Our priorities include implementing last mile network in the major Brazilian cities, expanding and modernizing our domestic and international long-distance network, improving overall quality and increasing the digitalization of the system as a whole. In particular, we give high priority to capital projects that make us closer to our corporate clients. This allows us to position ourselves as a full service provider without relying on the local fixed-line operators, thereby reducing our costs.

In 2000, we launched several new service offerings, which included new calling plans, promotions, calling card services for traditional telephony, higher transmission capacity for national and international high speed data and Internet services. We believe that higher transmission capacity will enable us to act also as an interconnection service provider for the various fixed-line operators and their mirror companies.

Prior to the Breakup of Telebrás, capital expenditures were planned and allocated on a system-wide basis and were subject to approval by the Ministry of Communications. Since the privatization of Telebrás in July 1998, we have determined our own capital expenditure budget, subject to compliance with certain obligations to expand services under the Concession. See "-Regulation of the Brazilian Telecommunications Industry-Concessions and Authorizations-Obligations of Telecommunications Companies". In addition, the financing of capital expenditures is no longer carried out on a system-wide basis and we are required to obtain our own financing. See "Item 5. Operating and Financial Review and Prospects".

We incurred capital expenditures of R$1.41billion in the year 2000, compared to R$1.65 billion during 1999. We estimate that capital expenditures for 2001 will be approximately R$2 billion, 38% of which are expected to be funded with internally generated funds from operations and 62% of which are expected to be funded with existing sources of financing. The R$2 billion in estimated capital expenditures for 2001 will likely be focused on local infrastructure and access along with supporting growth in data, Internet and long distance. Capital spending will likely be within this range over the next two years as we continue to enter the local market and meet demand for growth.

		Year Ended December 31,
		1998		1999		2000
		(in millions of R$)
Local infrastructure and access		117		233		299
Network infrastructure		613		786		452
Data and internet service		154		162		256
Others		319		472		406
Total capital expenditures		1,203		1,653		1,413