Telecom Argentina SA (TEO) 2002 Q4 法說會逐字稿

Good day and welcome everyone to the Telecom Argentina Conference Call. Today's call is being recorded. With us today are Mr. Pedro Insussarry, Mr. Pablo Caridei (ph) and Mr. Carlos Felices. At this time, I would like to turn the call over to Mr. Carlos Felices. Please go ahead sir.

Thank you. Good morning. I would like to thank everybody for participating in this conference call. I am Carlos Felices. Today with me are Valerio Cavallo, our Controller, Pablo Caridei, our Finance Director and Pedro Insussarry, responsible for Manager of Investor Relation Division.

Before we continue with the conference call, I would like to express that results reported year-to-date show that telecom is facing an unfavorable scenario mostly due to the effects of the Argentine crisis. But we have been making a lot of efforts despite all these difficult situations.

As you probably are aware, we have reported a loss of approximately 4.3b pesos. Mainly due to the devaluation of the Argentine Peso. Just to give you an idea of the amount of financial and [indiscernible] results included in our statement of income were 5.3b pesos.

But I think what is important to consider that we are seeing a positive trend in terms of revenues and in terms of EBITA, as you probably notice in the last quarter of the year. How we are doing that, we are making all the efforts to reduce our costs and capital expenditures. We have reorganized the management structure, in order to adapt the company to the new realities of the market. We have revised the entire cost structure and we have reduced the meaningful expression of our capital expenditures. This is why we were able to significantly expand our margins and our operating cash flows.

On terms of debt, we are in the process of restructuring the debt. We continue in conversations with our main financial creditors and we have recently announced the intention to launch a cash tender offer and perform partial interest payments.

Additionally, we have held informative meetings with bondholders to keep all creditors informed of the development of the process. Again we strongly believe that the steps taken by the company are ones we must follow to tackle the situation.

After this brief introduction, I would like to pass the call to Pablo Caridei and Pedro Insussarry, who will go into the specifics of the results that we have announced yesterday. Hello?

Thank you Carlos. As usual we would like to remind all of those that have not received our press release of our presentation, you can call [inaudible] or our office, or even download from our website. We remind you that this conference call will be replayed until March 18th. And additionally, this conference call will be accessible through the web cast feature available in the Investor Relations section of our website.

Moving on with the conference call, Pedro will now make a 10 minutes speech where we will go through the presentation that we have sent you when we explained the more significant variations of the financial and operational data for the fiscal year 2002 ended December 31st. Following this speech, we will be glad to answer any questions you may have. Let me pass the call to Pedro.

Thank you. As a disclaimer and before we continue, we would like to clarify that during the conference call and the 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 deregulations; possible changes in the demand for telecom producta and services and the effects of more general factors such as changes in general market or economic conditions, in legislation or in regulations.

Our press release dated March 10th, 2003, a copy of which will be included in our Form 6K 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 20 of the presentation.

Following we would like to briefly detail the issues that have affected the environment in which Telecom operates as seen in slide 1 of the presentation.

During the quarter the Argentine economy has shown a stable trend in its main indicators. Despite this trend, after significant modifications and monetary, foreign exchange and regulatory matters implemented by the current administration, no significant positive signs in the economy were evident.

The US dollar to peso foreign exchange rate remained close the level of 3.5 pesos. And the indicators of economic and industrial activity seem to have stabilized although they are still well below the pre-crisis level.

The financial system continues to be at a standstill [pending] of a significant restructuring with new uncertainties after the [re-dolarization] deposits declared by the Argentine Supreme Court. Furthermore, on the political front, there are great uncertainties as to who will be the next president in Argentina, as polls still indicate that there is no clear winner in the first round of elections called for April 2003.

In slide 2 of the presentation, we are making an overview of some of the issues relating to the corporate development. As of November 18th, Telecom has a new Chairman, the Board of Directors has appointed Mr. Amadeo Vazquez, Chairman of the Board. Mr. Vazquez has an extensive experience in the banking and corporate segment in Argentina. Additionally, Mr [Alberto Masan] has joined the Board as Vice Chairman.

As Carlos Felices mentioned before in regards to the debt restructuring profits, the main issues related to this point are that the company announced the intention to launch cash tender offers for a portion the Telecom Argentina and Telecom Personal financial debt. And it has announced its intention to perform partial interest payments. All transactions are subject to receiving national authorizations from regulators in and outside Argentina.

Finally, last September the company held informative meetings with bondholders in order to keep all creditors up-to-date on the restructuring process.

In slide 3; we are including some important developments regarding the regulatory environment. As we detail in the slide, the CPP rates were increased by 8% to 10% as the first [indiscernible] of such regulated charge was implemented. Regarding the competitive environment, the government has announced a deadline by mid-year for the implementation of the turnaround system.

Additionally, the government has authorized a transfer to customers of the impact of the tax on bank debit and credit. This represents an additional cost of customers of approximately 1%, but an improvement in margins of approximately 37m pesos per year.

Finally, the Secretariat of Communications has approved the implementation that discounts rates for Internet access of customers located in rural areas.

In slide 4, we are making an update of the negotiations with the governments in regards to the tariff situation. The talks with the federal government continue in order to resolve the issue of the tariff structure, but the definition of this situation is not close. Until now, any intention of the government to increase public service tariffs has been [brought in courts] by consumer protection entities or public defendants.

On the other hand, no significant process was achieved regarding the global negotiation of the tariff structure. Nevertheless, we continue working with the government in order to find a solution to this situation.

Going to slide 5 of the presentation. At fiscal year 2002, the company has applied certain accounting changes that according to regulation were scheduled to come into effect for the Telecom group as of January 1st, 2003. The company has decided to apply such changes in anticipation to the effective dates. These changes are on valuation and classification standards.

For fiscal year ended December 31st, 2002, the company has included a gain of 53m pesos related to the adjustment in the valuation of certain assets and liabilities. Additionally, the company has reclassified 28m pesos as temporary differences for [indiscernible] investments outside Argentina. Furthermore, the company has introduced changes in the classification of certain [indiscernible] that in the past were deducted from revenues and now are included in operating costs. Such as general taxes; sales commissions and settlement costs for international outgoing traffic.

In slide 9, we are describing the impact of these changes in the EBITDA margins. Finally, in the press release and in the presentation delivered to you, we have included information that breaks down the figures in current pesos from the inflation adjustment effect.

In slide 6, we summarize the main actions that the company has taken to reduce operating expenses and CAPEX, in view of the different context in which it operates. Reductions in labor costs were achieved through more flexible labor conditions. Decreases in commercial costs were reached through a comprehensive commercial channel redefinition; by eliminating subsidies and customer equipment; by reducing commissions paid to vendors and by lowering advertising and promotional expenses.

Moreover, reduced allowances for doubtful accounts were obtained, built not only on account of better collections, but also because of proactive actions taken by the company.

Other operating expenses were lowered, mainly through in-sourcing the functions, privatization of buildings and reduced maintenance expenses.

Finally, CAPEX was focused exclusively to maintain existing [networks] and by these means it was reduced to 175m pesos from 470m pesos invested in fiscal year 2001.

Passing on to slide 7. Here we can see the main variations of the financial figures for fiscal year 2002 ended December 31st, as compared to fiscal year 2001. The net loss of 4.3b pesos reported was mainly due to the foreign exchange losses arising from the devaluation of the Argentine peso.

We can see a slight increase in non-adjusted net revenues of approximately 1%, mainly generated by the increase in non-regulated revenues of the data transmission, telephony and the Internet activities. The reduction in almost all revenue lines related to the fixed-line business was a result of lower traffic, lower lines in service, lower penetration of supplementary services as a result of the [indiscernible] of the macroeconomic conditions of the country.

This reduction is even more evident when the inflationary adjustment is applied. In this sense, prices of fixed-line service has grown at the lower rate of inflation, mainly due to the pessification and freeze of tariff enforced by the government in January 2002.

Operating costs were reduced mainly due to the cost control plan implemented by the company. Here again, we can see that this reduction is even more evident through the application of the inflation adjustment.

We can point out that as a consequence of the cost reduction plan, Telecom was able to increase EBITDA by 25% to 1.6b current pesos and expanded its margin from 39% to 48%.

Furthermore, the increase in depreciation was a consequence of the effects of the adjustment by inflation of fixed assets, together with the incorporation of the foreign exchange differences related to the purchase of fixed assets.

In slide 8, we can see that revenues in current pesos over the fourth quarter of the present fiscal year increased by 11%. This is mainly due to the growth of the non-regulated business lines, together with the increase in long-distance prices as the company continues to adjust its pricing plans to accommodate them to the current market situation.

Meanwhile, on the cost side, actions taken by the company resulted in a reduction of 25% in operating expenses denominated in current pesos. Additionally, we can observe the expansion in nominal EBITDA and EBITDA margins is even more evidenced, reaching a 56% margin for the first quarter of the current FY.

In slide 9, we are showing the impact on the EBITDA margins of the changes in the accounting classification criteria. As seen in the slide, the nominal EBITDA figure does not change, but due to the reclassification of items previously deducted from revenues, are now included in costs and we can see that margins declined by approximately 300 basis points to 47% for fiscal year 2002 and 55% for the fourth quarter.

In slide 10, we are showing the evolution of the EBITDA in current and adjusted pesos for the fiscal year 2002. Here again, the company was able to expand EBITDA through a significant reduction in operating expenses. EBITDA increased by 25% or 312m pesos to reach 1.6b pesos. We can see that EBITDA in constant pesos has fallen by 31%, mainly due to the fact that the inflation adjustment from figures corresponding in fiscal year 2001.

When we describe the main variables as in different businesses of the Telecom Group. In slide 11; we can observe that the lines in service continue to decrease, when compared to the previous quarter and to the previous year. This is mainly due to lower demand of new lines and high disconnections as the company finalizes its clean up of its customer base. As we have mentioned before, the company has increased its connection and reconnection fees and has been very strict in terms of the disconnection process.

Despite this evolution, we can note that in the last three quarters, a certain stabilization trend is being evident. Furthermore, as of December 2002, the penetration of fixed, prepaid and [indiscernible] amounted to 542,500 lines, which represents 15% of total amount of lines in service.

In terms of Rates, the company has reduced discounts of rates applied to certain domestic and international long-distance rates and has reformed related certain pricing plans. Consequently, the average ILD and DLD prices have increased in the last two quarters by approximately 39% and 29% respectively.

In slide 12, we can see that the total traffic volume is approximately 6% lower as compared to the December 2001 quarter and remains at the same level when compared to September 2002 quarter. This reduction in traffic is mainly due to the lower number of lines in service.

Furthermore, the average earning per fixed-line customer continued to increase in current pesos by approximately 6% when compared to the previous quarter and 12% when compared to last year. This is mainly due to the increase in long-distance rates and to the effects of the clean up process of the customer base.

We can see in slide 13, the evolution of the cellular subscribers. Cellular customers of Telecom Personal Argentina increased by 3% year-over-year and by 2% compared to September 2002. These increased were achieved despite the difficult conditions prevailing the current cellular market. Additionally, the migration of customers from post-paid into prepaid modality continued at a steady pace. Prepaid customers represent 79% of the customer base of Telecom Personal.

In slide 14, we can see that prepaid and post-paid ARPUs expressed in current pesos continued with its upper trend experienced since March 2002 quarter. This was mainly due to higher usage of prepaid cards and to the gradual increase in non-regulated rates of Telecom Personal. These increases were applied to airtime rates, monthly fees and lower discounts from value added services.

Moving to slide 15. During the December 2002 quarter, the Internet business continued to register a slight decrease in dial-up customers. Although such decrease is much lower than that evidenced in previous quarters, after having ended the clean up process of the pre-access customers. Additionally, data sales, high speed access connections increased by approximately 2,000 during the quarter and reached approximately 30,000 connections by the end of December 2002.

In slide 16, we can see the reductions in labor costs and efficiency gains. The decrease in labor expenses evidenced since last year continued during December 2002 quarter. Headcount was reduced by 938 employees since December 2001 and 597 employees in September 2002.

Additionally, labor expenses decreased by approximately 15% in current pesos, as of the December 2001 quarter. This decrease can be largely attributed to the reduction of labor costs of the unionized and the non-unionized employees that were sparsely compensated by the compulsory increase in wages of unionized employees enforced by the government.

Regarding other operating costs as seen in slide 17. Allowances for doubtful accounts have increased consistently and decreased consistently in nominal values as a percentage of revenues since December 2001. The main reasons for this are the better connections but also due to proactive actions taken in order to reduce potential non-performing customers. Additionally, we must point out that the reduction of bad debt was despite the collection in [indiscernible] bonds that currently represent 18% of the connections.

Additionally, the stock of [provisional] bonds that generated a holding loss of approximately 72m pesos.

Moreover, commercial costs that include advertising, sales commissions and cost of handsets has decreased by 113m pesos on an annual comparison or 26m pesos as compared to the December 2001 quarter as a consequence of the cost reduction actions implemented by the company.

Finally, taxes increased by approximately 28m pesos year-over-year, or 14m pesos when compared to the December 2001 quarter, mainly due to the reclassification of the bank debit and credit taxes into this line.

You can see in slide 18, that the Telecom group has trimmed down its capital expenditures with minimum expression investing 179m pesos during fiscal year 2002. This CAPEX is mostly related to the maintenance of the network and to commissions undertaken during the previous fiscal year.

Following our previous comments today to the cost reductions, in slide 19 we can see that the effects of the efforts that Telecom has undertaken to reduce control over costs and capital expenditures. This is [indiscernible] defined as operating expenses plus capital expenditures minus charges for doubtful accounts has decreased by 458m pesos or 21% when compared to the fiscal year 2001.

In lines with the unit reductions, the operating cash flow defined as EBITDA minus CAPEX increased by 79% to 1.1b pesos.

Having said that, I would like to open it up for questions.

Thank you sir. If you would like to ask a question today, please press the star key followed by the digit one on your touchtone phone. If you are on a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star, one on your touchtone telephone if you would like to ask a question. We will pause for just a moment to give everyone an opportunity to signal for questions. We go first to Rizwan Ali with Bear Stearns.

Yes good morning. I have two questions. One is, there was a very large tax adjustment in the fourth quarter and I wanted to know exactly what that tax adjustment is?

And the second thing is, can you give us an idea as to what kind of CAPEX you are expecting for this year and also next year? Hello?

The tax charge that we took was basically we took a charge of the deferred tax that we had in our books. The charge that we took was approximately 500m pesos and that was taken in the fourth quarter.

The CAPEX that we are estimating for fiscal year 2003 is approximately 200m pesos.

Thank you.

We go next to James Harper with BCP Securities.

Good morning. Two questions that are related. The first is, when do you expect the cash tender offer to launch? And those who do not participate, what do you think they should be expecting in terms of a timeline for the restructuring of the $2.5b or $2.6b in debt? I mean should it be something in the summer, the late summer? What is reasonable to expect there?

Okay, this is Carlos Felices. Regarding the-

Hi Carlos.

Hi, how are you? Regarding the extended offer, what we are waiting for is obtaining all the necessary approvals from the authorities in Argentina and in the US and in Europe. What we are calculating that probably we will have everything ready early April, between the first and second week of April. And this is an estimation because we are not so sure when we will finish with the papers with the Italian authorities.

And the second question was regarding the debt and to the summer, that in our case is going to be the winter. We expect that we will finish with this agreement sometime in June/July, probably we will have an idea before but as you would understand there are going to be many details to be included in the agreement that probably will delay the final agreement for a while. But the idea is to close the agreement as soon as we can.

Okay. Thank you.

You are welcome.

We go next to Gustavo Nava(ph) with Banco France.

Yes, good morning. My question relates to the increase in tariffs. And when is the company expecting the tariff will be increased and which amount during sometime in the second semester?

Gustavo, can you repeat your question closer to the microphone of your speakerphone because we didn't understand it?

Yes. My question is related to the increase in tariffs. The increase in tariffs and what is the company expecting for the whole year for the [increase], perhaps sometime in the second semester? Or give us an idea of what we can expect related to that?

Well this is quite a difficult question to answer. We know that the government has been working in a degree to allow us to increase our tariff. As you are aware, the gas and electricity tariff increases have been allowed for the government, but immediately the justice has stopped them. We don't see how we are going to be different to this situation. I mean that I think that in the best scenario we will have a decree signed by the government authorizing us tariff increases probably soon. But what we are expecting is that we will have problems or we will repeat the same situation that electricity and gas have had.

And then we will have to see what happens with the new government. We are trying to understand what the different parties are thinking about. We have tried to be in contact with them. Do we prepare for the new government that will stay in place in the middle of May.

Thank you.

As you are aware there is a lot of uncertainty in terms of tariff, the company has been presenting all the analysis and all the requests that the government have done, but we cannot achieve any positive result now. Except to some things like we have mentioned like the CPP and some regulatory adjustments that have been relatively important for us.

Thank you very much.

You are welcome.

Once again, if you would like to ask a question, please press the star key, followed by the digit one. We go next to Omira Sheik(ph) with Aberdeen Investments.

Hi there, just a follow-up question on the debt restructuring. I didn't quite catch the answer that you were giving earlier. You were saying that you were expecting to close the cash tender offer sometime in the summer this year. And then what are your plans for further debt reduction? And in particular, what are you planning to use the cash balances for that are likely to build up going forward? I mean, I think just looking at the numbers that you mentioned, EBITDA for the fourth quarter 480, and you said CAPEX for full-year 2003 of 200m pesos. So I mean on the basis of those numbers and just looking at how the last several quarters have developed, you are clearly likely to be building up quite significant cash balances going forward. So if you can talk in more detail as to what you are planning to do with those?

And then the final question is if you can tell us, give us a further update on what the current shareholders' position is? And in terms of proposing some sort of equity, some sort of percentage of the equity to bondholders through the restructuring? Thank you.

Regarding the tender offer, probably I expressed myself incorrectly. The tender offer will succeed with in [percent of] all the recommendations. The idea that is going to be launched early April.

That means that we close at early May [indiscernible] first two weeks of May [depending on the offer]. Apart from that there is the partial payment of interest is going to be almost in the same timeframe.

I am not sure if I have the question you asked something about the uses of cash? Well, what we are doing is including this cash as part of our restructuring. But we need to close the restructuring to give you better information about what is going to happen with the cash. But the objective of the company is that we will have enough cash available in order to perform our activities without problems and in a normal way.

I think just to clarify what I was saying. I mean perhaps you could tell us what sort of quarterly cash you expect, EBITDA minus CAPEX? Just on a quarterly basis going forward? What I am asking is, going forward after this cash tender offer is completed, you will still be generating quite a lot of cash on a quarterly basis and I am just wondering in the future what are your plans for distributing that to the bondholders as well?

Well as you will understand we have certain limitations to respond when you request projections or information about the future cash generation. But I am sure that if you look over fourth quarter and third quarter statements, you will be able to identify what we are doing or what we are generating in terms of cash. I am sorry that I have this limitation to respond the question about projections.

Clearly, after the renegotiation of the [inaudible] liabilities that the company has.

Sorry, I didn't quite catch that.

Well the company, all the cash that we will generate in the next year are going to go to pay all the debts the company has right now.

Right. Okay. So after this cash tender offer that will be the final restructuring. Is that what you are saying? And then you will just pay off the bonds as they mature?

After we have restructured the debt, the company will obviously start to pay interest and will start to pay mandatory amortizations and the idea is to have a structure that allows the company to perform its operations with no challenge on this side. The idea is to get the cash that we have collected at the time of the closing, but obviously this will be included within the debt-restructuring proposal.

Yes, I would like to clarify probably something that has been misunderstood. The tender offer is not the restructuring itself. It is part of the restructuring. It is the first step that we are proposing in order to achieve a successful restructuring. But it is not, I don't know if I am clear myself in what I am saying, but-

It is not the final proposal.

It is not the final proposal.

Okay. And is it possible for you to just update us on how the discussions are going with the steering committee and then also just to answer the question, the previous question I was asking about the shareholders' position?

Well we have been permanently in contact with the steering committee. Obviously we are limited regarding the information we can provide because unfortunately we cannot, or we will need to provide this information according to our lawyer's recommendation to have a confidentiality agreement signed. But this is again a permanent discussion with the steering committee. What we are trying to achieve is a new structure of debt for the company that permits this company to operate in normal ways, in this new environment that we are living in Argentina. And unfortunately I cannot tell you too much about it, the restructuring, because I am limited by this confidentiality situation.

The situation with the control in the shareholders was the other question?

Yes. It's just really to give us as bondholders a little bit of a better understanding as to what the shareholders' position is with respect to the debt restructuring and what sort of haircut they are willing to take, given that we are being expected to take a haircut?

Well part of the question that I can answer, there is another part that when we talk about haircuts, we are limited again for the confidentiality agreement. The shareholders, I imagine that you refer to our control shareholders, have expressed that they will not put any fresh money into the company. They are working intensively with us in order to help us in the process. Some expenses that they charge to the company have been suspended and they are trying to make all their force to help the company in achieving a successful restructuring. But there is no new money expected to be contributed for the shareholders.

Are they willing to contemplate giving up some of the equity? Because it looks as if the company doesn't need that much cash anyway? I mean it's generating quite a lot of cash already. But I am just wondering if the bondholders are going to be able to get some of the equity as well? I mean clearly I understand that you can't comment in really much detail, but if you can just sort of give us some sort of indication as to how realistically the viewpoint is for the shareholders?

Well again, I am sorry we have some limitations regarding information. But it is an analysis that has been proposed by the steering committee. And the company will analyze the situation and resolve accordingly. But there is no more information that I can share with you.

Okay, thank you.

We go next to Pedro Gonzalez with Bear Stearns.

Good morning everyone. A brief question. Could you give us a sense of the effective tax rate that you would be expecting for this year and perhaps next year? That is my first question.

And secondly, also we notice in Paraguay there was a substantial subscriber decrease. What is your view on Paraguay going forward?

Pedro, the effected tax rate is in Argentina, the statutory tax rate is 35% of income. The company currently is applying the deferred tax methodology for the temporary differences in regards to the income tax. This is also, I would say, tested in terms of the recovery of any assets that has originated due to any tax credit in regards to future earnings. And that is, I would say, one of the main reasons why we have taken the charge in this last quarter.

And going forward well we look into these creations, the effected tax rate, the application of the deferred tax methodology and obviously this will be constantly checked with the future, or our projectives in terms of the recovery of such a tax credit. Okay? And what was your following question?

Yes. Just if you could give us some color about Paraguay? Where do you see the franchise standing and do you expect a substantial subscriber decrease moving forward or just a stabilization of the business?

Okay, the situation in Paraguay, obviously the economy in Paraguay isn't flourishing. I would say it is suffering due to, I would say, the crisis in the region. In terms of the subscriber base, I mean the subscriber base is steady with a light increase as compared to last year. We continue with approximately 40% market share. And that has been steady, I would say for the last three or four quarters. In terms of cash flow generation, the company is healthy and effectively we are trying to refinance the debts at the nuclear level. And on that side we don't see any significant issues or any significant developments.

Thank you.

Pedro, a clarification. Taking into account the tax rate that we have currently and the carry forward that we have according to tax regulations, we don't foresee to pay any taxes for the next five years.

Okay. Thank you.

We go next to Georgina Ferro with JP Morgan.

Hi, it's Georgina. Hi Pedro. A quick question, the Minister of Economy established a deadline of 120 days for the multi-carrier system. I was wondering when Telecom expects to have it implemented? And what kind of impact are you expecting on your long-distance revenues?

Georgina, obviously we will implement the system within the timeframe that was established by the regulator. And we don't see any material impact on the pricing scheme that the company has currently. Obviously we will have some minor adjustments, obviously because we will first have a first period where some of the operators will basically promote and advertise their rates through this new selection method. But taking into account the current average pricing that we have and the current situation of the market, we don't foresee any significant impact in terms of significant reduction in pricing. Nor any significant loss of market share.

Thank you.

You are welcome.

We return to Rizwan Ali with Bear Stearns.

Last question. If I heard it correctly, you have increased your domestic long-distance and international long-distance tariffs by 39%, 49%. Can you just tell us two things? One is, what is your market share for domestic long-distance and international long-distance? And the second thing is, I guess I was of the understanding that the government still classifies or regulates the long-distance tariffs. It appears that is not the case? Can you just confirm that?

Regarding your first question regarding market share. Market share is approximately between 70% and 80% depending on if we are talking about domestic long-distance and international long-distance. And regarding your second question. What was your second question?

Yes, I was under the impression that tariffs cannot increase, because they are still regulated. But that appears not to be the case, because you have already increased tariffs?

No, no, no, no. The long-distance tariffs continue to be regulated. Obviously the dial [indiscernible] system, we may have in that portion of the business declared under [effected] competition, but we still have a long way to go there.

But what we have done is and due to the competitive environment in the long-distance market, we have applied discounts to the tariff and that is why we have a price that is obviously lower to the tariff. What we have been doing since last year is to reduce discounts and obviously the pricing has gradually increased and obviously these projections and discounts have been in accordance to what the market is also experiencing. So again, answering specifically your question. Long-distance rates continue to be a regulated tariff and obviously the increase in the pricing is due to reduced discounts.

Are you saying your market share is between 70% and 80%?

In the northern area yes. In our home area.

Okay, but would you know what it is for the entire country?

Around 40%.

Okay. Thank you.

There are no further questions at this time. I would like to turn the call over to the speakers for any additional or closing comments.

Okay, I would like to thank everybody for the time that they shared with us and for the questions. And thank you very much again. Bye, bye.

That concludes today's conference call. Thank you for your participation. You may now disconnect.