Financial: Portugal Telecom Reports Audited First Half Results To June 30, 1998

Financial: Portugal Telecom Reports Audited First Half Results To June 30, 1998 – Company Financial Information

Portugal Telecom (NYSE: PT; BVL: PTCO.IN), the Portuguese telecommunications company, Thursday announced its first half results to June 30, 1998.

o Consolidated Net Income for the six months amounted to PTE 40.8 billion ($221.0 million(1)), up from PTE 33.2 billion in 1H97(a)), a rise of 22.8% HoH(b)).

o The major contributors (before equity consolidation) were Portugal Telecom the parent company (PTE 28.5 billion, or +14.0%) and TMN (PTE 9.4 billion, or +64.8%).

o Earnings per share (and ADS(2)) increased from PTE 175 to PTE 215, and return on sales reached 14.9% in the first half of 1998, up from 12.9% in 1H97.

o Cash Flow from Operating Activities totaled PTE 110.1 billion ($596.4 million), up from PTE 85.4 billion in 1H97, a rise of 29.0% HoH.

o Consolidated operating revenues for the six months totaled PTE 273 billion ($1,478.9 million(1)) compared with PTE 257 billion in the same period in 1997.

o At June 30, 1998 fixed lines(c) in service totaled 4,048,000(d) compared with 3,908,000 at the end of the first half of 1997, a rise of 3.6% HoH, corresponding to a penetration of 40.6 lines per 100 inhabitants, up from 39.3 in 1H97.

o Public payphones totaled 38,700 at the end of the first half of 1998, up from 35,700 in 1H97, a rise of 8.2% HoH, corresponding to one public payphone per 258 inhabitants.

o Call volumes (in minutes) originated in fixed telephony grew by 5.4% HoH, being 5.2% for inland and 12.4% for international calls. Incoming international calls grew by 12.3% HoH.

o At June 30, 1998 leased lines in service totaled 41,800, a rise of 13.0% HoH, despite the opening of the market competition as of January 1998; 29% of the lines were digital (20% in 1H97).

o Cellular customers grew by 240,000 in the period. At June 30, 1998 TMN had 1,002,000 cellular customers compared to 432,000 at the end of the first half of 1997, a rise of 132% HoH, corresponding to a 50.5% market share. Cellular traffic grew by 127% HoH.

o At June 30, 1998 the number of lines (fixed and cellular) in service per employee reached 279, up from 232 at the end of the first half of 1997, corresponding to 18,120 employees, down from 18,681 on June 30, 1997.

o In cable television business, the number of homes connected grew by 115,000 in the period. At June 30, 1998 the total number of homes connected was 486,000 compared with 242,000 from a year ago, a rise of 101%, corresponding to a penetration rate of 32%, up from 21% in 1H97.

o Total investment in fixed and intangible assets and financial investments totaled PTE 167 billion ($905.1 million), of which PTE 40 billion in fixed telephony, 18 billion in mobile services, 5 billion in cable television and 101 billion in financial investments, namely internationally.

(1) US dollar equivalents are provided for reader convenience at June 30, 1998 noon buying rate of $1=PTE 184.60; (2) Each ADS represents one ordinary share; a) 1H97 = the first half of 1997;

b) HoH = first half of 1998 over first half of 1997; c) Does not include leased lines and data accesses;

d) 32,000 lines in service were disconnected from the customer data base. Without this dilution, the increase would have been 4.4%

MANAGEMENT REMARKS “Last May we announced strong 1998 first quarter results and 1998 first half results reflect the same positive trend for our company, despite the increase in domestic competition.

We are particularly pleased with the ongoing development of our competitiveness. With the new Pricing system in fixed telephone services in place since February 1, 1998, our focus is to make tariffs more cost-related and more competitive, recognizing that proper perception of the price changes can help to boost usage. Though we have significantly reduced prices, many consumers and media have, in the first half of 1998, so far failed to recognize this. Thus, we have launched a well focused marketing campaign to increase usage by building awareness of the price reduction.

We are very pleased with our efforts on customer retention. We have been developing “tailor made” solutions for our major customers and they keep on with us. They currently may represent a slight dilution on revenues but we are building up their confidence on us. We have been refining our offering for small and medium companies as well as for residential customers. All of these initiatives will pay off in the future. Our major competitor in cellular remains as our client, despite by law it is allowed to build its own circuit network itself, or take it from third parties. The third cellular operator, expected to be in service this Autumn, is also leasing circuits from us.

Further mobile network investment is being undertaken, to further improve the quality of service and stimulate traffic in order to strengthen TMN’s leadership in this exciting business, in which Portugal compares favorably to most of the European countries. TMN has been launching more and more services and products creating value for customers.

In the “Internet” business we have reduced our prices to among the lowest in Europe. We are confident that this appropriately timed decision will boost usage considerably.

In cable television we have significantly increased our penetration. As soon as the legislation permitted, we moved with partners into pay TV, and recently we began to offer DTH on the Portuguese mainland. This will increasingly contribute to revenues. The broad set of strategic alliances we established last year and strengthened in March 1998 is paying off. We are building significant capabilities through them, both domestically and in international markets, including the opportunities provided by the Telebr s privatization.

Our top priority remains reinforcement of our strong leading position in all telecommunications and multimedia services in Portugal. Recently, we launched a new cost control program as well as a new system of performance-linked compensation for our managers. Similarly, at our last annual Shareholders’ Meeting a stock option program, an innovation for PT, was approved for our senior managers. In the international arena, we selected S. Paulo, in Brazil, the most attractive market in all Latin America, as a quite unique opportunity for future growth, as Portugal becomes a mature and fully liberalized market. We are minimizing the impact of our Brazilian investments on results in the short term, in order to generate earnings and pay steadily increasing dividends for our shareholders, at the same time as we are enhancing our business base”.

Portugal Telecom, privatized in 1995, is the principal telecommunications provider offering local, domestic long distance and international telephone service throughout Portugal. Additionally, PT and its subsidiaries, the Group, offer domestic mobile services, leased lines, data communications, Internet access and related services, cable television, transmission of broadcasting signals, telex and a variety of other telecommunication services. A secondary offering occurred in June 1996, and a third offering took place in October 1997. Portugal Telecom is listed on the Lisbon and New York Stock Exchanges and traded on London SEAQ International. Information may be accessed on Bloomberg under the symbol PT, on the Reuters 2000 Service under the symbol PT.N and on Quotron under the symbol PT.




JUNE 30, 1998 AND 1997

(Amounts stated in millions of Portuguese Escudos – PTE and millions

of U.S.Dollars, $, except for(1))

Six Month Period Ended June 30

1998 1997

$m PTEm % PTEm

Consolidated Operating

Revenues, of 1,478.9 273,004 100.0 257,018


Services rendered 1,347.1 248,682 91.1 234,768

Sales of merchandise and

products 67.1 12,384 4.5 10,563

Telephone directories 64.7 11,938 4.4 11,687

Operating Costs and

Expenses, of 1,101.6 203,358 74.5 189,925


Wages and salaries 272.2 50,255 18.4 49,347

Post retirement benefits 76.5 14,130 5.2 17,471

Costs of telecommunications 83.1 15,348 5.6 14,972

Depreciation and amortization 308.6 56,961 20.9 56,300

Subsidies (1.4) (253) (0.1) (422)

Subsidies for fixed assets (20.8) (3,848) (1.4) (3,014)

Maintenance and repairs 34.0 6,284 2.3 3,373

Own work capitalized (42.5) (7,846) (2.9) (9,418)

Raw materials and consumables 40.6 7,498 2.7 7,391

Costs of products sold 63.9 11,791 4.3 10,062

Telephone directories 42.2 7,789 2.9 7,559

Marketing and publicity 35.3 6,518 2.4 4,470

Concession rent 11.0 2,028 0.7 2,067

Other general and

administrative 175.6 32,425 11.9 24,498

Provision for doubtful

receivables, 21.1 3,890 1.4 5,468

inventories and other

Other net operating income (13.8) (2,555) (0.9) (2,849)

Taxes other than income taxes 15.9 2,943 1.1 2,649

Operating Income 377.3 69,646 25.5 67,092

Other Expenses (Income)

Interest and related expenses 47.1 8,697 3.2 11,877

Interest and related income (23.3) (4,301) (1.6) (3,717)

Losses on sales and

disposals of 13.1 2,424 0.9 1,406

fixed assets, net

Equity in earnings of

affiliated (8.3) (1,534) (0.6) (1,088)


Other non-operating

income, net (1.3) 240 0.1 (253)

Income Before Income Tax 347.3 64,120 23.5 58,868

Provision for Income Taxes (124.8) (23,031) (8.4) (25,517)

Consolidated Net Income

Before 222.6 41,089 15.0 33,351

Minority Interests

Loss/(Income) applicable to (1.6) (298) 0.1 (142)

minority interests

Consolidated Net Income

for the 221.0 40,791 14.9 33,209


Earnings per Share and ADS

for the 1.16 215 – 175


NOTES ON TABLE 1 RESULTS Earnings per share (and ADS) for the six months ended June 30, 1998 at PTE 215, based on a consolidated net income of PTE 40.8 billion, represents an increase of 22.8% on the corresponding period of the previous year, reflecting a number of factors:

an increase in operating income, despite exceptional influences on consolidated operating revenues, as described; the decrease in net financial charges, despite the increase in indebtedness, as a result of the reduction in interest rates; the decrease in provision for income taxes as a result of: i) the reduction in Portugal’s Corporate Income Tax rate by 2 percentage points HoH; ii) the reduction of curtailment costs related to early retirements; iii) the tax deductibility of previous years curtailment costs related to early retirement, over the average period remaining prior to normal retirement (five years).

REVENUES Group revenue for the six months ended June 30, 1998 totaled PTE 273 billion ($1,478.9 million) up from PTE 257 billion in 1H97. All operating revenue sources – services rendered, sales of merchandise and products, telephone directories – increased over 1H97. The main drivers of this growth were revenues from mobile services and cable television. The decrease in revenues from fixed telephone services results from the significant effect of price cuts estimated at PTE 9 billion, despite the increases in the number of subscribers and in call volumes. The revenues from international operations in this half do not include our subsidiary Guine Telecom, which contributed PTE 723 million in 1H97.

Six Month Period Ended June 30

1998 1997


Revenues 273,004 100.0 257,018

Fixed telephone services, of 169,753 62.2 177,471


— Domestic 131,266 48.1 134,112

— International 38,487 14.1 43,359

Mobile Services 40,926 15.0 26,228

Leased Lines 9,992 3.7 8,987

Data Communications and Related 7,119 2.6 6,441


Cable Television 7,733 2.8 4,113

Supplementary Activities 29,971 10.9 26,942

International Operations 7,510 2.8 6,836

Operating revenues from telephone services decreased by 4.3% to PTE 169.8 billion ($919.6 million) or 62.2% of the consolidated total. According to Company estimates, domestic telephone services accounted for PTE 131.3 billion or 48.1% of total operating revenues, while international services accounted for PTE 38.5 billion or 14.1% of the total.

The increase in the number of lines (an average increase of 4.5%, in comparison with 1H97) and the call volume increases in minutes originated in fixed network (estimated at 5.4% HoH, being 5.2% for inland and 12.4% for international calls) were offset by the price reductions.

Since June 30, 1997, the total number of fixed lines in service (excluding leased lines and data accesses), grew by 3.6% to 4,048,000 lines at June 30, 1998. Last quarter 32,000 lines in service were disconnected based on customer data; without this dilution, the increase would have been 4.4%.

The number of public payphones reached 38,700 at the end of the first half of 1998, an 8.2% increase in comparison with 1H97, representing one public payphone per 258 inhabitants.

The Company continued to modernize its telephone network. The digitalization rate in local switching reached 91% by the end of the period as compared to 82% as June 1997.

Several factors contributed to the a higher level of usage: the impact of the increasing number of services and added functions available for customers, the impact through elasticity of price cuts, the substitution effects from the mobile network and closed user groups, and the offering of private corporate solutions, on the basis of our leased lines, promoted by Portugal Telecom to improve its competitive position in this market segment.

The initial reaction of consumers to the new pricing system was negative, as expected, but has been improving thanks to current information campaigns. We expect that increasing awareness of the price reduction will stimulate usage, as planned.

The structure of fixed telephony traffic will continue to reflect the growing impact of Internet traffic and traffic to mobile operators. Internet traffic, in minutes, already amounts to almost 7% of the total. Moreover, traffic to mobile operators represents already 20% of the gross traffic billing, based on the fixed network. The pricing convention framework and consumption profile changes emphasized the average price decreases. The fixed telephony service price basket, in the first half of 1998 (compared to the same period in 1997), is expected to show a reduction of almost 5.7%.

Fixed charges have in the meantime registered a 7.2% average increase. We estimate that the weighted price of the domestic traffic decreased by 8.4%, that the international call prices had a 13.4% decrease and that the economic package impact may have accounted for -1.5%.

Internet usage has also been encouraged. Our Internet tariffs are generally considered to be among the lowest in Europe.

We have been reinforcing our strong position on providing infrastructures, in which our pricing policy has been determining. Our interconnection pricing strategy has aimed at heading off possible alternative infrastructures in newly liberalized services, and at discouraging creation of own networks by mobile operators. In the first half of 1998, national and international interconnection prices have decreased 7.1% and 15.6%, respectively.

In an environment of growing competitive pressure as we move towards full liberalization of the market, Portugal Telecom has set out an aggressive price policy. This policy – focused on increasing Portugal Telecom’s competitive position and on preserving its leadership – will support our future growth.

Operating revenues from mobile services increased by 56% to PTE 40.9 billion or 15.0% of the consolidated total.

TMN’s total subscribers were 1,002,000 on June 30, 1998 versus 432,000 on June 30, 1997 a 132% increase HoH. In the same period the Portuguese market increased by 124%, corresponding to a cellular penetration rate of 20%, up from 9% in June 30, 1997. TMN had a market share of 50.5%.

The volume of TMN’s traffic also increased considerably, by 127% over the first half of 1997.

TMN introduced, in the first half, significant changes in its pricing policy including billing in seconds on the Personalized Price Plan (PPP), Normal and Executive (with monthly payments).

It has launched new pricing plans with monthly payments – TMN15, TMN 30, TMN 60 and TMN 120 – which replace the previous Personal Plan, and which include free calling of 15, 30, 60 or 120 minutes of monthly traffic and as complement to the mentioned plans, the Extra 4×15, Extra 4×30, Extra 4×60 and Extra 4×120, for subscribers who mainly use their phones on evenings and weekends.

In addition, prices have been reduced, by an average of almost 5% on calls from mobile to mobile for PPP subscribers, by more than 4% on average for pre-paid subscribers (such as Mimo), and by more than 3% on average for calls from the fixed network and for international calls.

TMN is also maintaining its market leadership through innovation and introduction of new services and products. Mobile Message (with no voice use), Service 0936@mail, MemoDirect, broader Roaming coverage, Electronic Post-card and TMN Security, as well as sale of mobile phones handsets equipped with Dual-band, GSM 900 and DCS 1800, are among the new products and services launched.

Improvement of service quality has been significantly reinforced this semester. The number of base stations reached 1,058, an increase of 413 HoH. In addition, the switching capacity and the micro-cells’ coverage of extended dense traffic areas, have been reinforced and GSM 1800 technology has been introduced in order to help the micro-coverage and ease pressure on the GSM 900 network capacity. At the same time to improve customer service, the third Recording system of Voice-Mail has been installed.

During the first half 1998, TMN has signed new “Roaming” agreements, which now involve 87 operators in 57 countries. TMN will assure a worldwide coverage through Iridium satellites and agreements with ICO Global Communications.

Operating revenues from leased lines increased by 11.2% from PTE 9.0 billion in 1H97 to PTE 10.0 billion or 3.7% of the consolidated total. An average decrease of 14.5% (21% on digital) in prices from February 1998 was offset by the continuing higher demand for digital leased lines.

Data communications and related services recorded a 10.5% increase in operating revenues to PTE 7.1 billion or 2.6% of the consolidated total, fueled by Internet, despite increased competition.

Internet services grew rapidly. Since the end of June 1997 the number of clients increased by 87%. NETPAC represented 62% of the number of Internet customers of Telepac.

Our subsidiary launched NetNumber for Internet access, allowing customers to pay only the usage, without contract or rental, and improved significantly the quality of transmission.

Cable Television services recorded a 88% increase in operating revenues to PTE 7.7 billion or 2.8% of the consolidated total.

At June 30, 1998, the Group cable network covered 75 counties and 1,525,000 homes. The number of homes connected was 486,000 by the end of the first half of 1998, an increase of 101% over the end of 1H97.

Penetration rate reached 32%, up from 21% on June 30, 1997. In step with regulatory changes, we moved into pay TV, through Premium TV (2 movie and entertainment channels) and SPORT TV (a sport channel), working with specialized partners. Recently we launched our DTH offering.

In addition to its core businesses, the Group also publishes and distributes telephone directories, broadcasts television signals, provides telex, telegraphy and other miscellaneous services, and sells telecommunications equipment.

First half revenues from these supplementary activities were PTE 30.0 billion or 10.9% of the consolidated total, representing a 11.2% increase over the same period last year. Equipment sales and telephone directories represented 41.3% and 39.8% of that amount, respectively.

Consolidated operating revenues from international investments in the first half of 1998 totaled PTE 7.5 billion or 2.8% of total operating revenues.

OPERATING COSTS AND EXPENSES Consolidated operating costs and expenses totaled PTE 203 billion ($1,101.6 million) in the first half of 1998 compared with PTE 190 billion in 1H97.

The main drivers of this increase were other general and administrative, maintenance and repairs and marketing and publicity expenses.

The main items of consolidated operating costs and expenses – employee-related costs (wages and salaries and post retirement benefits) and depreciation and amortization – in aggregate totaling PTE 121.3 billion ($657.3 million), corresponding to 59.7% of consolidated total, have fallen as a percentage of consolidated operating revenues from 47.9% in 1H97 to 44.4% in this first half.

Employee-related costs totaled PTE 64.4 billion ($348.7 million) down from PTE 66.8 billion in 1H97. This decrease was primarily due to the reduction in the number of employees and in curtailment costs, partly offset by an increase in salaries and employee compensation.

Group employment fell from 21,896 in 1H97 to 21,675 in this half, as the reduction of 773 employees engaged in fixed telephone services, corresponding to a decrease of 4.2% HoH, from 18,249 in 1H97 to 17,476 on June 30, 1998, was in part offset by increases in the number of employees engaged in faster growing businesses, such as domestic cellular services and cable television.

Costs of telecommunications (primarily accounting rate payments) amounted to PTE 15.3 billion ($83.1 million), up from PTE 15.0 billion in 1H97, despite reductions in accounting rates, primarily due to the growth in outgoing international traffic,.

Depreciation and amortization amounted to PTE 57.0 billion ($308.6 million), up by 1.2% HoH, reflecting increased capital expenditures this half.

Maintenance and repairs increased by PTE 2.9 billion over the same period last year, as a result of an increased focus on quality of service, while own work capitalized decreased by PTE 1.6 billion HoH, primarily due to reduction in the number of employees engaged in building up the network as part of the overall reduction in the number of employees.

Costs of products sold increased to PTE 11.8 billion ($63.9 million) up from PTE 10.1 billion in 1H97, as a result of the increase in sales of telecommunications equipment.

Marketing and publicity expenses amounted to PTE 6.5 billion ($35.3 million) up from PTE 4.5 billion 1H97, representing 2.4% of operating revenues, as the Group focused on new marketing and customer driven initiatives at a time of increasing competition.

Other general and administrative amounted to PTE 32.4 billion ($175.6 million) up from PTE 24.5 billion in 1H97. This is mainly due to the increase of: commissions paid by TMN to service providers (in connection with the sales of terminal equipment and enlistment); subcontracts in cable television related to programming, maintenance and enlistment; commissions and specialized work paid by PT; and rentals and leasing costs.

PROVISION FOR INCOME TAXES Group effective corporate income tax was 35.9% in the first half of 1998, down from 43.3% in the first half of 1997.


In the first half of 1998 Portugal Telecom Group showed the

following ratios:

1 H 1998 1 H 1997

o Return on Sales (Net Income/Operating 14.9% 12.9%


o Operating Margin (Operating 25.5% 26.1%

Income/Operating Revenues):

o Interest Cover (Operating 8.0 times 5.6 times

Income/Interest Expenses):




(Amounts stated in millions of Portuguese Escudos – PTE and

millions of US Dollars – $)

June 30, 1998 December 31, 1997

$m PTEm PTEm

Current Assets:

Cash 57.4 10,594 13,864

Short-term investments 29.1 5,369 2,892

Accounts receivable-trade, net:

Third parties 602.2 111,159 90,422

Accounts receivable-other, net:

Third parties 182.7 33,720 48,495

Affiliates 2.8 519 427

Inventories, net 64.4 11,880 11,866

Prepaid expenses and other 51.6 9,533 12,850

current assets

Total current assets 990.1 182,774 180,815

Investments, net 865.5 159,765 58,078

Fixed Assets, net 3,633.0 670,661 664,569

Intangible Assets, net 157.3 29,043 31,102

Other Non-Current Assets, net 47.7 8,798 8,128

Intangible Asset-Post Retirement 301.9 55,734 57,650


Total assets 5,995.5 1,106,775 1,000,342

Current Liabilities:

Short term debt and current 673.2 124,271 14,672

portion of medium and long-term


Accounts payable-trade:

Third parties 217.5 40,146 38,142

Affiliates 2.9 541 35

Accounts payable-other:

Third parties 240.9 44,465 71,810

Affiliates 0.1 23 10

Accrued expenses 171.6 31,682 28,022

Taxes payable 200.0 36,924 24,796

Deferred income 285.0 52,620 52,073

Total current 1,791.3 330,672 229,560


Medium and Long-Term Debt 1,061.0 195,867 192,264

Accrued Post Retirement Liability 858.7 158,517 153,557

Deferred Income – Post Retirement 40.0 7,383 9,230


Other Non-Current Liabilities 56.8 10,489 10,861

Total liabilities 3,807.8 702,928 595,472

Minority Interests 21.7 4,002 3,628


Share capital 1,029.3 190,000 190,000

Own shares (35.4) (6,537) –

Revaluation reserve 625.0 115,383 115,383

Legal reserve 59.8 11,038 7,516

Other reserves and retained 266.7 49,237 17,962


Cumulative foreign currency 1.4 253 284

translation adjustments

Consolidated differences (1.7) (321) –

Net income 221.0 40,792 70,097

Total equity 2,166.0 399,845 401,242

Total liabilities 5,995.5 1,106,775 1,000,342

and shareholders’ equity

NOTES ON TABLE 2 ACCOUNTS RECEIVABLE At June 30, 1998, Accounts Receivable totaled PTE 145.4 billion ($787.6 million) up from PTE 139.3 billion on December 31, 1997. This increase reflects upcoming changes in billing information systems. Third Parties-other has been reduced with a counterpart increase in Third Parties-trade, as receivables from international operators and other Portuguese operators and service providers, accounted for in the former item in December 1997, are accounted for in the latter item in June 1998.

INVESTMENTS The increase in this caption in the first half of 1998, amounting to PTE 101.7 billion ($550.9 million), basically results from the increase in international investments this half, namely the acquisition of a stake (19.26% of voting shares) in CRT – Companhia Riograndense do SUL, in Brazil (PTE 68.9 billion), and investments in Telef”nica and Telebr s/Telesp, following the cooperation and strategic agreements established in 1H97, amounting to PTE 17.5 billion and PTE 14.5 billion, respectively.

CURRENT LIABILITIES At June 30, 1998, Current Liabilities totaled PTE 330.7 billion ($1,791.3 million) up from PTE 229.6 billion on December 31, 1997, namely as a result of the increase in short term debt related to a bridge loan to finance the acquisition in Brazil and other short term financings.

INDEBTEDNESS The Group’s total net debt (including bank loans, bonds and commercial paper) was PTE 304.2 billion ($ 1,647.8 million) on June 30, 1998 compared to PTE 190 billion on December 31, 1997, as follows:

Balance on June Balance on

30, 1998 December 31,


$m PTEm % PTEm

Domestic Indebtedness, of which: 514.6 94,992 29.7 67,142

Short Term 187.9 34,683 10.8 6,847

Medium and Long Term 326.7 60,309 18.9 60,295

Foreign Indebtedness, of which: 1,219.6 225,146 70.3 139,795

Short Term 485.3 89,588 28.0 7,825

Medium and Long Term 734.3 135,558 42.3 131,970

Total Indebtedness 1,734.2 320,138 100.0 206,937

Cash and Short Term- 86.4 15,963 5.0 16,756


Net Debt 1,647.8 304,175 95.0 190,181

As of June 30, 1998 the gearing ratio – net debt/(net debt +

equity) – was 43.2%.

OWN SHARES Following the approval on Shareholders’ Meeting, on April 21, 1998 PT acquired, in the first half of 1998, 676,605 own shares for PTE 6.5 billion ($35.4 million), of which 570,000 shares will be used for the option plan for senior managers approved in that meeting,.





(Amounts stated in millions of Portuguese Escudos – PTE and

millions of US dollars – $)

Six Month Period Ended

June 30

1998 1997

$m PTEm PTEm

Cash Flow from Operating 596.4 110,098 85,364

Activities (1)

Cash Flows from Investing (956.0) (176,486) (47,537)

Activities (2)

Cash Flows from Financing 355.6 65,646 (34,270)

Activities (3)

Variation of Cash and Equivalents (4.0) (742) 3,557


Effect of exchange differences (2.4) (452) 74

Cash and equivalents at the 91.1 16,827 8,256

beginning of the period

Cash and equivalents at the end 84.7 15,633 11,887

of the period



June 30

1998 1997

Fixed Telephone Service

Total Traffic (minutes, million) 6,217 5,901

Fixed Main Lines (000)(b) 4,048a) 3,908

Main Lines per 100 Inhabitants 40.6 39.3

Public Pay phones (000) 38.7 35.7

Digitalization of Local Switching 91 82


Mobile Services (TMN)

Cellular Traffic (minutes, million) 589 259

Cellular customers (000) 1,002 432

Leased Lines

Total (000), of which: 41.8 37.0

– Digital (%) 29.4 20.4

Data Communications and Related

Services (Telepac)

Internet Accesses (000) 96.4 51.5

Cable Television

Homes Passed (000) 1,525 1,151

Homes Connected (000) 486 242

Penetration rate (%) 32 21


Employees engaged in fixed and 18,120 18,681


Lines (fixed and cellular)/Employee 279 232

Group Employees 21,675 21,896

Investment (PTE billion) 167.1(1) 51.7

(1) of which (in billions of PTE): 101 in investments (see note on table 2); 40 in fixed telephone services; 18 in cellular; 5 in cable television a) 32,000 lines in service were deleted based on customer data b) Does not include leased lines and data accesses

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