Initiatives

During 4Q13, in the holiday season, Personal presented an aggressive commercial offer with a 50% discount in smartphones, in order to continue promoting the upgrade of the customer base equipments thus stimulating value added services usage. In addition, Personal continued with its strategy based on usage convenience, through campaigns of credit recharges and with special benefits to clients under the fidelity program ‘Club Personal’.

Moreover, Personal continued strengthening their customer care channels by the implementation of a new system, NPS (Net Promoter System), where clients are the key point, with the objective of bringing an innovative and quality experience and, as a result of it, increasing customer loyalty and recommendations.

Additionally, together with the technological reconversion plan and the expansion of the mobile network, Personal launched free access Wi-Fi at airports, malls and stadiums. The objective of this initiative was to enhance access to mobile internet improving the browsing experience and clients’ communications in high data traffic areas. “Personal Wi-fi”, is a technological solution that allows the improvement of calls and SMS quality, diverting data traffic to an own Wi-Fi network, and thereby making available network resources for these basic services.

Finally, consolidating its brand position associated to music, Personal organized the 9^th 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 400,000 visits over Personals’ web page becoming a milestone in the calendar of International Music events.

Telecom Personal in Paraguay (‘Núcleo’)

As of December 31, 2013, Nucleo’s subscriber base reached 2.4 million clients (+5.2% vs. FY12). Prepaid and postpaid customers represented 80% and 20% (vs. 19% on postpaid in FY12), respectively.

Nucleo generated revenues from third parties equivalent to P$1,152 million during FY13 (+32.9% vs. FY12), influenced by the evolution of the peso against the Guarani (+33% yoy). VAS revenues amounted to P$583 million (+38.5% vs. FY12) representing 53.8% of FY13 service revenues (vs. 50.4% in FY12).

Moreover, the level of mobile ARPU reached Gs.27.5 thousand in FY13 (equivalent to P$34.6).

The focus is to maintain the revenue share position in a context with a lower growth of private consumption.

Fixed Services (Voice, Data & Internet)

During FY13 revenues generated by fixed services amounted to P$7,006 million, +16.3% vs. FY12; with Data revenues (+31.0% vs. FY12) and Internet (+26.5% vs. FY12) growing the most in this segment in relative terms.

Voice

Total revenues for this service reached P$3,442 million in FY13 (+7.1% vs. FY12). A portion of this line of business continued to be affected by frozen tariffs of regulated services enforced by the Argentine Government in 2002.

Revenues generated by measured services totaled P$1,395 million, an increase of P$89 million or +6.8% vs. FY12 mainly due to the higher penetration of flat rate packs of local and national long distance calls.

Monthly charges and supplementary services reached P$1,121 million, an increase of P$89 million or +8.6% vs. FY12 due to higher revenues in non-regulated supplementary services. The customer base surpassed 4.1 million lines in service.

As a result of these increases, the average monthly bill per user (ARBU) reached P$52.5 in FY13, +8.9% vs. FY12.

Fixed and mobile interconnection revenues reached P$547 million (+6.0% vs. FY12). Meanwhile, other revenues totaled P$379 million (+5.3% vs. FY12)

During 4Q13 Telecom continued promoting the sale of Aladino handset bundled new lines and ADSL.

Data and Internet

Data revenues amounted to P$963 million (+P$228 million or +31.0% vs. FY12), where the focus was to strengthen the position of Telecom as an integrated ICT provider, offering a wide variety of services.

During 4Q13, Telecom Argentina offered new products and services for the corporate and government segments. Among them were: Redes de Circuitos Financieros, a financial network solution that enables financial institutions to establish a different and exclusive network with all transactional banks and retails that require to process operations; Aplicaciones Móviles Empresariales (AME), a Mobile Corporate App that allows customers to take their businesses applications to mobile devices in a safety and reliable manner, assuring the integrity of data and transactions. The main function of this platform is becoming a bridge between mobile information from each member of a Company and the data of it. Lastly, Firewall de Applications Web, which is an application firewall service used as a new generation solution for preventive safety.

Revenues related to Internet totaled P$2,521 million (+P$528 million or +26.5% vs. FY12), due to the increase in the customer base in the quarter together with a commercial offer with higher speeds that can be rendered to the investments executed.

As of December 31, 2013, Telecom surpassed 1.7 million ADSL accesses (+4.8% vs. FY12) with an increase in net adds in 4Q13 (around +38 thousand). These connections represented 41.4% of Telecom’s fixed lines in service. In addition, ADSL ARPU reached P$124.7 in FY13, +21.9% when compared to FY12 and the monthly churn rate was 1.4% in FY13.

During November 2013, Arnet continued with its 360º campaign, through the launch of ‘Llamadas Libres a Celulares’ (Free calls to mobiles) as a complement of Arnet services + local calls with the objective of enriching the offer with value added proposals. This product allows local calls from a fixed number to any mobile, at convenient prices.

Consolidated Operating Costs

Consolidated Operating Costs, (including ‘Results on disposal of PP&E and write-down of PP&E’ that amounted P$173 million in FY13), totaled P$22,832 million in FY13, an increase of P$4,602 million, or +25.2% vs. FY12. The increase is a consequence of higher labor costs, costs of handsets with new features and taxes associated to revenues.

The cost breakdown is as follows:

• Employee benefit expenses and severance payments totaled P$4,152 million (+27.0% vs. FY12), mainly affected by increases in salaries to the unionized employees due to the Collective Bargaining agreement reached on July, 2013, as well as increases in salaries to the non-unionized workforce, together with the social security contributions associated to such concepts, and to an increase in the number of unionized employees. Total employees (including temporary employees) at the end of the period totaled 16,581.

• Interconnection costs and other telecommunication charges (including TLRD, Roaming, Interconnection, international settlement charges and lease of circuits) amounted to P$1,829 million, +7.1% vs. FY12. This increase resulted from higher Data and SMS roaming costs as well as charges of lease of circuits.

• Fees for services, maintenance and materials and supplies amounted to P$2,641 million (+25.2% vs. FY12), principally due to increases in the maintenance of radiobases, systems and real estate in the mobile business; a higher charge of maintenance of systems licenses and higher maintenance and restyling costs in some buildings. In addition, price increases were granted to suppliers associated to higher costs in both fixed and mobile segments.

• Taxes and fees with regulatory authorities reached P$2,689 million (+33.3% vs. FY12), impacted mainly by a higher volume of revenues, a higher incidence in turnover taxes derived from increases in municipal jurisdictions, higher municipal taxes and higher levies of the regulatory authority.

• Commissions (Commissions paid to agents, prepaid card commissions and others) totaled P$2,203 million (+13.0% vs. FY12), mainly due to the increase in commissions paid to commercial agents associated with the increase in sales. Agent commissions capitalized as SAC amounted to P$551 million (+75.5% vs. FY12).

• Cost of handsets sold totaled P$3,111 million (+52.3% vs. FY12), due to an increase in the participation of high-end handsets that maximizes VAS usage, that resulted in higher unit prices. This was partially compensated by a lower quantity of handsets sold. Deferred costs from SAC amounted to P$255 million (- 44.9% vs. FY12).

• Advertising amounted to P$656 million (-0.6% vs. FY12), mainly derived from lower commercial expenses and campaigns in comparison to FY12.

• Depreciations and Amortizations reached P$2,873 million (+10.0% vs. FY12). PP&E depreciation amounted to P$1,983 million (+10.7% vs. FY12); SAC and services connection costs amortization totaled P$867 million (+8.8% vs. FY12); and other intangible assets amortization reached P$23 million, same level that the one achieved in FY12.

• Other Costs totaled P$2,505 million (+33,9% vs. FY12). This increase was mainly due to costs of VAS that totaled P$708 million (+117.2% vs. FY12), related to the increase of those sales, especially in the mobile business. Bad debt expenses reached P$283 million (+2.9% vs. FY12) representing 1.2% of consolidated costs and 1.0% of consolidated revenues, while charges related to lawsuits and other contingencies amounted to P$270 million in FY13 (+76.5% vs. FY12). The recovery of restructuring costs amounted to P$8 million in FY13 and is related to the finalization of the Restructuring Plan initiated by the Telecom Group in the last quarter of 2012.

Consolidated Financial Results

Financial results resulted in a gain of P$528 million, an increase of P$299 million or +130.6% vs. FY12. This was mainly due to a gain in net financial interest of P$632 million in FY13 (+P$363 million vs. FY12) based on a higher net financial position (Cash) partially compensated by losses for FX results of P$279 million in FY13 (vs. losses of P$46 million in FY12).

Consolidated Net Financial Position

As of December 31, 2013, Net Financial Position (Cash, Cash Equivalents and financial Investments minus Loans) totaled P$5,354 million in cash, an improvement of P$1,706 million vs. Net Financial Position as of December 31, 2012, thanks to the cash generation of the Group and after a cash dividend payment of P$1,000 million in 4Q13 and share buybacks for P$461 million.

Financial Results

(In million P$)

Capital Expenditures

During FY13, the Company invested P$4,851 million (+48.9% vs. FY12). This amount was allocated to Fixed Services (P$2,155 million) and Mobile services (P$2,696 million). In relative terms, capex reached 17.8% of consolidated revenues.

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

In the mobile business, the technological reconversion plan of the network continues, mainly by the installation of the second 3G carrier, on national scale, that allows the optimization of mobile services throughout the country, increasing capacity to cope with the incremental demand of data traffic.

Relevant Matters

The Board of Directors on its meeting held on December 13^th, 2013 decided to determine the total withdrawal and distribution to Shareholders of the Reserve for Future Cash Dividend in the amount of P$1 billion. The constitution of the referred Reserve was approved in the second part of the Annual General Ordinary Shareholders’ Meeting on April 23^rd, 2013, adjourned to May 21^st, 2013. The dividend was made available on December 27^th, 2013. The amount distributed was equivalent to approximately P$1.0318 per share outstanding and approximately P$5.1591 per ADR, before the deductions, if applicable, of Personal Asset Tax and Income Tax.

As of December 31^st, 2013, Telecom Argentina has acquired 15,221,373 of its own shares for P$461 million, with an average price per share of P$30.24 (1.55% of the Capital stock).

On December 17^th, 2013, SC Resolution No. 26/13 was issued. This Resolution establishes mandatory per second billing for mobile services stating, specifying that billing must be entirely per second after the first indivisible fraction of 30 seconds.

On November 14^th, 2013, Telecom Italia SpA and Telecom Italia International N.V. (the “Sellers”), as well as Tierra Argentea S.A. (“Tierra Argentea”), a company controlled by the sellers, have accepted the offer of Fintech Group for the acquisition of the entire controlling interest of Telecom Italia Group in Telecom Argentina, held by the Sellers, through its subsidiaries Sofora Telecomunicaciones S.A., Nortel Inversora S.A. and Tierra Argentea. On December, 10^th, 2013, Tierra Argentea formalized the transfer to the Fintech

Group of the Class B Shares of Telecom Argentina, representative of 1.58% of the capital stock of Telecom Argentina and Nortel’s ADRs representative of 8% of total Prefer B Shares. The sale of the Shares of Sofora is conditional upon obtaining certain required regulatory approvals. As of December, 31^st, 2013, economic interest of Telecom Italia in Telecom Argentina totaled 19.3%.

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