Tele Celular Sul ended the 1st quarter of 2004 with 2,192,072 lines – 25% higher than in the same period of 2003. Of these, 1,636,793 are prepaid lines and 555,279 are postpaid contracts. The postpaid base grew by 10% when compared to the prior year period.

Total net additions amounted to 136,188 lines. The level of additions increased by 365% compared to the year-ago period.

Tele Celular Sul’s region has shown consistent growth in demand for cellular telecommunication services. By the end of the quarter, the estimated total penetration was 27%, compared to 24% in December 2003. Market share was estimated at 53.3% and our market share for new acquisition stood at 43.9%, confirming the Company’s leadership.

Total gross operating revenue amounted to R$421.8 million, or 32.9% above the 1Q03. This is mainly attributable to the 25% increase of lines, the 260% increase in handset sales volume and to the 142.2% growth in value-added services (VAS) revenue.

VAS revenue was R$ 15.5 million, a 142.2% increase versus 1Q03, representing 4.5% of the gross service revenue. GSM has contributed to this performance through the expansion of VAS services, which now includes entertainment, multimedia messages and chats. Our clients originated 64.6 million short message service (SMS) in the quarter, an increase of 89% over the 1Q03.

During the quarter, the average revenue per user (ARPU) was R$ 41.4, lower than the R$ 42.7 registered in the 1Q03, mainly due to the growing lines base, the increased proportion of prepaid lines, and the PCS migration – Bill & Keep. On the other hand, ARPU showed an increase of 1.6% versus 4Q03, overcoming the prevailing downward trend in the market.

On July 6, 2003, the Company launched the Código de Seleção de Prestadora (CSP), the Carrier Selection Code, enabling users to choose their long-distance carrier. The choice of the carrier for calls made from a cell phone is one of the requirements of the new system in which the Company has been operating since December 2002, the Personal Communications Service (PCS).

As a result of the new fee structure introduced by the PCS, Long-Distance Services replaces VC2 (calls made by a subscriber in a registration area to another registration area but within the Company’s Region) and VC3 (calls made by a subscriber in a registration area to another registration area, outside the Company’s Region) revenues.

The cost of services in the period – before depreciation and amortization – amounted to R$50.6 million. The 4.9% growth over 1Q03 mirrors the marked expansion of lines, with the consequent increase in interconnection charges due to other providers and maintenance costs. Also, interconnection rates increased 9.3% in February of 2004.

The cost of handset sales in the quarter amounted to R$68.6 million, higher than the R$29.5 million in 1Q03, as a result of the greater sales volume. In the quarter, 251.2 thousand handsets were sold, a 265.1% increase over the 68.8 thousand handsets sold in the 1Q03. Of the total handsets sold in the period, 53.5% were GSM technology.

Selling expenses – before depreciation, amortization and bad debt – were R$ 58.0 million, 44.0% higher than in 1Q03, resulting from the gross additions registered in the period – 260,130 versus 123,835 in 1Q03, or an increase of 110.1%. It is worth mentioning that the proportion of commission and advertising costs per subscriber decreased leading to a lower subscriber acquisition cost (SAC), which dropped by 10.7% over the 1Q03.

General and administrative expenses (G&A) - before depreciation and amortization - totaled R$ 15.1 million, or a decrease of 28.8% when compared to the 1Q03.

Bad debt totaled R$ 7.8 million, representing 1.8% of total gross revenue. In the period we are adding R$ 7.5 million regarding to the provision for receivables from fixed line carriers.

Depreciation and Amortization expenses, including the amortization of the privatization premium, amounted to R$ 61.4 million, an amount 4.9% higher than in the 1Q03 because of the investments made in the period.

In 1Q04, the EBITDA – earnings before income tax, depreciation and amortization – reached R$ 108.1 million, a 9.5% increase over the 1Q03. The EBITDA margin was 41.2% over the net services revenue, 3.0 percentage points below the 1Q03 figure, mainly because of the increase in gross additions in the period and the efforts in GSM overlay.

The EBIT – earnings before interest and income tax – totaled R$ 46.7 million, versus the R$ 40.7 million reported in the 1Q03.

The consolidated net income for the year grew by 13.1%, reaching R$ 34.4 million, resulting mostly from higher financial revenues. The income per lot of 1,000 shares was R$ 0.09 versus R$ 0.08 in the 1Q03.

By the end of the quarter, the Company had R$ 352.3 million in cash and cash equivalents. The gross indebtedness at the end of 1Q04 was significantly lower than in the 1Q03: R$ 67.1 million versus R$ 322.1 million. The drop in debt was due to the repayment of a loan with debentures, totaling R$ 224.1 million, in October 2003.

The net financial revenue for the quarter was R$ 7.6 million, mostly derived from the reduced level of indebtedness and the interest on cash investments.

Investments in the period totaled R$ 43.1 million, largely earmarked for the implementation of the GSM infrastructure. By the end of the quarter, free cash flow was R$ 6.5 million.

GSM coverage currently reaches 61.4% of the population, representing 114 cites already served by the new technology.

Payment of Dividends

The Apr/23/04 AGO also authorized the payment of dividends and interest on capital – JSCP for fiscal year 2003, to be carried out on June 22, 2004. The total net amounts correspond to R$ 37.3 million, equivalent to R$0.105 per lot of 1,000 common and preferred shares and R$ 1.05 per ADR, representing a 30.9% payout on net income.