Portugal Telecom meo TV adds 65k subscribers in 1Q10

LISBON — Portugal Telecom (Lisbon: PTC; NYSE: PT) announced today results for its first quarter ended 31 March 2010.

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In 1Q10 retail net additions reached 89 thousand, up by 5.9% y.o.y, as a result of the significant growth of the pay-TV service, which accounted for 65 thousand net additions, bringing the total pay-TV customers to 646 thousand (up by 68.1% y.o.y). Pay-TV customer penetration stands at 24.7% of traffic-generating lines (+10.2pp y.o.y) and 71.7% of the ADSL customer base (+20.6pp y.o.y), a solid performance considering that the pay-TV service was launched, on a nationwide basis, only in April 2008.

During the quarter, 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.

As a result, Meo currently offers various features that significantly differentiate its offer, 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 the quarter in order to further improve the user experience; (4) TV channel recording, which can be remotely programmed through the internet or through the mobile phone, allowing easy recording of series and now offering 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. Meo also reinforced in 1Q10 the Meo Photos functionality, in association with Sapo, PT’s well known and leading web portal in Portugal and in the Portuguese-speaking countries. This new functionality, available to ADSL and fibre customers, allows customers to upload their photos onto their Meo or Sapo areas and to watch them in slideshow in their TV sets or share these with friends.

During the quarter 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 (+5.2pp as compared to 1Q09), consuming on average 2.4 movies per month. In 1Q10, PT continued to market Movie Gift Voucher, launched during the Christmas period, now associated to the Valentine’s Day, on 14 February, and to the Easter season.

During 1Q10, 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.

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 freeto- air channels having reached an audience share of 85.5%, above that of the initial adverting of Meo in 2008 that reached an audience share of 83%. In 1Q10, proved ad recall stood above 60% and spontaneous ad recall was above 40%, well ahead of any other competing brands in the sector. Additionally, in May 2010, Meo announced the live broadcast of the major tennis event in Portugal, Estoril Open, in True 3D. This is the first time an event is broadcasted in True 3D in Portugal and it is also the first time that an ATP event is broadcasted in True 3D.

Operating Data – meo TV (k):

                4Q08  1Q09  2Q09  3Q09  4Q09  1Q10
                ----  ----  ----  ----  ----  ----
Customers        312   384   443   505   581   646
Net additions    101    72    59    62    76    65

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