As filed with the Securities and Exchange Commission on August 15, 2008

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F/A

(Amendment No. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

Commission file number: 001-14487

TELE NORTE LESTE PARTICIPAÇÕES S.A.

(Exact Name of Registrant as Specified in Its Charter)

Tele Norte Leste Holding Company	The Federative Republic of Brazil
(Translation of Registrant’s Name into English)	(Jurisdiction of Incorporation or Organization)

Rua Humberto de Campos, 425/8° andar-Leblon

22430-190 Rio de Janeiro, RJ, Brazil

(Address of Principal Executive Offices)

José Luis Magalhães Salazar

Tel: +55 21 3131-1123

Fax: +55 21 3131-1155

Rua Humberto de Campos, 425/8° andar-Leblon

22430-190 Rio de Janeiro, RJ, Brazil

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Preferred shares, without par value*	New York Stock Exchange
American Depositary Shares, each representing one preferred share	New York Stock Exchange

* Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by this Annual Report:

127,373,900 common shares, without par value

254,747,800 preferred shares, without par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨ International Financial Reporting Standards
as issued by the International Accounting
Standards Board  ¨ Other  x

Indicate by check mark which financial statement item the registrant has elected to follow.    ¨  Item 17    x  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

EXPLANATORY NOTE

This Amendment No. 1 on Form 20-F/A, or Amendment No. 1, is being filed solely to amend the Annual Report on Form 20-F for the fiscal year ended December 31, 2007, or the Original Form 20-F, as filed by Tele Norte Leste Participações S.A., or our company, with the U.S. Securities and Exchange Commission on May 5, 2008 to:

• amend Note 36(q) to the audited consolidated financial statements of our company at December 31, 2007 and 2006 and for the three years ended December 31, 2007, 2006 and 2005 by correcting the typographical oversight related to interest paid appearing under “Operating activities” and “Financing activities” for the year ended December 31 2007; and

• amend Item 19 of the Original Form 20-F as set forth herein.

Other than as expressly set forth above, this Amendment No. 1 does not, and does not purport to, amend, update or restate the information in the Original Form 20-F or reflect any events that have occurred after the Original Form 20-F was filed.

ITEM 18. FINANCIAL STATEMENTS

Reference is made to Item 19 for a list of all financial statements filed as part of this amended annual report.

ITEM 19. EXHIBITS

(a) TNL’s Financial Statements

Consolidated Balance Sheets as of December 31, 2007 and 2006	F-2
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005	F-3
Statements of Changes in Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005	F-4
Consolidated Statement of Changes in Financial Position for the years ended December 31, 2007, 2006 and 2005	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005	F-6
Notes to the Consolidated Financial Statements	F-7

(b) List of Exhibits

No.	Description
1.01	Bylaws of Tele Norte Leste Participações S.A., as amended. (Incorporated by reference to Exhibit 1.1 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2006).
4.01	New Standard Concession Agreement for Local Switched, Fixed-Line Telephone Service between ANATEL and Telemar Norte Leste S.A., No. 91/2006, dated December 2005 and Schedule of Omitted Concession Agreements. (Incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2005).
4.02	New Standard Concession Agreement for LDN Switched, Fixed-Line Telephone Service between ANATEL and Telemar Norte Leste S.A., No. 125/2006, dated December 2005 and Schedule of Omitted Concession Agreements. (Incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2005).
4.08	Instrument of Authorization for Multimedia Communications Service of Public Interest, between ANATEL and TNL PCS S.A., No. 14/2006, dated February 22, 2006. (Incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2005).
8.01	List of Subsidiaries. (Incorporated by reference to Exhibit 8.01 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2007).
11.01	Code of Conduct and Transparency. (Incorporated by reference to Exhibit 11.01 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2002).
11.02	Code of Ethics. (Incorporated by reference to Exhibit 11.02 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2007).
12.01	Certification of the Chief Executive Officer of the Company, pursuant to the Sarbanes-Oxley Act of 2002.
12.02	Certification of the Chief Financial Officer of the Company, pursuant to the Sarbanes-Oxley Act of 2002.
13.01	Certifications of the Chief Executive Officer and the Chief Financial Officer of the Company, pursuant to the Sarbanes-Oxley Act of 2002.

3

There are numerous instruments defining the rights of holders of long-term indebtedness of the Registrant and its consolidated subsidiaries, none of which exceeds 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such agreements to the Commission upon request.

4

SIGNATURES

Tele Norte Leste Participações S.A. hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 on its behalf.

Date: August 15, 2008
	/s/ Luiz Eduardo Falco Pires Corrêa
	Name:	Luiz Eduardo Falco Pires Corrêa
	Title:	Chief Executive Officer
Date: August 15, 2008
	/s/ José Luís Magalhães Salazar
	Name:	José Luís Magalhães Salazar
	Title:	Chief Financial Officer

5

INDEX TO TNL’S FINANCIAL STATEMENTS

Consolidated Balance Sheets as of December 31, 2007 and 2006	F-2
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005	F-3
Statements of Changes in Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005	F-4
Consolidated Statement of Changes in Financial Position for the years ended December 31, 2007, 2006 and 2005	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005	F-6
Notes to the Consolidated Financial Statements	F-7

6

Tele Norte Leste Participações S.A.

Consolidated Balance Sheets at December 31

Expressed in millions of Brazilian Reais

	2007		2006
ASSETS
Current assets
Cash and cash equivalents	6,690		4,687
Trade accounts receivable, net	3,286		3,804
Recoverable taxes	1,876		934
Deferred taxes	237		236
Prepaid expenses	352		336
Inventories	124		171
Other current assets	159		206
Total current assets	12,724		10,374
Long-term assets
Credits receivable	61		281
Deferred taxes	1,984		1,886
Recoverable taxes	248		249
Judicial deposits and blockings	1,741		1,404
Prepaid expenses	430		211
Other long-term assets	97		81
Total long-term assets	4561		4,112
Investments	44		22
Property, plant & equipment	11,529		11,733
Intangible assets	1,598		1,385
Deferred charges	330		369
TOTAL ASSETS	30,786		27,995
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Suppliers	2,051		1,971
Loans and financing	1,960		1,999
Dividends and Interest on shareholders’ capital	917		554
Taxes other than on income	637		540
Deferred tax and taxes on income	755		293
Payroll, and related accruals	198		138
Tax financing program	135		126
Debentures	76		93
Other current liabilities	163		172
Total current liabilities	6,892		5,886
Long-term liabilities
Loans and financing	5,183		5,318
Debentures	2,171		2,160
Provisions for contingencies	2,334		2,428
Tax financing program	683		766
Taxes other than on income	225		199
Other long-term liabilities	135		110
Total long-term liabilities	10,731		10,981
Deferred income	8		13
Minority interests	2,490		2,156
Stockholders’ equity
Capital stock	4,689		4,689
Capital reserves	25		25
Investment reserve	5,999		4,408
Legal reserve	325		210
Treasury stock	(373	)	(373	)
Total stockholders’ equity	10,665		8,959
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	30,786		27,995

The accompanying notes are an integral part of these consolidated financial statements.

F-2

Tele Norte Leste Participações S.A.

Consolidated Statements of Operations

	Years ended December 31,
	2007		2006		2005
Net operating revenue
Services provided	17,413		16,553		15,980
Sales of handsets and accessories	171		319		767
	17,584		16,872		16,747
Cost of goods sold and services rendered
Services provided	(8,999	)	(8,782	)	(7,960	)
Sales of handsets and accessories	(262	)	(578	)	(836	)
	(9,261	)	(9,360	)	(8,796	)
Gross profit	8,323		7,512		7,951
Operating expenses
Selling expenses	(2,691	)	(2,593	)	(2,680	)
General and administrative expenses	(1,226	)	(1,207	)	(1,084	)
Other operating expenses, net	(260	)	(611	)	(757	)
	(4,177	)	(4,411	)	(4,521	)
Operating income	4,146		3,101		3,430
Interest expenses, net	(424	)	(1,289	)	(1,616	)
Income from continuing operations before tax	3,722		1,812		1,814
Income tax and social contribution	(877	)	(210	)	(371	)
Minority interest	(487	)	(292	)	(329	)
Net income	2,358		1,310		1,114
Stock outstanding at the balance sheet date (in thousands of shares)	382,122		382,122		382,122
Net income per share outstanding at the balance sheet date (in Reais)	6.01		3.43		2.92

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Tele Norte Leste Participações S.A.

Statements of Changes in Stockholders’ Equity (Parent Company)

Expressed in millions of Brazilian Reais

	Capital stock	Tax incentives and donations	Legal reserve	Unrealized income reserve		Investment reserve	Retained earnings		Treasury stock		Total
At December 31, 2005	4,689	24	148	272		3,599			(373	)	8,359
Tax incentives		1									1
Reversal of unrealized income reserve				(272	)		272
Net income for the year							1,248				1,248
Appropriation to legal reserve			62				(62	)
Interest on shareholders capital (R$0.7850 per share)							(300	)			(300	)
Dividends proposed (R$0.0785 per share)							(30	)			(30	)
Appropriation to investment reserve						1,128	(1,128	)
At December 31, 2006	4,689	25	210			4,727			(373	)	9,278
Dividends prescribed							18				18
Net income for the year							2,297				2,297
Appropriation to legal reserve			115				(115	)
Interest on shareholders capital (R$1.5478 per share)							(592	)			(592	)
Dividends (R$0.2094 per share)							(80	)			(80	)
Appropriation to investment reserve						1,528	(1,528	)
At December 31, 2007	4,689	25	325			6,255			(373	)	10,921
	2007	2006
Stockholders’ equity per share	28.58	24.28

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Tele Norte Leste Participações S.A.

Consolidated statements of changes in financial position

	Years ended December 31,
	2007		2006		2005
	(expressed in millions of Brazilian Reais)
Financial resources were provided by:
Operations:
Net income for the year	2,358		1,310		1,114
Minority interest in income of consolidated subsidiary	487		292		329
Expenses (Income) not affecting working capital:
Depreciation	2,470		3,012		3,214
Amortization of deferred charges	67		66		67
Amortization of goodwill	75		75		76
Amortization of negative goodwill	(6	)	(6	)	(6	)
Equity accounting adjustment and capital gain			1		(66	)
Loss on sale of property, plant and equipment	(39	)	12		10
Provision for losses on assets discontinued	(8	)	10		40
Provisions for contingencies	416		1,052		927
Long-term interest and monetary and exchange variations	(24	)	245		259
Reversal of provision for losses on tax incentives			(5	)
Long-term interest on financed taxes and contributions	46		63		82
Long-term deferred income tax and social contribution	(98	)	(446	)	29
Realization of deferred income	1		(2	)	(2	)
	5,745		5,679		6,073
Third parties:
Tax incentives	243		160		83
Transfer from long-term assets to current assets	1,171		621
Disposal of permanent asset	65		16		6
Dividends and interest on shareholders’ capital prescribed	27				43
	1,506		797		132
Total funds provided	7,251		6,476		6,205
Financial resources were used for:
Increase in long-term receivables	1,312		1,048		375
Purchase of treasury stock by Parent Company					71
Purchase of treasury stock by subsidiaries					57
Increase in permanent assets:
Investments	167		4		4
Property, plant and equipment and intangible assets	2,435		2,327		2,447
Deferred charges	27		9		4
Transfer from long-term liabilities to current liabilities	1,295		(403	)	3,825
Dividends and interest on shareholders capital proposed	671		330		989
Working capital of subsidiary eliminated upon consolidation (Contax Participações S.A. and subsidiary)					57
Total funds used	5,907		3,315		7,829
Increase (decrease) in working capital	1,344		3,161		(1,625	)
Changes in working capital
Current assets
At the end of the year	12,724		10,374		9,839
At the beginning of the year	10,374		9,839		10,941
	2,350		535		(1,102	)
Current liabilities
At the end of the year	6,892		5,886		8,512
At the beginning of the year	5,886		8,512		7,989
	1,006		(2,626	)	523
Increase (decrease) in working capital	1,344		3,161		(1,625	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Tele Norte Leste Participações S.A.

Cash flow statement

Years ended December 31, 2007, 2006 and 2005

	2007		2006		2005
Cash flow from operating activities
Net income for the year	2,358		1,310		1,114
Adjustments to reconcile net income to cash provided by operating activities:
Minority interest in income of consolidated subsidiary	487		292		329
Accrued interest	721		1,105		1,433
Depreciation	2,470		3,012		3,214
Provisions for contingencies	416		1,052		927
Amortization of deferred charges	67		66		67
Amortization of goodwill	75		76		76
Amortization of negative goodwill on AIX	(6	)	(6	)	(6	)
Equity accounting adjustments	6		1		(66	)
Loss on sale og property, plant and equipment	25		27		16
Reversal of provision for losses on investments			(5	)
Provision for losses on discontinued assets	(8	)	10		40
Monetary correction of dividends and interest on shareholders’ capital	5		14		38
Realization of deferred income	1		(2	)	(2	)
Monetary correction of tax refinancing program	55		72		93
	6,672		7,024		7,273
(Increase) reduction in assets
Accounts receivable	518		(94	)	(151	)
Credits receivable	197		(175	)	(3	)
Taxes deferred and recoverable	(1,040	)	(25	)	(498	)
Prepaid expenses	(235	)	108		(166	)
Judicial deposits and blockings	(209	)	(376	)	(272	)
Inventories	47		(11	)	72
Other assets	81		22		159
Increase (reduction) in liabilities
Suppliers	79		162		14
Payroll and related accruals	60		8		(52	)
Taxes payable and deferred	569		(314	)	269
Tax refinancing program	(129	)	(122	)	(112	)
Provisions for contingencies	(623	)	(662	)	(710	)
Other liabilities	(28	)	45		94
Net cash provided by operating activities	5,959		5,590		5,917
Cash flow from investing activities
Acquisition of property, plant and equipment	(2,435	)	(2,327	)	(2,447	)
Investments, net	(167	)	(4	)	(5	)
Deferred charges	(27	)	(9	)	(4	)
Net cash used in investing activities	(2,629	)	(2,340	)	(2,456	)
Cash flow from financing activities
Proceeds form long-term loans, financing and debentures	1,838		3,395		771
Repayment of principal and interest on long-term loans, financing and debentures	(2,739	)	(4,784	)	(4,399	)
Purchase of treasury stock by Parent Company					(71	)
Purchase of treasury stock by subsidiaries					(57	)
Cash from subsidiary (Spin-off Contax Participações S.A. and subsidiary)					(85	)
Payment of dividends and interest on shareholders capital	(406	)	(945	)	(1,321	)
Net cash used in financing activities	(1,307	)	(2,334	)	(5,162	)
Net increase (reduction) in cash	2,023		916		(1,701	)
Cash at the beginning of the year	4,687		3,771		5,472
Cash at the end of the year	6,710		4,687		3,771
Change in cash position	2,023		916		(1,701	)
Supplemental cash flow information
Income tax and social contribution paid	729		636		503
Interest paid	842		865		951
Cash paid against provisions for contingencies	511		563		584

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

1 DESCRIPTION OF BUSINESS

Tele Norte Leste Participações S.A. (the “Parent Company”) and its subsidiaries are referred to as “the Company” in these financial statements. The Parent Company was constituted on May 22, 1998, upon the split-up of Telecomunicações Brasileiras S.A. (“Telebrás”), primarily to hold interests in other companies and to promote the operating and financial management of its direct and indirect subsidiaries. It is a holding, subsidiary of Telemar Participações S.A. (“Telemar Participações”) which at December 31, 2007 and 2006 held 17.48% of total capital and 52.45% of voting capital.

The Parent Company is registered with the “Comissão de Valores Mobiliários — CVM” (Brazilian securities and exchange commission) as a publicly held company whose stock is listed on the “Bolsa de Valores de São Paulo — Bovespa” (São Paulo stock exchange). The Parent Company is also registered with the U.S. Securities and Exchange Commission (SEC) and its American Depositary Shares (ADSs)— Level II are listed on the New York Stock Exchange (NYSE) through American Depositary Receipts (ADRs). 48.89% of our preferred stock is negotiated on the NYSE through ADRs.

(a) The Company’s main business is divided into the following segments:

Fixed-line telecommunications

Telemar Norte Leste S.A. (“Telemar”) is the principal provider of fixed-line telecommunications services in its operation area —Brazil’s Region I — comprising the states of Rio de Janeiro, Minas Gerais, Espírito Santo, Bahia, Sergipe, Alagoas, Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí, Maranhão, Pará, Amazonas, Roraima and Amapá (with the exception of this region’s Sector 3, covering the 57 municipalities of the “Triângulo Mineiro” and “Alto Paranaíba” areas in the state of Minas Gerais, where “Companhia de Telecomunicações do Brasil Central — CTBC” (local telephone company), operates). These services are provided under the terms of the concessions granted by “Agência Nacional de Telecomunicações—Anatel” (national telecommunications agency), the regulatory body for the Brazilian telecom sector, which are in force until 2025.

Telemar also holds the Anatel concession to provide national long distance services within Region I. Until July 20, 2002, this concession only allowed for the provision of outgoing and incoming calls within said operating area. As from that date, Telemar is also allowed to provide outgoing calls from Region I (excluding Sector 3) to other regions, due to Telemar’s early meeting of its obligations under the “Plano Geral De Metas de Universalização – PGMU” (general plan for universalization targets), set for December 31, 2003.

Telemar is controlled by the Parent Company, which on December 31, 2007 and 2006 held 80.89% of its total capital and 97.24% of its voting capital.

On December 22, 2005, new concession contracts were signed, with effect from January 1, 2006 and valid until December 31, 2025. In return, the concession holder has to pay Anatel, every two years, the equivalent of 2% of the previous year’s net revenue from telecom services. At the same time, new quality and universal access targets, defined under the new “Plano Geral de Metas de Qualidade—PGMQ” (general plan for quality targets) and PGMU, came into effect.

F-7

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

On July 9, 2007, the “Diário Oficial da União—D.O.U” (official federal government gazette) published the contractual amendments covering the transfer of the authorization to provide “Serviço Telefônico Fixo Comutado – STFC” (fixed-line telephone services), from TNL PCS S.A. (“Oi”) to Telemar. STFC has two formats: (i) “Longa Distância Nacional – LDN” (national long distance): in Region II, Region III and Sector 3 of Region I; and (ii) “Longa Distância Internacional –LDI” (international long distance), throughout Brazil.

Mobile telecommunications

Oi, acquired by Telemar on May 30, 2003, has the corporate purpose of providing “Serviço Móvel Pessoal — SMP” (personal mobile service) for an unlimited period, as long as the authorization terms are met. On March 12, 2001, Anatel granted Oi the right to use the corresponding radio frequencies for a period of 15 years, renewable for another 15 years, under onerous title, in return for the payment, every two years, of 2% of the previous year’s net revenue from SMP.

Due to regulatory conditions, the SMP authorization, together with the associated radio frequency rights, only came into effect as from June 26, 2002, when Oi began its commercial operations.

Along with the authorization for SMP, Oi was also authorized to provide STFC, for an unlimited period, in the following forms: (i) LDN services in Region II, which covers the states of Rio Grande do Sul, Santa Catarina, Paraná, Mato Grosso do Sul, Mato Grosso, Goiás, Tocantins, Rondônia and Acre and the Federal District; in Region III, which relates to the state of São Paulo; and in Sector 3 of Region I; and (ii) LDI services throughout Brazil.

As from November 30, 2005, with its takeover of Pégasus Telecom S.A., Oi also began to provide data transmission services in Regions I, II and III.

On December 6, 2007, the D.O.U. published Act nº 68,982, of December 5, 2007, which partially ratifies the result of Anatel´s Public Bid nº 001/2007/SPV, authorizing Oi to provide SMP services and use the corresponding radio frequencies in the state of São Paulo, as well as expanding the band range in certain states within Region I, i.e.: Amazonas, Amapá, Pará, Maranhão, Roraima, Bahia, Espírito Santo, Sergipe, Alagoas, Paraíba, Piauí and Rio Grande do Norte (see Note 19).

F-8

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(b) Directly controlled subsidiaries

• TNL.Net Participações S.A. (“TNL.Net”), a direct subsidiary of the Parent Company, has the corporate purpose of participating in other companies, both commercial and civil, as a partner or stockholder, that are involved in internet related activities, within Brazil or abroad;

• Telemar Telecomunicações Ltda. (“Telemar Telecomunicações”), which was fully owned by the Parent Company and was purchased by Oi on December 18, 2007, has the corporate purpose of participating in other companies, both commercial and civil, as a partner or stockholder, within Brazil or abroad;

• TNL Trading S.A. (“TNL Trading”), fully owned by the Parent Company, has the corporate purpose of importing and exporting consumer goods. Its operations have been suspended since April 2005; and

• TNL PCS Participações S.A. (“TNL PCS Participações”), fully owned by the Parent Company, has the corporate purpose of providing telecommunications services. TNL PCS Participações began operating in December 2007.

(c) Indirectly controlled subsidiaries

• Companhia AIX de Participações (“AIX”), a joint venture acquired by Telemar on December 31, 2003, has the corporate purpose of providing infrastructure of ducts for the installation of fiber optic cables alongside highways in the state of São Paulo, as a service to Telemar;

• Telemar Internet Ltda. (“Oi Internet”), fully owned by Telemar, has the corporate purpose of providing Internet access services and started its operations in January 2005;

• Coari Participações S.A. (“Coari”), acquired by Telemar in December 2003, has the corporate purpose of acquiring stakeholdings in other companies, both commercial and civil, as a partner or stockholder, within Brazil or abroad. This company has still not begun operating;

• Calais Participações S.A. (“Calais”), acquired by Telemar in December 2004, has the corporate purpose of acquiring stakeholdings in other companies, both commercial and civil, as a partner or stockholder, within Brazil or abroad. This company has still not begun operating;

• Serede Serviços de Rede S.A. (“Serede”), acquired by Telemar on June 11, 2007, has the corporate purpose of constructing, setting up, maintaining and operating networks and buying and selling, importing and exporting equipment. Its operational start-up was in August 2007;

• Way TV Belo Horizonte S.A. (“Way TV”), acquired by TNL PCS Participações on July 27, 2006, the acquisition of which was authorized by Anatel on November 12, 2007, has the corporate purpose of providing telecommunications services, including cable television and the “Serviço de Comunicação Multimídia – SCM” (multimedia communication services), and performing activities that are directly or indirectly related to its corporate purpose, including selling or renting equipment, operating a cable TV channel offering programs for the local public, and providing consultancy services in its area of operations, embracing the cities of Belo Horizonte, Poços de Caldas, Uberlândia and Barbacena, for Brazilian and foreign companies, as well as participating in other companies; and

F-9

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

• Paggo Empreendimentos S.A. (“Paggo”), acquired by Oi on December 17, 2007, has the corporate purpose of participating in other companies, both commercial and civil, and of buying, selling and administrating its own properties and real-estate enterprises. It has a controlling stake in two companies: Paggo Acquirer Gestão de Meios de Pagamentos Ltda. (“Paggo Acquirer”) and Paggo Administradora de Crédito Ltda. (“Paggo Administradora”).

• Paggo Acquirer has the following corporate purposes: (i) the registration and administration of payment networks through retail outlets and service providers, using credit systems or some other available means of payment; (ii) the obtaining, transmission, processing, guaranteeing and settlement of transactions carried out at approved establishments; and (iii) supplying the necessary technology and equipment for the suitable functioning of the credit systems;

• Paggo Administradora has the following corporate purposes: (i) registration, analysis and approval of clients who seek to join this company’s credit systems; (ii) coordinating the relations between all the integral parts of the credit systems, participating networks, retail establishments, service providers, financial institutions and others; (iii) control and updating of data records and providing information on the transactions carried out using the credit systems; and (iv) providing administrative services for credit or other payment systems, including the obtaining, transmission, processing, guaranteeing and settlement of transactions.

All telephone services in Brazil are subject to regulation and supervision by Anatel, in accordance with Law nº 9,472, of July 16, 1997.

2 Presentation of financial statements and consolidation principles

(a) Preparation and presentation criteria

The financial statements were prepared and are presented in accordance with the accounting principles adopted in Brazil, based on the provisions of Brazilian Corporate Law and the regulations laid down by the CVM.

In preparing financial statements, it is necessary to utilize estimates in order to post the values of certain assets, liabilities and other transactions. The Company’s financial statements therefore include estimates regarding the useful life of property, plant and equipment, the provisions needed to cover contingent liabilities, the provision for corporate income tax and similar items. The realized values may differ from the estimated ones.

The cash-flow statement was prepared in accordance with “Pronunciamento Técnico NPC 20” (technical pronouncement), issued by “Instituto dos Auditores Independentes do Brasil – IBRACON” (Brazilian institute of independent accountants), considering the principal transactions that have affected the Company’s cash and short-term investments. This statement is broken down into operating, investing and financing activities.

F-10

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(b) Consolidation principles

The consolidated financial statements include the financial statements of the directly owned subsidiaries Telemar, TNL.Net, TNL Trading and TNL PCS Participações, and of the indirectly owned subsidiaries Oi, Telemar Telecomunicações, Paggo, Oi Internet, AIX, Coari, Calais, Serede and Way TV. Moreover, the financial statements of AIX, a company under joint control, were consolidated proportionally to Telemar’s equity stake (50%). The principal consolidation procedures were:

• sum of the balances of the asset, liability, revenue and expense accounts, according to their nature;

• eliminating the balances of the inter-company asset and liability accounts and significant inter-company revenues and expenses of the consolidated companies;

• eliminating the Parent Company equity interest in its subsidiaries; and

• recognition of the minority interest in stockholders´ equity and in net income.

3 Significant Accounting Policies

The most significant accounting policies utilized in the preparation of the financial statements are as follows:

(a) Cash and cash equivalents (financial investments)

The financial statements were prepared and are presented in accordance with the accounting principles adopted in Brazil, based on the provisions of Brazilian corporate law and regulations imposed by the CVM.

Cash and cash equivalents are considered to be all highly liquid investments with maturities in less than 90 days.

(b) Trade accounts receivable

The accounts receivable from telecommunications services are assessed according to the prevailing tariffs on the date that the services were provided. Accounts receivable also include credits of services provided to customers but not yet billed up to the balance sheet date. The value of the unbilled services rendered is determined using the valuation of metered services based on previous month’s performance. The respective taxes are similarly determined and are accounted for on an accrual basis.

Late payment interest is accounted for upon the issue of the first bill following the payment of the overdue bill.

F-11

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Trade accounts receivable related to the sale of mobile handsets and accessories are recorded upon the transfer of ownership, net of subsidies. Subsidies on the sale of mobile handsets are deferred (refer to Note 16)

(c) Provision for doubtful accounts

This provision is recorded to recognize probable losses in relation to accounts receivable, considering measures that are taken to restrict services provided to customers whose bills are overdue, as well as to obtain settlement of these accounts, once delay exceeds 60 days, which increase progressively, as follows:

Accounts in arrears		% loss provided for
up to 60 days	Restriction to make calls	Zero
61 to 90 days	Restriction to make and receive calls	40
91 to 120 days	Disconnection after a 15-day warning	60
121 to 150 days	Collection	80
151 to 180 days	Collection	100

Accounts receivable more than 180 days overdue and the related provision for doubtful accounts are eliminated from the balance sheet.

(d) Inventories

The Company’s inventories are separated and classified as follows:

• Inventories of maintenance materials, are shown at the average acquisition cost, which is not to exceed replacement cost.

• Items that are to be used in the expansion of the telephone network, classified under property, plant & equipment, are recorded at average acquisition cost.

• Inventories of materials that are for sale, largely comprising mobile handsets and classified under current assets, are shown at average acquisition cost. Provisions for losses are made in relation to inventories that are considered to be obsolete. Potential losses arising from a difference between the cost to Oi of the mobile handsets and their eventual sale price are recognized at the moment of the effective sale, since such losses are considered part of the effort to attract new subscribers.

(e) Prepaid expenses

Discounts on the sale of postpaid handsets by Oi are considered as prepaid expenses, since they represent part of the effort to attract customers to the customer base for a minimum contractual period. These amounts are amortized over a period of twelve

F-12

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

months, since these contracts provide for reimbursement in the event of disconnection or migration to a prepaid plan prior to completing one year. Discounts for customers on prepaid plans are not deferred, as these contracts do not provide for an early cancellation fee.

The “Fundo de Fiscalização das Telecomunicações—Fistel” (telecommunications inspection fund) fee, paid by Oi upon enabling new users, net of cancelled users, is also recorded as a prepaid expense, and is taken to income during the average customer retention period (churn), which is estimated by management at 24 months.

Financial charges paid in advance, with regard to loans and financing, are amortized over the period that the contract is in effect. Furthermore, premiums paid on insurance policies are also treated as prepaid expenses.

(f) Investments

Investments consist primarily of (i) investments in subsidiaries and jointly controlled companies, which are accounted for using the equity method, according to CVM Instruction 247/96; and (ii) tax incentives, which are accounted for using the acquisition cost method, restated up to December 31, 1995, less provisions for losses, to recoverability values, when considered necessary.

Under Brazilian GAAP, equity investments are investments in companies in which the Company has more than a 20% participation (voting or non-voting stock) and/or influence over management, but without control. Equity accounting adjustments arising from gains and losses due to changes in the holding percentage in capital stock of investees are recorded in non-operating income (expenses), net and reclassified as a separate line item, “equity in earnings of unconsolidated companies, for US GAAP presentation proposes.

(g) Property, plant & equipment

Property, plant & equipment are stated at acquisition or construction cost, less accumulated depreciation.

Financial charges relating to the construction of fixed assets have been capitalized in accordance with the criteria set down in CVM Resolution no 193/1996. Such capitalization was effected by Telemar until September 2002, since which time there have been no further capitalizations, due to the short duration of the work carried out and the fact that it was not directly financed by third parties. In the case of Oi, capitalization occurred until December 2002, when this practice was discontinued for lack of work-in-progress of significant duration. The greater part of Oi’s expansion is done on the basis of turn-key contracts. At Telemar, up to December 31, 1999, in compliance with Ministry of Communication’s regulations, the interest was calculated monthly, at the rate of 12% p.a., on the outstanding balance of construction-in-progress, capitalized up to the limit of the corresponding financial expenses. The interest calculated at 12% p.a. that exceeded the financial expenses on loans taken out to finance the construction-in-progress was recorded in a capital reserve recorded under stockholders’ equity.

F-13

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Spending incurred for maintenance and repairs is only capitalized when it clearly represents an increase in installed capacity or useful life of the item, while all other spending is recorded against income for the period. Up to the present date, the capitalization of these amounts has not had any significant impact on the financial statements, given that the greater part of the maintenance costs represent no real increase in useful life and obsolescence is the principal determinant in this regard.

Depreciation is calculated using the straight-line method, at rates that take into account the expected useful life of the item, based on wear and tear and technological obsolescence (see depreciation rates and description of useful life in (Note 18).

(h) Intangible assets

Intangible assets are shown at their acquisition cost, less accumulated amortization.

The amortization is calculated using the straight-line method, at rates that take into account the expected useful life of the item or, in case of usage rights, according to the period of such authorization’s contract.

(i) Loans and financing

Loans and financing are restated according to monetary and exchange variations plus accrued interest up to the balance sheet date. Results from swap operations are determined and recorded on a monthly basis, regardless of their settlement dates. The amounts of loans and financing classified as current and long-term liabilities on the balance sheet include the results of swap operations.

(j) Payroll and related accruals

Provision is recorded for amounts due to employees in relation to vacation benefits, in proportion to the period vested, together with the corresponding payroll taxes.

Subsidiaries Telemar, Oi and Oi Internet have profit sharing programs, which are granted to all employees who have been with these companies for at least eight months (for more details, see note 30(b)).

(k) Provisions for contingencies

Provisions are recorded to cover contingent risk of “probable losses”, based on management’s opinion and the opinion of its internal and external legal advisors. The amounts are recorded, based on estimates of costs of the claims’ outcome. The bases, amounts involved and nature of the main provisions are described in (Note 26).

(l) Employee benefits

The Company sponsor’s pension plans for its employees. The “Plano de Benefício Suplementar—PBS- Telemar” and “TelemarPrev” plans are administered by “Fundação Atlântico de Seguridade Social—FASS”

F-14

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(social security foundation), while the “Plano de Benefício Suplementar- PBS-Assistidos” plan is administered by “Fundação Sistel de Seguridade Social — Sistel” (social security foundation), and their costs are recognized in the financial statements in accordance with CVM resolution no 371/2000, which means, in the case of the defined benefit schemes (PBS-Assistidos and PBS-Telemar), over the working life of the participants, and in the case of the defined contribution scheme, in line with the monthly contribution payments, based on actuarial calculations approved by the “Secretaria de Previdência Complementar — SPC” (supplementary social security department) (for more details, see Note 30(a)).

(m) Operating revenue

Operating revenues are recognized at the time the services are rendered or the ownership of the goods is transferred. Services provided between the last billing date (“cycle”) and the end of each month (“rendered but not yet billed”) are measured based on the performance of the previous month and recognized in the month of accrual.

Operating revenues include network rental to other companies or providers, service tariffs based on the number and length of calls (tariffs for local and long-distance calls are based on the time and length of the calls and the distance involved) network services, interconnection, maintenance fees and other value-added services. They also include telephone installation fees and prepaid calling cards. Management believes that the installation fees should not be deferred since the margins are very low. Revenues from prepaid calling cards, used for public telephones, are recognized when the cards are sold and the related costs are recognized when incurred. Due to the turnover of these cards, their impact on the financial statements would not be material. Revenues from calls made by mobile prepaid handsets are recognized upon effective utilization of the credits.

Revenues from use of Telemar’s and Oi’s networks by other providers are recorded based on a “Documento de Declaração de Tráfego e Prestação de Serviço —Detraf” (document for declaration of traffic and rendering services) issued by a third party. Besides this, Anatel’s rules on measuring revenues are followed.

(n) Interest income and expenses

These refer basically to interest and monetary and exchange variations on financial investments, loans, financing, debentures and derivatives, which are calculated and accounted for on an accrual basis.

Pursuant to the law, interest on shareholders’ capital to be applied to minimum and statutory dividends were accounted for as “Interest expenses” and “Interest income”, and reversed to “Retained earnings” at Telemar and “Investments” at the Parent Company, as they are in essence distribution of income. In order not to distort financial indices and enable the comparison between periods, these reversals are stated in the Interest income and expenses accounts together with the original accounts.

(o) Income tax and social contribution

Provisions for deferred and payable income tax and social contribution on temporary differences are recorded at the 34% combined base rate. Prepaid income tax and social contribution are recorded as

F-15

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

“recoverable taxes” and “deferred taxes”. Tax credits arising from tax loss carry-forwards are recognized as tax assets when future taxable income, discounted to present value, is sufficient to recover these tax credits. The amount of the tax credit recognized is limited to a ten year period forecast. The technical forecast is approved by management, pursuant to CVM resolution Nº 273 and CVM instruction Nº 371 (Note 15).

(p) Participation in AIX

Telemar has a 50% stake in AIX, which engages in the provision of duct infrastructure for the installation of fiber-optic cables alongside the main highways of the State of São Paulo.

The components of assets and liabilities, as well as revenues and expenses of AIX, were aggregated to the consolidated financial statements in proportion to Telemar’s 50% participation.

Although proportional consolidation is not allowed under US GAAP, no adjustment has been made for US GAAP presentation purposes because of the immateriality of the amounts involved.

AIX’s total assets amounted to R$95 at December 31, 2007 (2006—R$105), its Stockholders’ equity was R$56 at December 31, 2007 (2006—R$64) and its loss for the year 2007 was R$6 (2006—R$2).

(q) Statements of cash flow

Under Brazilian GAAP, a statement of changes in financial position that reflects source and application of funds in terms of movement in working capital needs to be presented. The statement of cash flows may be presented as supplemental information and is optional.

Under US GAAP, presentation of a statement of cash flows describing the cash flows provided by or used in operating, investing and financing activities is required. FAS Nº 95, “Statement of Cash Flows,” establishes specific presentation requirements and requires additional disclosures, such as the amount of interest and income taxes paid and non-cash transactions such as acquisition of property, plant and equipment through capital leases, utilization of escrow deposits in settlement of liabilities and debt for equity conversions, among others. The statements of cash flow are included in the Brazilian GAAP financial statements using the presentation basis of NPC-20 from IBRACON. For US GAAP purposes we included a reconciliation to United States Generally Accepted Accounting Principles—US GAAP presentation basis according to Statement of Financial Accounting Standard—SFAS 95 (Note 36(t)).

(r) Use of estimates

The consolidated financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingencies and the amounts of revenues and expenses. Actual results could differ from those estimates.

F-16

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(s) Foreign currency transactions

Transactions in foreign currency are recorded at the prevailing exchange rate at the time of the related transactions. Foreign currency-denominated assets and liabilities are translated using the exchange rate at the balance sheet date. Exchange gains and losses on transactions denominated in foreign currencies are generally included in results of operations as incurred.

(t) Deferred charges

Under Brazilian GAAP, pre-operational costs are deferred until the start-up of the operations, at which time these costs are amortized on a straight-line basis over a minimum period of 5 year, based on economic feasibility studies.

(u) Derivatives

The Company has entered into derivative transactions to manage its exposure to fluctuations in foreign currency exchange and interest rates. The Company employs risk management strategies using a variety of derivatives including cross-currency interest rate swaps. The Company does not hold derivatives for trading purposes.

Under Brazilian GAAP, results from swap operations are determined and recorded by comparing contractual exchange rates to period-end exchange rates, when applicable, regardless of the respective terms for settlement.

(v) Dividends and interest on shareholders’ capital

Dividends and interest on shareholders’ capital are recorded at year-end based on the amount proposed by management, which is expected to be approved at the next Annual Stockholders’ Meeting.

(w) Advertising and marketing costs

Advertising and marketing costs are expensed as incurred.

(x) Earnings per share

Earnings per share is computed based on Brazilian GAAP net income and the number of shares outstanding at the end of each year.

F-17

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

4 Net operating revenue

	2007		2006		2005
Fixed-line telephone services
Local services:
Monthly subscription fees	6,980		6,661		6,645
Metered Services	1,797		2,477		2,691
Fixed-line to mobile calls (VC1)	2,771		2,650		2,662
Other revenues	127		111		142
	11,675		11,899		12,140
Long-distance services:
Intra-sectorial	1,630		1,749		1,886
Intersectorial	436		502		598
Interregional	629		670		653
International	76		79		81
Fixed-line to mobile calls (VC2 and VC3)	816		703		577
	3,587		3,703		3,795
Other fixed-line services:
Prepaid calling cards for public telephones	1,106		1,117		1,111
Advanced voice (largely 0500/0800)	223		234		240
Additional services	643		576		550
	1,972		1,927		1,901
	17,234		17,529		17,836
Mobile telephone services
Monthly subscription fees	937		746		461
Originating calls	1,658		1,403		957
Sale of mobile handsets and accessories	239		319		767
Roaming	114		119		121
Additional services	335		278		182
	3,283		2,865		2,488
Remuneration for the use of the fixed-line network
Fixed-line to fixed-line network use	503		549		790
Mobile to fixed-line network use	100		166		245
	603		715		1,035
Remuneration for the use of the mobile network
Fixed-line to mobile network use	239		224		192
Mobile to mobile network use	915		386		74
	1,154		610		266
Data transmission services
ADSL (“Oi Velox”)	1,121		915		670
Transmission (“EILD”)	526		521		401
Dedicated line services—SLD	244		280		283
Internet Protocol services	331		229		262
Switching packs and frame relay	286		264		249
Other services	371		304		196
	2,879		2,513		2,061
Gross operating revenue	25,153		24,232		23,686
Value added and other indirect taxes	(6,879	)	(6,694	)	(6,614	)
Discounts and returns	(690	)	(666	)	(325	)
Net operating revenue	17,584		16,872		16,747

Description of the services

(a) Fixed-line telephone services

(i) Local services

• Metered services

The metered services include all calls where the origin and destination are within a single local area of Region I, bearing in mind that the basic residential plan monthly subscription fee carries an exemption covering the first 100 pulses, while the non-residential fee has an exemption covering the first 90 pulses.

F-18

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The revenue from excess pulses refers to the charge for pulses in excess of these exemptions. The billing of pulses is calculated as follows: (i) at the normal rate, using the Karlsson Incremented method KA – 240 (multi-metering), whereby a charge is made for a completed connection, at a defined rate per pulse, with an additional pulse charged every 240 seconds. The initial charge is made at random once the call has begun; and (ii) at a reduced rate, using the simple metering method, whereby a charge is made for a completed connection, regardless of the call’s duration. The reduced rate applies to working days, between 12:00 pm and 6:00 am, Saturdays, between 12:00 pm and 6:00 am and from 2:00 pm on, all day on Sundays and on public holidays. On July 31, 2007, the process of migration from pulses to minutes was completed. Under the minutes scheme, the monthly exemption is 200 minutes for residential lines and 150 minutes for non-residential lines. As with the pulses, calls made at the reduced rate are charged a fixed amount “Valor por Chamada Atendida –VCA” (completed call flat fee), equivalent to two minutes. At the normal rate, calls are charged according to their duration, the initial charge being made after 30 seconds, with subsequent increments every six seconds.

Telemar also offers business clients with PABX – Private Automatic Branch Exchange (switchboard) systems “Discagem Direta a Ramal – DDR”, a direct dial service (automatic transfer of outside calls to extensions). For companies that need a large number of lines, Telemar offers digital trunk services, which optimize the client’s telephone system.

Since August 2002, Telemar has been authorized to provide local services in Regions II and III and in Sector 3 of the “Plano Geral de Outorgas – PGO” (general licensing plan). However, the revenues from such services are not significant.

• Fixed-line to mobile calls (VC1)

Fixed-line to mobile calls (VC1) refer to calls made from customers’ fixed phones to customers’ mobile phones. These services also include collect calls made by mobile phone customers to fixed line customers.

Local services also include certain additional services, such as messages, ‘follow me’ and conferencing, as well as features such as ISDN – Integrated Services Digital Network (“DVI”), which enables the transmission of voice, data, images and sound over a single digital line, thus allowing the customer to talk on the phone while simultaneously using the internet, for example.

(ii) Long-distance services

Each state within Telemar’s operating region is divided into various local areas. The calls made from one local area to another are designated LDN. The STFC national long-distance service includes intra-sectorial and inter-sectorial calls (calls between two distinct sectors, even if they are both located within the same state).

• Intra-sectorial and intersectorial long-distance service

Until July 1999, Embratel was the exclusive operator for inter-state long-distance services, but the company was not authorized to provide intra-state long-distance services. At that time, Anatel enhanced the

F-19

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

competition between the operators of long-distance wireline telephony, by requiring the customer to choose the desired operator for each long-distance call made, by dialing the “Código de Seleção de Prestadora – CSP” (operator selection code) before the “Código Nacional – CN” (national code) and the number of the phone being called. At the same time, Embratel was authorized to provide an intra-state long-distance service throughout the country, including the states of Region I, while Telemar initiated inter-state long-distance services between the states in Region I.

• Inter-regional long-distance service

The inter-regional long-distance service corresponds to calls where the origin and destination are in distinct regions of the PGO. Having attained certain universal coverage targets in the 2Q02, Telemar began, in July 2002, to provide inter-regional long-distance services from Region I and, in February 2003, services originating in Regions II and III and in Sector 3 of the PGO. To this end, Telemar signed interconnection contracts with other local wireline operators, so as to be able to directly interconnect with their networks.

Furthermore, since July 2002, Telemar has been providing international long-distance STFC services from Regions I, II and III, through the license obtained by Oi, although the customer making the call accesses these services using the same CSP 31. That authorization was transferred by Oi to Telemar, as mentioned in Note 1. For the purpose of providing these services, Telemar has signed various international contracts, to be able to interconnect its network with those of the leading telecom operators abroad.

(iii) Other fixed-line services

• Prepaid calling cards for public telephones

Telemar owns and operates public telephones throughout Region I, with the exception of PGO Sector 3. At December 31, 2007, Telemar had approximately 584 thousand public telephones in service (2006 – 577 thousand), all of them using pre-paid cards (unaudited figures).

• Advanced voice services

These comprise the 0300, 0500 and 0800 services, through which business deals can be arranged or problems solved by calling a number with one of these prefixes, at a predetermined tariff, to be paid either by the caller or by the company offering the service.

• Additional services

Other services that are provided include changing or reorganizing lines, 102 directory inquiries, call blocking, follow-me, messages, and call waiting, among others.

(b) Mobile telephone services

The post-paid services include messages, call identification, conferencing, follow-me, call waiting and special services, depending on the type of handset and whether it has WAP – Wireless Application Protocol or GPRS – General Packet Radio Service. The services are offered at reduced rates at certain times of day.

F-20

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The WAP portal is a channel for making services and content available to the customer, and the following are just some of the facilities available: sending and receiving e-mails; setting up contact groups; access to banking facilities; and purchasing tickets for events. The WAP portal can also be used on-line to schedule personal activities or to start up contact groups.

Depending on the handset model, customers can have access to the GPRS service, which is available in all the main towns and cities in Region I. This service enables internet access over a mobile phone, laptop or palm pilot, allowing the customer to hook up to the internet even while speaking on the phone.

Customers on post-paid plans pay a monthly subscription fee and the services provided are billed on a monthly basis, while the customers on pre-paid plans purchase cards, the prices of which vary according to the number of minutes of use and type of services they allow. These cards are valid for a limited period of time, once the credit has been activated.

Mobile telephone services in Brazil are provided on the basis of “the caller pays”, meaning that the customer only pays for the calls s/he makes, plus any applicable roaming fees.

The tariffs vary according to the plan adopted, the origin of the call, its destination and its duration. The minimum charge for a call is 30 seconds, even if the call doesn’t last that long. After the first 30 seconds, the user is charged for every six additional seconds.

Oi also earns revenue from roaming contracts with other operators providing domestic and international mobile telephone services.

Oi’s billing may be broken down as follows:

(i) Monthly subscription fees

This covers revenue from subscriptions to the post-paid plans.

(ii) Originating calls

This covers the charges for services based on the number and duration of local and LDN calls made.

(iii) Sale of handsets and accessories

This refers to the revenue from the sale of mobile phones, Simcards (Subscriber Identity Module Cards) and other accessories.

F-21

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(iv) Roaming

This refers to the revenue from roaming contracts with other operators providing domestic and international mobile telephone services. Every time another mobile operator’s subscriber makes a call within Region I, that operator will pay a contractually agreed fee to Oi, and the inverse occurs if an Oi customer makes a call from another region, in which case the fee is then charged to the Oi subscriber.

(v) Additional services

These refer mainly to shared-network services and other value-added services, such as sending text messages.

(c) Remuneration for the use of the fixed-line network

Telemar has contracts with service providers to fixed and mobile (individual and special mobile services) customers covering interconnection and voice traffic. The operators are not allowed to discriminate in any way in providing interconnection services. It is a regulatory requirement that the terms of the contracts be freely negotiated between the parties, although they are still subject to review and approval by the regulator, Anatel. If the parties are unable to reach an agreement, either of them may request Anatel to arbitrate the defining of the contractual terms. Should Anatel not approve any contractual provision, the regulator may demand alterations, as a condition of its ratification.

The services provided under the use of the Telemar network are largely related to competition in the long distance market. Consequently, Telemar’s main customers for network use are long distance operators, who pay for use of the network, whether it be local or long distance, to provide such services to their customers. Whenever a slice is won of the long distance operators’ market, this is reflected by an increase in the revenue from Telemar’s long-distance services and a reduction in its revenue from network use, though with a positive net effect on total revenue, due to the difference in the tariffs for the two kinds of service.

Although Telemar holds 32 concessions, with separate accounting records (16 local and 16 long distance concessions), because the consolidated balances in these financial statements represent a single legal entity, there is no disclosure of the transactions between the separate concessions, such as, for example, the amounts relating to the “Tarifa de uso de Rede Local—TU-RL” (tariff for use of the local network) that is charged by the local concession to the long-distance concession. The consolidated figures also do not show the revenues and expenses involved in transactions between Telemar and Oi, which are eliminated in the consolidation process.

(d) Remuneration for use of the mobile network

Oi’s wireless network is directly interconnected with the domestic and international long distance wireline networks of all the companies operating in Region I and of all the Band A, B and E mobile operators in Region I.

Oi has contracts with all the other mobile telephone operators in Brazil for roaming, thus providing its subscribers with automatic access to roaming services when they are traveling in areas of Brazil where mobile services using GSM (Global System for Mobile Communications) technology are available. Most of

F-22

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

the revenue from the growth of the pre-paid customer base represents interconnection tariffs charged when the customers of other wireline or wireless operators utilize the Oi network to make calls to customers in Region I.

With the migration of all the mobile operators to the SMP system, customers may now choose the desired CSP for each call made.

Up until July 12, 2006, in dealings between mobile operators within the same area, network usage fees would only become due when the traffic originating from either of the two parties represented more than 55% (fifty-five percent) of the total traffic between those two operators. With the publication of resolution nº 438 in the D.O.U. of July 10, 2006, there was a significant change in the system of remuneration for use of the mobile network. As from July 13, 2006, the system of full billing came into force, whereby the “Valor do Uso —Rede Móvel—VU-M” (mobile network usage fee) is due to a mobile operator whenever its network is utilized as the origin or destination of a call.

(e) Data transmission services

Telemar provides its clients with a variety of customized high speed data transmission services. These data communication services include interconnection between local area networks at transmission speeds of 34 Mbps or more, as well as videoconferencing, the transmission of video/still pictures, multimedia applications and dedicated internet access through internet service providers, and also private network services that allow clients to avail themselves of networks such as intranet or extranet. Telemar also provides “Serviços de Linhas Dedicadas – SLD” (dedicated line services), leasing these lines to other operators, as well as internet providers and business clients. Other operators, especially those providing wireless telephony services, also lease trunk lines from Telemar to use in their independent networks “Exploração Industrial de Linha Dedicada -EILD” (industrial exploitation of dedicated lines).

Data transmission services are provided utilizing Telemar’s regional data transmission network and multiple service network platform, in addition to Oi’s national radio and fiber optic network.

Telemar provides its data communication services, in the main towns and cities of Region I, utilizing ISDN and ADSL (Asymmetric Digital Subscriber Line) technology. ISDN lines were first offered to residential customers in January 2000, and ADSL subscriptions became available to small and medium-sized companies in April 2001. In recent years, Telemar has placed emphasis on commercializing its ADSL-based data communication service, sold under the brand name “Oi Velox”, as a means for the residential segment to access the internet. The ADSL technology allows voice and data to be transmitted at high speed over a single pair of copper wires in the access network. Since voice transmission over telephone lines utilizes just one of the many possible frequency bands, the remaining bands can be utilized for data transmission.

An ADSL modem is installed on the customer’s conventional line and this, in turn, is connected to a DSLAM (Digital Subscriber Line Access Multiplexor) at the telephone exchange. Customers can use the telephone line and the internet simultaneously and pay a rental fee for the modem plus a fixed monthly subscription fee, independent of the amount of their internet use. The tariffs for the data communication services are determined solely in accordance with market criteria, and are not regulated by Anatel.

F-23

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

5 Cost of services rendered and goods sold – by nature

	2007	2006	2005
Interconnection (i)	3,332	2,792	2,394
Depreciation (ii)	2,258	2,762	2,930
Network maintenance (iii)	1,363	1,378	1,046
Rents and insurance (iv)	673	599	519
Third-party services (v)	452	348	340
Materials (vi)	279	288	309
Cost of handsets and accessories (vii)	262	578	835
Personnel	253	192	202
Concession Contract renewal fee—Anatel (Note 1(a))	96	139	—
Other costs and expenses (viii)	293	284	221
	9,261	9,360	8,796

(i) Interconnection costs relate to fees charged by other mobile telephone operators for use of their networks, which substantially reduces the margin on fixed-line to mobile services (VC-1, VC-2 and VC-3). With the publication of Anatel Resolution No 438/2006, in July 2006, approving new regulations governing remuneration for SMP network use, offsetting of traffic was discontinued and was replaced by the process of full recognition of traffic revenues and expenses, known as the “full billing” system.

(ii) The costs associated with the depreciation of switching and transmission equipment have been declining, due to the gradually increasing amount of fully depreciated Telemar equipment.

(iii) The cost of network maintenance is largely made up of spending on hiring services for network maintenance, without any increase in useful life. These expenses are mainly related to the expansion of “Oi Velox” installations and of Oi’s network subscriber base, as well as spending on the external network, brought about by the changing profile of the engaged contractors, as contracts are renegotiated.

(iv) The costs related to rental and insurance basically represent the amounts being paid for the rental of circuits, mobile platforms, electricity poles, satellite, rights of use and dedicated lines of other telephone service providers, as well as sites in which Oi’s transmission towers are installed. Telemar has a network rental contract with Oi for the providing of STFC using Wireless Local Loop (WLL) technology, which network costs amounted to R$87 in 2007 (2006 — R$84). In August 2005, Telemar and Oi signed a contract for reimbursement of costs incurred due to the assignment of network means to promote long distance STFC traffic outside Region I. This reimbursement, amounting to R$85, relates to discounts allowed by Oi on interregional and international calls, made by Telemar’s corporate clients in Regions II and III.

(v) The cost of third-party services relates mainly to electricity.

(vi) The cost of materials largely relates to those materials utilized in network maintenance, without any increase in the useful life of the items, as well as spending on fuels and lubricants.

(vii) Refers to the cost of selling mobile handsets, Simcards and other Oi accessories, the reduction of which was due to the drop in mobile handset sales volume resulting from direct sales by the supplier to the respective sales outlets encouraged by us.

(viii) This item largely refers to spending on the Fistel fee for activation of new clients (net of clients’ disconnectiions) and maintaining network equipment, and to indemnifications, donations and sundry fines.

F-24

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

6 Selling expenses

	2007	2006	2005
Provision for doubtful accounts (i)	649	475	506
Sales commission (ii)	525	528	578
Call center (Note 1 and 36)	399	391	388
Postage and billing	356	357	372
Marketing (iii)	299	310	292
Other third party services	209	260	252
Personnel	167	181	177
Other costs and expenses	87	91	115
	2,691	2,593	2,680

(i) The increased provision for doubtful accounts is due to the Company’s strategy of introducing a more flexible credit policy for lower income customers, while maintaining profitability.

(ii) Refers to sales commissions and agency fee.

(iii) The marketing expenditure is related to the commercial campaigns carried out by Telemar, particularly in regard to the product “Oi Velox”, and to the launching of Oi Internet. Additionally, Oi has been strongly promoting its brand, through sponsorship and merchandising for a variety of sporting and fashion events, as well as through programs that are televised nationwide.

7 General and administrative expenses

	2007	2006	2005
Third-party services (i)	661	603	526
Personnel	271	272	215
Depreciation	178	202	228
Rental and insurance	91	103	89
Other costs and expenses	25	27	26
	1,226	1,207	1,084

(i) Third party services relate mainly to professional consulting and legal advice.

F-25

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

8 Other operating expenses, net

	2007		2006		2005
Other operating income
Equity method accounting adjustment	211		163		66
Rental of infrastructure (i)	211		198		163
Late-payment charges (Note 12)	180		169		174
Recovered expenses (ii)	93		37		98
Technical and administrative services	45		43		42
Result on disposal of permanent assets, net	31		—		—
Bonuses and discounts (iii)	10		64		31
Amortization of negative goodwill on acquisition of AIX	6		6		6
Other revenues	57		32		6
	844		712		586
Other operating expenses
Taxes (iv)	(391	)	(383	)	(345	)
Provision for contingencies (v)	(309	)	(620	)	(574	)
Employee’s profit sharing (Note 30(b))	(84	)	(53	)	(51	)
Amortization goodwill on acquisition of Pegasus (Note 19)	(75	)	(75	)	(76	)
Amortization of deferred charges (Note 20)	(67	)	(66	)	(67	)
Net loss caused by fire (vi)	(53	)	—		—
Impairment of assets held-for-use and for sale (vii)	—		(10	)	(40	)
Expenses with fines	(16	)	(10	)	(36	)
Other expenses	(109	)	(106	)	(154	)
	(1,104	)	(1,323	)	(1,343	)
	(260	)	(611	)	(757	)

(i) Refers to the rent charged to mobile telephone operators for the utilization of buildings and infrastructure belonging to Telemar and Oi for the installation of “Estaçöes de Rádio Base — ERBs” (radio base-stations). The growth in this other operating revenue is linked to the expansion of the mobile telephone network in Region I.

(ii) This volume refers mainly to recovery of tax credits, unduly paid in previous years.

(iii) This item refers to bonuses and discounts, awanded to Oi and Telemar by mobile handset suppliers in accordance with contractual clauses upon their meeting of certain handset and equipment purchase volume levels.

(iv) During the fiscal year ended on December 31, 2006, the subsidiaries Telemar and Oi recorded a total of R$239 (2006 — R$250) in relation to “Fundo de Universalização de Serviços de Telecomunicações — FUST” (fund for universal access to telecommunications services) and “Fundo Tecnológico das Telecomunicações Brasileiras — Funttel” (fund for the technological development of brazilian telecommunications). With regard to the FUST, between November 2003 and December 2005, in accordance with Anatel’s published decision, these contributions corresponded to 1.0% of the gross operating revenue from telecommunications services, excluding EILD and interconnection charges, “Imposto Sobre Circulação de Mercadoria e Prestação de Serviços — ICMS” (value added tax),”Programa de Integação Social — PIS” (social integration program) and “Contribuição Social para Financiamento da Seguridade Social — COFINS” (social contribution for financing social security) taxes and any discounts allowed. From that point on, in response to Anatel docket no 1 (subsequently altered to docket no 7), the calculation base for the payments to the FUST was amended and no longer excludes EILD and interconnection charges. Since January 2006 (with reference to December 2005), Telemar has been making provisions in relation to its contributions to the FUST, in the form of judicial deposits, following court injunction no 2006.34.00.000369-4, issued by the 7th Federal Court of the Judicial Section of the Federal District, in accordance with the provisions of Anatel’s docket published on December 19, 2005. This ruling determines the levying of said contribution on the amounts received from interconnection and network means and precludes the deduction of such costs from the calculation base for said contribution. The court injunction questions the

F-26

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

constitutional validity of the contribution, the Anatel docket no 7 and its retroactive application. In April 2006, Telemar and the other operators, who are co-plaintiffs in the abovementioned injunction, obtained a temporary restraining order from the “Tribunal Regional Federal — TRF” (federal regional court) for the 1st Region against the retroactive application of that docket. FUST contributions relating to December 2005 and January 2006 were deposited in full by Telemar and as from February 2006, only the disputed amount has been deposited. With regard to the Funttel, Telemar and Oi have been making provisions for the difference between the amounts to be paid, as calculated in accordance with the criteria in effect prior to December 2003 and using the new calculation methodology effective from then on, as a result of the abovementioned Anatel docket in relation to the FUST. In the opinion of the Company’s management, the Funttel contributions ought to be calculated and paid using the same criteria as applied to those to the FUST, given the nature and similarity of the two types of contribution. So far, the Ministry of Communications has yet to formalize the procedures for the calculation and payment of this contribution.

(v) The structure of the provisions for legal contingencies, and the changes that occurred during the fiscal year, are shown in Note 26.

(vi) This item refers to the writing off of Oi inventory as a result of the fire at the Rio de Janeiro distribution center, on January 19, 2007, and the calculation includes taxes and the insurance indemnification.

(vii) In 2005 this refers to loss on assets used in the WiFi-business (R$30) and in 2004 this refers to a property put up for sale (R$36) and some AIX assets, put up for sale (R$54).

9 Interest expenses, net

	2007		2006		2005
Interest income
Yield on marketable securities (i)	443		362		543
Interest and monetary variation on other assets (ii)	342		252		205
Financial discounts obtained (iii)	148		102		152
Other	27		17		8
	960		733		908
Interest expenses
Derivative results (iv)	(596	)	(744	)	(1,594	)
Monetary and exchange variation on outstanding loans (iv)	440		344		836
Interest on shareholders capital (Note 28(d) and item (v))	(734	)	(421	)	(395	)
Reversal of interest on shareholders capital (Note 28(d) and item (v))	734		421		395
Interest on outstanding loans	(394	)	(410	)	(537	)
Monetary adjustment of provisions for contingencies (Note 26)	(81	)	(350	)	(261	)
Interest on debentures (Note 27)	(257	)	(322	)	(229	)
Withholding tax on financial operations, bank charges and CPMF (*)	(217	)	(232	)	(326	)
Financial discounts allowed			(86	)	(97	)
Interest on refinanced taxes (Note 25)	(55	)	(72	)	(93	)
IOF, PIS and COFINS on financial income (**)	(63	)	(67	)	(111	)
Interest and monetary variation on other liabilities	(136	)	(60	)	(93	)
Other	(25	)	(23	)	(19	)
	(1,384	)	(2,022	)	(2,524	)
Interest expense, net	(424	)	(1,289	)	(1,616	)

F-27

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(*) “Contribuição Provisória sobre Movimentação Financeira — CPMF” (provisional contribution on financial transactions). This tax was cancelled on January 1, 2008.

(**) “Imposto sobre Operações Financeiras — IOF” (tax on financial operations). The application range of this tax has been enlarged due to the cancellation of the CPMF tax.

(i) Yield on marketable securities largely relates to the interest earned on investments in “Certificados de Depósito Bancário — CDB’s” (bank deposit certificates) and in investment funds (see Note 11).

(ii) Refers, basically, to the monetary correction of judicial deposits and interest on accounts in arrears.

(iii) This item refers, basically, to discounts obtained as a result of payments in advance to suppliers.

(iv) In 2007, the Brazilian Real appreciated 20.7% against the U.S. dollar (2006 — 9.5%).

(v) Considering the tax benefit offered by the alteration of the income tax legislation, under Law no 9,249/ 1995, subsidiary Telemar declared R$761 as interest on shareholders’ capital during the fiscal year ended December 31, 2007, with the Parent Company recognizing the sum of R$619. The remaining part, R$142 refers to minority interests. The Parent Company declared R$592 relating to the fiscal year ended December 31, 2007, resulting in a total expense of R$734.

10 Income tax and social contribution

The reconciliation of corporate income tax and social contribution, calculated at the effective and nominal rates, is shown below:

	2007		2006		2005
Income from continuing operations before tax	3,722		1,812		1,814
Income tax and social contribution, combined rate (34%)	(1,265	)	(616	)	(617	)
Adjustments to determine the effective rate:
Income tax and social contribution (Note 15)	97		216		133
Tax effects of interest on shareholders capital (Note 9)	249		143		134
Permanent exclusion of equity accounting adjustments	72		56		66
Tax effects on permanent additions (i)	(85	)	(50	)	(83	)
Other	55		41		(4	)
Income tax and social contribution, according to statement of operations	(877	)	(210	)	(371	)
Effective rate	23.56	%	11.59	%	20.46	%

F-28

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(i) This item refers to the expenses of fines, donations, gifts and sponsorship that are considered non-deductible, as well as losses on derivative operations at the Parent Company, Telemar and Oi. Furthermore, the result of the equity adjustment of subsidiaries with unsecured liabilities is also treated as a permanent addition to taxable income and to the social contribution calculation base.

Income tax and social contribution benefits (expenses) included in the net income for the fiscal year are as follows:

	2007		2006		2005
Prior years (a)
Income tax	4		(2	)	18
Social contribution	2				9
	6		(2	)	27
Current year
Income tax	(730	)	(540	)	(396	)
Social contribution	(248	)	(183	)	(141	)
	(978	)	(723	)	(537	)
Deferred
Income tax on temporary additions	(40	)	243		31
Social contribution on temporary additions	(8	)	81		4
Income tax on tax loss carry-forwards (b)	105		139		78
Social contribution on tax loss carry-forwards (b)	38		52		26
	95		515		139
	(877	)	(210	)	(371	)

F-29

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(a) This basically refers to “Imposto de Renda Pessoa Jurídica —IRPJ” (corporate income tax) and “Contribuiça~o Social sobre o Lucro Líquido — CSLL”(social contribution) adjustments in the tax returns with regard to the previous fiscal year.

(b) In accordance with the prevailing legislation, the tax loss carry-forwards may be offset against future taxable income, up to an annual limit of 30% of that income. In 2007, the amount of deferred corporate income tax and social contribution on tax losses and a negative social contribution base at Parent Company came to R$445 and R$439, respectively.

11 Cash and cash equivalents

	2007	2006
Cash and bank accounts	278	160
Open foreign exchange position (i)	201	—
Financial investments:
Investment funds (ii)	5,789	3,451
Government securities (iii)	259	260
Repurchase operations (iv)	82	429
CDBs (iv)	81	151
Notes (v)		236
	6,690	4,687

(i) On December 28, 2007, Telemar liquidated a note that was related to an investment abroad. Due to the foreign exchange position in relation to that note, these funds only entered into the country on January 3, 2008.

(ii) Investment funds have immediate liquidity. Of these funds, R$893 million (2006 — R$880 million) is held in investment funds abroad, whose portfolio essentially comprising U.S. government securities and private securities issued by financial institutions. The other R$4,896 million (2006 — R$2,571 million) is held in Brazilian investment funds.

(iii) This item refers to investments in government securities such as “Letras Financeiras do Tesouro — LFTs” (government treasury bills) which have immediate liquidity.

(iv) These financial investments are indexed to the variations in the rate of the “Certificado de Depósito Interbancário — CDI” (interbank deposit certificate) and have immediate liquidity. The short-term portion is fully liquid, while the long-term portion, in the sum of R$19,699, refers to reinvestment in the Banco do Nordeste do Brasil S.A. (BNB), under the terms of article 3 of Provisional Measure MP nº 2,199-14/2001, and is recorded under “Other assets”.

(v) These represent investments in notes issued by foreign governments.

The management of the investment portfolios is the responsibility of the fund managers, and the consolidation of the financial statements in relation to these funds is not required under the terms of CVM Instruction nº 408/2004.

F-30

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

All of the Company’s financial investments have immediate liquidity and, accordingly, are treated as cash equivalents.

12 Trade accounts receivable

	2007		2006
Services billed	2,619		2,989
Services metered, not yet billed	923		1,054
Mobile handsets and accessories sold	59		86
Provision for doubtful accounts	(315	)	(325	)
	3,286		3,804

The aging-list of accounts receivable is shown below:

	2007	%	2006	%
Not yet billed	923	25.6	1,054	25.5
Not yet due	1,080	30.0	1,140	27.6
Receivable from other providers	513	14.2	623	15.1
Overdue up to 30 days	547	15.2	659	15.9
Overdue between 31 and 60 days	170	4.7	206	5.0
Overdue between 61 and 90 days	99	2.7	213	5.2
Overdue more than 90 days	270	7.6	234	5.7
	3,602	100.0	4,129	100.0

A 2% fine is charged on the total value of the debt outstanding under accounts in arrears (recorded as “Other operating income”), plus interest of 1% per month, charged on a pro rata basis (recorded as “Interest income”), recognized in the books upon the issue of the next bill after the due date of the overdue bill.

Telemar may block outgoing calls, when the bill is 30 days or more overdue, block incoming calls also, when a bill is 60 days or more overdue, and remove the customer’s terminal when the bill is 90 days or more overdue, as long as the customer is given 15 days advance warning. After the removal of the terminal, which is carried out when the payment is between 95 and 110 days overdue, the name of the delinquent customer is forwarded to the appropriate credit protection agencies.

The policy adopted by Oi, in accordance with the rules established by Anatel, provides for the partial suspension of services, until full payment has been made of all amounts due, in the case of a payment that is more than 15 days overdue and the customer has not paid and/or straightened out the situation, after receiving notification requesting the payment. The same policy also determines that all outgoing and incoming calls be blocked when a payment is more than 30 days overdue. When a payment is more than 75 days overdue, all services are suspended and the name of the delinquent customer is included in the records of the credit protection services.

F-31

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

With the publication, on February 13, 2008, of an appendix to Anatel Resolution nº 477, of August 7, 2007, introducing changes to the regulations governing SMP, there are two changes to the rules governing default, as described below:

(i) The limit for blocking all outgoing and incoming calls is now 45 days (30 days after the 15-day limit for blocking only outgoing calls), instead of 15 days;

(ii) However, the SMP service provider is allowed, at its own discretion, to terminate the contract once the bill is 90 days overdue; other terms have not been changed.

The roll-forward of the provision for doubtful accounts is demonstrated below:

	2007		2006
Initial balance	325		320
Increase in provision	649		475
Write-offs	(659	)	(470	)
Balance at the end of the year	315		325

13 Credits receivable

	2007	2006
Credits receivable—Barramar S.A. (i)	60	65
Credits receivable—Way TV (ii)	—	132
Assets put up for sale (iii)	—	57
Credits receivable—Hispamar S.A. (iv)	—	36
Other credits receivable	1	—
Provision for losses (iii)	—	(9	)
	61	281

(i) The amount receivable from the company Barramar S.A. represents 50% of the amounts recorded as realizable in the long term by AIX. Due to the bankruptcy of Barramar S.A., declared by the “5ª Câmara de Direito Privado do Tríbunal de Justiça do Estado de São Paulo” (São Paulo state supreme court 5th chamber of private law) in a ruling handed down on March 24, 2004, AIX is taking the appropriate legal steps to file its claims against the bankrupt estate and to have an assessment made of the operating assets of that company, by virtue of its participation in the Refibra Consortium.

F-32

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(ii) On July 27, 2006 TNL PCS Participações S/A, a subsidiary of the Parent Company, bought at an auction held by the Bovespa, a single block of 44,428,569 common stock and 27,962,449 preferred stock issued by Way TV, for a total price of R$132 million.

Way TV is a company that provides subscription TV services and broadband internet access to the residential, commercial and corporate market segments. This company operates in the cities of Belo Horizonte, Poços de Caldas, Uberlândia and Barbacena, using a hybrid network of fiber optic and bidirectional coaxial cable (HFC) that allows it to offer a broad range of interactive services, such as distance learning, telephony and telemedicine, among others.

The contract for the purchase of the stock was signed on August 1, 2006 and the amount paid was held in a blocked account under the custody of Banco do Brasil S.A., awaiting Anatel’s approval of the acquisition of Way TV by TNL PCS Participações S/A.

On March 19, 2007, Anatel denied the Request for Prior Consent to the purchase of all the shares in Way TV by TNL PCS Participações S.A., and the company submitted a Request for Reconsideration to Anatel, on April 13, 2007. On October 23, 2007, Anatel reversed its previous decision and granted the prior consent for the Oi group’s take-over of Way TV.

On November 12, 2007, ANATEL issued Act nº 68,525, which was published in D.O.U. nº 218 of November 13, 2007, approving the transfer of all the common and preferred shares issued by Way TV to TNL PCS Participações.

(iii) On July 26, 2006, the Boards of Directors of the Parent Company and Telemar approved the disposal of 14 properties at their average appraisal value, which does not exceed their acquisition cost.

(iv) In November 2001, Telemar signed an association agreement with Hispamar Satélites S.A., to reduce cost of providing services to the north of the country, and especially cost of renting transponders from Embratel. On December 31, 2002, Telemar signed, along with Hispamar Satélites S.A., a subsidiary of Hispamar Ltda., a contract for onerous transfer of the right to use a Band C geostationary satellite, launched on August 4, 2004. The price of this transfer of usage right was determined by means of a study conducted by an independent firm of specialists, and totalled R$29, which is monetarily adjusted according to the “Índice de Preços ao Consumidor — IPC” (consumer price index).

On November 30, 2007, Telemar, Hispasat Brasil Ltda. and Hispasat S.A. signed a “Settlement Agreement”, a private agreement for the settlement of mutual obligations containing the following terms:

• Not to demand the fines, penalties and monetary correction that would be applicable among the parties, arising from (i) non-settlement by Telemar of unpaid capital in Hispamar; and (ii) non-settlement by Hispamar of obligations in relation to the transfer of Telemar’s satellite usage rights, in accordance with the terms provided for at a meeting held on December 31, 2002.

• Telemar is to pay for the subscribed stock issued by Hispamar, amounting to 28,659,000 no par value shares, by cancelling the credit held by Telemar in relation to the transfer of the satellite usage rights. This transaction was agreed to by Hispamar’s other stockholders.

F-33

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

As a result of the abovementioned subscription payment, Telemar became a stockholder of Hispamar, with a 19.04% stake.

14 Recoverable taxes

	2007	2006
Value-added tax (ICMS)	739	644
Income tax and social contribution recoverable (i)	1,121	248
Withholding income tax	199	191
Other taxes recoverable	65	100
Total	2,124	1,183
Current	1,876	934
Long-term	248	249

(i) The increase in income tax and social contribution recoverable is due to the fact that as of 2007 the Company choose to file tax returns on an annual basis, rather than on a quarterly basis as was the case in previous years up to and including 2006.

15 Deferred taxes

	2007		2006
Provisions for contingencies	664		756
Temporary differences, mainly provision for doubtful accounts	702		659
Tax loss carry-forwards	914		865
Unrecorded tax credits (i)	(59	)	(158	)
Total	2,221		2,122
Current	237		236
Long-term	1,984		1,886

The Company records its deferred tax credits arising from temporary differences and tax loss carry forwards in accordance with CVM Resolution no 273/1998 and CVM Instruction no 371/2002, which allows tax loss carry forwards to be recorded if, according to approved technical studies, there is sufficient generation of future profits to offset these tax loss carry forwards, up to a limit of ten years.

F-34

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(i) Unrecorded tax credits on tax loss carry-forwards amount to R$59 (2006 — R$158). In the fiscal year 2007, Oi’s record and prospects of generating sufficient taxable income over the next ten years were such that all the credits accrued to 2006, amounting to R$109, were recorded in the books).

The roll-forward of the unrecognized tax credits for 2007 is as follows:

	Balance as of 12/31/2006	Additions / exclusions		Balance as of 12/31/2007
Deferred income tax and social contribution on temporary differences	3	2		5
Deferred income tax and social contribution on tax loss carry-forwards	155	(101	)	54
Total	158	(99	)	59

16 Prepaid expenses

	2007	2006
FASS (social security foundation) (i)	260	—
Subsidy on Oi handsets (ii)	194	179
Financial charges (iii)	189	232
Fistel fee (iv)	83	85
Taxes and contributions	10	10
Insurance	1	12
Other	45	29
	782	547
Current	352	336
Long-term	430	211

(i) On October 29, 2007, the Company provided funding of R$260 to FASS. This amount, calculated by the foundation’s actuaries, is intended to cover the increase in future contributions to the plan due to changes in the actuarial premises to better reflect the new economic scenario, of falling interest rates, and adjust the mortality and disability tables of the foundation’s plans. According to the current premises (see Note 30, item (a), sub-item (iv)), this amount is appropriated over approximately ten years, the estimated average remaining working life of the employees participating in the plan.

F-35

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(ii) Refers to postpaid mobile handsets, sold with an average subsidy of R$300.00. The deferral of the subsidy has been calculated based on net additions, recoverable over a period of up to twelve months, as foreseen in the contract’s fine clauses for early cancellation or migration to prepaid plans.

(iii) Financial charges and premiums paid in advance, when obtaining loans, financing and the issuing of debentures, are amortized during the term of the related contracts (see Notes 21 and 27):

(iv) This item refers to the Fistel fee, paid on the activation of new clients (R$26.83 per activation). The amount is deferred and amortizated over the estimated churn period of 24 months.

17 Judicial deposits and judicial blockings (court ordered judicial deposits)

	2007	2006
Civil	396	254
Tax	646	569
Labor	437	333
Judicial blockings	262	248
	1,741	1,404

The Company maintains certain judicial deposits in order to ensure their right of appeal in civil, labor and tax proceedings. In respect of judicial deposits in tax proceedings, we highlight the following:

	2007	%	2006	%
ICMS tax assessments	378	58.5	203	35.7
INSS (i)	74	11.5	110	19.3
PAES	56	8.7	18	3.2
COFINS	28	4.3	17	3.0
IPTU (ii)	25	3.9	35	6.2
CSLL	21	3.3	14	2.5
PIS/PASEP	19	2.9	18	3.2
ISS	13	2.0	12	2.1
IRPJ	10	1.5	62	10.9
FUST (Note 8(iv))	—	—	53	9.3
Other (iii)	22	3.4	27	4.6
	646	100.0	569	100.0

F-36

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(i) This item refers to “Instituto Nacional do Seguro Social – INSS” (national institute for social security).

(ii) This item refers to “Imposto sobre a Propriedade Predial e Territorial Urbana- IPTU” (municipal real estate tax)

(iii) This item refers to deposits that serve as guarantee against fiscal enforcement in relation to tax charges administered by the “Secretaria da Receita Federal — SRF” (Internal Revenue Service — IRS), as well as the suspension of liability in relation to other charges by municipal and state Government bodies.

Pursuant to the pertinent legislation, during the fiscal year ended on December 31, 2007, the judicial deposits were adjusted monetarily, generating an income on the fiscal claims of R$50 (2006 – R$50), on the labor claims of R$30 and on the civil claims of R$50, recorded under “Net financial income (expenses) – Interest and monetary variation on other assets” (see Note 9).

18 Property, plant & equipment

	Cost	Accumulated depreciation		2007 net	2006 net	Annual rate of depreciation (%)
Cables (access network)	6,728	(4,202	)	2,526	2,581	5 to 20
Telemar transmission equipment	9,650	(7,550	)	2,100	1,673	20
Oi transmission equipment (i)	2,272	(837	)	1,435	1,500	10
Oi switching equipment (i)	1,160	(405	)	755	819	10
Underground ducts	2,057	(1,331	)	726	740	4
Buildings	2,078	(1,404	)	674	704	4 to 10
Other equipment	2,041	(1,482	)	559	502	4 to 20
Posts and towers	958	(421	)	537	535	4 to 5
Trunking switches	5,514	(5,093	)	421	624	5 to 20
Leasehold improvements	694	(295	)	399	392	10
Telemar switching equipment	9,282	(8,913	)	369	387	20
Construction in progress	331	—		331	515	—
Computer hardware	732	(524	)	208	223	20
Land	142	—		142	138	—
Inventories for network expansion	133	—		133	135	—
Terminals	2,219	(2,156	)	63	72	13 to 20
Way TV transmission and switching equipment	28	(17	)	11		10 and 20
Other assets	625	(485	)	140	193	10 to 20
	46,644	(35,115	)	11,529	11,733

F-37

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(i) The rates of depreciation for the transmission and switching equipment belonging to Oi are supported by the internal appraisal of their useful lives. The assessment is based mainly on the questions of technological obsolescence and physical wear, and is in line with the normal practices adopted in the wireless telephony segment.

Additional information

(a) Management regularly reviews its potential to generate profits, in particular buildings and equipment to be maintained and used in operations, to determine and measure any requirements of reducing their value to recovery value (impairment analysis). No significant impairment loss was identified in 2007 and 2006.

(b) In accordance with clause 21.1 of the concession contracts, all the fixed assets belonging to Telemar that are essential for Telemar to provide the services authorized in said contracts are considered revertible assets and are part of the cost of the respective concession. These assets will automatically revert to Anatel upon the expiry of any concession contract that is not renewed.

At December 31, 2007, the remaining balance of the revertible assets is R$6,842 (2006 —R$6,496), comprising assets and construction in progress, switching equipment, transmission equipment, public telephone units, external network, energy equipment, system equipment and operating support equipment. As the regulation is subject to different interpretations, the amount is subject to changes resulting from further internal reviews and Anatel definitions.

The increase in the balance of the revertible assets was due to composition changes arising from the release of Anatel Official Notice nº 244, providing an interpretation of Anatel Resolution nº 447, which was previously subject to different interpretations.

The table below provides a summary of the comparative positions as of December 31, taking into account the effects of the new interpretation:

	2007	2006
Balance using the previous methodology	6,404	6,496
Balance according to Official Notice nº 244	6,842	6,157

(c) The Company has a variety of lease contracts for computer equipment, the amounts of which are taken to income over the term of these contracts. For US GAAP purposes these operations are recorded as property plants and equipment, as a contra entry to accounts payable, as shown below:

F-38

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

	Drawn down	Maturity	Asset balance		Liabilities balance		Expense for the year
Lessor	date	date	2007	2006	2007	2006	2007	2006
IBM Leasing	01/03/2006	01/03/2009	57	76	35	61	39	31
IBM Leasing	01/26/2007	01/25/2010	29	31	25	10	15	33
SAFRA	02/27/2007	02/27/2011	5	—	4	—	1	—
IBM Leasing	04/10/2006	04/10/2009	5	6	3	5	3	2
IBM Leasing	10/25/2006	10/24/2010	2	4	2	4	1	—
IBM Leasing	08/30/2006	08/30/2009	2	3	2	3	1	1
IBM Leasing	02/25/2007	02/25/2012	2	—	2	—	1	—
IBM Leasing	10/25/2006	10/24/2009	2	3	2	3	1	—
IBM Leasing	03/25/2007	03/25/2010	2	—	2	—	1	—
IBM Leasing	03/29/2006	03/29/2009	1	2	1	1	1	1
IBM Leasing	10/25/2004	10/25/2008	1	2	1	2	1	1
Fináustria	10/21/2002	10/21/2006	—	2	—	—	—	5
Other	03/28/2002	07/28/2007	3	3	—	1	1	4
			111	132	79	90	66	78

F-39

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

19 Intangible assets

	Cost	Accumulated amortization		2007 net	2006 net	Annual rate of amortization (%)
Oi and Way TV license (i)	1,439	(508	)	931	843	7 to 13
Computer software	1,484	(994	)	490	435	20
Goodwill (ii)	523	(379	)	144	76	10 to 20
Others	99	(66	)	33	31	5 to 20
	3.545	(1,947	)	1,598	1,385

(i) This item refers to the right to use certain radio frequencies, acquired by Oi in March 2001, for the sum of R$1,102, in July 2003 and January 2004, for R$71, and in December 2007, for R$121, the amortization of which is calculated according to the validity period of these authorizations, which extends up to March 12, 2016. The financial charges incurred prior to Oi’s operational start-up, totaling R$64, have been capitalized. Furthermore, it includes the licences of Way TV in the total net amount of R$12.

(ii) For 2006, refers to the goodwill paid by Telemar on the acquisition of Pegasus, which is justified by the expectation of future profitability and synergy gains between operations of Telemar and Pegasus. This goodwill has been fully amortized. For 2007, refers to the goodwill paid by the Company on the acquisition of Way TV (R$64) and Paggo (R$81), which are justified by the expectation of future synergy gains (including client base) of the Company and Way TV and Paggo. Under Brazilian GAAP, these goodwill are amortized and recognized in income over a period consistent with the period over which the expectation is to incur gains.

With regard to the contracts signed in 2003 and 2004, Oi made a down-payment of 10% of the contract value, when the contract was signed, and recognized the balance under its liabilities, separated into short and long term, with final maturities in 2011 and 2012, respectively. The outstanding balance is monetarily adjusted according to the “Índice Geral de Preços—Disponibilidade Interna—IGP-DI” (domestic inflation index), plus interest of 1% per month.

In December 2007, Oi was the winning bidder for 16 of the 105 frequency lots put out to tender by Anatel, thus conferring the right to provide SMP for an indefinite period and the use of radio frequencies in São Paulo for a period of 15 years, renewable for an equal period (involving an additional R$121), as well as increased band width in some states within Region I (Amazonas, Amapá, Pará, Maranhão, Roraima, Bahia, Espírito Santo, Sergipe, Alagoas, Paraíba, Piauí and Rio Grande do Norte), valid until March 13, 2016 (which involved a further R$11). At the signing of the contract, Oi paid 10% of the contract value and fully recognized the balance outstanding to Anatel for these concessions, under its liabilities.

According to the rules of the bid, the outstanding balance may be settled in up to 6 equal, consecutive annual installments, with the first coming due in 2010, though it may be paid in advance. The installments will incur “Índice de Serviços de Telecomunicações – IST” (index for telecommunications services), plus interest of 1% per month.

F-40

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Due to the acquisition of Way TV, approved by Anatel on November 14, 2007, the balance in relation to that subsidiary’s authorizations to provide cable TV services was added to the aforementioned balance.

The total amount paid for the transfer of the authorizations was R$24, and their amortization has been calculated in line with the remaining validity of said authorizations, the average period being eight years.

20 Deferred charges

These amounts correspond to expenses incurred by certain subsidiaries during their pre-operational phase and are being amortized based on economic feasibility studies. The average amortization period is estimated at ten years for Oi Internet, AIX, Oi and TNL PCS Participações and at five years for Paggo. Way TV has deferred spending that is being amortized in five years, in the case of improvements to third-party property, and ten years, in the case of pre-operational expenses.

Consolidated deferred charges can be broken down as follows:

	2007		2006
Interest expenses	368		352
Third-party services	235		235
Personnel	52		47
Materials (mainly handsets)	31		31
Rental and insurance	23		23
Revenue from the sales of handsets	(20	)	(20	)
Others	13		1
Accumulated amortization	(372	)	(300	)
	330		369

The balances per subsidiary can be summarized as follows:

	Cost	Accumulated amortization		2007 net	2006 net
Oi	632	(349	)	283	346
TNL PCS Participações	26	—		26	9
AIX	21	(13	)	8	11
Way TV	17	(9	)	8	—
Oi internet	4	(1	)	3	3
Paggo	2	—		2	—
	702	(372	)	330	369

F-41

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

21 Loans and financing

	Draw down date	Maturity	Guarantees	Financial charges	2007	2006
(a)    Local currency
BNDES (i)	11/2006	06/2014	Parent Company endorsement and Telemar receivables	TJLP (*) + 2.50 % p.a. / 4.50% p.a.	1,514	811
BNDES (ii)	09/2004	10/2012	Parent Company endorsement and Oi receivables	TJLP + 4.50% p.a.	461	555
BNDES (iii)	07/2007	01/2015	Parent Company endorsement and Oi receivables	TJLP + 4.50% p.a.	440
BNDES (iv)	12/2003	01/2011	Parent Company endorsement and Telemar receivables	TJLP + 4.50% p.a.	245	323
BNDES	07/2005	08/2013	Parent Company endorsement and Telemar receivables	TJLP + 3.50% p.a. / 4.50% p.a.	69	81
BNDES (v)	12/2000	01/2008	Parent Company endorsement and Telemar receivables	TJLP + 3.85% p.a.	36	468
BNDES	12/2005	12/2013	Parent Company endorsement and Telemar receivables	TJLP + 4.50% p.a.	23	24
BNB	06/2004	12/2014	Telemar receivables	10.5% p.a.	174	196
Other					20	11
Financial charges					19	11
				Total in local currency	3,001	2,480

(*) “Taxa de Juros de Longo Prazo – TJLP” (long-term interest rate)

F-42

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

	Draw down date	Maturity	Guarantees	Financial charges	2007	2006
(b)    Foreign currency
United States Dollar:
ABN AMRO Bank N.V. (vi)	08/2001	08/2009	No guarantee	LIBOR (*)+0.25% p.a. to 0.76% p.a.	233	507
ABN AMRO Bank S.A.	09/2005	09/2008	No guarantee	5.45% p.a.	107	129
ABN AMRO Bank N.V.	01/2004	04/2009	No guarantee	LIBOR + 3.0% p.a. to 4.83% p.a.	89	128
ABN AMRO Bank S.A.	06/2005	05/2008	No guarantee	5.05% p.a.	53	64
ABN AMRO Bank S.A.	12/2005	11/2008	No guarantee	5.43% p.a.	36	43
ABN AMRO Bank S.A.	06/2005	12/2010	No guarantee	5.51% p.a.	33	50
ABN AMRO Bank S.A.	10/2005	10/2008	No guarantee	5.28% p.a.	27	33
ABN AMRO Bank S.A.	02/2006	11/2008	No guarantee	5.40% p.a.	24	29
Senior Notes (vii)	12/2003	08/2013	No guarantee	8% p.a.	266	321
FINNVERA (vi) (x)	02/2003	02/2012	No guarantee	LIBOR + 0.29 % p.a.	159	235
FINNVERA (vi)	11/2004	11/2010	No guarantee	LIBOR +0.76% p.a.	75	106
KFW (vi) (x)	02/2003	08/2012	No guarantee	LIBOR + 0.22% p.a.	72	105
KFW	07/2002	01/2011	No guarantee	LIBOR + 0.5% p.a. to 2.0% p.a.	55	95
KFW	06/2000	10/2009	No guarantee	8.75% to 11.87% p.a.		73
Société Générale / Coface (vii) (x)	02/2003	11/2012	No guarantee	LIBOR + 0.22% p.a.	51	74
Société Générale / Natexis	12/2004	10/2009	No guarantee	LIBOR + 1.95% p.a.	30	55
Société Générale	12/2002	06/2007	No guarantee	LIBOR + 5% p.a.		3
NIB (vi)	11/2004	11/2010	No guarantee	LIBOR + 0.76% p.a.	30	43
NIB (vi) (x)	03/2003	02/2012	No guarantee	LIBOR + 0.75 % p.a.	30	44
BSB (**)	04/2005	04/2008	No guarantee	5.9% p.a.	22	26
BANESPA (***)	01/2004	01/2007	No guarantee	6.5% p.a.		17
Unibanco	12/2004	12/2007	No guarantee	4.90% p.a.		8
Others	01/2000	04/2007	No guarantee	LIBOR + 3% p.a. and 4% p.a.		18
Japanese Yen:
Citibank Tokyo (viii)	09/2007	09/2017	No guarantee	Japanese interbank rate + 0.48% p.a.	661
JBIC (viii)	01/2003	01/2011	No guarantee	Japanese interbank rate + 1.25% p.a.	207	301
JBIC (viii)	08/2001	01/2010	No guarantee	1.65% p.a.	185	294
Unibanco (ix)	09/2006	12/2008	No guarantee	1.0% p.a.	279	317

F-43

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Currency basket BNDES (xi):
BNDES (iv)	12/2003	01/2011	Parent Company endorsement and Telemar receivables	BNDES variable rate + 4.50% p.a.	35	55
BNDES (v)	12/2000	01/2008	Parent Company endorsement and Telemar receivables	BNDES variable rate + 3.85% p.a.	8	120
Financial charges					59	84
			Total in foreign currency		2,826	3,377
			Balance of foreign currency swap operations		1,316	1,460
			Total loans and financing		7,143	7,317
			Current		1,960	1,999
			Long-term		5,183	5,318

(*) London Interbank Offered Rate – LIBOR

(**) Banco Santander do Brasil S.A. – BSB

(***) Banco do Estado de São Paulo S.A. – BANESPA

F-44

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(a) Changes in balance of loans and financing during the fiscal years ended December 31, 2007 and 2006

Year	Initial balance	Additions	Amortization		Financial charges	Final balance
2007	7,317	1,827	(2,465	)	464	7,143
2006	8,630	1,210	(3,306	)	783	7,317

The average annual interest rate on local currency debt, which amounted to R$3,001 as of December 31, 2007 (2006—R$2,480), is 10.5% p.a. (2006—10.4%). The average annual interest rate charged for foreign currency debt, which totaled R$2,826 on that same date (2006—R$3,377), is 6.3% p.a. (2006—7.0%) for funds obtained in U.S. dollars, 1.5% p.a. (2006—1.5%) for funds denominated in Japanese Yen and 11.0% p.a. (2006—9.9%) for funds obtained through “Banco Nacional de Desenvolvimento Econômico e Social – BNDES” (national bank for economic and social development) currency basket. The financial charges on the debt are basically composed of interest and monetary and exchange variations, net of the results of swap operations.

(b) Description of principal loans and financing

(i) In November 2006, Telemar signed a contract for financing from the BNDES, amounting to R$1,971, and drew down R$810 to finance the expansion and technological upgrading of the Telemar fixed telecommunications network, scheduled to be carried out over the period 2006 to 2008. In September 2007, Telemar drew down a further R$700. The financial charges are due on a quarterly basis up to June 2009, from which time the payments will be monthly, between July 2009 and June 2014. The principal will become due on a monthly basis, as from July 2009.

(ii) In September 2004, Oi closed a financing contract with the BNDES, amounting to R$663, and has drawn down R$585 of this, R$400 in September 2004 and R$185 in May 2005, with the aim of financing its planned capital expenditure. The financial charges are due on a quarterly basis, until April 2006, when they became monthly, from May 2006 until October 2012. The principal has been payable on a monthly basis, since May 2006. On December 29, 2005, with the consent of the BNDES, Oi transferred the full amount of this financing to Telemar.

(iii) In July 2007, Oi closed a financing contract with the BNDES, amounting to R$467, and drew down R$290 in that same month and R$150 in October, to finance the expansion and technological upgrading of its mobile telecommunications network, scheduled to be carried out between 2006 and 2008. The financial charges come due on a quarterly basis, until January 2010, becoming monthly for the period February 2010 to January 2015. The principal will be payable on a monthly basis, as from February 2010.

(iv) During the period December 2003 to October 2004, Telemar drew down R$530 against a loan contract closed with the BNDES in December 2002, with the aim of financing its planned capital expenditure for the years 2002, 2003 and 2004. The funds were invested in the expansion of the telecoms network and in operational improvements. The financial charges came due on a quarterly basis, until January 2005, becoming monthly from May 2005 until January 2011. The principal has been payable on a monthly basis, since May 2005.

F-45

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(v) This item refers to the utilization of resources provided under special lines of credit, for the acquisition and installation of equipment, infrastructure and other items, under the terms of the government’s “Programa de Apoio a Investimentos em Telecomunicações – PAIT” (support program for investments in telecommunications”. The financial charges and principal were payable on a monthly basis, until January 2008.

(vi) In August 2001, Oi obtained a line of credit for US$1,425 million from a consortium of banks and suppliers (Nokia, Siemens and Alcatel), led by the Dutch bank ABN AMRO Bank N.V., to cover both capital expenditure and working capital. After carrying out four restructurings of this facility, the most recent in November 2007, the balance on this line of credit at December 31, 2007, after discounting amortization, was US$193 million (2006 – US$310 million). The resources made available under this line of credit have been fully utilized. In November 2003, the debt was transferred from Oi to Telemar.

(vii) On December 18, 2003, the Parent Company obtained R$879 (US$300 million) through the issuing of non-convertible “Senior Notes” abroad. JP Morgan coordinated the issue, while BB Securities (Banco do Brasil Securities) and CSFB (Credit Suisse-First Boston) participated in the distribution. These securities are remunerated at the rate of 8% p.a. and mature in August 2013, with Parent Company having the annual option of early redemption, as from the 5^th year. There are no guarantees. The funds are to be used for various corporate purposes. On December 1, 2005, the Parent Company effected the early redemption of some of these Senior Notes, to the sum of US$150 million, which were subsequently cancelled.

(viii) August 2001 and January and February 2003, the Parent Company obtained R$1,646 from JBIC (Japan Bank for International Cooperation), to finance investment in Telemar. In September 2007, Telemar obtained a syndicated loan of R$664 (US$360), to finance the expansion and technological upgrading of its wireline network. This international facility was put together by a consortium of banks, led by Citibank Tokyo and the Sumitomo Mitsui Banking Corporation. JBIC is the guarantor. The Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi UFJ and the Tokyo branches of Societé Générale, Banco Bilbao Vizcaya Argentaria and the Dutch ING Bank N.V also participated in the consortium.

(ix) In September 2006, the Parent Company obtained R$323 from Unibanco (União de Bancos Brasileiros S.A.), through the on-lending of funds from abroad (Resolution 2,770), for the purpose of providing working capital.

(x) In December 2002, Oi closed a financing contract with KFW—Kreditanstalt Für Wiederaufbau, NIB—Nordic Investment Bank, Société Générale/Coface and FINNVERA—Finnish Export Credit, amounting to US$300 million, to partially replace the line of credit taken out with ABN AMRO Bank N.V. In November 2003, the debt was transferred from Oi to Telemar.

(xi) BNDES discloses its currency basket rate (UMBNDES) on a daily basis.

F-46

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The maturity of long-term debt with third parties has been scheduled as follows:

	2007	%	2006	%
In local currency
2008	—	—	268	5.0
2009	381	7.4	302	5.7
2010	606	11.7	383	7.2
2011	541	10.4	311	5.8
2012	508	9.8	278	5.2
2013 and there after	674	13.0	276	5.3
	2,710	52.3	1,818	34.2
In foreign currency
2008	—	—	1,621	30.5
2009	1,005	19.4	954	17.9
2010	457	8.8	387	7.3
2011	223	4.3	155	2.9
2012	133	2.6	62	1.2
2013 and there after	655	12.6	321	6.0
	2,473	47.7	3,500	65.8
Total
2008	—	—	1,889	35.5
2009	1,386	26.8	1,256	23.6
2010	1,063	20.5	770	14.5
2011	764	14.7	466	8.7
2012	641	12.4	340	6.4
2013 and there after	1,329	25.6	597	11.3
	5,183	100.0	5,318	100.0

F-47

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

22 Dividends and interest on shareholders’ capital

	2007	2006
Proposed dividends and interest on shareholders’ capital of Parent Company	604	304
Interest on shareholders’ capital to minority stockholders’ of Telemar	183	113
Prior years’ dividends and interest on shareholders’ capital not claimed of Parent Company	72	82
Prior years’ dividends and interest on shareholders’ capital not claimed of subsidiaries	58	55
	917	554

23 Taxes other than on income

	2007	2006
ICMS (i)	444	415
ICMS – Agreement 69/1998 (ii)	223	180
PIS and COFINS	158	96
Other indirect taxes on operating revenues	37	48
Total	862	739
Current	637	540
Long-term	225	199

(i) A variety of municipal, state and federal taxes are levied on telecommunications services, the main one being ICMS, which is charged by the states at differing rates. The ICMS rate for Rondônia is 35%; it is 30% for the states of Pará, Paraíba, Mato Grosso and Rio de Janeiro; 29% for Goiás and Mato Grosso do Sul; 28% for Pernambuco; 27% for Bahia, Ceará, Rio Grande do Norte, Sergipe, Paraná and Alagoas. For all the other states, the ICMS rate is 25%.

(ii) In June 1998, the state finance secretaries approved Covenant 69, broadening the range of the ICMS, which could now be levied on other services, including the connection fee. According to the new interpretation, this ICMS could be applied retroactively to the preceding five years. Telemar’s management and legal advisors consider that the broadening of the range to include services that are supplementary to those of telecommunications is questionable because: (a) the state finance secretaries acted beyond the limits of their authority; (b) the new interpretation embraces services that are not considered to be those of telecommunications; and (c) new taxes cannot be applied retroactively.

Upon the publication of the abovementioned Covenant, Telemar filed a writ against the levying of ICMS on the services of installation and connection (the principal revenues under discussion), and has been recording a monthly provision, monetarily adjusted, in relation to this case. Recently, Telemar obtained favorable definitive rulings in the proceedings it filed in the states of Sergipe, Amazonas and Amapá, with the declaration that it was unconstitutional to charge ICMS on such services. The “Supremo Tribunal de Justiça – STJ” (supreme court) is also tending towards the understanding that ICMS should not be levied on the revenues from connection and other services that prepare the way for telecommunications services.

F-48

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

In view of the position of the STJ, the management understands that the amounts that have been charged to the subscribers ought to be returned to them, as the legal proceedings are decided in the different states. However, the management considers that the reimbursement of these amounts is conditional upon the subscriber still forming part of the active customer base and being up to date in his or her payments.

24 Deferred taxes on income liabilities

	2007	2006
Federal income tax payable	484	169
Social contribution payable	248	75
Income tax withheld at source on interest on shareholders’ capital	12	37
Additional indexation expense from 1990	11	12
Total	755	293

25 Tax Refinancing Program

The Parent Company and its subsidiaries Telemar and Oi have all adhered to the “Parcelamentos Especiais – PAES” (tax refinancing program) (also known as the “Programa de Recuperação Fiscal II -REFIS II” (also tax refinancing program), governed by Law nº 10,684/2003, with the registration of a substantial portion of the debt to the “Fazenda Nacional” (National Treasury) and the INSS that was due up to February 28, 2003. According to the provisions of Article 7 of the aforementioned law, the Company must maintain regular payment of the installments under the REFIS II, and may be excluded from the program in the event of late payment in three consecutive months or in six alternating months, whichever should happen first.

The refinancing has been scheduled over 180 months for the Parent Company and 120 months for its subsidiaries, and the amounts of R$15 (2006 – R$14) (Parent Company) and R$131 (2006 – R$122) (consolidated) were settled on time during the year ended on December 31, 2007, in compliance with the provisions of CVM Instruction nº 346, which address the prompt meeting of the payments as an essential requirement for sustaining the conditions provided for under the REFIS II.

F-49

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The amounts covered by the REFIS II are as follows:

	2007		2006
	Current	Long- term	Current	Long- term
COFINS	70	310	65	356
CPMF	29	150	27	168
IOF	15	123	14	129
IRPJ	13	54	12	63
CSSL	4	23	4	26
INSS - SAT	3	20	3	21
PIS	1	3	1	3
	135	683	126	766

A breakdown of the REFIS II amounts, showing principal, fines and interest, is presented below:

	2007				2006
	Principal	Fines	Interest	Total	Total
COFINS	274	27	79	380	422
CPMF	130	13	36	179	195
IOF	101	10	27	138	143
Corporate income tax	37	9	21	67	75
Social contribution	15	3	9	27	29
INSS – SAT (*)	14	2	7	23	24
PIS	2	1	1	4	4
	573	65	180	818	892

(*) “Seguro de Acidente de Trabalho – SAT” (workplace accident insurance).

These amounts are monetarily adjusted according to the variations of the TJLP, in the amount of R$55 (2006—R$72) being recognized as “Interest expenses” for the fiscal year ended on December 31, 2007 (see Note 9).

Faced with the undue classification, by the SRF and the “Procuradoria Geral da Fazenda Nacional – PGFN” (office of the chief attorney for the national treasury), of debts under the PAES program, Telemar felt obliged to file a lawsuit in order to prove its good standing with regard to payment of the installments under the program, as well as to correctly attest to the debts that were included in that program. To this effect, and in view of the concession of a preliminary injunction conditional upon a guarantee, supplementary judicial deposits of approximately R$3 per month were made until such time as an administrative or judicial decision be handed down determining the correct balance of the debts included in the PAES scheme. In May 2006, Telemar obtained a judicial ruling authorizing the monthly guarantee presented in this legal action to be effected by means of a bank guarantee, instead of a cash deposit.

In the cases of the Parent Company and Oi, the same error has been committed by the administrative authorities, with the undue inclusion of amounts other than those specified by the companies. On August 22, 2006,

F-50

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

the SRF removed the Parent company and Oi from the REFIS II program, on the grounds of alleged payment default. Since the management and its legal advisors consider that this exclusion is totally unfounded, given that the calculation of the installments to be paid is based on the amounts that the companies themselves asked to be included, the Parent Company and Oi are taking the necessary administrative and judicial steps for their reinstatement in the REFIS II program. In the event that the REFIS II debt is recalculated without including the benefits provided for in Law nº 10,684/2003, the amount of the long-term debt, totaling R$152, will be transferred to current liabilities.

26 Provisions for contingencies

(a) Composition of book value

		2007	2006
	Tax
(i)	ICMS assessments	389	286
(ii)	Tax loss carry-forwards	79	89
	FUST	54	65
	INSS	50	47
	ISS (*)	49	50
	Funttel	45	28
	ILL (**)	43	41
(iii)	Other claims	80	138
		789	744
	Labor
(i)	Overtime	193	372
(ii)	Salary differences/Equalization of salary scales	127	128
(iii)	Indemnities	89	107
	Labor fines	82	37
	Hazardous work conditions premium	78	121
	Claims by outsourced personnel	63	262
	Fees for legal council and expert opinions	41	24
	Additional post-retirement benefits	32	26
	Contractual rescissions	24	19
	FGTS (***)	15	9
	Actual employment	14	1
	Other claims	60	23
		818	1,129
	Civil
(i)	Anatel estimates	303	160
(ii)	Small claims courts	81	77
(iii)	Anatel fines	68	55
(iv)	Other claims	275	263
		727	555
	Total	2,334	2,428

(*) ISS – “Imposto Sobre Serviços” (tax on services)

(**) ILL – ”Imposto sobre o Lucro Líquido” (tax at source on net income)

(***) FGTS – “Fundo de Garantia do Tempo de Serviço” (guarantee fund based on time of service),

F-51

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

In accordance with the terms of the respective legislation, the provisions for legal contingencies are monetarily adjusted on a monthly basis, using the following interest rates:

Tax:	Variation of the “Sistema Especial de Liquidação e Custódia – SELIC” interest rate;
Labor:	Variation of the “Tribunal Regional de Trabalho – TRT” (regional labor court) interest rate, plus interest of 1% per month;
Civil:	Variation of the “Taxa Referencial – TR” (reference rate) interest rate, plus monthly interest (0.5% up to January 9, 2003 and 1% as from January 10, 2003).

(b) Breakdown of the claims according to level of risk at December 31, 2007

	2007
	Tax	Labor	Civil	Total
Probable	789	818	727	2,334
Possible	7,273	387	2,471	10,131
Remote	692	684	375	1,751
Total	8,754	1,889	3,573	14,216

	2006
	Taxl	Labor	Civil	Total
Probable	744	1,129	555	2,428
Possible	6,012	959	1,807	8,778
Remote	273	1,085	626	1,984
Total	7,029	3,173	2,988	13,190

F-52

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(c) Summary of changes in the balances of the provisions for contingencies

	Tax		Labor		Civil		Total
Balance at December 31, 2005	473		1,003		463		1,939
Additions, net of reversals	294		130		278		702
Write downs due to settlement	(143	)	(135	)	(285	)	(563	)
Monetary correction (Note 9)	120		131		99		350
Balance at December 31, 2006	744		1,129		555		2,428
Additions, net of reversals (i)	104		(68	)	299		335
Write-downs due to settlement	(104	)	(237	)	(169	)	(510	)
Monetary correction (Note 9)	45		(6	)	42		81
Balance at December 31, 2007	789		818		727		2,334

(i) The total additions in the period, net of reversals, amounting to R$335, comprise the provisions for legal contingencies, in the amount of R$309 (see Note 8), and the amounts shown in the table below, totaling R$25. During the fiscal year ended on December 31, 2007, management updated its estimate for calculating losses in relation to labor claims, basing the updated calculation on the record of payments already made. This change resulted in a reversal against the provision for legal contingencies, in the amount of R$408, with R$265 recorded under “Other operating expenses – provisions for legal contingencies and reversals” (Note 8), and R$143 under “Interest expenses, net – monetary correction of provisions for legal contingencies” (Note 8).

The amounts of the provisions in relation to ICMS on the leasing of Internet Protocol—IP gateways, “Instituto Nacional de Colonização e Reforma Agrária – INCRA” (national institute for agricultural colonization and reform), FUST, Funttel and an ICMS power consumption credit are recorded in the respective accounts for these charges, as shown below:

	2007		2006
Deductions from gross revenue:
Leasing of IP gateways	—		(15	)
Other operating expenses:
FUST	(13	)	(11	)
Funttel	(10	)	(48	)
ICMS credit on electricity	(2	)	(8	)
	(25	)	(82	)

(d) Provisions for probable losses

Tax:

(i) ICMS—Refers to a provision that is considered by the management to be sufficient to cover the various tax assessments in relation to: (a) insistence on levying ICMS, instead of ISS, on certain revenues; (b) offsetting and appropriation of credits on the acquisition of goods and other inputs required for network maintenance; and (c) assessments relating to non-compliance with obligations regarding access.

F-53

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(ii) Offsetting of tax losses and a negative contribution base—As disclosed in Note 10, Telemar has obtained a preliminary injunction ensuring the offsetting of tax losses and a negative calculation base, ascertained for the base years prior to and including 1998, against 100% of taxable income.

(iii) Other claims—These largely refer to provisions to cover IPTU assessments, amounting to R$10 (2006 – R$10) and sundry tax assessments relating to income tax and social contribution charges, to the sum of R$39 (2006 – R$35).

Labor:

(i) Overtime—Claims relating to demands for overtime payments, for work done outside normal working hours.

(ii) Salary differences / Equalization of salary scales—Largely represents amounts arising from pay differences among the employees in relation to claims for equal pay/reinstatement, by those whose receive less pay for doing an identical job, in association with other requirements provided for in the applicable legislation.

(iii) Indemnities—The indemnities correspond to demands for reimbursement or compensation for losses incurred during the validity of the employment contract, due to a variety of reasons, among which one may cite: work-related accident, provisional job stability, pain and suffering, restoration of payroll deductions, child day-care benefit and productivity bonus provided for in the collective labor agreement.

Civil:

(i) Anatel estimates—The change during the fiscal year ended on December 31, 2007 is largely due to a R$143 (2006 – R$52) provision supplement, arising from non-compliance with PGMU obligations.

(ii) Small claims courts—Questions raised by customers, for whom the individual indemnification amounts do not exceed the equivalent of forty minimum wages. During the fiscal year ended on December 31, 2007, payments were made in settlement of several of these suits, to the sum of R$83 (2006—R$85), offset by new provisions amounting to R$79 (2006—R$106).

(iii) Anatel fines—These largely refer to the payment of fines arising from failures to meet quality targets under the PGMQ and “Regulamento de Indicadores de Qualidade – RIQ” (regulation of quality indicators).

(iv) Other claims—These relate to several lawsuits in progress covering the rescission of contracts, indemnification of former suppliers and contractors, and expansion plans linked to the issuing of shares, among others. The change that occurred during the fiscal year ended on December 31, 2007 is due to a review of the risk of incurring losses in regard to these proceedings, based on the opinion of the Company’s legal advisors, as well as on a re-assessment of the amounts of the provisions to cover losses arising from lawsuits over the rescission of contracts.

F-54

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(e) Possible contingencies (not provided for)

The Company also has a number of proceedings in which the expectation of incurring losses is classified as possible, in the opinion of their legal advisors, and for which no provisions for contingencies have been made.

The principal contingencies classified as involving possible losses, in the opinion of the legal advisors, are summarized below:

Tax

ICMS—There have been a number of ICMS tax assessments against Telemar, amounting to approximately R$1,751 (2006 – R$1,198), most notably in regard to two situations: i) the levying of ICMS on certain revenues from services that are already taxed for ISS or that do not form part of the ICMS tax base; and ii) the offsetting of credits in relation to the acquisition of goods and other inputs necessary for network maintenance.

ISS—Assessments relating to the levying of ISS on the leasing of equipment, wake-up calls and other communication services, amounting to a total of approximately R$1,221 (2006 – R$1,061), have not been provided for, being considered by the lawyers to represent possible losses, given that these activities are either not subject to the levying of ISS or are already being taxed for ICMS. Furthermore, and strengthening the arguments of the defense, the STF decided, in the fourth quarter of 2001, that ISS should not be levied on the leasing of equipment, to which a substantial portion of these assessed amounts are related.

Since 2000, the Company has been contesting, both in the administrative and the judicial spheres, the demand for consideration for the use of urban in a number of municipalities within its operational area. The Company has been obtaining favourable judgements in all the judicial proceedings.

The Company’s position is based on the illegal and unconstitutional nature of said demand, especially in view of the fact that: (i) there are no legal grounds for demanding dues for the use of urban land (public easement); (ii) there do not exist, in rule of law, even the minimum criteria for introducing such a charge; (iii) there is no rule, in the Federal Municipal Statute, authorizing the charging of a consideration for the use of urban land as a manner of organizing and apportioning urban land; (iv) it is not legally possible to demand charges for the special use of public areas by companies providing public services, the exploitation of which is the private responsibility of the government; (v) any municipal regulation intended to introduce charges on property that is to serve the public interest and is regulated by the government is unconstitutional; (vi) it is not legally possible for a municipality to exact a monthly charge for the use of public easement property, as if it were a private rental arrangement; and (vii) there is existing jurisprudence, handed down by the STJ in relation to this matter, that is favorable to the companies providing such services.

INSS—There are proceedings totaling approximately R$808 (2006 – R$720), mainly relating to joint liability, the applicable percentage of SAT and items liable to incurring social security charges. Notable

F-55

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

among these is the questioning of the levying, by the INSS “Notificação Fiscal de Lançamento de Débito NFLD” (tax assessment notification)—in July 2005, of social security contributions on payments in regard to Telemar employee profit sharing, effected under the terms of Law n^o 10,101 and Article 7 of the 1988 Federal Constitution. Such items should not form part of the calculation base for this contribution. The amount involved in this assessment comes to R$290.

Federal taxes—There are various tax assessments with regard to federal taxes, mainly relating to alleged failure to pay or to undue compensatory procedures, amounting to approximately R$1,074 (2006 – R$522). Based on the opinion of its legal advisors, the Company’s management considers that there is a good chance of success in these proceedings, and for this reason has made no provisions for possible losses.

There follows a list of other charges made by the federal authorities:

(i) IRPJ, CSLL, PIS and COFINS – Amortization of premium – Assessment of July 2005—The questioning of the sum of R$1,884 (2006 – R$1,699), largely in relation to a corporate transaction carried out by Parent Company in 1998, to appropriate the goodwill determined in relation to the privatization auction of the Telebrás System. The amortization of the goodwill and the corresponding tax deduction are provided for in Law n° 9,532/1997, which, in Article 7, authorizes the result of the amortization of goodwill to be included in calculating the taxable income of a company resulting from a merger, split or consolidation, where one of the parties has an equity stake in the other, acquired at a premium based on the prospect of the future profitability of that other company. Hence, the prevailing federal legislation expressly allows the possibility of making use of premiums paid in the acquisition of equity stakes. This is a normal market practice and followed, moreover, the stipulations of CVM Instruction n° 319/1999. Parent Company is supported by the legal opinions of four renowned tax law firms, whose reports confirm the legality of the procedures adopted in the aforementioned transaction.

The Parent Company has duly contested the tax assessment notice. The decision in the lower administrative court, which reduced the amount in question by approximately R$300, was considered by the “Conselho de Contribuintes” (taxpayers’ council) to be invalid and the Parent Company is now awaiting a decision on appeal by the “Delegacia de Julgamento” (judgement commission).

(ii) IRPJ and CSLL – Interest and foreign exchange variation – Assessment of November 2006—Levying of the sum of R$98 (2006 – R$87), in relation to corporate income tax and social contribution that was allegedly due on the appropriation of interest and foreign exchange variations arising from lending operations abroad, as a result of signing contracts with the Parent Company Trading for the assumption of debt. Parent Company contested this assessment and obtained a favorable final decision, which considered the charging of this debt to be totally unfounded.

(iii) IRRF, IRPJ, CSLL, PIS and COFINS – Undue disallowances—In August 2000, Telemar was assessed by the Federal Internal Revenue Department of Rio de Janeiro, based on events that occurred in 1996, and therefore prior to the privatization, for a total of R$994. Of the aforementioned sum, approximately R$51 was registered under the REFIS II program. After the final decision, the remaining amount, which is being legally questioned and for which the maximum risk level is considered to be possible, totals approximately R$82 (2006 – R$118).

F-56

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(iv) PIS and COFINS – Undue disallowances - On June 30, 2006, Telemar received a tax assessment from the SRF, for the sum of R$677 (2006 – R$519), in relation to a number of disallowances of exclusions from the PIS and COFINS calculation bases, due to the inspectors failing to consider the information contained in “Declaração de Débitos e Créditos Tributários Federais retificadoras – DCTF” (rectified federal tax returns) when calculating the due amounts, and inaccuracies on the part of the inspectors in the comparison of the specified PIS and COFINS against the DCTFs. Telemar has compiled the documentary evidence to sustain the accuracy of its own calculations and payments and, based on the opinion of its legal advisers, the management considers the risk of incurring losses in this case to be possible.

A partially favorable decision has been obtained in the lower court, which is still provisional, leading to a reduction of approximately R$385 in the amount assessed, and Telemar has appealed against the unfavorable part of the decision. Given that the reduction is a consequence of the identification of errors committed, Telemar’s management believes that liability for this reduced portion should be considered remote, with the remaining balance considered possible.

(v) Fine – “Imposto de Renda Retido na Fonte - IRRF” (withholding tax) on loan – Assessment of December 2007 - The taxation authorities fined Telemar the sum of R$160 for not having deducted corporate income tax at source (in the calendar years 2002 and 2003) on the gains arising from loan agreements with the Parent Company. The Parent Company’s legal advisors believe there are strong arguments for the defense, since, in addition to part of the amount in question having already lapsed, said retention was waived by Article 77, clause II of Law n^o 8,981/95, which was only later revoked by Law n^o 10,833/2003.

Labor:

These relate to questions regarding various claims in relation to pay differences, overtime, risk premium and joint liability, among others, amounting to a total of around R$387 (2005 – R$959), which are mainly before lower courts and for which no ruling has been handed down regarding the merits of these cases. The change in the amount of this contingency is due to the new calculation methodology mentioned in item (c) (i).

Civil:

These refer to lawsuits in relation to which no judicial ruling has been handed down, the principal objectives of which are associated with issues regarding network expansion plans, indemnification for pain and suffering and material damages, collection proceedings, and tendering processes, among others. These issues are represented by more than 24,507 lawsuits (2006 – 24,683), amounting to a total value of approximately R$2,470 (2006 – R$1,807).

F-57

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

This total is based, exclusively, on the amounts claimed by the plaintiffs (which are typically exaggerated), and the final judicial decisions are still pending.

27 Debentures

At the Ordinary General Stockholders’ Meeting, held on March 7, 2006, approval was given for a public issue by the subsidiary Telemar of 216,000 (two hundred and sixteen thousand) simple, non-convertible debentures, in two series, at a nominal unit value of R$10,000.00, making a total of R$2,160. The issue date was set for March 1, 2006, with the placement date on March 27, 2006. The maturity of the 1st series is five years and of the 2nd series is seven years, from the issue date, and the remuneration is equivalent to 103% p.a. of the CDI rate, for the 1^st series, and the CDI rate plus a spread of 0.55% p.a. for the 2^nd series. The interest recorded under current liabilities, as at December 31, 2007, amounting to R$76 (2006 – R$93), is amortized half-yearly, the latest due date being September 1, 2007 and the next falling on March 1, 2008. Telemar’s Board of Directors approved this operation on March 15, 2006.

At an Ordinary General Stockholders’ Meeting, held on April 17, 2007, approval was given for a private issue by Telemar of 5,400 (five thousand, four hundred) simple, non-convertible debentures, in up to five series, at a nominal unit value of R$10,000.00, making a total of R$54, with a view to financing the expansion of the mobile telephone services in a variety of locations within the state of Minas Gerais (“Projeto Minas Comunica”). The indenture was signed on December 18, 2007 and subscription to the 1^st series, to the sum of R$11, took place on December 28^th. The final maturity of these debentures is on July 5, 2021, with partial amortization in 2018, 2019 and 2020. The debentures are to be remunerated according to the “Índice de Preços ao Consumidor – Amplo – IPC-A”(consumer inflation index) + 0.5% p.a.

28 Stockholders’ equity

a) Capital stock

The Parent Company’s authorized capital is represented by 700 million shares. The capital stock of the Parent Company, which is fully subscribed and paid up, amounts to R$4,689, represented by 130,612 thousand common shares and 261,223 thousand preferred shares.

The capital stock is represented by:

	In thousands of shares
	2007		%	2006		%
Common stock	130,612		33.33	130,612		33.33
Preferred stock	261,223		66.67	261,223		66.67
Total	391,835		100.00	391,835		100.00
Common treasury stock	(3,238	)	—	(3,238	)	—
Preferred treasury stock	(6,475	)	—	(6,475	)	—
Total shares outstanding	382,122		—	382,122		—

F-58

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(b) Capital reserves

Donations and subsidies for capital expenditure reserve

Although donations and subsidies were received in the past, under the self-financing plan, this balance basically refers to “Fundo de Investimento do Nordeste – FINOR” (Brazilian northeastern investment fund), relating to tax incentives.

(c) Revenue reserves

Legal reserve

According to Article 193 of the Brazilian Corporate Law, the Parent Company must allocate 5% of its net income for the year to a legal reserve, up to the limit of 20% of the capital stock. This allocation is optional in the event that the sum of the legal reserve plus the capital reserves exceeds the capital stock by 30%. The legal reserve may be utilized for a capital increase or for absorbing losses, but may not be distributed in the form of dividends.

Unrealized income reserve

This reserve represents the unrealized profit arising from a positive result in the equity adjustment. In 2006, the Parent Company recorded a reversal against the reserve, to the sum of R$272, in relation to the 2005 fiscal year.

Investment reserve

The Parent Company keeps an investment reserve to cover the capital expenditure implemented directly or by extending long term lines of credit to its subsidiaries, as well as to cover their respective capital budgets. These direct and indirect resources have been invested in the expansion of the wireline network, in relation to Anatel’s targets for universal telephone access, and in getting Oi established, with a total of R$2.6 billion invested in permanent assets in 2007 (2006 – R$2.3 billion). In 2007, the Parent Company increased the investment reserve with R$1,528 (2006 – R$1,128), amounting to a total of R$6,255 (2006 –R$4,727), with a view to safeguarding its cash flows. Nevertheless, whenever the Parent Company’s financial situation allows, this reserve may be utilized for the distribution of dividends.

F-59

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(d) Dividends and interest on shareholders’ capital

According to its by-laws, the Parent Company must pay out a minimum compulsory dividend for each fiscal year, equivalent to not less than 25% of the net profit, adjusted in accordance with Article 202 of the Brazilian Corporate Legislation. The preferred shares take priority in the reimbursement of capital, without premium, and in the distribution of dividends, being guaranteed a minimum, non-cumulative dividend of 6% p.a. proportional to the capital stock or 3% p.a. of the share book value, whichever is the higher. The remaining amount of the minimum compulsory dividend is allocated to the holders of common shares, to the same limit as the preferred shares and whatever may be left over is distributed equitably among all the stockholders.

The by-laws also provide for the payment of interest on capital to the stockholders. This interest on capital is tax deductible and remuneration is limited to the average TJLP for the period in question, applied to the stockholders’ equity at the end of the previous fiscal year, and may not exceed (i) 50% of the net profit (before considering this distribution and any deduction of income tax) for the period in which the declaration is made, or (ii) 50% of the sum of the retained earnings plus the revenue reserves, whichever is the greater. The amount paid or designated as interest on capital is considered to be part of the distribution of compulsory dividends. Hence, according to the Brazilian Corporate Law, the Parent Company is obliged to distribute to the stockholders an amount sufficient to ensure that the net value received, after payment of withholding tax, is at least equal to the minimum compulsory dividend.

At the Ordinary General Meeting held on April 11, 2007, approval was given for the allocation of net income for the year ended on December 31, 2006, amounting to R$1,248, as follows: (a) R$62 to the legal reserve; (b) R$1,128 to an investment reserve; and (c) distribution of the remaining R$330, with R$30 in dividends and R$300 as interest on capital, payment of which began on April 20, 2007.

In compliance with the provisions of the Brazilian Corporate Law and in accordance with the Parent Company’s by-laws, the adjusted net profit is equivalent to the net profit for the fiscal year, adjusted to reflect the allocations to/from: (i) the legal reserve; (ii) the contingency reserve.; and (iii) the realization of unrealized profit.

The minimum compulsory dividends were calculated as follows:

	2007		2006
Net income for the year	2,297		1,248
Appropriation to legal reserve - 5%	(115	)	(62	)
Adjusted net income	2,182		1,186
Minimum compulsory dividend - 25%	545		296
Common stock outstanding (in thousand of shares)	127,374		127,374
Preferred stock outstanding (in thousand of shares)	254,748		254,748

F-60

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The minimum statutory dividends were calculated as follows:

	2007	2006
	Preferred	Preferred
Capital stock subscribed	4,689	4,689
Total stock outstanding (*)	382,122	382,122
Total preferred stock outstanding (*)	254,748	254,748
Calculation basis	3,126	3,126
Minimum compulsory dividend - percentage	6%	6%
Minimum compulsory dividend	188	188

(*) thousands of shares

	2007	2006
	Preferred	Preferred
Stockholders’ equity	10,921	9,278
Total stock outstanding (*)	382,122	382,122
Total preferred stock outstanding (*)	254,748	254,748
Calculation basis	7,281	6,185
Minimum compulsory dividend - percentage	3%	3%
Minimum compulsory dividend	218	186

(*) thousands of shares

F-61

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

From the net income for the fiscal year ended on December 31, 2007, the management is proposing the allocation of R$80 in the form of dividends and R$591 in the form of interest on capital, the total value being superior to the minimum compulsory dividend (statutory). For the purpose of determining the interest on capital for distribution, the calculation base considered the amounts net of IRRF.

The distribution of interest on capital for the fiscal year 2006 was approved at an Extraordinary General Stockholders’ Meeting of the Parent Company, held on April 11, 2007, with the amount adjusted up to December 31, 2006 according to the variations of the CDI rate and adjusted from January 1, 2007 until the start of payments in accordance with the TR.

	Common stock		Preferred stock		Total
Proposed dividends	27		53		80
Interest on shareholders capital	197		394		592
IRRF due on interest on shareholders’ capital	(23	)	(46	)	(70	)
Total distribution net of IRRF	201		401		602
Preferred stock outstanding (in thousands of shares)	127,374		254,748		382,122
Amount per share
Proposed dividends – (R$)	0.2120		0.2080
Interest on shareholders capital (historical value) December 10, 2007	1.3661		1.3661

The dividends and interest on capital payable by the Parent Company, shown under current liabilities, are made up as follows:

Base year of the proposal	2007	2006
2007	604	—
2006	14	304
2005	22	26
2004	36	37
2003	—	19
	676	386

(e) Prescribed dividends

This refers to dividends and interest on shareholders capital that have not been claimed by the shareholders, within a period of three years from the date that this remuneration was placed at their disposal.

F-62

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(f) Treasury stock

The most recent share buy-back scheme at the Parent Company was concluded in 2005. The present balance shows a total of 9,713 thousand shares held in treasury, of which 3,238 thousand are common stock and 6,475 thousand are preferred stock.

(g) Retained earnings

Management presented a proposal for the allocation of the net profit for the 2007 fiscal year, under the terms of Article 192 of Law n^o 6,404/76. After deducting the legal reserve and dividend, the remaining amount of R$1,528 was transferred to the investment reserve. At December 31, 2007, after the allocation of net profit as referred to above, the amount of revenue reserves exceeded the Parent Company’s capital in the amount of R$1,519. A General Stockholders Meeting will deliberate whether to use this amount for a capital increase and/or the distribution of dividends.

(h) Reconciliation of net income for the year and stockholders’ equity from Parent Company to Consolidated

The reconciliation of net profit for the years ended on December 31, 2007 and 2006 and of stockholders’ equity on those dates, between the Parent Company and the Company, is shown below:

	Net income for the year				Stockholders’ equity
	2007		2006		2007		2006
Parent Company	2,297		1,248		10,921		9,278
Elimination of unrealized profit on the sale to Telemar of the Parent Company’s interest in Pegasus (i)					(43	)	(43	)
Elimination of the goodwill amortization paid by Telemar in acquisition of the Parent Company’s interest in Pegasus	20		20		99		79
Amortization of the Parent Company’s goodwill (ii)	(11	)	(11	)	(56	)	(45	)
Elimination of unrealized profit on the sale to Telemar of the Parent Company’s interest in Oi (iii)					(500	)	(500	)
Elimination of the goodwill amortization paid by Telemar in its acquisition of Parent Company’s interest in Oi (iii)	53		53		243		190
Consolidated	2,358		1,310		10,665		8,959

(i) This refers to the elimination of the Parent Company’s unrealized profit on the sale of its equity stake in Pegasus (absorbed by Oi) to Telemar, amounting to R$43, which was recognized in December 2002.

F-63

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(ii) The goodwill paid by the Parent Company on its acquisition of an equity stake in Pegasus, in January 2001, has been retained in the consolidation, at the sum of R$56, and has been amortized over a period of 60 month.

(iii) This refers to the elimination of the Parent Company’s unrealized profit on the sale of its equity stake in Oi (reversal of the provision for unsecured liabilities). Also eliminated is the amortization of the premium paid by Telemar on its acquisition, for R$1.00 (one real), of the Parent Company’s equity stake in Oi, which is being amortized over 9 years and five months, since May 2003, in line with the average depreciation of the related assets.

29 Financial instruments

The market risk exposure of the Company arises mainly from changes in the currency exchange rates, since a large part of their debt is denominated in foreign currency, while their revenues are in reais. In order to reduce this risk exposure, the companies use derivatives such as swap contracts. The Company do not use derivatives for any other purpose.

These transactions are carried out through the Company’s treasury department, in line with a strategy that has been previously approved by the management.

(a) Foreign exchange risk

Approximately 35% (2006 – 42%) of the consolidated debt, including debentures and excluding currency swap operations, is denominated in foreign currency (U.S. dollars, Japanese yen and BNDES basket of currencies).

The sum of the nominal values of the currency swaps and foreign currency investments, as at December 31, 2007, is US$1,149 million (2006 – US$1,308 million) for the consolidated figures and US$516 million (2006 – US$550 million) for the Parent Company, providing 72% and 97% cover, respectively, of the foreign exchange risk (2006 – 83% and 94%).

A summary of the position of these transactions is shown below:

	Value of		Recorded loss
	derivative contracts		on derivatives
	2007	2006	2007		2006
Foreign currency investments (i)	893	880	(107	)	(48	)
Foreign exchange swaps	1,142	1,916	(493	)	(696	)
Total	2,035	2,796	(600	)	(744	)

F-64

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The currency swap operations transfer the risk of foreign exchange variations to the variations of the CDI rate.

(i) Earnings on financial investments denominated in foreign currency are recorded in the results of hedging transactions (see Note 9).

(b) Interest rate risk

The Company has loans and financing that is subject to floating interest rates, based on the TJLP or the CDI, in the case of debt denominated in local currency, and on the LIBOR, in the case of debt denominated in U.S. dollars, on the Japanese interbank offered rate (“Japanese LIBOR”), in the case of debt denominated in Japanese yen, and on the BNDES variable currency basket rate (UMBNDES), in the case of debt linked to BNDES’s foreign currency funding. In order to reduce its exposure to LIBOR variations, the Company has engaged in swap transactions that convert the LIBOR rates into fixed rates.

As at December 31, 2007, approximately 85% (2006 – 80%) of the debt incurred, including debentures, was subject to floating interest rates, and 8% (2006 – 13%) was exchanged for fixed rates, by means of swap transactions.

	Value of the		Gain (loss) on
	derivative contracts		derivatives
	2007	2006	2007	2006
Interest rate swaps:	538	830	4	1

(c) Credit concentration risk

The concentration of credit risk associated with accounts receivable from customers is not material, due to a highly diversified portfolio and the monitoring controls applied. The doubtful debts are adequately covered by a provision for potential losses in this respect (see Note 12).

Transactions with financial institutions (financial investments, loans and financing) are distributed among first class institutions, thereby minimizing the risk of concentration.

F-65

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(d) Fair value of the financial instruments

The market values of the principal financial instruments are similar to their book values, as shown below:

		2007		2006
		Book value	Market value	Book value	Market value
(i)	Loans and financing	7,143	6,713	7,317	7,293
(ii)	Investment in marketable securities	6,206	6,206	4,525	4,525
(ii)	Debentures	2,247	2,247	2,253	2,253
(iii)	Derivatives	1,316	1,326	1,460	1,417

(i) The market values of loans & financing were calculated at the present value of these financial instruments, considering the interest rate adopted by the market for transactions of a similar kind, term and level of risk.

(ii) The book balances of investments in marketable securities and debentures, at December 31, 2007 and 2006, are similar to their market values, because they are recorded at their realizable values.

(iii) The fair value of derivatives differs from the book value due to the timing these instruments were acquired and the future expectations of foreign exchange variation. The values recorded under Brazilian GAAP are reducing the gains over loans and financing due to the appreciation of the Brazilian Real. This reduction of fair value to book value would only occur if the Company were to terminate these contracts before maturity. Management intends to maintain these instruments to their maturity.

30 Employee benefits

a) Private pension plans

Sistel is a not-for-profit private welfare business entity, set up in November 1977 with the corporate purpose of establishing private plans to provide savings, income, supplementary benefits or the like, to supplement the government pension, for the employees and their family members who are linked to the sponsors of Sistel.

With the statutory alterations approved by the SPC in January 2000, the sponsors negotiated the terms for creating plans tailored to the individual sponsor, with joint benefits restricted to those participants who retired up to January 31, 2000 (pension plan denominated PBS-A).

The Parent Company and its subsidiary Telemar sponsor private defined benefit pension plans (PBS-A and PBS-Telemar) and the Parent Company and its subsidiaries Telemar, Oi and Oi Internet sponsor private variable contribution pension plans (TelemarPrev).

F-66

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Pursuant to Article 33 of Complementary Law nº 109, of May 29, 2001, the “Conselho Deliberativo” (Steering Committee) da Sistel formally requested, in October 2004, that the administration of the PBS-Telemar and TelemarPrev plans be transferred to FASS. This foundation was set up by Telemar and authorization to begin its activities was granted by the SPC on January 12, 2005. The aforementioned transfer process was completed on February 28, 2005. Sistel continues to be responsible for the PBS-A plan.

The FASS, a closed supplementary pensions entity with multiple sponsors and multiple plans, is a not-for-profit private welfare business entity, with independent management of its assets, administration and finances, based in the city of Rio de Janeiro, in the state of Rio de Janeiro, for the purpose of administering and executing plans providing social security benefits for the employees of its sponsors.

In December 2006, the SPC approved new alterations to the regulations governing TelemarPrev, aimed at simplifying the regulatory text and operational procedures.

The bookkeeping for the pension and welfare plans is kept entirely separate, allowing the results to be ascertained for each benefit plan.

The disclosure of information and effects, a requirement of the pronouncement issued by IBRACON regarding the recording of employee benefits, approved by CVM Resolution nº 371/2000, is shown below:

(i) Defined benefit pension plans (PBS-A and PBS-Telemar)

PBS-Telemar (individual) scheme was introduced at the time of the statutory alterations at Sistel and retained the same benefits provided for under the PBS-A (joint) scheme. In addition to the benefit of supplementing monthly income, medical assistance “Plano de Assistência Médica ao Aposentdo - PAMA” (post-retirement medical care plan) is provided for retired employees and their dependents, with the cost being shared by the other sponsors.

The contributions of the active participants under the PBS-Telemar plan correspond to the sum of: (i) 0.5% to 1.5% of the participation salary (according to the age of the participant); (ii) 1% of that portion of the participation stipend that is equivalent to between half and one “Unidade Padrão “ (standard unit); and (iii) 11% of that portion of the participation salary that exceeds one “Unidade Padrão “ (standard unit). The contribution of the sponsors is equivalent to 9.5% of the payroll of the employees actively participating in the plan, of which 8 % goes to the PBS-Telemar plan and 1.5% to PAMA. The capitalization method is used for determining the costing of the plan.

The PBS-A plan has been closed to new participants ever since TelemarPrev was set up, in September 2000, and about 96% of the participants have migrated to TelemarPrev.

F-67

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Reconciliation of the assets and liabilities, as at December 31:

	2007				2006
	PBS-A (*)		PBS-Telemar		PBS-A (*)		PBS-Telemar
Fair value of the plan’s assets	3,792		205		3,370		195
Present value of the actuarial liabilities	(2,434	)	(182	)	(2,217	)	(164	)
Fair value of the surplus of assets over actuarial liabilities	1,358		23		1,153		31

(*) Does not include active participants, there being a sufficient surplus to cover the future actuarial liabilities.

Although the plans show a surplus of assets in relation to the actuarial liabilities, as at December 31, 2007 and 2006, these surpluses are not recognized under Brazilian GAAP, due to the fact that there is no legal provision for their reimbursement, in addition to the fact that the PBS-A is not a contributory plan.

Change in plan assets:

	PBS-A		PBS-Telemar
Fair value of the assets at December 31, 2006	3,370		195
Benefits paid during the year	(193	)	(13	)
Actual return on plan assets	615		23
Fair value of plan assets at December 31, 2007	3,792		205

F-68

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Changes in actuarial liabilities:

	PBS-A		PBS-Telemar
Liabilities at December 31, 2006	2,217		164
Interest on actuarial liabilities	217		16
Benefits paid during the year	(193	)	(13	)
Actuarial loss	31		1
Impact of change in actuarial premises	162		14
Liabilities at December 31, 2007	2,434		182

The above amounts do not take into consideration the assets and liabilities of PAMA, as it has multiple sponsors and is similar to the defined contribution plans (payment of benefits is limited to the amount of the contributions received by the plan), so there are no liabilities beyond the level of the existing balances.

(ii) Defined contribution private pension plan (TelemarPrev)

The Parent Company and its subsidiaries Telemar, Oi and Oi Internet sponsor the TelemarPrev plan, which was approved by the SPC in September 2000.

The benefits to the participants ensured by the plan are classified as: (i) risk benefits - supplements; and (ii) programmable benefits - income.

Normal contributions by the participants are made up of two parts: (i) basic - equivalent to 2% of the participation stipend; and (ii) standard - equivalent to 3% of the positive difference between the total participation stipend and the social security value. Additional contributions by the participants are optional, to be made in percentages representing multiples of 0.5% of the participation salary and for a period of not less than 6 months. Contingent contributions by the participants are also optional and must not be less than 5% of the participation stipend ceiling.

The plan’s regulations stipulate the parity of contributions made by the participants and the sponsors, up to the limit of 8% of the participation salary, with the restriction that the sponsor has no obligation to match any additional contributions made by the participants. The capitalization method is used for determining the costing of the plan.

Details of the variable contributions in relation to the defined benefits under the TelemarPrev plan are shown below:

Reconciliation of the plan’s assets and liabilities, at December 31:

	TelemarPrev
	2007		2006
Fair value of plan assets	2,223		1,838
Present value of plan actuarial liabilities	(1,939	)	(1,684	)
Fair value of the surplus of plan assets over actuarial liabilities	284		154

F-69

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Changes in plan assets:

	TelemarPrev
Fair value of plan assets at December 31, 2006	1,838
Benefits paid during the year	241
Actual return on plan assets	245
Contributions paid in the year	(101	)
Fair value of plan assets at December 31, 2007	2,223
Changes in actuarial liabilities:
	TelemarPrev
Liabilities at December 31, 2006	1,684
Gross current service cost (with interest)	7
Interest on actuarial liabilities	168
Benefits paid during the year	(101	)
Actuarial loss	32
Impact of change in actuarial premises	149
Liabilities at December 31, 2007	1,939

F-70

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(iii) Principal actuarial premises

The main actuarial premises adopted in the calculations of the PBS-A, PBS-Telemar and TelemarPrev plans are as follows:

	% p.a.
	2007		2006
		PBS-Telemar e		PBS-Telemar e
	PBS-A	TelemarPrev	PBS-A	TelemarPrev
Actuarial liability discount rate	10.51	10.51	10.24	10.24
Expected remuneration rate	10.82	11.50(*) /10.50(**)	13.18	12.20(*) /10.70(**)
Estimated inflation rate	4.50	4.50	4.00	4.00
Estimated salary increase	(***)	7.32	(***)	4.00
Estimated benefit increase rate	4.50	4.50	4.00	4.00
Mortality table	AT2000	AT2000	UP94	UP94

(*) PBS - Telemar

(**) TelemarPrev

(***) Does not include active participants.

On October 29, 2007, the Company provided funding of R$260 to FASS. This amount, calculated by the foundation’s actuaries, is intended to cover the increase in future contributions to the plan due to changes in the actuarial premises to better reflect the new economic scenario, of falling interest rates, and adjust the mortality and disability tables of the foundation’s plans. According to the current premises (see Note 30, item (a), sub-item (iv)), this amount is appropriated over approximately ten years, the estimated average remaining working life of the employees participating in the plan.

The following a list of the changes in the actuarial premises that are reflected in the welfare plans, when applicable:

• The mortality of able-bodied individuals was changed from UP-94 to AT-2000;

• The beginning of disability was changed from the Álvaro Vindas to the Zimmermann Nichzugs method;

• The mortality of the disabled was changed from the CAP Experience to the Winklevoss method;

• Morbidity was changed from the STEA Experience to a chart based on the FASS Experience; and

• The actuarial interest rate was changed from 6% to 5.75%.

(b) Employee profit sharing

The employee profit sharing scheme was introduced in 1999, as a way to stimulate the employees to meet individual and corporate targets and thereby improve the return on investment for the stockholders. The scheme comes into effect when the following targets are met:

• Economic value added targets (indicators of Earnings Before Interest, income Tax, Depreciation and Amortization - EBITDA, as well as indicators of economic value added); and

F-71

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

• Operational, quality and market indicators.

On December 31, 2007, Telemar, Oi and Oi Internet recorded provisions based on the estimated attainment of these targets, amounting to R$72 (2006 – R$34).

Balance at December 31, 2006	34
Payment of profit sharing referring to year 2007	(46	)
Addition to provision in 2007 (Note 8)	84
Balance at December 31, 2007	72

(c) Other employee benefits

The Company also offers its employees plans covering medical and dental care, pharmaceutical assistance, child day-care assistance and group life insurance, with the discounts from the payroll being made in accordance with the pay scales established in the collective labor agreements.

(d) Stock options

At an Extraordinary General Stockholders’ Meeting, held on April 11, 2007, approval was given for a stock option plan. The Board of Directors is responsible for running the scheme, and will introduce stock purchase programs from time to time.

The Stock Option Program initiated in 2007 includes 40 beneficiaries, who are entitled to a total corresponding to up to 1.31% of the subscribed and paid in share capital, representing 5,120 thousand common shares granted under the program of April 2007. The options may be exercised as from April 12, 2008, in four equal annual blocks.

The exercise price that has been set was based on the weighted average Bovespa quotation over the 30 days immediately preceding the concession date, and will be monetarily adjusted according to “Ìndice Geral de Preços – Mercado—IGP-M” (general market inflation index).

The beneficiaries may choose to receive the difference between the market value and the strike price of their options, or to receive the corresponding shares.

The market value of the shares on the last business day of the year 2007 was R$58.55 per share. The Parent Company has common treasury stock at a lower price than the market and option values and in sufficient quantity to cover more than two years of options granted under the April 2007 plan. Hence, management has not recorded a provision under Brazilian GAAP.

The following table shows the position of the options in effect as at December 31, 2007:

	Stock options outstanding
Exercise price range on the contract’s settlement date	Stock (in thousand of shares)	Weighted average remaining life (months)	Weighted average exercise price
R$50.00 - 59.99	5,120	40	54.32

F-72

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

31 Transactions with related parties

(a) Credit lines opened by the Parent Company

The lines of credit extended by the Parent Company to its subsidiaries are for the purpose of providing them with working capital for their operational activities. The maturity dates may be renegotiated, based on those companies’ forecast cash flows, at an interest rate corresponding to 104% of the CDI rate (2006 – 104% of the CDI rate).

(b) BNDES loan contracts

During the period December 2003 to December 2007, Telemar and Oi drew down R$2,146 and R$1,025, respectively, in relation to new loan contracts, signed with BNDES in December 2003, September 2004, July 2005, December 2005, November 2006 and July 2007, for a total of R$3,863. These funds have been invested in the expansion of the telecom networks and in operational improvements. On December 29, 2005, with the consent of the BNDES, Oi transferred the full amount of its financing to Telemar (see Note 21 item (b)).

(c) Financial investments managed by BB DTVM

Parent Company has money in an investment fund abroad, amounting to R$573 (2006 – R$650), which is managed by BB DTVM, a fully-owned subsidiary of Banco do Brasil S.A. These companies are affiliated to Brasilcap Capitalização S.A. and Brasilveículos Cia. De Seguros, each of which holds 5% of the voting capital of Telemar Participações S.A.

32 Insurance

During the period of the concession, it is the responsibility of the concession holder to maintain the following insurance cover, in accordance with the contractual terms: comprehensive insurance against all risks, insurance covering the economic conditions required to continue providing the service, and insurance guaranteeing the fulfillment of all obligations regarding quality and universal access.

The assets and responsibilities of material value and/or high risk are covered by insurance. The Company hold insurance providing cover for material damage and loss of revenue as a result of such damage (loss of business), among other things. The management understands that the amount of the insurance cover is sufficient to ensure the integrity of the Company’s assets and the continuity of its operations, as well as compliance with the rules laid down in the Concession Contracts.

F-73

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The insurance policies provided the following cover, according to risk and the nature of the asset, as at December 31, 2007 and 2006:

	Insured amount
Type of insurance	2007	2006
Operational risk and loss of business	800	800
Fire - inventory	112	—
Civil liability - third parties (*)	106	129
Warranty insurance	32	74
Theft - inventory	30	—
Civil liability - general	20	20
Civil liability - vehicles	3	3

* at the exchange rate on December 31, 2007

32 Commitments

(a) Rentals

The Company has operating leases for facilities, electrical energy posts, dedicated lines and equipment used in operations, which expire at different dates. Rental expense under operating leases amounted to R$693, R$616 and R$545 for 2007, 2006 and 2005, respectively.

The Company’s approximate future minimum obligations under non-cancelable operating leases in effect at December 31, 2007 and expiring in 2008 amount to R$998.

The Company has several capital lease agreements for information technology equipment. The amounts charged to income for the years 2007, 2006 and 2005 were R$66, R$78 and R$60 respectively (Note 17).

(b) Labor agreements

The state labor unions are associated either with the “Federação Nacional dos Trabalhadores em Telecomunicações —Fenattel” (national telecomunications labor union), or with the Federação Interestadual dos Trabalhadores em Telecomunicações—“Fittel” (interstate telecomunications labor union). Management negotiates new collective labor agreements every year with the local labor unions.

(c) Reversibility of property, plant and equipment

A substantial part of the property, plant and equipment of the fixed-line concessionaire are deemed to be part of the concession’s equity. If the concession contract were to be terminated, this part of the property, plant and equipment would automatically revert to Anatel.

F-74

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

34 Other information

(i) Acquisition of SMP licenses by Oi

On December 6, 2007, the Official Gazette of the federal government (Diário Oficial da União), or Official Gazette, published Act No. 68,982, dated December 5, 2007, partially ratifying the Public Bid No. 001/2007/SPV–ANATEL, and granting us the authorization to provide Mobile Services (Serviço Móvel Pessoal), or SMP, use radio frequency in São Paulo, and increase the frequency band in certain states of Region I of the General Plan of Authorizations, (Plano Geral de Autorizações), or PGA, (Amazonas, Amapá, Pará, Maranhão, Roraima, Bahia, Espírito Santo, Sergipe, Alagoas, Paraíba, Piauí and Rio Grande do Norte), or Region I.

On December 7, 2007, we have signed the Authorization Term for the Use of Radio Frequencies (Termo de Autorização de Uso das Radiofreqüências) whose extract was later published at Official Gazette on December 11, 2007 which effectively transfered all rights and obligations related to the 2G licence according to the PGA.

On January 3, 2008, the Official Gazette published the Notice of Authorization and Adjudication (Aviso de Habilitação e Adjudicação), dated December 28, 2007, authorizing us to use second generation radio frequencies (2G), representing additional bands for SMP in the interior of São Paulo.

(ii) Changes in the corporate legislation

Law n^o 11,638/2007 was enacted on December 28, 2007, with effect as of January 1, 2008. The new law introduces changes to Brazilian corporate law n^o 6,404/1976, bringing it into line with International Financial Reporting Standards—IFRS. The changes introduced by Law n^o 11,638/2007 provide the framework for the CVM to consider alterations to the accounting rules, for greater international convergence in this area.

The following are among the main changes to the Brazilian Corporate Law:

• Replacing the statement of changes in financial position with the cash flow statement, and the inclusion of the value added statement, as obligatory financial statements;

• Disclosure of the premium paid in the acquisition of intangible assets;

• Tax reduction gains, obtained by means of tax incentives, are to be recorded in the Income Statement. The amounts may be allocated to a revenue reserve (tax incentives), instead of the capital reserve, and deducted in the calculation of the compulsory minimum dividend and of the revenue reserve limit;

• The revaluation reserve is no longer allowed. This doesn’t affect the Company’s financial statements;

F-75

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

• Recording of financial instruments at market value or by the amortized cost method, depending on whether they are classified as: up for sale, earmarked for trading or to be held to maturity;

• Financial instruments classified as long term assets or liabilities are to be recorded at net present value; and

• In the case of business combinations, the assets and liabilities of companies that are taken over or created as a result of a merger or split are to be recorded at market value.

At the present moment, in the absence of further clarification of the new law, particularly how it is to be applied in practice and its correspondent regulation, management feels that it is not yet possible to reasonably assess and evaluate the potential impact on the company’s financial statements.

(iii) Acquisition by Telemar of Tele Norte Celular Participações S.A.

In December 2007, Telemar closed a contract for the acquisition of 1,292,679 common shares and 3,716 preferred shares issued by Tele Norte Celular Participações S.A. (TNCP), representing 51.86% of that company’s common stock, 0.09% of its preferred stock and 19.34% of all the shares issued by TNCP that Telpart Participações S.A. (“Telpart”) undertook to sell and transfer to Vivo Participações.

This contract shall be submitted for approval at a general meeting of the stockholders of Telemar.

The acquisition price of the shares came to a total of R$128.6 million, monetarily adjusted according to the average daily rate of the CDI, as from August 2, 2007 up to the closing of the transaction on April 3, 2008, the same terms offered to Telpart by Vivo. This amount corresponds to a price per common share of R$99.38 for TNCP, implying a price per common share issued by its subsidiary, Amazônia Celular, of R$152.01.

Telemar intends to make a “Oferta Pública de compra de Ações voluntaries – OPA” (public voluntary tender offer), for the purchase of up to one third of each type and class of outstanding preferred shares belonging to stockholders who do not have a controlling stake in TNCP and Amazônia Celular, at the indicative prices of R$33.00/share and R$25.55/share, respectively. On May 5, 2008 Telemar filed with the CVM a registration request for a compulsory tender offer (tag along rights) for minority stockholders of common stock, at the following prices: TNCP—R$79.51/share and Amazônia Celular—R$121.61, both as monetarily adjusted by the average daily CDI rate.

(iv) Material Information disclosure of February 6, 2008 (transcribed in full):

Telemar Participações S.A., (Telemar Part), together with its subsidiaries Tele Norte Leste Participações S.A. and Telemar Norte Leste S.A, in order to supplement the disclosures issued on January 9^th, 10^th and 30^th, informs the market and the public in general of the following:

1. The negotiations being carried out, with a view to: (i) the restructuring of Telemar Part.’s stockholder base, with some stockholders selling up and others repositioning their stakes ; and (ii) the acquisition of a controlling stake in Brasil Telecom Participações S.A. (“BrTP”), continue to proceed, but have not yet been concluded.

F-76

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

2. With specific regard to the negotiations surrounding BrTP, we wish to clarify that, although there is as yet no definitive outline to this transaction, the options analyzed do not include a merger, but simply the acquisition of a controlling stake, which may be purchased from one or more of the companies that directly or indirectly control the company BrTP.

3. Moreover, as pointed out in the disclosure of material information on January 10^th, the amounts being discussed in these negotiations are by no means definitive, and are thus subject to modification, but tend to converge on a mid-point value in the range R$4.5 billion to R$5.2 billion, for a full direct controlling stake in BrTP. Nevertheless, no final value has yet been determined in the event that these negotiations should come to fruition.

We repeat that, so far, no agreement has been reached as to the terms of the transaction and no document has been signed by the parties, even in draft form, to this effect.

(v) New SMP regulations

On February 13, 2008, Anatel published an addendum to Resolution nº 477 of August 7, 2007, dealing with the regulation of SMP.

Among the principal changes introduced by the new regulations, certain guarantees provided to the customers, listed below, could have a material impact on the company’s financial statements for the fiscal year ended on December 31, 2008:

1. The reimbursement in double of amounts unduly charged to and paid by customers, plus interest and monetary correction;

2. Calls made more than 60 days prior to the billing date must be successfully negotiated with the customer before they can be charged;

3. Customers may request the suspension of services for a period of 30 to 120 days, without incurring any additional charges;

4. If a customer receives a call under the conditions of the roaming service, the revenue for the 2^nd leg of the call (routing detour) will now be due to the mobile (SMP) service provider (s), and no longer to the fixed (STFC-LD) long distance service provider (s);

5. The prohibition of a waiting period when switching from one service plan to another.

6. The obligation to provide pre-paid cards with a validity of 180 days or more, in addition to the existing 90 day cards;

7. Allows service providers to offer pecuniary benefits when purchasing a handset and, through a contractual instrument quite distinct from the service contract, make those benefits conditional on the customer remaining within the subscriber base for a period of up to 12 months.

F-77

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

8. Allows the possibility of adding new pre-paid credits to the already existing ones, with the latest validity date applying to all the credits (This policy of renewing expired credits has been adopted by Oi already);

9. Requires the provision of customer care outlets as per micro-region, with a minimum number of outlets in relation to the number of inhabitants, according to applicable regulation.

(vi) Acquisition by Telemar of Brasil Telecom Participações S.A. (“BrT Part”) and Brasil Telecom S.A. (“BrT”) (collectively, “Brasil Telecom”)

On April 25, 2008, Credit Suisse (Brasil) S.A. (“Credit Suisse”), acting as agent on behalf of Telemar, entered into a Share Purchase Agreement with Brasil Telecom’s controlling shareholders for the acquisition of 81,092,986 common shares of BrT Part, representing 60.5% of its voting capital stock and 22.3% of its total share capital, including 247,317,180 common shares and 120,911,021 preferred shares of BrT held by BrT Part, representing 99.1% of the outstanding voting capital stock and 65.6% of the total share capital of BrT. Total purchase price is R$5.9 billion, adjusted by the variation of the interbank rate and any dividends declared up to the closing date.

The acquisition is contingent upon a number of regulatory measures and approvals by Anatel, the Brazilian Securities Commission (“CVM”), the Brazilian Antitrust Authority (“CADE”), the São Paulo Stock Exchange (“Bovespa”) and the U.S. Securities and Exchange Commission (“SEC”). According to the Share Purchase Agreement, these approvals must occur up to 240 days or 365 days after its execution, depending on exceptional circumstances as set forth in the Share Purchase Agreement, or Telemar will be required to pay a fee of approximately R$490 million for the termination of the Share Purchase Agreement.

F-78

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

35 SEGMENT REPORTING

F-79

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

	2007
	Fixed-line		Mobile		Other segments and holding		Intragroup eliminations		Consolidated
Gross operating revenues:
Local	11,656		2,595		—		(3	)	14,248
Long-distance	3,587		—		—		—		3,587
Data transmission	2,607		358		141		(227	)	2,879
Remuneration for network usage	690		1,916		—		(849	)	1,757
Prepaid calling cards for public telephones	1,106		—		—		—		1,106
Sales of handsets and accessories	—		243		—		(4	)	239
Other revenues	877		449		33		(22	)	1,337
	20,523		5,561		174		(1,105	)	25,153
ICMS and other indirect taxes	(5,866	)	(1,039	)	(18	)	44		(6,879	)
Discounts and returns	(270	)	(419	)	(1	)	—		(690	)
Net operating revenues	14,387		4,103		155		(1,061	)	17,584
Cost of services rendered and products sold:
Interconnection	(3,171	)	(1,010	)	—		849		(3,332	)
Depreciation	(1,682	)	(575	)	(1	)	—		(2,258	)
Network maintenance	(1,282	)	(96	)	(1	)	16		(1,363	)
Rental and insurance	(505	)	(386	)	(77	)	295		(673	)
Cost of handsets and accessories	—		(262	)	—		—		(262	)
Other	(928	)	(403	)	(46	)	4		(1,373	)
Total cost of services rendered and products sold	(7,568	)	(2,732	)	(125	)	1,164		(9,261	)
Gross profit	6,819		1,371		30		103		8,323
Selling expenses:
Sales commission	(544	)	(103	)	(2	)	—		(649	)
Provision for doubtful accounts	(262	)	(289	)	(4	)	30		(525	)
Contact center	(285	)	(107	)	(7	)	—		(399	)
Postage and billing	(318	)	(38	)	—		—		(356	)
Marketing	(354	)	(119	)	(3	)	177		(299	)
Other third party services	(142	)	(68	)	(3	)	4		(209	)
Other costs	(180	)	(74	)	(3	)	3		(254	)
Total selling expenses	(2,085	)	(798	)	(22	)	214		(2,691	)
General and administrative expenses:	(943	)	(239	)	(42	)	(2	)	(1,226	)
Financial results	(407	)	108		(125	)	—		(424	)
Other operating income (expenses), net	44		(40	)	2,381		(2,645	)	(260	)
Net income (loss) for the year	2,646		502		2,280		(3,070	)	2,358
Accounts receivable	3,122		301		44		(181	)	3,286
Property, plant and equipments	8,216		3,252		61		—		11,529
Loans and financing	5,191		450		1,489		13		7,143

	2006
	Fixed-line		Mobile		Other segments and holding		Intragroup eliminations		Consolidated
Gross operating revenues:
Local	11,943		2,149		—		(44	)	14,048
Long-distance	3,721		—		—		(18	)	3,703
Data transmission	2,334		309		87		(217	)	2,513
Remuneration for network usage	797		1,341		—		(813	)	1,325
Prepaid calling cards for public telephones	1,117		—		—		—		1,117
Sales of handsets and accessories	—		319		—		—		319
Other revenues	818		397		—		(7	)	1,208
	20,730		4,515		87		(1,099	)	24,232
ICMS and other indirect taxes	(5,822	)	(905	)	(9	)	41		(6,694	)
Discounts and returns	(358	)	(308	)	—		—		(666	)
Net operating revenues	14,551		3,301		78		(1,058	)	16,872
Cost of services rendered and products sold:
Interconnection	(3,087	)	(519	)	—		813		(2,792	)
Depreciation	(2,242	)	(519	)	(1	)	—		(2,762	)
Network maintenance	(1,220	)	(157	)	(1	)	—		(1,378	)
Cost of handsets and accessories			(578	)	—		—		(578	)
Rental and insurance	(478	)	(358	)	(43	)	279		(599	)
Other	(943	)	(296	)	(12	)	—		(1,251	)
Total cost of services rendered and products sold	(7,969	)	(2,427	)	(57	)	1,092		(9,360	)
Gross profit	6,582		875		21		34		7,512
Selling expenses:
Other third party services	(142	)	(121	)	(1	)	5		(260	)
Sales commission	(209	)	(330	)	(4	)	14		(528	)
Provision for doubtful accounts	(387	)	(87	)	(1	)	—		(475	)
Contact center	(270	)	(116	)	(4	)	—		(391	)
Postage and billing	(322	)	(34	)	(1	)	165		(357	)
Marketing	(254	)	(212	)	(9	)	2		(310	)
Other costs	(206	)	(68	)	—		—		(272	)
Total selling expenses	(1,790	)	(968	)	(20	)	186		(2,593	)
General and administrative expenses:	(947	)	(204	)	(56	)	—		(1,207	)
Financial results	(1,205	)	108		(198	)	7		(1,289	)
Other operating income (expenses), net	(562	)	80		1,472		(1,601	)	(611	)
Net income (loss) for the year	1,601		151		1,226		(1,669	)	1,310
Accounts receivable	3,385		560		24		(165	)	3,804
Property, plant and equipments	8,276		3,440		18		—		11,733
Loans and financing	5,431		0		2,057		(171	)	7,317

F-80

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Other operating income (expenses), net	(562	)	80	1,472	(1,601	)	(611	)
Net income (loss) for the year	1,601		151	1,226	(1,669	)	1,310
Accounts receivable	3,385		560	24	(165	)	3,804
Property, plant and equipments	8,276		3,440	18			11,733
Loans and financing	5,431		0	2,057	(171	)	7,317

F-81

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

	2005
	Fixed-line		Mobile		Other segments and holding		Intragroup eliminations		Consolidated
Gross operating revenues:
Local	12,146		1,426				(13	)	13,559
Long-distance	3,824						(29	)	3,795
Data transmission	1,936		27		566		(468	)	2,061
Remuneration for network usage	1,112		907				(717	)	1,301
Prepaid calling cards for public telephones	1,111								1,111
Sales of handsets and accessories			767						767
Other revenues	810		303		116		(137	)	1,092
	20,939		3,430		682		(1,364	)	23,687
ICMS and other indirect taxes	(5,900	)	(699	)	(74	)	60		(6,614	)
Discounts and returns	(192	)	(110	)	(23	)			(325	)
Net operating revenues	14,847		2,620		585		(1,305	)	16,747
Cost of services rendered and products sold:
Interconnection	(3,024	)	(87	)			717		(2,394	)
Depreciation	(2,484	)	(419	)	(26	)			(2,930	)
Network maintenance	(919	)	(117	)	(10	)			(1,046	)
Cost of handsets and accessories			(835	)					(835	)
Rental and insurance	(499	)	(191	)	(124	)	295		(519	)
Other	(845	)	(238	)	(7	)	19		(1,072	)
Total cost of services rendered and products sold	(7,771	)	(1,889	)	(167	)	1,031		(8,796	)
Gross profit	7,076		731		418		(274	)	7,951
Selling expenses:
Other third party services	(142	)	(128	)			18		(253	)
Sales commission	(485	)	(249	)	(150	)	306		(578	)
Provision for doubtful accounts	(461	)	(41	)	(3	)			(506	)
Contact center	(300	)	(82	)	(6	)			(388	)
Postage and billing	(348	)	(24	)					(372	)
Marketing	(171	)	(118	)	(9	)	7		(292	)
Other	(221	)	(70	)	(4	)	2		(292	)
Total selling expenses	(2,128	)	(712	)	(172	)	332		(2,680	)
General and administrative	(853	)	(187	)	(45	)			(1,084	)
Financial results	(1,322	)	(61	)	(229	)	(3	)	(1,616	)
Other operating income (expenses), net	(625	)	43		1,984		(2,159	)	(757	)
Net income (loss) for the year	1,738		(19	)	1,710		(2,316	)	1,114
Accounts receivable	3,336		466		29		(121	)	3,711
Property, plant and equipments	9,204		3,275		39				12,518
Loans and financing	7,015				2,281		(666	)	8,630

36 Summary of the differences between Brazilian GAAP and US GAAP

The Company has presented its primary financial statements based on accounting principles established under Brazilian GAAP with a reconciliation to US GAAP.

F-82

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The accounting policies comply with Brazilian GAAP, which differs significantly from US GAAP, as described below:

(a) Subsidies on postpaid mobile handsets

Under Brazilian GAAP, the Company defers and amortizes the subsidies over a period of 12 months since this is the period agreed upon in the contract with the customer. If the customer intends to terminate the agreement within a year, he or she has to pay a fine equal to the amount of the subsidy on a pro rata basis over the 12 month period. Amortization of the subsidy over 12 months matches the Company’s revenues and costs on a monthly basis.

For US GAAP reconciliation purposes, these amounts are presented as cost of sales in the period in which they were incurred.

(b) Derivatives

Under Brazilian GAAP, foreign currency derivatives are recorded by comparing contractual exchange rates to exchange rates at period end. Under the swap agreements, the Company pays or receives at maturity the amount of the difference between the variation corresponding to an average of 98.65% of the CDI rate and the US Dollar and Yen exchange rate plus the bank spread. Gains and losses on swap agreements are recorded on a monthly basis, reducing or increasing foreign currency indebtedness. Gains on options and forward contracts are recorded under interest income when the contracts expire while losses are recorded currently against income. Currently, the Company only engages in swap operations, such as cross-currency interest rate swaps.

Under US GAAP, all derivatives are recorded at fair-value on the balance sheet and all variations in fair-value are being recorded in the statement of operations. The Company does not account for any activities as hedging activities and does not hold derivatives for trading purposes.

For Brazilian GAAP purposes the loan amounts are presented net of the amounts related to the derivative contracts while under US GAAP these would be presented separately in the balance sheet.

(c) Business combinations

Under Brazilian GAAP, accounting standards do not specifically address business combinations and the purchase method is applied based on book values. The goodwill or negative goodwill on the acquisition of a company is recorded by calculating the difference between the acquisition cost and its underlying book value. If the goodwill or negative goodwill is based on future profitability expectations, its amortization is recognized in income over a period consistent with the period in which the expectation is to incur gains or losses. If the goodwill or negative goodwill is based on the fair value of property, plant and equipment, the amortization is recognized in income over a period consistent with the assets’ useful lives.

Under US GAAP the Company adopted the procedures determined by SFAS N° 141 Business Combinations to recognize acquisitions of interests in other companies. The method of accounting used in business combination transactions is the “purchase method”, which requires that acquirers reasonably determine the fair-value of the identifiable assets and liabilities of acquired companies, individually, in order to determine the goodwill paid in the purchase.

F-83

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable tangible and intangible net assets acquired. The cost of acquired entities at the date of the acquisition is allocated to identifiable assets and the excess of the total purchase price over the amounts assigned to identifiable assets is recorded as goodwill. Effective January 1, 2002, the Company adopted SFAS N°142 Goodwill and Other Intangible Assets. This standard changed the accounting for goodwill and other indefinite-lived intangible assets from an amortization method to an impairment-only approach.

The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level, at least annually and whenever indicators of impairment exist. Reporting units may be operating segments or one level below an operating segment, referred to as a component. Businesses for which discrete financial information is available are generally considered to be components of an operating segment. Components that are economically similar and managed by the same segment management group are aggregated and considered a reporting unit under SFAS 142. Step one compares the fair value of the reporting unit (calculated using a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets). If the carrying value of the goodwill exceeds its implied fair value, the excess is required to be recorded as impairment.

Reporting units

For U.S. GAAP purposes, the Company defines its reporting units, according to SFAS 142 and Emerging Issues Task Force—EITF D-101, as units comprising components with the same economic characteristics and which are reported together to the chief operating decision maker.

The Company identified the following six reporting units for the year 2007:

1. Fixed-line telecommunications services;

2. Mobile telecommunications services;

3. Data-transmission services;

4. Rental of duct infrastructure;

5. Business internet access services; and

6. Consumer internet access services.

The contact center services reporting unit has been spun-off in 2005 (See Note 37). According to SFAS 142, paragraph 34, goodwill shall be assigned to reporting units of the acquiring entity that are expected to benefit from the synergies and assets of the combination, regardless of whether other assets or liabilities of the acquired entity have been assigned to those reporting units.

Acquisition of Pegasus

The Company assigned all assets and liabilities of Pegasus, to the data-transmission services reporting unit. Of the total amount of goodwill (R$253), an amount of R$87, was allocated to the data-transmission services reporting unit, since the acquisition of Pegasus generated a significant reduction in network maintenance costs for that reporting unit. The remaining portion (R$166) was allocated to the fixed-line

F-84

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

telecommunications services reporting unit, given that the acquisition of Pegasus allowed the fixed-line telecommunications services reporting unit, to expand its corporate market share by offering data transmission services throughout Brazil on a nationwide basis.

Acquisition of Way-TV

The Company acquired Way-TV in November 2007. For US GAAP purposes, all initial goodwill recorded under BR GAAP, in the amount of R$64, has been allocated to intangible assets, together with an amount of R$17, which under BR GAAP is recorded as interest expense and for US GAAP purposes is part of the initial goodwill. We allocated R$56 to the intangible asset “client base” and added R$25 to the intangible asset “licenses”, which already existed on Way-TV’s balance sheet. The client base is amortized on a straight-line basis, based on the churn rate. The amount added to licenses is amortized over the remaining period of the licenses, which is 6 years and 10 months as of November 2007.

Acquisition of Paggo

The Company acquired Paggo in December 2007. For US GAAP purposes, the initial goodwill recorded under BR GAAP, in the amount of R$80, has been subject to fair value valuation but no intangible assets or fair value adjustments were identified, maintaining the amount of goodwill for US GAAP purposes at also R$80, which has been assigned to the reporting unit mobile telecommunications services.

The Company has performed the impairment test for the goodwill using a two-step approach, first comparing the fair value of the reporting unit (calculated using a discounted cash flow method) to its carrying value. Because the carrying value did not exceed the fair value, there was no need to perform step two and no impairment was recorded.

Intangible assets

The Company’s intangible assets and goodwill derived from business combinations are as follows:

				As of December 31,
				2007	2006
	Carrying amount	Accumulated amortization		Net	Net
Intangible assets subject to amortization:
Licenses - Oi (i)	1,464	(508	)	956	843
Indefeasible rights of use (IRU) (ii)	601	(265	)	336	371
Client base – Way TV (iii)	56	(1	)	55	—
Goodwill (iv):	333	—		333	253
Total Intangible Assets	2,454	(774	)	1,680	1,467

F-85

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Aggregate amortization expense:
Year ended 12/31/2005	129
Year ended 12/31/2006	127
Year ended 12/31/2007	150
Estimated amortization expense:
Year ended 12/31/2008	164
Year ended 12/31/2009	160
Year ended 12/31/2010	160
Year ended 12/31/2011	160
Year ended 12/31/2012	152

	Fixed-line	Mobile	Data-transmission	Total
Balance at 12/31/2004	166	—	87	253
Goodwill acquired in 2005	—	—	—	—
Balance at 12/31/2005	166	—	87	253
Goodwill acquired in 2006	—	—	—	—
Balance at 12/31/2006	166	—	87	253
Goodwill acquired in 2007	—	80	—	80
Balance at 12/31/2007	166	80	87	333

(i) Mainly refers to the amount paid by Oi, in February 2001, to operate SMP and to use radio frequencies as well as to some new authorizations acquired in July 2003 and January 2004. The Company began amortizing the main license, on a straight-line basis as of July 2002, when operations were started, through the license’s contractual term, ending March 2016.

(ii) Refers to several indefeasible rights of use contracts of Pegasus and. (Note 36 (l))

(iii) Refers to Way-TV’s client base as recorded upon the acquisition of Way-TV (see above)

(iv) For Brazilian GAAP, the Company amortizes goodwill on a straight-line basis over the term of the expected return (with a minimum of five years). Under US GAAP the amount of goodwill is not amortized, but rather subject to an annual impairment test, in accordance with SFAS 142.

F-86

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(d) Fistel fee upon activation of new clients

Fistel is a telecommunications inspection fund under the supervision of regulatory agency Anatel. Under Brazilian GAAP, since these Fistel fees are mandatory, the Company considers them to be subscriber acquisition costs and therefore records them as prepaid expenses and amortizes them over the average churn (retention) period to match revenues and costs.

For US GAAP reconciliation purposes, these amounts are presented as cost of sales in the period in which they were incurred.

(e) Deferred charges from pre-operating period

Under Brazilian GAAP, expenses incurred during the pre-operating period are deferred until the entity is fully operational, at which time the expenses are amortized to income over the time of the expected future benefit of the new subsidiary (Note 20).

Under US GAAP, in accordance with Statement of Position 98-5, “Reporting on the Costs of Start-Up Activities,” costs incurred during the start-up and organization of a development stage entity, are to be expensed as incurred.

(f) Pension plans and other post-retirement benefits

Under Brazilian GAAP, amounts due to a multi-sponsored pension plan are treated on an accrual basis when the obligations fall due. In December 1999, the Company split-up the Sistel multi-sponsored defined benefit pension plan and formed a single-sponsored defined benefit plan. However, the Company and the co-sponsors of the multi-employer pension plan agreed to jointly maintain a plan offering the current levels of benefits under Sistel for those employees who have retired before January 30, 2000. On September 21, 2000, the Company created a new defined contribution plan, which replaced the defined benefit plan by migrating active employees to the new plan. By the end of March 2001, the dead line for voluntary migrations, 96.0% of the active participants of the previous plan had migrated to the new defined contribution plan and the accrual of future benefits under the defined benefit plan relating to the post-retirement health care plan for these participants was eliminated. Under Brazilian GAAP, there is no requirement to recognize a gain or loss caused by a curtailment of a benefit plan. A summary of the actuarial position of plans which the Company sponsors, including the Company’s allocated assets and liabilities of multi-sponsored plans such as the PBS-A plan, is disclosed under Brazilian GAAP accounting principles (Note 30). If a plan has a positive funded status, which is not expected to generate future benefits, the company does not recognize the funded status.

The funded status of the plans at December 31, 2007 and 2006, in accordance with US GAAP, is presented in Note 42. To calculate the funded status of the plans, the provisions of SFAS N° 87 “Employers’ Accounting for Pensions” were applied with effect from January 1, 1992 because it was not feasible to apply them from the effective date specified in such provisions. SFAS N° 132, “Employers’ Disclosures about Pensions and Other Post-retirement Benefits” revises and standardizes employers’ disclosures about pension and other post-retirement benefit plans. It does not change the measurement or recognition of those plans. The supplemental disclosures as required under US GAAP are also provided in Note 42.

For USGAAP purposes the funded status of the pension plans is presented as a prepaid asset according to FAS 87. As at December 31, 2006 the Company adopted FAS 158 and as result of the implementation of

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

the aforementioned standard, ”Unrecognized net actuarial gain”, “Prior service cost” and “Unrecognized transition obligation”, that were previously included as prepaid assets, have been recorded as “Other comprehensive income” as component of stockholders’ equity.

Brazilian GAAP and US GAAP do not require the sponsor to record actuarial calculations for multi-sponsored pension plans such as the PBS-A and contributions to such plans are recorded on an accrual basis.

In 2007, the Company made a payment in the amount of R$260 to cover the increase in future contributions to the pension plan, due to changes in the actuarial assumptions. This amount is recorded as prepaid expenses.

(g) Revenue recognition

Under Brazilian GAAP, installation revenues are recognized in the period in which the installation services are provided while related costs of services are recognized when incurred.

The Company recognizes fixed-line public telephone prepaid card revenues when the cards are sold while the costs are recognized when the cards are used.

In December 1999, SEC issued the Staff Accounting Bulletin N° 101 (SAB 101), superseded by SAB 104—Revenue Recognition, which provides guidance on revenue recognition. SAB 101 requires the deferral of certain non-recurring fees, such as service activation, installation fees and associated incremental costs that are recognized over the expected term of the customer relationship. Because the costs of installations is higher than the installation fee (the amount charged is only intended to cover part of the installation costs), an equal amount of revenue and expense was deferred, and thus there was no impact on net income for the change in accounting principle. The adoption of this rule resulted in a net reduction in revenues and costs during 2007, 2006 and 2005 of R$94, R$69 and R$40, respectively.

With the increase in phone plans sold (both fixed and mobile) that include minute franchises that entitle the client to use those minutes at will up to a contractually established expiration date, a US GAAP adjustment related to revenue recognition was included in 2007. Under Brazilian GAAP, revenue is recognized based on invoiced amounts whereas under US GAAP revenue is recognized based on the minutes effectively used by the client. This resulted in an adjustment of R$127 in stockholders´ equity and net income for the period; the amounts related to prior years are immaterial.

Under US GAAP, fixed-line public telephone prepaid calling card revenues are deferred and recognized in income, based on customer usage.

(h) Capitalized interest and its depreciation

As applied to public companies in the Brazilian telecommunications industry, interest attributable to construction-in-progress was calculated at a rate of 12% per year of the balance of construction-in-progress. The part, which relates to interest on third-party loans, is credited to interest expense based on actual interest costs with the balance relating to capital being credited to capital reserves up to December 31, 1999. As of January 1, 2000, in compliance with a regulation issued by the CVM (Deliberação CVM N° 193), management changed its interest capitalization policy. Similar to US GAAP, under this regulation interest

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

incurred on loans is capitalized to the extent that loans do not exceed construction-in-progress, except that under Brazilian GAAP the amount of capitalized interest includes: (i) monetary gains and losses associated with loans and financing in foreign currency and (ii) charges resulting from currency derivatives. The capitalization excludes financial charges on loans not associated with specific construction-in-progress. Similar to US GAAP, the interest is capitalized to individual assets and amortized over their useful lives.

Under US GAAP, in accordance with the provisions of SFAS N° 34, interest incurred on loans is capitalized to the extent that loans do not exceed construction-in-progress, added to the individual assets and amortized over their useful lives. Under US GAAP, the amount of interest capitalized excludes: (i) the monetary gains and losses associated with the loans and financing in foreign currency; (ii) charges resulting from currency derivatives; however, (iii) interest on loans that are not directly associated with construction-in-progress can be capitalized.

(i) Corporate reorganization

(i) Date of acquisition

Under Brazilian GAAP, the accounting date for a corporate reorganization may be several months prior to approval of the operation by stockholders. The fixed-line subsidiaries’ corporate reorganization in 2001, was recorded based on accounting balances as of March 31, 2001, despite of the fact that the approval of the operation by the stockholders only occurred on August 2, 2001.

Under US GAAP, the corporate reorganization is accounted for as the acquisition of minority interests in a number of subsidiaries and the sale of participation in other subsidiaries to third parties. The date of acquisition of a company should ordinarily be the date that assets are received and other assets are given or securities are issued. For convenience, an effective date at the end of an accounting period between initiation and consummation may be designated if a written agreement transfers effective control to the acquiring company on that date and the acquisition does not require approval of stockholders or others. However, in this case, stockholder and regulatory approval was required and was only received on August 2, 2001, which is thus the acquisition date for USGAAP purposes. Likewise, the date of the sale of the participation in subsidiaries to third parties is the date of the stockholders’ approval.

(ii) Basis of accounting

Under Brazilian GAAP, the corporate reorganization was accounted for based on book-values of the interests sold and acquired. The net impact of the corporate reorganization was an increase in the net book value of the Company’s investments in subsidiaries, which of R$51 was recorded as a capital gain in “non-operating income”.

Under US GAAP, the consideration given in the form of stock in listed subsidiaries, the purchase of minority interests was recorded based on the fair value (quoted market-value) of that stock. The difference between the book value and quoted value of the stock given is recorded as a profit or loss in the income statement in accordance with EITF 90-13 “Accounting for Simultaneous Common Control Mergers”. The fair value of the stock given is based on the listed value of such stock immediately after stockholders’ approval of the corporate reorganization.

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The consideration paid for the acquired minority interests is allocated to the fair-values of the assets and liabilities of the respective subsidiaries in accordance with SFAS N° 141, “Business Combinations.” The consideration received for the sale of interests in subsidiaries to third parties is recorded at fair value and the gain or loss on the sale is recorded in income.

(j) Capital lease

Under Brazilian GAAP there is no requirement to capitalize assets acquired through capital leases and depreciate them over the respective economic life. All lease contracts are recorded as operational leases, with charges made to income on a monthly basis during the contractual period.

Under US GAAP, material lease contracts which meet one of the following four criteria according to SFAS N° 13, “Accounting for Leases” are to be capitalized as property, plant and equipment and depreciated over the life of the asset if: (i) automatic transfer of title at the end of the lease term; (ii) the contract includes a bargain purchase option to buy the asset at the end of the lease term; and depreciated over the contract’s term if; (iii) the lease term equals or exceeds 75 percent of the remaining estimated economic life of the leased asset; or (iv) the present value of the minimum lease payments equals or exceeds 90 percent of the excess of fair-value of the leased asset over any related investment tax credit.

(k) Stock option

Under Brazilian GAAP, compensation expense is recorded on an accrual basis when the market-value at the balance sheet date is higher than the option price.

As of the fiscal year ended December 31, 2006, the Company applies SFAS No. 123R, “Share-Based Payment” and SFAS No. 123(R)-2 “Practical accommodation to the application of grant date as defined in FASB Statement No. 123(R)”. These Statements require companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees, but expresses non- preference for a type of valuation model.

In accordance with SFAS 123(R), the Company’s stock-options qualify for liability treatment. In April 2007, a stock-option plan was created which resulted in an adjustment under US GAAP for the year 2007 (see note 30(d)) related to the stock-option compensation expense and liability under SFAS 123(R), based on the fair value of the options outstanding at December 31, 2007.

The fair value of the options was calculated using the Black & Scholes option pricing model based on the following assumptions:

Strike price	R$54.32
Market price	R$58.55
Strike (%)	7.22%	(ITM)
Volatility	48.233%
Market rate	10.67%
Dividend yield	2.57%

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(l) Rights of use

The Company has a number of indefeasible rights of use contracts (IRU), mainly through its subsidiary Oi, in the total net amount of R$358 (2006 – R$401).

Under BR GAAP, only the monthly payments are accounted for and recorded as expenses in the statement of operations.

Under US GAAP, the total amount, (as mentioned above), has to be recorded as long-term assets and the total amount of future monthly payments, as current and long-term liabilities. At December 31, 2007, the total amount of current liabilities was R$39 (2006 – R$53) and the total amount of long-term liabilities was R$319 (2006 – R$348).

(m) Income tax and social contribution

Income taxes in Brazil are calculated and paid on a legal entity basis. There are no consolidated tax returns. Accordingly, the Company only recognizes deferred tax assets, related to tax loss carry-forwards and temporary differences, if it is more likely than not that they will be realized on a legal entity basis.

Under Brazilian GAAP, the amount recorded is the net amount, which must be supported by a business plan, approved by the Company’s Board of Directors and Fiscal Council. As required by CVM Instruction No. 273/98 and CVM Instruction No. 371/02, the Company discloses in its local GAAP financial statements the amounts expected to be recovered for the next ten years.

In Brazil, the tax law is sometimes significantly altered by provisional measures “medidas provisórias” announced by Presidential decree. The provisional measures can affect tax rates as well as other areas that could impact deferred taxes. These measures remain in force for 30 days and expire automatically if they are not extended for an additional period. When calculating the effect of tax changes or other changes on deferred income taxes in Brazil, the provisional measures are substantively considered as enacted law. For the calculation of deferred taxes, Brazilian GAAP requires the use of the tax rate that is expected to be in effect when the temporary differences or tax loss carry forwards will be realized.

Under US GAAP, only enacted tax rates may be used to calculate deferred taxes. Tax rates for future periods, which have been established by provisional measures, are not considered to have been enacted and are ignored. The current, combined tax rate of 34% was enacted in 2003.

Under US GAAP, a deferred tax liability or asset shall be recognized for all temporary differences and operating loss and tax credit carry-forwards in accordance with the provisions of SFAS 109, “Accounting for Income Taxes.” In addition, deferred tax assets shall be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized.

For US GAAP reconciliation purposes, for the years ended December 31, 2006 and 2005 the Company recorded an additional valuation allowance to fully reserve deferred income tax assets relating to the operating loss and temporary differences of the subsidiary Oi, which has incurred substantial losses since its inception, in the amounts of R$292 and R$195. In 2007, Oi reversed this valuation allowance based primarily on the following facts: (i) Oi’s operations have been steadily improving in profitability, having

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

recorded relevant taxable income in both 2006 and 2007 and also income on an accumulated basis over the last three years (2005, 2006 and 2007) and, (ii) its business plan supports increasing taxable income levels over the next ten years.

The total deferred tax assets and related valuation allowance for each of the three years ended December 31, are as follows:

	2007	2006		2005
Total amount of net deferrable taxes according to BR GAAP	2,221	2,122		1,649
Unrecorded tax credits according to BR GAAP	59	158		373
Total amount of deferrable taxes according to BR GAAP	2,280	2,280		2,022
Valuation allowance - tax loss carry-forwards	—	(865	)	(888	)
Valuation allowance – temporary differences	—	(100	)	—
Net deferred tax asset	2,280	1,315		1,134
Current	237	236		209
Long-term	2,043	1,079		925

Under Brazilian GAAP, fiscal incentives are recorded directly in stockholders’ equity as a special capital reserve. Under US GAAP these benefits are recorded as income for the period, in the line item income tax and social contribution.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. There was no impact to the Company’s financial position and results of operation as a result of the implementation of Interpretation 48. The Company records the financial statement effects of an income tax position when it is more likely than not, based on the technical merits, that it will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured and recorded as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position will be sustained. The benefit associated with previously unrecognized tax positions are generally recognized in the first period in which the more-likely-than-not threshold is met at the reporting date, the tax matter is ultimately settled through negotiation or litigation or when the related statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. The recognition, derecognition and measurement of tax positions are based on management’s best judgment given the facts, circumstance and information available at the reporting date.

Differences between a tax position taken or expected to be taken in the Company’s tax returns and the amount of benefit recognized and measured in the financial statements result in unrecognized tax benefits, which are recorded ‘in the balance sheet as a either a liability for unrecognized tax benefits or reductions to recorded tax assets, as applicable. The liability for unrecognized tax benefits expected to be realized within one year is classified as current in the balance sheet.

Interest and penalties are accrued with respect to unrecognized tax benefits in accordance with the legislation of the respective taxing jurisdictions. The Company recognizes interest and penalties accrued on unrecognized tax benefits as a component of interest expense.

The total amount of unrecognized tax benefits as of December 31, 2007 was R$2,245, R$ 1,866 as litigious causes and R$378 as non-litigious causes. As of December 31, 2006 the amount was R$2,007, R$1,669 as litigious causes and R$338 as non-litigious causes. The variance between 2006 and 2007 is related mainly to monetary restatement. The nature and description of the major provisions recorded and unrecorded related to income taxes are described in Note 26.

These unrecognized tax benefits primarily refer to tax positions taken by the Company related to the deductibility of income tax and social contribution taxes related to the amortization of premium (goodwill). As a result of the current tax accounting, the unrecorded benefits would not materially affect the annual effective tax rate.

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(n) Provision for dividends proposed but not yet declared

Under Brazilian GAAP, at each balance sheet date, the Board of Directors is required to propose a dividend distribution from earnings and accrue for this in the financial statements. Under Brazilian GAAP, companies are permitted to distribute or capitalize an amount of interest on shareholders’ capital, subject to certain limitations and calculated based on a government interest rate. The amount of interest on shareholders’ capital is deductible for income tax purposes and is presented as a deduction from stockholders’ equity. Although not affecting net income, except for the tax benefit, the Company includes the interest on shareholders’ capital as financial expense and reverses out the same amount as a reversal of the financial expense.

Under US GAAP, since dividends proposed may be ratified or modified at the Annual Stockholders’ Meeting, such dividends are not considered declared at the balance sheet date and therefore accrued only up to the minimum annual compulsory dividends. Interim dividends (interest on shareholders’ capital) paid during the reporting periods are computed as prepayments for the annual minimum compulsory dividend. Under US GAAP, the Company reversed such amounts recorded for dividends proposed for the part that exceeds the minimum annual compulsory dividends.

(o) Earnings per share

Under Brazilian GAAP, net income per share is calculated using the number of shares outstanding at the balance sheet date. Information is disclosed per share.

Under US GAAP, since the preferred and common stockholders have different voting and liquidation rights, basic and diluted earnings per share have been calculated using the “two-class” method, pursuant to SFAS N° 128 “Earnings per share.” This statement provides calculation, presentation and disclosure requirements for earnings per share. The “two-class” method is an earnings allocation formula that determines earnings per share for preferred and common stock according to the dividends to be paid as required by the Company’s by-laws and participation rights in undistributed earnings. Basic earnings per common share are calculated by reducing net income by distributable and non-distributable net income available to preferred stockholders and dividing net income available to common and preferred stockholders by the weighted-average number of common and preferred stock outstanding during the period. Net income available to preferred stockholders is the sum of the preferred dividends (up to a minimum of 6% of preferred capital stock or 3% of preferred stockholders’ equity, whichever is greater) and the preferred stockholders portion of undistributed net income (Note 28(d)). Remaining amounts to be distributed are allocated primarily to the payment of a dividend to holders of common stock in an amount equal to the preferred dividend and the remainder is distributed equally among holders of preferred stock and common stock. Undistributed net income is calculated by deducting the preferred dividend and common stock dividends from net income. Undistributed net income is divided equally by the preferred and common stockholders on a pro rata basis. The common stock’s mandatory dividend is calculated up to a limit of 25% of adjusted net income or an amount equal to the preferred dividend, whichever is less.

Diluted earnings per share are calculated by increasing the weighted average shares outstanding for the effect of stock from the common stock option plan.

The following table shows the reconciliation of the numerators and the denominators of the basic and diluted per share computations for income from continuing operations:

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

	For the year ended 2007
	Income (numerator)	Shares (denominator)	Per-share amount
Net income	2,978
Basic earnings per share
Net income available to preferred stock	1,985	254,748	7.79
Net income available to common stock	993	127,374	7.80
Effect of dilutive securities
Stock option plan (common stock)	—	792	(0.05	)
Diluted earnings per share
Net income available to preferred stock	1,985	254,748	7.79
Net income available to common stock	993	128,166	7.75

The Company’s preferred stock is non-voting except under certain limited circumstances and is entitled to a preferential, non-cumulative dividend and to priority over common stock in the event of liquidation of the Company. The preferred stockholders were entitled to a non-cumulative dividend and interest on shareholders’ capital, of R$1.53 per preferred share in 2007, R$0.86 per preferred share in 2006 and R$2.06 per preferred share in 2005.

(p) Segment reporting

Under Brazilian GAAP, no separate segment reporting is required. However, the Company has been disclosing separate segment reporting under Brazilian GAAP since the financial statements for the year ended December 31, 2003. The segment reporting included in Brazilian GAAP uses the presentation basis of US GAAP (Note 35).

Under US GAAP, SFAS N° 131 “Disclosures about Segments of an Enterprise and Related Information” establishes the standards for the manner in which public enterprises are required to report financial and descriptive information about their operating segments. The standard defines operating segments as components of an enterprise for which separate financial information is available and evaluated regularly as a means for assessing segment performance and allocating resources to segments. Measures of profit or loss, total assets and other related information are to be disclosed for each operating segment. In addition, this standard requires the annual disclosure of information concerning revenues derived from the enterprise’s products or services, countries in which it earns revenues or holds assets, and major customers.

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(q) Statement of cash flows

Under Brazilian GAAP, a statement of changes in financial position that reflects the source and application of funds in terms of movement in working capital is required to be presented (“Statement of Changes in Financial Position”). The statement of cash flows may be presented as supplemental information.

Under US GAAP, presentation of a statement of cash flows describing the cash flows provided by or used in operating, investing and financing activities is required. SFAS N° 95, “Statement of Cash Flows,” establishes specific presentation requirements and requires additional disclosures, such as the amount of interest and income taxes paid and non-cash transactions such as acquisition of property, plant and equipment through capital leases, utilization of escrow deposits in settlement of liabilities and debt for equity conversions, among others.

Under US GAAP, cash equivalents are defined as short-term, highly liquid investments, which are both readily convertible to known amounts of cash and have original maturities of 90 days or less. The Company holds certain highly liquid, low risk financial investments, comprised principally of high quality government bonds, which are classified as cash equivalents under BR GAAP. Although the investments have high level of liquidity and present insignificant risks of changes in value, under US GAAP, since these investments have original maturities of over 90 days, such investments do not qualify as cash equivalents. Additionally, under BR GAAP the Company has reported interest payments as a financing activity however, under US GAAP these payments are considered to be part of a company’s operating activity.

Under US GAAP, judicial deposits and blockings are treated as an investing activity whereas under BR GAAP this amount is presented under operating activities. Judicial deposits and blockings in the amounts of R$376 and R$272 for the years ended December 31, 2006 and 2005, respectively, have been reclassified for comparability purposes.

For US GAAP purposes Government securities are classified as held-to-maturity securities and the other investments not considered to be cash equivalents under US GAAP are classified as trading securities. Unrealized holding gains or losses on trading securities are recognized in income. Although these securities are not considered cash equivalents under US GAAP there is no difference in measurement or impact to the statements of operations compared to BR GAAP. However, for USGAAP cash flows statement purposes, purchases, sales or maturities of held-to-maturity securities are presented in cash flows from investing activities, and purchases, sales or maturities of trading securities are presented in cash flows from operating activities.

Contractual maturity of held-for-sale securities (government securities)

	2007	2006	2005
Within 1 year	135	127	590
After 1 year through 5 years	124	133	—
After 5 years through 10 years	—	—	—
After 10 years	—	—	—
Total	259	260	590

F-95

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Effects on balance sheet:

	2007		2006
Cash and cash equivalents under Brazilian GAAP	6,690		4,687
Difference in definition of temporary investments	(3,989	)	(1,810	)
Cash and cash equivalents under US GAAP	2,701		2,877

Effects on statements of cash flow:

	2007		2006		2005
Operating activities under Brazilian GAAP	5,959		5,590		5,917
Cash Flows relating to purchases, sales and maturities of trading securities under US GAAP	(2,317	)	(588	)	348
Interest paid treated as financing activities under Brazilian GAAP	(842	)	(865	)	(951	)
Cash flows related to judicial deposits and blockings	209		376		272
Operating activities under US GAAP	3,009		4,513		5,586
Investing activities under Brazilian GAAP	(2,629	)	(2,340	)	(2,456	)
Cash Flows relating to purchases, sales and maturities of held to maturity securities under US GAAP	138		315		(370	)
Cash flows related to judicial deposits and blockings	(209	)	(376	)	(272	)
Investing activities under US GAAP	(2,700	)	(2,401	)	(3,098	)
Financing activities under Brazilian GAAP	(1,307	)	(2,334	)	(5,162	)
Interest paid treated as financing activities under Brazilian GAAP	842		865		951
Financing activities under US GAAP	465		(1,469	)	(4,211	)
Cash and cash equivalents at beginning of the year under Brazilian GAAP	4,687		3,771		5,472
Difference in definition of temporary investments at beginning of the year	(3,715	)	(1,537	)	(1,515	)
Cash and cash equivalents at beginning of the year under US GAAP	972		2,234		3,957
Increase (decrease) in cash and cash equivalents under Brazilian GAAP	2,022		916		(1,701	)
Cash flows relating to short-term investments under US GAAP	(2,178	)	(273	)	(22	)
Cash and cash equivalents at end of year under US GAAP	816		2,877		2,234

(r) Classification of income statement line items

Under Brazilian GAAP, as noted above, the classification of certain income and expense items is presented differently from US GAAP. A number of significant presentation differences have arisen and, accordingly, the consolidated income statement under Brazilian GAAP has been reclassified to present a condensed consolidated statement of operations in accordance with US GAAP (Note 40). The reclassifications are summarized as follows:

• Interest income and interest expense, together with other financial charges are displayed within operating income in the consolidated statement of operations in accordance with Brazilian GAAP. Such amounts have been classified after operating income and expenses in the condensed consolidated statement of operations in accordance with US GAAP.

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Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

• The net income (loss) differences between Brazilian GAAP and US GAAP- as detailed in the reconciliation in Note 38, were incorporated in the condensed consolidated statement of operations in accordance with US GAAP.

• Non-recurring gains or losses are presented as a separate line item under BR GAAP, but reclassified to “other operating expenses, net” for US GAAP presentation purposes.

• Non-operating income (expense) is presented as a separate line item after operating income under BR GAAP, but reclassified to “other operating expense, net” for US GAAP presentation purposes, and thus included in US GAAP “operating income”, because non of the components of non-operating income (expense) would be classified as extraordinary item for US GAAP purposes.

• Equity accounting adjustments are presented in “other operating expenses, net” under BR GAAP, but (i) reclassified as a separate line item, “equity in earnings of unconsolidated companies”, for US GAAP presentation purposes and (ii) part of this adjustment, which refers to tax incentives, is reclassified to income taxes and social contribution for US GAAP presentation purposes (R$204, R$131 and R$65 for the years 2007, 2006 and 2005, respectively). For the years 2007 and 2005, the remaining amount refers mainly to adjustments for prescribed, unclaimed dividends in the amount of R$7 and R$10), respectively. In 2006, there were no prescribed, unclaimed dividends and the remaining amount refers to several smaller amounts.

• The item Bonuses and discounts obtained is reclassified from Other operating income to Costs of handsets and accessories for US GAAP purposes.

• The item Financial discounts allowed is reclassified from Interest expense to a reduction of revenue from handsets and accessories for US GAAP purposes.

• Inventory write-down due to obsolescence, relating to handsets is being reclassified from Other operating expense to Cost of handsets and accessories sold.

• Financial discounts obtained are presented in Interest expense, net under BR GAAP and reclassified to Cost of services rendered and goods sold under US GAAP. Financial discounts obtained in the amounts of R$102 and R$152 for the years ended December 31, 2006 and 2005, respectively, have been reclassified for comparability purposes.

F-97

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(s) Recent US GAAP accounting pronouncements

(i) SFAS 141 (Revised)

In December 2007, the Financial Accounting Standards Board issued FAS 141R – Business Combinations. This statement applies to all transactions or events in which na entity obtains control of one or more businesses, except for joint ventures, assets that not constitute a business, combination of businesses under common control and not-for-profit organizations. This Statement shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application is prohibited. The objective of this statement is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. The Company is currently studying the impact of this standard and will apply it as of the fiscal year beginning January 1, 2009.

(ii) SFAS 160

In December 2007, the Financial Accounting Standards Board issued FAS 160 – Non-controlling Interests in Consolidated Financial Statements, which applies to all entities that prepare consolidated financial statements, except not-for-profit organizations.

This Statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.

This Statement shall be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. This Statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially adopted, except for the presentation and disclosure requirements. The objective of this statement is to improve the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require more extensive disclosure that clearly identifies and distinguishes between the interests of the Parent Company and the interests of the non-controlling owners. The Company is currently studying the impact of this standard and will apply it as of the fiscal year beginning January 1, 2009.

(iii) SFAS 159

In February 2007, the Financial Accounting Standards Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. This standard is effective for fiscal years ending on or after November 15, 2007. The Company is currently studying the impact of this standard and will apply it as of the fiscal year beginning on January 1, 2008

F-98

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(v) SFAS 157

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. Accordingly to the Board, a single definition of fair value, together with a framework for measuring fair value, should result in increased consistency and comparability in fair value measurements. This standard is effective for fiscal years ending on or after November 15, 2007. The Company is currently studying the impact of this standard and will apply this standard as of the fiscal year beginning on January 1, 2008.

37. Spin-off of Contax Participações

On December 29, 2004 the Parent Company’s stockholders approved the spin-off of Contax Participações’ stock. On March 9, 2005, the spin-off became effective, because in accordance with Brazilian corporate law, management needed to wait 60 days, after the date that the minutes that approved the spin-off were registered with the Board of Trade, in order to verify that no creditors opposed to the transaction. For January and February of 2005, Contax Participações’ results of operations were immaterial and therefore not consolidated by the Company.

Under US GAAP, the spin-off of Contax Participações was not presented as a disposition of discontinued operations for prior years due to the continuity of operating cash flows related to transactions between both companies and the continuing involvement associated with the service contracts signed. The Company and TNL Contax S.A. (a subsidiary of Contax Participações S.A.) have contracts that enable TNL Contax S.A. to manage the contact center and perform call center services on behalf of Telemar. Revenues from services rendered to the Company represented approximately 60% of the total revenues of Contax Participações in 2005.

38. Net income reconciliation of the differences between Brazilian GAAP and US GAAP

Years ended December 31	Note 36		2007		2006		2005
Net income under Brazilian GAAP			2,358		1,310		1,114
Subsidies on postpaid mobile handsets	(a	)	(15	)	35		(153	)
Fair value adjustment on derivatives	(b	)	(53	)	(3	)	(122	)

F-99

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

Reversal of goodwill amortization under BR GAAP	(c	)	76		76		76
Additional depreciation of property, plant and equipment and intangible assets	(c	)	(12	)	(11	)	(11	)
Fistel fee upon activation of new clients	(d	)	2		18		(16	)
Reversal of the amortization of deferred charges	(e	)	72		66		60
Write-off of deferred charges	(e	)	(33	)	(9	)	4
Change in prepaid pension cost	(f	)	31		12		39
Deferred revenues on public telephone prepaid calling cards	(g	)			(1	)	(11	)
Revenue rollover	(g	)	(127	)
Depreciation of capitalized interest	(h	)	23		31		13
Reversal of financial expense in acquisition of WAY TV	(c	)	17
Stock Option	(k	)	(27	)
Depreciation fair-value adjustment corporate reorganization	(i	)	7		6		6
Capital lease adjustments	(j	)	(13	)	16		14
Deferred income tax Oi	(m	)	807		(292	)	(195	)
Indefeasible rights of use Pegasus	(l	)	2		2		2
Deferred tax on adjustments	(m	)	18		(81	)	34
Minority interest on adjustments			(155	)	26		35
Total net income under US GAAP			2,978		1,201		889

F-100

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

39. Stockholders’ equity reconciliation of differences between Brazilian GAAP and US GAAP

Years ended December 31	Note 36		2007		2006
Stockholders’ equity under Brazilian GAAP			10,665		8,959
Reversal of provision for dividends not yet approved	(n	)	80		30
Minimum compulsory dividends	(n	)	46		4
Write-off of deferred charges	(e	)	(702	)	(669	)
Reversal of the amortization of deferred charges	(e	)	372		300
Prepaid pension cost	(f	)	136		186
Subsidies on postpaid mobile handsets	(a	)	(194	)	(179	)
Reversal of goodwill amortization under BR GAAP	(c	)	378		302
Additional depreciation of Pegasus’ property, plant and equipment	(c	)	(55	)	(43	)
Capitalization of interest on construction-in-progress	(h	)	(370	)	(370	)
Depreciation of capitalized interest adjustment	(h	)	343		320
Fistel fee upon activation of new clients	(d	)	(83	)	(85	)
Fair-value adjustment on derivatives	(b	)	(10	)	43
Deferred revenue on public telephones prepaid calling cards	(g	)	(17	)	(17	)
Revenue rollover	(g	)	(127	)	—
Capital lease adjustments	(j	)	31		44
Reversal of financial expense in acquisition of WAY TV	(c	)	17		—
Stock Option	(k	)	(27	)	—
Corporate reorganization fair value adjustment on property, plant and equipment	(i	)	(44	)	(44	)
Depreciation of fair value adjustment on property, plant and equipment	(i	)	41		34
Deferred income tax	(m	)	—		(807	)
Indefeasible rights of use Pegasus	(l	)	3		1
Deferred tax on adjustments	(m	)	47		60
Minority interest on adjustments			(16	)	139
Consolidated stockholders’ equity under US GAAP			10,514		8,208

F-101

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

	2007		2006
US GAAP supplementary information:
Property, plant and equipment	46,514		44,505
	(34,880	)	(32,769	)
Net property, plant and equipment	11,634		11,736
Intangible assets	3,930		3,420
Accumulated amortization	(2,211	)	(1,815	)
Net intangible assets	1,719		1,605
Net property, plant, equipment and intangible assets	13,352		13,341
Other assets	16,762		13,868
Total assets	30,114		27,209

F-102

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

40. Condensed statements of operations prepared in accordance with US GAAP

	2007		2006		2005
Years ended December 31
Net operating revenue	17,364		16,802		16,697
Cost of services rendered and goods sold	(9,198	)	(9,131	)	(9,044	)
Gross profit	8,166		7,671		7,957
Operating expenses:
Selling	(2,683	)	(2,589	)	(2,669	)
General and administrative	(1,227	)	(1,187	)	(1,056	)
Other operating expense, net	(127	)	(538	)	(541	)
Operating income	4,129		3,357		3,691
Interest expense, net	(458	)	(1,307	)	(2,040	)
Income from continuing operations before tax	3,671		2,050		1,651
Income tax and social contribution	(52	)	(583	)	(468	)
Income before minority interests	3,619		1,467		1,183
Minority interests	(641	)	(266	)	(294	)
Net income	2,978		1,201		889
Other comprehensive deficit before tax:
Minimum pension liability adjustment	(141	)	(179	)	—
Other comprehensive deficit before tax	(141	)	(179	)	—
Income tax expense related to items if other comprehensive deficit	48		61		—
Other comprehensive deficit before minority interests	(93	)	(118	)	—
Minority interests expense related to items if other comprehensive deficit	18		22		—
Other comprehensive deficit	(75	)	(96	)	—
Comprehensive income	2,903		1,105		889
Net income applicable to preferred stock	1,985		801		593
Net income applicable to common stock	993		400		296
Net income from continuing operations per share (see Note 36 (o)):
Common stock—Basic (in Reais)	7.80		3.14		2.33
Weighted average common shares outstanding (in thousands of shares)	127,374		127,374		127,227
Common stock—Diluted (in Reais)	7.75		3.14		2.33
Weighted average common shares outstanding (in thousands of shares)	128,166		127,374		127,227
Preferred stock—Basic (in Reais)	7.79		3.14		2.33
Weighted average preferred shares outstanding (in thousands of shares)	254,748		254,748		254,453
Preferred stock—Diluted (in Reais)	7.79		3.14		2.32
Weighted average preferred stock outstanding (in thousands of shares)	254,748		255,103		255,720

F-103

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

41. Consolidated statements of changes in stockholders’ equity in accordance with US GAAP

	Capital stock and additional paid-in capital		Statutory reserve	Unrealized income reserve		Treasury stock reserve		Investment reserve		Other comprehensive income		Retained earnings		Total
Balances at December 31, 2004	5,793		95			(302	)	2,963						8,549
Capitalization of retained earnings	154											(154	)
Capital reduction spin-off Contax	(277	)												(277	)
Realization of capital reserve	(27	)										27
Tax incentives	4													4
Appropriation to legal reserve			53									(53	)
Appropriation to unrealized income reserve				272								(272	)
Acquisition of treasury stock						(71	)							(71	)
Dividends												(974	)	(974	)
Interest on shareholders’ capital												(212	)	(212	)
Dividends prescribed												30		30
Net income for the year												889		889
Transfer from investment reserve								(719	)			719
Balances at December 31, 2005	5,647		148	272		(373	)	2,244						7,938
Tax incentives	1													1
Appropriation to legal reserve			62									(62	)
Appropriation to unrealized income reserve				(272	)							272
Dividends												(540	)	(540	)
Minimum compulsory dividends												(296	)	(296	)
Net income for the year												1,201		1,201
Unrecognized pension cost (FAS 158)										(96	)			(96	)
Transfer to investment reserve								575				(575	)
Balances at December 31, 2006	5,648		210			(373	)	2,819		(96	)			8,208
Appropriation to legal reserve			115									(115	)
Dividends												(79	)	(79	)
Interest on shareholders’ capital												(545	)	(545	)
Dividends prescribed												27		27
Unrecognized pension cost (FAS 158)										(75	)			(75	)
Net income for the year												2,978		2,978
Transfer to investment reserve								2,378				(2,378	)
Balances at December 31, 2007	5.648		325			(373	)	5,197		(171	)			10,514

F-104

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

42. Pension plan

(a) Change in benefit obligation

The following table sets forth the defined benefit parts of the TelemarPrev plan and the PBS-Telemar defined benefit pension plan’s changes in projected benefit obligation:

	2007		2006
Projected benefit obligation at the beginning of the year	1,848		1,726
Service cost	7		7
Interest cost	184		226
Benefits paid	(114	)	(103	)
Changes in assumptions	150		29
Actuarial (gain) loss	47		(37	)
Projected benefit obligation at end of the year	2,122		1,848

(b) Change in plan assets

The following table sets forth the change in the fair value of the assets:

	2007		2006
Fair value of plan assets at the beginning of the year	2,034		1,901
Actual return on plan assets	268		230
Company’s contributions	241		6
Benefits paid	(114	)	(103	)
Fair value of plan assets at end of year	2,429		2,034

(c) Accrued prepaid pension cost

Prepaid pension cost recognized is computed as follows for the defined benefit pension plans and parts at December 31:

	2007 (*)	2006 (*)
Funded status of plan	307	186
Prepaid pension cost	307	186

(*) As from 2006, according to FAS 158, unrecognized net actuarial gain, prior service cost and unrecognized transition obligation are reclassified to Other Comprehensive Income (OCI) as component of Stockholders’ Equity.

F-105

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(d) Pension costs

Net periodic defined benefit pension cost for the years ended December 31, includes the following:

	2007		2006
Net service cost	7		6
Interest cost	184		226
Expected return on plan assets	(215	)	(266	)
Amortization of unrecognized net actuarial gain	4		3
Prior service cost	1		1
Amortization of initial transition obligation	(2	)	(2	)
Net periodic benefit cost	(21	)	(32	)

The Company also participates in a multi-employer defined benefit pension plan (PBS-Assistidos) for employees, which had retired prior to the split-up of Sistel. The Company made no contributions to this plan during the years 2007, 2006 and 2005.

(e) Assumptions used in each year (expressed in nominal terms)

The following actuarial assumptions were used to determine the actuarial present value of the Company’s projected benefit obligation:

	2007		2006
Discount rate for determining projected benefit obligations	10.5	%	10.2	%
Expected long-term rate of return on plan assets (*)	10.6	%	10.8	%
Annual salary increases	7.3	%	6.6	%
Rate of compensation increase	4.5	%	4.0	%
Inflation rate assumption used in the above	4.5	%	4.0	%

(*) This percentage is based on a weighted average for the pension plans TelemarPrev and PBS-Telemar.

(f) Investment requirements

The Company has no specific investment targets. Its objective is to follow guidelines established by “Secretaria de Previdência Complementar” (Secretary for complementary pension plans), as shown below.

F-106

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

			2007
	TelemarPrev		PBS-Telemar
Equity securities	0.00	%	0.00	%
Debt securities	70%-100	%	70%-100	%
Real estate	14.00	%	14.00	%
Loans	15.00	%	15.00	%
Fixed income	0.00	%	0.00	%

(g) Composition of plan assets

	TelemarPrev				PBS-Telemar
	2007		2006		2007		2006
Equity securities	78.17	%	31.80	%	0.00	%	0.00	%
Fixed income	21.22	%	67.50	%	95.00	%	93.70	%
Real estate	0.18	%	0.20	%	4.55	%	5.50	%
Loans to participants	0.43	%	0.50	%	0.45	%	0.80	%
Other	0.00	%	0.00	%	0.00	%	0.00	%
Total	100	%	100	%	100	%	100	%

(h) Description of investment policies and strategies

The investment policies and strategies for the two single-employer benefit pension plans PBS-Telemar and TelemarPrev are subject to Resolution N° 3.121 of the National Monetary Council, which establishes investment guidelines.

TelemarPrev is a defined contribution plan with individual capitalization. Management allocates the investments in order to conciliate the expectations of the sponsors, active and assisted participants. The R$2,746 of assets in December 31, 2007 consist mainly of the following portfolio: 21.2% in equity of Brazilian companies and 78.2% in debt securities.

PBS-Telemar plan is closed for new participants and the vast majority of the current participants are receiving their benefits. The mathematical reserves are readjusted annually considering an interest rate of 6% per annum over the variation of the National Consumer Price Index (“INPC”). Therefore, management’s strategy is to guarantee resources that exceed this readjustment. Management also prepares a long-term cash-flow to match assets and liabilities. Therefore, debt securities investments are preferred when choosing the allocation of the R$206 assets, representing 95.0% of the portfolio in December 31, 2007.

(i) Expected contribution and benefits

There are no expected employer contributions for the year 2008.

F-107

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

The estimated benefit payments, which reflect future services, as appropriate, are expected to be paid as follows (unaudited):

	PBS-Telemar	TelemarPrev
2008	100	13
2009	107	14
2010	114	14
2011	122	15
2012	133	15
2013 until 2017	854	88

(j) Effect of initial recognition provision of SFAS 158 in 2006

		Adjustments
	Before application of SFAS 158	Overfunded pension plans		After application of SFAS 158
Prepaid pension cost	365	(179	)	186
Total assets	27,388	(179	)	27,209
Employees postretirement benefits	1,848			1,848
Deferred income tax	1,245	61		1,184
Minority interests	2,317	22		2,295
Total liabilities	19,084	(83	)	19,001
Other cumulative comprehensive deficit		(96	)	(96	)
Total stockholders’ equity	8,304	(96	)	8,208

(k) Other cumulative comprehensive effect

	As of December 31, 2007
	Overfunded pension plans
Net transition obligation / (asset)	(28	)
Net prior service cost / (credit)	1
Net actuarial loss / (gain)	347
Deferred income tax	(109	)
Minority interests	(40	)
Amounts recognized in other cumulative comprehensive deficit	171

F-108

Tele Norte Leste Participações S.A.

Notes to the financial statements

Years ended December 31, 2007, 2006 and 2005

(l) Change in other cumulative comprehensive deficit

	As of December 31, 2007
	Overfunded pension plans
Net transition obligation/(asset) not yet recognized in NPPC at beginning of period	(29	)
Net actuarial loss/(gain) not yet recognized in NPPC at beginning of the period	207
Net prior year services cost at beginning of the period	1
Deferred income tax at beginning of the period	(61	)
Minority interest at beginning of the period	(22	)
Effect of initial recognition of cumulative comprehensive deficit	96
Change in the period:
Amortization of net transition obligation / (asset)	2
Amortization of net prior year services cost	(1	)
Amortization of net actuarial loss (gain)	(4	)
Total net actuarial loss / (gain) arising during period	144
Deferred income tax	(48	)
Minority interests	(18	)
Total recognized in other cumulative comprehensive deficit	75

F-109