TIM PARTICIPAÇÕES S.A.

FINANCIAL STATEMENTS
PARENT COMPANY AND
CONSOLIDATED
DECEMBER 31, 2007 AND 2006
INCLUDING THE INDEPENDENT
AUDITORS´ REPORT

TIM PARTICIPAÇÕES S.A.

CE-0077/08ING

     FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

1

The Management and Stockholders
TIM Participações S.A.
Rio de Janeiro - RJ

2

Rio de Janeiro, January 30, 2008.

Original report in Portuguese was signed by

Ernesto Rubens Gelbcke
CTCRC SP-071189/O-6S-RJ

A member-firm of NEXIA International

3

TIM PARTICIPAÇÕES S.A.

BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
( IN THOUSANDS OF REAIS )

The accompanying notes are an integral part of these financial statements

4

The accompanying notes are an integral part of these financial statements

5

TIM PARTICIPAÇÕES S.A.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2007 AND 2006
( IN THOUSANDS OF REAIS , EXCEPT FOR EARNINGS (LOSSES) PER SHARE,
EXPRESSED IN REAIS)

The accompanying notes are an integral part of these financial statements

6

TIM PARTICIPAÇÕES S.A.
STATEMENT OF CHANGES IN SHAREHOLDERS´ EQUITY
YEARS ENDED DECEMBER 31, 2007 AND 2006
( IN THOUSANDS OF REAIS )

The accompanying notes are an integral part of these financial statements

7

TIM PARTICIPAÇÕES S.A.
NOTES TO THE FINANCIAL STATEMENTS--CONTINUED
AS OF DECEMBER 31, 2007 AND 2006
(IN THOUSANDS OF REAIS)

TIM PARTICIPAÇÕES S.A.

STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEARS ENDED DECEMBER 31, 2007 AND 2006
( IN THOUSANDS OF REAIS )

The accompanying notes are an integral part of these financial statements

8

TIM PARTICIPAÇÕES S.A.
NOTES TO THE FINANCIAL STATEMENTS--CONTINUED
AS OF DECEMBER 31, 2007 AND 2006
(IN THOUSANDS OF REAIS)

TIM Participações S.A. (“TIM Participações” or the “Company”), is a publicly-held company controlled by TIM Brasil Serviços e Participações S.A., a Telecom Italia Group’s company, who holds interests of 81.24% of its voting capital and 69.67% of its total capital

The Company´s main operations comprise, among other things, the control of companies exploring telecommunications services, including cellular telephones, in its concession and/or authorization areas.

Through its wholly-owned subsidiary TIM Celular S.A. (“TIM Celular”), the Company holds all the capital of TIM Nordeste S.A. (“TIM Nordeste”). TIM Celular operates as a provider of Comuted Fixed Telephone Service (STFC) of the following types: Local, Domestic Long Distance and International Long Distance, and Multimedia Communication Service (SCM) in every Brazilian state. Its subsidiary operates as a provider of Personal Mobile Service in every Brazilian state.

The services provided by the subsidiaries and the respective tariffs are regulated by ANATEL – Brazilian Telecommunications Agency – in charge of regulating all Brazilian telecommunications. The authorization for use of radiofrequency connected with the Personal Mobile Service (SMP) granted to the subsidiaries mature as follows:

9

Renewal of authorizations

The radiofrequency licensing authorizations for the 800 MHz, 900 MHz and 1800 MHz bands referring to SMP service provision begin to expire in September 2007 (under the Term of Authorization for the State of Paraná except the Londrina and Tamarana municipalities) and are renewable for one more 15-year period, requiring payment at every two-year period of the equivalent to 2% (two percent) of the prior year´s revenue net of taxes, by way of investment under the Basic and Alternative Service Plans. The first payment is scheduled for April 30, 2009.

The TIM Celular´s authorization to operate in the State of Paraná, except in Londrina and Tamarana municipalities, was extended to September 3, 2022, in accordance with Act 57.5551 of April 13, 2006.

Acquisition of authorizations - 3G technology

In December 2007, under the “Licitation nº. 002/2007/SPV- ANATEL”, TIM Celular and TIM Nordeste jointly acquired for R$1,324,672 the authorizations for right to use of radiofrequencies at the sub-bands F, G and I, corresponding to all Brazilian States except the “triângulo mineiro”^(*) municipalities in the State of Minas Gerais, and, relating to the 3G (UMTS) standard. These authorizations are valid for 15 years and renewable for a further 15.

The Terms of Authorization referring to the right of use of radiofrequencies acquired at the auction are due to be signed in March 2008, when the payment of 10% of the total amount will be made. The remaining 90% is to be paid in 6 equal, annual installments after a 3-year grace period, with restatement based on the Telecommunications Sectoral Index (IST), in the event of payment twelve (12) months after the delivery of Identification Documents and Tax Clearance Certificate, of Price Proposals and Accreditation Documents, plus interest at one percent (1%) p.m.

As a result of acquisition of authorizations at the auction, coverage commitments were assumed by the subsidiaries for servicing with the frequencies acquired (1.9 GHz/2.GHz) in several municipalities and in those with less than 30,000 inhabitants, not covered by SMP.

10

11

12

c. Consolidated Financial Statements

The consolidated financial statements include assets, liabilities and the result of operations of the Company and its subsidiaries TIM Celular e TIM Nordeste, as follows:

The fiscal year of consolidated subsidiaries coincide with those of of the parent company and the accounting policies were consistently applied by the consolidated companies in relation to the previous year.

The main consolidation procedures are as follows:

13

Below, a description of reclassifications and adjustments to the statements originally published in 2006:

14

e.    Supplementary information

By way of supplementary information, the Company also includes in Note 42 the statements of cash flow and value added. These statements were prepared in accordance with IBRACON NPC (Accounting Standards and Procedures) no. 20 and CFC (Federal Accounting Council) Resolution 1.010, respectively

a. Cash and cash equivalents

These comprise movement account balances and short-term investments in the money market realizable in up to 90 days as from the balance sheet date.

b. Short-term investments in the money market

These comprise to investments in the money market maturing in over 90 days as from the balance sheet date, which are shown at cost plus the related earnings up to the balance sheet date, and limited to market value, where applicable.

c. Accounts receivable

Accounts receivable from the telecommunications service costumers are calculated at the tariff rate ruling on the date of service-rendering, including credits for services rendered but not billed until the balance sheet date, receivables from network use and receivables from sales of cell phone sets and accessories.

d. Allowance for doubtful accounts

The allowance for doubtful accounts shown as reduction of accounts receivable is recorded based on the customer base profile, the aging of past due accounts, the economic scenario and the risks involved in each case. The allowance amount is considered sufficient to cover possible losses on receivables.

e. Inventories

Inventories are stated at the average acquisition cost, which does not exceed the market value or net realizable value.

f. Prepaid expenses

The prepaid expenses are shown at the amount actually disbursed and not yet incurred.

15

The subsidized sales of sets and minimodems under the post-paid system are deferred and amortized over at least the duration of the service contract signed by clients (12 and 18 months, respectively. The contractual fine for clients who cancel their subscriptions or migrate to the prepaid system before the end of their contracts is invariably higher than the subsidy granted for sales of sets and mini modems.

g. Investments

The investments in subsidiaries are valued by the equity method. The other investments are shown at cost and reduced to the realizable value, where applicable.

The economic basis for TIM Celular goodwill, which is lineally amortized in ten years through 2010, was its expected profitability.

h.  Property, plant and equipment

The property, plant and equipment items are shown at the acquisition and/or construction cost net of accumulated depreciation, calculated on the straight-line method, over the useful life of assets involved. Any repair and maintenance costs incurred representing improvement, higher capacity or longer useful life is capitalized, whereas the others are recorded as income.

Interest and other financial charges on financing taken for funding construction work in progress (assets and facilities under construction) are capitalized up to the startup date.

The estimated costs to be incurred on disassembly of towers and equipment in property rented are capitalized and depreciated over the useful lives of these assets.

The long-term assets, especially property, plant and equipment, are periodically reviewed to determine the need for recording a provision for losses on any such items and recovery thereof.

The estimated useful lives of all property, plant and equipment items are regularly reviewed considering technological advances.

i Intangibles

Intangibles are stated at the acquisition cost, net of accumulated amortization. Amortization expenses are calculated on the straigh-line method over the useful life of assets, i.e., five years for radio frequency bands and fifteen years for use authorization.

j. Deferred charges

The deferred charges comprise pre-operating expenses and financial costs of the required working capital at the subsidiaries´ pre-operating stage, which are amortized in ten years from the date the subsidiaries become operative.

16

k. Liabilities

Recognized in the balance sheet when the Company has a legal obligation or one arising from past events, the settlement of which may require economic resources. Some liabilities involve uncertainties concerning the time frame and value, being estimated as incurred and recorded by means of a provision. The provisions are recorded based on the best estimates of related risks.

l. Income tax and social contribution

The provision for income tax and social contribution was calculated in accordance with pertinent legislation in force at the balance sheet date. Income tax is calculated at 15% on taxable income, plus 10% surtax on portions exceeding R$240 in a 12-month period. Social contribution is calculated at 9% on taxable income recognized on the accrual basis. As a consequence, temporarily non-deductible expenses included in the book value of income or temporarily non-deductible revenues excluded from taxable income give rise to deferred tax credits and debits.

Prepaid amounts or those which can be offset are shown as current or non-current assets, depending on the prospects of realization.

The deferred income tax and social contribution on accumulated tax losses and negative social contribution basis and on temporary differences are calculated based on the expected taxable income generation in the future, net of the provision for adjustment to the recovery value, set up in accordance with CVM Instruction 371/02.

m  Provision for contingencies

The provision is set up based on the opinion of the Company´s internal and external lawyers and management, in an amount deemed sufficient to cover probable losses and risks. Possible losses and risks are disclosed and remote losses are not disclosed.

n. Asset retirement obligations

Pursuant to the Circular Communication CVM/SNC/SEP no. 01/2007, the subsidiaries record as provisions for asset retirement obligations and estimated costs brought to present value, which will be incurred on disassembly of towers and equipment in rented properties.

o.  Revenue recognition

Service revenues are recognized as services are provided.Billings are monthly recorded. Unbilled revenues from the billing date to the month end are measured and recognized during the month in which services are provided. Revenues from prepaid telecommunication services are recognized on the accrual basis in the period of utilization. Revenues from the sale of cell phone sets and accessories are recognized as these products are delivered to, and accepted by, end-consumers or distributors. .. No revenue is recognized if its realization is very uncertain.

17

p. Derivative instruments

The subsidiaries enter into swap derivative contracts, accounted for on the accrual basis, in order to control exposure to the risk of exchange variation and interest rate fluctuation. Derivative instruments are recorded based on the average curve against financial revenues, and expenses and settlements paid or received are recognized as adjustments to exchange variations.

These contracts are signed with big financial institutions highly experienced in this field. The subsidiaries do not sign derivative contracts for commercial or speculative purposes.

q.  Pension plans and other post-employment benefits

The Company and its subsidiaries record the adjustments connected with the employees’ pension plan obligations according to the rules established by NPC 26 of IBRACON, approved by CVM Deliberation n°. 371, which defines the characteristics of the plan, obligations and events described in Note 36.

r. Employees´ profit-sharing

The Company and its subsidiaries monthly record a provision for employees´ profit-sharing, based on the targets disclosed to its employees and approved by the Administrative Council. These amounts are recorded as personnel expenses and allocated to profit and loss accounts considering each employee’s cost center.

s.  Use of estimates

The preparation of the financial statements in conformity with accounting practices adopted in Brazil requires management to make estimates and assumptions concerning the amounts of recorded assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date, as well as the estimation of revenues and expenses for the year. The actual results may differ from those estimates.

18

The company´s average yield on consolidated investments is 101.95 % of the CDI – Interbank Deposit Certificate variation – CDI.

These investments are redeemable at any time, with no significant loss on recorded yield, except in the case of long-term investments earmarked for use in connection with legal suits.

The changes in the allowance for doubtful accounts can be summarized as follows:

19

During the year 2007, R$173,310 of accounts receivable from credit sales of cell phones performed in that and the previous years failed to be charged in monthly invoices. In addition to the corrective measures already taken, in September 2007 the Company wrote off R$173,310 of its receivables from goods sold, of which R$118,640 was recorded against the accounts “losses and the allowance for doubtful accounts”, and R$54,670 as deduction from revenues, both under the “Income for the Year”. In December 2007, the Company resumed collection of these cell phone credit sales.

20

The parent company’s long-term portion basically refers to income tax recoverable, whereas the consolidated figure also includes ICMS on the subsidiaries´ permanent assets.

On March 13, 2006, and October 22, 2007 final sentences not subject to further appeal were given in connection with suits filed by TIM Nordeste and the incorporated subsidiary TIM Nordeste Telecomunicações against Law 9.718 of 11/27/1998, on alleged unconstitutionality thereof for expanding the basis of calculation of taxes dealt with therein, and preventing collection of PIS and COFINS on revenues other than those arising from the Company´s sales. Because of the sentences referred to above, the subsidiary´s Management recorded R$52,317 in June 2006 and R$23,424 in November 2007, referring respectively to monetarily restated PIS and COFINS credits. The counterentries were made to the original income, R$ 22,134 of tax deductions and R$ 30,183 as financial revenues, totaling R$ 52,317 referring to 2006 and R$ 23,424 as financial revenue referring to 2007.

The Company and TIM Celular are party to the same process as TIM Nordeste. However, as they have not had a final favorable sentence, no PIS and COFINS credits have been recorded. According to the Management, there is the probability of a favorable outcome for these companies. The amounts involved are R$16,342 and R$37,963, respectively, plus monetary restatement.

Below, the composition of deferred income tax and social contribution:

21

Merger-generated tax credit

The deferred tax asset relating to the merger-generated tax credit refers to future tax benefit under the restructuring plan started in 2000. As a counterentry to said tax is a special reserve composed of goodwill on shareholders´ equity. The tax is realized ratably to estimated future income, over the duration of the authorization granted, which is due to end by 2008. The goodwill amortization is recorded as “Provision for income tax and social contribution”.

In 2007 R$50,450 of tax benefits were amortized in connection with the above mentioned goodwill (2006 – R$50,450). Also, under the terms of the restructuring plan, the actual tax benefit for each fiscal year will be subsequently capitalized in the name of the controlling shareholder. (Note 23-b)

On November 5, 2007, at the General Extraordinary Shareholders´ Meeting the Company approved a capital increase in the amount of R$37,815, which was realized using the tax benefit arising from amortization of this goodwill as follows: 50% at the TIM Celular in 2006, and 100% at the TIM Nordeste.

22

(a) Shareholding in subsidiaries:

(b) Changes in investments in subsidiaries:

23

(c) Goodwill:

The construction work in progress basically refers to the construction of new transmission units (Base Radio Broadcast Station - ERB) for network expansion.

In the year 2007, R$11,347 of property, plant and equipment was capitalized by the subsidiaries, (2006 – R$16,564) relating to financial charges on loans taken to finance the construction.

GSM technology implementation

The subsidiaries´ operate their service network using TDMA and GSM. At December 31, 2007, with the introduction of GSM technology, no provision for loss on property, plant and equipment recovery was deemed necessary, as both technologies are to remain in operation at the companies until 2008. The assets related to TDMA technology have been subjected to accelerated depreciation and must be fully depreciated by 2008.

24

The SMP exploitation rights can be thus shown:

SMP authorizations and radiofrequency

The subsidiaries’ SMP (Personal Mobile Service) authorizations are granted by the terms signed in the years from 2001 through 2004 with Anatel, for exploration of this service. Previously, the subsidiaries TIM Celular and TIM Nordeste had been granted a fifteen-year concession for the SMC (Mobile Communication Service), which was changed into authorization for the SMP in 2002. The remaining SMC authorization period, initially associated with the 800 MHz radiofrequency license is the SMP authorization period.

From 2001 through 2004, the subsidiaries were authorized by Anatel to use radio frequency blocs connected with the provision of SMP at 900 MHz and 1800 MHz.

In September 2007 TIM Celular acquired at an auction under ANATEL Licitation 001/2007-SPV- ANATEL radio frequency authorizations for the 900 MHz sub-bands in lots referring to the North and Center-West regions, states of Rio de Janeiro, Espírito Santo, Rio Grande do Sul and interior of the state of São Paulo, and for 1800MHz radiofrequency bands in the states of São Paulo and Rio de Janeiro. This investment totals R$50,000, taking into consideration the remaining period of original licenses granted for the respective regions. Until December 31, 2007 R$29,000 of the R$50,000 acquired had been recorded by the Company, as it still awaits the Steering Council´s decision on all 900 MHz lots auctioned in connection with na appeal filed by the other bidder.

25

26

27

The syndicated loan taken by the TIM Celular has restrictive clauses concerning certain financial indices calculated on a half-yearly basis and fully complied with by the borrower. The following Financial Institutions are party to this loan agreement: HSBC Bank Brasil S.A. – Banco Múltiplo, Banco ABN AMRO Real S.A., Banco BNP Paribas Brasil S.A., Banco Bradesco S.A., Banco do Brasil S.A., Banco Itaú BBA S.A., Banco Santander Brasil S.A., Banco Société Générale Brasil S.A., Banco Votorantim S.A., Unibanco – União de Bancos Brasileiros S.A.

The BNDES loan to TIM Celular S.A. for financing the mobile telephone network has restrictive clauses concerning certain financial indices, all fully complied with by the borrower in the period.

The subsidiaries entered into swap operations as a safeguard against devaluation of the Brazilian currency (“Real”) in relation to foreign currencies and changes in the fair value of financing bearing prefixed interest rates and TJLP. The terms of these swap operations are the same as those of the respective loans.

The long-term portions of loans and financing at December 31, 2007 mature as follows:

28

The monetary adjustment of payables is based on the IGP-DI rate plus interest at 1% p.m.

In October 2007, the TIM Nordeste prepaid the authorization installments maturing between 2008 and 2012.

29

The Company and its subsidiaries are parties to certain lawsuits (labor, tax, regulatory and civil) arising in the normal course of their business, and have recorded provisions when management understands that the risk of loss is deemed probable, based on the opinion of their legal advisors.

The provision for contingencies and the escrow deposits made are thus composed:

30

The changes in the provision for contingencies can be summarized as follows:

Civil contingencies

Several legal and administrative processes have been filed against the Company by consumers, suppliers, service providers and consumer protection agencies, dealing with various issues arising in the regular course of business. It is the Company´s policy to analyze each legal or administrative process to determine whether it involves probable, possible or remote risk of contingencies. In doing so, the Company always takes into account the opinion of lawyers engaged to conduct the processes. The evaluation is periodically reviewed, with the possibility of being modified over the processes due to facts of events such as case law changes.

Consumer lawsuits

Approximately 34,400 individual lawsuits (2006 – 24,300) have been filed against the subsidiaries, mostly by consumers claiming for settlement of matters arising from their relationship with the Company. Among these, the allegedly undue collection, contract cancellation, defects of equipment and non-compliance with delivery deadlines stand out. Provisions have been set up for those processes involving probable losses.

Collective actions

There are three collective actions against subsidiaries involving the risk of probable loss, which can be summarized as follows: (i) a suit against TIM Celular claiming for the installation of a service unit for personal assistance in Rio Branco, AC.; (ii) a suit against TIM Nordeste in the state of Bahia claiming for prohibition of collection of long-distance calls originated and received between Petrolina/PE and Juazeiro/BA, because of the existing bordering areas; and (iii) a suit against TIM Celular in the state of Rio de Janeiro, involving the impossibility of collecting a fidelization fine in the event of phone set thefts. No provisions have been recorded for these contingencies, given the obligations involved therein and the impossibility of accurately quantifying possible losses at the current stage of the processes.

31

Labor contingencies

These refer to claims filed by both former employees in connection with salaries, salary differences and equalization, overtime, variable compensation/commissions and former employees of service providers who, based on pertinent legislation, claim for the Company´s and/or its subsidiaries´ accountability for labor obligations defaulted on by their outsourced employers.

Labor claims

Of the 2,350 labor suits filed against the Company and its subsidiaries (2006 – 1,627) over 65% involve claims against service providers, concentrated on certain companies from São Paulo, Rio de Janeiro and Recife.

Still on third parties´ claims, part of these relate to specific projects of service agreement review, often ended in rescission in 2006 and winding up of the companies and termination of employees involved. A further significant portion of contingencies refers to organizational restructuring, among which the discontinuance of the Client Relationship Centers in Fortaleza, Salvador and Belo Horizonte, and the termination of 800 own employees and outsourced personnel stand out. All processes involving the risk of loss have been provided for by the Company.

The probability of winning these actions and the amount of contingencies are subject to periodical reviews, taking into account the legal decisions made thereon, some regulatory changes or amendments to Case Law and Abridgement of Law issued by Superior Courts.

Tax Contingencies

IR and CSSL

In 2005, the TIM Nordeste S.A. (formerly Maxitel S.A.) was assessed by the Internal Revenue Secretariat of the State of Minas Gerais for R$126,933, for the following reasons: (i) taxation of monetary variations on swap operations and exchange variation on unsettled loans; (ii) a separate fine for default on payment of social contribution on an estimated monthly basis for the year 2002 and part of 2001; (iii) default on payment of corporate income tax on an estimated monthly basis for the year 2002; and (iv) remittance of interest (IRRF) – a voluntary denunciation without payment of arrears charges. These assessments are now being discussed by the taxing authorities. Based on its internal and external advisors´ opinion, the Management estimates probable losses on these processes at R$32,750, an amount duly provided for under “Provision for income tax and social contribution”.

32

In September 2003 the TIM Nordeste S.A. was assessed by the Internal Revenue Secretariat of the State of Ceará for R$12,721 referring to: (i) disallowance of R$8,402 expenses included in the IRPJ determination for the period from 1999 through 2001; (ii) R$3,208 of differences in CSLL payments for the years from 1998 through 2001; (iii) differences of R$334 and R$777, respectively, in the payment of PIS and COFINS for the years from 1998 through 2002. The Company unsuccessfully filed an impugnation and a voluntary appeal against this assessment, at the administrative level. As a consequence, based on its internal and external lawyers´ opinion the losses thereon are probable, the Management set up two provisions: one in the amount of R$11,160 for IRPJ and CSLL, under the heading “Provision for Income Tax and Social Contribution, and one in the amount of R$1,111, for PIS and COFINS, under the heading “Other Operating Expenses”.

ICMS

In 2003 and 2004 the TIM Celular was assessed by the Internal Revenue Secretariat of the State of Santa Catarina for R$46,033 (current value), mainly relating to dispute on the levying of ICMS on certain services provided. This amount is the result of several favorable sentences in administrative processes initially involving assessments of R$95,449. The Company is currently discussing these assessments with the taxing authorities. According to its internal and external lawyers, the probable losses thereon, duly provided for, amount to R$2,650.

Regulatory Contingencies

Due to an alleged default on some SMP’s provisions and quality targets defined under the PGMQ-SMP – General SMP Quality Goals Plan – ANATEL started some procedures for determining Default on Obligations – PADO, involving the subsidiaries.

The subsidiaries have endeavored to avoid being assessed, with arguments, mostly of technical and legal nature, that may contribute to reduce significantly the initial fine charged or definitively file the PADO, without sanctions. The related provision was set up based on the amount of fines charged, the risk of loss involved being classified probable (Note 39).

Contingencies involving possibles losses

Civil, Labor, Regulatory and Tax-related actions have been filed against the Company and its subsidiaries involving risk of loss that is classified as possible or remote by the management and the Company’s lawyers. No provision has been set up for these contingencies.

33

Below, the main actions involving possible risk of loss:

Civil

Collective Actions

There are two collective actions against subsidiaries involving the risk of probable loss, which can be summarized as follows: (i) a suit against TIM Nordeste in the state of Pernambuco, questioning the Company´s policy of defective phone replacement, allegedly in disagreement with the manufacturer´s warranty terms; (ii) a suit against TIM Nordeste S.A. in the state of Ceará, claiming for the Company´s obligation to replace cell phone sets which have been the subject of fraud in that state.

Other Actions and Proceedings

The TIM Nordeste is defendant in an action filed by the legal services providers, the law firm Mattos & Callumby Lisboa Advogados, in Rio de Janeiro´s 29^th Civil Court. They claim for success fees allegedly due under a service agreement for filing court injunctions against interest and monetary restatement on purchase prices of TIM Nordeste S.A.´s “Band B”. As the risk of an unfavorable outcome for the Company is deemed possible by both internal and external advisors, no provision has been set up.

The TIM Celular, together with other telecommunications companies, has also been sued by GVT at the 4^th Federal Audit Court. The plaintiff claims for declaration of nullity of a contractual clause dealing the VU-M amount used by the defendants by way of interconnection, which is deemed illegal and abusive and as such requiring refunding of all amounts allegedly charged in excess since July 2004. A preliminary order was granted determining the payment of VU-M on the basis of R$0.2899. As both internal and external lawyers find that the risk of loss for the subsidiary is possible, no provision has been set up.

Labor

Labor claims

A substantial portion of contingencies refers to organizational restructuring, among which the discontinuance of the Client Relationship Centers (call centers) in Fortaleza, Salvador and Belo Horizonte, and the termination of 800 own employees and outsourced personnel stand out.

Among the labor suits involving the possibility of loss, the civil public action filed by the State of Minas Gerais´s Public Labor 3^rd Region, on the charge of irregular outsourcing practices and collective damages is worth mentioning

34

Also worth noting are the processes filed in the state of Paraná, involving claims for indemnity in connection with labor registration cards. According to an internal rule, TELEPAR undertook to supplement retirement benefits of employees hired until 1982, having proposed to comply with this obligation through payment of a certain amount in cash, before the privatization process. Some of its former employees, however, have questioned this transaction, and were granted their claims, in certain cases.

Social Security

The TIM Celular received in São Paulo a Debit Assessment Notice referring to an alleged irregularity in the payment of contributions to social security levied on Employees´ Profit-Sharing plan in the amount of R$2,131. After filing its administrative defense, the subsidiary awaits the outcome of the process.

Taxes

IR and CSLL

On October 30, 2006, the TIM Nordeste was assessed for R$258,144 under a single administrative process referring to IRPJ, CSL and a separate fine, for different reasons. Most of the assessment refers to amortization of goodwill determined at a Telebrás System privatization auction and the related tax deductions. Under Law 9.532/97, art. 7, the proceeds of goodwill amortization can be included in the taxable income of a company resulting from merger or split, whereby one company holds investment in the other, and pays for it using the goodwill determined based on the investee´s expected profitability. Also, this is a usual operation performed in accordance with CVM Instruction 319/99.

After timely challenging these assessment notices the TIM Nordeste now awaits the taxing authorities´ decision on the matter. In March 2007, by means of a Fiscal Information Report, the Recife/PE´s Internal Revenue Secretariat informed TIM that the amounts of IRPJ, CSL and a separate fine totaling R$73,027 (principal and separate fine) had been excluded from the assessment notice. As a consequence, this assessment was partially reduced, the discussion on the remainder being transferred to 160 compensation processes, currently totaling R$85,562. Based on its internal and external lawyers´ opinion, the Company has not set up a provision for the above mentioned processes.

35

PIS and COFINS

In 2004, the TIM Nordeste was assessed in connection with PIS and COFINS due on exchange variation arising from revenue generated in 1999. Both assessment notices amounted to R$30,913. Because this is a controversial matter involving interpretation of applicable legislation, a provision was set up, in 2004, for the same amount. On March 13, 2006, a decision not subject to further appeal was issued on the action filed by the company against Law 9718 of November 27, 1998. The company alleged that this law was unconstitutional concerning the expansion of the tax basis of calculation, preventing the collection of PIS and COFINS on non-operating revenue. In view of the final decision, the Management of the TIM Nordeste requested extinction of the tax assessment against the subsidiary, concerning PIS and COFINS on exchange variation, and reversed in 2006, the provision set up in 2004 (Note 28).

In April 2007, the amount of PIS on exchange variation claimed was reduced by R$5,293, after the declaration of unconstitutionality obtained with the sentence was recognized administratively. The remainder – R$25,620 – is now under discussion. The subsidiary awaits the recognition, at administrative level, of the impossibility of collecting the remaining of COFINS infraction, after the sentence was issued.

ICMS

In 2006, the TIM Nordeste was assessed by the taxing authorities from the State of Piauí for R$7,308, in connection with the payment of a difference between intrastate and interstate ICMS rate on fixed assets items for use and consumption and the determination of ICMS basis of calculation for acquisition of goods intended for sale. The Company is impugning these assessments at administrative level, and according to its internal and external lawyers, there is possible risks of loss, which is why no provision has been set up.

In November 2007, TIM Celular was assessed by the State of Rio de Janeiro´s taxing authorities for R$ 38,274, for allegedly having taken undue ICMS credit from acquisition of fixed assets without application to monthly installments of a coefficient calculated ratably to the goods dispatched subjected to tax and the total goods dispatched. This assessment is being impugned by the Company at administrative level. Based on its internal and external lawyers´ opinion, the Company has not set up a provision for losses thereon;

In November 2007, TIM Celular was assessed by the State of Rio de Janeiro´s taxing authorities for R$ 17,241 for defaulting on payment of ICMS and Contribution to the “Fundo Estadual de Combate à Pobreza e Desigualdades Sociais” (State Fund for Fighting Poverty and Social Inequalities) allegedly due on international roaming services. This assessment is being impugned by the subsidiary at administrative level. Based on its internal and external lawyers´ opinion, the Company has not set up a provision for losses thereon;

In November 2007 TIM Celular was assessed by the State of São Paulo taxing authorities for R$ 151,017, for allegedly having failed to include conditional discounts granted to clients in the ICMS basis of calculation. Also, this subsidiary was fined for delivery of digital files allegedly containing incomplete information on operations and services rendered in the January-December 2003 period. This assessment is being impugned by the subsidiary at administrative level. Based on its internal and external lawyers´ opinion, the Company has not set up a provision for losses thereon.

36

ISS

Also, on December 20, 2007, TIM Celular was assessed by the State of Rio de Janeiro´s taxing authorities for R$66,634 for allegedly failing to pay ISS on the following services: technical programming; administrative plan cancellation services; telephone directory aid service and provision of data and information; and network infrastructure sharing. This assessment is being impugned by the Company at administrative level. Based on its internal and external lawyers´ opinion, the Company has not set up a provision for losses thereon.

FUST – Telecommunications Service Universalization Fund

On December 15, 2005, Anatel issued its Summary no. 07 aimed at collecting contributions to the FUST out of interconnection revenues earned by providers of telecommunications services, as from the date of enactment of Law 9998 of August 17, 2000. The Company still believes that based on applicable legislation (including the sole paragraph of article 6 of Law 9998/00), the above revenues are not subject to the FUST charges, and accordingly, the Management has taken the necessary measures to protect their interests. In October and November 2006, ANATEL assessed the Company´s subsidiaries for R$31,338 referring to FUST on interconnection revenues and arrears fine, all because of “Súmula” 07/05. From September to December 2007, ANATEL issued several assessment notices against the Company´s subsidiaries totaling R$18,623, in connection with FUST allegedly due on interconnection revenues for the year 2002. ANATEL claims for FUST collection on interconnection revenues is currently suspended, due to a favorable sentence to the subsidiaries.

FUNTTEL – Telecommunications Technological Development Fund

The Ministry of Communications assessed the TIM Celular and TIM Nordeste for R$10,662 claiming for FUNTTEL amounts allegedly due on interconnection revenues for the years 2001 and 2002. At the same time an arrears fine was imposed on these subsidiaries. In these companies´ opinions, the above mentioned revenues are not subject to FUNTTEL. A writ of mandamus was filed to safeguard the Company´s interests in this case of default on FUNTTEL allegedly due on interconnection revenues, based on the same arguments used for the FUST process. The claims for FUNTTEL collection on interconnection revenues is currently suspended, due to a writ of mandamus favorable to the subsidiaries.

37

Regulatory Proceedings

The TIM Celular is authorized to render SMP in the state of Paraná (except in Londrina and Tamarana) for an indefinite period, and accordingly to use the SMP-related radio frequencies. In 2006, under the Term of Authorization no. 002/2006/PVCP/SPV- ANATEL the latter authorization was extended for 15 years from the end of the original validity period, i.e., through September 3, 2022.

Because of the extension of authorization for use of SPM-related radio frequencies under the Term of Authorization no. 002/2006/PVCP/SPV- ANATEL issued in accordance with Act 57.551, of April 13, 2006, the Company was in its opinion unduly required by ANATEL to pay for a new Installation Inspection Fee (TFI) referring to all its mobile stations in operation in the service provision area, although all these stations had already been licensed at the cost of R$80,066.

This requirement, according to ANATEL, would be justified by application of art. no. 9, III of Resolution 2555, which provides for issuance of new licenses if the validity period is renewed. However, as the Company does not find that this legal provision is correctly applied, the collection in question was timely impugned at administrative level, so that simultaneously the collection can be questioned and the collection suspended until a final decision is reached by ANATEL.

The changes in the asset retirement obligation can be thus shown:

The asset retirement obligation were brought to present value, the result being financial expenses of R$18,779 reflected in 2007 (2006 – R$26,594).

38

39

40

The proposed dividends at December 31, 2007 represent 100% of the adjusted income for that year distributed to holders of preferred shares and the distribution of the Reserve for Expansion balance to holders of preferred shares, as follows:

According to by-laws, the Company, minimum not cumulative dividends, calculated in 6% of the capital stock would be R$298.720. However, management proposes to distribute all available profit and reserves on December 31, 2007, as dividends to preferred shareholders.

41

Despite the losses borne by the Company in the year ended December 31, 2006, the Management proposed to realize part of the Reserve for Expansion - R$450,763 – to distribute dividends. The proposed dividends of preferred shares were calculated at the rate of 6% on the results of the division of subscribed capital split by the total number of shares issued by the Company. Under this criterion, the resulting amount is higher than that determined based on the net worth per share described in the preceding paragraph. Additionally, as shown below, according to art. 47 of its by-laws, the Company proposed to adopt the same criterion for common shares:

The balance of dividends and interest on own capital as of December 31, 2007 includes the following prior years´ amounts: R$20,835 (2006 - R$13,763) at the parent company and R$27,521 (2006 - R$22,195) consolidated.

42

43