Initiatives

In order to reinforce the quality commitment with our mobile clients, Personal continued with its technological reconversion plan increasing its mobile network capacity.

During 3Q13, Personal launched new packs of services promoting flexible and convenient offers. Therefore, clients can acquire bundled packs including Internet, SMS and voice minutes at convenient prices. These services were massively adopted by customers with more than 60 million packs activated per month.

Moreover, Personal continued with its innovation strategy consolidating the value added services platform Personal Juegos with the launch of a plan that includes games downloading free of charge and compatible handsets presented as a promotion for the Kid’s Day.

Furthermore, during 3Q13 Personal continued with its strategy based on usage convenience, through campaigns of credit recharges and with special benefits to clients under the fidelity program ‘Club Personal’.

For the Corporate segment, Personal continued promoting special offers such as on-net unlimited calls together with specialized counseling for the segment.

Telecom Personal in Paraguay (‘Núcleo’)

As of September 30, 2013, Nucleo’s subscriber base reached 2.4 million clients (+6.0% vs. 9M12). Prepaid and postpaid customers represented 80% and 20% (vs. 18% on postpaid in 9M12), respectively.

The Telecom Group subsidiary in Paraguay continued growing supported by the increase in the postpaid customer base that leveraged its leadership in the mobile Internet market. Nucleo generated revenues from third parties equivalent to P$842 million during 9M13 (+34.3% vs. 9M12), influenced by the evolution of the peso against the Guarani (+18% yoy). VAS revenues amounted to P$427 million (+41.4% vs. 9M12) representing 54.3% of 9M13 service revenues (vs. 49.9% in 9M12).

Moreover, the level of mobile ARPU reached Gs.27.1 thousand in 9M13 (equivalent to P$33.3).

In 3Q13, Nucleo continued increasing its customer base with the 4G technology (LTE, Long Term Evolution), that was launched at the beginning of the year, while investing in the network to increase coverage and capacity.

Fixed Services (Voice, Data & Internet)

During 9M13 revenues generated by fixed services amounted to P$5,114 million, +15.8% vs. 9M12; with Data revenues (+29.9% vs. 9M12) and Internet (+26.7% vs. 9M12) growing the most in relative terms in this segment.

Voice

Total revenues for this service reached P$2,552 million in 9M13 (+7.0% vs. 9M12). A portion of this line of business continued to be affected by frozen tariffs of regulated services enforced by the Argentine Government in 2002.

Revenues generated by measured services totaled P$1,029 million, an increase of P$61 million or +6.3% vs. 9M12 mainly due to the incorporation of flat rate packs of local and national long distance calls.

Monthly charges and supplementary services reached P$833 million, an increase of P$65 million or +8.5% vs. 9M12 due to higher revenues in non-regulated supplementary services. The customer base surpassed 4.1 million lines in service.

The average monthly bill per user (ARBU) reached P$51.8 in 9M13, +8.6% vs. 9M12.

Fixed and mobile interconnection revenues reached P$407 million (+5.7% vs. 9M12). Meanwhile, other revenues totaled P$283 million (+6.8% vs. 9M12)

During the third quarter of 2013 Telecom continued promoting the sale of Aladino handset bundled new lines and ADSL.

Data and Internet

Data revenues amounted to P$686 million (+P$158 million or +29.9% vs. 9M12), where the focus was to strengthen the position of Telecom as an integrated ICT provider, with a wide variety of services.

During 3Q13, Telecom incorporated to its portfolio of La Nube Argentina, a product named Central Virtual Corporativa, a virtual IP switching device that allows savings in infrastructure costs. With Central Virtual Corporativa, clients manage their communications through a virtual IP PBX hosted in Telecom’s Datacenters with the highest level of security.

Revenues related to Internet totaled P$1,827 million (+ P$385 million or +26.7% vs. 9M12), due to the increase in the customer base in the quarter together with a commercial offer with higher speeds that can be rendered to the investments executed.

As of September 30, 2013, Telecom reached 1.7 million ADSL accesses (+3.5% vs. 9M12) with an increase in net adds in 3Q13 (around +35 thousand). These connections represented 40.5% of Telecom’s fixed lines in service. In addition, ADSL ARPU reached P$121.4 in 9M13, +22.4% when compared to 9M12 and the monthly churn rate was 1.5% in 9M13.

During 3Q13, Arnet introduced a new campaign under the concept: ‘Conectate’ (‘Connect’); this campaign show, in a humorous way, what the connection to Internet generates among people and how Arnet contributes to this relationship.

The promotion, one of the best sold, offers Arnet 10Mb WIFI + local calls + security kit. Since this campaign was launched, Arnet, started to focus its offers on higher speeds and to enrich them with a value-added proposal.

Furthermore, during the third quarter of the year a wide offer in Arnet’s fidelity program, ‘Club Arnet’ was implemented, with special benefits to clients where special discounts were offered during the Kid’s Day as well as in sports events where Arnet was sponsor. Moreover, in July, Club Arnet had presence in the winter holidays, offering special discounts in the Ski Centers and main touristic centers.

Consolidated Operating Costs

Consolidated Operating Costs, (including ‘Results on disposal of PP&E and write-down of PP&E’), totaled P$16,590 million in 9M13, an increase of P$3,352 million, or +25.3% vs. 9M12. The increase is a consequence of higher labor costs, costs of handsets with new features and taxes associated to revenues.

The cost breakdown is as follows:

Ÿ Employee benefit expenses and severance payments totaled P$2,996 million (+26.5% vs. 9M12), mainly affected by increases in salaries to the unionized employees due to the new collective bargaining agreement reached at the beginning of 3Q13, as well as increases in salaries to the non-unionized workforce, together with the social security contributions associated to such concepts, and to an increase in the number of unionized employees. Total employees (including temporary employees) at the end of the period totaled 16,660, similar levels to those registered in 9M12.

Ÿ Interconnection costs and other telecommunication charges (including TLRD, Roaming, Interconnection, international settlement charges and lease of circuits) amounted to P$1,386 million, +14.2% vs. 9M12. This increase resulted from higher Data and SMS roaming costs as well as voice roaming and TLRD charges.

Ÿ Fees for services, maintenance and materials and supplies amounted to $1,877 million (+20.1% vs. 9M12), principally due to increases in the maintenance of radiobases, systems and real estate in the mobile business and higher costs associated to suppliers in both fixed and mobile segments.

Ÿ Taxes and fees with regulatory authorities reached P$1,954 million (+34.4% vs. 9M12), impacted mainly by a higher volume of revenues, a higher incidence in turnover taxes derived from increases in municipal jurisdictions, higher municipal taxes and higher levies of the regulatory authority.

Ÿ Commissions (Commissions paid to agents, prepaid card commissions and others) totaled P$1,607 million (+13.0% vs. 9M12), mainly due to the increase in commissions paid to commercial agents associated with the increase in sales. Agent commissions capitalized as SAC amounted to P$367 million (+68.3% vs. 9M12).

Ÿ Cost of handsets sold totaled P$2,169 million (+42.6% vs. 9M12), due to an increase in the participation of high-end handsets that maximize VAS usage, that resulted in higher unit prices, and hence higher revenues. This was partially compensated by a lower quantity of handset sold. Deferred costs from SAC amounted to P$223 million (-40.4% vs. 9M12).

Ÿ Advertising amounted to P$452 million (-4.8% vs. 9M12), mainly derived from minor commercial expenses and campaigns in comparison to 9M12.

Ÿ Depreciations and Amortizations reached P$2,130 million (+10.5% vs. 9M12). PP&E depreciation amounted to P$1,447 million (+9.2% vs. 9M12); SAC and services connection costs amortization totaled P$665 million (+13.5% vs. 9M12); and other intangible assets amortization reached P$18 million (+12.5% vs. 9M12).

Ÿ Other Costs totaled P$2,019 million (+56.0% vs. 9M12). This increase was mainly due to costs of VAS that totaled P$503 million (+138.4% vs. 9M12), related to the increase of those sales, especially in the mobile business. Bad debt expenses reached P$221 million (+1.4% vs. 9M12) representing 1.3% of consolidated costs and 1.1% of consolidated revenues, while charges related to lawsuits and other contingencies amounted to P$225 million in 9M13 (+100.9% vs. 9M12). The Results on disposal and write-down of PP&E reached P$161 million.

Consolidated Financial Results

Financial results resulted in a gain of P$377 million, an increase of P$218 million or +137.1% vs. 9M12. This was mainly due to a gain in net financial interest of P$428 million in 9M13 (+P$234 million vs. 9M12) based on a healthy financial position partially compensated by losses for FX results of P$131 million in 9M13 (vs. losses of P$29 million in 9M12).

Consolidated Net Financial Position

As of September 30, 2013, Net Financial Position (Cash, Cash Equivalents and financial Investments minus Loans) totaled P$5,684 million in cash, an improvement of P$2,987 million vs. Net Financial Position as of September 30, 2012, thanks to the cash generation of the Group.

Capital Expenditures

During 9M13, the Company invested P$2,896 million (+32.4 vs. 9M12). This amount was allocated to Fixed Services (P$1,256 million) and Mobile services (P$1,640 million). In relative terms, capex reached 14.6% of consolidated revenues.

The main capital expenditures in the fixed business were associated to the reconversion plan of the network that implies the replacement of copper connections with fiber optic cables in different points (FTTC or Fiber to the Cabinet, FTTB or Fiber to the Building and FTTH or Fiber to the Home) to enhance the broadband portfolio and achieve speeds up to 100 Mbps. This evolution to new technologies contributes to optimize service quality in terms of stability and availability, improving significantly the customer experience.

Financial Results

(In million P$)

In the mobile business, the technological reconversion plan of the network continues with state-of-the-art equipment that allows the optimization of 2G and 3G/HSPA+ services in all the country, increasing capacity to cope with the increase in data traffic demand. It is expected to double the capacity of the 3G network in 2013 through the reallocation of the existing spectrum.

Relevant Matters

On September 9^th, 2013, SC Resolution No. 12/13 was issued. This Resolution allows citizens to issue opinions and comments on the suggested “Regulation of Telecommunication Services for Mobile Users”.

On September 23^rd, 2013, Law 26,893 was published in the Official Bulletin introducing modifications on the Income Tax Law, among others, to the taxability of results related to the trading of shares and dividend payments. Additional definitions in the implementation of the Law are still pending.

As of September 30, 2013, Telecom Argentina has acquired 10,784,154 of its own shares for P$310 million, with an average price per share of P$28.70 (1.10% of the Capital stock). The Board of Directors of Telecom Argentina in its meeting held on August 29^th, 2013, has modified the terms and conditions for the acquisition of own shares in the Argentine market in Pesos, only to that referred to the ‘Payable Price per share’, which has been set with a minimum of P$1 and a maximum of P$40 per share.

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