We prepare our consolidated financial statements in accordance with Brazilian Corporate Law, which differs in significant respects from U.S. GAAP. The principal differences between Brazilian Corporate Law and U.S. GAAP as they affect our results of operations during the reported periods are described as follows.

The amortization of the restatement of fixed assets which resulted from the inflation accounting 1996 and 1997, while Brazil was still considered to be a highly inflationary economy for U.S. GAAP purposes, was recognized in the reconciliation to U.S. GAAP, net of related deferred tax.

Prior to 1998 under Brazilian Corporate Law, interest on loans and internal capital to finance construction in progress were capitalized at the rate of 12% per annum of the total value of construction in progress, regardless of the amount of interest actually incurred on such loans. Beginning in 1998, only interest on loans specifically used to finance construction was capitalized under Brazilian Corporate Law, while under U.S. GAAP, interest is capitalized at the interest rate of the debt incurred up to the lower of the amount of construction in progress and the total loans incurred. This has resulted in a lower amount of interest being capitalized under Brazilian Corporate Law than would have been capitalized under U.S. GAAP.

Until December 31, 1993 capitalized interest under Brazilian Corporate Law 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. Under U.S. GAAP, capitalized interest is added to the cost of individual assets and is amortized over their estimated useful lives.

Adjustments are made to our provision for pension and other post-retirement benefits resulting from the application of SFAS 87 - "Employer's accounting for pensions" and SFAS 106 - "Employer's accounting for post retirement benefits other than pensions" as required under U.S. GAAP.

Under Brazilian Corporate Law, the deferred tax liability arising from the indexation of assets and liabilities for financial reporting purposes were recorded against retained earnings while under U.S. GAAP such effects would be charged to income and social contribution taxes in the statement of income.

Under Brazilian Corporate Law, proposed dividends are accrued in the consolidated 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.

Under SEC rules, the differences between market price and grant price of Telebrás shares sold to employees must be recorded as a compensation expense by each operating entity, which was spun-off from Telebrás.

Our income from continuing operations under U.S. GAAP would have been R$668.4 million, R$413.3 million and R$418.4 million for the years ended December 31, 2000, 1999, and 1998, respectively. See note 27 to our consolidated financial statements.