OPERATIONS. Lisbon, 29 & 30 October 2012 Portugal Telecom Technology & Innovation Conference 0

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1 OPERATIONS Lisbon, 29 & 30 October 2012 Portugal Telecom Technology & Innovation Conference 0

2 IMPORTANT NOTICE This release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of Such forward-looking statements are not statements of historical facts, and reflect goals of the company's management. The words "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "predicts, "projects" and "targets" and similar words are intended to identify these forward-looking statements, which necessarily involve known and unknown risks and uncertainties. Accordingly, the results of operations of the company to be achieved may be different from the company's current goals and the reader should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments. SOURCE: Source

3 ENABLING CONVERGENCE THROUGH IT Pedro Sardo Head of internal information systems Portugal Telecom Technology & Innovation Conference 2

4 IT ENABLES CONVERGENT CUSTOMER EXPERIENCE A fully converged customer experience is anchored on an integrated and converged IT systems architecture IT transformation programme to Converge, Standardise, Integrate and Simplify business processes and IT Evolve existing legacy systems Improve efficiency and effectiveness SOURCE: Source Portugal Telecom Technology & Innovation Conference 3

5 BUSINESS TRANSFORMATION THROUGH IT 2007 TV service 2008 Officebox 2009 Meo fibra 2011 Smartcloud PT 2011 Meo Go! 2008 Satellite TV service 2009 Sapo fibra 2010 Familybox 2010 Musicbox Portugal Telecom Technology & Innovation Conference 4

6 KEY DESIGN PRINCIPLES FOR NEW ARCHITECTURE Standards based Application standard, one solution per functional domain Infrastructure and platform based on market standards Reference data Empower business users to configure system dynamically Reduce new need for IT developments Integration model framework Service oriented architecture for reusability and integration with multiple (external) systems Canonical model Standards concept definitions and data model across business and applications Time to market reduction of new products and services and processes Portugal Telecom Technology & Innovation Conference 5

7 SIMPLIFICATION BY ELIMINATING APPLICATIONS To be discontinued % applications eliminated To be maintained 205 Total Already Done Short/ medium Long Plan Portugal Telecom Technology & Innovation Conference 6

8 BEST PRACTICE IT ARCHITECTURE Customer Care & Sales Convergent Convergent CRM selfcare Provisioning and service activation Provisioning Network inventory Field force Billing Rating and billing Convergent collections Convergent sales force automation Corporate applications Business intelligence Comissioning ERP Completed or almost done In execution To be launched New convergent products and processes already based on new architecture to provide a truly convergent experience Portugal Telecom Technology & Innovation Conference 7

9 CRM IS A KEY BUILDING BLOCK FOR CONVERGENCE PT CRM solutions will enable: Integrated 360º view of customer (B2B and B2C) Full traceability of all customer interactions Unified front and back office processes Multi-channel integration (CTI, IVR, Voice, SMS, , mail) Order capture Customer account Reverse logistics mgmt Functional mgmt Customer care Partner mgmt Campaign mgmt Portugal Telecom Technology & Innovation Conference 8

10 CONVERGING OPERATIONS TROUGH TECHNOLOGY Past Customers Today Customers Universal queue Prioritised and managed from a single queue Front Office Front Office Skills based routing Most prepared agents answering the different customers Back Office ADSL Mobile Back Office Voice Integrated front office & back office Use the same position for both front office and back office tasks under common management Portugal Telecom Technology & Innovation Conference 9

11 ONE CUSTOMER, ONE AUTHENTICATION FOR SEAMLESS AND CONVERGENT EXPERIENCE LoginPT allows for single sign on on multiple platforms reinforcing the convergent perception of the customer Enables reuse of existing customer credentials (e.g. Facebook, Google, Live, Twitter) Portugal Telecom Technology & Innovation Conference 10

12 SELFCARE A MUST IN THE FUTURE Online customer area all services Customised to customer needs Web Possibility to manage services Reduction of customer contacts TV Mobile Portugal Telecom Technology & Innovation Conference 11

13 REAL TIME PROVISIONING ORDER MANAGEMENT Improving quality of service New customers installations in N+1 days Collections reconnection time after payment dropped from 6 hours to less than 10 min FTTH led new network inventory implementation covering network project, construction, usage, control... Detailed network inventory up to the building level including a complete address database NETWORK INVENTORY Portugal Telecom Technology & Innovation Conference 12

14 CONVERGENCE IMPROVES IT COSTS IT spend Euro million Opex Capex -13% IT spending reduction on the back of two factors: -17% -9% Higher efficiency Convergence and business transformation enhanced processes H12 annualised Portugal Telecom Technology & Innovation Conference 13

15 FIBRE IS THE FUTURE TODAY Jason Inácio Head of Infrastructure & operations Portugal Telecom Technology & Innovation Conference 14

16 PT IS LEADING THE FTTH ROLLOUT IN EUROPE Broad duct network FTTH cost per home passed Euro 1,000 Cheaper labour cost 525 Mainly urban areas <200 PT Operator 1 Operator 2 Portugal Telecom Technology & Innovation Conference 15

17 WHY IS PT S FTTH ROLLOUT DIFFERENT Area selection process Why is PT unique? Service providers payment scheme Results E2E fibre network construction Portugal Telecom Technology & Innovation Conference 16

18 AREA SELECTION AND PAYMENT SCHEME Area selection made by PT s commercial team, which committed to a minimum penetration Payment to service providers is based on the commercially available homes passed. Portugal Telecom Technology & Innovation Conference 17

19 LOW INSTALATION TIME REFLECTS E2E ROLLOUT Mean time to install fibre [E2E] Days Industry Average Fibre Mean time to install fibre distribution [E2E] Days % 39% % % % 6% [1;2] [3;5] [6;10[ [10;20[ >30 Note: E2E End to End SOURCE: McKinsey Portugal Telecom Technology & Innovation Conference 18

20 FIBRE DELIVERS BETTER KPI S Meo DSL Meo Fibre Monthly technical calls per 1000 customers Indexed Monthly truck rolls per 1000 customers Indexed -40% -16% YTD YTD Portugal Telecom Technology & Innovation Conference 19

21 HOW DID WE TRANSFORM OPERATIONS? Portugal Telecom Technology & Innovation Conference 20

22 BETTER KPI S THROUGH IT Automatic dispatching to the technicians ruggedised smartphone Technical screening tool, which simplifies operator-customer interaction On-time arrival Percentage Technical call centre redo rate 30 days. Percentage Portugal Telecom Technology & Innovation Conference 21

23 PLANNING IS CRITICAL Forecast model of upcoming activities, enhancing planning and anticipating peak activity Mean time to repair Hours Industry Average Combination of online network and customer premises information Common faults detection Minutes SOURCE: Mckinsey Portugal Telecom Technology & Innovation Conference 22

24 FIBRE DRIVES PRODUCTIVITY GAINS Technician productivity Activities/technician/day IPTV installation time Minutes DSL Fibre % % % DSL Fibre Portugal Telecom Technology & Innovation Conference 23

25 RETHINKING MOTIVATION Productivity Euro/activity Call centre operators incentive scheme Percentage -47% Before After 1st quartile Average Portugal Telecom Technology & Innovation Conference 24

26 LEANER OPERATIONS DRIVE EFFICIENCY Fixed Network Supervision Single network operations centre + Mobile Network Supervision Customer Customer Supervision supervision Centre Customer Care Field Service Customer centric organisation Innovative contract model with service providers Portugal Telecom Technology & Innovation Conference 25

27 KPI IMPROVEMENT Customer calls Million First time resolution Percentage Monthly truck rolls per 1000 RGU Number -20% +4pp -27% Portugal Telecom Technology & Innovation Conference 26

28 TECHNOLOGY LEADS TO IMPROVED PROFITABILITY Nuno Vieira Head of investor relations Portugal Telecom Technology & Innovation Conference 27

29 TECHNOLOGY DRIVES PROFITABILITY AND ECO-EFFICIENCY Operational efficiency Lower network & IT TCO Customer lifetime FTTH 4G/LTE IT & network transformation Portugal Telecom Technology & Innovation Conference 28

30 COST EFFICIENT & CONVERGED OPERATIONS Customer care costs per RGU Euro/year Billing & collections 2 costs/customer Euro/year -20.0% -34.4% Trend YTD 2 Includes bad debt Portugal Telecom Technology & Innovation Conference 29

31 NETWORK & IT DRIVE PRODUCTIVITY AND SAVINGS Field operations costs per RGU Euro/year Cost to install a triple-play customer Euro/year -20.3% -16.1% H12 annualised Portugal Telecom Technology & Innovation Conference 30

32 LOWER CHURN LEADING TO HIGHER PROFITABILITY Churn MEO Indexed NPV MEO customer Indexed DSL Fibre +94.5% -25.5% 1Q10 3Q10 1Q11 3Q11 1Q12 MEO DSL MEO Fibre Portugal Telecom Technology & Innovation Conference 31

33 NGN ALSO DELIVER LOWER NETWORK OPEX Network cost per BIT Indexed Network electricity costs/customer Euro/Year x8.7 x % DSL Fibre 3G 4G DSL Fibre Portugal Telecom Technology & Innovation Conference 32

34 CUTTING SPENDING WHILE TRANSFORMING PT IT spending Euro million IT maintenance hourly rate Euro/hour Opex Capex -13% -17.5% -17% -9% H12 annualised Portugal Telecom Technology & Innovation Conference 33

35 COUNTER CYCLICAL NETWORK & IT INVESTMENTS SHOULD SUSTAIN OPEX SAVINGS IN THE FUTURE Future opportunities: Process innovation Increase of fibre penetration Increase of convergent offers OPEX excl. direct & commercial costs Euro million -4.7% -9.1% -5.6% H12 annualised Portugal Telecom Technology & Innovation Conference 34

36 OPERATIONS Lisbon, 29 & 30 October 2012 Portugal Telecom Technology & Innovation Conference 35