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Vodafone rejects Anacom’s price controls proposal

Lisbon, 12 December 2007 – In its comments on the draft decision on price controls for call termination on mobile networks sent to Anacom, Vodafone Portugal claims, in a comprehensive set of arguments, that the price controls that the regulator seeks to impose are unjustified and excessive and will irrationally distort the operation of the mobile market to the detriment of consumers and the Portuguese economy.

The aggressive nature of this draft decision by Anacom, which envisages a reduction in mobile termination charges, unparalleled in any other market, of 40% in a mere 9 months, in addition to the significant reductions already implemented in roaming charges, has serious and damaging implications for the management of Vodafone which prejudice the Company’s competitiveness in the market and its future investment plans.

Portuguese consumers of mobile services will be those most affected by this Anacom decision, particularly in terms of prices, investment in the network and innovation in products and services.

Anacom’s proposal to reduce prices is also prejudicial to the Portuguese economy, implying an estimated loss of revenue to the country in international call termination charges of over 30 million euros in the first year of implementation of the announced measures.

Vodafone naturally agrees that mobile termination charges should reflect best European practices, but it believes that does not necessarily translate into Anacom’s objective of locating them among the five lowest in Europe while ignoring the specifics of the Portuguese situation, such as the high levels of investment in the network, the low prices charged, the high penetration rates and the high level of development of 3G services.

Equally, Vodafone does not agree that there are arguments or reasons to justify any change to the symmetry of termination charges between mobile networks that has applied up to now. In fact, any asymmetry could only be justified in the first few years of a new operator’s operations (Optimus has been in the market for over 9 years) or if the operator in question did not have the same spectrum or technology (Optimus has the same spectrum and technology as the other operators) or if it had an incipient market share or level of profitability (Optimus has consistently achieved a market share in excess of 15% and an operating cash flow margin in excess of 25%.

The decision announced by Anacom will result in an irrational distortion of the mobile market that will not encourage the pursuit of greater efficiency by an operator that has been in the market for over 9 years and that could be expected to implement strategies to win customers and call minutes and to achieve a proper dimensioning of its network and use of the spectrum. If it were to occur, the asymmetry in mobile termination charges would not be supported by the European Commission and would have the effect that the other two operators in the market were unjustifiably subsidising Optimus to the tune of over 10 million euros a year.

Vodafone also fears that Anacom does not have sufficient time to perform a careful analysis and examination of the facts and positions expressed by the interested parties at this stage, given the shortness of the interval between the deadline for the submission of replies by interested parties (10 December 2007) and the date for introduction of the measures proposed by Anacom (1 January 2008) and the complexity of the issues concerned.

In expressing its profound disagreement with the matters of fact and law contained in the Anacom Draft Decision and testifying to the serious damage that it will do to the Company and the public interest, Vodafone will not shrink from contesting the legality and effectiveness of this Decision in the event that it is adopted as proposed, using all legal and procedural means at its disposal in defence of its rights.