Telecom Argentina SA (TEO) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to the Telecom Argentina fourth quarter 2006 earnings conference call. Today's call is being recorded.

Participating on today's call, we have Carlos Felices, Chief Executive Officer, Valerio Cavallo, Chief Financial Officer, Pablo Caride, Finance Director, and Pedro Insussarry, Investor Relations Manager. At this time, I'd like to turn the conference over to Mr. Felices. Please go ahead, sir.

Good morning. I would like to thank everybody for participating in this conference call. My name is Carlos Felices and I, as was said, I am the Chief Executive Officer. With me today we have Valerio Cavallo, our Chief Financial Officer, Pablo Caride, our Finance Director, and Pedro Insussarry, our Manager of investor relation division.

As an introduction to this conference call, I would like to go over some highlights of the quarter. As you were able to see in the press release issued yesterday, we continue to deliver growth in term of our operation and financial results. Our revenues continue to grow at a pace of 30%, which in pesos approximately ARS7.4 billion during the fiscal year 2006, mainly fueled by the expansion of our cellular and Internet business.

Our operating profit before depreciation and amortization show an increase of 15%, to ARS2.3 billion, and our operating profit increased by 81%, which in ARS912 million -- ARS912 [billion], sorry. Net income total, ARS244 million during fiscal year ended in December 2006. We must note that the inter-annual comparison is affected by a non-recurring gain of ARS1.4 billion reported in 2005 as a result of the debt restructuring process. Moreover, we continued to deliver healthy levels of cash flow that allowed us to finance our CapEx programs that support the growth of our business and continue adjusting our capital structure.

On the operational side, during the last 12 months, our customer base in the cellular business grew by 41%. Our fixed line in-service by 4% and our ADSL customers by 102%. Thus showing our competitive strength in the different markets that we serve.

Summarizing, we would like to point out that these results are in line with the main development that we have expected for the year 2006 in terms of rapid expansion of our cellular and Internet business and are also consistent with the efforts that the company is undertaking in order to offer its customers attractive solutions for their increasing and progressively sophisticated demand for telecommunication services.

After this introduction, I would like to pass the call to Valerio and Pedro, who will go into the specifics of the results that we have announced yesterday. Before question-and-answer session, I would like to close our presentation with some final remarks. Pedro?

Before we continue with the conference call, we would like to clarify that, during the conference call and Q&A sessions, 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 public emergency law and complementary regulation, the effects of ongoing industry and economy regulation, possible changes in demand for telecom products and services and the effects of more general factors such as changes in general market or economic conditions and legislation and regulation.

Our press release dated March 8, 2007, a copy of which will be included in a Form 6-K report furnished to the SEC, describes certain factors that may affect any forward-looking statements that we may produce during the session. Furthermore, we urge the audience of this conference call to read the disclaimer clause contained in slide one of the presentation. As usual, we'd like to remind you that for all those that have not received our press release nor our presentation, you can call our office or download them from the investor relations section of our website at www.telecom.com.ar.

Additionally, this conference call is being broadcasted through the webcast feature available in such section and can be also replayed through this same feature.

Having done these clarifications, let me pass the call to Valerio.

Thank you. Moving on with the conference call. The agenda for today's call, as is seen in slide two, is a source to go over through the evolution of the Telecom Group and general overview of the context in which we operate. Then, we will go through a brief description of the performance of our fixed line business, including the Internet and data transmission business. And finally, we will describe the evolution of our cellular business.

Going to slide three of the presentation, we are summarizing the most relevant issues of the market and the regulatory environment. Regarding the macroeconomic context, the Argentine economy maintained the expansionary trend seen in recent years, while inflation continues to be the main concern as the 12-months CPI was up approximately 10%. The cellular market continues to grow, reaching a nominal penetration of over 76% of the population. This growth has resulted in incremental revenue, but also with the higher commercial expenses associated to it.

In a highly competitive and dynamic market environment, Personal implemented actions to strengthening its brand positioning, focusing on its quality of service and increase the market [capillarity] through expanding its distribution channels throughout the country. As a consequence of the marketing strategies of the company, the fixed line business continue to growth in a moderate pace with ADSL as the main driver. Competition is mainly focusing on long distance, corporate and the government accounts as well as broadband services.

Going to slide four, we can see the evolution of the consolidated income statement. During 2006, revenues grew by 30% when compared to the previous year. They were mainly driven by the expansion of the mobile business and, in a lesser extent, to the growth of the Internet and fixed line operations. Operating costs increased by ARS1.417 billion or 38% when compared to fiscal year 2005. This was mainly due to higher commercial expenses including those associated to cellular subscriber acquisition and the related costs, network access, taxes and commissions on prepaid cards sales.

Moreover, the company is incurring higher labor costs due to wage increases granted during the year, but also the consequence of a higher headcount related to growth in the mobile business as it has reinforced its commercial and customer support areas. Meanwhile, operating profit before depreciation and amortization amounted to ARS2.3 billion, 15 higher than 2005 equivalent to 31% of the net revenues. Below the operating profit, net income which amounted to ARS244 million were mainly influenced by Internet and the foreign exchange fluctuations.

Finally, our net financial debt decreased by approximately ARS1.039 billion or 23% since December 2005, mainly due to the strong cash generation of the group. It's important to note that during 2006 Telecom Argentina [performed] repayments by the equivalent of approximately $320 million, reducing short to medium term cash needs.

As an example of this, the next mandatory principal payment is due in October [2009] and it's equivalent to 25% of the installment originally scheduled for Saturday. We can see that our financial ratios continue to improve and are comfortable with the industry standard, with a net debt to EBITDA ratio of 1.5 times as of December 2006.

Going to slide five, we are showing the evolution of the consolidated revenues broken down by business segment. As a consequence of the rapid growth experienced in the cellular business, the participation of mobile revenues has consistently increased in the recent years, reaching during 2006 a participation of 58% of total revenues. Additionally, data transmission and Internet services showed an increase of 21%, reaching a participation of 8% of total revenues.

Going to slide six, we can see our CapEx broken down by company. CapEx for 2006 amounted to ARS593 million, ARS557 million and ARS76 million for Telecom Argentina, Telecom Personal and Nucleo respectively. Total CapEx amounted to ARS1.226 billion, equivalent to approximately $395 million or 16% of revenues.

In the fixed line business, CapEx is mainly oriented towards increasing the coverage the speed of our ADSL accesses, the upgrade of information systems such as implementation of the ERP, SAP system and the maintenance of the network. In addition, resources are being dedicated to the upgrade of our fixed line networks to the latest technology available, such as the development of a next generation network using IP technology that will permit us to enhance our portfolio services, reduce maintenance costs and gain CapEx efficiency.

The company continues to invest in the cellular business towards increasing coverage and capacity of GSM network, the introduction of new services and the enhancement of IT to support the business at the main areas of focus. We continuing expanding our GSM network in the south, consistently with our commercial objective of gaining market share in this region and increasing coverage in [Amba] in the southern region of the country as well as developing the network in order to offer the most innovative services.

Having gone through the evolution of our profitability figures, I will pass the call back to Pedro, who will continue with the description of the fixed line and cellular business.

Thank you. Going to slide eight, we can see the main items of the income statement of Telecom Argentina on an unconsolidated basis. During fiscal year 2006, revenues grew by ARS291 million or 9% as compared to 2005, totaling approximately ARS3.4 billion. The most dynamic segments were the Internet and the interconnection generated by incremental traffic coming from the cellular industry.

Regarding costs, OpEx rose by ARS303 million or 20%, mainly due to the higher labor costs and general price increases affecting the overall cost structure. Meanwhile, operating profit before depreciation and amortization amounted to ARS1.6 billion, stable when compared to the previous year. Furthermore, the nominal amount of the operating profit and its respective margins increased due to the reduction in amortization charges.

Finally, net income amounted to ARS244 million, influenced by a loss in net financial results of ARS376 million as compared to a loss of ARS97 million in fiscal year 2005. Again, the inter-annual comparison of our net income is affected by a nonrecurring gain of ARS1.4 billion reported in 2005 as a result of the closing of the debt restructuring process.

In slide nine, we can note that the fixed lines of service continue to increase at the rate of approximately 4% year-over-year. This growth is a consequence of the intensive commercial activity performed by Telecom Argentina in the retail market. The average domestic long distance and international long distance rates have slightly decreased during the last year. The company defends its market position by applying a new price -- by applying new pricing plans and semi [flat] products. Moreover, local rates continue to be affected by the tariff freeze imposed by the Argentine government.

Total voice traffic volume remained basically stable when compared to last year. Despite the higher numbers of lines in service, we are beginning to see that the voice traffic is being marginally affected by new technologies, particularly the cellular service. This substitution effect is impacting more in services such as public telephony. In the fourth quarter of 2006, the average revenue per fixed line customer, including only voice-related services, decreased by 3% to ARS39 per month when compared to fourth quarter of 2005.

In slide 10, we can see the evolution of our Internet business. Total ADSL customers reached 457,000, more than double than those registered in December 2005. Lines of service with ADSL connections reached a penetration of over 11% of total lines in service. This expansion is a consequence of Telecom strategy of launching quality products at accessible prices. Another innovation was the new portfolio of products that permits small and medium size business to access services that, up to now, were only available for large companies. In the ISP business, we have registered an increase of 68% in terms of customers, basically due to the broadband expansion, partially offset by the reduction of dial-up connections.

Going to the description of the cellular basis in Argentina in slide 12, we can see how the unconsolidated income statement for Telecom Personal, excluding the operations of Nucleo in Paraguay evolved in the period. Total revenues grew by ARS1.4 billion or 54% when compared to 2005, reaching close to ARS4 billion. Service revenues totaled approximately ARS3.5 billion with an increase of 52%. This was mainly driven by approximately 2.3 million net additions by higher levels of traffic and incremental use of value-added services.

With regard to operating costs, these have increased by ARS1.2 billion or 50%. Higher expenses are related to the expansion of the business, mainly direct taxes on sales, interconnection and commissions on prepaid cards as well as to the efforts undertaken to capture the opportunities of the impressive growth evidenced in this market. Meanwhile, operating profit before depreciation and amortization amounted ARS532 million, 82% higher when compared to that registered one year ago. Despite this important operating profit before depreciation and amortization growth, these operations are also being affected by the results of the commercial efforts that Telecom Personal undertook in recent quarters in order to significantly increase its subscriber base and that we will explain in the following slide.

We can see in slide 13, the evolution of the cellular subscriber base in Argentina. During 2006, the cellular remained -- maintained a spectacular growth rate while existing subscribers have naturally migrated to GSM technology. As of December 2006, customers of Telecom Personal increased by 37% year-over-year and by 10% when compared to September 2006. It is important to mention that the company continues its focus on gaining high value customers. As of December 2006, postpaid subscribers, including mixed plans denominated in Cuentas Claras accounted for 34% of the customer base, similar to that registered one year ago. Personal is in the final stage of the migration of the TDMA subscribers to GSM, which represented 88% of subscriber base by the end of December 2006.

Telecom Personal continues to work towards the consolidation of its market position in the northern and Buenos Aires region and to gain market share in the southern region. Moreover, considering the high penetration of the cellular service, we expect that during the fiscal year incurred, a change in the profile of the market will start to occur where new subscribers will come, predominantly from the prepaid segment.

Going to slide 14, we can see that the significant subscriber growth mentioned before was achieved with a 10% increase in ARPU when comparing fourth quarter 2006 with the fourth quarter of 2005. This was a result of the strategy of Telecom Personal of focusing on high value customers such as postpaid and hybrid plans and in the promotion of the use of value-added services. It is important to mention that, according to our estimations, Telecom Personal was able to grow in terms of revenues above the average of the market, thanks to its market positioning and ARPU performance that has resulted in an increase of our revenue share, especially in the northern region. Finally, as an example in the incremental participation of value-added services, outgoing SMS traffic increased by 111% when compared with the fourth quarter 2005.

Going to slide 15, we can see the evolution of the gross additions, churn and subscriber acquisition cost. The effort made by the company in order to capture more customers was partially offset by a higher level of churn that reached, in fourth quarter 2006, to 3.1% per month, mainly due to the strict disconnection policies applied by Telecom Personal. The growth in gross adds resulted in incremental subscriber acquisition costs and related costs, where an increase of the percentage of service revenues was evidenced in the last quarter, but decreased to 29% when compared to the previous year.

Finally, we see in slide 16 that our subsidiary Nucleo, which operates in Paraguay showed an increase in revenues denominated in pesos of 60%, while maintaining a healthy level of operating profit before depreciation and amortization margin of 39%. Moreover, Nucleo has expanded its customer base by 79% while its ARPU, denominated in U.S. dollars, has kept stable at approximately $10 during the last year. Nucleo operations have delivered healthy levels of cash flow that permitted a substantial deleveraging in the recent quarters.

And having concluded with the presentation, let me pass the call back to Carlos Felices for final remarks.

Thank you, Pedro. At the conclusion of what we have been discussing during this conference call, you can see that our operations continue to go very positively with sustained growth in terms of populations, revenues and cash flow generation. It is very important to consider that the company continues to dedicate resources to the development of the business, taking advantage of the growth opportunities of the market in which we operate.

The main areas of focus are investment in networks and in the acquisition of subscribers, enhancement of the portfolio of products, development of commercial channels and improvement of customer support expansions. Regarding our expectations to the year 2007, we expect that our business will continue to grow mainly in the cellular and Internet segments. Cellular margins will continue improving as seen in the last quarters as we expect penetration to reach maturity for Argentina, estimated approximately 85%.

And consequently, the FAC should decrease as a percentage of revenues. We expect that consolidated profitability margins gradually improve with an increase in the nominal amount of OIBITDA. In terms of CapEx, we will continue investing in the latest available technologies such as the recently announced investment in our information highway in the fixed line business and the introduction of the most innovative services in the cellular business. According to our market demand expectations, we can expect that consolidated CapEx will remain approximately at levels of 50% of our revenues.

Having concluded the presentation, we are more than pleased to answer any questions you may have. Thank you very much.

Operator, can we pass to the Q&A session, please?

[OPERATOR INSTRUCTIONS] We'll go first to Miguel Garcia with Bear, Stearns.

Thank you. My first question is to explain the declining margin, consolidated margin. It seems that one of the reasons was the increasing roaming and termination on third party network growing 78% from last year and 52% from the previous quarter. And now it's over ARS200 million. And I wanted to know if there was any extraordinary reason for this or we should assume, going forward, this is a more normal level.

The other question is relating to the CapEx. I wanted to know if you expect to spend much more in CapEx this year and what's the timeline to complete coverage in the south of Argentina with the Personal network. And lastly, I would like to know if the EBITDA margin this year could be over 33% or if increase in the importance of the lower margin businesses is going to maintain the EBITDA margin -- consolidated EBITDA margin below this level.

Give us a couple minutes -- or say, a minute, to gather all the answers together so we can give a comprehensive response, Miguel.

Thanks.

Okay, Miguel. The first question regarding the termination charges of third party networks and roaming, there's no change in -- there's nothing abnormal or extraordinary there. Basically, it's related to the growth in traffic and, basically, the growth in the cellular business in general.

In terms of CapEx, as we mentioned in the speech, we expect that that should represent approximately 15%. And what we have indicated that it should be approximately, slightly over $400 million for this year. Specifically, as you asked on the southern network deployment, we concluded with the first phase and that means, basically, covering the main cities of the south with GSM technology and to having, basically, a very good footprint. The first phase was concluded in December and basically we started the second phase of that, basically adding capacity to that footprint in the southern region. And that will take, basically, will double, basically evolve, taking in account the number of subscribers that we have in this region and the evolution of traffic.

Again, CapEx expectation for 2007 should be approximately 15% of revenues. And finally, the EBITDA margin, again, as we've mentioned in the conference call, in the speech, basically, we expect that this -- we should have a gradual increase in the margins to what we reported yesterday.

Okay. But regarding the expansion in the southern part of the country, do you expect the coverage to continue increasing this year and also 2008 or do you finish most of the work in 2007?

Basically, the coverage has been concluded last year and, basically, the main investments will be to add capacity. There's always certain regions that you have to add coverage because you may have some black holes in the network or you have to improve the coverage that you have. But basically, the big task of covering the southern region with GSM is -- has concluded last year and, basically, we have to add capacity and, again, moderate incremental coverage going forward.

Okay. So, you don't plan the replicate the type of coverage you have in the north of the country. It's going to be -- in the south, it's going to be only covering the main cities.

The distribution of population in the south is totally different than what you have in the north. Basically, you have a high concentration in the province of Buenos Aires and Mendoza and certain pouches -- and certain pouches in the rest of the region. Remember that, in the south, you have, basically Patagonia, where basically the aim was to cover the main highways in order to have coverage and basically not paying roaming to [Moyita].

Excellent. Thanks a lot.

You're welcome.

Thank you. We'll move next to Marc Estigarribia with Citigroup.

Good morning. A question regarding your ARPU strategy focus for this year, especially on a postpaid base, I see that the retention on around 33% of the base and the postpaid came at a slight cost, but I was wondering if you can give us a little more color on the ARPU for the postpaid in the fourth quarter of '06 versus last year and where we should expect it by year end. Hello?

Yes, here we are, Marc. Post-paid, considering only -- considering only the post -- pure postpaid customers, it's approximately ARS100. To that, we have also the hybrid accounts that are approximately -- average for the year were approximately ARS60. And we -- our expectations, especially on the pure postpaid, is that this -- we will be able to maintain the ARPU during 2007, basically due to the fact that the incremental use of value-added services will help us to sustain ARPU going forward.

And just on that last point regarding the -- sustaining that level with the ARPU with the new services, can you just expand on that a little bit more? I know that, as you mentioned with the Blackberry in the fourth quarter was the value-added services implementing the agriculture and livestock industry, can you give us a little bit more color as maybe guidance for a percentage of revenue from the data portion that can keep that ARPU up going forward?

Okay. Specifically, on postpaid, we wouldn't like to disclose how much it's related to data, but in general we -- our estimation is that value-added services represents approximately something between 20% to 25% of the ARPU. I would say more closer than 25%. And this, as we've mentioned before, is bound to continue to increase going forward.

Okay. Thank you.

You're welcome.

We'll move next to [Dennis Harrison] with [Santander].

Good morning, gentlemen. I'm wondering, can you give us an update on any developments of competition from the cable companies? Thanks.

The competition from the cable companies, what we are seeing is that they are in a process of investing. They have announced investment of around $600 million for the next 10 years. Mainly, they are focused in ADSL. We don't see any serious impact in voice or in other services. I would say that before we see a more serious competition, they will need to improve substantially the network -- the actual network. Because to give a comparable service of the one we offer, they will have to make important investments.

Thank you. And a follow-up question, if I might. Do you plan any debt operations this year -- 2007? Thanks.

No, we don't have plans for refinance our debt. It is something that we continually follow, but I think we have a very good rate of interest, which is around 7.5% and with comfortable maturities. Means that to make a refinancing, we'll have to -- we will need to be sure that the refinance of the -- our debt -- we will neutralize the cost and we will have a benefit. But I don't think we will do any movement in the year 2007. Probably, if we do something, we will do it at the beginning of 2008.

Thank you very much.

We'll move now to [Dennis Senso] with Lehman Brothers.

Hi. Good morning. Continuing about that, you were talking about refinancing, but in terms of pay down of debt, do you have any plans to pay down debt? And if that is the case, when do you plan to do it? Do you plan to do it like you did in '06, that it was a April, October format? Thank you.

Regarding the payments of debt, we have two mandatory dates, which are April and October. For the time being, we are [planning] in paying the mandatory obligations that we have in April. But, in general, our projections indicate that -- and we have to confirm that -- that we will be able to pay, at one point in time, some extra amounts. We have to remember that we are being paid practically all our obligations through the year 2010.

Thank you.

[Can it] -- do we have another question there in line, in the queue?

Yes, we do. We'll move now to Ken Leon with S&P.

Thank you. I had two questions. The first is for financial reporting, you continued to report a low income tax and can you tell us, for 2007, what the tax rate may be? And second, as you look at your business for cellular, do you have a target in terms of raising the percentage of postpaid customers in 2007?

Kenneth, regarding the income tax charge, remember that we applied the deferred tax method here in Argentina and that the statutory rate is 35% and that we don't expect that that will change in the near future. And another clarification that, basically, in terms of cash payments, there is -- we don't expect any cash payments on income tax. Basically because that company has carry-forward losses. Okay? And your second question was related to ...

Related to do you have a target for the percentage of postpaid customers in 2007?

Yes, as we mentioned in the speech, the -- we expect that the composition of the growth will start to change during this year, where the participation of prepaid customers will increase. That will have, I would say, a marginal impact on the overall customer base. So, in other words, we don't expect that the mix will continue to grow in favor of the postpaid customers. Basically, we expect that this will start to change and that we will go in, possibly in two years, in the participation of 30% postpaid and 70% prepaid.

Okay. And just a follow-up, with that strategy, do you see selling expenses being more manageable as you target prepaid or just as competitive as if you were targeting postpaid?

We'll move now to [Jamie Baldivie] with ESG.

Hold on, Kenneth. We still have to answer the last part of the question. Hold on, please. Three -- two distinctive issues there, Kenneth. First of all, it's true that capturing a prepaid customer is cheaper than a postpaid customer. But also, you have to take into account that we expect that, going forward, the growth in the cellular business will start to be -- or will have a slower growth in terms of the overall market. And basically, our efforts, in terms of capturing new customers and the results in our acquisition costs will be lower as a percentage of revenues. And also, because the customers that we've captured during 2006 will start to generate revenues, basically the payback revenues.

In general terms, obviously, the cost is lower and, obviously, this will have, obviously, a positive impact on the return -- on the return of the -- of this investment of cash in a customer. But also, you also have to take into account that churn, basically, because the product, basically, is prepaid. The churn is higher in this product. Okay? Okay? Kenneth, can we move to the next question, please?

Yes, sir. Mr. Baldivie, your line is open.

Thank you. I'd like to talk a little -- ask you a little bit about the cost structure that you are showing us for 2005 and 2006. Especially labor costs, which, as you can see, there's a large increase and they have some wage increases already seen in 2007. Can you elaborate a little bit more as to how or what kind of labor cost increases you are likely to see in 2007 and what you're expecting to see in that regard?

Number two, can you also tell us a little about the commercial expenses that went up significantly and give us a little bit of a breakdown there and whether you're including part of CapEx or not? And third, can you also explain or give us some idea of how cash flow is going to evolve, 2006 over 2007? Thank you.

Okay. Regarding to labor increases that we are expecting, the expected is that we will be negotiating a couple of points above the inflation on the year. What happened in the last -- in the year 2005, 2006 was that there was an important recuperation of the level of salaries and expected of the year is that the recuperation is not going to be so aggressive as it was in the past. That's why we are planning on increase above the inflation, but not as substantial as it was in 2006, 2005.

Regarding the commercial expenses, in our press release, we have some additional information that you can see. But basically, they are impacted by the expenses in advertising and the expenses to capture new customers at subsidy and other commissions and expenses like that. In terms of cash flow, our cash flow had been -- our cash flow generation have been a point of concern for us, as always, and expected is that we will maintain the actual level of cash [indication] in a combination of higher generation coming from the -- coming from the business, partially offset or offset the growth by higher investments. It means that our projections indicate that we will be in line with the year 2006.

Okay. So, the net cash flow generation in '07 is zero, right?

The net ...

For the cash flow generation that you generate in addition -- in 2007 is zero.

After paying debt, you mean?

After paying interest.

Oh, I misunderstood the question. Our cash generation ...

Not the level, but how much you're going to -- in addition generate.

We'll be in line with the 2006.

The level of cash will be the same as '06, right?

Yes.

Of cash flow generation.

Cash flow generation.

The amount of cash that we are expecting to generate during 2007 will be similar to what we ...

Okay. Got it. Got it. Got it. How much was it in '06?

ARS1.5 billion.

ARS1.3 billion.

ARS1.5 billion.

ARS1.5 billion.

Okay. Sorry. Now, let me ask you in addition, just a clarification. In 2006, your wages -- or how much did your wages increase? Not your labor costs, your wages.

Approximately 20%, 22%.

Okay. Now, what we have seen so far this year is labor contracts negotiated in the 20% to 25% increases and I take that if you say that you're budgeting for a little bit above inflation, manipulated or not, call it 12%. Isn't there a big gap between what is being negotiated and what you guys are expecting for 2007?

Well, I would say that there were -- there are different levels that have been negotiated. And the increase depends sector by sector. You have to analyze it sector by sector because there are sectors that have been able to increase salaries in 2005, 2006 and other sectors that have not had the same levels of increase. It means that our expected is based on what we have seen in the last weeks, where the government alleviate some income tax on salaries and initial conversations that we have with the unions. That's why our expected will range in a minimum of inflation and with a maximum of two, three, four or five points. It's difficult to be precise at the moment because we didn't start the conversations. But we don't expect to go back to the levels of 2006.

Okay. And when does these -- when do these negotiations take place?

At the end of March.

Okay. Thank you.

And we think important to the environment that we are going to negotiate. What we have seen is the inflation going down is that probably we will generate a more free work environment.

Right. If you believe that, right?

Well ...

If you believe the inflation.

I don't say that. You said that.

Yes, I said that. Yes. I was trying to make a joke, but that's okay. You know what I mean. Thank you.

You're welcome. Thank you.

Now, to [Renesh Juar] with JPMorgan.

Thank you, gentlemen.

***

You know what I mean. Thank you.

You're welcome. Thank you.

Now to Renesh Juar with JPMorgan.

Thank you, gentlemen. I have three questions. My first question is your unit stack went up quite a bit this quarter. Can you shed some color on agents and prepaid commissions and what grew up the handset subsidies as well? My second question is other revenues in Telecom Personal went up quite a bit in the fourth quarter, much more than they did, let's say, in last year's fourth quarter. They nearly doubled this time around. What makes up these other revenues and why did they go up so much this time around. And my third question is if you can give us a net adds figure for 2007. Thank you.

Okay, Renesh. Your first question related to the breakdown of prepaid stacks. Unfortunately, we don't provide that disclosure. But basically, what we can indicate is that we haven't seen any substantial increase in the average subscriber acquisition cost for the year. Basically, currently, it runs at approximately ARS160 per sub for the average of postpaid hybrid plans and prepaid.

Regarding the net adds for 2007, we expect that we should end the year with approximately something close to 10.5 million subscribers in Argentina. That will basically indicate something close to two million net additions. And I would kindly ask if you could repeat your second question, please.

Yes, there's a line item in Telecom Personal's disclosure -- other revenues. And they went up quite a bit this quarter -- almost double from a level of 71 million to 136 million. Can you tell us what comprises these revenues and what drove the increase?

Give us a minute, Renesh. We're going through the number. Okay? Hold on.

Sure.

Renesh, basically, other revenues was somewhat stable, year over year, for Telecom Personal. I don't see where you see an increase. Can you basically clarify what you're looking for or what you're looking at?

They increased quite a bit from the level of third quarter, but I guess year on year, the increase was not as big.

Well, basically, if you're asking for some type of clarification, what we have in others is basically roaming. We'll say the majority is -- predominantly, it's roaming both national and international.

Okay. And can you just clarify again on agent commissions. You did disclose the figure and it went up quite a bit this quarter.

No, what we clarified was on the level of what was the average subscribers acquisition costs. That -- we didn't provide any breakdown on how much was commission.

Okay. Thank you.

But basically, if you look at slide 12 of the presentation, you will have a breakdown of what is -- on total amounts, what is subsidies, commissions and advertising. Okay?

Yes. Thanks.

You're welcome.

[Operator Instructions] We'll go to Carlos Gomez with Credit Suisse.

Good afternoon. I have two questions. One is you mentioned that salary increases were partly to blame of your EBITDA margin declining in the fixed line business. Is there anything else we're missing here? And my second question is do you have an estimate of your debt repayments that you're going to make this year?

Regarding salary increases, what Carlos Felices was referring to was basically the collective bargaining agreement. But also, that will have an impact on the general salary structure that the group has in general. So, the levels of salary increases are, basically, both applied to the fixed line and to the cellular business. Maybe what you're missing is that we're also taking into account that we've increased our headcount in the cellular business, basically, to support the growth that we've seen in this business. And we've seen a marginal decrease in the headcount in the fixed line. Okay?

And regarding the question on debt repayment and going back to what we've answered in terms of cash flow and taking into account that we expect that cash flow will be similar to what we generated in 2006, we expect that debt payments will be approximately the same level than what we repaid in 2006 or approximately $300 million.

Okay. Thank you.

You're welcome.

And it seems there are no further questions at this time.

One clarification -- when I mentioned $300 million, it's $300 million. Okay?

Okay. Once again, thank you very much for participating in our conference call and please feel free to call our investor relation department for any additional question you have. Thank you very much and good morning for everybody.

That does conclude our conference for today. Thank you all for your participation and have a great day.