We have at times experienced quality of service problems, including busy circuits and failure to complete international and domestic long-distance calls. In 2000, maximum busy circuit rates during peak periods (as a percentage of calls attempted) were 3.84% and 8.97%, as compared to 1.34% and 4.9% for the year of 1999, for international and domestic long-distance calls, respectively. Direct dial call completion rates during peak periods (as a percentage of calls attempted) were 62.64% and 56.0%, compared to 57.34% and 58.8% in the year of 1999, for international and domestic long-distance calls, respectively. Customers were also unable to access an international operator in 2000 in a number of cases. International operator availability (as a percentage of calls attempted) amounted to 92.9% in 2000, compared to 90.3% in 1999. See "- Regulation of the Brazilian Telecommunications Industry - Obligations of Telecommunications Companies - Universal Service, Network Expansion and Modernization".

When the carrier selection code, known as the PIC code, was introduced in July 1999, the telephony system throughout Brazil experienced an unusually high rate of busy circuits and certain domestic and international long-distance calls could not be completed. As a result, Anatel established a non-public administrative process to review these problems. The process resulted in fines of approximately R$55 million, as provided for in the Concession. On April 24, 2001, the lower court issued a decision in favor of Anatel. However, the judge determined to reduce the penalty from R$55 million to R$50 million due to partial violation of the administrative procedure. We intend to appeal against this decision. See "Item 8. Financial Information - Legal Proceedings".

In April 2000, the state of São Paulo also imposed a fine of R$30 million on us and on a local fixed-line operator, and mandated that we refund our customers the value of all phone calls made between July 3 and July 12, 1999. We are challenging these administrative procedures and fines in order to nullify them. See "Legal Proceedings".

Because our network connects with those of regional fixed-line operators, regional cellular operators and foreign operators, the quality of service provided by us may also be significantly affected by the quality of the networks on which calls originate or terminate. For a discussion of future quality of service requirements, see "-Regulation of the Brazilian Telecommunications Industry - Obligations of Telecommunications Companies".

As part of our Concessions and pursuant to the General Plan on Universal Service and the General Plan on Quality, we were required to provide and maintain full-service public telephones available 24 hours a day with domestic and international direct-dial capability in certain remote areas of Brazil by December 31, 1999 and 2000. In addition, we were required to respond to repair requests for such public telephones within 8 hours by December 31, 2000. We are currently seeking clarification from Anatel with regard to the number of public telephones we will have to provide and maintain in order to comply with such requirements.