2015 financial statements annual report and · 2016-08-22 · annex i – report on the degree of...
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ANNUAL REPORT ANDFINANCIAL STATEMENTS2015
ANNUAL REPORT AND FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015 (For the fiscal year ended on December 31, 2015 as compared to
the fiscal year ended on December 31, 2014)
Table of ConTenTs
Glossary
a. overview of the Telecom Group A.1 Operational and Financial HighlightsA.2 Message from the ChairmanA.3 Telecom Group A.3.1 Shareholders of Telecom Argentina S.A. A.3.2 Shareholders of Nortel A.3.3 Companies and Business Segments of the Telecom Group A.3.4 Members of the Board of Directors and Supervisory Committee of Telecom Argentina as of December 31, 2015 A.3.5 Senior Management as of December 31, 2015
b. annual ReportB.1 IntroductionB.2 Economic Environment and Legal and Regulatory Framework B.2.1 Economic Environment B.2.2 Telecommunications Regulatory Framework B.2.3 Law and Regulations of General ApplicationB.3 Analysis of the Operations and Financial Results of the Telecom Group B.3.1 Business Strategy B.3.2 Description of the Operations of the Telecom Group B.3.3 Fixed Services (Voice, Data and Internet) B.3.4 Personal Mobile Services (Voice, Data and Mobile Internet) B.3.5 Núcleo Mobile Services (Voice, Data and Mobile Internet) B.3.6 Technology B.3.7 Human Capital B.3.8 Corporate Social Responsibility B.3.9 Corporate SecurityB.4 Corporate Governance B.4.1 Decision-Making Process and Internal Control System B.4.2 “Telco” and “TI-W” Commitments B.4.3 New Shareholders’ Agreement B.4.4 Demerger of Telco S.p.A. B.4.5 Compliance B.4.6 Investor Relations B.4.7 Financial InformationB.5 General Corporation Law RequirementsB.6 Outlookannex I – Report on the degree of compliance with the Corporate Governance Code (Annex IV, Title IV of CNV rules – NT 2013)
C. financial statements as of December 31, 2015 and 2014
4
6
7
13
15
15
16
18
20
21
22
23
27
27
30
36
38
38
39
54
60
69
72
76
81
84
86
87
94
96
98
99
100
101
103
107
109
143
4
aDR: American Depositary Receipt – Security which represent
holding foreign (outside United States) company’s shares
deposited in an American financial institution
aDsl: Asymmetric Digital Subscriber Line – Communication
technology that enables faster data through copper lines.
aMba: “Área Metropolitana de Buenos Aires” Metropolitan
area of Buenos Aires, which includes Ciudad Autónoma de
Buenos Aires and Gran Buenos Aires
anses: “Administración Nacional de la Seguridad Social”,
Argentine administrator of social security pension and
retirement benefits
aRbU: Average Revenue Billed per User
aRPU: Average Revenue Per User
aRsaT: “Empresa Argentina de Soluciones Satelitales
Sociedad Anónima”, company whose shares belong entirely
to the National government.
aWs: Advanced Wireless Services
bCba: “Bolsa de Comercio de Buenos Aires”, Buenos Aires
Stock Exchange
bCRa: “Banco Central de la República Argentina”, Central
Bank of Argentina
C.o.o.: Chief Operating Officer
Ceo: Chief Executive Officer
CHURn: Customer turnover rate
CnC: “Comisión Nacional de Comunicaciones”, Argentine
National Communications Commission
CnDC: “Comisión Nacional de Defensa de la Competencia”,
Argentine Antitrust Commission
CnV: “Comisión Nacional de Valores”, Argentine National
Securities Commission.
ConaTel: “Comisión Nacional de Telecomunicaciones
de Paraguay”, Paraguayan National Communications
Commission
Coso: Committee of Sponsoring Organizations of the
Treadway Commission
CPI: Consumer Price Index
CPIne: New Consumer Price Index
CsR: Corporate Social Responsibility
DWDM: Dense Wavelength Division Multiplexing
enaCoM: Ente Nacional de Telecomunicaciones, regulatory
authority with the scope of the Ministry of Communications
envíos: Personal Envíos S.A.
fintech: Fintech Telecom LLC
fTTb: Fiber To The Building
fTTC: Fiber To The Cabinet
fTTH: Fiber To The Home
GCl: General Corporations Law No. 19,550
GDP: Gross Domestic Product
Iasb: International Accounting Standards Board
ICT: Information and Communication Technology
IfRs: International Financial Reporting Standards as issued
by the IASB
InDeC: “Instituto Nacional de Estadística y Censos”,
National Institute of Statistics and Census
IP: Internet Protocol, communication method by which data is
transmitted between 2 points, via Internet
IsP: Internet Service Providers
IVR: Interactive Voice Response
law n° 26,831: Capital Markets Law
Macrostructure: Including employees with managerial
position of the Grupo Telecom (Directors, Managers and
Project Managers)
M2M: Machine to Machine ó exchange of information
between 2 remote machines
MMs: Multimedia Messaging System
MoU: Minutes of Use
nGn: New Generation Network
nortel: Nortel Inversora S.A.
nPs: Net Promoter Score, methodology to understand and
manage customer’s feedback and the degree of loyalty of
them
núcleo: Núcleo S.A.
nYse: New York Stock Exchange
Packs: Packages integrated by SMS, minutes or data that
can be acquired by packs or combined with the credit charge.
Personal: Telecom Personal S.A.
PP&e: Property, Plant and Equipment
RaV: Authorizations Regime
sC: Secretariat of Communications
sCMa: “Servicio de Comunicaciones Móviles Avanzadas”,
Advanced Mobile Communications Service
seC: Securities and Exchange Commission of the United
States
sMs: Short Message Service
GLOSSARY
5
sofora: Sofora Telecomunicaciones S.A.
sRMC: “Servicio de Radiocomunicaciones Móvil Celular”,
Cellular Mobile Radiocommunication Services
ffsU: Universal Service Fiduciary Fund
Telecom: Telecom Argentina S.A.
ToU: Text on user
UsGR:Universal Service General Regulation
Vas: Value Added Services
VDsl: Very high bit rate Digital Subscriber Line
VPn IP / VPn: Services of private data network that
replaces the point-to-point service
Wifi: Wireless Communication Technology
A. OVERVIEW OF THE TELECOM GROUP
7
The telecommunications market in our country has remained
stable as regards fixed services, while mobile and Broadband
services continued showing a rising trend, mainly driven
by the supply of services based on new technologies. The
challenging needs of services by customers and a strong
competition between operators continued featuring the
market in Argentina.
As part of the relevant events of 2015, in June 2015 the SC
awarded to Personal the SCMA 713-723 MHz and 768-
778 MHz frequency bands that make up Lot 8 and that were
previously pending assignment by the SC (ENACOM, at
present). In the same month, Personal made the payment of
the frequency bands awarded (for an amount of approximately
USD247.3 million). The acquisition of right of use of frequency
bands resulted in the capitalization of Intangible assets for 4G
licenses for an amount of $2,256 million.
Also, during 2015 an important deployment of 4G
technology (LTE) took place using the new spectrum acquired
in the auction process carried out in 2014. This deployment
essentially enabled to increase the access speed to the
Internet, improving the user experience of mobile customers,
especially for accessing multimedia content. On the other
hand, the Group focused on increasing the capacity and
availability of fixed services together with the homogenization
of protocols and network architectures, and continued to
satisfy the growing demand for higher bandwidth by fixed
services customers. This allowed the Group to reverse the
trend of decreasing operating margins before depreciations
of the past 5 years.
From the financial point of view we can highlight the distribution
of dividends in cash of Telecom Argentina for $804 million
made in May 2015 , the payment of the remaining spectrum
awarded by the SC to Telecom Personal as described above,
the 2 (two) series of Notes by Telecom Personal issued for a
nominal amount of $720.5 million, and an important capital
expenditures plan.
The results of operations detailed below show a solid economic
and financial performance which added to our strong market
position enables us to strengthen the Telecom Group and to
confirm it leadership in our country.
A.1 OPERATIONAL AND FINANCIAL HIGHLIGHTS
CONSOLIDATED FINANCIAL INFORMATION(in million pesos, except for net income per share, that is stated in pesos)
The following information has been prepared in accordance with IFRS as required by CNV provisions (See Note 1.c ) to the
Consolidated Financial Statements).
8
Revenues
Operating income before depreciation and amortization (D&A)
Operating income
Financial results, net
net income Attributable to Telecom Argentina (Controlling Company)
Attributable to Non-controlling interest
Net income per share attributable to Telecom Argentina - Basic and diluted
Accumulated earnings attributable to Telecom Argentina (Controlling Company) (*)
Accumulated dividends (**)
Profitability Ratios (%)Operating income before D&A to revenues
Operating income to revenues
Net income to revenues
Return on assets at beginning of year (ROA) (annual %)
Return on equity at beginning of year (ROE) (annual %)
Operating income to working capital and fixed assets (annual %)(*)
Average return on equity (annual %) (**)
201540,496
10,866
6,229
(1,102)
3,4353,403
32
3.51
23,239
10,142
201526.8
15.4
8.5
23.7
23.3
29.2
24.3
201433,341
8,702
5,443
253
3,7293,673
56
3.79
19,836
9,338
201426.1
16.3
11.2
23.5
30.9
34.6
21.6
201327,287
7,564
4,518
528
3,2543,202
52
3.27
16,163
8,136
201327.7
16.6
11.9
25.4
32.0
55.7
18.3
(*) Earnings generated by the Company since the beginning of its operations. Includes $165 million related to adjustments on Retained Earnings as of 01/01/2010 in connection with the adoption of IFRS.(**) Dividends distributed by the Company since the beginning of its operations.
(*) Working capital as of each year end does not include financial assets and liabilities.(**) Calculated as the Company’s average income from the beginning of its operations (without considering as denominator the adjustment for adoption of IFRS and adjustments of previous years) divided by the initial contribution of the shareholders, both measured in constant pesos until February 28, 2003 as required by the CNV. Equity includes Treasury Shares.
27
,28
7
7,5
64
4,5
18
52
8 3,2
54
8,7
02
5,4
43
25
3 3,7
29
33
,341
10
,86
6
6,2
29
-1,1
02 3
,43
5
40
,49
6
2013 2014 2015 Year
Mill
ions
of
peso
s
Revenues
Operating income
before D&A
Operating income
Finanfial results, net
Net income
Results of operations
a) Results of Operations
9
EV x EBITDA (*) x Revenues (*)
The year ended on December 31, 2015 reported a $3,435
million net income, of which $3,403 million are attributable
to Telecom Argentina, representing a 8% decrease from the
previous year.
Revenues grew to $40,496 million or 21% from 2014.
Operating income before D&A increased $2,164 million
(+25% in relation to 2014) amounting to $10,866 million
(27% of revenues). Operating income increased 14%
compared to 2014, and reached $6,229 million (equivalent
to 15% of revenues).
It should be noted that the three reportable segments (Fixed
Services, Personal Mobile Services and Núcleo Mobile
Services) experienced growth in their third parties revenues
compared to 2014, particularly by the increase of the
Personal Mobile Services segment which sales increased
21% from 2014, and represents 69% of consolidated
revenues. Mobile subscribers have reached to 22.2 million
(+1% with respect to 2014), of which approximately 19.7
million are Telecom Personal (“Personal”) subscribers in
Argentina. Mobile value-added services (“VAS”) amounting
$14,290 million in 2015 (+21% with respect to 2014) were
the drivers behind such growth. In addition, Internet service
revenues, within the Fixed Services segment, amounted to
$4,556 million (+40% compared to 2014) with a total of
1.8 million Internet accesses (+2% as compared to 2014)
and Data services revenues amounted to $1,780 million
(+21% as compared to 2014).
To enable the expansion of business, capital expenditures
amounted to $10,100 million (+13% as compared to
2014), equivalent to 25% of consolidated revenues (27% in
2014). Capital expenditures include the acquisition of 4G
licenses amounting $2,256 million as described in Section
B.2.2.1.5 “Spectrum”).
The generation of operating cash flow amounted to $6,812
million (+$1,091 million or +19% as compared to 2014).
Net consolidated financial liability amounted to $2,277
million as of December 31, 2015 (a decrease of $3,022
million as compared to the net financial asset of $745
million as of December 2014), after the payment of the
4G spectrum of $2,256 million and cash dividends paid
to its shareholders for an amount of $804 million. Of this
amount, a net financial asset of $560 million corresponded
to Fixed Services reportable segment, whereas Personal
Mobile Services reportable segment showed a net financial
liability amounting to $2,372 million and Núcleo Mobile
Services reportable segment showed a net financial liability
amounting to $465 million.
As regards the financial market value of Telecom Group
assets (Enterprise Value = net financial debt at market
value + market capitalization) as of December 31, 2015,
it amounted to approximately USD 3,333 million, which
represents a decrease of 13% compared to December
31, 2014. Such decrease is explained by the decrease of
17% in the share’s price in NYSE, partially offset by the
transformation of the net financial asset in 2014 to net
financial liability in 2015.
The value of the Group’s assets is 0.8 and 2.9 times the
revenues and operating income before D&A (for the last four
reported quarters), respectively.
Enterprise Value (EV)(figures stated in million of $)
6,000
5,000
4,000
3,000
2,000
1,000
0
DEC 01
3,6
41
2.82.8
5.3
6.36.9
5.9 5.5
1.6
3.3 2.6
1.6 2.43.6
2.9
0.7 0.90.80.5
0.81.4
1.00.5
1.82.32.2
3.02.8
1,00.5
4.44,9
99
3,3
11
4,9
00
3,5
20
2,2
40 3
,33
3
3,3
94
3,8
10
DEC 02 DEC 03 DEC 04 DEC 05 DEC 06 DEC 07 DEC 08 DEC 09 DEC 10 DEC 11 DEC 12 DEC 13 DEC 14 DEC 15
1,4
55
3,4
72
4,2
32
3,9
52
5,0
94
1,6
59
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
10
(*) Includes $2,256 million and $3,091 million of the acquisition of 3G/4G Licenses, in 2015 and 2014, respectively.
As of December 31Assets
Liabilities
Equity
Attributable to Telecom Argentina (Controlling Company)
Attributable to Non-controlling interest
Capital expenditures in PP&E and intangible assets
Loans
Net financial (liability) / asset
Financial Ratios:
Liquidity
Total debt-to-equity
Total debt / market capitalization
Cash at beginning of yearNet cash flow generated by operations (1)
Net cash flow used in investment activities (2)
Net cash flow generated / (used) in financing activities
Net foreign exchange differences on cash and cash equivalents
Cash at year end
free cash flow = (1) + (2) - investments other than cash and cash equivalents
Market capitalization at beginning of yearDistribution of cash dividends
Appreciation (depreciation) of the year
Market capitalization at year endMarket Price variation in BCBA (%)
Merval Argentina variation (%)
Merval Variation (%)
Market capitalization at year end in UsD (nYse - In million of UsD)Market Price variation in NYSE (in million of USD)
S&P 500 variation
MSCI Telecommunications Latin America variation
DJIA (Dow Jones Industrial Average) variation
201538,465
20,855
17,610
17,194
416
10,100
4,900
(2,277)
0.7
1.2
0.5
2015684
6,812
(9,651)
2,950
75
870
(1,863)(*)
201545,282
(804)
804
45,282-
+36%
+60%
20153,164
-17%
-1%
-38%
-2%
201426,317
11,548
14,769
14,418
351
8,957
433
745
0.7
0.8
0.3
20145,2245,721
(9,426)
(1,340)
505
684
(3,366)(*)
201430,516(1,202)
15,968
45,282+48%
+83%
+59%
20143,810+12%
+13%
-11%
+8%
201323,130
11,079
12,051
11,783
268
4,851
235
5,354
1.1
0.9
0.4
20133,1606,981
(3,821)
(1,407)
311
5,224
2,804
201315,258(1,000)
16,258
30,516+100%
+114%
+89%
20133,394+52%
+30%
-6%
+26%
b) Balance Sheet
c) Cash flow
d) Changes in market capitalization (BCBA) in million of $
11
fIxeD seRVICesVoice and Data
Installed lines (thousands)
Lines in service (thousands)
Customer lines (thousands)
Lines in service per employee
Lines in service per 100 inhabitants (a)
(a) Northern area of Argentina.
ARBU (in $ / month) (national + international)
a) National Traffic (millions) (b)(c)
Local minutes
Local long-distance minutes
Total national Traffic
b) International Traffic (millions of minutes)
Incoming traffic with carriers
Outgoing traffic (b)
Total International Traffic(b) Does not include Public Telephony
(c) Does not include Dial Up minutes
Internet (thousands)
Accesses
Arnet subscribers
Accesses variation year to year (%)
ARPU ADSL (access + ISP) (in $ / month)
Churn ADSL (% monthly / customer base at beginning)
MobIle seRVICesPersonal (thousands)
Prepaid subscribers
“Cuentas Claras” subscribers (d)
Postpaid subscribers
Mobile Internet subscribers
Total Personal subscribers Year to year subscriber base variation (in %)
(d) Subscribers with prepaid service and monthly basic charges invoice.
2015
4,904
4,043
3,969
371
19
67.7
8,569
2,220
10,789
455
181
636
1,814
1,791
+2
207.4
1.4
13,188
4,216
2,135
117
19,656+0.4
2014
4,763
4,093
4,016
370
19
57.4
9,514
2,429
11,943
593
225
818
1,771
1,749
+4
153.0
1.3
13,262
3,993
2,155
175
19,585-3
2013
4,700
4,124
4,044
375
19
52.5
10,294
2,602
12,896
588
213
801
1,707
1,687
+5
124.7
1.4
13,540
3,879
2,417
252
20,088+6
RELEVANT DATA BY ACTIVITY
12
Subscribers at year end per employee
Mobile minutes Volume (in thousands of million)
ARPU (in $ / month)
MOU (in minutes / month)
TOU (in SMS / month)
Churn (% monthly / subscriber base at beginning)
MBOU (MB / month per subscriber’ handset)
Núcleo – Paraguay (thousands)
Prepaid subscribers
“Plan Control” subscribers (d)
Postpaid subscribers
Mobile Internet subscribers
Total núcleo mobile subscribers Year to year subscriber base change (in %)
(d) Subscribers with prepaid service and monthly basic charges invoice.
Núcleo mobile subscribers at year end per employee
ARPU (in $ / month)
MOU (in minutes / month)
TOU (in SMS / month)
Churn (% monthly / subscriber base at beginning)
Total núcleo – Wimax Internet customers Year to year customer base change (in %)(*)
(*)Changes calculated based in whole numbers, regardless rounding to thousands.
HeadcountFixed Services
Mobile Services
Personal
Núcleo
Personal Envíos
Total Telecom Group Headcount
Headcount by Contract Type
Union employees
Non-union employees
Total Telecom Group Headcount
Ratios related to Headcount
Labor costs (millions of pesos)
Labor costs to revenues (%)
Average monthly labor cost per employee ($ thousands/employee)
Average monthly revenues per employee ($ thousands/employee)
20154,005
21.5
91.5
93.7
89.3
3.1
565.5
2,026
376
28
110
2,540+3
6,225
46.5
68.5
68
2.4
6+5
201510,9035,3214,908
408
5
16,224
12,973
3,251
16,224
6,934
17
34
201
20143,950
23.7
74.2
99.5
166.9
3.1
366.8
1,999
319
29
129
2,476+3
6,158
47.9
57.5
110
2.2
5+3
201411,0565,3604,958
402
-
16,416
12,819
3,597
16,416
5,349
16
27
168
20133,897
26.0(*)
66.8
111.7(*)
279.5
2.7
241.4
1,936
297
29
153
2,415+5
5,696
34.6
61.3
236
2.2
5-18
201311,0025,5795,155
424
-
16,581
12,811
3,770
16,581
4,003
15
20
136
(*) Voice traffic was adequate during 2014 taking into account the free minutes offered at the moment of recharge. In previous periods, there were considered not significant. Comparative figures were recalculated with the new criteria.
RELEVANT DATA BY ACTIVITY
13
On behalf of the Telecom Argentina’s Board of Directors, and
on my own, I am pleased to submit the Annual Report and
Financial Statements showing the management and results of
the Telecom Group during the fiscal year ended on December
31, 2015.
STRATEGy AND MANAGEMENT
During 2015 we have strengthened Telecom Group’s position
in all our business segments in which we operate. Highlights
to be mentioned include the following:
• As of December 31, 2015, the Group had 22.2 million
of mobile subscribers, 4.0 million of fixed line in service
and 1.8 million of Internet accesses (equal to 45% of the
fixed lines in service), with an increase of the higher value
segments and a recovery of all the customer satisfaction
indicators (Customer satisfaction/NPS).
• Our consolidated revenues increased 21% as compared
to 2014, which amounted to $40,496 million. 85% of
our consolidated revenues are service revenues which
increased by 22%, in 2015, as compared to 2014.
Sales of equipment reached $6,016 million, year-on-
year sales growth by 19%. For the first time since 2002,
revenues from fixed services increased $140 million due
to an increase in the plan subscriptions in the “business,
professional and government” segment.
• Our capital expenditures amounted to $10,100 million
(which includes $2,256 million for the acquisition of 4G
licenses), equivalent to 25% of consolidated revenues.
30% of the investments were made in the Fixed Services
segment, 65% in the Personal Mobile Services segment
and 5% in the Núcleo Mobile Services segment.
• In relation with economic performance, operating
income before depreciation and amortization increased
by 25%, reversing the trend toward of reduction of return
on sales experienced in last 5 years. The operating
income increased (+14%) while net income decreased
by 8%, mainly due to an increase in depreciations and
amortizations, as a result of the implementation of our
ambitious investment plan and for higher financial costs,
particularly exchange differences of the last quarter of
2015. The return on Equity at the beginning of the year
was 23%. As regards the financial condition, we should
note the payment in Telecom Argentina of $804 million
in cash dividends approved by the shareholders’ meeting
held on April 29, 2015, the acquisition of frequency
bands for mobile services for $2,256 million that were
pending of awarding and the 2 (two) series of notes of
Telecom Personal issued for a nominal amount of $720.5
million for financing 4G deployment.
Regarding the provision of services, the Group’s companies
continued to work on their objective to be the leaders in
innovation, by launching various services and products based
upon state-of-art technology, with a strong focus on quality of
services improvement and of the customer services.
We have continued to increase our Arnet customers (+ 43
thousand net new customers or 2%), substantially improving
the supplied speeds and, therefore, our ARPU. Once again, we
have also increased our mobile customer base in Argentina,
especially in the post-paid customers group (+ 203 thousand
net new customers or 3%). In Paraguay the customer base
increased 3% where the recent launch of 4G services took
place.
CORPORATE SOCIAL RESPONSIBILITy (“CSR”) PRINCIPLES, INTERNAL CONTROL SySTEM AND CORPORATE GOVERNANCE
At the Telecom Group we conduct our activities and
operations under CSR principles, taking into account the
importance of telecommunication services and the global
impact of the Group on Argentine society. The CSR program
has been designed in accordance with Telecom’s Code of the
Business Ethics and Conduct, focusing on social, educational
A.2MESSAGE FROM THE CHAIRMAN
14
and cultural initiatives aimed at fostering the development
of individuals and improving standards of living of the
population.
Highlights to be mentioned include the approval of the CSR
2014 Report and the CSR Programs for 2015. Telecom
Argentina Group publicly presented the eighth annual CSR
Report, which was verified by the independent external
auditor firm Price Waterhouse & Co. Asesores de Empresas
S.R.L enhancing the transparency of our reporting to our
stakeholders. This last edition was recognized as a good
practice among 186 reports of Latin America based on an
assessment of the World Business Council for Sustainable
Development (WBCSD).
For the tenth consecutive year, both the conclusion of the
Company’s Management as well as that of the independent
external auditor is that the Group has an effective internal
control to generate financial information of public use. This
is added to the Group’s constant commitment to provide
broad information, prepared under high quality standards
to facilitate the monitoring of our operating and economic-
financial performance by regulatory bodies, investors and
other parties interested in our organization.
As described in section B.4.5, in 2015 the Code of Business
Ethics and Conduct of the Group was updated and two new
policies were approved, Anti-corruption and Conflict of Interest
policies with wide dissemination of both policies among
members of the Board of Directors, Supervisory Committee,
Senior Management and employees of the Telecom Group.
In matters of corporate governance, we have included as
section B.4 of this Annual Report a detailed description of many
of our internal practices. Up to a large extent, such practices
satisfy requirements under U.S. regulations which govern the
Company by reason of its stock listed on the NYSE (“New York
Stock Exchange”). Finally, we have included, as Annex I to
this Annual Report information regarding Telecom Argentina’s
degree of compliance with the Corporate Governance Code
provided by CNV Rules (NT 2013), evidencing our high
degree of adherence to best practices in business leadership,
which was reviewed by Price Waterhouse & Co. S.R.L., who
issued a report on independent accountant’s reasonable
assurance, without observations.
ACkNOWLEDGEMENT
With great satisfaction for the achievements made and in view
of the challenges and growth opportunities before us, we wish
to express our special acknowledgment to all our employees,
the Company´s Management, our suppliers, our customers
and shareholders, all of whom have contributed to the
achievement of the proposed objectives and our satisfactory
results in 2015.
oscar Carlos CristianciChairman
15
A.3TELECOM GROUP
Telecom Argentina S.A. (hereinafter indistinctly “Telecom
Argentina” or “the Company”) is one of the leading
telecommunications companies in Argentina.
Its controlling shareholder is Nortel Inversora S.A. (“Nortel”),
which owns 54.74% of its total capital stock –51.00% in Class
A shares and 3.74% in Class B shares. Telecom Argentina
owns 15,221,373 Class B Treasury Shares and votes as of
December 31, 2015. Nortel’s ownership of the outstanding
shares amounts to 55.60% (51.80% consists of Class A
Ordinary Shares and 3.80% of Class B Ordinary Shares).
All Telecom Argentina’s shares are authorized for public
offering, 45.23% of them - all Class B shares - are listed
and traded on the blue-chip panel of the Buenos Aires Stock
Exchange (“BCBA”) and on the New York Stock Exchange
(“N Y S E”). Thus, Telecom Argentina is among the Argentine
companies listed on a U.S. Stock Exchange with the greatest
“free float” (shares quoted in stock exchanges held by minority
shareholders). The breakdown of the shares held by minority
shareholders, by investor type, according to the report issued
by “Caja de Valores” as of December 31, 2015 is as follows:
The 0.03% of the capital stock, represented by Class C shares, derives from the Programa de Propiedad Participada or “PPP”
(employee stock ownership program) created by Law No. 23,696. Further information is provided in Note 19 to the consolidated
financial statements.
As of December 31, 2015, the Company’s total capital stock composition was as follows:
A.3.1 SHAREHOLDERS OF TELECOM ARGENTINA S.A.
* Through Law No. 27,181, the protection of these participations has been declared of public interest (See section B.2.3. Laws and Regulations of General Application)
Investor TypeANSES *
ADS (“American Depositary Share”) – NYSE
Other minority investors – BCBA
Treasury shares
Total public offering
Class of sharesClass “A” Shares
Class “B” Shares
Class “C” Shares
Total
Outstanding shares
502,034,299
466,883,425
241,881
969,159,605
Treasuryshares
-
15,221,373
-
15,221,373
Total capital stock502,034,299
482,104,798
241,881
984,380,978
%24.99
14.75
3.94
1.55
45.23
%
51.00
48.97
0.03
100.00
16
Nortel’s ordinary shares (78.38% of the capital stock) are
owned by Sofora Telecomunicaciones S.A. (“Sofora”). The
remaining 21.62% of the Nortel´s capital stock is represented
by Preferred Class B shares, without voting rights.
During 2011, Telecom Italia International N.V. acquired
8% of Nortel’s total Class B Preferred Shares and Telecom
Argentina’s Series B Shares representing 1.58% of its capital
stock through the local company Tierra Argentea S.A.(“Tierra
Argentea“).
On November 14, 2013 Telecom Italia S.p.A and Telecom
Italia International N.V. (collectively, the “Sellers”) and Tierra
Argentea S.A. (“Tierra Argentea”, a company controlled by
the Sellers) announced their acceptance of the offer made by
Fintech to acquire Telecom Italia’s controlling stake in Telecom
Argentina owned by the Sellers through their subsidiaries
Sofora, Nortel, and Tierra Argentea. The transfer of the shares
held by the Telecom Italia Group in Sofora is conditional upon
prior approval by regulatory authorities.
On December 10, 2013 Tierra Argentea completed the
transfer to Fintech of Class B Shares of Telecom Argentina,
representing 1.58% of the capital stock of such company, and
of Nortel’s ADRs representing 8% of the aggregate Series “B”
Preferred Shares of Nortel.
As of September 30, 2014, Sofora’s shares were owned by
Telecom Italia S.p.A. (32.5%), Telecom Italia International N.V.
(35.5%) (Telecom Italia S.p.A. and Telecom Italia International
N.V. jointly denominated “Telecom Italia Group”) and W de
Argentina Inversiones S.A. (32%).
On October 25, 2014 Telecom Italia S.p.A. announced the
acceptance of an offer by Fintech to amend and restate the
agreement whose execution was announced on November
14, 2013. Under this amendment agreement: 1) on October
29, 2014 Telecom Italia International N.V. formalized the
transfer of 17% of Sofora’s capital stock to Fintech; 2) it
was confirmed that the sale of the 51% controlling interest
of Sofora is subject to obtaining the statutory SC (or the
regulatory authority that replace it in the future) approval and
shall not be completed until said approval is obtained. The
sale of this controlling interest is expected to be completed in
the next two and one-half years.
It was informed that the majority of the members of Sofora’s
Board of Directors shall continue to be appointed by Telecom
Italia Group until the statutory authorizations in Argentina are
obtained and the sale of the 51% controlling interest in Sofora
is completed. No substantial changes are foreseen in the
corporate governance of Sofora and its subsidiaries.
In the same vein, it was reported that: “If the sale of 51% of
Sofora to Fintech is not completed within two and one-half
years, Telecom Italia may then elect to either (i) terminate the
agreement with Fintech and receive a six-month call option
to purchase (or designate a Telecom Italia Group company
to purchase) the 17% minority interest in Sofora previously
sold to Fintech pursuant to an agreed formula or (ii) pursue
a sale of its 51% controlling interest in Sofora to a third party
purchaser, subject to applicable regulatory approval and as to
which Fintech has agreed to guarantee that Telecom Italia will
receive an overall amount of at least USD 630.6 million. After
such third party sale is consummated, if the overall amount
received in connection with such approved sale exceeds the
purchase price amount guaranteed by Fintech, any excess
will be allocated between the parties according to an agreed
formula.
If Telecom Italia is unable to complete a sale to a third party
purchaser within a two and a half year period, the agreement
with Fintech will be terminated; Fintech will pay Telecom Italia
an amount of USD 175 million and Telecom Italia will receive
a six-month call option to purchase (or designate a Telecom
Italia Group company to purchase) the 17% minority interest
in Sofora previously sold to Fintech pursuant to an agreed
formulation”.
Further information on this transaction can be seen under
Hechos Relevantes (“Relevant Events”) of the CNV on
www.cnv.gob.ar and under “Company filings” (Telecom
Italia S.p.A.) with the SEC on www.sec.gov.
As of the date of this Annual Report, Sofora’s shares are
owned by Telecom Italia S.p.A, (32.5%), by Telecom Italia
International N.V. (18.5%); by W de Argentina Inversiones
S.A. (32%) and by Fintech Telecom LLC (17%).
As of the date of this Annual Report, the Telecom Italia Group
direct and indirect stake in Telecom Argentina amounts to
14.5% of its economic rights.
On October 16, 2015 Resolution No. 491/15 of the Federal
A.3.2 SHAREHOLDERS OF NORTEL
17
Authority of Information Technology and Communications
("AFTIC") was published in the Official Bulletin. This body
has absorbed, among others, the duties of the SC. Through
the mentioned Resolution, the authorization to transfer to
Fintech the controlling interest of Telecom Italia in Sofora
Telecomunicaciones S.A. was denied, alleging among other
reasons that, the mentioned share transaction cannot be
approved while the aqcuarier is not an “Operator” as defined
in the terms of specifications approved by Decree No. 62/90.
The Resolution is available in www.boletinoficial.gob.ar.
It should be noted that, in 2010, the SC issued Resolution No.
136/10 whereby, at the Company’s request, the Operator
figure included in the List of Conditions for the privatization
of Entel approved by Decree No. 62/90, as amended, was
annulled. The grounds for this SC Resolution 136/10 states
that “as the exclusivity period ended and after twenty years
of service provision by Telecom Argentina, the experience is
deemed to have been acquired by the licensee and is not
imperative at present the maintenance of such figure”. Article
3 of the Resolution disposals provides: “Rescind the Operator
figure included in the List of Conditions, Decree No. 62/90,
as amended, regarding Telecom Argentina S.A.". Accordingly,
the Company has been developing its activities since 2010
based on this regulatory framework in force.
As informed by Telecom Italia S.p.A, Fintech filed an
administrative resource against Resolution No. 491/15.
Telecom Argentina also filed an administrative resource
against Resolution No. 491/15 related to its rights as licensee.
On February 17, 2016 Telecom Argentina was notified of
ENACOM Resolution No. 64/16, which partially considered
the appeal filed by the Company and other parties against the
AFTIC Resolution No. 491/15, and provides to continue the
analysis of the transfer transaction of Sofora’s stake interest
hold by Telecom Italia in accordance with current regulations,
particularly article 13 of Law No. 27,078 (LAD), as amended
by Decree No. 267/15.
On February 24, 2016 the Company was notified of the
Mandatory Acquisition Public Offer (“OPA”), which implicates
change of control, promoted and formulated by Fintech
Telecom LLC related to all Class “B shares issued by Telecom
Argentina that are listed in Mercado de Valores de Buenos
Aires S.A. The OPA background and purpose, price, timing
and terms of acceptance and the detail of the facts that
condition its performance are described in the OPA notice
published in the newspaper "El Cronista Comercial" on
February 24, 2016 in its page No.5. Additional information is
available at the CNV website www.cnv.gob.ar.
In December 2003, W de Argentina Inversiones S.A.
(hereinafter and with its subsidiaries “W de Argentina”),
Telecom Italia S.p.A. and Telecom Italia International N.V. had
signed a Shareholders’ Agreement for the joint management
of Sofora, Nortel, Telecom Argentina and its subsidiaries,
including Telecom Personal (“Personal”) (the “Shareholders’
Agreement”).
On August 5, 2010, the Shareholders' Agreement was
amended by the parties. As a result of the commitment of
the shareholders of Sofora before the CNDC, on October
13, 2010 further modifications were introduced. On March
9, 2011, in connection with the transfer of 10% of the share
capital of Sofora in favor of Telecom Italia International NV
held on that date, further amendments to the Shareholders’
Agreement were introduced in order to preserve the government
rights that parties had until then, clarifying that even though W
de Argentina would have 32% of the share capital of Sofora
, W de Argentina kept the same government rights that it had
under the shareholders' agreement, as it if continued to hold
42% of the share capital of Sofora Telecomunicaciones SA
(hereinafter the shareholders’ agreement and its modifications,
the "New Shareholders' Agreement"). Additional information
about the New Shareholders’ Agreement can be found in the
section B.4.3 of this Annual Report.
Since the acquisition of the 17% of Sofora’s shares on
October 29, 2014, Fintech Telecom LLC joined as part of the
shareholders' agreement.
18
Telecom Argentina is widely engaged as an integrated
telecommunication services provider, through its own
operations and the operations of its subsidiaries. The Group
has aligned its strategies and policies across its subsidiaries
in order to leverage synergies in commercial, technological
and support functions (such as Administration; Finance and
Control; Human Capital; Corporate Security; Regulatory and
Legal Affairs; Audit and Technology, among others).
Transactions between companies of the Telecom Group are
performed on arm’s length basis. Additional information
about related parties balances and transactions is given in
Notes 27 and 4 to the consolidated and separate Financial
Statements of the Company, respectively.
The following chart shows, as of December 31, 2015:
(a) The shareholders of Telecom Argentina, its controlling
company Nortel, and the controlling company of Nortel,
Sofora.
(b) The companies comprised in the Group led by
Telecom Argentina and the business segments in which
they operate.
A.3.3 COMPANIES AND BUSINESS SEGMENTS OF THE TELECOM GROUP
19
(a) As of December 31, 2015 economic rights of Telecom Italia Group in Telecom Argentina amounted to 14.5%.(b) On October 29, 2014, Telecom Italia transferred the 17% of Sofora´s shares to Fintech Telecom LLC. (c) Preferred “B” shares (listed on the New York Stock Exchange, Luxemburg and Buenos Aires) are not redeemable.(d) Ownership on Telecom Argentina’s capital stock as of December 31, 2015. As a result of the Company’s treasury shares acquired (15,221,373 shares as of December 31, 2015) Nortel’s equity interest in Telecom Argentina amounts to 55.60% of the outstanding shares. (e) See section A.3.1 "Shareholders of Telecom Argentina S.A." (f) The remaining 0.01% is owned by Nortel. (g) Dormant Entity as of December 31, 2015 and 2014. On April 21, 2015, the Ordinary, Extraordinary and General Shareholders’ Meeting of Micro Sistemas (second tranche) approved the modification of its corporate purpose, defining it in conducting “by itself or by third parties, or in association with third parties, inside or outside of the República Argentina, the administration and services related to the use of electronic method of payment, transfers and/or electronic use of money, through network and telecommunication equipment”. Micro Sistemas is currently analyzing the business for opportunities in the future.(h) Núcleo’s non-controlling shareholder is ABC Telecomunicaciones S.A. with 32.5% of the capital stock.(i) The remaining 1% is owned by ABC Telecomunicaciones S.A.
GRuPOTELECOM ITALIA(a) FINTECH (b)W DE ARGENTINA
SHAR
EHO
LDER
STE
LECO
M G
ROUP
SOFORA
78.38%
CLASS B PREFERRED SHARES (c)
21.62%
NORTEL (d)
54.74%
100%
TELECOMARGENTINA uSA
TELECOMARGENTINA
CLASS CSHARES
0.03%
99.99%
MICRO SISTEMAS(f) (g)
PuBLICOFFERING (e)
45.23%
99.99%
PERSONAL (f)
67.50%
97%2%
NúCLEO(PARAGuAY) (h)
PERSONAL ENVíOS(PARAGuAY) (i)
Fixed Services (Voice, Data and Internet)
Mobile Services – Personal
Mobile Services – Núcleo
Reportable Business Segment:
32% 51% 17%
20
(1) Directors and alternate directors do not hold executive positions in the Company nor in its subsidiaries. Directors are appointed for a period of 3 years. The appointment of current members of the Board was conducted by the Shareholders Annual Meeting on April 23, 2013, except for Gianfranco Ciccarella and for Oscar Carlos Cristianci. Gianfranco Ciccarella was an alternate director and was appointed as director to replace a resigning direc-tor in the Board of Directors’ meeting held on December 9, 2013. Oscar Carlos Cristianci was appointed by the Supervisory Committee as director to replace a resigning director in the minute of the meeting of June 22, 2015. Consequently, the terms of all directors will conclude with the celebration of the Annual Ordinary Shareholders’ Meeting to consider financial statements for fiscal year 2015.(2) On December 17, 2015 the Boardo of Directors accepted the resignation from the Directors María Laura González, Federico Horacio Gosman and Esteban Ariel Santa Cruz, and the Alternate Directors Verónica Daniela Álvarez, Juan Massolo and Eduardo Pablo Guillermo Setti; all of them had been appointed by the ANSES – Sustainability Guarantee Fund.
(a) Independent director according to the Securities and Exchange Commission (SEC) standards and Member of the Audit Committee.(b) Members of the Steering Committee (see B.4.1.b.4) on this Annual Report).(c) Chairman of the Audit Committee and Financial Expert under the terms of section 407 of the U.S. Sarbanes-Oxley Law. Independent director accor-ding to the SEC and CNV rules.(d) Member of the Audit Committee. Independent director according to the SEC and CNV rules.(e) Member of the Regulatory Compliance Committee (see B.4.1.b.5) on this Annual Report).(f) Independent director according to the SEC rules.(g) Independent director according to the SEC and CNV rules.
boaRD of DIReCToRs (1)(2)
ChairmanOscar Carlos Cristianci (a)
Vice-ChairmanGerardo Werthein (b)
DirectorsAndrea Mangoni (b)
Gianfranco Ciccarella
Francesca Petralia (b)
Piergiorgio Peluso
Enrique Llerena (d)
Esteban Gabriel Macek (c) (e)
Alternate DirectorsAldo Raúl Bruzoni (f)
Jorge Alberto Firpo
Lorenzo Canu
Jorge Luis Pérez Alati
Maria Virginia Genovés (g)
Eduardo Federico Bauer (e)
Pablo Alberto Gutiérrez (g)
sUPeRVIsoRY CoMMITTee (3)
MembersEvelina Leoní Sarrailh (Chairman)
Gustavo Adrián E. Gené
Gerardo Prieto
Susana Margarita Chiaramoni
Raúl Alberto Garré (h)
Alternate MembersGonzalo F. Oliva Beltrán
Alberto Gustavo Gonzalez
Jacqueline Berzón
Guillermo Feldberg
Silvia Alejandra Rodriguez (h)
A.3.4 MEMBERS OF THE BOARD OF DIRECTORS AND SUPERVISORy COMMITTEE OF TELECOM ARGENTINA AS OF DECEMBER 31, 2015
(3) Members of the Supervisory Committee are appointed for 1 year.(h) Member of the supervisory committee appointed by the “ANSES – Sustainability Guarantee Fund” in connection with its interest in the Company.
21
GeneRal exeCUTIVe DIReCTIon (GeD)
Chief Executive OfficerElisabetta Ripa (**)
CHIef offICeRs RePoRTInG To THeGeD
Finance, Administration and ControlAdrián Calaza
Regulatory and Legal AffairsAlejandro D. Quiroga López (****)
Human CapitalElisabetta Ripa (provisional)
Communications and MediaElisabetta Ripa (provisional)
Corporate SecurityGerardo H. Maurer
C.O.O.Aníbal Gómez
TechnologyPaolo Perfetti
WholesaleMáximo D. Lema (***)
DIReCToR RePoRTInG To THeCHaIRMan
Internal AuditDiego Chahwan (provisional)
A.3.5 SENIOR MANAGEMENT AS OF DECEMBER 31, 2015 (*)
(*) The terms of the officer of Telecom Argentina’s Senior Management are contractual in nature and its designation as officer (reporting to the GDE) does not imply that they are members of the Board of Directors.(**) Start its position as Chief Executive Officer since March 4, 2015, after Oscar Cicchetti’s resignation. (***) Since January 2015, Wholesale direction depends on C.O.O. (****) On February 10, 2016, this direction changes its denomination to “Public and Legal Affairs”.
B. ANNUAL REPORT
23
B.1INTRODUCTION
As regards the Group’s operations, 2015 results show a solid
economic performance with increasing operating results.
This was accompanied by strong commercial actions with
focus on innovation, launching several services and products
based on state-of-the-art technology with emphasis on
quality improvement. From the technological point of view,
the highlight of the year was the deployment of the new 4G
network along with the extension and restructuring of the 3G
networks.
HIGHLIGHTS OF THE COMPANy’S TWENTy-SEVENTH FISCAL yEAR
oPeRaTIonal aCHIeVeMenTs
• Customer Base
In the fixed-line service business, 2015 showed an increase
in Internet access lines, with a total of 1.8 million at year
end (+2% as compared to December 31, 2014), whereas
the number of fixed lines in service remained at similar levels
as compared to last year, which was commensurate with the
maturity attained by the market, ending the year with 4.0
million lines at the end of 2015.
In the Personal Mobile Services segment, the subscriber
base increased slightly (by about +0.4% as compared to
December 31, 2014) continuing the trend of the market, with
a total of 19.7 million subscribers at the end of the year. As
of December 31, 2015, post-paid customers reached 2.1
million (-1% as compared to December 31, 2014), ‘Cuentas
Claras’ customers reached a total of 4.2 million (+6% as
compared to December 31, 2014), and pre-paid customers
reached a total of 13.2 million (-1% as compared to
December 31, 2014). The ARPU was about $91.5 ($/month)
as of December 31, 2015, increasing by 23% compared to
December 31, 2014 ($74.2 ($/month) as of December 31,
2014).
On the other side, Núcleo Mobile Services segment amounted
to 2.5 million subscribers, which implies an increase in its
customer base of approximately 3% as compared to 2014.
As of December 31, 2015, pre-paid subscribers reached
by 2.0 million (+1% as compared to 2014), “Plan Control”
subscribers reached 0.4 million (+18% as compared to
2014) and Postpaid subscribers remained constant reaching
28 thousand as of December 31, 2015. In addition, Mobile
Internet subscribers reached 110 thousand as of December
31, 2015 (-15% as compared to 2014). On the other
hand, residential Internet customers using Wimax technology
increased by 5% to 5,653 as of December 31, 2015.
• Introduction of new products and services
In 2015, the Fixed Service segment continued to encourage
the combined offer of Broadband plus local calls, including
calls to mobile lines, offering the customers a communication
proposal with complementary alternatives.
In regards to the fixed network, the Ultra Broadband (“UB”)
has been steadily deployed with new technologies replacing
copper by fiber optic in different points of the network (FTTC,
FTTB and FTTH). This is complemented by the introduction of
new access technologies (VDSL/GPON), which will enable to
expand the broadband portfolio with speeds up to 2.5 Gbps.
The renewal of the access network comes together with
substantial improvements in the transport network, i.e. the
network that allows connecting at maximum speed sites with
each other and with stations, the company’s IP backbone
(backbone of the fixed and mobile network) and from there
to the rest of the world. Based on the improvements of the
transportation networks by approaching optic fiber to homes,
the focus was to continue offering customers the option of
24
increasing access speed.
As regards added value contents on fixed services, the
content library of Arnet Play was expanded, the streaming
video service of Telecom Argentina, enhancing the offer of
available contents. In this way, Telecom made available for
its customers a variety of movies, children’s programs, series,
documentaries, Argentine movies and thematic channels,
among other options.
The Company also worked on the convergent customer
acquisition and loyalty strategy through a joint discount
campaign between ARNET and Personal. Mobile operator
customers accessing the offering receive 50% in their
subscription to Arnet’s Internet service up to 15 MB for a
12-month period, and customers of Arnet 50% discount on
Personal subscription in “Día Full” plan or invoiced plans.
In addition, the business segment targeted the supply of
converging solutions, integrating voice data, Internet,
multimedia, ICT and Datacenter services and applications,
both fixed and mobile. In this respect, the added value products
and services complementing the solutions portfolio offered to
customers with “La Nube Argentina de Telecom” and state-of-
the-art Datacenter services continued to be enhanced.
With regard to Mobile Services segment, with the new spectrum
award, a modernization process of the entire network was
initiated, ensuring the deployment of the country's most
powerful 4G network, and additionally, the enhancement of
the capacity and coverage of 2G and 3G networks.
It is important to highlight that the Telecom Group initiated
the biggest infrastructure transformation in the history of the
Company, with a global investment plan of more than $30
thousand million for the 2015-2017 period.
The modernization process is mainly based on a conversion
of the transport network (the infrastructure backbone) to
support new services, increasing by tenfold fiber optic speed
that connects antennas and exchanges in order to support the
traffic volume involved in the 4G LTE technology. In addition,
over a thousand Wi-Fi hotspots were added in places with
high demand for data traffic, completely free of charge for
our customers.
Also, Personal presented its new brand concept, "Hagamos que
todo suceda (“Let’s make it all happen”)," with a strategy that
goes along with the evolution in the customer use of mobile
communications. The new commercial proposal reflected the
importance people give to permanent connection and fits the
global trends towards simplification of plan offerings especially
in the use of the Internet. Towards the end of 2015, more than
1.5 million of Personal customers were able to experience, in
4G coverage areas, high-speed mobile navigation provided
by this new technology.
The innovation strategy continued being strengthened by
expanding the proposal of mobile contents and the creation
of strategic alliances, thus encouraging the growth of the
number of customers with smartphones to boost value-added
services.
Customer service quality focused mainly on supporting
the evolution in the customer usage experience through
improvements in the face-to-face, telephone channel and
digital platform customer care.
In 2015, IVR circuits (interactive voice response) of the
telephone channel were optimized which switched from
a classification by product, to one by segment. In this way,
customization in customer service was ensured, and in
addition, 50% of the amount of calls was managed using the
self-management menu.
On the other hand, in early 2015, the communication and
strategic focus of Núcleo S.A. was based on the launch of a
new set of data packs called Megapacks aimed to expand the
variety of Internet packs thus improving the offer as regards
market and competitors.
In addition, during the first quarter of the year, the
communication of the benefit called "Multiplicate" targeting
the consumption of the prepaid customer base continued,
while for post-paid customers, benefits were leveraged with
the launch of smartphones.
With the aim of continuing innovation of the VAS catalog,
the use of services such as Spotify and Personal Video was
promoted. With Personal Video, the year closed with more
than 100 thousand subscribed lines and the incorporation of
movies and documentaries produced by Paraguay.
Finally, in December, 4G was launched with the campaign
"Si sos Personal sos 4G (“If you are Personal, you are 4G")
becoming the first operator in Paraguay to provide its
customers LTE Internet service on the phone.
25
TeCHnoloGICal aCHIeVeMenTs
In the mobile network, we went ahead working on its
continuous improvement, focusing on the deployment of
LTE technology, with a sustained increase of the covered
population and the number of locations reached across the
country. This deployment will continue in the coming years,
according to schedule.
It is also stressed that we continued with the modernization
of the 2G / 3G existing network in order to achieve more
capacity (mainly activating more carriers) and to continue
improving the quality of the service.
In the fixed network, during 2015 we continued the
implementation, at interurban level, of a DWDM network
(Dense Wavelength Division Multiplexing: technology and/
or equipment which enables to simultaneously multiplex and
transmit different wave lengths through an optic fiber) of high
capacity fit for the transport of lambdas at 100 Gbps. to the
south and north of the country. In addition, we continued,
the deployment of the MPLS network (Multiprotocol Label
Switching) of packet transportation (Metro Ethernet Network
and PTN -Packed Transport Network-).
On the other hand, actions in the network to improve access
to the Internet were continued, as well as the installation of
VDSL equipment in the main buildings, loop shortening in
the outer copper plant and FTTH deployment, both in current
of copper areas as in new developments built with complete
fiber-optic access.
In turn, Núcleo initiated the "Dream 2 Project ", the
modernization of the whole access network in order to finish
the replacement (swap) of all sites for 2017.
The main 2015 milestone for Núcleo was the extension of the
LTE network capacity in Paraguay and the incorporation of LTE
intelligent terminals which makes Núcleo the first company
with 4G mobile network in Paraguay.
eConoMIC anD fInanCIalaCHIeVeMenTs
The year ended on December 31, 2015 closed with a net
income of $3,435 million, representing a 8% of consolidated
revenues, of which $3,403 million are attributable to Telecom
Argentina as controlling company.
Revenues increased by 21% as compared to 2014,
amounting to $40,496 million. This increase occurred in all
business segments, especially in the Personal Mobile Services
segment, which, net of intersegment operations, led such
growth with a 21% increase. Likewise, Broadband in the Fixed
Services segment also experienced a substantial increase in
2015, shown by a 40% increase in sales of Internet services
as compared to 2014, primarily due to the 2% growth in
the number of Internet accesses and an increase of 36% in
the ARPU ADSL. Fixed services voice sales increased a 15%
as a result of different promotions and mainly due to the
increase in monthly charge for “Business, professional and
government” segment. On the other hand, fixed services
data sales increased by 21% (+$310 million as compared
to 2014) influenced by the variation of the exchange
rate of the agreements nominated in dollars and for the
positioning of Telecom Argentina as integral supplier of ICT
services (Datacenter, VPN, among others) for corporate and
government segment.
The increase in revenues was reflected in a 25% increase
in operating income before D&A, especially in the Personal
Mobile Services segment, which had a contribution to
Telecom Group operating income before depreciation and
amortization amounting to 72%. Operating income before
D&A represented a 26.8% of consolidated revenues of 2015,
being higher than the 26.1% of 2014. Thereby, it has been
reversed the 2010-2014 period tendency of the consolidated
operating income before depreciation and amortizarion to
revenues dilution (from 33.3% in 2010 to 26.1% in 2014).
Operating income increased 14% as compared to the
previous year, amounting to $6,229 million, equivalent to
15% of consolidated revenues.
From the financial standpoint, the net consolidated financial
liability position amounted to $2,277 million as of December
31, 2015 (a decrease of $3,022 million compared to
December 31, 2014), after the payment of the 4G spectrum
for an amount of $2,256 million and the dividends distribution
to Telecom Argentina´ shareholders for an amount of $804
million.
In addition, in December 2015 Personal issued notes in two
series for a total nominal amount of $720.5 million, with the
following terms and conditions:
• Series I: with a maturity of 18 months from the date of
issuance and settlement for a nominal value of $571.5
million, at a combine rate (fixed rate of 28.5% up to the
6th month and variable rate from the 7th month, BADLAR
26
(“Buenos Aires Deposits of Large Amount Rates”) rate +
375bps).
• Series II: with a maturity of 36 months from the date of
issuance and settlement, with a nominal value of $149
million, at a combine rate (fixed rate of 28.75% up to
the 9th month and variable rate from the 10th month,
BADLAR rate + 400bps).
The funds arising from the Series I and II notes will be used to
finance the three year investment plan of Personal, focused in
the 4G/LTE network expansion, the increase in transmission
capacity and in the improvement of 3G/2G services.
The mentioned notes have a local risk rating awarded by FIX
SCR S.A. of “AA+(arg)” with a stable outlook.
A detailed review of the consolidated economic and financial
results in each reported segment is included in Section B.3 of
this Annual Report.
CoRPoRaTe GoVeRnanCe aCHIeVeMenTs
Internal Control: Successful Certification under Section 404 of the Sarbanes-Oxley Law
For the tenth year in a row, the Telecom Group concluded
that has an effective internal control system over financial
reporting to prepare its financial statements under IFRS as
of December 31, 2015. The framework used by the Group
for the certification under Section 404 of the Sarbanes-Oxley
Law is the Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission of 2013 (“COSO 2013”).
Under the certification process for 2015, Management
maintained a “Top down” approach focusing on higher
risk areas and key controls so as to contribute effective and
efficiently to ensure internal control objectives compliance in
order to generate financial information for public use.
Corporate Responsibility Policy and Strategy
During year 2015, the Telecom Group continued to develop
its CSR management model, highlighting the following events
on CSR and sustainability:
• Telecom Argentina’s Board of Directors approved the
CSR 2014 Report and the CSR programs for 2015.
• The Telecom Group publicly submitted the eighth edition
of the CSR Report with the external verification of the
independent firm Price Waterhouse & Co. Asesores
de Empresas S.R.L, reinforcing the transparency of
accountability to stakeholders. This latest edition was
developed in accordance with the principles of the
used standard called Global Reporting Initiative ("GRI")
in its new G4 version, applying the option of "Essential"
agreement, which is a frame to communicate the most
significant results of the economic, environmental, social
and governance performance for the Group.
Corporate Governance Code
See Section B.4 for a description of the Telecom Group
corporate governance practices. To a great extent, the
Group’s practices comply with U.S. regulations which Telecom
Argentina is required to observe to list its stock on the NYSE,
those arising under the “Telco” and “TI-W” Commitments
assumed by Telecom Argentina since October 2010, and
also by implementing voluntary rules that allow the Group to
be aligned with best market practices. Additionally, Annex I
to this Report includes information about Telecom Argentina’s
degree of compliance with the Corporate Governance Code
according to CNV rules (NT 2013) requirements, where we
can see the high level of maturity and commitment of our
organization with the best corporate governance practices,
which also includes a reasonable assurance report issued by
the external auditors, without observations.
CoRPoRaTe MaTTeRs aCHIeVeMenTs
Change of Telecom Argentina’ corporate purpose
The Ordinary and Extraordinary Shareholders Meeting
held on June 22, 2015 approved the Telecom Argentina’s
corporate purpose change, adapting it to the new definition
of ICT services of the LAD and, thus, including the possibility
of providing Audiovisual Communication Services. Telecom
Argentina obtained authorization from the AFTIC on July
27, 2015, and later was registered the amendment of the its
bylaws at IGJ (“Inspección General de Justicia”) on September
26, 2015.
27
b.2.1.1 aRGenTIna
The economic activity of the country in 2015 experienced a slight recovery over the previous year. The estimated growth for the
Gross Domestic Product ("GDP") at constant prices was approximately 1.6% compared to 2014.
A heterogeneous performance was perceived in 2015 when the
activity behavior of the different economic sectors is analyzed;
however, growth was led by the farming and construction
fields, while financial intermediation and transportation
activities showed a decline. On its part, the industry recorded
a less vigorous and volatile progress. Meanwhile, and at
international level, a recessive context continued showing in
Brazil, while the slowdown in China became more noticeable
toward the second half of the year; these events impacted on
the local economy.
During the first half of 2015, the Argentine economy showed
a slow recovery, which became more evident towards the end
of the semester, mostly due to a record soybean crop and the
construction activity, the latest mainly pushed forward by the
performance of public works. In the first half of the year, the
industrial activity showed a certain level of recovery, although
a fragile one, given that -despite the improvements recorded
in the oil processing and food industry sectors- other sectors
such as automotive and steel were significantly affected by a
lower demand of Brazil and the intensification of the existing
imports controls. On the other hand, consumption indicators
showed a better performance than that recorded in 2014,
consolidating a partial recovery in the level of activity. In the
last months of the first semester, as a response of short term
external financing through a currency swap with China, some
exchange rate stability and recovery of the level of reserves
was achieved. In general, this fact contributed to moderate
depreciation expectations of the exchange rate, and in an
environment of a stable nominal exchange rate and inflation
B.2ECONOMIC ENVIRONMENT AND LEGAL AND REGULATORy FRAMEWORk
B.2.1 ECONOMIC ENVIRONMENT
0.1%
9.5%
8.4%
0.8%
2.9%
0.5%1.6%
2009 2010 2011 2012 2013 2014 2015e e: estimated data
Economic GrowthGDP at constant prices (base 100=2004)
28
slowdown, currency markets showed relative calm during the
first half of the year.
In addition, during the second half of the year, and especially
in the occasion of the election process, the exchange rate
volatility accelerated when the expectations of a correction
in the exchange rate were renewed. The level of reserves
decreased significantly after the payment of sovereign debt
maturities in foreign currency in October 2015. At the same
time and related to this, towards the end of the year, new
controls and regulatory measures in the foreign exchange
markets, and more restrictions on imports aimed to undermine
the loss of reserves were implemented. In this way, the overall
activity recorded a less outstanding performance during the
second half of the year, diluting the expansion recorded in
the agricultural and construction sectors during the first half.
The industrial activity did not show clear signs to continue the
recovery process showed towards the third quarter, initiating
a new stagnation stage. In this way, the activity as a whole
recorded a slowdown that gained greater visibility toward the
last quarter of the year.
Towards the end of 2015, and under the assumption of new
national executive authorities, new measures focused on
the external front were taken with the object to avoid loss of
reserves and to stop exchange rate instability. Quantitative
restrictions to acquire dollars for hoarding in the formal
exchange markets were lifted, certain controls and restrictions
that affected the acquisition of foreign currency for foreign
trade were rendered unenforceable, and modifications
in the export retention scheme were performed. Likewise,
agreements were made with local grain producers for the
payment of retained currency in order to increase the level
of international reserves. This policy package resulted in the
release of the formal exchange market, with some level of
exchange-rate correction which raised the official rate of the
US dollar to $13.04 at the closing of 2015.
Below are the main elements that influenced the evolution of
the Argentine economy and the telecommunications business
in 2015:
• Central countries continued showing moderate rates
growth along the year. The United States recorded a level
of activity growth somewhat higher than the Eurozone
countries. In both cases, the recovery experienced a
continuous and stable path with reduced rates. The
reaction of the Fed (Federal Reserve System of the United
States) in the last month of the year opened an expected
bullish cycle of international rates, although said rate
increase is expected to take place in a gradual fashion.
As to the emerging economies, China is going through
a progressive deceleration of the economic activity,
which has resulted in corrections of their main stock
market index, devaluations of the Yuan and reductions in
their export demand by the rest of the world, impacting
particularly commodities exporters. Brazil continues to be
immersed in a recession that shows signs of depth, with
reduced margin to use fiscal and monetary measures due
to combinations of high fiscal deficit and rising inflation.
The latter situation, combined with devaluations of the
exchange rate, has generated less dynamism in our
industrial exports, which were reduced in approximately
27% according to the INDEC data at December 2015
(last available data).
• Private consumption showed a favorable evolution during
2015, recovering from 2014 where indicators showed
little dynamism. This favorable evolution was associated
to higher fiscal stimulus, wage restructuring, and greater
availability of credit for consumption. In addition, private
investment was increased, mainly due to the growth of
research and development and construction according
to the official statistics.
• Given the declaration of statistical emergency and with
the renewal of authorities and the initiation of a process
of formal review of measurements taken by the INDEC,
said Agency was unable to publish price indexes for the
months of November and December 2015. In these
circumstances the INDEC suggested the use of alternative
indicators published by the province of San Luis and by
the Autonomous City of Buenos Aires (CABA) which
are within the National Statistical System until a new
indicator meeting international standards is completed.
Retail and wholesale inflation published by the INDEC
at national level from January to October 2015 was
11.9% and 10.6%, respectively. For the purposes of the
analysis required by the IAS 29, the Company estimated
the annual inflation rate for 2015 through a simplified
methodology, since no other relevant public statistics were
available for measuring prices across the entire territory of
the Argentine Republic. Accordingly, for November and
December 2015 a 7.8% inflation estimate (arising from
the simple average of retail inflation published by the
province of San Luis and CABA for that period) was added
to the cumulative 10-month rates, resulting into a retail
and wholesale inflation estimate of 20.6% and 19.2%
for 2015, respectively. If the INDEC retroactively modified
the published indexes once the statistical emergency is
29
over, the findings of our analysis in accordance with IAS
29 could differ from the current ones.
• According to INDEC data accumulated as of December
2015, compared to the same period of 2014, the
Argentine international trade decreased compared to
the previous year due to lower export amounts by 17%,
amounting to USD 56.8 million while imports fell by 8%
amounting to USD 59.8 million. The lower demand on
the part of the main trading partners of Argentina, Brazil
being one of them, had a negative impact on Fuel and
energy exports (-54%), on industrial Manufactures (-21%)
and on Primary commodities (-7%). As a consequence,
trade surplus decreased by 198%, amounting to USD
3.0 million.
• The fiscal policy for 2015 continued to be expansive
accelerating the growth of expenditure above revenues.
The deterioration of the fiscal balance was explained
mainly by the significant increase in social security
benefits and current expenses. With regard to income, it
should be noted that national tax revenues grew 31%, in
part due to higher income tax earnings, export duties and
revenues of the social security. In relation to expenses, it
is estimated that public expenditure reached record levels
in terms of GDP with transfers performed to the National
Treasury by the BCRA and other public bodies as the
ANSES that became progressively relevant.
• Exchange rate increased 52.5%, closing the year at
$13.04 per dollar. Until the last month of the year, the
nominal exchange rate experienced a relatively stable
depreciation rate. At the same time, the country's external
competitiveness was affected by devaluation episodes
both in China and Brazil, while exports accumulated
30 month of continuous contraction through December
2015. Given the abovementioned framework, towards
the end of the year the economic authorities took a set
of measures aimed at releasing controls on the exchange
market which resulted in a correction of the exchange rate
in the official market. Among some of the most important
measures that were rendered unenforceable were the
application of the 35% rate over the official exchange
rate as Income Tax and Personal Property Tax prepayment
to the purchase of foreign currency for travelling abroad
and the establishment of monthly limits for the purchase
of foreign currency, for saving purpose, according to the
monthly income stated by the tax-payer. On the other
hand, in 2015, the BCRA continued to assist the national
treasury by transferring international reserves for the
payment of the national public debt.
• Monetary variables continued to show signs of expansion
during 2015. The monetary base expanded by 40.5%
inter-annually, a change that was primarily explained by
the increase in national government transfers, which were
partly offset by exchange sales by the BCRA. The deposits
in pesos of the private sector grew 47.5%; said expansion
was led by time deposits which grew 60.6% and followed
by saving account and current account deposits which
grew 37.9%. As a result, the passive interest rates (private
Badlar) remained at an average level of 22.0% annually.
The loans in pesos continued to rise with better growing
levels compared to 2014, with the personal loans and
the credit card financing as the ones which grew more.
Lastly, the international reserves suffered a significant
reduction in the last months of the year due to the
payment in dollars of the debt services, and the currency
sales operated in the pre-election period and before the
removal of exchange controls. Nevertheless, the reserves
reached USD 25,563 million (-18.7%) at December 31,
2015.
• The labor market was relatively stable, reaching an
unemployment rate of 5.9% in the third quarter of
2015 (last data available), representing a decrease
compared to the last quarter in the previous year (6.9%).
Furthermore, salaries in nominal terms expanded 29.4%
annually, as of October 2015 according to the last data
available of INDEC.
• According to the Economic and Public Finance Ministry,
the Gross National Public Debt amounted to USD
226,328 million as of June 2015, which represented
approximately 41.8% of Argentina’s GDP. The holdouts
situation has not been resolved and is impacted by the
ruling of the New York Court on behalf of creditors who
did not accept to exchange the restructured public debt,
which continues disturbing the normal access to the
international financial markets. Nonetheless, Argentine
level of debt related to GDP is relatively low as compared
to developed countries and countries with similar levels
of the region. In addition, a significant amount is held
by public organizations like the BCRA and ANSES. As a
result, the portion of public debt exposed to risk represents
approximately a minor portion of the total public debt.
In short, in 2015 the economy recorded a slight recovery,
with a low growth of activity level which impacted on different
sectors, including the telecommunications industry.
30
It is worth mentioning that, although the telecommunication sector is characterized by being resistant to oscillations in the
economy, it is not immune to change in the economic cycles.
(*) Source: INDEC, except for the information related to exchange rates, whose source is the National bank of Argentina(a) Estimated data as of the end of 2015(b) As from January 2014, the INDEC started to publish a new Consumer Price Index with national scope (“CPINe”) which is not available for previous periods and no “junction” factor between the new and the old index. Since the CPINe method of calculation differs significantly from the preceding CPI (geographical region considered, sampling method, relative weight, etc.) said indices cannot be compared. (c) Retail and wholesale inflation published by the INDEC at country level until October was 11.9% and 10.6%, respectively. A 7.8% inflation estimate for November and December 2015 was added to these cumulative 10-month rates arising from the simple average of retail inflation published by the province of San Luis and CABA for that period. However, we must point out that this methodological simplification was performed since no other relevant public statistics were available for measuring prices across the entire territory of the Argentine Republic. (d) Data not available at the date of this Annual Report, the latest available information is reported.
Evolution of Main Macroeconomic Variables (*)
Gross Domestic Product growth
Exchange Rate ($/USD) – end of period
CPINe (% variation) (b)
Consumer Price Index (% variation) (b)
Wholesale Domestic Price Index (% variation)
Trade Balance (USD billions)
Unemployment (% of the economically active population)
20151.6%(a)
13.04
20.6%(c)
n.d
19.2%(c)
(3.0)
5.9%(d)
20140.5%
8.55
23.9%
n.d
28.3%
3.1
6.9%
20132.9%
6.52
n.d
10.9%
14.8%
1.5
6.4%
20120.8%
4.92
n.d
10.8%
13.1%
12.0
6.9%
20118.4%
4.30
n.d
9.5%
12.7%
9.0
6.7%
b.2.1.2 PaRaGUaY
The Central Bank of Paraguay ("BCP") published that the
economic activity in 2015 closed with 3% growth, thus
holding a positive trend after the 4.7% growth recorded in the
previous year.
Paraguay closed the year 2015 at an inflation rate (CPI)
of 3.1% (1.1% lower than that recorded at the end of the
previous year), according to the report published by the BCP.
In Paraguay, the dollar closed with a currency rate of Guaraní/
USD 5,827 which implies an important depreciation of the
Guaraní of 25.4% compared to the American currency in
2015, while in 2014 the Guaraní had depreciated 0.8%.
b.2.2.1 aRGenTIna
B.2.2.1.1 Regulatory Authority
On December 19, 2014, Law No. 27,078 (“Argentine
Digital Law” or “LAD”), was published in the Official Gazette
and has been in force ever since its publication. The new
Law incorporates important amendments to the regulatory
framework ruling the provision of telecommunication services
in Argentina (see section B.2.2.1.2 “Law No. 27,078 -
Argentine Digital Law” in this section for further information)
and establishing the creation of the Autoridad Federal
de Tecnologías de la Información y las Comunicaciones
(“AFTIC”), as a decentralized and autonomous agency in the
scope of the National Executive Power (“PEN”) which would
act as Regulatory Authority of the LAD, and would replace,
for all purposes, the SC and the CNC.
The LAD conferred the AFTIC the regulation, control,
supervision and verification functions concerning the ICT in
general, and in particular of the telecommunications, of the
postal service and all those matters integrated to its field in
accordance with the provisions of the LAD.
By the end of December 2015, the PEN issued the Decree of
Need and Urgency (“Decreto de Necesidad y Urgencia” or
hereinafter the “DNU”) No. 267/15 published in the Official
Bulletin on January 4, 2016. The DNU substantially amends
Law No. 26,522 (Audiovisual Communication Services –
“SCA”) and Law No. 27,078 (LAD) and also creates the
B.2.2 TELECOMMUNICATIONS REGULATORy FRAMEWORk
31
National Communications Agency (“ENACOM”) as a new
Regulatory Authority of those laws. The ENACOM replaces
the AFTIC and AFSCA (“Federal Authority of Audiovisual
Communication Services”). This new Authority acts as an
autonomous agency, within the scope of the Ministry of
Communications.
Additionally, Decree No.13/15 creates the Ministry of
Communications. The organizational structure of the
Ministry was approved by Decree No. 268/15, issued on
December 29, 2015 (published in the Official Bulletin on
January 4, 2016).
The Board of ENACOM will be composed of a Chairman
and 3 directors appointed by the PEN, as well as 3 directors
appointed by the Bicameral Commission of Audiovisual
Communication and ICT services. The quorum will consist
of the presence of 4 of its members. There are no special
eligibility conditions to be appointed as a member of the
Board, but member cannot have any incompatibilities under
the provisions of Law No. 25,188 (“Public Ethic”). The
ENACOM members can be removed directly and without
reason by the PEN.
The ENACOM has started its operations on January 5, 2016
with the 4 directors appointed by the PEN through Decree
No. 7/16, thus resulting in the constitution of the ENACOM
as established by Article 23 of Decree No. 267/15.
B.2.2.1.2 Law No. 27,078 (Argentine Digital Law – “LAD”))
Among the most relevant contents in the LAD which amended
the regulatory framework in force as of December 19, 2014
as regards telecommunications are:
a) the recognition as an essential and strategic public
service of ICT as regards the use and access to the
telecommunications networks, for and between licenses
of ICT services (subsequently repealed by Article 22 of
Decree No. 267/15);
b) the rule on prices and rates establishing that the
licensees of ICT services shall set their prices which shall
have to be fair and reasonable, cover the exploitation
costs and tend to the efficient supply and reasonable
operation margin;
c) the exemptions of taxes, establishing that tax exemptions
or reductions, prices and encumbrances of ICT in general
and telecommunications in particular may be set on a
precarious basis when the nature of certain activities so
warrant;
d) the amendments as regards Universal Service (further
information in B.2.2.1.4 below);
e) the asymmetric regulation as universalization tools
towards the development of an effective competition.
The LAD declared of public interest the development of ICT
and its associated resources, in order to establish and ensure
complete neutrality of networks, and to guarantee every user
the right to access, use, send, receive or offer any content,
application, service or protocol through Internet without any
restrictions, discrimination, distinction, blocking, interference,
obstruction or degradation.
The LAD set forth that the licensees of the ICT services may
supply audiovisual communication services with the exception
of those provided through satellite link, in which case, the
corresponding license must be requested to the proper
authority. Also, the new law allowed ICT services licensees
included in the restrictions of the Audiovisual Services
Communications Law (among them, Telecom Argentina) to
provide audiovisual communications services. Nevertheless,
that regulation was partially amended by Decree No. 267/15
(see section B.2.2.1.3).
According to the LAD provisions, Telecom Argentina amended
its corporate purpose during 2015, which was approved
by AFTIC Resolution No. 19/15. Further information is
disclosed in section “B.1 Introduction - Corporate Matters
Achievements”.
Also, the law established the framework for suppliers and
licensees entering the audiovisual communication services
market (among them, Telecom Argentina and its domestic
subsidiaries) setting forth that the Federal Authority of
Audiovisual Communication Services (replaced by the
ENACOM since Decree No. 267/15 enforcement) would
determine the go-to-market conditions of audiovisual
communication services for ICT suppliers and licensees. The
Law also stated a gradual implementation plan through the
setting up of promotion areas for limited periods of time
determined according to public interest, within which the ICT
licensees with significant market power would not be able to
provide audiovisual communication services.
It also set forth that the ICT service should be provided
throughout the national territory, considered for that end as a
unique area of exploitation and supply, and the modification
of the interconnection schedule, imposing higher obligations
to the operators and more rights to the Argentine government
32
for the regulation in this sense of the wholesale market.
According to the LAD provisions, the SBT holds its status of
public service (section 54), but with a different scope than
the previous regulations provisions. It was defined as the
national and international telephone voice service, through
the local networks, notwithstanding the technology used for
its transportation, provided that it complies with the objective
of allowing its users to communicate with each other (section
6 paragraph c)). In addition, in section 90 of Title XI, it
established that said definition, comprises the senses of the
definition established in the Auction Terms and Conditions for
the International Public Auction process for the Privatization of
the Supply of the Telecommunications Service timely approved
by Decree No. 62/90.
The LAD introduced substantial changes to the SU regulation
established by Decree No. 558/08. Among its provisions the
LAD creates a new FFSU and provides that the investment
contributions for the SU programs shall be managed through
this fund, which assets belong to the Argentine government.
Further information in section B.2.2.1.4 below.
Law No. 19,798 Telecommunications Act (passed in 1972),
as amended continues in effect only with respect to those
provisions that do not contradict the provisions of the new
LAD (including, for example, Article 39 of Law No. 19,798
referred to exemption from all taxes on the use of soil, subsoil
and airspace for telecommunications services).
The LAD also revoked Decree No. 764/00, as amended,
but provisions of the decree that do not contradict the LAD
will remain in effect, during the time it takes to the Regulatory
Authority to issue new licensing, interconnection services,
universal service and spectrum regulations.
B.2.2.1.3 Decree No. 267/15 – Amendments to the LAD
On January 4, 2016, Decree No. 267/15 was issued,
amending Law No. 26,522 (Audiovisual Communication
Services) and Law No. 27,078 (LAD). As mentioned above,
“ENACOM” was created as the Regulatory Authority
applicable of these laws. See section B.2.2.1.1 “Regulatory
Authority”.
One of the main amendments to the LAD consists in the
incorporation of Television Services provided by subscription
(physical or radio electric link, such as Cable TV) as an ICT
service within the scope of the LAD, and excluding it from
Law No. 26,522. Satellite Television Services will remain
within the scope of Law No. 26,522. Furthermore, Decree
No. 267/15 states that the ownership of a satellite television
license provided by subscription is incompatible with having
any other kind of ICT services license.
Broadcasting supplied by subscription licenses (physical
or radio electric link, such as Cable TV) issued before the
application of Decree No. 267/15 will be considered for
all purposes as in compliance with LAD upon the respective
registration for such service provision. Furthermore, the
Decree states a 10 years extension from January 2016, for
the use of frequency spectrum to radio electric link provided
by subscription license holders.
Among the amendments that replaces Article 6 of the LAD is
the incorporation of “video on demand service”, defined as a
service offered by an ICT services supplier to provide access to
software under demand on a catalogue basis. On January 7,
2016 the Company and Personal presented to the ENACOM
an application for the registration of the broadcasting by
physical or radio electric link service, describing the service
characteristics which registration was requested. As of the date
of this Annual Report, the ENACOM resolution is still pending.
Decree No. 267/15 replaced the LAD’s article No. 94, and
states that SBT suppliers, fixed telephony license holders
within the scope of Decree No. 264/98, and mobile
telecommunication license holders within the scope of Decree
No. 1,461/93 are prohibited from providing Broadcasting
under subscription services (for example, video cable services
and IP TV) until January 1, 2018 (this term can be extended
by 1 additional year). Also, the Decree replaces article 95 of
the LAD and provides several obligations for fixed telephony
licensees granted by Decree No. 264/98 and mobile services
providers with licenses granted by Decree No. 1,461/93,
which choose to provide broadcasting under subscription
services.
Article 28 of Decree No. 267/15 created, within the Ministry
of Communications, the Commission for the Preparation of
the Reform, Update and Unification Draft Law of Laws No.
26,522 and 27,078. The Commission will be responsible for
the study of both laws reforms under the principles established
therein.
As the date of this Annual Report, the regulation that should
provide the Regulatory Authority is pending. The Company’s
management expects that such regulation will clarify the
scope of several aspects of the LAD and Decree No. 267/15
33
for a better evaluation of operational and economic-financial
impacts that the LAD could have on the Telecom Group’s
business.
Furthermore, the Decree states that licenses transfers and
stake holdings that imply loss of corporate control must be
approved by ENACOM, proving a new procedure by its
article No. 8 and establishing that licenses transfers and
stake holdings in licensees will be considered ad referendum
of ENACOM approval. Additionally, shareholders of at least
10% of companies that provide public services are forbidden
to hold Broadcasting services provision under subscription
registration. However, this clause does not apply in the
following cases: (i) nonprofit entities that hold a license or
permission issued by the Argentine National, Provincial, or
Municipal governments to supply public services (cooperatives
providers of telephone services, for example); (ii) Entities
included in article No. 94 of the Decree (whereby Telecom
Argentina and Personal are included), which are allowed to
provide the service after the expiration of the term mentioned
in that clause.
Among other clauses, the Decree establishes issuance and
objections procedures (from other service provider in the same
area at the time of application for registration), within the
scope of Argentina CNDC. This procedure is not applicable
to nonprofit entities that exclusively supply ICT public services.
Decree No. 267/15 repealed article No. 15 and article
No. 48 paragraph two of the LAD. Therefore, the following
provisions no longer have effect: (i) the condition of essential
and strategic public services of ICT regarding the access to
the telecommunications network for the “ICT services” license
holders; and (ii) the Regulatory Authority power to regulate
tariffs due to public interest reasons.
According to Law No. 26,122, the Bicameral Committee must
determine the validity or invalidity of the Decree and present
its determination to the plenary meeting of each Chamber of
Congress for its specific treatment. Rejection of a Decree by
both Chambers of Congress would repeal the Decree, while
upholding the rights acquired during its enforcement (Article
24 of Law No. 26,122).
The Decree also establishes several amendments to the
Audiovisual Communications Services Law (SCA).
B.2.2.1.4 Amendments of Law No. 27,078 (“LAD”) to Servicio universal (“Su”)
In December 2014, the LAD introduced substantial
modifications to the SU regulations pursuant to Decree No.
558/08. Among its provisions the LAD establishes the creation
of a new FFSU and the fact that the investment contributions
corresponding to the SU programs be managed through said
fund, whose assets shall belong to the Argentine government.
The licensees of ICT Services (Telecom Argentina and
Personal, among others) shall be obliged to make investment
contributions to the FFSU equivalent to one per cent (1%) of
the total accrued revenues for the provision of the ICT Services
included in the scope of application of the law, net of imposed
taxes and charges. The investment contribution shall not be
transferred to the users whatsoever. In turn, the Application
Authority may dispose, once the SU objectives are reached,
the total or partial, permanent or temporary exemption, of the
obligation to perform said investment contributions.
The Law also establishes that by virtue of that set forth by
Sections 11.1 and 11.2 of the Management Trust Agreement
of the FFSU of Decree No. 558/08, the resources therein
foreseen in article 8 of Annex III of Decree No. 764/00 and
its amendments shall be integrated to the FFSU created by the
LAD in the conditions determined by the Application Authority.
The FFSU shall be applied by means of specific programs. Its
content and the corresponding awarding mechanisms shall
be defined by the Regulatory Authority who may entrust the
execution of these plans directly to the entities included in
article 8, paragraph b), of Law No. 24,156, or, complying
with the selection mechanisms that may correspond, satisfying
publication and competition principles, to other entities.
Through registered letters received on August 13, 2015, the
AFTIC gave notice to the Company and Personal that on July
28, 2015, the Argentine government, (as trustor) entered into
an administrative trust fund with Nación Fideicomisos S.A. (as
trustee) called “Contrato de Fideicomiso Argentina Digital”
(Argentina Digital Trust Fund). The AFTIC has assigned the
trustee as fiduciary of the investment contributions to the
FFSU, which are equivalent to 1% of total revenues recorded
since July 1, 2015 and to be collected as of August 3, 2015
for the supply of ICT services included in the scope of the LAD,
net of payable taxes and fees, in accordance with article 22
of the abovementioned Law. It also reported the information
of the bank account in which the deposit of the mentioned
contribution was to be made in the future.
34
As a response to the notice, on September 3, 2015, the
Company and Personal made their respective filings before
the AFTIC requesting some clarification in relation to the
implementation of the new FFSU, and expressly reserving the
rights in relation to the rules issued by the LAD.
Through the Official Notice published in the Official Bulletin
on September 1, 2015, the AFTIC communicated to all
licensees of ICT services that as of the date of the Bulletin
the FFSU assets managed by Banco Itaú S.A. would be
transferred to account No. 659.051.294/5 corresponding to
the new escrow account of Nación Fideicomisos S.A., and
that as a result, investment contributions corresponding to
SU programs would cease to be paid into the trust account
of Banco Itaú and should be funded in the aforementioned
account. In addition, by means of the notice published in the
Official Bulletin on September 2, 2015, Banco Itaú notified
all licensees that as of September 1, 2015, the deposit of new
funds in the trust under liquidation would not be allowed.
On September 10, 2015 the Company and Personal filed
before the AFTIC their respective SU contribution affidavits
corresponding to the revenues recorded in July 2015, clarifying
that these presentations were made with the understanding
that the operational rules related to the FFSU contribution,
regulated by Decree No. 558/08 and related provisions,
were in force. Additionally, Personal proceeded to deposit the
corresponding contribution in the new FFSU account reported
through the Official Notice published by the AFTIC.
In its filings, the Company and Personal had stated that the
filing of the affidavits and - in the case of Personal - the deposit
did not imply explicit or implicit consent of the regulations
issued by the LAD, and expressly reserved their rights in
relation to the unconstitutionality of the provisions set forth in
articles 21, 22, 91 and related provisions of said law, as well
as the claim of any rights arising from the acknowledgement
of this argument.
As of the date of this Annual Report, neither the Company nor
Personal have received an answer to its filings of September
3, 2015, or published any new regulation or additional
instruction in relation to the SU.
B.2.2.1.5 Spectrum
Through SC Resolution No. 25/15, issued on June 11, 2015,
the SCMA Frequency Bands 713-723 MHz and 768-778 MHz
for the National Exploitation Area were assigned to Personal,
which composed Lot 8 and that were pending of assignment by
the SC, in the framework of the spectrum auction established by
Resolution SC No. 38/14 on July 7, 2014.
On June 25, 2015, Personal paid the auctioned amounts
related to the assigned Frequency Bands (equivalent to
USD 247.3 million) according to the Terms and Conditions
provisions and its clarifying amendments. Thus, Personal fully
paid the aggregate bid amount for Lot 8. Through this payment
and pursuant to Article 54 of the Terms and Conditions the
performance guarantee of 15% of the auction assigned to
Personal by SC Resolution No. 25/15 was constituted.
Frequency bands of SC Resolution No. 25/15 are partially
in use. SC Resolutions No. 17/14 and No. 18/14 granted a
period of two years for the migration of the systems that are
currently operating the mentioned frequency bands.
Through Resolution No. 155/15 issued on September 2,
2015, the AFTIC terminated the spectrum assignment granted
to Arlink S.A. through Resolutions No. 28, 29, 30, 31 and 32
issued on June 11, 2015, and the registries conferred through
Articles 1 and 2 of SC Resolution No. 27/15 issued on June
11, 2015, for the provision of PCS and SCMA services.
Additionally, the Public Auction of Lot 1 was declared
abandoned and no operators were assigned the frequency
bands for the provision of PCS, SRMC and SCMA services,
approved by Article 1 of SC Resolution No. 38/14. Personal
made a presentation expressing its interest in the frequency
bands comprising Lot 1.
On November 4, 2015, Law No. 27,208 (“Satellite
Industry Development Law”) came into effect declaring the
development of the satellite industry as public interest as
well as a state policy and national priority with regard to
telecommunications geostationary satellites. That law granted
to the company ARSAT, on a preferential basis, the frequency
bands of Lot 1. The law also provides that these bands will be
used for the implementation and operation of services and
applications for which they are or will be assigned, giving
priority to applications of Public Protection and Defense
Operations. This will complement the ARSAT ICT network
services and will primarily serve the most vulnerable areas of
the country.
B.2.2.1.6 Filings of the Company to the Regulatory Authority in the LAD framework
Under the provisions of Article 48 of the LAD, on April 16,
2015, Telecom Argentina made two filings before the CNC
35
through which it reported new installation rates for the
"business, professional and government" segment (which will
be applied on April 23, 2015 and will be equal to $690)
and the new monthly rates for this segment (which will be
applied on July 15, 2015 and which will be equal to $77.28).
The presentation was rejected by the CNC through a letter
received on April 29, 2015, in which it requested that Telecom
Argentina refrain from engaging in unilateral conduct or it
could otherwise face penalties under a sanctioning process.
Likewise, on June 2, 2015, Telecom Argentina informed the
CNC of new rates for the price per minute for calls made
by its customers to certain international destinations that
became effective on October 15, 2015. Telecom Argentina
also informed the CNC of the new prices for public telephony
service in the Southern Region and new prices applying to the
assisted call service, effective on July 1, 2015.
On June 16, 2015 Telecom Argentina was notified of the
CNC GC Note No. 364/15 through which the CNC urged
the Company to apply the effective maximum rates approved
by the General Tariff Structure to international calls made to
the mentioned countries according to the provisions of CNT
Resolution No. 127/91, as amended. Telecom Argentina was
also asked to refrain from engaging in unilateral conduct, or
it could otherwise face penalties under a sanctioning process.
On May 27, 2015 and July 2, 2015, Telecom Argentina filed
its defense of rights in response to the CNC letter dated April
29, 2015 and CNC GC Note No. 364/15, respectively.
However, on July 17, 2015, the AFTIC notified Telecom
Argentina of the initiation of a sanction process related to a
potential violation of the General Tariff Structure and of CNT
Resolution No. 127/91, as amended, with respect to the
increase of the installation charges prices and the monthly
charges tariffs for the "business, professional and government"
segment informed on April 16, 2015.
On August 11, 2015, Telecom Argentina filed before the
AFTIC a discharge against the mentioned sanctioning process,
which as of the date of this Annual Report is still pending.
Telecom Argentina’s legal advisor believes that there are solid
legal arguments under the LAD that allow it to perform these
price adjustments.
On February 1, 2016, Telecom Argentina informed the
ENACOM that effective May 15, 2016, the new rate of Basic
Telephone Service for the residential segment will be $50 (plus
VAT) and that the "Retired" customer’s category will have a
discount of 50% on the mentioned new rate. As of the date of
this Annual Report, Telecom Argentina is communicating the
new rate to its affected customers.
For further information of regulatory matters see Note 2 to the
Consolidated Financial Statements of Telecom Argentina as of
December 31, 2015.
b.2.2.2 PaRaGUaY
Núcleo - Auction for 4G spectrum in the Republic of Paraguay
On October 14, 2015 the CONATEL launched the final list
and conditions for the auction of the license for the supply
of mobile telephone services, Internet access and data
transmission in the 1,700 / 2,100 MHz (4G - LTE) frequency
bands in the Republic of Paraguay. The list and conditions
were subject to public consultation for two weeks, during
which the mobile operators sent their considerations in this
regard.
Núcleo assessed the different economic scenarios arising from
a possible participation in the auction considering the list and
conditions’ technical alternatives, the availability of spectrum
of other frequencies and economic conditions resulting of the
list and conditions. After such assessment, Núcleo decided not
to participate in the auction process.
36
neW feDeRal CIVIl anD CoMMeRCIal CoDe
On October 8, 2014, Law No. 26,994 was published in the
Official Bulletin, pursuant to which a new Federal Civil and
Commercial Code was approved. Law No. 26,994 became
effective on August 1, 2015.
The Code unified civil and commercial matters (previously
regulated in separate Codes) and derogated and amended
other civil and commercial standards. Particularly, the new
Code modified the General Corporations Law and the
Consumers’ Defense Law.
Some of the main amendments of the new Code are the
definition of new contractual structures that previously were
only admitted by the legal jurisprudence, amendments to the
civil liabilities and modifications of statute of limitation.
laW of PRoMoTIon of ReGIsTeReD laboR anD PReVenTIon of laboR fRaUD
On June 2, 2014 Law No. 26,940 Ley de Promoción del
Trabajo Registrado y Prevención del Fraude Laboral was
published in the Official Bulletin. The new law, among other
topics, establishes a Public Record of Employers with Labor
Sanctions (“Repsal”) and defines a series of labor and social
security infringements as a result of which an employer shall
be included in the Repsal.
The employers included in the Repsal shall be subject to
different types of sanctions, such as the inability to access
public programs, benefits, subsidies or credit from state-
owned banks, the inability to enter into contracts with the
National Government, the inability to receive licenses of
property owned by the National Government, or the inability
to participate in the awarding of concessions of public
services and licenses. In turn, the employers who are repeat
offenders for the same infringement for which they were
added to the Repsal within a 3-year period after the first
final sanction decision shall not be able to deduct from their
income tax the expenses related to their employees during
the period that the employer remains included in the Repsal.
As of the date of this Annual Report, the Company had not
recorded sanctions in the Repsal according to the Article 2
of the Law No. 26,940.
neW sUPPlY laW
On September 19, 2014, Law No. 26,991 of Regulation
of the Production and Consumer Relations was published in
the Official Bulletin, which materially modified the provisions
of the Supply Law No. 20,680. Law No. 26,991 became
effective on October 2, 2014.
The new law provides that if economic agents undertake
certain types of conduct (such as artificially increasing prices,
accumulating raw material, unjustifiably restricting the sale of
goods or services, etc.), the authorities will have wide powers
to intervene issuing production and commercialization rules,
fixing prices or revenue margins, granting subsidies, among
others. The authorities will also have the power to impose
penalties.
As of the date of this Annual Report, national authorities have
not applied to the Company any measure in connection with
this law.
neW ConflICT ResolUTIon ReGIMe foR ConsUMeR RelaTIons MaTTeRs
On September 19, 2014, Law No. 26,993 was published
in the Official Bulletin, which established a legal regime
applicable to conflict resolution for consumer relations
matters. The law became effective on October 2, 2014.
This new law created new procedures and institutes for
consumers to file their complaints.
Law No. 26,993 created the Prior Mediation Service
for Consumer Relation Conflict Resolution (in Spanish,
“COPREC”) to intervene in complaints made by consumers
or users which arise in the consumer relations field, and
for complaints involving amounts which do not exceed
an amount equivalent to 55 (fifty five) Minimum, Vital
and Flexible Salaries (“Salario Mínimo Vital y Móvil”, the
minimum wage to be paid to an employee as set by the
Government). The participation of COPREC is mandatory
and prior to any complaint before the Audit in Consumer
Relations (new entity created by the Law), or, if applicable,
to any claim filed before the Federal Justice in Consumer
Relations (“Relaciones de Consumo”). The mediation
B.2.3 LAWS AND REGULATIONS OF GENERAL APPLICATION
37
mechanism through the COPREC has been in effect since
the Law was promulgated.
The Law also created an Audit in Consumer Relations
entity (the “Audit”) and the Federal Justice in Consumer
Relations. The first entity has the capacity to intervene in
complaints involving amounts which do not exceed an
amount equivalent to 15 (fifteen) Minimum, Vital and
Flexible Salaries, and the second entity has the capacity
to intervene in complaints involving amounts which do not
exceed an amount equivalent to 55 (fifty five) Minimum, Vital
and Flexible Salaries. As of the date of this Annual Report,
the Audit and the Federal Justice in Consumer Relations are
pending implementation.
laW n° 27,181 “sTaTeMenT of PUblIC InTeResT In THe PRoTeCTIon of THe naTIonal GoVeRnMenT’s eqUITY InTeResT THaT aRe PaRT of THe fGs InVesTMenT PoRTfolIo (sUsTaInabIlITY GUaRanTee fUnD)
On October 6, 2015 Law No. 27,181 was published in the
Official Bulletin. Law No. 27,181:
(i) declares of public interest the protection of the
National Government’s equity interest in the investment
portfolio of the Sustainability Guarantee Fund of the
Argentine Pension Integrated System (FGS) and its
equity interests in companies in which the National
Government is a minority shareholder or where the
Ministry of Economy and Public Finances holds shares
or equity interest. Transfer of those interests is forbidden
without prior authorization by two-thirds of the National
Congress; and
(ii) creates the “Agencia Nacional de Participaciones
Estatales en Empresas” (National Agency for
Government Equity Interests in Companies) (ANPEE),
as a decentralized body within the PEN that will be
responsible for the implementation of policies and
actions involving the corporate rights of the above-
mentioned equity interests and for the oversight of the
respective representatives of the National Government
or the FGS or body proposed by them in said enterprises
or companies. As of the date of this Annual Report this
Agency has not been constituted.
As described in section A.3.1, ANSES participations, which
are part of the FGS (“Fondo de garantía de sustentabilidad”)
represents approximately a 24.99% of the capital stock of
Telecom Argentina as of December 31, 2015.
38
In the Telecom Group we focus on growth and innovation
with the objective of generating value for our customers,
investors, suppliers, employees and in a wider sense, for the
communities we operate in. We are aware of the relevance
of the services we commercialize in an era where connectivity
and timely access to information are essential to improve
people’s quality of life, their education and the improvement
of economic productivity. The focus of the Group is to do
more than merely provide services to our customers within the
framework of the digital evolution of the business.
In order to promote the achievement of its goals in a
sustainable manner, the Telecom Group develops business
plans according to the telecommunications market and
macroeconomic environment and invests in products and
services innovation aimed at improving its customers’ user
experience by adding content, interactivity and convenience
to communication.
Our priority focuses on the transformation of the operational
and the effectiveness of our operating processes. We view
these as key competitive factors for our Company and its
long-term corporate sustainability, and we aim to achieve the
above by applying the best practices of corporate governance
and complying with the laws and regulations applicable to us.
Our investments in technology are designed to continuously
adapt our coverage and capacity of our infrastructure and
implement new service platforms. We aim to provide higher
quality service to our increasing traffic volumes and demand
for bandwidth, caused by the expansion of our customer
base, the access to the network applications and to Value
Added Services, access to social networks and content
distribution. We intend to align these investments with cutting
edge technologies and those that have been previously
implemented in other parts of the world, capturing the benefits
of international experience.
In response to the growing demand for digital services, we
simplified the pricing structure of our products with service
packages targeted to different usage profiles, increasing
transparency and making it easier for consumers to
control their communication costs. The composition of the
consolidated revenues for 2015 (40% voice, 27% data and
33% Internet) illustrate of the efforts of the Telecom Group to
successfully transform the Company into a "Digital Telco."
The approval of the LAD in late 2014 presented new challenges
for the Telecom Group and, at the same time, business
opportunities that were restricted to telecommunication
operators due to legal reasons exclusively. In light of this new
regulatory context promoting technological convergence
and in the preparation of our 2016-2018 Strategic Plan, the
Management of the Company has carried out a thorough
review of its vision and business strategy to face the new
competitive context of the sector and to position the Group in
the market of content converging services.
The aspiration of the Telecom Group is “to be the leading
converging company in the Argentine connectivity market”.
The implementation of the new defined strategy will be
supported by 3 pillars:
• Increase our share in all market segments (individuals,
homes and companies), through triple and quadruple
play convergent offers;
• Transform our customers’ experience, placing them at the
center of our business decisions, thereby making them
become the main group of interest or stakeholder;
• Promote operational excellence by adopting international
best practices in different business processes and by using
the innovation of our human capital and the benefits of
the new technology.
During the work performed so far, we identified nine sources
of strategic action for the next three years, and specific action
plans have been designed for its implementation. These
B.3ANALySIS OF THE OPERATIONS AND FINANCIAL RESULTS OF THE TELECOM GROUP
B.3.1 BUSINESS STRATEGy
39
action plans include, among others, the implementation of
a new commercial offering, the redesign and modernization
of commercial channels, the optimization of cost structure,
the deployment of quality and coverage of the network, and
the streamlining of the installation and repair processes of
network resources.
The successful implementation of these strategic initiatives is
estimated to add value to the Group.
The new strategy designed to confront the challenges of a
competitive market for communications in the Argentine
Republic set, in our view, the necessary foundations to
achieve, in a sustainable manner, the objectives of continuous
improvement of service quality, operational efficiency and
market positioning that our stakeholders require, and which
will allow the Telecom Group achieve their aspiration of
becoming the leading company in the communications
industry of our country in the coming years.
The Telecom Group provides customers with a wide range of
telecommunication services. To fulfill its purpose, it conducts
its business through different legal entities in the Group. Each
company represents an operating segment belonging to one
of the three reportable segments: Fixed Services, Personal
Mobile Services and Núcleo Mobile Services, according to
the nature of the products and services provided and the
economic and regulatory framework where each company
operates.
The main products and services in each reportable segment
are the following:
• Fixed Services: Local area, domestic long distance and
international communications, supplementary services
(including call waiting, itemized invoicing and voicemail,
among others), interconnection with other operators,
data transmission (including private networks, point-to-
point traffic, radio and TV signal transportation), Internet
services (Broadband); IT solutions outsourcing and sales
of fixed telephony, Internet and Data equipment.
• Personal and Núcleo Mobile Services: Voice
communications, GSM, 3G and 4G Mobile
Communications services on UMTS/HSDP/HSDPA+/LTE
networks, such as: high-speed mobile Internet, content
and applications download (music, games, images,
videos), SMS, multimedia messages (“MMS”), streaming,
electronic mail, access to social networks and contact
backup services; and sale of mobile communications
devices (mobile handsets and tablets).
Additional information on reportable segments is included
in Note 28 to the Consolidated Financial Statements as of
December 31, 2015.
a) ReVIeW of THe ResUlTs of ConsolIDaTeD oPeRaTIons
The year ended December 31, 2015 reported a net income
of $3,435 million, of which $3,403 million are attributable to
Telecom Argentina, representing a decrease of $294 million
as compared to 2014 (-8%).
In 2015, consolidated revenues with third parties amounted
to $40,496 million representing a $7,155 million increase
(+21%) as compared to 2014. Such increase was particularly
in the revenues with third parties of Personal and Núcleo
Mobile Services segments (+21% and +8%, respectively)
followed by the Fixed Services segment (mainly by +40% in
Broadband services and +21% in Data services).
In 2015, operating costs (including D&A and Gain on disposal
of PP&E and impairment of PP&E) amounted to $34,311
million, representing a $6,366 million increase (+23%) as
compared to 2014. Such increase was mainly attributable to
B.3.2 DESCRIPTION OF THE OPERATIONS OF THE TELECOM GROUP
40
an increase in the cost of equipment, higher employee benefit
expenses and severance payments, taxes and fees with the
Regulatory Authority, fees for services, maintenance, materials
and supplies, commissions and other operating costs. These
increases are associated with an increase in revenues, the
strong competition in the argentine mobile and Broadband
business, the effect of the increase of employee direct and
indirect costs on the structure of operative costs in Argentina,
and the increase in prices of services recognized to our
providers, that made the structure of costs increase (including
D&A and gain on disposal of PP&E and impairment of PP&E).
Our fixed telephony regulated services (7% of consolidated
revenues in 2015 and 2014) were still affected by the freezing
of rates enforced in early 2002.
Fixed Services segment experienced an increase of 3% in
operating income, mainly due to an increase in third parties
revenues of 25% and an increase in operating costs of
24%. On the other hand, Personal Mobile Services segment
experienced an improvement on its operating margins by
14% (due to higher revenues of about 21% and higher costs
of about 23%). Likewise, Núcleo Mobile Services segment
experienced a decrease on its operating margins by 19% (due
to higher revenues in the order of 8% and higher costs in the
order of 13%).
The results of 2015 compared to prior year results are shown
below:
(*) Net of intersegment operations.
Revenues
Services
Equipment
Other income
Operating costs (before D&A)
operating income before D&a% revenues
Fixed and intangible assets D&A
Gain on disposal of PP&E and
impairment of PP&E
operating income
% revenues
Financial results, net
Income tax
net income
% revenues
2015
40,496
34,480
6,016
44
(29,674)
10,86627%
(4,438)
(199)
6,22915%
(1,102)
(1,692)
3,4358%
3,403
32
2014
33,341
28,278
5,063
47
(24,686)
8,70226%
(3,243)
(16)
5,44316%
253
(1,967)
3,72911%
3,673
56
2015-2014
7,155
6,202
953
(3)
(4,988)
2,164
(1,195)
(183)
786
(1,355)
275
(294)
(7)
(43)
FIXED S.
2,177
2,169
8
13
(1,814)
376
(296)
(100)
(20)
(381)
248
(153)
PERSONALMOBILE S.
4,850
3,974
876
(16)
(3,031)
1,803
(870)
(84)
849
(931)
20
(62)
NúCLEOMOBILE S.
128
59
69
-
(143)
(15)
(29)
1
(43)
(43)
7
(79)
%21
22
19
(6)
20
25
37
n/a
14
n/a
(14)
(8)
(270)
(24)
Millions of pesos Millions of pesos
Segment(*)
For the years ended December, 31
Net income attributable:Telecom (Controlling Company)
Non-controlling interests
41
Revenues
Revenues increased to $40,496 million in 2015 (+21% vs.
2014). It should be noted that the three reportable segments
reported revenues increases but at different rates. As in the
previous year, during 2015 the main source of revenues for
the Group came from Personal Mobile Services segment
which accounted for 69% and 70% of consolidated revenues
in 2015 and 2014, respectively.
In the Fixed Services segment, revenues from Voice Retail sales
grew 16% in 2015, mainly due to an increase in service plans
prices and to the increase in “Commercial, Professional and
Government” segment plans prices. Regulated services were
still affected by the freeze of tariffs since 2002 (See B.2.2.1.6
“Filings of the Company to the Regulatory Authority in the LAD
framework”), and reduced their contribution to third parties
revenues from 28% in 2014 to 26% in 2015.
Voice wholesale revenues increased $106 million, mainly due
to higher prices related to cell sites rentals due to the variation
of the $/USD exchange rate and international outbound calls.
Internet revenues increased 40% in respect to 2014 mainly
due to an increase in average prices and the expansion of the
Broadband service (+2% of access lines vs. 2014) including
the migration of customers to higher speed services with
higher relative prices.
Revenues from data services increased 21% in relation to
2014, where the focus was to strengthen Telecom Argentina’s
position as an integrated ICTs provider (Datacenter, VPN,
among others) for corporate and government segments.
The increase was primarily due to the variation of the $/USD
exchange rate for contracts in USD and to the increase in the
number of customers of Innovation services.
With a customers’ base slight increase, services revenues
of Personal Mobile Services segment increased 21% from
2014, mainly due to an increase in voice retail revenues of
31%, mainly because of the increase in prices, an increase
in Internet revenues of 88%, mainly due to an increase in the
consumption of browsing services (mainly due to an increase
in the offer of services, plans and packs with VAS that Personal
offers), partially offset by a decrease in Data revenues of 7%,
(as a result of a decrease in the SMS consumption and a
decrease in voice wholesale revenues of 4%, mainly due to
the decrease in interconnection traffic).
Revenues from equipment of the Personal Mobile Services
segment increased 18% in relation to 2014. The increase was
due to a mix of an increase in the handset’s average price
(mainly due to an increase in the demand of higher-value
handsets with 4G browsing features and the business strategy
to attract high-value subscribers), and a decrease in handsets
sold.
In the Núcleo Mobile Services segment, services revenues
increased 4% from 2014, mainly due to an increase in the
subscriber base (+3%), and an increase in Internet revenues
(24% vs. 2014) related to an increase in traffic.
Revenues from equipment In the Núcleo Mobile Services
segment increased 77% mainly due to an increase in the
handsets sold but at lower prices.
The following chart shows consolidated revenues for the years
2015 and 2014 broken down by reportable segments:
42
For further information on revenues composition by reportable
segment, see sections B.3.3 Fixed Services, B.3.4 Personal
Mobile Services and B.3.5 Núcleo Mobile Services.
Other Income
Other Income decreased 6% in 2015 (a decrease of $3
million compared to 2014).
Operating Costs
In 2015, operating costs (including D&A and Gain on
disposal of PP&E and impairment of PP&E) amounted to
$34,311 million, representing a $6,366 million increase or
+23% as compared to 2014.
The main components of operating costs and their changes
are illustrated below:
19,7
7233
,341
23,8
0540
,496
Revenues
Mobile services Revenues
+20%
2014
2014
2015
2015
+21%8,
559
10,7
36
23,2
04
1,57
8
28,0
54
1,70
6
FixedServices
PersonalMobile Services
NúcleoMobile Services
Revenues from third parties by segment
+25%
26% 27% 70% 5%69% 4%
+21%
+8%
2014
2015
% of consolidated
revenues
43
(*) Net of intersegment operations.(**) Net of capitalizations by $1,400 million and $1,112 million in 2015 and 2014, respectively.
Employee benefit expenses and severance
payments
Interconnection costs and other
telecommunication charges
Fees for services, maintenance,
materials and supplies
Taxes and fees with the Regulatory
Authority
Commissions
Cost of equipments and handsets
Advertising
Cost of VAS
Provisions
Bad debt expenses
Other operating costs
Total operating costs before D&a(**)
2015
7,253
2,170
3,919
3,943
3,193
4,595
814
1,256
113
564
1,854
29,674
2014
5,591
2,074
3,333
3,297
2,494
4,143
792
936
84
424
1,518
24,686
2015-2014 FIXED S.
1,247
41
352
95
58
10
(43)
22
(98)
(10)
140
1,814
PERSONALMOBILE S.
404
89
219
544
598
369
65
280
127
147
189
3,031
NúCLEOMOBILE S.
11
(34)
15
7
43
73
-
18
-
3
7
143
%
30
5
18
20
28
11
3
34
35
33
22
20
1,662
96
586
646
699
452
22
320
29
140
336
4,988
Millions of pesos Millions of pesos
Segment(*)
For the years ended December, 31
5,59
1
7,25
3
3,29
7
3,33
3
3,28
6
4,14
3
2,96
2
2,17
0
2,07
4
3,94
3
3,91
9
4,00
7
4,59
5
3,78
7
Employee benefitexpenses and
severance payments
Interconnection costs and other
telecommunicationcharges
Taxes and feeswith the
RegulatoryAuthority
Fees for services,maintenanceand materials
Advertising and Sales
Commissions
Cost ofequipments and
handsets
Othe operatingcosts
+30%
17% 18% 6% 10% 10% 10% 12% 9%5% 10% 10% 10% 11% 9%
+5% +20% +18% +22% +11% +28%
2014
2015
24,6
86
29,6
74
operating costs without D&a
+20%
2014 2015
% of consolidated
revenues
44
The most significant changes in disbursable costs include:
• higher employee benefit expenses and severance
payments due to salary increases agreed between
Telecom Argentina and various unions and also for non-
union employees, together with related social security
charges;
• Higher Interconnection costs and other telecommunication
charges (including charges for TLRD “Terminación
Llamada Red de Destino”, Roaming, Interconnection
costs, cost of international outbound calls and lease of
circuits). The increase was mainly due to higher costs of
TLRD in relation to 2014;
• an increase in taxes and fees with the Regulatory
Authority mainly due to the increase in revenues of fixed
non regulated and mobile services, and by the increase
in equipment sales in Argentina;
• higher cost of VAS, mainly due to an increase in value
added service revenues in the Personal Mobile Services
segment (mainly Contents via SMS revenues) and as a
result of a great number of campaigns;
• higher commissions, mainly due to the increase in
Agents’ commissions (associated to higher revenues) as
a result of higher customer’s acquisition and retention
costs recognized to them and collection commissions,
especially of handsets sold and of sales of prepaid
recharges;
• higher advertising costs, increased mainly due to higher
commercial campaigns of Personal related to the
launching of the 4G services throughout the country as
compared to 2014, especially those related to the new
slogan “Hagamos que todo suceda” (“Let’s make it all
happen”);
• higher fees for service, maintenance, materials and
supplies, mainly due to higher maintenance costs of
web, systems and buildings, as a result of higher prices
recognized to suppliers and the variation in the $/
US$ exchange rate. There were also increases in fees,
mainly due to an increase in Call Center fees because
of an increase in the number of calls and higher costs
recognized;
• higher bad debt expenses mainly due to higher aging
of the accounts receivables impaired in accordance to
the accounting policies of Telecom Group and higher
incidence of handsets sales directly financed by Personal
to its postpaid and “Cuentas claras” subscribers;
• Higher cost of equipment and handsets, mainly due to an
increase in the average unit cost of sales partially offset
by a decrease in the units of handsets sold in Personal
Mobile Segment; and
• Higher other operating expenses, primarily as a result
of higher prices recognized to suppliers, especially
in transportation, freight and travel expenses; energy
consumption and the increase of rent prices.
For further information on consolidated costs composition by
reportable segment, see sections B.3.3 Fixed Services (Voice,
Data and Internet), B.3.4 Personal Mobile Services and B.3.5
Núcleo Mobile Services.
Operating income before depreciation and amortization
In 2015, operating income before D&A amounted to $10,866
million, (representing a $2,164 million increase or +25%
as compared to 2014). This profitability level accounted for
27% of consolidated revenues in 2015 (26% in 2014). This
increase occurred mainly due to an increase in revenues in
the Personal Mobile Services segment, which increased its
operating income before D&A by $1.756 million (from 26%
of consolidated revenues in 2014 to 28% in 2015), partially
offset by higher cost of equipment and handsets, employee
benefit expenses and social security expenses, fees for services,
maintenance, commissions and taxes and fees with the
Regulatory Authority. In the Núcleo Mobile Services segment,
the operating income before depreciation and amortization
decreased by $10 million (from 36% of consolidated revenues
in 2014 to 33% in 2015). Such decrease was mainly due to a
growth in revenues, offset by higher employee benefit expenses
and social security expenses, fees for services, maintenance,
commissions and taxes and fees with the Regulatory Authority.
Meanwhile, in the Fixed Services segment, operating income
before D&A increased 20% (20% of consolidated revenues
in 2015 and 2014), mainly due to an increase in revenues,
partially offset by an increase in employee benefit expenses
and social security expenses, fees for services, maintenance,
commissions and taxes and fees with Regulatory Authority.
45
The following chart summarizes the main causes for the
increase in operating income before D&A, with a remarkable
increase in service revenues by $6,202 million (+22% vs.
2014) and in disbursable operating costs by $4,035 million
(+21% vs. 2014), that includes $953 million increase in the
sale of equipment:
26% 27%% of
consolidatedrevenues
operating incomebefore D&a
Operating income before D&A by segment
% of segmentrevenues
2,09
1 2,50
9
578
7,78
9
6,03
3
568
FixedServices
PersonalMobile Services
NúcleoMobile Services
+20%
20% 20% 26% 36%28% 33%
+29% -2%
2014
2015
8,70
2
10,8
66
2014 2015
Dec 2014 Dec 2015
Fixed ServicesMobile ServicesTotal MM$
% previous year
2,0916,6118,702
(1,247)(415)
(1,662)
30
(42)(54)(96)
5
(352)(234)(586)
18
(95)(551)(646)
20
(16)(344)(360)
27
43(65)(22)
3
(22)(298)(320)
34
10(150)(140)
33
(139)(197)(336)
22
98(127)(29)
35
(42)(297)(339)
30
(2)503501
54
13(16)(3)
(6)
2,1694,0336,202
22
42(42)
-
-
2,5098,357
10,866
Serv
ices
reve
nues
Inte
rsegm
ent
oper
atio
ns e
ffect
Oth
er
inco
me
Equi
pmen
t sal
esre
sults
Agen
t Co
mm
ision
s
Taxe
s and
fees
with
the
Regu
lato
ry Au
thor
ity
Empl
oyee
ben
efit
exp
ense
s an
d se
vera
nce
Fees
for s
ervic
es,
mai
nten
ance
and
m
ater
ials
Inte
rcon
necti
on c
osts
and
othe
r tele
com
. cha
rges
Adve
rtisin
g
Comm
ission
s for d
istribu
tion
of pre
paid
card
s sale
s and
pre
paid
recha
rges
and
colle
ction
comm
misio
n
Bad
debt
ex
pens
es
SVA
Costs
Prov
ision
s
Othe
r op
erat
ing co
sts
(1,662)(96)
(586) (646)(360)
(140)(320)
(29)(339)
6.202 10.8668,702 -
501(3)
(22)(336)
+25%
46
Depreciation and amortization of PP&E and Intangible Assets
Depreciation and amortization of PP&E and intangible assets
amounted to $4,438 million in 2015, representing 11% of
consolidated revenues (+37% vs. 2014). The increase was
mainly due to the increase in PP&E depreciation of $657
million, the increase in the amortization of SAC and Service
connection costs of $234 million and the increase in the
amortization of other intangible assets of $304 million mainly
due to the depreciation of 3G/4G licenses.
The average annual amortization rate for PP&E, SAC and
Service connection or habilitation costs and Other intangible
assets is 15%, 48% and 7%, respectively.
Gain on disposal of PP&E and impairment of PP&E
The gain on disposal of PP&E amounted to $31 million and
impairment of PP&E amounted to $230 million in 2015.The
impairment was mainly related to certain PP&E items regarding
certain projects undertaken by Telecom Argentina with the
public sector and with private corporations, amounting to
$107 million, that presented uncertainties regarding their
development and its related future cash flows, and certain
PP&E items related to some projects of Telecom Personal by
$114 million. The gain on disposal of PP&E amounted to $9
million and impairment of PP&E amounted to $25 million in
2014.
Operating income
In 2015, the operating income increased $786 million
amounting to $6,229 million, (+14% vs. 2014). This level
of profitability amounted to 15% of consolidated revenues in
2015 (16% in 2014). The increase in Operating income was
primarily generated in the Personal Mobile Services segment,
which increased its operating income by 18% from 2014.
Núcleo Mobile Services segment decreased its operating
PP&E depreciation
SAC and Service connection or
habilitation costs amortization
Other intangible assets amortization
Total depreciation and amortization
2015
3,046
1,045
347
4,438
2014
2,389
811
43
3,243
2015-2014 FIXED S.
257
39
-
296
PERSONALMOBILE S.
377
188
305
870
NúCLEOMOBILE S.
23
7
(1)
29
%28
29
707
37
657
234
304
1,195
Millions of pesos Millions of pesos
Segment
For the years ended December 31,
Depreciations andamortization% of segment
revenues
2,38
9 3,04
6
431,04
5
811
347
PP&EDepreciation
SAC and ConnectionCosts Amortization
Other IntangibleAssets
Amortization
+28%
7% 8% 2% 0.1%2% 0.9%
+29%+707%
2014
2015
3,24
3 4,43
82014 2015
+37%
47
Interest on placements
Interest on loans
Interest on net financial position% revenues
Net currency exchange differences (includes NDF Results)
Interest on provisions
subtotal financial results% revenues
Interest on accounts receivable
Other financial results
Total financial results, net% revenues
2015
621
(566)
550.1
(1,140)
(137)
(1,222)(3.0)
183
(63)
(1,102)(2.7)
2014
568
(30)
5381.6
(275)
(118)
1450.4
161
(53)
2530.8
%
9
n/a
(90)
315
16
n/a
14
19
n/a
53
(536)
(483)
(865)
(19)
(1,367)
22
(10)
(1,355)
Millions of pesos
result by 18% while in the Fixed Services segment the operating income increased 3% as compared to 2014.
Fixed Services
Personal - Movile Services
Núcleo - Movile Services
EBIT
2014
870
4,358
2155,443
6,229
892
5,160
177
2015
+3%
+18%
-18%
+14%
Financial results, net
During 2015, financial results recorded a net financial loss
of $1,102 million, (-$1,355 million vs. 2014). The variation
is mainly due to higher interest on loans of $536 million and
higher foreign currency exchange losses net of NDF (Non
Deliverable Forward) agreement of $865 million, partially
offset by higher interest on time deposits and other investments
of $53 million.
A breakdown of the main components of the financial results,
net and their changes from the previous year is provided
below:
48
Income tax
The income tax charge includes four effects: (i) the current tax
for the year payable according to fiscal legislation applicable
to each Company in the Telecom Group; (ii) the effect of
applying the deferred tax method on temporary differences
arising out of the asset and liability valuation according to
fiscal vs. accounting criteria; (iii) the analysis of recoverability
of deferred tax assets; and iv) the action for recourse filed
by Telecom Argentina claiming overpaid for income tax with
respect to fiscal year 2009.
Regarding current tax expenses, Telecom Argentina, Personal
and Núcleo generated tax profit in 2015. The income tax
expense in 2015 for the Fixed Services segment amounted
to $279 million as compared to $422 million in 2014. In the
case of the Personal Mobile Services segment, in 2015, the
current tax expense amounted to $1,426 million compared to
$1,302 million in the previous fiscal year. Regarding Núcleo
Mobile Services segment, in 2015, the current tax expense
amounted to $16 million compared to $25 million in the
previous fiscal year.
In respect of deferred tax, in 2015, tax loss in the Personal
Mobile Services segments amounts to $96 million, compared
to a loss of $267 million in 2014. Loss in both years was
mainly due to an increase in deferred tax liabilities of Fixed
Assets.
In December 2015, Telecom Argentina filed an action for
recourse claiming the Administración Federal de Ingresos
Públicos (A.F.I.P.) $98 million of overpaid income tax in 2009
as a result of the lack of application of inflation adjustment in
the income tax affidavit, plus interest, as described in Note 14
to our Consolidated Financial Statements.
Net income
The year 2015 ended with a net income of $3,435 million,
representing a 8% margin on consolidated revenues (11% in
(i) Current tax expense
Telecom Argentina(*)
Personal
Núcleo
(ii) Deferred tax
Telecom Argentina
Personal
Núcleo
(iii) Recovery of allowance for deferred tax assets
Personal
(iv) Action for Recourse
Telecom Argentina
Total income tax expense (i)+(ii)+(iii)+(iv)Telecom Argentina(*)
Personal
Núcleo
2015(1,721)
(279)
(1,426)
(16)
(69)26
(96)
1
--
9898
(1,692)(155)
(1,522)
(15)
2014(1,749)
(422)
(1,302)
(25)
(245)19
(267)
3
2727
--
(1,967)(403)
(1,542)
(22)
28143
(124)
9
1767
171
(2)
(27)(27)
9898
275248
20
7
Millions of pesos
(*) Includes $(5) million and $(4) million of Telecom USA in 2015 and 2014, respectively.
49
As of December 31Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilitiesequity
Shareholder’s equity
Non-controlling interest
Total liabilities and equity
Working Capital (current assets – current liabilities)
Loans
Net financial (liability) / asset
Ratios
Current liquidity
Total debt-to-equity
201511,492
26,973
38,465
16,914
3,941
20,85517,61017,194
416
38,465
(5,422)
4,900
(2,277)
0.7
1.2
20146,393
19,924
26,317
9,097
2,451
11,54814,76914,418
351
26,317
(2,704)
433
745
0.7
0.8
5,099
7,049
12,148
7,817
1,490
9,3072,8412,776
65
12,148
(2,718)
4,467
(3,022)
-
0.4
Millions of pesos
2014) and a 23% annual Return on Equity at the beginning of the year (31% in 2014). Net income attributable to Telecom
Argentina amounted $3,403 million, representing a 8% margin on consolidated revenues (11% in 2014) and a 24% annual
Return on Equity at the beginning of the year (31% in 2014).
b) ConsolIDaTeD balanCe sHeeT:
The reasons for the main changes in the assets, liabilities and
equity of the Telecom Group, as required by the GCL, section
66, item 1 are described below.
In the year ended December 31, 2015, Equity increased by
$2,841 million (+19% in relation to 2014) as a result of
$3,435 million net income in 2015, and of increased net
currency exchange differences derived from translation of
financial statements of foreign subsidiaries in the amount of
$245 million, offset by a cash dividend distribution of $804
million.
This increase in Equity was matched by the net increase of
total consolidated assets by $12,148 million and the increase
in total consolidated liabilities by $9,307 million.
The increase in consolidated assets is mainly attributable to an
increase in fixed assets, mainly due to the acquisition of 3G /
4G licenses and higher trade receivables, current investments
and inventories.
The increase in consolidated liabilities is basically due to
an increase in debts of $4,467 million and an increase in
accounts payables.
Although these figures, liquidity ratios reported the same level
of year 2014.
50
C) ConsolIDaTeD CasH floW anD neT fInanCIal asseT:
Cash flows provided by operating activities reached $6,812
million equivalent to 17% of consolidated revenues, with a
$1,091 million increase in cash generation compared to
2014.
This cash was applied mainly to the acquisition of PP&E and
intangible assets amounting to $8,714 million, including the
payment for the acquisition of 4G Licenses (-4% compared to
2014 investments).
As of December 31, 2015, Net consolidated financial liability
(Cash and Cash Equivalents plus financial investments minus
Financial debt) amounted to $2,277 million, showing a
decrease of $3,022 million as compared to the financial
asset of December 31, 2014 (amounting to $745 million).
This variation was mainly due to an increase in the proceeds
of debt (+$4,467 million) to acquire, among others, CAPEX
–which includes acquisition 4G licenses for $ 2,256 million
–, partially offset by an increase in the cash flows provided
A review of relations with controlling companies and related parties is included in Note 27 to the consolidated financial
statements.
Collections from customers
CPP collections
Interest / Others
For the acquisition of goods and services and others
For the acquisition of inventories
Salaries and social security payables and severance payments
CPP payments
Income Tax and other taxes
Foreign currency exchange differences related to the payments to suppliers and NDF
Total cash flows provided by operating activities
Acquisitions of PP&E
Acquisitions of intangible assets
Acquisitions of 3G/4G licenses
Disposal of PP&E
Investments not considered cash and cash equivalents
Total cash flows used in investments activities
Proceeds / (Borrowing) from financial debts and loan payment, net
Interest payment
Cash dividends payment
Total cash flows used in financing activities
Currency exchange differences on cash and cash equivalents
net increase in cashCash at beginning of yearCash at year end
201542,260
512
371
(13,122)
(6,343)
(6,721)
(414)
(9,229)
(502)
6,812
(5,148)
(1,310)
(2,256)
39
(976)
(9,651)
4,270
(471)
(849)
2,950
75
186684870
201434,396
683
560
(10,080)
(4,167)
(5,146)
(476)
(9,272)
(777)
5,721
(4,895)
(1,118)
(3,091)
17
(339)
(9,426)
(12)
(29)
(1,299)
(1,340)
505
(4,540)5,224
684
7,864
(171)
(189)
(3,042)
(2,176)
(1,575)
62
43
275
1,091
(253)
(192)
835
22
(637)
(225)
4,282
(442)
450
4,290
(430)
4,726(4,540)
186
Millions of pesos
51
As of December 31, 2015 the Telecom Group reported a net consolidated financial liability for $2,277 million, compared to
the $745 million net consolidated financial asset reported as of December 31, 2014.
Analysis of net financial assetCurrent financial assets
Non-current financial assets
Total financial assets
Current loans
Non-current loans
Total loans
Net financial asset – current
Net financial (liability)/asset – non-current
net financial (liability) / asset
Net financial (debt) asset by business segment
Fixed Services
Mobile Services:
Argentina
Paraguay
net financial (liability) / asset
20152,300
323
2,623
(3,451)
(1,449)
(4,900)
(1,151)
(1,126)
(2,277)
560
(2,372)
(465)
(2,277)
2014878
300
1,178
(179)
(254)
(433)
699
46
745
219
693
(167)
745
1,422
23
1,445
(3,272)
(1,195)
(4,467)
(1,850)
(1,172)
(3,022)
341
(3,065)
(298)
(3,022)
Millions of pesos
by operating activities of $1,091 million. The Fixed Services
segment has a financial asset of $560 million and the Personal
Mobile Services segment has a financial liability of $2,372
million, while the Núcleo Mobile Services segment has a net
financial liability of $465 million.
52
Operating cash flow after income tax payment amounted
to $6,611 million, representing a 24% increase from 2014
(+2% in Personal and Núcleo Mobile Services, +90% in
Fixed Services).
Cash Flow used for Investments and acquisition of 3G/4G
Licenses decreased by 9% compared to 2014, reaching
$8,714 million (+3% in Fixed Services and -13% in Personal
and Núcleo Mobile Services).
Free cash flow increased $859 million as of December 31,
2015. The increase is mainly due to an increase in Cash
Flow provided by operation, partially offset by an increase in
CAPEX, without including the acquisition of 3G/4G Licenses.
Changes in net financial asset ($ millions)
Dec 2014
Dec 2014
Dec 2013
Dec 2015
Dec 2014
Dec 2015
Net Financial Asset / (Liability) Free Cash Flow (GOF) without spectrum Spectrum Dividend Net (Teco 804MM, Núcleo 45MM) Financial Results and others
(3,022) MM192 MM
(2,256) MM(849) MM(109) MM
GOF (2,064) MM ("Operating Generation of Funds")
Fixed ServicesMobile ServicesNet FinancialAsset / (Liability)
Fixed ServicesMobile ServicesNet FinancialAsset
Dec 15 vs. Dec 14
219526
745
1,6693,685
5,354
560(2,837)
(2,277)
219526
745
(2,665)(3,793)
(6,458)
(2,582)(3,431)
(6,013)
(445)7%
3,0025,198
8,200
1,6955,909
7,604
5968%
(484)(1,105)
(1,589)
(373)(1,904)
(2,277)
688-30%
55(219)
(164)
28465
349
(513)n/a
-(2,256)
(2,256)
-(3,530)
(3,530)
1,274-36%
396(1,245)
(849)
554(1,853)
(1,299)
450-35%
363
39
172
19
20105%
102(47)
55
96442
538
(483)-90%
(101)101
-
(1,141)1,141
-
Ope
ratin
g Fr
ee c
ash
flowp
re C
APEX
3G/ 4
GLic
ense
sInve
stmen
ts
Inco
me
tax
paym
ent
Inte
rest
Exch
ange
Di
ffere
nces
Capi
tal
Cont
ribut
ion
Net
divi
dend
spa
ymen
tGai
n on
di
spos
al o
f PP&
E
(2,277)
745
8,200
(2,256)
(6,458)
(1,589) 39
55(849)(164)
-
192 free cash flow: fixed (111); Mobile 303
(667) free cash flow: fixed (1,243); Mobile 576
859 free cash flow: fixed 1,132; Mobile (273)
53
D) analYsIs of CaPITal exPenDITURes on PP&e anD InTanGIble asseTs:
Land and buildings
Switching and transmission
Equipment and infrastructure for special projects
Outside plant
Computer equipment and software
Other
fixed services investments in PP&eRights of use, exclusivity agreements and licenses
Service connection or habilitation costs
Subscribers acquisition costs
fixed services investments in intangible assetsfixed services Total Investments% revenues
Land and buildings
Switching and transmission
Mobile network access
Computer equipment and software
Other
Mobile services (Personal and núcleo) investments in PP&eRights of use, exclusivity agreements and licenses
Subscribers acquisition costs
Mobile services (Personal and núcleo) investments in intangible assetsMobile services (Personal and núcleo) Total Investments% revenues
Consolidated Total Investments% revenues
Materials (*)
Total additions in PP&e and Intangible assets% revenues
2015177
820
11
1,011
510
317
2,84639
36
158
2333,079
29%
61
1,050
1,464
741
234
3,5502,265
1,206
3,4717,021
24%
10,10025%
1,062
11,16228%
2014120
516
13
981
276
206
2,1129
30
126
1652,277
27%
40
718
826
430
178
2,1923,532
956
4,488
6,680
27%
8,95727%
590
9,54729%
57
304
(2)
30
234
111
73430
6
32
68802
21
332
638
311
56
1,358(1,267)
250
(1,017)
341
1,143
472
1,615
48
59
(15)
3
85
54
35333
20
25
4135
53
46
77
72
31
62(36)
26
(23)
5
13
80
17
Millions of pesos %
Capex in PP&E and intangible assets by segment% of segment
revenues
2,27
7 3,07
9
7,02
1
6,68
0
Fixed Services Mobile Services -Personal and Núcleo
+35%
27% 29% 27% 24%
+5%
2014
2015
(*) Each year capital expenditure is calculated as the net between additions of the fiscal year and transfers to works in progress occurred during such year.
54
b.3.3.1 ReleVanT oPeRaTInG InfoRMaTIon
Voice and Data
B.3.3 FIXED SERVICES (VOICE, DATA AND INTERNET)
Following the strategy of previous years, in the Mobile
Services segment – Personal, the capital expenditures were
mainly orientated towards the deployment of 4G technology
and to the extension of the coverage and capacity of the
mobile network in numerous cities across Argentina, with the
objective being reached mainly by means of start up of new
sites, jointly with replacement plans and network upgrades for
the activation of new carriers.
In the Fixed Services segment, as regards access network,
investment continued to short the loop, in central equipment
with new technologies for Broadband, in major deployment
of FTTH, in replacing posts and supplying the demand in
companies, neighborhoods and buildings.
As to transport, the investments were focused in the deployment
of the DWDM network, in the Backbone IP (“BBIP”)
improvement, installation of equipment and upgrades of the
Metro Ethernet network (network for offering services of data
connectivity through Ethernet interfaces) and in the regional
transportation improvement.
These acquisitions of PP&E are included in Fixed Network
Access and Network Transport and Network Access Mobile.
See additional information in section B.3.6 “Technology”.
In both business segments, major capital expenditures were
made in information technology (“IT”) projects which are
recorded under Computer equipment and software and
described in management aspect of each segment.
Installed lines (thousands)
Lines in service (thousands)
Customer lines (thousands)
Lines in service per employee
Lines in service per 100 inhabitants (a)
ARBU (in $ / month) (national + international)
National Traffic (millions) (b)(c)
Local minutes
Local long-distance minutes
Total national Traffic
International Traffic (millions of minutes)
Incoming traffic with carriers
Outgoing traffic (b)
Total International Traffic
20154,904
4,043
3,969
371
19
67.7
8,569
2,220
10,789
455
181
636
20144,763
4,093
4,016
370
19
57.4
9,514
2,429
11,943
593
225
818
%3
(1)
(1)
-
-
18
(10)
(9)
(10)
(23)
(19)
(22)
Q141
(50)
(47)
1
-
10.3
(945)
(209)
(1,154)
(138)
(44)
(182)
(a) Northern area of Argentina.(b) Does not include Public Telephony.(c) Does not include Dial Up minutes.
55
Internet
b.3.3.2 analYsIs of oPeRaTIons
The Fixed Services segment recorded a net income of $564 million in the fiscal year ended on December 31, 2015 (-24% vs.
2014).
The number of lines in service, as of December 31, 2015 amounted to 4 million, which means a slight decrease compared to
previous year.
Furthermore, in 2015, the Internet accesses reached 1.8 million (+2% vs. 2014).
Results of operations:
Accesses (thousands)
Arnet subscribers (thousands)
ARPU ADSL (in $ / month)
Churn ADSL (% monthly / customer base at beginning)
Headcount
Telecom Argentina
Telecom Argentina USA
fixed services Total headcount
20151,814
1,791
207.4
1.4
10,901
2
10,903
20141,771
1,749
153.0
1.3
11,054
2
11,056
%2
2
36
8
(1)
-
(1)
Q43
42
54.4
0.1
(153)
-
(153)
For the years ended December, 31Revenues (*)
Other income (**)
Operating costs (before D&A and Gain on disposal of PP&E and
Impairment of PP&E)
operating income before D&a% revenues
Fixed and intangible assets D&A
Gain on disposal of PP&E and Impairment of PP&E
operating income% revenues
Financial results, net
Income tax
net income% revenues
201512,554
55
(10,100)
2,50920%
(1,526)
(91)
8927%
(173)
(155)
5644%
560 219 341
201410,320
37
(8,266)
2,09120%
(1,230)
9
8708%
275
(403)
7427%
2,234
18
(1,834)
418
(296)
(100)
22
(448)
248
(178)
22
49
22
20
24
n/a
3
n/a
(62)
(24)
(*) Includes $1,818 million and $1,761 million of intersegment revenues for the years ended December 31, 2015 and 2014, respectively.(**) Includes $16 million and $11 million of intersegment income for the years ended December 31, 2015 and 2014, respectively.(***) Includes $137 million and $117 million of intersegment operations for the years ended December 31, 2015 and 2014, respectively.
Financial asset
Millions of pesos %
56
Revenues
Revenues in the Fixed Services amounted to $12,554 million
(+22% vs. 2014).
The increase in revenues was mainly due to an increase in
Internet revenues, revenues from Data services and voice retail
revenues. Regulated voice services rates remained affected by
the freeze of tariffs provided for in 2002.
Revenues from Internet services increased 40% from 2014,
amounting to $4,556 million in 2015. The increase was
mainly due to the substantial expansion of the Broadband
service (+2% of accesses vs. 2014), and an increase in
average prices and the migration of customers to higher
speed plans with higher prices resulting in an improvement
in the ARPU which amounted to $207 per month in 2015 vs.
$153 per month in 2014.
Voice retail revenues reached $3,304 million in 2015
(+16% vs. 2014), mainly due to an increase in service plans
prices and to the increase in “Commercial, Professional
and Government” plans. It is necessary to mention that
regulated services were still affected by the freeze of tariffs
since 2002 (See B.2.2.1.6 “Filings of the Company to the
Regulatory Authority in the LAD framework”), and reduced
their contribution from 28% in 2014 to 26% in 2015 of third
parties segment revenues.
Revenues from fixed charges and fixed charges for
supplementary services increased $203 million or a 17%
compared to 2014, reaching $1,406 million. Such increase
was mainly due to an increase in the prices of supplementary
services and a slight increase in the number of the subscribers.
Measured service charges (includes domestic, national and
international calls) amounted to $1,800 million in 2015
(+$259 million or 17% vs. 2014). Such increases were
mainly due to the increase domestic plans prices and long
national distance plans prices, maintaining in the same levels
the customers base.
Voice-wholesale revenues to third parties (including fixed and
mobile interconnection revenues, together with the revenues
generated by the subsidiary Telecom Argentina USA amounting
to $151 million) amounted to $1,035 million in 2015 (+11%
vs. 2014). Interconnection services amounted to $689 million
in 2014. Other wholesale revenues reached $346 million in
2015 (+$38 million or 12% vs. 2014), mainly due to higher
prices related to cell sites rentals due to the variation of the $/
USD exchange rate.
Revenues from data services in the Fixed segment amounted
to $1,780 million in 2015 (+$310 million vs. 2014) where
the focus was to strengthen Telecom Argentina’s position as
an integrated ICTs provider (Datacenter, VPN, among others)
for wholesale and government segments. The increase was
primarily due to the variation of the $/US$ exchange rate in
contracts with prices determined in USD, and the increase of
the customer base with the Innovation services.
Intersegment revenues and other income increased 3% to
$1,834 million in 2015 from $1,772 million in 2014.
Operating costs
In 2015, operating costs (before D&A and Gain on disposal of
PP&E and impairment of PP&E) of the Fixed Services segment
increased (+22% vs. 2014), amounting to $10,100 million.
Dec 2014 Dec 2015
Capi
tal
Cont
ribut
ion
Gai
n on
disp
osal
of P
P&E
Ope
ratin
g Fr
eeca
sh fl
ow p
reCA
PEX In
com
e ta
x pa
ymen
t
Inve
stmen
ts Inte
rest
Exch
ange
Diffe
renc
es
Net
divi
dend
spa
ymen
t
3,002
(2,665)
(484)36
55
(101)
560
219
102 396
The chart below shows the evolution of the net financial assets during the year 2015:
57
The most significant changes in costs include:
• Salaries and social security contributions increased (31%
with respect to 2014), amounting to $5,268 million. This
increase was due to salary increases agreed between the
Company and various unions and also for non-union
employees, together with related social security charges;
• Expenses related to taxes and fees with the Regulatory
Authority amounted to $818 million in 2015 (+13% vs.
2014). This increase was mainly due to the increase in
revenues.
• Fees for service, maintenance, materials and supplies
increased, amounting to $1,769 million in 2015
(+26% in relation to 2014). The increase was mainly
due to higher maintenance costs of network, systems
and buildings, as a result of higher prices recognized
to suppliers and the variation in the $/US$ exchange
rate. There were also increases in fees, mainly due to an
increase in Call Center fees because of an increase in the
number of calls and higher fees;
• Other operating costs increased amounting to $934
million (+$143 million or 18% vs. 2014). The increase
was mainly due to higher prices paid to suppliers,
especially in freight and travel expenses, and energy
consumption and the increase of the renting of buildings
and sites.
Depreciation and amortization amounted to $1,526 million
in 2015 (+24% vs. 2014). The 2015 increase was largely
due to the depreciation of additions of the year partially offset
by the end of the depreciation period of certain fixed assets.
The gain on disposal of PP&E and impairment of PP&E
amounted to a loss of $91 million compared with a gain of
$9 million in 2014. Gain on disposal of PP&E amounted $25
million and impairment of PP&E amounted to $116 million,
and is mainly related to the impairment of certain PP&E
items in connection with some projects undertaken with the
public sector and private sector, that presented uncertainties
regarding their development and future cash flows amounting
to $107 million.
Operating income before D&A and Operating Income
Operating income before D&A in the Fixed Services segment
amounted to $2,509 million and $2,091 million in 2015 and
2014, respectively, representing 20% of segment revenues in
both years.
In 2015, operating income amounting to $892 million, as
compared to $870 million in 2014 (+3% vs. 2014). The
increase was mainly attributable to the increase revenues
partially offset by an increase in operating costs and
depreciation and amortization.
Financial results, net
Financial results, net amounted to a loss of $173 million in
2015, as compared to a net gain of $275 million in 2014.
The variation was mainly due to higher exchange net losses
of $470 million.
Income tax
In 2015 income tax expense amounted to $155 million,
compared to $403 million in 2014. The income tax expense
in 2015 was mainly attributable to the $279 million current
income tax payable which was partially offset by a $26 million
income for deferred tax, and by the gain of the action for
recourse presented by Telecom of $98 million.
Net income
In 2015, the Fixed Services segment recorded a $564 million
net income compared to $742 million in 2014. The decrease
in net income in 2015 was mainly attributable to an increase
in financial losses partially offset by a decrease in income tax.
b.3.3.3 ManaGeMenT asPeCTs
The lines in service showed similar levels as compared to
the previous year according to the market maturity reached,
with 4 million of lines in service at the end of 2015. Voice
sales increase by 15% despite the slight decrease in traffic
compared to 2014.
In 2015, the Internet business increased by a 2% growth in the
number of Internet accesses, from 1.77 million in December
2014 to 1.81 million in December 2015. In addition, ARPU
reached $207.4 per month (+36%). Revenues from Internet
services increased 40% from 2014.
In 2015, Arnet continued to make progress in the
regionalization and segmentation of the inclusive offerings
in order to provide access and participation to the Fixed
Broadband service in the area where Telecom is local supplier
58
of fixed telephony.
In addition, also Arnet enhanced its portfolio of entertainment
services of Arnet Play service and the alliance with Spotify was
signed, the music platform which enables to have, create and
share thousands of playlists and songs from any device, with
or without connection.
The logic of the Broadband offer in the market continued to
be encouraging, providing more speed to those customers
who have technical availability to activate it, making available
a portfolio of offers aimed to encourage the adoption of
these services and delivering the customer the high speed
experience.
Finally, Arnet continued to develop offerings to facilitate
the connection between people and the world by means of
different devices and technology.
Corporate Services
The large customer market groups leading companies in
the argentine market as well as the National government,
Provincial Governments and the main Municipalities in the
country. These customers demand cutting-edge technology
solutions tailored to their needs, including voice, data, Internet
and value-added services.
Aligned to the strategy of the new "Executive" segment,
exclusive account executives were allocated for this segment
at national level, enabling to offer an overall commercial
service to high value customers.
Finally "Virtual Private Datacenter" services were launched;
the first infrastructure solution as service where our customers
generate and manage their own Datacenter through Telecom
virtual resources, such as the cloud.
In addition, "Administrative Services", was launched; a service
that besides providing infrastructure and management to
customers, offers additional "Geo-location", "Encryption of
devices" and "Generation of Reports" services.
Customer Services
In 2015 and replicating the policy previously implemented in
the mobile services, the deployment of the implementation of
the “Net Promoter Score” (NPS) methodology was continued
and the “search for recommendation” of the customer. The
NPS is the methodology which enables to know and manage
customer satisfaction and the degree of customer loyalty,
while the search for recommendation is an index exceeding
that of satisfaction.
Other highlights for customer service was the development of
the Social Networks channel (customer service on Twitter and
Facebook) according to the new points of contact used by our
customers, in the same way as it was implemented in mobile
services. In addition, focus was placed on the efficiency of
telephone customer service in order to reduce talk time in
such service.
Information Technology
With respect to the development of new products and services,
focus was placed on the development, configuration and
implementation of solutions that provide VAS to customers of
different businesses and segments. Among the most relevant
developments stand out:
• Sale and Supply of voice and data services on GPON
technology ("Gigabit-capable Passive Optical Network")
for SMEs and residential customers was offered,
while Spotify was offered for the business segment on
Broadband.
• Joint Supply - "Citas en el Front": this functionality
continues to evolve which allows arranging in advance
the appointment at the customer’s home with the aim of
streamlining and simplifying the supply of new Broadband
lines.
As part of the support tools for managing the convergent
collection process, new features were implemented in the
"Shiva" system and other legacy systems, which allow charging
fees, managing credits and checks and handling debt
comprehensively for all customer segments, as well as post-
exit actions, automatic generation of payment notice and/or
reactivation when receiving an "on-line" payment.
Among the actions created by convergence which are
customer-oriented we can mention: the redesign of Club
Arnet, and the possibility of activating an Internet connection
for Telecom Argentina customers registered in the institutional
website via the "My Account" menu.
As improvements of the customer service process, the
following actions were taken: development of the decision tree
that automates the resolution of invoicing claims originated
by technical problems; with the re-engineering of the IVR
59
of the 112 service, improvements were incorporated in the
identification of customer by phone number or ID card, and
in new self-managed actions such as consultations of unpaid
bills and payment notices, thus contributing to the reduction
of call times.
In addition, new features were incorporated to improve
availability of the technical and commercial service (customer
data are displayed when a call is received and the ticket
associated to the claim is automatically reported).
As part of the management tools for areas that provide
support processes to business areas of the Group, in 2015
the following projects were successfully completed:
• Out-of-pocket expenses: automates and unifies the
operation for the petty cash holder, reducing the
circulating cash and encouraging the use of “tarjeta
monedero” (cash card) used by the Group employees for
cash advances.
• Archibus: systematizes the "Facility and Property
Management" process that covers the management of
spaces, real estate, facilities and infrastructure.
• Digitization of "Real Estate" supplier invoices: facilitates
the massive entries of rates and services by internal users
and suppliers, generating efficiencies and improvements
in the productivity of the area tasks.
• "Logistic Warehouse" - Logistics Services Center:
comprehensive management of the logistics for the
delivery and dispatch of goods process in warehouses
and inventory control.
• New site for the publication of Corporate Social
Responsibility activities.
Wholesale Services
1) DOMESTIC BuSINESS
In 2015, Telecom Argentina continued being a leading
provider of wholesale telecommunication solutions for
different fixed and mobile operators, independent operators,
local operators, public telephony licensees, cable operators,
Internet service providers (“ISP”), TV channels, radios,
producers and other service providers. The services provided
include: interconnection traffic and resources, third-party
invoicing, dedicated Internet access services, audio and video
streaming (allows to play multimedia content through the
Internet without downloading it), dedicated lines, backhaul
lines for mobile operators, VPN IP networks and datacenter
hosting/housing, among others.
Also, the Company managed the acquisition from other
operators of resources and facilities that allowed to complete
Telecom Argentina retail and wholesale services. Some of
those resources and facilities are: data and transmission lines,
local loop, interconnection and traffic origination, termination
and transport.
Data and Internet services during 2015 focused again on IP
traffic service which is demanded by the operators to provide
Internet connectivity to their fixed Broadband customers.
Telecom Argentina continued consolidating in the broadcast
operators segment as a provider of audio and video signal
transportation solutions both over dedicated private lines
and over the Internet. Video signal distribution solutions were
also provided to cable and TV operators in the interior of
the country. In 2015, a modern network of video nodes was
deployed, more points of connection for transport temporary
transmissions of signals were connected, and the amount of
customers connected to the video nodes of Telecom Argentina
located in different areas of the country was incremented.
In the same vein, Telecom Argentina continued to become
established as main supplier of integral solutions for video
signal transportation and distribution for the ARSAT both in the
transportation of video signals as well as in the deployment of
the transmitting stations of “Televisión Digital Abierta” (“TDA”)
or Open Digital TV.
Telecom Argentina performed the transportation of the high
definition video signal of multiple competitions and sports
events, such as the Polo Open championship of Palermo,
the Rugby Championship, the Moto GP from Termas de Río
Hondo, matches of the Argentine football championship, Turf
competitions from the San Isidro and Palermo Racecourses,
Davis Cup, ATP of Buenos Aires, Fed Cup, Arena Tour and
national elections.
2) INTERNATIONAL BuSINESS
A) INTERNATIONAL CARRIERS
During 2015, the focus was oriented on maximizing voice
business profitability, through costs optimization and
acquisition of incoming traffic in Argentina, the development
60
of regional markets and strengthening the sales of capacity
transmission and IP transit, highlighting the following results:
• Capacity and IP transit sales to regional markets. On
the one hand, Telecom Argentina increased its supply of
capacity to Uruguay, on the other hand, new capacity
was supplied in Paraguay for the transportation of
Internet, and the market share was maintained in such
market; and
• An improvement in the results of the voice business,
upon successful bilateral negotiations focusing on
service quality, minimizing costs of international outgoing
communication, and capturing more return traffic to
Argentine fixed and mobile networks.
B) TELECOM ARGENTINA USA INC. (“TELECOM USA”)
In 2015 commercial actions continued to target more
profitable wholesale products such as international video
signal transportation and data.
Continuing with the expansion of the high definition node that
expanded its local video matrix to the international market,
through the Company’s subsidiary. During 2015 multiple
transmission transportation of audiovisual content were
made, related to events held in Argentina, with interest in the
rest of the world.
Due to the video node in Miami, Telecom Argentina continued
to be positioned as an option for transports to foreign
countries the signal transimission of sports events as the Davis
Cup, Moto GP Termas de Rio Hondo World Rally Cross from
Rosario and Buenos Aires Copa Fed, among others.
b.3.4.1 ReleVanT oPeRaTInG InfoRMaTIon
B.3.4 PERSONAL MOBILE SERVICES (VOICE, DATA AND MOBILE INTERNET)
Personal
Prepaid subscribers (thousands)
“Cuentas Claras” subscribers (thousands) (a)
Postpaid subscribers (thousands)
Mobile Internet subscribers
Total subscribers Personal (thousands)Year to year subscriber base change (in %)
a) Subscribers with prepaid service and monthly basic charges invoice.
Subscribers at year end/employee
Volume of minutes (in million of $)
ARPU (in $ / month)
MOU (in minutes / month)
TOU (in SMS / month)
Churn (monthly % / subscriber base at beginning)
MBOU (MB / mes de internet por celular/cliente)
Headcount
Total Personal Mobile services headcount
2015
13,188
4,216
2,135
117
19,656+0.4
4,005
21.5
91.5
93.7
89.3
3.1
565.5
4,908
2014
13,262
3,993
2,155
175
19,585-3
3,950
23.7
74.2
99.5
166.9
3.1
366.8
4,958
%
(1)
6
(1)
(33)
-
1
(9)
23
(6)
(46)
-
54
(1)
Q
(74)
223
(20)
(58)
72
55
(2.2)
17.3
(5.8)
(77.6)
-
198.7
(50)
61
b.3.4.2 analYsIs of oPeRaTIons
Net income in the Personal Mobile Services segment for the fiscal year ended December 31, 2015 amounted to $2,774
million, which represented a 1% decrease from 2014.
For the years ended December 31,Revenues (*)
Other income
Operating costs (before D&A or Gain on disposal of PP&E and Impairment
of PP&E) (**)
operating income before D&a% revenues
PP&E and intangible assets D&A
Gain on disposal of PP&E and Impairment of PP&E
operating income% revenues
Financial results, net
Income tax
net income% revenues
Personal Mobile services financial (liability) / asset
201528,198
5
(20,414)
7,78928%
(2,520)
(109)
5,16018%
(864)
(1,522)
2,77410%
(2,372) 693 (3,065)
201423,332
21
(17,320)
6,03326%
(1,650)
(25)
4,35819%
-
(1,542)
2,81612%
21
(76)
18
29
53
336
18
n/a
1
(1)
4,866
(16)
(3,094)
1,756
(870)
(84)
802
(864)
20
(42)
Results of Operations
(*) Include $144 million and $128 million from intersegment sales in 2015 y 2014, respectively.(**)Include $1,829 million and $1,766 million from intersegment costs in 2015 and 2014, respectively.
Millions of pesos %
62
The chart below shows the evolution of the net Financial Asset:
Dec 2014 Dec 2015
Capi
tal
Cont
ribut
ion
Gai
n on
disp
osal
of P
P&E
3G/ 4
G Li
cens
es
Ope
ratin
g Fr
eeca
sh fl
ow p
reCA
PEX In
com
e ta
x pa
ymen
t
Inve
stmen
ts
Inte
rest
Exch
ange
Di
ffere
nces
Net
divi
dend
spa
ymen
t
Net
divi
dend
sco
llecti
on
4,747
(3,291)
(1,094)
3(2,256)
(152)
101
(2,372)
693
(16) (1,200)93
Revenues and other income
During 2015, revenues and other income in the Personal
Mobile Services segment increased 21% amounting to
$28,203 million, versus $23,353 million reported in 2014.
Subscribers of Personal totaled 20 million as of December 31,
2015 maintaining the same levels of 2014. Revenues in the
Personal Mobile Segment increased 21%, and amounted to
$28,198 million.
Voice-retail revenues reached $6,964 million in 2015 (+31%
vs. 2014). The increase was mainly due to an increase in
monthly charges prices in Postpaid and “Cuentas Claras”
and Prepaid services and an increase in the “Cuentas Claras”
subscribers base.
Voice-wholesale revenues reached $1,884 million in 2015, a
decrease of 4% respect of 2014, mainly due to a decrease in
Interconnection and Roaming charges.
Revenues from Internet amounted to $6,254 million in 2014
(+$2,919 million or 88% vs. 2014). Such increases were
mainly due to the increase in browsing services consumption
by Personal’s subscribers, as a result of a wide offer of services,
places and packs with SVA contents. Such increases were also
mainly due to the migration of existing customers to higher-
value plans, and the increase of subscribers that acquired 3G
and 4G handsets which facilitate Internet browsing.
Revenues from data amounted to $7,156 million in 2015
(-$510 million or -7% vs. 2014). This decrease was mainly
due to a decrease in SMS revenues of 15%. However, this
decrease was partially offset by the constant increase in the
sale of content via SMS sales increase as a result of several
campaigns launched by Personal.
As a consequence of the increase in the use of VAS, the ARPU
increased to $91.5 pesos per month in 2015 (vs. $74.2
pesos per month in 2014).
VAS revenues (data and Internet) amounted to $13,410
million (+22% vs. 2014) and represented 60% of the services
revenues of Personal Mobile Services segment (vs. 60% in
2014).
Revenues from equipment amounted to $5,796 million,
(+$876 million or 18% vs. 2014). The increase was mainly
due to an increase in the handset’s average prices, related
to higher value handsets demand, those with 4G browsing
aptitude, and the business strategy to attract high-value
63
subscribers, partially offset by a decrease in handsets sold.
Intersegment revenues and other income increased 13% to
$144 million in 2015 from $128 million in 2014.
Operating costs
Operating costs (before D&A and gain or losses on disposal
of PP&E and impairment of PP&E) in the Personal Mobile
Services segment increased 18% in year 2015, amounting to
$20,414 million, as compared to $17,320 million in 2014.
The most significant changes in costs include:
• Salaries and social security contributions increased,
amounting to $1,856 million in 2015 (+28% vs. 2014).
This increase was due to salary increases agreed between
Personal and various unions and also for non-union
employees, together with related social security charges;
• Taxes and fees with the Regulatory Authority increased
amounting to $3,071 million in 2015 (+22% vs. 2014),
influenced mainly by the increase in revenues and
equipment sales;
• cost of VAS, amounted to $1,136 million in 2015 (+33%
vs. 2014), mainly due to the increase of VAS sales, and
as a result of a great number of campaigns launched by
Personal;
• Interconnection costs and other telecommunication
charges increased, amounting to $2,686 million (+4%
vs. 2014). The increase was mainly due to higher TLRD
cost;
• Commissions increased, amounting to $2,774 million in
2015 (+27% vs. 2014). The increase was mainly due to
the increase in Agents’ commissions (associated to higher
revenues) as a result of higher customer’s acquisition
and retention costs recognized to them and collection
commissions, especially of equipment revenues and
commission of prepaid cards sales and prepaid recharge.
On the other hand, agent commissions capitalized
as SAC increased mainly due to the increase in the
“Cuentas claras” subscribers’ base and the increase in
the commissions’ prices.
• Bad debt expenses increased, amounting to $462 million
in 2015 (+47% vs. 2014). The increase in Bad Debt
Expenses is mainly due to higher aging of the accounts
receivables impaired in accordance to the accounting
policies of Telecom Group and higher incidence of
handsets sales directly financed by Personal to its postpaid
and “Cuentas claras” subscribers.
• Services, maintenance, materials and supplies increased,
amounting to $2,417 million in 2015 (+13% vs. 2014).
The increase is mainly due to higher prices recognized
to suppliers and the variation in the $/US$ exchange
rate. There were also increases in fees, mainly due to an
increase in Call Center fees because of an increase in the
number of calls and higher costs recognized;
• Other operating costs amounted to $960 million (+26%
vs. 2014). The increase was mainly due to higher prices
on related services, especially in transportation, freight
and travel expenses the increase in rental prices and
energy consumption.
• Cost of equipments and handsets increased, amounting
to $4,328 million in 2015 (+9% vs. 2014), mainly
due to an increase in the average unit cost of sales,
partially offset by a decrease in the handsets sold. On
the other hand, the handset subsidiaries capitalized as
SAC deferred costs from handsets sold decreased mainly
due to the significant reduction of subsidies provided to
customers, especially in the Postpaid segment.
Depreciation and amortization of PP&E and intangible assets
amounted to $2,520 million (+53% million with respect to
2014), basically due to an increase in depreciation in fixed
assets of $377 million, and by the increase in the level of
amortization of Intangible Assets of $493 million, mainly due
to the effect of 3G/4G licenses acquired.
The gain on disposal of PP&E amounted to $5 million and
impairment of PP&E amounted to $114 million in 2015
mainly related to the impairment of certain PP&E items related
to some projects.
Operating income before D&A andOperating Income
In 2015, Operating income before D&A increased to $7,789
million (+$1,756 or 29% vs. 2014). Such profitability level
represented 28% of the segment´s revenues (26% in 2014).
The increase in operating income before D&A was primarily
due to the increase in revenues by $4,866 million, net of the
$3,094 million increase in disbursable costs.
64
Operating income amounted to $5,160 million in 2015,
increasing by 18% from 2014 (18% and 19% of segment
revenues, in 2015 and 2014, respectively).
Financial results, net
During 2015, the Personal Mobile Services segment financial
results, net amounted to a loss of $864 million. The loss is
mainly attributable to higher foreign currency exchange losses,
net of $749 million (+$340 or 83% million vs. 2014) and
interest on loans of $540 million (+$537 million vs. 2014),
partially offset by gains on other investments of $519 million
(+$46 million or 10% vs. 2014).
In 2014 financial gains were offset by financial losses.
Income tax
In 2015 income tax expense amounted to $1,522 million,
compared to $1,542 million in 2014. The income tax expense
in 2015 was mainly attributable to the $1,426 million current
income tax payable and a loss of $96 million income for
deferred tax.
Net income
Net income from the Personal Mobile Services segment
in 2015 increased 1% from 2014, amounting to $2,774
million. The decrease was largely due to the Financial loss,
partially offset by an increase in operating results.
b.3.4.3 ManaGeMenT asPeCTs
Services and customer base
In early 2015 plans, packages and services offered continued,
along with a variety of promotions where the strategy in terms
of convenience and additional recharge benefits stand out.
Personal and Arnet launched the first joint offering, with
important benefits to customers of both brands called "Historic
Promotion". Customers had access to 50% discounts on
services from Arnet or Personal according to their original
plan.
With respect to the 4G network deployment, by the end of
2015, more than 335 cities in 18 provinces across the country
were covered; all this along with the offer of a wide range
of equipment available in this technology, as a result of a
sustained strategy of introduction of smartphones at accesible
prices and benefits according to the method of payment.
Promoting self-management and accessibility to customers,
the existing smartphones offering is published on Personal
website. Additionally, customers can check and analyze their
data consumption in the section "My Personal Account" or
downloading the application "My Personal Account".
In 2015 all data plans had 4G service enabled. 4G data
were rated in the same way as 3G according to applicable
commercial conditions of each plan.
In the framework of 4G international roaming services,
strategic agreements were made. On the occasion of
"America’s Cup", Chile became the first destination where
Personal customers were able to be part of the 4G browsing
experience through an agreement with the local operator
ENTEL, and on the occasion of the participation of the
Argentina team in the Rugby World Cup in England, with the
local operator EE Limited UK.
By mid-2015 the new offering of plans under a "Data centric"
model was launched providing on-net voice and unlimited
SMSs as main benefit, with a renewal of simple and unified
data quota for all plans; an innovative offer aiming at a
higher multi-device mobile data consumption leveraged by
the deployment of 4G LTE.
For the high-value customers segment, the "Personal Black"
platform continues being consolidated, adding benefits
through strategic alliances and updating the smartphones
portfolio.
In addition, proposals of offerings for events sponsored by
Personal such as Rally, Rugby, Golf and events associated with
music or culture were added.
Offerings and products
STRATEgy foR ThE RETAIl SEgmEnT
The strategy of offers and products for the retail segment are
described below:
brand: Personal announced the new concept "Let’s make
it all happen" (“Hagamos que todo suceda”) which positions
the smartphone as a platform for enabling connection and
participation of people in the creation of their reality.
4G/lTe: In 2015 Personal worked to provide 4G experience
65
to its customers through the network deployment, the sale of
smartphones and the creation of data quota plans according
to the volume of consumption available with this technology.
superchip: For prepaid customers the recharge benefit
continued; the latter being extra credit and free of charge calls
for a certain number of days depending on the amount of the
recharge. In addition, the special days benefit was expanded
where the customer receives extra credit and is able to triple
the amount as of $5.
"overall connection" Plans: This concept implies that
customers have the possibility of choosing their plan according
to the data quota included or megabytes, calls and SMS’s.
Personal simplified plan offers to support this transformation
enhanced by the deployment of new 4G networks and focus
changed from voice to data.
"baM": Leveraged in the new LTE 4G technology, the sale
of mobile Internet was re-launched through new devices that
allow data sharing via Wi-Fi.
“black” segment: For the high-value customers segment,
the Personal Black platform continued consolidating, adding
benefits and updating the smartphones portfolio, with the
incorporation of exclusive accessories, as headphones,
wireless chargers, smart clocks, among others, associated to
the different brands of mobile handsets.
Handsets: Personal continued encouraging the update
of customers devices into smartphones, by means of the
development of segmented campaigns and discounts in
special dates (father’s day, mother’s day, holiday season,
among others). In this way, the experience of mobile Internet
and the access to VAS was maximized, accessing from devices
with better performance.
Data: In line with the trend of mobile data increasing
consumption, Personal continued offering the option of
“reseteo de cuota de datos” (network service which enables
the customer to renew the Internet quota he has in his line,
according to the plan or data plan contracted). In this way,
the customer may activate the renewal once he reached the
maximum daily consumption to keep speed.
financing: Handset financing ways continued to be
promoted, along with strategic alliances with major banking
institutions, with the purpose of expanding the domestic supply.
STRATEgy foR ThE BuSInESS SEgmEnT
In connection with Business segment, Personal focused
its strategy on offering differential and flexible proposals
to the different customer segments (professionals, small
entities (“SME”) and companies) according to their needs
of communication and connection, leveraging the offer with
innovating proposals in order to maximize the access to
services of mobile connectivity, and developing solutions that
would optimize the business processes on an overall basis.
Within the specific commercial proposals for corporate
segments, the concepts of flexibility, convenience and
experience were targeted throughout the commercial offer.
The Executive segment was launched, the first convergent
segment, based on three pillars: customized offers, single
relational model for all products and services that the
customer has with the company, and differential relational
model oriented to company decision makers.
Aligned to the strategy of the new Executive segment, exclusive
account executives were appointed at national level in order
to offer an integrated commercial service to high value
customers.
Continuing with the trend defined in the previous year, focus
on VAS offers continued, and the "Office 365" product was
launched within the framework of an agreement reached with
Microsoft.
As an evolution of M2M, Telecom Personal in alliance with
Jasper, world leader on loT ("Internet of Things") platforms,
launched the "Control center" platform enabling customers to
manage connectivity of all the devices of their companies.
Finally, the first exclusive offer for the SME segment was
implemented, with advertising presence in sales channels and
graphic media called "Mes del Emprendedor (Entrepreneur’s
Month) ".
CuSTomERS loyAlTy
During 2015 the Club Personal loyalty program continued
providing benefits through the redemption of points
(differentiated by value segments) to keep member satisfaction
and to attract new ones.
One of the most valued actions in 2015 was "Black Movie"
by which "Club Personal Black" members were invited to the
66
movies in order to continue improving customer experience.
The action was developed in seven provinces (Buenos Aires,
Salta, Entre Rios, Cordoba, Santa Fe, Chaco and Tucumán).
Value-added services. Innovation and alliances
In the context of the innovation strategy, the company
continued working on the VAS "Personal Play" content platform
which includes music, videos and games.
For the fourth consecutive year, Personal was in Tecnópolis
presenting the "Pabellón de Videojuegos en 4G", where
experiences with applications related to transport speed, live
content, teleconferencing and interactive games that require
high speed were developed.
Additionally, within the framework of the “Conferencia de
Video Juegos 2015” (sponsored by Personal) the first game
club "Realidad Virtual (Virtual Reality)" of Personal Play was
presented.
On the other hand, in 2015 the "Kit de Seguridad Personal”
(Personal Security Kit) was presented in alliance with Intel
Security, the largest company in the world specializing in
security technology, a multi-device tool that allows Personal
customers to protect all their contents (photos, videos, files
and information) and to protect their devices. The security
kit has location features, alarm devices, lock, remote wipe,
parental control, back-up in the cloud, "capture cam", profile
management, SMS and calls filter, and SIM card tracking,
among other services.
Other businesses - virtual mobile operation
In 2015 Personal continued the impulse of "Nuestro",
the brand used by “Federación de cooperativas del Sur”
("Fecosur") to provide mobile services through the use of
Telecom Personal network and systems. It is worth mentioning
that since its formalization at the end of 2014 in the Virtual
Mobile Operators regulation, "Nuestro" continued to be
throughout 2015 the only operator of its kind in Argentina,
thus establishing a model of differential business whose main
attribute was customer closeness, mainly expressed through
the personalized service in cooperatives and points of sale in
the interior of the country.
Customer services
CommERCIAl offICES nETwoRk
With the improvement of the customer use experience
as strategic premise, 2015 continued with the process of
remodeling commercial offices adjusted to the new service
model. Offices in Salta, Mitre and Lomas de Zamora were
re-opened. The new service model leveraged on improving
customer use experience through facilities developed in a way
which enables our customers to be part of the user experience
of the marketed products and services. In addition, supply
areas such as "delivery and configurations" were incorporated
enabling customer to maximize the needs related to the
purchase and upgrade of handsets.
In this way Personal’s commercial offices network continued
with the process of strengthening customer experience,
aligning sales and advisory with the new needs arising from
technological evolution and services.
On the other hand, along with the evolution and maturity
of the market, the commercial strategy focused on the
development of the customer base, strengthening in this
way the management of portability as a tool for attracting
customers, high-value mainly, and the sale of VAS. In addition,
after-sales actions which joined the upgrade of handsets and
the improvement of technology were consolidated.
On the other hand, the "E-Commerce" channel continued to
be supported, achieving a share increase of the e-commerce
channel over the rest of the sales channels, along with a
growth trend in the Telesales channel with the optimization of
the capture results.
AgEnTS AnD TEChnICAl SERVICE nETwoRk
In 2015, Personal continued with the optimization of the sales
network through the relocation of agents’ points of sale in
strategic areas, and the improvement of productivity based on
the overall management with customers, especially targeting
the sale of value plans.
The incorporation of the technical service in the agents’ network
was completed. With this evolution, the implementation of the
new model of technical service in the exclusive agents’ network
was consolidated, enabling to improve repair indicators and
resolution times. As a result of these actions, there was a 50%
decrease of handsets obsolescence with respect to 2014, the
in-warranty repair index improved by 9% and repair times
67
were optimized by 15%.
ConTACT ChAnnElS
In 2015, the strategy was aimed to optimize efficiency of
the personal telephone contacts in order to reduce demand
through two specific actions:
• Information to customer on self-management alternatives
(telephone, web, SMS, etc.), thus continuing with 2014
work.
• Increase of customers base who have automatic custom
message when entering *111 (with information about
amount, invoice expiration date, management follow-up,
delays in crediting balance, etc.).
In this way, it was possible to optimize the amount of phone
calls by adding different types of self-managing contacts.
At the same time, actions were implemented to develop
the customer base, by communicating complementary
commercial offers of the products and services portfolio that
the customer already has at the time of communicating the
contact channel. Personal also continued working on the
customization of the main IVRs implementing big changes
in the identification of the specific situation of the calling
customer.
DIgITAl ConTACT ChAnnElS
In 2015, contact through the social network channels
(customer service via Twitter and Facebook) kept developing,
going along with the new contact points modality used by
customers. Work focused on giving faster response times, and
adjusting to the requirements of customers through these new
contact channels.
IT
In 2015, to support sales actions, numerous and different
proposals impacting on our catalog configurations were
implemented; this included packs, plans and promotions for
specific dates and segments as well as recharge benefits.
The most relevant actions correspond to the "Nueva Estrategia
de Planes Individuos y Empresas" (“New strategy for retail and
corporation’ plans”) project which supported a differential
strategy for data services along with the 4G launching, with
impact on the systems "Business configuration", "Roaming",
"Sistemas de Interfaces con la red (Network Interfaces
Systems)" and "WEB and Mobile Systems". This project also
had an additional impact on applications supporting the
business, from the platform to web and mobile applications.
Additionally work was performed in other projects such as:
“Planes por Segundo (Plans per second)”, “Doble de crédito
(Double credit)”, “Promo superchip”, “Packs for America’s
Cup 2015 in Chile” and “Rugby World Cup England", among
others.
With regard to sale services of contents (VAS), as of 2015
controls were strengthened on new signups, exits and charges
for third-party content services by means of the implementation
of a new platform, while the project of incorporation of “Marca
Blanca” services (Personal music, Personal Video, etc.) to this
platform was initiated.
As regard customer self-management, proposals were
introduced to maximize "eCommerce" (electronic commerce)
functionalities by implementing the process of new line signup
with handset or for handset swapping, and adding new delivery
modalities (regular, express and post office collection). In
addition, in 2015, Personal continued participating in "Cyber
Monday" commercial events where support was provided to
keep the online store operational in the days of highest sales
volume.
As to self-management systems "My Account", focus continued
on providing a consistent user experience for the end user
regardless of the device used for accessing (PC, tablet,
smartphone or notebook). "Full responsive" features such as
"Canal Web de Pago (Payment Web channel)”, “Visualización
de Facturas (Invoice viewer)”, and “Adhesión a Factura On
Line" continued being included. New functionalities were
developed for applications of "My Account" which already
existed in the institutional web, both for Android and IOS,
such as roaming status and sign-up to "on-line" invoicing,
as well as in the redesign of the Club Personal application,
among others.
Supporting actions to improve Personal’s cash flow, progress
was made in the "Adelantamiento de Vencimientos en Facturas
de Tráfico" project with the aim to optimize the impact on the
invoicing chain, giving versatility to maturity dates.
With respect to late payments management, Personal
continues working in actions that would make processes in this
chain more efficient, especially for actions on reconnection of
customers.
68
As to customer service efficiency, the "Portal de Agentes
(Agents Portal)" project was implemented which allows to
standardize, streamline and make Personal customers service
in Agents more efficient through a unified user interface and
the centralized use of the information.
In relation to business intelligence tools, the different
developments were performed in order to supply the
necessary information for the analysis of processes,
promotions and solutions implemented throughout the year.
Control dashboards of the LTE business as well as the display
of models of data analysis stand out to ensure the quality of
management and sales operation.
It is worth highlighting the assurance of the sales front
delivering information to agents from the presale stage up
to the support of the payment process of channel and sales
force commissions such as "Portal de Agentes (Agents Portal)”,
“Recargas On-Line”, “Integración de Servicios mayoristas
Wholesale Services Integration)" and report delivery to the
collection area with projects such as “Cobrador Único (Unique
Collector)” and “Plataforma de consolidación de deuda única
(Debt consolidation platform)”.
Finally, in compliance with the provisions of Joint Resolutions
No. 29/14 and No. 81/14 of the SC, Personal continued
performing the necessary improvements and evolutions in
the systems to generate the indicators for informing mobile
services users according to that set forth by said resolutions.
Wholesale Services
DomESTIC BuSInESS
During 2015, it was continued to strengthen its relationship
with operators and suppliers of telecommunication services,
Cooperatives Federations and clearing house services
suppliers, for which contracts were signed or renewed with
existing operators.
In this respect, it is worth highlighting the adherence of the
Cooperatives into new agreements with the Federations,
Fecotel and Fecosur in 2014, in which better trading conditions
were agreed for Cooperatives affiliated, due to the supply of
invoicing and collection service CPP (“Calling Party Pays”)
on behalf of Personal. These inclusions helped regularize the
operation of Cooperatives, achieving the timely accountability
of approximately 75% of the CPP sales of this segment.
In addition, agreements with other operators of resources
and facilities (data links and transmission, interconnection
resources, origination, termination, minutes transport,
conventional and non-conventional site leases and domestic
roaming) were intensified, that contributed to the development
of the mobile network and its evolution towards 4G, improving
the quality of the services offered to the customers.
It is worth mentioning the signing of the new wholesale
agreements for supplying infrastructure to mobile
communications with Telefónica de Argentina S.A. and AMX
Argentina, setting similar reciprocal contract conditions.
InTERnATIonAl BuSInESS
In 2015, Personal continued consolidating its positioning in
International Roaming services. The 3G data coverage in
Roaming continued extending and first 4G agreement were
implemented in order to offer a better user experience to
customers travelling abroad.
To that end, more than 321 data agreements (GPRS or
General Packet Radio Service/EDGE or Enhanced Data Rates
for GSM Evolution) were reached, achieving more than 137
commercial launches of 3G out of 366 international Roaming
agreements which provide service in more than 165 countries.
Personal has increased the number of locations reached
by voice and data traffic in Roaming, consolidating the
implementation of new agreements under the standard
"CAMEL" (Customised Applications for Mobile networks
Enhanced Logic) which extends roaming service for prepaid
customers of other operators using our network.
Also, coverage of destinations reached by the international
SMS service was strengthened, adding a third hired Hub
(centralized solution that expands international coverage)
of SMS which will allow more flexibility and reliability for the
service.
Related to the improvement of the user experience for the data
Roaming service, 11 agreements LTE were launched in the
“Outbound" modality (4G service to our customers abroad)
which allowed a significant improvement in the navigation
speed of the Internet, especially during the America's Cup
2015 in Chile and the Rugby World Cup in England, major
sporting events of 2015. In order to achieve this improvement,
the Diameter signaling service (signaling standard for LTE)
was implemented through IPX service, technology that allows
applying "end-to-end" service quality levels, for next generation
services and Roaming LTE base.
69
b.3.5.1 ReleVanT oPeRaTInG InfoRMaTIon
B.3.5 NÚCLEO MOBILE SERVICES (VOICE, DATA AND MOBILE INTERNET)
Núcleo
Prepaid subscribers (thousands)
“Plan Control” subscribers (thousands) (a)
Postpaid subscribers (thousands) (b)
Dongle Mobile subscribers
Total mobile subscribers núcleo (thousands)Year to year subscriber base change (in %)(*)
a) Subscribers with prepaid service and monthly basic charges invoice.
b) Includes Internet Mobile Subscribers
Subscribers at year end per employee
ARPU (in $ / month)
MOU (in minutes / month)
TOU (in SMS / month)
Churn (monthly % / subscriber base at beginning)
Total núcleo – Wimax Internet customers (thousands)Year to year customer base change (in %)(*)
(*) Changes calculated based in whole numbers, regardless rounding to thousands.
Headcount
Núcleo
Personal Envíos
2015
2,026
376
28
110
2,540+3
6,225
46.5
68.5
68
2.4
6+5
408
5
2014
1,999
319
29
129
2,476+3
6,159
47.9
57.5
110
2.2
5+3
402
-
%
1
18
(3)
(15)
3
1
(3)
19
(38)
9
5
1
n/a
Q
27
57
(1)
(19)
64
66
(1.4)
11.0
(42)
0.2
1
6
5
70
Revenues
During 2015, total revenues from Núcleo amounted to
$1,717 million, +$129 million or +8% vs. 2014. This
increase was mainly due to the increase in the subscribers’
base (+3% vs. 2014) and an increase in Internet revenues
(+24% vs. 2014) related to the increase in traffic of customers
and mainly due to an increase in the handsets sold.
Operating costs
Operating costs (before D&A) in the Núcleo Mobile Services
segment increased 14% in year 2015, amounting to $1,149
million, as compared to $1,010 million in 2014.
As part of increases in disbursable costs, we may highlight
the increase in salaries and social contribution costs, cost
of handsets, maintenance costs and fees for services,
VAS services and commissions, partially offset by a
decrease in interconnection costs and other charges for
telecommunications.
Meanwhile, depreciation and amortization of PP&E and
intangible assets increased 8% from 2014.
Operating income before D&A and operating income
In 2015, Operating income before D&A increased to $568
b.3.5.2 analYsIs of oPeRaTIons
Net income in the Núcleo Mobile Services segment for the fiscal year ended December 31, 2015 amounted to $97 million,
which represented a 43% increase from 2014.
Núcleo´s subscriber’s base increased 3% or approximately 64,000 subscribers as compared to 2014, accounting 2.5 million
as of December 31, 2015.
Results of Operations
For the years ended December 31,Revenues (*)
Operating costs (before D&A and Gain on disposal of PP&E) (**)
operating income before D&a% revenues
PP&E and intangible assets D&A
Gain on Disposal of PP&E
operating income% revenues
Financial results, net
Income tax
net income% revenues
20151,717
(1,149)
56833%
(392)
1
17710%
(65)
(15)
976%
20141,588
(1,010)
57836%
(363)
-
21514%
(22)
(22)
17111%
129
(139)
(10)
(29)
1
(38)
(43)
7
(74)
%
8
14
(2)
8
n/a
(18)
195
(32)
(43)
Millions of pesos %
(*) Include $11 million and $10 million from intersegment sales in 2015 and 2014, respectively.(**) Include $23 million and $27 million intersegment costs in 2015 and 2014, respectively.
For the years ended December 31,
Net financial liability Núcleo
Net financial liability/ EBITDA (times)
(465)
0.8x
(167)
0.3x
(298)
0.5x
71
million, (-$10 million or -2% vs. 2014). Such profitability level
represented 33% of the segment´s revenues. The decrease
in operating income before D&A was primarily due to the
increase of the $139 million increase in disbursable costs,
partially offset by an increase of $129 million in revenues.
Operating income amounted to $177 million in 2015, a
decrease by 18% from 2014 (10% of the revenues in 2015
vs. 14% of the revenues of 2014).
Financial results, net
In 2015, Financial results, net were negative by $65 million,
whereas in 2014 they showed a loss of $22 million.
Net income
Net income from the Núcleo Mobile Services segment in 2015
amounted to $97 million (-43% vs. 2014). The decrease was
largely due to a lower operating income, and by an increase
in the financial loss.
b.3.5.3 ManaGeMenT asPeCTs
Offerings and products
Early in the year, the strategic and communications focus of
Núcleo was based on the launch of a new set of data packs
called "Megapacks" with the aim of expanding the range of
Internet packs offered, generating a competitive advantage
in the market.
In addition, in the first quarter of the year, the communication
of the benefit called "Multiplicate" continued which targeted
the consumption of prepaid customers, while for post-paid
customers the benefits were leveraged with the launch of
smartphones.
With the aim of achieving more transparency for the customers,
in early June 2015 began the offering of internet service on
cellular phones only through packages or "packs"; this means
that at the moment of choosing to use the Internet, the user
has the option to purchase several packs with substantial
discounts compared to the service rate previously used without
purchasing packs. This action allowed the NPS ("Net Promoter
Score") of the customer to increase significantly.
At VAS level, Núcleo managed to migrate 100% of content
services by subscription to a management platform that
controls access and delivery of content and invoicing policies.
In addition, the VAS catalog continued to be innovated by
promoting the use of services such as Spotify and Personal
Video. As a result, Personal Video closed the year with more
than 100 thousand subscribed lines and the incorporation of
movies and documentaries produced in Paraguay.
Nevertheless, promotions continue as one of the main VAS
actions. With the aim of rewarding customers for the use
of these services, Núcleo launched in November 2015 a
sweepstakes platform of 100 prizes (a brand new car, bonus
of Guaraníes 60,000,000, led TVs and smartphones). Thus,
it differed from the promotions of the competitors through a
mechanism which only required using any service of Núcleo
eliminating short messages subscriptions or paid "coupons"
via SMS Premium resulting in 200,000 users participating in
the promotion.
In terms of strategic alliances, in November 2015 Núcleo
signed an agreement with the Paraguayan Olympic Committee
to be Official Sponsor, thus supporting sports in that country.
Finally, in December, the 4G service with the campaign "Si
sos Personal sos 4G” (If you are Personal you are 4G) was
launched, and Núcleo became the first operator in Paraguay
to offer LTE Internet service on the phone to its customers.
Along with this release, a communication with an educational
approach was communicated in retail media, with the aim of
increasing the use of the service and specially to increase its
appreciation by users.
Communication and commercial operations
2015 was a year marked by big changes aimed at obtaining
a sustainable and solid growth that would enable to face the
new challenges expected for the future.
In the market segment "Individuals", Núcleo worked to
consolidate the structure of the distribution channel managing
to restore the increase of recharge. Núcleo implemented
incentive and penalty programs for agents to meet set targets
in multiple KPIs. Also, direct sales force commission schemes
have been restructured to include stronger incentives and to
improve multiproduct capture.
In that referred to the "telesales" channel, four new channels
or call centers were consolidated, thus totaling 6 telesales
channels, all of them hired under a 100% variable commission
payment scheme.
72
In the channel “Business” the after-sales structure was
consolidated, targeting customer loyalty and customer
retention. 2015 was a year with much portability of small,
medium and large size companies, reaching a portability
record number in the history of Núcleo.
Customer care service
Giving continuity to the concept of "Customer experience"
introduced in previous years, in 2015 focus was placed
on Tactical NPS as input for the generation of action plans
addressed to optimize customer experience in every contact,
both in face-to-face as well as remote channels.
Under this concept, the "WOW" project was initiated for
the intensification of action plans for improving customer
experience. In May, the program in all customer service offices
at country level began, achieving a 100% improvement of the
NPS in the face-to-face channel.
In order to know the reasons for “not recommending”
resulting from the tactical NPS, both in face-to-face channels
and in remote channels, the contact with customers revealing
a low rating continued in order to offer solutions to 95% of
these customers in a period not exceeding 24 hours from the
first contact.
In that related to digital channels, in order to promote
customer’s self-management, Núcleo worked intensively on
the development and production of the new web version
of "Mi Mundo Personal" which offers the customer a much
friendlier and transparent navigation experience, adding new
management features available in this new version.
Under the concept "Empresa Multi-productos", reengineering
of IVR´s (Interactive Voice Response), for customer service
call was performed, which before had different numbers for
this service. That is why, as of October 2015, Núcleo had
a unique entry number to the Contact Center (*111) in
order to facilitate the contact of the customer and simplify its
navigation through the IVR, making their self-management
and experience within the option tree easier.
IT
Núcleo completed the development and implementation of
the new Online Charging System (OCS) along with other
developments such as forwarding to the mobile portal and
charging system by contingency. Within the framework
of the migration project of the network core, adjustments
corresponding to all the affected subsystems were carried out,
thus improving the signup and online charging systems.
On the other hand, the development and testing of after-sales
processes, processes for internal controls, and the module
"Definitions Reporting System" were completed, all of them
framed within the technology replacement.
As regards the monitoring in the NOC ("Network Operations
Center"), Núcleo made progress in the definition and creation
of new online monitoring tools of services offered to provide a
faster response upon incidents, covering the new infrastructure,
the new services and the new online charging system (OCS),
the new “Portales Móviles” systems and the new "Mi Mundo
Personal" website.
Finally, Núcleo implemented tools and developments thus
improving customer service quality.
b.3.6.1 fIxeD seRVICes
Network Strategy
The network strategy focuses medium and long term guidelines
in line with technological developments, the demand for new
services and the customer experience. In that sense, the "core
network" seeks to increase the capacity and availability of
our services, together with the standardization of protocols
and network architectures, allowing reducing the related
operating costs and making the operation more efficient.
As an example, according to section "B.1 Introduction -
Technological achievements" we can mention the deployment
of MPLS protocol towards the edges of the network and the
DWDM optical transport expansion.
In access networks, the strategy was based on continuing to
meet the strongly growing needs of bandwidth that require
the services demanded by our customers, mainly Internet
access to multimedia content and video. The deployment of
B.3.6 TECHNOLOGy
73
fiber optic infrastructure in their different architectures and
technologies continued, optimized according to the demands
and situation of different geographical areas.
2015 Milestones
Within the important events of the year, the following deserve
mention in each category:
TRANSPORT:
In 2015 the "Red Centurion" was expanded, which consists
of a DWDM ROADM (Reconfigurable Optical Add-Drop
Multiplexer) network with a capacity of 40 lambdas of 100 Gbps
each. Initially, the implementation in the Northern provinces
was materialized, anticipating for 2016 its implementation in
the South. Additionally, the Company continued to expand
and update transport capacity to 100 Gbps lambdas in the
DWDM Network of Northern AMBA (2 interconnection rings
and 9 access rings), with new rings linking the “Datacenter
Pacheco” and important nodes of other operators.
On the other hand, in 2015, more than 900 km of long-
distance and urban fiber optic backbone was installed, adding
to the new overhead lines of the interurban optical fiber
network, the signature an optical fiber swap with Telefónica de
Argentina S.A. for the three-year exchange of approximately
2,500 km of optical fiber, begun in late 2015 and to be
continued in 2016/2017. Last, the deployment of the MPLS
network of PTN packet transport to 10 Gbps continued.
BACkBONE IP (“BBIP”):
In order to provide more connectivity to the Internet, Peering
(internet network interconnection for traffic exchange) with
Google was expanded to 100 Gbps, and connections
with suppliers networks of Internet access level 1 ("Tier-1")
were expanded by 100 Gbps in the interconnection node
located in the "Coghlan" facility of the Autonomous City of
Buenos Aires. Also, to continue improving customer service
perception, cache connections with major content providers
(OTT: 'over the top') were expanded in the Rosario Centro
node. On the other hand, the modernization of the BBIP
continued, both in architecture and equipment. With the
aim of increasing broadband session availability, MSBNG
equipment installation (Multiservice Broadband Network
Gateway) continued, installing 26 deployments in 2015.
METRO ETHERNET NETWORk:
In 2015 the deployment of the new access aggregation
equipment was initiated with the installation of more than 100
deployments replacing the previous ones, and updates of
MPLS equipment connecting different geographic areas was
performed, leading to a better use of the transport network
and expanding the MPLS network. Additionally, the existing
optical fiber rings were divided into rings with fewer nodes for
absorbing their bandwidth growth.
FIBER OPTIC ACCESS:
To enable optical fiber connection close to mobile network
radio bases in outdoor nodes VDSL (Very high bit rate
Digital Subscriber Line) in companies and undertakings, the
deployment of urban access optical fiber rings in exchanges
and defined locations continued. In 2015 over 5,000 km
of access fiber-optic were installed. On the other hand, the
deployment of the FTTH infrastructure network continued
in predefined areas with customers currently connected via
copper pairs and in new areas where the access network was
entirely made with optical fiber up to the customers’ home. In
addition, the strategy of installing FTTB in new undertakings
continued. 2015 ended with more than 150 projects directly
undertaken with optical fiber and associated MSAN nodes
("Multi Service Access Node") in buildings, neighborhoods
and gated communities.
VDSL INDOOR:
Installation of indoor multiservice nodes continued in
2015 (in central exchanges), which will enable voice and
broadband connection over copper (FTTE VDSL2-"Fiber To
The Exchange"). In this year more than 37,000 VDSL2 ports
were enabled.
VDSL OuTDOOR:
2015 continued with the deployment of loop shortening,
enabling more than 850 VDSL2 outdoor nodes for enhancing
the current fixed Broadband capability, allowing speeds of
up to 50 Mbps and the possibility to offering Value Added
Services which require higher bandwidth.
TRANSPORT OF VIDEO:
An internal trial of a TV service via Internet with HD content
(Open Digital Television channels including sports, news and
others) for different types of screens (Tablets, smartphones, TV,
74
etc.) proved successful, which enabled to acquire knowledge
on this technology with a future perspective for providing these
services.
REPLACEMENT OF POSTS:
Continuing with the sustained improvement plan overtaken
by the Group, especially on environmental preservation and
care, 2015 kept expanding the concrete posts base and the
incorporation of GFRP (fiberglass-coated plastic) posts was
initiated. More than 21,000 external GFRP posts were added.
On the other hand, streamlining works on the replacement
plan of conventional poles, more than 61,000 posts were
replaced in 2015 which implied the replacement of wooden
poles with other wooden, GFRP or cement posts.
OPERATION AND MAINTENANCE:
From the point of view of operation and maintenance, the
technological evolution of access (increase of optical fiber
access) went hand in hand with the consequent conversion
of technicians skilled in the copper optical fiber exchange.
In addition, our technicians continued with their training to
resolve increasingly more complex situations in customers’
households with Wi-Fi coverage needs and multiple connected
devices.
b.3.6.2 MobIle seRVICes
B.3.6.2.1 Argentina
NETWORk STRATEGY
2015 continued with the strategy of improving the coverage
and capacity of the mobile access network. To that end, an
important deployment plan for 4G (LTE) technology was
held, using new spectrum acquired in the bidding process
carried out in 2014. This deployment essentially allows
increasing Internet access speed, thus improving customers’
user experience, in particular experience related to accessing
multimedia content.
It is worth mentioning that the LTE deployment strategy
modernization continued which consists on replacing a
2G/3G device by a new 2G/3G/4G device.
From the beginning of the deployment, bands 1.700/2.100
Mhz and 700 Mhz were enabled at the same time allowing, in
the near future, the optimal use of both spectrums through the
“carrier aggregation" functionality (functionality that enables
adding carriers to increase bandwidth). In accordance with
the abovementioned, the capacity of existing sites continued
to increase after the activation of the reassigned spectrum of
the 2G network and the new PCS/SRMC spectrum acquired
in the bidding process.
In addition, the plan to increase the number of base stations
linked through optic fiber and full IP connectivity continued,
aimed at ensuring the availability of bandwidth for current
and future needs.
MAjOR EVENTS IN 2015
Within the major events of the year it is worth mentioning:
3G: In 2015 expansions and upgrading of radio bases
continued in order to increase network capacity and to go
along with the growth of smartphones. In many places the
third 3G carrier was activated; besides work was performed
so that the sites are ready for the fourth carrier.
The fourth carrier activations are planned to be held in 2016.
In 2015 more than 600 new sites were installed, including
conventional, non-conventional sites and overlay (installation
of a new 3G site where there was a 2G site). On the other
hand, replacement and upgrading of the mobile access
2G/3G network continued. In connection with these plans,
works were carried out in more than 460 sites (including the
sites where hardware was adapted for new carriers).
Additionally, adjustments to radio bases were performed
going from 3 to 6 sectors, increasing cells and thus, increasing
available capacity for customers and at the same time
maintaining coverage. In 2015 this technology was deployed
in 200 existing sites. Note that capacity has increased more
than 35% through the implementation of additional cells.
lTe: As regards this technology, 2015 continued with the
deployment of the service in locations defined in the bid
specifications and in additional locations. LTE technology,
already reached 35% of the covered urban population with
presence in more than 335 locations across the country. For
provincial capitals the coverage achieved by 4G reached
60%.
In 2015 more than 1,200 new sites were installed, including
conventional sites, non-conventional sites and overlay
(installation of a new 4G site where there was a 3G site).
75
other improvements: The strategy to increase the
number of radio bases with full IP connectivity was strongly
supported. In this regard, in 2015, the amount of sites with
full IP connectivity increased more than 115%. On the other
hand, the Wi-Fi Off Loading network continued to expand in
order to optimize customers’ Internet browsing.
In addition, the deployment of Femto and Metroceldas
continued (two types of solutions implemented in order to
improve coverage and capacity in high capacity areas) to
improve coverage and quality of Personal service.
B.3.6.2.2 Paraguay
The major events of the Núcleo IT area in 2015 were:
Paraguay Dream 2 Project: Núcleo initiated the Dream
2 Project for the modernization of the entire access network
with the objective to finalize the modernization of all access
network sites in 2017.
quality and Capacity expansion and Improvement: As of the date of this Annual Report, Núcleo has set into
operation 89 new cellular sites across the country representing
an increase of approximately 10% in the total size of the
network. On the other hand, Núcleo made upgrades across
the cellular network to absorb the growth of data traffic. To
that end, 1,948 new 3G cells have been installed and put
into operation representing a 45% increase in the network
capacity. Also, the 2G network expanded 38% of its capacity
with the startup of 970 new cells.
CoRe: As part of the Dream 2 Project all nodes of the CS
Circuit ("Circuit Switched") CORE and of the PS Packages
("Packet Switch") CORE were switched by new nodes.
Transmission: Within the growth of the transport network,
Núcleo expanded the coverage of FFTH GPON network
aimed at providing Internet access services in the Business
segment. In addition, Núcleo expanded and modernized the
BackBone IP with the replacement and installation of nodes
with higher capacity. Núcleo is currently in the process of
switching the entire DWDM network replacing the existing HW
where 80% of the schedule has been completed, estimating
its full completion by the first quarter of 2016.
Finally, Núcleo has expanded the transport and aggregation
network called "IPRAN" through the startup of more nodes
in several cities of the country, adapting the network to the
requirements demanded by the new generation of mobile
networks.
lTe: The main highlight of Núcleo in 2015 was the expansion
of the LTE network capacity of the country and the incorporation
of 4G smartphones, becoming the first 4G network mobile
of Paraguay. Initially, Núcleo provided coverage throughout
the city of Asunción. It is currently deploying more nodes
to expand the coverage of the LTE network to other major
locations in the country.
b.3.6.3 oPeRaTInG sUPPoRT sYsTeMs
Until mid-2014, materials and equipment from abroad to be
used in "internal plant" of the fixed network and the mobile
network were supplied by providers within the modality of a
"turnkey" contract scheme. However, from the second half
of 2014 and with stronger impact in 2015, the acquisition
modality was modified passing to a scheme where Telecom
Argentina and Personal directly imported said materials
(usually under “Free On Board” condition). This change in
the purchase mechanism together with the need to manage
the large volume of projects to be developed in the medium
and short term, mainly derived from the 4G deployment,
involved the adjustment of various internal processes in the
supply area of the Group to adapt them to the new operation
scheme (among others, purchase, foreign trade, reception of
materials, storage and dispatch processes).
b.3.6.4 DaTaCenTeR InfRasTRUCTURe
The main objectives of the Technology area responsible for
operational support systems in 2015 focused on improving
productivity, streamlining and flexibility. Similarly, the guidelines
to follow-up the evolution of the business and to optimize
operation assurance continued.
With regard to IT systems, it is noted that the setting in
production of the physical network inventory project was
performed. This exercise incorporated the fiber optic
backbone, the long-distance optical mesh ("MOI") of Telecom
Argentina and progress was made on the implementation of
the fiber optic for regional access. Based on the introduction
of this new system, the company has a single repository to
document all the outside plant works and projects, taking
into account topology and geo-references, improving the
quality of information, the allocation of resources and their
assurance.
In reference to fixed networks, it is worth highlighting
the updates being made in the DWDM transportation
76
management platform, the monitoring of the NGN network
traffic signaling (Next Generation Network or next generation
network) and TDM (Time Division Multiplexing or time
division multiplexing), in order to improve incident response
times and the analysis of network parameters. With the aim
of anticipating cuts by degradation and for optimizing repair
times upon incidents in the optical backbone mesh, the
deployment of the system known as ONMS was completed
covering 100% of the owned mesh.
In regards to the mobile network, comprehensive changes to
the management platforms are being carried out, adding high
geographic availability and a comprehensive IT renewal that
will enable to manage and monitor 2G, 3G and 4G sites.
Complementing the previous point, the current tools
for monitoring quality are being complemented by the
developments needed as to the incorporation of LTE technology
such as KPI's, Drive Test and Configurations Control.
b.3.6.5 DaTaCenTeR InfRasTRUCTURe
With regard to Datacenter, the Pacheco Datacenter capacity
was expanded by 1,500 m2. In the same vein, it has a DRP
(Disaster Recovery Plan) of semi-automatic exchange of
internal and external access, ensuring communications in
case of unavailability events of the main Datacenter.
On the other hand, the project "Core Multisitio (Multisite Core)"
was completed which allows to link customers and corporate
Datacenters in a flexible, scalable fashion with no single points
of failure, enabling of IT services mobility between sites and
helping to maximize the availability of systems.
In addition, the Virtual Private Datacenter service was
implemented for Datacenter customers, by setting the Vcloud
Director tool.
Finally, progress was made on the deployment of the virtualized
infrastructure for supporting the internal applications of the
Group (cloud computing and virtual application).
HeaDCoUnT
The Telecom Group headcount as of December 31, 2015 and 2014, broken down by entity, is the following:
B.3.7 HUMAN CAPITAL
Fixed Services
Telecom Argentina
Telecom Argentina USA
subtotal fixed services
Mobile Services
Personal
Núcleo
Personal Envíos
subtotal Mobile services
Telecom Group Total Headcount
2015
10,901
2
10,903
4,908
408
5
5,321
16,224
2014
11,054
2
11,056
4,958
402
-
5,360
16,416
%
(1.4)
-
(1.4)
(1.0)
1.5
n/a
(0.7)
(1.2)
Q
(153)
-
(153)
(50)
6
5
(39)
(192)
77
TRaInInG
The mission of Universidad Corporativa Telecom is to develop
the skills of the staff in order to improve performance and
provide new opportunities, as the basis for development and
a career in the Group. Its main objectives are oriented to the
training of its employees aligned with the business, and to
develop the necessary organizational capabilities that would
contribute to the competitiveness and talent management of
the Group’s employees, generating managerial and functional
knowledge in the employees as well as promoting value
enhancing of internal knowledge and active participation in
the organization culture.
It is segmented into 6 education areas whose training
programs operate organized in 19 schools.
Managerial Training Area
Currently, the Top Management School focuses on the
development of innovation as key ability of the Group. In 2015
the program was formed by three workshops (Innovation-
Creativity-Neuroscience) in which Directors and Managers of
the Group participated.
The "System Program for Labor Relations" oriented to Managers,
Head of Departments and Supervisors continued. Its aim is
to train participants in all aspects related to negotiations and
labor relations.
Lastly, the Program "Design of Conversations for Action" aimed
at middle Management took place. From an Ontological
Coaching and NLP approach, the general objectives
proposed offer participants the possibility of experiencing and
internalizing the distinction of "multiple worlds" to connect
themselves with diversity and to discover complementary skills
for maximizing leadership skills, teamwork and trust building.
On the other hand, in the anti-corruption training field,
training was performed on FCPA ("Foreign Corrupt Practices
Act") for 97% of the Macrostructure population.
Commercial Training Area
Both the "Sales school" and the "Customer Service school"
continued the actions aimed to develop skills on personnel
management through the "Leaders Development Program"
started in 2013. Three modules were designed: "Activating
your Development", "Activating your style towards the Leader
Coach" and "High Performance Leadership".
For the retail segment, e-learning took place where the
content was designed together with those in charge of the
business based on topics about "Detection of Needs", "Effective
Argumentation" and "Management of Emotions" accessed
through the "Virtual Campus" platform.
Within the School of "Large Customers and Business", as
regards the commercial executives and account engineers
segment, the "Account Planning Program" was developed in
order to maximize the business model.
Training Area in Technology and Systems
These programs primarily focus on enhancing tools
and developing functional competencies related to the
technological capabilities that lead our industry in the market.
In this sense, and supporting the strong effort of the Group
in the mobile services segment with 4G technology, a three-
year training plan was initiated with the objective of providing
the necessary technical knowledge on devices and new
technology.
General/Transversal Training Area
In 2015, different trainings were carried out in this training
area, such as:
• workshops aimed to the Group’s analysts, with the
objective of promoting management competencies on
"Teamwork", "Public Speaking and Communication" and
"Creativity and Innovation", and open talks privileging
Innovation and Creativity topics;
• workshop of "Corporate Finance" aimed at specialists in
order to provide functional training on the use of different
financial instruments that will enable the evaluation of
investment, assessment and financing decisions in the
Group;
• courses at the "Trainers School" to provide educational
tools that enable to guarantee the proper communication
of knowledge to those employees who need it,
incorporating this year the virtual modality;
• the first "Innovation Rally" addressed to all employees
took place with the objective of developing the innovative
thinking ability within the Group;
• for the second consecutive year the "Universidad Telecom"
78
performed the "UT Day 2015" workshop offering
intensive training on innovative pedagogical content
and formats for contributing to the overall look and to
the understanding of the functional and management
trends towards which the business evolves together with
its staff, the Universidad Torcuato Di Tella in the city of
Buenos Aires, Universidad Católica Argentina of the city
of Rosario and the Universidad Siglo 21 in the city of
Córdoba;
• two modules of the Business Intelligence Program were
carried out together with the Universidad Austral;
• in the School of Organizational Culture there were talks
and workshops aimed at the topics of Conciliation,
Sexual Diversity and HIV, Gender and Human Rights,
offering current and scientific information on these topics.
Likewise, in 2015 efforts were made for updating the "Virtual
Campus" software, providing among other things direct
access from any device connected to the Internet.
In addition, Núcleo has "Personal Well-being" Programs with
the aim of strengthening the organization environment and
promoting balance between the personal and professional life
of employees.
In 2015, Núcleo closed a stage in the development process
of Management skills through the "Universidad Núcleo", in
alliance with business schools in Paraguay. At the same time,
Núcleo initiated the Young Professionals Program ("Programa
JP") according to promotions related to higher responsibility
positions and the development of management-related
skills, investing in employees’ development to train them for
a professional career and for opportunities of development,
supporting the business challenges.
CoMPensaTIon
In relation to non bargaining unit Personal employees ("FC"),
in January 2015 salary scales were updated based on the
full compensation survey of the reference market. Also, in
May and August 2015, a general adjustment was set forth
for the categories of employees, analysts, specialists and
Macrostructure. Both adjustments were supplemented for the
same population, with a pattern of mixed general and selective
increase, applied in November; this selective standard is
based on the concept of meritocracy, thus allowing award
and acknowledgment for outstanding performances.
For the population occupying positions reporting directly to
the General Executive Direction, a selective adjustment was
defined in August as well as in December.
In relation to Telecom Argentina’s employees under a union
agreement, in July 2015 agreements were signed with all
the union organizations; represented by the unions who are
members of F.A.TEL. (provinces of Buenos Aires, Rosario,
Santa Fé, Chaco, Luján and Tucumán), F.O.E.E.S.I.T.R.A.
(Federación de Obreros, Especialistas y Empleados de
los Servicios e Industrias de las Telecomunicaciones de la
República Argentina) or (Federation of Workers, Specialists
and Employees of the Telecommunications Services and
Industries of the Argentine Republic), F.O.P.S.T.T.A. (Federación
de Organizaciones de Personal de Supervisión y Técnicos
Telefónicos Argentinos) or (Federation of Organizations of
Supervisory Staff and Telephony Technicians in Argentina)
and (Unión de Personal Jerárquico de Empresas de
Telecomunicaciones) or (Union of Managerial Staff of
Telecommunications Companies), which contemplated salary
increases and other labor conditions. Such agreements reflect
the average in the market as a negotiation parameter, and were
managed without generating conflicts or consequent losses to
Group operations and revenue (For further information see
“Labor Relations” below).
As regards to Telecom Personal unionized staff, agreements
were signed with trade unions F.A.TEL., F.O.E.E.S.I.T.R.A.,
F.O.P.S.T.T.A. and U.P.J.E.T., which applied to employees since
they were already part of one of these unions, and it also
applied to employees who fit within this scheme in July.
In relation to the policy of compensation by objectives, in
April the annual bonus was settled to directors and managers,
and the “bonus ranking” for other employees not included
under a union agreement. Also, in the same month, in line
with that defined by the top management of the Company,
the "LTI" long-term incentive policy ("Long Term Incentive")
corresponding to the results of fiscal 2014 for beneficiaries of
this program was paid-up. On the other hand, in October, the
bonds corresponding to the Retention Program were paid-up
to the Macrostructure staff who currently are part of this area.
As concerns commercial incentives, their top amounts were
increased, so that they maintain the fixed-variable relation
they had prior to the flat increases granted.
In terms of benefits, in March, the scope of childcare benefit
was expanded to all mothers (FC/Comercio/ Foetra Móvil)
with children up to 6 years old without the need of presenting
79
proof, and as regards leaves, paternity leave was extended
for unionized staff both for Telecom Personal and Telecom
Argentina.
For the purposes of certain market salary studies, certain
polls were taken, some of which focused on analyzing Senior
Management compensation. The latest personal poll was
taken in December 2015 and will be used to update the
salary scales of personnel not covered by a union agreement.
In line with the new scale, the Group will review the criteria to
grant an adjustment guideline for the period 2016.
laboR RelaTIons
Since 2003, trade unions have strengthened their position
increasing their capacity to influence salary setting and
wealth distribution. As it has been the case in the past years,
the national inflationary context generated social and labor
claims requiring additional increases besides those that were
conventionally agreed as well as the review of income tax for
payroll employees.
Telecom Argentina, in this opportunity and for more than five
years, continued to negotiate with telecommunication labor
organizations through the “Mesa de Unidad Sindical de las
Telecomunicaciones” (the “MUS” – Board of Trade Union
Unity), which brings together FOEESITRA, FATEL, FOPSTTA
and UPJET. The negotiations were aimed to reach a collective
labor agreement for the basic telephony.
In this sense, a 20% non-cumulative staggered wage increase
was agreed as of July 2015, and another 7.8% increase
as of January 2016. Also, in the same month, employees
were benefited with a bonus on the 'Day of the Telephone
Worker’ which involves a payment representing 1.3% of
the total payroll for all employees within the collective labor
agreement. Also, it was agreed to allocate one percentage
point of the total payroll of June 2015 to increase the value of
the category seniority.
Additionally, as an additional and unique benefit to employees
within the agreement, it was agreed to allocate 1.7% of the
June 2015 total payroll as a one-time payment corresponding
to March 2016. This benefit was paid as advance payment
in two installments: 50% in August 2015 and the remaining
50% by November 2015.
Moreover, salary agreements for call centers activity were
reached with FOETRA, SITRATEL (Telephone Union Employees
of Rosario) and FOEESITRA.
Additionally, negotiations continued with CE.P.E.TEL. (“Centro
de Profesionales de Empresas de Telecomunicaciones“) (union
that brings together professional employees and is not part
of the MUS) which were started in 2012. In such scenario,
various agreements have been reached on various aspects
of working conditions for those they represent. In September
2015, a salary agreement with that union organization was
signed on the same terms as the rest of the telephone trade
unions. As of the date of this Annual Report, a new collective
bargaining agreement is still pending of subscription by the
parties.
As regards to Telecom Personal unionized workers, the
Ministry of Labor and Social Security has approved the
Collective Bargaining Agreements for the cellular or mobile
services activity signed with F.A.TEL. (CCT No. 614/15),
F.O.E.E.S.I.T.R.A. (CCT No. 712/15), F.O.P.S.T.T.A. (CCT No.
615/15) and U.P.J.E.T (CCT No. 714/15) which came into
force as of July 2015 and as a result, are in full application to
all workers within its scope of application.
In terms of the evolution of salary scales in Telecom Personal,
a 27% non-cumulative staggered wage increase (17% in July
2015 and non-cumulative 10% in November 2015), plus two
one-time payments of $1,836 each were agreed and were
paid in July 2015 and September 2015.
On the other hand, the annual payment corresponding to the
Day of the Telephone Worker (1.3%) was agreed in January
2016, allocating 1.3% of the total payroll to this heading for
all employees within the labor agreement. Such percentage
shall be adjusted in similar proportion to the evolution of
salary scales according to future wage negotiations.
At the same time, for April 2016, the allocation of 4% of the
total payroll to a new category was set forth, which will not be
part of the basis of calculation of future wage negotiations.
It is worth mentioning that as in 2015 the reallocation of
all the employees represented by FAECyS within the new
collective agreements for the mobile activity took place; these
agreements will be in force for 15 months (April 2015 through
June 2016).
oTHeR HUMan CaPITal ToPICs
Vendor Control: During 2015 actions continued to take
together with other areas, in order to provide a suitable
assessment of associated risks and contingencies, provide for
their efficient management, and restrict the level of exposure
80
and eventually their expansion.
Remote Work: For the seventh consecutive year, in 2015 the
framework agreement under the Program for the Promotion
of Remote Work with the Ministry of Labor, Employment and
Social Security was renewed. In this sense, remote work was
considered a work modality extended across the company
with 2,144 remote workers at the closing of the year in its
various forms, distributed in 43 locations, under permanent
monitoring. The analysis made by the regulatory agency with
remote workers concluded that 90% of respondents perceived
a positive change in their family life since they started working
under this modality, and all of the respondents perceived that
their work life had improved.
Health: within the framework of health control of Telecom
Group employees, work focused on aspects such as Medical
Surveillance through primary health care in the internal Group
clinics, internal Communication through the use of the tool
"Teco Twitt" and the Group's Intranet, Training regarding healthy
habits, first aid and regional diseases control, Prevention
associated with job positions and, Special Campaigns and
Monitoring of Absenteeism for improving recovery times from
long-term diseases.
occupational safety: in 2015, work focused on operating
Controls applied to the prevention of labor risks, on the
Regulatory Framework with regard to review and periodic
updating, on improvements and risk controls in the jobs, on
the use of the tool Lessons Learned by briefly communicating
the occurrence of accidents and their preventive measures,
and on Vehicle Expertise with specialists in the field by
seeking to disseminate preventive measures to co-workers.
Elements of personal and collective protection have also been
developed in order to improve prevention in operational tasks,
and specific Audit Plans agreed with the labor risk insurance
company have been performed, verifying the effectiveness of
actions identified in the 2014 Plan.
Control of suppliers regarding Health labor safety and environment: with the intention of improving
the value chain, some of the actions developed in 2015 were
based on incorporating controls into the Contract Conditions
with suppliers in order to face preventive actions by including
the requirement where contracting companies should submit
a pre-set monthly report in order to monitor, quantify and
establish the best management practices. Document Controls,
operating Controls on the field and document Audits were also
included for surveying risk prevention plans for risk activities,
monitoring the regulatory compliance as regards health, safety
and environment; Workshops on regulations were carried
out in order to align concepts between suppliers and the
Group as well as follow-up and alignment Periodic Meetings
of general contract conditions related to the compliance of
Safety, Health and Environment obligations, setting follow-up
and improvements plans. Finally, the Company performed
specific follow-up actions of Technical skills of employees
working on the structures "Sostén Antenna", along with the
deployment of LTE and the modernization carried out by the
Group.
Diversity and Inclusion: the Diversity and Inclusion
Program has the certification of the DAIA “Delegación
de Asociaciones Israelitas” as “Company Committed to
Diversity”. In 2015, further work was made on the following
points of action: gender, generation, disability, family, sexual
diversity, HIV/AIDS and religious plurality.
In the scope of Gender issues, a Career Planning Workshop
for Leader Women, and the initiative New Manhood in relation
to new parenthood were held. The Women´s Empowerment
Principles of the Argentinian Network for the Global Compact
were signed; these principles offer business guidance on how
to empower women in the workplace, market and community.
With respect to the Disability topic, we worked along with “La
Usina Asociación Civil” and AMIA offering a workshop for
family members of Telecom employees that provided labor
guidance for handicapped people and a Workshop of Tools
for Search Employment for Handicapped People.
In relation to Family topics, work continued as to the project
started in 2012 on "Bullying and Cyberbullying" called "All
against bullying". In addition, the workshop "My commitment
to diversity” was held together with DAIA.
In terms of Sexual diversity, face-to-face and e-learning
trainings were carried out on this topic for employees and
middle managers. Face-to-face trainings were held by
Fundacion Huesped. The “Operating Procedure for the
Safeguard of the right to gender identity” was developed in-
house, establishing guidelines, responsibilities and steps to
follow in order to ensure a right to respect for persons in the
Telecom Group.
balance in action Program: The objective of the Program
is to manage the actual balance sought in the Group’s
employees between their personal and professional life,
where improvement in their quality of life is pursued and, in
consequence, the improvement of satisfaction, performance,
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productivity and commitment with the Group. The program
attained the International Certification Work & Life Balance
granted by the European Institute of Social Capital. In
2015 an initiative was incorporated to the program: "Active
Maternity and Paternity"; this initiative aims to accompany
women (primiparous mothers) in the transition stage so that
they can generate a new vision compatible with the multiple
roles they have to perform, aiming to develop and retain
female talent within the Company. There are also activities
designed for future dads.
Volunteers’ network: The Volunteers’ Network has the
objective of generating value spaces for charitable action of
the Group’s employees, which in turn impact the community
positively offering well-being to the same volunteers and
benefiting team spirit. In 2015 a new location was added: Mar
del Plata. In this way there are 16 cities forming the Volunteers’
Network: Buenos Aires, Córdoba, Salta, Río Cuarto, Rosario,
Resistencia, Corrientes, Neuquén, San Salvador de Jujuy, San
Miguel de Tucumán, Posadas, Mendoza, San Rafael, La Rioja,
San Fernando del Valle de Catamarca and Mar del Plata.
Telecom group develops its business and operations guided
by the principles of Corporate Social Responsibility ("CSR"),
taking into account the importance of telecommunications
services and the overall impact of the Group in Argentina
society. Telecom Group Code of Business Ethics and Conduct
contemplates the human rights care, employment quality,
environmental care and combating corruption, in compliance
with the universal principles of the United Nations Global
Compact. Also, it is part of our CSR model.
The CSR Management plans and follows up the actions on
this respect for the whole Telecom Group, and coordinates
the Action Plan with a CSR Operating Group formed by
managers of all the internal areas in order to move forward in
the management social and environmental impact.
With the commitment of the whole organization, the Group
procures to sustain the maximum economic performance
balanced with the impacts and opportunities of the society
and its environment.
The 2015 CSR Plan continued to develop its two main work
areas:
• the “Sustainability Plan”, addressed to raise the social
and environmental performance of the Telecom Group
as a whole;
• the “Social Investment Plan” specifically aimed at
maximizing the contribution the Telecom Group makes
to the community.
As part of 2015 highlights to be mentioned, we include the
approval, by the Board of Directors of Telecom Argentina, of
the CSR 2014 Report. In addition, it was presented the eighth
annual CSR Report of the Telecom Group, which, by the
fifth year in a row, was externally verified by the independent
firm Price Waterhouse & Co. Asesores de Empresas
S.R.L. enhancing the transparency of the reporting to the
stakeholders. This latest edition was developed in accordance
with the principles of the used standard called Global Reporting
Initiative ("GRI") in its new G4 version, applying the option of
"Essential" agreement, which is a frame to communicate the
most significant results of the economic, environmental, social
and governance performance for the Group.
In addition, the 2014 Report was recognized as a good
practice among 186 Latin American Reports in a study
conducted by the World Business Council for Sustainable
Development (WBCSD). This study, entitled Reporting Matters,
was performed by the WBCSD along with 10 members of its
Global Network and aims to provide a vision of how Latin
American companies use the exercise of "Reporting" to drive
change within their businesses, and to submit examples to the
regional business community on how to communicate and
effectively report on sustainability. The 2014 Telecom Group
CSR report is mentioned as a good practice in the section
on Criteria, Goals and Commitments. It is highlighted that at
the end of each chapter of the report, for the topics of said
chapter, the challenges corresponding to the beginning of the
reporting period, their levels of compliance and proposals for
future management are identified.
B.3.8 CORPORATE SOCIAL RESPONSIBILITy
82
oUR ConTRIbUTIon To THeCoMMUnITY
The Group offers to community its technical and human
talent, and its economic contribution, because believes in a
better life quality through telecommunications, to promote
access to education, work, health and development, and to
generate opportunities for individual and collective progress.
Access to computer and communication technologies today
is an engine driving education, labor, economic and social
growth for millions. This is the basis for the reference matrix of
the Group, which includes community projects of its own and
in alliances, always with a willingness to teach and include by
the use of technologies.
We include below relevant programs developed during 2015,
grouped according to the themes that guide the actions of the
Group:
Educate
With these programs, the Group pursues innovation in the
use of technologies in the field of non-formal and formal
education.
our Place: This new project aims to generate awareness
about the impact of technology in everyday life and to
emphasize good practices and productive uses of ICTs.
It is formed by three major proposals: the web site www.
nuestrolugar.com.ar, a kit for distributing in schools and a
tour in various cities of the country.
senses Connected by Dream letters: This
program aims to strengthen reading comprehension
teaching in deaf children between 5 and 12 years old.
Teachers, students and their families are trained by means
of a specially designed kit, and face-to-face trainings are
performed in schools.
education With Mobile Devices (DI.M.e.): it
proposes a training space that articulates pedagogical
school education with the integration of mobile devices
with educational purposes. The project is carried out
through an alliance with the Ministry of Education of
Córdoba, public primary schools in the province and
teacher trainings.
“enseñá x argentina”: As of 2015, the Telecom
Group and the Fundación Enseñá x Argentina, in alliance
with the Ministry of Education of Salta, implemented a
program that selects young professionals so that they
develop their education on social commitment and
positive leadership, collaborating with more than 1,200
students in 5 schools in vulnerable areas of the Salta
province.
scholas: The group entered into an agreement with
Scholas (institution created by Pope Francis) to collaborate
in 2015 with the development of a mobile application
for smartphones and the Scholas Labs website, a virtual
platform to accelerate technology and education projects.
Connect
The group develops initiatives that promote the social use of
applications, platforms, and mobile technology, such as: .
ICT 3.0-Technology for social change: In alliance
with Wingu, the Telecom Group encourages initiatives
to assist social organizations for entering the world of
technology. The actions include the development of the
first collaborative online platform (http://comunidad.
winguweb.org) and technology training to civic
organizations in different parts of the country.
Platform sIRVe “Integrated system of Virtual and statistical surveys”: It is a development aimed
at improving data management of social organizations
through a computing platform to survey data in the work
field by staff of the Organization through mobile devices.
arbusta Communitary Digital Centers: These
centers provide training on digital skills to young men and
women of high social vulnerability. The courses are given
in 5 community digital centers (CDC): 2 in Rosario, 2 in
CABA and 1 in La Matanza.
Include
The Group seeks to promote social inclusion of vulnerable
populations to generate progress opportunities through
technologies. Initiatives worth mentioning on this topic are:
aula Móvil: In alliance with Fundación Educando, the
Aula Móvil runs through towns of northern Argentina
providing free training in the use of internet and basic
computer, with more than 7,000 people so far benefited.
Universidad de la Puna: For the third consecutive
year, the Telecom Group worked as a technological
83
partner of the first institution of university education of
the Puna in Jujuy, where 40 students had access for the
first time to university training, which is a landmark in the
region.
Other contributions
Patronage: the Group supports various initiatives
through patronage. In the city of Buenos Aires, the
patronage law encourages private contribution through
tax benefits. The Group supports cultural projects focused
on the preservation and improvement of the cultural
heritage. On the other hand, in Chaco, Law No. 5,459
of Promotion of Private Activity in Cultural Activities
promotes, from the Government, the participation of
companies and individuals in the support of cultural
projects and in this activity, the Group also supports
various initiatives.
Donations: The Group donates elements no longer
used, mainly computer equipment, so that they can be
reused in schools, NGOs and other organizations for
social purposes.
Moreover, within the framework of the CSR Program of
Núcleo, in the "Childhood" and "Health" segments, in 2015
Núcleo continued contributing with Fundación Operación
Sonrisa Paraguay, in its endeavor of performing free of charge
surgeries to children and young people with cleft palate and
cleft lip; also Núcleo supports Comedor Mita Raity, a place
where about 300 children in vulnerable situation come to
have breakfast, lunch and snack daily.
In the "Community" segment, Núcleo continued providing free
of charge Internet service in public spaces in the country, and
continued supporting the non-profit organization "TECHO"
and Volunteer Firefighters Departments of Asunción and
Paraguay.
In relation to “Educate”, Núcleo continues contributing
with the project "One Laptop per Child" developed by the
organization Paraguay Educa and the OLPC Project together
with the Rotary Club. In addition, for the thirteenth consecutive
year, Núcleo participated in “One book, one hope” campaign
in collaboration with Fundación en Alianza.
Regarding "Culture" Núcleo and Fundación Tierra Nuestra
renewed their cooperation agreement in support of the
project "Sounds of Earth”. "Sounds of Earth" programs have
the involvement of more than 25,000 young people from
across the country.
Finally, Núcleo worked with various organizations on
environment care strategies, engaging in reforestation ("A
todo pulmón") projects and in research programs ("Parque
Tecnológico Itaipu"), among others.
Environmental Sustainability Strategy
The Telecom Group is persuaded that respect for the
environment and energy efficiency are the primary milestones
of sustainability. For this reason, the Group has agreed to
manage the business by optimizing resources and managing
materials in a responsible manner. In turn, it seeks to offer
technological solutions for the benefit of the environment
and non-renewable resources, and also encouraging the
community to act so as to benefit the environment.
The Telecom Group manages its business with a focus on the
following environmental objectives:
• Optimize the use of energy resources and other natural
resources.
• Minimize the negative impacts and maximize the positive.
• Pursue continuous improvement in environmental
performance.
• Develop activities in compliance with the existing
environmental regulatory framework.
• Adopt purchasing policies that take into account
environmental issues.
• Disseminate a culture that promotes a correct approach
to environmental issues.
As 2015 highlights we can include:
• The Group fixed and mobile services networks have
antenna support structures which received maintenance
tasks to ensure they were fit for purpose. The maintenance
of structures allows managing social and environmental
risks, and prevents accidents that may negatively impact
on the community and its environment.
• The Telecom Group continued working in environmental
efficiency indicators, associated to consumption of natural
resources (water, electricity, natural gas, fuels, paper and
industrial wastes). Organizing such information enables
the Telecom Group to have management indicators in
line with its sustainability policy.
• The Group continued with the expansion of digital billing,
84
in order to convey its commitment to provide sustainability
to its customers.
• The Group continued with the Battery Recycling Program
of disposable cell phone batteries for their proper
treatment, with boxes placed in different commercial
offices.
• The Group continued to develop a strong plan for
communication and training of Telecom Group
employees on environment care.
• Talks and workshops were carried out on climate change
awareness, renewable energy, sustainable construction,
responsible consumption, urban solid waste, vegetable
garden, composting, etc.
• Greenhouse gases continued to be measured in order to
continue with actions for their reduction.
The Telecom Group, on an annual basis, issues a Corporate
Social Responsibility (“CSR”) Report, which shows the
Telecom Group’s purpose of continuing to develop towards
a sustainability-oriented management, with non-financial
practices and performance indicators, such as gases with
greenhouse effect, energy and water consumption, battery
recycling, consumption and recycling of materials and
maintenance of structures supporting antennae, among other
items.
For a more detailed description of the policies and main
performance indicators on environmental and sustainability
matters, please see the Telecom Group’s CSR Report, which
may be viewed at: http://institucional.telecom.com.ar/rse/.
The Corporate Security area of the Telecom Group aims to
define and implement strategies and policies aligned to the
vision of the Group, in order to ensure the protection of the
shareholders’ investment through comprehensive programs,
protection of the Group assets, preservation of confidentiality,
integrity and availability of information and prevention of
fraudulent practices.
From, 2015 the following activities standout:
PRoTeCTIon of PeRsonal DaTa anD InfoRMaTIon
Progress was made toward the classification of information
assets and a plan for the protection of critical systems was
implemented.
In this same sense, the process of data leak prevention began
which aims to minimize the risks associated with theft or loss of
critical information for the companies of the Telecom Group.
IT Security has defined and implemented information protection
techniques in order to strengthen the IT infrastructure security.
The Telecom Group gives strict compliance to Law No.
25,326 of Personal Data Protection, and complies with the
requirements of the law in order to protect the privacy of the
personal data. In this way, the Group ensures to protect the
privacy and confidentiality of the information on its customers,
employees and suppliers, working with the legal and security
areas for the resolution of any possible incidents that might
be detected.
The Group protects the privacy of its customers by
incorporating access restriction measures to personal data,
activities monitoring and the encryption of sensitive data when
it is so required by law or regulation. The anti-fraud control
area worked in preventing phishing and fraud by subscription,
optimizing the processes for avoiding unsolicited messages
with a proactive management of fraud detection.
CoMPlIanCe WITH ReGUlaTIons
In 2015 the Group complied with the safety standard PCI -
DSS (Payment Card Industry - Data Security Standard or data
security standard for the payment card industry) on safety
measures in customer transactions.
The Group complied with the LAD (Argentine Digital Law)
in that set forth in articles 19 and 20 with respect to the
inviolability of telecommunications secrecy, and the obligation
of secrecy by operators, establishing that these obligations
B.3.9 CORPORATE SECURITy
85
only stop being unenforceable upon an order issued by a
competent judge.
Regarding the development and maintenance of emergency
plans, evacuation drills were conducted in the main sites of
the Group and in all the events where it was main sponsor.
Also, there were training to employees about safety measures,
evacuation actions, CPR maneuvers (cardiopulmonary
resuscitation) and use of AEDs (automated external
defibrillators).
InnoVaTIon anD eMPloYees’aWaReness
An innovation process was initiated by means of the creation
of a management dedicated to the search for new solutions
that would allow improving safety through the design,
development and implementation of technical mechanisms to
increase protection levels for users, as a response to the new
threats and vulnerabilities arising in computer ecosystems.
Certain members of the Corporate Security Area participated
in various trainings and events worldwide in order to be
positioned at the forefront of practices and knowledge on the
subject with respect to the market. This enabled to learn the
latest trends and innovations in the sector and to research
into new products and services developed in other countries
in order to be able to apply them in the Group.
Corporate security and safety awareness activities have been
developed on corporate security and on our employees’
personal lives, promoting good practices and discouraging
others, with the aim of incorporating habits for the prevention
of incidents and the protection of our employees and their
families
86
This section details the compliance with article 60 c) II. of
Law No. 26,831 “Capital Markets Law” referred to the supply
of additional information as regards aspects related to the
decision making organization and the internal control system
of the Company.
The Company’s Board of Directors understands that good
practices in corporate governance are supported by a proper
interaction and coordination between the different internal
and independent institutions specified in the regulations in
force, in the corporate Bylaws and the internal procedures
of the Telecom Group: the Board of Directors, the Steering
Committee, the Audit Committee, the Regulatory Compliance
Committee described in B.4.1.b.5), the Supervisory
Committee, the Disclosure Committee, and the external
independent auditors.
In addition, the Company has a Code of Business Ethics and
Conduct applicable to all its employees, a strict system of
authorizations and practices for the disclosure of information
in line with the best standards for relating with its investors.
On the other hand, the Telecom Group has an Overall Risk
Management process whose main features are described in
B.4.1.f) and a Compliance area depending directly from the
GED (see section B.4.5).
Furthermore, the Company is under the provisions of the
Sarbanes-Oxley Law and, therefore, as from the year ended
December 31, 2006 it must certify the effectiveness of its
internal control system for the generation of accounting
information. It is worth mentioning that the Company's
Management always observes the evolution of market
regulations and best practices in corporate governance
so as to position the Telecom Group as part of the leading
companies in the Argentine capital markets. The successful
results obtained for the tenth consecutive year in certification
under Section 404 of the Sarbanes-Oxley Law, are a clear
evidence of the Company’s ability to comply with one of
the highest international standards of corporate governance
good practices.
On the other hand, in September, 2013, CNV rules certain
aspects of Law No. 26,831 by Resolution No. 622/13, which
approves the new ordered text of CNV rules (NT 2013). In
the Annex I of this Annual Report it is included information
related to Telecom Argentina’s degree of compliance with its
Corporate Governance required in CNV rules (NT 2013).
In addition, a summary of the most significant differences
between the corporate governance practices of Telecom
Argentina and those of U.S. companies pursuant to the NYSE
standards is available for online consultation in Spanish and
English on the Company’s website (www.telecom.com.ar).
Additionally, this summary is available for consultation by the
Shareholders and any interested parties at Telecom Argentina’s
corporate offices, Avenue Alicia Moreau de Justo 50, 13th
floor, Autonomous City of Buenos Aires.
The section below describes briefly the aspects related to the
decision-making organization and internal control systems of
the Telecom Group as of the date of this Annual Report.
B.4CORPORATE GOVERNANCE
87
a) CoRPoRaTe GoVeRnanCe: THe sHaReHolDeRs’ MeeTInG
The Shareholders’ Meeting is the Company’s governance
authority. Each share of common stock subscribed entitles
its holder to cast one vote at any Meeting. The quorum and
majorities required at Shareholders’ Meetings are governed by
sections 243 and 244 of the GCL. The Annual Shareholders’
Meeting resolves on the following affairs, among others:
annual financial statements, distribution of earnings, annual
report and appointment and removal of directors and
members of the Supervisory Committee, and determination
of the compensation and responsibilities of directors and
members of the Supervisory Committee, and in general,
any measure that pertains to the conduct of the Company’s
business and that it is competent to resolve in accordance
with the GCL and the Bylaws, or which the Board of Directors
or Supervisory Committee may submit to it for consideration.
Some of the issues decided at the Extraordinary Shareholders’
Meeting are: amendment to Company's Bylaws, capital
reduction and reimbursement, redemption, reimbursement
and amortization of shares; corporate restructuring, limitation
or suspension of preemptive rights, and any other matters that
are not decided at the Annual Shareholders’ Meeting.
The actions necessary to promote non-controlling shareholders
participation at the Shareholders' Meetings are described in
section B.4.6.
b) ManaGeMenT anD aDMInIsTRaTIon
b.1) The Board of Directors
Directors and alternate directors are appointed at the Annual
Shareholders' Meeting and may also be removed at any such
meeting.
The management and administration of Telecom Argentina is
vested in a Board of Directors formed by a number of members
as determined by the Annual Shareholders’ Meeting, in
accordance with the principles established by the Bylaws. The
maximum number of Board of Directors’ members is eleven,
and the term to hold their positions is three years.
Members of the Board may be reelected.
The Annual Shareholders’ Meeting must appoint the same or
a smaller number of alternate directors for the same term, and
specify how they may act in the event of absence or vacancy.
In the absence of a director, an alternate director may attend
and vote at Board meetings.
As Nortel is the principal shareholder of Telecom Argentina,
Nortel is entitled to appoint the majority of the directors
and alternate directors of Telecom Argentina. Shareholder’s
meeting held on April 23, 2013, appointed eleven (11)
directors and other eleven (11) alternate directors, nominated
by Nortel (3 directors and 3 alternate directors were proposed
by ANSES’ shareholder, being directors appointed by the
government’s stake).
In relation to the designation of Telecom Argentina´s directors,
see the New Shareholder´s Agreement described in B.4.3 of
this Annual Report.
As set forth in the Company’s Bylaws, the Board of Directors
of Telecom Argentina has all the powers to manage the
Company including the authority to perform such actions for
which a special attorney power is required by GCL.
Boards of Directors’ meetings require the presence of the
absolute majority of its members, and decisions are adopted
by a majority vote of the directors present at the meeting. The
Chairman of the Board of Directors has a second or casting
vote in the event of a tie. In the event of absence or impediment
of the Chairman, the Vice-Chairman cannot make use of the
second or casting vote.
The Annual Shareholders’ Meeting held on April 23, 2013
appointed five directors and five alternate directors who qualify
as independent under both CNV and SEC standards and one
director and one alternate director that qualify as independent
under the SEC standards. As informed in section A.3.4, on
December 17, 2015 the Board of Directors accepted the
resignations submitted by three regular directors and three
alternate directors who had an independent capacity before
the rules of the CNV and the SEC. As of the date of this Annual
Report, replacements have not been appointed.
The Decree No. 1,278/2012 was enacted in 2012,
determining that the Secretariat for Economic Policy and
Development Planning, within the Ministry for the Economy
B.4.1 DECISION-MAkING PROCESS AND INTERNAL CONTROL SySTEM
88
and Public Finance, is responsible for carrying out policies
and actions relating to corporate rights of equity interests in
companies where the National State is a minority partner, and
approved for this purpose a Regulation for representatives and
directors elected by shares or share interests of the National
State.
Subsequently, under Resolution No. 110/2012 by the
Secretariat for Economic Policy and Development Planning,
the National Directorate for Companies with State Interest
was given competent jurisdiction and powers acknowledged
under such Decree No. 1,278/2012.
In October 2015, Law No. 27,181 was enacted setting forth
as follows: "Decree No. 1,278 of July 25, 2012 is repealed
which will remain valid until the coming into force of the
regulation of this law, in what is not opposed to the provisions
of this law". This law has not yet been regulated. (See section
B.2.3 "Laws and regulations of General application")
For information on the operation and responsibilities of the
Company’s Board of Directors, see also Annex I “Report on
the degree of compliance with the Corporate Governance
Code (Annex IV, Title IV of CNV rules -NT 2013)” which is
part of this Annual Report.
b.2) Legal Representative
Directors shall appoint a Chairman and a Vice-chairman to
replace the Chairman in the event of absence or impediment.
The Company’s legal representation is vested in the Chairman
of the Board of Directors or the acting Chairman.
The Company’s Bylaws also authorize the Board of Directors
to appoint general and special managers, pursuant to the
terms of section 270 of the GCL. Such managers may or may
not hold positions in the Company's Board of Directors.
b.3) Executive Committee
The Company’s Bylaws grant the Board of Directors the
power to appoint an Executive Committee formed by some
of its members, to be in charge of the Company’s day to day
affairs, under the supervision of the Board of Directors.
The Board of Directors decided not to appoint an Executive
Committee.
b.4) Steering Committee
The Steering Committee created by the Board of Directors
in the year ended on December 31, 2004 consists of four
members or alternate members of the Board of Directors of
Telecom Argentina and Personal.
Currently, some of the most important duties of the Steering
Committee are: to approve the Business Plan of Telecom
Argentina and its subsidiaries; to approve the general
compensation policy of Telecom Argentina and Personal; to
review the bids to be submitted under public auction processes
for any amount over $5 million and the marketing plans to
determine that they do not through over the Argentine Antitrust
Law (“Ley de Defensa de la Competencia”); to prepare the
Media Budget to be submitted to the Board of Directors,
among other issues.
Pursuant to the Regulation of Authority and Operation of the
Steering Committee in force, its quorum shall consist in the
majority of members of the Steering Committee who attend
the meeting or who are communicated by teleconference
or videoteleconference, and decisions shall be adopted
unanimously by all members. In the event no resolution may
be adopted on any of the issues submitted to the consideration
of the Steering Committee, the matter shall be referred to the
Board of Directors.
As of the date of this Annual Report, the Steering Committee is
composed as follows: Francesca Petralia, Gerardo Werthein,
Adrián Werthein and Andrea Mangoni.
b.5) Regulatory Compliance Committee
According to the New Shareholders' Agreement described
in B.4.3 and to the commitments assumed under “TI-W”
Commitment described in B.4.2, in October 2010, a
Regulatory Compliance Committee was created consisting
of three members or alternate members of the Board of
Directors of Telecom Argentina and Personal not taking into
account those members appointed at the request of Telecom
Italia and those members appointed jointly by Telecom
Italia and W de Argentina, if any. It should be noted that the
directors of Telecom Argentina appointed at the request of
Telecom Italia or those appointed jointly by W de Argentina
and Telecom Italia are not allowed to vote in the appointment
of the Regulatory Compliance Committee members.
The major duty of the Regulatory Compliance Committee is
to verify the Telecom Argentina and Personal compliance with
89
the requirements (hereinafter, “the Requirements”) assumed or
derived for both companies from the “Telco” and the “TI-W”
Commitments.
The Regulatory Compliance Committee has the following
rights and duties:
(i) To prepare quarterly reports to be submitted to the
Board of Directors of Telecom Argentina and Personal
regarding Requirements compliance.
(ii) To audit Telecom Argentina and Personal’s
Requirements compliance.
(iii) To verify all the information required by Telecom Italia
according to the Telecom Italia S.p.A. audit rights under
the New Shareholders’ Agreement of Sofora.
(iv) To approve any agreement to be executed or attended
between Telefónica S.A. and/or any of its affiliates and
Telecom Argentina and/or any of its subsidiaries.
(v) To prepare annual reports on Requirements
compliance, for submittal to the Board of Directors of
Telecom Argentina and Personal ten days prior to their
filing with the CNDC.
As of the date of this Annual Report, the members of the
Regulatory Compliance Committee are Adrián Werthein
(Chairman); Eduardo Federico Bauer and Esteban Gabriel
Macek.
C) InTeRnal MonIToRInG
c.1) Supervisory Committee
The internal monitoring of the Company is vested in a
Supervisory Committee formed by three to five members
and three to five alternate members elected by the Annual
Shareholders’ Meeting for the term of one fiscal year and
may be reelected. The Annual Shareholders’ Meeting also
determines the manner in which members shall be replaced
in the event of absence or vacancy.
The Supervisory Committee meets with the presence of an
absolute majority of its members and its decisions are adopted
by the affirmative vote of a majority of members present,
notwithstanding the rights of the dissenting member.
Members have the duty and the right to attend Board of
Directors and Shareholders' Meetings. The Supervisory
Committee is empowered to summon Shareholders' Meetings,
request the inclusion of the items on the agenda and in general
oversee all of the Company's affairs and its compliance with
the GCL and the Bylaws.
c.2) Audit Committee
Pursuant to the provisions of Decree No. 677/01 (presently
replaced by Law No. 26,831), in February 2004, the
Company amended its Bylaws to include an Audit Committee
which was formed on April 29, 2004.
It should be noted that pursuant to the Sarbanes-Oxley Law,
all the members of the Audit Committee of Telecom Argentina
must be independent directors according to SEC standards.
The Audit Committee is composed as follows: Esteban Gabriel
Macek, Enrique Llerena (replacing to Federico Horacio
Gosman since December 17, 2015, date of acceptance of
its resignation by the Board of Directors) and Oscar Carlos
Cristianci (replacing to Enrique Garrido since April 16,
2015, date of acceptance of its resignation by the Board of
Directors). The first two qualify as independent directors under
CNV and SEC standards and Mr. Oscar Carlos Cristianci is
an independent director under SEC standards.
The Financial Expert appointed by the Board of Directors is
Esteban Gabriel Macek. Mr. Macek is an accountant from
Universidad de Buenos Aires (1982). He was a partner at
Coopers & Lybrand /PriceWaterhoseCoopers until 2002,
where he acted as auditor and tax consultant assisting
companies in the private (both domestic and international)
and public sector in tax matters related to company
restructuring and business development. He participated in
many professional training activities, attending graduate
courses at Universidad Austral and West Ontario University
Business School (Canada), among others. He was an
accountancy and law professor at Universidad de Buenos
Aires and at Universidad Católica Argentina. He is Chairman
of Fiduciaria Internacional Argentina S.A.. He was a member
of the Board of Directors and of the Supervisory Committee of
several domestic corporations.
Pursuant to CNV rules, the Audit Committee of Telecom
Argentina issued its Annual Report to be submitted to the
Board of Directors and the Shareholders providing information
about matters within its competence during 2015.
Such report is timely submitted to the CNV and can be
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accessed on the CNV website (www.cnv.gob.ar).
The Audit Committee operates under the “Audit Committee
Implementation Rules” approved by the Board of Directors
at its meeting of April 30, 2003, which regulates its structure,
its main functions and powers, the minimum requirements
to qualify as members, the planning of the main tasks to
be performed, and the resources it will use in discharging
its duties. The Audit Committee Implementation Rules were
modified by the Board of Directors in June 2005.
The Audit Committee also issued its own Internal Regulations.
The main functions of the Audit Committee include:
external audit functions: The Audit Committee must
issue an opinion regarding the Board of Directors’ motion
to appoint the Company’s External Auditors and, in the
case of revocation of such appointment; pre-approve any
service that the external auditors provide to the Company
and its subsidiaries; review the plans of external auditors
and evaluate throughout the year the services they provide
to the Company and its subsidiaries, and supervise that
the scope and provision of said services do not affect the
independence of external auditors.
Internal systems oversight functions: The
Audit Committee must supervise the correct operation
of internal control systems and the reliability of the
administrative accounting system and of the information
reported to the market; review the plans of internal
auditors, and supervise and assess their performance;
supervise that the Company has the right standards and
procedures in place, and verify compliance through the
Internal Audit department among other Telecom Group’s
internal control areas.
Risk Management functions: The Audit Committee
must oversee compliance with the Company’s risk
management reporting policies.
Code of business ethics and Conduct functions:
The Audit Committee must verify compliance with the
Company’s Code of Business Ethics and Conduct.
Telecom Group’s Code of Business Ethics and Conduct
sets forth that the Audit Committee must be aware of all
reports received on the website described in point k) of
this section. The reports involving accounting, internal
control or audit matters must be assessed by the Audit
Committee with no exception, with exclusive authority to
investigate and make any decisions it deems necessary.
other functions: The Audit Committee must also
perform the following functions: report to the market any
conflict of interests involving the members of corporate
governance bodies or controlling shareholders, and issue
an opinion of: (i) the reasonableness of the Board of
Directors’ proposals regarding compensation and stock
option plans of the Company’s directors and managers;
(ii) the reasonableness of the terms for the issuance of
shares or notes convertible to shares when the preemptive
right is excluded or limited; (iii) relevant transactions with
related parties; (iv) any decision taken by the Board of
Directors to acquire Company’s shares; (v) any share
voluntary withdrawal from the public offer.
D) exTeRnal aUDIToRs
Annually, the Shareholders’ Meeting, in compliance with
regulations in force, designates the independent external
auditors, responsible for auditing and certifying the accounting
documentation of the Company. Law No. 26,831, the CNV
Rules (NT 2013), the Technical Resolutions (“TR”) No. 32,
33, 34 and 35 of the FACPCE and the regulations of the
SEC have set forth that certain requirements be complied with
by those acting as external auditors of listed companies and
by companies designating them in order to guarantee their
professional independence and eligibility. Since 2014, and as
a consequence of the application of the TR No. 32, the external
auditors develop their activity complying with international
audit standards (issued by the IAASB “International Auditing
and Assurance Standards Board”). The appropriate affidavits
required by said regulation, were submitted by the external
auditors of that Firm which acted in that capacity during the
year ended on December 31, 2015 (Price Waterhouse & Co
S.R.L).
The Board of Directors approved policies and procedures
for the approval of all the services the External Auditors
provide the Company and its subsidiaries, establishing that
said auditors shall have the previous approval of the Audit
Committee granted according to the stated procedures. The
Financial Reporting and SOX Compliance area centralizes
the relationships with the independent external auditors and
verifies the compliance of the procedures approved by the
Board of Directors. In the same vein, on an annual basis, it
submits a report of the pre-approved services versus those
effectively contracted to the external auditors, and requests
the pre-approval of the services to be required to the auditors
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designated by the Shareholders’ Meeting for the current fiscal
year.
e) DIsClosURe CoMMITTee
The Company has designed and implemented internal
controls for the preparation of its financial statements, as well
as reporting procedures for the evaluation and disclosure
of relevant information concerning the Company and its
subsidiaries, including this Annual Report and for the Form
20-F submitted to the SEC every year.
Additionally, to guarantee the quality of material information,
since 2003 Telecom Argentina’s Board of Directors decided
to establish a Disclosure Committee, integrated by managers
with extensive business and relevant regulations knowledge,
which is mainly responsible for:
• Cooperating with the GED and the CFO in the process
of evaluating the effectiveness of internal controls and
reporting procedures for the preparation of Form 20-F,
the Annual Report, prospectuses and any other report
disclosing relevant information;
• Verifying that the information gathering, processing and
control process has met all the Company’s reporting
requirements defined for disclosing relevant information;
• Assisting those in charge of supplying and reviewing
information in determining what information is deemed
relevant for public disclose;
• Controlling the information contained in Form 20-F,
the Annual Report, prospectuses and any other report
containing relevant information for public disclosure, in
order to ensure that information is true and complete and
can be easily understood by its intended recipients;
• Ensuring the timely filing with the SEC of all the information
contained in its form 20-F and in any other report
containing relevant information for public disclosure.
During 2015, the Disclosure Committee was composed by
the responsible of the following areas: Financial Reporting
and SOX Compliance (Chairman), Finance (Vice chairman),
Investor Relations, Board of Directors’ Secretary, Legal and
Regulatory Affairs, Audit and the Manager of Nortel (as a
guest member).
The Disclosure Committee reviewed the Consolidated
Financial Statements and the Annual Report of the Company
as of December 31, 2014 and 2013, the Corporate Social
Responsibility Report for 2014 and Form 20-F for 2014. It
also considered the quarterly financial information of the
2015 fiscal year.
f) CoMPReHensIVe RIskManaGeMenT
On September 20, 2012, the Board of Directors of the
Company approved the implementation of a Comprehensive
Risk Management Process at Telecom Group, and the
creation of a Risk Committee. The Risk Committee is presided
over by the GED, and consists of Senior Managers, whose
leadership and coordination was assigned to the Director of
Administration, Finance and Control. It also approved the
creation of the Risk Management function (at the managerial
level and separate from any other operating or corporate
function), whose responsible person also serves as Secretary
of the Risk Committee and reports directly to the Director of
Administration, Finance and Control.
The Risk Committee drew up a Risk Management Policy
following the guidelines set out in the ISO 31000 standard
and complementary standards. In May 2015, the Board of
Directors approved the introduction of certain improvements
to the Policy to fulfill its Comprehensive Risk Management
process. Among them stands out the adoption, as framework,
of the guidelines of the Enterprise Risk Management-Integrated
Framework from 2004 issued by the Committee of Sponsoring
Organizations of the Treadway Commission of 2013. This
allowed the unification of frameworks with those used by other
areas of the Group, such as that used in the SOX certification.
The Risk Management Policy aims at identify, measure and
manage efficiently the Company’s risks. It includes the analysis
of risks that may affect the Group by applying the following
principles: approach by processes and objectives, ownership,
objectivity, valuation of synergies, policies and coordination,
continuous improvement and excellence.
The duties of the Risk Committee include reviewing and
implementing policies, mechanisms and procedures to
identify measure and mitigate risks for the Company and its
subsidiaries, and also recommend any steps or adjustments it
deems necessary to reduce the risk profile of the organization,
based on the “Procedimiento Organizativo de Gestión de
Riesgos Empresariales”.
The main risk factors faced by the Company include those
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associated to regulatory issues, within the domestic and
international context, and legal aspects, among others.
The Company and its subsidiaries have different action plans
that endeavor to mitigate, in whole or in part, high impact risks
for the Telecom Group. However, it cannot be assured that
such plans are totally effective, or other events, unforeseen at
the date of this Report, could arise and affect the performance
of the Telecom Group.
G) anTI-fRaUD ConTRol aCTIVITIes
The Corporate Security area of the Telecom Group aims
to define and implement strategies and policies aligned
to the vision of the Group, to ensure the protection of the
shareholders’ investment through comprehensive programs,
the protection of the Group assets, the preservation of
confidentiality, integrity and availability of information and the
prevention of fraudulent practices.
The activities carried out by the Anti-Fraud Control area, which
is part of the Corporate Security, include the performance of
preventive and detective controls of technical-commercial
frauds, with the aid of information tools which enable to
prevent fraudulent activities both for fixed and mobile services.
In 2015, the Telecom Group carried out activities related to
the protection of information and personal data, the correct
compliance with regulations and the innovation and awareness
of employees of the Group’ companies on corporate security
described in B.3.9.
H) InTeRnal aUDIT
Telecom Argentina has an Audit area which hierarchically
depends on the Chairman of the Board of Directors and
functionally on the Audit Committee. The Audit area works
under the supervision of the Audit Committee to verify the
proper compliance of the policies, internal norms and
procedures across the Telecom Group, as regards the laws
and regulations in force.
The Audit area of the Telecom Argentina Group develops
its activities in accordance with the International Standards
for the Professional Practice of Internal Auditing, which
acknowledges the Institute of Internal Auditors (“IIA”) as the
main representative entity of the profession.
In the framework of said standards, in July 2013 the Audit
area underwent an evaluation under an independent external
evaluator (IIA), attaining a Quality Certificate, valid for 5 years,
which states that the internal audit activity complies with the
International Standards for the Professional Practice of Internal
Standards issued by “The Institute of Internal Auditors” – USA,
the maximum acknowledgement a professionally managed
audit can aspire to. (Registry No. 13,003 E).
With the objective of keeping the regulatory framework of
application implemented, in 2015 it proceeded to perform
a self-evaluation of the compliance of all the elements
which are essential part of the Program for the Assurance of
Quality Improvement (“PAQI”) according to that set forth in
the International Framework of the Professional Practice of
Internal Auditing issued by the IIA.
The result was satisfactory, making it possible to confirm
that the Internal Audit activity "Generally Complies with”
International Standards for the Professional Practice of
Internal Auditing", specifically meeting (in general) the rules on
attributes, standards performance and the Code of Business
Ethics and Conduct.
I) CeRTIfICaTIon of seCTIon 404 of THe saRbanes-oxleY laW
The Company is subject to the regulations of the SEC for
the public offering of its shares on the NYSE. Among other
regulations, the Section 404 of the Sarbanes-Oxley Act
("SOX") requires that the companies annually evaluate the
effectiveness of the internal control for the generation of
financial information and conclude about their effectiveness.
The Group uses the Internal Control-Integrated Framework of
the Committee of Sponsoring Organizations of the Treadway
Commission in 2013 ("COSO 2013") as framework for the
SOX certification.
In the 2015 Certification process, the Management of the
Company continued to apply a Top down approach, focusing
on the areas of highest risk and key controls that more
effectively and efficiently help to ensure the compliance of the
objectives of internal control for the generation of accounting
information of public use.
The annual process internally known as the “SOX Certification”
is led by the Financial Reporting and SOX Compliance
area, with the sponsorship of the officers who must sign the
certification: the GED and the CFO. As in the previous years,
since its implementation, this process was a major challenge
met by Senior Management in 2015.
93
The results of this evaluation allowed determining that there
were no ineffective controls which might give rise to any
"material weakness" according to applicable regulations.
Consequently, the result of this process is that as of December
31, 2015 the Telecom Group has an effective internal control
system to generate information to be included in its financial
statements.
j) aUTHoRIzaTIon ReGIMe.oPeRaTInG CoMMITTee. assessMenT of RelaTeD PaRTY TRansaCTIons
Authorizations Regime (“RAV”)
The Company provides for an Authorization Regime which
describes the levels of authority required for the approval of
the different types of transactions. Such Regime is updated
from time to time and approved by the Company’s Board
of Directors. It comprises five chapters that govern the
different types of transactions: purchase related procedures
(requests, contracts, goods and services receipt, project
approval), materials and goods management, human
capital management (employees joining and leaving the
Company, remunerations, promotions, licenses), commercial
management (price lists approval, offers or sales, post-
sale procedures) and cash flow management (payments in
general, travelling expenses, tax payment). Authorization
levels go from managers to the Board of Directors depending
on the transaction importance.
RVA compliance is one of the Company’s internal control
cornerstones. Compliance with RVA for transactions
involved in the issuance of financial information for public
use is monitored within the scope of the Sarbanes-Oxley
Certification.
Operating Committee
In April 2013, the Boards of Directors of Telecom Argentina
and Personal decided to create the Operating Committee as
an internal body of both entities, with the following duties:
(i) approving any transactions determined by the RAV, within
the limits that may be prescribed, as a tier above the level
assigned to the GED and prior to the Board of Directors; and
(ii) approving transactions with related parties, as described in
the following section.
The Operating Committee comprises the GED and two regular
members and two alternate members, who must be Regular
or Alternate Directors of Telecom Argentina or Personal,
appointed by the Board of Directors of Telecom Argentina.
Members of the Operating Committee serve during the time
they serve as members of the Board of Directors of Telecom
Argentina or Personal.
Assessment of Related Party Transactions
Additionally, the RAV sets forth the requirements for approval
of related party transactions, complying with Law No. 26,831
and the CNV Rules related to “significant transactions with
related parties”. In particular, it was established that all
transactions executed by Telecom Argentina with related
parties, irrespective of their amounts, must be made in market
conditions as if they were on an arm’s length basis. Additionally,
the Company has established a procedure whereby all related
party transactions (except with the subsidiaries of Telecom
Argentina) shall be approved at least by the Operating
Committee. If the amounts of the operations (or ones of the
aggregated related transactions made within a period of one
year since the first one) are in excess of $ 10,000,000, shall
be approved by the Board of Directors.
The relevant transactions are reported to the markets and
to the CNV, according to the provisions of Law No. 26,831
and the CNV Rules. Furthermore, in compliance with the
applicable accounting standards, related-party transactions
and balances are reported under a Note to the Company
financial statements, as specified in Notes 27 and 4 to the
consolidated and separate financial statements.
k) RePoRT Web sITe
The Telecom Group encourages reporting any actual or
potential violation of the laws, rules or regulations in force or
of the provisions of the Code of Business Ethics and Conduct,
and is committed to seriously investigate any report made in
good faith in respect of such violations.
For such purpose, the Telecom Group has implemented
a report web site available to any person (whether it is
an employee of the Group or not) through the website
www.telecom-denuncias.com.ar, ensuring confidentiality
of the information received. Violations may also be
reported in person or in writing to any of the members of
the Audit Committee.
The Audit area studies each report received and submits a
summary report to the Audit Committee for review.
The Audit Committee hears all reports or complaints that
94
involve accounting, internal control or audit issues, and has
exclusive authority to investigate and adopt any resolution it
may deem necessary in respect of reports and complaints
received.
Those reports that involve the Audit Committee as a whole or
any of its members will be heard by Company’s Supervisory
Committee which will study the case and, if pertinent, raise it
to the Board of Directors for resolution.
l) DIReCToRs anD ManaGeRsTRaInInG PRoGRaM
The Telecom Group has a Telecom Corporate University in
response to all the training needs of Group members. Its
training proposals are divided by specialization and position
at the organization, in order to contemplate the requirements
of each employee at the Company.
Training proposals include activities at the Company,
attendance at specific activities as required by the
management, and programs at outside local or international
institutions.
The members of the Board of Directors who are also members
of the Auditing Committee and the Regulatory Compliance
Committee are permanently assisted by independent and
specialized outside advisors on the matters of concern of
each Committee, who keep them updated on such matters
and provide continuous training. As regards the managerial
line training, the Company gave training on FCPC (“Foreign
Corrupt Practices Act”) in the anti-corruption area
On October 25, 2007, a consortium made up of Assicurazioni
Generali S.p.A., Intesa Sanpaolo S.p.A., Mediobanca S.p.A.,
Sintonia S.A. (Benetton) and Telefonica, S.A. (of Spain) bought
Olimpia S.p.A.’s entire stock through the Italian company
Telco S.p.A., which held approximately 23.6% of Telecom
Italia S.p.A.’s voting shares (the “Telco Transaction”)”. It
must be mentioned that on December 22, 2009, Sintonia
S.A. (Benetton) retired from the referred consortium and its
participation was assumed by the remaining shareholders of
Telco S.p.A. on a pro rata basis. The participation of Telco
S.p.A. was 22.3% of Telecom Italia S.p.A.’s voting shares,
according to its financial statements as of December 31,
2014.
The Telco Transaction has generated different opinions with
respect to its impact on Argentina’s telecommunications
market in light of the LDC and the existing regulatory
framework.
Consequently, the Telco Transaction led to the intervention
of various administrative bodies whose decisions have been
subject to various presentations and complaints before
administrative and judicial courts.
On August 5, 2010, Telecom Italia S.p.A., Telecom Italia
International N.V. and W de Argentina- Inversiones S.L.
agreed to:
a) Celebrate a settlement agreement pursuant to
which they agreed, among other issues, to end all the
legal proceedings existing between the parties as direct
shareholders of Sofora and indirect shareholders of the
remaining companies of the Telecom Argentina Group
(made up of Sofora, Nortel, Telecom Argentina, Telecom
Personal and subsidiaries of the latter two), which had
been originated as a result of the Telco Transaction having
been entered into in Europe and other controversial
issues.
b) Amend the Soforas’ Shareholders Agreement dated
December 2003, including, among other aspects,
certain measures to guarantee a more efficient corporate
governance of the Telecom Argentina Group companies.
For such purposes a Telecom Argentina and Telecom
Personal’s Regulatory Compliance Committee was
created for as long as Telefónica, S.A. (of Spain) owns
any subsidiaries in our country and maintains any direct
or indirect participation in the Telecom Italia Group and
maintains corporate rights similar to those provided by
the Telco Transaction (See B.4.1.b.5).
c) Agree, subject to the applicable authorizations, the
transfer of 8% of the capital stock of Sofora from W de
Argentina to Telecom Italia International N.V., increasing
Telecom Italia Group’s participation to 58% of the capital
stock of Sofora (the latter hereinafter referred to as the
B.4.2 “TELCO” AND “TI-W” COMMITMENTS
95
“TI-W Transaction”).
On October 6, 2010, Telefónica, S.A. (of Spain), Assicurazioni
Generali S.p.A., Intesa Sanpaolo S.p.A., Mediobanca S.p.A.
Telco S.p.A, Telecom Italia S.p.A., Telecom Italia International
N.V., Sofora, Nortel, Telecom Argentina, Personal, Telefónica
de Argentina and Telefónica Móviles de Argentina, submitted
before the CNDC a document pursuant to which they assumed
a commitment (hereinafter, the “Telco Commitment”) for the
purpose of ensuring the separation and independence of
the activities in the Argentina telecommunications market,
of Telefónica, S.A. (of Spain) and its controlled subsidiaries,
on one hand, and Telecom Italia S.p.A., Telecom Italia
International N.V., Sofora, Telecom Argentina and Personal,
on the other, preserving and encouraging the competition
conditions of such companies’ activities in the national market.
In addition, in connection with the file relating to the TI-W
Transaction, Sofora’s shareholders submitted before the CNDC
a document pursuant to which they assumed a commitment
with respect to the administration and governance of the
Telecom Group (hereinafter, the “TI-W Commitment”).
On October 12, 2010, the CNDC issued its Opinions No.
835 and 836 in connection with the Telco Transaction and
the TI-W Transaction, respectively, which are available to
the public at www.mecon.gov.ar/cndc. In its first Opinion,
the CNDC advised –among other things- the Secretary
Economic Policy of the Economy Ministry to accept the Telco
Commitment with the clarifications and specifications made in
Title XIV of such Opinion No. 835, and, consequently, subject
the approval of the Telco Transaction, pursuant to Section
13, paragraph b) of the LDC, to the irrevocable and effective
fulfilling of the Telco Commitment with the clarifications and
specifications as mentioned. In addition, the CNDC made
some pro competition recommendations to the SC and to the
CNC, which are included as Annex I to such Opinion.
The terms and conditions of the Telco Commitment offered by
the above mentioned companies are detailed in Title XIV of
the above mentioned Opinion, together with the clarifications
and specifications made by the CNDC.
Through its Opinion No. 836, the CNDC advised –among
other things- to accept the TI-W Commitment, with the
clarifications and specifications made in Title V.2 of the same
Opinion and, consequently, to authorize the TI-W Transaction,
pursuant to Section 13, paragraph b) of the LDC. The terms
and conditions of the TI-W Commitment are described in Title
V of Opinion No. 836, together with the observations made
by the CNDC.
On October 13, 2010, the Secretary of Economic Policy
of the Economy Ministry issued its Resolution No. 148/10
which, in its operative part, among other issues, authorizes
the Telco Transaction subject to “the irrevocable and effective
fulfillment of the Telco commitment with the clarifications
and specifications made in Title XIV of CNDC Opinion No.
835/10”. On the same date, the Secretary Economic Policy
of the Economy Ministry issued its Resolution No. 149/10, in
which it accepted the TI-W Commitment and approved the
TI-W Transaction in the terms of Section 13 paragraph b) of
the LDC.
On the same date, the SC issued its Resolution No. 136/10
which, among other issues, in its operative part authorizes the
change of control that happened at Telecom Argentina and
Personal as a consequence of the TI-W Transaction. On the
same resolution, the legal figure of the Operator included in
the List of Conditions, Decree No. 62/90 as amended, was
left without effect with respect to Telecom Argentina.
On October 13, 2010, the transfer of 8% of the shares
of Sofora in favor of Telecom Italia International N.V. was
perfected. Based on information provided by Sofora’s
shareholders, such 8% transfer’s consideration was (i) USD
1 (one US dollar w/o cents) and (ii) the execution of certain
agreements dated as of August 5, 2010, between the
Telecom Italia Group and W de Argentina. Thus, the Telecom
Italia Group reached a participation of 58% of the shares and
possible votes in Sofora while W de Argentina reached the
remaining 42% of such shares and votes.
On October 26, 2010, Telecom Argentina’s Board of Directors
ratified the execution by Telecom Argentina of the Telco
Commitment, accepted all the obligations and commitments
that Telecom has assumed in the Telco Commitment, with the
clarifications and specifications relating to them, made by the
CNDC in Chapter XIV of its Opinion No. 835 dated October
12, 2010, and adopted a number of measures for its effective
implementation; including the creation of a Regulatory
Compliance Committee. In addition, it accepted Telecom
Argentina’s obligations arising from the TI-W Commitment
submitted to the CNDC, in the file referring to the TI-W
Transaction, with the clarifications and specifications that are
referred to them, made by the CNDC in Paragraph V.2 of its
Opinion No. 836 dated October 12, 2010, and adopted a
series of measures for their effective implementation.
The Telco Commitment and the TI-W Commitment are
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available to the public at www.telecom.com.ar/compromisos.
Telecom Argentina and Personal have filed, in accordance
with the applicable regulations referred to the disclosure
of Relevant Facts, various notes and reports on the matters
described in this section, which are available to the public
at www.cnv.gov.ar (financial information section) for further
review of the above.
On June 24, 2015 Telefónica, S.A. (of Spain) informed to
the CNV and the BCBA the "divestment of its entire stake in
Telecom Italia S.p.A."
According to the provisions of Clause 9.2 from the Telco
Commitment and to Clause 3 of the TI-W Commitment, the
mentioned Telefónica, S.A. (of Spain) divestment and the end
of the validity of the Telco S.p.A. Shareholders’ Agreement
also represent the end of the validity of the Commitments.
For that reason, on July 6, 2015, Telecom Italia S.p.A.
submitted a note to the CNDC informing that the end of the
validity of the Commitments had been reached, pursuant to
Clause 9.2 of the Telco Commitment and Clause 3 of the
TI-W Commitment.
On July 7, 2015, Telecom Argentina and Personal submitted
a note to the CNDC adhering to the presentation made by
Telecom Italia S.p.A. and requiring that the extinction of the
validity of the Commitments be declared for the same reasons
exposed by Telecom Italia S.p.A. on its note.
As of the date of this Annual Report, the CNDC had not
resolved in this matter
On August 5, 2010 Telecom Italia S.p.A. and Telecom Italia
International N.V. (jointly, the “Telecom Italia Group”) and W
de Argentina (hereinafter and jointly with the Telecom Italia
Group, the “Parties”), entered into the 2010 Amended and
Restated Shareholders’ Agreement (amended on October
13, 2010 –due to TI-W commitment- and on March 9,
2011) (the “New Shareholders’ Agreement”) that amended
the provisions and terms of the Amended and Restated
Shareholders’ Agreement dated December 2003 (hereinafter,
the “2003 Shareholders’ Agreement”).
As from the acquisition of 17% of Sofora’s shares consummated
on October 29, 2014, Fintech Telecom LLC adhered as part
of the New Shareholders’ Agreement.
Described below there is a brief summary of the main terms
and conditions of such New Shareholders’ Agreement
and in particular of the principal amendments to the 2003
Shareholders’ Agreement:
With respect to Sofora:
• W de Argentina shall have the right to appoint four out
of nine Board members and the Telecom Italia Group
shall have the right to appoint the remaining five Board
members. Decisions will be made by the majority of
directors present at each meeting.
• W de Argentina shall have the right to nominate the
Chairman of the Audit Committee.
With respect to Nortel:
• W de Argentina shall have the right to appoint two out
of seven Board members and the Telecom Italia Group
shall have the right to appoint four Board members. The
7th director will be nominated by the Preferred Class A[1]
and Preferred Class B Shareholders of Nortel, as long
as they have such rights in accordance with the terms
and conditions of issuance of the preferred shares. In the
event that Preferred Series A shares and / or Preferred
Series B shares lose their right to appoint a director, the
Telecom Italia Group and W de Argentina acquire the
right to jointly appoint a director. Decisions will be made
by the majority of directors present at each meeting. In
case of a tie, the Chairman shall cast the deciding vote.
• W de Argentina shall be entitled to nominate the
Chairman of the Audit Committee of Nortel.
B.4.3 NEW SHAREHOLDERS’ AGREEMENT
[1] As of December 31, 2015 there were no outstanding Preferred Series A shares due to all of them were rescued.
97
With respect to Telecom Argentina:
• As a general rule, Nortel shall have the right to
nominate six directors and the minority shareholders
shall have the right to nominate one director. Four of the
abovementioned six Board members to be nominated
by Nortel shall be nominated by the Telecom Italia
Group and the remaining two shall be nominated by
W de Argentina. In the event that other shareholders of
Telecom Argentina had the right to appoint more than
one director, the composition of the Board of Directors of
Telecom Argentina shall be modified so that the Telecom
Italia Group shall nominate the majority of the members
of the Board of Directors. Decisions will be made by the
majority of directors present at each meeting. In case of a
tie, the Chairman shall cast the deciding vote.
• W de Argentina shall be entitled to nominate the Chairman
of the Supervisory Committee of Telecom Argentina. The
New Shareholders’ Agreement also provides that the
resolutions of the Audit Committee shall be taken by the
unanimous vote of its members.
• The Chairman of Telecom Argentina’s Board of Directors
shall meet the following requirements: (i) shall be an
Argentine professional of recognized reputation; and
(ii) shall not have served as member of the Board of
Directors or officer at any direct or indirect competitor
of any company of Telecom Group in the Argentine
telecommunications market within the previous twelve
months from his appointment.
It is worth mentioning that the New Shareholders’ Agreement
provides for the establishment of a Regulatory Compliance
Committee for Telecom Argentina, composed of three
members to be selected among the members of Telecom
Argentina’s and Telecom Personal’s Boards of Directors other
than those members nominated exclusively by the Telecom
Italia Group or jointly with W de Argentina. For additional
information see B.4.1.b.5.
The New Shareholders’ Agreement also provides for the
establishment of a Steering Committee for Telecom Argentina
which shall be composed of four members of which two shall
be appointed by the Telecom Italia Group and two by W de
Argentina. The Steering Committee shall be in charge of
resolving matters concerning Telecom Argentina’s business
plan, annual budget and general employee compensation
policy for Telecom Argentina and Personal, among others.
The Steering Committee shall validly resolve upon any matter
with the unanimity of affirmative votes. In case any matter is
not approved by the unanimity, the Board of Directors shall
resolve upon such matter. For additional information see
B.4.1.b.4.
The device of meetings between the Telecom Italia Group
and W de Argentina (set forth in Section 4 of the New
Shareholders’ Agreement) prior to Shareholders’ or Board
of Directors’ meetings of Sofora, Nortel, Telecom Argentina
or its subsidiaries regarding matters that must be treated
by Shareholders´ meetings or those related to preferred
Shareholders of Nortel. The resolutions of the Audit
Committee, the Supervisory Committee and the Regulatory
Compliance Committee will not be dealt with in such prior
meetings, but following the rules of majority of each of those
committees.
Similar to that provided in the 2003 Shareholders’ Agreement,
two members of the Telecom Italia Group and one member
of W de Argentina shall attend the scheduled meetings and
the decisions shall be taken through the affirmative vote of the
majority of its members.
W de Argentina shall maintain certain veto rights upon matters
substantially as provided for in the 2003 Shareholders’
Agreement, as follows:
(I) the approval of any amendment to the Bylaws, other
than the amendments expressly set forth in the New
Shareholders’ Agreement;
(II) dividend policy;
(III) any capital increase or decrease, except for any
capital increase or decrease connected to any possible
debt restructuring;
(IV) changing the location of the headquarter offices;
(V) any acquisition of subsidiaries and/or creation of
subsidiaries;
(VI) the sale, transfer, assignment or any other disposition
of all or substantially all of the assets or any of its
subsidiaries;
(VII) decisions relating to the establishment of joint
ventures;
(VIII) constitution of any charges, liens, encumbrance,
pledge or mortgage over assets, exceeding the amount
of USD20,000,000 (twenty million U.S. dollars);
(IX) any change of external auditors, to be chosen among
auditors of international reputation;
(X) any related party transaction which is not carried out
according to usual market conditions, exceeding the
amount of USD5,000,000 (five million U.S. dollars), with
98
According to the Telecom Italia S.p.A.’s Financial Statements
as of December 31, 2014, the Italian company Telco S.p.A
was one of its main shareholders holding 22,3% stake on the
shareholders’ equity with voting right of Telecom Italia S.p.A.,
company indirectly controlling Telecom Argentina S.A.
On June 26, 2014 Telco S.p.A issued a press release calling
a General Extraordinary Shareholders’ Meeting, to be held on
July 9, 2014, in order to consider its own demerger, pursuant
to the right of its shareholders, Assicurazioni Generali S.p.A.,
Mediobanca S.p.A. and Intesa SanPaolo S.p.A., to require
such demerger, which closing was subject to obtaining the
corresponding authorizations from the applicable authorities.
The relevant portion of the press release issued by Telco S.p.A.
is follows:
“(…).The Board also acknowledged receipt of the notices
received from shareholders Assicurazioni Generali S.p.A. (also
in the name and on behalf of the Telco S.p.A. shareholders
which are also Generali group companies), Mediobanca
S.p.A. and Intesa Sanpaolo S.p.A. on June 16, 2014, stating
their intention to exercise their right to request the demerger of
Telco S.p.A under the terms of the shareholders’ agreement.
The Board also unanimously approved the proposed partial
demerger of the company (the “Demerger”) as a result
of which four newly-incorporated beneficiary companies,
100%-owned by each shareholder, will be allocated the
respective shareholder’s stake in Telecom Italia currently held
by Telco S.p.A (equal to 22.4% of Telecom Italia’s ordinary
share capital), as follows: 14.77% to the newco owned
by Telefónica, 4.32% to the newco owned by the Generali
Group, and 1.64% to each of the newcos owned respectively
by Intesa Sanpaolo and Mediobanca.
As part of the Demerger, Telco will also repay all its bank
debt outstanding (€660 million as of April 30, 2014) and the
bond issue subscribed to by its shareholders (€1,750 million
nominal value, plus €70 million in interest accrued to April 30,
2014), plus the interest that will accrue until the repayment
date, via funds to derive from a shareholders’ loan to Telco
S.p.A, which will be disbursed pro rata to the shareholders’
investment in the company immediately prior to the execution
of the Demerger. With the Demerger, then, each newco will
be allocated the respective share of the shareholders’ loan as
well as the relevant Telecom Italia stake.
Completion of the Demerger is subject to the requisite clearances
from the following authorities: Conselho Administrativo
de Defensa Econômica “CADE” (Brazilian antitrust
authority); Agência Nacional de Telecomunicações “ANATEL”
(Brazilian regulatory authority);Comision Nacional de
Defensa de la Competencia “CNDC” (Argentinean antitrust
authority) and, for those matters which fall within its scope of
responsibility, Istituto per la Vigilanza sulle Assicurazioni IVASS
(Italian insurance regulatory authority).
Telco S.p.A will continue to exist with a minimal share capital
and with no Telecom Italia shares held, in order to deal with
the remaining assets and liabilities on the balance sheet. The
company will then be placed in liquidation once this phase is
complete.
The Telco S.p.A demerger will also be submitted to the approval
of shareholders in the extraordinary general meeting called to
take place on July 9th.
As of the date on which the Demerger becomes effective,
B.4.4 DEMERGER OF TELCO S.P.A.
the exception of (i) any correspondent relationships, traffic
agreement and/or roaming agreements with any national
and/or international telecommunications carriers/
operators, including the establishment, expansion or
amendment of such correspondent relationships with any
new telecommunications carriers; and (ii) any transaction
connected with the debt restructuring;
(XI) any extraordinary transaction involving the
Telecom Argentina Group, exceeding the amount of
USD30,000,000 (thirty million U.S. dollars); and
(XII) any change to the rules of the Steering Committee,
the Regulatory Compliance Committee or the Audit
Committee; and the creation, changes or dissolution
of any committee of the Telecom Argentina with similar
functions.
Most relevant aspects of the New Shareholders’ Agreement
are available to the public at www.cnv.gob.ar (“Información
Financiera” section).
99
every effect of the shareholders’ agreement in force between
the shareholders of Telco S.p.A shall cease to be effective.
Milán, June 26, 2014.”
Following up on the above information, on July 9, 2014
Telco S.p.A. issued a new press release, informing that the
General Extraordinary Shareholders’ Meeting held on such
date “approved the proposed partial demerger of Telco S.p.A,
as already approved by the Board of Directors and disclosed
on June 26, 2014, the completion of which is subject to the
requisite clearances from CADE (Brazilian Antitrust Authority),
Anatel (Brazilian Regulatory Authority), CNDC and, for those
matters which fall within its scope of responsibility, Istituto per
la Vigilanza sulle Assicurazioni IVASS.”
In June 2015, Telefónica, S.A. (of Spain) has reported that,
having obtained the approval of CADE (the Brazilian antitrust
authority), ANATEL (Brazilian regulatory authority), CNDC
(Argentinean antitrust authority) and Istituto per la Vigilanza
sulle Assicurazioni IVASS (Italian insurance regulatory
authority), the demerger of Telco S.p.A. has been formalized
and its shareholders have assumed, through its subsidiaries,
the direct stakes in Telecom Italia S.p.A. The Telco S.p.A.
Shareholders' Agreement has also become ineffective.
Regarding the Telefónica, S.A. (of Spain) stake, on June 24,
2015 such company informed to the CNV and the BCBA the
"divesting of its entire stake in Telecom Italia S.p.A." (see also
section B.4.2).
The objective of Compliance, reporting and directly depending
from the GED, is to aim preventive risk management activities
for the Telecom Group operations and to ensure the availability
of a process control system of the Group companies with
respect to the main rules governing operation for reducing
exposure to economic, legal and operating risks that may
arise due to illegal behaviors, safeguarding the image and
reputation of the Group’ companies.
Compliance is in charge of the management, dissemination,
training and compliance with the principles contained in
the Code of Business Ethics and Conduct, promoting and
developing the culture of ethics and transparency within the
Group and the compliance with the rules in force for the
effectiveness of internal controls. Its objective is to ensure that
the rules in this Code will aid business relations and those with
the community in general.
In 2015 compliance developed the following activities in the
Group companies:
• Management and dissemination: the Code of Business
Ethics and Conduct allows the Group companies to
incorporate and implement in the everyday life of the
organization, ethical standards of universal nature. In
order to ensure its continuous dissemination, within the
management of the company awareness on the scope
and importance of complying with this Code and with
the Conflict of Interest Policy, certain actions have been
performed such as requesting the Group Macrostructure
the submission of a Sworn Statement on social, family
and business ties and ties with suppliers, among others.
• In the field of the dissemination of "Compliance Culture",
specific internal training activities were carried out with
updated information about Foreign Corrupt Practices
Act ("FCPA") and Compliance Program aimed at all the
Macrostructure, reaching 97% attendance. The content
of the training is available in the Group Intranet, in the
Compliance section, and an E-learning on the subject
has been published in the application of the Telecom
University.
• The Compliance area has assisted in the preparation of the
Commercial Due Diligence on third parties contractually
related to the Group (ABC1 method), mainly on parties
related with Indirect Channels of Telecom Personal,
content providers and major suppliers of the Group, with
the aim of preventing liability of the Group's operations
by wrongful acts and/or acts of corruption that may be
committed by these third parties.
• Referents in each Business/Corporate Unit have
been appointed to ensure traceability, integrity and
dissemination of Compliance actions, these being ratified
or rectified annually.
• At corporate level, regulations have been issued or
B.4.5 COMPLIANCE
100
reviewed in accordance with the framework governing the
issuance of documents of the Telecom Group, together
with the sectors involved in the respective regulation and
with Human Capital.
• Participation in the Risk Committee to evaluate, analyze,
and propose elements and issues that may be subject to
potential non-compliance risks.
• Participation in the "Make or Buy" Committee for the
evaluation of the proposal of suppliers of professional
services and/or consulting according to the existing
specific regulation.
• The "Compliance Program – Risk Assessment" was
launched. In its first stage, this program included
the performance of a "Gap Analysis" focused on the
identification, assessment and mitigation of non-
compliance risks. In 2015 corrective actions on the
drafting of rules and regulations were recommended
based on the analysis of the results of the "Gap Analysis"
made by the areas.
CoDe of bUsIness eTHICs anD ConDUCT, anTI-CoRRUPTIon PolICY anD ConflICT of InTeResT PolICY
The Boards of Directors of Telecom Argentina and other
companies of the Telecom Group approved on November 2,
2015 a new Code of Business Ethics and Conduct, an Anti-
corruption Policy and a Conflict of Interest Policy.
The Code of Business Ethics and Conduct is the essential
element of the organization model and the internal control
system. It has been designed to achieve more transparency in
the actions and greater commitment by each of the employees
of the Group, with the conviction that ethics in business
conduct is a fundamental condition for the Group success.
The Anti-Corruption Policy offers Telecom Group companies
a systematic reference framework as regards prohibition of
corrupt practices reinforcing our strong commitment not to
resort to conduct illegal or improper for the achievement of
the objectives of the Group.
The Conflict of Interest Policy constitutes the reference
framework to prevent and deal with situations of conflict of
interest in order to avoid or limit their negative impact on our
Group, informing everyone to whom this Policy applies about
principles to be followed and behaviors to be observed to
adapt our actions to the provisions of the Policy on Conflicts
of Interest.
In accordance with the commitments "Telco" and "Ti-W",
the Boards of Directors of Telecom Argentina and Personal
approved the introduction of an Additional Chapter to the
Code of Business Ethics and Conduct which includes the
provisions of both commitments. Regarding them and in
accordance with that detailed in B.4.2, to the date of issuance
of this Annual Report, Personal and its subsidiaries are looking
forward to the CNDC’s issue on the completion of these
commitments.
The code is available for consultation on the Intranet of the
Telecom Group and the corporate web page, and applies
to all members of the Board, members of the Supervisory
Committee, GED, Directors, Managers and any other
employees of the Telecom Group in any of its contractual
entry mode.
The Telecom Group has an Investor Relations area to
answer all inquiries and questions from shareholders,
analysts and third parties who have an interest in the
Company. This area does business at the Company’s
headquarters and investors may contact it in person, by
e-mail sent to [email protected] or by phone at
54 11 4968 3628.
One of the duties of this area is to provide information
about the relevant aspects of the Company and the business
development to different interested groups such as institutional
investors, non-controlling shareholders, hedge analysts, risk
rating agencies and prospective investors.
The Company also has a website www.telecom.com.
ar/inversores in Spanish and English where it provides
information on the Telecom Group´s economic and financial
performance. The information disclosed meets the highest
standards of transparency and integrity.
B.4.6 INVESTOR RELATIONS
101
The Telecom Group makes its best efforts to supply to the
market with high quality financial information, complying with
the highest accounting standards, and applying an information
consistency policy for local and foreign investors. In line with
this policy, and in compliance with CNV rules, Telecom Group
applies IFRS issued by the IASB. IFRS application in Telecom
Group allows simplifying and unifying all the accounting
information that the Group informs to regulators and local and
foreign investors and shows the commitment of the Telecom
Group to apply high international accounting standards for
financial reporting.
Company's Management favorably concluded on the
effectiveness of the internal control for financial reporting in
2015, in the framework of the SOX certification process.
Between the standards recently issued by the IASB, it is worth
mentioning IFRS 15 “Revenues from Contract with Customers”
which is effective since January 1, 2018 and with early
application permitted. This standard applies to all revenue
contracts arising from ordinary activities, and gives a unique
model for revenue recognition and its measurement. IFRS
15 establishes a mechanism for allocating the transaction
price between the different performance obligations (services
and equipment), among other things, and the capitalization
of incremental costs of obtaining new contracts, if the entity
believes that will recover them. This provision is one of
the main aspects to be evaluated for telecommunication
companies, mainly due to the large variety of bundling plans
they offer to its customers of services and devices. During
2015, the Company started a project for analyzing the impacts
generated by the application of IFRS 15 in the Group, which is
expected to arrive to the main conclusions on the effect of the
new norm by the end of 2016.
Additionally, in July 2014 the IASB introduced amendments
to IFRS 9 “Financial Instruments” which, among other topics,
incorporated requirements related to the registration of
expected credit losses of financial assets recording them as
required by the standard, in the initial recognition if deemed
to be expected. The amendments are effective for years
beginning on January 1, 2018, admitting earlier application.
As of the date of this Annual Report, the Company continues
analyzing the impact that the application of this modification
might have on the financial position, the cash flow statement
and the results of the Group’s operations.
On the other hand, in January 2016, the IFRS 16 "Leases"
was issued, with will be effective on January 1, 2019, its
early application being admitted, provided that the IFRS
15 is adopted. This standard establishes the criteria for the
recognition and valuation of leases for lessors and lessees (in
replacement of IAS 17, IFRIC 14 and SIC 15-27). The IFRS
16 provides that a lessee is required to recognize an asset for
the right to use the leased item and a liability for the present
value on those contracts that meet the definition of lease
contracts according to the IFRS 16 (those who provide the
right to control the use of an asset identified for a specified
time), excluding from its scope short-term contracts (under
12 months) and those in which the underlying asset is under
B.4.7 FINANCIAL INFORMATION
Additionally, the Company issues press releases on the most
significant economic and financial events in the market. At
the closing of each fiscal quarter, the Company organizes
a teleconference -which may also be attended through the
website- with analysts and investors who study the evolution
of the Company’s business. This conference allows the
investment banks to issue reports and recommendations about
the Company. Such teleconference has the presence of the
Company’s GED and CFO. Thus the Company provides not
only the information required by the applicable regulators but
also additional information on the Telecom Group business
by applying international quality standards that simplify the
analysis of results to allow analysts and investors to make their
own projections and estimates.
In corporate governance matters, Telecom Argentina
encourages non-controlling shareholders to attend and
participate in Shareholders’ Meetings through notice to
meeting publication and information about the documents
to be reviewed. The Company also advises shareholders on
the formal procedures for registration and participation at
the meetings. The Company, together with the Depositary of
ADRs representing Company’s shares, invites ADRs holders
to become involved in the matters to be considered at the
Shareholders’ Meetings and give voting instructions to the
Depositary.
102
value. In the same vein, the charge to the income statement
will be imputed to depreciation and interest lines, which
would eventually impact the profits of exploitation before
depreciation and amortization. In 2016 the Company plans
to start a project to analyze the impact the application of this
new standard might have on the financial position, cash flow
statement and results of operations of the Group.
103
Net income for 2015 amounted to $3,403 million. In
addition, Retained Earnings as of December 31, 2015
showed a positive balance of $3,403 million.
At December 31, 2015, the Company reached the maximum
amount required by section 70 of the GCL for establishing a
Statutory Reserve (20% of the Shareholder’s equity, plus the
Capital Adjustment, regardless of the effect of the Treasury
Shares at December 31, 2015), reason why it is not necessary
to assign any amounts for its provision.
With regard to the allocation of the Retained Earnings, it is
worth mentioning that, as provided in Section 27 of Chapter
II of Title II of the CNV (NT 2013), shareholders’ meeting
of companies with positive retained earnings in its financial
statements, not subject to restrictions on its distribution,
should adopt an explicit resolution of the allocation in any
of these items, or a combination thereof: distribution of cash
dividends; capitalization and issuance of non-paying shares
or grant of voluntary reserves, being provided especially in
the agenda of the shareholders’ meeting the treatment of the
distributable earnings.
Within the framework of these options, the Board of Directors
proposes to charge the amount of Retained Earnings of
$3,403 million to the increase in the Reserve for Future
Dividends in Cash which, if adopted, would be added to the
amount of such Reserve of $2,869 million in previous years,
reaching a total of $6,272 million, and requests to delegate
powers in the Board of Directors of the Company so that
according to the evolution of the business, the latter disposes
the decommissioning in one or more times for an amount up
to $1,300 million of said Reserve and its distribution to the
shareholders by way of dividends in cash.
In summary, the Board of Directors submits to the consideration
of the General Assembly the following proposal for the
allocation of Retained Earnings at December 31, 2015:
B.5GENERAL CORPORATIONS LAW REQUIREMENTS
Retained Earnings as of December 31, 2015
To Reserve for Future Dividends in Cash
To next year
Pesos3,402,938,820
(3,402,938,820) -
The capitalization of profits or other items has not been proposed, as the amount of current outstanding capital stock is deemed
appropriate.
FEES FOR DIRECTORS AND MEMBERS OF THE SUPERVISORy COMMITTEE - COMPENSATION POLICy FOR DIRECTORS
The aggregate compensation of the Board of Directors is
determined annually at the Annual Shareholders’ Meeting.
For such purpose, the Board of Directors submits a proposal,
pursuant to the provisions of the GCL and CNV rules which
set standards and limitations according to income for the fiscal
year. Under Law No. 26,831, such proposal is previously
examined by the Audit Committee which issues an opinion
on its fairness.
Once the aggregate amount of the Board of Directors’ fees
is approved by the Annual Shareholders’ Meeting, the Board
of Directors under the authority delegated by such Meeting
104
allocates the amount payable to each director.
The shareholders’ meeting usually authorizes to the Board of
Directors to pay advance fees to the directors and members
of the Supervisory Committee for the next year up to a certain
amount, ad referendum to the shareholders’ meeting financial
statements approval.
Until the date of this Annual Report, $6.9 million have been
paid in advance for fees to the directors from the shareholders’
meeting of April 29, 2015. In accordance with the provisions
of the regulations of the CNV rules, Telecom Argentina has
recorded a provision of $20.9 million for the year 2015 to
meet the fees to the Board of Directors and of $4.7 million
for the year 2015 to meet fees to the Supervisory Committee.
In the field of compensation policy for Directors and Managers,
the Company and its subsidiaries have a scheme that includes
fixed and variable components. While fixed compensation is
related to the level of responsibility required for the position
and its market competitiveness, variable compensation is
driven by the goals set at the beginning of the year, and by the
degree of accomplishment of those goals over the fiscal year.
Also, since 2009 a Long-term Incentive Program was
implemented, with the purpose of providing incentives
to members of the Senior Management, based upon the
creation of medium/long term value, associated to the
Group’s success, and also as a device to retain key personnel
in the organization.
The Board of Directors has not implemented a Compensation
Committee and delegated to the Steering Committee the
approval of the overall salaries policy for the Telecom Argentina
and Personal employees. Other activities associated to the
Committee are performed by the Board of Directors with the
assistance of the Human Capital area, which is responsible for
proposing alternatives and subsequently implement specific
Board of Directors’ policies and decisions in this respect. It
should be noted that no member of the Board of Directors or
the Steering Committee performs executive functions.
The Company and its subsidiaries have no stock option plans
for their employees.
• THe CoMPanY
Below is the Company’s relevant financial information based
on the non-Consolidated Financial Statements of Telecom
Argentina:
COMPENSATION POLICy FOR DIRECTORS AND MANAGERS
105
In the year ended December 31, 2015, Shareholders’ Equity
increased $2,776 million (+19% annually) matched by a
$4,124 million growth in assets and $1,348 million increase
in liabilities.
Assets mainly include a $110 million increase in Trade
receivables, $1,820 million increase in equity investments, and
a $1,521 million increase in Property, Plant and Equipment,
an increase in Cash and Cash equivalents of $162 million,
and an increase in investment of $179 million.
Increase in liabilities is mainly due to a $207 million increase
in salaries and social security contributions, an increase in
accounts payables of $1,214 million, partially offset by a
decrease in other payables of $70 million and income tax
payables of $125 million.
The increase in shareholders’ equity is mainly attributable to
the $3,403 million net income for 2015 and to $165 million
currency translation adjustments arising from the translation of
foreign subsidiaries’ financial statements, partially offset by a
distribution of cash dividends for $804 million.
A review of relations with parent companies, subsidiaries or
related parties is included in Note 5 to the non-consolidated
financial statements.
a) Balance sheet:
As of December 31,Current Assets
Non-Current Assets
Total assets Current Liabilities
Non-Current Liabilities
Total liabilities shareholders’ equityTotal liabilities and shareholders’ equity
Working capital (current assets – current liabilities)
Net financial asset
Ratios
Current liquidity
Total debt-to-equity
20152,769
20,162
22,9314,297
1,440
5,73717,19422,931
(1,528)
549
0.6
0.3
20142,120
16,687
18,8073,058
1,331
4,38914,41818,807
(938)
211
0.7
0.3
649
3,475
4,1241,239
109
1,3482,7764,124
(590)
338
(0.1)
-
%
31
21
2241
8
311922
Millions of pesos %
106
Net sales increased by 21% compared to 2014, amounting
to $12,468 million. This variation was mainly due to higher
Internet sales, due to higher Data sales and voice-retail
services. Regulated voice services were still affected by the
freeze of tariffs.
Operating costs (including D&A and results for disposal and
impairment of PP&E) increased by $2,205 million compared
to 2014, reaching $11,644 million. The main items affected
were employee benefit expenses and severance payments,
taxes, fees for services, maintenance and materials, other
operating costs and depreciation and amortization of PP&E
and intangible assets.
Operating income before D&A amounted to $2,495 million
in 2015 and $2,080 million in 2014 representing 20% of net
sales, respectively. This increase is a consequence of the rise in
net sales partially offset by higher operating costs.
In 2015, operating income was $879 million, a 2% increase
in relation to 2014 as a result of an increase in revenues
partially offset by an increase in operating costs and higher
amortization and depreciation and higher charge for disposal
and impairment of PP&E.
Equity investments result amounted to $2,847 million in 2015
(-$90 million or -3% vs. 2014). The decrease is mainly due
to the results generated by the controlled company Telecom
Personal that reported a gain of $2,839 million (-$92 million
in relation to 2014).
Financial and holding results recorded a loss of $173 million
in 2015, while in 2014 recorded a gain of $275 million. This
increase was mainly due to higher exchange losses of $470
million.
b) Income statement:
Profitability ratios (%)Profitability on net sales
For the years ended December, 31Revenues
Other income
Operating costs (before D&A)
operating income before D&aFixed and intangible assets D&A
Results on disposal and impairment of PP&E
operating incomeEquity investments result
Financial results, net
Income tax
net incomenet income per share – basic and diluted
Operating income before D&A
Operating income
Net income
Return on assets at beginning of year (ROA)
Return on equity at beginning of year (ROE)
201512,468
55
(10,028)
2,495(1,525)
(91)
8792,847
(173)
(150)
3,4033.51
201520.0
7.1
27.3
4.7
23.6
201410,262
37
(8,219)
2,080(1,229)
9
8602,937
275
(399)
3,6733.79
201420.3
8.4
35.8
5.4
31.2
2,206
18
(1,809)
415(296)
(100)
19(90)
(448)
249
(270)
(0.3)
(1.3)
(8.5)
(0.7)
(7.6)
21
49
22
2024
n/a
2(3)
n/a
(62)
(7)
Millions of pesos %
107
In 2016, the Company will operate in a new economic and
regulatory context for the Telecom Group and for the other
operators.
Our activity will strongly depend on the macroeconomic
situation, and in particular, on the purchasing power and
levels of consumption of our clients. We expect that in the
first half of 2016 readjustments in prices of many goods and
services will take place as a result of their adaptation to the
significant variation in the exchange rate of the US dollar
against the Peso during the last quarter of 2015, after certain
exchange restrictions were eliminated and rate adjustments
for utilities were announced by the new authorities.
We anticipate moderate economic growth rates for 2016, with
inflation rates that should not exceed 25% - 30% annually.
However, we believe that the level of demand for our products
and services will remain at consistent levels, especially
those related with the use of fixed and mobile Internet, and
in particular those in relation to the innovative offerings the
Group plans to launch. We will continue working to enrich
the offering of our products and services and to stimulate the
increase of our ARPU.
In 2016, we expect the evolution of fixed services to continue
to be in line with the trend in recent years, influenced by the
maturity of the market.
For Broadband, we will continue deploying in a sustained
way the "Ultra-Broadband" with new technologies replacing
copper with optical fiber in different points of the network.
In 2016 the Group expects to add 4,000 kilometers of
interurban optical fiber to the 22,000 km already existing,
expanding the capacity of the network throughout the country,
as well as providing more speed and security to our customers’
consumption.
For the corporate segment, efforts will be oriented to the
supply of convergent solutions with a portfolio that provides
customers next-generation "Datacenter" services.
To maximize business, Personal will continue to focus on the
quality of service and the deployment of the LTE / 4G network
at national level. Personal will continue to work on optimizing
our customers’ experience to offer the best 'User experience',
improving the coverage and speed of the network. 3G
technology will also be expanded with new frequencies and
more investment, thus continuing with the technological
conversion and capacity enlargement of the network.
The aforementioned ambitious investment plan assumes
that Personal may develop their activities in a symmetrical
competition framework with the remaining operators.
We expect that this infrastructure improvement will come
together with the evolution of the "Data Centric" offering in line
with the evolution of the mobile market and the new business
model that requires evolution and simplification.
Customer service quality will continue to focus mainly on
the efficiency of channels and segmentation of the service
customer with a customer-centric vision. The self-management
channel will also continue to be encouraged (promoting the
use of social networks), in order to simplify more and more the
customers’ management and control over their lines.
We will continue to work on our goal to promote operational
excellence with the aim of a better use of the physical, human
and technological resources of the Group so as to continue
meeting profitability expectations of our investors.
B.6OUTLOOk
108
The strategy implemented by the Company’s Management
described in this Annual Report lays out the basic necessary
fundamentals for the Telecom Group to pursue its objectives of
continuous improvement of the quality of service, to strengthen
its market position through an innovative offer and to improve
its operating efficiency in order to satisfy the growing needs
of the dynamic ICT service market in general and mobile
solutions in particular. Our strategy and the important plans
of investment are based on this forward-looking vision and on
the commitment of the Telecom Group with our country and
its people.
Buenos Aires, February 26, 2016.
oscar Carlos CristianciChairman
ANNEX I
110
PRINCIPLE I. INCREASE TRANSPARENCy IN THE RELATIONS AMONG THE ISSUER, THE ECONOMIC GROUP IT LEADS AND/OR BELONGS TO, AND ITS RELATED PARTIES
The corporate governance environment should:
Recommendation I.1: Ensure that the Administrative Body disseminates policies applying to the relations between the Issuer and the economic group it leads and/or belongs to, and with its related parties.
Answer whether the Issuer has an internal standard or policy in place to authorize transactions between related parties under Article
73 of Law No. 17,811, transactions made with shareholders and members of the Administrative Bodies, Senior Management
and members of Supervisory Committees, within the environment of the economic group it leads and/or belongs to.
Explain the main guidelines of the standard or internal policy.
The Company has an Authorization Regime (“RAV”) approved by the Board of Directors which sets forth the requirements for
approval of transactions with Related Parties, both those which fall under Article 72 of Law No. 26,831 as those which do not
qualify as "relevant transactions" under that standard provisions.
Main guidelines of the standard:
1. Entities qualifying as Related Parties under Law No. 26,831 and the Rules of the CNV are indicated by guidelines detailed
in the RAV. Also are indicated as Related Parties of Telecom Argentina the members of its Board of Directors (members
and alternate members) or Supervisory Committee (members and alternate members) and the GED, and their respective
ascendants, descendants, spouses or siblings.
2. Under the RAV, all transactions, whatever their amount may be, entered into between Telecom Argentina and its Related
Parties, must be done at arm’s length basis, under market conditions.
3. All transactions or series of mutually associated transactions with a “Related Party” (except companies controlled by
Telecom Argentina) must be approved by the Operating Committee (composed by members of the Board of Directors of
Telecom Argentina and Personal). If the amounts of the transaction or series of mutually associated transactions, which were
made within one year since the first transaction, are in excess of $ 10,000,000, the Board of Directors shall approve them.
Transactions with direct and indirect Telecom Argentina’s subsidiaries must be approved by the GED.
4. Likewise, if the amount of a transaction (or series of mutually associated transactions) which were made within one year
since the first transaction, with a Related Party (even with a company that was controlled by Telecom Argentina) exceeds 1%
of Telecom Argentina’s equity as reported by the latest approved financial statements, in accordance with provisions in Law
No. 26,831, the following are required prior to the award: a) an Audit Committee report or opinion by two independent
reviewing firms stating whether the conditions of the operation may be considered appropriate to the normal and usual
REPORT ON THE DEGREE OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE (ANNEX IV, TITLE IV OF CNV RULES – NT 2013)
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
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Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
On November 2, 2015 the Boards of Directors of Telecom Argentina and Telecom Personal approved the Conflict of Interest
Policy that defines the framework for the prevention and management of possible conflict of interest situations. On December
17, 2015 the Organization Procedure of Conflict of Interest was published in the intranet of the Group defining the operational
modalities for the implementation of that set forth by the corresponding Policy, detailing the tasks of the areas involved and the
stages in which the process takes place.
The relevant aspects of the Policy are:
1. A member of the “Personnel” (which includes members of the Board of Directors, Supervisory Committee, GED, Directors,
Management and the rest of the employees in any of its contractual arrangements) has the duty to behave in an honest and
ethical manner, and serve the interest of the Company, by avoiding any situation that poses an actual or potential conflict
between the member’s private interest and the Company interest.
2. A “conflict of interest” occurs where the private interest of the Personnel is opposed to or interferes with, in any manner,
the Company interest.
3. The primary risk arising from a conflict of interest is that it makes decision making process more difficult, or interferes with
the work being done in an efficient and objective manner.
4. In order to prevent any conflict of interest from occurring, a party may not join the Company if the party is a close relative
of any person serving as a member of the Board of Directors, Supervisory Committee, GED or Directors. Any party who is
a close relative of any other Personnel member requires prior approval by the Director of Human Capital.
5. Current or potential conflicts of interest involving the members of the Board of the Directors, the Supervisory Committee,
the GED, the Chief Compliance Officer or the Director of Human Capital, are notified to the Chairman of the Board of
Directors and to the Audit Committee.
Among the procedures implemented for the identification, management and resolution of conflicts of interest it is worth
mentioning:
1. On December 10, 2015 the Macrostructure was requested to complete the sworn statement on Conflicts of Interest;
the latter is also available on the intranet of the Telecom Group in the Compliance section. The Company employees
market conditions; and b) approval by the Board of Directors. In cases justified by their technical complexity, the Auditing
Committee may request the Management to provide the background information of the transaction, with an opinion by an
independent firm specializing in the subject, so it is in a position to give an opinion on the transaction.
5. Any transaction made by Telecom Argentina with any members of its Board of Directors (members and alternate
members) or Supervisory Committee (members and alternate members), GED, Director of any unit or Directors who are
senior managers of Telecom Argentina, or of any directly or indirectly controlled companies thereof, or with any ascendants,
descendants, spouses or siblings of any of such persons, or with entities controlled by any of such persons, must be approved
by the Board of Directors, except where the supply is provided for personal consumption under the usual conditions used
by the Telecom Group for materials and services provided to their customers generally.
Recommendation I.2: Ensure that mechanisms preventing conflicts of interest exist.
Answer whether the Issuer has, without prejudice to any applicable regulations, clear policies and procedures to identify, manage
and resolve conflicts of interest that could arise among members of the Administrative Body, Senior Management and Supervisory
Committees, in their relation to the Issuer or with persons associated to the Issuer.
Make a description of main guidelines of the policies or procedures.
112
must state any situation related to family and social ties within and outside the Telecom Group, which may be a current
or potential conflict of interest. The form is sent to a mail box of the Compliance area (compliance.conflictodeintereses@
ta.telecom.com.ar) with copy to the employee’s hierarchical superior and the Human Capital area.
2. In addition, and to proceed to the identification of potential conflict of interest situations, on December 15, 2015
the members of the Board of Directors and members of the Supervisory Committee (members and alternate members)
were sent a Form on identification of related parties and potential conflicts of interest.
3. When the importance of the conflict of interest so justifies it, the Director of Human Capital and/or the Chief
Compliance Officer may raise the case for consideration by the Audit Committee.
4. The staff is obliged to conduct themselves in an honest and ethical manner, and to act in favor of the interests of the
Company or companies in which they perform duties, avoiding situations showing a real or potential conflict between
their private interests and those of the Company or companies.
5. In order to avoid any conflict of interest, Personnel members shall report to the Compliance area any significant
transaction or relation that could reasonably be expected to give rise to a conflict of interest. The Chief Compliance
Officer shall take any necessary action to avoid or resolve the conflict of interest.
Penalties for Non-compliance:
“Personnel” who do not avoid a conflict of interest, if it comes down to them, or who fail to report in due time any conflict of
interest that involves or might involve such Personnel, then they shall be liable for direct or indirect damages that their conduct
might cause to Telecom Argentina Group, and shall be subject to disciplinary action, including dismissal or removal from their
position, in accordance with the rules applicable and to existing contracts.
Recommendation I.3: Preventing undue use of privileged information.
Answer whether the Issuer has, without prejudice to any applicable regulations, reasonable policies and mechanisms to prevent
undue use of privileged information by members of the Administrative Body, Senior Management, Supervisory Committees,
controlling or significantly influencing shareholders, professionals or any other persons contemplated in Articles 7 and 33 of the
Decree No. 677/01.
Make a description of the major issues involved.
Point 3.5 of the Code of Business Ethics and Conduct ("Code of Ethics") sets forth, with respect to the commitment assumed
by each addressee of the Code (members of the Board of Directors, members of the Supervisory Committee, GED, directors,
managers and other employees): "We protect and maintain strict confidentiality of the information property of the Group and of
the personal data of our customers, we are aware that it is illegal to use privileged information (understanding by this non-public
information) related to the Company and/or Group, their operations, their financial situation, their results or significant events
involving them, for the purchase or sale or any other operation with actions, notes or any negotiable value issued by any of
the companies of the Group. In the same vein, we are aware that it is illegal to provide such privileged information or provide
advice or suggestions to any person for the same purposes, and that all non-public information will be considered as privileged
corporate information which should never be used to obtain a personal benefit or to offer it to a third party”. Likewise, point
3.11 of the Code of Ethics establishes: "We avoid using, for the personal benefit or for that of third parties, the name, image and
reputation of the Company and/or the Group, as well as information and business opportunities of which we have knowledge
in the performance of our duties."
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
113
Every year, the Board of Directors approves the (tri-annual) Business Plan of Telecom Argentina and its controlled entities and
the Annual Budget of Telecom Argentina, upon prior review by the Steering Committee.
II.1.1.2.- the investment (in financial assets and capital goods) and financing policy.
The Board of Directors approves the investment and financing policy when it considers the Business Plan and the Annual Budget,
and the so-called “Financial Guidelines”, providing the general directions to be observed by investments to be made by the
Company.
The General Executive Direction (“GED”) informs periodically to the Board of Directors and to the Supervisory Committee about
the approved investment plans progress.
II.1.1.3.- the corporate governance policy (compliance with the Corporate Governance Code).
PRINCIPLE II. PROVIDING THE BASES FOR A SOUND MANAGEMENT AND SUPERVISION OF THE ISSUER
The corporate governance rules should:
Recommendation II. 1: Ensure that the Administrative Body provides management, supervision and strategic guidelines of the issuer. Answer if:
II.1.1.- the Administrative Body approves:
II.1.1.1.- the strategic or business plan, and likewise the management objectives and annual budgets.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
The Board of Directors has not approved a Corporate Governance policy, because it considers by itself all such matters and
decides or causes the Shareholders’ Meeting to make such decisions, if applicable. Therefore, the Board of Directors does
not expect to make any decision on the matter in the short term. However, the Board of Directors approved, among other
documents, the Code of Business Ethics and Conduct, the Anti-fraud Policy, the Conflict of Interest Policy and the policy
and procedure of pre-approval of services rendered by the External Auditors. See section B.4 of this Annual Report and the
Recommendation II.1.2 of this Annex for more information on corporate governance aspects.
II.1.1.4.- Senior Managers selection, assessment and compensation policy.
114
The Board of Directors has not approved a selection, evaluation and remuneration policy of Senior Managers. However, the
rules, procedures and activities the Company holds as regard these topics are as follows:
Senior manager selection:
The definition of Senior Managers is included in Title XVI article 1 paragraph h) of CNV rules (NT 2013) which states that
““Managers", "Senior Managers" and "General or Special Managers " expressions refer to the first line of reporting, that means,
those managers who report to the Board of Directors of an entity. ", where in the case of Telecom Argentina the GED and the
Director of Audit who meet that definition and have been selected and appointed by the Board of Directors.
The managers who, in turn, report to the GED are selected by a procedure of Selection and Engagement of Personnel approved
by internal Rules of the Company, which determine the scopes and the steps to be followed in relation to their engagement.
However, under the agreement entered by indirect shareholders of the Company before the Argentine Antitrust Commission
(“CNDC”): the designation of the responsibles for Telecom Argentina’s and Telecom Personal´s Marketing Unit, and the person
responsible for the fixed telephony business unit of Telecom Argentina will be subject to approval by Telecom Argentina’s
Steering Committee (whose members are members of the Board of Directors)…” It is worth mentioning that the responsibility for
the fixed telephony business unit of Telecom Argentina since 2014 is held by the C.O.O. “Chief Operating Officer”.
Senior manager assessment:
Senior managers and managers reporting to the GED are assessed by the fulfillment of objectives, under the Management by
Objectives (MBO) program approved by the Steering Committee.
Senior manager compensation:
The Board of Directors has delegated to the Steering Committee (whose members are members of the Board of Directors) the
power to approve the general compensation Policy for Company employees, including senior managers. This Policy provides
compensation consisting of a fixed and a variable component depending on the fulfillment of objectives; implementation of
incentives to retain key personnel, and a motor vehicle assignment policy.
Whereas certain appointments described above, and approving the general compensation policy, are a responsibility of the
Steering Committee, by virtue of the commitments assumed before the CNDC and the Shareholders’ Agreement of the indirect
controlling entity of the Company, respectively, the Board of Directors does not foresee any changes to the reported conditions
in the short term.
II.1.1.5.- policy for assigning responsibility to senior managers.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
The assignment of duties to managers is included in the so-called RAV, approved by the Board of Directors, which specifies with
full details the powers and responsibilities of the Management members, according to the nature of each transaction, and the
powers of each one of them according to the function performed.
Also, the internal standard approved by the Human Capital Direction of the Company (“the internal Human Capital standard”), in
its chapter “Organization Structure”, prescribes, as a structure formalization scheme, the preparation of a “Position Description”,
indicating the missions and duties of each position in the structure, and is also used to determine the relative weight of a position
in the organization, under a standard and internationally recognized method, prepared by Hay Group. The procedure so-called
115
“Position Description and Assessment” determines the guidelines, responsibilities and steps to be followed to make a position
description and assessment within the Company organization structure.
II.1.1.6.- supervising succession plans for senior managers.
Although at the date of this Annual Report the Company has not prepared a replacement schedules policy, as of 2013 the
Human Capital area has carried out a process of review of people ("People Review") and identification of replacement schedules
in the Technology Direction. The aim is to extend this process to the area reporting to the C.O.O. and corporate areas during
2016.
II.1.1.7.- the company social responsibility policy.
In March 2015, the Board of Directors of the Company ratified the adoption of the basic principles and scope of Corporate
Social Responsibility that constitutes the Company policy on the subject, and approved the related Corporate Social Responsibility
Report of the Telecom Group for 2014.
II.1.1.8.- comprehensive risk, internal control and fraud prevention policies.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
On September 20, 2012, the Board of Directors of the Company approved the implementation of a Risk Management
process in the Telecom Group, and the creation of a Risk Committee, who was directed to prepare a Risk Management
Policy, to be submitted for approval by the Board of Directors. This Risk Management Policy was approved by the Board of
Directors at its meeting held on December 17, 2012, incorporating certain improvements in May 2015. Among others, it is
worth mentioning the adoption, as a framework, of the guidelines of the “Enterprise Risk management-Integrated Framework
of 2014” issued by the COSO.
In addition, the Telecom Group has an “Antifraud Policy”, which supplements the relevant provisions in the Ethics Code and
applies to members of the Board of Directors, Supervisory Committee, officers and employees of the Company, regardless
of their position and duties at the Company.
The Antifraud Policy contemplates:
1. Elements of the antifraud controls and programs;
2. Response in the event of a report, claim or fraud indications, and report management procedure;
3. Investigation of irregularities;
4. Assessment of the risk of fraud and unlawful acts, implementing associated controls and procedures to make such
assessment.
II.1.1.9.- continuous teaching and training policy for members of the Administrative Body and senior managers.
116
The Company’s Board of Directors has not approved a capacitating and training policy for its members and the Senior
Management, moreover, it has implemented a Managerial Updating Program. The purpose of this Program is to provide
instruments and methods to prepare strategies for sustained growth and value maximization, enhancing the key skills of the
Company.
In addition to this, the Company has a Training Program internally so-called “Telecom University”, in order to respond to all
training needs of Group members. The training proposals offered by Telecom University are divided into segments for each
specialization and position at the organization, which contemplates the requirements of each Company employee.
These actions are comprised under the Internal Standard for Human Capital and the Training procedure, which refers to the
method regulating Training management for the Company.
The Board of Directors does not consider it necessary to approve a capacitating and training policy for the members and
the Senior Management in the short term, since the relevant Company areas organize courses and other training actions
as usual for companies of the type of Telecom Argentina, and keeps the Board of Directors informed, through the Human
Capital Direction, of the general guidelines of the action taken.
II.1.2.- If considered relevant, add other policies applied by the Administrative Body that have not been mentioned, and list
significant items.
Rules approved by the Board of Directors
New Code of Business Ethics and Conduct, Conflict of Interest Policy and Anti-corruption Policy
The Board of Directors meeting on November 2, 2015 approved a "New Code of Business Ethics and Conduct", a "Conflict
of Interest Policy" and an "Anti-corruption Policy"; documents that establish, respectively: i) the ethical principles to which
Telecom Argentina and all the directors, members of the supervisory committee, officers and in general all those who work
in the Company must adjust their conduct; (ii) the regulations aimed at preventing and managing conflicts of interest; and
(iii) the guidelines as regards the prohibition of corrupt practices.
These documents, as a whole, replace the previous Code of Business Conduct and Ethics, approved by the Board in 2003
with the modifications introduced thereof in 2005 and in 2010.
For the adoption of the 'New Code of Business Ethics and Conduct", the "Conflict of Interest Policy" and the "Anti-corruption
Policy", the Board took into consideration the modifications introduced in recent years to the regulations applicable to
Telecom Argentina as a company engaged in public offering both in Argentina and in the United States of America in the field
of corporate governance and in particular in terms of organization and implementation of preventive mechanisms aimed at
reducing the risk of conflict of interest and corrupt practices.
Regulation for Prior Approval of services rendered by External Auditors.
At their meeting of March 22, 2004, the Board of Directors of the Company approved the Policy and Procedure for Prior
Approval of Services to be rendered by External Auditors. This Policy applies to services provided by External Auditors of the
Company, to the Company itself and to its directly and indirectly controlled entities.
If such policies are available, provide a description of their main provisions.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
117
The policy determines that all services to be rendered must be previously approved by the Audit Committee. In order to give
its approval, the Audit Committee of the Company considers if the services to be rendered are consistent with the rules of the
CNV, of the SEC, and any other legal and professional rules on the independence of External Auditors.
Such Prior Approval Policy defines: i) prohibited services, i.e. those that may not be provided by External Auditors; and ii)
permitted services, i.e. those that can be rendered by External Auditors and that, in turn, are classified into different categories
depending on their nature (auditing services, audit-related services, tax services and other services).
II.1.3.- The Issuer has a policy designed to ensure availability of relevant information for decision-making by its Administrative
Body, and a direct consulting procedure for its managerial lines, in a way that is symmetrical for all its members (executives,
external and independent) equally and with sufficient advance notice, that enables due analysis of its content. Explain.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
There is an internal standard that provides guidelines for an item to be included in the agenda of the Board of Directors,
which regulates the procedure to manage such inclusion, and determines that information on any matter to be dealt with
by the Board of Directors must be sent to all directors and alternate directors and members of the Supervisory Committee,
at least 3 business days in advance. The information must include a summary of the transaction or matter, sufficient for its
review, but that may be expanded at the meeting.
Also, at the Board of Directors meeting No. 282 of March 22, 2012, the Chairman, in order to ensure availability of relevant
information symmetrically to all Board of Directors members, indicated to the directors that any request for information
relating to the Company, its development, activities, operations and results, must be made by note or e-mail to the Chairman,
with a copy to the GED and to the Board Secretary. If the Chairman considers that there is no reason not to give the requested
information, he/she shall determine the immediate delivery or supply by the relevant person to the requesting director, and
inform the other directors of the delivery or supply. If the Chairman understands that there is a higher corporate interest to
deny the information in whole or in part, the matter shall be referred to the Board of Directors at its next meeting, in order
to decide upon the matter.
II.1.4. the matters presented for discussion by the Administrative Body are supported by a review of the risks associated to
the decisions that could be made, upon bearing in mind the level of business risk defined as acceptable by the Issuer. Explain.
Where the matter to be discussed by the Board of Directors implies risks associated to the decision to be adopted, this is
informed in the prior submittal made on the transaction or matter, and frequently advice and opinions from independent
professionals are required, in order to make an assessment and report to the Board of Directors on such risks.
Additionally, the Management of the Company annually informs the Board of Directors about the developments and
conclusions of the meetings of the Risk Committee about the relevant risk management.
Recommendation II.2: Ensure effective control of the Issuer management.
Answer if the Administrative Body verifies:
118
The GED, before the Board of Directors considers the financial statements of each quarter, submits the so-called “Management
Report”, describing in great detail the management conducted in the relevant quarter and cumulative quarters, which
includes, for the main items, a comparative review between the actual performance and the performance foreseen in the
Budget, which enables the Board of Directors to verify compliance with such Budget.
III.2.2.- the performance of senior managers and their fulfillment of their designated objectives (i.e. the level of foreseen v
actual profits, financial rating, quality of the financial report, market share, etc).
The Board of Directors verifies the performance and fulfillment of objectives by the senior managers, via the Steering
Committee, which duties include approving the General Compensation Policy for Company employees, including the
guidelines for variable compensation (so-called “MBO”) of managerial employees. Such variable compensation reflects the
performance of the Company as a whole and that of its Managers (including senior managers) as compared to the objectives
determined for each of them. Such objectives, depending on the work and responsibilities of each manager, are set upon
taking into account parameters such as EBITDA margin, sales of services, free operating cash flow, quality of services and
other specific objectives for each area.
Provide a description of the relevant issues in the Management Control policy of the Issuer, indicating the methodology used
and the frequency of monitoring activities by the Administrative Body.
The Administration, Finance and Control area places at the disposal of the GED and its first line reporting, of the Chairman
and Vice-Chairman of Telecom Argentina and of the Vice-Chairman of Personal, monthly reports that would enable them to
monitor the course of business of quality and economic-financial operational critical variables. In the same vein, the GED
submits a quarterly presentation of those same variables compared to the Budget / Forecast to all members of the Board of
Directors.
Also, the Senior Management has implemented an efficient budget control system, which provides a detailed follow-up of
the transactions and economic-financial results of the Group, and constitutes one of the key tools for the pursuance of the
business objectives set by the Board of Directors, the prevention / detection of significant deviations in a timely term, and to
implement any remedial action for the achievement of such objectives.
Recommendation II.3: Disclose the process of assessment of the performance by the Administrative Body, and its impact.
Answer if:
II.2.1.- observance of the annual budget and business plan,
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
119
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
II.3.1.- Each member of the Administrative Body observes the Corporate Bylaws and, as the case may be, the Regulation
of the Administrative Body operation. List the main rules in such Regulation. Indicate the level of observance of the Corporate
Bylaws and Regulation.
There is no Regulation governing the functioning of the Board of Directors, but there is one for each of the three Board
Committees (Steering Committee, Audit Committee and Regulatory Compliance Committee). The Code of Business Ethics
and Conduct, the Conflict of Interest Policy and the Anti-corruption Policy apply to the Board of Directors and provide the
guidelines they must observe in their management. The degree of compliance with the Bylaws and the Code of Business
Ethics and Conduct, the Conflict of Interest Policy and the Anti-corruption Policy by the Board of Directors is reflected in the
approval of their management by the Shareholders’ Meeting.
The Board of Directors considers that the current provisions in the Corporate Bylaws, the Regulations of their Committees and
the Code of Business Ethics and Conduct, the Conflict of Interest Policy and the Anti-corruption Policy are sufficient. For this
reason, the Board of Directors does not foresee the enactment of a functioning Regulation in the short term.
II.3.2.- The Administrative Body discloses the result of its management, upon taking into account the objectives set at the
beginning of the period, so that the shareholders can review the level of fulfillment of such objectives, which include both
financial and non-financial matters. Additionally, the Administrative Body presents a forecast on the level of compliance with
the policies indicated in Recommendation II, items II.1.1.y II.1.2.
List the main items of the review by the Shareholders’ Meeting on the level of compliance by the Administrative Body of
the objectives set and the policies described in Recommendation II, items II.1.1 and II.1.2, and indicate the date of the
Shareholders’ Meeting where these matters were reviewed.
The Board of Directors considers that the Shareholders’ Meeting has all the information it requires to review its management,
with the statement made by the GED at the Shareholders’ Meeting, answering to the shareholders requests and also by the
Annual Report of the Company, which includes information about the management fulfilled during the year, the Financial
Statements, and other documentation published by the Company through website of regulatory authorities.
Therefore, it does not foresee, in the short time, that it makes any kind of disclosure or diagnosis as indicated in this item.
Recommendation II.4: The number of external and independent members should constitute a significant proportion of the Issuer’s Administrative Body.
Answer if:
II.4.1.- The proportion of executive, external and independent members (the latter as defined under the rules of this
Commission) of the Administrative Body is in keeping with the equity structure of the Issuer. Explain.
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At Telecom Argentina there are no executive members among the members of the Board of Directors, 100% are external
members. The independent members of the Board of Directors (directors and alternate directors) under the Rules of the
CNV, are inclusive more than those necessary, and for their eventual replacement. It is considered that the membership in
the Board of Directors is suitable to the equity structure of the Company, as it enables the Company to organize the bodies
required under applicable regulations.
II.4.2.- During the current year, the shareholders agreed at a Shareholders’ Meeting on a policy designed to maintain a
proportion of at least 20% of independent members over the total number of members of the Administrative Body.
Describe any relevant matters of such policy and any shareholders’ agreement making it possible to understand the manner
how the members of the Administrative Body are elected, and for how much time. Indicate if the independence of the
members of the Administrative Body was questioned during the fiscal year, and if any abstentions have occurred due to
conflicts of interest.
The shareholders have not agreed to a policy intended to maintain a percentage of at least 20% of independent members
over the total number of members of the Board of Directors. However, during fiscal 2015, and until December 17, 2015,
date of acceptation of the resignation of three directors and three alternate directors, 45.45% of the regular members of
the Board of Directors and the 47.62% of the total number of members (regular and alternate) qualified as “independent”
under the Rules of the CNV.
The Shareholders’ Agreement of Sofora Telecomunicaciones S.A., an indirect shareholder of the Company, includes clauses
relating to the way in which members of the Administrative Body are elected by the Telecom Italia Group and the Werthein
Group. Clause 13.2 of the Agreement, relating to this, is attached as Annex A to this Report.
The national government, through ANSES shareholder, holds 24.99% of the Telecom Argentina capital stock. In the
Shareholders’ Meeting held on April 23, 2013, were appointed three directors and three alternate directors, one member
of the Supervisory Committee and one alternate member of the Supervisory Committee, representing shares of the national
government, all of whom qualified as "independent" as defined by the CNV. On December 17, 2015, the Board of Directors
of the Company accepted the resignation of three directors and three alternate directors, which had been designated by the
national government.
The effective term of service of all directors is three years.
No question has been raised to date about the independence of any of the directors.
At some Board meetings, where various transactions are discussed with related parties, Board members associated to the
related party have refrained from voting by reason of considering it appropriate, but not because of any conflict of interest.
As there is a current Shareholders Agreement by shareholders in Sofora Telecomunicaciones S.A., the Board of Directors
does not expect that this item will change in the immediate future.
Recommendation II.5: State that there are rules and procedures in place to elect and designate members of the Administrative Body and senior managers of the Issuer.
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Answer whether:
II.5.1.- the Issuer has an Appointment Committee:
II.5.1.1.- consisting of at least three members of the Administrative Body, a majority of whom are independent,
II.5.1.2.- chaired by an independent member of the Administrative Body,
II.5.1.3.- including members who are sufficiently qualified and experienced in human capital policy matters.
II.5.1.4.- meeting at least twice a year.
II.5.1.5.- whose decisions are not necessarily binding upon the Shareholders’ Meeting, but merely consulting, as regards
the election of members of the Administrative Body.
The Company has no Appointment Committee because of the Shareholders’ Agreement entered into by shareholders of
indirect controlling company Sofora Telecomunicaciones S.A. (which was reported in due time to the controlling authorities
and to the markets), which regulates the rights of the shareholders who have subscribed such Agreement to designate
members of the Board of Directors of the Company. Also, minority shareholders (45.26% of the equity and 44.4% of the
voting rights) are entitled to designate, by cumulative vote, up to one third of the vacancies to be covered on the Board of
Directors. This framework would strongly condition the operation of an Appointment Committee.
The Steering Committee (created as a committee within the Board of Directors) approves the selection of a person responsible
for Telecom Argentina and Personal’s Marketing unit, and is responsible for the Fixed Telephony unit of Telecom Argentina
(since 2014, this position is held by the C.O.O.).
As there is a current Shareholders Agreement by shareholders in Sofora Telecomunicaciones S.A., the Board of Directors
does not expect that the reported conditions will change in the immediate future.
II.5.2.- If there is an Appointment Committee, it:
II.5.2.1.- verifies an annual revision and review of its regulation, and suggests any changes for approval by the Administrative
Body,
II.5.2.2.- proposes the development of criteria (including e.g. qualifications, experience, professional and ethical reputation)
for the selection of new members of the Management Body and senior managers,
II.5.2.3.- identifies candidates to become members of the Administrative Body, to be designated by the Committee at the
Shareholders’ Meeting,
II.5.2.4.- suggests members of the Administrative Body who will become members of the different Committees of the
Administrative Body, according to their background,
II.5.2.5.- recommends that the Chairman of the Board of Directors is not in turn General Manager of the Issuer,
II.5.2.6.- ensures that the résumés of the members of the Administrative Body and senior managers are available on the
Issuer’s website and, for the former, explaining the time they will serve,
II.5.2.7.- ascertains that there is a succession plan for members of the Administrative Body and senior managers.
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The Company has no Appointment Committee, for the reasons indicated in the above answer. However, at Telecom Argentina
the Chairman of the Board of Directors is not the GED, and the resumés of the members of the Board of Directors and senior
managers are available on the Telecom Group website (see section “Investors”, subsection “Financial Information”, “20F”).
As there is a current Shareholders’ Agreement for shareholders in Sofora Telecomunicaciones S.A., the Board of Directors
does not plan to change the reported conditions immediately.
II.5.3.- If deemed relevant, add any policies implemented by the Appointment Committee of the Issuer, which have not been
mentioned in the above item.
The Company does not have any Appointment Committee, so there are no other policies determined by such Committee.
Recommendation II.6: Review the desirability of a member of the Administrative Body and/or member of the Supervisory Committee serving in different Issuers.
Answer whether the Issuer determines any restriction for a member of the Administrative Body and/or member of the
Supervisory Committee to serve in other entities not belonging to the business group, of which the Issuer is a leader / member.
Specify such restriction and indicate if during the year any violation of such restriction has occurred.
The Company does not provide a restriction to a member of the Board of Directors and/or Supervisory Committee, who may
serve in other entities. However, a member of the Audit Committee is requested to disclose if he/she is a member of the audit
committee of other listed companies. Such members agree to report to the Board of Directors if they are members of more
than three audit committees of entities in the public offering system, and in this case the Board of Directors reviews whether
this is consistent with the time required to perform such duties at the Company.
The Board of Directors considers that this reporting agreement by a director is sufficient. Therefore, it does not foresee that
it will take any other step on the subject in the short term.
Recommendation II.7: Ensure Training and Development of members of the Administrative Body and senior managers of the Issuer.
Answer whether:
II.7.1.- The Issuer has continuous Training Programs associated to the Issuer’s existing needs, for members of the
Administrative Body and senior managers, including subjects about their role and responsibilities, comprehensive management
of business risks, specific knowledge of the business and its regulations, business governance dynamics and business social
responsibility matters. In the case of members of the Audit Committee, international accounting standards, audit and internal
control regulations and specific regulations for the capital market.
Describe any programs carried on during the year and their level of observance.
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PRINCIPLE III. SUPPORT AN EFFECTIVE POLICy FOR IDENTIFyING, MEASURING, MANAGING AND DISSEMINATING BUSINESS RISk
Within the framework of corporate governance:
Recommendation III: The Administrative Body should have a comprehensive business risk management policy, and monitor its due implementation.
Answer if:
III.1.- The Issuer has in place comprehensive business risk management policies (including fulfillment of strategic,
operating and financial objectives, financial reporting, compliance with laws and regulations). Provide a description of the
most relevant topics on this matter.
Members of the Board of Directors who are also members of the Audit Committee or the Regulatory Compliance Committee
are assisted by independent external advisors who are specialized in the matters of concern for each Committee, who keep
such members updated on such matters and train them periodically.
See also answer to item II.1.1.9 with respect to the Managerial Updating Program and the so-called “Telecom University”.
The Board of Directors considers that such advisory, teaching and training actions, where required, are sufficient and
satisfactory. Therefore, it does not foresee making any other determination in this respect for the time being.
II.7.2.- The Issuer encourages members of the Administrative Body and senior managers, by other means not mentioned in
II.7.1, to maintain permanent training to supplement their education, so as to add value to the Issuer. Indicate how this is done.
The Company usually gives its managerial personnel the means to attend training courses and seminars on subjects relating
to their duties, given by universities, professional colleges and other institutions specializing in training, both in the country
and abroad.
Education proposals include in-Company activities, as described in item II.1.1.9, and attendance at specific activities in
accordance with the demand for management, and programs carried on at outside local or international institutions.
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On September 20, 2012, the Board of Directors of the Company approved the implementation of a Comprehensive Risk
Management Process for the Telecom Group and the creation of a Risk Committee, which was entrusted with the preparation
of a Risk Management Policy, to be submitted for approval by the Board of Directors.
Such Risk Management Policy was approved by the Board of Directors at its meeting of December 17, 2012, and in May
2015, the Board of Directors approved the introduction of certain improvements to the Policy to fulfill its Comprehensive Risk
Management process. Among them stands out the adoption, as framework, of the guidelines of the Enterprise Risk Management-
Integrated Framework from 2004 issued by the COSO. The policy aims to identify, measuring and manage effectively the
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Company’s risk applying the following principles: processes and objectives approach, ownership, objectivity, valorization of
synergies, directives and coordination, continuous improvement and excellence.
The Risk Management Policy does not cover financial reporting risks, which are subject of the certification process prescribed by
Section 404 of the Sarbanes Oxley Law, as described in section B.4.1.i) of this Annual Report.
III.2.- There is a Risk Management Committee within the Administrative Body or the General Management. Inform
about the existence of procedure manuals, and list the main risk factors that are specific to the Issuer or its business, and any
mitigating action implemented. If there is no such Committee, describe the supervisory role played by the Audit Committee
with reference to risk management.
Also, specify the degree of interaction between the Administrative Body or its Committees and the General Management of
the Issuer, on the subject of comprehensive business risk management.
The Company has a Risk Committee organized by the Board of Directors, who has been given the responsibility of providing
mechanisms to identify, measure and mitigate the main risks of the Telecom Group. The Risk Committee is presided by the GED
and is constituted by members of Senior Management.
The duties of the Risk Committee include reviewing and implementing policies, mechanisms and procedures to identify,
measure and mitigate risks to the Company and its subsidiaries, and also recommend action or adjustments considered
necessary to reduce the risk profile of the organization. For this, it is based upon the “Organizational Procedure of Enterprise
Risk management”.
The main risk factors encountered by the Company include those associated to regulatory matters, with the domestic and
international macroeconomic context, and legal issues. A detailed description of the risk factors faced by the Telecom Group
is given on the occasion of issuing Form 20-F, which is submitted on a yearly basis to the SEC and available on the Telecom
Group’s website.
The Company and its controlled entities have different action plans endeavoring to mitigate, in whole or in part, high impact
risks facing the Telecom Group. However, it cannot be assured that such plans will be totally effective, or that there could be
other events, unforeseen at the date of this Report, that could affect the performance of the Telecom Group.
Since the implementation of the Risk Management Process, the Company Management informs the Audit Committee on
a semiannually basis, with the assistance of the Internal Audit area, and the Board of Directors on an annual basis, any
developments and conclusions at Risk Committee meetings.
III.3.- There is a separate function within the General Management of the Issuer, which implements comprehensive risk
management policies (the duties of a Risk Management Officer or equivalent). Specify.
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There is “Risk Management” function (with the rank of a Manager, and separate from any other operating or corporate
function), whose responsible person in turn serves as Secretary of the Risk Committee and reports directly to the Director of
Administration, Finance and Control, who in turn reports to the GED.
III.4.- Comprehensive risk management policies are permanently updated as per recognized recommendations and
methodologies on the subject. Indicate which ones.
The Company follows, as a framework, the guidelines of the “Enterprise Risk management-Integrated Framework of 2004”
issued by the COSO. Any new recommendation or recognized methodology is applied to the risk management policy of the
Telecom Group
Financial reporting risks are reviewed as certified under section 404 of the Sarbanes Oxley Law, and its reference framework is
the Internal Control-Integrated Framework of 2013 issued by the COSO.
III.5.- The Administrative Body communicates the results of risk management supervision carried out jointly with the General
Management, in the financial statements and Annual Report. Specify the main items of the statements made.
Pursuant to International Financial Reporting Standards (IFRS), the Financial Statements include a specific Note on Financial
Risk Management.
In Section B.4.1.f) of this Annual Report, are described the objectives and action taken at the date of issuance thereof, on the
subject of comprehensive risk management.
PRINCIPLE IV. SAFEGUARD THE INTEGRITy OF THE FINANCIAL INFORMATION WITH INDEPENDENT AUDITS
The corporate governance guidelines should:
Recommendation IV: Ensure independence and transparency of duties entrusted to the Audit Committee and the External Auditor.
Answer whether:
IV.1.- The Administrative Body, where it selects the members of the Audit Committee, as a majority thereof must be
independent, reviews the desirability of having an independent member as chairman.
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The Board of Directors appoints the members of the Audit Committee, but not its Chairman, who is elected by the Committee
members and/or SEC regulations.
On the occasion of the appointment of the members of the 2015 Audit Committee, the Board of Directors, evaluating the
desirability that the Audit Committee be chaired by an independent member, proposed the Audit Committee the designation as
Chairman among one of its members who would qualify as “Independent director” under the CNV rules.
Since its creation to date, the Audit Committee of the Company has always been chaired by a member qualifying as “independent”
under the rules of the CNV.
IV.2.- There is an internal audit function reporting to the Audit Committee or to the Chair of the Administrative Body, and
who is responsible for reviewing the internal control system.
Indicate if the Audit Committee or the Administrative Body does an annual review of the performance of the internal audit
area, and the extent to which its professional work is independent, such meaning that the professionals responsible for such
function are independent from the other operating areas, and also comply with the independence requirements with respect
to the controlling shareholders or any related entities who exercise significant influence on the Issuer.
Also specify whether the internal audit function does its work in compliance with international professional auditing standards,
as determined by the Institute of Internal Auditors (IIA).
There is an Audit Direction that depends by rank from the Chair of the Board of Directors, and by function to the Audit
Committee.
The Audit area provides independent services with respect to operating areas, and serves assurance and consulting purposes
designed to add value and improve the operations of Telecom Argentina and its controlled companies, thus contributing to
pursue corporate objectives and provide a systematic and disciplined approach, in order to assess and improve the effectiveness
of the of the risk management, control and governance processes.
Such services include planning, supervising, coordinating and carrying out all the activities intended to provide safety about
the effectiveness of the Telecom Group’s internal control system, so as to guarantee the efficiency of the operations; safeguard
property; truth of information; compliance with internal and external rules regulating the business, minimize organization risks
and generating value to the Company and its shareholders.
The duties of the Audit Committee provided by the related Annual Action Plan, as the party responsible for monitoring the
effectiveness of the internal control system at the Telecom Group, include supervising and reviewing the performance of the
Audit Direction.
Independence of the audit function is determined by the Company organization chart and ensured by the following:
• The Audit area, under the Regulation implementing the Audit Committee, approved by the Board of Directors, depends
by rank from the Chairman of the Board of Directors, and reports by function to the Audit Committee jointly, and not to a
certain member in particular.
• The annual Audit Plan is approved by the Audit Committee.
• The Audit area has unrestricted access to the Audit Committee, to the top Directors and Managers, and to all operating
areas of the Company.
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On a yearly basis, the Audit Committee assesses the qualifications, performance and independence of the External Auditors
selected by the Shareholders’ Meeting, and its conclusions are included in the Annual Report by the Audit Committee, which is
attached to the Annual Report of the Company.
With this purpose, its annual plans are revised and, especially, regular meetings are held with them in order to know, review,
request documentation selectively, in order to review their internal quality controls; the scopes and plans for their limited reviews
for the intermediate periods, and for their annual audit.
Interaction is also done with the External Auditors in order to obtain selective documentation and draw conclusions over their
critical accounting policies and alternative accounting treatments discussed with the Management; the most significant estimates
and judgments; changes to the scope of work or planned procedures to contemplate any changes to their risk assessments;
suggestions to improve accounting procedures and internal control; the engagement of specialists or experts in significant
matters, and the results and reports relating to their limited quarterly reviews and annual audit.
On the other hand, reviews are made about the different professional services provided to the Company and its controlled
entities, and their consistency with independence criteria determined under professional standards and the Rules of the CNV and
the SEC. Finally, the External Auditors submit their annual letter with their statements of independence.
IV.4.- The Issuer has a policy referred to the rotation of members of the Supervisory Committee and/or the External Auditor;
as to the latter, if the rotation includes the external auditing firm or only individuals.
• The Audit area does not participate in any operating activities or account recording, neither in its assurance services nor in
its consulting activities provided to the organization.
Neither the Audit area nor the internal auditors individually have any authority and/or direct responsibility on the activities they
audit, and, in the performance of their duties, internal auditors shall avoid any conflict of interest. Any circumstance that could
compromise the independence or objectivity of the Audit area, or its Director, or any first report Managers, shall be informed by
the Audit Director to the Audit Committee.
The Audit area performs its duties under International Standards for the Professional Practice of Internal Auditing. After a
thorough assessment process, the Audit area at the Telecom Argentina Group, on October 1, 2013, was awarded a Quality
Certificate that is valid for 5 years, which determines that the internal auditing system complies with International Professional
Auditing Standards as provided by “The Institute of Internal Auditors – USA”. Such certificate also shows the commitment of the
Audit area to continuous improvement in quality, professional work and best practices. This certification was also provided by
the “Instituto de Auditores Internos de España” (IAIE) and by the “Instituto de Auditores Internos de Argentina” (IAIA).
IV.3.- The members of the Audit Committee perform an annual assessment of the qualifications, independence and
performance of the External Auditors, designated by the Shareholders’ Meeting. Describe any relevant issues with the procedures
followed to make such assessment.
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Although the Company has no policy referred to the rotation of members of the Supervisory Committee and/or the External
Auditor, with respect to the latter, the Rules of the CNV and/or SEC regulations apply.
CNV rules (NT 2013) approved by Resolution No. 622/13, have introduced the obligation of the rotation of external auditors by
providing in Title II, Chapter III, that "The period in which a professional association may lead audit works in an entity authorized
to make public offering of its securities shall not exceed THREE (3) years. The members of the professional association may not
perform tasks for more than TWO (2) years period. " This rule was subsequently expanded by Resolution No. 639/15 of April
21, 2015, setting forth that the maximum period of THREE (3) years in which an association or firm can conduct the auditing
of an entity authorized to engage in a public offering of its marketable securities "may be extended by THREE (3) years more
by decision of the shareholders meeting when it is expressly set as a point in the agenda and has a prior favorable opinion,
duly established, of the Board of Directors, the Supervisory Committee and the Audit Committee – where appropriate-". The
shareholders representing at least FIVE PERCENT (5%) of the shareholding may well-founded oppose the extension of the period
of rotation of the association or firm, in which case the regulatory period of rotation shall not be extended until the National
Securities Commission issues on this regard." Likewise, the Resolution No. 639/15 extended from two (2) to three (3) years the
period in which professional members of the association or firm may exercise their task on a continuous basis.
With respect to the rotation of the partner responsible for the audit, the CNV Regulations (NT 2013) established a maximum of
three (3) years for a professional to perform that duty on a continuous basis. In addition, it defines a minimum period in which
said partner may not participate in the audit, setting forth said period in three (3) years. In turn, Section 203 of the SOX Act, to
which the Company is subject for trading its stock at the NYSE, establishes rotation requirements for the audit firm indicating: "it
shall be unlawful for a registered auditing firm to provide audit services to an issuer if the partner who leads or co-ordinates the
audit (which is responsible for the audit)", or the partner in charge of reviewing the audit, has performed audit services to that
issuer in each of the 5 previous years".
PRINCIPLE V. OBSERVE SHAREHOLDER RIGHTS
The corporate governance guidelines should:
Recommendation V.1: Ensure that the shareholders have access to Issuer information.
Answer whether:
V.1.1.- The Administrative Body promotes regular informative meetings with the shareholders, which coincide with the
submittal of intervening financial statements. Explain, indicating the number and frequency of meetings held during the year.
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The Board of Directors promotes regular informative meetings with the shareholders. A specialized area (Investor Relations) was
created to address their concerns. In 2015 meetings were organized with approximately 260 investment funds, rating agencies
and investment banks analysts by means of face-to-face meetings, conferences and teleconferences, which discussed matters
associated to the macroeconomic context, the telecommunications industry, business conditions and financial developments of
the Company. Likewise, every quarter a conference call is held to consider the results of the period, which is publicly informed
and may be attended by shareholders and third parties who so request. In addition to this, the GED meets on a quarterly basis
with specialized journalists, to discuss, among other matters, the financial and operating results of the Company, which are
publicly disseminated.
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V.1.2.- The Issuer has mechanisms to inform investors and a specialized area to attend to their queries. Additionally, the
Issuer has a website for access by shareholders and other investors, which provides an access channel where they can make
mutual contact. Give details.
As indicated in the above item, the Company has an Investor Relations Management specializing in queries from and information
to shareholders. The Company also has a website where shareholders and investors can be informed, but cannot make mutual
contact.
The Company considers that its website is sufficiently informative and interactive, and, for the time being, does not plan to
provide access as described in this item.
Recommendation V.2: Encouraging active involvement by all shareholders.
Answer whether:
V.2.1.- The Administrative Body takes steps to encourage involvement by all shareholders at Shareholders’ Meetings. Explain,
distinguish the steps required by law from those offered voluntarily by the Issuer to its shareholders.
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The Board of Directors encourages attendance and involvement of minority shareholders at Shareholders’ Meetings, by
publishing the call and the matters to be dealt with (publications, notices to local and foreign regulatory entities, website),
and gives advice to local shareholders on the formal requirements to be fulfilled to register and participate at a shareholders’
meeting. Also, through the Investor Relations Management, it gives advice to holders of ADRs or to any proxy advisors thereof
on the formal requirements to be fulfilled in order to participate.
V.2.2.- the Shareholders’ Meeting has a regulation for its functioning, which ensures that the information is available to the
shareholders, sufficiently in advance for decision-making purposes. Describe its main guidelines.
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Although there is no Regulation for the functioning of a Shareholders’ Meeting, as to the availability of documentation, the
Board of Directors sends the CNV through the “Autopista de Información Financiera” (“AIF”), the Bolsa de Comercio and the
SEC and the NYSE, all the documentation to be considered and any proposals made by the Board of Directors on the matters
to be discussed by the Shareholders’ Meeting, at least 20 calendar days in advance. In addition, all the documentation to be
considered is published on the Company website, and a copy is provided to the shareholders when they register to attend the
Shareholders’ Meeting.
The Board of Directors considers that the provisions in local regulations and the Corporate Bylaws are sufficient to govern the
functioning of the Shareholders’ Meeting, and sufficiently ensure that the documentation and information will be available to the
shareholders. Therefore, it does not foresee any changes in this respect in the short term.
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V.2.3.- The Issuer has implemented mechanisms to ensure that minority shareholders can propose matters for discussion by
the Shareholders’ Meeting, in compliance with applicable regulations. Explain the results.
The Company complies with applicable regulations, and no minority shareholder representing at least 5% of the stock has
requested to date the addition of any item to the Agenda of a Shareholders’ Meeting, nor has requested the calling to a
Shareholders’ Meeting under section 236 of GCL. If any shareholder did so, the Company would consider its addition if the
request complies with applicable legislation.
The Company has not implemented any special mechanism for a minority shareholder to propose matters for discussion at
a Shareholders’ Meeting, since the Board of Directors considers that the matter is sufficiently contemplated under applicable
regulations. Therefore, it does not foresee any decisions in this respect.
V.2.4.- The Issuer has policies in place to encourage involvement by the most significant shareholders, such as institutional
investors. Specify.
The Company seeks to encourage involvement by all shareholders, without distinguishing according to their size. The ADR
manager at the Company takes action to promote participation by the holders of such ADRs at Shareholders’ Meetings.
V.2.5.- At a Shareholders’ Meeting where members of the Administrative Bodies are designated, the following is informed
prior to voting: (i) the opinion of each candidate with respect to adopting or not a Corporate Governance Code; and (ii) the
grounds for such opinion.
Taking into account that there is no legal provision that so determines, nor is it a matter of local use or custom, the Board of
Directors does not plan to make any decision in this respect.
Recommendation V.3: Ensuring the principle of equality between share and vote.
Answer whether the Issuer has a policy that promotes the principle of equality between share and vote. Indicate how the
holdings of outstanding shares have changed for each class in the last three years.
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Since the Company organization, the three classes of shares evidencing its corporate equity (A, B and C) have always granted
identical property and voting rights (all the shares are of common stock, with a par value of $ 1, entitling the holder to one vote
per share). In the last three years, the composition of the outstanding shares has changed, since the Class “C” Shares, originally
involved in the Company Co-ownership Program, now terminated, have been converted to Class “B” Shares upon judicial
requirement or by request of their holders, which conversion has been approved in each case by the CNV and the BCBA. Below
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is a detailed account of changes since 2006 up to the date of this annual report with the composition of the outstanding shares
as a result of the above mentioned conversions:
I) Details of the conversion of 41,339,464 Class “C” Shares into Class “B” Shares, as approved by the Shareholders’ Meeting
of April 27, 2006.
TrancheFirst
Second
Third
Fourth
Fifth
Sixth
Seventh
Eighth
Ninth
Tenth
Eleventh
Conversiondate
07-25-2006
10-10-2006
12-14-2006
06-01-2011
07-22-2011
08-15-2011
10-14-2011
11-15-2011
11-15-2011
12-12-2011
12-22-2011
Number of Class C shares convertedinto Class B shares in the tranche
2,112,986
2,104,756
279,229
4,000,000
1,296,740
1,192,261
22,127,135
3,948,793
2,769,710
1,307,992
199,862
41,339,464
II) Details of the conversion of 4,593,274 Class “C” Shares into Class “B” Shares, as approved by the Shareholders’ Meeting
of December 15, 2011.
TrancheFirst
Second
Third
Fourth
Fifth
Sixth
Seventh
Eighth
Ninth
Conversion date
03-16-2011
05-11-2012
08-01-2012
09-13- 2012
11-22-2012
07-02-2013
07-15-2013
06-12-2014
06-15-2015
Number of Class C shares convertedinto Class B shares in the tranche
3,281,265
584,418
97,108
148,899
110,863
25,986
77,297
656
24,901
4,351,393
132
As of the date of this report, Balance of Class “C” Shares pending conversion, which constitute the Total Class “C” Shares in
Telecom Argentina, amounts 241,881 shares.
Likewise, in 2013 the Company implemented a Program for the Acquisition of Treasury Shares by virtue of which it holds
15,221,373 treasury stock Class B, representing 1.55% of the total capital stock. As a result, the outstanding capital stock is
reduced in this proportion. See Note 19 to the Consolidated Financial Statements as of December 31, 2015.
Recommendation V.4: Providing mechanisms to protect all shareholders against a takeover.
Answer whether the Issuer adheres to the Compulsory Public Purchase Offer Regime. Otherwise, explain if there are other
alternative mechanisms, provided in the bylaws, such as tag along or other.
Article 90 of Law No. 26,831 on Capital Markets provides that: “The public offering system by acquisition, regulated in this
chapter, and the residual interest system regulated in the following chapter, comprise all listed entities, even those that opted
to be excluded from their provisions under the previous system”. If any of these circumstances of public offering of compulsory
acquisition under Law No. 26,831 is set, it will be accomplished to the mandatory regime established by that law.
Recommendation V.5: Encouraging share dispersion in the Issuer.
Answer if the Issuer has a share dispersion of at least 20 per cent for its shares of common stock. Otherwise, the Issuer has a
policy to increase its share dispersion in the market.
Indicate which is the percentage of share dispersion, as a percentage of the capital stock in the Issuer, and how it has changed
in the last three years.
The controlling company Nortel Inversora S.A. holds 54.74% of the total capital stock, which is fully evidenced by common
shares.
The remaining 45.26% of the capital stock is dispersed between different Argentine minority shareholders and foreign
shareholders (ADRs’ holders) and 15,221,373 treasury shares (1.55% of the capital stock). The percentage of dispersion of
capital stock has not changed in the last three years.
Recommendation V.6: Ensuring that there is a transparent dividend policy.
Answer whether:
V.6.1.- The Issuer has a dividend distribution policy prescribed in its Corporate Bylaws and approved by the Shareholders’
Meeting, providing conditions for the distribution of dividends in cash or in shares. If so, indicate the criteria, frequency and
conditions that must be fulfilled for the payment of dividends..
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
133
The Company does not have any dividend distribution policy contemplated in the Corporate Bylaws and approved by the
Shareholders’ Meeting, which determines the conditions for the payment of dividends in cash or in shares. The Board of Directors
does not foresee that it will propose to the Shareholders’ Meeting any approval of a dividend policy, because it considers it
preferable for the Shareholders’ Meeting to maintain the necessary discretion to determine the distribution of unallocated results
in the way that is most suitable, within the circumstances of each fiscal year and the actual investment requirements of the
Company business at each time.
V.6.2.- The Issuer has documented processes for the preparation of the proposal for the use of retained results of the Issuer,
that result in the creation of statutory reserves, by-law reserves, voluntary reserves, carrying-over to a new fiscal period and/or
payment of dividends.
Explain such processes and indicate in detail in what Minutes of Shareholders’ Meeting the distribution of such dividends was
approved (in cash or in shares) or not, if not prescribed the Corporate Bylaws.
The Corporate Bylaws provide for the possibility of using unallocated results for multiple purposes, upon prior creation of the
Legal Reserve prescribed by GCL, thus: dividend payments, creation of voluntary or contingency reserves, carrying over to
the next fiscal period, or such use as the Shareholders’ Meeting requires, without determining any percentage in this respect.
The Board of Directors proposes that the Shareholders’ Meeting specifically consider the use of cumulative earnings, and
supports its dividend payment proposal or the reasons for which such payment is not advisable.
In accordance with Title II, Chapter II, article 27 of CNV rules (NT 2013): “shareholders’ meeting considering financial
statements, the cumulative results of which give a negative result in the account Retained Earnings, of a magnitude that results
in the applicability, as the case may be, of sections 94, subsection 5, 95 or 206 of the Law No. 19,550, or else a positive
balance, not subject to restrictions as to its distribution, and subject to treatment under sections 68, 70 third paragraph, 189
or 224, first paragraph, of the same law, shall make a specific decision under such provisions (…). If the balance is positive,
a decision shall be made, in the same manner, on the actual distribution thereof by way of dividends, their capitalization with
delivery of fully paid-in shares, their use as reserves other than statutory reserves, or a combination of such devices as the
case may be....”
The internal process of review for the possible use of unallocated results is made in a final proposal that the Board of
Directors selects among the financially available alternatives.
Details of cash distributions approved in the last years:
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
|Shareholders ‘meeting dateApril 28, 2010
April 28, 2010
April 7, 2011
April 27, 2012
May 21, 2013
May 21, 2014
May 21, 2014
April 29, 2015
Cash dividendsin $
689,066,685
364,220,961
915,474,310
807,192,402
1,000,000,000 *
600,878,955.5
600,878,955.5
804,402,472
Payment dateMay 5, 2010
December 20, 2010
April 19, 2011
May 10, 2012
December 27, 2013
June 10, 2014
September 22, 2014
May 11, 2015
*On December 13, 2013, the Board of Directors resolved disaffect the “Reserve for future Cash Dividends” constituted by the Shareholders’ Meeting held on May 21, 2013.
134
No Shareholders’ Meeting of the Company, since its organization, has determined a distribution of dividends in shares.
PRINCIPLE VI. MAINTAIN DIRECT AND RESPONSIBLE CONTACT WITH THE COMMUNITy
The corporate governance guidelines should:
Recommendation VI: giving the community a disclosure of matters relating to the Issuer, and a direct channel of communication with the Company.
Answer whether:
VI.1 The Issuer has a website with access available to the public, which is updated and not only provides relevant information
of the Company (including Corporate Bylaws, economic group, membership in the Administrative Body, financial statements,
Annual Report) but also receives queries from users in general.
The Company website, specifically in the sections “Press”, “Investors”, “CSR” and “Leave us your CV”, includes the option
to receive queries from users generally, so as to enable a constant interaction with third parties and receive their queries.
VI.2 The Issuer issues an annual Social and Environmental Responsibility Report, verified by an independent External Auditor.
If it exists, indicate its scope and legal or geographic, and where it is available. Specify which rules or initiatives have been
adopted to carry on its business social responsibility policy (including the Global Reporting Initiative and/or the United Nations
Global Pact, ISO 26.000, SA8000, Development Objectives for the Millennium, SGE 21-Foretica, AA 1000, Equator Principles).
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Since 2007, Telecom Argentina issues an annual Corporate Social Responsibility (CSR) Report, as a Sustainability Report
(Social and Environmental). The Report is verified by independent external auditors since 2010.
The scope of the Report includes territories operated by Telecom Argentina and its controlled companies in Argentina and
Paraguay.
The CSR Report is available on Telecom Argentina’s corporate website and on paper to any shareholder who requests it,
and is submitted as an annual progress report on the website of the United Nations Global Pact, in which the Company is a
subscribing member since 2004.
The fundamentals of Telecom Argentina’s CSR policy and Sustainability include:
• The Code of Business Ethics and Conduct of our Company.
• The ten universal principles of the United Nations Global Pact.
• The standard Global Reporting Initiative GRI, which is used as a Guide for Preparation of the Annual Report; and the
related economic, social and environmental performance assessment.
• Final version of the standard AA1000SES, surveying stakeholder expectations.
135
PRINCIPLE VII. PAy FAIR AND RESPONSIBLE COMPENSATION
Within the environment or corporate governance, the following must be done:
Recommendation VII: Establish clear compensation policies for members of the Administrative Body and senior managers of the Issuer, with special attention to restrictions provided by law or contract, depending on the existence or inexistence of profits.
Answer whether:
VII.1.- The Issuer has a Compensation Committee:
VII.1.1.- comprising at least three members of the Administrative Body, mostly independent,
VII.1.2.- chaired by an independent member of the Administrative Body,
VII.1.3.- including members who are sufficiently qualified and experienced in human resource policy matters.
VII.1.4.- meeting at least twice a year.
VII.1.5.- whose decisions are not necessarily binding upon the Shareholders’ Meeting or the Supervisory Board, but merely
consulting, as regards the election of members of the Administrative Body.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Although the Company does not have a Compensation Committee, the Board of Directors considers that the opinion given
on a yearly basis by the Audit Committee, on the reasonability of compensation to members of the Board of Directors, and
the approval of the general compensation policy of the Group, by the Steering Committee (a committee within the Board of
Directors) ensures a detailed review thereof.
Also, approval of the compensation policy by the Steering Committee results from the Shareholders’ Agreement among
shareholders of Sofora Telecomunicaciones S.A.
Therefore, the Board of Directors does not foresee any change in the reported conditions for the immediate future.
VII.2.- If there is a Compensation Committee, it:
VII.2.1.- ensures that there is a clear relation between the performance of key personnel and their fixed and variable
compensation, upon taking into account the risks undertaken and their management,
VII.2.2.- supervises that the variable part of the compensation of members of the Administrative Body and senior managers
is associated to the medium and/or long-term performance of the Issuer,
VII.2.3.- reviews the competitive position of the Issuer’s policies and practices, with respect to compensation and benefits at
comparable businesses, and recommends or does not recommend any changes,
VII.2.4.- defines and communicates the retention, promotion, termination and suspension policies for key personnel,
VII.2.5.- informs the guidelines to be followed to determine retirement plans for members of the Administrative Body and
senior managers of the Issuer,
VII.2.6.- regularly reports to the Administrative Body and to the Shareholders’ Meeting any actions taken and matters
reviewed at its meetings,
VII.2.7.- ensures attendance by the Chair of the Compensation Committee at the Shareholders’ Meeting approving
compensation to the Administrative Body, in order to explain the Issuer’s policy with respect to compensation of members of
the Administrative Body and senior managers.
VII. 3.- If deemed relevant, mention any policies of the Issuer’s Compensation Committee that have not been mentioned in
the above item.
136
As indicated in item VII.1, the Company does not have a Compensation Committee.
However, as regards the Administrative Body, the Audit Committee gives its opinion as to the reasonability of the total amount
of their fees, and reviews their competitive status.
As to the first managerial line and key personnel, the Steering Committee (comprising members of the Board of Directors):
i) ensures that the performance of key personnel is consistent with their fixed and variable compensation, by approving the
general compensation policy, MBO and LTI; ii) supervises that the variable portion of the compensation of senior managers
is consistent with the Issuer’s performance (corporate objectives of the MBO and LTI); iii) reviews the comparative position of
the compensation and benefits at comparable businesses.
For the same reasons indicated in the above item, the Board of Directors does not foresee that it will make any immediate
changes to the conditions reported above.
PRINCIPLE VIII. ENCOURAGE BUSINESS ETHICS
The corporate governance guidelines should:
Recommendation VIII: Ensure Ethical Behavior within the Issuer
Answer whether:
VIII.1.- The Issuer has a Code of Business Ethics. Indicate the main guidelines, and if it is available to the public. Such code
is signed by at least the members of the Administrative Body and senior managers. Note if their applicability to suppliers and
customers is encouraged.
On November 2, 2015 the Boards of Directors of Telecom Argentina and Telecom Personal approved a new Code of
Business Ethics and Conduct which is of public knowledge since it appears in the website of the parent company Telecom
Argentina, in the Intranet of the Group and has been disseminated through posters in all buildings and in the corporate
magazine; both the posters and the magazine show a QR code by which the Group employees can download the documents
on their mobile devices. The Code of Business Ethics and Conduct is applicable to all members of the Board and of the
Supervisory Committee, GED, Directors, Managers and other employees in any of their contract modalities, in all companies
of the Telecom Group; all the above who joined companies of the Group are made aware of the Code of Ethics and the
sites where available, and they commit to abide by its principles and provisions.
In December 2015, a form was sent to the Macrostructure of the Group to be signed by the Directors and Managers in which
they state that they know and accept the terms and conditions contained in the Code of Business Ethics and Conduct, the
Conflict of Interest and Anti-corruption Policies.
VII. 4.- If there is no Compensation Committee, explain how the functions described in VII.2 are performed within the
Administrative Body.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
137
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
The Code of Business Ethics and Conduct provides that any suppliers, contractor, advisors and consultants of the Telecom
Group shall be encouraged to accept the ethical principles of such Code, as established in internal standards.
Besides, the Company has within its institutional website the “General Contractual Conditions”, where the ethical principles
generally accepted for the management of businesses are specifically included: transparency, integrity and fairness, with the
commitment to abide by and enforce the laws in force and the ethical rules guiding the internal relationships of the business
and with the community in general.
VIII.2.- The Issuer has in place mechanisms to receive reports of any unlawful or unethical conduct, either personally or by
electronic means, ensuring that the information is transmitted with high standards of confidentiality and completeness, such as
recording and preserving the information. Indicate if the service receiving and reviewing reports is provided by Issuer personnel
or by external and independent professionals, for greater protection of the reporting parties.
As established in the Ethics Code, the Group encourages immediate reporting of any actual or potential violation of applicable
laws, standards or regulations, or any provisions in such Code or the Policies, and agrees to seriously investigate any bona
fide report referred to such violations. It is hereby stated that the Company will not tolerate any type of reprisal by reason of
a report or complaint, made in good faith with respect to improper behavior, and requests all personnel to cooperate in any
internal investigation of improper behavior or violation of the Code.
Any act that actually or potentially violates any applicable law, standard or regulation, or any provision in the Code of Business
Ethics and Conduct, and likewise any questioning on accounting matters, internal control, accounting or audit, may be
reported on the Internet website www.telecom-denuncias.com.ar, intended to receive reports, which ensures confidentiality of
the information received. The software application supporting the website to receive reports was developed and is maintained
by external and independent professionals. Also, a report may be made personally or in writing to any member of the Audit
Committee of Telecom Argentina. Any report or questioning on accounting matters, accounting internal control matters or
audits, may be submitted anonymously. Reports on other matters may not be made anonymously. As explained in the next
item below, the reports are received by Company’s Internal Audit, but are subject to supervision by the Audit Committee of
Telecom Argentina.
VIII.3.- The Issuer has in place policies, processes and systems for the management and resolution of reports mentioned
in item VIII.2 above. Describe the most significant parts thereof and indicate the extent of the Audit Committee’s involvement in
such resolutions, especially in those reports associated to internal control matters on accounting reports, and on the behavior of
members of the Administrative Body and senior managers.
The Company has in place processes and systems for the management and resolution of reports. Such processes are
included in the Code of Business Ethics and Conduct and in the Antifraud Policy.
The Audit area reviews any report and may dismiss any report it deems slanderous or lacking seriousness, or any report made
anonymously, unless it refers to accounting, accounting internal control or audit matters.
However, the Audit area shall report to the Audit Committee any report dismissed and the reason for its dismissal, whereupon
the Audit Committee is empowered to revise a decision on any report at its discretion.
138
The Company has performed the assessment, concluding that current provisions contained in the Bylaws, together with
the laws applicable to the Company (primarily the GCL, Law No. 26,831, the CNV regulations, U.S. laws and rules that
are applicable to the Company because of listing its shares on the NYSE), make an appropriate regulatory framework for
corporate governance and for general and specific responsibilities of the members of the Board and the Senior Management.
So far the Board of Directors has considered that it is not necessary to include, in the whole or in part, the provisions of the
Code of Corporate Governance in the Bylaws.
The Audit area shall apply, to any report received, the Report Management Procedure attached as Annex 2 to the Antifraud
Policy, which implies involving the Audit Committee in the supervision of the entire process, for which purpose the Audit area
shall keep it permanently informed.
The Audit Committee hears any report or questioning involving accounting, accounting internal control or audit matters, with
exclusive powers to investigate and take any action it deems necessary with regard to such report or questioning received.
Any report involving the Audit Committee or any member thereof shall be heard by the Supervisory Committee of the
Company, who shall review the issue and, if the case so requires, shall bring it to the attention of the Board of Directors,
which decides on the matter.
PRINCIPLE IX: PROMOTE THE SCOPE OF THE CODE
The corporate governance guidelines should:
Recommendation IX: Promote inclusion of the provisions for good governance practices to be reflected in the Bylaws.
Answer whether the Administrative Body assesses whether the provisions of the Corporate Governance Code should be
reflected in whole or in part, in the Bylaws, including the general and specific responsibilities of the Administrative Body.
Indicate which statements are actually included in the Bylaws from the force of the Code to the present.
Degree of Compliance in 2015Full Compliance Partial Compliance Non Compliance
139
ANNEX A (IN RELATION WITH THE ANSWER TO RECOMMENDATION II.4.2)
Shareholders’ Agreement Sofora Telecomunicaciones S.A. (indirect controller of Telecom Argentina S.A.) dated 08/05/2010, as amended on 10/13/2010 and 03/09/2011
13.2 Notwithstanding anything to the contrary contained
in Article 3 of this Agreement, in the event TI and TII hold
in aggregate a participation in Sofora Telecomunicaciones
S.A. (“the Company”) higher than 50% of the Company’s
share capital, TI shall be entitled to nominate the absolute
majority of all the Corporate Bodies of the Telecom Argentina
Group and the composition of the Board of Directors of the
companies of Telecom Argentina Group shall be modified
as follows:
(…………..)
(c) Telecom Argentina Board of Directors: seven (7)
members, six (6) of which, together with their alternates,
nominated by Nortel or the Company, as the case maybe
after the Consolidation if any, and one (1), together with his
alternate, nominated by the minority shareholders of Telecom
Argentina should the minority shareholders have the right to
nominate a Representative in Telecom Argentina’s Board of
Directors. The abovementioned six (6) members nominated
by Nortel or the Company, as the case maybe after the
Consolidation if any, shall be designated as follows: four (4)
members together with their alternates, shall be nominated
by TI, out of which one (1) regular and one (1) alternate
shall qualify as independent director pursuant to NYSE Rules
and two (2) members, together with their alternates, shall be
nominated by LOS W, out of which one (1) regular and one
(1) alternate shall qualify as independent director pursuant
to Argentinean Law. In the event the minority shareholders
do not have the right to, or lose their right to, nominate
a Representative in Telecom Argentina’s Board of Directors,
such member together with his alternate - who will be an
independent director pursuant to Argentinean Law– shall be
nominated jointly by TI and LOS W. In case of failure by TI
and LOS W to agree on such Joint Member, the latter shall
be nominated by Nortel or the Company, as the case maybe
after the Consolidation if any.
In case the other shareholders of Telecom Argentina, other
than the Parties, are entitled to appoint more than one (1)
Board member, then the Board composition of Telecom
Argentina shall be modified so that TI shall be entitled to
nominate the absolute majority of the members of the Board
of Directors of Telecom Argentina. In case the minority
shareholders of Telecom Argentina notify the request,
pursuant to art. No. 263 of the GCL, to elect members
of the Board of Directors of Telecom Argentina by way of
cumulative vote, in advance of the Shareholders’ Meeting
which will be held for the appointment of the members of
the Telecom Argentina Board of Directors, the Parties shall
cause Nortel or the Company, as the case maybe after
the Consolidation if any, to propose and resolve, in such
Shareholders’ Meeting, that the Board of Directors of Telecom
Argentina shall be composed of eleven (11) members, and
the following nomination procedure shall apply:
(i) In case the minority shareholders of Telecom
Argentina succeed in nominating one (1) member
of the Board of Directors through the exercise of the
cumulative vote, Nortel or the Company, as the case
maybe after the Consolidation if any shall, and the
Parties shall cause Nortel or the Company, as the case
maybe after the Consolidation if any, to nominate ten
(10) members, nominated as follows: (i) six (6), together
with their alternates, shall be nominated by TI, out of
which one (1) member and its alternate shall qualify
as independent directors pursuant to Argentinean Law
and one (1) member and its alternate shall qualify as
independent directors pursuant to NYSE Rules, while
(ii) the remaining four (4) members, together with their
alternates, shall be nominated by LOS W, out of which
one (1) member shall qualify as independent director
pursuant to Argentinean Law. In the event the member
nominated by the minority shareholders does not qualify
as independent director pursuant to Argentinean Law,
two (2) of the members nominated by LOS W shall qualify
as independent directors pursuant to Argentinean Law.
(ii) In case the minority shareholders succeed in
appointing two (2) members of the Board of Directors
through the exercise of the cumulative vote, Nortel or
the Company, as the case maybe after the Consolidation
if any, shall, and the Parties shall cause Nortel or the
Company, as the case maybe after the Consolidation
if any, to nominate nine (9) members, nominated as
follows: (i) six (6), together with their alternates, shall be
140
nominated by TI, out of which one (1) member and its
alternate shall qualify as independent directors pursuant
to Argentinean Law and one (1) member and its alternate
shall qualify as independent directors pursuant to NYSE
Rules, while (ii) the remaining three (3) members,
together with their alternates, shall be nominated by
LOS W, out of which one (1) member together with its
alternate shall qualify as independent directors pursuant
to Argentinean Law. In the event none of the members
nominated by the minority shareholders qualify as
independent director pursuant to Argentinean Law, two
(2) of the members nominated by LOS W shall qualify
as independent directors pursuant to Argentinean Law.
(iii) In case the minority shareholders succeed in
appointing three (3) members of the Board of Directors
through the exercise of the cumulative vote, Nortel or the
Company, as the case maybe after the Consolidation
if any, shall, and the Parties shall cause Nortel or the
Company, as the case maybe after the Consolidation
if any, to nominate eight (8) members, nominated as
follows: (i) six (6), together with their alternates, shall be
nominated by TI, out of which one (1) member and its
alternate shall qualify as independent directors pursuant
to Argentinean Law and one (1) member and its
alternate shall qualify as independent directors pursuant
to NYSE Rules, while (ii) the remaining two (2) members,
together with their alternates, shall be nominated by
LOS W, out of which one (1) member together with its
alternate shall qualify as independent directors pursuant
to Argentinean Law. In the event none of the members
nominated by the minority shareholders qualify as
independent director pursuant to Argentinean Law, two
(2) of the members nominated by LOS W shall qualify
as independent directors pursuant to Argentinean Law.
141
REPORT ON INDEPENDENT ACCOUNTANT’S REASONABLE ASSURANCE
To the Shareholders, President and Board of Directors of
Telecom Argentina S.A.
Legal address: Alicia Moreau de Justo 50
Autonomous City of Buenos Aires
Tax Code No.: 30-63945373-8
sUbjeCT-MaTTeR of THe analYsIs
We have been engaged to issue a report on the reasonable
assurance of the statement included in the “Report on the
degree of compliance with the Corporate Governance
Code” (Annex IV Title IV of CNV Rules, New Text 2013)
(the “Statement”), which is included in the Annual Report
to the Financial Statements of Telecom Argentina S.A.
corresponding to the fiscal year ended December 31, 2015,
and was prepared to assess the degree of compliance with
the principles and recommendations laid down in Annex IV
Title IV of CNV Rules, New Text 2013, attached to this report
and initialized for identification purposes.
boaRD of DIReCToRs’ ResPonsIbIlITY
The Board of Directors is responsible for the contents of
the Statement. This responsibility includes defining and
using the procedures established to assess the degree of
compliance with the principles and recommendations laid
down in Annex IV Title IV of CNV Rules, New Text 2013. In
addition, the Board of Directors is responsible for the design,
implementation and maintenance of the internal controls
necessary for the Statement to be free of material errors and
the adequate maintenance of supporting documentation
relating to the Statement.
The Board of Directors is also responsible for preventing
and detecting frauds and for complying with the laws and
regulations applicable to Telecom Argentina S.A. In addition,
it must ensure that the personnel assigned to prepare the
Statement is properly trained, the related information
technology systems are duly designed, protected and
updated, and that any change has been properly controlled.
aCCoUnTanT’s ResPonsIbIlITY
Based on our assurance engagement, our responsibility
consists in reaching a conclusion of reasonable assurance
on the responses given and their degree of compliance with
the recommendations included in the Statement prepared
by the Board of Directors of Telecom Argentina S.A., as laid
down in Annex IV Title IV of CNV Rules, New Text 2013.
We have conducted our engagement in conformity with the
regulations on other assurance engagements established
by section V.A. of Technical Pronouncement No. 37 of the
Argentine Federation of Professional Councils in Economic
Sciences. Such regulations require that we fulfill the ethics
requirements and we plan and perform this engagement
to obtain reasonable assurance about the responses given
and their degree of compliance with the principles and
recommendations laid down in Annex IV Title IV of CNV
Rules, New Text 2013.
The procedures selected rely on the accountant’s judgment,
including the risk assessment of material errors in the
Statement. To make such risk assessments, the accountant
considers the relevant internal controls for the reasonable
preparation of the Statement by the entity so as to design
appropriate assurance procedures, based on the present
circumstances but not to express an opinion on the efficiency
of the entity’s internal controls relating to the Statement.
Our engagement of reasonable assurance also included:
• assessment of the appropriateness and sufficiency of
regulations and procedures set by the Board of Directors
to make representations on the degree of compliance
with the principles and recommendations laid down in
Annex IV Title IV of CNV Rules, New Text 2013;
• assessment of the design of key procedures and controls
to monitor, record and report the selected information;
• tests, on a selective basis, to verify the procedures
established by the Board of Directors;
• interviews with the management and senior management
to assess the application of the regulations and
procedures adopted by the Board of Directors relating
to the principles and recommendations laid down in
Annex IV Title IV of CNV Rules, New Text 2013; and
142
• inspection, on a selective basis, of documents to verify
the representations made by the management and
senior management in our interviews.
We consider that the elements of judgment that we have
obtained provide a sufficient and adequate basis for our
conclusion.
ConClUsIon
In our opinion, the responses included in the “Report on
the degree of compliance with the Corporate Governance
Code” (Annex IV Title IV of CNV Rules, New Text 2013) of
Telecom Argentina S.A. corresponding to the fiscal year
ended December 31, 2015, given in connection with the
principles and recommendations laid down in Annex IV
Title IV of CNV Rules, New Text 2013, and their degree of
compliance are reasonable.
Autonomous City of Buenos Aires, February 26, 2016
PRICe WaTeRHoUse & Co. s.R.l.
(Partner)C.P.C.E.C.A.B.A. Tº 1 Fº 17
Carlos a. PacePublic Accountant (uBA)
C.P.C.E.C.A.B.A. T° 150 F° 106
C. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015 AND 2014 AND FOR THE yEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
144
Alicia Moreau de Justo 50 (1107) Ciudad Autónoma de Buenos Aires. Argentina
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015 AND 2014 AND FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013
$: Argentine pesouS$: uS dollar$13.040 = uS$1 as of December 31, 2015
145
ConTenTs
Consolidated Statements of Financial PositionConsolidated Income StatementsConsolidated Statements of Comprehensive IncomeConsolidated Statements of Changes in EquityConsolidated Statements of Cash FlowsGlossary of terms
Description of business and basis of preparation of the consolidated financial statementsRegulatory frameworkSignificant accounting policiesCash and cash equivalents and Investments. Additional information on the consolidated statements of cash flowsTrade receivablesOther receivablesInventoriesProperty, plant and equipmentIntangible assetsTrade payablesDeferred revenuesFinancial debtSalaries and social security payablesIncome tax payables, income tax assets and deferred income taxOther taxes payablesOther liabilitiesProvisionsCommitmentsEquityFinancial instrumentsRevenuesOperating expensesOperating incomeFinance income and expensesEarnings per shareFinancial risk managementRelated party balances and transactionsSegment informationQuarterly consolidated informationUnconsolidated information of the CompanyRestrictions on distribution of profits and dividends
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Note 25
Note 26
Note 27
Note 28
Note 29
Note 30
Note 31
146
147
148
149
151
152
153
156
173
190
196
197
198
200
204
205
206
206
209
210
214
214
215
223
225
227
233
235
237
241
241
242
247
254
258
258
263
146
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(In millions of Argentine pesos)
ASSETS
CuRRENT ASSETS
Cash and cash equivalents
Investments
Trade receivables
Other receivables
Inventories
Total current assetsNon-Current Assets
Trade receivables
Income tax assets
Other receivables
Investments
Property, plant and equipment
Intangible assets
Total non-current assetsToTal asseTsLIABILITIES
CuRRENT LIABILITIES
Trade payables
Deferred revenues
Financial debt
Salaries and social security payables
Income tax payables
Other taxes payables
Other liabilities
Provisions
Total current liabilitiesNON-CuRRENT LIABILITIES
Trade payables
Deferred revenues
Financial debt
Salaries and social security payables
Deferred income tax liabilities
Income tax payables
Other liabilities
Provisions
Total non-current liabilitiesToTal lIabIlITIes
EQuITY Equity attributable to Telecom Argentina (Controlling Company)
Equity attributable to non-controlling interest
ToTal eqUITY(see Consolidated statements of Changes in equity)ToTal lIabIlITIes anD eqUITY
2015
870
1,430
5,663
1,336
2,193
11,492
481
265
272
333
17,963
7,659
26,97338,465
9,873
477
3,451
1,261
439
1,153
53
207
16,914
52
457
1,449
157
550
10
101
1,165
3,94120,855
17,194
416
17,61038,465
2014
825
53
4,124
670
721
6,393
143
140
200
301
13,809
5,331
19,92426,317
6,072
507
179
1,022
247
824
47
199
9,097
-
465
254
150
417
9
76
1,080
2,45111,548
14,418
351
14,76926,317
Note
44567
5146489
1011121314151617
1011121314141617
19
As of December 31,
The accompanying notes are an integral part of these consolidated financial statements.
adrián CalazaChief Financial Officer
oscar CristianciChairman of the Board
of Directors
147
CONSOLIDATED INCOME STATEMENTS(In millions of Argentine pesos, except per share data in Argentine pesos)
Revenues
Other income
Total revenues and other incomeEmployee benefit expenses and severance payments
Interconnection costs and other telecommunication charges
Fees for services, maintenance, materials and supplies
Taxes and fees with the Regulatory Authority
Commissions
Cost of equipments and handsets
Advertising
Cost of VAS
Provisions
Bad debt expenses
Other operating expenses
Depreciation and amortization
Gain on disposal of PP&E and impairment of PP&E
operating incomeFinance income
Finance expenses
Income before income tax expenseIncome tax expense
net income for the year
attributable to: Telecom Argentina (Controlling Company)
Non-controlling interest
earnings per share attributable to Telecom argentina basic and diluted
201540,496
44
40,540(7,253)
(2,170)
(3,919)
(3,943)
(3,193)
(4,595)
(814)
(1,256)
(113)
(564)
(1,854)
(4,438)
(199)
6,2291,130
(2,232)
5,127(1,692)
3,435
3,403
32
3,435
3.51
201433,341
47
33,388(5,591)
(2,074)
(3,333)
(3,297)
(2,494)
(4,143)
(792)
(936)
(84)
(424)
(1,518)
(3,243)
(16)
5,4431,459
(1,206)
5,696(1,967)
3,729
3,673
56
3,729
3.79
201327,287
63
27,350(4,152)
(1,829)
(2,641)
(2,689)
(2,203)
(3,111)
(656)
(708)
(270)
(283)
(1,244)
(2,873)
(173)
4,5181,361
(833)
5,046(1,792)
3,254
3,202
52
3,254
3.27
Note2121
132222222272222175/6222222232424
14
25
For the years ended
December 31,
The accompanying notes are an integral part of these consolidated financial statements.
adrián CalazaChief Financial Officer
oscar Carlos CristianciChairman of the Board of Directors
148
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions of Argentine pesos)
net income for the year
Other components of the Statements of Comprehensive Income
Will be reclassified subsequently to profit or loss
Currency translation adjustments (non-taxable)
Subsidiaries’ NDF effects classified as hedges (Note 20)
Will not be reclassified subsequently to profit or loss
Actuarial results (Notes 3. l and 16)
Tax effect
other components of the comprehensive income, net of tax
Total comprehensive income for the year
Attributable to:
Telecom Argentina (Controlling Company)
Non-controlling interest
20153,435
245
8
7
(3)
257
3,692
3,580
112
3,692
20143,729
227
-
24
(8)
243
3,972
3,837
135
3,972
20133,254
140
-
(10)
3
133
3,387
3,285
102
3,387
For the years ended
December 31,
The accompanying notes are an integral part of these consolidated financial statements.
adrián CalazaChief Financial Officer
oscar Carlos CristianciChairman of the Board of Directors
149
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITy(In millions of Argentine pesos)
Balances as of january 1, 2013Dividends from Núcleo (3)
Legal Reserve (4)
Special reserve for IFRS implementation (4)
Voluntary reserve for future dividends payments (4)
Voluntary reserve for capital investments (4)
Voluntary reserve for future investments (4)
Treasury Shares Acquisition (2)
Dividends (5)
Comprehensive income: Net income for the year Other comprehensive incomeTotal Comprehensive Income
Balances as of December 31, 2013Dividends from Núcleo (6)
Dividends (7)
Legal Reserve (7)
Voluntary reserve for capital investments (7)
Comprehensive income: Net income for the year Other comprehensive incomeTotal Comprehensive Income
Balances as of December 31, 2014
984------
(15)-
---
969--------
969
2,688------
(42)-
---
2,646----
---
2,646
-------
15-
---
15----
---
15
-------
42-
---
42----
---
42
-------
(461)-
---
(461)----
---
(461)
572-
13419
-----
---
725--9-
---
734
---
351-----
---
351----
---
351
-----
1,200---
---
1,200---
1.991
---
3,191
2,553-----
351--
---
2,904----
---
2,904
107--------
-8383
190----
-164164
354
3.055-
(134)(370)
(1,000)(1,200)
(351)--
3,202-
3,202
3,202-
(1,202)(9)
(1,991)
3,673-
3,673
3,673
9,959------
(461)(1,000)
3,20283
3,285
11,783-
(1,202)--
3,673164
3,837
14,418
199(33)
-------
5250
102
268(52)
---
5679
135
351
10,158(33)
-----
(461)(1,000)
3,254133
3,387
12,051(52)
(1,202)--
3,729243
3,972
14,769
----
1,000---
(1,000)
---
-----
---
-
Capi
tal n
omin
al v
alue
(1)
Infla
tion
adju
stmen
t
Infla
tion
adju
stmen
t (2)
Capi
tal n
omin
al v
alue
(1) (
2)
Trea
sury
shar
esac
quisi
tion
cost
(2)
Lega
l res
erve
Spec
ial r
eser
ve fo
r IFR
S im
plem
enta
tion
Volu
ntar
y re
serv
e fo
r ca
pita
l inv
estm
ents
(2)
Volu
ntar
y re
serv
e fo
r fut
ure
inve
stmen
ts
Volu
ntar
y re
serv
e fo
r fut
ure
divid
ends
pay
men
ts
Oth
er c
ompr
ehen
sive
resu
lts
Reta
ined
ear
ning
s
Tota
l
Equi
ty a
ttrib
utab
le to
no
n-co
ntro
lling
inte
rest
Tota
l Equ
ity
Outstandingshares
Treasuryshares
Owners contribution Reserves
Equity attributable to Telecom Argentina (Controlling Company)
(1) As of December 31, 2014 and 2013, total shares (984,380,978), of $1 argentine peso of nominal value each, were issued and fully paid. As of the same dates; 15,221,373 were treasury shares.(2) Corresponds to 15,221,373 shares of $1 argentine peso of nominal value each, equivalent to 1.55% of total capital. The treasury shares acquisition costs amounted to 461. See Note 19 – Equity to the consolidated financial statements. (3) As approved by the Ordinary Shareholders’ Meeting of Núcleo held on March 22, 2013. (4) As approved by the Company’s Ordinary Shareholders’ Meeting held on May 21, 2013 (second tranche).(5) As approved by the Company’s Board of Directors’ meeting held on December 13, 2013 (second tranche).(6) As approved by the Ordinary Shareholders’ Meeting of Núcleo held on March 28, 2014. (7) As approved by the Company’s Ordinary Shareholders’ Meeting held on May 21, 2014 (second tranche).
The accompanying notes are an integral part of these consolidated financial statements.
adrián CalazaChief Financial Officer
oscar Carlos CristianciChairman of the Board of Directors
150
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITy (CONT.)(In millions of Argentine pesos)
adrián CalazaChief Financial Officer
Balances as of january 1, 2015Dividends from Núcleo (3)
Dividends (4)
Voluntary reserve for future dividends payments (4)
Comprehensive income: Net income for the year Other comprehensive incomeTotal Comprehensive Income
Balances as of December 31, 2015
969---
---
969
2,646---
---
2,646
15---
---
15
42---
---
42
(461)---
---
(461)
734---
---
734
351---
---
351
3,191---
---
3,191
2,904---
---
2,904
354---
-177177
531
3.673-
(804)(2,869)
3,403-
3,403
3,403
14.418-
(804)-
3,403177
3,580
17,194
351(47)
--
3280
112
416
14.769(47)
(804)-
3,435257
3,692
17,610
---
2,869
---
2,869
(1) As of December 31, 2015, total shares (984,380,978), of $1 argentine peso of nominal value each, were issued and fully paid. As of December 31, 2015; 15,221,373 were treasury shares.(2) Corresponds to 15,221,373 shares of $1 argentine peso of nominal value each, equivalent to 1.55% of total capital. The treasury shares acquisition costs amounted to 461. See Note 19 – Equity to the consolidated financial statements.(3) As approved by the Ordinary Shareholders’ Meeting of Núcleo held on March 26, 2015 and the Board of Directors’ meeting of Núcleo held on December 17, 2015.(4) As approved by the Company’s Ordinary Shareholders’ Meeting held on April 29, 2015.
The accompanying notes are an integral part of these consolidated financial statements.
oscar Carlos CristianciChairman of the Board of Directors
Capi
tal n
omin
al v
alue
(1)
Infla
tion
adju
stmen
t
Infla
tion
adju
stmen
t (2)
Capi
tal n
omin
al v
alue
(1) (
2)
Trea
sury
shar
esac
quisi
tion
cost
(2)
Lega
l res
erve
Spec
ial r
eser
ve fo
r IFR
S im
plem
enta
tion
Volu
ntar
y re
serv
e fo
r ca
pita
l inv
estm
ents
(2)
Volu
ntar
y re
serv
e fo
r fut
ure
inve
stmen
ts
Volu
ntar
y re
serv
e fo
r fut
ure
divid
ends
pay
men
ts
Oth
er c
ompr
ehen
sive
resu
lts
Reta
ined
ear
ning
s
Tota
l
Equi
ty a
ttrib
utab
le to
no
n-co
ntro
lling
inte
rest
Tota
l Equ
ity
Outstandingshares
Treasuryshares
Owners contribution Reserves
Equity attributable to Telecom Argentina (Controlling Company)
151
CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions of Argentine pesos)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year
Adjustments to reconcile net income to net cash flows provided by operating activities
Bad debt expenses
Allowance for obsolescence of inventories, materials and other
Depreciation of property, plant and equipment
Amortization of intangible assets
Consumption of materials
Gain on disposal of property, plant and equipment
Impairment of property, plant and equipment
Net book value of property, plant and equipment
Recovery of restructuring costs
Provisions
Interest and other financial results
Income tax expense
Income tax paid
Net increase in assets
Net increase in liabilities
Total cash flows provided by operating activitiesCASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment acquisitions
3G/4G licenses acquisitions
Other intangible asset acquisitions
Proceeds from the sale of property, plant and equipment
Investments not considered as cash and cash equivalents
Total cash flows used in investing activitiesCASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from financial debt
Payment of financial debt
Payment of interests and related expenses
Payment of cash dividends and related withholding tax
Treasury shares acquisition
Total cash flows provided by (used in) financing activities
NET FOREIGN EXCHANGE DIFFERENCES ON CASH AND CASH EQuIVALENTS
InCRease (DeCRease) In CasH anD CasH eqUIValenTsCasH anD CasH eqUIValenTs aT THe beGInnInG of THe YeaRCasH anD CasH eqUIValenTs aT THe enD of THe YeaR
2015
3,435
564
72
3,046
1,392
294
(31)
230
35
-
113
783
1,692
(1,631)
(5,072)
1,890
6,812
(5,148)
(2,256)
(1,310)
39
(976)
(9,651)
4,301
(31)
(471)
(849)
-
2,950
75
186684870
2014
3,729
424
88
2,389
854
227
(9)
25
45
-
84
(357)
1,967
(2,277)
(1,505)
37
5,721
(4,895)
(3,091)
(1,118)
17
(339)
(9,426)
-
(12)
(29)
(1,299)
-
(1,340)
505
(4,540)5,224
684
2013
3,254
283
113
1,983
890
147
(14)
187
-
(8)
270
(209)
1,792
(1,609)
(1,734)
1,636
6,981
(3,352)
-
(846)
21
356
(3,821)
208
(157)
(16)
(981)
(461)
(1,407)
311
2,0643,1605,224
Note
5/6
22982222
17
144.b4.b4.b4.b
4.b4.b4.b
4.b
4.b4.b4.b4.b4.b
4.b4.b
For the years ended
December 31,
See Note 4.b for additional information on the consolidated statements of cash flows.The accompanying notes are an integral part of these consolidated financial statements.
adrián CalazaChief Financial Officer
oscar CristianciChairman of the Board
of Directors
152
The following explanations are not intended as technical definitions, but to assist the general reader to understand certain
terms as used in these consolidated financial statements.
aMba (Área Metropolitana de Buenos Aires): the
Metropolitan Area of Buenos Aires.
aDs: Telecom Argentina’s American Depositary Share,
listed on the New York Stock Exchange, each representing
5 Class B Shares.
aDsl (Asymmetric Digital Subscriber Line): A modem
technology that converts existing twisted-pair telephone
lines into access paths for multimedia and high-speed data
communications.
aRsaT (Empresa Argentina de Soluciones Satelitales S.A.):
a state-owned company.
bCba (Bolsa de Comercio de Buenos Aires): The Buenos
Aires Stock Exchange.
CnC (Comisión Nacional de Comunicaciones): The
Argentine National Communications Commission.
CnDC (Comisión Nacional de Defensa de la Competencia):
Argentine Antitrust Commission.
CnV (Comisión Nacional de Valores): The Argentine
National Securities Commission.
Company or Telecom argentina: Telecom Argentina S.A.
ConaTel (Comisión Nacional de Telecomunicaciones del
Paraguay): The Regulatory Authority of Paraguay.
CPCeCaba (Consejo Profesional de Ciencias Económicas
de la Ciudad Autónoma de Buenos Aires): The Professional
Council of Economic Sciences of the City of Buenos Aires.
CPP: Calling Party Pays.
“Cuentas claras”: Under the “Cuentas claras” plans, a
subscriber pays a set monthly bill and, once the contract
minutes per month have been used, the subscriber can
obtain additional credit by recharging the phone card
through the prepaid system.
D&a: Depreciation and amortization.
DlD: Domestic long-distance.
enaRD (Ente Nacional de Alto Rendimiento Deportivo):
National High Sport Performance Organization.
enTel (Empresa Nacional de Telecomunicaciones):
Argentine State Telecommunication Company, which was
privatized in November, 1990.
faCPCe (Federación Argentina de Consejos Profesionales
en Ciencias Económicas): Argentine Federation of
Professional Councils of Economic Sciences.
ffsU or sU fund (Fondo Fiduciario del Servicio Universal):
Universal Service Fiduciary Fund
Ias: International Accounting Standards.
Iasb: International Accounting Standards Board.
IDC (Impuesto a los débitos y créditos bancarios): Tax on
deposits to and withdrawals from bank accounts.
IfRs: International Financial Reporting Standards, as issued
by the International Accounting Standards Board.
IGj (Inspección General de Justicia): General Board of
Corporations.
laD (Ley Argentina Digital): Argentine Digital Law.
lGs (Ley de General de Sociedades): Argentine Corporations
Law No. 19,550 as amended. Since the enforcement of the
new Civil and Commercial Code its name was changed to
“General Corporations Law”.
Micro sistemas: Micro Sistemas S.A.
nDf: Non-Deliverable Forward.
nortel: Nortel Inversora S.A., the parent company of the
Company.
núcleo: Núcleo S.A.
nYse: New York Stock Exchange.
oCI: Other Comprehensive Income.
Pen: National Executive Power.
Personal: Telecom Personal S.A.
PPP (Programa de Propiedad Participada): Share Ownership
plan.
PP&e: Property, plant and equipment.
Price Cap: rate regulation mechanism applied to
determine rate discounts based on a formula made up by
the U.S. Consumer Price Index and an efficiency factor.
The mentioned factor was established initially in the List of
Conditions and afterwards in different regulations by the SC.
Publicom: Publicom S.A.
Regulatory authority: Previously, the SC and the CNC.
Since the issuance of the Decree of Need and Urgency
GLOSSARY OF TERMS
153
No.267/15, the Regulatory Authority is the National
Communications Agency (ENACOM).
Roaming: a function that enables mobile subscribers to
use the service on networks of operators other than the one
with which they signed their initial contract. The roaming
service is active when a mobile device is used in a foreign
country (included in the GSM network).
RT: Technical resolutions issued by the FACPCE.
RT 26: Technical resolution No, 26 issued by the FACPCE,
amended by RT29.
saC: Subscriber Acquisition Costs.
sbT (Servicio básico telefónico): Basic telephone service.
sC (Secretaría de Comunicaciones): The Argentine Secretary
of Communications.
seC: Securities and Exchange Commission of the United
States of America.
sMs: Short message systems.
sofora: Sofora Telecomunicaciones S.A. Nortel’s controlling
company.
springville: Springville S.A. Personal sold its equity interest
in Springville on February 19, 2014.
sU: The availability of Basic telephone service, or access to
the public telephone network via different alternatives, at an
affordable price to all persons within a country or specified
area.
Telecom Group/Group: Telecom Argentina and its
consolidated subsidiaries.
Telecom Italia Group: Telecom Italia S.p.A and its
consolidated subsidiaries, except where referring to the
Telecom Italia Group as Telecom Argentina’s operator in
which case it means Telecom Italia S.p.A and Telecom Italia
International, N.V.
Telecom Usa: Telecom Argentina USA Inc.
Telco s.p.a.: A joint company made up of Assicurazioni
Generali S.p.A., Intesa San Paolo S.p.A., Mediobanca
S.p.A., Sintonia S.A. and Telefónica, S.A. (of Spain).
Telefónica: Telefónica de Argentina S.A.
TlRD (Terminación Llamada Red Destino): Termination
charges from third parties’ wireless networks.
UnIRen (Unidad de Renegociación y Análisis de Contratos
de Servicios Públicos): Renegotiation and Analysis of
Contracts of Public Services Division.
Vas (Value-Added Services): Services that provide additional
functionality to the basic transmission services offered by a
telecommunications network such as SMS, Video streaming,
Personal Video, Personal Cloud, M2M (Communication
Machine to Machine), Social networks, Personal Messenger,
Contents and Entertainment (content and text subscriptions,
games, music ringtones, wallpaper, screensavers, etc), MMS
(Mobile Multimedia Services) and Voice Mail, among others.
a) THe CoMPanY anD ITs oPeRaTIons
Telecom Argentina was created through the privatization
of ENTel, the state-owned company that provided
telecommunication services in Argentina.
Telecom Argentina’s license, as originally granted, was
exclusive to provide telephone services in the northern region
of Argentina since November 8, 1990 through October 10,
1999. As from such date, the Company also began providing
telephone services in the southern region of Argentina and
competing in the previously exclusive northern region.
The Company provides fixed-line public telecommunication
services, international long-distance service, data
transmission and Internet services in Argentina and through
its subsidiaries, mobile telecommunications services in
Argentina and Paraguay and international wholesale services
in the United States of America. Information on the Telecom
Group’s licenses and the regulatory framework is described
in Note 2.
The Ordinary and Extraordinary Shareholders Meeting
held on June 22, 2015 approved the Telecom Argentina’s
corporate purpose change, adapting it to the new definition
of ICT services of the LAD and, thus, including the possibility
of providing Audiovisual Communication Services. The
Company obtained authorization from the AFTIC and later
of the CNV and IGJ, which registered the amendment of the
Company’s bylaws on September 26, 2015.
As of December 31, 2015, entities included in the
consolidation process and the respective equity interest
owned by Telecom Argentina is presented as follows:
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
154
b) seGMenT RePoRTInG
An operating segment is defined as a component of an
entity that engages in business activities from which it may
earn revenues and incur expenses, and whose financial
information is available, held separately, and evaluated
regularly by the Telecom Group’s Chief Executive Officer
(“CEO”).
Operating segments are reported in a consistent manner with
the internal reporting provided to the CEO, who is responsible
for allocating resources and assessing performance of the
operating segments at the net income (loss) level and under
the accounting principles effective (IFRS as issued by the
IASB) at each time for reporting to the CNV. The accounting
policies applied for segment information are the same for all
operating segments.
Information regarding segment reporting is included in Note
28.
C) basIs of PRePaRaTIon
These consolidated financial statements have been prepared
in accordance with IFRS as issued by the IASB and in
accordance with RT 26 (as amended by RT 29) of FACPCE
as adopted by the CPCECABA, and as required by the CNV
in Argentina for most of public companies.
The preparation of financial statements in conformity with
IFRS requires the use of certain critical accounting estimates.
It also requires Management to exercise its judgment in
the process of applying the Telecom Group’s accounting
policies. The areas involving a higher degree of judgment
or complexity, or areas where assumptions and estimates
are significant to the consolidated financial statements are
disclosed in Note 3.u).
The consolidated financial statements (except for cash
flow information) are prepared on an accrual basis of
accounting. Under this basis, the effects of transactions and
other events are recognized when they occur. Therefore
income and expenses are recognized at fair value on an
accrual basis regardless of when they are received or paid.
When significant, the difference between the fair value and
the nominal amount of income and expenses is recognized
as finance income or expense using the effective interest
method over the relevant period.
The accompanying consolidated financial statements have
also been prepared on a going concern basis (further details
are provided in Note 3.a) and the figures are expressed in
millions of pesos, otherwise indicated.
These consolidated financial statements for the year ended
December 31, 2015 were approved by resolution of the
Board of Directors’ meeting held on February 26, 2016.
Due to the special purpose of these financial statements,
unconsolidated information of Telecom Argentina is included
in Note 30. This kind of presentation has been adopted for
the convenience of the financial statements’ reader.
D) fInanCIal sTaTeMenT foRMaTs
The financial statement formats adopted are consistent with
IAS 1. In particular:
• the consolidated statements of financial position
have been prepared by classifying assets and liabilities
according to “current and non-current” criterion.
Current assets and liabilities are those that are expected
to be realized/settled within twelve months after the
year-end;
• the consolidated income statements have been
prepared by classifying operating expenses by nature of
expense as this form of presentation is considered more
appropriate and represents the way that the business
Subsidiaries
Telecom USA
Micro Sistemas (ii)
Personal
Núcleo (iii)
Personal Envíos (iii)
Percentage of capitalstock owned and
voting rights (i)
100.00%
99.99%
99.99%
67.50%
67.50%
Segment thatconsolidates (Note 28)Fixed Services
Fixed Services
Personal Mobile Services
Núcleo Mobile Services
Núcleo Mobile Services
Indirect controlthrough
Personal
Núcleo
Date of acquisition
09.12.00
12.31.97
07.06.94
02.03.98
07.24.14(i) Percentage of equity interest owned has been rounded.(ii) Dormant entity as of and for the fiscal years ended December 31, 2015, 2014 and 2013.(iii) Non-controlling interest of 32.50% is owned by the Paraguayan company ABC Telecomunicaciones S.A.
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of the Group is monitored by the Management, and,
additionally, are in line with the usual presentation of
expenses in the telecommunication industry;
• the consolidated statements of comprehensive
income include the profit or loss for the year as shown in
the consolidated income statement and all components
of other comprehensive income;
• the consolidated statements of changes in equity
have been prepared showing separately (i) profit (loss)
for the year, (ii) other comprehensive income (loss) for
the year, and (iii) transactions with shareholders (owners
and non-controlling interest);
• the consolidated statements of cash flows have
been prepared by presenting cash flows from operating
activities according to the “indirect method”, as
permitted by IAS 7.
These consolidated financial statements contain all material
disclosures required under IFRS. Some additional disclosures
required by the LGS and/or by the CNV have been also
included, among them, complementary information required
in the last paragraph of Article 1 Chapter III Title IV of the
CNV General Resolution No. 622/13. Such information is
disclosed in Notes 7, 8, 9, 17, 20, 22 and 26 to these
consolidated financial statements, as admitted by IFRS.
e) aPPlICaTIon of Ias 29 (fInanCIal RePoRTInG In HYPeRInflaTIonaRY eConoMIes)
IAS 29 establishes the conditions under which an entity shall
restate its financial statements if it is located in an economic
environment considered “hyperinflationary”.
In compliance with the provisions of IAS 29, the Company’s
Management periodically verifies the evolution of official statistics
as well as the general factors of the economic environment in
the countries in which the Telecom Group operates. It should
be mentioned that if the qualitative and / or quantitative
characteristics to consider an economy as a hyperinflationary
economy set out in paragraph 3 of IAS 29 occur, the restatement
of financial statements must be made retroactively from the date
of the revaluation used as deemed cost (in the case of Group
companies located in Argentina, since February 2003) or from
the acquisition date for assets acquired after that date.
In the last years, the inflation rate has shown an increase
in Argentina. The Company, in compliance with the
provisions of IAS 29, analyzes the economic environment
according to the inflation rates published by the National
Institute of Statistics and Census (INDEC). However, the
publication of November and December 2015 inflation
rates has been forbidden after the Argentine government
declared the “statistic emergency” in January 2016, and
disposed the reorganization of the INDEC structure. Under
these circumstances, the INDEC suggested the alternative
utilization of Price Indexes published by the Province of San
Luis and the City of Buenos Aires, which are integral part of
the National Statistics until the INDEC publishes Price Indexes
in compliance with international standards of quality.
Therefore, the Company analysis shown in the tables below,
was performed according to Consumer Price Index and
Internal Wholesale Price Index published by the INDEC until
October 2015 and was updated applying November and
December 2015 Price Index published by the Province of San
Luis and the City of Buenos Aires, as the INDEC suggested.
It is worth mentioning that this simplified procedure was
performed due to the unavailability of official statistics at the
whole country level.
The tables below show the evolution of these indexes in
the last three years according to official statistics (INDEC),
except in reference to November and December 2015 as
mentioned above:
Consumer Price Index
Consumer Price Index (annual)
Consumer Price Index (3 years accumulated)
Internal Wholesale Price Index
Internal Wholesale Price Index (annual)
Internal Wholesale Price Index (3 years accumulated)
2014
23.9%
52.4%
28.3%
66.5%
2013
10.9%
34.7%
14.8%
46.2%
2015 Estimated (*)
20.6%
65.8%
19.2%
75.4%
(*) Consumer Price Index and Internal Wholesale Price Index published by INDEC until October 2015 were 11.9% and 10.6% respectively. These rates (which contain ten months accumulated), were updated with November and December 2015 Consumer Price Index average rates for this two months (7.8%) published by the Province of San Luis and the City of Buenos Aires.
156
According to the high inflation levels in Argentina registered
in late years, management has further assessed the
characteristics set out in paragraph 3 of IAS 29, including
(i) the quantitative condition provided in section (e) “the
cumulative inflation rate over three years is approaching, or
exceeds, 100%”, as well as (ii) the qualitative characteristics
contained in paragraphs a) to d) of that paragraph. On
the basis of the analysis made by management and other
evidence available as of the date of issuance of these
consolidated financial statements, management concluded
that Argentina does not qualify as a "hyperinflationary"
country in terms of IAS 29.
The conclusion that Argentina's economy should not be
considered hyperinflationary under IFRS is consistent with
the conclusions of the “International Practices Task Force” in
2013, 2014 and 2015, which the Company had accessed.
An extract of the meeting held in November 2015, stated
the following: “The SEC staff noted the IMF's concerns on the
accuracy of CPI data for 2013 and prior periods. Although
this situation, the SEC staff has not observed the objectively
verifiable information that would indicated that Argentina’s
economy was highly-inflationary as of December 31, 2014....
The SEC staff would expect registrants to monitor the New
CPI inflation data in combination with other pertinent factors
and data points, in determining whether Argentina should be
considered a highly-inflationary economy.”
While there may be differences in the definition of a
hyperinflationary environment between IFRS and US
GAAP, the Company believes that the assessment of the
macroeconomic situation of a country should be substantially
similar under both accounting frameworks and, on this
condition, considers consistent the conclusions arrived in its
analysis.
It is also worth mentioning that statistics published by the
States suggested by INDEC results in dissimilar price index
for the 36 months period ended in December 2015. The
Consumer Price Index accumulated for that period in the
City of Buenos Aires and the Province of San Luis were
121.8% and 141.3% respectively. However, the Company’s
Management decided to perform the analysis required by
IAS 29 considering INDEC’s official statistics that cover
the whole country. Therefore, if the INDEC retrospectively
modifies the price index published (after considering the
“statistic emergency” solved) the result of the Company’s
analysis could be different.
Additionally, while the CNV required public companies the
full implementation of IFRS-as issued by the IASB- from
periods beginning on January 1st, 2012, Decree No.664/03
continues to be in force as of the date of issuance of these
consolidated financial statements. Through this Decree, the
PEN instructed the control authorities –including the CNV-
not to accept filings of restated financial statements. This
legal restriction is foreseen in the current Regulations of the
CNV (Title IV - Chapter III Article 3 - paragraph 1).
Company’s Management believes that the periodic
assessment of the macroeconomic environment in Argentina
and the possible restatement of financial statements in
accordance to IAS 29, represent an element of care and
concern for investors, analysts and regulators of capital
markets where Argentine companies list their equity and
debt securities, related to the significant impact that such
restatement might have on their financial position and results
of operations, including the Telecom Group.
The Company’s Management will continue verifying the
Price Index evolution in Argentina in order to comply properly
with IAS 29 provisions, and according to local and foreign
Regulation Authorities provisions. In that regard, as of the
date of issuance of these consolidated financial statements,
local regulation authorities forbid to file “financial statements
in constant currency” according to Decree No.664/03 and
its amendments.
NOTE 2 - REGULATORy FRAMEWORk
(a) ReGUlaToRY aUTHoRITY
Telecom Argentina and its domestic subsidiaries operate in
a regulated industry. Regulation not only covers rates and
service terms, but also the terms on which various licensing
and technical requirements are imposed.
Until the issuance of Law No. 27,078 (hereinafter “Ley
Argentina Digital” or “LAD”, as explained in e) below),
which was published in the Official Bulletin on December
19, 2014 and has been in force since its publication, the
telecommunication services provided by the Company and
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its domestic subsidiaries were regulated by the CNC, a
decentralized agency within the scope of the SC, which was
also under the scope of the Ministry of Federal Planning,
Public Investment and Services.
The LAD created the Federal Authority of Information and
Communication Technologies (“AFTIC”), as a decentralized
and autonomous agency within the scope of the PEN which
would act as the Regulatory Authority of the LAD and would
replace, for all purposes, of the SC and the CNC.
The LAD conferred the AFTIC the regulation, control,
supervision and verification functions concerning the
Information and Communications Technologies (“ICT”) in
general, and in particular of the telecommunications, of the
postal service and all those matters integrated to its field in
accordance with the provisions of the LAD.
By the end of December 2015, the PEN issued the Decree of
Need and Urgency (“Decreto de Necesidad y Urgencia” or
hereinafter the “DNU”) No.267/15 published in the Official
Bulletin on January 4, 2016. The DNU substantially amends
Law No.26,522 (Audiovisual Communication Services
– “SCA”) and Law No.27,078 (LAD) and also creates the
National Communications Agency (“ENACOM”) as a new
Regulatory Authority of those laws. The ENACOM replaces
the AFTIC and AFSCA (“Federal Authority of Audiovisual
Communication Services”). This new Authority acts as an
autonomous agency, within the scope of the Ministry of
Communications. Further information on Decree No.267/15
- Amendments to the LAD is included in f) below.
Additionally, Decree No.13/15 creates the Ministry of
Communications. The organizational structure of the Ministry
was approved by Decree No.268/15, issued on December
29, 2015 (published in the Official Bulletin on January 4,
2016).
The Board of ENACOM will be composed of a Chairman
and 3 directors appointed by the PEN, as well as 3 directors
appointed by the Bicameral Commission of Audiovisual
Communication and ICT services. The quorum will consist
of the presence of 4 of its members. There are no special
eligibility conditions to be appointed as a member of the
Board, but member cannot have any incompatibilities
under the provisions of Law No.25,188 (“Public Ethic”). The
ENACOM members can be removed directly and without
reason by the PEN.
The ENACOM has started its operations on January 5, 2016
with the 4 directors appointed by the PEN through Decree
No.7/16, thus resulting in the constitution of the ENACOM
as established by Article 23 of Decree No. 267/15.
(b) ReGUlaToRY fRaMeWoRk of THe CoMPanY anD PeRsonal seRVICes
Among the principal features of the regulatory framework
governing the services provided by the Company and its
domestic subsidiaries is worth mentioning:
• The LAD, as amended by Decree of Need and Urgency
No.267/15;
• Law No.19,798 remains in force only to the extent that
it does not conflict with the provisions set out under the
LAD;
• The Privatization Regulations;
• The Transfer Agreement;
• The Licenses for providing telecommunication services
granted to Telecom Argentina and Telecom Personal
through several regulations; and the List of Conditions
and their respective regulations.
In addition, Law No. 27,078 states that Decree No. 764/00
and its amendments shall remain in force to the extent that
it does not conflict with the provisions set out under the LAD,
for the time required by the Regulatory Authority to draw
up the regulations concerning the Licensing Framework for
ICT Services, the Interconnection Regulation, the Universal
Service Regulation and the Administration, Management and
Control of the Spectrum Regulation. Also, the new Law states
that Law No.19,798 (“Ley Nacional de Telecomunicaciones”
passed in 1972) and its amendments shall remain in force
in respect of those regulations not opposing its provisions.
Núcleo, Personal’s Paraguayan subsidiary, is supervised
by the Comisión Nacional de Telecomunicaciones de
Paraguay, the National Communications Commission of
Paraguay (“CONATEL”) and its subsidiary Personal Envíos
S.A. is supervised by the Banco Central de la República del
Paraguay. Additionally, Telecom USA, Telecom Argentina’s
subsidiary in the United States, is supervised by the Federal
Communications Commission (the “FCC”).
(C) lICenses GRanTeD as of DeCeMbeR 31, 2015
To the Company
As of December 31, 2015, Telecom Argentina has been
158
granted the following non-expiring licenses to provide the
following services in Argentina:
• Local fixed telephony;
• Public telephony;
• Domestic and international long-distance telephony;
• Domestic and international point-to-point link services;
• Domestic and international telex services;
• VAS, data transmission, videoconferencing and
transportation of audio and video signals; and
• Internet access.
To the Company’s subsidiaries
As of December 31, 2015, the Company’s subsidiaries
have been granted the following licenses:
Personal has been granted a non-expiring license to provide
mobile telecommunication services (STM) in the Northern
Region of Argentina, and data transmission and VAS
throughout the country. In addition, Personal owns licenses
to provide mobile radio communication services (SRMC) in
the Federal District and Greater Buenos Aires areas, as well
as a non-expiring license to provide PCS services throughout
the country, and it is registered to provide national and
international long-distance telephone services. Additionally,
from November 2014, Personal has been granted a license
to provide Mobile Advanced Communications Services
(SCMA) for 15 years as explained in h) below.
Núcleo, a company controlled by Personal, has been
granted a license to provide mobile telecommunication
services (STM and PCS) throughout Paraguay. In addition,
Núcleo has been granted a license for the installation and
provision of Internet and Data throughout Paraguay. All these
licenses have been granted for renewable five-year periods.
Personal Envíos, a company controlled by Núcleo was
authorized by the Central Bank of Paraguay to operate as
an Electronic Payment Company (EMPE) through Resolution
No.6 issued on March 30, 2015 and its corporate purpose
is restricted to such service.
(D) eVenTs of ReVoCaTIon of THe lICenses
Telecom Argentina’s license is revocable in the case of
non-compliance with certain obligations, including but not
limited to:
• repeated interruption of all or a substantial portion of
service;
• a modification of corporate purpose without prior
approval of the Regulatory Authority or change of
domicile to a jurisdiction outside Argentina;
• a sale or transfer of the license to third parties without
prior approval of the Regulatory Authority;
• the sale, encumbrance or transfer of assets which has
the effect of reducing services supplied, without the prior
approval of the Regulatory Authority;
• a reduction of Nortel’s ownership of in the capital stock
of Telecom Argentina to less than 51%, or the reduction
of Nortel’s common shareholders’ ownership to less
than 51% of the capital stock with voting power, in either
case without prior approval of the Regulatory Authority
(as of December 31, 2015, all Nortel’s ordinary shares
belong to Sofora. Additional information in Note 27);
• any transfer of shares resulting in a direct or indirect
loss of control in Telecom Argentina which has not
been executed ad referendum of the approval of the
ENACOM and informed within 30 days following its
completion (according to the provisions of Article 8 of
Decree No.267/15); and
• the Company’s bankruptcy.
If the Company’s license is revoked, Nortel must transfer
its interest in the Company’s capital stock to the Regulatory
Authority in trust for subsequent sale through public auction.
Once the sale of the shares to a new management group is
performed, the Regulatory Authority may renew the license
to the Company under the terms to be determined.
STM, SRMC and PCS Personal’s licenses are revocable in
case of non-compliance with certain obligations, including
but not limited to:
• repeated interruptions of the services as set forth in the
List of Conditions;
• any transfer of the license and/or the related rights and
obligations, without the approval of the Regulatory
Authority (according to the provisions of article 8 of
Decree No.267/15);
• any encumbrance of the license;
• any voluntary insolvency proceedings or bankruptcy of
Personal; and
• a liquidation or dissolution of Personal, without the prior
approval of the Regulatory Authority.
According to the Auction Terms and Conditions for the
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awarding of frequency bands for SCMA (and some bands
for SRMC and PCS), approved by SC Resolution No.
38/14, the authorization to use radio electric spectrum (as
defined in the Auction) will be revocable under the following
circumstances:
• repeated or persistent breaches of obligations related to
quality indicators of services provided under the terms
of the Regulation for the Quality of Telecommunications
Services approved by SC Resolution No. 5/13 (further
information on filings of the Company and Personal
against the sanction processes initiated by the Regulatory
Authority related to quality matters is disclosed in j)
below);
• repeated or persistent failure of infrastructure sharing
obligations and the conditions set for automatic roaming
agreements established in the Terms and Conditions;
• repeated or persistent failure of the coverage obligations
set in Annex III of the Terms and Conditions;
• assignment, transfer, encumbrance, lease or sale to third
parties of the authorization for the use of the awarded
bands, without the authorization of the Regulatory
Authority.
Núcleo’s licenses are revocable mainly in the case of:
• repeated interruptions of the services;
• any voluntary insolvency proceedings or bankruptcy of
Núcleo;
• non-compliance with certain service obligations.
According to the Resolution No.6/2014 of the Central Bank
of Paraguay Personal Envíos’ license to provide Electronic
Payment services may be revoked by:
i) insolvency proceedings or bankruptcy,.
ii) sanctions imposed by the Central Bank of Paraguay,
with prior administrative proceedings, regarding the
performance of operations that are forbidden by the
legislation in force.
(e) laW no. 27,078 – aRGenTIne DIGITal laW
Among the most relevant contents in the LAD which amended
the regulatory framework in force as of December 19, 2014
as regards telecommunications are:
a) the recognition as an essential and strategic public
service of ICT as regards the use and access to the
telecommunications networks, for and between licensees
of ICT services (subsequently repealed by Article 22 of
Decree No.267/15);
b) the rule on prices and rates establishing that the
licensees of ICT services shall set their prices which shall
have to be fair and reasonable, cover the exploitation
costs and tend to the efficient supply and reasonable
operation margin;
c) the exemptions of taxes, establishing that tax
exemptions or reductions, prices and encumbrances
of ICT in general and telecommunications in particular
may be set on a precarious basis when the nature of
certain activities so warrant;
d) the amendments as regards Universal Service (further
information in g) below);
e) the asymmetric regulation as universalization tools
towards the development of an effective competition.
The Law declared of public interest the development of
ICT and its associated resources, in order to establish and
ensure complete neutrality of networks, and to guarantee
every user the right to access, use, send, receive or offer
any content, application, service or protocol through Internet
without any restrictions, discrimination, distinction, blocking,
interference, obstruction or degradation.
The new Law set forth that the licensees of the ICT services
may supply audiovisual communication services with the
exception of those provided through satellite link, in which
case, the corresponding license must be requested to the
proper authority. Also, the new Law allowed ICT services
licensees included in the restrictions of the Audiovisual
Services Communications Law (among them, Telecom
Argentina) to provide audiovisual communications services.
Nevertheless, that regulation was partially amended by
Decree No 267/15 (see f) below).
According to the LAD provisions, Telecom Argentina
amended its corporate purpose during 2015, which
was approved by AFTIC Resolution No.19/15. Further
information is disclosed in Note 1.a).
Also, the law established the framework for suppliers and
licensees entering the audiovisual communication services
market (among them, Telecom Argentina and its domestic
subsidiaries) setting forth that the Federal Authority of
Audiovisual Communication Services (replaced by the
ENACOM since Decree No.267/15 enforcement) would
determine the go-to-market conditions of audiovisual
communication services for ICT suppliers and licensees. The
160
Law also stated a gradual implementation plan through the
setting up of promotion areas for limited periods of time
determined according to public interest, within which the ICT
licensees with significant market power would not be able to
provide audiovisual communication services.
It also set forth that the ICT service should be provided
throughout the national territory, considered for that end as a
unique area of exploitation and supply, and the modification
of the interconnection schedule, imposing higher obligations
to the operators and more rights to the Argentine government
for the regulation in this sense of the wholesale market.
According to the LAD provisions, the SBT holds its status of
public service (section 54), but with a different scope than
the previous regulations provisions. It was defined as the
national and international telephone voice service, through
the local networks, notwithstanding the technology used
for its transportation, provided that it complies with the
objective of allowing its users to communicate with each
other (section 6 paragraph c)). In addition, in section 90
of Title XI, it established that said definition, comprises the
senses of the definition established in the Bidding Terms and
Conditions for the International Public Bidding process for
the Privatization of the Supply of the Telecommunications
Service timely approved by Decree No.62/90.
The LAD introduced substantial changes to the SU regulation
established by Decree No.558/08. Among its provisions the
LAD creates a new FFSU and provides that the investment
contributions for the SU programs shall be managed through
this fund, which assets belong to the Argentine government.
Further information see g) below.
Law No.19,798 Telecommunications Act (passed in 1972),
as amended continues in effect only with respect to those
provisions that do not contradict the provisions of the new
LAD (including, for example, Article 39 of Law No.19,798
referred to exemption from all taxes on the use of soil, subsoil
and airspace for telecommunications services).
The LAD also revoked Decree No.764/00, as amended, but
provisions of the decree that do not contradict the LAD will
remain in effect, during the time it takes to the Regulatory
Authority to issue new licensing, interconnection services,
universal service and spectrum regulations.
(f) DeCRee no. 267/15 – aMenDMenTs To THe “laD”
On January 4, 2016, Decree No.267/15 was issued,
amending Law No.26,522 (Audiovisual Communication
Services) and Law No.27.078 (LAD). As mentioned above,
“ENACOM” was created as the Regulatory Authority
applicable of these laws.
One of the main amendments to the LAD consists in the
incorporation of Television Services provided by subscription
(physical or radio electric link, such as Cable TV) as an ICT
service within the scope of the LAD, and excluding it from
Law No.26,522. Satellite Television Services will remain
within the scope of Law No. 26,522. Furthermore, Decree
No.267/15 states that the ownership of a satellite television
license provided by subscription is incompatible with having
any other kind of ICT services license.
Broadcasting supplied by subscription licenses (physical
or radio electric link, such as Cable TV) issued before the
application of Decree No.267/15 will be considered for all
purposes as in compliance with LAD upon the respective
registration for such service provision. Furthermore, the
Decree states a 10 years extension from January 2016, for
the use of frequency spectrum to radio electric link provided
by subscription license holders.
Among the amendments that replaces Article 6 of the LAD
is the incorporation of “video on demand service”, defined
as a service offered by an ICT services supplier to provide
access to software under demand on a catalogue basis.
On January 7, 2016 the Company and Personal presented
to the ENACOM an application for the registration of the
broadcasting by physical or radio electric link service,
describing the service characteristics which registration was
requested. As of the date of issuance of these consolidated
financial statements, the ENACOM resolution is still pending.
Decree No.267/15 replaced the LAD’s article No. 94,
and states that SBT suppliers, fixed telephony license
holders within the scope of Decree No.264/98, and
mobile telecommunication license holders within the scope
of Decree No.1,461/93 are prohibited from providing
Broadcasting under subscription services (for example, video
cable services and IP TV) until January 1, 2018 (this term can
be extended by 1 additional year). Also, the Decree replaces
article 95 of the LAD and provides several obligations for
fixed telephony licensees granted by Decree No.264/98 and
mobile services providers with licenses granted by Decree
No.1,461/93, which choose to provide broadcasting under
subscription services.
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Article 28 of Decree No.267/15 created, within the Ministry
of Communications, the Commission for the Preparation
of the Reform, Update and Unification Draft Law of
Laws No.26,522 and 27,078. The Commission will be
responsible for the study of both laws reforms under the
principles established therein.
As the date of issuance of these consolidated financial
statements, the regulation that should provide the Regulatory
Authority is pending. The Company’s management expects
that such regulation will clarify the scope of several aspects
of the LAD and Decree No 267/15 for a better evaluation
of operational and economic-financial impacts that the LAD
could have on the Telecom Group’s business.
Furthermore, the Decree states that licenses transfers and
stake holdings that imply loss of corporate control must be
approved by ENACOM, proving a new procedure by its
article No. 8 and establishing that licenses transfers and
stake holdings in licensees will be considered ad referendum
of ENACOM approval. Additionally, shareholders of at least
10% of companies that provide public services are forbidden
to hold Broadcasting services provision under subscription
registration. However, this clause does not apply in the
following cases: (i) nonprofit entities that hold a license or
permission issued by the Argentine National, Provincial,
or Municipal governments to supply public services
(cooperatives providers of telephone services, for example);
(ii) Entities included in article No.94 of the Decree (whereby
Telecom Argentina and Personal are included), which are
allowed to provide the service after the expiration of the term
mentioned in that clause.
Among other clauses, the Decree establishes issuance
and objections procedures (from other service provider in
the same area at the time of application for registration),
within the scope of Argentina CNDC. This procedure is not
applicable to nonprofit entities that exclusively supply ICT
public services.
Decree No.267/15 repealed article No.15 and article
No.48 paragraph two of the LAD. Therefore, the following
provisions no longer have effect: (i) the condition of essential
and strategic public services of ICT regarding the access
to the telecommunications network for the “ICT services”
license holders; and (ii) the Regulatory Authority power to
regulate tariffs due to public interest reasons.
According to Law No.26,122, the Bicameral Committee
must determine the validity or invalidity of the Decree and
present its determination to the plenary meeting of each
Chamber of Congress for its specific treatment. Rejection
of a Decree by both Chambers of Congress would repeal
the Decree, while upholding the rights acquired during its
enforcement (Article 24 of Law No.26,122).
The Decree also establishes several amendments to the
Audiovisual Communications Services Law (SCA).
(G) UnIVeRsal seRVICe ReGUlaTIon
Decree No. 764/00
Annex III of Decree No.764/00 required entities that receive
revenues from telecommunications services to contribute 1%
of these revenues (net of taxes) to the SU fund. The regulation
adopted a “pay or play” mechanism for compliance with the
mandatory contribution to the SU fund. The regulation also
established the exemption to contribute to the FFSU in the
following events: i) for local services provided in areas with
teledensity lower than 15%, and ii) when certain conditions
exists in connection with a formula which combines the
foregone revenues and the market share of other operators
than Telecom Argentina and Telefónica who provide local
telephony. Additionally, the regulation created a committee
responsible for the administration of the SU fund and the
development of specific SU programs.
SC Resolution No.80/07 stipulated that until the SU Fund was
effectively implemented, telecommunication service providers,
such as Telecom Argentina and Personal, were required to
deposit any contributions accrued since the issuance of such
Resolution into a special individual account held in their
name at Banco de la Nación Argentina. CNC Resolution
No.2,713/07, issued in August 2007, established how these
contributions are to be calculated.
Decree No. 558/08
Decree No. 558/08, published on April 4, 2008, introduced
certain changes to the SU Fund regime, replacing the Annex
III of the Decree No. 764/00.
The Decree established that the SC would assess the value of
service providers direct program contributions in compliance
with obligations promulgated by Decree No.764/00. It would
also determine the level of funding required in the SU Fund
for programs pending implementation. In the same manner,
in order to guarantee the continuity of certain projects, the SC
was given the choice to consider as SU contributions certain
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other undertakings made by telecommunication services
providers and compensate providers for these undertakings.
In defining “Universal Service,” the new regulation established
two categories: a) geographical areas with uncovered or
unsatisfied needs; and b) customer groups with unsatisfied
needs. It also determined that the SC would have exclusive
responsibility for the issuance of general and specific
resolutions regarding the new regulation, as well as for its
interpretation and application.
It also established that the SC would review SU programs which
were established under the previous regulation, guaranteeing
the continuity of those already being administered and
implementing those that had been under review. The financing
of SU ongoing programs which were recognized as such were
determined by the SC, whereas telecommunications providers
appointed to participate in future SU Programs were selected
by competitive bidding.
The Decree required Telecom Argentina and Telefónica to
extend the coverage of their fixed line networks, within their
respective original region of activity, within 60 months from
the effective date of publication of the Decree.
The Decree required telecommunications service providers
to contribute 1% of their revenues (from telecommunication
services, net of taxes) to the SU Fund and kept the “pay or
play” mechanism for compliance with the mandatory monthly
contribution to the SU Fund or, to claim the corresponding
receivable, as the case may be.
Providers of telecommunications services should rely on the
advice of a Technical Committee made up of seven members
(two members should be appointed by the SC, one member
should be appointed by the CNC, three members should be
appointed by the telecommunication services providers – two
of which should be appointed by Telecom Argentina and
Telefónica and one by the rest of the providers – and another
member had to be appointed by independent local operators).
This Technical Committee was informed by the SC of the
programs to be financed and was responsible for managing
and controlling the SU Fund, carrying out technical-economic
evaluations of existing projects and supervising the process of
competitive bidding and adjudication of new SU programs,
with the prior approval by the SC.
The Technical Committee was created. Additionally,
telecommunications service providers sent the proposed
Fiduciary agreement to the SC. The SC approved it in January
2009 through Resolution No.7/09.
On December 9, 2008, the SC issued Resolution No.405/08
which was objected by the Company and Personal. These
objections were resolved by the SC through its Resolution
No.154/10.
On April 4, 2009, by means of SC Resolution No. 88/09, the
SC created a program denominated “Telephony and Internet
for towns without provision of Basic Telephone Services” that
will be subsidized with funds from the SU Fund. The program
sought to provide local telephony, domestic long distance,
international long distance and Internet in towns that did
not provide basic telephone services. The proposed projects
approved by the SC would be sent to the Technical Committee
of the SU Fund so that availability of funds can be evaluated
and they can be included in a bidding process provided for in
Decree No. 558/08.
On December 1, 2010, the SC issued Resolutions No.
147/10 and 148/10, approving “Internet for educational
institutions” and “Internet for public libraries” programs,
respectively. These programs aimed to reclaim the Broadband
service to state-run educational institutions and public
libraries, respectively, and were implemented through the
use of the FFSU resources. Telecom Argentina was awarded
with the "Internet for educational institutions” program and
is finishing the last project facilities, reaching 1,540 schools.
This program represents a billing to the FFSU of approximately
$5 per year for a period of 5 years. On the other hand, the
auction “Internet for public libraries” program was cancelled
by the Regulatory Authority for its redefinition. During 2012,
the auction “Telephony and Internet for towns without
provision of Basic Telephone Service" took place according
to Resolution No. 88/09, which involved the service provision
in 430 locations. Personal presented its offer to the auction.
As of the date of issuance of these consolidated financial
statements, the auction is pending of definition.
On November 11, 2010, the SC issued Resolution No.
154/10 adopted the methodology for the deposit of the SU
contributions to the trustee’s escrow account. The Resolution
included several provisions related to the determination of the
contributions that correspond to the periods before and after
Decree No. 558/08 was issued. It also provided that until the
SC determined the existence of programs, the amounts that
would correspond to their implementation would be discounted
by the telecommunication providers when determining their
contribution to the SU Fund. If completed the verification
from the SC there were unrecognized amounts, they should
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be contributed into the FFSU or for the development of new
works of the SU, with the approval of the SC.
On December 30, 2010, the trustee notified Telecom
Argentina and Personal the trustee’s escrow account number
in which they should deposit the SU contributions under the
provisions of SC Resolution No.154/10.
Amendments of the LAD to the SuRegulation
In December 2014, the LAD introduced substantial
modifications to the SU regulations pursuant to Decree No.
558/08. Among its provisions the LAD establishes the creation
of a new FFSU and the fact that the investment contributions
corresponding to the SU programs be managed through said
fund, whose assets shall belong to the Argentine government.
The licensees of ICT Services (among them, Telecom Argentina
and Personal) are obliged to make investment contributions to
the FFSU equivalent to one per cent (1%) of the total accrued
revenues for the provision of the ICT Services included in the
scope of application of the law, net of imposed taxes and
charges. The investment contribution shall not be transferred
to the users whatsoever. In turn, the Regulatory Authority may
dispose, once the SU objectives are reached, the total or
partial, permanent or temporary exemption, of the obligation
to perform said investment contributions.
The Law also establishes that by virtue of that set forth by
Sections 11.1 and 11.2 of the Management Trust Agreement
of the FFSU of Decree No. 558/08, the resources therein
foreseen in section 8 of Annex III of Decree No. 764/00 and
its amendments shall be integrated to the FFSU created by the
LAD in the conditions determined by the Regulatory Authority.
The SU funds shall be applied by means of specific programs.
Its content and the corresponding awarding mechanisms shall
be defined by the Regulatory Authority who may entrust the
execution of these plans directly to the entities included in
article 8, paragraph b), of Law No. 24,156, or, complying with
the selection mechanisms that may correspond, respecting
publication and competition principles, to other entities.
Through registered letters received on August 13, 2015,
the AFTIC gave notice to the Company and Personal that
on July 28, 2015, the Argentine government, through
this Enforcement authority held as trustor, entered into an
administrative trust fund with Nación Fideicomisos S.A. (as
trustee) called “Contrato de Fideicomiso Argentina Digital”
(Argentina Digital Trust Fund). The AFTIC has assigned the
trustee as fiduciary of the investment contributions to the
FFSU, which are equivalent to 1% of total revenues recorded
since July 1, 2015 and to be collected as of August 3, 2015
for the supply of ICT services included in the scope of the LAD,
net of payable taxes and fees, in accordance with article 22
of the abovementioned Law. It also reported the information
of the bank account in which the deposit of the mentioned
contribution was to be made in the future.
As a response to the notice, on September 3, 2015, the
Company and Personal made their respective filings before
the AFTIC requesting some clarification in relation to the
implementation of the new FFSU, and expressly reserving the
rights in relation to the rules issued by the LAD.
Through the Official Notice published in the Official Bulletin
on September 1, 2015, the AFTIC communicated to all
licensees of ICT services that as of the date of the Bulletin
the FFSU assets managed by Banco Itaú S.A. would be
transferred to account No. 659.051.294/5 corresponding to
the new escrow account of Nación Fideicomisos S.A., and
that as a result, investment contributions corresponding to
SU programs would cease to be paid into the trust account
of Banco Itaú and should be funded in the aforementioned
account. In addition, by means of the notice published in the
Official Bulletin on September 2, 2015, Banco Itaú notified
all licensees that as of September 1, 2015, the deposit of new
funds in the trust under liquidation would not be allowed.
On September 10, 2015 the Company and Personal filed
before the AFTIC their respective SU contribution affidavits
corresponding to the revenues recorded in July 2015, clarifying
that these presentations were made with the understanding
that the operational rules related to the FFSU contribution,
regulated by Decree No. 558/08 and related provisions,
were in force. Additionally, Personal proceeded to deposit the
corresponding contribution in the new FFSU account reported
through the Official Notice published by the AFTIC.
In its filings, the Company and Personal had stated that the
filing of the affidavits and - in the case of Personal - the deposit
did not imply explicit or implicit consent of the regulations
issued by the LAD, and expressly reserved their rights in
relation to the unconstitutionality of the provisions set forth in
articles 21, 22, 91 and related provisions of said law, as well
as the claim of any rights arising from the acknowledgement
of this argument.
As of the date of issuance of these consolidated financial
164
statements, neither the Company nor Personal has received
an answer to its filings of September 3, 2015, or published
any new regulation or additional instruction in relation to SU.
FFSu – Impact in Telecom Argentina
Several years after the market’s liberalization and the
effectiveness of the first SU regulations, incumbent operators
have not received any set-offs for providing services as
required by the SU regime and the LAD.
As of the date of issuance of these consolidated financial
statements and in compliance with SC Resolution No.80/07
and No.154/10 and CNC Resolution No.2,713 /07, Telecom
Argentina has filed its monthly calculations since July 2007
for the review of the Regulatory Authority and estimated a
receivable of $2,020 (unaudited). This receivable has not yet
been recorded as of December 31, 2015 since it is subject to
the approval of the SU programs, the review of the Regulatory
Authority and the availability of funds in the SU Trust.
On April 8, 2011, the SC issued Resolution No. 43/11 notifying
Telecom Argentina that investments associated with “High-
Cost Areas” – amounting to approximately $1,768 since July
2007 to date and which are included in the abovementioned
receivable - did not qualify as an Initial Indicative Program.
Telecom Argentina filed a claim on this resolution.
Telecom Argentina was notified of SC Resolutions No. 53, 54,
59, 60, 61, 62, 69 and 70/12, pursuant to which the “Special
Service of Information 110“, the “Discounts for Retired People,
Pensioners and Low Consumption Households”, the services of
“Social Public Telephony and Loss-Making Public Telephony”,
the “Services and Discounts relating to the Information
Society Program [email protected]”, the “Services for
Deaf-Mute People”, the “Free Access to Special Emergency
Services and Special Community Services”, the “Value Added
Service 0611 and 0612” and the “Long Distance Semipublic
Service ”, respectively, did not qualify as an Initial Indicative
Program, pursuant to the terms of Article 26 of Annex III of
Decree No. 764/00, and that, they did not constitute different
services involving a SU provision, and therefore they cannot
be financed with SU funds, pursuant to the terms of Article 2
of Decree No. 558/08.
The Company’s Management, with the advice of its legal
counsel, has filed appeals against SC Resolutions Nos. 53,
54, 59, 60, 61, 62, 69 and 70 presenting the legal arguments
based on which such resolutions should be revoked. The
deductions that were objected by the SC Resolutions amount
to approximately $741 and are included in the credit balance
mentioned in the second paragraph.
As of the date of issuance of these consolidated financial
statements, the resolution of this appeal is still pending.
On September 13, 2012, the CNC required Telecom
Argentina to deposit approximately $208. The Company has
filed a recourse refusing the CNC’s request on the grounds
that appeals against the SC Resolutions are still pending of
resolution. However, at the date of issuance of these consolidated
financial statements it cannot be assured that these issues will
be favorably resolved at the administrative stage.
FFSu – Impact in Personal
Since January 2001, Personal has recorded a liability related
to its obligation to make contributions to the SU Fund.
In addition, since July 2007 and in compliance with SC
Resolution No.80/07 and No.154/10 and CNC Resolution
No.2,713/07, Personal deposited the correspondent
contributions of approximately $112 into an account held
under their name at the Banco de la Nación Argentina in
January 2011.
During the first quarter of 2011, the above mentioned funds
were transferred to the trustee’s escrow account, in compliance
with the provisions of SC Resolution No.154/10 previously
described. Since January 2011, the SU Fund contributions
were made into such escrow account.
On January 26, 2011 the SC issued Resolution No. 9/11,
establishing the “Infrastructure and Facilities Program”. The
Resolution provided that telecommunication service providers
could contribute to investment projects under this program,
exclusively the amounts corresponding to their pending
obligations of investment contributions born under Annex III
of Decree No.764/00, before the effective date of Decree
No.558/08.
In March 2011, Personal submitted to the SC a $70
investment project, pursuant to SC Resolution No. 9/11, for
the development of a network infrastructure in locations in
the Northern Region of Argentina with no mobile coverage.
Personal submitted its calculations from 2001/2007 related
to the mentioned project to be financed through its own SU
contribution of such periods as required by the SC.
On April 9, 2014 Personal filed an amendment proposal for
the project within the scope of Resolution No. 9/11, pursuant
165
to the SC’s request. This new filing consists only of additional
detailed information about the project’s scope. As of the date
of issuance of these consolidated financial statements, the
project is pending of approval.
On July 5, 2012, the SC issued Resolution No.50/12
pursuant to which it notified that the services referred to by
the Mobile Communications Services Providers, which were
filed as High Cost Areas or services provided in non-profitable
areas, services provided to clients with physical limitations
(deaf-mute and blind people), rural schools, and the request
relating to the installation of radio-bases and/or investment
in the infrastructure development in various localities, did not
constitute items that may be discounted from the amount of
contributions to the SU pursuant to the last part of Article 3 of
Resolution No.80/07, or Article 2 of Decree No. 558/08. It
also provided that certain amounts already deducted would
be used for investment projects within the framework of the
Program of SC Resolution No.9/11, or deposited in the SU
Fund, as applicable.
Personal has filed an administrative action against SC
Resolution No.50/12, requesting its nullity. As of the date
of issuance of these consolidated financial statements, the
resolution of this matter is still pending.
On October 1, 2012, responding to an SC’s requirement,
Personal deposited under protest approximately $23 in
the SU Fund, corresponding to the assessment of the SU
services provided by Personal since the issuance of Decree
No.558/08, reserving its right to take all actions it may deem
appropriate to claim its reimbursement, as informed to the
SC and the CNC on October 15, 2012. Since August 2012,
Personal is paying under protest of those concepts in their
monthly affidavits.
The Management of Personal could not assure that this issue
would be favorably resolved in the administrative stage.
H) sPeCTRUM
SC Resolution No. 38/14
On July 7, 2014, SC Resolution No. 38 was published in the
Official Bulletin which announced a Public Auction process
(the “Auction process”) for the awarding of the remaining
frequencies of the Personal Communication Services (PCS),
of the Cellular Mobile Radiocommunication Services (SRMC),
as well as those of the new spectrum for the Advanced Mobile
Communications Service (SCMA) recently created.
The Terms and Conditions organized the aggregate of the
spectrum to be auctioned in 10 Lots, being the first one to be
auctioned exclusively among entering operators. The Public
Auction took place on October 31, 2014. Personal presented
its economic bids and was awarded Lots 2, 5, 6 and 8.
Telefónica Móviles Argentina S.A. (Movistar), América Movil
S.A. (Claro) and Arlink S.A also participated in the Auction.
Through SC Resolution No.79/14 the SCMA service was
awarded to Personal, while through SC Resolutions No.
80/14, 81/14, 82/14 and 83/14 that were published in
the Official Bulletin on November 27, 2014, the following
frequency bands were awarded to Personal:
SC Resolution
80/14
81/14
82/14
83/14
LotNo.
5
2
6
8
FrequencyBand
1890-1892.5 Mhz and 1970-1972.5 Mhz
830.25-834 Mhz and 875.25-879 Mhz
1862.5-1867.5 Mhz amd 1942.5-1947.5 Mhz
1730-1745 Mhz and 2130-2145 Mhz
PCS
SRMC
PCS
SCMA
Amount paid (in millions of
uS$)5.0
45.0
6.0
354.7
410.7
Capitalized costof acquisition
(in millions of $)43
387
51
3,049
(*)3,530
Exploitationarea/ (Service)
Northern (3G)
AMBA (3G)
Southern (3G)
Country (4G) partial
awarding
(*) Includes $18 corresponding to the tax on debits to bank accounts that were capitalized in the cost of the licenses.
Personal paid for the awared frequency bands, and also constituted the corresponding performance guarantees. In the case of
Lot No 8, the payment was made on account of the single and total price offerec for this Lot.
166
Personal asked that the assignment of the Frequency Bands for
the SCMA services in Lot No. 8, which was partially awarded
to Personal through SC Resolution No.83/14, be completed
and reserved the applicable rights.
The full awarding of Lot No. 8 became essential for
compliance with the commitments foreseen in the Auction
Terms and Conditions. Once the awarding process was
completed, Personal had access to SCMA Frequency Bands
713-723/768-778, and Personal paid the equivalent of
US$ 247.3 million (the remaining balance of the bid) and
constituted the performance guarantees of 15% of the said
amount.
The Auction Terms and Conditions provided authorizations
for the use of the auctioned frequency bands for a period of
fifteen (15) years from the notification of the award. After this
deadline the Regulatory Authority would extend the terms of
use upon formal request of the awarded operator (which price
and conditions would be set forth by the Regulatory Authority).
The Auction Terms and Conditions also established strict
coverage and network deployment commitments which
require significant investments to Personal. Additional
information is provided in Note 18.e).
Through SC Resolution No. 25/15, issued on June 11,
2015, the SCMA Frequency Bands 713-723 MHz and 768-
778 MHz for the National Exploitation Area were assigned
to Personal, which composed Lot 8 and that were pending of
assignment by the SC.
On June 25, 2015, Personal paid the auctioned amounts
related to the assigned Frequency Bands (equivalent to
US$ 247.3 million) according to the Terms and Conditions
provisions and its clarifying amendments. Thus, Personal fully
paid the aggregate bid amount for Lot 8. Through this payment
and pursuant to Article 54 of the Terms and Conditions the
performance guarantee of 15% of the auction assigned to
Personal by SC Resolution No. 25/15 was constituted.
These rights of use of Frequency Bands were recorded as
Intangible Assets amounting to $2,256 (Note 9) – that
includes $13 related to the IDC costs – which are depreciated
according to Note 3.i) 3G and 4G Licenses of the consolidated
financial statements.
As a result, the aggregate amounts recorded as Intangible
Assets as of December 31, 2015 related to the 3G and 4G
licenses awarded to Personal in the Auction, amounted to
$5,786.
Frequency bands of SC Resolution No.25/15 are partially
in use. SC Resolutions No.17/14 and No.18/14 granted a
period of two years for the migration of the systems that are
currently operating the mentioned frequency bands.
Through Resolution No. 155/15 issued on September 2,
2015, the AFTIC terminated the spectrum assignment granted
to Arlink S.A. through Resolutions No. 28, 29, 30, 31 and 32
issued on June 11, 2015, and the registries conferred through
Articles 1 and 2 of SC Resolution No. 27/15 issued on June
11, 2015, for the provision of PCS and SCMA services.
Additionally, the Public Auction of Lot 1 was declared desert
regarding the assignment of the frequency bands for the
provision of PCS, SRMC and SCMA services, approved by
Article 1 of SC Resolution No. 38/14.
Personal made a presentation expressing its interest in the
frequency bands comprising Lot 1.
On November 4, 2015, Law No. 27,208 (“Satellite
Industry Development Law”) came into effect declaring the
development of the satellite industry as public interest as
well as a state policy and national priority with regard to
telecommunications geostationary satellites. That law granted
to the company ARSAT, on a preferential basis, the frequency
bands of Lot 1. The law also provides that these bands will be
used for the implementation and operation of services and
applications for which they are or will be assigned, giving
priority to applications of Public Protection and Defense
Operations. This will complement the ARSAT ICT network
services and will primarily serve the most vulnerable areas of
the country.
(I) sC ResolUTIon no.1/13
On April 8, 2013, SC Resolution No.1/13 was published
in the Official Bulletin, establishing that all mobile operators
should guarantee the service provision, even in emergency
situation or catastrophe, in which case the normal service
provision must be restored in a maximum period of one hour.
Mobile operators must, in all cases, prioritize the access to
emergency services in the affected areas.
In addition, SC Resolution No.1/13 established that mobile
operators present within 45 days a Contingency Plan for
emergency situations, for purposes of guaranteeing the
continuity of services in such circumstances.
167
As of the date of issuance of these consolidated financial
statements, Personal has appealed SC Resolution No.1/13
exposing the arguments by which the mentioned resolution
should be released. However, Personal has met its commitment
to present a Contingency Plan for emergency situations.
On January 26, 2015, the CNC provided comments on
Personal’s Contingency Plan and also required the reporting
of the measures chosen to implement the Plan and the status
thereof. Personal filed to AFTIC a new Contingency Plan with
the required amendments. As of the date of issuance of these
consolidated financial statements, the Regulatory Authority
has not pronounced on this matter.
(j) sC ResolUTIon no.5/13
On July 2, 2013, SC Resolution No.5/13 was published
in the Official Bulletin. This Resolution approved a
“telecommunication service quality regulation”, establishing,
among others, new quality parameters required for
telecommunication services provided through mobile and
fixed public networks, for all the operators in Argentina, as
well as the obligation to provide periodic information to the
CNC.
CNC Resolution No.3,797/13 was published in the Official
Bulletin on November 13, 2013, supplementing SC
Resolution No. 5/13 and approving the Audit Procedures
and Technical Verification of Service Quality Regulation of
Telecommunications Services Manual.
Pursuant to the provisions of CNC Resolution No.3,797/13,
the Company and Personal have submitted their respective
"Technical Reports" (detailed technical specifications of the
measurement process) and have made their submissions
providing the required information pursuant to the provisions
of SC Resolution No.5/13.
On August 14, 2014 the CNC notified the Company and
Personal that the audits and technical verifications that the
Regulatory Authority shall perform on the supply of services
regarding licenses of the Company and Personal will be
performed following the processes and methods of measurement
exhibited in the respective presentations of the “Technical
Reports”. The CNC also notified the Company that these shall
be carried out using the principles set forth in SC Resolutions
No.5/13 and CNC No.3,797/13. Notwithstanding, the CNC
developed verification tasks of the mobile services by means of
tests of calls and data with measuring mobile devices in different
locations of the country using procedures different from those
defined in the Quality Regulation and published the results at
“quenosecorte.gob.ar”.
Within the scope of said verifications, the CNC initiated penalty
processes against Personal for alleged non-compliance with
CNC Resolution No.3,797/13. The Management of Personal
has in a timely basis submitted its solid legal defense against
these claims.
Since the enforceability of this Resolution is subject to the
compliance of certain steps for its implementation with the
previous approval of the Regulatory Authority, the Company
and Personal have carried out the corresponding reservations
of their rights in each of their submissions. In addition, the
Company has stated in its different submissions that, due
to the special circumstances that affected its tariff structure,
the compliance of the burdensome operative and customer
service parameters set forth in SC Resolution No.5/13 should
not apply.
(k) ReGUlaTIon of VIRTUal MobIle oPeRaToRs
SC Resolution No.68/14, published in the Official Bulletin on
October 28, 2014, approved the Regulation of Virtual Mobile
Operators (“VMO”) and the Basic Requirements for VMO
Agreements. Among its provisions, the Resolution states that
the Network Mobile Operators (“NMO”) that have spectrum
and infrastructure, shall annually file a reference offer for
those interested in providing services as VMO, in which they
will set forth the technical and economic conditions, which
shall be reasonable and non-discriminatory. The Resolution
also provides the modalities and procedures for the provision
of such services. According to Article 2 of the Annex of the
Resolution, the Regulation is applicable to SCMA.
(l) “Tax sTabIlITY” PRInCIPle: IMPaCT of VaRIaTIons In soCIal seCURITY ConTRIbUTIons
On March 23, 2007, the SC issued Resolution No.
41/07 relating to the impact of variations in social security
contributions occurring after November 8, 1990 and the
proposed use for the resulting savings and increases in
contribution rates that have occurred.
The Company had recorded a liability related to the savings
caused by reductions in the levels of social security contributions
initially earmarked for the [email protected] Program.
The mentioned savings were substantially generated during
168
fiscal year 2000. Resolution No. 41/07 allowed the Company
to recover the increases in social security contributions that it has
to pay as a consequence of the increase in social contributions
rates.
Within this context and considering applicable the principle
of tax stability provided by the Transfer Agreement approved
by Decree No. 2,332/90, the Resolution authorized the
aforementioned savings being offset with the amounts arising
from the application of the mentioned increases.
The offset of both concepts and the determination of a
balance, were subject to the audit results performed by the
Regulatory Authority according to the information provided
by the Company. The mentioned audit was performed during
the third quarter of 2007. The Company took knowledge of
the proceedings, in which the CNC recognized a receivable
arising from increases in social contributions within the
scope of Resolution No. 41/07 and canceled liabilities from
reduction in social contributions and other sanctions imposed
to the Company.
As of December 31, 2015, the Company has a net
receivable of $61 which, in addition to the receivable of
$23 corresponding to the IDC as explained in (m) below, is
included in the line item “Other receivables” as non-current
receivables.
Since Resolution No. 41/07 provides the Company the right
to offset receivables with existing and/or future regulatory
liabilities and, given the Company’s intention to exercise this
right, the receivable was recorded net of several provisions.
As of December 31, 2015, the provisions which can be offset
with the receivables arising from Resolution No. 41/07 and
from IDC amounted to $84.
It is worth mentioning that since December 2008, the
Company continued its practice of billing customers for the
increases in its social security contribution rate accrued from
October 2008, applying the same method used to bill the
IDC.
(M) Tax on DePosITs To anD WITHDRaWals fRoM bank aCCoUnTs CHaRGeD To CUsToMeRs
On February 6, 2003, the Ministry of Economy, through
Resolution No.72/03, defined the method to allow, going
forward, rate increases on Basic Telephone Services reflecting
the impact of the IDC. The amount of tax charged must
be shown separately in customers’ bills. The Company has
determined the existence of a remaining unrecovered amount
of approximately $23 that arose before the issuance of
Resolution No.72/03. The Company planned to claim such
amount within the rate renegotiation process (see (o) below).
In April 2007, the Company provided the CNC with supporting
documentation about this amount and in May 2007 filed its
preliminary economic evaluation to the Regulatory Authority.
The Company took knowledge of the Regulatory Authority’s
documentation which corroborates the amount claimed
by the Company and provides a similar offsetting method
pursuant to Resolution No.41/07 (as described in (l) above).
As a result, the Company recorded as “Non-current Other
receivable” a total of $23. This receivable is also included in
the provisions for regulatory matters described above.
(n) TaRIff sTRUCTURe of THe naTIonal anD InTeRnaTIonal ReGUlaTeD fIxeD lIne seRVICes
Price Cap
The Price Cap was an annual rate regulation method which
included increases components (pulse price increases - based
in the U.S. Consumer Price Index (“U.S. C.P.I.”) – which was
applied in April and October of each year) and reduction
components (an efficiency factor which was applied in
November of each year).
As a result of the 1999 Price Cap audit process and Telecom
Argentina’s reviews, the Regulatory Authority notified to the
Company, in August 2009, of the existence of an outstanding
balance of $3.1 plus interest. The Company has offset this
amount with the receivable resulting from SC Resolution No.
41/07 described in (l) above.
On April 6, 2000, the Argentine government, Telefónica and
Telecom Argentina signed an agreement (“Price Cap 2000”)
that set an efficiency factor or rate reduction of 6.75% (6% set
by the SC and 0.75% set by Telecom Argentina and Telefónica)
for the period of November 2000 to October 2001.
The Company timely presented all the required information
for the Price Cap audit, however, as of the date of issuance of
these consolidated financial statements, the 2000 Price Cap
audit results are still pending. Taking into consideration the
time elapsed since the beginning of the audits, in the opinion
of the Company’s legal counsel, any balance pending
application should be prescribed.
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In April 2001, the Argentine government, Telefónica and the
Company signed an agreement (“2001 Price Cap”) that set
an efficiency factor of 5.6% for the period from November
2001 to October 2002.
However, in October 2001, an injunction against Telecom
Argentina disallowed it to apply rate adjustments by reference
to the U.S. C.P.I. The Company appealed this injunction arguing
that if one part of the formula could not be applied, the Price
Cap system should be nullified. Finally, Public Emergency Law
No. 25,561 explicitly prohibited rate adjustments, resulting in
the Pesification and the freezing of the regulated rates.
(o) ReneGoTIaTIon of aGReeMenTs WITH THe aRGenTIne GoVeRnMenT
Convertibility period of the peso to the uS dollar: dollarization rates.
On November 28, 1991 the Company and Telefónica signed
an agreement with the Argentine government related to the
rate regime, which was ratified by Decree No. 2,585/91 and
was effective from December 18, 1991. The most relevant
aspects included in this agreement that amended the rate
regime provided by the Transfer Agreement were:
1. The rate, measured in basic telephone pulses, was set
in US dollars, adjustable twice a year (April and October)
based on the variation of the U.S. C.P.I. (all items). These
rate adjustments did not require the prior approval of the
Regulatory Authority. Since 2000 these rate adjustments
were not applied according to agreements signed with
the SC, which delayed its implementation. Subsequently,
in October 2001, an injunction prevented the continuity
of application, as indicated in n) above.
2. The customers billing continued performing in local
currency.
Rates pesification
On January 6, 2002, the Argentine government enacted
Law No.25,561, Ley de Emergencia Pública y Reforma del
Régimen Cambiario (the “Public Emergency Law”). This Law,
by Article 8, annulled adjustment clauses in dollars or other
foreign currencies and indexation clauses based on price
index and any other indexation method. As a consequence,
from that date the Company’s rates were set in pesos at the
exchange rate $1 argentine peso per US$ 1.
According to Decree No. 293/02, a process of renegotiation
of contracts with the Public Administration was initiated, which
provided, among other things, the revision of the Company’s
rates. The Argentine government was entitled to renegotiate
these agreements based on the following criteria:
• the impact of rates on the competitiveness of the economy
and income distribution;
• the quality of services and investment plans, when were
contractually agreed;
• the users interest and services accessibility;
• the security of the systems;
• the companies’ profitability.
This Decree instructed the Ministry of Economy to renegotiate
of these agreements and created the Agreement Renegotiation
Commission to provide the Ministry with the assessment that
each case required.
To accomplish with such renegotiation process, the Company
timely filed to the Agreement Renegotiation Commission all
the information regarding the impact caused by the economic
emergency on its financial situation, mainly on revenues, and
existing methods for updating rates according to operating
costs, to debt, to payment commitments with the Argentine
government and to future and ongoing investments.
In July 2003, Decree No. 311/03 created the Unidad de
Renegociación y Análisis de Contratos de Servicios Públicos
(“UNIREN”), which continued the agreement renegotiation
process and continued the procedures already in progress with
the previous Commission. The PEN must refer the proposed
renegotiation agreements to the National Congress, which
must arrive to a conclusion within sixty days from the proposal
reception. If the National Congress would not conclude, the
proposal was automatically approved and, if the National
Congress rejected the proposal, the PEN must resume the
corresponding renegotiation agreement process.
In October 2003, was issued Law No. 25,790, which extended
until December 31, 2004 the period to renegotiate the public
works and services agreements. From December 2004,
several laws were issued that have extended the renegotiation
agreements deadline. The latest Law No. 27,200 extended
the mentioned deadline until December 31, 2017.
Letters of understanding (“LOu”) with the Argentine government
On May 24, 2004, the Company signed a LOU with the
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Argentine government pursuant to which the Company
committed not to modify the current rate structure through
December 31, 2004 and to continue with the rate
renegotiation process, which the Company expected to have
concluded before December 31, 2004. It was also agreed
to implement some social services to promote accessibility
to telecommunications services, implemented through the
following SC resolutions.
• Through Resolution No.262/04, the SC approved
service 0612 Internet access to communities located at
a distance greater than 55 kilometers with respect to the
centers 0610 located in larger cities. The provision of this
service began by the end of 2004 and, as of the date
of issuance of these consolidated financial statements, is
operating in about 300 locations.
• Through Resolution No.263/04, the SC approved the
implementation of a calling card with discounts for
beneficiaries of the Jefes de Hogar social plan, which did
not have a telephone line. The compromised 250,000
cards were available to the Ministry of Employment
and Social Security during March 2005. The Company
also cooperated delivering the mentioned cards to
municipalities, according to the Ministry instructions.
• Through Resolution No.73/05, the SC instructed
Telecom Argentina to provide low consumption
discounts to beneficiaries of the Jefes de Hogar social
plan. According to this social plan beneficiaries’ list sent
by the Ministry of Employment and Social Security, the
Company has provided the low consumption discounts
to those beneficiaries who accomplished the registration
conditions.
As the relevant SC Resolutions were issued, Telecom Argentina
finished complying with the obligations undertaken in this
agreement.
New LOu with the uNIREN
On March 6, 2006, Telecom Argentina signed a new LOU
with the UNIREN, within the framework of the renegotiation of
its license, which had begun in 2004. Upon the fulfillment of
the procedures set forth in the rules and regulations in effect,
the LOU provides the framework for the signing of the Acta
Acuerdo de Renegociación del Contrato de Transferencia
de Acciones or Minutes of Agreement of the Renegotiation
of the Transfer Agreement (the “Minutes of Agreement of the
Renegotiation”) approved by Decree No. 2,332/90, as stated
in Article 9 of the Public Emergency Law.
The main terms and conditions of the Letter included:
• The CNC and UNIREN have determined that Telecom
Argentina satisfactorily complied with most of the
requirements contemplated in the Transfer Agreement
and by the regulatory framework. Isolated violations were
satisfactorily remedied through fines and/or sanctions.
Other matters arising in the normal course of business
are still pending of resolution, which were expected to
be resolved by June 30, 2006 (some of these matters
are described above). The Regulatory Authority continued
to analyze such open issues, and, accordingly, their
resolution would be disclosed gradually;
• Telecom Argentina’s commitment to invest in the
technological development and updating of its network;
• Telecom Argentina’s commitment to the achievement of
its long-term service quality goals;
• The signing parties’ commitment to comply with and
maintain the terms set forth in the Transfer Agreement,
and in the regulatory framework in effect;
• The Argentine government’s commitment to create an
appropriate and standardized regulatory framework
for telecommunications services and to give Telecom
Argentina fair and equivalent treatment to that given to
other telecommunications providers that shall take part
in the process;
• Telecom Argentina’s commitment and the commitment
of its indirect shareholders Telecom Italia S.p.A. and W
de Argentina - Inversiones S.A., to suspend for a period
of 210 working days any and all claims, appeals and
petitions already filed or in the process of being filed, in
administrative, arbitral or judicial offices, in Argentina or
in any other country, that are founded in or related to
any act or measure taken after the issuance of the Public
Emergency Law with respect to the Transfer Agreement
and the License. The suspension will take effect after the
30th day from the end of the public hearing convened to
deal with the LOU. Once the Minutes of Agreement of
the Renegotiation is ratified, any and all claims, appeals
and/or proceedings will be disregarded;
• An adjustment shall be made to increase the termination
charge of international incoming calls to a local area to
be equivalent to international values, which are at present
strongly depreciated;
• Off-peak telephone hours corresponding to reduced
rates shall be unified with regards to local calls, long
distance domestic and international calls.
On May 18, 2006, the LOU was subject to a public hearing
171
procedure, with the purpose of encouraging the participation
of the users and the community in general, taking into
consideration that the Letter’s terms and conditions will
provide the framework for the signing of the Minutes of
Agreement of the Renegotiation. These Minutes of Agreement
of Renegotiation should be in effect once all the requirements
stipulated in the regulatory framework were complied with,
which among other things, requires that a Telecom Argentina
Shareholders’ Meeting be held to approve said Minutes. Both
Telecom Argentina and its indirect stockholders Telecom Italia
S.p.A. and W de Argentina - Inversiones S.A. have timely
fulfilled the Agreement’s commitments.
The Renegotiation of the Transfer Agreement and the
resolution of the regulatory issues that negatively affected the
operations of the Company since the enactment of the Public
Emergency Law and the Exchange Regime System Reform in
January 2002 (pesification of rates, lack of compensation for
SU features, increased penalties for delays in repairing and
installation in fixed telephony, etc.), have not been fulfilled
by the Argentine government making it responsible for the
damages caused.
(P) CoMPanY fIlInGs To ReGUlaToRY aUTHoRITY UnDeR THe laD
On June 18, 2014, the Company made a filing before the SC
requesting the adjustment of the SBT lines’ Connection Fee,
in order to obtain an urgent restoration of the balance that
must reasonably exist in the operative costs incurred for the
provision of the public service under its charge, recomposing
the Connection Fee in an equitable manner and pursuant to
the legal provisions that govern the licenses granted to the
Company, taking into account that the revenues obtained for
the installation of the SBT lines was much lower than the direct
costs that the Company incurred to connect new customers. In
addition, the Company requested that, until such adjustment
takes place, such installations become excluded from the
sanctioning regime provided by Decree No.1,185/90,
Decree No.62/90, and SC Resolution No.5/13.
On July 23, 2014, the Company made a second filing before
the SC pursuant to which it requested, among other matters:
(i) an adjustment of the monthly basic charges of all the
SBT categories set forth in the Tariffs General Structure; (ii)
the determination of a social tariff; (iii) the adjustment of the
telephonic pulse value; (iv) the adaptation of the international
long distance tariff to the current value of the gold franc; and
(v) the tariff deregulation of the commercial service category. In
addition, and until such adjustments are made, the Company
also requested the SBT to be excluded from the sanctioning
regime provided by Decrees Nos. 1,185/90 and No. 62/90,
and SC Resolutions No.10,059/99 and No. 5/13. It is worth
mentioning that such adjustments would have relevant effects
on Telecom Argentina’s ability to finance the technological
updating of its networks and infrastructure, which would finally
result in the provision of better services to its customers.
The Company has not received any answer related to the
filing made before the SC.
Following these presentations, on December 19, 2014 the
LAD (under Title (VI) "Prices, rates and levies"), established a
general rule (Article 48) setting a new legal framework in this
matter.
Under the provisions of Article 48 of the LAD, on April 16,
2015, the Company made two presentations before the
CNC through which it reported new installation rates for the
"business, professional and government" segment (which
were applied from April 23, 2015 and will be equal to $690
argentine pesos) and the new monthly rates for this segment
(which were applied from July 15, 2015 and will be equal
to $77.28 argentine pesos).The presentation was rejected
by the CNC through a letter received on April 29, 2015, in
which it requested that the Company refrain from engaging in
unilateral conduct, or it could otherwise face penalties under
a sanctioning process.
Likewise, on June 2, 2015, the Company informed the CNC
of new rates for the price per minute for calls made by its
customers to certain international destinations that became
effective on October 15, 2015. The Company also informed
the CNC of the new prices applying for public telephony
service in the Southern Region and new prices applying to the
assisted call service, effective on July 1, 2015.
On June 16, 2015 the Company was notified of the CNC
GC Note No.364/15 through which the CNC urged the
Company to apply the effective maximum rates approved
by the General Tariff Structure to international calls made to
the mentioned countries according to the provisions of CNT
Resolution No.127/91, as amended. The Company was also
asked to refrain from engaging in unilateral conduct, or it
could otherwise face penalties under a sanctioning process.
On May 27, 2015 and July 2, 2015, the Company filed its
defense of rights in response to both CNC letters.
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However, on July 17, 2015, the AFTIC notified the Company
of the initiation of a sanction process related to a potential
violation of the General Tariff Structure and of CNT Resolution
No. 127/91, as amended, with respect to the increase of the
installation charges prices and the monthly charges tariffs
for the "business, professional and government" segment
informed on April 16, 2015.
On August 11, 2015, the Company filed before the AFTIC a
discharge against the mentioned sanctioning process, which,
as of the date of issuance of these consolidated financial
statements, is still pending of resolution. In the opinion of the
Company’s legal counsel, there are solid legal arguments
under the LAD that allow it to perform these price adjustments.
On February 1, 2016, the Company informed the ENACOM,
that effective May 15, 2016, the new rate of SBT for residential
segment will be $50 argentine pesos (plus VAT) and that the
"Retired" customer’s category will have a discount of 50%
on the mentioned new rate. As of the date of issuance of
these consolidated financial statements, the Company is
communicating the new rate to its affected customers.
(q) oTHeR ReGUlaTIons
“Buy Argentine” Act
According to the provisions of Article 1 of Law No. 25,551,
which is regulated by Decree No.1,600/02, Telecom
Argentina, as a public fixed telephone service licensee, and
their respective direct subcontractors, shall give preference to
the purchase or lease domestic goods and services.
Article 2 of the mentioned law provides that a good or service
is of domestic origin when it has been produced or extracted
in Argentina, provided that the cost of raw materials, supplies
or nationalized imported materials do not exceed 40% of the
goods or services gross production value.
Article 3 of the mentioned law provides that the preference
established in Article 1 to domestic goods or services will apply
when, for identical or similar goods or services, under cash
payment terms, the price is equal to or lower than the price of
imported goods or services, increased by 7% when the offering
of the good or services is carried out by companies qualified
as SME, and 5% when the offering of the good or services is
carried out by other companies. For comparison purposes,
the price of imported goods shall include import duties and
taxes and all expenses required for its nationalization.
The mentioned law provides that the hiring companies shall
announce their tenders in the Official Bulletin as required
by the regulation involved, so as to provide all possible
bidders timely access to information that enables them to
participate in the mentioned tender. It is worth mentioning
that the communication provided in the hiring processes law
for purchases subject to the Buy Argentine Act, establishes
a considerable period prior to the issuance of the purchase
order. The mentioned Act also establishes criminal sanctions
for non-compliance.
Relating to services acquisitions, Decree No.1.600/02 refers
to Law No. 18,875, which provides the obligation to hire
only companies, consultants and domestic professionals,
as defined in the mentioned Law. Any exceptions must be
approved by the competent Ministry.
In August 2004, the CNC Resolution No. 2,350/04,
approved the “Procedure for the accomplishment of the
Buy Argentine Act”, which includes the obligation to submit
semiannual affidavits related to the compliance with the Act.
The Act provides an administrative sanctions procedure for
non compliance with this information procedure.
It is worth mentioning that this Act provides to the Company
less operational flexibility related to, among other matters,
the terms lengthening in tenders, authorizations management
prior to acquisitions and higher administrative expenses for
the required semiannual information submission.
Núcleo - Auction for 4G spectrum in the Republic of Paraguay
On October 14, 2015 the CONATEL launched the final List
and Conditions for the auction of the license for the supply
of mobile telephone services, Internet access and data
transmission in the 1,700 / 2,100 MHz (4G - LTE) frequency
bands in the Republic of Paraguay. The list and conditions
were subject to public consultation for two weeks, during
which the mobile operators sent their considerations in this
regard.
Núcleo assessed the different economic scenarios arising from
a possible participation in the auction considering the List and
Conditions’ technical alternatives, the availability of spectrum
of other frequencies and economic conditions resulting of the
list and conditions. After such assessment, Núcleo decided not
to participate in the auction process.
173
a) GoInG ConCeRn
The consolidated financial statements for the years ended
December 31, 2015, 2014 and 2013 have been prepared
on a going concern basis as there is a reasonable expectation
that Telecom Argentina and its subsidiaries will continue its
operational activities in the foreseeable future (and in any
event with a time horizon of more than twelve months).
b) foReIGn CURRenCY TRanslaTIon
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(“the functional currency”). The consolidated financial
statements are presented in Argentine pesos ($), which is
the functional currency of all Telecom Group’s companies
located in Argentina. The functional currency for the foreign
subsidiaries of the Telecom Group is the respective legal
currency of each country.
The financial statements of the Company’s foreign
subsidiaries (Núcleo, Personal Envíos, Telecom USA and
Springville –up to February 2014-) are translated using the
exchange rates in effect at the reporting date (the current
method); income and expenses are translated at the average
exchange rates for the year. Exchange differences resulting
from the application of this method are recognized in
Other Comprehensive Income. The cash flows of foreign
consolidated subsidiaries expressed in foreign currencies
included in the consolidated statement of cash flows are
translated at the average exchange rates for each year.
C) foReIGn CURRenCY TRansaCTIons
Transactions in foreign currencies are translated into the
functional currency using the foreign exchange rate prevailing
at the date of the transaction or valuation where items are
re-measured. Monetary assets and liabilities denominated in
foreign currencies are translated into the functional currency
at the foreign exchange rate prevailing at the reporting date.
Exchange differences arising from the settlement of monetary
items or from their conversion at rates different from those
at which they were initially recorded during the year or at
the end of the prior year, are recognized in the consolidated
income statement and are included in Financial income/
expenses as Foreign currency exchange gains or losses.
D) ConsolIDaTIon
These consolidated financial statements include the accounts
of Telecom Argentina and its subsidiaries over which it has
effective control (Personal, Núcleo, Micro Sistemas, Telecom
USA, Personal Envíos – only as of December 31, 2015
and 2014, and Springville –up to February 2014-) as of
December 31, 2015, 2014 and 2013.
Control exists when the investor (Telecom Argentina) has
power over the investee; exposure, or rights, to variable
returns from its involvement with the investee and has the
ability to use its power to affect the amount of the returns.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Company. They should be
deconsolidated from the date that control ceases.
In the preparation of the consolidated financial statements,
assets, liabilities, revenues and expenses of the consolidated
companies are consolidated on a line-by-line basis and
non-controlling interests in the equity and in the profit (loss)
for the year are disclosed separately under appropriate
captions, respectively, in the consolidated statement of
financial position, in the consolidated income statement and
in the consolidated statement of comprehensive income.
All intercompany accounts and transactions have been
eliminated in the preparation of the consolidated financial
statements.
Financial year-end of all the subsidiaries’ financial statements
coincides with that of the Parent and have been prepared in
accordance with the same accounting policies.
e) ReVenUes
Revenues are recognized to the extent that it is considered
probable that economic benefits will flow to the Company
and their amount can be measured reliably. Final outcome
may differ from those estimates.
Revenues are stated net of discounts and returns.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
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The Company discloses its revenues into two groups: services
and equipment. Service revenues are the main source
of income for the Company and are disclosed by nature:
Voice services, Internet services and Data transmission
services. This classification of revenues is given by different
commercial offers and products, type of contracts and kind
of customers. Equipment sales represent a precursor of
the mentioned service revenues; therefore, the Group only
sells equipment to customers and, from time to time, the
Management of Personal and Núcleo decide to sell mobile
handsets at prices lower than their respective costs in order
to acquire new contracts with a minimum non-cancelable
period of permanence.
Other income mainly includes penalties collected from
suppliers which are realized in the ordinary course of
business but are not the main business objective.
The Company’s principal sources of revenues are:
fixed telecommunication services and products
Domestic services revenues consist of monthly basic fees,
measured service, long-distance calls and monthly fees for
additional services, including call forwarding, call waiting,
three-way calling, itemized billing and voicemail.
Revenues are recognized when services are rendered.
Unbilled revenues from the billing cycle dating to the end of
each month are calculated based on traffic and are accrued
at the end of the year.
Basic fees are generally billed monthly in advance and are
recognized when services are provided. Billed basic fees
for which the related service has not yet been provided
are deducted from corresponding accounts receivable.
Revenues derived from other telecommunications services,
principally network access, long distance and airtime usage,
are recognized on a monthly basis as services are provided.
Revenues from the sale of prepaid calling cards are
recognized on the basis of the minutes used, at the contract
price per minute, or when the card expires, whichever
happens first. Remaining unused traffic for unexpired calling
cards is shown as “Deferred revenue on prepaid calling
cards” under Deferred revenues line item in the statement of
financial position.
Interconnection charges represent amounts received by
the Company from other local service providers and
long-distance carriers for calls that are originated on their
networks and transit and/or terminate on the Company’s
network. Revenue is recognized as services when they are
provided.
Traffic revenues from interconnection and roaming are
reported gross of the amounts due to other telecommunication
operators.
Non-refundable up-front connection fees for fixed telephony,
data and Internet services that are non-separable from
the service are accounted for as a single transaction and
deferred (as well as the related costs not in excess of the
amount of revenues) over the term of the contract or, in the
case of indefinite period contracts, over the average period
of the customer relationship (approximately 8 years in the
case of fixed telephony).
Reconnection fees charged to customers when resuming
service after suspension are deferred and recognized ratably
over the average life for those customers who are assessed
a reconnection fee. Associated direct expenses are also
deferred over the estimated customer relationship period up
to an amount equal to or less than the amount of deferred
revenues. Generally, reconnection revenues are higher than
its associated direct expenses.
Revenues from sales of goods, such as telephone and other
equipment, are recognized when the significant risks and
rewards of ownership are transferred to the buyer.
Revenues on construction contracts are recognized based
on the stage of completion (percentage of completion
method). When the outcome of a construction contract can
be estimated reliably, contract revenue and contract costs
associated with the construction contract are recognized
as revenue and expenses respectively by reference to the
stage of completion of the contract activity at the end of
the reporting period. When it is probable that total contract
costs will exceed total contract revenue, the expected loss is
recognized as an expense immediately. When the outcome
of a construction contract cannot be estimated reliably,
contract revenue is recognized only to the extent of contract
costs incurred that are likely to be recoverable.
Revenue on construction contracts recognized in the years
ended December 31, 2014 and 2013, amounted to $7 and
$19, respectively. The 2014 agreement provides finance
within 48 months from November 2014, the date when the
175
implementation of the project was effective. No revenue on
construction contracts were recorded for year 2015. As of
December 31, 2015, $28 are receivables.
Cost on construction contracts recognized in the years
ended December 31, 2014 and 2013 amounted to $6 and
$16, respectively. No cost on construction contracts were
recorded for year 2015.
Revenue from international telecommunications services
mainly includes voice and data services and international
point-to-point leased circuits. Revenues from international
long-distance service reflect payments under bilateral
agreements between the Company and foreign
telecommunications carriers, covering inbound international
long-distance calls. Revenues are recognized as services
when they are provided.
Data and Internet revenues mainly consist of fixed monthly
fees received from residential and corporate customers for
data transmission (including private networks, dedicated
lines, broadcasting signal transport and videoconferencing
services) and Internet connectivity services (dial-up and
broadband). These revenues are recognized as services
when they are rendered.
mobile telecommunication services and products
Telecom Group provides mobile services throughout
Argentina via cellular and PCS networks. Cellular fees consist
of monthly basic fees, airtime usage charges, roaming,
charges for TLRD, CPP charges and additional charges
for VAS, including call waiting, call forwarding, three-way
calling, voicemail, SMS, GPRS, Mobile Internet and for
other miscellaneous cellular services. These revenues are
recognized as services when they are rendered.
Basic fees are generally billed monthly in advance and are
recognized when services are provided. Billed basic fees
for which the related service has not yet been provided are
deducted from the corresponding accounts receivable.
Revenues from the sale of prepaid calling cards are
recognized on the basis of the traffic used, at the contract
price per minute, or when the card expires, whichever
happens first. Remaining unused traffic for unexpired calling
cards is shown as “Deferred revenue on prepaid calling
cards” under Deferred revenues line item in the statement of
financial position.
Revenues from sales of goods, such as handsets, sim cards,
tablets, smartphones and other equipment are recognized
when the significant risks and rewards of ownership are
transferred to the buyer.
Personal and Núcleo offer to their subscribers a customer
loyalty program. Under such program Personal and Núcleo
grant award credits as part of the sales transactions which can
be subsequently redeemed for goods or services provided
by Personal and Núcleo or third parties. The fair value of
the award credits is accounted for as deferred revenue,
and recognized as revenue when the award credits are
redeemed or expire, whichever occurs first. Those revenues
are classified as service or goods revenues depending on the
goods or services redeemed by the customers.
Applicable to both fixed telephony and mobile telephony, for
offerings including separately identifiable components (as
equipment and service), the Company and its subsidiaries
recognize revenues related to the sale of the equipment when
it is delivered to the final customer whereas service revenues
are recorded when rendered. The total revenue generated
by this type of transactions is assigned to the separately
identifiable units of accounting based on their fair values,
provided that the total amount of revenue to be recognized
does not exceed the contract revenue. IFRS does not
prescribe a specific method for such assignation of revenue.
However, telecommunications industry practice generally
applies the method known as "residual method”, which was
used in the preparation of the present consolidated financial
statements. The "residual method" requires identifying all the
components that comprise a transaction and allocating its
fair value on an individual basis to each of them. Under this
method, the fair value of a delivered item (which could not
be individually determined) is determined as the difference
between the total arrangement consideration and the sum of
the fair values of those elements for which fair value can be
estimated on a stand-alone basis.
f) fInanCIal InsTRUMenTs
f.1) Financial assets
Financial assets and liabilities, on initial recognition, are
measured at transaction price as of the acquisition date.
Financial assets are derecognized in the financial statement
when the rights to receive cash flows from them have expired
or have been transferred and the Company has transferred
substantially all the risks and benefits of ownership.
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Upon acquisition, in accordance with IFRS 9, financial assets
are subsequently measured at either amortized cost, or fair
value, on the basis of both:
(a) the entity’s business model for managing the financial
assets; and
(b) the contractual cash flow characteristics of the
financial asset.
A financial asset shall be measured at amortized cost if both
of the following conditions are met:
(a) the asset is held within a business model whose
objective is to hold assets in order to collect contractual
cash flows, and
(b) the contractual terms of the financial asset give rise
on specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding.
Additionally, for assets that met the abovementioned
conditions, IFRS provides for an option to designate, at
inception, those assets as measured at fair value if doing
so eliminates or significantly reduces a measurement or
recognition inconsistency (sometimes referred to as an
‘accounting mismatch’) that would otherwise arise from
measuring assets or liabilities or recognizing the gains and
losses on them on different bases.
A financial asset that is not measured at amortized cost
according to the paragraphs above is measured at fair value.
Financial assets include:
Cash and cash equivalents
Cash equivalents are short-term and highly liquid investments
that are readily convertible to known amounts of cash,
subject to an insignificant risk of changes in value and their
original maturity or the remaining maturity at the date of
purchase does not exceed three months.
Cash and cash equivalents are recorded, according to their
nature, at fair value or amortized cost.
Time deposits are valued at their amortized cost.
Investments in other short-term investments are carried at fair
value. Unrealized gains and losses are included in financial
income/expenses in the consolidated statements of income.
During 2015 and 2014, Personal acquired other short-term
investments whose main underlying asset is adjustable to the
variation of the US$/$ exchange rate (dollar linked).
Trade and other receivables
Trade and other receivables classified as either current or
non-current assets are initially recognized at fair value and
subsequently measured at amortized cost using the effective
interest method, less allowances for doubtful accounts.
Investments
Investments with maturity in excess of 90 days are recorded
at amortized cost.
During 2015 and 2014 Personal acquired certain National
and Provincial Government bonds (some of which have
already matured and have been collected or used for the
acquisition of the 3G/4G licenses) with the intention to keep
them until maturity. These Government bonds measured at
amortized cost are denominated in US Dollars and bear an
interest in this foreign currency, consequently for purposes
of calculating the internal rate of return (IRR), Management
estimated the US Dollar denominated cash flows to be
generated until maturity and compared that amount to the
fair value of the instrument in US Dollars at the acquisition
date. The acquisition cost in US Dollars has been adjusted
by applying the IRR and the resulting value was converted
to Argentine pesos using the exchange rate as of the date
of measurement. The exchange differences generated by
these bonds are included in Financial expenses as Foreign
currency exchange gains or losses.
Likewise, Telecom Argentina and Personal acquired
Government bonds during 2015. Taking into account the
business model chosen to manage these financial assets,
and according to the provisions of IFRS 9, these bonds are
recorded at their fair value.
Argentine companies Notes, where Personal’s intention
was to keep them until their maturity, were recorded at their
amortized cost.
Núcleo’s purchase option for the 65% interest stake in Tuves
Paraguay S.A. is recorded at its fair value through profit or
loss according to IFRS 9.
The 2003 Telecommunications Fund is recorded at fair
value.
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Impairment of financial assets
At every annual or interim closing date, assessments are
made as to whether there is any objective evidence that
a financial asset or a group of financial assets may be
impaired. If any such evidence exists, an impairment loss
is recognized in the consolidated income statement for
financial assets measured at cost or amortized cost.
Certain circumstances of impairment of financial assets that
the Group assesses to determine whether there is objective
evidence of an impairment loss could include: delay in the
payments received from customers; customers that enter
bankruptcy; the disappearance of an active market for that
financial asset because of financial difficulties; observable
data indicating that there is a measurable decrease in the
estimated future cash flows from a portfolio of financial
assets, significant financial difficulty of the obligor, among
others.
f.2) Financial liabilities
Financial liabilities comprise trade payables (excluding
Derivatives), financial debt, which include Notes as informed
in Note 12 to theses consolidated financial statements,
salaries and social security payables (see n) below) and
certain other liabilities.
Financial liabilities other than derivatives are initially
recognized at fair value and subsequently measured
at amortized cost. Amortized cost represents the initial
amount net of principal repayments made, adjusted by the
amortization of any differences between the initial amount
and the maturity amount using the effective interest method.
f.3) Derivatives
Derivatives are used by Telecom Group to manage its
exposure to exchange rate and sometimes interest rate risks
and to diversify the parameters of debt so that costs and
volatility can be reduced to pre-established operational
limits.
All derivative financial instruments are measured at fair value
in accordance with IFRS 9.
Derivative financial instruments qualify for hedge accounting
only when:
a) The hedging relation consists only on hedging
instruments and hedged items eligible;
b) Since its inception the hedging relation and the
purpose and risk management strategy, are formally
designated and documented;
c) the hedge is expected to fulfill the efficacy requirements
mentioned in Note 20.
When a derivative financial instrument is designated as a
cash flow hedge (the hedge of the exposure to variability in
cash flows of an asset or liability, a firm commitment or a
highly probable forecasted transaction) the effective portion
of any gain or loss on the derivative financial instrument
is recognized directly in OCI. The cumulative gain or loss
is removed from OCI and recognized in the consolidated
income statement at the same time as the hedged transaction
affects the consolidated income statement. The gain or loss
associated with the ineffective portion of a hedge is recognized
in the consolidated income statement immediately. If the
hedged transaction is no longer probable, the cumulative
gains or losses included in OCI are immediately recognized
in the consolidated income statement.
If hedged item is a prospective transaction that results in
the recognition of a non-financial asset or liability or a firm
commitment, the cumulative gain or loss that was initially
recognized in OCI shall be reclassified to the carrying
amount of such asset or liability.
If hedge accounting is not appropriate, gains or losses arising
from the fair value measurement of derivative financial
instruments are directly recognized in the consolidated
income statement.
For additional information about derivatives operations
during 2015 and 2014, see Note 20.
G) InVenToRIes
Inventories are measured at the lower of cost and estimated
net realizable value. Cost is determined on a weighted
average cost basis. Net realizable value is the estimated
selling price in the ordinary course of business, less
applicable variable selling expenses. Allowances are made
for obsolete and slow-moving inventories.
From time to time, the Management of Personal and Núcleo
decide to sell mobile handsets at prices lower than their
respective costs. This strategy is aimed at achieving higher
service revenues or at retention of high value customers
by reducing customer access costs while maintaining the
178
companies’ overall mobile business profitability since
the customer subscribes a monthly service contract for a
minimum non-cancelable period. For the estimation of the
net realizable value in these cases the Company considers
the estimated selling price less applicable variable selling
expenses plus the expected margin from the service contract
signed during its minimum non-cancelable term.
H) PP&e
PP&E is stated at acquisition or construction cost. Subsequent
expenditures are capitalized only when they represent an
improvement, it is probable that future economic benefits
associated with the item will flow to the Company and the
cost of the item can be measured reliably.
All other subsequent costs are recognized as expense in the
period in which they are incurred. When a tangible fixed
asset comprises major components having different useful
lives, these components are accounted for as separate items
if they are significant.
PP&E cost also includes the expected costs of dismantling
the asset and restoring the site if a legal or constructive
obligation exists. The corresponding liability is recognized in
the statement of financial position under Provisions line item
at its present value. These capitalized costs are depreciated
and charged to the consolidated income statement over the
useful life of the related tangible assets in the Depreciation
and amortization item line.
The accounting estimates for dismantling costs, including
discount rates, and the dates in which such costs are expected
to be incurred are annually reviewed. Changes in the above
liability are recognized as an increase or decrease of the cost
of the relative asset and are depreciated prospectively.
Depreciation of PP&E owned is calculated on a straight-line
basis over the ranges of estimated useful lives of the assets;
the ranges of the estimated useful lives of the main PP&E are
the following:
AssetBuildings received from ENTel
Buildings acquired subsequent to 11/8/90
Tower and pole
Transmission equipment
Wireless network access
Switching equipment
Power equipment
External wiring
Computer equipment and software
Telephony equipment and instruments
Installations
Estimated useful life(in years)
35
50
15
3 – 20
5 – 10
5 – 13
7 – 15
10 – 20
3 – 5
5 – 10
3 – 10
The depreciation rates are reviewed annually and revised if
the current estimated useful life is different from that estimated
previously taking into account, among others, technological
obsolescence, maintenance and condition of the assets and
different intended use from previous estimates. The effect of
such changes is recognized prospectively in the consolidated
income statement.
I) InTanGIble asseTs
Intangible assets are recognized when the following
conditions are met: the asset is separately identifiable, it is
probable that the expected future economic benefits that are
attributable to the asset will flow to the entity; and the cost of
the asset can be measured reliably.
Intangible assets with a finite useful life are stated at cost,
less accumulated amortization and impairment losses, if any.
Intangible assets with an indefinite useful life are stated at
cost, less accumulated impairment losses, if any.
Intangible assets comprise the following:
Subscriber acquisition costs (“SAC”)
Direct and incremental costs incurred for the acquisition
of new subscribers with a minimum contractual period are
179
capitalized when the conditions for the recognition of an
intangible asset are met.
The cost of acquiring postpaid and “cuentas claras”
subscribers in mobile telephony and broadband customers
in fixed telephony meet the conditions established by
IFRS for its recognition as intangible asset, since these
contracts establish a minimum contractual period, include
an enforceable termination penalty and provide for fixed
monthly billing for services. SAC are mainly related to
the mobile services; and are mainly comprised of upfront
commissions paid to third parties and, to a lower extent, of
subsidies granted to customers on the sale of handsets.
In all other cases, subscriber acquisition costs are expensed
when incurred.
Capitalized SAC are amortized on a straight-line basis over
the term of the contract with the customer acquired.
Service connection or habilitation costs
Direct costs incurred for connecting customers to the
network are accounted for as intangible assets and then
amortized over the term of the contract with the customer if
required conditions are met. For indefinite period contracts,
the deferral of these costs is limited to the amount of non
contingent revenue from the customer and expensed
over the average period life of the customer relationship.
Costs exceeding that amount are expensed as incurred.
Connection costs are generated mainly for the installation of
fixed lines and amortized over an average period of 8 years.
3g/4g licenses
As described in Note 2.h, it includes 3G and 4G frequencies
awarded by the SC to Personal in November 2014 and June
2015. In accordance with Article 12 of the Auction Terms
and Conditions they were granted for a period of 15 years
as from the date of awarding notification. After this deadline,
the Regulatory Authority may extend the term at Personal´s
request. The extension of the term, the related cost and
conditions shall be defined by the Regulatory Authority.
Consequently, the Company's management has concluded
that the 3G and 4G licenses have a finite useful life and
therefore are amortized under the straight-line method over
180 months.
PCS license (Argentina)
The Company, based on an analysis of all of the relevant
factors, has considered the license having an indefinite
useful life since there is no foreseeable limit to the period
over which the asset is expected to generate net cash inflows
for the entity.
PCS and Band B licenses (Paraguay)
Initial acquisition costs of Núcleo’s PCS and Band B
licenses were amortized under the straight-line method over
120 months. These licenses were successively renewed
for a period of 5 years, estimating the finalization of its
amortization during year 2017.
Internet and data transmission license (Paraguay)
Núcleo’s license is amortized over 60 months through fiscal
year 2016.
Rights of use
The Company purchases network capacity under agreements
which grant the exclusive right to use a specified amount
of capacity for a specified period of time. Acquisition costs
are capitalized as intangible assets and amortized over the
terms of the respective capacity agreements, generally 180
months.
Exclusivity agreements
Exclusivity agreements were entered into with certain retailers
and third parties relating to the promotion of the Company’s
services and products. Amounts capitalized are being
amortized over the life of the agreements, with expiration
ranging from financial year 2009 to financial year 2028.
Customer relationships
Customer relationships identified as part of the purchase
price allocation performed upon the acquisition of Cubecorp
Argentina S.A. (a company engaged in data center business)
in financial year 2008, are being amortized over the
estimated duration of the relationship for customers in the
data center business (180 months).
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j) leases
finance leases
Leases that transfer substantially all the risks and benefits
incidental to ownership of the leased asset are classified as
finance leases. The Company recognizes finance leases as
assets and liabilities in its statements of financial position at
amounts equal to the fair value of the leased property or, if
lower, the present value of the minimum lease payments,
each determined at the inception of the lease. Subsequently,
minimum lease payments are apportioned between a
finance charge and the reduction of the outstanding liability.
The finance charge is allocated to each period during the
lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability. Contingent
rents, if any, are charged as expenses in the periods in which
they are incurred.
The depreciation policy for depreciable leased assets is
consistent with that for depreciable assets that are owned.
As of December 31, 2015 the Telecom Group hold finance
leases which represents current commercial liabilities in the
amount of $43 and non-current commercial liabilities of
$46. The total payable at these leases’ maturity amounts
to $96.
PP&E included in financial leases as of December 31, 2015
and several of the mentioned leases characteristics are
detailed below:
operating leases
Lease payments under an operating lease are recognized as
an expense on a straight-line basis over the lease term unless
another systematic basis is more representative.
In the normal course of business, the Company leases cell
sites, switch sites, satellite capacity and circuits under various
non-cancellable operating leases that expire on various
dates through 2028. Rental expenses are included under
Interconnection costs and other telecommunication charges
and Other operating expenses items lines in the consolidated
income statements.
k) IMPaIRMenT of InTanGIble asseTs anD PP&e
At least annually, the Company assesses whether there
are any indicators of impairment of assets that are subject
to amortization. Both internal and external sources of
information are used for this purpose. Internal sources include
obsolescence or physical damage, and significant changes
in the use of the asset and the economic performance of the
asset compared to estimated performance. External sources
include the market value of the asset, changes in technology,
markets or laws, increases in market interest rates and the
cost of capital used to evaluate investments, and an excess
of the carrying amount of the net assets of the Group over
market capitalization.
The carrying value of an asset is considered impaired by
the Company when it is higher than its recoverable amount.
In that event, a loss shall be recognized in the statement of
income.
The recoverable value of an asset is the higher of its fair
value less costs to sell and its value in use. In calculating the
value in use, the estimated future cash flows are discounted
to present value using a discount rate that reflects current
market assessments of the time value of money and the risks
specific to the evaluated asset.
Where it is not possible to estimate the recoverable value of
an individual asset, the Company estimates the recoverable
value of the cash-generating unit to which the asset belongs.
The Company considers each legal entity of the Group as a
cash-generating unit.
When the conditions that gave rise to an impairment loss
no longer exist, the carrying amount of the asset or cash-
generating unit is increased to the revised estimate of
its recoverable amount, up to the carrying amount that
PP&E – Computer equipment
Accumulated depreciation
net carrying value as of December 31, 2015
Book value112
(17)
95
Lease term3 years
Depreciation3 years
181
would have been recorded if no impairment loss had been
recognized. The reversal of an impairment loss is recognized
as income in the consolidated income statement.
Intangible assets with an indefinite useful life (including
intangible assets under development or not ready to use) are
not subject to amortization and are tested at least annually
for impairment. The only intangible asset with an indefinite
useful life held by the Company as of December 31, 2015
and 2014 is the PCS license (Argentina), which is entirely
allocated to the Personal Mobile Service operating segment.
Its recoverable amount is determined based on the value
in use, which is estimated using discounted net cash flows
projections.
For the years presented, the Company estimates that does
not exist indicators of impairment of assets that are subject
to amortization, with the exception of those referred to in the
following paragraphs.
During 2015, Telecom Argentina has assessed the
recoverability of certain works in progress and materials
related to AFA Plus Project, recognizing an additional $107
loss and recording an impairment for the total book value
of the assets involved (Note 17.4). Personal has assessed
the recoverability of a group of former work in progress,
recording an impairment of $44 equivalent to its book value.
Likewise, Personal recorded an impairment of $49 related
to the total amount of works related to the discontinuation
of the Orga Gold IT project and recorded an impairment
of $21 related to the mobile access modernization for the
introduction of 4G technology. These impairments will be
assessed periodically for updating.
The net effects of the constitution and recovery of the
mentioned impairments are recorded under “Impairment of
PP&E” line item.
l) oTHeR lIabIlITIes
Pension benefits
Argentine laws provide for pension benefits to be paid to
retired employees from government pension plans and/or
privately managed fund plans to which employees may elect
to contribute. Amounts payable to such plans are accounted
for on an accrual basis. The Company does not sponsor any
stock option plan.
Pension benefits shown under Other liabilities represent
benefits under collective bargaining agreements for
employees who retire upon reaching normal retirement
age, or earlier due to disability in Telecom Argentina.
Benefits consist of the payment of a single lump sum equal
to the salary of one month for each five years of service.
There is no vested benefit obligation until the occurrence
of those conditions. The collective bargaining agreements
do not provide for other post-retirement benefits such as life
insurance, health care, and other welfare benefits.
The net periodic pension costs are recognized in the
income statement, segregating the financial component,
as employees render the services necessary to earn
pension benefits. However, actuarial gains and losses
should be presented in the statements of comprehensive
income. Actuarial assumptions and demographic data, as
applicable, were used to measure the benefit obligation as
required by IAS 19 revised. The Company does not make
plan contributions or maintain separate assets to fund the
benefits at retirement.
The actuarial assumptions used are based on market interest
rates, past experience and Management’s best estimate of
future economic conditions. Changes in these assumptions
may impact future benefit costs and obligations. The main
assumptions used in determining expense and benefit
obligations are the following rates and salary ranges:
Discount rate (1)
Projected increase rate in compensation (2)
20156.5% - 8.5%
12.0% - 26.8%
20147.0% - 8.5%
13.0% - 28.2%
20138.0% - 10.8%
15.0% - 25.0%
(1) Represents estimates of real rate of interest rather than nominal rate in $.(2) In line with an estimated inflationary environment for the next three financial years.
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Additional information on pension benefits is provided in
Note 16.
legal fee
Pursuant to Law No. 26,476 - Tax Regularization Regime
(“Régimen de Regularización Impositiva Ley Nº 26,476”),
the Company is subject to a legal fee which shall be paid in
twelve monthly consecutive installments without interest as
from final judgment. It is carried at amortized cost.
M) DefeRReD ReVenUes
Deferred revenues include:
Deferred revenues on prepaid calling cards
Revenues from unused traffic and data packs for unexpired
calling cards are deferred and recognized as revenue when
the minutes and the data are used by customers or when
the card expires, whichever happens first. See Note 3.e.
Revenues – Fixed telecommunication services and products.
Deferred revenues on connection fees
Non-refundable up-front connection fees for fixed telephony,
data and Internet services that are non-separable from the
service are accounted for as a single transaction and deferred
over the term of the contract, or in the case of indefinite period
contracts, over the average period of customer relationship.
See Note 3.e. Revenues – Fixed telecommunication services
and products and Mobile telecommunication services and
products.
Customer loyalty Programs
The fair value of the award credits regarding Personal and
Núcleo’s customer loyalty program is accounted for as
deferred revenue, and recognized as revenue when the
award credits are redeemed or expire, whichever occurs
first. See Note 3.e. Revenues – Mobile telecommunication
services.
Deferred revenue on sale of capacity and related services
Under certain network capacity purchase agreements, the
Company sells excess purchased capacity to other carriers.
Revenues are deferred and recognized as services are
provided. Those revenues are recorded under “Data” line
item in the Fixed services segment.
Deferred income for ConATEl’s government grants
During 2010 and 2011, the CONATEL awarded to Núcleo
public tenders for the expansion of the network infrastructure
that provides a platform for access to mobile services and
basic services in social interest areas in Paraguay.
Government grants are recognized on a systematic basis
over the periods in which the entity recognizes as expenses
the related costs for which the grants are intended to
compensate. In accordance with IAS 20 the government
grants related to assets can be presented either in the
statement of financial position as deferred income or as
a reduction of the carrying amount of related asset. The
Company elected the first alternative provided by the
standard considering that recognition as deferred income
adequately reflects the business purpose of the transaction.
Therefore, the related assets were recognized at the cost
incurred by Núcleo in the construction of the engaged
infrastructure and the government grant was accounted
for as deferred income and recognized in profit or loss
starting at the time the infrastructure becomes operative and
throughout its useful life.
n) salaRIes anD soCIal seCURITY PaYables
Include unpaid salaries, vacation and bonuses and its
related social security contributions, as well as termination
benefits. See f.2) above for a description of the accounting
policy regarding the measurement of financial liabilities.
Termination benefits represent severance indemnities that
are payable when employment is terminated in accordance
with labor regulations and current practices, or whenever
an employee accepts voluntary redundancy in exchange
for these benefits. In the case of severance compensations
resulting from agreements with employees leaving the
Company upon acceptance of voluntary redundancy,
the compensation is usually comprised of a special cash
bonus paid upon signing the severance agreement, and
in certain cases may include a deferred compensation,
which is payable in monthly installments calculated as
a percentage of the prevailing wage at the date of each
payment (“prejubilaciones”). The employee’s right to receive
the monthly installments mentioned above starts on the date
they leave the Company and ends either when they reach
183
the legal mandatory retirement age or upon the decease of
the beneficiary, whichever occurs first.
o) Taxes PaYables
The Company is subject to different taxes and levies such
as municipal taxes, tax on deposits to and withdrawals from
bank accounts, turnover taxes, regulatory fees (including SU)
and income taxes, among others, that represent an expense
for the Group. It is also subject to other taxes over its activities
that generally do not represent an expense (internal taxes,
VAT, ENARD tax).
If the income tax payments and withholdings exceed
the amount to pay for the current tax, the excess shall be
recognized as a tax credit, only if it is recoverable.
The principal taxes that represent an expense for the
Company are the following:
Income taxes
Income taxes are recognized in the consolidated income
statement, except to the extent that they relate to items directly
recognized in Other comprehensive income or directly
in equity. In this case, the tax is also recognized in Other
comprehensive income or directly in equity, respectively.
The income tax expense for the year comprises current and
deferred tax.
As per Argentinean Tax Law, income taxes payables have
been computed on a separate return basis (i.e., the
Company is not allowed to prepare a consolidated income
tax return). All income tax payments are made by each of
the subsidiaries as required by the tax laws of the countries
in which they operate. The Company records income taxes
in accordance with IAS 12.
Deferred taxes are recognized using the “liability method”.
Temporary differences arise when the tax base of an
asset or liability differs from their carrying amounts in the
consolidated financial statements. A deferred income tax
asset or liability is recognized on those differences, except for
those differences related to investments in subsidiaries that
generate a deferred income tax liability, where the timing of
the reversal of the temporary difference is controlled by the
Group and it is probable that the temporary difference will
not reverse in the foreseeable future.
Deferred tax assets relating to unused tax loss carry forwards
are recognized to the extent that it is probable that future
taxable income will be available against which they can
be utilized. Deferred tax assets arising from investment in
subsidiaries are recognized when it is probable that the
temporary differences will be reversed in the foreseeable
future and when future taxable income would be sufficient to
apply those temporary differences.
The book value of a deferred tax asset shall be revised at
the end of every reporting period. The company shall reduce
the carrying amount of a deferred tax asset if it is probable
that future taxable income will not be available to offset
the benefits of the deferred tax asset. This reduction shall
be reassessed at each reporting period and reversed if it
becomes probable that future taxable income to offset the
deferred tax asset will be available.
The statutory income tax rate in Argentina was 35% for all
years presented. Cash dividends received from a foreign
subsidiary are computed on the statutory income tax rate. As
per Argentinean Tax Law, income taxes paid abroad may be
recognized as tax credits.
Income Tax effects related to equity interests
Law No. 26,893 and Decree N 2,334/13 have
incorporated amendments to the Income Tax in
connection with, among others, the taxation of
results derived from transfers of shares and dividend
distributions.
• Results derived from transfers of shares
The effective tax rate applicable for individuals is 15%
(for local companies the applicable rate is 35%).
Negative results arising from such operations will have
the character of specific and can only be offset against
future earnings from operations of the same nature.
However, results from the transfer of such securities are
exempt from such income tax when they are listed on
stock exchange markets authorized by the CNV (as in
the case of Telecom Argentina’s shares) and the gains
are realized by individuals or undivided estates residents
in Argentina.
When both the seller and the buyer are nonresidents, the
person liable to pay the tax shall be the buyer of the shares,
quotas, equity interests and other securities transferred.
184
• Dividend distributions
Dividends and other profits paid in cash or in kind —
except for stock dividends or quota dividends—by
companies and other entities incorporated in Argentina
are subject to income tax at a 10% rate, except for
dividends received by domestic companies and other
domestic entities, which continue to be not subject
to income tax. Dividends distributed to nonresidents
shall be subject to a 10% withholding tax, as a unique
and definitive payment. Consequently, any dividend
distribution made by the Company to its shareholders
shall be subject to this broadened tax, except for those
beneficiaries that are domestic corporate taxpayers
“sujetos empresa” (such as, for instance, distributions
made from Telecom Argentina to Nortel and those
from Personal to Telecom Argentina and Nortel) and
regardless of, if applicable, the so called “Equalization
Tax”.
The statutory income tax rate in Paraguay was 10% for all
years presented. As per Paraguayan Tax Law, dividends
paid are computed with an additional income tax rate of
5% (this is the criterion used by Núcleo for the recording
of its deferred tax assets and liabilities, representing an
effective tax rate of 15%). However, the effect of the
additional income tax rate according to the Argentine
tax law in force on the undistributed profits of Núcleo is
fully recognized as it is considered probable that those
results will flow to Personal in the form of dividends.
The statutory income tax rate in the United States was
39.50% for the years ended December 31, 2015, 2014
and 2013.
Turnover tax
Under Argentine tax law, the Company is subject to a
tax levied on revenues and other income. Rates differ
depending on the jurisdiction where revenues are
earned for tax purposes and on the nature of revenues
(services and equipment). Average rates resulting from
the turnover tax charge over the total revenues were
approximately 5.2%, 5.4% and 5.3% for the years ended
December 31, 2015, 2014 and 2013, respectively.
other taxes and levies
Since the beginning of 2001, telecommunication
services companies have been required to make a SU
contribution to fund SU requirements (Note 2.g). The SU
tax is calculated as a percentage of the total revenues
received from the rendering of telecommunication
services, net of taxes and levies applied on such
revenues, excluding the SU tax and other deductions
stated by regulations. The rate is 1% of total billed
revenues and adopts the “pay or play” mechanism for
compliance with the mandatory contribution to the SU
fund.
P) PRoVIsIons
The Group records provisions for risks and charges when
it has a present obligation, legal or constructive, to a third
party, as a result of a past event, when it is probable that an
outflow of resources will be required to satisfy the obligation
and when the amount of the obligation can be estimated
reliably.
If the effect of the time value of money is material, and
the payment date of the obligations can be reasonably
estimated, provisions to be accrued are the present value
of the expected cash flows, taking into account the risks
associated with the obligation. The increase in the provision
due to the passage of time is recognized as “Finance
expenses”. Additional information is given in Note 17.
Provisions also include the expected costs of dismantling
assets and restoring the corresponding site if a legal or
constructive obligation exists, as mentioned in h) above.
The accounting estimates for dismantling costs, including
discount rates, and the dates in which such costs are
expected to be incurred are reviewed annually, at each
financial year-end.
q) DIVIDenDs
Dividends payable are reported as a change in equity in
the year in which they are approved by the Shareholders’
Meeting.
R) fInanCe InCoMe anD exPenses
Finance income and expenses include:
• interest accrued on the related financial assets and
liabilities using the effective interest rate method;
• changes in fair value of derivatives and other financial
instruments measured at fair value through profit or loss;
• gains and losses on foreign exchange and financial
185
instruments;
• other financial results.
s) TReasURY sHaRes aCqUIsITIon
In connection with the Treasury Shares Acquisition Process
described in Note 19 d) to these consolidated financial
statements, the Company has applied the guidance set
forth in IAS 32, which provides, consistently with the CNV
Regulations, that any instruments of its own equity acquired
by the Company must be recorded at the acquisition cost
and must be deducted from Equity under the caption
“Treasury shares acquisition cost”. No profit or loss resulting
from holding such instruments of own Equity shall be
recognized in the income statement. If the treasury shares
are sold, the account “Treasury shares acquisition cost”
shall be recorded within Equity under the “Treasury shares
negotiation premium” caption. If such difference is negative,
the resulting amount shall be recorded within Equity under
the “Treasury shares negotiation discount” caption.
T) eaRnInGs PeR sHaRe
Basic earnings per share are calculated by dividing the net
income or loss attributable to owners of the Parent by the
weighted average number of ordinary shares outstanding
during the year (see Note 25).
U) Use of esTIMaTes
The preparation of consolidated financial statements
and related disclosures in conformity with IFRS requires
Management to make estimates and assumptions based
also on subjective judgments, past experience and
hypotheses considered reasonable and realistic in relation
to the information known at the time of the estimate.
Such estimates have an effect on the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements as well as
the amount of revenues and costs during the year. Actual
results could differ, even significantly, from those estimates
owing to possible changes in the factors considered in the
determination of such estimates. Estimates are reviewed
periodically.
The most important accounting estimates which require a
high degree of subjective assumptions and judgments are
addressed below:
Financial statement item / area
REVENuES
uSEFuL LIVES AND RESIDuAL VALuE OF PP&E AND INTANGIBLE ASSETS
Accounting estimatesRevenue recognition is influenced by:
• the expected duration of the relationship with the customer for deferred revenues regarding upfront
connection fees;
• the estimation of traffic measures.
• the legal validity of the changes in certain fixed services prices after LAD enforcement (Note 2.p).
PP&E and intangible assets, except for indefinite useful life intangibles, are depreciated or amortized on
a straight-line basis over their estimated useful lives. The determination of the depreciable amount of the
assets and their useful lives involves significant judgment. The Company periodically reviews, at least at each
financial year-end, the estimated useful lives of its PP&E and amortizable intangible assets.
186
Financial statement item / area
RECOVERABILITY OF PP&E AND INTANGIBLE ASSETS WITH FINITE uSEFuL LIFE
INTANGIBLE ASSETS WITH INDEFINITE uSEFuL LIFE—PCS LICENSE
INCOME TAXES, RECOVERABILITY ASSESSMENT OF DEFERRED TAX ASSETS AND OTHER TAX RECEIVABLES
RECEIVABLES AND PAYABLES VALuED AT AMORTIzED COST
Accounting estimatesAt least at every annual closing date, an assessment is made regarding whenever events or changes in
circumstances indicate that PP&E and amortizing intangible assets may be impaired.
The recoverable amount is the higher of the fair value (less costs to sell) and its value in use. The identification
of impairment indicators and the estimation of the value in use for assets (or groups of assets or cash
generating units) require management to make significant judgments concerning the validation of impairment
indicators, expected cash flows and applicable discount rates. Estimated cash flows are based on significant
Management’s assumptions about the key factors that could affect future business performance such as
the future market share, competition level, capital expenditures, salary increases, foreign exchange rates
evolution, capital structure, capital cost, etc.
For the years presented the Company estimated that there are no indicators of impairment of assets that
are subject to amortization, with the exception of those mentioned in the point k) of this note. However,
changes in our current expectations and operating assumptions, including changes in our business strategy,
technology, competition and changes in market conditions, could significantly impact these judgments and
could require future adjustments to the recorded assets.
The Telecom Group determined that Personal’s PCS license met the definition of an indefinite-lived intangible
asset for the years presented and tests it annually for impairment. The recoverability assessment of an
indefinite-lived intangible asset such as the PCS license requires our Management to make assumptions
about the future cash flows expected to be derived from such asset.
Such estimated cash flows are based on significant Management’s assumptions about the key factors
that could affect future business performance such as the future market share, competition level, capital
expenditures, salary increases, foreign exchange rates evolution, capital structure, discount rate, etc. The
discount rate used to determine the discounted cash flow is an annual US dollar rate of approximately
12.4%.
Our judgments regarding future cash flows may change due to future market conditions, business strategy,
the evolution of technology and other factors. These changes, if any, may require adjustments to the carrying
amount of the PCS license.
Income taxes (current and deferred) are calculated in each company of the Telecom Group according to
a reasonable interpretation of the tax laws in effect in each jurisdiction where the companies operate. The
recoverability assessment of deferred tax assets sometimes involves complex estimates to determine taxable
income and deductible and taxable temporary differences between the carrying amounts and the taxable
amounts. In particular, deferred tax assets are recognized to the extent that future taxable income will be
available against which they can be utilized. The measurement of the recoverability of deferred tax assets
takes into account the estimate of future taxable income based on the Company’s projections and on con-
servative tax planning.
The recoverability assessment of the tax receivable related to the Company’s action for recourse (Note 14) is
based on the existing legal arguments and the future behavior of the National Tax Authority.
Receivables and payables valued at amortized cost are initially recorded at their fair value, which is generally
determined by using a discounted cash flow valuation method. The fair value under this method is estimated
as the present value of all future cash flows discounted using an estimated discount rate, especially for long
term receivables and payables. The estimated discount rate used to determine the discounted cash flow of
non-current receivables is an annual rate in pesos of approximately 34% for year 2015 and an annual rate
in pesos ranging between 20% and 35% for year 2014. Additionally, a 13% annual U.S. dollars was used
for discounting long term receivables denominated in U.S. dollars during 2015 and an annual U.S. dollars
rate of ranging between 8% and 13% was used during 2014. Discount rates in Guaranies for loans were
9.96% in both years and for accounts receivables was 9.8% in both years too.
187
Financial statement item / area
PROVISIONS
ALLOWANCE FOR DOuBTFuL ACCOuNTS
Accounting estimatesThe Company is subject to proceedings, lawsuits and other claims related to labor, civil, tax, regulatory and
other matters. In order to determine the proper level of provisions, Management assesses the likelihood of
any adverse judgments or outcomes related to these matters as well as the range of probable losses that may
result from the potential outcomes. Internal and external legal counsels are consulted on these matters. A
determination of the amount of provisions required, if any, is made after careful analysis of each individual
issue. The determination of the required provisions may change in the future due to new developments in
each matter, changes in jurisprudential precedents and tribunal decisions or changes in its method of resol-
ving such matters, such as changes in settlement strategy.
The recoverability of receivables is measured by considering the aging of the accounts receivable balances,
historical write-offs, customer creditworthiness and changes in the customer payment terms when evaluating
the adequacy of the allowance for doubtful accounts. If the financial condition of the customers were to
deteriorate, the actual write-offs could be higher than expected.
In the absence of a Standard or an Interpretation that
specifically applies to a particular transaction, Management
carefully considers the IFRS general framework and valuation
techniques generally applied in the telecommunication
industry and uses its judgment to evaluate the accounting
methods to adopt with a view to providing financial
statements which faithfully represent the financial position,
the results of operations and the cash flows of the Group,
reflect the economic substance of the transactions, be
neutral, be prepared on a prudent basis and be completed
in all material respects.
New Standards and Interpretations issued by the IASB not in force
As required by IAS 8, the IFRS issued by the IASB not in force
as of the date of these consolidated financial statements are
reported below and briefly summarized. These standards
have not been adopted by the Company.
AMENDMENTS TO IAS 16 AND 38 (CLARIFICATION
OF ACCEPTABLE METHODS OF DEPRECIATION AND
AMORTIzATION)
In May 2014 the IASB published the modifications to IAS 16
(PP&E) and IAS 38 (Intangible Assets).
Both IAS 16 and IAS 38 establish the principle by which
the method of depreciation and amortization should be
based on the pattern of consumption of the future economic
benefits of the asset.
With these amendments, the IASB establishes that a
depreciation method that is based on revenue that is
generated by an activity that includes the use of an asset is
not appropriate.
These amendments are effective for annual periods
beginning on or after January 1, 2016. Early application is
permitted. The adoption of these amendments will not have
significant impacts on the statements of financial position,
results of operations or cash flows of the Group.
IFRS 15 (REVENuE FROM CONTRACTS WITH
CuSTOMERS)
In May 2014 the IASB issued IFRS 15. This IFRS applies to
all revenue contracts (except for contracts that are within the
scope of IAS 17, leases, IFRS 4, Insurance Contracts and
IFRS 9, Financial Instruments). IFRS 15 provides a single
model for the recognition and measurement of revenues
and replaces IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC
18 and SIC 31. It also establishes additional disclosure
requirements and a 5-step model for revenue recognition,
being the identified steps:
1) Identify the contract(s) with a customer;
2) Identify the performance obligations in the contract;
3) Determine the transaction price;
4) Allocate the transaction price to the performance
obligations in the contract; and
5) Recognize revenue when (or as) the entity satisfies a
performance obligation.
The allocation of the transaction price among different
performance obligations required by IFRS 15 is one of the
188
main issues that telecommunications companies have to
assess, mainly because of the great variety of plans they offer
to their customers by combining services and equipments.
Another relevant issue to the telecommunications industry is
the capitalization of incremental costs of obtaining a contract
if the entity estimates that they will be recovered.
The Company has initiated a project to assess the impact
of the application of IFRS 15. As a preliminary analysis, the
Company believes that there should not be a significant
impact - in the mobile business -, since mobile services
are sold separately at a single price for each service plan
or service package (usually monthly charges). Optionally,
the subscriber can purchase the service packages or plans
(at the single price at which they are sold) with a handset,
at a price contractually established (with profit margin for
the Company). It is worth mentioning that the Company
does not actually sell handsets separately (for example,
without a service plan), and the handsets prices fluctuate
among subscribers’ categories according to the Company’s
marketing strategy in a very competitive context. Therefore,
the Company’s management believes that the services and
handsets list prices are evidence of such products fair values
representing a source of information in the determination of
the standalone selling price of its subscribers’ agreements
compliance obligations.
However, there are other technical interpretations that
consider that even in the described business conditions,
handsets discounts contractually granted should be
proportionally allocated between services and handsets
chosen by subscribers on the basis of standalone selling
price of each product or service. Such interpretations assume
that one type of handset or service plan have an unique
standalone selling price for all categories of subscribers
or circumstances, which is not the case in many of the
industries or economic activities. Such interpretations would
generate that a same type of service plan (for example,
unlimited subscription for $500 argentine pesos per month)
was recognized as revenue for a different value than the
contractual and fair value if the subscriber had chosen a
premium or low handset, depending on the discount level
that the Company had decided to award to the handset in
that specific operation (without any subsidy or zero revenue
margin).
The Company’s management estimates finishing analyzing
the final impact of this new standard during 2016.
With regards to handset subsidies occasionally granted by
the Company to new postpaid subscribers, Management
believes that the capitalization of such cost may be
discontinued under IFRS 15 in light of the interpretations of
the new standard. On the other hand, Management believes
that commissions paid for the acquisition of postpaid and
“Cuentas Claras” customers in the Mobile Segment and
broadband customers in the Fixed Segment will continue
to be capitalized under IFRS 15, because these costs are
necessary to obtain new contracts with customers and meet
the conditions for capitalization under the new standard.
These preliminary conclusions are subject to finalizing the
detailed analysis undertaken by the Company, which is
expected for 2016.
IFRS 15 is effective from annual periods beginning on
January 1, 2018. Earlier application is permitted.
AMENDMENTS TO IFRS 9 "FINANCIAL INSTRuMENTS"
In July 2014, the IASB amended IFRS 9 "Financial
Instruments". The amendments incorporate: 1) a new
classification of financial assets (valued at fair value through
other comprehensive income); and 2) includes requirements
related to the recognition of expected credit losses of financial
assets at initial measurement if losses are expected, being no
longer necessary for a credit event to have occurred before
credit losses are recognized.
These amendments are effective for annual periods
beginning on or after January 1, 2018. The Company is
analyzing the possible impacts of the application of these
amendments.
AMENDMENTS TO IAS 27 (EQuITY METHOD)
In August 2014 the IASB issued amendments to IAS 27.
These amendments allow companies to use the equity
method, in addition to cost or fair value, to value its
investments in subsidiaries, joint ventures and associates in
their Separate Financial Statements.
The amendments are effective for fiscal years beginning on
or after January 1, 2016. Earlier application is permitted.
The Company uses the equity method as required by RT 26
for the preparation of its Separate Financial Statements, so
the application of this amendment will not have an impact
on the Company’s statements of financial position, results of
operations or cash flows.
189
ANNuAL IMPROVEMENTS TO IFRSS (2012-2014
CYCLE)
In September 2014 the IASB published the Annual
Improvements to IFRSs (Cycle 2012-2014), which introduced
amendments to IFRS 5, IFRS 7, IAS 19 and IAS 34.
Among the main changes identified we can mention
the following: i) The purpose of the changes in IFRS 5 is
related to changes in methods of disposal of assets; ii) The
amendment to IFRS 7 relates to disclosure requirements
related to offsetting financial assets and financial liabilities
in interim financial statements; iii) IFRS 7 also clarifies the
disclosures requirements in case of continuing involvement;
and iv) Finally, the amendment to IAS 34 makes clarifications
regarding the use of cross-references to other interim
financial reports.
The amendments are effective for annual periods beginning
on or after January 1, 2016. The Company will not have
significant impacts on the statements of financial position,
results of operations or cash flows for applying this
amendment.
AMENDMENTS TO IAS 1 (DISCLOSuRE INITIATIVE)
In December 2014, the IASB issued amendments to IAS 1.
These amendments provide explanations regarding the
information presented in the financial statements. Among
other issues, the amendments clarify that an entity shall not
reduce the understandability of its financial statements by
obscuring material information with immaterial information
or by aggregating material items that have different natures
or functions. It is also clarified that immaterial matters must
not be reported even though these matters are required
by other standards, and that companies should disclose
relevant information although it is not required by any IFRS.
Additionally, the amendments make a clarification relative to
the disaggregation of information and subtotals disclosed.
Finally, new options of systematic ordering or grouping of
notes in the financial statements are set.
The amendments are effective for fiscal years beginning on
or after January 1, 2016. Earlier application is permitted.
The Company will not have significant impacts on the
statements of financial position, results of operations or cash
flows for applying this amendment.
IFRS 16 (LEASES)
In January 2016 IFRS 16 was issued.
This standard replaces IAS 17, IFRIC 14 and SIC 15 and
27. The standard establishes the criteria for recognition and
valuation of leases for lessees and lessors. The changes
incorporated in this standard impact mainly on the lessees
accounting.
IFRS 16 provides that the lessee recognizes a right of use
asset and a liability at present value with respect to those
contracts that meet the definition of leases under IFRS
16. According to the standard, a lease is a contract that
provides the right to control the use of an identified asset for
a specified time period.
For a company having control of use of an identified asset it:
a) Must have the right to obtain substantially all the
economic benefits of the identified assets and
b) Must have the right to direct the use of the identified
asset.
The standard excludes short-term contracts (less than 12
months) and those in which the underlying asset has low
value (as defined by the standard, low value should be
defined by reference to a brand new asset rather than a used
one or its net carrying amount).
The new standard is effective for fiscal years beginning on
or after January 1, 2019. Earlier application is permitted
for companies that have adopted IFRS 15. During 2016 the
Company plans to begin analyzing the impact that this new
standard may have on the Group’s financial position, cash
flows and results of operations.
AMENDMENTS TO IAS 12 (RECOGNITION OF
DEFERRED TAX ASSETS FOR uNREALIzED LOSSES)
In January 2016 the IASB issued an amendment to IAS 12.
The amendment to the mentioned standard provide the way
that deductible temporary differences shall be considered in
cases where the tax law restricts the sources of taxable profit
against which those deductible temporary differences can be
offset or not.
On the other hand the amendments clarified how to
estimate future taxable profit that should be considered for
190
the recognition of deferred tax assets.
The amendments are effective for fiscal years beginning on
or after January 1, 2017. Earlier application is permitted.
The Company is currently analyzing the impact that the
adoption of this amendment could have on the Group’s
financial position, cash flows and results of operations.
AMENDMENTS TO IAS 7
In January 2016 the IASB issued an amendment to IAS 7.
The amendment requires information disclosure that enables
users of financial statements to evaluate changes in liabilities
from financing activities, including changes arising from
cash flow movements and changes that do not represent
cash flows movements.
The amendments are effective for years beginning on or
after January 1, 2017. Earlier application is permitted. The
Company is currently analyzing the impact that the adoption
of this amendment could have on the Group’s financial
position, cash flows and results of operations.
a) CasH anD CasH eqUIValenTs anD InVesTMenTs
Cash and cash equivalents and investments consist of the following:
NOTE 4 – CASH AND CASH EQUIVALENTS AND INVESTMENTS. ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash and cash equivalents
Cash
Banks
Time deposits
Other short-term investments
Total cash and cash equivalentsInvestments
Current investments
Government bonds at fair value
Government bonds at fair value – dollar linked
Government bonds at amortized cost – dollar linked
Provincial government and Municipal bonds at amortized cost – dollar linked
Provincial government and Municipal bonds at amortized cost
Argentine companies notes
Total current investmentsNon-current investments
Government bonds at amortized cost
Provincial government and Municipal bonds at amortized cost
Tuves Paraguay S.A. shares purchase option
2003 Telecommunications Fund
Total non-current investments
2015
25
231
217
397
870
616
576
133
74
31
-
1,430
261
62
9
1
333
2014
14
370
1
440
825
-
-
1
18
6
28
53
257
43
-
1
301
As of December 31,
191
b) aDDITIonal InfoRMaTIon on THe ConsolIDaTeD sTaTeMenTs of CasH floWs
The Company applies the indirect method to conciliate the
net income for the year with the cash flows generated by its
operations.
For purposes of the statements of cash flows, cash and cash
equivalents comprise cash, bank current accounts and short-
term highly liquid investments (with a maturity of three months
or less from the date of acquisition) and bank overdrafts,
which integrate the Telecom Group’s cash management and
whose balances fluctuate according to the Group’s needs (as
happened as of December 31, 2014). Bank overdrafts are
disclosed in the statement of financial position as financial
debts. During 2015 bank overdrafts have been part of the
permanent short-term financing structure of Personal, so, net
funds requests under that method (with maturities less than
three months) are included in financing activities.
Cash and cash equivalents
Financial debt - Bank overdrafts
Total cash and cash equivalents at year-end
2015870
-
870
2014825
(141)
684
20135,224
-
5,224
As of December 31,
Years ended December 31,
Additional information on the breakdown of the net cash flow provided by operating activities is given below:
Collections
Collections from customers
Interests from customers
Interests from investments
CPP collections
NDF
subtotalPayments
For the acquisition of goods and services and others
For the acquisition of inventories
Salaries and social security payables and severance payments
NDF
CPP payments
Income taxes
Other taxes and taxes and fees with the Regulatory Authority
Foreign currency exchange differences related to the payments to suppliers
Inventory suppliers
PP&E suppliers
Other suppliers
subtotalnet cash flow provided by operating activities
2015
42,260
182
189
512
12
43,155
(13,122)
(6,343)
(6,721)
(113)
(414)
(1,631)
(7,598)
(401)
(153)
(158)
(90)
(36,343)6,812
2014
34,396
160
400
683
84
35,723
(10,080)
(4,167)
(5,146)
(53)
(476)
(2,277)
(6,995)
(808)
(343)
(311)
(154)
(30,002)5,721
2013
28,437
124
584
690
13
29,848
(6,576)
(3,166)
(3,981)
-
(505)
(1,609)
(6,692)
(338)
(169)
(106)
(63)
(22,867)6,981
192
Years ended December 31,
Years ended December 31,
Years ended December 31,
• Changes in assets/liabilities components:
Income tax paid consists of the following:
• Main non-cash operating transactions:
1
1
Net decrease (increase) in assets
Investments not considered as cash or cash equivalents
Trade receivables
Other receivables
Inventories
Net increase (decrease) in liabilities
Trade payables
Deferred revenues
Salaries and social security payables
Other taxes payables
Other liabilities
Provisions (Note 17)
Tax returns and payments in advance
Other payments
Total payments of income tax
Government Bonds used to the acquisition of 3G/4G Licenses
Income tax withholding for dividends paid
Offsetting of tax on personal property – on behalf of Shareholders
Income tax offset with VAT and internal taxes
VAT offset with income tax payments
SAC acquisitions offset with trade receivables
2015
(432)
(2,364)
(754)
(1,522)
(5,072)
1,368
(48)
221
483
29
(163)
1,890
2015(1,438)
(193)
(1,631)
2015-
-
15
50
-
212
2014
349
(1,646)
(158)
(50)
(1,505)
(408)
78
261
195
30
(119)
37
2014(2,079)
(198)
(2,277)
2014439
22
10
-
-
362
2013
(89)
(1,065)
(329)
(251)
(1,734)
1,411
178
50
67
27
(97)
1,636
2013(1,460)
(149)
(1,609)
2013-
44
8
-
8
239
193
Years ended December 31,
Years ended December 31,
Years ended December 31,
CAPEX (Note 8)
Acquisition of Materials (net transfers to CAPEX, Note 8)
subtotalPlus:
Payments of trade payables originated in prior years acquisitions
Less:
Acquisition of fixed assets through incurrence of trade payables
Assets retirement obligations
Mobile handsets lent to customers at no cost (i)
3G/4G Licenses acquisitions (Note 9)
Less:
Acquisition with Government bonds
Other intangible assets acquisitions (Note 9)
Plus:
Payments of trade payables originated in prior years acquisitions
SAC acquisition offset with trade receivables
Less:
Acquisition of intangible assets through incurrence of trade payables
Investments over 90 days maturity
Argentine companies notes acquisition
Government bonds acquisition
Argentine companies notes collection
Government bonds collection
Loan collection
2015(6,396)
(1,062)
(7,458)
(1,367)
3,592
53
32
(5,148)
2015(2,256)
-
(2,256)(1,448)
(116)
(212)
466
(1,310)
2015-
-
(1,049)
28
45
-
(976)
2014(4,304)
(590)
(4,894)
(1,551)
1,511
7
32
(4,895)
2014(3,530)
439
(3,091)(1,123)
(103)
(362)
470
(1,118)
201410
(16)
(1,201)
112
756
-
(339)
2013(3,964)
(363)
(4,327)
(829)
1,766
21
17
(3,352)
2013-
-
-
(887)
(81)
(239)
361
(846)
2013657
(3)
(305)
-
1
6
356
• Most significant investing activities:
Fixed assets acquisitions include:
Intangible assets acquisitions include:
The following table presents the cash flows from purchases, sales and maturities of securities which were not considered cash
equivalents in the statement of cash flows:
(i) Under certain circumstances, Personal and Núcleo lend handsets to customers at no cost pursuant to term agreements. Handsets remain the property of the companies and customers are generally obligated to return them at the end of the respective agreements.
194
Years ended December 31,
Bank overdrafts (Personal)
Bank overdrafts (Núcleo)
Notes (Personal – Note 12)
Debt proceeds (Personal – Note 12)
Debt proceeds (Núcleo)
Total financial debt proceeds Payment of bank loans – Núcleo
Total payment of debtBank overdrafts (Personal)
Notes – related expenses (Personal)
Interests on bank loans and related expenses (Personal)
Interest on bank loans (Núcleo)
Total payment of interest and related expensesacquisition of Treasury shares (Telecom argentina) – note 19.d)
20153,062
88
716
346
89
4,301(31)
(31)(405)
(3)
(37)
(26)
(471)-
2014-
-
-
-
-
-
(12)
(12)(3)
-
-
(26)
(29)-
2013-
-
-
-
208
208(157)
(157)-
-
-
(16)
(16)(461)
• financing activities components:
The following table presents the financing activities components of the consolidated statements of cash flows:
Years ended December 31,
ABC Telecomunicaciones
Nortel and Telecom Argentina non-controlling interest
Tax withholdings on dividends paid to shareholders
201545
804
-
849
201453
1,202
44
1,299
201333
948
-
981
fISCAl yEAR 2015
The Company’s Ordinary Shareholders' Meeting held on
April 29, 2015, approved the payment of cash dividends
of $804 (equivalent to $0.83 pesos per outstanding share),
which was made available to shareholders on May 11,
2015. The amount paid includes: (i) income tax withholdings
on dividends paid to shareholders in the amount of $14
and (ii) recovery of tax on personal property – on behalf of
shareholders withholdings in the amount of $12.
fISCAl yEAR 2014
During 1Q14 the Company paid $44 related to withholdings
on dividends paid to its shareholders by the end of 2013 in
order to comply with its tax obligations. The amounts paid
finally corresponded to: (i) income tax withholdings on
dividends paid to its shareholders during December 2013 in
the amount of $17 and (ii) dividends paid to its shareholders
in the amount of $27.
The Company’s Ordinary Shareholders' Meeting held on April
29, 2014, approved, in its second tranche of deliberations
held on May 21, 2014, the payment of cash dividends in two
equal installments of $601. The first installment was made
available to shareholders on June 10, 2014. The amount
paid includes: (i) income tax withholdings on dividends paid
to shareholders in the amount of $11 and (ii) recovery of tax
on personal property – on behalf of shareholders withholdings
in the amount of $10.
The Company’s Board of Directors, at its meeting held on
September 9, 2014, approved the payment of the second
installment of cash dividends amounting to $601 as from
September 22, 2014. The dividends were paid before
September 30, 2014, net of income tax withholdings on
• Cash dividends from Telecom Argentina
Dividends paid by the Company breakdown are as follows:
195
dividends for $11 (which were paid to the Tax Authority later).
fISCAl yEAR 2013
The Company’s Board of Directors’ Meeting held on
December 13, 2013, resolved to disaffect the "Reserve for
future cash dividends” for distribution of cash dividends in the
amount of $1,000 (equivalent to $1.03 argentine pesos per
share) among the shareholders of the outstanding shares. The
above mentioned dividends were available on December 27,
2013. Cash dividends were paid before December 31, 2013,
prior offsetting with credits related to tax on personal property
– on behalf of shareholders, for an amount of $8, and income
tax withholding on dividends paid estimated in $44. Thereby,
the total amount paid on cash dividends amounted to $948
as of December 31, 2013.
Núcleo’s Dividends Distribution
fISCAl yEAR 2015
Núcleo’s shareholders, at their meeting held on March 26,
2015, approved the distribution of cash dividends for an
amount equivalent to $63 (that correspond to 35,000 million
of Guaraníes translated to argentine pesos at the exchange
rate of the approval day), with the following schedule of
payments:
The Ordinary Shareholders’ Meeting also delegate in
Nucleo’s Board of Directors the possibility and opportunity of
distribution of a second cash dividends for an amount of up
to 35,000 million of Guaraníes (equivalent to approximately
$80).
Finally, the Board of Directors, at their meeting held on
December 17, 2015, approved the distribution of cash
dividends for an amount $80 (that correspond to 35,000
million of Guaraníes translated to argentine pesos at the
exchange rate of the approval day). According to this, the
total dividends amount paid during 2015 was as follows:
fISCAl yEAR 2014
The Ordinary Shareholders’ Meeting of Núcleo held on March 28, 2014, approved the distribution of cash dividends for an
amount equivalent to $160, delegating in Nucleo’s Board of Directors the authority to determine the number of installments,
the amount and time for the payments of these cash dividends.
On May 5, 2014 Nucleo’s Board of Directors determined the following schedule of payments for the cash dividends:
Month of dividends paymentMay 2015 (*)
December 2015 (**)
Total
Month of dividends paymentMay 2014
October 2014
Total (*)
Dividends corresponding to Personal
42
54
96
Dividends corresponding to Personal
54
54
108
Dividends corresponding to non-controlling shareholders –
ABC Telecomunicaciones21
26
47
Dividends corresponding to non-controlling shareholders –
ABC Telecomunicaciones26
26
52
Total63
80
143
Total80
80
160
(*) As of the payment date, the amounts were 41 and 19, respectively.(**) As of the payment date, the amounts were 52 and 26, respectively.
(*) Correspond to 90,000 million of guaranies approved by the Ordinary shareholders Meeting of Nucleo, translated to argentine pesos at the exchange rate of the date of its approval. As of the payment date, the amounts were 110 and 53, respectively.
196
fISCAl yEAR 2013
The Ordinary Shareholders’ Meeting of Núcleo held on March 22, 2013 approved the following cash dividend payment:
Month of dividends paymentMay 2013
October 2013
Total (**)
Dividends corresponding to Personal
34
34
68
Dividends corresponding to non-controlling shareholders –
ABC Telecomunicaciones16
17
33
Total50
51
101
(**) Correspond to 80,000 million of Guaranies approved by the Ordinary Shareholders Meeting of Núcleo, translated to argentine pesos at the exchange pf the rate of its approval.
NOTE 5 – TRADE RECEIVABLES
Trade receivables consist of the following:
Movements in the allowance for current doubtful accounts are as follows:
Current trade receivables
Fixed services
Personal mobile services
Núcleo mobile services
subtotal Allowance for doubtful accounts
Non-current trade receivables
Fixed services
Personal mobile services
Núcleo mobile services
Total trade receivables, net
Current allowance for doubtful accountsat the beginning of the fiscal yearAdditions –Bad debt expenses
Uses
Currency translation adjustments
at the end of the year
2015
1,449
4,418
182
6,049(386)
5,663
17
300
164
4816,144
2015(292)(564)
480
(10)
(386)
2014
1,220
3,076
120
4,416(292)
4,124
22
88
33
1434,267
2014(239)(421)
370
(2)
(292)
As of December 31,
Years ended December 31,
197
NOTE 6 – OTHER RECEIVABLES
Other receivables consist of the following:
Movements in the allowances are as follows:
(*) Includes (3) in 2014 included in Bad debt expenses.
Current other receivables
Prepaid expenses
Tax credits
Expenditure reimbursement
Unionized employees advances
Prepaid expenses related parties (Note 27.b)
Restricted funds
PP&E disposal receivables
Tax on personal property
Receivables for return of handsets under warranty
Guarantee deposits
Non deliverable forward (Note 20)
Other
subtotalAllowance for doubtful accounts
Non-current other receivables
Prepaid expenses
Prepaid expenses related parties (Note 27.b)
Credit on SC Resolution No. 41/07 and IDC (Note 2.l and m)
Restricted funds
Regulatory receivables (Paraguay)
Tax on personal property
Tax credits
Guarantee deposits
Other
subtotal Allowance for regulatory matters (Note 2 l. and m)
Allowance for doubtful accounts (tax on personal property)
Total other receivables
2015
346
165
95
57
36
26
26
15
9
5
466
115
1,361(25)
1,336
166
-
84
32
22
18
12
12
28
374(84)
(18)
2721,608
2014
331
108
40
-
52
21
1
12
8
5
-
115
693(23)
670
101
36
85
28
-
18
9
8
18
303(85)
(18)
200870
As of December 31,
Years ended December 31,
Current allowance for doubtful accountsat the beginning of the yearAdditions (*)
Uses
at the end of the year
2015(23)
(5)
3
(25)
2014(18)
(6)
1
(23)
198
Movements in the allowance for obsolescence of inventories are as follows:
Years ended December 31,
Years ended December 31,
As of December 31,
Years ended December 31,
Non-current allowance for regulatory mattersat the beginning of the yearUses
at the end of the year
Non-current allowance for doubtful accounts (tax on personal property)at the beginning of the yearAdditions
at the end of the year
Mobile handsets and others
Advances for mobile handsets acquisitions
Fixed telephones and equipment
subtotalAllowance for obsolescence of inventories
at the beginning of the yearAdditions – Fees for services, maintenance and materials
Uses
Currency translation adjustments
at the end of the year
2015(85)
1
(84)
2015(18)
-
(18)
20152.218
47
14
2,279(86)
2,193
2015(73)(38)
25
-
(86)
2014(85)
-
(85)
2014(17)
(1)
(18)
2014781
-
13
794(73)
721
2014(85)(81)
94
(1)
(73)
NOTE 7 – INVENTORIES
Inventories consist of the following:
199
Sale and cost of equipment and handsets by business segment is as follows:
Cost of equipment and handsets is as follows:
(i) Includes 6 and 16 related to equipment construction contracts costs as of December 31, 2014 and 2013, respectively. No costs were recorded for this concept as of December 31, 2015.
Fixed Services - excluding network construction contracts
Fixed Services - network construction contracts
Cost of equipment and handsets – Fixed Services
Total equipment income (loss) – fixed servicesMobile Services – Personal
Cost of equipment and handsets – Mobile Services Personal (net of SAC capitalizations)
Total equipment income – Mobile services – PersonalMobiles Services – Núcleo
Cost of equipment and handsets – Mobile Services Núcleo (net of SAC capitalizations)
Total equipment loss – Mobile services – núcleoTotal equipment and handsets saleTotal cost of equipment and handsets (net of saC capitalizations) Total income for sale of equipment and handsets
Inventories at the beginning of the year
Plus:
Equipment acquisitions
SAC deferred costs (Note 3.i)
Currency translation effect
Decreases net of allowance of obsolescence
Handsets lent to customers at no cost
Decreases not charged to cost of equipment
Less:
Inventories at the end of the year
Cost of equipment and handsets (i)
201561
-
(82)
(21)5,796
(4,328)
1,468159
(185)
(26)6,016
(4,595)1,421
2015(794)
(6,233)
93
-
25
32
3
2,279
(4,595)
201446
7
(72)
(19)4,920
(3,959)
96190
(112)
(22)5,063
(4,143)920
2014(857)
(4,262)
103
-
46
32
1
794
(4,143)
201361
19
(74)
63,126
(2,956)
17069
(81)
(12)3,275
(3,111)164
2013(641)
(3,628)
255
-
9
17
20
857
(3,111)
Years ended December 31,
Years ended December 31,
200
Movements in Materials are as follows:
Movements in the valuation allowance for materials are as follows:
(i) Includes tower and pole, transmission equipment, switching equipment, power equipment, equipment lent to customers at no cost and handsets lent to customers at no cost.
Land, buildings and installations
Computer equipment and software
Switching and transmission equipment (i)
Mobile network access and external wiring
Construction in progress
Other tangible assets
subtotalMaterials
Valuation allowance for materials
Impairment of PP&E
Total PP&e
at the beginning of the yearPlus:
Purchases
Less:
Transfers to CAPEX
Disposal for maintenance/installation
Currency translation adjustments
at the end of the year
at the beginning of the yearAdditions – Fees for services, maintenance and materials
Uses
at the end of the year
NOTE 8 – PROPERTy, PLANT AND EQUIPMENT
PP&E consist of the following:
As of December 31,
Years ended December 31,
Years ended December 31,
20151,088
1,885
4,368
5,643
3,015
567
16,5661,652
(52)
(203)
17,963
2015872
2,950
(1,888)
(294)
12
1,652
2015(24)(28)
-
(52)
20141,045
1,558
3,585
4,273
2,184
416
13,061872
(24)
(100)
13,809
2014502
1,245
(655)
(227)
7
872
2014(21)
(6)
3
(24)
201
Movements in the impairment of PP&E are as follows:
Details on the nature and movements during the years ended December 31, 2015 and 2014 are as follows:
at the beginning of the yearAdditions
Depreciation (i)
Uses
at the end of the year
Land
Building
Tower and pole
Transmission equipment
Mobile network access
External wiring
Switching equipment
Power equipment
Computer equipment and systems
Telephony equipment and instruments
Handsets lent to customers at no cost
Equipment lent to customers at no cost
Vehicles
Furniture
Installations
Improvements in third parties buildings
Special projects
Construction in progress
Asset retirement obligations
Total
Years ended December 31,
2015(100)(230)
1
126
(203)
147
1,706
991
6,120
3,937
9,197
6,924
1,299
8,250
793
497
156
264
151
802
471
62
2,184
87
44,038
-
1
-
37
99
-
66
-
15
-
32
95
130
-
-
2
-
5,866
53
6,396
2
9
63
114
193
-
228
47
323
2
80
-
5
7
12
29
-
21
1
1,136
-
57
184
611
1,042
1,047
587
104
1,085
11
-
-
-
7
92
72
15
(4,914)
-
-
-
(2)
-
(2)
(29)
(36)
(14)
(1)
(10)
-
(104)
(61)
(19)
-
(1)
-
-
(142)
-(*)(421)
149
1,771
1,238
6,880
5,242
10,208
7,791
1,449
9,663
806
505
190
380
165
905
574
77
3,015
141
51,149
2014(156)
(25)
1
80
(100)
(i) Included in depreciation of PP&E.
Gro
ss v
alue
as
of D
ecem
ber
31, 2
014
CAPE
X
Dec
reas
es
Curre
ncy
trans
latio
n ad
justm
ents
Gro
ss v
alue
as
of D
ecem
ber
31, 2
015
Tran
sfers
and
re
class
ifica
tions
202
(*) Includes 126 of net decreases with counterpart in uses of provision corresponding to the impairment of commercial systems of Personal, mobile access swap and former work in progress.
Land
Building
Tower and pole
Transmission equipment
Mobile network access
External wiring
Switching equipment
Power equipment
Computer equipment and systems
Telephony equipment and instruments
Handsets lent to customers at no cost
Equipment lent to customers at no cost
Vehicles
Furniture
Installations
Improvements in third parties buildings
Special projects
Construction in progress
Asset retirement obligations
Total
2 -
(1,094)
(512)
(4,876)
(2,630)
(6,231)
(5,650)
(818)
(6,692)
(761)
(471)
(75)
(164)
(113)
(516)
(306)
(23)
-
(45)
(30,977)
2 -
(33)
(53)
(324)
(493)
(393)
(520)
(77)
(811)
(10)
(30)
(87)
(33)
(10)
(77)
(76)
(11)
-
(9)
(3,047)
-
(7)
(31)
(67)
(111)
-
(171)
(26)
(285)
(2)
(78)
-
(3)
(5)
(11)
(21)
-
-
(1)
(819)
-
-
-
2
24
27
14
-
10
-
104
61
17
-
1
-
-
-
-(*)260
-
(1,134)
(596)
(5,265)
(3,210)
(6,597)
(6,327)
(921)
(7,778)
(773)
(475)
(101)
(183)
(128)
(603)
(403)
(34)
-
(55)
(34,583)
149637642
1,6152,0323,6111,464
5281,885
333089
19737
30217143
3,01586
16,566
Accu
mul
ated
de
prec
iatio
n as
of
Dec
embe
r 31,
2014
Dep
recia
tion
Accu
mul
ated
de
prec
iatio
n as
of
Dec
embe
r 31,
20
15
Curre
ncy
trans
latio
n ad
justm
ents
Net
car
ryin
g va
lue
as o
f Dec
embe
r 31,
2015
Dec
reas
es a
nd
trans
fers
203
Land
Building
Tower and pole
Transmission equipment
Mobile network access
External wiring
Switching equipment
Power equipment
Computer equipment and systems
Telephony equipment and instruments
Handsets lent to customers at no cost
Equipment lent to customers at no cost
Vehicles
Furniture
Installations
Improvements in third parties buildings
Special projects
Construction in progress
Asset retirement obligations
Total
146
1,676
783
5,432
3,165
8,038
6,112
1,094
7,295
768
363
124
254
132
648
363
53
2,436
79
38,961
-
-
-
32
30
-
2
1
24
-
32
86
16
1
-
1
-
4,072
7
4,304
1
9
58
98
141
-
186
38
304
2
102
-
5
7
12
23
-
21
1
1,008
-
27
150
573
601
1,169
628
171
742
23
-
2
-
11
142
84
9
(4,332)
-
-
-
(6)
-
(15)
-
(10)
(4)
(5)
(115)
-
-
(56)
(11)
-
-
-
-
(13)
-(*)(235)
147
1,706
991
6,120
3,937
9,197
6,924
1,299
8,250
793
497
156
264
151
802
471
62
2,184
87
44,038
(*) Includes 50 of net decreases with counterpart in uses of provision corresponding to the impairment of commercial systems of Personal.
Land
Building
Tower and pole
Transmission equipment
Mobile network access
External wiring
Switching equipment
Power equipment
Computer equipment and systems
Telephony equipment and instruments
Handsets lent to customers at no cost
Equipment lent to customers at no cost
Vehicles
Furniture
Installations
Improvements in third parties buildings
Special projects
Construction in progress
Asset retirement obligations
Total
2-
(1,062)
(446)
(4,591)
(2,198)
(5,914)
(5,175)
(737)
(5,819)
(748)
(347)
(54)
(144)
(99)
(445)
(229)
(14)
-
(38)
(28,060)
2-
(31)
(41)
(245)
(352)
(322)
(354)
(64)
(694)
(11)
(25)
(77)
(26)
(9)
(60)
(65)
(9)
-
(5)
(2,390)
-
(6)
(25)
(55)
(80)
-
(125)
(21)
(254)
(2)
(99)
-
(3)
(5)
(11)
(12)
-
-
(2)
(700)
-
5
-
15
-
5
4
4
75
-
-
56
9
-
-
-
-
-
-(*)173
-
(1,094)
(512)
(4,876)
(2,630)
(6,231)
(5,650)
(818)
(6,692)
(761)
(471)
(75)
(164)
(113)
(516)
(306)
(23)
-
(45)
(30,977)
147612479
1,2441,3072,9661,274
4811,558
322681
10038
28616539
2,18442
13,061
Gro
ss v
alue
as
of D
ecem
ber
31, 2
013
CAPE
X
Dec
reas
es
Curre
ncy
trans
latio
n ad
justm
ents
Gro
ss v
alue
as
of D
ecem
ber
31, 2
014
Tran
sfers
and
re
class
ifica
tions
Accu
mul
ated
de
prec
iatio
n as
of
Dec
embe
r 31,
2013
Dep
recia
tion
Accu
mul
ated
de
prec
iatio
n as
of
Dec
embe
r 31,
20
14
Curre
ncy
trans
latio
n ad
justm
ents
Net
carry
ing
valu
e as
of D
ecem
ber
31, 2
014
Dec
reas
es a
nd
trans
fers
204
SAC fixed services
SAC mobile services
Service connection or habilitation costs
3G/4G licenses (Note 2.b)
PCS license (Argentina)
PCS and Band B (Paraguay)
Rights of use
Exclusivity agreements
Customer relationship
Software developed for internal use
Total
SAC fixed services
SAC mobile services
Service connection or habilitation costs
3G/4G licenses
PCS license (Argentina)
PCS and Band B (Paraguay)
Rights of use
Exclusivity agreements
Customer relationship
Software developed for internal use
Total
SAC fixed services
SAC mobile services
Service connection or habilitation costs
3G/4G licenses
PCS license (Argentina)
PCS and Band B (Paraguay)
Rights of use
Exclusivity agreements
Customer relationship
Software developed for internal use
Total
177
1,382
207
3,530
658
634
372
41
2
537
7,540
121
1,140
217
-
658
489
357
41
2
508
3,533
(84)
(562)
(108)
(19)
(70)
(634)
(168)
(27)
-
(537)
(2,209)
(135)
(882)
(28)
(324)
-
-
(21)
(1)
(1)
-
(1,392)
158
1,206
36
2,256
-
-
48
-
-
-
3,704
126
956
30
3,530
-
-
11
-
-
-
4,653
-
(12)
-
-
-
(140)
(1)
-
-
(29)
(182)
-
24
-
-
-
140
5
-
-
29
198
-
18
-
-
-
145
4
-
-
29
196
101
455
35
-
-
-
-
-
-
-
591
(101)
(455)
(35)
-
-
-
-
-
-
-
(591)
(70)
(732)
(40)
-
-
-
-
-
-
-
(842)
(118)
(1,001)
(101)
(343)
(70)
(774)
(190)
(28)
(1)
(566)
(3,192)
234
2,157
208
5,786
658
774
425
41
2
566
10,851
177
1,382
207
3,530
658
634
372
41
2
537
7,540
1161,156
1075,443
588-
235131-
7,659
Gro
ss v
alue
as
of D
ecem
ber
31, 2
014
Gro
ss v
alue
as
of D
ecem
ber
31, 2
013
Accu
mul
ated
amor
tizat
ion
as
of D
ecem
ber
31, 2
014
Accu
mul
ated
amor
tizat
ion
as
of D
ecem
ber
31, 2
015
CAPE
XCA
PEX
Amor
tizat
ion
Gro
ss v
alue
as
of D
ecem
ber
31, 2
015
Gro
ss v
alue
as
of D
ecem
ber
31, 2
014
Net
car
ryin
g va
lue
as o
f D
ecem
ber 3
1,20
15
Curre
ncy
trans
latio
n ad
justm
ents
Curre
ncy
trans
latio
n ad
justm
ents
Curre
ncy
trans
latio
n ad
justm
ents
Dec
reas
esD
ecre
ases
Dec
reas
es
NOTE 9 – INTANGIBLE ASSETS
Intangible assets consist of the following:
205
Current trade payables
PP&E
Other assets and services
Inventory
NDF (Note 20)
Agent commissions
Non-current trade payables
PP&E
Total trade payables
NOTE 10 – TRADE PAyABLES
Trade payables consist of the following:
• purchase of materials and supplies;
• purchase of handsets and equipment;
• agent and retails commissions;
• procurement of services; and
• purchase of goods included in PP&E.
As of December 31,
2015
5,022
2,991
1,335
9,348-
525
9,873
52
529,925
2014
1,964
1,966
1,734
5,66490
318
6,072
-
-
6,072
SAC fixed services
SAC mobile services
Service connection or habilitation costs
3G/4G licenses
PCS license (Argentina)
PCS and Band B (Paraguay)
Rights of use
Exclusivity agreements
Customer relationship
Software developed for internal use
Total
(57)
(599)
(121)
-
(70)
(488)
(145)
(26)
-
(508)
(2,014)
(97)
(687)
(27)
(19)
-
(1)
(22)
(1)
-
-
(854)
-
(8)
-
-
-
(145)
(1)
-
-
(29)
(183)
70
732
40
-
-
-
-
-
-
-
842
(84)
(562)
(108)
(19)
(70)
(634)
(168)
(27)
-
(537)
(2,209)
9382099
3,511588
-204142-
5,331
Accu
mul
ated
amor
tizat
ion
as
of D
ecem
ber
31, 2
014
Accu
mul
ated
amor
tizat
ion
as
of D
ecem
ber
31, 2
015
Amor
tizat
ion
Net
car
ryin
g va
lue
as o
f D
ecem
ber 3
1,20
15
Curre
ncy
trans
latio
n ad
justm
ents
Dec
reas
es
206
NOTE 11 – DEFERRED REVENUES
Deferred revenues consist of the following:
• revenues received from connection fees for fixed
telephony, data and Internet, nonrefundable, considered
as a single element with the provision of the service
during the contractual relationship with the subscriber;
• revenues collected by remaining traffic and packages of
data from unexpired cards;
• the value assigned to the points delivered by customer
loyalty programs in the mobile telephony;
• the advanced collection of revenues from services of
international capacity; and
• subsidies received for the construction of infrastructure
which are deferred in the same period of amortization
of the related works.
Current deferred revenues
On prepaid calling cards – Fixed and Mobile Services
On connection fees – fixed services
On capacity rental
On mobile customer loyalty programs
From CONATEL – mobile services Núcleo (Note 18.d)
Non-current deferred revenues
On capacity rental – Fixed Services
On connection fees – fixed services
On mobile customer loyalty programs
From CONATEL - mobile services Núcleo (Note 18.d)
Total deferred revenues
Current financial debt
Bank overdrafts (Personal)
Bank overdrafts (Núcleo)
Bank loans (Núcleo)
Accrued interest (Personal)
Accrued interest (Núcleo)
Non-current financial debt
Notes (Personal)
Bank loans (Personal)
Bank loans (Núcleo)
Total financial debt
NOTE 12 – FINANCIAL DEBT
Financial debt consists of the following:
As of December 31,
As of December 31,
2015
312
35
47
78
5
477
290
79
84
4
457934
2015
3,062
84
193
104
8
3,451
713
509
227
1,4494,900
2014
339
33
55
76
4
507
307
67
82
9
465972
2014
140
-
32
1
6
179
-
-
254
254433
207
bank oVeRDRafTs
As of December 31, 2015, Personal has bank overdrafts
amounting to $3,062. The floating average annual rate of
these loans as of December 31, 2015 is 32.02%.
As of December 31, 2015, Núcleo has bank overdrafts
amounting to $84 (equivalent approximately 37,584
Guaraníes). The floating average annual rate of these loans
as of December 31, 2015 is 11% in Guaraníes.
bank loans
Personal
On January 28, 2015, Personal entered into a loan with
a foreign bank for a total amount of US$40.8 million
(equivalent to $353 at such date). This loan is a 27-months
bullet loan with three-month interest payment at a weighted
average rate of three-month LIBO plus 8.75% (a financial
cost of 9.0836% as of December 31, 2015).
The terms and conditions of the loan include covenants and
events of default that are usual for this type of transaction,
among those the limitation that Personal will not incur
new indebtedness if, as a result of the incurrence thereof,
its consolidated total leverage ratio (consolidated debt to
consolidated operating profit/loss before depreciation and
amortization, including gain/loss on disposal of PP&E and
impairment of PP&E, as defined in the terms and conditions
of the loan) is greater than 3.0 to 1.0 or its consolidated
interest coverage ratio (consolidated operating profit/loss
before depreciation and amortization, including gain/loss
on disposal of PP&E and impairment of PP&E, as defined
in the terms and conditions of the loan, to consolidated net
interest) is lower than 3.0 to 1.0.
The funds were totally used for the acquisition of inventories.
núcleo
The following table shows the outstanding loans with local
banks in Paraguay and their main terms as of December 31,
2015:
The weighted average annual rate of these loans is 9.96%
in Guaraníes and the weighted average amortization term of
these loans is approximately 1.4 years.
The terms and conditions of Núcleo’s loans provide for
certain events of default which are considered standard for
these kinds of operations.
Global PRoGRaMs foR THeIssUanCe of noTes
Telecom Argentina
The Ordinary and Extraordinary Shareholders’ Meeting of
Telecom Argentina held on December 15, 2011, approved
the creation of a Medium Term Notes Global Program for
a maximum outstanding amount of US$ 500 million or its
equivalent in other currencies for a term of five years.
Personal
The Ordinary and Extraordinary Shareholders’ Meeting of
Personal held on December 2, 2010, approved the creation
of a Medium Term Notes Global Program for a maximum
outstanding amount of US$ 500 million or its equivalent
in other currencies for a term of five years. On October
13, 2011, the CNV authorized such Program, through
Resolution No. 16,670.
Within such Program, on December 10, 2015 Personal
issued notes in two series under the following conditions:
Principal nominal value (in million of Guaraníes)
113,000
52,500
24,000
189,500
Amortization term
2.2 years
2.4 years
1 year
51
89
53
193
200
27
-
227
Book valueCuRRENT NON-CuRRENT
208
SERIES I
Amount involved: $571,505,000 argentine pesos.
Expiration Date: Series I notes will mature 18 months from
its issuance date.
Amortization: Capital will be settled by one payment in an
amount equal to 100% of total capital, payable on their
maturity date.
Interest rate: Series I notes will bear interest from its issuance
date until the sixth month maturity (inclusive) at a nominal
fixed annual rate equivalent to 28.5% per annum and since
the beginning of the seventh month until its maturity date at a
floating rate equivalent to the Badlar Privada rates published
by the BCRA plus 3.75% per annum.
Interest Payment Date: Interest will be paid quarterly in
arrears since issuance date. The last interest payment date
will be the maturity date.
SERIES II
Amount involved: $149,000,000 argentine pesos.
Expiration Date: Series II notes will mature 36 months from
its issuance date.
Amortization: Capital will be settled by one payment in an
amount equal to 100% of total capital, payable on their
maturity date.
Interest rate: Series II notes bear interest from its issuance
date until the ninth month maturity (inclusive) at a nominal
fixed annual rate equivalent to 28.75% per annum and since
the beginning of the tenth month until its maturity date at a
floating rate equivalent to the Badlar Privada rates published
by the BCRA plus 4.00% per annum.
Interest Payment Date: Interest will be paid quarterly in
arrears since issuance date. The last interest payment date
will be the maturity date.
The funds arising from the Series I and II notes placement
were used for the partial settlement of bank overdrafts that
Personal had taken to finance the acquisition of 3G and 4G
frequencies bands. Funds from notes placement have been
applied to “debt refinancing”.
The mentioned notes have a local risk rating awarded by FIX
SCR S.A. of “AA+(arg)” with a stable outlook.
EVENTS OF DEFAuLT
The terms and conditions of the Notes provide for certain
events of default as follows:
• lack of payment of capital and/or interests of any of the
notes at the maturity date during the term stated in the
respective contracts;
• lack of payment of capital and/or interests of any
other financial debt of Personal or its subsidiaries for
an amount of at least US$ 20 million (“cross default”
clause), after the expiration of the agreed grace period;
• final court sentence dictamination (including seizure,
executions of property, and similar court decisions) for
an amount of at least US$ 20 million;
• bankruptcy petition, presentation of reorganization
proceeding, or homologation petition of out-of-
court preventive agreement of Personal or any of its
subsidiaries;
• any other situation that could cause the revocation
of licenses granted to Personal or its subsidiaries (if
applicable), in the case of total or partial license
revocation that derives in negative effect on the
commercial activity, assets, financial and economic
situation of Personal or its subsidiaries (taken as a
whole).
According to the terms of the notes issued if any case of
non-compliance is verified, the debt holders are allowed
to demand the payment of the outstanding amount of
capital and accrued interest at the time of non-compliance
(“acceleration clause”). The application of this clause is
generally optional for the debt holders and it is subject to
compliance of certain requirements and conditions.
As of the date of issuance of these consolidated financial
statements, Personal and Núcleo are in compliance with
their respective loans agreements’ commitments.
209
NOTE 13 – SALARIES AND SOCIAL SECURITy PAyABLES
Salaries and social security payables include unpaid
salaries, vacation and bonuses and its related social security
contributions and termination benefits.
As of December 31, 2015, the total number of employees
was 16,224, of which approximately 80% were unionized.
All Management and senior positions are held by non-
unionized employees.
In the field of compensation policy for Directors and
Managers, the Company and its subsidiaries have a scheme
that includes fixed and variable components. While fixed
compensation is dependent upon the level of responsibility
required for the position and its market competitiveness,
variable compensation is comprised of compensation driven
by the goals established on an annual basis and also by
compensation regarding the fulfillment of long term goals.
The Company and its subsidiaries have no stock option
plans for their employees.
Salaries and social security payables consist of the following:
Fixed services
Personal Mobile services
Núcleo Mobile services
Total number of employees of the Telecom Group
201510,903
4,908
413
16,224
201411,056
4,958
402
16,416
201311,002
5,155
424
16,581
As of December 31,
Current
Vacation and bonuses
Social security payables
Termination benefits
Non-current
Termination benefits
Bonuses
Total salaries and social security payables
As of December 31,
2015
849
324
88
1,261
117
40
1571,418
2014
690
255
77
1,022
122
28
1501,172
210
NOTE 14 – INCOME TAX PAyABLES, INCOME TAX ASSETS AND DEFERRED INCOME TAX
Income tax asset and liability, net as of December 31, 2015 and 2014 consist of the following:
(*) Tax liability valuated to its discount value at each time of valuation.
Compensation for the Key Managers for the years ended December 31, 2015, 2014 and 2013 is shown in Note 27.c).
Employee benefit expenses and severance payments are composed of:
As of December 31, 2015
Salaries
Social security expenses
Severance indemnities and termination benefits
Other employee benefits
2015(5,166)
(1,642)
(319)
(126)
(7,253)
2014(3,994)
(1,259)
(242)
(96)
(5,591)
2013(3,010)
(914)
(149)
(79)
(4,152)
Years ended
December 31,
Income tax payables
Withholdings and payments in advance of income taxes
Law No. 26,476 Tax Regularization Regime (*)
Current income tax liability, netCurrent income tax liability, net as of December 31, 2014
Law No. 26,476 Tax Regularization Regime (*)
non-current Income tax liability
273
(273)
5
5131
10
10
1,410
(1,003)
-
40795
-
-
33
(6)
-
2721
-
-
5
(5)
-
-
-
-
-
1,721
(1,287)
5
439
10
10
1,769(1,525)
3
247
99
Tele
com
Ar
gent
ina
Tota
l
Pers
onal As of
December31, 2014N
úcle
o
Tele
com
u
SA
211
The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets and liabilities
and the action for recourse tax receivable are presented below:
Deferred taxassets
Deferred taxliabilities
Allowance for doubtful accounts
Provisions
PP&E
Inventory
Termination benefits
Deferred revenues
Pension benefits
Other deferred tax assets, net
Total deferred tax assetsPP&E
Intangible assets
Cash dividends from foreign companies
Investments
Other deferred tax liabilities, net
Total deferred tax liabilitiesTotal deferred tax asset (liability), net l
Action for recourse tax receivable - 2009
Total income tax assets
61
314
-
-
65
73
33
78
624(390)
(86)
-
-
-
(476)148
98
246
8
-
14
-
-
-
-
4
26-
-
(6)
-
(1)
(7)19
-
19
1
-
-
-
-
-
-
-
1(1)
-
-
-
-
(1)-
-
-
7031414
-65733382
651(391)(86)(6)
-(1)
(484)167
98265
151
129
-
99
-
-
-
-
379(260)
(478)(*)(113)
(61)
(17)
(929)(550)
151129
-99
----
379(260)(478)(113)(61)(17)
(929)(550)
Tele
com
Ar
gent
ina
Tota
l
Tota
l
Pers
onal
Núc
leo
Tele
com
u
SA
(*) Includes (25) recorded in Other comprehensive income for the year ended on December 31, 2015 and (12) corresponding to a reclassification of deferred tax liabilities to income tax payables related to withholdings of cash dividends from foreign companies.
As of December 31, 2015
212
Deferred taxassets
Year ended December 31, 2015Profit (loss)
Year ended December 31, 2014Profit (loss)
Deferred tax liabilities
Allowance for doubtful accounts
Provisions
PP&E
Inventory
Termination benefits
Deferred revenues
Pension benefits
Other deferred tax assets, net
Total deferred tax assetsPP&E
Intangible assets
Cash dividends from foreign companies
Investments
Other deferred tax liabilities, net
Total deferred tax liabilitiesTotal deferred tax asset (liability), net
Current tax expense
Current tax expenses – temporary differences reversion
Deferred tax benefit
Deferred tax benefit – temporary differences reversion
Action for recourse income tax receivable
Income tax expense
Current tax expense
Deferred tax benefit
Valuation allowance
Income tax expense
53
313
-
-
64
61
24
63
578(382)
(74)
-
-
-
(456)122
6
-
17
-
-
-
-
-
23-
-
(5)
-
-
(5)18
(273)
(1)
25
1
98
(150)
(418)
19
-
(399)
1
-
-
-
-
-
-
-
1(1)
-
-
-
-
(1)-
(1,410)
(16)
(112)
16
-
(1,522)
(1,302)
(267)
27
(1,542)
6031317
-64612463
602(383)(74)(5)
--
(462)140
(16)
-
1
-
-
(15)
(25)
3
-
(22)
70
122
-
61
-
-
-
-
253(189)
(348)(*)(87)
(37)
(9)
(670)(417)
(5)
-
-
-
-
(5)
(4)
-
-
(4)
70122
-61
----
253(189)(348)(87)(37)(9)
(670)(417)
(1,704)
(17)
(86)
17
98
(1,692)
(1,749)
(245)
27
(1,967)
Tele
com
Ar
gent
ina
Tele
com
Ar
gent
ina
Tele
com
Ar
gent
ina
Tota
l
Tota
l
Tota
lTo
tal
Pers
onal
Pers
onal
Pers
onal
Núc
leo
Núc
leo
Núc
leo
Tele
com
u
SA
Tele
com
u
SATe
leco
m
uSA
(*) Includes (20) recorded in Other comprehensive income for the year ended on December 31, 2014.
As of December 31, 2014
Income tax expense for the years ended December 31, 2015, 2014 and 2013 consists of the following:
213
InCoMe Tax 2009 - aCTIon foR ReCoURse fIleD WITH THe Tax aUTHoRITY
Article 10 of Law No. 23,928 and Article 39 of Law
No.24,073 suspended the application of the provisions of
Title VI of the Income Tax Law relating to the income tax
inflation adjustment since April 1, 1992.
Accordingly, Telecom Argentina and its domestic subsidiaries
determined its income tax obligations in accordance to
those provisions, without taking into account the income tax
inflation adjustment.
After the economic crisis of 2002, many taxpayers began to
question the legality of the provisions suspending the income
tax inflation adjustment. Also, the Argentine Supreme Court
of Justice issued its opinion in "Candy" (07/03/2009) in
which it stated that particularly for the fiscal year 2002 and
considering the serious state of disturbance of that year, the
taxpayer could demonstrate that not applying the income
tax inflation adjustment resulted in confiscatory income tax
rates.
More recently, the Argentine Supreme Court of Justice
applied a similar criteria to the 2010 and 2011 fiscal
years in the cases entitled "Distribuidora Gas del Centro"
(10/14/2014 and 06/02/2015), enabling the application
of income tax inflation adjustment for periods not affected
by a severe economic crisis.
According to the above-mentioned new legal background
that the Company took knowledge during 2015, and after
making the respective assessments, on December 21, 2015
Telecom Argentina filed an action for recourse with the AFIP
to claim the full tax overpaid for fiscal year 2009, estimated
in an amount of $98.2, plus interest, under the argument
that the lack of application of the income tax inflation
adjustment is confiscatory.
Income tax expense for the years ended December 31, 2014, 2013 and 2012 differed from the amounts computed by
applying the Company’s statutory income tax rate to pre-tax income as a result of the following:
Pre-tax income
Non taxable items
subtotalWeighted statutory income tax rate (*)
Income tax expense at weighted statutory tax rateIncome tax on cash dividends of foreign companies
Other changes in tax assets and liabilities
Action for recourse income tax receivable - 2009
Changes in valuation allowance
20155,127
8
5,13534.5%
(1,774)(14)
(2)
98
-
(1,692)
20145,696
(42)
5,65434.5%
(1,950)(27)
(17)
-
27
(1,967)
20135,046
(23)
5,02334.4%
(1,727)(26)
(35)
-
(4)
(1,792)
For the years ended
December 31,
(*) Effective income tax rate based on weighted statutory income tax rate in the different countries where the Company has operations. The statutory tax rate in Argentina was 35% for all the years presented, in Paraguay was 10% plus an additional rate of 5% in case of payment of dividends for all the years presented and in the USA the effective tax rate was 39.5% for all the years presented.
Year ended December 31, 2013Profit (loss)
Current tax expense
Fiscal year 2012 return adjustment
Deferred tax benefit
Valuation allowance
Income tax expense
(341)
-
47
-
(294)
(1,585)
(3)
120
(4)
(1,472)
(24)
-
1
-
(23)
(3)
-
-
-
(3)
(1,953)
(3)
168
(4)
(1,792)
Tele
com
Ar
gent
ina
Tota
l
Pers
onal
Núc
leo
Tele
com
u
SA
214
As of the date of issuance of these consolidated financial
statements, the action for recourse filed is pending of
resolution by the Tax Authority. However, the Company’s
Management, with the assessment of its tax advisor, considers
that the argument presented in this recourse follows the same
criteria as the established by the Argentine Supreme Court of
Justice jurisprudence mentioned above, among others, what
should allow the Company to obtain a favorable resolution
of the recourse action filed.
Consequently, the Company recorded a non-current tax
receivable for an amount of $98 (according to the action for
recourse filed) in compliance with IAS 12.
The Company is assessing the appropriateness of filing
similar recourse actions for fiscal year 2010 and followings
years. As of the date of issuance of these consolidated
financial statements, a preliminary analysis of the lack of
application of the income tax inflation adjustments resulted
in an estimated tax overpaid in a range between $600 and
$850 for the period 2010 to 2014. This amount is only
related to income tax overpaid by Telecom Argentina in their
respective affidavits timely filed with the Tax Authority.
NOTE 15 – OTHER TAXES PAyABLES
Other taxes payables consist of the following:
Current
VAT, net
Tax withholdings
Turnover tax
Internal taxes
Tax on SU (Note 2.g)
Regulatory fees
Municipal taxes
Retention Decree No.583/10 ENARD
Tax on personal property – on behalf of Shareholders
As of December 31,
2015
452
201
143
111
91
74
46
20
15
1,153
2014
316
132
68
86
97
67
31
15
12
824
NOTE 16 – OTHER LIABILITIES
Other liabilities consist of the following:
• pension benefits;
• guarantees received;
• legal fees payable by adhesion to the tax regularization schemes;
• any liability not included in the other liability items.
215
NOTE 17 – PROVISIONS
The Company is a party to several civil, tax, commercial,
labor and regulatory proceedings and claims that have arisen
in the ordinary course of business. In order to determine the
proper level of provisions, Management of the Company,
based on the opinion of its internal and external legal
counsel, assesses the likelihood of any adverse judgments
or outcomes related to these matters as well as the range of
probable losses that may result from the potential outcomes.
A determination of the amount of provisions required, if any,
is made after careful analysis of each individual case.
The determination of the required provisions may change in
the future due to new developments or unknown facts at the
time of the evaluation of the claims or changes as a matter
of law or legal interpretation. Consequently, as of December
31, 2015, the Company has established provisions in an
aggregate amount of $1,456 to cover potential losses under
these claims ($84 for regulatory contingencies deducted
from assets and $1,372 included under provisions) and
certain amounts deposited in the Company’s bank accounts
have been restricted as to their use due to some judicial
proceedings. As of December 31, 2015, these restricted
funds totaled $58 (included under Other receivables, net
line item in the consolidated statement of financial position).
Provisions consist of the following:
Movements in the pension benefits are as follows:
(*) Included in Employee benefit expenses and severance payments.(**) Included in Financial expenses.(***) Included in Other comprehensive income as required by IAS 19R.
at the beginning of the yearService cost (*)
Interest cost (**)
Payments
Actuarial profit (***)
at the end of the year
Years ended December 31,
201568
8
28
(2)
(7)
95
201464
7
23
(2)
(24)
68
Current
Compensation for directors and members of the Supervisory Committee
Guarantees received
Other
Non-current
Pension benefits (Note 3.l)
Legal fees
Suppliers guarantees on third parties claims
Other
Total other liabilities
As of December 31,
2015
30
12
11
53
95
4
-
2
101154
2014
28
11
8
47
68
5
2
1
76123
216
(i) Charged to finance costs, interest on provisions line item.(ii) Charged 84 to Provisions, 7 to PP&E (CAPEX), 1 to currency translation adjustments and a recovery of (11) to Other income for the statute of limi-tation of Personal’s obligations.(iii) Charged 113 to Provisions, 53 to PP&E (CAPEX) and 2 to currency translation adjustments.(iv) Classified to Other receivables.
CurrentProvision for civil and commercial proceedingsProvision for labor claimsProvision for regulatory, tax and other matters claims
Total current provisionsNon-currentProvision for civil and commercial proceedingsProvision for labor claimsProvision for regulatory, tax and other matters claimsAsset retirement obligations
Total non-current provisionsTotal provisions
----
5653
(36)8
(ii)8181
----
386389
118118
59156
152
(5)(91)(56)
-(152)
-
(48)(5)(5)
(58)
-----
(58)
(19)(79)(21)
(119)
-----
(119)
715177
199
228288441123
1,0801,279
34--
34
4961
(30)54
134(iii)168
19--
19
31552012
118137
6875
-143
(68)(75)(24)
-(167)
(iv)(24)
(25)--
(25)
-----
(25)
(55)(75)(33)
(163)
-----
(163)
1125144
207
240329407189
1,1651,372
1334447
224
139263525106
1,0331,257
Bala
nces
as o
f Dec
embe
r 31
, 201
3
Cap
ital
Cap
ital
Recla
ssifi
catio
ns
Recla
ssifi
catio
ns
Inte
rest
(i)
Inte
rest
(i)
Deb
t rec
ogni
tion
Deb
t rec
ogni
tion
Paym
ents
Paym
ents
Bala
nces
as
of
Dec
embe
r 31,
201
4
Bala
nces
as
of
Dec
embe
r 31,
201
5
Additions/(recoveries)
Additions/(recoveries)uses uses
1. PRobable ConTInGenT lIabIlITIes
Below is a summary of the most significant claims and legal
actions for which provisions have been established:
Profit sharing bonds
Various legal actions are brought, mainly by former
employees of the Company against the Argentine
government and Telecom Argentina, requesting that Decree
No. 395/92 – which expressly exempted Telefónica and the
Company from issuing the profit sharing bonds provided
in Law No. 23,696 – be struck down as unconstitutional.
The plaintiffs also claim the compensation for damages they
suffered because such bonds have not been issued.
In August 2008, the Argentine Supreme Court of Justice
found Decree No. 395/92 unconstitutional when resolving
a similar case against Telefónica.
Since the Argentine Supreme Court of Justice’s judgment on
this matter, the Divisions of the Courts of Appeal ruled that
Decree No. 395/92 was unconstitutional. As a result, in the
opinion of the legal counsel of the Company, there is an
increased probability that the Company has to face certain
contingencies, notwithstanding the right of reimbursement
that attends Telecom Argentina against the National State.
Said Court decision found the abovementioned Decree
unconstitutional and ordered that the proceedings be
remanded back to the court of origin so that such court
could decide which defendant was compelled to pay –
the licensee and/or the Argentine government- and the
parameters that were to be taken into account in order to
quantify the remedies requested (percent of profit sharing,
statute of limitations criteria, distribution method between
the program beneficiaries, etc). It should be mentioned that
there is no uniformity of opinion in the Courts in relation to
each of those concepts.
Later, in “Ramollino Silvana c/Telecom Argentina S.A.”, the
Argentine Supreme Court of Justice, on June 9, 2015, ruled
that the profit sharing bonds do not correspond to employees
who joined Telecom Argentina after November 8, 1990 and
that were not members of the PPP.
This judicial precedent is consistent with the criteria followed
by the Company for estimating provisions for these demands,
based on the advice of its legal counsel, which considered
remote the chances of paying compensation to employees
not included in the PPP.
217
LEGAL ACTION’S STATuTE OF LIMITATIONS CRITERIA:
ARGENTINE SuPREME COuRT OF juSTICE RuLING
“DOMINGuEz C/ TELEFóNICA DE ARGENTINA S.A.”
In December 2013, the Argentine Supreme Court ruled on a
similar case to the above referred legal actions, “Domínguez
c/ Telefónica de Argentina S.A”, overturning a lower court
ruling that had barred the claim as having exceeded the
applicable statute of limitations since ten years had passed
since the issuance of Decree No. 395/92.
The Argentine Supreme Court of Justice ruling states that the
Civil and Commercial Proceedings Court must hear the case
again to consider statute of limitations arguments raised by
the appellants that, in the opinion of the Argentine Supreme
Court of Justice, were not considered by the lower court and
are relevant to the resolution of the case.
After the Argentine Supreme Court of Justice’s ruling and
until the date of issuance of these consolidated financial
statements, two chambers of the Civil and Commercial
Federal Proceedings Court have issued opinions interpreting
the doctrine developed by the Argentine Supreme Court
of Justice in its ruling, acknowledging that the statute of
limitations must be applied periodically –as of the time of
each balance sheet- but limited to five years; and Chamber
III ruled, by a majority of votes, that the statute of limitations
must not be applied periodically, but that instead, was
exceeded ten years after the issuance of Decree No. 395/92.
CRITERIA FOR DETERMINING THE RELEVANT PROFIT
TO CALCuLATE COMPENSATION: RuLING OF THE
CIVIL AND COMMERCIAL FEDERAL PROCEEDINGS
COuRT IN PLENARY SESSION “PEROTA C/ ESTADO
NACIONAL Y TELEFóNICA DE ARGENTINA S.A.”
On February 27, 2014, the Civil and Commercial
Appeals Court issued its decision in plenary session in the
case “Perota, César c/ Estado Nacional”, as a result of a
complaint filed against Telefónica de Argentina S.A, ruling:
“that the amount of profit sharing bonds the corresponding
to former employees of Telefónica de Argentina S.A. should
be calculated based on the taxable income of Telefónica
de Argentina S.A. on which the income tax liability is to be
assessed”.
The Court explained that in order to make such determination:
“it is necessary to clarify that “taxable income” (pre-tax
income) means the amount of income subject to the income
tax that the company must pay, which generally means gross
income, including all revenue obtained during the fiscal year
(including contingent or extraordinary revenue), minus all
ordinary and extraordinary expenses accrued during such
fiscal year”.
As of December 31, 2015, the Company’s Management,
with the advice of its legal counsel, has recorded the
provisions for contingencies that it estimates are sufficient
to cover the risks associated with these legal actions, having
considered the available legal background as of the date of
these consolidated financial statements.
Additionally, on June 3, 2013 Telecom Argentina was
notified of a lawsuit filed by four unions claiming the issuance
of a profit sharing bonds (hereinafter “the bonds”) for future
periods and for periods for which the statute of limitations is
not expired. To enforce this claim, the plaintiffs require that
Decree No. 395/92 should be declared unconstitutional.
This collective lawsuit is for an unspecified amount. The
plaintiffs presented the criteria that should be applied for
the determination of the percentage of participation in the
Company’s profit. The lawsuit requiring the issuance of a
profit sharing bond represents an obligation with potential
future economic impact for Telecom Argentina.
In June 2013, the Company filed its answer to the claim,
arguing that the labor courts lack of jurisdiction. On October
30, 2013, the judge rejected the lack of jurisdiction plea,
established a ten year period as statute of limitation and
deferred ruling on the defenses of res judicata, lis pendens
and on the third party citation required after a hearing is
held by the court. Telecom Argentina has appealed the
judge’s ruling.
On December 12, 2013 this hearing took place and the
intervening court differed the defense of statute of limitations
filed by the Company to the moment of the final ruling,
among other matters. It also ordered the plaintiff to establish
that they have permission to bring the case on behalf Telecom
Argentina’s employees included in the claim; meanwhile the
trial proceeding will be suspended. The plaintiff appealed
the decision and the judge deferred this issue to the time of
sentencing.
As of the date of issuance of these consolidated financial
statements, the appeal regarding lack of jurisdiction raised
by the Company is pending, until the documentation
requested by the court to the plaintiffs was resolved.
218
The Company, based on the advice of its legal counsel,
believes that there are strong arguments to defend its rights in
this claim based, among other things, in the expiration of the
statute of limitations of the claim for the unconstitutionality
of Decree No. 395/92, the lack of active legal standing for
collective claim for bonds issuance -due to the existence of
individual claims-, among other reasons regarding lack of
active legal standing.
Wage differences by food vouchers and non-remunerative sums
The Company is subject to various lawsuits initiated by
some employees and former employees who claim wage
differences caused by the impact of the concepts "non-
remunerative sums" (amounts not subject to social security
contributions) and "food vouchers" over the settlement of
items such as overtime, productivity, vacation, supplementary
annual salary and other additional benefits provided by the
Collective Bargaining Agreement.
In this regard, the Argentine Supreme Court of Justice
has recognized that “food vouchers” are remunerative
and are part of the employees’ compensations, declaring
the unconstitutionality of Sect. 103 bis, inc. C of the
Employment Contract Act (which gives them the character
of social benefits). Considering these judicial precedents, as
of December 31, 2015, the Company’s Management, with
the advice of its legal counsel, has recorded a provision for
contingencies that it estimates is sufficient to cover the risks
associated with these claims as of the date of issuance of
these consolidated financial statements.
Sales representative claims
Former sales representatives of Personal have brought legal
actions for alleged improper termination of their contracts
and have submitted claims for payment of different items
such as commission differences, value of the customers’
portfolio and lost profit, among other matters. Personal
believes, based on the advice of its legal counsel, that certain
items included in the claims would not be sustained while
other items, if sustained, would result in significantly lower
amounts than those claimed. As of the date of issuance of
these consolidated financial statements, some legal actions
are in the discovery phase and with expert opinions in
progress.
Personal’s Management, based on the advice of its legal
counsel, has recorded provisions that it estimates are
sufficient to cover the risks associated with these claims,
which are considered that would not have a negative impact
on Personal’s results and financial position.
Regulator’s Penalty Activities
Telecom Argentina is subject to various penalty procedures,
in most cases promoted by the Regulatory Authority, for
delays in the reparation and installation of service to fix-
line customers. Although generally a penalty considered
on an individual basis does not have a material effect
on Telecom Argentina’s equity, there is a significant
disproportion between the amounts of the penalty imposed
by the Regulatory Authority and the revenue that the affected
customer generates to Telecom Argentina.
Since fiscal year 2013, the CNC significantly increased its
penalty activities, increasing the amount of charges and
sanctions, as well as the individual amount of each of
the latter. In several cases the sanctions imposed as from
2013 had twice the economic value of those imposed to
Telecom Argentina in previous periods for the same alleged
infringements and such tendency continued during 2015.
In determining the provisions for regulatory charges and
sanctions, the Telecom Argentina's Management, with the
advice of its legal counsel, determines the likelihood of
such sanctions being imposed, the amount thereof based
on historical information and judicial precedents, also
contemplating various probable scenarios of statute of
limitation for charges and sanctions received, the current
levels of execution of sanctions and the eventual results
of legal actions that Telecom Argentina has undertaken
to demonstrate, among other things, the disproportionate
sanctions imposed by the Regulatory Authority since 2013.
Telecom Argentina has recorded certain provisions that it
deems sufficient to cover the above mentioned sanctions and
charges, estimating that they should not prosper in amounts
individually higher than 200 thousand UT ($9,380 argentine
pesos) per each alleged violation against its clients in the
normal course of business, in accordance with the legal and
regulatory analysis performed as of December 31, 2015. If
Telecom Argentina and its legal advisors’ arguments do not
prevail, the Management of Telecom Argentina estimates
that the amount of provisions for regulatory charges and
sanctions might be increased in approximately $200 as of
December 31, 2015.
219
2. PossIble ConTInGenCIes
In addition to the possible contingencies related to regulatory
matters described in Note 2 g), below is a summary of the most
significant claims and legal actions for which no provisions
have been established, although it cannot be ensured the final
outcome of these lawsuits:
“Consumidores Financieros Asociación Civil para su Defensa” claim
In November 2011, Personal was notified of a lawsuit filed
by the “Consumidores Financieros Asociación Civil para
su Defensa” claiming that Personal made allegedly abusive
charges to its customers by implementing per-minute billing
and setting an expiration date for prepaid telecommunication
cards.
The plaintiff claim Personal to: i) cease such practices and
bill its customers only for the exact time of telecommunication
services used; ii) reimburse the amounts collected in excess
in the ten years preceding the date of the lawsuit; iii) credit its
customers for unused minutes on expired prepaid cards in the
ten years preceding the date of the lawsuit; iv) pay an interest
equal to the lending rate charged by the Banco de la Nación
Argentina; and v) pay punitive damages provided by article
52 bis of Law No. 24,240.
Personal responded in a timely manner, arguing the grounds
by which the lawsuit should be dismissed, with particular
emphasis on the regulatory framework that explicitly endorses
Personal’s practices, now challenged by the plaintiff in
disregard of such regulations.
The plaintiffs are seeking damages for unspecified amounts.
Although Personal believes there are strong defenses according
to which the claim should not succeed, in the absence of
jurisprudence on the matter, Personal’s Management (with the
advice of its legal counsel) has classified the claim as possible
until a judgment is rendered.
This claim was at a preliminary stage as of the date of these
consolidated financial statements. However, the judge has
ordered the accumulation of this claim with two other similar
claims against Telefónica Móviles and AMX Argentina. So, the
three legal actions will continue within the Federal Civil and
Commercial Court No. 9.
Lawsuit against Personal on changes in services prices
In June 2012 the consumer trade union “Proconsumer” filed
a lawsuit against Personal claiming that the company did not
provide the clients with enough information regarding the
new prices for the services provided by Personal between May
2008 and May 2011. It demands the reimbursement of the
increase in the price billed to customers for a period of two
months.
Personal’s Management considers that Personal had
adequately informed its clients the modifications of the terms
and conditions in which the service would be provided, and
therefore, believes that this lawsuit should not succeed.
On September 5, 2012 the Court took notice of the lawsuit.
On June 26, 2013, the judge upheld the jurisdictional plea
filed by Personal and ordered to send the lawsuit to the
Administrative and Contentious court, which decided that
the jurisdiction corresponded to the Commercial Court. That
decision was appealed by Personal through an extraordinary
motion. The extraordinary motion was denied and Personal
filed a complaint with the Argentine Supreme Court of Justice,
which is pending of resolution.
Personal’s Management considers that there are solid
arguments for the favorable resolution of this lawsuit, but,
in the event it is resolved unfavorably, it would not have a
significant impact on Personal’s results and financial position.
Legal Procedures relating to the Definition of the Scope of Fixed and Mobile Telephone Services under Broadcasting Law No. 22,285, repealed by Law No. 26,522 of Audiovisual Communication Services
The Group offers a wide range of telecommunications
services in the market, including, among others, those referred
to as VAS, which provide additional functionality to the basic
services of voice transmission through a telecommunications
network.
In connection with the VAS, there are some legal claims
referred to the provision of streaming services, known as video
on demand, and also an Argentine Supreme Court of Justice
opinion relating to the commercialization of a service called
Superpack.
220
SuPERCANAL CASE
Within the context of a claim filed by Supercanal S.A. in
2003, an injunction was ordered against the fixed and
mobile telephone companies, by which the Court ordered
them to abstain from “providing supplementary broadcasting
services or issuing any kind of broadcasting contents and
programming”, as well as “making any advertisement relating
to future services to be provided, or the provision of television
services as VAS or any other kind of technical method through
the fixed or mobile telephone and Internet services that they
provide”.
In 2012 a lower court decided to consider the case “without
merit” and to terminate the injunction. However, on February
18, 2014, the Court of Appeals overruled such decision, and
the judge must now decide on the appeal filed against the
injunction, which is still pending.
On June 16, 2014 Telecom Argentina filed before the
Courts a request to terminate the injunction, arguing among
other reasons that new Law No. 26,522 of Audiovisual
Communication Services has repealed the former law, under
which the injunction had been ordered.
In March 2015, Telecom Argentina reported the issuance of
Law No. 27,078 (LAD) and its effect on the injunction, which
became moot.
As a result, on June 3, 2015 the plaintiff informed the Court
that it had no complaints the case was moot considering the
new legal framework introduced by Laws No. 26,522 and
27,078.
As of the date of issuance of these consolidated financial
statements, the claim that the case is moot is pending before
the Court.
CLAIM BY THE ARGENTINE ASSOCIATION OF CABLE
TELEVISION
Within the context of a claim filed by the Argentine Association
of Cable Television in 2006, an injunction was ordered against
the fixed and mobile telephone companies, by which the Court
ordered them to abstain from “transmitting, repeating and/or
providing directly or indirectly broadcasting services or their
supplementary services”, based on the former Broadcasting
Law No. 22,285.
Subsequently, such injunction was extended to the
commercialization of the Superpack service (joint offer of
satellite television services provided by DirecTV and telephone
and Internet services provided by Telecom Argentina, where
each entity invoiced the services provided by it directly to the
final customer), which was suspended by an appeal filed by
Telecom Argentina before the Argentine Supreme Court of
Justice. However, on June 3, 2014, the Argentine Supreme
Court of Justice rejected such appeal because it did not refer
yet to a final decision on the substantial issue that must be
resolved by such Court. Accordingly, the Company prudentially
suspended the commercialization of the above referred joint
offer with DirecTV from June 4, 2014. The suspension of this
joint offer only meant to the Group a decrease in commissions
revenues for new subscribers that our network commercialized
in favor of DirecTV, and a decrease in costs from commissions
conceded to DirecTV for subscribers that the latter captured
for the Telecom Group, which were not material during the
year ended December 31, 2014.
On June 10, 2014, the Company claimed to the Courts that
the substantial issues under the claim are “without merit” and
the injunction has become ineffective as a result of the new
Law No. 26,522 of Audiovisual Communication Services –
which repealed the former law under which the injunction had
been ordered.
On October 7, 2014, the Court notified the Company and
Personal of a breach complaint related to the above referred
injunction. Such notification was answered rejecting its whole
content and requesting that the CNC and the SC become part
of the process. The Court will have to make a joint decision on
these two issues presented by the parties.
On December 19, 2014 Law No. 27,078 came into force.
In Article 9 paragraph 2 states that licensees of services under
the Law – such as Telecom Argentina and Personal – may
provide audiovisual media services. This legislation reinforces
the legal arguments used by the Company to continue
providing the VAS analyzed in these cases.
On June 18, 2015 a lower Court decided to postpone the
declaration that the claim was moot and to limit the term of
the injunction for six months. The decision was appealed by
the Company and other defendants. On October 8, 2015
the Court of Appeals decided the revocation of the judge's
decision that the claim is moot and ruled that the injunction
has ceased to apply. Against this decision, the plaintiff has
filed an extraordinary resource which, as of the date of
issuance of these consolidated financial statements, has not
been resolved by the Court of Appeals.
221
Although the Company’s Management, with the advice of its
legal counsel, believes that there are solid legal arguments to
continue providing the VAS involved in the above mentioned
cases, as of the date of issuance of these consolidated
financial statements, the final outcome of these claims cannot
be assured.
Proceedings related to value added services - Mobile contents
On October 1, 2015 Personal was notified of a claim seeking
damages for unspecified amounts initiated by consumer trade
union “Cruzada Cívica para la defensa de los consumidores
y usuarios de servicios públicos”. The plaintiff invokes the
collective representation of an undetermined number of
Personal customers.
The plaintiff claims the way that content and trivia are
contracted, in particular the improper billing of messages sent
offering those services and their subscription. Additionally, it
proposes the application of a civil penalty.
This claim has a similar object to other claims made by a
consumer association (Proconsumer) where collective
representation of customers is also invoked. As of the date
of issuance of these consolidated financial statements, those
claims are not at preliminary stages.
Personal has answered the claims through the presentation
of legal and factual defenses, subpoenaing third parties
involved in the provision of VAS. Likewise, with the advice of
its legal counsel, Personal believes to have strong arguments
for its defense in these lawsuits. However, given the absence of
jurisprudential precedents, the final outcome of these claims
cannot be assured.
“Asociación por la Defensa de usuarios y Consumidores c/Telecom Personal S.A.” claim
In 2008 the “Asociación por la Defensa de Usuarios y
Consumidores” sued Personal, seeking damages for
unspecified amounts, claiming the billing of calls to the
automatic answering machine and the collection system
called "send to end" in collective representation of an
undetermined number of Personal customers.
Personal's Management, with the advice of its legal counsel,
had deemed to have solid arguments of defense and had
originally classified this claim as a "remote contingency".
As of the date of issuance of these consolidated financial
statements, this lawsuit is at a preliminary stage.
In the third quarter of 2015 Personal took knowledge of an
adverse court ruling in a similar trial, promoted by the same
consumers association against other mobile operator.
Personal's Management, with the advice of its legal counsel,
believes that it has strong arguments for its defense, but
given the new jurisprudential precedent, the outcome of this
claim cannot be ensured.
Interest rate applicable to the matters under Labor Courts of the City of Buenos Aires
On May 21, 2014 the National Labor Court of Appeals
agreed, as a result of a divided vote, that the interest rate
applicable to the matters under its jurisdiction in the City of
Buenos Aires shall be the nominal annual rate for personal
loans with free use of funds of the Argentine National Bank
for a 49 to 60 month term (as of December 31, 2015 the
mentioned rate was 3% per month). The Court also resolved
that in those cases that the Court sentences are still pending,
this new rate shall be applied as from the date on which
each amount is due.
As from 2002 the above mentioned Court had resolved to
apply the interest rate resulting from the monthly average
of the interest rate used by the National Bank of Argentina
for the granting of loans (as of December 31, 2015 the
mentioned average rate was 2.055% per month). Therefore,
this disposition represents an increase in the interest rate,
which the Company has reflected in its assessment of the
provisions for pending labor claims. Although this Court’s
decision is not compulsory for lower Courts, an additional
risk exists since the Courts might intend to apply such rate
retroactively to labor credits not yet acknowledged by a
Court sentence.
Telecom Group’s Management, with the advice of its legal
counsel, considers that there are solid legal arguments to
argue against the retroactive application of this new rate.
As of the date of issuance of these consolidated financial
statements, Management cannot assure the result deriving
from the decision of the Court of Appeals, until the lower
Courts issue future opinions making their positions clear.
Nevertheless, should a disadvantageous resolution prevail,
it is estimated that shall not have a significant impact on the
Group’s financial position and results of operations.
222
3. ReMoTe ConTInGenCIes
The Group faces other legal proceedings, fiscal and regulatory
considered normal in the development of its activities. The
Company Directors and its legal advisors estimate it will not
generate an adverse impact on their financial position and the
result of its operations, or its liquidity. In accordance with IAS
37 provisions, not any provision has been constituted related
to the resolution of these issues.
4. ConTInGenCY asseT
“AFA Plus Project” Claim
On July 20, 2012, the Company entered into an agreement
with the Argentine Football Association (“AFA”), for the
provision of services to a system called “Argentine Football
System Administration” (“AFA Plus Project”) related to the secure
access to first division football stadiums whereby Telecom
Argentina should provide the infrastructure and systems to
enable the AFA to manage the aforementioned project. The
recovery of investments and expenses incurred by Telecom
Argentina and its profit margin would come from charging
AFA with a referring price stated in 20% of the popular ticket
price per each football fan that attend the stadiums during the
term of the agreement, so the recoverability of the Company’s
assets related to the Project depended on AFA implementing
the “AFA Plus Project”.
From 2012 and in compliance with its contractual obligations,
the Company made investments and incurred in expenses
amounting to $179 (of which $140 are included in PP&E as
of December 31, 2015) for the provision and installation of
equipment and the execution of civil works for improving the
football stadiums, registration centers equipment, inventories
and material storage and attend other expenses directly
associated with AFA Plus Project.
For several specific reasons of the Project, the football
environment and the country context, the AFA Plus system
was not implemented by AFA, not even partially. Accordingly,
Telecom Argentina has not been able to begin collecting the
agreed price.
Finally, throughout the agreement, Telecom Argentina
received no compensation from AFA for the services provided
and the work performed. In September 2014, AFA notified
the Company of its decision to terminate the agreement with
Telecom Argentina, modifying the AFA Plus Project, and also
informed that it will assume the payment of the investments
and expenditures incurred by the Company. Accordingly,
negotiations between the parties have started.
In February 2015, AFA made a proposal to compensate
the investments and expenditures incurred by the Company
through advertising exchange exclusively related to the
AFA Plus Project (or the one that replaces this Project in the
future), in the amount of US$ 12.5 million. If the advertising
compensation was not operating in one year, AFA would pay
to Telecom Argentina the mentioned amount. The Company
analyzed the quality of the assets offered by AFA in its offer of
advertising exchange, and rejected the offer as insufficient.
New negotiations were conducted in 2015 to improve the
mentioned offer (requiring a combination of cash payments
and advertising) but a satisfactory agreement was not reached
and negotiations were suspended for AFA internal affairs.
In October 2015, the Company formally demanded that
AFA pay the amounts due ($179.2 plus interest from its
implementation). AFA rejected the claim but agreed to
resume negotiations for a closing agreement which was then
suspended by the AFA electoral process.
In January 2016 both parties have resumed conciliatory
negotiations, while the Company has reserved its right to
exercise legal claims on the amounts due.
As of the date of issuance of these consolidated financial
statements, although negotiations are not finished, both
parties have not reached a satisfactory agreement. The
Company’s Management, with the assistance of its external
advisor, believes it has solid factual and legal arguments
for claiming and is evaluating the actions to follow for the
recovery of the investments and expenses made.
It is worth mentioning that the impairment recorded by
the Company arising from the uncertainties related to the
recoverable value of assets recognized by the AFA Plus
Project (Works in Progress and Materials amounting to $140
as of December 31, 2015) have been only recorded for the
purpose to comply with accounting standards and in no way
involves giving up or limiting the rights given to the Company
as a genuine creditor for the AFA Plus Project agreement.
223
NOTE 18 – COMMITMENTS
(a) PURCHase CoMMITMenTs
The Company has entered into various purchase orders
amounting in the aggregate to approximately $4,771 as of
December 31, 2015 (of which $2,462 corresponds to PP&E
commitments), primarily related to the supply of switching
equipment, external wiring, infrastructure agreements,
inventory and other service agreements. This amount
also includes the commitments mentioned in c) and the
commitments with the related parties described in Note 27
b).
(b) InVesTMenT CoMMITMenTs
In August 2003, Telecom Argentina was notified by the SC
of a proposal for the creation of a $70- fund (the “Complejo
Industrial de las Telecomunicaciones 2003” or “2003
Telecommunications Fund”) to be funded by the major
telecommunication companies and aimed at developing the
telecommunications sector in Argentina. Banco de Inversion
y Comercio Exterior (“BICE”) was designated as Trustee of
the Fund.
In November 2003, the Company contributed $1.5 at the
inception of the Fund. In addition, Management announced
that it is the Company’s intention to promote agreements
with local suppliers which would facilitate their access to
financing.
(C) CoMMITMenTs assUMeD bY TeleCoM aRGenTIna fRoM THe sale of PUblICoM
On March 29, 2007, Telecom Argentina’s Board of
Directors approved the sale of its equity interest in Publicom
(a company engaged in directories’ publishing business)
to Yell Publicidad S.A. (a company incorporated in Spain,
member of the Yell Group- Grupo Yell), which was executed
on April 12, 2007 (the “Closing Date”).
On Closing Date and after the stock transfer was actually
performed, Publicom accepted a proposal from Telecom
Argentina. According to said proposal, Telecom Argentina:
• engages Publicom to publish and print Telecom
Argentina’s directories (“white pages”) for a 5-year
period, which was extended annually;
• engages Publicom to distribute Telecom Argentina’s
white pages for a 20-year period, which may be
extended upon expiry date;
• engages Publicom to maintain the Internet portal, which
allows to access the white pages through the web, for
a 20-year period, term which may be extended upon
expiry date;
• grants Publicom the right to lease advertising spaces on
the white pages for a 20-year period, which may be
extended upon expiry date; and
• authorizes the use of certain trademarks for the
distribution and/or consultation on the Internet and/or
advertising spaces agreements for the same specified
period.
Telecom Argentina reserves the right to supervise certain
matters associated with white pages publishing and
distribution activities that allow Telecom Argentina to assure
the fulfillment of its regulatory obligations during the term
of the proposal. The terms and conditions of the proposal
include usual provisions that allow Telecom Argentina to
apply economic sanctions in the case of non-compliance,
and in the case of serious non-compliance, allow Telecom
Argentina to require an early termination. In the latter case,
the Company could enter into an agreement with other
providers.
The proposal set prices for the publishing, printing and
distribution of the 2007 directories, and provided clauses for
the subsequent editions in order to ensure Telecom Argentina
that said services will be contracted at market price.
Telecom Argentina shall continue to include in its own
invoices the amounts to be paid by its customers to Publicom
for the contracted services or those that may be contracted
in the future, and subsequently collect the amounts for said
services on behalf and to the order of Publicom, without
absorbing any delinquency.
(D) CoMMITMenTs assUMeD bY núCleo
During 2010, the CONATEL awarded Núcleo a public
bidding for the implementation of the expansion of the
infrastructure of networks used as platform for the mobile
telephony access services and the basic service in areas of
public or social interest in Paraguay. The total investment
224
was approximately of $17, of which $12 were subsidized by
CONATEL.
As of the date of these consolidated financial statements,
Núcleo has timely fulfilled its investments obligations and
the total assets and services have been installed and are
satisfactorily functioning. The CONATEL has disbursed
approximately $11 related to this bidding.
Additionally, in August 2011, the CONATEL awarded
Núcleo a new public bidding for the implementation of the
expansion of the infrastructure of networks as a platform
for the mobile telephony access services and the basic
service in the Department of Caaguazú. Núcleo committed
to install and render satisfactorily functioning all the assets
and services covered by the bidding within six months
from the date of signing of the contract, by means of an
approximate investment of $6 of which $5 were subsidized
by the CONATEL. As of the date of these consolidated
financial statements, the work is finished. The CONATEL has
disbursed approximately $4 related to this bidding.
CONATEL’s total differed disbursements as of December 31,
2015 amounted to $15 and were included under “Deferred
revenues” line item, corresponding $5 and $4 to current
and non-current deferred revenues, respectively, having
accrued gains for $6 since fiscal year 2011.
(e) CoMMITMenTs assUMeD fRoM THe aCqUIsITIon of sPeCTRUM bY PeRsonal
The Auction Terms and Conditions convened by SC Resolution
No. 38/14 established high and demanding obligations of
coverage and network deployment, which would require
significant investments in PP&E that were estimated at the
time of submission of Personal´s bid in approximately US$
450 million over the next five years and whose failure could
result in sanctions and adverse effects to Personal.
Some of the obligations included in the Terms and Conditions
are the following:
• Extend the SRMC, STM and PCS coverage in such a way
that it reaches all locations with at least 500 inhabitants
in a time period that would not exceed 60 months.
• Upgrade the network infrastructure in a time period
that would not exceed 60 months, in such a manner
that in all the network locations where mobile Internet
services are offered a minimum of 1 Mbps per user be
guaranteed in the downlink for SRMC, STM and PCS.
• For the SCMA (Annex III of Terms and Conditions)
progressive coverage obligations in the Argentine
Republic territory are established, in five differenced
stages, completed in the 60-month-period with
coverage in locations with more than 500 inhabitants.
For further detail of the obligations involved, see SC Resolution
No. 38/14 and its amendments and supplementary
regulations.
Taking into account that the frequency bands of SC Resolution
No.83/14 had been partially awarded, Personal requested
the SC that all the mentioned deadlines were calculated
from the date on which the frequency band 713-723 Mhz
to 768-778 Mhz were awarded, what would complete Lot
8 award.
As of December 31, 2015, the Company’s management has
invested in expanding coverage and network deployment in
an amount of approximately US$ 95 million. There are also
purchase orders issued related to this improvement for an
amount of approximately US$ 31 million (included in a)
above.
225
(a) CaPITal InfoRMaTIon
The total capital stock of Telecom Argentina amounted to
$984,380,978, represented by an equal number of ordinary
shares, of $1 argentine peso of nominal value and entitled
to one vote per share. The capital stock is fully integrated
and registered with the IGJ.
The Company’s shares are authorized by the CNV, the
Buenos Aires Stock Exchange (the “BCBA”) and the New
York Stock Exchange (the “NYSE”) for public trading. Only
Class “B” shares are traded since Nortel owns all of the
outstanding Class “A” shares; and Class “C” shares are
dedicated to the employee stock ownership program, as
described below.
Telecom Argentina’s breakdown of capital stock as of
December 31, 2015 is as following:
Each ADS represents 5 Class B shares and are traded on the
NYSE under the ticker symbol TEO.
(b) sHaRe oWneRsHIP Plan
In 1992, a Decree from the Argentine government, which
provided for the creation of the Company upon the
privatization of ENTel, established that 10% of the capital
stock then represented by 98,438,098 Class “C” shares was
to be included in the PPP (an employee share ownership
program sponsored by the Argentine government). Pursuant
to the PPP, the Class “C” shares were held by a trustee for the
benefit of former employees of the state-owned company
who remained employed by the Company and who elected
to participate in the plan.
In 1999, Decree No. 1,623/99 of the Argentine government
eliminated the restrictions on some of the Class “C” shares
held by the PPP, although it excluded Class “C” shares of the
Fund of Guarantee and Repurchase subject to an injunction
against their use. In March 2000, the shareholders’
meeting of the Company approved the conversion of up to
unrestricted 52,505,360 Class “C” shares into Class “B”
shares (these shares didn’t belong to the Fund of Guarantee
and Repurchase), most of which was sold in a secondary
public offering in May 2000.
NOTE 19 – EQUITy
Equity includes:
Equity attributable to Telecom Argentina (Controlling Company)
Equity attributable to non-controlling interest (ABC Telecomunicaciones S.A. – Note 1.a)
Total equity (*)
As of December 31,
201517,194
416
17,610
201414,418
351
14,769
(*) Additional information is given in the consolidated statements of changes in equity.
SharesOrdinary shares, $1 argentine peso of
nominal value each
Class "A"
Class "B"
Class "C"
Total
Outstanding shares
502,034,299
466,883,425
241,881
969,159,605
Treasuryshares
-
15,221,373
-
15,221,373
Total capitalstock
502,034,299
482,104,798
241,881
984,380,978
Registered, subscribed and authorized
for public offering
226
The Annual General and Extraordinary Meetings held on
April 27, 2006, approved that the power for the additional
conversion of up to 41,339,464 Class “C” ordinary shares
into the same amount of Class “B” ordinary shares, be
delegated to the Board of Directors. As granted by the
Meetings, the Board transferred the powers to convert
the shares to some of the Board’s members and/or the
Company’s executive officers. As of December 31, 2011,
all the 41,339,464 shares were converted into Class “B”
ordinary shares in eleven tranches.
The remaining 4,593,274 Class “C” shares were affected
by an injunction measure recorded in file "Garcías de Vicchi,
Amerinda y otros c/ Sindicación de Accionistas Clase C
del Programa de Propiedad Participada s/nulidad de acto
jurídico", which was released. The General Ordinary and
Extraordinary and Special Class “C” Shares Meetings held
on December 15, 2011, approved that the power for the
additional conversion of up to 4,593,274 Class “C” shares
into the same amount of Class “B” shares in one or more
tranches, be delegated to the Board of Directors. Of such
amount, 4,351,393 Class "C" shares have already been
converted into Class "B” shares in 9 tranches.
As of the date of issuance of these consolidated financial
statements, 241,881 Class “C” shares are still pending to
be converted into Class “B” shares.
(C) CaPITal MaRkeT aCT - laW no. 26,831
On December 28, 2012 the new Capital Market Law (Law
No. 26,831) was published in the Official Bulletin. This Law
eliminates self-regulation of the capital market; grants new
powers to the CNV and supersedes Law No. 17,811 and
Decree No. 677/01, among other rules. The Law became
effective on January 28, 2013. Since that date, governs the
universal scope of the Statutory Regime of Public Offer of
Mandatory Acquisition, as provided the Law, which states:
"Article 90. – Universal scope. The Statutory Regime of Public
Offer of Mandatory Acquisition regulated in this chapter and
the residual rules of participation regulated in the following
chapter includes all listed companies, even those that,
under the previous regime, have opted to be excluded of its
application."
(D) aCqUIsITIon of TReasURY sHaRes
The Company’s Ordinary Shareholders’ Meeting held on
April 23, 2013, which was adjourned until May 21, 2013,
approved at its second session of deliberations, the creation
of a “Voluntary Reserve for Capital Investments” of $1,200,
granting powers to the Company’s Board of Directors to
decide its total or partial application, and to approve the
methodology, terms and conditions of such investments.
In connection with the above mentioned, on May 22, 2013,
the Board of Directors approved a Company’s Treasury
Shares Acquisition Program in the market in Argentine pesos
(the “Treasury Shares Acquisition Program”) so as to avoid
any possible damages to the Company and its shareholders
derived from fluctuations and unbalances between the
shares’ price and the Company’s solvency, for the following
maximum amount and deadline:
• Maximum amount to be invested: $1,200.
• Deadline for the acquisitions: until April 30, 2014.
According to the offer made on November 7, 2013 by the
Fintech Group for the acquisition of the controlling interest
of the Telecom Italia Group in Telecom Argentina (see Note
27.a to these consolidated financial statements), Telecom
Argentina suspended the acquisition of treasury shares and
its Board of Directors considered appropriate to request the
opinion of the CNV on the applicability of the new provisions
contained in the rules issued by that entity (Title II, Chapter
I, Art.13 and concurring) with respect to the continuation of
the Treasury Shares Acquisition Program.
The CNV did not answer the Company’s request and the
Telecom Argentina’s Board of Directors, at its meeting
held on May 8, 2014, decided to conclude the request
considering that the Treasury Shares Acquisition Program
finished on April 30, 2014, which had been approved by
Telecom Argentina’s Board of Directors Meeting held on
May 22, 2013.
Telecom Argentina’s Board of Directors, at its meeting held
on June 27, 2014, decided to request a new opinion from
the CNV to confirm whether Telecom Argentina is obliged to
refrain from acquiring treasury shares in the market under
Section 13, Chapter I, Title II of the CNV rules (NT 2013).
Pursuant to Section 67 of Law No. 26,831, the Company
must sell its treasury shares within three years of the date of
acquisition. Pursuant to Section 221 of the LGS, the rights
of treasury shares shall be suspended until such shares
are sold, and shall not be taken into account to determine
the quorum or the majority of votes at the Shareholders’
227
NOTE 20 – FINANCIAL INSTRUMENTS
CaTeGoRIes of fInanCIal asseTs anD fInanCIal lIabIlITIes
The following tables set out, for financial assets and liabilities as of December 31, 2015 and 2014, the supplementary
disclosures on financial instruments required by IFRS 7 and the detail of gains and losses established by IFRS 9.
Meetings. No restrictions apply to Retained Earnings as a
result of the creation of a specific reserve for such purposes
named “Voluntary Reserve for Capital Investments”.
As of December 31, 2015 the Company owns 15,221,373
treasury shares, representing 1.55% of its total capital. The
acquisition cost of these shares in the market amounted to
$461.
(e) laW no. 27,181 sTaTeMenT of PUblIC InTeResT In THe PRoTeCTIon of THe aRGenTIne GoVeRnMenT’s eqUITY InTeResT THaT aRe PaRT of THe fGs InVesTMenT PoRTfolIo (sUsTaInabIlITY GUaRanTee fUnD)
On October 6, 2015 Law No. 27,181 was published in the
Official Bulletin. Law No. 27,181:
(i) declares of public interest the protection of the
Argentine government’s equity interest in the investment
portfolio of the Sustainability Guarantee Fund of the
Argentine Pension Integrated System (FGS) and its equity
interests or share holdings in companies in which the
Argentine government is a minority partner or where the
Ministry of Economy and Public Finances holds shares
or equity interest. Transfer of those interests is forbidden
without prior authorization of two-thirds (2/3) of the
National Congress.
(ii) creates the “Agencia Nacional de Participaciones
Estatales en Empresas” (Argentine National Agency for
Government Equity Interests in Companies) (ANPEE),
as a decentralized body within the PEN, that will be
responsible for the implementation of policies and
actions involving the corporate rights of the above-
mentioned equity interests, and for the oversight of the
respective representatives of the Argentine government
or the FGS or body proposed by them in said enterprises
or companies.
(iii) establishes that the management and administration
of the ANPEE will be performed by a Board of Directors
composed of five (5) members including one (1)
President, whose position will be performed by the
Executive Director of the National Administration for
the Social Security (ANSES), the Minister of Economy
and Public Finance, who will hold the position of one
(1) Director; one (1) Director appointed by the PEN
and two (2) Directors proposed by the Bicameral
Standing Committee of Government Equity Interests
in Companies on the proposal of the parliamentary
blocks, corresponding one (1) Director to the majority
or first minority and one (1) Director to the first minority
or second parliamentary minority, accordingly, as
appropriate.
This new law is relevant to the Company because the FGS
has an equity interest in Telecom Argentina (approximately
25% according to its Annual Report as of December 31,
2015).
228
As of December 31, 2015Assets
Cash and cash equivalents (1)
Investments
Trade receivables
Other receivables (2)
TotalLiabilities
Trade payables
Loans
Salaries and social security payables
Other liabilities (2)
Total
Amortized cost
473
561
6,144
344
7,522
9,925
4,900
1,418
59
16,302
accountedthrough profit
or loss
397
1,202
-
454
2,053
-
-
-
-
-
accounted through other comprehensive
Income
-
-
-
12
12
-
-
-
-
-
Total
8701,7636,144
8109,587
9,9254,9001,418
5916,302
Fair value
Fair value
Amortized cost
385
353
4,267
172
5,177
5,982
433
1,172
55
7,642
accountedthrough profit
or loss
440
1
-
-
441
90
-
-
-
90
accounted through other comprehensive
Income
-
-
-
-
-
-
-
-
-
-
Total
825354
4,267172
5,618
6,072433
1,17255
7,732
(1) Includes 256 and 384 as of December 31, 2015 and 2014, respectively, corresponding to Cash and banks, which were measured as financial assets at amortized cost by the Company.(2) Only includes financial assets and liabilities according to the scope of IFRS 7
As of December 31, 2014Assets
Cash and cash equivalents (1)
Investments
Trade receivables
Other receivables (2)
TotalLiabilities
Trade payables
Loans
Salaries and social security payables
Other liabilities (2)
Total
229
Financial assets at amortized cost
Financial liabilities at amortized cost
Financial assets at fair value through profit or loss (a)
Financial liabilities at fair value through profit or loss (b)
Total
Financial assets at amortized cost
Financial liabilities at amortized cost
Financial assets at fair value through profit or loss (a)
Financial liabilities at fair value through profit or loss (b)
Total
Net gain/(loss)
701
(2,499)
861
(23)
(960)
Net gain/(loss)1,335
(968)
166
(139)
394
Of which interest
311
(624)
-
-
(313)
Of which interest
548
(62)
-
-
486
(a) Includes 169 corresponding to other short-term investments, 455 corresponding to NDF and 237 corresponding to Government bonds.(b) Corresponding to NDF.
(a) Includes 124 corresponding to other short-term investments and 42 corresponding to NDF.(b) Corresponding to NDF.
Gains and losses by category – Year 2015
Gains and losses by category – Year 2014
faIR ValUe HIeRaRCHY anD oTHeR DIsClosURes
IFRS 7 establishes a hierarchy of fair value, based on
the information used to measure the financial assets and
liabilities and also establishes different valuation techniques.
According to IFRS 7, valuation techniques used to measure
fair value shall maximize the use of observable inputs.
The measurement at fair value of the financial instruments of
the Group is classified according to the three levels set out
in IFRS 7. The fair value hierarchy introduces three levels of
input:
Level 1: Fair value determined by quoted prices
(unadjusted) in active markets for identical assets or
liabilities.
Level 2: Fair value determined based on inputs other
than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3: Fair value determined by unobservable inputs
where the reporting entity is required to develop its own
assumptions.
Financial assets and liabilities recognized at fair value as
of December 31, 2015 and 2014, their inputs, valuation
techniques and the level of hierarchy are listed below:
other short-term investments: These investments are
included in Cash and cash equivalents. The Group had
other short-term investments amounting to $397 and $440
as of December 31, 2015 and 2014, respectively. The fair
value is based on information obtained from active markets
and corresponds to quoted market prices as of year-end;
therefore its valuation is classified as Level 1.
Government bonds: These bonds are included in
“Investments” in the consolidated statement of financial
position. As of December 31, 2015 the Group acquired
Government bonds in an amount of $1,192. The fair value
was determined using information from active markets,
valuing each bond to its closing year market value, so, its
valuation qualifies as Level 1.
Derivative financial instruments (forward contracts to purchase Us dollars at fixed exchange rates): The fair value of the Telecom Group’s
230
NDF contracts, disclosed below in the chapter “Hedge
Accounting” was determined by information obtained in the
most representative financial institutions in Argentina, the
derivative financial instruments’ valuation was classified as
Level 2.
Tuves Paraguay s.a shares purchase option:
This option is included in “Non-current Investments” in
the consolidated statement of financial position. The fair
value amounted to $9 and was determined using net cash
flows projections and assuming favorable macroeconomic
variables, so, its valuation qualifies as Level 3. Interest rate
used to calculate discounted cash flows is a U.S. dollar rate
of approximately 12.4%.
Changes in expectations and current assumptions could
have a significant impact on projections used to estimate
fair value.
Results generated by the recognition of the Tuves Paraguay
S.A share purchase option amount to $9 as of December
31, 2015 and are disclosed under financial results in the
“Tuves Paraguay S.A share purchase option” line.
During 2015 and 2014 there were no transfers between
Levels of the fair value hierarchy.
According to IFRS 7, it is also required to disclose fair value
information about financial instruments whether or not
recognized at fair value in the balance sheet, for which it is
practicable to estimate fair value. The financial instruments
which are discussed in this section include, among others,
cash and cash equivalents, accounts receivable, accounts
payable and other instruments.
Derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases,
could not be realized in an immediate sale of the instrument.
Also, because of differences in methodologies and
assumptions used to estimate fair value, the Company’s fair
values should not be compared to those of other companies.
The methods and assumptions used to estimate the fair
values of each class of financial instrument falling under the
scope of IFRS 7 as of December 31, 2015 and 2014 are
as follows:
Cash and banks
Carrying amounts approximate its fair value.
Time deposits (included in Cash and cash equivalents and Investments)
The Telecom Group considers as cash and cash equivalents
all short-term and highly liquid investments that are
readily convertible to known amounts of cash, subject to
an insignificant risk of changes in value and their original
maturity or the remaining maturity at the date of purchase
does not exceed 3 months, and those which their original
maturity or remaining maturity at the date of purchase exceed
3 months, as investments. The carrying amount reported in
the statement of financial position approximates fair value.
Investments
Investments in Government bonds and Argentine companies’
notes valued at amortized cost with its fair value at December
31, 2015 and 2014 are as follows:
As of December 31, 2015
As of December 31, 2014
Government bonds (dollar linked)
Provincial government bonds in pesos
Provincial and Municipal government bonds (dollar linked)
Argentine companies notes in pesos
Argentine companies notes (dollar linked)
Total
394
32
135
-
-
561
365
32
118
-
-
515
258
11
56
10
18
353
258
11
51
10
18
348
Book
val
ue
Book
val
ue
Fair
valu
e (*)
Fair
valu
e (*)
Investments
(*) According to IFRS selling costs are not deducted.
231
For the remaining investments the carrying amount
approximates its fair value.
Trade receivables
Carrying amounts are considered to approximate fair value
due to the short term nature of these accounts receivables.
Noncurrent trade receivables have been recognized at their
amortization cost, using the effective interest method and
are not significant. All amounts that are assumed to be
uncollectible within a reasonable period are written off and/
or reserved.
Trade payables (except for NDF)
The carrying amount of accounts payable reported in the
consolidated statement of financial position approximates
its fair value due to the short term nature of these accounts
payable. Noncurrent trade payables have been discounted
and are not significant.
Loans
As of December 31, 2015 loans’ fair value amounts to
$4,882 and its carrying value amounts to $4,900. As of
December 31, 2014, the carrying value of the Company’s
loans approximates its fair value and amounted to $433.
Salaries and social security payables
The carrying amount of Salaries and social security payables
reported in the consolidated statement of financial position
approximates its fair value.
Other receivables, net (except for NDF) and other liabilities
The carrying amount of other receivables, net and other
liabilities reported in the consolidated statement of financial
position approximates its fair value.
HEDGE ACCOuNTING
In November 2013, a new chapter was introduced in IFRS
9 on Hedge Accounting replacing the provisions contained
in IAS 39. This amendment represents a major review of
hedge accounting, introducing significant improvements
over the previous model, basically aligning accounting
and risk management as well as related disclosures. The
Telecom Group believes that a hedging relationship qualifies
for hedge accounting if all of the following conditions
established by the rule are met:
a) The hedging relationship consists only of eligible
hedging instruments and hedged items;
b) At the beginning of the hedge relationship, there
is a formal designation and documentation of the
hedging relationship and objective and strategy for
risk management of the Company for undertaking the
hedge. That documentation shall include identification
of the hedging instrument, the hedged item, the nature
of the risk being hedged and how the entity assesses
whether the hedging relationship meets the requirements
of hedge effectiveness (including analysis of sources of
hedge ineffectiveness and how to determine the hedge
ratio); and
c) The hedging relationship satisfies the following
requirements of hedge effectiveness:
(i) the economic relationship between the
hedged item and the hedging instrument;
(ii) the effect of credit risk is not predominant in respect
of changes of value coming from this economic
relationship, and
(iii) the coverage ratio of the hedging relationship is the
same as that provided by the amount of the hedged
item that really covers the entity and the amount of
the hedging instrument that the entity actually used to
cover that amount of the hedged item.
During 2015
Due to the existence of commitments denominated in US
Dollars as of December 31, 2015, the Telecom Group
entered into several NDF agreements during 2015 to
purchase a total amount of US$189 million. The purpose
of these NDF is to eliminate the risks associated to the
fluctuation of the future exchange rate and to align the
payment currency of Telecom Argentina’s and Personal’s
commitments (hedged item) to its functional currency. As the
effect of the fluctuation of the exchange rate over the hedged
items is recognized in the Income Statement, changes in the
fair value of NDF in 2015 (net income of approximately
$455) have also been recognized in the Income Statement,
within Finance expenses – Exchange Differences. The
Telecom Group recognizes the hedging instruments results,
distinguishing between gains and losses of such agreements
that generate assets and liabilities, as appropriate, without
offsetting balances with different counterparties. As of
December 31, 2015, the Telecom Group has a current
asset amounting to $466 and deferred results amounting
232
to $13 (before income tax) related to the US$165 million
outstanding NDF to such date, which will mature between
January and July 2016
During 1Q15, Personal also realized the remaining NDF
entered as of December 31, 2014 for US$149 million,
recording a net loss of $23 which was recognized in the
Income Statement in 1Q15, within Finance expenses –
Exchange Differences. The purpose of these NDF was also
to eliminate the risks associated to the fluctuation of the
future exchange rate and to align the payment currency of
Personal’s commercial commitments (hedged item) to its
functional currency.
As part of their financial risk management and reduction of
exchange rate risk policies, during 2015 Telecom Argentina
and Personal acquired Government bonds denominated
in U.S. dollars (Bonar X 2017), at a cost of $522, with an
annual interest rate of 7%, also in U.S. dollars. These bonds
were valued at fair value and generated a gain of $77 which
was recognized in “Financial results - Gains on investments”.
During 2014
Due to the existence of commitments denominated in US
Dollars as of December 31, 2014, the Telecom Group
entered into several NDF agreements during 2014 to
purchase a total amount of US$ 282 million (of which
US$ 133 million matured between March and December
2014 and the remaining US$ 149 million matured between
January 2015 and March 2015). The purpose of these NDF
was to eliminate the risks associated to the fluctuation of the
future exchange rate and to align the payment currency of
the commitments (hedged item) to Telecom Argentina and
Personal functional currency. The effect of the fluctuation of
the exchange rate over the hedged debts was recognized in
the Income Statement and also the changes in the fair value
of NDF entered into 2014 (net loss of approximately $97)
within Finance income and expenses – Exchange Differences.
The Group recognizes the NDF results, distinguishing
between gains and losses of such agreements that generate
assets and liabilities, as appropriate, without offsetting
balances with different counterparties. As of December 31,
2014, Personal had a current liability of $90 related to the
US$ 149 million NDF remaining to such date.
In addition, during 2014, Personal entered into NDF for
US$ 8 million maturing in October and November 2014 to
hedge commercial debts for PP&E acquisition, which were
qualified as “effective” cash flow hedges for accounting
purposes.
Also, in order to mitigate the currency risk Personal acquired
in 2014 Government bonds denominated in U.S. dollars.
Foreign exchange differences generated by the purchase
of these Government bonds were recognized in “Foreign
currency exchange losses”.
OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES
In December 2011, the IASB issued amendments to IFRS
7. These changes require the disclosure of information in
order to assess the effects or the potential effects of offsetting
agreements, including offsetting rights associated with the
assets and liabilities recognized in the statement of financial
position. These amendments were effective from January 1,
2013 and should be applied retrospectively.
The information required by the amendment to IFRS 7 as of
December 31, 2015 and 2014 is as follows:
233
As of December 31, 2015
As of December 31, 2014
Current and noncurrent assets (liabilities) - Gross value
Offsetting
Current and noncurrent assets (liabilities) – booked value
Current and noncurrent assets (liabilities) - Gross value
Offsetting
Current and noncurrent assets (liabilities) – booked value
7,832
(1,688)
6,144
5,524
(1,257)
4,267
822
(12)
810
182
(10)
172
(11,613)
1,688
(9,925)
(7,329)
1,257
(6,072)
(71)
12
(59)
(65)
10
(55)
Trad
e re
ceiva
bles
Trad
e re
ceiva
bles
Trad
e pa
yabl
esTr
ade
paya
bles
Oth
er
rece
ivabl
es (1
)O
ther
re
ceiva
bles
(1)
Oth
er
liabi
litie
s (1)
Oth
er
liabi
litie
s (1)
(1) Includes financial assets and financial liabilities according to IFRS 7.
The Telecom Group offsets the financial assets and liabilities
to the extent that such offsetting is provided by offsetting
agreements and provided that the Group has the intention
to make such offsetting, in accordance with requirements
established in IAS 32. The main financial assets and
liabilities offset correspond to transactions with other
national and foreign operators (including interconnection,
CPP and Roaming), being offsetting a standard practice in
the telecommunications industry at the international level
that the Telecom Group applies regularly. Offsetting is also
applied to transactions with agents.
NOTE 21 – REVENUES
The Company discloses its service revenues in three groups by nature: Voice, Data and Internet. At December 31, 2015,
2014 and 2013, the customers by segment and other significant operational information (unaudited) were the following:
Fixed services lines (in thousands)
ADSL subscribers (in thousands)
Personal mobile services customers (in thousands)
Núcleo mobile services customers (in thousands)
Local Measured Service (million of minutes)
International Long distance telephony (million of minutes)
Minutes used – mobile service (in billions)
Equipment and handsets sale – Personal (in thousands)
Equipment and handsets sale – Núcleo (in thousands)
20154,043
1,.814
19,656
2,546
10,789
636
22
2,414
163
20144,093
1,771
19,585
2,481
11,943
818
24
3,215
113
20134,124
1,707
20,088
2,420
12,896
801
22
3,761
106
December 31,
234
Revenues and other income include:
Service revenues by type of service (regardless of the segment which originate them) are:
Services
Voice - Retail
Voice - Wholesale
Internet
Data
Total fixed servicesVoice - Retail
Voice - Wholesale
Internet
Data
Total Personal mobile services
Voice - Retail
Voice - Wholesale
Internet
Data
Total núcleo mobile services Total services revenues (a)
Equipment
Fixed services - excluding network construction contracts
Fixed services - network construction contracts
Mobile services – Personal
Mobiles services – Núcleo
Total equipment revenues (b)Total revenues (a)+(b)
Other income
Fixed services
Mobile services – Personal
Mobile services – Núcleo
Total other income (c)
Total revenues and other income (a)+(b)+(c)
2015
3,304
1,035
4,556
1,780
10,6756,964
1,884
6,254
7,156
22,258561
106
567
313
1,54734,480
61
-
5,796
159
6,01640,496
39
5
-
44
40,540
2014
2,853
929
3,254
1,470
8,5065,330
1,953
3,335
7,666
18,284575
126
456
331
1,48828,278
46
7
4,920
90
5,06333,341
26
21
-
47
33,388
2013
2,656
786
2,521
963
6,9264,773
1,930
2,088
7,212
16,003385
115
270
313
1,08324,012
61
19
3,126
69
3,27527,287
33
24
6
63
27,350
Years ended
December 31,
Voice - Retail
Voice - Wholesale
Total VoiceData
Internet
Total services revenues
%31
9
4027
33
100
%31
11
4233
25
100
%32
12
4436
20
100
201510,829
3,025
13,8549,249
11,377
34,480
20148,758
3,008
11,7669,467
7,045
28,278
20137,817
2,828
10,6458,488
4,879
24,012
Years ended December 31,
235
NOTE 22 – OPERATING EXPENSES
Operating expenses disclosed by nature of expense
amounted to $34,311, $27,945 and $22,832 for the years
ended December 31, 2015, 2014 and 2013, respectively.
The breakdown of Employee benefit expenses and severance
payments, Cost of equipments and handsets, Provisions and
Bad debt expenses are disclosed in Notes 13, 7, 17 and 5,
respectively.
The main components of the remaining operating expenses
are the following:
Interconnection costs and other telecommunication charges
Fixed telephony interconnection costs
Cost of international outbound calls
Lease of circuits and use of public network
Mobile Services - charges for roaming
Mobile Services - charges for TLRD
Fees for services, maintenance, materials and supplies
Maintenance of hardware and software
Technical maintenance
Service connection fees for fixed lines and Internet lines
Service connection fees capitalized as SAC (Note 3.i)
Service connection fees capitalized as Intangible assets (Note 3.i)
Other maintenance costs
Obsolescence of inventories – Mobile Services (Note 7)
Call center fees
Other fees for services
Directors and Supervisory Committee’s fees
Taxes and fees with the Regulatory Authority
Turnover tax
Taxes with the Regulatory Authority
Tax on deposits to and withdrawals from bank accounts
Municipal taxes
Other taxes
Commissions
Agent commissions
Agent commissions capitalized as SAC (Note 3.i)
Distribution of prepaid cards commissions
Collection commissions
Other commissions
Advertising
Media advertising
Fairs and exhibitions
Other advertising costs
2015
(338)
(181)
(336)
(374)
(941)
(2,170)
(328)
(854)
(224)
14
36
(399)
(38)
(1,297)
(793)
(36)
(3,919)
(2,122)
(917)
(403)
(289)
(212)
(3,943)
(2,659)
1,172
(635)
(983)
(88)
(3,193)
(524)
(137)
(153)
(814)
2014
(292)
(191)
(304)
(415)
(872)
(2,074)
(382)
(675)
(205)
7
30
(315)
(81)
(1,141)
(541)
(30)
(3,333)
(1,810)
(729)
(343)
(225)
(190)
(3,297)
(2,061)
913
(582)
(673)
(91)
(2,494)
(431)
(176)
(185)
(792)
2013
(237)
(133)
(208)
(425)
(826)
(1,829)
(337)
(486)
(193)
6
30
(260)
(109)
(763)
(501)
(28)
(2,641)
(1,458)
(637)
(258)
(175)
(161)
(2,689)
(1,641)
551
(593)
(434)
(86)
(2,203)
(370)
(139)
(147)
(656)
Years ended
December 31,
236
Cost of VAS
Cost of mobile value added services
Cost of fixed value added services
Other operating expenses
Transportation, freight and travel expenses
Delivery costs capitalized as SAC
Rental expense
Energy, water and others
International and satellite connectivity
D&ADepreciation of PP&E
Amortization of SAC and service connection costs
Amortization of other intangible assets
Gain on disposal of PP&E and impairment of PP&E
Gain on disposal of PP&E
Impairment of PP&E – AFA project (Note 17.4)
Impairment of PP&E – former work in progress and others
Impairment of PP&E – access PP&E swap
Impairment of PP&E – mobile commercial and ERP systems
2015
(1,218)
(38)
(1,256)
(768)
85
(540)
(429)
(202)
(1,854)
(3,046)
(1,045)
(347)
(4,438)
31
(107)
(53)
(21)
(49)
(199)
2014
(920)
(16)
(936)
(559)
59
(402)
(469)
(147)
(1,518)
(2,389)
(811)
(43)
(3,243)
9
36
(61)
-
-
(16)
2013
(697)
(11)
(708)
(451)
39
(295)
(401)
(136)
(1,244)
(1,983)
(867)
(23)
(2,873)
14
(99)
(23)
-
(65)
(173)
Years ended
December 31,
Years ended
December 31,
Operating expenses, disclosed per function are as follows:
Operating costs
Administration costs
Commercialization costs
Other expenses – provisions
Gain on disposal of PP&E and impairment of PP&E
2015(20,578)
(1,827)
(11,594)
(113)
(199)
(34,311)
2014(17,345)
(1,404)
(9,096)
(84)
(16)
(27,945)
2013(13,700)
(1,072)
(7,617)
(270)
(173)
(22,832)
237
NOTE 23 – OPERATING INCOME
oPeRaTInG leases
Future minimum lease payments from of non cancellable operating lease agreements as of December 31, 2015, 2014 and
2013 are as follows:
Further information is provided in Note 3.j) to these consolidated financial statements.
2013
2014
2015
Less than 1year372
501
436
More than 5 years71
46
31
Total967
1,2721,357
1-5 years524
725
890
Operating income from services and other income
Revenues and other income
Operating expenses
operating income before D&a (a)D&A
Gain on disposal and impairment of PP&E
operating income from services and other income
Operating income (loss) from equipment sales
Revenues
Cost of equipments and handsets
operating income (loss) before D&a from equipment sales (b)
Total operating income
Consolidated operating income
operating income before D&a (a)+(b)D&A
Gain on disposal and impairment of PP&E
Total operating income
2015
34,524(25,079)
9,445(4,438)
(199)4,808
6,016
(4,595)1,421
6,229
10,866(4,438)
(199)6,229
2014
28,325(20,543)
7,782(3,243)
(16)
4,523
5,063
(4,143)
920
5,443
8,702(3,243)
(16)
5,443
2013
24,075(16,675)
7,400(2,873)
(173)
4,354
3,275
(3,111)
164
4,518
7,564(2,873)
(173)
4,518
Years ended
December 31,
238
The breakdown of Operating income by segment is as follows:
Year ended December 31, 2015Services revenues and other income
Third party revenues
Intersegment revenues
Third party operating expenses
Intersegment operating expenses
operating income before D&a from services and other income (1)
Equipments revenues
Third party revenues
Third party operating expenses
operating income (loss) before D&a from equipments revenues (2)
Total operating income before D&a (3)=(1)+(2)
D&A (4)
Gain on disposal of PP&E and impairment of PP&E (5)
operating income (6)=(3)-(4)+(5)
net effect of the intersegment eliminations (7)
net segment contribution to the operating income before D&a (8)=(3)+(7)
net segment contribution to the operating income (9)=(6)+(7)
Fixed services
10,714
1,834
(9,863)
(137)
2,548
61
(82)
(21)2,527
(1,526)
(91)
910
(1,697)
830
(787)
Mobileservices
23,810
137
(15,216)
(1,834)
6,897
5,955
(4,513)
1,4428,339
(2,912)
(108)
5,319
1,697
10,036
7,016
Totalconsolidated
34,524
1,971
(25,079)
(1,971)
9,445
6,016
(4,595)
1,42110,866
(4,438)
(199)
6,229
-
10,866
6,229
239
Year ended December 31, 2014Services revenues and other income
Third party revenues
Intersegment revenues
Third party operating expenses
Intersegment operating expenses
operating income before D&a from services and other income (1)
Equipments revenues
Third party revenues
Third party operating expenses
operating income (loss) before D&a from equipments revenues (2)
Total operating income before D&a (3)=(1)+(2)
D&A (4)
Gain on disposal of PP&E and impairment of PP&E (5)
operating income (6)=(3)-(4)+(5)
net effect of the intersegment eliminations (7)
net segment contribution to the operating income before D&a (8)=(3)+(7)
net segment contribution to the operating income (9)=(6)+(7)
Fixed services
8,532
1,772
(8,056)
(117)
2,131
53
(72)
(19)2,112
(1,230)
9
891
(1,655)
457
(764)
Mobileservices
19,793
117
(12,487)
(1,772)
5,651
5,010
(4,071)
9396,590
(2,013)
(25)
4,552
1,655
8,245
6,207
Totalconsolidated
28,325
1,889
(20,543)
(1,889)
7,782
5,063
(4,143)
9208,702
(3,243)
(16)
5,443
-
8,702
5,443
240
Year ended December 31, 2013Services revenues and other income
Third party revenues
Intersegment revenues
Third party operating expenses
Intersegment operating expenses
operating income before D&a from services and other income (1)
Equipments revenues
Third party revenues
Third party operating expenses
operating income before D&a from equipments revenues (2)
Total operating income before D&a (3)=(1)+(2)
D&A (4)
Gain on disposal of PP&E and impairment of PP&E (5)
operating income (6)=(3)-(4)+(5)
net effect of the intersegment eliminations (7)
net segment contribution to the operating income before D&a (8)=(3)+(7)
net segment contribution to the operating income (9)=(6)+(7)
Fixed services
6,959
1,258
(6,352)
(124)
1,741
80
(74)
61,747
(1,019)
(106)
622
(1,134)
613
(512)
Mobileservices
17,116
124
(10,323)
(1,258)
5,659
3,195
(3,037)
1585,817
(1,854)
(67)
3,896
1,134
6,951
5,030
Totalconsolidated
24,075
1,382
(16,675)
(1,382)
7,400
3,275
(3,111)
1647,564
(2,873)
(173)
4,518
-
7,564
4,518
241
NOTE 25 – EARNINGS PER SHARE
The Company computes net income per common share
by dividing net income for the year attributable to Telecom
Argentina (Controlling Company) by the weighted average
number of common shares outstanding during the year.
Diluted net income per share is computed by dividing the
net income for the year by the weighted average number
of common and dilutive potential common shares then
outstanding during the year. Since the Company has no
dilutive potential common stock outstanding, there are no
dilutive earnings per share amounts.
For financial years ended December 31, 2015, 2014
and 2013 the weighted average number of shares
outstanding amounted to 969,159,605, 969,159,605 and
978,939,079, respectively, due to the changes caused by
the Treasury Shares Acquisition Process that began in May
2013, as described in Note 19.d) to these consolidated
financial statements.
NOTE 24 – FINANCE INCOME AND EXPENSES
Interest on cash equivalents
Gains on investments (Argentine companies notes and Governments bonds)
Interest on receivables
Gains on other short-term investments
Foreign currency exchange gains
Interest on related parties (Note 27.b)
TUVES share purchase option
Other
Total finance incomeInterest on loans – Núcleo and Personal
Interest on salaries and social security payable, other taxes payables and accounts payable
Interest on provisions (Note 17)
Loss on discounting of salaries and social security payables, other taxes payable and other liabilities
Foreign currency exchange losses (*) (**)
Interest on pension benefits (Note 16)
Other
Total finance expensesTotal finance income, net
201520
432
183
169
316
-
9
1
1,130(566)
(26)
(137)
(9)
(1,456)
(28)
(10)
(2,232)(1,102)
2014279
165
161
124
728
-
-
2
1,459(30)
(27)
(118)
(5)
(1,003)
(23)
-
(1,206)253
2013614
39
124
85
489
5
-
5
1,361(17)
(19)
(75)
(8)
(713)
-
(1)
(833)528
Years ended
December 31,
(*) Includes 432, (97) and 55 of foreign currency exchange gains (losses), net generated by NDF for the years ended on December 31, 2015, 2014 and 2013, respectively.(**) Includes (1), (228) and (151) of exchange differences generated by Government bonds for the years ended as of December 31, 2015, 2014 and 2013, respectively.
242
NOTE 26 – FINANCIAL RISk MANAGEMENT
fInanCIal RIsk faCToRs
Telecom Group is exposed to the following financial risks in
the ordinary course of its business operations:
• market risk: stemming from changes in exchange rates
and interest rates in connection with financial assets that
have been originated and financial liabilities that have
been assumed.
• credit risk: representing the risk of the non-fulfillment
of the obligations undertaken by the counterpart with
regard to the liquidity investments of the Group;
• liquidity risk: connected with the need to meet short-
term financial commitments.
These financial risks are managed by:
• the definition of guidelines for directing operations;
• the activity of the Board of Directors and Management
which monitors the level of exposure to market risks
consistently with prefixed general objectives;
• the identification of the most suitable financial
instruments, including derivatives, to reach prefixed
objectives;
• the monitoring of the results achieved;
• the exclusion of the use of financial instruments for
speculative purposes.
The policies to manage and the sensitivity analyses of the
above financial risks by Telecom Group are described below.
Market risk
The main Telecom Group’s market risks are its exposure to
changes in foreign currency exchange rates in the markets
in which it operates principally Argentina and Paraguay. As
regards to changes in interest rates, as of December 31,
2015 the Telecom Group has mainly outstanding floating
rate borrowings (see Note 12).
Foreign currency risk is the risk that the future fair values
or cash flows of a financial instrument may fluctuate due
to exchange rate changes. Telecom Group’s exposure to
exchange variation risks is related mainly to its operating
activities (when income, expenses and investments are
denominated in a currency other than the Telecom Group’s
functional currency).
The financial risk management policies of the Group are
directed towards diversifying market risks by the acquisition of
goods and services in the functional currency and minimizing
interest rate exposure by an appropriate diversification of
the portfolio. This may also be achieved by using carefully
selected derivative financial instruments to mitigate long-
term positions in foreign currency and/or adjustable by
variable interest rates.
As of December 31, 2015 and 2014, Telecom Argentina has
no financial debt outstanding during the fiscal years ended
in those dates and to their closing dates. However, Telecom
Argentina, Personal and Núcleo have part of its commercial
debt nominated in USD and euros. Additionally, Personal’s
and Núcleo’s bank overdrafts and Personal’s Notes are
denominated its functional currency (argentine pesos and
guaranties, respectively) and accrued interests at variable
rates, while Personal’s financial debt is denominated in US$
at variable rates and Núcleo’s financial debt is denominated
in guaraníes (its functional currency) and accrued interests
at fixed rates.
Additionally, the Telecom Group has cash and cash
equivalents and investments denominated in US$ and euros
(approximately 89% of these items) that are also sensitive
to changes in peso/dollar exchange rates and contribute to
reduce the exposure to trade payables in foreign currency.
On the other hand the Telecom Group holds investments
adjustable to the variation of the US$/$ exchange rate
(dollar linked), and other short-term investments whose
main underlying asset is also dollar linked. They are also
sensitive to variations in exchange rates and contribute to
reduce the exposure of the commercial commitments in
foreign currency. Dollar linked investments and dollar linked
other short-term investments represent approximately 54% of
total cash and cash equivalent and investments of Telecom
Group as of December 31, 2015.
The following table shows a breakdown of Telecom
Argentina’s net assessed financial position exposure to
currency risk as of December 31, 2015 and 2014:
243
In order to partially reduce this net liability position in foreign
currency, the Telecom Group, as of December 31, 2015,
hold investments adjustable to the variation of the US$/$
exchange rate (dollar linked) by $1,105 and other short-term
investments whose main underlying asset are financial assets
dollar linked for a total amount of $314. According to this,
the Telecom Group’s net liability position in foreign currency
amounts to $4,644 as of December 31, 2015, equivalent
to approximately US$ 357 million. Additionally, the Group
entered into several NDF contracts as of December 31,
2015 amounting to US$ 165 million, so, the portion of the
net liability position in foreign currency not covered by these
instruments amounted to US$ 192 million as of December
31, 2015.
(i) US$ = United States dollar; G= Guaraníes; SDR= Special Drawing Rights.(ii) As foreign currency figures and their amount in argentine pesos are in millions, the calculation of the amount of the foreign currency by its exchange rate could not be exact.(iii) Includes 616 corresponding to Government bonds at fair value (equivalent to US$ 46 million).
(i) US$ = United States dollar; G= Guaraníes; SDR= Special Drawing Rights.(ii) As foreign currency figures and their amount in argentine pesos are in millions, the calculation of the amount of the foreign currency by its exchange rate could not be exact.
Assets
US$
G
EURO
Total assetsLiabilities
US$
G
EURO
Total liabilitiesnet liabilities
Assets
US$
G
EURO
Total assetsLiabilities
US$
G
EURO
SRD
Total liabilitiesnet liabilities
102
234,194
4
(538)
(348,051)
(14)
67
141,182
1
(436)
(276,621)
(9)
(1)
Exchangerate
12.940
0.002
14.068
13.040
0.002
14.210
Exchangerate
8.451
0.002
10.265
8.551
0.002
10.407
12.240
Amount in local currency (ii)
(iii)1,340
520
54
1,914
(7,015)
(771)
(191)
(7,977)(6,063)
Amount in local currency (ii)
567
256
13
836
(3,725)
(503)
(97)
(8)
(4,333)(3,497)
12.31.15
12.31.14
Amount of foreigncurrency (i)
Amount of foreigncurrency (i)
244
In order to partially reduce this net liability position in foreign
currency, the Telecom Group, as of December 31, 2014,
hold investments adjustable to the variation of the US$/$
exchange rate (dollar linked) by $332 and other short-term
investments whose main underlying asset are financial assets
dollar linked for a total amount of $359. According to this,
the Telecom Group’s net liability position in foreign currency
amounted to $2,806 as of December 31, 2014, equivalent
to approximately US$ 328 million. Additionally, the Group
entered into several NDF contracts as of December 31,
2015 amounting to US$ 149 million, so, the portion of the
net liability position in foreign currency not covered by these
instruments amounted to US$ 179 million as of December
31, 2014.
The exposure to the various market risks can be measured
by sensitivity analyses, as set forth in IFRS 7. These analyses
illustrate the effects produced by a given and assumed change
in the levels of the relevant variables in the various markets
(exchange rates, interest rates and prices) on finance income
and expenses and, at times, directly on Other comprehensive
income. A description on the sensitivity analysis of exchange
rate and interest rate risks is given below:
Exchange rate risk – Sensitivity analysis
Based on the composition of the consolidated statement of
financial position as of December 31, 2015, which is a net
liability position in foreign currency of $6,063 equivalent to
US$465 million, Management estimates that every variation
in the exchange rate of $0.10 peso against the U.S. dollar
and proportional variations for Euros and guaraníes against
the Argentine peso, plus or minus, would result in a variation
of approximately $47 of the consolidated amounts of foreign
currency position.
If we consider only the portion not covered by derivative
financial instruments and other assets adjusted by the
variation of the U.S. dollar, the net liability position totaled
$2,508 equivalent to US$ 192 million, and a variation of
the exchange rate of $ 0.10 as described in the previous
paragraph, would generate a variation of $19 in the
consolidated financial position in foreign currency.
This analysis is based on the assumption that this variation
of the Argentine peso occurred at the same time against all
other currencies.
This sensitivity analysis provides only a limited, point-in-time
view of the market risk sensitivity of certain of the financial
instruments. The actual impact of market foreign exchange
rate changes on the financial instruments may differ
significantly from the impact shown in the sensitivity analysis.
Interest rate risk – Sensitivity analysis
Within its structure of financial debt, Personal has bank
overdrafts denominated in argentine pesos accruing interest
at rates that are reset at maturity, notes that bear at interest
at a mixed rate (fixed rate and floating rate) and a foreign
bank loan denominated in U.S. dollar that bears interest at
a floating rate.
Management believes that any variation of 10 bps in the
agreed interest rates would become in the following results:
Financial debtBank overdrafts
Notes
Bank loan
Amount (in millions)$ 3,146
$ 720
US$ 40
Effect (in millions)3.1
0.7
0.5
245
This analysis is based on the assumption that this change
in interest rates occurs at the same time and for the same
periods.
This sensitivity analysis provides only a limited point of view of
the sensitivity to market risk of certain financial instruments.
The actual impact of changes in interest rates of financial
instruments may differ significantly from this estimate.
Credit risk
Credit risk represents Telecom Group’s exposure to possible
losses arising from the failure of commercial or financial
counterparts to fulfill their assumed obligations. Such risk
stems principally from economic and financial factors, or
from the possibility that a default situation of a counterpart
could arise or from factors more strictly technical, commercial
or administrative.
Credit risk arises from cash and cash equivalents, deposits
with banks and financial institutions, as well as credit
exposures to customers, including outstanding receivables
and committed transactions.
Telecom Group’s maximum theoretical exposure to credit risk
is represented by the carrying amount of the financial assets
and trade receivables, net recorded in the consolidated
statement of financial position.
The accruals to the allowance for doubtful accounts are
recorded: (i) for an exact amount on credit positions that
present an element of individual risk (bankruptcy, customers
under legal proceedings with the Company); (ii) on credit
positions that do not present such characteristics, by
customer segment considering the aging of the accounts
receivable balances, customer creditworthiness and changes
in the customer payment terms. Total overdue balances not
covered by the allowance for doubtful accounts amount to
$1,301 as of December 31, 2015 ($938 as of December
31, 2014).
Regarding the credit risk relating to the asset included in
the “Net financial debt or asset”, it should be noted that
the Telecom Group evaluates the outstanding credit of the
counterparty and the levels of investment, based, among
others, on their credit rating and the equity size of the
counterparty. Deposits are made with leading high-credit-
quality banking and financial institutions and generally for
periods of less than three months.
The Telecom Group serves a wide range of customers,
including residential customers, businesses and governmental
agencies. As such, the Telecom Group’s account receivables
are not subject to significant concentration of credit risk.
In order to minimize credit risk, the Group also pursues
a diversification policy for its investments of liquidity and
allocation of its credit positions among different first-class
financial entities. Consequently, there are no significant
positions with any one single counterpart.
Liquidity risk
Liquidity risk represents the risk that the Telecom Group has
no funds to accomplish its obligations of any nature (labor,
commercial, fiscal and financial, among others).
The Group’s working capital breakdown and its main
variations are disclosed below:
Date dueTotal due
Total not due
Total as of December 31, 2015
Banks and cash
equivalents-
870
870
Trade receivables,
net1,301
4,843
6,144
Investments-
1,763
1,763
Other receivables,
net-
810
810
Total1,301
8,286
9,587
246
Trade receivables
Other receivables
Inventories
Current liabilities (not considering financial debt)
operative working capital - negativeOver revenues
Cash and cash equivalents
Investments
Current financial debt
net Current financial debt
negative operating working capital (current assets – current liabilities)liquidity rate
20155,663
1,336
2,193
(13,463)
(4,271)(10.5)%
870
1,430
(3,451)
(1,151)
(5,422)0.68
20144,124
670
721
(8,918)
(3,403)(10.2)%
825
53
(179)
699
(2,704)0.70
Variation1,539
666
1,472
(4,545)
(868)
45
1,377
(3,272)
(1,850)
(2,718)(0.02)
The Telecom Group has a typical working capital structure
corresponding to a company with intensive capital that
obtains spontaneous financing from its suppliers (especially
PP&E) for longer terms than those it provides to its customers.
According to this, the negative operating working capital
amounted to $4,271 as of December 31, 2015 (increasing
$868 vs. December 31, 2014) but continued positioning
at similar levels (10.5% of consolidated revenues as of
December 31, 2015). The principal change is related to
the commercial debt to acquire PP&E that increased by
approximately $3,058. The mentioned increase is mainly
related to the Personal’s investment plan for 4G (LTE)
deployment. The debt increase was partially offset by higher
financing provided to subscribers to acquire handsets and
the increase in handsets’ quantity and prices, among other
reasons.
The investments made to acquire mobile spectrum totaled
$5,786 (Note 2.h) and were financed with current and non-
current loans, turning the Group's net financial asset into a
net financial debt. The current Group’s net financial debt
as of December 31, 2015 amounted to $1,151 (higher
financial debt of $1,850, where is worth mentioning the bank
overdrafts at very reasonable rates, net of higher investments
in Government bonds in foreign currency). During 2015
the Telecom Group returned to demand funds to the
financial market in Argentina, what has allowed financing
the Group’s growth in PP&E and intangible assets at very
reasonable rates. The Group has an excellent credit rating
(Personal’s notes have been qualified “AA+(arg)” by FIX
SCR S.A) related to the Group’s operating cash flow record
and low leverage (net financial debt ratio over company
market value amounts only 5%). This change in the Group’s
financial structure has been prudently managed in what
relates to foreign exchange risk, as disclosed in Market Risk
section, and without neglecting the Group’s shareholders
compensation, who received cash dividends amounting
to $804 in 2015. All the above mentioned generates that
the total working capital (current assets - current liabilities)
amounted to a net debt of $5,422 as of December 31,
2015, resulting from an increase in negative operating
working capital and an increase in current net financial debt
amounting to $868 and $1,850, respectively.
Despite these increases in absolute terms, consolidated
liquidity ratio (current assets / current liabilities) remained at
previous year’s similar levels, amounting to 0.68.
The Group has several financing sources and several offers
from first-class international institutions to diversify its current
short-term funding structure, which includes accessing to
domestic and international capital market and obtaining
competitive bank loans in what relates to terms and financial
costs.
The low financial debt of the Group makes possible to
obtain financial resources for longer terms at a reasonable
cost. The Group’s management evaluates the national and
international macroeconomic context to take advantage of
market opportunities that allows it preserving its financial
health for the benefit of its investors.
The Telecom Group manages its cash and cash equivalents
and its financial assets, matching the term of investments with
those of its obligations. The average term of its investments
should not exceed the average term of its obligations. Cash
247
and cash equivalents position is invested in highly-liquid
short-term instruments through first-class financial entities.
The Telecom Group maintains a liquidity policy that results
into a significant volume of available cash through its normal
course of business as it is shown in the consolidated statement
of cash flows. The Telecom Group has consolidated cash
and cash equivalents amounting to $870 (equivalent to
US$ 67 million) as of December 31, 2015 (in 2014, $825,
equivalent to US$ 98 million).
The table below contains a breakdown of financial liabilities
into relevant maturity groups based on the remaining period
at the date of the consolidated statement of financial position
to the contractual maturity date. The amounts disclosed in
the table are the contractual undiscounted cash flows.
Capital management
The primary objective of the Group’s capital management is
to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximize
shareholder value.
The Group manages its capital structure and makes
adjustments considering the business evolution and changes
in economic conditions.
To maintain or adjust the capital structure, the Group may
adjust the dividend payment to shareholders and the level of
indebtedness.
No changes were made in the objectives, policies or
processes for managing capital during the years ended
December 31, 2015 and 2014.
The Telecom Group does not have to comply with regulatory
capital adequacy requirements.
Maturity DateDue
January 2016 thru December 2016
January 2017 thru December 2017
January 2018 thru December 2018
January 2019 and thereafter
Trade payables
(*)1,051
8,833
38
8
6
9,936
Salaries and socialsecurity payables
-
1,261
90
32
35
1,418
Debt-
3,698
1,959
459
-
6,116
Other liabilities
-
53
6
-
-
59
Total1,051
13,845
2,093
499
41
17,529(*) As of the date of issuance of these consolidated financial statements, $506 were paid.
NOTE 27 –RELATED PARTy BALANCES AND TRANSACTIONS
(a) ConTRollInG GRoUP
Nortel, residing in A. Moreau de Justo 50 - 11th floor –
Ciudad Autónoma de Buenos Aires, holds 54.74% stake
in the Company, meaning that exercises control of the
Company in the terms of Art. 33 of Law No. 19,550. As
of December 31, 2015, Nortel owns all of the Class "A"
Preferred shares (51% of total shares of the Company) and
7.64% of the Class "B" Preferred shares (3.74% of total
shares of the Company).
As a result of the Company’s Treasury Shares Acquisition
Process described in Note 19.d), Nortel’s equity interest in
Telecom Argentina amounts to 55.60% of the outstanding
shares. Pursuant to Section 221 of the LGS, the rights of
treasury shares shall be suspended until such shares are sold,
and shall not be taken into account to determine the quorum
or the majority of votes at the Shareholders’ Meetings.
All of the common shares of Nortel belong to Sofora. As of
December 31, 2015 these shares represent 78.38% of the
capital stock of Nortel.
During 2011, Telecom Italia International N.V. acquired
248
8% of all Nortel Preferred Class “B” Shares and Telecom
Argentina Class “B” shares, representing 1.58 % of Telecom
Argentina’s capital stock, through Tierra Argentea S.A.
(Tierra Argentea), its controlled company incorporated in
Argentina.
On November 14, 2013, Telecom Italia S.p.A y Telecom
Italia International N.V. (jointly, the “Sellers”) and Tierra
Argentea (a company controlled by the Sellers) announced
the acceptance of an offer by the Fintech Group to acquire
the controlling stake held by the Telecom Italia Group in
Telecom Argentina, owned by the Sellers, through its
subsidiaries Sofora, Nortel and Tierra Argentea. Closing of
the transfer of the Telecom Italia Group’s shares in Sofora
was subject to the prior obtaining of certain regulatory
authorizations therefore required.
On December 10, 2013, Tierra Argentea transferred to
the Fintech Group Telecom Argentina’s Class B shares
representing 1.58% of its capital stock and Nortel’s ADRs
representing 8% of the total Nortel’s Preferred Class “B”
Shares.
On October 25, 2014, Telecom Italia S.p.A. announced
the acceptance of an offer by the Fintech Group to amend
and restate the agreement announced on November 14,
2013. Within the frame of this amendment agreement:
1) on October 29, 2014 Telecom Italia International N.V.
agreed the transfer of 17% of the capital stock of Sofora to
the Fintech Group; 2) it was confirmed that the transfer of
the 51% controlling interest in Sofora is subject to the prior
regulatory approval of the SC (or the regulatory authority
that replaces it) and closing of the transaction will not occur
until such approval is obtained. It is expected that the transfer
of such controlling interest will take place within the next two
and one-half years.
It was informed that the majority of the members of Sofora’s
Board of Directors will continue to be appointed by the
Telecom Italia Group until the regulatory authorizations
in Argentina are obtained and the transfer of the 51%
controlling interest in Sofora is completed. No material
changes in Sofora and its subsidiaries’ corporate governance
are expected.
It was also informed that: “if the sale of 51% of Sofora to
Fintech is not completed within two and one-half years,
Telecom Italia may then elect to either (i) terminate the
agreement with Fintech and receive a six-month call option to
purchase (or designate a Telecom Italia Group company to
purchase) the 17% minority interest in Sofora previously sold
to Fintech pursuant to an agreed formulation or (ii) pursue a
sale of its 51% controlling interest in Sofora to a third party
purchaser, subject to applicable regulatory approval and as
to which Fintech has agreed to guarantee that Telecom Italia
will receive an overall amount of at least US$ 630.6 million.
After such third party sale is consummated, if the overall
amount received in connection with such approved sale
exceeds the purchase price amount guaranteed by Fintech,
any excess will be allocated between the parties according to
an agreed formula.
If it was not possible for Telecom Italia to sell to a third party
within a period of two and one-half years, the agreement
with Fintech will be terminated, Fintech will pay to Telecom
Italia an amount of US$ 175 million and Telecom Italia will
have an option to purchase (or designate a Telecom Italia
Group company to purchase) within a period of sixth months
the 17% minority interest in Sofora previously transferred to
Fintech, pursuant to a formula agreed by the parties.”
More information about the operation celebrated between
the Telecom Italia Group and the Fintech Group is available
in “Relevant Facts” section of the CNV at www.cnv.gob.ar,
and in “Company filings search” section (Telecom Italia
S.p.A and Telecom Argentina) of the SEC in www.sec.gov.
As of the date of issuance of these consolidated financial
statements, Sofora’s shares belong to Telecom Italia S.p.A.
(32.5%), Telecom Italia International N.V. (18.5%); W de
Argentina - Inversiones S.A. (32%) and Fintech Telecom LLC
(17%). According to its indirect equity interest, the economic
rights of Telecom Italia Group in Telecom Argentina
amounted to 14.5% as of December 31, 2015.
On October 16, 2015 Resolution No. 491/15 of the Federal
Authority of Information Technology and Communications
("AFTIC") was published in the Official Bulletin. This body
has absorbed, among others, the duties of the SC. Through
the mentioned Resolution, the authorization to transfer to
Fintech the controlling interest of Telecom Italia in Sofora
Telecomunicaciones S.A. was denied. The Resolution is
available in www.boletinoficial.gob.ar.
It should be noted that, in 2010, the SC issued Resolution No.
136/10 whereby, at the Company’s request, the Operator
figure included in the List of Conditions for the privatization
of Entel approved by Decree No. 62/90, as amended, is
annulled. The grounds for this SC Resolution 136/10 states
that “as the exclusivity period ended and after twenty years
249
of service provision by Telecom Argentina, the experience
is deemed to have been acquired by the licensee and is
not imperative at present the maintenance of such figure”.
Article 3 of the Resolution disposals provides: “Rescind the
Operator figure included in the List of Conditions, Decree
No. 62/90, as amended, regarding Telecom Argentina S.A."
Accordingly, the Company has been developing its activities
since 2010 based on this regulatory framework in force.
As informed by Telecom Italia S.p.A, Fintech refused the
AFTIC Resolution No. 491/15.
Telecom Argentina also refused the AFTIC Resolution No.
491/15 related to its rights as licensee.
On February 17, 2016 Telecom Argentina was notified of
ENACOM Resolution No.64/16, which partially considered
the appeal filed by the Company and other companies
against the AFTIC Resolution No.491/15, and provides to
continue the analysis of the transfer transaction of Sofora’s
stake interest hold by Telecom Italia in accordance with
current regulations, particularly article 13 of Law No.27,078
(LAD), as amended by Decree No.267/15.
On February 24, 2016 the Company was notified of
the Mandatory Acquisition Public Offer (“OPA”), which
implicates change of control, promoted and formulated by
Fintech Telecom LLC related to all Class “B shares issued
by Telecom Argentina that are listed in Mercado de Valores
de Buenos Aires S.A. The OPA background and purpose,
price, timing and terms of acceptance and the detail of the
facts that condition its performance are described in the OPA
notice published in the newspaper "El Cronista Comercial"
on February 24, 2016 in its page No.5.Additional
information is available in “Relevant Facts” section of the
CNV at www.cnv.gob.ar, and in “Company filings search”
section (Telecom Italia S.p.A and Telecom Argentina) of the
SEC in www.sec.gov.
Demerger of Telco S.p.A. and Telefónica, S.A. (of Spain) indirect stake
Telefónica, S.A. (of Spain) has reported that, having
obtained the approval of CADE (the Brazilian antitrust
authority), ANATEL (Brazilian regulatory authority); CNDC
(Argentinean antitrust authority) and Istituto per la Vigilanza
sulle Assicurazioni IVASS (Italian insurance regulatory
authority), the demerger of Telco S.p.A. has been formalized
and its shareholders have assumed, through its subsidiaries,
the direct stakes in Telecom Italia S.p.A. The Telco S.p.A.
Shareholders' Agreement has also become ineffective.
Regarding the Telefónica, S.A. (of Spain) stake, on June 24,
2015 such company informed to the CNV and the BCBA the
"divesting of its entire stake in Telecom Italia S.p.A.".
“Telco” and “TI-W” Commitments
In Telecom Argentina’s 2014 Annual Report, Note B.4.2, a
reference was made to the commitment accepted through
Resolution No. 148/10 of the Secretariat of Economic Policy
(“Telco Commitment”) and the commitment accepted through
Resolution No. 149/10 of the Secretariat of Economic Policy
(“TI-W Commitment”) (the “Telco Commitment” and the
“TI-W Commitment”, together, the “Commitments”), both
presented through the CNDC with the purpose of ensuring
the segregation and independence between the activities in
the Argentine market of (a) Telefónica, S.A (of Spain) and its
subsidiaries, on one side and (b) the Telecom Italia Group,
certain subsidiaries of Telecom Italia and the Telecom Group,
on the other side, aimed to preserve and encourage the level
of competition of their activities in the Argentine market.
On June 24, 2015 Telefónica, S.A. (of Spain) informed to
the CNV and the BCBA the "divesting of its entire stake in
Telecom Italia S.p.A".
According to the provisions of Clause 9.2 from the Telco
Commitment and to Clause 3 of the TI-W Commitment, the
mentioned Telefónica, S.A. (of Spain) divestment and the end
of the validity of the Telco S.p.A Shareholders’ Agreement
also represents the end of the validity of the Commitments.
For that reason, on July 6, 2015, Telecom Italia S.p.A.
submitted a note to the CNDC informing that the end of
the validity of the Commitments had been configured,
according to that contemplated in Clause 9.2 from the Telco
Commitment and Clause 3 of the TI-W Commitment.
On July 7, 2015, the Chairmen of the Board of Directors
of Telecom Argentina and Personal submitted a note to
the CNDC adhering to the presentation made by Telecom
Italia S.p.A. and requiring the extinction of the validity of
the Commitments for the same reasons exposed by Telecom
Italia S.p.A on its note.
As of the date of issuance of these consolidated financial
statements, the CNDC has not expressed its opinion about
this matter.
250
(b) balanCes anD TRansaCTIons WITH RelaTeD PaRTIes
Related parties (as described in IAS 24) are those legal
entities or individuals which are related to the entity that is
preparing its financial statements. Related party transactions
and balances are disclosed in an entity’s financial statements.
The transactions between the companies controlled by
Telecom Argentina (Telecom USA, Micro Sistemas, Personal,
Núcleo and Springville) are eliminated in the preparation of
the consolidated financial statements of the Group.
Under IAS 24, Telefónica, S.A. (of Spain) and its controlled
companies, including Telefónica and Telefónica Móviles de
Argentina S.A. are not considered related parties. As of the
date of these consolidated financial statements, such situation
has been confirmed by the commitments assumed before the
CNDC to ensure the separation and independence between
the Telecom Italia Group and the Telecom Group, on one
hand, and Telefónica S.A. (of Spain) and its controlled
companies, on the other, with respect to their activities in the
Argentine telecommunications market, such as it has been
corroborated by the applicable authorities.
The Telecom Group has transactions in the normal course of
business with certain related parties. For the years presented,
the Company has not conducted any transactions with
executive officers and/or persons related to them.
The following is a summary of the balances and transactions
with related parties as of December 31, 2015 and 2014
and for the years ended December 31, 2015, 2014 and
2013, respectively:
251
As of December 31,
2015
2
2
13
1
3
-
1
18
36
3
-
39
-
160
53
28
27
3
2
2
46
12
10
1
5
349
Type of relatedparty
Other related party
Other related party
Other related party
Parent company
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Parent company
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
2014
-
-
5
3
1
1
-
10
52
46
3
101
36
61
11
16
13
2
-
-
57
8
-
-
-
168
(a) Such companies relate to ABC Telecommunications Group of Paraguay.(b) Such companies relate to Telecom Italia Group.(c) Until March 30, 2015 this company related both to Telecom Italia Group and W de Argentina - Inversiones S.A. Since March 31, 2015 it relates to Telecom Italia Group.(d) Until March 30, 2015 this company related both to Telecom Italia Group and W de Argentina - Inversiones S.A. Since March 31, 2015 it relates to W de Argentina - Inversiones S.A.(e) Corresponds to an agreement of lease-mode IP international capacity until December 2016. Telecom Argentina paid approximately $267.6 on February 2013 for this agreement.(f) Until September 9, 2015 this company was La Caja Aseguradora de Riesgos del Trabajo ART S.A.(g) Such companies relate to Telecom Italia Group since November 1, 2015.(h) Such companies relate to W de Argentina – Inversiones S.A.(i) Such companies relate to a Board of Directors member appointed by W de Argentina – Inversiones S.A.
CuRRENT ASSETS
Cash and cash equivalents
Banco Atlas S.A.(a)
Total cash and cash equivalentsTrade receivables
TIM Participacoes S.A. (b)
Latin American Nautilus Argentina S.A. (b)
Telecom Italia S.p.A. (b)
Telecom Italia Sparkle S.p.A. (b)
Experta Aseguradora de Riesgos del Trabajo ART S.A. (d) (f)
Total trade receivables, netOther receivables
Latin American Nautilus Ltd. (b) (e)
Caja de Seguros S.A. (c)
Telteco S.A. (i)
Total other receivables, netNON CuRRENT ASSETS
Other receivables
Latin American Nautilus Ltd. (e)
CuRRENT LIABILITIES
Trade payables
Italtel Group (b)
Latin American Nautilus Ltd. (b)
Telecom Italia S.p.A. (b)
Telecom Italia Sparkle S.p.A. (b)
Latin American Nautilus USA Inc. (b)
Latin American Nautilus Argentina S.A. (b)
TIM Participacoes S.A. (b)
Caja de Seguros S.A. (c)
Experta Aseguradora de Riesgos del Trabajo ART S.A. (d) (f)
Universal Music Argentina S.A. (g)
Haras El Capricho S.A. (h)
Telteco S.A. (i)
Total trade payables
252
Services rendered
Editorial Azeta S.A. (a)
Banco Atlas S.A. (a)
Telecom Italia Sparkle S.p.A. (b)
TIM Participacoes S.A. (b)
Latin American Nautilus
Argentina S.A. (b)
Telecom Italia S.p.A. (b)
Caja de Seguros S.A. (c)
Total services rendered
Services received
Editorial Azeta S.A. (a)
Latin American Nautilus Ltd. (b)
Grupo Italtel (b)
Telecom Italia Sparkle S.p.A. (b)
TIM Participacoes S.A. (b)
Telecom Italia S.p.A. (b)
Latin American Nautilus
Argentina S.A. (b)
Latin American Nautilus USA Inc. (b)
Caja de Seguros S.A. (c)
Experta Aseguradora de Riesgos del
Trabajo ART S.A. (d) (f)
La Estrella Seguros de Retiro S.A. (d)
Universal Music Argentina S.A. (g)
Haras El Capricho S.A. (h)
Telteco S.A. (i)
Total services received
2015
3
1
23
6
7
4
524
568
2015
(2)
(71)
(125)
(58)
(11)
(33)
(7)
(7)
(36)
(100)
(5)
(4)
(1)
(14)
(474)
2014
3
1
26
11
9
2
404
456
2014
(2)
(147)
(63)
(52)
(19)
(18)
(12)
(8)
(29)
(61)
(9)
-
-
(7)
(427)
2013
-
-
17
13
2
3
231
266
2013
-
(104)
(65)
(31)
(13)
(23)
(9)
(7)
(18)
(47)
(9)
-
-
-
(326)
Years ended
December 31,
Type of related party
Other related party
Other related party
Other related party
Other related party
Other related party
Parent company
Other related party
Type of related party
Other related party
Other related party
Other related party
Other related party
Other related party
Parent company
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Other related party
Transactiondescription
Voice retail
Voice retail
International inbound calls
Roaming
International inbound calls
and roaming
Roaming
Recovery of insurance, voice retail
and data
Transactiondescription
Advertising
International inbound calls and data
Maintenance, materials and
supplies
International outbound calls and others
Roaming
Fees for services and roaming
International outbound calls
International outbound calls
Insurance
Salaries and social security -
Insurance
Insurance
VAS costs
Advertising
Fees for services
(a) Such companies relate to ABC Telecommunications Group of Paraguay.(b) Such companies relate to Telecom Italia Group.(c) Until March 30, 2015 this company related both to Telecom Italia Group and W de Argentina - Inversiones S.A. Since March 31, 2015 it relates to Telecom Italia Group.(d) Until March 30, 2015 this company related both to Telecom Italia Group and W de Argentina - Inversiones S.A. Since March 31, 2015 it relates to W de Argentina - Inversiones S.A.(f) Until September 9, 2015 this company was La Caja Aseguradora de Riesgos del Trabajo ART S.A.(g) Such companies relate to Telecom Italia Group since November 1, 2015.(h) Such companies relate to W de Argentina – Inversiones S.A.(i) Such companies relate to a Board of Directors member appointed by W de Argentina – Inversiones S.A.
253
Other income
Nortel
Total other income
Finance income
Nortel
Total finance income
2015
1
1
2015
-
-
2014
-
-
2014
-
-
2013
-
-
2013
5
5
Years ended
December 31,
Years ended
December 31,
Type of related party
Direct parent Company
Type of related party
Direct parent Company
Transactiondescription
Rental revenues
Transactiondescription
Interests
Purchases of PP&E and
intangible assets
Italtel Group (b)
Telteco S.A. (i)
Total purchases of PP&e and intangible assets
Commitments
2015
103
4
107
2015221
221
2014
153
12
165
2014329
329
2013
153
2
155
Years ended
December 31,
As of December 31,
Type of related party
Other related party
Other related party
Type of related party
Other related parties
(b) Such companies relate to Telecom Italia Group.(i) Such companies relate to a Board of Directors member appointed by W de Argentina – Inversiones S.A.
254
As of December 31, 2015, 2014 and 2013, respectively, an
amount of $30, $8 and $25 remained unpaid.
The estimated compensation of the members of the Telecom
Argentina’s Board of Directors for fiscal year 2015 is
approximately of $21. The compensation for the members
of the Telecom Argentina´s Board of Directors approved
by the Ordinary Annual Shareholders’ Meeting for fiscal
years 2014 and 2013 were approximately of $16 and $13,
respectively. The members and alternate members of the
Board of Directors do not hold executive positions in the
Company or Company’s subsidiaries.
Salaries (1)
Variable compensation (1)
Social security contributions
Termination benefits
201537
26
18
25
106
201431
7
11
7
56
201334
21
12
3
70
Years ended
December 31,
(1) Gross compensation. Social security contributions and income tax retentions that are deducted from the gross compensation are in charge of the employee.
NOTE 28 – SEGMENT INFORMATION
Until fiscal year ended December 31, 2013, the Telecom
Group carried out its activities through six companies, each
identified as an operating segment. On February 19, 2014
Personal sold its equity interest in Springville; which results,
assets and liabilities were included in the "Personal Mobile
Services" segment and which figures were immaterial. Since
July 2014, Núcleo has constituted a new Paraguayan
controlled company (Personal Envíos), which is included
in the segment “Núcleo Mobile Services”. Therefore, as
from December 31, 2014 and 2015, the Telecom Group
carries out its activities through six companies which were
consolidated by the end of fiscal years 2015 and 2014.
The Telecom Group has combined the operating segments
into three reportable segments: “Fixed Services”, “Personal
Mobile Services” and “Núcleo Mobile Services” based on
the nature of products provided by the entities and taking
into account the regulatory and economic framework in
which each entity operates.
Segment financial information for the years 2015, 2014 and
2013 was as follows:
The transactions discussed above were made on terms no less favorable to the Company than would have been obtained from
unaffiliated third parties. The Board of Directors approved transactions representing more than 1% of the total shareholders’
equity of the Company, after being approved by the Audit Committee in compliance with Decree No. 677/01 and Law No.
26,831.
(C) keY ManaGeRs
Compensation for the Key Managers, including social security contribution, amounted to $106, $56 and $70 for the years
ended December 31, 2015, 2014 and 2013, respectively, and was recorded as expenses under the line item “Employee
benefits expenses and severance payments”. The total expense remuneration is comprised as follows:
255
Total revenues and other income (1)Employee benefit expenses and severance paymentsInterconnection costs and other telecommunication chargesFees for services, maintenance, materials and suppliesTaxes and fees with the Regulatory AuthorityCommissionsCost of equipments and handsetsAdvertisingCost of VASProvisionsBad debt expensesOther operating expensesOperating income before D&ADepreciation of PP&EAmortization of intangible assetsGain on disposal of PP&E and impairment of PP&EOperating incomeFinancial results, netIncome before income tax expenseIncome tax expense, netNet income
net income attributable to Telecom argentina net income attributable to non-controlling interest
(1)Service revenuesEquipment salesOther income
subtotal third party revenues and other incomeIntersegment revenues
Total revenues and other income
(1,989)-
1,389419
-48
-----
133---------
---
----
(1,989)(1,989)
29,920(1,985)(2,840)(2,569)(3,125)(2,973)(4,513)
(706)(1,218)
(96)(485)
(1,053)8,357
(1,705)(1,207)
(108)5,337(929)4,408
(1,537)2,871
2,83932
2,871
23,8055,955
529,765
15529,920
1,717(129)(154)(152)(54)
(199)(185)(78)(82)
-(23)(93)568
(326)(66)
1177(65)112(15)97
653297
1,547159
-1,706
111,717
28,203(1,856)(2,686)(2,417)(3,071)(2,774)(4,328)
(628)(1,136)
(96)(462)(960)
7,789(1,379)(1,141)
(109)5,160(864)
4,296(1,522)2,774
2,774-
2,774
22,2585,796
528,059
14428,203
12,609(5,268)
(719)(1,769)
(818)(268)(82)
(108)(38)(17)(79)
(934)2,509(1,341)
(185)(91)892
(173)719
(155)564
564-
564
10,6756139
10,7751,834
12,609
40,540(7,253)(2,170)(3,919)(3,943)(3,193)(4,595)
(814)(1,256)
(113)(564)
(1,854)10,866(3,046)(1,392)
(199)6,229
(1,102)5,127
(1,692)3,435
3,40332
3,435
34,4806,016
4440,540
-40,540
FixedServices
Personal Núcleo(*) Subtotal Eliminations Total
Mobile Services
Balance sheet information
Geographic information
PP&E, netIntangible assets, netCapital expenditures on PP&E (a)Capital expenditures on intangible assets (b)Total capital expenditures (a)+ (b)Total additions on PP&e and intangible assetsnet financial asset (debt)
argentinaabroad
Total
-(1)
-----
8,6837,2173,5503,4717,0217,648
(2,837)
1,78486
39376
469490
(465)
6,8997,1313,1573,3956,5527,158(2,372)
9,280443
2,846233
3,0793,514
560
38,6331,863
40,496
38,3442,152
40,496
24,8442,129
26,973
17,9637,6596,3963,704
10,10011,162(2,277)
(*) Includes Personal Envíos’ operations. This company started to operate on January 1, 2015. Its operations are not material (Revenues 9, Operating income before D&A (2), Operating income (4) and Net loss (4)).
Total revenues and other income
Breakdown by location of operations
Breakdown by location of operations
Breakdown by location of the Group´s customers
Total non-current assets
foR THe YeaR enDeD DeCeMbeR 31, 2015
Income statement information
256
foR THe YeaR enDeD DeCeMbeR 31, 2014
Income statement information
Total revenues and other income (1)Employee benefit expenses and severance paymentsInterconnection costs and other telecommunication chargesFees for services, maintenance, materials and suppliesTaxes and fees with the Regulatory AuthorityCommissionsCost of equipments and handsetsAdvertisingCost of VASProvisionsBad debt expensesOther operating expensesOperating income before D&ADepreciation of PP&EAmortization of intangible assetsGain on disposal of PP&E and impairment of PP&EOperating incomeFinancial results, netIncome before income tax expenseIncome tax expense, netNet income
net income attributable to Telecom argentina net income attributable to non-controlling interest
(1)Service revenuesEquipment salesOther income
subtotal third party revenues and other incomeIntersegment revenues
Total revenues and other income
(1,910)-
1,386351
-53
-----
120---------
---
----
(1,910)(1,910)
24,941(1,570)(2,784)(2,282)(2,574)(2,337)(4,071)
(641)(920)
31(335)(847)6,611
(1,305)(708)(25)
4,573(22)
4,551(1,564)
2,987
2,93156
2,987
19,7725,010
2124,803
13824,941
1,588(118)(192)(137)(47)
(156)(112)(78)(64)
-(20)(86)578
(303)(60)
-215(22)193(22)171
11556
171
1,48890
-1,578
101,588
23,353(1,452)(2,592)(2,145)(2,527)(2,181)(3,959)
(563)(856)
31(315)(761)
6,033(1,002)
(648)(25)
4,358-
4,358(1,542)2,816
2,816-
2,816
18,2844,920
2123,225
12823,353
10,357(4,021)
(676)(1,402)
(723)(210)(72)
(151)(16)
(115)(89)
(791)2,091(1,084)
(146)9
870275
1,145(403)742
742-
742
8,5065326
8,5851,772
10,357
33,388(5,591)(2,074)(3,333)(3,297)(2,494)(4,143)
(792)(936)(84)
(424)(1,518)
8,702(2,389)
(854)(16)
5,443253
5,696(1,967)
3,729
3,67356
3,729
28,2785,063
4733,388
-33,388
FixedServices
Personal Núcleo Subtotal Eliminations Total
Mobile Services
Balance sheet information
Geographic information
PP&E, netIntangible assets, netCapital expenditures on PP&E (a)Capital expenditures on intangible assets (b)Total capital expenditures (a)+ (b)Total additions on PP&e and intangible assetsnet financial asset (debt)
argentinaabroad
Total
-(1)
-----
6,0584,9372,1924,4886,6806,919
526
1,37060
29661
357355
(167)
4,6884,8771,8964,4276,3236,564
693
7,751395
2,112165
2,2772,628
219
31,6971,691
33,388
31,4281,960
33,388
18,4141,510
19,924
13,8095,3314,3044,6538,9579,547
745
Total revenues and other income
Breakdown by location of operations
Breakdown by location of operations
Breakdown by location of the Group´s customers
Total non-current assets
257
foR THe YeaR enDeD DeCeMbeR 31, 2013
Income statement information
Total revenues and other income
Breakdown by location of operations
Breakdown by location of operations
Breakdown by location of the Group´s customers
Total non-current assets
Total revenues and other income (1)Employee benefit expenses and severance paymentsInterconnection costs and other telecommunication chargesFees for services, maintenance, materials and suppliesTaxes and fees with the Regulatory AuthorityCommissionsCost of equipments and handsetsAdvertisingCost of VASProvisionsBad debt expensesRecovery of restructuring costs / restructuring costsOther operating expensesOperating income before D&ADepreciation of PP&EAmortization of intangible assetsGain on disposal of PP&E and impairment of PP&EOperating incomeFinancial results, netIncome before income tax expenseIncome tax expense, netNet income
net income attributable to Telecom argentina net income attributable to non-controlling interest
(1)Service revenuesEquipment salesOther income
subtotal third party revenues and other incomeIntersegment revenues
Total revenues and other income
(1,382)-
1,015220
-56
------
91---------
---
----
(1,382)(1,382)
20,435(1,161)(2,319)(1,735)(2,111)(2,082)(3,037)
(497)(697)(101)(225)
-(653)5,817
(1,078)(776)(67)
3,896315
4,211(1,495)
2,716
2,66452
2,716
17,0863,195
3020,311
12420,435
1,166(84)
(171)(101)(35)
(112)(81)(55)(34)
-(11)
-(55)427
(190)(36)
1202(19)183(23)160
10852
160
1,083696
1,1588
1,166
19,269(1,077)(2,148)(1,634)(2,076)(1,970)(2,956)
(442)(663)(101)(214)
-(598)
5,390(888)(740)(68)
3,694334
4,028(1,472)2,556
2,556-
2,556
16,0033,126
2419,153
11619,269
8,297(2,991)
(525)(1,126)
(578)(177)(74)
(159)(11)
(169)(58)
8(690)
1,747(905)(114)(106)622213835
(297)538
538-
538
6,9268033
7,0391,2588,297
27,350(4,152)(1,829)(2,641)(2,689)(2,203)(3,111)
(656)(708)(270)(283)
8(1,252)
7,564(1,983)
(890)(173)4,518
5285,046
(1,792)3,254
3,20252
3,254
24,0123,275
6327,350
-27,350
FixedServices
Personal Núcleo Subtotal Eliminations Total
Mobile Services
Balance sheet information
Geographic information
PP&E, netIntangible assets, netCapital expenditures on PP&E (a)Capital expenditures on intangible assets (b)Total capital expenditures (a)+ (b)Total additions on PP&e and intangible assetsnet financial asset (debt)
argentinaabroad
Total
-(1)
-----
4,6691,1441,927
7692,6962,7613,685
1,06546
28146
327324
(211)
3,6041,0981,646
7232,3692,4373,896
6,557376
2,037118
2,1552,4531,669
26,1181,232
27,350
25,9371,413
27,350
12,2331,146
13,379
11,2261,5193,964
8874,8515,2145,354
258
NOTE 29 – QUARTERLy CONSOLIDATED INFORMATION (UNAUDITED NFORMATION)
NOTE 30 – UNCONSOLIDATED INFORMATION OF THE COMPANy
For the preparation of the unconsolidated information, the
Company has used the accounting policies described in Note
3 with the exception of the item “Non-current investments
- investments in subsidiaries”, which was valued using the
equity method, based on separate financial statements
at the end of each year which were prepared with similar
accounting policies, as required by RT 26 (as amended by
RT 29).
The accounting criterion required by RT 26 for the
measurement of investments in subsidiaries for the separate
financial statements differs from IAS 27. According to this
standard, such investments shall be valued at cost or fair
value if the presentation of Separate financial statements
is required (as such statements are not required by IFRS).
This difference of measurement criterion between the
IFRS and RT 26 has as main purpose the fulfillment of the
provisions of the General Corporation Law (LGS) where the
figures related to the equity and net income of the financial
statements attributable to the controlling shareholder (in
this case Telecom Argentina) match with those of equity
and net income presented by the parent company in their
separate financial statements. This is relevant for LGS since
the separate financial statements are the main and relevant
for corporate decisions and net income for the year should
be determined by the accrual method. Notwithstanding,
in August 2014, the IASB issued IAS 27 (R) which allows
companies to use the equity method in addition to cost or
fair value. The amendments are effective for annual periods
beginning on or after January 1, 2016 (earlier application
is permitted). At the date of issuance of these financial
statements, the FACPCE is analyzing the provisions or RT
26 and RT 29 in order to adopt the provisions of IAS 27 (R).
The relevant economic information from the unconsolidated
financial statements of the Company is disclosed below:
QuarterFiscal year 2015:
March 31
June 30
September 30
December 31
Fiscal year 2014:
March 31
June 30
September 30
December 31
Fiscal year 2013:
March 31
June 30
September 30
December 31
2,634
2,501
2,529
3,202
10,866
2,112
2,007
2,067
2,516
8,702
1,799
1,825
1,930
2,010
7,564
1,680
1,468
1,311
1,770
6,229
1,377
1,241
1,225
1,600
5,443
1,115
945
1,203
1,255
4,518
(89)
(30)
(73)
(910)
(1,102)
(32)
186
76
23
253
135
79
163
151
528
1,041
937
800
657
3,435
906
930
848
1,045
3,729
813
662
886
893
3,254
8,872
9,624
10,094
11,906
40,496
7,466
8,119
8,598
9,158
33,341
6,064
6,649
7,114
7,460
27,287
1,028
928
801
646
3,403
889
916
839
1,029
3,673
802
652
870
878
3,202
Ope
ratin
g in
com
e be
fore
D
&A
Net
inco
me
attri
buta
ble
toTe
leco
m A
rgen
tina
Ope
ratin
gin
com
e
Fina
ncia
l Res
ults,
net (
loss
) gai
n
Net
inco
me
Reve
nues
259
sTaTeMenTs of fInanCIal PosITIon(In millions of Argentine pesos)
ASSETS
CuRRENT ASSETS
Cash and cash equivalents
Investments
Trade receivables
Other receivables
Inventories
Total current assetsNON-CuRRENT ASSETS
Trade receivables
Deferred income tax assets
Other receivables
Investments
Property, plant and equipment
Intangible assets
Total non-current assetsTotal assetsLIABILITIES
CuRRENT LIABILITIES
Trade Payables
Deferred revenues
Salaries and social security payables
Income tax payables
Other taxes payables
Other liabilities
Provisions
Total current liabilitiesNON-CuRRENT LIABILITIES
Trade Payables
Deferred revenues
Salaries and social security payables
Income tax payables
Other liabilities
Provisions
Total non-current liabilitiesToTal lIabIlITIesToTal eqUITYToTal lIabIlITIes anD eqUITY
2015
363
185
1,820
388
13
2,769
17
246
53
10,138
9,265
443
20,16222,931
2,807
103
950
5
226
41
165
4,297
46
432
148
10
100
704
1,4405,737
17,19422,931
2014
201
6
1,705
196
12
2,120
22
122
83
8,321
7,744
395
16,68718,807
1,639
101
753
131
142
136
156
3,058
-
421
138
9
75
688
1,3314,389
14,41818,807
As of December, 31
260
InCoMe sTaTeMenTs(In millions of Argentine pesos, except per share data in Argentine pesos)
Revenues
Other income
Total revenues and other incomeEmployee benefit expenses and severance payments
Interconnection costs and other telecommunication charges
Fees for services, maintenance, materials and supplies
Taxes and fees with the Regulatory Authority
Commissions
Cost of equipments and handsets
Advertising
Cost of VAS
Provisions
Bad debt expenses
Other operating expenses
Depreciation and amortization
Gain on disposal of PP&E and impairment of PP&E
operating incomeGain on equity investees
Finance income
Finance expenses
Income before income tax expenseIncome tax expense
net income for the year
earnings per share attributable to Telecom argentina – basic and diluted
201512,468
55
12,523(5,266)
(633)
(1,767)
(818)
(274)
(82)
(108)
(38)
(17)
(79)
(946)
(1,525)
(91)
8792,847
477
(650)
3,553(150)
3,403
3.51
201410,262
37
10,299(4,019)
(618)
(1,401)
(722)
(214)
(72)
(151)
(16)
(115)
(89)
(802)
(1,229)
9
8602,937
592
(317)
4,072(399)
3,673
3.79
20138,216
43
8,259(2,990)
(491)
(1,125)
(578)
(179)
(74)
(159)
(11)
(169)
(58)
(689)
(1,016)
(106)
6142,669
450
(237)
3,496(294)
3,202
3.27
For the years ended
December 31,
261
sTaTeMenTs of CoMPReHensIVe InCoMe(In millions of Argentine pesos)
Net income for the year
Other components of the Statements of Comprehensive Income
Will be reclassified subsequently to profit or loss
Currency translation adjustments (non-taxable)
Subsidiaries’ NDF effects classified as hedges
Will not be reclassified subsequently to profit or loss
Actuarial results
Tax effect
other components of the comprehensive income, net of tax
Total comprehensive income for the period
20153,403
165
8
7
(3)
177
3,580
20143,673
148
-
24
(8)
164
3,837
20133,202
90
-
(10)
3
83
3,285
For the years ended
December 31,
262
(1) As of December 31, 2015, 2014 and 2013, total shares (984,380,978), of $1 argentine peso of nominal value each, were issued and fully paid. As of the same dates; 15,221,373 were treasury shares.(2) Corresponds to 15,221,373 shares of $1 argentine peso of nominal value each, equivalent to 1.55% of total capital. The treasury shares acquisition costs amounted to 461. (3) As approved by the Ordinary Shareholders’ Meeting of the Company held on May 21, 2013 (second tranche).(4) As approved by the Board of Directors’ meeting of the Company held on December 13, 2013 (second tranche).(5) As approved by the Ordinary Shareholders’ Meeting of the Company held on May 21, 2014 (second tranche).(6) As approved by the Ordinary Shareholders’ Meeting of the Company held on April 29, 2015.
Balances as of january 1, 2013Legal Reserve (3)
Special reserve for IFRS implementation (3)
Voluntary reserve for future dividends payments (3)
Voluntary reserve for capital investments (3)
Voluntary reserve for future investments (3)
Treasury Shares Acquisition (2)
Dividends (4)
Comprehensive income: Net income for the year Other comprehensive incomeTotal Comprehensive Income
Balances as of December 31, 2013Dividends (5)
Legal Reserve (5)
Voluntary reserve for capital investments (5)
Comprehensive income: Net income for the year Other comprehensive incomeTotal Comprehensive Income
Balances as of December 31, 2014Dividends (6)
Voluntary reserve for capital investments (6)
Comprehensive income: Net income for the year Other comprehensive incomeTotal Comprehensive Income
Balances as of December 31, 2015
2,688-----
(42)-
---
2,646---
---
2,646--
---
2,646
------
15-
---
15---
---
15--
---
15
------
42-
---
42---
---
42--
---
42
------
(461)-
---
(461)---
---
(461)--
---
(461)
--
351-----
---
351---
---
351--
---
351
----
1,200---
---
1,200--
1,991
---
3,191--
---
3,191
2,553----
351--
---
2,904---
---
2,904--
---
2,904
57213419
-----
---
725-9-
---
734--
---
734
---
1,000---
(1,000)
---
----
---
--
2,869
---
2,869
107-------
-8383
190---
-164164
354--
-177177
531
3,055(134)(370)
(1,000)(1,200)
(351)--
3,202-
3,202
3,202(1,202)
(9)(1,991)
3,673-
3,673
3,673(804)
(2,869)
3,403-
3,403
3,403
9,959-----
(461)(1,000)
3,20283
3,285
11,783(1,202)
--
3,673164
3,837
14,418(804)
-
3,403177
3,580
17,194
984-----
(15)-
---
969---
---
969--
---
969
Cap
ital n
omin
al v
alue
(1)
Infla
tion
adju
stm
ent
Infla
tion
adju
stm
ent (
2)
Volu
ntar
y re
serv
e fo
r fut
ure
divi
dend
s pa
ymen
ts
Capi
tal n
omin
al va
lue
(1) (
2)
Volu
ntar
y re
serv
e fo
r ca
pita
l inv
estm
ents
(2)
Trea
sury
sha
res
acqu
isitio
n co
st (2
)
Volu
ntar
y re
serv
e fo
r fut
ure
inve
stm
ents
Lega
l res
erve
Def
erre
d re
sults
Spec
ial r
eser
ve fo
r IFR
Sim
plem
enta
tion
Reta
ined
ear
ning
s
Tota
l
Outstandingshares
Treasury shares
Owners contribution
sTaTeMenTs of CHanGes In eqUITY(In millions of Argentine pesos)
263
sTaTeMenTs of CasH floWs(In millions of Argentine pesos)
Total cash flows provided by operating activitiesCASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment acquisitions
Intangible assets acquisitions
Proceeds from the sale of property, plant and equipment
Dividends collected
Capital contribution to Personal
Investments not considered as cash and cash equivalents
Total cash flows provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITES
Payment of cash dividends and related withholding tax
Treasury shares acquisition
Total cash flows from financing activitiesNET FOREIGN EXCHANGE DIFFERENCES ON CASH AND CASH EQuIVALENTS
InCRease (DeCRease) In CasH anD CasH eqUIValenTsCasH anD CasH eqUIValenTs aT THe beGInnInG of THe YeaRCasH anD CasH eqUIValenTs aT THe enD of THe YeaR
20152,593
(2,485)
(180)
36
1,099
-
(147)
(1,677)
(804)
-
(804)50
162201363
20141,408
(2,432)
(147)
15
1,800
(1,141)
-
(1,905)
(1,246)
-
(1,246)282
(1,461)1,662
201
20131,387
(1,815)
(116)
19
1,900
-
298
286
(948)
(461)
(1,409)239503
1,1591,662
For the years ended
December 31,
NOTE 31 – RESTRICTIONS ON DISTRIBUTION OF PROFITS AND DIVIDENDS
(a) ResTRICTIons on DIsTRIbUTIon of PRofITs
Under the LGS, the by-laws of the Company and rules and
regulations of the CNV, a minimum of 5% of net income
for the year in accordance with the statutory books, plus/
less previous years adjustments and accumulated losses, if
any, must be appropriated by resolution of the shareholders
to a legal reserve until such reserve reaches 20% of the
outstanding capital (common stock plus inflation adjustment
of common stock). On May 21, 2014, Telecom Argentina
reached the maximum amount of its Legal Reserve according
to LGS and CNV provisions previously disclosed.
(b) DIVIDenDs
The Company is able to distribute dividends up to the
limit of retained earnings determined under the LGS, and
reserves constituted to such purpose. Retained earnings
as of December 31, 2015 are positive and amounted to
$3,403, while Voluntary reserve for future dividends payment
amounted to $2,869.
264
Dividends declared and paid by Telecom Argentina during the year
($0.83, $1.22 and $1.03 peso per share, respectively)
Proposed for approval at the Annual General Meeting (not recognized as a liability
as at December 31)
2015
804
(**)
2014
1,202
-
2013
(*)1,000
-
(*) By reversal of the reserve for future cash dividends.(**) The Company’s Board of Directors has proposed to the Shareholder’s Meeting the allocation of the retained earnings to the constitution of a “Future Cash Dividends Reserve”, allowing to the Company’s Board of Directors to disaffect the mentioned reserve up to $1,300 and to distribute this amount in cash dividends.
adrián CalazaChief Financial Officer
oscar Carlos CristianciChairman of the Board of Directors
265
To the Board of Directors and Shareholders of Telecom
Argentina S.A.
In our opinion, the accompanying consolidated statements
of financial position, the related consolidated statements
of income, comprehensive income, changes in equity and
cash flows present fairly, in all material respects, the financial
position of Telecom Argentina S.A. and its subsidiaries (the
“Company”) at December 31, 2015 and 2014, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 2015 in
conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting
as of December 31, 2015, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is
responsible for these financial statements, for maintaining
effective internal control over financial reporting and
for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express opinions on these
financial statements and on the Company’s internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and
whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures
of the company are being made only in accordance
with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have
a material effect on the financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
266
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Buenos Aires, Argentina
March 4, 2016
PRICe WaTeRHoUse & Co. s.R.l.
by /s/ Carlos a. Pace(Partner)
267
Telecom Group’s Management is responsible for establishing
and maintaining adequate internal control over financial
reporting for Telecom Group as defined in Exchange Act Rule
13a-15(f) and 15d-15(f). Our internal control over financial
reporting was designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with International Financial Reporting Standards
issued by the International Accounting Standards Board
(“IFRS”). Internal control over financial reporting includes
those policies and procedures that:
• pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of the assets of Telecom Group;
• provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with IFRS and that receipts
and expenditures of Telecom Group are being made
only in accordance with authorizations of Management
and directors of Telecom Group; and
• provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of Telecom Group’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Management conducted an evaluation of the effectiveness
of Telecom Group’s internal control over financial reporting
based on the framework in Internal Control – Integrated
Framework 2013 issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO
2013”). Based on its evaluation, Management concluded
that the Telecom Group’s internal control over financial
reporting was effective as of December 31, 2015. The
effectiveness of Telecom Group’s internal control over
financial reporting as of December 31, 2015 has been
audited by Price Waterhouse & Co S.R.L., an independent
registered public accounting firm, as stated in their report
which is included herein.
Buenos Aires, Argentina
March 4, 2016
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
adrián CalazaExecutive Officer
elisabetta RipaExecutive Officer
268
CORPORATE INFORMATION
InDePenDenT aUDIToRsPrice Waterhouse & Co S.R.L. (member of PricewaterhouseCoopers)
sToCk MaRkeT InfoRMaTIon (Source: Bloomberg)
BCBA
InVesToR RelaTIons For information about Telecom Argentina S.A., please contact:
InTeRneT http://www.telecom.com.ar/inversores/index.html
DePosIT anD TRansfeR aGenT foR aDssJ.P. Morgan Depositary Receipts
4 New York Plaza, Floor 12
New York, NY 10004
(866) JPM-ADRS
[email protected] – www.adr.com
In ArgentinaTelecom Argentina S.A.
Investor Relations Division
Alicia Moreau de Justo 50, 10th Floor
(1107) Autonomous City of Buenos Aires
Tel,: 54-11-4968-3628
Argentina
Outside ArgentinaJP Morgan Chase
Latam ADR Sales & Relationship Mgmt.
4 New York Plaza, Floor 12
New York, NY 10004
USA
Tel.: 1-212-552-3729
* Calculated at 1 ADS = 5 shares
NYSE*
Quarter4Q14
1Q15
2Q15
3Q15
4Q15
Quarter4Q14
1Q15
2Q15
3Q15
4Q15
High62.30
63.00
55.00
49.50
56.95
High23.18
26.04
22.87
18.69
19.99
Low43.70
45.15
44.45
38.50
39.25
Low19.13
18.85
17.95
13.85
13.90
Volume of sharestraded (in millions)
4.0
3.1
2.4
3.8
4.8
Volume of ADSstraded (in millions)
7.9
8.8
9.2
8.8
12.6
Market quotation ($/share)
Market quotation (uS$/ADS*)
