Telecom Argentina SA (TEO) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the Telecom Argentina first-quarter 2014 earnings conference call. Today's call is being recorded. Participating on today's call we have Mr. Stefano de Angelis, Chief Executive Officer; Mr. Adrian Calaza, Chief Financial Officer; and Mr. Pedro Insussarry, Head of Finance.

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

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

We would like to remind you that for all those that have not received our press release or our presentation, you can call our Investor Relations office to request documents; or you can even download them from the Investor Relations section of our website located at www.telecom.com.ar/investors. Additionally, this conference call is being broadcasted through our webcast feature, available in the Investor Relations section of the website, and can also be replayed through this same channel.

Before we continue with the conference call, I would like to go over our typical Safe Harbor information and other details of the call, as we usually do in our quarterly conference calls.

We would like to clarify that during the conference call and Q&A session, we may produce certain forward-looking statements about Telecom's future performance, plans, strategies, and targets. Such statements are subject to uncertainties that could cause Telecom's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the public emergency law and complementary regulation; the effects of ongoing industry and economic regulation; possible changes in the demand for telecom products and services; and effects of more general factors, such as changes in general market or economic conditions, and legislation and regulation.

Our press release dated May 7, 2014, a copy of which was 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 the session. Furthermore, we urge the audience of this conference call to read the disclaimer clause contained in slide 1 of the presentation.

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

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

Please refer to slide 3, where we include some snapshots on the Argentine macroeconomic environment. In the first quarter of 2014, the Argentine macro context has become more challenging. After the strong [depreciation] the currency occurred in last January, the economy showed a strong deceleration mainly due to a slowdown in the levels of consumption, a less dynamic industrial sector, a weaker internal demand, and higher taxing pressure, and the effects of a tighter monetary policy. However, an improved second quarter is expected due to positive effects of the coming harvest period, and a better local and international condition.

Moreover, the declining consumption is evident, with strong decline in consumer confidence perceived during the first-quarter 2014. During first-quarter 2014, new macro policies were implemented, such as new price control schemes, set to damper inflation; while in the fiscal front, reductions in subsidies in transport and energy sectors are in the works. That should contribute to avoid widening of the fiscal gap, after several years of expansive fiscal policy.

Moreover, the new CPI Index reached 10% in the first quarter of the year. In that context, the first collective bargaining agreements were settled, with annual salary increases in the range of 29% to 32%. On the monetary front, some orthodox measures were implemented. And Central Bank reserves started to stabilize since April 2014, after a 33% decrease year-on-year.

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

Thank you, Pedro. Good morning to everyone. Please refer to slide 5, where we have a summary of the main achievements for the quarter.

Our business continued to post an important phase of revenue tension of 23%, driven by the growth in mobile Internet, data, and fixed broadband. In this sense, in the fixed line business, it is also notable the increase of 29% in non-regulated revenues. Moreover, it is worth mentioning that the strong improvements in OIDBDA -- before the capitalization of subscriber acquisition cost -- was achieved with an increase of 22% that was mainly due to the revenue tension mentioned, and before [plot] the change to a positive margin in the mobile ends of business.

In terms of clients, with improvement is [moreso] still out, the mobile 3G customer base in Argentina continued to increase, reaching 9.2 million, which represents 46% of the total days versus 52% one year ago.

Our mobile subsidiary in Paraguay, Nucleo, achieved an 8% increase year-on-year in the postpaid segment, with a steady improvement in the customer mix. In addition, FTTx deployment allowed us to offer higher broadband speeds. This has been more competitive with compelling commercial offers. In that sense, it is remarkable that the fixed growth in ARBU rose by 20% year-on-year.

When it comes to our financials, it is important to note that at the end of the first quarter, our net financial position increased to ARS5.1 billion in cash. And after having paid ARS1 billion in dividends last December, for this year, we have proposed our shareholders a dividend payment of ARS1.2 billion, equivalent to a payout ratio of 37%.

Our solid financial structure, together with the proactive hedging actions, such increasing our cash position in foreign currency and entering into NDF contract to hedge the volatility in the FX rate, allow us to navigate through this challenging macro context in a confident manner.

Please turn to slide six for comments on the mobile business performance. As of March 2014, our customer base totaled 19.9 million, with a 4% year-on-year expansion. The quarter results confirmed the steady growth of value-added services, bolstered by the mobile unique Internet users growth that reached 6.9 million customers in the quarter, increasing by 25% when compared to one year ago. Furthermore, the monthly ARBU in first-quarter 2014 rose by 10% to ARS68 when compared to the same period of 2013, bolstered by a growth of 15% year-on-year in non-voice ARBU, despite the fact that the prepaid segment was strongly affected by the slowdown in economic activity.

On the other hand, we can see the positive evolution of postpaid ARBU that reached ARS135 in the quarter, an increase of 17% versus first-quarter 2013, where non-voice ARBU grew by 24%. These results were achieved payments, the limited nominal price increases, and the implementation of the billing-per-segment scheme.

Let's move to slide 7, where we show the mobile revenues performance. Revenue growth in first-quarter 2014 reached 23%, supported by the increase in Internet revenues of 56%, thanks to our smartphone sellout strategy that reached 72% in first-quarter 2014. SAC and SRC continued to decrease as a result of the sustainable reduction in handset subsidy, and this has helped us to improve the return of our sellouts. In this sense, the SAC over ARBU, they show improved to 3 times in first-quarter 2014 from 3.6 times, one year ago.

Please turn to slide 8, where we can observe the evolution of mobile revenues for first-quarter 2014 that grew by 24% year-on-year to ARS5.5 billion, sustained by the growing browsing and non-P2P SMS revenues. Revenues coming from mobile Internet services and data continue to be the main drivers of growth, increasing by 56% and 12%, respectively. Retail voice and wholesale services were both up 11% and 9%, respectively; while handset sales increased by 70%, due to the increase in volumes and the price effect that resulted in the general reduction in subsidies, together with the change in sellout mix as our smartphone participation continue to increase.

Please refer to slide 9, as we move to the evolution of our fixed business. The fixed broadband subscriber base continued with a positive trend, with 88,000 new accesses year-on-year; while the ARBU rose by 20% in first quarter to ARS138, with a stable evolution of churn. In this sense, we have enriched our commercial offer by increasing speeds to recapture flow share, where the 10 megabyte offering was the most demanded, rising by 7 times, thanks to the investments we executed in our network.

Slide 10 shows the evolution of our corporate ICT and data services that delivered a strong 50% revenue growth year-on-year, based on our strategy to consolidate our position as an integrated provider with innovative solutions for the appropriate segment, such as what we have done with hosting and housing services and improving our cloud services capabilities.

Moreover, recent voice lines remain stable, at ARS4.1 million. And we were able to report a monthly ARBU of ARS55 per month, with an increase of 10% year-on-year, thanks to the continuous increase in penetration of service packs, supplementary services, and the positive efforts of bundling the program services.

Moving to slide 11, during first quarter, the fixed business posted an impressive revenue expansion of 22%, taking into consideration that fixed voice services continues under the effect of the tariff freeze. Fixed line revenues totaled approximately ARS2 billion, representing 26% of consolidated revenues. This expansion was mainly due to the growth of our residential Internet services, where revenues increased by 26% year-on-year, or ARS151 million; followed by data revenues, that contributed with a 50% growth, or ARS106 million revenue increase.

Slide 12 shows the evolution of our consolidated capital expenditure. We have invested approximately ARS1.1 billion during the first quarter, which represent 14% of turnover, an increase of 43% versus first-quarter 2013, despite the typical seasonality that affects these periods.

It is notable the increase of 18% in PP&E CapEx in Argentina versus first-quarter 2013. During the quarter, the mobile access rollout continued, with a focus in service quality upgrades. Connection such as the installation and reconfiguration of 6-sector sites, and the 2G to 3G swap of sites, were developed to increase the capacity and capillarity of the network, plus the improvements in the efficiency spectrum users. This resulted in a significant increase of 165% in mobile access capital expenditures. Moreover, we can also refer to the FTTC rollout deployment that increased by 4 times in order to improve growth in access bandwidth; and, thus, being able to deliver an augmented user experience.

Referring to the guidance on the CapEx for the current year, our commitment to service, quality, and network enhancement in both fixed and mobile services will drive our effort to improve customer experience. In this sense, we are expecting that consolidated capital expenditures for the year should be equivalent to 18% of revenues, in line to that executed during fiscal year 2013.

Having gone through the business highlights, now I will pass the call to Adrian Calaza, who will go over our financial performance.

Thank you, Stefano. Please turn to slide 14, where you can see the evolution of consolidated revenues and operating income before depreciation and amortization. In the first quarter of 2014, consolidated revenues reached ARS7.5 billion, with a 23% year-on-year growth, particularly fueled by mobile services in Argentina and fixed broadband that represented 69% and 10% of consolidated revenues, respectively. It is important to underline that this revenue growth was achieved even having not only frozen tariffs in our fixed regulated services since 2002, but also with limited nominal price adjustments on mobile, as we mentioned before.

Operating income before depreciation and amortization totaled ARS2.1 billion in the first quarter, representing 28% of revenues, and growing at a base of 17% year-on-year. As you can see on the small graph on the top right of the slide, we remark that operating income before depreciation and amortization, and before SAC and SRC capitalization, similar to our previous local GAAP EBITDA, increased by 22% year-on-year; while one year ago increased by 9%, as a result of the revenue performance and the general reduction in SAC and SRC previously highlighted by Stefano.

Let us now moved to slide 15, where we [turn into] the evolution of our operating income before depreciation and amortization with its most relevant component. With consolidated revenues growing by 23% year-on -year, we kept our continuous focus on cost control, even though some cost increased above topline levels, mainly due to inflation.

As we mentioned before, significant reduction in handset subsidies allowed us to achieve a positive margin, enhance its business, with sales growing by 66% versus third quarter of 2013, while handset costs increased by 39%. Now with that in place, the revenue mix contributed to the margin dilution of the participation of handset sales in total revenues increased from 9% in the first quarter of 2013 to 12% in the current year. Labor costs grew by 36% year-on-year, impacting our margin in 150 basis points. But it is important to underline that ARS60 million were due to an organization restructuring costs, with an effect of approximately 100 basis points. Going even deeper, direct labor costs increased by 29%.

The increase in fees for services maintained in some materials impacted in the evolution of operating income before depreciation and amortization in 100 basis points, increasing by 36%, mainly due to rises in technical maintenance, licenses of systems, and higher fees for services, all items affected by the peso devaluation.

Moreover, direct taxes on revenues impacted the margin in 20 basis points, growing by 25%, mainly due to further incrementing rates of provincial turnover taxes during the first quarter of 2014, even though at a slower pace when compared to fiscal year 2013.

Additionally, value-added service costs, mainly related to content, continued to increase, impacting our margin in 40 basis points. But this is related to a significant expansion of value-added services with a high margin of contribution.

On the other hand, thanks to strong focus on costs, other marketing and sales costs, interconnection costs, and other costs positively impacted margins.

Please turn to slide 16 to consider the performance of our operating income that reached ARS1.4 billion, with a 23% increase in the third-quarter 2014. Meanwhile, the net income attributable to Telecom Argentina reached ARS889 million, growing by 11%. We must note that the financial results in the first quarter of 2014 [predicted] our loss of ARS32 million. But is worth to mention that it includes a non-cash pretax loss of ARS159 million related to purchases of US dollar bonds, following accounting valuation standards of fixed income securities at the official exchange rate. Excluding this effect, net income would have increased by 24% to ARS992 million.

Regarding our financial position, as you can see in the slide 17, the Telecom Argentina Group continued to report a healthy operating free cash flow generation that reached approximately ARS3.0 billion in the last 12 months, allowing us to reach a net cash position of approximately ARS5.1 billion. Additionally, solid financial policies implemented in recent past significantly limited our exposure to FX risk, where our unleveraged balance sheet with no debt denominated in foreign currency, represents a strategic asset in the current Argentine macro environment.

During this first quarter, we continued with our hedging strategy in order to mitigate the impact coming from the depreciation of the peso. In this sense, we achieved a total hedge equivalent of 120% of our net payables in foreign currency. Moreover, we are able to enjoy a limited impact in the P&L, as revenues in foreign currency almost matched our cost in foreign currency.

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

(Operator Instructions). Michel Morin, Morgan Stanley.

I was wondering if you can talk a little bit about the subscriber trends in your mobile business. You had some negative net adds this quarter, and it appears that it's entirely because of lower gross adds. So I was just wondering if you could elaborate a little bit more on what you're seeing, how the economy is impacting. Because I guess I would have expected churn to go up, rather than to see a decline in gross adds.

And also a similar question, you are still generating very strong handset sales. And, again, that seems to be a bit of a disconnect, given the state of the economy in the quarter. So I'm just wondering if you could elaborate on what is driving that. Thank you.

In terms of mobile business, your question was related to the trends of the customer base. So, first of all, we have to analyze the customer base, dividing to prepaid and postpaid. As you can see, in postpaid, we are posting a positive year-on-year trend. This is the result of our strategy of upselling and moving customer base from the prepaid to the point of [clara], and this explains part of the slowdown in the prepaid segment.

Another important intuition is the seasonality of the first quarter. Just remember you that we have a 13-month rule internally, in order to disconnect the line. So after the Christmas campaign, the 13 months pass by, along the first quarter -- that year in Argentina is summertime, so there is reduced commercial activities. Last but not least, we have in the prepaid a slowdown in the gross addition. So if we sum up these three components, I think that you have a picture of the situation.

In terms of handset sales, we -- in this moment, we are confirming the growth that we are experimenting this quarter. This is mostly driven by price than by volumes. We are seeing some reduction in volumes, where compared to our expectation that was to increase the stance so that the volumes of handset compared to 2013. But in this moment, we are compensating this volume impact, compared to our expectation, with a substantial price increase that is driven by the favorable mix in terms of smartphone, and by the impact of the dollar -- the value of the peso, devaluation when compared to the dollar.

Okay, great. Thank you very much.

(Operator Instructions). Alejandra Aranda, Itau.

Hello, good morning; great results. I want to ask you a question about what we've seen this week: the law that is going to be debated in the Senate regarding whether or not cell phones are going to be a public service, which would give the government to the ability to control your tariffs. I wanted to see what is your perspective about that, and what we should expect. Thank you.

Thank you. This discussion about the declaration of public service of the mobile business is something, that here in Argentina, is honored by several years. I think that the most important thing is not -- because if we look at the wireline business that now is still a public service, the program honestly I have managed for (technical difficulty) year the concept of public service for [six] selectmen in Europe without any negative impacts in the financials of the Company.

The problem here in Argentina is not 100% on the public service. It is how the public services is managed by the authorities. Because the problem of the wireline business is that their tariff that is freezed by 13 years. So I think the depression is not what will be the impact of a declaration of public service in the mobile telephony, or what we can expect -- how we can expect that this manage a mobile business after the declaration of more of public services.

On the other hand, this is, let me say, my opinion of what may happen if -- if you ask me what we can expect in the next quarter, in the next month -- we were expecting a new regulation of mobile business, driven by the regulatory watchdog that was announced in September, and that it is being discussing with the companies and with the public, through public audience.

So my expectation today is that we are not going in the public service -- working through the public service. But we are going to have a new set of rules for the mobile telephony, in line with the project that is not a low project from a specific party, but is the new rules coming from the watchdog here in Argentina.

In these set of rules, there is a strict control of price, but not the declaration of public services, and the mandatory price increase that has to be approved by the government. There are stricter control when compared to what happened in the last [ten year]. And I think that we will advance, we will take advances in this set of rules that are public, and that have been discussed by several months with the authorities.

Thank you. If I may, one more question. It seems like all the debates with this new law, and the regulation is factoring low-quality service. From where we stand, it looks -- what we are missing is the spectrum option at the end of the line.

So do you see that this may come up again? Do you see this as a possibility to discuss what the government needs to rethink its stance on the spectrum option that is suspended, or spectrum option for 4G that would give you the possibility to continue to grow?

Yes. Let me explain again. At the project -- because we are discussing about five or six -- I think, five different low projects. And these are coming from all -- let me say, the political parties here in Argentina. Why? Because, obviously, the penetration of mobile service in the electoral base of Argentina is 100%. So everybody wants to stay into this issue that is very popular. This is only referred to this declaration of public service, and do not enter into any impact regarding the spectrum.

If we move to what we expect the logical, and have a relation that we have with the telecommunication authority, we are discussing this issue of the spectrum by several quarters -- by several months. And what we may expect is that along 2014, something is going to happen.

What is most probable is that an option of the frequencies for the 4G. What we are interested mostly is to add the frequencies for the 3G. Because these frequencies may help us to improve immediately, let me say, the capacity, and consequently, the quality of our work services tomorrow. The 4G will help us to grow in the future, in 12 to 18 months after the spectrum availability.

We are most interested in having the 3G spectrum. The 3G spectrum, let me say, is mostly a political issue. Because as you probably remember, the spectrum was stopped the option because of the concentration between Telecom Italia and Telefonica that the spectrum assigned for the launch of a new and mobile operator from the government -- from the state. Now we are two years far from this declaration, and nothing has happened until today. Why? Because again, this is again a political issue. On the other hand --

(multiple speakers) I completely agree with you.

I think it's more easier to have an advance in the next quarter for the 4G.

Okay, okay. Thank you so much.

Michel Morin, Morgan Stanley.

Thank you for the follow-up. I was wondering if you could update us on the raise negotiations. Maybe they haven't started yet. But what's the latest on that?

And secondly, with respect to the offer -- the transaction with FinTech, could you update us on where that stands, as well as remind us on what is required of the buyer in terms of offering the same terms to the public? Thank you.

Regarding the so-called paridad that is the negotiation, we have to remember to you that the 16,000 employees of Telecom Argentina, we have, let me say, two big components. One, that is part of this discussion that are the [ex-Intel] contracts, let's say. And there are others that are in different -- with different unions, and that follow the commerce agreement, for example, that have not discussed directly with Telecom Argentina. This would refer to the ex-Intel contracts we have started in this day's discussion. The new date is the end of June. And as always, let me say we can expect the discussion that ended with something that is in line with an expected inflation rate. At this moment, the expected inflation rate is in the range of 30%. So this is our expectation for the renewal of the price adjustment of the Intel contracts.

Regarding FinTech, just remember that the contract between FinTech and Telecom Italia has August 13 at the due date of the contract, the last date of the contract. The closing of the operation is subject to the approval of the [succumb] of the telecommunication work stop, not the antitrust one. And as you probably may see in the newspaper, the discussion has been a little larger than expected, due to the FinTech participation in Cablevision that is a broadband and TV content distributor in the Grupo Clarin that is part of a restructuring process, based on the (technical difficulty) media load that obliged the Grupo Clarin to be restructured. So in the third quarter, for sure, we will have some news. Because in August, the due date of the Telecom Italia, FinTech FTA (multiple speakers).

And if somehow they find a way to get around those issues -- those antitrust issues, and there is a transaction, can you remind us of what the obligation is to extend an offer to the public?

From FinTech?

Yes.

The [Senate] group rules that applies in case of change of control, to where -- I don't know. But the base price of the [offerer] of the mandatory public offer is based on the transaction price and the average of the last six months (multiple speakers) then evaluation [multi]. But I think that is the general low as worldwide -- in the worldwide benchmark. You have to remember that (multiple speakers). Sorry?

Just to clarify, you said it is based on the last six-month trading price.

One of the -- let me say that the mandatory variable that we have to consider -- then I pass it to Pedro; he is the expert of the local regulation. One of the mandatory variables is the price of the last six months.

And then Pedro may add on.

Michel, this is Pedro. Good morning. I'm far from being an expert in the new capital markets law. But, anyway, I will try to describe the criteria. Basically, when you have a change of control in Argentina, you have the acquirer, which in this case would be FinTech, has the obligation to do an offer, basically a mandatory proffer to shareholders. For the entire stake, obviously this is mandatory for the acquirer. Obviously shareholders have the chance to go with the offer, or not, taken basically. It doesn't mean the withdrawal of the public offering. Basically an offer to purchase, okay?

Within the criteria that the acquirer has to follow, in terms of what is the price, it's basically what is the price of the transaction, the last six months; the average price of the last six months; and also the valuation multiples comparable to the Company, and just the comparable, okay? But again, this is an issue that obviously the acquirer indicates, in this case FinTech, has to undertake.

Okay, and regarding the price of the transaction, given that there's shares held in different buckets -- I don't know if there's different prices. But can you help us -- and, also, the currency has moved, so I was wondering if -- was the price set in dollars? And do you have, already, a reference price per share for payout?

This is something that is (multiple speakers) the shareholder. But I can tell you that the FTA -- that all this information is public -- FTA,(multiple speakers) that you can download from the SEC. Just to answer the question, because it's public, the price is in dollars. And in the government, you have all the components of the price because as you probably know, and it was referred, there are different components, different types of shares that were part of the agreements. Because as you probably know, part of the sales effort in December is the stake of Telecom Italia in Tierra Argentea, and variously hold by Telecom Italia was just sold to FinTech. But all this information is public, and you may download from the SEC web page.

Perfect. Okay, thank you, then. And given that there weren't any other questions in the queue, can I ask also what you are seeing in Paraguay? You had very strong results there, it seems. So I was wondering -- I haven't checked to see if it was currency-related, or what are you seeing there?

Clearly, we have a positive impact from the exchange rate, because the guarani does not have any significant change when compared to the dollar. The situation in Paraguay is quite good, because the Company has a very good financial, very good profitability. You know that we receive dividends in dollars from Paraguay, so we are very happy with the performance from Paraguay.

In this moment in Paraguay, we are discussing how to improve our positioning, moving to other business that I think is very important. Because our competitors, for example, Claro, is active in the media business. You know that Tigo has a very huge market share, and is active in the wireline business. So we are trying to bring forth our positioning in Paraguay. But, again, we are very happy with the results, and the results are quite positive from Paraguay.

Great. Thank you very much.

Rodrigo Villanueva, Merrill Lynch.

I was wondering if you have seen any change in trends from SMS revenues? And if you could share your thoughts regarding the new -- the launch of new communication applications, such as WhatsApp? Thank you.

In the full-year 2013 presentation, we were showing some -- the drivers of not the [clac] exactly the impact of WhatsApp, but what is happening in our customer base. Just to remember, use some figure, we have here in Argentina, a 95% integration of the SMS usage. And this is an historical trend that was boosted by personal and automobile operators. And this, on the other hand, gives you a very low usage, of the boys especially, in the prepaid segment.

This means that obviously with the push that we have in this month for penetration, we are creating a negative impact in the SMS usage (technical difficulty) if you look at the revenues from SMS year-on-year, we are substantially flat. That's obviously considering the devaluation impact -- the inflection impact is not so positive.

On the other hand, we're growing approximately 60% in browsing revenues. And if we look at the ARBU -- [samming] voice mass, browsing mass, SMS. When we have a customer adopting a smartphone on a global base, we have an increase of the ARBU that is from 1 to 1.5 of the [ex ante] ARBU. So net-net, now adopting WhatsApp, we have -- if we done -- the negative impact in the SMS revenues, and the positive impact in the browsing revenues, we have a net-net positive impact.

Another important item is that the SMS is strongly used in the prepaid; while, in our postpaid days, that is 30%, at a percent -- 60% of the revenues. The impact is quite negligible, because we have bundle of data and SMS. So if the customer uses data and customer uses SMS, we have no impact in the monthly fee, so the monthly fee continues to be the same. If we look at the prepaid -- in the prepaid, if we look at the average penetration of smartphone that is about 30%, in the prepaid, this penetration is still lower.

So what does it mean? That today, the adoption of WhatsApp is higher in the postpaid segment that is more protected by this bundle offer that we have in this segment of the business. That's why we are still facing, let me say, a net-net positive impact.

Net-net, in terms of commercial strategy, what we have to do? We have to continue to boost the browsing revenues and the browsing ARBU, and that is what we're doing. If we look at the price, the unit price that we are growing in the prepaid segment is the price of the Internet. We move from 1 package two years ago, to 2.5 today. And I think this is the strategy that we have adopted, and that gives us a future proof commercial view into the future.

Understood. Thank you very much.

Federico Rey, Raymond James.

My question is regarding the -- if you could comment on the policy regarding the allocation of the, or [reelection say the treaty]. Or, in other words, it will be the -- in which type (inaudible). Thank you.

Basically the -- what I would that, as we mentioned during the conference call, this is a strategy -- these rates is basically a strategy focused more on the hedging of our liabilities denominated in foreign currency. Basically, we have, on one side, diversified our cash investments towards basically dollar-denominated bonds and dollar-linked bonds. And on the other hand, we ventured into NDF contracts in order to hedge commercial contracts -- a portion of our commercial contracts. So, basically, our strategy -- our investment strategy is more focused towards mitigating future FX volatility that could impact our P&L on the long run.

Obviously, this -- as you may know, in Argentina in terms of NDFs, you don't have long terms in order to hedge the volatility. So we have to go into some type of roll-on scheme in order to have this volatility covered on the commercial contract. But basically, these days, our method or strategy has been focused on this.

Okay. Thank you.

(Operator Instructions). It appears we have no further questions at this time.

Okay. Thank you, everybody, for participating on this conference call. Please do not hesitate to call our Investor Relations department for any further inquiries you may have. And good morning to everybody. Have a nice day. And we expect to speak in -- for coming days. Thank you very much.

That does conclude today's conference. We appreciate your participation. You may now disconnect.