MOBILE WIRELESS - ANATEL OPENS IT UP ... Vieira Cenevica Advogados Associados and J. Paul Groom Yesterday, Renato Guerreiro President of the Agência Nacional de Telecomunicações - Anatel announced the rules and regulations governing the auction for PCS licenses. These are the authorizations to operate digital mobile service in the 1.8 GHz spectrum. The timetable for public consultation and then the bidding process is as follows: Date Action July 10th Publication of draft regulations July 20th Public Audience to discuss the regulations August 7th Receipt of comments from the public End of August Issuance of "C" "D" and "E" band RFP's End of September Receipt of proposals for all licenses simultaneously,and opening of envelopes for "C" band October/ November Opening of envelopes for "D" band November/ December Opening of envelopes for "E" band This timetable is very demanding, but Anatel is now used to setting itself difficult tasks and, more or less, meeting its goals1 The Regions: According to the General Plan of Grants, Brazil has been divided into exactly the same regions, i.e. three, for PCS as it has been for fixed wire line service (Pease see the map below). These regions (Region(s)) are Region 1, the North, North-East Region including Rio de Janeiro and Minas Gerais, Region 2, the Center-Southern region that includes the States of Paraná, Rio Grande do Sul and the Federal District, and Region 3, the State of São Paulo. 1 Privatization in 1998 was postponed two weeks only. 1 Due to the late sale of the Amazonas (region 8) B-band license, the ?C? band operator may not commence operations prior to December 31st 2000. Anatel has decreed that: there will be three licenses per region, for a total of nine. the "C" license holders must commence operations prior to June 30th 2001, or six months after contract signature, whichever is later. the "D" and "E" license holders may commence operations on January 1st 2002 (Please see Fixed Wire Line section for condition). there will be no restriction on foreign participations in the voting capital of the operators. control may change only three years from contract signature. bids will be won exclusively on price. Envelopes will be presented, and if the two highest bids are within 5% of each other the bidding will move to "open outcry", as happened during privatization. there will be no restrictions concerning the ability of one operator to own licenses in all three regions. i.e. an operator could win authorizations in all three "C" band regions, or different regions from any combination of "C", "D" or "E" licenses. However, an operator may only have one license per region, and minimum penetration and coverage rates will be required by Anatel which will include coverage of all State capital and the Federal District, and cities with over 500,000 inhabitants within 24 months of Authorization signature. "Coverage" will be achieved when service is available in 80% of urban areas. Payment for the licenses may be made in two installments, the first at the time of signature and the second one year from signature date. The second payment will be adjusted for inflation by IGP-DI from proposal date, plus 1% per month from contract signature date. The A and B-Bands Below is a map showing the incumbent operators. All proposed changes to the A and B band concessions are conditional upon the operators accepting the conversion of the "Concession Contracts" into "Authorization Agreements". The new regulations allow existing A and B band operators to acquire other A and B band companies operating in the same Region. This would allow BCP, for example, the B-band operator in metropolitan São Paulo to acquire Tess, the B-band operator in rural São Paulo. However, BCP could not acquire an operator outside its region, such as Global Telecom, which operates in the States of Paraná and Santa Catarina. However, the new rules do give BCP, for example, the option of participating in the PCS bids for Region 3, the State of São Paulo, which if they won, they would have a period of six months to dispose of its B band license. If the B-band license were not sold within this six-month period it would be forfeited. The map below demonstrates the existing A & B Band operating regions, with operating companies identified by their operating shareholder. Controlling groups have separate rules. Telecom Italia ("TIM"), for instance, owns A and B band mobile cellular operations. In the North-East (A), in Bahia/ Sergipe (B), in Minas Gerais (B), and in the South (A). TIM could acquire any A or B band company where they currently are not operating. The new rules end existing restrictions on the participation of foreign capital in the B-band. The A and B band companies also gain 10 MHz in the 1.9 GHz spectrum. A and B band companies are no longer submitted to tariff control. (As most operators are charging significantly below the "basket" rates they proposed at the time of the B-band bids, this issue is of dubious merit.) Fixed Wire Line Operators If the Public Service concessionaires win "D" or "E" licenses they may only commence operation if they have attained the universality and coverage targets that are required of them under their Fixed Wire Line Contracts. Public Service fixed wire line operators may only participate in the bids for "D" and "E" licenses. Mirror companies have no restrictions and may bid for all licenses. All mobile cellular operators will be able to provide long distance service of any description after January 1st 2002. For questions concerning the above, please do not hesitate to contact Walter Vieira Ceneviva on 3824-0411 in São Paulo, or J. Paul Groom on 973-509-8121 in the USA, or on 9406-5706 in São Paulo.

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