Portugal Telecommunications Report Q3 2012

The Q312 update to BMI's Portugal telecommunications market draws on data from the regulatorAnacom and operators for the country’s mobile, fixed-line, broadband and pay-TV markets for March2012. This data has led to minor revisions to our forecasts for the country's mobile and fixed-line marketsextended through to 2016, although our broadband forecasts have been left unchanged. Operator dataincludes releases from the country’s fixed-line incumbent Portugal Telecom, which also owns theleading mobile operator TMN, Portugal Telecom’s rivals in the mobile market, Vodafone Portugal andOptimus (owned by Portuguese broadband operator Sonaecom) and data from cable operator GrupoZon. Regulator data includes information from some of the smaller players on the market, including ARTelecom and Onitelecom, as well as pay-TV operator and Cabovisão.

We saw declines in the mobile market in Q112, with net losses of 69,000 overall in the market. Optimusand Vodafone Portugal suffered negative growth, and TMN’s net additions were low. Q411 was the firstquarter of growth since Q111, and this quarter’s return to decline indicates the general downward trendcontinues. As a result, we have revised down our growth forecasts slightly, however. Demand will remainmuted due to the difficult macroeconomic environment and the high penetration rate. We believe that bythe end of 2012, there will be 17.5mn subscribers, and by 2016 this will have increased modestly to17.8mn.

The fixed-line market continues to grow, albeit slowly. However, we believe this trend will begin toreverse in H212, and by 2016, there will be around 4.4mn subscribers in the market, down from 4.54mnin Q112. There was no change in our broadband market forecasts – we expect there be 4.04mn broadbandsubscriptions in 2016.

Q112 has seen a flurry of activity in Portugal's LTE market, with the country's three incumbent mobileoperators Portugal Telecom (TMN), Vodafone Portugal and Sonaecom (Optimus) rolling out LTEnetworks in time for the distribution of LTE licences by the telecoms regulator, ANACOM, on March 202012. The LTE technology will allow the operators to offer high capacity mobile data services.

In terms of market share, TMN consolidated its lead in Q112, increasing its market share by 0.3pps to43.3%. This is still below the high of 44.2% reached in Q308, however. Its share fell slowly throughout2009, before recovering marginally in Q409. It then continued to fall in the first nine months of 2010before recovering slightly in H111, before falling back in H211.

TMN is followed by Vodafone which had a 35.8% market share in Q112, up by 0.3pps y-o-y, but downslightly by 0.1pps compared with the previous quarter. The two market leaders’ share of subscribers hasfrequently changed by marginal amounts over the past three years. Vodafone's market share has been inthe range of 35.5% to 36.0% for the entire period from Q208-Q112.