Telecom Argentina SA (TEO) 2017 Q4 法說會逐字稿

Good day, everyone, and welcome to the Telecom Argentina TEO Fourth Quarter 2000 (sic) [2017] Earnings Conference Call. Today's call is being recorded.

Participating on the call, we have Mr. Gabriel Blasi, Chief Financial Officer; and Mrs. Solange Barthe Dennin, Investor Relations Manager.

I will now turn the call over to Solange. Solange, please go ahead.

Thank you, Debbie. Good morning. On behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. As stated by the moderator, the purpose of this call is to share with you the results of the fiscal year 2017 and fourth quarter of 2017 ended December 31 of 2017.

We would like to remind all of those that had not received our press release or presentation that they can call our Investor Relation office to request the documents or download them from the Investor Relations section of our website located at www.telecom.com.ar.

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

Before we continue with the conference call, I would like to go over some safe harbor information and other details of the call as we usually do in this type of event.

We would like to clarify that during the conference call and Q&A session, we might 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 ongoing industry and on economic regulation, possible changes in the demand for Telecom's 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 March 7, 2018, a copy of which is being included in the Form 6-K report furnished to the SEC, describes certain factors that may affect any forward-looking statements that we may produce during today's 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 on Slide 2, is first to go over a general macro and industry overview, then moving on to our vision and strategy, which will be followed by a discussion of our business highlights and immediately after, we will go into the evolution of our financial figures. Finally, we will end the call with a chapter where we include the discussion about the merger, followed by 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 characterization of the macroeconomic context in which we operate.

During 2017, the economic activity began to define a clear path of growth towards the second quarter, acquiring a greater rate of expansion during the last 2 quarters of the year.

In general, the performance of most of the economic sectors was positive, recording advances of different intensity in the level of activity. On average, during the year, a general slowdown in inflation was observed when compared with 2016, although during the last quarter, inflation show that was [lower in pace] of decline. In this context, consumers have shown a positive reaction to improvements in real income that all the [others] allow private consumption to recover in 2017, from a fall in 2016.

Please refer to Slide 4, where we include a summary of the current external front situation and FX rate evolution in Argentina. Exchange rate experienced a depreciation of about 17% during 2017, which was below inflation ratings during the year, therefore, generating a real appreciation of the peso.

During months of the fourth quarter of 2017, the nominal peso-dollar exchange parity registered a little variation on average. Although on the final days of December, it experienced a sharp rise due to the combination of seasonal factors, dollarization of portfolios and lower interest rate expectations. This trend continued to be observed within the first months of 2018.

In general terms, the Central Bank abstained from exercising direct intervention, allowing the market to fully determine the FX rate. As for interest rates, the monetary authority exercised [ahead] of policy reference rates during the last quarter of the year, with the intention of dampening the market inflation figures that was slightly relaxed afterwards after the announcement of a recap of the inflation targets for 2018, 2020.

Meanwhile, a key element of the Central Bank's policy during 2017 was the accumulation of international research. In this regard, they experienced an increase of almost $15.8 billion during the year, being this accumulation of reserves the greatest in recent periods, while the stock is currently in historical records.

Finally, trade balance accumulated a deficit of $8.5 billion during the past year, mostly due to the growth in imports of capital goods, its accessories and passenger vehicles, combined with the stable evolution of exports.

Turning to Slide 5, we follow with an overview of the domestic macroeconomic situation and inflation. During the fourth quarter of 2017, the CPI measured by the Buenos Aires City experienced a little decrease from the third quarter reading, when looking at year-over-year figures, reaching 26.1% in December 2017.

This suggests that when looking ahead, inflation may take longer to decline further. In fact, the Central Bank announced during December, a recalibration of the inflation targets, mainly pushing the whole series of declining targets that were set for 2019, a year ahead to 2020, thus setting expectations of price increases to slightly higher levels for coming years. Finally, the target for 2018 was set in 15%.

As for the economic activity, output continued to grow during the [fourth] quarter at a steady rate. Certain expectation of overall activity increased around 2.8%, 2.9% for 2017. Specifically, construction activity has become the most relevant sector for growth during 2017, while agriculture production lowered its advance due to climate factors.

As for industrial production, it ended the year 2017 with a partial recovery, registering an increase of 1.8% versus 2016, mainly pushed by a nonmetallic minerals and steel and by capital intermediate goods production.

As for the fiscal front, there was an overachievement of the fiscal targets set at 4.2% for 2017. As the primary fiscal deficit was, in fact 2.9% relative to the activity. This was explained by a lower level of expenditure growth compared to the one registered by public revenues.

Finally, aggregate household consumption evidenced a recovery in 2017 associated with the inflationary debt acceleration experienced during the past year when compared to 2016, which had an impact on the purchasing power, allowing a partial real weight recovery as consumer credit continued to grow, while at the same time, a gradual recovery in the consumption of durable goods was observed.

In this macroeconomic context that we illustrated, Telecom Argentina has managed to outperform the market in terms of revenue growth and profitability increase when compared to past year figures.

Having gone through this introduction of the macro environment, let me pass the call to Gabriel Blasi, who will go over the vision and strategy and business highlight section.

Thank you, Solange, and hello, everyone. First of all, we deem important to remark to our investor community that due to the fact that since [12: 30 a.m.] on January 1, 2018, the merger by absorption between Telecom Argentina and Cablevisión has become effective. During this presentation, we'll be discussing the results of both Telecom and Cablevisión for the fiscal year 2017 and 2016.

Consequently, this will be the last quarter that the companies will be reporting their earnings separately.

Please refer to Slide 7, where we want to share with you how we are transforming the company so as to be competitive and leaders in that what will be the new [era] of the telecommunications industry in our country.

The objective of the new telecom is to deliver to our clients a high-speed connectivity flow, [the results are permanent and mobile], in the payment of devices and the place where the client is. Touching this goal and being able to deliver a value-added proposal, Telecom is focused on 3 main pillars: coverage and network capacity, convergent systems and services, and client experience. Through the development of the referred pillars, the company will be able to complete the transformation process that it is undertaking. That is in addressing the digital revolution through an innovative offer of products and services and capitalizing the investment that have been done in our networks.

Let's move on to our business highlights. Please refer to Slide 9, where we highlight some of Telecom and Cablevisión's key achievements in the full fiscal year 2017 and last quarter.

For the full year 2017, Telecom revenues totaled ARS 65.2 billion, while EBITDA rose 34% year-over-year supported by an increment in operating cost. In addition, fixed voice ARBU and broadband ARPU were up 56% and 33% year-over-year to more than ARS 152 and almost ARS 360, respectively.

Moreover, and in relation with our subscribers, mobile subs amounted to 19 million, and 9.7 million were 4G clients, fixed voice subs registered 3.8 million, and broadband subs 1.7 million.

Moving on to Cablevisión's highlights. Revenues reaching ARS 41 million (sic) [billion] in 2017, which represents an increase of 34% compared to the prior -- previous year. In the same line, EBITDA totaled ARS 15.2 billion, increasing 39% year-over-year. Furthermore, cable TV and broadband ARPU improved 41% in 2017 to more than ARS 796.

Additionally, in terms of clients, cable TV subs amounted to 3.5 million, broadband subs to 2.3 million and mobile subs to 0.7 million. Meanwhile, unique subs reaching 3.9 million.

Turning to Slide 10. We can observe the different drivers to growth of Telecom revenues, which can be explained by the higher Internet consumption evidenced over the last year, both in fixed and mobile segments. We can highlight that the current revenue mix remained mostly unchanged compared with 2017, while the participation of mobile revenues, this is still over 50% and fixed voice plus Internet accounts for a quarter of total revenues, where revenues coming from devices continued to [increase] in participation, but at a lower pace.

Mobile service revenues in Argentina achieved a growth of 22% year-over-year, mostly explained by an important expansion of mobile Internet in Argentina that grew by 57% versus full year 2016.

Moreover, fixed services reached ARS 19.8 billion, a 33% increase compared to the previous year. In particular, fixed voice plus Internet increased by 35%, mainly due to the migration to the [Arnet + Voz] bundle packs that include broadband and voice services. We will go into some details on the following slides.

Slide 11, we go to the evolution of the company's mobile business in Argentina, where the efforts were focused on capturing value. As intensity in data usage continues to increase, postpaid users amounted to 6.6 million subscribers representing 35% of the total customer base versus 33% a year before.

In connection to this, data penetration grew by 14% achieving 9.7 million monthly unique users. Heavy users are gaining participation, boosting the consumption of mobile data, which as for 2017, has reached an average of more than 1.8 gigabytes per user per month, which is 75% higher than in 2016.

In addition, a significant growth in data usage has been contributed to increase the browsing revenues and its participation in the mobile revenue mix, which now represents 50% of our total mobile service mix, up from 39% verified a year ago. As far as browsing ARPU is concerned, it has risen by 39%, reaching more than ARS 156 per month.

Turning to Slide 12, we include a review of our 4G rollout evolution. Personal 4G LTE network deployment carries on swiftly as coverage continues to expand. 4G high-speed services are now available in almost 1,200 locations, including all capital cities and the Buenos Aires metropolitan area, reaching a coverage ratio of 94% of the population in such cities and 85% of total population. More importantly, 4G customers totaled 9.7 million as of December 2017. This rapid growth in subscribers that used the network has been the driver of data traffic since 2015. Additionally to this, 4G traffic represents 67% of the total data traffic with an average of 2.3 gigabytes consumption versus 1.4 gigabytes for the non-4G users.

Please turn to Slide 13, where we included a review of our fixed service segment. Related to the fixed service subscribers, lines in service and Internet access has remained stable with 3.8 million users and 1.0 million (sic) [1.7 million] accesses, respectively, as of December 2017, despite the price adjustment that we have introduced over the last year.

It's worthy to highlight that the substantial growth in ultra-broadband subscriber during 2017 was up 116% -- 106%, sorry. Moreover, and related to the evolution of our convergent strategy, Arnet + Voz subs grew by 220% year-on-year. Price adjustments contributed to the ARBU growth. In this sense, during the fourth quarter of 2017, the ARBU increases by 54% year-on-year to more than ARS 172 per month.

In addition, global ARPU reached almost ARS 388 in the fourth quarter of 2017, reaching 28% compared to the same period.

Meanwhile, fixed data and ICT revenues increased by 23% on the year, mainly due to the combination of the FX variation that affected those contracts that are adjusted by the peso to the dollar exchange rate and an increase in the number of clients that use these services. This is a good evidence of the strong position as an integrated provider that Telecom has in the corporate and SME markets.

Now let's turn to Slide 14, where we can take a look over Cablevisión's revenues in 2017 that was mainly supported by the higher income of the Internet segment.

As we can see, pay TV services, which include cable TV and premium TV, are still Cablevisión's largest source of revenue, accounting for more than half of the company's revenue.

However, the participation of Internet has increased over the last year, while mobile services decreased its participation.

Cable TV services revenues achieved a growth of 31% year-over-year, mainly due to the price adjustment made during 2017. Moreover, Internet services reached ARS 12.9 billion, a 67% increase compared to the previous year. As we mentioned before, the increase was supported by the important growth of subscribers in the Internet segment.

Please move to Slide 15, where we show a review of Cablevisión's fixed services. Unique subscribers remained stable compared with 2016. However, subscriber distribution has changed over the year. The participation of clients with bundled offers increased, while the proportion of unique cable TV subscribers declined. It's worth nothing that Internet -- noting, sorry, that Internet subscribers totaled 2.3 million, an increase of more than 150,000 clients versus 2016.

Turning to Slide 16. We can evidence that despite a small reduction in cable TV subscribers, the total amount of Flow users has experienced an important growth in 2017. Subscribers with Flow Boxes reaching more than 254,000, up from 4,000 as of December 2016, while the number of subscribers that use the Flow application totaled around 688,000.

As a result of all the aforementioned, total ARPU reaching ARS 887 in the fourth quarter of 2017, increasing 42% year-over-year. Additionally, the number of Premium subscribers which include [the lines] with the Football Pack, grew by 44% year-on-year.

On Slide 17, we presented the consolidated CapEx figures of both Telecom and Cablevisión, where both companies continue to focus their efforts in the deployment of their network, striving to improve capacity and quality of service.

During 2017, Telecom has invested more than ARS 11.1 billion. In particular, investment in the fourth quarter amounting to ARS 4.5 billion, 22% higher than the same period of last year.

Furthermore, you can observe that the evolution of the FTTH deployment showed a significant increase over the last year as we have accelerated the pace and increased the number of zones of the fixed accesses network with fiber as a way to improve significantly our connectivity speed, offering an enhanced user experience.

Meanwhile, Cablevisión CapEx amounted to almost [ARS 11.7 billion] versus almost [ARS 9.1 billion] a year ago.

It is important to mention that during February 2018, Telecom announced that we'll invest $5 billion between 2018 and 2020. This amount will be mainly used to increase the telephone and mobile Internet radio bases; to extend the NGN, next-generation networks; and to expand and improve the connectivity infrastructure in order to be able to provide multi-play services in the framework of convergence.

Having gone through the business highlights, now I will pass to Solange, who will go through our financial performance.

Thank you, Gabriel. The positive business terms, as described by Gabriel, have resulted in a very positive performance in almost all financial results.

Please turn to Slide 19, where we can analyze the consolidated revenues and EBITDA from Telecom. For the fiscal year 2017, consolidated results amounted almost to ARS 65.2 billion, reaching a growth of 22% year-on-year.

In turn, service revenues grew at a higher rate of 26%, thanks to the strong performance of fixed voice plus Internet, together with mobile service revenues and more specifically, mobile Internet. Furthermore, EBITDA show a strong evolution growing by 34% year-on-year, as we have concentrated improvement our revenue quality and profitability.

EBITDA margins increased substantially by 260 basis points to 30% for the fiscal year 2017. And looking at the quarterly performance, we can see that we have consolidated the improvement trends in margins, evidenced since the third quarter of 2016. The company has taken actions to gain operational efficiencies and manage its cost structure and this action has positively impacted our profitability as OpEx have grown below inflation levels and revenue growth.

Let's turn to Slide 20, where we can verify the Telecom's operating income totaled ARS 12.1 billion with a 44% (sic) [54%] increase year-on-year. The EBIT growth was a bit higher than that of EBITDA and can be explained by the slowdown in the increase of the depreciation and amortization and disposal and impairment of PP&E, which stood at 10% year-on-year. This contributed to the expansion in operating margins to a 19% of consolidated revenues, increasing 400 basis points when compared with the fiscal year 2016.

Meanwhile, net income attributable to Telecom Argentina reached more than ARS 7.6 billion, increasing by 92% in 2017. This improvement can be explained by a combination of the previously mentioned increase in operating income and improved financial results, which increased almost ARS 1.8 billion in 2017 compared with the previous year. The strong increase in net income positively affected margins, which increased to 12% of consolidated revenues.

Together -- regarding our financial position and cash flow, as you can see on Slide 21, net debt amounted almost to ARS 3.3 billion as of December 2017. Net debt decrease over the year was mainly associated with an increase in operating cash flow, but partially offset by dividend payment.

In particular, operating free cash flow generation was strongly influenced by the company's EBITDA increase and by a greater efficiency in working capital. Moreover, it is worth mentioning that the General Ordinary Shareholders' Meeting held on December 28, 2017, approved the Medium Term Note Program up to a maximum outstanding amount as of the date of issuance of each class or series of $3 billion or its equivalent in other currencies. In addition to this, and through investments denominated in foreign currency and NDF contracts, the company is hedging its FX exposure achieving nearly 44% coverage of liabilities in foreign currency.

Turning to Slide 22, we included a review of Cablevisión's consolidated revenues and EBITDA. As we can see, consolidated revenues totaled almost ARS 41 billion in 2017, increasing to 34% year-on-year. In turn, EBITDA reached almost ARS 15.2 billion, which implied an increase of 39% year-on-year.

As a result, EBITDA margin stood at 37%, improving 100 basis points when compared with 2016. This improvement in margins was supported by the revenue growth that resulted higher than those of cost of sales and selling and administrative expenses growth.

On Slide 23, we can observe that Cablevisión's operating income amounted almost to ARS 11.2 billion, increasing 34% year-on-year. The increase in EBIT was partially offset by higher depreciation and amortization.

Notwithstanding operating margin for the fourth quarter 2017, improved 200 basis points year-on-year to 25%. In addition, net income attributable to Cablevisión rose 44% year-on-year, reaching ARS 5.8 billion. The increase was supported by the aforementioned growth of operating income, but partially offset by the higher income tax and higher financial loan.

Moreover, the improvement in net income resulted in a higher margin, which stood at 14%.

Let's turn to Slide 24, where we analyze Cablevisión's financial position and cash flow. Overall, net debt totaled ARS 6.4 billion in 2017, down from ARS 6.9 billion as of December 2016. This decrease is -- in net debt during the year, was mostly explained by a higher operating cash flow, but [fairly] compensated by an increase in tax and expenses. Additionally, operating free cash flow generation was supported by the company's EBITDA increase and by efficiency gain in working capital. Furthermore, for investment denominated in foreign currency and NDF contracts, Cablevisión is hedging its FX exposure achieving around 35% coverage.

Having described the financial results, let me pass the call to Gabriel, again, so he can continue with a review of the merger.

Thank you, Solange. Okay. We include a review merger on Slide 26, where we can see a brief summary of the transaction and the new ownership structure as well.

On January 1, 2018, the merger between Telecom and Cablevisión became effective. In order to complete the transaction, Telecom issued 1,184.5 million new shares for Cablevisión shareholders. All the resulting company share classes have equal economic and voting rights. Therefore, the ownership structure of the company changed and CVH became the controlling shareholder. Fintech Telecom LLC owns, as of to date, 31.53% of the company total capital [through] Class A shares, while CVH owns 18.75% directly and also owns 20.06% indirectly through VLG Argentina LLC.

In addition, floating shares, that is Class B shares, represent 29.65% of total capital. And Class C shares account for 0.1% -- sorry, 0.01% of total company capital. In addition, Fintech Telecom's own 8.24% of the total capital through Class B shares.

Turning to Slide 27, we present some key figures of the combined company. Regarding revenues, Telecom's revenues totaled $3.9 billion in 2017, while Cablevisión's revenues reached almost $2.5 billion. Overall, the revenues for the combined company, on a sum of the parts approach, totaled $6.4 billion. Meanwhile, EBITDA of the combined company amounted almost $2.1 billion in 2017, of which Telecom's EBITDA accounted for around $1.2 billion and Cablevisión's EBITDA accounted for $0.9 billion.

Moreover, EBITDA margin of the combined company reached 33%. As of December 2017, revenues from the mobile segment represented 38% of the total combined revenues, followed by pay TV with a participation of 23% and broadband services with a participation of 19%. In addition, the combined company had 19.7 million mobile subscribers, 4.1 million broadband, and 3.5 million cable TV clients, and 3.8 million fixed lines.

Please turn to Slide 28, where we continue analyzing the figures for the combined company. As it was already mentioned, revenues and EBITDA for the combined company totaled $6.4 billion and $2.1 billion, respectively. Gross debt reached $1.2 billion, while net debt totaled $0.5 billion as of December 2017.

As a result, gross debt-to-EBITDA ratio for the combined company was 0.67, while net debt-to-EBITDA ratio stood at 0.28 for the fiscal year 2018 -- 2017, sorry for that.

In addition, the combined CapEx amounted almost $1.4 billion in 2017, resulting in the difference of $705 million between EBITDA and CapEx for the combined figures. These figures stand out the solid financial situation that the combined company currently has.

Now let's turn to Slide 29, where we discuss the steps that the company will follow associated with this transaction.

The opportunities offered by the merger are related to the customer-centric vision strategy. In order to achieve the maximum potential of the revenue growth and profitability, the company's carrying out a series of enhancements of its processes and technical platforms. With respect to the back-end, in particular, we can highlight SAP integration, the development of a new ERP platform, and the integration of processes, including central finance and [front-end] initiatives. For these initiatives, we have well recognized partners in the markets, such as SAP, Accenture and Pricewaterhouse. Moreover, associated to the initiatives that have [lag] effect in the customer at the front-end, we are fulfilling the new CRM implementation, big data application and customer-centric vision. In this case, our selected partners for these current challenging processes are Vlocity and Salesforce. We are sure that cross-selling opportunities will increase our revenues and deepen the level of penetration.

The combined company would also be able to reduce churn and increase the loyalty of its clients through the creation of a new combined platform and a new integrated solutions.

In addition to this and together with Nokia, Bell Labs, we are currently working on the consolidation of our backbone network and carried out important network improvements, such as defining a preferred network, optimizing investments in order to improve our network coverage and the deployment of fiber optic and new sites.

Lastly, and in relation to the synergies of the merger, we can remark that CapEx efficiency and OpEx savings have an important potential and are being implemented and also, as we already mentioned, the cross-selling opportunities and churn reductions.

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

(Operator Instructions) We'll go first to Rodrigo Villanueva with Merrill Lynch.

My question is related to merger-related expenses. I was wondering if you could give some indication of what to expect in 2018 related with this? That would be my first question.

Hi, Rodrigo. Well, we are in the process of defining a 3-year plan that we'll be finalizing by the end of March, and then we will have a much clearer idea on the final figures. To give you a quick wrap-up on the investment that we are planning, the $5 billion that we are spending in the near future are going to be deployed in a similar way on a yearly basis for the next 3 years. Regarding the implementation of these 2 systems, or the front-end and the back-end, the total investment is still yet to be defined as we are in the process of discovery to define how deep are the amount of changes that we are going to need. For instance, in the case of the back office, we are not departing from the starting point, where you have Cablevisión or Telecom practicing one way or the other, but we are in a discovery process of starting the company from a single base. As I mentioned, by the end of this month, we are going to have a much clearer picture of -- about the total amount of investment to fulfill this.

Understood. And I was wondering if you could share with us where you see -- that you see more opportunities for cross-selling?

Well, there are several. The first good rule that we have is that there is not a very significant overlap between the customer base of Fibertel, for instance, and the mobile phone of personal. There we have a huge opportunity in terms of future growth, as you probably know, Fibertel customers, i.e. is the most [upper scale] product of its segment. And the -- we had opportunity to go to a very well-established and set customer base there. To achieve that, we'll need to improve significantly our mobile services to cope with the level of service that they -- the cable customer is used to. Other big opportunities that we have is that, although our network, as we have already shown, is very important to develop in terms of the 4G capacity, still we have in the [northern] area of the country, where we have a very good and a strong customer base, many of these customers still have 2G appliances or devices. So we have the opportunity in providing them new devices to increase the use there. Other important -- and very significant aspect that you can see is when you look at the map, you compare the network of Telecom with Cablevisión and which is stronger in each place. Cablevisión network provides a much stronger base in the center -- central area of the country, especially in the province of Buenos Aires, the surroundings of Buenos Aires, and the northern part of the south part of Argentina, where historically Telecom has a weaker position. Pooling those 2 networks together, we'll give a huge hedge to that. Not only this, but when the final process of integration, in terms of defining in which way all the different networks are going to be interconnected, which is probably -- be conducted by September this year, it will give us an additional hedge in terms of the future deployment of investment, and the way that we can provide better service to each customer in each region. Those are probably the most significant ones. But there -- I would say that they are appearing on a [daily basis].

(Operator Instructions) We'll go next to Fernando Suarez with AR Partners.

I would like to get some color about the potential remedies than the (inaudible) could put in place and the impact of this?

Just to clarify your question, when referring to remedies. If you can precise remedies to what, it might help. Thank you.

I'm referring that the antitrust agency have not ruled about the transaction -- get some color on the potentially impact of this.

Okay, thank you. Thank you very much. Well, of course, we are waiting for that ruling. We do not expect that, that situation will take too long, meaning that (inaudible) will happen prior to the first half of this year. And as for the conversations that we are carrying on, we are not expecting a significant development in -- from there.

Okay. My second question is related to the spectrum costs that was increased during the last month by the regulator, and so if you could give us some kind of impact of that cost.

Well, yes, thank you very much for the question. We are analyzing at this moment how the -- this new -- these new costs really applies because it can be assumed in different ways with different -- in different implications. And once that analysis is completed, of course, we are going to disclose the final impact to the company. But still, I cannot provide you with a single figure as there are several doubts regarding how it applies and it definitely -- it applies over certain aspects of the business itself.

And how could we compensate it also. And it's something that applies to all the industry, of course.

Okay. And my last question was, when should we expect to (inaudible) and when do you think that -- what's the plan on there?

Fernando, can you repeat it because it was an interruption in the line.

I was wondering if you could give us some details and -- on any OpEx savings that can -- when those will be delivered and if we are just in the 5-year run rate that you gave us 7 months ago.

Okay, Fernando. Well, as I've mentioned, we are in the process of defining this 3-year plan, much more detail, probably that would be finalized by the end of this month. Then we will have a much, much better first idea on certain aspects as cost savings or certain synergies that the merger might apply. Having said that, as I already mentioned, the analysis that Bell Labs is currently making over the whole network, will provide its final results probably by September this year. So I -- until then, it will be much difficult to have a very specific and clearer view. Of course, we are going to provide the information as far as we -- as we await this knowledge, but the way their networks are going to work together is probably the most relevant aspect in terms of OpEx savings in the future.

(Operator Instructions) We'll go next to Santiago Petri with Templeton.

Is it possible for you to explain us, more or less, the sensitivity of the company to changes in the exchange rate? For example, how the structure of costs that you have, how much of that is in U.S. dollars, also the CapEx and the balance sheet?

Thank you, Santiago, for your question. Well, roughly, we have like 2 main sources about the foreign exchange rates. In terms of CapEx, you might consider that at least 65% of the CapEx is U.S. related in dollars.

For the combined.

For the combined company. In the case of the second biggest source that we have is that, as you probably know, we are in the process of changing our capital structure and increasing substantially our debt. That would be our -- probably our second largest source of foreign exchange risk. And at the OpEx level, it is matched. When we are approaching to this important issue, although we are in the process of defining as part of a 3-year plan, our coverage policy and as Solange mentioned, we are about 40% covered as of today. In the future, it is important to address the situation that from an economic perspective, this is from the stocks of a foreign exchange risk, or the principal balance sheet, the company can be considered hedge as a -- has a huge, huge amount of real estate. And as you, Santiago, know very well, the real estate in Argentina is both sold and quoted in U.S. dollars. Meaning that there is not a significant foreign exchange risk on the long run, on the economic side. The problem is more on the financial side, on the instantaneous impact of the evaluation, especially on the flows. That is that very likely our cash -- our hedging procedure will be directed to hedge the flow more than the stocks of foreign exchange. Regarding that, we are going to release probably in the next month or so, our hedging coverage. Our intention is to have at least cover the flows of funds that are going to be paid during the -- a 12-month period. Of course, that can be adjusted according to the risk profile. [That is] very important towards risk, also, on the combined entity and it's not so noticed by the market, is that at present, because of the operations that the company has in Paraguay and in Uruguay on a consolidated basis, the company generates almost $90 million of EBITDA outside Argentina and that covers at least half of the cost of the projected debt that the company's going to have. So we understand that a foreign exchange risk is always an issue in Argentina, but we are very confident that for the short run -- that in the long run, we will be very efficient in terms of coping with that.

Excellent. Can you repeat me -- the OpEx? What's exposure of OpEx in -- to U.S. dollars? I didn't pick up the...

In terms of OpEx, it's matched. The foreign exchange risk is matched. In terms of CapEx, 65% is in U.S. dollars. Other very important aspect that we can mention and is also -- it's not fully -- or has not been fully considered up to now, is that the company, between this very strong real estate asset, has a very significant amount of towers, meaning that together the combined entity with Nextel towers, plus Telecom towers, plus the construction sites that we are going to develop this year, more than 900, we are going to have more than 6,000 -- near 7,000 towers in total. If you consider the market valuation for these towers on a LatAm base, compared to peers or similar companies in the region, you will find out that the average value in U.S. dollars for each tower is about $200,000 each one. And that gives you also another potential source of U.S. dollars to go with hedged situations.

At this time, there are no other questions in queue. I'll turn it back to management for closing remarks.

Thank you very much for participating in our quarterly conference call. Please do not hesitate in contact our Investor Relations department for any further inquiry you may have. Good morning to all. Have a nice day, and we expect to meet again soon.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect.