UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 20-F

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Commission file number 1-13758

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o    (Note: None required of the registrant)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17 o    Item 18 ý

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

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CERTAIN DEFINED TERMS

        Unless the context otherwise requires, the terms "Portugal" and the "Portuguese Government" refer to the Portuguese Republic, including the Madeira Islands and the Azores Islands; the term "EU" refers to the European Union; the term "EC Commission" refers to the Commission of the European Communities; the terms "United States" and "U.S." refer to the United States of America; the term "Portugal Telecom" refers to Portugal Telecom, SGPS S.A.; and unless indicated otherwise, the terms "we," "our" or "us" refer to Portugal Telecom and its consolidated subsidiaries.

PRESENTATION OF FINANCIAL INFORMATION

        Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the EU ("EU-IFRS"). EU-IFRS may differ from IFRS as issued by the International Accounting Standards Board ("IASB") if, at any point in time, new or amended reporting standards have not been endorsed by the EU. At December 31, 2010, 2009 and 2008, there were no unendorsed standards effective as of and for the years ended December 31, 2010, 2009 and 2008, respectively, that affected our consolidated financial statements, and there was no difference between EU-IFRS and IFRS as issued by the IASB as applied by Portugal Telecom. Accordingly, our financial statements as of and for the years ended December 31, 2010, 2009 and 2008 are prepared in accordance with IFRS as issued by the IASB. IFRS comprise the accounting standards issued by the IASB and its predecessor body and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") and its predecessor body.

        We publish our financial statements in Euro, the single EU currency adopted by certain participating member countries of the European Union, including Portugal, as of January 1, 1999. Unless otherwise specified, references to "Euros," "EUR" or "€" are to the Euro. References herein to "U.S. dollars," "$" or "US$" are to United States dollars. References to "Real," "Reais" or "R$" are to Brazilian Reais. The Federal Reserve Bank of New York's noon buying rate in the City of New York for Euros was €0.6764 = US$1.00 on April 28, 2011, and the noon buying rate on that date for Reais was R$1.5870= US$1.00. We are not representing that the Euro, US$ or R$ amounts shown herein could have been or could be converted at any particular rate or at all. See "Item 3—Key Information—Exchange Rates" for further information regarding the rates of exchange between Euros and U.S. dollars and between Reais and U.S. dollars.

        We provided mobile telecommunications services in Brazil through Vivo Participações S.A. ("Vivo") through September 2010. We held our participation in Vivo through our 50% interest in Brasilcel N.V., a joint venture with Telefónica, S.A. On July 28, 2010, we reached an agreement with Telefónica for them to buy from us our 50% interest in Brasilcel N.V. We closed the transaction on September 27, 2010. Our consolidated statements of income and cash flows present Vivo under the caption "Discontinued Operations" for all periods presented, and our consolidated balance sheet as of December 31, 2010 no longer includes the assets and liabilities related to Vivo.

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FORWARD-LOOKING STATEMENTS

        This Form 20-F includes, and documents incorporated by reference herein and future public filings and oral and written statements by our management may include, statements that constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of our management and on information available to management at the time such statements were made. Forward-looking statements include, but are not limited to: (a) information concerning possible or assumed future results of our operations, earnings, industry conditions, demand and pricing for our services and other aspects of our business under "Item 4—Information on the Company," "Item 5—Operating and Financial Review and Prospects" and "Item 11—Quantitative and Qualitative Disclosures About Market Risk"; and (b) statements that are preceded by, followed by or include the words "believes," "expects," "anticipates," "intends," "is confident," "plans," "estimates," "may," "might," "could," "would," the negatives of such terms or similar expressions.

        Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Many of the factors that will determine these results are beyond our ability to control or predict. We do not intend to review or revise any particular forward-looking statements referenced in this Form 20-F in light of future events or to provide reasons why actual results may differ. Investors are cautioned not to put undue reliance on any forward-looking statements.

        Any of the following important factors, and any of those important factors described elsewhere in this or in other of our SEC filings, among other things, could cause our results to differ from any results that might be projected, forecasted or estimated by us in any such forward-looking statements:

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material adverse changes in economic conditions in Portugal, Brazil or the other countries in which we have operations and investments;



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risks and uncertainties related to national and supranational regulation;



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increased competition resulting from further liberalization of the telecommunications sector in Portugal and Brazil;



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the development and marketing of new products and services and market acceptance of such products and services; and



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the adverse determination of disputes under litigation.

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PART I

ITEM 1—IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

        We are not required to provide the information called for by Item 1.

ITEM 2—OFFER STATISTICS AND EXPECTED TIMETABLE

        We are not required to provide the information called for by Item 2.

ITEM 3—KEY INFORMATION

Selected Consolidated Financial Data

        The selected consolidated statement of financial position data as of January 1, 2009 and December 31, 2009 and 2010 and the selected consolidated statement of income and cash flow data for each of the years ended December 31, 2008, 2009 and 2010 have been derived from our audited consolidated financial statements included herein prepared in accordance with IFRS. The selected consolidated statement of financial position data as of December 31, 2006 and 2007 and the selected consolidated statement of income and cash flow data for the years then ended have been derived from our consolidated financial statements prepared in accordance with IFRS included in our Annual Report for the year ended December 31, 2008. The selected consolidated statement of financial position data as of December 31, 2008 and 2009 and the consolidated statement of income and cash flow data for the years ended December 31, 2006, 2007, 2008 and 2009 have been restated from that presented in the 2009 20-F in order to (i) present Vivo as a discontinued operation following the sale of that investment during 2010 (See Note 20 to our audited consolidated financial statements) and pursuant to the provisions of IFRS 5, Non-current Assets Held for Sale and Discontinued Operactions, and (ii) retrospectively reflects the adoption of IFRIC 12, Service Concession Arrangements, which became effective as of January 1, 2010, following its approval by the European Commission on March 25, 2009.

        The information set forth below is qualified by reference to, and should be read in conjunction with, our audited financial statements and the notes thereto and also "Item 5—Operating and Financial Review and Prospects" included in this Form 20-F.

        Given the sale on September 27, 2010 of our interest in Vivo to Telefónica, the selected consolidated statement of income for Vivo is presented under the caption "Discontinued Operations" for all periods through the completion of the sale, and the selected consolidated statement of financial

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position as of December 31, 2010 no longer includes the assets and liabilities related to Vivo, following the completion of the sale on September 27, 2010.

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Exchange Rates

Euro

        The majority of our revenues, assets, liabilities and expenses are denominated in Euros. We have published our audited consolidated financial statements in Euros, and our shares trade in Euros on the regulated market Euronext Lisbon. Our financial results could be affected by exchange rate fluctuations in the Brazilian Real. See "Item 5—Operating and Financial Review and Prospects—Exchange Rate Exposure to the Brazilian Real."

        Our dividends, when paid in cash, are denominated in Euros. As a result, exchange rate fluctuations have affected and will affect the U.S. dollar amounts received by holders of ADSs on conversion of such dividends by The Bank of New York, as the ADS depositary. The Bank of New York converts dividends it receives in foreign currency into U.S. dollars upon receipt, by sale or such other manner as it has determined and distributes such U.S. dollars to holders of ADSs, net of The

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Bank of New York's expenses of conversion, any applicable taxes and other governmental charges. Exchange rate fluctuations may also affect the U.S. dollar price of the ADSs on the New York Stock Exchange.

        The following tables show, for the period and dates indicated, certain information regarding the U.S. dollar/Euro exchange rate. The information is based on the noon buying rate in the City of New York for cable transfers in Euro. On April 28, 2011, the Euro/U.S. dollar exchange rate was €0.6764 per US$1.00.

        None of the 27 member countries of the European Union has imposed any exchange controls on the Euro.

Brazilian Real

        Although as of December 31, 2010, the majority of our revenues, assets and expenses are denominated in Euros, on January 26, 2011, we announced that we had entered into a strategic partnership with Telemar Participações S.A. and its subsidiaries (collectively, "Oi"), the Brazilian telecommunications company. On March 28, 2011, we completed the acquisition of an economic interest of 25.6% in Telemar Participações S.A. and 25.3% in Telemar Norte Leste S.A. We will have a role in the management of Oi and, as a result, will proportionally consolidate the results of operations of Oi in our results of operations. Oi records its financial position and results of operations in Brazilian Reais. In addition, our other Brazilian investments are Brazilian companies that similarly record their financial position and results of operations in Brazilian Reais. Consequently, exchange rate fluctuations between the Euro and the Brazilian Real will affect our revenues in future periods.

        The Brazilian government may impose temporary restrictions on the conversion of Reais into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Brazil. Brazilian law permits the government to impose these restrictions whenever there is a serious imbalance in Brazil's balance of payments or reason to foresee a serious imbalance.

        The following tables show, for the periods and date indicated, certain information regarding the Real/U.S. dollar exchange rate. On April 28, 2011, the Real/U.S. dollar exchange rate was R$1.5870 per US$1.00. The information is based on the noon buying rate in the City of New York for cable transfers

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in Brazilian Reais as certified for United States customs purposes by the Federal Reserve Bank of New York.

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Risk Factors

General Risks Relating to Our Company

The current economic and financial crisis has affected, and will likely continue to affect, demand for our products and services, our revenues and our profitability

        The global economic and financial crisis, and the current economic recession in Portugal, have had, and are likely to continue to have, an adverse effect on the demand for our products and services and on our revenues and profitability. Recent economic rescue packages for Greece and Ireland, Portugal's recent request for an economic rescue package, and continuing concerns regarding the possibility of sovereign debt defaults by other European Union member countries, affected access to funding by certain European governments, corporations and the financial sector, and dampened investor confidence. These concerns and concerns about continuing budget deficits in Portugal have required the Portuguese government to implement severe budget-cutting measures that could delay emergence from the recession and may weaken consumer demand.

        Against this backdrop, the Fitch credit rating agency downgraded Portugal's sovereing debt from A+ to A-, and Standard & Poor's downgraded it from A- to BBB. Standard & Poor's further downgraded Portugal's sovereign debt from BBB to BBB-. On April 1, 2011, Fitch further downgraded Portugal's sovereign debt from A- to BBB- and Moody's Investors Service, Inc. downgraded Portugal's sovereign debt from A3 to Baa1.

        On April 6, 2011, Portugal announced that it would seek an economic rescue package from the European Union. Since that date, Portugal has formally requested an economic rescue package from the European Union and the International Monetary Fund and has begun negotiating the terms of that package.

        As one of Portugal's largest companies and one of its largest employers, Portugal Telecom's financial condition, revenues and profitability are closely linked to circumstances in the Portuguese economy. The recession in Portugal has had a direct effect on demand for our products and services, contributing to a decline in our mobile revenues and, to a lesser degree, our wireline revenues, in 2010.

        We must maintain liquidity to fund our working capital, service our outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our investments, or we may not be able to pursue new business opportunities. The principal sources of our liquidity are cash generated from our operations and equity and debt financing. Cash generated from operations is driven by our revenues and net income, which could be adversely affected by the economic crisis.

        Also, notwithstanding our recent debt issuances that took place in 2011, we may be unable to access the equity or debt markets to obtain additional financing or to refinance existing indebtedness. We discuss our liquidity and sources of funding in "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources."

        In these and other ways, the global economic and financial crisis and its effect on the European and Portuguese economies has significantly affected, and could continue to significantly affect, our business, liquidity and financial performance.

Financial market conditions may adversely affect our ability to obtain financing, significantly increase our cost of debt and negatively impact the fair value of our assets and liabilities

        Beginning in 2008, events in the global and European financial markets have increased the uncertainty and volatility of the financial markets, leading to a significant increase in execution and price risks in financing activities. Global financial markets and economic conditions were severely disrupted and volatile in 2008 and 2009 and remain subject to significant vulnerabilities, such as the

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deterioration of fiscal balances and the rapid accumulation of public debt, continued deleveraging in the banking sector and limited supply of credit. Credit markets and the debt and equity capital markets were exceedingly distressed in 2008 and 2009 and remained challenged in 2010. In 2010, the financial markets grew increasingly concerned about the ability of certain European countries, particularly Greece, Ireland and Portugal, but also others such as Spain and Italy, to finance their deficits and service growing debt burdens amidst difficult economic conditions. This loss of confidence has led to rescue measures for Greece, Ireland and now Portugal by the European Union and the International Monetary Fund. These issues, along with the re-pricing of credit risk and the difficulties currently experienced by financial institutions have made it difficult, and will likely continue to make it difficult, for companies to obtain financing.

        As a result of the disruptions in the credit markets, many lenders have increased interest rates, enacted tighter lending standards, required more restrictive terms (including higher collateral ratios for advances, shorter maturities and smaller loan amounts) or refused to refinance existing debt at all or on terms similar to pre-crisis conditions. Changes in interest rates and exchange rates may also adversely affect the fair value of our assets and liabilities. If there is a negative impact on the fair values of our assets and liabilities, we could be required to record impairment charges.

        Notwithstanding our international exposure and diversification, the recent downgrades of Portugal's sovereign debt described in the preceding risk factor may have a significant effect on our costs of financing, particularly given the size and prominence of our company within the Portuguese economy. The recent events in Portugal and the other factors described above could adversely affect our ability to obtain future financing to fund our operations and capital needs and adversely impact the pricing terms that we are able to obtain in any new bank financing or issuance of debt securities and thereby negatively impact our liquidity.

Any future ratings downgrades may impair our ability to obtain financing and may significantly increase our cost of debt

        The effects of the economic and financial crisis described above, or any adverse developments in our business, could lead to downgrades in our credit ratings. Any such downgrades are likely to adversely affect our ability to obtain future financing to fund our operations and capital needs. Any downgrade of our ratings could have even more significant effects on our ability to obtain financing and therefore on our liquidity. For example, the pricing conditions applicable to our commercial paper programs could be revised in the event our credit rating is changed. In addition, certain of our loan agreements, totaling €183 million as of December 31, 2010, contain provisions that require us to provide certain guarantees if our ratings decline below specified levels. Any failure to provide those guarantees could enable the lender to accelerate the loans. For further information on these covenants, please refer to "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness—Covenants."

We may not be able to pay our announced dividends

        In connection with the sale of our interest in Vivo in September 2010, we announced an extraordinary dividend to our shareholders of €1.65 per share, of which we paid €1.00 per share on December 28, 2010. Subject to the approval of our next General Shareholders' Meeting, we expect to pay the remaining €0.65 per share of this dividend, as well as an ordinary dividend of €0.65 per share with respect to the years ended December 31, 2010 and 2011, following the respective General Shareholders' Meetings. In addition, in November 2010, we announced that our Board of Directors intends to propose to the General Shareholders' Meeting that we adopt a progressive dividend policy with the objective of raising the dividend per share every year between 3% and 5% for the period between 2012 and 2014. Furthermore, for fiscal year 2011 onwards, the Board of Directors has its intention to approve the payment of an interim ordinary dividend based on the financial performance

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of our company, in order to allow for a smoother cash return to our shareholders throughout the year. The exceptional cash dividend and the remuneration package proposal are subject to market conditions, our financial condition, applicable law regarding the distribution of net income, including additional shareholder approvals, and other factors considered relevant by our Board of Directors at the time.

        The payment of future dividends will depend on our ability to continue to generate cash flow in our businesses, which is dependent not only on our revenue stream but also on our ability to further streamline our operations and reduce our costs. In addition, significant volatility in the Real/Euro exchange rate may impair our ability to pay dividends. The Real has fluctuated significantly in relation to the Euro in recent years and has worked in our favor, but we cannot guarantee that this trend will continue going forward.

        If any of the conditions described above proves not to be the case or if any other circumstances (including any risks described in this "Risk Factors" section) impede our ability to generate cash and distributable reserves, shareholders may not receive the full remuneration we have announced, and the price of our ordinary shares and ADSs could be negatively affected.

Unfunded post retirement benefit obligations may put us at a disadvantage to our competitors and could adversely affect our financial performance

        We have unfunded post retirement benefit obligations that may limit our future use and availability of capital and adversely affect our financial and operating results. Although in December 2010, we transferred to the Portuguese Government the post retirement benefits obligations relating to regulated pensions of Caixa Geral de Aposentações and Marconi, we retained all other obligations, including (1) salaries to suspended and pre-retired employees amounting to €924.3 million as of December 31, 2010, which we must pay monthly directly to the beneficiaries until their retirement age and (2) €472.4 million in obligations related to pension supplements and healthcare as of December 31, 2010, which are backed by plan assets with a market value of €448.1 million, resulting in unfunded obligations of €24.3 million.

        Any decrease in the market value of our plan assets relating to our pension supplements and healthcare obligations could increase our unfunded position. Although there is in place an investment policy with capital preservation targets, in the current economic and financial crisis, in particular, the market value of our plan assets is volatile and poses a risk. In addition, our obligations to pay salaries to suspended and pre-retired employees are unfunded. The value of the obligations referred to above, namely the ones related to pension supplements and healthcare, may also fluctuate, depending on demographic and financial factors that are beyond our control. Any significant increase in our unfunded obligations could adversely affect our ability to raise capital, require us to use cash flows that we would otherwise use for capital investments, implementing our strategy or other purposes and adversely affect perceptions of our overall financial strength, which could negatively affect the price of our ordinary shares and ADRs.

        See "Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Post Retirement Obligations" for a description of our transfer of pension obligations to the Portuguese Government.

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The Portuguese Government holds all of our A shares, which afford it special approval rights

        All of our 500 A shares are held by the Portuguese Government. Under our articles of association, the holders of our A shares, voting as a class, may veto a number of actions of our shareholders, including the following:

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election of the chairman of the Audit Committee and the statutory auditor (See "Item 10—Additional Information—Corporate Governance—New Corporate Governance Model"), as well as the members of the board of the General Meeting of Shareholders;



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authorization for a dividend exceeding 40% of our distributable net income per year;



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capital increases and other amendments to our articles of association, as well as the limitation or suppression of pre-emptive rights;



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issuance of bonds and other securities;



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authorization of a shareholder that performs an activity competing with us to hold more than 10% of our ordinary shares;



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approval of the general goals and fundamental principles of our policies; and



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definition of our investment policies, including any requirements for the authorization of acquisitions and transfers of shareholdings.

        Additionally, the election of one-third of the Directors, including the Chairman of the Board of Directors, must be approved by the Portuguese Government, as the holder of all the A shares.

        Our articles of association state that, among the members of the Executive Committee appointed by the Board of Directors, at least one or two appointed directors out of the Executive Committee of five or seven members must be elected pursuant to the election rule described in the preceding paragraph.

        On July 8, 2010, the European Court of Justice ruled that the Portuguese Government's ownership of our A shares is illegal under European law. See "Item 8—Financial Information—Legal Proceedings—Regulatory Proceedings."

Risks Relating to Our Portuguese Operations

Intense competition has significantly affected, and is expected to continue to significantly affect, our revenues and our results of operations

        Competition from mobile telephony and from other wireline operators has reduced our wireline revenues and could continue to adversely affect our revenues.    During 2010, approximately 47.2% of our consolidated revenues were derived from services provided by our wireline services in Portugal, as compared to 48.1% in 2009. As a result of the trend toward the use of mobile services instead of fixed telephone services, combined with the increase in competition from other wireline operators, we have experienced, and may continue to experience, erosion of market share of both access lines and of outgoing domestic and international traffic. The number of active mobile telephone cards in Portugal has overtaken the number of wireline main lines. Some of our wireline customers are using mobile services as an alternative to wireline telephone services. Mobile operators can bypass our international wireline network by interconnecting directly with wireline and mobile networks either in our domestic network or abroad. Competition is also forcing down the prices of our wireline telephone services for long distance and international calls. Lowering our international call prices has caused a decline in our revenues from international wireline telephone services. The decrease in wireline traffic and lower tariffs resulting from competition has significantly affected our overall revenues, and we expect these

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factors to continue to negatively affect our revenues. See "Item 4—Information on the Company—Competition—Competition Facing our Wireline Business."

        Increased competition in the Portuguese mobile markets may result in decreased tariffs and loss of market share.    We operate in the highly competitive Portuguese mobile telecommunications market. We believe that our existing mobile competitors, Vodafone and Optimus will continue to market their services aggressively. After we launched our low-cost brand "Uzo," for example, Vodafone and Optimus quickly responded with similar products of their own. As another example, in 2010, we launched a tribal plan as a reaction to similar plans launched by our competitors, and that plan provides for lower revenue per user than many of our other plans.

        In 2007, CTT, the Portuguese postal company, launched a mobile virtual network operator, or "MVNO," operation supported by TMN's network. MVNOs do not have their own network infrastructure and thus do not have the fixed cost burdens facing our current GSM (Global System for Mobile Communications) and UMTS (Universal Mobile Telecommunications System) services. In 2008, ZON Multimedia ("ZON") launched an MVNO under the brand "ZON Mobile" after signing an agreement with Vodafone Portugal to operate using its mobile network.

        We expect competition from VoIP-based operators also to place increasing price pressure on voice tariffs and lead to reductions in mobile voice traffic. Competition from companies providing wireless local-area network, or "WLAN," services, which can deliver wireless data services more cheaply than UMTS in concentrated areas, may also affect the market and pricing for third-generation services. The prospect of LTE (Long Term Evolution) services may cause a disruption in the mobile data and voice markets, posing additional threats to and impairing TMN's current competitive position. See "Item 4—Information on the Company—Competition—Competition Facing TMN."

        The broadband market in Portugal is highly competitive and may become more competitive in the future.    Our competitors have been improving their commercial offers in broadband Internet, with most of them offering triple-play bundled packages (voice telephony, broadband Internet and Pay-TV subscription). We believe that with competition in Internet broadband access intensifying, and with the development of existing technologies such as broadband wireless access, mobile broadband through UMTS, and high speed broadband supported by the deployment of a fiber optic network, we may face additional pricing pressure on our services, which could result in the loss of revenues.

        Increased competition in the Portuguese Pay-TV market may result in a decrease in our revenues.    In 2008, we launched a nationwide Pay-TV service under the Meo brand, primarily using our fixed network (IPTV over ADSL2+ and fiber-to-the-home ("FTTH") and DTH satellite technology). This service required us to make significant investments in our network in order to increase the bandwidth and offer a better service quality than our competitors. The main competitors in the market are ZON, Cabovisão, Optimus and Vodafone. Notwithstanding the increase in our revenues from Pay-TV services in recent years, we have experienced pressure from our competitors to reduce monthly subscription fees. In addition, our efforts to build scale to enable us to negotiate better programming costs with our content suppliers, especially certain premium content owned by one of our competitors, may not prove successful. Our wireline revenues and financial position could be significantly affected if we are not successful in the Pay-TV business, which is becoming increasingly important as a retention tool of our fixed-line and broadband customers.

An adverse regulatory environment may negatively affect our profitability

        Reduced interconnection rates have negatively affected our revenues for our mobile and wireline businesses and will continue to do so in 2011.    In recent years, ANACOM has imposed price controls on interconnection rates for the termination of calls on mobile networks. These reductions have had a

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significant impact on interconnection revenues of our mobile subsidiary, TMN—Telecomunicações Móveis Nacionais, S.A. ("TMN"), and consequently its earnings.

        In January 2010, ANACOM issued a draft decision regarding fees for the termination of calls on mobile networks, proposing to reduce them to €0.035 by April 1, 2011. In May 2010, ANACOM imposed a new glide path that would reduce mobile termination rates by €0.005 per quarter, to reach €0.035 in August 2011. These new rates will have a negative effect on our cash flows.

        In 2008, the European Commission started a public consultation process for its draft recommendation on voice calls termination rates (both in mobile and fixed networks), which are intended to harmonize regulation and drive down termination rates even further across all EU countries starting in 2012. This recommendation was published in 2009 and is expected to have a negative effect on our future revenues. ANACOM is currently consulting on the definition of a bottom-up long-run incremental cost (LRIC) cost model to regulate mobile termination rates. The expectation is that mobile termination rates will fall into the interval between 1.5 and 3.0 eurocents by the end of 2012.

        In addition, in August 2008, ANACOM published a "reasoning" regarding mobile rates for originating calls, aimed at driving mobile operators to reducing their prices by the end of September 2008 to a level equal or close to the level of mobile termination rates. In the second half of 2008, the three mobile operators reduced their rates for originating calls but not to the extent desired by ANACOM. In February 2010, ANACOM chose to take the matter to the Portuguese national competition authority ("Autoridade da Concorrência"). Although we cannot predict the outcome of this process, ANACOM's actions could negatively impact our revenues and results of operations.

        ANACOM's price controls on fixed-to-mobile interconnection may also negatively affect our wireline retail revenues because we are required to reflect the reduction in these interconnection charges in our retail prices for calls from our fixed line network. We expect that the reduction in interconnection charges will continue to have an impact on our wireline retail revenues.

        In addition, the lower interconnection rates have reduced revenues for our wholesale wireline business, which records revenue from incoming calls transiting through our network that terminate on the networks of mobile operators. The prices we charge to international operators (and hence our revenues) also depend on the interconnection fees charged by mobile operators for international incoming calls terminating on their networks, and these fees have been decreasing. We expect that lower interconnection rates will continue to have a negative impact on our wholesale wireline revenues.

        ANACOM also issued a decision in 2006 requiring our wireline business to offer capacity-based interconnection rates (a flat-rate interconnection tariff), which had a negative effect on our wholesale wireline revenues in 2007 and 2008.

        The European Commission's review of roaming charges may lead to a reduction in mobile revenues.    The European Commission has determined that roaming prices in Europe should be reduced and has published new regulations that have been effective since 2007. These regulations set maximum roaming charges that may be charged in the wholesale market and the retail market.

        In the wholesale market, a maximum roaming charge of €0.26 per minute currently applies. In the retail market, maximum roaming charges of €0.19 per minute (for received calls) and €0.43 per minute (for outgoing calls) currently apply.

        In 2008, the European Commission launched a new consultation on roaming, proposing to carry over Regulation (EC) No. 717/2007, on roaming on mobile communications networks within the community (the "Roaming Regulation"), beyond 2010 and to extend it to data and Short Messaging Services ("SMS"), or text messaging. In 2009, Regulation (EC) No. 544/2009, amending the Roaming Regulation (the "New Roaming Regulation") went into effect, limiting roaming charges. The European

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Commission expects the New Roaming Regulation to reduce roaming charges by up to 60%. The European Commission also requested clarification from operators with respect to price differences between data services while roaming compared to prices in the domestic market.

        Under the New Roaming Regulation, voice roaming rates in the retail market continue to be subject to a glide path (prices excluding VAT): from July 1, 2010, maximum rates of €0.39 per minute for outgoing and €0.15 per minute for incoming roaming calls; and from July 1, 2011, maximum rates of €0.35 per minute for outgoing and €0.11 per minute for incoming roaming calls. In the wholesale market, maximum rates are €0.22 and €0.18 as of July 1, 2010 and July 1, 2011, respectively. For SMS services, caps of €0.11 in the retail and of €0.04 in the wholesale came into force on July 1, 2009. For data services, maximum wholesale rates of €0.80 and €0.50 apply from July 1, 2010 and July 1, 2011, respectively.

        These regulations have had, and will continue to have, an adverse effect on the revenues of our mobile business and on our company as a whole.

        Burdensome regulation in an open market may put us at a disadvantage to our competitors and could adversely affect our business.    The Portuguese electronic communications sector is fully open to competition. However, many regulatory restrictions and obligations are still imposed on us. In the previous round of market analysis, carried out in 2004-2006, the Portugal Telecom group was found by ANACOM to have significant market power in all but one of the 16 markets analyzed and consequently is subject to regulatory restrictions and obligations. Not all of these obligations and restrictions have been imposed on other telecommunications operators and service providers. Pursuant to the European Relevant Markets recommendation that significantly reduced the number of markets subject to regulation, ANACOM determined the regulatory obligations that should be imposed on operators with significant market power in the provision of wholesale (physical) network infrastructure access and wholesale broadband access. In the case of wholesale broadband access, ANACOM alleviated regulatory obligations in 184 areas considered to be competitive, which represented 61% of broadband accesses. During 2011, ANACOM intends to revise markets numbers 4 and 5 to integrate the changes due to the development of Next Generation Networks. There is a risk that ANACOM may reduce the number of areas where it had alleviated regulatory obligations and impose additional regulatory obligations on our fiber network. The substantial resources we must commit to fulfill the remaining obligations could adversely affect our ability to compete. See "Item 4—Information on the Company—Regulation—Portugal."

        The Portuguese government could terminate or fail to renew our wireline concession, our licenses and our authorization for data and mobile services.    We provide a significant number of services under a concession granted to us by the Portuguese government and under licenses and authorizations granted to us by ANACOM. See "Item 4—Information on the Company—Regulation—Portugal." The concession runs until 2025, but the Portuguese government can revoke the concession if it considers the revocation to be in the public interest. It can also terminate our concession at any time if we fail to comply with our obligations under the concession. Even if the concession remains in force, its terms and conditions could be materially affected by the outcome of a public consultation process by the Portuguese government relating to the provision of universal service, which is expected to begin during 2011. A tender for the designation of the Universal Service Provider(s) is also expected during 2011. The Portuguese government can also terminate our licenses under certain circumstances. Through TMN, we hold a renewable, non-exclusive license to provide GSM digital mobile telephone services throughout Portugal, valid until 2022 and a renewable, non-exclusive license to provide UMTS mobile telephone services throughout Portugal, valid until 2016. If the Portuguese government took such actions, we would not be able to conduct the activities authorized by the concession or the relevant licenses. This loss would eliminate an important source of our revenues.

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        In July 2010, ANACOM decided, within the context of the 900/1800 MHz spectrum "refarming" process (a change to the conditions of use of that frequency range), to unify into a single title the conditions applicable to the rights of use of frequencies allocated to TMN for the provision of the land mobile service, in accordance with GSM 900/1800 and UMTS technologies. The authorization is valid until July 8, 2025.

        During 2011, ANACOM intends to launch an auction for allocation of rights of use of frequencies in the 450, 800, 900, 1800 MHz and 2.1 and 2.6 GHz bands. These frequencies allow the provision of electronic communications services and could be used to implement 4G mobile solutions. However, we may face the risk of not being granted rights of use in those frequency bands. This loss would have negative impact on our ability to implement new mobile technologies, the existing mobile infrastructures, provide innovative services and develop new sources of revenue.

Regulatory investigations and litigation may lead to fines or other penalties

        We are regularly involved in litigation, regulatory inquiries and investigations involving our operations. ANACOM, the European Commission and the Autoridade da Concorrência (the Portuguese national competition authority) can make inquiries and conduct investigations concerning our compliance with applicable laws and regulations. Current inquiries and investigations include several complaints before the Autoridade da Concorrência related to alleged anti-competitive practices in our wireline business. These inquiries and investigations are described in "Item 8—Financial Information—Legal Proceedings."

        On January 19, 2011, the European Commission opened an investigation into an agreement between Telefónica and Portugal Telecom allegedly not to compete in the Iberian telecommunications markets. Portugal Telecom has developed various strategic partnerships with Telefónica in recent years. Although we do not believe the existence of these partnerships has impeded competition and ordinary activities of our company and Telefónica, our relationship with Telefónica is now subject to investigation. The European Commission has stated that the initiation of proceedings does not imply that the Commission has conclusive proof of an infringement but that the Commission will deal with the case as a matter of priority. We cannot predict whether this investigation may lead to fines or other sanctions or whether it may have an adverse effect on our business.

        If we are found to be in violation of applicable laws and regulations in these or other regulatory inquiries, investigations, or litigation proceedings that are currently pending against us or that may be brought against us in the future, we may become subject to penalties, fines, damages or other sanctions. Any adverse outcome could have a material adverse effect on our operating results or cash flows.

Risks Related to Our International Operations

        Although Telefónica S.A. acquired our interest in Vivo, the Brazilian telecommunications company, on September 27, 2010, we announced on July 28, 2010 that we intended to enter into a strategic partnership with Telemar Participações S.A. ("TmarPart") and its subsidiaries (collectively, "Oi"), the Brazilian telecommunications company. On January 26, 2011, we announced that we had signed definitive documents relating to the transaction, and on March 28, 2011, we completed the acquisition of a 25.6% economic interest in TmarPart and of a 25.3% economic interest in Telemar Norte Leste S.A. We will have a role in the management of Oi and, as a result, will proportionally consolidate the results of operations of Oi in our results of operations. Consequently, the risks described below relating to the Brazil and the Brazilian telecommunications markets will continue to be relevant to our business. Additional risk factors that are specific to Oi are set forth below under "—Risks Related to our Strategic Partnership with Oi."

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We are exposed to exchange rate and interest rate fluctuations

        We are exposed to exchange rate fluctuation risks, mainly due to our significant investments in Brazil. On March 28, 2011, we completed the acquisition of an economic interest of 25.3% in Oi (through a 25.6% economic interest in TmarPart and a 25.3% interest in Telemar Norte Leste S.A.), Brazil's largest telecommunications group. We do not expect to hedge our economic exposure against exchange rate fluctuations. We are required to make adjustments to our equity on our balance sheet in response to fluctuations in the value of foreign currencies in which we have made investments. Devaluation of the Brazilian Real in the future could result in negative adjustments to our balance sheet, which could limit our ability to generate distributable reserves.

        We are also exposed to interest rate fluctuation risks. We have entered into financial instruments to reduce the impact on our earnings of an increase in market interest rates, but these financial instruments may not prevent unexpected and material fluctuations of interest rates from having any material adverse effect on our earnings.

        The Brazilian Central Bank's Monetary Policy Committee (Comitê de Política Monetária do Banco Central—COPOM) establishes the basic interest rate target for the Brazilian financial system by referring to the level of economic growth of the Brazilian economy, the level of inflation and other economic indicators. As of December 31, 2006, 2007, 2008, 2009 and 2010, the basic interest rate was 13.3%, 11.3%, 13.8%, 8.8% and 10.8%, respectively. Increases in interest rates may have a material adverse effect on Oi by increasing its interest expense on floating rate debt and increasing its financing costs.

Macroeconomic factors in Brazil could reduce expected returns on our Brazilian investments

        A material portion of our business, prospects, financial condition and results of operations has been, and will continue to be, dependent on general economic conditions in Brazil. In particular, our growth depends on economic growth and its impact on demand for telecommunications and other related services. The major factors that could have a material adverse effect on our investments and results of operations in Brazil, include:

        Adverse political and economic conditions.    The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. The Brazilian government has utilized salary and price controls, currency devaluation, capital controls and limits on imports, among other things as tools in its previous attempts to stabilize the Brazilian economy and control inflation. Changes in the Brazilian government's exchange control policy, or in general economic conditions in Brazil, could have a material adverse effect on the results of our operations in Brazil. Deterioration in economic and market conditions in other countries (mainly in other Latin American and emerging market countries) may adversely affect the Brazilian economy and our business.

        Past political crises in Brazil have affected the confidence of investors and the public in general, as well as the development of the economy. Future political crises could have an adverse impact on the Brazilian economy and Oi's business, financial condition and results of operations.

        Fluctuations in the Real and increases in interest rates.    The Brazilian currency has historically experienced frequent fluctuations relative to the Euro and other currencies. In 2007, 2009 and 2010, the Real appreciated against the Euro by 8.3%, 29.2% and 13.2%, respectively, and in 2008 depreciated against the Euro by 20.0%. Any substantial negative reaction to the policies of the Brazilian government could have a negative impact, including devaluation. The devaluation of the Real could negatively affect the stability of the Brazilian economy and accordingly could negatively affect the profitability and results of our operations and our ability to distribute reserves. It would also increase costs associated with financing our operations in Brazil. In addition, a devaluation of the Real relative

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to the U.S. dollar may increase the costs of imported products and equipment. Our operations in Brazil rely on imported equipment, and, as a result of such devaluation, such equipment would be more expensive to purchase.

        In response to the global economic and financial crisis, the Brazilian government increased the SELIC basic interest rate to 13.75% as of December 31, 2008. In 2009 Brazilian Central Bank reduced the SELIC up to 8.75% as of December 31, 2009 and in 2010 increased it up to 10.75% as of December 31, 2010. An increase in interest rates could negatively affect our profitability and results of operations and would increase the costs associated with financing our operations in Brazil.

        Inflation in Brazil.    Brazil has historically experienced high rates of inflation. Inflation, as well as governmental measures put in place to combat inflation, have had a material adverse effect on the Brazilian economy. Inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have in the past contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market. According to the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or "IPCA", published by the Brazilian Institute for Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or "IBGE", the Brazilian consumer price inflation rates were 3.1% in 2006, 4.5% in 2007, 5.9% in 2008, 4.3% in 2009 and 5.9% in 2010.

        Since 2006, Oi's telephone rates have been indexed to the Telecommunications Service Index (Índice de Serviços de Telecomunicações, or "IST"), which is a basket of national indexes that reflect the Brazilian telecommunications sector's operating costs. However, Brazilian monetary policy continues to use the IPCA as an inflation targeting system. The inflation target for 2011 is 4.5%. If inflation increases beyond this official 2011 target, basic interest rates may rise, causing direct effects on Oi's cost of debt and indirect effects on the demand for telecommunications goods and services.

The market value of securities issued by Brazilian companies is influenced by the perception of risk in Brazil and other emerging market countries, which may have a negative effect on the value of our investment in Oi and may restrict Oi's access to international capital markets.

        Economic and market conditions in other emerging market countries, especially those in Latin America, may influence the market for securities issued by Brazilian companies. Investors' reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Adverse economic conditions in other emerging market countries have at times resulted in significant outflows of funds from Brazil. In 2008, certain Brazilian and Mexican companies announced significant losses in connection with currency derivatives as a result of the depreciation of the real and the Mexican peso against the U.S. dollar, respectively. As a result, a number of these companies suffered financial distress and sought protection under various bankruptcy regimes. In addition, in October 2008, the Argentine government nationalized the Argentine private pension funds. Crises in other emerging countries or the economic policies of other countries, in particular the United States, may adversely affect investors' demand for securities issued by Brazilian companies, including Oi's preferred shares and ADSs. Any of these factors could adversely affect the market price of Oi's preferred shares and ADSs and impede its ability to access the international capital markets and finance its operations in the future on terms acceptable to it or at all.

Substantial competition exists in the Brazilian telecommunications market.

        Competition is expected to continue to intensify for telecommunication operators in Brazil as a result of the strategies of existing competitors, the possible entrance of new competitors and the rapid development of new technologies, products and services. An operator's ability to compete successfully will depend on its marketing techniques and on its ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in

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consumer preferences, demographic trends, economic conditions and discount pricing strategies by its competitors. If an operator does not keep pace with technological advances, or if it fails to respond timely to changes in competitive factors in its industry, it could continue to lose market share, and it could suffer a decline in its revenue. Competition from other Brazilian fixed-line service providers, Personal Mobile Service (Serviço Móvel Pessoal, or "SMP") providers and data transmission service providers has affected, and may continue to affect, Oi's financial results by causing, among other things, a decrease in its customer growth rate, decreases in prices and increases in selling expenses.

        Oi's competitors may be able to offer lower prices than it does and develop and deploy new or improved technologies, services and products more rapidly. Oi's response to competition may require it to lower rates, extend higher subsidies to its customers, and/or increase marketing expenses, thereby adversely affecting its margins.

        In addition, market participants in other areas of Brazil may also seek to operate in Oi's area, most likely through acquisitions. Recently, there has been consolidation in the Brazilian telecommunications market, and we believe this trend may continue.

        Consolidation may result in increased competitive pressures within our market. Oi may be unable to respond adequately to pricing pressures resulting from consolidation, which would adversely affect its business, financial condition and results of operations. Oi could be negatively affected by antitrust limitations imposed by the Brazilian National Telecommunications Agency (Agência Nacional de Telecomunicações, or "ANATEL") and the Brazilian Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica, or "CADE"). Consolidation of other players in the Brazilian telecommunications market will increase the competitive pressure on Oi due to an increase in their economies of scale and a reduction in their operating costs.

Regulation may have a material adverse effect on Oi's results

        Telecommunications service providers in Brazil are subject to extensive regulation, including certain regulatory restrictions and obligations relating to licenses, competition, taxes and rates (including interconnection rates) applicable to telecommunications services. Changes in the regulatory framework in the telecommunications sector may have a negative impact on Oi's revenues and results of operations. Moreover, Oi is restricted from increasing some of the rates that they charge for services provided even if a devaluation of the Brazilian Real or an increase of interest rates by the Brazilian government increases their costs. Such circumstances may limit Oi's flexibility in responding to market conditions, competition and changes in its cost structure, which could have a material adverse effect on its results of operations and, in turn, adversely affect our results of operations.

        Brazil's telecommunications regulatory framework is continuously evolving. The interpretation and enforcement of regulations, the assessment of compliance with regulations and the flexibility of regulatory authorities are all marked by uncertainty. Oi operates its fixed-line and personal mobile services under concession agreements and authorizations from the Brazilian government, and its ability to retain these authorizations is a precondition to its success. However, in light of the regulatory framework, ANATEL could modify the terms of the concession agreements and authorizations adversely. Furthermore, according to the terms of concession agreements and operating authorizations, Oi is obligated to meet certain requirements and to maintain minimum network expansion, quality, coverage and service standards. Failure to comply with these requirements may result in the imposition of fines or other government actions, including the early termination of operating authorizations. Any partial or total revocation of any operating authorizations would have a material adverse effect on Oi's business, financial condition, revenues, results of operations and prospects.

        In recent years, ANATEL has also been reviewing and introducing changes in applicable regulation, especially regarding the interconnection fees among telecommunications service providers in

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Brazil. Interconnection fees, which are fees charged by telecommunications service providers to each other to interconnect to each others' networks, are an important part of Oi's revenue base. To the extent that changes to the rules governing interconnection fees reduce the amount of interconnection fees Oi is able to collect, businesses, financial conditions, revenues, results of operations and prospects could be adversely affected.

        Certain legislative bills seeking to terminate monthly subscription fees charged by local fixed-line service providers have been submitted to the Brazilian Congress and remain pending. In March 2008, a special committee was formed in the Brazilian House of Representatives to discuss the various proposed bills on this issue. As of the date of this annual report, no action had been taken by the committee. In 2010, monthly subscription fees represented 24.0% of Oi's gross operating revenue. The enactment of legislation terminating the monthly subscription fees would have a material adverse effect on its results of operations.

Our other international investments are subject to political, economic, regulatory and legal risk in those countries, which could adversely affect the value of our investments and our results of operations

        In accordance with our strategy, we continue to proactively manage our international businesses in selected markets and regions where we have a clear competitive advantage. This strategy may be pursued either by investing alone or by developing partnerships and by acquiring existing companies or by investing in new projects.

        These investments are exposed to political and economic risks that include, but are not limited to, exchange rate and interest rate fluctuations, inflation and restrictive economic policies and regulatory risks that include, but are not limited to, the process for the renewal of licenses and the evolution of regulated retail and wholesale tariffs. In addition, our ventures in international markets face risks associated with increasing competition, including due to the possible entrance of new competitors and the rapid development of new technologies.

        The development of partnerships in these markets raises risks related to the ability of the partners to jointly operate the assets. Any inability of us and our partners to operate these assets may have a negative impact on our strategy and on our results of operations.

        All these risks may have material adverse effects on our results of operations.

Adverse political, economic and legal conditions in the countries where we have investments may hinder our ability to receive dividends from our international subsidiaries

        The governments of many of the countries where we have investments have historically exercised, and continue to exercise, significant influence over their respective economies and legal systems. Countries where we have investments may enact legal or regulatory measures that restrict the ability of our subsidiaries to make dividend payments to us. Similarly, adverse political or economic conditions in these countries may hinder our ability to receive dividends from our subsidiaries. We receive significant amounts in dividends each year from our international investments, particularly in Africa, and a limitation on our ability to receive a material portion of those dividends could adversely affect our cash flows and liquidity.

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Risks Related to Our Strategic Partnership with Oi

Our strategy of enhancing our operations in Brazil through our strategic partnership with Oi may not be successful, and we do not have free access to cash flows from Oi

        The successful implementation of our strategy for our mobile operations in Brazil depends on the development of our strategic partnership with Oi. On January 26, 2011, we announced that we had entered into agreements with Oi to acquire a significant economic stake of that company, and on March 28, 2011, we completed the acquisition of a 25.6% economic interest in TmarPart and a 25.3% economic interest in Telemar Norte Leste S.A.

        As in any strategic partnership, it is possible that we and Oi will not agree on its strategy, operations or other matters. Any inability of Oi and us to operate Oi jointly could have a negative impact on Oi's operations, which could have a negative impact on our strategy in Brazil and could have a material adverse effect on our results of operations. In addition, we cannot be sure that Oi will be able to take advantage of its position in the Brazilian market to increase the scope and scale of its operations or that any anticipated benefits of the strategic partnership will be realized.

        As part of our strategic alliance with Oi, we plan to merge Dedic S.A. ("Dedic") and GPTI Tecnologia da Informação S.A. ("GPTI"), our contact center operations in Brazil, with Contax S.A. ("Contax") and increase our economic stake in CTX, Contax's indirect controlling shareholder, from 42.0% to 44.4%. This merger is still subject to approval by our board of directors and shareholders and other conditions that are beyond our control.

        In addition, because we hold joint control of Oi, we may not have free access to its cash flows. It will be necessary for us and other controlling shareholders of Oi to agree to approve any distributions from Oi. See "Item 4—Information on the Company—Our Businesses—Strategic Alliances—Strategic Partnership with Oi."

Oi has a substantial amount of existing debt, which could restrict its financing and operating flexibility and have other adverse consequences.

        At December 31, 2010, Oi had total consolidated debt of R$29,136 million. Oi is subject to certain financial covenants that limit its ability to incur additional debt. Its existing level of indebtedness and the requirements and limitations imposed by its debt instruments could adversely affect its financial condition or results of operations. In particular, the terms of some of these debt instruments restrict our ability, and the ability of our subsidiaries, to:

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incur additional debt;



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grant liens;



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pledge assets;



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sell or dispose of assets; and



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make certain acquisitions, mergers and consolidations.

        Furthermore, some of Oi's debt instruments include financial covenants that require it and some of its subsidiaries to maintain certain specified financial ratios. Additionally, the instruments governing a substantial portion of its indebtedness contain cross-default or cross-acceleration clauses, and the occurrence of an event of default under one of these instruments could trigger an event of default under other indebtedness or enable the creditors under other indebtedness to accelerate that indebtedness.

        If Oi is unable to incur additional debt, it may be unable to invest in its business and make necessary or advisable capital expenditures, which could reduce future net operating revenue and

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adversely affect its profitability. In addition, cash required to serve its existing indebtedness reduces the amount available to it to make capital expenditures.

        If Oi's growth in net operating revenue slows or declines in a significant manner, for any reason, it may not be able to continue servicing its debt. If it is unable to meet its debt service obligations or comply with our debt covenants, it could be forced to renegotiate or refinance its indebtedness, seek additional equity capital or sell assets. It may be unable to obtain financing or sell assets on satisfactory terms, or at all.

Oi is subject to numerous legal and administrative proceedings, which could adversely affect its business, results of operations and financial condition.

        Oi is subject to numerous legal and administrative proceedings. It is difficult to quantify the potential impact of these legal and administrative proceedings. It classifies its risk of loss from legal and administrative proceedings as "probable," "possible" or "remote." It makes provisions for probable losses but does not make provisions for possible and remote losses. At December 31, 2010, Oi had recorded provisions of R$6,793 million for probable losses relating to various tax, labor and civil legal and administrative proceedings against it.

        At December 31, 2010, Oi had claims against it of R$15,305 million in tax proceedings, R$2,547 million in labor proceedings and R$1,372 million in civil proceedings with a risk of loss classified as "possible" or "remote" and for which it had made no provisions.

        If Oi is subject to unfavorable decisions in any legal or administrative proceedings and the losses in those proceedings significantly exceed the amount for which it has provisioned or involve proceedings for which it has made no provision, its results of operations and financial condition may be materially adversely affected.

Oi is subject to delinquencies of its accounts receivables. If it is unable to limit payment delinquencies by its customers, or if delinquent payments by its customers increase, its financial condition and results of operations could be adversely affected.

        Oi's business significantly depends on its customers' ability to pay their bills and comply with their obligations to it. In 2010, Oi recorded provisions for doubtful accounts in the amount of R$979 million, primarily due to subscribers' delinquencies. As a percentage of Oi's gross operating revenue, its provision for doubtful accounts was 2.1% at December 31, 2010.

        ANATEL regulations prevent Oi from implementing certain policies that could have the effect of reducing delinquency, such as service restrictions or limitations on the types of services provided based on a subscriber's credit record. If Oi is unable successfully to implement policies to limit subscriber delinquencies or otherwise select its customers based on their credit records, persistent subscriber delinquencies and bad debt will continue to adversely affect Oi's operating and financial results.

        In addition, if the Brazilian economy declines due to, among other factors, a reduction in the level of economic activity, depreciation of the Brazilian Real, an increase in inflation or an increase in domestic interest rates, a greater portion of Oi's customers may not be able to pay their bills on a timely basis, which would increase its provision for doubtful accounts and adversely affect its financial condition and results of operations.

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        Tele Norte Leste Participações S.A., a subsidiary of Telemar Participações S.A., whose ADRs are listed on the New York Stock Exchange, files its own Annual Reports on Form 20-F with the Securities and Exchange Commission. It filed its most recent Annual Report on Form 20-F on May 4, 2011, and that report contains additional information regarding the business, financial position, results of operations and risks relating to Oi. However, Annual Report on Form 20-F of Tele Norte Leste Participações S.A. is not incorporated by reference into our Annual Report on this Form 20-F.

Risks Relating to Our ADSs and Ordinary Shares

An ADS holder may face disadvantages compared to an ordinary shareholder when attempting to exercise voting rights

        Holders of our ADSs may instruct the depositary to vote the ordinary shares underlying the ADSs. For the depositary to follow the voting instructions, it must receive them on or before the date specified in our voting materials. The depositary must try, as far as practical, subject to Portuguese law and our articles of association, to vote the ordinary shares as instructed. In most cases, if the ADS holder does not give instructions to the depositary, it may vote the ordinary shares in favor of proposals supported by our Board of Directors, or, when practicable and permitted, give a discretionary proxy to a person designated by us. We cannot be certain that ADS holders will receive voting materials in time to ensure that they can instruct the depositary to vote the underlying ordinary shares. Also, the depositary is not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that ADS holders may not be able to exercise their right to vote and there may be nothing they can do if their ordinary shares or other deposited securities are not voted as requested.

If you are a U.S. tax resident, you will not be eligible for the reduced rates of Portuguese withholding tax on dividends under the U.S.-Portugal income tax treaty unless you fill out a form required by the Portuguese tax authorities and get it certified by the U.S. Internal Revenue Service

        If you are a U.S. tax resident, you will not be eligible for the reduced rates of Portuguese withholding tax on dividends under the U.S.-Portugal income tax treaty unless you fill out a form required by the Portuguese tax authorities and have it certified by the U.S. Internal Revenue Service.

        Under Portuguese law, dividends paid by Portuguese companies are subject to withholding tax at a 21.5% rate. Dividends placed in bank omnibus accounts (except where the identity of the effective beneficiary is disclosed), are subject to withholding tax at a rate of 30%.

        However, under the U.S.-Portugal income tax treaty, the withholding tax rate on dividends distributed to U.S. tax residents may be reduced, as a general rule, to 15%. In order to apply the reduced treaty rate, confirmation that each shareholder is eligible for the benefits of the treaty is required. A specific form (Form 21-RFI of the Directorate-General of Taxes (Direcção Geral de Impostos—DGCI) of the Portuguese Ministry of Finance), duly certified by the U.S. Internal Revenue Service, must be received by Banco Espírito Santo, the custodian for the depositary, if you are a holder of ADSs, or your financial intermediary, if you are a holder of Portugal Telecom ordinary shares, prior to the date the dividends are made available to shareholders.

        If this form is not available as of the relevant date, Portuguese withholding tax will be levied at the 21.5% rate. If you are able to submit the form to the custodian for the depositary, if you are a holder of ADSs, or to your financial intermediary, if you are a holder of ordinary shares, no later than the 20th day of the month following the payment of the dividend, we believe that the custodian or the financial intermediary, as the case may be, should release the 6.5% excess Portuguese withholding tax to you. However, we cannot guarantee that the custodian or the financial intermediary will do so.

        In addition, the 6.5% excess Portuguese withholding tax may be subsequently reimbursed by the Portuguese tax authorities pursuant to specific claims of individual shareholders on Form 22-RFI of the

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Directorate-General of Taxes of the Portuguese Ministry of Finance, duly certified by the U.S. Internal Revenue Service and presented to the Portuguese tax authorities within two years following the last day of the year in which the dividends were made available. See "Item 10—Additional Information—Taxation—Dividends."

        If you are an investment fund, pension fund or trust holding ADSs or ordinary shares, you should be aware that, under a guidance note issued by the Portuguese tax authorities, in order to benefit from the Treaty provisions, you must comply with certain additional requirements that are described in "Item 10—Additional Information—Taxation—Dividends." Although this is not demanded by the Treaty, the Portuguese tax authorities take the position that the compliance with the applicable requirements should be certified by the U.S. Internal Revenue Service, using a form or other mean specifically permitted for this purpose. If you are an investment fund, pension fund or trust, you should contact your tax advisor for more information regarding the requirements of the Portuguese tax authorities.

        You should know that receiving certification of a Form 21-RFI or Form 22-RFI from the U.S. Internal Revenue Service can be a lengthy process. In addition, although Portuguese law states that the excess withholding tax should be reimbursed within one year from the date the claim was submitted, we cannot guarantee if or when you will receive any reimbursement of the 6.5% excess Portuguese withholding tax even if you fill out Form 22-RFI and are eligible to receive reimbursement as described above. You should contact your tax advisor if you wish to fill out Form 21-RFI or Form 22-RFI to claim eligibility for the benefits of the Treaty.

ITEM 4—INFORMATION ON THE COMPANY

Overview

        Our legal and commercial name is Portugal Telecom, SGPS, S.A. We are a limited liability holding company, organized as a Sociedade Gestora de Participações Sociais under the laws of the Portuguese Republic. The company was originally incorporated as Portugal Telecom, S.A., a sociedade anónima in June 1994. Our principal offices are located at Avenida Fontes Pereira de Melo, 40, 1069-300 Lisboa, Portugal. Our telephone number is +351 21 500 1701, and our facsimile number is +351 21 500 0800. Our agent for service of process in the United States is Puglisi & Associates at 850 Library Avenue, Suite 204, Newark, Delaware 19711. Our home page is located at www.telecom.pt. The information on our website is not part of this report. The website address is included as an indicative textual reference only.

        We provide telecommunications services mainly in Portugal (our "Portuguese operations") and through our significant strategic partnerships and investments in Brazil, certain countries in sub-Saharan Africa and Asia (our "international operations"). In Portugal, we provide services to the following customer categories:

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Residential services, which provides integrated networks inside the customer's home, enabling the simultaneous connection of multiple devices, including fixed line telephone, TV (including Internet Protocol Television and direct-to-home satellite Pay-TV services), game consoles, PCs, laptops, tablets and smartphones. We provide these services through our subsidiaries, in particular PT Comunicações, S.A. ("PT Comunicações");



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Personal services, which provides mobile telecommunications services, such as voice, data and Internet-related multi-media services, in particular mobile phones, smartphones, tablets and laptops, through our subsidiary TMN—Telecomunicações Móveis Nacionais, S.A. ("TMN");



•

Enterprise services, including Corporate and SME/SoHo services, which provide our corporate and medium and small business customers with data and business solutions, as well as IT/IS and business process outsourcing (BPO) services.

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•

Wholesale services, which includes leased lines, interconnection services, unbundled access to our local loops, broadband ADSL services, wholesale line rental, access to ducts, transmission of television and radio signals and international carrier services.



•

Other services, which primarily includes our directories business and portal services that are provided in Portugal as part of our comprehensive service offering.

        Since the closing of our transaction with Oi on March 28, 2011, we also hold a 25.3% economic stake in Oi, which provides mobile, wireline, broadband and Pay-TV services in Brazil. As part of the same transaction, we acquired a 16.2% economic stake in CTX Participações S.A. ("CTX"), the parent company of Contax Participações S.A. ("Contax Participações") and Contax, which provides contact center services in Brazil. We also agreed to merge Dedic and GPTI, our subsidiaries that provide contact center and IS/IT services in Brazil, with Contax, subject to approval by our board of directors and shareholders and other conditions.

        In addition, we have significant interests in telecommunications companies in Angola, Cape Verde, Namibia and São Tomé and Principe in Africa and in Macau and East Timor in Asia.

        In Portugal, we are the leading provider of all of these services, except for IPTV and DTH services, according to data provided by ANACOM, the Portuguese telecommunications regulator. The provision of residential and enterprise services through our wireline business in Portugal continues to account for a large proportion of our revenues (47.2% during 2010) as compared to revenues derived from any other line of business.

Strategy

        We remain committed to discipline in our strategy, cost, operations and financial performance, and we aim to focus our resources on our core businesses and core regions, namely Portugal, Brazil and sub-Saharan Africa. Our strategy continues to be guided by the five medium-term strategic objectives:

•

grow our customer base to 100 million customers;



•

increase our exposure to international businesses up to two-thirds of our revenues;



•

seek and reinforce leadership in all domestic market sectors;



•

achieve performance in the top quartile of European companies in shareholder return and operating and financial results; and



•

become a reference company in sustainability efforts.

        Our success in achieving these goals is subject to a number of uncertainties, including the factors described in "Item 3—Key Information—Risk Factors."

        Some of our specific strategies to achieve these goals include the following:

Portuguese Operations

•

reinforce leadership in all market sectors where we operate and aim at offering broad and convergent products and services;



•

continue to enhance our customer service;



•

continue to engage in innovations using a structural approach and benefiting from our estabhished strategic partnerships; and



•

continue to invest in technologically advanced fixed, mobile and integrated networks;

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International Operations

•

maximize the strategic value of our international assets and reinforce our focus on Brazil and sub-Saharian Africa; and



•

focus on operational and commercial efficiency of all assets and promote the sharing of best practices among all businesses.

Corporate Structure

        Our market is characterized by increasing competition and rapid technological change. Our subsidiaries are held directly and indirectly by Portugal Telecom in its role as holding company. We have integrated certain functions across the company, in particular information systems (PT Sistemas de Informação), research and development capabilities (PT Inovação), back office activities (PT Pro), central purchasing capabilities (PT Compras) and call center operations (PT Contact). The diagram below presents our different businesses as of the date of filing of this Annual Report on Form 20-F.

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(1)

Providing wireline services in Portugal, including our fixed telephone service, Internet access services, wholesale services, data and business solutions services, portal and e-commerce solutions, and IPTV and DTH services.

(2)

Various companies providing services to Portugal Telecom group companies, including PT Sistemas de Informação (information systems), PT Inovação (research and development), PT Pro (shared services), PT Compras (central purchasing) and PT Contact (call centers).

(3)

The acquisition of this investment was completed in March 2011, as explained in more detail below.

(4)

Includes our investment in Contax, which is explained in "—Recent Developments—Strategic Partnership with Oi" below, our investments in global telecommunications operators in the Cape Verde Islands, São Tomé and Principe Islands and Macau, mobile operators in Namibia and Angola, and other investments.

        For additional information on our significant subsidiaries, see Exhibit 8.1, which is incorporated herein by reference.

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        The following table sets forth the operating revenues of each of our major business lines, on a standalone basis, for the years ended December 31, 2008, 2009 and 2010:

        For information about the effects of seasonality on our business, see "Item 5—Operating and Financial Review and Prospects—Overview—Business Drivers and Measures—Seasonality."

Recent Developments

Acquisition of Vivo by Telefónica

        On July 28, 2010, we signed an agreement with Telefónica for the acquisition by Telefónica of the 50% of the capital stock of Brasilcel N.V. we owned. Brasilcel owned approximately 60% of the total share capital of Vivo Participações, S.A. ("Vivo"). The acquisition price of that capital stock was €7,500 million, €4,500 million of which was paid at the closing of the transaction on September 27, 2010 and €1,000 million of which was paid on December 30, 2010, with the remaining €2,000 million due on October 31, 2011 (though we may request that this final payment be made on July 29, 2011, in which case such final payment, and correspondingly, the total price of the acquisition, would be reduced by €25 million). The agreement also provided for certain other commercial arrangements between Telefónica and Portugal Telecom that were subsequently rendered inapplicable. Upon closing of the transaction, the respective subscription and shareholders agreements entered into by Telefónica and Portugal Telecom in 2002 relating to Vivo were terminated.

Strategic Partnership with Oi

        On January 26, 2011, we announced that we had entered into a series of agreements with Oi, Brazil's largest telecommunications group, to acquire a significant stake in that company. In connection with our agreements to establish a strategic partnership with Oi, we also agreed to merge Dedic and GPTI, our subsidiaries that provide call center and IS/IT services in Brazil, with Contax, one of the leading corporate services company and the leader in contact center services in Brazil. Contax is

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currently controlled by the controlling shareholders of Oi, through CTX and Contax Participações. The Oi transaction closed on March 28, 2011. We also completed the acquisition of a 16.2% stake in CTX but have not yet completed the merger of Dedic and Contax, which is subject to the approval of our board of directors and shareholders and other conditions. Following the closing of the transaction, we hold a 25.3% econominc stake in Oi, and we expect to hold a 44% economic stake in CTX (42.0% prior to the merger of Dedic and Contax).

        For more information about the transaction, see "Item 4—Information on the Company—Our Businesses—Strategic Alliances—Strategic Partnership with Oi."

Sale of Interest in Universo Online S.A.

        On December 29, 2010, we reached an agreement for the sale of our 28.78% of stake in Universo Online S.A. ("UOL"), a Brazilian internet provider to a Brazilian businessman. The total consideration for the sale was R$356 million (€161 million as of December 31, 2010). The transaction closed on January 27, 2011.

Our Businesses

Portuguese Operations

        Our Portuguese operations are managed alongside two segments: wireline and mobile (TMN). Within each of the wireline and mobile segments, we provide services to five key customer categories:

•

Residential services, which provide integrated networks inside the customer's home enabling the simultaneous connection of multiple devices, including fixed line telephones, TVs (including Internet Protocol Television and direct-to-home satellite Pay-TV services), game consoles, PCs, laptops, tablets and smartphones. Profits and losses related to services provided to residential customers are recorded under the wireline segment;



•

Personal services, which provide mobile telecommunications services, such as voice, data and Internet-related multi-media services across several access devices, such as mobile phones, smartphones and tablets, as well as wireless datacards and dongles for internet access. Profits and losses related to services provided to personal customers are recorded under the mobile segment;



•

Enterprise services, including Corporate and SME/SOHO services, which provide our corporate as well as media and small business customers with data and business solutions, as well as IT/IS and business process outsourcing (BPO) services:



•

Corporate services, which targets large companies and provides data, Internet, video and voice communications, services, fixed mobile convergence solutions and selected information technology services, network managing and outsourcing; and



•

SME/SOHO services, which targets (1) small and medium enterprises ("SMEs"), providing vertical data and business solutions that are similar to our corporate services and (2) small office/home office ("SOHO") customers and provides cost-effective data and business solutions for those working in small businesses or at home;



•

Profits and losses related to services provided to Enterprise customers are recorded under both the wireline and mobile segments;



•

Wholesale services, which includes leased lines, interconnection services, unbundled access to our local loops, broadband ADSL services, wholesale line rental, access to ducts, transmission of television and radio signals and international carrier services. Profits and losses related to services provided to Wholesale customers are recorded under the wireline segment; and

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•

Other services, which primarily includes our directories business and portal services that are provided in Portugal as part of our comprehensive service offering.

Residential Services (Included in our Wireline Business)

        Our residential customer category provides fixed line telephone services, Pay-TV (IPTV and DTH satellite TV) services and Internet access services to residential customers. The table below sets forth the total number of retail lines (or accesses), net retail additions and other information as of the dates indicated. The wireline business, as reported, includes not only the services and products provided to our residential customers but also fixed telecommunications services provided to corporate and SME/SOHO customers. A relevant part of our retail business is to residential customers, but retail services provided to business customers (described under "—Enterprise Services" below) are also reflected in the table below.

Fixed Line Network

        We had approximately 4.9 million telephone and asymmetric digital subscriber line ("ADSL") access lines in service at December 31, 2010, excluding external supplementary lines, direct extensions and active multiple numbers. We break our fixed line network down into retail accesses and wholesale accesses. Within retail accesses, we report:

•

traffic-generating lines held by subscribing customers;

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•

carrier pre-selection lines, which are lines of competitors for which those customers have elected to use our services;



•

fixed broadband retail lines; and



•

Internet protocol television ("IPTV") customers.

        The number of active mobile cards (the mobile equivalent of main lines) exceeds the number of fixed line main lines in Portugal, and traffic that once was transmitted in whole or in part on our fixed line network is now carried on our mobile network or on the network of other mobile operators. We are addressing this trend by encouraging increased use of our fixed line network for bundled services, including not only fixed telephone services but also broadband internet access and Pay-TV services, primarily offered as triple-play packages.

        All of our local switches in Portugal have been digital since 1999. Digital technology is used on all long distance and trunk connections. This level of digitalization of our fixed line network permits us to market and provide network-based value-added services, such as call waiting, call forwarding and voice mail, resulting in increased line usage. Moreover, in May 2009, we announced our objective to cover one million homes with Fiber-to-the-Home ("FTTH"), which we achieved by the end of 2010. Our FTTH network, which is developed in urban areas, is a strategic investment to improve our competitiveness in the market not only in residential services, where we can offer distinctive Pay-TV and bundled offers, but also for our enterprise services, where trends like cloud services, outsourcing of infrastructure and software applications are emerging rapidly.

        We measure volume on our network in terms of traffic, which is the number of minutes that our retail and wholesale accesses are used. Total traffic on the network has been decreasing since 2002, primarily because consumers have increasingly used mobile services instead of fixed line services and because of the migration of dial-up Internet users to ADSL. However, in the fourth quarter of 2010, positive net additions of fixed lines were achieved for the first time in seven years, primarily due to strong performance of Meo double-play and triple-play offers.

        We are required to provide carrier selection to our customers for all kinds of traffic. See "—Regulation-Portugal—Number Portability and Carrier Selection." Carrier selection has been an additional factor that has contributed to the reduction in traffic on our network.

        Except for customer pre-selection and Internet traffic, we account for traffic originating on our network as fixed line telephone services, described below, and we allocate the revenue billed to customers to those services. Traffic originating on other networks but terminating on our network, and the related revenue, is allocated to our wholesale services described under "—Wholesale Services" below.

Fixed Line Telephone Services

        We provide public fixed line telephone services in Portugal to retail customers. This business area provided €969.2 million and €971.0 million during 2010 and 2009, respectively.

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        We distinguish between two principal sources of revenue in the provision of fixed telephone services:

•

Fixed charges, including network access charges based on a monthly line rental and an initial installation fee, as well as, in most cases, a monthly fee from pricing packages, which can include broadband and Pay-TV; and



•

Traffic, including charges for the use of our fixed line network based on rates dependent on the amount and type of usage.

        In recent years, fixed line traffic has continued to decrease, primarily due to the trend toward the use of mobile services instead of fixed line services and strong competition from fixed and cable operators, though partially offset by the strong performance of our Meo double-play and triple-play offers.

Pay-TV Services

        IPTV Services.    In 2008, we announced the launch of our nationwide Pay-TV offer, which includes DTH (satellite) and IPTV offers. Our television strategy is based on a multiplatform concept that aims to provide similar content and user experiences across television, PCs and mobile phones. Meo is our TV brand across the various platforms, namely at home (through IPTV and satellite), through mobile handsets (through Meo Mobile) or through personal computers. Meo provides access to a comprehensive content offering, with more than 120 TV channels and over 2,500 video-on-demand titles. We offer tiered packages of channels, as well as on-demand availability that can be subscribed for directly through the TV set in real time. Meo also provides access to advanced features, such as digital recording and pause live-TV. The set-top boxes in the Meo service are all HD-compliant, using MPEG4. We were the first operator in Portugal to introduce HDTV and have the most extensive video-on-demand offer in the market.

        In 2008, Meo launched a "quintuple-play" offer, including Pay-TV, fixed broadband, voice, video-on-demand and mobile broadband.

        In 2009, Meo further reinforced its position in the Portuguese market by launching several features to differentiate its offer, including (1) real video-on-demand (VoD) with DVD-like features and a catalog of more than 2,500 movies, including high definition ("HD"), (2) catch-up TV, (3) an electronic programming guide accessible remotely through the Internet and the mobile phone, (4) TV channel recording, which can be remotely programmed through the Internet or through the mobile phone, (5) gaming, karaoke and several interactive content and service areas, (6) access to personal photo folders and (7) customized offers for kids. In addition, we launched Meo@PC, allowing customers to have online access to Meo's Pay-TV service through their personal computers, strengthening the mobility and convergence attributes of Meo.

        Meo's VoD offer, which includes movies from five Hollywood studios, is a key differentiating feature of the service, as more than 55% of Meo's IPTV customers have already used VoD on a paid basis, consuming on average 2.3 movies per month.

        In 2010 and early 2011, we continued to add to the channels and features available on Meo, including (1) several new channels, including FoxLife, Channel Q, Food Network HD, Mezzo Live HD and Travel Channel HD, (2) channel interactivity, including TVI Secret Story Interactivo, an exclusive interactive channel developed in partnership with TVI, a free-to-air broadcast channel, (3) Meo Online, which gives access to Meo's VoD catalogs through PCs, (4) Meo Jogos, which offers games from leading game developers, (5) Music Box, an integrated service for mobile phones, PCs and TV; and (6) Meo Remote, an application allowing Meo customers to install a Meu remote control on their smartphones and tablets.

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        As of December 31, 2010, we had 830 thousand TV customers.

        DTT Services.    In 2008, we were notified of the final decision of ANACOM endorsing the Draft Final Decision of the Portuguese Committee of Evaluation to allocate to us the frequency usage rights for Digital Terrestrial Television ("DTT") associated with the system for combining more than one information stream into a single stream for transmission ("Multiplex" or "Mux"), namely Mux A (transport of free-to-air signal) and Muxes B to F (Pay-TV service). In 2009, the Portuguese Media Regulatory Entity (Entidade Reguladora para a Comunicação Social, or "ERC"), an independent regulatory authority for the Portuguese media, notified us of its final decision to grant us a license to act as a TV distribution operator.

        We launched DTT (with DVB-T) in 2009, initially covering 29 municipalities and over 40% of the population. By the end of 2009, this figure reached 80% of the population. The switch-off of analog television is foreseen for April 2012, although this may happen sooner given that by the end of 2010, coverage reached 100% of the population.

        On December 22, 2010, ANACOM approved a draft decision regarding the alteration of the operating channel Mux A of the DTT, assigned to PT Comunicações. In addition, on December 22, 2010, ANACOM approved the final decision on the identification of re-transmitters and respective dates of termination of broadcasts of the pilot phase provided in the detailed plan for the cessation of analog terrestrial television broadcasts (i.e., switch-off plan). On December 27, 2010, invoking reasons of public interest, ANACOM initiated a process to change the radio channels assigned to PT Comunicações with the goal of improving efficient spectrum management and harmonizing the conditions of use of frequencies in the 800 MHz band.

        We requested that ANACOM revoke frequency usage rights associated with Muxes B to F and requested that ERC revoke the license to act as a TV distribution operator. ANACOM issued a draft decision on January 29, 2010, pursuant to which ANACOM stated that it intended to revoke the action granting PT Comunicações the right to use the frequencies associated with Muxes B to F, retroactive to January 29, 2010. This draft decision was submitted to a public consultation. On July 12, 2010, ANACOM made a final decision to revoke the granting of rights of use of the frequencies associated with Muxes B to F and, consequently, the five titles that document the rights assigned to PT Comunicações. The revocation decision was retroactive to the date of the draft decision issued by ANACOM on January 29, 2010. As a result, we continue to use the Mux A (transport of free-to-air signal) for our DTT services but do not provide Pay-TV channels through our DTT services. We provide our Pay-TV channels instead using FTTH, ADSL and DTH technologies.

        As to the request submitted to ERC, this authority issued a draft decision, under which it stated that reasons of public interest prevented revoking the license granted to PT Comunicações to operate as a TV distribution operator using the frequencies allocated by ANACOM for that purpose. This draft decision was also submitted to a public consultation. The final decision, issued on March 17, 2010, maintained ERC's draft position. The decision process of the ERC is independent from that of ANACOM.

Fixed Broadband Retail Services

        We offer Internet access through the lines of our fixed line network. As of December 31, 2010, we had approximately 1.0 million fixed broadband retail customers, which represented an overall increase of 16% over the previous year. The majority of these customers use our ADSL services. However, we also offer dial-up paid and free Internet access services.

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How We Report Residential Services in Our Financial Statements

        We report our entire residential services customer category revenues within the wireline business in our financial statements.

Personal Services (Included in our Mobile Business)

        We provide telecommunications and data mobility services for a variety of personal devices, including traditional cell phones, smartphones, tablets and laptops through our mobile business. We conduct our mobile business in Portugal through our wholly-owned subsidiary TMN. TMN is the leading provider of mobile voice, data and Internet services in Portugal in terms of the number of active mobile telephone cards connected to its network, as well as by revenues, margins and profits.

        Operating revenues from TMN amounted to €1,387.5 million in 2010 compared to €1,517.8 million in 2009. At December 31, 2010, there were approximately 159.9 active mobile telephone cards per 100 Portuguese inhabitants according to ANACOM. The table below provides statistical information relating to TMN.

Services

        TMN provides mobile telephone services using the GSM and UMTS technologies. GSM and UMTS are European and worldwide standards using digital technology. Through roaming agreements, TMN's subscribers can use GSM and UMTS services to make and receive mobile calls throughout Europe and in many other countries around the world.

        TMN provides GSM mobile telephone services in the 900 MHZ and 1800 MHZ band spectrums. TMN's strategy has been to use GSM 1800 services to offer an increased number of channels in high traffic density areas without compromising the quality of the network. Dual-band handsets, which select available channels from each frequency band, enable users to benefit from the wider range of available channels.

        At the end of 2010, TMN's UMTS population coverage was approximately 93%, and its geographic coverage was about 68%, or 4,194 municipalities out of a total of 4252 in Portugal, including every municipality with over five thousand inhabitants.

        TMN paid spectrum fees in 2010 and 2009 of €21 million and €24 million, respectively, for the use of its 900 MHZ and 1800 MHZ GSM network and its UMTS network. These spectrum fees are recorded as an operating expense in our financial statements.

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        During 2010, TMN introduced the following new services in Portugal:

•

an internet tablet service offering allowing mobile data access from tablet personal devices;



•

"tribal plans," which are pricing plans targeted at youth customers;



•

new unlimited mobile broad band tariff plans to increase penetration;



•

new "TMN unlimited" and "all net unlimited" postpaid pricing plans aimed at the high value customers;



•

a new "e nunca mais acaba" prepaid pricing plan aimed at the mass market, including free and unlimited communications with TMN customers;



•

"Music Box," a new cross-platform music service for mobile phones, computers and TVs, with sharable playlists across all devices;



•

a new handset application store and a Facebook store; and



•

"Car Control," a new location-based security service for cars.

        During 2010, in order to support our innovative service offering and distinguish it from the market, TMN launched the following new products in Portugal:

•

the Samsung Galaxy-S, an advanced smartphone based on the Android operating system;



•

the Samsung Galaxy Tab, a tablet PC based on the Android operating system;



•

an exclusive arrangement to market the Samsung Omnia 7, the first mobile phone in Portugal to integrate the Windows 7 operating system;



•

the i-Phone 4; and



•

the Sapo a5, a low-cost smartphone using the Android operating system.

        Peer-to-peer ("P2P"), messaging services via Short Messaging Services ("SMS") or Multimedia Messaging Services ("MMS") continue to account for a significant portion of TMN's data revenues and are an area where TMN continues to experience significant growth. In addition, TMN offers a wide range of other services in its data service portfolio, such as a multimedia mobile portal (I9-Inove) and a standard mobile portal (myTMN), multimedia content services (including Logos & Ring Tones or Java games), access to third-party branded content, corporate solutions and mobile payment services. TMN also offers a m-payment service called Telemultibanco that allows the payment of utility bills by mobile phone.

        TMN also offers a variety of services for access to e-mail or Internet through Wi-Fi, GPRS and UMTS. GPRS is a mobile data service standard for GSM handsets. Currently, TMN offers speeds up to 21.6 Mbps. TMN also provides internet access through more than 1,600 hot spots.

        In 2010, TMN contined to strengthen its mobile broadband offerings, increasing the speed and download capacity to its customers. As part of its efforts to maintain its strong market position in innovative products, TMN performed a long-term evolution ("LTE") technical trial. TMN has been investing significantly in new services, such as (1) Music Box, an integrated service for mobile phones, PCs and TV that provides access to a catalog of millions of music tracks, with immediate access to unlimited streaming from the main global music companies; (2) TMN's application store making available sports, news, entertainment, games, books and utility apps, which leverages on the wide experience and presence of PT's portal Sapo in the online world and partnerships with third parties; (3) Meo Mobile, which makes available 40 TV channels, in various areas such as information, sports, entertainment, children and other, on the mobile phone, and (4) Pond, an aggregation service that enables the access to multiple personal accounts and aggregation of social network accounts. This

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service and applications offering is complemented with the internetnotelemóvel service, which offers internet access on mobile phones in any place at any time and also access to TMN's innovative mobile portal.

        As part of its innovation strategy, TMN recently launched its internet Pad service offering, a new mobile data access offer specifically designed for tablet PC's, aimed at establishing a leading position in this high-growth market. The internet Pad offer was recently further reinforced with the integration of the Samsung Galaxy Tab, based on the Android operating system.

        TMN offers data services specifically focused on the corporate customer category, such as SMS Express and the POS Mobile service. SMS Express allows users to send messages to a mailing list in a quick, automatic and easy form. POS Mobile allows TMN corporate clients to use POS (point of sale) mobile equipment to receive debit or credit payments at any place with total security. TMN also launched Localizz, which is a location-based service that allows mobile management and localization of a company's resources (such as handsets, cars, machines and containers) through an Internet website.

        TMN has a low-cost brand "Uzo" that targets low-cost subscribers and uses TMN's GSM network. Uzo offers a very simple service to its customers with no obligatory recharges and one tariff for voice calls and SMSs to all networks. Uzo focuses primarily on selling SIM cards and low-cost mobile phones to its customers. Uzo's products and services are offered through the Internet, Uzo's call centers (which are separate from TMN's call centers) and independent news stands and shops located throughout Portugal.

Subscribers and Traffic

        TMN is the market leader in mobile services in Portugal, according to ANACOM. At December 31, 2010, TMN had approximately 7,419 million subscribers, representing an increase of 2.3% from December 31, 2009. At December 31, 2010, TMN's subscribers represented 45% of the total mobile subscribers in Portugal. During 2010, TMN's share of new mobile subscribers (net additions) was 39.5% according to ANACOM.

        In addition to the increase in the number of subscribers, mobile usage grew during 2010. TMN's voice traffic in terms of minutes grew by 7.1% to 10.54 billion minutes in 2010, compared to 9.84 billion minutes in 2009. Average monthly usage per subscriber increased by 3.0% to 121 minutes in 2010, compared to 117 minutes in 2009, primarily because a greater proportion of subscriber growth was in the lower sections of the market.

Prices and Revenue Breakdown

        We believe that mobile services in Portugal are priced lower than the European average and are among the lowest in Europe. Mobile telephone charges are not regulated. Traffic charges, sales of handsets and connection and subscription fees represented approximately 91.4%, 8.1% and 0.5%, respectively, of TMN's revenues in 2010 and approximately 90.1%, 9.5% and 0.4%, respectively, of TMN's revenues in 2009.

        Fixed-to-mobile and mobile-to-mobile interconnection charges are regulated by ANACOM and have a significant impact on TMN's business. Since 2005, when ANACOM declared all mobile operators to have significant market power in call termination in mobile networks market, ANACOM has accordingly imposed price controls on interconnection rates for the termination of calls on mobile networks. Interconnection rates have been reduced steadily since then. These reductions have had, and are expected to continue to have, a significant impact on TMN's interconnection revenues and consequently its earnings. In 2010, termination rates followed the new glide path defined by ANACOM on May 21, 2010. Pursuant to this decision, the maximum wholesale prices to be applied by mobile operators with significant market position in the termination of voice calls in individual mobile

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networks (market 16) are as follows: (1) €0.06 as of May 24, 2010; (2) €0.055 as of August 24, 2010; (3) €0.05 as of November 24, 2010; (4) €0.045 as of February 24, 2011; (5) €0.04 as of May 24, 2011 and (6) €0.035 as of August 24, 2011.

Products and Marketing

        TMN offers a variety of innovative products. It was the first operator in the world to offer pre-paid services, and its prepaid and discount products are popular. We estimate that at the end of 2010, approximately 69% of its subscribers were using TMN's prepaid products. TMN has been expanding its subscriber base through increased advertising and the use of its own distribution network. In recent years, TMN has focused on encouraging the use of mobile services by young people through SMS incentive packages.

        TMN markets its services through more than 2,573 points of sale, including TMN's sales force, Portugal Telecom retail shops, TMN shops, supermarket chains and independent dealers.

Network and Capital Investment

        In recent years, TMN has made significant investments in its second and third generation networks. As a result of its investments, TMN has a technologically advanced high capacity network that provides extensive coverage across Portugal. As of the end of 2010, TMN's digital network had 4,706 GSM base stations, including 72 base stations added during 2010, and 3,678 UMTS B nodes, including 160 B nodes added during 2010. As of December 31, 2010, these GSM base stations covered more than 98% of continental Portugal and 99% of the Portuguese population, and the UMTS B nodes covered approximately 68% of continental Portugal and 93% of the Portuguese population.

        Roaming.    Roaming agreements between operators allow their subscribers to make and receive voice calls automatically, send and receive data, or access other services when traveling outside the geographical coverage area of the home network, by using a visited network. As of the end of 2010, TMN had entered into GSM roaming agreements with a total of 461 operators (in 219 countries), 301 GPRS roaming agreements (in 173 countries) and 170 3G roaming agreements (in 94 countries).

Equipment Sales

        TMN sells mobile phones and related equipment in Portugal. Equipment sales contributed €112.4 million, €144.1 million, and €159.4 million to TMN's operating revenues in 2010, 2009 and 2008, respectively.

TMN's Commitment to the Portuguese Information Society

        Under the terms of its UMTS license, TMN committed to invest in the development of the Portuguese information society. TMN's outstanding commitments were determined in May 2007 to be approximately €355 million. As part of these commitments, TMN was required to co-invest with the Portuguese Government in providing laptop computers with wireless broadband connectivity, at a discount, to teachers, students and certain other individuals through 2015. In 2007, we recorded an intangible asset and a corresponding liability on our balance sheet in the amount of €233 million, equivalent to the present value of the contributions related to those information society initiatives that are not in the ordinary course of TMN's business. In addition, in 2007 TMN assumed the payment of one-third of the commitment of Oniway, a mobile operator that withdrew from the market, in the amount of €8 million and in 2009 TMN was required to co-invest with the Portuguese Government in providing laptop computers to young students, in the amount of €11.5 million. As of December 31, 2010, our expenses relating to the liabilities recorded in 2007 and 2009 had been fully reflected in our financial statements, and the only liabilities on our balance sheet relating to our commitments under the terms of TMN's license were liabilities in the ordinary course of our business.

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How We Report Personal Services in Our Financial Statements

        We report our entire personal services customer category revenues within the mobile business in our financial statements.

Enterprise Services (Included in Both Our Wireline and Mobile Businesses)

        We provide enterprise services to corporate and SME/SOHO customers that need diversified telecommunications solutions and integration with IT services. These services include:

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Network services, namely fixed voice services, fixed and mobile convergence services, broadband data, Ethernet services, digital leased lines and VSAT services, business high band Internet accesses and applications, and global services for multinational customers;



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IT services, namely data center services (housing and hosting), storage, application servers, private virtual servers and systems administration, desktop management services, security managed services based on a Security Operations Center, business continuity services and disaster recovery, IT infrastructure outsourcing and IT and security consultancy; and



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Business solutions and applications, namely unified communications, IP Centrex and voice servers, digital signage—Corporate TV, business videocommunications and telepresence solutions, business process outsourcing (BPO), vertical solutions for special business market customer categories (health care, the public sector), special bundling services for small and medium-size enterprises, using the "Office Box" brand name, and outsourcing.

        In addition to the service offerings described above, we provide our customers with sector-specific solutions, especially in the health, education and public sectors. We are maintaining our focus on the developing convergent offers for SMEs for specific sectors, such as "Office Box Cafés e Restaurantes" (for coffee shops and restaurants) and "Office Box Médicos e Clínicas" (for physicians and medical practices).

Services

        We have developed a full range of telecommunications services for businesses, and we integrate these services (together with other services we offer, such as fixed line services and mobile services) to provide our customers with service packages. By combining our communications capabilities with our software-based integrated systems and applications, we offer integrated voice, data and image solutions, virtual private networks, convergence solutions, consultancy and outsourcing. We believe we are the primary service provider in Portugal capable of offering customers a full range of integrated and customized services.

        We offer services in partnership with leading operators and service providers such as Telefónica, British Telecom, Orange and BT Infonet. We use systems and networks in partnership with Siemens, Alcatel, Cisco Systems, Motorola, Nortel Networks, Critical Software and Matra/EADS Telecom.

        We lease lines and broadband capacity to large businesses for data communications and other private uses and provide related services. We also provide integrated voice and data services to corporate customers. We offer X.25/X.32 synchronous services and X.28 asynchronous services and other switched and non-switched data communications services, such as frame relay, virtual private networks over IP for data communications, Ethernet broadband services, security/firewall services and VSAT satellite communications services. In addition, we offer a new range of data, voice and Internet services, such as Intranet, Extranet and managed services, including VoIP and ToIP. These solutions enable customers to integrate voice, video, and data services in a flexible cost-effective manner with add-on capacity. The offering of web contact center solutions represents an evolution of the classic call center for customers. We use IP-based solutions to improve interconnections between companies and

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their employees and between customers and commercial partners through remote access. We provide a range of Ethernet broadband solutions to corporate customers. The type of solution depends on the type of service (voice, data or image), volume, priority level, and stability of information flow required by our customers.

        We also provide reporting services targeted to special customers to control service level agreements and the overall performance of the network. In addition, we provide outsourced corporate network services for our customers. For example, we operate and manage the SIBS network, as well as the corporate networks of our strategic partners Caixa Geral de Depósitos, Banco Espírito Santo and CATT.

        In 2010, we launched several vertical offers targeting corporate services customer category, including (1) Menu Box, an integrated multi-media service targeted at the food and beverage sector, leveraging a combination of leading software tools and hardware bundles, (2) Lex Box, a solution oriented for customers in legal services integrating fixed, mobile voice and broadband services with specialized software which enables access to legal content and (3) Corporate Fiber, a television service for customers in the health and hotel sectors with customized corporate channel, content and remote control of channel selection.

        In September 2010, we announced that we had entered into a partnership with Cisco towards the development, implementation and launch of new services of cloud computing, which include virtual services and unified communications, intended to help companies adopt more efficient business models by reducing costs related to information technology.

        In December 2010, we signed a collaboration agreement with SingTel, the Singapore telecommunications company. This agreement provides for: (1) sharing best practices and benchmarks in operational and commercial areas related to fiber and IPTV, (2) cooperation in research and development, including the joint creation of multiplatform applications and solutions, (3) development of innovative applications for fixed and mobile high speed networks, (4) leveraging economies of scale through joint procurement and (5) promotion of internship programs allowing the employees of both companies to share best practices and experiences.

Networks

        We provide services over the largest IP/MPLS backbone in Portugal. We have points of presence in all major cities throughout Portugal, and we link our network to our customers' premises through switches and access points that we own. This broadband data transmission network provides high capacity, flexibility and security and can progressively incorporate current voice and data infrastructures at lower costs than alternative networks. We also provide high speed Internet access through ADSL and Ethernet.

        When we receive revenues from services offered through lines leased by our subsidiary PT Prime from PT Comunicações, we typically divide the revenues between PT Prime's own direct billings to its customers and leased line revenues from the wholesale business of PT Comunicações. Revenues from fixed line voice services for corporate customers are not reflected in PT Prime's revenues, as they are included in retail revenues.

Data Centers and Systems Integration Services

        We offer an integrated range of telecommunications and information technology services to the business market. Our goal is to service all of our customers' telecommunications needs and to leverage the traditional offering of products and services from Portugal Telecom.

        We have a strong and competitive position in the development of information technology solutions where communications are an integral part of the services provided. To reinforce our position as a

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leader in this area, we are pursuing a partnership strategy with the primary information technology suppliers in the market, particularly software and hardware providers. To support these new services and to respond to the increasing demand of e-business integrators, we have opened Data Centers in Lisbon and Oporto as well as in Funchal and Ponta Delgada, in the Madeira and Azores islands, respectively. These facilities allow us to provide services, such as co-location, sophisticated web hosting, ISP services, data storage, disaster recovery and ASP services.

        In February 2011, we announced the construction of a new Data Center in Covilhã, Portugal, which will be a 45,000-square meter facility with installation capacity for over 50,000 servers. The Data Center has been designed to be energy efficient, including a wind park with an expected 28 towers. The Data Center will be supported by a fiber network to connect it to major global communications networks and is expected to focus on providing data storage capacity to customers outside Portugal and cloud computing services. We expect that the Data Center will become operational in 2012.

        We also offer services focused on the integrated management of networks ranging from local area networks ("LANs"), to software applications, including PC management.

Marketing and Customer Care

        We focus significant resources on marketing and customer care. Account managers are given clear incentives to meet and exceed sales targets. We seek to compete in Portugal on the basis of the quality of our services as well as our position as the leading supplier of integrated telecommunications and IT services. We price our various service offerings on the basis of volume, the duration of service agreements and the scope of the services offered to each customer.

        We offer our corporate customers services available from other companies in the Portugal Telecom group. Our subsidiary PT.com, for example, provides significant support for product development and the marketing of Internet and ADSL access.

How We Report Enterprise Services in Our Financial Statements

        We report revenues from fixed telecommunications services, including fixed line, data and corporate services, provided to corporate and SME/SOHO customers within our wireline business. We report mobile services provided to corporate and SME/SOHO customers within our mobile business.

Wholesale Services (Included in Our Wireline Business)

        Wholesale services provided €491.3 million and €495.4 million to our wireline operating revenues in 2010 and 2009, respectively. The table below sets forth the total number of wholesale lines (or accesses), net wholesale additions and other information as of the dates indicated.

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