VIVO, SOUTH HEMISPHERE’S LARGEST WIRELESS COMMUNICATION GROUP, ANNOUNCES FIRST QUARTER 2004 CONSOLIDATED EARNINGS RESULTS OF TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.

• TRO reached 4.452 million clients, a growth of 40.1% and 8.3% compared to 1Q03 and 4Q03, respectively.

• Commercial activity was intense as reflected by net additions of 340,000 new users in 1Q04, compared to 112,000 in 1Q03.

• TRO's contract customer base grew 10.9% while prepaid grew 50.9% compared to 1Q03.

• Net Profit totaled R$ 99.6 million in 1Q04, up 8.0% from the same period last year.

• EBITDA increased 19.7%, and EBITDA margin reached 42.0% in the period, which represents an increase of 2.7 percentage points when compared to 1Q03, despite the higher commercial activity.

• Operating cash flow of R$ 152.3 million in 1Q04, a raise of 16.1% from 1Q03, showing that the company generates sufficient cash flow to maintain its investments.

• Data Revenue is presenting strong growth, rising 123.7% from 1Q03, and represents 4.1% of net operating revenue from services in the quarter (2.0% in 1Q03).

• Productivity increase in 1Q04 of 51.8% and of 11.2% compared to 1Q03 and 4Q03, respectively.

As of October 29, 2003 TRO began operating high-speed Wireless Internet with its CDMA 1xRTT network. At the end of March 2004, the 1xRTT already covered the cities of Brasília, Goiânia and 42 additional municipalities in the region, reaching 42.4% of the population in Area 7. TRO, launched in October 2003 "Vivo ao Vivo" - a multimedia super platform, which is a revolution in the concept of service access. "Vivo ao Vivo" brings all services to the handset within reach of a click. "Vivo ao Vivo": Usage interface through icons which represent the operator’s main services – making it easy for the users to access and handle these services (WAP, SMS, voice mail, voice portal, MMS, tones and images, messaging, camera and customization – which is called “Meu Vivo ao Vivo” ).

The growing utilization of WAP has occurred driven by announcements of new services and applications such as chats and broadcasts for news applications. In 1Q04, 24% of the total client base in Area 7 and Area 8 possessed handsets with WAP service capability.

On July 6, 2003, the Personal Mobile Service (SMP) operators implemented the Carrier Selection Code (CSP) for long distance calls. Therefore, the TCP operators no longer earn VC2 or VC3 (long-distance) revenues, which were replaced with interconnection revenues from the use of its network to complete long distance calls.

As of July 2003, Bill & Keep was implemented, for which payment for the use of the local network between the SMP operators will only occur when the traffic between them exceeds 55%, causing an impact on revenue and interconnection costs. However, this change does not materially affect EBITDA.

Source: ANATEL

• TRO’s client base grew 40.1% in the last year and 8.3% in the quarter. This is a result of greater commercial activity and from the incorporation of VIVO, which standardized commercial policies across the group. Net additions in the quarter were 203.6% above the same period in 1Q03.

• TRO maintained the trend observed in the last quarters with a growing share of net additions, reaching 59.8% according to ANATEL.

• Monthly churn declined 0.7 p.p. in 1Q04 to 1.7% (2.4% in 4Q03), as as result of client retention campaigns (handset upgrades, loyalty programmes, and prepaid frequent recharging campaigns) and service quality.

• Blended ARPU reached R$ 31.6, a decrease of 21.2% compared to 1Q03, impacted by the growth in average customer base of 36%, strong promotional bonuses in traffic and the larger proportion of prepaid customers in the base, which totaled 79% (73% in 1Q03). Excluding the SMP effect, blended ARPU would have been R$ 36, a 10% reduction year over year. The decline quarter over quarter also reflects the non-recurring impact of the migration of billing and interconnection platforms, which is estimated to have caused a decline in ARPU of R$ 2.

• SAC at TRO was 42.1% lower than in 1Q03 due to a decline in subsidies, publicity and handset discounts obtained from suppliers following the incorporation of TRO by the VIVO Group.

• Growing operational efficiency, scale gains, and administrative efficiencies allowed for productivity gains in 1Q04 of 51.8% and of 11.2% in comparison to 1Q03 and 4Q03, respectively.

Source: ANATEL

• In 1Q04, the client base in Area 7 increased 39.4% compared to 1Q03 and 7.8% versus 4Q03, reaching 3.57 million clients. Net additions in the quarter were 181.5% above those registered in 1Q03.

• In 1Q04, TRO’s Area 7 was responsible for a 66.9% market share of net additions in the states in which it operates, where a total of three wireless companies operate, according to ANATEL.

• In 1Q04, the client base in Area 7 increased 39.4% compared to 1Q03 and 7.8% versus 4Q03, reaching 3.57 million clients. Net additions in the quarter were 181.5% above those registered in 1Q03.

• In Area 7, the contract client base grew 12.3% when compared to 1T03 due to our focus on the corporate market and contract clients.

• TRO maintained its market leadership in Area 7 with a market share of 66.9%, the highest market share of any mobile operator in Brazil.

• SAC declined 44.4% in Area 7 in comparison to 1Q03 because of lower subsidies, publicity and handset discounts obtained from suppliers following the incorporation of TRO by the VIVO Group.

• Rising operational efficiency, scale gains, and administrative efficiencies allowed for productivity gains in 1Q04 of 42.0% and of 2.9% in comparison to 1Q03 and 4Q03, respectively.

Source: ANATEL

• The client base in Area 8 reached 883,000 clients, and rose 42.9% in 1Q04 when compared to the same period last year and 10.1% when compared to the previous quarter. Net additions in the quarter were 305.0% above those registered in 1Q03.

• In 1Q04, TRO’s Area 8 was responsible for a 44.6% market share in net additions in the states in which it operates, where a total of four wireless companies operate, according to ANATEL.

• In Area 8, TRO reached market share of 33.3%, an increase of 0.8 p.p., quarter over quarter in a market with four competitors.

• SAC in Area 8 decreased 44.8% when compared to 1Q03 because of lower subsidies, publicity and handset discounts obtained from suppliers following the incorporation of TRO by the VIVO Group.

• Rising operational efficiency, scale gains, and administrative efficiencies allowed for productivity gains in 1Q04 of 94.3% and of 46.9% in comparison to 1Q03 and 4Q03, respectively.

In 1Q04 the Company’s net operating revenue from services was R$ 404.4 million, an increase of 7.6% over 1Q03, and 23% excluding the effect of SMP. Revenue growth is a result of a 36% increase in average customer base, which was offset by higher levels of promotional bonuses in the quarter. A 7.0% decline in revenues quarter over quarter was impacted by lower services usage during the holidays, and also reflects the non-recurring effect of billing and interconnection platform migration – causing an estimated negative impact of R$2 on ARPU.

Data revenue presented strong growth, increasing 123.7% from 1Q03 and representing 4.1% of net operating revenue from services in 1Q04 (2.0% in 1Q03). Incremental data revenue grew as a function of new services made available and from popular nationwide campaigns to promote the access and use of these services. SMS represented 97.7% of data revenue, and increased by 120.1% compared to 1Q03. The average number of SMS messages sent per month in 1Q04 doubled from the same period last year, reaching approximately 39 million.

TRO’s cost of personnel went down 18.4% in relation to 4Q03 but rose 48% when compared to 1Q03 impacted by greater commercial activity.

Cost of services provided by TRO decreased by 48.5%, due to lower Fistel and other fees compared to 1Q03, following the standardization of Vivo criteria.

TRO's cost of goods sold in 1Q04 rose by 51.2% in relation to 1Q03, due to intense commercial activity (gross additions rose 119%) and focus on handset upgrades.

Commercial expenses increased by 67.6% in relation to 1Q03, due to an extraordinary level of past dues, higher call center costs, more intense competition and greater levels of promotional activity.

Bad debt, which is provisioned 90 days after it is due, reached 2.7% of gross operating revenues in the quarter, 1.5 percentage points above levels registered in 4Q03 upon standardization to “Vivo” accounting criteria. Excluding this impact (R$ 7.9 million), the provision for past dues would have been 1.7% of gross revenue, 0.2 percentage points below 1Q03. The Company continues to strive to maintain the quality of its contract client base, as well as follow the credit control strategy among resellers and corporate clients adopted by the Vivo Group.

Bad debt, which is provisioned 90 days after it is due, reached 2.7% of gross operating revenues in the quarter, 1.5 percentage points above levels registered in 4Q03 upon standardization to “Vivo” accounting criteria. Excluding this impact (R$ 7.9 million), the provision for past dues would have been 1.7% of gross revenue, 0.2 percentage points below 1Q03. The Company continues to strive to maintain the quality of its contract client base, as well as follow the credit control strategy among resellers and corporate clients adopted by the Vivo Group.

In 1Q04, TRO's EBITDA reached R$ 194.1 million, an increase of 19.7% from 1Q03. EBITDA margin of the period was 42.0%, up 2.7 p.p. when compared to the 1Q03, despite the greater commercial activity.

Depreciation rose 19.1% when compared to 4Q03 due to the CDMA overlay and change in policy regarding depreciation of handsets which was changed from 24 to 18 months.

TRO’s net financial result in 1Q04 fell R$ 13.0 million when compared to the same period last year. The result was impacted by the repayment of debentures in 2003 and the corresponding application of this cash in the financial market at lower rates, by the new Cofins tax – which has new rate and calculation methodology –, by the drop of effective interest rate (CDI) in 1Q04 to 3.76% compared to 5.67% in 1Q03 and by the non-recurring result occurred in 1Q03.

As of March 31, 2004, TRO’s total debt amounted to R$ 351.5 million (R$ 358.2 million as of December 31, 2003) of which 45.8% was denominated in US dollars. All of our foreign currency debt was hedged through derivative operations. This debt was offset by cash and marketable securities (R$ 914.2 million) and by derivative assets and liabilities (R$ 17.6 million payable), producing a net cash position of R$ 545.1 million, characterizing a flexible financial position. At the end of 1Q04, short-term debt represented 39.5% of total debt, a decline from the 56.3% in 1Q03.

In 1Q04, R$ 41.8 million were invested in property, plant, and equipment, mainly in improvement and expansion of existing service capacity. Also significant was the investment to implement the CDMA (1xRTT) overlay, which already covers 42.4% of the population in TRO’s area 7.

The positive operating cash flow produced in the period shows that TRO generates enough cash to finance its capital expenditure program. Operating cash flow reached R$ 152.3 million in the quarter, 16.4% above the amount generated in 1Q03.

On April 13th, the “VIVO” brand celebrated its first year, reaching the 22 million client mark, making it the 10th largest wireless operator in the world and number one in the southern hemisphere, covering 20 Brazilian states, representing 87% of the territory in the country and 83% of GDP, with a market share of 45% on a national basis and 56% in its coverage area.

Financial Terms:

EBIT – Operating result before interest and taxes.
EBITDA – Operating result before interest, taxes, depreciation and amortization.
EBITDA Margin = EBITDA / Net Operating Income.
CAPEX – Capital Expenditure
Operating Cash Flow = EBITDA – CAPEX.
Subsidy = (net income from goods – cost of goods sold + discounts given by suppliers) / gross additions
PDD – Provision for doubtful debtors. A concept in accounting that measures the provision made for accounts receivable due for more than 90 days.
Net debt = Gross debt – cash – financial investments – securities – active derivative transactions + passive derivative transactions
Debt / EBITDA – Index which evaluates the Company’s ability to pay its debt with the generation of operating cash in a one-year period.
NE – Net Equity
Net debt/ (Net debt + NE) – Index which measures the Company’s financial leverage.
Current Capital (Short-term capital) = Current assets – Current liabilities
Working capital = Current Capital – Net Debt

Technology and Services

CDMA – (Code Division Multiple Access) – Aerial interface technology for cellular networks based on spectral spreading of the radio signal and channel division in the code domain.
1XRTT – (1x Radio Transmission Technology) – It is the CDMA 2000 1X technology which, pursuant to the ITU (International Telecommunication Union), and in accordance with the IMT-2000 rules, is the 3G (third generation) Technology.
ZAP – A service which allows quick wireless access to the Internet through a computer, notebook or palmtop, using the CDMA 1XRTT technology.
WAP – Wireless Application Protocol is an open and standardized protocol started in 1997, which allows access to Internet servers through specific equipment, a WAP Gateway at the carrier, and WAP browsers in customers’ handsets. WAP supports a specific language (WML) and specific applications (WML script).
SMS – Short Message Service – Short text message service for cellular handsets, allowing customers to send and receive alphanumerical messages.

Operating indicators:

Customers – Number of wireless lines in service.
Gross additions – Total of new customers acquired in the period.
Net additions = Gross Additions – Reduction in number of customers
Market share = Company’s total number of customers / number of customers in its operating area
Net additions market share: participation of estimated net additions in the operating area.
Market penetration = Company’s total number of customers + estimated number of customers of competitors) / each 100 inhabitants in the Company’s operating area
Churn rate – Percentage measuring the number of inactive customers during a specific time period, relative to the average number of active customers in the same period = number of customers lost in the period / ((customers at the beginning of the period + customers at the end of the period) / 2)
ARPU (Average Revenue per User) – net income from services per month / monthly average of customers in the period
Blended ARPU – ARPU of the total customer base (contract + prepaid)
Contract ARPU – ARPU of contract service users
Prepaid ARPU – ARPU of prepaid service users
MOU (minutes of use) – monthly average, in minutes, of traffic per customer = (Total number of outgoing minutes + incoming minutes) / monthly average of customers in the period
Contract MOU – MOU of contract service users
Prepaid MOU – MOU of prepaid service users
SAC – cost of acquisition per customer = (70% marketing expenses + costs of the distribution network + handset subsidies) / gross additions.
Productivity = number of customers / permanent employees