Portugal Telecom (“PT”) announces that its Board of Directors has approved the execution of the PT Multimédia spin-off by the end of October 2007, which is within the expected timeframe and in accordance with the terms approved by the General Shareholders’ Meeting of 27 April 2007.

The PT Multimédia spin-off is one of the key elements of the shareholder remuneration package announced on 20 February 2007, under which PT has already returned to its shareholders approximately Euro 1.04 billion in dividends and has, as part of the ongoing share buyback programme, contracted equity swaps on 9.13% of its share capital, which after settlement will amount to Euro 1.05 billion, bringing the total shareholder remuneration to Euro 2.1 billion. Following the PT Multimédia spin-off and the physical settlement of the equity swaps, the amount of shareholder remuneration already executed will be approximately Euro 4.2 billion, equivalent to 67% of the total remuneration package approved for the period 2006-2009.
 
Indicative Timetable

The indicative timetable approved today by the Board of Directors of PT for the execution of the spin-off is as follows:

The above-mentioned dates may be subject to change depending upon the completion of the review by the applicable regulatory authorities of aspects related to the transaction.

Terms of the Spin-off

Pursuant to the resolution approved at the General Shareholders Meeting of PT, the 58.43% shareholding in PT Multimédia will be distributed to PT shareholders on the following terms:

a) Each shareholder will be allotted 0.16 PT Multimédia shares for every PT share held, which corresponds to 4 PT Multimédia shares for each 25 ordinary shares of PT.

b) The spin-off of PT Multimédia is considered a dividend in kind, and therefore each PT shareholder will be subject to withholding tax in accordance with applicable legislation.

c) The number of PT Multimédia shares distributed, net of withholding tax, to a PT shareholder will be rounded down to the nearest whole number, and a cash amount will be paid for the corresponding difference.

d) The distribution ratio of PT Multimédia shares will be adjusted upwards in proportion to PT’s own shares held in treasury on the date of the announcement of the final terms for the spin-off.

For indicative purposes only, PT currently has equity swap contracts for 9.13% of its share capital in relation to the share buyback programme of Euro 2.1 billion under execution, announced on 20 February 2007. Assuming that the above mentioned shares are held in treasury on the date of the announcement of the final terms of the spin-off, as a result of the settlement of the equity swap contracts, the distribution ratio would increase to 0.17605 PT Multimédia shares for each share held in PT.

Before the effective date of the spin-off, we expect to issue an information statement to holders of American Depositary Shares ("ADSs") representing ordinary shares of Portugal Telecom and to U.S. resident holders of Portugal Telecom's ordinary shares describing the spin-off. The information statement is expected to include, among other things, information regarding: (i) the spin-off; (ii) risks relating to the spin-off; (iii) the business, financial condition and results of operations of PT Multimédia; (iv) certain tax considerations for holders of Portugal Telecom ADSs and U.S. holders of Portugal Telecom ordinary shares; (v) certain relationships between Portugal Telecom and PT Multimédia; (vi) the management of PT Multimédia; and (vii) a description of the ordinary shares of PT Multimédia. We urge you to review the Information Statement when it is distributed.

This communication is not an offer to sell or the solicitation of an offer to buy any securities, nor is it intended to substitute the Information Statement and other sources of information about PT, PT Multimédia and the spin-off.

Communication (pdf)