Portugal Telecom Report of the Board of Directors Sonaecom’s Offer does not provide PT’s shareholders with fair value, any control premium or share of the synergy value Reject the €9.50 Offer

1 Portugal Telecom, SGPS, S.A. Public Company Registered Office: Av. Fontes Pereira de Melo, no. 40, Lisboa Share Capital: 395,099,775 Euros Registered with Lisbon Commercial Registry Office and Corporation number: 503 215 058 Pursuant to and for the purposes of paragraph 1 of Article 181 of the Portuguese Securities Code, the Board of Directors of Portugal Telecom, SGPS, S.A. (hereinafter “PT”), after a careful analysis of the revised drafts of the Offer announcement and prospectus relating to the public tender offer for the acquisition of shares of PT launched by SONAECOM, SGPS, S.A., public company, with registered office at Lugar do Espido,Via Norte, Maia, registered with the Maia Commercial Registry Office and corporation number 502 028 351, share capital 366,246,868 Euros, and SONAECOM – BV, with registered office at De Boelelaan, 7, 1083 HJ, Amsterdam, Netherlands, registered with the Amsterdam Commerce Chamber under no. 34 243 137, share capital of 100,000 Euros (the Offerors will be hereinafter jointly referred as “Sonaecom”), which was preliminarily announced on February 6th, 2006, hereby submits its report on opportunity and conditions of the Offer, as follows: Board of Directors Report Portugal Telecom | Reject Sonaecom’s Offer

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Portugal Telecom | Reject Sonaecom’s Offer 3 In the United States, Portugal Telecom, SGPS, S.A. (the “Company” or “PT”) will file a Solicitation/Recommendation Statement on Schedule 14D-9 with the U.S. Securities and Exchange Commission (the “SEC”) following commencement of a tender offer within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended. Investors are urged to read the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 when it becomes available, as it will contain important information. The Solicitation/Recommendation Statement and other public filings made from time to time by the Company with the SEC are available without charge from the SEC’s website at www.sec.gov and at the Company’s principal executive offices in Lisbon, Portugal. This Report includes forecasts on the economic and financial situation of PT (the “Forecasts”). These Forecasts were produced according to the best knowledge and belief of the Board of Directors of PT (which has taken reasonable care to ensure that such is the case) and were based on the information available at the time such Forecasts were made. See Sources and Bases for calculation of information presented. This communication also includes other statements that constitute “forward-looking statements”. 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 and industry conditions; (b) information or statements concerning potential disadvantages of the tender offer; and (c) 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. By their nature, forecasts and forward-looking statements are not guarantees of performance and their actual results may differ materially from those contained herein. They involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in future. Although we make such forecasts and forward-looking 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 forecasts or forward-looking statements referenced in this communication in light of future events or to provide reasons why actual results may differ. Investors are cautioned not to put undue reliance on any forecast or forward-looking statements. In addition, the public statements made by Sonaecom regarding synergies depend on a number of assumptions and data that have not been made public. For example, PT has not had access to certain confidential terms of the remedies agreed between Sonaecom and the Portuguese Competition Authority, and therefore the overall estimate of synergies may change should those terms be disclosed as requested by PT. The statements in this document regarding synergies are therefore subject to significant uncertainty, and the actual synergies resulting from the Offer, if it were to be completed, are difficult to determine and may differ materially from those described herein. Any of the following important factors, and any of the important factors described in our Annual Report on Form 20-F for the year ended December 31, 2005 or in other of our SEC filings, among other things, could cause our results to differ from any results that might be projected, forecast or estimated by us in any such forward-looking statements: > material adverse changes in economic conditions in Portugal or Brazil; > exchange rate fluctuations in the Brazilian Real and the U.S. dollar; > risks and uncertainties related to national and supranational regulation; > increased competition resulting from the liberalization of the telecommunications sector in Portugal and Brazil; > the development and marketing of new products and services and market acceptance of such products and services; and > the adverse determination of disputes under litigation. This communication is not for publication, release or distribution in any jurisdiction where it would otherwise be prohibited. Important Notice

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Portugal Telecom | Reject Sonaecom’s Offer 5 Portugal Telecom, SGPS, S.A. Public Company Registered Office: Av. Fontes Pereira de Melo, no. 40, Lisboa Share Capital: 395,099,775 Euros Registered with Lisbon Commercial Registry Office and Corporation number: 503 295 058 Letter to the shareholders of Portugal Telecom 12 January 2007 Dear Shareholder, On 6 February 2006, Sonaecom, SGPS, S.A. and Sonaecom, B.V. (hereinafter named jointly as ‘‘Sonaecom’’) announced an unsolicited cash tender offer for all of the outstanding shares and convertible bonds of Portugal Telecom, SGPS, S.A. (‘‘PT’’ or the ‘‘Company’’) at a price of €9.50 per share (the ‘‘Offer’’). After reviewing the draft offer announcement and prospectus provided by Sonaecom, we wrote to you on 6 March 2006, explaining why you should reject the Offer. Since that time, Sonaecom has received competition clearance and has submitted a request to the Comissão do Mercado de Valores Mobiliários (“CMVM”) to register its formal Offer at the same low price of €9.50 per share. After the Offer registration, Sonaecom will disclose the offer announcement and prospectus inviting you to tender your PT shares in the Offer. The Board of Directors of PT (the ‘‘Board’’), having carefully reviewed the revised drafts of the offer announcement and prospectus provided by Sonaecom on 29 December 2006 and 10 January 2007 (the ‘‘Offer Document’’), continues to believe that the Offer is inadequate, as it does not provide PT’s shareholders with fair value, any control premium or share of the synergy value resulting from the proposed combination and is, therefore, not in the best interest of PT shareholders. Accordingly, the accompanying presentation reiterates the basis on which the Board recommends the shareholders to reject the Offer. We strongly encourage you to review our letter of 6 March 2006 and the related report, and to read in their entirety the pages that follow for more details on the rationale for this rejection. Set out below is a summary of the principal reasons behind our firm belief that PT shareholders should not tender their shares and remain with PT. The Offer of €9.50 per share does not fully reflect PT’s standalone value > Sonaecom is offering no premium to take control of PT > The Offer price implies a significant discount to precedent change of control multiples in the European telecom industry > The Offer price implies no value ascribed to Vivo and PT’s other international businesses > Sonaecom’s claim regarding the deterioration of PT’s performance is misleading as PT’s performance is in line with guidance

6 Portugal Telecom | Reject Sonaecom’s Offer PT shareholders are not getting any share of the synergy value benefit as Sonaecom is not offering to pay PT’s shareholders for any of the synergies resulting from the merger, as approved by the Competition Authority > The takeover of PT would give Sonaecom extensive market dominance, with light remedies, creating valuable synergies > Sonaecom is refusing to pay PT’s shareholders for the significant synergy value created by the merger PT’s management has a track record of effective execution On the wireline front, PT’s management continues its successful execution, as evidenced by the Q3 2006 results, driving broadband market shares, while maintaining stable wireline ARPU. Also, the implementation of triple play services in Portugal demonstrates that PT continues to be at the forefront of product and technological development. In the mobile business, PT has accelerated the deployment of 3G services and the adoption of new technologies, with a focus on regaining market share in key segments like corporate and youth. In addition, anticipating customers’ needs and market evolution, PT has launched its convergent fixed-mobile offering, Casa T, providing a strong value proposition for Portuguese consumers. More importantly, PT’s recent results demonstrate that its efforts to enhance market share and profitability are succeeding. On the international front, Vivo’s recent strong share price performance underscores investors’ confidence in the implementation of the comprehensive restructuring plan. The GSM overlay is on track and the refocus on retention and loyalty programme is already showing signs of success. African operations have continued to grow at very high profitability levels as demand for mobile services has continued to grow very fast. PT’s management is delivering on its cost cutting initiatives having achieved €32m of opex savings in the first 9 months of 2006 while maintaining capex and working capital under tight control. PT’s confidence in the 2006 performance and the significant progress made in the cost reduction initiatives are a testimony to PT’s management skills to continue delivering its market commitments.

Portugal Telecom | Reject Sonaecom’s Offer 7 PT will offer more value to its shareholders through a superior strategy and execution PT’s management has a clearly defined strategy for shareholder value creation. As preliminarily announced in August 2006, PT plans to: > Provide PT shareholders with €3.5 billion in cash remuneration over 2006-2008 > Distribute €1.8 billion worth of PTM shares to PT shareholders, and > Continue the execution of its value-enhancing strategy for PT. The proposal implies returning about half of Sonaecom’s Offer value, equivalent to €4.8 per PT share, to shareholders over the period 2006-2008, including an annual dividend yield of 7.7%, while allowing shareholders to retain 100% ownership of the significant value creation opportunity available in PT. Recommendation Sonaecom’s Offer significantly undervalues the Company. The Board is committed to maximising shareholder value and believes that the plan of PT’s management team will continue to deliver superior value to shareholders going forward. PT’s Board is firmly of the view that the Offer is inadequate and strongly recommends that you reject the Offer. Yours Sincerely, Henrique Granadeiro Chairman of the Board of Directors and Chief Executive Officer

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Portugal Telecom | Reject Sonaecom’s Offer 9 Portugal Telecom Sonaecom’s Offer does not provide PT’s shareholders with fair value, any control premium or share of the synergy value Reject the €9.50 Offer

10 Portugal Telecom | Reject Sonaecom’s Offer > Sonaecom’s Offer of €9.50 per share does not reflect PT’s standalone value > PT’s share price has been consistently trading above €9.50 > The decision of the Portuguese Competition Authority allows Sonaecom to capture substantial synergies > Sonaecom is refusing to pay for such synergies, which can only be achieved with PT’s assets > PT’s strategy is far superior to that proposed by Sonaecom, which is unclear on its focus as well as its ability to fund committed obligations such as pension fund benefits and shows no evidence of an agreement with the State > PT’s proposed cash remuneration of €3.5bn over 2006-2008 and the spin-off of PTM, which together are equivalent to €4.8/share, still encompass sufficient financial flexibility to maintain investment grade status whilst allowing for further reduction in the pension deficit > PT’s management team is committed to generating more value and returning about half of Sonaecom’s Offer value to its shareholders over the next 3 years Sonaecom wants to buy PT cheap Reject the €9.50 Offer

Sonaecom’s Offer is inadequate Portugal Telecom | Reject Sonaecom’s Offer 11

Precedent Transaction Multiples – Enterprise Value to Last Twelve Months EBITDA(1) The Offer is at a significant discount to precedent change of control EBITDA multiples in the European telecom industry… Precedent Transaction Multiples – Enterprise Value to Last Twelve Months OpFCF(2) …and at a significant discount to precedent change of control OpFCF multiples for the same universe of transactions (1) Portugal Telecom uses and reports an Adjusted EBITDA that is explained in the Sources and Bases. See the Sources and Bases for a reconciliation of Portugal Telecom’s Adjusted EBITDA to net income from continued operations. (2) See the Sources and Bases for an explanation of Operating Free Cash Flow (OpFCF). (3) Precedent transaction multiples are calculated by dividing Enterprise Value by the Last Twelve Months (“LTM”) EBITDA and OpFCF to the last quarter before announcement of each transaction. Sonaecom’s Offer implied EV/Adjusted EBITDA and EV/OpFCF multiples are calculated based on PT’s 2005 Adjusted EBITDA and OpFCF (PT’s LTM results upon Offer announcement). Sonaecom’s Offer Telecom Precedents(3) 17.2x 9.9x Sonaecom’s Offer Telecom Precedents(3) 7.5x 6.3x Portugal Telecom | Reject Sonaecom’s Offer 13 ...and precedent transaction multiples No control premium is being offered to PT shareholders

At €9.50, PT multiples are: 2006E 2007E 2008E EV/Adjusted EBITDA(1) Portugal Telecom 6.9x 6.9x 6.7x Peer Group used by Sonaecom(4) 6.8x 6.7x 6.4x EV/OpFCF(2) Portugal Telecom 11.4x 11.0x 10.5x Peer Group used by Sonaecom(4) 11.7x 10.6x 10.0x P/E Adjusted(3) Portugal Telecom 21.5x 15.3x 14.6x Peer Group used by Sonaecom(4) 15.1x 14.2x 13.8x > Curtailment costs should not impact Adjusted EBITDA, but increase the pension liability > Multiples should be adjusted for PTM as peer group selected by Sonaecom does not own cable assets Multiples stated by Sonaecom for PT would imply a higher standalone value 2006E 2007E 2008E Stated EV/Adjusted EBITDA(4) 8.0x 7.8x 7.4x Implied PT Share Price €11.7 €11.4 €11.0 Stated EV/OpFCF(4) 14.2x 13.1x 11.8x Implied PT Share Price €12.7 €12.0 €11.2 Stated P/E Adjusted(4) 22.4x 17.3x 15.3x Implied PT Share Price €9.8 €10.5 €9.9 (1) Enterprise Value (Equity Value + most recently reported Net Debt + After Tax Pension Deficit + Minority Interests – Associates – Tax assets)/Adjusted EBITDA (see Sources and Bases). In the case of PT, Enterprise Value also excludes equity swaps on own shares, PTM consolidated net debt and the PTM stake. (2) OpFCF defined as Adjusted EBITDA minus Capex plus net post retirement benefit expense (gain) (see Sources and Bases). (3) Equity Value/Net Income (pre-exceptionals and consensus post tax curtailment cost projections and excluding proportionate PTM net income for PT) (see Sources and Bases). (4) Multiples and companies’ universe stated by Sonaecom in its Offer materials. 14 Portugal Telecom | Reject Sonaecom’s Offer Sonaecom’s multiple calculations are misleading – applying their methodology correctly implies a standalone value per PT share of up to €12.7 If calculated correctly, PT’s multiples are in line with the peer group’s trading multiples which do not include any control premium

Portugal Telecom | Reject Sonaecom’s Offer 15 (1) As stated in Sonaecom’s Offer materials. The reference to “EBITDA” in Sonaecom’s Offer materials is to the metric defined as “Adjusted EBITDA” in this document. 1,785 (5.6%) (2.6%) 1,685 1,685 30 23 1,738 1,785 9m 06 ex-non-recurring items Reversal of Angola Provision Provision Vivo 9m 06 9m 05 9m 06 9m 05 …EBITDA (1) decline was contained to just 2.6% …mainly relates to non-recurring items… (€m) 5.6% decline in EBITDA (1) in 9m 06… (€m) 697 (35%) +10% 453 508 453 561 697 9m 06 ex-acquisitions Cash used in acquistion in 9m 06 (Namibia) 9m 06 9m 05 ex-disposals Cash received on disposals in 9m 05 (Lusomundo, Intelsat) 9m 05 9m 06 9m 05 ( 189) 108 …FCF was actually up 10% (€m) …relates to non operating items… (€m) 35% decline in FCF in 9m 06… (€m) But the truth is Sonaecom says PT’s performance is in line with guidance Sonaecom’s claim regarding the deterioration of PT’s performance is misleading

Domestic Adjusted EBITDA(1) Consensus (2) (€m) Domestic OpFCF(3) Consensus (2) (€m) (1) Portugal Telecom uses and reports an Adjusted EBITDA that is explained in the Sources and Bases. (2) See the Sources and Bases for a list of brokers utilised for the consensus estimates. (3) See the Sources and Bases for an explanation of Operating Free Cash Flow (OpFCF). Dec-06 consensus Mar-06 consensus 1,246 1,235 2008E -1% Dec-06 consensus Mar-06 consensus 1,161 1,215 2007E +5% Dec-06 consensus Mar-06 consensus 1,152 1,183 2006E +3% Dec-06 consensus Mar-06 consensus 1,789 1,765 2008E -1% Dec-06 consensus Mar-06 consensus 1,764 1,757 2007E 0% Dec-06 consensus Mar-06 consensus 1,763 1,768 2006E 0% 16 Portugal Telecom | Reject Sonaecom’s Offer Market consensus for PT’s Domestic Business has remained broadly unchanged since Sonaecom’s preliminary Offer announcement last year Main differences on PT’s market consensus relate to Vivo, which is successfully being turned around and is an asset that Sonaecom has always considered selling

PT shareholders are not getting any synergy value benefit... ...as Sonaecom is refusing to pay for any of the synergies allowed by the Competition Authority’s approval 20 Portugal Telecom | Reject Sonaecom’s Offer

APPENDIX 1 Bases of Calculation and Sources of Information 1. General 1.1. Unless otherwise stated in this document: 1.1.1. Closing prices and consensus earnings estimates are as at the close of market on 10 January 2007; 1.1.2. Share price data is sourced from Datastream, Factset or Bloomberg; 1.1.3. Consensus earnings estimates are sourced from Bloomberg or Reuters and are adjusted for exceptional items and goodwill amortisation where applicable; 1.1.4. Premia analysis references are sourced from company presentations, press releases, SDC and MergerMarket; and 1.1.5. Calculations are prepared on the basis of 1,128,856,500 PT Shares as at 30 September 2006. 1.2. Unless otherwise stated, the financial information concerning PT has been extracted from annual reports and accounts of PT for the relevant periods and other information made publicly available by PT. 1.3. Unless otherwise stated, all references to PT’s financial targets, savings and future shareholder returns are based on PT’s Board of Directors’ strategic plan. 1.4. Unless otherwise stated, information contained in this document regarding market position, sector, division and product analysis, comparable companies and precedent transactions is based on PT’s management estimates and calculations sourced from publicly available information including ANACOM, Bloomberg, Reuters, Datastream, SDC and Factiva. 1.5. Unless otherwise stated, information regarding Sonaecom’s Offer is sourced from the Offer Document and other material made publicly available by Sonaecom or any other person mentioned in the Offer Document. 2. Page References The relevant bases of calculation and sources of information are provided below in the order in which the relevant information appears in this document and by reference to page numbers in this document. Where such information is repeated in any of the documents, the underlying bases and sources are not repeated. Page 7 a) The company announced the PTM spin-off and the €3.5bn cash return to shareholders over 2006-08 (€1.6bn ordinary dividends, €1.9bn extraordinary dividends) on 3 August 2006. Portugal Telecom | Reject Sonaecom’s Offer A-1

b) The reference to total shareholder return of “about half of of Sonaecom’s offer value” is based on the Sonaecom Offer Price of €9.50 per PT share, €1.43 ordinary dividends per PT share, €1.75 extraordinary dividends per PT share and the current market value of the 58.4% stake in PTM (€1.60 per PT share). c) The annual dividend yield of 7.7% is calculated as follows: In € unless stated otherwise Sonaecom Offer Price 9.50 minus proposed PTM spin off per share (at market) (1.60) minus proposed extraordinary dividends per share (1.75) Equates €6.15 Proposed annual ordinary dividend per share for 2006-2008 0.475 Implied Dividend Yield % 7.7% Page 12 a) The premium for the European telecommunications sector transactions is calculated as the average of premia offered in selected takeover bids in Europe since 1999. The premia are calculated relative to an estimated pre-bid speculation date (i.e. leak to the market date and initial offer date in improved deals). The sample of precedent transactions has been chosen based on the comparability of the transaction and includes the following: Date Target Acquiror Premium/(discount) to 1 day before announcement (or pre-bid speculation date) 05/02/2006 eircom Babcock and Brown 11.7% 30/11/2005 TDC Nordic Telephone Co 38.9% 31/10/2005 O2 Telefónica 21.8% 18/07/2005 Versatel Tele2 46.7% 07/07/2005 Saunalahti Elisa Comm. 11.4% 08/11/2004 Infonet BT Group 0.0% 14/09/2004 Song Networks TDC 100.0% 01/04/2003 Sense Comm. Intl Reitangruppen 62.9% 02/07/2001 Eircom Valentia Group 31.1% 21/03/2001 Soon Comm. Elisa Comm. 66.2% 24/07/2000 SEC Netcom 22.3% 23/06/2000 NetCom Telia 13.8% 17/04/2000 Detron Group Landis Group 40.3% 11/01/2000 Esat Telecom BT 90.9% 14/11/1999 Mannesmann Vodafone AirTouch 84.0% 20/10/1999 Orange Mannesmann 21.7% 09/07/1999 Debitel Swisscom 3.1% 20/02/1999 Telecom Italia Ing C Olivetti & Co 26.5% Average 38.5% A-2 Portugal Telecom | Reject Sonaecom’s Offer

b) The premium for European unsolicited transactions is calculated as the average premia offered in selected unsolicited takeover bids in Europe with a transaction value above $10 billion since 1999. The premia are calculated relative to an estimated pre-bid speculation date (i.e. leak to the market date and initial offer date in improved deals). The sample of precedent transactions is selected based on the comparability of the transactions and includes the following: Date Target Acquiror Premium/(discount) to 1 day before announcement (or pre-bid speculation date) 08/02/2006 BAA Airport Development 45.1% 27/01/2006 Arcelor Mittal Steel Co 81.8% 24/01/2006 BOC Group Linde 39.0% 26/01/2004 Aventis Sanofi-Synthelabo 28.1% 29/11/1999 National Westminster Bank Royal Bank of Scotland 37.5% 14/11/1999 Mannesmann Vodafone AirTouch 84.0% 14/09/1999 INA Assicurazioni Generali 16.9% 05/07/1999 Elf Aquitaine Totalfina 26.2% 09/03/1999 Paribas BNP 48.6% 20/02/1999 Telecom Italia Ing C Olivetti & Co 26.5% Average 43.4% c) The premium for Portuguese transactions is calculated as the average premia offered in selected unsolicited takeover bids in Portugal with a transaction value above $500 million since 1999. The premia are calculated relative to an estimated pre-bid speculation date (i.e. leak to the market date and initial offer date in improved deals). The sample of precedent transactions has been chosen based on the comparability of the transactions and includes the following: Date Target Acquiror Premium/(discount) to 1 day before announcement (or pre-bid speculation date) 15/06/2000 Cimpor Investor Group 13.3% 19/07/1999 BPSM BCP 40.0% 18/06/1999 Mundial Confiança BCP 80.5% Average 44.6% Portugal Telecom | Reject Sonaecom’s Offer A-3

PT and PTM define Adjusted EBITDA as net income from continuing operations before (i) net interest expense, (ii) income taxes, (iii) depreciation and amortisation, (iv) other financial gains and losses, (v) in the case of PT, workforce reduction program costs, (vi) net losses on disposals of fixed assets and (vii) other costs. Adjusted EBITDA does not represent and should not be considered an alternative to net income or cash flow from operations, as determined under International Financial Reporting Standards (“IFRS”). PT and PTM use Adjusted EBITDA to facilitate performance comparisons from period to period. PT and PTM believe Adjusted EBITDA facilitates company to company performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expenses and other financial gains and losses), taxation, the age and book depreciation of facilities and equipment (affecting relative depreciation and amortisation expense), workforce reduction program costs (which vary significantly from period to period and are function of PT’s particular labor relations situation), net losses on disposals of fixed assets and other costs, all of which may vary for different companies for reasons unrelated to operating performance or liquidity. PT and PTM further believe that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of PT, PTM and other companies, many of which present an EBITDA measure when reporting their results. In addition, the ratio of implied Enterprise Value to EBITDA is frequently used by analysts and investors in comparing business combination transactions. Adjusted EBITDA and the ratio of the Enterprise Value implied by the Sonaecom Offer to PT’s Adjusted EBITDA may not necessarily be comparable to other similarly titled measures and ratios of other companies due to the potential differences in the method of calculation. The following table presents a reconciliation of PT’s Adjusted EBITDA to net income from continued operations, the most directly comparable IFRS measure: Year Ended December 31, 2005 (€ millions) Net income from continued operations 667.2 Net interest expense 257.6 Income taxes 384.3 Depreciation and amortisation 1,059.6 2,368.7 Net foreign currency exchange gains (41.3) Net losses on financial assets 8.8 Equity in earnings of affiliated companies (238.2) Net other financial expenses 64.5 Workforce reduction program costs 314.3 Losses on disposals of fixed assets, net 1.2 Other costs 17.7 Adjusted EBITDA 2,495.6 Portugal Telecom | Reject Sonaecom’s Offer A-5

The following table presents a reconciliation of PTM’s Adjusted EBITDA to net income from continued operations, the most directly comparable IFRS measure: Year Ended December 31, 2005 (€ millions) Net income from continued operations 99.0 Net interest expense 6.1 Income taxes 35.2 Depreciation and amortisation 61.9 202.2 Net foreign currency exchange gains 0.7 Net losses on financial assets (0.0) Equity in earnings of affiliated companies (3.6) Net other financial expenses (2.5) Losses on disposals of fixed assets, net 0.1 Other costs (1.7) Adjusted EBITDA 195.3 d) Sonaecom’s Offer implied Enterprise Value to OpFCF is calculated based on PT’s 2005 OpFCF (PT’s LTM upon offer announcement) by multiplying PT Shares by the Offer Price, excluding the value of PT’s stake in PTM and adjusting for net debt, net pension deficit, minority interests, unconsolidated affiliates and tax assets at announcement. PT’s 2005 OpFCF is calculated based on PT’s 2005 results. OpFCF is defined as Adjusted EBITDA adjusted for post retirement benefits minus Capital Expenditure. The following table shows a calculation of the ratio of the Enterprise Value to PT’s OpFCF implied by the Sonaecom Offer. (€ millions) Implied Enterprise Value (see first table in note (c) above) 14,358.8 Adjusted EBITDA of PT excluding PTM for the year ended December 31, 2005 2,278.7 minus capital expenditures for the year ended December 31, 2005 (943.1) plus capital expenditures of PTM for the year ended December 31, 2005 119.9 OpFCF of PT excluding PTM 1,455.5 Ratio of implied Enterprise Value to OpFCF 9.9x As described above, PT defines OpFCF as Adjusted EBITDA adjusted for post retirement benefits minus Capital Expenditures. OpFCF does not represent and should not be considered an alternative to cash flow from operating activities, as determined under IFRS. PT uses OpFCF to facilitate liquidity and cash flow comparisons from period to period. PT believes OpFCF facilitates such comparisons by backing out potential differences caused by period-to-period changes in capital expenditures and by the other factors described in note (c) above. PT further believes that OpFCF is frequently used by securities analysts, investors and other interested parties in their evaluation of PT and other companies, many of which present a similar measure when reporting their results. A-6 Portugal Telecom | Reject Sonaecom’s Offer

The following table presents a reconciliation of PT’s OpFCF to net income from continued operations: Year Ended December 31, 2005 (€ millions) Net income from continued operations 667.2 Net interest expense 257.6 Income taxes 384.3 Depreciation and amortisation 1,059.6 2,368.7 Net foreign currency exchange gains (41.3) Net losses on financial assets 8.8 Equity in earnings of affiliated companies (238.2) Net other financial expenses 64.5 Workforce reduction program costs 314.3 Losses on disposals of fixed assets, net 1.2 Other costs 17.7 Adjusted EBITDA 2,495.6 plus post retirement benefit expense (gain) for the year ended December 31, 2005 (21.6) minus Capital expenditures (943.1) OpFCF 1,530.9 In the same period, PT’s cash flow from operating activities was €1,392.3 million. Portugal Telecom | Reject Sonaecom’s Offer A-7

Page 14 a) The following table shows the calculation of the Enterprise Value implied by the Sonaecom offer: (€ millions) Enterprise Value Equity Value + Net Debt – Equity swap on own shares + Post-tax pension deficit + Net curtailment costs + Minorities – Associates – PTM consolidated Net Debt – PTM stake Equity Value 1,128.9m shares at €9.50 10,724 + Net Debt Reported Net Debt as of September 30, 2006 (i.e., debt of €5,772 minus cash and cash equivalents of €1,664) 4,108 - Equity swap on own shares Reported as of September 30, 2006 (164) - PT tax asset As of September 30, 2006 (154) + Post-tax pension deficit Reported as of September 30, 2006 (i.e., accrued post retirement liability of €2,026, less tax assuming a 27.5% tax rate) 1,471 + Sum of 2006-2008 estimated As stated in Sonaecom offer prospectus curtailment costs (PT does not acknowledge these numbers as its own) 409 - Costs already incurred Portugal Telecom (96) as of September 2006 = Net curtailment Curtailment liability for 2006-2008 (less tax assuming a 27.5% tax rate) 227 + Minorities in Vivo 18.6% at current market valuation 986 - Associates Average from brokers sum-of-the-parts (1,064) - PTM consolidated Net Debt Reported as of September 30, 2006 (i.e., gross debt of €260 minus intercompany debt of €22 minus cash and cash equivalents of €48) (190) + PTM tax asset As of September 30, 2006 79 - PTM stake 180.6m shares at current market price (1,781) = Enterprise Value 14,407 b) Adjusted EBITDA, OpFCF and Capex consensus figures as well as Associates consensus have been calculated as described above and are based on the average of the following brokers: Broker Relevant publication dates Banif 21/12/2006 Exane 13/12/2006 Sanford Bernstein 13/12/2006 Millennium BCP 01/12/2006 Deutsche Bank 28/11/2006 Bear Stearns 20/11/2006 CDX Ixis 10/11/2006 Lisbon Brokers 27/10/2006 Lehman Brothers 15/09/2006 A-8 Portugal Telecom | Reject Sonaecom’s Offer

c) PT uses Adjusted EBITDA for the reasons explained in note (c) to page 13 above. The following table presents a reconciliation of PT’s Adjusted EBITDA to net income from continued operations, the most directly comparable IFRS measure: Nine Months Ended September 30, 2005 2006 (€ millions) Net income from continued operations 362.1 526.9 Net interest expense 188.1 177.5 Income taxes 198.5 13.5 Depreciation and amortisation 805.5 899.7 1,554.2 1,617.6 Net foreign currency exchange gains (47.2) (2.0) Net losses on financial assets 35.1 3.3 Equity in earnings of affiliated companies (50.1) (86.1) Net other financial expenses 44.0 37.5 Workforce reduction program costs 237.4 96.1 Losses (gains) on disposals of fixed assets, net 0.1 (1.6) Other costs 12.0 20.6 Adjusted EBITDA 1,785.3 1,685.2 As explained on page 12 of PT’s nine months 2006 earnings release, the reduction of Adjusted EBITDA in the nine months ended September 30, 2006 includes (1) the one-off reversal of a provision relating to a receivable from Angola Telecom (€23 million) booked in the first quarter of 2005 and (2) the recognition of a provision by Vivo in the second quarter of 2006 related to billing issues in connection with the systems migration to a unified platform (€30 million). A-12 Portugal Telecom | Reject Sonaecom’s Offer

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Report of the Board of Directors January 12, 2007 Sonaecom wants to control your Company but instead of a premium is offering a discount for your shares Reject the Offer PT Multimedia

PT Multimédia | Report of the Board of Directors 1 PT Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A. Public Company Registered Office: Av. 5 de Outubro, no. 208, Lisbon Share Capital: 30,909,682.80 Euros Registered with Lisbon Commercial Registry Office and corporation number 504 453 513 Pursuant to and for the purposes of paragraph 1 of Article 181 of the Portuguese Securities Code, the Board of Directors of PT Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A. (hereinafter “PTM” or the “Company”), after a careful analysis of the revised drafts of the offer announcement and prospectus relating to the public tender offer for the acquisition of all shares of PTM launched by SONAECOM-SGPS, S.A., public company, with registered office at Lugar do Espido, Via Norte, Maia, registered with the Maia Commercial Registry Office and corporation number 502 028 351, share capital of 366,246,868 Euros and SONAECOM-BV, with registered office at De Boelelaan, 7, 1083 HJ, Amsterdam, Netherlands, registered with the Amsterdam Commerce Chamber under no. 34 243 137, share capital of 100,000 Euros (the Offerors will be hereinafter jointly referred as “Sonaecom”), which was preliminarily announced on February 7th, 2006, hereby submits its report on the opportunity and conditions of the Offer, as follows: Report of the Board of Directors

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PT Multimédia | Report of the Board of Directors 3 In the United States, Portugal Telecom, SGPS, S.A. (“Portugal Telecom” or “PT”), the parent company of PTM, will file a Solicitation/Recommendation Statement on Schedule 14D-9 with the U.S. Securities and Exchange Commission (the “SEC”) following commencement of a tender offer within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended. Investors are urged to read PT’s Solicitation/Recommendation Statement on Schedule 14D-9 when it becomes available, as it will contain important information. The Solicitation/Recommendation Statement and other public filings made from time to time by PT with the SEC are available without charge from the SEC’s website at www.sec.gov and at PT’s principal executive offices in Lisbon, Portugal. This communication includes statements that constitute “forward-looking statements.” 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 and industry conditions; (b) information or statements concerning potential disadvantages of the tender offer; and (c) 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. By their nature, forward-looking statements are not guarantees of performance and actual results may differ materially from those contained herein. They involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. 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 communication 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 the important factors described in PT’s Annual Report on Form 20-F for the year ended December 31, 2005 or in other of PT’s SEC filings, among other things, could cause our results to differ from any results that might be projected, forecast or estimated by us in any such forward-looking statements: > material adverse changes in economic conditions in Portugal; > risks and uncertainties related to regulation; > actions of our competitors; > the development and marketing of new products and services and market acceptance of such products and services; and > the adverse determination of disputes under litigation. This communication is not for publication, release or distribution in any jurisdiction where it would otherwise be prohibited. Important Notice

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PT Multimédia | Report of the Board of Directors 5 PT Multimédia - Serviços de Telecomunicações e Multimédia, SGPS, S.A. Public Company Registered Office: Av. 5 de Outubro, no. 208, Lisbon Share Capital: 30,909,682.80 Euros Registered with Lisbon Commercial Registry Office and corporation number 504 453 513 Letter to the owners of PT Multimédia 12 January 2007 Dear Shareholder, On 7 February 2006, Sonaecom – SGPS, S.A. and Sonaecom – B.V. (hereinafter named jointly as “Sonaecom”) announced an unsolicited cash tender offer for all of the outstanding shares of PT Multimédia – Serviços de Telecomunicações e Multimédia, SGPS, S.A. (“PTM” or the “Company”) at a price of €9.03 per share (the “Offer”), following the announcement on 6 February 2006 of an unsolicited cash tender offer for the outstanding shares and convertible bonds of Portugal Telecom, SGPS, S.A. (“PT”). After reviewing the draft Offer announcement and prospectus provided by Sonaecom, we wrote to you on 6 March 2006, explaining why you should reject the Offer. Since that time, Sonaecom has received competition clearance and has submitted a request to the Comissão do Mercado de Valores Mobiliários (“CMVM”) to register its formal Offer at the same low price of €9.03 per share. After the Offer registration, Sonaecom will disclose the Offer announcement and prospectus inviting you to tender your PTM shares in the Offer. Having carefully reviewed the revised drafts of the Offer announcement and prospectus, we are again writing to you to reinforce that the PTM Board of Directors (the “Board”) continues to believe that the Offer undervalues the Company and is, therefore, not in your best interest as a shareholder of PTM. This letter and the accompanying presentation provide the principal reasons why your Board believes that the Offer undervalues the Company and recommends that you REJECT THE OFFER, notably: 1) Sonaecom offers PTM shareholders a discount rather than a premium for ceding control; 2) Sonaecom’s Offer does not reward PTM shareholders for the potential upside from either: – Sonaecom on-selling PTM; or – Sonaecom integrating PTM with its businesses; 3) Sonaecom’s Offer does not value PTM’s strong strategic position, solid operational and financial performance, and future growth prospects as a fully integrated multimedia and telecoms operator offering Pay-TV, internet and both fixed and potentially mobile voice services; 4) Retaining your shares in PTM is in your best interest as it offers better prospects than a sale at the Offer price, irrespective of the outcome of Sonaecom’s tender offer for PT. PT Multimedia

6 PT Multimédia | Report of the Board of Directors 1) Sonaecom offers PTM shareholders a discount rather than a premium for ceding control The Offer price represents a 6.1% discount to the Offer’s pre-announcement PTM share price, a 4.0% discount to the share price immediately after the 3 August 2006 announcement by PT of its intention to spin-off PTM, and a 8.4% discount to the PTM share price on 10 January 2007. PTM share price performance versus Sonaecom’s Offer over the last 12 months In addition, Sonaecom has not increased its Offer from the price of €9.03 per share first announced on 7 February 2006, PTM shareholders are not being offered a value for their shares that reflects the 21% positive performance of the European Pay-TV sector(1) since that date. On this basis, the Offer represents a 22% discount to the pre-announcement PTM share price when the increase in valuation of the sector is taken into account. Discount implied by Sonaecom Offer Note: 1 Market capitalisation-weighted European Pay-TV index comprising Liberty Global, NTL, Telenet, BSkyB, Sogecable and Premiere. Sonaecom Offer vs PTM, adjusted for European Pay-TV sector performance European Pay-TV sector performance since Offer announcement(1) Sonaecom Offer vs unaffected PTM share price 21.0% (6.1%) (22.4%) 8.0 8.5 9.0 9.5 10.0 10.5 11.0 Jan 07 Dec 06 Nov 06 Oct 06 Sep 06 Aug 06 Jul 06 Jun 06 May 06 Apr 06 Mar 06 Feb 06 Jan 06 PTM price range (€) 6-Feb-06 Undisturbed price €9.62 3-Aug-06 Announcement of spin-off €9.41 Sonaecom Offer = €9.03 10-Jan-07 Current price €9.86

PT Multimédia | Report of the Board of Directors 7 The Offer is also at a discount to the average of price targets for PTM published by equity analysts since the Offer was announced. The average price target for PTM is at a 13% premium to the Offer. Sonaecom’s Offer versus equity analyst price targets(1) Note: 1 Santander and UBS are restricted in their research coverage of PTM Sonaecom is attempting to gain control of PTM yet is not compensating PTM current shareholders for ceding control of the Company as it is not offering a premium for your shares but a discount to market price. This is inconsistent with market practice, where bidders acquiring control of public companies offer a premium to the target’s trading price in order to reflect the strategic benefits of acquiring full ownership, hence control. When assessing Sonaecom’s Offer price, shareholders should compare the Offer premium with the premia paid in relevant precedent transactions as set out below. Premia paid in relevant transactions compared to the Offer premium Sonaecom Offer vs PTM, adjusted for European Pay-TV sector performance Sonaecom Offer European telecoms and Pay-TV offers Portuguese unsolicited offers 44.6% 32.6% (6.1%) (22.4%) Average Lisbon Brokers Banif BCP BPI Sonaecom Offer €9.03 – 7.4 Premium to Offer (%) Analyst Date 7 Feb 06 3 Aug 06 1 Dec 06 29 June 06 3 May 06 9.6 13.2 21.8 13.0 €9.70 €9.90 €11.00 €10.22 €10.21

PT Multimédia | Report of the Board of Directors 9 Through its brand “Netcabo”, PTM is the number two broadband internet access provider in Portugal with 349 thousand broadband customers, accounting for 24.9% of the Portuguese market as of 30 September 2006. PTM believes there is considerable room for further growth as PC penetration tends to increase towards the European average. PTM has the potential to further increase revenue per subscriber PTM’s current ARPU is lower than in a number of other European markets. ARPU growth can be underpinned through the migration of its subscriber base to higher tier packages. Additionally, take-up of premium channels by PTM cable customers is still low relative to other markets, providing significant room for growth. PTM delivered year on year ARPU growth of 6.9% in the third quarter of 2006 in part due to the migration of its subscriber base towards higher tier packages such as “TV Cabo Funtastic Life” (digital offer with an additional 25 channels at €5 per month more than the standard basic package). “TV Cabo Funtastic Life” reached 222 thousand customers by the end of September 2006, with 26 thousand net additions in the third quarter. PTM has the potential to take advantage of the Portuguese fixed voice market, which accounted for 1.4 billion Euros of revenues in 2005 Approximately 80% of PTM’s network has been certified as VoIP compliant, and over 90% of the network is planned to be VoIP compliant by the end of 2007. In addition, PTM has recently announced triple play services and integrated fixedmobile service trials are already underway. This will pave the way for the potential launch of quadruple play offers once allowed by regulation. There is, therefore, significant potential for growth in additional voice revenues, as well as for improving Pay-TV and broadband penetration whilst reducing churn, further enabling PTM to increase ARPU. PTM’s infrastructure provides a strong platform to support continuous introduction of additional innovative services with better quality and at competitive prices Continued investment in its network and information systems, which since 2002 has amounted to approximately €450 million, has enabled PTM to offer high speed broadband and digital Pay-TV services to more than 2.7 million homes. During the course of 2006, the deployment of additional fibre has improved network quality and is enabling the improvement in the quality of service and the roll-out of new services. PTM is well positioned to continue growing Adjusted EBITDA From 2002 to 2006 (9-months to Q3 2006 annualised), PTM delivered Adjusted EBITDA growth of 30% per year. PTM is well positioned to continue to deliver growth given the revenue opportunities outlined above. Top line growth should result in higher absorption of fixed costs. Moreover, a number of incremental revenue opportunities such as VoD, further broadband penetration and the impact of triple play, carry relatively low marginal costs. That together with efficiency gains, innovation and continuous cost reduction, should lead to margin expansion and continued cash flow growth in the future. PTM is enjoying operational momentum Pay-TV and broadband net additions have recovered with more than 7 thousand new Pay-TV subscribers and almost 5 thousand new cable broadband subscribers added in the third quarter of 2006. This has been combined with the increased take-up of both “TV Cabo Funtastic Life”, with 15% of all Pay-TV customers already taking this service, and sports premium content, which has helped the continued growth in ARPU (up 6.9% y.o.y. to €29.5 in the third quarter of 2006).

10 PT Multimédia | Report of the Board of Directors PTM has a track record of shareholder returns PTM has demonstrated a strong commitment to shareholder remuneration. In 2004, PTM paid a dividend, in respect to 2003 results, for the first time. In 2005, total shareholder remuneration amounted to €169 million, including a €91.5 million share buyback program through the issue of put warrants. In 2006, dividends paid increased by 10% to 27.5 euro cents per share, amounting to a total of €85 million. PTM has financial and accounting flexibility to further improve the level of cash returns to shareholders. 4) Retaining your shares in PTM offers better prospects than a sale at the Offer price, irrespective of the outcome of Sonaecom’s tender offer for PT Having concluded that the price offered by Sonaecom is inadequate and not in your best interest, the Board of PTM also believes that your prospects as shareholders of PTM are better if you retain your shares in the Company than if you sell them to Sonaecom. If Sonaecom’s tender offer on PT is not successful, the proposed spin-off of PTM offers significant upside potential On 3 August 2006, the Board of PT announced its plan to spin-off its 58.43% interest in PTM. This decision is subject to approval at an Extraordinary General Meeting of PT shareholders, PT’s financial and accounting position, market conditions and the lapse or cessation of the Sonaecom tender offer for PT. The spin-off will be effected by way of a dividend in kind of PTM shares to PT shareholders. In the spin-off, PT shareholders are expected to receive 4 PTM shares for each 25 PT shares owned. The implementation of the spin-off is expected to benefit PTM shareholders: > Shareholders would continue to retain exposure to PTM’s growth story > The spin-off would create an independent company with an enlarged free float, broader shareholder base and unique strategic position in the multimedia and telecom sector in Portugal > In terms of regulation, PTM may benefit from additional flexibility in the future > PTM has significant potential to implement a more efficient capital structure and an even more attractive shareholder remuneration > Post spin-off, PTM would be well positioned to participate in European consolidation Even if Sonaecom’s tender offer for PT is successful, the prospects for appreciation of the PTM share price remain superior to the Sonaecom Offer price In this scenario, Sonaecom will have to dispose of one of PT Group’s fixed networks following the Competition Authority decision: > If Sonaecom decides to sell its stake in PTM, a mandatory offer to all shareholders will be triggered and PTM shareholders will share in any premium valuation paid to acquire the whole Company

PT Multimédia | Report of the Board of Directors 11 > If Sonaecom decides to retain PTM, then PTM shareholders would have the option to share the value of potential synergies resulting from the integration of PTM with the combined mobile businesses of TMN and Optimus and Sonaecom’s fixed line business The Board of PTM has therefore reached the conclusion that, irrespective of the outcome of Sonaecom’s tender offer for PT, remaining a shareholder of PTM offers better prospects than the Offer price of €9.03 per share. Recommendation Your Board believes that Sonaecom’s Offer undervalues the Company. The Offer also fails to reward PTM shareholders for the potential upside to Sonaecom from either on-selling PTM at a premium or integrating the Company with Sonaecom’s operations. Furthermore, your Board believes that retaining your shares in PTM offers better prospects than a sale at the Sonaecom Offer price. Your Board is committed to maximising shareholder value and believes that the Offer is wholly inadequate. Your Board strongly recommends that you REJECT THE OFFER as retaining your shares offers you better growth prospects. Yours Sincerely, Henrique Granadeiro Zeinal Bava Chairman of the Board Chief Executive Officer

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Multimedia PT Multimédia | Report of the Board of Directors 13 Sonaecom wants to control your Company but instead of a premium is offering a discount for your shares Reject the Offer

14 PT Multimédia | Report of the Board of Directors The Offer is unattractive > It offers PTM shareholders a discount rather than a premium for ceding control > Does not reward PTM shareholders for the potential upside from either: (i) Sonaecom on-selling PTM, or (ii) Sonaecom integrating PTM with its businesses > PTM has a consistent track record of financial and operational performance and shareholder returns > Does not value PTM’s strong strategic position and future growth prospects as a fully integrated multimedia and telecoms operator offering Pay-TV, internet and both fixed and potentially mobile voice services > Retaining your PTM shares is in your best interest as it offers better prospects irrespective of the outcome of Sonaecom’s tender offer for PT Reject the Offer

PT Multimédia | Report of the Board of Directors 15 The Offer is at a discount to market Offer premium below market price and precedent transactions > The Offer is at a discount to PTM’s market price and does not reflect the positive sector performance since it was announced > Furthermore, relevant precedent transactions incorporate a premium for control Offer at discount to equity analysts’ price targets > Average of equity analysts’ price targets is at 13% premium to Offer Average Lisbon Brokers Banif BCP BPI Sonaecom Offer €9.03 – Premium to Offer (%) 7.4 9.6 13.2 21.8 13.0 €9.70 €9.90 €10.22 €11.00 €10.21 Sonaecom Offer vs PTM, adjusted for European Pay-TV sector performance Sonaecom Offer European telecoms and Pay-TV offers Portuguese unsolicited offers 45% 33% (6%) (22%) Sonaecom offers PTM shareholders a discount rather than a premium for control

PT Multimédia | Report of the Board of Directors 17 The Offer does not value PTM’s strong strategic position and growth prospects as a fully integrated multimedia and telecoms operator

18 PT Multimédia | Report of the Board of Directors PTM has a consistent track record of service and innovation TV > Launch of operations in a fully liberalised market in 1993 > More than 2.8 million homes passed > DTH platform enabling 100% coverage of Portugal > First to launch premium sports and movie channels, and the first Portuguese news channel > Significant investment in Portuguese content > First to launch Digital TV and interactive services > Full digitalisation of premium content Internet > First to launch broadband internet access in Portugal > Broadband portal with access to high quality premium content > Advanced ISP services including VoIP, PC remote assistance and security New Services > Network VoIP compliant and already supporting triple play services > Real time on-demand television services such as VoD, SVoD and HDTV trials underway > Satellite and Cable PVR trials underway with commercial launch late this year > Mobile TV offer launched with over 25 channels > Potential launch of quadruple play offers once allowed by regulation PTM shall continue to drive the development of leading edge communication and entertainment services and is uniquely positioned to benefit from entering the 1.4 billion Euros revenue fixed voice market in Portugal

PT Multimédia | Report of the Board of Directors 19 PTM has delivered solid operational and financial performance… Pay-TV Subscribers (’000) Consistent subscriber growth on Pay-TV… Broadband Subscribers (’000) …as well as on broadband customer base Revenues (€MM) underpinning top line growth,… Adjusted EBITDA (€MM) …margin expansion and Adjusted EBITDA performance… Dividends per Share (€cents) …as well as shareholder returns (1) Based on revenues (€489MM) and Adjusted EBITDA (€158MM) for the first nine months of 2006, divided by 3 and multiplied by 4. Not a forecast of PTM’s full year 2006 results. Excludes the Lusomundo Media business sold in 2005. See the Sources and Bases to page 9 of this document 2005 2004 2003 4.0 27.5 25.0 Annualised 9M 2006(1) 2002 74 211 158 9M 2006 185% 32% 15% Margin Annualised 9M 2006(1) 2002 507 652 489 9M 2006 29% 3Q 2006 2002 140 349 149% 3Q 2006 2002 1,307 1,451 11% PTM has a strong and consistent track record of growth, financial performance and shareholder returns

20 PT Multimédia | Report of the Board of Directors …and is enjoying operational momentum Pay-TV Net Adds (’000) Recovery in Pay-TV net adds post IT systems migration and network digitalisation Funtastic Life Penetration (% of Pay-TV Subscribers) Increased penetration of the 65 channel digital offer and also the sports premium content… Broadband Net Adds (’000) …together with a recovery in cable broadband net adds… ARPU (€) …is underpinning ARPU growth 3Q 2006 2Q 2006 1Q 2006 28.3 29.5 29.2 +4.2% 3Q 2006 2Q 2006 1Q 2006 +3.5 +4.8 (7.6) (q.o.q) 3Q 2006 2Q 2006 1Q 2006 11% 15% 14% # of subs (’000) 163 196 222 3Q 2006 2Q 2006 1Q 2006 (7.3) +7.1 (28.2) (q.o.q) PTM is enjoying operational momentum

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PT Multimédia | Report of the Board of Directors A-1 APPENDIX: SOURCES AND BASES 1. General 1.1 Unless otherwise stated in this document, share price data is sourced from FactSet, Datastream or Bloomberg. 1.2. Unless otherwise stated, the financial information concerning PTM has been extracted from the First Nine Months 2006 Earnings Release, other published interim and annual reports and accounts of PTM for the relevant periods and other information made publicly available by PTM. 1.3. Unless otherwise stated, information contained in this document regarding operational data (including operational data for the competition), market position, sector, division and product analysis, comparable companies and precedent transactions is based on PTM’s management estimates and calculations sourced from publicly available information. 2. Page References The relevant sources of information and bases of calculation are provided below in the order in which the relevant information appears in this document and by reference to page numbers in this document. Where such information is repeated in any of the documents, the underlying sources and bases are not repeated. Page 6 PTM share price as of close of market on 6 February 2006 was €9.62, as of close of market on 3 August 2006, €9.41 and as of close of market on 10 January 2007, €9.86. The companies included in the European Pay-TV index are Liberty Global, NTL, Telenet, BSkyB, Sogecable and Premiere. Page 7 The sources for equity analyst price targets are the equity research reports mentioned in the chart, Bloomberg and Datastream.

A-2 PT Multimédia | Report of the Board of Directors Page 7 The premium for Portuguese transactions is calculated as the average premia paid over the closing price on the day prior to the transaction announcement in selected unsolicited takeover bids in Portugal with a transaction value above €500 million since 1999. The sample of precedent transactions has been chosen based on the comparability of the transaction and includes the following: Premium/(discount) to 1 day Date Target Acquiror before announcement (or pre-bid speculation date) 06/15/00 Cimpor Investor Group 13.3% 07/19/99 BPSM BCP 40.0% 06/18/99 Mundial Confiança BCP 80.5% Average 44.6% The premium for European telecoms and Pay-TV transactions is calculated as the average premia paid over the closing price on the day prior to the transaction announcement in selected takeover bids in Europe with a transaction value above €500 million since 1 January 2004. The sample of precedent transactions has been chosen based on the comparability of the transaction, is sourced from Thomson Financial/SDC, and includes the following: Premium/(discount) to 1 day Date Target Acquiror before announcement (or pre-bid speculation date) 14/09/04 Song Networks Holding TDC 100.0% 31/10/05 O2 Telefónica 21.8% 30/11/05 TDC Nordic Telephone 38.9% 03/10/05 Telewest Global NTL 29.8% 05/12/05 Virgin Mobile Holdings(UK) NTL 19.2% 04/04/05 TIM Hellas Telecommunications Troy GAC Telecom 9.5% 18/07/05 Versatel Telecom International Tele2 46.7% 02/11/05 Sogecable PRISA 15.4% 05/02/06 eircom Babcock and Brown 11.7% Average 32.6% Page 8 PTM’s Pay-TV market share calculation is based on 1,451 thousand TV Cabo subscribers compared with total Pay-TV subscribers of 1,801 thousand (1,398 thousand cable subscribers and 403 thousand DTH subscribers) as of Q3 2006 (source: Anacom, which is the Portuguese telecoms regulator).

Page 9 PTM’s broadband market share is based on 349 thousand broadband customers compared with a total of 1,404 thousand broadband subscribers as of Q3 2006 (source: Anacom). Netcabo is the number 2 broadband supplier in Portugal based on subscriber numbers. The market data supporting the statements on penetration of PC households in Portugal and Europe, as well as the data relating to the expansion of PC penetration, are sourced from the following research report by Merrill Lynch: “Q1 06 – Slowing growth spurs content grab”, 1 June 2006. PTM generated an ARPU level of €22.3 and €29.8 on its cable and satellite businesses, respectively, in 3Q 2006. The relative ARPU level of PTM has been reviewed against selected comparable companies across Europe. The following sources form the basis of this comparison: > Premiere: €22.8 (DZ Bank report as of 8 November 2006, page 1) > NTL: £19.45 (UBS Equity Research as of 25 September 2006, page 5) > Sky: £32.1 (Q1 2006/2007 [June year-end], press release, page 5) > Digital+: €41.3 (Q3 2006 results, p.12) Take-up rates and market position as per PTM’s company information and market estimates. The source for the total revenues of the Portuguese fixed telephone services of €1,403 million in 2005 is the Statistical Yearbook 2005 from Anacom. For the purposes of this document, PTM defines Adjusted EBITDA as income before financial results and income taxes plus (i) depreciation and amortisation, (ii) goodwill impairment, (iii) work force reduction costs, (iv) net losses/(gains) on disposals of fixed assets and (v) net other costs/(income). Adjusted EBITDA does not represent and should not be considered an alternative to net income or income before financial results and income taxes, as determined under International Financial Reporting Standards (“IFRS”). PTM uses Adjusted EBITDA to facilitate performance comparisons from period to period. PTM believes Adjusted EBITDA facilitates company to company performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expenses and other financial gains and losses), taxation, the age and book depreciation of facilities and equipment (affecting relative depreciation and amortisation expense) and other items as stated above, all of which may vary for different companies for reasons unrelated to operating performance or liquidity. PTM further believes that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of PTM and other companies, many of which present an EBITDA measure when reporting their results. PT Multimédia | Report of the Board of Directors A-3

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