1Q 09 revenues at TIM Participacoes S.A. (TIM) remained flat y-o-y, led by a fall in revenues from the Service segment, which contributes the maximum to top-line. The company reported an operating and net loss during the quarter, mainly on account of weak revenue performance and a significant increase in D&A and income tax expenses. However, TIM's merger agreement with Docas Investimentos S.A to have 100% control of Intelig Telecomunicaoes Ldta, is expected to reduce operating costs for local, national and international long distance calls through synergistic benefits, positively impacting margins. As current levels do not support a BUY rating and considering weak 1Q 09 performance, we downgrade our rating for the preferred stock from a BUY to a HOLD. As we continue to anticipate a significant negative currency impact on the ADR over the next 6-12 months, and as the current level does not support a HOLD rating, we downgrade our rating for the ADR from a HOLD to a SELL.

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