Consolidated Operating Revenues

Mobile Services

During FY14 clients amounted to 22.1 million as of the end of December, 2014 vs. 22.5 million as of FY13.

Third parties Revenues amounted to P$24,782 million (+22.2% vs. FY13) thanks to innovative commercial offers that stimulates value added services (‘VAS’) consumption and suitable to the needs of clients.

Telecom Personal in Argentina

As of December 31, 2014, Personal reached 19.6 million subscribers in Argentina vs. 20.1 million in FY13, where postpaid clients represented 32% of the subscriber base.

In FY14, third parties Revenues reached P$23,204 million (+P$4,075 million or +21.3% vs. FY13) while Service Revenues (excluding equipment sales) amounted to P$18,284 million (+14.3% vs. FY13), with 60.2% corresponding to VAS revenues (vs. 58.1% in FY13). VAS revenues amounted to P$11,001 million (+18.3% vs. FY13). Moreover, equipment sales increased by +57.4% vs. FY13, reaching P$4,920 million, equivalent to 21.2% of total revenues.

During FY14 the Average Monthly Revenue per User (‘ARPU’) reached P$74.2 (+11.1% vs. FY13) due to higher VAS consumption. Moreover, SMS traffic decreased due to clients’ preference for plans and packs with VAS content offered by Personal.

Initiatives

The most significant event of 4Q14 related to the commercial offer was the launch of 4G service. The strategy implemented by the Group in anticipation of the launch allowed more than 200.000 clients, to start experiencing 4G/LTE technology without needing to change their chip, improving the customer experience in the usage of content and gaming services through the Personal Play’s platform.

Moreover, during 4Q14, Personal continued promoting its commercial strategy by an aggressive offer in smartphones and financing, such as those implemented during Mother’s Day campaign and Christmas Season that contributed to promote handset upgrades thus enabling clients to increase VAS usage.

In addition, Personal launched a new concept for the postpaid hybrid segment: the FULL DAY offer, an innovative plan that simplifies and clarifies the mobile offer allowing the customer to monitor its expenditure. Clients are able to call and send SMS at a daily fixed amount, and the plan included mobile Internet for the entire ongoing month.

Additionally, Personal reached a strategic alliance with an important technology company that provides an M2M (Machine-to-Machine) platform with cloud connectivity. Through this alliance, Personal continues to enhance the development of technological solutions and connectivity offers in M2M environment, enabling growth opportunities in the country and the region for this new line of business.

Finally, consolidating its brand position associated to music, Personal organized the 10th edition of the ‘Personal Fest’, the most important international music festival in Argentina with more than 50,000 fans in two days and more than 500,000 visits over Personals’ website.

Telecom Personal in Paraguay (‘Núcleo’)

As of December 31, 2014, Nucleo’s subscriber base reached 2.5 million clients (+2.5% vs. FY13). Prepaid and postpaid customers represented 81% and 19%, respectively.

Nucleo generated revenues from third parties equivalent to P$1,578 million during FY14 (+37.0% vs. FY13) influenced by the evolution of the peso against the Guarani. VAS revenues amounted to P$787 million (+35.0% vs. FY13) representing 52.9% of FY14 service revenues (vs. 53.8% in FY13).

Fixed Services (Voice, Data & Internet)

During FY14, revenues generated by fixed services amounted to P$8,559 million, +22.2% vs. FY13; with Data revenues (+52.6% vs. FY13) and Internet (+29.1% vs. FY13) growing the most in the segment.

Voice

Total service revenues reached P$3,782 million in FY14 (+9.9% vs. FY13). A portion of this line of business (mainly monthly charge and measured services), continued to be affected by frozen tariffs of regulated services enforced by the Argentine Government in 2002.

Revenues generated by measured services totaled P$1,541 million, an increase of P$146 million or +10.5% vs. FY13 mainly due to a higher penetration of flat rate packs of local and national long distance calls.

Monthly charges and supplementary services reached P$1,203 million, an increase of P$82 million or +7.3% vs. FY13 due to higher revenues in non-regulated supplementary services. The customer base remained stable at 4.1 million lines in service.

As a result of these increases, the average monthly revenue billed to user (ARBU) reached P$57.4 in FY14, +9.3% vs. FY13.

Fixed and mobile interconnection revenues amounted to P$621 million (+13.5% vs. FY13). Meanwhile, other revenues totaled P$417 million (+10.0% vs. FY13).

Data and Internet

Data revenues (services mainly offered to Corporate segment and Government) amounted to P$1,470 million (+P$507 million or +52.6% vs. FY13), strengthening the position of Telecom as an integrated ICT provider.

During 4Q14, Telecom incorporated to its portfolio of ‘La Nube Argentina’, a service called Central Virtual Cloud (virtual cloud switch), a fixed service developed under the OTT (‘Over-the-Top’) modality that integrates all the services of a corporate central switch voice over IP and can be accessed through mobile devices.

Revenues related to Internet totaled P$3,254 million (+P$733 million or +29.1% vs. FY13), mainly due to a commercial offer with higher speeds, where 10Mb was the most demanded service and to the increase of the customer base, with 21 thousand net adds in 4Q14. This was possible thanks to significant investments executed recently in the access network using FTTx technology that allows to take fiber optic to the closest connections point with the customer.

As of December 31, 2014, Telecom reached 1.8 million ADSL accesses (+3.7% vs. FY13). These connections represented 43.3% of Telecom’s fixed lines in service. In addition, ADSL ARPU reached P$153.0 in FY14, +22.7% when compared to FY13 and the monthly churn rate reduced to 1.3% in FY14 vs. 1.4% in FY13.

During 4Q14, Arnet launched new packs of services, with discounts of up to 50% and special benefits; such as: Pack Arnet Total, Pack Arnet Familia, Pack Arnet Hablemos. Moreover, Arnet strengthened the ultra broadband offer, providing up to 30Mb speed for those clients located in areas with technical availability. Finally, with the aim of improving the client’s digital experience, Arnet implemented a new navigation interface in the Arnet’s website to bring a simpler, intuitive and modern navigation experience.

Consolidated Operating Costs

Consolidated Operating Costs totaled P$27,945 million in FY14, an increase of P$5,113 million, or +22.4% vs. FY13 (including ‘Results on disposal of PP&E and write-down of PP&E’ that resulted in a loss of P$16 million in FY14 and a loss of P$173 million in FY13). This increase is a consequence of higher labor costs, higher fees for services, maintenance and materials and supplies and higher costs of more sophisticated handsets.

The cost breakdown is as follows:

- Employee benefit expenses and severance payments totaled P$5,591 million (+34.7% vs. FY13), mainly affected by increases in salaries to unionized employees due to the new collective bargaining agreement set at the beginning of 3Q14 as well as increases in salaries to the non-unionized workforce, together with the social security contributions associated to such concepts. Moreover, increases in severance payments and an extraordinary bonus payment to employees were registered. Total employees at the end of the period totaled 16,416.

- Interconnection costs and other telecommunication charges (including TLRD, Roaming, Interconnection, international settlement charges and lease of circuits) amounted to P$2,074 million, +13.4% vs. FY13. This increase resulted from higher costs related to the lease of circuits and international outbound calls associated to FX fluctuation, partially compensated by lower charges for roaming.

- Fees for services, maintenance and materials and supplies amounted to P$3,333 million (+26.2% vs. FY13), mainly due to costs’ increases in technical maintenance and systems’ licenses partially associated to the effect of a higher FX rate as well as higher fees for services, mainly due to higher costs recognized to suppliers in both the fixed and mobile businesses.

- Taxes and fees with regulatory authorities reached P$3,297 million (+22.6% vs. FY13), impacted mainly by higher revenues, a higher incidence due to an increase on the average rate of the turnover taxes, higher bank debit and credit taxes related to the dividend payments, to the disbursement related to the acquisition of spectrum, as well as higher municipal taxes.

- Commissions (Commissions paid to agents, prepaid card commissions and others) totaled P$2,494 million (+13.2% vs. FY13), mainly due to the increase in commissions paid to commercial channels as well as collection fees, both associated to the increase in more sophisticated equipment sales. Agent commissions capitalized as SAC amounted to P$913 million (+65.7% vs. FY13).

- Cost of handsets sold totaled P$4,143million (+33.2% vs. FY13), due to handsets sales with higher costs unit prices, impacted by a higher FX rate. This was partially compensated by a lower number of handsets sold. Deferred costs from SAC amounted to P$103 million (-59.6% vs. FY13). The lower deferred costs were derived from the reduction in handset subsidies given to clients.

- Advertising amounted to P$792 million (+20.7% vs. FY13), mainly due to slightly higher commercial expenses when compare to FY13, related to marketing campaigns.

- Depreciation and Amortization reached P$3,243 million (+12.9% vs. FY13). PP&E depreciation amounted to P$2,389 million (+20.5% vs. FY13); Amortization of SAC and service connection costs totaled P$811 million (-6.5% vs. FY13); and other intangible assets reached P$43 million (+87.0% vs. FY13) due to the capitalization of a part of the acquired spectrum.

- Other Costs totaled P$2,962 million (+18.2% vs. FY13). This increase was mainly due to VAS costs that totaled P$936 million (+32.2% vs. FY13), related to the increase of sales of those services, especially in the mobile business. Bad debt expenses reached P$424 million (+49.8% vs. FY13) representing 1.5% of consolidated costs and 1.3% of consolidated revenues.

Consolidated Financial Results

Net Financial results amounted to P$253 million, a decrease of P$275 million or -52.1% vs. FY13. This was mainly due to gains in net financial interest of P$265 million in FY14 (-P$367 million vs. FY13) and losses for FX results of P$178 million in FY14 (vs. a loss of P$279 million in FY13). Meanwhile, gains on mutual funds and other investments amounted to P$289 million (+P$165 million vs. FY13) and results on NDF generated a loss of P$97 million in FY14 (vs. a gain of P$55 million in FY13).

Consolidated Net Financial Position

As of December 31, 2014, Net Financial Position (Cash, Cash Equivalents and financial Investments minus Loans) totaled P$745 million in cash, a decrease of P$4,609 million when compared to the Net Financial Position as of December 31, 2013, after the cash dividend payment of Telecom Argentina of P$1,202 million paid in two equal installments in June and in September 2014, the 3G/4G frequencies payment in 4Q14 for an amount of P$3,530 million and also because of higher payments to suppliers and taxes.

Capital Expenditures

During FY14, the Company invested P$8,957 million (+84.6% vs. FY13). Of this amount, P$2,277 million were allocated to Fixed Services and P$6,680 million to Mobile services, where P$3,530 million corresponded to the acquisition of the 3G/4G frequencies. In relative terms, Capex reached 26.9% of consolidated revenues vs. 17.8% in FY13.

The main capital expenditures in the fixed business were associated to the transport upgrade both in the backbone and in the deployment of fiber optic and the backhauling. These actions were taken in order to offer higher download speeds, and thus to improve the navigation experience in Internet.

In the mobile business, the deployment of the 3G coverage continued to face the incremental demand of data traffic. Additionally, the 3G and AWS frequencies acquired will allow better connections and the access to data download at higher speeds thus offering a better customer experience.

The 4G technology represents an evolution that will strongly modify the mobile network performance in terms of quality, speed, availability and exponentially improve the customer experience in Argentina. The first rollout of 4G is already available in the 8 main cities of the country, with more than 200.000 customers using the service with LTE devices.

Relevant Matters

Spectrum Auction

During 2014, the Argentine Secretary of Communications (‘SC’) issued Resolution N^o 38/2014 to call for the spectrum auction of the bands of the Personal Communications Services (“PCS”), the Mobile Cellular Radiocommunication Services (“SRMC”), as well as the spectrum for the Advanced Mobile Communications Services (“SCMA”).

On October 7th, 2014, the SC issued Resolution N^o 65/14 which established that companies: TELEFÓNICA MÓVILES ARGENTINA S.A., TELECOM PERSONAL S.A., ARLINK S.A. y AMX ARGENTINA S.A. prequalified for the Auction for bands of the Personal Communications Services (PCS), the Mobile Cellular Radiocommunication Services (SRMC), as well as the spectrum for the Advanced Mobile Communications Services (SCMA).

On October 31st, 2014 the Tender Offer related to the Spectrum Auction took place with the participation of Telecom Personal. Telecom Personal resulted in the winner, offering the highest price for Lots number 2, 5, 6 and 8.

Personal has committed in the auction the total consideration of the equivalent of U$S 658 million (currency of offer).

Through Resolutions of the SC N^o 80/2014; 81/2014; 82/2014 and 83/2014, that were published in the Official Bulletin of Argentine Republic on November 27th, 2014, the allocated frequencies bands are as follows: i) For the PCS service, in Lot N^o 5 (Band: 1890-1892.5 / 1970-1972.5); ii) For the SRMC service, in Lot N^o 2 (Band: 830.25-834 / 875.25-879); iii) For the PCS service, in Lot N^o 6 (Band: 1862.5-1867.5 / 1942.5-1947.5); iv) For the SCMA service, in Lot N^o 8 (Band: 1730-1745 / 2130-2145 and Band: 713-723 / 768-778) (Partial allocation).

Telecom Personal performed the payment of the allocated frequencies for an amount of U$S 410,736,579 according to the Terms and Conditions of the Auction and the Explanatory Note N^o 1. In relation to Lot 8, the executed payment was an advanced payment for the total offered price of the referred Lot.

Personal requested the allocation of the remaining frequencies to be completed for the SCMA services (Lot 8), partially allocated to the Company by SC Resolution N^o 83/2014, and also noted its reserve for future claims. The completed allocation of the Lot referred is indispensable to accomplish the obligations contained in the Terms and Conditions of the Auction.

Argentina Digital Law

On December 19th 2014, Law N^o 27.078, “Ley Argentina Digital” was published and entered into force. This new law declares as public interest the development of the Information and Communications Technologies (“ICT”) and its associated resources, establishing and ensuring the complete neutrality of the network.

Among the most relevant aspects that are included in the “Ley Argentina Digital” that modifies the current regulatory framework in telecommunications, the following can be mentioned: the recognition of ‘ICT’ as an essential, public and strategic service in relation to the usage and access of telecommunication networks for and between the ICT providers; the rules on prices and tariffs of the ICT providers and the exemption of levies; the modifications regarding universal services and the implementation of asymmetric regulation as instruments for the development of an effective competition. In addition, the new law includes the fact that ICT services will need to be provided in a national scale and also considers the entire country as a unique area of operation and deployment, together with the modification of the interconnection regime. The law includes more obligations to providers and more faculties to the Argentine State to regulate the wholesale market.

In addition, definitions in the implementation of the law and complementary regulation are still pending.

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Note: Further breakdown of this information would be available at Telecom Argentina’s website since February 12th, 2015.