Portugal Telecom SGPS SA (PT) said Thursday second-quarter net profit fell 20% as capital expenditure rose and lower mobile termination rates squeezed cellular revenue.

PT, as Portugal's biggest telecommunications company by market capitalization and subscribers is also known, said net profit was EUR89.7 million down from EUR112.1 million a year earlier, but beating analysts' expectations for net profit of EUR88.3 million.

Revenue fell 2.5% to EUR1.63 billion, while earnings before interest, taxes, depreciation and amortization rose 1.6% to EUR594.9 million.

PT's earnings are strong, ING said, adding that its operational performance suggests it can grow revenue over the medium term. ING rates Portugal Telecom at buy with a EUR8.50 target price.

At 0851 GMT PT's shares traded 0.9% lower at EUR7.20 in an overall higher Portuguese market.

PT also said tax provisions rose 76% to EUR62.3 million in the quarter while net debt stood at EUR6.16 billion at the end of June from EUR5.57 billion a year earlier.

European telecommunications companies, including PT, have been forced to lower their mobile termination rates recently. Termination rates are the fees operators charge each other to connect calls. PT, like most European incumbents, gets a bigger portion of its revenue from mobile termination rates compared with smaller players.

PT has been beefing up its fiber optic network in Portugal to expand its Internet TV and broadband offer as well as improving its third generation mobile network in Brazil. The company said capital expenditure in the quarter rose 41% to EUR506 million compared with a year ago.

The company's bright spot continues to be Brazilian mobile company Vivo Participacoes SA (VIV), which it operates jointly with Spain's Telefonica SA (TEF). Vivo reported earlier this month a second-quarter net profit of $91.7 million from a loss a year earlier.

 
   Company Web site: www.telecom.pt

-By Jason Sinclair, Dow Jones Newswires; +34-91-395 8127; jason.sinclair@dowjones.com;