Greetings and welcome to the Portugal Telecom 2011 First-Half Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zeinal Bava, CEO of Portugal Telecom. Thank you sir, you may begin.

Okay, thank you very much. Good afternoon, ladies and gentlemen. Zeinal Bava from Portugal Telecom. I’m here with my CFO, Luis Pacheco de Melo and our financial team including our IR Director, Nuno Vieira. We following the Vivo transaction on the 27th of September 2010, Portugal Telecom has adjusted its 2010 financial statements in order to recognize Vivo as a discontinued operation, and following the acquisition on the 28th of March of 2011 of a 25.3% stake in Oi and a 14.1% stake in Contax, PT’s statements of financial position and our proportionally consolidated the assets and liabilities of these stakes as at 31st March, 2011 and income statement as from 1st of April 2011. So this second quarter, we are already proportionately consolidating the investments that we have made in both these companies. In the first half of 2011, our consolidated operating revenues amounted to Euro 2,669 million, while EBITDA reached Euro 1,000 million. Our consolidated EBITDA margin stood at about 37.5%. Net income reached Euro 228 million, and basic earnings per share stood at roughly $0.26 in the first half of 2011. Our CapEx in the first half as well amounted to 418 million, that’s equivalent to roughly 15.7% of revenues. And in Portugal that’s primarily directed to investments in new technologies, future proof technologies, namely FTTH network and the pay- TV service, as well as the swap of the 2G equipment that we’re doing in order to prepare ourselves to launch 4G as and when. In the first half of 2011, our EBITDA minus CapEx reached Euro 582 million and the EBITDA minus CapEx of Portuguese businesses amounted to roughly Euro 409 million, which was an increase of 7.4% year-on-year. Our operating cash flow was roughly Euro 525 million, while excluding the consolidation of Oi and Contax,…

Okay, thank you. Now good afternoon ladies and gentlemen. I’ll be very quick. Just a few minutes on the low EBITDA figures, net debt, cash flow and then I’ll turn out for Q&A. On the EBITDA as Zeinal mentioned, it increased by 73.5% and it’s basically due to the consolidation of Oi. If we exclude the consolidation of Oi, then EBITDA would have decreased by 5.5%. And it’s basically due to the revenue performance at TMN, so revenue pressure on TMN, and despite almost 12% decline in operating cost in TMN. As already mentioned, EBITDA on the wireline grew by 1.1% consistently improving trend. Consolidated EBITDA margin stood at 35.7% in the quarter and 40.2% if we exclude Oi. On depreciation and amortization, it increased – it almost doubled, and that’s due to Oi 13 Portugal, it increased by 11.2% and is basically due to the wireline pay-TV business that was responsible for 14 million out of the 20 million increases. On PRB’s, they decreased in the second quarter to 14.3 from 17.8 last year, and it’s basically due to the transfer of most of the pension fund assets into the Portuguese state. With regard to the net income, net income decreased by $66 million in the quarter to 98 million, and this reflected basically, we – in 2010, we had net income from discontinued operations basically Vivo of 61.4 million in the second quarter last year. The 61.4 million included more or less 32 million, resulting from the foreign-exchange translations and that we had accumulated until then. In addition to that, last year we booked 48 million tax gain due to the restructuring at – in Africatel as you might recall. And this year we also added D&A, which was higher than last year as I already mentioned. On…

Okay, thank you, Luis. So just a quick summary. We continue to believe that the performance of the residential segment at Portugal Telecom in Portugal will continue to underpin our top line performance. In terms of the wireline, we need to remain very I’d say discipline in terms of cost, which we intend to do in order to consolidate the EBITDA performance in the wireline that we have posted in the first half of this year, which as you know has been pretty much flat compared to the same period of last year. TMN in terms of mobile, we continue to believe that on the back of all the work that we’re doing around the e-plans and of course the better comparisons of second half this year versus second half last year in terms of tribal plan will allow us to show a better performance in terms of prepaid. Having said that, we remain exposed especially in the postpaid segment, so thinking more mainly about the corporate segment and SMEs and SOHOs to the customers becoming a lot more rational in the way that they utilize the services. And therefore in order for us to continue to deliver the EBITDA performance in line with the consensus again at TMN, we will need to monitor cost pretty costly and also work on the basis that there will be rational behavior on the part of our competitors, but also in terms of regulation when it comes to mobile termination rates, which in Portugal as you know are already about 20% below the European average and at present are about $3.05. In Africa and Asia, we continue to believe that there will be customer and top line growth and these companies will continue to generate good cash flow and repatriate capital, which will…

Thank you. (Operator Instructions) Thank you. Our first question is from Georgios Ierodiaconou with Citi Group. Please proceed with your question.

Yes, good afternoon. I’d like to ask two questions please. The first one is, your some comments around trading conditions in July and August, particularly along the fixed line business. Could you give us some color on mobile, the prepaid recharges, perhaps some color on mobile broadband whether performance there is as good as you would have expected it. And my second question is around Oi, I think you commented towards the end about a dividend policy early next year, since we’re getting the simplification probably in the next couple of months, is the returns that you may be able to allow, announce a top up dividend for this year or is that unlikely?

Okay, thank you. With regard to mobile, I would say that the performance of prepaid in so far this quarter has responded very well to a number of promotions that we have done out there, which seem to support the view that there is some elasticity of demand. So I would say that with regard to recharges on the prepaid, perhaps I would say the reaction to the promotions we’ve done has been good and we’re quite happy with what we have seen on the prepaid. In terms of broadband the trends are very similar to the first half. In terms of post-paid mobile is where we are seeing significant pressure in terms of downward pressure, because especially corporate customers are becoming extremely rationale in the way that they use certain services, not just voice but also data, especially what we call extra platform. So corporate customers used to allow employees to use additional minutes on top of whatever was contracted. Some of these are actually being to some extent limited in terms of usage and of course, that is having an impact. So that’s the one post prepaid and postpaid in line with in terms of broadband. And I would say that with regard to regulation of course, they remind that termination rates did come down in August to $3.05. So that will continue to be a slight drag in terms of top line performance at TMN. With regard to Oi, as I said, once the simplification process has been completed, the company should be able as the CFO of Oi has already indicated publicly that the company should be able to address the issue of the dividend policy. So I’m not necessarily committing to you that we would come out with a dividend policy statement, but I would say that we will have the right conditions to address what should be the sustainable dividend policy for Oi going forward. At this stage, I wouldn’t like to comment a lot more other than this, because we are in the process of filing with the SEC and we need to get the corporate restructuring out of the way, and we consider that that is absolutely critical, if we are going to be successful in implementing or in executing the operational turnaround of the company. The good news is that, the committees have down a very solid and a very professional work. Those exchange ratios have now been approved by the board, have been made public. And therefore, we think that, that should pay the way for us now to do the last mile, which is to do the SEC filing and then call the shareholders meeting, and go ahead and simplify the corporate structure, which is – has been an hindrance, not just in terms of us being able to execute operationally, but also from the analysis of the capital markets as well. Thank you.

Thanks.

(Operator Instructions). Our next question is from (inaudible) with Espirito Santo Investment Bank. Please proceed with your question.

Hi, good afternoon. I have two questions if I may. One is on the wireline segment, (inaudible) if I remember correct, you had mentioned that EBIT infraction would come at what stages of this year or even in 2012 and we are never to reach that in first half. And it is seasonal that you would reach out to grow this year on the wireline segment. And on Brazil, regarding the regulation on more termination rates, can you give us an update on what’s going on there? Thank you.

With regard to – thank you. With regard to the wireline performance, we’d indicated that sometime this year we would be able to reverse the trend with at some stage said that we hope that one quarter we can post a positive EBITDA. And first quarter this year, our EBITDA was only down 0.2% and in the second quarter it was actually up 1.1%. Now that has been achieved on the back of significant cost-cutting and discipline at our company, not just wages and salaries but across the board. Bearing in mind also that we continue to invest in terms of share of mind, so we’re not cutting back. On marketing expenses, nor are we cutting back on commissions as we have indicated in the past that we are not going to lose market share on the back of price. We will be the most competitive operator in this market. Although, we continue to believe that the market should be rational, because this is a capital-intensive sector and with long payback. But if we have to respond to more aggressive competitive behavior in the market, we will do so. Although, again I would say, we would not recommend that. But I would say that market share gains for us are being underpinned by investments that we have made in new technologies. What’s highlighting here that the cost-cutting is being achieved because we’ve done business process reengineering. The investments for example, we’ve made in fiber has reduced the maintenance and repairs in certain parts of our network significantly. Decline faults have come down a lot, client calls with regard to faults have also reduced. Recently for example, we have made available in all the TV screens of customers that have the mail service. They invoice, their fixed line invoice so that…

Our next question comes from (inaudible). Please proceed with your questions.

Hello, good afternoon everybody. Just to come back I think you did not give an opinion on what has happened to the MTR in Brazil, I mean the decision has been delayed I think for some months already (inaudible) the regulator is reconsidering the initial preposition of my 10% decrease for this year. I don’t know if you could with us your thoughts on that. And maybe also the second question is whether you could give us idea of what you expect in terms of CapEx for the options the end of the year, spectrum options and maybe also for the (inaudible) technology?

Okay, in terms of MTRs what I would say, I wouldn’t like to comment specifically for obvious reasons, we would like to continue to work our views on MTRs directly with regulators both in Brazil and in Portugal, but what I would say with regard to Brazil is that it is absolutely critical that one achieves the right balance between fixed and mobile in order to ensure the long-term sustainability of the business model of fixed line in Brazil in reference in pay-TV will be pretty significant, the fixed mobile cannibalization in Brazil has been pretty significant as well in the last few quarters. So I think it is important that the conditions are created so that operators invest in future proof technologies in order to underpin the development of the Telecom sector in Brazil. We continue to believe that the broadband penetration in Brazil can be increased significantly in the future. We also believe that pay-TV penetration in Brazil can also increase significantly and this is substantiated by a number of analysts and also a number of – that do write reports on it. And I’m sure, we own an agreement that the increased penetration of broadband mobile, pay-TV will also improve. I would say, the economic conditions and the wealth of the people in those markets where you have seen these penetrations actually increase. So we are committed to investing and ensuring that Oi is remained very, very competitive and operate that is well-provisioned to take advantage of all these growth opportunities. But it is important that, when one is thinking about taxes and one is thinking about regulation that, it is taken into account the fact that the fixed line companies in Brazil do have significant challenges around universal service obligations, simply also because the fact that…

Thank you. And our last question comes from Soomit Datta with New Street Research. Please proceed with your question.

Yeah, hi there. Just a question please on the consolidation of Oi. When I look at the numbers you put into the revenue numbers in EBITDA you took onto your P&L, they seem to be slightly higher than if I just take 25.6% of Oi’s reported numbers and then make the correct currency adjustments. So I just wondered I presume that’s because as other revenues at play more part and maybe further up the chain. I just wanted to check out understood that correctly. And if so, I just wondered is there any way we can understand how those other revenues are going to develop going forward, please?

Okay. Let’s see, the big difference then, if you look at what we have reported, if you look at what they have reported and convert into Euros, I think on the revenue line the difference is around 40 million. The 40 million is basically the different way of accounting between Brazil and Portugal Telecom. For example and two-thirds of that is relates to this, is basically penalties that are imposed on clients. We book as revenues and they book as minus cost, okay. And then rentals of non-strategic equipment are also booked as revenues on our side and they are booked as minus costs at Oi. So the basic difference comes from that, and there is no revenues in the intermediary companies that accounts for that difference. Then if you look at – and therefore these plus revenues that we have are plus costs as well, and therefore on the EBITDA level basically, the effect of these inflated revenues are basically zero.

As a quick follow up, I thought the EBITDA level was slightly higher as well?

Okay. On the EBITDA, the difference as you make this calculation is around 6 million. And this is just because there was a financial gain that we spoke in the second quarter, already that was actually referred to the first quarter and we just restated that. And so, going forward, you shouldn’t see any differences between us and them or any difference between….

Okay. That’s very clear. Thank you.

Okay. Thank you.

Okay. Thank you very much for being on the call. My team and I of course as usual always available to answer any questions you may have. My IR Director, Nuno Prego, is of course available after this conference call to answer any further queries you may have. And again, I appreciate you being on the call and I look forward to speaking to you in November when we announce our third quarter results. Thank you very much. Good afternoon. Bye, bye.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.