Telecom Argentina SA (TEO) 2007 Q2 法說會逐字稿

Good day everyone and welcome to the Telecom Argentina Second Quarter 2007 Earnings Conference Call. Today's call is being recorded.

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

Okay, thank you very much. Good morning, I would like to thank everybody for participating in this conference call.

As an introduction, I would like to go over some highlights of this second quarter. As you were able to see in our press release that we issued yesterday, Telecom continues to expand its operations and in terms of customers, revenues and profitable margins. During the six months period ended in June 30, 2007 consolidated revenues grew by 26%, when compared to the same period of last year. Mainly fuelled by the expansion of our cellular service, despite operating in a very competitive environment in which we continued to increase our share and particularly our revenue share.

In addition, our ADSL connections doubled, when we compare June 2007 with June 2006, thus confirming the preference of our fixed line customers for the company ADSL portfolio of assets.

Operating profit before depreciation and amortization totaled ARS1.4 billion, with an increase of 26%, while net income totaled ARS387 million during the first semester of 2007. During the last quarter, we continued to follow our objective of serving our customers with the most advanced technological solutions for their demand, for telecommunication services. In particular, our mobile company Personal launched their 3G services in May, initially in Buenos Aires metropolitan area. That shortly will be expanded to other important cities in Argentina.

These results are in line with our main objective in terms of expanding our cellular business, increasing our share in that market, consolidating our presence in the southern region of the country and strengthening our technological leadership.

With regard to the Internet business, we continue to upgrade our fixed-line customers to ADSL products, improving our broadband portfolio with excellent results in terms of new subscribers and market share evolution.

After this introduction, I would like to pass the call to Valerio Cavallo and Pedro Insussarry, who will go into the specifics of the results that we had announced yesterday. Before the Q&A questions, I will close our presentation with some final remarks. Thank you very much, Pedro, please go ahead.

Thank you. Before we continue with the conference call, we'd 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 public emergency law and complementary regulation, the effects of ongoing industry and economic 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 in legislation or in regulation. Our press release dated August 9, 2007, a copy of which will included in our 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 a disclaimer clause contained in slide 1 on the presentation distributed today.

As usual, we would like to remind you that, for all those who 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 IR section and can also be replayed through this same feature.

And having done these clarifications, let me pass the call to Valerio Cavallo.

Thank you. So this agenda as seen in slide 2 is to review the operation of the Telecom Group and the general context in which we operate. Then we will go through a description of the performance of our fixed-line operation, including the internet and data transmission business. And, finally, we will go over the highlights of our cellular business.

Going to slide 3 of the presentation, we are summarizing the most relevant issues of the market and the regulatory environment. The Argentine economy maintains it's strong GDP expansion, while in terms of economic policy, inflation is clearly the main concern.

The cellular market continues to grow, reaching a nominal penetration of over 85% of operation. Personal is working consistently with the objective of strengthening, it's a brand positioning, enhancing the quality of its service, as well as increasing market capillarity throughout to the country.

Furthermore, Telecom Personal continues to develop its CapEx plan, aimed at the strengthening our network facilities such as launch and expansion with 3G services. The fixed-line business continued to grow in a moderate pace with ADSL as the main driver. Competition is mainly focused in long distance, corporate and government accounts, as well as broadband services.

Moving to slide 4, the consolidated income statement shows that the Telecom Group has been able to offset the effects of the enhanced commercial activities and inflationary pressures in the overall cost structure, achieving a strong expansion over ARS295 million in its operating profit before depreciation and amortization, with a slight increase in its margin to 34% of net revenues.

Another important highlight over the quarter was the sale of Publicom, the company engaged in the directories business by an amount approximately [$16 million]. Telecom reported an extraordinary gain of approximately ARS102 million are related to this transaction. Additionally, net income for the semester reached ARS387 million, which compares to ARS99 million registered in the same period of 2006, showing a positive trend even after considering the above mentioned extraordinary gain related to the Publicom transaction.

Finally, our net financial debt decreased by approximately ARS1.2 billion or 31% since the June 2006, mainly due to the strong cash generation of the Group. It's important to know that during April and May, Telecom Argentina has performed prepayments by equivalent of approximately $140 million, thus improving our short to medium liquidity.

Meanwhile Personal has also consolidated its debt maturities in the face of a comfortable profile of debt maturities. We can see that our financial ratios continue to improve and are comfortably within industry standards, with a net-debt to EBITDA ratio of one time as of June 2007.

Going to slide 5, we are showing the evolution of the consolidated revenues broken down by business segments. In terms of revenue growth, Telecom confirms the very positive trend seen in recent years. The Telecom group is rapidly transitioning into a company operating with a higher participation of competitive and deregulated services. The participation of mobile revenues accounted for 62% of consolidated revenues than of the first semester and 56% of consolidated operating profit before depreciation and the amortization.

Going to slide 6, we can see our CapEx broken down by company. CapEx for the initial two quarters of 2007 amounted to ARS300 million, ARS219 million and ARS34 million for Telecom Argentina, Telecom Personal and Nucleo, respectively. Total CapEx represented approximately 13% of the revenues, with a 19% growth compared to that registered in the same period of last year. In the fixed-line business, CapEx is mainly oriented towards increasing the coverage and the speed of our ADSL access and the maintenance of the network.

In addition, resources are being dedicated to the next generation network using internet protocol technology that will permit us to enhance our portfolio services, gain CapEx and OpEx efficiency, in advance towards the convergence of services and platforms.

Regarding the cellular business in Argentina, we continue expanding our network in the south, in order to deal with increased volume of traffic generated by the new customers, increasing capacity in Buenos Aires Metropolitan area and the Northern regions of the country. As well as upgrading the network and information technology to support the infrastructure to offer the most innovative value-added services.

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

Okay, thank you. Going to slide 8, we can see the main items of the income statement of Telecom Argentina on an unconsolidated basis. During the six months period ended June 2007, revenues grew by ARS169 million or 10%, as compared to the same period in 2006, totaling ARS1.8 billion. The most dynamic segments were internet and interconnection revenues, especially those coming from the cellular industry. Regarding costs, OpEx rose by ARS143 million, or 17%, due to the general price increases affecting the overall cost structure. Meanwhile, Telecom managed to increase its operating profit before depreciation and amortization in normal terms to ARS823 million or 3% higher to that registered in the previous year.

In slide 9, we note that the fixed lines and service continue to increase at a rate of approximately 4% year over year. This growth is a consequence of intense commercial activity, as well as a positive and marked economic scenario. Even in the context of the wireless market approaching maturity in terms of penetration, Telecom still finds opportunities to expand its fixed-line operations. Total voice traffic volume showed a positive trend in the DLD and ILD segments. Moreover, local rates continue to be affected by the tariff freeze imposed by the Argentine government.

For the first semester of 2007, the average revenue per fixed-line customer, including only voice-related services, remained stable at ARS39 per month.

In slide 10, we see the evolution of our internet business. Total ADSL customers reached 602,000, doubling those registered in June 2006, reaching a penetration of approximately 14% of a total Telecom lines in service. This expansion is a consequence of Telecom's strategy of launching an ample portfolio of services designed to fit the needs of almost every potential customer. In particular, the Arnet 640 kilobit Flat product, which showed an excellent performance and the recent Arnet Free Services with no fixed monthly charge where the customer only pays for the time connected to the internet are a good example of this.

Going to description of the cellular business in Argentina in slide 12, we can see the unconsolidated income statement for Telecom Personal. Total revenues grew by ARS723 million, or 42%, to approximately ARS2.4 billion. Service revenues increased by 46%, while handset sales by 17%.

With regards to operating costs, these have increased by ARS457 million, or 31%. Higher expenses are related to the expansion of the business, direct taxes of sales, interconnection headcounts while commercial expenses grew at a rate below the overall cost structure. Therefore Personal in Argentina delivered a 103% increase in operating profit before depreciation and amortization to ARS524 million in initial six months of the current fiscal year. Operating profit before depreciation and amortization represented approximately 21% of our net revenues up from 15% registered one year ago.

Net income for Personal amounted to ARS130 million in the semester up from ARS8 million registered one year ago. In slide 13, the positive evolution of the subscriber base in Argentina can be seen. As of 2007, customers of Telecom Personal increased by 3 million, or 44%, year-over-year and on by almost 0.6 million, or 6%, when compared to March 2007.

GSM customers represented 92% of the subscriber base by the end of the quarter. 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, despite the high penetration of the cellular service, we continue to gain postpaid customers, although we're starting to see that the new customers are coming predominantly from the prepaid segment.

Going to slide 14, we can note that even considering the mentioned trend in subscriber growth Personal ARPU has remained stable during the semester when compared to the same period of 2006. Finally as an example of the incremental participation of value-added services, outgoing SMS traffic increased by 71% when compared to initial two quarters of 2006.

Going to slide 15, we can see the evolution of gross additions and subscriber acquisitions and retention costs. It is important to highlight that subscriber acquisition costs and subscriber retention costs are starting to decline as a percentage of revenues allowing an improvement in the operating profit before depreciation amortization margin. Gross additions amounted to approximately 2.6 million subscribers, 39% more than those registered in the same period of the previous fiscal year.

Finally we see in slide 16 that our subsidiary, Nucleo, which operates in Paraguay, showed an increase in revenues denominated in Pesos of 21%, while maintaining a healthy level of operating profit before depreciation and amortization margin of 37% in a very competitive market and even in the context of very strong subscriber growth of 78%. Nucleo's operations delivered healthy levels of cash flow generation that permitted a substantially deleveraging of its balance sheet and has started to pay dividends to its shareholders.

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

Okay. Thank you, Pedro. At the conclusion of what we have been discussing during this conference call, you can see that our operations continue to evolve very positively with a sustained growth in terms of revenues, and positive cash flow generation and a consolidated market position. In particular, we are seeing a recovery in the operating margins of the wireless business.

Regarding 2007, we expect that our business will continue to grow mainly in the cellular and internet segments although we expect to see a gradual slowdown in revenues considering the stage in which the cellular market is in terms of penetration.

Cellular margins will continue to improve and we expect a recovery of efficiency in a scenario where the penetration in Argentina reaches maturity. It is important to mention that, according to our estimations that Telecom Personal has succeeded in growing in terms of revenues above the average of the market, thanks to its market positioning and ARPU performance, and this has resulted in an increase in our revenue share. We expect that profitability will remain stable for the rest of the fiscal year 2007 with eventually fund reduction in the fixed-line operation more directly affected by inflationary pressures.

In terms of our fixed-line business, our goal is to maintain operating profit before depreciation and amortization in nominal terms, leveraging in the growth of opportunities coming from our broadband operations that should offset inflationary and wage-related pressures in our cost structure. Particularly, with respect to the current wage negotiations we have arrived to an agreement with the unions working in our operation [that has] permitted us to resume our operations routine.

In terms of CapEx, we will continue investing in the latest available technologies, such as announced investments in an information highway in the fixed-line business and the introduction of the most innovative service in the cellular business, such as the already mentioned 3G services. Overall CapEx will be in the vicinity of 15% of net revenues. My having concluded the presentation we are more than pleased to answer any questions that you might have. Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS]. And we will first hear from Marc Estigarribia of Citi.

Hi, good morning. Is there any guidance -- update of your full year '07 guidance in terms of net adds in ADSL, CapEx or EBITDA margins? It's just the first question.

Okay. In terms of CapEx, as Carlos Felices mentioned before, we are forecasting the CapEx should be approximately 15% of revenue, slightly higher than what we reported in the first semester. It should be in vicinity of approximately 440 to $450 million for the full year. In terms of EBITDA margins, again as Carlos Felices mentioned before, we are expecting that margin should be somewhat stable for the rest of the year with an improvement in the cellular business and slight decrease in the fixed line business. And in terms of ADSL, we expect that we should be around 900,000 connections by the end of the year.

Okay, great. Thank you. Just to go over the covenants on [gross margins in the side], because there aren't any in Personal. Can you just update us with the what the financial covenants are? Again, I believe there is a net debt to EBITDA of 2.75. And can you just go over what the default triggers are? And I believe you mentioned that they would be eliminated or look to be eliminated by year end '07 or first quarter '08, and there will be no limit on dividend payments thereafter. Are we still on track with that?

Marc, some clarifications. I mean, in terms of the list of covenants we have pretty extensive covenants, none of them currently are putting any pressure on the operations. We have sufficient room, especially on the current covenants that we have, especially on CapEx and on indebtedness. So, there is no problem with that in terms of what we expect for the operations going forward.

What about a limit on paying dividend?

Sorry.

Are there any limits on paying dividends?

There are no limitations on the payments of dividends. The company can pay dividends. But according to the Argentine Corporate Law to pay dividends we have to have positive return earnings and that basically is the main limitation that we have today. Okay?

Yeah, with respective to dividends again, what we have, and that's not limitations, basically an obligation that for every peso that we pay a dividend, we have to prepay ARS2.5 in debt. Okay?

Sure.

But that doesn't mean that we have a limitation in terms of that we cannot pay dividends. Okay? And last clarification is that the covenants that we have are not -- especially the financial covenants, are not default covenants. They are basically current covenants. So, that means that, for example, in the case of indebtedness, we have to meet the current steps in order to contract high level of investment.

And I guess with...

Again, we are talking about debt-to-EBITDA covenants that we are comfortably below the current steps.

Right. And can you just give us an update on to the coverage on 3G? And I know that last quarter we were looking at downtown BA in the beginning of the process. Can you tell us where we're going to be by year end and into first half of '08?

Well, the idea is expanding the [extra] coverage to the north of the city, and doing some coverage in cities likes Rosario and Córdoba. This is the idea.

To be completed by year end?

Yes.

And then going into '08, can you give us a little bit of outlook of the coverage?

We will see how it evolves. The idea is that we will continue with that if financial and economic conditions recommend that.

Okay. Thank you.

Next we will hear from Dan Kwiatkowski of Schroders.

Hi. Good afternoon. A couple of questions. One was on the ARPU at Nucleo. It seems to be falling quite dramatically year-over-year, but also sequentially it's falling quite sharply too. Could you give us an idea of the trend in ARPU going forward? Should we expect Nucleo ARPU to continue falling dramatically? And what sort of level, is it going to level off and when? That's the first question.

Yes. The ARPU in Nucleo is currently at $7 compared to $10 last year.

Yeah.

Obviously this evolution is strictly related to the increase -- strong increase in the penetration and in the number of customers. We believe that this is a low point in the ARPU in Nucleo, and we believe that going on from -- starting from the second half of 2007 we will see a recuperation of this level. It will start increase a bit at least.

Do you think it can get up to the same level of a kind of 9, $10 level?

No, we don't believe it will be able to recover the previous level. But, yes, we are going to improve the current $7.

Okay, great. Second question. Can you give us your expectation for the tax that you will be paying in terms of your profit and loss accounts? And then actually what you expect to pay in terms of cash tax in both 2007, 2008?

As far as Telecom Argentina is concerned, we are not expected to pay any tax during fiscal year 2008, considering that we have carry forward tax losses. As far as Telecom Personal is concerned, it will depend on the results that we will be able to reach finally this year. Maybe in 2008 we will have to pay somewhat, considering that we are expecting to use completely our fiscal credits.

Right. I mean, in your consolidated P&L for Telecom Argentina, it looks like in the first six months you are paying on the P&L ARS168 million. Should we imagine that in the P&L that this kind of is the level going forward for the rest of the year? I know you are not paying cash tax, but in your P&L is this what we should expect?

Dan, that's basically due to deferred tax methodology.

Yeah, okay.

Plus the tax that we pay in Nucleo. Nucleo pays income tax, approximately ARS7 million.

Okay. Great, thank you. Can you say what your cash -- what your tax losses carry forward are at the moment?

Yeah, give us two minutes please. Yeah, in Telecom Argentina only we have approximately cumulative 332 million, that approximately 298 expire in 2007.

Thank you very much.

You are welcome.

Next we will hear from Mauricio Fernandes of Merrill Lynch.

Thank you. Good morning everyone. A couple of questions on Paraguay. Just on specifically Nucleo, the ARS7 million that you say if they -- is it on the -- for what quarter -- year basis just to confirm? Second thing is, can you give us an update on situation for the margins in Paraguay and the outlook, given the growth is strong and competition as well? Then on video, specifically on pay television and the potential for Telecom to provide a service in Argentina, can you give us a brief idea of the status of that situation?

Finally, I'm sorry I didn't understand when you addressed the wage increase negotiation with the employees, what was it at the end of the day? If any already agreed wage increase? And finally, I understand that there were some one-off expenses in the second quarter, because of the launch of the 3G service. And can you gives us what size of that is, one and two, whether you expect it to continue going forward as you expand the 3G coverage towards the other cities? Thank you.

Okay. That's a pretty long laundry list, Mauricio. Give us two...

I said just a couple.

Yeah.

I am sorry.

Couple of a couple, I would say. So you give us two minutes, so we regather our army that we're -- so we can get out of papers. Hold on please. Okay. First question is easy one. The 7 million corresponds to the first semester. And for the full year, you should have basically double that. You shouldn't see an increase in taxes coming from Nucleo.

With respect to the margin situation in Nucleo, we don't expect significant change in the level of profitability. We expect that the margins will basically be stable during the rest of the year. Competition is pretty tight. We are -- together with Telcel, we are the leaders in the market with approximately 38% market share for Nucleo. And similarly the Argentine market is a pretty competitive market, obviously very oriented towards the prepaid segments. And together with the growth of the subs that we've seen as of June 2007, obviously that decline in ARPU is also due to the situation of competition.

Regarding the wage negotiation increase, basically we've agreed with the unions an average wage increase of approximately 16.5%...

Up to June 2008.

Up to June 2008. The agreement goes from April this year to June 2008 next year. And I will leave the question of convergence of services and TV to Carlos Felices.

Well, the situation is, up to now we continue with all limitation that the companies -- that telecom companies cannot provide these type of services. Considering that in this year we have elections and there are a lot of pressures from different operators in this regard, we don't think we will have news on this line. But we expect that at the end of the year or probably in the first quarter of 2008, we will get the news and we expect that they believe the companies will be authorized to provide these type of services. But we need some changes in regulation. That has been discussed, have been analyzed and we are confident that we will be able to go ahead and provide the service. And other questions were?

Cost of 3G?

Well, the cost of 3G actually is practically marginal, mostly CapEx. We are operating in a very limited area. It means that the total investment there is not significant. What we expect is $25 million for one year.

I am sorry, how much?

25.

For 2007.

Yes for 2007.

And that's CapEx, right?

Yes, it's CapEx.

So when we look at the 34% margin reported for the quarter, regardless of 3G, it would have been 34. I mean, regardless of the launch 3G, because OpEx or the expenses you had with the launch are really negligible, right?

Correct.

Yes.

Okay. I understood. Thanks a lot.

You are welcome.

Rajneesh Jhawar, JPMorgan.

Yes, I have two questions. First of all, can you revisit your guidance for net adds at Personal for the year? I remember at the start of the year you had given the guidance of about 2 million additions, and you've already done 1.45. Do you think you will able to do 1.45 or more again in the second half? And the second question, can you talk about your outlook on ARPU at Personal? And an additional question, your churn shot up quite a bit in the second quarter from a level of about 1.8% a month in the first quarter to 2.4% a month in the second quarter, the mobile churn. Can you shed some light on that? Thanks.

Okay. In terms of -- guidelines in terms of number of subscribers for the end of 2007, we expect that we will be in the vicinity to approximately 100 million by the end of 2007 for Telecom Personal in Argentina. In terms of ARPU outlook, we expect that we should see a slight increase, maybe approximately 1 peso to 1.5 peso for the rest of the year. Okay? And, Rajneesh, could you repeat your last question, please?

Yeah. The last question was on churn. Your churn shot up quite a bit in the second quarter compared to the first one. Where was this coming from?

Well as we've mentioned in the previous conference call, the churn that we've seen in the first quarter was somewhat low, and it was in our expectation that churn was going to continue at levels of approximately 2 -- between 2 and 3%. Currently at average for this quarter was approximately 2.7%. Going forward, we should tend to see this number going down. Basically we are taking some actions in order to avoid what we call an artificial churn of basically customers upgrading, especially in the prepaid segments, customers upgrading in their handsets by basically buying new handsets and considering that as a gross add and then eventually the old handset being our future churn. So you should tend to see churn levels of approximately 2% by the end of the year.

And can you repeat the guidance that you gave for Personal just now? I mean total....

11 million.

11 million?

11 million for the end of the year.

Okay. And one more question if I may. Your unconsolidated EBITDA margins improved this quarter to around 23.5% at Personal. How do you see them towards the end of the year?

Well, we should end on accumulated EBITDA margin of approximately 22, slightly higher than 22%.

Okay. Thank you very much.

Thank you. Just one clarification for the rest in terms of ADSL, I have mentioned that we are going to be approximately 900,000. The correct number should be around 800,000 by the end of 2007.

Marcello Olguin of Santander.

Yeah, good afternoon. First of all, congratulations for the pretty solid results you delivered last night. And going to more, I would say, forward-looking issues I would like to know your opinion on what you could tell us about the potential conflict of interest that could arise from the presence of Telefonica de Espana, the shareholder both in Telefonica Argentina and in Telecom Argentina through Telecom Italia [Inversora] and Nortel?

Okay. What I would like to clarify is that the company -- or the information that the company has available is the information that Telecom Italia includes in its 20-F and Nortel includes in it's 20-F, and Telefonica. It means that for the time being what we are following is this public information at the reference for our operations. But today we don't have any other precise information in this regard. Obviously we are analyzing the situation and we will inform the market if something we consider relevant.

Thank you.

You are welcome.

Roger Oey of Banif Bank.

Hi. I would like to know about 3G a little bit more. I am curious about handsets, how many models are you selling? Are they at the same prices as 2G high-end? Talk about a little bit on subsidies, is there subsidies for 3G handsets?

In terms of 3G handsets today in Argentina we only have two vendors that are offering 3G handsets, or are delivering to us 3G handset that -- those are basically LG and Samsung. We expect that the rest of the vendors will be launching their handsets in the Argentine market in the near future. In terms of pricing, they are in the vicinity of high end 2.5G handset to make a equivalent of roughly to a Blackberry handset. And in terms of subsidies today, we have very few handsets in the market and this is a very recent launch with the limited coverage as we mentioned before. But we don't expect a significant change to the level of subsidies that we have today that's in the vicinity of approximately 25% on average for the entire gross adds. Okay?

Carlos Gomez, Credit Suisse.

Yes, good afternoon. Two quick questions. One, could you tell us if you are still seeking debt refinancing in '08, as you mentioned earlier in the year? And the second question is, do you have a target leverage rate that you will follow?

What we mentioned in the previous conference call is that we are constantly monitoring the markets, as you may know better than us. The market is somewhat -- we have a little bit more volatility that we had at the time of the previous conference call. But we will see where the market is if we take decision of refinancing. And in that scenario within Telecom Argentina, we have the obligation to prepay debt. So, you should expect that the level of leverage should continue to go down at least for the rest of the year. And basically we have the covenant of the cash fee that we have to prepay debt with excess cash generated by the company. And that's basically what we are doing and are trying to do for the rest of the year.

But you are not concerned about the restricted covenant that you have with your concerned -- with your [current debt]. I mean, they don't really limit your operations, your normal operations?

No, as we mentioned before, the levels of the current debt that we have to meet and in terms of CapEx limitations that we have, there was no covenants that today is putting some type of pressure on the operation of the company. In other words, we are pretty comfortable with the debt structure that we have. And on top of that, we have the benefit that we don't need to refinance the debt and the level of over the profile of maturities that we have and the debts of Telecom Argentina are pretty comfortable. We don't have the urgency to go the market in order to refinance the debt.

And then my second question, do you have a target of the leverage that you want to reach?

As I mentioned before, basically we will continue prepaying debt. Currently we are in a net debt-to-EBITDA on a consolidated level of approximately one time. And we expect that that will be slightly lower than 1 at the end of the year. So, we will see where we are going forward. Okay.

Thank you.

You're welcome.

Next we will hear from Miguel Garcia of Deutsche Bank.

I want to know a little bit what your expectations are for the wireless business in the longer-term. In Argentina it's already 87% penetration, so it's very close to saturation point. And another thing that was interesting this quarter is that the market shares remain very stable for all competitors. And so the first question is that, when do you think that -- I mean, in the next couple of years, what do you think the penetration could reach? And the other question is, if you feel that every major competitor is already satisfied with the market share they have, so we could extrapolate in time the current market shares?

And on the fixed line, I would like to know if you have seen already any offering of triple-play from cable operators? And also if the merger of Cablevision and Multicanal has been completed, do you expect increasing competition from this one large operator that could offer telecom services?

Okay. In terms of expectation of penetration for service in Argentina, we expect that we will reach approximately 100% penetration in approximately two years' time. I will slightly correct your number. In terms of penetration, our number is approximately 85%, so there is some room to continue growing in terms of total subs in the market.

In terms of market share, we basically have two-sided view in terms of market share. Not only we look at the sub share, but we also look at the revenue share. We are currently at approximately 30% revenue share as of June, and this is obviously due to the strategy of Telecom Personal of focusing the high end of the market and high value customers and having the highest ARPU in the market following the strategy. But taking your comments, yes, we don't expect a significant change in market shares that you have today. You may have, maybe a switch of approximately 1 to 2% between operators, but you don't have a significant change to the situation that you have today.

In terms of triple-play offering, we are not aware of a significant offering in the market, at least not coming from the major cable operators in Argentina. And in terms of -- at least as strong as we know, the merger of Cablevision and Multicanal has not been approved, nor by the broadcasting regulator nor by the Antitrust Commission. And impact on Telecom Argentina's operations, we'll see where they are at the time of the merger and how they have upgraded their network. Remember that they are still in the initial phases of consolidation of their networks as we mentioned in the previous conference call. And it's going to take time till they have an operation ongoing or a digital network ongoing in order to have a matchable offer to what we have.

Despite this situation, what -- cable companies are the main competitors to our broadband service. And in this situation in the recent quarters we had been gaining market share, especially in the Northern region we are the most selected broadband provider. So, in that situation we are pretty comfortable once the cable companies are on and ready to offer triple-play services.

Okay, thank you. And lastly, you were thinking that the market could reach 100% penetration wireless in three years. Do you think that at that point Personal could reach margins of about mid -- in the mid 30s?

Yeah, looking at experiences in the rest of the world, yes, and translating those experiences into what's the cost and tax structure in Argentina and how we account for certain costs, especially interconnection and taxes. Yes, that's a reasonable assumption. And just a slight correction. We talked about 100% penetration in two years time, not three.

Sorry, can you repeat that?

In two years' time.

In two years' time.

Not three.

Okay, then. Thanks a lot.

You are welcome.

[Daniel Sensal], Lehman Brothers.

Hi. My question was about the market share and I think you already answered it in the last question.

And there are no further questions at this time. I'll turn the conference back over to you for any additional or closing comments.

Okay. Once again, thank you very much for your participation in our conference call and please feel free to call our Investor Relations department to any additional questions that you would have. Thank you very much and good day for everybody.

That does conclude today's teleconference. Thank you all for your participation. You may now disconnect.