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Portugal Telecom (NYSE:PT)

Q4 2010 Earnings Call

February 24, 2011 11:00 AM ET

Executives

Zeinal Bava – CEO

Luis Pacheco de Melo – CFO

Analysts

Georgios Ierodiaconou – Citi

Jonathan (ph) – Barclays

Tim Boddy – Goldman Sachs

Mathieu Robilliard – BNP Paribas

Roshan Ranjit – Nomura

Operator

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.

Zeinal Bava

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 Telefonica.

With the announcement of the Oi transaction, PT’s exposure to high growth markets remains intact. And we – as a result of the Vivo transaction enjoy a very solid financial position.

Portugal Telecom, if you take into account Oi, on a pro forma basis would have about 55.5% contribution from international assets in terms of operating revenues. And about 48% in terms of EBITDA. We would also be accompanied with 84 million customers.

Allow me now to take you through some of – just highlights of the financials before Luis takes you through the financials in a lot more detail. And then focus on some of these strategic issues relating to our business.

In terms of domestic performance, our financial performance was impacted by intense competition in mobile, particularly in the youth segment. But Wireline recovery continues to be robust, and most importantly the cash flow that we generate in our domestic business continues to be stable. In Wireline, you will know that have seen that we have felt the pressure from the macro outlooks, particularly in the corporate segment of the business. But when it comes to the residential segment, we continue to do extremely well. The revenue performance in our Portuguese business was driven by solid execution, both in Wireline and of course Wireless, notwithstanding the very aggressive nature of competition that we are seeing, but also international businesses. EBITDA performance was of course impacted by the top line at TMN, but also the continued investment we have been making in customer growth in Wireline.

Once we have ended 2010, with over 830,000 pay-TV subscribers, we continue to believe that we need to strive to achieve leadership in this market, benefits for our company, and it will certainly be a meaning for us to increase shareholder value.

Let me focus on CapEx just very lightly. CapEx in terms that they haven’t driven by our Fibre-to-the-Home project and the male customer growth. However, two things, CapEx is being directed to new technologies Fibre-to-the-Home, 3G and 3.5 G and upgrade in our mobile network. Also what’s highlighting is that increasingly more and more of our CapEx is becoming variable, so customer-driven. In our view, these two things first, investment in feasible technologies and more variable CapEx will increase our financial flexibility and our strategic flexibility in the future.

With regards to our international businesses, we have seen solid revenue growth about 6.4%. If you were to do the analysis on a proportionate basis, our EBITDA was up only 1%. Just have to do also with the fact that we have seen some evaluation of currencies in some of the absence of the half, but also I would say regulatory pressure in some markets, where clearly we have a dominant position.

Let me now focus on some of the more strategic issues. We organized our company along business segments in 2000 – end of 2007, early 2008. We organized by business segments, residential, personal, SMEs, SOHOs and Corporate. And with regard to our international investments, we have – we used to have an exposure in Brazil and we also present in Africa in some selected markets and also in Asia, namely in Eskimo and in Macau.

With regards to our Portuguese business, our focus in the last three years has been to develop what we call the TV experience of the future. The good news is that we continue to do fairly well. In certainly three months, we have built a market share of 30% based on the public and available numbers. And based on that on the back of the service, which continues to distinguish ourselves in the market, is being the best TV service in Portugal. We have content, we have more than 120 channels, a number HD channels and a very successful video demand service. Content is available, but it’s very expensive and we continue to be penalized by the grip that our competitor has and a dominant position that he has in the control of what we call essential content namely football and cinema.

Notwithstanding that, we have the best offer in content. It’s costing us money at this stage, but we assured that once we achieved more than 1 million subs, we will be able to meet the benefits of scale and reduce those costs in the future. We have also invested significant amounts in taking advantage of the modern network that we have. For example, we have launched a number of personalized ridges, functionalities for total control with interactivity in a number of very popular channels. And also we have launched a multiscreen strategy, which is beginning to have a meaningful impact in terms of consumer perception and authorized daily. We now offer the on-demand on multiple screen mobile TV offer has more than 40 channels and soon we will also be announcing video streaming lots of channels also on your PC, so that particularly in our DTH clients they can have an increasingly more multi-type experience like the one you have with IPTV platform.

We continue to believe that innovation is the way that we need to progress our business in the future. We will not compete on prices, we do not compete on prices. Customers who will buy service know that they get better quality, that they get better service, that they get better customer care, and last but not the least, they have access to our network, which have speeds that start at 100 megabits per second and they are – with regard to fiber through the home.

The innovation that we have been driving in our TV offer is also reflected into two services that we made available in November and December this year. We launched a gaming on-demand service, which was a pioneer service in the world, and we also have launched mail, online music service, which offers a millions of tracks to our customer very similar to other experiences that you have on similar music services. We are providing the service free of charge for our high-value customers and for the customers we have a promotion, which is three months free and then people can subscribe to this millions and millions of track on-voice, on TV and on PC for token amount of three years or nine to nine and a half months.

The efforts we’ve been making to position mail as the best service is being recognized also by independent studies. In a recent studies, that was made public mail is clearly seen as the best service in the Portuguese market and a service that offers the best value. Our brand also has the highest maturity in Portugal and it has the best service attributes recognized by its customers, particularly in the youth segment.

In 33 months, our pay-TV service has achieved 30% market share. Of course, the repositioning that we have done of our offer from single, double play to triple play is also underpinning the performance of broadband, we continue to gain share in broadband. And it’s been 10 consecutive quarters we have gained market share, our market share today stands at about 48% in broadband. And we believe that half of that is of course, has to do with the repositioning that we’ve done from double play to triple play that’s why I always say that your best value in the Portuguese market you should be buying our mail service.

The transformation of our business model is also coming through when you think about fixed telephone lines. After seven years, the residential revenues of Portugal Telecom’s grew by 5.2% in the fourth quarter of 2010. After seven years, we have seen an increase in traffic generating volumes in our business. This basically confirms that the investments that we have made in the transformation of our business model underpinned by the state-of-the-art technology, namely fiber is beginning to generate the kinds of performance and hopefully in the future returns that we expect for our shareholders.

Fiber is becoming important for our customer base. Again, we offer fiber-to-the-home. So we take fiber into the homes of our customers and therefore we guaranty them speeds of at least 100 megabits per second. The goodness is that today fiber already represents 16% of our male customers. Our penetration in those areas where we have fiber is reaching 20%. We cover already about 1 million homes. And we have the intention of building an extra 600,000 homes. So that by the end of 2011 Portugal Telecom will have 1.6 million homes with fiber.

With regard to our business model and I think I’ve shared this with you in the past. And it was underpinned by how much of it cost for us to build the network. And as some of you know, we’ve been spending less than EUR200 per home past. It was also underpinned by our ability to reduce churn. The churn that we are seeing on an average fiber customer is actually 10 percentage points lower than your ADSL IPTV sort of copper customer. And when it comes to maintenance and repairs and customer care costs, we are also finding that a fiber customer has much lower cost of servicing.

When I think about my business model for fiber, one particular area where I think we could have made more progress has to do with the pricing. The pricing unfortunately in our view is very competitive at the moment, because we are in a very competitive market. So when I refer to the business plan of fiber, which we use to potentially proceed with this investment is – there is only one variable where I believe we could be doing better than we’ve done so far, which has to do with pricing. And we do hope that the price leadership Portugal Telecom has been providing in this market when it comes to pay TV and triple-play hopefully in the future will lead us to have a more rational market.

In Mobile, in 2006, we decided that wireless data was strategic and we also decided that in order for us to drive mobile Internet, we have to make smartphone more affordable in this market. So we actually today have one of the most comprehensive offers of smartphone from iPhones to Galaxies to Blackberries et cetera. We also have developed our own brand, smartphones to drive prices down. Today you can buy SAAPU and TMN branded smartphones at less than EUR150. Of course, the school program that we ran two was also very important to reduce the structural barriers that existed in this market to underpin broadband Internet penetration. PC prices have come down significantly from where they were three years ago. We also today, when it comes to wireless broadband offer speed of about 21.6 megabits per second. In addition, we complement that, we’ve three access to Portugal Telecom’s national Wi-Fi network.

TMN has been – in my view very successful in implementing an innovative smartphone and wireless data strategy. Our market share in smartphone distribution in Portugal, and our market share in Wirelesss data in Portugal is at a premium to our voice market share.

More recently, as I mentioned to you in the case of mail, we launched a music service, we’ve done that also in the case of TMN. Increasingly going forward, we will continue to focus on providing our customers convergent offers because we believe that mobility is core to all the services that we offer. And as far as we are concerned, technology is a means to achieve them and ultimately the end that we have a) is that we’re pursuing is to offer our customers best value, but also the best customer experience.

When deciding which smartphones to offer, and this has been a major cultural change at Portugal Telecom, we are listening to what our customers are saying. So not only we are focusing on reducing prices, but we’re also ensuring that whatever equipment we are making available addresses the needs of the Portuguese market. With regards to the cause for data traffic, we continue to promote aggressively different plans from unlimited plans, which of course have a failure with this policy to prepaid plans. In fact, recently, I will talk about this later. We’ve launched eight plan – a family of plans, which bundles together voice SMSs and Internet, which in our view is the right response for the massification of tribal plans, which are weighing on our financial performance in terms of top line.

The service offering is also being developed extensively at TMN leveraging on one hand, the experience we have with mail, but also on the other the experience that we have with software, which is in our Portugal Telecom’s portal and the leading portal in the Portuguese market.

Very briefly on the financials. Invoice increased popularity of tribal plans required a response by TMN. We had to respond. We had no option but to respond. The youth segment is a very important segment for us. But of course, the response led to the duration of revenue performance. You will know that have seen that our billing revenues are down. We’re not happy about that, but unfortunately this is the market that we are operating in and as far as we’re concerned we have to respond when compared with your behavior of other operators a number of view, is a the rationale but needs to be addressed so that we do not lose the leadership that’s for us is very important in the Portuguese market.

Having said that, we have maintained very high levels of cost in our company, not just in fixed also in mobile. You have seen that mobile OpEx is down almost 11% in the fourth quarter and margins have stabilized roughly the 43 to 44%.

Fully year margins are about 46% so as I told you and I’ve told you previously, our results to ensure that we continue to generate cash flow and had continued to have adequate margins in the sector is there. And we will to whatever it takes, we will do whatever it takes to adapt our cost structure to respond to aggressive competitive behavior in this market, if we had to do that in the future.

In our view, the tariff plans have to some extent, prices have gone up beginning of this year, which is good, but we think the value of proposition of the tariff plans still doesn’t address about we think users we want in the future. We think users in the future will want unlimited plan and they will want to have bundles of voice SMSs and Internet. For that reason, we launched very recently a unlimited plan of course, which way policy for the prepaid market. We think that it is the first of its kind in the world, it’s being very successful.

We’re seeing very good take-up and we’re also seeing enhancement. People are seeing in these plans, value for money and also in the comfort of not having to worry about having to deal with more than one supplier. And of course, no surprises in your bill at the end of the month. And in our view, if we can continue to push these plans in the future, we will certainly increase the loyalty of our customers. We don’t think these are the kinds of plans that will get us market share and have customers from our competitors. But we think these are the kinds of plans that will help us ARPU in the future and hopefully, reverse some of the trends that we’ve been seeing on the back of the tribal plans that have refer to earlier.

Couple of words on our networks. Recently the Portuguese regulator ran a study and in its study, they concluded that Portugal Telecom TMN had the best 3G network in the country. We cover 94% of the Portuguese population, we had the best download, upload speed and we have about 93% coverage of the national territory. That’s why we are concerned, network is not a commodity, and we will continue to invest in our network to differentiate our services and to position ourselves to what we think next way for services. It’s actually for the corporate customers. We think therefore through a combination – addition of the investments we’ve made in our mobile network and also in our fixed line network, we are very well-positioned to lead the offering of cloud computing services. We have recently signed a partnership with Cisco and Microsoft. We’re making Microsoft 365 available in Portugal and we believe that the structural competitive advantage Portugal Telecom has in offering these services will lead in us increasing our market share, but also our share of wallet in the future. Of course, in current macro environment, corporate customers, be it large corporate or SMEs are price sensitive, but we believe that the flexibility that cloud computing services will offer to them in terms of CapEx and OpEx will lead in significant pickup of these services in the future.

We will continue to leverage our technological know-how and infrastructure to move from what is legacy to ICT offers and from that standpoint allow me to share with you two – just two data points. First, when you think about our large corporate business, you will find that 30% of our large corporate business is – 30% of the revenues are being derived from IT services.

On the back, it’s also highlighting that we recently announced the construction of a sizeable data center in Portugal 12,000 square meters. We think that the investment in this data center will position us uniquely to serve large corporates and SMEs as well with cloud computing offers and needless to say that the partnerships we have with Cisco and Microsoft allow us also to think that in the future we will be able to sell storage capacity and processing capacity to international companies as well.

SME continues to be one of the very important customer segment that we have in Portugal. We continue to develop office box work station solutions, and a number of other solutions that are vertical. Having said that, in this current market, we think that price sensitivity is very high. But the positioning that we are making in terms of our offer will certainly lead in the future to similar transformation that we have already done in the pay TV market in Portugal.

Fiber is playing a key role in six, but it’s also going to play a key role in the modernization of our mobile network ahead of the LTE launch. As I told you earlier, 85% of mobile stations for TMN are already connected with fiber. We expect all of these BTSs, base stations to be connected with IT technology at the end of 2011. This will increase the reliability and the speed of our network. We are also proceeding at the moment with the modernization of all our 2G network so that we can be LTE ready sooner rather than later.

We – when it comes to, before I turned to Brazil. But when it comes to the Portuguese market, against the back drop of the macro environment, I also would just like to emphasize, that we at this company maintain cash and cost discipline at most priority. You will have seen no doubts, in our results announcement today that OpEx was down 5% in mobile – in fixed 11% in mobile. We think, there is still room for us to continue to cut cost. And we will adjust our cost structure as required in the future for us to mitigate any negative impact that we may see you in the top line.

Of course, me just to say, that the adjustable cost base, that we have to work with is much smaller it used to be a few years ago. Having said that, you will have to continue to work. The processes, we will have to do business across this re-engineering as required to basically reduce cost and maintain margins where they are.

Let me spend two minutes on Brazil. We expect to get the Oi transaction completed by the end of March. And therefore, we will start consolidating Oi from 1st of April. In the first quarter of this year, we did not consolidate any of our Brazilian assets. So from first of April we will consolidate. And is a fully integrated service provider in Brazil, operating under a single brand. With the transaction, with the VIVO transaction and the transaction, Brazilian alloys becoming a market for integrated players. And in our view, as one of the best, is not the best customer end-market franchise. We will be the strategic Telecoms partners of. We are very confident about our ability to work with our partners. To bring to back, Portugal Telecom’s expertise in order to ensure, that we can have attract the challenges that has ahead.

We also believe that by sharing best practices with, Portugal Telecom can also benefit from. Essentially if we are only thinking about fulfillment, so from that standpoint there are number of initiatives that, no doubt we will make available to the market as in one, so that you can track monitor the work we are doing with our partners in – we one sole objective, which is to create values are shareholders. Oi shareholders and Portugal Telecom shareholders.

With regards to Africa, this has been – I would say 2010, a very good operationally year for all our businesses in Africa. Leaving to one side of course, regulatory pressure, impression which we felt in one or two markets, because of our dominant position. Namibia has done extremely well, and Timor perhaps I would highlight the two markets that have done extremely well. We will continue to launch a number of promotions into 2011 so that we can boost the penetration and also usage. So we continue to believe that diversification of Portugal Telecom’s business and footprint allows you to actually have the comfort that we will continue to generate the cash flow that is required to continue to deliver on all our promises, and in particular, the dividend policy that we announced a few months ago.

Let me now hand you over to our CFO. Thank you.

Luis Pacheco de Melo

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 Namibian dollar into euros.

We also, as we mentioned in the last conference call, we also are depreciating our 2G at accelerated rates right now, as we are going to swap to 2G network. PRVs continued to decline due to the good performance of IT in 2009. That also, they’ve benefited from 31 million gains in the quarter. There was some thought of security law change that cap fund of the pensions above EUR5000 per months. And therefore, we had a benefit of EUR31 million in the quarter.

As such, our operating income increased by 27% in the quarter. With regards to net income in the quarter, it was 54.5 million versus 312 million in the last quarter of last year. The main decrease is explained, because this year we did, we took 135 million curtailment charge. Last year, we had the capital gain from maybe of 267 million, due to the disposal of levy. But some of these negative impacts were also partially offset by lower interest costs this quarter, because we received EUR4.5 billion from the acquisition of Vivo by Telefónica in September. And that money was in the bank earnings and interest.

CapEx, total CapEx in the quarter declined by 6.9% to 305 million. Wireline CapEx declined by 1% and domestic mobile by 33%. Total CapEx for the year at TMN was below 10% of revenues, and overall CapEx 618 million in our Portuguese business was around 21% of total Portuguese revenue. Although CapEx increased by 10% in the quarter, only a slight increase because of the 3G. The impact of the adoption 12 accounting rule, and also submarine cable in Santhome, which will be major enable for the region.

With regards to cash flow EBITDA minus CapEx increased by 9.9%. That’s basically operating cash flow was basically zero due to the working capital investment. The working capital investment in the quarter was more 90 million higher than in the last quarter of last year. And it’s basically because we were – we have high liquidity, so we took advantage of that and we anticipated some payments to other suppliers. We also benefited from some organist discounts that will materialize our EBIT during 2011. And last year, we received in the last quarter EUR120 million from the mobile communication foundations due to the east goal program. And this year we have received, in 2010, we didn’t receive any money. So we are still tending to restive more than EUR45 million from the mobile communication foundation.

Free cash flow in the quarter increased to additional 1 billion that we received from Telefonica, vis-à-vis 380 million that we received last year from the sale of (inaudible). On the financing front, net debts amounted to 2.1 billion, which is basically 1.3 billion increase from last quarter and is basically due to the extra narrate dividend that we paid of 896 million, the 1 billion we see from the transaction, which is minus. The acquisition of some realistic assets that were in the pension fund of 236 million. And the recognition of the payable to the state of funded pension liability that we transferred to the state. We recognize that is net debt, and we only pay to 100 million at the end of this year, and we still have three installments are to be paid, one at the end of 2011 of 450 million and another one of 454 million at the a and of 2012.

The average cost of our debt was down to 4.1% in the quarter versus 4.8 last year, and it’s basically because of the money that we received from Telefonica. We were able to get higher interest rates at and over cost of debt. And therefore, the average cost of our debts went down to 4.1%. We have seen that already in 2011. We issued a 600 million bond. And with that we have all our financing requirements covered until the end of 2012. The average maturity of our debt is – already assumed the payments for Vivo and the receivables from Telefonica is up to 8.4 years. Net debt to EBITDA is at 1.4 times, down from 2.5 times last year. And on the pro forma basis we told this net debt to EBITDA should be 2.1 times. With regards to the pension funds, the transaction that that we completed in December last year, basically, the present value of those liabilities were calculated by the independent actuarial companies, and they amounted to 2.8. The assets at the date of June 24 were 1.8, so it was 1 billion un funded, which as I said will be paid in three installments, one has already been paid of EUR500 million, two other are EUR450 million will be paid in 2011 and 2012.

The one billion unfunded resulting from the TVO is basically the same number as the one that we competed internally. And the increase from the third quarter is basically due to the decrease in the discount rates from 5.5% to 4.75% and also an increase in one year on the mortality tables. And so all that impact resulted basically in an increase for 450 million in the year. As a result of this transfer PT now is only responsible for certain pension compliments and healthcare benefits that had an profit of EUR472 million and they were almost truly funded.

We clearly believe that the transaction was beneficial to all the parties involved, and considerably reduces the future volatility in risk profile of the PT’s balance sheet. With regards to the MPGEO future salaries to pre-retired and suspended authorities it now stands at EUR924 million as a result of this 135 million curtailment charge on the fourth quarter.

So as a conclusion PT – it is our understanding that PT now has a lower geared balance sheet, with significantly lower risk profile. And it has no refinancing risk in the next two years has extended its maturities of its debt to 8.4 years. As one of the lowest cost effect in the industry and that’s almost eliminated in exposure to pension discount rates, mortality tables on capital market risks.

Let me now hand it over to Zeinal for his final remarks.

Zeinal Bava

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.

Question-and-Answer Session

Operator

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

Georgios Ierodiaconou – Citi

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.

Zeinal Bava

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

Luis Pacheco de Melo

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.

Zeinal Bava

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 needs to be taken into account when deciding whether spectrum is something, which is worth. How much is it worth. And how much are we prepared to pay for it. Then what we are prepared to pay for it depends very much on what kind of pricing model, we can implement in the market.

So, Portugal Telecom is investing in its infrastructure to be able to welcome out these soon or rather than later. We have significantly did stop our transport network, our backbone, which has fiber, 85% of all based station is now have fiber, 85% of our based station on the back haul will be all IP. So I think we are better positioned than most because of the finishes that exist on the investments you making fixed with mobile to welcome LTE. But of course, we will be looking at whatever terms and conditions as then when they announced. But always bearing in mind that we need to invest in this business to generate adequate returns for our shareholders.

And the rate at which our mobile market here all the way our competitors are behaving here remains to be seen whether there is an adequate returns we made. Thank you.

Georgios Ierodiaconou – Citi

Thank you.

Operator

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

Jonathan – Barclays

Hi.

Zeinal Bava

Hi.

Luis Pacheco de Melo

Hi.

Jonathan – Barclays

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?

Zeinal Bava

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 investments we need to do to take fiber to base stations and to have the backhauls, we (inaudible). The investments that we announce in our data center, the CapEx that we are likely to incur this year it could be about EUR10 million. That was not in our initial original plan. So that’s about 10 million of the 700 million that I referred to earlier. But again, we’ll try and manage during the course of this year, the CapEx to make sure that we are within the same ballpark. So I would expect CapEx beyond 2011 to come down significantly in the Portuguese market because most of the investments that we aim to do will have been to some extent completed. And most of the CapEx beyond 2011 will be definitely customer related.

With regards to the fiber, we are very happy with a 20% penetration we’re getting. As I mentioned, perhaps the only variable where – when we look back to our business plan that perhaps things are not where it should be – the ARPU that we are able to generate from fiber customers.

So penetration is there, churn is there, 10 percentage points lower, customer care, maintenance repair cost are lower. And that’s certainly a plus.

We never actually factored into our business plan potential real estate disposals. So that’s kind of icing on the cake. But at this stage, we are very happy at the rate at which people are buying the service. And therefore, our focus right now is to provide our customers with more innovative services. So they can actually see value for money in buying fiber. That’s why I refer to you to my presentation gaining on demand for you to have a proper gaming experience on demand. You need to have speed of at least 6 megabits per second.

And therefore, 3D is out there. You are beginning to see more and more content, be it movies and games that the 3D that actually to get a proper experience will require 10 to 20 megabits per second per connection. So I think that at this stage, we are fairly clearly happy with the take-up.

We still believe that the price that which we’re selling fiber is extremely unattractive for what is actually offering customers, and when I look at the share of Portugal Telecom, in terms of net ads, be it be broadband and television, we’re absolutely delighted. When you look at the broadband market, fourth-quarter, our share of net ads was roughly 70%.

When you look at a TV share of net ads, the Portugal Telecom in the fourth quarter, it was roughly 92%. So these are numbers that are very encouraging for us and we are very comfortable with. Thank you.

Operator

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

Tim Boddy – Goldman Sachs

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.

Zeinal Bava

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 to believe that the – in our business, we need to grow top line. Okay.

For us to be successful, we need to have growth, we need to of course have scale, we need to have balance sheet, structured solid, which is – and all these three things applied to Portugal Telecom. If you think of us as also a strategic shareholders of Oi, but we also need to maintain strong discipline, financial and cost. Now with regards to cost-cutting, I’d like to say that you get – you basically get it done. You don’t announce where you’re going to cut cost. So your point about where we can – that we can still cut cost? Yes, we can cut cost in March, doesn’t necessarily mean that we will be doing less marketing in terms of bad times, but maybe the way that we buy at time and also the way that we produce the movies and song and so forth. For example, maintenance and repairs. Clearly, I mentioned to you earlier that fiber is allowing us to reduce significantly the costs. So we may have to in some areas where we have more trouble – more troubled tickets in terms of network and customer force, we may want to migrate people more actively to fiber as opposed to copper. We also showed you one of the slides in our presentation that in those areas where you have heavy rains, typically the repairs in fiber is 81% lower than in corporate. So these are some of the things that I think we can continue to work on. We also intend to maintain very strict policy on wages and salaries. Increasingly Portugal Telecom needs to enumerate its work force based on results that we achieved individually, by team, but also results achieved by Portugal Telecom as company. So there are lots of different items. This quarter we surprise the market with 11% reduction in costs in mobile and 5% reduction in cost in fixed lines. I can tell you that tomorrow I’m getting together with my team and we’re going to develop ten more initiatives as to where we’re going to cut costs.

So this is an ongoing process that it doesn’t stop. The main message I want to leave with you is that we will be very competitive in the market, because we believe leadership is important, because it directs premium for our shareholders. Now if that is going to come at an expense we want to make sure that we cover that expense through cost-cutting. And we think that there is still room to be done, there is room for us to do that in our company, and we will continue to do that as we’ve done in the past.

Tim Boddy – Goldman Sachs

Okay, thanks. That make sense.

Operator

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

Mathieu Robilliard – BNP Paribas

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.

Zeinal Bava

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 in Africa, and it has made Namibia, one of the (inaudible) in the region in terms of the mobile usage and mobile penetration, while at the same time, I think we’re generating the kind of returns that we continue to think that are attractive.

So yes, we would look at opportunities as long as they meet our hurdle rates and as long as they meet those three criteria that I mentioned earlier. With regards to programming cost, and again, 850 is what I said is where we reach critical math with that. And what we are seeing is that the cost of programming per sub is actually beginning to come down in our company. We had expected that by now, certain regulatory changes would have happened in the Portuguese market in connection with the two very expensive contents – contracts that we have which is movies and sports. Unfortunately, and I’m of course very frustrated about this, we have not seen anything happened yet. Having said that, we are very confident that the competition authority Portugal, that is very diligent, that has one of the best team-technical teams that we know in the sorts of matters that they will come to terms of the fact that we need to establish a level playing field in content, so that we can continue to progress, our strategy and give Portuguese consumers an alternative towards an incumbent pay-TV operator using cable.

We’re not happy about the minimum requirements that are imposed on us, in sports and in movies. We think it’s unacceptable that our company with 30% market share is still paying minimums, but we trust that our competition authority will do what it takes. And we will work diligently with a very good teams that they have to make sure that content cost will not pose a barrier for us to do even better job in pay-TV in the future. Those minimum cost, those minimum subs are weighing on our P&L performance. For 2.5 years, we have waited for something to happen. I think it will happen and it will certainly reflect in the P&L performance of our company. With regards to the pension fund and Luis’s comment on mortality tables and discount rates, Lewis, can you please, just basically repeat what you said earlier about how we are no longer exposed to those risks?

Luis Pacheco de Melo

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.

Mathieu Robilliard – BNP Paribas

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 –

Luis Pacheco de Melo

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

Mathieu Robilliard – BNP Paribas

But in terms of the rate you use and –

Luis Pacheco de Melo

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.

Mathieu Robilliard – BNP Paribas

Thank you very much.

Operator

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

Unidentified Analyst

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.

Zeinal Bava

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.

Luis Pacheco de Melo

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.

Zeinal Bava

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.

Operator

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

Unidentified Analyst

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.

Zeinal Bava

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 also, with for example, bankruptcies of companies going up, that will as you can imagine have an impact. Essentially (inaudible) will also have an impact and this is why we have been extremely conservative in the way that we provide in our accounts for this potential issue that we could have in the future.

With regards to the pension fund. When we transfer the pension fund, the agreement with the state was that the state would receive cash or any bonds or treasury bills that were basically republic of Portugal. So any asset that did not live to that definition, we have to buy back. So we bought some assets back from the State as part of that agreement, it’s nothing new, it was part of the settlement that we had with the government. In our transaction, which we believe has significantly improved the quality of our balance sheet, the volatility around this (inaudible) that our CFO here mentioned earlier is something that we certainly take into account and if you are a bondholder and you’re on this call, you should certainly also take comfort from the fact that we are no longer exposed to such exogenous variables that can have an impact in our performance, because there’s slightly a concern, we’ve now translated that liability into a fixed number on our balance sheet which is about 1.4 billion, and which has also a tax benefit, which Luis will now take you through. Luis?

Luis Pacheco de Melo

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.

Operator

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

Roshan Ranjit – Nomura

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.

Zeinal Bava

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 share of net adds in Portugal. So with regard to marketing, we will not reduce the investments that we are doing in that time. I think especially in this challenging economic environment, we need to be out there talking to our customers and showing off our products. But we can be much smarter in the way that we produce our marketing materials, and so on so forth. And this is where we are going to drive some of those cost reductions. Furthermore, we also believe that we will be able to generate substantial synergies with Oi, by working together with Oi in research and development.

And for example, innovation and so on and so forth. So I think some of those benefits will come through our P&L hopefully already this year to the benefits of both PT, and Oi shareholders.

Thank you very much for being on this call. We appreciate very much. Of course, our IR, (inaudible) is more than happy to take any other questions that you may have offline, by e-mail, or by phone. We are very happy to be announcing this results to you. After seven years, we have seen tracking generating lines in our company grow. We are – we have seen residential revenues grow by more than 5%. We are seeing, of course, macro pressure in our corporate business and corporate – large corporate business and we are seeing irrational competition in mobile. Our answer to these challenges ahead will be to maintain very high level of discipline, financial strategic and operational. We wish to continue to have a performance that makes our shareholders proud and clearly ranks in the upper quartile in our sector.

That results is here, the commitment to do what it needs to deliver on shareholder value is also here. We’re very confident that the dividend policy that we have announced is very attractive in the contacts of the sector. That dividend yields is about 15% right now based on the exceptional and ordinary dividend that we will be paying in respect of financial year 2010. We’ve also announced that we would like to pay dividends, we would like to pay interests dividends. So will also have payments of dividends in respect of 2011, probably at the of letter part of 2011. So, notwithstanding the fact that it is challenging, notwithstanding the fact that it is very difficult at this stage for us to be able to give you proper guidance as we would like to. I would like to say that we will maintain a kind of discipline that you have seen Portugal Telecom have in the past. And as far as we’re concerned, we are here to deliver on all promises it made at the create shareholder value, and we hope that in the next results announcement, we will have completed old transaction and we will build to share with you in a lot more detail the future plans that we have with our partners (inaudible) relationship. Thank you very much and good afternoon to you all. Bye bye.

Operator

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

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