Telecom Argentina Stet - France Telecom S.A. (TEO)

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Telecom Argentina S.A. (TEO)

Q1 2014 Earnings Conference Call

May 9, 2014 11:00 AM ET

Executives

Pedro Insussarry – Head, Finance

Stefano de Angelis – CEO

Adrian Calaza – CFO

Analysts

Michel Morin – Morgan Stanley

Alejandra Aranda – Itau

Alejandra Aranda – Itau BBA

Rodrigo Villanueva – Bank of America Merrill Lynch

Federico Rey – Raymond James

Presentation

Operator

Good day everyone, and welcome to the Telecom Argentina First Quarter 2014 Earnings Conference Call. Today’s call is being recorded. Participating on today’s call, we have Mr. Stefano de Angelis, Chief Executive Officer; Mr. Adrian Calaza, Chief Financial Officer; and Mr. Pedro Insussarry, Head of Finance.

And at this time, I’ll turn the call over to Mr. Pedro Insussarry, Please go ahead.

Pedro Insussarry

Good morning to everybody on behalf of Telecom Argentina. I would like to thank you for participating on this conference call. As mentioned by Margarita, our moderator, the purpose of this call is to share with you the consolidated results of the Telecom Argentina Group that corresponds to the fiscal quarter ended March 31.

We would like to remind you that for all those that have not received our press release or presentation, you can call our Investor Relations office to request documents, or you can even download them from the Investor Relations section of our website located at www.telecom.com.ar/investors.

Additionally, this conference call is being broadcasted through our webcast feature available in the Investor Relations section of the website and can also be replayed through this same channel.

Before we continue with the conference call, I would like to go over our typical Safe Harbor information and other details of the call, as we usually do in our quarterly conference calls. We would like to clarify that during the conference call and Q&A session, we may produce certain forward-looking statements about Telecom’s future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Telecom’s actual results and operations to differ materially.

Such uncertainties include, but are not limited to the effects of the public emergency law and complementary regulations, the effects of ongoing industry and economic regulation, possible changes in demand for Telecom products and services, and effects of marginal factors such as changes in general markets or economic conditions in legislation or in regulations.

Our press release dated May 7, 2014, a copy of which was included in the Form 6-K report furnished to the SEC, describes certain factors that may affect any forward-looking statements that we may produce during this session. Furthermore, we urge the audience of this conference call to read the disclaimer clause contained in Slide 1 of the presentation.

The agenda for today’s conference call as seen in Slide 2 is to go over the general market overview, followed by the discussion of the business highlights, an overview of our financial figures and finally, we will end the call with a Q&A session that we normally do with the financial community.

Having gone through these procedural matters, I’ll now go over a brief macro overview as an introduction of the general operating environment.

Please refer to Slide 3 where we included some snapshots on the Argentine macroeconomic environment. In the first quarter 2014, the Argentine macro context has become more challenging. After the strong devaluation of the currency occurred in last January, the economy showed a strong deceleration mainly due to slowdown in the levels of consumption, a less dynamic industrial sector, a weaker internal demand and higher taxing pressure and the effects of the tighter monetary policies.

However, an improved second quarter is expected due to positive effects of the coming harvest periods and a better local and international condition. Moreover the declining consumption is evidenced with strong declines in consumer confidence perceived during the first quarter of 2014.

During the first quarter 2014, new macro policies were implemented, such as new price control schemes, set to damper inflation, while in the fiscal front reductions in subsidies in transport and energy sectors are in the works. That should contribute to avoid winding of the fiscal gap after several years of expansive fiscal policy.

Moreover, the new CPI index reached 10% in the first quarter of the year. That in that context, the first collective bargaining agreements were settled with annual salary increases in the range of 29% to 32%.

On the monetary front, some orthodox measures were implemented and Central Bank reserves started to stabilize since April 2014 after 33% decrease year-on-year.

Having gone through this introduction of the macro context in which we operate, let me pass the call to Stefano de Angelis, who will go over the business highlights. Stefano?

Stefano de Angelis

Thank you, Pedro. Good morning to everyone. Please refer to Slide 5, where we have a summary of the main achievements for the quarter. Our business continued to post an important phase of revenue expansion of 23% driven by the growth in mobile internet, data and fixed broadband.

In this sense, in the fixed line business, it is also notable the increase of 29% in non-regulated revenues. Moreover, it is worth mentioning that the strong improvements in OIBDA before the capitalization of subscriber acquisition costs was achieved, with an increase of 22% that was mainly due to the revenue expansion mentioned before, plus the change to a positive margin in the mobile handset business.

In terms of clients, with the improvements in smartphone sell-out, the mobile 3G customer base in Argentina continue to increase reaching 9.2 million, that represents 46% of the total base, where it was 32% one year ago.

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