Statement on Portugal Telecom, S.A.'s Cost Accounting System for the Leased Lines Service

Considering that:

i. ICP declared Portugal Telecom, S.A to be an entity with significant market power in the leased lines market;

ii. According with Article 29 of the Regulations for the Operation of Public Telecommunications Networks (Decree-Law no. 290-A/99), operators with significant market power in the leased lines market should implement a cost accounting system suitable for application of the pricing system specified in Article 28 of the said Regulations;

iii. Article 29 of the Regulations for the Exploitation of Public Telecommunications Networks (Decree-Law no. 290-A/99) transposes to the Portuguese law the terms concerning cost accounting, laid down in Article 10 of Directive 92/44/EEC;

iv. In August 25 1995, under the terms of Concession Contract of the Public Telecommunications Service (Decree-Law no. 40/95) and the Telecommunications Prices Convention 1995/1997, ICP defined the general principles of Portugal Telecom, S.A.'s cost accounting system concerning the leased lines service;

v. The general principles of the cost accounting system defined by ICP encompass the rules defined in Directive 92/44/EEC;

vi. In December 1996, Portugal Telecom, S.A. officially informed ICP that it had implemented a cost accounting system within the framework of the Concession Contract of the Public Telecommunications Service;

vii. ICP conducted audits of the said system for the 1996 and 1997 financial years;

viii. Such audits were carried out by entities independent of Portugal Telecom, S.A.;

ix. In the context of the completed audit of the 1997 financial year, a statement of compliance was issued of the said system with the obligations laid down in Article 10(2) of Directive 92/44/EEC, with the wording resulting from Paragraph b) of Article 2(10) of Directive 97/51/EC was issued,

ICP declares that the results of Portugal Telecom, S.A.'s cost accounting system for the 1997 financial year were produced in accordance with Article 29(3), (4) of the Regulations for the Operation of Public Telecommunications Networks (Decree-Law no. 290-A/99).