Telecom Argentina SA (TEO) 2014 Q3 法說會逐字稿

Good day, everyone, and welcome to the Telecom Argentina TEO third quarter 2014 earnings conference call. Today's conference is being recorded.

Participating on today's call, we have Mr. Oscar Cicchetti, Chief Executive Officer of Telecom; Mr. Adrian Calaza, Chief Financial Officer; Mr. Pedro Insussarry, Head of Finance; and Mrs. Solange Barthe Dennin, Manager of Investor Relations.

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

Good morning to everybody. On behalf of Telecom Argentina, I would like to thank you for participating in this conference call.

As mentioned by Drew, our moderator, the purpose of this call is to share with you the consolidated results of Telecom Argentina Group that corresponds to the nine-month period of 2014 ended on last September 30.

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

We would like to clarify that during the conference call and Q&A sessions, we may produce certain forward-looking statements about Telecom's future performance, (technical difficulty). Such statements are subject to uncertainties that could cause [that the] actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effect of public emergency law and complementary regulations, the effect 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 November 3, 2014, a copy of which has been 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 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 a general market overview, followed by the discussion of the business highlights, a review of our financial figures, and then we'll go over to some conclusions, followed by some relevant matters. Finally, we will end the call with a Q&A session, as we normally do in our quarterly conference calls, with the financial community.

Having gone through these procedural matters, I will go over a brief macro overview as an introduction to the general operating environment. Please refer to slide 3, where we include the snapshots of the current Argentine macroeconomic environment.

In the third quarter this year, the Argentine economy continued to suffer from internal and external restrictions. During the period, the industrial production remained depressed, after suffering from the January devaluation, from the tax hike imposed in the automobile sector, and from lower demand coming from Brazil. Moreover, a reduction in international prices affected by the agricultural exports deepened the slowdown trend in the level of activity.

With the aim of mitigating this situation, the government continued implementing measures to stimulate the economic activity, but no recovery signals have appeared.

As good evidence of this prevailing weak activity, we can note that car sales fell by 42% versus September 2013, while real estate activity decreased by 2.8% versus an already depressed September 2013, and at 52% versus 2011.

Additionally, we can say that after a strong decline in February, right after the devaluation of the peso, the consumer confidence index showed a stable performance, but a new slowdown was registered in September. Moreover, a strong reduction in consumer indicators was evidenced in the quarter, such as the decrease in retail sales, while consumer loans were affected by a deterioration of wages measured in real terms. In addition, the new CPI index reached a cumulative 20% in the first nine months of the year, stabilizing in a level of approximately 1.4% per month during the quarter.

On the monetary front, not only a decline in oilseed and grain export liquidations, but also devaluation expectations and the holdout situation had an effect on the supply of foreign currency. As a result of this, central bank reserves showed a decrease of 20% year on year. Furthermore, the Argentine government is actively monitoring the FX market with the aim of dampering any expectations of devaluation of the peso.

In addition to this, trade balance showed some improvements in the third quarter 2014, but this was obtained through tighter constraints on imports instead of increases in exports.

And having gone through this introduction of the macro context, let me pass the call to our CEO, Oscar Cichetti, who will go over the business highlights. Oscar?

Thank you Pedro. Good morning, everyone. It's really a pleasure to participate on this call for the first time since I joined Telecom Argentina a few weeks ago.

I will start with slide number 5, where we summarize the main achievements of the quarter. Let's start with the business news. Good news on internet, both on wireless and wireline.

Internet mobile users and revenues continue to grow. New users grew by 1.1 million year on year, and wireline broadband continued to gain strength, by adding 81,00 new subs.

Something about the network. As far as the network is concerned, two items. First, we have continued the expansion of the 3G network, but in the meantime we have been preparing our infrastructure for the 4G deployment.

The rollout of the VDSL technology based on fiber to the cabinet architecture continued, and this is enabling us to offer fixed broadband speeds of up to 50 megabits.

Furthermore, the most important news I think is our participation in the spectrum auction held on October 31. This was satisfactory. We submitted the highest offer for lots number 2, 5, 6, and 8. If we succeeded at the end, this will grant us with an important and relevant spectrum resource that will allow us to [compete in the 50 mega cap] in the 3G, together with 30 megahertz in 1.7/2.1 gigaband and 20 megahertz in 700 mega band. For all those blocks, we have committed the equivalent of $658 million equivalent.

Now, moving to the financials, our business continued with a similar rate of expansion trend registered in the recent quarters, achieving 22% increase, driven by the growth of mobile internet as well as fixed broadband and data services.

In the prevailing economic environment, we have undertaken efforts in cost efficiencies to mitigate the effects of the inflationary [constraints].

And now, if we move to slide number 6, here we show the evolution of our consolidated revenues. As I already told you, the growth of 22% -- that means ARS4.4 billion -- was mainly the result of the expansion of data and internet in the mobile and wireline, as well as higher mobile handset sales, [more indicated] in the fixed business [thus accelerating its increase] by 54% year on year, and internet net revenues contributed with a 28% growth. In the mobile business, I'd like to highlight that the growth in revenues coming from internet services, 56%, but also 67% growth in handset sales.

We will go into some details about those numbers in the following slide. Please turn to slide number 7, where we put some general comments on our mobile business. During the third quarter of 2014, customer gross adds amounted to 1.7 million, while the monthly churn remained stable at level of approximately [3%].

Our customer base totaled 19.8 million. That is a similar level registered in the previous quarters. Nevertheless, monthly unique internet users increased by 17% year on year and reached 7.4 million customers.

Accordingly, subscriber market share reached an estimated 33%.

Our strategy here is very clear. It will be focusing on high-value customers -- as you can see, the postpaid ARPU is four times the prepaid -- and high-value services. You can see that browsing ARPU grew 41% and smartphone penetration reached 30% on our customer base.

Now, let's move to slide number 8 to go more in details to our performance in the prepaid segment. In this segment, to reverse the effects of the prevailing economic context, we have launched in April a new offer under the "Super Chip" concept. Customers are able to benefit from additional prepaid credit, with a clear goal of stabilizing and recapturing frequent recharges while stimulating the usage of voice and data.

In this sense, we have noted some good results. After the launch of new Super Chip, we observed the following outcomes. The first is a recovery in the level of customers that recharge within the 30-day period, and this was the main goal of the offer.

A relevant growth of [MoU] that was and continues to be in this segment very low. I have to highlight that in the same time we registered also, unfortunately, a continuous decrease of person-to-person SMS usage. This is mainly due to the [over-the-top services] expansion.

The third outcome is (inaudible) evolution of browsing ARPU, that increased 50% in comparison with the third quarter of 2013.

Now, please turn to slide number 9, where we describe what's going on on the postpaid segment. In terms of customer base evolution, total subs remain quite stable, at 6.3 million. During the third quarter, MoU stabilized at 195 minutes, while browsing ARPU increased by 40%. Here, with reference to the MoU, we have to note that this trend was affected among other things by the implementation of the billing-per-second that started in the first quarter.

I've already told you we want to maintain and expand the postpaid customer base. For this reason, we decided to launch in October two innovative offerings, and they are Black Ilimitado, that in the framework of the Black brand offers unlimited voice on net and SMS to the high-end customers. And the second is Dia Full, that has introduced for the first time here in Argentina the concept of [the same price] for unlimited voice on net and SMS.

Now, if we move to slide number 10, we can see some numbers and some KPIs on the wireline. In a trend that started in late 2013, we notice that the growth in the fixed broadband offering has [strengthened, with] the number of broadband accesses increased by 5% year on year, with 81,000 new adds, regaining leadership in terms of flow share during the quarter. In this sense, we have continued to enrich our commercial offer where the 10-megabit fixed solution continued to be the most demanded, rising by three times.

As to broadband ARPU and churn evolution are concerned, ARPU rose by 26% and the churn reduced to 1.3% [for the month].

Finally, and absolutely important, data revenues continued to grow at very [impressing] pace, with total revenues of ARS1.1 billion. That means an increase of 54% year on year. This has been achieved by means of new IP service proposition and (technical difficulty) activity and [IT] services.

Now, in the next slide, slide number 11, we have been talking about CapEx. We have invested approximately ARS3.8 billion during the nine months of 2014, and these represent 16% of revenues, also [representing an] increase of 32% versus the nine months of 2013. It's important to highlight that the CapEx in Argentina rose by 40% year on year.

Some words about it. The drivers for our CapEx allocation strategy are very clear: coverage [deep] and quality to ensure a superior quality of experience to our broadband customers. For this reason, I'd like to highlight the continuous broadband fixed and mobile access development despite delays in granting of permits. Referring to wireline [FTTx] deployment that we have been able to increase our connection by three times, and we have increased by 62% the number of 3G cells.

Having gone through what I consider the main business highlights, now I will leave the floor to Adrian Calaza, who will go over our financial performance. Adrian?

Thank you, Oscar. Good morning to everyone.

Please turn to slide 13, where you can see the evolution of consolidated revenues and OIBDA. During the nine months of 2014, consolidated revenues reached ARS24.2 billion, with a 22% year-on-year growth, driven by mobile services and handsets in Argentina and fixed broadband that represented 69% and 10% of consolidated revenues, respectively.

Even if it is well known, it is important to underline that this revenue growth is affected by the fact that we continue to have frozen tariffs in our fixed regulated services since 2002, with a monthly fee actually equivalent to just $1.50. As a consequence of this, regulated revenues now represent only 7% of total revenue.

Operating income before depreciation and amortization totaled ARS6.2 billion in the nine months of 2014, representing a 26% of revenues, and growing at a pace of 11% year on year. One of the factors that we would like to note is that the subsidy or margin evolution on mobile handsets were from a net loss of ARS148 million in the nine months of 2013, we are now at a positive contribution of ARS463 million.

This [led us to] slide 14, where we [see] into the evolution of our operating income before depreciation and amortization, with its most relevant components. As mentioned before, with consolidated revenues growing by 22% year on year, but in a context of accelerating inflation and contraction in consumption, we have redoubled our efforts to control costs and to increase efficiency, even though consolidated operating costs increased above top line level, mainly due to increasing taxation and labor and labor-related HR costs after the impact of new collective bargaining agreement that came into force in July.

As we previously mentioned, significant reduction in handset subsidies allowed us to post a positive margin in the handset business for a fourth quarter in a row, with sales growing by 63% versus the first nine months of 2013, while handset costs increased by 44%.

Labor costs grew by 34% year on year, impacting our margin by 140 basis points.

In addition, the increase in fees for services, maintenance, and materials impacted in the evolution of operating income before depreciation and amortization by 70 basis points, increasing by 32%, mainly due to [rises in technical containers, licenses of systems,] and higher fees for services -- all items affected by inflation and the peso devaluation.

Moreover, direct taxes on revenues impacted the margin in 10 basis points, growing by 23%, mainly due to further increments in turnover taxes raised during the nine months of 2014, even though at a slower pace when compared to fiscal year 2013.

On the other hand, and thanks to a strong focus on gaining efficiencies in costs, other marketing and sales costs, interconnection costs, and other costs positively impacted margin.

Please turn to slide 15 to review the performance of our operating income that reached ARS3.8 billion, with 18% increase, in the nine months of 2014. This evolution considers a positive effect when compared with last-year figures that included charges related to disposals of PP&E.

Meanwhile, net income attributable to Telecom Argentina reached ARS2.6 billion, growing by 14%. We must note that the financial results in the nine months of 2014 were affected by a non-cash pretax loss of ARS228 million related to the purchase of US dollar bonds following accounting valuation standards of fixed income securities at the official exchange rate.

Regarding our financial position, as you can see in the slide 16, Telecom Argentina Group continues to report a healthy operating free cash flow generation that reached approximately ARS1.3 billion over the last 12 months, allowing us to [reach and present] a net cash position of approximately ARS3.5 billion after paying a significant amount of CapEx, taxes, (technical difficulty).

It is worth noting that 86% of our financial position is in cash [denominated in or linked to] foreign currency, while only 5% is in Argentine pesos.

As we highlighted in the last quarters, solid financial policies were implemented to limit our exposure to FX risk. In this sense, as of September 2014, we achieved a total coverage equivalent to 150% of our net payables in foreign currency.

On slide 17, we show the evolution of dividends. For fiscal year 2013, a dividend payment of ARS1.2 billion payable in two equal installments was approved. The first one was paid in June 10, while the second one was paid on September 22. Considering both installments and the ADR price and FX rate as of the time of declaration, Telecom Argentina accomplished a dividend yield in US dollars of 3.8%, while the average in LatAm telcos was 3.6%. Furthermore, from 2012 to 2014, the dividend paid in pesos increased significantly, by [49%].

Let us move to slide 19, where we summarize the evolution of our operating income before depreciation and amortization and the actions we are taking to improve the performance. When we look at the evolution of the operating income before depreciation and amortization, we notice that the year-on-year growth has been moderated in a challenging year, achieving a 7% in third quarter compared with a 10% increase in the second quarter and a 17% growth in the first quarter.

In this context, we have implemented certain actions that we expect will contribute to a favorable evolution in the fourth quarter, after already posting in the month of September. We have introduced recent price increases in mobile, with the expected full income -- full impact in the fourth quarter.

Moreover, appealing commercial offers, such as the Super Chip in the prepaid segment and Dia Full (inaudible) offering for the hybrid accounts, were launched to enrich value propositions and should have positive effects in consumption.

The positive trends in KPIs such as browsing ARPU, prepaid recharges, and MoU are encouraging in this sense.

Furthermore, we continue making efforts in cost efficiencies to mitigate the effects of the inflationary context.

Among the relevant matters that we would like to note, on slide 21, we go through the recent changes in capital ownership. On October 25, Telecom Italia announced the amendment of the [stock] purchase agreement signed with Fintech on November 2013. The first part of the transaction where Fintech pays [$113.7 million for the 1.58% of TEO outstanding shares and for the 8% of Nortel Preferred B shares] was previously executed.

Moreover, on last October 29, Fintech paid [$250.7 million] for 17% of Sofora shares.

The fate of the 51% controlling interest of Telecom Italia in Sofora for an amount of the $550 million is conditional upon obtaining regulatory approval by the [Secretaria de Communicaciones] and will not occur until it is obtained. The remaining [$8 million] correspond to additional agreements related to the transaction and be paid after the deal is closed.

No material change in the corporate governance of Sofora and its subsidiaries is foreseen.

Now, I'll leave the -- for Oscar to talk to you about the spectrum auction.

Thank you, Adrian. In the next two slides, we try to summarize the reasons why our behavior in the "subasta," in the auction. If you go to slide number 22, you can notice that our presence is different in the three areas of Argentina. Namely, in the northern region, we have a technological and market leadership, as much (technical difficulty) we have the highest market share, good coverage, and satisfactory [space in the spectrum].

In the really important area of Buenos Aires, the so-called AMBA, we have a very, very critical situation because we have a good market share -- we have the second best -- but with a very, very relevant competitive gap in terms of size and in terms of spectrum resources.

Third, in the south, we have [a few size, few spectrum -- we have few spectrum resources --], but on the other hand, we have the lowest market share.

So, if you now move to slide number 23, here you can see the results of our participation in the spectrum auction. Starting with 3G, as I already told you, we have bid to complete the 50-megahertz cap in all three areas in the lots that are most suitable to our operation. As far as the 4G is concerned, we, Personal, submitted the highest bid for [lot number 8]. That was 30-megahertz in the 1.7/2.1 gigaband and 20 megahertz in 700 megahertz.

We do believe that (inaudible) quality of this spectrum will leave Personal as the best-positioned operator in the market. We will be able to maintain leadership in the north, to fill the gap in AMBA, and we will also get an important room for growth in the south.

That the Company has committed in the auction, as I already told you, the total consideration of the equivalent of $658 million.

The next steps in the process are the frequencies allocation by the Secretary of Communications. That is expected to occur in the period of 20 days after the auction. The payment will be in the following 10 days after the frequencies are awarded.

I'll leave the word to Pedro to [end] the presentation.

Okay. Having concluded with the presentation, we open the call to any questions the audience may have. Drew, can you follow on?

(Operator Instructions) Alejandra Aranda, Itau.

I have a couple of questions, if I may? My first question is regarding to the payment method for the auction. If you could comment if it's going to be in dollars? Or at one point, they were talking about bonds denominated in dollars, also in pesos. So, if you could give us some heads up regarding that?

My second question would be regarding CapEx. How should I think about CapEx, going forward, with the 4G deployment? And of that, how much should I think in dollars and what amount, what percentage would be in pesos?

And then, my last question is regarding this new law that is going to be sent today to the Senate. If you can comment a little bit on the possibility of offering a three-play? Is your network ready? How long it would take, if it's not, to take it there and start growing on that segment? And if you have any points of concern regarding this new law?

Regarding the spectrum payment, we are thinking of a mix of those things that you said, as it did in the terms and conditions. Some conditions allowed the payment being integrated in part in US dollars, part in -- put in (inaudible), and the remaining part in local currency. We are working on a mix of this [entrance], trying to avoid any foreign exchange financing.

The second question related to the CapEx level will be answered by Oscar.

First of all, a few words about the CapEx strategy for the coming years. It's absolutely clear than when we have to roll out a new network that is 4G, of course we have to review all the CapEx mix among the technologies. So, our CapEx plan without the 4G frequency would have been completely different. Now, the CapEx plan taking into account the new frequency on 3G and mainly the possibility to quickly deploy the 4G coverage would be a different mix among 2G, 3G, 4G, [the calling macro cells and small cells]. So, it will be completely different.

In terms of mix between dollars and pesos, Adrian can give more information.

We think that for the next year, (inaudible), the mobile assets growing in the participation on CapEx, we think that the actual 50% of dollar-denominated in CapEx will be increasing. We don't have the exact amount yet, but for sure it will be growing over some [some big two points].

Back to the third question about the [new project of Argentina Digital], I think we -- this is the process that started a few days ago. We do not have clear evidence about the process, about the time frame. Usually, implementation of a law that is so important should take an important period of time. Having had a glance at the law, there are some important issues that need to be addressed, that for example, the new taxes, the wholesale prices for the network. But there are also saw relevant opportunities that could be better understood, like the possibility of convergent offers, the freedom of changes for wireline.

So, I think that we are just at the beginning of a process that in my experience could last a lot.

Okay. Thank you.

Michel Morin, Morgan Stanley.

Just on the handsets, it seems that you've continued to book strong revenues and you're actually now making profits on handset sales, which is somewhat unusual. So, I was wondering if you can talk about what's really happening here? Are people basically buying handsets and trying to sell them later to preserve the value of their accumulated wealth? I'm not sure exactly what's happening here, but if you can comment a little bit on that?

And then, secondly, in the auction it appears that there was a new entrant that also bid and won some spectrum. So, if you can also share with us any details you have on that, that would be helpful.

Let me start from the second question, about the new entrant. You are right. The auction had spectrum resources both in 3G and 4G for a new entrant. A new entrant participated to the auction and made an offer. To the best of our knowledge, for the [space] he was the only participant. He made just [the basic] offer. It should be granted the spectrum resources. Of course, the spectrum resources are lower than the resources for the other operators.

I would stop here because, of course, you can understand what's going on in order to implement a 3G-plus-4G network from scratch. We will see. We will see. Many of the -- we and the other operators are very, very astonished in seeing a new operator from scratch building a network, building up a network and a customer base. But let's see.

As far as the second question, first I think Adrian will comment better on the economics of the handset sales. I would simply highlight that the handset sale for us is an important way to stimulate the growth in data business. If I'm not wrong, when we sell 100 handsets, 88 are smartphones. So, we are absolutely -- for us, this is an important tool, an important lever to foster the data business growth.

Adrian, some news about the economics?

About the positive margin in terms of the handsets business, Michel, the key here is the financing. We are allowing the customers to pay for their smartphones in 12 installments, six installments. So, this is the appealing, and this is allowing us to -- using our own cash or even financing them through credit cards, we are allowing the people to have a new smartphone. So, I think the key is the [situation].

I want to add something about the new entrant in the auction. An important thing to consider is that the coverage obligations for the new entrant are exactly the same that we have, just with a difference of six months' delay. So, again, it's really interesting what can happen with this new entrant having to build a new network, or two new networks, from scratch with the same obligations that we have.

And just to expand on that a little bit, they bought which frequency? The AWS? And this is part of the same group that has a cable business. So, it appears that they would be allowed to offer both? It's part of the same economic group, if I'm not mistaken, that provides cable TV in parts of the country. Is that not correct?

Yes, it's a local group from the interior of the country, particularly from Mendoza. They have the second cable operator on the country. And they offered for the lot 1, that has 20 megahertz in 1,900 for 3G services, 20 megahertz in 700, and 20 in AWS -- [all for] 4G services.

Great. Thank you.

Walter Chiarvesio, Santander Bank.

My question is regarding the profitability of this investment in 4G. Basically, to put it straight, you are investing more than $600 million in frequency plus the infrastructure, which could probably more than $1 billion. So, my question goes to, how do you expect these investments will pay? And how much should be the profitability in terms of value-added for the stakeholders, the majority?

Because what we see is that the ARPU is above ARS70, probably below $10, and I guess that you are estimating that some subscribers will be willing to pay a higher deal for these new services or you expect to attract more subscribers, which is difficult in a competitive environment. If you can provide some guidance on how this will evolve into the future? Do you think that we would see a higher ARPU on the back of this service? But the economics of this investment is what I'm trying to understand.

Of course, this is a crucial question. We made a lot of evaluation on the frequency, on the investment, on the different alternatives. It would take a couple of hours, or better a couple of days, to explain all the sensitivities and the valuation that we did.

Let me summarize in a few concepts. Adrian can expand later on, but a few concepts. First, the data -- the mobile services will be all over the world 4G. No question about it. SMS are disappearing right now. Voice tends to be, let's say, sort of optional. And customers will be paying for data, will be paying just for data. And data, as you probably know, can go just on 4G. 4G is the technology for mobile data. 3G has been invented as a voice technology and then assumed as a data technology.

That's it. If we want to participate the mobile business, wherever in the world, we need 4G. We could have been saying: Okay, don't buy it now; buy it later; wait for the new auctions. I have to say that this is the first auction after how many years, Adrian?

1999.

15 years.

After 15 years. So, waiting for the next auction [perhaps] should be -- I would not have been confident about it. So, this is the first point.

Second, once we decided -- and it's absolutely important; it's absolutely unavoidable to [undertake this decision] -- to get onboard of the 4G business, now we had the alternative to bid for two spectrums or the best spectrum. We decide to do the best, and we are absolutely confident that the [$15 million] if we compare in the second [block] or [$100 million] if we compare to the (inaudible) third block are absolutely a very good investment, because the track record in the world, the benchmark in the world, say very clearly that the best customers, the highest ARPU, are with the operators with the best quality, with the best performance. Period.

Third, (inaudible), let's say, suggestion about the market. We are -- in this country, if we (inaudible) do not consider the threat of the [phone] operator -- and I tend to not consider it a threat, though respect of course -- this is a market with three operators, 33% of market share each. So, it's a balanced oligopoly in this country. So, this means that in other countries being the full operator, let's say, call for consolidation.

Last of course and the best -- last and absolutely not least, but most important, we are assuming that Argentina will continue to be or will come to be again a normal Latin American country.

I don't know if Adrian wanted to add anything else?

No. I think that you said it all. Just to about your concern about if we are adding value to our shareholders, if you consider that we offered above the base [price], so we think that there is still plenty of value there.

Spectrum for a mobile company is something that you cannot find some other thing more useful. So, as Oscar said, we are pretty confident with what we did on the auction last Friday.

Okay. Thank you. Allow me to state the question in a different way, or a similar way. In your opinion, this investment will have a profitability that is higher than the cost of capital for Telecom Argentina? Is that the case?

Yes. As I said, if we offered a higher value than the reserve, we feel that we are above the capital cost.

Okay. Thank you very much.

Sunil Rajgopal, HSBC.

I have two questions. Firstly, on the proposed reforms in the sector, I would just want to know would there be any changes or deregulation in terms of fixed line pricing environment? And also, I read the proposals included opening up the sector for greater competition, allowing MVNOs and also [ULL] operators, if I am right? And how do you see the pricing environment to go, to develop from here?

And my second question relates to the overall growth rates. Would you be able to provide us with the organic growth rates, excluding the exchange rate impacts for this quarter? I struggle to see what would be the impacts due to the inflationary effect.

Let me start for the first, and then I will give the floor to Adrian for the most complicated question.

The first, as I told you, is not clear in us. We do not have enough information about the new law. For sure, in the text that we have been reading, from many information, some of those are contradictory. So, we have really to understand.

As a matter of fact, if we [stay] to the wording, the current wording is going to change a lot. In those changes, there is something that seems to be an important signal for our business model, because Argentina is the country with the price for wireline is absolutely the worst in the Latin American [part] in the world.

So, when they say that they want to give flexibility and freedom of action to the operator in the retail market -- so, to have free prices -- for us is only a good news.

As far as the opening of the market, I could be welcomed to some extent. If the wholesale price were established as in the other countries on a cost base, on a long-term incremental cost, or whatever, that could be a good news, [that] it's something that can support the increase of prices in the wireline.

As far as mobile data, the MVNO, we know that in the rules of the auction, there is an obligation very, very limited for MVNO. So, even in that case, if we stay to the experience in the other countries of the world, the MVNO to get a very, very low market share in some years.

Anyway, I think it's very complicated to know. They want to change -- they declared that they want to change everything. If they really wanted, I do believe that they would need a lot of time, but let's see. In the coming weeks, we will see what they do.

Your second question about the organic growth. It's difficult to answer that one, because in terms of foreign exchange rate, we are almost neutral in our exposure, that we have some costs related to US dollars or denominated in US dollars, but at the same time we have some revenues related to or denominated in US dollars. So, in terms of foreign exchange, it's almost neutral.

In terms of inflation, you can use as a parameter what's happening with labor costs. Labor costs in Argentina are growing at a 30% rate year on year. So, that could be a significant parameter.

But again, we don't give some numbers related to organic growth. For us, it's all -- all numbers are nominal.

Sure. Okay. Thank you.

Rodrigo Villanueva, Merrill Lynch.

I have a couple of questions. The first one is regarding profitability. With an OIBDA margin of around 25.5% so far this year, I was expecting you to provide us with an expectation for the fourth quarter and also for 2015, particularly after the implementation of the actions that you just discussed? That would be my first question.

Rodrigo, for sure we are expecting a higher growth in terms of OIBDA for the fourth quarter. The actions that we implemented in the last months are already giving some results. For example, in September, the growth is [11%] year on year, but we expect that the fourth quarter will come with some levels above that figure.

For 2015, we are still working. We will have some news about next year in our next conference call.

Understood. Thank you very much, Adrian. And my second question is regarding the Fintech acquisition of the Telecom Italia stake. If Fintech were authorized by the government to take control of Telecom Argentina, do you know if there will be [tag-along] rights and which would be the basis to determine the price for that?

I think this is a matter that belongs to the shareholders. So, we cannot -- we give you what is the public information about it. We don't know the details on the transaction. You can ask on the Telecom Italia conference call next week, [let's say].

Okay. Thank you very much.

Sonny Kushwaha, Everest Capital.

Drew, we have time for -- this will be our last question, if possible. And obviously for the rest of the audience, you're more than welcome to call our Investor Relations office afterwards.

Thanks for taking my questions; just a few. One is a quick one, and maybe you've already answered this. So, apologies. But on your finance income line this quarter versus the third quarter of last year, it's down ARS150 million. I'm just wondering what's behind that?

Second, just again on the 4G spectrum, and you've alluded to this a little bit, but what do you think is going to be the impact on your ARPU, going forward, once 4G is up and running? What I mean by this is do you think that there are people who have been waiting to buy an extensive data package but haven't done so because of the lack of 4G? So, do you think this will push people to move from those voice and SMS plans into the voice, SMS, and data plans and overall increase your ARPU?

And then, third, just on the macro situation. If next year is worse than this year, which I think is what people think -- that's the consensus view on the overall economic environment -- what impact do you think that's going to have on some of your fast-growing businesses, the broadband and the mobile data?

Adrian, for the first and then come back for me for the second and third.

(inaudible), but if it refers to the financial income for the third quarter, it is mostly related to the level of the net financial position. Net financial position of last year was significantly -- or, higher than the one that we have this year. So, positive interest -- or, revenues coming from interest were below the level of last year. So, that's the main reason.

Okay.

Was that your question?

Yes. So, you're saying it's just the difference in cash balances between this year and last year.

Yes.

Okay. Thanks.

And with regard to the second, 4G and ARPU, this is a very, very common question when the operators decided to go on the 4G. As I was telling you before, I do believe that in the coming years the mobile business will be completely reshaped. The mobile customers will be willing to pay in just for data. And due to that, they want -- if they buy data, they want the good customer experience on data. So, the only way to deliver this is to have a good network.

If we see what's going on in the other market, usually the broadband, the increase of speed both in wireline and the wireless has been translated into an increase of ARPU.

But as I -- I think that we are in the beginning of the film; we have to wait for the end. Because now we have to transform our pricing scheme, our marketing tools, our sales channels into better services. So, as a matter of fact, we are still concentrated on voice, on messaging. But in a few years, we've been transformed into data operators.

In our assumption, coming to more specifically on your question, in our assumption, we are forecasting an increase of the ARPU and of course entirely based on the data ARPU.

The third question is what we are going to forecast for the next year. As Adrian was telling you before, I think that in the next conference call we can give some additional information about the budget and the plan for the next years.

Okay. Even just more high level, if the economy does slow down next year, more so than it's been doing this year, do you think that's going to have an impact on --? Because your broadband and mobile internet have been growing so fast, and I wonder if these are more discretionary purchases? Do you think these are the kinds of things that people are going to cut back on if economic growth slows down.

Even staying at a high level, as you were saying, I think that you can see what's been going on this year, with a very, very bad situation of the economy, inflation, and currency issues and what was the impact on our industry. So, I see that this is something that could continue to happen or could be reversed if good signal on the economy will come out.

Right. Okay. Thank you.

Okay. Thank you, everybody, for participating on the conference call. And again, feel free to call us with any additional questions you may have. Thank you very much.

That does conclude today's conference. Again, thank you for your participation.