Greetings and welcome to the Portugal Telecom 2010 Full Year Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. Your host for today from Portugal Telecom are Mr. Zeinal Bava, Chief Executive Officer, and Luis Pacheco de Melo, Chief Financial Officer. Mr. Bava, you may now begin.

Okay. Thank you very much. Good afternoon, ladies and gentlemen. Thank you very much for being on this call. My team and I are here and we would like to take you through the fourth quarter full year results announcement of Portugal Telecom. In 2010, consolidated operating revenues amounted to EUR3,742 million, that’s up by 0.2% year-on-year. While EBITDA reached EUR1,492 million, down 4.2% year-on-year. Consolidated EBITDA margin stood at 39.9%. Net income amounted to EUR5,672 million. And basic earnings per share reached EUR648, impacted by the capital gain of the transaction which as you all recall in vow of the acquisition of PT’s investment in Brazil sell by Telefonica. In 2010, CapEx decreased by 5.9% year-on-year to EUR798 million equivalent to 21.3% of revenues, and was primarily directed to the investment in the rollout of new technologies and services namely our fiber to the home network (FTTH) and TV service, as well as two investments in 3G and 3.5G in mobile. In 2010, EBITDA minus CapEx reached EUR693, that’s a slight decrease year-on-year. However, in 4Q 2010, EBITDA minus CapEx was up 9.9% year-on-year. In 2010, operating cash flow stood at about EUR406 million. Our free cash flow was of course impacted by the Vivo transaction and reached EUR5,486 million in 2010. At the end of December 2010, our net debt amounted to EUR2.1 billion in euros. And reflecting of course the free cash flow we generated in 2010, but also the liability is recognized in connection with the transfer of the pension liabilities and associated pension funds of the Portuguese state. And of course, it is also what highlighting is that this number doesn’t reflects the investment that we will be making in Oi, know that it reflects the receivable of 2 billion which is still outstanding from…

Thank you, Zeinal. Good afternoon, ladies and gentlemen. I will focus my presentation on the assets and that items taken us through the most important operational EBITDA development. But before we get into that, let me just jump towards on our international assets. As Zeinal mentioned already, part of it despite some regulatory adverse conditions throughout the year in the international markets where we’re present, all our assets continue to perform pretty well. They continue to maintain a very strong market position, generate strong cash flows and very healthy returns. We saw better than expected fourth-quarter operational and financial results with demand and consumption picking up after a long period of severity period and strong impact from regulatory pressures. In Angola, Unitel continue to grow revenues at double digits in local currency. And the financial impact of the evaluation of the Kwanza in the fourth quarter was much lower than in the previous quarters. MTC in Namibia presented probably flat revenues and EBITDA despite the very strong MTR impact and other regulatory pressures over there. Nevertheless, the Namibian dollar performed pretty well. And therefore when translated into Euros we have revenues increasing by 19% and EBITDA around 18%. Timor also performed pretty well during 2010. On EBITDA, and I mentioned EBITDA for the quarter decreased by 4.6%, basically 5.3% in the wireline, 10% in the mobile, and other businesses it increased by 56% who are MTC, and Timor are the main contributor for that increase. Depreciation charges decreased by 7% in the quarter to almost 60 million, primarily explained by one-off that we did last year on IT and telecom equipment. Excluding that, actually depreciation increased slightly because we continue to invest in our fixed fund business in Portugal, and also all the impact of the translation after appreciation of…

Okay, thank you very much. Just very quickly to conclude by – just reminding you about our dividend, commitment and our dividend policy. We announced our dividend policy some time ago and I just would like to reinforce the message that we delivered to the market, $0.65 will be the dividend for fiscal year 2010, our ordinary dividend. And we will also pay an exceptional dividend of $0.65 in connection with the Vivo transaction. So we will pay for fiscal year 2010 an additional EUR1.30 on top of the $0.65, that we have EUR1 – sorry, that we paid in December. Furthermore, we also indicated to the market that we would like the $0.65 beyond 2011 fiscal year. So 2012 fiscal year and beyond to grow progressively. We remain confident that our company will continue to generate cash flow for us to be able to pay the dividends and pay this dividends out of the cash flow that we generate in Portugal, dividends that we get out of our international businesses. And from that standpoint, we believe that the consolidation of OE starting in 1st of April will certainly reinforce any numbers that you may be doing on in this regard. The point on the balance sheet structure, we think that in the current environment, having a conservative balance sheet structure is very important. It is not just a financial measure, but it also gives us strategic flexibility to take the right decision for our business thinking long term. So beyond one quarter or two quarters. Having said that, the discipline cause – financial and strategic discipline in our company remains at all-time high. So what I can tell you is that Portugal Telecom’s employees, the management team and Board is committed to deliver on all the promises we have made as we have done always in the past. So I will now of course, be very happy to take any questions you may have with Luis, and with my team here. Thank you.

Thank you. (Operator Instructions) Our first question comes from Georgios Ierodiaconou with Citi. Please state your question.

Yes. Good afternoon. Two questions please. The first one on working capital. Even before the special impact regarding the fourth quarter, there was a deterioration during the year because of market conditions. Is it possible to give us an update on whether the situation has deteriorated in 4Q and at least ‘11 versus the ton we saw earlier and perhaps give us some guidance on what to anticipate for this year and perhaps for next year, based on how things are progressing right now. My second question is on spectrum, there’s some articles which are suggesting the government wants to raise EUR200 million for the difficult dividend, is it perhaps, you comment on whether using that is reasonable, a number whether you had any discussions with the regulatory team on the structure of the auction? Thank you.

Okay. Luis will answer the working capital and I will answer the spectrum. Thank you.

Okay. As I explained the fourth-quarter working capital investment, actually the substantial part of it was a deliberate decision from our side to advance payments to some of our suppliers. So I would say that 90 million of that investment in the fourth quarter is the result of that. It is actually that we haven’t received a substantial amount from the communication foundation of 45 million. What we’re seeing on the payment terms by companies, I think we have not – they are not deteriorating, if anything on the parts related to the probably government and state owned entities might have slightly tougher time during this year than in the previous year. Whereas, but with the other segments, I think we have not seen any deterioration so far.

Thank you. With regards to long-term evaluation and spectrum auction, I think at this stage, it’s premature to go into a lot of details because as you know, right now, the digital television project is progressing, and some of that spectrum will be available as and when we migrate from analog to digital on the current offering of channel. Having said that, yes, there is spectrum on the 2.6 Gigahertz, and when is thinking about 800, 900 or 1.8, clearly that will be very much dependent on the switch off. With regard to comments in the press and values that are being attributed to spectrum, I think it’s a premature, I think one has to take into account into a number of factors when deciding on this, and one of them, which is very worrying is the irrational behavior around direct plans to aim that the used segment. In the industry have all learns in our lesson is very extensive lessons with 3G options. We all know exactly, what 3G meant in terms of ARPU enhancements and the returns we made on it. So therefore, as far as we’re concerned we clearly believe that the way forward is to launch long-term evolution soon or rather than later, why, because it will allow us to use spectrum more effectively, because it will allow us to reduce the space we occupy with our equipment, because it uses much less energy and energy consumption is becoming very important. And a critical cost item for all of us in the industry, because energy prices are going up. Usually such leaf example in the Portuguese market where there is a clear disconnect between what is a digital agenda on one hand and the cost of electricity on the other. So I think that all this…

Thank you.

Our next question comes from Jonathan (inaudible) with Barclays. Please take your question.

Hi.

Hi.

Hi.

Two questions ready. On the fixed line side, can you give an update on when you think, domestic free cash flow will begin to expand, I guess in the two parts. I guess the EBITDA go up and CapEx come down materially. And then the second, I guess question really relates to the fiber rollout. Are there any sort of plans, to try to speed out the number of customers taking the fiber to the home product?

Okay, thank you. When the – if you look at the sort of page 14 of our press release, you’ll see that a domestic – in our Portuguese businesses EBITDA minus CapEx 2010, 2009 was pretty much stable, EUR697.1 million in 2010 and EUR696.7 million in 2009. We – this year, the guidance that I think our IR has given to the market is for CapEx to be around EUR700 million. We – of course, the EUR700 million is also underpinned by what we believe may be the demand for TV services, because as I said earlier in my presentation about a third of our CapEx is client driven. And one of the – also things that we’re seeing in this market is that the fiber-to-the-home offer that we have is reducing the number of set-top boxes per customer. So as such, it is contributing for us to reduce some of the customer related CapEx. So the more, we also are in the process of, I would say, industrializing the approach on the refurbishment of set-top boxes and so we’ve to reduce the CapEx, we are making in those boxes on customers that are disconnected. So we believe that CapEx, once we have built the 1.6 million homes and we, at this stage have no intention to go beyond that. And we think that that will certainly mark the end of our FTTH rollout. We are likely to see CapEx come down. And therefore, I would expect 2012 and beyond, our CapEx to come down, I would say, significantly, as we will have done most of the investments that are required not just in fixed, but also in mobile. As I said earlier, in mobile, for 2011 guidance in the CapEx that we have provided you, we have included the…

Thank you. Our next question comes from Tim Boddy with Goldman Sachs. Please state your question.

Yes, two questions please. Question about the pending management change, and your involvement in that, and your influence on, your thoughts would be helpful. Secondly, you talked a lot about the determination about cutting cost. Could you just give us a little bit of more color on that, your domestic market what particular areas remain obviously, for a other long period of cost-cutting. So how do you continue to do that? Thank you.

Okay, thank you very much. As you can imagine for us as this stage, it is still a bit awkward to talk about only. We hope to become shareholders at the end of March, as I said and at that point, we hope that we can come back to you and explain as to what kind of financial impacts, the consolidation of Oi will have in our numbers. But also share with you openly about our views in relation to a number of other very important issues in connection with Oi. As we announced at the time – about three weeks ago, we will be consolidating 25.6% stake of it – with decision over strategic issues and that we would have an active role also in key telecom issues in the company. One of the disclosures that we made in our press release is that independent of anything we will always be – we will be participating in the board of various companies. We will also be involved in the various appointments that are important in the company. So from that standpoint, I would say that right now we are very excited about this potential partnership. We think that there is clearly a lot of work to be done and I think the partnership with Portugal Telecom and Oi will be mutually benefit – will be beneficial, will be mutually beneficial. Our shareholders tend to benefit from it and I’m sure all the shareholders will also benefit from it. As you can imagine not comfortable to go into a lot more detail at this stage about Oi, because we first have to become shareholders, which will happen end of March. Your point on cost by the way, sorry, we – first let me just caveat and say that we continue…

Okay, thanks. That make sense.

Thank you. Our next question comes from Mathieu Robilliard with BNP Paribas. Please state your question.

Good afternoon. A few questions please. First, in terms of the content costs, I think you mentioned during the presentation that you expect some economies of scale, in terms of content costs once you reach may be the one million mark. Maybe I’m wrong, but I didn’t mind that in the past you’re talking more about the 800,000 mark, so has anything changed there? Am I getting this – done this wrong. Second, with regards to M&A, and strategically Africa which has worked very well for you, are you continuing to look at opportunities? Is that still a region where you could make investments, given the fact that your balance sheet is pretty healthy. And finally, Luis, if you don’t mind, I didn’t get the changes in the assumptions with regards to the pensions physically, the new discount rates and then the change in the mortality table, so if you could repeat that, that would be very helpful. Thank you.

Okay, thank you. Let me perhaps start with the question on Africa. We are – as we’ve always indicated that we see ourselves as Telecom managers that would like to bring the expertise that we have in managing the assets where we believe it can create values. And the core geography is for us to Brazil and Africa. In Africa, we have made some investments in the past, namely in Portuguese speaking countries. Having said that, we are not hostages to Portuguese speaking countries. We will also invest in other markets where we see as these three things coming together. Political stability, regulatory predictability and growth potential. So, we are interested in looking at some opportunities in Africa, but we will always be rational about it. In fact, you know that our track record for most of last year hasn’t been great in investing in Africa, because we never actually were able – we were never able to get through the hurdle rates that we have for returns in – for investments in that region. With the Vivo transaction, we have additional financial flexibility, so we will continue to look at African properties, if it makes sense for us, and if we can invest in it to create shareholder value. So we are not emotional about it, we think it makes sense, we think we can create value, we can work with local partners very well than most others telcos. And if we find those opportunities we will invest in them. I was very recently visiting Namibia, where I’m absolutely delighted with the work that our local management team has done. When we invested in that property that company had 400,000 subs. Today it has 1.7 million subs. And it is one of the better performing property that we have…

Basically, before we were exposed to all the liabilities, discount rates on all amount of the liabilities of say 2.8 plus and now that’s still remains in our balance sheet and if you recall, and a 25 basis points at that time, we always highlighted but 25 basis points, would basically mean slightly above 100 million euros. Now with the reduction of the exposure and the 25 basis points is slightly less. Slightly lower. Substantially lower, sorry. Also on the mortality tables, every one-year normally costs us 100 million. Now any additional one-year will cost us as much as 15 million. But as you know, we are no longer exposed, except for the remaining – the small remaining amount that we still keep in our balance sheet on the compliment side of the pension, which today compliments (inaudible) 125 million euros.

Thank you. That’s very helpful. Just a follow-up on that. The change around the actual loss that is linked to the change in the discount rates and the change in the mortality tables, can you just remind –

Okay. Discount rate was 350 million, mortality table hundred million.

But in terms of the rate you use and –

It was 5.5% before and at the end 4.75%. So 35 basis points difference that led to the 50 million on the mortality tables depends on women and men basically was 86 here, it’s for women and 84 years for men. And they were increased by one year.

Thank you very much.

Thank you. Our next question comes from (inaudible) with Morgan Stanley. Please state your question.

Yes, hello. I would like to get your thoughts on whether they were expecting a similar level of (inaudible) wireline around 5% for the whole of 2011. And if possible, you could elaborate a bit on the level of EBITDA margin, and that’s what I am getting from the data and corporate segment relative to retail or maybe wireline average? I am just trying to figure out whether if this revenue pressure continues. What could be the impact on margins in 2011? And then two very quick questions. Sorry, if I miss something. But is there any tax credit related to the pension transfer may be to crystallizing the next year’s with the payment? And finally, what are your expectations for the dividends on Unitel? Thank you.

Okay, thank you. With regard to our wireline business, data incorporates of course have much lower margin contribution than residential. And for example, (inaudible) that matter. And particularly when you’re thinking about very large projects like the one that has had a direct impact in the reported numbers here, which was the school project, then the margin was even lower. Because it’s an extremely competitive process. And therefore, I would say that the future performance of our wireline business depends very much on how well we continue to do in retail, depends very much on whether days fighting power in this market. Now all the commands I made about fiber (inaudible) the fact that, some of these very high speed offers in Portugal being on the low-end of where we think prices should be. And therefore, I wouldn’t like to volunteer guidance for you, because we have not done that yet. But what I can say to you is that, when we think about margins, we’re comfortable with the kinds of margins we have been posting, which is in mobile plus 40%. And in the case of fixed line somewhere between 38, 39% which is more or less where we have been, albeit, as you saw in the fourth quarter of this year. We actually improved even somewhat compared to the previous quarters. The EBITDA trends have improved in our company sequentially. Again the future performance will depend on us being able to on one hand, continue to do well in retail and a one other being successful in terms of cost cutting. With regards to the tax credit any unit sales, I’ll ask Luis to answer that for you.

Okay. So the future payments that we’ll have to pay to regarding the pensions are fully tax-deductible. So the one billion that again to pay, apply it basically, 25% tax rate till the live time of tax credit of 250 million. With regards to the dividends, normally we receive form Angola between November, December of each year. As you know, last year and due to the oil price decreases and so. In the sense of (inaudible) Angola has had to intervene, in order to in the currency and imposed some restrictions, in terms of foreign exchange transactions. And therefore at the end of the year we have not received dividends from Angola, but I can tell you now, that we have been receiving over the course of these months now the some of the dividends and unto now we have almost received a slightly more than two-thirds of our dividends due by (inaudible). So at this stage, right now we have already received a more than $100 from the dividends of last year of unite.

Which usually we receive before the year-end, so we would have normally included that in the free cash flow statement for the fourth quarter. But because of the delays that Luis mentioned, actually it came in post 1st Jan. So you’ll certainly see that in the first quarter number that we announced for 2011. Thank you.

Thank you. Our next question comes from (inaudible). Please take your question.

Yeah, hi. Just on the real estate assets, I’ve got with assumptions, is there something new, or it was something exerted in the initial of (inaudible) with the state. I cannot remember exactly. And secondly, could you give some more color on the corporate revenue trends. If this is basically, because of pricing pressure or because the enterprise, which have close, or is there form companies, which are moving to competitors? Thanks.

So thank you. Let me start with the corporate. We’re not losing markets, okay. So especially, if you consider the corporate segment of our market, on the back of the investments that we have made in our network, which provides you with more capacity, which give you more capacity, more reliability, more security and innovation. So that’s why, in my presentation was presenting to you cloud computing offers that we are making partnership we have with Cisco and with Microsoft. So we are not losing market share, we actually in my view we have the potential to increase the share of wallet as we move away from legacy telecom to ICT. This is not a great year to be doing that, because clearly most corporate are very pricey, but so basically the performance has much more to do with the fact that we had this very large project, which Louis in the previous question. Ask in terms of margin contribution was much, much lower than other lines of business. And that project came to an end. And therefore you are likely to see the impact for this year. Or for that project, having come to an end, because it was a sizeable project. And as you know in this current environment there are no such big projects right now in the pipeline. So when it comes to corporate allow me to just put your mind to last year. We are keeping our position in the market, if anything we can enhance that by offering different types of services, which include IT business process outsourcing and so on, which will allow us to increase our addressable revenue market. But clearly it’s the segment for which is very price sensitive right now, and where we are likely to continue to see pressure…

On the – I think there was also a question on the real estate portion, which Zeinal mentioned and the tax credit is, as I mentioned in the previous question is around 250 million.

Thank you. Our final question comes from Roshan Ranjit with Nomura Securities. Please state your question.

Yeah. Hi there, good afternoon. Two questions please. Firstly, specifically on the pricing environment in the pay TV market, could you just provide a bit more deeper now? Are we like to see any further price increases through the (inaudible) product? And secondly, getting back to the marketing and promotion expenses. Expense have tailed off towards a, I think, you highlighted towards the end of the quarter, yet your net adds or DSL and pay TV subs was still quiet high. Is this trend which you’re expecting to see (inaudible) through the year? Thank you.

Okay. Thank you. With regards to pay TV pricing, to us – just highlighting that we have 30% share, so we are not market leaders here. So we will always follow the leadership of others. We try and provide the market with that kind of leadership when it comes to mobile, when it comes to fixed line, when it comes to broadband. We essentially try and ensure that our sector is generating the kinds of returns that are required, so that we can continue to invest for the long-term. If we are not able to generate those returns, then we will not to be able to invest for the long-term. And therefore it’s slightly a concern in those products where we are market leaders. We have been providing leadership. You saw us do that in mobile. You saw us do even in pay TV, albeit that they’re not leaders. We provided price leadership this year. And you’ve seen us do that in a number of other areas where we are de facto leaders of the market. In pay TV, we are not. So as far as we’re concerned, we would like to see fiber as a connection that is received by customers as having the best value, because customers want innovation and quality of service. So we will continue to differentiate ourselves in this market on the basis of the innovation, technology and services that we offer. We do not wish to compete of the prices. We never wish to compete on prices and as far as we are concerned, I think that the progress we have made in the rollout of new services is beginning to filter through the market. And that’s why we are able to manage marketing cost lower. Yet, we are still getting a very high…

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you all for your participation.