Correction: Fitch Affirms TCO's 'A-(bra)/F2(bra)' Ratings; Rtg Watch Positive.

Business Editors

SAO PAULO--(BUSINESS WIRE)--Jan. 23, 2003

(This is an amended version of a press release issued yesterday, Jan. 22, reflecting the correct 'F2(bra)', not 'F1(bra)' short-term national rating of TCO).

On January 17, 2003, Fitch affirmed the Tele Centro Oeste Participacoes S.A. (TCO) long-term and short-term national ratings of 'A-(bra)' and 'F2(bra)', respectively. In addition, the Rating Watch was changed to Positive from Negative. The affirmation and Rating Watch Positive status reflects Telesp Celular Participacoes S.A.'s (TCP) preliminary agreement to acquire 100% of Fixcel S.A.'s (controlling shareholder and subsidiary of the Splice group) voting stake in TCO and future potential synergies resulting from the transaction. In addition, the transaction enhances Fixcel's liquidity and improves the likelihood of timely payment of intercompany debt owed by Fixcel to TCO. The acquisition is subject to regulatory approval and is expected to close during the first quarter of 2003.

TCO stands to benefit from potential increased economies of scale and synergies resulting from its participation, through TCP, in the Brazilian wireless joint venture between Telefonica Moviles and Portugal Telecom known as Brasilcel. TCP is already a unit of Brasilcel due to Portugal Telecom's controlling stake. Upon completion of the acquisition, Brasilcel will confirm its leading position as one of the largest wireless telecommunications provider in South America, retaining more than 16 million wireless subscribers and representing approximately 50% of Brazil's total wireless market. On a pro forma basis, in the first nine months of 2002, Brasilcel generated BRL2.46 billion in EBITDA on BRL6.26 billion of total revenues.

Under the preliminary acquisition agreement, TCP is expected to acquire 100% of TCO's controlling group's ownership (61.1% voting stake) for BRL1.408 billion which encompasses BRL1.045 billion in assumption of debt, BRL238 in cash and BRL125 million to be paid over a 12- to 24-month period. Subsequently, TCP will undertake a public offering to acquire remaining TCO common shares held by minority interests, followed by incorporation of TCO into TCP. The transaction is expected to be funded with cash available at Brasilcel companies, operating cash flow of the combined TCP/TCO company and local market debt financings which should result in an incremental debt increase of close to BRL2.0 billion. Given the fundamentals of the transaction as they are presented, Fitch believes that the incremental debt burden by TCP will be compensated by enhanced cash generation capacity, thus, permitting TCP to enhance its operations without considerable additional financial leverage. This is apparent in TCP's consolidated pro forma net debt/EBITDA which remains close to 3.0 times (x), similar to that excluding the acquisition.

In October 2002, Fitch lowered TCO's long-term national rating to 'A-(bra)' from 'A(bra)' in response to heightened concerns regarding the overall financial position and financial flexibility of its controlling group, Splice. Over the past few years, improvements in TCO's credit protection measures have been offset by increasing liquidity support to the Splice group. This is due to the increasing commitments of cash in investments in debentures issued by its controlling shareholder. Since 2000, these commitments increased sharply from BRL77 million to an estimated BRL712 million at year-end 2002 which matures in June and August 2003, all of which are now owed by Fixcel, a unit of the Splice Group. Despite the short-term nature of these securities, Fitch Ratings does not view these investments as liquid cash equivalents, therefore, are not considered in Fitch's evaluation of liquidity measures. Furthermore, although TCO has generally had ample access to liquidity, Fitch sees credit protection measures to strengthen for TCO as the structure of the acquisition is expected to assure timely payment of Fixcel's obligations to TCO.

TCO maintains a leading market position with an estimated 75% share of wireless subscribers within in incumbent region and 37% share in the northern region of Brazil. TCO's operational performance and strong cash generation capacity continued to strengthen throughout 2001 and the first nine months of 2002, fostered by continued subscriber base growth, satisfactory annual tariff rate revisions and successful marketing promotions. In 2001 and the first nine months of 2002, TCO generated BRL460 million and BRL481 million of EBITDA, respectively. In excluding handset sales and subsidies, EBITDA reached BRL532 million over nine months 2002.

Gross service revenue has experienced resilient growth from BRL605 million in 1998 to more than BRL1.2 billion in nine months 2002, resulting in an average revenue per subscriber of BRL42.56. Furthermore, interconnection revenue from local-exchange carriers has come to represent a substantial portion (40%) of TCO's total gross service revenue and a significant portion of cash flow; usage minutes make up an additional 40% of gross service revenue. Moreover, given the recent acquisition announcement, Fitch expects that CDMA technology will be deployed over TCO's existing TDMA infrastructure, thus, migrating to the PCS regulatory framework. Under this framework, TCO's currently regulated interconnection rates would transition to a market determined form, which could inevitably create downward pressure on cash flow from this revenue segment.

At September 2002, TCO had approximately BRL696 million of outstanding principal and interest obligations, of which 51% was due in the following twelve months. Short-term maturities are majority comprised of BNDES financings and bank loans. Approximately 70% of total debt was denominated in foreign currency, of which 80% was hedged with currency swaps.

While relatively stable debt levels and strong EBITDA growth year-over-year resulted in total debt/EBITDA improving from 1.6x in 2000 to 1.1x in September 2002, increasing cash commitments to Splice have edged net debt/EBITDA levels upward slightly, from 0.2x to 0.9x. The on-lending practice between TCO and its controlling shareholder have offset the benefits of greater cash generation from TCO's operations, which would otherwise result in an improving credit rating trend, according to Fitch.

TCO is the incumbent wireless provider for midwestern region of Brazil. The company also holds a 95% stake in the wireless provider, Norte Brasil Telecom, which provides wireless services in the Northern states of the country. In the two regions combined, TCO has approximately 3.08 million subscribers (approximately 72% prepaid) or close to 9% of total Brazilian wireless subscribers.