Greetings and welcome to the Portugal Telecom 2012 first nine months training update. (Operator Instructions). Representing Portugal Telecom today we have Zeinal Bava, CEO and Luis Pacheco de Melo, CFO. I will now turn the conference over to Bava. Please go ahead.

Okay. Thank you very much. Good afternoon ladies and gentlemen. Thank you very much for being on this call on behalf of my team and I. This is our trading update, it's not a complete release of financial statements because it takes to the consolidation of our Brazilian assets namely Oi and Contax. And therefore in all figures that we have presented here, we have not included any information on our Brazilian assets which we will be announcing the results later in this month. A complete set therefore of consolidated financial statements of Portugal Telecom for the first nine months of the year will be disclosed on the 30th November of 2012. In the nine months of 2012, our operating revenues amounted to EUR2321, EBITDA stood at 994 million. Our margin reached 42.8% and in particularly by the very strong margin performance of the Portuguese Telecom businesses, which posted a margin of 44.9%. Revenues in our Portuguese business stood at 682 million in the third quarter 2012. At the decline of 6.7% year-on-year. Having said that if you exclude the regulation effect, revenues in the Portuguese Telecom businesses would have declined by 5.4% year-on-year. In the third quarter of this year which compares with 5.5% in the second quarter of 2012 meaning that it was pretty stable performance not withstanding an adverse macro-environment. With regard to CapEx, the CapEx in the nine months amounted to 449 million, it's about 20% of slightly less than 20% of all revenues. While CapEx of our Portuguese businesses is stood at about 370 million down by 7.5% year-over-year reflecting as we have said in the past the fact that most of the modernization investments in our company are pretty much done. EBITDA minus CapEx reached 545 million. Our operating cash flow was about 416…

Thank you. Good afternoon ladies and gentlemen. After our CEOs comprehensive and our operation. Let me focus on the main financial highlights for the quarter. As our CEO mentioned this trading (inaudible) is not the complete release of the financial statements, it excludes the proportional consolidation of our Brazilian asset. On the revenues excluding the contribution of Brazil revenues were down by 5.4% with a strong performance of our full consolidated international assets. In the third quarter revenues in Portugal were down by 6.7% as a result of basically the adverse economic situation but also as a result of the regulatory context. Excluding the fact of the regulation and also including the roaming and regulation impacts on wholesale, revenues in Portugal would decline by 5.4% which is much better from the second quarter of this year. Within Portugal residential continued to pose a very solid growth with 4.1% as a result of a strong RGU performance and also as a result of the ARPU increase. On personal segment revenues were down 11.2% reflecting the decline the interconnection, revenues but also of course economic conditions and also the competitive environment in our market. However having said that however, the monthly recharges in October has improved vis-à-vis what we have seen in the third quarter. Enterprises revenues continue to show some improvement throughout the quarter as our CEO mentioned also as a result of the lagging of some of these big contracts that we have won over the course of the last six to nine months. On the wholesale another revenues which declined 11.6% basically reflect lower traffic revenues and the decline on the public pay phones and also on the 32% decline in our directories business which as you know we only have financial investment. Nevertheless it is an improved trend…

Okay, thank you Luis. Very quickly. So you sum up. With regard to the Portuguese business, what I would say that the we would expect trends to continue to improve in the corporate segment. As we said in the past, there was some lumpiness but I would say that with the broadening of the scope of services that we’re offering and also the increased efficiency at which we are beginning to install our new business customers, we believe that those trends are likely to improve. With regard to the residential, we remain very confident that we have the best triple play offer in the market. We are leaders at the moment in terms of triple play. We believe we can further increase our leadership in the future by differentiating our services on the back of more local content, on the back of more interactive services and the fact that we have fiber. In the case of the personal segment, we would expect performance to remain volatile, although recharge in October up here encouraging compared to at least September and we will remain a very competitive as I've said in the past because we believe that we are not going to lose and we think the right strategy is not to lose market share. Quite the contrary, we want to continue to make progress in the youth segment and we also would like to improve if you like the value proposition by investing more and more in convergence. So those of you that attended our technology day, remember the differences between bundling and convergence and we believe that with the investments that we have made in IT and with the fact that we have symmetrical technologies in fixed and mobile with FTTH in one hand and LT on the other which…

(Operator Instructions). Our first question comes from Paul Marsch with Berenberg Bank. Please go ahead.

I have a couple of questions. On content costs, in Q4 I think you’re launching several new TP channels. Do you think those direct costs can continue to fall into Q4 with those channels being launched and into 2012? That's the first question. Second question, on enterprise looking into Q4 in 2013, do you expect the improvement. Are you talking there about a slower pace of decline year-over-year or could that revenue stream possibly even stabilize with those new contracts and customers beginning to come on the stream and for the corporate contracts, so those are the kind of contracts that come with up front margin pressure with the profitability of lower the beginning and increases through the life of the contract or would they have a more even profitability profile? Thanks.

With regards to content costs, if you bear in mind that our Pay-TV customers have increased 22.9%. I would highlight the content costs year-to-date up about 2%. So you can see the kind of efficiency that we have been able to gain by surpassing the 800,000 – 850,000 mark that I referred to you a number of times when we were launching our Pay-TV service. So against that backdrop, the investments that we are making in some of these new channels will continue to be marginal because we believe we still have room to grow, our Pay-TV customer base. In our Technology Day, we showed you the segmentation of the market and there are at least 2 million customers out there that have Pay-TV and that are not customers of mail. And therefore we believe that the investments that we’re making in some of this local investment not only will be a driver of penetration and our market share but also we believe will help us reduce churn to even in a lower levels or lower record levels than what we have currently. With regards to the corporate customers I would say that initial challenge is to make it less negative than it has been. Our revenues have been declining 8%, 8 something percent in corporate. We would like to do certainly much, much better than that. Its early days to give you for example a clear view of what the potential of the cloud is or what the potential of for example consolidation of data centers or virtualization of platforms may mean for us next year. We are investing as you know significant amounts of especially management time and expertise of our company in developing those services. I hope that when we announce the full year results in March,…

Our next question comes from Robin Bienenstock with Sanford Bernstein. Please state your question.

I am just wondering you’ve talked a little bit about total telecom offers converging wireline and wireless and I am wondering, what you can do to avoid that creating incremental pricing pressure from Vodafone or anybody like that and how can you make those offers more attractive. And then secondly if you can just tell me whether you’re comfortable with your current level of leverage and whether you think you are in the right place or whether you think it would be more comfortable with a little bit less or more? Thanks.

Let me take the second question first. You saw that we have brought our debt down by 110 million already and you’ve heard Luis also explain to you that we have maturities which are I would say very comfortable. So whilst we will continue to work to increase our financial flexibility, right now we’re very comfortable with how our balance sheet is looking and if we can continue to deleverage, we will continue to do so. Having said that, we believe there are certain investments that we need to do because they are attractive, they generate the kind of value that we believe we should pursue, therefore as a result of those investments, so we will take them. But I would say that at the moment, with the kind of maturity we have and the costs that we have, we’re fairly happy and if we can, we will continue to deleverage. With regards to the convergence, we can offer as I mentioned a seamless experience fixed and mobile because we can offer you at home between 100 megabits per second and 400 megabits per second and we can offer 90% of the Portuguese population by year end with LTE with 100 to 150 megabits per second. So we can provide a unique agnostic, if you like, experience to our customers in terms of access and also services but if voice to data is relevant and we believe that we will be unique in this market when we do so. The reason we have not yet launched it is because we believe that we need to have all our IT systems in place so that we can actually deliver an experience that is seamless as opposed to bundles which you see in the sector happening elsewhere in Europe. So I think we will have a unique value proposition. As you know, convergence, there’s a lot to be said. There aren't that many examples of success in our sector. We believe it’s the right way to go about it because if you think about the personal segment and mobility, yes, it will be very important but yes, we also need to be able to derive a premium for that mobile and the way right now the competition is behaving, it is very difficult to justify that mobility premium and we hope that we can do that on the back of convergence and on the back of giving you the TV experience that you have at home also on the move anywhere at very attractive prices. Thank you.

Our next question comes from Jonathan Dann with Barclays Capital. Please state your question.

It was two questions historically provided an update on your level of comfort with consensus. Can you just remind me would we still expect CapEx in 2013 to sort of reduce and a while back when we had separate fixed and mobile EBITDA, there was the ambition to have stable EBITDA probably I guess by now. I know you don't have to disclose it now, but have we hit the point where legacy fixed line EBITDA would have been stable in most of the pressure is NCRs, price pressuring mobile or is the economy or if different factors happens?

With regards to CapEx, the consensus is about 550 million for 2012. As I said earlier, we are comfortable with that kind of CapEx level. If you look at what we have announced in the third quarter, I would say that is more or less where CapEx should be. As we also indicated in our Technology Day, we will continue to monetize our company but most of it is pretty much done so the focus will be mainly IT and on IT as we also said in our Technology Day, the biggest investment we need to make is in the CRM in mobile and then ultimately we have an investment to do in the billing system which frankly we don't think we will be doing in 2013. So I would expect that our CapEx for 2013 will be lower than the 550 off 2012. So it will be lower than the 550 of 2012. So the CapEx will come down compared to this year and we believe that it is also worth highlighting that one-third of our CapEx is customer driven CapEx and that customer driven CapEx is what we like to say good CapEx because it’s a CapEx that we incur and on the other side we have a customer that is actually subscribing a service from Portugal Telecom. So next year, yes, certainly less than 550. We will be probably below 500, I think very likely that we will be below 500 next year. With regard to the EBITDA of fixed mobile, yes we are not giving that kind of information because we also think it doesn’t make sense to think about it that way but you very rightly pointed out, most of the pressure that we are seeing is particularly on the mobile side of our business. 64% drop in mobile termination rates has a huge impact in EBITDA. Of course austerity measures have had an impact as well but I will repeat what I said earlier, I would add maybe a third aspect which is worth keeping at the back of your mind and its irrational behavior on the part of some competitors which frankly against this backdrop, will force us to reconsider CapEx plans because we need to generate returns for attractive for our shareholders. Thank you.

Our next question comes from Ivon Leal with BBVA. Please state your question.

Couple of questions, first one on, I don't know if you could tell us how are you pricing or you plan to price your LT products, as what you’re having today and you wish you’d expect some kind of impact on 2013 mobile revenues. And the second one, I don't know if you could share with us what is the amount of your yearly subsidy costs and if you have to consider to reduce that our eliminate that going forward?

With regard to mobile prices, frankly I would say that portions having most of the impacts in terms of the average revenue per user. I am leaving to one side interconnection revenues which were down substantially and that is something which is exogenous to our business but if you think about just customer revenues a lot of that impact has to do with the fact that there is a back book of customers that are migrating tariff plans. When you look at our average revenue, revenue per minute is coming down because usage continues to increase. Our minutes of usage were up about 6-7% and that has to do with the fact that people are getting more for the same or for less money than before. With regards to subsidization, couple of things, first, we subsidize mainly smartphones. We subsidize mainly when people are migrating from pre to postpaid because we believe that postpaid value proposition is an attractive one both for our customers and for ourselves. Postpaid customers not only use more mobile phones, but they also do a lot more data usage. So more data usage and as you can imagine churn is a very important driver of the customer lifetime value in our business. With regard to subscriber acquisition, and the tension costs, what I will say that when you look at across the board, Portugal Telecom, what you find is that we are significantly reducing our subscriber acquisition and tension costs. Subsidies are low in our market especially if you take the low end of the markets. The low end of the market in most cases doesn’t have subsidies. Subscriber acquisition and retention costs in our company were up about 5.5% but allow me to pull your attention to the fact that they stand at about 28.7 euros. Now this includes if you like subsidies, it includes marketing costs and it includes also commissions. And if you take into account the fact that the handset prices that are selling now are higher than if you like feature phones or very basic phones that we used to do two to three years, it’s been a significant reduction already. So we’re quite happy with the current business model that we have. We have no intention of changing it and when you look at other markets, what you see is that this is the kind of model that would seem to make customers more loyal to your brand and to your company for longer periods. So ultimately lower churn and this is what we think is important that we continue to reduce in our business. Thank you.

Our next question comes from (inaudible) with Macquarie. Please state your question.

Just a quick question please on the competitive intensity. You talked about a rational behavior in the youth segment but can you just describe what's going on competitive wise in some of the other segments such as the business and the more adult areas. And secondly, looking back over the course of September, you mentioned the recharge rates were low in that. Have you tried to identify or can you work out why for example September was poor, October was better. Is there anything you’ve been able to glean from that evidence just to see what the consumer is thinking? Thank you.

September was the month when a number of the initiatives in the new budget were being discussed in the market and as you can imagine, against that backdrop, business confidence levels and consumer confidence levels tend to have a direct impact. So once some of the details of the measures were made public and some of the details become more familiar to people, as you can imagine people started going back to what is their normal course of business. So I would say that October, we’re back to normal course of business and as a result, if you like the recharges have clearly been impacted by that. Again, I will also highlight that on the back of what we saw in September, we've also been doing more heavy promotion to promote usage especially of minutes and also internet and therefore that also has to do with the fact that we've had to do some more heavy promotions to get the usage also increasing because we believe that there is still significant room for us to increase usage and if you like ARPU in our market, because as we showed to you in the past and we shared with some of you, today when you think telecom services cant select in 1.5% of the household income in Portugal. Whereas if you look at the top five preferences of services in any household in Portugal you will find that telecoms is one of the top five. So we account for 20% of the preferences on average whilst we only command 1.2 to 1.5% of the household budget. So I believe that the efforts that Portugal Telecom has been making to broaden the services that we offer, not just of the residential segment, convergence on the other hand but also if you like…

Thank you. Our next question comes from James McKenzie with Fidentiis.

Just one quick question, in your press release you talk about a free cash flow which I presume is the domestic business plus dividends of 178 million in the first nine months of the year. How do I square that with a debt that has increased in the domestic business by 750 million euros? I would have expected the debt would have been more or less flat on that sort of basis.

(Inaudible) is the dividends of Portugal Telecom based. But you have to also bear in mind, normally all the other items are in terms of interest and also taxes and PRBs but basically interest and that is are eagerly waited on the first half of the year. so the increase in net debts on the domestic side in our case is base is basically due to the dividends that we paid and during the course of the year and the higher weight of these interest paid on the first half of the year. And just coming back in to your question, what we increased in terms of net debt, 2 million and so probably (inaudible) and myself can go through your numbers and see where your 750 million is coming from.

And would you have an estimate of debt for year end? Do you expect a significant reduction in debt in the fourth quarter?

Basically what we've seen in previous years is fairly that in the last quarter, the main components of debt reduction is normally working capital investment which is normally negative. But we should expect for this year is that we have these investment or realizing working capital probably around 100 million in this quarter.

Is the domestic working capital going to be significantly negative for the year, i.e. is there going to be a working capital absorptions here in Portugal.

Up until now we have invested in the domestic business 150 million more or less give it back with 100 reduction which should be at the end of the year end at around 50.

Our final question comes from Nuno Matias with Espirito Santo. Please state your question.

Two questions just. One, do you have any exception on when you might begin your buyback or is this something only for next year? And secondly, regarding also cash flow generation. Do you still have any expectations regarding the dividends coming from Mongolia? Is it something for Q4 that we should expect?

With regard to the buyback, as we indicated in our announcement of dividends that we would be looking to execute that over the next two years depending on market conditions and financial flexibility. So at this stage, I would say that our main focus is to ensure that we continue to honor the commitment that we've made on dividends that we’re very confident that we’ll be able to do which is the $0.325 that we have committed to. And with regard to the buyback we have, if you like the necessary mandates both from our board and from our shareholders meeting to execute that as and when we think it’s appropriate. So we will always keep that option and as we've indicated that, it’s something that we wish to pursue over the next three year period. Thank you.

I'll turn the conference back to management for closing remarks.

Thank you very much for being on this call and there are some questions debt that (inaudible) is more than happy to answer offline. So, please feel free to call him and once again on behalf of my team and I, thank you for being on this call and I also would very much like to thank every analyst and sales people, investors that came to our Technology Day and I also would like to say that you will find some of those materials also in our IR site. So please feel free to download them and if we can be helpful with any further information that could be of interest to you on the back of those presentations, then please feel free to call us at any time. For those of you that we’ll meet in Morgan Stanley, I hope to see you next week, if not, thank you very much and best wishes. Bye, bye.

This concludes this conference.