Telecom Argentina SA (TEO) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to the Telecom Argentina TEO fourth quarter 2015 earnings conference call. Today's call is being recorded.

Participating on today's call we have Ms. Elisabetta Ripa, Chief Executive Officer; Mr. Adrian Calaza, Chief Financial Officer; Mr. Pedro Insussarry, Head of Finance; and Miss Solange Barthe Dennin, Investor Relations Manager.

At this time, I'll turn the call over to Mr. Pedro Insussarry, please go ahead sir.

Good morning. On behalf of Telecom Argentina, I would like to thank, everybody, for participating at this conference call. As Laurie just mentioned, the purpose of this call is to share with you the results of the full year, our preliminary results for the full year ended on December 31, 2015.

We'd 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 the investor relations section of our website, located at www.telecom.com.ar/investors.

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

We would like to clarify that -- sorry, 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 this type of event.

We would like to clarify that during the conference call and Q&A sessions, we may produce certain forward-looking statements about Telecom's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Telecom's actual results and operations to differ materially.

Such uncertainties include, but are not limited to, the effect of public emergency law and complementary regulations; the effect of ongoing industry and economic regulation; possible changes in the demand for telecom products and services; and the effect of more general factors, such as changes in general market or economic conditions, in legislation, or in regulation.

Our press release dated February 10, 2016, 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 the session.

Furthermore, we urge the audience of this conference call to read the disclaimer clause contained in slide 1 of the presentation material today.

The agenda for today's conference call, as seen in slide 2, is first to go over the general market overview; followed by the discussion of the business highlights; and then, we'll go over a review of our financial figures. Finally, we will end the call with a Q&A session, as is customary in our quarterly calls with the financial community.

Having gone through these procedural matters, I will now go over a brief macro description as an overview of the environment in which we operate. Please refer to slide 3, where we include a snapshot of the current Argentine macroeconomic situation.

In the fourth quarter of 2015, the Argentine economy activity was signaled by changes in the political landscape, closing the year with a fragile performance registering the slowdown from the recovery that was registered in the first part of the year.

Price inflation continues to be high on the external front. Although it continues in a delicate situation, it has shown some recent improvement after the measures taken by the new administration on late December 2015.

During 2015, the Argentine external competitiveness continued to be affected by the general depreciation of currencies occurring in recent months in LatAm in comparison to the performance of the Argentine peso vis-a-vis the currencies of its main commercial partners.

Central bank reserves showed an important decline, as trade balance continued to decrease, while the monetary authority continued with its intervention to offset further currency depreciation.

In addition, central bank continued to cancel sovereign debt maturity for reserves, adding an additional pressure to the expectation of devaluation.

Under the new administration, in December 2015 a set of new policies were taken with the general objective of addressing imbalances in the external front. Many of these restrictions, such as access to the FX market were lifted: the multiple exchange rate system was unified into a floating rate regime and export taxes were reduced or eliminated, among other measures.

As a consequence, a significant depreciation of the peso occurred, where the FX increased to over ARS13 to $1. That implied a devaluation of approximately 30% to 35%.

Despite the effect on the level of inflation, these measures resulted in some positive results, such as commodity exporters started to liquidate their stocks in the FX market; the decline in reserves stopped.

In fact, increases in the reserves were registered recently. The FX market started to normalize and a repo agreement of $5 billion was reached with international investment banks.

As for the economic activity, we can see that improvements in certain sectors were registered, such as construction, agricultural, public administration and utilities. But as far as we can say, the economy is far away from a consistent growth phase.

The Industrial Production Index showed practically no relation in comparison to 2014 levels, with structural improvements in food and beverages and metalworking sectors, but with strong declines in car and steel production.

Household consumption registered a positive performance, coming from a weak 2014, although far from the high levels observed in previous years. It is expected that in 2016, the recently announced raise in energy tariffs could have a negative impact in [overall] consumption, taking into account that the average increase in electricity bills for consumers could range from 60% to 500%.

Moreover, consumer confidence reflected an improving trend. Nonetheless, a decline was registered in December 2015.

Regarding inflation, the CPI index for yearend 2015 was not published by the federal government, because an extensive methodological revision is being performed by the Statistical Bureau Index.

Instead, the authorities suggested that for guidance, other indexes should be observed, for example, the one published by the Statistical Entity of the city of Buenos Aires. This index registered an inflation of 26.9% year on year for 2015, showing acceleration in the recent part of the year, mainly due to the impact of the changes in the exchange rate regime mentioned before.

On the other hand, the fiscal accounts continue the delicate situation as public expenditure continued on the rise; subsidies to transport and energy maintained their level; and growth of fiscal magnitude was not sufficient to balance the increase in public spending.

As general concerns for 2016, we can mention that the evolution of inflation; the collective bargaining processes; the performance of the fiscal situation; the general normalization on the external front and the access to the international credit markets continue to be the main issues for the Argentine economy; while the situation on the FX market seems to be under control.

Having gone through this introduction of the macro context, let me pass the call to our CEO, Elisabetta Ripa, who will go over the business highlights. Elisabetta?

Thank you, Pedro. Good morning, to everyone, and thanks for participating at this call today that seems quite a complex day from a market point of view.

Please refer to slide 5, where we summarize some milestones we have been (technical difficulty) in the last quarter of the year.

Going to our business, we have continued to execute our commercial strategy with a strong focus towards value segments, while we have continued to stimulate the use of data and Internet, consistently executing the radical transformation of our business towards a data platform Company.

In the last quarter of the year, we have achieved an increase of more than 0.5 billion adds in the postpaid segment. An important increase in handset sales was registered, increasing quarterly by 18% when compared to the fourth quarter 2014.

Our smartphone sell-out continued to be high, with a high participation of 4G devices, although we have to see that the offer of devices coming from vendors was somewhat limited by constraints on importation.

In line with our strategy that we have shared in the past call, we continue to drive the process of (inaudible) participation and progressing the data centric approach.

Our plans are started to -- have been launched one quarter ago and in this sense, we can say that the customer adoption is fast and the (technical difficulty) customer base. It showed that the market reception of our VAS, (technical difficulty); and that (technical difficulty) of our data network performance and the customer experience are progressively improving.

Mobile Internet users are increasing by 10% in fourth quarter, while usage increased by 54% resulting in an ARPU growth of 77% (sic - see 5, "67%").

In the wireline broadband, growth remains steady registering a 2% increase with a significant expansion in the participation of IP connections, where -- which currently represent 27% of our customer base, compared with 17% (see slide 5, "16%") end of a year ago. In this case, again ARPU grew 36% versus fourth quarter 2014.

Moving to the financials, the growth trend of service revenues continued to improve, achieving a 22% increase, with signs of acceleration mainly driven by the growth in mobile Internet and fixed broadband in Argentina.

Moreover, in a challenging economic environment, we were able to increase EBITDA by 25% for the full year and by 27% in the last quarter, with an expansion margin reaching 27% for FY15.

Free cash flow generation for the last 12 months was close to ARS200 million, after paying ARS804 million in cash dividends in Argentine and ARS2.3 billion in spectrum.

Please turn now to slide 6, where we describe some major changes that have been introduced in the regulatory framework, with the arrival of the new administration.

The new administration of President Macri has decided to merge the regulatory entities for the media and telecom areas into just one entity and has upgraded the activity to a ministry level, demonstrating the importance of telecommunications in the country.

The former office that oversaw the media, formerly the AFSCA and telecommunications, the one called AFTIC, have been merged into a new entity called ENACOM in accordance to the result to the Decree 267 that was published on January 4 of this year.

The Argentina Digital Law that was enacted in late 2014 continues to be the main legal regulatory framework, but the new decree has introduced some amendments that affect the telecommunication business.

Among other changes and simplification, pay TV, excluding satellite TV, has been incorporated as an ICT service, allowing [travel] companies to offer communication services.

Furthermore, certain restrictions to telco offer of multimedia services have been defined for a limited period of time. In addition, modification in licenses conditions for media companies and the approval process of changes in ownership were introduced.

Although in force, the decree has to be approved by the Congress during 2016, in the Ordinary Session, to be fully enforced in its resolutions.

Moving to slide 7, we can see certain trends in revenue performance that are in line with the strategy that we are executing I think. Comparing the actual revenues to the one we had a year, we can note that the participation of service that represents drivers of growth, that's fixed and mobile data, has been increased.

If we look at the quarterly performance, we note that growth in broadband and fixed data services was sustained at a higher pace than in the first half of the year; while mobile Internet was consistently [slow] the growing of retail mobile segments. We'll go into some detail of this in the following slides.

Let us move to slide 7 to review the performance in the fixed broadband and ICT services. As you can see, we continue with a steady trend of growth in access and it would have significant increase in the participation of ultra-broadband connection. Subscribers will continue at a steady pace of 2% year on year, while we registered very low levels of churn.

It is encouraging to see that we almost doubled our ultra-broadband connection, reaching 27% of the total client base as an evidence of a solid market demand, together with the effectiveness of our upselling actions.

As a consequence of that, ARPU has increased by 38% to more than ARS231 per month, with bundling offer, upselling action and price adjustment to sustain that growth.

Meanwhile, ICT services have growth as a consequence of the increase in [its] connection in all of its data solutions and, of course, price adjustments.

Going to slide 9, we have described the performance of the voice fixed line business. We can note that the lines in service continue to show a stable trend, with a very moderate decline if compared with other markets.

During the third quarter 2015, we have started to implement certain monthly fee adjustments to business customers in line to what is contemplated in the Argentina Digital Law.

We have increased basic monthly fee to approximately more than 700 lines, equivalent to approximately [16%] of the customer base. This has had a positive effect in ARBU, and it has increased by 27% year on year to ARS76 per month, still below the benchmark [we need to reach].

In addition, we also continued to growth thanks to the continuous increase in penetration of bundled packet and with flat pricing. Bundled packs now represents close to 80% of our customer base.

Let's move now to slide 10, where we can see that while we have captured growth in the value and value in the mobile business, we were able to secure our revenue stream that is particularly important in the current macro environment.

Thanks to our focus towards value services and segments, we have been able to increase the participation of bundle and postpaid offers being this our primary source of revenue and increasing the number of postpaid customers.

Browsing revenues have significantly increased. In this sense, the growth of 10% in unique users and the incremental users of 54% are contributing to see a strong expansion of 67% in the browsing ARPU.

With the redesign of our (inaudible) proposition, we have continued the migration process of our customers to plans where the [central feature meets] the data component, with a strong stimulation of incremental usage and securing ARPU from traditional services cannibalization.

In this sense and showing slide 11, we can see that our commercial offer has a good level of reception in the market. New plans have their focus towards the connectivity where the customer (inaudible) data quarter with a share and multi-device concept.

Data centric subscribers has increased more than 4 times from the last quarter and they now represent almost 25% of the postpaid customer base.

This has resulted a change in the composition of our service revenue, where today, revenues coming from browsing and content are surpassing voice.

We continue to concentrate our efforts in network development in order to capture the data growth. In slide 12, we are showing the actions that we have executed in the 4G rollout this year.

Since last December, we are serving with 4G 335 locations in 18 provinces of this country, reaching as of today more than 1,400 sites, of which 85% are entirely new or modernized sites.

In conjunction with the 4G development, [in fact], we are renewing a significant portion of our network with 2G, 3G and 4G integrated and fully modernized equipment. This will bring, definitely, significantly increased speed and capacity.

Currently, we have registered 2 million customers that use 4G connection, 10 times more than in 2014 when we have launched the service.

Clients experiencing 4G speeds of server data consumption that is 146% higher than non-4G customers.

Furthermore, when we compare the evolution of the ARPU for the period, it remains month prior to the acceleration of the 4G rollout to the results of August/July, when the number of LTE sites on air had increased significantly, we can see that customers using 4G increase their usage as a much faster state than the average. That's, definitely, a good result in order to monetize our investments.

Finally, we can summarize that Argentina continues to have a strong attitude to adopt and use new technology. When we compare the adoption of 4G in the region, we can see that this country is one of the fastest-adopting countries in LatAm, confirming that the late 4G option and the limited frequencies availability, post the [congestion] of its network and the quality performance of the mobile networks of all the players in this market.

Let's move now on slide 13 where we aggregate the evolution of our consolidated CapEx. During 2015, we have invested approximately ARS10 billion, equivalent to 25% of our consolidated revenue, including the spectrum payment performance in June.

In line with the (inaudible), continuous improvement of the network quality and service capability, we have dedicated significant resources to our access in the quarter, mainly in our mobile business where significant portion is allocated to 4G, but not disregarding fixed access, where more than 5,000 cubic meters of fiber were deployed.

We have allocated additional investment to the core investment infrastructure, plus [rent] our network with capacity and speed. The dedicated resources to the network allow us to say that we are the only operator that has developed in this country an infrastructure with broadband in all its 4G sites, while being also the first in LatAm to build a fully new multi-technology network that includes 2G, 3G, and 4G; and the traffic operator in LatAm to deploy an integrated and modernized AWS and 700b megahertz network.

This latest remark can be better served on slide 14, where the most important feature of this improvement of the network are highlighted: better equipment and shelter occupation; enhanced spectrum usage; higher quantity of sectors per size; and bigger power autonomy.

Moreover, in the month of January we have tested the carrier division feature registering very interesting results in terms of speed, the highest in this market. This will allow us to maximize the use of 4G spectrum in our newly installed mobile access network infrastructure, while enhancing the [unique] experience of our customers.

Well having gone through the main results of the Company, now I will pass the call to Adrian, who will go over our financial performance.

Thank you.

Thank you, Elisabetta. Please turn to slide 16 where you can see the evolution of consolidated revenues and EBITDA.

During 2015, consolidated revenues reached almost ARS40.5 billion, with a 21% year-on-year growth, but with service revenues growing at a higher pace of 22%, thanks to the strong performance of Internet services, both mobile and fixed broadband, together with corporate ICT services.

Talking about service revenues, it is interesting to see that when we look at the quarterly performance of operations in Argentina, we can note that there has been an acceleration of growth since the fourth quarter of 2014, in (inaudible) of 24%.

Moreover, EBITDA showed a stronger dilution year on year growing by 25%. We must know that this performance has been achieved with positive margins coming from the handset business for the second year in a row, but nevertheless are lower than the average of those coming from service revenues.

So indeed, fourth quarter EBITDA showed a growth of 27% when compared with last year, the highest rate of the four quarters.

More important, the growth of the EBITDA coming from the operations in Argentina reached a significant 27% was for the full annual period, slightly above the inflation rate [registered] this year.

Please refer to slide 17 where we show the evolution of EBITDA with a breakdown of the components that impacted its evolution. In line with the actions taken during the past quarters, we have continued with our efforts to increase efficiency and manage costs. This can be seen by the fact that an important number of our cost lines are contributing positively to the margin.

In this context, increased labor-related costs of 30% have negatively affected the 110 basis points. But, on the other hand, we have obtained [relative] savings in interconnection costs, fees for services, maintenance and materials and taxes, that altogether have allowed us to expand margins by 70 basis points to 26.8%, [inverting] this way the trend of last year.

Let's move on to slide 18 to review the performance of our operating income that reached ARS6.2 billion, with a 14% increase year on year. The 37% growth in depreciation and amortization which dropped in line with the effect of the incremental CapEx and the acquisition of spectrum affected the EBIT.

Operating margins decreased by 100 basis points from those observed in 2014 as a consequence of the mentioned effects.

Meanwhile, net income attributable to Telecom Argentina reached ARS3.4 billion, falling by 7% affected mainly by lower financial results, as a consequence of the change in our net financial position, and foreign exchange results, as we will see in the next slide.

Please turn now to slide 19, to review the performance of our net income that reached ARS3.4 billion. Despite we have been able to expand EBITDA by ARS2.2 billion, or 25%, the increase in depreciation and amortization and others on PP&E of ARS1.4 billion, or 42%, related to incremental depreciation of the 3G and 4G spectrum and higher CapEx, impacted the growth of our operating income as I mentioned before.

Furthermore, the reversal in the evolution of financial results of ARS1.4 billion, following depreciation of the peso at the end of 2015, and the significant change in our net financial position after the spectrum and dividend payment, as we will see later, impacted the evolution of our bottom line.

Talking about the impact of the peso depreciation on our profit and loss, it could have been of approximately ARS1.9 billion. But our sustained hedging strategy with coverage of approximately 90% of the exposure to foreign exchange risk at the time prior to the devaluation of the peso. Plus, the working capital and tactic actions that we took to limit the impact of this event, we were able to save approximately ARS1.1 billion in potential foreign exchange losses.

Regarding our financial position, as you can see in slide 20, Telecom Argentina Group continued to report a healthy operating free cash flow generation, that reached approximately ARS1.8 billion, in the last 12 months.

Operating free cash flow generation sustained increase in industrial CapEx, in line with our aggressive deployment plans and the working capital management as we mentioned before.

But after paying ARS1.6 billion in taxes, 28% less than last year, thanks to the tax efficiency as we reduced cash advances in line with the evolution of the tax benefits; plus the equivalent ARS2.3 billion for Spectrum in June; and the dividend distribution, we have registered a net debt position of approximately ARS2.3 billion, most in local currency.

It is worth to mention that during the last quarter of last year, Telecom Personal completed issuance of two series of notes in local currency, for a total nominal value of ARS720 million.

In this aspect, the Group has successfully managed to refinance short-term debt and to finance the investment plan of the Company, at a very interesting market condition.

Now, having finished with the presentation, we are more than pleased to answer any questions you may have. Thank you very much.

(Operator Instructions). Soomit Datta, New Street Research.

First of all, just on the changes to regulation you talked about. Do you -- or perhaps you could explain the logic behind you and Telefonica not being able to offer television, where previously I think it was expectations were for this year, this has been put back, I think to 2018.

What is the rationale in your understanding behind that decision? And did you say, just to confirm, is there any chance of that potentially changing? Is there any chance of the timescale there changing?

Second question is just on potential further price increases on the SME business. This was talked about last quarter, and more broadly, what potential opportunity do you see to re-price some of the currently capped revenues, I think about 7% of total? Any opportunity to increase prices for the residential customers there, as well? Thanks very much.

Yes, I think for this specific question -- well, I think to understand the rationale behind the decree, definitely, we have to ask to the Government. Let's try to interpret what is the aim of the (inaudible) review of the regulations.

I think that, definitely, has the [good], and the aim, and the positive that is simplifying a lot, was the regulatory scenario. Understanding, and accepting and the regulating the fact that telco and telecommunication are also more and more integrated, or converging to the media, and vice versa.

Now, we are regulated with the same framework -- or regulatory framework, with the media and with the cable operator, definitely, will simplify our lives, and will define a better environment in terms of regulatory rules and regulation [result].

Then with the aim of simplifying and facilitate the convergence, I think that the [key] are basically trying to define [a decent] set of rules that are supporting the cable operator in the entrance on service, on the telecommunication services; and, as a contrary, limiting Telecom Argentina and Telefonica, basically, for provide broadcasting services in the market.

The decree has definitely put some framework that has been or is going to be (inaudible) and interpreted in the next months.

Frankly, we are going to the discussion deeply with the Communication Ministry and [ENACOM], in order to better understand how we going to interpret the regulation or the framework. And since there is some flexibility in the [execution] that we are going to apply, and this is definitely an ongoing discussion in this [date] with the government.

I remind all that this is a decree that also enforce (inaudible). So we will go deeply in a discussion with all the main players of the market, in order to (inaudible), let's say, a common view and a common perspective.

About the second one, I think that, definitely what is really, really positive for us in the new regulations, is that we [add and] we benefit from a significant simplification what is going to be the process in order to update in a [crisis in an inflationary] environment.

And this is, I think, a good or an important achievement for all of us, all of the players that are in this market.

What basically they decree is establishing or refining that the [first] telco [brief] was so [defining] in the pricing and the ENACOM only could [keep a view] if they are not considered reasonable. So it means that all the process is going to be very fast and (inaudible).

This, of course, again as to be implemented in the law, in the laws -- regulatory detail. It's going -- we are going [for this] in order, let's say, they still not summarize the key achievements of the new regulation.

For the time being what we are doing is basically going forward with our strategy of updating of monthly fees for the business segment. We are, definitely, informing this data for a second small increase for the customers in the monthly fee.

We are evaluating now what are the flexibilities that we have under the new regulations for the consumer, for the mass market, in terms of increase of the monthly fee.

Okay, thank you.

Michel Morin, Morgan Stanley.

I wanted to see if you could expand a little bit on some of the information on your slide 10, the data usage in particular. I think it's quite helpful, so we really appreciate you sharing that with us.

Specifically, I was wondering if you could give us a little bit more color in terms of the trend that you saw during 2015. I see here you're saying that the average usage is about 566 megabytes per month, of use.

How did you close the year? What was the quarterly evolution of that number? And what kind of an uplift do you get when a subscriber is moving from 3G to 4G, just qualitatively, what order of magnitude are you seeing?

And does that translate into ARPU? What are you seeing in terms of ARPU uplift, as customers migrate from 3G to 4G? Thank you.

Yes definitely, I think in page 10, it summarize all our marketing effort during the year.

As I mentioned, I am fully convinced that this market has to be transformed more and more in a stable mobile market, migrating, basically, the prepaid that is volatile to a bundle offer, and on to a postpaid offer.

This means that, basically, we have to consider the way our payment, prepaid and postpaid as a driver of the ARPU increase.

To that extent, what we are trying to achieve, and so far we have been successful, is to stabilize or to secure the ARPU, or the total ARPU, due to the fact that, as you probably know, here in this market the SMS [rates] are important; the usage is relatively higher than other markets, when I compare the trend, the top and the absolute value offer today.

So it means that the areas of potential cannibalization representing to be for the MS -- the SMS is an area where we have to be very careful and very cautious, in order to secure the ARPU.

To that extent, the fact that we are migrating, basically, our customer base in a bundle structure, allow us to simplify and reduce the timing of pricing increase. That is a fantastic, I think, result, because each month or each day that I'm able to fill up the price increase is something that go directly to the EBITDA.

And the second point is that basically we can be more relaxed toward the competition of the data for the ARPU (inaudible) in general when refer to the different components of the different services.

Moving to the second part of your question, about the potential that we have in front. I think that given [it's] -- the penetration of data is high, that's been increased during the year, reaching 8.5 million, we still have room for -- even forthcoming growth.

Please remind that the country still has a penetration of smartphone in the region of 40%. We still have on our customer base more than 30% of customers owning a 2G feature phone or a simple phone. That means that we have enormous opportunity of migrating the -- these customers to a smartphone data enabler.

And, due to the fact that this is a market where when a customer has a smartphone, immediately he is a data user, I consider this definitely as the more simple [phone] driver for data penetration and the data growth in 2016, and in the next years.

Furthermore, the fact that basically the consumption data is growing and still if we were at an average of 500 mega that the distribution of customers are pretty much conscious -- concentrate on the average value, we can boost the ARPU growing consistently data consumption.

So the opportunity is there, basically, working from one side to the bundle side to the bundle package penetration, and from the other side to the smartphone penetration in the market.

All right. Thank you.

Rodrigo Villanueva, Merrill Lynch.

I was wondering if you could please give more color with respect to the quarter-on-quarter declining labor costs? And which would be your expectations in terms of labor cost increases for 2016?

My second question is related to CapEx. With no spectrum options in 2016, so going forward is it reasonable to assume a CapEx to sales of around 19% going forward? Or which will be your expectation in this respect? Thank you.

Thank you. About the labor cost, during 2016, basically, we have worked in two different directions. One, we have updated the [Personal] cost accordingly with the inflation. The increase was roughly 31%, and inflation was, as we mentioned before, at a level of 27%. It means that we are -- we have recovered a slight late [update] in -- that occurred in 2014, and we had some advantages this year in order to [police] it.

Going forward, what is going to be the evolution for the labor costs this year? I think that it's every day on the newspapers, the discussion about the so-called paritarias.

The government is basically referring more and more to the fact that this is going to be a discussion more and more related to the statistical index. I think will give us some certainty; or that it will be definitely decided into two steps that will allow the government to have better -- to -- in order to increase the salaries according the inflation dynamic.

I definitely expect that the guidelines that the government [has] shown about 20%/21% of increase is something that it will be consider as an important reference for all the different media sector in the market.

The commitment in order to lower the inflation is very strong from this government. The first step in order to achieve this goal has been, basically, (inaudible) as a starting-point of any kind of evolution. [For] this country is definitely the fact that (inaudible) inflation in the next few months.

So the help of the government, and the support of the government in this environment. And from other side, the fact that we are more and more discussing with the unions about the new productivity will help us in stabilizing the weight of [personnel] costs on the total turnover going forward.

We are also working -- and I think that is something that is important to share with all of you, we are working in order to be more and more efficient, especially on a call center and IT. That's, basically, one of the most important driver of [personnel] cost will be continually, also consistently, [we use them to] the digital migration of our platform call activity.

On top of that, definitely, the IT investment, that we made during 2015, will help us to be more productive.

So it will be a mix, basically: a support of a strong commitment from the government side that is fully focused on the reduction of inflation; and from one other side, in terms of Company effort will be recovering and increasing productivity and efficiency will allow us to -- going forward, to be in line with the inflation, nothing more.

About CapEx. Well, we see it, definitely, as being extraordinary. We had to cover entirely the new frequencies, and also the speed up or the starting of the 4G and network rollout, and that we decide to modernize the network, as we mentioned before.

2016 will be, basically, formal -- or focus all of the (inaudible) and accomplish the movement that we have for the 4G coverage going forward.

Of course, we are carefully evaluating the [connect rate] for [making] or connecting the potential of an extra effort or extra investment to the fact that we will obtain the sustainability of the fixed business through the funding that we've mentioned.

So that is positioning us, where we have to basically go forward in the CapEx plan. Meanwhile, we will understand better, and are going to need a condition for investing sustainable in the fixed line.

But basically, the background that I can share with you is a significant reduction in the weight of CapEx on top of turnover when compared to 2015. I hope I answered your question.

Yes, thank you very much. One final question, if I may. With the new government, is there a potential to change the payout ratio policy that you have? I mean, to increase the payout ratio of dividends?

I leave then the honor of answering this question to Adrian.

Well, it's interesting, because if you see what we've been doing in this last year, we maintained our dividend policy almost at the same level for the last, what, four/five years without any -- entering any -- in any problem with the government, paying dividends with our own cash.

We think that our dividends moving forward will be more related to the (inaudible), rather than to the different government. We will continue to be very careful, in order to be a healthier company, as we've been in the last (inaudible).

Understood. Thank you very much, Adrian and Elisabetta.

Vera Rossi, Goldman Sachs.

I have a question about your data and Internet services. Could you tell us what is the percentage of these services that is indexed to US dollars? And what was the FX rate that you use for the -- the average FX that you use for the entire fourth quarter to adjust the price of your contract? Thank you.

Sorry, because I didn't get exactly your question. If I understood correctly your question, it's related to how we are going to update the large customer agreements to the dollar, as they have been signing the dollar link agreement.

Well, basically what is clearly defined in the agreements we have with the large customers is an update in their formula to the existing exchange at the time of the billing.

So, that means that it's going to be dynamic. How many -- or what is the weight of US-denominated revenue that is the total revenues of Telecom Argentina? Basically, it's approximately 10%.

This is something that we'll be truly focused in the next month. Considering that in 2015, even the evaluation of (inaudible) into the billing, let's say, cycling, we have not been able to benefit from this devaluation from, let's say, an update in terms of price increase.

That will be recovered during 2016 and will be applied not only to the large customers, but also [remind] to the whole stable of revenues and services that for Telecom Argentina represents quite an interesting portion of our total turnover.

So, to that extent, this is going to be something very beneficial for the top line of Telecom Argentina. This is basically an automatic formula that will have been applied without any kind of interaction with the customer, so go directly to the top line and then to the EBITDA.

Just for me to make sure I understood, so you only benefited from the currency appreciation basically in the month of December.

In the other two months of the quarter you didn't benefit from the currency depreciation, so for 2016 your revenue line is going to be much more benefited that it was in the year of 2015, because in 2015 you only had one month that you were able to have the new -- the currency floating. Is that correct?

You've got it. Basically, in 2015 we have suffered from the fact that the valuation has not been reflected in the exchange rate. So, basically in 2015 we have benefited only for 15 days.

For 2016 this will be applied constantly as for the evolution of the exchange rate and will apply starting from January 1 to the end of the year. So, definitely, you are right; we are going to have some beneficial from that.

You mentioned that it's approximately 10% of total revenues for Telecom Argentina.

That's correct.

Okay, thank you very much.

You're welcome.

Fernando Suarez, Raymond James.

I was wondering if -- I saw that your margins on equipment have gone up, and I really would like to ask you if this will keep on growing, despite the valuation and these increasing costs for you. Thanks.

Yes, I think that it's important to highlight that this is a market where we can benefit from the entered margin, that, definitely, even if, as Adrian mentioned before, is in terms of a percentage of lower than the service profitability, it's nicely contributing to our margin going forward.

By definition I think that margin is the result of the demand and of a curve. During 2015 we experienced a lack of offer in terms of handsets and the demand, that what basically people are asking for, is new handsets and new smartphones.

If I look at the performance or the sales results that we achieved during the month of December and also the month of January, I can share with you that this appetite is still very high in this market.

The market needs to renew their handsets and they are available already to pay for higher price. Of course, with some financial conditions, because, as you know, in this market handsets are not subsidized but we sell the handsets in instalments. We are supporting the customers from the financial point of view in the acquisition of the new handsets.

So, this will help us during 2016 to keep on getting profitability in the handset market, probably a touch lighter than 2015. The volumes are going to grow, but the entire market -- the operator market and the retail market are definitely very focused on keeping this market healthy and going forward with the same appetite in the next month, due to the fact that demand is very high.

So, profitability will stay. Of course for us, and I stress this point, it will be slightly diluted. So, what we are now focusing more and more in the Company as a target is what we call service profitability; so service EBITDA margin.

I kindly invite you all to be very focused on this indicator, because the other one -- the total one, will be diluted by the margin of the handsets that is incremental, but lower in terms of percentage.

Okay, thanks.

There are no other questions at this time.

Do we have additional questions?

There are no others at this time.

Okay.

Thank you. So, thank you to you all.

Thank you for participating in this quarterly conference call and do not hesitate to contact us with any questions you may have.

So, good morning, to everybody, and hope to have you in our next event. Thank you very much.

Thank you, that does conclude today's conference. Thank you for your participation.