Greetings and welcome to the Portugal Telecom 2013 First Quarter 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 the Portugal Telecom. Thank you. Mr. Bava, you may now begin.

Good afternoon ladies and gentlemen. Thank you very much for being on this call. I’m here with my CFO, Luis Pacheco de Melo; our IR Director, Nuno Vieira and the finance team as well. We are going to take you through the first quarter numbers as we’ve seen this morning. Our consolidated operating revenues amounted to €1.553 million, consolidated EBITDA stood at €526 million. Our margins reached 33.9% it was underpinned by the sales margin of the Portuguese businesses, which posted the margin of 42.8%. Oi’s EBITDA marginal also improved and it reached 30.5% in the first quarter. As you know, Oi has already announced their results earlier in April. In the first quarter 2013, our fully and proportionally consolidated international assets represented 58.7% and 52% of PT’s consolidated revenues and EBITDA. This is very much in line with our strategy to diversify our international presence and as a result it's very good to see that about almost 60% of our business is now done outside Portugal. In the first quarter of 2013, our CapEx amounted to $287 million, this is equivalent to 18.5% of revenues. The CapEx from Portuguese telecom businesses stood at $99 million, it was down 13.7%. And this is very much in line with the fact that most of the modernization investment in Portugal telecom is pretty much down and completed. Overall, our CapEx to sales was 15.6%. In the first quarter of 2013, EBITDA minus CapEx €240 million, while EBITDA minus CapEx of the Portuguese telecom businesses stood at about €172 million. My CFO will take you through the operating cash flow; allow me also to say just one final comment on the financials regarding our net debt. Our net debt adjusted for unused tax credit amounted to €7.9 billion and excluding the proportional consolidation…

Thank you, Zeinal. Good afternoon, ladies and gentlemen. Let me focus on the main financial highlights, and I'll be using Slides 42 to 50 as a reference for my presentation. So, on Slide 42, total revenues were down 9.5% in the first quarter or €163 million. Out of this €163 million the real devaluation accounted for €116 million as currency devalued on average 13.8% from the first quarter last year to the first quarter of this year. As such, on a constant real FX basis revenues actually declined by 2.8% and that is mainly due to the reduction of revenues in Portugal. In Portugal, as Zeinal mentioned, our revenues were down 6.8% or €46 million. This represents, however, an improvement when compared to the 8.1% decline in the fourth quarter last year and it's very much supported by a continuous growth on the residential and also the improvement on the Personal segment as Zeinal mentioned. Revenues on the Residential segment in Portugal continued to show very sustained growth with service revenues up by 4.1%. On the Personal segment, customer revenues were down 8.6%, which is an improved trend from fourth quarter last year and third quarter of last year, which had shown a 9.1% decline and an 11.2% group decline. Notwithstanding having observed an improved trend service revenues were down 11.4% and that's because interconnection rates were down by 40% in the first quarter vis-à-vis first quarter of last year. However, going forward in 2013, this trend should improve as you will see average out of the impact of the MTR and of course, you will start seeing the benefit of the success of our convergence offer launch in the beginning of the first quarter this year. Overall, revenues on the Personal segment were down 7.7%, also reflecting strong equipment…

Okay, thank you very much, Luis. And perhaps what we can do is that we can go straight to Q&A, and thank you once again for being on this call, and very happy to take any questions that you may have with the team here. Thank you.

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

Yes, good afternoon, and thanks for taking my questions. If I could start with one of your initial remarks around the fact that you are now fully funded until the end of ‘17 and therefore you will be looking up in medium to long-term prospects of the business. What's to stop you now from looking at an extension of the fiber coverage in Portugal, is there any operational reasons why it make sense to wait or given the funding position that you are in now would it makes sense to fund that the investment and get the maximum benefit over the next four years, five years. And my second question is around SME, and the impact of M4O on the ARPU of the SME customer that you have, have you seen any migration into these parties and does that cannibalize the ARPU or if not kindly of expect to how far you try to manage the migration. And if I could also ask quick question on Brazil, you mentioned the need to improve the (inaudible) functions in order to be more active on mobile data. Is it similar for Pay-TV and which we have to wait few quarters before we see some improvement in the Pay-TV growth and the broadband growth in the fixed division? Thank you.

Okay, thank you very much Georgios for your questions. As you know, we have 1.6 million homes passed and against this current economic backdrop, of course, we look a cash flow generation and therefore we are going to stick to the guidance that we have given of our CapEx of €500 million or less. We are quite happy with the €1.6 million fiber plant that we have, having said that we are monitoring very closely how the Competition Authority will look at with this next generation network footprint that ZON has in the context of the review that they're doing of the Portuguese market. It is worth emphasizing that they cover about 2.6 million homes, with DOCSIS 3.0, whilst it's not the same thing as fiber-to-the-home, it does allow them to provide customers with significantly higher feed. So, I think we will continue to keep a watchful eye on how the regulator will decide in connection with that footprint which they have, which in some cases is almost monopolistic, because it's the only fast speed broadband service that's available, before we take any views regarding this. We are quite happy with the penetration that we are reaching in terms of fiber. You certainly will have seen in the presentation that we put out, how little we have to spend in terms of maintenance repairs or customer care because of the heavy rains when those customers that have fiber. So, I mean the fiber business case stands also against any scrutiny when it comes to OpEx and I have put it this way, we will go in that direction. But before that we need predictability and in particular, we need to see how the Competition Authority will look at the existing transaction that they are reviewing in that particular regard. With…

Thank you. Our next question is coming from Paul Marsh from Berenberg Bank. Please proceed with your questions.

Hi, thank you. I have a couple of questions. Although I'm reluctant to detract from some of the encouraging trends in the domestic market, I really feel that the dynamics around the Oi share price and the concerns over the Oi dividends are also important here. And I just wonder, what you're thinking about that situation, as the Oi stock price continues to weaken, so reflecting I believe concerns about the sustainability of the Oi dividend. And then secondly, if I look at the Oi balance sheet, I see R$35 billion of gross book value of buildings, real estate, infrastructure, and other assets on the consolidated balance sheet I’m talking about. You have talked or Oi has talked about potential for non-core disposals. I just wondered, if you are able to give us what proportion of that gross book value or even net book value might be potentially disposable on non-core?

Thank you, Paul. With regard to the Oi share price obviously, we look at it, in fact differently, because we are long term investors and we are strategic shareholders of Oi, and of course, we believe that Brazil continues to as the market offer significant growth potential for the future. Not to forget that there are 200 million POPS, 55 million households and a penetration of even the most basic services like broadband, Pay-TV is well below what its full potential is in that market. Oi has an incredible position in that market; because they are 50% of the territory we are either operating alone or have just one competitor. So I think the key challenge is to make sure that the capital is allocated where it makes business sense and where it generates the highest returns for the company. So we continue to see Brazil as a market, which provides Portugal Telecom with scale, provides Portugal Telecom with optionality and provides Portugal Telecom with a unique opportunity to bring to bear if you like the expertise that we have so that we can align that with Oi's potential in that – growth potential in that market to actually to do something unique and something that creates value for all shareholders in the future. With regard to dividends and the balance instructions so on, I think our CFO in Oi has provided the market with a number of answers in that regard, either in this conference call or in road show meetings that he's done recently. If I recall what he said, the dividend decision is a decision of the Board, and obviously, when it comes to Oi; Oi, is actually diligently doing an exercise to sell non-core assets. Now, of course selling non-core assets and the timing of that…

Thank you.

With regard to specific numbers, I will liaise with the Oi finance team, and we will see whether we can one of this next meetings road shows, we can provide you with something a lot more specific than we have done in the past. So leave that with me and we will come back to you. Thank you.

Thank you. Our next question is coming from Giles Thorne from Jefferies. Please proceed with your question.

Hi there, thanks for taking my questions. On the 3Ps all on the subject to quad-play and so if I bring together PTs first quarter fixed net adds resilient postpaid performance from Optimus and Vodafone that we’ve seen and a weak prepaid net adds, but strong postpaid net adds performance of PT. This sends me the strong message that the impact of M4O in the first quarter has really been limited to migrating existing mobile customers on to M4O. Is that a fair read, and if it is, can you give us a sense of what the average ARPU impact on those customers is? Your 10% number suggests that you are offsetting them, which feels remarkable [too] in the current economic environment. Second question is, as a follow-up to that it appears that adoption for M4O has accelerated into the second quarter with perhaps your acquisition of new customers beginning to come through. I'm referring here to the 40% of the 120 current M40 customers and used customers. Certainly if I look at Slide 21 this tells me that early existing adopters have probably trailed off while the new customers started to come in, again is that a fair read? Are those customers coming through as new – were they new mobile customers or new triple-play customers? And lastly we’ve seen ZON come to the market with a core play product. I'd be interested to hear your thoughts on that product. It seems to me that it's not price disruptive and so just certainly in the short-term a fairly rational competitive environment. I'd be interest to hear kind of how you see your product being better or worse? Thanks.

Okay, thank you. Let me see if I can provide you some additional data points that helpful. If you look at the first quarter, revenue generating units in the Portuguese market, let's take fixed revenue generating units. Portugal Telecom increased its RGUs by 38,400 and the market increased by 26,500. So, we actually added more RGUs in the fixed line than the market did and it's a pretty significant and different, okay. We're talking about almost 12,000 out of roughly 60,000. That's about 20% more. If you look at mobile net apps, we had positive 48.7 and the market saw a decline of 191,000. Now, the 48.7 is 99,000 positive postpaid and then of course, the negative on the prepaid and that's because, as you know it's the hangover from the Christmas campaign, which is the normal seasonal wash through in the first quarter. So, when you look at the overall net apps, in terms of revenue generating units, fixed and mobile, in Portugal, in the first quarter, the market was minus 164,600 and Portugal Telecom was positive 87,100. So, what this is really telling you is that we are gaining substantial market share, whether we're talking about mobile, whether we're talking about Pay-TV, broadband and when it comes to the landline, we've virtually eliminated landline loss, and if there is any loss some of that has to do with our own technological migrations to Voice over IP particularly for medium sized enterprises and large corporates as well. So, we are delighted with this performance. So, when we look at the trends in terms of net ads, we think that this is going in the right direction. Of course, when you think about mobile it's not just about M4O, it's also the fact that we have committed ourselves to drive…

Okay, can I just ask a follow-up please, and it's a bit more of a closed question. The new customers that you're generating, new PT customers you are generating from M4O, can you not give a split or a sense of weighting of how they're split by? Are they coming in as new mobile or new fixed?

Let me tell you this. You've already been able to get from me some additional numbers that I did not put in my presentation, so well done you, I wasn't going to give you that much info. But, let me tell you this. Clearly, the quick wins that we have are with those customers that have the MEO TV service at home and don't have our mobile service. So, for anyone that's hearing – that's on the phone here that has MEO at home and doesn't have my mobile service at home, you shouldn't miss the opportunity to buy our service, because it's very quick and it will give you significant savings, okay. So, that's why you are seeing an immediate impact in the number of postpaid cards and that's why we posted 99,000 new postpaid customers in mobile. So those are, if you like, the quick wins. Having said that, I have no doubt in my mind that those customers in Portugal that don't have our TV service and our mobile service or have our mobile service and don't our TV service, I think that once they've heard the announcement that we made today that we are giving people savings of 18% to 20%, I’m sure that they'll be calling our call center this evening to subscribe to the service. So, what I can tell you is that some of the comments that were made by the analysts that you are already beginning to see some impact in mobile, absolutely right. When it comes to SMEs though, you'll have seen in numbers as well, the impact is being felt more on the fixed side. So you are getting more mobile migration on the residential and you're getting more fixed migration in the SMEs. And I have already said too much. Thank you.

I appreciate the response. Thanks.

Thank you. Our next question is coming from Nuno Matias from Espirito Santo Investment Bank. Please proceed with your question.

Hi, good afternoon. I got all questions on M4O. Firstly, just to clarify but, can you give us an idea of do you allocate the revenues for M4O? Is it simple breakdown of fixed service are booked into the residential or the enterprise segment, and the mobile on the personal segment? Secondly, looking at your words, it seems as though that the quick wins are coming from the mobile side, and I would be inclined to say that that €0.10 based on ARPU that you are getting is basically coming from the mobile side? So, is it fair to think that especially on the second half of this year we're going to have a very substantial improvement on mobile service revenue trends on the back of this ARPU uplift that you are getting on the back of M4O? Thanks.

Thank you very much. I think, your first question, just – it's actually very timely, because we've been having internal discussions as to how we should be presenting our numbers to the market. And we believe that as we have already converged our technologies here and we are no longer thinking along the lines of fixed and mobile, and increasingly we're thinking about B2C and B2B. We think that going forward, it is worth analyzing increasingly how we are performing when it comes to B2C as opposed to residential and mobile. The reason I also say that is because you tend to compare us with peer group companies here in Portugal and they have both fixed and mobile. So when you compare sometimes our personal segment numbers with our peer group companies here, sometimes it's slightly misleading. So, there's work to be done in this area. So, I don't think it is – I frankly don't think it's worth us spending a lot of time discussing how we split those revenues. But you know that we have a price for triple-play in Portugal, which is €35 to €50, and therefore we are selling our triple-play for €8, €79.99. So, if you were to take a very simple cut at this, you'd probably allocate €50 to fixed and you would allocate €30 and of course, these are including VAT by the way, so you would allocate €30 to mobile. Now don't forget that we're selling the third and the fourth SIM cards at a marginal – at a much lower price. So, it's €7.5 for the third SIM card and €7.5 for the fourth SIM card, and if you are coming from our competitors, you are most welcome, and furthermore, you will also get an additional €5 discount in the third and the fourth SIM card. So very simple approach, if it's 5 RGUs it will be 50:30 including VAT. If it's more than 5 RGUs, then the bias will be towards mobile as opposed to fixed. Your second question was about, I think, it's early days to say how things will evolve. I think we've launched the service ahead of our competition. As I mentioned earlier, M4O it's a different customer experience, and we're very encouraged by the take-up. We are very grateful to our customers therefore to support, but I think at this stage it would be premature for me to say what the medium-term impact of M4O will be. So I think we should continue to talk to each other, and second, third quarter, hopefully things will have stabilized a bit more and then we will be able to give you a better guidance for the future. Thank you.

Thanks.

Thank you. We do have time for one more questions today, please hold. Our final question today is coming from Mandeep Singh from Redburn Partners. Please proceed with your question.

Thank you for taking the question. I'd like to bring the question to domestic EBITDA. I know there were some one-off factors you referred to, working days, weather and so on. But the decline was close to 12% year-over-year. My understanding of full year consensus for the domestic business has declined around 6% to 7%. Do you think you're going to see some sequential improvement over the rest of the year and the rate of decline and as such, are you comfortable with the full year consensus EBITDA for domestic?

It's Luis Pacheco answering. Yes, we still – well, given the performance that we've seen, also the one-off that we've seen on the first quarter, we're still confident with the consensus out there for the EBITDA.

Are you able to give us some understanding of what you think the domestic consensus is please?

It's around €1.1 billion.

Okay. Thank you very much.

Okay, thank you very much for being on this call. And as usual, my team and I are available to take any further questions that you may have off-line. I would like to thank my IR Director, Nuno Vieira, for the great presentation that he put on the site today. And like I said, we are very excited with the transformation of the business model we're doing in Portugal. We are equally very confident that Oi has a game plan that we will be able to make the turnaround successful in the future. And as I mentioned, Portugal Telecom has the optionality of being in a market, which gives us scale, but also ample growth opportunity in the future, and as Luis mentioned many times during his presentation, we maintain high level of prudence in the way that we manage our company financially. Thank you very much and I hope to see you soon. Take care, bye-bye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.