Good morning or good afternoon ladies and gentlemen, and welcome to the Portugal Telecom 2007 Third Quarter Results Conference Call, hosted by the Deputy CEO of Portugal Telecom, Mr. Zeinal Bava; and Mr. Luis Pacheco de Melo, Group CFO. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions]. I'd now like to turn the floor over to your host, Mr. Zeinal Bava. Thank you. Please go ahead.

Yes. Good afternoon, ladies and gentlemen. On behalf of the Portugal Telecom Board, thank you very much for attending this call. I am here with the Portugal Telecom finance team, our Chief Financial Officer, Luis Pacheco de Melo; our Chief Accounting Officer, Francisco Nunes; our IR Director, Nuno Prego; and a member of our accounting team as well Mr. Plumas Albino [ph]. Luis Pacheco and I will do a very brief presentation of the results, nine months results announcement and at the end of which we will of course be delighted to answer any questions that you may have. In the nine months of this year, our consolidated operating revenues amounted to €4.531 million. That's an increase of 5.7% year-on-year. EBITDA increased 11.8% to €1.726 million, equivalent to margin of 38.1%. The net income from operations increased 29.2% to over €900 million, more exactly €910 million. Net income for the period amounted to €670 million, an increase of 27.2% over the same period last year. Our operational cash flow, measured as EBITDA minus CapEx, increased 15.5% to €1.227 million. Our net debt at the end of September amounted to €4.3 billion and after-tax unfunded post-retirement benefit obligations totaled less than €1 billion, more exactly €917 million. Turning now to the operational highlights of each business, I will focus on the operating highlights and Luis Pacheco de Melo will take you through the financials. When it comes to fixed line division of Portugal Telecom, we saw a pickup in line loss in the third quarter and that is very much due to the fact that they are a lot more GSM-based fixed offers and of course wireless broadband has seen exponential growth in the last three to six months which is beginning to some extent cannibalize the potential addressable market of…

Thank you, Zeinal. Good afternoon ladies and gentlemen. Let me start by focusing on some financial highlights and then moving to net debt and some pension issues. Total revenues, as Zeinal mentioned, 5.7% up to €4.5 billion underpinned by strong growth at Vivo and also by TMN's good performance. On the wireline it was impacted negatively by the line loss that was not fully compensated by the growth that we saw from the data, corporate and the wholesale business. So total revenues on the wirelines were down 5.7%. On TMN, the good performance of 1.3% increase over nine months was underpinned by the continued customer growth, particularly, on the total space and wireless broadband. On Vivo performance, Vivo performance was impact positively by the strong customer growth and ARPU. Vivo revenues contribution to PT went up by 13.8%, but that includes the impact of the build and keep, if you exclude the build and keep impact then revenues would have grown by 5.1%. The consolidation of MTC, as you recall we acquired MTC in September 2006, also at positive contribution to direct revenue growth. Moving up on to EBITDA performance, total EBITDA was up by 11.8% we exclude the one-offs related to BRBs and Vivo provisions, EBITDA would have increased by 8.3%. On the wireline the performance was supported by the cost efficiency and was almost flat for the year, for the nine months since September. On TMN EBITDA increase underpinning by service growth and strict cost control and therefore EBITDA by 3.3% for the nine months and 4.5% for the quarter, bringing margins to 45.2% on the third quarter. On Vivo the growth was driven by the strong subscriber and acquisition, and IR commercial activity EBITDA was up 27.1% and 16.8% if we exclude the one-offs from last year.…

Okay. Thank you, Luis. Before I summarize this brief presentation, just one last comment on the shareholder remuneration, we are executing the buyback and we have already acquired and we have brought onto our books, balance sheet, 103 million shares equivalent to 9.13% of our share capital. And we have also, as you know, an FD swap of about 21 million shares which relates to a previous buyback program that we have done but if you look at the aggregate amount we have already invested €1.2 billion in our own stock that is equivalent to 11% for share capital. And cumulative in terms of number of shares 123.7 million shares at this stage. We are continuing to execute the buyback, abiding by the rules that the local SEC here has put upon us. Therefore, we are limited as to how many shares we can buy in the market on a daily basis, but we will continue to abide by those rules and continue to execute the buyback in the market whilst, of course, not ruling out, as we have not done in the past, any other mechanism that we may use in the future to consider ways in which we can accelerate the buyback. With regard to spin-off, we have successfully completed the spin-off on the 7th of November. And as you know, and you can certainly on the slides that we have put for you on our site, we continue to work on the basis at approximately 50% of PT's current market cap was expected to be returned to shareholders over the next three years. So, we will continue to deliver on all the promises that we have done in the past and we will continue to do that in a timely fashion. With regard to the conclusions of…

Thank you. [Operator Instructions]. Our first question comes from Mitchell Collett with Cazenove. Please state your question.

Hi. Mitch Collett from Cazenove here. Two questions, if I may. Firstly, now that you've successfully completed the spin-off of PTM, are you sensing a lightening of the regulation department, and are you planning any new deals or promotions to capitalize on your new position? And secondly, in the wireline business could you give us a feeling for what proportion of your retail line losses are going to cable operators and what portion are going to unbundlers and what portion is probably fixed to mobile substitution? Thanks.

Okay. Thank you. With regard to regulation, we believe that with the spin-off of PT multimedia, we are now in a very different market. The cable company of Portugal Telecom, as you know, has an extensive network, national network, that covers about 2.8 million homes. And those happen to be from a GDP per capita, the best homes in Portugal, and that's why they have something which is pretty unique, which is both cable and DTH. DTH where, basically, is offered in places it doesn't make financial sense to rollout cable, and therefore we believe that today Portugal has a unique position when it comes to Europe in terms of liberalization of the market, they are two alternative providers of services and therefore... and in particular, when it comes to PT Multimedia a competitor which has the scale and has the financial flexibility to, obviously, engage in a long term strategy in this market. We believe that the Portuguese regulator will take this into account in his decisions with regard to, particularly, the broadband provisions that we have in this market. We believe that it no longer makes sense to have a retail minus cap on all our prices both wholesale and retail. We believe that particularly in those areas where there is unbundler local loop there should be a lot more freedom for Portugal Telecom to offer bundled services, but also far more aggressive pricing in terms of broadband ADSL. We think that at the moment if you look at our overall market share in terms of ADSL we are at about 40%. If you were to look at our market share in areas where there is unbundler local loop, our market share is significantly lower than 40% and therefore we believe that there are grounds for the Portuguese…

Great. Thank you.

Our next question comes from Jesus Romero with Merrill Lynch. Please state your question.

Yes. [indiscernible] Merrill Lynch, London. I have got two questions, the first one, I don't know if you can give us any more detail on the TV strategy for next year regarding CapEx. You mentioned you have different options DTH, or you could be looking at other platforms, but could you give us a sense of how much money are we talking about in terms of CapEx? And then the second one on termination in Portugal, in the press release you include the proposal related to efforts made in Portugal to cut termination to €0.065 by the end of next year. This is a proposal, I think, you have 30 days to give your opinion. Can you comment on this and potentially quantify the impact for next year? Thank you.

Thank you, Jesus. With regard to CapEx; just to be absolutely clear, we think that bar for specific projects that we have at TMN which, for example, relate to this PC program for the schools and the pupils and teachers. The television strategy that we have at the fixed line or potentially rollout of fiber, the CapEx in Portugal is likely to remain pretty stable, so if we do engage in any of these three major projects we will come forward with what we think will be the CapEx, so that you know exactly the impact this will have in our numbers. So bar for these three projects we will, before, come into the market with specific guidance. We believe that CapEx next year is likely to stay very similar to what you have seen in the past which is roughly €200 million to €220 million both in our fixed and our mobile businesses. So, between the two businesses is roughly €400 million, €450 million. Okay. So that's just to be absolutely clear. So when we do engage in any of these specific projects, we hope to come and do a specific presentation to the market, and then we will take you through not just what we think is the top line impact but also a cash flow impact of any such decisions. With regard to the TV, clearly, we believe that the option that we have taken in terms of IPTV is one that long-term is the right option for our company. We, however, believe that in order for us to be able to scale the current MSTV option that we have we will require more time both in terms of investments that we need to do in the network but also in terms of the training that we…

Zeinal, if I can ask a follow-on question regarding Brazil, on termination rates in Brazil, they are fairly high. Do you expect any changes in the next couple of years, or do you have any comments on termination rates in Vivo?

In fact just... now that you've asked a follow-up question, let me just ask something else to the Portuguese market. Instantly you also, there is something very positive that I think we saw at the comment from the Portuguese regulator which related to the spectrum fees in the Portuguese market. As you know in the past, I've always said that what Portugal Telecom is paying in terms of spectrum fees was very high, not just in absolute numbers but in the way that that spectrum was being charged. We were paying roughly €5 on a per sub basis. And that is another kind of a asymmetry that exist which favors the smallest operator in this market and is detrimental to the largest operator in this market. Recently we saw comments coming out of the Portuguese regulator which says that the model that's being used to charge the spectrum needs to be changed, market it mature and the new model needs to incentivize efficient use of the spectrum which as you know is a public asset. And therefore, we believe that at last, we believe there is a possibility that TMN will end up paying spectrum fees inline with the best practice in Europe and inline with the model that's ultimately incentivize all of us to make the best use of what we is a public asset which is the frequencies. In Brazil, with regard to interconnection, difficult to comment. I think when one thinks about Brazil, one also needs to take into account that the mobile business is... the fact is very competitive, is a major driver of innovation in the Brazil, and investments in the Brazilian market, and the margins are well below where they should be considering the penetration that you've had, so ultimately, I think decisions on regulation also need to take into account the context. And when you think about Brazil, clearly one needs to take into account that notwithstanding the fact that penetration is now in the sort of 60% area, margins are still in the 24%, 25% or less, and that is something that needs to taken into account by the regulator. Thank you.

Thanks.

Our next question comes from David Ray with JP Morgan. Please state your question.

Hello. It's David from JP Morgan. A couple of questions please. First of all just on the fixed line business you mentioned IPTV a fairly soft launch. DTT, terrestrial... digital terrestrial, could take some time to resolve. It sounds like whilst you are considering the likes of DTH maybe there are no imminent plans. So, does that maybe provide a window, a 12 months window for PT Multimedia to push fairly hard against you guys, should we be expecting the fixed line operations to dip a little, maybe before recovering the current trend? That is question number one, please. And then, my second question is, you know you mentioned in your conference call stable domestic assets growth from international assets. I guess the ongoing question is that you do not or you're bleeding a lot of that growth away to minorities, both, in Brazil, both, in the African operations. So, what is the possibility to own more of that growth, deliver that to your bottom-line be that an acquisition of the remaining share of Vivo or maybe a sale of Vivo, and maybe bringing some of the associate African assets into the consolidated line of the P&L. What is the potential for that? Thanks.

Thank you, David. With regard to the TV offer, what I can say to you is that one of the reasons why we have decided to pursue a DTH launch is because we think that time to market is absolutely crucial, and you very rightly pointed out. If you look at DTT or if you look at IPTV it is likely that we will require maybe 12, maybe 18 months to reach, I would say, a critical mass. And therefore, when it comes to DTH, we think we will be able to launch that in the first half of next year. I would like to commit a specific date, we have already acquired transformer capacity. We are already in extensive negotiations with the content providers, needless to say that the Portugal Telecom fixed line business now has extensive understanding of the Portuguese television market, because clearly as you know the management team used to be the one that used to run the cable business. And therefore we think that by bring to bear this expertise we should be able to have a national offer based on DTH, sooner rather than later, and therefore I believe that in having that or by having that offer sooner rather than later we will be able to bring to bear this bundled... the bundled approach very, very quickly to the Portuguese market. And I continue to believe that we have a very important role to play in this market, because we have the distribution network, not just in the main cities of Portugal but nationwide, and I think this distribution network what we have is a significant competitive advantage of our company. With regard to the international assets that we have, we believe that in a lot of these markets, it does make sense for us to have local partners. And we have benefited from having local partners. So if you, and in some of those African markets where we are present there are some legal restrictions as to how much we can own. So time permitting, as an when we can beef up our positions in some of those assets, we will be eager to do that as long as, of course, the valuations makes sense, and as long as legally it is possible. So, we're not pulling out anything at this stage, but when it comes to Africa, like I indicated during my introduction, once we have 78% in Africatel, we are open always to discuss potential partnerships; always aiming to keep above 50% control. But we will always look at avenues in which we can quickly increase our footprint by entering other partnerships; and therefore, again, and I don't think this is a minor point. I think it's a major point. Having local partners alongside us has always been beneficial for us. And I think it's the way for us to grow in the future. Thank you.

And then, on Brazil, perhaps?

On Brazil, we have a very good working relationship with Telefónica. I think the performance of Vivo and the successes that Vivo has had, are also accredit not just the Vivo management team, but also to the Telefónica and Portugal teams that dedicate a lot of their time to assist the management of Vivo to rollout a lot of these projects. And what we are very focused on, is making sure that Vivo grows EBITDA, grows subscriber base and ultimately post a much better profitability going forward. We see, frankly, room for us to improve that profitability as and when we think the market stabilizes. And when penetration is getting to the level that it is, chances are that we may have room to improve profitability in the future. Thank you.

Thank you. Our next question comes from James Rivett with Citi. Please state your question.

Yeah. Good afternoon. I just wondered about guidance for 2007 and beyond. You effectively raised numbers for the second quarter, you said, if I remember correctly, there was a degree of caution in your estimates. How do you think that view has changed now that we are just two months from the end of the year? And sort of secondly following on, on the retail DSL business which actually saw a revenue decline year-on-year; is it the shapes of things to come. Is effectively broadband now gone escrow or should we expect for that to pick up going forward? And then finally, are you seeing any benefits at this stage of the consolidation of the market, effectively the two deals that Sun-ICON has done, should we expect for them to be in anyway, shape or form help? Thanks very much.

Thank you. I think we had a guidance of €2.1 billion to €2.2 billion EBITDA for '07. Clearly, when you look at our third quarter numbers, we feel quite confident that we will do better than €2.2 billion, we will certainly do better than €2.2 billion, we continue to see good trends in mobile, in the domestic market, and I think what we need to do at this stage is we will deliver on more than €2.2 billion, but we need to keep our options open and we need to keep the product drive, because we are going to enter a very important commercial season for us, which is the Christmas campaign, and we believe that we have to continue to grow our share of net adds, but also our share of revenues in this market, and translate some of that top-line growth in the future, we think, in much more leverage in terms of EBITDA performance. So, we are fairly confident that €2.2 billion, we will be better than that, and we believe that that gives us flexibility also to have some commercial activity in the fourth quarter across all our businesses, not just in Portugal but also outside Portugal. When it comes to the broadband, if you look at some of these initiatives that are ongoing in the Portuguese market: the PC initiatives that the government led on the back of the UMTS licenses that we had, where PCs are being given to students and teachers and people that are being trained in specific schools; we believe that the PC penetration in this market will increase exponentially over the next 12 to 24 months. We... TMN, for example, in the fixed line business have just recently launched an offer for the SME market which not only includes fixed…

Thank you

Ladies and gentlemen we have time for one more question. Our final question comes from James McKenzie with Fidelity [ph]. Please state your question.

Hi just a couple of quick question. Firstly, on the share buyback, you mentioned the 23 million shares that you had in place from the previous buyback program. When we look at the €2.1 million or billion, sorry, of euros to be bought back; you've spent about €1.05 million of that, is the remaining €1.05 billion to be targeted at the shares less the treasury stock of a €123.7 million. I... what I am trying to say is, is the share buyback of 2.1 billion excluding those 23 million share that were already been in your treasury stock? And then secondly on Vivo, just wondering if you got any update on the acquisition of Telemig and any feeling as to what this might do to your numbers next year?

Okay. Thank you, James. With regard to the buyback, just to be absolutely clear. The 23 million, the 21 million shares relate to a previous buyback programs. So it has, it is additional to the 2.1 billion that we announced at the time of the hostile offer from Sun-ICON, so what I was trying to be absolutely sure that we will understood is that we have 103 million shares on our books... shares that we will burn in the next Shareholders' Meeting, and if you look at the aggregate done at the moment, including this 21 million, it was the, sort of, 11 % that I mentioned. So, we have, at the moment, about a 1 billion outstanding shares. If you were to adjust for the treasury shares and the equity [ph] sold?

The equity.

So, we will continue to execute the buyback inline with the requirements that the local SEC puts upon us and we hope that we will, at the time of the next Shareholders' Meeting, have delivered on what we have promised. And at this stage I think the speed of execution of the buyback is also dependant on the volumes that we see in the market. So, the more volumes there are the more we can acquire. If not, we will have to consider other options and we are not ruling out any other option at this stage.

Okay. Do you think the share buyback will be done by the AGM next year? That's obviously... is that still your intention?

It is our intention and our resolve, yes.

Okay. Fantastic.

Luis may want to answer the Vivo question. Please Luis?

On the Telemig acquisition, it's still pending some issues regarding them. At this precise moment, we still don't know what's the likely timetable for the hands of this process.

Okay. Thank you very much, ladies and gentlemen on behalf of the Board of Portugal Telecom for being on this call. Nuno Prego, our IR Director, as usual, will be available to take any questions that you may have, either by phone or by e-mail. And as you know we will be starting a roadshow tomorrow. We will be at a conference... at the conference of Morgan Stanley, and then we are undertaking a roadshow in Europe, also UK, but also the US. And of course, Nuno Prego is available should you want to see us in any one of these venues that we will be at. So, thank you very much for being available, and I look forward to seeing you over the next few weeks. Thank you.

Thank you. Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.