by clause 28.1,
and in which intervention, in the judgment of ANATEL would be
inappropriate, ineffective or even unjustly favorable to the
Concessionaire.
(S) 1 Intervention shall be judged unnecessary in the event the
demand for the service which is the subject matter of the concession may be met,
through authorization, by other providers in a regular and immediate fashion.
(S) 2 Declaring forfeiture shall not preclude the application of
appropriate penalties, under the terms of this Agreement, for infractions
committed by the Concessionaire, nor shall it prejudice the right to
compensation defined under the terms of the following Chapter.
CLAUSE 26.5. The Concessionaire shall be entitled to contractual,
judicial or amicable rescission in the event that, due to acts or omissions of
government authorities, the execution of the Agreement becomes excessively
onerous, under the terms of Art. 115 of Law No. 9,472 of 1997.
SOLE PARAGRAPH The introduction or increase of competition among the
various providers of the service which is the subject matter of the concession
does not constitute a motive for the rescission of the Agreement, since the
Concessionaire clearly takes this concession with the knowledge that it will be
carrying out its activities without any kind of reserved or exclusive market.
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CLAUSE 26.6. Annulment shall be decreed by ANATEL in the event that
irremediable and serious irregularities are discovered in this Agreement.
CHAPTER XXVII - COMPENSATION
CLAUSE 27.1. For the purposes of calculating compensation owed by
ANATEL to the Concessionaire, in the cases expressly provided for in this
Agreement, the following shall be observed:
I Expiration of the contract term: No compensation shall be due,
unless it is proved that the absence of payment results in the
unjustified enrichment of the government through the reversion of
assets which have not been completely amortized, in accordance with
the provisions of clause 22.3;
II Expropriation: In keeping with the provisions of Art. 113 of Law
No. 9,472 of 1997, compensation, which shall be paid prior to
expropriation, must correspond to the value of the assets which are
reverting to the granting authority, minus depreciation;
III Forfeiture: Independently of the application of penalties and the
indemnification of damage resulting from breach of contract, under the
terms of the Agreement, the Concessionaire may only claim compensation
if it is proved that the government will be unjustly enriched through
the reversion of assets that have not been completely amortized or
depreciated, after deducting the value of the damage incurred and of
imposed fines, in addition to any unmet financial obligations;
IV Amicable or judicial rescission: No compensation shall be due,
unless otherwise determined by a court ruling; and
V Annulment: Compensation shall only be due if it is proved that the
Concessionaire did not act illegally, and such compensation shall
correspond solely to the actual value of the assets which revert to
the government, calculated on the date the annulment is decreed, on
the condition that said assets have not yet been fully amortized.
(S) 1 The temporary amount to be advanced by ANATEL in cases of
expropriation shall be calculated in the manner prescribed by the specific
authorizing legislation.
(S) 2 In the event that forfeiture is brought about through the
demonstrated fault of the Concessionaire, it shall also occasion:
a) retention of the credits stemming from the Agreement, including
the appropriation of revenue from the payments made by users of
the service;
b) liability for prejudice caused to the government and to the users;
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c) the levying of fines under the terms provided for in this
Agreement and current legislation; and
d) loss of the insurance guarantee provided for in clause 23.1.
(S) 3 Except in cases of expropriation, the appropriate compensation
for other instances of termination of the Agreement shall be calculated under
the terms of this chapter and divided into installments equal to the number of
months the concession would have been in effect. The first installment shall be
paid one year after the termination of the Agreement.
(S) 4 The responsibility for paying the various types of compensation
may be transferred by ANATEL to the provider that takes over the operation of
the service granted hereby from the Concessionaire. However, ANATEL shall
reassume the payment obligation in the event the new provider is more than 90
(ninety) days behind in its payments.
CHAPTER XXVIII INTERVENTION
CLAUSE 28.1. In the event the continuity and security of the service
granted hereby is jeopardized through the fault of the Concessionaire,
especially in the situations indicated below, then ANATEL, at its discretion and
in the public interest, may decree its intervention in the affairs of the
Concessionaire by way of a specific and justified act of its Board of Directors.
I Unjustified paralysis of the service granted hereby, that being the
interruption of service under circumstances not anticipated by this
Agreement, and which are not attributed to causes which ANATEL
considers justifiable;
II Inadequacy or repeated insufficiencies of the service provided,
characterized by noncompliance with the quality parameters provided
for in this Agreement and by regulation, even after warnings issued by
ANATEL to rectify the situation by a certain deadline;
III Poor administrative practices that jeopardize the continuity of
the service granted hereby;
IV Recurrence of violations defined as serious under the terms of
clause 25.1 above;
V Non-fulfillment of universal service objectives, that being the
unjustified failure to comply with the timetable for implementing the
universal service requirements of this Agreement;
VI Unjustified withholding of interconnection, understood as
refusing, delaying or postponing the negotiation or implementation of
a connection to its network, at the request of another service
provider, and in compliance with the terms of interconnection
determined by ANATEL;
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VII Violation of economic order, characterized by unfair trade
practices; and
VIII Failure to provide reports to ANATEL, or obstruction of
inspection activities, which may presuppose the occurrence of any of
the events anticipated in the previous paragraphs.
CLAUSE 28.2. The intervention decree must state the timeframe,
motives, goals and scope, in addition to designating the intervening party.
SOLE PARAGRAPH The duration and scope of the intervention must be
compatible with and in proportion to the cause for the intervention.
CLAUSE 28.3. The intervention shall be preceded by administrative
proceedings initiated by ANATEL, during which the full rights of defense of the
Concessionaire shall be guaranteed.
SOLE PARAGRAPH If immediate intervention is indispensable, it may be
decreed as a precaution by ANATEL, without a prior declaration by the
Concessionaire, in which case the proceedings must be initiated immediately as
of the date of the decree, and concluded within one hundred eighty days, during
which time the Concessionaire may exercise its full rights of defense.
CLAUSE 28.4. The intervention decree shall neither affect the regular
course of business of the Concessionaire, nor its normal functioning. It shall,
however, occasion the immediate dismissal of its management.
CLAUSE 28.5. The function of temporary administrator may fall to an
executive of ANATEL, a specifically appointed person, collegial body or a
company, and the Concessionaire shall assume the cost of remuneration.
(S) 1 ANATEL may have recourse the intervening party to act on its
behalf.
(S) 2 The temporary administrator shall issue reports and be
responsible for its acts.
(S) 3 For acts of alienation and disposal of the assets of the
Concessionaire, the temporary administrator requires the prior authorization of
ANATEL.
CLAUSE 28.6. Intervention shall not be decreed if ANATEL deems it
unnecessary.
SOLE PARAGRAPH Intervention shall be deemed unnecessary under the
circumstances set forth in (S) 1 of clause 26.4 above, as well as under those
provided for in Art. 114, paragraph IV of Law No. 9,472 of 1997.
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CHAPTER XXIX ADMINISTRATIVE EXPROPRIATIONS AND IMPOSITIONS
CLAUSE 29.1. In the event public easements or expropriations need to
be carried out in order to implement, provide or update the service granted
hereby, such tasks shall be handled entirely by the Concessionaire, and ANATEL
must submit proposals to the President of the Republic requesting the issuance
of declarations of public interest.
CHAPTER XXX ARBITRATION
CLAUSE 30.1. Any disputes that may arise over the application and
interpretation of the terms of the concession shall be resolved by ANATEL
through the exercise of its function as a regulatory body, in accordance with
the provisions of Articles 8 and 19 of Law No. 9,472 of 1997. The Concessionaire
may only evoke the arbitration proceeding provided for in this Chapter if it
disagrees with a ruling by ANATEL on the following topics:
I Infringement of the right of the Concessionaire to protect its
economic situation, as set forth in Chapter XII;
II Rate revision, as provided for in Chapter XII; and
III Compensation owed upon the termination of this Agreement,
including reverted assets.
SOLE PARAGRAPH The submission of any issue to arbitration does not
exempt ANATEL and the Concessionaire from the obligation to comply fully with
this Agreement, nor does it permit the interruption of the activities associated
with the concession.
CLAUSE 30.2. Arbitration proceedings shall be initiated when one
party sends notice to the other, requesting the establishment of the Arbitration
Tribunal provided for in this Chapter, and detailing the issue which is the
topic of controversy.
SOLE PARAGRAPH ANATEL may reject the establishment of the Arbitration
Tribunal if it can justifiably demonstrate that the dispute is not included in
the list of topics provided for in clause 30.1.
CLAUSE 30.3 The Arbitration Tribunal shall be composed of 5 (five)
members, appointed as follows:
I 2 (two) members, and their respective alternates, chosen by the
Board of Directors of ANATEL from among specialists in the areas
pertaining to the disputed matter, and who are not ANATEL employees.
At least one of them, who shall preside over the proceedings, shall
have specific knowledge of the legal regulation of telecommunications;
II 2 (two) members, and their respective alternates, chosen by the
Concessionaire, from among specialists in the areas pertaining to the
disputed
44
<PAGE>
matter, and who are not ANATEL employees. At least one of them shall
have specific knowledge of the legal regulation of telecommunications;
and
III 1 (one) member, and his or her respective alternate, chosen by
the members referred to in the preceding paragraphs.
(S) 1 The Arbitration Tribunal may be assisted by whatever technical
experts it finds suitable to appoint.
(S) 2 The Tribunal shall be considered constituted on the date when
all arbitrators accept their appointments and notify both parties of their
acceptance.
(S) 3 The Tribunal shall adjudicate on the basis of established law,
and its rulings shall have cogent force, independent of judicial homologation.
CLAUSE 30.4 If it has not been rejected by ANATEL, or if such
arguments have been overcome, the Proceedings dealt with in this Chapter shall
be initiated, and the following procedures shall be observed:
I The parties shall have 10 (ten) days as of receiving the notice
discussed at the beginning of the preceding clause in which to choose
the members of the Arbitration Tribunal, which shall be established as
soon as all of its members demonstrated their accepted;
II In the event one of the parties fails to act, or offers resistance
to the establishment of the Arbitration Tribunal, the other party may
avail itself of the right provided for in Art. 7 of Law No. 9,307 of
September 23, 1996;
III Once the Arbitration Tribunal has been established, the parties
shall each have 25 (twenty-five) days to present their arguments
concerning the disputed matter and may use this opportunity to present
reports, surveys, and opinions, as well as any other documents or
information which they feel are relevant in supporting their position;
IV Once the briefs have been presented, the Tribunal shall analyze
the arguments and may, at the request of one of its members, order the
elaboration of reports, surveys or opinions, and request information
or documents from the parties. In addition, the Tribunal may make any
other investigation or take any other measures it deems necessary to
obtain optimal information about the disputed matter;
V During the gathering of the items referred to in the preceding
paragraph, the parties shall always be permitted to make and refute
arguments in keeping with the principles of informality, consensus and
celerity which shall govern the proceeding;
45
<PAGE>
VI Once the preliminary fact-finding period has been declared closed,
the parties shall be granted a common 15 (fifteen) day period in which
to present their closing arguments;
VII Once the period mentioned above has elapsed, regardless of the
presentation of the final arguments, the Tribunal shall issue its
ruling within 30 (thirty) days;
VIII The ruling of the Arbitration Tribunal may not be appealed,
except for petitions for reconsideration, which are only suitable in
cases when a ruling is approved with a mere one-vote majority; and
IX Invalidation of arbitration proceedings shall only be allowed
under the circumstances provided for in Art. 32 of Law No. 9,307/96.
SOLE PARAGRAPH The expense of the arbitration process, including the
cost of reports, opinions and surveys, as well as the fees of the Tribunal
members, shall either be charged to the Concessionaire or to ANATEL, depending
upon the ruling of the Arbitration Tribunal.
CHAPTER XXXI APPLICABLE LEGAL SYSTEM
CLAUSE 31.1. Without prejudice to the norms inherent in the Brazilian
legal system, this concession is governed by Law No. 9,472 of July 16, 1997 and
by the regulations resulting therefrom, particularly those issued by Executive
Authority in accordance with the provisions of Art. 18 of the above-mentioned
Law, and they always take precedence over conflicting standards.
CLAUSE 31.2. When providing the service conceded herein, national
telecommunications policy and the regulations of ANATEL must be observed and
considered an integral part of this Agreement, particularly the following
related documents:
I General Concession Plan;
II General Plan on Universal Service;
III General Plan on Quality;
IV General Regulations for Telecommunications Services;
V Regulations for Switched, Fixed-line Telephone Service;
VI General Regulations for Interconnection;
VII Numbering Regulations for Switched, Fixed-line Telephone Service;
VIII Numbering Administration Regulations; and
46
<PAGE>
IX Regulations for Compensation for Network Usage of Providers of
Switched, Fixed-line Telephone Service.
CLAUSE 31.3. When interpreting the standards and provisions contained
within this Agreement, general rules of interpretation and the standards and
principles of Law No. 9, 472 of 1997 must be taken into account, in addition to
the documents referred to in the preceding item.
CHAPTER XXXII - VENUE
CLAUSE 32.1. In order to resolve disputes stemming from this
Agreement which cannot be resolved through the dispute-resolution process in
Chapter XXX Arbitration, the Federal District Court of Brasilia (Foro da Secao
Judiciaria da Justica Federal de Brasilia, Distrito Federal) shall have
competent jurisdiction.
CHAPTER XXXIII FINAL AND GENERAL PROVISIONS
CLAUSE 33.1. The Agreement signed herewith shall enter into force as
soon as its abstract is published in the official government daily journal
(Diario Oficial da Uniao).
SOLE PARAGRAPH The Concessionaire shall have 6 (six) months as of the
publication of the regulations referred to in clause 31.2, which are expected to
have been completely published by December 31, 1998, before being required to
comply fully with the obligations set forth in this Agreement.
In order to signify their full acceptance of the provisions and terms
of this Agreement, the parties hereby execute it in triplicate, before witnesses
who also execute it, in order that this Agreement take legal and judicial
effect.
Brasilia, May 26, 1998.
ANATEL:
__________________________
__________________________
Concessionaire:
__________________________
__________________________
Witnesses:
__________________________
Name:
ID:
__________________________
47
<PAGE>
Name:
ID:
48
<PAGE>
ANNEX 1
CLASSIFICATION OF REVERTIBLE ASSETS USED TO PROVIDE
LOCAL, SWITCHED, FIXED-LINE TELEPHONE SERVICE
a) Infrastructure and equipment used for switching and transmission, including
public terminals;
b) Infrastructure and equipment used in the external network;
c) Infrastructure and equipment used for energy and air conditioning;
d) Infrastructure and equipment used by the Assistance and Service Centers;
e) Infrastructure and equipment used in operations support systems;
f) Other items required to provide the service.
49
<PAGE>
ANNEX 2
UNIVERSAL SERVICE OBJECTIVES
Universal service objectives are established by the General Plan on Universal
Service, and also include the following:
1. Full individual access lines installed in the sector provided for in clause
2.1 of this Agreement:
a) by 12/31/1999
b) by 12/31/2000
c) by 12/31/2001
2. Installing public telephones in the sector provided for in clause 2.1 of
this Agreement:
d) by 12/31/1999
e) by 12/31/2000
f) by 12/31/2001
50
<PAGE>
ANNEX 3
BASIC LOCAL SERVICE PLAN
1 GENERAL
1.1 - The Basic Local Service Plan is governed by the administrative rulings
cited in this annex, by other regulations in effect and any succeeding
regulations.
1.2 - The rates presented are maximums, net of payroll and income taxes.
2 ACCESS TO SWITCHED, FIXED-LINE TELEPHONE SERVICE ("SFTS")
2.1 - For access to Switched, Fixed-line Telephone Service (SFTS), the service
provider may charge an Installation Fee of no more than R$80.00 (eighty
Brazilian reais), as established by Administrative Decree No. 508 of 10/16/97,
issued by the Ministry of Communications.
2.2 - In order to maintain access rights, service providers are authorized to
collect subscription fees, using the table below, in accordance with
Administrative Decrees Nos. 217 and 226, both dated April 3, 1997 and issued by
the Ministry of Communications.
<TABLE>
<CAPTION>
<S> <C>
CLASS OF SUBSCRIBER PRICE (IN R$)
- ----------------------------------------------------------------
Residential 10.00 (ten reais)
- ----------------------------------------------------------------
Nonresidential 15.00 (fifteen reais)
- ----------------------------------------------------------------
CPCT Trunk 20.00 (twenty reais)
- ----------------------------------------------------------------
</TABLE>
2.2.1 - A Local SFTS subscription includes a 90-pulse base rate.
2.3 - Subscribers may be charged for changes of address, with a maximum charge
of R$62.40 (sixty-two reais and forty centavos).
3 - USE OF SFTS
3.1 - LOCAL SFTS
3.1.1 - Local SFTS is regulated by Administrative Decree No. 216 of 9/18/91,
issued by the National Secretary of Communications, subsequently updated by
Administrative Decree No. 218 of April 3, 1997, issued by the Ministry of
Communications, which stipulates the rate-setting procedures for local calls
using the Public Telephone Service.
3.1.2 - Rates for Local SFTS shall be calculated using:
a) The Karlsson Increment method or KA-240 (multiple measurement), whereby
billed amounts are calculated by applying a billing unit (a pulse) for each
successfully connected call, as well as
51
<PAGE>
additional units every 240 seconds. The first billing charge occurs a random
amount of time after the initiation of the call.
b) The Simple Measurement Method, whereby billed amounts are calculated by
applying a billing unit (a pulse) for each successfully completed call,
regardless of call length.
<TABLE>
<CAPTION>
DAY MEASUREMENT SYSTEM
- -------------------------------------------------------------------------------------------------------
<S> <C>
Monday Friday, 6:00 a.m.-Midnight Multiple Measurement (KA 240)
- -------------------------------------------------------------------------------------------------------
Monday Friday, Midnight-6 a.m. Simple Measurement
- -------------------------------------------------------------------------------------------------------
Saturday, 6 a.m.-2 p.m. Multiple Measurement (KA 240)
- -------------------------------------------------------------------------------------------------------
Saturday, Midnight-6 a.m. and 2 p.m.-Midnight Simple Measurement
- -------------------------------------------------------------------------------------------------------
Sundays and Holidays: 24 hours Simple Measurement
- -------------------------------------------------------------------------------------------------------
</TABLE>
3.1.3 - The billing unit of Local SFTS is the Pulse, the mean value of which, as
determined by Administrative Decree No. 226 of April 3, 1997, issued by the
Ministry of Communications, is R$0.058.
3.1.4 - In the case of Local Collect Calls, the billing principles of Domestic
Long-Distance SFTS may be applied with regard to Degree 1 of the Billing Degree
Table used for Domestic Long-Distance SFTS, as stipulated by Administrative
Decree No. 218 of April 3, 1997, issued by the Ministry of Communications.
3.1.5 - In the case of local calls originating from public telephones, the time-
based measurement shall be adopted, in which case a synchronized billing unit is
involved. The first unit is counted upon completion of the call, in what is
called the Pure Karlsson method, as set forth in Administrative Decree No. 216
of 9/18/91, issued by the National Secretary of Communications, with an interval
of 120 seconds between each billing unit, as provided for by Administrative
Decree No. 218 of April 3, 1997, issued by the Ministry of Communications.
3.1.6 - The unitary value of the local phone token/phone card is R$0.043, as
determined by Administrative Decree No. 226, of April 3, 1997, issued by the
Ministry of Communications.
3.2 MOBILE CELLULAR SERVICE
3.2.1 - The billing criteria and procedures for calls using Mobile Cellular
Service are regulated by Standard No. 23/96, approved by Administrative Decree
No. 1536, of November 4, 1996, issued by the Ministry of Communications.
3.2.2 - The billing unit is one tenth of a minute (i.e., six seconds).
3.2.3 - The minimum billed increment is 30 (thirty) seconds.
52
<PAGE>
3.2.4 - Administrative Decree No. 2503 of 12/20/96, issued by the Ministry of
Communications, established the maximum amounts of per-minute rates, as shown in
the table below:
<TABLE>
<CAPTION>
Mobile Cellular Service Areas Normal Rate Reduced Rate
- ---------------------------------------------------------------------------------
VC-1 VC-1
(R$) (R$)
- ---------------------------------------------------------------------------------
<S> <C> <C>
1 0.27000 0.18900
- ---------------------------------------------------------------------------------
2 0.27000 0.18900
- ---------------------------------------------------------------------------------
3 0.28000 0.19600
- ---------------------------------------------------------------------------------
4 0.28000 0.19600
- ---------------------------------------------------------------------------------
5 0.27000 0.18900
- ---------------------------------------------------------------------------------
6 0.27000 0.18900
- ---------------------------------------------------------------------------------
7 0.27000 0.18900
- ---------------------------------------------------------------------------------
8 0.27000 0.18900
- ---------------------------------------------------------------------------------
9 0.26000 0.18200
- ---------------------------------------------------------------------------------
10 0.26000 0.18200
- ---------------------------------------------------------------------------------
</TABLE>
3.2.5 - The reduced rate for Mobile Cellular Service-bound calls shall apply
Monday to Saturday from midnight to 7 a.m. and from 9 p.m. to midnight, and all
day long on Sundays and holidays, as provided for in Standard No. 23/96,
approved by Administrative Decree No. 1536 of November 4, 1996, issued by the
Ministry of Communications.
53
<PAGE>
EXHIBIT 10.3
MODELO DE
CONTRATO DE CONCESSAO DO SERVICO TELEFONICO FIXO COMUTADO LONGA DISTANCIA
NACIONAL
(EMPRESAS DO STB, EXCETO EMBRATEL)
Pelo presente instrumento, de um lado a Agencia Nacional de
Telecomunicacoes, doravante denominada ANATEL, entidade integrante da UNIAO e
nos termos da Lei Federal n 9.472 de 16 de Julho de 1997, Lei Geral de
Telecomunicacoes - LGT, incumbida do exercicio do Poder Concedente, ora
representada pelo seu Presidente Renato Navarro Guerreiro, [qualificar]
conjuntamente com o Conselheiro **** [qualificar], conforme aprovacao do seu
Conselho Diretor constante da Resolucao n ****, e, de outro a [nome e
qualificacao da concessionaria], por seu representante legal, doravante
denominada CONCESSIONARIA, consoante o disposto no art. 207 da referida Lei
Geral de Telecomunicacoes, por este instrumento e na melhor forma de direito,
celebram o presente CONTRATO DE CONCESSAO, que sera regido pelas normas adiante
referidas e pelas seguintes clausulas:
CAPITULO I - DO OBJETO
CLAUSULA 1.1. - O objeto do presente Contrato e a concessao do Servico
Telefonico Fixo Comutado, destinado ao uso do publico em geral, prestado em
regime publico, na modalidade de servico de longa distancia nacional, para
chamadas originadas na area geografica definida na clausula 2.1, nos termos do
Plano Geral de Outorgas.
PARAGRAFO UNICO - Compreende-se no objeto da presente concessao o
Servico Telefonico Fixo Comutado, prestado em regime publico, em areas
limitrofes e fronteiricas, em conformidade com a regulamentacao editada pela
ANATEL, consoante disposicao contida no Plano Geral de Outorgas.
CLAUSULA 1.2. - Servico Telefonico Fixo Comutado e o servico de
telecomunicacoes que, por meio da transmissao de voz e de outros sinais,
destina-se a comunicacao entre pontos fixos determinados, utilizando processos
de telefonia.
CLAUSULA 1.3. - Mediante previa aprovacao por parte da ANATEL, a
Concessionaria podera implantar e explorar utilidades ou comodidades
relacionadas com a prestacao do servico objeto da presente concessao.
PARAGRAFO UNICO - Serao consideradas relacionadas com o objeto da
presente Concessao aquelas prestacoes, utilidades ou comodidades que, a juizo da
ANATEL, sejam consideradas inerentes a plataforma do servico ora concedido, sem
caracterizar nova modalidade de servico, observadas as disposicoes da
regulamentacao.
CLAUSULA 1.4. - A Concessionaria tem direito a implantacao,
<PAGE>
2
expansao e operacao dos troncos, redes e centrais de comutacao necessarios a sua
execucao, bem assim sua exploracao industrial, nos termos da regulamentacao.
CLAUSULA 1.5. - E indissociavel da prestacao do servico concedido, a
obrigacao de atendimento as metas de universalizacao e qualidade previstas neste
Contrato.
CLAUSULA 1.6. - A Concessionaria devera assegurar a todos os
solicitantes e usuarios do servico concedido a realizacao das instalacoes
necessarias a prestacao do servico, nos termos da regulamentacao.
CLAUSULA 1.7. - A Concessionaria devera manter acesso gratuito para
servicos de emergencia estabelecidos na regulamentacao.
CAPITULO II - DA AREA DE PRESTACAO DO SERVICO
CLAUSULA 2.1. - A area geografica de prestacao do servico objeto da
presente concessao e aquela abrangida pelo(s) territorio(s) contido(s) no(s)
Setor(es) de numero *** constante(s) do Anexo 3 do Plano Geral de Outorgas.
CAPITULO - III - DO PRAZO E DAS CONDICOES DE PRORROGACAO DO CONTRATO
Clausula 3.1. - O prazo da presente concessao, outorgada a titulo
gratuito, tera seu termo final em 31 de dezembro de 2005, assegurado o direito a
prorrogacao unica por vinte anos, de acordo com as clausulas 3.2, 3.3 e 3.4.
CLAUSULA 3.2. - A presente concessao sera prorrogada, a pedido da
Concessionaria, a titulo oneroso, uma unica vez por 20 (vinte) anos, desde que a
Concessionaria atenda as condicoes constantes deste Contrato, podendo o novo
Contrato incluir novos condicionamentos, estabelecer novas metas para
universalizacao e de qualidade, tendo em vista as condicoes vigentes a epoca da
prorrogacao, definindo, no caso de metas de universalizacao, recursos
complementares, nos termos do art. 81 da Lei n 9.472, de 1997.
(S) 1 - A ANATEL, 36 (trinta e seis) meses antes do termo final
previsto na clausula 3.1, fara publicar consulta publica com sua proposta de
novos condicionamentos e de novas metas para qualidade e universalizacao do
servico, submetidas estas ultimas a aprovacao, por meio de Decreto, do
Presidente da Republica, nos termos do art. 18, inciso III, da Lei n 9.472, de
1997.
(S) 2 - Para a prorrogacao prevista nesta clausula, a Concessionaria
devera manifestar seu expresso interesse com antecedencia
<PAGE>
3
minima de 30 (trinta) meses antes do termo final previsto na clausula 3.1.
CLAUSULA 3.3. - Para prorrogacao do prazo da presente concessao, nos
termos do previsto na clausula anterior, a Concessionaria devera pagar, a cada
bienio, durante o periodo de prorrogacao, onus correspondente a 2% (dois por
cento) da sua receita, do ano anterior ao do pagamento, do Servico Telefonico
Fixo Comutado, liquida de impostos e contribuicoes sociais incidentes.
(S) 1 - No calculo do valor referido no caput desta clausula sera
considerada a receita liquida decorrente da aplicacao dos planos de servico,
basico e alternativos, objeto da presente concessao.
(S) 2 - O calculo do percentual referido no caput desta clausula sera
feito sempre relativamente a receita liquida das deducoes de impostos e
contribuicoes incidentes, apurada entre janeiro e dezembro do ano anterior e
obtida das demonstracoes financeiras elaboradas conforme legislacao societaria e
principios fundamentais de contabilidade, aprovadas pela administracao da
Concessionaria e auditadas por auditores independentes, e o pagamento tera
vencimento em 30 de abril do ano subsequente ao da apuracao do onus.
(S) 3 - A primeira parcela do onus tera vencimento em 30 de abril de
2007, calculada considerando a receita liquida apurada de 1 de janeiro a 31 de
dezembro de 2006, e as parcelas subsequentes terao vencimento a cada 24 (vinte e
quatro) meses, tendo como base de calculo a receita do ano anterior.
(S) 4 - O atraso no pagamento do onus previsto nesta clausula
implicara a cobranca de multa moratoria de 0,33% (zero virgula trinta e tres por
cento) ao dia, ate o limite de 10% (dez por cento), acrescida da taxa
referencial SELIC para titulos federais, a ser aplicada sobre o valor da divida
considerando todos os dias de atraso de pagamento.
CLAUSULA 3.4. A prorrogacao do prazo do presente Contrato ensejara a
prorrogacao no direito de uso das radiofrequencias referidas na clausula 4.1 que
sejam necessarias a continuidade da prestacao do servico.
Paragrafo unico - O retorno a ANATEL de radiofrequencias que nao sejam
necessarias a continuidade da prestacao dos servicos nao implicara modificacao
do valor do onus da prorrogacao fixado na clausula 3.3.
CAPITULO IV - DO MODO, FORMA E CONDICOES DE PRESTACAO
Clausula 4.1. A utilizacao de radiofrequencias na prestacao do
servico objeto desta concessao sera autorizada pela ANATEL, a titulo oneroso e
sem exclusividade, salvo se existir disposicao em contrario na regulamentacao,
consoante o disposto nos artigos 83 e 163 da Lei n 9.472, de 1997.
<PAGE>
4
(S) 1 - A Concessionaria tera direito de utilizacao, sem
exclusividade, das radiofrequencias autorizadas anteriormente a data da
assinatura deste Contrato, independente do pagamento de qualquer onus, exceto as
taxas de fiscalizacao, observadas as condicoes estabelecidas nas respectivas
licencas de funcionamento das estacoes.
(S) 2 - O direito de utilizacao de radiofrequencias referido nesta
clausula nao elide a prerrogativa conferida a ANATEL pelo art.161 da Lei n
9.472, de 1997.
(S) 3 - As novas radiofrequencias que venham a ser requeridas pela
Concessionaria terao seu uso autorizado, a titulo oneroso, com observancia dos
procedimentos definidos pela ANATEL para autorizacoes similares.
(S) 4 - O prazo das autorizacoes de uso de radiofrequencias
requeridas nos termos do paragrafo anterior sera igual ao prazo da presente
Concessao, devendo sua prorrogacao ser feita a titulo oneroso, independente do
pagamento do onus referido na clausula 3.3. do presente.
CLAUSULA 4.2. - A Concessionaria se obriga a prestar o servico objeto
da concessao de forma a cumprir plenamente as obrigacoes de universalizacao e
continuidade inerentes ao regime publico, que lhe e inteiramente aplicavel,
observados os criterios, formulas e parametros definidos no presente Contrato.
PARAGRAFO UNICO - O descumprimento das obrigacoes relacionadas a
universalizacao e a continuidade ensejara a aplicacao das sancoes previstas no
presente Contrato, permitira a decretacao de intervencao pela ANATEL e, conforme
o caso e a gravidade ou quando a decretacao de intervencao for inconveniente,
inocua, injustamente benefica a Concessionaria ou desnecessaria, implicara a
caducidade da concessao, nos termos do disposto na clausula 26.4.
CLAUSULA 4.3. - A Concessionaria explorara o servico objeto da
concessao por sua conta e risco, dentro do regime de ampla e justa competicao
estabelecido na Lei n 9.472, de 1997, e no Plano Geral de Outorgas, sendo
remunerada pelas tarifas cobradas e por eventuais receitas complementares ou
acessorias que perceba nos termos do presente Contrato.
PARAGRAFO UNICO - A Concessionaria nao tera direito a qualquer especie
de exclusividade, nem podera reclamar direito quanto a admissao de novos
prestadores do mesmo servico, no regime publico ou privado.
CLAUSULA 4.4. - Ao longo de todo o prazo de vigencia da concessao, a
Concessionaria se obriga a manter os compromissos de qualidade, abrangencia e
oferta do servico constantes do presente Contrato,
<PAGE>
5
independentemente do ambiente de competicao existente na area geografica de
exploracao do servico.
CLAUSULA 4.5. - A Concessionaria se compromete a manter e conservar
todos os bens, equipamentos e instalacoes empregados no servico em perfeitas
condicoes de funcionamento, conservando e reparando suas unidades e promovendo,
nos momentos oportunos, as substituicoes demandadas em funcao do desgaste ou
superacao tecnologica, ou ainda promovendo os reparos ou modernizacoes
necessarias a boa execucao do servico e a preservacao do servico adequado,
conforme determinado no presente Contrato.
CAPITULO V - DAS REGRAS PARA IMPLANTACAO, EXPANSAO, ALTERACAO E MODERNIZACAO DO
SERVICO
CLAUSULA 5.1. - Constituem pressupostos basicos da presente concessao
a expansao e a modernizacao do servico concedido, observadas as metas e os
criterios constantes do presente Contrato.
PARAGRAFO UNICO - A ANATEL podera determinar a alteracao de metas de
implantacao, expansao e modernizacao do servico, respeitado o direito da
Concessionaria de nao ser obrigada a suportar custos adicionais nao recuperaveis
com a receita decorrente do atendimento dessas metas por meio da exploracao
eficiente do servico.
CLAUSULA 5.2. - A alteracao nas condicoes de prestacao do servico
somente podera ocorrer por determinacao da ANATEL ou mediante sua previa e
expressa aprovacao.
CLAUSULA 5.3. - A modernizacao do servico sera buscada atraves da
constante introducao de equipamentos, processos e meios aptos a prestar ao
usuario um servico compativel com a atualidade em face das tecnologias
disponiveis no mercado.
CAPITULO VI - DOS CRITERIOS E INDICADORES DE QUALIDADE E CONTINUIDADE DO
SERVICO.
CLAUSULA 6.1. - Constitui pressuposto da presente Concessao a adequada
qualidade do servico prestado pela Concessionaria, considerando-se como tal o
servico que satisfizer as condicoes de regularidade, eficiencia, seguranca,
atualidade, generalidade, cortesia e modicidade das tarifas.
(S) 1 - A regularidade sera caracterizada pela prestacao continuada
do servico com estrita observancia do disposto nas normas baixadas pela ANATEL.
<PAGE>
6
(S) 2 - A eficiencia sera caracterizada pela consecucao e preservacao
dos parametros constantes do presente Contrato e pelo atendimento do usuario do
servico nos prazos previstos neste Contrato.
(S) 3 - A seguranca na prestacao do servico sera caracterizada pela
confidencialidade dos dados referentes a utilizacao do servico pelos usuarios,
bem como pela plena preservacao do sigilo das informacoes transmitidas no ambito
de sua prestacao, observado o disposto no Capitulo XIV.
(S) 4 - A atualidade sera caracterizada pela modernidade dos
equipamentos, das instalacoes e das tecnicas de prestacao do servico, com a
absorcao dos avancos tecnologicos advindos ao longo do prazo da concessao que,
definitivamente, tragam beneficios para os usuarios, respeitadas as disposicoes
do presente Contrato.
(S) 5 - A generalidade sera caracterizada com a prestacao nao
discriminatoria do servico a todo e qualquer usuario, obrigando-se a
Concessionaria a prestar o servico a quem o solicite, no local indicado pelo
solicitante, nos termos do presente Contrato e de acordo com a regulamentacao.
(S) 6 - A cortesia sera caracterizada pelo atendimento respeitoso e
imediato de todos os usuarios do servico concedido, bem como pela observancia
das obrigacoes de informar e atender pronta e polidamente todos que, usuarios ou
nao, solicitem da Concessionaria informacoes, providencias ou qualquer tipo de
postulacao nos termos do disposto no presente Contrato.
(S) 7 - O principio da modicidade das tarifas sera caracterizado pelo
esforco da Concessionaria em praticar tarifas inferiores as fixadas pela ANATEL
CLAUSULA 6.2. A Concessionaria devera observar os parametros e
indicadores do Plano Geral de Metas de Qualidade.
PARAGRAFO UNICO - A Concessionaria devera divulgar, anualmente, quadro
demonstrativo das metas e parametros estabelecidos e realizados do Plano Geral
de Metas de Qualidade e do Plano Geral de Metas de Universalizacao, sem prejuizo
do fornecimento destes dados, sempre que solicitados pela ANATEL.
CLAUSULA 6.3. - A continuidade do servico ora concedido, elemento
essencial ao regime de sua prestacao, sera caracterizada pela nao interrupcao do
servico, observada a suspensao por inadimplencia do usuario nos termos do
disposto na clausula 8.3. e no art. 3, inciso VII da Lei n 9.472, de 1997.
PARAGRAFO UNICO - Nao sera considerada violacao da continuidade a
interrupcao circunstancial do servico decorrente de situacao de
<PAGE>
7
emergencia, motivada por razoes de ordem tecnica ou de seguranca das
instalacoes, mediante comunicacao aos usuarios afetados e, nos casos relevantes,
tambem mediante aviso circunstanciado a ANATEL.
CLAUSULA 6.4. - A Concessionaria nao podera, em hipotese alguma,
interromper a prestacao do servico alegando o nao adimplemento de qualquer
obrigacao por parte da ANATEL ou da Uniao, nao sendo invocavel, pela
Concessionaria, a excecao por inadimplemento contratual.
CLAUSULA 6.5. - Alem da gerencia e auditoria dos indicadores de
qualidade, a ANATEL avaliara, periodicamente, o grau de satisfacao dos usuarios
com o servico ora concedido, podendo divulgar os resultados da Concessionaria,
abrangendo, pelo menos, os seguintes aspectos:
I - atendimento ao usuario, especialmente no que tange a facilidade
de acesso, presteza, cordialidade, rapidez e eficacia na resposta a
solicitacoes e reclamacoes;
II - tarifas cobradas e descontos oferecidos;
III - qualidade tecnica do servico prestado; e
IV - adequacao dos servicos oferecidos as necessidades dos usuarios.
CAPITULO VII - DAS METAS DE UNIVERSALIZACAO
CLAUSULA 7.1. - A universalizacao constitui traco essencial do regime
de prestacao do servico ora concedido e sera caracterizada pelo atendimento
uniforme e nao discriminatorio de todos os usuarios e pelo cumprimento das metas
constantes do Plano Geral de Metas de Universalizacao, aprovado pelo Poder
Executivo, nos termos dos artigos 18, inciso III, e 80 da Lei n 9.472, de 1997.
CLAUSULA 7.2. - A excecao do disposto na clausula 7.4. deste Contrato
e observado o Plano Geral de Metas de Universalizacao, aprovado pelo Poder
Executivo nos termos dos artigos 18, inciso III, e 80 da Lei n 9.472, de 1997,
a implementacao das metas de universalizacao previstas neste Contrato sera
financiada exclusivamente pela Concessionaria, atraves da exploracao do servico,
nao lhe assistindo direito a ressarcimento ou subsidio.
CLAUSULA 7.3. - A Concessionaria assume a obrigacao de implementar
metas de universalizacao nao previstas no presente Contrato e que venham a ser
requeridas pela ANATEL, em observancia ao disposto no (S) 2 do art. 2 do Plano
Geral de Metas de Universalizacao, aprovado pelo Decreto n 2.592, de 1998,
respeitado o seguinte procedimento para definicao do montante e criterio de
ressarcimento:
<PAGE>
8
I - a ANATEL consultara a Concessionaria sobre os custos totais da
implantacao das metas adicionais pretendidas e sobre a parcela
destes que nao podera ser amortizada pela receita de exploracao,
sendo coberta por pagamento especifico, indicando especificamente os
objetivos a serem atingidos, as tecnologias selecionadas, bem como o
local e prazo de implementacao;
II - se decorrido o prazo fixado na consulta, inexistir manifestacao
da Concessionaria, a ANATEL tomara as providencias necessarias para
determinar os onus e custos da implementacao destas metas bem como
para estimar a correspondente geracao de receita;
III - se respondida a Consulta pela Concessionaria, a ANATEL
avaliara se os custos e as estimativas de receitas apresentados sao
adequados e compativeis, levando em conta as tecnologias
disponiveis, o preco dos insumos e mao-de-obra, as caracteristicas
geograficas e socio-economicas da demanda a ser atendida, os precos
praticados no mercado alem de outras variaveis que considere
relevantes;
IV - nao considerando razoaveis os custos e/ou a estimativa de
receita propostos, a ANATEL podera, motivadamente, imputar a
implementacao das metas a Concessionaria, estabelecendo o valor do
ressarcimento, observado o disposto no Capitulo XXX; e
V - estando os valores de ressarcimento adequados e compativeis no
entendimento da ANATEL, esta confirmara a Concessionaria a imputacao
da implementacao destas metas especificas, nos termos da proposta de
ressarcimento encaminhada pela Concessionaria.
(S) 1 - Se, apos o procedimento previsto nesta clausula, a ANATEL
considerar inconveniente ou inviavel a implementacao da meta especifica de
universalizacao atraves da Concessionaria, contratara junto a outrem a
incumbencia, podendo faze-lo por meio de outorgas especificas e delimitadas do
servico, observados os parametros economicos obtidos no procedimento previsto
nesta clausula.
(S) 2 - A criterio da ANATEL, o procedimento previsto nesta clausula
tambem podera ser utilizado para fins de fixacao dos valores a serem ressarcidos
com a utilizacao dos recursos do Fundo de Universalizacao dos Servicos de
Telecomunicacoes, quando da antecipacao das metas previstas no Plano Geral de
Metas de Universalizacao, aprovado pelo Poder Executivo, nos termos dos artigos
18, inciso III, e 80 da Lei n 9.472, de 1997.
(S) 3 - A utilizacao de recursos do Fundo de Universalizacao dos
Servicos de Telecomunicacoes, conforme paragrafo anterior, implica a
<PAGE>
9
exclusao do aproveitamento dos beneficios da antecipacao de metas previstos no
(S) 2 do artigo 10, do Plano Geral de Outorgas, exceto no caso de ressarcimento
a ANATEL pelos valores que tenha utilizado desse Fundo, acrescidos da
remuneracao devida.
CLAUSULA 7.4. - A adocao dos procedimentos previstos na clausula
anterior constitui faculdade da ANATEL, que podera adota-la a seu criterio e
consoante o melhor atendimento do interesse publico, nao assistindo a
Concessionaria direito de preferencia na implementacao destas metas.
CAPITULO VIII - DAS REGRAS SOBRE SUSPENSAO DO SERVICO POR INADIMPLENCIA E A
PEDIDO DO USUARIO
CLAUSULA 8.1. - O assinante do servico objeto da presente concessao
podera solicitar, a qualquer tempo, a suspensao do servico, devendo a
Concessionaria atender a solicitacao em prazo a ser estabelecido pela ANATEL, o
qual nao sera superior a 48 (quarenta e oito) horas, ressalvados os casos de
aprazamento por parte do assinante.
PARAGRAFO UNICO - A Concessionaria nao podera exigir pagamento pela
suspensao do servico a que se refere o caput desta clausula.
CLAUSULA 8.2. - O assinante que estiver adimplente com a
Concessionaria podera requerer a suspensao do servico, na forma da
regulamentacao.
CLAUSULA 8.3. - A Concessionaria somente podera proceder a suspensao
do servico cujo assinante nao honrar o pagamento de debito diretamente
decorrente da utilizacao do servico concedido, apos transcorridos 30 (trinta)
dias de inadimplencia, observando o procedimento estabelecido em regulamentacao
propria editada pela ANATEL, e devera ser assegurado prazo para o assinante
questionar os debitos contra ele lancados.
(S) 1. A Concessionaria devera informar o bloqueio de acesso ao
assinante com antecedencia minima de 15 (quinze) dias.
(S) 2. O inadimplemento de debitos nao relacionados diretamente com o
servico objeto desta concessao, conforme paragrafo unico da clausula 10.6, nao
ensejara a interrupcao de que trata a presente clausula.
CLAUSULA 8.4. A Concessionaria assegurara ainda ao assinante o direito
a ter bloqueado temporaria ou permanentemente o acesso a comodidades ou
utilidades oferecidas, bem como a servicos de valor adicionado, sempre que por
ele solicitado, nos termos da regulamentacao.
CLAUSULA 8.5. Caso a inadimplencia do assinante se referir
exclusivamente ao pagamento dos servicos prestados por prestador de Servico
Telefonico Fixo Comutado diverso do ora concedido que seja objeto de
<PAGE>
10
faturamento conjunto pela Concessionaria, o bloqueio devera obedecer ao
procedimento especifico objeto de regulamentacao pela ANATEL.
CAPITULO IX - DO PLANO DE NUMERACAO
CLAUSULA 9.1. - Observada a regulamentacao, a Concessionaria se obriga
a obedecer ao Regulamento de Numeracao para o Servico Telefonico Fixo Comutado
editado pela ANATEL, devendo assegurar ao assinante do servico a portabilidade
de codigos de acesso no prazo definido nesse Regulamento.
(S) 1 - A Concessionaria arcara com os custos necessarios a adaptar-
se ao Regulamento de Numeracao referido no caput desta Clausula.
(S) 2 - Os custos referentes aos investimentos necessarios para
permitir a portabilidade de codigos de acesso serao divididos entre a
Concessionaria e os demais prestadores de servico de telecomunicacao, em regime
publico ou privado.
(S) 3 - Os custos referentes a administracao do processo de
consignacao e ocupacao de codigos de acesso do Regulamento de Numeracao serao
imputados a Concessionaria, nos termos do Regulamento da Administracao da
Numeracao.
CAPITULO X - DO REGIME TARIFARIO E DA COBRANCA DOS USUARIOS
CLAUSULA 10.1. - A Concessionaria devera ofertar a todos os usuarios,
obrigatoriamente, o Plano Basico do Servico de Longa Distancia Nacional, Anexo
02, parte integrante deste Contrato.
PARAGRAFO UNICO - O Plano Basico do Servico de Longa Distancia
Nacional sera unico para toda a area referida na clausula 2.1. e devera conter,
nos termos do estabelecido pela ANATEL, valores maximos para cada item da
estrutura tarifaria definida para a prestacao do Servico Telefonico Fixo
Comutado, valores estes que serao revistos e reajustados, observadas as normas
aplicaveis.
CLAUSULA 10.2. - A Concessionaria podera ofertar aos seus assinantes
Planos Alternativos de Servico de Longa Distancia Nacional com criterios de
tarifacao diferentes daqueles constantes do Plano Basico do Servico de Longa
Distancia Nacional.
(S) 1 - Sera garantida ao assinante a transferencia entre os diversos
Planos de Servico de Longa Distancia Nacional ofertados pela Concessionaria, nos
termos da regulamentacao.
<PAGE>
11
(S) 2 - A estrutura de tarifas e valores dos Planos Alternativos de
Servico de Longa Distancia Nacional sao de livre proposicao da Concessionaria,
observado o disposto na clausula 10.1.
(S) 3 - A Concessionaria e obrigada a ofertar, de forma nao
discriminatoria, ao usuario seus Planos Alternativos de Servico de Longa
Distancia Nacional homologados pela ANATEL.
(S) 4 - Os Planos Alternativos de Servico de Longa Distancia Nacional
deverao ser homologados pela ANATEL antes de sua oferta ao publico em geral.
(S) 5 - A ANATEL devera se pronunciar sobre os Planos Alternativos de
Servico de Longa Distancia Nacional em ate 15 (quinze) dias apos seu
recebimento, considerando-se os mesmos homologados caso, ate este prazo, nao
haja pronunciamento da ANATEL.
CLAUSULA 10.3. - A Concessionaria podera praticar descontos nas
tarifas dos Planos de Servico de Longa Distancia Nacional desde que de forma
equanime e nao discriminatoria, vedada a reducao subjetiva de valores, e
observado o principio da justa competicao.
PARAGRAFO UNICO A Concessionaria se obriga a divulgar, com
antecedencia, aos seus usuarios os descontos tarifarios, dando-lhes ampla e
previa divulgacao, comunicando sua decisao a ANATEL, ate 7 (sete) dias apos o
inicio da vigencia da reducao das tarifas.
CLAUSULA 10.4. - A Concessionaria se obriga a dar ampla publicidade as
tarifas praticadas pelo servico objeto da presente concessao, na forma
regulamentada pela ANATEL.
CLAUSULA 10.5. - Quando da implantacao de novas prestacoes, utilidades
ou comodidades relacionadas ao servico objeto da concessao, a Concessionaria
submetera previamente a pretensao de cobranca para aprovacao da ANATEL, sem a
qual nao podera ser cobrada qualquer tarifa ou preco.
CLAUSULA 10.6. - Os documentos de cobranca emitidos pela
Concessionaria deverao ser apresentados de maneira detalhada, clara,
explicativa, indevassavel e deverao discriminar o tipo e a quantidade de cada
servico prestado ao usuario, na forma da regulamentacao.
PARAGRAFO UNICO - A Concessionaria podera lancar no documento de
cobranca, desde que de forma clara e explicita, os valores devidos pelo
assinante em funcao da prestacao de servicos de valor adicionado, bem como de
outras comodidades ou utilidades relacionadas com o servico concedido.
CLAUSULA 10.7. - A Concessionaria cobrara dos demais prestadores de
servicos de telecomunicacoes tarifas de uso de redes,
<PAGE>
12
observadas as normas editadas pela ANATEL.
CLAUSULA 10.8 A Concessionaria oferecera desconto ao assinante
afetado por eventuais descontinuidades na prestacao do servico concedido, desde
que nao sejam por ele motivadas, o qual sera proporcional ao periodo em que se
verificar a interrupcao, na forma da regulamentacao.
CAPITULO XI - DO REAJUSTAMENTO DAS TARIFAS
CLAUSULA 11.1. - A cada intervalo nao inferior a 12 (doze) meses, por
iniciativa da ANATEL ou da Concessionaria, observadas as regras da legislacao
economica vigente, as tarifas constantes do Plano Basico do Servico de Longa
Distancia Nacional Anexo 02, poderao ser reajustadas mediante a aplicacao da
seguinte formula:
5 24 5 24
(SIGMA SIGMA Tijt x Mij/to/ ) (1-k) Ft SIGMA SIGMATij/to/ x Mij/to/
i=1 j=1 MT i=1 j=1 MT
Sendo:
Tijt Tij/to/ x 1,05 x IGP-DIt
-------
IGP-DI/to/
Onde:
Tijt = tarifa proposta no Plano Basico do Servico de Longa Distancia Nacional
para o horario j no degrau tarifario de distancia i, liquida dos tributos
incidentes.
Tij/to/ = tarifa vigente no Plano Basico do Servico de Longa Distancia Nacional
para o horario j no degrau tarifario de distancia i, liquida dos tributos
incidentes.
Mij/to/ = minutos do servico de longa distancia nacional observados no Plano
Basico do Servico de Longa Distancia Nacional no horario j e no degrau da
distancia i desde o ultimo reajuste tarifario ou, no caso do primeiro reajuste,
desde 1 de abril de 1998.
MT = minutos totais do servico de longa distancia nacional, observados no Plano
Basico do Servico de Longa Distancia Nacional desde o ultimo reajuste tarifario
ou, no caso do primeiro reajuste, desde 1 de abril de 1998.
i = degrau tarifario de distancia do servico de longa distancia nacional
constante da Estrutura Tarifaria do Servico.
j = horario de tarifacao do servico de longa distancia nacional constante da
Estrutura Tarifaria do Servico.
<PAGE>
13
t = data do reajuste proposto.
to = data do ultimo reajuste ou, no caso do primeiro reajuste, 1 de abril de
1998; e
Ft = IGP-DIt
-------
IGP-DI /to/
Onde:
IGP-DI = Indice Geral de Precos, Disponibilidade Interna, divulgado pela
Fundacao Getulio Vargas, ou outro indice que venha a substitui-lo
k = fator de transferencia.
(S) 1. - O fator de transferencia sera aplicado ao longo da
concessao da seguinte forma:
I ate 31 de dezembro de 2000 sera igual a 0,02 (zero virgula zero
dois);
II de 1 de janeiro de 2001 a 31 de dezembro de 2003 sera igual a
0,04 (zero virgula zero quatro).
III de 1 de janeiro de 2004 a 31 de dezembro de 2005 sera igual a
0,05 (zero virgula zero cinco).
(S) 2 - Caso o periodo de reajuste envolva valores diferentes de
fator de transferencia, devera ser efetuada, para sua aplicacao, uma media
ponderada considerando os meses de incidencia de cada valor de fator de
transferencia.
(S) 3 - Caso o reajuste seja efetuado em periodos superiores a doze
meses, a formula em que consta o fator de transferencia devera ser aplicada de
forma progressiva, considerando periodos de doze meses e, finalmente, o residuo
de meses, se houver.
(S) 4- Apos 2005 novos valores dos fatores de transferencia poderao
ser estabelecidos pela ANATEL quando da prorrogacao do prazo deste Contrato,
considerando as condicoes vigentes na epoca.
CLAUSULA 11.2. As tarifas de uso de redes serao reajustadas mediante
a aplicacao das seguintes formulas:
5 24 5 24
( SIGMA SIGMA TU-RIUijt x Mij/to/) (1-k) Ft SIGMA SIGMA TU-RIUijto x Mij/to/
i=1 j=1 MT i=1 j=1 MT
Sendo:
TU-RIUijt TU-RIUijto x 1,05 x IGP-DIt
-------
<PAGE>
14
IGP-DI/to/
Onde:
TU-RIUij/t/ - tarifa de uso de rede interurbana proposta para o horario j no
degrau da distancia i, liquida dos tributos incidentes.
TU-RIUij/to/ tarifa de uso de rede interurbana vigente para o horario j no
degrau da distancia i, liquida dos tributos incidentes.
Mij/to/ minutos que usam a rede interurbana da Concessionaria no horario j e no
degrau de distancia i, observados desde o ultimo reajuste tarifario ou, no caso
do primeiro reajuste, desde 1 de abril de 1998.
MT minutos totais que usam a rede interurbana da Concessionaria observados
desde o ultimo reajuste tarifario ou, no caso do primeiro reajuste, desde 1 de
abril de 1998.
/t/ = data do reajuste proposto.
/to/ = data do ultimo reajuste ou, no caso do primeiro reajuste, 1 de abril de
1998, e
F/t/ = IGP-DI/t/
-------
. IGP-DI /to/
Onde:
IGP-DI = Indice Geral de Precos, Disponibilidade Interna, divulgado pela
Fundacao Getulio Vargas, ou outro indice que venha a substitui-lo
k = fator de transferencia.
(S) 1 - O fator de transferencia sera aplicado ao longo da
concessao da seguinte forma:
I ate 31 de dezembro de 2000 sera igual a 0,02 (zero virgula zero
dois);
II de 1 de janeiro de 2001 a 31 de dezembro de 2003 sera igual a
0,04 (zero virgula zero quatro);
III de 1 de janeiro de 2004 a 31 de dezembro de 2005 sera igual a
0,05 (zero virgula zero cinco).
(S) 2 - Caso o periodo de reajuste envolva valores diferentes de
fator de transferencia, devera ser efetuada, para sua aplicacao, uma media
ponderada considerando os meses de incidencia de cada valor de fator de
transferencia.
(S) 3 - Caso o reajuste seja efetuado em periodos superiores a doze
meses, a formula em que consta o fator de transferencia devera ser
<PAGE>
15
aplicada de forma progressiva, considerando periodos de doze meses e,
finalmente, o residuo de meses, se houver.
(S) 4- Apos 2005 novos valores dos fatores de transferencia poderao
ser estabelecidos pela ANATEL quando da prorrogacao do prazo deste Contrato,
considerando as condicoes vigentes na epoca.
CAPITULO XII - DA PROTECAO DA SITUACAO ECONOMICA DA CONCESSIONARIA E DA REVISAO
DAS TARIFAS
CLAUSULA 12.1. - Constitui pressuposto basico do presente Contrato a
preservacao, em regime de ampla competicao, da justa equivalencia entre a
prestacao e a remuneracao, vedado as partes o enriquecimento imotivado as custas
de outra parte ou dos usuarios do servico, nos termos do disposto neste
Capitulo.
(S) 1 - A Concessionaria nao sera obrigada a suportar prejuizos em
decorrencia do presente Contrato, salvo se estes decorrerem de algum dos
seguintes fatores:
I - da sua negligencia, inepcia ou omissao na exploracao do servico;
II - dos riscos normais a atividade empresarial;
III - da gestao ineficiente dos seus negocios, inclusive aquela
caracterizada pelo pagamento de custos operacionais e
administrativos incompativeis com os parametros verificados no
mercado; ou
IV - da sua incapacidade de aproveitar as oportunidades existentes
no mercado, inclusive no atinente a expansao, ampliacao e incremento
da prestacao do servico objeto da concessao.
(S) 2 - E tambem vedado o enriquecimento imotivado da Concessionaria
decorrente da apropriacao de ganhos economicos nao advindos diretamente da sua
eficiencia empresarial, em especial quando decorrentes da edicao de novas regras
sobre o servico.
(S) 3 - Fara jus a Concessionaria a recomposicao da sua situacao
inicial de encargos e retribuicoes quando circunstancias de forca maior ou
calamidades afetarem de forma significativa a exploracao do servico, observado
sempre, como parametro, o reflexo destas situacoes nos prestadores de servicos
no regime privado.
(S) 4 - Na avaliacao do cabimento da recomposicao de que trata o
paragrafo anterior sera considerada, entre outros fatores, a existencia de
<PAGE>
16
cobertura do evento motivador da alteracao da situacao economica inicial pelo
Plano de Seguros previsto na clausula 23.1.
CLAUSULA 12.2. - Cabera o restabelecimento da situacao economica do
Contrato quando ficar demonstrada a inocorrencia dos fatores indicados no (S) 1
da clausula anterior, o qual dar-se-a preferencialmente pela revisao de tarifas
ou por qualquer outro mecanismo que, a criterio da ANATEL, seja considerado apto
a neutralizar a situacao verificada.
(S) 1 - A revisao das tarifas afastara qualquer outro mecanismo de
neutralizacao do enriquecimento imotivado das partes, tornando superado o evento
ao qual ela se referia.
(S) 2 - A providencia adotada para neutralizar uma distorcao sera
unica, completa e final relativamente ao evento que lhe deu origem.
CLAUSULA 12.3.- Independentemente do disposto na clausula 12.1.,
cabera revisao das tarifas integrantes do Plano Basico do Servico de Longa
Distancia Nacional em favor da Concessionaria ou dos usuarios, nos termos do
art. 108 da Lei n 9.472, de 1997, quando verificada uma das seguintes situacoes
especificas:
I - modificacao unilateral deste Contrato imposta pela ANATEL, que
importe variacao expressiva de custos ou de receitas, para mais ou
para menos, de modo que a elevacao ou reducao de tarifas seja
imposta pela necessidade de evitar o enriquecimento imotivado de
qualquer das partes;
II - alteracao na ordem tributaria posterior a assinatura deste
Contrato que implique aumento ou reducao da lucratividade potencial
da concessionaria;
III - ocorrencias supervenientes, decorrentes de fato do principe ou
fato da Administracao que resultem, comprovadamente, em alteracao
dos custos da Concessionaria;
IV - alteracao legislativa de carater especifico, que tenha impacto
direto sobre as receitas da Concessionaria de modo a afetar a
continuidade ou a qualidade do servico prestado; ou
V - alteracao legislativa que acarrete beneficio a Concessionaria,
inclusive a que concede ou suprime isencao, reducao, desconto ou
qualquer outro privilegio tributario ou tarifario, consoante do
previsto no (S) 3 do art. 108 da Lei n 9.472, de 1997.
(S) 1 - Nao importara na revisao de tarifas o prejuizo ou a reducao
de ganhos da Concessionaria decorrente da livre exploracao do servico em
condicoes de competicao ou da gestao ineficiente dos seus negocios.
<PAGE>
17
(S) 2 - Nao sera aplicavel a hipotese de revisao prevista no inciso
II do caput desta clausula quando a alteracao na ordem tributaria implicar
criacao, supressao, elevacao ou reducao em impostos incidentes sobre a renda ou
o lucro da Concessionaria, como o Imposto sobre a Renda, que nao impliquem
oneracao administrativa ou operacional.
(S) 3 - Nao cabera revisao de tarifas nas hipoteses previstas nesta
clausula quando os eventos ensejadores da revisao ja estiverem cobertos pelo
plano de seguros previsto na clausula 23.1.
(S) 4 - As contribuicoes da Concessionaria ao Fundo de
Universalizacao dos Servicos de Telecomunicacoes e ao Fundo para o
Desenvolvimento Tecnologico das Telecomunicacoes nao ensejarao revisao das
tarifas.
CLAUSULA 12.4. - Nao sera aplicavel a revisao de tarifas quando ficar
caracterizado que os impactos motivadores do pedido por parte da Concessionaria
puderem ser neutralizados com a eficiente exploracao do servico, pela expansao
do mercado ou pela geracao de receitas alternativas ou complementares associadas
ao objeto do presente Contrato, observadas as condicoes competitivas verificadas
no momento.
PARAGRAFO UNICO - A diminuicao da receita decorrente de descontos ou
reducao de tarifas nao dara ensejo a revisao das mesmas.
CLAUSULA 12.5. - O procedimento de revisao de tarifas podera ser
iniciado por requerimento da Concessionaria ou por determinacao da ANATEL.
(S) 1 - Quando o procedimento de revisao das tarifas for iniciado
pela Concessionaria deverao ser obedecidos os seguintes requisitos:
I - ser acompanhado de relatorio tecnico ou laudo pericial que
demonstre cabalmente o impacto da ocorrencia na formacao das tarifas
ou na estimativa de receitas da Concessionaria;
II - ser acompanhada de todos os documentos necessarios a
demonstracao do cabimento do pleito;
III - a Concessionaria devera indicar a sua pretensao de revisao
tarifaria, informando os impactos e as eventuais alternativas de
balanceamento das tarifas; e
IV - todos os custos com diligencias e estudos necessarios a plena
instrucao do pedido correrao por conta da Concessionaria.
(S) 2 - O procedimento de revisao das tarifas iniciado pela ANATEL
devera ser objeto de comunicacao a Concessionaria consignando prazo para sua
manifestacao, acompanhada de copia dos laudos e estudos
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18
realizados para caracterizar a situacao ensejadora da revisao.
(S) 3 - O procedimento de revisao das tarifas sera concluido em prazo
nao superior a 120 (cento e vinte) dias, ressalvada a hipotese em que seja
necessaria a prorrogacao deste para complementacao da instrucao.
(S) 4 - O requerimento devera ser aprovado pela ANATEL, devendo a
Concessionaria providenciar a ampla divulgacao dos novos valores maximos das
tarifas revistas, nos termos do que reza o presente Contrato.
CAPITULO XIII - DAS RECEITAS ALTERNATIVAS, COMPLEMENTARES E ACESSORIAS
Clausula 13.1. - A Concessionaria podera obter outras fontes
alternativas de receitas, desde que isso nao implique o descumprimento das
normas constantes do Regulamento Geral dos Servicos de Telecomunicacoes e das
demais normas editadas pela ANATEL.
PARAGRAFO UNICO - A Concessionaria, suas coligadas, controladas ou
controladoras nao poderao condicionar a oferta do servico ora concedido ao
consumo casado de qualquer outro servico, nem oferecer vantagens ao usuario em
virtude da fruicao de servicos adicionais aquele objeto do presente Contrato,
ainda que prestados por terceiros.
CLAUSULA 13.2. - A ANATEL podera determinar que a Concessionaria
ofereca aos usuarios comodidades ou utilidades correlacionadas ao objeto da
concessao, devendo neste caso as partes ajustarem os precos unitarios destes
servicos, observados os parametros de mercado e o direito a justa remuneracao.
CAPITULO XIV - DOS DIREITOS E GARANTIAS DOS USUARIOS E DEMAIS PRESTADORES
Clausula 14.1. - Respeitadas as regras e parametros constantes deste
Contrato, constituem direitos dos usuarios do servico objeto da presente
concessao:
I - o acesso ao servico e a sua fruicao dentro dos padroes de
qualidade, regularidade e eficiencia previstos no presente Contrato,
em seus anexos e nas normas vigentes;
II - a possibilidade de solicitar a suspensao ou a interrupcao do
servico prestado pela Concessionaria;
III - o tratamento nao discriminatorio quanto as condicoes de acesso
e fruicao do servico;
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19
IV - a obtencao de informacoes adequadas quanto as condicoes de
prestacao do servico e as tarifas e aos precos praticados;
V - a inviolabilidade e o segredo de sua comunicacao, respeitadas as
hipoteses e condicoes constitucionais e legais de quebra de sigilo
de telecomunicacoes;
VI - obter, gratuitamente, mediante solicitacao encaminhada ao
servico de atendimento dos usuarios mantido pela Concessionaria, a
nao divulgacao do seu codigo de acesso;
VII - a nao suspensao do servico sem sua solicitacao, ressalvada a
hipotese de debito diretamente decorrente de sua utilizacao ou por
descumprimento dos deveres constantes do art. 4 da Lei n 9.472, de
1997;
VIII - o conhecimento previo de toda e qualquer alteracao nas
condicoes de prestacao do servico que lhe atinjam direta ou
indiretamente;
IX - a privacidade nos documentos de cobranca e na utilizacao de
seus dados pessoais pela Concessionaria;
X - a resposta eficiente e pronta as suas reclamacoes pela
Concessionaria, nos termos do previsto na clausula 15.7.;
XI - o encaminhamento de reclamacoes ou representacoes contra a
Concessionaria junto a ANATEL e aos organismos de defesa do
consumidor;
XII - a reparacao pelos danos causados pela violacao dos seus
direitos;
XIII - ver observados os termos do Contrato de Assinatura pelo qual
tiver sido contratado o servico;
XIV - escolher livremente o prestador dos servicos telefonicos de
longa distancia nacional e internacional;
XV - ter respeitado o seu direito de portabilidade de codigos de
acesso, observadas as disposicoes do Regulamento de Numeracao
editado pela ANATEL; e
XVI - nao ser obrigado a consumir servicos ou a adquirir bens ou
equipamentos que nao sejam de seu interesse, bem como a nao ser
compelido a se submeter a condicao para recebimento do servico
objeto da presente concessao, nos termos da regulamentacao.
(S) 1 - A Concessionaria observara o dever de zelar estritamente
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20
pelo sigilo inerente ao servico telefonico e pela confidencialidade quanto aos
dados e informacoes, empregando meios e tecnologias que assegurem este direito
dos usuarios.
(S) 2 - A Concessionaria tornara disponiveis os recursos tecnologicos
necessarios a suspensao de sigilo de telecomunicacoes determinada por autoridade
judiciaria, na forma da regulamentacao.
CLAUSULA 14.2. - Aos demais prestadores de servicos de
telecomunicacoes serao assegurados, alem dos direitos referidos na clausula
anterior, os seguintes direitos:
I - a interconexao a rede da Concessionaria em condicoes economicas
e operacionais nao discriminatorias, sob condicoes tecnicamente
adequadas e a precos isonomicos e justos que atendam estritamente ao
necessario a prestacao do servico, observada a regulamentacao
editada pela ANATEL;
II - a receber o servico solicitado junto a Concessionaria sem
qualquer tipo de discriminacao, pelos precos de mercado ou por
precos negociados pelas partes e com as reducoes que forem
aplicaveis em funcao dos custos evitados em virtude do consumo em
larga escala, respeitada a regulamentacao; e
III - a obter todas as informacoes que sejam necessarias para a
prestacao do servico por eles operados, inclusive aquelas relativas
ao faturamento, ressalvado o direito da Concessionaria a preservacao
dos seus dados recobertos pelo sigilo empresarial, bem como os
direitos de terceiros.
(S) 1 - Os conflitos entre Concessionaria e demais prestadores serao
resolvidos administrativamente pela ANATEL, nos termos da regulamentacao a ser
por ela editada.
(S) 2 - A ANATEL acompanhara permanentemente o relacionamento entre
os prestadores que se utilizem do servico ora concedido e a Concessionaria, de
modo a coibir condutas que possam implicar prejuizo injusto para qualquer das
partes ou que importem em violacao a ordem economica e a livre concorrencia,
comunicando, nestas hipoteses, tais condutas ao Conselho Administrativo de
Defesa Economica - CADE, apos o exercicio de sua competencia, na forma do
disposto no art. 19, inciso XIX, da Lei n 9.472, de 1997.
CLAUSULA 14.3. Observada a regulamentacao, sera assegurado o direito
de qualquer usuario a prestacao e fruicao de servicos de valor adicionado, que
devera se dar em condicoes tecnicamente adequadas e a precos isonomicos e
justos, sendo defeso a Concessionaria o estabelecimento de qualquer entrave ou
restricao a fruicao do servico ora concedido.
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21
PARAGRAFO UNICO - Entende-se por servico de valor adicionado toda a
atividade que acrescentar ao servico objeto desta concessao, sem com ele se
confundir, novas utilidades relacionadas ao acesso, armazenamento, apresentacao,
movimentacao ou recuperacao de informacoes.
CAPITULO XV - DOS DIREITOS, GARANTIAS E OBRIGACOES DA CONCESSIONARIA
CLAUSULA 15.1. - Alem das outras obrigacoes decorrentes deste Contrato
e inerentes a prestacao do servico, incumbira a Concessionaria:
I - prestar o servico com absoluta observancia do disposto no
presente Contrato, submetendo-se plenamente a regulamentacao editada
pela ANATEL;
II - implantar todos os equipamentos e instalacoes necessarios a
prestacao, continuidade, modernizacao, ampliacao e universalizacao
do servico objeto da concessao, dentro das especificacoes constantes
do presente Contrato;
III - manter em perfeitas condicoes de operacao e funcionamento a
rede de telecomunicacoes, em quantidade, extensao e localizacoes
pertinentes e suficientes a adequada prestacao do servico;
IV - prover recursos financeiros necessarios ao atendimento dos
parametros de universalizacao e continuidade constantes do presente
Contrato e a prestacao adequada do servico;
V - prestar a ANATEL, na forma e periodicidade previstas na
regulamentacao, contas e informacoes de natureza tecnica,
operacional, economica, financeira e contabil, bem como fornecer-lhe
todos os dados e elementos referentes ao servico que sejam
solicitados;
VI - manter os terminais de uso publico, permanentes ou temporarios,
na forma prevista neste Contrato;
VII - submeter-se a fiscalizacao da ANATEL, permitindo o acesso de
seus agentes as instalacoes integrantes do servico bem como a seus
registros contabeis;
VIII - manter registros contabeis separados por servico, bem como
ter em dia o inventario dos bens e dos componentes do ativo
imobilizado da empresa;
IX - manter sistema de informacao e atendimento do usuario, nos
termos da clausula 15.7.;
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22
X - zelar pela integridade dos bens vinculados a prestacao do
servico;
XI - submeter a aprovacao da ANATEL, previamente a sua utilizacao, a
minuta de Contrato-Padrao a ser celebrado com os assinantes, bem
como todas as alteracoes, aditamentos ou variantes a ele aplicaveis;
XII - submeter a aprovacao previa da ANATEL os acordos operacionais
ou contratos de prestacao de servicos, de associacao ou parceria,
que pretenda firmar com entidades estrangeiras;
XIII - encaminhar para publicacao na Biblioteca da ANATEL copia de
acordos e contratos relativos a prestacao do servico ora concedido
com prestadores nacionais e estrangeiros de servicos de
telecomunicacoes;
XIV - divulgar, diretamente ou atraves de terceiros, o codigo de
acesso dos seus assinantes e dos demais assinantes de prestadores de
Servico Telefonico Fixo Comutado, em regime publico e privado, na
area de concessao, com exclusao daqueles que requererem
expressamente a omissao dos seus dados pessoais;
XV - fornecer, em prazos e a precos razoaveis e de forma nao
discriminatoria, a relacao de seus assinantes a quem queira divulga-
la;
XVI - respeitar rigorosamente o dever de sigilo e confidencialidade
das telecomunicacoes, observadas as prescricoes legais e
contratuais;
XVII - respeitar a privacidade dos usuarios com relacao aos
documentos de cobranca e a todas as informacoes pessoais a eles
referentes;
XVIII - cumprir, as suas proprias expensas, observado o disposto na
clausula 7.2 deste Contrato, todas as metas de universalizacao
expressamente constantes deste Contrato;
XIX - implementar projetos de expansao e universalizacao do servico
que venham a ser determinados pela ANATEL, segundo patamares de
ressarcimento, prazos e condicoes de implementacao estabelecidos,
observado o disposto na clausula 7.3.;
XX - submeter previamente a ANATEL toda e qualquer alteracao que
pretenda fazer nos seus estatutos quanto a cisao, fusao,
transformacao, incorporacao, bem como a transferencia
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23
de controle ou alteracao no capital social;
XXI - assegurar a qualquer outro prestador de servico de
telecomunicacoes a interconexao com sua rede, observadas a
regulamentacao especifica e as normas do presente Contrato;
XXII - tornar disponivel aos demais prestadores do Servico
Telefonico Fixo Comutado os servicos de faturamento e arrecadacao,
cobrando por estes precos justos e compativeis nos termos do
presente Contrato e da regulamentacao;
XXIII - observar todos os direitos dos demais prestadores de
servicos de telecomunicacoes, omitindo-se de praticar qualquer
conduta discriminatoria ou voltada a obstar a atividade destes;
XXIV - utilizar, sempre que exigido pela regulamentacao,
equipamentos com certificacao expedida ou aceita pela ANATEL;
XXV - observar as normas e os padroes tecnicos vigentes no Brasil,
omitindo-se de qualquer pratica discriminatoria em relacao a bens e
equipamentos produzidos no pais;
XXVI - colocar a disposicao das autoridades e dos agentes da defesa
civil, nos casos de calamidade publica, todos os meios, sistemas e
disponibilidades que lhe forem solicitados com vistas a dar-lhes
suporte ou a amparar as populacoes atingidas;
XXVII - atender com prioridade o Presidente da Republica, seus
representantes protocolares, sua comitiva e pessoal de apoio, bem
como os Chefes de Estado estrangeiros, quando em visitas ou
deslocamentos oficiais pelo territorio brasileiro, tornando
disponiveis os meios necessarios para adequada comunicacao destas
autoridades, observada a regulamentacao editada pela ANATEL;
XXVIII - arcar com o onus fixado pela ANATEL no caso de prorrogacao
do prazo da concessao, nos termos do art. 207, (S) 1, da Lei n
9.472, de 1997, e da clausula 3.3.;
XXIX - pagar todas as taxas de fiscalizacao e funcionamento das suas
instalacoes, na forma da regulamentacao;
XXX - publicar anualmente, independente do regime juridico a que
esteja sujeita, balanco e demonstracoes financeiras levantadas ao
final de cada exercicio social, observadas as disposicoes da
legislacao vigente e da regulamentacao editada pela ANATEL;
XXXI - observar as normas vigentes no pais quanto a utilizacao
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24
de mao-de-obra estrangeira, inclusive nos cargos de maior
qualificacao;
XXXII - indenizar os usuarios pelos danos efetivamente decorrentes
da nao prestacao do servico que seria exigivel frente aos parametros
de continuidade e as metas de universalizacao previstas no presente
Contrato;
XXXIII - nao despender com contratos de prestacao de servicos de
gerencia, inclusive assistencia tecnica, com entidades estrangeiras,
em relacao a receita anual do Servico Telefonico Fixo Comutado,
liquida de impostos e contribuicoes, valores superiores a:
a) 1% (um por cento) ao ano, ate 31/12/2000;
b) 0,5% (zero virgula cinco por cento) ao ano, de 01/01/2001 a
31/12/2002; e
c) 0,2% (zero virgula dois por cento) ao ano, a partir de
01/01/2003;
XXXIV - dar cumprimento a acordos firmados entre o Brasil e outros
paises e organismos internacionais, na forma regulamentada pela
ANATEL; e
XXXV - dar cumprimento aos contratos celebrados com a TELEBRAS,
cujos objetos sejam a prestacao de servicos pelo Centro de Pesquisa
e Desenvolvimento CPqD ou seu sucessor.
PARAGRAFO UNICO As decisoes relativas ao inciso XXXIII desta clausula
em contratos de prestacao de servicos e assistencia tecnica, entre a
Concessionaria e terceiros vinculados aos acionistas controladores, deverao ser
tomadas em assembleia geral extraordinaria, devendo a Concessionaria fazer
constar no seu estatuto social, ate 31.12.98, que as acoes preferenciais terao
direito a voto nessas decisoes, sem prejuizo do disposto no (S) 1 do artigo 115
da Lei n 6.404, de 15 de dezembro de 1976.
CLAUSULA 15.2. - Sem prejuizo das demais disposicoes constantes deste
Contrato e das garantias asseguradas em lei constituem direitos da
Concessionaria:
I - explorar o servico concedido dentro de sua estrategia
empresarial, definindo livremente seus investimentos, respeitadas a
regulamentacao editada pela ANATEL e as disposicoes deste Contrato;
II - indicar representante para acompanhar a atividade
fiscalizatoria da ANATEL;
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25
III - interromper, nos termos da clausula 8.3 deste Contrato, ou nao
atender a solicitacao de prestacao de servico para o assinante
inadimplente com as suas obrigacoes contratuais com a
Concessionaria;
IV- solicitar a instauracao do procedimento de arbitragem nas
hipoteses e na forma prescrita no Capitulo XXX deste Contrato;
V - ter preservadas as condicoes economicas de exploracao do servico
contra alteracoes que importem em enriquecimento imotivado da Uniao
ou dos usuarios nos termos do disposto no Capitulo XII;
VI - solicitar a revisao das tarifas aplicadas ao servico concedido,
na forma do disposto neste Contrato;
VII - solicitar da ANATEL a confidencialidade de informacao colhida
no exercicio da atividade fiscalizatoria, nos termos do disposto
neste Contrato:
VIII - empregar na execucao dos servicos equipamentos e infra-
estrutura que nao lhe pertencam, observado o disposto na clausula
21.1. deste Contrato; e
IX - contratar com terceiros o desenvolvimento de atividades
inerentes, acessorias ou complementares ao servico, bem como a
implementacao de projetos associados.
CLAUSULA 15.3. - Durante a vigencia do Contrato, a Concessionaria sera
a unica responsavel, perante terceiros, pelos atos praticados pelo seu pessoal,
prepostos e contratados, na prestacao do Servico Telefonico Fixo Comutado, bem
como pelo uso dos equipamentos, instalacoes ou redes, excluidas a Uniao e a
ANATEL de quaisquer reclamacoes e/ou indenizacoes.
CLAUSULA 15.4. - A Concessionaria nao podera opor embaracos a obras de
interesse publico, qualquer que seja a sua natureza, sempre que se tornar
necessaria a remocao de instalacoes ou de redes telefonicas para viabilizacao de
intervencoes promovidas, direta ou indiretamente, por qualquer orgao ou entidade
da Administracao publica.
CLAUSULA 15.5. - A Concessionaria devera pactuar diretamente com cada
Prefeitura Municipal das areas de exploracao do servico bem como com as demais
Concessionarias de servicos publicos as condicoes para colocacao de postes e
cruzetas para suspensao de suas linhas e cabos aereos, bem como dutos e
canalizacoes subterraneos destinados a passagem de cabos sob ruas e logradouros
publicos.
(S) 1 - A Concessionaria diligenciara junto aos titulares de bens
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26
publicos ou privados sobre ou sob os quais tenha que passar dutos ou
canalizacoes ou ainda instalar suportes para colocacao dos mesmos, obtendo o
respectivo consentimento ou servidao para tal fim.
(S) 2 - A Concessionaria devera promover junto as respetivas
autoridades municipais as tratativas necessarias ao estabelecimento das
condicoes para superacao das interferencias na rede necessaria a prestacao do
servico, inclusive quanto ao corte e poda de arvores.
CLAUSULA 15.6. - Nos termos do disposto no art. 73 da Lei n 9.472, de
1997, a Concessionaria podera utilizar postes, dutos, condutos e servidoes
pertencentes ou controlados por outros prestadores de servicos de
telecomunicacoes ou de outros servicos de interesse publico.
(S) 1 - A utilizacao dos meios referidos no caput desta clausula
devera ser realizada de forma nao discriminatoria e a precos justos e razoaveis.
(S) 2 - A Concessionaria devera tornar disponivel aos demais
prestadores de servicos de telecomunicacoes, classificados pela ANATEL como de
interesse coletivo, os meios de sua propriedade ou por ela controlados,
referidos no caput desta clausula, respeitadas as mesmas condicoes previstas no
paragrafo anterior.
(S) 3 - Sempre que a Concessionaria nao chegar a um acordo com os
demais prestadores de servicos acerca da utilizacao dos meios referidos nesta
clausula, cabera a ANATEL, isoladamente ou em conjunto com os demais orgaos
reguladores envolvidos, definir as condicoes desta utilizacao.
CLAUSULA 15.7. - A Concessionaria mantera, durante todo o prazo da
presente concessao, central de informacao e de atendimento do usuario,
funcionando 24 (vinte e quatro) horas por dia, capacitada para receber e
processar solicitacoes, queixas e reclamacoes encaminhadas pelos usuarios
pessoalmente ou por qualquer meio de comunicacao a distancia.
(S) 1 - A Concessionaria devera divulgar a todos os usuarios os
enderecos e codigos de acesso a sua central de informacao e de atendimento do
usuario, os quais deverao constar necessariamente do Contrato - Padrao com eles
firmado para prestacao do servico.
(S) 2 - A Concessionaria devera tornar disponivel e divulgar codigo
de acesso facil e gratuito para o encaminhamento de solicitacoes dos usuarios
por via telefonica.
(S) 3 - Todas as solicitacoes, reclamacoes ou queixas encaminhadas
pelos usuarios, por qualquer meio, deverao receber um numero de ordem, que sera
informado ao interessado para possibilitar seu acompanhamento.
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27
(S) 4 - O usuario sera informado pela Concessionaria nos prazos
definidos no Plano Geral de Metas de Qualidade, quanto as providencias adotadas
em funcao da sua solicitacao, reclamacao ou queixa.
(S) 5 - Caso a ANATEL constate existir dificuldade de acesso pelos
usuarios da central de informacao e de atendimento podera determinar a
Concessionaria a ampliacao dos meios de acesso disponiveis, sob pena de
considerar desatendida a obrigacao prevista nesta clausula.
CLAUSULA 15.8 - Na contratacao de servicos e na aquisicao de
equipamentos e materiais vinculados ao servico objeto deste Contrato, a
Concessionaria se obriga a considerar ofertas de fornecedores independentes,
inclusive os nacionais, e basear suas decisoes, com respeito as diversas ofertas
apresentadas, no cumprimento de criterios objetivos de preco, condicoes de
entrega e especificacoes tecnicas estabelecidas na regulamentacao pertinente.
(S) 1 - Nos casos em que haja equivalencia entre ofertas, a empresa
Concessionaria se obriga a utilizar como criterio de desempate, a preferencia a
servicos oferecidos por empresas situadas no Pais, equipamentos e materiais
produzidos no Pais, e, entre eles, aqueles com tecnologia nacional. A
equivalencia referida nesta clausula sera apurada quando, cumulativamente:
I - o preco nacional for menor ou igual ao preco do importado, posto
no territorio nacional, incluidos os tributos incidentes;
II - o prazo de entrega for compativel com as necessidades do
servico; e
III - sejam satisfeitas as especificacoes tecnicas estabelecidas na
regulamentacao pertinente e possuam certificacao expedida ou aceita
pela ANATEL, quando aplicavel.
(S) 2 - Compreende-se como servicos aqueles relacionados com a
pesquisa e desenvolvimento, planejamento, projeto, implantacao e instalacao
fisica, operacao, manutencao, supervisao e testes de avaliacao de sistemas de
telecomunicacoes.
(S) 3 - A operacionalizacao do disposto nesta clausula sera objeto de
regulamentacao por parte da ANATEL, incluindo sancoes aplicaveis.
CAPITULO XVI - DAS OBRIGACOES E PRERROGATIVAS DA ANATEL
CLAUSULA 16.1. - Alem das outras prerrogativas inerentes a sua funcao
de orgao regulador e das demais obrigacoes decorrentes do presente Contrato,
incumbira a ANATEL:
I - acompanhar e fiscalizar a prestacao do servico e a
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conservacao dos bens reversiveis, visando ao atendimento das normas,
especificacoes e instrucoes estabelecidas neste Contrato e em seus
anexos;
II - proceder as vistorias para a verificacao da adequacao das
instalacoes e equipamentos, determinando as necessarias correcoes,
reparos, remocoes, reconstrucoes ou substituicoes, as expensas da
Concessionaria;
III - regulamentar permanentemente a prestacao do servico concedido;
IV - intervir na execucao do servico quando necessario, a fim de
assegurar sua regularidade e o fiel cumprimento do Contrato e das
normas legais pertinentes;
V - aplicar as penalidades previstas na regulamentacao do servico e,
especificamente, neste Contrato;
VI - deliberar sobre os Planos Alternativos de Servico de Longa
Distancia Nacional apresentados pela Concessionaria;
VII - autorizar o reajuste e proceder a revisao das tarifas, nos
termos e conforme o disposto neste Contrato;
VIII - atuar dentro dos limites previstos neste Contrato com vista a
impedir o enriquecimento imotivado das partes, nos termos deste
Contrato;
IX - zelar pela boa qualidade do servico, receber, apurar e
solucionar queixas e reclamacoes dos usuarios, cientificando-os, em
ate noventa dias, das providencias tomadas com vista a repressao de
infracoes a seus direitos;
X - declarar extinta a Concessao nos casos previstos neste Contrato;
XI - zelar pela garantia de interconexao, dirimindo eventuais
pendencias surgidas entre a Concessionaria e demais prestadores;
XII - zelar pelo atendimento das metas de universalizacao previstas
neste Contrato, e as metas que vierem a ser estabelecidas nos Planos
de Metas posteriores;
XIII - acompanhar permanentemente o relacionamento entre a
Concessionaria e demais prestadores de servicos de telecomunicacoes,
dirimindo conflitos surgidos entre eles;
XIV - coibir condutas da Concessionaria contrarias ao regime
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29
de competicao, observadas as competencias legais do CADE;
XV - propor, por solicitacao da Concessionaria, ao Presidente da
Republica, por intermedio do Ministerio das Comunicacoes, a
declaracao de utilidade publica para fins de desapropriacao ou
instituicao de servidao administrativa, dos bens necessarios a
implantacao ou manutencao do servico objeto deste Contrato;
XVI - exercer a atividade fiscalizatoria do servico nos termos do
disposto neste Contrato; e
XVII - arrecadar as taxas relativas ao FISTEL, adotando as
providencias previstas na legislacao vigente.
CAPITULO XVII - DA CONCESSIONARIA
CLAUSULA 17.1. - A Concessionaria e empresa constituida segundo as
leis brasileiras, sob natureza de sociedade por acoes, tendo por finalidade
exclusiva a exploracao do servico objeto da presente concessao, ressalvados os
servicos nos termos do disposto no (S) 3 do art. 207 da Lei n 9.472, de 1997.
PARAGRAFO UNICO - Se aprovada alteracao estatutaria da Concessionaria,
os documentos que a formalizarem serao encaminhados a ANATEL para arquivamento,
passando a fazer parte integrante do presente Contrato.
CLAUSULA 17.2. - A Concessionaria e seus controladores se obrigam a
manter, durante todo o prazo da concessao e de sua prorrogacao, no minimo, todas
as condicoes de prestacao do servico e de capacitacao existentes a epoca da
entrada em vigencia do presente Contrato.
CLAUSULA 17.3. A Concessionaria e seus controladores se obrigam a
assegurar, durante o prazo da concessao e sua prorrogacao, a efetiva existencia,
em territorio nacional, dos centros de deliberacao e implementacao das decisoes
estrategicas, gerenciais e tecnicas envolvidas no cumprimento do presente
Contrato, inclusive fazendo refletir tal obrigacao na composicao e nos
procedimentos decisorios de seus orgaos de administracao.
PARAGRAFO UNICO A Concessionaria devera inserir, no seu estatuto, ate
31 de dezembro de 1998, disposicoes que garantam o cumprimento do disposto no
caput desta clausula.
CAPITULO XVIII - DA TRANSFERENCIA DA CONCESSAO E DO CONTROLE DA CONCESSIONARIA
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Clausula 18.1. - A transferencia da concessao ou do controle, direto
ou indireto, da Concessionaria so sera autorizada pela ANATEL, observados o
Plano Geral de Outorgas e o art. 202 da Lei n 9.472, de 1997, quando:
I - o cessionario preencha todos os requisitos estabelecidos nos
termos do art. 200 da Lei n 9.472, de 1997; e
II - a medida nao prejudique a competicao e nao coloque em risco a
execucao do Contrato e as normas gerais de protecao a ordem
economica.
PARAGRAFO UNICO - O descumprimento de qualquer disposicao constante
desta clausula importara na caducidade da presente concessao.
CLAUSULA 18.2. - Poderao ser livremente dadas em caucao as acoes da
Concessionaria cuja transferencia nao altere seu controle.
PARAGRAFO UNICO - No caso de caucao de acoes que importem oneracao do
patrimonio da Concessionaria, deverao ser previstos nos contratos de
financiamento dispositivos que submetam os credores, em caso de execucao, as
regras constantes deste Capitulo.
CAPITULO XIX - DO REGIME DE FISCALIZACAO
CLAUSULA 19.1. - A ANATEL exercera a fiscalizacao do servico ora
concedido a fim de assegurar o cumprimento dos pressupostos de universalizacao e
continuidade inerentes ao regime publico de sua prestacao, bem como para zelar
pelo cumprimento das metas e dos compromissos constantes do presente Contrato.
(S) 1 - A fiscalizacao a ser exercida pela ANATEL compreendera a
inspecao e o acompanhamento das atividades, equipamentos e instalacoes da
Concessionaria, implicando amplo acesso a todos os dados e informacoes da
Concessionaria ou de terceiros.
(S) 2 - As informacoes colhidas no exercicio da atividade
fiscalizatoria serao publicadas na Biblioteca, a excecao daquelas que, por
solicitacao da Concessionaria, sejam consideradas pela ANATEL como de carater
confidencial.
(S) 3 - As informacoes que venham a ser consideradas de carater
confidencial nos termos do paragrafo anterior, somente serao utilizadas nos
procedimentos correlacionados ao presente Contrato, respondendo a ANATEL e
aqueles por ela indicados por qualquer divulgacao, ampla ou restrita, de tais
informacoes fora deste ambito de utilizacao.
CLAUSULA 19.2. - A Concessionaria, por intermedio de
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31
representante indicado, podera acompanhar toda e qualquer atividade da
fiscalizacao da ANATEL, nao podendo obstar ou impedir a atuacao da fiscalizacao,
sob pena de incorrer nas penalidades previstas neste Contrato.
CAPITULO XX - DA PRESTACAO DE CONTAS PELA CONCESSIONARIA
Clausula 20.1. - Na forma da regulamentacao, a Concessionaria devera
enviar periodicamente a ANATEL relatorios estatisticos e circunstanciados de
todo o servico prestado, contendo, entre outros elementos, os indicadores de
expansao e abrangencia da rede de telefonia, bem como noticiando o estagio
tecnologico dos equipamentos utilizados.
CAPITULO XXI - DOS BENS VINCULADOS A CONCESSAO
Clausula 21.1. - Integram o acervo da presente concessao, sendo a ela
vinculados, todos os bens pertencentes ao patrimonio da Concessionaria e que
sejam indispensaveis a prestacao do servico ora concedido, especialmente aqueles
qualificados como tal no Anexo 01 - Qualificacao dos Bens Reversiveis da
Prestacao do Servico Telefonico Fixo Comutado Longa Distancia Nacional.
(S) 1 - Integram tambem o acervo dos bens vinculados a concessao as
autorizacoes de uso do espectro de radiofrequencias que lhe sejam outorgadas e,
quando couber, o direito de uso de posicoes orbitais, observado o disposto nos
artigos 48 e 161 da Lei n 9.472, de 1997, e ainda o constante da clausula 4.1.
do presente Contrato.
(S) 2 - Em relacao aos bens vinculados a concessao, a Concessionaria
somente podera empregar diretamente na prestacao do servico ora concedido
equipamentos, infra-estrutura, logiciarios ou qualquer outro bem que nao sejam
de sua propriedade mediante previa e expressa anuencia da ANATEL, que podera
dispensar tal exigencia nos casos e hipoteses dispostas na regulamentacao.
(S) 3 - Havendo risco a continuidade dos servicos ou impedimento da
reversao dos bens vinculados a concessao, a ANATEL podera negar autorizacao para
utilizacao de bens de terceiros ou exigir que o respectivo Contrato contenha
clausula pela qual o proprietario se obriga, em caso de extincao da concessao, a
manter os Contratos e em subrogar a ANATEL nos direitos dele decorrentes.
CAPITULO XXII - DO REGIME DE REVERSAO
CLAUSULA 22.1. - Quando da extincao da concessao reverterao
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automaticamente a ANATEL todos os bens vinculados a concessao na forma do
Capitulo XXI supra, resguardado a Concessionaria o direito as indenizacoes
previstas na legislacao e neste Contrato.
PARAGRAFO UNICO - Ate 180 (cento e oitenta) dias apos o advento da
extincao da concessao sera procedida uma vistoria dos bens que a integram e
lavrado um Termo de Devolucao e Reversao dos Bens, com indicacao detalhada do
estado de conservacao dos mesmos, facultado o acompanhamento por
representante(s) da Concessionaria.
CLAUSULA 22.2. - A Concessionaria se obriga a entregar os bens
reversiveis em perfeitas condicoes de operacionalidade, utilizacao e manutencao,
sem prejuizo do desgaste normal resultante do seu uso.
PARAGRAFO UNICO - Os bens reversiveis serao transferidos a ANATEL
livres de quaisquer onus ou encargos, observada a hipotese do paragrafo 2 da
clausula seguinte.
CLAUSULA 22.3. - A reversao dos bens de que trata o Capitulo XXI
supra, ao final do prazo contratual, sera feita sem indenizacao, ressalvado o
disposto nesta clausula.
(S) 1 - Somente cabera indenizacao em favor da Concessionaria caso
existam, ao final da Concessao, bens ainda nao integralmente amortizados, cuja
aquisicao tenha sido previamente autorizada pela ANATEL, ou adquiridos antes da
assinatura deste Contrato, com o objetivo de garantir a continuidade e a
atualidade do servico concedido.
(S) 2 - Alternativa ou supletivamente a indenizacao disposta no
paragrafo anterior, a ANATEL podera admitir a transferencia de bens que tenham
sido dados em garantia do seu proprio financiamento, subrogando-se na parcela
financiada ainda inadimplida.
CLAUSULA 22.4. - Ao final da Concessao a ANATEL procedera a avaliacao
dos bens referidos na clausula 21.1, podendo recusar a reversao de bens que
considere prescindiveis ou inaproveitaveis para aplicacao na exploracao do
servico, garantido o direito da Concessionaria ao contraditorio, inclusive
atraves da elaboracao e apresentacao, as suas expensas, de laudos ou estudos
demonstradores da necessidade de reversao.
PARAGRAFO UNICO - Caso a Concessionaria nao concorde com a decisao da
ANATEL quanto ao disposto nesta clausula admitir-se-a o recurso ao processo de
solucao de divergencias prescrito neste Contrato.
CAPITULO XXIII - DO PLANO DE SEGUROS
CLAUSULA 23.1. - Durante todo o prazo de vigencia da concessao, a
Concessionaria devera manter com Companhia Seguradora de porte compativel com o
objeto segurado registrada junto aos orgaos
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33
regulatorios do setor, as seguintes apolices de seguros necessarias para
garantir a efetiva e abrangente cobertura de riscos inerentes ao desenvolvimento
de todas as atividades contempladas no presente Contrato:
I - seguro do tipo "todos os riscos" para danos materiais cobrindo a
perda, destruicao ou dano em todos ou em qualquer bem integrante da
concessao, devendo tal seguro contemplar todas as coberturas
compreendidas de acordo com os padroes internacionais;
II - seguro de preservacao de condicoes economicas para continuidade
da exploracao do servico, cobrindo, no minimo, os custos
operacionais contra variacoes nas receitas da Concessionaria,
decorrentes de sinistros ou modificacoes nas condicoes de exploracao
do Contrato que nao sejam cobertas pelos seguros de danos materiais,
desde que a pactuacao desta modalidade de seguro seja admitida pelas
normas brasileiras e expressamente autorizada pelo Instituto de
Resseguros do Brasil IRB ou orgao equivalente; e
III - seguro garantia do cumprimento das obrigacoes relativas a
qualidade e a universalizacao previstas neste Contrato ("Performance
Bond", carta de credito e valor mantido em caucao) no valor
correspondente a 10% do montante de investimentos estimado a cada
ano para cumprimento das metas previstas no presente Contrato.
(S) 1 - A Concessionaria devera fazer constar das apolices de seguro
a obrigacao de a Seguradora informar, por escrito, com antecedencia minima de 10
(dez) dias, a Concessionaria e a ANATEL, quaisquer fatos que possam implicar o
cancelamento total ou parcial das apolices contratadas, reducao de coberturas,
aumento de franquias ou reducao dos valores segurados.
(S) 2 - As apolices emitidas em atendimento ao disposto nesta
clausula nao poderao conter obrigacoes, restricoes ou disposicoes que colidam
com as disposicoes do presente Contrato ou com a regulamentacao e deverao conter
declaracao expressa da Seguradora que conhece integralmente o presente ajuste,
inclusive no tocante aos limites dos direitos da Concessionaria.
(S) 3 - No caso de descumprimento, pela Concessionaria, da obrigacao
de manter em plena vigencia as apolices de seguro previstas, a ANATEL,
independentemente da sua faculdade de decretar a intervencao ou a caducidade da
presente concessao, podera proceder a contratacao e ao pagamento direto dos
premios respectivos, correndo os custos por conta da Concessionaria.
(S) 4 - Anualmente, ate o final do mes de Janeiro, a
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Concessionaria devera apresentar certificado emitido pela(s) seguradora(s)
confirmando que todos os premios vencidos no ano precedente encontram-se
quitados e que as apolices contratadas estao em plena vigencia ou foram
renovadas, devendo neste caso serem encaminhados os termos das novas apolices.
(S) 5 - As apolices referidas nesta clausula deverao obedecer aos
seguintes prazos de apresentacao e vigencia:
I a apolice referida no inciso I do caput desta clausula devera ser
apresentada em ate 90 (noventa) dias, contados da assinatura do presente
Contrato e tera vigencia imediata;
II a apolice referida no inciso II do caput desta clausula devera ser
apresentada ate 30 de novembro de 1999, com vigencia a partir de 1 de janeiro
de 2000; e
III a apolice referida no inciso III do caput desta clausula devera
ser apresentada ate 30 de novembro de 2000, com vigencia a partir de 1 de
janeiro de 2001.
(S) 6 - A ANATEL podera alterar as coberturas ou os prazos de
apresentacao das apolices referidas nesta clausula, com vistas a adequar tais
exigencias a regulamentacao editada pela Superintendencia de Seguros Privados
SUSEP ou as condicoes estabelecidas pelo Instituto de Resseguros do Brasil IRB,
bem como quando forem editadas normas que obstem a contratacao dos seguros aqui
referidos ou quando nao existam condicoes de mercado amplo e competitivo que
permitam a sua contratacao a custos razoaveis.
CAPITULO XXIV - DA INTERCONEXAO
Clausula 24.1. - A Concessionaria tem obrigacao de permitir,
facilitar, tornar disponivel e efetivar a interconexao, a rede por ela operada,
de redes de outros prestadores de servicos de telecomunicacoes, em regime
publico ou privado, sempre que estes o solicitem, observando e fazendo observar
as normas e regulamentos editados pela ANATEL a este respeito.
CLAUSULA 24.2. - As tarifas de uso de rede vigentes na assinatura do
presente Contrato sao aquelas constantes da Portaria n. 2.505, de 20 de
dezembro de 1996, do Ministerio das Comunicacoes e poderao ser atualizadas e
revistas consoante o disposto neste Contrato e na regulamentacao.
CLAUSULA 24.3. A Concessionaria tera os mesmos direitos e obedecera as
mesmas condicoes de interconexao a que estejam sujeitos os demais prestadores.
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PARAGRAFO UNICO - A Concessionaria devera tornar disponivel para
interconexao os elementos da rede com maior nivel de desagregacao tecnicamente
possivel, observada a regulamentacao da ANATEL.
CAPITULO XXV - DAS SANCOES
CLAUSULA 25.1. - Na execucao do presente Contrato, a Concessionaria se
sujeita as seguintes sancoes, que serao aplicadas mediante decisao fundamentada
da ANATEL, assegurado o seu direito de defesa nos termos do disposto no seu
Regimento Interno e sem prejuizo das demais penalidades previstas na
regulamentacao:
I - por violacao das disposicoes do presente Contrato que importe em
nao atendimento de metas de universalizacao; multa de ate
R$50.000.000,00 (cinquenta milhoes de reais);
II - por ato ou omissao contrario as disposicoes constantes deste
Contrato que acarrete prejuizo a competicao no setor de
telecomunicacoes; multa de ate R$ 50.000.000,00 (cinquenta milhoes
de reais);
III - por violacao as disposicoes contratuais que importe em nao
cumprimento das metas e parametros de qualidade na prestacao do
servico; multa de ate R$40.000.000,00 (quarenta milhoes de reais);
IV - por outro ato ou omissao nao enquadrado nos incisos anteriores
que importe em violacao aos direitos do usuario definidos neste
Contrato ou acarrete-lhe prejuizo; multa de ate R$30.000.000,00
(trinta milhoes de reais);
V por ato ou omissao que viole o disposto na clausula 15.8 deste
Contrato, referente a contratacao de servicos e aquisicao de
equipamentos e materiais produzidos no Pais; multa de R$
30.000.000,00 (trinta milhoes de reais);
VI - por qualquer ato ou omissao que traga obice ou dificuldade ao
exercicio da atividade fiscal da ANATEL prevista neste Contrato;
multa de ate R$20.000.000 (vinte milhoes de reais);
VII - por ato, omissao ou negligencia que coloque em risco a
seguranca das instalacoes; multa de ate R$15.000.000,00 (quinze
milhoes de reais);
VIII - por ato ou omissao que acarrete dano ou ponha em risco bens
ou equipamentos vinculados a concessao; multa de ate R$
10.000.000,00 (dez milhoes de reais); e
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IX - pelo descumprimento de qualquer obrigacao prevista
expressamente neste Contrato, exceto as indicadas nos incisos
anteriores, cujas sancoes ja estao neles estabelecidas; multa de ate
R$ 10.000.000,00 (dez milhoes de reais).
(S) 1 - A infracao prescrita no inciso I desta clausula estara
caracterizada quando a Concessionaria nao cumprir, nos prazos previstos neste
Contrato, suas obrigacoes quanto a expansao do servico, ampliacao da prestacao
do servico, atraves de telefones de uso publico e atendimento a localidades,
consoante o disposto no Plano Geral de Metas de Universalizacao, e a sancao sera
aplicada levando em consideracao, alem dos principios gerais constantes deste
Capitulo, os seguintes fatores:
a) a diferenca entre o estagio de implementacao verificado e a meta
definida no Contrato;
b) a possibilidade de recuperacao do cronograma de implementacao as
expensas da Concessionaria;
c) o prejuizo para a politica refletida no Plano Geral de Metas para
a Universalizacao;
d) os danos trazidos aos beneficiarios diretos das metas
desatendidas; e
e) eventuais circunstancias de ordem tecnica ou economica que possam
atenuar a responsabilidade da Concessionaria, sem elidi-la.
(S) 2 - A infracao prescrita no inciso II supra tera sua gravidade
definida exclusivamente em funcao dos criterios gerais prescritos na clausula
25.2 e sera caracterizada pela conduta da Concessionaria que, direta ou
indiretamente, possa importar prejuizo a competicao no setor, especialmente:
a) oferecimento de obice ou dificuldade a opcao por outro prestador
do servico concedido ou do servico de longa distancia nacional e
internacional;
b) recusa em dar interconexao a prestador de servico de
telecomunicacoes;
c) oferecimento de obices ou dificuldades a atividade de prestadores
de servico de valor adicionado;
d) condicionamento da prestacao do servico concedido ou oferecimento
de vantagens em funcao de aquisicao, pelo usuario, de servico
estranho ao presente Contrato;
e) execucao de qualquer servico de telecomunicacoes que nao seja
objeto de concessao ou autorizacao outorgadas pela
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ANATEL em seu favor;
f) pela nao preservacao dos niveis de qualidade praticados quanto a
interconexao; e
g) procrastinacao na entrega de informacoes essenciais a atividade
dos demais prestadores, especialmente no que tange as bases
cadastrais.
(S) 3 - A infracao prescrita no inciso III desta clausula sera
caracterizada pela prestacao reiterada do servico concedido aquem dos parametros
de qualidade definidos no Plano Geral de Metas de Qualidade ou pela comprovada
violacao dos indicadores referidos no Capitulo VI, sendo na primeira hipotese
considerada infracao grave, especialmente:
a) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
qualidade; e
b) negligencia na modernizacao da rede que afete a qualidade do
servico.
(S) 4 - A infracao prescrita no inciso IV supra tera sua escala de
gravidade definida em funcao do numero de usuarios atingidos e dos prejuizos
causados, ficando caracterizada pela violacao, comissiva ou omissiva, direta ou
indireta, de obrigacao prevista neste Contrato, que nao implique afronta aos
deveres quanto a universalizacao e qualidade, mas que acarrete violacao dos
direitos dos usuarios, especialmente:
a) a interrupcao na prestacao dos servicos por prazo superior ao
estabelecido no Plano de Metas de Qualidade, salvo a ocorrencia das
situacoes previstas no paragrafo unico da clausula 6.3;
b) a recusa em prestar o servico concedido a qualquer interessado;
c) o nao cumprimento do dever de prestar informacoes ao usuario;
d) a violacao do sigilo de telecomunicacoes, fora das hipoteses
legais, ainda que praticada por terceiros nas instalacoes sob
responsabilidade da Concessionaria;
e) a nao manutencao de central de informacao e de atendimento ao
usuario na forma prescrita neste Contrato;
f) a cobranca de tarifa ou preco em desacordo com as regras
estipuladas neste Contrato e na regulamentacao; e
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g) a restricao ao exercicio do direito a livre escolha entre os
Planos de Servico de Longa Distancia Nacional.
(S) 5 - A sancao prevista no inciso V sera caracterizada pela
verificacao de violacao da obrigacao contida na clausula 15.8 e tera sua
gravidade definida conforme dispuser a regulamentacao.
(S) 6 - A infracao prescrita no inciso VI supra tera sua gravidade
definida em funcao da relevancia da atividade fiscal obstada e sera
caracterizada pela violacao, comissiva ou omissiva, direta ou indireta, da
Concessionaria ou de seus prepostos, que impeca ou dificulte a atividade de
fiscalizacao exercida pela ANATEL, seus prepostos, agentes ou mesmo pelos
usuarios, especialmente:
a) recusa da Concessionaria em atender pedido de informacao
formulado pela ANATEL relacionada ao servico concedido ou aos bens a
ele afetos;
b) oferecimento de entrave a atuacao dos agentes de fiscalizacao da
ANATEL;
c) omissao em cumprir obrigacao de publicidade prevista neste
Contrato, ou na regulamentacao; e
d) nao envio ou envio intempestivo de qualquer informacao, dado,
relatorio ou documento que, por forca da regulamentacao ou deste
Contrato, deveria ser remetida a ANATEL.
(S) 7 - A infracao prescrita no inciso VII desta clausula tera sua
gravidade definida em funcao da proporcao do risco ensejado e sera caracterizada
pela conduta da Concessionaria que afronte as regras dispostas no presente
Contrato e na regulamentacao, viole as normas e padroes tecnicos de seguranca ou
que coloquem em risco as instalacoes afetas ao servico concedido, especialmente:
a) o emprego, no servico concedido, de equipamento nao certificado
pela ANATEL, quando exigida a certificacao;
b) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
seguranca; e
c) nao adocao de precaucoes que sejam recomendadas para o servico
ora concedido.
(S) 8 - A infracao prescrita no inciso VIII desta clausula tera sua
gravidade definida em funcao da relevancia, do vulto economico e da
essencialidade dos bens envolvidos e sera caracterizada pela conduta da
Concessionaria que contraria o disposto neste Contrato ou na regulamentacao e
que possa por em risco bens ou equipamentos vinculados a presente
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39
concessao ou dificultar a reversao dos mesmos, em especial:
a) a nao manutencao de inventario e registro dos bens referidos na
clausula 21.1.;
b) pelo emprego, diretamente na prestacao do servico objeto da
presente concessao, de bens de terceiros sem previa anuencia da
ANATEL ou sem que esta seja dispensada em regulamento; e
c) pela negligencia na conservacao dos bens reversiveis, observada a
regulamentacao.
(S) 9 - A sancao prevista no inciso IX sera caracterizada pela
verificacao de violacao de obrigacao contratual nao compreendida nos incisos
anteriores, em especial aquela prevista no inciso XXXI da clausula 15.1.
(S) 10 - A sancao prevista no inciso II supra tem carater contratual e
sera aplicada pela ANATEL independentemente das providencias que venham a ser
adotadas pelo CADE.
(S) 11 - O nao recolhimento de qualquer multa fixada nos termos do
disposto na presente clausula no prazo fixado pela ANATEL caracterizara falta
grave, ensejando a intervencao na Concessionaria nos termos do disposto no
Capitulo XXVIII, alem de implicar a cobranca de multa moratoria de 0,33% (zero
virgula trinta e tres por cento) ao dia, ate o limite de 10% (dez por cento),
acrescida da taxa referencial SELIC para titulos federais, a ser aplicada sobre
o valor da divida, considerando todos os dias de atraso de pagamento.
CLAUSULA 25.2. - Para aplicacao das multas contratuais previstas neste
Capitulo serao observadas as regras contidas no Titulo VI do Livro III da Lei n
9.472, de 1997, e na regulamentacao.
(S) 1 - Na definicao da gravidade das sancoes e na fixacao das
multas, a ANATEL observara as seguintes circunstancias:
I - a proporcionalidade entre a intensidade do apenamento e a
gravidade da falta, inclusive quanto ao numero dos usuarios
atingidos;
II - os danos resultantes da infracao para o servico e para os
usuarios;
III - a vantagem auferida pela Concessionaria em virtude da
infracao;
IV - a participacao da Concessionaria no mercado dentro de sua area
geografica de prestacao do servico;
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40
V - a situacao economica e financeira da Concessionaria, em especial
a sua capacidade de geracao de receitas e o seu patrimonio;
VI - os antecedentes da Concessionaria;
VII - a reincidencia especifica, assim entendida a repeticao de
falta de igual natureza apos o recebimento de notificacao anterior;
e
VIII - as circunstancias gerais agravantes ou atenuantes da
infracao.
(S) 2 - Independente dos criterios especificos de graduacao previstos
em cada inciso da clausula anterior e de outros previstos na regulamentacao, a
gradacao das penas observara a seguinte escala:
I - a infracao sera considerada leve quando decorrer de condutas
involuntarias ou escusaveis da Concessionaria e da qual ela nao se
beneficie;
II - a infracao sera considerada de gravidade media quando decorrer
de conduta inescusavel, mas que nao traga para a Concessionaria
qualquer beneficio ou proveito, nem afete numero significativo de
usuarios; e
III - a infracao sera considerada grave quando a ANATEL constatar
presente um dos seguintes fatores:
a) ter a Concessionaria agido com ma-fe;
b) da infracao decorrer beneficio direto ou indireto para a
Concessionaria;
c) a Concessionaria for reincidente na infracao;
d) o numero de usuarios atingido for significativo; e
e) na hipotese prevista no (S) 10 da clausula anterior.
(S) 3 - A criterio da ANATEL, nas infracoes classificadas como leves,
quando da sua primeira ocorrencia, podera ser aplicada a pena de advertencia a
Concessionaria, que sera comunicada formalmente da sancao, sem prejuizo da
publicacao da decisao na Imprensa Oficial.
(S) 4 - Para aplicacao das sancoes previstas neste Capitulo sera
observado o Procedimento Sancionatorio previsto no Regimento Interno da ANATEL.
(S) 5 - Nas infracoes previstas no inciso IV da clausula 25.1. a
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41
ANATEL podera determinar que a Concessionaria abata do valor a ser recolhido, a
titulo de multa, montantes a serem pagos como ressarcimento aos usuarios
atingidos, fixando no ato de aplicacao da pena os criterios para o
ressarcimento, o prazo em que deve ser pago e o valor maximo do abatimento.
(S) 6 - A hipotese prevista no paragrafo anterior so podera ser
adotada quando verificado que o interesse ou a necessidade dos usuarios nao
elidira a responsabilidade da Concessionaria pelas demais indenizacoes civis
devidas.
CLAUSULA 25.3. - As multas previstas nesta clausula serao aplicadas
sem prejuizo da caracterizacao das hipoteses de intervencao ou declaracao de
caducidade previstas no presente Contrato.
PARAGRAFO UNICO - Em caso de inexecucao total ou parcial do ajuste ou
de atrasos injustificados superiores a 120 (cento e vinte) dias no cumprimento
das metas previstas neste Contrato, a Concessionaria estara sujeita a decretacao
de caducidade da Concessao nos termos do disposto na clausula 26.4.
CLAUSULA 25.4. - Os valores das multas previstas neste Capitulo serao
reajustados, anualmente, mediante a aplicacao do IGP-DI, vencendo o primeiro
reajuste apos um ano da assinatura do presente Contrato.
CAPITULO XXVI - DA EXTINCAO DA CONCESSAO
Clausula 26.1. - Considerar-se-a extinto o Contrato de concessao nas
seguintes hipoteses:
I - termino do prazo de concessao do servico, desde que nao tenha
sido prorrogado nos termos do presente Contrato;
II - encampacao, consoante o Art. 113 da Lei n 9.472, de 1997;
III - caducidade, nos termos do disposto no artigo 114 da Lei n
9.472, de 1997, e no presente Contrato;
IV - rescisao amigavel ou judicial, nos termos do art. 115 da Lei n
9.472, de 1997; e
V - anulacao.
(S) 1 - Extinta a concessao, retornarao a ANATEL os direitos e
deveres relativos a prestacao do servico concedido, com reversao dos bens
referidos na clausula 22.1, resguardado a Concessionaria o direito as
indenizacoes previstas na legislacao e neste Contrato.
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42
(S) 2 - Apos a extincao da concessao, a ANATEL procedera aos
levantamentos, avaliacoes e liquidacoes necessarios, no prazo de 180 (cento e
oitenta) dias contados da assuncao do servico, salvo na hipotese de termino do
prazo contratual, quando estas providencias deverao ser adotadas pela ANATEL com
antecedencia.
(S) 3 - Extinta a concessao antes do termo contratual, a ANATEL,
sem prejuizo de outras medidas cabiveis, podera:
I - ocupar, temporariamente, bens moveis e imoveis e valer-se de
pessoal empregado na prestacao do servico necessarios a sua
continuidade; e
II - manter os Contratos firmados pela Concessionaria com terceiros
pelo prazo e nas condicoes inicialmente ajustadas.
CLAUSULA 26.2. - A reversao ao termino do prazo contratual sera feita
sem indenizacao, salvo quando ocorrer a hipotese prevista na clausula 22.3.
CLAUSULA 26.3. - Nos termos do art. 113 da Lei n 9.472, de 1997,
considera-se encampacao a retomada do servico pela ANATEL durante o prazo de
concessao, em face de razao extraordinaria de interesse publico, mediante lei
autorizativa especifica e precedida de pagamento de indenizacao.
CLAUSULA 26.4. - O presente Contrato podera ter sua caducidade
declarada por ato do Conselho Diretor da ANATEL, precedido de processo
administrativo que assegure ampla defesa a Concessionaria, nas hipoteses de:
I - transferencia do controle societario, cisao, fusao,
transformacao da Concessionaria ou ainda incorporacao ou reducao do
seu capital sem a previa aprovacao da ANATEL;
II - transferencia irregular do Contrato;
III - nao cumprimento do compromisso de transferencia referido na
clausula 18.1. e no art. 87 da Lei n 9.472, de 1997;
IV - falencia ou dissolucao da Concessionaria;
V - nao atendimento das exigencias de cobertura por planos de
seguros em afronta as obrigacoes previstas na clausula 23.1. e tal
omissao nao puder, a criterio da ANATEL, ser suprida com a
intervencao; e
VI - quando, nos termos do art. 114, inciso IV, da Lei n 9.472, de
1997, ocorrer qualquer das hipoteses previstas na clausula 28.1. e,
a criterio da ANATEL, a intervencao for considerada inconveniente,
inocua ou ainda injustamente benefica a Concessionaria.
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43
(S) 1 - Sera considerada desnecessaria a intervencao quando a demanda
pelo servico objeto da concessao puder ser atendida, mediante permissao, por
outras prestadoras de modo regular e imediato.
(S) 2 - A declaracao de caducidade nao elidira a aplicacao das
penalidades cabiveis nos termos deste Contrato pelas infracoes praticadas pela
Concessionaria, nem prejudicara o direito a indenizacao definida nos termos do
Capitulo seguinte.
CLAUSULA 26.5. - A Concessionaria tera direito a rescisao contratual,
judicial ou amigavel, quando por acao ou omissao do Poder Publico, a execucao do
Contrato se tornar excessivamente onerosa, nos termos do art. 115 da Lei n
9.472, de 1997.
PARAGRAFO UNICO - Nao constitui motivo para a rescisao contratual a
introducao ou a ampliacao da competicao entre os diversos prestadores do servico
objeto da concessao, sendo certo que a Concessionaria assume a presente
concessao ciente de que exercera suas atividades sem qualquer reserva ou
exclusividade de mercado.
CLAUSULA 26.6. - A anulacao sera decretada pela ANATEL em caso de
irregularidade insanavel e grave verificada no presente Contrato.
CAPITULO XXVII- DA INDENIZACAO
CLAUSULA 27.1. - Para fins de calculo de indenizacao, devida pela
ANATEL a Concessionaria nos casos expressamente previstos no presente Contrato,
observar-se-a o seguinte:
I - Termino do prazo contratual - nao cabera indenizacao, exceto se
comprovado que o nao pagamento significa enriquecimento imotivado
por parte da Uniao em funcao da reversao de bens ainda nao
integralmente amortizados, observado o disposto na clausula 22.3.;
II - Encampacao - observado o disposto no art. 113 da Lei n 9.472,
de 1997, a indenizacao, que sera paga previamente ao ato, deve
corresponder ao valor dos bens que reverterem ao poder concedente,
descontada a sua depreciacao.
III - Caducidade - independentemente da aplicacao das penalidades e
da reparacao dos danos decorrentes do inadimplemento, nos termos do
Contrato, a Concessionaria somente podera postular indenizacao se
comprovadamente estiver a ocorrer enriquecimento imotivado por parte
da Uniao pela reversao de bens nao integralmente amortizados ou
depreciados, descontando o valor dos danos causados e das multas
cominadas, bem como, quando o caso, das obrigacoes
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financeiras nao satisfeitas;
IV - Rescisao amigavel ou judicial - nao cabera indenizacao, exceto
se contrariamente for fixado em sentenca judicial; e
V - Anulacao - somente quando comprovado que a Concessionaria nao
concorreu para a ilegalidade, cabera indenizacao correspondente
apenas ao valor efetivo dos bens que reverterem para a Uniao,
calculado na data da decretacao da anulacao, desde que estes bens
ainda nao estejam integralmente amortizados pela exploracao dos
servicos.
(S) 1 O valor provisorio a ser antecipado pela ANATEL para os casos
de encampacao sera calculado na forma prescrita na lei autorizativa especifica.
(S) 2 - Quando advier a caducidade por culpa comprovada da
Concessionaria, esta acarretara tambem:
a) retencao dos creditos decorrentes do Contrato, inclusive com
apropriacao de receitas decorrentes de pagamentos feitos pelos
usuarios do servico;
b) responsabilizacao por prejuizos causados a Uniao e aos usuarios;
c) aplicacao de multas nos termos do disposto no presente Contrato e
na legislacao vigente; e
d) perda do seguro garantia previsto na clausula 23.1.
(S) 3 - Excetuada a hipotese de encampacao, a indenizacao cabivel
para os demais casos de extincao do Contrato sera calculada nos termos deste
capitulo e parcelada pelo numero de meses a que ainda seria vigente a concessao,
devendo a primeira parcela vencer apos um ano da extincao do Contrato.
(S) 4 - A ANATEL podera transferir para o prestador que suceder a
Concessionaria na exploracao do servico, o onus de pagamento das respectivas
indenizacoes, assumindo novamente a obrigacao de pagamento, caso o novo
prestador atrase em mais de 90 (noventa) dias os pagamentos.
CAPITULO XXVIII - DA INTERVENCAO
CLAUSULA 28.1. - A intervencao na Concessionaria podera ser decretada
pela ANATEL, a seu criterio e no interesse publico, atraves de ato especifico e
motivado do seu Conselho Diretor, sempre que, por falha da Concessionaria,
houver risco quanto a continuidade e seguranca do servico e
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45
em especial nas seguintes situacoes:
I - paralisacao injustificada do servico, assim entendida a
interrupcao da prestacao fora das hipoteses previstas no presente
Contrato e sem a apresentacao de razoes tidas pela ANATEL como aptas
a justifica-la;
II - inadequacao ou insuficiencias reiteradas no servico prestado,
caracterizadas pelo nao atendimento dos parametros de qualidade
previstos no presente Contrato e na regulamentacao, mesmo apos
notificacao de prazo, pela ANATEL, para regularizacao da situacao;
III - pratica de ma administracao que coloque em risco a
continuidade do servico;
IV - pratica reincidente de infracoes definidas como graves nos
termos da clausula 25.1 supra;
V - nao atendimento das metas de universalizacao, assim entendido o
descumprimento injustificado do cronograma de implementacao das
obrigacoes de universalizacao presentes neste Contrato;
VI - recusa injustificada de interconexao, assim entendida a
negativa, delonga ou qualquer atitude protelatoria na negociacao ou
efetivacao da ligacao a sua rede solicitada por outro prestador,
observadas as condicoes de interconexao arbitradas pela ANATEL;
VII - infracao da ordem economica, caracterizada pela aplicacao de
sancoes por pratica contraria a concorrencia; e
VIII - omissao em prestar contas a ANATEL ou oferecimento de obice a
atividade fiscalizatoria que pressuponham a pratica de qualquer das
ocorrencias previstas nos incisos anteriores.
CLAUSULA 28.2. - O ato de intervencao devera, necessariamente, indicar
o prazo, os motivos, os objetivos e limites, alem de designar o interventor.
PARAGRAFO UNICO - O prazo e os limites da intervencao deverao ser
compativeis e proporcionais aos motivos que a ensejaram.
CLAUSULA 28.3. - A intervencao sera precedida de procedimento
administrativo instaurado pela ANATEL, no qual sera assegurado o amplo direito
de defesa da Concessionaria.
PARAGRAFO UNICO - Quando imprescindivel a intervencao imediata, podera
ela ser decretada cautelarmente pela ANATEL, sem previa
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46
manifestacao da Concessionaria, devendo, neste caso, o procedimento ser
imediatamente instaurado na data da decretacao e concluido em ate cento e
oitenta dias, prazo em que podera a Concessionaria exercer seu direito amplo a
defesa.
CLAUSULA 28.4. - A decretacao da intervencao nao afetara o curso
regular dos negocios da Concessionaria nem seu normal funcionamento, produzindo,
contudo, o imediato afastamento de seus administradores.
CLAUSULA 28.5. - A funcao de interventor podera recair sobre agente
dos quadros da ANATEL, pessoa especificamente nomeada, colegiado ou empresa,
assumindo a Concessionaria os custos da remuneracao.
(S) 1 - Dos atos do interventor cabera recurso a ANATEL.
(S) 2 - O interventor prestara contas e respondera pelos atos que
praticar.
(S) 3 - Para os atos de alienacao e disposicao do patrimonio da
Concessionaria, o interventor necessitara de previa autorizacao da ANATEL.
CLAUSULA 28.6. - Nao sera decretada a intervencao quando, a juizo da
ANATEL, ela for considerada desnecessaria.
PARAGRAFO UNICO - A intervencao sera considerada desnecessaria nas
hipoteses prescritas no (S) 1 da clausula 26.4. supra, bem como naquelas
previstas no art. 114, inciso IV da Lei n 9.472, de 1997.
CAPITULO XXIX - DAS EXPROPRIACOES E IMPOSICOES ADMINISTRATIVAS
Clausula 29.1. - Caso haja a necessidade, para implementacao,
prestacao ou modernizacao do servico, de realizar alguma desapropriacao ou
servidao administrativa, os onus serao suportados integralmente pela
Concessionaria, devendo a ANATEL solicitar do Presidente da Republica a emissao
do ato de decretacao de utilidade publica.
CAPITULO XXX - DA ARBITRAGEM
Clausula 30.1. - Os eventuais conflitos que possam surgir em materia
da aplicacao e interpretacao das normas da concessao serao resolvidos pela
ANATEL no exercicio da sua funcao de orgao regulador conforme prescrito nos
artigos. 8 e 19 da Lei n 9.472, de 1997, podendo a Concessionaria recorrer ao
procedimento de arbitragem disposto no presente Capitulo exclusivamente quando
inconformada com a decisao da ANATEL relativa as seguintes materias:
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I - violacao do direito da Concessionaria a protecao de sua situacao
economica, conforme prescrito no Capitulo XII;
II - revisao das tarifas, prevista no Capitulo XII; e
III - indenizacoes devidas quando da extincao do presente Contrato,
inclusive quanto aos bens revertidos.
PARAGRAFO UNICO - A submissao de qualquer questao a arbitragem nao
exime a ANATEL e a Concessionaria da obrigacao de dar integral cumprimento a
este Contrato, nem permite a interrupcao das atividades vinculadas a concessao.
CLAUSULA 30.2. - O processo de arbitragem tera inicio mediante
comunicacao remetida por uma parte a outra, requerendo a instalacao do Tribunal
Arbitral de que trata este Capitulo e indicando detalhadamente a materia em
torno da qual gira a controversia.
PARAGRAFO UNICO - A ANATEL podera rejeitar a instalacao do Tribunal
Arbitral se, motivada e justificadamente, demonstrar que a controversia nao se
enquadra no rol de materias prevista na clausula 30.1.
CLAUSULA 30.3. - O Tribunal Arbitral sera composto por 5 (cinco)
membros, assim nomeados:
I - 2 (dois) membros efetivos e respectivos suplentes indicados pelo
Conselho Diretor da ANATEL dentre especialistas nas areas afetas a
materia controvertida, nao pertencentes aos seus quadros, sendo pelo
menos um, que o presidira, detentor de conhecimentos especificos em
regulamentacao juridica de telecomunicacoes;
II - 2 (dois) membros efetivos e respectivos suplentes indicados
pela Concessionaria, dentre especialistas nas areas afetas a materia
controvertida, que nao sejam seus empregados, sendo pelo menos um
detentor de conhecimentos especificos em regulamentacao juridica de
telecomunicacoes; e
III - 1 (um) membro efetivo e respectivo suplente indicado pelos
membros referidos nos incisos anteriores.
(S) 1 - O Tribunal Arbitral podera ser assistido pelos peritos
tecnicos que considere conveniente designar.
(S) 2 - Considera-se constituido o Tribunal na data em que todos os
arbitros aceitarem as suas indicacoes e comunicarem a ambas as partes as suas
aceitacoes.
(S) 3 - O Tribunal julgara segundo o direito constituido e suas
decisoes tem forca cogente, independentemente de homologacao judicial.
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CLAUSULA 30.4. - Nao tendo sido rejeitado pela ANATEL ou sendo
superado tal questionamento, sera iniciado o Processo versado no presente
Capitulo, o qual obedecera ao seguinte procedimento:
I - as partes terao 10 (dez) dias contados do recebimento da
comunicacao de que trata o caput da clausula anterior, para indicar
os membros do Tribunal Arbitral, o qual sera instalado imediatamente
apos a aceitacao de todos os seus membros;
II - estando inerte uma das partes ou tendo oferecido resistencia a
instalacao o Tribunal Arbitral, a outra parte podera se utilizar da
faculdade prevista no art. 7 da Lei n 9.307, de 23 de setembro de
1996;
III - instalado o Tribunal Arbitral, sera aberto prazo sucessivo de
25 (vinte e cinco) dias para que as partes apresentem suas razoes
sobre a materia controvertida, podendo nesta oportunidade apresentar
laudos, pericias, pareceres, juntar documentos ou informacoes que
entendam relevantes para sustentar sua posicao;
IV - apresentados os memoriais, o Tribunal analisara as razoes
expostas e podera, por requerimento de um de seus membros,
determinar a elaboracao de laudos, pericias ou pareceres, solicitar
informacoes ou documentos para as partes, bem como realizar
diligencias e tomar as providencias que entenda necessarias para a
perfeita instrucao da materia controvertida;
V - durante a coleta dos elementos a que se refere o inciso
anterior, serao sempre permitidos as partes a manifestacao e o
contraditorio, obedecidos os principios da informalidade, da
consensualidade e da celeridade que pautarao o procedimento;
VI - declarada encerrada a instrucao, sera concedido prazo comum de
15 (quinze) dias para que as partes apresentem suas alegacoes
finais;
VII - transcorrido o prazo prescrito no inciso anterior,
independentemente da apresentacao das alegacoes finais, o Tribunal
proferira sua decisao em prazo nao superior a 30 (trinta) dias;
VIII - da decisao do Tribunal Arbitral nao cabera recurso, exceto
pedido de reconsideracao, cabivel apenas na hipotese da decisao ter
sido adotada por maioria de apenas um voto; e
IX - so cabera invalidacao do processo de arbitragem nas hipoteses
prescritas no art. 32 da Lei n 9.307/96.
PARAGRAFO UNICO - As despesas com o processo de arbitragem,
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abrangendo, inclusive, as custas de laudos, pareceres e pericias, bem como os
honorarios dos membros do Tribunal, serao imputadas a Concessionaria ou a
ANATEL, conforme decisao do Tribunal Arbitral.
CAPITULO XXXI - DO REGIME LEGAL APLICAVEL E DOS DOCUMENTOS APLICAVEIS
CLAUSULA 31.1. - Regem a presente concessao, sem prejuizo das demais
normas integrantes do ordenamento juridico brasileiro, a Lei n 9.472 de 16 de
Julho de 1.997 e a regulamentacao dela decorrente, em especial a de competencia
do Poder Executivo, conforme disposto no art. 18 da referida Lei, prevalecendo
sempre estas no que colidir com aquelas.
CLAUSULA 31.2. - Na prestacao do servico ora concedido deverao ser
observadas as politicas nacionais de telecomunicacoes e regulamentacao da
ANATEL, como parte integrante deste Contrato, em especial os documentos
relacionados a seguir:
I - Plano Geral de Outorgas;
II - Plano Geral de Metas de Universalizacao;
III - Plano Geral de Metas de Qualidade;
IV - Regulamento Geral dos Servicos de Telecomunicacoes;
V - Regulamento do Servico Telefonico Fixo Comutado;
VI - Regulamento Geral de Interconexao;
VII- Regulamento de Numeracao para o Servico Telefonico Fixo
Comutado;
VIII Regulamento da Administracao da Numeracao; e
IX - Regulamento sobre Remuneracao pelo Uso das Redes das
Prestadoras do STFC.
CLAUSULA 31.3. Na interpretacao das normas e disposicoes constantes do
presente Contrato deverao ser levadas em conta, alem dos documentos referidos no
item anterior, as regras gerais de hermeneutica e as normas e principios
contidos na Lei n 9.472/97.
CAPITULO XXXII - DO FORO
CLAUSULA 32.1. - Para solucao de questoes decorrentes do presente
Contrato que nao puderem ser resolvidas atraves do procedimento de solucao de
divergencias constante do Capitulo XXX - Da Arbitragem, sera
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competente o Foro da Secao Judiciaria da Justica Federal de Brasilia, Distrito
Federal.
CAPITULO XXXIII - DAS DISPOSICOES FINAIS E GERAIS
CLAUSULA 33.1. - O Contrato ora assinado entrara em vigencia quando da
publicacao do seu extrato no Diario Oficial da Uniao.
PARAGRAFO UNICO - A Concessionaria tera prazo de 6 (seis) meses
contados da edicao da regulamentacao referida na clausula 31.2, a qual devera
estar totalmente editada ate 31 de dezembro de 1998, quando passara a ser
exigido integralmente o cumprimento das obrigacoes constantes deste Contrato.
E por assim estarem de pleno acordo com as disposicoes e condicoes do presente
Contrato, as partes o assinam em 03 (tres) vias de igual teor e forma, na
presenca das testemunhas, que tambem o assinam, para que se produzam seus legais
e juridicos efeitos.
Brasilia, 26 de maio de 1998.
Pela ANATEL:
__________________________
__________________________
Pela Concessionaria:
__________________________
__________________________
Testemunhas:
__________________________
Nome:
RG:
__________________________
Nome:
RG:
<PAGE>
51
ANEXO N 01
QUALIFICACAO DOS BENS REVERSIVEIS DA PRESTACAO DO
SERVICO TELEFONICO FIXO COMUTADO LONGA DISTANCIA NACIONAL
a) Infra-estrutura e equipamentos de comutacao, transmissao incluindo
terminais de uso publico;
b) Infra-estrutura e equipamentos de rede externa;
c) Infra-estrutura de equipamentos de energia e ar condicionado;
d) Infra-estrutura e equipamentos de centros de atendimento e de prestacao de
servico;
e) Infra-estrutura e equipamentos de sistemas de suporte a operacao;
f) Outros indispensaveis a prestacao do servico.
<PAGE>
52
ANEXO N 02
PLANO BASICO DO SERVICO DE LONGA DISTANCIA NACIONAL
1 GENERALIDADES
1.1 O Plano Basico do Servico de Longa Distancia Nacional e regido pelas
Portarias citadas neste anexo, demais regulamentacoes vigentes e por outras que
venham a sucede-las.
1.2 As tarifas apresentadas sao maximas, liquidas de impostos e contribuicoes
sociais.
2 UTILIZACAO DO SERVICO TELEFONICO FIXO COMUTADO LONGA DISTANCIA NACIONAL
2.1 O sistema de tarifacao para o Servico de Longa Distancia Nacional leva em
consideracao a distancia entre os centros de areas tarifarias das localidades de
origem e destino da chamada, seu tempo de duracao, o tipo de chamada realizada e
o horario de realizacao da mesma.
2.2 As localidades centros de area de tarifacao sao aprovadas pela Portaria
n195, de 30.03.94, do Ministro de Estado das Comunicacoes.
2.3 A unidade de tarifacao e o decimo de minuto (seis segundos), em conformidade
com a Portaria n219, de 03.04.97, do Ministro de Estado das Comunicacoes.
2.4 A tarifacao minima e de um minuto para as chamadas automaticas, terminal a
terminal, e de 3 minutos para as chamadas manuais, conforme estabelece a Norma
n 003/81, republicada pela Portaria n 297, de 29.11.95, do Ministro de Estado
das Comunicacoes.
2.5 O valor da Tarifa Basica (TB) deste servico, conforme estabelece a Portaria
n 226, de 03.04.97, do Ministro de Estado das Comunicacoes, e de R$ 0,18
(dezoito centavos de real), que corresponde a um minuto no horario normal para o
degrau de maior distancia geodesica da Matriz de Degraus Tarifarios.
2.6 As tarifas do minuto estarao limitadas aos valores estabelecidos no quadro
abaixo, em funcao da distancia entre os centros de area de tarifacao e o horario
da chamada:
<TABLE>
<CAPTION>
Degrau Distancia Geodesica Multiplicador Horario Horario Horario
Horario Normal Reduzido Super-Reduzido R$
Diferenciado R$ R$
R$
- -----------------------------------------------------------------------------------------------------------------------
(2xHN) (1xHN) (0,50xHN) (0,25xHN)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DC 0,128 0,04608 0,02304 0,01152 0,00576
Conurbado
- -----------------------------------------------------------------------------------------------------------------------
D1 - ate 50 Km 0,300 0,10800 0,05400 0,02700 0,01350
- -----------------------------------------------------------------------------------------------------------------------
D2 >50 ate 100 Km 0,500 0,18000 0,09000 0,04500 0,02250
- -----------------------------------------------------------------------------------------------------------------------
D3 >100 ate 300 Km 0,750 0,27000 0,13500 0,06750 0,03375
- -----------------------------------------------------------------------------------------------------------------------
D4 >300 Km 1,000 0,36000 0,18000 0,09000 0,04500
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
53
2.7 A modulacao horaria e a estabelecida pela Norma n 003/81, reeditada pela
Portaria n 297, de 29.11.95, conforme quadro abaixo:
<TABLE>
<CAPTION>
Horario 2 a 6 Sabados Domingos e Feriados
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
de 0:00h a 6:00h super-reduzido super-reduzido super-reduzido
- -----------------------------------------------------------------------------------------------------------------
de 6:00h a 7:00h reduzido reduzido reduzido
- -----------------------------------------------------------------------------------------------------------------
de 7:00h a 9:00h normal normal reduzido
- -----------------------------------------------------------------------------------------------------------------
de 9:00h a 12:00h diferenciado normal reduzido
- -----------------------------------------------------------------------------------------------------------------
de 12:00h a 14:00h normal normal reduzido
- -----------------------------------------------------------------------------------------------------------------
de 14:00h a 18:00h diferenciado reduzido reduzido
de 18:00h a 21:00h normal reduzido reduzido
- -----------------------------------------------------------------------------------------------------------------
de 21:00h a 24:00h reduzido reduzido reduzido
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
2.8 Nao sera permitida a cobranca de qualquer acrescimo sobre os valores acima
definidos, independentemente da duracao da chamada.
2.9 As chamadas manuais serao tarifadas obedecendo os criterios estabelecidos na
Norma n 003/81, reeditada pela Portaria n 297, de 29.11.95.
3 CHAMADAS DESTINADAS AO SERVICO MOVEL CELULAR
3.1 Os criterios e procedimentos de tarifacao de chamadas para o Servico Movel
Celular sao os regulamentados pela Norma n 23/96, aprovada pela Portaria n
1536, de 04.11.96, do Ministro de Estado das Comunicacoes.
3.2 A unidade de tarifacao e o decimo de minuto (seis segundos).
3.3 A tarifacao minima e de 30 (trinta) segundos.
3.4 A Portaria n 2503, de 20.12.96, do Ministro de Estado das Comunicacoes,
fixou os valores maximos das tarifas, por minuto, conforme tabela abaixo:
TARIFA NORMAL TARIFA REDUZIDA
- -----------------------------------------------------------------------------
VC-2 VC-3 VC-2 VC-3
- -----------------------------------------------------------------------------
0,58000 0,66000 0,40600 0,46200
- -----------------------------------------------------------------------------
3.5 O horario de tarifa reduzida para as chamadas destinadas ao Servico Movel
Celular sera de Segunda a Sabado de 0:00h as 7:00h e das 21:00h as 24:00h e aos
Domingos e Feriados, de 0:00h as 24:00h, conforme disposto na Norma n 23/96,
aprovada pela Portaria n
1536, de 04.11.96, do Ministro de Estado das
Comunicacoes.
<PAGE>
SCHEDULE IDENTIFYING OMITTED CONCESSION AGREEMENTS AND SETTING FORTH THE
MATERIAL DETAILS IN WHICH SUCH AGREEMENTS DIFFER FROM THE STANDARD CONCESSION
AGREEMENT FILED AS EXHIBIT 10.3
1. Agreement: Concession Agreement between Agencia Nacional de
Telecomunicacoes ("ANATEL") and Telecomunicacoes doe Sao Paulo
S.A. - Telesp.
Material Differences:
(a) Name of concessionaire (see pages 1 and 46): Telecomunicacoes do
Sao Paulo S.A. - Telesp.
(b) Geographical area of service (see page 2): 31
<PAGE>
EXHIBIT 10.4
STANDARD CONCESSION AGREEMENT
FOR DOMESTIC LONG-DISTANCE
SWITCHED, FIXED-LINE TELEPHONE SERVICE
(BRAZILIAN TELECOMMUNICATIONS COMPANIES, WITH THE EXCEPTION OF EMBRATEL)
The National Telecommunications Agency ANATEL (Agencia Nacional de
Telecomunicacoes), hereinafter referred to as ANATEL, a Brazilian federal
agency, responsible for granting concessions as provided in Federal Law No.
9,472 of July 16, 1997, the General Telecommunications Law GTL, represented
herein by its President, Renato Navarro Guerreiro, [identification], and its
Counsellor **** [identification], acting in accordance with Resolution No. ****
of its Board of Directors, on the one hand, and [name and identification of the
concessionaire], represented by its authorized representative, hereinafter
referred to as the Concessionaire, hereby enter into this Concession Agreement
as provided in Art. 207 of the above-mentioned General Telecommunications Law,
which shall be governed by the legal provisions referred to above and the
following provisions:
CHAPTER I - PURPOSE
CLAUSE 1.1. - The subject matter of this Agreement is the concession
of public Domestic Long-Distance Switched Fixed-line Telephone Service in the
geographic area defined in clause 2.1, as provided in the General Concession
Plan.
SOLE PARAGRAPH - This concession includes public Switched Fixed-line
Telephone Service in border or frontier areas as provided by regulations issued
by ANATEL as provided in the General Concession Plan.
CLAUSE 1.2. - Switched Fixed-line Telephone Service is the
telecommunications service which, through the transmission of voice and other
signals, is used for communications between fixed and determined points, using
processes of telephony.
CLAUSE 1.3. - With the prior approval of ANATEL, the Concessionaire
may establish and carry out useful or convenient activities related to providing
the service which is the subject matter of this concession.
SOLE PARAGRAPH - Services and useful or convenient activities shall be
considered to be related to the subject matter of this Concession if, in the
view of ANATEL, they may be considered an inherent part of the platform for the
service granted hereby, and not a new type of service, as provided by
regulation.
CLAUSE 1.4. - The Concessionaire is entitled to establish, expand and
operate the trunk lines, networks and switching centers required to implement
the Concession and operate it as a business, as provided by regulation.
1
<PAGE>
CLAUSE 1.5. - The provision of the service granted hereby may not be
separated from the obligations to fulfill the universal service and quality
objectives provided for in this Agreement.
CLAUSE 1.6. - The Concessionaire must provide to all applicants and
customers the installations that are necessary for the supply of the service
granted hereby, as provided by regulation.
CLAUSE 1.7. - The Concessionaire must provide free access to emergency
services, as provided by regulation.
CHAPTER II - SERVICE AREA
CLAUSE 2.1. - The geographical area of the service which is the
subject matter of this concession is the territory in the Sector number(s) ***
set forth in Annex 3 to the General Concession Plan.
CHAPTER III - TERM OF THE AGREEMENT AND CONDITIONS FOR EXTENSIONS
CLAUSE 3.1. - This concession, which is granted without charge, shall
expire on December 31, 2005, with a guaranteed one-time extension of twenty
years, as provided in clauses 3.2, 3.3 and 3.4.
CLAUSE 3.2. - This concession shall be extended once, at the request
of the Concessionaire, for 20 (twenty) years, in return for consideration,
provided the Concessionaire complies with the terms set forth in this Agreement,
and the new Agreement may include new conditions and establish new universal
service and quality objectives, in light of the conditions prevailing at the
time of the extension, and establish, in the case of universal service
objectives, supplementary resources, as provided in Art. 81 of Law No. 9,472 of
1997.
(S) 1 - Thirty six (36) months before the expiration date provided in
clause 3.1, ANATEL shall make available for public comment its proposals for new
conditions and new quality and universal service objectives, which shall be
submitted to the President of the Republic for approval by Decree, as provided
in Art. 18, paragraph III of Law No. 9,472 of 1997.
(S) 2 - In order to obtain the extension provided for by this clause,
the Concessionaire must indicate its interest the at least 30 (thirty) months
before the expiration date provided in clause 3.1.
CLAUSE 3.3. - In order to extend this concession as provided in the
preceding clause, the Concessionaire shall pay a fee every two years during the
extension period corresponding to 2% (two percent) of its revenue for the year
prior to the payment, net of income taxes and payroll taxes, derived from
Switched Fixed-line Telephone Service.
2
<PAGE>
(S) 1 - The amount referred to in the preceding paragraph shall be
calculated on the basis of the net revenue generated through the execution of
the service plans, both basic and supplemental, which are the subject matter of
this concession.
(S) 2 - The percentage referred to in the first paragraph of this
clause shall always be calculated on the basis of revenue, net of income tax and
payroll tax deductions, generated between January and December of the previous
year as shown in the financial statements prepared in accordance with corporate
law and basic accounting principles, approved by the management of the
Concessionaire and audited by independent auditors, and payment shall be due on
April 30 of the year following the year for which the fee was determined.
(S) 3 - The first fee payment shall be due on April 30, 2007,
calculated on the basis of net revenue from January 1 and December 31, 2006, and
subsequent payments shall be due every 24 (twenty four) months, calculated on
the basis of revenue from the preceding year.
(S) 4 - Late payment of the fee provided for in this clause shall be
subject to a fine of 0.33% (zero point thirty three percent) per day, up to a
maximum of 10% (ten percent), plus the SELIC reference rate for federal
securities, to be levied upon the amount owed based on the number of days it is
past due.
CLAUSE 3.4. - The extension of the duration of this Agreement shall
entail the extension of the right to use those radio frequencies referred to in
clause 4.1 which are required to continue providing the service which is the
subject matter of this concession.
SOLE PARAGRAPH - The return of radio frequencies to ANATEL that are
not required to continue providing services shall not change the amount of the
extension fee as determined in clause 3.3.
CHAPTER IV - MANNER, FORM AND TERMS OF SERVICE
CLAUSE 4.1. The use of radio frequencies to provide the service which
is the subject matter of this concession shall be authorized by ANATEL, in
exchange for payment and without exclusive rights, unless otherwise stated in
the regulations, in accordance with the provisions of Articles 83 and 163 of Law
No. 9,472 of 1997.
(S) 1 - The Concessionaire shall have the nonexclusive right to use
the radio frequencies authorized prior to the signing of this Agreement, which
shall not be contingent upon the payment of any fee, with the exception of audit
fees, in accordance with the terms set forth in the respective station operation
licenses.
(S) 2 - The right to use the radio frequencies referred to in this
clause does not preclude the prerogative granted to ANATEL by Art. 161 of Law
No. 9,472 of 1997.
(S) 3 - The use of new radio frequencies that may be required by the
Concessionaire shall be authorized in exchange for payment, in observance of the
procedures defined by ANATEL for such authorizations.
3
<PAGE>
(S) 4 - The use of the radio frequencies required under the terms of
the preceding paragraph shall be authorized for the same amount of time as this
Concession, and any extension of their use must be made in exchange for payment,
independently of the fee payment referred to in clause 3.3 herein.
CLAUSE 4.2. - The Concessionaire agrees to provide the service which
is the subject matter of the concession in such a way as to comply fully with
the applicable universal service and continuity requirements inherent to the
provision of a public service, in accordance with the criteria, formulas and
parameters set forth in this Agreement.
SOLE PARAGRAPH - Failure to comply with the obligations pertaining to
the universalization and continuity of service shall result in the application
of the penalties provided for in this Agreement, entitle ANATEL to issue an
intervention decree and, depending upon the circumstances and seriousness of the
situation, or in the event that issuing an intervention decree is unsuitable,
ineffective, unfairly benefits the Concessionaire or useless, lead to the
forfeiture of the concession, as set forth in clause 26.4.
CLAUSE 4.3. - The Concessionaire shall operate the service which is
the subject matter of the concession on its own behalf and at its own risk,
under the system of full and fair competition established by Law No. 9,472 of
1997, and by the General Concession Plan, and shall be remunerated by the rates
charged and any additional or incidental revenue it receives under the terms of
this Agreement.
SOLE PARAGRAPH - The Concessionaire shall not be entitled to any type
of exclusive right, nor shall it claim any rights as to the admission of new
providers of the same service, whether in the public or private sector.
CLAUSE 4.4. - Throughout the duration of the concession, the
Concessionaire agrees to maintain its commitments to quality, availability and
supply of the service granted hereby, as stated in this Agreement, regardless of
the competitive environment in the geographic area where it operates the
service.
CLAUSE 4.5. - The Concessionaire agrees to conserve and maintain in
perfect operating condition all of the goods, equipment and facilities used to
provide the service granted hereby; to maintain and repair them; and to promote,
when appropriate, their replacement when required, either due to wear and tear
or to technological obsolescence; and to promote the repairs and modernizations
required to provide and maintain proper service, as set forth in this Agreement.
CHAPTER V - RULES FOR THE ESTABLISHMENT, EXPANSION, MODIFICATION AND
MODERNIZATION OF SERVICE
CLAUSE 5.1. - The expansion and modernization of the service granted
hereby, while observing the goals and criteria set forth in this Agreement, are
fundamental tenets of this concession.
4
<PAGE>
SOLE PARAGRAPH - ANATEL may modify the objectives regarding the
establishment, expansion and modernization of the service granted hereby,
provided it respects the right of the Concessionaire to not be forced to sustain
additional expenses which cannot be recovered through the revenue resulting from
compliance with such objectives and through the efficient operation of the
service.
CLAUSE 5.2. - Changes to the terms under which the service granted
hereby is provided may only be decided by ANATEL, or with its prior express
approval.
CLAUSE 5.3. - Modernization of the service granted hereby shall be
sought by the continual introduction of equipment, processes and means capable
of providing users with service compatible with the current technologies
available in the market.
CHAPTER VI - CRITERIA AND INDICATORS OF QUALITY AND CONTINUOUS SERVICE
CLAUSE 6.1. - A fundamental tenet of this Concession is the provision
of adequate quality service by the Concessionaire, meaning service which is
satisfactory in terms of consistency, efficiency, security, contemporaneity,
universal availability, courtesy and reasonable rates.
(S) 1 - Consistency is characterized by the continuous provision of
the service granted hereby, in strict observance of the standards laid down by
ANATEL.
(S) 2 - Efficiency is characterized by the application and
preservation of the parameters set forth in this Agreement, and by the service
granted hereby provided to users within the timeframes provided for in this
Agreement.
(S) 3 - Security is characterized by the confidentiality of data
regarding use of the service granted hereby by users, as well as the complete
safeguarding of all information communicated within the ambit of providing such
service, in accordance with Chapter XIV.
(S) 4 - Contemporaneity is characterized by the up-to-date nature of
the equipment, facilities and techniques used to provide the service granted
hereby, achieved by incorporating technological advances, which clearly benefit
users, occurring during the term of the concession, in keeping with the
provisions of this Agreement.
(S) 5 - Universal availability is characterized by the provision of
the service granted hereby to each and every user without discrimination,
whereby the Concessionaire commits itself to provide the service to whomever
requests it, at the location indicated by the latter, under the terms of this
Agreement and as provided by regulation.
(S) 6 - Courtesy is characterized by respectful and immediate
assistance given to all users of the service granted hereby, as well as by full
compliance with the obligation to inform and assist promptly and politely all
those who, regardless of whether they are users, request information or
arrangements, or make any other type of request, under the terms set forth in
this Agreement.
5
<PAGE>
(S) 7 - The principle of reasonable rates is characterized by the
Concessionaire's efforts to charge rates lower than the maximum rates determined
by ANATEL.
CLAUSE 6.2. - The Concessionaire must comply with the parameters and
indicators of the General Plan on Quality.
SOLE PARAGRAPH - The Concessionaire must annually release a chart
demonstrating the objectives and parameters, established and realized, of the
General Plan on Quality and the General Plan on Universal Service,
notwithstanding the requirement to supply this data whenever ANATEL so requests.
CLAUSE 6.3. - The continuity of the service granted hereby, an
essential element of the system under which it is provided, is characterized by
the provision of service without interruption, while taking into account
suspension of service due to default on the part of the user under the terms set
forth in clause 8.3 of this Agreement and Art. 3, paragraph VII of Law No. 9,472
of 1997.
SOLE PARAGRAPH - Consistency shall not be considered to have been
violated in the event the service granted hereby is interrupted because of an
emergency situation, technical problems or circumstances involving the security
of installations. The affected users are to be notified and, when appropriate,
explanatory notification is to be given to ANATEL.
CLAUSE 6.4. - The Concessionaire may not, under any circumstances,
interrupt the service granted hereby on the allegation that ANATEL or the
federal government have not complied with any obligation, and the Concessionaire
may not invoke any exception arising from breach of contract.
CLAUSE 6.5. - In addition to managing and monitoring quality
indicators, ANATEL shall periodically evaluate the degree of customer
satisfaction with the service granted hereby, and may release the following
results concerning the Concessionaire:
I - Customer service, especially with regard to availability,
promptness, politeness, speed and effectiveness in responding to
requests and complaints;
II - Rates charged and discounts offered;
III - Technical quality of the service provided; and
IV - Adequacy of the services offered in relation to users' needs.
CHAPTER VII - UNIVERSAL SERVICE OBJECTIVES
CLAUSE 7.1. - Universal service is an essential aspect of the system
under which the service granted hereby is provided. It is characterized by the
provision of uniform and nondiscriminatory assistance to all users, and by the
Concessionaire's achievement of the objectives set forth in the General Plan on
Universal Service, approved by Executive authority,
6
<PAGE>
under the terms of Article 18, paragraph III and Article 80 of Law No. 9,472 of
1997, and those of Annex 2 of this Agreement.
CLAUSE 7.2. - With the exception of clause 7.4 of this Agreement and
in keeping with the General Plan on Universal Service, approved by Executive
Authority under the terms of Article 18, paragraph III and Article 80 of Law No.
9,472 of 1997, the implementation of the universal service objectives provided
for in this Agreement shall be financed exclusively through the operation of the
service by the Concessionaire, which shall not be entitled to any compensation
or subsidy.
CLAUSE 7.3. - The Concessionaire agrees to implement those universal
service objectives which are not provided for in this Agreement, but which may
be required by ANATEL, in compliance with the provisions of (S) 2, Art. 2 of
the General Plan on Universal Service, approved by Decree No. 2,592 of May 15,
1998, and the following procedure shall be observed when defining compensation
amounts and criteria:
I - ANATEL shall consult the Concessionaire regarding the total cost
of implementing the planned additional objectives, the extent to which
they cannot be amortized by operating revenue, and by which specific
payments they are covered. The objectives to be achieved, the
technologies selected, and the location and timeframe of
implementation are to be specifically indicated;
II - Should the stated timeframe for consultation lapse without a
response by the Concessionaire, ANATEL shall take the necessary steps
in order to determine the charges and expenses involved in
implementing the additional objectives, and estimate the corresponding
revenue generated;
III - Should the Concessionaire issue a response following
consultation, ANATEL shall determine whether the expenses and
estimated revenue presented are adequate and reasonable, taking into
account available technologies, the cost of materials and labor, the
geographical, social and economic characteristics of the market demand
to be met, market prices, and other variables it considers relevant;
IV - In the event ANATEL does not consider the proposed expenses
and/or estimated revenue to be reasonable, it may, with justification,
make the Concessionaire responsible for implementing the additional
objectives, and determine the amount of compensation, in accordance
with the provisions of Chapter XXX; and
V - Should ANATEL consider the amount of compensation to be adequate
and reasonable, it shall confirm to the Concessionaire that the latter
is charged with implementing such additional objectives, under the
terms of the compensation proposal issued by the Concessionaire.
(S) 1 - Upon following the procedure set forth in this clause, should
ANATEL consider the implementation of the specific universal service objective
by the Concessionaire
7
<PAGE>
to be unsuitable or unfeasible, it shall contract such undertaking out to
another party, which it may do by granting specific and defined parts of the
service, in accordance with the economic parameters derived from the procedures
provided for in this clause.
(S) 2 - At the discretion of ANATEL, the procedure provided for in
this clause may also be used to determine the amounts to be compensated
utilizing the resources of the Fund for Universal Telecommunications Services,
when it fulfills the objectives set forth in the General Plan on Universal
Service, approved by Executive authority, under the terms of Article 18,
paragraph III and Article 80 of Law No. 9,472 of 1997.
(S) 3 - The use of resources of the Fund for Universal
Telecommunications Services, pursuant to the preceding paragraph, excludes the
utilization of the benefits provided for in (S) 2, Article 10 of the General
Concession Plan, except in the case of compensation to ANATEL for amounts it has
used from said Fund, in addition to the compensation owed.
CLAUSE 7.4. - The adoption of the procedures provided for in the
preceding clause is the prerogative of ANATEL, which may adopt them at its
discretion and in keeping with the best interests of the public, and the
Concessionaire shall not have the right to choose how it prefers to implement
the aforementioned universal service objectives.
CHAPTER VIII - RULES GOVERNING THE SUSPENSION OF SERVICE DUE TO NONCOMPLIANCE,
OR AT THE REQUEST OF THE USER
CLAUSE 8.1. - Subscribers of the service which is the subject matter
of this concession may request, at any time, the suspension of such service, and
the Concessionaire must respond to their request within the timeframe to be
established by ANATEL, which shall be no greater than 48 (forty eight) hours,
unless postponed by the subscriber.
SOLE PARAGRAPH - The Concessionaire may not demand payment for the
suspension of service referred to above.
CLAUSE 8.2. - Subscribers in compliance with their contract with the
Concessionaire may request the suspension of their service, as provided by
regulation.
CLAUSE 8.3. - The Concessionaire may only proceed to suspend the
service of a subscriber who is at least 30 (thirty) days in default of payment,
such debt resulting directly from the use of the service granted hereby, and in
compliance with the procedures set forth by regulation published by ANATEL.
Subscribers must be allowed time to challenge the amounts claimed from them.
(S) 1 - The Concessionaire must give subscribers at least 15
(fifteen) days' notice prior to suspension of service.
(S) 2 - Failure to pay amounts outstanding that are not directly
related to the service which is the subject matter of this concession, in
accordance with the sole paragraph of clause 10.6, shall not be cause for the
cancellation of service provided for in this clause.
8
<PAGE>
CLAUSE 8.4 - The Concessionaire shall also guarantee subscribers the
right to block access temporarily or permanently to available conveniences or
features, as well as to premium services, provided they so request, as provided
by regulation.
CLAUSE 8.5 - In the event the default of the subscriber exclusively
involves the nonpayment of services supplied by a provider of Switched, Fixed-
line Telephone Service other than the service conceded herein, and which is
billed jointly with the Concessionaire's services, the disconnection must follow
the specific procedure laid down in regulation by ANATEL.
CHAPTER IX - NUMBERING PLAN
CLAUSE 9.1. - As provided by regulation, the Concessionaire agrees to
obey the Numbering Regulations for Switched, Fixed-line Telephone Service
published by ANATEL, and must guarantee subscribers portability of access codes
within the timeframe defined in such Regulations.
(S) 1 - The Concessionaire shall assume all expenses required to
conform to the Numbering Regulations referred to above.
(S) 2 - The expenses pertaining to the investments required in order
to enable portability of access codes shall be shared by the Concessionaire and
the other providers of telecommunications services, whether in the public or
private sector.
(S) 3 - The expenses pertaining to the administration of the process
of assigning and holding access codes pursuant to the Numbering Regulations
shall be borne by the Concessionaire, under the terms of the Numbering
Administration Regulations.
CHAPTER X - RATE AND PAYMENT STRUCTURE
CLAUSE 10.1. - The Concessionaire is required to offer all users the
Basic Domestic Long-Distance Service Plan, as provided in Annex 2, which is an
integral part of this Agreement.
SOLE PARAGRAPH - The Basic Domestic Long-Distance Service Plan shall
be the sole plan for the entire area referred to in clause 2.1 and must state,
under the terms set forth by ANATEL, maximum amounts for each item of the rate
structure defined for the provision of Switched, Fixed-line Telephone Service.
Said amounts shall be revised and adjusted, in accordance with applicable
standards.
CLAUSE 10.2. - The Concessionaire may offer its subscribers
Supplemental Domestic Long-Distance Service Plans with rate criteria different
from those in the Basic Domestic Long-Distance Service Plan.
(S) 1 - Subscribers shall be guaranteed the right to switch between
the various Domestic Long-Distance Service Plans offered by the Concessionaire,
as provided by regulation.
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(S) 2 - The Concessionaire is free to propose the rate structure for
the Supplemental Domestic Long-Distance Service Plans, provided it complies with
clause 10.1 of this Agreement.
(S) 3 - The Concessionaire is required to offer its Supplemental
Domestic Long-Distance Service Plans, approved by ANATEL, to users in a
nondiscriminatory manner.
(S) 4 - Supplemental Domestic Long-Distance Service Plans must be
authorized by ANATEL before being offered to the general public.
(S) 5 - ANATEL must decide whether to approve Supplemental Domestic
Long-Distance Service Plans within 15 (fifteen) days of their having been
submitted, and they shall be considered to have been approved if ANATEL makes no
decision within this timeframe.
CLAUSE 10.3. - The Concessionaire may offer discounts on the rates for
Domestic Long-Distance Service Plans provided it does so in an egalitarian and
nondiscriminatory manner. The Concessionaire shall not reduce amounts
subjectively and must observe the principles of fair competition.
SOLE PARAGRAPH - The Concessionaire agrees to give its users ample and
prior notice of discounted rates for the service, and to communicate its notice
of discounted rates to ANATEL within 7 (seven) days after the rate reduction
takes effect.
CLAUSE 10.4. - The Concessionaire agrees to publicize the rates
charged for the service which is the subject matter of the concession, in the
manner required by ANATEL.
CLAUSE 10.5. - When new services, conveniences or features are
introduced in relation to the service granted hereby, the Concessionaire shall
submit its proposed rates to ANATEL for approval, without which no rate or price
may be charged.
CLAUSE 10.6. - Billing documents issued by the Concessionaire must be
presented in a detailed, clear, explanatory and self-evident manner, and must
distinguish the type and quantity of each service provided to the user, as
provided by regulation.
SOLE PARAGRAPH - The Concessionaire may list the amounts owed by the
subscriber within the billing document for premium services, as well as for
other conveniences or features related to the service granted hereby, provided
it does so in a clear and explicit manner.
CLAUSE 10.7. - The Concessionaire shall collect network usage fees
from other providers of telecommunications services, in keeping with the
standards published by ANATEL.
CLAUSE 10.8 - The Concessionaire shall offer a discount to those
subscribers affected by any discontinuance of the service granted hereby,
provided the subscriber was not the cause of discontinuance, and the discount
shall be prorated for the period during which the interruption occurred, as
provided by regulation.
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<PAGE>
CHAPTER XI - RATE ADJUSTMENTS
CLAUSE 11.1. - The rates listed in the Basic Domestic Long-Distance
Service Plan Annex 2, may be adjusted by applying the formula below. This may
be done no more than once every 12 (twelve) months, at the initiative of ANATEL
or the Concessionaire, in keeping with the rules of economic legislation in
force.
5 24 Mij\\to\\ 5 24
(SIGMA SIGMA Rij\\t\\ X ---------) less than or equal to (1-k) Ft SIGMA SIGMA
i=1 j=1 TM i=1 j=1
Mij\\to\\
Rij\\to\\ X ---------
TM
Let:
GPI-DA\\t\\
Rij\\t\\ less than or equal to Rij\\to\\ X 1.05 X -------------
GPI-DA\\to\\
Where:
Rij\\t\\ - proposed rate for the Basic Domestic Long-Distance Service Plan
during the j period at the rate for distance i, net of taxes.
Rij\\to\\ - current rate for the Basic Domestic Long-Distance Service Plan
during the j period at the rate for distance i, net of taxes.
Mij\\to\\ - minutes of domestic long-distance service through the Basic Domestic
Long-Distance Service Plan, during the j period at distance i, since the last
rate adjustment or, in the case of the first adjustment, since April 1, 1998.
TM - total minutes of domestic long-distance service through the Basic Domestic
Long-Distance Service Plan since the last rate adjustment or, in the case of the
first adjustment, since April 1, 1998.
i = distance rate for domestic long-distance service indicated in the Rate
Structure.
j = billing period for domestic long-distance service indicated in the Rate
Structure.
\\t\\ = proposed date of adjustment.
\\to\\ = date of the last adjustment or, in the case of the first adjustment,
April 1, 1998 .
and
GPI-DA\\t\\
F\\t\\ = -------------
GPI-DA\\to\\
Where:
GPI-DA = General Price Index, Domestic Availability, issued by the Getulio
Vargas Foundation, or its successor index.
k = transfer factor.
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<PAGE>
(S) 1 - The transfer factor shall be applied during the duration of
the concession in the following manner:
I - Until December 31, 2000 it shall be equal to 0.02 (zero point zero
two); and
II - From January 1, 2001 until December 31, 2003, it shall be equal
to 0.04 (zero point zero four).
III - From January 1, 2004 to December 31, 2005, it shall be equal to
0.05 (zero point zero five).
(S) 2 - In the event the adjustment period includes different transfer
factor values, a weighted average must be calculated thereof taking into account
the months during which each transfer factor value occurred.
(S) 3 - In the event an adjustment takes place after more than twelve
months have gone by, the formula including the transfer factor must be applied
progressively, taking into account twelve-month periods, and then any remaining
months.
(S) 4 - After 2005, new transfer factor values may be determined by
ANATEL in the event this Agreement is extended, depending upon the conditions
which exist at that time.
CLAUSE 11.2. - Network usage fees shall be adjusted by applying the
following formulas:
5 24 Mij\\to\\ 5
(SIGMA SIGMA TU-RIUij\\t\\ X ---------) less than or equal to (1-k) Ft SIGMA
i=1 j=1 TM i=1
24 Mij\\to\\
SIGMA TU-RIUij\\to\\ X ---------
j=1 TM
Let:
GPI-DA\\t\\
TU-RIUij\\t\\ less than or equal to TU-RIUij\\to\\ X 1.05 X -------------
GPI-DA\\to\\
Where:
TU-RIUij\\t\\ - proposed rate for use of the long-distance network during the j
period for distance i, net of taxes.
TU-RIUij\\to\\ - current rate for use of the long-distance network during the j
period for distance i, net of taxes.
Mj\\to\\ - Minutes of use of the long-distance network of the Concessionaire
during the j period for distance i, since the last rate adjustment or, in the
case of the first adjustment, since April 1, 1998.
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<PAGE>
TM - Total Minutes of use of the long-distance network of the Concessionaire
since the last rate adjustment or, in the case of the first adjustment, since
April 1, 1998.
\\t\\ = date of the proposed adjustment.
\\to\\ = date of the last adjustment or, in the case of the first adjustment,
April 1, 1998; and
GPI-DA\\t\\
F\\t\\ = --------------
GPI-DA\\to\\
Where:
GPI-DA = General Price Index, Domestic Availability, issued by the Getulio
Vargas Foundation, or its successor index.
k = transfer factor.
(S) 1 - The transfer factor shall be applied during the duration of
the concession in the following manner:
I - Until December 31, 2000 it shall be equal to 0.02 (zero point zero
two);
II - From January 1, 2001 until December 31, 2003, it shall be equal
to 0.04 (zero point zero four);
III - From January 1, 2004 until December 31, 2005, it shall be equal
to 0.05 (zero point zero five);
(S) 2 - In the event the adjustment period includes different transfer
factor values, a weighted average must be calculated thereof taking into account
the months during which each transfer factor value occurred.
(S) 3 - In the event an adjustment takes place after more than twelve
months have gone by, the formula including the transfer factor must be applied
progressively, taking into account twelve-month periods, and then any remaining
months.
(S) 4 - After 2005, new transfer factor values may be determined by
ANATEL in the event this Agreement is extended, depending upon the conditions
which exist at that time.
CHAPTER XII - SAFEGUARDING THE ECONOMIC WELLBEING OF THE CONCESSIONAIRE AND
REVISION OF RATES
CLAUSE 12.1. - Preserving a fair balance, under a fully competitive
system, between the service provided by the Concessionaire and its remuneration
is a basic tenet of this Agreement. It is forbidden for any party to unjustly
enrich itself at the expense of any other party or the users of the service,
under the terms set forth in this Chapter.
(S) 1 - The Concessionaire shall not be required to suffer any damages
resulting from this Agreement, unless they result from any of the following
factors:
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<PAGE>
I - From its negligence, ineptitude or oversight in operating the
service granted hereby;
II - From the normal risks of business activity;
III - From the inefficient management of its business, including the
payment of operating and administrative expenses which are
incompatible with the parameters demonstrated in the market; or
IV - From its failure to take advantage of existing opportunities in
the market, including expanding, extending and increasing the service
provided.
(S) 2 - The Concessionaire is prohibited from unjustly profiting from
any economic gain not resulting directly from its operational efficiency,
especially that which results from the issuance of new rules governing the
service granted hereby.
(S) 3 - The Concessionaire is entitled to restructure its initial
obligations and compensation scheme in the event that a force majeure or other
disaster significantly affects the operation of the service granted hereby.
However, the actions of private-sector service providers in such a situation
shall serve as the standard of reasonable conduct.
(S) 4 - When evaluating the appropriateness of the restructuring
addressed in the preceding paragraph, it shall be taken into account whether,
among other factors, the Insurance Plan provided for in clause 23.1 covers the
event which caused the initial economic situation to change.
CLAUSE 12.2. - The economic basis of the Agreement shall be re-
established when it can be demonstrated that none of the factors listed in (S) 1
of the previous clause have occurred. This shall preferably be accomplished by
the revision of rates, or through any other mechanism which, in the view of
ANATEL, is capable of correcting the situation.
(S) 1 - The revision of rates precludes any other mechanism used to
deter unjust enrichment by any party, which is displaced by the event to which
the rate revision refers.
(S) 2 - A single, complete and final measure shall be taken in order
to correct the event that gave rise to the distortion.
CLAUSE 12.3. - Independent of clause 12.1, revising the rates listed
in the Basic Domestic Long-Distance Service Plan in favor of the Concessionaire
or the users shall be called for, under the terms of Art. 108 of Law No. 9,472
of 1997, in the following specific situations:
I - Unilateral modification of this Agreement imposed by ANATEL,
involving significant upward or downward variations in expenses or
income, for instance, when the raising or lowering of rates is
required in order to prevent any of the parties from making
unjustified profits;
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<PAGE>
II - A change in tax law subsequent to the signing of this Agreement
which involves an increase or reduction in the potential profitability
of the Concessionaire;
III - Supervening events resulting from acts of governance or the
Administration which demonstrably affect the expenses of the
Concessionaire;
IV - Specific changes in legislation which have a direct impact upon
the income of the Concessionaire in such a way as to affect the
continuity or quality of the service provided;
V - Legislative changes which benefit the Concessionaire, including
those which grant or cancel exemptions, reductions, discounts or any
other tax or rate-related privileges, in keeping with the provisions
of (S) 3, Art. 108 of Law No. 9,472 of 1997.
(S) 1 - When reviewing rates, any damage or profit losses sustained by
the Concessionaire shall not be taken into account if they result from the free
operation of the service granted hereby under competitive conditions, or from
the inefficient management of its business.
(S) 2 - The revision scenario anticipated in paragraph II of this
clause shall not be applicable in the event the change in the tax law involves
the creation, elimination, increase or lowering of incidental taxes on the
Concessionaire's income or profits, and not involving and administrative or
operational tax.
(S) 3 - The rate revision scenarios anticipated by this clause shall
not apply if the events leading to the revision are already covered by the
Insurance Plan provided for in clause 23.1.
(S) 4 - The Concessionaire's contributions to the Fund for Universal
Telecommunications Services and to the Fund for the Development of
Telecommunications Technology shall not occasion the revision of rates.
CLAUSE 12.4. - Rate revisions shall not be applicable if the cause
motivating the Concessionaire's request can be neutralized through the efficient
operation of the service granted hereby, market expansion, or the generation of
alternative or supplementary revenue in associated with the subject matter of
this Agreement, in keeping with current competitive conditions.
SOLE PARAGRAPH - Reductions in revenue which result from discounts or
rate reductions shall not occasion the revision of rates.
CLAUSE 12.5. - The rate revision procedure may be initiated at the
request of the Concessionaire, or by a decision of ANATEL.
15
<PAGE>
(S) 1 - In the event the revision procedure is initiated by the
Concessionaire, the following requirements must be observed:
I - The request must be accompanied by a technical or expert report
demonstrating the precise impact of the occurrence upon the
determination of rates or the estimated revenue of the Concessionaire;
II - The request must be accompanied by all documents required to
substantiate the claim;
III - The Concessionaire must explain its claim for rate revision, and
report on the impact and possible rate-balancing alternatives;
IV - The Concessionaire shall bear all expenses for the research and
studies needed to fully back its claim.
(S) 2 - Rate-revision procedures initiated by ANATEL must be
communicated to the Concessionaire, allowing it time to respond, and shall be
accompanied by copies of the reports and studies carried out in order define the
circumstances occasioning the revision.
(S) 3 - The rate-revision procedure shall be concluded within 120 (one
hundred twenty) days, unless it becomes necessary to extend it in order to
conclude the proceedings.
(S) 4 - The request must be approved by ANATEL, and the Concessionaire
must fully divulge the new maximum amounts of the revised rates, under the terms
stated in this Agreement.
CHAPTER XIII - ALTERNATIVE, SUPPLEMENTARY AND ANCILLARY REVENUE
CLAUSE 13.1. - The Concessionaire may obtain other, alternative
sources of revenue, provided this does not involve noncompliance with the
standards set forth in the General Telecommunications Services Regulations and
other standards published by ANATEL.
SOLE PARAGRAPH - The Concessionaire and its affiliates may not make
the provision of the service granted herein contingent upon the consumption of
any other service, nor may they offer advantages to users who benefit from
services in addition to the service that is the subject matter of this
Agreement, including those provided by third parties.
CLAUSE 13.2. - ANATEL may order the Concessionaire to offer users
conveniences or features related to the subject matter of the concession, in
which case the parties must adjust the unit prices of said services, taking into
account market parameters and the right to fair compensation.
CHAPTER XIV - RIGHTS AND PRIVILEGES OF USERS AND OTHER SERVICE PROVIDERS
CLAUSE 14.1. - In accordance with the rules and guidelines set forth
in this Agreement, users of the service granted by this concession are entitled
to the following rights:
16
<PAGE>
I - To access and use the service in accordance with the standards of
quality, regularity and efficiency provided for by this Agreement, in
its annexes and according to current standards;
II - The possibility of requesting the suspension or cancellation of
the service provided by the Concessionaire;
III - To receive nondiscriminatory treatment with regard to the terms
of access and use of the service;
IV - To obtain adequate information regarding the terms under which
the service is provided and the rates charged;
V - The inviolability and secrecy of communications, respecting
constitutional and legal provisions regarding the privacy of
telecommunication;
VI - To arrange, without charge, for their access code not to be
disclosed, by placing a request with the Concessionaire's customer
service department;
VII - The non-suspension of service unless requested, except in the
case of nonpayment of the debt resulting directly from its use, or
noncompliance with the duties set forth in Art. 4 of Law No. 9,472 of
1997;
VIII - Prior notification of any and all changes to the terms of
service that affect them directly or indirectly;
IX - Confidentiality of billing documents and the use of their
personal information by the Concessionaire;
X - To receive an efficient and prompt response from the
Concessionaire to their complaints, under the terms provided for in
clause 15.7;
XI - To lodge claims or petitions against the Concessionaire with
ANATEL and consumer rights organizations;
XII - To receive compensation for harm sustained due to the violation
of their rights;
XIII - Compliance with the terms of the Subscription Agreement which
they entered into for the service;
XIV - Freedom to choose their domestic and international long distance
carrier;
XV - Respect for their right to portable access codes, in accordance
with the provisions of the Numbering Regulations published by ANATEL;
and
17
<PAGE>
XVI - Not to be required to consume services or acquire goods or
equipment in which they have no interest, as well as not to be
compelled to satisfy certain conditions in order to receive the
service which is the subject matter of this concession, as provided by
regulation.
(S) 1 - The Concessionaire shall comply with the duty to safeguard the
privacy inherent to telephone service and the confidentiality of data and
information. Moreover, it shall employ the means and technology to guarantee
users this right.
(S) 2 - Upon the order of judicial authorities, the Concessionaire
shall make available the technological resources required to access private
telecommunications, as provided by regulation.
CLAUSE 14.2. - In addition to the rights referred to in the preceding
clause, other providers of telecommunications services shall be guaranteed the
following rights:
I - To interconnect with the Concessionaire's network under
nondiscriminatory business and operating conditions, under technically
suitable conditions, and at equally-applied and fair prices which
strictly consider the necessity of offering the service, in accordance
with the regulations published by ANATEL;
II - To receive the service requested from the Concessionaire without
any kind of discrimination, at market prices or prices negotiated
between the parties, and at any discount which may apply owing to
savings from bulk consumption, in accordance with regulation;
III - To obtain all information required to provide the service they
themselves operate, including billing information, except as regards
the Concessionaire's right to protect its trade secrets, as well as
the rights of third parties.
(S) 1 - Conflicts between the Concessionaire and other service
providers shall be resolved administratively by ANATEL, under the terms of
regulations to be published by ANATEL.
(S) 2 - ANATEL shall always oversee the relations between the
Concessionaire and the carriers using the service granted herein, in such a way
as to discourage conduct that may involve unfair harm to any of the parties, or
that undermines economic order and free competition. In these instances, once it
has exercised its authority, it shall notify the Administrative Council of
Economic Defense CADE of such conduct, in the manner provided for in Art. 19,
paragraph XIX of Law No. 9,472 of 1997.
CLAUSE 14.3. - In accordance with regulation, all users shall be
guaranteed the right to receive and use premium services, which must be provided
in adequate technical condition, and at equally-applied and fair prices. The
Concessionaire is prohibited from blocking or restricting the use of the service
granted herein in any way.
18
<PAGE>
SOLE PARAGRAPH - A premium service is understood to be any activity
that enhances the service which is the subject matter of this concession, but
should not be confused with new features related to access, storage,
presentation, transfer or recovery of information.
CHAPTER XV - RIGHTS, PRIVILEGES AND OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 15.1. - In addition to the other obligations arising from this
Agreement and inherent to the provision of the service granted hereby, it is the
duty of the Concessionaire:
I - To provide the service granted hereby in strict compliance with
the provisions of this Agreement, and to comply fully with the
regulations published by ANATEL;
II - To install all equipment and facilities needed to provide the
service which is the subject matter of the concession and ensure its
continuity, contemporaneity, expansion and universality, following the
specifications set forth in this Agreement;
III - To keep the telecommunications network in optimum operating
condition, with quantities, configurations and locations which are
proper and sufficient to provide suitable service;
IV - To provide the financial resources required to comply with the
standards for universal service and continuity set forth in this
Agreement, and to provide adequate service;
V - To provide ANATEL, in the manner and as often as provided by
regulation, with reports and information of a technical, operational,
business, accounting and financial nature, as well as to provide it
with all requested data and elements regarding the service granted
hereby;
VI - To maintain all public-use lines, whether permanent or temporary,
in the manner prescribed in this Agreement;
VII - To submit to audits by ANATEL and allow its agents access to its
company facilities as well as to its accounting records;
VIII - To keep separate accounting records for each department, as
well as to keep an up-to-date inventory of the goods and components
that make up the fixed assets of the company;
IX - To maintain a system for providing service and information to
users, under the terms of clause 15.7;
X - To safeguard the assets involved in providing the service granted
hereby;
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<PAGE>
XI - To submit to ANATEL for prior approval the draft as well as all
changes, amendments or variations applicable to the Standard Agreement
entered into with subscribers;
XII - To submit for prior approval from ANATEL the operating
agreements or service, partnership or joint-venture agreements it
wishes to sign with foreign entities;
XIII - To send for publication in the ANATEL library copies of the
agreements and contracts pertaining to the provision of service to
Brazilian and non-Brazilian providers of telecommunications services;
XIV - To divulge, directly or through third parties, the access
numbers of its own subscribers and other subscribers to Switched,
Fixed-line Telephone Service providers, whether in the public or
private sector, in the concession area with the exception of those
subscribers who specifically request that their personal information
not be given out;
XV - To provide a list of its subscribers to whomever it wishes, at
prices and within timeframes which are reasonable, and in a
nondiscriminatory manner;
XVI - To rigorously respect the secrecy and confidentiality of
telecommunications, in accordance with legal and contractual
obligations;
XVII - To respect the privacy of users as regards billing documents
and all personal information pertaining to them;
XVIII - To comply, at its own expense and in accordance with the
provisions of clause 7.2 of this Agreement, with all universal service
objectives which are expressly stated herein;
XIX - To implement any projects for the expansion and universalization
of service which may be ordered by ANATEL, in conformity with the
established level of compensation, timeframe and terms of
implementation, in accordance with the provisions of clause 7.3;
XX - To submit to ANATEL for prior approval any and all changes it
wishes to make to its bylaws regarding company spin-offs, mergers,
transformations and incorporations, as well as any transfer of
control, or change in its capital stock;
XXI - To guarantee interconnection with its network to any other
telecommunications service provider, in keeping with specific
regulation and the standards of this Agreement;
20
<PAGE>
XXII - To make its billing and collection services available to other
providers of Switched, Fixed-line Telephone Services, and charge them
fair and compatible prices under the terms of this Agreement and the
regulations;
XXIII - To respect all the rights of other telecommunications service
providers and refrain from any discriminatory conduct towards them or
attempt to obstruct their activity;
XXIV - To use equipment with certification either issued or accepted
by ANATEL, whenever required to do so by regulation;
XXV - To comply with the norms and technical standards in force in
Brazil, refraining from any discriminatory practice with regard to
goods and equipment manufactured therein;
XXVI - In the case of disasters, to make available to civil defense
authorities and agents all requested facilities, systems and access
thereto, with a view to providing them with support or protecting
affected populations;
XXVII - To give priority to assisting the President of the Republic,
his official representatives, his support team and staff, as well as
to foreign heads of state making official visits or trips through
Brazilian territory, for whom it shall make available the means
required to communicate adequately, in keeping with the regulations
published by ANATEL;
XXVIII - To pay the fee set by ANATEL in the event the duration of the
concession is extended, under the terms of (S) 1, Art. 207 of Law No.
9,472 of 1997, and clause 3.3 of this Agreement;
XXIX - To pay all inspection and operating costs for its
installations, as provided by regulation;
XXX - To publish annually, regardless of the legal system to which it
is subject, the balance sheet and year-end financial statements, as
set forth in the legislation in force and the regulations published by
ANATEL;
XXXI - To comply with current Brazilian standards as regards the use
of non-Brazilian labor, including in positions requiring advanced
qualifications;
XXXII - To compensate users for damages which have in fact resulted
from the failure to provide service which would have been expected in
view of the continuity guidelines and universal service objectives
provided for in this Agreement;
XXXIII - When entering into contracts for management services,
including technical assistance, with non-Brazilian entities not to
spend more than the
21
<PAGE>
following amounts, as a percentage of the annual revenue from
Switched, Fixed-line Telephone Service:
a) 1% (one percent) per year, until 12/31/2000;
b) 0.5% (zero point five percent) per year, from 01/01/2001 until
12/31/2002; and
c) 0.2% (zero point two percent) per year, as of 01/01/2003;
XXXIV - To comply with agreements between Brazil and other countries
and international organizations, in the manner laid down by ANATEL;
and
XXXV - To comply with the contracts entered into with TELEBRAS, the
subject matter of which is the provision of services by the Research
and Development Center CPqD or its successor.
SOLE PARAGRAPH - Decisions concerning paragraph XXXIII of this clause
and involving service and technical assistance contracts between the
Concessionaire and third parties with ties to the majority shareholders, must be
made at extraordinary shareholder meetings, and the Concessionaire must state in
its corporate bylaws, until 12/31/98, that preferred stock shall have voting
rights in such decisions, without detriment to the provisions of (S) 1, Article
115 of Law No. 6,404, of December 15, 1976.
CLAUSE 15.2. - Without detriment to the other provisions set forth in
this Agreement, and those privileges guaranteed by law, the Concessionaire has
the following rights:
I - To operate the conceded service within the framework of its
corporate strategy, and to define freely its investments, in
accordance with the regulations published by ANATEL and the provisions
of this Agreement
II - To appoint a representative to monitor the inspection activities
of ANATEL;
III - To interrupt, according to the terms of Clause 8.3 of this
Agreement, the service granted hereby, or not fulfill the service
requests, of subscribers who fail to fulfill their contractual
obligations towards the Concessionaire;
IV - To request arbitration proceedings under the circumstances and in
the manner prescribed by Chapter XXX of this Agreement;
V - To operate the service granted hereby under business conditions
without being subject to changes involving unjustified enrichment of
the government or users, under the terms provided for in Chapter XII;
VI - To request the revision of the rates applied to the conceded
service, in the manner provided for in this Agreement;
22
<PAGE>
VII - To request that ANATEL keep confidential the information it
gathers during its inspection/audit activities, under the terms
provided for in this Agreement;
VIII - To use equipment and infrastructure which do not belong to it
when carrying out services, in accordance with clause 21.1 of this
Agreement; and
IX - To contract with third parties to develop activities that are an
inherent part of, incidental to or which supplement the service
granted hereby, as well as to implement associated projects.
CLAUSE 15.3. - For as long as this Agreement is in force, the
Concessionaire shall be solely liable, with regard to third parties, for the
actions of its personnel, employees and contractors involved in the provision of
Switched, Fixed-line Telephone Service, as well as for the use of equipment,
installations and networks, and the government and ANATEL are held exempt from
all claims and/or indemnities.
CLAUSE 15.4. - The Concessionaire may not obstruct works in the public
interest, regardless of their nature, in the event it becomes necessary to
remove installations or telephone networks in order to render feasible
interventions promoted, either directly or indirectly, by any body or
organization of the public Administration.
CLAUSE 15.5. - The Concessionaire must execute agreements directly
with each Municipal government in the areas it operates the service granted
hereby, as well as with other public service utilities, as regards the location
of the poles and cross bars used to hang aerial lines and cables, and the
underground conduits and pipes used to run cables under streets and public
parks.
(S) 1 - The Concessionaire shall make arrangements with the holders of
public or private property over or under which it has to run conduits or pipes,
or install supports to hold said conduits and pipes, and shall obtain the
corresponding consent or easements for such purposes.
(S) 2 - The Concessionaire must seek arrangements with the respective
municipal authorities in order to maintain conditions required to overcome
interference in the network required to provide the service granted hereby,
including the felling and pruning of trees.
CLAUSE 15.6. - Under the terms of the provisions of Art. 73 of Law No.
9,472 of 1997, the Concessionaire may use poles, pipes, conduits and easements
belonging to or controlled by other providers of telecommunications services or
other public utilities.
(S) 1 - The use of the facilities referred to in the preceding
paragraph must be carried out in a nondiscriminatory way, and at fair and
reasonable prices.
(S) 2 - The Concessionaire must make the facilities it owns or
controls, referred to in the first paragraph of this clause, available to the
other providers of telecommunications
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services, classified by ANATEL as public utilities, and do so in accordance with
the same conditions provided for in the preceding paragraph.
(S) 3 - In the event the Concessionaire does not reach an agreement
with other service providers regarding the use of the facilities referred to in
this clause, it shall be ANATEL's duty, either alone or together with other
involved regulatory bodies, to define the conditions of said use.
CLAUSE 15.7. - During the entire duration of this concession, the
Concessionaire shall maintain a user information and service center operating 24
(twenty-four) hours a day, capable of receiving and processing requests,
complaints and claims from users, either in person or via any form of long
distance communication.
(S) 1 - The Concessionaire must make available to all users the
addresses and access codes of its information and service center, which are
required to be listed in the Standard Contract entered into with service
subscribers.
(S) 2 - The Concessionaire must make available and announce an
easy-to-dial, toll-free number for users to make requests via telephone.
(S) 3 - All requests, claims or complaints made by users, by whatever
means, must be assigned an order number, which shall be given to the concerned
party so that he or she can be assisted.
(S) 4 - The user shall be informed, within the timeframe defined in
the General Plan on Quality, of the measures taken in response to his or her
request, claim or complaint.
(S) 5 - In the event that ANATEL notes that users are having
difficulty obtaining access to the information and service center, it may order
the Concessionaire to increase the availability of access, or risk being found
guilty of not complying with the obligation provided for in this clause.
CLAUSE 15.8. - When hiring services and acquiring equipment and
materials associated with the provision of the service which is the subject
matter of this Agreement, the Concessionaire commits itself to field offers from
independent suppliers, including those which are state-run, and to base its
decisions, with regard to the various offers submitted, on the objective
criteria of price, conditions of delivery and technical specifications set forth
in the relevant regulations.
(S) 1 - In the event of equivalent offers, the Concessionaire agrees
to use as the deciding criteria, the preference of services offered by companies
located in Brazil, and equipment and materials produced in Brazil, particularly
those produced using Brazilian technology. The issue of equivalent offers shall
be automatically decided if, cumulatively:
I - The price in Brazil of the domestic product is lower than or equal
to that of the imported product, tax included;
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II - The delivery schedule meets the Concessionaire's needs; and
III - The technical specifications established by relevant regulation
are met and the product has certification that has either been issued
or accepted by ANATEL, when applicable.
(S) 2 - Services are understood to mean those relating to research and
development, planning, setting up and physically installing, operating,
maintaining, supervising and performing evaluation tests of telecommunication
systems.
(S) 3 - ANATEL shall formulate regulations governing the execution of
the provisions in this clause, including applicable penalties.
CHAPTER XVI - OBLIGATIONS AND PREROGATIVES OF ANATEL
CLAUSE 16.1. - In addition to the prerogatives that are an inherent
part of its function as a regulatory body, and other obligations under this
Agreement, ANATEL shall be responsible for:
I - Overseeing and monitoring the provision of the service granted
hereby and the safeguarding of revertible assets, ensuring compliance
with the standards, specifications and instructions set forth in this
Agreement and its annexes;
II - Carrying out site visits to inspect the adequacy of installations
and equipment, and ordering any necessary rectifications, repairs,
removals, reconstruction or replacements, at the expense of the
Concessionaire;
III - Continually regulating the execution of the conceded service;
IV - Intervening when necessary in the execution of the service
granted hereby in order to ensure its regularity and faithful
compliance with the Agreement and relevant legal standards;
V - Applying the penalties provided for by regulation of the service
and specifically, by this Agreement;
VI - Reviewing the Supplemental Domestic Long-Distance Service Plans
submitted by the Concessionaire;
VII - Authorizing the adjustment of rates and revising them, under the
terms of, and in accordance with, the provisions of this Agreement;
VIII - Acting within the limits set forth in this Agreement to prevent
the parties from unjustified enrichment, under the terms of this
Agreement;
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IX - Ensuring the high quality of the service granted hereby,
accepting, processing and resolving complaints and claims from users,
and informing them, within ninety days, of the measures taken to curb
infringements upon their rights;
X - Declaring the termination of the Concession in the cases provided
for in this Agreement;
XI - Guaranteeing interconnectivity, and settling any disputes which
arise between the Concessionaire and other service providers;
XII - Ensuring compliance with the universal service objectives
provided for in this Agreement, and with any objectives set forth in
future Objectives Plans;
XIII - Continually overseeing the relations between the Concessionaire
and other providers of telecommunications services, and settling any
disputes arising among them;
XIV - Discouraging conduct by the Concessionaire that runs contrary to
the system of free competition, in keeping with the legal authority of
the Administrative Council of Economic Defense - CADE;
XV - Submitting to the President of the Republic, at the request of
the Concessionaire and through the intermediary of the Ministry of
Communications, proposals for declarations of public interest, with a
view to exercising eminent domain or implementing public easements
over the property needed to establish or maintain the service which is
the subject matter of this Agreement;
XVI - Auditing the service granted hereby under the terms set forth in
this Agreement; and
XVII - Collecting fees for FISTEL and adopting the measures provided
for in current legislation.
CHAPTER XVII - THE CONCESSIONAIRE
CLAUSE 17.1. - The Concessionaire is a company incorporated under
Brazilian law, as a corporation (sociedade anonima), with the sole purpose of
operating the service that is the subject matter of this concession, with the
exception of those services provided for under the terms of (S) 3, Art. 207 of
Law No. 9,472 of 1997.
SOLE PARAGRAPH - In the event that changes to the Concessionaire's
bylaws are approved, the documents formalizing such changes shall be sent to
ANATEL for filing, and shall be fully incorporated into this Agreement.
CLAUSE 17.2. - The Concessionaire and those entities which control it
agree to maintain, for the entire duration of the concession and its extension,
all of the service conditions and capabilities which existed at the time this
Agreement entered into force.
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CLAUSE 17.3. - The Concessionaire and those entities which control it
agree to ensure the actual existence on Brazilian territory, during the
concession period and the extension thereof, of centers for decision-making and
the implementation of strategic, managerial and technical decisions involved in
carrying out this Agreement, as well as to ensure this obligation is reflected
in the make-up and decision-making processes of its governing bodies.
SOLE PARAGRAPH - The Concessionaire must include provisions in its
bylaws, until December 31, 1998, which guarantee compliance with the provisions
of the preceding paragraph.
CHAPTER XVIII - ASSIGNMENT OF THE CONCESSION AND CHANGE OF CONTROL OF THE
CONCESSIONAIRE
CLAUSE 18.1. - Assignment of the concession, or the change of direct
or indirect control over the Concessionaire, may only be authorized by ANATEL,
in keeping with the General Concession Plan and Art. 202 of Law No. 9,472 of
1997, provided that:
I - The assignee fulfills all of the requirements established under
the terms of Art. 200 of Law No. 9,472 of 1997; and
II - The assignment or change does not undermine competition, or
threaten the execution of this Agreement or the general standards for
the protection of economic order.
SOLE PARAGRAPH - Failure to comply with any provision of this clause
shall result in the forfeiture of this concession.
CLAUSE 18.2. - The capital stock of the Concessionaire may be pledged
freely, and such an assignment does not affect its control.
SOLE PARAGRAPH - If the pledging of stock results in the taxation of
the assets of the Concessionaire, provisions must be made in the financing
agreements in order to submit the creditors, in the event of foreclosure, to the
rules set forth in this Chapter.
CHAPTER XIX - INSPECTION SYSTEM
CLAUSE 19.1. - ANATEL shall carry out inspections of the service
granted herein in order to ensure compliance with the prerequisites of universal
service and continuity, which are an inherent part of the public service being
provided. It shall also ensure fulfillment of the objectives and commitments set
forth in this Agreement.
(S) 1 - The inspections to be performed by ANATEL shall involve
inspecting and monitoring the Concessionaire's activities, equipment and
facilities, which in turn requires complete access to all of the
Concessionaire's or third parties' data and information.
(S) 2 - The information gathered during its inspection activities
shall be published by its library, with the exception of information which, at
the Concessionaire's request, is considered by ANATEL to be confidential in
nature.
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(S) 3 - Any information judged confidential in nature under the terms
of the preceding paragraph shall only be used in proceedings related to this
Agreement, and any requests for further dissemination of such information,
whether broad or restricted, must be made to ANATEL, or whomever it has
indicated.
CLAUSE 19.2. - The Concessionaire, through the intermediary of a named
representative, may monitor any and all of ANATEL's inspection activities. It
may not obstruct or prevent said inspection activities, at the risk of being
subject to the penalties provided for in this Agreement.
CHAPTER XX - REPORTING OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 20.1. - As provided by regulation, the Concessionaire must
periodically send ANATEL statistical and status reports on all services
provided, including, among other elements, figures on the expansion and scope of
the telephone network. The Concessionaire must also report on the technological
status of the equipment used.
CHAPTER XXI - CONCESSION-RELATED ASSETS
CLAUSE 21.1. - The assets related to this concession consist of all
assets owned by the Concessionaire and required to provide the service conceded
herein, especially those classified as such in Annex 1 Classification of
Revertible Assets Used to Provide Domestic Long-Distance, Switched, Fixed-Point
Telephone Service.
(S) 1 - Concession-related assets also include permits that have been
granted for the use of the radio frequency spectrum and, where applicable, usage
rights for orbital positions, in accordance with Articles 48 and 161 of Law No.
9,472 of 1997 and the provisions of clause 4.1 of this Agreement.
(S) 2 - With regard to concession-related assets, the Concessionaire
must receive the prior and express consent of ANATEL for the direct use of
equipment, infrastructure, software systems, or any other type of asset that is
not its property, in order to provide the service conceded herein. ANATEL may
exempt it from this requirement in the cases and circumstances provided for by
regulation.
(S) 3 - If the continuity of service is at risk, or there is an
impediment to the reversion of a concession-related asset, ANATEL may withhold
authorization to use third-party assets, or require that the corresponding
Agreement contain a clause stipulating that the owner agrees, in the event of
termination of the concession, to uphold the Agreement and transfer to ANATEL
the rights pertaining thereto.
CHAPTER XXII - THE SYSTEM OF REVERSION
CLAUSE 22.1. - In the event of the termination of the concession, all
concession-related assets shall revert automatically to ANATEL, as indicated in
Chapter XXI above, and the Concessionaire shall retain its right to the
compensation provided for by law and this Agreement.
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SOLE PARAGRAPH - Within 180 (one hundred eighty) days following the
termination of the concession, an inventory shall be taken of the assets
pertaining thereto, and an Asset Restitution and Reversion Statement shall be
drawn up, with a detailed account of the condition of said assets. One or more
representatives of the Concessionaire shall be authorized to monitor the
foregoing.
CLAUSE 22.2. - The Concessionaire commits itself to remit revertible
assets in a perfect state of operation, utilization and maintenance, except as
regards normal wear and tear through usage.
SOLE PARAGRAPH - Revertible assets shall be transferred to ANATEL free
of any charge or encumbrance, while taking into account the scenario stated in
paragraph 2 of the following clause.
CLAUSE 22.3. - The reversion of assets, as addressed in Chapter XXI
above, which occurs at the end of the contractual term, shall be carried out
without compensation, except as provided for in this clause.
(S) 1 - The Concessionaire shall only be compensated if, upon the
termination of the Concession, there exist partially-amortized assets, the
acquisition of which had been previously authorized by ANATEL, or which were
acquired prior to the signing of this Agreement, for the purpose of guaranteeing
reliable, up-to-date service.
(S) 2 - In place of or in addition to the compensation provided for in
the preceding paragraph, ANATEL may allow the assignment of assets that have
been pledged as security for its own financing needs, and assume any financed
portion which is still outstanding.
CLAUSE 22.4. - Upon termination of the Concession, ANATEL shall assess
the assets referred to in clause 21.1, and may refuse the reversion of assets it
considers dispensable to, or useless in the operation of the service granted
hereby. The Concessionaire is guaranteed the right to contest the foregoing,
including by way of reports or studies prepared and presented at its expense,
demonstrating the need for reversion.
SOLE PARAGRAPH - In the event the Concessionaire disagrees with
ANATEL's decision regarding the provisions of this clause, recourse to the
dispute-resolution process provided for in this Agreement shall be allowed.
CHAPTER XXIII - INSURANCE PLAN
CLAUSE 23.1. - During the entire time the concession is in force, the
Concessionaire must subscribe, with an appropriate Insurance Company registered
with the corresponding regulatory body of the insurance industry, to the
insurance policies listed below in order to ensure effective and comprehensive
coverage of the inherent risks involved in carrying out all of the activities
contemplated within this Agreement.
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I - Comprehensive insurance against material damage, covering the
loss, destruction or damage of any and all assets associated with the
concession. Said insurance must provide blanket coverage, in
accordance with international standards;
II - Business interruption insurance which covers, at a minimum,
variations in the Concessionaire's income resulting from accidents, or
changes in the operating terms of the Agreement, which affect
operating costs and which are not covered by insurance against
material damage, provided that taking out this type of insurance is
allowed by Brazilian standards and expressly authorized by the
Brazilian Reinsurance Institute - IRB or an equivalent organization;
and
III - Insurance covering the achievement of the quality and universal
service requirements provided for in this Agreement (i.e., a
performance bond, a letter of credit and the amount kept as a deposit)
with a value corresponding to 10% of the estimated annual amount
invested in order to achieve the objectives provided for in this
Agreement.
(S) 1 - The Concessionaire must arrange to have its insurance policies
include the requirement that the Insurer inform the Concessionaire and ANATEL,
in writing and with at least 10 (ten) days' notice, of any information which may
entail the complete or partial cancellation of the policies taken out, a
reduction in coverage, an increase in deductibles, or a lowering of the values
covered.
(S) 2 - Policies taken out in order to comply with the provisions of
this clause may not contain obligations, restrictions or provisions which
contradict the provisions of this Agreement or regulations, and must contain an
express statement by the Insurer that it is completely familiar with this
Agreement, specifically as regards the limits of the Concessionaire's rights.
(S) 3 - In the event the Concessionaire fails to comply with the
requirement to keep the required insurance policies in effect, then ANATEL,
notwithstanding its ability to order intervention in or the termination of this
concession, may then take out said insurance and directly pay for the
corresponding premiums, at the expense of the Concessionaire.
(S) 4 - Every year, by the end of the month of January, the
Concessionaire must submit a certificate issued by the insurers, confirming that
all the premiums due for the preceding year have been paid, and that the
policies have taken full effect or been renewed. In the latter case, any new
policy terms are also to be submitted.
(S) 5 - The policies referred to in this clause must comply with the
following deadlines for presentation and activation:
I - The policy referred to in item I of the first paragraph of this
clause must be presented within 90 (ninety) days as of the signing of
this Agreement, and must take immediate effect;
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II - The policy referred to in item II of the first paragraph of this
clause must be presented by November 30, 1999, and take effect as of
January 1, 2000; and
III - The policy referred to in item III of the first paragraph of
this clause must be presented by November 30, 2000, and take effect as
of January 1, 2001.
(S) 6 - ANATEL may change the coverage or the presentation deadlines
for the policies referred to in this clause so as to adapt said requirements to
the regulations published by the Private Insurance Commission - SUSEP, or to the
terms established by the Brazilian Reinsurance Institute - IRB. It may also do
so if standards are published which interfere with the contracting of the
insurance referred to herein, or if the market is not ample or competitive
enough to allow the insurance to be taken out at a reasonable cost.
CHAPTER XXIV - INTERCONNECTION
CLAUSE 24.1. - The Concessionaire is required to allow, facilitate,
provide and implement the interconnection of other telecommunications service
providers' networks with the network it operates, whether they are in the public
or private sector, and whenever they so request. In so doing, it shall enforce
and observe the regulations published by ANATEL pertaining thereto.
CLAUSE 24.2. - The network usage fees required as of the signing of
this Agreement are those listed in Administrative Ruling No. 2,505 of December
20, 1996, issued by the Ministry of Communications, and may be updated and
reviewed in keeping with the provisions of this Agreement as provided by
regulation.
CLAUSE 24.3. - The Concessionaire shall enjoy the same rights, and
observe the same terms of interconnection, as the ones applying to other service
providers.
SOLE PARAGRAPH - The Concessionaire must maintain the elements of its
network for interconnection at the most technically advanced level possible, in
accordance with ANATEL regulations.
CHAPTER XXV - PENALTIES
CLAUSE 25.1. - In the execution of this Agreement, the Concessionaire
shall be subject to the following penalties, notwithstanding other penalties
provided for by regulation, which shall be applied by way of justified decisions
by ANATEL, and the former shall be guaranteed the right to defend itself under
the terms of the Internal Regulations.
I - For violations of the provisions of this Agreement resulting in
non-fulfillment of universal service objectives, there shall be a fine
of up to R$50,000,000.00 (fifty million Brazilian reais);
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II - For acts or omissions contrary to the provisions set forth in
this Agreement, and which cause harm to competitors in the
telecommunications industry, there shall be a fine of up to
R$50,000,000.00 (fifty million Brazilian reais);
III - For any violation of contractual provisions which results in the
non-fulfillment of quality of service objectives or guidelines, there
shall be a fine of up to R$40,000,000.00 (forty million Brazilian
reais);
IV - For any other act or omission not covered by the preceding
paragraphs, and which involves the violation of users' rights as set
forth in this Agreement, or which causes them harm, there shall be a
fine of up to R$30,000,000.00 (thirty million Brazilian reais);
V - For any act or omission which violates the provisions of clause
15.8 of this Agreement, involving the hiring of services and the
acquisition of equipment and materials manufactured in Brazil, there
shall be a fine of up to R$30,000,000.00 (thirty million Brazilian
reais);
VI - For any act or omission which obstructs or hinders the inspection
activities of ANATEL as provided for in this Agreement, there shall be
a fine of up to R$20,000,000.00 (twenty million Brazilian reais);
VII - For any act, omission or negligence which threatens the security
of the facilities, there shall be a fine of up to R$15,000,000.00
(fifteen million Brazilian reais);
VIII - For any act or omission which brings harm or poses a risk to
concession-related assets or equipment, there shall be a fine of up to
R$10,000,000.00 (ten million Brazilian reais); and
IX - For failure to comply with any express requirement in this
Agreement, with the exception of the requirements stated in the
preceding paragraphs, for which penalties have already been
determined, there shall be a fine of up to R$10,000,000.00 (ten
million Brazilian reais).
(S) 1 - The infraction specified in paragraph I of this clause shall
be characterized by the failure of the Concessionaire to fulfill its
obligations, within the timeframes set forth in this Agreement, with regard to
the expansion and increased availability of the service granted hereby by
supplying public telephones and assistance to localities, in keeping with the
provisions of the General Plan on Universal Service. When applying the penalty,
the following factors shall be taken into consideration, in addition to the
general principles laid forth in this Chapter:
a) The difference between the objective defined in the Agreement and
its degree of implementation;
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b) The possibility for the Concessionaire catch up on the
implementation schedule, at its own expense;
c) The harm done to the policy reflected in the General Plan on
Universal Service;
d) The harm done to the intended direct beneficiaries of the
unfulfilled objectives; and
e) Any attenuating circumstances of a technical or economic nature
which may lessen the responsibility of the Concessionaire,
although not exonerate it.
(S) 2 - The seriousness of the infraction indicated in paragraph II of
this clause shall be defined solely on the basis of the general criteria
indicated in clause 25.2, and shall be characterized by conduct of the
Concessionaire which, directly or indirectly, could inflict harm upon its
competitors in the industry, particularly:
a) Obstructing or hindering the option to use another provider of the
service or domestic and international long distance service.
b) Refusing to provide interconnection to a provider of
telecommunications services;
c) Obstructing or hindering the activity of providers of premium
services;
d) Placing conditions upon the availability of the conceded service,
or offering advantages to users in exchange for their acquiring
services other than the service which is the subject matter of
this Agreement;
e) Supplying any telecommunications service that is not a purpose of
the concession or authorized by ANATEL;
f) Failing to uphold quality standards regarding interconnection; and
g) Delaying the supply of information vital to the activities of
other service providers, especially involving user-related
information.
(S) 3 - The infraction specified in paragraph III of this clause shall
either be characterized by repeatedly providing service which is below the
quality parameters defined in the General Plan on Quality, or by demonstrably
contravening the quality indicators listed in Chapter VI. In the first case,
the following are considered particularly serious infractions:
a) Failure to allocate the human and material resources required to
maintain minimum quality standards in the operation and
maintenance of the service granted hereby; and
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b) Negligence in modernizing the network which impacts the quality of
service.
(S) 4 - The seriousness of the infraction indicated in paragraph IV of
this clause shall be defined on the basis of the number of users affected and on
the damage caused. It shall be characterized by the violation, whether directly
or indirectly, through commission or omission, of an obligation stipulated in
this Agreement, and which does not involve a violation of duties pertaining to
universal service and quality, but rather a violation of the rights of users,
particularly:
a) Interruption of service for periods longer than allowed by the
General Plan on Quality, except under the circumstances indicated in the sole
paragraph of clause 6.3;
b) Refusal to provide the conceded service to any interested party;
c) Failure to fulfill the duty of providing information to users;
d) Breach of the secrecy of telecommunications, outside of legally-
mandated circumstances, even in the case of breaches committed by
third parties using facilities over which the Concessionaire has
responsibility;
e) Failure to maintain a user information and service center as
stipulated in this Agreement;
f) Charging rates or prices which are against the rules stipulated in
this Agreement and as provided by regulation; and
g) Restricting the right to freely choose among Domestic Long-
Distance Service Plans.
(S) 5 - The penalty provided for by paragraph V of this clause shall
be characterized by a verifiable violation of the obligation indicated in clause
15.8, and its seriousness shall be determined in accordance with regulatory
provisions.
(S) 6 - The seriousness of the infraction indicated in paragraph VI of
this clause shall be defined on the basis of the significance of the inspection
activity obstructed, and shall be characterized by a violation committed by the
Concessionaire or its employees, whether directly or indirectly, through
commission or omission, which impedes or hinders the inspection activities
carried out by ANATEL, by its employees, or even by users, particularly:
a) The refusal of the Concessionaire to comply with requests for
information made by ANATEL regarding the conceded service or the
assets allocated to it;
b) Hindering the actions of ANATEL's inspectors;
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c) Failure to fulfill the publicity obligations provided for in this
Agreement, or as provided by the regulation; and
d) Failure to send, or to send in a timely manner, information, data,
reports or documents which, as determined by regulation or this
Agreement, should have been conveyed to ANATEL.
(S) 7 - The seriousness of the infraction indicated in paragraph VII
of this clause shall be defined on the basis of the degree of risk posed, and
shall be characterized by conduct of the Concessionaire which runs counter to
the rules set forth in this Agreement and as provided by regulation, violates
norms and standards of technical safety, or which poses a risk to the facilities
allocated to the conceded service, particularly:
a) The use of equipment not certified by ANATEL to provide the
service, when such certification is required;
b) Failure to allocate the human and material resources required to
maintain minimum safety standards in the operation and maintenance
of the service; and
c) Failure to take the precautions recommended for the service
conceded herein.
(S) 8 - The seriousness of the infraction indicated in paragraph VIII
of this clause shall be defined on the basis of the significance, the economic
importance and the indispensability of the assets involved, and shall be
characterized by conduct of the Concessionaire which runs counter to the
provisions of this Agreement or the regulations, and which could pose a risk to
assets or equipment associated with this concession, or make their reversion
difficult, particularly:
a) Failure to keep inventory and records of the assets referred to in
clause 21.1;
b) The direct use of the assets of third parties in providing the
service, without prior authorization from ANATEL, or without a
regulatory dispensation; and
c) Negligence in maintaining revertible assets, as provided by
regulation.
(S) 9 - The penalty provided for in paragraph IX of this clause shall
be called for in the case of a demonstrable violation of a contractual
obligation which is not included among the preceding paragraphs, particularly
the violation indicated in paragraph XXXI of clause 15.1.
(S) 10 - The penalty provided for in paragraph II above is of a
contractual nature and shall be applied by ANATEL regardless of any measures
taken by the Administrative Council of Economic Defense - CADE.
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(S) 11 - Failure to pay any fine which has been determined under the
provisions in this clause, and within the timeframe determined by ANATEL, shall
constitute a serious violation, and shall occasion intervention in the affairs
of the Concessionaire, under the terms set forth in Chapter XXVIII. It shall
also entail payment of a late fee of 0.33% (zero point thirty-three percent) per
day, up to a maximum of 10% (ten percent), plus the SELIC reference rate for
federal securities, to be levied upon the amount owed on the basis of the number
of days it is past due.
CLAUSE 25.2. - When applying the contractual fines provided for in
this Chapter, the rules stated in Title VI, Book III of Law No. 9,472 of 1997,
and those provided by regulation, shall be observed.
(S) 1 - When defining the seriousness of penalties and determining
fines, ANATEL shall take the following factors into account:
I - Whether the severity of the punishment is in proportion to the
seriousness of the violation, while also taking into account the
number of users affected;
II - The damage inflicted upon the service and users as a result of
the infraction;
III - Any advantage which the Concessionaire has reaped as a result of
the infraction;
IV - The market share of the Concessionaire in its geographical
service area;
V - The economic and financial situation of the Concessionaire,
especially its potential to generate revenue, and its assets;
VI - The Concessionaire's past record;
VII - Whether the violation is a repeat offense, that being a repeat
of a violation of the same nature after having received notification
previously; and
VIII - Whether the infraction involved aggravating or attenuating
circumstances.
(S) 2 - Regardless of the specific ranking criteria provided for in
each paragraph of the preceding clause, and others provided for by regulation,
penalties shall be ranked using the following scale:
I - The infraction shall be considered minor if it results from
unintentional or excusable conduct of the Concessionaire, and from
which it does not benefit;
II - The infraction shall be considered moderately serious if it
results from inexcusable conduct, but which does not provide the
Concessionaire with any benefit or gain, or affect a significant
number of users; and
III - The infractions shall be considered serious if ANATEL finds
evidence that:
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a) The Concessionaire has acted in bad faith;
b) The infraction has resulted in a direct or indirect benefit for
the Concessionaire;
c) The Concessionaire's infraction is a repeat offense;
d) A significant number of users were affected; and
e) There were circumstances of the kind anticipated in (S) 10 of the
preceding clause.
(S) 3 - At ANATEL's discretion, in the case of first-time occurrences
of infractions classified as minor, it may apply the disciplinary measure of
issuing a warning to the Concessionaire, which shall be formally notified of the
sanction, regardless of the publication of the ruling in the Official Journal.
(S) 4 - When applying the disciplinary measures provided for in this
Chapter, the Disciplinary Proceedings provided for in the Internal Regulations
of ANATEL shall be observed.
(S) 5 - In the case of the infractions provided for in paragraph IV of
clause 25.1, ANATEL may reduce the amount the Concessionaire would pay in fines
from the amount to be paid as compensation to the affected users, and the
compensation criteria, the payment schedule and the maximum amount of the
abatement shall be stated within the sentencing document.
(S) 6 - The measure provided for in the preceding paragraph may only
be adopted if it can be proved that respecting the rights or demands of users
shall not exonerate the Concessionaire from its liability for other civil
damages owed.
CLAUSE 25.3. - The fines provided for in this clause shall be applied
notwithstanding scenarios involving intervention or declaration of forfeiture,
as provided for in this Agreement.
SOLE PARAGRAPH - In the event of complete or partial failure to carry
out an adjustment, or unjustified delays of over 120 (one hundred twenty) days
in complying with the objectives set forth in this Agreement, the Concessionaire
shall be subject to a declaration of forfeiture of the Concession, under the
terms set forth in clause 26.4.
CLAUSE 25.4. - The amounts of the fines provided for in this Chapter
shall be adjusted annually by applying the GPI-DA, and the first adjustment
shall take place one year after the signing of this Agreement.
CHAPTER XXVI - TERMINATION OF THE CONCESSION
CLAUSE 26.1. - The Concession Agreement shall be considered terminated
in the event of the following:
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<PAGE>
I - Expiration of the concession period for the service granted
hereby, in the event it has not been extended under the terms of this
Agreement;
II - Expropriation, in accordance with Art. 113 of Law No. 9,472 of
1997;
III - Forfeiture, under the terms set forth in Article 114 of Law No.
9,472 of 1997 and in this Agreement;
IV - Amicable or judicial rescission, under the terms of Art. 115 of
Law No. 9,472 of 1997; and
V - Annulment.
(S) 1 - Upon termination of the concession, the rights and duties
pertaining to the provision of the conceded service shall revert to ANATEL,
along with the assets referred to in clause 22.1, and the Concessionaire shall
retain the right to the compensation provided for by law and within this
Agreement.
(S) 2 - Following the termination of the concession, ANATEL shall
undertake all necessary inventories, assessments and settlements within 180 (one
hundred eighty) days of taking over the service granted hereby, except in the
case of expiration of the agreement, in which case these steps are to be taken
in advance by ANATEL.
(S) 3 - If the concession is terminated prior to its contractual
expiration date, ANATEL may do the following, notwithstanding other suitable
measures:
I - Make temporary use of fixed and intangible assets, and avail
itself of the personnel required to continue providing the service
granted hereby; and
II - Maintain the Contracts signed between the Concessionaire and
third parties for the duration and under the terms initially agreed
upon.
CLAUSE 26.2. - Reversion upon the expiration of the Agreement shall be
carried out without compensation, except under the circumstances provided for in
clause 22.3.
CLAUSE 26.3. - Under the terms of Art. 113 of Law No. 9,472 of 1997,
expropriation is understood to be the repossession of the service by ANATEL
during the concession period, due to extraordinary motives of public interest,
by way of a specific authorizing law and subsequent to the payment of
compensation.
CLAUSE 26.4. - In the circumstances listed below, the forfeiture of
this Agreement may be declared by an act of the Board of Directors of ANATEL,
preceded by administrative proceedings which guarantee the Concessionaire an
ample defense:
I - Transfer of corporate control, spin-offs, mergers or
transformation of the Concessionaire, as well as raising or lowering
its capital stock without the prior approval of ANATEL;
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<PAGE>
II - Improper assignment of the Agreement;
III - Failure to fulfill a commitment to an assignment, as referred to
in clause 18.1 of this Agreement and Art. 87 of Law No. 9,472 of 1997;
IV - Bankruptcy or dissolution of the Concessionaire;
V - Noncompliance with insurance coverage requirements, in violation
of the obligations provided for in clause 23.1, which, in the judgment
of ANATEL, cannot be dealt with through intervention; and
VI - The occurrence, under the terms of Art. 114, paragraph IV of Law
No. 9,472 of 1997, of any of the situations stipulated by clause 28.1,
and in which intervention, in the judgment of ANATEL would be
inappropriate, ineffective or even unjustly favorable to the
Concessionaire.
(S) 1 - Intervention shall be judged unnecessary in the event the
demand for the service which is the subject matter of the concession may be met,
through authorization, by other providers in a regular and immediate fashion.
(S) 2 - Declaring forfeiture shall not preclude the application of
appropriate penalties, under the terms of this Agreement, for infractions
committed by the Concessionaire, nor shall it prejudice the right to
compensation defined under the terms of the following Chapter.
CLAUSE 26.5. - The Concessionaire shall be entitled to contractual,
judicial or amicable rescission in the event that, due to acts or omissions of
government authorities, the execution of the Agreement becomes excessively
onerous, under the terms of Art. 115 of Law No. 9,472 of 1997.
SOLE PARAGRAPH - The introduction or increase of competition among the
various providers of the service which is the subject matter of the concession
does not constitute a motive for the rescission of the Agreement, since the
Concessionaire clearly takes this concession with the knowledge that it will be
carrying out its activities without any kind of reserved or exclusive market.
CLAUSE 26.6. - Annulment shall be decreed by ANATEL in the event that
irremediable and serious irregularities are discovered in this Agreement.
CHAPTER XXVII - COMPENSATION
CLAUSE 27.1. - For the purposes of calculating compensation owed by
ANATEL to the Concessionaire, in the cases expressly provided for in this
Agreement, the following shall be observed:
I - Expiration of the contract term: No compensation shall be due,
unless it is proved that the absence of payment results in the
unjustified enrichment of the
39
<PAGE>
government through the reversion of assets which have not been
completely amortized, in accordance with the provisions of clause
22.3;
II - Expropriation: In keeping with the provisions of Art. 113 of Law
No. 9,472 of 1997, compensation, which shall be paid prior to
expropriation, must correspond to the value of the assets which are
reverting to the granting authority, minus depreciation;
III - Forfeiture: Independently of the application of penalties and
the indemnification of damage resulting from breach of contract, under
the terms of the Agreement, the Concessionaire may only claim
compensation if it is proved that the government will be unjustly
enriched through the reversion of assets that have not been completely
amortized or depreciated, after deducting the value of the damage
incurred and of imposed fines, in addition to any unmet financial
obligations;
IV - Amicable or judicial rescission: No compensation shall be due,
unless otherwise determined by a court ruling; and
V - Annulment: Compensation shall only be due if it is proved that the
Concessionaire did not act illegally, and such compensation shall
correspond solely to the actual value of the assets which revert to
the government, calculated on the date the annulment is decreed, on
the condition that said assets have not yet been fully amortized.
(S) 1 - The temporary amount to be advanced by ANATEL in cases of
expropriation shall be calculated in the manner prescribed by the specific
authorizing legislation.
(S) 2 - In the event that forfeiture is brought about through the
demonstrated fault of the Concessionaire, it shall also occasion:
a) retention of the credits stemming from the Agreement, including
the appropriation of revenue from the payments made by users of
the service;
b) liability for prejudice caused to the government and to the users;
c) the levying of fines under the terms provided for in this
Agreement and current legislation; and
d) loss of the insurance guarantee provided for in clause 23.1.
(S) 3 - Except in cases of expropriation, the appropriate compensation
for other instances of termination of the Agreement shall be calculated under
the terms of this chapter and divided into installments equal to the number of
months the concession would have been in effect. The first installment shall be
paid one year after the termination of the Agreement.
40
<PAGE>
(S) 4 - The responsibility for paying the various types of
compensation may be transferred by ANATEL to the provider that takes over the
operation of the service granted hereby from the Concessionaire. However, ANATEL
shall reassume the payment obligation in the event the new provider is more than
90 (ninety) days behind in its payments.
CHAPTER XXVIII - INTERVENTION
CLAUSE 28.1. - In the event the continuity and security of the service
granted hereby is jeopardized through the fault of the Concessionaire,
especially in the situations indicated below, then ANATEL, at its discretion and
in the public interest, may decree its intervention in the affairs of the
Concessionaire by way of a specific and justified act of its Board of Directors.
I - Unjustified paralysis of the service granted hereby, that being
the interruption of service under circumstances not anticipated by
this Agreement, and which are not attributed to causes which ANATEL
considers justifiable;
II - Inadequacy or repeated insufficiencies of the service provided,
characterized by noncompliance with the quality parameters provided
for in this Agreement and by regulation, even after warnings issued by
ANATEL to rectify the situation by a certain deadline;
III - Poor administrative practices that jeopardize the continuity of
the service granted hereby;
IV - Recurrence of violations defined as serious under the terms of
clause 25.1 above;
V - Non-fulfillment of universal service objectives, that being the
unjustified failure to comply with the timetable for implementing the
universal service requirements of this Agreement;
VI - Unjustified withholding of interconnection, understood as
refusing, delaying or postponing the negotiation or implementation of
a connection to its network, at the request of another service
provider, and in compliance with the terms of interconnection
determined by ANATEL;
VII - Violation of economic order, characterized by unfair trade
practices; and
VIII - Failure to provide reports to ANATEL, or obstruction of
inspection activities, which may presuppose the occurrence of any of
the events anticipated in the previous paragraphs.
CLAUSE 28.2. - The intervention decree must state the timeframe,
motives, goals and scope, in addition to designating the intervening party.
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<PAGE>
SOLE PARAGRAPH - The duration and scope of the intervention must be
compatible with and in proportion to the cause for the intervention.
CLAUSE 28.3. - The intervention shall be preceded by administrative
proceedings initiated by ANATEL, during which the full rights of defense of the
Concessionaire shall be guaranteed.
SOLE PARAGRAPH - If immediate intervention is indispensable, it may be
decreed as a precaution by ANATEL, without a prior declaration by the
Concessionaire, in which case the proceedings must be initiated immediately as
of the date of the decree, and concluded within one hundred eighty days, during
which time the Concessionaire may exercise its full rights of defense.
CLAUSE 28.4. - The intervention decree shall neither affect the
regular course of business of the Concessionaire, nor its normal functioning. It
shall, however, occasion the immediate dismissal of its management.
CLAUSE 28.5. - The function of temporary administrator may fall to an
executive of ANATEL, a specifically appointed person, collegial body or a
company, and the Concessionaire shall assume the cost of remuneration.
(S) 1 - ANATEL may have recourse the intervening party to act on its
behalf.
(S) 2 - The temporary administrator shall issue reports and be
responsible for its acts.
(S) 3 - For acts of alienation and disposal of the assets of the
Concessionaire, the temporary administrator requires the prior authorization of
ANATEL.
CLAUSE 28.6. - Intervention shall not be decreed if ANATEL deems it
unnecessary.
SOLE PARAGRAPH - Intervention shall be deemed unnecessary under the
circumstances set forth in (S) 1 of clause 26.4 above, as well as under those
provided for in Art. 114, paragraph IV of Law No. 9,472 of 1997.
CHAPTER XXIX - ADMINISTRATIVE EXPROPRIATIONS AND IMPOSITIONS
CLAUSE 29.1. - In the event public easements or expropriations need to
be carried out in order to implement, provide or update the service granted
hereby, such tasks shall be handled entirely by the Concessionaire, and ANATEL
must submit proposals to the President of the Republic requesting the issuance
of declarations of public interest.
CHAPTER XXX - ARBITRATION
CLAUSE 30.1. - Any disputes that may arise over the application and
interpretation of the terms of the concession shall be resolved by ANATEL
through the exercise of its function
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<PAGE>
as a regulatory body, in accordance with the provisions of Articles 8 and 19 of
Law No. 9,472 of 1997. The Concessionaire may only evoke the arbitration
proceeding provided for in this Chapter if it disagrees with a ruling by ANATEL
on the following topics:
I - Infringement of the right of the Concessionaire to protect its
economic situation, as set forth in Chapter XII;
II - Rate revision, as provided for in Chapter XII; and
III - Compensation owed upon the termination of this Agreement,
including reverted assets.
SOLE PARAGRAPH - The submission of any issue to arbitration does not
exempt ANATEL and the Concessionaire from the obligation to comply fully with
this Agreement, nor does it permit the interruption of the activities associated
with the concession.
CLAUSE 30.2. - Arbitration proceedings shall be initiated when one
party sends notice to the other, requesting the establishment of the Arbitration
Tribunal provided for in this Chapter, and detailing the issue which is the
topic of controversy.
SOLE PARAGRAPH - ANATEL may reject the establishment of the
Arbitration Tribunal if it can justifiably demonstrate that the dispute is not
included in the list of topics provided for in clause 30.1.
CLAUSE 30.3 - The Arbitration Tribunal shall be composed of 5 (five)
members, appointed as follows:
I - 2 (two) members, and their respective alternates, chosen by the
Board of Directors of ANATEL from among specialists in the areas
pertaining to the disputed matter, and who are not ANATEL employees.
At least one of them, who shall preside over the proceedings, shall
have specific knowledge of the legal regulation of telecommunications;
II - 2 (two) members, and their respective alternates, chosen by the
Concessionaire, from among specialists in the areas pertaining to the
disputed matter, and who are not ANATEL employees. At least one of
them shall have specific knowledge of the legal regulation of
telecommunications; and
III - 1 (one) member, and his or her respective alternate, chosen by
the members referred to in the preceding paragraphs.
(S) 1 - The Arbitration Tribunal may be assisted by whatever technical
experts it finds suitable to appoint.
(S) 2 - The Tribunal shall be considered constituted on the date when
all arbitrators accept their appointments and notify both parties of their
acceptance.
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<PAGE>
(S) 3 - The Tribunal shall adjudicate on the basis of established law,
and its rulings shall have cogent force, independent of judicial homologation.
CLAUSE 30.4 - If it has not been rejected by ANATEL, or if such
arguments have been overcome, the Proceedings dealt with in this Chapter shall
be initiated, and the following procedures shall be observed:
I - The parties shall have 10 (ten) days as of receiving the notice
discussed at the beginning of the preceding clause in which to choose
the members of the Arbitration Tribunal, which shall be established as
soon as all of its members demonstrated their accepted;
II - In the event one of the parties fails to act, or offers
resistance to the establishment of the Arbitration Tribunal, the other
party may avail itself of the right provided for in Art. 7 of Law No.
9,307 of September 23, 1996;
III - Once the Arbitration Tribunal has been established, the parties
shall each have 25 (twenty-five) days to present their arguments
concerning the disputed matter and may use this opportunity to present
reports, surveys, and opinions, as well as any other documents or
information which they feel are relevant in supporting their position;
IV - Once the briefs have been presented, the Tribunal shall analyze
the arguments and may, at the request of one of its members, order the
elaboration of reports, surveys or opinions, and request information
or documents from the parties. In addition, the Tribunal may make any
other investigation or take any other measures it deems necessary to
obtain optimal information about the disputed matter;
V - During the gathering of the items referred to in the preceding
paragraph, the parties shall always be permitted to make and refute
arguments in keeping with the principles of informality, consensus and
celerity which shall govern the proceeding;
VI - Once the preliminary fact-finding period has been declared
closed, the parties shall be granted a common 15 (fifteen) day period
in which to present their closing arguments;
VII - Once the period mentioned above has elapsed, regardless of the
presentation of the final arguments, the Tribunal shall issue its
ruling within 30 (thirty) days;
VIII - The ruling of the Arbitration Tribunal may not be appealed,
except for petitions for reconsideration, which are only suitable in
cases when a ruling is approved with a mere one-vote majority; and
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IX - Invalidation of arbitration proceedings shall only be allowed
under the circumstances provided for in Art. 32 of Law No. 9,307/96.
SOLE PARAGRAPH - The expense of the arbitration process, including the
cost of reports, opinions and surveys, as well as the fees of the Tribunal
members, shall either be charged to the Concessionaire or to ANATEL, depending
upon the ruling of the Arbitration Tribunal.
CHAPTER XXXI - APPLICABLE LEGAL SYSTEM
CLAUSE 31.1. - Without prejudice to the norms inherent in the
Brazilian legal system, this concession is governed by Law No. 9,472 of July 16,
1997 and by the regulations resulting therefrom, particularly those issued by
Executive Authority in accordance with the provisions of Art. 18 of the above-
mentioned Law, and they always take precedence over conflicting standards.
CLAUSE 31.2. - When providing the service conceded herein, national
telecommunications policy and the regulations of ANATEL must be observed and
considered an integral part of this Agreement, particularly the following
related documents:
I - General Concession Plan;
II - General Plan on Universal Service;
III - General Plan on Quality;
IV - General Regulations for Telecommunications Services;
V - Regulations for Switched, Fixed-line Telephone Service;
VI - General Regulations for Interconnection;
VII - Numbering Regulations for Switched, Fixed-line Telephone
Service;
VIII - Numbering Administration Regulations; and
IX - Regulations for Compensation for Network Usage of Providers of
Switched, Fixed-line Telephone Service.
CLAUSE 31.3. - When interpreting the standards and provisions
contained within this Agreement, general rules of interpretation and the
standards and principles of Law No. 9, 472 of 1997 must be taken into account,
in addition to the documents referred to in the preceding item.
CHAPTER XXXII - VENUE
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CLAUSE 32.1. - In order to resolve disputes stemming from this
Agreement which cannot be resolved through the dispute-resolution process in
Chapter XXX Arbitration, the Federal District Court of Brasilia (Foro da Secao
Judiciaria da Justica Federal de Brasilia, Distrito Federal) shall have
competent jurisdiction.
CHAPTER XXXIII - FINAL AND GENERAL PROVISIONS
CLAUSE 33.1. - The Agreement signed herewith shall enter into force as
soon as its abstract is published in the official government daily journal
(Diario Oficial da Uniao).
SOLE PARAGRAPH - The Concessionaire shall have 6 (six) months as of
the publication of the regulations referred to in clause 31.2, which are
expected to have been completely published by December 31, 1998, before being
required to comply fully with the obligations set forth in this Agreement.
In order to signify their full acceptance of the provisions and terms
of this Agreement, the parties hereby execute it in triplicate, before witnesses
who also execute it, in order that this Agreement take legal and judicial
effect.
Brasilia, May 26, 1998.
ANATEL:
__________________________
__________________________
Concessionaire:
__________________________
__________________________
Witnesses:
__________________________
Name:
ID:
__________________________
Name:
ID:
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<PAGE>
ANNEX 1
CLASSIFICATION OF REVERTIBLE ASSETS USED
TO PROVIDE
DOMESTIC LONG-DISTANCE,
SWITCHED, FIXED-LINE TELEPHONE SERVICE
A) Infrastructure and equipment used for switching and transmission, including
public terminals;
B) Infrastructure and equipment used in the external network;
C) Infrastructure and equipment used for energy and air conditioning;
D) Infrastructure and equipment used by assistance and service centers;
E) Infrastructure and equipment used in operations support systems;
F) Other items required to provide the service.
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ANNEX 2
BASIC DOMESTIC LONG-DISTANCE SERVICE PLAN
1 - General
1.1 - The Basic Domestic Long-Distance Service Plan is governed by the
administrative rulings cited in this annex, by other regulations in effect and
any succeeding regulations.
1.2 - The rates presented are maximums, net of payroll and income taxes.
2 - USAGE OF DOMESTIC LONG-DISTANCE, SWITCHED, FIXED-LINE TELEPHONE SERVICE
2.1 - The billing structure for Domestic Long-Distance Service takes into
account the distance between the billing areas where a call is originated and
where it is received, the duration of the call, the type of call made, and the
time of day of the call.
2.2 - The locations which are the centers of the billing areas have been
approved by Administrative Decree No. 195 of March 30, 1994, issued by the
Ministry of Communications.
2.3 - The billing unit is one tenth of a minute (i.e., six seconds), in
accordance with Administrative Decree No. 219 of April 2, 1997, issued by the
Ministry of Communications.
2.4 - The minimum billed increment is one minute for direct-dialed calls and
three minutes for manual calls, as set forth in Standard No. 003/81 and restated
by Administrative Decree No. 297 of November 29, 1995, issued by the Ministry of
Communications.
2.5 - The Basic Rate (BR) of this service, as determined by Administrative
Decree No. 226 of April 3, 1997, issued by the Ministry of Communications, is
R$0.18 (eighteen centavos), which corresponds to one minute during the normal
period (NP) for the greatest distance indicated in the Rate Table below.
2.6 - Per-minute rates shall be limited to the amounts set forth in the table
below, on the basis of the distance between the centers of billing areas and the
time of the call:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Normal Period
Premium ---------------- Discount Super-Discount
Level Distance Multiplier Period R$ (NP) R$ Period R$ Period R$
- --------- ------------------ --------------- --------------- ---------------- -------------- --------------
- -----------------------------------------------------------------------------------------------------------------
(2xNP) (1xNP) (0.50xNP) (0.25xNP)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DC Local 0.128 0.04608 0.02304 0.01152 0.00576
- -----------------------------------------------------------------------------------------------------------------
D1 Up to 50 Km 0.300 0.10800 0.05400 0.02700 0.01350
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Normal Period
Premium ---------------- Discount Super-Discount
Level Distance Multiplier Period R$ (NP) R$ Period R$ Period R$
- --------- ------------------ --------------- --------------- ---------------- -------------- --------------
- -----------------------------------------------------------------------------------------------------------------
(2xNP) (1xNP) (0.50xNP) (0.25xNP)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D2 Between 50 and 0.500 0.18000 0.09000 0.04500 0.02250
100 Km
- -----------------------------------------------------------------------------------------------------------------
D3 Between 100 and 0.750 0.27000 0.13500 0.06750 0.03375
300 Km
- -----------------------------------------------------------------------------------------------------------------
D4 Over 300 Km 1.000 0.36000 0.18000 0.09000 0.04500
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
2.7 - Billing periods have been established by Standard No. 003/81, and restated
by Administrative Decree No. 297 of November 29, 1995, as per the following
table:
- -------------------------------------------------------------------------
Period Monday - Friday Saturday Sunday and Holidays
=========================================================================
Midnight to 6 am super-discount super-discount super-discount
- -------------------------------------------------------------------------
6 am to 7 am discount discount discount
- -------------------------------------------------------------------------
7 am to 9 am normal normal discount
- -------------------------------------------------------------------------
9 am to Noon premium normal discount
- -------------------------------------------------------------------------
Noon to 2 pm normal normal discount
- -------------------------------------------------------------------------
2 pm to 6 pm premium discount discount
- -------------------------------------------------------------------------
6 pm to 9 pm normal discount discount
- -------------------------------------------------------------------------
9 pm to Midnight discount discount discount
- -------------------------------------------------------------------------
2.8 - No additional charges may be levied upon the above-defined amounts,
regardless of call length.
2.9 - Manual calls shall be billed in keeping with the criteria established in
Standard No. 003/81, restated in Administrative Decree No. 297 of November 29,
1995.
3 - CALLS TO MOBILE CELLULAR SERVICE
3.1 - The billing criteria and procedures for mobile cellular calls are
regulated by Standard No. 23/96, approved by Administrative Decree No. 1536 of
November 4, 1996, issued by the Ministry of Communications.
3.2 - The billing unit is one tenth of a minute (i.e., six seconds).
3.3 - The minimum billing increment is 30 (thirty) seconds.
3.4 - Administrative Decree No. 2503 of December 20, 1996, issued by the
Ministry of Communications, has determined the maximum per-minute rates, as
shown in the table below:
NORMAL RATE DISCOUNT RATE
- -------------------------------------------------------
VC-2 VC-3 VC-2 VC-3
- -------------------------------------------------------
0.58000 0.66000 0.40600 0.46200
- -------------------------------------------------------
3.5 - The discount period for calls to Mobile Cellular Service shall be from
Monday through Saturday from midnight to 7 a.m. and from 9 p.m. to midnight, and
all day Sundays and
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<PAGE>
holidays, as set forth in Standard No. 23/96, approved by Administrative Decree
No. 1,536 of November 4, 1996, issued by the Ministry of Communications.
50
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use in this
Registration Statement on Form 20-F, dated September 18, 1998, for Telesp
Participacoes S.A. of our report dated July 17, 1998 relating to the
consolidated financial statements of Telesp Participacoes S.A. for the years
ended December 31, 1995, 1996 and 1997 and as of December 31, 1996 and 1997.
/s/ KPMG Peat Marwick
Sao Paulo, Brazil
September 18, 1998
