VOCÊ EM PRIMEIRO LUGAR

VIVO PARTICIPAÇÕES S.A.

VIVO3 (ON)
VIVO4 (PN)

VIV (ADR)

• The customer base increased by 11.8% over 1Q05, recording 30,138 thousand customers in a highly competitive environment.

• Focus on the high value market segments with exchange and upgrade of handsets, points program, stimulation to replace TDMA for CDMA, availability of Globalmoto dual-mode terminal, in addition to management of high and medium end customer base.

• Customer retention, with emphasis on segmented offers designed to meet each customer’s profile.

• Post-paid customer base grew 8.5% over 1Q05.

• Outgoing revenue recorded 8.0% growth in 1Q06 in relation to the same period of the previous year.

• SAC recorded 11.3% reduction in relation to 1Q05, despite the strong competition and campaigns designed to reach different market segments.

• Handsets mix. Today, Vivo provides a competitive range of modern handsets in all segments of the Brazilian market, with emphasis on the EV-DO: Third Generation cellular telephone service pursuant to the International Telecommunications Union (UIT), offering 7 models of handsets and more than 10 options of Internet access cards and PDAs.

• Operating costs recorded 19.7% reduction in the quarter, decreasing to R$ 1,876.6 million. In relation to 1Q05 the 17.3% growth was basically due to the increase of retention costs, acquisition and plant maintenance.

• EBITDA of R$ 717.1 million, which represents 10.3% increase in relation to 4Q05 and a drop of 26.7% when compared to 1Q05. EBITDA margin in 1Q06 was 27.6%; 5.8 percentile points up in relation to the previous quarter and 10.3 percentile points down when compared to the same period of the previous year.

• Provision for bad debt of R$ 161.0 million recorded a reduction of 38.3% in relation to the previous quarter when was R$ 260.8 million.

• Quality and coverage improvement program increased the transmission network and successfully expanded digital coverage with 1xRTT and EV-DO technology, digitalizing 100% of the municipalities served.

• VIVO is leader in fulfillment of quality standards established by ANATEL, having met 95.6% of the targets.

• The corporate restructuring was successfully completed on March 30 and the shares of VIVO Participações S.A. started being traded at BOVESPA and NYSE on March 31, 2006.

Customer Base Growth

• Continued market leadership as a result of the increase in the customer base by 11.8% over 1Q05, recording 30,138 thousand customers, with growth of 8.5% of postpaid customers and increase of 1.1% in relation to the previous quarter, coherently with the customer loyalty and retention policy, focused on highest value market segments. It must be highlighted that corporate customers grew 13.1% and 2% in the customer mix over 1Q05 and 4Q05, respectively.

• The market share of net additions in 1Q06 of 16.0% and of 17.8% in 1Q05 is relatively constant, taking into account the competition in the first quarter of the year. The net adds was affected by the strongest  competitive environment in the first quarter even stronger than in the Christmas campaign. In relation to the total market share in its coverage area, VIVO has recorded a reduction at decreasing rates since the first quarter 2005, evidencing flattening of the curve.

 SAC reduction due to lower  cost of new client acquisition

• SAC reduction by 11.3% over 1Q05 is due to lower expenses with subsidies to capture clients, more specifically in the prepaid segment, and to advertisement expenses, which are partially offset by increased expenses with payment of commissions referred to the maintenance of the client base. It must be reminded that the 19.2% appreciation of Brazilian real in 1Q06 over 1Q05 also contributed to such reduction. When compared to 4Q05, the 7.4% reduction was due to prepaid SAC reduction (-4.8%), partially offset by increased expenses with commissions and advertising. The retention costs are consequence of maintenance of the competitive pressure.

• The blended ARPU in the amount of R$ 25.4 recorded 11.8% reduction over 1Q05, mainly reflecting the prepaid ARPU reduction.

• The postpaid MOU remained stable in relation to 1Q05, being supported by the increase in the outgoing MOU, which fully offset the drop in the incoming MOU. The blended MOU decreased by 8.1% in 1Q06 over 4Q05, due to period seasonality.

Outgoing revenue increase of 8%

Data revenue increase

Operating Revenue

The total net revenue grew 0.6% in relation to 1Q05, recording R$ 2,593.8 million in the quarter. Such result is caused, partially, by the increase in the outgoing inbound, by the increase of the customer base and a higher use of data services. This growth, even considering the efforts and affects of the adequacy plans such as VIVO Ideal compensates and offsets the reduction in the inbound traffic revenue. In the comparison between 1Q06 and 4Q05, the reduction of 13.2% is due to the period seasonality.

It must be highlighted that “subscription and usage revenue” recorded a 6.7% increase over 1Q05, due to the increase in the postpaid outgoing revenue by 12% and in the total outgoing revenue, by 8%. In the service revenue, this increase was partially offset by a reduction in the inbound traffic, as a result of the transition from fixed-mobile traffic to mobile-mobile traffic, with consequent drop in interconnection revenue and the effect of the  partial Bill & Keep.

Data revenue was up 20.8% in the comparison between 1Q06 and 1Q05, representing 7.1% of the net service revenues in 1Q06 (5.8% in 1Q05). This consistent increase is due to the company’s efforts related to development of products and services using its technology and its communication and information to users. It’s reflects on a widespread access and use of the tools, in addition to the increase in the customer base, with growth potential. The SMS accounted for 58.5% of data revenues in 1Q06. The WAP revenue increased by 66.2% in a year-to-year comparison. The average number of SMS messages sent per month in the quarter was some 110 million.

Costs in line with the business activity in the period

In the comparison between 1Q06 and 1Q05, the 2.0% increase is mainly due to the November 2005 bargaining agreement, attenuated by the adequacy of the headcount as a result of rationalization of the organizational structures and processes standardization, which occurred throughout year 2005.

The 5.5% reduction in personnel cost in the quarter is due to the fact that in 4Q05 the result was strongly impacted by the salary adjustment arising out of the Collective Bargaining, which impacted also on the provisions for vacation pay, thirteenth wage and PPR, in addition to the month adjustment. No effects of such adjustments on the provisions were recorded in 1Q06, which justifies the drop in personnel cost.

The increase of 15.4% in the cost of services rendered in 1Q06, when compared to 1Q05, is due to the increase in Fistel and other fees and contributions as a result of increase in the customer base, increase in third-party services because of the increase in the switching platform maintenance, and expenses with public utilities, partially offset by lower interconnection costs as a result of the fixed-mobile traffic migration, with the variation recorded in the connection means being due to the substitution by our network of third-party transmission means. The variation recorded in 1Q06 over 4Q05 is a reflex of the period seasonality.

The cost of goods sold increased by 5.0% over 1Q05 due to the increase in new clients and exchanges and higher mix of handsets, offset by reduced costs as a result of negotiations with suppliers. The 30.9% drop in relation to 4Q05 is due to reduction in the number of activated handsets in the period.

Focus on loyalty programs

The company has continued to place priority on customer loyalty programs for the medium and high end, which reflected on the Churn remaining unchanged.

In 1Q06, selling expenses increased by 29.2% in relation to 1Q05, as a result of the increase in expenses with third-party services, especially commissions, post-sale “client care” and increased active telemarketing efforts, related to the increase in the total traffic, as well as the increase in the costs with regular rendering of services, partially offset by a reduction in publicity and advertising expenses. When compared to 4Q05, the 23.6% reduction is due to the decrease in third-party expenses, especially commissions and marketing, because of the reduction in the number of activated handsets.

Reduction in PDD due to operating and control initiatives

The Provision for Bad Debt – PDD recorded the amount of R$ 161.0 million in 1Q06, representing 4.4% of the total gross revenue, a 38.3% reduction in relation to the previous quarter, in which it answered for 6.2% of the total gross revenue, 1.8 percentile points down. Most of this reduction is due to structural and process actions adopted for fighting calls that are not recognized by our customers, made from other operators’ networks, with emphasis to initiatives such as certification of third-party’s analogical and TDMA networks and interception of VIVO customers in roaming. In relation to the 1Q05 there was an increase of 82.1% due to subscription fraud and premature insolvency, which requires vigorous actions resulting from the still aggressive competitive environment.

General and administrative expenses recorded 6.1% increase in relation to 1Q05, due to the increase in expenses with third-party services, especially data processing and consultancy services, partially offset by reduction in expenses related to maintenance and other regular services due to efficiency gains. The 28.6% reduction in relation to the previous quarter is especially caused by the decrease in expenses with consultancy services and other regular services.

Other Operating Revenues / Expenses recorded in the 1Q06 a reduction of 89.8% in the result when compared to the same period of the previous year due to the increase in expenses with tax, fees and contributions, as well as a reduction in the revenue (especially arising out of commercial incentives), except for the increase in the revenue from fines. The reduction of 91.1% between 1Q06 and 4Q05 is due to the drop in the revenue (except fines) and to the increase in expenses with taxes, fees and contributions and others.

EBITDA Margin
of 27.6%

The EBITDA (earnings before interests, taxes, depreciation and amortization) was R$ 717.1 million, an increase of 10.3% in relation to 4Q05. The EBITDA Margin was 27.6%, 5.8 percentile points up when compared to the previous quarter.  The variation recorded in the EBITDA in the period reviewed was caused, among other factors, by the reduction in selling costs (PDD and third party), and by the drop in the cost of goods sold. When compared to 1Q05 the EBITDA presented a reduction of 26.7%, down by 10.3 percentile points basically impacted by higher net adds and change of handsets, higher commercial expenses in addition to third parties and PDD expenses.

Depreciation and amortization expenses increased by 11.3% in 1Q06 in relation to 1Q05 due to investments effected and the activation of assets due to the conclusion of works, especially related to network expansion and coverage.

Reduction in financial expenses

VIVO’s net financial expense in 1Q06 decreased by R$ 46.1 million when compared to 4Q05. Such variation was caused, mainly, by the assessment of Pis/Cofins of R$ 17.9 million on the Interest on Own Capital recorded in 4Q05 and by the reduction in the CDI in 1Q06, which is assessed on the average debt (4.31% in 4Q05 and 4.04% in 1Q06). In addition, there was a non-recurrent revenue arising out of a lawsuit, for which a favorable judgment was rendered to Vivo, for increase in the Pis/Cofins tax calculation basis in TCO and in GT, recording an adjusted revenue of the Selic rate calculated on the court deposits of such lawsuits and related tax credits.

In the comparison of the accumulated total for 1Q06 over 1Q05, VIVO reduced its net financial expense by R$ 35.4 million. In addition to the above mentioned non-recurrent effect, there was a reduction of spreads obtained upon renewals of financial transactions in addition to the reduction in interest rates in the period (4.18% in 1Q05 and 4.04% in 1Q06) that compensated for the increase of the net debt registered in the period.

In consequence of the application of the VIVO’ss hedge policy, for protection against foreign exchange volatility, the company has provided coverage of 100% of the debt exposure, in such a manner that the final cost of the foreign exchange debt (R$ 3,363.6 million) together with the derivative (swap) is now referenced in Reais (CDI: 4.04% in 1Q06). The result of the foreign exchange debt and derivative is evidenced, mainly, in the sum of losses with derivatives of R$ 396.1 million and gains with foreign exchange variation of R$ 247 million.

Net Result

The losses recorded in 1Q06 and 4Q05 were R$ 179.3 million and R$ 263.3 million, respectively. In the 1Q05 net income of R$ 42.1 million was recorded.

Short-term
debt is fully covered

On March 31, 2006, VIVO’s debts related to loans and financings amounted to R$ 5,482.6 million (R$ 5,652.8 million on December 31, 2005), 61% of which is denominated in foreign currency. The Company has signed exchange rate hedging contracts thus protecting 100% of its financial debt against foreign exchange volatility, so that the final cost (debt and swap) is Reais-referenced. This debt was offset by cash and financial investments (R$ 1,659.9 million) and by derivative assets and liabilities (R$ 641.6 million payable) resulting in a net debt of R$ 4,464.4 million, a 7.4% increase in relation to December 2005.

The increase in VIVO’s net debt in 1Q06 in relation to 4Q05 in the amount of R$ 308 million is due, mainly, to the payments of Fistel Inspection and Operation fee (TFF) annually paid in March (Anatel) in the amount of R$ 404.5 million, and of suppliers of handsets referring to deliveries made in the end of 2005 for the Christmas campaign.

Short-term debt represented 40% of the total debt at March 31, 2006 (31% in December 2005), which is covered by cash and by the company’s operating cash flow.

Quality
maintenance
and coverage
expansion

Capital expenditures of R$ 281.3 million in 1Q06 are basically due to the following factors: (i) improvement in the consolidation and rationalization of the information systems, especially billing, customer care, platforms and management systems; (ii) maintenance of quality and expansion of the coverage in order to meet the growth of the customer base; and (iii) terminals and technology for meeting the corporate segment.  

The positive operating cash flow of R$ 435.8 million shows that VIVO has generated funds from its operations.

Trading of
VIVO shares

The period of negotiation of VIVO Group companies ended on March 30, 2006, which corresponded to the corporate restructuring, whereby the shareholders of Telesp Celular Participações (TSPP), Tele Centro Oeste Celular Participações (TCOC), Tele Leste Celular Participações (TLCP), Tele Sudeste Celular Participações (TSEP) and Celular CRT Participações (CRTP) became holders of shares in VIVO Participações S/A (VIVO), pursuant to the following conversion factors:

TCOC - for each share of the same kind, 3.0830 new VIVO shares
TSEP - for each share of the same kind, 3.2879 new VIVO shares
TLCP - for each share of the same kind, 3.8998 new VIVO shares
CRTP - for each share of the same kind, 7.0294 new VIVO shares

VIVO shares started being traded at the Bovespa and the NYSE on March 31, 2006, under VIVO3 symbol for common shares, VIVO4 symbol for preferred shares, and VIV symbol for ADR’s (level 2) and recorded the following respective prices by the end of their first trading day: R$ 12.50, R$ 9.23 and US$ 4.28

Corporate restructuring

The management of Vivo Participações S.A. (“Vivo”), announces that the Board of Directors, in a meeting held on May 2, approved the proposal of corporate restructuring, comprising the merger, into the wholly owned subsidiary of Vivo and provider of personal mobile services (SMP) and multimedia communication services (SMC) named Global Telecom S.A. (“Global Telecom”), of the other current wholly owned subsidiaries of Vivo, which are also operators of SMP, namely Telergipe Celular S.A., Telebahia Celular S.A., Telerj Celular S.A., Telest Celular S.A., Celular CRT S.A., Telesp Celular S.A. and Tele Centro Oeste Celular S.A. and, also, of the controlling shareholders of this last one, Telegoiás Celular S.A., Telemat Celular S.A., Telems Celular S.A., Teleron Celular S.A., Teleacre Celular S.A., Norte Brasil Telecom S.A. and TCO IP S.A.. As it consists of a merger of companies that provide services of SMP and SCM (except for TCP IP S.A.), the Corporate Restructuring is subject to the prior consent of Agência Nacional de Telecomunicações – ANATEL and the merger of the Operators into Global Telecom shall only be carried out after said consent is obtained. Except for the prior consent of ANATEL, the Corporate Restructuring is not subject to any other authorization and it shall be carried out solely by means of the approval by the general shareholders’ meetings of the Global Telecom and of the Operators.  Considering that Global Telecom is currently a wholly owned subsidiary of Vivo and that Vivo is also the sole shareholder of the Operators, the capital increase of the Surviving Entity, resulting from the transfer of the shareholders’ equity of the companies to be merged, no new shares will be issued by the Global Telecom, once its shares have no par value and Vivo shall continue to be the holder of the entirety of the shares of the Surviving Entity. Accordingly, there it is not necessary to calculate the exchange ratio of non-controlling shareholders mentioned in article 264 of Law 6,404/76, as well as there is no need to use any specific criterion to set forth the exchange ratio of shares issued by the companies to be merged for shares issued by the Global Telecom.

 Capital increase

Vivo Participações S.A. (“Vivo”), informs that its Board of Directors has approved, in an extraordinary meeting held on May 3, 2006, an increase of its capital stock as a consequence of the corporate restructuring processes involving the company, its controlled and controlling companies and the companies that were merged into it. The amortization of the premium arising out of these corporate restructuring processes resulted, as of December 31, 2005, in an accrued tax benefit of one hundred and ninety-three million, eight hundred and thirty-seven thousand, four hundred and forty-four reais and six cents (R$193,837,444.06), as well as four hundred and thirty-nine thousand, nine hundred and thirty-seven reais and seventy-five cents (R$439,937.75), corresponding to remaining balances of previous fiscal years, amounting to a total of one hundred and ninety-four million, two hundred and seventy-seven thousand, three hundred and eighty-one reais and eighty-one cents (R$194,277,381.81), convertible into capital, representing a credit to the controlling shareholders, to be used for the increase of the capital stock of the company from R$ 6,153,506,952.73 to R$6,347,784,334.54, upon issuance of 15,705,528 new common shares, with due regard to the preemptive right set forth in article 171 of Law no. 6404/76, provided that the funds arising out of eventual exercises of the preemptive right shall be proportionally credited to the companies that are part of the control block of Vivo and that hold these credits convertible into capital

Full information concerning the restructuring is available from our website www.vivo.com.br/ir .

100% digital service and CDMA coverage

Since the first quarter 2005, VIVO has significantly expanded its coverage, with 18% increase in the number of municipalities served. Additionally, it now provides digital services to 100% of the municipalities served, as well as an increase of 50% in the number of municipalities covered by 1xRTT. EV-DO technologies is also provided.

Concurrently with the coverage growth, in this same period, VIVO increased its own transmission network, besides other improvements obtained as a result of the technological evolution, the Network Operation Centers, located in Brasília and São Paulo, which monitor the Network elements, promptly detecting eventual abnormalities, thus ensuring quick corrective actions.

ANATEL

• VIVO is leader in the national rank of operating companies in terms of the quality standards established by ANATEL, having achieved 95.6% of them. In network quality VIVO is also leader in the standard numbers: 2,3,5,6,7 and 12.

Main Prizes, Awards and Events

• Vivo is the most valuable brand in the telecommunications industry, pursuant to the Brazilian ranking awarded by Brand Finance consultancy firm, an English company engaged in brand management evaluation and consultancy.           

• Vivo was awarded the “Companies which mostly respect consumer” prize, offered by Revista Consumidor Moderno, published by Editora Padrão Editorial.

• Opened on 03/28, Vivo’s first concept store, at Morumbi Shopping, in São Paulo, is a benchmark in its evolution towards a new standard of purchase point. From a esthetic to a strategic viewpoint, besides a more modern design, the concept store offers several new products aiming at providing more comfort, interaction and easiness to the customer. With a wide entrance, services display and interactive communication, the new project is focused on customer relationship, offering differentiated brand experience and customer assistance.

• Vivo sponsors Brasil 1 boat, a participant of the Volvo Ocean Race regata de volta ao mundo, with 8-month duration. The arrival to Rio de Janeiro, on March 10, represented the conclusion of the fourth stage of the Regata Volta ao Mundo, which started in February, in New Zealand.

Social
Responsibility

• The Museu da Língua Portuguesa (Brazilian Language Musem), a project sponsored by Vivo Institute since 2002, was opened in March. The Portuguese Language Station is a pioneering project which provides visitors with surprising audiovisual tools, interactive games and resources that allow them to get acquainted with every aspect of Portuguese language.

• VIVO Institute and ESPN launched the 2006 edition of the Sports Caravan, a project which offers sports as an education tool for children and youngsters living at low IDH (Human Development Rate) municipalities.

• The 3rd VIVO Meeting of Voluntary Leadership was carried out, an event sponsored by VIVO Institute and which counted on the participation of 50 voluntary leaders of all the regions where VIVO operates.

• Vivo Institute and Novo Glicério ONG (Non-Government Entity) opened the new Community Sports Center, in São Paulo. The purpose of this project is to take out of the streets youngsters living at Baixada do Glicério, by means of the practice of sport activities.

• Vivo Institute sponsored the building of the Brinquedoteca (Toys Center) of Pará State Mercy Hospital.

Services
Area

• VIVO through its wholly-owned subsidiaries, Telesp Celular S/A, Global Telecom S/A, Telerj Celular S/A, Telest Celular S/A, Telebahia Celular S/A, Telergipe Celular S/A, Celular CRT S/A, and the Tele Centro Oeste Celular Participações S/A provides mobile telephone services in the states of: São Paulo, Paraná, Santa Catarina, Rio de Janeiro, Espírito Santo, Bahia, Sergipe, Rio Grande do Sul, Acre, Amazonas, Amapá, Goiás, Maranhão, Mato Grosso, Mato Grosso do Sul, Pará, Rondônia, Roraima and Tocantins and in the Federal District. Digital coverage services are provided in 100% of the municipalities served, of which more than 1,770 have 1xRTT technology coverage, of which 18 are provided with EV-DO service, recording an increase of 11 municipalities in just three months.