Presentation of Portugal Telecom CEO Zeinal Bava

Lisbon, 29 & 30 October 2012
THE INNOVATION IMPERATIVE

Zeinal Bava | Chief Executive Officer Portugal Telecom | Technology & Innovation Conference | 0
IMPORTANT NOTICE
This release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not statements of historical facts, and reflect goals of the company's management. The words "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "predicts, "projects" and "targets" and similar words are intended to identify these forward-looking statements, which necessarily involve known and unknown risks and uncertainties. Accordingly, the results of operations of the company to be achieved may be different from the company's current goals and the reader should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments.
Portugal Telecom | Technology & Innovation Conference | 1
AGENDA A SECTOR IN TRANSFORMATION

BUILDING THE NEXT GENERATION ORGANISATION
EXECUTING TO CREATE VALUE

CONSUMER AND BUSINESS TRENDS DRIVING NETWORK SCARCITY

CHANGING CONSUMER HABITS

DIGITALISATION MOBILITY VIRTUALISATION
DIGITALISATION
Growth of usage time 2007-2011
CONTENT AND ENTERTAINMENT GO DIGITAL

Online Offline
GAMES
+15% +3%
VIDEO
+31% +1%
MUSIC
+12% -14%
SOURCE: PwC
DIGITALISATION
US
ACROSS ALL USER TYPES

Media consumption time. Delta 2011-2012 Segments Share of population Physical Digital
Readers
6%
7%
-3%
TV Consumers Audiophiles Digital Tecnophiles Online communicators
94%
-12%
15%
SOURCE: iConsumer Emerging consumer behaviours and a changing of the guard, McKinsey & Company
DIGITALISATION
Europe
BUYERS GOING ONLINE

Researched online1 Percent
90 80 70 60 50 40 30 20 10 0 0 5
Furniture
2010
Digital battleground Still in store
Gone to digital
Electronics Video games DIY Books Footwear Health and beauty products Clothing DVD/Videos Household products Home dcor Office supplies Grocery
Computer HW/SW
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
Purchased online1 Percent

1 As a percentage of those who bought a product in the respective category in the last 6 months NOTE: Based on data from 8 European countries SOURCE: iConsumer 2010 RT1, RT2, RT7
DIGITALISATION
Europe
MORE BUYERS GOING ONLINE

Researched online1 Percent
90 80 70 60 50 40 30 20 10 0 0 5 10 15 20 25 30 35 40 45 50 55
Household products Grocery Furniture DIY Office supplies Footwear DVD/Videos Clothing
2010
2011
Digital battleground Still in store
Gone to digital
Electronics Computer HW/SW Video games Books
Home dcor Health and beauty products
60
65
70
75
80
85
Purchased online1 Percent

1 As a percentage of those who bought a product in the respective category in the last 6 months NOTE: Based on data from 8 European countries SOURCE: iConsumer 2010 RT1, RT2, RT7
MOBILITY
MULTI-TASKING IS BECOMING THE NORM

2016E. Networked devices per person
North America Western Europe Latin America Eastern Europe Asia-Pacific Middle East and Africa
1 China 2.2; India 1.5 SOURCE: Cisco
7.8 6.6 2.8 2.6 2.11 1.2
EVERYTHING IS GOING MOBILE

Time spent using devices Hours per day 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 2008
SOURCE: iConsumer US
MOBILITY
0% CAGR TV PC Mobile phone 26% CAGR
Share of time on mobile platform Percentage 14% 7% 10% 10% 10% 13% Other Watching Gaming Messaging Social Browsing Listening Voice
61%
47%
14%
33%
2010
31%
2011
22%
2012
2009
2010
2011
2012
2008
2009
CONSUMERS MOVING TO THE CLOUD

Personal cloud subscriptions World. Billion 1.5
VIRTUALISATION
1.0
2-3x
0.5
51
0 2012 2013 2014 2015 2016 2017
SOURCE: IHS iSuppli Research, October 2012
Cloud revenues Billion USD
BUSINESSES ALSO MOVING TO THE CLOUD

7x 76 Growth 2010-2015 15x Private Weight within public / private cloud SaaS PaaS 0-10% IaaS 90-100%
VIRTUALISATION
9x Corporate SME Private Public Public 2010

SOURCE: Cloud Computing Survey; IDC; Forrester; McKinsey SME
Public
30-40%
10-20%
40-50%
11
5x
2015E
CHANGING CONSUMER HABITS

DIGITALISATION MOBILITY VIRTUALISATION
DATA TSUNAMI
IP traffic Exabytes per month
HUGE TRAFFIC GROWTH BY CONSUMERS AND ENTERPRISES

Consumer 3.8x Total
26 60
DATA TSUNAMI
Enterprises 2.7x 9 2014E 12.8x 1.1 2014E
97
13
2011
2014E 20.7x
2016E 8.3
2011
2016E 2.5 2016E
Mobile data
0.4 2011
3.1 2014E
0.2 2016E 2011
SOURCE: Cisco VNI
IP traffic Exabytes per month
LARGELY DRIVEN BY MOBILE AND VIDEO

Data tsunami driven by mobile Total Fixed internet + managed IP + mobile data 3.5x 69 2014E 18.1x 4.2 2014E
110
DATA TSUNAMI
due to exponential growth of video 0.6 Other

48%
4.2
31%
10.8
29%
31
2011 Mobile data 0.6 2011

SOURCE: Cisco VNI
2016E Video 10.8 2016E 2011 52%
69%
71%
2014E
2016E
VIDEO REPRESENTS THE LARGEST TRAFFIC VOLUME

Peak of data traffic on PTs fixed network (IPTV customers) Peak of video data traffic on PTs mobile network
DATA TSUNAMI
IPTV 39x Video 14x
Internet
2008 2009 2010 2011 2012 Set12 2008 2009 2010 2011 2012 Set 12
NETWORK IS NOT A COMMODITY

SHIFTING VALUE CHAIN

Advertising Content creation Aggregation Connectivity / Transport Equipments Consumers
Facilitators (e.g., Payment, Authorisation)

Going into Pay-TV Consumers becoming content creators
Developing Apps
Traditional telcos
Launching own brand EOM Launching own brand EOM
Cable operators
Entering TV business Developing Apps Developing Apps
Equipment manufacturers
Search engines / internet players
Entering the mobile-phones / tablet business
Media players Apps developers

NETWORK SCARCITY DRIVING HIGHER MARGINS

EXAMPLE Components Mobile Device OEMs 2 Network Infra.1 Carriers Apps & mobile web players
Revenues 2011 $ bn 2007-2011 EBIT margin 2011 $ bn 2007-2011
180 34 7 66 7
28%
-6%
29%
5%
49%
9%
14%
15%
18% -14% N.a.
-0.2 pp
-0.3 pp
0.8 pp
1.1 pp
1 Growth figures taken from 2006-2011 due to a large one-time write-off in 2007 by Nokia Siemens Networks 2 Includes tablets SOURCE: iSuppli; Gartner; Strategy Analytics; IDC; Yankee Group; Bank of America; Veronis Suhler Stevenson,;Annual Reports
NETWORK INVESTMENT IS CRITICAL

European incumbents
Variation in broadband market share 2009-2011. Percentage points FTTx homes passed 2011. Percentage
37% 9% 74% 0% 3% 6% 13% 1%

Operator 1 Operator 2 Operator 3 Operator 4 Operator 5 Operator 6 -6 Operator 7 -6

SOURCE: Yankee Group; FTTH Council; Screen Digest
2 1 -1 -4 -5
INVESTMENT IN BANDWIDTH CAPACITY HAS LONGER LEAD-TIMES

Average rate of evolution of infrastructure capacity
Months needed to double capacity
STORAGE
(Nielsens law)
PROCESSING
(Moores law)
BANDWIDTH
(Kryders law)
12
18
20
SOURCE: Scientific American
AGENDA
A SECTOR IN TRANSFORMATION

UNLEASHING AND DELIVERING ON PTS TECHNOLOGICAL AND INNOVATION POTENTIAL

Network & Infrastructure
Rely on a unique set of engineering skills and a new level of infrastructure to create value as manager of bandwidth (scarcity)
Organisation
Develop an integrated customer-centric organisation
IT & Operations
Excel in customer experience through convergent and efficient operations, and enable superior service through an efficient IT function
Innovation
Reach global relevance through a balanced ecosystem of partnerships with leading industry players to maintain a technological edge
BUILDING A FUTURE PROOF NETWORK

State-of-the-art access network High capacity transport network National backbone IP/ MPLS Leading edge storage & processing Data centre network
NETWORK & INFRASTRUCTURE
Fibre (FTTH) 4G, 3G, 2G
Wi-Fi
FIBRE BRINGS VALUE TO ALL SEGMENTS

Residential
Advanced services through STB RF-overlay allows multiple TVs w/o STB Capex reduction on LTE migration through backhaul cost optimisation Widespread access to advanced connectivity solutions on fibre (specially for SMEs) Dissemination of public services through the internet (e.g., e-education, e-government, e-health)
Personal
Enterprise
Community
Higher and guaranteed speed Download and upload symmetry Lower latency
FIBRE BRINGS VALUE TO ALL SEGMENTS

Residential Personal Enterprise Community
1.6 MILLION
HOMES PASSED WITH FTTH
92%
MOBILE STATIONS CONNECTED WITH FIBRE
36% OF
ENTERPRISE CUSTOMERS PASSED WITH FIBRE (~90% OF REVENUES1)
40% OF
SCHOOLS CONNECTED WITH FIBRE
46%+
POPULATION COVERAGE
1 Estimate based on spending with PT ; excludes SoHo and considers that an enterprise is passed with fibre when at least one of its "sites/locations is passed
BUILDING A WORLD CLASS DATA CENTRE

Leading-edge infrastructure Superior value proposition
Certified Security management policies Fibre bandwidth with 99.99% services availability Solid technological partnerships IaaS PaaS
6th largest data centre in the world (75,500 m2) LEED Gold Certification 30 Pbytes capacity CaaS SaaS
CONVERGENT NETWORK PROVIDING THE BEST COVERAGE, BEST SPEEDS, HIGHEST RELIABILITY
Integrated management for
F-M network with unified network planning and operations, and common service platforms
Seamless service delivery

everywhere
Fibre transport network Storage and processing (data centre network)
Cross network optimisation WiFi off-load LTE residential coverage 2G / 3G / 4G traffic

optimisation
COST COMPETITIVE ALL-IP TECHNOLOGY

Support of differentiated
service levels and advanced traffic management (opportunity for optimisation of capacity investments)
ALL-IP NETWORK
Fibre transport network Storage and processing (data centre network)
More availability and

flexibility
Increased cost efficiency 100Gbps connections in the

transport network (LisbonOporto and international)

Organisation
IT & Operations
Innovation
ORGANISATION
CROSS FUNCTIONAL COLLABORATION TO DELIVER THE BEST CUSTOMER EXPERIENCE

B2C Residential Stores Customer Care Self-care Operations Marketing
Personal Product & Pricing Business Intelligence Sales Channels
B2B SMEs
Corporate
Product & Pricing Business Intelligence Sales Channels
Product & Pricing Business Intelligence Sales Channels Business Intelligence Sales Channels Integration of customer touch points
EMPLOYEES ASKED TO SUBMIT VIEWS ANNUALLY

Challenging backdrop Shared objectives and more engagement is leading to greater satisfaction Participation Percentage of employees Global Satisfaction Index Percentage
ORGANISATION
Strict cost discipline in

challenging economic context imposing policy of no salary increases for the past two years
81% 86% 55% 65%

+ 31 pp
73% 76% 69% 66%
+ 10 pp
New careers model,

promoting meritocracy (e.g., no tenure-based promotions)
Increased accountability with

variable compensation strictly linked to performance 2008 2009 2010 2011 2008 2009 2010 2011
SOURCE: DDL

Organisation
IT & Operations
Innovation
INTEGRATED VIEW OF CUSTOMER TOUCHPOINTS UNDERPINNED BY COMMON IT PLATFORM

Integration & convergence SALES CHANNELS Stores Convergent stores (PT Bluestore) Call Centres Integrated call centres, with merged FO/BO OPERATIONS Field St Force Integrated operations management IT Self-Care Unique self-care portal for all customers CRM Convergent CRM system ONE Efficiency & effectiveness
IT & OPERATIONS
Focus on sales effectiveness tools

and processes New incentive schemes for commercial staff systems Improved third party management and HR incentives programme with convergence of systems to increase flexibility and lower time-to-market
Real time tools and forecast
Multi-year transformation
IT & OPERATIONS
TECHNOLOGY, PROBLEM SOLVING SKILLS AND INTEGRATED APPROACH INCREASING EFFICIENCY

Integration & convergence SALES CHANNELS 30% of mobile sales in former fixed stores and 26% of fixed sales in former mobile stores 30% reduction in call centre redo rate in 2 years OPERATIONS Integrated St forces management of fixed and mobile field IT 12% penetration on PT client self-care portal Convergent CRM system for all PT customers
NOTE: Variations ending in 2011 or 2012 (annualised base d on 1H12)
Efficiency & effectiveness
15% reduction in call centre opex

in 3 years
30% decrease in fibre installation

time in 3 years 41% increase in technician productivity in 5 years
Convergence of systems for CRM,

collections, field force, self-care
13% IT cost reduction in 3 years

IT & OPERATIONS
MAKING IT EASIER FOR CUSTOMERS

2008 2010 - Launch of PT Cliente portal Manage data profile Contacts, accounts, users Stores Products and services Coverage, orders, manage products and services Invoices and payments 2nd invoice, detailed invoice, electronic and online invoice, direct debit, manage invoices and payments, account movements
+ Call Centre
IT & OPERATIONS
IMPROVING SATISFACTION ACROSS ALL CUSTOMER INTERACTION TOUCH POINTS

Average request handling time Days. Indexed First time resolution Percentage Satisfaction with call centre 1-10 scale Self-care operations Units. Indexed Satisfaction with store service Units. 1-10 scale
2010
1.0
65%
7.5
1.0
7.91
2012
0.6
75%
7.8
1.8
8.52
1 Data for 1Q11 2 Data for 3Q12
ACHIEVEMENT ELEVATES THE VISION

NON-EXHAUSTIVE Top Ranking Performers Awards
IT & OPERATIONS
2011 Gold Best Technology Innovation 2011 Silver Best Contact Centre Technology Innovation"
European Business Awards
2010 - One of the winners in Customer Focus 2010 One of 10 Country Representatives for Portugal
World Communication Awards
2011 Finalist Users Choice Awards
Global Business Excellence Awards

2012 Winner Outstanding Customer Service Initiative
APCC Award
2010 2nd Best Customer Relationship Centre Telecommunications 2010 3rd Best Customer Relationship Centre OutSourcing
Stevie Awards for Sales & Customer Service
2011 Finalist IVR or Web Service Solution 2011 Finalist Customer Service Department of the year IT & Telecommunications
World Awards Top Performers
2010 2nd Best contact centre 2010 3rd Best contact centre of professional support
Trofu Call Centre
2011 Winner Personalidade do ano 2010 Winner Espao Contact Centre
Human Capital Masters
2012- Finalist

Organisation
IT & Operations
Innovation
INNOVATION BELIEFS
MYTH
More seniority and experience translate into a greater ability to innovate Innovation is a topic for the R&D departments only Innovation should occur within the organisation Its impossible to learn how to innovate The sole purpose of innovation is to generate new products and services
INNOVATION
OUR BELIEFS
Employees with innovation skills can be found in all areas of an organisation: leverage the Wisdom of the Crowds One should work closely linked with the business units to incorporate the voice of customers An extensive network of partners brings new perspectives and access to complementary competences, both crucial in innovation Innovation should be fostered and benefits from a structured approach Innovation goes beyond products, focusing on all aspects of the business model (e.g., customer experience, operational efficiency)
CONTINUOUS REALLOCATION OF MINDSHARE, PEOPLE AND CAPITAL

Structured approach to innovation
PT project portfolio
University and R&D partners
INNOVATION
leveraging internal and external stakeholders
Medium
Risk
Planned factory Business development Incremental factory Continuous improvement
Business segments
All PT employees
Low
Short
Medium Term
Long
Innovation labs
Exploratory factory Disrupting projects
High
Technological partners
MORE PEOPLE INVOLVED IN THE INNOVATION DIRECTION SETTING

Mission Alignment of innovation strategy with major social and technological trends Promotion of a structured, time-framed approach to innovation Identification and development of cross-segment, structural opportunities Overview on innovation budget vs. defined priorities and delivery on results Planned Innovation Structured approach to innovation Identification of long-term, disruptive areas of innovation (R&D) Medium-term roadmap planning with business segments Exploratory Innovation
INNOVATION
Incremental Innovation
Market of ideas platform leveraging the wisdom of the crowd
EXPERIMENTATION AND LEARNING

Specialised internal development labs materialising innovative solutions
ONT adapted to PT FTTH strategy Internal app development unit, serving all segments with multi-platform apps Innovation subsidiary, serving PT and international clients developing software and network solutions Innovate social network on TV Multi-platform access to content WDM-PON to massify bandwidth above 2 Gbps
INNOVATION
Home networking
Designing innovative solutions for customers with home networking and DVD systems
Platforms
Managing the customer access platforms and services engineering
IMPROVING TIME-TO-MARKET AND SHARING RISKS AND REWARDS WITH PARTNERS

Relying on a large network of partners to develop TECHNOLOGICAL new products and solutions DEVICES NETWORK EQUIPMENT NATIONAL COMPANIES FIBRE SOLUTIONS R&D and UNIVERSITIES APPS & SERVICES PLATFORM
INNOVATION
AGENDA
A SECTOR IN TRANSFORMATION

MONETISATION IN EACH BUSINESS SEGMENT

Consumer Explore convergence to grow market share based on simplicity, convenience and value-for-money Residential Transformation leveraged on advanced Pay-TV and bundled offerings Personal Move to flat voice and continue to explore data opportunity Enterprise Increase penetration of IT/IS services (Cloud, Outsourcing and BPO) to increase share of wallet of ICT spending

Residential Consumer Explore convergence to grow market share based Transformation leveraged on and value-for-money on simplicity, convenience advanced Pay-TV and bundled Personal offerings
Move to flat voice and continue to explore data opportunity Enterprise Increase penetration of IT/IS services (Cloud, Outsourcing and BPO) to increase share of wallet of ICT spending
MEO IS RESHAPING THE TV EXPERIENCE

COMPLETE APP ECOSYSTEM Games, utilities, social networks, music INTERACTIVE FEATURES Access to on-demand TV-related content USER GENERATED CONTENT NON LINEARITY VOD, Pause and Restart TV Personal channels with private and public content
RESIDENTIAL
MULTI-SCREEN/OTT Music streaming and TV experience on multiplatform

MEO IS THE TV OF THE FUTURE

COMPLETE APP ECOSYSTEM More than 40 apps with 50% of client penetration and more than 2.5 M MEO Interativo visits per month INTERACTIVE FEATURES 65% of client penetration and interactive channels among the top 5 of channels share USER GENERATED CONTENT MEO Kanal with 25k channels and 20k hours
of contents with a total of
RESIDENTIAL
NON LINEARITY 75% of client penetration with 60 recording hours per client in a total of 50 million recordings per month
24 million views
MULTI-SCREEN/OTT
More than 80 thousand MEO Go! clients with 500 thousand accesses per month
EASE OF USE OF INTERACTIVITY AND APPS

Interactivity content
Partnerships with key content owners to develop interactive TV experience Partnerships
RESIDENTIAL
Apps on TV
Interactive applications for news, sports, music and many others
WINNING THE 3P MARKET WITH FIBRE

PTs 3P market share vs. largest competitor PTs Broadband market share Residential Net adds 1H2012. Thousands RGUs Total 46% 49% 51% 46% 40% TV Net adds 1H2012. Percentage DTH 12% ADSL 31% 2Q11 4Q11 2Q12 2Q08 2Q10 2Q12
RESIDENTIAL
3P
230
2P
1P
51%
157
-5
-68
57% Fibre
NOTE: A 3P client is defined as a subscriber of the three services (TV, Internet and voice) from the same operator SOURCE: ANACOM; Companies reports
DTH SERVICE IS NOW INTERACTIVE
RESIDENTIAL
8 HD CHANNELS DIGITAL RECORDING VIDEO-ON-DEMAND ACCESS TO INTERACTIVE APPS THROUGH ADSL CONNECTION MULTI-SCREEN TV (MEO GO)
IMPROVING CUSTOMER RETENTION

Residential Churn (IPTV Customers) Percentage Residential churn by type -8pp -4pp Total residential churn
RESIDENTIAL
2P
3P -5pp
ADSL
FTTH
1H10
1H12
CONTINUOUS PORTFOLIO OPTIMISATION

Split by bundle type Product family 1 Client life cycle NPV Discontinued products
Product 1 Product 2 Product 3 Product 4 Product 5 Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 Product 4 Product 2 Product 3 Product 1 Product 2
RESIDENTIAL
Split by high-end / low-end Product family 1

Product 1
Product family 2
Product family 2
Product 6
PT threshold of minimum value creation

Consumer Explore convergence to grow market share based Move to flatand voice and on simplicity, convenience value-for-money Residential Transformation leveraged on advanced Pay-TV and bundled offerings
Personal
continue to explore data opportunity
Enterprise Increase penetration of IT/IS services (Cloud, Outsourcing and BPO) to increase share of wallet of ICT spending
STRATEGY FOCUSED ON MOBILE DATA USAGE AND TIERED PRICING PLANS

DATA
SMARTPHONES DATA Promote smartphone penetration (and data consumption) through a competitive offer at affordable prices MOBILE BROADBAND Increase customer base through superior product quality (coverage) and convergent and innovative offerings addressing needs of digital consumer
PERSONAL
VOICE
Reinforce post-paid value

proposition
Exhaust on-net effect through

enhanced pre-paid
Segment-specific strategies
PERSONAL
SUPERIOR SMARTPHONE OFFERING

including exclusive own-branded models
Own brand smartphones to increase penetration and data usage
A broad smartphone offering based on consumer preferences

Broadest smartphone offer in Portugal 11 exclusive models in a portfolio of 42 smartphones representing the major mobile platforms Offering shaped by insights from primary market research on consumer preferences
Launch of the first mass

market smartphone (TMN Bluebelt) with price 50% below comparable equipments
Customised Android
features, targeted to the consumer preferences, at a competitive price
PERSONAL
iOS, ANDROID AND WINDOWS 8

Personal and professional OS philosophy
Convergence among equipments through a comprehensive experience across multiple devices (smartphones, tablets and PCs) Simplicity of usage with intuitive and friendly screen touch utilisation Compatibility with the low-power ARM platform allowing higher autonomies and more stylish formats
SMARTPHONES ARE DRIVING HIGHER DATA USAGE AND ARPU

Customers who kept a basic phone Customers who acquired a smartphone
PERSONAL
Usage
Delta ARPU 1Q11-1Q12. % -1.0%
Indexed ARPU 1Q12 1.0
Low traffic phone
4.6%
1.2
High traffic phone
4.0% + + Voice
5.8% Data
9.8% Voice Data
2.6
NOTE: Universe of customers that have maintained the same tariff plans between 1Q11 and 1Q12, based on purchasing behaviour during the 4Q11
MOBILE PHONE INTERNET USAGE DRIVES RETENTION

Churn on pre-paid customers1 August 2012 Customers without mobile internet
PERSONAL
Customers with mobile internet
-4 pp
1 Customer with tenure >12 months, based on 12 months ending August 2012
UNIQUE MOBILE BROADBAND OFFERING

Superior technological offering
3G and 4G up to 150Mbps (broadest 4G coverage in Portugal)
PERSONAL
Monthly traffic sharing
Same account for all data cards and screens Unlimited data traffic above 20/month
Mobile internet included with 3P offer
TIERED MOBILE BROADBAND OFFER

Pre-paid
Light 10 2 Mbps 720 MB2 N.a. 1 GB
PERSONAL
3G Post-paid
Soft Regular 5 Mbps 4 GB Plus 14.4 Mbps
4G Post-paid
Hiper 50 Mbps Unlimited Mega 150 Mbps
Speed Traffic Sharing Wi-Fi
1 Mbps 10 hours1
Simultaneous use in 2 devices (optional)
N.a. N.a. Add-on Add-on
Free and unlimited Free and unlimited for MEO customers Free and unlimited
1 Expires in 90 days 2 Expires in 24 days
GENERATING NEW SERVICE OFFERINGS AND REVENUES

Meo Go
Anywhere and any device TV
PERSONAL
NON - EXHAUSTIVE
Music Box
Unlimited music downloads
TMN Drive
Mobile GPS
TMN Wallet
Mobile Payments
Sapo Tempo
Weather updates for the whole country
Sapo Desporto
Live results and videos

Meo Go
PERSONAL
NON - EXHAUSTIVE
Music Box
Unlimited +58,000 users music downloads
TMN Drive
Mobile GPS
+200,000 mobile accesses/month

TMN Wallet
Mobile payments
+24,000 Sapo Tempo monthly subscribers Sapo Desporto

Weather updates for the whole +10,000 videos country
rented

Meo Go
PERSONAL
NON - EXHAUSTIVE
Music Box
TMN Drive
Mobile GPS
100,000 users
TMN Wallet
61.4% of users access by more than one platform (e.g., PC and Weather updates Live results and Mobile for the whole videos payments smartphone) +12 million songs available with +100 million of streamed tracks
Sapo Tempo
country
Sapo Desporto

300,000 active users, 60% ofBox which used Music Meo Go
Anywhere and during the last any device TV
PERSONAL
NON - EXHAUSTIVE
TMN Drive
Mobile GPS
month
~150,000 users from competitive MNOs # 1 downloaded app in Android markets during release
Sapo Tempo Sapo Desporto
TMN Wallet
Weather Mobile Average monthly usage of 4hupdates for the whole payments Average of 20 accesses country per month

Meo Go
PERSONAL
NON - EXHAUSTIVE
Music Box
Internal pilot that allows Mobile for mobile Unlimited GPS music downloads payment with 2,000 users Pilot usage: 50% QR Sapo Tempo 10% NFC Weather updates 40% for the whole SMS e USSD
country
TMN Drive
TMN Wallet
Mobile payments
Sapo Desporto
FLAT FEE BASED OFFER TO PROTECT CUSTOMER VALUE

Simple offer design with data included Price 100 On-net 500 MB 12.5 Tribe/group 100 MB Pre-paid Post paid
PERSONAL
Moche fence to youth All-net Included data Unlimited Upgraded design to youth (Moche sub-25):
25
Exclusive promotion and

website
Free SMS to all-net vs. on-net 150MB/month of free data vs.

no data
Discount of 5/month (-40%)
PERSONALISED TARIFF PLANS GAINING TRACTION AND SHARE

Flat rate plan subscribers Percentage of mobile subscribers from personal segment Variation 2009-2011 Percentage points Others +1 pp - 2 pp1 +6 pp +2 pp 21% 3% 11%1 12%1 13%1 0% 0% 4% 1% 2010 6% 2% 2011
PERSONAL
15% 2%
20% 2%
2009
1 Includes old tribal plans that may include customers older than 25 year old NOTE: Percentage of flat rates includes only plans with monthly payment
MIGRATIONS TO POST-PAID AND e IMPROVING ARPU AND REDUCING CHURN

Migration to post-paid ARPU Euro +18% Churn Percentage -20% LTV1 Percentage +47% ARPU Euro +6%
PERSONAL
Migration from pre-paid non-e" to "e"
2011
1 Life Time Value
2012
2011
2012
2011
2012
2011
2012
SHIFT OF REVENUE MIX TOWARDS DATA AND HIGHER VALUE VOICE PLANS
Shift to data Weight of data on Personal service revenues 32% Percentage 19% 23% Flat fees gaining share Weight of flat-fees on Personal revenues 30% Percentage 22%
PERSONAL
2Q08
2Q10
2Q12
2Q11
2Q12

Consumer Explore convergence to grow market share based Entreprise Consumer Explore convergence to grow market share based on simplicity, convenience and value-for-money
on simplicity, convenience and value-for-money Residential Residential Transformationleveraged leveraged on Transformation advanced Pay-TV and on advanced Pay-TV and bundled offerings bundled offerings Personal Personal to flat voice and Move to Move flat voice and to data explore data continuecontinue to explore opportunity opportunity Increase penetration of IT/IS services (Cloud, Outsourcing and BPO) to increase share of wallet of ICT spending
CONSUMER
LEADING POSITION IN CONSUMER SEGMENTS

Subscriber market share 2Q12. Percentage Fixed Others 6% 6% Operator 3 12% Operator 2 19% Operator 1 5% 5% 7% 33% Mobile Others Operator 2 Operator 1 1% 4% 28% 28% 45% Voice
12% 51%
13%
41%
58%
51%
37% Pay-TV
40% Broadband1
Voice
Broadband
1 Mobile broadband market share in number of users with dongle SOURCE: ANACOM; Companies reports
CONSUMER
4-PLAY DEMAND EXPECTED TO GROW

Consumer trends require convergent offers... MULTI-FUNCTIONAL DEVICES that are likely to be accelerated by sector dynamics LOWER BARRIERS TO CHANGE
Multi-access connectivity (3G / 4G /

Wi-Fi, Ethernet) Interaction with different types of content
Dilution of on-net effects due to

MTR removes barriers to adoption of F-M offerings Shift to all-net flat rate increases price comparability and risks price wars
MULTI-SCREEN APPS Increased media consumption in multiple screens Access to fixed content via mobile devices Consumers increasingly multi-tasking
LOWER TECHNOLOGICAL BARRIERS
Merge of VoIP / IM / Social

networks with traditional media IT convergence to offer seamless services
CONSUMER
STRONG INTEREST ON 4P OFFER

How do you rate an integrated 4P offer by a single brand? Percentage
81% are
56.4% interested in
4P offer
24.8% 8.7% Not interested 8.8% Little interest Interested Very interested
SOURCE: My Brand Estudo de mercado do Grupo PT, Novembro 2011 (N=1671)

Entreprise Consumer Explore convergence to grow market share based Increase penetration of IT/IS Increase penetration of on simplicity, convenience and value-for-money services (Cloud, Outsourcing IT/IS services (Cloud, Residential Personal and BPO) to and BPO) Outsourcing to increase share of Transformation leveraged Move to flat voice and increase share of wallet of wallet of ICT spending on advanced Pay-TV and continue to explore data ICT spending bundled offerings opportunity
Enterprise
FROM SILOS TO SERVICES THREE-TIER APPROACH TO B2B MARKET

Main enterprise needs per sub-segment
ENTERPRISE
Integrated+ Connected+ Residential+
Voice (F/M) Broadband
Multi-employee connectivity Mobility solutions for

itinerant employees Simple software solutions
Unified communications ICT services outsourcing Application integration M2M and specific IT/IS solutions Business process outsourcing
RESIDENTIAL+ OFFER FOR SOHO

Upgrade portfolio for Residential+ segment with dedicated services and increased QoS
ENTERPRISE
Residential+
Core services
Voice (fixed & mobile) Broadband (fixed & mobile) TV (fibre, ADSL, satellite) Bundle offers and access to connected+ segment offer
Equipment
Sales
Customer care
Advanced
network equipment
Dedicated sales Premium customer

force with customised support care with technical assistance for equipment and hardware
Specific services for Security and management

Non-core services services (IT assistance and clean access) Web services (instant web page) Access to connect+ segment offer (e.g., specific business applications, hosting and storage, communication and collaboration)
Replacement
equipment
Delivery of
equipment
Residential offer with improved SLAs
BUNDLED AND VERTICAL OFFERS FOR SMALL ENTERPRISES

Bundled offer Pay-per-employee Connectivity
Mobile and fixed voice and fixed BB
ENTERPRISE
Connected+
Vertical solutions
Equipments
PCs, Phones and cell-phones, routers and switches
Restaurants
Hotels
Cloud
Customised domains, 5 e-mail accounts, hosting site and optional software (Office 365)
Clinics
Retail
Sectorial solutions including sector-specific software, payments solutions and TV on top of OfficeBox
COMMUNICATIONS AND IT/IS SOLUTIONS FOR MEDIUM AND LARGE CORPORATES

Connectivity Voice & Data Enterprise Networks Security Computing Data Centre DC Outsourcing IaaS & web hosting Server virtualisation Applications SaaS & application outsourcing PaaS & hosted App MGMT
ENTERPRISE
Integrated+
Apps & Business Processes Processes Outsourcing and BPO
Outsourcing & Managed Services
Security solutions
Value Added Services Basic Services & Products Fixed, mobile & convergent solutions
Advanced M2M solutions WAN/LAN & internet connectivity
CLOUD WILL UNLOCK THE BUSINESS VALUE IN BIG DATA AND DRIVE EFFICIENCY
Strategy focused on private and public cloud, specially PaaS and IaaS SP Virtual Datacentre @Internet Public Cloud On Premises @VPN Private Cloud to crystallise the benefits for customers of consolidation, virtualisation and standardisation Partnerships Leverage on partners network of customers Recognised world class offer Expand to international markets
ENTERPRISE
Software as a Service
Sales Force Platform as a Service Infrastructure as a Service Specialised teams with industry expertise National coverage through commercial partnerships Consulting for cloud to minimise customer pain points
PRIVATE CLOUD NEEDED TO ENSURE FEASIBILITY OF SOLUTIONS

Services E-mail CRM ERP Supply chain Application development Analytics Economic evaluation Trust assessment Functional assessment
ENTERPRISE
Public cloud
Private cloud Legacy architecture

A SECURE CLOUD OFFER
ENTERPRISE
Comprehensive offering of web, apps, resources, and security solutions Full range of solutions available online, through self-provisioning portal
BUSINESSES ARE DEMANDING TECHNOLOGY CONVERGENCE AND IT TRANSFORMATION

REAL CORPORATE CUSTOMER EXAMPLES Town Hall customer Main service/ Products extension Cloud services including: virtual private server, mailing and SaaS SW licencing IT and database consolidation through a migration and consolidation plan, outsourcing mgmt, maintenance and monitoring services Security services Network services Hospital customer Cloud services including storage and servers, workstation and e-mail Network services MPLS integrated IP VPN and internet access expansion Centralisation of operations maintenance and management by PT Unified voice and communications Retail bank customer Sports enterprise customer Cloud services including virtualisation of apps and commercial/ transactional portal, data back-up and mailing services Security solutions including full security operation centre on PTs datacentre
ENTERPRISE
Cloud datacentre services including control of IT capacity with SLAs for demand resources Security solutions
Revenue uplift vs. core telecom services
+400%
+334%
+190%
+87%
NEW SERVICE MODELS AND NEW MARKETS ARE TRANSFORMING PTS BUSINESS
SMEs Weight of data revenues (non-voice) Percentage 25% 1H10 32% 1H12 Corporate
65% 70%
ENTERPRISE
1H10
1H12
Commercial effectiveness
Revenues from convergent clients Percentage 62% 1H10 66% 1H12
Revenues from value-added services1 Percentage 23% 15% 1H10 1H12
1 Outsourcing, Managed Services, IT/IS, BPO, Cloud
PROCESS TRANSFORMATION TO DRIVE EFFICIENCY, AGILITY AND GROWTH

Time reduction Average
Evolution since diagnosis End-to-end -6% Corporate Before After -28% SMEs Before After Current Target Current Target Current Target -27% Current Target -9% Target Pre-Decision -15% Post-Decision -17%
ENTERPRISE

Consumer Explore convergence to grow market share based on simplicity, convenience and value-for-money Residential Transformation leveraged on advanced Pay-TV and bundled offerings Personal Move to flat voice and continue to explore data opportunity Enterprise Increase penetration of IT/IS services (Cloud, Outsourcing and BPO) to increase share of wallet of ICT spending
TRANSFORMATION OF THE BUSINESS MODEL FROM VOICE TO DATA

DELIVERING ON RESULTS
Weight of data on revenues Percentage
51% 38% 29%
1.8x
2007
2009
2Q12
AGENDA
Presentation
Network and infrastructure Business to Consumer Business to Business Operations Innovation management Leading in brand management Wrap-up and Q&A
Speaker(s)
Pedro Falco, Jos Salas Pires Lus Nascimento, Vera Pinto Pereira, Celso Martinho, Joo Epifnio Joo Paulo Cabecinha Pedro Sardo, Jason Incio, Nuno Vieira Ana Dias Lus Avelar Zeinal Bava
Lisbon, 29 & 30 October 2012
THE INNOVATION IMPERATIVE

Zeinal Bava | Chief Executive Officer Portugal Telecom | Technology & Innovation Conference | 90

Presentation of Portugal Telecom CEO Zeinal Bava

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Lisbon, 29 & 30 October 2012

THE INNOVATION IMPERATIVE

Portugal Telecom | Technology & Innovation Conference | 1

AGENDA A SECTOR IN TRANSFORMATION

EXECUTING TO CREATE VALUE

CONSUMER AND BUSINESS TRENDS DRIVING NETWORK SCARCITY

CHANGING CONSUMER HABITS

Portugal Telecom | Technology & Innovation Conference | 4

Growth of usage time 2007-2011

CONTENT AND ENTERTAINMENT GO DIGITAL

Portugal Telecom | Technology & Innovation Conference | 5

ACROSS ALL USER TYPES

TV Consumers Audiophiles Digital Tecnophiles Online communicators

Portugal Telecom | Technology & Innovation Conference | 6

BUYERS GOING ONLINE

Digital battleground Still in store

Purchased online1 Percent

Portugal Telecom | Technology & Innovation Conference | 7

MORE BUYERS GOING ONLINE

Digital battleground Still in store

Home dcor Health and beauty products

Purchased online1 Percent

Portugal Telecom | Technology & Innovation Conference | 8

MULTI-TASKING IS BECOMING THE NORM

7.8 6.6 2.8 2.6 2.11 1.2

Portugal Telecom | Technology & Innovation Conference | 9

EVERYTHING IS GOING MOBILE

0% CAGR TV PC Mobile phone 26% CAGR

Portugal Telecom | Technology & Innovation Conference | 10

CONSUMERS MOVING TO THE CLOUD

SOURCE: IHS iSuppli Research, October 2012

Cloud revenues Billion USD

BUSINESSES ALSO MOVING TO THE CLOUD

9x Corporate SME Private Public Public 2010

CHANGING CONSUMER HABITS

IP traffic Exabytes per month

HUGE TRAFFIC GROWTH BY CONSUMERS AND ENTERPRISES

Enterprises 2.7x 9 2014E 12.8x 1.1 2014E

2016E 2.5 2016E

0.2 2016E 2011

SOURCE: Cisco VNI

Portugal Telecom | Technology & Innovation Conference | 14

IP traffic Exabytes per month

LARGELY DRIVEN BY MOBILE AND VIDEO

due to exponential growth of video 0.6 Other

2011 Mobile data 0.6 2011

2016E Video 10.8 2016E 2011 52%

Portugal Telecom | Technology & Innovation Conference | 15

VIDEO REPRESENTS THE LARGEST TRAFFIC VOLUME

IPTV 39x Video 14x

Portugal Telecom | Technology & Innovation Conference | 16

NETWORK IS NOT A COMMODITY

SHIFTING VALUE CHAIN

Facilitators (e.g., Payment, Authorisation)

Launching own brand EOM Launching own brand EOM

Search engines / internet players

Entering the mobile-phones / tablet business

Media players Apps developers

NETWORK SCARCITY DRIVING HIGHER MARGINS

Revenues 2011 $ bn 2007-2011 EBIT margin 2011 $ bn 2007-2011

18% -14% N.a.

Portugal Telecom | Technology & Innovation Conference | 19

NETWORK INVESTMENT IS CRITICAL

37% 9% 74% 0% 3% 6% 13% 1%