2.

Basis of presentation
Changes in the consolidated group
Euro million

Book Value

Fair value adjustments

Fair value

NET ASSETS ACQUIRED Accounts receivable Taxes receivable Intangible assets Tangible assets Other assets Short-term debt Accounts payable Taxes payable Current provisions Medium and long-term debt Non-current provisions Other liabilities Total net assets acquired Purchase price (ii) Total goodwill (Note 33)

13.2 1.9 0.9 0.0 (17.5) (2.5) (10.7) (4.1) (13.3) (1.8) (3.0) (36.9)

2.5 (0.9) 1.6

13.2 1.9 2.5 0.9 0.0 (17.5) (2.5) (10.7) (4.1) (13.3) (2.7) (3.0) (35.3) 13.6 48.9

Pro-forma information including GPTI 2010

Euro million

GPTI's results for January and February Reported figures of 2010 Operating Revenues Net income (before minority interests) 3,742 5,820 8 (5)

Pro-forma information 3,751 5,815

4. Changes in accounting policies and estimates

Consolidated Statement of Financial Position as at 1 January 2009
Impacts of IFRIC 12 adoption

Prior to IFRIC 12 adoption Assets Intangible assets Tangible assets Other assets Total assets Liabilities Deferred taxes Other non-current liabilities Other liabilities Total liabilities Equity excluding non-controlling interests Non-controlling interests Total shareholders' equity Total liabilities and shareholders' equity Consolidated Statement of Financial Position as at 31 December 2009 3,463,038,116 4,637,837,013 5,613,520,173 13,714,395,302

Prior to IFRIC 12 adoption 23,199,614 (16,350,145) 6,849,469 6,849,469 6,849,469 6,849,469

Restated statement 3,486,237,730 4,621,486,868 5,613,520,173 13,721,244,771

488,763,432 12,029,395,048 12,518,158,480 232,026,427 964,210,395 1,196,236,822 13,714,395,302

495,612,901 12,029,395,048 12,525,007,949 232,026,427 964,210,395 1,196,236,822 13,721,244,771

Impacts of IFRIC 12 adoption

Prior to IFRIC 12 adoption Assets Intangible assets Tangible assets Other assets Total assets Liabilities Deferred taxes Other non-current liabilities Other liabilities Total liabilities Equity excluding non-controlling interests Non-controlling interests Total shareholders' equity Total liabilities and shareholders' equity Consolidated Income Statement for the year ended 31 December 2009 4,046,670,219 4,862,214,772 5,922,321,340 14,831,206,331 482,219,973 294,105,452 11,670,111,529 12,446,436,954 1,317,508,122 1,067,261,255 2,384,769,377 14,831,206,331

Prior to IFRIC 12 adoption 27,632,979 (18,346,572) 9,286,407 892,361 5,716,965 6,609,326 803,124 1,873,957 2,677,081 9,286,407

Restated statement 4,074,303,198 4,843,868,200 5,922,321,340 14,840,492,738 483,112,334 299,822,417 11,670,111,529 12,453,046,280 1,318,311,246 1,069,135,212 2,387,446,458 14,840,492,738

Impacts of IFRIC 12 adoption

Prior to IFRIC 12 adoption Total revenues

Prior to IFRIC 12 adoption

Restated statement

3,726,993,741 728,729,445 718,591,624 1,591,319,485 688,353,187 200,691,540 (184,997,796) 704,046,931 82,462,164 786,509,095 102,578,076 683,931,019 0.78 0.76

6,411,063 4,581,456 (1,739,835) 3,569,442 (892,361) 2,677,081 2,677,081 1,873,957 803,124 0.00 0.00

3,733,404,804 733,310,901 716,851,789 1,591,319,485 691,922,629 200,691,540 (185,890,157) 706,724,012 82,462,164 789,186,176 104,452,033 684,734,143 0.78 0.76

Costs, losses and (income) Supplies and external services Depreciation and amortisation Other operating expenses, net Income before financial results and taxes Financial results Income taxes Net income from continunig operations Net income from discontinued operations Net income Attributable to non-controlling interests Attributable to equity holders of the parent Earnings per share attributable to the equity holders of the parent Basic Diluted

5. Exchange rates used to translate foreign currency financial statements

Translation of assets and liabilities

Currency Argentine peso Australian dollar Botswana pula Brazilian real British pound Canadian dollar Cape Verde Escudo CFA franc Chinese Yuan Renmimbi Danish krone Hong Kong dollar Hungarian forint Japanese yen Kenyan shilling Macao pataca Moroccan dirham Mozambique metical Namibian dollar Norwegian krone So Tom Dobra South African rand Swedisk krone Swiss franc Ugandan shilling US Dollar Translation of income statements

2010 5.31 1.31 8.89 2.22 0.86 1.33 110.27 655.96 8.82 7.45 10.39 277.95 108.65 108.03 10.70 11.22 43.65 8.86 7.80 24,500.00 8.86 8.97 1.25 3,086.56 1.34

2009 5.47 1.60 9.57 2.51 0.89 1.51 110.27 655.96 9.84 7.44 11.17 270.42 133.16 109.34 11.51 11.35 44.15 10.67 8.30 24,108.62 10.67 10.25 1.48 2,758.75 1.44

Currency Argentine peso Botswana pula Brazilian real Cape Verde Escudo CFA franc Chinese Yuan Renmimbi Hungarian forint Kenyan shilling Macao pataca Moroccan dirham Mozambique metical Namibian dollar So Tom Dobra Swiss franc Ugandan shilling US Dollar

2010 5.20 9.03 2.33 110.27 655.96 8.97 275.48 105.21 10.61 11.16 45.34 9.70 24,500.00 1.38 2,883.02 1.33

2009 5.21 9.85 2.77 110.27 655.96 9.45 280.33 107.83 11.13 11.27 38.66 11.67 22,589.90 1.51 2,817.90 1.39

6. Revenues
Revenues by reportable segment
Euro

2010 Wireline (Note 7.a) Services rendered (Note 3.p) (i) Retail Wholesale Data and corporate Other Sales (ii) Other revenues (iii) Domestic Mobile - TMN (Note 7.b) Services rendered (Note 3.p) (iv) Billing Interconnection Sales (ii) Other revenues (iii) Other businesses (v) Services rendered Sales Other revenues

2009

1,766,176,820 1,693,898,135 967,457,592 364,928,906 281,515,963 79,995,674 44,051,787 28,226,898 1,335,982,897 1,224,837,525 1,121,598,783 103,238,742 102,437,305 8,708,067 640,094,121 597,288,303 19,126,758 23,679,060 3,742,253,838

1,796,502,317 1,733,800,680 970,135,390 371,385,586 295,094,607 97,185,097 42,531,397 20,170,240 1,460,443,879 1,313,773,645 1,195,861,556 117,912,089 134,378,318 12,291,916 476,458,608 444,395,758 20,258,220 11,804,630 3,733,404,804

(i) The reduction in the contribution of the wireline business to consolidated service revenues is primarily explained by lower corporate and data revenues, declining wholesale revenues and a decline in services from the directories business. (ii) These captions include mainly sales of terminal equipment (fixed telephones, modems and TV boxes) of the wireline business and terminal mobile equipment of TMN. (iii) Other revenues include mainly Portals advertising revenues in the wireline business and benefits from contractual penalties imposed to customers, rental of equipments and other own infra-structures and revenues resulting from consultancy projects in both the wireline and mobile businesses. (iv) The reduction in the contribution of the mobile business to consolidated service revenues is primarily explained by (1) lower customer revenues, against a backdrop of increased competitiveness in certain market segments, especially in the youth segment, and (2) lower interconnection revenues, partially as a result of the negative impact of lower Mobile Termination Rates. (v) The increase in revenues relating to other businesses is primarily explained by improved revenue performance of Dedic, PTs contact centre and outsourcing business in Brazil, of MTC (mobile operator in Namibia) and of Timor Telecom, and also includes the impact of the consolidation of GPTI as from 1 March 2010 (Euro 56 million).

Revenues by Geographic area

Euro

Domestic operations Brazil Other countries and eliminations

2010 3,200,762,436 261,672,665 279,818,737 3,742,253,838

2009 3,320,861,777 182,230,409 230,312,618 3,733,404,804

7. Revenues
a) Wireline
Euro

2010 REVENUES Services rendered - external customers (Note 6) Services rendered - inter-segment Sales - external customers (Note 6) Sales - inter-segment Other revenues - external customers (Note 6) Other revenues - inter-segment COSTS, EXPENSES, LOSSES AND (INCOME) Wages and salaries Direct costs (i) Commercial costs (ii) Supplies and external services and other expenses Depreciation and amortisation (iii) Post retirement benefits, net (iv) Curtailment and settlement costs (v) Net gains on disposals of fixed assets Other costs, net Income before financial results and taxes Net interest expenses Net foreign currency exchange losses Net gains on financial assets and other investments Net other financial expenses Income before taxes Minus: Income taxes NET INCOME 1,693,898,135 141,332,322 44,051,787 2,553,771 28,226,898 18,900,149 1,928,963,062 228,211,381 438,418,281 126,741,998 390,383,729 461,733,778 38,145,723 141,057,640 (3,761,363) 73,939,631 1,894,870,798 34,092,264 5,028,458 (676,938) (942,333) 3,674,861 7,084,048 27,008,216 16,904,299 10,103,917

2009 1,733,800,680 132,892,095 42,531,397 708,860 20,170,240 17,686,520 1,947,789,792 233,288,774 409,025,928 117,986,621 387,872,724 434,675,795 89,562,000 13,682,630 (905,203) 32,760,380 1,717,949,649 229,840,143 8,117,700 (494,887) (1,250,982) 4,977,599 11,349,430 218,490,713 46,952,357 171,538,356

(i) The increase in direct costs is primarily explained by higher programming costs resulting from the roll-out of triple play offers. (ii) This caption includes costs of products sold, commissions and marketing and publicity expenses. (iii) The increase in depreciation and amortization costs is mainly related to the investments made in the roll-out of the pay-tv service. (iv) As explained in more detail in Note 14, the decrease in this caption is mainly related to (1) a prior year service gain recorded in 2010 amounting to Euro 31,215,000 (Note 14.1), (2) the reduction in post retirement benefit obligations occurred in 2009, following the halt of the redundancy programme, and (3) the increase in the fair value of plan assets in 2009. (v) In 2010, this caption includes primarily redundancy programme costs amounting to Euro 136 million, related to a redundancy programme approved in the end of 2010 (Note 14.6), and a cost of Euro 7.5 million related to the settlement of the defined benefit plans transferred to the Portuguese State in December 2010. The lower level of curtailment costs in 2009, corresponding to the reduction of 60 employees, is explained by the halting of the redundancy programme in that year.

Total Assets and Liabilities of this segment Euro 2009 4,818,565,264 3,285,095,374

Assets Liabilities

2010 5,212,713,339 4,050,538,491

7a

7. Revenues
b) Domestic Mobile - TMN
Euro

2010 REVENUES Services rendered - external customers (Note 6) (i) Services rendered - inter-segment (i) Sales - external customers (Note 6) Sales - inter-segment Other revenues - external customers (Note 6) Other revenues - inter-segment COSTS, EXPENSES, LOSSES AND (INCOME) Wages and salaries Direct costs (i) Commercial costs (ii) Supplies and external services and other expenses (iii) Depreciation and amortisation Work force reduction costs Net losses (gains) on disposals of fixed assets Other costs, net Income before financial results and taxes Net interest expenses Net foreign currency exchange losses (gains) Equity in earnings of affiliated companies, net Net other financial expenses Income before taxes Minus: Income taxes Net income 1,224,837,525 39,821,390 102,437,305 9,987,705 8,708,067 1,697,109 1,387,489,101 47,604,117 246,194,022 230,061,468 225,568,819 225,587,329 1,485,450 1,271,083 28,718,201 1,006,490,489 380,998,612 6,548,283 318,383 763 800,012 7,667,441 373,331,171 102,886,430 270,444,741

2009 1,313,773,645 46,210,511 134,378,318 9,736,620 12,291,916 1,406,928 1,517,797,938 48,344,596 259,446,232 276,588,055 259,309,842 220,937,464 (463,559) 8,919,558 1,073,082,188 444,715,750 9,723,462 (111,026) (1,043) 829,594 10,440,987 434,274,763 113,545,234 320,729,529

(i) The reductions in services rendered and direct costs is primarily explained by the decrease in mobile termination rates and lower customer revenues. (ii) This caption includes costs of products sold, commissions and marketing and publicity expenses. The reduction in 2010 is primarily explained by a decrease in costs of products sold, in line with the reduction in sales. (iii) The decrease in supplies and external services and other expenses resulted primarily from lower maintenance and repair expenses, following an integrated and more efficient management of fixed and mobile networks, and lower external supplies, which reflect the strict operational and cost discipline.

Total Assets and Liabilities of this segment

Euro

Assets Liabilities

2010 2,246,793,728 1,505,356,626

2009 2,614,282,536 1,413,215,127

7b

7. Revenues
c) Reconciliation of revenues, net income, assets, liabilities and capital expenditures
Euro

Revenues relating to reportable segments Revenues relating to other businesses (i) Elimination of intragroup revenues Total consolidated revenues

2010 3,316,452,163 1,088,297,486 (662,495,811) 3,742,253,838

2009 3,465,587,730 873,863,680 (606,046,606) 3,733,404,804

(i) This increase in revenues from other businesses is mainly related to MTC (mobile operator in Nambia), Dedic (call centre operation in Brazil), Cabo Verde Telecom and Timor Telecom (telecommunications operator).

Euro

2010 Net income relating to reportable segments Net income relating to other businesses (i) Other items not included in reportable segments: Net interest expenses related to loans obtained at group level (ii) Net gains on financial assets and other investments (iii) Equity in earnings of affiliated companies (iv) Net other financial expenses Income tax not included in reportable segments (v) Net income from continuing operations Net income from discontinued operations Net income (before non-controlling interests) 280,548,658 (1,334,472) (173,468,194) 917,954 141,709,867 (35,998,425) 42,264,881 254,640,269 5,565,426,533 5,820,066,802

2009 492,267,885 17,365,693 (209,649,993) 6,816,586 456,043,545 (30,727,138) (25,392,566) 706,724,012 82,462,164 789,186,176

(i) The decrease in this caption is primarily explained by expenses incurred in connection with the Oi Group transaction and higher depreciation and amortization expenses of other businesses, which more than offset improved operational performance of certain international businesses, namely MTC and Timor Telecom. (ii) As explained in more detail in Note 16, the decrease in net interest expenses related to loans obtained at group level is basically explained by the decrease in the average net debt (debt minus cash and cash equivalents and short-term investments), following the first instalment received from Telefnica in September 2010 related to the disposal of the 50% stake in Brasilcel. This effect was partially offset by an increase in average cost of debt. (iii) In 2009, this caption includes a gain of Euro 6 million related to the change in the fair value of a free-standing cross currency derivative, which was settled in April 2009, as explained Note 17. (iv) As explained in more detail in Note 31, the decrease in this caption is primarily explained by (1) the capital gain of Euro 267 million recorded in 2009 following the disposal of the investment in Mdi Tlcom and (2) an impairment loss recorded in 2010 on the investment in Universo Online, Inc (UOL) amounting to Euro 28 million (Note 31), in order to adjust its carrying value to the recoverable amount obtained with the disposal of this investment, which was completed in January 2011 (Note 47). (v) The change in this caption is primarily explained by a gain of Euro 59 million recorded in 2010 resulting from the decrease in deferred tax liabilities related to unpaid dividends from equity investments, following a reduction in the estimated applicable tax rate from 26.5% to 10% (Note 19).

Euro

Assets relating to reportable segments Assets relating to discontinued operations (Note 20) Assets relating to other businesses and eliminations (i) Other items not included in reportable segments: Investments in group companies and other investments Non-current assets held for sale (Note 31) Goodwill (Note 33) Total consolidated assets

2010 7,459,507,067 7,039,877,051 364,439,972 160,448,046 145,660,025 15,169,932,161

2009 7,432,847,800 6,149,704,241 576,915,372 600,121,453 80,903,872 14,840,492,738

(i) The increase in this caption is primarily explained by the first and second instalments received from Telefnica in the total amount of Euro 5,500 million and by the present value of the outstanding receivable amounting to Euro 1,967 million resulting from the disposal of the 50% stake in Brasilcel, as mentioned in Note 1. These effects were partially offset by the extraordinary dividends paid in December 2010 as an anticipation of profits of 2010.

Euro

Liabilities relating to reportable segments Liabilities relating to discontinued operations (Note 20) Liabilities relating to other businesses and eliminations Other items not included in reportable segments: Loans obtained at group level Total consolidated liabilities

2010 5,555,895,117 (1,210,881,245) 6,215,773,154 10,560,787,026

2009 4,698,310,501 2,344,370,830 (535,889,023) 5,946,253,972 12,453,046,280

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7. Revenues
Total assets, liabilities, tangible assets and intangible assets by geogrfic area
Euro

Total assets Portugal (i) Brazil (ii) Other 13,861,345,667 276,929,107 1,031,657,387 15,169,932,161

Total liabilities 10,187,945,012 124,576,877 248,265,137 10,560,787,026

Tangible assets (Note 34) 3,649,050,519 46,801,227 178,761,668 3,874,613,414

Intangible assets (Note 33) 879,705,779 67,841,069 164,145,736 1,111,692,584

2010 Capital expenditures for tangible and intangible assets (iii) 680,332,172 27,320,165 90,794,997 798,447,334
Euro

Total assets Portugal (i) Brazil (ii) Other 7,572,669,425 6,431,529,888 836,293,425 14,840,492,738

Total liabilities 9,812,169,068 2,388,647,021 252,230,191 12,453,046,280

Tangible assets (Note 34) 3,364,025,037 1,342,322,233 137,520,930 4,843,868,200

Intangible assets (Note 33) 971,717,936 2,983,072,436 119,512,826 4,074,303,198

2009 Capital expenditures for tangible and intangible assets (iii) 770,797,561 19,317,284 57,994,830 848,109,675

(i) The increase in total assets from operations in Portugal is primarily explained by the amounts already received and the last instalment yet to be received from Telefnica in connection with the disposal of the 50% stake in Brasilcel. (ii) The decrease in assets and liabilities and in tangible and intangible assets from Brazilian businesses is primarily explained by the disposal of the 50% stake in Brasilcel. As at 31 December 2009, this business had total assets, total liabilities, tangible and intangible assets amounting to Euro 6,150 million, Euro 2,344 million, Euro 1,306 million and Euro 2,974 million, respectively (Note 20). (iii) In addition to these capital expenditures, (1) in connection with the transfer of certain post retirement benefit obligations to the Portuguese State (Notes 14.1 and 34), operations in Portugal acquired in 2010 several real estate properties from the pension funds for a total amount of Euro 236 million, (2) TMN recognised in 2009 additional commitments under the UMTS license amounting to Euro 11 million, and (3) Vivo, which was presented as a discontinued operation, had capital expenditures in tangible and intangible assets amounting to Euro 265 million and Euro 421 million in 2010 up to the disposal of this investment and in 2009, respectively.

8.Wages and Salaries

Euro

Salaries Social security Health care benefits Trainning Other

2010 507,131,463 101,981,635 8,138,338 7,163,740 12,700,446 637,115,622

2009 439,911,127 81,050,952 7,000,546 6,539,367 12,187,545 546,689,537

9. Direct costs

Euro

Telecommunications costs (i) Leasings of sites (i) Programming costs (ii) Directories (Note 3.p) (iii) Other (iv)

2010 312,919,690 22,608,474 115,781,049 50,248,451 46,001,437 547,559,101

2009 312,198,282 22,098,976 77,422,296 57,434,627 53,199,396 522,353,576

(i) In 2010 and 2009, these captions include costs related to operating leases totalling Euro 44,538,490 and Euro 40,500,541, respectively (Note 12). (ii) This caption relates basically to the programming costs incurred by the wireline business as a result of the roll out of the television services. (iii) The reduction in this caption is directly related to the decline of directories business. (iv) This caption includes primarily mobile contents.

10. Costs of products sold

Euro

Costs of products sold Increases in adjustments for inventories (Note 39) Reductions in adjustments for inventories (Note 39)

2010 180,819,046 2,667,642 (3,592,773) 179,893,915

2009 203,507,171 3,748,870 207,256,041

11. Supplies and external services

Euro

Maintenance and repairs Commissions Support services Specialized work Electricity Operating leases (Note 12) Communications Travelling Fuel, water and other fluids Surveillance and security Installation and removal of terminal equipment Transportation Other

2010 145,966,906 131,953,259 123,073,847 93,771,359 48,243,912 48,134,257 23,300,704 12,164,020 11,537,516 10,866,276 10,598,946 9,061,625 55,847,049 724,519,676

2009 151,626,206 137,025,420 145,542,302 72,368,540 45,502,803 40,038,628 23,015,403 11,848,256 9,614,527 9,484,145 12,168,068 9,605,616 65,470,987 733,310,901

12. Operating lease 12. Locao operacional 12.

Operating lease

Euro

euros

Direct costs (Note Custos 9) directos dos servios Direct costs prestados (Note(Nota 9) 9) Supplies and external Fornecimentos services (Note e servios 11) Supplies (i) externos and (Nota external 11) services (i) (Note 11) (i)

Euro

euros

2011 2012 2013 2014 2015 2016 and following2016 years e anos seguintes2016 and following years
(i) This caption is mainlyand related to rentals of and leases of transportation equipment. de transporte. (i) This caption is (i)mainly Esta rubrica related respeita to rentals essencialmente of property a custos leases com of transportation oproperty aluguer de imveis equipment. e de equipamento

Euro

2010 44,538,490 48,134,257 92,672,747

2009 40,500,541 40,038,628 80,539,169

Euro

55,308,978 29,435,352 26,702,664 23,228,343 18,900,294 56,969,999 210,545,630

on equipment.

13. Indirect taxes

Euro

Spectrum fees Other indirect taxes

2010 30,493,286 14,924,960 45,418,246

2009 30,978,543 26,838,021 57,816,564

14. Post Retirement Benefits

2010 Financial assumptions Discount rate for pension and supplement Discount rate for salaries to suspended and pre-retired Discount rate for healthcare plan Salary growth rate Pension growth rate Inflation rate Healthcare cost trend growth rate Expected return on assets Demographic assumptions Mortality tables for active beneficiaries: Males Females Mortality tables for non-active beneficiaries: Males Females Disability table (Swiss Reinsurance Company) Active employees with spouses under the plan Turnover of employees 4.75% 3.75% 4.75% 1.75% GDP linked 2.00% 3.00% 6.00%

2009 5.50% 5.50% 5.50% 1.75% GDP linked 2.00% 3.00% 6.00%

2008 5.75% 5.75% 5.75% 2.00% GDP linked 1.75% 3.00% 6.00%

AM (92) AF (92) PA (90)m adjusted PA (90)f adjusted 25% 35% Nil

AM (92) AF (92) PA (90)m adjusted PA (90)f adjusted 25% 35% Nil

AM (92) AF (92) PA (90)m adjusted PA (90)f adjusted 100% 50% Nil

14.1.Pension 14.1. and suplement Penses de benefits 14.1.Pension reforma e complementos and suplement de pensesbenefits The benefit obligation As responsabilidades and the fair The value benefit comof penses the obligation pension e o valor and funds de themercado fair value dos of fundos the pension de penses funds Euro euros 2010 Projected benefit obligations related to pension, pension supplements and gratuities Projected benefit Valor obligations actual das related responsabilidades to pension, pension projectadas supplements com pensionistas, and gratuities complementos de penses e prmios Pension funds Valor assets de at mercado fair value Pension dos fundos funds assets at fair value Unfunded pension Valorobligations actual das responsabilidades Unfunded pension no obligations financiadas Prior years' service Ganhos gains com (i) servios Prior years' passados service (i) gains (i) Present valueValor of unfunded actual das pension responsabilidades Present obligations value of (Note unfunded no14.4) financiadas pension (Nota obligations 14.4) (Note 14.4) 129,890,253 (109,335,604) 20,554,649 5,217,983 25,772,632
Euro

2009 2,710,211,583 (1,954,770,520) 755,441,063 9,410,000 764,851,063

(i) This caption refers to the component of the prior years service gains resulting from the changes in the benefits granted under pension supplement plans related to unvested rights. This amount will be recognized in earnings during the estimated period in which those benefits will be earned by employees (9 years).

(i) This caption (i)refers Esta rubrica to the component est relacionada of the com prior ganhos years service com servios gains resulting passados from resultantes the changes das in alteraes the benefits nos granted benefcios under dos pension planossupplement de complementos plans related de penses to unvested relacionadas rights. This com amount direitos will vincendos. be recognized Este montante in earnings ser during reconhecido the estimated em resultados period in durante which those o perodo benefits estimado will be earned ao longo by do em

The projectedO benefit movimento obligation ocorrido The projected nas responsabilidades benefit obligation projectadas com penses
Euro

Opening balance Saldo of inicial the projected das responsabilidades Opening benefit balance obligation projectadas of the projected benefit obligation Payments of benefits Pagamentos and contributions de benefcios Payments e ofcontribuies benefits and contributions Benefits paid Benefcios by the Company pagos(Note pela Benefits Empresa 14.5) paid (Nota by the 14.5) Company (Note 14.5) Benefits paid Benefcios by the funds pagos pelos Benefits fundos paid by the funds Participants' contributions Contribuies dos empregados Participants' contributions Pension costs Custos com penses Pension costs Service cost Custo com o servio Service do exerccio cost Interest cost Custo financeiro do exerccio Interest cost Prior year service Ganho gain com servios Prior passados year service gain Work force reduction Custos com programme o programa costs Work de force reduo reduction de efectivos programme costs Loss recognized Perda as a reconhecida result of the em Loss transfer resultado recognized to CGA da transferncia as a result of para the transfer a CGA to CGA Net actuarial losses Perdas actuariais, Net lquidas actuarial losses Transfer to liabilities Transferncia with salaries para Transfer responsabilidades (Note to 14.3) liabilities with com salaries salrios (Note (Nota 14.3) 14.3) Pension obligations Responsabilidades transferred Pension tocom the Portuguese penses obligations transferidas State transferred para to the o Estado Portuguese Portugus State Closing balance Saldo of the final projected das responsabilidades Closing benefit balance obligation projectadas of the projected benefit obligation Portfolio of pension Composio funds do valor Portfolio de mercado of pension dos funds activos dos fundos de penses

2010 2,710,211,583 (824,091) (152,374,072) 9,038,663 4,129,105 134,434,975 (31,215,000) 279,299 7,492,956 322,618,134 (70,112,300) (2,803,788,999) 129,890,253

2009 2,607,450,000 (1,572,673) (166,239,122) 11,329,546 5,042,000 145,201,520 1,693,755 107,306,557 2,710,211,583

Euro

Amount Valor Equities Aces Equities Bonds Obrigaes Bonds Property (i) Imobilirio (i) Property (i) Cash, treasury Disponibilidades, bills, short-termCash, contas stocks treasury a and receber other bills, e assets outros short-term (iv) activos stocks (iv) and other assets (iv)

2010 Amount 24,703,635 32,084,229 10,851,414 41,696,326 109,335,604

% 22.6% 29.3% 9.9% 38.1% 100.0%

2009 Amount 689,589,897 664,855,132 256,729,054 343,596,437 1,954,770,520

% 35.3% 34.0% 13.1% 17.6% 100.0%

(i) As at 31 December (i) Em 312010, de Dezembro this caption de 2010, includes esta certain rubrica properties inclui imveis that have arrendados been rented ao Grupo to Portugal que tinham Telecom um valor Group de companies, mercado de which 3 milhes had a de faireuros. value of Durante Euro 3omillion. exerccio During findo the em year 31 de ended Dezembro 31 December de 2010, 2010, no seguimento in connection dawith transferncia the transfer para of unfunded o Estado pension Portugus obligations das responsabilidades to the Portuguese no
Euro

(i) As at 31 December 2010, this caption includes certain properties that have been rented to Portugal Telecom Group companies, which had a fair value of Euro 3 million. During the year ended 31 December 2010, in connection with the transfer of unfunded pension obligations to the Portuguese State, Portugal Telecom acquired from the pension funds all real estate properties that were rented to Group companies and recognised them under the caption Tangible fixed assets for an amount of Euro 236 million (Notes 7.c and 34), including Euro 226 million (Note 7) acquired by the wireline business and the remaining Euro 10 million acquired by other companies in Portugal.

Opening balance Saldo of inicial the plan dos assets activos Opening dos balance fundos of dethe penses plan assets Actual return on Rendimento assets real Actual dos fundos return on assets Payments of benefits Pagamento de benefcios Payments of benefits Contributions Contribuies made by the Company efectuadas Contributions (Note pela14.5) made Empresa (i) by the (Nota Company 14.5) (i) (Note 14.5) (i) Participants' contributions Contribuies dos Participants' empregados contributions Funds transferred Fundos to the transferidos Portuguese Funds para State transferred o Estado together to portugus the with Portuguese related juntamente obligations State com together as respectivas with related responsabilidades obligations Closing balance Saldo of the final plan dos assets activos Closing dos balance fundos de of the penses plan assets

2010 1,954,770,520 44,477,969 (152,374,072) 35,535,127 9,038,662 (1,782,112,602) 109,335,604

2009 1,738,250,176 262,652,024 (166,239,122) 108,777,896 11,329,546 1,954,770,520

(i) In 2009, this caption includes Euro 33,036,928 (Notes 14.4 and 34) related to contributions in kind of real estate properties. The remaining contributions amounting to Euro 75,740,968 (Note 14.5) were realized in (Notes cash. euros (i) In 2009, this (i)caption Em 2009, includes esta rubrica Euro 33,036,928 inclui 33.036.928 14.4 and (Notas 34) 14.4 related e 34) to contributions relativos a contribuies in kind of real em estate espcie properties. de determinados The remaining imveis. contributions As restantes amounting contribuies to Euro no 75,740,968 montante de (Note 75.740.968 14.5) were euros realized (Nota in14.5) cash.foram efectuadas em numerrio.

Components Composio of the net periodic do custo Components pension com cost penses of the net periodic pension cost
Euro

Service cost Custo com o servio Service do exerccio cost Interest cost Custo financeiro do Interest exerccio cost Expected return Rendimento on plan assets estimado Expected dos return fundoson plan assets Prior years' service Ganhos gains com recognized servios Prior years' passados in theservice period reconhecidos gains (i) recognized no exerccio in the(i) period (i) Amortization of Amortizao prior years'de service ganhos Amortization gains com (ii) servios of prior years' passados service (ii) gains (ii) Current pension Custo cost corrente (Note 14.6) (Nota Current 14.6) pension cost (Note 14.6) Work force reduction Custos com program o programa Work force de reduo reduction de efectivos program Prior years' service Ganhos gains com (extraordinary servios Prior years' passados amortization) service (amortizao gains (extraordinary extraordinria) amortization) Loss recognized Perda as a reconhecida result of Loss the em transfer recognized resultado to CGA da as transferncia a (iii) result of thepara transfer a CGA to CGA (iii) (iii) Curtailment cost Custo (Note de 14.6) curtailment Curtailment (Nota 14.6) cost (Note 14.6) Total pensionCusto cost total com penses Total pension cost (i) The prior (i) O ganho (i) The prior year service gain recognized in 2010 is related to the Law 3B/2010 that changed the way pension is computed, reducing benefits. year service com (ii) In 2010 and 2009, this caption corresponds to the annual amortization of unrecognized prior year service gains obtained in previous years. gain servios (iii) This caption corresponds to the difference between the value of the pension obligations transferred to the Portuguese State using actuarial assumptions that comply with best practices of similar transactions and the value of these same obligations using Portugal Telecoms actuarial assumptions. recognized passados in 2010 is reconhecido Components Movimento of the net periodic nas perdas Components pension actuariais cost of acumuladas the net periodic lquidas pension cost
Euro

2010 4,129,105 134,434,975 (104,871,000) (31,215,000) (1,071,344) 1,406,736 279,299 (3,120,673) 7,492,956 4,651,582 6,058,318

2009 5,042,000 145,201,520 (108,686,000) (1,085,000) 40,472,520 1,693,755 (118,000) 1,575,755 42,048,275

Opening balance Saldo inicial Opening balance Change in actuarial Alterao assumptions de pressupostos Change (Notein 14.7) actuariais actuarial assumptions (Nota 14.7) (Note 14.7) Differences between Diferenas actual entre data Differences osand dados actuarial reais between e assumptions os pressupostos actual data (Note and actuariais 14.7): actuarial (Nota assumptions 14.7): (Note 14.7): Pension benefit Relacionados obligation related com as (i) Pension responsabilidades benefit obligation (i) related (i) Asset related Relacionados com os Asset activos related dos fundos Net actuarial losses Perdasrecycled actuariais to Net recicladas retained actuarial earnings para losses resultados (Note recycled 41.5) transitados to (ii) retained(Nota earnings 41.5) (Note (ii) 41.5) (ii) Closing balance Saldo (Note final 41.5) (Nota Closing 41.5) balance (Note 41.5)

2010 1,528,264,321 345,774,504 (23,156,369) 60,393,031 (1,794,573,604) 116,701,883

2009 1,574,923,788 52,082,837 55,223,720 (153,966,024) 1,528,264,321

14.2.Health care 14.2. benefits Cuidados de 14.2.Health sade

care benefits

The benefit obligation, Responsabilidades the fair The value projectadas benefit of health obligation, com care cuidados funds the and fair deprior sade, value year o ofservice valor health actual gains care do funds not fundo yetand recognized autnomo, prior year e os service ganhos gains com servios not yet recognized passados Euro euros 2010 Projected benefit Valor obligations actual das responsabilidades Projected benefit obligations projectadas Plan assets at Valor fair value de mercado Plan do fundo assets autnomo at fair value Net unfundedResponsabilidades obligations / (plan Net surplus) no unfunded financiadas obligations lquidas / /(Excesso (plan surplus) de financiamento) Prior years' service Ganhos gains com(i) servios Prior passados years' service (i) gains (i) Present value Valor of net actual unfunded das responsabilidades Present obligations value / (plan of net no surplus) unfunded financiadas (Note obligations 14.4) lquidas / (Excesso / (plan surplus) de financiamento) (Note 14.4) (Nota 14.4) 342,490,660 (338,810,084) 3,680,576 13,087,000 16,767,576
Euro

2009 335,261,865 (414,753,964) (79,492,099) 13,952,000 (65,540,099)

(i) This caption refers to the component of the prior years service gains resulting from the changes in the health care plan made in 2006 related to those benefits that are not yet vested. This amount will be recognized in the earnings during the estimated period in which those benefits will be earned by employees (16 years). (i) This caption (i) refers Este montante to the component respeita ao of ganho prior com years servios service passados gains resulting decorrente from das the alteraes changes in relativas the health aos care benefcios plan made do Plano in 2006 derelated Sade to ocorridas those benefits em 2006 that que are ainda not yet no vested. se encontram This amount vencidos, will be que recognized foi diferido in e earnings ser reconhecido during the em estimated resultado pe

The movement Movimento in the projected ocorrido The benefit no movement valor obligation actual in das the responsabilidades projected benefit projectadas obligation
Euro

2010 Opening balance Saldo of inicial the projected das responsabilidades Opening benefitbalance obligations projectadas of the projected benefit obligations Benefits paid Benefcios by the Company pagosBenefits (Note pela Empresa 14.5) paid by (Nota the Company 14.5) (Note 14.5) Pension costs Custos com penses Pension costs Service cost Custo com o servioService do exerccio cost Interest cost Custo financeiro do exerccio Interest cost Curtailment costs Custos de curtailment Curtailment costs Net actuarial Perdas losses (gains) (ganhos) actuariais, Net actuarial lquidos losses (gains) Closing balance Saldo of the final projected das responsabilidades Closing benefitbalance obligations projectadas of the projected benefit obligations Portfolio of the Composio Company'sdo autonomous fundo Portfolio autnomo fund of the to afecto Company's cover post cobertura retirement autonomous de responsabilidades health fund care to benefit cover com obligations post cuidados retirement de sade health care benefit obligations 3,027,076 17,933,044 2,694,286 2,457,022 342,490,660 335,261,865 (18,882,633)

2009 426,325,003 (23,005,413) 1,783,000 23,867,000 (93,707,725) 335,261,865

Euro

2010 Amount Equities (i) Bonds (ii) Valor Aces (i) Obrigaes (ii) Equities (i) Bonds (ii) Amount 88,085,111 127,845,608 122,879,365 338,810,084 % 26.0% 37.7% 36.3% 100.0%

2009 Amount 84,240,162 218,278,019 112,235,783 414,753,964 % 20.3% 52.6% 27.1% 100.0%

Cash, treasury Disponibilidades, bills, short-termCash, contas stocks treasury a and receber other bills, e assets outros short-term (iii) activos stocks (iii) and other assets (iii)

(i) As at 31 December 2010, this caption corresponds to investments in shares of Banco Esprito Santo (Note 45). (ii) As at 31 December 2010, this caption includes investments in bonds of Portugal Telecom amounting to Euro 68 million (Note 45). (iii) As at 31 December 2010, this caption includes investments in the private equity funds Ongoing International Capital Markets and Ongoing International Private Equity totalling Euro 74 million, which are managed by Ongoing International (Note 45). (i) As at 31 December (i) Em 312010, de Dezembro this caption de 2010, corresponds esta rubrica to investments corresponde in shares a investimentos of Banco Esprito em aces Santo do (Note Banco45).
Esprito (ii) AsSanto at 31 (Nota December 45).
(ii) 2010, Em this 31 de caption Dezembro includes de 2010, investments esta rubrica in bonds inclui of investimentos Portugal Telecom em obrigaes amounting to daEuro Portugal 68 million Telecom (Note no 45).
montante (iii) As

The movement Movimento in the plan ocorrido assets The no movement valor de mercado in the plan dos assets activos do fundo
Euro

2010 Opening balance Saldo of inicial the plan dos assets activos Opening dobalance fundo of the plan assets Actual return Rendimento on assets real Actual dos fundos return on assets Refunds (Note Reembolsos 14.5) (i) (Nota Refunds 14.5) (i) (Note 14.5) (i) Closing balance Saldo of the final plan dosassets activos Closing do balance fundo of the plan assets 414,753,964 8,365,989 (84,309,869) 338,810,084

2009 393,396,360 47,598,066 (26,240,462) 414,753,964

(i) In 2010, this caption includes Euro 9,309,869 related to the refund of expenses paid on account by PT Comunicaes and Euro 75,000,000 related to the refund from the pension fund of the excess funding determined during the year. In 2009, this caption is related to the refund of expenses paid on account by PT Comunicaes.

(i) In 2010, this (i) caption Em 2010, includes esta rubrica Euro 9,309,869 inclui um montante related to de the9.309.869 refund of expenses euros relativo paid ao on reembolso account byde PT despesas Comunicaes de sade and pagas Euro 75,000,000 pela PT Comunicaes related to the por refund conta from da PT the ACS pension e um fund montante of the excess de 75.000.000 fundingeuros determined relacionado duringcom the year. o reembolso In 2009, pelo this fun ca Summary of the Composio components do custo of Summary the com net periodic cuidados of the components post de retirement sade ofhealth the net care periodic cost (gain) post retirement health care cost (gain)
Euro

2010 Service cost Custo com o servio Service do exerccio cost Interest cost Custo financeiro do Interest exerccio cost Expected return Rendimento on plan assets estimado Expected dos fundos return on plan assets Prior years' service Ganhos gains com servios Prior passados years' service gains Current cost (gain) Custo(ganho) (Note 14.6) corrente Current (Nota cost 14.6) (gain) (Note 14.6) Work force reduction Custos com program o programa Work costs force (Note de reduo reduction 14.6) deprogram efectivos costs (Nota (Note 14.6) 14.6) Health care cost Custo(ganho) (gain) com Health cuidados care de cost sade (gain) The movement Movimento in accumulated nas perdas The net movement actuarial actuariais losses acumuladas in accumulated lquidas net actuarial losses 3,027,076 17,933,044 (24,332,838) (865,000) (4,237,718) 2,694,286 (1,543,432)

2009 1,783,000 23,867,000 (22,928,000) (865,000) 1,857,000 1,857,000

Euro

2010 Opening balance Saldo inicial Opening balance 201,271,495 40,384,304 (37,927,282) 15,966,849 219,695,366 Change in actuarial Alterao assumptions de pressupostos Change (Note in 14.7) actuariais actuarial assumptions (Nota 14.7) (Note 14.7) Differences between Diferenas actual entre data Differences osand dados actuarial reais between e assumptions os pressupostos actual data (Note and actuariais 14.7): actuarial assumidos assumptions (Nota (Note 14.7): 14.7): Health care benefit Relacionadas obligation com related as Health responsabilidades (i) care benefit obligation (i) related (i) Assets related Relacionadas com os Assets activos related do fundo Closing balance Saldo (Note final 41.5) (Nota Closing 41.5) balance (Note 41.5)
(i) Differences between actual data and actuarial assumptions related to the PBO results mainly from lower health care expenses than expected.

2009 319,649,286 (60,661,145) (33,046,580) (24,670,066) 201,271,495

(i) Differences (i) between As diferenas actual entre data and os dados actuarial reais assumptions e os pressupostos related actuariais to the PBO relacionados results mainly com from as lower responsabilidades health care expenses resultam than essencialmente expected. das despesas com cuidados de sade terem sido inferiores ao esperado.

14.3.Salaries
Movement in the projected benefit obligation
Euro

Opening balance of the projected benefit obligation Benefits paid by the Company (Note 14.5) Interest cost (Note 14.6) Curtailment costs (Note 14.6) Net actuarial losses Transfer from liabilities with pensions (Note 14.1) Closing balance of the projected benefit obligation Movement in the accumulated net actuarial losses

2010 791,441,961 (160,288,354) 39,610,000 134,208,621 49,239,869 70,112,300 924,324,397

2009 907,735,413 (174,374,456) 47,301,000 10,516,161 263,843 791,441,961

Euro

Opening balance Change in actuarial assumptions (Note 14.7) Differences between actual data and actuarial assumptions (Note 14.7) Closing balance (Note 41.5)

2010 65,860,712 55,628,537 (6,388,668) 115,100,581

2009 65,596,869 6,917,844 (6,654,001) 65,860,712

14.4. Responsabilities 14.3. Responsabilidades for post 14.4. retirement Responsabilities com benefits planos de benefcios forde post reforma retirement

benefits

Movements occurred Movimentos in the ocorridos responsabilities Movements nas responsabilidades for occurred post retirement in the com responsabilities benefits benefcios de reforma for post retirement benefits Euro euros Pension benefits (Note 14.1) 879,812,824 40,472,520 1,575,755 (110,350,569) (46,659,467) 764,851,063 1,406,736 4,651,582 (36,359,218) 383,011,166 (70,112,300) (1,021,676,397) 25,772,632 Health care benefits (Note 14.2) 47,745,643 1,857,000 3,235,049 (118,377,791) (65,540,099) (4,237,718) 2,694,286 65,427,236 18,423,871 16,767,576 Salaries to pre-retired & suspended employees (Note 14.3) 907,735,413 47,301,000 10,516,161 (174,374,456) 263,843 791,441,961 39,610,000 134,208,621 (160,288,354) 49,239,869 70,112,300 924,324,397
Euro

Balance as atSaldo 31 December em 31 de 2008 Dezembro Balance as de at 2008 31 December 2008 Net periodic pension Custo do cost exerccio (Note Net 14.6) (Nota periodic 14.6) pension cost (Note 14.6) Work force reduction Custos com program pr-reformas, Work costs (Note force suspenses reduction 14.6) program de contratos costs e (Note outros 14.6) (Nota 14.6) Payments, contributions Pagamentos, and contribuies refunds Payments, (Note e contributions 14.5) reembolsos (i) and (Nota refunds 14.5) (i) (Note 14.5) (i) Net actuarial losses Perdas (gains) (ganhos) (Note Net actuariais, 14.7) actuarial lquidos losses(Nota (gains) 14.7) (Note 14.7) Balance as atSaldo 31 December em 31 de 2009 Dezembro Balance as de at 2009 31 December 2009 Net periodic pension Custo (ganho) cost/(gain) doNet exerccio (Note periodic 14.6) (Nota pension 14.6) cost/(gain) (Note 14.6) Work force reduction Custos com program pr-reformas, Work costs (Note force suspenses reduction 14.6) program de contratos costs e (Note outros 14.6) (Nota 14.6) Payments, contributions Pagamentos, and contribuies refunds Payments, (Note e contributions 14.5) reembolsos and (Nota refunds 14.5) (Note 14.5) Net actuarial losses Perdas (Note actuariais, 14.7) Net lquidas actuarial (Nota losses 14.7) (Note 14.7) Transfer between Transferncias pensions and entre Transfer salaries penses between (Notes e salrios 14.1 pensions and (Notas 14.3) and 14.1 salaries e 14.3) (Notes 14.1 and 14.3) Unfunded obligations Responsabilidades transferred Unfunded no to the financiadas Portuguese obligations transferidas State transferred (Note para 14.1) to the o Estado Portuguese Portugus State(Nota (Note14.1) 14.1) Balance as atSaldo 31 December em 31 de 2010 Dezembro Balance as de at 2010 31 December 2010

Total 1,835,293,880 89,630,520 12,091,916 (281,489,976) (164,773,415) 1,490,752,925 36,779,018 141,554,489 (131,220,336) 450,674,906 (1,021,676,397) 966,864,605

(i) In 2009, payments and contributions relating to pension benefits include a contribution in kind of several real estate properties amounting to Euro 33,036,928 (Note 14.1) , with the remaining Euro 77,313,641 (Note 14.4) being related to payments and relativos contributions in cash. (i) In 2009, payments (i) Em 2009, and contributions os pagamentos relating e contribuies to pension benefits include a penses a contribution e complementos in kindde of reforma several real incluem estate contribuies properties amounting em espcie to de Euro determinados 33,036,928 imveis (Note 14.1) no valor , with de the 33.036.928 remainingeuros Euro 77,313,641 (Nota 14.1),(Note sendo 14.4) que being o montante related remanescente to payments and de 77.313.641 contributions euros in cash. (Nota

Net post retirement Valor lquido obligations das Net responsabilidades were post recognized retirement in com the obligations consolidated planos de were penses statement recognized e sade of financial reconhecidos in the consolidated position na demosntrao statement consolidada of financial da position posio financeira
Euro

2010 Plans with a deficit Planos position: com uma Plans situao with deficitria a deficit position: Pensions Penses Pensions Healthcare Cuidados de Sade Healthcare Salaries to pre-retired Salrios de and pr-reformados suspended Salaries employees to e pre-retired suspensos and suspended employees Plans with a surplus Planosposition: com uma Plans situao with excedentria a surplus position: Pensions Penses Pensions Healthcare Penses Cuidadose de Sade Healthcare Pension benefits compl. de Health care Cuidados benefits de sade 27,700,623 16,767,576 924,324,397 968,792,596 (1,927,991) (1,927,991) 966,864,605

2009 766,130,901 768,659 791,441,961 1,558,341,521 (1,279,839) (66,308,757) (67,588,596) 1,490,752,925

Salaries to Salrios

14.5. Cash flows 14.5. relating Fluxos to ,post de caixa 14.5. retirement com Cash osbenefit planos flows plans derelating benfcios de toreforma ,post

retirement benefit plans

Euro

euros 2010

Euro

2009 75,740,968 1,572,673 77,313,641 (26,240,462) 23,005,413 (3,235,049) 174,374,456 2,712,743 177,087,199 251,165,791

Pensions Penses Pensions Contributions toContribuies the funds (Note para Contributions 14.1) os fundos (Nota to the 14.1) funds (Note 14.1) Payments of pensions Pagamentos to pre-retired de Payments penses and suspended aof pr-reformados pensions employees to pre-retired e suspensos (Note and 14.1) (Nota suspended 14.1) employees (Note 14.1) Sub total (Note Sub 14.4) total (Nota 14.4) Sub total (Note 14.4) Health care Cuidados de sade Health care Refunds (Note 14.2) Reembolsos (Nota Refunds 14.2) (Note 14.2) Payments of health Pagamentos care expenses de Payments despesas (Note 14.2) com of health cuidados care expenses de sade (Nota (Note 14.2) 14.2) Sub total (Note Sub 14.4) total (Nota 14.4) Sub total (Note 14.4) Other payments Outros pagamentos Other payments Payments of salaries Pagamentos to pre-retired de Payments salrios and suspended a pr-reformados of salaries employees to pre-retired e suspensos (Note and 14.4) suspended (Nota 14.4) employees (Note 14.4) Termination payments Pagamento (Note por 14.6) cessao Termination depayments contrato de (Note trabalho 14.6)(Nota 14.6) Payment to the Pagamento Portuguese ao State Estado Payment related Portugus to to the the Portuguese transfer relativoof pension transferncia State related plans dos to the planos transfer de penses of pension plans Sub total Sub total Sub total

35,535,127 824,091 36,359,218 (84,309,869) 18,882,633 (65,427,236) 160,288,354 3,958,763 100,000,000 264,247,117 235,179,099

14.6. Post retirement benefit costs

Euro

2010 Post retirement benefits Pension benefits (Notes 14.1 and 14.4) Health care benefits (Notes 14.2 and 14.4) Salaries (Notes 14.3 and 14.4) Other (i) Curtailment and settlement costs (ii) Pensions (Notes 14.1 and 14.4) Health care (Notes 14.2 and 14.4) Salaries (Notes 14.3 and 14.4) Termination payments (Note 14.5) 1,406,736 (4,237,718) 39,610,000 1,430,820 38,209,838 4,651,582 2,694,286 134,208,621 3,958,763 145,513,252

2009 40,472,520 1,857,000 47,301,000 89,630,520 1,575,755 10,516,161 2,712,743 14,804,659

14.7. Net Actuarial Losses (gains)

Euro

2010 Changes in actuarial assumptions Pension benefits (Note 14.1) Health care benefits (Note 14.2) Salaries (Note 14.3) Sub-total Differences between actual data and actuarial assumptions Pension benefits (Note 14.1) Health care benefits (Note 14.2) Salaries (Note 14.3) Sub-total Total (Notes 14.4 and 41.5) 345,774,504 40,384,304 55,628,537 441,787,345 37,236,662 (21,960,433) (6,388,668) 8,887,561 450,674,906

2009 52,082,837 (60,661,145) 6,917,844 (1,660,464) (98,742,304) (57,716,646) (6,654,001) (163,112,951) (164,773,415)

14.8. Other disclosures

Euro

Projected benefit obligations (i) Plan assets at fair value (i) Net unfunded obligations Prior years' service gains Responsibilities for post retirement benefits, net

2010 1,396,705,310 448,145,688 948,559,622 18,304,983 966,864,605

2009 3,836,915,409 2,369,524,484 1,467,390,925 23,362,000 1,490,752,925

2008 3,941,510,416 2,131,646,536 1,809,863,880 25,430,000 1,835,293,880

2007 4,203,125,154 2,899,144,514 1,303,980,640 25,891,000 1,329,871,640

2006 4,562,597,772 2,908,149,704 1,654,448,068 19,062,000 1,673,510,068

(i) The decrease in these captions is primarily related to the transfer of the defined benefit pension plans to the Portuguese State, as mentioned above.

Euro

Changes in actuarial assumptions Differences between actual data and actuarial assumptions Projected benefit obligations related Plan assets related Total net actuarial losses (gains)

2010 441,787,345 (67,472,319) 76,359,880 450,674,906

2009 (1,660,464) 15,523,139 (178,636,090) (164,773,415)

2008 (232,309,178) 26,821,855 800,296,495 594,809,172

2007 (150,947,555) (208,946,281) 74,656,771 (285,237,065)

2006 (222,328,000) (80,226,800) (16,860,413) (319,415,213)

16. Net interest expenses

Euro

2010 Interest expense Related to loans obtained and financial instruments Other Interest income Related to cash, short-term investments and financial instruments Other 282,729,191 1,424,231 (79,815,461) (19,293,026) 185,044,935

2009 257,997,581 5,930,533 (31,390,045) (5,046,914) 227,491,155

17. Net gains on financial assets and other investments

Euro

Derivative financial instruments (Note 42) (i) Real estate investments (ii) Other, net

2010 (740,501) (792,832) (326,954) (1,860,287)

2009 (5,814,792) (940,220) (1,312,556) (8,067,568)

(i) This caption relates to the change in the fair value of certain free-standing derivatives. Gains recorded in 2009 are primarily explained by a gain of Euro 5,690,132 related to the impact on a free-standing cross currency derivative resulting from the appreciation of the US Dollar against the Euro until April 2009, when this financial instrument was settled. This caption also includes the impact of the change in fair value of interest rate derivatives. (ii) This caption includes gains related to rents received from real estate rented to third parties, net of the corresponding amortization of these assets.

18. Net other financial expenses

Euro

2010 Bank commissions and expenses Other 25,952,241 7,348,289 33,300,530

2009 26,006,598 9,708,953 35,715,551

19. Income taxes

a) Deferred Taxes
Euro

Increases and reductions Other reserves and acumul. earnings Net Income (ii) (iii) 112,672,609 (18,037) 112,654,572 720,691 720,691 111,933,881 (979,097) 3,143,037 (1,048,236) (277,578) 838,126 (105,824) 508,561 402,737 435,389

Change in Tax Rate Other reserves Foreign currency Changes in and acumul. translation Transfers and other consolidat. earnings adjust. (iv) movements perimeter nt. 20 (i) (26,924,481) (26,924,481) (14,181,908) (23,354) (14,205,262) (12,719,219) 18,238,721 6,786,636 13,613,254 38,638,611 20,008,228 20,008,228 18,630,383 (65,168) 4,612,194 4,547,026 (94,241) 717,527 623,286 3,923,740 (199,926,955) (82,680,665) (149,710,535) (432,318,155) (134,494,091) (134,494,091) (297,824,064)

Balance 31 Dec 2009 Deferred tax assets Accrued post-retirement liability Tax losses carryforward Provisions and adjustments Additional contribution to pension funds Financial instruments Other Deferred tax liabilities Revaluation of fixed assets Gains on disposals of investments 395,049,525 211,674,665 123,278,281 124,179,032 1,114,304 164,215,321 1,019,511,128 258,470,817 2,050,322 222,591,195 483,112,334

Other (vi) (7,683,306) (29,986,431) 8,382,717 (30,611,749) 3,343,070 (7,315,930) (63,871,629) (15,782,658) (322,381) (43,609,089) (59,714,128) (4,157,501)

Balance 31 Dec 2010 472,135,250 58,844,838 92,519,047 4,439,337 25,136,726 653,075,198 228,412,010 1,622,117 66,419,668 296,453,795

(i) Changes in the consolidation perimeter correspond to 50% of Vivos deferred tax assets and liabilities following the completion of the disposal of the 50% stake in Brasilcel in September 2010. (ii) The split between continuing and discontinued operations of changes in deferred taxes recorded through net income in 2010 and 2009 is as follows: Euro

2010 Continuing operations Discontinued operations 24,867,108 (28,589,220) (3,722,112)

2009 (74,556,616) (1,683,596) (76,240,212)

(iii) The impacts on net income resulting from changes in tax rate correspond primarily to the revision of the tax rate applicable for certain companies located in Portugal, namely related to the above mentioned increase in the statutory tax rate in Portugal and to the decrease in the tax rate applicable for certain companies that are expected to present tax losses in the following years. (iv) Foreign currency translation adjustments are primarily related to the impact of the appreciation of the Brazilian Real against the Euro up to the completion of the disposal of the 50% stake in Brasilcel. (v) The increase in this caption corresponds to the tax effect associated with the equity component of the exchangeable bond obtained by Portugal Telecom in 2007 (Note 35), which was recognized as a result of changes occurred in the Portuguese tax legislation in 2010. (vi) Other deferred tax liabilities correspond primarily to the tax effect on unpaid dividends from associated companies.

20. discontinued operations

Detail o f net income from discontinued operations
Euro

2010 Net gain recorded in connection with the disposal of Brasilcel Capital gain CTA's transferred to net income following the sale Impact of the present value of the receivable from Telefnica Costs related to the sale Net income before non-controlling interests of Vivo CTA's transferred to net income following share capital reductions Net income from discontinued operations Vivo's results (PTs 50% share) 4,389,916,509 1,134,159,099 (46,753,264) (54,281,187) 5,423,041,157 110,444,523 31,940,853 5,565,426,533

2009 60,858,300 21,603,864 82,462,164

Euro

Revenues Costs: Wages and salaries Direct costs Commercial costs Depreciation and amortization (Notes 33 and 34) Other costs Total costs Income before financial results and taxes Financial gains and (losses) Income before income taxes Provision for income taxes Net income

2010 2,593,095,228 150,109,495 545,450,454 555,099,483 530,428,173 567,996,080 2,349,083,685 244,011,543 (38,752,802) 205,258,741 (94,814,218) 110,444,523

2009 3,138,075,094 160,957,440 613,445,841 721,675,466 719,336,521 700,353,327 2,915,768,595 222,306,499 (113,236,843) 109,069,656 (48,211,356) 60,858,300

Os activos e passivos relativos a operaes descontinuadas na data da venda e em 31 de Dezembro de 2009

Euro

2010 Assets: Current assets Intangible assets (Note 33) Tangible assets (Note 34) Deferred taxes (Note 19) Other non-current assets Total assets Liabilities: Current liabilities Medium and long-term debt Deferred taxes (Note 19) Other non-current liabilities Total liabilities Equity excluding non-controlling interests Non-controlling interests Total equity Total liabilities and shareholders' equity 1,456,657,504 3,115,051,129 1,271,300,163 432,318,155 299,323,133 6,574,650,084 1,344,666,287 764,475,652 134,494,091 171,516,849 2,415,152,879 3,110,083,492 1,049,413,713 4,159,497,205 6,574,650,084

2009 1,215,622,389 2,973,562,598 1,305,840,206 418,299,378 236,379,670 6,149,704,241 1,273,655,294 831,134,229 119,187,849 120,393,458 2,344,370,830 2,898,407,431 906,925,980 3,805,333,411 6,149,704,241

Detail of cash flows from investing activities

euros

2010 Disposal of the 50% stake previously held by Portugal Telecom (i) Share capital reductions at Brasilcel (ii) Proportional consolidation of Vivos cash flows from investing activities Cash flow from investing activities 5,474,967,956 89,935,775 (191,295,243) 5,373,608,488

2009 73,338,220 (374,323,574) (300,985,354)

(i) This caption includes Euro 5,500 million (Note 1) related to the first and second instalments received from Telefnica in connection with the disposal of the 50% stake in Brasilcel, net of related expenses. (ii) This caption corresponds to cash receipts resulting from share capital reductions undertaken by Brasilcel prior to the sale of this investment, which are included in Vivos cash flows from financing activities, as detailed below.

Portugal Telecoms 50% stake of the cash flows of Vivo in 2010, up to the conclusion of the sale of this business, and in the year ended 31 December 2009
euros

2009 OPERATING ACTIVITIES Collections from clients Payments to suppliers Payments to employees Payments relating to income taxes Payments relating to indirect taxes and other Cash flow from operating activities INVESTING ACTIVITIES Cash receipts resulting from: Interest and related income Other investing activities Payments resulting from: Financial investments Tangible and intangible assets Other investing activities Cash flow from investing activities FINANCING ACTIVITIES Cash receipts resulting from: Loans obtained Increases in share capital and paid-in surplus Other financing activities Payments resulting from: Loans repaid Interest and related expenses Dividends Share capital reductions Cash flow from financing activities 2,893,087,731 (1,863,175,077) (152,705,823) (25,099,067) (249,074,381) 603,033,383

2008 3,460,315,478 (2,203,235,794) (166,882,518) (23,362,326) (220,595,115) 846,239,725

11,349,529 5,616,759 16,966,288 (207,313,414) (948,117) (208,261,531) (191,295,243)

27,648,483 12,861,648 40,510,131 (411,097,814) (3,735,891) (414,833,705) (374,323,574)

172,578,466 3,299,354 175,877,820 (336,418,441) (74,696,080) (32,706,668) (89,935,775) (533,756,964) (357,879,144)

353,878,572 13,455,882 30,329,429 397,663,883 (775,524,360) (179,054,648) (47,914,412) (73,338,220) (1,075,831,640) (678,167,757)

21. Non-controlling interests

Euro

Brasilcel (ii) MTC Cabo Verde Telecom Africatel Dedic (iii) Timor Telecom CST LTM Previso Kenya Postel Directories Other

Balance 31 Dec 2009 (restated) 906,925,980 67,246,405 52,146,099 23,710,534 9,082,848 2,188,308 1,572,039 759,283 1,512,151 3,991,565 1,069,135,212

Acquisitions (disposals) and share capital increases (decreases) (1,049,413,713) (7,363,103) 8,666,366 (1,048,110,450)

Net income 61,299,227 24,874,186 14,169,848 33,865,108 250,722 8,037,518 448,446 1,049,728 (181,409) 863,894 3,194,567 147,871,835

Dividends (27,926,299) (22,818,501) (6,141,784) (410,351) (858,612) (719,634) (2,608,539) (61,483,720)

Currency translation adjustments (i) 81,188,506 14,381,448 11,985,478 1,010,553 595,548 29,934 95,996 (4,208) 52,864 109,336,119

Other movements (328,686) 256,835 4,500 14 (45,724) 45 25,394 35,199 (52,423)

Balance 31 Dec 2010 78,575,740 43,168,760 62,454,852 9,932,141 11,574,144 2,256,337 1,813,427 577,919 1,677,597 4,665,656 216,696,573

(i) Foreign currency translation adjustments are primarily related to the impact of the appreciation of the Brazilian Real against the Euro. (ii) The movement in Brasilcel under the caption Acquisitions, disposals and share capital increases (reductions) corresponds to Vivos non-controlling interests as of the date this business was disposed. (iii) The movement in Dedic under the caption Acquisitions, disposals and share capital increases (reductions) resulted from the acquisition of GPTI, as the purchase price included the issuance of shares of Dedic corresponding to a 12.5% stake (Note 2).

Euro

Balance 1 Jan 2009 (restated) Brasilcel (ii) MTC Cabo Verde Telecom Africatel Timor Telecom CST LTM Previso Kenya Postel Directories Other

Acquisitions (disposals) and share capital increases (decreases)

Net income

Dividends

Currency translation adjustments (i)

Other movements

Balance 31 Dec 2009 (restated)

823,725,500 54,468,291 48,919,469 19,777,686 8,337,633 1,782,031 1,814,965 766,210 1,272,946 3,345,664 964,210,395

(91,595,489) 311,246 (91,284,243)

42,594,986 22,381,879 17,370,603 11,287,265 5,933,700 745,093 978,883 558 772,810 2,386,256 104,452,033

(103,314,015) (23,067,593) (14,141,494) (5,100,000) (5,101,041) (106,296) (919,698) (506,213) (1,790,346) (154,046,696)

236,767,151 13,463,828 (2,103,206) (82,868) (242,079) (487,509) (16,615) (47,344) 247,251,358

(1,252,153) (2,479) (151,211) (4,576) 9,559 185,398 (7,485) (10,777) 0 (1,233,724)

906,925,980 67,246,405 52,146,099 23,710,534 9,082,848 2,188,308 1,572,039 759,283 1,512,151 3,991,565 1,069,135,212

(i) Foreign currency translation adjustments are primarily related to the impact of the appreciation of the Brazilian Real against the Euro. (ii) The movement in Brasilcel under the caption Acquisitions, disposals and share capital increases (reductions) includes an amount of Euro 103,641,467 (Note 41.5) related to the corporate restructuring undertaken by Vivo Participaes in July 2009, which consisted of the merger of shares of Telemig Celular into Telemig Celular Participaes and the merger of shares of Telemig Celular Participaes into Vivo Participaes.

23. Earnings per share

Euro

2010 Income from continuing operations, net of non-controlling interests Income from discontinued operations, net of non-controlling interests Net income attributable to equity holders of the parent Financial costs related to exchangeable bonds (net of tax) Net income considered in the computation of the diluted earnings per share

2009

(1) (2) (3) (4) (5) (6) (7)

168,067,661 5,504,127,306 5,672,194,967 28,631,462 5,700,826,429 875,872,500 64,655,173 940,527,673 0.19 0.19

644,866,965 39,867,178 684,734,143 30,153,400 714,887,543 875,872,500 64,655,173 940,527,673 0.74 0.72

Earnings per share from continuing operations, net of non-controlling interests Basic Diluted Earnings per share from discontinued operations, net of non-controlling interests

(1)/(6) [(1)+(4)]/(7)

25. Accounts receivable - trade

Euro

2010 Current accounts receivable - trade: Accounts receivable from customers Unbilled revenues Sub-total Adjustments for doubtful accounts receivable - trade (Note 39) 1,165,301,965 212,658,107 1,377,960,072 (323,931,472) 1,054,028,600

2009 1,512,618,691 270,250,780 1,782,869,471 (384,005,127) 1,398,864,344

26. Accounts receivable - other

Euro

2010 Current accounts receivable - other Receivable from Telefnica (i) Receivables from related parties (ii) Accrued interest income (iii) Advances to suppliers Contributions from SNS (iv) Trial deposits (v) Other Sub-total Adjustments for other current accounts receivable (Note 39) Other non-current accounts receivable Adjusments for other non-current accounts receivable (Note 39) 1,967,387,207 254,607,148 37,429,783 25,720,865 8,711,396 1,629 54,082,194 2,347,940,222 (17,844,605) 2,330,095,617 17,661,730 17,661,730

2009 64,932,314 892,397 33,471,228 8,711,396 27,646,138 45,426,085 181,079,558 (11,371,834) 169,707,724 11,146,480 (2,301,245) 8,845,235

(i) This caption corresponds to the present value of the Euro 2,000 million (Note 20) outstanding receivable from Telefnica in connection with the disposal of the 50% stake in Brasilcel, which shall be received no later than 31 October 2011. (ii) This caption includes primarily dividends receivable from Unitel. In 2010, Unitel attributed dividends to Portugal Telecom totalling $US 332.5 million (Note 31), including an ordinary dividend of US$ 175 million related to the year 2009 and an extraordinary dividend of $US 157.5 million related to unpaid dividends from previous years, both of which are due as at 31 December 2010, equivalent to Euro 249 million (Note 45). In 2009, Unitel attributed dividends to Portugal Telecom related to the year 2008 amounting to US$ 150 million, of which US$ 90 million were received in 2009 (Note 44.e) and the remaining US$ 60 million (Notes 44.e and 45), which were recognised as an account receivable amounting to Euro 42 million as at 31 December 2009 (Note 45), and were subsequently received in 2010. (iii) The increase in this caption is primarily explained by the increase in cash and cash equivalents following the proceeds received under the disposal of the 50% stake in Brasilcel. (iv) These contributions are related to the agreement with the SNS regarding the Health Care Plan, under which this entity co-financed the plan. This agreement was terminated during 2006 under a restructuring of the Health Care Plan. In order to cover the recoverability risk, these receivables are fully adjusted for as at 31 December 2010. (v) The balance of this caption as at 31 December 2009 was basically related to Vivo.

27. Inventories

Euro

Merchandise (i) Raw materials and consumables Work in progress Sub-total Adjustments for obsolete and slow-moving inventories (Note 38)

2010 98,466,392 41,162,690 8,631,552 148,260,634 (46,744,879) 101,515,755

2009 228,572,115 42,211,966 8,884,680 279,668,761 (39,791,436) 239,877,325

(i) As at 31 December 2010, this caption includes mainly mobile terminal equipments from TMN and telephones, modems (internet access through ADSL), and set-top boxes from the wireline business. The reduction in this caption is primarily related to the disposal of Vivo, which had merchandise amounting to Euro 91 million as at 31 December 2009.

28. Impostos a pagar e a recuperar

Euro

2010 Receivable Current taxes Operations in Portugal Value-added tax Income taxes Personnel income tax witholdings Social Security Contributions Other Taxes in foreign countries Non-current taxes Taxes in foreign countries 267,622 3,805,301 196,429,460 16,788,500 6,556,347 23,344,847 14,200,474 37,545,321 12,166,324 3,051,817 2,512,405 7,395,470 443,307 25,569,323 31,841,517 57,410,840 10,725,838 52,190,849 62,916,687 191,848,837 254,765,524 Payable Receivable

2009 Payable

42,958,244 16,238,244 6,446,569 6,098,066 749,773 72,490,896 221,400,469 293,891,365 59,217,420

Euro

2010 Receivable Current taxes: Income taxes Indirect taxes Other Non-current taxes: Income taxes Indirect taxes 267,622 267,622 1,694,724 2,110,577 3,805,301 145,736,818 50,692,642 196,429,460 5,905,999 8,294,475 14,200,474 20,631,947 121,175 11,088,395 31,841,517 26,350,774 155,880,038 9,618,025 191,848,837 Payable Receivable

2009 Payable 30,605,091 163,748,829 27,046,549 221,400,469 1,207,087 58,010,333 59,217,420

Euro

2010 Current income taxes of the operations in Portugal recorded in the balance sheet Payments on account Witholding income taxes, net Income taxes receivable Income tax receivable from operations in Portugal (59,230,043) 56,400,355 5,050,040 1,284,178 3,504,530

2009 (83,407,633) 107,947,186 2,984,862 8,428,190 35,952,605

Euro

2010 Current income taxes of the operations in Portugal recorded in the balance sheet Foreign current income taxes of international subsidiaries Excess provision for income taxes of the previous year (Note 19) Increases and decreases in provisions for income tax contingencies (Notes 19 and 39) Other 59,230,043 37,302,594 (3,697,527) 13,795,652 3,980,384 110,611,146

2009 83,407,633 25,436,727 6,541,389 (1,434,464) 55,523 114,006,808

Euro

2010 Income taxes (Note 19) Accumulated earnings Discontinued operations (i) 102,392,956 11,784,150 (3,565,960) 110,611,146

2009 111,333,541 2,673,267 114,006,808

29. Prepaid expenses

Euro

2010 Marketing and publicity expenses paid in advance (i) Telephone directories Rentals Maintenance and repairs Interest paid in advance Sales of equipment (i) Other 6,366,138 4,661,786 5,984,088 5,881,592 1,944,918 14,779,278 39,617,800

2009 29,508,842 12,481,437 8,536,475 3,654,121 2,116,189 59,416,705 21,548,758 137,262,527

(i) The reduction in these captions is primarily explained by Vivos contribution as at 31 December 2009, as Portugal Telecom no longer consolidated Vivos assets and liabilities as at 31 December 2010.

30, Other current and non-current assets

Euro

2010 Other current assets Accounts receivable from QTE transactions (Notes 3.l.viii) and 40) Other Other non-current assets Accounts receivable from QTE transactions (Notes 3.l.viii) and 40) Other (i) 24,558,468 1,088,533 25,647,001 273,592,641 1,048,115 274,640,756

2009 20,201,231 1,990,138 22,191,369 276,544,156 37,659,398 314,203,554

31. Investments in group companies

Euro

Investments in associated companies Goodwill, net of impairment losses Loans granted to associated companies and other companies Investments in other companies Advances for investments

2010 233,382,020 110,252,939 15,946,116 1,876,527 60,000 361,517,602

2009 396,437,713 170,168,216 23,566,794 2,537,325 4,500,000 597,210,048

Investments in associated companies

Euro

Unitel (i) CTM - Companhia de Telecomunicaes de Macau, SARL ("CTM") (ii) Pginas Amarelas, SA ("Pginas Amarelas") Hungaro Digitel KFT INESC - Instituto de Engenharia de Sistemas e Computadores (iii) UOL (iv) Guin Telecom, SARL (v) Other companies Adjustments for investments in associated companies (Note 39)

2010 178,567,914 43,887,468 5,378,105 3,261,164 2,992,788 2,287,369 236,374,808 (2,992,788) 233,382,020

2009 262,363,774 29,050,716 4,531,768 3,360,824 2,992,788 94,157,510 2,907,534 2,973,120 402,338,034 (5,900,321) 396,437,713

(i) The change in the carrying value of this investment is explained by Portugal Telecoms share in the earnings of Unitel (Euro 146 million) and dividends attributed by this associated company totalling (Euro 260 million, equivalent to $US 332.5 million - Note 26), and also by the impact of the appreciation of the US Dollar against the Euro in 2010 (Euro 31 million). (ii) The increase in the carrying value of this investment is primarily explained by Portugal Telecoms share in the earnings of CTM (Euro 21 million), partially offset by dividends attributed by this associated company amounting to Euro 8 million. (iii) As at 31 December 2010, this investment is fully adjusted for. (iv) As mentioned above, the Companys share in the shareholders equity of UOL as at 31 December 2010 amounting to Euro 120,576,690 was included under the caption Non-current assets held for sale, following the agreement for the disposal of this associated company. The change in the carrying value of this investment in 2010 is basically explained by Portugal Telecoms share in the earnings of UOL (Euro 12 million) and by the impact of the appreciation of the Brazilian Real against the Euro in 2010 (Euro 13 million). (v) This investment, which was fully adjusted for as at 31 December 2009, was sold during the year ended 31 December 2010 for an amount of Euro 0.2 million.

Goodwill, net of impairment losses

Euro

Pginas Amarelas Unitel UOL (i)

2010 83,754,434 26,498,505 110,252,939

2009 83,754,434 26,498,505 59,915,277 170,168,216

(i) As mentioned above, goodwill related to this investment as at 31 December 2010 amounting to Euro 39,871,356 was included under the caption Noncurrent assets held for sale, following the agreement for the disposal of this associated company. Accordingly, in 2010, in order to adjust the carrying value of the total investment in UOL to its recoverable amount, Portugal Telecom recognized an impairment loss of Euro 28 million (Notes 7 and 19) on the goodwill related to this associated company.

Loans granted to associated companies and other companies

euros

Sportinveste Multimdia (i) INESC Siresp Outras empresas Adjustments for loans granted to associated and other companies (Note 39) Adjustments related to the equity accounting on financial investments (Note 39) (ii)

2010 33,618,668 3,018,566 4,292,800 3,165,153 44,095,187 (2,588,741) (25,560,330) 15,946,116

2009 35,318,668 3,104,531 4,179,410 931,675 43,534,284 (2,588,741) (17,378,749) 23,566,794

(i) In 2010, Sportinveste Multimdia repaid shareholder loans amounting to Euro 1,700,000. Accordingly, the balance of this caption as at 31 December 2010 includes Euro 30,023,168 of additional paid-in capital contributions and Euro 3,595,500 of shareholder loans granted to this associated company. (ii) This caption corresponds to accumulated losses resulting from the equity method of accounting in excess of the value of investments in associated companies, which for that reason are recorded as a reduction to the value of loans granted to those associated companies. These adjustments as at 31 December 2010 and 2009 are related to the investment in Sportinveste Multimedia. If accumulated losses resulting from the equity method of accounting exceed the total investment amount (including loans) of any associated company, a provision is recorded under the caption Provisions for other risks and costs Other, whenever the Group has assumed responsibilities with that associated company. As at 31 December 2010 and 2009, the Group has recorded provisions amounting to Euro 1,518,114 and Euro 4,672,403 (Note 39), respectively.

Investments in other companies

euros

Janela Digital Other companies Sub-total Adjustments for investments in group companies (Note 39)

2010 1,592,652 2,930,657 4,523,309 (2,646,782) 1,876,527

2009 1,830,571 3,271,781 5,102,352 (2,565,027) 2,537,325

Equity in earnings of associated companies, net

euros

Unitel CTM UOL (i) Sportinveste Multimdia (ii) Mdi Tlcom (iii) Outras

2010 145,852,610 21,463,141 (14,300,133) (8,181,581) (3,124,933) 141,709,104

2009 152,639,642 18,649,192 10,603,315 (256,337) 277,661,123 (3,253,390) 456,043,545

(i) In 2010, as explained above, this caption includes an impairment loss of Euro 28 million recognized in order to adjust the carrying value of this investment to its recoverable amount obtained through a sale transaction that was concluded in January 2011 (Note 47). (ii) In 2010, Portugal Telecom recognized an impairment loss of Euro 8.0 million on the investment in this associated company following an impairment analysis made to this investment. The related recoverable amount was computed based on a value in use through a discounted cash flow methodology, using a detailed forecast of cash flows for a 4 year period, which was prepared internally. The recoverable amount was computed for a minimum and maximum value of the discount rate applied to the projected cash flows (7.7% and 9.7%) and of the growth rate used to extrapolate cash flow projections beyond the period covered by the forecasts (2.5% and 3.0%). (iii) In 2009, this caption includes Portugal Telecoms share in the earnings of this company amounting to Euro 10,685,491 and a capital gain of Euro 266,975,632 (Notes 1, 7 and 19) related to the disposal of the investment in this company, which is net of transaction expenses and guarantees given to the buyers. The disposal of this investment was concluded in December 2009 and Portugal Telecom received total proceeds of Euro 400 million (Note 44.d) in connection with this transaction.

31. Investments in group companies (cont.)

Sumarized financial data of the main associated companies 2010 Direct percentage of ownership Unitel UOL CTM 25.0% 28.8% 28.0% Total assets 1,848,005,721 575,136,817 223,196,354 Total liabilities 1,133,734,065 156,143,886 66,455,397 Shareholders' equity 714,271,656 418,992,931 156,740,957 Operating revenues 1,132,798,948 248,604,332 260,085,092
Euro

Net income 583,410,440 47,522,625 76,654,075

2009 Direct percentage of ownership Unitel UOL CTM 25.0% 28.8% 28.0% Shareholders' equity 1,049,455,096 327,188,705 103,752,557 Operating revenues 1,119,871,060 209,446,050 219,169,241

Euro

Total assets 1,589,575,075 416,137,060 155,382,354

Total liabilities 540,119,979 88,948,355 51,629,797

Net income 610,558,568 36,845,546 66,604,257

32. Other investments

Euro

Real estate investments, net of accumulated amortisation Other financial investments Adjustments for other investments (Note 39) Adjustments for real estate investments (Note 39)

2010 15,145,809 2,970,750 18,116,559 (411,902) (24,043) 17,680,614

2009 13,793,420 7,753,328 21,546,748 (4,471,507) (189,316) 16,885,925

Investimentos detidos at maturidade

Euro

Tagusparque Seguradora Internacional Other Sub-total Adjustments for other investments (Note 39)

2010 1,296,875 617,224 1,056,651 2,970,750 (411,902) 2,558,848

2009 1,296,875 617,224 5,839,229 7,753,328 (4,471,507) 3,281,821

33. Intangible fixed assets

Euro

Balance 31 Dec 2009 (restated) Cost Industrial property and other rights Goodwill Other intangible assets In-progress intangible assets Accumulated depreciation Industrial property and other rights Other intangible assets 5,028,444,726 1,162,224,812 38,569,669 29,918,739 6,259,157,946 2,155,816,362 29,038,386 2,184,854,748 4,074,303,198

Increases 122,265,148 48,881,931 3,120,329 42,292,828 216,560,236 293,145,320 5,493,520 298,638,840 (82,078,604)

Foreign currency translation adjustments 353,788,551 90,991,241 737,406 2,343,027 447,860,225 157,739,620 558,291 158,297,911 289,562,314

Transfers and other movements 32,218 (2,763,037) (3,660,755) (24,530,042) (30,921,616) 32,973,190 (8,856,139) 24,117,051 (55,038,667)

Alteraes no permetro de consolidao (4,176,916,941) (882,719,789) (8,939,581) (23,942,676) (5,092,518,987) (1,970,436,544) (7,026,786) (1,977,463,330) (3,115,055,657)

Balance 31 Dec 2010 1,327,613,702 416,615,158 29,827,068 26,081,876 1,800,137,804 669,237,948 19,207,272 688,445,220 1,111,692,584

Euro

Balance 1 Jan 2009 (restated) Cost Industrial property and other rights Goodwill (Note 2) Other intangible assets In-progress intangible assets Accumulated depreciation Industrial property and other rights Other intangible assets

Foreign currency translation Increases adjustments

Transfers and other movements

Balance 31 Dec 2009 (restated)

3,928,768,010 942,192,125 35,019,998 43,396,397 4,949,376,530 1,439,547,564 23,591,236 1,463,138,800 3,486,237,730

165,400,468 1,270,552 67,049,124 233,720,144 364,395,187 5,770,344 370,165,531 (136,445,387)

827,798,882 195,269,553 1,723,070 15,165,858 1,039,957,363 329,948,076 1,230,612 331,178,688 708,778,675

106,477,366 24,763,134 556,049 (95,692,640) 36,103,909 21,925,535 (1,553,806) 20,371,729 15,732,180

5,028,444,726 1,162,224,812 38,569,669 29,918,739 6,259,157,946 2,155,816,362 29,038,386 2,184,854,748 4,074,303,198

Euro

Wireline business Vivo (i) Other businesses (Note 7.d) MTC (ii) GPTI (iii) PT SI Cabo Verde Telecom Other

2010 270,955,133 77,972,985 51,571,809 8,956,960 7,124,252 34,019 145,660,025 416,615,158

2009 270,955,133 810,365,807 64,788,641 8,956,960 7,124,252 34,019 80,903,872 1,162,224,812

(i) Following the sale of the 50% stake in Brasilcel completed in September 2010, goodwill related to the Brazilian mobile business is no longer consolidated as at 31 December 2010. (ii) The change in this caption is primarily related to the impact of the appreciation of the Namibian Dollar against the Euro during the year ended 31 December 2010. (iii) This caption is related to the goodwill generated in the acquisition of GPTI, which amounted to Euro 48,881,931 (Note 2). The appreciation of the Brazilian Real against the Euro in 2010 resulted in the increase of this goodwill to the amount recorded as at 31 December 2010.

Assumptions Growth rates Discount rates

Wireline 0.5% - 1.0% 8.2% - 10.2%

Other 0.5% to 2.5% - 1.0% to 3.0% 8.2% to 13.3% - 9.7% to 15.3%

34. Tangible assets 34. Activos tangveis 34.

Tangible assets

Euro

euros Balance 31 Dec 2009 (restated) Foreign currency translation adjustments 1,825,338 9,136,606 388,281,961 487,067 999,606 21,571,543 432,544 8,618,833 (18,078) 431,335,420 3,549,050 271,546,107 231,781 494,489 14,726,484 82,305 290,630,216 140,705,204 Alteraes no permetro de consolidao (21,893,342) (66,831,441) (4,150,214,502) (3,433,780) (6,359,021) (247,593,971) (4,056) (73,047,062) (4,569,377,175) (21,246,514) (3,090,239,667) (1,976,840) (4,612,563) (179,597,951) (326,872) (3,298,000,407) (1,271,376,768)

Euro

Increases 61,325,452 198,638,310 506,051,400 18,550,988 1,715,488 58,560,167 1,425,664 284,732,803 286,798 1,131,287,070 49,285,353 838,494,142 13,048,903 1,722,406 86,163,040 1,643,302 990,357,146 140,929,924

Transfers and other movements (4,018,787) 3,374,353 (192,945,229) (10,758,853) 272,302 25,800,934 219,753 (266,077,212) (15,641) (444,148,380) (171,537) (10,342,185) (426,615,587) (8,911,117) (453,924) (18,115,030) (25,854) (464,635,234) 20,486,854

Balance 31 Dec 2010 165,045,024 805,355,545 10,121,678,306 80,951,949 25,519,009 1,062,445,429 54,284,090 221,423,967 511,125 12,537,214,444 9,493,330 253,764,177 7,352,076,475 47,552,684 20,460,427 934,775,304 44,478,633 8,662,601,030 3,874,613,414

Cost Valor de custo Valor de custo Land Terrenos e recursos Terrenos naturais e recursos naturais Buildings andEdifcios other constructions e outrasEdifcios construes e outras construes Basic equipment Equipamento bsico Equipamento bsico Transportation Equipamento equipment de transporte Equipamento de transporte Tools and dies Ferramentas e utenslios Ferramentas e utenslios Administrative Equipamento equipment administrativo Equipamento administrativo Other tangible Outros assetsactivos tangveis Outros activos tangveis In-progress tangible Activosassets tangveis Activos em curso tangveis em curso Advances to suppliers Adiantamentos of tangible por Adiantamentos conta assets de activos por tangveis conta de activos tangveis Accumulated Amortizaes depreciation acumuladas Amortizaes acumuladas Land Terrenos e recursos Terrenos naturais e recursos naturais Buildings andEdifcios other constructions e outrasEdifcios construes e outras construes Basic equipment Equipamento bsico Equipamento bsico Transportation Equipamento equipment de transporte Equipamento de transporte Tools and dies Ferramentas e utenslios Ferramentas e utenslios Administrative Equipamento equipment administrativo Equipamento administrativo Other tangible Outros assetsactivos tangveis Outros activos tangveis

127,806,363 661,037,717 13,570,504,676 76,106,527 28,890,634 1,204,106,756 52,210,185 267,196,605 258,046 15,988,117,509 9,664,867 232,518,473 9,758,891,480 45,159,957 23,310,019 1,031,598,761 43,105,752 11,144,249,309 4,843,868,200

Euro

Balance 1 Jan 2009 (restated) Cost Valor de custo Valor de custo Land Terrenos e recursos Terrenos naturais e recursos naturais Buildings andEdifcios other constructions e outrasEdifcios construes e outras construes Basic equipment Equipamento bsico Equipamento bsico Transportation Equipamento equipment de transporte Equipamento de transporte Tools and dies Ferramentas e utenslios Ferramentas e utenslios Administrative Equipamento equipment administrativo Equipamento administrativo Other tangible Outros assetsactivos tangveis Outros activos tangveis In-progress tangible Activosassets tangveis Activos em curso tangveis em curso Advances to suppliers Adiantamentos of tangible por Adiantamentos conta assets de activos por tangveis conta de activos tangveis Accumulated Amortizaes depreciation acumuladas Amortizaes acumuladas Land Terrenos e recursos Terrenos naturais e recursos naturais Buildings andEdifcios other constructions e outrasEdifcios construes e outras construes Basic equipment Equipamento bsico Equipamento bsico Transportation Equipamento equipment de transporte Equipamento de transporte Tools and dies Ferramentas e utenslios Ferramentas e utenslios Administrative Equipamento equipment administrativo Equipamento administrativo Other tangible Outros assetsactivos tangveis Outros activos tangveis 125,840,884 725,181,974 11,954,096,111 76,118,355 25,377,080 1,082,255,636 52,929,865 308,335,009 321,739 14,350,456,653 10,775,062 251,422,215 8,426,572,350 46,615,120 20,353,787 925,389,799 47,841,452 9,728,969,785 4,621,486,868

Increases 5,834,493 19,889,743 533,612,163 16,540,246 1,347,121 60,403,058 2,403,902 406,745,683 (3,545) 1,046,772,864 46,736,029 914,089,945 12,283,538 2,082,681 89,333,317 1,497,269 1,066,022,779 (19,249,915)

Foreign currency translation adjustments 3,721,771 17,148,489 860,281,573 593,257 1,853,257 47,868,464 (91,144) 60,251,812 (60,148) 991,567,331 5,972,858 611,711,852 275,163 994,474 32,010,484 28,049 650,992,880 340,574,451

Transfers and other movements (7,590,785) (101,182,489) 222,514,829 (17,145,331) 313,176 13,579,598 (3,032,438) (508,135,899) (400,679,339) (1,110,195) (71,612,629) (193,482,667) (14,013,864) (120,923) (15,134,839) (6,261,018) (301,736,135) (98,943,204)

Balance 31 Dec 2009 (restated) 127,806,363 661,037,717 13,570,504,676 76,106,527 28,890,634 1,204,106,756 52,210,185 267,196,605 258,046 15,988,117,509 9,664,867 232,518,473 9,758,891,480 45,159,957 23,310,019 1,031,598,761 43,105,752 11,144,249,309 4,843,868,200

34.2. Increses in tangible 34.2. aumentos assets 34.2. em Increses activos tangiveis in tangible Euro Cost euros 2010

assets
Euro

2010 Valor de custo Cost 692,101,630 235,910,806 203,274,634 1,131,287,070 Accumulated depreciation Amortizaes Accumulated acumuladas depreciation Continuning operations OperaesContinuning continuadasoperations Discontinued operations Operaes (Note Discontinued descontinuadas 20) operations (Nota 20) (Note 20) 645,502,045 344,855,101 990,357,146 140,929,924 Continuning operations OperaesContinuning continuadasoperations Capital expenditures Investimentos (Note 7) Capital em activos expenditures intangveis (Note (Nota 7) 7) Acquisition of real aquisia estate properties de imoveis Acquisition from aos pension of fundos realfunds estate de penses (notes properties 7,c (notas and from 7.c 14,1) pension e 14.1) funds (notes 7,c and 14,1) Discontinued operations OperaesDiscontinued descontinuadas operations

2009

727,451,752 319,321,112 1,046,772,864 622,395,973 443,626,806 1,066,022,779 (19,249,915)

35. Debt

35. Dvida

35. Debt

Euro

euros Short term 174,497,832 3,430,491 178,071,827 88,000,000 27,456,857 480,464,272 951,921,279 2010 Long term 714,242,672 4,375,693,026 662,384,203 47,744,387 454,316,000 6,254,380,288 Short term 41,811,014 244,145,559 167,295 178,071,827 30,289,010 47,195 494,531,900

euros

Exchangeable Emprstimos bonds porExchangeable obrigaes convertveis bonds Bonds Emprstimos porBonds obrigaes no convertveis Bank loans Emprstimos bancrios Bank loans External loans Emprstimos externos External loans Domestic loans Emprstimos internos Domestic loans Liability related Passivo to equity relativo swaps a Liability equity on treasury related swaps shares sobre to equity (Note aces swaps 41.2) prprias on treasury (Nota shares 41.2) (Note 41.2) Commercial paper Papel comercial Commercial paper Leasings Locao financeira Leasings Other financings Outros financiamentos Other financings Short term Corrente Long term No corrente 35.3 Bank loans 35.3 Emprstimos 35.3 bancrios Bank loans

2009 Long term 705,558,383 4,734,508,969 1,027,450,534 83,998,242 6,551,516,128

euros

2010 Currency of the Moeda notional original Euros Brazilian Reais Reais brasileiros Brazilian Reais Other Outras Other Currency of the notional 833,291,288 15,146,150 Euros 833,291,288 6,829,666 191,572 840,312,526 Currency of the notional 678,521,147 1,489,389,323

2009 Euros 678,521,147 593,075,030 167,211 1,271,763,388

i) This revolving credit facility was secured with an initial maturity of two years, which was extended to four years in 2010. (ii) This revolving credit facility replaced a facility issued in October 2004 with the same amount and conditions but an extended maturity. (iii) This revolving credit facility was secured with an initial maturity of three years, which was extended to seven years in 2008. (iv) This revolving credit facility was secured for an initial amount of Euro 150 million and an initial maturity of four years in June 2004, which were changed to Euro 300 million and a maturity of eight years in 2007. i) This revolving (i) Esta credit revolving facility was credit secured facility with foi assegurada an initial maturity com uma of two maturidade years, which inicial was de extended dois anos, to prolongada four years in para 2010.(ii) quatro This anos revolving em 2010.(ii) creditEsta facility revolving replaced credit a facility facility issued substituiu in October uma outra 2004facility with the emitida same em amount Outubro and de conditions 2004 com butoan mesmo extended monta m %

2010 Maximum Minimum Taxa mxima Taxa mnima Maximum Minimum

2009

5.00% 1.34%

5.00% 1.02%

35.5 Leasings 35.5 Locaea 35.5 Leasings

euros

Currency of the Moeda notional original Industrial property Propriedade and other industrial rights Industrial e outros property direitos and other rights Transportation Equipamento equipment de Transportation transporte equipment Other Outros Other Gross amount Valor bruto Accumulated Amortizaes depreciation acumuladas Carrying amount Valor contabilstico Present value Valor actual Finance costs Custos financeiros 2011 Total Total 2012 2013 2014 2015

Gross amount 67,916,398 50,537,812 611,675 119,065,885

Accumulated depreciation 27,498,833 20,808,254 268,430 48,575,517

Carrying amount 40,417,565 29,729,557 343,245 70,490,368

euros

Present value 27,456,857 16,870,842 14,702,962 14,342,574 1,828,009 75,201,244

Finance costs 3,914,546 2,751,505 1,685,230 781,889 38,800 9,171,970

Total 31,371,403 19,622,347 16,388,192 15,124,463 1,866,809 84,373,214

35.7 Medium 35.7 and long Dvida term de debt mdio 35.7 Medium e long prazo and long term debt Maturidade: 2012 2013 2014 2015 2016 and following 2016 e years seguintes2016 and following years
euros

2,004,894,042 1,160,852,209 809,656,657 37,185,152 2,241,792,228 6,254,380,288

35.2 Bonds
Bonds outstanding as at 31 december 2010 issued by PT Finance under EMTN programme
Euro

Debt Eurobond Fixed rate notes Eurobond Fixed rate notes Floating rate notes Eurobond (i) Eurobond Eurobond Transaction costs (ii) Total debt

Notional 750,000,000 250,000,000 1,000,000,000 50,000,000 50,000,000 1,300,000,000 500,000,000 500,000,000 (24,306,974) 4,375,693,026

Issue date 11/2/2009 7/30/2009 4/30/2009 1/30/2009 8/7/2008 3/24/2005 3/24/2005 6/16/2005

Maturity 2019 2017 2013 2019 2013 2012 2017 2025

Interest rate 5.00% 5.20% 6.00% 6.95% 3-month Euribor plus 1.50% 3.75% 4.38% 4.50%

(i) Includes Euro 300,000,000 of notes issued on 5 February 2009. (ii) Expenses incurred at the date these bonds were issued, which are related to: (i) difference between coupon rate of the Eurobond maturing in 2012 and the re-offer yield of the Euro 300,000,000 tap executed in 2009; (ii) roundings in defining the coupon rate; and (iii) commissions. These expenses are recognized in earnings through the life of the bonds.

36. Accounts payable

Euro

Accounts payable-trade Fixed asset suppliers Accounts payable to employees Other

2010 429,333,218 184,116,757 10,601,965 87,437,355 711,489,295

2009 738,472,863 522,361,418 20,298,442 53,994,654 1,335,127,377

37. Accrued expenses:

Euro

Supplies and external services Interest expense (i) Vacation pay and bonuses Discounts to clients Other (ii)

2010 154,668,971 180,678,848 113,198,643 42,596,436 67,832,029 558,974,927

2009 258,140,723 186,865,070 110,481,588 32,492,296 48,911,709 636,891,386

(i) As at 31 December 2009, this caption included Euro 1.5 million (Note 42) related to the fair value of exchange rate and interest rate derivatives held for trading by Vivo and Euro 3.2 million (Note 42) related to the interest component of the exchange rate and interest rate derivatives contracted by Vivo.

38. Deferred income

Euro

2010 Advance billing Traffic Other advance billing Penalties imposed to customers relating to violations of contracts Customer retention programs (Notes 3.p and 4) (i) Other

2009

53,009,857 53,176,589 84,163,223 16,649,282 80,809,142 287,808,093

160,681,525 84,660,401 62,408,821 43,677,105 66,350,081 417,777,933

(i) This caption relates to deferred revenues in connection with loyalty programmes operated by the Group, which are recognized as revenue when award credits are redeemed. The reduction is primarily related to the disposal of Vivo.

39. Provisions and adjustments

Movements in Provisions
Euro

Balance 31 Dec 2009 Adjustments For doubtful accounts receivable (Notes 25 and 26) For inventories (Note 27) For investments (Note 31 and 32) Provisions for risks and costs Litigation (Note 46) Taxes Other 397,678,206 39,791,436 33,093,661 470,563,303 69,769,307 37,969,785 72,706,563 180,445,655 651,008,958

Changes in the consolidation perimeter (48,941,260) (5,080,260) (4,510,164) (58,531,684) (54,450,230) (8,166,695) (40,430,146) (103,047,071) (161,578,755)

Increases 81,241,919 19,845,670 8,181,581 109,269,170 37,881,407 31,123,696 16,011,201 85,016,304 194,285,474

Foreign currency translation Decreases adjustments (5,518,775) (8,367,285) (3,072,806) (16,958,866) (2,809,850) (13,051,898) (1,684,021) (17,545,769) (34,504,635) 5,891,129 628,458 483,285 7,002,872 4,662,179 2,294,489 3,173,241 10,129,909 17,132,781

Uses and other movements (88,575,142) (73,140) 49,029 (88,599,253) (27,789,354) 4,591,776 (3,171,117) (26,368,695) (114,967,948)

Balance 31 Dec 2010 341,776,077 46,744,879 34,224,586 422,745,542 27,263,459 54,761,153 46,605,721 128,630,333 551,375,875

Euro

Balance 31 Dez 2008 Adjustments For doubtful accounts receivable (Notes 25 and 26) For inventories (Note 27) For investments (Note 31 and 32) Provisions for risks and costs Litigation (Note 46) Taxes Other 368,186,993 23,630,621 38,060,349 429,877,963 53,802,708 37,499,364 77,718,434 169,020,506 598,898,469

Increases 99,956,219 18,474,232 2,821,365 121,251,816 33,600,030 5,288,777 6,713,813 45,602,620 166,854,436

Foreign currency translation Decreases adjustments (25,188,352) (4,124,484) (920,805) (30,233,641) (2,196,321) (5,070,763) (8,354,612) (15,621,696) (45,855,337) 22,483,839 1,791,679 933,628 25,209,146 13,904,028 2,871,235 3,090,929 19,866,192 45,075,338

Uses and other movements (67,760,493) 19,388 (7,800,876) (75,541,981) (29,341,138) (2,618,828) (6,462,001) (38,421,967) (113,963,948)

Balance 31 Dec 2009 397,678,206 39,791,436 33,093,661 470,563,303 69,769,307 37,969,785 72,706,563 180,445,655 651,008,958

Provisions for risks and costs

Euro

2010 Current provisions Litigation (Note 46.2) Taxes (Note 46.3) Other Non-current provisions Litigation (Note 46.2) Taxes (Note 46.3) Other 26,777,138 49,325,590 11,580,403 87,683,131 486,321 5,435,563 35,025,318 40,947,202 128,630,333

2009 45,774,534 27,679,316 4,362,015 77,815,865 23,994,773 10,290,469 68,344,548 102,629,790 180,445,655

Provisions for risks and costs - other

Euro

2010 Assets retirement obligation (Note 3.g) Negative financial investments (Note 31) (i) Other 31,295,560 1,518,114 13,792,047 46,605,721

2009 61,242,869 4,672,403 6,791,291 72,706,563

(i) This provision relates to accumulated losses in affiliated companies resulting from the application of the equity method of accounting in excess of corresponding total amount invested, including loans (Note 2.a).

Increases in provisions and adjustments

Euro

2010 Continuing operations Provisions and adjustments Income taxes (Notes 19 and 28) Costs of products sold (Note 10) Equity in losses of affiliated companies Other (i) Discontinued operations 45,825,541 19,036,271 2,667,642 8,181,581 54,156,148 64,418,291 194,285,474

2009 57,560,652 3,200,341 3,748,870 1,208,928 22,833,101 78,302,544 166,854,436

(i) In 2010, this caption includes primarily non-recurring provisions and adjustments amounting to approximately Euro 50 million (Note 15) recognized in order to adjust certain receivables and inventories to their recoverable amounts and to reflect estimated losses with certain legal actions.

Decreases in provisions and adjustments

Euro

2010 Continuing operations Provisions and adjustments Costs of products sold (Note 10) Income taxes (Notes 19 and 28) Other Discontinued operations 10,335,275 3,592,773 5,240,619 4,099,272 11,236,696 34,504,635

2009 27,931,009 4,634,804 5,083,784 8,205,740 45,855,337

P&L - Provisions and adjustments

Euro

Increases in provisions and adjustments for doubtful receivables and other Decreases in provisions and adjustments for doubtful receivables and other Direct write-off of accounts receivable Collections from accounts receivable which were previously written-off

2010 45,825,541 (10,335,275) 2,552,853 (3,091,175) 34,951,944

2009 57,560,652 (27,931,009) 3,503,821 (2,627,971) 30,505,493

40. Other current and non-current liabilities

Euro

2010 Other current liabilities Accounts payable from QTE transactions (Notes 3.l.viii) and 30) Dividends payable (i) Other (ii) Other non-current liabilities Accounts payable from QTE transactions (Notes 3.l.viii) and 30) Fair value of derivative financial instruments (Note 42) Other 24,558,468 3,193,702 639,422 28,391,592 273,592,641 3,396,359 20,596,145 297,585,145

2009 (reexpresso) 20,201,231 72,421,302 49,748,311 142,370,844 276,544,156 4,204,918 19,073,343 299,822,417

(i) As at 31 December 2009, this caption relates mainly to unpaid dividends attributed by Brasilcels subsidiaries, which were no longer proportionally consolidated as at 31December 2010. (ii) As at 31 December 2009, this caption includes primarily an account payable to the shareholders of the subsidiaries of Brasilcel in connection with reverse stock splits undertaken in previous years. Following the sale of the 50% stake in Brasilcel, this liability is no longer consolidated as at 31 December 2010.

41. Shareholders equity

41.5 Revaluation reserve and other reserves and accumulated earnings
euros

Balance 31 Dec 2009 (restated) Income and expenses recognized directly in equity Net actuarial losses (Note 14) Cumulative foreign currency translation adjustments and other (i) Hedge accounting of financial instruments Tax effect Reserves recognized directly in equity Revaluation of tangible assets (Note 34) Tax effect Total income, expenses and reserves recognized directly in equity Retained earnings and other reserves Net income attributable to equity holders of the parent Antecipated dividends (1,795,396,528) 909,629,554 (2,673,669) (888,440,643) 476,693,427 (411,747,216) 967,694,440 (245,586,305) 722,108,135 310,360,919 460,649,177 684,734,143 1,455,744,239

Comprehensive income (450,674,906) (852,720,074) 68,060 (1,303,326,920) 85,730,091 (1,217,596,829) 14,181,908 14,181,908 (1,203,414,921) 5,672,194,967 4,468,780,046

Dividendos (Nota 22) 181,107,455 (684,734,143) (875,872,500) (1,379,499,188)

Tax effect on equity component of exchangeable bonds (Note 19) (15,143,542) (15,143,542)

Other movements (ii) 1,794,573,604 1,794,573,604 (448,643,401) 1,345,930,203 (57,407,414) 14,400,773 (43,006,641) 1,302,923,562 (1,302,923,562) -

Balance 31 Dec 2010 (451,497,830) 56,909,480 (2,605,609) (397,193,959) 113,780,117 (283,413,842) 910,287,026 (217,003,624) 693,283,402 409,869,560 (676,310,472) 5,672,194,967 (875,872,500) 4,529,881,555

euros

Balance 1 Jan 2009 (restated) Income and expenses recognized directly in equity Net actuarial losses (Note 14) Cumulative foreign currency translation adjustments and other (i) Hedge accounting of financial instruments Tax effect Reserves recognized directly in equity Revaluation of tangible assets (Note 34) Tax effect Total income, expenses and reserves recognized directly in equity Retained earnings and other reserves Net income attributable to equity holders of the parent (1,960,169,943) 240,750,206 (1,899,997) (1,721,319,734) 520,153,359 (1,201,166,375) 1,075,033,022 (284,346,234) 790,686,788 (410,479,587) 203,838,888 576,100,119 369,459,420

Comprehensive income 164,773,415 668,879,348 (773,672) 832,879,091 (43,459,932) 789,419,159 12,116,738 12,116,738 801,535,897 684,734,143 1,486,270,040

Dividendos (Nota 22) 72,473,431 (576,100,119) (503,626,688)

Corporate reestructuring at Vivo (note 21) 103,641,467 103,641,467

Other movements (ii) (107,338,582) 26,643,191 (80,695,391) (80,695,391) 80,695,391 -

Balance 31 Dec 2009 (restated) (1,795,396,528) 909,629,554 (2,673,669) (888,440,643) 476,693,427 (411,747,216) 967,694,440 (245,586,305) 722,108,135 310,360,919 460,649,177 684,734,143 1,455,744,239

42. Financial Instruments

42.1 Financial risks
Euro million

Total Indebtedness Interest on indebtedness (i) Post retirement benefits payments (ii) Operating lease obligations Unconditional financial commitments (iii) Total contractual obligations 7,206.3 1,496.9 1,210.9 210.5 140.4 10,265.0

2011 951.9 279.3 179.0 55.3 139.3 1,604.9

2012 2,004.9 287.2 163.4 29.4 1.1 2,486.0

2013 1,160.9 205.4 149.3 26.7 1,542.3

2014 809.7 140.4 135.1 23.2 1,108.4

2015 37.2 106.0 121.7 18.9 283.8

More than 5 years 2,241.8 478.5 462.3 57.0 3,239.6

(i) Portugal Telecoms expected obligations related to interest on indebtedness are based on the Companys indebtedness as at 31 December 2010 and on its assumptions regarding interest rates on its floating rate debt, and therefore actual interest obligations could vary significantly from these amounts depending on future refinancing activities and market interest rates. (ii) These amounts correspond to the undiscounted payments to be made by Portugal Telecom related to salaries due to pre-retired and suspended employees and to expected contributions to the funds. For the unfunded portion and for calculation purposes, we have assumed a linear contribution over the coming years. The total amount differs from the net accrued post retirement liability recognized in the Consolidated Statement of Financial Position primarily because the latter amount relates to the discounted unfunded obligations. (iii) As described in Note 43, unconditional purchase obligations are basically related to contractual agreements with our fixed asset suppliers (including all amounts related to the acquisition of network assets, telecommunications equipment and terminal equipments).

42.2 Derivative Financial Instruments

Hedging Financial Instruments 31-Dec-10 Company Cash flow hedge Portugal Telecom Fair value hedge MTC Notional amount Transaction 205.8 EUR Interest rate swaps Average maturity (years) Economic goal 2.0 Eliminate the risk of exchange rate fluctuations in loans
Euro million

10.2

USD/NAD Forwards

0.4

Eliminate the risk of exchange rate fluctuations in USD expenses

31-Dec-09 Company Cash flow hedge Portugal Telecom Fair value hedge Vivo Vivo Vivo Notional amount Transaction 202.2 287.8 10.1 2.5 EUR Interest rate swaps Currency swaps USD/BRL Currency swaps JPY/BRL USD/NAD forwards Average maturity (years) Economic goal 2.7 4.6 1.0 0.1 Eliminate the risk of exchange rate fluctuations in loans Eliminate the risk of exchange rate fluctuations in loans Eliminate the risk of exchange rate fluctuations in loans

Euro million

Eliminate the risk of exchange rate fluctuations in USD expenses

Financial Instruments held for trade 40,543 Company Portugal Telecom Portugal Telecom Notional amount Transaction 24.4 8.0 EUR Interest rate swaps Currency swaps EUR/USD Average maturity (years) Economic goal 1.2 Previous fair value hedges 1.0 Eliminate the risk of exchange rate fluctuations in loans
Euro million

40,178 Company Portugal Telecom Portugal Telecom Vivo Vivo Notional amount Transaction 34.4 14.8 0.8 72.5 EUR interest rate swaps Currency swaps EUR/USD Currency swaps USD/BRL BRL Interest rate swaps Average maturity (years) Economic goal 1.7 Previous fair value hedges 1.5 Eliminate the risk of exchange rate fluctuations in loans 0.8 Previous fair value hedges 2.0

Euro million

Hedge changes in fair value of loans due to changes in benchmark interest rate

Fair value of derivative financial instruments

Euro million

2010 Accrued expenses (Note 37) Accrued expenses (Note 37)

2009

Debt Continuing operations Fair value hedges Exchange rate Derivatives held for trading Exchange rate and interest rate Interest rate Cash flow hedges Interest rate Sub-Total Discontinued operations Fair value hedges Exchange rate and interest rate Derivatives held for trading Exchange rate and interest rate Interest rate Sub-total Total

Other liabilities (Note 40)

Total

Short term investments

Debt

Other liabilities (Note 40)

Total

(2.1) (2.1)

(0.7) (0.7)

(1.3) (2.1) (3.4)

(0.7) (2.1) (1.3) (2.1) (6.2)

(5.2) (5.2)

(0.3) (0.3)

(2.2) (2.0) (4.2)

(0.3) (5.2) (2.2) (2.0) (9.8)

(2.1)

(0.7)

(3.4)

(6.2)

4.8 4.8 4.8

8.2 8.2 2.9

(3.2) (1.5) (4.8) (5.1)

(4.2)

4.9 (1.5) 4.8 8.2 (1.5)

Movement in fair value of derivative financial instruments of continuing operations

#REF!

Balance 31 Dec 2009 Fair value hedges Exchange rate Derivatives held for trading Exchange rate and interest rate Interest rate Cash flow hedges Interest rate (0.3) (5.2) (2.2) (2.0) (9.8)

Fair value adjustments through income (0.3) 1.0 0.9 (3.9) (2.2)

Fair value adjustments through reserves 0.1 0.1

Additions and settlements 2.2 3.7 5.8

Foreign currency translation adjustments and other (0.1) (0.1)

Balance 31 Dec 2010 (0.7) (2.1) (1.3) (2.1) (6.2)

Euro million

Balance 31 Dec 2008 Fair value hedges Exchange rate Derivatives held for trading Exchange rate (Note 44) Exchange rate and interest rate Interest rate Cash flow hedges Interest rate (43.3) (16.0) (2.5) (1.0) (62.9)

Fair value adjustments through income (0.3) 5.7 (0.7) 0.3 (1.8) 3.2

Fair value adjustments through reserves (0.8) (0.8)

Additions and settlements

Foreign currency translation adjustments and other (0.1)

Balance 31 Dec 2009 (0.3) (5.2) (2.2) (2.0) (9.8)

37.6 10.6 1.6 49.9

0.9 0.8

Fair value adjustments related to derivative financial instruments of continuing operations

Euro million

2010 Net losses (gains) on Net Net foreign financial interest currency assets expense exchange losses (Note 17) Fair value hedges Exchange rate Derivatives held for trading Exchange rate Exchange rate and interest rate Interest rate Cash flow hedges Interest rate Total 3.7 3.7 0.3 (1.0) (0.7) (0.9) 0.2 (0.7) Net foreign currency exchange losses 0.3 0.7 1.0 Net losses (gains) on financial assets (Note 17) (5.7) (0.3) 0.2 (5.8)

2009

Total 0.3 (1.0) (0.9) 3.9 2.2

Net interest expense 1.6 1.6

Total 0.3 (5.7) 0.7 (0.3) 1.8 (3.2)

42.3 Other disclosures on financial instruments

Euro million

Caption Financial assets carried at amortised cost Cash and cash equivalents Short-term investments (Note 24) Accounts receivable - trade (Note 25) Accounts receivable - other (i) Other current and non-current assets - QTE transactions (Note 30) Investments in group companies - loans (Note 31) Derivatives designated and effective as hedging instruments carried at fair value Other non-current liabilities - interest rate derivatives - cash flow hedges (Note 42.2) Bank loans - exchange and interest rate derivatives - fair value hedges (Note 42.2) (ii) Accrued expenses - exchange and interest rate derivatives - fair value hedges (Note 42.2) Financial liabilities carried at amortised cost Debt - exchangeable bonds (Note 35) Debt - bonds (Note 35) Debt - bank loans (ii) Debt - equity swaps on treasury shares (Note 35) Debt - other loans (Note 35) Accounts payable (Note 36) Accrued expenses Other current liabilities Derivatives held for trading Accrued expenses - Exchange rate and interest rate derivatives (Note 42.2) Other non-current liabilities - Interest rate derivatives (Note 42.2) Financial liabilities recorded according to IAS 17 Debt - finance leases (Note 35) Other current and non-current liabilities - QTE transactions (Note 40)

2010 4,764.7 341.8 1,055.5 2,336.5 298.2 15.9 8,812.5 (2.1) (2.1) (0.7) (4.9) 714.2 4,375.7 838.2 178.1 1,022.8 711.5 558.3 3.8 8,402.6 1.3 1.3 75.2 298.2 373.4

2009 1,449.5 26.9 1,401.5 150.9 296.7 23.6 3,349.0 (2.0) 2.9 (3.2) (2.3) 705.6 4,776.3 1,274.7 178.1 0.0 1,335.1 632.1 122.2 9,024.1 1.5 2.2 3.7 114.3 296.7 411.0

(i) The Consolidated Statement of Financial Position caption Accounts receivable other includes certain assets, such as trial deposits, which do not meet the requirements to be classified as a financial asset, and therefore were excluded from this caption. (ii) Total bank loans include its notional amounts, which were carried at amortised cost, and the fair value of certain exchange and interest rate derivatives.

43. Guarantees and financial commitments

Euro

Bank guarantees and other guarantees given to Tax Authorities Bank guarantees given to courts for outstanding litigation Bank guarantees given to other entities: On behalf of TMN On behalf of PT Comunicaes Other bank guarantees Comfort letters given to other entities Total

267,831,608 1,956,629 2,098,711 12,895,864 14,198,104 433,999 299,414,915

44. Consolidated statement of cash flows

44.d Cash receipts from financial investmentsdividends
Euro

2010 Sportinveste Multimdia (Note 31) Mdi Tlcom (Notes 1, 7 and 31) Outras 1,700,000 2,743,356.0 4,443,356.0 44.e Cash receipts resulting from dividends

2009 400,000,000.0 1,981,890.0 401,981,890.0

Euro

2010 Unitel (i) CTM Other 44,087,222 8,347,332.0 1,668,186.0 54,102,740.0

2009 121,408,615 17,967,803.0 787,738.0 140,164,156.0

(i) In 2009, this caption includes the dividends received from Unitel related to its earnings of 2007 and 2008 amounting to US$ 80 million and US$ 90 million (Note 26), respectively. In 2010, this caption includes US$ 60 million (Note 26) related to the 2008 earnings that were not paid in 2009.

44.g Dividends paid

euros

2010 Portugal Telecom (Note 21) Ordinary dividend Antecipated dividend related to 2010 profits Cabo Verde Telecom MTC Timor Telecom Other 503,626,688 875,872,500.0 22,727,792.0 40,603,314.0 6,242,334.0 2,879,247.0 1,451,951,875.0

2009

503,626,688 14,104,445.0 10,629,021.0 4,877,754.0 2,263,833.0 535,501,741.0

44. Related parties

a) Associated companies and jointly controlled entities
Euro

Company Other international companies: Unitel (i) Multitel CTM Other Domestic companies: Pginas Amarelas Entigere Siresp Fundao PT PT-ACS Sportinveste Multimdia Other

Accounts receivable 2010 264,643,043 5,495,659 191,380 1,492,935 8,722,197 52,766 7,341 431,712 3,974,227 21,978 268,925 285,302,163

2009

Accounts payable 2010 9,962,132 195,296 61,249 173,452 13,880,468 129,633 95 20 1,093,317 400,912 352,865 26,249,439

2009 6,336,992 420,208 61,075 482,915 23,568,950 34,466 540,364 404,519 902,319 32,751,808

Loans granted 2010 897,608 4,292,800 33,618,668 457,068 39,266,144

2009 892,378 73,849 -

54,117,992 5,311,686 223,513 1,991,467 6,329,784 4,735,767 2,794,179 554,492 469,509 880,605 913,038 78,322,032

4,179,410 35,318,668 3,069,979 43,534,284

(i) Accounts receivable from Unitel as at 31 December 2010 and 2009 include dividends amounting to Euro 249 million and Euro 42 million, respectively (Note 26).

Euro

Costs Company Other international companies: Unitel Multitel CTM Other Domestic companies: Pginas Amarelas PT-ACS Sportinveste Multimdia Caixanet Siresp Other 49,854,541 5,218,260 1,325,699 131,276 1,102,793 71,666,139 b) Shareholders 57,416,758 4,642,683 1,235,366 340,317 1,684,042 79,423,833 13,387,555 161,880 130,686 353,449 11,666,558 206,554 176,506 2,055,049 2010 2009

Revenues 2010 13,981,301 1,105,396 254,770 376,055 4,053,841 2,367,743 82,614 522,137 13,666,789 3,909,169 40,319,815

2009 19,151,798 1,044,045 439,398 651,914 3,631,198 610,559 103,861 6,244,822 16,824,115 3,366,472 52,068,182

Interest charged 2010 93,676 114,076 (1) 207,751

2009 8,951 -

179,660 94,619 283,230

Euro

Company Caixa Geral de Depsitos BES Visabeira Controlinveste Ongoing Barclays Deutsche Bank

Sales and services rendered by PT 31,323,477 18,143,635 7,777,657 4,327,074 750,846 443,627 105,235 62,871,551

Supplies and services provided by PT Net interest received 21,892,271 15,878,413 37,051,991 34,363,830 96,461,263 51,138,427 2,606,519 3,656 (3,275,886) 52,312 (107,027) 209,206,440 46,859,330

Acounts receivable 5,560,157 2,204,019 1,421,253 617,172 324,296 176,830 10,019 10,313,746

Accounts payable 716,720 (3,709) 521,112 5,166,059 519,518 6,919,700

c) Other
euros

Executive board members Non-executive board members Audit Committee

2010 29,468,000 1,357,598 581,714 4,886,112

2009 3,280,064 1,454,888 589,708 5,324,660

46.2 Claims and legal actions

Proceedings with probable losses
Euro

2010 Civil claims Labor claims Other

2009

18,117,450 4,230,646 4,915,363 27,263,459

46,188,041 20,678,751 2,902,515 69,769,307

Proceedings with probable losses

Euro

Civil claims Labor claims Other

2010 55,083,437 30,968,381.0 35,996,745.0 122,048,563.0

2009 121,789,395 60,995,691.0 46,881,288.0 229,666,374.0