Message from the President of the Administrative Council
Sérgio Spinelli Silva Júnior

Throughout 2007, we consolidated the process initiated just over two years ago with the objective of promoting a profound restructuring of Brasil Telecom’s modus operandi. We assumed the administration at the end of 2005 with the challenge of restructuring the company and placing it on an upward trajectory in an increasingly competitive market, of creating value for the stockholders, and of creating a new organizational culture founded on ethical principles and solid corporate governance practices. Brasil Telecom’s earnings in 2007 demonstrate the correctness of the strategic positioning we defined for the company.

The path of growth and of creating value for Brasil Telecom’s stockholders is demonstrated by the figures reached by the company’s administration. The client portfolio – fixed and mobile operations, as well as broadband services – reached 13 million clients, a growth of 5.7% in relation to the previous year. Once again, Brasil Telecom made a record profit, achieving R$ 671.3 million. The payment of dividends and interest on shareholders’ equity, approved by the holding company and the operating company totaled R$ 976.5 million during the financial year. For the second consecutive year, Brasil Telecom credited the stockholders a sum of over 100% of the net income for the financial year.

These results were obtained while guaranteeing the excellent quality of the services rendered by the company. In 2007, we established the foundations for important projects that seek to keep Brasil Telecom in the vanguard of products and technology in order to increase its revenues in new business and compensate the decrease in fixed telephony, a global tendency. We ratified our strategy of constant innovation, focusing on offering convergent products. In a pioneer initiative, we were the first telephone company to commercialize IPTV in Brazil. Another strategic maneuver was the complete absorption of call center services for our users, with the creation of a new company, the Brasil Telecom Call Center, one more important step forward in the continued search to improve the company’s services.

Brasil Telecom’s corporate governance mechanisms were perfected, with the implementation of a collegiate management model for its Executive Committee – which significantly expanded the reach of its decision-making process – and with the tying of its internal auditing activities directly to the Administrative Council. We also expanded our internal control, with the definition and implementation of a process of risk management.

We are convinced that these victories are due to the diligence of all of the executives and other employees of Brasil Telecom. Hence, we give special attention to the management of people, seeking to attract and retain talented persons in the company, assuring them fair recognition. In the area of social responsibility, the company established the foundations of a project that will contribute to the improvement of education in Brazil: already in 2008, the Digital Education Project will offer informatics laboratories, special teaching materials and training courses to students and teachers of 50 schools from regions in which Brasil Telecom operates.

This succession of achievements on the most diverse fronts fills us with satisfaction. Brasil Telecom is presently a strong, motivated company, ready to face future challenges. Reviewing 2007 in retrospect, we proudly observe that we are fulfilling the mission that was entrusted to us by our stockholders.

 

Message from the Ceo
Ricardo Knoepfelmacher

When we took over Brasil Telecom's management, we were very conscious of the huge challenge presented to us. In addition to improving results in the short term, we needed to establish the grounds for the longevity of the business by focusing our strategy on issues of fundamental value for the survival of organizations today: relationships with clients; good corporate governance practices; and socio-environmental responsibility. Inspired by this vision, we have mapped out a vigorous work plan with daring goals and targets, conveyed to all our employees in a highly straightforward manner.

As we look back at 2007, we see significant headway on every front. With regard to results, we developed new income sources that ensured sales growth, despite the decreasing use of wireline phone services-a trend impacting the entire industry. At the same time, we continued the pursuit of a series of measures that led to a drastic reduction in the Company's expenses. One of the main such initiatives was the decision-unprecedented in Brazil-of maintaining agreements with one sole supplier for the rendering of maintenance services in internal and external plants.

These efforts have allowed us to increase our global revenues by 5.9%, to achieve an EBITDA margin of 34.5%, and to post a record net income of 797.3 million. Improved investor perception has led Brasil Telecom's market value to grow from R$10.29 billion to R$13.44 billion.

We have ensured our present while preparing for the future. Aware of the importance of client satisfaction for the success of our business, we decided to place clients at the core of our strategy. The entire company became involved in Project Ryan, named so in a reference to the film "Saving Private Ryan" about a rescue operation in World War II. Through this project, we seek to gauge the satisfaction and expectations of the millions of Brazilians who already use several of our services, in addition to anticipating the needs of a huge number of people who have recently entered the consumer market.

This diagnosis has been our guide with respect to product development and client service. We have set up equipment based on WiMax technology in São Paulo, Curitiba, and Porto Alegre; we have innovated by offering our residential users from Brasília a product called Videon, which provides video-on-demand content; and we have won a license auction to operate in 3G technology, which will allow us to provide service with even better quality. With the clear goal of enhancing the experience of clients in their relationships with the Company, we have adopted a bold measure by deciding to take on the client service operation through the creation of a new company, BrT Call Center.

All this work has been grounded on ethical values. In 2007, we geared a great deal of our efforts toward improving our corporate governance practices and our transparency. We reviewed the Company's Bylaws, developing a jointmanagement model for the Board of Executive Officers; the Governance Executive Board became one of the Vice-Presidencies; we created Committees to afford greater decision-making agility; and increased integration between areas. In the interest of expanding transparency, we organized periodic meetings with the financial community and adopted a policy of permanent dialogue with the press. This new stance has earned us recognition in the form of several awards received over the year. Polls conducted by two important nationwide magazines have shown Brasil Telecom to be one of the favorite companies among market analysts.

On the Social Responsibility front, we have initiated a project that will contribute to improving the quality of teaching at public schools. The Education Program includes the establishment of Model Digital Workshops in 500 Brazilian schools. The Work Team constituted for this purpose identified the best practices through which telecommunication providers could support the development of Education in Brazil. From their diagnosis, we developed the project itself, which will be implemented in 2008.

As we can see, we have had a great journey, making some important changes along the way. The most important innovation, however, was putting people at the focus of our discussions, whether from the vantage point of our shareholders; under the vision of our clients; in the point of view of our employees, who are Brasil Telecom's outward face; or through the perception of society as a whole. We are certain that the key to the longevity of our business lies in the incorporation of this new vision: investing in people so that we can turn the relationship with our clients into a competitive edge in relation to the other telecommunications companies. This is the new challenge we will take on.

1.Ricardo Knoepfelmacher (Chief Executive Officer), 2.André Rizzi (Purchase and Administrative Services Officer), 3.Jorge Jardim (External Relations Officer), 4.Francisco Santiago (Chief Operating Officer), 5.Fábio Moser (Corporate Governance and Corporate Business Officer), 6.Darwin Corrêa (Legal Officer), 7.Luiz Francisco Perrone (Strategic Planning and Regulatory Affairs Officer), 8.Giovanni Pedroso Foragi (Human Resource Management Officer), 9.Paulo Narcélio Simões Amaral (Chief Financial Officer and Investor Relations Officer), 10.Wellington Geraldo Silva (Communications Officer).