Telecom Argentina S.A. Announces Consolidated Annual Period ('FY08') and Fourth Quarter Results for Fiscal Year 2008 ('4Q08')*

BUENOS AIRES, Argentina, March 6 /PRNewswire-FirstCall/ -- Telecom Argentina (BASE: TECO2; NYSE: TEO), one of Argentina's leading telecommunications groups, announced today a Net Income of P$961 million for the fiscal year ended December 31, 2008 or +9% when compared to same period of the previous year. If Publicom sales effects were not contemplated, Net Income would have grown by 23% vs. FY07.

Highlights

-- Telecom Argentina Group continued with the expansion of its business during fiscal year 2008. Consolidated Net Revenues amounted to P$10,608 million (+17%) when compared to same period of the previous fiscal year ("FY07"). Revenues generated by the Cellular business grew by 20% and the Internet business increased by 39%.

-- Cellular subscribers totaled 14.4 million (+17%), while broadband subscribers reached 1,042,000 (+33%). Fixed lines in service also increased by 2% to 4.3 million.

-- Operating Profit Before Depreciation and Amortization ("OPBDA") reached P$3,330 million (+9% vs. FY07), equivalent to 31% of Net Revenues, mainly fueled by growth in cellular telephony in Argentina. On the contrary, fixed line telephony profitability continued to weaken due to frozen tariffs of regulated services and the inflation effect on the cost structure.

-- Operating Profit amounted to P$2,041 million (+25% vs. FY07), equivalent to 19% of Net Revenues (+121 bps. vs. FY07).

-- Net Income reached P$961 million (+9% vs. FY07). If Publicom sales effects were not contemplated, Net Income would have grown by 23% vs. FY07.

-- Investments (excluding materials) totaled P$1,597 million during FY08 (+23% vs. FY07), where P$834 million were allocated to fixed telephony (+21% vs. FY07).

-- Net Financial Debt (before NPV effect) declined to P$912 million (-P$1,143 million vs. December 2007). The Net Financial Debt to OPBDA ratio declined from 0.7x as of the end of December 2007 to 0.3x as of the end of December 2008.

                                           As of December 31
                                             2008      2007     Var $    Var %
    Consolidated Net Revenues (in MM P$)    10,608     9,074    1,534     17%
        Voice, Data & Internet               3,653     3,302      351     11%
        Cellular                             6,955     5,772    1,183     20%
    Operating Profit before D&A  (in MM P$)  3,330     3,052      278      9%
    Operating Profit  (in MM P$)             2,041     1,636      405     25%
    Net Income (in MM P$)                      961       884       77      9%
    Shareholder's equity  (in MM P$)         4,020     3,030      990     33%
    Net Financial Debt - Before NPV
     effect (in MM P$)                         912     2,055   (1,143)   (56%)
    Net Financial Debt - Book value
     (in MM P$)                                903     1,993   (1,090)   (55%)
    CAPEX (in MM P$)                         1,597     1,302      295     23%
    Lines in service (Fixed lines - in
     thousands)                              4,299     4,208       91      2%
    Cellular customers (in thousands)       14,390    12,292    2,098     17%
        Personal (Argentina)                12,564    10,666    1,898     18%
        Nucleo (Paraguay)                    1,826     1,626      200     12%
    ADSL customers (in thousands)            1,042       783      259     33%
    Fixed line traffic (in MM minutes,
     Internet & Public Telephony not
     incl.)                                 16,306    16,878      (572)   (3%)
    Incoming/Outgoing cellular voice
     traffic in Arg.(in MM minutes)         11,579     9,946    1,633     16%
    Average Revenue per user (ARPU)
     Fixed Telephony/voice  (in P$)             39        39        -      0%
    Average Revenue per user (ARPU)
     Cellular Telephony Arg. (in P$)            41        39        2      5%

During FY08, Consolidated Net Revenues increased by 17% (+P$1,534 million vs. FY07) to P$10,608 million, mainly fueled by the cellular and broadband businesses.

Moreover, OPBDA increased by 9% (+P$278 million) to P$3,330 million (31% of Consolidated Net Revenues).

Company Activities

Consolidated Net Revenues

The evolution in Consolidated Net Revenues by reportable segment was as follows:

Voice, Data Transmission & Internet

During fiscal year 2008, revenues generated by these services amounted to P$3,653 million, +11% vs. FY07, where Internet revenues have grown the most (+39% vs. FY07).

Voice

Total Revenues for this service reached P$2,701 million (+4% vs. FY07). The results of this line of business are still affected by frozen tariffs of regulated services.

Monthly Charges and Supplementary Services increased by P$53 million, or 7% vs. FY07, to P$799 million, as a consequence of a higher number of lines in service (+2%), which reached 4.3 million lines, and the 19% increase in supplementary services.

Revenues generated by traffic (Local Measured Service, Domestic Long Distance and International Telephony) totaled P$1,237 million, an increase of 1% vs. FY07, as a consequence of a slight decrease of 3% in minutes affected by the mobile substitution, reflecting a small decrease in local and national long distance traffic. Otherwise, international traffic continued growing by 10% vs. FY07.

Interconnection revenues amounted to P$400 million (+7% vs. FY07), mainly as a consequence of traffic originated in cellular lines but transported by and terminated in the Company's fixed-line network.

Other revenues reached P$265 million (+5% vs. FY07). This evolution is the consequence of an increase in billing and collection fees as well as in voice, data and internet equipment sales despite a decrease in Public Telephony revenues (-P$31 million), which was affected by the development of the mobile service.

Data Transmission and Internet

Data transmission revenues amounted to P$217 million (+25% vs. FY07), generated by the offering of new solutions to the corporate market geared towards addressing internal necessities related to infrastructure. This has enhanced its position as an integrated provider of innovative ICT solutions (connectivity, housing and hosting). In this line, in July 2008, Telecom acquired the shares of Cubecorp Argentina S.A., a world class infrastructure datacenter located in Buenos Aires, in order to maximize its datacenter services.

Revenues related to Internet reached P$735 million (+207 million or 39% vs. FY07), mainly due to the substantial expansion of broadband service, driven by better network coverage, commercial promotions and innovation of the service portfolio.

During the fourth quarter, and in line with the increase of the market, in November, Telecom reached one million ADSL clients. As part of this milestone, the company carried out several extensive promotions through TV, visual advertisements, radio and Internet media.

During this quarter, Telecom continued promoting Arnet Go, the first broadband service that combines ADSL technology for home internet access using a Wi-Fi modem, and the mobile internet access through Telecom Personal's 3G networks.

As of December 31, 2008, Telecom reached 1,042,000 ADSL customers (+33% vs. FY07). Lines with these types of connections represent approximately 24% of Telecom's fixed-lines in service.

Cellular Telephony

Cellular Telephony continues expanding, increasing its participation in the Group's total revenues (66% vs. 64% in FY07). During FY08, this business generated revenues of P$6,955 million (+20% vs. FY07). As of the end of December 2008, total subscribers reached 14.4 million, representing an increase of 0.6 million subscribers when compared to September 30, 2008 and 2.1 million vs. FY07.

Telecom Personal in Argentina

As of the end of December 2008, Personal reached 12.6 million subscribers in Argentina (+1.9 million, or +18% vs. FY07). 4Q08 experienced the highest increase of 2008, adding 0.6 million subscribers.

Approximately 66% of the overall subscriber base is prepaid and 34% is postpaid (including "cuentas claras" plans).

Total voice traffic increased by 16% vs. FY07 while outgoing SMS traffic increased from a monthly average of 883 million messages in FY07 to 1,454 million (+65%) in FY08. Because of this raise in traffic and the increasing use of value-added services, the Average Monthly Revenue per User ("ARPU") increased to P$41 in FY08, compared to P$39 in FY07. Meanwhile, the ARPU in 4Q08 amounted to P$42, stable when compared to 4Q07.

Revenues totaled P$6,565 million (+P$1,226 million or +23% vs. FY07). Service revenues increased by P$1,097 million or 23% vs. FY07, reaching P$5,853 million; furthermore, value-added services totaled P$1,735 million (+P$471 million or 37%, vs. FY07), 30% of service revenues. Additionally, handset sales grew by P$129 million (+22%) compared to FY07, reaching P$712 million.

Commercial Activities

During 4Q08, Personal continued developing its commercial efforts focusing on different segments. That is why it launched original packs, with the purpose of providing Personal's customers with more flexibility and convenient offers.

Furthermore, Personal continued to expand 3G network coverage, as well as the offer of new Smartphones, Mobile Broadband USB Modems and Netbooks. Additionally, the Company expanded its commercial offices, opening new customer centers in Viedma (Rio Negro), San Rafael (Mendoza), Comodoro Rivadavia (Chubut), Villa Maria (Cordoba) and Rio Cuarto (Cordoba).

Moreover, Personal continued providing innovative value added services, such as the download of CNN en Espanol contents.

In line with its focus strategy in music, Personal put into practice several promotional actions such as handsets with music related content.

Finally, Personal closed FY08 having strengthened its leadership position in brand recognition, with particular focus on the youth segment.

Nucleo

Personal's controlled subsidiary that operates in Paraguay generated revenues equivalent to P$390 million during FY08 (-10% vs. FY07).

The global crisis affected Paraguayan economy, where the depreciation of its currency and a lower level of activity were the last evident effects.

The devaluation of the Guarani in 4Q08 originated a reduction in revenues due to the consequent conversion of the full year revenues to the end of period exchange rate. The Guarani appreciated 18% against the dollar in the first half, but with the deepening of the financial crisis in October, it suffered a strong depreciation of 23%. This conversion effect had a negative impact of P$46 million on revenues of 4Q08 and FY08.

By the end of December 2008, the subscriber base reached approximately 1.8 million customers (+12% vs. FY07). Prepaid and Postpaid customers represented 90% and 10%, respectively.

Consolidated Operating Costs

The Cost of Services Provided, Administrative Expenses and Selling Expenses totaled P$8,567 million in FY08, which represents an increase of P$1,129 million, or +15%, vs. FY07. This increase in costs is a consequence of the increase in revenues, inflationary effects on the costs structure, and higher expenses related to the competition in the cellular business and internet.

The cost breakdown is as follows:

-- Salaries and Social Security Contributions: totaled P$1,217 million (+27% vs. FY07), affected by increases in salaries and social security imposed by law, the increase in mobile headcount that accompanied the evolution of the cellular business, and the absorption of 46 employees from Cubecorp S.A.

-- Taxes: reached P$825 million (+25% vs. FY07), influenced mainly by a higher rates in turnover taxes and additional charges related to Universal Service.

-- Maintenance, materials and supplies reached P$541 million (+21% vs. FY07), mostly due to an increase in costs that followed inflation.

-- Network access costs (includes TLRD, Roaming, Interconnection, international settlement charges and lease of circuits): amounted to P$1,366 million (+19% vs. FY07) generated by higher traffic between cellular operators that accompany the increase in revenues.

-- Fees for services: reached P$389 million (+30% vs. FY07), mainly caused by the evolution of prices that followed inflation.

-- Agents, prepaid card commissions and other commissions: were P$928 million (+11% vs. FY07), mainly due to the increase in commissions paid to commercial agents and card distribution costs, as a higher volume of revenues was registered.

-- Advertising: amounted to P$388 million (+27% vs. FY07) oriented towards supporting the commercial activity in cellular telephony and Internet, and to strengthen the brand position of the Telecom Group.

-- Cost of handsets sold: totaled P$1,026 million (+15% vs. FY07) mainly due to an increase in the number of terminals sold. Despite this, handset subsidies were less than in FY07 and represented P$268 million (-P$17 million vs. FY07).

-- Other Costs (includes bad debt expense, cost of directories publishing, transportation and freight, insurance, energy, water and others, rental expense and international and satellite connectivity: totaled P$598 million (+27% vs. FY07). This increase was due to the inflationary effects on related services.

-- Depreciation of Fixed and Intangible Assets: reached P$ 1,289 million (-9% vs. FY07). Fixed-line telephony totaled P$822 million (-1% vs. FY07) and Cellular telephony P$467 million (-21% vs. FY07), as TDMA technology depreciation charges ended in March 2008.

Consolidated Financial and Holding Results Financial and Holding Results resulted in a loss of P$265 million, an improvement of P$176 million vs. FY07. This was due to P$110 million less net interest, the positive effect of P$61 million of holding results generated by inventories and the gain on purchase of notes of P$34 million. This positive impact compensated the loss of P$32 million registered in foreign currency exchange losses.

Consolidated Net Financial Debt

As of December 31, 2008, Net Financial Debt (Loans before the effect of NPV valuation, minus Cash, Cash Equivalents and Other credits from derivative Investments for Notes) amounted to P$912 million, a reduction of P$1,143 million as compared to December 2007.

From October 16, 2008 to December 31, 2008, Telecom Argentina and Telecom Personal purchased Notes pursuant to market purchase transactions. In the case of Telecom Argentina, it has acquired an aggregate principal nominal amount of euros 79 million of Telecom's Series A Regulation S Euro Notes Due 2014 (equivalent to an outstanding amount of euros 32 million). In the case of Telecom Personal, it has acquired an aggregate principal amount of US$ 40 million of Personal's Series 3 Medium Term Notes due 2010. These notes were acquired in market transactions, with both companies' cash.

During January 2009, Personal purchased a nominal amount of US$4 million Series 3 Notes due 2010.

The Notes acquired were cancelled according to the terms and conditions of the Indenture.

Consolidated Capital Expenditures

During FY08, the Company invested P$1,597 million (excluding materials), in fixed and intangible assets. This amount was allocated to Voice, Data and Internet businesses (P$834 million) and cellular business (P$763 million).

Main capex projects are related to the expansion of broadband services and to the upgrade of the network for next generation services (NGN), the improvement of the network (capacity, coverage and 3G), and the launch of new and innovative value-added services.

In relative terms, capex reached 15% of the revenues, within industry standards.

Furthermore, due to a careful management of capex, Telecom reached a ratio of operating profit to net investment capital of 36% for FY08.

Other Initiatives

Related to the corporate market, during 4Q08 Telecom continued enhancing its position as an integrated provider of innovative ICT solutions, conceived to satisfy specific needs of each business segment and contribute to the improvement of government administration.

During this quarter, Telecom Argentina was distinguished with a certification that endorses the fulfillment of Communication "A 4609" from the Central Bank of Argentina to its datacenters in Cordoba and Bosque Alegre's housing service, adding to those received for the Buenos Aires datacenter. This certification is a requirement to provide services to financial entities, one of the segments that have grown the most during the year.

Likewise, during December, Telecom validated ISO 9001:2000 certifications for the third time, originally obtained in 2001, related to wholesale client procedures in order to improve quality administration and enhance standard solutions offered to that segment.

Recent Relevant Matters

Standard & Poor's Ratings Services announced on February 12, 2009, that it had downgraded to 'B-' from 'B' the foreign currency ratings on Telecom Argentina and Telecom Personal in line with the increase in Convertibility and Transferability risk assigned to Argentina. Additionally, Standard & Poor's, has also rated the local currency 'B' for both companies in Credit Watch as it reviews the impact of other country risk factors.

On January 1, 2009, Telecom incorporated by merger Cubecorp Argentina S.A., a "world class infrastructure" datacenter, with the objective of simplifying administration and taking advantage of professional and qualified staff from both companies. As part of this agreement, a migration plan was initiated to transfer Telecom Argentina and Telecom Personal data centers to Pacheco, Buenos Aires Province premises.

Telecom is the parent company of a leading telecommunications group in Argentina, where it offers directly or through its controlled subsidiaries local and long distance fixed-line telephony, cellular, data transmission and Internet services, among other services. Additionally, through a controlled subsidiary, the Telecom Group offers cellular services in Paraguay. The Company commenced operations on November 8, 1990, upon the Argentine government's transfer of the telecommunications system in the northern region of Argentina.

Nortel Inversora S.A. ("Nortel"), which acquired the majority of the Company from the Argentine government, holds 54.74% of Telecom's common stock. Nortel is a holding company where the common stock (approximately 68% of capital stock) is owned by Sofora Telecomunicaciones S.A. Additionally, Nortel capital stock is comprised of preferred shares that are held by minority shareholders.

    As of December 31, 2008, Telecom had 984,380,978 shares outstanding.

    (*) Employee Stock Ownership Program

    For more information, please contact the Investor Relations Department:

    Pedro Insussarry
    54-11-4968-3743

    Solange Barthe Dennin
    54-11-4968-3752

    Evangelina Sanchez
    54-11-4968-3718

    Ruth Fuhrmann
    54-11-4968-4448

    Horacio Nicolas del Campo
    54-11-4968-6236

    Voice Mail: 54-11-4968-3628
    Fax: 54-11-4313-5842
    E-mail: relinver@ta.telecom.com.ar

    For information about Telecom Group services, visit:

    http://www.telecom.com.ar
    http://www.personal.com.ar
    http://www.personal.com.py
    http://www.arnet.com.ar

Disclaimer

This document may contain statements that could constitute forward-looking statements, including, but not limited to, the Company's expectations for its future performance, revenues, income, earnings per share, capital expenditures, dividends, liquidity and capital structure; the effects of its debt restructuring process; the impact of emergency laws enacted by the Argentine Government; and the impact of rate changes and competition on the Company's future financial performance. Forward-looking statements may be identified by words such as "believes," "expects," "anticipates," "projects," "intends," "should," "seeks," "estimates," "future" or other similar expressions. Forward-looking statements involve risks and uncertainties that could significantly affect the Company's expected results. The risks and uncertainties include, but are not limited to, the impact of emergency laws enacted by the Argentine government that have resulted in the repeal of Argentina's Convertibility law, devaluation of the peso, various changes in restrictions on the ability to exchange pesos into foreign currencies, and currency transfer policy generally, the "pesification" of tariffs charged for public services, the elimination of indexes to adjust rates charged for public services and the Executive branch announcement to renegotiate the terms of the concessions granted to public service providers, including Telecom. Due to extensive changes in laws and economic and business conditions in Argentina, it is difficult to predict the impact of these changes on the Company's financial condition. Other factors may include, but are not limited to, the evolution of the economy in Argentina, growing inflationary pressure and evolution in consumer spending and the outcome of certain legal proceedings. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as the date of this document. The Company undertakes no obligation to release publicly the results of any revisions to forward-looking statements which may be made to reflect events and circumstances after the date of this press release, including, without limitation, changes in the Company's business or to reflect the occurrence of unanticipated events. Readers are encouraged to consult the Company's Annual Report on Form 20-F, as well as periodic filings made on Form 6-K, which are filed with or furnished to the United States Securities and Exchange Commission for further information concerning risks and uncertainties faced by Telecom.

* Non-audited Financial data

SOURCE Telecom Argentina