Telecom Argentina SA (TEO) 2012 Q2 法說會逐字稿

Good day everyone and welcome to the Telecom Argentina's second quarter 2012 earnings conference call. Today's call is being recorded. Participating on today's call, we have Mr. Franco Bertone, Chief Executive Officer, Telecom Argentina; Mr. Adrian Calaza, Chief Financial Officer; Mr. Pedro Insussarry, Finance Director; and Mrs. Solange Barthe Dennin, Manager of Investor Relations.

At this time, I would like to turn the call over to Mr. Pedro Insussarry. Please go ahead sir.

Good morning to everybody. On behalf of Telecom Argentina, I'd like to thank you for participating of this conference call. As mentioned by our host, the purpose of this call is to share with you the consolidated results of the Telecom Argentina Group that corresponds to the first half of fiscal year 2012, ended on last June, 30, 2012.

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

Additionally, this conference call is being broadcasted through the webcast feature available in sub-sections and can also be replayed through this same channel.

Before we continue with the conference call, I would like to go over some Safe Harbor information and other details of the call, as we usually do in our quarterly conference calls. 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 actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effect of the public emergency law and complementary regulations, the effects of ongoing industry and the current economic regulation, possible changes in the 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 July 30, 2012, a copy of which is being included in the Form 6-K report to be 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 1 of the presentation.

As usual, in our quarterly conference calls, the agenda for today is seen in slide 2, is to go over a general market overview, then we'll go over some business highlights, and after that, we'll go over some specifics of our financial figures.

And finally, we'll end the call with our traditional Q&A session.

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

In slide 3, we include some snapshots on the current Argentine macroeconomic scenario. This quarter was a case of a more challenging scenario, where the European crisis increase, investor's risk aversion, and the lower global growth were the main international factors that influenced the international context.

According to official indicators, the local economy is shouldering certain decelerations in sectors like construction and industrial production, tougher significant declines in the reflecting levels of affinity. Moreover, investment levels seem to suffer from import restrictions and the lower level of growth of the economy.

Moreover, a more cautious consumer is slowing private consumption trends, due to higher concerns about economy and the restriction fees, the access to the FX market.

Inflation remains stable at high levels and in general, wage negotiations have concluded at lower levels than last year's. Efforts to achieve a higher commercial balance seems to take effect. Although, with some deterioration in fiscal revenues in investments, and in level of affinity.

Increasing a gap between fiscal revenues and expenditure have been covered by the incremental financial assistance from the Central Bank and the National Pension Fund System, allowing to preserve the fiscal balance neutral.

Despite this environment, higher commodity prices could help to sustain external balance and the growth in economy in the near future.

Finally, we would like to highlight the defensiveness of the telecommunication sector, but also remark, that is not excluded from the economic cycles.

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

Thank you, Pedro, and good morning to everyone. This quarter operating performance was good though a lower growth pace affected margins. Business environment was quite challenging and under these conditions the strength of our balance sheet and positive cash position is a very valuable asset to drive market growth.

As a matter of fact, we had a successful MNP start as we rated first in customer choice. We also made further progress in mobile revenue share leadership and we stay leaders in post-paid net adds. We believe that smartphones are even strong sustained VAS revenue growth particularly in mobile Internet that grew 82% year-on-year is a sound proof of a successful strategy.

In the Fixed business, we continue leveraging bundling and flat pricing to grow retail revenues despite a regulated (inaudible). For the Corporate segment, this quarter we launch integrated cloud computing services.

And to conclude the business highlight, let me stress again how important is our strong balance sheet in this challenging environment and mention the ARS807 million dividend payment that we made this quarter.

Please turn to slide 6. Our Mobile business performed well during this quarter with a head start in the MNP where we lead really net ports with strong fortunes to capture high value customers, that actually represent three out of four port-ins we recorded.

Our focus and success with value customer is also shown by the postpaid segment, 14% year-on-year posted increase, having captured close to 60% of the market post-paid net adds. This rose ARPU 10% year-on-year to ARS54.3.

3G line growth has been strong posting a 92% year-on-year increase reaching 21% of our customer base. Leveraging 3G customer base while maintaining consisting growth of VAS revenue.

We retained leadership of revenue shares at 34.5% of the market or service revenues as shown in this chart and total revenue as well. It is quite a progress from the less than 30% share we had back in 2009.

Slide 7 shows the evolution of service revenues growing 23% year-on-year, mainly driven by mobile Internet that posted an 81% year-on-year increase. It's worth mentioning that revenue performance was delivered mainly by usage in customer increase since our pricing has been stable since fourth quarter of last year.

Base commissions to our distribution channel were designed to focus on quality and value of additions together with customer retention and upselling of services. Handset upgrades program was intensified to simulate usage upselling to our existing customers. The first semester, our subscriber acquisition and retention costs before capitalization rose to 16.9% of service revenue, up from 15.6% reported for the same period of the year 2011, mainly this is due to these effects.

Please turn to slide 8 for a snapshot of our Paraguayan operation that continued with strong performance and valuable financial contribution to the Group. The subscriber base reached 2.2 million, expanding 13% year-on-year above our competitors. Revenues in local currency rose 22% year-on-year while margin rose to 37% thanks to VAS contribution as mobile Internet revenues more than doubled thanks to our top quality 3G network and leadership in the segment.

Slide 9 shows mobile revenues, how they did evolve over this period reaching more than ARS7.5 billion in the first semester with a 24% increase or ARS1.5 billion compared to the same period of 2011.

Data drove the growth with additional ARS642 million, a 32% increase year-on-year. Retail Voice and Wholesale Services were up 13% and 4% respectively while equipment sales rose 34%. Our Paraguayan operation posted a 25% increase year-on-year in Argentinean pesos and currently accounts for about 5% of our mobile revenue.

Please turn to slide 10. Broadband performed well in the second quarter. Year-on-year our subscriber base expanded 9% and ARPU by 12% while churn declined to 1.1% per month. The second quarter of this year data services increased 29% year-on-year showing great strength on a more challenging economic environment. As an integrated network provider the launch of our cloud computing services will contribute to the growth of these services or value added service and data services in the future.

Slide 11 shows positive net-adds for the fixed voice line, with an addition of more than 10,000 new lines in the second quarter close to 1% year-on-year growth, with an average monthly bill growing 4% year-on-year. Retail Voice revenue increased 6%, thanks to the higher penetration of supplementary services and flat pricing offers.

The evolution of wireline revenue is shown in Slide 12. Third-party revenues totaled ARS2.9 billion, a 13% year increase. Internet and data services are the main drivers of growth increasing 25% and 27% year-on-year respectively. Meanwhile Fixed Telephony business posted a 6% growth for Retail Voice services, and 1% decrease in Wholesale Services.

Slide 13 shows CapEx reaching ARS1,345 million, 13% of consolidated revenue in the first half of the year. Of this amount, intangible asset represents ARS429 million, increasing 32% on annual basis mainly due to subscriber acquisition and retention expenditure related to MNP implementation.

PP&E expenditure reached ARS916 million, 22% increase from the first semester last year, improved wireline fixed and mobile access capacity. FTTC deployments started and we have continued to deploy fiber backhauling to improve quality and capacity of our mobile access.

Well, these were the business highlights I wanted to share with you at the beginning of this call. And I will pass the call to Adrian who'll go over our financial performance.

Thank you, Franco. Good morning to everyone. The strong business evolution that Franco Bertone just mentioned allowed us to sustain the level of growth in terms of revenues and operating profit before depreciations and amortizations, even though margins were affected mainly by commercial efforts and pressures on labor and labor related costs.

In slide 15, we're showing the evolution of revenues and operating profit before depreciation and amortization. In the first half of 2012, consolidated revenues reached ARS10.4 billion, with a strong growth of 21% when compared to the first half of 2011. While the contribution of revenues coming from services with regulated tariffs continued to fall, now accounting for 10% of our turnover.

As Franco mentioned before, this growth was achieved even without any price or tariff adjustments in any of our Mobile Services and Fixed Services in the last six months. As a matter of fact, the last price adjustments on our Argentinean mobile service took place in October of last year.

Operating profit before depreciation and amortization for the first half of 2012 grew by 8% when compared to the same period of last year totaling ARS3.1 billion reaching 30% of revenues. It is worth mentioning that the second quarter was particularly affected not only by cost pressures but also by the strong commercial activity due to the launch of an MNA -- MNP in Argentina.

In order to deeply understand these effects, please refer to slide 16, where the breakdown of our consolidated costs structure is presented. Several factors among those competitive environment and inflationary context have added pressure to our cost structure. As you can see, the mobile number portability implementation required strong commercial efforts that resulting in higher SAC and SRC.

Meanwhile, labor and labor related costs rose flowing salary increases granted to our unionized and non-unionized employees. Moreover, just the elimination of energy subsidies represented an increasing cost equivalent to 60 basis points on operating profits before depreciation and amortization margin.

As seen in Slide 17, operating profits totaled ARS1.9 billion with an 18% margin. Higher CapEx in intangible assets such as SAC, SRC, and IT resulted in increased depreciations and amortizations, which combined with the effect in cost impacted our EBIT that shows a reduction of 2% compared to the first half of last year.

This result was partially compensated by positive financial and [holding] results, and allowed Telecom Argentina to post a total net income of ARS1.63 billion, equivalent to 12% of consolidated revenues.

Regarding our financial position, in slide 18, we illustrate our free cash flow generation for the last 12 months, where we have performed positively thanks to a strong operating free cash flow of ARS1.5 billion. This permitted Telecom Argentina to return net cash position of nearly ARS2.2 billion after having paid a cash dividend of ARS807 million in last May.

Even if it is well known, it is worth mentioning that the Group does not have any outstanding debt instruments in the Argentinean operations, which is a significantly positive fact given the local and international context.

So having concluded with the presentation, we are more than pleased to answer any question you may have. Thank you very much.

(Operator Instructions) Alex Garcia, Citibank.

I would like to hear from you what are the dynamics for readjusting tariff, first on the Mobile and Broadband because in the past I had the idea that you guys always tried to catch-up with inflation, you never have an inflation forecast and try to transfer that to the final price to the customer and you never had an issue with that, but it seems that this quarter this process was interrupted. I wanted to understand what is different now and are you guys waiting for something to readjust prices? Are you guys don't feel that it's time to adjust prices and then margins will continue under pressure? That will be my first question.

Then the second question would be regarding the retention costs. We saw handset sales increasing a lot, retention costs increasing a lot. And I believe that you guys are kind of like giving handsets from an outsider, giving handsets for the customer to continue on your base, I want to see if that is -- if you share that view. And -- but most important, how long do you think this pressure from the mobile number portability will continue? And that's basically my, the two questions I have. Thank you.

Right, about the dynamics of how we adjust tariffs, I'll give you there isn't a set process nor a set practice in the market. I mean, it's as a matter of fact, as you noticed, the last significant price revision we had for mobile was really a year ago. That is really making harder the comparison of this quarter result with past year, because past year we enjoyed quite a significant revision of prices as all industry did. This year this is not -- this hasn't happened consider that number portability started April 1st, so we are really just completed the first trimester of that as you see in from our quarter results and we did well.

So, I think that we haven't gone into discount schemes but on the other hand that we haven't adjusted prices upward either, that will not stay very long. I think that we are quite happy how we position ourselves with MNP, and I think that readjusting tariffs will resume shortly.

As a matter of fact the effect did not exist on broadband services or fixed broadband services and how our prices will be in the future including designing of new product that will incorporate additional value for us has been already communicated to the market, it will take place pretty shortly.

In relation to retention and acquisition cost, as far as we had said, cost is concern. Yes, they have quite a heavy impact on that, I mean, the reason of keeping pushing, upgrading our customer base equipment goes to keep fostering and improving share of value-added services. And the share of our other services out of total mobile revenues. I think it's really a good choice and it's really successful. We don't expect to -- thing to get out of hand at all as we did it in the past.

Certainly, I mean that is another element that's strengthened during the MNP preparation in the first quarter of the year and continued in the second quarter of the year. So, there is some seasonality if you wish to [finalize] that, all this kind of cost and this kind of cost increase because of the portability process being launched a while ago.

But I mean the process is going well and we are happy of our results but we don't expect -- please don't expect us to push out of proportion on these leverages.

Okay, thank you.

Michael Morin, Morgan Stanley.

So, just to clarify, if I can, your answer to the previous question. Your pricing on mobile and your decision to not raise prices, if I heard you correctly, since October of last year, has -- is entirely related to mobile number portability and your desire to remain competitive, is that correct?

Sorry, yes, it's correct.

Okay. So it's --

And line was off. And you may have not noticed in this market anyway adjustments on our prices been already announced in the market for the second half.

Okay. You have already announced higher prices for the second half?

Yes, yes.

Okay. So, essentially there was no moral suasion from the government to avoid any price increases, that has not been a factor?

There wasn't, I mean, absolutely, no.

Okay. And then, on CapEx, I see in your slides that you allude to -- well, first of all, you are running pretty low year-to-date relative to your guidance. And I think in your slides you do allude to some customs issues that may be delaying you a little bit. So I was wondering if we should continue to assume that you're sticking with the guidance on CapEx?

Well, there is a seasonality on this as well, I mean, traditionally, I'm not saying that will be -- well, it should be. But as a matter of fact, I mean we tend to have a slow start at the beginning of the year because of the planning phase, but if there's any way that our CapEx expenditure this year are above what we had a year ago, so there's not this effect so far. There are certainly certain issue related to in general to imports. We are really collaborating very closely with the authority to work these around. So far we don't expect any specific problems.

Okay.

The other item -- the other item is being that is part of our CapEx forecast for the year, is a bit for the frequency, for the spectrum option that really is not -- has been delayed so far and is -- because currently we don't have a firm date for that to happen.

Okay, perfect, thank you very much.

Ricardo Cavanagh, Itau BBA.

I have two questions. The first one is on the mobile market. How are you performing on the Prepaid segment? And the second is also on the mobile market and if you can discuss which is the percentage of smartphones in the country, and what is your outlook in terms of growth going forward for that segment in light of economic deceleration? Thank you.

Right. You probably noticed that I mean we put much stronger focus on the Postpaid segment than on the Prepaid; that is already, I mean, a strong percentage of our customer base, it's over 70% -- I'm sorry, over 30% of our customer base is prepaid and we had in April 8% lines in service, mobile lines in service growth from 17.4 million to 18.7 million this semester, while the growth of Postpaid has been almost twice as much, it's been over 14%.

So that's our focus, that is reflected on the -- what we did in -- how we perform in number portability as well where the percentage of high value customer coming into our service are even higher of that -- of the percentage I mentioned before.

And in terms of smartphones, I mean, we really considered smartphones to have at least 3G capabilities and the percentage I gave you I think during the initial speech, I mean, we hit 21% of our base being 3G by the end of the semester that is almost twice as much as we had a year ago. So we are really -- we really keep pushing on that side of the business.

Okay, thank you. And just following up on the first one. Do you think that in terms of the revenue market share growth that you have been sustaining over the past two years on a very successful manner, do you expect this situation to continue?

Well, as you see from the graph, it is a very tight race. I mean, among the three operators, the spreads, if anything, I mean to mention is that the spread between number one in the market and number three in the market nowadays is less than half than it was three years ago. So it's -- the market is definitely getting more competitive. And I must say we're quite pleased that we took the shift to pass from number three to number one.

So we don't expect that percentage to increase in a substantial or in a significant manner, but we are certainly confident we will be able to maintain the leadership, particularly in the -- if you were to look at the same metrics that are not available for the postpaid market I think that the market share would be even stronger.

Okay. Great, and just one final and it will be on the cash. Given the restrictions in place and how are you -- what are you basically doing with the cash?

Ricardo, this is Pedro. Basically, what we're doing is, we are basically paying our suppliers, funding our CapEx, basically using the cash flow for general purposes and obviously with the excess cash as we're a peso generating company we are basically investing that excess cash in basically time deposits and peso-denominated instruments or (technical difficulty).

Very clear. Okay, Pedro and Franco thank you very much.

Thank you.

Thank you.

Stanley Martinez, Legal & General Investment Management.

If I can turn back to personnel for a moment, I know the year-over-year increase in half one VAS, particularly on data and Internet, but I do note that there was slower sequential comparisons, and wondered whether if there was any reduction you saw in growth rate in terms of absolute volumes in SMS or terabits on your network, or were you instead trying to drive elasticity of demand effects in terms of lower unit prices, and do you expect to return to what you would consider more normal sequential revenue growth on VAS in Q3 and in the second half of year? That's my first question, please.

There are certain elements that are effect of those you mentioned, particularly the SMS. In terms of SMS, I mean, we are still around the 300 message per month per subscriber. But we know there is a marginal decline after many, many years of sustained growth over the last six months. That is basically due to the fact that we are being -- promoting much stronger than in the past Internet services for the prepaid customers as well.

I mean, the ARS1 per month pricing that we launched a year ago was quite successful. And the -- is that the messaging needs of our customer has been partially switched from SMSes to [What's App] kind of application was available. So I mean to say that SMS is not any longer the only messaging system available to our customer and that is generating some decline in the number of messages average per month on the basis.

On the other end, I mean, yes, I mean in terms of -- if you look to mobile meaningful usage, there is going to be -- there has not been a substantial increase in that respect. But as you can notice, all-in-all, the growth on our revenue and the growth on our ARPU are coming mainly from data services. So -- and out of data services from web browsing and broadband rather than SMS. So, I mean, the growth drivers of the past that are minutes and SMSes are not -- don't play that role any longer.

All-in-all, I mean this 23% that we had in revenues year-on-year is still a strong growth. We don't expect any decline of those figures even in the near future.

Great. That makes sense, Franco. And if I could just ask a broader question about how you're approaching the market commercially in a slower gross out environment, it sounds like. Are you looking to perhaps change your commercial approach to reduce what you might say is some false churn in the marketplace by withdrawing what you might consider some more of the stimulative and competitive offers in order to try to regain some of the revenue market share that although you gained on a year-on-year basis, you lost in the second quarter, it looks like, about 30 basis points up?

(Inaudible) there is no particular slowdown, I don't know where you notice that. But in general terms, the fact that we are driving revenue much stronger, that line is the consistent approach we had over time. And we are continuing with that, we are happy with that, and we believe that to an extent we have anticipated direction that the market in general will take since the penetration percentage of mobile services over the Argentina population is quite high and won't grow significantly in the past -- in the future as fast as in the past. And if it will, it will generate a lot of churn.

So, I mean we're definitely gearing more towards a higher volume customer and more stable customer and that is reflected on our figures both in number of lines and growth in both segment and the revenues. The fact that, I mean, in over the last year, year and half, we climbed to position number one in revenues but only position number two in line reflects exactly that. That's our focus and we'll maintain it.

So you'll continue the investment in seeding smartphones in the marketplace in the second half to continue the gain in postpaid, while some of your competitors may withdraw. That seems to be the operative message, is that right?

That's the game plan for the second half as well.

Okay, great. Thanks.

Thank you.

Rizwan Ali, Deutsche Bank.

My question is related to CapEx. Can you just clarify, in your previous question you said that the CapEx remains the same, which is about ARS4.5 billion. But the question is I mean, does this ARS4.5 billion number include what you may pay for the license which may be your -- spectrum is going to be auctioned off later this year?

Yes, the ARS4.5 billion does include projected investment into the license. And obviously, if -- hopefully not, but if that auction won't take place, the corresponding amount will not be expended. No, but that's -- I mean to answer to your question, yes, the ARS4.5 billion does include our estimate cost for the license.

And how much are you estimating for the cost of license?

Well, it's a question I'm not going to answer.

And then second thing is do you expect improvement in your margins given that you're finally increasing your wireless pricing? The second half margin should be expected to improve over what we've seen so far this year?

[We expect really] to maintain our margin, I mean, certainly we'll be striving for improving them. But certainly we'll be under lot of pressure given the general environment, local and international.

Thank you.

Federico Chapto, Raymond James.

I have two questions. The first one is related to the Company's cost structure. Considering the slowdown in consumption and given the deceleration this may come from revenues, which part of the cost structure do you think you might be able to reduce cost in case the economic environment continues to deteriorate?

And my second question is related to guidance you provided at the beginning of the year. You were expecting a double-digit EBITDA growth. So my question was if you remain confident of achieving that this year? Thanks.

Okay. I'm going to answer your first question and then I will let Frank return to you the second one. Yes, of course, given the context we have a lot of pressure on our cost side. We've been working hard this year and as a matter of fact you can see that we risked some efficiency on the interconnection costs.

Also on other costs related to industrial and general and administration costs, we've been working very hard, and as a matter of fact if you consider this cost without the increase on the energy costs, we've been -- this cost have been growing in a lower pace than the inflation.

So, we will continue working on this side. You know that we'll continue to have pressures on rent, labor, and labor-related costs. And we will continue, as Frank was also -- was saying before, we'll continue with our commercial efforts. So I think that our work it's -- should be in all of our costs, but mainly on general and industrial costs.

As far as the year-end, we're really maintaining our expectation of double-digit growth that we met in terms of the revenues and we haven't met in terms of EBITDA in this first semester. We missed it not by much but we did. So, we still maintain the expectation to add another digit in the second half.

Certainly, the overall conditions will make it a tough thing to achieve. We don't expect to change any way our prospect unless there is a deterioration of the macroeconomic conditions that at the moment we are not foreseeing.

Okay, thanks.

Sean Glickenhaus, HSBC.

We read that one of your competitors is focusing on extending its [cell] locations. I know that given these locations or [cell site] locations are tough to come by in Argentina that probably all the mobile operators are doing so. But can you talk a little bit about what -- how you're going about this and especially given the continued strong growth of mobile data, the importance of this for your strategy? Thanks.

I'm not too sure to the news you're referring to, but in general terms, in terms of infrastructure, we will continue our way of deployment. As a matter of fact, we're introducing some additional new design from the -- in the investment program of this year that would basically match better with the growing restriction we are experiencing and the industry is experiencing in getting local authorities' authorization to set up towers and et cetera, et cetera. So that is getting harder by the time. So what we're doing is co-locating our equipment with -- in network of our competitors. I mean, there is a level of cooperation that was unusual in the past.

And we are also redesigning our network infrastructure in such a way where we can use as much as possible existing infrastructure to attach to it transceivers and antenna. The type of initiative we are referring to is typical of looking for, within some cash in terms of cash from the operation is we are not in that conditions and we have no plan to that extent.

Great. Thank you.

Thank you.

(Operator Instructions) Felipe Pereira, Barclays.

I have two questions. First, could you please update us with the salary negotiations of 2012? As per my understanding, they are about to be concluded. And my second question is, you mentioned earlier in the call that you expect to increase price as in the second half of the year. Could you please give us an estimate of how much do you expect increase of prices? And this -- price increase would be only on wireless or would be on broadband as well? Thank you.

Salary negotiations, as a matter of fact, are being concluded and the overall year-on-year increase is significantly lower than what we had last year, and you'd probably find an official notification shortly, but I can anticipate to you that several percentage point below what was granted a year ago.

In terms of space prices, yes, we are continuously maintaining our pricing schemes. There is no restriction beside obviously the regulated prices that have been frozen from 2001. And as a matter of fact is a blend of more than changing the offer prices is to revise and modulate in different manner the promotions that we have on the market and launching of new products.

So, in general terms, the listed new price really reflects an additional content of service or higher bandwidth or supplementary service associated with, for example, DSL. So, it's hard to say what the percentage increase there the product changes. What we are looking into is to see the overall blend of those products and compare to the historical one, and we expect anyway something in the range of 10% to affect our revenues. Not necessarily, as I said, as price increase, but as a different portfolio product that increase new products as well.

That is for broadband, something similar will be done for the mobile services again and even more for my mobile services, the level of discount in promotion or a supplementary service including the promotional manner in certain offer, it [won't] make the difference rather than changing the stipulated and nominal price level. We are not going to affect the prepaid prices anyway.

Thank you very much.

Michael Morin, Morgan Stanley.

I just wanted to ask a little bit about broadband, it's -- on your slide 10, it seems that the other players there grew a little bit faster than you did in terms of accesses. And I was wondering if you could comment as to whether or not that is them taking share in the regions where you overlap, or is it simply that there's faster growth in some of the regions where you do not compete? Thank you.

That's correct. I mean, we grew less than our competitors, particularly of the cable competitor. As a matter of fact, I mean the growing speed of subscriber broadband lines that are being offered on the market is putting our offer under pressure since we're still operating with ADSL on symmetrical copper pairs.

Our FTTC deployment is our response and solution to address this issue. Deployment did start in the first semester this year, will reach a critical mass to offer to the market nationwide, new product, new upgraded product sometime earlier next year. So I'm afraid until then we'll keep having some marginal dilution of our market share and -- but we have obviously stronger backing on the upgrade of our network that is under way and will be -- will become fit for commercial activity in the next six months, as I said before.

Great. Okay, thank you very much.

Thank you.

Stanley Martinez, Legal & General Investment Management.

Just two real brief follow-up questions, if I could please. First, on employee benefit expense and severance payments, just wondered whether there was any one time or true-ups in that line item in the ARS850 million this past quarter. Just -- it looks like you're growing slightly above the mid 20% per employee growth rate that we've seen in the past?

And then, coming back briefly to CapEx, I recognize the puts and takes with respect to the importation. But of course, there's also been a big depreciation in the peso since the initial guidance back to parent Company's full year results in February. So what base level of CapEx, is it down to ARS3.5 billion potentially? Just if you could give some sensitivities around the guidance, I'd appreciate that? Thanks.

Yes, in HR cost yes, I think you picked a real factor that is, I mean -- we implemented in the second quarter this year, an agreement reached with union, and as a matter of fact to, put to bed a longstanding litigation we had, that did imply to unionize a substantial portion of our fixed operation employees that were contracted out of the union. That did generate that increase that you saw, and is a one-off effect that we had in the quarter.

As far as the CapEx is concerned I mean, we are really targeting ARS4.5 billion. I mean, we don't expect a drop that as you are suggesting of ARS3.5 billion and we are actively working to prevent that from happening.

Okay, great. Thanks very much

Obviously, we have no control on the spectrum auction, and that could be a factor. Thank you.

Perfect. Great, thank you.

Arthur Burns, Deltech.

I know it's an awkward question, but is there anything more specific you can talk about on the ongoing dividend policy please?

Yes. As a matter of fact, not really at this point in time. I mean, the issue will be addressed in due time, but -- I mean sometime early next year. We don't expect anything along, in terms of dividend to happen in the next six months.

Joyce, do we have -- I think the answer is okay with the person who was asking. And if we have additional questions, can we follow on?

At this time, there are no further questions in the queue.

Okay. Well, thank you very much for being at our conference call for the quarter. Please do not hesitate in contacting our Investor Relation Group for any further inquiry you may have and have a good -- a great day all of you and thank you so much, and hopefully meet you soon again. Thank you.

And that concludes today's conference. Thank you for your participation.