CARVALHO DE FREITAS E FERREIRA

ADVOGADOS ASSOCIADOS

Theodoro Carvalho de Freitas Avenida 9 de Julho, 5593- 9 andar

Ricardo Barretto Ferreira da Silva São Paulo, Brasil, 01407-200

Luiza Nagib Tel: (011) 852 6600 - 881 3560

Celso Weidner Nunes Fax: (011) 282 8735.

Genilda Marques de Souza End Telegrafico " LEGAFFAIR"

Sueli de Freitas Verissimo Vieira Correspondentes no Brasil

Barbara Carol Maria Brentani e no exterior.

Ana Paula de Medeiros Cestari

LEGAL ASPECTS OF SUBSCRIPTlON TV IN BRAZIL.

Ricardo Barretto Ferreira da Silva

luri Rapoport

Carvalho de Freitas e Ferreira - Advogados Associados

1. Introduction

Television first came along in Brazil in the early fifties. Being at that time reserved to an insignificant part of the population, it has, along these 45 years, acquired tremendous importance in Brazil's cultural life, becoming the major entertainment means and an important source of information for the great majority of Brazilians.

Diffused throughout all social-economic classes, the advent of television turned Brazil into one of the largest global consumers of television sets. We are presently the fourth country in the world in number of households containing television receivers. No fewer than 32 million households have television sets, accounting for a market with over 100 million viewers (1). In order to transmit the magnitude of these figures, one needs only mention that Argentina, our neighboring country and partner in Mercosur, has 8.5 million. Mexico has 12.5 million, Chile 3.4 million and Venezuela 3.3 million (1)

The Brazilian market was, for virtually 40 years, only operated by open television broadcasting transmitters, which have brought to population the so-called open channel transmitters, practically covering the whole extent of the Brazilian territory. Large Brazilian networks, such as Rede Globo de Televisão, Rede Manchete, Sistema Brasileiro de Televisão - SBT and Rede Bandeirantes have expanded enormously, becoming real entrepreneurial conglomerates. Rede Globo de Televisão, for one, is presently one of the major economic groups in Brazil, operating in areas outside that of television as well.

In addition to these four large-sized television networks, the Brazilian market also includes other smaller networks which operate on the regional sphere, among which such networks as Rede Record de São Paulo and Rede Cultura de Televisão are included (the Cultura network, a state-owned television broadcasting transmitter operates in several Brazilian States). All these transmitters, also including the domestic networks, operate on the frequency band called VHF. Finally, there are still other open-channel transmitters of regional performance which operate in the frequency band called UHF. Among them are the Brazilian MTV and the Rede Jovem Pan de Televisão.

From the scenario described above, it can be seen that the open-channel transmitters, resulting from grants on the part of the Brazilian government, for a long period represented the only alternatives available for domestic television viewers.

2. The Advent of Subscription TV in Brazil

2. 1. TVA

The first companies interested in operating Subscription TV services came along in Brazil in the mid seventies. In 1975, the Ministry of Communications (Minicom) first contemplated the possibility of creating a legislation which provided for rendering of this type of service; the corresponding bill of law did not materialize, however.

In 1988, with the emergence of new companies interested in the exploitation of Subscription TV, discussions on the issue were renewed. In December of that same year, the Ministry published Decree No. 98.744/88 introducing a new service called Subscription TV - TVA (TV por Assinatura).

TVA, according to the very Decree which instituted it, consists of rendering sound and image distribution services to subscribers through coded signals, by means of utilization of the radioelectric spectrum. Thus, the same as the open-channel transmitters, TVA uses microwave bands to transmit signals, enabling subscribers to receive signals l)y means of decoders supplied by the service exploiter itself (holders of permit for TVA operate in the UHF frequency band). This Decree brought forth the first Brazilian experiment in the area of Subscription TV: Channel 29 UHF (known as Channel PLUS which retransmitted the American Sports broadcasting transmitter- ESPN).

2.1.2. Features of the legislation of Subscription TV - TVA

As already mentioned, TVA is the service intended to distribute sounds and images, through coded signals, via UHF. Partial uncoded utilization is permitted, where authorized by the granting authority.

Routing of coded signals from the concessionaire of sound and image radio broadcasting services to its corresponding repeating or relay stations is not TVA, but rather Service of Repetition and Relaying of TV Signals (having been regulated by Decree No. 81.600/78, this service authorizes reception of signals from generating stations in localities not covered by these stations. As a rule, this service is rendered by companies related to the signal generators themselves, which are none other than the open TV broadcasting transmitters, called sound and image radio broadcasting services concessionaires).

The grants or authorizations are granted by the Ministry of Communications to companies, the shares or quotas of which are owned exclusively by Brazilians; the term of duration for the grant is of up to fifteen (15) years, renewable for equal periods; transfer of the grant without the previous and express authorization by the President of the Republic is prohibited; any corporate statutory or contractual amendment is prohibited, as is also prohibited the transfer of shares without the previous consent by the Ministry of Communications; the rendered of this service cannot alter the technical characteristics approved by the Ministry of Communications, without previous authorization; supply and maintenance of the decoders is the responsibility of the service operator; insertion of publicity in the programming of this service is permitted; the user is entitled to be aware of the programming in advance, also including the load of publicity insertion.

2.1.3. Present market scenario of TVA in Brazil

Grants for rendering this service authorize the concessionaire the use of no more than only one channel in the UHF band, which ends up producing general disinterest in its exploitation. As it is, the majority of Brazilian viewers are offered between 5 to 9 open channels (included therein the UHF open channels). Thus, only a small number of viewers eventually become interested in purchasing the right to watch only one more channel.

In addition, it should be taken into account that Cable TV offers more than 40 channels and the Multichannel Multipoint Distribution Service - MMDS presently offers 6 channels (both services will be broached in detail in items 3 and 4 of this paper).

Therefore, the number of renderers of this service is very small, with the service not being available in the majority of the Brazilian cities. Some companies such as TVA of the Abril Group started offering its only TVA channel (the TVA type of service must not be mistaken for the TVA - Abril, a renderer of Subscription TV services) along with other channels offered through its MMDS service. ~n Sao Paulo, some concessionaires are contemplating the possibility of forming a pool to offer a larger number of channels.

Although the TVA (service) may seem not have great potential from the commercial point-of-view, its emergence should however not be underestimated, insofar as it represented, as already mentioned, the first experience involving Subscription TV.

2.2. DISTV - Emergence of Cable TV

Parallel to emergence of TVA, the Ministry of Communications published in 1989 Ministerial Order No. 250, creating the DISTV - Distribution of TV Signals (Distribuição de .Sinais de TV). Although it did not expressly refer to Cable TV services, this Ministerial Order ended up by making rendering of this service possible in practice. This resulted from the very definition used in the Ministerial Order concerning the service. Pursuant to Order 250, DISTV consists in the "reception of TV signals, by means of community antennas, directly from generating, repeating or relaying stations, in a reception hub with the subsequent distribution thereof through physical media." Mention to the term "distribution of signals through physical media" enabled the interested companies to apply for rendering Cable TV services. Thus, as from 1990, permits were granted for the operation of this service, having thus introduced Cable TV service rendering in Brazil. In 1991 all DISTV services were renamed Cable TV Services, by force of Ministerial Order No. 51/91 of Minicom.

2.3. Subscription TV contained in the Legislation of Closed-Circuit TV through Radio Link (CFTV - Circuito Fechado de TV por Radioenlace)

Closed Circuit TV through Radio Link is the system used by any institution for establishing communication, on television, between its own units. This communication has no commercial purposes. By obtaining a permit from the government for the use of one channel, companies interested may engage in this service, which shall fit its internal needs only. The transmission of signals is processed through microwaves, by using a specific band of the radioelectric spectrum (frequency in the band of 2425 to 2485 M Hz and width in the band of 20 M Hz - modulation in frequency).

As from 1988, some companies requested permission from the Ministry of Communications to render this service. However, their intent was not the communication between/among its operational units, but rather, rendering actual Subscription TV services. They intended to introduce the rendering of a type of service in Brazil, one already widely popular in the USA, called MMDS - Multichannel Multipoint Distribution Service. This was due to the fact that entrepreneurs interested in the service realized that the 20 MHz widthband used in the CFTV, which authorized the use of one channel, might comprise up to 3 channels with 6 MHz modulated amplitude. The service might then be rendered using the same CFTV frequency (between 242S and 2485 and width in the 20 MHz band). Once they had gained possession of the permits, these companies requested Minicom to make some alterations in the CFTV legislation, so as to make rendering of this new service feasible, including also other provisions, such as the possibility of charging a monthly value from users (which ended up becoming subscribers). Thus it was that the CFTV legislation was gradually twisted, and took the shape of Subscription TV services until November 1989, year when Minicom published Ministerial Order 221/89, conferring a new wording to Order 86/74 (CFTV service).

Becoming aware of the emergence of a new service, completely different from the nature of CFTV, Minicom promulgated in 1990 Ministerial Order No. 131, publishing for comments a proposal of Norm for the Special Multichannel Multipoint Distribution Service - MMDS (the definitive publication of the norm regulating MMDS only occurred in 1994; see item 4). In 1992, though Ministerial Order No. 44 of Minicoln, holders of permit for Closed Circuit services were deemed qualified to hold permits for the MMDS service, which eventually occurred in July 1992, following publication of Ministerial Order No. 208. Therefore, despite the absence of specific regulation, the Service of Subscription TV via MMDS was implemented in Brazil.

2.4. Subscription TV via DBS System - Direct Broadcasting Satellite

In addition to the Cable TV, the MMDS (which will be the subject matter of new comments hereinafter) and TVA - UHF, a fourth distribution modality of Subscription TV which came along in 1991, is that denominated Direct Broadcasting Satellite (DBS). This system allows, without the aid of cables or repeaters and ground amplifiers, to capture images transmitted directly from a satellite. Also known as DHT (Direct to Home), DBS--which requires that subscribers have parabolic antennas --is presently operated by only a few companies, such as CATV and GloboSat (a company of Rede Globo de Televisão). Globosat, for example, offers subscribers 5 channels; CNN, GNT, Telecine, SportTV and Multishow.

DBS or DHT, such as it was conceived in the USA, implies utilization of the so-called KU Band of a Satellite. The KU Band allows subscribers to capture the signals directly from the Satellite, by means of small parabolic antennas with a fifty-centimeter diameter. Due to their reduced size, these antennas have a well lower price (around U$ 300), becoming much more accessible to consumers. This technology, not yet operational in Brazil, may however soon become a reality, with the launching (scheduled for the current-rent year) of Satellite Pam-Am Sat-3 which will in theory make 150 channels available in DBS. As from 1996, countless other channels will also be made available, with launching of the Argentine satellite Nahuel.

Contrarily, the system presently adopted in Brazil uses the so-called C Band of the Satellite. The C Band -- the power of which in the transmission of video signals is well lower than that of the KU Band-- requires parabolic antennas from three to five meters of diameter. Therefore, it makes the price of a subscription to the service considerably costlier. This is why this system's installations, in their great majority, are found more often in apartment buildings and residential condominiums.

This service is regulated by Ministerial Order 230/91 of Minicom, which stipulates generic norms for the construction, launching, operation of satellites and rendering of services.

Now that the four modalities for Distribution of Subscription TV existing in Brazil have been described, we will now comment on the two major modalities: Cable TV and MMDS.

3. Cable TV

In accordance with the considerations made hereinabove, Cable TV was implemented de facto by Ministerial Order 250/89, which instituted the service called DISTV. With basis on this Ministerial Order, between 1990 and 1991, 101 permits were granted for the installation of Cable TV in several cities-in Brazil.

In July 1991, through Ministerial Order No. 5 1, the Ministry of Communications suspended the process of granting new permits to exploit the DISTV, until the service could be regulated by Law (recently occurred, as will be seen subsequently).

Next, with the support of Ministerial Order No. 51, the DISTV service had its name changed, gaining status of Cable TV. This Ministerial Order No. 51 also submitted to public consultation a proposal for a norm to regulate the Cable TV, a norm which was not actually issued by Minicom.

With suspension, by the already mentioned Ministerial Order 51, of the grants of permit to operate Cable TV, operation of this service then became a prerogative of those companies which already held one of the 101 licenses granted previously to said Ministerial Order (which were actually permits for DISTV). Since then and until January 6 of this year (date of publication of Law No. 8.977 - Law of Cable TV), the parties interested which did not own such permits had no other alternative left but purchasing one of the above mentioned 101 permits. This option was indeed available, since many holders of such permits had neither started nor had the intention of operating this business.

3.1. Specific Legislation for Cable TV

For a long time the Brazilian entrepreneurial class awaited approval of a law for Cable TV. In October 1991, the first bill of law was submitted to the Congress, edited by Deputy Tilden Santiago. The bill was very wide- reaching, since it regarded not only Cable Subscription TV, but all services related to cable diffusion, such as services of telephony, data interchange or the so-called interactive services ("teleshopping" for example). Perhaps on account of its high complexity, the Bill ended up not being voted.

After failure of this first bill, discussions in the Congress continued for 3 more years, succeeding only at yearend 1994 in obtaining approval for the new bill of law, this time submitted by Deputy Koyu Iha, which finally became a law in the current year.

3.1.2. Characteristics of the New Law - Law No. 8.927/95

a. According to the new law, cable TV service is that which consists in the distribution, to subscribers, of video or audio signals, through transportation by physical- means. These include activities related to the programming of the ''transmitted channels. "

b. Regulation of this Law, the preparation of which is attributed to Minicom, will only be edited after an opinion has been rendered by the Social Communication Committee. This is one of the controverted aspects of the new Law. Pursuant to Article 224 of the Constitution, this Committee is an ancillary body of the Congress, in charge of analyzing issues related to Social Communication (a law has already been approved by Congress stipulating that the Committee be formed by 14 members: 4 representatives of entrepreneurs, 4 of the unions and 5 names representing the civil society).

Technicians from Minicom claim that the required consultation of the Committee is unconstitutional, because it binds a decision of the Executive Power to a body of the Legislative Power.

c. The awarding of grants--for a fifteen-year term, renewable for equal and successive periods -- is incumbent upon Minicom.

d. There shall qualify to render these services the private legal entities which main activity is rendering this service and: I) which have headoffices in Brazil; ii) of which at least fifty-one percent of the voting stock is owned by Brazilians by birth or persons who have been naturalized Brazilians for a period longer than ten years, or by a company headquartered in Brazil, which shareholding control is owned by Brazilians by birth or who have been naturalized for a period longer than ten years.

e. Upon initiative by Minicom or request by the interested party, proceedings for awarding of concessions shall commence. After the convenience and opportunity for implementation of the service have been acknowledged, a call will be published, the rules of which are to be defined by Minicom itself, inviting the parties interested to submit their proposals.

f. Grants for operation of the service shall have an exclusivity character in no areas of service rendering whatsoever. This provision is of the utmost importance, insofar as it promotes competitiveness among several companies.

g. State-controlled concessionaires shall only be authorized to operate in an area where disinterest on the part of the private initiative is clear and complete.

h. Operating companies which integrate the Telebras System may participate from the transmission of TV signals through already existing telephony networks. The local TV Signal Distribution Network (which is actually the mesh of coaxial cables, branching through the subscribers' homes) may be owned either by concessionaires of the service or by one of the Telebras System concessionaires.

The operators of the Telebras System (public network) rely on an enormous network infrastructure; however, not all of them are suitable for video transmission, according to opinions of experts in this field. The law provides that concessionaires of the service use this infrastructure, taking advantage of their "capillarity" and thus reaching the subscriber at a faster rate.

The cities of Belo Horizonte and Brasilia already resort to this type of cooperation between the private and the state-owned operators. In the former city, the operator TTC/TVC is permitted to connect with the trunk network of Telemig (the regional state-controlled operator of the Telebras System), and to debit these services directly from the subscribers' telephone bills; in exchange for this, Telemig is entitled to a share of the operator's income. With this respect, the law is clear: operators which do not own their own network will have to rent a certain length of the public concessionaire network. Definition as to how the use of the transportation should be remunerated, will only be set forth in a regulation to be subsequently issued.

i. The operators shall have to reserve six channels for use by the Universities, the House of Representatives, the Federal Senate, the State Legislative Assemblies, official bodies for the education and culture, and non-governmental non-profitable entities. They are further bound to retransmit, free of charge, all programming of the open-channel TV stations.

j. Thirty percent of the channels technically available must transmit the programming generated by legal entities not affiliated or not associated to the Cable TV operator.

k. The operators may broadcast publicity in their programming.

1. Transfer of the grant, in addition to being dependent upon the previous authorization by Minicom, may only be carried on after the service has become operational.

m. Present holders of permits to operate the DISTV services may request that these permits be converted into permits to operate Cable TV services. In this case, they must conform to provisions contained in the law.

3.2. Present Scenario of the Cable TV market in Brazil

The Cable TV market today is exploited mainly by two groups: Abril and Globo. Whereas the Abril Group has opted to exploit the sector of Subscription TV as an only operation, including the activities of producing programs, purchasing programs from third parties and conducting their own distribution of signals not only by cable but also by air (the Abril Group is leader of the sector of Subscription TV via microwave), the Globo Group has opted to fragment its activities.

Thus, Globosat is exclusively engaged in programming, having become specialized in the production and formatting of program packages. Commercialization of these packages is the responsibility of NET Brazil. For that purpose, NET Brazil arranges the organization of regional cable operators (as a rule, the Globo Group acquires minority shareholding control from these regional operators), mediating, the relations between these operators-- which become a kind of franchisee of Globo's network--and the suppliers of equipment, services and programming. Among such operators stand out Multicanal, NET São Paulo (association of the Globo Group with the RBS Group from the State of Rio Grande do Sul) and Net Rio.

There are other regional operators throughout Brazil, which are associated - with neither the Abril nor the Globo Groups (but which in the majority of cases purchase their programming), called independent operator s. In addition to being able to purchase programs from Abril or Globo, the independent operators may purchase programming directly from international programmers. The VC TV Cabo of the city of Campinas, Supercabo TV of Curitiba and TTC/TVC Cable TV of Belo Horizonte are some examples of such companies.

4. MMDS - Multichannel Multipoint Distribution Service

On three different occasions, the Ministry of Communications tried to create a specific norm to regulate this service. In February 1994, MMDS acquired a specific legislation, with publication of Ministerial Order 43/94. This Order published Norm 02/94 which stipulated the conditions applicable to the grant and operation of the Multipoint Multichannel Signal Distribution (MMDS) Service.

MMDS is defined as the special service which uses microwave bands to transmit the signals which will be received, by contract, in certain sites within the service rendering area. Below, the main aspects of Norm No. 02/94:

a. There shall be deemed qualified to operate this service companies which do not have shares or quotas of foreign capital in their stock composition in an amount which exceeds 49%.

b. The permits will be granted by the Ministry of Communications, for a ten- year term, renewable for equal periods.

c. The permit proceedings shall commence upon request by the interested party, which shall attach to said request a survey of the service technical and economic viability concerning the locality of interest.

d. The Calls may be opened for up to 16 channels. In case it is technically possible and there are, in the place of operation, other services of Subscription TV, a bidding may be opened for 31 channels (maximum number of MMDS channels). Should the permit concern more than 16 channels, at least two of them must contain educational programs. In the case of 15 channels, at least one must include programming of cultural or educational nature.

e. No individual entity or affiliated company may hold more than seven permits to operate the MMDS, in municipalities with a population of over one million inhabitants, or more than 21 permits in municipalities with a population between three hundred thousand and one million inhabitants.

f. The criteria for the grant will take into consideration the diversity of sources of information available to the public; the programming for the local community; the shareholding control; the programming of educational nature, beyond the minimum limit stipulated; and the period for installation.

g. The holder of a permit for MMDS may broadcast commercial advertising.

h. The permit to explore the MMDS may only be transferred with the previous consent of Minicom.

i. The service rendering area shall have a radius no larger than 25 Km, counted from the relaying station site.

4.1. Present Scenario of the MMDS Market in Brazil

The present market includes 12 holders of permit and a little over 150 thousand subscribers, which accounts for approximately 50% of the total number of subscribers of Subscription TV in Brazil. This number tends to increase vertically within the next few months, if we consider that there are more than 1.5 thousand requests for MMDS permits placed by 140 companies (2).

Ever since publication of Ministerial Order No. 44/92 which transformed holders of permit for the Service of TV Circuit through Radio Link in holders of permit of MMDS, Minicom has granted no other permits whatsoever. Although MMDS has already been regulated by the Executive Power (Ministerial Order No. 43/94 of hereinabove mentioned Minicom), no public bidding proceedings have been opened for new grants. The reason for this inertia on the part of Minicom was occurrence of a successive questioning, by the public opinion, about constitutionality of the Ministerial Orders which regulate the MMDS. The government has, on that account, ill the last few years, decided it would l)e best to await approval of a Law specific for the MMDS, to start bidding proceedings for the award of new permits.

Leadership in the operation of the MMDS market in Brazil belongs to TVA of the Abril Group. Operating in several cities in Brazil, almost always independently TVA is also the leader in the number of requests for new permits to operate the service, with 101 such requests. In addition to TVA, - other companies also operate in the sector, such as TV Filme (company in which TVA holds 35% of the shareholding control), RBS and other- small- sized operators (3). Other companies such as Splice, Multiponto (associated with Banco Icatu) and Engelsat (ABC Algar Group) are making arrangements to enter the sector:

The Globo Group is also making arrangements to enter the MMDS sector, by becoming associated with other companies. With respect thereof, its has already filed countless requests for new permits.

5. Technical Comparison between the Transmission of TV Signals by MMDS and by Cable

MMDS is a much faster system to be installed than is the Cable TV, precisely because it dispenses with the need for pulling cables. Due to the fact that its transmission occurs through the air, MMDS is more apt to be installed in non- mountainous cities (cities not geographically rugged) as opposed to Cable TV, which does not have this type of restriction. In addition, another negative aspect of the MMDS is the fact it is limited to a total of 31 channels, while the Cable TV can accommodate up to 70 channels. On the other hand, Cable TV is only economically viable in high demographic density areas, due to the need of pulling cables on the streets.

6. Potential and Prospects of the Brazilian Market for Subscription TV

Today in the United States, more than 60% of the households containing TV sets already watch some kind of Subscription TV. Western Europe registers the figure of 30% of the households with TV receivers and Asia, 1 1% (4).

Meanwhile, Latin America registers only 7.5% of penetration by this type of service. If the potential of the Latin countries is enormous, the potential of the Brazilian market is overwhelming. First because, in Brazil, Subscription TV does not reach more than 1% of the households equipped with TV sets (4). We have, therefore, a virtually untouched market. At present, out of the 6 thousand Brazilian municipalities, as few as 67 have been awarded with the few permits granted by Minicom (5). In the second place, because we are the fourth country in the world in number of households with TV receivers (32 million), as mentioned herein before. Thus, if only 20% of the households are connected with paid TV, that figure will account for more than 6 million subscribers.

Experts from the sector (including entrepreneurs and technicians) estimate that the potential of the Brazilian market is capable of absorbing between 5 and 10 ,million subscriptions, including the several modalities of paid TV (cable TV, -MMDS and DBS). If we take into account that subscriptions have a monthly average cost of US $ 30.00, the Brazilian market may generate an income between US $ 1.8 billion and US $ 3.4 billion per year.

Just for comparison purposes, it is interesting to notice that in the United States, the global leader in this sector with approximately 60 million subscribers, operators altogether generate an annual income of US $ 23 billion (6) In the USA Cable TV carne along in the forties, as an alternative for rendering services to those viewers living in geographically rugged areas or else in areas prone to snow storms.

As already mentioned, in Brazil approximately as few as 1% of the owners of TV receivers are subscribers to paid TV. In order to detect the insignificance of this figure, it might be worth reiterating that the percentage in Argentina reaches 38%; in Venezuela, 25%; in Mexico, 12.8%; and in Chile, 1.7% (4).

With basis on the aforementioned data, one might make an idea of how great the Brazilian market potential really is and how much it tends to develop within the next few years. So much so, that new investors, mainly the international ones, have been sounding our market, as will be commented on in the next item.

6.1. International Participation on the Market

Interest of international entrepreneurs in what can be considered one of the largest unexploited markets in the world is very great indeed. In order to impart an idea of such interest, one needs only mention that in the United States, real investment funds are being organized to direct funds to Subscription TV in Brazil (7).

Among the examples of international participation on our market, we may mention: i) Acquisition of 17% of the shares of TVA, from the Abril Group by Chase Manhattan Corporation; ii) "joint venture" HBO Brazil incorporated by TVA itself, Sony and Time Warner; iii) association between TV Filme from Brasilia and Warburg Pincus (7)

Another investor of the Sector is the World Bank. Through its investment company, the International Finance Corporation (IFC), the bank became associated with the Globo Group to create the Globo Cabo (majority shareholding control by NET Brazil). The World Bank intends to invest US $ 125 million until 1997 (8).

The European investors include the France Telecom, a French state-owned operating company, which has already disclosed its interest in investing in the area of Cable TV in Brazil.

7. Final Considerations

..

Chances are that 1995 will be decisive for the development of Subscription TV in Brazil; we already have a specific legislation for Cable TV which will generate a scenario of greater transparency and confidence in the sector; domestic and international investments are already widely oriented; the Brazilian market is potentially outstanding and domestic viewers are looking forward for new services.

Alongside this scenario, we have the Federal Government determined to open new spaces to the private initiative in the telecommunications area, which confirms the strong likelihood of our having a great development in the sector of Subscription TV this year. With respect thereof, amendments to the Constitution have already been forwarded to the Federal Congress by the Government, and should they be approved, they will enable any state-controlled or private company, whether domestic or international, to exploit countless telecommunications services.

Sao Paulo, February 20, 1995.

RICARDO BARRETTO FERREIRA DA SILVA

IURI RAPOPORT