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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

For the month of August 2010

Commission File Number 1-13758

PORTUGAL TELECOM, SGPS, S.A.

(Exact name of registrant as specified in its charter)

Av. Fontes Pereira de Melo, 40
1069 - 300 Lisboa, Portugal

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x  Form 40-F o

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o  No x

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First Half 2010

Consolidated report

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Portugal Telecom

The terms “PT”, “Portugal Telecom Group”, “PT Group”, “Group” and “Company” refer to Portugal Telecom and its subsidiaries or any of them as the context.

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Portugal

Revenues (Euromillion)

Main international assets

Revenues (Euromillion)

(*) These stakes are held by Africatel, which is controlled 75% by PT.

Support companies

Systems and IT [PT Sistemas de Informação 100%]; Innovation, research and development [PT Inovação 100%];

Backoffice and shared services [PT PRO 100%]; Procurement [PT Compras 100%];

Call centres and telemarketing services [PT Contact 100%]; Pension funds management [Previsão 82.05%]

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01

Financial review

Consolidated income statement

(1) Considering a Euro/Real average exchange rate of 2.3839 in 1H10 and 2.9214 in 1H09. (2) Wireline and domestic mobile operating revenues include the impact of the decline in regulated mobile termination rates (MTRs). At TMN, this impact amounted to Euro 3 million in 1H10. Wireline revenues include the impact of the change in the recognition of contract penalties as from 3Q09. (3) EBITDA = income from operations + post retirement benefits + depreciation and amortisation. (4) Income from operations = income before financials and income taxes + curtailment costs + losses (gains) on disposal of fixed assets + other costs (gains).

Consolidated operating revenues

In 1H10, consolidated operating revenues increased by 13.8% y.o.y to Euro 3,682 million, as a result of revenue growth in wireline and international operations, namely Vivo, Timor Telecom and Dedic, PT’s contact centre and outsourcing business in Brazil.

In 1H10, revenues from domestic operations decreased by 2.3% y.o.y. The revenue performance of domestic operations was negatively impacted by lower equipment sales (Euro 7 million), lower MTRs (Euro 4 million),

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and lower customer revenues at TMN, which more than offset the increase of wireline revenues, notwithstanding the negative impact of the change in the recognition of contract penalties (Euro 8 million).

In 1H10, wireline operating revenues increased by 0.6% y.o.y, from Euro 965 million to Euro 971 million. Adjusting for the change in revenue recognition of contract penalties referred to above, wireline revenues would have increased by 1.4% y.o.y, underpinned by retail revenues and data and corporate and despite lower wholesale revenues. Retail revenues were broadly flat at Euro 484 million in 1H10. Adjusting for the change in the recognition of contract penalties, wireline retail revenues would have grown by 0.9% y.o.y, on the back of the continued strong performance of the Meo triple-play offer (voice, data and pay-TV), which continues to mitigate significantly fixed line net disconnections, which stood at 36 thousand in 1H10 compared to 65 thousand in 1H09 and 110 thousand in 1H08. Moreover, net disconnections of traffic generating lines stood at only 13 thousand in 1H10, compared to 44 thousand in 1H09, an improvement of almost 70% y.o.y.

In the wireline, retail net additions reached 156 thousand in 1H10, up by 13.9% y.o.y, driven by the success of PT’s Meo triple-play offer, which is contributing to gain in broadband market share and record losses in terms of fixed line net disconnections. ADSL retail customers increased by 19.5% y.o.y in 1H10, reaching 933 thousand customers. Broadband retail net additions reached 71 thousand in 1H10, in line with the improving trend posted during 2009. PT’s Meo offer continues to see strong demand in the market having reached an estimated market share of 27% and surpassed the 700 thousand customer threshold. Pay-TV net additions reached 122 thousand in 1H10 and total pay-TV customers stood at 702 thousand, equivalent to 75.3% penetration of the ADSL retail customer base, up by 18.6pp y.o.y. Retail RGU per access increased by 11.3% y.o.y in 1H10 to 1.60.

In 1H10, TMN’s operating revenues decreased by Euro 48 million (-6.5% y.o.y) to Euro 689 million, mainly due to: (1) lower customer revenues (Euro 19 million), against a backdrop of adverse economic conditions and increased penetration of on-net flat-fee prepaid tariff plans in prepaid customers; (2) lower equipment sales (Euro 17 million), and (3) lower interconnection revenues (Euro 8 million), partially as a result of the negative impact of lower MTRs (Euro 3 million). Non-SMS data revenues continued to be an important source of growth, on the back of increasing penetration of smartphones and wireless data cards. Non-SMS data revenues increased by 9.1% y.o.y in 1H10, now representing 60.6% of total data revenues. Data revenues reached 24.2% of service revenues, up by 1.5pp y.o.y.

In 1H10, Vivo’s operating revenues increased by 30.7% y.o.y in Euros and 6.6% y.o.y in Reais, improving the revenue trend seen in 2009 and in 1Q10, on the back of continued customer growth (19.6% increase y.o.y in the customer base) and data revenue growth.

Other revenues, including intra-group eliminations, increased by 51.9% y.o.y in 1H10 to Euro 137 million. This performance was mainly due to: (1) the increase of 32.1% y.o.y at Timor Telecom; (2) the improved trends at Dedic, and (3) the consolidation of GPTI, an IT / IS company acquired by Dedic, as from 1 March 2010. These effects more than offset the revenue contraction at CVT in Cape Verde, which was primarily due to weak economic conditions and adverse regulation.

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(1) Considering a Euro/Real average exchange rate of 2.3839 in 1H10 and 2.9214 in 1H09. (2) Domestic operations include the wireline segment, domestic mobile, PT Inovação, PT SI, PT Pro, PT Contact and PT Sales. (3) Includes mainly Vivo, Dedic, PT’s contact centre business, and GPTI. (4) Includes fully consolidated international assets, namely MTC, CVT, CST and Timor Telecom, and also the holding companies.

In 1H10, the contribution from fully and proportionally consolidated international assets to operating revenues stood at 57.2%, up by 7.4pp y.o.y, and Brazil accounted for 53.4% of consolidated operating revenues, an increase of 7.4pp y.o.y.

Consolidated Operating Costs

(excluding post retirement benefit costs and depreciation and amortization)

Consolidated operating costs excluding depreciation and amortization costs and post retirement benefits, increased by 17.1% y.o.y to Euro 2,385 million in 1H10, as compared to Euro 2,037 million in the same period of last year. Using a constant exchange rate, operating costs would have increased by 4.1% y.o.y in 1H10 to Euro 2,120 million, primarily explained by higher contributions from: (1) the wireline business (Euro 38 million), reflecting higher programming costs, due to the continued growth of pay-TV customers, and increases in commissions and marketing and publicity expenses, as a result of the continued efforts in the marketing of pay-TV and triple-play offers and higher sales to corporate customers; (2) Vivo (Euro 65 million), as continued customer growth led to increases in both services rendered and direct costs; and (3) Portugal Telecom’s call centre operation in Brasil. These effects were partially offset by a reduction at TMN (Euro 41 million), primarily as a result of strict cost control and strong focus on the profitability of operations.

Wages and salaries increased by 21.2% y.o.y in 1H10 to Euro 411 million, primarily explained by higher contributions from: (1) Vivo, reflecting the impact of the appreciation of the Brazilian Real and the insourcing of certain activities related to marketing and sales, namely stores, that were previously being outsourced; (2) Dedic, our call centre operation in Brazil, following the investments made in 1H10 for the expansion of this business; and (3) GPTI, which was consolidated  since 1 March 2010. Using a constant exchange rate, wages and salaries would have increased by 10.4% y.o.y to Euro 374 million in 1H10. Wages and salaries accounted for 11.2% of consolidated operating revenues.

Direct costs increased by 26.4% y.o.y to Euro 676 million in 1H10 and accounted for 18.4% of consolidated operating revenues. This growth is primarily explained by higher contributions from: (1) Vivo (Euro 122 million), reflecting the impact of the appreciation of the Real (Euro 74 million) and increases in interconnection costs and lease costs 3G related; and (2) the wireline business (Euro 18 million), with the increase in programming costs (Euro 19 million), related to the roll-out of the pay-TV service, being partially offset by lower interconnection costs, mainly related to lower MTRs.

Commercial costs increased by 10.9% y.o.y to Euro 581 million in 1H10 and accounted for 15.8% of consolidated operating revenues. Using a constant exchange rate, commercial costs would have decreased by 3.7% y.o.y in 1H10 to Euro 505 million. This reduction was primarily explained by decreases at: (1) TMN (Euro 33 million), reflecting lower sales and the continued focus on increasing the number of exclusive

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handsets and reducing the breadth of TMN’s handset portfolio; and (2) Vivo (Euro 9 million), with the decline in costs of products sold, mainly due to a reduction in sales and the higher take-up of SIM card only offers, being partially offset by an increase in commissions related to the significant growth in sales of modems and smartphones enabled with data plans.

Other operating costs, which mainly include support services, supplies and external services, indirect taxes and provisions, increased by 12.3% y.o.y to Euro 717 million in 1H10. Using a constant exchange rate, other operating costs would have remained broadly flat at Euro 641 million, as compared to Euro 639 million in the same period of last year, with the higher contribution from Vivo (Euro 12 million) and the impact of the consolidation of GPTI as from 1 March 2010 (Euro 6 million) being partially offset by a lower contribution from domestic operations (Euro 14 million). The increase at Vivo is primarily explained by higher spectrum fees, partially offset by the effects of cost control and insourcing of certain marketing and sales activities that were previously being outsourced. The reduction in the domestic operations reflects the halting of the redundancy programme in favour of insourcing, notwithstanding the increase in customer care and support costs related to the strong growth in pay-TV.

EBITDA

EBITDA increased by 8.2% y.o.y in 1H10 to Euro 1,297 million, equivalent to a margin of 35.2%. EBITDA performance in the period was underpinned by growth at Vivo and other international assets and resilient performance in the domestic businesses. In 2Q10, the EBITDA performance of domestic businesses continued to show sequential improvement, notwithstanding lower revenues at TMN and the continued investment in the roll-out of triple-play offers, as a result of cost control and efficiency improvements. In 2Q10, EBITDA increased by 11.4% y.o.y benefiting from an improved sequential performance across all PT businesses.

(1) Considering a Euro/Real average exchange rate of 2.3839 in 1H10 and 2.9214 in 1H09. (2) EBITDA = income from operations + post retirement benefits + depreciation and amortisation.  (3) Domestic operations includes the wireline segment, domestic mobile, PT Inovação, PT SI, PT Pro, PT Contact and PT Sales. (4) Includes mainly Vivo, Dedic and GPTI. (5) Includes only fully consolidated international assets, namely MTC, CVT, CST and Timor Telecom, and also the holding companies.

Wireline EBITDA amounted to Euro 376 million in 1H10, equivalent to a 38.8% margin. In 2Q10, wireline EBITDA amounted to Euro 188 million, equivalent to a margin of 38.9%, showing an important sequential improvement when compared to recent quarters. EBITDA loss in 2Q10, when compared to 1Q10, improved significantly and was reduced to a mere Euro 1 million. In 1H10, EBITDA margin continued to be impacted primarily by higher programming, customer acquisition and support service costs in connection with the roll-out of the triple play offers. The improvement in EBITDA trend, even more visible in 2Q10, is owed to streamlined cost structure resulting from fixed-mobile convergence and restructuring of the domestic business

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around customers segments. In 1H10, wages and salaries in the wireline segment declined by 1.3% y.o.y, as a result of strong focus on cost reduction,notwithstanding the halting of the redundancy programme, which resulted in lower costs associated to pre-retirements. Projected benefit obligations related to salaries payable to pre-retired and suspended employees fell by 5.7% y.o.y (Euro 45 million), and the corresponding cash outflow was 9.5% lower in the period (Euro 7 million).

In 1H10, TMN’s EBITDA decreased by 1.9% y.o.y to Euro 325 million, mainly as a result of lower customer revenues and sales. Due to a strong and continuous focus on cost cutting to increase efficiency, EBITDA margin reached 47.2%, an increase of 2.2pp compared to 1H09. In 2Q10, EBITDA at TMN was broadly flat y.o.y at Euro 161 million.

In 1H10, Vivo’s EBITDA increased by 31.4% y.o.y, underpinned by customer and revenue growth and by the appreciation of the Brazilian Real. Vivo’s EBITDA, in Reais, increased by 7.3% y.o.y in the period showing an improved trend in 2Q10 (+10.6% y.o.y) when compared to 1Q10 (+3.9% y.o.y). Vivo’s EBITDA margin reached 29.2% in 1H10, an improvement of 0.2pp compared to 1H09. In 1H10, net adds were up by 125.8% to 4,233 thousand, whilst the share of net adds in the semester stood at 37.9%, which compares to Vivo’s market share of 30.2%.

Other EBITDA increased by 14.5% y.o.y to Euro 46 million in 1H10 as a result of: (1) the 9.6% y.o.y growth in Timor Telecom; (2) the improved trends at Dedic, and (3) the consolidation of GPTI as from 1 March 2010. These effects more than offset the EBITDA contraction at CVT in Cape Verde, primarily due to weak economic conditions and adverse regulation.

Fully and proportionally consolidated international assets contributed to 48.8% of PT’s consolidated EBITDA in 1H10, up by 7.6pp y.o.y. Brazilian businesses accounted for 42.9% of EBITDA in the period and fully consolidated African businesses accounted for 4.8% of EBITDA.

Net income

Post retirement benefit costs amounted to Euro 36 million in 1H10, compared to Euro 45 million in 1H09. The decline of 20.5% y.o.y is mainly due to: (1) the reduction of Euro 105 million in post retirement liabilities, that occurred during 2009, following the halting of the redundancy programme; (2) the increase in fair value of plan assets, from Euro 2,132 million to Euro 2,370 million, that occurred in 2009 as a result of the performance of the plan assets, and the contributions to the pension funds, and (3) the reduction of the discount rate from 5.75% to 5.50%.

Depreciation and amortisation costs increased by 15.9% y.o.y to Euro 773 million, reflecting higher contributions from: (1) Vivo, which accounted for 75.1% of the increase in D&A, mainly as a result of the appreciation of the Brazilian Real (Euro 78 million), and (2) wireline in Portugal, as a result of the investments in the rollout of pay-TV service. In 1H10, D&A included the depreciation of Vivo’s CDMA network, which was already fully depreciated as at the end of 2Q10.

Curtailment costs amounted to Euro 9 million in 1H10 as compared to Euro 3 million in 1H09. The low level of curtailment costs in both 1H10 and 1H09 is explained by the decision to halt the curtailment programme, which is continuously reflected in both lower payments and lower present benefit obligations related to pre-retired and suspended employees.

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Net interest expenses increased to Euro 150 million in 1H10 from Euro 145 million in 1H09, mainly as a result of the appreciation of the Brazilian Real and the increase in the cost of debt in domestic operations, notwithstanding the decrease in the cost of debt in Vivo. Consolidated cost of debt was 5.2% in 1H10. Excluding Brasil, PT’s cost of debt was 4.7% in 1H10.

Equity in earnings of affiliates in 1H10 amounted to Euro 84 million. In 1H09, this caption included PT’s share in the earnings of Médi Télécom, which was sold in 4Q09. Adjusting for the contribution of Médi Télécom in 1H09 and for the depreciation of the Kwanza against the Euro, equity accounting in earnings of affiliated companies would have remained broadly flat at Euro 96 million.

Net other financial gains, which include net foreign currency gains, net gains on financial assets and net other financial expenses, amounted to Euro 25 million in 1H10, as compared to net losses of Euro 12 million in 1H09. Net foreign currency gains amounted to Euro 40 million in 1H10 (Euro 2 million in 1H09), primarily due to the transfer of positive foreign currency adjustments (Euro 32 million) to net income following the share capital reductions at Brasilcel related to repatriation of capital. Additionally, gains recorded in 1H10 and 1H09 are also explained by the impact of the appreciation of the US Dollar against the Euro in both periods on net assets denominated in US Dollars. Net gains on financial assets amounted to Euro 0.8 million in 1H10, which compares to Euro 7 million in 1H09, resulting primarily from the impact of the appreciation of the US Dollar against the Euro on Euro/Dollar free-standing cross currency derivatives, which were settled in April 2009. Other financial expenses, which include banking services, financial discounts and other financing costs, decreased to Euro 16 million in 1H10 from Euro 21 million in the same period of last year.

Income taxes decreased to Euro 80 million in 1H10 from Euro 118 million in 1H09, corresponding to an effective tax rate of 18.8% and 28.6%, respectively. In 1H10, this caption includes: (1) a gain of Euro 48 million related to corporate restructuring of Africatel businesses that resulted in lower taxable profits, and (2) a gain of Euro 4 million corresponding to the impact, on deferred taxes, as at 1 January 2010, of the change in the statutory tax rate applicable in Portugal from 26.5% to 29.0% for companies with taxable profits higher than Euro 2 million. Adjusting for these effects, income taxes would have amounted to Euro 132 million in 1H10, corresponding to an effective tax rate of 31.1% (28.6% in 1H09).

Income attributable to minority interests increased by Euro 41 million to Euro 80 million in 1H10, reflecting the increase in minority interests from Vivo (Euro 16 million) and from the African businesses (Euro 24 million). The increase in minority interests from Vivo was related to the improvement in its earnings during the period and the appreciation of the Brazilian Real. The increase in minority interests from Africatel is primarily explained by the share of minority interests in the tax gain and accounting gains resulting from the corporate restructuring of the African businesses.

Net income increased by 3.1% y.o.y in 1H10 to Euro 264 million, as compared to Euro 257 million in 1H09 with the improvement in EBITDA, the increase in net other financial gains and the tax gains recognised in 2Q10 offsetting higher depreciation and amortisation costs and lower equity in earnings of affiliated companies. In 2Q10, net income increased by 82.5% y.o.y to Euro 164 million.

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Capex

Capex decreased by 4.5% y.o.y in 1H10 to Euro 484 million, equivalent to 13.1% of revenues, notwithstanding: (1) the continued investments in future proof technologies, namely FTTH, 3G and 3.5G; (2) the investments in new services, namely IPTV, (3) the strong growth of pay-TV customers (58.6% y.o.y in 1H10), and (4) the appreciation of the Real against the Euro (Euro 37 million). This decline was more evident in 2Q10, as capex decreased by 9.8% when compared to 2Q09.

Wireline capex decreased from Euro 227 million in 1H09 to Euro 212 million in 1H10 (6.7% y.o.y decline), as the investments in legacy network infrastructure declined in the period, notwithstanding: (1) the continued efforts in the rollout of future proof infrastructures, namely FTTH, and (2) the increase in customer related capex associated to the growth in pay-TV services. Other investments, namely infrastructure backbone SI/TI, also decreased as the result of PT’s focus on efficiency and cash flow, benefiting from significant investments during 2008 and 2009 and fixed-mobile integration. Capex at wireline represented 21.8% of revenues, down by 1.7pp when compared to 1H09.

(1) Considering a Euro/Real average exchange rate of 2.3839 in 1H10 and 2.9214 in 1H09. (2) Excludes additional commitments under the terms of the UMTS licence (Euro 11.5 million in 1Q09).

TMN’s capex decreased by 9.4% y.o.y to Euro 53 million in 1H10, equivalent to 7.6% of revenues. The decrease in TMN’s capex is primarily explained by the focus on cash-flow generation, with TI/SI related capex decreasing by 30.5% y.o.y as a result of the fixed-mobile integration. Capex continued to be directed primarily towards expanding network capacity and coverage, namely in the urban areas and in the main roads. Infra-structure related capex was broadly flat as a result of the continued focus on the provision of mobile voice and data services of excellence to customers and on accommodating increased voice and data usage. Approximately 70% of network capex is being directed towards 3G and 3.5G networks. Against a backdrop of the high quality of the network and services offered to customers, TMN’s network quality continues to stand out in the context of the Portuguese market for its coverage and reliability.

Capex at Vivo decreased by 10.3% y.o.y to Euro 172 million in 1H10, notwithstanding the appreciation of the Brazilian Real. Vivo’s capex in Reais decreased by 26.8% to R$ 818 million. Capex at Vivo was directed towards: (1) increasing network capacity to support the accelerated growth of voice traffic in the 2G network; (2) expanding coverage of 3G and 3.5G networks to support the growth in wireless broadband, and (3) improving network quality to continue to be the most reliable and best quality network in Brazil. Vivo’s 3G and 3.5G network covers 608 municipalities and more than 61% of Brazilian population and it is expected that 2,800 municipalities will be covered by the end of 2011. Additionally, Vivo continues to lead in overall quality metrics measured by the Brazilian telecoms regulator, Anatel. Capex at Vivo represented 9.1% of revenues, down by 4.2pp when compared to 1H09.

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In 1H10, other capex increased to Euro 48 million, compared to Euro 30 million in 1H09, as a result of investments made in 1H10 in the expansion of Dedic, PT’s contact centre and outsourcing operation in Brazil, including the construction of new sites.

Cash Flow

EBITDA minus Capex increased from Euro 692 million in 1H09 to Euro 813 million in 1H10 (+17.5% y.o.y) as a result of: strong EBITDA growth in international operations and continued focus on cost cutting across the various business segments in Portugal, and (2) capex reduction in the main operations, following the recent deployment of future proof technologies, namely FTTH in Portugal, 3G and 3.5G in Portugal and Brazil.

Operating cash flow amounted to Euro 466 million in 1H10, compared to Euro 476 million in 1H09, with the increase in working capital investment (Euro 136 million) more than offsetting the improvement in EBITDA minus CAPEX. The increase in working capital investment is mainly attributable to: (1) Vivo, resulting primarily from the increase in the annual payment of Fistel fees (Euro 20 million), in line with the increase in Vivo’s customer base, and (2) wireline business, resulting primarily from a higher working capital investment related to capex (Euro 59 million), as the higher capex in 4Q09 compared to 4Q08 led to higher payments to fixed asset suppliers in 1H10.

Free cash flow amounted to Euro 118 million in 1H10 as compared to Euro 135 million in the same period of last year. This change is primarily explained by: (1) the reduction in operating free cash flow described above (Euro 9 million); (2) an increase in income taxes paid (Euro 43 million), primarily at Vivo, following the improvement in its earnings and appreciation of the Brazilian Real, and (3) higher payments related to legal actions (Euro 13 million), both at Vivo and domestic operations. These effects more than offset: (1) the decrease in net contributions and payments related to post retirement benefits (Euro 46 million), as the reimbursement of Euro 75 million received in 1H10 related to the excessive funding of the healthcare post retirement benefit plan more than offset higher contributions to the pension funds (Euro 30 million), and (2) lower payments of salaries to pre-retired, suspended employees and other (Euro 7 million).

Consolidated Net Debt

Consolidated net debt amounted to Euro 6,093 million as at 30 June 2010, a decrease of Euro 63 million y.o.y and an increase of Euro 565 million when compared to the end of 2009, following: (1) Euro 504 million in

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dividends paid by PT; (2) Euro 84 million unfavourable impact on Vivo’s net debt related to the appreciation of the Real against the Euro, and (3) the consolidation of GPTI’s net debt, which amounted to Euro 31 million as at 1 March 2010. As at 30 June 2010, Vivo’s net debt represented Euro 720 million of PT’s consolidated net debt.As at 30 June 2010, total consolidated gross debt amounted to Euro 8,094 million, of which 86.8% was medium and long-term. At the end of June 2010, 87.2% of total debt was denominated in Euros and 12.8% in Brazilian Reais. Vivo’s debt is either Real-denominated or has been hedged into Reais. Also as at the end of 1H10, 72.6% of gross debt and 96.4% of net debt was set at fixed rates.

(1) This caption includes mainly: Euro 60 million in 1H10 related to dividends paid by PT’s fully consolidated subsidiaries to minority shareholders (Euro 39 million in 2H09).

The amount of cash available in PT’s domestic operations plus the undrawn amount of PT’s committed commercial paper lines and standby facilities totalled Euro 2,579 million at the end of June 2010, of which Euro 988 million was undrawn committed commercial paper and standby facilities.

In 1H10, PT’s average cost of debt stood at 5.2%. Excluding Brazil, PT’s average cost of debt was 4.7% in 1H10. As at 30 June 2010, PT’s consolidated net debt had a maturity of 5.9 years. In 1H10, the net debt to EBITDA ratio was 2.3x compared to 2.6x in 1H09, while EBITDA cover stood at 8.6x compared to 8.3x in 1H09.

Post Retirement Benefits Obligations

(1) The change in the market value of funds resulted mainly from: (i) the negative performance of assets under management amounting to Euro 74.7 million (equivalent to -3.3% in 1H10), (ii) the payments of pensions and supplements of Euro 69.2 million and (iii) the reimbursement of excess funding of the healthcare plan amounting to Euro 75 million. These effects were partially offset by contributions to the pension funds amounting to Euro 34.8 million.

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As at 30 June 2010, the projected post retirement benefits obligations (PBO) related to pensions and healthcare amounted to Euro 3,056 million and the market value of assets under management amounted to Euro 2,179 million. In addition, PT had liabilities in the form of salaries payable to suspended and pre-retired employees amounting to Euro 747 million and these are not subject to any legal funding requirement. These monthly salaries are paid directly by PT to the beneficiaries until retirement age. As a result, gross unfunded total obligations amounted to Euro 1,623 million. After-tax unfunded obligations amounted to Euro 1,193 million. PT’s post retirement benefits plans for pensions and healthcare are closed to new participants.

Total gross unfunded obligations increased by Euro 156 million to Euro 1,623 million as at 30 June 2010, as a result of: (1) the reimbursement of Euro 75 million, related to the excessive funding of the healthcare plan, and (2) net actuarial losses amounting Euro 143 million, related to the difference between the actual return on assets (negative Euro 75 million and equivalent to minus 3.3% in 1H10) and the estimated expected return on assets (6% on an annual basis). These effects more than offset: (1) PT’s contributions to the pension funds (Euro 35 million), and (2) the reduction of liabilities related to salaries payable to suspended and pre-retired employees (Euro 45 million), due to the halting of the redundancy programme.

(1) In 1H10, this caption includes the reimbursement of excess funding of the healthcare plan amounting to Euro 75 million, which was partially offset by contributions to the pension funds of Euro 34.8 million and termination payments of Euro 3.6 million. (2) In 1H10, this caption relates primarily to the difference between the actual return on assets (negative Euro 74.7 million, equivalent to - 3.3% in 1H10) and the expected return on assets (6% on an annual basis).

(1) The decrease in the interest cost is explained by the reduction of PBO occurred in 2009.  (2) The increase in the expected return on assets is explained by the positive performance of plan assets occurred in 2009.

Equity

Equity excluding minority interests stood at Euro 1,391 million as at 30 June 2010. The increase of Euro 73 million in 1H10 is explained by: (1) the Euro 264 million net income generated in the period, and (2) positive currency translation adjustments amounting to Euro 437 million, mainly related to the appreciation of the Real against the Euro, which more than offset the Euro 504 million dividends paid by PT to shareholders and the actuarial losses related to post retirement benefits amounting to Euro 105 million (net of taxes).

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Consolidated Statement of Financial Position

As at 30 June 2010, the net exposure (assets minus liabilities) to Brazil amounted to Euro 3,534 million (R$ 7,804 million). The assets denominated in Brazilian Reais in the balance sheet as at 30 June 2010 amounted to Euro 7,177 million (R$ 15,848 million), equivalent to 44.0% of total assets.

The increase in total assets and liabilities in 1H10 is due to the impact of the appreciation of the Real against the Euro and to certain loans obtained in the period, which led to an increase in both gross debt and cash and cash equivalents.

(1) Considering a Euro/Real exchange rate of 2.2082 as at 30 June 2010 and 2.5113 as at 31 December 2009. (2) The reduction in accrued post retirement assets is mainly related to the reimbursement of Euro 75 million of the excess funding computed as at 31 December 2009

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02

Business performance

Domestic Operations

Revenues from domestic operations, which include wireline and TMN, decreased by 2.3% y.o.y in 1H10, notwithstanding the increase of 0.6% y.o.y in the wireline segment, as a result of lower revenues at TMN due to: (1) lower customer revenues (Euro 19 million), as a result of the economic conditions and increased popularity of on-net flat-fee prepaid tariff plans; (2) lower equipment sales (Euro 17 million), and (3) lower interconnection revenues (Euro 8 million), due to lower MTRs. Revenues in the wireline segment increased by 0.6% y.o.y (Euro 6 million), notwithstanding the change in the recognition of contract penalties (Euro 8 million), which negatively impact the comparison between the quarters. Adjusting for the change in revenue recognition referred to above, wireline revenues would have increased by 1.4% y.o.y, underpinned by retail and data and corporate revenues and despite lower wholesale revenues due to lower competitive accesses.

(1) Domestic operations includes the wireline segment, domestic mobile, PT Inovação, PT SI, PT Pro, PT Contact and PT Sales. (2) EBITDA = income from operations + post retirement benefits + depreciation and amortisation. (3) Income from operations = income before financials and income taxes + curtailment costs + losses (gains) on disposal of fixed assets + net other costs. (4) Excludes additional commitments under the terms of the UMTS licence (Euro 11.5 million in 1Q09).

EBITDA declined by 5.2% y.o.y in 1H10 to Euro 699 million, equivalent to a margin of 43.8%, showing an important sequential improvement when compared to recent quarters. This performance was primarily explained by: (1) continued strong take-up in pay-TV, which resulted in higher programming and commercial costs; (2) increased customer care and support costs, due to the growth in pay-TV; (3) lower MTRs, and (4) the halting of the redundancy programme, in favour of insourcing of certain operations, with positive impact in payments to pre-retired and suspended employees.

Capex in the domestic business decreased by 6.8% y.o.y to Euro 270 milllion. Domestic capex was primarily directed to: (1) the continued investments in pay-TV and in FTTH, future-proof technologies and services paving the way for future growth in wireline, and (2) investments in 3G and 3.5G networks in the domestic mobile business.

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Wireline

In 1H10 retail net additions reached 156 thousand, up by 13.9% y.o.y, as a result of the significant growth of the pay-TV service, which accounted for 122 thousand net additions, bringing the total pay-TV customers to 702 thousand (up by 58.6% y.o.y). ADSL net additions in the quarter stood at 71 thousand, with ADSL customer base growing 19.5% y.o.y. The robust growth of ADSL was owed to solid growth in triple-play customers. Traffic generating lines declined by 13 thousand in 1H10, also reflecting the positive impact of the triple-play offers. In the period, net disconnections of voice lines were 36 thousand, including the 23 thousand net disconnections of carrier pre-selection lines. This performance marks a clear improvement in relation to the same period last year (44.2%), which saw 65 thousand net disconnections, thus confirming the improvement in key operational performance indicators seen in the first half of 2009. Pay-TV customer penetration stands at 27.0% of traffic generating lines (+10.2pp y.o.y) and 75.3% of the ADSL customer base (+18.6pp y.o.y), a solid performance considering that the pay-TV service was launched, on a nationwide basis, only in April 2008.

Wireline operating data

(1) Retail accesses per PSTN/ISDN line.

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The number of retail RGU per access, measured by the number of retail accesses per PSTN/ISDN line, continued to increase with the rollout of the pay-TV offer and stood at 1.60 in 1H10, as compared to 1.44 in 1H09.

Competitors’ accesses, which include wholesale accesses and carrier pre-selection, fell by 32 thousand in 1H10, reflecting a decrease in carrier pre-selection (-23 thousand) and unbundled local loop lines (-8 thousand).

During the period, Meo deployed a new software version across all its IPTV set-top-boxes, bringing an improved user experience and more features to Meo customers. Following a close and careful analysis of TV usage patterns, Meo upgraded its design and user-interface to promote an even better, easier and more intuitive user-experience. In some of its most widely-used services, such as the PVR, Meo launched new functionalities. Adding to the Remote PVR and Series-link Recording, both exclusive features, Meo now also provides a Multiroom PVR experience. This upgrade was supported by a strong marketing campaign that focused on the new Meo experience and re-emphasised Meo’s positioning as the most innovative pay-TV offer in the Portuguese market.

Meo continues to offer various features that significantly differentiate its value proposition, including: (1) real video-on-demand (VoD) with DVD-like features and a catalogue of more than 2,500 movies including high definition (“HD”); (2) catch-up TV; (3) electronic programming guide, redesigned during 1Q10, alongside all Meo user-interface, in order to improve further the user experience; (4) TV channel recording, which can be remotely programmed through the internet or through the mobile phone, allowing also easy on-click recording of series and multiroom PVR for those customers with more than one set-top-box; (5) gaming, karaoke and several interactive applications and service areas; (6) access to personal photo folders, and (7) customised contents and features for children in a specially designed walled-garden “Meo Kids”.

On 8 July 2010, PT announced that Meo had surpassed the threshold of 700 thousand customers. Recently and to reinforce a new television viewing experience and enhance interactivity, Meo also launched: (1) Meo Interactivo, an application store, free of charge, which will aggregate the best TV widgets for all applications already available through Meo as well as new ones that were also just launched, such as Facebook, Oceanlook, Picasa and Flickr, and (2) Meo Séries, a new subscription video-on-demand service, which delivers the best series from Warner and HBO.

During the period Meo also launched a selection of new channels, the most relevant of those being FoxLife, on 1 January 2010, and Channel Q, in March 2010, the first interactive channel in Portugal, fully programmed in Portuguese, which represents another innovative experience that continues to contribute towards a new way of consuming TV content in the Portuguese market. The Channel Q was developed in cooperation with Sapo portal, where the channel’s web site is hosted.

Meo provides access to a comprehensive content offering with more than 120 TV channels and over 2,500 VoD titles. The VoD offer, which includes blockbusters from five Hollywood studios, is a key differentiating feature of the service as more than 50% of Meo’s IPTV customers have already used VoD on a paid basis, consuming an average of 2.3 movies per month. In 2Q10, the most watched movies were “2012”, followed by “Twilight — New Moon” and “The Hurt Locker”, winner of six Oscars in 2009.

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During 1H10, PT also launched Meo@PC, in beta version. This service gives online access to Meo’s pay-TV service through a PC, strengthening the mobility and convergence value proposition of the Meo service. Customers were invited to join a pilot trial of this service, anticipating final commercial launch planned for later this year.

In May 2010, Meo announced the live broadcast of the major tennis event in Portugal, Estoril Open, in True 3D, the first time a live event was broadcasted in True 3D in Portugal. Additionally, in June 2010, Meo announced the live broadcast of eight games of the FIFA World Cup in True 3D through the organisation of several public viewing events. For Meo customers all the games of the FIFA World Cup were available in HD and with interactive features, which allowed the viewers to choose from six additional screens broadcasting: team tactics, follow a player, follow the coach and watch the highlights of the game. These features have proven to be very successful and were used by more than 330 thousand Meo customers with more than 1.1 million visits during the World Cup. During the World Cup Meo also launched a very successful optional feature, which allowed users to filter the noise of the well known vuvuzelas, during the game they were watching.

Meo marketing campaigns continue to enjoy the highest notoriety in the Portuguese pay-TV market. The campaign to market Meo’s new user interface was launched with an innovative commercial ad in True 3D, marking MEO’s take-off in 3D content trials. This advertisement was also broadcasted in the three main free-to-air channels having reached an audience share of 85.5%, above that of the initial advertising of Meo in 2008 that reached an audience share of 83%. In 1H10, proved ad recall stood above 60% and spontaneous ad recall was above 40%, well ahead of any other competing brands in the sector.

In 1H10, wireline operating revenues increased by 0.6% y.o.y to Euro 971 million, underpinned by data and corporate revenues (Euro 2 million) and sales (Euro 7 million), notwithstanding the negative effect of the change in the recognition of contract penalties (Euro 8 million). Adjusting for this change, wireline revenues would have increased by 1.4% y.o.y. Retail revenues decreased by Euro 3 million to Euro 484 million in 1H10, while adjusting for the change in the recognition of contract penalties, wireline retail revenues would have grown by 0.9% y.o.y, on the back of the continued strong performance of Meo triple-play offer (voice, data and pay-TV). Despite the continued pressure on the traditional voice business, due to adverse economic conditions, which are affecting mainly the SME/SOHO and corporate segments, revenues of pay-TV and ADSL retail have been increasing in line with the stated strategy of increasing market share in the residential market by offering attractive and differentiated triple-play and double-play services.

The performance of retail revenues, adjusted for the change in the recognition of contract penalties referred to above (+0.9% y.o.y), was underpinned by growth in retail RGUs of 156 thousand, namely pay-TV customers (+122 thousand net additions in the period), high quality broadband customers (+73 thousand postpaid net adds) and resilience of traffic generating lines, which decreased by 13 thousand in the period. The growth in number of RGUs per customer underpinned the increase in retail ARPU of 0.9% y.o.y in 1H10, which reached Euro 30.2. The performance of retail revenues, continued to benefit from the successful implementation of the TV strategy, notwithstanding strong competition from other fixed and cable operators as well as from mobile operators, both in voice and broadband, and against a backdrop of challenging economic conditions.

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