Edgar Filing: BRASIL TELECOM SA

Prepared and filed by St Ives Burrups

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

THROUGH AUGUST 13, 2003

(Commission File No. 1-15256)

BRASIL TELECOM S.A.
(Exact name of Registrant as specified in its Charter)

BRAZIL TELECOM COMPANY
(Translation of Registrant’s name into English)

SIA Sul, Área de Serviços Públicos, Lote D, Bloco B
Brasília, D.F., 71.215-000
Federative Republic of Brazil
(Address of Registrant’s principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): .

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): .

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

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BTM: US$11.00/ADR
BRTO3: R$10.60/1,000 shares
BRTO4: R$11.16/1,000 shares
Market Capitalization: R$5,944 million
Closing Price: August 04, 2003

Relações com Investidores
Investor Relations
(55 61) 415-1140
ri@brasiltelecom.com.br

Relações com a Mídia (no Brasil)
(55 61) 415-1378/415-8087
cesarb@brasiltelecom.com.br

Media Relations (outside Brazil)
(1 212) 983-1702
ivette.almeida@annemcbride.com

Brasil Telecom S.A

Consolidated Earnings
Release

Second Quarter of 2003
Non-audited

Brasília, August 05, 2003.

TABLE OF CONTENTS

Highlights of the Results	4
Consolidated Income Statement	5
Table 1: Consolidated Income Statement	5
Operating Performance	6
PLANT	6
Table 2: Plant	6
Graph 1: Plant Evolution	6
Graph 2: ADSL Accesses	7
GOALS	7
TRAFFIC	8
Table 3: Traffic	8
Graph 3: DLD Market Share	8
Financial Performance	9
REVENUE	9
Table 4: Consolidated Gross Operating Revenue	9
Graph 4: Gross Revenue Breakdown	9
Graph 5: Data Communication Revenue	11
COSTS AND EXPENSES	12
Table 5: Consolidated Costs and Operating Expenses	12
Graph 6: Costs and Operating Expenses Breakdown (Excluding Depreciation)	13
Graph 7: LIS/Employee	14
Graph 8: Losses with Accounts Receivable	15
Table 6: Gross Accounts Receivable	15
EBITDA	16
Table 7: EBITDA Margin – Gains and Losses	16
FINANCIAL RESULT	16
Table 8: Consolidated Financial Result	16
Table 9: Interest on Shareholders’ Equity Credited in 2003	17
OTHER ITEMS	17
NET EARNINGS	17
Balance Sheet	18
Table 10: Consolidated Balance Sheet	18
Indebtedness	19
Table 11: Indebtedness	19
Table 12: Amortization Schedule of Long Term Debt	20
Investments in the Permanent Assets	20
Table 13: Breakdown of Investments in the Permanent Assets	20
Cash Flow	21
Table 14: Consolidated Cash Flow	21
Tariffs	22
Stock Market	22
Table 16: Stock Performance	22
Graph 9: Stock Performance in 2Q03 – Bovespa and NYSE	23
Table 17: Participation in Indexes	23
Shareholders’ Structure	23
Table 18: Shareholders’ Structure	23
Recent Developments	24
Main Indicators	26
Table 19: Indicators Evolution	26
Upcoming Events	27
IR Contacts	27
Media Contact	27

	At the end of 2Q03, Brasil Telecom achieved 194.8 thousand ADSL accesses in service, meaning a growth of 18.0% compared to the 1Q03.

	Revenues from data communication in 2Q03 continued its growing path, reaching R$181.2 million, 5.7% ahead the registered in the last quarter.

	In continuation to the inspection process, Anatel concluded the field works, in which various localities at all the Brasil Telecom branches were evaluated. The Company waits for the official outcome from the regulatory body regarding the 2003 targets fulfillment.

	Operating costs and expenses (excluding depreciation and amortization) remained flat in 2Q03, totaling R$1,014.9 million, basically due to the better operating efficiency of the Company.

	At the end of 2Q03, the Brasil Telecom installed plant reached 10,656 thousand lines, 0.5% above the observed in 1Q03. The plant in service achieved 9,741 thousand lines at the end of 2Q03, 1.5% and 9.0% above the plant of 1Q03 an 2Q02, respectively. The growth of plant in service induced the increase of utilization rate for the quarter, which totaled 91.4% at the end of June, 0.9 p.p. and 6.3 p.p. above the registered in 1Q03 and 2Q02, respectively.

	Net revenue in 2Q03 achieved R$1,914.9 million, a 10.2% growth when compared to the net revenue of 2Q02. Net revenue/Average LIS/month in 2Q03 reached R$66.0, against R$65.5 in 1Q03.

	Losses with Accounts Receivable totaled R$61.9 million in 2Q03, representing 2.3% of gross revenue of 2Q03, against R$67.9 million in the last quarter, or 2.6% of gross revenue in the same period.

	In 2Q03, EBITDA totaled R$900.0 million, a 3.2% growth compared to the 1Q03. EBITDA margin achieved 47.0% in 2Q03, against 46.5% in 1Q03. EBITDA/Average LIS/month increased by 1.7% compared to 1Q03, reaching R$31.0.

	The consolidated net debt (excluding the loan and the private debenture with holding company) totaled R$2,358.7 million at the end of June. The consolidated net debt/shareholders’ equity ratio of the Company was equal to 34.2% at the end of 2Q03, against 31.4% at the end of March, 2003. The dollar-denominated debt accounted for 5.2% of total debt, totaling R$254.1 million at the end of 2Q03. Brasil Telecom hedged 44.1% of that debt, being all debt maturing up to December 2004 hedged against exchange variations. At the end of June 2003 the average debt cost was 20.9% p.a., meaning 81.4% of CDI.

	Productivity of 1,834 LIS/employee at the end of 2Q03, against 1,731 in the 1Q03. The higher productivity ratio was due to an increase of 1.5% in the plant in service combined with the net reduction of 232 employees in the last 3 months.


R$ Million	2Q02		1Q03		2Q03		Δ Quarter		Δ 12 Months

GROSS REVENUES	2,412.2		2,609.3		2,691.2		3.1	%	11.6	%
Local Service	976.8		1,063.5		1,032.5		-2.9	%	5.7	%
Public Telephony	88.8		83.8		103.1		23.1	%	16.1	%
Long Distance Service	354.7		325.6		356.8		9.6	%	0.6	%
Fixed-Mobile Calls	544.4		607.3		689.1		13.5	%	26.6	%
Interconnection	195.8		222.7		193.0		-13.3	%	-1.4	%
Lease of Means	57.1		53.2		49.6		-6.8	%	-13.2	%
Data Communication	117.2		171.4		181.2		5.7	%	54.5	%
Supplementary and Value Added Services	70.7		71.0		72.1		1.5	%	1.9	%
Other	6.6		10.9		13.8		26.9	%	110.4	%

Deductions	(674.3	)	(735.6	)	(776.3	)	5.5	%	15.1	%
NET REVENUES	1,737.9		1,873.7		1,914.9		2.2	%	10.2	%

COSTS & OPERATING EXPENSES	(911.2	)	(1,001.5	)	(1,014.9	)	1.3	%	11.4	%
Personnel	(108.5	)	(93.1	)	(96.1	)	3.3	%	-11.4	%
Materials	(24.5	)	(20.3	)	(22.5	)	11.1	%	-8.2	%
Subcontracted Services	(275.0	)	(290.3	)	(306.6	)	5.6	%	11.5	%
Interconnection	(383.6	)	(424.9	)	(430.4	)	1.3	%	12.2	%
Advertising and Marketing	(23.3	)	(9.6	)	(19.1	)	98.5	%	-18.0	%
Provisions and Losses	(74.8	)	(86.5	)	(75.6	)	-12.7	%	1.1	%
Other	(18.3	)	(76.8	)	(64.6	)	-15.9	%	253.6	%

EBITDA	826.8		872.2		900.0		3.2	%	8.9	%
Depreciation and Amortization	(490.8	)	(520.6	)	(526.5	)	1.1	%	7.3	%

OPERATING PROFIT BEFORE FINANCIAL RESULT	336.0		351.6		373.4		6.2	%	11.1	%

Financial Result	(198.6	)	(448.5	)	(232.6	)	-48.1	%	17.1	%
Financial Revenues	59.7		71.0		95.8		34.9	%	60.6	%
Financial Expenses	(218.3	)	(273.3	)	(328.4	)	20.2	%	50.5	%
Interest on Shareholders' Equity	(40.0	)	(246.2	)	—		N.A.		N.A.

OPERATING PROFIT AFTER FINANCIAL RESULT	137.4		(96.9	)	140.9		N.A.		2.5	%

Non-Operating Revenues (Expenses)	(32.6	)	(40.2	)	(38.2	)	-4.9	%	17.3	%
Goodwill Amortization - CRT Acquisition	(31.0	)	(31.0	)	(31.0	)	0.0	%	0.0	%
Other	(1.6	)	(9.2	)	(7.2	)	-21.3	%	355.4	%

EARNINGS BEFORE INCOME AND SOCIAL
CONTRIBUTION TAXES	104.8		(137.1	)	102.7		N.A.		-2.1	%

Income and Social Contribution Taxes	(44.7	)	38.9		(42.3	)	N.A.		-5.4	%

EARNINGS BEFORE PROFIT SHARING	60.1		(98.2	)	60.3		N.A.		0.4	%

Profit Sharing	(9.5	)	(9.7	)	(11.2	)	15.2	%	18.4	%

EARNINGS BEFORE REVERSION OF
INTEREST ON SHAREHOLDERS' EQUITY	50.6		(107.9	)	49.1		N.A.		-3.0	%

Reversion of Interest on Shareholders' Equity	40.0		246.2		—		N.A.		N.A.

NET EARNINGS	90.6		138.3		49.1		-64.5	%	-45.8	%

Goodwill Amortization - CRT Acquisition	31.0		31.0		31.0		0.0	%	0.0	%

NET EARNINGS ADJUSTED BY
GOODWILL AMORTIZATION	121.6		169.3		80.1		-52.7	%	-34.1	%

Net Earnings (Losses)/1,000 shares - R$	0.1681		0.2537		0.0901		-64.5	%	-46.4	%
Net Earnings (Losses)/ADR - US$	0.1790		0.2270		0.0941		-58.6	%	-47.4	%

Table 2: Plant


	2Q02		1Q03		2Q03		Δ Quarter		Δ 12 Months

Lines Installed (Thousand)	10,505		10,608		10,656		0.5	%	1.4	%
Additional Lines Installed (Thousand)	63		60		48		-20.5	%	-23.9	%

Lines in Service - LIS (Thousand)	8,940		9,595		9,741		1.5	%	9.0	%
Residential	6,529		6,979		7,107		1.8	%	8.9	%
Non-Residential	1,530		1,548		1,565		1.1	%	2.3	%
Public Telephones	291		296		297		0.2	%	2.1	%
Pre-paid	59		215		218		1.4	%	270.3	%
Other (including PBX)	531		557		554		-0.5	%	4.2	%
Additional LIS (Thousand)	85		130		146		12.3	%	71.4	%

Average LIS (Thousand)	8,897		9,530		9,668		1.4	%	8.7	%

LIS/100 Inhabitants	22.0		23.2		23.5		1.1	%	6.4	%
Public Telephones/1,000 Inhabitants	7.2		7.2		7.2		-0.2	%	-0.3	%
Public Telephones/100 Lines Installed	2.77		2.79		2.79		-0.3	%	0.7	%

Utilization Rate	85.1	%	90.5	%	91.4	%	0.9 p.p.		6.3 p.p.

Digitization Rate	98.7	%	99.0	%	99.0	%	0.0 p.p.		0.2 p.p.

ADSL Lines Sold (Thousand)	101.5		207.4		265.6		28.1	%	161.8	%
ADSL Lines in Service (Thousand)	89.8		165.1		194.8		18.0	%	117.0	%


Lines Installed		A total of 48 thousand lines were installed in the 2Q03, totaling 10.7 million of lines installed by Brasil Telecom. Through this addition in the quarter, Brasil Telecom is prepared to respond to telephone line activation requests in less than two weeks, as established by the General Plan for Universalization Targets.



Lines in Service		The plant in service reached the figure of 9.7 million lines, as a result of the net addition of 146 thousand lines. Of this total, 87.7% represented lines activated by residential clients.

Utilization Rate		The utilization rate reached 91.4% in the 2Q03, against 90.5% in the 1Q03, as a result of the growth of 0.5% in the installed plant combined with the 1.5% in the in service plant.

ADSL		The plant of ADSL accesses in service achieved 194.8 thousand in 2Q03, meaning a growth of 18.0% compared to the 1Q03.

		At the end of 2Q03, Turbo Lite, service launched by Brasil Telecom in the last week of march, represented 1.5% of the total ADSL accesses in service, as Turbo 300, 78%. With Turbo Lite, for only R$49.90 per month, the client can access the internet at a high speed during 50 hours a month, not to mention the fact that fixed line remains released during the internet access.



GOALS

Quality Goals		Brasil Telecom fulfilled all 35 quality indicators established by Anatel in the 2Q03, for the switched-fixed telephone service in the local and long-distance modes.

Universalization Goals		In continuation to the inspection process, Anatel concluded the field works, in which various localities at all the Brasil Telecom branches were evaluated. The Company waits for the official outcome from the regulatory body regarding the 2003 targets fulfillment.

Table 3: Traffic

TRAFFIC	2Q02	1Q03	2Q03	Δ Quarter		Δ 12 Months

Exceeding Local Pulses (Million)	3,312	2,973	2,959	-0.5	%	-10.7	%

Domestic Long Distance Minutes (Million)	1,924	1,611	1,744	8.2	%	-9.3	%

Fixed-Mobile Minutes (Million)	1,086	1,058	1,058	0.0	%	-2.6	%

Exceeding Pulses/Average LIS/Month	124.1	104.0	102.0	-1.9	%	-17.8	%
DLD Minutes/Average LIS/Month	72.1	56.3	60.1	6.7	%	-16.6	%
Fixed-Mobile Minutes/Average LIS/Month	40.7	37.0	36.5	-1.4	%	-10.4	%

Exceeding Local Pulses		Brasil Telecom sold 3.0 billion pulses in 2Q03, remaining almost flat in relation to 1Q03.

DLD Traffic		In 2Q03, the Domestic Long Distance traffic registered an increase of 8.2% in comparison to 1Q03, reaching 1.7 billion minutes, in the period.

DLD Market Share		The share of the LDN market of Brasil Telecom, in the intra-sectorial segment, reached 90.3% in 2Q03. This figure represents an increase of 0.8 p.p. in relation to the 1Q03.

		In the intra-regional sector, the market share of Brasil Telecom reached 74.2% in the 2Q03.

		The figures of the DLD market for 2Q03 show the ongoing effort of Brasil Telecom to broaden its share.



Fixed-Mobile Traffic		The fixed-mobile traffic totaled 1.1 billion minutes in the 2Q03. Of the total fixed-mobile traffic, 89.5% is referent to VC-1 calls, 9.3% is referent to VC-2 and 1.2% is referent to VC-3 calls.

Table 4: Consolidated Gross Operating Revenue

R$ Million			2Q02		1Q03		2Q03		Δ Quarter		Δ 12 Months

GROSS REVENUES			2,412.2		2,609.3		2,691.2		3.1	%	11.6	%

	Local Service		976.8		1,063.5		1,032.5		-2.9	%	5.7	%
		Installation	8.6		5.9		7.9		33.3	%	-9.0	%
		Basic Subscription	616.6		702.7		666.5		-5.2	%	8.1	%
		Measured Service	321.1		328.8		331.2		0.7	%	3.1	%
		Lease of Lines	1.5		0.5		0.5		-5.2	%	-66.8	%
		Other	28.9		25.6		26.4		3.4	%	-8.7	%

	Public Telephony		88.8		83.8		103.1		23.1	%	16.1	%

	Long Distance Service		354.7		325.6		356.8		9.6	%	0.6	%
		Intra-Sector	270.2		245.0		266.3		8.7	%	-1.4	%
		Intra-Region	84.3		80.5		90.4		12.3	%	7.2	%
		Borderline	0.2		0.1		0.1		4.5	%	-10.9	%

	Fixed-Mobile Calls		544.4		607.3		689.1		13.5	%	26.6	%
		VC-1	450.0		477.7		548.4		14.8	%	21.9	%
		VC-2	82.9		110.8		120.0		8.3	%	44.8	%
		VC-3	11.5		18.7		20.7		10.4	%	79.3	%

	Interconnection		195.8		222.7		193.0		-13.3	%	-1.4	%
		Fixed-Fixed	152.5		166.9		141.5		-15.2	%	-7.2	%
		Mobile-Fixed	43.3		55.8		51.5		-7.7	%	19.0	%

	Lease of Means		57.1		53.2		49.6		-6.8	%	-13.2	%

	Data Communication		117.2		171.4		181.2		5.7	%	54.5	%

	Supplementary and Value Added Services		70.7		71.0		72.1		1.5	%	1.9	%

	Other		6.6		10.9		13.8		26.9	%	110.4	%

Deductions			(674.3	)	(735.6	)	(776.3	)	5.5	%	15.1	%
NET REVENUES			1,737.9		1,873.7		1,914.9		2.2	%	10.2	%

Local Service	The revenue from local service reached R$1,032.5 million in the 2Q03.

	The activation revenue totaled R$7.9 million in the 2Q03, 33.3% higher than the amount registered in the 1Q03. In the quarter, a total of 265 thousand lines were activated, compared to 195 thousand in the previous quarter.

	The revenue from basic subscription in 2Q03 reached R$666.5 million. The number of subscribers that have lines with only incoming traffic, without the basic subscription charge, increased in 2Q03, since Brasil Telecom maintained its strategy of not disconnecting delinquent clients at switching centers with idle capacity. Furthermore, the company offered alternative plans with discounts in the basic subscription for those who request the cancellation of the line during the period.

	The revenue from measured service totaled R$331.2 million in the 2Q03, flat in relation to the previous quarter. The number of lines in service added during the period was offset by the increase of 164 thousand lines with blocked outgoing traffic.

Public Telephony	Brasil Telecom sold 1.7 billion credits throughout the 2Q03, against 1.6 billion in the 1Q03. The public telephony revenue reached R$103.1 million in the 2Q03, 23.1% above that registered in the 1Q03.

	In 2Q03, besides intensifying the promotional campaigns to expand the sale of inductive cards, the expectation for rate readjustment generated a higher demand for credits from retailers.

Domestic Long Distance	Revenue from domestic long distance calls in the 2Q03 increased by 9.6% in relation to the 1Q03, reaching R$356.8 million, which reflects a growth of 8.2% in traffic.

Fixed-Mobile	Revenue with fixed-mobile calls grew 13.5% in the 2Q03 in comparison with the previous quarter, reaching R$689.1 million. The larger revenue is a result of the fixed-mobile rate readjustment adopted in February of 2003.

Interconnection	The interconnection revenue in 2Q03 registered a drop of 13.3% in comparison with 1Q03, despite the inter-network traffic stability. The drop can be explained by the intra-sectorial market share increase, reaching 90.3%.

Data Communication	In the 2Q03, the data communication revenue continued its growth spurt, reaching R$181.2 million, 5.7% above the amount registered in the previous quarter.

	The growth can be broken down as follows:
	•	Growth of 18% in the number of ADSL accesses in service;
	•	Growth of 14% in the number of billed dedicated IP accesses; and
	•	Growth of 4% in the number of billed Frame-Relay accesses.



Other Revenues	In 2Q03, Other Revenues reached R$13.8 million, a 26.9% growth in relation to the 1Q03.
	The main amounts that comprise this item are:
	•	R$1.1 million in revenue from data center services;
	•	R$5.1 million in revenue from the directory help service.

Supplementary and value-added Services	Revenue from supplementary and Value-added services increased by 1.5% in the 2Q03, totaling R$72.1 million.

	The total of intelligent services activated at the end of June 2003 reached 5.0 million, against 4.6 million in March 2003, which represents an increase of 8.7% in the period. In relation to the plant in service in the 2Q03, 30.9% of the lines were equipped with at least one activated intelligent service, against 29.7% in the previous quarter.

Gross Revenue Deductions	Gross revenue deductions reached R$776.3 million in the 2Q03, representing 28.8% of gross revenue in the quarter, against 28.2% in the 1Q03.

Net Operating Revenue/Average LIS/month	Net operating revenue/Avg LIS/month registered in the 2Q03 was R$66.0, against R$65.5 in the 2Q03.

FINANCIAL PERFORMANCE

REVENUE



Accounts Receivable		After deducting allowance for doubtful debts worth R$150.7 million, Brasil Telecom’s net accounts receivable totaled R$1,882.3 million at the end of June of 2003. The increase can be explained by the acknowledgment, in the accounts receivable, of the judicial deposit of R$48.1 million referred to the lawsuit proceeding with Embratel about differences in the acknowledgment of remuneration amounts in our network in August of 2002, by the payment of R$30.0 million of client bills with due date of June, 27 and not recognized by our system given the banking float time (D+2) and by the fixed-mobile tariffs readjustment.

Table 6: Gross Accounts Receivable

	Jun/02		Sep/02		Dec/02		Mar/03		Jun/03

Total (R$ Million)	1,538.3		1,676.5		1,696.6		1,890.1		2,033.0
Due	57.7	%	58.8	%	56.4	%	58.5	%	61.6	%
Overdue (up to 30 days)	18.1	%	17.7	%	19.3	%	16.1	%	14.4	%
Overdue (between 31-60 days)	7.3	%	5.6	%	7.1	%	7.1	%	6.1	%
Overdue (between 61-90 days)	4.4	%	4.3	%	4.0	%	5.0	%	3.3	%
Overdue (over 90 days)	12.5	%	13.5	%	13.3	%	13.3	%	14.6	%

FINANCIAL RESULT
	Table 8: Consolidated Financial Result


	R$ million	1Q03		2Q03

	Financial Revenue	74.5		100.5
	Local Currency	72.8		39.1
	Foreign Currency	1.7		61.4
	Financial Expense	(276.8	)	(333.0	)
	Local Currency	(238.8	)	(289.4	)
	Foreign Currency	(38.0	)	(43.7	)
	Interest on Shareholders' Equity	(246.2	)	—

	Financial Result	(448.5	)	(232.6	)



Operating Costs and Expenses		Operating costs and expenses totaled R$1,541.4 million in the 2Q03, against R$1,522.1 million in the third quarter. The 2.2% increment of the company’s net revenue and the increase of only 1.3% in operating costs and expenses indicate the operating efficiency gain of Brasil Telecom in the period. The cash cost (operating costs and expenses, excluding depreciation and amortization) was R$1,014.9 million in the 2Q03, stable in relation to 1Q03.

Net reduction of 232 employees in the quarter		In the Brasil Telecom´s payroll there were 5,311 employees at the end of 2Q03, against 5,543 at the end of March of 2003, representing a net reduction of 232 employees.

Personnel		Personnel costs and expenses reached R$96.1 million. The cost of dismissals registered R$7.4 million. With the exclusion of this amount, personnel costs and expenses would have been 4.7% less than in 1Q03. The dismissals represent savings of R$1.5 million each month with personnel costs.

Productivity		Brasil Telecom reached a productivity ratio of 1,834 LIS/employee in the 2Q03, representing an increase of 6.0% in relation to the presented in 1Q03.



Subcontracted services		Costs and expenses for subcontracted services, excluding interconnection and publicity & marketing, totaled R$306.6 million in the 2Q03, stable when compared to the previous quarter.

Interconnection		Interconnection costs totaled R$430.4 million in the 2Q03, 1.3% above the amount registered in the previous quarter.

Expenses for Advertisement and Marketing		The expenses with publicity and marketing reached R$19.1 million in the 2Q03. In 2Q03 we strengthened the advertisement campaigns in order to highlight the “14”, preparing our entrance in the DLD market for the whole country.

Losses with Accounts Receivable/Gross Revenue drop to 2.3%		As a percentage of the gross revenue, the Losses with Accounts Receivable dropped to 2.3%, a reduction of 0.3 p.p. in relation to the previous quarter. Net losses with accounts receivable stood at R$61.9 million in the 2Q03. The company managed to recover R$12.7 million from losses of accounts receivable in the period.

Provision for Contingencies		The provision for contingencies in the 2Q03 increased by R$13.7 million, against R$18.7 million in the 1Q03, mainly in light of the monetary correction.

Other Operating Costs & Expenses/ Revenues		Other operating costs and expenses/revenues totaled R$64.6 million in expenses in 2Q03, indicating a decrease of 15.9% in relation to the 1Q03.

Table 7: EBITDA Margin – Gains and Losses


R$ Million	2Q02		Vertical		1Q03		Vertical		2Q03		Vertical		Δ Quarter	Δ 12 Months

GROSS REVENUES	2,412.2		138.8	%	2,609.3		139.3	%	2,691.2		140.5	%	1.3 p.p.	1.7 p.p.
Local Service	976.8		56.2	%	1,063.5		56.8	%	1,032.5		53.9	%	-2.8 p.p.	-2.3 p.p.
Public Telephony	88.8		5.1	%	83.8		4.5	%	103.1		5.4	%	0.9 p.p.	0.3 p.p.
Long Distance Service	354.7		20.4	%	325.6		17.4	%	356.8		18.6	%	1.3 p.p.	-1.8 p.p.
Fixed-Mobile Calls	544.4		31.3	%	607.3		32.4	%	689.1		36.0	%	3.6 p.p.	4.7 p.p.
Interconnection	195.8		11.3	%	222.7		11.9	%	193.0		10.1	%	-1.8 p.p.	-1.2 p.p.
Lease of Means	57.1		3.3	%	53.2		2.8	%	49.6		2.6	%	-0.2 p.p.	-0.7 p.p.
Data Communication	117.2		6.7	%	171.4		9.1	%	181.2		9.5	%	0.3 p.p.	2.7 p.p.
Supplementary and Value Added Services	70.7		4.1	%	71.0		3.8	%	72.1		3.8	%	0.0 p.p.	-0.3 p.p.
Other	6.6		0.4	%	10.9		0.6	%	13.8		0.7	%	0.1 p.p.	0.3 p.p.

Deductions	(674.3	)	-38.8	%	(735.6	)	-39.3	%	(776.3	)	-40.5	%	-1.3 p.p.	-1.7 p.p.
NET REVENUES	1,737.9		100.0	%	1,873.7		100.0	%	1,914.9		100.0	%	—	—

COSTS & OPERATING EXPENSES	(911.2	)	-52.4	%	(1,001.5	)	-53.5	%	(1,014.9	)	-53.0	%	0.5 p.p.	-0.6 p.p.
Personnel	(108.5	)	-6.2	%	(93.1	)	-5.0	%	(96.1	)	-5.0	%	-0.1 p.p.	1.2 p.p.
Materials	(24.5	)	-1.4	%	(20.3	)	-1.1	%	(22.5	)	-1.2	%	-0.1 p.p.	0.2 p.p.
Subcontracted Services	(275.0	)	-15.8	%	(290.3	)	-15.5	%	(306.6	)	-16.0	%	-0.5 p.p.	-0.2 p.p.
Interconnection	(383.6	)	-22.1	%	(424.9	)	-22.7	%	(430.4	)	-22.5	%	0.2 p.p.	-0.4 p.p.
Advertising and Marketing	(23.3	)	-1.3	%	(9.6	)	-0.5	%	(19.1	)	-1.0	%	-0.5 p.p.	0.3 p.p.
Provisions and Losses	(74.8	)	-4.3	%	(86.5	)	-4.6	%	(75.6	)	-3.9	%	0.7 p.p.	0.4 p.p.
Other	(18.3	)	-1.1	%	(76.8	)	-4.1	%	(64.6	)	-3.4	%	0.7 p.p.	-2.3 p.p.

EBITDA	826.8		47.6	%	872.2		46.5	%	900.0		47.0	%	0.5 p.p.	-0.6 p.p.

EBITDA of R$900 million		The Brasil Telecom EBITDA was R$900.0 million in the 2Q03, representing a growth of 3.2% in relation to the 1Q03.

EBITDA Margin		EBITDA margin of Brasil Telecom in 2Q03 reached 47.0%, result of a growth of 2.2% in net revenue, in conjunction with the increase of 1.3% in cash cost in relation to the amount registered in the 1Q03.

EBITDA/Avg LIS/month		EBITDA/Avg LIS/month reached R$31.0, 1.7% higher than the amount registered in the 1Q03.


Financial Result		In 2Q03, Brasil Telecom registered a net financial income of negative R$232.6 million, against a negative R$202.3 million in the previous quarter, free of interest on shareholder´s equity. The financial result of the quarter was mainly due to interest expenses with debt, exchange variation expenses, hedge expenses, expenses with CPMF and interest expenses with insurance, rentals and leasing.

Interest on Shareholders´ Equity		Brasil Telecom announced on July 10, 2003, that interest on own capital related to 2002 would be paid starting on July 20, 2003.

		The following table shows the credits of interest on own capital, related to 2003, registered throughout the first half of this year:

OTHER ITEMS

Amortization of Reconstituted Premium		In 2Q03, Brasil Telecom amortized R$31.0 million of reconstituted premium referent to the acquisition of CRT (without affecting the cash flow and the distribution of dividends), accounted for as a non operating expense.

NET EARNINGS
		Net income totaled R$53.1 million (R$0.0974/1,000 shares). Net income/ADR was US$0.1018 in the 1Q03.

Table 10: Consolidated Balance Sheet


R$ Million	Dec/02		Mar/03		Jun/03


CURRENT ASSETS	3,469.7		3,702.9		3,426.1

Cash and Equivalents	1,422.9		1,388.5		974.9
Accounts Receivables (Net)	1,542.9		1,737.6		1,882.3
Deferred and Recoverable Taxes	314.1		394.2		365.3
Other Recoverable Amounts	112.4		107.5		124.5
Inventory	23.3		0.4		9.9
Other	54.2		74.8		69.2

LONG TERM ASSETS	1,106.4		1,094.4		1,184.4

Loans and Financing	6.6		6.5		6.5
Deferred and Recoverable Taxes	657.7		638.9		623.4
Other	442.1		449.1		554.6

PERMANENT ASSETS	10,814.4		10,683.0		10,664.2

Investment (Net)	112.2		173.8		288.6
Property, Plant and Equipment (Net)	10,040.5		9,863.8		9,729.6
Property, Plant and Equipment (Gross)	24,077.2		24,247.5		24,559.4
Accumulated Depreciation	(14,036.7	)	(14,383.8	)	(14,829.7	)
Deferred Assets (Net)	661.7		645.4		645.9

TOTAL ASSETS	15,390.5		15,480.3		15,274.7


CURRENT LIABILITIES	2,623.9		2,875.6		3,102.4

Loans and Financing	683.3		711.5		1,239.1
Suppliers	919.0		893.4		816.7
Taxes and Contributions	371.0		376.5		393.7
Dividends Payable	349.6		551.9		270.0
Provisions	95.4		105.8		85.0
Salaries and Benefits	44.1		51.8		63.0
Consignment for Third Parties	78.6		103.5		39.1
Other	82.9		81.2		195.7

LONG TERM LIABILITIES	5,792.0		5,756.8		5,223.3

Loans and Financing	4,398.5		4,285.2		3,618.1
Provisions	795.7		807.2		832.7
Taxes and Contributions	391.9		440.2		488.4
Authorization for Services Exploration	175.0		191.1		197.2
Other	30.9		33.1		86.8

DEFERRED INCOME	11.0		10.5		62.4

SHAREHOLDERS' EQUITY	6,963.5		6,837.5		6,886.6

Capital Stock	3,335.8		3,373.1		3,373.1
Capital Reserves	1,613.3		1,576.0		1,576.0
Profit Reserves	273.2		273.2		273.2
Retained Earnings	1,802.0		1,691.9		1,741.0
Treasury Shares	(60.8	)	(76.8	)	(76.8	)

TOTAL LIABILITIES	15,390.5		15,480.3		15,274.7


Balance Sheet		In July, 2003 the amount of R$113.2 million was paid, referred to the call option exercise on the remaining 50.5% stake of iBest. In June, that amount was stated in Other account, from Current Liabilities.

Table 11: Indebtedness


R$ Million	Currency	Cost	Maturity	% Total	Balance Mar/03

Short Term				25.5%	1,239.1
Private Debenture (BRP)	R$	100% CDI	Jul/2006		130.2
Inter Company (BRP)	US$	1.75% p.a.	Jul/2014		9.1
BNDES	R$	TJLP + 6.5% p.a	Dec/2007		15.5
BNDES	R$	TJLP + 3.85% p.a.	Dec/2007		330.4
BNDES	R$	TJLP + 3.85% p.a.	Oct/2007		79.3
BNDES	R$	Basket + 6.5%	Dec/2007		41.2
BNDES	R$	Basket + 3.85%	Nov/2007		13.6
BRDE	R$	IGP-M+12.0% p.a.	Sep/2006		6.3
Public Debenture — 1st Issuance	R$	109% CDI	May/2004		2.5
Public Debenture — 2nd Issuance	R$	109% CDI	Dec/2004		520.4
Financial Institutions II	US$	Lib6 + 4.0% p.a.	Mar/2006		7.6
Financial Institutions III	US$	Lib6 + 2.4% p.a.	Dec/2005		12.9
Financial Institutions IV	US$	Lib6 + 0.5% p.a.	Jul/2008-Jul/2011		9.0
Suppliers I	US$	Lib3 + 2.95% p.a.	Jun/2007		13.5
Suppliers II	US$	1.75% p.a.	Feb/2014		0.5
Hedge Adjustmest					0.2
Long Term				74.5%	3,618.1
Private Debenture (BRP)	R$	100% CDI	Jul/2006		1,300.0
Inter Company (BRP)	US$	1.75% p.a.	Jul/2014		84.3
BNDES	R$	TJLP + 6.5% p.a.	Dec/2007		49.8
BNDES	R$	TJLP + 3.85% p.a.	Dec/2007		1,195.0
BNDES	R$	TJLP + 3.85% p.a.	Oct/2007		254.6
BNDES	R$	Basket + 6.5%	Dec/2007		130.1
BNDES	R$	Basket + 3.85%	Nov/2007		44.5
BRDE	R$	IGP-M + 12.0% p.a.	Sep/2006		17.2
Public Debenture — 1st Issuance	R$	109% CDI	May/2004		17.9
Public Debenture — 2nd Issuance	R$	109% CDI	Dec/2004		400.0
Financial Institutions II	US$	Lib6 + 4.0% p.a.	Mar/2006		24.6
Financial Institutions III	US$	Lib6 + 2.4% p.a.	Dec/2005		15.4
Financial Institutions IV	US$	Lib6 + 0.5% p.a.	Jul/2008-Jul/2011		80.7
Suppliers I	US$	Lib3 + 2.95% p.a.	Jun/2007		1.8
Suppliers II	US$	1.75% p.a.	Feb/2014		2.1
Total Debt				100.0%	4,857.2


Total Debt		At the end of June 2003, the total consolidated debt of Brasil Telecom was R$4.9 billion, 2.8% less than the amount registered in the 1Q03.

Average Cost of the Debt		In 2Q03, the consolidated debt of Brasil Telecom had an average cost of 20.9% per annum, equivalent to 81.4% of CDI, and an average payment term of approximately 43 month, against 46 months in the previous quarter.

Net Debt		Net debt totaled R$3,882.3 million, an increase of 7.6% in relation to March of 2003. Excluding the loan and the private debenture with holding company, the net debt at the end of June of 2003 was R$2,358.7 million.

Long-term profile debt		At the end of 2Q03, 74.5% of the total debt was registered in the long term, presenting the following amortization schedule:


Maturity	% Long Term Debt

2004	47.3	%
2005	19.0	%
2006	21.3	%
2007	10.4	%
2008 and after	2.0	%

Dollar-denominated indebtedness		In June of 2003, the dollar-denominated debt totaled R$254.1 million (R$300.9 million including the hedge adjustment). As a percentage of the total debt, the dollar-denominated debt without hedge adjustment accounted for 5.2% against 6.8% at the end of March 2003.

		At the end of June 2003, Brasil Telecom had hedge agreements with notional equivalent to 44.1% of the debt in dollars, of R$254.1 million, and the total debt due by December 2004, was hedged.

Financial Leverage		On June 30, 2003, the degree of Brasil Telecom’s financial leverage represented by the ratio of its net debt (excluding the debt with the holding company) to the shareholders´ equity, was equal to 34.2%.

Table 13: Breakdown of Investments in the Permanent Assets


R$ Million	2Q02		3Q02		4Q02	1Q03	2Q03	Δ Quarter		Δ 12 Months

Network Expansion	191.2		128.4		294.3	187.3	159.2	-15.0	%	-16.7	%
Conventional Telephony	90.9		62.4		109.4	85.8	93.7	9.2	%	3.1	%
Transmission Backbone	25.5		17.6		21.8	10.0	18.6	85.6	%	-27.0	%
Data Network	44.7		29.1		138.8	83.8	44.7	-46.7	%	0.0	%
Intelligent Network	8.3		14.2		12.1	1.4	0.6	-58.6	%	-92.9	%
Network Management Systems	10.2		2.5		8.9	3.7	1.4	-62.4	%	-86.3	%
Other	11.6		2.6		3.3	2.5	0.2	-91.8	%	-98.2	%
Network Operation	83.3		92.2		124.5	56.7	58.3	2.8	%	-30.0	%
Public Telephony	2.0		1.7		1.3	2.7	4.2	52.9	%	108.1	%
Information Technology	88.9		68.3		144.9	43.9	41.6	-5.2	%	-53.1	%
Expansion Personnel	25.7		21.9		23.5	21.8	22.5	2.9	%	-12.7	%
Other	(27.8	)	(30.2	)	199.1	104.0	302.1	190.4	%	N.A.

Total Investments in Permanent Assets	363.3		282.3		787.5	416.5	587.8	41.1	%	61.8	%

Expansion Financial Expenses	33.4		49.6		25.5	24.9	20.2	-19.0	%	-39.6	%

Total	396.7		331.8		813.0	441.4	608.0	37.7	%	53.3	%


Investments in permanent assets		Excluding the item “Other”, which contains values referred to acquisitions of iBest and Globenet, investments totaled R$305.9 million in 2Q03, meaning a 9.3% reduction compared to the previous quarter.


Operating Cash Flow in 2Q03 was R$759 million		The operations of Brasil Telecom generated R$758.6 million in the 2Q03. Cash Flow from Investment Activities was R$635.5 million, combined with the Negative Cash Flow from Financing Activities of R$536.7 million, resulted in a negative cash flow of R$1,172.2 million.

		Brasil Telecom generated a free cash flow (operating activities – investment activities) of R$123.1 million in the 2Q03.

TARIFFS

Tariff Adjustment		Due to temporary judicial decisions, Brasil Telecom cancelled the charge of tariff adjustment authorized by ANATEL, and start to charge the values determined by the Supreme Court (Superior Tribunal de Justiça – STJ) on July, 14 2003. The values referred to adjustment will be charged in the next bills in case of a decision reversal.

STOCK MARKET

Buy-Back Shares Program		At the meeting held on August 5, 2003, the Board of Directors of Program Brasil Telecom S.A. approved the Program for the Buy-Back of Preferred Shares of Company issuance, for permanence in the treasury and later alienation or cancellation. Through the Program, the Company may acquire 18,078,192,282 preferred shares, which represent 10% of the total outstanding preferred shares on the market, for 365 days, which begins on August 6, 2003. On August 4, 2003, Brasil Telecom S.A. had 5,175,010,503 preferred shares in treasury.

Table 16: Stock Performance

	Closing Price as of Jun/30/03	Performance

		In 2Q03		In 12 months		In 24 months

Common Shares (BRTO3) (in R$/1,000 shares)	12.25	13.85	%	30.32	%	8.41	%

Preferred Shares (BRTO4) (in R$/1,000 shares)	12.85	19.09	%	13.72	%	-5.24	%

ADR (BTM) (in US$/ADR)	13.47	40.31	%	14.64	%	—

Ibovespa (points)	12,973	15.07	%	16.46	%	-10.90	%

Itel (points)	618	13.98	%	19.77	%	-21.06	%

IGC (points)	1,160	5.90	%	17.83	%	14.00	%

Dow Jones (points)	8,985	12.43	%	-2.79	%	-14.44	%

Table 17: Participation in Indexes

	Ibovespa				Itel				IGC

	Jan/Apr		May/Aug		Jan/Apr		May/Aug		Jan/Apr		May/Aug

BRTO3	—		—		0.2850	%	0.2860	%	0.1290	%	0.1260	%
BRTO4	2.3740	%	2.4330	%	9.5160	%	9.3440	%	4.2930	%	4.1060	%