Table of Contents

 

As filed with the Securities and Exchange Commission on March 26, 201925, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 20-F

 

(Mark One)

 

o¨

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20182020

OR

o¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                       to                        

OR

o¨

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report . . . . . ... . . . . . . . . . . . . .

 

For the transition period from                       to

 

Commission file number: 1-13464

 

TELECOM ARGENTINA S.A.

(Exact name of Registrant as Specified in its charter)

Republic of Argentina

(Jurisdiction of incorporation or organization)

Alicia Moreau de Justo 50

(C1107AAB) - Buenos Aires

Argentina

(Address of Principal Executive Offices)

Gabriel Blasi

(Tel: 54-11- 4968-4019, E-mail: GBlasi@teco.com.ar,

Alicia Moreau de Justo 50, 10th Floor, (C1107AAB), Buenos Aires, Argentina)

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Each Exchange Onon Which Registered

American Depositary Shares,
representing Class B Ordinary Shares

TEO

New York Stock Exchange

Class B Ordinary Shares,
nominal value P$1.00 per share

TECO2

New York Stock Exchange*

 


*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None


Table of Contents

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Class A Ordinary Shares, nominal value P$1.00 each

683,856,600

Class B Ordinary Shares, nominal value P$1.00 each

627,953,887

628,058,019

Class C Ordinary Shares, nominal value P$1.00 each

210,866

106,734

Class D Ordinary Shares, nominal value P$1.00 each

841,666,658

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o¨ Yes x No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o¨ Yes x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

xYes ¨o No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

xYes ¨o No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x¨

Accelerated filer ox

Non-accelerated filer o¨

Emerging growth company o¨

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o¨

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

US GAAP o¨

International Financial Reporting Standards as issued
by the International Accounting Standards Board
x

Other o¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o¨ Item 17 ¨ oItem 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o¨ Yes x No

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 

o¨ Yes ¨o No

 


Table of Contents

 

TABLE OF CONTENTS


 

Page

PRESENTATION OF FINANCIAL INFORMATION

1

FORWARD-LOOKING STATEMENTS

3

GLOSSARY OF TERMS

5

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

12

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

12

ITEM 3.

KEY INFORMATION

12

ITEM 4.

INFORMATION ON THE COMPANY

40

42

ITEM 4A.

UNRESOLVED STAFF COMMENTS

91

65

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

92

66

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

137

93

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

152

105

ITEM 8.

FINANCIAL INFORMATION

159

109

ITEM 9.

THE OFFER AND LISTING

173

110

ITEM 10.

ADDITIONAL INFORMATION

177

111

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

194

137

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

196

139

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

197

140

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

197

140

ITEM 15.

CONTROLS AND PROCEDURES

197

140

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

197

141

ITEM 16B.

CODE OF ETHICS

198

141

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

198

141

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

200

143

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS

200

143

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

200

143

ITEM 16G.

CORPORATE GOVERNANCE

200

143

ITEM 16H.

MINE SAFETY DISCLOSURE

201

144

PART III

ITEM 17.

FINANCIAL STATEMENTS

202

145

ITEM 18.

FINANCIAL STATEMENTS

202

145

ITEM 19.

EXHIBITS

202

145

 


Table of Contents

 

PRESENTATION OF FINANCIAL INFORMATION

 

Telecom Argentina S.A. is a company incorporated under the laws of Argentina. As used in this Annual Report on Form 20-F (the “Form 20-F” or “Annual Report”), the terms “the Company,” “Telecom,” “we,” “us,” and “our” refer to Telecom Argentina S.A. and its consolidated subsidiaries as of December 31, 2018.2020. Unless otherwise stated, references to the financial results of “Telecom” are to the consolidated financial results of Telecom Argentina and its consolidated subsidiaries. Telecom is primarily engaged in the provision of fixed and mobile telecommunications services, cable televisiondata services, Internet services and broadbandcable television services.

 

The term “Telecom Argentina” refers to Telecom Argentina S.A., excluding its subsidiaries. Telecom Argentina is engaged in the provision of telecommunication services in Argentina. The term “Cablevisión” refers to Cablevisión S.A., together with its consolidated subsidiaries, dissolved without liquidation as a result of the Merger.subsidiaries. The term “Merger” refers to the merger between Telecom and Cablevisión, with Telecom as surviving entity, effective as of January 1, 2018. Telecom’s most2018, through which Cablevisión was merged with and into Telecom Argentina, with Telecom Argentina being the surviving entity. As of December 31, 2020, Telecom Argentina’s significant subsidiaries were Núcleo S.A.E, PEM S.A.U, Cable Imagen S.R.L., Televisión Dirigida S.A., Adesol S.A., AVC Continente Audiovisual S.A., Inter Radios S.A.U., Telecom Argentina USA Inc. and Micro Sistemas S.A.U. For further information on our significant subsidiaries, see Exhibit 8.1 to this Annual Report.

Our consolidated financial statements as of December 31, 2018 were Núcleo (Núcleo S.A.E., a subsidiary engaged in the provision of mobile telecommunication services in Paraguay), PEM S.A. (investments), CV Berazategui S.A. (closed-circuit television services), Cable Imagen S.R.L. (closed-circuit television services), Televisión Dirigida S.A. (cable television services in Paraguay), Adesol S.A. (holding company in Uruguay), Ultima Milla S.A. (services for telecommunications), AVC Continente Audiovisual S.A. (broadcasting services), Inter Radios S.A.U. (broadcasting services)2020 and Telecom Argentina USA Inc. (telecommunication services in the United States).

Our Consolidated Financial Statements as of December 31, 2018 and 20172019 and for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, and the notes thereto (the “Consolidated Financial Statements”) are set forth on pages F-1 through F-106F-90 of this Annual Report.

 

Our Consolidated Financial Statements, which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and, have been approved by resolution of the Board of Directors’ meeting held on March 7, 20199, 2021 and have been audited by an independent registered public accounting firm.

 

Due to the high level of inflation prevailing in Argentina during the last three years,period 2016-2018, management analyzed the parameters established by IAS 29 “Financial reporting in hyperinflationary economies” - paragraph 3, which describe the conditions to consider an economy as hyperinflationary, and concluded that, with respect to Argentina, such conditions have been met for accounting periods ending after July 1, 2018. Therefore, we have restated our Consolidated Financial Statements and the financial information for all the periods reported in this Annual Report based on certain price indexes to take into account the effect of inflation in Argentina. The Consolidated Financial Statements and the financial information included in this Annual Report for all the periods reported are presented on the basis of constant Argentine pesosPesos as of December 31, 20182020 (“current currency”). See “—Risk factors—Factors—Risk RelatedRelating to Argentina—Inflation could accelerate, causing adverse effects on the economy and negatively impacting Telecom’s margins”,margins and/or ratios,” “Item 5—Operating and Financial Review and Prospects—Economic and Political Developments in Argentina”Factors Affecting Results of Operations” and Note 1.e) to our Consolidated Financial Statements.

 

Telecom Argentina and its subsidiaries maintain their accounting records and prepare their financial statements in Argentine Pesos, which is their functional currency, except for Núcleo and itsother subsidiaries and TVD (Guaraníes),in Paraguay, which use Guaraníes as their functional currency, Telecom Argentina USA, (U.S. dollars)which uses U.S. dollars as its functional currency, and Adesol (Uruguayan pesos).and other subsidiaries incorporated under the laws of Uruguay, which use Uruguayan Pesos as their functional currency. Our Consolidated Financial Statements include the results of these subsidiaries translatedconverted into Argentine Pesos. Assets and liabilities are translated at year-end exchange rates and income and expenses accounts at average exchange rates for each year presented, as restated in terms of the current currency by applying an average index to take into account the effect of inflation in Argentina.

 

Certain financial information contained in this Annual Report has been presented in U.S. dollars. This Annual Report contains translations of various Argentine Peso amounts into U.S. dollars at specified rates solely for convenience of the reader. You should not construe these translations as representations by us that the Argentine Peso amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated. Except as otherwise specified, all references to “US$,” “U.S. dollars” or “dollars” are to United States dollars, references to “EUR,” “euro” or “€” are to the lawful currency of the member states of the European Union and references to “P$,” “Argentine Pesos,” “$” or “pesos”“Pesos” are to Argentine Pesos. Unless otherwise indicated, we have translated the Argentine Peso amounts using a rate of P$37.70 =84.15= US$1.00, the U.S. dollar ask rate published by the Banco de la Nación Argentina (Argentine National Bank) on December 31, 2018.30, 2020. On March 19, 2019,22, 2021, the exchange rate was P$40.50 =91.57= US$1.00. As a result of fluctuations in the Argentine peso/Peso/U.S. dollar exchange rate, the exchange rate at such date may not be indicative of current or future exchange rates. Consequently, these translations should not be construed as a representation that the pesoPeso amounts represent, or have been or could be converted into, U.S. dollars at that or any other rate. See “Item 3—Key Information—Exchange Rates”,Rates,” and “Item 3—Key Information—Risk Factors—Risks Relating to Argentina—Devaluation of the pesoArgentine Peso and foreign exchange controls may adversely affect our results of operations, our capital expenditure programexpenditures and theour ability to service our liabilities and transfer funds abroad.pay dividends.

PRESENTATION OF FINANCIAL INFORMATION

TELECOM ARGENTINA S.A.

For the purposes of this Annual Report, “billion” means a thousand million.

 

Certain amounts and ratios contained in this Annual Report (including percentage amounts) have been rounded up or down to facilitate the summation of the tables in which they are presented. The effect of this rounding is not material. These rounded amounts and ratios are also included within the text of this Annual Report.

The Securities and Exchange Commission maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission. Telecom Argentina’s telephone number is 54-11-4968-4000, and its principal executive offices are located in Alicia Moreau de Justo 50, (C1107AAB) Buenos Aires, Argentina. Our internet address is www.telecom.com.ar. The contents of our website and other websites referred to herein are not part of this Annual Report.

 

This Annual Report contains certain terms that may be unfamiliar to some readers. You can find a Glossary of these terms on page 5 of this Annual Report.

 

Telecom’s Consolidated Financial Statements and the selected financial data included in this Annual Report have been prepared on a consolidated basis, as restated in terms of the current currency to take into account the effect of inflation in Argentina.

PRESENTATION OF FINANCIAL INFORMATIONTELECOM ARGENTINA S.A.

 


Our financial statement data as of and for the years ended December 31, 2017 and 2016prior are not comparable with our financial statement data as of and for the year ended December 31, 2018 and any date and period thereafter because of the Merger, which was consummated on January 1, 2018 (the “Merger Effective Date”). Effective as of the Merger Effective Date, Cablevisión merged into Telecom Argentina. The Merger is part of a global process of convergence in the provision of fixed and mobile telecommunications services, video and internet distribution known as “quadruple play.” We have accounted for the Merger as a business combination using the acquisition method of accounting under IFRS 3 to account for assets and liabilities of Telecom Argentina as of January 1, 2018. The Merger constituted a “reverse acquisition,” pursuant to which Cablevisión (the legal absorbed entity) was considered the accounting acquirer and Telecom Argentina (the surviving entity) was considered the accounting acquiree (See Item 5 “Operating and Financial Review and Prospects”). acquiree. Accordingly, the financial statements of Telecominformation for periods prior to the Merger Effective Date reflect the historical financial information of Cablevisión, as restated in terms ofand the current currency to take into account the effect of inflation in Argentina. The information as of and for the year ended December 31, 2018 and the following years incorporates, based on the figures corresponding to Cablevisión, the effect of applying the acquisition method to Telecom Argentina to its fair value in accordance with IFRS 3 and the operations of Telecom Argentina as from January 1, 2018. Such figures areAll such financial information is presented in this Annual Report restated in termscurrent currency as of the current currencyDecember 31, 2020 to take into account the effect of inflation in Argentina.

 

The factorsfinancial information as of and for the years ended December 31, 2017 and earlier that were consideredwas previously reported in determining thatour annual reports on Form 20-F for the years ended December 31, 2017 and earlier reflect the financial information of Telecom Argentina, accounting acquiree in the Merger. Therefore, such financial information is not directly comparable to the financial information as of and for the years ended December 31, 2017 and earlier included in the 2018 and 2019 Annual Reports, this Annual Report and any other subsequent annual report, which reflect the financial information of Cablevisión should be treated as(the absorbed entity), considered the accounting acquirer in the Merger were:

(i)    the relative voting rights in the surviving entity (55% for the former shareholders of Cablevisión and 45% for the former shareholders of Telecom);

(ii)   the composition of the board of directors in the surviving entity and other committees (audit, supervisory and executive);

(iii)  the relative fair value assigned to Cablevisión and Telecom; and

(iv)  the composition of the key senior management of the surviving entity.

For more information, see Notes 1.c), 4.a) and 27.a) to our Consolidated Financial Statements.Merger.

 

PRESENTATION OF FINANCIAL INFORMATION

TELECOM ARGENTINA S.A.


FORWARD-LOOKING STATEMENTS

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Annual Report contains information that is forward-looking, including, but not limited to:

 

·our expectations for our future performance, revenues, income, earnings per share, capital expenditures, dividends, liquidity and capital structure;

·                  our expectations for our future performance, revenues, income, earnings per share, capital expenditures, dividends, liquidity and capital structure;

·the implementation of our business strategy;

·the changing dynamics and growth in the telecommunications and cable markets in Argentina, Paraguay, Uruguay and the United States;

·our outlook for new and enhanced technologies;

·the effects of operating in a competitive environment;

·industry conditions;

·the outcome of certain legal proceedings;

·regulatory and legal developments; and

·other factors identified or discussed under “Item 3—Key Information—Risk Factors”.

 

·                  the synergies expected from the Merger;

·                  the implementation of our business strategy;

·                  the changing dynamics and growth in the telecommunications and cable markets in Argentina, Paraguay and Uruguay;

·                  our outlook for new and enhanced technologies;

·                  the effects of operating in a competitive environment;

·                  industry conditions;

·                  the outcome of certain legal proceedings;

·                  regulatory and legal developments; and

·                  other factors identified or discussed under “Item 3—Key Information—Risk Factors.”

This Annual Report contains certain forward-looking statements and information relating to Telecom that are based on current views, expectations, estimates and projections of our Management and information currently available to Telecom. These statements include, but are not limited to, statements made in “Item 3—Key Information—Risk Factors,” “Item 5—Operating and Financial Review and Prospects” under the captions “Critical Accounting Policies” and “Trend Information,” “Item 8—Financial Information—Legal Proceedings” and other statements about Telecom’s strategies, plans, objectives, expectations, intentions, capital expenditures, and assumptions and any other statementsstatement contained in this Annual Report that areis not a historical facts.fact. When used in this document, the wordsterms “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “will,” “may” and “should” and other similar expressions are generally intended to identify forward-looking statements.

These Forward-looking statements reflect the current views of the management of the Company with respect to future events. They are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. In addition, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.

 

Many factors could cause actual results, performance or achievements of Telecom to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among others:

 

·                  our ability to successfully implement our business strategy and to achieve synergies resulting from the Merger;

·                  our ability to introduce new products and services that enable business growth;

·                  uncertainties relating to political and economic conditions in Argentina, Paraguay and Uruguay;

·                  inflation, the devaluation of the peso, the Guaraní and the Uruguayan peso and exchange rate risks in Argentina, Paraguay and Uruguay;

·                  restrictions on the ability to exchange Argentine or Uruguayan pesos or Paraguayan guaraníes into foreign currencies and transfer funds abroad;

·                  the manner in which the Argentine government regulates Law No. 27,078, the Argentina Digital Law or “LAD,” as amended by Decree No. 267/15, as well as the impact of the new Telecommunications Law, which has not yet been submitted to Congress;

·our ability to successfully implement our business strategy and to achieve synergies;

 

·our ability to introduce new products and services that enable business growth;

 

·our ability to service our debt and fund our working capital requirements;

 

·uncertainties relating to political and economic conditions in Argentina, Paraguay, United States and Uruguay;

·the impact of political and economic developments on demand for securities of Argentine companies;

·inflation, the devaluation of the Peso, the Guaraní and the Uruguayan Peso and exchange rate risks in Argentina, Paraguay and Uruguay;

·restrictions on the ability to exchange Argentine or Uruguayan Pesos or Paraguayan Guaraníes into foreign currencies and transfer funds abroad;

FORWARD-LOOKING STATEMENTS

TELECOM ARGENTINA S.A.

·                  the creditworthiness of our actual or potential customers;

 

·                  nationalization, expropriation and/or increased government intervention in companies;


·the impact of additional currency and exchange measures or restrictions on our ability to access the international capital markets and our ability to repay our dollar-denominated indebtedness;

 

·                  technological changes;

·the creditworthiness of our actual or potential customers;

 

·                  the impact of legal or regulatory matters, changes in the interpretation of current or future regulations or reform and changes in the legal or regulatory environment in which we operate;

·nationalization, expropriation and/or increased government intervention in companies;

 

·                  the effects of increased competition;

·technological changes;

 

·                  reliance on content produced by third parties;

·the impact of legal or regulatory matters, changes in the interpretation of current or future regulations or reform and changes in the legal or regulatory environment in which we operate, including regulatory developments such as sanctions regimes in other jurisdictions (e.g., the United States) which impact on our suppliers;

 

·                  increasing cost of our supplies;

·the effects of increased competition;

 

·                  inability to finance on reasonable terms capital expenditures required to remain competitive;

·reliance on content produced by third parties;

 

·                  fluctuations, whether seasonal or in response to adverse macro-economic developments, in the demand for advertising; and

·increasing cost of our supplies;

 

·inability to finance on reasonable terms capital expenditures required to remain competitive;

·                  our capacity to compete and develop our business in the future.

·fluctuations, whether seasonal or in response to adverse macro-economic developments, in the demand for advertising;

·our capacity to compete and develop our business in the future;

·the impact of increased national or international restrictions on the transfer or use of telecommunications technology; and

·the effects of a pandemic or epidemic and any measures and policies adopted by governments to combat its effects, including mandatory lockdowns and other restrictions.

 

Many of these factors are macroeconomic and regulatory in nature and therefore beyond the control of the Company’s management. Should one or more of these risks or uncertainties materialize, or underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned or projected. The Company does not intend and does not assume any obligation to update the forward-looking statements contained in this Annual Report.

 

These forward-looking statements are based upon a number of assumptions and other important factors that could cause our actual results, performance or achievements to differ materially from our future results, performance or achievements expressed or implied by such forward-looking statements. Readers are encouraged to consult the Company’s filings made on Form 6-K, which are periodically filed with or furnished to the United States Securities and Exchange Commission.

 

FORWARD-LOOKING STATEMENTS

TELECOM ARGENTINA S.A.


GLOSSARY OF TERMS

 

The following explanations are not provided as or intended to be technical definitions, but only to assist the general reader to understand certain terms used in this Annual Report.

 

2G (second-generation mobile system): Second-generation protocols using digital encoding and includes GSM, D-AMPS (TDMA) and CDMA. These protocols support high bit rate voice and limited data communications.

 

3G (third-generation mobile system): Third-generation mobile service, designed to provide high speed data, always-on data access, and greater voice capacity. 3G networks allow the transfer of both voice data services (telephony, messaging) and non-voice data (such as downloading Internet information, exchanging email, and instant messaging). The high data speeds, measured in Mbps, are significantly higher than 2G, and 3G networks technology enable full motion video, high-speed Internet access and video-conferencing.videoconferencing. 3G technology standards include UMTS, based on WCDMA technology (quite often the two terms are used interchangeably), and CDMA2000.

 

4G (fourth-generation mobile system): Fourth-generation mobile service using the LTE technology (Long Term Evolution technology).

 

Access5G (fifth-generation mobile system): (or The next major phase of mobile telecommunications standards. 5G is a complete redesign of network architecture with the flexibility and agility to support upcoming service opportunities. It delivers higher speeds, higher capacity, extremely low latency and greater reliability.

AccessesAccess (or )Accesses): Connection provided by Telecom Argentina to Internet services.

 

ADS:American Depositary Shares issued by JP Morgan, listed on the New York Stock Exchange, each representing rights to five (5) Class B Shares under a Deposit Agreement.

 

ADSL (Asymmetric Digital Subscriber Line): A type of digital subscriber line technology (DSL); a data communications technology that enables faster data transmission over copper lines than a conventional voiceband modem can provide.

 

AFIP (Administración Federal de Ingresos Públicos): The Argentine federal tax authority.

 

AFJP (Administradoras de Fondos de Jubilaciones y Pensiones): Private entities that were in charge of managing the funds of the Private Pension and Retirement System established by Law No. 24,241, until its nationalization in November 2008 pursuant to Law No. 26,425.

 

AFTIC (Autoridad Federal de Tecnologías de la Información y de las Comunicaciones): The decentralized and autonomous agency in the scope of the PEN appointed as the Regulatory AuthorityENACOM in the LAD. AFTIC was replaced by the ENACOM.

 

AMBA (Area Metropolitana Buenos Aires): An area comprising the Autonomous city of Buenos Aires and the greater Buenos Aires area.area, which constitutes the most densely populated region of Argentina. Telephone calls within the area are considered local.

 

Analog:A mode of transmission or switching that is not digital, e.g., the representation of voice, video or other not in digital form.

 

ANSES:The Argentine administrator of social security pension and retirement benefits.

 

ANSES —FGS: The Fondo de Garantía y Sustentabilidad del Sistema Integrado Previsional Argentino managed by ANSES.

 

Antitrust Authority: The Argenting enforcing authority of the antitrust statutes comprising Argentine Law 25,156, as amended, modified or supplemented from time to time, and its related decrees, resolutions and statutes, which currently is the Argentine Secretaría de Comercio Interior with the technical assistance of the CNDC.

Argentine GAAP: Generally Accepted Accounting Principles in Argentina, which we used before the adoption of IFRS.

 

ARBU (Average Revenue Billed per User): The average monthly revenue billed per user of our fixed telephony services, calculated by dividing total monthly basic charges and traffic revenue by weighted-average number of fixed telephony lines in service during the relevant measurement period.

 

GLOSSARY OF TERMS

TELECOM ARGENTINA S.A.


ARPU (Average Revenue per User): The average monthly revenue per user of our mobile telephony, broadbandInternet and cable television services, calculated by dividing total revenue (including revenue earned from cable and broadbandInternet subscription fees, mobile telephony subscription fees, cable premium services, pay-per-view fees and additional outlets but excluding mainly handset, out collect (wholesale) roaming, cell site rental and activation fee revenue) by weighted-average number of subscribers of each service during the relevant measurement period.

 

ASPO (Aislamiento Social Preventivo y Obligatorio): the mandatory and preventive social isolation measure imposed by the Argentine government.

Auction Terms and Conditions: Terms and Conditions approved by SC Resolution No. 38/14 for the awarding of frequency bands.

 

Backbone:Main connection network (mainly by fiber optics) that connect local areas.

 

BADLAR: Buenos Aires Deposits of Large Amount Rate.

Basic Telephone Services: Services or BTS: The supply of fixed telecommunications links that form part of the public telephone network, or are connected to such network, and the provision of local and long-distance telephone service (domestic and international).

 

BCBA (Bolsa de Comercio de Buenos Aires): The Buenos Aires Stock Exchange is a qualified entity according to articleSection 32 of Law No. 26,831, which acts by delegation of BYMA (Bolsas y Mercados Argentinos).

 

BCRA (Banco Central de la República Argentina): The Central Bank of Argentina.

 

Broadband: Services characterized by a transmission speed of 2 Mbps or more. These services include interactive services such as video telephone/video conferencing (both point-to-point and multipoint); video monitoring; interconnection of local networks; file transfer; high-speed fax; e-mail for moving images or mixed documents; Broadband videotext; video on demand and retrieval of sound programs or fixed and moving images.

 

Broadcasting:Simultaneous transmission of information to all Nodes and terminal equipment of a network.

 

BYMA (Bolsas y Mercados Argentinos S.A.): The stock market formed by a spin-off of certain assets of the MERVAL relating to its stock market operations and capital contributions on the Buenos Aires Stock Exchange. Effective April 17, 2017, the listing of all securities listed on MERVAL were automatically transferred to BYMA, as successor of MERVAL’s activities.stock exchange.

 

Cablevisión:Cablevisión S.A., together with its consilidatedconsolidated subsidiaries, disolveddissolved without liquidation as a result of the Merger.

 

Carrier: Company that makes available the physical telecommunication network.

 

Caja de Valores S.A: Argentine depository that custodies both public and private trading securities.

CDMA (Code Division Multiple Accesses): A digital wireless technology used in radio communication for transmission between a mobile handset and a radio base station. It enables the simultaneous transmission and reception of several messages, each of which has a coded identity to distinguish it from the other messages.

 

Cell:Geographical portion of the territory covered by a base transceiver station.

 

Cellular:A technique used in mobile radio technology to use the same spectrum of frequencies in one network multiple times. Low power radio transmitters are used to cover a “Cell” (i.e., a limited area) so that the frequencies in use can be reused without interference for other parts of the network.

 

Channel:The portion of a communications system that connects a source to one or more destinations. Also called circuit, line, link or path.

 

Churn: The termination of a mobile telephony, cable television or broadbandInternet services customer’s account. The churn rate is determined by calculating the total number of disconnected customers of each of our mobile telephony, cable television and broadbandInternet services over a given period as a percentage of the initial number of customers for such services as of the beginning of the applicable measurement period. Because most of our mobile telephony services are provided under the Personal trademark,brand, historical average monthly churn rates for mobile telephony services customers, included in this Annual Report for comparative purposes, reflect Telecom’s operations prior to the consummation of the Merger.

 

GLOSSARY OF TERMS

TELECOM ARGENTINA S.A.

CNC (Comisión Nacional de Comunicaciones): The Argentine National Communications Commission, which was replaced by the AFTIC, which was replaced by the ENACOM (in December 2015).

 

CNDC (Comisión Nacional de Defensa de la Competencia): Argentine Antitrust Commission.

GLOSSARY OF TERMSTELECOM ARGENTINA S.A.

 


CNV (Comisión Nacional de Valores): The Argentine National Securities Commission.

 

CONATEL:National Communications Commission of Paraguay.

Convergence Products: The purpose of the Merger is to enable Telecom to efficiently offer, in line with the trend both at a national and international level, technological convergence products between media and telecommunications services, in a separate or independent basis, to provide voice, data, sound and image services, both fixed and wireless, in a single product or groups of products for the benefit of consumers of such multiple individual services.

COSO: Committee of Sponsoring Organizations of the Treadway Commission.

 

CPI: Consumer Price Index.

CPP (Calling Party Pays):Customer / Subscriber / Access: The system whereby a client of any of the party placingservices we provide. A single subscriber may contract for multiple services, and we believe that it is more useful to count the number of accesses a callsubscriber has contracted for, than to merely count the number of our subscribers. For example, a mobile handsetsubscriber that has fixed line telephony service and broadband service is counted as two subscribers rather than the mobile subscriber pays for the air time charges for the call.

as one subscriber.

CVH:Cablevisión Holding S.A.

 

D-AMPS (Digital-Advanced Mobile Phone Service): It is a digital version of AMPS (Advanced Mobile Phone Service), the original Analog standard for mobile telephone service in the United States.

 

Decree No. 267/15:Digital: Decree that modifies some aspects of the LAD and Audiovisual Communication Services Law published in the Official Gazette on January 4, 2016. This Decree was subsequently amended by Decree No. 1,340/16 issued by PEN and published in the Official Gazette on January 2, 2017.

Digital:A mode of representing a physical variable such as speech using digits 0 and 1 only. The digits are transmitted in binary form as a series of pulses. Digital networks are rapidly replacing the older Analog ones. Digital networks allow for higher capacity and higher flexibility through the use of computer-related technology for the transmission and manipulation of telephone calls. Digital systems offer lower noise interference and can incorporate encryption as a protection from external interference.

 

DWDM (Dense Wavelength Division Multiplexing): Technology for multiplying and transmitting different wavelengths along a single optical fiber contemporaneously.

 

ENACOM (Ente Nacional de Comunicaciones): or the Regulatory Authority: Argentine Communications Body within the scope of the Ministerio de Modernización, acting as Regulatory Authorityregulatory authority as of the date of this Annual Report. The ENACOM absorbed the functions of AFTIC.

 

ENTel (Empresa Nacional de Telecomunicaciones): National Telecommunications Company which operated the telecommunications system in Argentina prior to the Transfer Date.

 

Personal Envíos: Personal Envíos S.A.

 

Fiber Optic: Thin glass, silica or plastic wires, building the infrastructure base for data transmission. A Fiber Optic cable contains several individual fibers, and each of them is capable of driving a signal (light impulse) at unlimited bandwidth. Fiber Optics are usually employed for long-distance communication: it can transfer “heavy” data loads, and the signal reaches the recipient, protected from possible disturbances along the way. The driving capacity of Fiber Optics is higher than the traditional copper cable ones.

 

Fintech: Fintech Telecom LLC.

 

FTT (Fiber to the …): Fixed assets: It is the term used to indicate any network architecture that uses fiber optic cables in partial or total substitutionIncludes PP&E, Intangible assets, Goodwill and Rights of traditional copper cables used in telecommunications access networks. The various technological solutions differ in the point of the distribution network where the fiber connection is made, with respect to the end-user’s location.use assets.

GLOSSARY OF TERMS

TELECOM ARGENTINA S.A.

FTTC (Fiber to the Curb or Fiber to the Cabinet): In the case of FTTC the fiber connection reaches the equipment (distribution cabinet) located on the pavement, from where copper connections are run to the customer.

 

FTTH (Fiber to the Home): In the case of FTTH the fiber connection terminates inside the customer premises.

 

GCL: General Corporations Law.

 

GDP: Gross Domestic Product.

 

GPON: Gigabit-capable Passive Optical Network. A flexible optical fiber access network capable of supporting the bandwidth requirements of business and residential services. GPON systems are characterized, in general, by an optical line termination (“OLT”) system and an optical network unit (ONU) or optical network termination (“ONT”) with a passive optical distribution network interconnecting them. There is, in general, a one-to-many relationship between the OLT and the ONU/ONTs, respectively.

 

GLOSSARY OF TERMSTELECOM ARGENTINA S.A.


GPRS (General Packet Radio Service): An enhanced second-generation mobile technology used to transmit data over mobile networks. GPRS transmits and receives packets of data in bursts instead of using continuous open radio channels, and it is used to add faster data transmission speed to GSM networks. GPRS is packet-based rather than circuit-based technology.

 

GSM (Global System for Mobile Communications): A standard for digital mobile technology used worldwide, which works on 900 MHz and 1,800 MHz band.

IASB: International Accounting Standards Board.

 

HFC (Hybrid Fiber-Coaxial): Network that incorporates both optical fiber and coaxial cable to create a broadband network.

ICT (Information and Communication Technology): Broad area concerned with information technology, telecommunications networking and services and other aspects of managing and processing information, especially in large organizations.

 

ICT services (Information and Communication Technology services): Services to transport and distribute signals or data, such as voice, text, video and images, provided or requested by third-party users, through telecommunications networks. Each service is subject to its specific regulatory framework.

 

IFC:International Finance CorporationCorporation.

 

IFRS: International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

IGJ (Inspección General de Justicia): General Board of Corporations.

 

INDEC (Instituto Nacional de Estadísticas y Censos): The Argentine National Statistics and Census Institute.

 

IoT: Internet of Things.

IP (Internet Protocol): A set of communications protocols for exchanging data over the Internet.

 

ISP (InternetISP: Internet Service Provider): Providers.

IRU: A vendor who provides access to the Internet and World Wide Web.Indefeasible Rights of Use.

 

IT: Information Technology.

 

LAD (Ley Argentina Digital): Law No. 27,078, Argentina’s Digital Law.

 

Law No. 25,561 (Ley de Emergencia Económica y Reforma del Régimen Cambiario): See “Public Emergency Law.”

Law No. 26,831 (Ley de Mercado de Capitales): Argentine Capital Markets Law.

 

List of Conditions: The Privatization Regulations, including the Pliego de Bases y Condiciones, was approved by Decree No. 62/90, as amended. Pursuant to the List of Conditions, Telecom Argentina was required to comply with rate regulations and meet certain minimum annual standards regarding the expansion of its telephone system and improvements in the quality of its service to maintain and extend the exclusivity of its non-expiring license to provide fixed-line public telecommunications services and Basic Telephone Services in the Northern Region of Argentina. After the market was opened to competition, the outstanding obligations that continueare in force were the rate regulations and those related to the quality of service; the obligations related to the expansion of the network are no longer required.in force.

 

GLOSSARY OF TERMS

TELECOM ARGENTINA S.A.

Merger:Merger between Telecom Argentina and Cablevisión, effective as of January 1, 2018.

 

MERVAL (Mercado de Valores de Buenos Aires S.A.): Securities Market of Buenos Aires S.A. On April 17, 2017, BYMA, a stock market authorized by CNV who succeeded to the MERVAL, started the automatic transfer of all the species listed in the MERVAL to BYMA. BYMA was created as a result of the spin-off (escisión) of some of the assets of the MERVAL and the capital contribution by the BCBA of its participation in Caja de Valores S.A., the clearing house for securities traded in that market.

M2M: Machine to Machine, information exchange between two remote machines.

 

MBOU: Mb per user per month.

 

MMS (Mobile Multimedia Services): Represent an evolution of the SMS and the Enhanced Messaging Service (“EMS”) using various mono-medial elements (text, design, photos, video-clips and audio), which are synchronized and combined allowing them to be packed together and sent to GSM-GPRS platforms.

 

GLOSSARY OF TERMSTELECOM ARGENTINA S.A.

Mobile service: A mobile telephone service provided by means of a network of interconnected low-powered base stations, each of which covers one small geographic cell within the total cellular system service area.

 

Modem: Modulator/Demodulator. A device that modulates digital data to allow their transmission on Analog channels, generally consisting of telephone lines.

 

Multimedia: A service involving two or more communications media (e.g., voice, video, text, etc.) and hybrid products created through their interaction.

NDF (Non Deliverable Forward) Agreement: A generic term for a set of derivatives that covers national currency transactions including foreign exchange forward swaps, cross currency swaps and coupon swaps in nonconvertible or highly restricted currencies. The common characteristics of these contracts are that they involve no exchange of principal, are fixed at a predetermined price and are typically settled in U.S. dollars (or sometimes in Euros) at the prevailing spot exchange rate taken from an agreed source, time, and future date.

 

Network:An interconnected collection of elements. In a telephone network, these consist of switches connected to each other and to customer equipment. The transmission equipment may be based on fiber optic or metallic cable or point-to-point radio connectors.

 

Node:Topological network junction, commonly a switching center or station.

 

Nortel:Nortel Inversora S.A., the direct parent company of Telecom Argentina S.A. until November 30, 2017, when it was absorbed by Telecom Argentina pursuant to the Reorganization.

 

Northern Region: the Argentine government’s privatization program as set forth in the State Reform Law approved in August 1989 and subsequent decrees, the “Privatization Regulations” provided for the division of the Argentine telecommunications network operated by ENTel into two regions, the northern region (the “Northern Region”) and the southern region (the “Southern Region”) of Argentina. Additionally, these two regions are set forth in Decree No. 1,461/93, which ratified the Resolution No. 575/93 which approved the list of conditions for the public offer for the provision of mobile telecommunication services.

 

OTT (Over the Top): Over the Top applications or services are those services that bypass traditional network distribution approaches and run over, or on top of, internet networks. OTT refers, in general, to content from a third-party that is delivered to an end-user over the internet that is not provided directly by end-user Internet Service Provider.

 

Outsourcing:Hiring outsiders to perform various telecommunications services, which may include planning, construction, or hosting of a network or specific equipment belonging to a company.

 

Packs: Packages integrated by SMS and minutes that can be purchased or added to those plans that recharge credit.

 

PBU (Prestación Básica Universal Obligatoria): Compulsory universal telecommunication service established by Decree No. 690/20 and regulated by ENACOM Resolution No. 1,467/20.

PCS (Personal Communications Service): A mobile communications service with systems that operate in a manner similar to cellular systems.

 

GLOSSARY OF TERMS

TELECOM ARGENTINA S.A.

PEN (Poder Ejecutivo Nacional): The executive branch of the Argentine government.

 

Penetration:The measurement of the take-up of services. As of any date, the penetration is calculated by dividing the number of subscribers by the population to which the service is available and expressed as a percentage.

 

Personal: Telecom Personal S.A. Until November 30, 2017, Telecom Argentina owned 100% of Personal. Commencing December 1, 2017, pursuant to the Reorganization, mobile services provided by Personal have been provided by Telecom Argentina.

 

Pesification: Modification of the exchange rate by the Argentine government pursuant to the Public Emergency Law.

Platform: The total input, including hardware, software, operating equipment and procedures, for producing (production platform) or managing (Management platform) a particular service (service platform).

 

Presubscription of Long-Distance Service:PP&E: The selection by the customer of internationalProperty, plant and domestic long-distance telecommunications services from a long-distance telephone service operator.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.

GLOSSARY OF TERMSTELECOM ARGENTINA S.A.

 


Privatization Regulations: The Argentine government’s privatization program as set forth in the State Reform Law approved in August 1989 and subsequent decrees.

 

Public Emergency Law:Pulse: The Public Emergency and Foreign Exchange System Reform Law No. 25,561 adopted by the Argentine government on January 6, 2002, as amended by Law No. 25,790, Law No. 25,820, Law No. 25,972, Law No. 26,077, Law No. 26,204, Law No. 26,339, Law No. 26,456, Law No. 26,563, Law No. 26,729, Law No. 26,896 and Law No. 27,200, which was in effect until December 31, 2017. Among others, the Public Emergency Law granted the PEN the power to set the exchange rate between the peso and foreign currencies and to issue regulations related to the foreign exchange market and to renegotiate public service agreements. The Public Emergency Law ceased to be effective on December 31, 2017.

Pulse:Unit on which the rate structure of the regulated fixed line services is based.

 

Quadruple play: Means the integration of fixed and mobile telecommunication services as well as pay television and Internet services.

 

RECPAM (Resultado por exposición a los cambios en el poder adquisitivo de la moneda): Restatement Adjustment Gain (Loss).

 

Regulatory Bodies: Collectively or individually, the ENACOM, the AFTIC, the SC and the CNC.

 

Reorganization:Corporate reorganization pursuant to which Telecom Argentina absorbed Sofora, Nortel and Telecom Personal.

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).

 

Satellite:Satellites are used, among other things, for links with countries that cannot be reached by cable to provide an alternative to cable and to form closed user networks.

 

SBT (Servicio Básico Telefónico): Basic Telephone Service.

SC (Secretaría de Comunicaciones): The Argentine Secretary of Communications, which was replaced by the AFTIC and subsequently by the ENACOM.

 

SCMA(Servicio de Comunicaciones Móviles Avanzadas): Mobile Advanced Communications Service.

 

SEC:The Securities and Exchange Commission of the United States of America.

 

GLOSSARY OF TERMS

TELECOM ARGENTINA S.A.

Service Provider: The party that provides end users and content providers with a range of services, including a proprietary, exclusive or third-party service center.

 

SMS (Short Message Service): Short text messages that can be received and sent through GSM-network connected mobile phones. The maximum text length is 160 alpha-numerical characters.

 

Sofora:Sofora Telecomunicaciones S.A., the indirect parent company of Telecom Argentina S.A. through its participation in Nortel until November 30, 2017, when it was absorbed by Telecom Argentina pursuant to the Reorganization.

 

Southern Region: See “Northern RegionRegion”.

 

SRMC (Servicios de Radiocomunicaciones Móviles Celular): Cellular Mobile Radiocommunications Service.

 

STM (Servicio Telefónico Móvil): Mobile Telephone Service.

 

SU Fund: Universal Service Fiduciary Fund.

TDMA (Time Division Multiple Accesses): A technology for digital transmission of radio signals between, for example, a mobile handset and a radio base station. TDMA breaks signals into sequential pieces of defined length, places each piece into an information conduit at specific intervals and then reconstructs the pieces at the end of the conduit.

 

Telecom Argentina USA: Telecom Argentina USA, Inc., a corporation organized under the laws of the State of Delaware.

 

Telecom Italia: Telecom Italia S.p.A.

Telefónica:Telefónica de Argentina S.A.

 

Telintar:Telecomunicaciones Internacionales de Argentina Telintar S.A.

 

Terms and Conditions: See “Auction“Auction Terms and Conditions.Conditions”.

 

TLRD (Terminación Llamada Red Destino): Termination charges from third parties’ mobile networks.

 

TMF Administration Trust / TMF Trust Company: Administration Trust – Telecom Argentina’s refinancing plan agreed with TMF Trust Co.

GLOSSARY OF TERMSTELECOM ARGENTINA S.A.


Transfer Date: November 8, 1990, the date on which Telecom Argentina commenced operations upon the transfer from the Argentine government of the telecommunications system in the Northern Region of Argentina that was previously owned and operated by ENTel.

 

Tuves Paraguay: Tuves Paraguay S.A.

 

UMTS (Universal Mobile Telecommunications System): Third-generation mobile communication standard.

 

Universal Service: 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.

 

URSEC (Unidad Reguladora de Servicios de Comunicaciones): Uruguayan Regulatory Authority.

UVA (Unidad de Valor Adquistivo): Purchasing Value Unit.

Value Added Services (VAS): Services that provide a higher level of functionality than the basic transmission services offered by a telecommunications network such as video streaming, “Personal Video”,Video,” “Nube Personal” (Cloud services), M2M (Machine to Machine communication), social networks, “Personal Messenger”,Messenger,” content and entertainment (SMS subscriptions and content, games, music, etc.), MMS and voice mail.

 

VLG Argentina: VLG S.A.U., an Argentine corporation that is a shareholder of Telecom Argentina and controlled by CVH. (formerly known as VLG Argentina, LLC).

 

W de Argentina Inversiones/WAI: W de Argentina Inversiones S.A., a former shareholder of Telecom Argentina.

Wi-Max (Worldwide Interoperability for Microwave Access): A technology that allows mobile access to Broadband telecommunications networks. It is defined by the Wi-Max Forum, a global consortium formed by major companies in the field of fixed and mobile telecommunications, which has the purpose to develop, test and promote the interoperability of systems.

GLOSSARY OF TERMS

TELECOM ARGENTINA S.A.


PART I

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.KEY INFORMATIONITEM 3.KEY INFORMATION

Selected Financial Data

 

SelectedThe following table presents certain selected consolidated financial data. It is to be read in conjunction with the rest of this Annual Report, in particular, the sections “Presentation of Financial DataInformation”, “Item 4 —Information on the Company” and “Item 5—Operating and Financial Review and Prospects,” and the Consolidated Financial Statements. The selected consolidated income statement data for the years ended December 31, 2020, 2019 and 2018 and the selected consolidated financial position data as of December 31, 2020 and 2019 are derived from, and are qualified in their entirety by reference to our Consolidated Financial Statements.

 

The selected consolidated income statement data for the years ended December 31, 2018, 2017 and 2016 and the selected consolidated financial position data as of December 31, 2018 and 2017 have been preparedrestated pursuant to IAS 29 to reflect the effect of hyperinflation in accordance with IFRS as issued byArgentina. As a result of such restatement, the IASB and have been derived from our Consolidated Financial Statements included elsewhere in this Annual Report.

Our Consolidated Financial Statements and the financial information included elsewhere in this Annual Report have been restated in terms of the current currency in accordance with IFRS. The Consolidated Financial Statements and theselected financial information included in this Annual Report for all the periodsdiffer from previously reported are presented on the basis of constant Argentine pesosfinancial information.

The selected consolidated financial position data as of December 31, 2018. Due to the high level of inflation prevailing in Argentina in the last few years, the Company’s Management analyzed the conditions established by IAS 29 paragraph 3 to consider an economy as hyperinflationary. Based on the analysis made in 2018, the Company’s Management considers that there is evidence to consider Argentina’s economy as “hyperinflationary” under IAS 29 for accounting periods ending after July 1, 2018. See “Presentation of Financial Information,”  “—Risk factors—Risk Related to Argentina—Inflation could accelerate, causing adverse effects on the economy and negatively impacting Telecom’s margins”, “Item 5—Operating and Financial Review and Prospects—Economic and Political Developments in Argentina” and Note 1.e) to the Consolidated Financial Statements.

Telecom’s Consolidated Financial Statements and the selected financial data included in this Annual Report have been prepared on a consolidated basis.

Our financial statement data as of and for the years ended December 31, 2017 and 2016 are not comparable with our financial statement data as of and for the year ended December 31, 2018 because of the Merger, which was consummated on January 1, 2018. Effective as of the Merger Effective Date, Cablevisión merged into Telecom Argentina. We have accounted for the Merger as a business combination using the acquisition method of accounting under IFRS 3 “Business Combination” (“IFRS 3”) to account for assets and liabilities of Telecom as of January 1, 2018. The Merger constituted a “reverse acquisition,” pursuant to which Cablevisión (the legal absorbed entity) was considered the accounting acquirer and Telecom Argentina (the surviving entity) was considered the accounting acquire (See Item 5 “Operating and Financial Review and Prospects”). Accordingly, the financial statements of Telecom for periods prior to the Merger Effective Date reflect the historical financial information of Cablevisión, as restated in terms of the current currency to take into account the effect of inflation in Argentina. The information as of and for the year ended December 31, 2018 incorporates, based on the figures corresponding to Cablevisión, the effect of applying the acquisition method to Telecom Argentina to its fair value in accordance with IFRS 3 and the operations of Telecom Argentina as from January 1, 2018. Such figures are presented in this Annual Report restated in terms of the current currency to take into account the effect of inflation in Argentina.

The factors that were considered in determining that Cablevisión should be treated as the accounting acquirer in the Merger were:

(i)    the relative voting rights in the surviving entity (55% for the former shareholders of Cablevisión and 45% for the former shareholders of Telecom);

(ii)   the composition of the board of directors in the surviving entity and other committees (audit, supervisory and executive);

(iii)  the relative fair value assigned to Cablevisión and Telecom; and

(iv)  the composition of the key senior management of the surviving entity.

For more information, see Note 1.c), 4.a) and 27.a) to our Consolidated Financial Statements.

Accordingly, the financial and operating data for periods prior to the Merger Effective Date reflect the information of Cablevisión.

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATA

TELECOM ARGENTINA S.A.

You should read the information below in conjunction with our Consolidated Financial Statements and the notes thereto, as well as “Presentation of Financial Information” and “Item 5—Operating and Financial Review and Prospects.”

The summary financial data as of and for each of the two years ended December 31, 2015 and 2014 havehas not been presented as theseit cannot be provided on a restated basis without unreasonable effort or expense.

 

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATA

TELECOM ARGENTINA S.A.


CONSOLIDATED SELECTED INCOME STATEMENT AND FINANCIAL POSITION DATA

 

 2020 2019 2018 2017 2016 (8) 

 

2018

 

2017 (8)

 

2016 (8)

 

           

 

(P$ million, except per share and
per ADS data in P$)

 

 (P$ million, except per share and per ADS data in P$) 

INCOME STATEMENT DATA

 

 

 

 

 

 

 

                    

Total revenues

 

168,046

 

66,649

 

60,405

 

  301,596   322,686   351,948   139,586   126,510 

Operating costs (without depreciation, amortization and impairment of PP&E)

 

(111,678

)

(42,536

)

(40,206

)

Operating costs — depreciation,amortization and impairment of PP&E and intangible assets

 

(35,111

)

(9,804

)

(7,883

)

Operating costs (without depreciation, amortization and impairment of fixed assets)  (198,708)  (217,744)  (233,892)  (89,085)  (84,205)
Operating costs – depreciation, amortization and impairment of fixed assets  (82,594)  (83,439)  (73,535)  (20,533)  (16,510)

Operating income

 

21,257

 

14,309

 

12,316

 

  20,294   21,503   44,521   29,968   25,795 

Other, net (1)

 

(18,559

)

1,066

 

4,245

 

  (17,147)  (7,506)  (38,870)  2,232   8,890 

Income tax benefit (expense)

 

2,838

 

(5,516

)

(6,015

)

Net income

 

5,536

 

9,859

 

10,546

 

Income tax (expense) benefit  (8,251)  (19,290)  5,943   (11,553)  (12,597)
Net (loss) income  (5,104)  (5,293)  11,594   20,647   22,088 

Other Comprehensive (Loss) Income, net of tax

 

1,317

 

(713

)

(1,567

)

  (1,822)  (2,927)  3,142   (1,481)  (3,282)

Total Comprehensive Income

 

6,853

 

9,146

 

8,979

 

Total Comprehensive Income attributable to Telecom Argentina

 

6,425

 

9,090

 

8,922

 

Total Comprehensive (Loss) Income  (6,926)  (8,220)  14,736   19,166   18,806 

Total Comprehensive (Loss) Income attributable to Telecom Argentina

  (7,200)  (8,438)  13,458   19,035   18,686 

Total Comprehensive Income attributable to Non-controlling Interest

 

428

 

56

 

57

 

  274   218   1,278   131   120 

Number of shares outstanding at year-end (in millions of shares) (2)

 

2,154

 

0.120

 

0.120

 

  2,154   2,154   2,154   0.120   0.120 

Net income per share (basic and diluted) (3)

 

2.46

 

8.21

 

8.83

 

Net income per ADS (4)

 

12.30

 

n/a

 

n/a

 

Net (loss) income per share attributable to Telecom Argentina (basic and diluted) (3)  (2.65)  (2.78)  5.15   17.21   18.49 
Net (loss) income per ADS (4)  (13.25)  (13.89)  25.76   n/a   n/a 

Dividends per share (5)

 

13.38

 

23,083

 

13,025

 

  11.94   22.64   28.02   48,344   27,278 

Dividends per ADS (6)

 

66.90

 

n/a

 

n/a

 

  59.7   113.17   140.12   n/a   n/a 

 

 

 

 

 

 

 

                    

FINANCIAL POSITION DATA

 

 

 

 

 

 

 

                    

Current assets

 

33,487

 

10,626

 

n/a

 

  53,263   69,129   70,134   22,255   n/a 

PP&E and Intangible assets

 

210,346

 

50,336

 

n/a

 

PP&E, Intangible assets and Rights of Use Assets  442,661   460,223   440,528   105,422   n/a 

Goodwill

 

120,449

 

31,954

 

n/a

 

  251,908   252,052   252,262   66,923   n/a 

Other non-current assets

 

7,456

 

1,154

 

n/a

 

  4,222   5,693   15,627   2,416   n/a 

Total assets

 

371,738

 

94,070

 

n/a

 

  752,054   787,097   778,551   197,016   n/a 

Current liabilities

 

53,445

 

18,621

 

n/a

 

  106,050   117,056   111,934   38,999   n/a 

Non-current liabilities

 

89,380

 

20,421

 

n/a

 

  257,149   248,214   187,200   42,768   n/a 

Total liabilities

 

142,825

 

39,042

 

n/a

 

  363,199   365,270   299,134   81,767   n/a 

Total equity

 

228,913

 

55,028

 

n/a

 

  388,855   421,827   479,417   115,249   n/a 

Equity attributable to Telecom Argentina

 

225,686

 

54,182

 

n/a

 

  382,456   415,335   472,659   113,476   n/a 

Equity attributable to Non-controlling Interest

 

3,227

 

846

 

n/a

 

  6,399   6,492   6,758   1,773   n/a 

 

 

 

 

 

 

 

Total Capital Stock (7)

 

2,169

 

1,200

 

n/a

 

  2,154   2,154   2,169   1,200   n/a 

  


(1)Other, net includes Earnings from associates, Debt financial expenses and Other financial results, net.

(1)Other, net includes Earnings (losses) from associates, Debt financial expenses and Other financial results, net.
(2)Number of ordinary shares outstanding at year-end (excludes treasury shares for the year ended December 31, 2018). For the years ended December 31, 2017 and 2016, the Company has divided the net income attributable to the shareholders of the Controlling Company of each period based on 1,184,528,406 ordinary shares, which arise as a result of multiply 120,000 ordinary shares of Cablevisión outstanding for such years by the exchange ratio established in the pre-merger commitment (1 ordinary share of Cablevisión for each 9,871.07005 new shares of Telecom Argentina).
(3)Calculated based on the weighted average number of ordinary shares outstanding during each period (2,153,688,011 ordinary shares for the years 2020, 2019 and 2018 and 1,184,528,406 ordinary shares for the years 2017 and 2016). For the years ended December 31, 2017 and 2016, the Company has divided the net income attributable to the shareholders of the Controlling Company of each period based on 1,184,528,406 ordinary shares, which arise as a result of multiply 120,000 ordinary shares of Cablevisión outstanding for such years) by the exchange ratio established in the pre-merger commitment (1 ordinary share of Cablevisión for each 9,871.07005 new shares of Telecom Argentina).

(2)Number of ordinary shares outstanding at year-end (excludes treasury shares). For the years ended December 31, 2017 and 2016, the Company has divided the net income attributable to the shareholders of the Controlling Company of each period based on 1,184,528,406 ordinary shares, which arise as a result of multiply 120,000 ordinary shares of Cablevisión outstanding for such years by the exchange ratio established in the pre-merger commitment (1 ordinary share of Cablevisión for each 9,871.07005 new shares of Telecom Argentina).

(3)Calculated based on the weighted average number of ordinary shares outstanding during each period (2,153,688,011 ordinary shares for the year 2018, 1,184,528,406 ordinary shares for the years 2017 and 2016). For the years ended December 31, 2017 and 2016, the Company has divided the net income attributable to the shareholders of the Controlling Company of each period based on 1,184,528,406 ordinary shares, which arise as a result of multiply 120,000 ordinary shares of Cablevisión outstanding for such years) by the exchange ratio established in the pre-merger commitment (1 ordinary share of Cablevisión for each 9,871.07005 new shares of Telecom Argentina).

(4)Calculated based on the equivalent in ADSs to the weighted average number of ordinary shares outstanding during each period (430,737,602 ADSs for the year2020, 2019 and 2018 and 236,905,681 ADSs for the years 2017 and 2016).

(5)Dividends per share translated into U.S. dollars amounts to US$0.14, US$0.27, US$0.35, US$1,237.69 and US$819.70 as of December 31, 2020, 2019, 2018, 2017 and 2016 respectively. The translation into U.S. dollar was made using the ask rate published by the Banco de la Nación Argentina (National Bank of Argentina) prevailing as of the date when dividends were available to Telecom Argentina’ shareholders.
(6)Dividends per ADS translated into U.S. dollars amounts to US$0.72, US$1.35 and US$1.77 as of December 31, 2020, 2019 and 2018, respectively. The translation into U.S. dollar was made using the ask rate published by the Banco de la Nación Argentina (National Bank of Argentina) prevailing as of the date when dividends were available to Telecom Argentina’ shareholders.
(7)Ordinary shares of P$1 of nominal value each.

(5)Dividends per share translated into U.S. dollars amounts to US$0.35; US$1,237.69 and US$819.70 as of December 31, 2018, 2017 and 2016 respectively. The translation into US Dollar was made using the ask rate published by the Banco de la Nación Argentina (National Bank of Argentina) prevailing as of the date when dividends were available to Telecom Argentina’ shareholders.

(6)Dividends per ADS translated into U.S. dollars amounts to US$1.77 as of December 31, 2018. The translation into US Dollar was made using the ask rate published by the Banco de la Nación Argentina (National Bank of Argentina) prevailing as of the date when dividends were available to Telecom Argentina’ shareholders.

(7)Ordinary shares of P$1 of nominal value each.

(8)Comparatives Comparative figures as of December 31, 2017 and 2016 arise from the consolidated financial statements of Telecom as of December 31, 2018.

2018, which have been restated in current currency as of December 31, 2020 to consider the effect of inflation in accordance to the requirements of IAS 29. 

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATA

TELECOM ARGENTINA S.A.


OTHER SELECTED DATA

 

 

2018

 

2017

 

2016

 

 2020 2019 2018 2017 2016 

Number of fixed telephony services lines (thousands)(1)

 

3,544

 

12.7

 

7.7

 

  2,821   3,183   3,544   12.7   7.7 

ARBU (in P$/month) (national + international) (5)

 

270.8

 

23.7

 

21.3

 

  574.3   602.0   567.2   49.7   44.7 
Number of Fibertel IP fixed telephony services lines (thousands)  347   121   25   n/a   n/a 

Internet access (thousands)

 

4,110

 

2,318

 

2,166

 

  4,146   4,123   4,138   2,318   2,166 

ARPU Internet (in P$/month) (6)

 

762.0

 

890.1

 

738.8

 

  1,271.0   1,441.5   1,595.8   1,864.2   1,547.4 

Personal Mobile telephony services lines (thousands)

 

18,316

 

n/a

 

n/a

 

  18,433   18,932   18,316   n/a   n/a 

ARPU Personal (in P$/month) (7)

 

213.9

 

n/a

 

n/a

 

  436.2   431.7   448.0   n/a   n/a 

MBOU Personal (in Mb per user/month) (2)

 

2,771.2

 

n/a

 

n/a

 

  3,984.7   3,411.4   2,771.2   n/a   n/a 

IDEN telephony services lines (thousands)

 

314.3

 

716.6

 

n/a

 

ARPU IDEN (in P$/month) (8)

 

329.8

 

348.9

 

n/a

 

Núcleo’s customers (thousands)(3)

 

2,387

 

n/a

 

n/a

 

  2,351   2,373   2,409   n/a   n/a 

ARPU Núcleo (in P$/month) (9)

 

206.3

 

n/a

 

n/a

 

ARPU Núcleo (in P$/month) (8)  450.5   472.4   432.1   n/a   n/a 

MBOU Núcleo (in Mb per user/month) (2)

 

4,927.7

 

n/a

 

n/a

 

  7,433.6   6,754.4   4,927.7   n/a   n/a 

Cable TV subscribers (thousands)

 

3,454

 

3,503

 

3,528

 

  3,543   3,517   3,532   3,503   3,528 

ARPU Cable TV (in P$/month) (10)

 

854.3

 

835.4

 

759.7

 

ARPU Cable TV (in P$/month) (9)  1,382.2   1,586.6   1,789.2   1,749.7   1,591.1 

Headcount (4)

 

25,343

 

11,384

 

10,236

 

  23,254   23,728   25,343   11,384   10,236 

 


(1)Includes lines customers, own usage, public telephony and Integrated Services Digital Network (“ISDN”) channels.

(1)Includes lines customers, own usage, public telephony and Integrated Services Digital Network (“ISDN”) channels.
(2)Correspond to customers with consumption higher than 10Mb.
(3)Including Wi-Max Internet customers.
(4)Including temporary employees, if any.
(5)Includes P$86.1, P$244.4, P$347.6, P$35.2 and P$34 related to the restatement in current currency as of December 31, 2020 in accordance to IAS 29 as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(6)Includes P$190.8, P$571.3, P$971.5, P$1,320.5 and P$1,175.8 to the restatement in current currency as of December 31, 2020 in accordance to IAS 29 as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(7)Includes P$63.3, P$175.3 and P$273.8 related to the restatement in current currency as of December 31, 2020 in accordance to IAS 29 as of December 31, 2020, 2019 and 2018, respectively.
(8)Includes P$67.5, P$191.7 and P$265 related to the restatement in current currency as of December 31, 2020 in accordance to IAS 29 as of December 31, 2020, 2019 and 2018.
(9)Includes P$206.5, P$626.5, P$1,098.6, P$1,239.4 and P$1,209 related to the restatement in current currency as of December 31, 2020 in accordance to IAS 29 as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

(2)Correspond to customers with consumption higher than 10Mb.

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATATELECOM ARGENTINA S.A.

(3)Including Wi-Max Internet customers.

(4)Including temporary employees, if any.

(5)Includes 51.5, 9.2 and 10.6 related to the effect of inflation adjustment under IAS29 as of December 31, 2018, 2017 and 2016, respectively.

(6)Includes 138.7, 346.4 and 367.2 related to the effect of inflation adjustment under IAS29 as of December 31, 2018, 2017 and 2016, respectively.

(7)Includes 39.9 related to the effect of inflation adjustment under IAS29 as of December 31, 2018.

(8)Includes 62.7 and 135.8 related to the effect of inflation adjustment under IAS29 as of December 31, 2018 and 2017, respectively.

(9)Includes 39.2 related to the effect of inflation adjustment under IAS29 as of December 31, 2018.

(10)Includes 158.1, 325.1 and 377.6 related to the effect of inflation adjustment under IAS29 as of December 31, 2018, 2017 and 2016, respectively.

 


Exchange Rates

 

The following tables show, for the periods indicated, certain information regarding the exchange rates for U.S. dollars, expressed in nominal pesosPesos per dollar (ask price published by Banco de la Nación Argentina). See “Item 10—Additional Information—Foreign Investment and Exchange Controls in Argentina.”Argentina”.

 

 

 

Average(1)

 

End of Period

 

 

 

 

 

 

 

Year Ended December 31, 2016

 

14.99

 

15.89

 

Year Ended December 31, 2017

 

16.73

 

18.65

 

Year Ended December 31, 2018

 

29.26

 

37.70

 

Month Ended October 31, 2018

 

37.06

 

35.95

 

Month Ended November 30, 2018

 

36.48

 

37.72

 

Month Ended December 31, 2018

 

37.83

 

37.70

 

Month Ended January 31, 2019

 

37.39

 

37.35

 

Month Ended February 28, 2019

 

38.40

 

39.15

 

March 2019 (through March 19, 2019)

 

40.87

 

40.50

 


(1)Yearly data reflect average of month-end rates.Monthly data reflect average of day-end rates.

  Average(1)  End of Period 
Year Ended December 31, 2016  14.99   15.89 
Year Ended December 31, 2017  16.73   18.65 
Year Ended December 31, 2018  29.26   37.70 
Year Ended December 31, 2019  49.31   59.89 
Year Ended December 31, 2020  71.61   84.15 
March 2021 (through March 22, 2021)  -   91.57 

 

(1)Yearly data reflect average of month-end rates.

Sources: Banco de la Nación Argentina

 

Capitalization and Indebtedness

 

Not applicable.

 

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATA

TELECOM ARGENTINA S.A.

Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

Risk Factors

 

This section is intended to be a summary of more detailed discussions contained elsewhere in this Annual Report. The risks described below are not the only ones that we face. Additional risks that we do not presently consider material, or of which we are not currently aware, may also affect us. Our business, results of operations, financial condition and cash flows could be materially and adversely affected if any of these risks materialize and, as a result, the market price of our shares and our ADSs could decline. You should carefully consider these risks with respect to an investment in Telecom Argentina. This section is divided in two sub-sections: the “Risk Factors Summary”, which provides a brief summary of our Risk Factors and “Detailed Risk Factors”, providing detailed information in relation to each Risk Factor identified.

 

üRisk Factors Summary

The following summarizes the main risks to which we are subject. You should carefully consider all of the information discussed below in “Item 3. Key Information—Detailed Risk Factors” in this annual report for a comprehensive description of these and other risks.

Risks Relating to Argentina

·Devaluation of the Argentine Peso and foreign exchange controls may adversely affect our results of operations, our capital expenditures and our ability to service our liabilities and pay dividends.
·Economic and political developments in Argentina, and future policies of the Argentine government may affect the economy as well as the operations of the telecommunications industry, including Telecom Argentina.
·Inflation could accelerate, causing adverse effects on the economy and negatively impacting Telecom’s margins and/or ratios.
·The Argentine government may exercise greater intervention in private sector companies, including Telecom Argentina.
·Argentina’s economy contracted in 2020, 2019 and 2018 and may contract in the future due to international and domestic conditions which may adversely affect our operations.
·The coronavirus and the measures taken or to be implemented by the Argentine government in response to the coronavirus have had and could continue to have a significant adverse effect on our business operations.
·Argentina’s ability to obtain financing from international markets is limited, which could affect its capacity to implement reforms and sustain economic growth.

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATATELECOM ARGENTINA S.A.


·The Argentine banking system may be subject to instability which may affect our operations.
·We are subject to Argentine and international anti-corruption, anti-bribery and anti-money laundering laws. Our failure to comply with these laws could result in penalties, which could harm our reputation and have an adverse effect on our business, financial condition and results of operations.

Risks Relating to Telecom and its operations

·We may become subject to burdensome regulations, ordinances and laws affecting the services we offer which could adversely affect our operations.
·We face substantial and increasing competition in the Argentine fixed and mobile telephony, cable television and Internet businesses.
·Our revenues are cyclical and depend upon the condition of the Argentine economy.
·The regulation of rates may adversely affect Telecom Argentina’s revenues.
·Technological advances and replacement of our equipment may require us to make significant expenditures to maintain and improve the competitiveness of the services we offer.
·The media industry is a dynamic and evolving industry, and if it does not develop and expand as we currently expect, our results and operations relating to our cable television and Internet businesses may suffer.
·We may not be able to renew programming contracts on favorable terms.
·We may not be able to renew some leases of the facilities for the installation of our fixed and mobile telephony, cable television and Internet systems.
·Our revenues may be adversely affected by an increase in churn rates, with respect to mobile telephony, cable television and Internet services, or reductions in fixed telephony lines in service, with respect to fixed telephony services.
·Our revenues relating to our cable television services are subject to uncertainty due to, and may be adversely affected by, the formula set forth in Resolution No. 50/10 to estimate monthly fees paid by cable television subscribers.
·Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobile communications usage.
·Our operations and financial condition could be affected by future union negotiations, Argentine labor regulations and governmental measures requiring private companies to increase salaries or otherwise provide workers with additional benefits.
·We are or may be involved in legal and regulatory proceedings that could result in unfavorable decisions and financial penalties for us.
·The enforcement of the Law for the Promotion of Registered Labor and Prevention of Labor Fraud may have a material adverse effect on us.
·A cyberattack, could adversely affect our business, balance sheet, results of operations and cash flow.
·Operational risks could adversely affect our reputation and our profitability.
·Any failure by a strategic supplier to comply with its legal and contractual obligations could adversely affect our operations and any action or restriction by a foreign government against a strategic supplier could adversely affect our reputation.
·We and/or our administrators are subject to environmental and safety regulations whose non-compliance could result in increased costs and/or penalties for our administrators.
·Restrictive covenants in Telecom’s outstanding indebtedness may restrict its ability to pursue its business strategies.
·We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined or fluctuations in interest rates.
·We may be unable to refinance our outstanding indebtedness, or the refinancing terms may be materially less favorable than their current terms, which would have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Telecom Argentina’s Shares and ADSs

·The New York Stock Exchange (“NYSE”) and/or the Buenos Aires Stock Exchange (by delegated authority of BYMA) may suspend trading and/or delist Telecom’s ADSs and Class B common shares, respectively, upon occurrence of certain events relating to Telecom’s financial situation.
·Under Argentine corporate law, shareholder rights may be fewer or less well defined than in other jurisdictions.
·Changes in Argentine tax laws may adversely affect the tax treatment of our Shares and/or the ADSs.
·Our shareholders may be subject to liability under Argentine law for certain votes of their securities.
·The price of our Class B Shares and the ADSs may fluctuate substantially, and your investment may decline in value.
·Restrictions on transfers of foreign exchange and the repatriation of capital from Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of the Class B Shares underlying the ADSs.

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATATELECOM ARGENTINA S.A.


·Trading of Telecom Argentina’s Class B Shares in the Argentine securities markets is limited and could experience further illiquidity and price volatility.
·Holders of ADSs may be adversely affected by currency devaluations and foreign exchange fluctuations.
·The relative volatility and illiquidity of the Argentine securities markets may substantially limit your ability to sell the Class B Shares underlying the ADSs on the BYMA at the price and time desired by the shareholder.
·We are traded on more than one market and this may result in price variations; in addition, investors may not be able to easily move shares for trading between such markets.
·As a foreign private issuer, we will not be subject to U.S. proxy rules and will be exempt from filing certain reports under the Securities Exchange Act of 1934.
·If we do not file or maintain a registration statement and no exemption from the Securities Act of 1933 (“Securities Act”) registration is available, U.S. holders of ADSs may be unable to exercise preemptive rights granted to our holders of Class B Shares underlying ADSs.
·Our status as a foreign private issuer allows us to follow alternate standards to the corporate governance standards of the NYSE, which may limit the protections afforded to investors.
·We are organized under the laws of Argentina and holders of the ADSs may find it difficult to enforce civil liabilities against us, our directors, officers and certain experts.
·Cablevisión Holding S.A. (“CVH”), and through CVH, GC Dominio S.A. (“GC Dominio”), have the ability to determine the outcome of any shareholder decision relating to significant matters affecting us.
·The existence and outcome of any public tender offer for our Class B Shares and/or ADSs could affect the price of our Class B shares and ADSs.

üDetailed Risk Factors

Risks Relating to Argentina

 

Overview

 

A substantial majority of our property, operations and customers are located in Argentina, and a portion of our assets and liabilities are denominated in foreign currencies. Accordingly, our financial condition, results of operations and cash flows depend to a significant extent on economic and political conditions prevailing in Argentina and on the exchange rates between the Argentine pesoPeso and foreign currencies. In the recent past, Argentina has experienced severe recessions, political crises, periods of high inflation and significant currency devaluation. Argentina experienced economic growth in the last decade, although theThe Argentine economy has been volatile since year 2011.2011, with years of economic growth and others with recession. For example, Argentina´sArgentina’s economy grew in 2017, but contracted in 2018. Uncertainty remains as to how several2018, 2019 and 2020. Several factors would impacthave impacted negatively the Argentine economy in the recent past, and may continue to impact it in the future, including among others, inflation rates, exchange rates, commodity prices, level of BCRA reserves, public debt, tax pressures, and healthy trade and fiscal balances.balances, government policy, the international context and further developments of the COVID-19 pandemic.

 

Devaluation of the Argentine pesoPeso and foreign exchange controls may adversely affect our results of operations, our capital expenditure programexpenditures and theour ability to service our liabilities and transfer funds abroad.pay dividends.

 

Since we generate a substantial portion of our revenues in Argentine pesosPesos (functional currency of Telecom Argentina)Telecom), any devaluation may negatively affect the U.S. dollar value of our earnings while increasing, in pesoPeso terms, our expenses and capital expenditures denominated in foreign currency. The Argentine Peso has been subject to significant devaluation against the U.S. dollar in the past and may be subject to fluctuations in the future. We cannot predict whether and to what extent the value of the peso could depreciate or appreciate against the U.S. dollar and the way in which any such fluctuations could affect our business. The value of the peso compared to other currencies is dependent, among other factors, on the level of international reserves maintained by the BCRA, which have also shown significant fluctuations in recent years. As of December 28, 2020, the international reserves of the BCRA totaled US$ 39,236 million. The Argentine macroeconomic environment, in which we operate, was affected by the continued devaluation of the peso, which in turn had and could continue to have a direct impact on our financial and economic position.

PART I - ITEM 3 KEY INFORMATION — SELECTED FINANCIAL DATATELECOM ARGENTINA S.A.


The value of the peso has fluctuated significantly in the past. In 2020, the Argentine Peso continued to depreciate against the U.S. dollar and other major foreign currencies. According to Communication “A” 3500 of the BCRA, the peso/dollar exchange rate stood at Ps. 84.15 per US$ 1.00 as of December 31, 2020, evidencing a devaluation of the peso of approximately 40.5% from its value of 59.90 Pesos per dollar at December 31, 2019 (compared to 58.9%, 102.2% and 17.4% in the years ended December 31, 2019, 2018 and 2017, respectively). As a result of the Argentine Peso’s increased volatility, the Argentine government and the BCRA implemented several measures to stabilize its value, including, among others, stronger exchange regulations, an increase in short term interest rates and the sale of foreign currency reserves made by the BCRA. The continued devaluation of the Argentine Peso during the past years has had and continues to have a negative impact on the payment of foreign currency denominated debts by local private sector debtors to unrelated foreign entities, and has also led to an increase in inflation, which in turn has a direct impact on real wages. The devaluation has also negatively impacted businesses whose success is dependent on domestic market demand, and adversely affected the Argentine government’s ability to honor its foreign debt commitments. Any further depreciation of the Argentine Peso or our inability to acquire foreign currency could have a material adverse effect on our financial condition and results of operations. We cannot predict whether, and to what extent, the value of the Argentine Peso may depreciate or appreciate against the U.S. dollar or other foreign currencies, nor the way in which any such fluctuations could affect demand for the fixed and mobile telephony services, Internet services and cable television services we provide. Furthermore, no assurance can be given that, in the future, no additional currency or foreign exchange restrictions or controls will be imposed. Existing and future measures may negatively affect Argentina’s international competitiveness, discouraging foreign investments and lending by foreign investors or increasing foreign capital outflow which could have an adverse effect on economic activity in Argentina, and which in turn could adversely affect our business and results of operations. We cannot predict how these conditions will affect the consumption of services provided by Telecom or our ability to meet our liabilities denominated in currencies other than the Argentine Peso. Any restrictions on transferring funds abroad imposed by the government could undermine our ability to pay dividends on our ADSs or make payments (of principal or interest) under our outstanding indebtedness in U.S. dollars, as well as to comply with any other obligation denominated in foreign currency. See “Item 10—Additional Information—Foreign Investment and Exchange Controls in Argentina”.

A depreciation of the Argentine Peso against major foreign currencies may also have an adverse impact on our capital expenditure program and increase the Argentine pesoPeso amount of our trade liabilities and financial debt denominated in foreign currencies. As of December 31, 2018,2020, approximately 63%P$206,279 million of our liabilities were denominated in foreign currencies.

Telecom seeks to manage the risk of devaluation of the Argentine pesoPeso, by entering from time to time into certain NDF agreements in order to partially or completely hedge some of its exposure to foreign currency fluctuations caused by its liabilities denominated in foreign currencies (mainly U.S. dollars). The Company also has financial assets denominated in U.S. dollars , as well as international operations that generate profits in foreign currencies, that help reducefluctuations. However, Telecom remains highly exposed to risks associated with the exposure to liabilities denominated in foreign currencies. See “Item 11—Quantitative and Qualitative Disclosures About Market Risk” and “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt Obligations and Debt Service Requirements.”fluctuation of the Argentine Peso.

 

Beginning on December 17, 2015,In September 2019, in light of the current administration lifted mosteconomic instability and the significant devaluation that followed the primary elections as described below, the Argentine government and the BCRA adopted a series of measures reinstating foreign exchange controls, which among other things, significantly curtailed access to the official foreign exchange market (the “FX Market”) by individuals and entities. Higher restrictions to access the official FX markets were imposed during 2020, with a view to reducing the loss of international reserves generated by a greater demand of US dollars by individuals and companies. Pursuant to Communication “A” 7106 (as amended and supplemented from time to time), the BCRA established certain requirements to access the local exchange market for purposes of repayment of cross-border financial debts, in particular, for the payment of principal outstanding amounts in loans and securities having amortization payments scheduled between October 15, 2020 and December 31, 2021 for principal amounts exceeding US$2,000,000 by the non-financial private sector and financial entities. Particularly, the payment of principal amounts pertaining to loans and securities subject to the regulation should be part of a refinancing plan that must be previously filed with the BCRA, which must provide that (i) only 40% of the principal amount owed and payable shall be paid through the local foreign exchange markets (“FX Markets”)market on or prior to March 31, 2021; and (ii) the remaining 60% must be refinanced so the average life of the debt is increased for a minimum of two years. It is not possible to guarantee that the period covered by Communication “A” 7106 will not be extended or reinstated in the future by the BCRA or that other regulations with similar effects will be issued that would require the Company to refinance its obligations, which in turn could have a negative impact on the Company, and in particular, in the Company's ability to meet its debt obligations. See “—Restrictions on transfers of foreign exchange and the multiple exchange rate system was unified into a floating rate regime. This measure allowed almost a total unificationrepatriation of capital from Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of the multiple exchange rate system applicable at that time overClass B Shares underlying the commercialADSs and financial transactions in Argentina. See “Item 10—Additional Information—Foreign Investment and Exchange Controls in Argentina.”Argentina—External financial indebtedness”

 

Economic and political developments in Argentina, and future policies of the Argentine government may affect the economy as well as the operations of the telecommunications industry, including Telecom Argentina.

The Argentine government has historically exercised significant influence over the economy, and telecommunications companies in particular have operated in a highly regulated environment. The Argentine government may promulgate numerous, far-reaching regulations affecting the economy and telecommunications companies in particular.

PART I - ITEM 3 KEY INFORMATION - RISK FACTORS

— SELECTED FINANCIAL DATA

TELECOM ARGENTINA S.A.

18 

In 2018,October 2019, Alberto Fernández was elected president of Argentina and took office on December 10, 2019. Fernández announced and implemented a wide range of economic and policy reforms. In March 2020, in response to the COVID-19 outbreak, the Argentine Peso experiencedgovernment enforced the ASPO, which caused significant disruption to social, operative, economic and market activities. The Argentine government also introduced emergency measures in the telecommunications sector in order to alleviate the financial burden of the pandemic on individuals and companies. Decree No. 311/20 issued by PEN on March 24, 2020 determined that services related to fixed and mobile telephony, Internet and cable TV would not be interrupted for defaults in payment by a rapid devaluation against major foreign currencies, particularly againstcertain group of customers defined therein (See “—The coronavirus and the U.S. dollar. Accordingmeasures taken or to be implemented by the Argentine government in response to the exchange rate information published bycoronavirus have had and could continue to have a significant adverse effect on our business operations”). In August 2020, Decree No. 690/20 declared ICT services as an essential public service and imposed tariff regulations on such services (See “—Risks Relating to Telecom and its operations— The regulation of rates may adversely affect Telecom Argentina’s revenues”).

On March 13, 2020, the Banco de la Nación Argentina,Minister of Economy addressed a letter to the Argentine peso depreciated by 102.2% againstParis Club members expressing Argentina’s decision to postpone until May 5, 2021 the U.S. dollar duringUS$2.1 billion payment originally due on May 5, 2020, in accordance with the year ended December 31, 2018 (comparedterms of the settlement agreement the Republic had reached with the Paris Club members on May 29, 2014 (the “Paris Club 2014 Settlement Agreement”). In addition, on April 7, 2020, the Minister of Economy sent the Paris Club members a proposal to 17.4%modify the existing terms of the Paris Club 2014 Settlement Agreement, seeking mainly an extension of the maturity dates and 21.9%a significant reduction in the years ended December 31, 2017 and 2016, respectively).interest rate.

On August 18, 2020, Argentina offered holders of its foreign currency bonds governed by Argentine law to exchange such bonds for new bonds, on terms that were equitable to the terms of the invitation made to holders of foreign law-governed bonds. On September 18, 2020, Argentina announced that holders representing 99.4% of the aggregate principal amount outstanding of all series of eligible bonds invited to participate in the local exchange offer had participated. As a result of the exchange offer, the average interest rate paid by Argentina’s foreign currency bonds governed by Argentine Peso’s increased volatility,law was lowered to 2.4%, compared to an average interest rate of 7.6% prior to the exchange. In addition, the exchange offer extended the average maturity of such bonds.

During the nine-month period ended September 30, 2020, Argentina sought to preserve the normal functioning of the local capital market for debt denominated in Pesos, which it considers a key factor for the development of the domestic capital market. In particular, during this period, the Argentine government announced several measuressought to restore market confidencerecover the Treasury’s financing capacity, create conditions for the development of the domestic capital markets and stabilize its value. Measures implemented by the BCRA include, among others, an increase of short term interestgenerate savings instruments with positive and sustainable real rates, and selling foreign currency reserves. The Argentine government in turn announced that it would acceleratereducing its monetary financing needs and expanding the proposed reductiondepth of the fiscal deficit. Further, on May 8, 2018,local debt market and the current administration announced thatparticipation of relevant institutional investors. In addition, the Treasury expanded its menu of financing instruments to obtain the funds needed to cover its 2020 financial needs and to design the 2021 financial program according to the guidelines outlined in the 2021 budget.

As of the date of this Annual Report, the Argentine government would initiatehas initiated negotiations with the International Monetary Fund (the “IMF”) with a viewIMF in order to entering into a stand-by credit facility that would give Argentina access to financing byrenegotiate the IMF. On June 20, 2018, the executive boardprincipal maturities of the IMF approvedUS$ 44.1 billion disbursed between 2018 and 2019 under a Stand By Agreement, originally planned for the terms of the stand-by arrangement (the “SBA”), consisting of a stand-by credit facility for U.S.$50.0 billion, subject to adjustmentsyears 2021, 2022 and compliance with certain political and fiscal performance guidelines by the Argentine government.  On October 26, 2018, a first review of the SBA concluded with the enlargement of the arrangement for US$5.7 billion.2023. We cannot predictassure whether the Argentine government will be ablesuccessful in the negotiations with that agency, which could affect its ability to comply with all termsimplement reforms and public policies and boost economic growth, nor the impact of the SBA. Theresult that renegotiation will have in Argentina’s ability to access international capital markets (and indirectly in our ability to access those markets) to access international capital markets. Moreover, the long-term impact of these measures and any future measures taken by the current administration on the Argentine governmenteconomy, as a whole and in the telecommunication sector in particular, remains uncertain. It is possible that such reforms could be disruptive to stabilize the foreign exchange market, restore economic growtheconomy and meet the terms of the SBA, is subject to uncertainty. The continued depreciation ofadversely affect the Argentine Pesoeconomy and the failure to meet the terms of the SBA could have a material adverse effect on Argentina’s economytelecommunications industry, and consequently, our cash flows, financial condition and results of operations.

Since October 2018, the BCRA established an exchange rate band. The band in which the BCRA would not intervene was initially defined between $34 and $44, which will be adjusted upwards on a monthly basis. The BCRA will allow the free floating of the currency within this band. These measures implemented by the BCRA have been complemented with, among others, an increase of short term interest rates and a strict control of the money supply. The intention of the BCRA is to avoid excessive fluctuations of the exchange rate. The success of these measures is subject to uncertainty and the continued depreciation of the Argentine Peso could have a material adverse effect on our financial condition and results of operations.

Given the economic and political conditions in Argentina, we cannot predict whether, and to what extent, the value of the Argentine peso may depreciate or appreciate against the U.S. dollar, the euro or other foreign currencies. We cannot predict how these conditions will affect the consumption of services provided by Telecom Argentina or our ability to meet our liabilities denominated in currencies other than the Argentine peso. Moreover, we cannot predict whether the Argentine government will further modify its monetary, fiscal and exchange rate policy. If any of these changes takes place we cannot anticipate the impact these could have on the value of the Argentine peso and, accordingly, on our financial condition,business, results of operations and cash flows,financial condition. We are also unable to predict the measures that the Argentine government may adopt in the future, and how they will impact on the Argentine economy and our abilityresults of operations and financial condition.

In the event of any economic, social or political crisis, companies operating in Argentina may face the risk of strikes, expropriation, nationalization, mandatory amendment of existing contracts, and changes in taxation policies including tax increases and retroactive tax claims. In addition, Argentine courts have sanctioned modifications on rules related to transfer funds abroadlabor matters, requiring companies to assume greater responsibility for the assumption of costs and risks associated with sub-contracted labor and the calculation of salaries, severance payments and social security contributions. Since we operate in ordera context in which the governing law and applicable regulations change frequently, also as a result of changes in government administrations, it is difficult to comply with commercialpredict if and how our activities will be affected by such changes.

We cannot assure you that future economic, regulatory, social and political developments in Argentina will not adversely affect our business, financial condition or financial obligationsresults of operations, or dividend payments to shareholders located abroad.cause the decrease of the market value of our securities.

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Inflation could accelerate, causing adverse effects on the economy and negatively impacting Telecom’s margins and/or ratios.

 

In the past, Argentina has experienced repeatedly, including in recent years, periods of high inflation. Inflation has increased since 2005 and has remained relatively high since then. There can be no assurance that inflation rates will not be higher in the future. Furthermore, the INDEC experienced in the past periods of political interventionism that raised serious concerns about the reliability of the data published by the agency. Future political intervention in the INDEC could jeopardize the agency’s autonomy and therefore affect the reliability of the statistics it publishes.

 

On January 2014, a new consumer price index, the National Urban Consumer Price Index (Indice de Precios al Consumidor Nacional Urbano, or “IPCNu”) was published with the aim of improving the accuracy of measurements of the evolution of prices in the Argentine economy. The IPCNu integrates a set of price indexes which allows for the monitoring of the change in several prices in the economy (wholesale, commodities and construction costs, among others) by considering the price information from all the provinces in Argentina. The IPCNu increased by 11.9% over the period from January to October 2015 (according to last available data); and by 23.9% in 2014. In the past, there has been a substantial disparity between the inflation indexes published by the INDEC and the higher inflation indexes estimated by private consulting firms. The INDEC estimated that the Argentine wholesale price index increased by 13.1% in 2012, 14.8% in 2013, 28.3% in 2014 and 10.6% in the period of January to October 2015 (according to the last available data because INDEC has not disclosed figures for November and December 2015). The INDEC resumed publication of the wholesale price index for full year since 2016, the Argentine Wholesale Price Index increased by 18.8% in 2017, and 73.5% in 2018 on a year-over-year comparison.

On January 8, 2016, the current administration issued Decree No. 55/2016 declaring a state of administrative emergency with respect to the national statistical system and the INDEC until December 31, 2016 (which was not extended). During this state of emergency, the INDEC had suspended publication of certain statistical data (regarding prices, poverty, unemployment and GDP) until it completed a reorganization of its technical and administrative structure capable of producing sufficient and reliable statistical information.

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As a consequence of the aforementioned events, the full year 2015 inflation measure for IPCNu index was not disclosed, and according to last available data (from October 2015) the IPCNu registered an increase of 11.9% over the January to October 2015 period. As alternative guidance to IPCNu, the authorities suggested that other measures should be observed, such as those published by the statistical entity of the Autonomous City of Buenos Aires (IPC CABA) and the San Luis Province that registered an annual increase of 26.9% and 31.6% in 2015, respectively. In turn, the publication of a CPI index for Buenos Aires City and Greater Buenos Aires Area resumed in June 2016 disclosing May 2016 monthly inflation figures, while data for the months in the period January to April 2016 are unavailable. Taking this into account, CPI variation from May to December 2016 was 16.9% and, as alternative guidance, the indexes published by the Province of San Luis and the Autonomous City of Buenos Aires from January to April 2016 represented an increase of 13.9% and 19.2%, respectively. Since July 2017, the INDEC resumed the regular publication of a national consumer price index (“National CPI”) on a monthly basis. The National CPI index has registered an increase of 24.7% on a year-over-year comparison for 2017. The National CPI variation during 2018 was of 47.6% compared to 2017. The efforts36.1% in 2020 and 53.8% in 2019. Efforts made by the current administrationArgentine government to contain and reduce inflation rate have not achieved the desired results.

The Argentine government continued implementing measures to monitorresults and control pricesinflation remains a significant problem for the most relevant goods and services. Despite such measures, the Argentine economy continues to experience high levels of inflation.economy. If the value of the Argentine pesoPeso cannot be stabilized through fiscal and monetary policies, an increase in inflation rates could be expected. For additional information, see Note 1.e) to our Consolidated Financial Statements.

 

SinceBecause the majority of our revenues are denominated in pesos,Pesos, any further increase in the rate of inflation not accompanied by a parallel increase in our prices would decrease our revenues in real terms and adversely affect our results of operations.

operations (See also “—Risks Relating to Telecom and its operations—The regulation of rates may adversely affect Telecom Argentina’s revenues”). Further, higher inflation leadsrates generally lead to a reduction in the purchasing power, thus increasing the risklikelihood of a lower level of service consumption fromdemand for our fixed and mobile telephony,telecommunications, cable television and broadband customersInternet services in Argentina.

As of July 1, 2018, the peso qualifies as a currency of a hyperinflationary economy, and we are required to apply inflationary adjustments to our financial statements, which could adversely affect our financial statements, results of operations and financial condition and those of our Argentine subsidiaries’.

Pursuant to the International Accounting Standards (“IAS”) 29 (Financial Reporting in Hyperinflationary Economies), the financial statements of entities whose functional currency is that of a hyperinflationary economy must be restated for the effects of changes in a suitable general price index. IAS 29 does not prescribe when hyperinflation arises, but includes several characteristics of hyperinflation. The International Accounting Standards Board (“IASB”) does not identify specific hyperinflationary jurisdictions. However, in June 2018, the International Practices Task Force of the Centre for Quality (“IPTF”), which monitors “highly inflationary countries” categorized Argentina as a country with projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present, providing prima facie evidence that the Argentine economy is hyperinflationary for purposes of IAS 29. Therefore, Argentine companies using International Financial Reporting Standard as adopted by the IASB (“IFRS”) are required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018.

Adjustments to reflect inflation, such as those required by IAS 29, were prohibited by law No. 23,928 (the “Law 23,928”). Additionally, Decree No. 664/03, issued by the Argentine government (the “Decree”), instructed regulatory authorities, such as Public Registries of Commerce, the Superintendence of Corporations of the City of Buenos Aires and the Argentine Securities Commission (Comisión Nacional de Valores) (“CNV”), to accept only financial statements that comply with the prohibition set forth by the Law 23,928. However, on December 4, 2018, Law 27,468 abrogated Decree No. 664/03 and amended Law 23,928 indicating that the prohibition of indexation no longer applies to the financial statements. Some regulatory authorities, such as the Argentine Securities Commission, have required that financial statements for periods ended on and after December 31, 2018 to be submitted to them should be restated  for inflation, following the guidelines in IAS 29. However, for purposes of the determination of the indexation for tax purposes, Law 27,468 substituted the WPI (as defined below) for the CPI, and modified the standards for triggering the tax indexation procedure.

During the first three years as from January 1, 2018, the tax indexation will be applicable if the variation of the Consumer Price Index (“CPI”) exceeds 55% in 2018, 30% in 2019 and 15% in 2020. The tax indexation determined during any such year will be allocated as follows: 1/3 in that same year, and the remaining 2/3 in equal parts in the following two years. From January 1, 2021, the tax indexation procedure will be triggered under similar standards as those set forth by IAS 29.

We cannot predict the full future impact that the eventual application of the Tax Indexation Procedure and related adjustments will have on our financial statements or the effects on our business, results of operations and financial condition.

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Economic and political developments in Argentina, and future policies of the Argentine government may affect the economy as well as the operations of the telecommunications industry, including the operations of Telecom Argentina.

Since assuming office on December 10, 2015, current administration has announced a wide range of economic and policy reforms. As of the date of this Annual Report, the long-term impact of these measures and any future measures taken by the current administration on the Argentine economy as a whole and the telecommunication sector in particular remains uncertain. We believe that the long-term effect of the planned liberalization of the economy and the integration of Argentina to international markets, will be positive for our business. However, it is not possible to predict such effect with certainty and such liberalization could also be disruptive to the economy and fail to benefit or harm the Argentine economy and our business in particular.

Further, presidential and federal congressional elections in Argentina will be held in October 2019, and their impact on the future economic and political environment is uncertain, but likely to be material. No assurances can be made as to the policies that may be implemented by a new Argentine administration, or that political developments in Argentina will not adversely affect the Argentine economy or our business, financial condition or results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our shares to decline.

The Argentine government may exercise greater intervention in private sector companies, including Telecom Argentina.

 

In November 2008, through Law No. 26,425, Argentina nationalized its private pension and retirement system, which had been previously administered by the AFJPs, and appointed ANSES as its administrator. Argentina’s nationalization of its pension and retirement system constituted a significant change in the Argentine government’s approach towards Argentina’s main publicly traded companies. A significant portion of the public float of thesecertain Argentine publicly traded companies wasis currently owned by the AFJPs and is currently held byArgentine government through ANSES-FGS, such as the case ofincluding Telecom. See “Item 7—Major Shareholders and Related Party Transactions.”Transactions”. The Argentine government couldexercised in the past, and may exercise in the future, influence over corporate governance decisions of companies in which it owns shares by combining its ability to exercise its shareholder voting rights to designate board and supervisory committee members with its ability to dictate tax and regulatory matters. Additionally, since the AFJPs were significant institutional investors and active market traders in Argentina, the nationalization of the private pension and retirement system affected the access to financing in capital markets for publicly traded companies as well as the liquidity of their securities within the market.

 

On June 9, 2020, the Argentine government declared a 60-day intervention on Vicentin S.A.I.C. (“Vicentin”), an agro-industrial company based in the Province of Santa Fe. The decision to intervene, with a view to ensuring continuity in the company’s operations and job preservation, came after Vicentin filed for a reorganization proceeding on February 10, 2020, as a result of its inability to pay obligations amounting to Ps. 99.3 billion. In addition, prior administrations took several stepsthe Argentine government intended to re-nationalize the concessionssubmit a bill to Congress that would declare Vicentin a company of public interest, and utilities that were privatized during the 1990s.therefore would enable its expropriation. We cannot predict whether the current administration or future administrations will take similar or further measures, including nationalization, expropriation and/or increased Argentine governmental intervention in companies. Government intervention in the industries in which we operate could create uncertainties for investors in public companies in Argentina, including Telecom Argentina, as well as have a material adverse effect on our business, financial condition and results of operations. See “—Economic and political developments in Argentina, and future policies of the Argentine government may affect the economy as well as the operations of the telecommunications industry, including the operations of Telecom Argentina.”Argentina”.

 

Argentina’s economy contracted in 2020, 2019 and 2018 and may contract in the future due to international and domestic conditions which may adversely affect our operations.

 

The Argentine economy has experienced significant volatility in the past few years and recent decades, characterized by periods of low or negative GDP growth, high and variable levels of inflation and currency depreciation and devaluation. Argentina’s economy contracted during 2020, 2019 and 2018 and the country’s economy remains unstable notwithstanding the efforts by the Argentine government to address inflation and the constraints on the country’s foreign exchange instability.reserves and related pressure on the value of peso. Substantially all of our operations, properties and customers are located in Argentina, and, as a result, our business is, to a large extent, dependent upon economic and legal conditions prevailing in Argentina. If economic conditions in Argentina were to further deteriorate, they could have an adverse effect on our results of operations, financial condition and cash flows.

 

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Global economic and financial crises, and the general weakness of the global economy typically,due to the COVID-19 pandemic negatively affectaffected emerging economies like Argentina’s economy. Global financial instability, or increasingany further economic global downturn due to COVID-19 and any future increases in the interest rates inof the United States and other developed countries may impact the Argentine economy and cause a slowdown in Argentina’sprevent Argentina to be put back on track to growth rate or could lead to aaggravate the current recession with consequences in the trade and fiscal balances and in the unemployment level.rate.

 

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Moreover, ArgentineArgentina’s economic growth was severely impacted as a consequence of the COVID-19 pandemic. It might also be negatively affected in the future by several domestic factors such as an appreciation of the real exchange rate which could affect its competitiveness,reductions and even reversion of a positive trade balance, which, combined with capital outflows could reduce the levels of consumption and investment resulting in greater exchange rate pressure. Additionally, abrupt changes in monetary and fiscal policies or foreign exchange regime could rapidly affect local economic output, while lack of appropriate levels of investment in certain economy sectors could reduce long-term growth. Access to the international financial markets could be limited. Consequently, an increase in public spending not correlated with an increase in public revenues could affect the Argentina’s fiscal results and generate uncertainties that might affect the economy’s growth level.

 

In addition to the severe social and market disruption at a global scale during 2020 caused by the COVID 19 outbreak, in recent years, several trading partners of Argentina (such as Brazil, Europe and China) have experienced significant slowdowns or recession periods in their economies in recent years.economies. These slowdowns intensified during 2020. If such slowdowns or recessions were to recur, this may impact the demand for products coming from Argentina and hence affect its economy. Additionally, there is uncertainty as to how the trade relationship between the Mercosur member States will unfold, in particular between Argentina and Brazil. We cannot predict the effect on the Argentine economy and our operations if trade disputes arise between Argentina and Brazil, or in case either country decided to exit the Mercosur.

 

In addition, the global macroeconomic environment is facing challenges. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa and over the conflicts involving Iran, Ukraine, Syria and North Korea. Moreover, political and social crises arose in several countries of Latin America during 2019, as the economy in much of the region has slowed down after almost a decade of sustained growth, among other factors. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes, and the possibility of a trade war between the United States and China. In addition, United Kingdom exited the European Union (“Brexit”) on January 31, 2020. The medium and long term implications of Brexit could adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets.

During 2018,2020, the Argentine economy was adversely affected by some of aforementioned factors. If international and domestic conditions for Argentina were to worsen, the Argentine economy could be negatively affected as a result of lower international demand and lower prices for its products and services, higher international interest rates, lower capital inflows and higher risk aversion, which may also adversely affect our business, results of operations, financial condition and cash flows.

 

EconomicThe coronavirus and legal conditionsthe measures taken or to be implemented by the Argentine government in response to the coronavirus have had and could continue to have a significant adverse effect on our business operations.

In late December 2019, COVID-19, originating from Wuhan, Hubei province, was reported to the World Health Organization, with cases soon confirmed in multiple provinces in China, as well as in other countries. On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic. Several measures have been undertaken by the Argentine Government and other governments around the globe, including the use of quarantine, screenings at airports and other transports hub, travel restrictions, suspension of visas, nation-wide lockdowns, closing of public and private institutions, suspension of sport events, restrictions to museums and tourist attractions and extension of holidays, among many others. However, the virus continues to spread globally and, as of the date of this Annual Report, has affected most countries and territories around the world, including Argentina, remainUruguay, Paraguay and the United States. To date, the outbreak of COVID-19 has caused significant social, operational, economic and market disruption. The long-term impact on the global economy and financial markets is still uncertain, but is expected to be significant.

Since March 20, 2020 the Argentine government imposed a series of measures aimed at reducing the movement of the population, ordering the ASPO, which may affectonly allowed the movement of individuals involved in activities considered essential by the Argentine government. While the Argentine government has determined that the provision of fixed and mobile telephony, internet and digital services constitutes an essential service, we have implemented a home-office policy for a substantial portion of our employees in accordance with the recommendations of the authorities.

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The long-term effects of the pandemic on the global economy and the Company are difficult to assess or predict. Although we have devoted considerable resources to preventative measures in order to reduce the potential impacts of the COVID-19 pandemic on our employees, business, service and operations, there can be no assurance that these measures will be effective or that the pandemic will not have an adverse effect on our business, financial condition,situation and results of operations, which could result in a further decline in the market prices of our Class B Shares and cash flows.ADSs. Due to the investments in infrastructure we made during the last years, our equipment, systems and networks have been working efficiently and met the increased use of the services we provide during the ASPO, both through fixed and mobile connectivity. However, the quality and reliability of our network could be affected in the event that the use of our networks continues to increase due to new governmental measures. In addition, the uncertain evolution of the COVID-19 pandemic might affect employees’ health and safety, generate risks for the deployment of our services (including by limiting our customer support and domiciliary service repairs and installations, among others effects resulting from government measures), result in reduced sales in certain geographic locations, affect the Company’s revenues and result in an economic contraction in the countries in which we operate, which could have an adverse effect on the demand of our products and consequently in the results of our operations.

 

Although general economic conditionsFurthermore, Argentine Decree No. 311/2020 declared the temporary suspension on disconnection of services deemed essential for the development of daily life in cases of delay or default in payments, including fixed and mobile telephony, Internet and television subscriptions. The Decree also established that certain customers of our fixed and mobile telephony, Internet and cable television services would have shown improvementreduced services in the last decade,cases of delay or default in payments, which may adversely affect our cash flows from operations and political protests and social disturbances have diminished since the economic crisis of 2001 and 2002, the nature of the changes in the Argentine political, economic and legal environment over the past several years has given rise to uncertainties about the country’s business environment.increase our expected losses on trade receivables.

 

In addition, we entered into an agreement with the eventENACOM, which suspended, among other things, any increases in the prices of mobile and fixed telephony, Internet and cable television services, as well as employee layoffs until August 31,2020. Finally, on August 22, 2020, under Decree No. 690/20, the Argentine Digital Law was amended to suspend any economic, socialincrease in prices or political crisis, companies operatingchanges from the ICT licensees from July 31, 2020 to December 31, 2020, specifically mentioning broadcasting service subscriptions by physical and/or radio-electric link and fixed or mobile telephony services. The Decree has been ratified by Congress and is regulated by ENACOM Resolutions Nos. 1,466/20 and 1,467/20. For more information, see “—Risks Relating to Telecom and its operations— The regulation of rates may adversely affect Telecom Argentina’s revenues”.

Any prolonged restrictive measures put in Argentinaplace in order to control a new outbreak of contagious disease or other adverse public health development in any of our targeted markets may facehave a material and adverse effect on our business operations. Moreover, considering that some of our strategic suppliers are located in countries affected by the riskoutbreak of strikes, expropriation, nationalization, forced modificationCOVID-19, the delivery of existing contracts,equipment and changesfixed assets that are material to us may be impacted, which would have an adverse effect on our business operations. We may also be affected by a decline in taxation policies including tax increases and retroactive tax claims. In addition, Argentine courts have issued rulings changing the existing case law on labor matters and requiring companies to assume greater responsibility for, and assumptiondemand of costs and risks associated with, sub-contracted labor and the calculation of salaries, severance payments and social security contributions. Since we operate in a context in which the governing law and applicable regulations change frequently, includingour products as a result of changes in government administrations, itthe economic contraction. It is difficult to predict ifunclear whether these challenges and how our activitiesuncertainties will be affected by such changes.  See “—Economiccontained or resolved, and what effects they may have on the global political developmentsand economic conditions in the long term. Additionally, we cannot predict how the disease will evolve (and potentially, spread) in Argentina during 2021 due to new outbreaks and new strains of the virus that have appeared practically simultaneously with the advance of the vaccination campaign, nor anticipate what additional restrictions governments of those countries or other countries may impose. To the extent COVID-19 adversely affects our business and financial results, it may also exacerbate many of the other risks described in this “Risk Factors” section.

Notwithstanding the foregoing, the outbreak of any novel strain of coronavirus and its impact on the demand of our products and the financial markets, among other factors, will be key issues to determine the duration and depth of the economic crisis in Argentina and future policies of the Argentine government, may affect the economy,worldwide, as well as on our strategy, financial situation and results of our operations.

For further information related to the operationsimpact of the telecommunications industry, includingCOVID-19 pandemic on the operationsCompany, as well as to the internal or external measures we promoted during the sanitary emergency, see Note 29 of Telecom Argentina.”our Consolidated Financial Statements.

 

Argentina’s ability to obtain financing from international markets is limited, which could affect its capacity to implement reforms and sustain economic growth.

 

After Argentina’s default on certain debt payments in 2001, the government successfully restructured 92% of the debt through two debt exchange offers in 2005 and 2010. Commencing in 2002,Nevertheless, holdout creditors filed numerous lawsuits against Argentina in several jurisdictions, including the United States, Italy, Germany and Japan. These lawsuits generally assertJapan, asserting that Argentina failed to make timely payments of interest and/or principal on their bonds, and seekseeking judgments for the face value of and/or accrued interest on those bonds. Judgments have beenwere issued in numerous proceedings in the United States, Germany and Japan. As of the date of this Annual Report,Although creditors with favorable judgments havedid not succeeded,succeed, with a few minor exceptions, in executingenforcing on those judgments.

In 2014,judgments, as a result of decisions adopted by the New York courts in support of those creditors in 2014, Argentina was enjoined Argentina from making payments on its bonds issued in the 2005 and 2010 exchange offers unless it satisfied amounts due to the holders of defaulted bonds. The Argentine government took a number of steps intended to continue servicing the bonds issued in the 2005 and 2010 exchange offers, which had limited success. Holdout creditors continued to litigate expanding the scope of issues, aiming to include payment byand succeeded in preventing the Argentine government on debt other than the 2005 and 2010 exchange bonds and disputed albeit and successfully the independence of the BCRA.from regaining market access.

 

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The current administration submitted a settlement proposal to holders of defaulted bonds in December 2015 with a view to bringing closure to fifteen years of litigation.

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Between February and April 2016, the Argentine government entered into agreements in principle with certain holders of defaulted debt and put forward a proposal to other holders of defaulted debt, including those with pending claims in U.S. courts, subject to two conditions: (i) obtaining approval by the Argentine National Congress and (ii) the lifting of the pari passu injunctions. On March 31, 2016, the Argentine Congress eliminated the legislative obstacles towhich resulted in the settlement of substantially all remaining disputes and approved the settlement proposal.closure to 15 years of litigation. On April 22, 2016, Argentina performed an issuance of governmentissued bonds for US$16.5 billion, of whichand applied US$9.3 billion were appliedof the proceeds to satisfy payments under the settlement agreements reached with holders of defaulted debt. Since then, substantially all of theirthe remaining claims under defaulted bonds have been settled. Judge Thomas Griesa ordered the lifting of the injunctions that prevented payments to participants from the debt exchange offers of 2005 and 2010, subject to confirmation of the payments indicated above.

Further, on May 8, 2018, the current administration announced that the Argentine government would initiate negotiations with the International Monetary Fund (the “IMF”) with a view to entering into a stand-by credit facility that would give Argentina access to financing by the IMF. These negotiations have culminated with the celebration of a stand-by agreement that was approved by the IMF Board on June 20, 2018 and a first review under the mentioned stand-by arrangement that was approved by the IMF Board on October 26, 2018, which included the enlargement of the arrangement for US$5.7 billion.

 

As of the date of this Annual Report, litigationsalthough litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions, although the size of the claims involved has decreased significantly.

 

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TELECOM ARGENTINA S.A.

In addition, since 2001 foreign shareholders of some Argentine companies initiated claims for substantial amounts before the International Centre for Settlement of Investment Disputes (“ICSID”) against Argentina, pursuant to the arbitration rules of the United Nations Commission on International Trade Law. Claimants allege that certain measures of the Argentine government issued during the economic crisis of 2001 and 2002 were inconsistent with the norms or standards set forth in several bilateral investment treaties by which Argentina was bound at the time. To date, several of these disputes have been settled, and a significant number of cases are in process or have been temporarily suspended due toby the agreement of the parties.

 

NotwithstandingBetween 2016 and early 2018, Argentina regained access to the market and incurred in additional debt. However, as a result of various external and domestic factors, during the first half of 2018, access to the market became increasingly onerous. On May 8, 2018, the Macri administration announced that the lifting in 2016 followingArgentine government would initiate negotiations with the settlementsIMF with holdout bondholders of the injunction affecting paymentsa view to bondholdersentering into a stand-by credit facility that participated in the debt exchange offers of 2005 and 2010 eliminates an important obstacle for the country’swould give Argentina access to international capital markets, there can be no assurance that litigation initiatedfinancing by non-accepting bondholders as well as pending claims before the ICSID could result in legal procedures againstIMF. On June 7, 2018, the Argentine government and this could entail embargoes/seizures or precautionary measures in relationthe IMF staff reached an understanding on the terms of the SBA for disbursements totaling approximately US$50 billion, which was approved by the IMF’s Executive Board on June 20, 2018. The SBA was intended to Argentine assets thatprovide support to the Macri administration’s economic program, helping build confidence, reduce uncertainties and strengthen Argentina’s economic prospects. On June 22, 2018 the Argentine government allocatedmade a first drawing of approximately US$15 billion under the SBA. Argentina has received disbursements under the SBA for US$44 billion. Notwithstanding the foregoing, the current administration has publicly announced that they will refrain from requesting additional disbursements under the agreement, and instead vowed to renegotiate its terms and conditions in good faith.

Following the execution of the SBA, in August 2018, Argentina faced an unexpected bout of volatility affecting emerging markets generally. In September 2018, the Macri administration discussed with the IMF staff further measures of support in the face of renewed financial volatility and a challenging economic environment. On October 26, 2018, in light of the adjustments to fiscal and monetary policies announced by the Argentine government and the BCRA, the IMF’s Executive Board allowed the Argentine government to draw the equivalent of US$5.7 billion, bringing total disbursements since June 2018 to approximately US$20.6 billion, approved an augmentation of the SBA increasing total assets to approximately US$57.1 billion for the duration of the program through 2021 and the front loading of the disbursements. Under the revised SBA, IMF resources for Argentina in 2018-19 increased by US$18.9 billion. IMF disbursements for the remainder of 2018 more than doubled compared to the original IMF-supported program, to a total of US$13.4 billion (in addition to the US$15 billion disbursed in June 2018). Disbursements in 2019 were also nearly doubled, to US$22.8 billion, with US$5.9 billion planned for 2020-2021.

On August 28, 2019, the Macri administration issued a decree deferring the scheduled payment date for 85% of the amounts due on short-term notes maturing in the fourth quarter of 2019, governed by Argentine law and held by institutional investors. Of the deferred amounts, 30% would be repaid 90 days after the original payment date and the remaining 70% would be repaid 180 days after the original payment date, except for payments under Lecaps due 2020 held domestically, which would be repaid entirely 90 days after the original payment date. Amounts due on short-term notes held by individual investors would be paid as originally scheduled.

Moreover, in December 2019, the current administration further extended by decree payments of a series of short term Argentine-law governed treasury notes denominated in U.S. dollars held by institutional investors through August 2020. Additionally, on February 11, 2020, the Argentine government decreed the extension of maturity to September 30, 2020 of a dollar-linked treasury note governed by Argentine law, which had been originally subscribed to a large extent with U.S. dollar remittances, to avoid a payment with Argentine Pesos that would have required significant sterilization efforts by the monetary authority.

On February 12, 2020, the Argentine Congress enacted Law No. 27,544 for the Sustainable Restoration of Foreign-Law Governed Public Debt which granted the Ministry of Economy the power to restructure the Argentine government’s external public debt. On March 9, 2020, the Executive Branch issued decree No. 250/20 authorizing the Ministry of Economy to restructure US$68,842 million in debt.

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Following Law No. 27,544, on March 10, 2020, Decree No. 250/20 issued by the Argentine government established the maximum nominal amount of liability management transactions and/or exchanges and/or restructurings of the Republic of Argentina’s outstanding public securities issued under foreign law as of February 12, 2020 at the nominal value of US$68,842,528,826, or its equivalent in other uses.currencies. However, due to the COVID-19 pandemic, the timeline initially published by the Ministry of Economy for the restructuring of the public external debt which provided, among other steps, the launch of an exchange offer of such public securities issued under foreign law, was postponed.

On April 21, 2020, Argentina invited holders of approximately US$ 66.5 billion aggregate principal amount of its foreign currency external bonds to exchange such bonds for new bonds. The invitation contemplated the use of collective action clauses included in the terms and conditions of such bonds, whereby the decision by certain majorities would bind holders that do not tender into the exchange offer. On August 31, 2020 it announced that it had obtained bondholder consents required to exchange and or modify 99.01% of the aggregate principal amount outstanding of all series of eligible bonds invited to participate in the exchange offer. The restructuring settled on September 4, 2020. As a result of the invitation, the average interest rate paid by Argentina’s foreign currency external bonds was lowered to 3.07%, with a maximum rate of 5.0%, compared to an average interest rate of 7.0% and maximum rate of 8.28% prior to the invitation. In addition, the aggregate amount outstanding of Argentina’s foreign currency external bonds was reduced by 1.9% and the average maturity of such bonds was extended.

On April 5, 2020, the Argentine government enacted Decree No. 346/20 (i) deferring the payments of principal and interest on certain of its foreign currency bonds governed by Argentine law until December 31, 2020, or until such earlier date as the Ministry of Economy may determine, considering the progress made in the process designed to restore the sustainability of Argentina’s public debt, and (ii) authorizing the Ministry of Economy to conduct liability management transactions or exchange offers, or to implement restructuring measures affecting foreign currency bonds governed by Argentine law which payments have been deferred pursuant to such Decree.

On August 18, 2020, Argentina offered holders of its foreign currency bonds governed by Argentine law to exchange such bonds for new bonds, on terms that were equitable to the terms of the invitation made to holders of foreign law-governed bonds. On September 18, 2020, Argentina announced that holders representing 99.4% of the aggregate principal amount outstanding of all series of eligible bonds invited to participate in the local exchange offer had participated. As a result of the exchange offer, the average interest rate paid by Argentina’s foreign currency bonds governed by Argentine law was lowered to 2.4%, compared to an average interest rate of 7.6% prior to the exchange. In addition, the exchange offer extended the average maturity of such bonds.

As of the date of this Annual Report, the Argentine government has initiated negotiations with the IMF in order to renegotiate the principal maturities of the US$ 44.1 billion disbursed between 2018 and 2019 under a Stand By Agreement, originally planned for the years 2021, 2022 and 2023. We cannot assure whether the Argentine government will be successful in the negotiations with that agency, which could affect its ability to implement reforms and public policies and boost economic growth, nor the impact of the result that renegotiation will have in Argentina's ability to access international capital markets (and indirectly in our ability to access those markets) to access international capital markets, in the Argentine economy or in our economic and financial situation or in our capacity to extend the maturity dates of our debt or other conditions that could affect our results and operations or businesses. Lack of access to international or domestic financial markets could affect the projected capital expenditures for our operations in Argentina, which, in turn, may have an adverse effect on our financial condition or the results of our operations.

Without renewed access to the financial market the Argentine government may not have the financial resources to implement reforms and boost growth, which could have a significant adverse effect on the country’s economy and, consequently, on our activities. Likewise, Argentina’s inability to obtain credit in international markets could have a direct impact on the Company’sour ability to access those markets to finance itsour operations and itsour growth, including the financing of capital investments, which would negatively affect our financial condition, results of operations and cash flows. In addition, we cannot predict the outcome of any future restructuring of Argentine sovereign debt. We have investments in Argentine sovereign bonds amounting to P$5,0097,061 million as of December 31, 2018.2020. Any new event of default by the Argentine government could negatively affect their valuation and repayment terms, as well as have a material adverse effect on the Argentine economy and, consequently, our business and results of operations.

 

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The Argentine banking system may be subject to instability which may affect our operations.

 

The Argentine banking system has experienced several crisis in the past. Among those, the Argentine banking system collapsed in 2001 and 2002, when the Argentine government restricted bank withdrawals and required mandatory conversion of dollar deposits to pesos. From 2005 to 2007, a period of economic growth coupled with relative stability of the country’s exchange rate and inflation resulted in the restoration of public confidence, a gradual accumulation of deposits in Argentine financial institutions, and improved liquidity of the financial system. However, since 2008 certain events such as internal conflicts with certain sectors of the Argentine economy, the international financial crisis and the increased regulation on the FX Market, have decreased depositors’ confidence. In recent years, the Argentine financial system grew significantly with a marked increase in loans and private deposits, showing a recovery of credit activity. Such recovery has been severely impacted by the COVID-19 pandemic. In spite of the fact that the financial system’s deposits continue to grow in nominal terms, they are mostly short-term deposits and the sources of medium and long-term funding for financial institutions are currently limited. In 2018,2020, nominal private deposits in pesos rose by 41%Pesos increased 84.6% year-over-year fueled(fueled by the growth of time deposits with a 66% increase, while savings and current accounts each experiencedwith a 23% increase91.5% increase) and nominal time deposits increased 81.0% year-over-year. In contrast, peso-denominated loans increased at a slower pace than prior years. Meanwhile,During the same period, loans in foreign currency (composed mainly of corporate loans) showed less dynamism, increasing by 4%evidenced a decrease of 4.9% at the end of 2018.2020. In 2020, private deposits in U.S. dollars declined by 18.0%.

 

Financial institutions are particularly subject to significant regulation from multiple Regulatory Authorities,regulatory authorities, all of whom may, among other things, establish limits on commissions and impose sanctions on the financial institutions. The lack of a stable regulatory framework, or changes to such regulatory framework by the government, could impose significant limitations on the activities of the financial institutions and could induce uncertainty with respect to the financial system stability.

 

DespiteThe persistence of the strong liquidity currently prevailing in Argentina´s financial system, a newcurrent economic crisis or the consequent instability of one or more of the larger banks, public or private, could have a material adverse effect on the prospects for economic growth and political stability in Argentina, resulting in a loss of consumer confidence, lower disposable income and fewer financing alternatives for consumers. These conditions would have a material adverse effect on us by resulting in lower usage of our services, lower sales of devices and the possibility of a higher level of uncollectible accounts or increase the credit risk of the counterparties regarding the Company investments in local financial institutions.

 

Exchange controls and restrictions on transfers abroad and capital inflows have limited, and could limit in the future, the availability of international credit.

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The BCRA has imposed restrictions on the transfer of funds outside of Argentina in the past; some restrictions may be reimposed in the future, which could prevent us from making payments on dividends and liabilities.

In the past, the Argentine government has imposed a number of monetary and currency exchange control measures, including temporary restrictions on the free availability of funds deposited with banks and restrictions or limitations on the access to foreign exchange markets and transfers of funds abroad for purposes of paying principal and interest on debt, trade liabilities to foreign suppliers and dividend payments to foreign shareholders. Between the end of 2001 and 2002, the Argentine government implemented a unified exchange market (Mercado Único y Libre de Cambios or “MULC”) with significant regulations and restrictions for the purchase and transfer of foreign currency.

Between 2011 and 2015, the Argentine government implemented a series of measures aimed to increase procedures and controls on the foreign trade and capital flows. To that effect, certain measures were implemented to control and limit the purchase of foreign currency, such as the prior approval of the AFIP for any purchase of foreign currency made by private companies and individuals for saving purposes, among others. In addition, the BCRA expanded the controls and measures to make payments abroad accessing the local foreign exchange market, regarding trade payables and financial debt, and also established demanding procedures that must be met to pay certain trade payables with related parties. Although no regulations prohibited making dividend payments to foreign shareholders, in practice authorities substantially limited any purchase of foreign currency to pay dividends during the 2011 through 2015 period.

The current administration has eliminated all substantial exchange restrictions implemented by the previous administration. Notwithstanding the measures adopted by the current government, there can be no assurance that the BCRA or other government agencies will not in the future increase controls and restrictions for making payments to foreign creditors or dividend payments to foreign shareholders, which would limit our ability to comply in a timely manner with payments related to our liabilities to foreign creditors or non-resident shareholders. See “Item 10—Additional Information—Foreign Investment and Exchange Controls in Argentina.”

We are subject to Argentine and international anti-corruption, anti-bribery and anti-money laundering laws. Our failure to comply with these laws could result in penalties, which could harm our reputation and have an adverse effect on our business, financial condition and results of operations.

 

The United States Foreign Corrupt Practices Act of 1977, the OrganisationOrganization for Economic Co-Operation and Development Anti-Bribery Convention, the Argentine Anti-Money Laundering Law (Ley de Prevención del Lavado de Activos), the Argentine Corporate Criminal Liability Law (Ley de Responsabilidad Penal Empresaria) and other applicable anti-corruption laws prohibit companies and their intermediaries from offering or making improper payments (or giving anything of value) to government officials and/or persons in the private sector for the purpose of influencing them or obtaining or retaining business and require companies to keep accurate books and records and maintain appropriate internal controls. In particular, the Argentine Corporate Criminal Liability Law provides for the criminal liability of corporate entities for criminal offences against public administration and transnational bribery committed by, among others, its attorneys-in-fact, directors, managers, employees, or representatives. In this sense, a company may be held liable and subject to fines and/or suspension of its activities if such offences were committed, directly or indirectly, in its name, behalf or interest, the company obtained or may have obtained a benefit therefrom, and the offence resulted from a company’s ineffective control.

 

It may be possible that, in the future, there may emerge in the press allegations of instances of misbehavior on the part of former agents, current or former employees or others acting on our behalf or on the part of public officials or other third parties doing or considering business with us. While weWe will endeavor to monitor such press reports and investigate matters which we believe warrant an investigation in keeping with the requirements of compliance programs and, if necessary, make disclosure and notify the relevant authorities, however,authorities. However, any adverse publicity whichthat such allegations attract mightmay have a negative impact on our reputation and lead to increased regulatory scrutiny of our business practices.

 

If we or individuals or entities that are or were related to us are found to be liable for violations of applicable anti-corruption laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we or other individuals or entities could face civil and criminal penalties or other sanctions, which in turn could have a material adverse impact on our reputation, business, financial condition and results of operations.

 

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Risks Relating to Telecom and its operations

 

We may become subject to burdensome regulations, ordinances and laws affecting the services we offer which could adversely affect our operations.

Activities in the fixed and mobile telephony, cable television and Internet businesses are subject to risks associated with the adoption and implementation of laws and governmental regulations that reflect changing governmental policies over time. The Argentine government has historically exercised significant influence over the economy, and telecommunications companies in particular have operated in a highly regulated environment. In the past, the Argentine government promulgated numerous, far-reaching regulations affecting the economy and telecommunications companies in particular. Existing regulations could further increase penalties that may be imposed by the regulatory authorities. In addition, local municipalities in the regions where we operate have also introduced regulations and proposed various taxes and fees for the installation of infrastructure, equipment and expansion of fixed line and mobile networks. For example, municipalities usually restrict areas where antennas may be deployed, negatively impacting our mobile service coverage, which in turn affects the quality of our services. Municipal and provincial tax authorities have also brought an increasing number of claims against us, which we are replying. If changes to existing laws and regulations lead to negative consequences for the Company, our business, financial condition, results of operations and cash flows may be adversely affected.

After the deregulation of Argentina’s telecommunications and media industries, the Broadcasting Law (as defined below), the LAD and their implementing regulations have been amended on a number of occasions, modifying requirements to hold or transfer broadcasting licenses. In addition, we are subject to the regulations of certain other governmental entities, including the SCI, which has issued resolutions requiring Argentine cable television operators to apply a formula to calculate their customers’ monthly subscription prices.

In March 2020, in response to the COVID-19 outbreak, the Argentine government introduced emergency measures in the telecommunications sector in order to alleviate the financial burden of the pandemic on individuals and companies. Decree No. 311/20 issued by PEN on March 24, 2020 determined that services related to fixed and mobile telephony, Internet and cable TV would not be interrupted for defaults in payment by a certain group of customers defined therein (See “—The coronavirus and the measures taken or to be implemented by the Argentine government in response to the coronavirus have had and could continue to have a significant adverse effect on our business operations”). In August 2020, Decree No. 690/20 declared ICT services as an essential public service and imposed tariff regulations on such services (See “—Risks Relating to Telecom and its operations— The regulation of rates may adversely affect Telecom Argentina’s revenues”).

We can offer no assurances that we will not be subject to similar regulations in the future, which could force us to modify the prices of subscription services and have a material adverse effect on our revenues.

The regulatory authorities have imposed increasing burdens and new regulations on companies that could increase the penalties they can impose for breaches of the regulatory framework.

In certain municipalities, regulations have been adopted requiring us to upgrade and/or modify our cable television systems. We will seek to continue to upgrade our existing cable systems, including any network upgrades or modifications required by regulatory or local authorities if we have sufficient cash flow and financing is available at commercially attractive rates. Although currently applicable local ordinances provide that certain penalties may be imposed, including the suspension of the right to use the air space, municipalities have generally not imposed penalties on non-compliant cable systems operators. As of the date of this Annual Report, no fines have been imposed to us in relation to this matter.

The Auction Terms and Conditions approved by Resolution SC No. 38/14 established strict coverage and network deployment commitments that will require significant capital expenditures from Telecom. Additionally, many municipal governments have issued regulations that, in our view, exceed their authority, which frequently limit, hinder or restrict the installation of the infrastructure required to comply with such commitments. Therefore, such legislation negatively impacts the obligations that we and our competitors assumed in the mobile telephony business pursuant to the requirements set out in the Regulation for the Quality of Telecommunications Services.

We may also be subject to additional and unexpected governmental regulations in the future. For more information on the regulatory framework, see “Item 4—Information on the Company—Regulatory Authorities and Framework”

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The fixed and mobile telephony, cable television and broadbandInternet businesses in Argentina are competitive. Our competitors may consummate transactions that result in a further consolidation of the industry and convergence with the telecommunications industry.convergence. Therefore, we may lose a portion of our market share which may create additional risks and adversely impact our financial condition and results of operations. See “—We may become subject to burdensome government regulations, ordinances and legal uncertaintieslaws affecting the services we offer which could adversely affect our operations.”operations”.

 

We compete with other cable television operators that have built networks in the areas in which we operate, providers of other pay television services, including direct broadcasting, direct-to-home satellite and multi-channel multi-point distribution system services, licensed suppliers of basic telephone services and cooperative entities providing utility services and also with free broadcasting services which are currently available to the Argentine population in certain areas from four privately-owned television networks (including one owned by Grupo Clarín) and their local affiliates and one state-owned national public television network. We expect competition to increase in the future due to a number of factors, including the development of new technologies.

 

In relation to Mobilemobile services, we anticipate that we will have to devote significant resources to the refurbishment and maintenance of our existing network infrastructure to comply with regulatory obligations and to remain competitive with respect to the quality of our services. In addition, we must comply with the obligations arising from the acquisition of the 4G spectrum. We also expect to continue to devote resources to customer retention and loyalty in such segments.services.

 

Technological innovation relating to fixed and mobile telephony, cable television and broadbandInternet transmission increases the level of competition that we face and requires us to make frequent investments to develop new and innovative programming services and products to attract and retain fixed and mobile telephony, cable television and broadbandInternet customers. We cannot assure you that we will be able to make the investments necessary to remain competitive, or that we will be able to attract customersnew and retain our current customers.customers. A substantial loss of our customers to competitors would have a material adverse effect on our business and results of operations.

 

Additionally, the deployment of our wireless network requires authorizations from municipalities to enable the installation of new sites throughout the country, which if not obtained in a timely manner and form, would limit the growth of our business and affect the quality of services provided under the brand Personal. If we are not successful in obtaining those permits and if our competitors do obtain them, this could result in a competitive disadvantage for us.

The macroeconomic situation in Argentina may adversely affect our ability to successfully invest in, and implement, new technologies, coverage and our wireless network may be impaired if we fail to obtain certain municipal authorizations, as well as by an adverse macroeconomic condition in Argentina. If we are not successful in making such investments, the growth of our business and quality of our services in a timely fashion. Accordingly, we cannot assure you that we will have the ability to make needed capital expenditures and operating expenses. Ifwould be adversely affected. Further, if we are unable to make these capital expenditures, or if our competitors are able to invest in their businesses to a greater degree and/or faster than we are, our competitive position will be adversely impacted.

 

We cannot assure you that we will be able to expand broadband service to other areas or continue to provide it in the areas in which it is currently offered, or that we will be able to compete successfully with other broadband providers.

We also face competition from other broadbandcable television and Internet service providers. Certain competitors of the cable television and broadbandInternet business have well-established name recognition, larger customer bases, and significant financial, technical and marketing resources. This may allow them to devote greatersignificant resources than us to the development and promotion of their business. These competitors may also engage in more extensive research and development, adopt more aggressive pricing policies and make more attractive offers to advertisers. Competitors may develop products and services that are equal or superior to our offers or that achieve greater market acceptance. As a result, competition may have a material adverse effect on our operations.

 

Moreover, the products and services that we offer may fail to generate revenues or attract and retain customers. If our competitors present similar or better responsiveness, functionality, services, speed, plans or features, our customer base and our revenues may be materially affected.

 

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Competitiveness is and will continue to be affected by the business strategies and alliances put in placedeployed by our competitors. We may face additional pressure on the prices that we charge for our services or experience a loss of market share of fixed and mobile services.in the services we provide. In addition, the general business and economic climate in Argentina may affect us and our competitors differently;differently; thus our ability to compete in the market could be adversely affected.

 

Additionally, if in the future licensees of ICT services are allowed to register and provide subscription broadcasting service by satellite link, it will ease the entry of new competitors into the market. As a result, we may face additional pressure with respect to prices we charge for our services or experience a loss of participation in the subscription broadcasting market.

 

Given the range of regulatory, business and economic uncertainties we face, it is difficult to predict with precision and accuracy our future market share in relevant geographic areas and customer segments, or to anticipate a decrease in demand for the products we offer that could result in a reduction of our revenuerevenues and market share, or the speed with which such change in our market share or prevailing prices for services may occur or the effects of competition. competition. Those effects could be material and adverse to our overall financial condition, results of operations and cash flows.

 

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Our revenues are cyclical and depend upon the condition of the Argentine economy.

 

Revenues generated by our fixed and mobile telephony, cable television and broadbandInternet operations have proven cyclical and depend on general economic conditions. In the past, a general economic downturn in Argentina has had, and would be expected to have in the future, a negative effect on our revenues and a material adverse effect on our results of operations. Historically, for example, increases in losses of cable television subscribers have corresponded with general economic downturns and regional and local economic recessions. In particular, the 2001-2002 Argentine economic crisis had a material adverse effect on our cable television revenues. Moreover, most

The regulation of our revenues are denominated in Pesos, exposing us to risks related with fluctuations in the value of the Peso. See “Risk Factors—Risks Relating to Argentina—Devaluation of the pesorates may adversely affect our results of operations, our capital expenditure program and the ability to service our liabilities and transfer funds abroad.”

We may become subject to burdensome regulations, ordinances and laws affecting the services we offer which could adversely affect our operations.

Activities in the fixed and mobile telephony, cable television and broadband businesses are subject to risks associated with the adoption and implementation of laws and governmental regulations that reflect changing governmental policies over time. The Argentine government has historically exercised significant influence over the economy, and telecommunications companies in particular have operated in a highly regulated environment. In the past, the Argentine government promulgated numerous, far-reaching regulations affecting the economy and telecommunications companies in particular. Regulations such as the Argentine Secretary of Communications (“SC”) Resolution No. 5/13 and the new regulatory framework governing the quality of telecommunication services established by Resolution MIDMOD N°580/2018 could further increase penalties imposed by the regulatory authorities. In addition, local municipalities in the regions where we operate have also introduced regulations and proposed various taxes and fees for the installation of infrastructure, equipment and expansion of fixed line and mobile networks. For example, municipalities usually restrict areas where antennas may be deployed; negatively impacting our mobile service coverage, which in turn affects our quality of services. Provinces have increased their tax rates, particularly turnover tax rates. Municipal and provincial tax authorities have also brought an increasing number of claims against us, which we are contesting. See “Item 8—Financial Information—Legal Proceedings—Tax Matters” for more information. If changes to existing laws and regulations lead to negative consequences for the Company, our business, financial condition, results of operations and cash flows may be adversely affected.

After the deregulation ofTelecom Argentina’s telecommunications and media industries in 1995, the Broadcasting Law (as defined below), the LAD and their implementing regulations have been amended on a number of occasions, modifying requirements to hold or transfer broadcasting licenses. In addition, we are subject to the regulations of certain other governmental entities, including the SCI, which has issued resolutions requiring Argentine cable television operators to apply a formula to calculate their customers’ monthly subscription prices.We can offer no assurances that we will not be subject to similar regulations in the future, which could force us to modify the prices of subscription services and have a material adverse effect on the revenues generated by our activities relating to the cable television and broadband businesses.revenues.

 

The Regulatory Authorities have imposed increasing burdens and new regulations on companies that could increase the penalties they can impose for breaches of the regulatory framework.

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If the technical comments are not taken into consideration, compliance with the current standards could be difficult which may result in penalties for telecommunications operators, including Telecom, affecting our ability to execute our business plan since such penalties could impose increased operation costs, among other effects.

Furthermore, the LAD which became effective on December 19, 2014 and regulates ICT services, incorporated numerous modifications to the regulatory framework applicable to telecommunications services in Argentina. Although the law requires the enactment of new regulations most of which have not been issued to date, there is still uncertainty regarding how certain aspects, such as the sanctions regime, the provision of infrastructure to other providers and the asymmetries that may be imposed on the dominant operator, among others, will be regulated as well as uncertainty regarding the impact that any new regulations may have on Telecom Argentina. See “Item 4—Information on the Company—Regulatory and Legal Framework—Regulatory Framework—Other Regulations.”

Additionally, the LAD (as amended by Decree No. 267/15), under Article 48 of Title VI, established that licensees of ICT services may freely set their prices which shall be fair and reasonable, to offset the costs of exploitation and to tend to the efficient supply and reasonable margin of operation.

However, on August 22, 2020, the Regulatory AuthorityPEN issued Decree No. 690/20 amending the LAD. Decree No. 690/20 declared ICT services (which includes fixed and mobile telephony services, cable television and Internet) as well as access to telecommunications networks for and between licensees as “Essential and Strategic Competition Public Services”, and empowered ENACOM to ensure accessibility. Decree No. 690/20 further established that (i) the prices of the Essential and Strategic Competition Public ICT Services, (ii) the prices of those services provided in accordance with the Universal Service, and (iii) the prices of those services determined by ENACOM for public interest reasons, shall be regulated by ENACOM. Moreover, Decree No. 690/20 established that ENACOM is entitledthe agency responsible for the enactment of any regulation related to monitor,the ICT’s PBU, and intervenealso suspended any price increases or changes set or announced by the ICT’s licensees from July 31, 2020 to December 31, 2020. Decree No. 690/20 has been ratified by the Argentine Congress under Law No. 26,122 and has been regulated through ENACOM Resolutions Nos. 1,466/20 and 1,467/20.

Resolution No. 1,466/20, among others, allows ICT licensees providing Internet access services, subscription broadcasting services through physical, radio-electric or satellite link, fixed telephony services and mobile telecommunications services to increase retail prices for services up to 5% during January 2021. In order to establish the percentages approved, licensees must consider the prices effective as of July 31, 2020 as the price of reference. Such Resolution also provides that ICT Services Licensees may request a higher increase, on an exceptional basis in accordance with the provisions of Section 48 of the LAD.

Resolution No. 1,467/20 regulated the PBU provided by Decree No. 690/20 for the different services provided by ICT licensees, establishing the price and the characteristics of each service plan. The Resolution also defines the beneficiaries of this PBU, among other matters.

The Company has initiated legal proceedings before the Federal Court of Appeals on Administrative Litigation Matters challenging the constitutionality of Decree No. 690/20 and the aforementioned ENACOM Resolutions and requesting a preliminary injunction that would suspend its application. The preliminary injunction was denied on January 29, 2021 and the Company appealed the court’s decision. As of the date of this Annual Report, the resolution of the mentioned appeal is still pending. The Company is consulting with its legal advisors with respect to prices setthe further actions available to the Company to protect its rights.

On February 2, 2021, the Company was informed by the “Asociación Argentina de Televisión por Cable” (“ATVC”) that a preliminary injunction requested by a representative of the cable television industry of the Province of Córdoba (Argentina) was granted, ordering the suspension of Decree N° 690/20, of Decree N° 311/20 and of all measures adopted as a result of such decrees. The court also ordered the PEN and the ENACOM to abstain from issuing or pursuing any measure based on said decrees, until a final court decision be issued. ATVC also informed that, pursuant to the court’s indications, the regulatory authority should refrain from issuing regulations related to Decree No. 690/20 or enforcing the regulations previously issued. The Company, if it understandswith the assistance of its legal advisors, has made administrative and judicial filings supporting ATVC´s interpretation that such prices do not complyinjunction is protective of all the participants in the industry.

On January 27, 2021, the Company was served with Article 48notice of a preliminary injunction granted by the Civil and Commercial Court No. 10 of Mar del Plata obtained by Asociación Civil de Usuarios Bancarios Argentinos (“ACUBA”)” in the aforementioned case, which ordered the Company to roll back the tariffs of broadcasting services subscriptions, Internet access services, fixed telephony services and mobile telecommunications services to those of December 2020, which could only be increased up to 5% as authorized by ENACOM, and maintain such tariffs until any modification is resolved. Telecom challenged the preliminary injunction for lack of jurisdiction, and requested that the resolution granting the preliminary injunction be declared nulled. Telecom further requested that the preliminary injunction be lifted. A decision from the court remains pending as of the LAD. date of this Annual Report. The Company argued that a preliminary injunction obtained by a representative of the industry of the Province of Córdoba from the federal courts of the province expressly suspended the application of Decree No. 690/20, Decree No. 311/20 and prohibited ENACOM from issuing any subsequent resolutions.

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If prices are deemed unreasonable, and the Regulatory Authority consequentlyENACOM imposes further restrictions on our prices, our operating margins may be adversely affected. Our ability to comply with the conditions in our license, as well as the relevant provisions in applicable regulations and laws, may be affected by events or circumstances outside of our control, and therefore we cannot predict whether such events or circumstances result in an adverse effect on our financial condition, our operations and cash flows.

Also, cable television services were initially required to bring The Company, with the assistance of its cable systems fully into compliance with municipal regulations prohibiting above-ground cables in Mar del Plata by November 2001, although pursuant to a modification in municipal regulations in February 2005,legal advisors, is analyzing the deadline was extended to December 2007.  We will seek to continue to upgrade our existing cable systems, including any network upgrades or modifications required by regulatory or local authorities if we have sufficient cash flow and financing is available at commercially attractive rates.  The applicable ordinance providesactions that certain penalties may be imposed, including the suspension of the rightnecessary in order to use the air space; however the city generally has not imposed penalties on non-compliant cable systems. As of the date of this Annual Report, no fines have been imposed in relationprotect its rights. See “Item 4 —Regulatory Authorities and Framework— Amendment to this matter.

We may also be subject to additional and unanticipated governmental regulations in the future. For more information on the regulatory framework, see “Item 4—Information on the Company—Regulatory and Legal Framework—Regulatory Framework.”Law No. 27,078 – Argentine Digital Law”.

 

Technological advances and replacement of our equipment may require us to make significant expenditures to maintain and improve the competitiveness of the services we offer.

 

Our industries are subject to significant changes in technology and the introduction of new products and services. We cannot predict the effect of technological changes on our business. New services and technological advances related to the telecommunications, cable television and broadbandInternet industries are likely to offer additional opportunities to compete against us on the basis of cost, quality or functionality. It may not be practicable or cost-effective for us to replace or upgrade our installed technologies in response to our competitors’ actions. Responding to such change may require us to devote substantial capital to the development, procurement or implementation of new technologies, and may depend on the final cost in local currency of imported technology and our ability to obtain additional financing. No assurance can be given that we will have the funds to make the capital expenditures to improve our systems, compete with others in the market or replace equipment used in connection with our businesses.

 

Moreover, in relation to broadbandInternet, cable television and mobile telephony services, which we expect that those services will continue to account for an increasing percentage of our revenues in the future, those services are, are characterized by rapidly changing technology, evolving industry standards, changes in customer preferences and the frequent introduction of new services and products. To remain competitive, in the fixed telecommunications market, we must invest in our fixed-line network, and information technology. Specifically, we must constantly upgrade our access technology and software for the internet service market, in order to increase the speed of our network and improve the commercial offers and the user experience. Also, to remain competitive in the mobile telecommunications market, we mustexperience and continue to enhance our mobile networks by expanding our network. See “Item 4 —Information on the Company—The businessBusiness”. Future technological developments may result in decreased customer demand for certain of our services or even render them obsolete. In addition, as new technologies develop, equipment may need to be replaced or upgraded or network facilities (in particular, mobile and Internet network facilities) may need to be rebuilt in whole or in part, at substantial cost, to remain competitive. These enhancements and the implementation of new technologies will continue requiring increased capital expenditures.

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The media industry is a dynamic and evolving industry, and if it does not develop and expand as we currently expect, our results and operations relating to our cable television and broadbandInternet businesses may suffer.

 

We expect to derive an increasing amount of revenues from our activities in the cable television and broadbandInternet industries, but we may not do so if these non-traditional media operations do not develop and expand as we currently expect. The role of cable television in Argentina became increasingly important in the past. More recently, non-traditional technologies, including “Over-The-Top” services (which are services provided by a telecommunications provider through Internet Protocol (“IP”) networks not necessarily owned by the provider, including communications, content and cloud-based offerings), such as technologies used by Netflix or other IP operators, have come to play a larger role in the Argentine telecommunications industry. These companies take advantage of the deregulation of the sector to bring their services through third-party networks without paying any fee or right to use it. These technology and new services areas are in the early stages of development, and growth may be inhibited for a number of reasons, including:

 

·                  the cost of connectivity;

·the cost of connectivity;

 

·                  concerns about security, reliability, and privacy;

·concerns about security, reliability, and privacy;

 

·                  unexpected changes in the regulatory framework;

·unexpected changes in the regulatory framework;

 

·                  the appearance of technological innovations;

·the appearance of technological innovations;

 

·                  the ease of use; and

·the ease of use; and

 

·                  the quality of service.

·the quality of service.

 

Our business, financial condition and results of operations will be materially and adversely affected if these markets do not continue to grow or grow more slowly than we anticipate.

 

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In addition, unlike the Argentine cable television industry, which has traditionally been dominated by companies located in Argentina, competitors in the cable television and broadband industriesother services we provide may be based outside of Argentina and enjoy certain competitive advantages such as scale and access to financial resources on terms that are better than those available to us.

We may not be able to renew programming contracts on favorable terms.

 

We purchase basic and premium programming from approximately 52 programming suppliers. Several programming suppliers agreed to offer volume discount pricing structures because of the growth and market share shown by our cable television operations. Following Argentina’s economic crisis in 2002, participantsParticipants in the cable television industry renegotiatednegotiate the terms of a majority of the respective programming contracts that had originally been denominated in U.S. Dollarsdollars to provide for Peso-denominated pricing formulas that were generally linked to the number of subscribers and eliminatedwithout minimum purchase requirements. As a result of the renegotiation,consequence, contract terms wereare generally shortened and pricing provisions wereare adjusted in order to transfer the benefit of increases in the monthly fee for basic cable television services to the programming companies. The new contracts also providedprovide for automatic termination upon the occurrence of major macroeconomic disruptions. We cannot assure you that we will be able to regularly negotiate renewals of our programming contracts at current cost levels, particularly since many of our suppliers have U.S. Dollar-baseddollar-based costs. Additionally, suppliers are expected to seek price increases as a reflection of economic conditions in Argentina. There can similarly be no assurances that we will be able to obtain volume discounts in the future.future.

 

We may not be able to renew some leases of the facilities for the installation of our fixed and mobile telephony, cable television and broadband systems.Internet systems.

 

Our fixed and mobile telephony services, cable television services and broadbandInternet services are distributed through networks installed in facilities leased from third parties, either through the lease of space on roofs or on utility poles. We regularly renegotiate the renewal of short-term lease contracts for the use of poles in different areas of the country in the ordinary course of our business. If we are not able to renew some of those lease contracts, our operations in such areas may be suspended if alternative third-party facilities are not promptly obtained on a cost-efficient basis. Underground distribution of our wire network would require additional governmental authorizations and significant capital expenditures that itwe may not be able to afford or that itwe may be restricted from making pursuant to the terms and conditions of itsour indebtedness and itsour existing covenants. There can be no assurance that such renewals of lease contracts will be granted.

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Our revenues may be adversely affected by an increase in churn rates, with respect to mobile telephony, cable television and broadbandInternet services, or reductions in fixed telephony lines in service, with respect to fixed telephony services.

 

Our revenues will depend partiallysignificantly on our ability to retain customers by limiting churn rates, with respect to mobile telephony, cable television and broadbandInternet services, or net reductions in fixed telephony lines in service, with respect to fixed telephony services. The churn rate is determined by calculating the total number of disconnected customers of each of our mobile telephony, cable television and broadband services over a given period as a percentage of the initial number of customers for such services as of the beginning of the applicable measurement period.  Reductions in fixed telephony lines in service refers to the reductions of fixed telephony lines in service that form part of the public telephone network, or are connected to such network, as of the end of two relevant measurement periods. We seek to enforce a strict disconnection policy, which provides for the disconnection of cable television services after a three-month period of non-payment and delivery of a notice of disconnection. With respect to broadband services, we disconnect services after a two-month period of non-payment and delivery of a corresponding notice of disconnection. With respect to mobile telephony services, we disconnect services after a 150-day period of non-payment and delivery of a notice of disconnection. With respect to fixed telephony services, we disconnect services after a 180-day period of non-payment and delivery of a notice of disconnection. For the year ended December 31, 2018, our mobile telephony services customer churn rate was 2.7%, our cable television services customer churn rate was 1.45% and our broadband services customer churn rate was 1.9%. With respect to our fixed telephony services, the number of fixed telephony lines in service as of December 31, 2018 totaled approximately 3.5 million. Any substantial increase in churn rates, with respect to mobile telephony, cable television and broadbandInternet services, or reductions in lines in service, with respect to fixed telephony services, may have a material adverse effect on our revenues and results of operations.operations. For further information about churn rates see “Item 4—Management of Churn” and “Item 5—Operating and Financial Review and Prospects—Consolidated Results of Operations—(A.1) 2020 Compared to 2019”.

 

Our revenues relating to our cable television services are subject to uncertainty due to, and may be adversely affected by, the formula set forth in Resolution No. 50/10 to estimate monthly fees paid by cable television subscribers.

 

In 2010, the Secretariat of Domestic Trade (“SCI”) issuedSCI Resolution No. 50/10 (“Resolution 50”), setting forthapproved certain rules for the sale ofgoverning pay television service.services. These rules provide that cable television operators must apply a specific formula to estimatecalculate their monthly feessubscription prices. The price arising from the application of the formula was to be paid by cable television subscribers and report these estimatesinformed to the Office of Business Loyalty ((“Dirección de Lealtad ComercialComercial”). Given the wide range of factors set forth in Resolution 50 to calculate such formula, as of the date of this Annual Report, the actual impact of these rules on the monthly fees we collect is uncertain and may have a material adverse effect on our revenues and results of operations relating to our, requiring cable television services.operators to adjust such amount semi-annually and inform the result of such adjustment to that Office. The Company challenged Resolution No. 50/10 and requested the suspension of its effects and its nullity.

 

Notwithstanding the foregoing, it should be noted that as of the date of this Annual Report, according to theA decision issued on August 1, 2011 in re “LA CAPITAL CABLE S.A. c/v. Ministerio de Economía-Secretaría de Comercio Interior de la Nación”, by the Federal Court of Appeals of the City of Mar del Plata has ordered the SCI to suspend the application of Resolution No. 50/10 with respect to all cable television licensees represented by the Argentine Cable Television Association (“ATVC”). Upon beingATVC, including us. The injunction was notified to the SCI and the Ministry of Economy on September 12, 2011 such decisionand became fully effective and may not be disregarded by the SCI.effective. The National GovernmentPEN filed an appeal against the decision issued by the Federal Court of Appeals of Mar del Plata to have the case brought before the Supreme Court.Plata. Such appeal was dismissed, for which the National GovernmentPEN filed a direct appeal to the Supreme Court, which haswas also been dismissed. For further information see “Item 8—Financial information—Regulatory Proceedings — Resolution No. 50/10 and subsequent ones of the Secretariat of Domestic Trade of the Nation (“SCI”).”

 

The Auction Terms and Conditions approved by Resolution SC No. 38/14 established strict coverage and network deployment commitments that will require significant capital expenditures in the near future.

The Auction Terms and Conditions approved by Resolution SC No. 38/14 established strict coverage and network deployment commitments that will require significant capital expenditures on the part of Telecom.  Additionally, many municipal governments have issued regulations that exceed their authority, many of which limit, hinder or restrict the installation of the infrastructure required to comply with such commitments. Therefore, such legislation negatively impacts the obligations of our mobile telephone business and our competitors assumed pursuant to the requirements set out in Resolution SC No. 5/13, 580/18 and its amendments (Regulation for the Quality of Telecommunications Services).

PART I - ITEM 3 KEY INFORMATION - RISK FACTORS

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Similarly,

30 

Notwithstanding the foregoing, between March 2011 and October 2014 certain resolutions were adopted based on Resolution SC No. 25/15 passed on June 11, 2015 awarded50/10 regulating the prices that Cablevision should charge for such months to Personalits customers. These resolutions were challenged and suspended as a result of the “SCMA” 713-723 MHz and 768-778 MHz frequency bands that make up Lot 8 and that were previously pending assignmentaforementioned injunction. However, each Resolution had a valid period of three to six months, with the last one expiring in October 2014.

In September 2014, a decision was rendered in a case brought by the SC. These frequency bands were partially occupied by broadcasting licensees priorMunicipality of Berazategui against Cablevisión ordering the submission of all cases relating to these resolutions to the public auction. Pursuant to Decreejurisdiction of the Federal Courts of Mar del Plata, which had issued the decision on the class action in favor of ATVC.

In April 2019, La Capital Cable S.A. was served with notice of the resolution issued by the Federal Court of First Instance No. 1,340/162 of Mar del Plata declaring the termunconstitutionality of authorizationscertain sections of a law on which the SCI had found the legal basis for the useissuance of allResolution No. 50/10 and the frequenciessuccessive resolutions. The declaration of unconstitutionality implied that make up Lot 8 for the provision of SCMA, as well as the corresponding deployment obligations, shall be computed since the effective migration of services currently operating in these bands in the scope of Area II, defined accordingresolutions are not applicable to the provisionscompanies grouped by ATVC, including Telecom. However, the PEN filed an appeal against that resolution.

On December 26, 2019, the Federal Court of Decree No 1,461/93Appeals of Mar del Plata rejected the grievances of the Argentine government and its amendments. On August 30, 2018,confirmed the Ministrydecision rendered by the Court of ModernizationMar del Plata which declared the unconstitutionality of the sections of the law on which the SCI issued Resolution No. 528/2018, pursuant50/10 and the subsequent resolutions were based. The National Government filed an extraordinary appeal, which was granted on March 1, 2021.

The Company’s Management, with the assistance of its legal advisors, is analyzing the potential impact related to this new appeal and considers that it has strong arguments for its defense. However, an adverse outcome in the above mentioned cases, which it confirmed that the effective migrationwe cannot exclude, would have an adverse effect on our results of such services on February 27, 2018 had been verified.operations and financial condition.

 

Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobile communications usage.

 

The effects of, and any damage caused by, exposure to an electromagnetic field were and are the subject of careful evaluations by the international scientific community, but until now there is no scientific evidence of harmful effects on health. We cannot rule out that exposure to electromagnetic fields or other emissions originating from wireless handsets will not be identified as a health risk in the future.

 

Telecom complies with the international security standards established by the World Health Organization and Argentine regulations -which are similar-similar and mandatory for all Argentine mobile operators. Our mobile business may be harmed as a result of any future alleged health risk. For example, the perception of these health risks could result in a lower number of customers, reduced usage per customer or potential consumer liability, all of which could have a material adverse effect on our financial condition and results of operations.

 

Our operations and financial condition could be affected by future union negotiations.negotiations, Argentine labor regulations and governmental measures requiring private companies to increase salaries or otherwise provide workers with additional benefits.

 

In Argentina, labor organizations have substantial support and considerable political influence. In recent years, the demands of our labor organizations have increased mainly as a result of the increase in the cost of living, which was affected by increased inflation, higher tax pressure over salaries and the consequent decline in the population’s purchasing power.

 

Labor costsIn addition, in the absence of a union agreement concerning convergent services, if we are oneunable to reach an agreement with the unions on work conditions, or in case of a lack of recognition among union associations, we may be adversely affected by individual labor claims, class actions, higher union contributions expenses, impacts to our operations, impairment of services due to inefficient processes, union conflicts, direct action measures and social impacts which may also affect the quality and continuity of our largest cost items.  In addition, certainservices to our customers and our reputation.

Certain laborand telecommunication unions have initiated claims against the Company alleging non-compliance of certain conditions provided for in the collective bargaining agreements that could allow them to negotiate the inclusion of some suppliers’ employees in their collective bargaining agreements. See “Item 8—Note 19 to our Consolidated Financial Information—Legal Proceedings—Labor Claims.”Statements. If labor organization claims continue or are sustained, this could result in increased costs, greater conflict in the negotiation process and strikes (including general strikes and strikes by the Company’s employees and the contractors and subcontractors’ employees) that may adversely affect our operations. See “Item 6—Directors, Senior Management and Employees—Employees and Labor Relations.”Relations”.

 

In addition, certain telecommunication unions have initiated claims against the Company alleging non- compliance of certain conditions provided for in the collective bargaining agreements that could allow them to negotiate the inclusion of some suppliers’ employees in their collective bargaining agreements. See “Item 8—Financial Information—Legal Proceedings—Labor Claims.”

In addition, in the absence of a union agreement concerning convergent services, in case of a lack of agreement with unions on convergent services conditions or in case of a lack of recognition among union associations, the possible consequences include: economic impacts derived from individual claims, class actions, higher union contributions, operating impacts related to work organization (lack of unification or synergy), impairment of services due to inefficient processes, union conflicts and direct action measures, social impacts that might affect the provision of services to customers, and public dissemination of the conflicts.

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Moreover, the Argentine government has enacted laws and regulations requiring private sector companies to maintain certain salary levels and provide their employees with additional benefits. On December 13, 2019, the current administration declared a labor emergency for a 180-day term. In this context, the Argentine government doubled the amount of the statutory severance payments payable to employees hired before December 13, 2019 and dismissed between December 13 2019 and June 13, 2020. The layoff prohibition was extended pursuant to Decree No. 528/20 and Decree No. 961/20.Decree No. 39/21, currently in effect until April 27, 2021, extended the prohibition of dismissals without just cause or based on lack or reduction of work and force majeure, as well as the prohibitions to suspensions for economic reasons, except for suspensions made under the terms of Section 223 bis of the Labor Contract Law (agreements between employers and employees later approved by the Ministry of Labor, made either individually or collectively with the purpose of suspending employment for lack or reduction of work due to no fault from the employer), which are not affected by the prohibition.

Likewise, Decree No. 39/21 extended the occupational emergency until December 31, 2021 in cases of dismissals without just cause, and granted the right of the affected worker to receive a double severance payment, which may not exceed P$500,000.

However, under the provisions of Section 5 of Decrees No. 624/20, 761/20 and 891/20, contracts entered into after the entry into force of Decree No. 34/19, are not affected by the aforementioned provisions.

The Argentine government may adopt new measures that determine salary increases or additional benefits for workers, and workers and their unions may pressure employers to comply with such measures. Any salary increase or additional benefit could result in an increase in costs and a decrease in the results of the operations of Argentine companies, including those of Telecom. Further, future extensions of the prohibition of layoffs and dismissals due to force majeure or lack of or decreased work or the duplication of the statutory severance payments to dismissed employees may affect the efficiency of our employees and therefore our costs and results of operations.

We are or may be involved in legal and regulatory proceedings whichthat could result in unfavorable decisions and financial penalties for us.

 

We are party to a number of legal and regulatory proceedings, some of which have been pending for several years. We cannot be certain that these claims will be resolved in our favor. Responding to the demands of litigation claims and responding to, or initiating proceedings against, regulatory bodies may divert management’s time attention and financial resources. As of December 31, 2018, the Company recorded provisions that it estimates are sufficient to cover those contingencies considered probable. See Notes 2 and 18 to our Consolidated Financial Statements.

 

For example, Argentine law incentivizes individuals to pursue employment-related litigation and certain judicial rulings have created a negative precedent in these matters and could increase our labor costs. The Company is also exposed to employment-related claims of employees of suppliers, contractors and commercial agents claiming direct or indirect responsibility of Telecom based on a broad interpretation of the rules of labor law.

 

Further, customers and consumers’ trade unions have in the past initiated different claims against Personalus regarding supposed improperly billed charges. See “Item 8—Note 19 to our Consolidated Financial Information—Legal Proceedings—Consumer Trade Union Proceedings.”Statements. Although Personal haswe have taken certain actions in order to reduce risks in connection with these claims, we cannot assure that new claims will not be filed against us in the future.

 

The Company has in the past been subject to technical sanctions from regulatory bodies, mainly related to the delay in repairing defective lines, installing new lines and/or service failures. Although sanctions are appealed in the administrative stage, if the appeals are not resolved in our favor in administrative or judicial stage or if they are resolved for amounts larger than those recorded, itthese proceedings could have an adverse effect on our financial situation,condition, results of our operations and cash flows. See Note 18 to the Consolidated Financial Statements.

 

As of December 31, 2018, the Company2020, we recorded provisions that it estimateswe estimate are sufficient to cover legal and regulatory contingencies see Notes 2 and 18 to our Consolidated Financial Statements.considered probable. However, Telecom Argentinawe may face increased risk of employment, commercial, regulatory, tax, consumer trade union and customers’ proceedings, among others. If this occurs, we cannot guarantee that those proceedings will not have an adverse effect on our results of operations and financial condition, despite the provisions that the Company has recordedcondition. See Note 19 to cover these matters.

For more information on our ongoing legal and regulatory proceedings, see “Item 8—Consolidated Financial Information—Legal Proceedings.”Statements.

 

The enforcement of the Law for the Promotion of Registered Labor and Prevention of Labor Fraud may have a material adverse effect on us.

 

On June 2, 2014The Law No. 26,940 for the Promotion of Registered Labor and Prevention of Labor Fraud (Ley de Promoción del Trabajo Registrado y Prevención del Fraude Laboral) was published in the Official Gazette. This law,, among other things, establishes a Public Record of Employers subject to 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.

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The employers included in the Repsal are subject to sanctions, such as: the inability to access public programs, benefits, subsidies or credit from state-owned banks, the inability to enter into contracts and licenses of property owned by the Argentine government, or the inability to participate in the awarding of concessions of public services and licenses. Employers that commit the same infringement for which they were added to the Repsal within a 3-year period after the final first decision imposing sanctions shall not be able tocannot deduct from the Income Tax the expenses related to their employees while the employers aresuch employer continues to be included in the Repsal. This new regulation applies to both to Telecom and its contractors and subcontractors, whose employees could initiate claims to Telecom for direct or indirect responsibility.

 

As of the date of this Annual Report, Telecom has no sanctions registered in the Repsal, howeverRepsal. However, if sanctions are applied in the future itthey could have a significant impact on Telecom’s financial position, result of operations and cash flows.

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A cyberattack, could adversely affect our business, balance sheet, results of operations and cash flow.

 

In general, information security risks have increased in recent years as a result of the proliferation of new and more sophisticated technologies and also due to cyberattack activities. As part of our development and initiatives, more equipment and systems have been connected to the Internet. We also rely on digital technology including information systems to process financial and operational information. Due to the nature of our business and the greater accessibility allowed through the Internet connection, we could face an increased risk of cyberattacks. In the event of a cyberattack, we could experience an interruption of our commercial operations, material damage and loss of customer information; a substantial loss of income, suffering response costs and other economic losses; and it could subject us to more regulation and litigation, affecting our reputation. As a result, a cyberattack could adversely affect our business, results of operations and financial condition.

 

Also, during 2020, the new working methodology and the exponential growth of the digital collection channels resulting from the COVID-19 isolation, required the implementation of several measures in order to grant security in virtual operations, which were all implemented successfully. Although Telecom has adopted, and continues to adopt, all required measures to ensure the proper functioning of its operating systems, as well as to ensure our customers’ information, no assurance can be given that we will not be subject to any cyberattacks that could adversely affect our business and result of operations.

As of the date of this Annual Report, our insurance policy does not cover damages caused by cyberattacks and other similar events.

Operational risks could adversely affect our reputation and our profitability.

 

Telecom faces operational risks inherent from its business, including those resulting from inadequate internal processes; fraud; employee errors or misconduct; failure to comply with applicable laws and regulations; failure to document transactions properly; systems failures (including our systems, the implementation of corporate systems as identified in “Item 4—Information Technology strategy” and cloud services); errors or failures not foreseen in the foundational projects that the Company is carrying out in order to updatefor updating its core systemssystems; inadequate maintenance of posts or its electrification by proximity to the electric network; inadequate environmental management including reverse logistics of goods and materials in disuse that could become hazardous waste; incomplete or inadequate municipal authorizations and permissions resulting from changes in operations or changes in regulations; failure to preserve the secrecy and content of telecommunications required by law; weaknesses in datacenters’ energy provision;scheme; the loss or improper use of confidential information;information, excessive dependence on certain providers with which a large number of operations are concentrated due to the exclusivity of the technology or service they provide, economic convenience or for strategic reasons; among others. Moreover, certain assets of the Company could be damaged by acts of vandalism or theft of components or by works of third parties on public thoroughfare that damage infrastructure that do not have redundancya second safety path to provide the service. These events could result in direct or indirect losses, inaccurate information for decision making, adverse legal and regulatory proceedings, technical failures in the Company’s ability to provide its services, damages to third parties, and harm our reputation and operational effectiveness, among others.

 

Telecom maintains insurance policies to cover its main assets, particularly its properties. If economic and financial conditions in Argentina were to deteriorate (i.e. devaluation, inflation, etc.), the insurance coverage may not be representative of the market value of the properties which could result in losses for the Company.

 

AlthoughTelecom’s suppliers of goods and services are contractually obliged to comply with laws and regulations (including tax, labor, social security, anti-corruption, money laundering standards, etc.). Additionally, our suppliers shall comply with a set of conduct standards, such as the Code of Ethics and Conduct, established by Telecom, and must require similar compliance by their employees and subcontractors. Despite these legal safeguards and monitoring efforts made by Telecom in relation to its suppliers, we cannot assure you that they will comply with all applicable regulations. As a result, Telecom could be adversely affected despite our contractual rights to claim for compensations for damages that they could cause to us.

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Telecom has risk management practices at the highest levels including a Risk Management Committee designed to detect, manage and monitor the evolution of operational risks,risks. However, the Company can give no assurances that these measures will be successful infor effectively mitigating the operational risks that Telecom faces and such failures could have a material adverse effect on its results of operations and could harm its reputation.

 

Any failure by a strategic supplier to comply with its legal and contractual obligations could adversely affect our operations and any action or restriction by a foreign government against a strategic supplier could adversely affect our reputation.

 

We rely on strategic suppliers of equipment and materials to provide us with equipment and materials that we need in order to expand and to operate our business. As a result, we are exposed to risks associated with these suppliers, including restrictions of production capacity for equipment and materials, availability of equipment and materials, delays in delivery of equipment, materials or services, and price increases. If these suppliers or vendors fail to provide equipment, materials or services to us on a timely basis or otherwise in compliance with the terms of our contracts with these suppliers, we could experience disruptions or declines in the quality of our services, which could have an adverse effect on our revenues and results of operations.

 

Telecom’s suppliers of goods and services are contractually obliged to comply with applicable laws and regulations (including tax, labor, social security, anti-corruption, money laundering standards, etc.). Despite these legal safeguards, as well as monitoring efforts by Telecom, we cannot ensure that our suppliers will comply with all applicable standards. As a result, our financial condition and reputation could be adversely affected.

 

In addition, theThe U.S. Congress and certain regulatory agencies have raised concerns about American companies purchasing equipment and software from Chinese telecommunications companies such as Huawei, one of our strategic suppliers, including concerns relating to alleged violations of intellectual property rights and potential security risks. The U.S. Government is likewise urging other countries to avoid the operations of Chinese companies such as Huawei in their territory, citing concerns regarding potential use of the equipment for espionage. Our reputation could be adversely affected if such actions or restrictions were imposed on Huawei or if the equipment and materials we purchase from Huawei is thought to pose a security risk for our network.

 

We cannot predict whether additional restrictions targeting Huawei, including restrictions that would prevent us from acquiring supplies from Huawei in the future, will be adopted directly or the impact that such restrictions might have on our operations.

 

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The CompanyWe and/or itsour administrators are subject to environmental and safety regulations whose non-compliance could result in increased costs and/or penalties for the Company’sour administrators.

 

Some of the goods and facilities used in our operation are subject to federal, state and municipal environmental and safety regulations. If such rules are not adequately complied, they could result in fines, potential delays or inability to obtain authorization for the Company’sour facilities and operations which could have an adverse effect in our business, but also could result in penalties for the Company´sCompany’s administrators. In addition, according with global trends, new and stricter standards may be issued, or authorities may enforce or construe existing laws and regulations in a more restrictive manner, which may force us to make expenditures or to incur increased costs to comply with such new rules.

 

Restrictive covenants in Telecom’s outstanding indebtedness may restrict its ability to pursue its business strategies.

 

Telecom has outstanding financial debt (including but not limited to Cablevisión’s existing notes to which Telecom became a successor by virtue of the Merger) that containscontain a number of restrictive covenants that impose significant operating and financial restrictions on it and may limit Telecom’s ability to engage in acts that may be in its long-term best interests. These agreements governing its indebtedness include covenants restricting, among other things, Telecom’s ability to:

 

·                  incur or guarantee additional debt;

·incur or guarantee additional debt;

 

·                  create liens on its assets to secure debt; and

·enter into sale and leaseback transactions;

 

·create liens on its assets to secure debt; and

·                  merge or consolidate with another person or sell or otherwise dispose of all or substantially all of its assets.

·merge or consolidate with another person or sell or otherwise dispose of all or substantially all of its assets.

 

A breach of any covenant contained in the indentures governing Telecom’s notes or the agreements governing any of its other indebtedness could result in a default under those agreements. If any such default occurs, the holders the relevant debtof such indebtedness may elect (after the expiration of any applicable notice or grace periods) to declare all outstanding amounts, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. If any of Telecom’s debt, including its notes, were to be accelerated, its assets may not be sufficient to repay in full that debt or any other debt that may become due as a result of that acceleration.

 

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We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined or fluctuations in interest rates.

 

As of December 31, 2018, US$1,4002020, P$83,065 million of our outstanding debt was indexed to the London Interbank Offered Rate (“LIBOR”).

 

On July 27,In 2017, the Financial Conduct Authority (the “FCA”) announced its intention to phase out LIBOR rates by the end of 2021. The Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has proposed replacing USD-LIBOR with a new index calculated by short-term repurchase agreements, the Secured Overnight Financing Rate. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBO rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is also not possible to predict the further effect of the rules of the FCA, any changes in the methods by which LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere. Any such developments may cause LIBOR to perform differently than in the past or cease to exist. In addition, any other legal or regulatory changes made by the FCA, ICE Benchmark Administration Limited, the European Money Markets Institute (formerly Euribor-EBF), the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. Dollardollar LIBOR rate is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. Dollardollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the discontinuation or unavailability of U.S. Dollardollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs.costs, and as a result, our financial condition, operating results and cash flows.

 

Additionally, we are exposed to the fluctuations of the interest rates applicable to our indebtedness indexed to variable interest rates. We may also incur additional variable-rate debt in the future. Increases in interest rates on variable-rate debt would increase the Company’s interest expense, which would negatively affect our financial costs.

 

We may be unable to refinance our outstanding indebtedness, or the refinancing terms may be materially less favorable than their current terms, which would have a material adverse effect on our business, financial condition and results of operations.

In 2020, the Company refinanced its outstanding financial debt maturing in 2021. For more information see “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources —Financial Debt Developments during 2020”.

However, there is no assurance that we will be able to extend the maturity or otherwise refinance our outstanding indebtedness, or that we may be required to agree to refinancing terms that may be materially less favorable than the terms of our current loans and notes. Any amendment to or refinancing of our indebtedness could result in higher interest rates and may require us to comply with more burdensome restrictive covenants, which may have a material adverse effect on our business, ability to meet our payment obligations, financial condition, and results of operations.

If we are unable to refinance our debt in favorable terms, we may be forced to reduce or delay capital expenditures or research and development expenditures, seek additional equity capital, restructure our debt, curtail or eliminate our cash dividend to stockholders, or sell assets. Non-payment of our obligations or any other default under any of our debt instruments could, in turn, result in a default and acceleration of our other outstanding debt obligations, which would have a further material adverse effect on our business, ability to meet our payment obligations, financial condition, and results of operations. See “—Devaluation of the Argentine Peso and foreign exchange controls may adversely affect our results of operations, our capital expenditures and our ability to service our liabilities and pay divide” and Notes 13 and 26 to our Consolidated Financial Statements.

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Risks Relating to the Merger

 

The Merger is subject to Argentine antitrust laws and regulations.35 

 

As a consequence of the Merger, Telecom’s radio spectrum currently exceeds the legal cap set forth by Section 5 of Resolution No. 171-E/17, issued by the Ministry of Communications. Telecom is required under current regulations to submit a proposal to conform to that legal cap by no later than June 29, 2019 (i.e. a year following approval of the Merger by the Antitrust Authority). ENACOM may accept or reject said proposal, and/or request further information, as necessary.

The approval of the Merger by the Argentine Antitrust Authority on June 29, 2018 included (i) the authorization of an assignment by Telecom of 143,464 broadband services residential clients under the Arnet brand to Universo Net S.A., (ii) acceptance of a behavioral commitment submitted by Telecom, CVH and FT, pursuant to which Telecom accepted not to sell television services through physical link and mobile communications services as a combined package until certain conditions set forth in the SC Resolution are met, and (iii) acceptance of a behavioral commitment submitted by Telecom, Cablevision, CVH and FT, pursuant to which, Telecom assumed the obligation to offer to any new provider of internet services with the capacity to take advantage of Telecom’s wire ADSL network the possibility of using such network in order to provide retail internet services pursuant to the terms set forth in the approval. Failure to honor these undertakings in a timely manner may result in sanctions by the Antitrust Authority.

Cablevisión’s business may fail to successfully integrate with Telecom’s business and, as a result, we may not realize all of the anticipated benefits of the Merger.

Telecom and Cablevisión entered into the Merger with the expectation that the Merger will result in various benefits, including, among other things, the ability to become a successful quadruple-play services provider in Argentina.  The success of the Merger will depend, in part, on the ability of Telecom as the combined company to realize such anticipated benefits from combining Telecom’ business (including the business of Personal) and that of Cablevisión’ business and the implementation of certain regulatory changes in the telecommunications sector that began in January 2018. The past financial performance of each of Telecom and Cablevisión may not be indicative of their future financial performance as a combined company. The anticipated benefits and cost savings of the Merger may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve anticipated benefits could result in increased costs and decreases in the amounts of expected revenues or results of the combined company.

Telecom and Cablevisión have operated independently until the completion of the Merger. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures or policies that adversely affect the combined company’s ability to maintain relationship with customers and employees or to achieve the anticipated benefits of the Merger.

The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the Merger.

Following the Merger, the size of the business of Telecom has increased significantly beyond the previous size of either Telecom’s or Cablevisión’s business. The combined company’s future success depends, in part, upon its ability to manage this expanded business, which could pose substantial challenges for management. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits currently anticipated from the Merger.

The Merger could generate risks not evaluated at the time of analysis of the operations.

Although both Telecom and Cablevisión made detailed assessments of the potential impacts of the Merger in order to properly manage the process, obtain all the necessary regulatory authorizations, minimize impacts on the operation and ensure continuity and quality in the provision of services to its customers, we cannot ensure that unforeseen issues may arise and generate operational, compliance, technology and / or service provision risks, which in turn could affect our operation, our profitability and / or damage our image.

Cablevisión Holding S.A. (“CVH”), and through CVH, GC Dominio S.A. (“GC Dominio”), have the ability to determine the outcome of any shareholder decision relating to significant matters affecting us.

As a result of the Merger, CVH owns Class D Shares which represent 38.81% of Telecom Argentina’s total capital stock (direct and indirect). GC Dominio owns 64.25% of the voting stock of CVH, which represents 26.44% of the total capital stock of CVH and 64.25% of the total votes as of the date of this Annual Report.

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After the Merger, Fintech Telecom LLC (Fintech) owns Class A Shares which represent 31.53% of the total capital stock of Telecom Argentina and additionally owns Class B Shares in the form of ADSs which represent 8.62% of total stock of Telecom Argentina.

Through its ownership of Telecom Argentina Class D Shares and pursuant to the arrangements resulting from the Telecom Shareholders’ Agreement, CVH, as a general matter, has the ability to determine the outcome of any action requiring our shareholders’ approval.  In addition, our bylaws provide Class A and Class D Shares, and the directors appointed by Class A and D Shares, with veto powers, with respect to certain matters relating to us. See “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreement.”

In the past, we conducted transactions with the shareholders of Nortel and/or Sofora, including Fintech and its affiliates and with CVH and its affiliates as from January 1, 2018. Certain decisions concerning our operations or financial structure may present conflicts of interest between the shareholders owners directly or indirectly, of our capital stock and as parties with interests in these related-party contracts.

Nevertheless, all of our related-party transactions are made on an arm’s-length basis. Related-party transactions involving Telecom Argentina that exceed 1% of its shareholders’ equity are subject to a prior approval process established by Law No. 26,831 and require involvement of the Audit Committee and/or an opinion of two independent valuation firms as well as subsequent approval by the Board of Directors to verify that the agreement could reasonably be considered to be in accordance with normal and habitual market practice. See “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions.”

Risks Relating to Telecom Argentina’s Shares and ADSs

 

The New York Stock Exchange (“NYSE”) and/or the Buenos Aires Stock Exchange (by delegated authority of BYMA) may suspend trading and/or delist Telecom’s ADSs and Class B common shares, respectively, upon occurrence of certain events relating to Telecom’s financial situation.

 

The NYSE and/or the BYMA may suspend and/or cancel the listing of Telecom’s ADSs and Class B common shares, respectively, in certain circumstances, including upon the occurrence of certain events relating to Telecom’s financial situation. For example, the NYSE may decide such suspension or cancellation if Telecom’s equity becomes negative.

 

The NYSE may in its sole discretion determine on an individual basis the suitability for continued listing of an issueissuer in the light of all pertinent facts. Some of the factors mentioned in the NYSE Listed Company Manual, which may subject a company to suspension and delisting procedures, include: “unsatisfactory financial conditions and/or operating results,” “inability to meet current debt obligations or to adequately finance operations,” and “any other event or condition which may exist or occur that makes further dealings or listing of the securities on the NYSE inadvisable or unwarranted in the opinion of NYSE.”NYSE”.

 

We cannot assure you that the NYSE and/or BYMA will not commence any suspension or delisting procedures in light of Telecom’s financial situation, including if Telecom’s equity becomes negative. A delisting or suspension of trading of Telecom’s ADSs or Class B common shares by the NYSE and/or BYMA, respectively, could adversely affect Telecom’s results of operations and financial conditions and cause the market value of Telecom’s ADSs and Class B common shares to decline.

 

Under Argentine corporate law, shareholder rights may be fewer or less well defined than in other jurisdictions.

 

Our corporate affairs are governed by our bylaws and by Argentine corporate law, which differ from the corporate regulatory framework that would apply if we were incorporated in a jurisdiction in the United States (such as Delaware or New York), or in other jurisdictions outside Argentina. Thus, your rights under Argentine corporate law to protect your or theirshareholders’ interests relativerelating to actions by our Board of Directors may be fewer and less well defined than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets may not be as highly regulated or supervised as the U.S. securities markets or markets in some of the other jurisdictions. In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well defined and enforced in Argentina than in the United States, or other jurisdictions outside Argentina, putting holders of our Shares and ADSs at a potential disadvantage.

 

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Changes in Argentine tax laws may adversely affect the tax treatment of our Shares and/or the ADSs.

 

OnIn September 23, 2013, the Argentine income tax law was amended by the passage of Law No. 26,893 (the “Argentine Income Tax Law”). The Argentine Income Tax Law establishes that the sale, exchange or other transfer of shares and other securities is subject to a capital gain tax at a rate of 15% for Argentine resident individuals and foreign beneficiaries.

 

Until the enactment of Law No. 27,430, in force since fiscal year 2018, there was an exemption for Argentine resident individuals if certain requirements were met. However, there was no such exemption for non-Argentine residents. For transactions made until December 31, 2017, many aspects of the Argentine Income Tax Law as they apply to the holding and sale of ADSs still remain unclear and they were subject to further regulation and interpretation which may adversely affect the tax treatment of our Shares underlying ADSs and/or ADSs. The income tax treatment of income derived from the sale of ADSs or exchanges of shares from the ADS facility may not be uniform under the revised Argentine Income Tax Law. The possibly varying treatment of the source of income could impact both Argentine resident holders as well as non-Argentine resident holders.

 

Law No. 27,430 requires the capital gains tax to be paid for transactions carried out between September 2013 (when taxation on the sale of shares for nonresidents was introduced) and the effective date of the tax reform, providing that no tax, however, will be due for stock exchange transactions as long as the tax has not yet been paid due to the lack of regulations for the withholding or collection by the stock exchange agents or intermediaries.

 

Consequently, holders of our Class B Shares, including in the form of ADSs, are encouraged to consult their tax advisors as to the particular Argentine income tax consequences of owning our Shares or the ADSs.

 

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Our shareholders may be subject to liability under Argentine law for certain votes of their securities.

 

Under Argentine law, a shareholder’s liability for losses of a company is limited to the value of his or her shareholdings in the company. However, shareholders who have a conflict of interest with us and who do not abstain from voting at the respective shareholders’ meeting may be liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to the law or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.

 

The price of our Class B Shares and the ADSs may fluctuate substantially, and your investment may decline in value.

 

The trading price of our Class B Shares is likely to be highly volatile and may be subject to wide fluctuations in response to factors, many of which are beyond our control. Such otherThe market price of our ADSs declined by 42% and 58% in 2020 and 2019, respectively. This decrease in value has been largely attributed to Argentina’s most recent macroeconomic crisis and the impact of COVID 19. Other factors include:

 

·                  fluctuations in our periodic operating results;

·fluctuations in our periodic operating results;

 

·                  changes in financial estimates, recommendations or projections by securities analysts;

·changes in financial estimates, recommendations or projections by securities analysts;

 

·                  changes in conditions or trends in our industry;

·changes in conditions or trends in our industry;

 

·                  events affecting equities markets in the countries in which we operate;

·events affecting equities markets in the countries in which we operate;

 

·                  legal or regulatory measures affecting our financial conditions;

·legal or regulatory measures affecting our financial conditions;

 

·                  departures of management and key personnel; or

·departures of management and key personnel; or

 

·                  potential litigation or the adverse resolution of pending litigation against us or our subsidiaries.

·potential litigation or the adverse resolution of pending litigation against us or our subsidiaries.

 

The stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the companies involved. We cannot assure you that trading prices and valuations will be sustained. These broad market and industry factors may materially adversely affect the market price of our Shares and the ADSs, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions in the markets in which we operate, such as recession or currency exchange rate fluctuations, may also adversely affect the market price of our Shares and the ADSs. In particular, currency fluctuations could impact the value of an investment in Telecom Argentina. Although Telecom Argentina’s ADSs listed on the New York Stock Exchange are U.S. dollar-denominated securities, they do not eliminate the currency risk associated with an investment in an Argentine company.

 

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Future sales of substantial amounts of Telecom Argentina Class B Shares and ADSs, or the perception that such future sales may occur, may depress the price of Telecom Argentina Class B Shares and ADSs. Additionally, future sales of treasury shares, may also depress the price of Telecom Argentina Shares and ADSs.

 

Following periods of volatility in the market price of a company’s securities, that company may often be subject to securities class-action litigation. This kind of litigation may result in substantial costs and a diversion of management’s attention and resources, which would have a material adverse effect on our business, results of operations and financial condition.

 

Restrictions on transfers of foreign exchange and the repatriation of capital from Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of the Class B Shares underlying the ADSs.

 

The Argentine government may impose restrictions on the conversion of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Argentina. Beginning in December 2001,On September 1, 2019, the Argentine government issued Executive Decree No. 609/19 (as amended) which, inter alia, reinstated certain foreign currency exchange restrictions, most of which had been progressively repealed as from 2015. Decree No. 609/19 was further regulated, amended and complemented by several regulations issued by the BCRA (included, but not limited to, Communication “A” 6844, as further amended, supplemented and restated). Since then, the Argentine government implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad, including dividends, without prior approval by the Central Bank. AlthoughBCRA or fulfillment of certain requirements.

In line with the restrictions that were in place in the past, the BCRA issued new regulations setting forth certain limitations on the flow of foreign currency into and from the Argentine foreign exchange market, aimed both at generating economic stability and supporting the country’s economic recovery.

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On April 30, 2020, the BCRA issued Communication “A” 7001 (as amended by Communication “A” 7030 and Communication “A” 7042 and as further amended and supplemented from time to time) Communication “A” 7001 setting forth certain limitations on the transfer of funds abroad in ordersecurities into and from Argentina. Pursuant to pay dividends no longer requires Central Bank approvalCommunication “A” 7001 access to the extentArgentine foreign exchange market for the purchase or transfer of foreign currency abroad (for any purpose) shall be subject to BCRA’s prior approval, if the individual or entity seeking access to the Argentine foreign exchange market has sold securities which settled in foreign currency or transferred any such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting, future restrictions onsecurities to foreign depositaries during the movement of capital to and from Argentina such as those that previously existed could, if reinstated, impair or prevent the conversion of dividends, distributions, or the proceeds from any sale of shares, as the case may be, from Argentine Pesos into U.S. Dollars and the remittance of such U.S. Dollars abroad. We cannot assure youimmediately preceding 90 calendar days. Further, Communication “A” 7001 sets forth that the Argentine government willindividual or entity must undertake not take similar measures into perform any such sale or transfer during the future.succeeding 90 days after such access. In such a case,these cases, the Depositary for the ADSs may hold theADS holders’ Argentine Pesos itand may cannot convert them into foreign currency.

In addition, Communication “A” 7106 placed certain restrictions on foreign exchange transactions carried out by individuals, specifically with regards to payments with credit cards in foreign currency or with debit cards made abroad. Under Communication “A” 7106, it was also established that non-residents are not allowed to sell securities executed abroad in the local stock market in exchange for foreign currency.

We cannot predict how the accountcurrent restrictions on foreign transfers of funds may change after the ADS holders.date hereof and whether they may impede our ability to fulfill our commitments in general and, in particular, our obligations underlying the ADSs. In addition, any future adoption by the Argentine government of restrictions to the movement of capital out of Argentina may affect the ability of our foreign shareholders and holders of ADSs to obtain the full value of their Class B Shares and ADSs, and may adversely affect the market value of the ADSs.

 

Trading of Telecom Argentina’s Class B Shares in the Argentine securities markets is limited and could experience further illiquidity and price volatility.

 

Argentine securities markets are substantially smaller, less liquid and more volatile than major securities markets in the U.S. In addition, Argentine securities markets may be materially affected by developments in other emerging markets, particularly other countries in Latin America. Our Class B Shares underlying ADSs are less actively traded than securities in more developed countries and, consequently, an ADS holder may have a limited ability to sell the Class B Shares underlying ADSs upon withdrawal from the ADSs facility in the amount and at the price and time that it may desire. This limited trading market may also increase the price volatility of the Class B Shares underlying the ADSs.

Holders of ADSs may be adversely affected by currency devaluations and foreign exchange fluctuations.

 

If the pesoPeso exchange rate falls relative to the U.S. dollar, the value of the ADSs and any distributions made thereon from the depositary could be adversely affected. Cash distributions made in respect of the ADSs may be received by the depositary (represented by the custodian bank in Argentina) in pesos,Pesos, which will be converted into U.S. dollars and distributed by the depositary to the holders of the American Depositary Receipts (“ADRs”) evidencing those ADSs if in the judgment of the depositary such amounts may be converted on a reasonable basis into U.S. dollars and transferred to the United States on a reasonable basis, subject to such distribution being impermissible or impracticable with respect to certain ADR holders. In addition, the depositary will incur foreign currency conversion costs (to be borne by the holders of the ADRs) in connection with the foreign currency conversion and subsequent distribution of dividends or other payments with respect to the ADSs.

 

The relative volatility and illiquidity of the Argentine securities markets may substantially limit your ability to sell the Class B Shares underlying the ADSs on the BYMA at the price and time desired by the shareholder.

 

Investing in securities that trade in emerging markets, such as Argentina, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The Argentine securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States, and is not as highly regulated or supervised as some of these other markets. There is also significantly greater concentration in the Argentine securities market than in major securities markets in the United States. The ten largest companies in terms of market capitalization represented approximately 91%90% of the aggregate market capitalization of the BYMA as of December 31, 2018.2020. Accordingly, although shareholders are entitled to withdraw the Class B Shares underlying the ADSs from the depositary at any time, the ability to sell such shares on the BYMA at a price and time shareholders might want may be substantially limited.

 

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We are traded on more than one market and this may result in price variations; in addition, investors may not be able to easily move shares for trading between such markets.

 

Trading in the Class B Shares underlying ADSs or ADSs in the United States and Argentina, respectively, will use different currencies (U.S. dollars on the NYSE and pesosPesos on the BYMA), and take place at different times (resulting from different trading platforms, different time zones, different trading days and different public holidays in the United States and Argentina). The trading prices of the Class B Shares underlying ADSs on these two markets may differ due to these and other factors. Any decrease in the price of the Class B Shares underlying ADSs on the BYMA could cause a decrease in the trading price of the ADSs on the NYSE. Investors could seek to sell or buy the Class B Shares underlying ADSs to take advantage of any price differences between the markets through a practice referred to as “arbitrage.”“arbitrage”. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the ADSs available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying Class B Shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs.

As a foreign private issuer, we will not be subject to U.S. proxy rules and will be exempt from filing certain reports under the Securities Exchange Act of 1934.

 

As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act of 1934 (the “Exchange Act”) related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not be required under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act, and we are generally exempt from filing quarterly reports with the SEC under the Exchange Act.

 

In addition, if a majority of our directors or executive officers are U.S. citizens or residents, we will lose our foreign private issuer status and we will fail to meet additional requirements necessary to avoid such loss. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory for us. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher for us. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We will have to present our financial statements under US GAAP and may also be required to modify certain of our policies to comply with corporate governance practices applicable to U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

If we do not file or maintain a registration statement and no exemption from the Securities Act of 1933 (“Securities Act”) registration is available, U.S. holders of ADSs may be unable to exercise preemptive rights granted to our holders of Class B Shares underlying ADSs.

 

Under the GCL, if we issue new shares as part of a capital increase, our shareholders may have the right to maintain their existing ownership percentage in the Company through the subscription of a proportional number of shares of the same class in case the capital increase is made in shares of all four of our classes of shares in their respective proportions, or through the subscription of a proportional number of the shares of the class being issued if the relative proportion among the four classes is not respected. Rights to subscribe for shares in these circumstances are known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed shares remaining at the end of a preemptive rights offering on a pro rata basis, known as accretion rights.

 

According to our Bylaws, in the case of a capital increase through the issuance of all four of our classes of common stock (Class A ordinary shares, Class B Shares,shares, Class C ordinary shares and Class D ordinary shares), accretion rights of the holders of each class shall be limited to the shares of the same class for which there has been no subscription. Also if, after accretion rights have been exercised within the Class B and Class C shares, there are any unsubscribed shares, such unsubscribed Class B or Class C shares shares may be subscribed by the shareholders of the rest of our classes of common stock, with no distinction, in proportion to the shares of common stock for which such shareholder has subscribed on such occasion.

 

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Upon the occurrence of any future increase in our Class B Shares, U.S. persons (as defined in Regulation S under the Securities Act) holding our Class B Shares underlying ADSs or ADSs may be unable to exercise preemptive and accretion rights granted to our holders of Class B Shares underlying ADSs in connection with any future issuance of our Class B Shares underlying ADSs unless a registration statement under the Securities Act is effective with respect to both the preemptive rights and the new Class B Shares underlying ADSs, or an exemption from the registration requirements of the Securities Act is available.

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We are not obligated to file or maintain a registration statement relating to any preemptive rights offerings with respect to Telecom Argentina’s Class B Shares underlying ADSs, and we cannot assure that we will file or maintain any such registration statement or that an exemption from registration will be available. Unless those Class B Shares underlying ADSs or ADSs are registered or an exemption from registration applies, a U.S. holder of Telecom Argentina’s Class B Shares underlying ADSs or ADSs may receive only the net proceeds from those preemptive rights and accretion rights if those rights can be assigned by the ADS depositary. If the rights cannot be sold, they will be allowed to lapse. Furthermore, the equity interest of holders of shares or ADSs located in the U.S. may be diluted proportionately upon future capital increases.

 

Our status as a foreign private issuer allows us to follow alternate standards to the corporate governance standards of the NYSE, which may limit the protections afforded to investors.

 

We are a “foreign private issuer” within the meaning of the NYSE corporate governance standards. Under NYSE rules, a foreign private issuer may elect to comply with the practices of its home country and not comply with certain corporate governance requirements applicable to U.S. companies with securities listed on the exchange. We currently follow certain Argentine practices concerning corporate governance and intend to continue to do so. For example, according to Argentine securities law, our audit committee, unlike the audit committee of a U.S. issuer, will only have an “advisory” and/or “supervisory” role, such as assisting our board of directors with the evaluation, the performance and independence of the external auditors and exercising the function of our internal control. Accordingly, holders of our ADSs will not have the same protections afforded to shareholders of U.S. companies that are subject to all of the NYSE corporate governance requirements.

 

Changes in Argentine tax laws may adversely affect the tax treatment of our Class B Shares underlying ADSs or ADSs for transactions made until December 31, 2018.

On September 23, 2013, the Argentine income tax law was amended by the passage of Law No. 26,893 (the “Argentine Income Tax Law”). The Argentine Income Tax Law establishes that the sale, exchange or other transfer of shares and other securities is subject to a capital gain tax at a rate of 15% for Argentine resident individuals and foreign beneficiaries. Until the enactment of Law No. 27,430, in force since fiscal year 2018, there was an exemption for Argentine resident individuals if certain requirements were met. However, there was no such exemption for non-Argentine residents. For transactions made until December 31, 2017, many aspects of the Argentine Income Tax Law still remain unclear and they are subject to further regulation and interpretation which may adversely affect the tax treatment of our Class B Shares underlying ADSs and/or ADSs. The income tax treatment of income derived from the sale of ADSs or exchanges of shares from the ADS facility may not be uniform under the revised Argentine Income Tax Law. The possibly varying treatment of the source of income could impact both Argentine resident holders as well as non-Argentine resident holders.

Law No. 27,430 requires the capital gains tax to be paid for transactions carried out between September 2013 (when taxation on the sale of shares for nonresidents was introduced) and the effective date of the tax reform, providing that no tax, however, will be due for stock exchange transactions as long as the tax has not yet been paid due to the lack of regulations for the withholding or collection by the stock exchange agents or intermediaries. Further regulations are expected to be published. See “Item 10—Additional Information—Taxation—Argentine taxes”.

Consequently, holders of our Class B Shares, including in the form of ADSs, are encouraged to consult their tax advisors as to the particular Argentine income tax consequences under their specific facts.

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We are organized under the laws of Argentina and holders of the ADSs may find it difficult to enforce civil liabilities against us, our directors, officers and certain experts.

 

We are organized under the laws of Argentina. A significant portion of our and our subsidiaries’ assets are located outside the U.S. Furthermore, almost all of our directors and officers and some advisors named in this Annual Report reside in Argentina. Investors may not be able to effect service of process within the U.S. upon such persons or to enforce against them or us in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the U.S. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the U.S., including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an original action in an Argentine court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons.

 

In addition, a portion of our assets is not subject to attachment or foreclosure, as they are used for the performance of the public service we provide. In accordance with Argentine law, as interpreted by the Argentine courts, assets which are necessary for the provision for an essential public service may not be attached, whether preliminarily or in aid of execution.

 

Prior to any enforcement in Argentina, a judgment issued by a U.S. court will be subject to the requirements of 517 through 519 of the Argentine Federal Civil and Commercial Procedure Code if enforcement is sought before federal courts or courts with jurisdiction in commercial matters of the Autonomous City of Buenos Aires. Those requirements are: (1) the judgment, which must be valid and final in the jurisdiction where rendered, was issued by a competent court in accordance with the Argentine principles regarding international jurisdiction and resulted from a personal action, or an in rem action with respect to personal property which was transferred to Argentine territory during or after the prosecution of the foreign action; (2) the defendant against whom enforcement of the judgment is sought was personally served with the summons and, in accordance with due process of law, was given an opportunity to defend against foreign action; (3) the judgment must be valid in the jurisdiction where rendered, and its authenticity must be established in accordance with the requirements of Argentine law; (4) the judgment does not violate the principles of public policy of Argentine law; and (5) the judgment is not contrary to a prior or simultaneous judgment of an Argentine court. Any document in a language other than Spanish, including, without limitation, the foreign judgment and other documents related thereto, requires filing with the relevant court of a duly legalized translation by a sworn public translator into the Spanish language.

 

Cablevisión Holding S.A. (“CVH”), and through CVH, GC Dominio S.A. (“GC Dominio”), have the ability to determine the outcome of any shareholder decision relating to significant matters affecting us.

CVH owns Class D Shares representing 28.16% of Telecom Argentina’s total capital stock —directly and indirectly through its wholly owned subsidiary VLG. GC Dominio owns 26.44% of the total capital stock of CVH, which represents 64.24% of the voting stock and votes of CVH. Fintech Telecom LLC (Fintech or FTL) owns Class A Shares representing 20.83% of the total capital stock of Telecom Argentina, and additionally owns Class B Shares in the form of ADSs representing 9.2% of total stock of Telecom Argentina.

PART I - ITEM 3 KEY INFORMATION - RISK FACTORS

— SELECTED FINANCIAL DATA

TELECOM ARGENTINA S.A.

40 

On April 15, 2019, FTL, CVH and VLG entered into the Voting Trust Agreement (as defined below) pursuant to which FTL and VLG contributed certain shares to the Voting Trust (as defined below). Except in respect of certain veto matters, the co-trustee appointed by CVH must vote all the shares contributed to the Voting Trust on all matters presented for vote generally to Telecom Argentina stockholders, in the same manner that CVH votes its shares in Telecom Argentina or as instructed by CVH. For more information about the Voting Trust, see “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders—Telecom Shareholders’ Agreement”.

Through its ownership of Telecom Argentina Class D Shares and pursuant to the arrangements resulting from the Telecom Shareholders’ Agreement and the Voting Trust, CVH, as a general matter, has the ability to determine the outcome of any action requiring our shareholders’ approval (except for veto matters). In addition, our bylaws provide Class A and Class D Shares, and the directors appointed by Class A and D Shares, with veto powers, with respect to certain matters relating to us. See “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders—Telecom Shareholders’ Agreement”.

We conducted transactions with the shareholders of Nortel and/or Sofora, including Fintech and its affiliates in the past, and with CVH and its affiliates as from January 1, 2018. Certain decisions concerning our operations or financial structure may present conflicts between our interests and those of our shareholders.

Nevertheless, all of our related-party transactions are made on an arm’s-length basis. Related-party transactions involving Telecom Argentina that exceed 1% of its shareholders’ equity are subject to a prior approval process established by Law No. 26,831, Telecom’s Bylaws and the Rules of the Executive Committee to verify that the agreement could reasonably be considered to be in accordance with normal and habitual market practice. See “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions”.

The existence and outcome of any public tender offer for our Class B Shares and/or ADSs could affect the price of our Class B shares and ADSs.

On June 21, 2018, CVH informed the Company that it was promoting and formulating a mandatory public tender offer for all Class B Shares issued by Telecom Argentina due to the acquisition of control in Telecom Argentina. The mandatory public tender offer has been suspended by Argentine courts. See “Item 4—Information on the Company— Introduction—Significant 2020 Events—Public Tender Offer due to change of control”. The existence and outcome of any tender offer for our shares and/or ADSs would have an impact over the prices of our Class B shares and ADSs, which could result in a decline in the value of your investment.

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ITEM 4.INFORMATION ON THE COMPANY

ITEM 4.INFORMATION ON THE COMPANY

 

INTRODUCTION

The Company

We are one of the largest private-sector companies in Argentina in terms of revenues, net income, capital expenditures and number of employees. We have a non-expiring license (the “License”) to provide fixed-line telecommunications services in Argentina, mobile telecommunications services, other telephone-related services such as international long-distance and wholesale services, data transmission, IT solutions outsourcing and Internet services. We are also the largest operator of cable television services and data transmission systems in Argentina and one of the largest providers of cable services in Latin America in terms of subscribers. We install, operate and develop cable television and data transmission services in Argentina and Uruguay. We are the largest MSO in Argentina and Latin America in terms of subscribers. An MSO is a company that owns multiple cable systems in different locations under the control and management of a single, common organization.

As from January 1, 2018, after giving effect to the Merger, Telecom Argentina and Cablevisión have started to operate as a telecommunications convergent provider. The Merger is part of a global process of convergence in the provision of fixed and mobile telecommunications services, video and internet distribution known as “quadruple play”.

 

The Merger should allow the combined company to achieve synergies in the development of convergence products that will bring significant benefits for consumers, the sector and the economy in general. In addition, the combination of both companies should boost investment (we have a strategic investment plan, which started in 2018, that estimates capital expenditures of approximately US$ 5,000 million) in the most modern infrastructure of mobile technologies as well as the deployment of a high-speed fiber optic network.

In addition, we have amended our bylaws (Estatutos Sociales) to permit us to provide audiovisual communications services, and have obtained all required regulatory authorizations and approvals with respect to such amendment.

As of December 31, 2018, (i) Telecom’s mobile telephony business had approximately 18.3 million subscribers in Argentina (excluding our IDEN telephony subscribers) and approximately 2.4 million subscribers in Paraguay, (ii) Telecom´s broadband business reached approximately 4.1 million accesses, (iii) Telecom’s cable business had approximately 3.5 million subscribers and (iv) Telecom had approximately 3.5 million fixed telephony lines in service, which are equivalent to 140 lines in service per employee.

In 2018, our revenues totaled P$168,046 million, our net income totaled P$5,536 million, our Adjusted EBITDA (see the purpose of use of adjusted EBITDA and reconciliation of net income to Adjusted EBITDA in Item 5—Operating and Financial Review and Prospects—(A) Consolidated Results of Operations—“Adjusted EBITDA”) amounted to P$56,368 million and our total assets were P$371,738 million.

The Merger

Overview

On June 30, 2017, Telecom Argentina and Cablevisión executed a preliminary merger agreement (the “Preliminary Merger Agreement”) and on October 31, 2017, Telecom Argentina and Cablevisión executed the definitive merger agreement (the “Final Merger Agreement”), by which they agreed on the terms on which Telecom Argentina would absorb Cablevisión by merger, which was to be dissolved without liquidation as of the Merger Effective Date, in accordance with the provisions of Sections 82 and 83 of the GCL, and subject to the satisfaction of certain conditions, including regulatory approvals from the ENACOM.

The conditions precedent to the consummation of the Merger were satisfied as of the Merger Effective Date (i.e., January 1, 2018), and, consequently, the Merger and the Telecom Shareholders’ Agreement became effective on that date. For more information, see “Item 7—Major Shareholders and Related Party Transactions.”

Pursuant to the Final Merger Agreement, as of January 1, 2018, Cablevisión merged into Telecom Argentina, with Telecom Argentina as the surviving entity. As a result of the Merger, all of Cablevisión’s assets and liabilities were transferred to Telecom Argentina as of January 1, 2018, in accordance with the terms of the Final Merger Agreement. The Merger was registered with the IGJ on August 30, 2018.

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The Merger allows us to provide “quadruple play” services, combining the provision of fixed and mobile telecommunications services as well as pay television and Internet services, pursuant to the new regulatory framework in effect since January 2018 (for more information about the Merger see “Recent Developments”).

Merger Integration

One of the main focus of our Management during this year was to consolidate the integration of the financial and operational structures of the merged companies in order to strengthen the position of the combined company in a highly competitive market.

We believe that the combination of the two companies enhance our ability to better serve our customers as a result of gaining scale and access to innovations that are driving the telecommunication sector, through offering our customers a broader range of products. We expect that combining Cablevisión and Telecom will strengthen our financial position, which should help us to perform the needed investments to continue developing our infrastructure and therefore strengthen our position in the market.

Joining Telecom’s and Cablevisión’s operations converted us in one of the largest companies in Argentina and we expect to continue to deploy state-of-the-art wireless and high speed fixed internet networks throughout our service areas.

The combination of the businesses allow us to reduce costs as we realize synergies. We expect savings in network rentals and connectivity as we can combine the two existing backbone networks, which have a low level of overlap and are highly complementary.

In addition, we expect to continue achieving savings in back office services such as billing, collection, and advertising through the implementation of convergent solutions. We will strive to achieve SG&A (Selling, General and Administrative) optimization and reduction in network maintenance costs by combination of field services and network operations capabilities.

On the capital expenditures side, adding the Nextel mobile phone network to Telecom’s existing network represented an immediate increase % in the number of available cell sites, which will result in savings in our previously planned investments in infrastructure and equipment installation costs. In addition, due to the overlap of fixed networks in the Northern Area, an optimization is expected in the investments and costs for the planned upgrade of access networks and fiber deployment and we expect to continue to deploy state-of-the-art wireless and high speed fixed internet networks throughout our services area.

We expect that the combination of product portfolio and commercial capabilities will drive cross selling to the combined customer base and growth in the unserved portion of the eventual quadruple play or fully convergent solution.

Moreover, Cablevisión’s fixed coverage in the southern region allows Telecom to increase its retail and corporate sales while it reduces network rental expenses paid to other operators.  Finally, incremental revenues are expected by the extension of the duration of the customer or churn reduction, which we believe will occur as a result of a convergent solution.

We believe these factors will help create a leading fully convergent South American independent telecommunications company that will be able to compete with the world-class operators present in the market, in line with global trends in the telecommunications market.

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TELECOM ARGENTINA S.A.

Organizational Structure

The chart set forth below shows our general consolidated corporate structure as of  December 31, 2018, after giving effect to the Merger, showing the most significant companies and the companies controlled in countries other than Argentina:

Our principal executive offices are located at Alicia Moreau de Justo 50, C1107AAB, Buenos Aires, Argentina, telephone number: 54-11-4968-4000.

Our authorized agent in the United States for SEC reporting purposes is Puglisi & Associates, 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19711.

Recent Developments

Indebtedness

On March 4, 2019, we entered into a loan agreement with the IFC for a total amount of up to US$450,000,000 as requested by the Company in one or more disbursements. The proceeds from the loan will be used to finance our capital investments for 2019. Additionally, in February 2019 we repaid in full the Term Loan (as defined below). See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Bank and other financial entity loans.”

Controlling Shareholder

Fintech Telecom LLC, was the controlling company of Telecom Argentina until December 31, 2017. As from January 1, 2018 CVH is the controlling company of Telecom Argentina following effectiveness of the Merger and of the Telecom Shareholders’ Agreement (See “The Merger”).

Conversion of Class C Shares

On December 28, 2018, 23,882 Class C shares were converted into Class B shares.

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TELECOM ARGENTINA S.A.

The Merger

On June 30, 2017, Telecom Argentina and Cablevisión executed the Preliminary Merger Agreement providing that Telecom Argentina would absorb Cablevisión, which was to be dissolved without liquidation on the Merger Effective Date, in accordance with the provisions of Sections 82 and 83 of the GCL, subject to prior satisfaction or waiver of certain conditions stated in the Preliminary Merger Agreement, including certain regulatory approvals.

All the conditions to which the Merger was subject were satisfied and the Merger was consummated on January 1, 2018 (the “Merger Effective Date”). The Merger and Cablevisión’s dissolution were registered with the IGJ on August 30th, 2018. For more information see “Item 7—Major Shareholders and Related Party Transactions.”

In addition, pursuant to the Preliminary Merger Agreement, Telecom Argentina assumed all of Cablevisión’s obligations under its US$500,000,000 6.500% Senior Notes due 2021, issued under its Global Notes Program (“Cablevisión Global Notes Program”).

In connection with the Preliminary Merger Agreement and the Final Merger Agreement and the notification received from Fintech Telecom and Fintech Media LLC (“Fintech Media”) on December 29, 2017 informing of a corporate reorganization process by which Fintech Media and VLG Argentina Escindida LLC (a spin-off of VLG Argentina) merged into Fintech Telecom with effect on the Merger Effectiveness Date, the new Class A and Class D shares to be issued by Telecom Argentina pursuant to the terms of the Merger were delivered as follows: (i) to Fintech Telecom LLC: 342,861,748 Class “A” shares; (ii) to CVH: 406,757,183 Class “D” shares; and (iii) to VLG Argentina: 434,909,475 Class “D” shares.

Telecom Argentina’s capital stock as of the Merger Effective Date (i.e., January 1, 2018) was comprised of the following:

Shares

 

Outstanding shares

 

Treasury shares

 

Total capital stock

 

Class “A”

 

683,856,600

 

 

683,856,600

 

Class “B”

 

627,930,005

 

15,221,373

 

643,151,378

 

Class “C”

 

234,748

 

 

234,748

 

Class “D”

 

841,666,658

 

 

841,666,658

 

Total

 

2,153,688,011

 

15,221,373

 

2,168,909,384

 

For more information see “Item 7—Major Shareholders and Related Party Transactions”.

Withdrawal of the Voluntary reserve for future dividends payments

On January 31, 2018, the Board of Directors of Telecom Argentina approved:

1.              the reversal of $9,729,418,019 of the “Reserve for future cash dividends” of Telecom Argentina as of December 31, 2017, and its distribution as cash dividends in two installments: i) $2,863,000,000 on February 15, 2018 and ii) $6,866,418,019 on April 30, 2018, being the Board empowered to make such payment on an earlier date if it deemed it convenient;

2.              the distribution of $5,640,728,444 as advance cash dividends under the provisions of Section 224, 2nd paragraph of the General Corporations Law, corresponding to the net profit (liquid and realized) of the period ranging from January 1, 2017 to September 30, 2017 as it arises from the special-purpose unconsolidated financial statements of Telecom Argentina as of September 30, 2017, which were settled on February 15, 2018; and

3.              the distribution of $4,502,777,155 as distribution of interim cash dividends under the provisions of Section 224, 2nd paragraph of the General Corporations Law, corresponding to the net profit (liquid and realized) of the period ranging from January 1, 2017 to September 30, 2017 as it arises from the special-purpose unconsolidated financial statements of Cablevisión S.A.-absorbed by Telecom Argentina- as of September 30, 2017, which were settled on February 15, 2018.

Dividends mentioned in items 2 and 3 above, were subsequently ratified by the Ordinary General Shareholers Meeting of April 25, 2018.

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TELECOM ARGENTINA S.A.

In conclusion, the dividends distribution aforementioned for a total of $19,872,923,618 (approximately $28,820,650,926 in current currency of December 31, 2018) was paid on February 15, 2018 for $13,006,505,599 and on March 21, 2018 $6,866,418,019 (approximately $27,926,529,493 in current currency of December 31, 2018).

Payment by Telecom Argentina of dividends declared by Cablevisión

On January 8, 2018, Telecom Argentina, as successor to Cablevisión prior to the Merger effective date, paid dividends declared by Cablevisión on December 18, 2017, in an amount of P$4,077,790,056 (approximately P$6,020,251,886 in current currency of December 31,2018).

History

 

Telecom Argentina was created by Decree No. 60/90 of the PEN dated January 5, 1990, and incorporated as “Sociedad Licenciataria Norte S.A.” on April 23, 1990. In November 1990, its legal name was changed to “Telecom Argentina STET-France Telecom S.A.” and on February 18, 2004, it was changed to “Telecom Argentina S.A.”

 

Telecom Argentina is organized as a corporation (sociedad anónima) under Argentine law. The duration of Telecom Argentina is 99 years from the date of registration with the IGJ (July 13, 1990). Telecom Argentina conducts business under the commercial name “Telecom.”

Telecom Argentina commenced operations on November 8, 1990 (the “Transfer Date”), upon the transfer from the Argentine government of the telecommunications system in the Northern Region previously owned and operated by ENTel. This transfer was made pursuant to the Argentine government’s privatization program as set forth in the State Reform Law approved in August 1989 and subsequent decrees (the “Privatization Regulations”), which specified the privatization procedure for ENTel.

The Privatization Regulations provided for:“Telecom”.

 

·On January 1, 2018, the divisiontransfer of Cablevisión’s operations to Telecom Argentina took place. As a result, the Argentine telecommunications network operated by ENTel into two regions, the Northern RegionMerger between Telecom Argentina and the Southern Region of Argentina;Cablevisión became effective, and on that date Telecom assumed Calevisión’s then existing operations.

 

·We are one of the granting to Telecomlargest private-sector companies in Argentina in terms of revenues, net income, capital expenditures and number of employees. In terms of subscribers, we are one of the largest telecommunications, cable television and data transmission service providers in Argentina and Telefónicaone of non-expiring licenses to provide basic telecommunicationthe largest cable television services providers across Latin America. Additionally, we are an important Multiple Systems Operator (“MSO”, a company that owns multiple cable systems in different locations under the Northern Regioncontrol and Southern Region, respectively;management of a single, common organization) in Argentina in terms of subscribers.

 

·                  the granting to TelintarWe offer our customers “quadruple play” services, combining mobile telephony services, cable television services, Internet services and Startel, each joint subsidiaries of Telecom Argentina and Telefónica, of non-expiring licenses tofixed telephony services. We also provide other telephone-related services such as international long-distance and wholesale services, data transmission respectively; and IT solutions outsourcing and we install, operate and develop cable television and data transmission services We provide our services in Argentina (mobile, cable television, Internet and fixed and data services), Paraguay (mobile, Internet and satellite TV services), Uruguay (cable television services) and the United States (fixed wholesale services).

As of December 31, 2020, (i) our mobile telephony business had approximately 18,433 thousand subscribers in Argentina and approximately 2,351 thousand subscribers in Paraguay, (ii) our Internet business reached approximately 4,146 thousand accesses, (iii) our cable television business had approximately 3,543 thousand subscribers and (iv) we had approximately 2,821 thousand fixed telephony lines in service.

In 2020, our revenues amounted to P$301,596 million, our net loss amounted to P$5,104 million, our Adjusted EBITDA (see the purpose of use of Adjusted EBITDA and reconciliation of net income to Adjusted EBITDA in “Item 5—Operating and Financial Review and Prospects—(A) Consolidated Results of Operations—Adjusted EBITDA”) amounted to P$102,888 million and we had total assets of P$752,054 million.

 

·The Securities and Exchange Commission maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the transfer by ENTelSecurities and Exchange Commission. Telecom Argentina’s telephone number is 54-11-4968-4000, and its principal executive offices are located in Alicia Moreau de Justo 50, (C1107AAB) Buenos Aires, Argentina. Our internet address is https://institucional.telecom.com.ar. The contents of substantially allour website and other websites referred to herein are not part of its assets and certain contracts into Telecom Argentina, Telefónica, Telintar and Startel.this Annual Report.

 

On the Transfer Date, pursuant to the terms and conditions of a transfer contract (the “Transfer Agreement”), the Argentine government sold 60% of the common stock of Sociedad Licenciataria Norte S.A. to Nortel, a holding company formed by a consortium of investors including Telecom Italia, among others.

Pursuant to the Privatization Regulations, 10% of Telecom Argentina’s common stock was transferred as Class C Shares to a Share Ownership Plan for certain former employees of ENTel and Compañía Argentina de Teléfonos S.A. by the Argentine government, and the remaining 30% of Telecom Argentina’s common stock was sold to investors, principallyOur authorized agent in Argentina, the United States and Europe, in an offering completed in March 1992. A portion of the shares in the Share Ownership Plan has been sold in the public market, and the remaining shares resulting from the Share Ownership Plan are being gradually converted into Class B Shares. See “Item 6—Directors, Senior Management and Employees—Share Ownership—Share Ownership Plan.”for SEC reporting purposes is Puglisi & Associates, 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19711.

Significant subsidiaries

 

Until November 30, 2017, Nortel wasAs of December 31, 2020, Telecom Argentina’s significant subsidiaries were Núcleo S.A.E, PEM S.A.U, Cable Imagen S.R.L., Televisión Dirigida S.A., Adesol S.A., AVC Continente Audiovisual S.A., Inter Radios S.A.U., Telecom Argentina USA Inc. and Micro Sistemas S.A.U. For further information on our direct controlling shareholder with 54.74% of Telecom Argentina´s total capital. 100% of Nortel’s ordinary capital belongedsignificant subsidiaries, see Exhibit 8.1 to Sofora. Sofora’s shares belonged to Fintech, our indirect controlling shareholder (68%) and to W de Argentina Inversiones (32%).this Annual Report.

 

Until December 31, 2017, Fintech was Telecom Argentina’s direct controlling shareholder.

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TELECOM ARGENTINA S.A.

As from January 1, 2018,

42 

Significant 2020 Events

Rates regulation

On August 22, 2020, the PEN issued Decree No. 690/20, amending the LAD. Decree No. 690/20 declared ICT services (which includes fixed and mobile telephony services, cable television and Internet) as a resultwell as access to telecommunications networks for and between licensees as “Essential and Strategic Competition Public Services”, and empowered ENACOM to ensure accessibility. Decree No. 690/20 further established that (i) the prices of the MergerEssential and Strategic Competition Public ICT Services, (ii) the Shareholders´ Agreement becoming effective, CVH became Telecom Argentina’s controlling shareholder.prices of those services provided in accordance with the Universal Service, and (iii) the prices of those services determined by ENACOM for public interest reasons, shall be regulated by ENACOM. Moreover, Decree No. 690/20 established that ENACOM is the agency responsible for the enactment any regulation related to the ICT’s PBU, and also suspended any prices increases or changes set or announced by the ICT’s licensees from July 31, 2020 to December 31, 2020. Decree No. 690/20 has been ratified by the Argentine Congress under Law No. 26,122 and has been regulated through ENACOM Resolutions Nos. 1,466/20 and 1,467/20.

 

AsResolution No. 1,466/20, among others, allowed ICT licensees providing Internet access services, subscription broadcasting services through physical, radio-electric or satellite link, fixed telephony services and mobile telecommunications services to increase retail prices for services up to 5% during January 2021. In order to establish the percentages approved, licensees must consider the prices effective as of January 1, 2018, Cablevisión merged into Telecom, with TelecomJuly 31, 2020 as the surviving entity.price of reference Argentine regulators have taken. Such Resolution also provides that ICT Services Licensees may request a higher increase on an exceptional basis in accordance with the view that effective January 1, 2018, Cablevisión Holding S.A. acquired controlprovisions of Telecom. Cablevisión Holding S.A. is an Argentine corporation and its primary purpose is to hold capital stock in corporations whose object and purpose is to provide Information and Communication Technology Services (ICT Services) and to provide Audiovisual Communication Services (ICT Services). Its controlling shareholder, in turn, is GC Dominio S.A, another Argentine corporation.Section 48 of the LAD.

 

THE BUSINESS

Liberalization ofResolution No. 1,467/20 regulated the Argentine Telecommunications Industry

In March 1998, the Argentine government issued Decree No. 264/98, introducing a plan for the liberalization of the Argentine telecommunications industry, (or the “Plan”). Decree No. 264/98PBU provided for the extension of the period of exclusivity with respect to the provision of Basic Telephone Services until sometime between October 8, 1999, and November 8, 1999, depending on the particular region. The Plan also provided for: (i) the immediate liberalization of paid telephone services and (ii) during July 1998, the liberalization of telephone service in rural areas. In addition, the Plan contemplated that in January 1999, data transmission services within the countries included in Mercosur would be open to competition, subject to the following conditions: (i) each of the Mercosur countries enters into agreements providing for the liberalization of these services and establishing similar regulatory bodies and (ii) reciprocity exists between countries with respect to the granting of licenses. Beginning in late 1999, two new operators, formed by independent operators, mobile operators and cable television operators were permitted to offer services. These new operators, together with the existing licensees of Basic Telephone Services, allowed customers to choose from four operators until the full liberalization of services occurred. The Plan also granted data transmission operators existing before the privatization of ENTel the right to operate domestic and international long-distance services by the end of 2000. Finally, the full liberalization of local, domestic and international long-distance services took place in November 2000.

During the “Transition Period” (1998-1999), new regulatory obligations were also introduced with respect to quality and service targets applicable to both Telecom Argentina and Telefónica.

As long-distance services were liberalized, competition was introduced by pre-subscription of long-distance service for locations with more than 5,000 clients. Following the introduction of Presubscription of Long-Distance Service, a call-by-call selection service will be installed. These requirements obligated the telephone companies to make significant investments and modifications to their networks.

During 1999, competition in local, national and international long-distance services was established among Telecom Argentina and Telefónica and Compañía Telefónica del Plata (CTP, Movicom Bell South) and Compañía de Telecomunicaciones Integrales S.A. (CTI, now Claro), the two new national operators permitted to offer services by Decree No. 264/98. Some provisions690/20 for the different services provided by ICT licensees, establishing the price and the characteristics of each service plan. The Resolution also defines the beneficiaries of this PBU, among other matters.

The Company has initiated legal proceedings before the Federal Court of Appeals on Administrative Litigation Matters challenging the constitutionality of Decree No. 264/98690/20 and related resolutions were modified by Decree No. 764/00, mainly provisions related to licensing conditions, interconnectionthe aforementioned ENACOM Resolutions and Universal Service. Decree No. 764/00 establishedrequesting a preliminary injunction that would suspend its application. The preliminary injunction was denied on January 29, 2021 and the general regulation of licenses and provided that each licensed company was allowed to launch its services in November 2000 whenCompany appealed the full liberalization of the telecommunications market began.court’s decision. As of the date of this Annual Report, the main licensees providing local and/or fixed long-distance telephone service are Telmex, Level 3 Communications (formerly Impsat), IPlan, Telecentro, CPS Comunicaciones (Metrotel), Telefónica, Telecomresolution of the mentioned appeal is still pending. The Company is consulting with its legal advisors with respect to the further actions available to the Company to protect its legal rights.

On the other hand, during January and February 2021, the Company has been notified of two preliminary injunctions promoted by ACUBA and a representative of the cable television industry of the Province of Córdoba (Argentina).

For further information about Decree No. 690/20, its related regulation and the related legal proceedings, see “Item 4 —Regulatory Authorities and Framework— Amendment to Law No. 27,078 – Argentine Digital Law”.

Impact of COVID-19 in Argentina and many other small independent operators.our operations

 

PursuantBy the end of December 2019, the World Health Organization received a report of pneumonia cases originated in Wuhan, Province of Hubei, China. The report was related to the Plan,outbreak of a new virus called COVID-19, which soon spread to several provinces of China and then to other countries. The outbreak and spread of COVID-19 generated several consequences on businesses and economic activities at a global level.

Given the liberalizationextent of public telephone services began. On December 9, 1998, Telecom Argentina was granted (upon the subsequent issuance of SC General Resolution No. 2,627/98) a license to provide public telephone servicesCOVID-19 spread, several governments in the Southern Region.world have implemented drastic measures to restrict the movement of the population and to prevent the spread of the virus, including the imposition of mandatory isolation and the suspension of non-essential commercial activities. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic.

 

Since March 20, 2020, the Argentine government set forth several measures intended to reduce the movement of the population, and imposed the ASPO, which only allowed the movement of individuals performing activities considered essential by the Argentine government, including the provision of telecommunication, fixed and mobile Internet and digital services. The ASPO has been extended throughout the year 2020, and has been modified from time to time attending the epidemiological situation in general and per region.

We provide valuable services to society, as through our services people, homes, companies and governments remain connected, which became a priority during the pandemic. Our services also allow small, medium and large companies to remain in business, and therefore contribute to sustain our country’s economy. Moreover, since the beginning of the COVID-19 outbreak our services have allowed people to stay connected and entertained, as well as to work from home and remain informed while complying with the ASPO.

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TELECOM ARGENTINA S.A.

43 

Although there have been difficulties of different kinds during the COVID-19 pandemic that slowed down or made operations more complex, such as the increase in Internet data traffic, the increase in mobile voice service, the decrease in collections, and mainly limitations on our ability to conduct repairs and installations inside customers’ homes, among others; our operations continued and we expect them to continue despite such difficulties, as the pandemic did not have significant impact on our financial condition or results of operations.

For further information related to the impact of COVID-19 and the internal or external measures we promoted during the sanitary emergency, see “Item 3—Risk Factors— Risks Relating to Argentina—The coronavirus and the measures taken or to be implemented by the Argentine government in response to the coronavirus have had and could continue to have a significant adverse effect on our business operations” and Note 29 of our Consolidated Financial Statements.

Public Tender Offer due to change of control

On June 21, 2018, CVH informed the Company that it was promoting and formulating a mandatory public tender offer due to a change of control (“PTO”) for all Class B Shares issued by Telecom Argentina listed on BYMA (including outstanding Class C Shares of Telecom Argentina that might be converted into Class B Shares before the expiration deadline) (the “PTO Shares”) at a price of P$110.85 per PTO Share (previously deducting the items detailed in the PTO announcement).

Pursuant to public releases published by CVH, as part of the administrative process to authorize the PTO, the CNV expressed its disagreement with the price announced by CVH, and took the position that the price per PTO Share should be US$4.8658 payable in Argentine Pesos at the foreign exchange rate in effect on the business day immediate prior to the settlement of the PTO. CVH considered the CNV’s position unfounded and initiated the legal proceeding “Cablevisión Holding S.A. c/ Comisión Nacional de Valores s/ Medidas Cautelares” (File. No. 7998/18) in the Federal Civil and Commercial Court No. 3. On November 1, 2018, the Federal Civil and Commercial Court No. 3 confirmed a preliminary injunction obtained by CVH and ordered the CNV to abstain for six months from issuing any decision with respect to the authorization of the PTO promoted by CVH on June 21, 2018.

On June 10, 2019 CVH informed Telecom that on such date CVH was served with notice of a preliminary injunction rendered on May 9, 2019 in the case “Burgueño Daniel v. Executive Branch - CNV on (Autonomous) Preliminary Injunction” (File No. 89537/18) pending before the Court of Appeals on Administrative Litigation Matters No. 1, Secretariat No. 1, suspending the process relating to the PTO until the CNV resolves on the applicability of Resolution No. 779/18 or the expiration of the term contemplated in section 5 of Law No. 26,854 governing injunctions. This preliminary injunction was extended by several succeeding court decisions, being the last one the court decision rendered on May 15, 2020, which extended the mentioned preliminary injunction for six months.

On July 6, 2020 CVH informed Telecom that on such date CVH was served with notice of a decision rendered on July 3, 2020 by the Chamber V of the Federal Court of Appeals on Administrative Litigation Matters in re “Burgueño Daniel v. Executive Branch - CNV on (Autonomous) Preliminary Injunction” (File No. 89537/18), whereby said Court decided to interrupt the judicial recess period only to consider the appeal filed by the CNV on May 26, 2020, dismiss such appeal and, consequently, confirm the extension of the preliminary injunction granted thereunder.

GeneralOn the other hand, on July 19, 2019, CVH was served with notice of a resolution rendered on the same date by the Chamber I of the Federal Civil and Commercial Court of Appeals in re “Cablevisión Holding S.A. v. Argentine Securities Commission on Injunctions” (File No. 7998/18), lifting the preliminary injunction granted to CVH whereby the CNV was ordered to abstain from issuing any decision with respect to the authorization of the PTO. The resolution also provided that an appeal by CVH of the CNV’s decision with respect to the PTO would have a suspensive effect. CVH filed an extraordinary appeal against the Federal Civil and Commercial Court of Appeals’ decision, which was dismissed on December 26, 2019. However, as explained above, the PTO remained at the time subject to the preliminary injunction obtained by a shareholder of CVH – Daniel Burgueño – in the separate legal proceedings mentioned in the previous paragraphs.

On November 26, 2019, CVH was served with a notice of a proceeding initiated by a shareholder of CVH, Mr. Daniel Burgueño, in re “Burgueño, Daniel Fernando v. EN-CNV s/ Proceso de Conocimiento” (File No. 33763/19), pending before the National First Instance Court on Federal Administrative Litigation Matters No. 1, Secretariat No. 1. Mr. Burgueño seeks the court to rule that CVH is not required to conduct the PTO as a result of the change of control in Telecom in light of paragraph k) of Section 32 of Resolution CNV No. 779/18, regulating Law No. 26,831 (as amended by Law No. 27,440).

On December 27, 2019, CVH informed Telecom that on such date CVH was served with notice of the first instance court’s decision in re “Burgueño, Daniel Fernando v. EN-CNV s/ Proceso de Conocimiento” (File No. 33763/19) ruling in favor of the complaint brought by Mr. Burgueño, confirming that CVH does not have the obligation to conduct a PTO according to Resolution CNV No. 779/18, specifically Section 32, paragraph k), and ordering the CNV to deem the proceedings initiated in connection with the PTO concluded, and also ordered CVH to cease with the PTO.

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44 

On September 8, 2020 CVH informed Telecom that on such date CVH was served with notice of a decision rendered by the Chamber V of the Federal Court of Appeals on Administrative Litigation Matters in re “Burgueño, Daniel Fernando v. EN - CNV s/ Proceso de Conocimiento” (File. No. 33763/19), rejecting the appeal filed by the CNV of the decision rendered by the court of first instance mentioned in the prior paragraph.

Finally, on October 29, 2020, CVH informed Telecom that on such date CVH was served with notice of the judgment rendered by the Chamber V of the Federal Court of Appeals on Administrative Litigation Matters in re “Burgueño, Daniel Fernando v. EN - CNV s/ Proceso de Conocimiento” (File. No. 33763/19) dismissing the extraordinary appeal filed by the CNV against the first instance judgment rendered on September 8, 2020 mentioned in the prior paragraph.

 

As of December 31, 2018, the following aredate of this Annual Report, the most significant subsidiaries includeddecision rendered by Chamber V of Federal Court of Appeals on Administrative Litigation Matters issued on September 8, 2020 in re “Burgueño, Daniel Fernando v. EN - CNV s/ Proceso de Conocimiento” (File. No. 33763/19) is not final, since the consolidation process andCNV can still initiate further appeal directly before the respective equity interest owned by Telecom Argentina:Supreme Court of Justice.

Series 5 Notes – Foreign currency financial debt renegotiation

 

On July 7, 2020, the Company began the offering of its Series 5 Notes, with the purpose of refinancing Series “A” Notes and its loan with Deutsche Bank AG, London Branch, jointly with a solicitation of consents to amend certain terms and conditions of its Series “A” Notes. Series “A” Notes holders that chose to tender their notes for the subscription in kind of Series 5 Notes, received for each US$1,000 of Series “A” Notes delivered to the Company: i) US$700 of capital of Series 5 Notes; and ii) US$320 in cash.

On August 6, 2020, Telecom, issued a new series of notes in a principal aggregate amount of U$S388.9 million (approximately P$28,273 million as of the date of issuance), of which US$253.5 million correspond to instruments to be subscribed in kind through the exchange of Series “A” Notes and US$135.4 million correspond to notes subscribed for in cash. The new notes mature on August 6, 2025. Principal will be paid as follows: 3% on February 6, 2023, 30% on August 6, 2023, 33% on August 6, 2024 and 34% on August 6, 2025. Interests will be paid semiannually as accrued, to the maturity date, at an annual fixed rate of 8.50%.

According to the offer, the nominal value of Series “A” Notes delivered to the Company for the subscription in kind of Series 5 Notes amounted to US$362.2 million, representing approximately 77.74% of total outstanding Series “A” Notes, which were settled and retired. As a result, the remaining nominal value of outstanding Series “A” Notes amounts to US$103.4 million.

Additionally, the Company fully settled the bank loan with Deutsche Bank AG, London Branch, which at repayment had a total outstanding capital amounted of US$187.5 million, including interest accrued at that date and related expenses.

For further information of Series 5 Notes and other financial developments, see Note 13 of our Consolidated Financial Statements and Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Liquidity and Capital Resources —Financial Debt Developments during 2020.

Recent Developments

Global Programs for the issuance of Notes

Telecom Argentina

In connection with the Notes Global Program for a maximum outstanding amount of US$3,000 million or its equivalent in other currencies, the Company announced on January 14, 2021, the subscription of new series of notes for a total nominal value determined in UVA equivalent for up to P$1,500 million, that could be increased to P$12,000 million. The amount of the Notes finally issued and its main characteristics are detailed below:

Series 8 Notes

Issuance date: January 20, 2021.

Amount involved: 133,628,950 UVA (equivalent to P$8,708,598,672 as of the date of issuance).

Maturity Date: January 20, 2025.

Amortization: Principal will be paid in one installment at maturity date.

Interest rate and Payment Date: Interest is payable on a quarterly basis from its issuance date until its maturity date at an annual fixed rate of 4.00%. The last interest payment date will be on maturity date.

Company

PART I - ITEM 4 INFORMATION ON THE COMPANY

Main Activity

Country

Telecom Argentina’s
direct/indirect interest
in capital stock and
votes

Núcleo

Mobile telecommunications Services

Paraguay

67.50

%

Pem

Investment

Argentina

100.00

%

CV Berazategui

Closed-circuit television

Argentina

100.00

%

Cable Imagen

Closed-circuit television

Argentina

100.00

%

Televisión Dirigida

Cable television services

Paraguay

100.00

%

Adesol

Holding

Uruguay

100.00

%

Última Milla

Services for telecommunication

Argentina

100.00

%

AVC Continente Audiovisual

Broadcasting services

Argentina

60.00

%

Inter Radios

Broadcasting services

Argentina

100.00

%

Telecom USA

Telecommunication services

USA

100.00

%

TELECOM ARGENTINA S.A.

 

45 

Cash dividends collected from associates

During February 2021, we received cash dividends from Ver T.V. S.A. and Teledifusora San Miguel Arcángel S.A. in an amount of P$157 million (P$156 million directly and P$1 million indirectly through the subsidiary Inter Radios S.A.U.).

THE BUSINESS

The Executive Committee and the CEO have a strategic and operational vision of Telecom as a single business unit in Argentina that is consistent with the current regulatory context of the converged ICT services industry. The Executive Committee and the CEO receive periodic economic and financial information of Telecom and its subsidiaries treating all operations as a single segment. On the basis of this information, they assess the evolution of business as a single unit of generation of results, managing resources accordingly to achieve the objectives. Under applicable accounting principles (provided by IFRS 8), it was defined that the Company has a single segment of operations in Argentina.

Also, Telecom carries out its activities in Argentina and abroad (Paraguay, Uruguay and the United States and Uruguay)States). These operations are not analyzed as separate segments by the Executive Committee and the CEO, who analyze the consolidated information of companiesTelecom and its subsidiaries in Argentina and abroad, taking into account that the activities of foreign companies are not significant for Telecom. The operations that Telecom carries out abroad do not meet the aggregation criteria establishedFor a breakdown of total revenues by the standard to be grouped within the “Services rendered in Argentina” segment,category of activity, please see “Item 5 – Operating and considering that they do not exceed anyFinancial Review and Prospects”. For more information, see Note 1.c) of the quantitative thresholds identified in the standard to qualify as reportable segments, they are grouped within the category “Other abroad segments” according to the requirements of IFRS 8.our Consolidated Financial Statements.

 

Main Products and Services

 

As of December 31, 20182020 we offered our cable and broadband customers a diverse range of products,services, including:

·Fixed Telephony: Local area, national long-distance and international communications, supplementary services (including call waiting, itemized invoicing, voicemail, etc.), interconnection with other operators, data transmission (including private networks, point-to-point traffic, radio and TV signal transportation), Internet services, IT solution Outsourcing and sales of equipment.

·Cablevisión Clásico: our basic, analog cable television product under the “Cablevisión” brand;

·Cablevisión Digital: In addition to the basic grid included in Cablevisión Clásico, this option, which we provide through a digital decoder, gives cable subscribers access to radio and music channels, among others, and certain premium channels;

·Cablevisión HD: In addition to the options offered through Cablevisión Digital, subscribers to this product are provided a high definition decoder that grants them access to over 50 high definition channels;

·Cablevisión On Demand: Where available, this product allows subscribers to access “On Demand” service (under our brand “Cablevisión”) that includes a variety of content including: (i) SVOD (where the subscriber is charged a monthly fee in order to access unlimited programs), (ii) TVOD (where the subscriber is charged a fee based on the content it watches) and (iii) FVOD (free on demand services to the subscriber which generally include basic cable signals);

·Broadband Products: Subscribers gain access to Telecom’s high-speed broadband services;

·Fibertel Zone: Users gain to access a Wi-Fi network free of cost outside their homes;

·Cablevisión Flow: Cablevisión launched Cablevisión Flow (“Over-The-Top” services) on November 8, 2016. This product will enable our subscribers to view TV content on multiple types of devices such as smartphones, tablets and smart-TVs; and

 

·Mobile Telephony Services: Services offered under the brand “Personal,” including voice communications and high-speed mobile Internet, among others; and sale of mobile communication devices (handsets, modems MiFi and wingles), which we have the ability to finance through alliances with certain financial entities. The services are supported in the different technologies of the mobile network (3G/4G);

 

·Internet Services: High-speed cable modem and Fiber To The Home Internet services offered under the “Fibertel” brand and ADSL Internet services offered under “Fibertel Lite” brand. Such services provide speeds for up to 1,000 MB, recently introduced to the market;

 

PART I - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

·
Cable Television Services: Cable television services involve the operation of cable television networks installed in different locations in Argentina and Uruguay. We offer a wide range of cable television services under the brand “Cablevisión” such as “Cablevisión Clásico,” our basic, analog cable television product; “Cablevisión Digital,” provided through a digital decoder that gives subscribers access to radio and music channels, among others, and certain premium channels; “Cablevisión HD,” provided through a high definition decoder; “Cablevisión On Demand,” that grants subscribers access to an “On Demand” service that includes a wide range of content; and “Cablevisión Flow,” that enables our subscribers to access TV content on multiple devices such as smartphones, tablets and smart-TVs. On the other hand, through Tuves, we have a license for the provision of DATDH (Distribution of Audio Signals and Direct Television to the Home) services in Paraguay; and

·Fibercorp Products: Fibercorp is Fibertel’s corporate business unit. FiberCorp provides telecommunication services to large, medium and small size companies through a wide communications network for the transfer of data, video and oral information that enables it to provide internet access, infrastructure with dynamic connections, symmetric access and IP video security, among other products.

·Fixed and Data Services: voice communications, supplementary services, interconnection with other operators, data services (mainly virtual private networks, dedicated transit, signal transport signals), and IT solution outsourcing, among others.

Mobile Telecommunications Services

 

·Personal Mobile ServicesOverview: Service

Our mobile telecommunications service offerings in Argentina under the brand “Personal” include voice communications, high-speed mobile Internet content and applications download MMS, SMS,and online streaming, among others; and sale of mobile communication devices (handsets, modems MiFi and wingles). The services are supported in the different technologies of the mobile network (2G/3G/4G).

Fixed Telephony Services

Overview

We own and operate fixed local line telephone network, public long-distance telephone transmission facilities and a data transmission network in the Northern Region. Since the market was opened to competition, we expanded our network in the Southern Region of Argentina, therefore providing nationwide services. Fixed services are comprised of the following:

·Basic Telephone Services. We provide Basic Telephone Services, including local, domestic and international long-distance telephone services and public telephone services. As of December 31, 2018, we had approximately 3.5 million of lines in service;

·Interconnection services. We provide interconnection services, which primarily include Access, termination and long-distance transport of calls;

·Information and Communication Technology Services. We provide ICT services, datacenter services, telecommunications consulting and value-added solutions;

·Other telephone services. Other services provided by us include supplementary services such as call waiting, call forwarding, conference calls, caller ID, voice mail, itemized billing and maintenance services; and

·                  Sale of equipment.

Our Fixed Telephone Network

We are the principal provider of Basic Telephone Services in the Northern Region, and since late 1999 have also provided Basic Telephone Services in the Southern Region.

Our fixed-line telephone network include installed telephones and switchboards, a network of access lines connecting customers to exchanges and trunk lines connecting exchanges and long-distance transmission equipment.

The following table illustrates the deployment of our telephone network:

 

 

December  31,
2018

 

December 31,
2017

 

December 31,
2016

 

Number of lines in service(1)

 

3,544

 

12.7

 

7.7

 


(1)Includes lines customers, own usage, public telephony and ISDN channels. The figures prior to the Merger (i.e., as of December 31, 2017 and 2016) correspond to Cablevisión.

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TELECOM ARGENTINA S.A.

Revenues

Fixed telephony services include, among other charges, monthly charges, measured service charges, installation charges, public telephone services and interconnection services related to “essential facilities.” The prices for these services were regulated by rules governing our license, which established “maximum prices” that could be charged to clients. We were able to charge prices below the maximum regulated prices as long as the discount was applied equally to clients who share the same characteristics (under the so-called principle of “non-discrimination”). In accordance with this ability, we charged lower prices than the maximum regulated prices for certain of the services offered. Since the enactment of the LAD it was established that licensees of ICT services may freely set their prices. See “The Argentine Telecommunications, Broadband and Cable Industries—Regulatory Overview—Law No. 27,078—Argentine Digital Law.”

The remaining services, such as data transmission services and Internet services, were not subject to regulation and, as a result, Telecom was able to freely set the corresponding prices. Market conditions could limit price increases.

Retail — Residential and SME (Small and Medium Enterprises)

Monthly Charges. We bill a monthly charge to our customers. Additionally, due to the regulatory regime, we are obligated to offer discounts to certain retired individuals and low-consumption residential customers.

Measured Service Charges. In addition to a monthly charge, we bill to a portion of our customers for a monthly measured service charge, which is based on telephone usage. Measured service is billed at the price per unit of time. Charges for local and domestic long-distance measured service vary with the price per unit of usage. The number of units of usage depends on the time of day, the day of the week, the distance and the duration of calls. Additionally, due to competition, we offer discounts to customers mainly for domestic long-distance service as semi-flat rate plans that include a set quantity of minutes for a fixed charge.

International Long-Distance Service. Since 1992, international rates have been reduced annually as a consequence of the application of the Price Cap. We also have reduced international long-distance prices in order to compete with the new providers of long-distance calling services.

Installation Charges. Revenues from installation charges consist primarily of fees levied for installation of new fixed lines. We offer discounts in multiple localities to reduce the rates, with the aim of stimulating demand in those areas. The penetration of fixed-line telephony has been affected by the maturity of the Argentine market.

Other Domestic Telephone Services. We provide other domestic telephone services including charges for supplementary services such as call waiting, call forwarding, conference calls, caller ID, voicemail and itemized billing.

Wholesale

Interconnection Revenues: We collect fees from other operators for interconnection services. These fees primarily include local Access, termination and long-distance transport of calls, rentals of network capacity and commissions on calling party pays fees. These fees are payable by mobile operatorsothers, as well as fixed-line operators.

During 2018, we remained one of the leading providers of wholesale telecommunications solutions for various fixed and mobile operators, independent operators, local operators, public telephony licensees, cable operators, ISP, TV and radio channels, production companies and other service providers.

The services marketed by us include, among others, traffic and interconnection resources, third-party billing, dedicated Internet access services, transport of video signals in standard definition and high definition (which allows our clients to play multimedia content over the Internet without needing to download such content), streaming audio and video, dedicated links, backhaul links for mobile operators, Internet Protocol Virtual Private Network and data center hosting/housing services.

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TELECOM ARGENTINA S.A.

With respect to data and Internet services, Telecom Argentina S.A focused its business development during 2018 on the IP transit service, which is demanded by the different operators and ISP providers to sell Internet connectivity to its customers across different segments of the market, generating a significant increase in the consumption of bandwidth, both local and international. This management decision allowed us to strengthen our position as a provider of solutions for the broadcasting segment by offering transportation solutions for audio and video signals both as dedicated private links and on the Internet. We provide solutions to cable operators and TV channels for the distribution of video signals.

International Long-Distance Service: We hold a non-expiring license to provide international telecommunications services in Argentina, including voice and data services and international point-to-point leased circuits.

Revenues from wholesale international long-distance service reflect payments under bilateral agreements between Telecom and foreign telecommunications carriers, covering virtually all international long-distance calls into or out of Argentina using our network. Revenues from international long-distance service therefore consist mainly of:

·                  amounts earned from foreign telecommunications carriers for connection to the Argentine telephone network;

·                  bandwidth capacity under an Indefeasible Right of Use (“IRU”) basis;

·                  international point-to-point leased circuits; and

·                  data and IP transit services in regional market. During 2018, Telecom Argentina S.A increased sales of IP and data center hosting/ housing services to Uruguayan clients.

Operating revenues from international long-distance service depend on the volume of traffic and the prices charged by each party under agreements between the Argentine provider and foreign telecommunications carriers. Settlements among carriers are usually made on a net basis.

We are connected to international telecommunications networks, mainly through the following submarine Fiber Optic cables: Columbus 3 (Europe), Atlantis 2 (Argentina - Brazil — Europe), Sea-Me-We 3 (Europe — Asia), Bicentenario (Argentina - Uruguay), Latin American Nautilus (LAN), PanAm (Argentina - Caribe)  and other minor cables.

Telecom Argentina USA, Inc. (“Telecom USA”)

During 2018, we continued our business efforts aimed at wholesaler’s products of greater profitability, which include services for OTTs and for temporary events. Our presence in the United States through our subsidiary “Telecom USA”, enabled us to revitalize trading links with leading providers of content and services in the cloud of the United States. These business relationships result in important projects of co-location and data transport. It also allows our company to pursue the development of commercial relations with new smaller customers with varied requirements in Argentina .We expect these applications to become grower.

Network and equipment

Our network strategy, for the medium- and long-range terms, focuses fulfilling services demands, improving our customers’ experience and promoting technology evolution.

With respect to the “core” network, we seek for continuously increment capacities and availability of the services offered to our customers. In addition, we continued implementing protocols and network architectures standardization, which allow us a more efficient operation and maintenance, with costs reduction on those activities.

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TELECOM ARGENTINA S.A.

Competition

Before November 1999, Telecom held an exclusive license to provide Basic Telephone Services to the Northern Region. The Argentine telecommunications market has been open to full competition since November 2000. As of the date of this Annual Report, the main licensees providing local and/or fixed long-distance telephone service are Telmex, AMX Argentina (commercially known as Claro), Level 3 Argentina (commercially known as “Level 3 Communication” formerly “Global Crossing”), IPlan, Telecentro, Telefónica (principally in the Southern Region) and Telecom (principally in the Northern Region). Telefónica has the dominant market share for provision of telecommunications service in the Southern Region. Accordingly, if economic conditions in Argentina improve and competitors increase their presence in the Northern Region, we expect that we will face additional pressure on the prices we charge for our services and experience limited loss in market share in the Northern Region.

Mobile Telecommunications Services

Overview

We provide mobile services in Argentina and through our subsidiary in Paraguay.

Our service offerings in Argentina under the brand Personal include voice communications, high-speed mobile Internet content and applications download, MMS, SMS, online streaming, corporate e-mail and social network access, among others; and sale of mobile communication devices (handsets, Modems mifiMiFi and wingles, smart watches). The services are supported

As of December 31, 2020, we had approximately 18,433 thousand mobile subscribers in the different technologies of the mobile network (2G/3G/4G)Argentina.

 

We also offer mobile services in Argentina through our subsidiary Nextel to existing customers by means of our Integrated Digital Enhanced Network which enables us to offer “push to talk” technology to such mobile services customers.

In Paraguay,Through Personal, we provide mobile services through our subsidiary Núcleo.on 850 MHz in the Northern Region and AMBA, 1,900 MHz, 700 Mhz and AWS (paired frequencies in 1,700 MHz and 2,100MHz) in the whole country and 900 Mhz and 2,600 Mhz assigned by localities.

PART I - ITEM 4 INFORMATION ON THE COMPANYTELECOM ARGENTINA S.A.

 

As of December 31, 2018, we had approximately 18.3 million mobile subscribers in Argentina and Núcleo had approximately 2.4 million subscribers in Paraguay.46 

 

Mobile TelecommunicationsResidential and Corporate Services

We offer mobile telecommunication services to residential and corporate subscribers through a variety of flexible options. These options include prepaid, post-paid and “Abono Fijo” (mixed) plans.

·Prepaid Plans. Under prepaid plans, subscribers pay in advance for services, using prepaid credit. Since there are no monthly bills, prepaid plans allow subscribers to communicate with maximum flexibility while maintaining control over their consumption. Prepaid credit can be purchased through prepaid cards or virtual credit on our website, by phone, at ATMs and drugstores, or through authorized agents. Our mobile telecommunication subscribers may browse the Internet, make and receive local, national and international calls and buy multimedia content. We offer a variety of “packs” which enable customers to use the abovementioned services at lower prices. These packs may include a fixed amount of minutes to make national or international calls, SMSs, and a quota of megabytes to access the Internet, among other services.

·Post-Paid Plans. Under post-paid plans, subscribers pay a monthly fee for a particular plan, plus charges for additional services not included in such plan. Most of the plans we offer include a quota of megabytes for browsing the Internet and unlimited airtime for on-network calls and SMS. Depending on the price, some plans include an amount of free seconds or unlimited airtime for off-network calls. Once the included seconds have been used, subscribers can continue using the mobile service at a set price per second. Subscribers can also buy packs of additional megabytes to continue browsing the Internet after they have used the megabytes included in their monthly plan. The charges for additional airtime, megabytes or multimedia content, are added to the following month’s bill. Under post-paid plans, we also offer M2M plans, based on the IoT concept, which refers to the digital interconnection of everyday objects with the Internet, and are specially focused on business customers. These plans include solutions such as geolocation and fleet monitoring, refrigeration control, information security solutions, sales management solutions, and cloud solutions for information storage and protection.

·Abono Fijo. Under the “Abono Fijo” plans, a subscriber pays a set monthly bill. As in post-paid plans, most of these plans include a quota of megabytes for browsing the Internet, unlimited airtime for on-net and off-net calls, SMS and a fixed amount of credit that can be used to buy packs or multimedia contents. Once the prepaid seconds have been used or the Internet quota has been met, the subscriber can obtain additional credit by recharging its line through the prepaid system.

Our strategy during 2020 focused on further promoting the consumption of high-speed services by providing upgrades and improving the experiences of certain customers, and more generally addressing the needs of small, medium and large customers.

The main developments in Argentinaour residential and corporate services during 2020 were the following:

·      our offer of mobile services ranged from prepaid plans to postpaid plans, and between 2 Gigas and 20 Gigas;

·we focused on the development of convergent offers for our customers, offering additional bonuses upon the purchase of various services, to increase customer loyalty. We extended the initiative to corporate customers, seeking to increase services convergence;

·we launched “Mi Negocio Personal” (My Personal Business), an e-commerce platform that allows micro-entrepreneurs to digitize the commercial experience of their business and sell to its customers in a personalized way through social networks chosen and with integrated payment methods; and

·      as our customers’ internet consumption evolved, we worked in international services while focusing on increasing the efficiency of international traffic management, minimizing the cost of the service to sustain the simplification and evolution of the roaming offer and achieve a higher perceived quality. We added higher national and international roaming data quotas for America and Europe to our mobile plans.

Wholesale Services

 

Our mobile telecommunications infrastructure also enables us to provide the wholesale services summarized below.

·International Business. During 2020, we focused on maximizing the profitability of the international roaming business through cost optimization, increasing inbound traffic capture to Argentina and strengthening our market positioning. In this connection, we developed actions to access new international locations, 3G infrastructure, 4G LTE and CAMEL (Customized Applications for Mobile Network Enhanced Logic) agreements, in order to provide a better user experience to our subscribers.

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47 

Also in Argentina are provided2020, we entered into update agreements with content aggregators aimed at differentiating international SMS A2P (messages sent from applications to persons) traffic from local traffic, and implemented a firewall (system blocking spams and non-authorized access) that allows control of our network, providing complete protection to our customers.

·Domestic Business. Our wholesale services are comprised of call termination in a mobile network (TLRD), interconnection traffic (which include origination, transit and transport charges), sale of infrastructure to large groups, national roaming, as well as sales and leasing of conventional and unconventional infrastructure sites. In order to fulfill regulatory requirements of 4G coverage deployment, a new modality of active network infrastructure sharing, called RAN Sharing, was agreed at the industry level. This modality allows Telecom to optimize the deployment times and investments necessary to provide 4G coverage to a greater number of locations and routes in the country.

During 2020, Telecom worked together with two other Argentine mobile service providers to strengthen the scope of sites covered under the brands Personalthis modality.

Network and Nextel.Equipment

 

The mobile telecommunications market in Argentina has been openIn terms of infrastructure, during 2020 we improved the services we provide by deploying the 4G / LTE network, together with the technological reconversion of our 2G / 3G networks, and the deployment of fiber optics to competition since 1993connect all homes with broadband, which also had an impact on fixed and was expandeddata network. This allowed us to include Personal Communications Service (“PCS”) services in 1999. In addition, GSM technology has created intense competition for subscribers amongstand out from our competitors, significantly improving the various service providers, including giving rise to severe pricing pressure, significant handset subsidies and increased sales incentives provided to dealers. The introductionNPS of 3G technology since May 2008 and of 4G technology since 2014 has allowed operators to focus competition on Value Added Services.our clients.

 

During 2018,2020, service providers in Argentina continued to make significant capital expenditures in new network infrastructure for the enhancement and deployment of 3G and 4G technology, which allows for the higher transmission speeds requiredneeded for Value Added Services such as data transfer, video calling and Internet browsing.

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Personalbrowsing to also improve coverage.

 

Through Personal, we provide mobile services on the 850 MHz and 1,900 MHz, through GSM and 3G technology by Servicios de Telefonía Móvil (“STM”), Servicios de Radiocomunicaciones Móviles Celular (“SRMC”) and PCS networks. In addition, since December 2014, Personal has offered LTE technology service (by SCMA network) through the frequency bands awarded to Personal in 2014 and 2015 (1730-1745 MHz; 2130-2145; 713-723 MHz and 768-778 MHz). See “The Argentine Telecommunications, Broadband and Cable Industries—Regulatory Overview—Spectrum.”

Residential and Business Customers. We offer to Personal subscribers a variety of flexible pricing options for mobile services. These options include prepaid, post-paid and mixed (“Abono Fijo”) plans.

Prepaid Plans. Under prepaid plans, subscribers pay in advance for their services, using prepaid credit. Since there are no monthly bills, prepaid plans allow subscribers to communicate with maximum flexibility while maintaining control over their consumption. Prepaid credit can be purchased through prepaid cards or virtual credit on our website, by phone, at ATMs and drugstores, or through authorized agents. This credit allows subscribers to use data to browse on the Internet, make and receive local, national and international calls and buy multimedia content.

We offer a variety of “packs” which enable customers to use the abovementioned services at a lower price. These packs may include a fixed amount of minutes to make national or international calls, SMS, a daily quota of megabytes to access the Internet during 1, 7 or 30 days or different combinations of these services.

In addition, customers can buy multimedia contents, or subscriptions to these contents, in order to receive them periodically.

Prepaid customers can access different benefits according to their monthly credit charges, such as days of free WhatsApp access, unlimited WhatsApp access for 30 days (even without credit), credit gifts, and two telephone numbers to communicate for free, one for calls and the other for SMS.

Post-Paid Plans. Under post-paid plans, a subscriber pays a monthly fee, plus charges for additional services not included in its plan. According to our current offer, most of the plans include a quota of megabytes for browsing Internet, unbounded airtime for on-net calls and SMS. Depending on the price, some plans include an amount of free seconds or unbounded airtime for off net calls. Once the free seconds have been used, they can continue using the mobile service at a set price per second. They can also buy packs of additional megabytes to continue browsing Internet after they have consumed the megabytes included in the monthly fee. The charges for additional airtime, megabytes or multimedia contents, will be added to the next month’s bill. The plans offer Personal digital invoicing, enabling subscribers to view, download and print their invoices from the web.

Under post-paid plans, we also offer M2M plans, based on the “Internet of Things” (IoT) concept, which refers to the digital interconnection of everyday objects with the Internet, and are specially focused on customers of the business segment. These plans include solutions such as geolocation and fleet monitoring, refrigeration control, information security solutions, sales management solutions, and cloud solutions for information storage and protection, among others.

Abono Fijo. Under the “Abono Fijo” plans, a subscriber pays a set monthly bill. Like in post-paid plans, most of these plans include a quota of megabytes for browsing in the Internet, unbounded airtime for on-net and off-net calls, SMS and a fixed amount of credit that can be used to buy packs or multimedia contents. Once the free seconds have been used or Internet quota has been met, the subscriber can obtain additional credit by recharging its line through the prepaid system. With this new credit, customers can buy packs of 100 MB, 500 MB or 1 GB to continue browsing Internet or packs of seconds for off net calls. The plans offer Personal digital invoicing, enabling subscribers to view, download and print their invoices from the web.

Personal’s subscribers for the year ended December 31, 2018 amounts to 18,316 thousand.

New products and services. In 2018, we continued boosting our strategy with a customer-centric approach based on the concept “Internet para que todo suceda” (Internet to make it all happen). This concept is based on Telecom’s integrated mobile telephony and broadband services, which Telecom believes differentiates it from competitors, but also on the idea of internet as the most important source of communications in modern times.

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Personal continued developing its international roaming retail offer with “Pack Mundo,” which applies in more than 45 destinations worldwide and offers unlimited WhatsApp and a volume of data for 30 days. The pack was launched on June 1, 2018 and promoted during the FIFA 2018 World Cup tournament and was activated by more than 15,000 customers during its first month of operation. We will also strive to continue improving the coverage and speed of the network, with goal of obtaining LTE capacity in more than 75% of our sites. We continue to be pioneers in the mobile telephony industry, extending the unlimited WhatsApp offer in worldwide roaming, launching offers that give discounts for international calls to Paraguay, Bolivia and Peru and structuring a special internet services offer for people living in areas surrounding Argentina’s border with Paraguay and Bolivia, which can be used in these countries without incurring additional roaming charges.

Through Club Personal, Telecom’s free, nationwide loyalty program, Telecom offers customers discounts on third-party products (cinemas, restaurants, ice cream shops, theaters, among others) and points that can be redeemed for prizes. In 2018, we began consolidating Club Personal as our single loyalty program, with the aim of offering and communicating our convergence benefits in a unified way to all of our customers. In late 2018, we launched the Convergent Club Personal, through a new online application that allow clients of the Personal, Cablevisión, Fibertel and Arnet brands to use the Club Personal program discounts. As part of our ongoing development of its customer service platform, we will strive to enter into new partnerships to enhance the catalog of discounts with nationally and internally recognized and entertainment venues.

Finally, we continued our strategy of repositioning our brand Personal by hosting the annual Personal Fest, one of the most important international music festivals in Buenos Aires.

Wholesale

International Business. During 2018, we continued to strengthen our position in the international roaming services market, expanding 3G and 4G LTE agreements, in order to provide a better user’s experience to our subscribers.

We entered into ten (10) GPRS, 30 3G and 25 LTE agreements during 2018, reaching an overall total of 410 commercial agreements of international roaming, which provide service in more than 180 countries.

In order to improve the customer’s roaming service experience, Telecom Argentina  entered into a partnership agreement with Vodafone. In this context, we decided to conduct a comprehensive assessment of our wholesale roaming business unit, provided through Telecom Argentina.

This assessment compared Telecom Argentina’s current level of roaming capabilities with Vodafone’s best practice and highlight areas of focus to enable us to enhance the efficiency of our wholesale roaming business and to leverage roaming wholesale to deliver a superior customer experience to Telecom Argentina subscribers.

Domestic Business. The main national wholesale revenues are composed by call termination in a mobile network (TLRD), calling party pays (CPP) charges, and to a lesser extent, national roaming sold to other operators in connection with the use of our network, as well as by leasing of infrastructure sites.

During 2018, we continued to strengthen our relationship with operators and telecommunication services providers, cooperative’s federations, and clearing house services suppliers, renewing the existing contracts or entered into new ones.

We also entered into new agreements with cooperatives for installing new cell sites in their local area with the purpose of achieving or improving the mobile coverage in their influence areas and in accordance with the Company’s deployment plan.

We expanded agreements to contract resources and facilities of other operators (data links, interconnection resources, origination, termination, and transport minutes, conventional and non-conventional site leases and domestic roaming) that contributed to continue the mobile network development and its 4G evolution improving the offer to customers.

During the second half of 2018, the ENACOM issued a new national wholesale interconnection regulatory framework applicable for mobile and fixed voice services. This regulation introduced changes to the local wholesale business model, cancelling the calling party pays (CPP) charge and replacing it with a new wholesale call termination called Mobile termination charge.  See “Item 4—Information on the Company—Regulatory and Legal Framework.”

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Network and Equipment

In terms of infrastructure, during 2018 we continued to accompany and enhance the evolution of services with the deployment of the Personal 4G / LTE network, together with the technological reconversion of 2G / 3G networks, and the deployment of fiber optics to connect all homes with broadband. The deployment of 4G reaches 1,173 localities with/ LTE reached a coverage of 87%95% of urban population, in 1,879 localities as of December 31, 2020. Additionally, we reached a coverage of 98% of the population of major cities of Argentina, (98%as of the population of capital cities).that date. In addition, the deployment of 4G + services continued to advance throughout the country, thanks to the solution of Carrier Aggregation 4G (use of(using two simultaneous frequency bands). The tangible benefit thatOur customers with access to our customers4G network perceive is a better service experience, primarily with faster speeds that reach 100 Mbbps.

From300 Mbps, with capacity to reach speeds of 1,000 Mbps. On the very beginningother hand, approximately 23% of this deployment,the calls are made by Volte, a technology that allows making and receiving voice calls over the 4G Network with substantial improvements in the locations where 700 MHz Band is not interfered, Personal turned on simultaneously 700 MHzaudio and 1,700/2,100 MHz Bands, which allows an optimal and efficient spectrum usage, through “carrier aggregation” functionality. Together with these actions, we continued increasing existent sites capacity, reassigning 2G spectrum and adding new spectrum obtained from the aforementioned public tender.video quality.

 

Additionally, we continued to increasedeploy the number ofmobile sites connectivity in order to achieve better quality and capacity, replacing radio base stations connectedlinks with opticalhigh capacity fiber and full IP protocol, allowing for the availability of needed broadband, in the present and for future services.optics connections.

 

Finally, we can mentiona plan for the startupdeployment of the new IMS platform (IP Multimedia Subsystem) functionalities, orientedmobile sites with satellite backhaul was started (a network that connects mobile access sites with stations through satellite links) in order to the convergence and evolution of services such as VoLTE (Voice over LTE), VoWifi (Voice over Wi-Fi), VoIP (Voice over IP), etc.reach remote areas with low population density to provide them with connectivity.

 

In February 2021, we set-up the first 5G network in Argentina, putting into operation 10 mobile antennas in the cities of Buenos Aires and Rosario to use with suitable devices. We used Dynamic Spectrum Sharing (“DSS”), a technology leveraged on the current 4G network, that allows to turn on 5G accesses dynamically and on demand. The 5G network will allow speeds of 10Gbps, and provides greater capacity for connected devices, coverage and features than 4G and 4.5G networks.

Competition

 

The market for residential, corporate and wholesale mobile telecommunications services in Argentina is characterized by intense competition. Operators are generally free from regulation to determine the pricing of services, except that the ENACOM sets prices for wholesale local interconnection services. There are currently three mobile operators offering nationwide service. These three operators are Telecom, Telefónica Móviles Argentina and América Móvil. According to the statistics published by the ENACOM, the penetration of mobile service in Argentina has reached 141.9% of the population in 2015, 146.2% in 2016, 139.9% in 2017 and 132.9% in 2018. This information regarding penetration of mobile service is an estimate, based on demographic data from Argentina’s 2010 national census as there are no official statistics published in Argentina, and only considers lines serviced by the three operators providing nationwide mobile telecommunications services (i.e., it does not include Nextel providing trunking telephony and other telecommunication services in Buenos Aires and cities in the interior).

 

During 2018, service providers in Argentina continued to make significant capital expenditures in new network infrastructure for the enhancement and deployment of 3G and 4G technology, which allows for the higher transmission speeds required for Value Added Services such as data transfer, video calling and Internet browsing.Nextel

 

On May 5, 2016,During, 2020, we completed the Ministrymigration of Communications issued Resolution No. 38/16 approvingcustomers from Nextel to Personal and the new Regulation of Virtual Mobile Operators (“VMO”), thus allowing the entrance of new competitors.

The acquisition and retention of high-value customers continues to be a key factor to our strategy, which is focused on maintaining customer’s consumption through the launch of new products and services that enable retention of existing customers.

Nextel network was discontinued.

Nextel

Through Nextel, we provide Integrated Digital Enhanced Network (“IDEN”) telephony services to existing customers which enables us to offer “push to talk” technology to such mobile services customers. Prior to the Merger, Cablevisión acquired Nextel to further its strategy of entering into the Argentine mobile market and expanding its mobile services. By combining its fiber optic network with Nextel’s network, Telecom offers its customers fourth generation (4G) access, among other innovative mobile services.

As of December 31, 2018, Nextel had a total of 252,337 customers, distributed between its push-to-talk over cellular (“POC”) and 4G access options. Beginning on January 2018, Telecom began a campaign to migrate Nextel customers to the Personal brand. As of December 31, 2018, Telecom completed 46,378 4G customer migrations, with the month of June 2018 recording the highest number of migrated customers (approximately 10,600 customers) since start of the migration campaign.

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Broadband Internet Services

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ØInternet Services

Overview

We provide broadband Internet services in Argentina. Broadband Internet access, often shortened to “broadband,” is high data rate Internet access. Broadband can be delivered through threefour technologies: cable modem (HFC), ADSL, optic fiber (FTTC and FTTH) and wireless; being cable Modem and ADSL being the most widely used. Telecom marketsWe market our ADSL/FTTH servicecable Modem services through the Arnetour “Fibertel” brand and in partnership with other Internet services providers. Telecom marketsWe market our cable ModemADSL service through “Fibertel” and TV services through our Fibertel brand“Fibertel Lite” brands and in partnership with other Internet services providers. Telecom believes that, as a result of the Merger, will benefit from having access to the best network available in their respective region, irrespective of which company such network used to belong to.

During 2018, we made efforts to continue deploying FTTH network enabling more customers to access ultra-high internet velocity with speeds of 100MB and also upgrading the customer base average speed by migrating customers to its FTTC network (i.e., technologies that replace copper with fiber optics in different points of the transmission network). As of December 31, 2018, the number of customers with FTTH or FTTC has grown 168% when compared to December 31, 2017. Internet dial-up service represents a marginal percentage of our revenues. We continue to provide this service to a small market where broadband service is not available.

 

As of December 31, 2018,During 2020, we providecontinued promoting data transmission and Internet services, including traditional Broadband, Internet dedicated lines, private networks, national and international video streaming, transportation of radio and TV signals and videoconferencing services. As of December 31, 2018, we had approximately 4.09 million Broadband subscribers, representing a 1.1% increase as comparedbroadband offers, providing greater speed to 4.05 million subscribers as of December 31, 2017.customers that have technical availability to use it.

 

With respect to the access networks, our strategy aims to satisfy the rising broadband demand, mainly for downloading videos and multimedia content from the Internet. In this respect, we intend to continue the expansion of our access fiber optics infrastructure, using different modalities and technologies, which have been optimized based on the demand of the services provided and different geographic locations.

 

In order to increaseDuring 2020, we continued deploying our Internet access base,FTTH network both in greenfield areas (an area where we have acquired some IRUs on a submarine facilitynot deployed any of Latin America Nautilus (LAN)our technology networks: Copper, HFC or FTTH) and in the reconversion of brownfield areas (an area where we have network deployment), which connects Argentinagranting more customers access to ultra-high internet velocity with speeds of 1000MB and also upgrading the U.S. (Miami)customer base average speed by migrating customers to our HFC network (i.e., technologies that replace copper with fiber optics in a submarine fiber optic ring. These rights, which last for 15 years, allow the interconnectiondifferent points of the IP backbonetransmission network). As of usDecember 31, 2020, the number of customers with IP Transit providers in Miami.access FTTH technology grew 55% compared to December 31, 2019. Internet dial-up service represents a marginal percentage of our revenues. We have also contracted international capacity under lease modality (IP Transit) in Buenos Airescontinue to ensure better performance regarding regional traffic. In orderprovide this service to have a reliablesmall market where broadband service these IP Transit is provided by two capacity providers in a redundancy geographical path (Latin American Nautilusnot available.

Residential and Telxius Cable Argentina).Business

 

Through our wholly owned subsidiary in the United States, Telecom Argentina USA, a corporation organized under the lawsAs of the State of Delaware,December 31, 2020, we focus mainly on wholesale long-distance international traffic, video and data services.

Telecom Argentina USA, routes the majority of its wholesale traffic through its own switching capabilities. In 2018, Telecom Argentina USA, continued operating a Node of high-definition video in Miami, thus extending the Telecom video matrix to the international market.

Fibertelhad approximately 4,146 thousand Internet subscribers.

 

We believe that Fibertel is the broadband service that offers the best selection of speeds in the Argentine retail and corporate market in massive form and at competitive prices. During 2018, progress was made in the search to maximize the quality of the service and thus improve the customer experience.

Since the Merger and taking into account the network overlap between Fibertel and Arnet, the company adopted the concept of “preferred network” in order2020, we continued to improve the distributioncapacity and reachthe speed of the Internet service. Prior to the Merger, Cablevisión offered high-speed cable modem access to the Internet through under the Fibertel brand since September 1997.our service, boosting customer experience. Through the Fibertel brand, ourwe provide high-speed Internet services in the AMBA, Córdoba, Rosario, Campana, Río Cuarto, Posadas, Salta, Olavarría, Pergamino, Mar del Plata, Bahía Blanca and Santa Fe, among other cities in Argentina.

The internet connectivity products we provide through the Fibertel brand are specially tailored forto the needs of each residential or corporate user, and include specific solutions such as virtual private network services, traditional Internet protocol (“IP”) links and corporate products that offer additional services. Since 1997, we have consistently upgraded our network in order

We offer Internet products ranging from 20 to increase1,000 MB.

Customers with a service of 20 MB or more represent 71.5% and 62.4% of the speed of its products. Astotal customer base as of December 31, 2018,2020 and 2019, respectively. Within this range, customers have contracted service plans of 100 MB, 300 MB and 1,000 MB which, as of December 31, 2020 amount to 551,455, 97,433 and 2,279, respectively, positioning our customers had an average access to networks“Fibertel” brand as the technological benchmark brand of 21 megabytes.

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In 2010, with the purpose of enhancing the development and innovation of corporate products, Cablevisión created FiberCorp, which is a corporate business unit within Fibertel that provides telecommunication solutions to large, medium and small-size companies. FiberCorp has a wide communications network for the transportation of data, sound and video, which enables it to provide internet access, dynamic connections, symmetric access and IP video vigilance, among other services.

Through the Fibertel brand, we also provide high-speed Internet services in the AMBA Region, Córdoba, Rosario, Campana, Río Cuarto, Posadas, Salta, Olavarría, Pergamino, Mar del Plata, Bahía Blanca, Santa Fe, among other cities in Argentina.industry.

 

Additionally, during 2020 we alsointroduced “Infinite”, a new technology with an automatic switch between fixed and mobile, providing continue connectivity and tools that allow customers to get better performance of Internet connection. This portfolio consists of 100, 300 MB or 1, 000 MB connectivity, including a 4G backup and a control center.

Finally, we offer international IP access through well-known global backbone providers.

 

Network and Equipment

In order to continue bringing fiber optic to customers, we consolidated the deployment of the different fiber optic architectures (mainly FTTH), substantially improving the possibility of offering high speed services. This deployment encompassed residential and corporate customers, new neighborhoods, gated communities, high-rises and shopping centers. With respect to the FTTH networks, their deployment allowed us to expand coverage. With respect to HFC, the reduction of the service areas and the increase in upstream capacity resulted in better service for users.

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ArnetThe renewal of the access network, together with the transformation process of the transport network, allows sites to be connected at maximum speed with each other and with the stations, and with the rest of the world. Based on these improvements in the transport network by bringing fiber optics to home, we continue to focus on offering customers the option of increasing access speed, moreover considering the need of home office in 2020, as a consequence of the ASPO as a result of the COVID-19 pandemic.

Additionally, following our network integration and the installation of a new core in AMBA in 2019, during 2020 we began the installation of the new Internet Gateway to connect network to Internet.

Competition

 

Prior to the Merger, Telecom provided residential Internet services under the brand name Arnet since 1998. We mainly offer this service in the major cities of Argentina. In recent years, Telecom’s Internet service has experienced higher demand and usage in less populated areas of the country. The Internet services include Access and Arnet service.

The Company decided, in the fourth quarter of 2018, to discontinue the use of the trademark Arnet brand to market its broadband product. The clients that currently use this brand will be included under the Fibertel brand. This will simplify the brand portfolio by completing the product alignment and establishing a better and more direct communication with our customers. Fibertel will also bring these clients closer to accessing Flow.

Competition

We face nationwide competition in the Internet service market in Argentina from Telefónica, AMX Argentina (commercially known as Claro), Gigared and Telecentro (providing a triple-play offer), among others. During 2020, Telefónica and AMX accelerated their investments for the construction of their fixed FTTH networks, increasing their penetration and ability to serve households in different areas of the country. This presents a new challenge for us with respect to the competitive scenarios of prior years, as new players with international support are aggressively entering the market. Our data services business faces competition from Telefónica, AMX Argentina (commercially known as Claro), and from several providers of niche data services such as Level 3 Argentina, IPlan and others.

 

Cable Television Services

ØCable Television Services

 

Overview

 

As of December 31, 2018, our cable network passed through approximately 7.85 million homes. We can deliver a two-way network with a bandwidth capacity of more than 750 MHz1 GHz to approximately 79%81% of the homes passed through our cable network and,(87% in the AMBA Region, this percentage increases to 86% of the homes passed through our cable network.AMBA). Through these networks, we offer additional revenue-generating services and products, such as premium services and pay-per-view, as well as high-speed data transmission and Internet access using two-way high-speedpay-per-view.

As of December 31, 2020, we had approximately 3,319 thousand cable modems.television subscribers in Argentina.

 

Our Cable Television Networks and Operating Regions

 

As of December 31, 2018,2020, our principal cable networks were located in the Buenos Aires Metropolitan Area, which includes the City of Buenos Aires and surrounding areas and which, together with the city of La Plata, form the “AMBA Region.”AMBA. We also operated cable networks in other cities within the provinces of Buenos Aires, Santa Fe, Entre Ríos, Córdoba, Corrientes, Formosa, Misiones, Salta, Chaco, Neuquén and Río Negro. As of December 31, 2018, Telecom served approximately 3.6 million cable television customers, which were organized into four operational regions: the AMBA Region, the Province of Buenos Aires and Patagonia Region, the Central Region and the Litoral Region. As of December 31, 2018,2020, Telecom’s cable network passed throughcovered approximately 7.8 million homes and extended to over approximately 55,00070,000 kilometers, and its interurban fiber optic network passed through approximately 10,000 kilometers.

The AMBA Region includes cable systems deployed in the City of Buenos Aires and its surrounding metropolitan area. It is the region with the highest purchasing power in Argentina and is also the most densely populated. There are approximately 12.8 million inhabitants in the AMBA Region, representing approximately 33% of the total population of Argentina, according to the last census published by the INDEC.

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Our Province of Buenos Aires and Patagonia Region consists of five sub-regions: La Plata, Neuquén, Lincoln, Bahía Blanca and Mar del Plata, including 100 municipalities.

Our Central Region includes cable systems located in the provinces of Córdoba, La Pampa and Salta, including the cities of Córdoba, Río Cuarto, Villa Maria, Santa Rosa, Salta and San Francisco.

Our Litoral Region includes cable systems located in the Northeast region of Argentina, including the cities of Rosario and Santa Fe, in the province of Santa Fe; Paraná, in the province of Entre Ríos; Posadas, in the province of Misiones; Resistencia, in the province of Chaco, the city of Corrientes and other cities in the Province of Corrientes and the city of Formosa in the Province of Formosa.30,000 kilometers.

 

Retail and Corporate Programming and Other Cable Television Services

 

We  investedIn 2020, we continued investing significant resources to offer a wideexpand the variety of programming options in order to appeal to potential new subscribers and meet their needs. Our cable television services revenues are derived primarily from monthly subscription fees for cable service and high-speed Internet access.service. To a lesser extent, our cable television services revenues also derived from connection fees and advertising and from fees for premium and pay-per-view programming services, digital packages, DVR, HD packages, video-on-demand services (VOD) and magazine distribution.

 

Prior to the Merger, Cablevisión purchasedWe purchase basic and premium programming from more than 50 signal providers, including, among others, ESPN SUR S.A., Imagen Digital S.A., HBO Latin America Group (“HBO”), Fox Latin America Channel S.R.L., LAPTV, Tele Red Imagen Sociedad Anónima (“TRISA”), Pramer, Discovery Latin America (“Discovery”), as well as all broadcast television channels of Buenos Aires. The programmingproviders. Programming arrangements have an average duration of 24 to 36 months, and are primarily denominated in Argentine Pesos. The feesFees paid to signal providers under these arrangements are linked to the growth of Telecom’sour cable television subscriber base and the fees it charges to its customers.charged.

Basic Digital Service

 

We offer the digital service in AMBA and other cities of Argentina (such as Córdoba, Rosario, Santa Fe, among others). This service gives subscribers the option to increase the number of channels offered and includes an onscreen programming guide.

HD Services

We offer high definition versions of our Basic HD and our Premium HD Packages, such as Cablevisión Max HD, in locations where the required technology to broadcast this format has been deployed. This programming package includes a large variety of genres such as sports, movies, series, documentaries and music, with high resolution and better image quality. This offer also includes open air channels under an HD format.

Through our HD platform, we broadcast events using 3D technology for subscribers of the Premium HD service program that have the necessary equipment for this type of technology. We offer our HD customers a new VOD service that enables them to purchase programs or packages offered through an onscreen programming guide, with access to certain free services.

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50 

The Flow STB service (which provides all of its programming in HD) offers our clients the option to pause, rewind, start from the beginning and record contents. On the other hand, during 2020 we continued incorporating the option to access different apps such as Disney +, offering an exclusive three months free of charge period to our customers. Through this app, our customers can enjoy Disney, Pixar, Marvel, Star Wars and National Geographic content.

Premium Services

 

Our customers are given the option to acquire premium additional packages not included in the basic package by paying an additional fee. These packages and services include channels in addition to those included in the basic package, provide exclusive content, and divide such content by movie genres, adult programs and sports, or a combination of these categories. The monthly fees charged for premium services vary depending on the package subscribed to by the customer and the geographic and operational region in which we offered such service. Premium subscribers receivedreceive a free digital box that enables them to access this service and gives them the option to choose pay-per-view programs.

 

In July 2017, Telecom launched the “Football Pack” as part of the Premium services package, which allows access to view all the matches of the Argentine Football Super League, as well as access to two new channels: Fox Sports Premium and TNT Sports, with exclusive broadcast 24 hours a day, every day of the week. As part of the promotional strategy, free access to the Football Pack was provided to our customers during the first three dates of the Super League.  As of October 27, 2017, customers had to formally subscribe to the pack by paying a monthly fee of Ps. 300. As of December 31, 2018, we have 659,457 active subscribers to the Football Pack. Coverage of matches involving foreign football leagues abroad or of the Argentine national team continued to receive their normal transmission and were not affected by the launching of the Football Pack, which includes only the matches of the Argentine First Division Super League.

Basic Digital ServiceOTT Services

We offer the digital service in the AMBA Region and in the most important cities of Argentina in terms of size and wealth (such as Córdoba, Rosario, Santa Fe, among others). This service gives subscribers the option to increase the number of channels offered and includes an onscreen programming guide.

We offer a package called the “Basic Digital Pack.” Through this package, our customers received a wide range of channels, including informative news reporting, sports coverage and entertainment television. They also received more than 50 additional audio channels, which gave Telecom’s customers access to local radio stations, as well as to opera, rock, tango and salsa music, among other options.

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TELECOM ARGENTINA S.A.

HD Services

We offered high definition versions of our Basic HD and our Premium HD Packages, such as Cablevisión Max HD, in locations where the required technology to broadcast this format has been deployed. This programming package included a large variety of genres such as sports, movies, series, documentaries and music, with high resolution and better image quality. Moreover, this offer also included open air channels under an HD format.

Through our HD platform, we broadcasted events using 3D technology for subscribers of the Premium HD service program that have the necessary equipment for this type of technology. In addition, since 2012, we offered our HD customers a new VOD service that enabled them to purchase programs or packages offered through an onscreen programming guide, with access to certain free services. The VOD programming services enabled Cablevisión, and following the Merger, Telecom to offer our customers interactive audiovisual content without time constraints. Such VOD programming included channels such as Wobi TV, HBO, Discovery and ARTEAR.

Over The Top Services

 

In order to provideenhance our customers the best experience while still providing the best access to itsaccessing our content in November 2016 Cablevisión launchedoffer, we offer a digital platform branded “Flow” that integrates television channels with On demand content knowncontent. Through Flow, which uses the fastest fiber optic network in the country, our customers are able to watch television at any time and place and from any device (such as “Flow” that enabled ittablets, smartphones and smart TVs, among others). Flow allows us to distribute its contents through an IP structure coupled with digital television quadrature amplitude modulation, which included adequate security measures. Flow enabled Cablevisión’s (and following the Merger, Telecom’s) clientsour customers to use new modern functions such as lineal streaming, reverse electronic program guide, the possibility to “start over” a program, access to “video on demand”, contents and “cloud DVR” (which permitsallows subscribers to save content in the providersprovider’s database instead of in the subscribers digital recorder). These new functions were provided throughIn 2020 we lunched “Flow Now”, a new subscribers interface coupled with new search systems and advanced recommendations tailored to each subscriber, and could be accessed through different devices (such as tablets, smartphones, smart TVs, among others).

We offered to some ofbox-less experience for our clients under the Personal brand the possibility to watch the games of the Argentine soccer team at the Russia 2018 Soccer World Cup without charging them for the data consumption.broadband customers.

 

Competition

 

With respect to cable television transmission, we facedface competition from other cable television operators and providers of other television services, including direct broadcasting, satellite and wireless transmission services. As a result of the non-exclusive nature of our licenses, our cable systems frequently have been overbuilt by one or more competing cable networks;networks, in addition to the satellite television service that is also available. Free broadcasting services are currently available in Argentina. In the AMBA Region, these services primarily include four privately-owned channels and their local affiliates, and one state-owned national public television network. In addition, the Argentine government has distributed digital boxes to certain sectors of the population that provide free access to certain channels in connection with the Argentine Terrestrial Digital Television System.

 

Paid television industry is highly fragmented, and our largest competitor iscompetitors are Telecentro S.A., which is focused in the AMBA Region, and DirecTV Argentina S.A. (“DirecTV”) (satellite television), present throughout the entire country. In addition, Telefónica and AMX consolidated their offer of video products together with fixed broadband, in the context of the development of their fixed network. Telecom also considers Over-The-Top internetOTT Internet video system providers such as Netflix, Disney+, Prime Video and On Video as competitors.

 

Among paid television systems, competition is driven primarily by:

·                  price;

·by price, programming services offered;

·offered, customer satisfaction; and

· quality of the system.

 

Network and Equipment

Our network’s trunk or backbone portion in AMBA consists entirely of fiber optic cable. We built a fiber optic cable ring around the City of Buenos Aires that provides network redundancy (which helps ensure network availability in the event of a network device or path failure resulting in unavailability) and improves overall network reliability. We have deployed a similar fiber optic network architecture in other major cities.

In addition, cable television service is also provided through FTTH networks with IP technology, combining state-of-the-art networks to provide high-capacity Internet with video services through the same physical link.

Ø
Fixed and Data Services

Overview

We own and operate a fixed local line telephone network, public long-distance telephone transmission facilities and a data transmission network in the Northern Region. Following the opening of the entire Argentine market to competition in 2000, we expanded our footprint to the Southern Region of Argentina, to provide nationwide coverage. Fixed and Data Services are comprised of the following:

Residential and Corporate Telephony Services

·Basic Telephone Services. We provide Basic Telephone Services, including local, domestic and international long-distance telephone services and public telephone services. As of December 31, 2020, we had approximately 2,821 thousand fixed telephony lines in service.

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·Other telephone services. We provide our customers other related supplementary services such as call waiting, call forwarding, conference calls, caller ID, voice mail, itemized billing and maintenance services.

Subsidiaries in Paraguay

During 2020 we continued to strengthen our TOIP (fixed telephony service over IP) services and Uruguayposition through the evolution of the portfolio of security services solutions, together with a communication and dissemination campaign throughout the year, aiming to bring our wide range of services closer to corporate customers.

 

Paraguay

We provide nationwide mobile telecommunication services in Paraguay through our subsidiary, Núcleo, under the “Personal” trademark. Telecom holds 67.5% of the capital stock of Núcleo and the remaining 32.5% is held by ABC Telecomunicaciones S.A., a Paraguayan corporation. Núcleo was granted licenses to provide commercial mobile services, Internet access and videoconference and data transmission services in Paraguay.

CLIENTE+ was launched in 2017 to provide our customers with an exclusive benefits platform that rewards customers who use all the products offered by Personal: Telephony, TV, Billetera Personal and Club Personal. The purpose is to engage more customers as users of all our products and services and provide benefits for choosing us, thus boosting the positioning of a multi-product company through which we can offer communication and connectivity integrated solutions to our customers.

Total Mobile subscribers in the Mobile TelecommunicationWholesale Services in Paraguay amounted to 2.4 million and 2.5 million as of December 31, 2018 and 2017, respectively.

Núcleo implemented several customer management modules, among them, “Front de Informes,” “Condiciones Comerciales,” “Portabilidad Numérica” and “Promociones.”

In addition, within the framework of technological upgrading, Núcleo implemented the databases of the modules “Registradores de Tráfico,” “Roaming Inbound” and “Tasadores/Retasadores de Llamadas y SMS” in the new Production environments.

WebVAS (Web and Value-Added Services): Núcleo achieved the development of interfaces that facilitate the operation of Points of Sale and Trigger Points, highlighting the improvement of several customer-focused services.

Network and Equipment

In September 2017, CONATEL began the public consultation process for the auction of 700 MHz spectrum bands.  The final bidding terms were launched on October 30, 2017 and, in December 2017, Núcleo was selected as one of the prequalified bidders.  The process ended on January 4, 2018, with the simultaneous ascending price auction of 7 sub bands of 5 + 5 MHz each. Núcleo was awarded two of them for US$ 12 million (public consultation process denominated in US$) per sub band subject to compliance with certain conditions provided by CONATEL’s resolution. On March 6, 2018, CONATEL notified Núcleo Resolution No. 375/2018 through which H-H’ and I-I´ sub bands included in 700 MHz spectrum bands were assigned to Núcleo. The license is for five years that can be renewed with a payment of a 3% of the total investment.

In June 2017, Núcleo requested the renewal of its two main licenses, STM and PCS, whose maturity dates were on October 22, 2017. Prior to their expiration, CONATEL issued, pursuant to the telecommunications law, resolutions of precarious extensions for an extendable term of 90 days. On March 20, 2018, through resolutions of Núcleo S.A.E.’s Board of Directors 457/2018 and 458/2018, CONATEL renewed the aforementioned licenses for a period of 5 years.

In 2018, Núcleo has commenced the deployment of a fixed network Fiber To The Home (“FTTH”) approved for Internet services in a first stage (increasing the speed offered) and for TV in a second stage. The product generated great opportunities in the corporate segment.

Competition

 

Currently, there are four participantsDuring 2020, we remained one of the leading providers of wholesale telecommunications solutions for the different providers and operators in the mobile telecommunicationsmarket, including cable operators, ISPs cooperatives and other service providers. Wholesale services market in Paraguay. As of March 31, 2018, Núcleo’s main competitor was Tigo (a Millicom International Cellular subsidiary). The operators provide services using 2G, 3G and 4G technology. The Paraguayan market is highly competitive. Tigo holds a significant market share in terms of revenues.include:

·Infrastructure services. Infrastructure services primarily refer to:

 

üInterconnection services. Interconnection services include, among others, traffic and interconnection resources, dedicated Internet access services, transport of video signals in standard definition and high definition (which allows our customers to play multimedia content via Internet without the need of download), streaming audio and video, dedicated links, backhaul links for mobile operators, data center hosting/housing services (storage), dedicated links, layer 2 (Lan To Lan) and layer 3 (Internet Protocol Virtual Private Network) transport networks, video links, and value-added services, among others, and

 

üData and Internet services. Data and Internet services mainly include IP transit service, transportation solutions for audio and video signals, both as dedicated private links and on the Internet. During 2020, most of the business focused on IP transit service, demanded by ISPs providers in order to supply Internet connectivity to their customers in different market segments, which generated a significant increase in local and international bandwidth usage.

 

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·
International Long-Distance Service. We hold a non-expiring license to provide international telecommunications services in Argentina, including voice, data services, housing and international point-to-point leased circuits. Revenues consists mainly of connectivity to the Argentine telephone network, bandwidth capacity under IRU, international point to point lease circuits, housing in the datacenter located in Argentina and data and IP transit services. We are connected to international telecommunications networks, mainly through various submarine fiber optic cables.

Uruguay

 

Overview

Telecom provides management and administration services to companies that render cable TV services in Uruguay under the brand Cablevisión through the company Telemás S.A.

As of December 31, 2018, Cablevisión had approximately 143,500 subscribers in Uruguay and is present in the departments and locations mentioned below providing cable TV services under different technological platforms.

·Services provided in the United States: During 2020, we continued developing commercial actions aimed at higher profitable wholesale products, among which are the services for OTTs. Our presence in the United States, through our subsidiary Telecom USA, has enabled us to develop links with major North American cloud content and service providers.

 

Network and EquipmentCorporate Data Services

Southern Area: UHF (Ultra High Frequency) and DTH (Direct To Home) Platform: Montevideo and the metropolitan area comprising Ciudad del Plata (department of San José) and different locations in the department of Canelones.

The Company is conducting a migration process of its customers in the Southern Area from the UHF platform to the satellite platform, as provided by Decree No. 387/017. On July 11, 2019, the Company must return the UHF frequencies. For that purpose, it has to migrate 100% of its UHF customers to free up the spectrum.

This evolution towards the satellite product, together with the platform FLOW, which allows customers to enjoy the programming griddata services business includes nationwide data transmission services, virtual private networks, symmetric Internet access, national and on demand contents from any device, is another step forward that places our Cablevisión trademark at the forefront of the industryinternational signal transport and strengthens its leadership in Montevideo and different areas in Canelones and San José.

Departments: Cable and DTH Platform: In the capital cities of the departments of Artigas, Salto, Paysandú, Rivera and Tacuarembó, and in the city of Paso de los Toros (department of Tacuarembó) the Company renders cable TVvideoconferencing services. In rural areas and in some locations of those departments,These services are rendered viaprovided mainly to corporations and governmental agencies. We also provide certain value added services, including electronic standard documents telecommunication software exchange and fax storage and delivery service. Our corporate data services business also includes the satellite platform (DTH).

Strategic Agreement

As a resultlease of the agreement signed between Antelnetworks to other providers, telecommunications consulting services, operation and Telecom Argentina, starting December 21, 2018 customers will no longer be charged for the roaming service between Uruguaymaintenance of telecommunications systems, supply of telecommunications equipment and Argentina. Therefore, the contractual mobile telephony customersprovision of Antel can now use mobilerelated services. The corporate data transmission services without paying additional charges when they travel to Argentina. The agreement includes voice calls, datawe provide are mainly Ethernet and text messages.IP services.

 

We believe this agreement will contribute to the development of tourism and to the strengthening of the bonds of brotherhood between both countries.

Competition

The TV market in Uruguay has approximately 735 thousand subscribers. DirecTv Uruguay holds a 28% share in that market after Cablevisión Uruguay, which holds a 19% share, and the rest is divided among different local distributors.

The market showed a downward trend, marked by the increase of online entertainment alternatives. During the first half of 2018, the market experienced an increase, mainly driven by DirecTV Uruguay and its broadcast of the 2018 FIFA World Cup Russia through its online platform.

A key factor is the strengthening of the US dollar, with the consequent depreciation of the local currency that ends up affecting the consumption decisions of households and a more pessimistic consumption level.

Corporate Customer Services

The large customer segment includesserve leading companies in the Argentine market as well as the national government, provincial governments and municipalities. These large customers demand cutting-edge technology and solutions tailored to their needs, including voice, data, Internet and Value Added Services.

 

In response to the constant changes demanded by the market, we maintained our strategy to position ourselves as thean integrated service provider for large customers through the offer of convergence ofby offering convergent ICT solutions, including fixed and mobile voice, data, Internet, Multimedia, ICT,multimedia, datacenter and application services through sales, consulting, management and specialized and targeted post-sale customer services.

 

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The data services business includes nationwide data transmission services, virtual private networks, symmetric Internet access, national and international signal transport and videoconferencing services. These services are provided mainlymain solutions offered to corporations and governmental agencies. Welarge customers in recent years —that also provide certain Value Added Services, including electronic standard documents telecommunication software exchange and fax storage and delivery service. The data services business also includescontinued during the leaseyear ended December 31, 2020— included, among others, the expansion of networks to other providers, telecommunications consulting services, operation and maintenancethe truncated digital communications system for various agencies of telecommunications systems, supplythe Autonomous City of telecommunications equipment andBuenos Aires; the provision of related services. Corporate911 systems for public safety management, datacenter solutions to optimize operations for a supply chain management company and the implementation of unified communications, networking, collaboration and firewall solutions, with CISCO technology, for an insurance company.

In 2020, we launched a new security solution, the “Centro de Ciberdefensa” (Cyber Defense Center), designed to meet the demand for online security in companies. This solution, aimed exclusively at cybersecurity monitoring, is a tailored and flexible service depending on the needs of each company, which permanently monitors the events that may occur and notifies the customer to take any necessary remediation action.

In relation to IoT solutions, we provide the necessary technology for customers to connect to their data, transmission services are mainly Ethernetapplying intelligence for better and IP services.faster decision-making, helping them develop and improve the efficiency of their business. During 2020, we developed a new solution to add to the agriculture solutions portfolio, the “Remote monitoring of grains”.

 

During 2018,2020, we maintained our efforts infocus on ICT solutions and the sale of data services and dedicated Internet accesses. This strategy is supported by the world class multi-site network of datacenters focused on communications, with over 7,000 square meters used to keep computer technology services throughout Argentina. Through this infrastructure, we offer a broad services portfolio including dedicated hosting and housing, connectivity, cloud services which enable our customers to optimize their costs by increasing the security of their information and avoiding hardware and software obsolescence issues. All the services are provided with support, security, connectivity and the ability to engage further management, professional, monitoring, storage and backup services.

 

In addition, we continued making additional investments at theinvesting in our major datacenter in the city of Pacheco, province of Buenos Aires consolidating its position as leader in the market and enhancing the level of services supplied. SuchThese investments will enable usare intended to support business growth in the next few years with the highest market standards.

 

Network and equipment

Our network strategy, for the medium- and long-term, focuses on satisfying the demand of the services we provide, improving our customers’ experience and promoting technology evolution.

With respect to the “core” network, we seek to continuously increase the capacities and availability of the services offered to our customers. In addition, we continued implementing the standardization of protocols and network architectures, to enhance the efficiency of our operation and maintenance, with cost reductions on those activities.

Competition

As of the date of this Annual Report, the main licensees providing local and/or fixed long-distance telephone service are Telmex, AMX Argentina (commercially known as Claro), Level 3 Argentina (commercially known as “Level 3 Communication” formerly “Global Crossing”), IPlan, Telecentro, Telefónica (principally in the Southern Region) and Telecom (principally in the Northern Region). Telefónica has the dominant market share for provision of telecommunications service to retail customers in the Southern Region. If our competitors increase their presence in the Northern Region, we expect that we will face additional pricing pressure and experience a slight loss in market share in the Northern Region.

Regarding data services, our main competitors are Centurylink and Edgeconnex (an international datacenter specialized company that increased its market presence during 2020).

Finally, and regarding wholesale services, the main competitors in Argentina for connectivity services are Centurylink (formerly “Level 3 Communication” and “Global Crossing”), Telefónica, ARSAT (a Government owned company) and Silica (Datco Group). This competition causes permanent pricing pressure and forces Telecom to deploy commercial strategies to mitigate the impact of those initiatives on its market share. On the other hand, and in relation with local interconnection traffic, the ENACOM sets prices for this service.

ØSubsidiaries in Paraguay and Uruguay

Paraguay

We provide nationwide mobile telecommunication services in Paraguay through Núcleo, under the “Personal” brand. Núcleo was granted licenses to provide commercial mobile services, Internet access, and videoconferencing and data transmission services in Paraguay.

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As of December 31, 2020 Núcleo had approximately 2,351 thousand subscribers.

As to Internet access services, during 2020 Núcleo offered services through a combination of fiber optic Internet and Flow service. As the COVID-19 pandemic generated an increase in the use of Internet at home, Núcleo generated record revenues in this service.

With respect to postpaid mobile services, during 2020 Núcleo focused its strategy on capturing customers through aggressive offers with discounts ranging between 30% to 50% on plans or data duplication. Likewise, different campaigns were implemented to retain postpaid customers. Regarding prepaid mobile services, Núcleo offered packs that included benefits in the use of data, in addition to unlimited calls to all operators.

Finally, in 2020, Núcleo supported the growth of the corporate segment, with the launch of a new brand identity and new products and services, seeking to position itself as an integral solutions provider.

Núcleo is the controlling company of Tuves. The main solutionsactivity of Tuves is the distribution of audio and businesses developed for corporate customers in recent yearstelevision signals via satellite to customers’ homes. Núcleo is also the controlling company of Personal Envíos. The main activity of Personal Envíos is to provide mobile financial services.

Network and which continued during the year ended December 31, 2018 included, among others:Equipment

 

·                ExpansionIn 2020, Núcleo continued with the deployment of the truncated digital communications system forfixed network, reaching 450 thousand homes, which allowed improving the Autonomous Citycountry’s connectivity and economic convenience to its customers, becoming the operator with the largest fiber optic coverage in Paraguay.

In 2020 Núcleo expanded the capacity and coverage of Buenos Aires Police force,its LTE mobile network achieving 41 4G / LTE operative nodes and an “overlapping” of 86.2% (4G / LTE nodes in service over total network sites with 4G / LTE coverage).

By the Emergency Medical Care System,end of 2020, 76% of the data traffic was carried out over the 4G network, as a result of the constant expansion of capacity in network infrastructure, which has allowed us to follow the needs of our customers in a greater use of data. 83% of customers who use mobile Internet do so over the 4G network.

Competition

Currently, there are four participants in the mobile telecommunications services market in Paraguay. Operators provide services using 2G, 3G and 4G technology. The Paraguayan market is highly competitive. As of December 31, 2020, Núcleo’s main competitor was Tigo (a subsidiary of Millicom International Cellular). Tigo holds a significant market share in terms of revenue.

In relation to Flow services, there are two other operators that offer similar services in the Paraguayan market, Tigo and Claro, being Tigo the main competitor with its “OneTV” service.

Uruguay

Telecom provides management and administration services to companies that render cable TV services in Uruguay under the brand Cablevisión through Telemás S.A., one of the Adesol’s subsidiaries. Cablevisión in Uruguay provides basic, HD or Premium Television Services.

As of December 31, 2020, Adesol had approximately 140,378 subscribers in Uruguay, providing them with cable television services under different technological platforms, DTH, cable and MMDS (Multichannel Multipoint Distribution System).

On the other hand, Cablevisión Flow service continued to be promoted, offering our customers the possibility of watching television programs and On Demand content, from any device, through a modern platform to which new functions were introduced during 2020.

Network and Equipment

During 2020 Adesol offered services through DTH (Direct To Home) Platform in Montevideo and the subways.metropolitan area comprising Ciudad del Plata and different locations in the department of Canelones and in rural areas of northern of Uruguay. Adesol also offered services through cable TV in the capital cities of Artigas, Salto, Paysandú, Rivera, Tacuarembó and also in Paso de los Toros.

 

·                  IP connectivity services, installation of dark fiber for broadcast, Network Security Services and Datacenter for the 2019 Youth Olympic Games.

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·                  Extension and renegotiation of 911 systems for public safety management.Competition

 

·                  A datacenter solutionThe television market in allianceUruguay has approximately 640 thousand subscribers, where Cablevisión holds a 22% share, after DirecTV, that holds a 25%. Then, the rest is divided among different local distributors. Only DirecTV can sell its services across the whole country, while Cablevision and the rest of the cable television operators have only territorial licenses. In Montevideo, Cablevisión leads the market with Oracle to optimize operations for a supply chain management company.25% share, followed by DirecTV with a 19% share.

 

·                  LaunchAlthough Cablevision maintained its market share throughout the last years and even increased during 2020, the exponential growth of DirecTV led to the detriment of the solution “connected-car”rest of the operators.

The market continues showing a downward trend, marked by the increase of online entertainment alternatives, mainly Netflix, which continues increasing its customers base. In November 2020 Disney+ launched its streaming service, which will represent another threat to the traditional television market.

INFORMATION TECHNOLOGY STRATEGY

In 2020, we advanced rapidly in association with Chevrolet, integrating the Jasper service. Jasper is a platform fordigital transformation of our operations and in the administrationcomprehensive experiences offered to our customers, attaining relevant milestones in spite of IoT services which allows both usthe COVID 19 pandemic and the clientASPO.

The digital transformation of our operations seeks to configure the accounts, to create automation rules,integrate all operations and to generate reports in orderdevelop an integrated system of platforms that are leveraged on connectivity and allow us to measure traffic volume, among other variables.

·                  Implementationmanage and improve the products and services we offer, and focus on the digital and convergent experience of unified communications, networking, collaboration and firewall solutions, with CISCO technology, for an insurance company.

Information Technology Strategyour customers.

 

Among the highlights of the year 2018 for this item2020, we can mention:

 

Convergent Business

·Business Support Systems Transformation (the “#FAN Program”). The FAN Program is a comprehensive renewal program of the platforms managing the customer relationship, including the provision, charging, invoicing and collection of our services. In 2020 we implemented mobile functionality, migrating over 10 million mobile customers to the new platform. We also developed new functionalities, incorporating to the new platform improved key business processes such as improvements in retail defaulted-payment processes and number portability processes.
·Real Time Decision and Diagnostics Tools. Within the big data and analytics framework, we consolidated the data office scheme and the customization of our “Real Time Decision” capabilities. This allows us to execute personalized and analytically optimized decisions, giving customers a unique, differential and personalized offer. We added new functionalities to make our best offers tailored to customers.

·Corporate Systems. During 2020, we completed the implementation of our legacy system SAP S4 Hana, which allowed us to complete the transformation of processes and integrated systems into a single ERP (Enterprise Resource Planning System). This implementation mainly includes central finance (consolidation tool), occupational health, concur (a self-management for minor expenses and travels tool), ariba (a supplier management platform) and fiori (web interface that facilitates the user interaction with SAP), consolidating back office processes (support activities for the management of the Company) and allowing us greater agility, efficiency and standardization to scale and evolve our business through upgrade and automation of the user experience. Also, during 2020 we implemented “Employee Central Payroll”, a change in our payroll process. This change implies the unification of processes under this new SAP compensation system and the outsourcing of our payroll process.

·Convergent Business: During 2020, we focused on developing a common strategy with respect to digital channels to provide customers with a convergent and omni-channel experience, launching a new e-commerce site and our new self-management application. We expect these platforms to allow us to evolve in our services sales and post-sales experience and to achieve quickly new functionalities. Likewise, and aiming to guarantee the provision of services that had been required by the ASPO, we developed working groups to implement all the requirements related to the minimum services required by the Argentine government.

 

·                                          We implementedIT and unified intio a single contact center platform the different client-to-provider contact channels (including telephone, face-to-face contacts, social networks (Twitter, Facebook) and Multimedia (chat, email)). Services provided to our Personal clients will tentatively be incorporated to this platform during 2019.

·                                          We implemented a real-time decision platform to execute a personalized and thoughtful customer service, giving clients a unique, differential and 100% personalized support.

·                                          We developed the internal management systems to provide the convergent sale of 3Play and 4Play services.

·                                          We adapted all of our management systems to merge information from different sources into Telecom Argentina, besides presenting the information of the different systems in a unified way.Datacenter Operations

 

·
Through our “Cloud Foundations Program”, we are taking the necessary actions to integrate public cloud platforms to our hybrid multi-cloud strategy, adapting our processes and tools in order to exploit the potential of this technology and migrating business applications, thus achieving a performance optimization.

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Corporate systems

 

·                                          We created a new push-to-talk service for our former Nextel clients that are migrated to Personal. This solution is already available for our clients and we started the migration process.55 

·                                          As part of a transformational program 4UP of administrative processes and tools, we implemented “Central Finance” of S4 HANA SAP. The functionalities of “Central Payment” and “Credict Management” were also implemented.

 

New Operating Model

The merger between Telecom Argentina and Cablevisión required a review of the operating models of both companies and the creation of a new operating model that would allow us to capture efficiencies in the back-office processes and maximize economies of scale and synergies. These efficiencies may be achieved by operating with cross-cutting and integrated processes that facilitate coordination among the areas.

In addition, the Merger requires the integration of the ERP systems of each company. To this end, we decided to implement the SAP S/4 Hana solution.

In August 2018, SAP Central Finance and Central Payments were implemented, which allowed us to consolidate the accounting records of the merged companies and to generate centralized payments.

During 2018 and until February 2019, we continually monitored the performance of the operational models. More than 100 new processes were developed based on good practices and a transformation roadmap was created to accelerate post-Merger value capture and to be used as a key vehicle to achieve the cultural transformation of the merged companies. The roadmap also provides for the expeditious implementation of the future technological solution and the modules within scope. Our goal is to fully implement the roadmap by 2020.

Technical systems and operational support

·                                           We launched the OSS Program, to give a vision and an integral follow-up to all the technical projects that will be key to achieve the transformation of the technical operation

·                                           We also implemented the FlowOne project, which included the technological update of the Personal Provisioners, allowing the integration between the OM of FAN and the Mobile Network. This new platform has High Availability (HA) on site and geographical contingency (DRP).

FAN

In late 2016, Telecom began to upgrade its management platforms through a digitalization and Omnichannel approach. Through the #Fan program, we implemented a comprehensive refurbishment of the platforms that we rely on to manage our customer relationships, including the delivery, charging, billing and collections methods, integrating different cloud and “on premise” frameworks in line with the global process towards the convergence of products and services within our industry. We consider these initiatives a critical step towards the strategic transformation in our business management that will help us prioritize our customer relationships.

The main drivers of the #Fan program are achieving a better customer experience by ensuring a single vision of the customer, simplifying commercial processes and increasing operating efficiency. This is expected to:

·                  Improve customer care quality and ensure the synchronized management of all of our contact points: in-person, telephone and Internet, in a coherent and coordinated manner.

·                  Increase issue resolutions on the first customer contact and accelerating time-to-market.

·                  Ensure time management efficiency: faster assistance as a result of simpler operating systems.

·                  Maximize the benefits of the digitalization and Omnichannel approach: Introducing more self-management options, as a result of simpler management platforms and more flexible services.

·                  Provide greater accessibility and transparency in the information available through multi-device and multiplatform access.

 

·

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Program (“DC4 Program”), with the aim of having a shared and convergent view from the services, processes and operations of our infrastructure. Two of the fundamental pillars of DC4 are “efficiency and optimization”, deploying flexible models for the future and “cultural change”, acquiring the knowledge and experiences to accompany our transformation as a provider of digital services.
·With the used capacity of all our corporate systems, we have worked to ensure the availability of data based on “Storage Products” that allow us to continue operating even when disks, controllers and connections to servers are broken.
·Additionally, during 2020 we worked on the assembly of a second storage communications network in our Pacheco Data Center, which is already completed and ready to provide greater speed and connectivity in the connection of servers and storage.
·We continue with our process of technological replacement of micro-informatics equipment, having replaced approximately 12,000 equipment as of December 31, 2020, which is equivalent to more than 50% of our stock. We continue working to achieve the technological replacement of approximately 3,000 more equipment during the first quarter of 2021.
·Under the context presented by the ASPO, we have provided our employees with the necessary tools to perform their tasks remotely (commercial, technical and business support areas), together with the positions of affected teams to call centers, which operate remotely in 7 provinces. All this was achieved in record time and allowing us to field 200,000 daily calls from customers with 85% satisfaction in our relation to them.

·                  Ensure the alignment of our services with customer profiles, streamline and reduce billing cycles, set maturity dates and reduce collection periods.

MARKETING AND CUSTOMER CARE

 

·                  Generate a unified, clear and simple billing for all the products and services we offer, as well as those managed by third parties.

Following the consummation of the Merger, we are working on incorporating Cablevisión’s products into the #Fan program’s framework.

During 2017 the Discovery stage of each module (CRM/OM and CBS) was completed and we started developing a mixed model (Agile and Waterfall).

During 2018, the Convergent Billing System platform was implemented for completion of Charging, Billing and Collection cycle, and the implementation of CRM-OM (Relationship and Orchestration) of prepaid services for “friendly users” has begun.

It is estimated that in the second half of 2019 will take place the Go Live Mobile (Postpaid) and the beginning of Customers migration. Also, during 2019 the Discovery of Quadplay phase will began.

Datacenter

Among the highlights of the year 2018 for this item we can mention:

·Open system technological update: HW was migrated to the latest version of the market, which made it possible to lower the number of incidents by more than 60% and increase system availability by more than 8%. Additionally, achieve batch processing times markedly superior to those obtained with the old HW.

This update allowed adding new users to the system as a result of convergence (more than 800 users) without any impact on the service’s performance.

·                In addition to these infrastructure enhancement actions, the Legacy Stabilization Program (PEL) was implemented, which together with the aforementioned actions collaborated in maximizing the availability and performance of the critical services that support the business. The PEL program worked on the stabilization and assurance of the operation of the critical applications of the mobile, video, broadband and fixed telephony services, improving all the KPIs established in conjunction with the business.

·                Storage Consolidation: During 2018 we worked constantly in the consolidation of the critical storages, with really positive results in terms of storage capacity, consumption, consolidation, occupation of spaces.

·               Shutting down Legacies: The different actions of enhacement, virtualization plus the constant search for operational efficiency gave the possibility of shutting down, disconnecting and uninstalling more than 700 servers (productive and non-productive).

Network Architecture

Our network’s trunk or backbone portion in the AMBA Region consists entirely of fiber optic cable.  We built a fiber optic cable ring around the City of Buenos Aires that provides network redundancy (which helps ensure network availability in the event of a network device or path failure resulting in unavailability) and improves overall network reliability.  We have deployed a similar fiber optic network architecture in Córdoba and Salta, in the Central Region, and in the cities of Santa Fe, Paraná and Rosario in the Litoral Region.

Cable television and data signals are transmitted from the main headend—the control center of the cable system, where incoming signals are amplified, converted, processed and combined for transmission to the customer—to the hubs that provide services to specific areas. Each hub concentrates and transmits the cable television and data signals it receives via fiber optic cable to optical nodes. At each node the signals are converted from optic to electric codes and are then re-transmitted via coaxial cable to a distribution node. From there, the signal is transmitted to the subscriber’s domicile along a coaxial or “drop” cable.

Our cable networks outside of the areas described above are built with coaxial cable architecture.  We intend to continue extending the fiber optic cable and other technological improvements that currently exist in the AMBA Region and the main cities of the other three regions, such as hybrid fiber coaxil technology, to other operational cities within such regions as part of its long-term plan to expand and improve its network capacity.

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TELECOM ARGENTINA S.A.

Sales and Marketing

 

Telecom’s marketing strategy focuses on subscribers that receive only onecross-selling the full range of its main services to cross sell its fixed and mobile telecommunications services, cable television services and broadband services packages,subscribers, to offer innovative services to its existing customers, and to upgrade existing broadband customers to higher speeds. An increase in the number of subscribers who receivedreceive all of Telecom’s fixed and mobile telecommunications, cable television and broadbandInternet services, together with an increase in the numbers of services provided to its existing subscribers is expected to result in an increased ARPU.

 

Telecom relied on various marketing tools, including promotions, customer service centers, communication of company news, and dissemination of institutional and programming information through its websites.  Telecom advertised in graphic media and on its own broadcast advertising spaces.

Telecom’s marketing activities included:

 

·                  advertising on television, radio, newspapers, billboards on the streets and local programming channels offered to customers;

·advertising on television, radio, newspapers, billboards on the streets and local programming channels offered to customers;
·personal visits to current and potential customers;
·telemarketing directed to potential and former customers, as well as current customers who have not subscribed to any premium services;
·mailing information and special promotional material to current and potential customers; and
·special events for Telecom’s customers, some of which are sponsored jointly with programming providers.

 

·                  personal visits to current and potential customers;

·                  telemarketing directed to potential and former customers, as well as current customers who have not subscribed to any premium services;

·                  mailing information and special promotional material to current and potential customers; and

·                  special events for Telecom’s customers, some of which are sponsored jointly with programming providers.

Customer Support

 

Telecom’s customer service operations related to cable television services and Internet services are provided through a unified center (the “Contact Center”) available 24 hours a day and 365 days a year. Telecom’s cable television services and Internet services customers can contact the Contact Center by phone, e-mail and chat through its website, as well as through social media such as Twitter and Facebook. Accessibility through social media is particularly important in Latin American countries and especially in Argentina, which showshas a high degree of social media penetration.

 

Telecom’s customer service operations related to fixed and mobile telephony services, Internet and cable television services include specialized call centers and approximately 4,6006,100 customer service representatives consisting of in-house and third-party personnel. By calling the customer service hotline, mobile telephony customers can make inquiries about their accounts. Our model of care includes a special telephone channel for high-value customers (“Black” and “Business” accounts). In line with current market demands, we also provide the option for account self-management through special online portals, therefore simplifying the procedure and providing our customers with alternatives. Access to these online portals includes processes for validating customer identities and analyzing behavioral patterns to anticipate their needs.

 

Beginning in 2017, Telecom has special customer service programs specifically tailored to the convergent solutions we provide. We implemented and unified in a single contact center platform the different client-to-provider contact channels (including telephone, face-to-face contacts, social networks (Twitter, Facebook) and Multimedia (chat, email)). Services provided to our Personal clientsmobile customers will tentatively be incorporated to this platform during 2019.2020. We implemented a real-time decision platform to deliver personalized customer service.

 

In addition, Telecom also offers a paperless option for invoices and other customer service processes, replacing them with free digital invoices.

 

From the outset of the ASPO, the Company focused on using and promoting the use by customers of all digital communication channels for commercial purposes. In order to respond to the new demand created by the Isolation requirements, we enhanced digital support by implementing special microsites identified as “I pay from home”.

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56 

In 2020, Telecom’s customer satisfaction indexes have been maintainedremained above its goal of 85%87.5%, based on top two box methods, confirming the excellence of the services provided.we provide. Telecom believes that its attention to customer service differentiates it from its competitors and is rewarded with customer loyalty.

 

SUSTAINABILITY

At Telecom, sustainability is a management model embedded in our corporate policy that allows us to carry out our operations focusing on the generation of value in our economic, social and environmental performance. Our strategy comprises several lines of work. We are leaders in an industry that is one of the pillars for the social and economic development of the country, and we play an active role in the community with sustainable practices and initiatives that add value to the use of technology as a tool for social inclusion and education.

For this reason, Telecom has developed a social investment plan that focuses on the promotion of the use of technology as a tool for the progress and the growth of communities. The plan currently is comprised of three initiatives:

·Digit@lers: free programming courses aimed at young people interested in developing their future in the technology industry;

 

·Chicas digit@lers (Digit@ler Girls): free courses aimed at young women aged between 13 to 17 to introduce them to the world of technology and thus reduce the gender gap in the tech industry; and

 

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·
Nuestro Lugar (Our Place): promotes the responsible, safe and creative use of technology in children and teenagers, through cyber-citizenship and educational workshops at schools. It also includes teacher training for the use of mobile technologies in the classroom.

Billing

Telecom has been an adherent member of the United Nations Global Compact since 2004, and Subscriber Managementcomplies with the 10 principles of human rights care, employment quality, environmental care and the fight against corruption. Telecom’s commitment is ratified every year and is part of our sustainability model. Also, this model is based on the Code of Ethics and Conduct of the Company that incorporates, through declarations of principles and values, moral and ethical foundations of a universal nature within the organization.

 

With respectthe commitment of the entire organization, the Company seeks to fixed telephony services, Telecom distributes a monthly invoice to subscribers. These invoices include a base monthly charge, as well as measured service charge which is based on telephone usage. Measured service is billed atsustain the price per unit of time. Charges for local and domestic long-distance measured service varymaximum economic performance in balance with the price per unitimpacts and opportunities in the society and its environment.

The 2020 Sustainability Plan promoted good practices aimed at all stakeholders - community, employees, suppliers, environment, customers and investors - and aimed to enhance the contribution of usage. The numbersocial and environmental performance of units of usage dependsTelecom.

In 2020 we designed solutions to support people during the social and economic emergency generated by the COVID-19 pandemic, including by providing economic support through public-private initiatives related to health, education, social assistance and prevention.

We disseminate all these initiatives among our stakeholders through our Sustainability Report, a document that we have been publishing for 13 years that summarizes the progress and challenges in building a sustainable management, with a focus on the timecreation of day,value for our audiences and for society in general.

The Sustainability Report applies the dayinternational sustainability guidelines issued by the Global Reporting Initiative (GRI). The Sustainability Reports details our contribution to the United Nations Sustainable Development Goals (SDG) and its schedule plan until 2030 and to the 10 principles of the week,United Nations Global Compact, and our compliance with International Standard ISO 26.000:2010 and with the distance andstandards established by the durationSustainability Accounting Standards Board (SASB). In addition, since 2011, we have submitted the Company's indicators to an external assurance review. This report is also our Communication on Progress of calls. In orderthe United Nations Global Compact Principles, to compete with other market participants, Telecom offers discounts to customers mainly for domestic long-distance service as semi-flat rate plans that include a set quantity of minutes for a fixed charge. Additionally, due to the applicable regulatory regime, Telecom is required to offer discounts to certain segments of its subscribers, including retired individuals and low-income residential customers.which we have adhered since 2004.

 

With respect to mobile telephony services, Telecom offers flexible pricing and invoice options, including pre-paid, post-paid and mixed (“Abono Fijo”) plans.  Under pre-paid plans, subscribers pay in advance for their services, using pre-paid credit that can be purchased through prepaid cards or virtual credit on our website, by phone, at ATMs and drugstores, or through authorized agents. Under post-paid plans, a subscriber pays a monthly fee, plus charges for additional services not included in its plan. Under the Abono Fijo plans, we distribute a monthly invoice to subscribers. Like in post-paid plans, Abono Fijo plans include a quota of megabytes for browsing the internet, unbounded airtime for on-net and off-net calls, SMS and a fixed amount of credit that can be used to buy packs or multimedia contents. Once the free seconds have been used or applicable internet quota has been met, the subscriber can obtain additional credit by purchasing credit through the pre-paid system.

With respect to broadband and cable television services, Telecom’s standard billing practice was to distribute monthly invoices to its subscriber in advance and, in the case of cable television services subscribers, together with the monthly programming guide. Monthly fees charged for services vary depending on the subscriber’s specific package and, in certain instances, on the geographic and operational region in which Telecom offered such service.

A majority of Telecom’s fixed and mobile telephony, cable television and broadband subscribers paid their monthly invoices by automatic credit card or bank account debits. Telecom’s subscribers could also pay their invoices in person, personally at local banks or through external collection agents. Telecom pays a commission to external collection agents.

Disconnection policies with respect to the non-payment of services vary depending on the specific type of services:

·                  with respect to mobile telephony services, subscribers are disconnected after a 150-day period of non-payment and delivery of a notice of disconnection;

·                  with respect to fixed telephony services, subscribers are disconnected after a 180-day period of non-payment and delivery of a notice of disconnection;

·                  with respect to cable television services, subscribers are disconnected after a three-month period of non-payment and delivery of a notice of disconnection; and

·                  with respect to broadband services, subscribers are disconnected after a two-month period of non-payment and delivery of a notice of disconnection.

Management of ChurnMANAGEMENT OF CHURN

 

Churn refers to the termination of a mobile telephony, cable television or broadbandInternet services customer’s account. The churn rate is determined by calculating the total number of disconnected customers of each of our mobile telephony, cable television and broadbandInternet services over a given period as a percentage of the initial number of customers for such services as of the beginning of the applicable measurement period. Reductions in fixed telephony lines in service refers to the reductions of fixed telephony lines in service that form part of the public telephone network, or are connected to such network, as of the end of two relevant measurement periods. We seek to enforce a strict disconnection policy, which provides for the disconnection of cable television services, Internet services and mobile telephony services after a 95-day period of non-payment and delivery of a notice of disconnection. Because most of our mobile telephony services are provided under the Personal trademark,brand, historical average monthly churn rates for mobile telephony services customers, included in this Annual Report for comparative purposes, reflect Telecom’s operations prior to the consummation of the Merger. To reduce losses associated with churn, Telecom seeks to enforce a strict disconnection policy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Measures—Churn Rate.”

 

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REGULATORY AND LEGAL FRAMEWORK

57 

 

REGULATORY FRAMEWORKOn March 24, 2020, the government temporally prohibited the disconnection of services deemed essential for the development of daily life in cases of arrears or default in payments, including electricity, water and gas supply, fixed or mobile telephony, Internet and radio electric link or satellite link subscription television, among others. Subsequently, through the issuance of new decrees, the PEN extended the temporary suspension of the disconnection of services in case of arrears or lack of payment for up to seven consecutive or alternate invoices. The government’s measure also imposed on operators an obligation to continue providing reduced fixed and mobile telephony services, Internet services and cable television services, whether by radio-electric link or satellite link. For further information on Decree No. 311/20 and related regulation, see Note 29 to our Consolidated Financial Statements.

 

Regulatory AuthorityREGULATORY AUTHORITIES AND FRAMEWORK

 

TheOur activities of the Company that provides Informationare affected by, and Communication Technologies Services (“ICT”) are regulatedwill continue to be affected by, a set ofamong others, rules and regulations that comprise the regulatory framework of the telecommunication sector.

Until the issuance of the LAD, which was published in the Official Gazette on December 19, 2014 and has been in force since its publication, the telecommunication services provided by Telecom Argentina and 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. (See “—Law No. 27,078—Argentine Digital Law” below). Subsequently, through the LAD it was created the Federal Authority of Information and Communication Technologies (“AFTIC”), as a decentralized and autonomous agency within the scope of the National Executive Power (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 Information and Communication Technologies (“ICT”) in general, and in particular of the telecommunications, postal service and all those matters integrated to its field in accordance with the provisions of the LAD.

In relation to the exploitation of subscription broadcasting services by physical and/or radioelectric link that were originally awarded under the regime established by Law No. 22,285, the COMFER was the enforcement authority established by that law. Under Law No. 22,285, subscription broadcasting companiesapplicable in Argentina, required a non-exclusive license from the COMFER in order to operate. Other approvals were also required, including, for some services, authorization by municipal agencies.

The Audiovisual communication services Law (Law No. 26,522, “LSCA”) was passed and enacted on October 10, 2009. Law No. 26,522 provided for the replacement of the COMFER with the Audiovisual Communication Services Law Federal Enforcement Authority (“AFSCA”) as a decentralized and autarchic agency under the jurisdiction of the National Executive Branch, and vests the new agency with authority to enforce the law.

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 (“DNU 267/15” published in the Official Gazette on January 4, 2016). The DNU substantially amends Laws LSCA and LAD and also creates the ENACOM as a new regulatory authority of those laws. The ENACOM replaces the AFTIC and AFSCA. This new Authority acts as an autonomous agency within the scope of the Ministry of Communications.

Subsequently, and from Decree No. 632 of August 11, 2017 the ENACOM was within the scope of the Ministry of Modernization. On September 5, 2018, the PEN issued Decrees No. 801 and 802 through which the Law on Ministries was modified again and the organizational structure of the Public Administration, and it is established that the Ministry of the Chief of the Cabinet replaces of the Ministry of Modernization and the ENACOM continues within the scope. In addition, the Government created the office of Secretary of Modernization, who will act as Deputy Chief of Cabinet to assist the Chief of the Cabinet of Ministers in the establishment of cross-cutting modernization policies for the administration of the National Government.

Núcleo, with operations in the Republic of Paraguay, is supervised by the CONATEL, the National Communications Commission of Paraguay and Núcleo´s subsidiary Personal Envíos is supervised by the Banco Central de la República del Paraguay.

Telecom USA, Telecom Argentina’s subsidiaryUruguay, which we describe below. Our fixed wholesale telecommunications operations in the United States is supervised byare subject to the authority of the Federal Communications Commission (the “FCC”).

 

AdesolREGULATORY AUTHORITIES

The regulatory authorities described below are primarily responsible for regulating the ICT services we provide. Other authorities also have jurisdiction over different aspects of our operations, including, without limitation, antitrust authorities, the CNV, the public registry of commerce and tax authorities.

Finally, Micro Sistemas is registered as a subsidiaryPSP (Payment Service Providers that offer payment accounts) and is under the oversight of the Company organizedBCRA and the “Financial Information Unit” (Unidad de Información Financiera or “UIF”) regulations for this type of operations.

Argentina

The ENACOM is the principal regulatory body responsible for the regulation, control and supervision of the ICT sector. The ENACOM is an autonomous federal agency within the purview of the Secretary of Public Innovation (which, in turn, is under the Oriental Republicsupervision of the Cabinet of Ministers).

Paraguay

Our mobile telecommunications services in Paraguay are subject to the authority of the CONATEL. Our subsidiary Personal Envíos (which received authorization to operate as an Electronic Payment Company) is supervised by the Central Bank of Paraguay.

Uruguay which

Our subsidiary Adesol is a related party of Bersabel S.A. and SatelitalSatélite Visión S.A., two licenseesentities that own licenses to provide subscription broadcasting services in such countryUruguay and are subject to the controlauthority of the Communication Services Regulatory Unit (“URSEC”).URSEC.

REGULATORY FRAMEWORK

Argentina

In Argentina, the provision of fixed and mobile telecommunications services, Internet services and cable television services (subscription broadcasting services) are highly regulated, and the regulatory framework is continuously evolving. The regulatory framework applicable to our business includes:

 

·Law No. 27,078 - Argentine Digital Law or the “LAD” and its amendments;
·Law No. 19,798 (to the extent it does not conflict with the LAD);
·the Transfer Agreement and the List of Conditions;
·the licenses for providing telecommunication services granted to Telecom and the List of Conditions and their respective regulations.

 

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Licenses grantedThe Argentine Digital Law

The LAD provides for a single country-wide license and individual registration for information and communication technologies services (Licencia Única Argentina Digital). Pursuant to the LAD, licensees of ICT Services are required to set prices that (i) are fair and reasonable, (ii) cover the exploitation costs and (iii) tend to maximize the efficiency of the supply of these services while maintaining a reasonable operating margin. The LAD also amended the Universal Service (see “—Universal Service”), includes a declaration of public interest of the development of ICT and its associated resources in order to ensure complete neutrality of ICT networks and grant all users the right to access, use, send, receive or offer any content, application, service or protocol through Internet without any restrictions or discrimination. The LAD allows licensees of ICT Services to provide subscription broadcasting services through physical or radio-electric link, including this service within its regulatory scope.

In the past few years, the regulatory framework applicable to services provided by Telecom in Argentina went through a significant number of changes allowing, as of January 1, 2018, the joint provision of fixed and mobile telecommunications services, cable television services and Internet services, known as “quadruple play”.

For more information about the LAD, see Note 2.c) to our Consolidated Financial Statements.

Amendment to Law No. 27,078 – Argentine Digital Law

 

On August 22, 2020, the PEN issued Decree No. 690/20 amending the LAD. Decree No. 690/20 declared ICT services (which includes fixed and mobile telephony services, cable television and Internet) as well as access to telecommunications networks for and between licensees as “Essential and Strategic Competition Public Services”, and empowered ENACOM to ensure accessibility.

Decree No. 690/20 further established that the prices of the Essential and Strategic Competition Public ICT Services, the prices of those services provided in accordance with the Universal Service and the prices of those services determined by ENACOM for public interest reasons, shall be regulated by ENACOM.

Moreover, Decree No. 690/20 established that ENACOM is the agency responsible for the enactment of any regulation related to the ICT’s PBU, and also suspended any price increases or changes set or announced by the ICT’s licensees from July 31, 2020 to December 31, 2020.

Decree No. 690/20 has been ratified by the Argentine Congress under Law No. 26,122 and has been regulated through ENACOM Resolutions No. 1,466/20 and 1,467/20, both published in the Official Gazette on December 21, 2020.

Resolution No. 1,466/20 allowed ICT licensees providing Internet access services, subscription broadcasting services through physical, radio-electric or satellite link, fixed telephony services and mobile telecommunications services -in all cases in their different and respective modalities- to increase retail prices for services up to 5% during January 2021. In order to establish the percentages approved, licensees must consider the prices effective as of July 31, 2020 as the price of reference. Such Resolution also provides that ICT Services Licensees may request a higher increase on an exceptional basis in accordance with the provisions of Section 48 of the LAD.

Resolution No. 1,467/20 regulated the PBU provided by Decree No. 690/20 for the different services provided by ICT licensees, establishing the price and the characteristics of each service plan, namely:

·PBU-SBT: Compulsory Universal Provision of Basic Fixed Telephony Service;
·PBU-SCM: Compulsory Universal Provision of Basic Mobile Communication Service;
·PBU-I: Compulsory Universal Provision of Basic Internet Access Value Added Service;
·PBU-TP: Compulsory Universal Basic Provision of subscription television services by physical or radio electric or satellite link.

Resolution No. 1,467/20 further determines the beneficiaries of this PBU. Licensees are under the obligation to report on a monthly basis the number of customers subscribed to the different compulsory universal basic services. Finally, Resolution No. 1,467/20 also imposes different reporting obligations to be fulfilled before the ENACOM on the licensees that hold registration for subscription broadcasting services by physical or radio electric link and on licensees of subscription television audiovisual communication services by satellite link.

The Company has initiated legal proceedings before the Federal Court of Appeals on Administrative Litigation Matters challenging the constitutionality of Decree No. 690/20 and the aforementioned ENACOM Resolutions and requesting a preliminary injunction that would suspend its application. The preliminary injunction was denied on January 29, 2021 and the Company appealed the court’s decision. As of the date of this Annual Report, the resolution of the mentioned appeal is still pending. The Company, with the assistance of its legal advisors, is analyzing the actions available to the Company in order to protect its legal rights. 

PART I - ITEM 4 INFORMATION ON THE COMPANYTELECOM ARGENTINA S.A.


Preliminary injunction requested by ACUBA

On January 27, 2021, the Company was served with notice of a preliminary injunction granted by the Civil and Commercial Court No. 10 of Mar del Plata obtained by ACUBA in the aforementioned case, which ordered the Company to roll back the tariffs of broadcasting services subscriptions, Internet access services, fixed telephony services and mobile telecommunications services to those of December 2020, which could only be increased up to 5% as authorized by ENACOM, and maintain such tariffs until any modification is resolved. Telecom Argentinachallenged the preliminary injunction for lack of jurisdiction, and requested that the resolution granting the preliminary injunction be declared nulled. Telecom further requested that the preliminary injunction be lifted. A decision from the court remains pending as of the date of this Annual Report. The Company argued that a preliminary injunction obtained by a representative of the industry of the Province of Córdoba from the federal courts of the province expressly suspended the application of Decree No. 690/20, Decree No. 311/20 and prohibited ENACOM from issuing any subsequent resolutions.

The Company, with the assistance of its legal advisors, is analyzing the actions that may be necessary in order to protect its rights.

Preliminary injunction requested by a representative of the industry of the Province of Córdoba

On February 2, 2021, the Company was informed by ATVC, that a preliminary injunction requested by a representative of the cable television industry of the Province of Córdoba was granted ordering the suspension of Decree N° 690/20, of Decree N° 311/20 and of all measures adopted as a result of those decrees. The court also ordered the PEN and the ENACOM to abstain from issuing or pursuing any subsequent measures based on such decrees, until a final court decision is rendered.

ATVC also informed that, pursuant to the court’s indications, the regulatory authority should refrain from issuing regulations related to Decree No. 690/20 or enforcing the regulations previously issued, which are generally suspended.

Telecom’s License

According to the LAD, Telecom holds a non-expiring Unique Argentine Digital License (Licencia(Licencia Única Argentina Digital) overDigital), which the followingallows Telecom to provide a wide range of fixed and mobile telecommunications services, are registered:Internet access, subscription broadcasting services (by physical and/or radio electric link) and radio electric service of concentration of links.

 

·                                          Local fixed telephony;

·                                          Public telephony;

·                                          Domestic and international long-distance telephony;

·                                          Domestic and international point-to-point link services;

·                                          Value Added Services (VAS);

·                                          Data transmission;

·                                          Videoconferencing;

·                                          Transportation of audio and video signals;

·                                          Internet access;

·                                          Mobile telecommunication services (STM);

·                                          Mobile radio communication services (SRMC);

·                                          PCS and SCMA services. These services are also denominated Mobile Advanced Communications Services (SCM);

·                                          Radio Electric Trunking Service (SRCE); and

·                                          Subscription Broadcasting Service by physical and / or radioelectric link

·                                          SRCE (Servicio Radioeléctrico de Concentración de Enlaces): Radioelectric Service of Concentration of Links.

Licenses for the provision of SCM services were originally granted to Personal and were transferred to Telecom since the Reorganization according to the terms of the ENACOM Resolution 4545-E/2017.

SRCE licenses and authorizations were transferred to the Company, within the framework of the merger with Cablevisión, pursuant to the terms of Resolution ENACOM 5644-E/2017 (see point f.).

The Registry for the provision of Physical and/or Radioelectric Link Subscription Broadcasting and their respective area authorizations were transferred to the Company within the framework of the merger with pursuant to the terms of Resolution ENACOM 5644-E/2017.

To Telecom Argentina’s subsidiaries

·                  Núcleo 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. See “Núcleo´s Network and Equipment”, regarding the auction process for 700 MHz band spectrum in Paraguay.

·                  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.

·                  Tuves Paraguay is a Paraguayan company controlled by Núcleo has a license for the provision of telecommunications services and also the distribution of digital audio and television signals to homes, for the term of five years. The license was granted in March 2010 and renewed in March 2015 for a term of five years.

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TELECOM ARGENTINA S.A.

Registrations and authorizations to use the spectrum that are now held by Telecom as a result of corporate reorganizations and merger by absortion of Cablevision:

1)             Personal:

On November 24, 2017, Telecom Argentina and Personal were served with ENACOM Resolution No. 4,545-E/2017, whereby that agency decided:

(i) to authorize Telecom Personal to transfer in favor of Telecom Argentina the registrations of Mobile Telephone Services, Cellular Mobile Radiocommunications Services; Personal Communications Services Area I, II, III, and Mobile Advanced Communications Services, as well as the resources, permits and frequencies granted in its name;

(ii) to revoke the licenses granted to Personal to render Data Transmission, Value Added and National and International Long-Distance Telephone Services; and

(iii) to authorize the transaction reported by Telecom whereby the controlling companies Sofora Telecomunicaciones S.A. and Nortel Inversora S.A. are dissolved without liquidation pursuant to the Bidding Terms and Conditions approved under Decree No. 62/1990.

2)             Cablevisión:

On December 22, 2017, Telecom Argentina and Cablevisión S.A. were served with ENACOM Resolution No. 5,644-E/2017, whereby that agency decided, among other things, to authorize Cablevisión S.A. to transfer in favor of Telecom Argentina:

(i)                                  The Registration of physical and/or radioelectric link broadcasting services, including the permits/frequencies required to provide radioelectric link broadcasting services, as well as the area authorizations to provide those services (via physical and radioelectric link), which may operate in Area II, defined as provided under Decree No. 1,461/93, as amended, and the city of Rosario, Province of Santa Fe, and the city of Córdoba, Province of Córdoba, as from January 1, 2018, as provided under Section 5 of Decree No. 1,340/2016, and in the rest of the areas authorized on the dates and in the modalities provided;

(ii)                               The SRCE; and

(iii)                            The authorizations and permits to use frequencies and allocations of numbering and sign-posting resources to provide the above-mentioned services held by Cablevisión S.A., pursuant to effective regulations, and the agreement executed by Nextel on April 12, 2017 (IF-2017-08818737-APN-ENACOM#MCO), whereby Telecom Argentina, in its capacity as absorbing company of Cablevisión S.A., shall, within a term of two years as from the date on which the merger is approved by the CNDC and the ENACOM or any agency that may substitute them in the future, return the radioelectric spectrum that exceeds the limit set under Section 5 of Resolution No. 171-E/17 issued by the Ministry of Communications and/or any regulation that may repeal it in the future. To those effects, the Company shall file with the ENACOM, no later than one year in advance upon the expiration of the two-year term, a proposal to conform to that limit. The ENACOM may accept the proposal, reject it and/or request a new filing with any changes it may deem appropriate.

In addition, through that Resolution, the ENACOM authorized the change of corporate control, pursuant to Section 33 of the GCL, in Telecom Argentina once the merger became effective and the shareholders agreement dated July 7, 2017 became effective in its entirety, as a result of which CVH became the controlling company of Telecom Argentina as surviving company of Cablevisión.

Such Resolution approved:

Law of audiovisual communications

(i)                                   The relinquishment of the services registrations that are currently non-operative that had been requested by Cablevisión S.A. (People Notice service, Community Repeater, Public Telephony, Location of Vehicles and Alarm by radioelectric link and by Telecom (Community Repeater); and

(ii)                                The revocation of the licenses and registrations granted to Cablevisión S.A., now held by   Telecom.

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TELECOM ARGENTINA S.A.

In addition, the Resolution provides that:

(i)          Telecom shall comply with Section 95 of Law No. 27,078, which provides for the conditions under which it may operate the physical and/or radioelectric link subscription television service, transcribed below:

a.            The Company shall create a business unit to provide the audiovisual communication service and manage it separately from the public utility business unit;

b.             It shall keep separate accounting records and bill the licensed services separately;

c.              It shall not conduct anti-competitive practices such as tie-in practices and cross subsidies with funds from public utilities to licensed services;

d.             It shall provide - when requested- to the competitors in licensed services access to its own support infrastructure, especially, posts, masts and ducts under market conditions. In the absence of agreement between the parties, the ENACOM shall intervene;

e.              It shall not conduct anti-competitive practices concerning the rights to broadcast contents over its networks and facilitate a growing percentage to be established by the ENACOM to the distribution of contents from independent third parties; and

f.               It shall respect the professional competences and job classifications of the workers in the different activities it is engaged in.

(ii)          Telecom is declared to be an operator with a significant position in the retail market of Fixed Internet Access market in the locations detailed in the Report prepared by the National Directorate for the Development of Competition in Networks and Services of the ENACOM. As a result, it decided that:

a.             Telecom shall, within 60 days as from the date the Resolution was issued, offer the Fixed Internet Access service in those locations at a price that may not be higher than the lowest price offered by the company in Area II for that service. If a similar service is not provided in that Area, it shall apply the lowest price offered at national level by the licensee for a similar service.

b.             Telecom shall, within 60 days as from the date the Resolution was issued, report to the ENACOM and publish in its institutional website all the business plans, promotions and discounts for the Retail Internet Access service. Telecom shall ensure to other providers, under transparent, non-discriminatory and cost-oriented conditions, access to its own support infrastructure, especially, posts, masts and ducts.

As of the date of issuance of this Annual Report, the Company has complied with such provisions.

All the provisions mentioned above shall be in effect for a term of 2 years as from the notice of the authorization granted by ENACOM, or until it has been verified that there is effective competition in all or in some of the locations involved. The ENACOM may extend or revoke that term.

With regard to the provision of Quadruple Play services, Section 7 of Decree No. 1,340 shall apply:

SECTION 7 - The providers of Information Technology and Communications Services that make joint service offerings shall detail the price of each of those services, including the breakdown of those prices and discounts or benefits applied to each service or product for the above-mentioned offerings. Pursuant to Section 2, subsection i) of Law No. 25,156 and to Section 1,099 of the Civil and Commercial Code of Argentina, those providers may not subject, in any way and under any condition, the purchase of any service to the purchase of another service, thus preventing the customer from purchasing any service separately or individually.

On June 29, 2018, the Secretary of Commerce issued Resolution No. 374/2018, whereby it authorized the merger transaction in the terms of paragraph a) of Article 13 of Law No. 25,156. (ForFor more information about the Unique Argentine Digital License, see Note 4.a)2.b) to our Consolidated Financial Statements).Statements.

 

SpectrumUNIVERSAL SERVICE

 

SC Resolution No. 38/14The licensees of ICT Services are required to make contributions to the Universal Service Fiduciary Fund equivalent to 1% of the total accrued revenues from the provision of ICT Services, net of taxes and charges.

 

On October 31, 2014,July 3, 2020, ENACOM issued Resolution No. 721/20, which replaces the Public auction processGeneral Regulation of Universal Service approved by SCENACOM Resolution No. 38/2,642/16. Although several modifications were introduced, the new Universal Service Regulation maintains the contributions to the Universal Service Fiduciary Fund of licensees at the level of 1% of ICT’ total accrued revenues, as provided by the previous Regulation.

For further information on the most relevant matters of the new Universal Service Regulation and other Universal Service matters, see Note 2.d) to our Consolidated Financial Statements.

SPECTRUM

Through Resolution SC No. 79/14 for the awarding ofand Resolutions SC No. 80/14, 81/14, 82/14 and 83/14, Personal was awarded Lots 2, 5, 6 and 8 and the remaining frequencies of the Personal Communication Services (PCS), of and the Cellular Mobile Radiocommunication Services (SRMC),SRMC, as well as those of the new spectrum for the Advanced Mobile Communications Service (SCMA)SCMA, which were carried out. Personal presented its economic bids and was awarded Lots 2, 5, 6 and 8offered through a Public auction process approved by SC Resolution SC N° 79/14 (SCMA) and Resolutions SC N °80/14, 81/14, 82/14 and 83/14 (PCS and SRMC).

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TELECOM ARGENTINA S.A.

ThroughNo. 38/14. In addition, through SC Resolution No. 25/15 issued on June 11, 2015, Personal was assignedawarded with the rest ofremaining Frequency Bands which composedformed Lot No. 8. Personal stated that such Lot formed a unique8, and comprehensive block for purposes of complying with the obligations undertaken in connection with the deployment of the SCMA, also expressing that the Federal Government has the obligation to cause the awarded bands to be free from occupants and interferences.thus completed said Lot.

 

The Auction Terms and Conditions also established demanding coverage and network deployment obligations, demanding significant investments by the Company.

The Auction Terms and Conditions provided authorizations forauthorized the use of the auctioned frequency bands for a period of fifteen (15)15 years as from the notificationaward of said frequencies. Upon expiration, the award. After this deadline the Regulatory Authorityregulatory authority could extend the terms of use upon formal request of the awarded operator (which price and conditions would be set forth by the Regulatory Authority). Subsequently, in Decree No. 1,340/16, it was established that the term of authorizations for the use of frequencies of the SCMA, as well as the corresponding deployment obligations, will be computed from the actual migration of the services currently operating in such bands in the area of Area II (AMBA)authority). On August 30, 2018, the Resolution of the Ministry of Modernization No. 528/2018 was issued, in which it was stated that on February 27, 2018, the effective migration of such services has been verified.

Regulations of Refarming with Financial Compensation and Shared Use of Frequencies

On January 31, 2017, Resolution of the Ministry of Communications 171-E 2017 was issued, approving the “Regulations of Refarming with Financial Compensation and Shared Use of Frequencies” (Reglamento de Refarming con Compensación Económica y Uso Compartido de Frecuencias) and modifies the spectrum cap, setting it in 140 MHz per provider for each area and/or operating location.

On the other hand, ENACOM Resolution No. 1,033-E/17, issued on February 20, 2017 provided to allocate the frequency bands between 905-915 MHz, and 950-960 MHz to the Mobile Service with primary status, for the provision of SCMA, and throughout ENACOM Resolution No. 1,034-E/17, also issued on February 20, 2017, allocated the frequency band between 2,500-2,690 MHz to the Mobile Service with primary status, for the provision of SCMA in addition to current services when their coexistence is possible.

On March 7, 2017 ENACOM Resolution No. 1,299-E/17 was published in the Official Gazette. This Resolution approved the Refarming Project with Financial Compensation and Shared Use of Frequencies to Nextel Communications Argentina SRL (“Nextel”), currently Telecom since the merger with Cablevisión S.A. —See Note 32 to our consolidated financial statements, to provide the Advanced Mobile Communications Service, granting this company the registration for the provision of such service, and authorizing it to:

·             Use frequencies between 905-915 MHz and 950-960 MHz in accordance with the provisions of ENACOM Resolution No. 1,033-E/17 and channels 7 to 10, and 7’ to 10’ in FDD mode, provided in the Annex of Resolution No. 1,034-E/17, for the provision of the Advanced Mobile Communications Service in locations and areas described in the Project approved by the Resolution.

·              Use frequencies between 2,550-2,560 MHz, and between 2,670-2,680 MHz exclusively for migrating users from pre-existing services, for a 2-year period, term in which it should additionally resolve the final destination of those users. Once the migration is completed, or the 2-year term expires, whichever occurs last, Nextel may use channels 11 and 12, and the corresponding 11’ and 12’ in FDD mode, provided in the Annex to Resolution No. 1,034-E/17, for the provision of the Advanced Mobile Communications Service in locations and areas described in the Project hereby approved.

The implementation of the Project is subject to the issuance of the agreement specifying the terms, conditions, goals, obligations and other issues inherent to the provision of Advanced Mobile Communications Service.

ENACOM Resolution No. 3,687-E/17 call for the on-demand frequency allocation

ENACOM Resolution No. 3,687-E/17, published in the Official Gazette on May 12, 2017, provided the call for the on-demand frequency allocation of the 2,500 to 2,690 MHz radio spectrum, stating the procedure, obligations and compensations to be fulfilled by the Mobile Communications Service providers who qualify to participate, in accordance with the provisions of Section 4 of Decree No. 1,340/17.

The Resolution provided to group the frequency channels to be allocated in three (3) Lots: two (2) Lots of 30 MHz, containing three (3) frequency channels in the FDD mode each, and one (1) Lot of 40 MHz, containing two (2) frequency channels in FDD mode (20 MHz) and four (4) frequency channels in TDD mode (40 MHz) with a TDD channels trade option for a Lot of 10 MHz in FDD for two years extent if certain conditions are met, according to the channeling provided in ENACOM Resolution No. 1,034-E/17 and its amendment (ENACOM Resolution N° 1,956-E/17). According to the characteristics of the 2,500 to 2,690 MHz band, the authorization of use of the frequency channels that compose each Lot must be issued by each locality.

 

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On May 24, 2017, Personal filed to ENACOM the Envelope with its On-demand Allocation Request, according to the provisions of Resolution No. 3,687-E/17.


OTHER MATERIAL REGULATIONS

 

Telecom is also subject to other material regulations in Argentina, such as the Regulation of ICT Services, the General Rules Governing ICT Service Customers, the Number Portability Regulation, General Rules Governing Interconnection and Access, Quality Rules for ICT Services, National Rules for Contingencies, International Roaming Agreement between Chile and Argentina, Infrastructure Sharing Regulation and Subscription Television Services Regulation, among others.

For more information on other material regulations, see Note 2.f) to our Consolidated Financial Statements.

COVID-19 RELATED ISSUES

·Prohibition to disconnect services in case of arrears or non-payment

On July 5, 2017, ENACOM notified PersonalMarch 24, 2020, the PEN issued Decree No. 311/20, which determined that services related to fixed and mobile telephony, Internet and cable TV would not be interrupted for failure by vulnerable clients to pay up to three consecutive or alternate invoices maturing on and after March 1, 2020. Subsequently, through the issuance of its Resolution No. 5,478-E/17 through whichnew decrees, the frequencies included in Lot A were assigned to Telefónica Móviles Argentina S.A.,PEN extended the frequencies included in Lot B were assigned to AMX Argentina S.A. and the frequencies included in Lot C were assigned to Personal (all of them stated in Annex I of ENACOM Resolution No. 3,687 E/17), in the locations detailed in the respective Annexes (attached to Resolution No. 5,478-E/17) as requested by each provider. The Resolution provides that the enforcement of its provisions will be operative, within the Departments of San Rafael, General Alvear and Malargüe,temporary suspension of the Provinceright to disconnect services in case of Mendoza, once the judicial decision ordered by the Federal Courtarrears or lack of San Rafael in the legal process entitled “CABLE TELEVISORA COLOR S.A. c/ PEN AND OTHER S/ AMPARO Ley 19,986-File No. 5,472/17” had been revoked.

The spectrum allocation will last 15 years since CABA plus other 13 areas are free of interference over a total of 18 provincial capitals plus Rosario, Mar del Plata and Bahia Blanca and will demand payment of up to approximately US$55.9 million. The conditionsseven consecutive or alternate invoices. Decree No. 311/20 also established that certain customers of our fixed and mobile telephony, Internet and cable television services, by radio-electric link or satellite link, would have reduced services in cases of delay or default in payments. This decree lapsed on December 31, 2020.

·Telecommunication industry agreement with ENACOM

In May 2020, the Company, together with other companies of the telecommunication industry, entered into an agreement with ENACOM, which was effective until August 31, 2020. This agreement, among other issues, provided: (i) for the spectrum allocation include certain obligations regardingsuspension of increases in prices of mobile and fixed telephony, Internet and cable television services from May 1, 2020 to August 31, 2020, to ease the service launchsituation of users affected by localities, penalty clausesthe quarantine, (ii) for non-compliance with the deadlines established by localities (which would involvecreation of inclusive plans for mobile and fixed telephony and mobile and fixed Internet for users who request such benefit, establishing a fixed price until September 30, 2020, (iii) for the frequency return plus a fine equivalent to 15%extension of the spectrum valuebenefit of “reduced service” ensuring connectivity for users of the locality involved)prepaid mobile service or Internet service, maintaining the price until October 31, 2020, (iv) that during the term of this agreement employers would not dismiss employees without cause, and certain guarantees required, among them,(v) that, in the deployment.case of salary increases as a result of trade union agreements, this agreement will be renegotiated and the effects of such agreement would be immediately suspended.

 

Spectrum in 700 MHz Band licenses (Paraguay)For information on the regulations related to COVID-19, see Note 29 to our Consolidated Financial Statements.

 

On September 2017 the public consultation process was startedParaguay

In Paraguay, Núcleo has a license to provide mobile telecommunication services (STM and PCS) and a license for the auctioninstallation and provision of 700 MHZ band spectrum. The listInternet and data services throughout the country. These licenses have been granted for renewable five-year periods. Personal Envíos is authorized by the Central Bank of conditions was issued on October 30, 2017Paraguay to operate as an Electronic Payment Company (EMPE), and in December of the same year the prequalification of offerers was done being Núcleo one of the prequalified and havingits corporate purpose is restricted to paysuch service. Tuves Paraguay has a deposit of US$15 million in December 2017 (public consultation process denominated in US$). The process finished on January 4, 2018 with the simultaneous auction of 7 sub-bands of 5 + 5 MHz each one, Núcleo was awarded with two of them for an amount of US$12 million for each sub-band subject to the compliance with certain conditions provided by CONATEL’s resolution.

On February 27, 2018 the auction’s price was cancelled for the remaining US$9 million in compliance with CONATEL’s resolution.

On March 6, 2018, by Resolution No. 375/2018, CONATEL decided to grant the license for the provision of “Cellular Mobile Telephonytelecommunications services and Internet Accessalso the distribution of digital audio and Data Transmission Services” in the 700 MHz frequency band, with coverage national,television signals to homes (DATDH). This license has been granted for a period of 5 years, renewable for an equal period.five-year periods.

 

Regulatory framework of the services provided by Telecom and its subsidiariesUruguay

 

AmongIn Uruguay, Adesol has contractual relationships with several licensees that provide subscription television services through various systems in such country.

In relation to the principal featuresLaw of Communication Services in Uruguay, Adesol is analyzing the possible consequences that the change in the regulatory framework governing the services provided by Telecomcould generate in its business and any possible legal actions that can be taken in order to protect its rights and its domestic subsidiaries is worth mentioning:shareholders’ rights.

 

·                                          The LAD, as amended by Decree of Need and Urgency No. 267/15 and Decree No. 1,340/16;

·                                          Law No. 19,798 remainsFor more information in force onlyrelation to the extent that it does not conflict with the provisions set out under the LAD;

·                                          The Privatization Regulations that regulates the process;

·                                          The Transfer Agreement; and

·                                          The Licenses for providing telecommunication services grantedRegulatory Framework to Telecomwhich our operations are subject in Paraguay and the List of Conditions and their respective regulations.

·Uruguay, also see Note                                           Law 22,285 and the different Bidding Terms and Conditions for the provision of Subscription Broadcasting Services approved during its term.

On the other hand, the exploitation of physical and/or radioelectric link subscription broadcasting services licenses held by the Company, granted in due time under the regime of Law No. 22,285, are currently governed by the LAD, as from the issue  of DNU No. 267/15.

The only service that could be considered under the purview of the LSCA is the registration of the signal METRO, as this signal is marketed2 to be broadcasted through other services that acquire it for such purpose, and therefore it has a registration number issued by ENACOM that must be renewed on an annual basis.

Likewise, the Company annually renews with the ENACOM its Certificate to operate as Advertising Agency, Direct Advertiser and Advertising Producer.our Consolidated Financial Statements.

 

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Law No. 27,078 — Argentine Digital Law


Enacted in December 2014, the LAD maintained the single country-wide license scheme and individual registration of the services to be provided, but replaced the term telecommunications services for ICT Services.

The LAD incorporated several modifications to the regulatory framework in force as of December 19, 2014, as regards telecommunications, among those that stand out:

·                  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.

·                  the amendments as regards Universal Service.

·                  the declaration 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 possibility that the licensees of the ICT Services can supply audiovisual communication services (including the licensees included in the restrictions of the LSCA, among which was Telecom), with the exception of those provided through satellite link, in which case, the corresponding license must be requested from the proper authority.

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, Section 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 (see New Regulations in Note 2.f to our Consolidated Financial Statements).

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.

The main amendments to the LAD consist of:

·                  The incorporation of Broadcasting Services provided by subscription (physical or radioelectric 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 (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, also states a 10 years extension from January 1, 2016, for the use of frequency spectrum to radioelectric link provided by subscription license holders.

·                  Decree No.267/15 replaced the LAD’s Section 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 (defined as any form of communication, primarily one-way, for the transmission of signals to be received by a determinable public, either by physical or by radio connection, for example, video cable and IPTV services) until January 1, 2018 (this term can be extended by 1 additional year). Also, replaces Section 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.

·                  In addition, shareholders of a 10% or more interest in companies that provide public services may not be holders of a subscription radio record. However, this will not apply in the following cases: (i) non-profit companies to whom the national, provincial or municipal State has granted the license, concession or permission to provide a public service (such as telecommunications cooperatives); (ii) those mentioned in section 94 (including the Company) who will be only able to provide the service after the expiration of the period specified therein.

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TELECOM ARGENTINA S.A.

Section 28 of Decree No. 267/15 created, in the field of the Ministry of Communications, the Commission for the Elaboration of the Draft Law for the Reform, Updating and Unification of Laws LSCA and LAD The Commission is responsible for the study of the reform of both laws under the principles set out herein.

Through Resolution No. 1,098-E/16 published on October 31, 2016, the Ministry of Communications extended for 180 days the deadline for the preparation of the draft reform of Laws LSCA and LAD.

Subsequently, through MIDMOD Resolution No. 490/2018, published in the Official Gazette on August 13, 2018, the deadline for the analysis and publication of the ICT Project Law was extended for 90 days.

Finally, the Secretariat of Modernization, which reports to the Chief of the Cabinet of Ministers, issued Resolution RESOL-2018-131-APN-SGM#JGM, whereby it provided for a 1-year extension, counted as from the date of publication, or 90 business days subsequent to the final enactment of the Bill for the Promotion of Deployment of Infrastructure and Competition of Information Technology and Communication Services (ITCS), whichever occurs first, for the review process conducted for the creation and publication of the final bill for the amendment, updating and unification of Laws Nos. 26,522 and 27,078, to be submitted to the National Executive Branch.

Furthermore, the Decree provides that licenses transfers and interest transfers involving the loss of company control must be approved by ENACOM, stating a new procedure provided by section 8 of Decree No. 267/15. That licenses transfers and interest in licensees’ transfers will be considered ad referendum of ENACOM approval.

Decree No. 267/15 repealed Section 15 and Section 48 (second paragraph) of the LAD. Therefore, the following provisions have no longer 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.

On April 8, 2016, the Chamber of Representatives voted in favor of the validity of DNU No. 267/15. According to this, it acquired the status of Law.

It should be noted that pursuant to Section 21 of Decree No. 267/15 and until the enactment of a law that will unify the fee regime provided under Laws LSCA and LAD, the physical link and radio-electric link subscription broadcasting services will continue to be subject only to the fee regime provided under LSCA. Therefore, they shall not be subject to the investment contribution or the payment of the Control, Oversight and Verification Fee provided under Sections 22 and 49 of LAD.

Decree No. 1,340/16 - Amendments to DNU No. 267/15

Decree No. 1,340/16 issued by PEN and published in the Official Gazette on January 2, 2017 provides the rules for achieving a greater convergence of networks and services under competitive conditions, promoting the deployment of next generation networks and the penetration of Broadband Internet access throughout the national territory, in accordance with the provisions of Laws LSCA and LAD. This Decree complements to DNU No. 267/15, which has the status of Law.

PART I - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

Among the most relevant provisions, it establishes:

·                  Fixing the 15-year-term, as from the publication of the Decree, as differential condition in the terms provided by section 45 of LAD, for the protection of last-mile fixed of new generation networks for Broadband deployed by ICT licensees for Broadband regarding the regulations of open access to Broadband and infrastructure to be stated, notwithstanding the provisions of section 56 of LAD.

·                  That the Ministry of Communications or ENACOM, as appropriate, shall establish the rules for the administration, management, and control of the radio spectrum.

·                  That Operators included in section 94 of the LAD (among them, Telecom Argentina), may register the Broadcasting Service by subscription, by physical or radio connection as of the enforcement of this Decree, setting January 1, 2018 as initial date for the provision of such service in the AMBA (and extended AMBA), and in the cities of Rosario (Santa Fe Province) and Córdoba (Córdoba Province). The Decree also provides that, for the rest of the country, the initial date for the provision of the services of these operators shall be determined by the ENACOM (See Resolution E 5,641 E/ 2017 in Note 2.f) to our Consolidated Financial Statements).

·                  That ICT’s licensees and Satellite Link Subscription Broadcasting licensees, who as of December 29, 2016 simultaneously provided both services, may retain ownership of both types of licenses.

·                  That for the purposes of the provisions of section 92 of LAD and section 2, paragraph g) of Decree No. 798 issued on June 21, 2016, Ministry of Communications shall ensure the following principles on interconnection matters:

a) until the interconnection prices determination systems provided by the National Interconnection Regulation are implemented, averages of regional Latin America prices shall be considered for similar functions and facilities, corrected by parameters which comply with the conditions of the sector, as determined by the authority of application;

b) in accordance with section 46 of LAD, the National Interconnection Regulation shall provide asymmetric interconnection rates for mobile services for a 3 years period from the effective service implementation, extendable for a maximum of 18 months; and

c) the National Interconnection Regulation shall provide rules concerning the automatic national roaming service, forcing mobile services providers, for a maximum period of 3 years, to make such service available to other providers in areas where they do not have their own network coverage.

The temporary limitation provided in the previous paragraph shall not be enforceable in those cases in which mobile services are provided by cooperatives and small and medium-sized companies with exclusively regional coverage.

Mobile service providers shall freely enter into agreements to secure, among other issues, technical, economic, operational and legal conditions. Such agreements may not be discriminatory or may not establish technical conditions that prevent, delay or obstruct interconnection services.

The National Interconnection Regulation will enable ENACOM to define reference prices for a maximum period of 3 years, taking into consideration the costs of the assets involved (subject to exploitation) and a reasonable return rate to ensure speed, neutrality, non-discrimination and competition between mobile service providers. Likewise, they shall not contain technical, interconnection, operational or other conditions that delay, obstruct or create barriers for the remaining mobile services providers to access the market.

Decree No. 1,060/2017 - Development of mobile communication services networks

This Decree, published in the Official Gazette on December 21, 2017, provides for the facilitation of the development of mobile communication services networks, establishing, among other provisions, that the jurisdictions and agencies comprised in subsections a) and b) of Section 8 of Law No. 24,156 shall ensure TIC services, communication and independent operators of passive infrastructure multiple or shared access, for consideration, to passive infrastructures for the deployment of networks under neutral, unbiased, transparent, fair and non-discriminatory conditions, without the possibility of granting any exclusiveness or preference whatsoever, in fact or in law, provided that such access does not compromise the continuity and security of the services provided by its holder.

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The Decree also provides that:

1) The Ministry of Modernization:

a.              shall issue comprehensive general rules with supplementary regulations for infrastructure sharing;

b.            shall develop, within a term of 180 days, a multi-year spectrum plan in order to maximize and increase the radioelectric resources for the deployment of next-generation mobile networks and SCM in order to support traffic growth and improve service quality;

c.            shall issue supplementary or clarifying regulations relating to Section 29 of LAD, establishing efficient procedures and avoiding distortions in competition; and

d.              shall identify radioelectric spectrum frequency bands for the development of new services and wireless applications and issue regulations allowing for their shared and unauthorized use.

2) The frequencies that are allocated and authorized to SRCE may only be used to provide those services. The ENACOM may allocate frequencies to provide SCM and demand the return of the frequencies and migration of services pursuant to Section 28 and 30 of LAD, and its regulations, or, at the request of the interested party, apply Section 4, subsection b) of Decree No. 1,340 dated December 30, 2016, and its regulations, establishing an economic compensation in favor of the National Government.

3) SBT licensees may provide this service through the use of radioelectric spectrum frequencies using those allocated for the provision of 4G mobile services, notwithstanding the provision of fixed telephone service pursuant to Section 2, subsection a) of the PCS General Rules approved as an annex to Section 1 of Decree No. 266 dated March 10, 1998, through the execution of agreements with the licensees of those frequencies, which shall be reported to the ENACOM.

4) Delegate on the Ministry of Modernization the power to issue the penalty rules provided under Section 63 of LAD, which shall repeal the current rules approved under Decree No. 1,185 dated June 22, 1990, as amended and supplemented.

Universal Service Regulation

·Decree No. 764/00

With respect to Universal Service Regulation, Annex III of Decree No. 764/00 required entities that receive revenues from telecommunications services to contribute 1% of these accrued revenues (net of taxes) to the Universal Service Fiduciary Fund (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 FSU 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.

The SC issued Resolution No. 80/07 which stipulated that until the SU Fund was effectively implemented, telecommunication service providers must open an account at Banco de la Nación Argentina to deposit monthly the corresponding amounts. In August 2007, Resolution No. 2,713 of the former CNC was published, which provided details regarding the concepts that have been achieved and those that are deductible for the purpose of calculating the contribution obligation to the FFSU.

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·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.

Decree No. 558/08 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 other undertakings made by telecommunication services providers and compensate providers for these undertakings.

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 auction.

The Decree required telecommunications service providers to contribute 1% of their total 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.

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 be contributed into the SU Fund or for the development of new works of the SU, with the approval of the SC.

·Amendments of the LAD to the SU Regulation

The LAD introduced substantial modifications to the regulations of the SU issued by Decree No. 558/08. Among its provisions, the LAD provides for the creation of a new FFSU and that the investment contributions corresponding to the SU programs are managed through such fund, whose patrimony is the National State.

The licensees of ICT Services are obliged to make investment contributions to the SU Fund 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.

This law also establishes that by virtue of that set forth by Sections 11.1 and 11.2 of the Management Trust Agreement of the SU Fund 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 SU Fund created by the LAD in the conditions determined by the regulatory authority.

The SU Funds shall be applied by means of specific programs defined by the regulatory authority who may entrust the execution of these plans directly to the entities included in Section 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.

On September 10, 2015 Telecom Argentina 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 SU Fund contribution, regulated by Decree No. 558/08 and related provisions, are in force. Additionally, Personal proceeded to deposit the corresponding contribution in the new SU Fund account reported through the Official Notice published by the AFTIC.

In its filings, Telecom Argentina 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 Sections 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 this Annual Report, the Company has not received any response to its filings.

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TELECOM ARGENTINA S.A.

ENACOM Resolution No. 2,642/16 approved the new SU Regulation, which was published on May 31, 2016, in the context of the new disposals established by the LAD.

The new regulation retains the obligation of contributing 1% of total income related to the provision of ICT services net of taxes and fees, anticipating the possibility of granting exemptions, in which case the subjects liable for payment, must comply with the obligations established by the Regulatory Authority.

In accordance with ENACOM Resolution No. 6,981-E/16 issued on October 19, 2016, the FFSU and the FFSU Investment Contribution Settlement and Interest Report forms were approved and are in force since January 1, 2017, being operationally implemented since March 2017.

On May 4, 2017, ENACOM Resolution No. 2,884/17 was published in the Official Gazette. This Resolution amends the Form of the FFSU contributions, adding, within the possible deductions, the “Discount Annex. SC Resolution No. 154/10 Section 1, Sub-section B) i), second paragraph”. Such Resolution allows deducting, until the regulatory authority expresses its opinion, any amounts that eventually may correspond to SU Initial Programs or other than those provided for in Annex III of Decree No. 764/00, in accordance with the provisions of Section 2 of Decree No. 558/08 and Section 6 of Annex III of Decree No. 764/00, replaced by Decree No. 558/08.

·SU Fund in Telecom Argentina in relation to its original license for the provision of the SBT

Several years after the market’s liberalization and the effectiveness of the SU regulations subsequently replaced by Decree No. 558/08 and by the LAD, incumbent operators have not received any set-offs for providing services as required by the SU regime.

As of the date of issuance of this Annual Report and in compliance with SC Resolution No. 80/07 and No. 154/10 and CNC Resolution No. 2,713/07, the Company has filed its monthly calculations since July 2007 which estimated a receivable of $3,998 million (unaudited) being both the programs and the valuation methodology that originates this receivable, pending approval by the Regulatory Authority. This receivable has not yet been recorded as of December 31, 2018 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 as to compensate the incumbent operators.

On April 8, 2011, the SC issued Resolution No. 43/11 notifying Telecom Argentina that investments associated with “High-Cost Areas” — amounting to approximately $3,849 million 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 argentin@internet.todos”, 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 Section 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 Section 2 of Decree No. 558/08.

Telecom Argentina’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 $1,194 million and are included in the credit balance mentioned in the second paragraph.

As of the date of issuance of this Annual Report the resolution of this appeal is still pending.

On September 13, 2012, the CNC required Telecom Argentina to deposit approximately $208 million. Telecom Argentina has filed a recourse refusing the CNC’s request on the grounds that appeals against the SC Resolutions are still pending of resolution.

Although it cannot be assured that these issues will be favorably resolved at the administrative stage, Telecom Argentina’s Management, with the assistance of its legal advisors, considers that it has strong legal and de facto arguments to support the position of Telecom Argentina.

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TELECOM ARGENTINA S.A.

·SU Fund in Telecom Argentina in relation to the SCM originated 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 million into an account held under their name at the Banco de la Nación Argentina in January 2011.

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.

On July 5, 2012, the SC issued Resolution No. 50/12 pursuant to which it notified that the services referred to by the SCM 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 Section 3, of Resolution No. 80/07, or Section 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 this Annual Report, this matter is still pending.

On October 1, 2012, responding to an SC’s requirement, Personal deposited under protest approximately $23 million 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.

It cannot be assured that this issue would be favorably resolved in the administrative stage, or, later at a judicial stage.

·FFSU — SU Fund in Telecom Argentina in relation to the services originated in Cablevisión

Cablevisión was not able to meet its contribution obligations during the period in which its license was revoked, but made the corresponding payment as soon as the revocation was declared null and void, for which no amount is owed by it on such account.

The Regulatory Authority has yet to decide on the approval of the Project submitted by Cablevisión on June 21, 2011, within the framework of SC Resolution No. 9/11, in order to meet the contribution obligation to the SU for the amounts accrued between January 2001 and the effective date of Decree No. 558/08.

NEW GENERAL RULES

·New General Rules Governing ICT Services Licenses

On January 2, 2018, the Ministry of Modernization issued Resolution No. 697/2017, whereby it approved the new General Rules Governing ICT Services Licenses. This Resolution repealed the General Rules approved through Annex I of Decree No. 764/2000, as from the date it became effective (February 1, 2018), and it also repealed ENACOM Resolutions No. 2,483/2016 and No. 1,394/2016 (except for Section 12 of its Annex I, which will remain in effect). The Company has made presentations appealing to some aspects of this Resolution, appeal which, to date, is still pending resolution.

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TELECOM ARGENTINA S.A.

·New General Rules Governing ICT Services Customers

On January 4, 2018, the Ministry of Modernization issued Resolution No. 733/2017, whereby it approved the new General Rules Governing ICT Services Customers. This Resolution became effective on March 5, 2018, repealing SC Resolutions No.490/1997, and Annexes I and III of SC Resolution No. 10,059/1999 and its supplementing regulations. Annex II of SC Resolution No. 10,059/1999 shall remain in effect, as applicable, until the enactment of the penalty regime provided under Section 63 of LAD. Such New General Rules repeal the current general rules governing mobile and basic telephony services customers, thus becoming the only general rules that govern ICT services customers, including Internet access services and subscription broadcasting services.

The Company has made a presentation to the Ministry of Modernization in relation to some disposals that affect their rights in the marketing of services under their responsibility (such as the 180-day period during which prepaid credit can be used, Section 56, which provides for compensation in favor of the customer, and Section 79, which establishes the obligation to replace any channels eliminated from the programming grid with other channels of similar quality).

MINMOD Resolution No. 363/2018, published in the Official Gazette on June 27, 2018, provided for amendments to the General Rules. Some of those amendments were related to the provisions challenged by Telecom in its filing. As of the date of this Annual Report, the appeal filed by the Company is pending resolution.

·Number Portability Regulation

On April 4, 2018, the Ministry of Modernization issued Resolution No. 203/2018, whereby it approved the new General Rules Governing Number Portability, including fix telephony services, and approves the schedule of implementation of such services. This Resolution repeals Resolutions N° SC 98/2010, SC 67/2011 y SC 21/2013 and Resolution MINCOM E 170/2017, and its supplementing regulations. Through Resolution No. 401/2018, published on July 11, 2018, the Ministry of Modernization decided to extend for ninety (90) business days the term for the implementation of “Stage 1” provided under the implementation schedule for fixed telephony service number portability. Said Resolution also provided that the ENACOM shall determine the way in which the Committee on Number Portability will be constituted and implemented.

Through Resolution No. 4,950/18 of August 14, 2018, the Board of the ENACOM decided to delegate to the owner of the first operational level of the National Directorate of Planning and Convergence of that Agency, the powers to: (i) approve the Processes and Technical and Operational Specifications of the Number Portability, (ii) approve the specification model for the selection of the Administrator of the Contract Database to be held between the Portable Service Providers and the Database Administrator and propose the modifications pertinent to the Committee on Number Portability, (iii) intervene with binding character in the procedure of contracting the Administrator of the Database.

This Resolution also provided that the Committee on Number Portability shall be composed of two representatives, a holder and an alternate, and approved the work schedule in order to carry out the correct implementation of the Number Portability.

·Regulations Regarding New Interconnections and Accesses

On May 18, 2018, the Resolution No. 286/18 of the Ministry of Modernization was published in the Official Gazette, approving the new interconnection and access regulations, effective as of July 3, 2018, repealing the one approved by Decree 764/00.

According to the new Regulation, the terms, conditions and prices of Interconnection and Access may be freely set by the parties. These agreements cannot be discriminatory or set technical conditions that prevent, delay or hinder interconnection. Notwithstanding the foregoing, within 60 working days from the effective date, ENACOM will set provisional interconnection charges, in accordance with the provisions of Decree 1,340/16.

In addition, ICT service providers will be obliged to provide interconnection at the request of another ICT service provider, under technical and economic conditions no less favorable than those granted to themselves or to third parties. Also, the same quality of services as the one provided must be guaranteed.

Transparency in compensation must be guaranteed and ICT Providers of Services must not pay for functions or services that they do not need for the provision of their services.

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TELECOM ARGENTINA S.A.

Finally, the following are considered Essential Facilities: a) Origination or Local Termination; b) Co-location; c) Local Transit Service; d) Port; e) Signaling Function; f) Loop and Local Customer Sub-loop; g) the Transportation Service (LD), when there is no substitute offer for contracting; and h) any other function or network element that the authority determines as such, ex officio or at the request of a party. These facilities must be provided separately and respecting the charges that the authority establishes. For this purpose, ENACOM will establish reference values, which will function as maximum values, and lower values, which may be agreed between the parties.

From the entry into force of the regulation, on July 4, 2018, Telecom had a period of 90 business days to present the Reference Offer to ENACOM, presentation that was duly made.

On August 14, 2018, ENACOM issued Resolution No. 4,952/18, establishing a provisional charge equivalent to US$0.0108 per minute of communication, without considering the different taxes and charges that may be applicable for the origination services or local termination in the mobile communications service networks. Likewise, it is established that for the purposes of applying the fixed charge, the unit of measurement will be the second. Through Resolution No. 1,161/2018 dated November 27, 2018, the ENACOM set the same charge for SRCE network termination.

On November 27, 2018, Resolution No. 1,160/2018 was published in the Official Gazette, whereby the ENACOM set: (i) a provisional charge equivalent to forty-five ten-thousandths US dollars (US$ 0.0045) for local origination or termination services over fixed telephony service networks per minute of communication (ii) a provisional charge equivalent to ten ten-thousandths US dollars (US$ 0,0010) for local transit service per minute of communication (iii) a provisional charge equivalent to twenty-seven ten-thousandths US dollars (US$ 0,0027) for long distance transport service per minute of communication (iv) the second as the measuring unit for the purposes of applying the charges set under this Resolution.

Telecom filed an appeal with the ENACOM challenging those charges with the respective legal grounds to request the review of the above-mentioned Resolution by that agency.

As of the date of issuance of this Annual Report, such appeal is still pending resolution.

·Quality Rules for Information Technology and Communication Services.

Through Resolution No. 580/2018, published in the Official Gazette on September 6, 2018, the Ministry of Modernization approved the Quality Rules for Information Technology and Communication Services, which came into force on January 4, 2019.

This Resolution repeals Resolution No. 5/2013 issued by the former Argentine Secretariat of Communications and Resolution No. 3,797/2013 issued by the former CNC. In addition, the Ministry of Modernization ordered the ENACOM to issue the implementing regulations within a term of 90 calendar days, which as of the date of this Annual Report are still pending of resolution.

As of the date of this Annual Report, the Company is still analyzing the impact of the new rules on its operations.

·National Rules for Contingencies.

Through Resolution No. 51/2018, published in the Official Gazette on November 6, 2018, the Secretariat of Modernization approved the National Rules for Contingencies and ordered the ENACOM to issue the implementing procedures or Contingency Plan within a term of 90 calendar days as from its publication in the Official Gazette.

As of the date of this Annual Report, the ENACOM has not issued said procedures yet.

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TELECOM ARGENTINA S.A.

·Single Desk System.

Through Decree No. 997/2018, published on November 6, 2018, the Secretariat of Modernization established a single desk system for the installation of antenna support structures of any kind for rendering SCMA services in order to expedite the granting of authorizations and permits for the construction and installation of structures for the deployment of mobile services.

·Implementation of the Online Proceedings (TAD, for its Spanish acronym) Platform for notices issued by the ENACOM.

Through Resolution No. 4,703/2018, published on July 24, 2018, the ENACOM provided for the use of the TAD Platform for requests and notices. In view of the legal and operating implications of this implementation, on August 8, 2018, Telecom filed with the ENACOM an appeal against said resolution, which, to date, is still pending resolution.

CONSULTATION DOCUMENT UNDER THE PROCEDURE FOR THE “GENERAL RULES GOVERNING PUBLIC HEARINGS AND CONSULTATION DOCUMENTS FOR COMMUNICATIONS” AND THE “GENERAL RULES FOR THE PARTICIPATORY DEVELOPMENT OF RULES”

·Procedure for the Public Consultation on Allocation of Shared-Use Frequency Bands

Through Resolution No. 2/2018, the SETIC ordered the beginning of the procedure provided under Article 44 et seq of the General Rules Governing Public Hearings and Consultation Documents for Communications, with respect to the document “Public Consultation on Allocation of Shared-Use Frequency Bands.”

Telecom submitted its opinions and observations about the Document under consultation on January 10, 2019.

·Public consultation procedure on Infrastructure Sharing

Through Resolution of the Secretariat of Information and Communication Technologies (“SETIC”) No. 18/2018 of August 24, 2018, it was declared the opening of the procedure provided for in Article 44 and following of the General Rules of Public Hearings and Consultation Documents for Communications, regarding the document “Public Consultation on Infrastructure Sharing”. On October 8, 2018, Telecom presented its opinions and observations on the document in consultation.

On January 29, 2019, Resolution-2019-3-APN-STIYC # JGM is published in the Official Gazette, which establishes the opening of the procedure settled in Article No. 44 et seq of the General Rules Governing Public Hearings and Consultation Documents for Communications, “The Regulation of Infrastructure Sharing”. As of the date of issuance of these consolidated financial statements, the Company is analyzing the document in order to present pertinent opinions and observations.

As of the date of this Annual Report, the Company is analyzing the document in order to present the pertinent opinions and observations.

·Procedure for the Public Consultation on Update of the Main Signaling Plan.

Through Resolution No. 2/2018, the SETIC ordered the beginning of the procedure provided under Article 44 et seq of the General Rules Governing Public Hearings and Consultation Documents for Communications, with respect to the document “Public Consultation on Update of the Main Signaling Plan.”

On January 10, 2019, Telecom submitted its opinions and observations about the Document under consultation.

·Procedure for Public Consultation on the Most Beneficial Conditions for Network Access and Use

Through Resolution No. 4/2018, published in the Official Gazette on December 18, 2018, the Secretariat of Modernization ordered the beginning of the procedure provided under Article 44 et seq of the General Rules Governing Public Hearings and Consultation Documents for Communications, with respect to the document “Public Consultation on the Most Beneficial Conditions for Network Access and Use.”

The Company submitted its opinions and observations about the Document under consultation.

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TELECOM ARGENTINA S.A.

·Implementation of the Rules for the Registration of SCM Customers.

On December 2, 2016, the ENACOM published Resolution No. 8,507 - E/2016, whereby it approved the Rules for the Registration and Validation of the Identity of the Account Holder Users of Mobile Communication Services.

Through Resolution No. 466/2018, published in the Official Gazette on October 19, 2018, the ENACOM extended until October 31, 2018 the term for the registration and validation of all the preexisting prepaid customers.

The Company has conducted all the necessary actions and implementations required to fulfill the guidelines for the registration of its customers, as ordered by said regulations.

ENACOM Resolution No. 5,641-E/17

Through this Resolution, published on December 22, 2017, the ENACOM decided:

·                          To extend until January 1, 2019 the term for the Licensees referred to in Section 94 of Law No. 27,078 to start providing subscription broadcasting services by means of physical or radio-electric link in those locations in Argentina that do not fall within the scope of the second paragraph of Section 5 of Decree No. 1,340/16, which have less than 80,000 inhabitants. To extend until January 1, 2019 the term for the Licensees referred to in Section 94 of LAD to start providing subscription broadcasting services by means of physical or radio-electric link in those locations in Argentina that do not fall within the scope of the second paragraph of Section 5 of Decree No. 1,340/16, which have more than 80,000 inhabitants and where those services are rendered only by Cooperatives and Small-and-Medium Sized Companies.

·                          To provide that in all those locations in Argentina that do not fall within the scope of the second paragraph of Section 5 of Decree No. 1,340/16, whatever the size of their population, where the Subscription Broadcasting Service by means of physical or radio-electric link is rendered by, at least, a licensee that has more than 700,000 subscribers nationwide, the Licensees mentioned in Section 94 of LAD may start providing services as from January 1, 2018.

·                          The Licensees mentioned in Section 94 of LAD (among them, Telecom) that are authorized to provide Subscription Broadcasting Service by means of physical or radio-electric link may not make an integrated offering to provide said service with the rest of the services that they are currently providing in those locations until January 1, 2019.

·                          To provide that in those locations in Argentina where subscription broadcasting services by means of physical or radio-electric link are not provided, the Licensees mentioned in Section 94 of LAD may, as from January 1, 2018, request authorization to provide services in the respective coverage areas, subject to an evaluation by the ENACOM.

GRID OF SIGNALS OF physical and/or radioelectric link BROADCASTING SERVICES

The General Rules approved by Resolution ENACOM No. 1,394/16 order providers of both types of services (physical and radio-electric link) to guarantee their compliance with a programming grid in each Coverage Area.

Later, by means of Resolution No. 5,160/2017, the ENACOM provided that the inclusion of broadcast television signals within the coverage area by the holders of a physical or radioelectric link subscription television registry will be subject to the conditions agreed upon with the holder of the broadcast television service and its retransmission will be mandatory only if they are delivered by its holders free of charge. In addition, the Resolution sets forth that the retransmission of cable news signals will only be mandatory for 24-hour news signals provided that they broadcast live programming during 12 of those 24 hours.

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TELECOM ARGENTINA S.A.

REGULATORY MATTERS IN URUGUAY

·Migration of services

Adesol S.A. is a subsidiary of the Company organized in the Oriental Republic of Uruguay, which is contractually related to Bersabel S.A. and Satelital Visión S.A., two licensees that provide subscription television services in such country and are subject to the control of the Communication Services Regulatory Unit (“URSEC”).

On January 11, 2018, Decree No. 387/017 dated December 28, 2017 was published in the Official Gazette. The Decree provides that all the subscription TV services provided through the Codified UHF system shall be migrated to the TDH Satellite system without it entailing any changes to the original authorizations to operate or in the rest of the conditions established in the respective licenses. Such authorizations shall not undergo any changes in the authorized service areas for 18 months.

On February 9, 2018, Bersabel S.A. and Visión Satelital S.A., two of the licensees contractually linked to Adesol who use UHF systems coded for the provision of their services, submitted to the URSEC the migration plan relating to their subscribers. In view of the foregoing, as well as the contractual relationship that binds Adesol to the provision of said services, the Company’s subsidiary is, at the closing date of this Annual Report, executing the technical plan for migration presented.

·Audiovisual Communications Law of Uruguay

On January 14, 2015, Law No. 19,307 was published in the Official Gazette of the Republic of Uruguay, which regulates the provision of radio, television, and other audiovisual communication services (hereinafter, the “Audiovisual Communications Law”). Section 202 of such law provides that the Executive Branch shall issue the implementing regulations for this law within a 120-day term as from the day following the publication of this law in the Official Gazette. As of the date of this Annual Report, only Decree No. 45/015 has been issued, and the implementing regulations for most of the sections of this law are still pending. Such Decree provides that the concession for the use and allocation of the radio-electric spectrum for non-satellite audiovisual communication services shall be granted for a term of 15 years.

Section 54 of the Audiovisual Communications Law sets forth that an individual or legal entity cannot be allocated the full or partial ownership of more than six authorizations or licenses to provide television services to subscribers in the national territory of the Oriental Republic of Uruguay, which limit is reduced to three if one of the authorizations or licenses includes the district of Montevideo. Section 189 of this law sets forth that should such limits be exceeded as of the coming into force of the Law, the owners of those audiovisual communication services shall have to transfer the necessary authorizations or licenses so as not to exceed such limits within a term of 4 years as from the coming into effect of the Audiovisual Communications Law.

The subsidiary Adesol is analyzing the possible impact on its business that could be derived from the change in the regulatory framework and the eventual legal actions it may bring to safeguard its rights and those of its shareholders. That company is also monitoring the different unconstitutionality claims filed by other companies against certain sections of the above-mentioned law to consider if the decisions to be issued by the Supreme Court of Uruguay in those proceedings may be favorable to the position of Adesol in the future. As of April 7, 2016, 28 unconstitutionality claims had been brought against the above-mentioned law. As of the date of this Annual Report, the Supreme Court of Uruguay has issued 28 decisions, whereby it declared the unconstitutionality of Section 39 subsection 3, Section 55, Section 56 subsection 1, Section 60 paragraph C, Section 98 subsection 2, Section 117 subsection 2, Section 143 and Section 149 subsection 2 of Law No. 19,307. It should be noted that in some of these judgments the Supreme Court dismissed the unconstitutionality claim filed by the claimant with respect to Section 54 of that Law.

“ENACOM RESOLUTIONS NO. 840/18, NO. 1,196/18 AND NO. 4,353/18 — NEW REGIME FOR RADIOELECTRIC SPECTRUM FEES”

On February 27, 2018, Resolutions Nos. 840/18 and No. 1,196/18 were published in the Official Gazette. Through these Resolutions, the ENACOM updated the value of the Radioelectric Spectrum Fee per Unit and, in addition, it established a new regime for mobile communications services, which substantially increases the amounts to be paid in this regard.

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TELECOM ARGENTINA S.A.

In accordance with the provisions of Resolution 4,353/18, published in the Official Gazette on May 24, 2018, the new Regime for Radio-electric Rights and Tariffs will not have an impact until August 31, 2018. This Resolution suspends the effects of Resolutions No. 840/18 and No. 1,196/18, from its publication until August 31, 2018. During this period, the Radioelectric Rights corresponding to the Mobile Communications Services (SRMC, STM, PCS and SCMA) that are accrued will be paid in accordance with the regime prior to the one established by Resolutions No. 840/18 and No. 1,196/18. The affidavits corresponding to the Mobile Communications Services (SRMC, STM, PCS and SCMA), which expire in the months of April and May 2018, that had not been prepared in accordance with the provisions of Resolution ENACOM No. 840/2018, must be submitted rectified and pay the resulting differences on October 10, 2018.

As of the date of issuance of this Annual Report Telecom has submitted the rectifying affidavits corresponding to the months of March and April 2018 (due in April and May), and has paid (under protest) the respective amounts. It also started to comply with, as from September 2018, the filing and payment (under protest) of the corresponding affidavits.

BUY ARGENTINE ACT

According to the provisions of Article 1 of Law No. 27,437, which is regulated by Decree No.800/2018 and Resolution No. 91/2018 of the Secretariat of Industry, Telecom Argentina - as a public fixed telephone service licensee - and their respective direct subcontractors, in the procurement of provisions and public works and services shall give preference to the purchase or lease domestic goods and services.

Article 2 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 15% when the offering of the good or services is carried out by companies qualified as Micro and SME, and 8% when the offering of the good or services is carried out by other companies. For comparison purposes, the price of imported goods shall include current import duties and taxes and all expenses required for its nationalization.

On the other hand, in the event of comparing prices between offers that are not of national origin, or if there are national offers, if they have been declared underestimated or ineligible, a margin of preference of one percent (1%) every 5 (five) percentage points of local integration on the gross value of production of the goods reached will be granted, up to a maximum margin of preference of eight percent (8%), according to the calculation criteria of Article 3 of Resolution No. 91/2018 of the Secretariat of Industry.

Article 5 of the mentioned law establishes that a good is of national origin when it has been produced or extracted in Argentina, provided that the cost of imported raw materials, inputs or imported materials does not exceed forty percent (40%) of its gross value of production.

The aforementioned law establishes that the contracting parties must announce the publication of the future contract whose amount is within the range of $1,300,000 and $5,000,000, which must be disseminated on the the National Contracting Office (“NCO”) website with an advance not less than 5 (five) business days from the deadline for receipt of bids for the contract and when the amount exceeds $5,000,000 they must be published in the Official Gazette and the NCO for a period of 2 business days with a minimum of 20 (twenty) days in advance of the deadline for receiving offers, computed from the day following the last publication (Article No. 19 of Decree No. 800/2018 and Article No. 10 of the Secretariat of Industry Resolution No. 91/2018), so as to provide all possible bidders timely access to information that enables them to participate in the mentioned tender.

Relating to services acquisitions, Law No. 18,875 applies, 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.

Additionally, Resolution No. 2,350/04 of the former CNC, approves 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 regulatory body establishes economic, administrative and criminal sanctions for the alleged breach of the obligations of Buy Argentine Act.

It is worth mentioning that this Act provides to Telecom Argentina less operational flexibility related to, among other matters, authorizations management prior to acquisitions, investment of time in the assembly of the required presentations with respect to the obligation to inform the semiannual affidavits of compliance of the Buy Argentine Act and associated administrative expenses.

PART I - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

LEGAL FRAMEWORK

Law No. 27,260 of Historical Reparation for Retirees and Pensioners “Reparación Histórica para Jubilados y Pensionados”

On July 22, 2016, Law No. 27,260 of Historical Reparation for Retirees and Pensioners, was published in the Official Gazette abolishing Law No. 27,181 on “Declaration of public interest of the protection of the social participations of the National State that make up the investment portfolio of the “Sustainability Guarantee Fund of the Argentine Pension Integrated System”. In addition, Section 30 of Law No. 27,260 provides that the transfer of shares of public corporations authorized by the CNV that are part of the FGS is banned without a previous and express authorization of the Federal Congress if, as a result of such transfer, the FGS’s holding of the above referred securities becomes less than 7% of the aggregate assets of the FGS. The following exceptions apply: “1. Tender offers addressed to all holders of such assets at a fair price authorized by the CNV, pursuant to the terms of Chapters II, III and IV of Title III of Law No. 26,831. 2. Swaps of shares for other shares of the same or another corporation as a result of a merger, split or other corporate reorganization.”

Decree No. 894/16: corporate, political, and economic rights in charge of the ANSES

On July 28, 2016, Decree No. 894/2016 was published in the Official Gazette, providing that in those corporations whose shares are part of the Sustainability Guarantee Fund of the Argentine Pension Integrated System’ portfolio, the corporate, political and economic rights corresponding to such shares shall not be exercised by the Secretary of Economic Politics and Development Planning, but shall instead be exercised by the Federal Management of Social Security (“ANSES”).

In addition, Decree No. 894/2016 provides that the Directors appointed by ANSES shall have the functions, duties and powers provided in the GCL, the Capital Market Law No. 26,831 and their complementary regulations, all other rules applicable to corporations in which they act as directors, and their bylaws and internal regulations, and that they shall be exposed to all the liabilities applicable under such rules, not being subject to the provisions of Decree No. 1,278/2012 and No.196/2015 (the latter in connection with its delimitation of responsibility).

Modification of Income Tax on dividend payment

On December 27, 2017, the Argentine Congress approved a tax reform that came into force on December 29, 2017 as Law No. 27,430 (the “Tax Reform”), generally effective January 1, 2018. The reform is intended to eliminate certain inefficiencies in the Argentine tax regime, diminish tax evasion, broaden income taxes to cover more individuals and encourage investment, with the long-term goal of restoring fiscal balance. The reform is part of a larger program announced by current administration, intended to increase employment, make the Argentine economy more competitive (by reducing the fiscal deficit, for example) and sustainably diminish poverty.

The main aspects of the Tax Reform include: (i) capital gains realized by individuals that are Argentine tax residents on sales of real estate (subject to certain exceptions, including a primary residence exemption) acquired after the enactment of the bill will be subject to tax at the rate of 15%, calculated on the acquisition cost restated in terms of the current currency; (ii) income obtained from currently exempt bank deposits and sales of securities (including government securities) by individuals that are Argentine tax residents will be subject to tax at the rate of (a) 5% in the case of those denominated in pesos, subject to fixed interest rate and not indexed, and (b) 15% for those denominated in a foreign currency or indexed; income obtained from the sales of shares made on an Argentine stock exchange will remain exempt, subject to compliance with certain requirements; (iii) corporate income tax will initially decline to 30% in 2019 and 2020 and to 25% starting in 2021; (iv) social security contributions will be gradually increased to 19.5% starting in 2022, in lieu of the differential scales currently in effect; and (v) the percentage of tax debits and credits that can be credited towards income tax will be gradually increased over a five year period, from the current 17% for credits to 100% for credits and debits.

Additionally, the Law repeals the “equalization tax” (i.e., 35% withholding applicable to dividends distributed in excess of the accumulated taxable income) on income accrued from January 1, 2018 and onwards.

PART I - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

Modification to Law No. 24,240 Consumer Protection

On August 17, 2016, Law No. 27,265 was published in the Official Gazette (in force as from August 29, 2016) that incorporates an amendment to Law No. 24,240 of Consumer Protection. This addition (in section 10 quater) establishes the prohibition of “collections of advance notice, advance month payment and/or any other concept on the part of the providers of services, including the public utilities, upon the consumer’s request for cancellation of the service in any way, either in person, on the telephone, electronic or similar-shaped”. In this sense, as from the last quarter of 2016, the Company abides by this regulation in cases where applicable.

Corporate Criminal Liability for Corruption Crimes

On December 1, 2017, the National Government published in the Official Gazette Law No. 27,401, whereby it establishes the Corporate Criminal Liability Regime for Crimes against Public Administration and International Bribery. The Law came into force on March 1, 2018.

The regime established under the Law applies to private legal entities, of national or foreign capital, with or without state participation, for the following crimes: (i) National and international bribery and influence peddling; (ii) Negotiations that are incompatible with public office; (iii) Illegal payments made to public officials under the guise of taxes or fees owed to the relevant government agency (“concusión”); (iv) Illicit enrichment by public officials and employees; and (v) Aggravated falsification of balance sheets and reports to conceal national and international bribery and influence peddling.

Legal entities are liable when these crimes are committed, directly or indirectly, with their involvement or in their name, interest or benefit. They are also liable when the third party acting in the benefit or interest of the entity did not have any powers to act on their behalf, provided the legal entity subsequently ratifies those acts.

The Law provides for successor liability, establishing that in those cases where a legal entity which is liable under this regime becomes involved in a transformation, merger, merger by acquisition, spin-off or any other corporate restructuring, said liability is transferred to the resulting or absorbing legal entity, therefore, the resulting or absorbing entity is criminally liable.

Legal entities are exempted from liability if the individual who committed the crime acted exclusively in his/her own benefit and without any benefit for the entity.

The Law also sets out that legal entities may be convicted even if it is not possible to identify or prosecute the individual involved in the crime, provided that the circumstances of the case establish that the crime could not have been committed without acquiescence of the authorities of the legal entity.

The penalties applicable to legal entities are varied.  Fines applicable to legal entities range from 2 to 5 times the undue benefit that was obtained or that could have been obtained through the actions carried out in violation of the Law. Other penalties may also be imposed on legal entities, namely: (i) full or partial suspension of activities for up to 10 years; (ii) debarment from participating in government bids and tenders for public works or services, or in any activity related to the Government, for up to 10 years; (iii) dissolution and liquidation of the legal entity -if it had been established for the sole purpose of committing crimes, or if those acts are the legal entity’s core business-; (iv) loss or suspension of granted government benefits; (v) publication of an extract of the condemnatory sentence; (vi) forfeiture of goods or proceeds that are the result or profit of the crime.

There are certain elements that the judges may take into account to adjust the penalties, namely: (i) failure to comply with internal rules and procedures; (ii) number and hierarchy of the officers, employees and associates involved; (iii) omission of vigilance on the actions of the perpetrators and accomplices in the crime; (iv) the extent of the damage caused; (v) amount of money involved in the commission of the crime; (vi) the legal entity’s size, nature and economic capacity; (vii) the legal entity’s spontaneous self-reporting to the authorities as a result of an internal investigation or detection; (viii) subsequent behavior; (ix) willingness to mitigate or repair the damage caused; and (x) recidivism (when the legal entity is sanctioned for an offense committed within three (3) years following the date on which a previous condemnatory sentence becomes final).

The legal entity is exempted from penalties and administrative liability when the following three circumstances take place simultaneously: (i) the legal entity spontaneously self-reports a crime set forth by this law as a consequence of internal detection and investigation; (ii) the legal entity established, before the facts under investigation occurred, a proper control and supervision system (“Integrity Program”) and the breach of such system required an effort by those involved in the crime; and (iii) the legal entity returned the undue benefit obtained through the crime.

PART I - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

The Law stipulates the possibility of legal entities implementing Integrity Programs consisting of actions, mechanisms and internal procedures for the promotion of integrity, supervision and control, focused on the prevention, detection and correction of irregularities and unlawful acts provided under the Law.

The implementation of an Integrity Program will be a required condition for legal entities to contract with the Argentine National Government when such contracts (i) must be approved by a public official ranked as minister or above; and (ii) fall under the National Government General Contracting Regime (Section 4 of Decree No. 1,023/01) and/or under the law of public works (Law No. 13,064), award of public works (No. 17,520), public-private partnerships (Law No. 27,328) or concession or licensing contracts for public services. (The regulation of the Law will have to establish how this requirement will be demonstrated and considered fulfilled to enter into these contracts.)

The Integrity Program —which will have to be appropriate to the specific risks of the activities performed by the legal entity, its size and its economic capacity and, eventually, with the provisions established in the regulation of the Law— must contain the following minimum elements: (i) a code of ethics or conduct, or the existence of integrity policies and procedures applicable to every director, manager and employee to guide the planning and performance of their duties or tasks in a manner that prevents the commission of crimes under the Law; (ii) specific rules and procedures to prevent unlawful acts within the scope of public tenders and bids, in the execution of administrative contracts or in any other interaction with the public sector; and (iii) the performance of regular training for directors, managers and employees about the Integrity Program.  Additionally, the Integrity Program may contain (i) periodical risk analysis and consequent adjustment of the program; (ii) evident support to the program by top management; (iii) internal reporting channels; (iv) a policy protecting whistleblowers from retaliation; (v) an internal investigation system that respects the rights of those under investigation and imposes sanctions on violations of the Code of Ethics; (vi) procedures to verify the integrity and background of relevant third parties; (vii) due diligence during corporate transformation and acquisitions processes to evaluate potential illegal actions or vulnerabilities in the legal entities involved; (viii) continuous monitoring and evaluation of the program effectiveness; (ix) an internal compliance officer in charge of developing, coordinating and supervising the Integrity Program.

The Law provides that the legal entity may enter into “Effective Collaboration Agreements” (Acuerdos de Colaboración Eficaz) with the Public Prosecutor’s Office (Ministerio Público Fiscal). The agreements may be filed until the summons to trial. Through these agreements, the legal entity undertakes to cooperate to bring the facts of the case to light, to identify the perpetrators or accomplices, to recover the proceeds or profit from the crime, as well to fulfill the conditions set forth in the agreement.  These agreements will be filled in exchange for a suspension of the prosecution and a reduction of the penalties that may be imposed.

DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012 (ITRSHRA)

 

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r)Act, which requires an issuera 34’ Exchange Act registrant to disclose in its annual or quarterly reports filed with the SEC whether the issuer or any of its affiliates has knowingly engaged in certain activities, transactions or dealings with the government of Iran, relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the annual or quarterly report. Disclosure is required even when the activities were conducted outside the United States by non-U.S. entities and even when such activities were conducted in compliance with applicable law.

 

In accordance with our Code of Ethics and Business Conduct, we seek to comply with all applicable laws.

 

Activities relating to Iran

Telecom

 

During 20182020 we had two activities relating to Iran: (i) our roaming agreement (mobile services) with Mobile Company of Iran (MCI) (formerly TCI), which allows our mobile customers to use their mobile device on a network outside their subscriber’s home network (see “Glossary of Terms—Roaming”) and (ii) our international telecommunications services agreements with international carriers (fixed services), which cover delivery of traffic to Iran through non-Iranian carriers.

 

On December 28, 2018, Telecom Argentina notified Mobile Company of Iran (MCI) the decision to terminate the IRA agreement signed by both parties related to Voice Roaming Service, in February 1, 2019. Notwithstanding the foregoing, and in order to properly document the termination of the roaming service, on February 1, 2019, a notarial certificate was issued stating the termination at a technical level of said service.

PART Ii. - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

Roaming agreements (mobile services)

After the date of termination of the agreement, Telecom Argentina will issue and receive invoices for traffic consumptions up to that date.

i.Roaming agreements (mobile services)

 

Like all major mobile networks, in response to the competition and customers’ demands, Telecom Argentina entered into roaming agreements with many foreign mobile networks, including MCI, to allow their customers to make and receive calls abroad.

The Roaming agreement with MCI was terminated on February 1, 2019, through a notarial certificate stating the termination at a technical level of such service.

 

Roaming agreements are entered into using standard terms and conditions including the one relating to Iran. Entering into roaming agreements is an activity carried out in the ordinary course of business by a mobile network operator.

 

Roaming agreements are generally reciprocal. Pursuant to a roaming agreement, when our mobile customers are in a foreign country covered by the network of an operator with which we have a roaming agreement (the “Foreign Operator”), our mobile customers may make and receive calls on their mobile phone using the Foreign Operator’s network. Likewise, the Foreign Operator’s customers may make and receive calls using our networks when these customers are in Argentina.

 

The Foreign Operator bills us for the calls made and received by our roaming customers at the rate agreed upon in the applicable roaming agreement. We then bill these customers according to the specific roaming fees in their subscription agreement. Likewise, we bill the Foreign Operator for the calls made and received by its clients using our networks for those calls, at the roaming rate agreed upon in the applicable roaming agreement, and then the Foreign Operator bills its clients according to their customer agreements. Roaming agreements do not, generally, contemplate other fees or disbursements.

 

In 2018,As of December 31, 2020, receivables and payables generated under the consolidated impact on net profit (loss) arising from our roaming agreementsagreement with the MCI waswere as follows:

 

  

December 31, 2020

(In thousands of P$)

 
Roaming agreements (mobile services) Receivables  Payables 
Iran  22.4   29.4 
Total  22.4   29.4 
% of respective consolidated total amounts  (a)   (a) 

·                  our total revenues under roaming agreements with MCI were approximately P$1.73 thousand.

·                  our total charges paid under roaming agreements with MCI were approximately P$13.09 thousand.

(a)Less than 0.001%.

ii.Commercial Agreements with International Carriers (fixed services):

 

These revenues and charges are immaterial to our consolidated revenues and operating expenses. Because we do not separately allocate costs directly attributable to the service provision or other overhead costs to these transactions, the amount of our consolidated net profits earned under these agreements is not determinable, but it does not exceed our gross revenues from the agreements.

Also, as of December 31, 2018, the amount for these concepts pending to pay were approximately P$4.8 thousand.

The purpose of our roaming agreements is to provide our customers with coverage in areas where we do not own networks. For that purpose, we intend to continue maintaining our roaming agreements.

ii.Commercial Agreements with International Carriers (fixed services):

We maintain commercial agreements with international carriers fromlocated in countries other than Iran, which permit those carriers to deliver traffic from Iran to our networks and from our networks to Iran.

Telecom Argentina’s total charges paidexpenses under commercial agreements with international carriers regarding delivery of traffic to Iran were approximately P$1.8 3.8thousand (P$2.24.4 thousand in current currency as of December 31, 2018)2020).

During 2020, and regarding outgoing traffic, Telecom has sent traffic to Iran mainly through Verizon Communications Inc. (United States) and Telecom Italia Sparkle S.p.A (Italy).

PART I - ITEM 4 INFORMATION ON THE COMPANYTELECOM ARGENTINA S.A.


 

Regarding incoming traffic, Telecom Argentina S.A. chargecharges the relevant international carrier for their traffic terminatedending in Telecom’s network. Consequently, Telecom Argentina does not know the country of origin of such traffic.

 

Accordingly, our total payables and receivables from international carriers include balances arising from traffic related to Iran but it is not possible to segregate them.

The outbound costs described in the table above are wholly immaterial with respect to the Company’s consolidated operating expenses for the period presented.

Activities relating to Syriathe Designated Countries – Cuba, North Korea and SudanSyria

 

In addition to the mandatory disclosure regarding the activities relatedpursuant to IranITRSHRA described above, below we describe our activities that directly or indirectly relate to Syria and Sudan (designatedthe “Designated Countries” (countries designated by the U.S. Department of State as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls) (“Designated Countries”):, during 2020, were the following:

 

PART Ii. - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

Roaming agreements (mobile services)

i.Roaming agreements (mobile services)

Operators of mobile telecommunications networks enter into roaming agreements with other operators of mobile telecommunications networks in the ordinary course of business. See “—Activities relating to Iran—Telecom” for a description of roaming agreements.

 

During 2018,2020 we maintained roamingRoaming agreements with ETECSA CubaMTN Sudan and MTN Syria. This situation changed on December 28, 2018, when Telecom Argentina S.A notified MTN Sudan and. The Roaming agreement with MTN Syria the decision to terminate the IRA agreement signed by both parties related to Voice Roaming Service, in February 1, 2019. Notwithstanding the foregoing, and in order to properly document the termination of the roaming service,was terminated on February 1, 2019, through a notarial certificate was issued stating the termination at a technical level of saidsuch service.

After the date of termination of the agreement, Telecom Argentina SA will issue and receive invoices for traffic consumptions up to that date. Finally, we do not maintain any commercial relationship with North Korea.

 

As of December 31, 2018, the approximate2020, revenues, expenses, receivables and payables fromrelated to roaming agreements with the Designated Countries were as follows:

 

 

 

December 31, 2018

 

Roaming agreements (mobile services)

 

Revenues

 

Expenses

 

Receivables

 

Payables

 

 

 

In thousands of P$

 

Syria

 

0.01

 

8.90

 

 

35.61

 

Sudan

 

 

4.40

 

 

1.50

 

Total

 

0.01

 

13.30

 

 

37.11

 

% of respective consolidated total amounts

 

(a)

 

(a)

 

 

(a)

 


(a)Less than 0.001%.

  

December 31, 2020
(In thousands of P$)

 
Roaming agreements (mobile services) Revenues  Expenses  Receivables  Payables 
Syria  n/a   n/a   0.6   40.1 
Cuba  190.0   9,941.9   174.6   1,650.1 
Total  190.0   9,941.9   175.2   1,690.2 
% of respective consolidated total amounts  (a)   (a)   (a)   (a) 

 

ii.Commercial Agreements with International Carriers (fixed services):

(a)Less than 0.001%.

  December 31, 2020
(In thousands of P$ in current currency)
 
Roaming agreements (mobile services) Revenues  Expenses  Receivables  Payables 
Syria  n/a   n/a   0.6   40.1 
Cuba  223.5   11,693.7   174.6   1,650.1 
Total  223.5   11,693.7   175.2   1,690.2 
% of respective consolidated total amounts  (a)   (a)   (a)   (a) 

(a)Less than 0.001%.

ii.Commercial Agreements with International Carriers (fixed services):

 

We also maintain commercial agreements with international carriers from countries other than the Designated Countries which permit those carriers to deliver traffic from the Designated Countries to our networks and from our networks to such countries. We do not maintain any commercial relationship involving North Korea.

 

Regarding outgoing traffic, during 2018,2020, Telecom has sent traffic to the Designated Countries mainly through Verizon Communications Inc. (United States), KPNIBASIS (Holland) and, Telecom Italia Sparkle S.p.A (Italy) and ETECSA (Cuba).

 

PART I - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.


As of December 31, 2018, the total approximate expense for delivery of traffic terminated in2020, revenues, expenses and payables from roaming agreements with the Designated Countries was:were as follows:

 

  December 31, 2020
(In thousands of P$)
 
Commercial Agreements with International Carriers (fixed services) Revenues  Expenses  Payables 
Syria  n/a   63.1   n/a 
Cuba  1,179.1   8,955.4   450.0 
Total  1,179.1   9,018.5   450.0 
% of respective consolidated total amounts  (a)   (a)   (a) 

Commercial Agreements with
International Carriers (fixed services)

(a)

December 31, 2018Less than 0.001%.

  December 31, 2020
(In thousands of P$ in current currency)
 
Commercial Agreements with International Carriers (fixed services) Revenues  Expenses  Payables 
Syria  n/a   74.3   n/a 
Cuba  1,386.8   10,533.4   450.0 
Total  1,386.8   10,607.7   450.0 
% of respective consolidated total amounts  (a)   (a)   (a) 

(a)

In thousands of P$

Syria

60.01

Total outbound costs

60.01

% of consolidated operating expenses

0.001

%

Less than 0.001%.

 

Regarding incoming traffic, Telecom Argentina chargecharges the relevant international carrier for their traffic terminatedending in Telecom’s network. Consequently, Telecom Argentina does not know the country of origin of such traffic.traffic, except for incoming traffic with ETECSA, which comes directly from Cuba.

 

Accordingly, our total payables and receivables from international carriers include those balances arising from traffic related withto the Designated Countries but it is not possible to segregate them.them, except for those balances with ETECSA, which are only related to Cuba.

 

The outbound costs described in the table above are wholly immaterial with respect to the Company’s consolidated operating expenses for the period presented.

 

CAPITAL EXPENDITURES AND RIGHTS OF USE ASSETS

 

Property, Plant and Equipment “PP&E” and Intangible Assets amounted to P$ 210,346 million in the year ended December 31, 2018, P$ 50,336 million in the year ended December 31, 2017, and P$ 42,186 million in the year ended December 31, 2016.

The following financial information for the year ended December 31, 2018 reflects the effect of the Merger effective as of the Merger Effective Date (i.e., January 1, 2018). The Merger constituted a “reverse acquisition” under IFRS 3, pursuant to which Cablevision (the legal absorbed entity) was considered the accounting acquirer and Telecom (the surviving entity) was considered the accounting acquiree. Accordingly, the following information of Telecom for periods prior to the Merger Effective Date reflects the financial information of Cablevisión restated in terms of the current currency to take into account the effect of inflation in Argentina.

PART I - ITEM 4 INFORMATION ON THE COMPANY

TELECOM ARGENTINA S.A.

The following table sets forth our Capital Expenditurescapital expenditures for each of the years ended December 31, 2018, 20172020, 2019 and 2016:2018:

 

 

 

Year ended December 31,

 

 

 

2018

 

2017

 

2016

 

 

 

 

 

(P$ million)(1)

 

 

 

Land and buildings

 

426

 

227

 

10

 

Switching equipment

 

572

 

 

 

Mobile network access, external wiring & transmission

 

22,488

 

6,196

 

6,324

 

Computer equipment and software

 

5,178

 

574

 

436

 

Other

 

10,910

 

12,119

 

12,634

 

Subtotal tangible capital expenditures

 

39,574

 

19,116

 

19,404

 

Rights of use, exclusivity agreements & licenses

 

1,558

 

807

 

 

Subscribers acquisition costs

 

1,348

 

 

 

Other

 

 

 

24

 

Subtotal intangible capital expenditures

 

2,906

 

807

 

24

 

Total capital expenditures in PP&E and Intangible assets

 

42,480

 

19,923

 

19,428

 


(1)The allocation of work in progress among items is estimated.

  Year ended December 31, 
  2020  2019  2018 
     (P$ million)    
Land and buildings  6   29   12 
Switching equipment  435   471   467 
Mobile network access, external wiring & transmission  9,761   9,898   11,351 
Computer equipment and software  2,738   1,212   2,425 
Other  40,501   75,334   68,596 
Subtotal tangible capital expenditures  53,441   86,944   82,851 
Licenses  -   19   1,767 
Subscribers acquisition costs  1,764   2,192   2,823 
Other  527   1   1,495 
Subtotal intangible capital expenditures  2,291   2,212   6,085 
Total capital expenditures in PP&E and intangible assets  55,732   89,156   88,936 
Right of use assets  11,018   7,320   133 
Total capital expenditures in PP&E and intangible assets and Right of use assets  66,750   96,476   89,069 

 

In addition, the following table showsOur capital expenditures for the years ended December 31,were approximately US$680 million in 2020, US$1,086 million in 2019 and US$1,273 million in 2018, 2017 and 2016 broken down by Services rendered in Argentinarepresented 18.6%, 27.6% and Other abroad:

 

 

Year ended December 31,

 

 

 

2018

 

2017

 

2016

 

 

 

 

 

(P$ million)(1)

 

 

 

Services rendered in Argentina

 

 

 

 

 

 

 

Land and buildings

 

328

 

226

 

9

 

Switching equipment

 

330

 

 

 

Mobile network access, external wiring & transmission

 

21,568

 

6,094

 

6,210

 

Computer equipment and software

 

4,700

 

573

 

435

 

Other

 

9,892

 

11,989

 

12,442

 

Subtotal tangible capital expenditures

 

36,818

 

18,882

 

19,096

 

Rights of use, exclusivity agreements and licenses

 

714

 

807

 

 

Subscribers acquisition costs

 

1,259

 

 

 

Other

 

 

 

24

 

Subtotal intangible capital expenditures

 

1,973

 

807

 

24

 

Total Services rendered in Argentina capital expenditures

 

38,791

 

19,689

 

19,120

 

 

 

 

 

 

 

 

 

Other abroad

 

 

 

 

 

 

 

Land and buildings

 

98

 

1

 

1

 

Switching equipment

 

242

 

 

 

Mobile network access, external wiring & transmission

 

920

 

102

 

114

 

Computer equipment and software

 

478

 

1

 

1

 

Other

 

1,018

 

130

 

192

 

Subtotal tangible capital expenditures

 

2,756

 

234

 

308

 

Rights of use, exclusivity agreements and licenses

 

845

 

 

 

Subscribers acquisition costs

 

88

 

 

 

Subtotal intangible capital expenditures

 

933

 

 

 

Total Other abroad capital expenditures

 

3,689

 

234

 

308

 

Total capital expenditures

 

42,480

 

19,923

 

19,428

 


(1)The allocation25.3% of work in progress among items is estimated.

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TELECOM ARGENTINA S.A.

our consolidated revenues, respectively. We estimate that our capital expenditures in 2021 will be approximately US$5,000 million and started in 2018, while for the year 2019 will be approximately US$1,090 million, 26% of consolidated revenues.610 million. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures.”Expenditures”.

 

PART I - ITEM 4 INFORMATION ON THE COMPANYTELECOM ARGENTINA S.A.


We expect to finance these expenditures through cash flows generated by our operations and financing provided by third parties.

 

PROPERTY, PLANT AND EQUIPMENTPP&E

 

As detailed below, our principal physical properties consist of transmission equipment, access facilities, outside plant (external wiring) and switching equipment. These propertiesassets are, at present, mainly located throughout the AMBA and the Northern Region. Some of our assets are located in areas that may be subject to natural disasters and severe weather, and which may be adversely affected in the future by climate change.

We believe that theseour assets are, and for the foreseeable future will be, adequate and suitable for their respective uses. The table below shows the carrying the amount of PP&E:

 

 

As of December 31, 2018

 

 As of December 31, 2020 

 

Services rendered
in Argentina

 

Other abroad

 

Total

 

 Services
rendered
in Argentina
 Other abroad Total 

 

 

 

(P$ million)(1)

 

 

 

    (P$ million)    

Land and buildings

 

21,074

 

230

 

21,304

 

  41,188   709   41,897 

Switching equipment

 

3,008

 

646

 

3,654

 

  3,293   1,090   4,383 

Mobile network access, external wiring & transmission

 

79,482

 

3,316

 

82,798

 

  135,504   7,092   142,596 

Computer equipment and software

 

10,199

 

1,061

 

11,260

 

  24,373   1,920   26,293 

Materials

 

11,191

 

693

 

11,884

 

  25,305   1,587   26,892 

Others

 

18,150

 

1,426

 

19,576

 

  77,402   4,816   82,218 

Total PP&E, net carrying value

 

143,104

 

7,372

 

150,476

(2)

  307,065   17,214   324,279(1)

 


(1)The allocation of work in progress among items is estimated.

(2)Net of valuation allowance for materials for P$ 359 million and impairment of PP&E for P$ 333 million.

(1)Excluding valuation allowance for materials for P$2,604 million and impairment of PP&E for P$812 million.

 

All of the above-mentioned assets were used to provide service to our customers as described below.

 

 

2018

 

2017

 

2016

 

 

 

 

 

(thousands)

 

 

 

Fixed lines in service

 

3,544

 

12.7

 

7.7

 

Fixed Internet access lines

 

4,110

 

2,318

 

2,166

 

Personal mobile telephony services lines (*)

 

18,316

 

n/a

 

n/a

 

Iden telephony services lines

 

314.3

 

716.6

 

n/a

 


(*) In 2018, includes 2,387 thousand Núcleo customers.

 

As of December 31, 2018,2020, we have entered into purchase commitments relating to PP&E totaling P$9,926 million primarily for switching equipment, external wiring and network infrastructure. In general, the contracts are financed, directly or indirectly, by domestic and foreign vendors.

20,947 million. Our current major suppliers of PP&E are Sagemcom BroadBand Sas, Huawei International Co. Limited, IBM Argentina S.R.L., Huawei Tech Investment Co. Ltd.LTD Argentina, Nokia Argentina S.A., Corning Optical Communications LLC, IBM Argentina S.R.L., Arris Solutions Inc., Cisco Systems, and Nokia Solution and Networks Argentina.

ITEM 4A.UNRESOLVED STAFF COMMENTS

ITEM 4A.UNRESOLVED STAFF COMMENTS

 

None.

 

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TELECOM ARGENTINA S.A.


ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

You should read the following discussion in conjunction with ourthe rest of this Annual Report, in particular, the sections “Presentation of Financial Information,” “Item 4 —Information on the Company” and the Consolidated Financial Statements, including the notes to those financial statements, which appear elsewhere in this Annual Report. Our Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB. See “Item 3—Key Information—Selected Financial Data.” Data”. The following discussion and analysis are presented by the Management of our company and provide a view of our financial condition, operating performance and prospects from Management’s perspective. The strategies and expectations referred to in this discussion are considered forward-looking statements and may be strongly influenced or changed by shifts in market conditions, new initiatives that we implement and other factors. Since much of this discussion is forward-looking, you are urged to review carefully the factors referenced elsewhere in this Annual Report that may have a significant influence on the outcome of such forward-looking statements. We cannot provide assurance that the strategies and expectations referred to in this discussion will come to fruition. Forward-looking statements are based on current plans, estimates and projections, and therefore, you should not rely solely on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statements in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and are generally beyond our control. We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. Please refer to “Forward-Looking Statements” andStatements,” “Item 3—Key Information—Risk Factors” and “—Trend Information” below for descriptions of some of the factors relevant to this discussion and other forward-looking statements in this Annual Report.

 

Management Overview

 

We believe in the capacity ofthat telecommunications can contribute to enhance the development of the country,countries in which we operate, boosting local economies through theby providing them with access to high value-added communication and connectivity services. To this end, we intend to continue to invest in the most modern mobile technology infrastructure, as well as in the deployment of a high speed fiber optic network to deliver the best contents to our customers.

 

In this new stage, Telecom focusesWe focus our efforts on several strategic pillars. One of them isWe believe that the deployment of an infrastructure thatappropriate to our needs will allow the Companyus to offer more services, with a sophisticated fixed-mobile network with differentiating features, on a par withcomparable to those of the largest companies in the world.  Another pillar is a deep in-house cultural transformation to support the goals of the convergent business and to strengthen the focus on the customer.

 

In this sense, during 2018,During 2020, we prioritized the integrationprovision of services that are critical for society as they connect people, homes, companies and governments, in the merged companies, focusingcontext of isolation measures related to the COVID-19 outbreak. We were also focused on the people, the organizational culture, the administrative processes, the technological tools and the key factors to achieve competitiveness and ensure the long-term sustainability of our businesses.businesses

 

AsConsolidated revenues in 2020 amounted to P$301,596 million as compared to P$322,686 million in 2019 and P$351,948 million in 2018. The decrease of P$21,090 million in 2020 (a 6.5% decrease) was mainly due to lower Internet services revenues, Cable Television services revenues, fixed and data services revenues and equipment revenues , partially offset by higher Mobile services revenues. Revenues in 2020 were mainly driven by revenues from mobile services, Internet services, premium cable television services and fixed and data services.

Net loss in 2020 amounted to P$5,104 million as compared to a loss of P$5,293 million in 2019 and a net income of P$11,594 million in 2018. Net loss attributable to Telecom Argentina amounted to P$5,715 million in 2020 as compared to net loss amounting to P$5,985 million in 2019 and a gain of P$11,089 million in 2018.

For a detailed analysis of our results of operations for fiscal year 2020, see “—Years ended December 31, 2018, (i) Telecom’s telephony mobile business had approximately 18.3 million subscribers in Argentina (excluding2020, 2019 and 2018” below. For a discussion of the factors that may affect our IDEN telephony subscribers)results of operations see “Item 3—Key Information—Risk Factors” and approximately 2.4 million subscribers in Paraguay, (ii) Telecom’s broadband business reached approximately 4.1 million accesses, (iii) Telecom’s cable television business had approximately 3.5 million subscribers“—Years ended December 31, 2020, 2019 and (iv) Telecom had approximately 3.5 million fixed telephony lines in service, which are equivalent to 140 lines in service per employee. To promote the expansion2018—Factors Affecting Results of business, our capital expenditures amounted to P$42,480 million in 2018, equivalent to 25.3% of consolidated revenues. We believe that our investmentsOperations” and estimated capital expenditures for 2019 are clear evidence of our commitment to our customers.“—Trend Information” below.

Non-IFRS Measures

 

The following discussion and analysis summarizes relevant measures of results of operations presenting items by nature. The Company believes that the presentation of the measure “adjusted EBITDA” provides investors and financial analysts with appropriate information that is relevant to understanding the Company’s past and present performance as well as our projections of future performance (see the purpose of use of adjusted EBITDA and reconciliation of net income to adjusted EBITDA in section “Adjusted EBITDA”). Moreover, adjusted EBITDA is one of the key performance measures used by Management for monitoring the Company’s profitability and financial position, at consolidated levels.

 

Our financial statement data as of and for the years ended December 31, 2017 and 2016 are not comparable with our financial statement data as of and for the year ended December 31, 2018 because of the Merger, which was consummated on January 1, 2018. Effective as of the Merger Effective Date (i.e., January 1, 2018), Cablevisión merged into Telecom Argentina. We have accounted for the Merger as a business combination using the acquisition method of accounting under IFRS 3 to account for assets and liabilities of Telecom as of January 1, 2018. The Merger constituted a “reverse acquisition,” pursuant to which Cablevisión (the legal absorbed entity) was considered the accounting acquirer and Telecom Argentina (the surviving entity) was considered the accounting acquiree.

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Accordingly, the financial statements of Telecom for periods prior to the Merger Effective Date reflect the historical financial information of Cablevisión restated in terms of the current currency as of December 31, 2018. The information as of and for the year ended December 31, 2018 incorporates, based on the figures corresponding to Cablevisión, the effect of applying the acquisition method to Telecom Argentina to its fair value in accordance with IFRS 3 and the operations of Telecom Argentina as from January 1, 2018. Such figures are presented in this Annual Report restated in terms of the current currency to take into account the effect of inflation in Argentina.

 


Consolidated revenues in 2018 were P$168,046 million compared to P$66,649 million in 2017 and P$60,405 million in 2016. The increase of P$101,397 million in 2018 (a 152% increase) was mainly driven by the combination of Telecom and Cablevision’s operations following the Merger, as described in previous paragraphs. Revenues in 2018 were mainly driven by revenues from internet services, premium cable TV services and mobile services and fixed and data services.

In the year ended December 31, 2018, we reported net income of P$5,536 million, compared to net income of P$9,859 million for the year ended December 31, 2017, and net income of P$10,546 million for the year ended December 31, 2016. Net income attributable to Telecom Argentina decreased by P$4,437 million in 2018 as compared to 2017, reaching P$5,294 million and decreased by P$726 million in 2017 as compared to 2016, reaching P$9,731 million, from P$10,457 million reported in 2016.

For a discussion of the factors that may affect our results of operations see “Item 3—Key Information—Risk Factors” and “—Years ended December 31, 2018, 2017 and 2016—Factors Affecting Results of Operations” and “—Trend Information” below.

For a detailed analysis of our results of operations for fiscal year 2018, see “—Years ended December 31, 2018, 2017 and 2016” below.

Economic and Political Developments in Argentina

A substantial majority of our property, operations and customers are located in Argentina, and a portion of our assets and liabilities are denominated in foreign currencies. Accordingly, our financial condition, results of operations and cash flows depend to a significant extent on economic and political conditions prevailing in Argentina and on the exchange rates between the Argentine Peso and foreign currencies. In the recent past, Argentina has experienced severe recessions, political crises, periods of high inflation and significant currency devaluation. Argentina experienced economic growth in the last decade, although the Argentine economy has been volatile since year 2011. For example, Argentina’s economy grew in 2017, but contracted in 2018. Uncertainty remains as to how several factors would impact the Argentine economy, including among others, inflation rates, exchange rates, commodity prices, level of BCRA reserves, public debt, tax pressures and healthy trade and fiscal balances.

Inflation continued to be the main concern for the Argentine economy. Since January 2014, a new consumer price index started its publication. In 2014, the new national consumer price index (“IPCNu”) showed an increase of 23.9%. In addition, the INDEC estimates that the Argentine wholesale price index increased by 28.3% in 2014.

On January 8, 2016, the current administration issued Decree No. 55/2016 declaring a state of administrative emergency with respect to the national statistical system and the INDEC until December 31, 2016. During this state of emergency, the INDEC has suspended publication of certain statistical data (regarding prices, poverty, unemployment and GDP) until it completes a reorganization of its technical and administrative structure capable of producing sufficient and reliable statistical information. As of the date of this Annual Report, INDEC had resumed publication of the aforementioned statistical data, although for some indicators, it has not yet disclosed or provided reestimated figures for certain time periods. Under these circumstances the INDEC has recommended the use of alternative indexes. However, the index used was the average variation of the Consumer Price Index of the city of Buenos Aires.

INDEC resumed publication of the wholesale price index for the entirety of 2016, which increased by 34.6% based on a year-to-year comparison. In turn, the publication of the CPI index for Buenos Aires City and Greater Buenos Aires Area was resumed in June 2016 disclosing May 2016 monthly inflation figures, while data for the months of January to April of 2016 are unavailable. Taking this into account, CPI index variation from May to December 2016 was 16.9%. Meanwhile, consumer price measures for Autonomous City of Buenos Aires and San Luis Province registered a 41.0% and 31.4% increase during 2016, respectively. Since July 2017, the INDEC has resumed the publication of a National CPI (“IPC Nacional”) on a monthly base regularly. The IPC Nacional index has registered an increase of 24.7% on a year-over-year comparison for 2017, and an increase of 47.6% for 2018.

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For further detail regarding Argentine economic conditions see “Item 3—Key Information—Risk Factors—Risks Relating to Argentina—Inflation could accelerate, causing adverse effects on the economy and negatively impacting Telecom’s margins.”

During 2018, and after a positive first quarter, economic activity was affected by climate conditions resulting in a decrease of agricultural performance. Argentina also faced increased exchange rate volatility beginning during the second quarter and until the end of the third quarter, with a period of relative stabilization during the last quarter of the year. These factors contributed to a rapid retraction of the economic activity that endured from the second quarter to the remainder of the year. In general terms, most economic sectors were affected by the general macroeconomic context, registering an asymmetrical performance in their level of activity. With regard to the international context, we believe that global growth continues to be solid, although in certain advanced economies the expansion seems to have been less balanced and could register deceleration, and as a consequence the risks of a global economic slowdown have slightly increased. Specifically and considering our main trading partners, activity in Brazil continues within the path of growth registered during the previous year, but with a general increase of its output of a low magnitude, while in China the activity was stable and at levels similar to the previous year, with a sustained expansion rate.

In 2012, 2013 and 2014, the pace of peso devaluation accelerated in relation to previous years to 14.4%, 32.5% and 31.1%, respectively; and the official exchange rate ended the year at a P$8.55 per US$1.00. In December 2015, the current administration lifted many of the restrictions to access the FX Markets and the multiple exchange rate system was unified into a floating rate regime. As a consequence, a significant depreciation of the peso occurred, with the exchange rate at P$13.04 per US$ 1.00, an increase of 52.5% by the end of 2015. In addition, on April 21, 2016 the BCRA published Communication “A” 5955, whereby the limits for access to the MULC for payments of foreign accounts payable related to goods and services were eliminated, establishing that starting on the following day access to the market for such payments is unlimited, subject to compliance with the foreign exchange norms in force. In 2018, the Argentine peso experienced a rapid devaluation against foreign currencies, particularly the U.S. dollar. Between January 1 and December 31, 2018, the Argentine Peso slid from 18.65 to 37.70 Argentine Pesos per U.S. Dollar according to the U.S. dollar buying rate published by Banco de la Nación Argentina (Argentine National Bank), showing a devaluation of 102.2% vs. 2017, while on March 19, 2019, the exchange rate was P$40.50= US$1.00.

The Argentine government has exercised and continues to exercise significant influence over many aspects of the Argentine economy. Accordingly, Argentine governmental actions concerning the economy could significantly affect private sector entities in general and our operations in particular, as well as affect market conditions, prices and returns on Argentine securities, including ours. While our business continued growing in 2018, our operating results, financial condition and cash flows remain vulnerable to fluctuations in the Argentine economy. See “Item 3—Key Information—Risk Factors—Risks Relating to Argentina.”

Critical Accounting Policies

 

Our Consolidated Financial Statements, prepared in accordance with IFRS, are dependent upon and sensitive to accounting methods, assumptions and estimates that we use as a basis for its preparation. We have identified critical accounting estimates and related assumptions and uncertainties inherent in our accounting policies, (that are fully described in Note 3 to our Consolidated Financial Statements), which we believe are essential to an understanding of the underlying financial reporting risks. Additionally, we have identified the effect that these accounting estimates, assumptions and uncertainties have on our Consolidated Financial Statements.

Use of estimates

IFRS involves the use of assumptions and estimates that may significantly affect the reported amounts of assets, liabilities and results of operations and any accompanying financial information.

Management considers financial projections in the preparation of the financial statements as further described below. These financial projections anticipate scenarios deemed both likely and conservative based upon macroeconomic, financial and industry-specific assumptions. However, actual results may differ significantly from such estimates.

Variations in the assumptions regarding exchange rates, rates of inflation, level of economic activity and consumption, creditworthiness of our current and potential customers, aggressiveness of our current or potential competitors and technological, legal or regulatory changes could also result in significant differences from financial projections used by us for valuation and disclosure of items under IFRS.

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The most important accounting estimates, those which require a high degree of subjective assumptions and judgments, are the following:

Revenue recognition

Revenues are recognized to the extent that it is probable that economic benefits will flow to Telecom and their amount can be measured reliably. Revenues from transactions that include more than one performance obligation are recognized separately to the extent they have commercial substance on their own. Revenues are stated net of estimated discounts and returns.

Revenues from upfront connection fees for fixed, data and Internet services and installation (one-time income) non-refundable charges of cable 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 the customer relationship. Therefore, these revenues are influenced by the estimated expected term of customer relationships for indefinite period contracts.

Revenues are also subject to estimations of the traffic measures. Unbilled revenues from the billing cycle dating to the end of each month are calculated based on the traffic and are accrued at the end of the month. In addition, revenues from unexpired prepaid recharges made by customers are recognized on the basis of the services used, at the contract price per service.

Finally, contractual assets recognized due to the adoption of IFRS 15 are influenced by the expected duration of the relationship of the customer. For more information, Seesee Note 3)3.v) to our Consolidated Financial Statements.

 

Changes in these estimations, if any, may require adjustments to recorded revenues.

PP&E and intangible assets

Useful lives and residual value

We record PP&E and intangible assets at acquisition or construction cost. 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. We periodically review, at least at each financial year-end, the estimated useful lives of PP&E and amortizable intangible assets.

Recoverability assessment of PP&E and intangible assets with finite useful life

At a minimum at every annual closing date, we assess whether events or changes in circumstances indicate that PP&E and amortizable intangible assets may be impaired.

Under IFRS, the carrying value of a long-lived asset is considered impaired by the Company when the recoverable amount of such asset is lower than its carrying value. In such event, a loss would be recognized based on the amount by which the carrying value exceeds the recoverable amount of the long-lived asset. The recoverable amount is the higher of the fair value less costs to sell and its value in use (present value of the future cash flows expected to be derived from the asset, group of assets or cash generating unit). Once an impairment loss is identified and recognized, future reversal of impairment loss is permitted only if the indicators of the impairment no longer exist or have decreased.

The identification of impairment indicators and the estimate 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 assumptions by Management 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.

However, we recognized impairment loss of certain assets amounting to P$1,623 million in 2018. Impairment of 2018 is due to the impairment of Arnet trademark, which will be discontinued during 2019. See “ITEM 4—Information on the Company—Main Products” and Note 3 to our Consolidated Financial Statements.

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TELECOM ARGENTINA S.A.

For the years presented, considering the increase in values of finite and indefinite useful life of PP&E, Intangible assets and Goodwill, due to restatements in terms of the current currency, we estimate that there are indicators of impairment of assets that are subject to amortization. Therefore, the Company made an estimation of the value in use for both, PP&E and Intangible assets with finite and indefinite useful life, that is analyzed in “Intangible assets with indefinite useful life—PCS license, SRCE license, Brands and Goodwill” and determined no impairment.

Intangible assets with indefinite useful life—PCS license, SRCE license, Brands and Goodwill

We determined that the PCS license and the SRCE license, granted to Telecom met the definition of an indefinite-lived intangible asset for the years presented. Therefore, Telecom does not amortize the cost of these licenses. However, the Company tests them annually for impairment. Additionally the Company has to test for impairment the goodwill and brands that do not amortize. Additionally, as it is mentioned before, due to the inflation restatements in terms of the current currency recognized in the value of all PP&E and Intangible assets we need to test for impairment and, therefore, make an estimation of the value in use of all definite and indefinite useful lives of PP&E, Intangible assets and goodwill, and determine the existence or not of an impairment loss.

An impairment loss is recognized when the carrying amount exceeds the recoverable amount. The recoverability assessment 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 assumptions by Management 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 Company’s net cash flows projection is denominated in Argentine Pesos, its functional currency. However, due to the fact that there is no prevailing long-term discount rate in pesos available in the market, we: (a) have converted such peso-denominated cash flows into U.S. dollars using future estimated exchange rates applicable to each period; and (b) have discounted these U.S. dollar-denominated cash flows at an annual U.S. dollar rate of approximately 9.66% in order to obtain the recoverable value of PP&E, Intangible assets and Goodwill.

Through this evaluation, it was determined that the carrying amount of PP&E, Intangible assets and goodwill did not exceed the respective recoverable amount of the assets.

Our judgments regarding future cash flows may change due to future market conditions, competition, business strategy, the evolution of technology, changes in regulations and other factors. These changes, if any, may require material adjustments to the carrying amount of all PP&E, Intangible assets and Goodwill.

Income Taxes and Recoverability assessment of deferred income tax assets and other tax receivables / Deferred income tax measurement

We are required to estimate our income taxes (current and deferred) in each of the companies of Telecom according to a reasonable interpretation of the tax law in effect in each jurisdiction where the companies operate. This process may involve 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 for all deductible temporary differences 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 requires estimating future taxable income based on the Company’s projections and takes into account conservative tax planning.

The recoverability assessment of the income tax receivable related to Telecom Argentina’s actions for recourse filed during 2016, 2017 and 2018 regarding the amounts determined in excess due to lack of application of the income tax inflation adjustment, is based on the existing legal jurisprudence on this matter and the estimated future behavior of the National Tax Authority and of the National court in their review of the actions filed by Telecom Argentina (see Note 15 to our Consolidated Financial Statements).

If actual results differ from these estimates due to changes in tax authority’s interpretations and the new fiscal jurisprudence, or we adjust those estimates in future periods, our financial position, results of operation and cash flows may be materially affected.

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Since the change in the rates provided by Law No. 27,430, the corporate income tax rate decreases from 35% to 30% for fiscal years starting January 1, 2018 to December 31, 2019, and to 25% for fiscal years starting January 1, 2020 and onwards. Therefore, for the measuring of deferred income tax assets/liabilities, the fiscal year in which temporary differences will reverse has been estimated, and the corresponding income tax rate of each reversal period has been applied. The actual moment of the future income and tax deductions may differ from the estimated, and may produce an impact in future income.

The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law as of the end of the reporting period and the effects of future changes in tax laws or rates are not anticipated.

Receivables and payables valued at amortized cost

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 long-term receivables was an annual rate range between 29-40% in pesos for 2018. The estimated discount rate used to determine the discounted cash flow of long-term receivables in U.S. dollars was an annual rate of 8.32% and 13% for years 2018 and 2017, respectively. The discount rate in Guaraníes for loans was 8.32% and 8.83% in 2018 and 2017, respectively and for accounts receivable was 9.0 and 9.8% in 2018 and 2017. The difference between the initial fair value and the nominal amount of receivables and payables is recognized as finance income or expense using the effective interest method over the relevant period.

Changes in these estimated discount rates could materially affect our financial position and results of operations.

Provisions

We are subject to proceedings, lawsuits and other claims related to labor, civil, tax, regulatory, commercial and other matters. The factors taken into account for the calculation of the provisions for lawsuits and contingencies are based on the present value of the estimated costs arising from the lawsuits brought against us. In order to determine the proper level of provisions relating to these contingencies, we assess 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. We consult with internal and external legal counsel on these matters. A determination of the amount of provisions required, if any, is made after careful analysis of each individual issue. Our 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 our method of resolving such matters, such as changes in settlement strategy, and, therefore, these changes may materially affect our financial position, cash flows and results of operations.

Fair value measurement of certain financial instruments

The fair value of a financial instrument is the amount for which it could be purchased or sold between knowledgeable willing parties, in an arm’s length transaction. If there is a quoted market price available for an instrument in an active market the fair value is calculated based on that price. If there is no quoted market price available for a financial instrument, its fair value is estimated on the basis of the price established in recent transactions involving the same or similar instruments, or, otherwise, on the basis of valuation techniques regularly used in financial markets. We use our judgment to select a variety of methods and make assumptions on the basis of market conditions on the day we prepare our financial statements.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make the required payments. We base our estimates on the aging of our accounts receivable balances, the requests by customers to unsubscribe, our historical write-offs, public sector and corporate customer creditworthiness and changes in our customer payment terms and estimates regarding future performance, in accordance with the requirements of IFRS 9. If the financial condition of our customers were to deteriorate, the actual write-offs could be higher than expected.

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Business combinations—purchase price allocation

Accounting for business combinations required the allocation of the consideration for the acquisition to the various assets and liabilities of the acquired business at their respective fair values. We use all available information to make these fair value determinations. In connection with the estimates related to the accounting effect of the business combination referred to in Note 4.a) to Telecom Argentina’s Consolidated Financial Statements, Telecom Argentina was required to identify the assets and liabilities of the acquiree and estimate their fair value as of the date of the business combination. With regard to those assets that are subject to amortization or depreciation, Telecom Argentina made an estimation of their useful lives.

Any change in the estimates made by Telecom Argentina may affect the valuation of the identified assets and liabilities, which in turn may impact our results of operations. For further information see Note 4.a) to Telecom Argentina’s Consolidated Financial Statements.

Years ended December 31, 2018, 20172020, 2019 and 20162018

 

For purposes of these sections, the fiscal years ended December 31, 2018, 20172020, 2019 and 20162018 are referred to as “2018,“2020,“2017”“2019” and “2016,“2018,” respectively.

 

Our results of operations are determined in accordance with IFRS as issued by the IASB. Telecom provides customers with a broad range of telecommunication services. To fulfill its purpose, Telecom conducts different activities that are distributed among the companies in the Group.

The For further information about our main products and services, are:

·               Fixed Telephonysee “Item 4—The Business—Main Products and Data Services: consist of local area, national long-distance and international communications, supplementary services (including call waiting, itemized invoicing, voicemail, etc.), interconnection with other operators, data transmission (including private networks, point-to-point traffic, radio and TV signal transportation),  and sales of equipment.

·                  Internet services: consist of data transmission (including private networks, dedicated lines, broadcasting signal transport and videoconferencing services) and Internet services (mainly high-speed subscriptions - broadband) provided to residential and corporate customers.

·                  Mobile Telephony Services: Mobile Telephony Services offerings include voice communications, high-speed mobile Internet content and applications download, MMS, SMS, among others; and sale of mobile communication devices (handsets, modems mifi and wingles). The services are supported by a mobile network that relies on different technologies (2G/3G/4G).

·                Cable Television services: the services offered include access to the grid of corresponding channels according to each product and location, in analogue or digital form, HD content and the ability to pause all live programs, record contents in the cloud to be able to watch them at any time from any device and watch programs that have already been broadcasted. Additionally, the possibility of hiring “Premium” services to access contents of HBO, Fox Premium, Adults and Argentine Football is offered; as well as the possibility of acquiring movies or other content per day (ON DEMAND/PPV)Services”.

 

Factors Affecting Results of Operations

 

Described below are certain factors that may be helpful in understanding our operating results. These factors are based on the information currently available to our Management and may not represent all of the factors that are relevant to an understanding of our current or future results of operations. See also “Item 3—Key Information—Risk Factors”. Additional information regarding trends expected to influence our results of operations is analyzed below under “—Trend Information.”Information”.

 

The Argentine Economy

 

Substantially allAlthough a significant portion of our financial liabilities are denominated in foreign currencies, a substantial majority of our assets, and operations and our customers are located in Argentina. Accordingly, our financial condition, and results of operations and cash flows depend to a significant extent on macroeconomiceconomic and political conditions prevailing from time to time in Argentina. The Argentine government has exercised and continues to exercise significant influence over many aspects of the Argentine economy. Accordingly, Argentine governmental actions concerning the economy could significantly affect private sector entities in general and our operations in particular, as well as affect market conditions, prices and returns on Argentine securities, including our outstanding securities and our shares. Our operating results, financial condition and cash flows have been and will be affected by fluctuations in the Argentine economy. For more information on these macroeconomic and political conditions, see “Item 3—Key Information—Risk Factors—Risks Relating to Argentina.”Argentina”.

 

During 2020, aggregate economic activity was mainly affected by the COVID-19 pandemic. Argentina experienced one of the sharpest year-on-year GDP declines in its economic history in the second quarter of 2020, when heavy restrictions to social mobility were imposed. In the second half of the year, this decline was partially offset by a higher level of economic activity. In general terms, most of the economic sectors were affected by the general macroeconomic context, with greater impacts in construction, commerce and industry. Additionally, the monetization of the higher fiscal deficit due to the implementation of certain emergency programs designed by the government in response to COVID-19 affected the evolution of monetary and financial variables. As of December 31, 2020, Argentina’s country risk stood at 1,368 points, after the completion of its debt restructuring process with its external creditors. On the other hand, international reserves registered a decrease during 2020, mainly due to sovereign debt payments, interventions of the BCRA in the exchange market and the reduction of dollar deposits in the financial system, reaching approximately 39.4 billion dollars (a decrease of 12% year over year) as of December 31, 2020. As to the international context, the global economy is immersed in a context of deep recession caused by the pandemic, while recovery has accelerated in certain advanced economies and in China due to the fiscal and monetary stimulus packages that were unprecedented in magnitude and in their rapid response. Still, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks. Specifically, and considering Argentina’s main trading partners, exports to China recovered from deep declines at the beginning of the year, supported by an early restart of activity, while Brazil is experiencing a recovery of its economic activity, which is still conditional after the impact of the pandemic.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.

Source and Mix


Effect of Revenues and CostsInflation

 

Our broadband service subscribers amountedPursuant to 4,110,278International Accounting Standards (“IAS”) 29 (Financial Reporting in Hyperinflationary Economies), the financial statements of entities whose functional currency is that of a hyperinflationary economy must be restated. IAS 29 does not prescribe when hyperinflation arises, but includes several factors of hyperinflation. Since July 1, 2018, Argentina has been categorized as of December 31, 2018. Ina hyperinflationary country, since certain macroeconomic indicators and events during 2018 our subscriber base increased by 77%, as compared to December 31, 2017. Other sources of revenue included premium cable services, installation charges, charges for additional outlets, additional packages, DVRevidenced that the qualitative and quantitative factors identified in IAS 29 (the quantitative factor being when the selling of our magazine, “Miradas.” Our revenue from subscriptions was primarily a function of the number of subscribers served by our networks during the relevant period. Cable and broadband subscriberscountry’s projected three-year cumulative inflation rate exceeds 100%) were added through the expansion of our network and marketing of our services to homes passed by our networks.

We satisfied. Thereforeprincipally generate our revenues in the cable and broadband industries through monthly fees charged to our subscribers that are payable in Pesos.  We generally seek to increase our revenues through the growth of our customer base and through the introduction of value-added services and products aimed at different customer needs. Further, we expect to increase our revenue through new product launches and the expansion of our broadband customer base.  Our results of operations in the cable and broadband industries are therefore dependent on our customer base and the number of services that each customer uses. Overall revenue and costs are also affected by the mix of services we provide, with broadband generally being associated with higher margins relatively to cable television. In 2016 and 2017, 61% and 60% of our revenues, respectively, were generated by our cable services (pay TV services excluding sales for premium content, high definition digital services and video on demand packages) while 23% and 29%, respectively, were generated by our broadband services.

As from the Merger, we have added Telecom’s businesses in fixed telephony, mobile services and data services torestated our existing operations. The Merger has substantially changed our sources and mix of revenues. During the year ended December 31, 2018, we generated revenues of Ps. 57,776 million from our mobile services, Ps. 37,742 million from our internet services, Ps. 36,067 million from our cable TV services and Ps. 23,149 million from our fixed telephony and data services.

Our cost of services provided, selling expenses and administrative expenses in the cable and broadband industries consist primarily of (i) programming and content costs; (ii) employee benefit expenses and severance payments; (iii) depreciation, amortization and impairment of PP&E; and (iv) taxes and fees with the regulatory authority.  Between 2015 and 2017, more than 90% of our total operating costs were Peso-denominated. The portion of operating costs that are U.S. Dollar-denominated is mainly comprised of data transfer costs and maintenance of property, plant and equipment and network expenses, among others.

As from the Merger, we incorporated into our consolidated costs the costs, selling expenses and administrative expenses of Telecom’ activities in the mobile, broadband and fixed telephony and data services industries. The Merger has substantially changed our breakdown of costs.

Effect of Inflation

Our Consolidated Financial Statements and the financial information included elsewhere in this Annual Report have been restatedconstant Argentine Pesos as of December 31, 2020, for all the periods reported in this Annual Report based on certain price indexes to take into account the effect of inflation in Argentina. TheSee “Item 3—Key Information—Risk Factors—Risks Relating to Argentina—Inflation could accelerate, causing adverse effects on the economy and negatively impacting Telecom’s margins and/or ratios,” and Note 1.e) to our Consolidated Financial Statements and the financial information included in this Annual Report for all the periods reported are presented on the basis of constant Argentine pesos as of December 31, 2018. The conclusions drawn by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (Argentine Federation of Professional Councils in Economic Sciences) and some international audit firms were taken into account by management in performing the analysis under IAS 29. An economy is “hyperinflationary”, in accordance to the provisions of IAS 29, when it has a cumulative inflation rate over three years that approaches, or exceeds, 100%, also taking into consideration other qualitative factors related to the macroeconomic environment. In analyzing the provisions of IAS 29, management uses the inflation rate stated in the official statistics published by the INDEC, similar to the criterion adopted by accounting professionals in Argentina.Statements.

 

We restated all the non-monetary items in order to reflect the impactThe CPI index has registered an increase of inflation. Consequently, the main items restated were Property, Plant36.1% and Equipment, Intangible assets (including goodwill), Inventories, certain Investments in subsidiaries53.8% on a year-over-year comparison for 2020 and the Equity items. Each item was restated since the date of the initial recognition in the Company’s Equity or since the last revaluation.2019, respectively.

 

The financial information issued for comparative purposes must also be presented in the current currency as of December 31, 20182020 and willmust be restated using the annual index of the current year.

 

As a result of applying the comprehensive inflation restatement, the Company will record an increase in the value of non-monetary items, such as Property, Plant and Equipment,PP&E, Intangible Assets (including Goodwill) with an impact on deferred taxes and an increase in the Company’sCompany's equity, including shareholdersshareholders’ contributions.

 

For further information, see Note 1.e)Income Tax Inflation Adjustment

Law No. 27,430, as amended by Law No. 27,468, provides that, effective as from the fiscal year beginning on or after January 1, 2018, the inflation adjustment procedure set out in the income tax law shall be applicable to our Consolidated Financial Statements.any fiscal year in which the variation of the IPC price index, accumulated over the 36 months immediately preceding the end of the relevant fiscal year, exceeds 100%.

 

In the first, second and third year as from its effectiveness, this procedure shall be applicable as long as the variation of the IPC, calculated from the beginning to the end of each of these years exceeds 55%, 30% and 15%, respectively. In order to calculate income tax inflation adjustments, since the amendment of Law No. 27,541, one-sixth of the income tax inflation adjustment shall be computed in each fiscal year, and the remaining five-sixths shall be computed in equal parts, in the five immediately following fiscal years.

During 2018, the inflation rate did not reach the 55% threshold. Therefore, we did not apply the inflation adjustment regime in such fiscal period. However, during the years ended December 31, 2019 and 2020 the variation of the IPC exceeded the threshold set for the application of the income tax inflation adjustment for tax purposes for these years. Accordingly, and pursuant to a comprehensive interpretation of applicable regulations, the Company recognized the corresponding accounting impact, that amounted to a loss of P$14,842 million as of December 31, 2020.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.

Effects of Fluctuations in Exchange Rates between the Argentine Peso and the U.S. Dollardollar and other major foreign currencies

 

The peso has been subjectIn 2019, the Argentine Peso continued its devaluation against major foreign currencies, particularly the U.S. dollar. According to significant devaluationsexchange rate information published by the Banco de la Nación Argentina, the Argentine Peso depreciated by 40.5% against the U.S. dollar during the year ended December 31, 2020 (compared to 58.9%, 102.2%, and 17.4% in the pastyears ended December 31, 2019, 2018 and may be subject to fluctuation in2017, respectively).

Also, since September 2019, following the future. In recent years, there was aeconomic instability and the significant devaluation of the Peso that took place after the primary elections, foreign exchange controls and restrictions to the transfer of currency abroad were reinstated. The Fernández administration sought to future prevent additional demand for foreign currency by reinforcing exchange controls (i.e., the imposition of higher taxes on the acquisition of foreign currency, among others). In response to these measures, several parallel U.S. dollar trading markets developed in which amountedthe Argentine peso-U.S. dollar exchange rate differ substantially from the official Argentine peso-U.S. dollar exchange rate. See “Item 10—Additional Information—Foreign Investment and Exchange Controls in Argentina.” and “Item 3—Key Information—Risk Factors—Risks Relating to approximately 102.2% 2018, 17.4% in 2017, 21.9% in 2016Argentina—Devaluation of the Argentine Peso and 52.5% in 2015. foreign exchange controls may adversely affect our results of operations, our capital expenditures and our ability to service our liabilities and pay dividends”.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTSTELECOM ARGENTINA S.A.


The majority of our revenues are in pesosPesos whereas a portion of the costs regarding materials and supplies related to the construction and maintenance of our networks and services are incurred in foreign currencies. Also, the high level of competition limited our ability to transfer to our customers the fluctuations in the exchange rates between the pesoPeso and the U.S. dollar and other major foreign currencies. In addition, any devaluation of the pesoPeso against foreign currencies may increase operating costs (partially offset by the increase of revenues in foreign currencies), capital expenditures and the cost of debt, which will adversely affect our results of operations, considering the net effect on revenues and costs. AnyAdditionally, any significant devaluation of the Peso, such as the devaluation in December 2015, and May and June 2018 resultswill result in an increase in the cost of servicing our debt and, therefore, may have a material adverse effect on our results of operations. See “Exchange Rate Information” and “Risk“Item 3—Key Information—Risk Factors—Risks Relating to Argentina—Devaluation of the Argentine pesoPeso and foreign exchange controls may adversely affect our results of operations, our capital expenditure programexpenditures and theour ability to service our liabilities and transfer funds abroad.”

pay dividends”.

Acquisition and

Internal Growth

 

We have focused on increasing our broadband internetInternet penetration by providing and offering bandwidth connectivity to our existing cable television subscribers, , telephony customers and to new customers.  We have also grown our broadband subscriber base by emphasizing our bandwidth capabilities and expanding the products and services that we offer with a focus on launching products and services with faster speed options tailored to our customers’ evolving needs. The diversification of our product mix to increase our broadband offerings, coupled with an increase in the portion of total revenues represented by broadband services have, in turn, resulted in an increased ARPU.

 

Total monthly ARPU for mobile telephony services in Argentina was Ps. 213.9 forP$436.2 in December 31, 2018.2020 as compared to P$431.7 in December 2019. Total monthly ARPU for broadbandInternet services in Argentina was Ps. 762.0 forP$1,271.0 in December 31, 20182020 as compared to Ps. 890.1 during the same periodP$1,441.5 in 2017.December 2019. Total monthly ARPU for our cable television services of Telecom Argentina was Ps. 854.3 forP$1,382.2 in December 31, 20182020 as compared to Ps. 835.4 during the same periodP$1,586.6 in 2017. The increase in ARPU for each of the services described above are attributable to the impact of the increase on prices for these services.December 2019.

 

Total monthly ARBU in our fixed telephony services in Argentina was Ps. 270.8 forP$574.3 in December 31, 20182020 as compared to Ps. 23.7 during the same periodP$602.0 in 2017. The increase in total ARBU between 2017 and 2018 was mainly due to the Merger.December 2019.

 

For the calculation of ARPU and ARBU, see footnote 5) of the “Item 3—Key Information—Other Financial Data table in Item 3.Selected Data”.

 

Price of services

 

The LAD established that licensees of ICT services may freely set their prices which shall beprovided such prices are fair and reasonable, to offset the costs of exploitationoperation and to tend to the efficient supply and reasonable margin of operation. However, the ENACOM (also, the “Regulatory Authority”) is entitled to observe the prices we set by us if it understands that they do not comply with the provisions of ArticleSection 48 of the LAD. If prices were observed and we are observed as imposing restrictions on our pricesforced to reduce them, our operating margins may be negatively affected. Before

Moreover, on August 22, 2020, the LAD came into force,PEN issued Decree No. 690/20 amending the serviceLAD. Decree No. 690/20 declared ICT services (which includes fixed and mobile telephony services, cable television and Internet) as well as access to telecommunications networks for and between licensees as “Essential and Strategic Competition Public Services”, and empowered ENACOM to ensure accessibility. Decree No. 690/20 further established that (i) the prices of the Essential and Strategic Competition Public ICT Services, (ii) the prices of those services provided in accordance with the Universal Service, and (iii) the prices of those services determined by ENACOM for public interest reasons, shall be regulated by ENACOM . Decree No. 690/20 further established that Telecom charged inENACOM is the agency responsible for the enactment of any regulation related to the ICT’s PBU, and also suspended any price increases or changes set or announced by the ICT’s licensees from July 31, 2020 to December 31, 2020. The Decree has been ratified by the Argentine Congress under Law No. 26,122 and has been regulated through ENACOM Resolutions Nos. 1,466/20 and 1,467/20. For more information on Decree No. 690/20 and its fixed telephony service (including both monthly chargesregulating resolutions, see “Item 4 —Regulatory Authorities and measured service charges), installation charges, public telephone charges and charges for Internet dial-up traffic (“Regulated Services”) were subjectFramework— Amendment to regulation.Law No. 27,078 – Argentine Digital Law”.

 

The impact of the service price adjustments on our results of operations is particularly relevant as a result of inflationary pressures on our costs structure. If we are unable to adjust the prices of the services we provide based on inflation rates, our results of operations will be adversely affected.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.

Competition

 

The fixed and mobile telephony, cable television and broadbandInternet businesses in Argentina are competitive. With respect to fixed and mobile telephony services, significant resources willWe need to be devoted for the refurbishmentmake significant investments to refurbish and maintenance ofmaintain our existing network infrastructure to comply with regulatory obligations and to remain competitive with respect to the quality of our services.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTSTELECOM ARGENTINA S.A.


With respect to cable television services, we compete with other cable television operatorsDirecTV, Telecentro, Supercanal, Movistar and Claro that have built networks in the areas in which we operate, providers of other pay television services, including direct broadcasting, direct-to-home satellite and multi-channel multi-point distribution system services, licensed suppliers of basic telephone services and cooperative entities providing utility services, as well as with free broadcasting services which are currently available to the Argentine population in certain areas from four privately-owned television networks and one state-owned national public television network. We also consider Over-The-Top media services, such as Netflix, Disney+, Prime Video and On Video, as competitors. Among cable television services competition, is driven primarily by price, programming services offered, customer satisfaction and quality of the system.

Regarding mobile services, we compete with other two operators that offer nationwide services, Telefónica Móviles Argentina and América Móvil. The market of residential, corporate and wholesale mobile telecommunication services distinguishes due to the fact that operators are free from regulation to determine the pricing of services, except that the ENACOM sets prices for wholesale local interconnection services.

With respect to broadbandInternet services, certain competitorsMovistar, Telecentro, Claro have well-established name recognition, larger customer bases and significant financial, technical and marketing resources. Well-known competitors continue to increase their penetration and ability to serve household in different areas of the country. For more information, see “Item 3.3— Key Information—Risk Factors— We face substantial and increasing competition in the Argentine fixed and mobile telephony, cable television and broadband businesses.”Internet businesses”.

 

Technology Developments and Capital Expenditures

 

Improvements in technology influence our customers’ demand for services and equipment. For example, demand for fixed-line telecommunications services has been affected by continued significant growth in mobile business. Growth in the telephony as well as cable television services businesses at present is being affected by the expansion of broadband for individuals and corporations and our continuous updating of commercial and support systems. The increase in broadband adoption has also proven to be a critical factor in facilitating the offering of Value Added Services to customers and the bundlingcombination of services.product made available to customers.

 

In Internet services, we must constantly upgrade our access technology and software, embrace emerging transmission technologies and improve the responsiveness, functionality, coverage and features of our services.

 

In the mobile business, to provide subscribers with new and better services, Telecom must enhance its mobile networks extending 3G and 4G4G/4G+ technology and bandwidth for mobile data transmission.transmission Moreover, Telecom is developing aan LTE infrastructure expeditiously, in response to regulatory requirements (obligations arising fromand development in the acquisition of the 4G spectrum) andmarket for the mobile market development.services.

 

In addition, as new technologies develop, equipment may need to be replaced or upgraded, and network facilities (in particular, mobile and Internet network facilities) may need to be rebuilt in whole or in part, at substantial cost, to remain competitive. These enhancements and the implementation of new technologies will continue requiring increased capital expenditures. See “Business—“Item 4—Information on the Company—Capital Expenditures.”Expenditures” and “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures”.

 

Tax pressures and litigation

 

Local municipalities in the regions where we operate have introduced regulations and proposed various taxes and fees for the installation of infrastructure, equipment and expansion of fixed-line and mobile networks. Local and federal tax authorities have brought an increasing number of claims against us. We disagree with these proceedings and are generally contesting them. Also, jurisprudential changes in labor and pension matters have generated higher claims from employees and former employees and also increased claims from employees of a contractor or subcontractor alleging joint liability. We cannot assure you that current laws and regulations applicable to the economy generally or specifically to the telecommunications industry will not change,become more burdensome, that the claims will be resolved in our favor, or that any changes to the existing laws and regulations will not adversely affect our business, financial condition, results of operations and cash flows as well.

 

(A)

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.

Consolidated Results of Operations

(A) Consolidated Results of Operations

 

The following financial information for the year ended December 31, 2018 reflects the effect of the Merger effective as of the Merger effective as of the Merger Effective Date (i.e., January 1, 2018), and the result of the operations from that date of the merged entities carried out by Telecom Argentina as successor since the merger. The Merger constituted a “reverse acquisition” under IFRS 3, pursuant to which Cablevision (the legal absorbed entity) was considered the accounting acquirer and Telecom (the surviving entity) was considered the accounting acquiree. Accordingly, the financial statements of Telecom for periods prior to the Merger Effective Date reflects the financial information of Cablevisión restated in terms of the current currency of Dedecmber 31, 2018 to take into account the effect of inflation in Argentina. Additional information concerning the presentation of the financial information, accounting treatment and other information required by IFRS 3 related to the merger is provided in Notes 1.c) and 4.a) to our consolidated financial statements and we recommend that you read itthe related information included in conjunction with this Annual Report.

Consequently, for the purposes of preparing this Annual Report: i) the figures disclosed on a comparative basis as of and for the years ended December 31, 2017 and December 31, 2016 arise from the consolidated financial statements of Telecom as of and for the years ended on such dates, as restated in terms of the current currency to take into account the effect of inflation in Argentina; and ii) the information as of and for the year ended December 31, 2018 incorporates, basedReport have been presented on the figures corresponding to Cablevisión, the effect of applying the acquisition method concerning Telecom Argentina to its fair value in accordance with IFRS 3 and the operations of Telecom Argentina as from January 1, 2018 restated in termsbasis of the current currency as of December 31, 2018.

Likewise, the results of the consolidated operations were restated in terms of the current currency of December 31, 20182020 to take into account the effect of inflation in Argentina in accordance towith the requirements of IAS 29.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTSTELECOM ARGENTINA S.A.


The Company restated all the non-monetary items in order to reflect the impact of the inflation restatement reportingpresent them in terms of current currency as of December 31, 2018. Consequently, the2020. The main non-monetary items restated weresubject to restatement include Property, Plant and Equipment, Intangible assets (including goodwill)Goodwill), Rights of Use, Inventories, certain Investments in subsidiaries and the Equity items. Each item must beThe treatment of non-monetary assets impacts the determination of deferred tax assets/liabilities, with the exception of Equity items. All items were restated since the date of the initial recognition in the Company’s Equity or since the last revaluation. Monetary items have not been restated because they are stated in terms of the measuring unit current as of December 31, 2018.2020.

 

Before applying the restatement, theAdditionally, pursuant to IAS 29 our Income Statement generally reported costs current at the time at which the underlying transactions or events occurred. Therefore, those items werewas restated in terms of current currency as of December 31, 2018. To this end, the Company applied the change in a general price index.

The effect of inflation on the monetary position is included in the Income Statement under Other financial results to our Consolidated Financial Statements, amounting to P$13,403 million, P$1,907 million and P$5,547 million as of December 31, 2018, 2017 and 2016, respectively.2020.

 

The items of the Consolidated Statement of Cash Flows must also be restated in terms of current currency as of December 31, 2018.2020. The gain arising from the restatement has an impact on the Consolidated Income Statement and must be eliminated from the Statement of Cash Flows because it is a non-monetary item.

 

In relationAll comparative figures have also been presented in the current currency of December 31, 2020.

The effect of inflation on the monetary position is included in the Income Statement under Other financial results, amounted to P$5,598 million, P$10,345 million and P$28,071 million as of December 31, 2020, 2019 and 2018, respectively.

According to Resolution No. 539/18, the general price index according to Resolution No. 539/18, it is tomust be determined accordingby reference to the Internal Wholesale Price Index (IWPI) until the yearthrough 2016, considering for the months of November and December 2015 the average variation of the Consumer Price Index (CPI) of the City of Buenos Aires, due to the fact that during those two months there were no IWPI measurements were published at national level. Then, fromSince January 2017, changes in the general price index must be determined by reference to the National Consumer Price Index (National CPI) is considered.. The tables below showpresent the evolution of these indexes in the last threefive years and as of December 31, 2018 according to official statistics (INDEC) following the guidelines described in Resolution No. 539/18:

 

 

As of December
31, 2014

 

As of December
31, 2015

 

As of
December 31,
2016

 

As of
December 31,
2017

 

As of December
31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 As of December
31, 2016
 As of December
31, 2017
 As of December
31, 2018
 As of December
31, 2019
 As of December
31, 2020
 

Variation in Prices

 

 

 

 

 

 

 

 

 

 

 

            

Annual / Period

 

23.9

%

17.2

%

34.6

%

24.7

%

47.6

%

  34.6% 24.7% 47.6% 53.8% 36.1%

Accumulated 3 years

 

52.4

%

72.5

%

102.2

%

96.6

%

147.8

%

  102.2% 96.6% 147.8% 183.2% 209.2%

 

For further information see Note 1.e) to our Consolidated Financial Statements and see “Item 3 — Risk factors—Risk Related to Argentina—Inflation could accelerate, causing adverse effects on the economy and negatively impacting Telecom’s margins” to see the impacts of inflation.margins and/or ratios”

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.

In the year ended December 31, For 20202018,, we reported net incomeloss of P$5,5365,104 million, as compared to net incomeloss of P$9,8595,293 million for the year ended December 31, 2017,in 2019, and net income of P$10,54611,594 million for the year ended December 31, 2016.in 2018. Net incomeloss attributable to Telecom Argentina totaled P$5,715 million in 2020. Net loss for 2020 decreased by P$4,437189 million in 2018 as compared to 2017, reaching P$5,294 million2019, and decreasednet loss for 2019 increased by P$72616,887 million in 2017 as compared to 2016, reaching P$9,731 million, from P$10,457 million reported in 2016.2018.

 

Consolidated revenues in 2018 were2020 amounted to P$168,046301,596 million as compared to P$66,649322,686 million in 20172019 and P$60,405351,948 million in 2016.2018. The increasedecrease of P$101,39721,090 million in 20182020 (a 152% increase)6.5% decrease) was mainly drivendue to lower fixed and data services revenues, Internet services revenues, Cable Television service revenues and equipment sales, partially offset by the combinationhigher Mobile services revenues. The decrease of TelecomP$29,262 million in 2019 (an 8.3% decrease) was mainly due to lower Mobile, Internet and Cablevision’s operations following the Merger, as described in previous paragraphs. Revenues in 2018 were mainly generatedCable Television service revenues and equipment sales, partially offset by revenues from internethigher fixed and data services premium cable TV services and mobile services, while in 2017, revenues were mainly generated by revenues from internet services and premium cable TV services, and to a lesser extent to mobile services.revenues.

 

In 2018,2020, operating costs (including depreciation, and amortization and disposals and impairment of PP&E) totaledfixed assets) amounted to P$146,789281,302 million, representing an increasea decrease of P$94,44919,881 million, or 180%6.6% as compared to 2017.2019. In 2017,2019, operating costs (including depreciation, and amortization and disposals and impairment of PP&E) totaledfixed assets) amounted to P$52,340301,183 million, representing an increasea decrease of P$4,2516,244 million, or 9%2% as compared to 2016.2018. The increasedecrease in 2020 is consistent with the overall reduction of operating costs, except for interconnection and transmission costs and bad debt expenses. The decrease in costs in 20182019 is mainly a consequence of decreases in Taxes and fees with the combinationRegulatory Authority, Commissions and advertising, Cost of Telecomequipment and Cablevision’s operations following the Merger, as described in previous paragraphs,handsets and Interconnection and transmission costs, which was partially offset by a decreasean increase in Cablevisión operating costs when restateddepreciation, amortization and impairment of fixed assets and an increase in the charge for inflation as of December 31, 2018 vs. 2017.bad debt expenses.

 

Telecom carries out its activities in Argentina and abroad (Paraguay, Uruguay and the United States and Uruguay)States). These operations are not analyzed as a separate segment by the Executive Committee and the CEO, who analyze the consolidated information of companies in Argentina and abroad, taking into account that the activities of foreign companies are not significant for Telecom. The operations that Telecom carries out abroad do not meet the aggregation criteria established by the standard to be grouped within the “Services rendered in Argentina” segment, and considering that they do not exceed any of the quantitative thresholds identified in the standard to qualify as reportable segments, they are grouped within the category “Other abroad segments” according to the requirements of the IFRS 8.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTSTELECOM ARGENTINA S.A.


However, since operations abroad are not material, the explanations set forth below arereflect mainly based on financialdevelopments and information ofattributable to our operations in Argentina.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.

(A.1) 20182020 Compared to 20172019

 

 Years Ended
December 31,
       

 

Years Ended
December 31,

 

 

 

 

 

 2020 2019 Total Change 

 

2018

 

2017

 

Total Change

 

       

 

(P$ million)

 

%

 

(P$ million)

 

 (P$ million) % (P$ million) 

Revenues

 

168,046

 

66,649

 

152

 

101,397

 

  301,596   322,686   (6.5)  (21,090)

Operating costs (without depreciation, amortization and Impairment of PP&E and intangible assets)

 

(111,678

)

(42,536

)

163

 

(69,142

)

Operating costs (without depreciation, amortization and impairment of fixed assets)  (198,708)  (217,744)  (8.7)  19,036 

Adjusted EBITDA(1)

 

56,368

 

24,113

 

134

 

32,255

 

  102,888   104,942   (2.0)  (2,054)

Depreciation, amortization and Impairment of PP&E and intangible assets

 

(35,111

)

(9,804

)

258

 

(25,307

)

Depreciation, amortization and impairment of fixed assets  (82,594)  (83,439)  (1.0)  845 

Operating income

 

21,257

 

14,309

 

49

 

6,948

 

  20,294   21,503   (5.6)  (1,209)

Earnings from associates

 

236

 

353

 

(33

)

(117

)

Earnings (losses) from associates  496   (255)  n/a   751 

Debt financial expenses

 

(33,972

)

(217

)

n/a

 

(33,755

)

  (24,698)  (22,677)  8.9   (2,021)

Other financial results, net

 

15,177

 

930

 

n/a

 

14,247

 

  7,055   15,426   (54.3)  (8,371)

Income tax benefit (expense)

 

2,838

 

(5,516

)

n/a

 

8,354

 

Net income

 

5,536

 

9,859

 

(44

)

(4,323

)

Income tax expense  (8,251)  (19,290)  (57.2)  11,039 
Net loss  (5,104)  (5,293)  (3.6)  189 

 

 

 

 

 

 

 

 

 

                

Net income attributable to:

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to:                

Telecom Argentina (Controlling Company)

 

5,294

 

9,731

 

(46

)

(4,437

)

  (5,715)  (5,985)  (4.5)  270 

Non-controlling interest

 

242

 

128

 

89

 

114

 

  611   692   (11.7)  (81)

 


(1)

(1)Adjusted EBITDA is a non-GAAP measure. See the purpose of use of adjusted EBITDA and reconciliation of net income to adjusted EBITDA in section “Adjusted EBITDA.”

In 2020, Adjusted EBITDA istotaled P$102,888 million, representing 34.1% of consolidated revenues, operating income totaled P$20,294 million, representing 6.7% of consolidated revenues. However, because financial losses, net, totaled P$17,643 million and we incurred income tax expenses of P$8,251 million, we incurred a non-GAAP measure. See the purposenet loss in 2020 of use of adjusted EBITDA and reconciliation of net income to adjusted EBITDA in section “Adjusted EBITDA”.P$5,104 million.

 

Revenues

 Years Ended
December 31,
     

 

Years Ended
December 31,

 

 

 

 

 

 2020 2019 Total Change 

 

2018

 

2017

 

Total Change

 

       

 

(P$ million)

 

%

 

(P$ million)

 

 (P$ million) % (P$ million) 

Mobile Services

 

57,776

 

4,274

 

1,252

 

53,502

 

  113,348   111,901 1.3 1,447 

Internet Services

 

37,742

 

19,354

 

95

 

18,388

 

  64,233   71,677 (10.4) (7,444)

Cable Television Services

 

36,067

 

39,914

 

(10

)

(3,847

)

  59,582   67,262 (11.4) (7,680)

Fixed and Data Services

 

23,149

 

1,897

 

1,120

 

21,252

 

  45,597   51,137 (10.8) (5,540)

Other services revenues

 

478

 

835

 

(43

)

(357

)

  1,234   1,053 17.2 181 

Service Revenues

 

155,212

 

66,274

 

134

 

88,938

 

  283,994   303,030 (6.3) (19,036)

Equipment revenues

 

12,834

 

375

 

3,322

 

12,459

 

  17,602   19,656 (10.4) (2,054)

Revenues

 

168,046

 

66,649

 

152

 

101,397

 

  301,596   322,686 (6.5) (21,090)

 

During 2018,2020, total consolidated revenues increased by 152%decreased 6.5% amounting to P$168,046301,596 million fromas compared to P$66,649322,686 million in 2017, mainly driven by revenues from internet services, premium cable TV services and mobile services.2019. The increasedecrease in 20182020 is mainly a consequence of the combination of Telecomlower Internet, cable television and Cablevision’s operations following the Merger.fixed and data services revenues, and equipment revenues, partially offset by higher mobile services revenues.

 

ConsolidatedThe decrease in total consolidated revenues includes approximately P$30,886 million and P$25,712 million correspondingoccurs albeit the greater demand for services, due to the restatementASPO adopted as a response to the COVID-19 pandemic (see Note 29 to our Consolidated Financial Statements), with a slight growth in the Internet and cable television customer base, accompanied by a decrease in churn. While rate of revenues in termsinflation for 2020 was 36%, the range of current currencymeasures introduced by the Argentine government relating to the prices of December 31, 2018 and 2017; respectively.our services prevented us from fully transferring inflation to customers.

 

Consolidated revenues were mainly fueled by services revenues.

 

Services revenues amounted to P$155,212 million, increasing 134% from P$66,274283,994 million in 20172020, decreasing 6.3% as compared to P$303,030 million in 2019 and represented 92.4%94.2% of consolidated revenues. Equipment revenues amounted to P$12,834 million from P$37517,602 million in 2017,2020 as compared to P$19,656 million in 2019, and represented 7.6%5.8% of consolidated revenues.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.


The effect generated by the restatement in current currency as of December 31, 2020 increased consolidated revenues to P$44,315 million and P$128,505 million in 2020 and 2019, respectively.

Consolidated revenues for 20182020 and 20172019 are comprised as follows:

 

Mobile Services

 

During 2018, Mobile services revenues in 2020 amounted to P$57,776113,348 million (+(an increase of P$53,5021,447 million or +1,252% vs. 2017)1.3% as compared to 2019), and our mobile services revenues wasbeing the principal contributor to our total services revenues for 2020 (39.9% of consolidated revenues in 2020 as compared to 36.9% in 2019). The increase in 2020 is mainly due to higher revenues in Argentina, which amounted to P$100,447 million (an increase of P$3,701 million or 3.8% compared to 2019).

The effect generated by the restatement in current currency as of December 31, 2018 (37% of2020 included in Mobile services consolidated revenues amounted to P$16,517 million and P$44,463 million in 2018 vs. 6% in 2017). The increase in 2018 is mainly a consequence of the combination of Telecom2020 and Cablevision’s operations following the Merger and due to the incorporation of revenues generated from Personal mobile services in Argentina.2019, respectively.

 

MostPersonal's mobile customers amount to 18.4 million and 18.9 million as of the Company’sDecember 31, 2020 and 2019, respectively, of which 7.7 million correspond to postpaid customers in Argentina use the mobile services provided under the Personal trademark.both years. The main ratios related to the services provided to these customers were:

 

·58% of total are prepaid customers and 42% consist of postpaid customers as of December 31, 2020, compared to 59% and 41% respectively, as of December 31, 2019.
·Mobile internet services revenues represent 75% of Personal’s customer total services revenues.
·The ARPU amounted to P$436.2 as of December 31, 2020 (vs. P$431.7 as of December 31, 2019), representing a 1.0% increase. The effect generated by the restatement in current currency as of December 31, 2020 included in ARPU amounted to P$63.3 and P$175.3 as of December 2020 and 2019, respectively.
·The average churn rate per month amounted to 2.2% in December 2020 (vs. 2.9% average in December 2019).

·                  Personal reached 18

Regarding infrastructure, the Company continued to enhance the mobile Internet experience of its customers through the deployment of its 4G and 4G+ network throughout the country, reaching more than 13.9 million subscribers in Argentina, approximately 61% ofcustomers with 4G devices throughout the total of customers consist of prepaid customers, and 39% consist of postpaid customers.

·                  The churn rate per month amounted to 2.7% in 2018 (vs. 2.8% in 2017).

·                ARPU amounted to P$213.9 per month in 2018 (ARPU is a non-GAAP measure; see the purpose of use of ARPU and Reconciliation of Revenue for the calculation of ARPU below).

·                  Mobile services revenues in Argentina amounted to P$51,089 million were mainly generated by the increase in monthly fees charged from “Abono fijo” customers and the increase in the recharges in the prepaid subscriber base.country.

 

ARPU of Mobile services revenues generatedServices in Paraguay amounted to P$6,687 million. The main ratios related to the mobile services in Paraguay were:Argentina

 

·                  Núcleo’s subscriber base reached 2 million customers, approximately 83% of the total of customers consist of prepaid customers, and 17% consist of postpaid customers.

·                  The churn rate per month amounted to 3.0% in 2018 (vs. 2.7% in 2017).

·                  The monthly ARPU amounted to P$206.3 per month in 2018.

An amount of P$10,866 million and P$1,503 million related to the effect of inflation adjustment under IAS29 is included in mobile services revenues as of December 31, 2018 and 2017, respectively.

An importantA monthly operational measure used in the mobile services is ARPU, which we calculate by dividing adjusted total service revenues - excluding outcollect wholesale roaming, cell site rental and reconnection fee revenues and others -others— (divided by 12 months) by the average number of subscribers during the period. ARPU is not a measure calculated in accordance with IFRS and our measure of ARPU may not be calculated in the same manner as similarly titled measures used by other companies. In particular, certain components of service revenues are excluded from Personal’s ARPU calculations presented in this Annual Report. Management believes that this measure is helpful in assessing the development of the subscriber base of Personalmobile services. The following table shows the reconciliation of total service revenues to such revenues included in the ARPU calculations of 2018:2020:

 

Year Ended December 31,
2018

2020

(P$ million)

Total Mobile service revenues

49,011

100,447

Components of service revenues not included in the ARPU calculation: Outcollect wholesale roaming, cell sites rental, Reconnection fees and others

(1,098

(2,109

)

Adjusted total service revenues included in the ARPU calculation

47,913

98,338

Average number of subscribers during the year (thousands)

18,786

Mobile services revenues generated in Paraguay amounted to P$12,901 million in 2020 (vs. P$15,155 million in 2019, representing a 14.9% decrease). The decrease was mainly due to the decrease in ARPU and the customer base, partially offset by the appreciation of the Guaraní against the Argentine Peso. The main ratios related to mobile services in Paraguay as of December 31, 2020 were:

 

18,665

·

Núcleo’s subscriber base decreased 4.7% , reaching 2.2 million customers as of December 31, 2020;
·approximately 83% of the total of customers consisted of prepaid customers, and 17% consist of postpaid customers, as of December 31, 2020 and 2019;
·ARPU amounted to P$450.5 as of December 31, 2020 (vs. P$472.4 as of December 31, 2019), representing a 4.7% decrease; and
·the churn rate per month amounted to 3.5% in 2020 (vs. 3.2% in 2019).

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A.


Internet Services

 

Internet services revenues amounted to P$37,74264,233 million in 20182020 (equivalent to 22%21.3% of total consolidated revenues), increasingdecreasing P$18,3887,444 million or +95%10.4% as compared to P$71,677 million in relation2019,mainly due to revenuesthe decrease in the Internet ARPU in Argentina of 11.8%, which reached P$1,271.0 in 2020 as compared to P$1,441.5 in 2019. The effect generated by the restatement in current currency as of December 31, 20172020 included in ARPU amounted to P$190.8 and were driven mainly by the increase in the average plans prices, partially offset by a decrease in Cablevisión revenues derived from the effect of inflation adjustment under IAS29P$571.3 as of December 31, 2018 vs. 2017. The broadband ARPU2020 and 2019, respectively.

Customers with service of 20Mb or higher represented 71.5% and 62.4% of the total customer base as of December 31, 2020 and 2019, respectively. Within this range there are customers who have plans of 100 Mb, 300 Mb and 1,000 Mb, that as of December 31, 20 amounted to P$762.0 per month in 2018 (-14.4% vs. 2017) this amount is restated for inflation under IAS29.551,455, 97,433 and 2,279, respectively.

 

An amountInternet services churn rate per month amounted to 1.3% and 1.5% as of P$6,872 millionDecember 31, 2020 and P$7,447 million  related2019, respectively, increasing a 0.6% the subscriber base in 2020, which amounted to 4.1 million.

The effect generated by the effectrestatement in current currency as of inflation adjustment under IAS29 isDecember 31, 2020 included in internet services revenues as of December 31, 2018amounted to P$9,681 million and 2017,P$28,614 million in 2020 and 2019, respectively.

 

An importantARPU of Internet Services in Argentina

A monthly operational measure used in the internet services is ARPU, which we calculate by dividing adjusted total service revenues - excluding connection and rehabilitation fees revenues and others - (divided by 12 months) by the average number of subscribers during the period. ARPU is not a measure calculated in accordance with IFRS and our measure of ARPU may not be calculated in the same manner as similarly titled measures used by other companies. In particular, certain components of service revenues are excluded from Internet’s ARPU calculations presented in this Annual Report. Management believes that this measure is helpful in assessing the development of the subscriber base of Internet services. The following table shows the reconciliation of total service revenues to such revenues included in the ARPU calculations of 2018:2020:

 

Year Ended December 31,
2018

2020

(P$ million)

Total Internet service revenues

62,793

Total service revenues

37,742

Components of service revenues not included in the ARPU calculation: Connection and Reconnection fees and others

calculation

(386

)

-

Adjusted total service revenues included in the ARPU calculation

37,356

62,793

Average number of subscribers during the year (thousands)

4,085

4,117

 

Cable Television Services

 

Cable TVtelevision service revenues amounted to P$36,06759,582 million in 2020 (equivalent to 21%19.8% of total consolidated revenues), decreasing P$3,8477,680 million or 10% in relation11.4% as compared to revenues as of December 31, 2017.2019. The decrease iswas mainly due to the effect of inflation adjustment under IAS29lower ARPU, which amounted to P$1,382.2 as of December 31, 20182020, decreasing 12.9% as compared to an ARPU of P$1,586.6 as of December 31, 2019. The effect generated by the restatement in current currency as of December 31, 2020 included in ARPU amounts to P$206.5 and 2017, partially offset by increases in sales by increase inP$626.5 as of December 31, 2020 and 2019, respectively.

It should be noted that between April and October, 2020 we recorded no revenues related to domestic soccer transmissions given that soccer tournaments were suspended due to the numberCOVID-19 pandemic. The lack of customers of premium cable television services and increases in prices. The ARPU amounted to $854.3 pesos per month in 2018, increasing 2.3% in relation to 2017, determined in amounts adjusted in terms of the current currency. revenues impacted ARPU.

The monthly average churn during 2018 amounted to 1.45%, in relation to 1.38%,1.0% and 1.3% as of December 2017.2020 and 2019, respectively.

 

An amountThe effect generated by the restatement in current currency as of P$6,677 million and P$15,436 million related to the effect of inflation adjustment under IAS29 isDecember 31, 2020 included in cable television services revenues asamounted to P$8,911 million and P$26,844 million in 2020 and 2019, respectively.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTSTELECOM ARGENTINA S.A.


ARPU of December 31, 2018 and 2017, respectively.Cable Television Services of Telecom Argentina

 

An important monthly operational measure used in the Cable Television services is ARPU, which we calculate by dividing adjusted total service revenues - excluding conectionconnection and administration fees, advertising services and others - (divided by 12 months) by the average number of subscribers during the period. ARPU is not a measure calculated in accordance with IFRS and our measure of ARPU may not be calculated in the same manner as similarly titled measures used by other companies. In particular, certain components of service revenues are excluded from Cable Television’s ARPU calculations presented in this Annual Report. Management believes that this measure is helpful in assessing the development of the subscriber base of Internetcable television services. The following table shows the reconciliation of total cable television service revenues to such revenues included in the ARPU calculations of 2018:2020:

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

Year Ended December 31,
2018

2020

(P$ million)

Total Cable television service revenues

54,776

Total service revenues

36,067

Components of service revenues not included in the ARPU calculation: Connection administrativeand Reconnection fees advertising and others

(248

(133

)

Adjusted total service revenues included in the ARPU calculation

35,819

54,643

Average number of subscribers during the year (thousands)

3,494

3,294

 

Fixed Telephony and Data Services

 

Telephony revenuesRevenues generated by fixed telephony and data services amounted to P$23,14945,597 million in 2020 (equivalent to 14%15.1% of total consolidated revenues) increasingdecreasing P$21,2525,540 million or +1,120%10.8% as compared to P$51,137 million in 20182019. The effect generated by the restatement in relation to revenuescurrent currency as of December 31, 2017. The increase was mainly driven by the combination of Telecom2020 included in fixed and Cablevision’s operations following the Merger. The increase is also duedata services revenues amounted to the increaseP$6,733 million and P$20,238 million in monthly fees charged from both corporate2020 and residential fixed telephony customers, and in greater sales of product packs that include voice and internet services (‘Arnet + Voz’), that aim to achieve higher levels of customer loyalty and churn reduction.2019, respectively.

 

As a result, theThe average monthly revenue billed per user (“ARBU”) of fixed telephony services amountsin Argentina decreased to P$270.8574.3 in 2018 (Telecom’s ARBU).

Data revenues increased2020 from P$602.0 in 2019. The effect generated by the context of the Company’s position as an integrated ICTs provider (Datacenter, VPN, among others) for wholesale and government customers. The increase was primarily due to the variation of the $/US$ exchange rate related to agreements settledrestatement in such foreign currency.

An amount of P$4,050 million and P$742 million related to the effect of inflation adjustment under IAS29 is included in fixed telephony and data services revenuescurrent currency as of December 31, 20182020 included in ARBU amounts to P$86.1 and 2017,P$244.4 as of December 31, 2020 and 2019, respectively.

Equipment

 

Equipment revenues increased P$12,459 millionamounted to P$12,83417,602 million in 2020 (a decrease of P$2,054 million or 10.4% as compared to P$375 million2019). The decrease was mainly due to lower handsets sold as compared to 2019 (28%), partially offset by an approximately 70% increase in handset sale as compared to 2019.

The Company continued to promote the updating of handsets with financed offers and special discounts highlighting the convergence of services.

The effect generated by the restatement in current currency as of December 31, 2017.The increase was mainly driven by the combination of Telecom and Cablevision’s operations following the Merger.

An amount of P$2,372 million and P$259 million related to the effect of inflation adjustment under IAS9 is2020 included in equipment revenues amounted to P$2,366 million and P$7,935 million in 2020 and 2019, respectively.

Operating costs (without depreciation, amortization and impairment of fixed assets)

Total operating costs (without depreciation, amortization and impairment of fixed assets) decreased P$19,036 million in 2020, amounting to P$198,708 million, representing a 8.7% decrease as compared to 2019. These lower costs are related with the decrease in all operating costs, except for interconnection and transmission costs and bad debt expenses.

The effect generated by the restatement in current currency as of December 31, 20182020 included in Operating costs (without depreciation, amortization and 2017,impairment of fixed assets) amounted to P$29,615 million and P$88,099 million in 2020 and 2019, respectively.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

S.A.

Operating costs (without depreciation, amortization and Impairment of PP&E and intangible assets)

  

Total operating costs (without depreciation and amortization and impairment of PP&E and intangible assets) increased by P$69,142 million totaling P$111,678 million in 2018, representing a 163% increase as compared to 2017. The increase was driven by the combination of Telecom and Cablevision’s operations following the Merger. The increase was mainly driven by employee benefit expenses and severance payments (which together totaled P$30,048 million); fees for services, maintenance, materials and supplies (which totaled P$16,261 million); taxes and fees with the Regulatory Authority (which totaled P$13,609 million); programming and content costs (which totaled P$12,156 million); and commissions and advertising (which totaled P$11,210 million).

Operating costs (without depreciation and amortization and impairment of PP&E and intangible assets) include approximately P$20,892 million and P$16,750 million related to the effect of inflation adjustment under IAS29 of our financial information as of December 31, 2018 and 2017, respectively.

 

Years Ended

December 31,

   

 

Years Ended

December 31,

 

 

 

 2020 2019 Total Change 

 

2018

 

2017

 

Total Change

 

       

 

(P$ million)

 

%

 

(P$ million)

 

 (P$ million) % (P$ million) 

Employee benefit expenses and severance payments

 

30,048

 

11,665

 

158

 

18,383

 

  58,476 63,348 (7.7) (4,872)

Interconnection and transmission costs

 

5,525

 

1,311

 

321

 

4,214

 

  11,254 10,238 9.9 1,016 

Fees for services, maintenance, materials and supplies

 

16,261

 

7,254

 

124

 

9,007

 

  33,012 36,223 (8.9) (3,211)

Taxes and fees with the Regulatory Authority

 

13,609

 

4,859

 

180

 

8,750

 

  23,020 25,029 (8.0) (2,009)

Commissions and advertising

 

11,210

 

3,691

 

204

 

7,519

 

  17,252 19,893 (13.3) (2,641)

Cost of equipment and handsets

 

9,667

 

493

 

1,861

 

9,174

 

  11,132 14,634 (23.9) (3,502)

Programming and content costs

 

12,156

 

9,116

 

33

 

3,040

 

  20,169 24,548 (17.8) (4,379)

Bad debt expenses

 

3,527

 

901

 

291

 

2,626

 

  10,805 8,619 25.4 2,186 

Other operating income and expenses

 

9,675

 

3,246

 

198

 

6,429

 

Total operating costs
(without depreciation, amortization and Impairment of PP&E and intangible assets)

 

111,678

 

42,536

 

163

 

69,142

 

Other operating expenses  13,588 15,212 (10.7) (1,624)
Total operating costs (without depreciation, amortization and impairment of fixed assets)  198,708 217,744 (8.7) (19,036)

  

Employee benefit expenses and severance payments

 

Employee benefit expenses and severance payments increaseddecreased P$18,3834,872 million amounting to P$30,04858,476 million in 2020 as compared to P$63,348 million in 2019. The decrease was mainly due to a reduction in headcount to 23,254 employees as of December 31, 2018 as compared2020, and lower severance payments, partially offset by increases in salaries agreed by the Company with several trade unions with respect to P$11,665 millionunionized and non-unionized employees, together with related social security charges.

The effect generated by the restatement in current currency as of December 31, 2017. The increase was mainly driven by the combination of Telecom and Cablevision’s operations following the Merger (see “Item 6—Directors, Senior Management and Employees—“Employees and Labor Relations”) partially offset by the inflationary effect of restatement of Cablevisión figures. The headcount amounted to 25,343 employees at the end of 2018 compared to 11,384 at the end of 2017.

An amount of P$5,401 million and P$4,478 million related to the effect of inflation adjustment under IAS29 is2020 included in Employee benefit expenses and severance payments as of December 31, 2018amounted to P$8,298 million and 2017,P$25,027 million in 2020 and 2019, respectively.

 

Interconnection and transmission costs

 

Interconnection and transmission costs (including charges for TLRD, Roaming and cost of international outbound calls and lease of circuits) increased P$4,2141,016 million, amounting to P$5,52511,254 million in 2020 as compared to P$1,31110,238 million as of December 31, 2018 and 2017,in 2019, respectively. The increase was mainly drivendue to increases in the exchange rate in relation to services set in US$ and the increase in TLRD services.

The effect generated by the combinationrestatement in current currency as of Telecom’s and Cablevision’s operations following the Merger.

An amount of P$975 million and P$497 million related to the effect of inflation adjustment under IAS29 isDecember 31, 2020 included in Interconnection and transmission costs as of December 31, 2018amounted to P$1,591 million and 2017,P$4,083 million in 2020 and 2019, respectively.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

Fees for services, maintenance, materials and supplies

 

Fees for services, maintenance, materials and supplies increaseddecreased P$9,0073,211 million, or 124%8.9%, amounting to P$16,26133,012 million in 2020 as compared to P$36,223 million in 2019. Fees for services decreased in 2020 mainly due to the optimization of consumption of materials and to the effect of lower activity as a result of the ASPO, partially offset by increases in supplier’s services prices related to the maintenance of our networks and systems and home connections and disconnections of customers, among others.

The effect generated by the restatement in current currency as of December 31, 2018 from P$7,254 million as of December 31, 2017.The increase was mainly driven by the combination of Telecom and Cablevision’s operations following the Merger. There have been increases in fees for services, related to call centers and to higher professional fees driven by a higher level of activity and new projects and services linked to operational management in general. There were also higher technical, hardware and software maintenance costs due to the increase in prices, fluctuation of the exchange rate P$/US$ and the higher level of activity, partially offset by the inflationary effect of restatement of Cablevisión figures.

An amount of P$3,147 million  and P$3,188 million related to the effect of inflation adjustment under IAS29 is2020 included in Fees for services, maintenance, materials and supplies as of December 31, 2018amounted to P$5,283 million and 2017,P$14,824 million in 2020 and 2019, respectively.

 

Taxes and fees with the Regulatory Authority

 

Taxes and fees with the Regulatory Authority, including turnover tax, municipal taxes and other taxes, increaseddecreased P$8,7502,009 million or 8.0%, amounting to P$23,020 million in 2020 as compared to P$25,029 million in 2019. The decrease was mainly to the effect of the decrease in sales in 2020.

The effect generated by the restatement in current currency as of December 31, 2018, or 180%, amounting to P$13,609 million as of December 31, 2017. The increase was mainly driven by the combination of Telecom’s and Cablevision’s operations following the Merger. The increase is also due to the increase in sales, at nominal value, partially offset by the inflationary effect of restatement of Cablevisión figures.

An amount of P$2,482 million and P$1,875 million related to the effect of inflation adjustment under IAS29 is2020 included in Taxes and fees with the Regulatory Authority as of December 31, 2018amounted to P$3,364 million and 2017,P$9,998 million in 2020 and 2019, respectively.

 

Commissions and advertising

 

Commissions (including commissions paid to agents, prepaid cardcollection commissions and others) and advertising, increaseddecreased P$7,5192,641 million or 204%13.3%, amounting to P$11,21017,252 million in 2020, as of December 31, 2018, as comparecompared to P$3,69119,893 million asin 2019. The decrease was due to lower charges for agent commissions, lower equipment sales and a decrease in advertising of December 31, 2017. The increase was mainly driventhose equipment due to the lower activity caused by the combination of Telecom and Cablevision’s operations following the Merger. Telecom paid higher commissions to commercial channels and collections fees. The increase is partially offset by the inflationary effect of restatement of Cablevisión figures.

An amount of P$1,987 million and P$1,428 million related to the effect of inflation adjustment under IAS29 is included in Commissions and advertising as of December 31, 2018 and 2017, respectively.

Cost of equipment and handsets

Cost of equipment and handsets sold increased P$9,174 million to P$9,667 million as of December 31, 2018 from P$493 million as of December 31, 2017. The increase was mainly driven by the combination of Telecom and Cablevision’s operations following the Merger. The amount of 2018, mainly amounted to cost of mobile handsets sold in Argentina.

An amount of P$2,409 million and P$197 million related to the effect of inflation adjustment under IAS29 is included in Cost of equipment and handsets as of December 31, 2018 and 2017, respectively.

Programming and content costs

Programming and content costs increased P$3,040 million to P$12,156 million as of December 31, 2018 from P$9,116 million as of December 31, 2017.The increase was mainly driven by the combination of Telecom’s and Cablevision’s operations following the Merger. Also, the increase is explained by the incorporation of the cost of signals to broadcast live soccer matches of the first division of the Argentine Football Association and to price increases and fluctuations of the P$/US$ exchange rate, partially offset by the effect of inflation adjustment under IAS29 of Cablevisión figures.

An amount of P$2,211 million and P$3,501 million related to the effect of inflation adjustment under IAS29 is included in Programming and content costs as of December 31, 2018 and 2017, respectively.ASPO.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

S.A.


Since the first day of the ASPO, we launched a campaign promoting all digital communication channels and encouraging customers to use those channels for commercial purposes. In order to handle that new demand, we enhanced digital support by implementing special microsites identified as “I pay from home”. On the other hand, we maintained our media presence promoting our new services and solutions, such as “Convergent Offer” and “Mi Negocio Personal”, as well as promoting Flow.

The effect generated by the restatement in current currency as of December 31, 2020 included in Commissions and advertising amounted to P$2,455 million and P$7,868 million in 2020 and 2019, respectively.

Bad debt expensesCost of equipment and handsets

 

Cost of equipment and handsets sold decreased P$3,502 million, amounting to P$11,132 million in 2020 as compared to P$14,634 million for 2019. Thereby, P$10,258 million of this amount correspond to cost of handsets sold in Argentina, which decreased 25.7% mainly due to lower handsets sold as compared to 2019 (-28%), partially offset by the increase in the purchase prices of handsets.

The effect generated by the restatement in current currency as of December 31, 2020 included in Cost of equipment and handsets amounted to P$2,112 million and P$6,897 million in 2020 and 2019, respectively.

Programming and content costs

Programming and content costs decreased by P$4,379 million, amounting to P$20,169 million in 2020 as compared to P$24,548 million in 2019. The decrease was mainly due to operating efficiencies and the impact generated by the lower cost of some sport signals, partially offset by the increase in the price of almost all the signals.

It should be noted that between April and October 2020 no revenues related to domestic soccer transmissions were recorded, considering that the activity was suspended as a consequence of the COVID-19 pandemic.

The effect generated by the restatement in current currency as of December 31, 2020 included in Programming and content costs amounted to P$2,969 million and P$9,789 million in 2020 and 2019, respectively.

Bad debt expenses

Bad debt expenses increased P$2,6262,186 million, amounting to P$3,52710,805 million as of December 31, 2018,for 2020, representing approximately 2.1%3.6% and 1.4%2.7% of the consolidated revenues in 20182020 and 2017,2019, respectively. TheThis increase was mainly drivendue to the deterioration of the economic situation of the country, including the temporary suspension on disconnection of services in cases of delay or default in payments provided by the combination of Telecom’s and Cablevision’s operations following the Merger. Decree No. 311/20, as disclosed in Note 29 to our Consolidated Financial Statements.

The increase includes the impact of P$367 millioneffect generated by the applicationrestatement in current currency as of IFRS 9 since January 1,  2018.

An amount of P$620 million and P$344 million related to the effect of inflation adjustment under IAS29 isDecember 31, 2020 included in Bad debt expenses amounted to P$1,674 million and P$3,466 million in 2020 and 2019, respectively.

Other operating expenses

Other operating expenses (which include provisions, energy and other public services, insurance, leases and internet capacity, among others) decreased P$1,624 million to P$13,588 million in 2020 as compared to P$15,212 million in 2019. The decrease is mainly due to lower rentals and internet capacity charges, lower energy costs and other public charges and other diverse charges, partially offset by higher provisions.

The effect generated by the restatement in current currency as of December 31, 20182020 included in Other operating expenses amounts to P$1,869 million and 2017,P$6,147 million in 2020 and 2019, respectively.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTSTELECOM ARGENTINA S.A.


Adjusted EBITDA

 

An important operational performance measure used by the Company´sCompany’s Chief Operating Decision Maker (as this term is defined in IFRS 8) is Adjusted EBITDA. Adjusted EBITDA is defined as our net (loss) income less income taxes, financial results, Earnings (losses) from associates, depreciation, amortization and impairment of PP&E.fixed assets. We believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations such as capital structures, taxation and the useful lives and book depreciation and amortization of PP&E and intangible assets, which may vary for different companies for reasons unrelated to operating performance. Although Adjusted EBITDA is not a measure defined in accordance with IFRS (a non-GAAP measure), our Management believes that this measure facilitates operating performance comparisons from period to period and provides useful information to investors, financial analysts and the public in their evaluation of our operating performance. Adjusted EBITDA does not have a standardized meaning and, accordingly, our definition of Adjusted EBITDA may not be comparable to Adjusted EBITDA as used by other companies.

 

The following table shows the reconciliation of Net incomeloss to Adjusted EBITDA:

 

 

Years Ended December 31,

 

 

 

 

 

 Years Ended December 31,      

 

2018

 

2017

 

Total Change

 

 2020 2019 Total Change 

 

(P$ million)

 

%

 

 

 

       

Net income

 

5,536

 

9,859

 

(44

)

(4,323

)

Income tax benefit (expense)

 

2,838

 

(5,516

)

n/a

 

8,354

 

 (P$ million) %    
Net loss  (5,104)  (5,293)  (3.6)  189 
Income tax expense  8,251   19,290   (57.2)  (11,039)

Other financial results, net

 

15,177

 

930

 

n/a

 

14,247

 

  (7,055)  (15,426)  (54.3)  8,371 

Debt financial expenses

 

(33,972

)

(217

)

n/a

 

(33,755

)

  24,698   22,677   8.9   2,021 

Earnings from associates

 

236

 

353

 

(33

)

(117

)

(Earnings) losses from associates  (496)  255   n/a   (751)

Operating income

 

21,257

 

14,309

 

49

 

6,948

 

  20,294   21,503   (5.6)  (1,209)

Depreciation, amortization and Impairment of PP&E and intangible assets

 

(35,111

)

(9,804

)

258

 

(25,307

)

Depreciation, amortization and impairment of fixed assets  82,594   83,439   (1.0)  (845)

Adjusted EBITDA

 

56,368

 

24,113

 

134

 

32,255

 

  102,888   104,942   (2.0)  (2,054)

 

Our consolidated Adjusted EBITDA wasamounted to P$56,368102,888 million in 2018, (representing an increase2020, representing a decrease of P$32,2552,054 million or 134% from2.0% as compared to P$24,113104,942 million in 2017). It2019. Adjusted EBITDA represented 33.5%34.1% and 36.2%32.5% of our total consolidated revenues in 20182020 and 2017,2019, respectively. The increasedecrease can be largely attributed to the incorporation of Telecom’sa decrease in revenues, andpartially offset by a decrease in almost all operating costs in 2018.costs.

 

Depreciation, Amortization and Impairment of PP&E and intangiblefixed assets

 

Depreciation, amortization and impairment of PP&E and intangiblefixed assets increaseddecreased P$25,307845 million, amounting to P$35,11182,594 million in 2020 as compared to P$83,439 million in 2019. The decrease was mainly due to the spectrum impairment of P$2,917 million recognized as a result of the Merger in 2019, partially offset by the amortization of capital expenditures incurred in 2020.

The effect generated by the restatement in current currency as of December 31, 2018 from P$9,804 million as of December 31, 2017.The increase was mainly driven by the combination of Telecom and Cablevision’s operations following the Merger. The charges for depreciation of PP&E and amortization of intangible assets amount to P$33,021 million and P$9,804 million, as of December 31, 2018 and 2017, respectively.

An amount of P$12,942 million and P$5,818 million related to the effect of inflation adjustment under IAS 29 is2020 included in depreciation,Depreciation, amortization and impairment of PP&Efixed assets amounted to P$46,386 million and intangible assets, as of December 31, 2018P$54,546 million in 2020 and 2017;2019, respectively.

 

Operating income

In 2020, our consolidated operating income amounted to P$20,294 million, representing a decrease of P$1,209 million or 5.6% as compared to 2019. Operating income represented 6.7% of consolidated revenues in 2020 and 2019, respectively.

  Years Ended December 31,  % of Change 
  2020  2019  2020-2019 
  (P$ million / %)  Increase/(Decrease) 
Adjusted EBITDA (1)  102,888   104,942   (2.0)
As % of revenues  34.1   32.5     
Depreciation, amortization and impairment of fixed assets  (82,594)  (83,439)  (1.0)
As % of revenues  (27.4)  (25.9)    
Operating income  20,294   21,503   (5.6)
As % of revenues  6.7   6.7     

(1)
Adjusted EBITDA is a non-GAAP measure. See the purpose of use of adjusted EBITDA and reconciliation of net loss to adjusted EBITDA in section “Adjusted EBITDA”.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

S.A.

Operating income

 

During 2018, consolidated operating income was P$21,257 million, representing an increase of P$6,948 million or 49% from 2017. Operating income represented 12,6% and 21,5% of consolidated revenues in 2018 and 2017, respectively.78

 

 

Years Ended December 31,

 

% of Change

 

 

 

2018

 

2017

 

2018-2017

 

 

 

(P$ million / %)

 

Increase/(Decrease)

 

Adjusted EBITDA (1)

 

56,368

 

24,113

 

134

 

As % of revenues

 

34

 

36

 

 

 

Depreciation, amortization and Impairment of PP&E

 

(35,111

)

(9,804

)

258

 

As % of revenues

 

(21

)

(15

)

 

 

Operating income

 

21,257

 

14,309

 

49

 

As % of revenues

 

13

 

21

 

 

 


(1) Adjusted EBITDA is a non-GAAP measure. See the purpose of use of adjusted EBITDA and reconciliation of net income to adjusted EBITDA in section “Adjusted EBITDA”.

Financial Results, net

 

Financial results,Results, net resulted

We incurred in afinancial losses, net loss of P$18,79517,643 million representingin 2020, as compared to a higherfinancial loss, net of P$19,5087,251 million fromin 2019. Financial Results, net in 2020 mainly include losses generated by (i) interest on financial debt measured in real terms of P$14,368 million (vs. P$14,628 million in 2019), (ii) financial debt renegotiation results of P$3,444 million, as a consequence of the partial refinancing of our financial debt (see Note 13 to our Consolidated Financial Statements), (iii) foreign exchange differences measured in real terms of P$1,949 million as a result of a 40.5% devaluation of the Argentine peso against the US dollar vs. a 36.1% inflation (vs. a gain of P$7131,888 million asin 2019), and (iv) other interests, net and other investments results measured in real terms of December 31, 2017. The increase was mainly drivenP$1,355 million (vs. a gain of P$1,453 million in 2019). These losses were partially offset by a gain on operations with notes and bonds of P$935 million (vs. a loss of P$3,547 million in 2019) and the effect generated by the combination of Telecom and Cablevisión’s operations following the Merger. The variationrestatement in Financial Results, is also due to higher foreigncurrent currency, exchange net losses due to an 102.2% depreciation of the peso against the US$ during 2018 comparedwhich amounted to a 17.5% depreciationgain of the peso against the US$P$5,598 million (vs. P$10,345 million in 2017, and higher financial debt losses net amounting to P$1,429 million.

On the other hand, the result is included due to exposure to inflation net monetary results, which amounts to P$13,403 million and P$1,907 million, approximately, as of December 31, 2018 and 2017, respectively.

Income tax benefit (expense)2019).

 

Income tax benefit (expense) amounted to P$2,838 million and P$(5,516) million in 2018 and 2017, respectively.expense

 

The Company’s income tax charge includes twothe following effects: (i) the current tax payable for the year pursuant to tax legislation applicable to each company in theof Telecom Group;Argentina and its subsidiaries; (ii) the effect of applying the deferred tax method on temporary differences arising out of the asset and liability valuation according to tax versus financial accounting criteria. These two effects also considercriteria and; (iii) the change in applicable statutory income tax rate.inflation adjustment in accordance with the provisions of Law No. 27,430, as amended by Law No. 27,468. For more information on income tax, see Note 3 and Note 15 to our Consolidated Financial Statements.

 

Income tax expense amounted to a loss of P$8,251 million in 2020 as compared to a loss of P$19,290 million in 2019. It includes the following effects: (i) Regardingregarding current tax expenses, Telecom´s generated tax profitexpense in fiscal year 2017, resulting in an income tax payable ofyears 2020 and 2019, amounting to P$4,819 million.241 million and P$218 million, respectively. (ii) Regardingregarding the deferred tax, in 20182020 and 2017, Telecom´s2019, Telecom recorded a deferred tax gain of P$2,838 million and a loss of  P$6978,010 million and P$19,072 million, respectively, which includes the income tax inflation adjustment of P$14,842 million and P$20,685 million in 2020 and 2019, respectively. The gain in 2018 correspond to the tax loss carryforward recognized mainly due to higher foreign currency exchange net losses due to an 102.2% depreciationSee “—Factors Affecting Results of the peso against the US$ during 2018.Operations—Income Tax Inflation Adjustment”.

 

Net IncomeLoss

 

Telecom Argentina recorded a net incomeloss of P$5,5365,104 million in 2018, which means2020 as compared to a decreasenet loss of P$4,3235,293 million for 2019 and represents (1.7)% of consolidated revenues as compared to (1.6)% in relation2019. The variation was mainly due to the financial losses, net amounting to P$17,643 million and the income oftax expense amounting to P$9,8598,251 million, in  December 31, 2017, representing 3.3% of the consolidated revenues (vs. 14.8% in 2017). partially offset by an operating income amounting to P$20,294 million.

Net incomeloss attributable to controlling shareholders amounted to P$5,2945,715 million in 2018 vs. an income2020 as compared to a net loss of P$9,7315,985 million as of December 31, 2017.in 2019.

 

(A.2) 2019 Compared to 2018

  Years Ended
December 31,
       
  2019  2018  Total Change 
          
  (P$ million)  %  (P$ million) 
Revenues  322,686   351,948   (8.3)  (29,262)
Operating costs (without depreciation, amortization and Impairment of fixed assets)  (217,744)  (233,892)  (6.9)  16,148 
Adjusted EBITDA(1)  104,942   118,056   (11.1)  (13,114)
Depreciation, amortization and impairment of fixed assets  (83,439)  (73,535)  13.5   (9,904)
Operating income  21,503   44,521   (51.7)  (23,018)
(Losses) Earnings from associates  (255)  494   n/a   (749)
Debt financial expenses  (22,677)  (71,150)  (68.1)  48,473 
Other financial results, net  15,426   31,786   (51.5)  (16,360)
Income tax (expense) benefit  (19,290)  5,943   n/a   (25,233)
Net (loss) income  (5,293)  11,594   n/a   (16,887)
                 
Net (loss) income attributable to:                
Telecom Argentina (Controlling Company)  (5,985)  11,089   n/a   (17,074)
Non-controlling interest  692   505   37.0   187 

(1)
Adjusted EBITDA is a non-GAAP measure. See the purpose of use of adjusted EBITDA and reconciliation of net income to adjusted EBITDA in section “Adjusted EBITDA.”

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

S.A.

(A.2) 2017 Compared to 2016

 

 

Years Ended

December 31,

 

 

 

 

 

2017

 

2016

 

Total Change

 

 

 

(P$ million)

 

%

 

(P$ million)

 

Revenues

 

66,649

 

60,405

 

10

 

6,244

 

Operating costs
(without depreciation, amortization and Impairment of PP&E)

 

(42,536

)

(40,206

)

6

 

(2,330

)

Adjusted EBITDA(1)

 

24,113

 

20,199

 

19

 

3,914

 

Depreciation, amortization and Impairment of PP&E

 

(9,804

)

(7,883

)

24

 

(1,921

)

Operating income

 

14,309

 

12,316

 

16

 

1,993

 

Earnings from associates

 

353

 

221

 

60

 

132

 

Debt financial expenses

 

(217

)

(595

)

(64

)

378

 

Other financial results, net

 

930

 

4,619

 

(80

)

(3,689

)

Income tax benefit (expense)

 

(5,516

)

(6,015

)

(8

)

499

 

Net income

 

9,859

 

10,546

 

(7

)

(687

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

Telecom Argentina (Controlling Company)

 

9,731

 

10,457

 

(7

)

(726

)

Non-controlling interest

 

128

 

89

 

44

 

39

 


(1)   Adjusted EBITDA is a non-GAAP measure. See the purpose of use of adjusted EBITDA and reconciliation of net income to adjusted EBITDA in section “Adjusted EBITDA”.

 

Revenues79

 

 

Years Ended

December 31,

 

 

 

 

 

 

 

2017

 

2016

 

Total Change

 

 

 

(P$ million)

 

%

 

(P$ million)

 

Mobile Services

 

4,274

 

7,736

 

(45

)

(3,462

)

Internet Services

 

19,354

 

13,789

 

40

 

5,565

 

Cable Television Services

 

39,914

 

36,929

 

8

 

2,985

 

Fixed and Data Services

 

1,897

 

996

 

90

 

901

 

Other services revenues

 

835

 

712

 

17

 

123

 

Service Revenues

 

66,274

 

60,162

 

10

 

6,112

 

Equipment revenues

 

375

 

243

 

54

 

132

 

Revenues

 

66,649

 

60,405

 

10

 

6,244

 

During 2017, total consolidated revenues increased by 10% to P$66,649 million from P$60,405 million in 2016, mainly driven by revenues the internet services and premium cable TV services.

 

An amount of Net loss for 2019 amounted to P$5,293P$25,712 million and was mainly affected by the recognition of a loss of P$29,86620,685 million relatedcorresponding to the effect of the income tax inflation adjustment under IAS 29restatement in accordance with the provisions of Law No. 27,430, as amended by Law No. 27,468. See “—Factors Affecting Results of Operations—Income Tax Inflation Adjustment”.

Revenues

  Years Ended
December 31,
  ��    
  2019  2018  Total Change 
          
  (P$ million)  %  (P$ million) 
Mobile Services  111,901   121,003   (7.5)  (9,102)
Internet Services  71,677   79,045   (9.3)  (7,368)
Cable Television Services  67,262   75,538   (11.0)  (8,276)
Fixed and Data Services  51,137   48,482   5.5   2,655 
Other services revenues  1,053   1,000   5.3   53 
Service Revenues  303,030   325,068   (6.8)  (22,038)
Equipment revenues  19,656   26,880   (26.9)  (7,224)
Revenues  322,686   351,948   (8.3)  (29,262)

During 2019, total consolidated revenues decreased 8.3% amounting to P$322,686 million as compared to P$351,948 million in 2018. The decrease in 2019 is includedmainly a consequence of lower mobile, internet and cable television services revenues and equipment revenues, partially offset by higher fixed and data services revenues.

Consolidated revenues were mainly fueled by services revenues.

Services revenues amounted to P$303,030 million in Revenues,2019, decreasing 6.8% as compared to P$325,068 million in 2018 and represented 93.9% of consolidated revenues. Equipment revenues amounted to P$19,656 million in 2019 as compared to P$26,880 million in 2018, and represented 6.1% of consolidated revenues.

The effect generated by the restatement in current currency as of December 31, 20172020 increased consolidated revenues by to P$128,505 million and 2016;P$214,788 million in 2019 and 2018, respectively.

 

Consolidated service revenues for 20172019 and 20162018 are comprised as follows:

Mobile Services

 

MobileFor 2019, mobile services revenues amounted to P$4,274111,901 million (a decrease of P$9,102 million or 7.5% as compared to 2018), and our mobile services revenues remained the principal contributor to our total services revenues in 2019 (34.7% of consolidated revenues in 2019 as compared to 34.4% in 2018). The decrease in 2019 was mainly due to lower revenues generated from Personal mobile services in Argentina which amounted to P$96,746 million (a decrease of P$10,253 million or 9.6% compared to 2018), in turn due to a decrease of approximately 3.7% in ARPU, partially offset by an increase in our customer base of 3.4%.

Personal's mobile customers amount to 18.9 million and 18.3 million as of December 31, 2017, representing a decrease2019 and 2018, respectively, of P$3,462which 7.7 million or -45% as compareand 7.2 million, respectively, correspond to December 31, 2016.postpaid customers, respectively. The decrease is mainly duemain ratios related to the 35.1% reduction in the number of IDEN subscribers.services provided to these customers were:

 

·
60% of total are prepaid customers and 40% consist of postpaid customers as of December 31, 2019, compared to 61% and 39% respectively, as of December 31, 2018.

·Mobile internet services revenues represent 76% of Personal’s customer total services revenues.

·The ARPU is P$431.7 as of December 31, 2019 (vs. P$448.0 as of December 31, 2018), representing a 3.6% decrease. The effect generated by the restatement in current currency as of December 31, 2020 included P$175.3 and P$273.8 in ARPU as of December 2019 and 2018, respectively.

·The average churn rate per month amounted to 2.9% in December 2019 (vs. 2.6% average in December 2018).

On June 30, 2019, all services identified under the Nextel brand (including the radio service over IDEN network) were discontinued. We offered customers a new option to continue communicating under the Smart Radio brand, which is a service for direct and immediate voice connections with multimedia messaging for companies and governments. It offers the best benefits of Personal 3G / 4G network and also for Wi-Fi. In addition, hard equipment were incorporated, such as CAT S31 and Cyrus CM17, which have dedicated buttons specially designed for work contexts, either in a construction or in industrial facilities.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

S.A.

80

Regarding infrastructure, the Company continued to enhance the mobile internet experience of its customers through the deployment of its 4G and 4G+ network throughout the country, which currently covers more than 1,689 locations from La Quiaca to Ushuaia, and reaching more than 13.6 million customers with 4G devices throughout the country. Accompanying these improvements, through a massive communication campaign, the 4G Personal Network was promoted as the fastest in the country -based on the results of international benchmarks that measure network standards through the worldwide experience of customers-.

On the other hand, in early 2019, Personal and Fibertel brands came together to offer the best Wi-Fi connectivity and 4G service experience, with benefits for Club Personal customers.

ARPU of Mobile Services in Argentina

A monthly operational measure used in the mobile services is ARPU, which we calculate by dividing adjusted total service revenues —excluding outcollect wholesale roaming, cell site rental and reconnection fee revenues and others— (divided by 12 months) by the average number of subscribers during the period. ARPU is not a measure calculated in accordance with IFRS and our measure of ARPU may not be calculated in the same manner as similarly titled measures used by other companies. In particular, certain components of service revenues are excluded from Personal’s ARPU calculations presented in this Annual Report. Management believes that this measure is helpful in assessing the development of the subscriber base of mobile services. The following table shows the reconciliation of total service revenues to such revenues included in the ARPU calculations of 2019:

Year Ended December 31,
2019
(P$ million)
Total Mobile service revenues96,746
Components of service revenues not included in the ARPU calculation: Outcollect
wholesale roaming, cell sites rental, Reconnection fees and others
(472)
Adjusted total service revenues included in the ARPU calculation96,274
Average number of subscribers during the year (thousands)18,584

Mobile services revenues generated in Paraguay amounted to P$15,155 million in 2019 (vs. P$14,005 million in 2018, representing an 8.2% increase) due to the appreciation of the Guaraní against the Argentine Peso by 32.1% and the increase in ARPU, while the customer base remained stable. The main ratios related to mobile services in Paraguay as of December 31, 2019 were:

·Núcleo’s subscriber base was 2.3 million and 2.4 million customers as of December 31, 2019 and 2018, respectively;
·approximately 83% of the total of customers consisted of prepaid customers, and 17% consist of postpaid customers, as of December 31, 2019 and 2018, respectively;
·the ARPU is P$472.4 as of December 31, 2019 (vs. P$432.1 as of December 31, 2018), representing a 9.3% variation. The increase was mainly due to an improvement in ARPU measured in Guaraníes of 6.7% and the effect of the exchange rate differences; and
·the churn rate per month amounted to 3.2% in 2019 (vs. 3.0% in 2018).

The effect generated by the restatement in current currency as of December 31, 2020 included in Mobile services revenues amounted to P$44,463 million and P$74,093 million in 2019 and 2018, respectively.

Internet Services

 

Internet services revenues amounted to P$19,35471,677 million representing an increasein 2019 (equivalent to 22.2% of total consolidated revenues), decreasing P$5,5657,368 million or +40%9.3% as compared to P$13,78979,045 million in 2016,2018 and were driven mainly driven by a 7.4% increasethe variation in the numberInternet ARPU of broadband Internet subscribers(9.7)%, which reached P$1,441.5 in 2019 as compared to P$1,595.8 in 2018. The effect generated by the same periodrestatement in 2016, the fastest speed options offered to our customers and the increase in the average plan prices.

An amount of P$7,447 million and P$6,823 million related to the effect of inflation adjustment under IAS 29 is included in Internet service revenues,current currency as of December 31, 2017 and 2016; respectively.

In 2017, total ARPU was P$ 890.1; representing an increase of 20.5% compared to 2016.

Cable Television Services

Cable television service revenues increased 8%, from P$36,929 million in 2016 to P$39,914 million in 2017. That increase is due to: (i) a31.1% increase in the average amount of the invoice, as a consequence of the increases according to the price policy and (ii) an increase of 15.3% in the amount of active decoders (HD, digital, Flow) (iii) net of a slight decrease in the number of total subscribers.

An amount of P$15,436 million and P$18,273 million related to the effect of inflation adjustment under IAS 29 is2020 included in Cable Television Services,ARPU amounts to P$571.3 and P$971.5 as of December 31, 20172019 and 2016,2018, respectively.

 

FixedCustomers with service of 20Mb or higher represented 62.4% and Data Services

Fixed and Data Services revenues amounted to P$1,897 million39.3% of the total customer base as of December 31, 2017, representing an increase2019 and 2018, respectively. Within this range there are customers who have plans of P$901 million or +90% as compare to December 31, 2016.

Operating costs (without depreciation, amortization100 Mb and impairment of PP&E)

Total operating costs (without depreciation and amortization and impairment of PP&E) increased by P$2,330 million totaling P$42,536 million in 2017, representing a 6% increase as compared to 2016. The increase was mainly driven by employee benefit expenses and severance payments (which together totaled P$11,665 million); taxes and fees with the Regulatory Authority (which totaled P$4,859 million); programming and content costs (which totaled P$9,116 million); and commissions and advertising (which totaled P$3,691 million).

An amount of P$16,750 million and P$20,527 million related300 Mb (recently released to the effect of inflation adjustment under IAS 29 is included in Operating costs (without depreciation and amortization and impairment of PP&E)market), that as of December 31, 20172019 amount to 326,402 and 2016;41,354, respectively.

 

 

 

Years Ended
December 31,

 

 

 

 

2017

 

2016

 

Total Change

 

 

 

(P$ million)

 

%

 

(P$ million)

 

Employee benefit expenses and severance payments

 

11,665

 

10,603

 

10

 

1,062

 

Interconnection and transmission costs .

 

1,311

 

1,360

 

(4

)

(49

)

Fees for services, maintenance, materials and supplies

 

7,254

 

7,912

 

(8

)

(658

)

Taxes and fees with the Regulatory Authority

 

4,859

 

4,341

 

12

 

518

 

Commissions and advertising

 

3,691

 

3,464

 

7

 

227

 

Cost of equipment and handsets

 

493

 

882

 

(44

)

(389

)

Programming and content costs

 

9,116

 

7,778

 

17

 

1,338

 

Bad debt expenses

 

901

 

741

 

22

 

160

 

Other operating income and expenses

 

3,246

 

3,125

 

4

 

121

 

Total operating costs
(without depreciation, amortization and Impairment of PP&E)

 

42,536

 

40,206

 

6

 

2,330

 

Internet services churn rate per month amounted to 1.5% and 1.3% as of December 31, 2019 and 2018, respectively, maintaining stable the subscriber base in 2019, which amounts to 4.1 million.

 

The effect generated by the restatement in current currency as of December 31, 2020 included in internet services revenues amounted to P$28,614 million and P$48,175 million in 2019 and 2018, respectively.

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ARPU of Internet Services of Telecom Argentina

A monthly operational measure used in the internet services is ARPU, which we calculate by dividing adjusted total service revenues - excluding connection and rehabilitation fees revenues and others - (divided by 12 months) by the average number of subscribers during the period. ARPU is not a measure calculated in accordance with IFRS and our measure of ARPU may not be calculated in the same manner as similarly titled measures used by other companies. In particular, certain components of service revenues are excluded from Internet’s ARPU calculations presented in this Annual Report. Management believes that this measure is helpful in assessing the development of the subscriber base of Internet services. The following table shows the reconciliation of total service revenues to such revenues included in the ARPU calculations of 2019:

Year Ended December 31,
2019
(P$ million)
Total Internet service revenues71,677
Components of service revenues not included in the Internet ARPU calculation:
Connection and Reconnection fees and others
(256)
Adjusted total service revenues included in the ARPU calculation71,421
Average number of subscribers during the year (thousands)4,129

Cable Television Services

Cable television service revenues amounted to P$67,262 million in 2019 (equivalent to 20.8% of total consolidated revenues), decreasing P$8,276 million or 11% as compared to P$75,538 million in 2018. The decrease was mainly due to lower ARPU. The ARPU amounted to P$1,586.6 in December 2019, decreasing 11.3% as compared to an ARPU of P$1,789.2 in December 2018. The effect generated by the restatement in current currency as of December 31, 2020 included in ARPU amounts to P$626.5 and P$1,098.6 as of December 31, 2019 and 2018, respectively.

The monthly average churn remained stable during 2019 amounting to 1.3%.

The effect generated by the restatement in current currency as of December 31, 2020 included in cable television services revenues amounted to P$26,844 million and P$46,148 million in 2019 and 2018, respectively.

ARPU of Cable Television Services in Argentina

An important monthly operational measure used in the Cable Television services is ARPU, which we calculate by dividing adjusted total service revenues - excluding connection and administration fees, advertising services and others - (divided by 12 months) by the average number of subscribers during the period. ARPU is not a measure calculated in accordance with IFRS and our measure of ARPU may not be calculated in the same manner as similarly titled measures used by other companies. In particular, certain components of service revenues are excluded from Cable Television’s ARPU calculations presented in this Annual Report. Management believes that this measure is helpful in assessing the development of the subscriber base of cable television services. The following table shows the reconciliation of total cable television service revenues to such revenues included in the ARPU calculations of 2019:

Year Ended December 31,
2019
(P$ million)
Total Cable television service revenues62,610
Components of service revenues not included in the ARPU calculation:
Connection and Reconnection fees and others
(238)
Adjusted total service revenues included in the ARPU calculation62,372
Average number of subscribers during the year (thousands)3,276

Fixed and Data Services

Revenues generated by fixed and data services amounted to P$51,137 million in 2019 (equivalent to 15.8% of total consolidated revenues) increasing P$2,655 million or 5.5% as compared to P$48,482 million in 2018. The increase was mainly explained by higher data services in the context of the Company’s position as an integrated ICT service provider (Datacenter, VPN, among others) to wholesale and government customers.

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The effect generated by the restatement in current currency as of December 31, 2020 included in fixed and data services revenues amounted to P$20,238 million and P$29,383 million in 2019 and 2018, respectively.

In relation to fixed telephony services, monthly fees charged to both corporate and residential fixed telephony customers have increased, and we have also increased sales of combined product packs that include voice and Internet services, which aim to achieve higher levels of customer loyalty. These increases have been partially offset by a 10.2% decrease in our fixed telephony customer base as compared to 2018. The average monthly revenue billed per user (“ARBU”) of fixed telephony services increased to P$602.0 in 2019 from P$567.2 in 2018. The effect generated by the restatement in current currency as of December 31, 2020 included in ARBU amounts to P$244.4 and P$347.6 as of December 31, 2019 and 2018, respectively.

On the other hand, the increase in Data services revenues is mainly explained by the variation of the $/US$ exchange rate related to agreements settled in such foreign currency.

Equipment

Equipment revenues amounted to P$19,656 million in 2019 (a decrease of P$7,224 million or 26.9% as compared to 2018). The decrease was mainly due to lower handsets sold as compared to 2018 (34%), partially offset by an approximately 71% increase in handset sales prices to mobile services customers as compared to 2018.

The Company continued to promote the updating of handsets with financed offers and special discounts highlighting the convergence of services.

The effect generated by the restatement in current currency as of December 31, 2020 included in equipment revenues amounted to P$7,935 million and P$16,418 million in 2019 and 2018, respectively.

Operating costs (without depreciation, amortization and impairment of fixed assets)

Total operating costs (without depreciation, amortization and impairment of fixed assets) decreased P$16,148 million in 2019, amounting to P$217,744 million, representing a 6.9% decrease as compared to 2018. These lower costs are mainly associated with the decrease in Taxes and fees with the Regulatory Authority, Commissions and advertising, Cost of equipment and handsets and Interconnection and transmission costs, partially offset by an increase in the charge for bad debt expenses.

The effect generated by the restatement in current currency as of December 31, 2020 included in Operating costs (without depreciation, amortization and impairment of fixed assets) amounted to P$88,099 million and P$143,106 million in 2019 and 2018, respectively.

  

Years Ended

December 31,

    
  2019  2018  Total Change 
  (P$ million)  %  (P$ million) 
Employee benefit expenses and severance payments  63,348   62,316   1.7   1,032 
Interconnection and transmission costs  10,238   11,572   (11.5)  (1,334)
Fees for services, maintenance, materials and supplies  36,223   34,672   4.5   1,551 
Taxes and fees with the Regulatory Authority  25,029   28,502   (12.2)  (3,473)
Commissions and advertising  19,893   23,477   (15.3)  (3,584)
Cost of equipment and handsets  14,634   20,245   (27.7)  (5,611)
Programming and content costs  24,548   25,458   (3.6)  (910)
Bad debt expenses  8,619   7,387   16.7   1,232 
Other operating expenses  15,212   20,263   (24.9)  (5,051)
Total operating costs (without depreciation, amortization and impairment of fixed assets)  217,744   233,892   (6.9)  (16,148)

Employee benefit expenses and severance payments

 

Employee benefit expenses and severance payments increased P$1,0621,032 million or 10% amounting to P$11,66563,348 million in 2019 as of December 31, 2017.compared to P$62,316 million in 2018. The increase was mainly due to increases in salaries agreed by the Company with several trade unions with respect to unionized and non-unionized employees, together with related social security charges, as well as higher charges for dismissals, partially offset by a decrease of 6.4% in headcount, which amounted to a lesser extent, increases in headcount.23,728 employees as of December 31, 2019 (as compared to 25,343 as of December 31, 2018).

 

An amount

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The effect generated by the restatement in current currency as of P$4,478 million and P$5,215 million related to the effect of inflation adjustment under IAS 29 isDecember 31, 2020 included in Employee benefit expenses and severance payments as of December 31, 2017amounted to P$25,027 million and 2016;P$37,913 million in 2019 and 2018, respectively.

 

Interconnection and transmission costs

 

Interconnection and transmission costs (including charges for TLRD, Roaming, cost of international outbound calls and lease of circuits) decreased P$491,334 million, amounting to P$1,311 million.

An amount of10,238 million in 2019 as compared to P$49711,572 million and P$669 million relatedin 2018, respectively. The decrease was mainly due to the effect of inflation adjustment under IAS 29 is included in interconnection and transmission costs,operating efficiencies as of December 31, 20172019 as compared to December 31, 2018, partially offset by greater traffic and 2016;increases in the exchange rate in relation to services set in US$.

The effect generated by the restatement in current currency as of December 31, 2020 included in Interconnection and transmission costs amounted to P$4,083 million and P$7,022 million in 2019 and 2018, respectively.

 

Fees for services, maintenance, materials and supplies

 

Fees for services, maintenance, materials and supplies decreasedincreased P$6581,551 million, or 4.5%, amounting to P$7,25436,223 million in 2019 as of December 31, 2017. The decrease is mainly due to the more significant accounting impact of the restatement of our financial information on our revenues during the year 2016 compared to our revenues duringP$34,672 million in 2018.

Fees for services decreased P$1,143 million in 2019 as a result of synergies and unification of processes within the year 2017,Company's transformation program, partially offset by increases in fees forthe prices of the services relatedcontracted to maintenance net costs.suppliers mainly of Call center, surveillance and cleaning services.

 

An amountOn the other hand, maintenance and material costs increased P$2,694 million in 2019, mainly due to (i) increases in the prices of P$3,188 million and P$4,580 millionthe services contracted to suppliers related to the maintenance of our networks and systems and home connection and disconnection of customers, among others and (ii) higher consumption of materials associated with the activity.

The effect generated by the restatement in current currency as of inflation adjustment under IAS 29 isDecember 31, 2020 included in Fees for services, maintenance, materials and supplies as of December 31, 2017amounted to P$14,824 million and 2016;P$21,315 million in 2019 and 2018, respectively.

 

Taxes and fees with the Regulatory Authority

 

Taxes and fees with the Regulatory Authority, including turnover tax, municipal taxes and other taxes, increaseddecreased P$5183,473 million or 12.2%, amounting to P$4,85925,029 million in 2019 as compared to P$28,502 million in 2018. The decrease was mainly due to the effect of the decrease in sales in 2019, partially offset by the impact of the application of ENACOM Resolution No. 840/18 that introduced changes in the determination of the radio-electric rights fees.

The effect generated by the restatement in current currency as of December 31, 2017. This increase is mainly due to the increase in revenues. Public services and tax rates represented 7.3% and 7.2% of our revenues during 2017 and 2016, respectively.

An amount of P$1,875 million and P$2,145 million related to the effect of inflation adjustment under IAS 29 is2020 included in Taxes and fees with the Regulatory Authority amounted to P$9,998 million and P$17,375 million in 2019 and 2018, respectively.

Commissions and advertising

Commissions (including commissions paid to agents, prepaid card commissions and others) and advertising decreased P$3,584 million or 15.3%, amounting to P$19,893 million in 2019 as compared to P$23,477 million in 2018. The decrease was due to lower charges for agent commissions as a result of the reordering of the sales channel, lower equipment sales and a slight decrease in advertising due to the synergies after the Merger of 2018 that allowed reducing costs even with greater presence in various media, partially offset by higher collections fees.

The effect generated by the restatement in current currency as of December 31, 2017 and 2016; respectively.

Commissions and advertising

Commissions and advertising increased P$227 million to P$3,691 million as of December 31, 2017. The increase in the commissions fees is mainly due to the increase in revenues. The increase in advertising is related to the costs of advertising suppliers.

An amount of P$1,428 million and P$1,704 million related to the effect of inflation adjustment under IAS 29 is2020 included in Commissions and advertising as of December 31, 2017amounted to P$7,868 million and 2016;P$14,254 million in 2019 and 2018, respectively.

 

Cost of equipment and handsets

 

Cost of equipment and handsets sold decreased P$3895,611 million, amounting to P$49314,634 million in 2019 as compared to P$20,245 million in 2018. The decrease was mainly due to lower handsets sold as compared to 2018 (-34%), partially offset by the increase in the purchase prices of handsets.

The effect generated by the restatement in current currency as of December 31, 2017. This decrease in the cost of equipment was due to lower costs of corporate business projects.

An amount of P$197 million and P$436 million related to the effect of inflation adjustment under IAS 29 is2020 included in Cost of equipment and handsets as of December 31, 2017amounted to P$6,897 million and 2016;P$12,987 million in 2019 and 2018, respectively.

 

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Programming and content costs

 

Programming and content costs increaseddecreased slightly by P$1,338910 million, amounting to P$9,11624,548 million in 2019 as of December 31, 2017. This increase iscompared to P$25,458 million in 2018. The decrease was mainly due to increased operative efficiencies in 2019, partially offset by the increase in subscription rates on all of its platforms and the incorporation of the cost of signals, including the footballcost of signals to see all thebroadcast live soccer matches of the First Divisionfirst division of the Argentine Football Association (“AFA”) live. Programming costs represented.

The effect generated by the 23% and 21% of Cable TV revenuesrestatement in current currency as of December 31, 20172020 included in Programming and 2016, respectively. The programming contracts are not significantly affected by the devaluation, they are mainly denominated in pesos and are positively correlated with the growth of our subscriber base and the fees chargedcontent costs amounted to our subscribers.

An amount of P$3,5019,789 million and P$3,84715,513 million related to the effect of inflation adjustment under IAS 29 is included in Programming costs, as of December 31, 20172019 and 2016;2018, respectively.

Bad debt expenses

 

Bad debt expenses increased P$1601,232 million, amounting to P$9018,619 million in 2019, representing approximately 2.7% and 2.1% of the consolidated revenues in 2019 and 2018, respectively. The increase was mainly driven related to the reduction in the level of collections.

The effect generated by the restatement in current currency as of December 31, 2017, representing approximately 1.4% and 1.2% of the consolidated revenues as of December 31, 2017 and 2016, respectively.

An amount of P$344 million and P$365 million related to the effect of inflation adjustment under IAS 29 is2020 included in Bad debt expenses amounted to P$3,466 million and P$4,480 million in 2019 and 2018, respectively.

Other operating expenses

Other operating expenses (which include provisions, energy and other public services, insurance, leases and internet capacity, among others) decreased P$5,051 million amounting to P$15,212 million in 2019 as compared to P$20,263 million in 2018. The decrease was mainly due to a reduction in operating leases of P$5,010 million due to the application of IFRS 16, partially offset by higher energy costs.

The effect generated by the restatement in current currency as of December 31, 20172020 included in Other operating expenses amounts to P$6,147 million and 2016;P$12,247 million in 2019 and 2018, respectively.

 

Adjusted EBITDA

 

An important operational performance measure used by the Company´sCompany’s Chief Operating Decision Maker (as this term is defined in IFRS 8) is Adjusted EBITDA. Adjusted EBITDA is defined as our net (loss) income less income taxes, financial results, Earnings (losses) from associates, depreciation, amortization and impairment of PP&E.fixed assets. We believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations such as capital structures, taxation and the useful lives and book depreciation and amortization of PP&E and intangible assets, which may vary for different companies for reasons unrelated to operating performance. Although Adjusted EBITDA is not a measure defined in accordance with IFRS (a non-GAAP measure), our Management believes that this measure facilitates operating performance comparisons from period to period and provides useful information to investors, financial analysts and the public in their evaluation of our operating performance. Adjusted EBITDA does not have a standardized meaning and, accordingly, our definition of Adjusted EBITDA may not be comparable to Adjusted EBITDA as used by other companies.

 

The following table shows the reconciliation of Net (loss) income to Adjusted EBITDA:

 

 

Years Ended December 31,

 

 

 

 Years Ended December 31,       

 

2017

 

2016

 

Total Change

 

 2019 2018 Total Change 

 

(P$ million)

 

%

 

 

 

       

Net income

 

9,859

 

10,546

 

(7

)

(687

)

Income tax benefit (expense)

 

(5,516

)

(6,015

)

(8

)

499

 

 (P$ million) %    
Net (loss) income  (5,293)  11,594   n/a   (16,887)
Income tax (expense) benefit  19,290   (5,943)  n/a   25,233 

Other financial results, net

 

930

 

4,619

 

(80

)

(3,689

)

  (15,426)  (31,786)  (51.5)  16,360 

Debt financial expenses

 

(217

)

(595

)

(64

)

378

 

  22,677   71,150   (68.1)  (48,473)

Earnings from associates

 

353

 

221

 

60

 

132

 

Losses (Earnings) from associates  255   (494)  n/a   749 

Operating income

 

14,309

 

12,316

 

16

 

1,993

 

  21,503   44,521   (51.7)  (23,018)

Depreciation, amortization and Impairment of PP&E

 

(9,804

)

(7,883

)

24

 

(1,921

)

Depreciation, amortization and impairment of fixed assets  83,439   73,535   13.5   9,904 

Adjusted EBITDA

 

24,113

 

20,199

 

19

 

3,914

 

  104,942   118,056   (11.1)  (13,114)

 

Our consolidated Adjusted EBITDA wasamounted to P$24,113104,942 million in 2017, (representing an increase2019, representing a decrease of P$3,91413,114 million or 19% from11.1% as compared to P$20,199118,056 million in 2016). It2018. Adjusted EBITDA represented 36%32.5% and 33%33.5% of our total consolidated revenues in 20172019 and 2016,2018, respectively. The decrease can be largely attributed to a decrease in revenues, partially offset by a decrease in Cost of equipment, Commissions and advertising, Taxes and fees with the Regulatory Authority and other operating costs.

 

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Depreciation, Amortization and Impairment of PP&Efixed assets

 

Depreciation, amortization and impairment of PP&Efixed assets increased P$1,9219,904 million, amounting to P$9,80483,439 million in 2019 as compared to P$73,535 million in 2018. The increase was mainly due to the impact of CAPEX amortization and the P$4,553 million effect of the application of IFRS 16 as of January 1, 2019, partially offset by assets that have discontinued amortizing in 2019.

During 2019, we recognized a spectrum impairment of P$2,917 million, which was related to the incorporation into the Company as a result of the Merger and impairment of other fixed assets amounting to P$573 million. In 2018, we recorded an impairment in the amount of P$3,401 million related to the brand Arnet because the Company decided to discontinue the use of this brand, unifying all the broadband customers under the brand Fibertel, and other fixed assets of P$978 million.

The effect generated by the restatement in current currency as of December 31, 2017, mainly due to more investments in infrastructure and switching and transmission equipment.

An amount of P$5,818 million and P$5,291 million related to the effect of inflation adjustment under IAS 29 is2020 included in Depreciation, amortization and impairment of PP&E, as of December 31, 2017fixed assets amounted to P$54,546 million and 2016;P$51,366 million in 2019 and 2018, respectively.

 

Operating income

 

During 2017,In 2019, our consolidated operating income wasamounted to P$14,30921,503 million, representing an increasea decrease of P$1,99323,018 million or 16% from 2016.(51.7)% as compared to 2018. Operating income represented 21%6.7% and 20%12.6% of consolidated revenues in 20172019 and 2016,2018, respectively.

 

 Years Ended December 31, % of Change 

 

Years Ended December 31,

 

% of Change

 

 2019 2018 2019-2018 

 

2017

 

2016

 

2017-2016

 

       

 

(P$ million / %)

 

Increase/(Decrease)

 

 (P$ million / %) Increase/(Decrease) 

Adjusted EBITDA (1)

 

24,113

 

20,199

 

19

 

  104,942   118,056   (11.1)

As % of revenues

 

36

 

33

 

 

 

  32.5   33.5     

Depreciation, amortization and Impairment of PP&E

 

(9,804

)

(7,883

)

24

 

Depreciation, amortization and impairment of fixed assets  (83,439)  (73,535)  13.5 

As % of revenues

 

(15

)

(13

)

 

 

  (25.9)  (20.9)    

Operating income

 

14,309

 

12,316

 

16

 

  21,503   44,521   (51.7)

As % of revenues

 

21

 

20

 

 

 

  6.7   12.6     

 


(1) Adjusted EBITDA is a non-GAAP measure. See the purpose of use of adjusted EBITDA and reconciliation of net income to adjusted EBITDA in section “Adjusted EBITDA”.

Financial Results, net

(1)Adjusted EBITDA is a non-GAAP measure. See the purpose of use of adjusted EBITDA and reconciliation of net (loss) income to adjusted EBITDA in section “Adjusted EBITDA”.

 

Financial results,Results, net resulted in a net gain of P$713 million as of December 31, 2017, representing a decrease of P$3,311 million from a gain of P$4,024 million as of December 31, 2016.

 

On the other hand, the result is includedWe incurred financial losses, net of P$7,251 million in 2019, as compared to a financial loss, net of P$39,364 million in 2018. The reduction in financial losses, net was mainly due to exposurelower foreign currency exchange net losses, measured in current currency, of P$60,986 million in 2019 (due to the depreciation of the peso against the US$ during 2019 of 59% as compared to an inflation which amountsof 54% while in 2018 the depreciation of the Peso against the US$ was 102% as compared to an inflation of 48%). This reduction in financial losses was partially offset by higher interest on debts of P$1,9075,513 million, mainly due to the partial refinancing of our financial debt, higher losses related to our holding of Government bonds of P$5,181 million and a lower restatement effect in terms of current currency of P$5,54717,726 million approximately, as of December 31, 2017(P$10,345 million in 2019 and 2016, respectively.

Income tax benefit (expense)P$28,071 million in 2018).

 

Income tax expense amounted to P$5,516 million and P$6,015 million in 2017 and 2016, respectively.(expense) benefit

 

The Company’s income tax charge includes twothe following effects: (i) the current tax payable for the year pursuant to tax legislation applicable to each company in theof Telecom Group;Argentina and its subsidiaries; (ii) the effect of applying the deferred tax method on temporary differences arising out of the asset and liability valuation according to tax versus financial accounting criteria.criteria and iii) the income tax inflation adjustment in accordance with the provisions of Law No. 27,430, as amended by Law No. 27,468 in 2019. For more information on income tax, see Note 3 and Note 15 to our Consolidated Financial Statements.

 

Income tax expense amounted to P$19,290 million in 2019 compared to income tax benefit of P$5,943 million in 2018. It includes the following effects: (i)  Regarding regarding current tax expenses, Telecom´sTelecom generated tax profitexpense in fiscal year 2017,2019, resulting in an income tax payable of P$4,819 million versus P$4,405 million in 2016.218 million; (ii) Regardingregarding the deferred tax, in 20172019 and 2016, Telecom´s2018, Telecom recorded a deferred tax gain of P$1,613 million and a gain of P$5,943 million, respectively; and (iii) regarding the income tax inflation adjustment, Telecom recorded a loss of P$69720,685 million and P$1,610 million, respectively.in 2019. See “—Factors Affecting Results of Operations—Income Tax Inflation Adjustment”.

 

Net Income

Telecom Argentina recorded a net income of P$9,859 million as of December 31, 2017, which means a decrease of P$687 million in relation to the Net income of P$10,546 million as of December 31, 2016, representing 15% and 17% of the consolidated revenues as of December 31, 2017 and 2016, respectively. Net income attributable to controlling shareholders amounted to P$9,731 million and P$10,457 million as of December 31, 2017 and 2016, respectively.

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S.A.

86 

Net (Loss) Income

Telecom Argentina recorded a net loss of P$5,293 million in 2019, compared to net income of P$11,594 million in 2018. The net loss in 2019 was mainly affected by the recognition of a loss of P$20,685 million corresponding to the effect of the income tax inflation restatement in accordance with the provisions of Law No. 27,430, as amended by Law No. 27,468. See “—Factors Affecting Results of Operations—Income Tax Inflation Adjustment”.

Net loss attributable to controlling shareholders amounted to P$5,985 million in 2019 as compared to a net income of P$11,089 million in 2018.

Liquidity and Capital Resources

 

Sources and Uses of Funds

 

We expect that the main sourcesources of Telecom Argentina’s liquidity in the near term willto be cash flows from Telecom Argentina’s operations and cash flows from financing from third parties, which may include accessing to domestic and international capital markets and obtaining financing from first class financial institutions. Telecom Argentina’s principal uses of cash flows are expected to be for capital expenditures, operating expenses, dividend payments to its shareholders, payments of financial debt and for general corporate purposes. Telecom Argentina expects working capital, funds generated from operations, dividend payments from its subsidiaries and financing from third parties to be sufficient for its present requirements.

The Ordinary and Extraordinary Shareholders’ Meeting ofsufficient. Telecom Argentina held on December 15, 2011, approvedassumes that it will be able to access the creation of a Medium-Term Notes Global Program for a maximumdomestic and international capital markets in 2021 to refinance its outstanding amount of US$500 million or its equivalent in other currencies for a term of five years.

The General Ordinary Shareholders’ Meeting of Telecom Argentina held on December 28, 2017 approved the Global Notes Program, up to a maximum outstanding amountdebt. However, this remains uncertain as of the date of issuancethis Annual Report. See “Item 3—Key Information—Risk Factors— We may be unable to refinance our outstanding indebtedness, or the refinancing terms may be materially less favorable than their current terms, which would have a material adverse effect on our business, financial condition and results of each class or series of US$3,000 million or its equivalent in other currencies for a maximum term of five years.operations.”

 

Also,Financial Debt Developments during 2020

The most relevant financial debt developments in 2020 were the Ordinaryfollowing:

·On January 31, 2020, Telecom Argentina successfully completed the issuance of Series 3 and 4 Notes for a total principal amount of P$3,197 million and P$1,200 million, respectively;
·On August 6, 2020, Telecom Argentina successfully completed the issuance of Series 5 Notes for a total principal amount of US$389 million (P$28,273 million as of the date of issuance) with the purpose of refinancing Series “A” Notes and its loan with Deutsche Bank AG, London Branch, jointly with a request for consent for the solicitation of consents to amend certain terms and conditions of its Series “A” Notes.
·On September 22, 2020, the Company refinanced the loans entered into with IFC and agreed to change the amortization schedule of all principal maturities that would take place during the last quarter of 2020 and 2021, by deferring 85% of them for a term ranging between 24 and 48 months, and pre-paying the remaining 15% jointly with accrued interest and other related expenses (see “Agreement with the TMF Trust Company” below).
·On September 22, 2020, the Company refinanced the loans entered into with IDB and agreed to change the amortization schedule of all principal maturities that would take place during the last quarter of 2020 and 2021, by deferring 85% of them for a term ranging between 24 and 66 months, and pre-paying the remaining 15% jointly with accrued interests and other related expenses (see “Agreement with the TMF Trust Company” below).
·On December 10, 2020, Telecom Argentina successfully completed the issuance of Series 6 and Series 7 Notes for a total principal amount, as of the date of issuance, of P$1,929 million and P$ 7,787 million, respectively.

For more information about Telecom’s financing facilities (including currency, maturity, interest rate structure and Extraordinary Shareholders’ Meeting of Personal held on December 2, 2010, approvedamortization schedule), see Notes 13 and 26 to our Consolidated Financial Statements and “Item 5—Operating and Financial Review and Prospects—Contractual Obligations”.

Agreement with TMF Trust Company

In order to meet 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,requirements arising from the CNV approved this program. Personal’s Ordinary Shareholders’ Meeting held on May 26, 2016 authorized to extend the due daterenegotiation of the Program until October 31, 2021, and to expand the Program’s maximum circulation amount to US$1,000 million or its equivalentCompany's financial debts, which involves significant payments in other currencies. On October 20, 2016, the CNV authorized the extension and expansion of the aforementioned Program through Resolution No. 18,277.

Under this program,cash, on December 10, 2015, Telecom Personal has successfully completed the issuance of Series I and Series II notes for a total nominal value of P$720.5 million. Additionally, on November 16, 2016 Telecom Personal also completed the issuance of Series III and Series IV notes for a total nominal value of almost P$722.0 million (amount expressed in currency of that date) and US$77.9 million, respectively. See “—Debt Obligations and Debt Service Requirements” below.

Additionally, during October 2016 Personal and the IFC signed a loan agreement for an amount of US$ 400 million. Also, on April 7, 2017 Personal and the IIC subscribed a loan agreement for an amount of US$ 100 million maturing in September 2022.

On February 2, 2018, we entered into the Term Loan with a consortium of international banks for an aggregate principal amount of US$1,000 million and with a 12-month tenor. On February 9 and March 9, 2018, the Company borrowed US$650 million and US$350 million (the “Loans”), respectively, under the Term Loan. On October 8, 2018,July 15, 2020 the Company entered into certain amendmentsa trust agreement with TMF Trust Company (Uruguay), in its capacity as trustee, for the provision of funds and the administration of payments to the terms of the Term Loan. The Loans were paid in full in February 2019. The proceeds of the Loans were used to finance capital expenditures, working capital and other general corporate purposes.creditors.

 

On October 8, 2018, the Company entered into the Syndicated Loan for an amount of up to US$500 million and with a 48-month tenor. On October 17, 2018 we received a borrowing under the Syndicated Loan for an amount of U$S500 million. Those funds were used to partially prepay the Term Loan. Additionally, as a condition precedent to the execution of the Syndicated Loan, we and the remaining parties to the Term Loan entered into an amendment to the Term Loan, which contemplated a mandatory prepayment for an amount of US$100 million so that the outstanding aggregate principal amount under the Term Loan, after taking into account any prepayment made with the proceeds from the Syndicated Loan, did not exceed US$400 million on the date of receipt of such advances. The aforementioned mandatory prepayment was completed on October 17, 2018. The Syndicated Loan accrues compensatory interest at a rate per annum equal to LIBOR plus the following margin: 4.50 percentage points during the first year as from the borrowing date, 5.00 percentage points, during the second year and 5.25 percentage points from the date that is two years after the borrowing date to the expiration date; and will be payable quarterly, in arrears. On February 11, 2019, we entered into certain amendments to the terms of the Syndicated Loan.

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Finally, on November 8, 2018,

87 

By the end of July 2020, the Company entered into the DB Loan with Deutsche Bank, London Branch, as organizer of a syndicate of banks, for an amount of up to US$200 million (which might be increased up to US$300 million subjectdisbursed to the prior written consent of Deutsche Bank, London Branch, as initial lender). On November 14, 2018 we receivedTrust a disbursement under the DB Loan for antotal amount of US$200273 million. The Trust has made the following payments in cash during the last quarter of 2020:

1)An amount of US$120.2 million to the holders of Series “A” Notes to pay the cash consideration for refinancing the Series “A” Notes, including payment of accrued interest at the date of settlement and related expenses.
2)An amount of US$62.4 million as a partial payment of the settlement of the loan with Deutsche Bank loan AG, including payment of accrued interest at the date of settlement and related expenses.
3)An amount of US$30.9 in accordance with the terms of the amendments of the loans signed with IFC, including payment of accrued interest, prepayment premiums and other amounts due.
4)An amount of US$13.4 in accordance with the terms of the amendments of the loans signed with IDB, including payment of accrued interest, prepayment premiums and other amounts due.

On November 14, 2018,5, 2020, the Trust Administration Committee notified the termination of the trust to the Trustee, since the purpose of the Trust had been fulfilled and pending expenses were paid. Also, according to its contractual terms, the Trustee was instructed to proceed to transfer its remaining assets in accordance with the provisionsinstructions provided by the Trust Administration Committee, after deducting a minimum amount to face future termination and settlement expenses of the DB Loan, a new entity became a lender underTrust. On that date, the DB Loan for an amountTrust transferred, as remaining trust assets, US$45.5 million Treasury Bonds of up to US$100 million, subjectthe United States to the same terms and conditions. On November 20, 2018 we received an additional disbursement under the DB Loan for an amount of US$100 million. The DB Loan has a term of 42 months counted from the date of the initial borrowing and will accrue compensatory interest at an initial rate per annum equivalent to LIBOR plus 4.5% that will be payable quarterly,subsidiary Televisión Dirigida in arrears. The capital will be payable in six consecutive semi-annual equal installments equivalent to 12.5% of the disbursed amountcompliance with a final payment on the maturity date equivalent to 25% of the initial borrowing. The proceeds from the DB Loan were used to partially prepay the Term Loan.pre-existing obligations.

 

On October 30, 2018, within the framework of its permanent optimization policy for the term, rate and structure of its financial liabilities Telecom Argentina has accepted a proposal from the International Finance Corporation (IFC) for the evaluation and mobilization of funds with for the purpose of financing investment needs, working capital and refinancing of liabilities. On March 4, 2019 the Company signed a loan agreement with IFC for a total amount of upNDF

From time to US$450 million, as requested in a timely manner by the Company in one or more disbursements (the “Loan”). The Loan will consist of a tranche “A”, a tranche “B-1”, a tranche “B-2”, a tranche “B-3” and a tranche “B-4” which will accrue compensatory interest payables semiannually for periods that are due at an annual rate equal to LIBOR plus the following margins: 4.85 percentage pointstime, in the caseordinary course of Tranche A, Tranche B-2business, Telecom enters into NDF agreements to hedge the fluctuation of, mainly, exchange and Tranche B-4, and 4.60 percentage points in the case of Tranche B-1 and Tranche B-3. Likewise, the capital will be payable as follows: Tranche A, Tranche B-2, and Tranche B-4 in eight consecutive semi-annual equal installments from February 2021 and final maturity in August 2024 and Tranche B-1 and Tranche B-3 in six consecutive semi-annual equal installments from February 2021 and final maturity in August 2023. The proceeds from the loan will be usedinterest rates. For more information about Telecom’s NDF agreements, see Note 26 to finance capital investments for 2019.our Consolidated Financial Statements.

 

On March 4, 2019, we entered into a loan agreement with the IFC. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Bank and other financial entity loans.”

We do not expect any implications on the sources of liquidity and the sources of funds as a result of the Reorganization.Cash Flow

 

The table below summarizes, for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, Telecom’s consolidated cash flows:

 

 

Years ended December 31,

 

 Years ended December 31, 

 

2018

 

2017

 

2016

 

 2020   2019   2018 

 

(P$ million)

 

       

 

 

 

 

 

 

 

 (P$ million) 

Cash flows provided by operating activities

 

42,426

 

22,808

 

25,984

 

  101,325   111,542   70,383 

Cash flows used in investing activities

 

(31,285

)

(17,083

)

(23,920

)

  (83,141)  (60,976)  (47,277)

Cash flows used in financing activities

 

(14,597

)

(4,105

)

(2,213

)

  (35,814)  (34,093)  (30,344)

Net foreign exchange differences and RECPAM on cash and cash equivalents

 

3,830

 

57

 

924

 

  1,330   3,922   8,021 

 

 

 

 

 

 

 

            

(Decrease)/Increase in cash and cash equivalents

 

(3,456

)

1,620

 

(149

)

Increase / (Decrease) in cash and cash equivalents  (17,630)  16,473   (7,238)

Cash and cash equivalents at the beginning of the year

 

6,517

 

4,840

 

4,065

 

  34,827   14,432   13,649 

 

 

 

 

 

 

 

            

Cash and cash equivalents at the end of the year

 

6,891

 

6,517

 

4,840

 

  18,527   34,827   14,432 

 

As of December 31, 2018, 20172020, 2019 and 2016,2018, we had P$6,89118,527 million, P$6,51734,827 million and P$4,84014,432 million in cash and cash equivalents, respectively.

 

Cash flows provided by operating activities were P$101,325 million, P$111,542 million and P$70,383 million in 2020, 2019 and 2018, respectively. The decrease in 2020 was mainly due to lower revenues and collections of services provided to our customers as a consequence of the pandemic, partially offset by lower operating costs payments. The increase in 2019 was mainly driven by higher collections of services provided to our customers, partially offset by higher payments of trade, social and fiscal debts.

Cash flows used in investing activities were P$83,141 million, P$60,976 million and P$47,277 million in 2020, 2019 and 2018, respectively. The increase in 2020 was mainly due to an increase in investment not considered as cash and cash equivalents, partially offset by a decrease in payments of PP&E acquisitions. The increase in 2019 was mainly due to a decrease in investment not considered as cash and cash equivalents, while payments of PP&E acquisitions remained stable.

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S.A.

Cash flows from operating activities were P$42,426 million, P$22,808 million and P$25,984 million in 2018, 2017 and 2016, respectively. The increase is manly driven by the combination of Telecom and Cablevision’s operation following the merger.

 

Cash flows used in investing activities were P$31,285 million, P$17,083 million and P$23,920 million in 2018, 2017 and 2016, respectively. The increase in 2018 was mainly due to an increase in PP&E capital expenditures, partially offset by cash and cash equivalent incorporated by the merger and higher acquisitions of Government Bonds and investment not considered as cash and cash equivalents. The decrease in 2016 was mainly due to a decrease in acquisitions in shareholdings.88 

 

Cash flows used in financing activities were P$14,59735,814 million in 2018, while cash flows provided by financing activities were2020, P$4,105 million 2017 and P$2,21334,093 million in 2016.2019 and P$30,344 million in 2018. The variation in 2020 was explained by lower cash dividend payments, partially offset by higher payment of financial debt, interest and related expenses and a decrease in proceeds from financial debt . The variation in 2019 was explained by lower dividend payments and higher financial debt payments, partially offset by higher proceeds from financial debt. The increase in 2018 was mainly due to higher dividend payments, partially offset by higher proceeds from financial debt.

 

NDF and US Dollar bonds

·LIBOR Hedges

During 2017, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of LIBOR from the IFC loan amounting to US$400 million. The agreements effective from March 15, 2017 hedge an amount if US$300 million, while those effective from September 15, 2017 hedge the outstanding US$100 million. Such NDF allow fixing the variable rate all along the loan term in a range between 2.087% and 2.4525% nominal annual rate (resulting in a weight average of 2.2258%).

As of December 31, 2018, Telecom recognized a receivable of P$137 million, which is included in other receivables (P$98 million current and P$39 million non-current). Additionally, during the year ended December 31, 2018, Telecom recognizes gains of P$3 million related to those contracts that are included in Debt financial expenses in Financial results.

During 2017, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of LIBOR from the International Finance Corporation loan amounting to US$100 million. The agreements hedge an amount of US$40 million and were agreed in two tranches of US$20 million each one, both of them starting on March 15, 2018 and fixing the variable rate all along the term of the loan to 2.1325% and 2.085% nominal annual rate, respectively.

As of December 31, 2018, Telecom recognized a receivable of P$18 million, which is included in other receivables (P$12 million current and P$6 million non-current). Additionally, during the year ended December 31, 2018, Telecom recognizes gains of P$4 million related to those agreements, that are included in Debt financial expenses in Financial results.

·Exchange rate Hedges

During 2017, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from the International Finance Corporation loan amounting to US$53.5 million fixing the average exchange rate in $18.30 pesos per dollar, expiring between February and April 2018. During first half of 2018, some NDF agreements expire, recognizing a gain of P$77 million including in Exchange differences in Financial results.

During 2018, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio (International Finance Corporation, Syndicated, Deutsche Bank and Notes Series IV) amounting to US$306 million fixing the average exchange rate in $36.58 pesos/US$, expiring between June 2018 and May 2019. During 2018, Telecom recognized gains related to these agreements of P$1,039 million that are included in Foreign currency exchange gains in Financial Results, net. As of December 31, 2018, Telecom maintains NDF agreements for a total of U$S166 million for those that has recognized a receivable of P$640 million, which is included in Other receivables current and a liability of P$100 million which is included in Financial Debt current.

On the other hand, during 2017, Telecom Argentina entered into agreements (NDF) to hedge exchange rate fluctuations of certain commercial obligations for an amount of US$6.3 million, with an average exchange rate of 18.94 pesos per dollar, maturing in March and August 2018. For such agreements, Telecom has recognized gains of P$22 million that are included in Foreign currency exchange gains in Financial Results, net.

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TELECOM ARGENTINA S.A

In 2018, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate of certain commercial obligations for an amount of US$118 million fixing the average exchange rate in $39.33 pesos/US$ expiring between August and October 2018. For these NDF agreements has recognized losses of P$152 million that are included in Foreign currency exchange gains in Financial Results, net.

Additional information regarding Financial Instruments is set forth in Note 21 to our Consolidated Financial Statements.

Debt Obligations and Debt Service Requirements

The Indebtedness of Telecom Argentina as of December 31, 2018 was as follows:

Bank and other financial entity loans

·                  On July 5, 2016, Personal (entity absorbed by Telecom Argentina) accepted an offer from the IFC for the assessment and transfer of funds for purposes of financing investment needs, working capital and debt refinancing for an amount of up to US$400 million.

In October 2016, Personal and the IFC signed the loan agreement (“IFC Loan”) for an amount of US$400 million and for a six-year period, payable in eight equal half-yearly installments since the 30th month, with a 6-month LIBO rate + 400bp. This loan was used to deploy the 4G network and refinance short-term financial liabilities. The loan is denominated in US dollars and its terms include standard commitments for this type of financial transaction (on October 26, 2016, Personal received US$ 392.5 million, equivalent to P$5,961 million as of the date of the disbursement).

As of December 31, 2018, the outstanding amount for this loan is US$400 million equivalent to P$15,080 million.

·               Additionally, in April 2017, Personal and the Inter-American Investment Corporation (“IIC”), a member of the Inter-American Development Bank (“IDB”) Group, signed a loan agreement (“IIC Loan”) for an amount of US$100 million and with maturity date on September 2022, payable in 8 equal half-yearly installments since the 24th month, with a 6 month LIBO rate + 400bp. The funds of this loan will be allocated to deploy the 4G network and for financing working capital and other financial needs. The loan is denominated in US dollars and its terms include standard commitments and covenants for this type of financial transactions (on September 18, 2017 Personal received US$ 100 million, equivalent to P$1,749 million as of the date of the disbursement, that net of expenses amounted to P$1,723 million).

As of December 31, 2018, the outstanding amount for this loan is US$100 million equivalent to P$3,770 million.

·                  As of December 2018, the Company maintains other bank loans denominated in US dollars equivalent to P$667 million as detailed below:

·                  US$4.5 million in a loan agreement with the Bank ICBC for financing imports, accruing interest at an annual rate of 6.0%, due in January 2022,

·                  US$3.2 million in a loan agreement with the Bank Itaú for financing imports, accruing interest at an annual rate of 5.0%, due in February 2020, and

·                  US$10.0 million in a loan agreement with the Bank Macro for financing imports accruing interest at an annual rate of 6.2%, due in August, 2019.

·                  On October 30, 2018, within the framework of its permanent optimization policy for the term, rate and structure of its financial liabilities Telecom Argentina has accepted a proposal from the International Finance Corporation (IFC) for the evaluation and mobilization of funds with for the purpose of financing investment needs, working capital and refinancing of liabilities. On March 4, 2019 the Company signed a loan agreement with IFC for a total amount of up to US$450 million, as requested in a timely manner by the Company in one or more disbursements (the “Loan”). The Loan will consist of a tranche “A”, a tranche “B-1”, a tranche “B-2”, a tranche “B-3” and a tranche “B-4” which will accrue compensatory interest payables semiannually for periods that are due at an annual rate equal to LIBOR plus the following margins: 4.85 percentage points in the case of Tranche A, Tranche B-2 and Tranche B-4, and 4.60 percentage points in the case of Tranche B-1 and Tranche B-3. Likewise, the capital will be payable as follows in US dollars: Tranche A, Tranche B-2, and Tranche B-4 in eight consecutive semi-annual equal installments from February 2021 and final maturity in August 2024 and Tranche B-1 and Tranche B-3 in six consecutive semi-annual equal installments from February 2021 and final maturity in August 2023. The proceeds of the Loans will be used to finance capital expenditures in 2019.

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Deutsche Bank Loan

On November 8, 2018, the Company acknowledged the acceptance by Deutsche Bank AG, London Branch, as organizer of a syndicate of banks, of a loan facility for an amount of up to US$200 million (which might be increased up to US$300 million). On November 14, 2018 the Company acknowledged the acceptance of the extension of the loan offer by Deutsche Bank AG, London Branch, for US$100 million.

The Deutsche Bank Loan has a term of 42 months counted from the date of the initial borrowing and will accrue compensatory interest at an initial rate per annum equivalent to LIBOR plus 4.5% that will be payable quarterly, in arrears. The capital will be payable in six consecutive semi-annual equal installments in US dollars equivalent to 12.5% of the disbursed amount with a final payment on the maturity date equivalent to 25% of the initial borrowing.

The proceeds from the Deutsche Bank Loan were used by the Company only to partially prepay the Syndicated Loan.

As of December 31, 2018,  the outstanding amount for this loan is US$300 million equivalent to P$11,310 million.

Syndicated Loan

·                  On January 2018, the Board of Directors of the Company approved the execution of a syndicated loan agreement with several banks for up to a total of US$1,000 million, which will accrue compensatory interest at an annual rate equal to LIBOR for each period of interest accrual plus an applicable margin.

On February 2, 2018, Telecom entered into a term loan agreement with Citibank, N.A., HSBC México, S.A., Multiple Banking Institution, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, JPMorgan Chase Bank, N.A. y Banco Santander, S.A., in his capacity as a lender, Citigroup Global Markets Inc., HSBC México, S.A., Multiple Banking Institution, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, JPMorgan Chase Bank, N.A. y Santander Investment Securities Inc. as organizers, Citibank N.A. as an administrative agent and the Branch of Citibank N.A. in Argentina, as a local custodian agent for an aggregate principal amount of US$1,000 million (the “Original Loan”). On February 9 and March 9, 2018, the Company borrowed US$650 million and US$350 million, respectively, under the Term Loan Agreement, that matures in February 2019. The proceeds of the Loans were used to finance capital expenditures, working capital and other general corporate purposes. The Loan is denominated in US dollars and bear interest at an annual rate equivalent to LIBOR plus the following margins: 1.25 percentage points during the first four months, 1.50 percentage points, during the following two months, 1.75 percentage points during the following three months and 2.25 percentage points during the last three months prior to the maturity date. Interest is payable quarterly or semiannually, at the Company’s option. The Company is permitted to make voluntary prepayments at any time without premium or penalty. The Company is required to make prepayments under the Loans (without payment of a premium). The Company is also required to prepay the Original Loan upon the occurrence of a change of control, at each lender’s option.

·                  On October 2018, the Company entered into a new agreement with Citibank, N.A., HSBC Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander, S.A., in its capacity as lenders, Citibank, N.A., HSBC Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander, S.A. as organizers, Citibank N.A. as an administrative agent and the Citibank N.A. branch established in Argentina, as agent of local custody, for an aggregate principal amount of US$ 500 million (which can be increased, in accordance with the terms and conditions thereof) and to 48 months of term (the “Loan”).

The disbursed capital will accrue compensatory interest at an annual rate equivalent to LIBOR plus the following margin: 4.50 percentage points during the first year after the disbursement, 5.00 percentage points, during the second year and 5.25 percentage points from the date that is two years after the disbursement and until the expiration date; and will be payable quarterly in arrears in US dollars. On February 11, 2019, we entered into certain amendments to the terms of the Syndicated loan.

The Company requested a disbursement of US$500 million on October 2018. The funds were used to partially pre-pay the Original Loan.

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TELECOM ARGENTINA S.A

As of December 31, 2018, the outstanding amount for the Loan is US$500 million equivalent to P$18,837 million.

Additionally, in accordance with the provisions of the loan, the Company made an additional payment of US$ 100 million of the Original Loan, (as a condition precedent to the execution of the loan, the Company and the remaining parties of the Original Loan had agreed to a mandatory pre-cancellation amount equivalent to at least US$ 100 million). Subsequently, in November 2018, the Company used all the funds from Deutsche Bank Loan for US$ 300 million to prepay the Original Loan. The balance owed by the Company of US$ 100 million (P$3,770 million as of December 31, 2018)  was canceled on February 11, 2019, with its own funds.

On March 25, 2019, the Company partially prepaid the Loan for an amount of US$100 million.

Núcleo:

As of December 31, 2018, Núcleo’s outstanding debt (bank loans and bank overdrafts) is denominated in Guaraníes and amounted to approximately P$2,204 million.

Additional information regarding terms and conditions of the Telecom Group’s loans as of December 31, 2018 is set forth in Note 13 to our Consolidated Financial Statements.

Global Programs for issuance of Notes

Cablevisión

·               On April 2016, at the Annual General Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión, the shareholders of Cablevisión approved, among other matters: i) the extension of the authorization of the Cablevisión Global Notes Program, which had been granted at the Annual General Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión on April 28, 2014, increasing the maximum amount of the outstanding notes that may be issued under this program from a nominal value outstanding at any time of US$ 500,000,000 (or its equivalent in other currencies) to US$ 1,000,000,000 (or its equivalent in other currencies). The Shareholders’ Meeting renewed the delegation on the Board of Directors of the broadest powers in connection with the Cablevisión Global Notes Program. The Board of Directors may subdelegate all or some powers interchangeably to one or more directors or managers of the Company; and ii) the extension of the authorization of the Short-Term Debt Securities (“VCPs”, for its Spanish acronym) program under the terms that had been originally approved.

On June 2016, pursuant to its delegated powers, the Board of Directors of Cablevisión authorized the issuance of Class A Notes for a nominal value of US$ 500,000,000 (the “Class A Notes”), at a fixed annual nominal interest rate of 6.50%, payable semi-annually in US dollars as from June 2016, with final maturity in June 2021. Proceeds will be used for:

(i)             The settlement of the outstanding debt as of that date;

(ii)        The investment in fixed assets and other capital expenditures with the balance of the net proceeds (approximately US$ 89,100,000).

On December 2017, the holders of Class “A” Notes held an Extraordinary Noteholders’ Meeting with a quorum of 81.8621626 % of the total capital and votes under the Notes. At that Shareholders’ Meeting, the shareholders unanimously decided to approve the amendment and/or removal of certain clauses (or parts thereof) of the Indenture Agreement executed on June 15, 2016 between the Company, Deutsche Bank Trust Company Americas, Deutsche Bank S.A. and Deutsche Bank Luxembourg S.A. (the “Indenture”). As a result of this amendment, Telecom Argentina’s covenants under the Notes include: (i) limitation on the issuance of guarantees by Telecom Argentina and its subsidiaries; (ii) merger by acquisition and consolidation, (iii) limitation on incurring debt above certain approved ratios, and (iv) limitation on the issuance and sale of significant subsidiaries’ shares with certain exceptions, among others, certain clauses that restricted sales of assets under certain conditions, certain payments and related party transactions under certain circumstances and the distribution of dividends, were eliminated

Cablevision Notes were assumed by Telecom Argentina on January 1, 2018 due to the Merger (Note 4.a to our Consolidated Financial Statements). For this purpose, Telecom Argentina, as successor of Cablevisión, the Deutsche Bank Trust Company Americas, as Trustee and Banco Comafi S.A., as trustee representative in Argentina, have signed a supplement to the Trust Agreement formalizing the absorption of the Notes of Cablevisión by Telecom Argentina.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

Until December 31, 2018, the Company had repurchased approximately US$0.5 million (nominal value) of the Notes issued by Cablevisión. These transactions were executed at the quoted market price prevailing on each repurchase date, which did not significantly differ from the book value as of that date.

As of December 31, 2018, the outstanding amount for this loan is US$499.5 million equivalent to P$18,831 million.

Telecom Argentina

On December 28, 2017, Telecom Argentina held an General Ordinary Shareholders’ Meeting that approved the Telecom Global Notes Program for a maximum outstanding amount of US$ 3,000 million or its equivalent in other currencies. The delegation of powers in the Board of Directors was also approved to determine and modify the terms and conditions of the Program as well as to establish the issuance opportunities.

Under the Telecom Global Notes Program, Telecom Argentina submitted a prospectus for the issuance of Notes to the CNV that was approved on April 24, 2018. Subsequently, on April 25, 2018, the CNV approved the prospectus supplement corresponding to the Notes. Class 1 for a nominal value of up to US$ 500 million (extendable up to US$ 1,000,000,000). This supplement was extended several times, finally expiring on August 3, 2018.

In accordance with the provisions governing the placement mechanism of the Notes provided in the Prospectus Supplement, Telecom Argentina decided to temporarily suspend, until further notice, the period of placement of the Notes. Telecom Argentina will publish a complementary notice to the prospectus supplement, announcing the date on which the offer period will be resumed and the award date.

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.

Personal’s Ordinary Shareholders’ Meeting held on May 26, 2016 authorized to extend the due date and expand the Program’s maximum circulation amount up to US$1,000 million or its equivalent in other currencies.On October 20, 2016, the CNV authorized the extension and expansion of the mentioned Program through Resolution No. 18,277.

Under such Program, Personal issued four Series of Notes. The net proceeds obtained were used for debt refinancing.

Personal Notes were assumed by the Company on December 1, 2017 due to the Reorganization.

As of the date of issuance of these Annual Report, Telecom has canceled all Series issued on their respective expiration dates.

Loans for purchase of equipment

As of December 31, 2018, the Company has debt agreements denominated in US dollars corresponding to financing for the purchase of equipment of Cisco Systems, the which amounts to approximately US$57.3 million (equivalent to P$2,160 million). Such contracts have an average maturity term of between 36 and 49 months with partial repayments and accrue an average annual interest of 4.81%.

The balance of all the loans mentioned above amounts to P$ 76,936 million as of December 31, 2018 (including accrued interest).

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

Liquidity

 

The liquidity position of Telecom Argentina is and will be significantly dependent on each individual company’sits operating performance, its indebtedness, capital expenditure programs and receiptcollection of dividends, from its subsidiaries, if any.

 

Telecom’s working capital breakdown and its main variations are disclosed below:

 

 2020   2019   Variation 

 

2018

 

2017

 

Variation

 

       

 

(P$ million)

 

 (P$ million) 

Trade receivables

 

17,415

 

2,588

 

14,827

 

  18,956   23,096   (4,140)

Other receivables (not considering financial NDF)

 

4,323

 

1,223

 

3,100

 

  5,514   6,027   (513)

Inventories

 

2,737

 

136

 

2,601

 

  3,722   4,373   (651)

Current liabilities (not considering financial debt)

 

(33,401

)

(17,238

)

(16,163

)

  (64,448)  (69,025)  4,577 

Operative working capital - negative

 

(8,926

)

(13,291

)

4,365

 

Operating working capital - negative  (36,256)  (35,529)  (727)

As % of Revenues

 

5.3

%

19.9

%

 

 

  12.0%  11.0%    

 

 

 

 

 

 

 

            

Cash and cash equivalents

 

6,891

 

6,517

 

374

 

  18,527   34,827   (16,300)

Financial NDF

 

750

 

 

750

 

  2   222   (220)

Investments

 

1,371

 

162

 

1,209

 

  6,542   584   5,958 

Current financial debt

 

(20,044

)

(1,383

)

(18,661

)

  (41,602)  (48,031)  6,429 

Net Current financial (liability) asset

 

(11,032

)

5,296

 

(16,328

)

  (16,531)  (12,398)  (4,133)

 

 

 

 

 

 

 

            

Negative operating working capital (current assets — current liabilities)

 

(19,958

)

(7,995

)

(11,963

)

  (52,787)  (47,927)  (4,860)

Liquidity rate

 

0.63

 

0.57

 

0.06

 

  0.50   0.59   (0.09)

 

Telecom and its subsidiaries have 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 P$8,296 52,787 million as of December 31, 2018 (decreasing2020 (increasing P$4,3654,860 million vs. December 31, 2017) mainly due to the dividend payments of Cablevision on January, 2018, declared in December, 2017.2019).

 

During years ended December 31, 20172020 and 2018,2019, Telecom continued obtaining funds to the financial market (See Note 13 to our Consolidated Financial Statements), used to pay its investments, operative working capital, and other corporative expenses and refinancing part of its financial debts inwithin the framework of its permanent policy of optimizing the term, rate and structure of its financial debts. Telecom has an excellent credit rating. The Company has several financing sources and several offers from first-class international institutions to diversify its current 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 Company’s management evaluates the national and international macroeconomic context For further information, see Note 13 to take advantage of market opportunities that allows it preserving its financial health for the benefit of its investors.our Consolidated Financial Statements.

 

Telecom manages its cash and cash equivalents and its financial assets trying to match the term of investments with those of its obligations. CashIts cash and cash equivalentsequivalent position is invested in highly liquid short-term instruments.

 

To protect itself from changes in market conditions that could constrain its access to funding under certain circumstances, Telecom maintains a liquidity policy that includescertain minimum cash throughand liquid assets balances in its normal course of business. Telecom and its subsidiaries havehad consolidated cash and cash equivalents amounting to P$6,891 18,527 million (US$220 million) and P$34,827 million (US$409 million) as of December 31, 2018 (P$6,517 million as of December 31, 2017).2020 and 2019, respectively. Telecom has bank credits and a program of Notes (See Note 13 to our Consolidated Financial Statements) that allow to finance its short-term obligations and an investment plan in addition to the operative cash flow for the next years (see Note 13 to our Consolidated Financial Statements).years.

 

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

S.A.

89 

Dividend payments

 

On December 18, 2017, Cablevisión S.A. informed the declaration of dividends of P$4,077,790,056 to be paid to its shareholders, Cablevisión Holding S.A., Fintech Media LLC and VLG Argentina LLC a pro rata of its share holdings whose payment was pending as of the Merger Effective Date. On January 8, 2018, Telecom Argentina S.A., the surviving company of Cablevisión S.A., proceeded to cancel the aforementioned obligation.

The Ordinary General Shareholders’ Meeting celebrated on January 31, 2018, approved the delegation of powers into the Board of Directors to order the total or partial withdrawal of the “Voluntary reserve for future dividends payments” and the distribution of the withdrawn funds as cash dividends, in the amounts and dates determined by the Board of Directors, being these delegated powers able to be exercised until before the celebration of the next Ordinary Annual Shareholders’ Meeting. In accordance to these delegated powers, the Company’s Board of Directors on its meeting held on January 31, 2018, resolved to withdraw the amount of $9,729,418,019 from the “Voluntary reserve for future dividends payments” of Telecom Argentina as of December 31, 2017 and to distribute that amount as cash dividends in two installments according to the following: a) the amount of $2,863,000,000, which was made available on February 15, 2018 b) the remaining difference, that is the amount of $6,866,418,019, was to be made available on April 30, 2018, being the Board of Directors able to anticipate such payment if it deems appropriate in the future. Later, the Board of Directors of Telecom Argentina on its meeting dated March 7, 2018 decided to anticipate the date when the second dividend installment will be made available to March 27, 2018 or in the prior date that the Chairman of the Company determines. Finally, the aforementioned second dividend installment was made available on March 21, 2018. as resolved by the Chairman of Telecom Argentina in use of the faculties delegated by the Board of Directors.

Moreover, the Board of Directors of Telecom Argentina approved on January 31, 2018 the distribution of interim cash dividends, for the amount of P$10,143,505,599, in accordance with what it is foreseen in section 224, 2° paragraph of the GCL, being these subject to ratification from the Ordinary Shareholders’ Meeting that considers the documentation for the fiscal year ended December 31, 2017. The aforementioned amount corresponds to the sum of the net income (liquid and realized) for the period between January 1, 2017 and September 30, 2017, that arises from the Special Purpose Unconsolidated Financial Statements of Telecom Argentina as of this last date ($5,640,728,444) and from the Special Purpose Unconsolidated Financial Statements of Cablevisión S.A. (company absorbed by merger by Telecom Argentina) to this same date ($4,502,777,155). The mentioned dividends were made available to shareholders on February 15, 2018.

In conclusion, the dividends distribution aforementioned for a total of P$23,950,713,674 (P$34,840,902,813 in current currency of December 31, 2018) was paid on January 8, 2018 for P$4,077,790,056, February 15, 2018 for P$13,006,505,599 and on March 21, 2018 P$6,866,418,019 (P$33,946,781,381 in current currency of December 31, 2018).Dividend payments

 

Telecom Argentina´s Shareholders´Argentina’s General Extraordinary Shareholders’ Meeting held on April 25, 2018: (i) ratified the advance distribution of dividends of P$5,640,728,444 (P$8,180,450,375 in current currency of December 31, 2018) resolved by the Board at its meeting of January 31, 2018, based on the Special-purpose Unconsolidated Financial Statements of Telecom Argentina as of September 30, 2017; (ii) allocate P$1,989,254,041 (P$2,681,552,243 in current currency of December 31, 2018), to set up the “Voluntary reserve for future dividends payments”; and (iii) delegate power to Telecom Argentina’s Board of Directors so that, based on the evolution of the business, it may determine the withdrawal, in one or more times, of an amount up to P$994,627,020 (P$1,340,776,121 in current currency of December 31, 2018) from the ‘Voluntary reserve for future dividends payments’ for distribution to the shareholders as cash dividends, enabling such delegated powers to be exercised until December 31, 2018.

With respect to Cablevisión’s retained earnings,  Telecom Argentina´s Shareholders´ Meeting held on April 25, 2018: (i) ratified the advance distribution of dividends of P$4,502,777,155 (P$6,530,139,756 in current currency of December 31, 2018) resolved by the Board at its meeting of January 31, 2018, based on the Special-purpose Unconsolidated Financial Statements of Cablevisión as of September 30, 2017; (ii) allocate P$1,311,975,449 (P$1,768,567,833 in current currency of December 31, 2018), to set up a “Facultative Reserve to Maintain the Level of Investments in Capital Goods and the Current Level of its Solvency.”

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

Telecom Argentina’s Board of Directors, at its meeting held on March 19, 2019, convened an Ordinary and Extraordinary Shareholders’ meeting to be held on April 24, 2019, to consider among other issues the allocation of Telecom Argentina’s retained earnings as of December 31, 2018.

The Board of Directors proposes:

In Pesos

Retained Earnings as of December 31, 2018

26,918,365,656

To Legal Reserve

(265,906,251

)

To Cash Dividends

(6,300,000,000

)

To Facultative reserve for future cash dividends

(6,300,000,000

) (a)

To Facultative reserve to maintain the level of investments in capital assets and the current level of solvency of the Company

(14,052,459,405

)

To New Fiscal Year


(a) An amount that adjusted for inflation in accordance with CNV General Resolution No. 777/2018 results in $6,300,000,000 in Cash Dividends.

Regarding this proposal, it should be taken into account that since the enactment of General Resolution CNV No. 777/2018 (published in the Official Gazette on December 28, 2018), the restatement method for the financial statements in current currency is applicable for issuer companies, as established by the IAS 29.November 13, 2020 resolved:

 

Regarding the distribution of earnings, the aforementioned CNV General Resolution No.777/2018, established that “The distribution of earnings must be treated1)   To distribute dividends in the currencynon-cash assets as follows: i) Global Bonds of the dateArgentine Republic amortizable U.S. dollars maturing on July 9, 2030 (the “2030 Global Bonds”), for a nominal value of US$157,642,897, and ii) Global Bonds of the Shareholders’ Meeting by meansArgentine Republic amortizable in U.S. dollars maturing on July 9, 2035 (the “2035 Global Bonds”) for a nominal value of US$271,896,177.

2)   Consequently, and considering that the valuation of the price index corresponding to the month prior to their meeting.” (section 3, item 1, subsection e), Chapter III, Title IV of the CNV RULES (NT 2013),”Expression in current currency of the earnings distributions”).

Therefore, it should be noted that this proposal of distribution of earnings corresponds to figuresmentioned non-cash assets dividends was P$24,723,374,678 (P$25,713 million in current currency as of December 31, 2018, leaving2020), the “Voluntary Reserve for Future Cash Dividends” which in current currency as of December 31, 2020, amounted to P$6,600 million, was fully withdrawn, and the resolution“Voluntary Reserve to maintain the Company’s level of investments in capital assets and the Shareholders’ Meeting the determinationcurrent level of solvency” was partially withdrawn in the amount that can be distributed.of P$19,113 million in current currency as of December 31, 2020.

 

In addition, the Board of Directors proposes i) that the cash dividends be made available to shareholders in three (3) equal installments, being payable the first installment within thirty (30) calendar days of their approval by the Shareholders’ Meeting, and the second and third installments within ninety (90) and one hundred and eighty (180) consecutive days of their approval by the Shareholders’ Meeting, respectively, or on the previous date determined by the Board of Directors; ii) that powers be delegated into the Board of Directors of the Company so that, depending on the evolution of the business, it may order the withdrawal, totally or partially, in one or more times, of an amount of up to $6,300,000,000 from the “Facultative reserve for future cash dividends” and its distribution to shareholders as cash dividends, being these delegated powers able to be exercised until December 31, 2019.

PART I - ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

TELECOM ARGENTINA S.A

Our ability to generate sufficient cash from our operations in order to satisfy our indebtedness and capital expenditure needs may be affected by macroeconomic factors influencing our business, including, without limitation, the exchange rate ofat which Argentine Pesos tocan be exchanged for U.S. dollars and rates of inflation;inflation, among others. These factors are not within our control. Certain statements expressed in this section constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties, including those described in this Annual Report in “Item 3—Key InformationInformation—Risk Factors.”Factors”. Actual results may differ materially from our expectations described above as a result of various factors.

 

Capital Expenditures

We estimate that our capital expenditures in 2021 will be of approximately US$610 million, as compared to US$680 million in 2020 (which represented 18.6% of our consolidated revenues).

 

In the Mobile Services segment,With respect to mobile services, investments were oriented mainly to the deployment of 4G technology, to achieve increasing coverage and capacity in various cities of Argentina. This objective was reached through the startup ofsettlement in new sites, together with replacement and modernization of existent sites.

 

InWith respect ofto fixed access network, 2018 reaffirmsin 2020 we reaffirmed our decision to focus our investments in technologies and solutions to substantially increase substantially broadband offered to users, mainly with GPON (FTTH) technology which continued been deployed in different regions of the country.Argentina. Our work plans allow satisfyingto satisfy the various servicesservice requirements for business, large buildings, and urban developments.

 

InWith respect ofto transport network, continuing with precedent year plans carried out in previous years, investments were done to deploycompleted for the deployment of new interurban paths of optical fiber, the increase Backbone IP capacity, setting-upthe set-up of new contents POPs, and incrementthe increase of capacity and availability of DWDM network, as well as the network transformation plan to converge to a single high-capacity network.

Also newNew equipment was also installed for the Metro Ethernet network and for the evolutiondevelopment and extension of the regional transport networks, mainly in PTN (Packet Transport Network).

 

See “Item 3—Key Information—Risk Factors—Risks relating to Telecom and its Operations—We operate in a competitive environment that may result in a reduction in our market shareface substantial and increasing competition in the future.”Argentine fixed and mobile telephony, cable television and Internet businesses”. We expect to finance our capital expenditures through cash generated from our operations, cash on hand and financing from third parties; therefore, our ability to fund these expenditures is dependent on, among other factors, our ability to generate sufficient funds internally.from operations. Telecom’s ability to generate sufficient funds for capital expenditures is also dependent on its ability to increase its service prices, the increase of its operating costs due to inflation and the increase of the cost of imported materials as they may increase in pesoPeso terms (asas a result of the decline indevaluation of the peso/Peso/U.S. dollar exchange rate and higher inflation).inflation.

 

TaxesResearch and Development, Patents and Licenses, etc.

 

Turnover TaxNone.

 

Under Argentine tax law, Telecom Argentina is subject to a tax levied on gross revenues. Rates differ depending on the jurisdiction where revenues are earned for tax purposes. Rates in effect ranged from 2.5% to 8.0% for the years ended December 31, 2018, 2017 and 2016, depending on the jurisdiction or goods and services subject to the tax. TV broadcasting activity is turnover tax exempt in some jurisdictions.Trend Information

 

On January 2, 2018, Law No. 27,429 enforcedWe began 2020 with an unprecedented and challenging scenario for humanity as a “Fiscal Consensus” signed betweenwhole amid the PEN and representativeshealth crisis triggered by COVID-19. Governments throughout the world have implemented drastic social isolation measures to safeguard their people. In an attempt to curb the extent of the Provincesspread and protect the Autonomous Citypopulation, governments closed public and private institutions, restricted the movement of Buenos Aires. Amongthe population, closed their borders, and banned massive shows and sports events, among many other issues, the provinces assumed the commitment to apply tax rates not higher than those for each activity and period that are set in the Annex to the Consensus (in the case of communications services 5% in 2018 reducing to 3% in 2022 and in the case of mobile service 7% in 2018 reducing to reach 5% in 2022).measures.

 

Income Tax

Our income tax rate was, up to fiscal year 2017, 35% of net taxable income for the companies located in Argentina, 10% for Núcleo, Envíos, Televisión Dirigida and Tuves Paraguay in Paraguay and 39.5% (34% Federal Tax and 5.5% State Florida Tax) for Telecom Argentina USA in the United States and 25% for Telemás and Adesol in Uruguay.

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TELECOM ARGENTINA S.A

S.A.

90 

In Argentina, through an Emergency Decree issued on March 20, 2020, the National Government established a series of measures aimed at reducing the movement of the population to minimize the massive impact of the pandemic on the health system. To this end, the National Government ordered the ASPO jointly with the suspension of non-essential commercial activities, which allowed the movement of only those people involved in the provision/production of essential services and products. The amountASPO has been modified depending on the evolution of income subject to tax is calculated according to tax regulations which contain athe epidemiological situation in different methodology for calculating net taxable income thanregions of Argentina, with progress and setbacks in the methodology used forlevels of restriction on the preparationmovement of our Consolidated Financial Statements under IFRS. The differences betweenpeople and in the methodology of computing income undereconomic activities allowed by the tax regulations and under IFRS make it difficult to determine the taxable net income from our income statements. For instance, some deductions from income normally accepted for accounting purposes are not deductible for tax purposes and, accordingly, must be added back to the income tax base when assessing this liability. Law No 27,430 decreases the corporate income tax rate from 35% to 30% for fiscal years starting January 1, 2018 to December 31, 2019, and to 25% for fiscal years starting  January 1, 2020 and onwards.Government.

 

PursuantBy the end of 2019, Argentina was already experiencing difficulties, which have worsened as a result of the pandemic after several months of ASPO. The macroeconomic variables continued to U.S. Federal tax reform,deteriorate, coupled with an economic slowdown and recession in several sectors of the national economy. For most of the companies in Argentina, the current environment is expected to cause a further deterioration of the economic variables, which poses a highly challenging beginning of 2021 for the sustainability of their businesses.

During the second half of 2020, there was a further acceleration of the monthly devaluation rate above the inflation rate. The economic-financial performance of Telecom, and other companies that operate in Argentina, are not impervious to the impact of these exchange rate fluctuations, especially considering that, since we operate in the local market, the main source of our revenues is in Argentine Pesos, while we need to continue investing, with dollarized inputs, in the deployment of infrastructure and systems in order to maintain and enhance the capacity of our networks and platforms.

In this sense, the economic scenario has forced us to strongly focus our management on achieving operational efficiencies to maintain growth levels in line with the investments undertaken.

In addition to the complex macroeconomic context in Argentina, there is greater uncertainty for ICT services companies arising from the issuance of Decree No. 690/20, whereby the PEN declared ICT services as public services provided on a competitive basis.

Telecom, as well as the whole ICT services industry, believes that this change of rules in the regulatory framework of the industry will have a detrimental effect since, apart from unnecessarily declaring ICT as public services, the Decree introduces, among other provisions, price controls, transforming prices set on a competitive basis into rates that are regulated by the Government, which could affect the sustainability of the operations.

We understand that this Decree could have a negative impact not only on the ICT services industry as a whole -capital intensive companies that require ongoing investments to maintain the quality of the service-, but also on investors, hundreds of thousands of employees throughout the country that work at these companies, customers, and the entire value chain, also affecting all other industries and sectors that depend on connectivity to develop their activities. Hence, it could have an impact on the whole digital ecosystem, an essential sector for the recovery of Argentina. We believe it is key to further the path towards cooperation between private and public sectors and civil society organizations in order to continue expanding the digitalization possibilities for society as a whole.

However, Telecom continues to invest in the evolution of the business with a long-term approach that will allow us to further boost the digital life of Argentines. Digitalization has already become part of everyday life for individuals and organizations. It is unthinkable that the world will go back to solely face-to-face interactions. In the new U.S. corporate federal tax rate is 21% from 2018 onwards.normality, everybody wants a world in which face-to-face and virtual interactions are supplemented and boosted.

 

TaxWith a view to developing an ecosystem of platforms built upon connectivity, we have been undergoing a comprehensive digital transformation which was boosted significantly during the pandemic. During these months, we have accomplished great milestones in the upgrade of our core platforms, focused on cash dividends received from a foreign subsidiary is calculated accordingthe omni-channel experience of our customers and on the transformation of the back office of all the areas, which allowed us to quickly and timely implement digital tools to meet the needs of our customers in this context of isolation.

We have also managed to ensure the continuity of the Company's operations, thanks to the statutory income tax rate. As per Paraguayan tax law, an additional income tax rateremote work and efforts of 5% is imposed on dividends that are paid byour 23,000 employees in order to minimize the possible deterioration of our results as a Paraguayan company. Additionally, under such law, when dividends are being paid to foreign shareholders, there is a withholding taxconsequence of 15%, which is deducted fromthis scenario, while maintaining the amounts which are paid to such shareholders.

As per Argentine tax law, income tax paid abroadservice and withholding tax are recognized as tax credits with certain quantitative limits.

Net losses in Argentina can generally be carried forward and applied against future taxable income for five years. However, Paraguayan law does not permit the carry-forwardsatisfaction level of such losses.

Taxation on Dividendsour more than 29 million customers.

 

Pursuant to Law No. 26,893, Ddividends and other profits paid in cash or in kind —except for stock dividends or quota dividends—by companies and other entities incorporateduring February 2021, we set-up the first 5G network in Argentina, referred toputting into operation 10 mobile antennas in the Argentine Income Tax Law (the “Income Tax Law”), Sections 69 (a)(1), (2), (3), (6)cities of Buenos Aires and (7),Rosario to use with suitable devices. The 5G network allows speeds of 10Gbps, provides greater capacity, coverage and Section 69(b), to Argentine resident individualsfeatures for connected devices than 4G and foreign beneficiaries were subject to income tax at a 10% rate. Law No. 27,260 repealed this withholding tax as of July 23, 2016. Consequently, no withholding tax is to be levied on dividends distributed to either Argentine or non-Argentine resident shareholders since then. This treatment applies only to dividends to be distributed at any time out of retained earnings accumulated until the end of the last fiscal year starting before January 1, 2018.4.5G networks.

 

Likewise, the portion of those dividends exceeding the company’s accumulated net taxable income (as determined by application of the Argentine Income Tax Law), if any, is subject to a 35% withholding tax on such excess (the “Equalization Tax”). For purpose of the Equalization Tax, the amount of accumulated net taxable income to be considered shall be determined by (1) deducting the income tax paid by the company, and (2) adding the dividends and profits not subject to tax received as distributions from other corporations. If the distribution is in-kind, then the corporation must pay the tax to the Argentine tax authorities and will be entitled to seek reimbursement from the shareholders.

Dividends to be distributed out of earnings accrued in fiscal years starting on or after January 1, 2018, are to be subject to a tax treatment different from the one previously described, based on the recent enactment of a comprehensive tax reform -Law No. 27,430-, published in the Official Gazette on December 29, 2017, and generally effective since January 1, 2018.

Pursuant to Law No. 27,430 and Decree N° 1201/2018 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 referred to in the Argentine Income Tax Law (the “Income Tax Law”), Sections 69 (a)(1), (2), (3), (6), (7) and (8), and Section 69(b) to Argentine resident individuals and foreign beneficiaries will be subject to income tax at a 7% rate on profits accrued during fiscal years starting January 1, 2018 to December 31 2019, and at a 13% rate on profits accrued in fiscal years starting 1 January 2020 and onwards. If dividends are distributed to Argentine corporate taxpayers (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of foreign entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina), no dividend tax should apply. In addition the Equalization Tax is repealed on income accrued from January 1, 2018 and onwards.

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TELECOM ARGENTINA S.A

S.A.

Capital gains

91 

Finally, from a financial point of view, during this year, thanks to the support of the national and international financial markets in relation to our credit strength and in our business strategy, we were able to refinance part of our financial debt. We issued new Notes for a nominal value of US$388,9 million due in August 2025, and during September 2020, it refinanced several loans with multilateral agencies. In the local financial market we issued new Notes denominated in Argentine Pesos for approximately P$14,100 million in December 2020 and P$8,700 million in January 2021. These measures have allowed us to considerably improve the capital structure of the Company.

 

The results derived fromDuring 2021, we expect to further our transformation path, accomplishing new milestones towards the transferfull digitalization of sharesour operations to become more efficient, agile and other equity interests, bondsdigital, to continue boosting in our country the growth of digital economy and other securities of Argentine companies are subject to Argentine capital gains tax, regardless of the type of beneficiary who realizes the gains.generating value for our customers.

 

Capital gains obtained by Argentine corporate taxpayers (in general, entities organized or incorporated under Argentine law and local branches of non-Argentine entities) derived from the sale, exchange or other disposition of shares are subject to income tax at the corporate rate on net income. Recently, Law No. 27,430 regulated through Decree No. 1,170/2018 published on December 27, 2018 decreased the corporate income tax rate from 35% to 30% for fiscal years beginning on January 1, 2018 to December 31, 2019, and to 25% for fiscal years beginning on January 1, 2020 and onwards.

Individual resident’s capital gains tax

Law No 27,430 established that as from January 1, 2018, gains realized by Argentine resident individuals  from the sale, transfer or disposition of shares, securities representing shares and certificates of deposit of shares are exempt from capital gains tax in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares are traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV.  For periods prior to 2018, it is currently under discussion the extent of the exemption (established by Law 26,893 and its implementing decree 2334/2013) applicable to the sale of shares and other securities through a stock exchange market, so as to determine whether it applies only sales of securities made in stock exchanges duly authorized by the CNV or in any stock exchanges. Pursuant Decree N° 1170/2018 the conversion process by which individual residents change ADRs by excepted shares, will be considered a levied transaction at its value market price.

Nonresident’s capital gains tax

Pursuant to Law No. 26,893, capital gains obtained by non-Argentine residents from the sale, exchange or other disposition of shares and other equity interests, bonds and other securities of Argentine companies were subject to capital gains tax until December 30, 2017, even if those transactions were entered into between nonresidents.

Law No 27,430 provides that the capital gains tax applicable to nonresidents for transactions entered into between September 23, 2013 (when Law No. 26893 became effective) and December 30, 2017, is still due and regulations will state the mechanism to have it paid.  However, no taxes will be claimed to nonresidents with respect to past sales of Argentine shares or other securities traded in CNV’s authorized markets (such as ADSs) as long as the cause of the non-payment was the absence of regulations stating the mechanism of tax collection at the time the transaction was closed. General Resolution (AFIP) 4.227, which came into effect on April 26, 2018, stipulates that the income tax should be paid to the AFIP under the following procedures: (i) in case the securities were sold through an Argentine stock exchange market, and the withholding has been made, then the withholder must pay the tax, (ii) in case the securities were sold but not through an Argentine stock exchange market and there is an Argentine buyer involved, then the Argentine buyer should pay the income tax; and (iii) when both the seller and the buyer were foreign beneficiaries and the sale was not performed through an Argentine stock exchange market, the person liable for the tax is the buyer and the payment shall be made through an international bank wire transfer to the AFIP. The payment of capital gains tax applicable for transactions entered into before December 30, 2017 was due on June 11, 2018.

In turn, Law 27,430 and Decree 279/2018, maintain the 15% capital gains tax (calculated on the actual net gain or a presumed net gain equal to 90% of the sale price) on the disposal of shares or securities by nonresidents. However, nonresidents are exempt from the capital gains tax on gains realized from the sale of (a) Argentine shares in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares were traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV; and (b) depositary shares or depositary receipts issued abroad, when the underlying securities are shares (i) issued by Argentine companies, and (ii) with authorization of public offering. The exemptions will only apply to the extent the foreign beneficiaries reside in, or the funds used for the investment proceed from, jurisdictions considered as cooperating for purposes of the exchange of tax information.

In addition, it is clarified that, from 2018 onward, gains from the sale of ADSs will be treated from Argentine sources.

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In case the exemption is not applicable and, to the extent foreign beneficiaries do not reside in, or the funds do not arise from, jurisdictions not considered as cooperative for purposes of fiscal transparency, the gain realized from the disposition of shares would be subject to Argentine income tax at a 15% rate on the net capital gain or at a 13.5% effective rate on the gross price. In case such foreign beneficiaries reside in, or the funds arise from, jurisdictions not considered as cooperative for purposes of fiscal transparency, a 35% tax rate on the net capital gain or at a 31.5% effective rate on the gross price should apply. As per the law, the Executive Power will be required to publish a list of “non-cooperating” jurisdictions. Meanwhile, to determine if a jurisdiction is “cooperating or not,” the list published by AFIP according to Decree 589/2013 should be consulted.

In such scenarios, according to General Resolution (AFIP) 4227, the income tax should be withheld and paid to the AFIP under the following procedures: (i) in case the securities were sold by a foreign beneficiary, through an Argentine stock exchange market, the custodian entity should withhold and pay the tax if it is involved in the payment process; if it is not involved in the payment process but there is an Argentine buyer involved, the Argentine buyer should withhold the income tax (ii) in case the securities were sold by a foreign beneficiary, but not  through an Argentine stock exchange market and there is an Argentine buyer involved, the Argentine buyer should withhold the income tax; and (iii) when both the seller and the buyer are foreign beneficiaries and the sale is not performed through an Argentine stock exchange market, the person liable for the tax shall be the legal representative of the seller of the shares or securities being transferred or directly by the seller, in the event that there is no local legal representative. In this case, the payment shall be made through an international bank via wire transfer to the AFIP.

Holders are encouraged to consult a tax advisor as to the particular Argentine income tax consequences derived from the holding and disposing of ADSs or Class B Shares.

Assets - Tax revaluation option

Law No 27,430 establishes an option for Argentine-resident individuals and companies to step their Argentine-based, income producing assets’ tax basis up. The step-up option can be exercised based on the assets’ tax basis values for the first fiscal period ending after the Law’s entry into force.  Under the law, the new tax basis in the assets will be determined by applying a “revaluation factor,” as established in the law, to the tax basis originally determined in each year or period of the asset’s acquisition or construction. In the case of immovable or movable property qualifying as fixed assets, the value may be determined by an independent appraiser under certain conditions. In addition, the law imposes a one-time special tax on the amount of the revaluation. The applicable rate will vary depending on the assets revaluated:

· Real estate (regarded as capital assets): 8%

· Real estate (regarded as inventories): 15%

· Shares, quotas and other participations in Argentine companies owned by resident individuals: 5%

· All other assets (except inventories and cars, which may not be revaluated): 10%.

The option must be exercised on all the taxpayer’s assets that integrate the same category of assets. Once the option is exercised, the taxpayer is able to calculate the amortization or costs in the income tax over the revalued assets. Likewise, such revaluation is updated on the base of the variation of Consumer Price Index (CPI) since January 1, 2018, as provided by Law No. 27,468.

The amounts resulting from the revaluation will be considered for the purpose of determining the amortization of the assets and their computable cost under certain conditions and limitations.

The law requires taxpayers that opt for the special revaluation regime to withdraw from any judicial or administrative process in which they are claiming, for tax purposes, an adjustment for inflation and to desist from making a new claim. (See “Item 8—Financial Information—Tax Matters—Income tax - Action for recourse filed with the AFIP”).

Telecom Argentina has evaluated the convenience of exercising this option and decided not to enter the regime.

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Inflation restatement for income tax purpose

Law No 27,430 establishes the restatement for inflation procedures in the Income Tax Law allowing the inflation adjustment for new acquisitions and investments carried out from January 1, 2018 and onwards; the law also allows the application of an integral inflation adjustment mechanism but only when the variation of the Internal Wholesale Price Index (in Spanish, Indice de Precios Internos al por Mayor or IPIM) supplied by the National Institute of Statistics and Censuses (in Spanish, Instituto Nacional de Estadística y Censos or INDEC), is higher than 100% for the 36-month period before the end of the fiscal period. However, on  December 4, 2018, Law 27,467 amended Lay 27.430 and IPIM was substituted by the Consumer Price Index (CPI). This Law also establishes that the Inflation Adjustment Proceeding will be applicable -regarding the first three years as of January 1, 2018- when the variation of the Consumer Price Index exceeds 55% for the first exercise, 30% for the second year and 15% for the third year and that the inflation adjustment that must be calculated in the first three fiscal years beginning on January 1, 2018 must be charged 1/3 in that fiscal period and the remaining 2/3 in equal parts in the remaining fiscal periods.

Thin Capitalization Rules

Argentine Law No. 25,784, modified the limitation on the deduction of interest expense by stating that the limit will only be applied to interest expense on debt owed to non-resident entities that control the borrowing entity (except for interest expense subject to the 35% withholding tax) in proportion to the amount of debt that exceeds by two times the company’s equity, and the excess of interest over this ratio will be treated as dividend payments. During fiscal years 2017, 2016 and 2015, Telecom’s deduction of interest expenses was not limited because Telecom was able to meet the conditions required for such deduction.

Law No 27,430 and Decree 1170/2018, in force for fiscal years beginning after January 1, 2018, eliminate the 2:1 debt-to-equity ratio and establishes a new set of thin capitalization rules.  Pursuant to this amendment, thin capitalization rules apply to interest on financial debt (i.e., interest not accruing on payables for the purchase of goods or services) entered into with related parties (whether local or foreign).  Such interest expense can be deducted up to the higher amount of (i) an amount to be set by Regulations, or (ii) 30% of EBITDA.  This limit can be increased by the excess of such higher amount over the amount of interest actually deducted in the last 3 taxable years, if any.  If thin capitalization rules apply, the nondeductible portion of the interest expense will be carried forward for 5 taxable years, in which it will be added to the interest expense subject to thin capitalization rules to determine whether the limit is reached or not.

Thin capitalization rules do not apply to the following cases, among others:

·                  Interest expense lower to interest income.

·                  When the borrower’s interest-to-EBITDA ratio is lower than or equal to the ratio of its economic group’s interest expense on loans from unrelated parties and EBITDA.

·                  When the lender is subject to tax on such interest.

The concept of interest subject to thin capitalization rules include foreign exchange losses and inflation or other index adjustments.

Tax on Minimum Presumed Income

Our companies located in Argentina are required to pay an amount equal to the greater of the income tax or the tax on minimum presumed income. The tax on minimum presumed income is computed based on 1% of the value of our assets. The value of our assets is determined in accordance with the criteria established under the tax laws. The amount of any income tax paid during the year may be applied against the tax on minimum presumed income that would be payable in such year. The amount of any tax on minimum presumed income paid in excess of the income tax for such year may be carried forward for a period of up to ten years. This excess may be treated as a credit to be applied against the income tax payable in a future year to the extent the tax on minimum presumed income for the year does not exceed income tax payable for such future year.

Notwithstanding the provisions of the law, pursuant to AFIP Instruction No. 2/2017, companies shall not be subject to tax on minimum presumed income as long as they recognized accounting and tax losses in the relevant fiscal period. Under those circumstances, pursuant to the ruling of the Supreme Court of Argentina in the lawsuit “Hermitage S.A.”, it shall be enough to demonstrate that the minimum income presumed under the law does not exist.

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During fiscal years 2017 and 2016, income tax was higher than tax on minimum presumed income. During fiscal year 2018 Telecom Argentina is subject to tax on minimum presumed income tax since it has recognized accounting gains but income tax loses. Shares and other equity participations in companies subject to the tax on minimum presumed income are exempt from the tax on minimum presumed income.

According to Law No. 27,260, Tax on Minimum Presumed Income is repealed for fiscal years beginning from January 1, 2019.

Value Added Tax (VAT)

VAT does not have a direct impact on our results of operations. VAT paid by us to our suppliers is applied as a credit toward the amount of VAT charged by Telecom to its customers and the net amount is passed through to the Argentine government. VAT rates are 21%, 27% and 10.5%, depending on the type of the transaction and tax status of the customer.

The import of services (including financial services) by Argentine VAT taxpayers registered for VAT purposes, or responsables inscriptos, such as Telecom Argentina and Personal, is subject to VAT. In the case of loans, if the lender is a bank or a financial entity located in a country whose central bank has adopted the Banking Supervision Standards of the Basel Committee, the rate is 10.5%. If the foreign lender is one other than those mentioned above, the rate is 21%.

Pursuant to Law No 27,430 (effective for taxable events occurring as from February 1, 2018) digital services rendered from outside Argentina are subject to value added tax when the services are rendered to VAT taxpayers or consumers by a resident or a foreign party and the effective use of the services is conducted in Argentina. The purchaser of the digital services is liable to assess and remit the VAT to the Argentine tax authorities. Decree N° 813/2018 regulates this new taxable event and establishes that the tax  will be paid by the customer, directly or through a reverse withholding mechanism. If an intermediary, whether resident or domiciled in Argentina, intervenes in the payment, the intermediary will act as a reverse withholding mechanism agent. If there is more than one intermediary, the agent of reverse withholding will be the one that has the closest commercial relationship with the provider of the service. The entities providing collection services are included in this provision. General Resolution No. 4240/2018 (published in the Official Gazette on May 14, 2018) established the forms, terms and conditions that  should be taken into account to deposit VAT.

Law No. 27,346 states that since January 1, 2017, VAT for Argentinean residents, such as Telecom Argentina will be considered “responsables sustitutos” (substitutes) of the VAT tax that levies services rendered in Argentina by non-residents. Decree N° 813/2018 regulates this amendment. General Resolution No. 4356/2018 (published in the Official Gazette on December 11, 2018) established the forms, terms and conditions that “responsables sustitutos” (substitutes) should take into account to deposit VAT.

Financial Transactions Tax

The financial transactions tax in levied on certain deposits to and withdrawals from bank accounts with Argentine financial institutions and to other transactions that, due to their special nature and characteristics, are similar or could be used in lieu of a deposit to or withdrawal from a bank account. Therefore, any deposit to or withdrawal from a bank account opened in an institution regulated by Law No. 21,526, or any transaction deemed to be used in lieu of a deposit to or withdrawal from a bank account, is subject to the tax on deposits and withdrawals unless a particular exemption is applicable. The tax rate in effect since August 1, 2001 has been 0.6% of the transaction volume.

During 2017, 2016 and 2015, we charged to our income statement P$626 million, P$539 million and P$403 million, respectively, of this tax.

On February 6, 2003, the Ministry of Economy and Public Finance, through General Resolution No. 72/03, authorized us to increase the Basic Telephone Services reflecting the impact of the financial transactions tax. Telecom Argentina determined an amount of approximately P$23 million had not yet been recovered that arose prior to the issuance of Resolution No.72/03 and that was not used to offset payment of other taxes. Such amount was recorded under “Other receivables” during 2007 and can be offset with existing and/or future regulatory duties. See “Item 4—Information on the Company—Regulatory and Legal Framework—Regulatory Framework—Tax on deposits to and withdrawals from bank accounts charged to customers.”

Decree No. 534/2004 provides that owners of bank accounts subject to the general tax rate of 0.6% may take into account as a tax credit 34% of the tax originated in credits on such bank accounts. This amount may be computed as a credit for the Income Tax and Tax on Minimum Presumed Income. The amount computed as a credit is not deductible for income tax purposes.

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TELECOM ARGENTINA S.A

Pursuant to Law No 27,432 the PEN may decide that the percentage of the tax that on the date of entry into force of this law is not computable as payment on account of income tax, will be progressively reduced by up to twenty percent (20%) per year as of January 1, 2018, and also may decide that, in 2022, the tax provided for in Law No. 25,413 and its amendments as a payment on account of income tax will be computed in full. Through Decree No. 409/2018, the percentages in which the Taxes on deposits to and withdrawals from bank accounts can be taken into account as a tax credit for Income Tax or the Tax on Minimum Presumed Income, were increased: that owners of bank accounts subject to the general tax rate of 0.6% may take into account as a tax credit 33% (20% applicable to taxable events affected by a tax rate lower than 0.6%) of the tax originated in credits and debits on such bank accounts. The amendments introduced will be applicable to the advance payments and balances of the Income Tax or Tax on Minimum Presumed Income,’ tax return of fiscal periods that begin as of January 1, 2018.

Personal Assets Tax

Argentine companies, such as us, have to assess and pay the personal assets tax corresponding to their shareholders that are Argentine individuals and non-Argentine resident persons (natural and legal persons). The tax rate in effect through December 31, 2015 was 0.50%. As of December 31, 2016, Law No. 27,260 lowered the rate to 0.25%, which is to be assessed on the proportional net worth value (valor patrimonial proporcional), of the shares as per the Argentine entity’s last financial statements prepared under Argentine GAAP. Pursuant to the Personal Assets Tax Law, an Argentine company is entitled to seek reimbursement for such paid tax from the applicable Argentine domiciled individuals and/or foreign domiciled shareholders.

Pursuant to Law No. 27,260, Argentine companies that have properly fulfilled their tax obligations during the two fiscal year periods prior to the 2016 fiscal year and complied with certain other requirements may qualify for an exemption from the personal asset tax paid on behalf of the Shareholders for the 2016, 2017 and 2018 fiscal years. The request for this tax exemption should have been filed before March 31, 2017. Telecom Argentina and Cablevisión have filed the request. Notwithstanding, we cannot assure that in the future, Telecom Argentina and Cablevisión can fulfill those requirements and maintain the referred exemption.

As of December 31, 2019, the rate at which Argentine companies, such as us, have to assess and pay the personal assets tax corresponding to their shareholders that are Argentine individuals and non-Argentine resident persons (natural and legal persons) will be 0.25%.

Export Duties

On December 4, 2018, Law 27,467 amended the Argentine Customs Code and included export of services within the scope of exports in the Customs Code, thus allowing the application of export duties on them. In turn, the law allowed the Executive Power to impose duties on those exports until December 31, 2020.

On January 2, 2019, the Argentine Executive Power enacted Decree No. 1201/2018 establishing a duty on exports of services until December 31, 2020. The export duty has been set at a rate of 12%, with a maximum limit of Argentine Pesos (ARS) 4 per each US Dollar (US$) of the amount arising from the invoice or equivalent document.

Exports of services are defined as services carried out in Argentina whose utilization or effective exploitation is carried out abroad. Such services, although not subject to VAT, are now subject to this temporary export duty.

On the other hand, this duty does not apply to services rendered to foreign parties which are effectively used in Argentina (and therefore subject to VAT).

This duty will be applicable on export of services rendered and invoiced since January 1, 2019, including services originated in contracts or transactions initiated before that date, but rendered since that date.

Other Taxes and Levies

We are subject to a levy of 0.5% of our monthly revenues from telecommunications services. The proceeds of this levy are used to finance the activities of the Regulatory Bodies. The amount of this levy is included in our consolidated income statement within “Taxes and fees with the Regulatory Authority.”

Law No. 25,239 imposes a tax on Personal (entity absorbed by Telecom Argentina) of 4% (tax on mobile and satellite services) of amounts invoiced excluding VAT but including the excise tax, which results in an effective tax rate of up to 4.167%. Since March 1, 2018, pursuant to Law No 27,430, the rate increases to 5% (5.26% effective tax rate).

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Law No. 26,539 amends the excise tax and establishes that the importation and sale of technological and computer goods, including mobile phones, is subject to the excise tax at a rate of 17%, resulting in an effective tax rate of up to 20.48%, effective from December 1, 2009. Pursuant to Decree No. 979/2017 since November 15, 2017mobile phones are levied at a rate of 10.50%  resulting in an effective tax rate of 11.73%, this rate will decrease until January 2024 when no excise tax will be levied on this transactions (in 2019 it will be 9.89%). In the case of goods manufactured in Tierra del Fuego, no tax will apply since November 15, 2017.

Since the beginning of 2001, telecommunication services companies have been required to pay a Universal Service tax to fund Universal Service requirements. See “Item 4—Information on the Company—Regulatory and Legal Framework—Regulatory Framework—Universal Service Regulation.”

Law No. 26,573, which was regulated in 2010, imposes a levy of 1% of the monthly revenues from telecommunication services, excluding prepaid services, which must be collected from the customers. The proceeds of this levy are used to finance the activities of the National Board of High Performance Sport (Ente Nacional de Alto Rendimiento Deportivo — ENARD). Law No. 27,430 repeals this levy since March 1, 2018.

Pursuant to Law No. 26,522 the owners of audiovisual communications services must pay a tax proportional to the amount of the turnover from the commercialization of traditional and non-traditional ads, programs, channels, content, subscriptions, and any other concept deriving from the exploitation of such audiovisual communications services. In case TV Cable operators, tax varies between 2% and 5% depending on the number of inhabitants in the service area. Subjects that are registered as responsible to pay Value Added Tax and that are subject to the Audiovisual communications services Tax, may compute this tax as payments on account of VAT.

Additionally, Author`s rights should be paid by the owners of audiovisual communications services  to several institutions such as AADI-CAPIF, SADAIC, ARGENTORES, etc. The rates vary between 0.1% and 1% and are calculated on a similar basis to audiovisual communications services tax.

Stamp tax is a provincial tax that is levied based on the formal execution of public or private instruments. Documents subject to stamp tax include, among others, various types of contracts, notarial deeds and promissory notes. Each province and the Autonomous City of Buenos Aires has its own stamp tax legislation. Stamp tax rates vary according to the jurisdiction and type of agreement involved. On January 2, 2018, Law No. 27,429 enforced a “Fiscal Consensus” signed between the PEN and representatives of the Provinces and the Autonomous City of Buenos Aires. Among other issues, the provinces assumed the commitment to apply tax rates not higher than those for each activity and period In the stamp tax, for certain acts and contracts, not higher than 0.75% as of January 1, 2019 with a gradual reduction until its complete elimination as of January 1, 2022.

Local municipalities establish various taxes and fees such as “Safety and hygiene”, “Habilitation and inspection of structures”, “Occupation of public spaces” and “Advertising”, among others.

Telecom Argentina is subject to a radioelectric spectrum fees that are paid to the Regulatory Authority for the use of the radio spectrum.

Law No. 27,430 gradually reduces the percentage of employers’ contributions to be paid by large companies from 21% to 19.5% in 2022. It establishes a non-taxable base for calculating employers’ contributions of $ 2,400 for 2018, which will increase until reaching $12,000 in 2022 (updatable since January 2019, based on the variations of the Consumer Price Index (CPI)). The Law gradually phases out employers’ contributions creditable against VAT. Pursuant to Ministerio de Salud y Desarrollo Social - Secretaría de seguridad social General Resolution No 3-2018 of the the non-taxable base for 2019 will be $7.003,68 Argentine pesos.

The National Budget Law for the year 2019 (Law No. 27,467), published in the Official Gazette on December 4, 2018, provides that entities that provide broadcast television or physical link and/or radio electric link subscription television services, audio broadcasting, cable television signals, newspaper, magazine or periodical publishing companies or companies engaged in digital journalism, and the distributors of those publishing companies, may all calculate employer’s contributions paid in connection with the personnel engaged in said activities as tax credit on VAT. These contributions must have been accrued in the fiscal period and effectively paid at the moment of submitting the VAT return. As provided above, where the salaries that give rise to the employer’s contributions which may be calculated as tax credit on VAT are indistinctly related to other activities outside the scope of this benefit, they will be subject to the apportionment procedure. During 2018, the Company has applied a regime similar to that provided under Law No. 27,467, based on final court decisions allowing its application.

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Research and Development, Patents and Licenses, etc.Off-Balance Sheet Arrangements

 

None.

 

Trend Information

In macroeconomic terms, during year 2018, growth’s deceleration was accentuated, mainly due to the drought that affected the central agricultural area for most of the year and had a negative impact on economic activity nationwide. This situation, added to a more contractive monetary and fiscal policy, generated a decrease in the activity level.

One of the most relevant factors in the economic context was the increase of inflation levels, high interest rates and the devaluation of the Argentine peso, which affected the Argentine economy mainly during the second half of the year. However, we consider that this situation will find a breakeven point during the first half of 2019, considering the agreement reached by the government with the International Monetary Fund and the definition of new economic measures aimed at seeking market credibility and exchange rate parity stability.

The economic-financial performance of Telecom Argentina - and other companies that operate in Argentina- was not oblivious to the impact of exchange differences, especially for a company that has to make intensive investments in infrastructure, with dollarized inputs, but operates in Argentine pesos in the local market.

Despite an adverse economic context, during this period, Telecom had estimable growth levels due to its favorable operating performance registered during the last years.

We continue to ratify our commitment to the economic development of Argentina, from an investment strategic plan of US$ 5,000 destined to the deployment of infrastructure and system integration, which started in 2018.

Regarding the framework that regulates our activity, we continue accompanying the government’s vocation to extend connectivity throughout the country, which is reflected in the National Telecommunications and Connectivity Plan. We understand that the State should encourage the willingness of companies such as Telecom, with the capacity and commitment to invest in modern and powerful networks that bring high quality products and services to Argentina. This agreement confirms the efforts that the ICT sector has been making in recent years to reduce the digital gap and make connectivity available to all Argentina.

One of the main focuses of our management during this year was to consolidate the integration of the financial and operating structures of the merged companies — Telecom and Cablevisión -, in order to reinforce the position of the new company in a high competitive market.

Our efforts were aimed at providing our customers with the best offerings in terms of speed, quality, technological reliability and high-value contents, focusing on the convergence of services, the integration of the IT platform, which is indispensable to achieve the real convergence of all the services provided by Telecom available through its trademarks — Cablevisión, Personal and Fibertel - as well as the comprehensive management of our customer base.

We continued upgrading and enhancing the capacity and coverage of the fixed-mobile network throughout the country, an asset that positions Telecom as a leading ITC company in Argentina. The deployment of network infrastructure is key to the transformation towards convergent services, with international quality standards, which allows us to leverage on the content business, with Flow as the entertainment hub and comprehensive multi-device platform.

Telecom will maintain the plans for fiber optic cable laying increasingly closer to households, unifying different access technologies to improve browsing speeds and converting copper fixed networks into fiber networks or hybrid fiber-coaxial networks to offer higher connection speed and allow customers to enjoy audiovisual contents that demand high network capacity.

As to the mobile network, we will maintain our strategy to enhance network coverage, availability and capacity with the expansion of the 4G network to more locations and the extension of the 4.5G network, already available in 95% of the coverage area of Personal’s 4G network. In addition, we are preparing for the development of 5G technology which supports ultra-broadband connection, essential for the most innovative mobile applications and the growth of the connection between devices known as IoT (Internet of Things).

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We are favoring the integration and synergy of our mobile and fiber optic networks, in addition to the high capacity and capillarity of the IP transport interurban network, with a new architecture that will allow the company to transport not only our own digital contents but also those of third parties.

This single network, Argentina’s most powerful and sustainable one, will allow us to expand the plan for the transformation of contents and IP video services, among which Flow is the ultimate offering.

Connectivity is no longer fixed or mobile, it is present in every aspect of everyday life and, at Telecom, we seek to boost that connectivity into mobility, from any place and from any device, as the gateway to the digital universe of individuals, companies and governments. As we have been doing over the last years, we seek to lead this process of deep transformation of behaviors, social dynamics and organizations.

Contractual Obligations

 

Our consolidated contractual obligations and purchase commitments as of December 31, 20182020 were as follows:

 

 Less than
1 year
 1-3 years 3-5 years More than
5 years
 Total 

 

Less than
1 year

 

1-3 years

 

3-5 years

 

More than
5 years

 

Total

 

           

 

(in millions of Argentine Pesos)

 

 (in millions of Argentine Pesos) 

Debt obligations (1)

 

21,917

 

51,625

 

18,743

 

 

92,285

 

  44,774   106,737   50,412   38,435   240,358 

Operating lease obligations

 

1,754

 

1,859

 

427

 

479

 

4,519

 

  226   96   2   -   324 

Purchase obligations (2)

 

23,690

 

8,529

 

3,697

 

672

 

36,588

 

  12,564   47,529   1,200   651   61,944 
Lease liabilities  3,595   4,128   2,159   1,455   11,337 

Other long-term liabilities (3)

 

636

 

362

 

120

 

187

 

1,305

 

  1,100   807   294   312   2,513 

Total

 

47,997

 

62,375

 

22,987

 

1,338

 

134,697

 

  62,259   159,297   54,067   40,853   316,476 

 


(1)Includes P$12,973 million of future interest.

(2)Other than operating lease obligations. It includes PP&E purchase obligations, inventories purchase obligations, and other services purchase obligations, among others.

(3)Includes voluntary retirement program, pension benefits and other long-term payables.

(1)Includes P$40,158 million of future interest.
(2)Other than operating lease obligations. It includes PP&E purchase obligations, inventories purchase obligations, and other services purchase obligations, among others.
(3)Includes voluntary retirement program, pension benefits and other long-term payables.

 

Off-Balance Sheet Arrangements

None.

Safe Harbor

 

See the discussion at the beginning of this Item 5 and “Forward-Looking Statements” in the introduction of this Annual Report, for forward-looking statement safe harbor provisions.

 

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ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

The Board of Directors

 

The direction and management of Telecom Argentina is vested in the Board of Directors and its executive officers. Telecom Argentina’s bylaws were amended at the Ordinary and Extraordinary Shareholders’ Meeting held on August 31, 2017 providing for a Board of Directors consisting of (i) no fewer than eleven and no more than seventeen directors and (ii) the same or a lesser number of alternate members. This amendment was recorded with the IGJ on August 30, 2018.

 

As of the date of this Annual Report, Telecom Argentina has eleven directors and eleven alternate directors. Three of the directors and two of the alternate directors qualify as independent directors under SEC regulations. ThreeFour of the directors and three of the alternate directors also qualify as independent directors under CNV rules. According to Telecom Argentina’s bylaws, the Board of Directors has all of the required authority to manage the corporation, including those for which the law requires special powers. The Board of Directors operates wherewhen there is a quorum of the absolute majority of its members and resolves issues by simple majority of votes present, provided that in respect of certain matters (the “Supermajority Matters”) the favorable vote of at least one Director proposed for designation by the Class A and one Director proposed for designation by the Class D is required to pass a resolution. According to Telecom Argentina’s bylaws, the chairman of the Board of Directors (the “Chairman”) has a double vote in the case of a tie, except in respect of Supermajority Matters. Under CNV regulation, in order to be independent, a director must neither be employed by, nor affiliated with, Telecom Argentina, CVH or Fintech. Directors and alternate directors are normally elected at annual ordinary general meetings of shareholders (“Annual Ordinary Shareholders’ Meetings”) and serve a renewable three-year term. The term of the current directors will expire on December 31, 2020. Nevertheless, according to Section 257 of Argentine Corporations Law, they will remain in their functions until they are replaced. None of Telecom Argentina’s directors have services contracts with Telecom Argentina (or any subsidiary) providing for benefits upon termination of employment as a director.

 

On January 31, 2018 the Board of Directors organized and approved the internal rules of the Executive Committee, (the—the Rules of the Executive Committee (“Reglamento de Facultades y Funcionamiento”Funcionamiento)) provided for in Article thirteenSection 13 of our Bylaws which shall beBylaws. The Executive Committee in charge of the approval, inter alia, of matters in the ordinary course of business, but without executive responsibilities which shall be in charge of the managers of the Company, the preliminary approval of significant plans, approval of important significance including the Business Plan and Annual Budget of the Company prior to its approval by the Board and also certain other duties that were previously performed by the Comité de Operaciones and the Consejo de Administración which have been eliminated.duties. The Executive Committee is comprised of five members, all of which are required tomust be members of the Board of Directors of theour Company. The Executive Committee takes all of its resolutionresolutions by the unanimous vote of all its members, and in case such consent is not obtained in respect of any matter, such matter is posted for approval of the Board of Directors.

 

As established in the Telecom Shareholders’ Agreement between CVH and Fintech, provided thatfor so long as CVH holds a certain percentage of Telecom Argentina Shares,shares, CVH shall be entitled to designate the majority of the directors, alternate directors, members of the Supervisory Committee, Executive Committee members, Audit Committee members, the CEO and any other Key Employees (other than the CFO and the Internal Auditor, who shall be designated by Fintech). CVH shall also be entitled to nominate the Chairman of the Board and Fintech to nominate de VicechairmanVice Chairman of the Board. In the absence of a director, the corresponding alternate director may attend and vote at meetings of the Board of Directors.

 

See “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders—Telecom Shareholders’ Agreement” for a description of certain agreements relating to the appointment of members of the Board of Directors.

 

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The following table lists our directors and alternate directors as of December 31, 20182020 and as of the date of this Annual Report:

 

Name

Position on the Board of Directors

Date Director joined
the Board of Directors

AlejandroCarlos Alberto Urricelqui

Moltini

Chairman of the Board of Directors

January 1, 2018

2020

Mariano Marcelo Ibáñez

Vice Chairman of the Board of Directors

March 8, 2016

Sebastián Bardengo

Alejandro Alberto Urricelqui

Director

January 1, 2018

Sebastián BardengoDirectorJanuary 1, 2018
Damián Fabio CassinoDirectorJanuary 1, 2018
Carlos Alejandro HarrisonDirectorMarch 8, 2016
Martín Héctor D´AmbrosioDirectorMarch 8, 2016
Germán Horacio VidalDirectorJanuary 1, 2018
Luca LucianiDirectorJanuary 31, 2018
Baruki Luis Alberto GonzálezDirectorApril 8, 2016
Eduardo Enrique de PedroDirectorJune 4, 2020
María Lucila RomeroAlternate DirectorJanuary 1, 2018
Sebastián Ricardo Frabosqui DiazAlternate DirectorJanuary 1, 2018

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NamePosition on the Board of DirectorsDate Director joined
the Board of Directors
Claudia Irene OstergaardAlternate DirectorJanuary 31, 2018
Ignacio José María Sáenz Valiente

Alternate Director

January 1, 2018

2020

Damián Fabio Cassino

José Carlos Cura

Alternate Director

January 1, 2018

Carlos Alejandro Harrison

Director

March 8, 2016

Martín Héctor D´Ambrosio

Director

March 8, 2016

Germán Horacio Vidal

Director

January 1, 2018

Luca Luciani

Director

January 31, 2018

Baruki Luis Alberto González

Director

April 8, 2016

Alejo Maxit

Director

April 27, 2017

María Lucila Romero

Alternate Director

January 1, 2018

Sebastián Ricardo Frabosqui Diaz

Alternate Director

January 1, 2018

Claudia Irene Ostergaard

Alternate Director

January 31, 2018

Nicolás Sergio Novoa

Alternate Director

January 1, 2018

José Carlos Cura

Alternate Director

April 27, 2017

Miguel Angel Graña

Alternate Director

January 1, 2018

Facundo Martín Goslino

Alternate Director

January 31, 2018

Lucrecia María Delfina Moreira Savino

Alternate Director

January 31, 2018

Saturnino Jorge Funes

Alternate Director

March 8, 2016

Carolina Susana Curzi

Alternate Director

January 31, 2018

Juan Santiago Luis Ibarzábal Murphy

Fraschina

Alternate Director

April 27, 2017

June 4, 2020

 

Executive Committee.Committee

 

The following table lists the members of our Executive Committee as of the date of this Annual Report:December 31, 2020:

 

Carlos Alberto Moltini

Alejandro Alberto Urricelqui

Mariano Marcelo Ibáñez

Sebastián Bardengo

Damián Fabio Cassino

Germán Horacio Vidal

 

AlejandroCarlos Alberto UrricelquiMoltini is an Accountantaccountant with a degree from the Universidad de Buenos Aires,Aires. He was appointed CEO of the Company in November 2017. On January 1, 2020 he ceased his function as CEO and hasbecame a Master’s Degree in Finance. He has been the Chairmanmember of the Board of Directors of the Company since January 2018Telecom and a member of theits Executive Committee. HeUntil the merger, Mr. Moltini had been a member of the Board of Directors of Cablevisión since October 2006 and General Manager of Cablevision from November 2006 to November 2017. Before that, Mr. Moltini was the ChairmanGeneral Manager of CablevisiónMulticanal S.A. until itand, before that, he was merged into the Company. During 2017, he participatedCFO of Arte Radiotelevisivo Argentino S.A. (“Artear”) for seven years, a leading broadcasting channel in the merger process of CablevisiónCiudad Autónoma de Buenos Aires, owned by Grupo Clarín. Previously, Mr. Moltini worked for Bagley Argentina S.A. and Telecom Argentina S.A. In addition, during 2006, he led the acquisition and subsequent merger of Cablevisión S.A. and Multicanal S.A. Mr. Urricelqui joined Grupo Clarín in 1990. As Chief Financial Officer, he participated in the business expansion and integration of Grupo Clarín’s media and telecommunications and in its Initial Public Offering, which took place in 2007.other broadcasting companies. He was born on OctoberNovember 16, 1959.1960.

 

Mariano Marcelo Ibáñez is a lawyer with a degree from the Universidad de Buenos Aires. He was the Chairman of the Board of Directors of the Company from March 2016 until January 1, 2018. He is currently the Vice Chairman and member of the Executive Committee. Previously, he was Director of Cablecom and as Chairman and acting CEO of Cablevisión S.A.n. He was a Director of Multimedios América (Cablevisión, Radio América, Radio del Plata, El Cronista and América TV). He was born on August 25, 1959.

 

Alejandro Alberto Urricelqui is an Accountant with a degree from the Universidad de Buenos Aires, and has a Master Degree in Finance. He was Chairman of the Board of Directors of the Company from January 1st, 2018 until May 21, 2020. He is a member of the Executive Committee. He was the Chairman of Cablevisión until it was merged into the Company. Mr. Urricelqui joined Grupo Clarín in 1990. As Chief Financial Officer, he participated in the business expansion and integration of Grupo Clarín’s media and telecommunications, including the acquisition of Cablevision in 2006 and its merger with Multicanal S.A., and in Grupo Clarín’s initial public offering in 2007. He was born on October 16, 1959.

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Sebastian Bardengo is graduated from the Universidad de Buenos Aires with a degree in Business Administration and has a specialization in Administration and Management from Harvard University. He has been member of the Board of Directors of the Company and a member of the Executive Committee since January 2018. He has been director of CablevisionCablevisión Holding S.A. since 2008.2017. He is currently Chairmanchairman of the Boardboard of Directordirectors of Cablevisión Holding S.A. He has been the Manager of Corporate Business at Grupo Clarín and member of the Board of Directors of Grupo Clarín and several of its subsidiaries. Previously, he worked for more than 20 years in investment and commercial banking, including the following positions: (i) Directordirector at Bank Boston Capital, a private equity fund with investments in Argentina, Uruguay and Chile; (b) Executiveexecutive Director at Bozano Simonsen Latinamerica S.A., a leading Brazilian investment bank; (c) Founding Partner atfounding partner of Buenos Aires Advisors, a financial advisory and Mergersmergers and Acquisitions advisory firm. In addition, Mr. Bardengo was appointed as financial expert in international arbitration courts such as CIADI (Centro Internacional de Arreglo de Diferencias relativas a Inversiones) and CNUDMI (Comisión de las Naciones Unidas para el Derecho Mercantil Internacional). He was born on May 15, 1966.

 

Ignacio José María Sáenz ValienteDamián F. Cassino is a lawyer from the Pontificia Universidad Católica Argentina and partner at the Argentine law firm Saénz Valiente & Asociados that provides services as legal counsel to the Company. He has 17 years of professional experience. Mr. Sáenz Valiente specializes in corporate law, particularly local and international acquisitions and wealth management. He currently iswith a member of the board of directors of various companies, including GC Dominio S.A., Cablevisión Holding S.A., Grupo Benicio S.A., Geisha Bienes Raíces S.A., Purity Polo S.A., Grupo A1 SRL, Green Armor S.A., ENVO Biogas Tonder As/p, Envo Biogas AAbenraa As/p and Telecom. He was born on December 21, 1975.

Damián F. Cassino is a lawyerdegree from the Universidad de Buenos Aires. He is a partner at the Argentine law firm Saénz Valiente & Asociados. He has 25 years of professional experience. Mr. Cassino specializes in complex litigation and antitrust law. He currently is a director of Telecom and, until December 31, 2019, he was a member of theits Executive Committee of Telecom andCommittee. He is also a member of the board of directors of various companies, including GC Dominio S.A. He was born on January 16, 1969.

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Carlos Alejandro Harrison is a Business Administrator with a degree from the Universidad de Buenos Aires and completed postgraduate studies at IAE Business School. He has been a member of the Board of Directors since March 2016 and is a member of the Company’s Audit Committee. Previously, he was President of Producciones YAQ S.A. and President of Business Development for AMC Networks International. Before that, he was the General Manager of Chello Latin America and Pramer SCA (both controlled by Liberty Global plc). Mr. Harrison also worked for Grupo Clarín S.A. as a Business Development Manager and was the Director of for International Operations at Multicanal S.A. He was born on January 19, 1963.

 

Martín Héctor D’Ambrosio is a lawyer with a degree from the Universidad de Buenos Aires. He has been a member of the Board of Directors since March 2016 and he is also a member of the Company’s Audit Committee. He currently is Managing Partner at GS1 S.R.L. and legal advisor forto several companies at his own legal firm.companies. Previously, he worked with the legal firm Dellepiane & Asociados, and for many years, he was in charge of the legal area of US Equities Realty. He was born on March 9, 1974.

 

Germán Horacio Vidal is an industrial engineer graduatedwith a degree from the Pontificia Universidad Católica Argentina. He has been a member of the Board of Directors since January 2018 and is a member of the Company’s Audit Committee and Executive Committee. He was the CEO of Grupo Telecom Argentina from May 2016 until November 2017. Between 1987 and 1997, he worked in different management positions at IBM in Argentina and Europe. From 1997 to 2004, he worked at MetroRED first as Marketing and Sales Director and then as General Manager of the Argentine branch, and Vice Chairman and General Manager of the operations in Argentina, Brazil, and Mexico. In 2003, with CoInvest as the main shareholder, he was appointed CEO of said company and participated on the Board of Directors of CTI. Afterwards, upon the sale of MetroRED, he was appointed Director of Marketing, Products, Customer Care and Data Center in Telmex Argentina. From 2005 to 2016, he worked at Korn Ferry consultants as a Senior Client Partner, General Director and Chairman. He was born on December 27, 1963.

 

Luca Luciani has a degree in Economics and Trade from LUISS University (Rome). He has been a member of the Board of Directors since January 31, 2018. Luca Luciani was the Managing Director and CEO of Value Partners, a multinational Italian consultancy firm operating through a network of 250 professionals around the world, until November 2018. During 15 years, as fromsince 1999, he built a comprehensive experience as manager of telecommunications businesses, among others: CEO of Tim Brazil, General Manager of Telecom Italia domestic business, Group controller and CFO of Tim, Vice President Marketing and Sales of TI Group and CTO of Mobile. Previously, Mr. Luciani accumulated 10has more than10 years of experience in different sectors and jobs,positions, such as Group Controller of Enel, Manager of Procter & Gamble and consultant in Bain&Company network. He was born on November 2, 1967.

 

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Baruki L.A. González is a lawyer with a degree from the Universidad de Buenos Aires. Mr. González joined the Board of Directors of Sofora, Nortel, Telecom Argentina and Personal in April 2016 (Sofora, Personal and Nortel were absorbed bymerged into Telecom Argentina). Mr. González is a founding member of the Argentine law firm Errecondo, González & Funes that provides services as legal counsel to the Company. Between 1995 and 1996, he worked as an international associate at the United States law firm White & Case LLP. He is a member of the Public Bar Association of the City of Buenos Aires (Colegio Público de Abogados de la Capital Federal) and of the Buenos Aires City Bar (Colegio de Abogados de la Ciudad de Buenos Aires). He was born on July 29, 1967.

 

Alejo Maxit Eduardo Enrique de Pedrois an industrial engineer forma lawyer with a degree from the Universidad Instituto Tecnológico de Buenos Aires (ITBA) and has a Master’s Degree in Corporate Finance from Universidad CEMA.Aires. He has been a member of the Telecom Argentina’s Board of Directors since April 2017, asJune 4, 2020, designated at the proposal of ANSES-Fondo de Garantía de Sustentabilidad. He works as General Secretary at the Argentine National Social Security Administration - (ANSES).ANSES —FGS. He was born on November 4, 1974.11, 1976.

 

María Lucila Romero is a lawyer with a degree from the Pontificia Universidad Católica Argentina. She is a partner at the Argentine law firm Saénz Valiente & Asociados. She has 24 years of professional experience. She specializes in corporate law, particularly mergers &and acquisitions. She has been a member of the board of directors in various companies. Mss. Romero currently serves as alternate director of GC Dominio S.AS.A. and as alternate director of Telecom. She was born on August 12, 1967.

 

Sebastián Ricardo Frabosqui Díaz is a lawyer atwith a degree from the Pontificia Universidad Católica Argentina, has a Master’s Degree in Law and Economics at Universidad Torcuato Di Tella and a Master in Laws (LL.M) degree at Northwestern University. He has been an alternate director since January 2018. He is a partner at the law firm Sáenz Valiente & Asociados. He has 17 years of professional experience and specializes in Mergers & Acquisitions, general corporate consultancy, debt restructuring and capital markets. Between 2009 and 2010, he worked as foreign associate in the firms Fox, Horan & Camerini and Arnold & Porter at their respective offices in New York and Washington D.C. He was born on February 14, 1978.

 

Claudia I. Ostergaard is a lawyer with a degree from Universidad del Salvador. She is a partner at the Argentine law firm Saénz Valiente & Asociados. She has 17 years of professional experience. She specializes in civil, commercial and administrative law, particularly, damage liability in litigation cases. She has been a member of the board of directors of various companies. She was born on May 29, 1974.

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Nicolás S. NovoaIgnacio José María Sáenz Valiente is a lawyer with a degree from the Pontificia Universidad del Salvador. He is aCatólica Argentina and partner at the Argentine law firm Saénz Valiente & Asociados that provides services as legal counsel to the Company. Mr. Sáenz Valiente specializes in corporate law, particularly local and international acquisitions and wealth management. He currently is a member of the governing board of the Argentine Associationdirectors of Television Service Providers (ATA)various companies, including GC Dominio S.A., Cablevisión Holding S.A., Geisha Bienes Raíces S.A., Purity Polo S.A., Grupo A1 SRL, ENVO Biogas Tonder As/p, Envo Biogas AAbenraa As/p and, a member of the copyright work group of the International Association of Broadcasting (IAB). He is a delegate of the IAB before the Standing Committee on Copyright (SCCR) at the World Intellectual Property Organization (2006-2016) and a Visiting Professor in the Master’s program in Intellectual Property at the Latin American Social Sciences Institute (FLACSO). Mr. Novoa currentlysince January 1, 2020, he is an alternate memberdirector of the Board of Directors of GC Dominio S.A.Telecom. He was born on May 28, 1974.December 21, 1975.

 

José Carlos Cura is an Economisteconomist graduated from the Universidad de Buenos Aires and holds a degree in Administration from the IAE Business School of Universidad Austral. He has been an alternate director since April 2017. He currently works as an independent financial and real estate advisor. He started his carrier in the financial business at Lloyds Bank, where he worked for different departments, including the Treasury Department. He was born on September 25, 1962.

 

Miguel Angel Graña is a Certified Public Accountant who graduated from the Universidad de Buenos Aires with post-graduate studies at Harvard University. He has been an alternate director since January 2018 and was a permanent director of Telecom Personal S.A. (absorbed by(merged into Telecom Argentina) from March 2016 to November 2017. He is the Chairman of Compañía de Inversiones y Mandatos S.A. and Managing Partner at Megraso SRL. Previously, he was Managing Director at J. P. Morgan in charge of M&A at the Buenos Aires office and Chairman at the Nokia distributor in Argentina. He was born on December 15, 1957.

 

Facundo Goslino is a lawyer from the Pontificia Universidad Católica Argentina and has a Master of Laws degree (LL.M.) from Cornell Law School, New York. He is an alternate memberdirector of Telecom´s Board of DirectorsTelecom since January 31, 2018. He is a partner associate at “Errecondo, González & Funes-“EGFA Abogados” law firm. He also is a member of the Boardboard of Directorsdirectors and of the supervisory committee of other Argentine companies, mainly in the energy and gas distribution sectors. Mr. Goslino worked inat Cleary Gottlieb Steen & Hamilton in 2006.2006 as international associate. He is a member of the Public Bar Association of the Ciudad Autónoma de Buenos Aires.Aires (Colegio Público de Abogados de la Capital Federal). He was born on January 19, 1975.

 

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TELECOM ARGENTINA S.A.

Lucrecia María Delfina Moreira Savino is a lawyer with a degree from the Pontificia Universidad Católica Argentina. She has been an alternate director since January 2018. Mss.Ms. Moreira Savino is an associate of the law firm Errecondo, González & Funes.“EGFA Abogados”. She is also currently alsoan alternate syndicmember of the Supervisory Committee of Caterpillar Financial Services S.A., PPG Industries Argentina SRL, Desarrolladora Energética S.A., Empresa Distribuidora La Plata S.A., AESEBA S.A.U., AES Pampa S.A.U., Salta Inversiones Eléctricas S.A., Empresa Distribuidora de Energía Sur S.A., Empresa Distribuidora de Energía Norte S.A., Inversora Eléctrica de Buenos Aires S.A., Infraestructura Energética del Plata S.A., Empresa Distribuidora de Energía Atlántica S.A, Buenos Aires Energy Company SAU, Luz de la Plata SAU and Moneda Sociedad GerenteCompañía de Fondos Comunes de InversiónInversiones en Electricidad S.A. She was born on March 2, 1974.

 

Saturnino Jorge Funes is a lawyer with a degree from the Universidad del Salvador and a Master’s degree in business law from the Universidad Austral, with honors. He is a founding partner of the law firm “EGFA Abogados”Errecondo, González & Funes — Abogados.. He worked at Shearman & Sterling LLP between 2000 and 2001 as an international associate. He is professor of corporate law at the Universidad del Salvador Law School in Buenos Aires, and a professor at the Masters in Finance and Masters in Law and Economics, both at the Universidad Torcuato Di Tella in Buenos Aires. He is a member of the Public Bar Association of the City of Buenos Aires (Colegio Público de Abogados de la Capital Federal) and of the Buenos Aires City Bar (Colegio de Abogados de la Ciudad de Buenos Aires). He was born on August 6, 1968.

 

Carolina Susana Curzi is a lawyer with a degree from the Universidad de Buenos Aires. She is an alternate memberdirector of Telecom´s Board of DirectorsTelecom since January 31, 2018. She is a partner at “Errecondo, González & Funes-“EGFA - Abogados” law firm. She also is a member of the Board of Directors and of the supervisory committee of other Argentine companies, mainly in the energy and gas distribution sectors. She is a member of the Public Bar Association of the City of Buenos Aires.Aires (Colegio Público de Abogados de la Capital Federal). She was born on March 14, 1976.

 

Juan Santiago Luis Ibarzábal MurphyFraschina is a business administrator from Universidad Católica Argentina and he also has a MBAan economist graduated from the IESE Business School, Universidad de Navarra.Buenos Aires. He has been an alternate directormember of the Telecom Argentina’s Board of Directors since April 2017, as aJune 4, 2020, designated at the proposal of the shareholders of Administración Nacional de la Seguridad Social (ANSES)-Fondo de Garantía de Sustentabilidad. He worked for Grupo Nestlé, Johnson & Johnson, Grupo Inditex and for Instituto de Vivienda de la Ciudad Autónoma de Buenos Aires. He currently is Director Ejecutivo de la Agencia Nacional de Discapacidad.ANSES —FGS. He was born on August 24, 1976.January 14, 1977.

 

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Senior Management

 

As of December 31, 2018,2020, Telecom’s senior Management team includes the individuals listed below. Unless otherwise noted, these individuals are members of Telecom’s senior Management as of the date of this Annual Report.

 

Name

Position (1)

Date of Designation

Carlos A. Moltini

Roberto D. Nobile

Chief Executive Officer (“CEO”)

November 16, 2017

January 1, 2020

Roberto O. Nóbile

Deputy Director General

November 16, 2017

Gabriel P. Blasi

Chief Financial Officer (“CFO”)

September 27, 2017

Hernán P. Verdaguer

Director of Regulatory issues

Matters

November 27,16, 2017

Pedro L. López Matheu

Director of Government Relations,External Communications, Sustainability and Media

June 14, 2016

Pablo C. Casey

Director of Legal and institutional

Institutional

November 16, 2017

Name

Position (1)

Date of Designation

Sebastián Palla

Director of Procurement

August 8, 2016

Sergio D. Faraudo

Director of Human Capital

November 16, 2017

Gonzalo Hita

Chief Operating Officer (“COO”)

November 16, 2017

Miguel A. Fernandez

Chief Technology Officer (“CTO”)

November 16, 2017

Alejandro Miralles

Chief Audit & Compliance Officer

November 16, 2017

Pablo Esses

Chief Information Officer (“CIO”)

May 23, 2018

Gerardo H. Maurer

Director of Security

November 27, 2014

Fernando Cravero

Director of International Operations

March 1,2018


(1)The designation of Director does not imply that the officers mentioned above are members of the Board of Directors of Telecom Argentina, which is composed of the persons stated in “—Directors, Senior Management and Employees—The Board of Directors” above. The term of officer of Telecom’s Senior Management is contractual in nature. Such contracts do not include a specified expiration date.

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TELECOM ARGENTINA S.A.

The designation of Director does not imply that the officers mentioned in this table are members of the Board of Directors of Telecom Argentina, which is composed of the persons stated in “—Directors, Senior Management and Employees—The Board of Directors” above. The term of officer of Telecom’s Senior Management is contractual in nature. Such contracts do not include a specified expiration date.

Carlos Alberto Moltini is a Certified Public Accountant with a degree from the Universidad de Buenos Aires. He was appointed CEO of the Company in November 2017. Until the merger between Cablevisión S.A. and the Company, he has been a member of the Board of Directors of Cablevisión S.A. since October 2006 and General Manager also since October 2006. Mr. Moltini was the General Manager of Multicanal S.A. for five years and, before that, he was the CFO of Arte Radiotelevisivo Argentino S.A. (“Artear”) for 7 years, a leading broadcasting channel in the Ciudad Autónoma de Buenos Aires, owned by Grupo Clarín. Previously, Mr. Moltini worked for Bagley Argentina S.A. and other broadcasting companies.  He was born on November 16, 1960.

 

Roberto D. Nobile is a Certified Public Accountant with a degree from the Universidad de Buenos Aires and an AMP (Advanced Management Program) at Harvard Business School. He was appointed as General Sub - Director of the Company on November 27, 2017. Previously, he had been COO of the Company since May 2016 in charge of Marketing, Sales and Operations. Mr. Nobile has many years of experience in the telecommunications and media sector. In October 2006, he joined Cablevisión, S.A., where he worked for 10 years, as COO and Deputy Managing Director. He joined Arthur Andersen in 1989. Subsequently, he worked at Honeywell as South Regional Controller (Brazil, Argentina and Chile). In 1997, he was CFO of Grupo Clarín.Arte Gráfico Editorial Argentino S.A. He was born on September 27, 1967.

 

Gabriel P. Blasi holds a degree in Business Administration and took post-graduate programs in Finance at Universidad del CEMA-Centro de Estudios Macroeconómicos Argentinos and at IAE (Universidad Austral). He held several managerial positions in Investment Banking and Capital Markets at Citibank and Banco Río (BSCH). Before joining IRSA Inversiones y Representaciones Sociedad Anónima, heHe was the CFO of Grupo Carrefour in Argentina and Goyaique S.A.C.I.F. y A. (Grupo Pérez Companc). Until 2011, he was the CFO of IRSA Inversiones y Representaciones Sociedad Anónima (IRS), Cresud S.A.C.I.F. y A. (CRESY) and Alto Palermo S.A. (APSA)(IRSCP) and held several board positions in Argentina, Brazil, New Zealand, Uruguay and abroad.USA. He is currentlyjoined Telecom Argentina on September 2017, where he holds the position of Chief Financial Officer of Telecom Argentina.Officer. He was born on November 22, 1960.

 

Hernán P. Verdaguer is a lawyer specialized in Corporate Law. He did a Postgraduate Program on Communications Law Update (Facultad de Derecho - Universidad de Buenos Aires) and a Postgraduate Program on Business Management (Universidad Argentina de la Empresa, UADE). He was appointed Director of Regulatory Affairs of the Company on November 27,16, 2017. He joined Diario Clarín in 1994 and then with the creation of Grupo Clarín, he held several positions until becoming Manager of Regulatory Affairs. He held such position until November 2017, when he joined Telecom Argentina. He was born on May 16, 1968.

Pedro Lopez Matheu is a lawyer with a degree from the Universidad Católica Argentina. Mr. Lopez Matheu has 20 years of experience in the institutional relations in first-line multinational and national companies. From 1996 to 2006 worked at Grupo Clarín as Public Affairs Manager. He was Chairman of the Newspaper Publisher Association of the City of Buenos Aires, and of the Press Freedom Commission of ADEPA (Asociación de Entidades Periodísticas Argentinas), Vice Chairman of the Association of Argentine Private Radios, and of other national and multinational entities of that sector. From 2006 to 2014 he was Corporate and Government Affairs at Kraft Foods and Mondelez, leading company of food and, for Argentina, Chile, Uruguay and Paraguay. Also, since 2014, he hashad been Corporate Affairs Director at AXION energy. He has skills at government relations, corporate and social responsibility, press and corporate communication, crisis management and internal communication.Energy until he joined the Company. He was born on May 23, 1966.

Pablo C. Casey is a lawyer with a degree from Universidad de Buenos Aires and holds a Master’s Degree in Law and Economics from Universidad Torcuato Di Tella. He was appointed Director of Legal and Institutional Affairs of Telecom Argentina on November 16, 2017. Previously, he was a member of the Board of Directors of Cablevisión since October 2006. He had worked at Grupo Clarín directly and indirectly since 1986 as Manager of Institutional Affairs. Mr. Casey also worked at Estudio Sáenz Valiente y Asociados until 1997, where he worked directly with Grupo Clarín. Between 1997 and 2005, he was the Manager of Legal Affairs of Multicanal. Mr. Casey was also a member of the Board of Directors of Grupo Clarín. He was born on June 20, 1967.

 

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Sebastian Palla is an economist with a degree from the Universidad Torcuato Di Tella. He is Director of Procurement of Telecom Argentina since August 8, 2016. He has 21 years of experience, fromFrom 2009 to 2016 he has worked at Macro Bank as an advisor of the Chairman first, later in the Investment Banking Management area and finally in the Government Banking Management area. From 2006 to 2009, he was in charge of the union of AFJP, first as Executive Director, and later as a Chairman. From 2002 to 2005, he worked in the public administration, as awas Chief of Advisors ofAdvisor to the Ministry of Finance and then as Sub-secretary of Finance of the Ministry of Economy and Public Finance. Mr. Palla was honored as a member of the Young Global Leaders Forum in 2005 (created by the World Economic Forum), also a member of the Eisenhower Fellowship in 2008; and was chosenidentified as one of the most influential people of 2007, in Luciana Vazquez’ s book “The Education of Those Who Influence”. He was born on June 12, 1974.

 

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Sergio D. Faraudo is a lawyer from Universidad Nacional de La Plata and holds a Master’s Degree in Economics and Political Science from ESEADE. He has been the Director of Human Capital of Telecom Argentina since November 2017. Between 2015 and 2017, he was the Corporate Director of Human Resources of Grupo Clarín. Between 2001 and 2015, he held managerial positions in Human Resources Areas at PSA Peugeot Citroën in Argentina, Spain, France and Brazil, including two years as Industrial Director of the local subsidiary. Between 1991 and 1995, he held a position in the Human Resources Management area at Telecom Argentina. Between 1987 and 1989, he was granted two scholarships from the French Government to study Law, New Technologies and Government Modernization. He published two novels and he is a yoga and meditation instructor. He was born on January 7, 1964.

 

Gonzalo Hita holds a Degreedegree in Marketing from the Universidad Argentina de la Empresa (UADE). He also took several specialization courses and programs for upper management at institutions such as IAE Business School (PAD), ESADE Business & Law School, and Universidad del CEMA. He was appointed COO of the Company on November 16, 2017 and has over 25 years of experience in the telecommunications industry.2017. At Cablevisión, S.A., he held, among others, the position of COO and, previously, he had been the Commercial Director since 2000. Mr. Gonzalo Hita was born on June 28, 1970.

 

Miguel Angel Fernández is an Electronic Engineer from the Universidad de Bahía Blanca and also holds an EMBA Program from IAE (2000 — 2001). He was appointed CTO (Chief Technical Officer) of Telecom Argentina S.A. on November 16, 2017. He had heldhold the same position at Cablevisión S.A. since 2007. Between 1994 and 2006, he was the Technical Manager of Multicanal, which evidences his vast experience in the telecommunications industry.Multicanal. Between 1990 and 1994, he was the Field Engineer at Western Atlas PetroliumPetroleum Service Co. He was born on June 10, 1963.

 

Alejandro Miralles is an economist with a degree from the Universidad de Buenos Aires. He was appointed as Chief Audit & Compliance Officer lastin November 2017. Previously, heHe was the Director of Human Capital of Telecom Argentina since June 6, 2016. Before that, he has beenwas Client Partner for more than five years at Korn Ferry, the leader global people and organizational advisory firm. He has also worked as Chief Financial Officer at Cablevision for seven years and Chief Executive Officer at Teledigital Cable. Prior to that, he has beenwas Investment Officer at CEI Citicorp Holdings and hashe worked at Citibank N.A. and at Manufacturers Hannover Trust. He was born on December 29, 1963.

 

Pablo Esses has a Bachelor´s Degree in Business Administration, graduated from the Universidad de Buenos Aires. He participated in many specialization courses in management, technology and leadership at international scope in United States and Europe. He was appointed as CIO of Telecom Argentina on May 2018. He has more than 25 years25-years of experience in Business Consulting at Coopers & Lybrand, PricewaterhouseCoopers and IBM in Latin America helping corporations to achieve competitive advantage through business transformation and innovative technology solutions across diverse industries in both national and international operations.America. He was born on February 22, 1967.

Gerardo Maurer is an engineer graduatedwith a degree from the Universidad de Buenos Aires. He joined Telecom Argentina in August 2006 and since then he held various positions within Internal Audit and Corporate Security.  In November 2014, he was appointed as Corporate Security Director. Previously, he worked at United Nations Conference on Trade and Development (UNCTAD) in Geneve, Venezuela and Central America. He returned to Argentina in 1996 and joined the Audit Unit at La Caja de Ahorro y Seguro S.A. He was born on May 11, 1959.

 

Fernando Cravero holds an undergraduate degree in Marketing, an MBA (Master in Business Administration) and a PAD (Program for Top Management) from the IAE Business School (Universidad Austral). He has also attended courses at ESADE Business & Law School. In March 2018, he was appointed as Telecom Argentina’s Director of International Operations. Previously, he held the position of Operations Manager at Cablevision for seven years, and he had also been appointed Regional Manager of Operations at Multicanal in 2000. He founded a CATV company, which was sold in 1997, and has also held several positions in the financial sector. He was born on March 14, 1973.

 

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Supervisory Committee

 

Argentine law requires any corporation with share capital in excess of P$50,000,000 or which provides a public service or which is listed on any stock exchange or is controlled by a corporation that fulfills any of the aforementioned requirements, to have a Supervisory Committee. The Supervisory Committee is responsible for overseeing Telecom Argentina’s compliance with its bylaws and Argentine law and, without prejudice of the role of external auditors, is required to present a report on the accuracy of the financial information presented to the shareholders by the Board of Directors at the Annual Ordinary Shareholders’ Meeting. The members of the Supervisory Committee are also authorized:

 

·to call ordinary or extraordinary Shareholders’ Meetings;

·                  to call ordinary or extraordinary Shareholders’ Meetings;

·to place items on the agenda for meetings of shareholders;

·                  to place items on the agenda for meetings of shareholders;

·to attend meetings of shareholders; and

·                  to attend meetings of shareholders; and

·                  generally to monitor the affairs of Telecom Argentina.

·generally to monitor the affairs of Telecom Argentina.

 

Telecom Argentina’s bylaws provide that the Supervisory Committee is to be formed by (i) five members and (ii) three or five alternate members, elected by the majority vote of all shareholders. Members of the Supervisory Committee are elected to serve one year terms and may be reelected.

 

The following table lists the members and alternate members of the Supervisory Committee as of December 31, 20182020 and as of the date of this Annual Report:

 

Name

Position on the Supervisory Committee

Profession

Pablo Andrés Buey Fernández

Member

Lawyer

Pablo Gabriel San Martín

Member

Accountant

María Ximena Digón

Member

Lawyer

Alejandro Héctor Massa

Member

Accountant

Eduardo J.Javier Villegas Contte

Member

Accountant

Javier Alegría

Alternate Member

Lawyer

Rubén Suárez

Alternate Member

Accountant

Matías A.Alejandro Fredriks

Alternate Member

Lawyer

Delfina Lynch

Ona Celia Dimnik

Alternate Member

Lawyer

Alfredo M. Segers

Juan Pedro Torassa

Alternate Member

Lawyer

 

Pablo Andrés Buey Fernández is a lawyer from the Universidad de Buenos Aires and has Master of Laws from Harvard University Law School. He has been a member of the Supervisory Committee of the Company since April 2016. He is Managing Partner at the law firm Alegría, Buey Fernández, Fissore and Montemerlo. Mr. Buey Fernández was an associate foreign lawyer at the firm Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey. He is a member of several professional associations. He was a professor at Master’s Degrees programs, post-graduate courses and seminars at Escuela Superior de Economía y Administración de Empresas, at the Facultad de Derecho and the Facultad de Ciencias Económicas de la Universidad de Buenos Aires, and at the Facultad de Derecho of Universidad del Salvador. He was born on August 8, 1957.

 

Pablo Gabriel San Martín has been a member of the Supervisory Committee since April 2018. He is the President of SMS Latinoamerica and Partner Director of SMS — San Martin, Suarez y Asociados. Mr. San Martín serves as Chairman of the Audit Committee of the Transnational Auditors Committee of IFAC (International Federation of Accountants.) He served as auditor at the firm Pistrelli, Díaz y Asociados (Arthur Andersen). He is a member of several professional associations and of the steering committee of several binational business chambers and professional organizations. He was a professor at the School of Economic Sciences of Universidad de Buenos Aires and Universidad del Salvador. He wrote articles on subjects within his field of expertise and is regularly invited as lecturer and guest speaker at Argentine and foreign universities.  He is a Certified Public Accountant graduated from Universidad de Buenos Aires. He was born on May 1, 1963.

 

María Ximena Digón is a lawyer graduated with an Honor Diploma from the Pontificia Universidad Católica Argentina. She has been a member of Telecom´s supervisory committee since 2017. She is a partner at “Errecondo, González & Funes-“EGFA - Abogados” law firm. She also is a member of the Board of Directors and of the supervisory committee of other Argentine companies, mainly in the energy and gas distribution sectors. She is a member of the Public Bar Association of the City of Buenos Aires.Aires (Colegio Público de Abogados de la Capital Federal). She was born on June 11, 1975.

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Alejandro Héctor Massa has been a member of the Supervisory Committee since April 2018. He was a partner of Deloitte & Co SRL from 1999 to 2017, after Morgan Benedit y Asociados became a member of Deloitte. He is a member of the Argentine Fiscal Association and was a member of the International Fiscal Association. He was a professor at courses and graduate studies in the School of Economic Sciences of Universidad de Buenos Aires, at graduate studies in Universidad Austral located in Rosario, and he served as author and speaker about subjects within his field of expertise. He is a Certified Public Accountant graduated from Universidad de Buenos Aires. He was born on November 3, 1954.

 

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Eduardo Javier Villegas Contte has been a member of the Supervisory Committee since April 2018. Mr. Villegas Contte served as Director of Internal Audit at AySA, Corporate Finance Manager at Grupo Metropol, General Manager at Aguas de Balcarce SA, Director of Administration and Finance at Metrogas SA. He worked at Pistrelli, Díaz y Asociados (member of Arthur Andersen & Co) and at Arthur Andersen & Co in Spain and Italy. He is a Certified Public Accountant graduated from Universidad de Buenos Aires. He also graduated from the Executive Development Program at Kellogg School of Management, Northwestern University — Chicago — USA. He was born on November 22, 1955.

 

Javier Alegria is a lawyer with a degree from the Pontificia Universidad Católica Argentina. He is also a partner at the law firm Estudio Alegria, Buey Fernández, Fissore & Montemerlo. He received a Master of Law from Northwestern University and a certificate in Business Administration from the Kellogg School of Management at Northwestern University. He acted as an international lawyer with Cleary, Gottlieb, Steen & Hamilton LLP law firm from 2003 to 2004. Mr. Alegria is a member of the Public Bar Association of the City of Buenos Aires. He is a professor at the Universidad de Buenos Aires Law School and Universidad del CEMA. He was born on August 7, 1974.

 

Rubén Suárez has been an alternate member of the Supervisory Committee since April 2018. He is a Director at SMS Latinoamerica and a Founding Partnerfounding partner of SMS — San Martin, Suarez y Asociados. He was a professor at the School of Economic Sciences of Universidad de Buenos Aires and Universidad del Salvador. Permanent and alternate statutory auditor and member of the Supervisory Committee of other Argentine companies. He served as auditor at the firm Pistrelli, Díaz y Asociados (Arthur Andersen). He is a Certified Public Accountant graduated from Universidad de Buenos Aires. He was born on January 14, 1961.

 

Matías A.Alejandro Fredriks has been an alternate member of the Supervisory Committee since April 2018. He is a partner of the firm Sáenz Valiente & Asociados. Mr. Fredriks is a lawyer graduated from Universidad Nacional de La Plata and holds a Postgraduate Degree in Administrative Law from Instituto de Estudios Judiciales de la Suprema Corte de Justicia de la Provincia de Buenos Aires and a Master’s Degree in Human Resources Management from Instituto de Empresa 1991/1992-Madrid-Spain. Before joining the firm Sáenz Valiente in 1994, Mr. Fredriks worked as a lawyer in the Corporate and Legal Advisory division of the firm “PRICE WATERHOUSE“Price Waterhouse & Co.,, as an advisor of “Unión de Industriales de Quilmes”,Quilmes,” of “Instituto de Previsión Social de la Provincia de Corrientes”,Corrientes,” and of “Dirección Provincial de Personas Jurídicas de la Provincia de Buenos Aires”. He worked on takeovers and transfers in several privatizations such as “Yacimientos Carboníferos de Río Turbio” and “Centrales Térmicas de Generación de Energía Eléctrica del Noreste Argentino”. In addition, he worked as Director of Labor Affairs of the Liquidation Commission of Empresa Nacional de Telecomunicaciones. Since he joined the firm Sáenz Valiente, he has worked in several litigation areas, being responsible for the department in charge of labor, trade associations and trade unions matters. Mr. Fredriks has served as director and statutory auditormember of the Supervisory Committee at several companies before being appointed as an alternate member of the Supervisory Committee.Committee of Telecom. He was born on August 27, 1964.

 

Delfina Lynch Ona Celia Dimnik has been an alternate member of the Supervisory Committee since April 2018.2020. She is an associate of the law firm Errecondo, González & Funes.EGFA Abogados. Miss Dimnik graduated as a lawyer from the Pontificia Universidad Católica Argentina. She is alsowas born on November 8, 1995.

Juan Pedro Torassahas been an alternate member of the supervisory committeeSupervisory Committee since April 2019. He is an associate of other Argentine companies, mainly in the energy sector. Mrs. Lynchlaw firm EGFA Abogados. Mr. Torassa graduated as a lawyer with honors from the Pontificia Universidad Católica Argentina. SheHe is a member of the Bar Association of the City of Buenos Aires. She was born on April 21, 1991.

Alfredo Mario Segers has been a member of the Supervisory Committee of Telecom Argentina S.A. since April 2018. He graduated as a lawyer from Universidad Austral and conducted part of his studies at the University of California, Hastings College of the Law. Mr. Segers obtained a Masters’ Degree in Economic and Business Law from Universidad Católica Argentina and has been a member of the Bar Association of the City of Buenos Aires since 2012. He was born on September 13, 1986.July 10, 1993.

 

There is no family relationship between any director, alternate director, member of the Supervisory Committee or executive officer and any other director, alternate director, member of the Supervisory Committee or executive officer.

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Compensation

 

The compensation of the members of the Board of Directors and the Supervisory Committee is established for each fiscal year at the Annual Ordinary Shareholders’ Meeting.

 

The aggregate compensation paid through December 31, 2020 by Telecom to the members of the Board of Directors and the Supervisory Committee, acting since April 25, 2018,28, 2020, and the executive officers described under “—Senior Management” above, for services in all capacities to Telecom and its subsidiaries during 2020 was approximately P$209 million for the year ended December 31, 2018.409 million.

 

As of December 31, 2018,2020, the compensation accrued compensation toby the members of the Board of Directors and Supervisory Committee, for services in connection with their dutiesall capacities to Telecom and its subsidiaries during 2020 performed since April 25, 2018during 2020 was approximately P$8386 million and P$1214 million, respectively. Such accrued compensation is subject to approval by the Annual Ordinary Shareholders’ Meeting of 2019.2021.

 

As of the date of this Annual Report,December 31, 2020 compensation paid as advance payments to members of the Board of Directors and Supervisory Committee acting since April 25, 2018for services in all capacities to Telecom and its subsidiaries during 2020 was P$3674 million and P$714 million, respectively. Those advance payments were authorized by the Annual Ordinary and Extraordinary Shareholders’ Meeting held on April 25, 201828, 2020 and will be deducted from the final compensation determined by the Annual Ordinary Shareholders’ Meeting of 2019,2021, based on the amount proposed by the Board of Directors to the shareholders, with the prior opinion of the Audit Committee of Telecom Argentina (the “Audit Committee”).

 

Compensation for

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As of December 31, 2020, compensation accrued by the executive officers described under “—Senior Management” above, for services in all capacities to Telecom and its subsidiaries during 2020 amounted to approximately P$3241,454 million for the year ended December 31, 2018 (including fixed and variable compensation, retention plan benefits and, in some cases, severance payments), of which approximately P$167322 million were paid as of December 31, 2018.2020.

 

The Company’s managers (including Senior Management) receive fixed and variable compensation. A manager’s fixed compensation corresponds with the level of responsibility required for his or her position and the market rate for similar positions. Variable compensation is tied to annual performance goals. Certain managers are beneficiaries of retention plan benefits.

 

Amounts detailed belowabove are determined in terms of the currency of the transactions dates.

 

During the year ended December 31, 2018,2020, Telecom Argentina was not required to set aside or accrue any amounts to provide pension, retirement or similar benefits.

 

Telecom Argentina has no stock option plans for its personnel, or for its members of the Board of Directors or the Supervisory Committee.

 

Board Practices

 

Under Argentine law, directors have the obligation to perform their duties with loyalty and the diligence of a prudent business person. Directors are jointly and severally liable to Telecom Argentina, our shareholders and third-parties for the improper performance of their duties, for violations of law, our bylaws or regulations and for any damage caused by fraud, abuse of authority or gross negligence. Under Argentine law, specific duties may be assigned to a director by the bylaws or regulations or by resolution of the Shareholders’ Meeting.shareholders’ meeting. In these cases, a director’s liability will be determined with reference tobased on the performance of these duties, provided that certain recording requirements are met. Under Argentine law, directors are prohibited from engaging in activities in competition with Telecom Argentina without express authorization of a Shareholders’ Meeting.shareholders’ meeting. Certain transactions between directors and Telecom Argentina are subject to ratification procedures established by Argentine law.

 

The Supervisory Committee is responsible for overseeing our compliance with our bylaws and Argentine law and, without prejudice to the role of external auditors, is required to present to the shareholders at the Annual Ordinary General Shareholders’ Meeting a report on the accuracy of the financial information presented to the shareholders by the Board of Directors. See “—Supervisory Committee” for further information regarding the Supervisory Committee.

 

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On May 22, 2001 the Argentine government issued Decree No. 677/01, entitled “Regulation of Transparency of the Public Offering,” or the “Transparency DecreeDecree” (replaced since January 28, 2013 by equivalent articlesSections included in Law No. 26,831. See “Item 9—The Offer and Listing—The Argentine Securities Market—Capital Markets Law — Law No. 26,831” below). The intention of this decree, which is also stated within Law No. 26,831, was to move towards the creation of an adequate legal framework that may strengthen the level of protection of investors in the market. The main objectives of the Transparency Decree were to promote the development, liquidity, stability, solvency and transparency of the market, generating procedures to guarantee the efficient reallocation from savings to investments and good practices in the administration of corporations.

 

On May 11, 2018, Productive Financing Law No. 27,440 was published in the Official Gazette. This law established several amendments toamended the Capital Markets Law No. 26,831 regarding the extent of the powers of the CNV; the exercise of preemptive rights on shares offered through public offering in the case of capital increases; private placements; public tender offers; and the jurisdiction of the federal commercial courts of appeals to review the resolutions issued or sanctions imposed by the CNV.

On December 28, 2018 CNV among other amendments.Resolution No. 779/18 was published in the Official Gazette through which the CNV Rules were modified in relation to public tender offers, introducing the definition of public tender offer, both mandatory and voluntary, changes to the procedure for delisting and cancellation from the public offering regime, a launch notice template, and changes to the Prospectus template. The Resolution also eliminates the mandatory partial tender offer in the event of an acquisition of a “significant participation” in the capital stock of a listed company that does not imply an acquisition of a controlling interest in the target listed company.

 

With regard to public tender offers, under the previous regime,Transparency Decree, the offeror was obligedrequired to formulate a “fair” price to be fixeddetermined by weighing the results of different company valuation methods, with a minimum floor related to the average market price for the six-month period immediately preceding the date of the agreement. Pursuant to the amendments introduced by the Productive Financing Law and CNV Resolution No. 27,440 to779/18, the Capital Markets Law, the obligationpricing of a tender offer is based on an objective andformula which consists in offeringof the higher of two existing prices: the price that the offeror would have paid or agreed during the 12 months immediately preceding the first day of the public tender offer period, and the average price of the securities subject to the offer during the semester immediately preceding the date of the announcement of the transaction under which the change of control is agreed upon.prices.

 

On December 28, 2018 CNV Resolution 779/2018 was published in the Official Gazette through which the CNV Rules were modified in relation to public tender offers.

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Capital Markets Law No. 26,831 (previously, the Transparency Decree) vests in members of the Board of Directors:

 

·                  the duty to disclose certain events, such as any fact or situation capable of affecting the value of the securities or the course of negotiation;

·the duty to disclose certain events, such as any fact or situation capable of affecting the value of the securities or the course of negotiation;

 

·                  the duty of loyalty and diligence;

·the duty of loyalty and diligence;

 

·                  the duty of confidentiality; and

·the duty of confidentiality; and

 

·                  the duty to consider the general interests of all shareholders over the interest of the controlling shareholder.

·the duty to consider the general interests of all shareholders over the interest of the controlling shareholder.

 

A director will not be liable if, notwithstanding his or her presence at a meeting at which a resolution was adopted or his or her knowledge of the resolution, a written record exists of his opposition thereto and he or she reports his opposition to the Supervisory Committee before any complaint against him or her is brought before the Board of Directors, the Supervisory Committee, the Annual Ordinary Shareholders’ Meeting, the competent governmental agency or the courts. Any liability of a director vis-à-vis Telecom Argentina terminates upon approval of the directors’ performance by the shareholders at a Shareholders’ Meeting, provided that shareholders representing at least 5% of our capital stock do not object and provided that this liability does not result from a violation of the Telecom Argentina’s bylaws, the Argentine law or regulations.

 

Additionally,Capital Markets Law No. 26,831 provides that those who infringe upon the provisions set forth therein shall be subject, in addition to civil and criminal liability (as applicable), to certain sanctions including warnings, fines, disqualification, suspension or prohibition from acting under the public offering regime.

 

On July 28, 2016 Decree No. 894/16 was published, which modifies Decree No. 1,278/12, establishing that in those companies whose shares integrate the investment portfolio of the FGS, the corporate, political, and economic rights pertaining to such shares shall not be exercised by the Secretary of Economic Policy and Development Planning, but they are to be exercised by the ANSES.

In addition, Decree No. 894/16 established that the directors appointed by the ANSES shall have the functions, duties and powers set out by the GCL, the Law of Capital Market No. 26,831 and its complementary and regulatory provisions, all the regulations applicable to the company in which they perform duties, their bylaws and internal regulations, and shall have all the responsibilities they might be liable for under these rules; as a result the provisions of Decrees No. 1,278/12 and No. 196/15 (the latter in respect of delimitation of responsibility) are no longer applicable.

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Telecom Argentina maintains an officers’ and directors’ insurance policy covering claims brought against the officers and/or directors relating to the performance of their duties. At present,As of the date of this Annual Report, the total amount covered by this insurance is US$75,000,000.

In May 2004, the Board of Directors of Telecom Argentina resolved to create the Steering Committee (“Consejo de Dirección”), which served as an internal body of the Board of Directors and was comprised of four members of the Board of Directors. The Steering Committee ceased its functions on January 31, 2018.67.5 million.

 

Executive Committee

 

Telecom Argentina’s bylaws grant the Board of Directors the power to appoint an Executive Committee formed by some of its members and be in charge of Telecom Argentina’s day-to-day affairs, in each case under the supervision of the Board of Directors.

The Board of Directors decided to appoint an Executive Committee on January 1, 2018. On January 31, 2018 the Board of Directors approved the Rules of the Executive Committee (“Reglamento de Facultades y Funcionamiento”) and on that date the Executive Committee started functions. The Executive Committee members as of December 31, 2020 and as of the date of this Annual Report are: Carlos Alberto Moltini, Alejandro Alberto Urricelqui, Damián Fabio Cassino, Sebastián Bardengo, Mariano Marcelo Ibáñez y Germán Horacio Vidal.

 

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 authorization regime within the limits that may be prescribed, as a tier above the level assigned to the CEO and prior to the Board of Directors; and (ii) approving transactions with related parties up to P$10,000,000. The Operating Committee ceased its functions on January 31, 2018.

Audit Committee

 

Capital Markets Law No. 26,831 provides that companies with publicly-listed shares shallmust appoint an Audit Committee to be formed by three or more members of the Board of Directors. Under CNV rules, the majority of the members of the Audit Committee must be independent. In order to qualify as independent, the director must be independent with respect to the company, any controlling shareholders or any shareholders that are significant participants in the company and cannot carry out executive duties for the company. A member of the Board of Directors cannot qualify as an independent director if he or she is a relative of a person who would not qualify as an independent director if such relative were appointed as a member of the Board of Directors.

 

Pursuant to General Resolution No. 400/02 of the CNV, published in the Official Gazette on April 5, 2002, the provisions of the Transparency Decree, which are now part of Law No. 26,831, relating to the Audit Committee were applicable for the financial years beginning on or after January 1, 2004.

At the Board of Directors meeting held on April 29, 2004, the Board of Directors resolved the final composition of the Audit Committee, and the Audit Committee came into effect.

According to the Regulation for the implementation of the Audit Committee (“Normativa de Implementación del Comité de Auditoría”) which is a set of guidelines for the Audit Committee filed with the CNV, inIn case of resignation, dismissal, death or lack of capacity of any of the members of the Audit Committee, the Board of Directors shall immediately appoint a replacement, who shall remain in office until the following Annual Shareholders Meeting.

 

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According to Capital Markets Law No. 26,831 the duties of the Audit Committee are:

 

·providing the market with complete information on transactions in which there might be a conflict of interest with the members of the corporate bodies or controlling shareholders;

·      providing the market with complete information on transactions in which there might be a conflict of interest with the members of the corporate bodies or controlling shareholders;

·giving an opinion on the fulfillment of legal requirements and reasonableness of the conditions for the issuance of shares or securities convertible into shares, in the case of capital increases where preemptive rights have been excluded or limited;

·giving an opinion regarding transactions with related parties in certain cases;

·supervising internal control systems and verifying the fulfillment of norms of conduct; and

·giving an opinion regarding the Board of Directors’ proposal to designate external auditors and evaluating their independence, among others.

 

·      giving an opinion on the fulfillment of legal requirements and reasonableness of the conditions for the issuance of shares or securities convertible into shares, in the case of capital increases where preemptive rights have been excluded or limited;

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·      giving an opinion regarding transactions with related parties in certain cases;102 

 

·      supervising internal control systems and verifying the fulfillment of norms of conduct; and

·     giving an opinion regarding the Board of Directors’ proposal to designate external auditors and evaluating their independence, among others.

 

Additionally, according to the Regulation for the Implementation of the Audit Committee, the Audit Committee also reviews the plans of internal auditors, supervisingsupervising and evaluating their performance.

 

On Januay 1, 2018,April 28, 2020 Telecom Argentina´s Board of Directors appointed Mr. Carlos Alejandro Harrison, Mr. Germán Horacio Vidal and Mr. Martín Hector D’ Ambrosio as members of Telecom Argentina´s Audit Committee and they were reelected both as Board members and as Audit Committee members at the Shareholders´ Meeting and at the Board of Directors´ Meeting held on January 31, 2018, respectively and as Audit Committee members at the meeting of the Board of Directors held on April 25th, 2018.Committee. Furthermore, the Board of Directors determined that Mr. Harrison qualifies as the audit committee financial expert under SEC guidelines.

 

Under SEC, NYSE and NYSECNV regulations, Mr. Carlos Alejandro Harrison, Mr. Martín Hector D’Ambrosio and Mr. Germán Horacio Vidal qualify as independent directors. Under CNV regulations, only Mr. Harrison and Mr. D’Ambrosio qualify as independent directors.

 

As of the date of this Annual Report, the Board of Directors’ meeting for the appointment of the Audit Committee members for the fiscal year 20192021 has not yet been held. Therefore, as of the date of this Annual Report, the following members of Telecom Argentina’s Audit Committee are still in office: Mr. Carlos Alejandro Harrison, Mr. Martín Hector D’Ambrosio and Mr. Germán Horacio Vidal.

 

Pursuant to theCapital Markets Law No. 26,831, the Audit Committee may seek the advice of lawyers and other outside professionals at Telecom Argentina’s expense, so long as the shareholders have approved expenditures for the services of such professionals. For fiscal year 2018,2020, a budget of P$4,000,000 6.9 million was approved for Audit Committee expenditures. As of the date of this Annual Report, the Annual Shareholders’ Meeting approving the Audit Committee expenditures for year 20192021 has not yet been held.

 

Risk Management Committee

 

In 2012, the Board of Directors of Telecom Argentina approved the implementation of an Enterprise Risk Management Process at Telecom, and the creation of a Risk Management Committee as of the date of issuance of this Annual Report.Committee. The Committee is chaired by the CEO, and is composed by Senior Managers and the Chief Audit & Compliance Officer, led and coordinated by the CFO. The Board of Directors of Telecom Argentina also approved the creation of the Risk Management function (at the managerial level), whose responsible person also serves as Secretary of the Risk Management Committee and reports to the CFO.

 

The duties of this committee include reviewing and implementing policies, mechanisms and procedures to identify, to measure and to mitigate risks for Telecom Argentina, and also recommend any steps or adjustments it deems necessary to reduce the risk profile of the organization.

 

The Company follows the guidelines provided under the Enterprise Risk Management — Integrated Framework 2004 issued by COSO,in order to carry on its Enterprise Risk Management process. Financial reporting risks are reviewed and certified under sectionSection 404 of the Sarbanes Oxley Act.

 

The main risks faced by the Company are those affecting its capital, those related to consumers, internal processes and technology matters, and those related to geopolitical, macroeconomic, regulatory, labor, environmental, security, social, digital security, compliance and legal matters within external context, among others.

 

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Telecom Argentina has established different action plans that endeavor to mitigate, in whole or in part, high impactand medium risks for Telecom.which are not fully controlled. However, it cannot be assured that such plans are totally effective, or other events, unforeseen at the date of this Annual Report, could arise and affect the performance of the Telecom Group.Argentina.

 

Employees and Labor Relations

 

Following the Merger, ourOur employees are represented by different trade unions and labor organizations, including FATEL (Argentine Federation of Telecommunications) and FOEESITRA (Argentine Federation of Workers, Specialists and Employees of the Telecommunications Industry and Services), both federations are comprised of different trade unions, UPJET (Union representing the Senior Staff of Telecommunication Companies), FOPSTTA (Argentine Federation of Unions representing the Technical and Supervisory Staff of Telephone Companies) and CEPETEL (Union of Telecommunications Professionals), associations that represent senior and professional staff and SATSAID (Argentine Union of Television, Audiovisual, Interactive and Data Services), a single union that represents both workers and the senior staff, as well as unions representing trade employees, traveling salespeople, announcers and press workers.

 

Telecom Argentina, as surviving company of Cablevisión, fosters freedom of association and complies with the different collective bargaining agreements executed by the latter with SATSAID, SAL and the different unions that represent press workers.

In addition, Telecom actively promotedpromotes communication with all trade unions and with the different stakeholders involved, creating formal and informal communication channels, at national and local level,levels, with union leaders and internal committees. It encouragedTelecom encourages and fosteredfosters working in shared spaces with all the trade unions, convening joint and ongoing work meetings to address the following topics:agenda: Occupational Health and Safety, the Environment, Training, Diversity and Occupational Guidance and Work Organization. All the union representations attended and actively participated in those meetings.

 

We

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In recent years we have conducted wage negotiations with all the trade unions aiming to adjustincrease salaries in Argentine Pesos as a response to the significant increasehigh inflation rates in inflation rates.Argentina. Wage negotiations were conducted in a peacefulcooperative environment and we were not the object of strikes or otherjust one strike and a few direct action measures.measures, both of which took place during salary negotiations. Collective bargaining agreements were executed with the Argentine Association of Cable Television for the employees represented by SATSAID and SAL, and directly with the Trade Union Unity that groups the different telephone trade unions (FATEL, FOEESITRA, FOPPSTA, CEPETEL), UPJET and press worker unions.

 

As of December 31, 2020, the total number of Telecom employees was 23,254, as compared to 23,728 employees as of December 31, 2019 and 25,343 employees as of December 31, 2018. As of December 31, 2020, 22,659 employees were located in Argentina, 431 employees were located in Paraguay, 162 employees were located in Uruguay and 2 employees were located in the United States. As of December 31, 2019, 23,122 employees were located in Argentina, 433 employees were located in Paraguay, 171 employees were located in Uruguay and 2 employees were located in the United States. As of December 31, 2018, 24,738 employees were located in Argentina, 420 employees were located in Paraguay, 183 employees were located in Uruguay and 2 employees were located in the United States.

Share Ownership

 

Share Ownership by directors, executive officers, and Supervisory Committee members

 

Obligations or capitalCapital stock of Telecom Argentina held by members of the Board of Directors and Supervisory Committee:Committee is as follows:

 

· Alejandro Urricelqui: 310,445 Class B shares

· Mariano Ibáñez: 4,370 ADR´s

· Ignacio Saenz Valiente: (indirectly) 11,925 Class B shares and 450 ADR´s.

· Damián Cassino: 1,300 ADRs

· Baruki González: 32,500 ADRs

· Saturnino Funes: 25,497 Class B shares

· Pablo G. San Martín: 4,350 Class B shares

Mr. Roberto Nobile holds 7,000
·Alejandro A. Urricelqui: 113,814 Class B shares and 69,200 ADR’s;

·Mariano M. Ibáñez: 4,370 ADR´s;

·Damián F. Cassino: 1,300 ADRs;

·Baruki L.A. González: 188,500 Class B Shares;

·Saturnino J. Funes: 31,277 Class B shares; and

·Pablo G. San Martín: 740 Class B shares.

Capital stock of Telecom Argentina Mr. Gabriel Blasi holds 3,500 ADR’s of Telecom Argentina, Mr. Fernando Cravero holds 20,000 Class B shares and 1,200 ADR´s, Mr. Pablo Esses holds 1,150 ADR´s and Mr. Héctor D. Cazzasa holds 500 ADR´s. held by the Senior Management is as follows:

·Mr. Roberto Nobile: 7,000 Class B shares;

·Mr. Gabriel Blasi: 3,500 ADRs;

·Mr. Fernando Cravero: 20,000 Class B shares and 1,200 ADRs;

·Mr. Pablo Esses: 1,150 ADRs; and

No other member of Telecom Argentina’s senior management holds obligations or capital stock of Telecom Argentina.

 

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Share Ownership Plan

We do not have any arrangements currently in force involving our employees, directors or senior management regarding the capital stock or notes of the company.

 

At the time of the privatization of ENTel in 1990, the Argentine government created a Share Ownership Plan (“SOP”), for the employees of ENTel and CAT, which were acquired by Telecom Argentina, Telintar and Startel. Pursuant to the Privatization Regulations, 10% of Telecom Argentina’s then-outstanding shares, consisting of 98,438,098 Class C Shares, were transferred by the Argentine government to Telecom Argentina, Telintar, and Startel employees previously employed by ENTel and CAT. This transfer was made through a general transfer agreement signed on December 29, 1992 (the “General Transfer Agreement”).1992. Our Class C Shares consist exclusively of shares originally sold in connection with the SOP. According to applicable law, to be eligible to continue to participate in the SOP, the employees had to remain employed by Telecom Argentina, Telintar and Startel. Employees who terminated their employment with Telecom Argentina, Telintar or Startel before the deferred purchase price was fully paid were required to sell their Class C Shares to another employee under the SOP or, if no other employee was available to purchase these shares, to a guaranty and repurchase fund (the “Guaranty and Repurchase Fund”) at a price calculated according to a formula provided in the General Transfer Agreement.

On December 9, 1999, Decree No. 1,623/99 was issued, authorizing the accelerated repayment of the outstanding balance of the deferred purchase price for all Class C Shares, and lifting the transfer restrictions on the Class C Shares upon the satisfaction of certain precedent conditions. However, the shares held in the Guaranty and Repurchase Fund were still subject to transfer restrictions until an injunction prohibiting the trading or selling of these shares was lifted. Decree No. 1,623/99 provided that once the injunction was lifted, the sale of an amount of shares in the Guaranty and Repurchase Fund, would take place in order to cancel the debt owed to the former employees for the acquisition of shares transferred to the Guaranty and Repurchase Fund. The remaining shares held in the Guaranty and Repurchase Fund would then be distributed in accordance with the decision of the majority of the employees taken in a special meeting of the SOP.

In accordance with Decree No. 1,623/99, at the extraordinary and special Class C Shareholders’ Meeting held on March 14, 2000, Telecom Argentina’s shareholders approved the conversion of up to 52,505,360 Class C Shares into Class B Shares in one or more tranches from time to time, as determined by the trustee of the SOP, Banco de la Ciudad de Buenos Aires, based on the availabilityMost of Class C Shares that were not affected by judicial restrictions on conversion.

A first tranche of 50,978,833 Class C Shares was converted into Class B Shares for public resale. This transaction was authorized in Argentina by the CNV and was registered in the United States with the SEC on May 3, 2000. The rest of the Class C Shares authorized for conversion were converted into Class B Shares in four more tranches ending in 2005.

As requested by the Executive Committee of the SOP, the Ordinary, Extraordinary and Special Class C Shareholders’ Meetings held on April 27, 2006, approved the delegation of authorityfrom time to Telecom Argentina’s Board of Directors for the conversion of up to 41,339,464 ordinary Class C Shares into an equal quantity of Class B Shares, in one or more conversions. 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 has been lifted. Therefore, the General Ordinary and Extraordinary and Special Class C Shares Meetings held on December 15, 2011 approved the delegation of authority to Telecom Argentina’s Board of Directors for the conversion of up to 4,593,274 Class C ordinary shares into an equal quantity of Class B ordinary shares in one or more tranches. As a result, 4,382,408 Class C Shares have been converted to Class B Shares in eleven tranches.time. As of the date of this Annual Report, the outstanding number of Class C Shares is 210,866.106,734.

 

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ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

Ownership of Telecom Argentina Common Stock

 

The following table sets forth, as of December 31, 2018,2020, each beneficial owner of 5% or more of each class of Telecom Argentina’s shares.

 

 

Number of Shares

 

Percent of

 

Percent of
Total Capital

 

 Number of Shares Percent of Percent of
Total Capital
 

 

Owned

 

Class

 

Stock (1)

 

 Owned Class Stock (1) 

Class A Ordinary Shares:

 

 

 

 

 

 

 

            

Fintech Telecom LLC

 

683,856,600

 

100.00

%

31.53

%

  448,679,250   65.61%  20.83%
Voting Trust (3)  235,177,350   34.39%  10.92%
Total Class A Ordinary Shares  683,856,600   100%  31.75%

Class B Ordinary Shares (listed in BCBA):

 

 

 

 

 

 

 

            

ANSES - FGS

 

246,018,839

 

38.25

%

11.34

%

  246,018,839   39.17%  11.42%

Treasury Shares

 

15,221,373

 

2.37

%

0.70

%

Others (2)

 

381,935,048

 

59.38

%

17.61

%

  382,039,180   60.83%  17.74%
Total Class B Ordinary Shares  628,058,019   100%  29.16%

Class C Ordinary Shares:

 

 

 

 

 

 

 

            

Others

 

210,866

 

100.00

%

0.01

%

  106,734   100%  0.01%
Total Class C Ordinary Shares  106,734   100%  0.01%
Class D Ordinary Shares:            
Cablevisión Holding S.A.  406,757,183   48.33%  18.89%
VLG S.A.U.  199,732,125   23.73%  9.27%
Voting Trust (3)  235,177,350   27.94%  10.92%
Total Class D Ordinary Shares  841,666,658   100%  39.08%

 

 

 

 

 

 

 

            

Class D Ordinary Shares:

 

 

 

 

 

 

 

Cablevisión Holding S.A

 

406,757,183

 

48.33

%

18.75

%

VLG S.A.U.

 

434,909,475

 

51.67

%

20.06

%

Total Capital Stock  2,153,688,011   -   100.00%

 


(1) Represents the respective percentage over the total of Telecom Argentina’s ordinary shares, regardless of their class.

(1)Represents the respective percentage over the total of Telecom Argentina’s ordinary shares, regardless of their class.

(2) Includes 186,999,612  Class B Shares in the form of ADSs owned by Fintech representing 29.07% of total Class B Common Shares (including Treasury Shares) and 8.62% of Telecom Argentina’s total capital stock.

(2)Includes 198,085,167 Class B Shares in the form of ADSs owned by Fintech representing 31.54% of total Class B Common Shares and 9.2% of Telecom Argentina’s total capital stock

(3)Trust created under the Voting Trust Agreement of April 15, 2019, composed of 50% of Class A shares and 50% of Class D shares. Trustees: Héctor Horacio Magnetto and David Martínez Guzmán. See “Telecom Shareholders’ Agreement” below.

 

As of December 31, 2018,2020, there were approximately 65.970.9 million American Depositary Shares outstanding (representing rights to 329.5354.5 million Class B Shares or 52.48%56.4% of total Class B Shares, excluding Treasury Shares). Further, as of December 31, 2018,2020, there were approximately 7470 registered holders of American Depositary Shares in the United States and approximately 18,00020,100 holders of Class B Shares in Argentina.

 

Because some Class B Shares are held by representatives, the number and domicile of registered shareholders may not exactly reflect the number and domicile of beneficial shareholders.

 

All shares have equal voting rights. Nevertheless, pursuant to Section 221 of the GCL, the rights of any shares, while held by Telecom Argentina, shall be suspended. Further, Class A Shares and Class D Shares have certain veto rights, as described in “—The Telecom Shareholders’ Agreement.”Agreement”. and the Company’s bylaws.

 

Major Shareholders

Until November 30, 2017, Nortel owned allThe Ordinary and Extraordinary General Meeting and the Special Meeting of Telecom Argentina’s Class A Ordinary Shares (which represented 51%“C” shares, held on December 15, 2011, approved the power for the additional conversion of our total capital stock) and approximately 7.64%up to 4,593,274 Class “C” shares into the same amount of our Class B Ordinary Shares (which represented 3.74% of our total capital stock, including 15,221,373 Class B Shares that we held as treasury stock).

In turn, Nortel’s capital stock was comprised of (i)“B” shares of common stock (78.38% of Nortel’s total capital stock) all of them owned by Sofora, and (ii) Preferred Series B shares (21.62% of Nortel’s the capital stock), without voting rights. As of November 30, 2017, 100% of Sofora’s shares were owned by Fintech Telecom LLC (see “Amortization of Sofora Shares”). On November 30, 2017, pursuant to the Reorganization, Sofora, Nortel and Telecom Personal merged into Telecom Argentina.  After giving effect to the Reorganization, Fintech Telecom LLC became a direct holder of 34.64% of Telecom Argentina’s total capital stock (equivalent to 35.190 of its outstanding capital).

Fintech Telecom LLC is a Delaware (United States) limited liability company, and is a wholly-owned direct subsidiary of Fintech Advisory Inc. Its primary purpose is to hold, directly and indirectly, the securities of Telecom Argentina. Fintech Advisory Inc., a Delaware (United States) corporation, is directly controlled by Mr. David Martínez. Fintech Advisory Inc. is an investor and investment manager in equity and debt securities of sovereign and private entities primarily in emerging markets.

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Amortization of Sofora Shares

In March 2017, in two tranches Sofora accepted WAI’s offer to amortize 140,704,640 shares of Sofora owned by WAI, representing 32% of Sofora’s capital stock, in accordance with the provisions of Sections 223 and 228 of the GCL. As a result of the amortization, Sofora agreed to pay WAI an amount equal to the par value of WAI’s shares of capital stock issued by Sofora ($140,704,640), and to issue to WAI one or more dividend certificates (“Class “A” Bonos de Goce”) evidencing WAI’s right to receive US$461.3 million out of any dividends paid by Sofora going forward.

On May 23, 2017, Sofora amortized 74,749,340 of its shares owned by WAI, representing 17% of Sofora’s capital stock. Sofora paid WAI $74,749,340 and issued a Class “A” Bono de Goce to WAI which granted the holder the right to receive US$ 245.0 million out of any dividends paid by Sofora thereafter.  In connection with that amortization, all members and alternate members of the Board of Directors and of the Supervisory Committee of Telecom Argentina, Personal, Nortel and Sofora that had been appointed by WAI tendered their resignations. On May 23, 2017, WAI and Fintech terminated the effect of the clauses related to the governance to Telecom under their shareholders’ agreement related to Sofora.tranches. As of June 22, 2017, Sofora amortized all of itsDecember 31, 2020, 4,486,540 Class “C” shares previously held by WAI and it ceased to be a shareholder of Sofora. As a result, the shareholders’ agreement among the Sofora shareholders terminated by its terms. On June 6, 2017, our shareholders appointed two directors, two alternate directors, one member of the Supervisory Committee and one alternate member of the Supervisory Committee to complete the term of duties of the resigning members and alternate members of our Board of Directors and our Supervisory Committee.

Upon obtaining ENACOM’s approval of the Reorganization, on June 22, 2017, Sofora amortized the remaining 65,955,300were converted into Class "B” shares owned by WAI. As a result of this amortization, Sofora paid WAI $65,955,300 and issued an additional Class “A” Bono de Goce which granted the holder the right to receive US$ 216.3 million out of any dividends paid by Sofora thereafter.in 13 tranches. As of the date of this Annual Report, the holders of the106,734 Class “A” Bonos de Goce have collected the full amount of dividends to which they were entitled.

The Reorganization

On March 31, 2017, Sofora, Personal, Nortel and Telecom Argentina entered into a preliminary reorganization agreement (the “Preliminary Reorganization Agreement”) providing for the merger of each of Nortel, Sofora and Personal into Telecom Argentina according to the provisions of sections 82 and 83 of the GCL.

On May 23, 2017, our shareholders approved the following actions:

i.      the conversion of up to 161,039,447 Class A Common Shares, par value $1 entitled to one vote per share into 161,039,447 Class B Common Shares, par value $1 and entitled to one vote per share,“C” shares are still pending to be delivered to the holders of Nortel’s Series B preferred Shares (the conversion was effective on December 15, 2017); and

ii.     the amendment of provisions of our Bylaws describing our share capital and certain exchange mechanisms; and the removal of restrictions on the transfer of ourconverted into Class “A” common“B” shares.

 

Our bylaws as amended by the Shareholders´ Meeting held on May 23, 2017 were registered with the Inspección General de Justicia on March 21, 2018.Major Shareholders

 

The Reorganization was conditioned on regulatory approvals by ENACOM, allCablevision Holding S.A. is the direct and indirect holder of which were obtained by November 24, 2017. The Reorganization became effective on December 1, 2017.

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28.16% of Telecom Argentina’s total capital stock (in the form of Class D Shares). As a result of the Reorganization, Telecom Argentina succeeded in all rights, obligations and responsibilities of any nature to Personal, Sofora and Nortel, which were dissolved without liquidation. Telecom Argentina assumed all of Sofora’s obligations under the Class “A” Bonos de Goce and all of Personal’s obligations under the notes issued under its Notes Global Program. As of the date of this Annual Report, the Class “A” Bonos de Goce have collected the full amount of dividends to which they were entitled. Personal’s Series I, II, III and IV notes were paid in full on their due date.

On March 21, 2018, the ReorganizationMerger and the dissolution without liquidation of each ofarrangements resulting from the absorbed companies were registered with the IGJ.

PursuantTelecom Shareholders Agreement, CVH has been considered to the Reorganization:

(i)

340,994,852 Class “A” Common Shares of Telecom Argentina were distributed to Fintech as the only holder of Sofora Common Shares,

(ii)

161,039,447 Class “A” of Telecom Argentina were converted into Telecom Argentina Class “B” Common Shares,

(iii)

the Class “B” Common Shares of Telecom Argentina owned by Nortel (including any Class “B” Shares resulting from the conversion mentioned above) were distributed to the holders of Nortel Series B preferred Shares.

have acquired control over Telecom Argentina did not issue any new Class B Common Shares or Class A Common Shares in connection with the Reorganization.

The Merger

On June 30, 2017, Telecom Argentina and Cablevisión executed a preliminary merger agreement providing that Telecom Argentina would absorb Cablevisión, in accordance with the provisions of Sections 82 and 83 of the GCL, subject to prior satisfaction or waiver of certain conditions stated in the Preliminary Merger Agreement, including certain regulatory approvals (the “Merger”).

Cablevisión S.A.’s capital stock was owned, directly and indirectly, by Cablevisión Holding S.A. (60%) (“CVH”) and Fintech Media (LLC) (40%).since January 1, 2018.

 

Cablevisión Holding S.A. is an Argentine corporation and its primary purpose is to hold capital stock in corporations whose object and purpose is to provide Information and Communication Technology Services (ICT Services) and to provide Audiovisual Communication Services (ICT Services). Its controlling shareholder, in turn, is GC Dominio S.A, another Argentine corporation.

 

Pursuant to the terms of the Merger, and to the provisions of Section 83, item c) of the GCL, the holders of one common share of Cablevisión S.A. received 9,871.07005 new common shares of Telecom Argentina, an exchange that was considered fair from a financial perspective by two independent valuation experts.

On July 7, 2017, Fintech Telecom, certain of its affiliates and CVH entered into an agreement, including provisions relating to our governance, which would become effective upon the Merger becoming effective, and provisions regarding share transfers and other matters that became effective immediately. See “—The Telecom Shareholders’ Agreement.”

In addition, Fintech Telecom and certain of its related parties entered into an Option Agreement, dated July 7, 2017 with CVH, which provided CVH the option to purchase, directly or indirectly, 13.51% of the total outstanding capital of Telecom Argentina (after giving effect to the Reorganization but prior to the Merger), which could be exercised until the earlier of: i) 60 days after the regulatory approval of the Merger; (ii) five business days prior to the effective date of the Merger and (iii) July 7, 2018. On October 5, 2017, CVH made an advance payment of the call option price for an aggregate amount of US$634,275,282. On December 27, 2017, CVH exercised the call option and, upon the effectiveness of the Merger, became the owner of additional shares issued by Telecom Argentina.

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All

105 

On June 21, 2018, CVH informed the conditionsCompany that it was promoting and formulating a mandatory public tender offer for all Class B Shares issued by Telecom Argentina due to which the Merger was subject were satisfied andacquisition of control in Telecom Argentina. The mandatory public tender offer has been suspended by Argentine courts. See “Item 4—Information on the Merger was consummated on January 1, 2018.Company— Introduction—Significant 2020 Events—Public Tender Offer due to change of control”.

 

Fintech Telecom Argentina’s capital stock asLLC is the direct holder of January 1, 2018 was comprised of the following:

 

 

Outstanding shares

 

Treasury shares

 

Total capital stock

 

Shares

 

 

 

 

 

 

 

Class “A”

 

683,856,600

 

 

683,856,600

 

Class “B”

 

627,930,005

 

15,221,373

 

643,151,378

 

Class “C”

 

234,748

 

 

234,748

 

Class “D”

 

841,666,658

 

 

841,666,658

 

Total

 

2,153,688,011

 

15,221,373

 

2,168,909,384

 

As of the Merger Effective Date, Telecom Argentina succeeded in all of the assets and liabilities (including registered assets, licenses, rights and obligations) of Cablevisión and will continue the operations of Cablevisión, generating the corresponding operative, accounting and tax effects.

We have accounted for the Merger as a business combination using the acquisition method of accounting under IFRS 3. The Merger constituted a “reverse acquisition,” pursuant to which Cablevisión (the legal absorbed entity) was considered the accounting acquirer and Telecom Argentina (the surviving entity) was considered the accounting acquiree.

The factors that were considered in determining that Cablevisión should be treated as the accounting acquirer in the Merger were:

(i)    the relative voting rights in the surviving entity (55% for the former shareholders of Cablevisión and 45% for the former shareholders of Telecom);

(ii)   the composition of the board of directors in the surviving entity and other committees (audit, supervisory and executive);

(iii)  the relative fair value assigned to Cablevisión and Telecom; and

(iv)  the composition of the key senior management of the surviving entity.

Accordingly, Cablevisión’s assets and liabilities were recognized and measured in the consolidated financial statements at their pre-Merger carrying amounts, while the identifiable assets and liabilities of Telecom Argentina were recognized at fair value as of the Merger effective date. Goodwill resulting from the application of the acquisition method was measured as the excess of the fair value of the consideration paid over the net fair value30.03% of Telecom Argentina’s identifiable assetstotal capital stock (Class A Shares and liabilities. The retained earningsADS representing Class B Shares). Until December 31, 2017 Fintech was Telecom Argentina´s controlling shareholder.

Fintech Telecom LLC is a Delaware (United States) limited liability company, and other equity balances recognized inis a wholly-owned direct subsidiary of Fintech Holdings Inc. Its primary purpose is to hold, directly and indirectly, the consolidated financial statements of the combined entity are the sum of the respective amounts of the individual financial statementssecurities of Telecom Argentina and Cablevisión immediately before the Merger (with some exceptions (see Note 4.a) to our Consolidated Financial Statements.

Financial figures are restated in terms of the current currency of December 31, 2018.Argentina. Fintech Holdings Inc., a Delaware (United States) corporation, is directly controlled by Mr. David Martínez.

 

Telecom Shareholders’ Agreement

 

On July 7, 2017, Fintech Telecom, LLC (“FTL”), certain of its affiliates and CVH entered into a shareholdersshareholders’ agreement (“TEOTelecom Shareholders Agreement”), which regulates certain matters as to the corporate governance of Telecom Argentina which became effective upon completion of the Merger, while other provisions became effective simultaneously upon execution of the Telecom Shareholders’ Agreement.

 

The Telecom Shareholders’ Agreement provides, among other matters, the following:

 

·      Any shareholders party to the Telecom Shareholders’ Agreement (any such shareholder, a “SHA Party”) are subject to restrictions on the transfer of all their Telecom Argentina shares including (i) the right of first refusal to purchase such shares from a selling SHA Party, (ii) certain tag-along rights of each other SHA Party and (iii) so long as a SHA Party holds at least a certain minimum amount of shares, such SHA Party will be entitled to certain drag-along rights pursuant to which it will be able to require the other SHA Parties to sell, together with the dragging SHA Party, a number of shares that represents in the aggregate at least fifty-one percent (51%) of our shares;

·Any shareholders party to the Telecom Shareholders’ Agreement (any such shareholder, a “SHA Party”) are subject to restrictions on the transfer of all their Telecom Argentina shares including (i) the right of first refusal to purchase such shares from a selling SHA Party, (ii) certain tag-along rights of each other SHA Party and (iii) so long as a SHA Party holds at least a certain minimum amount of shares, such SHA Party will be entitled to certain drag-along rights pursuant to which it will be able to require the other SHA Parties to sell, together with the dragging SHA Party, a number of shares that represents in the aggregate at least fifty-one percent (51%) of our shares;

 

·FTL and CVH undertook to execute a voting trust agreement (the “Voting Trust Agreement”), which was formalized on April 15, 2019, pursuant to which FTL and VLG contributed 235,177,350 Class A shares and 235,177,350 Class D shares of Telecom, respectively, to a voting trust (the “Voting Trust”) which, when added to the shares that CVH holds (directly and indirectly) in Telecom, exceed fifty percent (50%) of the outstanding shares, and (ii) CVH and Fintech Telecom LLC each appointed a co-trustee. The shares contributed to the Voting Trust will be voted by the co-trustee of CVH in accordance with the vote of CVH or following the instructions of CVH, except in respect of certain matters subject to veto under the Telecom Shareholders’ Agreement, in which case such shares will be voted by the co-trustee of Fintech Telecom LLC in accordance with the vote of Fintech Telecom LLC or following the instructions of Fintech Telecom LLC;

 

·The Board of Directors of Telecom Argentina will consist of an odd number of members between 11 to 17. Each of FTL, CVH and the Voting Trust will vote or cause to be voted, their shares, whether held directly or indirectly, in favor of the election of directors designated by FTL and CVH, a majority of which will be designated by CVH, subject to CVH and FTL satisfying certain ownership thresholds of the shares;

 

·Subject to CVH and FTL satisfying certain ownership thresholds of the shares, CVH will be entitled to designate the Chief Executive Officer and all key employees of Telecom and its subsidiaries other than the CFO and the Internal Auditor, including the Chief Operating Officer, Chief Technical Officer, Director of Supply, Legal Director, Human Resources Director, Regulatory Affairs Director, Institutional Relationship Director, Chief of Compliance, any other officer or employee having a direct line of reporting to the CEO or a joint line of reporting to the CEO and the Vice Chairman of the Board or the Deputy CEO and any other officer or employee holding commensurate responsibilities. FTL will be entitled to designate the Chief Financial Officer and the Internal Auditor;

·An executive committee of Telecom will be established consisting of five members, of which three will be designated by CVH and two will be designated by FTL, in each case subject to the SHA Party maintaining certain ownership thresholds. In addition, CVH will be entitled to designate two members of our Audit Committee and three members of our Supervisory Committee (comisión fiscalizadora) and FTL will be entitled to designate one member of the Audit Committee and two members of the Supervisory Committee;

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·      FTL and CVH have undertaken to execute a voting trust agreement (the “Voting Trust Agreement”) pursuant to which each (i) will deposit certain shares (in the case of CVH’s shares, the “Class D Trust Shares” and in the case of FTL’s shares, the “Class A Trust Shares”) in a voting trust (the “CVH Voting Trust”), which, when added to the shares held by CVH, will exceed fifty percent (50%) of the outstanding shares, and (ii) will appoint a co-trustee who will be designated to vote the shares in accordance with the terms of the Voting Trust Agreement. The CVH Voting Trust will cause its shares to be voted pursuant to the instructions of the CVH co-trustee, except with respect to certain veto matters, in which case the FTL co-trustee will determine how the shares subject to the Voting Trust will be voted. As of the date of issuance of this Annual Report, the Voting Trust Agreement is in the process of formalization;

 

·      The Board of Directors of Telecom Argentina will consist of an odd number of members between 11 to 17.  Each of FTL, CVH and the Voting Trust will vote or cause to be voted, their shares, whether held directly or indirectly, in favor of the election of directors designated by FTL and CVH, a majority of which will be designated by CVH, subject to CVH and FTL satisfying certain ownership thresholds of the shares;106 

 

·      Subject to CVH and FTL satisfying certain ownership thresholds of the shares, CVH will be entitled to designate the Chief Executive Officer and all key employees of Telecom and its subsidiaries other than the CFO and the Internal Auditor, including the Chief Operating Officer, Chief Technical Officer, Director of Supply, Legal Director, Human Resources Director, Regulatory Affairs Director, Institutional Relationship Director, Chief of Compliance, any other officer or employee having a direct line of reporting to the CEO or a joint line of reporting to the CEO and the Vice Chairman of the Board or the Deputy CEO and any other officer or employee holding commensurate responsibilities. FTL will be entitled to designate the Chief Financial Officer and the Internal Auditor;

 

·      An executive committee of Telecom will be established consisting of five members, of which three will be designated by CVH and two will be designated by FTL, in each case subject to the SHA Party maintaining certain ownership thresholds. In addition, CVH will be entitled to designate two members of our statutory audit committee and three members of our statutory supervisory committee (comisión fiscalizadora) and FTL will be entitled to designate one member of the statutory audit committee and two members of the statutory supervisory committee;

·Prior to each of our shareholder meetings or any other meeting upon which certain veto matters will be decided, CVH and FTL agree to hold meetings at which their representatives will determine how CVH and FTL, and the Voting Trust, if in effect, will vote their shares at such meeting in accordance with the provisions of the TEO Shareholders Agreement;

 

·      Prior to each of our shareholder meetings or any other meeting upon which certain veto matters will be decided, CVH and FTL agree to hold meetings at which their representatives will determine how CVH and FTL, and the Voting Trust, if in effect, will vote their shares at such meeting in accordance with the provisions of the TEO Shareholders Agreement;

·We are required to maintain a listing of the Class B Shares and the ADSs representing the Class B Shares on the BYMA and the New York Stock Exchange, respectively;

 

·      We are required to maintain a listing of the Class B Shares and the ADSs representing the Class B Shares on the Securities Market of Buenos Aires (Bolsas y Mercados Argentinos) and the New York Stock Exchange, respectively;

·Each SHA Party and its respective affiliates is prohibited from acquiring any of our capital stock from a third party without (i) proper notice to the other SHA Parties and (ii) the right for such other SHA Parties to purchase fifty percent (50%) of the shares to be purchased from the third-party; provided that CVH may acquire an additional two percent (2%) of our shares without complying with the foregoing obligations;

 

·      Each SHA Party and its respective affiliates is prohibited from acquiring any of our capital stock from a third party without (i) proper notice to the other SHA Parties and (ii) the right for such other SHA Parties to purchase fifty percent (50%) of the shares to be purchased from the third-party; provided that CVH may acquire an additional two percent (2%) of our shares without complying with the foregoing obligations;

·In the event that a tender offer (oferta pública de adquisición) was required in connection with the Merger, CVH would launch such tender offer to acquire Class B Shares, and FTL would be jointly and severally liable for payment for, and would receive following the closing of such tender offer, fifty percent (50%) of any of our Class B shares tendered in such tender offer; subject to the right of CVH to acquire 100% of the shares tendered until it acquired shares (including any Telecom shares acquired (other than from FTL and its affiliates) since the Merger Effective Date) representing up to 2% of Telecom’s total capital stock, see “Item 4—Information on the Company— Introduction—Significant 2020 Events—Public tender offer due to change of control”;

 

·      In the event that a tender offer (oferta pública de adquisición) was required in connection with the Merger, CVH would launch such tender offer to acquire Class B Shares, and FTL would be jointly and severally liable for payment for, and would receive following the closing of such tender offer, fifty percent (50%) of any of our Class B shares tendered in such tender offer; subject to the right of CVH to acquire 100% of the shares tendered until it acquired shares (including any Telecom shares acquired (other than from FTL and its affiliates) since the Merger Effective Date) representing up to 2% of Telecom’s total capital stock, see “Public tender offer due to change of control”;

·Subject to satisfying certain ownership thresholds, each of FTL and CVH, and certain other shareholders that subsequently become a SHA Party, will have certain veto rights over our corporate governance matters;

 

·      Subject to satisfying certain ownership thresholds, each of FTL and CVH, and certain other shareholders that subsequently become a SHA Party, will have certain veto rights over our corporate governance matters;

·The SHA Parties agree to cause us to declare and pay dividends if our consolidated operating cash flows exceed a certain threshold, after taking into consideration certain adjustments; and

 

·      The SHA Parties agree to cause us to declare and pay dividends if its consolidated operating cash flows exceed a certain threshold, after taking into consideration certain adjustments; and

·      Each SHA Party will have certain registration rights with respect to our Class B Shares subject to the SHA Party satisfying certain ownership thresholds.

·Each SHA Party will have certain registration rights with respect to our Class B Shares subject to the SHA Party satisfying certain ownership thresholds.

 

A copy of the Telecom Shareholders Agreement has been filed with the SEC and can be found as Exhibit 99.3 incorporated by reference into the Schedule 13D filed on January 2, 2018.2018. As a result of the Merger and the arrangements resulting from the Telecom Shareholders Agreement, CVH has been considered to have acquired control of us.

 

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Public Tender Offer due to change of control

On June 21, 2018, the Company was informed of the promotion and formulation by CVH (or the “Offeror”) of a Mandatory Public Tender Offer (“PTO”) for all the Class “B” common shares issued by Telecom Argentina listed on Bolsas y Mercados Argentinos S.A. (“BYMA”) (including the Class “C” common shares issued by Telecom Argentina that might be converted into Class “B” common shares within the stipulated term) (the “Shares”, or in singular, the “Share”), which CVH was obliged to launch as a result of the change of control in the Company. CVH attached a copy of the public announcement of the PTO, pursuant to applicable regulations, which was published in Diario Clarín on June 23, 24 and 25 and in BYMA’s Daily Bulletin on June 21, 2018 (the “PTO Announcement”).

In said PTO Announcement, CVH informed that, notwithstanding the fact that Fintech Telecom LLC is not obliged under the applicable regulatory framework to promote, formulate or launch a PTO and that it has not taken part in the determination or formulation of any of the terms and conditions of the PTO, pursuant to the shareholders agreement executed between the shareholders of Telecom Argentina, Fintech Telecom LLC has undertaken to pay for and acquire 50% of the shares tendered under the PTO (notwithstanding CVH’s right to acquire by itself the first 43,073,760 Class “B” shares).

The price offered in the PTO Announcement for the Shares not directly or indirectly held by CVH or Fintech Telecom LLC tendered by their holders for its acquisition during the Offer Reception Period was One Hundred Ten Pesos and Eighty-Five Cents (Pesos 110.85) per Share (less any cash dividend per share as may be payable by Telecom Argentina from the date of the PTO Announcement to the date of actual payment of the PTO price and other expenses such as fees for transfer, rights, fees, commissions, taxes, rates or contributions) (the “PTO Price”), which will be paid in pesos in Argentina.

On July 5, 2018, the Board of Directors of Telecom Argentina, in compliance with the provisions of article 3 c), Chapter II, Title III of the Rules of the CNV, issued a favorable opinion on the adequacy of the Offer Price of Ps. 110.85 per Class B Share, under the requirements of Argentine law, and recommended that holders of Class B Shares make their decision to accept or reject the PTO depending on whether the trading price of the Class B Shares, in the volume that each investor intends to sell at that time, is below or above the PTO Price, respectively.

On September 21, 2018, the Company received a notice from CVH informing the issuance of a resolution on September 20, 2018, in the case of “Cablevisión Holding S.A. against/National Securities Commission s/Precautionary Measures” Expte. 7998/2018 in process in the Federal Civil and Commercial Court No. 3, pursuant to which, as an interim precautionary measure, the CNV must refrain from issuing and ruling on the authorization of the PTO promoted and formulated by CVH on the June 21, 2018, until the precautionary measure requested is resolved once the provisions of art. 4 of the Law No. 26,854 are fulfilled.

On November 28, 2018, CVH notified the Company of the decision issued on November 27, 2018 in the case “Cablevisión Holding S.A. v. Comisión Nacional de Valores s/Precautionary Measures” File 7,998/2018, pending before Federal Civil and Commercial Court No. 3, whereby the Court deemed accepted (as a requirement of admissibility) the bond required under the decision rendered on November 1, 2018, which had granted the request filed by CVH. It ordered, as a precautionary measure  (injunction), CNV to refrain from issuing any decision on the authorization of the PTO submitted and formulated by CVH on June 21, 2018, for a period of six months. The CNV has appealed this decision, which is still pending.

As of the date of this Annual Report, the terms of the PTO have not been approved yet by the CNV.

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TELECOM ARGENTINA S.A.

Related Party Transactions

 

We have been involved in a number of transactions with our related parties since the Transfer Date.

 

Our policy is to make transactions with related parties on arm’s-length basis.

In addition, Section 72 of Capital Markets Law No. 26,831 provides that before a publicly-listed company may enter into an act or contract involving a “relevant amount” with a related party or parties, the publicly-listed company must obtain approval from its Board of Directors and obtain a valuation report from its Audit Committee or two independent valuation firms that demonstrates that the terms of the transaction are consistent with those that could be obtained at an arm’s-length basis. If the Audit Committee or two independent valuation firms do not find that the terms of the contract are consistent with those that could be obtained on an arm’s-length basis, approval must be obtained from the shareholders. “Relevant amount” means an amount which exceeds 1% of the issuers’ equity as contained in the latest approved financial statements.

 

Related-party transactions involving Telecom Argentina that exceed 1% of its shareholders’ equity are subject to a prior approval process established by Capital Markets Law No. 26,831, Telecom’s Bylaws and the Rules of the Executive Committee to verify that the agreement could reasonably be considered to be in accordance with normal and habitual market practice.

Transactions with related parties of Grupo Clarín for the year ended December 31, 20182020 resulted in income for telecommunication services rendered by us of approximately P$124212 million and expenses for services received of approximately P$2,9135,058 million.

 

Transactions with other related parties resulted in income of P$48 million as of December 31, 2018. Additionally, Transactions with other related parties resulted in expenses of P$24 million as of December 31, 2018.

As of December 31, 2018, we had no loans outstanding to the executive officers of Telecom Argentina.

Interests of Experts and Counsel

Not applicable.

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107 

Transactions with other related parties resulted in income for services rendered of P$45 million and an income for interest of P$48 million as of December 31, 2020. Additionally, transactions with other related parties resulted in expenses of P$53 million as of December 31, 2020.

As of December 31, 2020, we had no loans outstanding to the executive officers of Telecom Argentina.

Interests of Experts and Counsel

Not applicable.

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108 

ITEM 8.FINANCIAL INFORMATION

ITEM 8.FINANCIAL INFORMATION

 

Consolidated Statements and Other Financial Information

 

See Item 18 for Telecom Argentina’s Consolidated Financial Statements. For a description of events that have occurred since the date of the Company’s Financial Statements, see “Item 4—Information on the Company—Introduction—Recent Developments.”Developments”.

 

Legal Proceedings

 

We are parties to several civil, tax, commercial,The descriptions of the legal proceedings, including labor and regulatoryclaims, general proceedings and other claims that have arisen in the ordinary course of business. As of December 31, 2018, Telecom has established provisions, excluding asset retirement obligations, in an aggregate amount of P$3,716 million to cover potential losses related to these claims andconsumer trade union proceedings in its Consolidated Financial Statements included under liabilities. In addition, as of December 31, 2018, the Company had P$155 million deposited in its bank accounts and restricted for some judicial proceedings.

See Note 1819 to our Consolidated Financial Statements for additional information.are incorporated herein by reference.

 

Labor ClaimsDividend Policy

 

·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.

Regarding profit sharing bonds two cases initiated against Telefónica set precedents as described below:

1. 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.

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TELECOM ARGENTINA S.A.

After the Argentine Supreme Court of Justice’s ruling and until the date of issuance of this Annual Report, 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.

2. Criteria for determining the relevant profit to calculate compensation: ruling of the Civil and Commercial Federal Proceedings Court in Plenary Session “Parota 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 “Parota, César c/ Estado Nacional”, as a result of a complaint filed against Telefónica, 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, 2018, 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 issuance of this Annual Report.

·Labor claims brought by employees of suppliers, contractors and commercial agents

Certain contractors’ and subcontractors’ employees have continued initiating lawsuits against contractors and Telecom Argentina claiming direct or indirect liability based on a broad interpretation of the rules of labor law. The plaintiffs claim for the application of the telecommunications collective labor agreement instead of the telecommunication section of the construction collective labor agreement, which result in wage differences.

Similar legal actions have been brought by employees of commercial suppliers and agents, who have also requested the application of the telecommunications collective labor agreement instead of collective labor agreement applicable to them.

As of the date of this Annual Report, Company’s Management, based on the advice of its legal counsel, has recorded provisions that it estimates are adequate to hedge the risks associated with these claims.

In certain circumstances and in accordance to certain jurisprudence and regulations, the Company may be obliged to assume labor liabilities in connection with claims initiated by suppliers’ employees against the supplier and/or the Company. Although the Company seeks the recovery from suppliers of any amount it had to pay in its behalf, we cannot assurance that the Company may succeed in recovering these amounts from the relevant supplier.

·Telecommunication unions claim

Some telecommunication unions have initiated claims against Telecom Argentina seeking compensation for the alleged non-compliance of certain provisions of the respective collective bargaining agreements that could allow them to negotiate the inclusion of some suppliers’ employees in their collective bargaining agreements. The claims are for unspecified amounts. The Company believes there are strong defenses by which the claims would not be sustained.

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TELECOM ARGENTINA S.A.

·Former sales representative claims of Personal and Nextel

Former sales representatives of Personal and Nextel 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. The Company´s Management 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 lower amounts than those claimed. As of the date of issuance of this Annual Report, some legal actions are in the discovery phase and with expert opinions in progress.

The Company’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 the Company’s results and financial position.

·Federación Argentina de las Telecomunicaciones and others against Telecom Argentina S.A. in relation to worker shareholding participation

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.

On December 20, 2017, the Court of First Instance on Labor Matters No. 19 dismissed the claim on the grounds that the claimant lacks of active legitimization because it is an individual claim, not a collective one. The claimant filed an appeal, which is pending before Chamber 7 of the Court of Appeals.

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.

Tax Matters

·Tax matters relating to Telecom Argentina

In December 2008, the National Congress passed Law No. 26,476, the “Law on Tax Regularization and Repatriation of Capital” establishing a regime for the regularization of tax liabilities, the repatriation of funds and the registration of employees. Title I of the law provides taxpayers a complete exemption from penal responsibilities in tax matters and from fines, and a partial exemption from interest arising out of tax or social security liabilities prior to December 31, 2007.

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TELECOM ARGENTINA S.A.

As discussed in previous Annual Reports, Telecom Argentina was party to various legal proceedings arising from claims by AFIP with regard to:

(a) AFIP’s claim for income tax for fiscal years 1993 to 1999 arising from its disagreement with Telecom Argentina’s calculation of the depreciation of its fiber optic network;

(b) AFIP’s claims for income tax for fiscal years 1997 to 2000 challenging Telecom Argentina’s certain deductions it made for bad debt expenses; and

(c) AFIP’s claims regarding invoices for certain kinds of services.

Upon detailed analysis of the regularization regime, on April 30, 2009, Telecom Argentina decided to settle the AFIP’s claims in the time frame established by Title I of Law No. 26,476. The settlement for the abovementioned tax claims was complete except for item (b), which was partially settled.

In order to qualify for the regularization regime, Telecom Argentina had to voluntarily dismiss legal proceedings previously initiated against AFIP’s claims. As a result of the regularization regime, regarding the matter mentioned in item (c) above, Telecom Argentina has requested the respective court to suspend the penal proceedings and dismiss the claims against officers and employees who had been called to give testimony, since the law provides for the suspension of penal proceedings upon adoption of the regularization regime, and complete extinguishment of a penal case upon cancellation of all amounts due under the payment plan pursuant to the regularization regime. In October 2014, the court declared the extinguishment of the penal proceedings despite not having cancelled the installments of the payment plan. The prosecutor appealed such resolution. In September 2015, the appeals court ratified the trial court’s ruling, resulting in the termination of the penal proceeding.

Telecom Argentina’s compliance with the regularization regime generated recognition of a debt owed to AFIP in the amount of P$38 million (nominal value) payable in 120 monthly installments at an annual interest rate of 9%. Telecom Argentina also recognized a debt for legal fees in connection with these regularized processes in the amount of P$14 million (nominal value). The value of both liabilities has been set forth under the captions “Income Tax Payables” and “Other Liabilities” classified by the nature and due date of each liability. As of December 31, 2018, such liabilities amounted to P$2 million and P$4 million, respectively.

·Provincial taxes

Some provincial tax authorities have filed claims regarding turnover tax and stamp tax. As of the date of this Annual Report, the Company’s management has recorded provisions that it estimates are adequate to hedge these risks.

On December 26, 2017 the Supreme Court has ruled in a company case against Corrientes province (“Telecom Argentina S.A. c/Corrientes provincia de s/acción declarativa”) that in the case of international calls the entire price collected from a local client is taxed in turnover tax. The Company’s management has recorded provisions that it estimates are adequate to cover the probable claims from the provincial tax authorities.

·Municipal fees

Since 2005, the Company has seen a noticeable increase in legal and extrajudicial claims seeking the collection of various municipal fees in the City of Buenos Aires and various municipalities. As of the date of this Annual Report, the Company has recorded provisions that estimate sufficient to cover these claims.

·Income tax - Action for recourse filed with the AFIP

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 with those provisions, without taking into account the income tax inflation adjustment.

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TELECOM ARGENTINA S.A.

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 the case “Candy” (07/03/2009) in which it ruled that, for the fiscal year 2002 in particular and considering the serious state of disturbance at that time, 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, 2011 and 2012 fiscal years in the cases “Distribuidora Gas del Centro”, enabling the application of income tax inflation adjustment for periods not affected by a severe economic crisis, such as 2002.

According to the above-mentioned new legal background of which Telecom Argentina had knowledge during 2015, and after making the respective assessments, in fiscal year 2015, 2016, 2017 and 2018 Telecom Argentina filed actions for recourse with the AFIP to claim the full tax overpaid for fiscal year 2009, 2010, 2011, 2012 and 2013 estimated in an amount of P$722 million plus interests, alleging that the lack of application of the income tax inflation adjustment is confiscatory.

As of the date of this Annual Report, the actions for recourse filed are pending of resolution by the AFIP. However, Telecom Argentina’s management, with the assessment of its tax advisor, considers that the arguments presented in this recourse follows the same criteria as the established by the Argentine Supreme Court of Justice jurisprudence mentioned above, among others, which we believe should allow Telecom Argentina to obtain a favorable resolution of the actions for recourse filed.

Consequently, the income tax determined in excess qualifies as a tax credit in compliance with IAS 12 and Telecom Argentina recorded a non-current tax credit of P$818 million as of December 31, 2018. For the calculation of the tax credit, Telecom Argentina has estimated the amount of the tax determined in excess for all fiscal years not covered by the statute of limitation (2009-2017), weighting the likelihood of certain variables according to the jurisprudential antecedents known until December 31, 2018 Telecom Argentina’s management will assess the AFIP’s resolutions related to actions of recourse filed as well as the jurisprudence evolution in order to at least annually remeasure the tax credit recorded.

·Additional rate for the “Impuesto a la Renta Comercial, Industrial o de Servicios” (Tax on Commercial, Industrial or Services Revenues or “IRACIS”)

On April 5, 2017, a subsidiary of the Company received a notice from the Under-Secretary of Taxes of the Republic of Paraguay, whereby that subsidiary was informed that it had failed to determine the additional IRACIS rate on the retained earnings of the companies merged in 2014.

The Company´s subsidiary considers that it has strong arguments to support its position, but no assurance can be given on the final outcome of this claim.

Regulatory Proceedings

·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 has generated to Telecom Argentina.

In determining the provisions for regulatory charges and sanctions, the Telecom Argentina’s Management, with the assessment  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.

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TELECOM ARGENTINA S.A.

Telecom Argentina has recorded provisions that it deems sufficient to cover the abovementioned sanctions and charges, estimating that they should not prosper in amounts individually higher than 200 thousand UT (P$9,380) 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, 2018. 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 P$62 million as of December 31, 2018.

·Radioelectric Spectrum Fees

In October 2016 Personal modified the criteria used for the statement of some of its commercial plans (“Abono fijo”) for purposes of paying the radioelectric spectrum fees (derecho de uso de espectro radioeléctrico or “DER”), taking into account certain changes in such plans’ composition. This meant a reduction in the amount of fees paid by Personal.

In March 2017, the ENACOM demanded Personal to rectify its statements, requiring that such plans’ statements continue to be prepared based on the previous criteria. Personal’s Management believes that it has strong legal arguments to defend its position, which are actually confirmed by Resolution ENACOM No. 840/18. On August 15, 2017, Personal received a note for the differences owed, and on August 31, 2017 presented the corresponding administrative note. However, it cannot be assured that such arguments will be accepted by the ENACOM.

The difference resulting from both sets of liquidation criteria is of approximately P$717 million since October 2016, plus interests as of December 31, 2018.

On February 27, 2018, Resolutions Nos. 840/18 and No. 1,196/18 were published in the Official Gazette. Through these Resolutions, the ENACOM updated the value of the Radioelectric Spectrum Fee per Unit and, in addition, it established a new regime for mobile communications services, which substantially increases the amounts to be paid in this regard.

As of the date of issuance of this Annual Report Telecom has submitted the rectifying affidavits corresponding to the months of March and April 2018 (due in April and May 2018), and has paid (under protest) the respective amounts. It also started to comply with, as from September 2018, the filing and payment (under protest) of the corresponding affidavits.

·Claims of some Content Providers to the Company

In the framework of the general reorganization of the content business started out by Personal in 2016, and given the expiration of agreements with content providers, some of the latter have been notified that such agreements will not be renewed.

By virtue of that communication, four of those companies initiated and obtained in court, precautionary measures against Personal, in order to avoid that the duly notified decision of not renewing the agreements be effective, and thus, forcing Personal to refrain from disconnecting or interrupting the contractual relationship on the scheduled dates.

On February 24, 2017, the ENACOM notified Personal the Resolution 2017-1122-APN-ENACOM # MCO (Resolution No. 1,122), which set out that Mobile Operators providers of audiotext and mass calling Value Added Services may receive, in every respect, a percentage that should not exceed 40% of the services invoiced on behalf and to the order those providers. In addition, the Resolution sets forth a 30-day period to file under the ENACOM the interconnection contracts or the addenda to the existing ones, that ensure adjustments to the contracts already in force and with relation to the services rendered by the members of CAVAM.

On March 22, 2017, Personal’s Management, with the assistance of its legal advisors and due to its solid grounds, filed an administrative appeal against Resolution No. 1,122 before the former Ministry of Communications. In addition, Personal has brought legal actions to safeguard its rights.

On the other hand, it should be noted that the Company has renewed the commercial agreements with most of the providers of these contents, which are still in force.

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TELECOM ARGENTINA S.A.

On September 29, 2017, the ENACOM notified Personal with ENACOM Resolution No. 2,408/17, whereby it rejected the reconsideration appeals filed by Movistar and Claro against Resolution No. 1,122, and the suspension of the effects of said resolution requested by Personal, Movistar and Claro. In addition, in the same act, it rejected the reconsideration appeal filed by Personal against ENACOM Note No. 29/17 (in connection with the supplier MOVICLIPS). The appeal filed by Personal against Resolution No. 1,122 with the former Ministry of Communications is still pending resolution.

·Resolution No. 50/10 and subsequent ones of the Secretariat of Domestic Trade of the Nation (“SCI”)

SCI Resolution No. 50/10 approved certain rules for the sale of pay television services. These rules provide that cable television operators must apply a formula to calculate their monthly subscription prices. The price arising from the application of the formula was to be informed to the Office of Business Loyalty (Dirección de Lealtad Comercial) between March 8 and March 22, 2010, having cable television operators to adjust such amount semi-annually and inform the result of such adjustment to such Office.

Notwithstanding the foregoing, it should be noted that as of the date of this Annual Report, according to the decision issued on August 1, 2011 in re “LA CAPITAL CABLE S.A. c/ Ministerio de Economía-Secretaría de Comercio Interior de la Nación”, the Federal Court of Appeals of the City of Mar del Plata has ordered the SCI to suspend the application of Resolution No. 50/10 with respect to all cable television licensees represented by the Argentine Cable Television Association (“ATVC”). Upon being notified to the SCI and the Ministry of Economy on September 12, 2011, such decision became fully effective and may not be disregarded by the SCI. The National Government filed an appeal against the decision issued by the Federal Court of Appeals of Mar del Plata to have the case brought before the Supreme Court. Such appeal was dismissed, for which the National Government filed a direct appeal to the Supreme Court, which has also been dismissed.

Between March 2011 and October 2014 were published in the Official Gazette successive resolutions based on Res. 50/2010 that regulated the prices that Cablevisión should charge in those months to users. These resolutions were challenged and are suspended due to the aforementioned injunction.

On September 23, 2014, the Court issued a decision in re “Municipalidad de Berazategui c/ Cablevisión” ordering the remission of the cases relating to these resolutions to the jurisdiction of the Federal Court of Mar del Plata, that had issued the decision on the collective action in favor of ATVC.

Currently, all the claims relating to this matter are pending before the Federal Court of Mar del Plata. The judge has not yet ordered discovery proceedings in respect of the main claim, “La Capital Cable v. National Government s/ Ordinary Proceeding”.

Decisions made on the basis of this Annual Report shall consider the potential impact that the above-mentioned resolutions might have on the Company and its subsidiaries, and the Company’s Annual Report should be read in light of such uncertainty.

The Company´s Management, with the assistance of its legal advisors, considers that it has strong arguments for its defense.

General Proceedings

·Environmental proceedings

In 1999, the Argentine national environmental agency (Secretaría de Medio Ambiente y Desarrollo Sustentable) initiated an administrative proceeding against us in connection with our waste management. This agency alleged that there were problems with our liquid drainage at an underground chamber, and such problem was in violation of Argentine environmental law. The agency sought to require Telecom Argentina’s registration with the National Register of Generators and Operators of Hazardous Waste. This registration would require Telecom Argentina to pay an annual fee calculated in accordance with a formula that takes into consideration the extent of a hazard and the quantity of waste. Telecom Argentina believes that its activities did not generate the alleged waste, and that the waste in the underground chamber was generated by other parties. Telecom Argentina nonetheless removed the liquid drainage in accordance with environmental law. We have filed the requisite official responses, and we believe that we will not have to register with any environmental agency as a result of this liquid drainage.

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TELECOM ARGENTINA S.A.

In February 2009, Telecom Argentina received a notification from the Argentine national environmental agency requesting that Telecom Argentina be registered in the National Registry of Generators and Operators of Hazardous Waste. In March 2009, Telecom Argentina filed a request for administrative review seeking to obtain rejection of the agency’s notification. As of the date of this Annual Report, there has yet to be a resolution on the matter. Notwithstanding that the said order has not yet been resolved, we cannot guarantee that the order will be canceled or that a similar order will not be initiated.

Moreover, from the merger between the former - Cablevision S.A. and the former Telecom Argentina S.A., Telecom Argentina is conducting a review of its operating processes and is carrying out registrations with the environmental agencies of some of its establishments, taking into account the activity developed within them. Based on the information available to us, we believe that the environmental proceedings and the registration of some of the Telecom Argentina´s establishments will not have a significant impact on our financial position, results of operations and cash flows.

Considering the evolution Secretaría de Medio Ambiente  related agencies, Telecom Argentina is in the process of reviewing its interpretation in relation to the registration as a hazardous waste generator that in any case will refer to a reduced number of materials that we use in our operations. Based on the information available to us, we believe that the environmental proceedings and the potential registration of Telecom Argentina as a hazardous waste generator will not have a significant impact on our financial position, results of operations and cash flows.

·Task Solutions against/ Telecom Personal S.A. S/ Ordinario and Task Solutions against/Telecom Argentina S.A. S/ Ordinario

Task Solutions S.A., a company whose main activity was the contact center, promoted a lawsuit against Telecom Argentina and Telecom Personal, claiming the amount of $408,721,835 for damages and losses suffered during the contractual relationship between those companies, as well as the non-renewal of the relationship between them. Task Solutions S.A. maintains that its only contractual relationship was with the defendant companies and that the non-renewal of their relationship caused its cessation of payments. On August 27, 2018, the claims were answered, the facts and the compensation claimed were denied and the Company requested the unconstitutionality of the punitive damages claimed. The Company reproved the amounts already paid in relation to labor items. Likewise, a claim was made for the amounts that eventually will have to be paid for that same concept in the future. Such estimation may be modified in relation to the proof that is produced in the case.

As of December 31, 2018, the Company’s Management, with the assistance of its legal advisors, has established provisions that it considers sufficient to cover the risks arising from the judgments indicated, taking into account the arguments and jurisprudential background available at the date of issuance of this Annual Report.

·Claim for damages between Supercanal Holding S.A. and Cablevisión

Multicanal has filed several legal actions seeking the nullity of: i) all the ordinary shareholders’ meetings held by Supercanal Holding S.A. from the year 2000 until February 2018; and ii) the sureties granted by Supercanal S.A. securing bank loans granted exclusively for the benefit of the controlling group of Supercanal Holding S.A. (Grupo Uno S.A. and its affiliates). In addition, a legal action was filed seeking the dissolution and liquidation of Supercanal Holding S.A. together with a legal action seeking the removal of all the members of the Board of Directors and the Supervisory Committee and the dissolution of Supercanal Capital N.V. Supercanal Holding S.A. On March 29, 2000 Supercanal Holding S.A. filed for concurso preventivo (judicial restructuring proceedings) with National Court of First Instance on Commercial Matters No. 20, Clerk’s Office No. 40, and the proceedings began on March 27, 2001.

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TELECOM ARGENTINA S.A.

Upon the revocation of an injunction initially granted in favor of Multicanal S.A. in the case entitled “Multicanal S.A. c/Supercanal Holding S.A. s/sumario”, where it sought to nullify the January 25, 2000 Extraordinary Shareholders’ Meeting of Supercanal Holding S.A. where it was resolved to reduce the capital stock of Supercanal Holding S.A. to $12,000 pesos and a subsequent increase thereof to $83,012,000 pesos, Multicanal S.A. was notified on December 12, 2001 of the filing by Supercanal Holding S.A. of a claim for the damages allegedly caused to it by the issue of the injunction that was subsequently revoked. The alleged damage is that the suspension of the effects of the meeting of January 25, 2000 would have led Supercanal Holding S.A. to suspend payments. Multicanal S.A. answered to such claim by denying all liability on the grounds that Supercanal Holding S.A.’s inability to pay its obligations when due had begun before the date of the suspension of the shareholders meeting according to documentation provided by the plaintiff itself. Furthermore, the suspension of the meeting did not prevent the capitalization of Supercanal Holding S.A. through other alternative means. Based on the factual and legal findings of the case, Cablevisión, as Multicanal’s continuing company considers that the claim should be rejected in its entirety, and that the legal costs should be borne by the plaintiff. The case is in the discovery period. In addition, the court of First Instance has dismissed Supercanal Holding S.A.’s request that it be allowed to sue without paying court fees or costs and that decision has been confirmed by the National Court of Appeals.

On June 15, 2018, Telecom Argentina, Grupo Clarín, Supercanal and América TV executed a settlement agreement in order to terminate the claims existing among the parties. Those companies executed a framework agreement whereby, among other issues, América TV expressly waived its claim for the exhibition of its signals “América TV” and “A24” in Cablevisión’s (now Telecom Argentina’s) programming grid, waiving its right to bring any claims in that regard and recognizing that it has nothing to claim against Telecom Argentina for any other cause as of the date of the agreement. In addition, a share transfer agreement was executed whereby Telecom Argentina -in its capacity as successor of Cablevisión-absorbing company of Multicanal- assigned in favor of Supercablecanal S.A. the shares- and all the rights inherent to them- it holds and owns in Supercanal and Supercanal Holding S.A. as of the date of execution of the agreement. Pursuant to the settlement agreement, the parties have agreed that all costs of the proceedings shall be borne by Supercanal S.A.

·Resolution No. 16,765 of the CNV

On March 16, 2012, CNV issued Resolution No. 16,765 whereby it ordered the conduction of a preliminary investigation (sumario) against Cablevisión, its directors and members of the Supervisory Committee for an alleged failure to comply with its reporting duties. The CNV considers that this deprived investors of the possibility to become fully aware of the decision issued by the Supreme Court of Argentina in re “Recurso de Hecho deducido por el Estado Nacional Ministerio de Economía y Producción en la causa Multicanal S.A. y otro c/ CONADECO Dto. 527-05” (which as of this date has been resolved) and that a series of issues relating to the information required by the CNV regarding the Extraordinary Meeting of Class 1 and 2 Noteholders held on April 23, 2010 would not have been disclosed.

On April 4, 2012, the Company filed a response requesting that its defenses be sustained and that all charges against it be dismissed. The discovery stage has been closed and the legal brief has been submitted.

The Company and its legal advisors believe that the Company has strong arguments in its favor. Nevertheless, the Company cannot assure that the outcome of the preliminary investigation proceeding will be favorable.

·Resolution No. 17,769 of the CNV

On August 28, 2015, Cablevisión was served notice of Resolution No. 17,769 dated August 13, 2015 whereby the CNV the conduction of a preliminary investigation (sumario) against Cablevisión and its directors, members of the Supervisory Committee and the Head of Market Relations for an alleged delay in the submission of the required documentation relating to the registration of the authorities appointed in the General Meeting of Shareholders of Cablevisión held on April 30, 2000 and the update of the particulars of its registered office in the Autopista de Información Financiera.

On January 20, 2016, the preliminary hearing was held pursuant to Section 138 of Law No. 26,831 and Section 8, Subsection b.1. of Section II, Chapter II, Title III of the Regulations (amended text of 2013).

The Company and its advisors believe that same has strong arguments in its favor on this matter, but no assurance can be given that the outcome of the preliminary investigation proceeding will be favorable.

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TELECOM ARGENTINA S.A.

Consumer Trade Union Proceedings

The Company has been notified of the following complaints filed by consumer trade unions. Although the Company believes there are strong defense arguments for which the claims should not succeed, in the absence of jurisprudence on the matter, The Company’s management, with the assistance of its legal counsel, has classified the claims as possible until a judgment is rendered:

i)  “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 Section 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.

This claim is at a preliminary stage as of the date of issuance of this Annual Report. However, the judge has ordered the accumulation of this claim with two other similar claims against Telefónica Móviles Argentina S.A. and AMX Argentina S.A. So, the three legal actions will continue within the Federal Civil and Commercial Court No. 9.

In connection with this lawsuit, the Secretariat of Commerce canceled the registration of CONSUMIDORES FINANCIEROS ASOCIACIÓN CIVIL PARA SU DEFENSA, therefore, the Company is awaiting the resolution of the intervening court.

The plaintiffs are seeking damages for unspecified amounts. Although the Company believes there are strong defenses according to which the claim should not succeed, in the absence of jurisprudence on the matter, the Company’s Management (with the advice of its legal counsel) has classified the claim as possible until a judgment is rendered.

ii) 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 to certain customers — Abono Fijo - of an amount of a period of two months since the alleged inconsistencies of the plaintiff.

The Company’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.

The Company answered the complaint and made a proposal that was rejected by the Supreme Court of Justice of the Nation, which ordered that the case continued in commercial courts. The cause was open to trial and the parties are producing the evidence offered.

The Company’s Management considers that there are strong arguments for the favorable resolution of this lawsuit, but, in the event it is resolved unfavorably, it would not have a significant impact on Telecom’s results and financial position.

iii) 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 punitive damages to Personal.

This claim is substantially similar to other claims made by a consumer association (Proconsumer) where collective representation of customers is also invoked. As of the date of issuance of this Annual Report, this claim is at preliminary stage since the demand notifications of everyone involved have not yet been finalized.

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TELECOM ARGENTINA S.A.

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, Telecom 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.

iv) Claim by “Asociación por la Defensa de Usuarios y Consumidores c/Telecom Personal S.A.”:

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. The claim is currently about to dictate sentence.

In 2015 the Company took knowledge of an adverse court ruling in a similar trial, promoted by the same consumers association against other mobile operator. Currently it is pending judgment.

The Company’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.

v) Claim by Trade Unions for Union Contributions and Payments

The unions FOEESITRA, SITRATEL, SILUJANTEL, SOEESIT, FOETRA, SUTTACH and the Union of telephony workers and employees of Tucumán (Sindicato de Obreros y Empleados Telefónicos de Tucumán) filed 7 legal actions against Telecom Argentina claiming the union contributions and payments set forth in the respective Collective Bargaining Agreements (“CBA”) corresponding to the third party employees rendering services to Telecom Argentina, for the not prescribed term of 5 years, plus the damages caused by the lack of payment of such items. (The items claimed are the Special Fund and the Solidarity Contribution).

The unions mentioned sustain that Telecom Argentina is jointly liable for the payment of the above-mentioned contributions and payments, based on the provisions of sections 29 and 30 of the Labor Contract Law and the nonperformance of the CBA as to its obligation to inform the Union on the hiring of third parties.

All claims were answered and procedural terms are suspended. In all cases, new hearings were appointed in the terms of art. 80 and the parties requested a new suspension of terms as a result of possible extrajudicial negotiations. The suits are for an undetermined amount.

Although the Company’s management considers that there are strong arguments for these actions to be decided on its favor, as there is no case law in the matter, no assurance can be given on the final outcome of these claims.

The Company is evaluating a negotiation with the trade unions to reach a settlement agreement.

vi) Asociación por la Defensa de Usuarios y Consumidores v. Cablevisión on expedited summary proceeding:

On November 29, 2018 the Company was notified of a lawsuit initiated by the Asociación por la Defensa de Usuarios y Consumidores, requesting that the defendant 1) cease to prevent customers to rescind Internet and cable TV services at the time of request; 2) reimburse to each user the amounts collected for the period of 5 years and until Cablevisión fulfills the request mentioned in 1); and 3) pay punitive damages for each of the affected customers.

On December 19, 2018, the Company filed a response. In its plea, it requested the extension of the period of the statutes of limitation (biennial term) and the declaration of the lack of standing to sue of the association. Likewise, the Company argued that the class to be represented had not been established and that it had not contravened the Antitrust Law and gave a detailed description of the termination procedure used by Cablevisión highlighting its compliance with Articles 10 ter and 10 quater of said law. It also challenged the application of the punitive damages claimed by the plaintiff and the Company also produced documentary evidence. It requested that the claim be rejected in its entirety, and that the legal costs be borne by the plaintiff.

The probability of occurrence of the lawsuit has been deemed as possible and the amount has still not been set yet.

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TELECOM ARGENTINA S.A.

Remote Proceedings

Telecom 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 and/or disclosed additional information in this Annual Report related to the resolution of these issues.

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 P$269 million, of which P$211 million are included in PP&E 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 the 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, the 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. The proposal considered that if the advertising compensation was not realized in one year, AFA would pay to Telecom the agreed amount. The Company analyzed the quality of the assets offered by the 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 (P$179.2 million plus interest from its implementation). The AFA rejected the claim but agreed to resume negotiations for a closing agreement which then was suspended by the AFA electoral process.

In January 2016 both parties resumed conciliatory negotiations, while the Company reserved its right to exercise legal claims on the amounts due.

In June 2016 the Company initiated a compulsory pre-judicial mediation procedure. The first audience, held on July 12, 2016, was attended by both parties. A second audience was held on August 3, 2016 and a third and the last one was held on August 23, 2016, which resulted in no agreement between the parties.

In February 2018, the Company initiated a new mandatory prejudicial mediation procedure which was finished without agreement. On December 19, 2018, a claim was brought against AFA for $ 353,477,495.

The Company’s Management with the assistance of its external advisor believes that they have strong legal arguments for claiming and are evaluating the actions to be followed for recovering the investments and expenses made.

PART I - ITEM 8 FINANCIAL INFORMATION

TELECOM ARGENTINA S.A.

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 P$211 million) 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.

Dividend Policy

The declaration, amount and payment of dividends are determined by a majority vote at a shareholders’ ordinary meeting of Telecom Argentina’s capital stock. Under the GCL, dividends may only be declared out of liquid and realized profits determined based on non-consolidated financial statements prepared in accordance with GAAP effective in Argentina (IFRS in the case of listed companies as Telecom Argentina) and other applicable regulations issued by the CNV and other regulatory bodies. Furthermore, liquid and realized profits can only be distributed when all accumulated losses from past periods have been absorbed and the legal reserve has been constituted or reconstituted. In addition, the Telecom Shareholders Agreement includes certain provisions with respect to the payment of dividends under certain circumstances (See “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders— Telecom Shareholders’ Agreement”).  

 

According to the rules of the CNV (as approved by General Resolution No. 622/13 asand amended and supplemented, (collectively, the “CNV Rules”), Shareholders’ Meetings that approve financial statements in which retained earnings are positive must make a specific determination on the use of such earnings in accordance with the GCL and, as a result, must resolve on its distribution as cash dividends, capitalization with issuance of paid-in shares, use to create reserves other than statutory reserves, or a combination of such alternatives. As a result of this rule the balance of retained earnings after the allocation approved by the Annual Shareholders’ Meeting should be zero.

Furthermore, CNV Resolution No. 777/18 established that “earnings distributions shall be considered in the currency as of the Shareholders´ Meeting date using the price index corresponding to the previous month of said Meeting”.

 

In preparing the Annual Report in compliance with Argentine requirements, at the end of each fiscal year, the Board of Directors analyzes Telecom Argentina’s economic and financial position and its compliance with the abovementioned restrictions. The Board of Directors also takes into account the funds needed for operative purposes for the following fiscal year. The Board of Directors then proposes a course of action with respect to retained earnings, which may or may not include a dividend distribution. The decision with regards to the proposal of the Board of Directors is made by Telecom Argentina’s shareholders at the Shareholders’ Meeting.

 

Telecom Argentina’s Board of Directors, at its meeting held on March 19, 2019, convened an Ordinary and Extraordinary Shareholders’ meeting to be held on April 24, 2019, to consider among other issues the allocation of Telecom Argentina’s retained earnings as of December 31, 2018.

The Board of Directors proposes:

In Pesos

Retained Earnings as of December 31, 2018

26,918,365,656

To Legal Reserve

(265,906,251

)

To Cash Dividends

(6,300,000,000

)

To Facultative reserve for future cash dividends

(6,300,000,000

)(a)

To Facultative reserve to maintain the level of investments in capital assets and the current level of solvency of the Company

(14,052,459,405

)

To New Fiscal Year


(a)    An amount that adjusted for inflation in accordance with CNV General Resolution No. 777/2018 results in $6,300,000,000 in Cash Dividends.

Regarding this proposal, it should be taken into account that since the enactment of General Resolution CNV No. 777/2018 (published in the Official Gazette on December 28, 2018), the restatement method for the financial statements in homogenous currency is applicable for issuer companies, as established by the IAS 29.

Regarding the distribution of earnings, the aforementioned CNV General Resolution No.777/2018, established that “The distribution of earnings must be treated in the currency of the date of the Shareholders’ Meeting by means of the price index corresponding to the month prior to their meeting.” (section 3, item 1, subsection e), Chapter III, Title IV of the CNV RULES (NT 2013),”Expression in constant currency of the earnings distributions”).

Therefore, it should be noted that this proposal of distribution of earnings corresponds to figures in current currency of December 31, 2018, leaving to the resolution of the Shareholders’ Meeting the determination of the amount that can be distributed.

PART I - ITEM 8 FINANCIAL INFORMATION

TELECOM ARGENTINA S.A.

In addition, the Board of Directors proposes i) that the cash dividends be made available to shareholders in three (3) equal installments, being payable the first installment within thirty (30) calendar days of their approval by the Shareholders’ Meeting, and the second and third installments within ninety (90) and one hundred and eighty (180) consecutive days of their approval by the Shareholders’ Meeting, respectively, or on the previous date determined by the Board of Directors; ii) that powers be delegated into the Board of Directors of the Company so that, depending on the evolution of the business, it may order the withdrawal, totally or partially, in one or more times, of an amount of up to $6,300,000,000 from the “Facultative reserve for future cash dividends” and its distribution to shareholders as cash dividends, being these delegated powers able to be exercised until December 31, 2019.

Significant Changes

 

Except as identified in this Annual Report, no undisclosed significant changes have occurred since the date of the Consolidated Financial Statements. See “Item 3—Key Information—Risk Factors” and “Item 5—Operating and Financial Review and Prospects—Years ended December 31, 2018, 20172020, 2019 and 2016—2018—Factors Affecting Results of Operations.”Operations”.

 

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TELECOM ARGENTINA S.A.

109 

ITEM 9.THE OFFER AND LISTING

ITEM 9.THE OFFER AND LISTING

 

The number of shares as of December 31, 2018,2020, was as follows:

 

Class of shares (*)

 

Outstanding
Shares

 

Treasury
shares

 

Total
capital stock

 

Class A Shares

 

683,856,600

 

 

683,856,600

 

Class B Shares

 

627,953,887

 

15,221,373

 

643,175,260

 

Class C Shares

 

210,866

 

 

210,866

 

Class D Shares

 

841,666,658

 

 

841,666,658

 

Total

 

2,153,688,011

 

15,221,373

 

2,168,909,384

 

Class of shares (*)Outstanding
Shares
Class A Shares683,856,600
Class B Shares628,058,019
Class C Shares106,734
Class D Shares841,666,658
Total2,153,688,011

 


(*) Ordinary share (nominal value P$1 each) with 1 vote each

 

The Class B Shares are currently listed on the BYMA.BYMA under the symbol “TECO2”. The ADSs are currently listed on the NYSE under the symbol “TEO”. Each ADS issued by the Depositary represents rights to five Class B Shares.

 

The ADSs issued by the Depositary under the Deposit Agreement dated as of November 8, 1994, as amended, among Telecom Argentina, the Depositary and the registered holders from time to time of the ADSs issued thereunder (the “Deposit Agreement”) trade on the NYSE. Each ADS represents rights to five Class B Shares.

 

On May 22, 2013, Telecom Argentina’s Board of Directors, based on the authority delegated by the Ordinary Shareholders’ meeting held on May 21, 2013 to allocate the Voluntary Reserve for Capital Investments, approved the terms and conditions of Telecom Argentina’s Treasury Shares Acquisition Process. The acquisition process has to be made in Argentine pesos in the market in order to avoid any possible damages to Telecom Argentina and its shareholders derived from fluctuations and imbalances between the shares’ price and Telecom Argentina’s solvency.

The main terms and conditions of the Treasury Shares acquisition process are:

·                  Date of announcement: May 22, 2013.

·                  Maximum amount to be invested: P$1,200 million.

·                  Maximum amount of shares subject to the acquisition: the amount of Class B Ordinary Shares of Telecom Argentina, P$1 of nominal value and with one vote each, that may be acquired with the maximum amount to be invested, which amount may never exceed a limit of 10% of the capital stock.

·                  Price to be paid by share: between a minimum of P$1 and a maximum of P$32.50 per share. On August 29, 2013, the maximum price was raised by Telecom Argentina’s Board of Directors to P$40 per share.

·                  Deadline for the acquisition process: April 30, 2014.

Pursuant to Section 67 of Law No. 26,831, Telecom Argentina must sell its treasury shares within three years of the date of acquisition, unless such period is extended by a decision of the Shareholders’ Meeting. The Telecom Argentina’s Shareholders Meeting held on April 29, 2016 resolved to extend for three years the period for which the treasury shares are held. Pursuant to Section 221 of the GCL, 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. 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.”

The last acquisition made by Telecom Argentina was on November 5, 2013. The total treasury shares acquired were 15,221,373 by a total amount of P$461 million (P$30.29 average per share) — P$1,795 million in current currency of December 31, 2018-. Such acquisitions were recorded at the acquisition cost and deducted from equity under the caption “Treasury shares acquisition cost.” No profit or loss resulting from holding the treasury shares has been recognized in the income statement.

PART I - ITEM 9 THE OFFER AND LISTING

TELECOM ARGENTINA S.A.

Plan of Distribution

Not applicable.

The Argentine Securities Market

Originally, the securities market in Argentina was composed of eleven securities exchanges, of which five (including the BCBA) had affiliated stock markets which were authorized to quote publicly-offered securities. The oldest and largest of these exchanges was the BCBA, founded in 1854. However, this system was affected by the enactment of Law No. 26,831, Decree No 1,203/2013 issued by the National Executive Office and the new regulations issued by the CNV, mainly contained in Resolution No. 622/2013, as amended, which stated that securities can only be listed and exchanged in stock markets authorized to function as such by the CNV. For the year ended December 31, 2018, the ten most actively traded equity issues represented approximately 67% of the total volume of equity traded on the market.

On April 17, 2017, BYMA, a stock market authorized by CNV, who shall succeed the Mercado de Valores de Buenos Aires S.A. or MERVAL, started the automatic transfer of all the species listed in the MERVAL to BYMA.

BYMA was created as a result of the spin off (escisión) of certain assets of the MERVAL, including its holdings in Caja de Valores S.A., the local clearing house for traded securities, and a capital contribution by the BCBA of its holdings in Caja de Valores S.A. Securities may also be listed and traded on the Mercado Abierto Electrónico S.A. (the “MAE”), an electronic over-the-counter market trading system that functions independently from the BCBA and MERVAL or BYMA. However, in March 1992, the BCBA, the MERVAL and representatives of the dealers on the MAE implemented an agreement that causes trading in equity and equity-related securities to be conducted exclusively on the MERVAL, now BYMA, while all corporate debt securities listed on the BCBA may also be traded on the MAE. Trading in Argentine government securities, which are not covered by the agreement, is expected to be conducted principally on the MAE. The agreement does not extend to other Argentine stock exchanges.

The CNV is responsible for the regulation and supervision to ensure the correct application of the rules governing the Argentine Securities Market, which acts under the regulatory framework described as follows.

Capital Markets Law — Law No. 26,831

On December 28, 2012, the Capital Markets Law No. 26,831 was published in the Official Gazette. Law No. 26,831 eliminates capital markets’ self-regulation and grants new powers to the CNV, including the ability to request reports and documents, conduct investigations and inspections of natural and legal persons under its control, call to testify and take informative and testimonial declaration. Likewise, if as a result of investigations performed, it is determined that non-controlling interests or the interests of holders of securities subject to public offering have been harmed, the CNV, according to the severity of the harm determined, may appoint overseers with the power to veto resolutions adopted by the Board of Directors and/or discontinue the Board of Directors for a maximum period of 180 days until deficiencies found are remedied.

Law No. 26,831 supersedes Law No. 17,811 and Decree No. 677/01, among other rules, and became effective on January 28, 2013.

In August 2013, the PEN issued Decree No. 1,023/13 regulating certain sections of Law No. 26,831, and in September 2013, the CNV issued the Resolution No. 622/13 which established the new comprehensive rules of the CNV and also implements regulation related to certain sections of Law No. 26,831.

On May 11, 2018, Productive Financing Law No. 27,440 was published in the Official Gazette. This law established several amendments to the Capital Markets Law No. 26,831 regarding the extent of the powers of the CNV; the exercise of preemptive rights on shares offered through public offering in the case of capital increases; private placements; public tender offers; the jurisdiction of the federal commercial courts of appeals to review the resolutions issued or sanctions imposed by the CNV, among other amendments.

PART I - ITEM 9 THE OFFER AND LISTING

TELECOM ARGENTINA S.A.

The Buenos Aires Stock Market (MERVAL / BYMA)

The MERVAL, entity succeeded by the BYMA is the largest stock market in Argentina. The MERVAL is a corporation, whose approximately 183 shares are held by individuals and entities authorized to trade in the securities listed on the BCBA. Trading on the BYMA is conducted by continuous open auction, from 11:00 a.m. to 5:00 p.m. each business day. The BYMA also operates a continuous electronic market system each business day, on which privately arranged trades are registered and made public.

 

Although the BCBA is one of Latin America’s largest securities exchanges in terms of market capitalization, it remains relatively small and illiquid compared to major world markets, and therefore, is subject to greater volatility. To control price volatility, the BYMA operates a system which suspends dealing in a particular issuer’s shares for fifteen minutes when the price changes 10% with respect to that day’s opening price. Once trading resumes, the trading is then suspended for another fifteen minutes if the price changes more than 15% with respect to that day’s opening price. If the price then changes 20% with respect to that day’s opening price, and for every 5% fluctuation in price thereafter, the trading of such shares is interrupted for an additional ten minutes. Investors in the Argentine securities market are mostly individuals, mutual funds and companies. Institutional investors that trade securities on the BYMA, which represent a relatively small percentage of trading activity, consist of a limited number of investment funds.

Certain historical information regarding the BCBABYMA is set forth in the table below.

 

 

2018

 

2017

 

2016

 

2015

 

2014

 

 2020 2019 2018 2017 2016

Market capitalization (P$ billions) (1)

 

10,524

 

6,877

 

4,512

 

3,292

 

3,893

 

  9,433   10,560   10,524   6,877   4,512

As percent of GDP (2)

 

72

 

60

 

56

 

56

 

85

 

  38   52   72   60   56

Volume (P$ million) (1)

 

4,144,621

 

2,712,799

 

1,333,260

 

749,829

 

621,831

 

  30,504,788   10,654,580   4,144,621   2,712,799   1,333,260

Average daily trading volume (P$ million) (1)

 

17,056

 

10,983

 

5,420

 

3,098

 

2,580

 

  126,576   43,666   17,056   10,983   5,420

Number of traded companies (including Cedears)

 

183

 

184

 

189

 

194

 

202

 

  283   240   183   184   189

 


(1)End-of-period figures for trading on the BCBA (includes domestic and non-domestic public companies).

(1)End-of-period figures for trading on the BYMA (includes domestic and non-domestic public companies).

(2)According to INDEC revised figures of GDP at current prices for the selected period, published as of March 2019.

(2)According to INDEC revised figures of GDP at current prices for the selected period, published as of December 2020. The amount of 2020 is based on the last information available as of the filing date.

 

Source: Instituto Argentino de Mercado de Capitales

 

Plan of Distribution

Not applicable.

Selling Shareholders

Not applicable.

Dilution

Not applicable.

Expenses of the Issue

Not applicable.

PART I - ITEM 9 THE OFFER AND LISTING

TELECOM ARGENTINA S.A.

Selling Shareholders

 

On March 22, 2017, Telecom Argentina filed a registration on Form F-3 (File No. 333-216890) through the selling shareholder to be identified in a prospectus supplement may offer and sell from time to time our Class B Shares underlying ADSs or ADSs. As of the date of this Annual Report, this registration statement has not been declared effective by the SEC. On August 13, 2018, the Company has filed with the SEC a request for withdrawal of Telecom Argentina’s Registration Statement on Form F-3.  In the request, Telecom Argentina confirmed that no securities under the Registration Statement have been sold.110

 

Dilution

 

Not applicable.

Expenses of the Issue

Not applicable.

PART I - ITEM 9 THE OFFER AND LISTING

TELECOM ARGENTINA S.A.

ITEM 10.ADDITIONAL INFORMATION

ITEM 10.ADDITIONAL INFORMATION

 

MEMORANDUM AND ARTICLES OF ASSOCIATION

 

Register

 

Telecom Argentina’s bylaws were registered before the IGJ on July 13, 1990, under number 4,570, book 108, volume “A” of Corporations. Telecom Argentina’s bylaws with all subsequent amendments were registered before the IGJ on November 15th, 2018, under number 22160, book 92 of Corporations.

Object and Purpose

Article I, Section 3 of Telecom Argentina’s bylaws was amended by Ordinary and After this registration, General Extraordinary Shareholders’ Meeting and Class “A” and Class “D” Shares Special Shareholders’ Meetings held on June 22, 2015,October 10, 2019 approved the amendment of Sections 4th, 5th and 6th of the Bylaws, so that Class “A” and “D” shares may be certified shares in accordance with applicable law or book-entry shares, as decided by Class “A” and Class “D” Shares Special Shareholders’ Meetings, respectively. Afterwards, General Extraordinary Shareholders’ Meeting and Class “A” and Class “D” Shares Special Shareholders’ Meetings held on December 11, 2020 approved the approvalamendment of AFTIC. PursuantSection 10th of the Company´s Bylaws so as to this amendment, establish a minimum prior notice for any call to Board Meetings of 5 calendar days, except in the event of urgency, in which case the Meeting may be called with a prior notice of 1 day, and to establish new means of notification of calls for said Meetings. The registration of these amendments before IGJ is still pending.

Object and Purpose

Telecom Argentina’s object and purpose is to provide, directly or through third parties, or in association with third parties, ICT Services, whether these ICT services are fixed, mobile, wired, wireless, national or international, with or without its own infrastructure, and to provide Audiovisual Communication Services (“AC Services”).

 

Pursuant to its object and purpose, Telecom Argentina may supply, lease, sell and market in any manner, all kinds of equipment, infrastructure, goods and services related to or supplementary with ICT Services and AC Services. Telecom Argentina may undertake works and provide all kinds of services, including advisory and safety services, in connection with ICT Services and AC Services.

 

To fulfill its object and purpose, Telecom Argentina has full legal capacity to acquire rights, undertake obligations and take any action that is not forbidden by law and by its bylaws, including the capacity to borrow funds, publicly or privately, through the issue of debentures and negotiable obligations. Telecom Argentina may constitute companies, acquire equity interests in other companies and enter into any kinds of association agreements.

 

Any amendment to the corporate object and purpose shall be in compliance with the respective legal regulations in force.

 

On February 18, 2004, Telecom Argentina’s shareholders voted to change the company’s name to “Telecom Argentina S.A.”

Telecom Argentina’s capital stock

 

The following is a summary of the rights of the holders of Telecom Argentina shares. These rights are set out in Telecom Argentina’s estatutos sociales (bylaws) or are provided for by applicable Argentine law. These rights may differ from those typically provided to shareholders of U.S. companies under the corporation laws of some states of the United States.

 

Limited liability of shareholders

 

Under Argentine law, a shareholder’s liability for losses of a company is generally limited to the value of his or her shareholdings in the company. Under Argentine law, however, a shareholder who votes in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or a company’s bylaws (or regulations, if any) may be held jointly and severally liable for damages to such company, to other shareholders or to third parties resulting from such resolution. In connection with recommending certain actions for approval by shareholders, the Board of Directors of Telecom Argentina occasionally obtained opinions of internal and/or external counsel concerning the compliance of the actions with Argentine law and our bylaws (or regulations, if any). We currently intend to obtain similar opinions in the future as the circumstances require it. Although the issue is not free from doubt, based on advice of counsel, we believe that a court in Argentina in which a case has been properly filed would hold that a non-controlling shareholder voting in good faith and without a conflict of interest in favor of such a resolution based on the advice of counsel that such resolution is not contrary to Argentine law or our bylaws or regulations, would not be liable under this provision.

 

Voting Rights

 

Pursuant Telecom Argentina’s bylaws, each share entitles the holder thereof to one vote at the shareholders’ meetings. All of Telecom Argentina’s directors are appointed jointly by shareholders in an Ordinary General Shareholders’ Meeting.

 

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TELECOM ARGENTINA S.A.

111

Under Argentine law, shareholders are entitled to cumulative voting rights for the election of up to one-third of the vacancies to be filled on the Board of Directors and the Supervisory Committee. If any shareholder notifies the company of its decision to exercise its cumulative voting rights not later than three business days prior to the date of the Shareholders’ Meeting, all shareholders are entitled, but not required, to exercise their cumulative voting rights as well.

 

Through the exercise of cumulative voting rights, the aggregate number of votes that a shareholder may cast is multiplied by the number of vacancies to be filled in the election, and each shareholder may allocate the total number of its votes among a number of candidates not exceeding one-third of the number of vacancies to be filled. Shareholders not exercising cumulative voting rights are entitled to cast the number of votes represented by their shares for each candidate. The candidates receiving the most votes are elected to the vacancies filled by cumulative and non-cumulative voting. In case of tie between the candidates voted under the same system, the two candidates that received the most votes will participate in a run-off election, and the candidate receiving the most votes in the run-off election will be deemed elected.

 

In addition, any person who enters into a voting agreement with other shareholders in a public company must inform the CNV of that voting agreement and must file a copy of that voting agreement before the CNV.

 

Shareholders’ Meetings

 

Shareholders’ Meetings may be ordinary meetings or extraordinary meetings. Telecom Argentina is required to hold an Annual Ordinary Shareholders’ Meeting in each fiscal year to consider the matters outlined in ArticleSection 234 of the GCL, ArticleSection 71 of Law No. 26,831 and CNV rules, including but not limited to:

 

·      approval of Telecom Argentina’s financial statements and general performance of the directors and members of the Supervisory Committee for the preceding fiscal year;

·approval of Telecom Argentina’s financial statements and general performance of the directors and members of the Supervisory Committee for the preceding fiscal year;

 

·      election, removal and remuneration of directors and members of the Supervisory Committee;

·election, removal and remuneration of directors and members of the Supervisory Committee;

 

·      allocation of profits; and

·allocation of profits; and

 

·      appointment of external auditors.

·appointment of external auditors.

 

Matters which may be considered at these or other ordinary meetings include, but are not limited to:

 

·                  consideration of the responsibility of directors and members of the Supervisory Committee; and

·consideration of the responsibility of directors and members of the Supervisory Committee; and

 

·                  capital increases and the issuance of negotiable obligations.

·capital increases and the issuance of notes.

 

Extraordinary Shareholders’ Meetings may be called at any time to consider matters beyond the scope of the ordinary shareholder’s meetings, including amendments to the bylaws, issuances of certain securities that permit profit sharing, anticipated dissolution, merger and transformation from one type of company to another, etc.

 

Shareholders’ Meetings may be convened by the Board of Directors or the members of the Supervisory Committee. The Board of Directors or the members of the Supervisory Committee are also required to convene shareholders’ meetings upon the request of any shareholder or group of shareholders holding at least 5% in the aggregate capital stock of Telecom Argentina. If the Board of Directors or the members of the Supervisory Committee fail to do so, the meeting may be called by the CNV or by the Argentine courts.

 

Notice of the Shareholders’ Meeting must be published in the Official Gazette of the Republic of Argentina (the “Official Gazette”) and in a widely circulated newspaper in Argentina, at least twenty days before the shareholder’s meeting. In order to attend a meeting, shareholders must submit proper evidence of their ownership of shares via book-entry account held at the Caja de Valores S.A. If entitledin the case of Class B and Class C shares, and via book-entry account held by the Company of Class A and Class D shares. Entitled to attend the meeting, a shareholder may be represented by proxy.

 

Holders of ADSs are not entitled to attend or vote at a shareholders´sshareholders’ meeting but its Deposit Agreement provides for certain procedures to instruct the Depositary to vote deposited Class B Shares in accordance with instructions provided by the holders of the ADSs. For voting instructions to be valid, the depositary must receive them on or before the date indicated in the relevant notice. There is no guarantee that an ADS holder will receive voting materials in time to instruct the depositary to vote.

 

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TELECOM ARGENTINA S.A.

112

The quorum for Ordinary Shareholders’ Meetings consists of a majority of the capital stock entitled to vote. In Ordinary Shareholders’ Meetings, resolutions may be adopted by the affirmative vote of a majority of the shareholders present that have issued a valid vote, without counting voluntary abstentions. If there is no quorum at the meeting, a second Ordinary Shareholders’ Meeting may be called. The meeting in a second call can be held whatever the number of the shareholders at the meeting, and resolutions may be adopted by a majority of the shareholders present.

 

The quorum for Extraordinary Shareholders’ Meetings is 60% of the capital stock entitled to vote. If there is no quorum at the extraordinary shareholders’ meeting, a second extraordinary shareholders’ meeting may be called. The quorum for extraordinary shareholders’ meeting in a second call is the 30% of the present capital stock. In both cases, decisions are adopted by a majority of valid votes, except for certain fundamental matters, including:

 

·                  mergers and spin-offs, when Telecom Argentina is not the surviving entity;

·mergers and spin-offs, when Telecom Argentina is not the surviving entity;

 

·                  anticipated liquidation;

·anticipated liquidation;

 

·                  change of Telecom Argentina’s domicile to a domicile outside Argentina;

·change of Telecom Argentina’s domicile to a domicile outside Argentina;

 

·                  total or partial repayment of capital; or

·total or partial repayment of capital; or

 

·                  a substantial change in the corporate object and purpose.

·a substantial change in the corporate object and purpose.

 

Each of these actions requires a favorable vote of more than 50% of all the capital stock entitled to vote.

 

In some of these cases, a dissenting shareholder is entitled to appraisal rights.

 

Any resolution adopted by the shareholders at Ordinary or Extraordinary Shareholders’ Meetings that affects the rights of one particular class of capital stock must also be approved or ratified by a special meeting of that class of shareholders. The special meeting will be governed by the rules for Ordinary Shareholders’ Meetings.

 

In addition, and pursuant to the amendment to the bylaws approved on August 31, 2017, a favorable resolution by a special meeting of the Class A and/ or the Class D will be required in order to approvedapprove any Supermajority Matter. That special meeting will be required to the extent the Class A or the Class D represent more than 15% of the capital stock, respectively, or 20% of the capital stock if the decision involves the approval of the Business Plan or the Annual Budget.

 

Dividends

 

Dividends can be lawfully paid and declared only out of our realized and liquid profit.

 

For these purposes, the Board of Directors must submit our financial statements for the previous fiscal year, together with a report thereon by the Board of Directors, to the shareholders for their approval at an Ordinary Shareholders’ Meeting.

 

Upon the approval of the financial statements, the shareholders determine the allocation of Telecom Argentina’s net profits (if any). Under CNV rules, a Shareholders’ Meeting convened to approve the financial statements in which retained earnings are positive must make a specific decision on the use of such earnings in accordance with the GCL. The Shareholders’ Meeting must resolve on its distribution as cash dividends, capitalization with issuance of paid-in shares, use to create reserves other than statutory reserves, or a combination of such alternatives. In addition, the GCL requires Argentine companies to allocate 5% of any net profits to a legal reserve, until the amount of this reserve equals 20% of our capital stock. The legal reserve is not available for distribution. The remainder of net profits may be paid as dividends on common stock or retained as a voluntary reserve or other account, or a combination thereof, all as determined by the shareholders. As provided by CNV Resolution No. 609/12, positive retained earnings generated by the mandatory adoption of IFRS as from January 1, 2012, should be assigned to a special reserve that can only be utilized for its capitalization or to absorb negative retained earnings.

 

Dividends may not be paid if the legal reserve has been impaired, nor until it has been fully replenished. Shareholders’ rights to collect dividends expire three years after the distribution date pursuant to Section 17 of Telecom Argentina’s bylaws, as amended by the Shareholders’ Meeting held on April 24, 2002.bylaws.

 

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Argentine law permits the Board of Directors of certain companies, such as Telecom Argentina, to approve the distribution of anticipated dividends on the basis of financial statements especially prepared for the purpose of paying such dividends, provided that both the external auditors and the Supervisory Committee have issued an opinion report. The actual payment of these dividends is made on an interim basis, and they are paid on account of the dividends to be determined in the Annual Ordinary Shareholders’ Meeting on the basis of the financial statements for the year.

 

See Note 3028 to our consolidated financial statementsConsolidated Financial Statements regarding restrictions on distributions of profits and dividends.

 

Capital increase and reduction

 

Telecom Argentina may increase its capital upon authorization of an Ordinary Shareholders’ Meeting. All capital increases must be conformedconfirmed by the CNV, published in the Official Gazette and recorded with the IGJ. Capital reductions may be voluntary or mandatory. Shares issued in connection with any capital increase must be divided among the various classes in proportion to the number of shares of each class outstanding at the date of the issuance, provided that the number of shares of each class actually issued may vary based on the exercise of preemptive rights and additional accretion rights in accordance with the procedure described under “—Preemptive Rights” below.

 

A voluntary capital reduction must be approved by an Extraordinary Shareholders’ meeting and may take place only after notice thereof is published and creditors are given an opportunity to obtain payment or collateralization of their claims, or attachment, except in redemption cases (with liquid and realized profits).

 

In accordance with ArticleSection 206 of the GCL, reduction of a company’s capital stock is mandatory when losses have exceeded reserves and at least 50% of the stated capital (capital stock plus inflation adjustment).

 

Currently, Telecom Argentina is not requiredSection 59 of Law No. 27,541 (published in the Official Gazette on December 23, 2019) suspended until December 31, 2020, the implementation of Section 206 of the GCL and of Section 94(5) of GCL (liquidation due to reduce its capital stock.loss of capital).

 

Preemptive Rights

 

Under Argentine law, holders of a company’s common shares of any given class have preferential or preemptive rights, proportional to the number of shares owned by each shareholder, to subscribe for any shares of capital stock of the same class as the shares owned by the shareholder or for any securities convertible into such shares issued by the company.

 

In the event of a capital increase, shareholders of Telecom Argentina of any given class have a preemptive right to purchase any issue of shares of such class in an amount sufficient to maintain their proportionate ownership of Telecom Argentina’s capital stock. For any shares of a class not preempted by any holder of that class, the remaining holders of the class will assume pro rata the preemptive rights of those shareholders that are not exercising their preemptive rights. Pursuant to Telecom Argentina’s bylaws, if any Class B or Class C Shares are not preempted by the existing shareholders of each such class, the other classes may preempt such class. However, if any shares of the other Classes of Shares are not preempted by the existing holders of such class, holders of Class B or Class C Shares shall have no preemptive rights with respect to such shares.

 

A notice to the shareholders of their opportunity to preempt the capital increase must be published for three days in the Official Gazette and a widely circulated newspaper in Argentina. The period for the exercise of preemptive rights is 30 days following the last day of publication and may be reduced to 10 days by resolution of an extraordinary shareholders’ meeting. Pursuant to the Capital Markets Law, as amended by the Productive Financing Law No. 27,440, in the case of any capital increase by means of a public offer, the preemptive rights will be exercised by the shareholders exclusively through the subscription and allocation procedures determined in the offering memorandum, and the 30-day period will not apply; subject to the condition that the bylaws of the company expressly provide it and to the approval of the shareholders’ meeting.

 

Pursuant to the GCL, preemptive rights may only be restricted or suspended in certain particular and exceptional cases by a resolution of an Extraordinary Shareholders’ Meeting when required by the interest of the company.

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Conflicts of Interest

 

A shareholder that votes on a business transaction in which its interest conflicts with that of Telecom Argentina may be liable for damages under Argentine law, but only if the transaction would not have been approved without his or her vote. See “Item 3—Key Information—Risk Factors—Risks Relating to Argentina—Our Shareholders may be subject to liability under Argentine law for certain votes of their securities.”securities”. See also “—Powers of the Directors” below for a description of conflict of interest regarding Directors.

 

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Redemption or Repurchase

 

Telecom Argentina’s stock is subject to redemption in connection with a reduction of capital by a majority vote of shareholders at an Extraordinary Shareholders’ Meeting. Pursuant to the GCL, Telecom Argentina may repurchase the stock with liquid and realized profits or available reserves, upon a determination of the Board of Directors that the repurchase is necessary in order to avoid severe damage to our business (subject to shareholder consideration) or in connection with a merger or acquisition. In addition, Telecom Argentina can purchase up to 10% of its capital stock in the BCBA pursuant to Law No. 26,831, complying with the requirements and procedures stated therein. If the purchase is made pursuant to Law No. 26,831, Telecom Argentina must resell the repurchased shares within three years and its shareholders will have preemptive rights to purchase the shares, except in case of an employee compensation program or plan, or in case the shares are distributed among all the shareholders proportionately or regarding the sale of an amount of shares that in any period of 12 months does not exceed 1% of the Telecom Argentina’s capital stock. In such cases, the three-year period can be extended with the previous approval by a Shareholders’ Meeting.

 

Appraisal Rights

 

Whenever certain extraordinary resolutions are adopted at an Extraordinary Shareholders’ meeting, such as a merger of Telecom Argentina into another entity, a change of corporate object and purpose, transformation from one type of corporate form to another, or the voluntary withdrawal from the public offering regime or listing of Telecom Argentina’s shares , any shareholder dissenting from the adoption of any resolution may withdraw from Telecom Argentina and receive the book value of his or her shares determined on the basis of Telecom Argentina’s annual financial statements (as approved by the Annual Ordinary Shareholders’ Meeting), provided that the dissenting shareholder exercises its appraisal rights within five days following the Shareholders’ Meeting at which the resolution was adopted. This right may be exercised within 15 days following the meeting if the dissenting shareholder was absent and provided he or she can prove that he or she was a shareholder on the day of the Shareholders’ Meeting at which the resolution was adopted. In the case of a merger of Telecom Argentina or a spin-off of Telecom Argentina, no appraisal rights may be exercised if Telecom Argentina is the surviving company or if the shares that Telecom shareholders’shareholders would receive as a result of such merger or spin-off would also be admitted to the public offering regime or listed in Argentina.

 

Appraisal rights are extinguished if the resolution is subsequently overturned at another Shareholders’ Meeting held within sixty days of the expiration of the time period during which absent shareholders may exercise their appraisal rights.

 

Payment on the appraisal rights must be made within one year of the date of the Shareholders’ Meeting at which the resolution was adopted. In the case of voluntary withdrawal from the public offering regime or listing of Telecom Argentina’s shares, the payment period is reduced to sixty days from the date of the approval of the voluntary withdrawal.

 

Notwithstanding the foregoing, should Telecom Argentina decide to voluntarily withdraw its shares from the public offering regime or listing in Argentina, pursuant to ArticleSection 97 of Law No. 26,831, a tender offer by Telecom Argentina at a fair price (precio equitativo)to be determined in accordance with certain parameters must be conducted before such withdrawal.

 

Liquidation

 

Upon liquidation of Telecom Argentina, one or more liquidators may be appointed to wind up its affairs. All outstanding shares of common stock will be entitled to participate equally in any distribution upon liquidation.

 

In the event of liquidation, the assets of Telecom Argentina shall be applied to satisfy its debts and liabilities. If any surplus remains, it shall be distributed to the holders of shares in proportion to their holdings.

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Acquisitions of 5% or more of the voting stock of a public company

 

Under Argentine law, any person acquiring 5% or more of the voting stock of a public company must inform the CNV in writing of the acquisition of such voting stock. Additionally, such person must inform the CNV in writing of each additional acquisition of 5% of the voting stock of that particular company, until such person acquires control of that company.company, in which case the person shall be subject to a different ownership disclosure regime.

 

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Powers of the Directors

 

The bylaws of Telecom Argentina do not contain any provision regarding the ability to vote on a proposal, arrangement or contract where a director is an interested party. Under Argentine law, a director may sign contracts with the company related to the company’s activities so long as the conditions are on an arm’s-length basis. If such contract does not meet such conditions, the agreement may only be subscribed with the prior approval of the Board of Directors or, in absence of quorum, with the approval of the Supervisory Committee.

Such transactions must be dealt with at the following Shareholders’ Meeting, and if such meeting does not approve them, the Board of Directors or the Supervisory Committee (as the case may be) are jointly responsible for any damages caused to the company. Argentine law also requires that if a director has a personal interest contrary to Telecom Argentina’s, he or she must notify the Board of Directors and to the Supervisory Committee. The director must refrain from participating in any deliberations or he or she may be held jointly and severally liable for all damages caused to Telecom Argentina as a result of the conflict of interests.

 

Additionally, Law No. 26,831 dictates that the contracts between a company and a director (that qualifies as a “related party”) when they exceed 1% of the shareholders’ equity of the company, it must be submitted to prior approval of the Audit Committee or of two independent evaluation firms to ensure that the transaction is in accordance with market conditions. Such transactions must also be approved by the Board of Directors and reported to the CNV and the exchanges on which the shares of the company are listed. If the Audit Committee or the independent evaluation firms have not determined the terms of the transaction to be “according to market conditions”,conditions,” then the contract in question must be submitted for consideration at a Shareholders’ Meeting.

 

Section 10 of the bylaws of Telecom Argentina establishes that the remuneration of the members of the Board of Directors is to be determined by the shareholders at their Annual Ordinary Shareholders’ Meeting. The Audit Committee is to issue a prior opinion on the reasonability of the proposed remuneration, which the Board of Directors submits for approval to the shareholders. Directors cannot vote on the resolution concerning their compensation or the compensation of any other director.

 

The bylaws of Telecom Argentina do not contain any provision regarding the possibility of granting loans to members of the Board of Directors or to the company executives.

 

Members of the Board of Directors of Telecom Argentina or its subsidiaries or parent company cannot be appointed as members of the Supervisory Committee.

 

The bylaws of Telecom Argentina do not establish a maximum age to be member of the Board of Directors.

 

Neither the bylaws of Telecom Argentina nor any Argentine law require the members of the Board of Directors to be shareholders.

 

Limitations on foreign investment in Argentina

 

Under the Argentine Foreign Investment Law, as amended (the “FIL”), the purchase of stock by an individual or legal entity domiciled abroad or by a local company of foreign capital (as defined in the FIL) constitutes a foreign investment subject to the FIL. Foreign investments generally are unrestricted. However, foreign investments in certain industries, such as broadcasting, are restricted as to percentage. No approval is necessary to purchase Class B Shares. The FIL does not limit the right of non-resident or foreign owners to hold or vote the Class B Shares, and there are no restrictions in Telecom Argentina’s bylaws limiting the rights of non-residents or non-Argentines to hold or to vote on Telecom Argentina’s Class B Shares. Notwithstanding the foregoing, regulations implemented by the CNV require that all shareholders that are foreign companies who are registered to participate at a Shareholders’ Meeting should provide details of their registration with the Argentine Public Registry of Commerce.bear adequate proxy representation according to argentine law. To acquire participation in a company in Argentina, non-Argentine companies are required to comply with the share ownership registration requirements with the Argentine Registry of Commerce as provided for under Section 123 of the GCL.

 

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Change of Control

 

There are no provisions in the bylaws of Telecom Argentina which may have the effect of delaying, deferring or preventing a change in control of Telecom Argentina and that would only operate with respect to a merger, acquisition or corporate restructuring involving Telecom Argentina or any of its subsidiaries, except forin case of merger (Section 10. VI of the regulatory authorization required for the transfer of Nortel’s Class A Shares stated in Section 9 of our Bylaws. Section 9 of our Bylaws has been eliminated as authorized by ENACOM as regulatory authority and decided by the Ordinary and Extraodinary Shareholders´ Meeting held on May 23, 2017, which was conformed by the CNV and recorded with the IGJ on March 21, 2018.Bylaws).

 

Under Law No. 26,831,modified by Law N° 27,440, a party which has individually or through “actuación concertada” (concerted action) attained control in a publicly traded corporation must offer a fair price (precio equitativo) as defined in Law No. 26,831, as amended, to acquire all shares of such corporation.

 

Under Decree No. 764/2000,00, as amended by Decree No. 267/2015,15, the loss of control of a licensee company such as Telecom Argentina is subject to the approval of the ENACOM.

 

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MATERIAL CONTRACTS

 

For information regarding the Telecom Shareholders’ Agreement,our material contracts, see “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources” and “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders—The Telecom Shareholders’ Agreement.”Agreement”. We are not a party to the Telecom Shareholders’ Agreement.

 

FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN ARGENTINA

 

Due to the deterioration of the economic and financial situation in Argentina throughout 2001, the difficulties in dealing with the servicing of the public foreign debt and the decrease of the total level of deposits in the financial system,On September 1, 2019, the Argentine government issued Decree No. 1,570/01,609/19 (the “FX Decree”) by which asforeign exchange controls were temporarily reinstated until December 31, 2019, which were subsequently extended by the new administration, not providing for a specific expiration date. The FX Decree: (i) reinstated exporters’ obligation to repatriate proceeds from exports of December 3, 2001, established a number of monetarygoods and currency exchange control measures that included restrictions onservices in the free disposition of funds with banksterms and restrictions on transferring funds abroad, with certain exceptions for transfers related to foreign trade and certain other transfers subject to the prior authorization of the BCRA.

On February 8, 2002,conditions set forth by the BCRA issued tight restrictions on the transfer of funds abroad in orderand liquidate such foreign currency-denominated proceeds to make payments of principal and/or interest by requiring prior authorization from the BCRA. Since 2003, these restrictions were progressively curbed.

In June 2005,Pesos through Decree No. 616/2005, the Argentine government imposed certain restrictions on inflows and outflows of foreign currency to the local foreign exchange market. New indebtedness entered into the foreign exchange market and debt renewals with non-Argentine residents from the private sector entered in the local foreign exchange market had to be agreed upon and canceled in terms not shorter than 365 calendar days (the “Minimum Holding Term”“MULC”), whatever the form of cancellation thereof (i.e. with or without access to the local foreign exchange market). The following transactions, among others, were exempted from this restriction: (i) foreign trade financings (i.e., exports advance payments, pre-financing of exports and imports financing); (ii) balances of foreign exchange transactions with correspondent exchange entities (which are not credit lines); and (iii) primary debt security issuances with a public offering and listing.

In addition, certain inflow of funds were subject(ii) authorized the BCRA to (a) regulate the creation of a nominative, nontransferable and non-compensated deposit, for 30% of the amount involved in the relevant transaction (the “Mandatory Deposit”), for a term of 365 calendar days, pursuant to the terms and conditions established in the regulations.

However, beginning in December 17, 2015, the Argentine government implemented a series of measures to progressively deregulate and implement more flexible rules for foreign exchange controls. The following amendments, along with certain other reforms, were introduced by communications including Communications “A” 5850, “A” 5861, “A” 5899, “A” 6037, “A” 6058, “A” 6067, “A” 6137, “A” 6150 and “A” 6174 in each case as amended. Collectively, these new regulations are referred to as the “New Regulations.”

On January 4, 2017, the Ministry of the Treasury eliminated the mandatory minimum stay period applicable to (i) the inflow of funds to the local foreign exchange market arising from certain foreign indebtedness and (ii) any entry of fundsaccess to the foreign exchange market by non-residents. On January 20, 2017, the SCI extended the period for the proceeds frompurchase of foreign currency and outward remittances; and (b) establish regulations to prevent practices and/or transactions aimed to bypass the export of goods to be transferred and settled throughmeasures adopted on the MULC, from five to ten years. In addition, on May 19, 2017, the Central Bank eliminated mostFX Decree.

A consolidated text of the foreigncurrently applicable exchange restrictionscontrol regulations can be found in place until then by means of Communication “A” 6244,6844/19, as amended by subsequent BCRA Communications, issued by the BCRA on December 6, 2019. On December 27, 2019 and December 30, 2019, the BCRA issued Communications “A” 6854/19 and “A” 6856/19, respectively, pursuant to which the exchange control regulations found in Communication “A” 6844/19 remain effective after December 31, 2019. Below is a description of the main exchange control measures in effect as of July 1, 2017.the date of this Annual Report:

Reporting Regime

 

On November 1, 2017, the PEN enacted Decree No. 893/17 which partially repealed Decrees No. 2,581/64, No. 1,555/86 and No. 1,638/01, and eliminated the obligation of Argentine residents to transfer to Argentina and sell in the MULC the proceeds of their exports of goods. On November 10, 2017, the Central Bank issued Communication “A” 6363, that eliminated all restrictions applicable to Argentine residents related to the transfer and sale of proceeds in the MULC resulting from the export of goods.

Finally, on December 28, 2017, by virtue of Communication “A” 6401, the Central BankBCRA replaced the reporting regimes set forth byon Communications “A” 3602 and “A” 4237 with Communication “A” 6401 (and supplemental Communication “A” 6795), a new, unified regime applicable for information as offrom December 31, 2017. As of the date hereof, in accordance with current regulations, all individuals2017 (the “External Assets and legal persons, assets and other universities may operate freely in the MULC and foreign exchange transactions shall be carried out at the exchange rate freely agreed between the parties. All exchange and/or arbitrage operations must be carried out through financial or exchange entities authorized by the Central Bank, and must comply in all cases with the provisions applicable to each transaction. Transactions that do not fall within the scope of the foreign exchange regulations will be subject to the Foreign Exchange Regime Law.

The following is a description of the main aspects of BCRA’s regulations concerning inflows and outflows of funds in Argentina as of the date hereof. Additional information regarding all current foreign exchange restrictions and exchange control regulations and regarding the applicable rules mentioned herein, as well as any amendments and complementary regulations, is available at the Ministry of the Treasury’s website: www.economia.gob.ar, or the BCRA’s website: www.bcra.gov.ar.

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Inflow of capital

Foreign financial indebtedness

Inflow and settlement through the foreign exchange market

Foreign financial indebtedness incurred by the private non-financial sector, the financial sector and Argentine local governments are no longer subject to the requirement of having the proceeds fromLiabilities Reporting Regime”). Under such indebtedness transferred and settled through the foreign exchange market (Communication “A” 6037).

Outflow of capital

Payment of interest, earnings, dividends, services and import of goods

No limitations are imposed to access the foreign exchange market to pay interests, earnings, dividends, services, import of goods and non-financial non-produced assets acquisition, under whichever concept it may be (shipping, insurance, royalties, technical advice, professional fees, etc.) abroad.

Non-residents have access to the foreign exchange market for payment of, among others, services, earnings and current transfers collected in Argentina according to the specific regulations that apply to non-residents to access the foreign exchange market.

Cancellation of services of foreign financial debts

In the case of access to the foreign exchange market for capital services of foreign financial indebtedness, including cancellation of financial standby arrangements granted by Argentine banking entities, applicable regulations require: (i) a sworn affidavit by the debtor confirming the presentation, if applicable, of the “Report of Issuances of Securities and Other Foreign Indebtedness of the Private Financial and Non-Financial Sector” established by Communication “A” 3602 (as amended and supplemented).

Transactions by non-residents

The New Regulations, as amended, sets forth the regulations applicable to access to the foreign exchange market by non-residents.

In this respect, financial entities can grant access to the foreign exchange market to non-residents. For this purpose, financial entities must require the taxing identification number of the non-resident client (or passport number for individuals) or the taxing identification number of the argentine resident who acts as a representative of the non-resident person, in this case, the representative must in addition inform to the financial entity the complete identification information of the non-resident.

Before accessing the foreign exchange market, the intervening authority must ensure that the requirements established by the regulations are complied with.

Reporting Regimes

Under the unified reporting regime, of direct investments and debt created by Communication “A” 6401 only Argentine residents (both legal entities or natural persons) whose flow of balance of foreign assets or debts flow or balance during the previous calendar year reachesequal to or exceedsin excess of the equivalent of US$1 million in Argentine Pesos are required to report foreign holdingholdings of (i) shares and other capital participations; (ii) debt; (iii) financial derivatives; and (iv) real estate, on an annual basis. Argentine residents whose flow or balance of foreign assets or debts reachesflow or exceedsbalance during the previous calendar year equal to or in excess of US$50 million in Pesos, are required to comply with these reporting obligations on a quarterly basis. From March 31, 2020, all residents with external liabilities at the end of any quarter, or residents who have cancelled any of” its external liabilities during such period, must file the report within 45 calendar days from the end of the quarter.

Residents whose foreign assets or debts flow or balance equal to or in excess of the equivalent of US$50 million in Argentine Pesos shall complyat the end of each calendar year, are required to file within 180 calendar days from December 31, an annual report where supplements, amendments or confirmation of information contained in previously quarterly filings can be included.

Access to the foreign exchange market for repayment of external financial indebtedness and other transactions are conditioned to the debtor’s compliance with the report on a quarterly basis.External Assets and Liabilities Reporting Regime.

 

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Specific provisions for inward remittances

TAXATIONRepatriation and settlement of the proceeds of exports of goods.

 

In accordance with Section 7.1 of Communication “A” 6844 of the BCRA, as amended, exporters must repatriate, and settle for Pesos through the MULC, the proceeds of their exports of goods cleared through customs as from September 2, 2019.

Although Communication “A” 6844, maintains the obligation to bring export proceeds to Argentina through the MULC, in accordance with Section 2.6 of said Communication, exporters are authorized to avoid the settlement for pesos to the extent all of the following conditions are met: (a) funds are credited to foreign-denominated accounts in the name of the exporter, opened at local banks; (b) the proceeds are repatriated to Argentina within the applicable time period established by the BCRA; (c) funds are simultaneously applied to conduct payments for which regulations allow access to the MULC, subject to applicable limitations; (d) if funds are proceeds of new foreign financial indebtedness and are applied to prepay foreign currency-denominated debt with local financial entities, such new foreign financial indebtedness must have a weighted average life greater than the prepaid local indebtedness, and (e) the application of this exception mechanism is tax-neutral.

Amounts collected in foreign currency for insurance claims related to the exported goods must also be repatriated and settled in Pesos in the MULC, up to the amount of the insured exported goods.

Moreover, through Section 8 of Communication “A” 6844, the BCRA reinstated the export proceeds monitoring system, setting forth rules governing such monitoring process and exceptions thereof. Exporters will need to appoint a financial entity in charge of monitoring compliance with the aforementioned obligations. Decree No. 661/19 clarified that the collection of the export benefits set forth under the Argentine Customs Code shall be subject to the exporter complying with the repatriation and Peso settlement obligations imposed by the new regulations.

The regulations authorize the application of export proceeds to the repayment of: (i) pre-export financings and export financings granted or guaranteed by local financial entities; (ii) foreign pre-export financings and export advances settled in the MULC, provided that the relevant transactions were entered into through public deeds or public registries; (iii) financings granted by local financial entities to foreign importers; and (iv) financial indebtedness under contracts executed prior to August 31, 2019 providing for cancellation thereof through the application abroad of export proceeds. The application of export proceeds to the repayment of other indebtedness shall be subject to BCRA approval.

By means of Communication “A” 7123 dated October 1, 2020, the BCRA decided to admit the use of collections of foreign currency resulting from exports of goods and services to (i) payment of capital and interest on financial indebtedness with foreign creditors whose average life, considering payments of capital and interest services, is not less than one year; and (ii) repatriation of foreign investors’ direct investments in companies that do not control local financial entities, to the extent that the repatriation occurs after the date of completion and implementation of the investment project and, at least, one year after the entry of the capital contribution in the exchange market.

These operations may be carried out in the event that the exchange regulations set forth in such Communication with respect to destination of the funds, entry and settlement of the funds in the exchange market, and monitoring of the operation by a local financial entity are met. 

Moreover, by means of Communication “A” 7138 dated October 15, 2020, the BCRA made certain adjustments to the foreign exchange regulations in force.

In this regard, the special regime set forth by Communication “A” 7123 (which allows the application of foreign exchange charges for exports of goods and services directly to the payment of principal, interest and/or dividends) now includes (i) new issuance of debt securities with public registry in the country denominated in foreign currency which meet the conditions set forth in Section 3.6.4. of the rules of “Foreign Exchange” with an average life of one year considering the maturities of principal and interest (subject to compliance of requirements under Section 1.1.of Communication “A” 7123); (ii) payment of new debt or repatriation of direct investments which funds have been entered and settled in the foreign exchange market and have made it possible to reach the parameters provided for in the refinancing scheme set forth in Communication “A” 7106; and (iii) the issuance of new debt securities with public registry in the country or abroad, issued on or after October 9, 2020, with an average life of no less than two years, allowing creditors receiving such securities to meet the parameters foreseen in the aforementioned refinancing scheme.

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Obligation to repatriate and settle in Pesos the proceeds from exports of services

Section 2.2 of Communication “A” 6844 imposes to exporters the obligation to repatriate, and settle in the MULC, the proceeds from exports of services within 5 business days following either the perception of funds in the country or abroad, or their accreditation in foreign accounts.

As to the use of collections of foreign currency resulting from exports and services, please refer to the descriptions of the BCRA Communications “A” 7,123 and 7,138 included above.

Sale of non-financial non-produced assets

Pursuant of Section 2.3 of Communication “A” 6844, the proceeds in foreign currency of the sale of non-financial non-produced assets must be repatriated and settled in Pesos in the MULC within 5 business days following either the perception of funds in the country or abroad, or their accreditation in foreign accounts.

External financial indebtedness

Pursuant to the new regulations, servicing of foreign financial debt (disbursed after September 1, 2019) with access to the foreign exchange market for the payment of principal and interest thereunder, is subject to prior compliance with the requirement that the proceeds of such foreign financial debt must be transferred to the Argentine financial system and liquidated through the foreign exchange market. However, such requirement will not apply to the extent all of the following conditions are met: (a) funds are credited to foreign-denominated accounts in the name of the borrower, opened at local banks; (b) proceeds are repatriated to Argentina within the applicable time period established by the BCRA; (c) funds are simultaneously applied to conduct payments for which regulations allow access to the foreign exchange market, subject to applicable limitations; (d) if funds are proceeds of new foreign financial indebtedness and are applied to prepay foreign currency-denominated debt with local financial entities, such new foreign financial indebtedness must have a weighted average life greater than the prepaid local indebtedness, and (e) the application of this exception mechanism is tax-neutral.

Furthermore, access to the foreign exchange market for the prepayment of foreign financial indebtedness requires prior approval of the BCRA for prepayments taking place more than three business days prior to the scheduled repayment date, except if all of the following conditions are met: (i) the prepayment takes place simultaneously with the liquidation on the foreign exchange market of the proceeds of the new indebtedness denominated in foreign currency to Pesos; (ii) the new indebtedness has a weighted average life greater than the outstanding debt being prepaid; and (iii) the new indebtedness’s first principal payment shall (a) take place on or after the original maturity date; and (b) the principal amount of the new indebtedness shall not be greater than the original principal amount.

The BCRA Communication “A” 7,030, and its amendments, established the prior agreement of the BCRA, until October 31, 2020 (then extended by Communication 7,151 until December 31, 2020), for the cancellation of capital services of financial debts with abroad, provided that the creditor is a related counterparty.

In addition, Communication “A” 7,030, as amended, established the prior approval of the BCRA for certain outflow of funds through the foreign exchange market, unless the entity has an affidavit from the client stating that at the time of access to the foreign exchange market:

(a) All of its local foreign currency holdings are deposited in accounts in financial institutions and that it did not have liquid external assets available at the beginning of the day that access to the foreign exchange market is requested for a higher amount equivalent to US$ 100,000 (with some exceptions, expressly provided for by the regulation).

(b) Undertakes to settle in Pesos through the foreign exchange market, within five working days of its availability, those funds received abroad resulting from the collection of loans granted to third parties, the collection of a term deposit or the sale of any type of asset, when the asset has been acquired, the deposit constituted or the loan granted after May 28, 2020.

On the other hand, on June 11th, 2020, the BCRA issued the Communication “A” 7042, by means of which it relaxed some aspects of the restrictions imposed on the access to the official foreign exchange market that were established through Communications “A” 7001 and “A” 7030. 

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Firstly, the Communication canceled the requirement imposed on the beneficiaries of financing in Argentine Pesos to have the BCRA prior authorization in order to access to the MULC to cancel principal and/or interest on all types of foreign indebtedness pending as of March 19th, 2020, when the payment did not have an expiration date or whose expiration had operated prior to that date (provided by Communication “A” 6937, as amended).

Secondly, although the 90-day term for not carrying out sale operations of securities against foreign currency or transfers to depository institutions abroad before and after the date of access to the MULC is maintained, the Communication established that this rule will only apply to the abovementioned sale operations carried out since May 1st, 2020. Therefore, those entities that carried out these operations during April (when Communication “A” 7001 had not been issued yet), will not be restricted from accessing the MULC because of these operations.

Regarding the requirement of non-existence of available liquid external assets that was imposed by Point 1 of Communication “A” 7030, the Communication introduces a series of exceptions:

·         Access to the MULC is allowed when available liquid external assets do not exceed an amount equivalent to US$ 100,000.

·         The amount mentioned in the previous point may be exceeded provided the amount in excess (a) is used on the same date to make payments that would have had access to the local exchange market; (b) is transferred in favor of the customer to a correspondent account of a local entity that holds a foreign exchange authorization; (c) consists in funds deposited in foreign bank accounts that result from collections of exports of goods and/or services or advances, pre-financing or post-financing of exports of goods granted by non-residents, or the sale of non-produced non-financial assets; for which the 5-working day period has not elapsed; or (d) consists in funds deposited in foreign bank accounts resulting from financial indebtedness obtained abroad and its amount does not exceed the equivalent to be paid for principal and interests in the next 120 calendar days.

·         It is pointed out that funds deposited abroad that cannot be used by the customer because they are reserve funds or guarantee funds set up in accordance with the requirements of foreign indebtedness agreements or funds set up to guarantee foreign derivative transactions will not be considered as external liquid assets.

Additionally, Communication “A” 7,106 established the requirement, for those who register scheduled capital maturities between October 15, 2020 and March 31, 2021 with creditors that are not related counterparties, to submit to the BCRA a detail of a refinancing plan complying with certain criteria established in the said Communication. Specifically, the BCRA will grant access to companies for an amount up to 40% of maturities and companies must refinance the rest for a term of at least 2 years. This, provided that the amount for which the exchange market would be accessed for the cancellation of principal exceeds the equivalent of US$ 2,000,000 per calendar month, with some exceptions, expressly provided for by the regulation.

Likewise, by means of Communication “A” 7133 published on October 9, 2020, the BCRA established that access to the foreign exchange market will be available up to 30 calendar days prior to the maturity date for the payment of principal and interest on foreign financial debts or debt securities publicly registered in the country and denominated in foreign currency, when the pre-cancellation is carried out as part of a debt refinancing process which meets the terms set out in point 7 of Communication “A” 7106 and the following conditions are verified: (a) the amount of interest paid does not exceed the amount of interest accrued on the refinanced debt up to the date the refinancing was closed; and (b) the principal amount of the new debt does not exceed the amount that would have accrued over the principal maturities of the refinanced debt.

In addition, said Communication provided that access to the foreign exchange market may be granted prior to the maturity date for the payment of interest on foreign financial debts or debt securities publicly registered in the country and denominated in foreign currency, when the pre-cancellation is made within the framework of an exchange process of debt securities issued by the client and all the conditions indicated in such Communication are verified. 

The same Communication also clarified that, in the context of the refinancing processes provided for in point 7 of Communication “A” 7106, the 40% capital limit for access to the exchange market may be increased to the same extent as the debtor's settlements on the exchange market as from October 9, 2020 for financial debts owed abroad, issues of debt securities registered with the public authorities abroad or issues of debt securities registered with the public authorities in the country and denominated in foreign currency (in the latter case, provided that they meet the conditions laid down in point 3.6.4 of the foreign exchange regulations.

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Finally, the Communication established that for new debt securities with a public register in the country or abroad, issued as from October 9, 2020 in the framework of the refinancing processes provided for in point 7 of Communication “A” 7106, the requirement of foreign currency settlement for the purposes of access to the foreign exchange market for the cancellation of its capital and interest services will be deemed to be fulfilled. In this way, the BCRA would be ensuring that new securities issued under these exchange processes would have access to the foreign exchange market, even if there was no foreign exchange settlement from the issue.

On the other hand, Communication “A” 7123 provided that BCRA’s prior consent to access the exchange market will not be required in the following cases:

·               Repatriation of foreign direct investments in companies that do not control local financial entities, insofar as the capital contribution has been entered and settled in the foreign exchange market as of October 2, 2020 and the repatriation takes place at least two years after entry.

·              Payment at maturity of the principal of foreign financial indebtedness of the non-financial private sector when the creditor is a counterpart linked to the debtor, insofar as the funds have been entered and settled in the foreign exchange market as of October 2, 2020 and the indebtedness has an average life of no less than 2 (two) years.

Duly registered securities that are denominated and payable in foreign currency in Argentina

As of November 29, 2019, in accordance with Section 2.5 of the Communication “A” 6844 issued by the BCRA, resident issuers are granted access to the MULC for the payment at maturity of principal and interest under new duly registered issuances of debt securities that are denominated and payable in foreign currency in Argentina, to the extent they (i) are fully subscribed in foreign currency, and (ii) the proceeds from the issuance are settled through the MULC. However, regarding the settlement of the proceeds from the issuance shall not constitute a condition for future access to the MULC for repayment of domestic issuances as provided in (ii) above, to the extent the conditions set forth in BCRA Communication “A” 6814 are met (i.e., the proceeds are deposited in a local foreign currency-denominated bank accounts and are simultaneously applied to transactions having access to the MULC, and the deal has no tax impact, among others).

Payments of local debt securities denominated in foreign currency among residents

In accordance with Section 3.6 of Communication “A” 6844, access to the MULC for the payment of foreign currency denominated obligations between Argentine residents executed from September 1, 2019 is prohibited. With regard to preexisting transactions, access is authorized; provided that the relevant transactions were entered into through public deeds or public registries. This prohibition does not apply to loans in foreign currency granted by local financial entities, including payments of credit cards, the issuance of debt securities for the refinancing of the debt transactions entered into through public deeds or public registries on or before August 30, 2019, and the issuance of debt securities denominated in foreign currency with public registry as from November 29, 2019, to the extent the proceeds obtained have been settled through the MULC.

Moreover, in accordance with Section 2.5 of the Communication “A” 6844 Bank, resident issuers are granted access to the MULC for the payment at maturity of principal and interest under new duly registered issuances of debt securities that are denominated and payable in foreign currency in Argentina, to the extent they (i) are fully subscribed in foreign currency, and (ii) the proceeds from the issuance are settled through the MULC. However, regarding the settlement of the proceeds from the issuance shall not constitute a condition for future access to the MULC for repayment of domestic issuances as provided in (ii) above, to the extent the conditions set forth in BCRA Communication “A” 6814 are met (i.e., the proceeds are deposited in a local foreign currency-denominated bank accounts and are simultaneously applied to transactions having access to the MULC, and the deal has no tax impact, among others).

Access to the foreign exchange market by security trusts for principal and interest payments

As imposed by Section 3.7 of Communication “A” 6844, local trusts created to guarantee principal and interest payments by resident debtors may access the MULC in order to make such payments at their scheduled maturity, to the extent that, pursuant to the current applicable regulations, the debtor would have had access to the MULC to make such payments directly. Also, subject to certain conditions, a fiduciary may access the MULC to guarantee certain capital payments and interest on financial debt abroad and anticipate access to it.

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Specific Provisions Regarding Outflow of Funds

Pursuant to Communication “A” 7,001, as amended by Communication “A” 7030, the BCRA established certain restrictions to carry out sales of securities via the settlement of foreign currency and its transfer to depository institutions abroad. In this connection, in order to carry out any outflow of funds, the entity must:

(i) request the prior approval of the BCRA; or

(ii) rely on an affidavit stating that the client did not carry out neither sales of securities via the settlement of foreign currency nor its transfer to foreign depository entities on the day that access to the foreign exchange market was requested and within 90 days prior to such request, as well as that the customer undertakes not to carry out such transactions from the date access to the foreign exchange market is requested and for the subsequent 90 calendar days.

In addition, Communication “A” 7030, as amended, established the prior approval of the BCRA for certain outflow of funds through the foreign exchange market, unless the entity has an affidavit from the client stating that at the time of access to the foreign exchange market:

(a) All of its local foreign currency holdings are deposited in accounts in financial institutions and that it did not have liquid external assets available at the beginning of the day that access to the foreign exchange market is requested for a higher amount equivalent to US$ 100,000 (with some exceptions, expressly provided for by the regulation).

(b) Undertakes to settle in pesos through the foreign exchange market, within five working days of its availability, those funds received abroad resulting from the collection of loans granted to third parties, the collection of a term deposit or the sale of any type of asset, when the asset has been acquired, the deposit constituted or the loan granted after May 28, 2020.

On the other hand, on June 11th, 2020, the BCRA issued the Communication “A” 7042, by means of which it relaxed some aspects of the restrictions imposed on the access to the official foreign exchange market that were established pursuant to Communications “A” 7001 and “A” 7030. 

Firstly, the Communication canceled the requirement imposed on the beneficiaries of financing in Argentine Pesos to have the BCRA prior authorization in order to access to the MULC to cancel principal and/or interest on all types of foreign indebtedness pending as of March 19th, 2020, when the payment did not have an expiration date or whose expiration had operated prior to that date (provided by Communication “A” 6937, as amended).

Secondly, although the 90-day term for not carrying out sale operations of securities against foreign currency or transfers to depository institutions abroad before and after the date of access to the MULC is maintained, the Communication established that this rule will only apply to the abovementioned sale operations carried out since May 1st, 2020. Therefore, those entities that carried out these operations during April (when Communication “A” 7001 had not been issued yet), will not be restricted from accessing the MULC because of these operations.

Regarding the requirement of non-existence of available liquid external assets that was imposed by Point 1 of Communication “A” 7030, the Communication introduces a series of exceptions:

·               Access to the MULC is allowed when available liquid external assets do not exceed an amount equivalent to US$ 100,000.

·              The amount mentioned in the previous point may be exceeded provided the amount in excess (a) is used on the same date to make payments that would have had access to the local exchange market; (b) is transferred in favor of the customer to a correspondent account of a local entity that holds a foreign exchange authorization; (c) consists in funds deposited in foreign bank accounts that result from collections of exports of goods and/or services or advances, pre-financing or post-financing of exports of goods granted by non-residents, or the sale of non-produced non-financial assets; for which the 5-working day period has not elapsed; or (d) consists in funds deposited in foreign bank accounts resulting from financial indebtedness obtained abroad and its amount does not exceed the equivalent to be paid for principal and interests in the next 120 calendar days.

·              It is pointed out that funds deposited abroad that cannot be used by the customer because they are reserve funds or guarantee funds set up in accordance with the requirements of foreign indebtedness agreements or funds set up to guarantee foreign derivative transactions will not be considered as external liquid assets.

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Repayment of principal and interest of imports of goods and services.

Pursuant to Section 3.3 of Communication “A” 6844, access to the foreign exchange market for the repayment of principal and interest of imports of goods and services shall be granted, provided that the operation has been declared, if applicable, in the last overdue presentation of the External Assets and Liabilities Reporting.

Such Section of Communication “A” 6844 states that BCRA’s prior approval will be required to access the MULC for the repayment of debts for imports of goods and services prior to the maturity of such indebtedness.

The BCRA sets forth different requirements depending on whether it relates to the payment of imports of goods with customs clearance or the payments of import of goods pending customs clearance. As mentioned below, the imports and import payments monitoring system (SEPAIMPO) has been reinstated, setting forth rules governing such monitoring process and exceptions thereof. Importers will need to appoint a financial entity in charge of monitoring compliance with the aforementioned obligations.

In that sense, the local importer must designate a local financial entity to act as a monitoring bank, which will be responsible for verifying compliance with the applicable regulations, including, among others, the liquidation of import financing and the entry of imported goods.

Prior authorization by the BCRA is required for access to the MULC for payments of overdue or due to payment debts for imports of goods with related companies abroad when it exceeds the equivalent of US $ 2 million per month per resident customer, as stated by Section 3.13 of Communication “A” 6844.

Likewise, by means of Communication “A” 7030, the BCRA has significantly restricted, until June 30th, 2020 (such period then extended in several opportunities), the possibility of accessing the FX Market to make advance payments for imports of goods and financing of imports of non-officialized goods. In this regard, the importer must submit an affidavit evidencing that the total amount of payments for imports of goods made through the exchange market during the year 2020 (including the payment being requested and any payment for cancellations of credit lines and/or commercial import guarantees), does not exceed the amount that the importer registers as “officialized” in the “Import Payment Tracking” system (SEPAIMPO) between January 1st, 2020 and the day prior to the access to the exchange market. Payments with pending customs registration will only be allowed in specific cases of exception; for instance, when the amount pending of regularization by the client for similar payments made as of September 1st, 2019 (including the amount for which access to the exchange market is requested), does not exceed the equivalent of US$ 250,000.

On the other hand, the Communication “A” 7042 relaxed some restrictions regarding the payments of imports imposed by Communication “A” 7030, that were applicable until June 30th, 2020: 

·Restrictions imposed by Communication “A” 7030 will not apply to payments of imports of (i) pharmaceutical products and fertilizers and (ii) supplies for the local production of medicines, to the extent that such payments are deferred or on demand of operations that have been shipped on after June 12th, 2020 or that, having been shipped earlier, have not arrived to the country before that date.

·The general basket of payments of imports pending regularization by client made since September 1st, 2019, was increased to US$ 1,000,000 (including the amount for which access to the foreign exchange market is requested).

Moreover, by means of Communication “A” 7052, BCRA relaxed some aspects of the restrictions imposed on access to the MULC for payments of imports.

Firstly, the Communication extended until July 31st, 2020 the requirement to have BCRA prior consent to cancel capital services for financial indebtedness obtained abroad, when the creditor is a counterparty linked to the debtor.

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Secondly, the Communication also extended until July 31st, 2020 the limitations on making payments of imports of goods that had not been nationalized through Argentine Customs. However, in this regard, BCRA established that certain relaxations to these rules will come into effect on July 6th, 2020, namely:

·Restrictions will not apply to payments of imports to the extent that such payments are deferred or on demand of operations that have been shipped on after July 1st, 2020 or that, having been shipped earlier, have not arrived to the country before that date (clarifying that, for goods included in chapters 30 and 31 of the Mercosur Common Nomenclature (NCM), pharmaceutical products and fertilizers, and supplies for the local production of medicines, the relevant date will continue to be June 12th, 2020, as provided by Communication “A” 7042).

·It maintained at US$ 1,000,000 (including the amount for which access to the exchange market is requested) the general basket of payments of imports pending regularization by the client made since September 1st, 2019; but extended it to US$ 3,000,000 in case of payments of imports of products related to the provision of medicines or other goods related to the medical and/or health care of the population or inputs that are necessary for their local processing.

By means of Communication “A” 7094 dated August 27, 2020, the BCRA extended the deadline of Points 2 (special rules for the payment of imports) and 3 (restrictions on repayment of principal under financing owed to related parties) of Communication “A” 7030 (as amended and supplemented) until October 31, 2020.

 In addition, such Communication extended the exception set out in Point 1(a)(iv) of Communication “A” 7030 (as amended by Communication “A” 7042) by providing that the US$ 100,000 limit on liquid external assets contemplated therein, will not be considered to be exceeded if such excess is caused by the proceeds of financings deposited in offshore bank accounts, up to an amount equivalent to the principal and interest payments due and payable by the local entity during the immediately following 365 days (until now, the term was 120 days). 

By means of Communication “A” 7123 dated October 1, 2020, the BCRA amended the import regime and states that the amount for which the importer may access the exchange market, under the conditions set forth in point 2. of Communication "A" 7030 as supplemented, will be increased by the equivalent to 50% of the amounts that, as of October 2, 2020, the importer enters and settles in the exchange market for advances or pre-financing of exports with a minimum term of 180 days.

Moreover, by means of Communication “A” 7138 dated October 15, 2020, the BCRA established that the intervening entity must confirm that the importer has made the corresponding declaration through the Integral Import Monitoring System (Sistema Integral de Monitoreo de Importaciones, SIMI) in “UTPUT” status with respect to the goods involved (i) in all cases where such declaration is required to register the application for importation for consumption, or (ii) for the access to the foreign exchange market by local financial entities for the payment of letters of credit or secured letters issued or granted on or after October 16, 2020.

Furthermore, the Communication stated that, as of November 2, 2020, payments for imports of goods with pending customs revenue registration (payments on demand, payments of commercial debts abroad, or payment of commercial guarantees for imports of goods granted by local entities) made between September 2, 2019 and October 31, 2019, and which are not regularized, will be automatically considered to be in a state of delay.

Payment of services provided by non-residents

Pursuant to Section 3.2 of Communication A6488, residents may access the foreign exchange market for payment of services provided by non-residents (provided they are, unless expressly admitted, unrelated entities), for so long as such transaction has been reported, if applicable, pursuant to the External Assets and Liabilities Reporting Regime. Prior authorization from the BCRA is required for residents to access to the foreign exchange market for the repayment of debts or other liabilities in foreign currency to other residents.

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Payment of dividends and corporate profits

In accordance with Section 3.4 of Communication A6844, access is granted to the local foreign exchange market to pay dividends to non-resident shareholders, subject to the following conditions:

·Maximum amounts: The total amount of transfers executed through the MULC as of January 17, 2020 for payment of dividends to non-resident shareholders may not exceed 30% of the total value of the new capital contributions made in the local company that had been entered and settled through the MULC as of the abovementioned date. The total amount paid to non-resident shareholders shall not exceed the corresponding amount denominated in Argentine Pesos that was determined by the shareholders' meeting.

·Minimum Period: Access to the MULC will only be granted after a period of not less than thirty (30) calendar days has elapsed as from the date of the settlement of the last capital contribution that is taken into account for determining the 30% cap aforementioned.

·Documentation requirements: Dividends must be the result of closed and audited balance sheets. When requesting access to the MULC for this purpose, evidence of the definitive capitalization of the capital contribution must be provided or, in lack thereof, evidence of the initiation of the process of registration of the capital contribution before the IGJ shall be provided. In this case, evidence of the definitive capitalization shall be provided within 365 calendar days from the date of the initial filing with the Public Registry of Commerce. If applicable, the Information Regime on Foreign Assets and Liabilities shall have been complied with. Also, it be verified that the operation has been declared, if applicable, in the last overdue presentation of the External Assets and Liabilities Reporting.

Access to the MULC by other residents -excluding entities- for the formation of external assets and for derivatives transactions

Section 3.10 of Communication A6844, establishes that the access to the MULC by local governments, Common Investment Funds, trusts, other universalities established in the country for the build-up of foreign assets and for derivatives transactions requires prior authorization by the BCRA.

Derivatives transactions

Section 4.4 of Communication A6844 imposes to derivatives transactions, including payment of premium, constitution of guarantees and settlement of futures, forwards, options and other derivatives, held in the country -as of September 11, 2019- the obligation to be made in local currency.

Likewise, access to the MULC for the payment premiums and settlements, margins and other collateral in connection with interest rate hedge agreements for foreign debt declared and validated, if applicable, in the External Assets and Liabilities Reporting Regime, as long as such agreements do not cover higher risks than external liabilities of the recorded debtors interest rate risk being covered.

An entity authorized to operate in the MULC must be designated by the debtor to track the operation and an affidavit must be provided in which the debtor undertakes to repatriate and settled the funds into Pesos that are in favor of the local client as a result of such operation, or as a result of the release of the funds of the constituted as collateral, within the following 5 business days.

Other Specific Provisions

Access to the MULC for savings or investments purposes of individuals

Pursuant to Section 3.8 of Communication “A” 6844, as amended, Argentine residents may access the MULC for the purposes of external assets formation, family assistance or derivative operations (with some exceptions expressly mentioned) for up to US$200 (through debits to local bank accounts) or US$100 (in cash) per person per month through all authorized exchange entities. If the access entails a transfer of the funds abroad, the destination account must be an account owned by the same client.

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Likewise, by means of Communication “A” 7106 dated September 15, 2020, the BCRA made certain adjustments to the applicable foreign exchange regulations, including the following:

For human residents: 

1.       As of September 1, 2020, purchases made abroad with a debit card debited from local accounts in Pesos and amounts in foreign currency acquired by human persons for the payment of obligations between residents, including payments for credit card purchases in foreign currency, will be deducted, as of the subsequent month, from the US$ 200 quota for the purchase of foreign currency by human persons for the formation of foreign assets, family assistance and derivatives transactions.

2.       In order to access the foreign exchange market, human residents must sign an affidavit undertaking not to enter into securities transactions in the country with settlement in foreign currency from the moment they require to do so and for the following 90 calendar days.

3.       The holding period of at least 5 working days for securities acquired by human beings through settlement in foreign currency is eliminated. 

For non-residents, the sale in the country of securities with settlement in foreign currency is prohibited (except for sale of securities acquired in the country with settlement in foreign currency from September 16, 2020 which remain in the portfolio of the non-resident for a term of no less than a year).

Furthermore, the Communication states that transactions with securities made abroad and securities acquired abroad may not be settled in Pesos in the country.

Access to the MULC by non-residents

In accordance with Section 3.8 of Communication “A” 6844, BCRA prior approval will be required for access to the foreign exchange market by non-residents for the purchase of foreign currency. The operations of: (a) International organizations and institutions that perform functions of official export credit agencies, (b) Diplomatic representations and consular and diplomatic personnel accredited in the country for transfers made in the exercise of their functions, (c) Representatives in the country of Courts, Authorities or Offices, Special Missions, Commissions or Bilateral Bodies established by Treaties or International Agreements, in which the Argentine Republic is part, to the extent that transfers are made in the exercise of their functions, and (d) foreign transfers in the name of individuals who are beneficiaries of retirement and / or pensions paid by the Argentine Administración Nacional de la Seguridad Social (ANSES), for up to the amount paid by said agency in the calendar month and to the extent that the transfer is made to a bank account owned by the beneficiary in your registered country of residence.

Exchanges and arbitrage. Transactions involving securities

Pursuant to Section 4.2 of Communication “A” 6844, as amended, entities are allowed to carry out exchange and arbitrage operations with their clients in the following cases: (i) said operation is not subject to the MULC settlement obligation; (ii) an individual transfers funds from their local accounts in foreign currency to own bank accounts abroad (sworn statement must be submitted expressing that there has not been any sale of securities with local settlement in foreign currency within the last 5 business days), (iii) when foreign currency transfers by local central collective deposit securities for funds received in foreign currency for principal and interest services from National Treasury securities, (iv) arbitration operations not originated in foreign transfers provided that said funds are debited from an account in foreign currency of the client in a local entity, (v) may be carried out without the need to obtain prior BCRA approval, provided that if structured as separate transactions through the Peso, the same would have access to the MULC without BCRA authorization and (vi) foreign currency transfer by individuals from their local accounts in foreign currency to remittance accounts abroad for up to the equivalent of US$500 (five hundred US dollars) per calendar month in the aggregate (the entities must obtain a sworn statement from client stating that the transfer if for collaborate with the maintenance of Argentine residents who have had to stay abroad by virtue of the measures adopted within the framework of the COVID-19 pandemic).

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Blue Chip Swap Transactions

Entities authorized to operate on exchanges may not purchase securities in the secondary market with settlement in foreign currency or use holdings of their general exchange position for payments to local suppliers.

Pursuant to Communication “A” 7001, as amended by Communication “A” 7030, the BCRA established certain restrictions to carry out sales of securities via the settlement of foreign currency and its transfer to depository institutions abroad. In this connection, in order to carry out any outflow of funds, the entity must:

(i) request the prior approval of the BCRA; or

(ii) rely on an affidavit stating that the client did not carry out neither sales of securities via the settlement of foreign currency nor its transfer to foreign depository entities on the day that access to the foreign exchange market was requested and within 90 days prior to such request, as well as that the customer undertakes not to carry out such transactions from the date access to the foreign exchange market is requested and for the subsequent 90 calendar days.

Communication “A” 7030 extended to 90 days the terms set forth in Item 3 of Communication “A” 7001, in such a way that whoever intends to access the FX Market for the acquisition of foreign currency, must not have carried out foreign currency purchase transactions through the so-called "blue chip swap" (by means of contado con liquidación (CCL) or electronic payment (MEP)) within 90 days prior to the date of access to the FX market (or from April 1st, 2020, whichever is later), nor may they do so within 90 days after such date.

Foreign Exchange Criminal Regime

Any operation that does not comply with the provisions of the foreign exchange controls is reached by the Foreign Exchange Criminal Regime.

TAXATION

Argentine taxes

 

The following summary of certain Argentine tax matters is based upon the tax laws of Argentina and regulations thereunder as of the date of this Annual Report and is subject to any subsequent changes in Argentine laws and regulations which may come into effect after such date. This summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a holder of such securities. No assurance can be given that the courts or tax authorities responsible for the administration of the laws and regulations described in this Annual Report will agree with this interpretation. Holders should carefully read “Item 3—Key Information—Risk Factors—Risks Relating to Telecom Argentina’s Shares and ADSs—Changes in Argentine tax laws may adversely affect the tax treatment of our Class B Shares underlying ADSs or ADSs for transactions made until December 31, 2018”ADSs” in this Annual Report and consult their tax advisors regarding the tax treatment of the Class B Shares underlying ADSs and ADSs.

 

Taxation of Dividends

 

Pursuant to Law No. 26,893, dividends and other profits paid in cash or in kindnon-cash assets —except for stock dividends—by companies and other entities incorporated in Argentina referred to in the Argentine Income Tax Law (the “Income Tax Law”), Sections 69 (a)(1), (2), (3), (6) and (7), and Section 69(b), were subject to income tax at a 10% rate except for those beneficiaries that were domestic corporate taxpayers. Law No. 27,260 repealed this withholding tax as of July 23, 2016. Consequently, no withholding tax iswere to be levied on dividends distributed to either Argentine or non-Argentine resident shareholders since then. This treatment applies only to dividends to be distributed at any time out of retained earnings accumulated until the end of the last fiscal year starting before January 1, 2018.

 

Likewise, the portion of those dividends exceeding the company’s accumulated net taxable income (as determined by application of the Argentine Income Tax Law), if any, iswas subject to a 35% withholding tax on such excess (the “Equalization Tax”). For purpose of the Equalization Tax, the amount of accumulated net taxable income to be considered shall be determined by (1) deducting the income tax paid by the company, and (2) adding the dividends and profits not subject to tax received as distributions from other corporations. If the distribution is in-kind, then the corporation mustshould pay the tax to the Argentine tax authorities and willwould be entitled to seek reimbursement from the shareholders.

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Dividends to be distributed out of earnings accrued in fiscal years starting on or after January 1, 2018, are to be subject to a tax treatment different from the one previously described, based on the recent enactment of a comprehensive tax reform -Law No. 27,430-, published in the Official Gazette on December 29, 2017, and generally effective since January 1, 2018.

 

Pursuant to Law No. 27,430, amended by Law No. 27,541, published in the Official Gazette on December 23, 2019, dividends and other profits paid in cash or in kindnon-cash assets —except for stock dividends—by companies and other entities incorporated in Argentina referred to in the Argentine Income Tax Law (the “Income Tax Law”), Sections 6973 (O.T 2019) (a)(1), (2), (3), (6), (7) and (8), and Section 69(b)73(b) out of retained earnings accumulated in fiscal years starting on or after January 1, 2018, will be subject to withholding tax at a 7% rate (on profits accrued during fiscal years starting January 1, 2018 to December 31 2019)2020), and at a 13% rate (on profits accrued in fiscal years starting January 1, 20202021 and onwards), provided that they are distributed to Argentine resident individuals and foreign shareholders.

No dividend withholding tax applies if dividends are distributed to the aforementioned Argentine corporate entities required to assess the dividend withholding tax. In addition, the Equalization Tax is not applicable to this dividends .these dividends.

 

Income Tax - Capital gains

 

The results derived from the transfer of shares and other equity interests, bonds and other securities of Argentine companies are subject to Argentine capital gains tax, regardless of the type of beneficiary who realizes the gains.

a.Argentine corporate´s capital gains tax

  

Capital gains obtained by Argentine corporate taxpayers (in general, entities organized or incorporated under Argentine law and local branches of non-Argentine entities) derived from the sale, exchange or other disposition of shares are subject to income tax at the corporate rate on net income. Recently, Law No. 27,430 decreased the corporate income tax rate from 35% to 30% for fiscal years beginning on January 1, 2018 to December 31, 2019, and to 25% for fiscal years beginning on January 1, 2020 and onwards.

  

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Individual resident’s capital gains tax

Individual resident’s capital gains tax

  

Law NoNo. 27,430 established that as from January 1, 2018, gains realized by Argentine resident individuals (except for sole companies or commission agents) from the sale, transfer or disposition of shares, securities representing shares and certificates of deposit of shares are exempt from capital gains tax in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares arewere traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV. For periods prior to 2018, it is currently under discussion the extent of the exemption (established by Law No. 26,893 and its implementing decree 2334/2013)Decree No. 2,334/13) applicable to the sale of shares and other securities through a stock exchange market, so as to determine whether it applies only sales of securities made in stock exchanges duly authorized by the CNV or in any stock exchanges.

 

Pursuant Income Tax Regulatory Decree N° 1170/2018(O.T 2019), the conversion process by which individual residents change ADRs by excepted shares, will be considered a levied transaction at its value market price.

 

Nonresident’s capital gains tax

c.Nonresident’s capital gains tax

  

Pursuant to Law No. 26,893, capital gains obtained by non-Argentine residents from the sale, exchange or other disposition of shares and other equity interests, bonds and other securities of Argentine companies were subject to capital gains tax until December 30, 2017, even if those transactions were entered into between nonresidents.

 

PART I - ITEM 10 ADDITIONAL INFORMATIONTELECOM ARGENTINA S.A.


Law NoNo. 27,430 provides that the capital gains tax applicable to nonresidents for transactions entered into between September 23, 2013 (when Law No. 26,893 became effective) and December 30, 2017, is still due and furthersubsequent regulations stated the mechanism to have it paid. However, no taxes will be claimed to nonresidents with respect to past sales of Argentine shares or other securities traded in CNV’s authorized markets (such as ADSs) as long as the cause of the non-payment was the absence of regulations stating the mechanism of tax collection at the time the transaction was closed. AFIP General Resolution (AFIP) 4.227,No. 4,227, which came into effect on April 26, 2018, stipulates that the income tax should be paid to the AFIP under the following procedures: (i) in case the securities were sold through an Argentine stock exchange market, and the withholding has been made, then the withholder must pay the tax, (ii) in case the securities were sold but not through an Argentine stock exchange market and there is an Argentine buyer involved, then the Argentine buyer should pay the income tax; and (iii) when both the seller and the buyer were foreign beneficiaries and the sale was not performed through an Argentine stock exchange market, the person liable for the tax is the buyer and the payment shall be made through an international bank via wire transfer to the AFIP. The payment of capital gains tax applicable for transactions entered into before December 30, 2017 was due on June 11, 2018.

 

In turn, Law No. 27,430 and the income tax regulatory Decree 279/2018,(O.T 2019), maintain the 15% capital gains tax (calculated on the actual net gain or a presumed net gain equal to 90% of the sale price) on the disposal of shares or securities by nonresidents. However, nonresidents are exempt from the capital gains tax on gains realized from the sale of (a) Argentine shares in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares were traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV; and (b) depositary shares or depositary receipts issued abroad, when the underlying securities are shares (i) issued by Argentine companies, and (ii) with authorization of public offering. The exemptions will only apply to the extent the foreign beneficiaries reside in, or the funds used for the investment proceed from, jurisdictions considered as cooperating for purposes of the exchange of tax information.

 

In addition, it is clarified that, from 2018 onward, gains from the sale of ADSs will be treated as from Argentine source.

 

In case the exemption is not applicable and, to the extent foreign beneficiaries do not reside in, or the funds do not arise from, jurisdictions not considered as cooperative for purposes of fiscal transparency, the gain realized from the disposition of shares would be subject to Argentine income tax at a 15% rate on the net capital gain or at a 13.5% effective rate on the gross price. In case such foreign beneficiaries reside in, or the funds arise from, jurisdictions not considerdconsidered as cooperative for purposes of fiscal transparency, a 35% tax rate on the net capital cagingain or at a 31.5% effective rate on the gross price should apply. As perOn December 9, 2019, the law, the Executive Power will beofficial list of "non-cooperating" jurisdictions for tax purposes was published by means of Decree No. 682/19. Argentine tax authorities are required to publish areport any news to the Ministry of Finance to modify this list

1. Bosnia and Herzegovina

2. Brecqhou

3. Burkina Faso

4. State of “non-cooperating” jurisdictions. Meanwhile, to determine if a jurisdiction is “cooperating or not,” the list published by AFIP according to Decree 589/2013 should be consulted.Eritrea

5. Vatican City State

6. State of Libya

7. Independent State of Papua New Guinea

8. Plurinational State of Bolivia

9. British Overseas Territories Saint Helena, Ascension and Tristan da Cunha

10. Sark Island

12. Solomon Islands

13. Federated States of Micronesia

14. Mongolia

15. Montenegro

16. Kingdom of Bhutan

17. Kingdom of Cambodia

18. Kingdom of Lesotho

19. Kingdom of Eswatini (Swaziland)

20. Kingdom of Thailand

21. Kingdom of Tonga

22. Hashemite Kingdom of Jordan

23. Kyrgyz Republic

24. Arab Republic of Egypt 

 

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TELECOM ARGENTINA S.A.


25. Syrian Arab Republic

26. People´s Democratic Republic of Algeria

27. Central African Republic

28. Cooperative Republic of Guyana

29. Republic of Angola

30. Republic of Belarus

31. Republic of Botswana

32. Republic of Burundi

33. Republic of Cabo Verde

34. Republic of Côte d'Ivoire

35. Republic of Cuba

36. Republic of the Philippines

37. Republic of Fiji

38. Republic of The Gambia

39. Republic of Guinea

40. Republic of Equatorial Guinea

41. Republic of Guinea-Bissau

42. Republic of Haiti

43. Republic of Honduras

44. Republic of Iraq

45. Republic of Kenya

46. Republic of Kiribati

47. Republic of the Union of Myanmar

48. Republic of Liberia

49. Republic of Madagascar

50. Republic of Malawi

51. Republic of Maldives

52. Republic of Mali

53. Republic of Mozambique

54. Republic of Namibia

55. Republic of Nicaragua

56. Republic of Palau

57. Republic of Rwanda

58. Republic of Sierra Leone

59. Republic of South Sudan

60. Republic of Suriname

61. Republic of Tajikistan

62. Republic of Trinidad and Tobago

63. Republic of Uzbekistan

64. Republic of Yemen

65. Republic of Djibouti

66. Republic of Zambia

67. Republic of Zimbabwe

68. Republic of Chad

69. Republic of the Niger

70. Republic of Paraguay

71. Republic of the Sudan

72. Democratic Republic of São Tomé and Príncipe

73. Democratic Republic of Timor-Leste

74. Republic of the Congo

75. Democratic Republic of the Congo

76. Federal Democratic Republic of Ethiopia

77. Lao People's Democratic Republic

78. Democratic Socialist Republic of Sri Lanka

79. Federal Republic of Somalia

80. Federal Democratic Republic of Nepal

81. Gabonese Republic

PART I - ITEM 10 ADDITIONAL INFORMATIONTELECOM ARGENTINA S.A.


82. Islamic Republic of Afghanistan

83. Islamic Republic of Iran

84. Islamic Republic of Mauritania

85. People's Republic of Bangladesh

86. Republic of Benin

87. Democratic People's Republic of Korea

88. Socialist Republic of Vietnam

89. Togolese Republic

90. United Republic of Tanzania

91. Sultanate of Oman

92. British Overseas Territory Pitcairn, Henderson, Ducie and Oeno Islands

94. Tuvalu

95. Union of the Comoros

In such scenarios, according to AFIP General Resolution (AFIP) 4227,No. 4,227, the income tax should be withheld and paid to the AFIP under the following procedures: (i) in case the securities were sold by a foreign beneficiary, through an Argentine stock exchange market, the custodian entity should withhold and pay the tax if it is involved in the payment process; if it is not involved in the payment process but there is an Argentine buyer involved, the Argentine buyer should withhold the income tax (ii) in case the securities were sold by a foreign beneficiary, but not through an Argentine stock exchange market and there is an Argentine buyer involved, the Argentine buyer should withhold the income tax; and (iii) when both the seller and the buyer are foreign beneficiaries and the sale is not performed through an Argentine stock exchange market, the person liable for the tax shall be the legal representative of the seller of the shares or securities being transferred or directly by the seller, in the event that there was no local legal representative. In this case, the payment shall be made through an international bank via wire transfer to the AFIP.

 

Holders are encouraged to consult a tax advisor as to the particular Argentine income tax consequences derived from the holding and disposing of ADSs or Class B Shares.

 

Personal assets tax

 

Argentine companies, such as us, have to assess and pay the personal assets tax corresponding to their shareholders that are Argentine individuals and non-Argentine resident persons. The tax rate in effect through December 31, 2015 was 0.50%. As of December 31, 2016, Law No. 27,260 lowered the rate to 0.25%, which is to be assessed on the proportional net worth value (valor patrimonial proporcional), of the shares as per the Argentine entity’s last financial statements prepared under Argentine GAAP. Pursuant to the Personal Assets Tax Law, the Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine domiciled individuals and/or foreign domiciled shareholders.

 

Pursuant to Law No. 27,260, Argentine companies that have properly fulfilled their tax obligations during the two fiscal year periods prior to the 2016 fiscal year and comply with other requirements may qualify for an exemption from the personal assets tax for the 2016, 2017 and 2018 fiscal years. The request for this tax exemption should be filed before March 31, 2017. Telecom Argentina has already filed this request and has been granted the exemption for the referred fiscal years. Notwithstanding, in the future, Telecom Argentina may not be exempt from the payment of the personal assets tax.

 

AsPursuant to Law No. 27,541, as of December 31, 2020 and 2019, the tax rate is 0.50%, which is to be assessed on the proportional net worth value (valor patrimonial proporcional), of the shares as per the Argentine entity’s last financial statements prepared under Argentine GAAP. Pursuant to the Personal Assets Tax Law, the Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine domiciled individuals and/or foreign domiciled shareholders.

Extraordinary tax on wealth

On December 18, 2020,  Law No. 27,605 was published in the Official Gazette, which creates an extraordinary and one-time tax on wealth (also known as “Aporte Extraordinario y Solidario Para Ayudar a Morigerar los Efectos de la Pandemia'”) in order to face the effects of the coronavirus pandemic. 

The extraordinary tax on wealth applies to individuals and undivided estates with assets of P$200 million or more as of the date of entry into force of the law, valued according to the rules of  the Personal Assets Tax law, regardless the treatment those assets have on that tax, with no deduction of non-taxable minimum amounts.

Individuals and undivided estates (entities are excluded), residents of Argentina, are taxed on their assets located in Argentina and abroad.

PART I - ITEM 10 ADDITIONAL INFORMATIONTELECOM ARGENTINA S.A.


Argentine nationals with domicile or residence in non-cooperating or  low or non-taxation jurisdictions are considered as residents for purposes of  the extraordinary tax on wealth.

For resident taxpayers, the taxable assets also include all contributions to trusts or private interest foundations and other similar structures, participation in companies or other entities of any type -without tax personality and direct or indirect participation in companies, or other entities of any type-, existing as of the date of entry into force of the law.

Non-resident individuals and undivided estates are taxed only on their assets located in Argentina.

Residency of taxpayers is determined according to the legal criteria established in Sections 116 to 123 of Income Tax Law as of December 31, 2019.

The law provides that, when variations in assets subject to the tax during the 180 days immediately preceding the enactment of the law may lead to presume an intent to evade or avoid the tax, AFIP may, except evidence to the contrary, include those assets in the tax base.

The law provides for tax rates ranging from 2% up to 3.5% for assets located in Argentina, and  3% and 5.25% for foreign assets. Therefore, the payable tax may start at P$4 million. The special tax rates related to foreign assets will not apply in case of repatriation to Argentina of (i) cash, and (ii) the taxpayer’s financial assets or their proceeds, which represent at least 30% of such assets, within 60 days from the date of entry into force of the law.

On January 29, 2021, Decree No. 42/21 was published in the Official Gazette, regulating new extraordinary tax on wealth. Decree No. 42/21 allows taxpayers to value their local companies shares (governed by GCL) to be included on the taxable base under one of two options:

1)Consider the difference between assets and liabilities as of December 18, 2020, according to the financial statement prepared as of that date and only for this purpose, or
2)Consider the Company’s equity for the last financial year ended prior to December 18, 2020.

Option 1) should be used if option 2) does not generate an amount to be paid, and if the percentage of the shares has varied between the closing date of the last financial year ended prior December 18, 2020 and that date. The chosen option will apply to all shares held in different entities. Local entities in which taxpayers hold shares must provide information on the valuation of the shares.

On February 8, 2021, AFIP Resolution No. 4,930/21 was published in the Official Gazette. AFIP Resolution No. 4,930/21 governs certain aspects of the aforementioned extraordinary tax on wealth, in addition to the provisions of Decree No. 42/21. AFIP Resolution No. 4,930/21 compels taxpayers assess and pay the tax on wealth before March, 30, 2021. In addition, AFIP implemented a new regime that  analyzes variations in net worth that may have occurred within 180 days prior to the entry into force of Law No. 27,605, with a view to avoiding any evasive schemes derived from such variations. The following taxpayers must report their assets as of March 20, 2020:

a) Taxpayers of extraordinary tax on wealth;

b) Taxpayers not included in a), whose assets as of December 31, 2019 were valued -according to the rate at which Argentine companies,Personal Assets Tax’s affidavit of such fiscal period- in an amount equal to or above P$130,000,000; and

c) Taxpayers not included in a), whose assets as us, haveof December 31, 2018 were valued -according to assessthe Personal Assets Tax’s affidavit of such fiscal period- in an amount equal to or above P$80,000,000.

Both taxpayers included in b) and pay the personalc) above must report their assets tax corresponding to their shareholders that are Argentine individualsas of December 18, 2020.

Their informative affidavits must be submitted online between March 22, 2021 and non-Argentine resident persons (natural and legal persons) will be 0.25%.April 30, 2021.

  

Value added tax

 

The sale, exchange or other disposition of Telecom Argentina shares and ADSs, and the distribution of dividends in connection therewith are exempted from the value added tax.

 

PART I - ITEM 10 ADDITIONAL INFORMATIONTELECOM ARGENTINA S.A.


Tax on deposits to and withdrawals from bank accounts

 

The tax on deposits to and withdrawals from bank accounts under Law No. 21,526 applies to certain deposits to and withdrawals from bank accounts with Argentine financial institutions and to other transactions that, due to their special nature and characteristics, are similar or could be used in lieu of a deposit to or withdrawal from a bank account. Therefore, any deposit to or withdrawal from a bank account opened in an institution regulated by Law No. 21,526, or any transaction deemed to be used in lieu of a deposit to or withdrawal from a bank account, is subject to the tax on deposits and withdrawals, unless a particular exemption is applicable. The tax rate in effect since August 1, 2001 has been 0.6% of the transaction volume.

 

Decree No. 534/04 provides that owners of bank accounts subject to the general tax rate of 0.6% may take into account as a tax credit of 34% of the tax originated in credits on such bank accounts. This amount may be computed as a credit for the income tax and tax on minimum presumed income. The amount computed as a credit is not deductible for income tax purposes.

 

Pursuant to Law NoNo. 27,432 The National Executive Powerthe PEN may decide that the percentage of the tax that on the date of entry into force of this law iswas not computable as payment on account of income tax as of the date this Law became effective, will be progressively reduced by up to twenty percent (20%) per year as of January 1, 2018, and also may decide that, in 2022, the tax provided for in Law No. 25,413 and its amendments as a payment on account of income tax will be computed in full.fully computed.

 

PART I - ITEM 10 ADDITIONAL INFORMATION

TELECOM ARGENTINA S.A.

On May 7, 2018, Decree No. 409/201818 was published. It established that for transactions reached at the general tax rate, it can be take into accountcomputed as a tax credit the 33% of the tax originated in both the accredited amounts and the debited amounts and for the other taxable events achieved by the tax. In the case of operations taxed at a reduced rate, the computation as credit of the tax will be 20%.

 

These provisions are applicable to advances and balances of income tax corresponding to fiscal periods beginning on or after January 1, 2018, for tax credits originated in taxable events that occurred since that date.

 

Tax on minimum presumed income

Companies located in Argentina are required to pay an amount equal to the greater of the income tax or the tax on minimum presumed income. The tax on minimum presumed income is computed based on 1% of the value of our assets. The value of our assets is determined in accordance with the criteria established under Argentine tax laws. The amount of any income tax paid during the fiscal year may be applied against the tax on minimum presumed income that would be payable in such fiscal year. The amount of any tax on minimum presumed income paid in excess of the income tax for such fiscal year may be carried forward for a period of up to ten years. This excess may be treated as a credit to be applied against the income tax payable in a future year to the extent the tax on minimum presumed income for the year does not exceed income tax payable for such future year.

According to Law No. 27,260, the tax on minimum presumed income is abolished for the fiscal years beginning from January 1, 2019.

Turnover tax

 

In addition, grossGross turnover tax could be applicable to Argentine residents on the transfer of shares and on the collection of dividends by our shareholders to the extent such activity is conducted on a regular basis within an Argentine province or within the City of Buenos Aires. However, under the Tax Code of the City of Buenos Aires, any transactions with shares, as well as the perception of dividends are exempt from gross turnover tax. Holders of the Class A, B, C and D Shares or ADSs are encouraged to consult a tax advisor as to the particular Argentine gross turnover tax consequences derived from holding and disposing of the Class A, B, C and D Shares or ADSs or ADSs.

 

Stamp taxes

 

Stamp tax is a provincial tax that is levied based on the formal execution of public or private instruments. Documents subject to stamp tax include, among others, all types of contracts, notarial deeds and promissory notes. Each Argentine province and the City of Buenos Aires have its own stamp tax legislation. Stamp tax rates vary according to the jurisdiction and type of agreement involved. On January 2, 2018, Law 27,429 enforced a “Fiscal Consensus” signed between the National Executive Power and representatives of the Provinces and the City of Buenos Aires. Among other issues, the provinces assumed the commitment to apply tax rates not higher than those for each activity and period In the stamp tax, for certain acts and contracts, not higher than 0.75% as of January 1, 2019 with a gradual reduction until its complete elimination as of January 1, 2022. Law No. 27,469 postponed these dates for one year.

Other taxesTaxes

 

There are no Argentine federal inheritances or succession taxes applicable to the ownership, transfer or disposition of Class A, B, C and D Shares.

 

Tax treaties

 

Argentina has signed tax treaties for the avoidance of double taxation with several countries, although there is currently no tax treaty or convention in effect between Argentina and the United States. On December 23, 2016, Argentina and the United States signed an agreement for the exchange of information relating to taxes, which entered into force on November 13, 2017, so the first fiscal period with respect to which information could be exchanged would beis 2018.

 

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TELECOM ARGENTINA S.A.


United States federal income taxes

 

The following discussion is a summary of certain U.S. federal income tax consequences for a U.S. holder (as defined below) of the acquisition, ownership and disposition of our ADSs or Class B Shares underlying ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a holder of such securities, including alternative minimum tax and Medicare contribution tax on net investment income. This summary applies only to U.S. holders that hold ADSs or Class B Shares underlying ADSs as capital assets for U.S. federal income tax purposes and does not address investors that are members of a class of holders subject to special rules, such as:

 

·financial institutions;

·                           financial institutions;

·dealers in securities or currencies;

·dealers or traders in securities who use a mark-to-market method of tax accounting;

·life insurance companies;

·persons that hold ADSs or Class B Shares underlying ADSs that are a hedge or that are hedged against interest rate or currency risks;

·persons that hold ADSs or Class B Shares underlying ADSs as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the ADSs or Class B Shares underlying ADSs;

·persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

·tax-exempt entities;

·persons that own or are deemed to own 10% or more of the stock of Telecom Argentina, measured by voting power or value;

·persons who acquired ADSs or Class B Shares underlying ADSs pursuant to the exercise of an employee stock option or otherwise as compensation; or

·persons holding ADSs or Class B Shares underlying ADSs in connection with a trade or business conducted outside of the United States.

 

·                           dealers in securities or currencies;

·                           dealers or traders in securities who use a mark-to-market method of tax accounting;

·                           life insurance companies;

·                           persons that hold ADSs or Class B Shares underlying ADSs that are a hedge or that are hedged against interest rate or currency risks;

·                           persons that hold ADSs or Class B Shares underlying ADSs as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the ADSs or Class B Shares underlying ADSs;

·                           persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

·                           tax-exempt entities;

·                           persons that own or are deemed to own 10% or more of the stock of Telecom Argentina, measured by voting power or value;

·                           persons who acquired ADSs or Class B Shares underlying ADSs pursuant to the exercise of an employee stock option or otherwise as compensation; or

·                           persons holding ADSs or Class B Shares underlying ADSs in connection with a trade or business conducted outside of the United States.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds ADSs or Class B Shares underlying ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding ADSs or Class B Shares underlying ADSs and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of holding and disposing of the ADSs or Class B Shares underlying ADSs.

 

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change, possibly on a retroactive basis. In addition, this summary assumes the deposit agreement, and all other related agreements, will be performed in accordance with their terms. As mentioned above, there is currently no income tax treaty or convention in effect between Argentina and the United States.

 

U.S. holders should consult their tax advisors regarding the U.S., Argentine or other tax consequences of the acquisition, ownership and disposition of ADSs or Class B Shares underlying ADSs in their particular circumstances, including the effect of any state or local tax laws.

 

PART I - ITEM 10 ADDITIONAL INFORMATION

TELECOM ARGENTINA S.A.


As used herein, the term “U.S. holder” means a holder that, for U.S. federal income tax purposes, is a beneficial owner of ADSs or Class B Shares underlying ADSs and is:

  

·a citizen or individual resident of the United States;

·                           a citizen or individual resident of the United States;

·a U.S. domestic corporation; or

·otherwise subject to U.S. federal income tax on a net income basis with respect to income from the ADSs or Class B Shares.

 

·                           a U.S. domestic corporation; or

·                           otherwise subject to U.S. federal income tax on a net income basis with respect to income from the ADS or Class B Share.

In general, for U.S. federal income tax purposes, holders of ADSs will be treated as the owners of the underlying Class B Shares represented by those ADSs. Accordingly, no gain or loss will be recognized if such holder exchanges ADSs for the underlying Class B Shares represented by those ADSs.

 

These statements assume that Telecom Argentina is not, and will not become, a Passive Foreign Investment Company (PFIC), as described below.

 

Distributions

 

To the extent paid out of current or accumulated earnings and profits of Telecom Argentina (as determined in accordance with U.S. federal income tax principles), the gross amount of distributions made with respect to ADSs or Class B Shares underlying ADSs will generally be included in the income of a U.S. holder as ordinary dividend income. Because Telecom Argentina does not maintain calculations of its earnings and profits under U.S. federal income tax principles, U.S. holders should expect that a distribution will generally be treated as a dividend. Dividends will not be eligible for the “dividends-received deduction” generally allowed to U.S. corporations under the Code. Dividends will be included in a U.S. holder’s income on the date of the U.S. holder’s (or in the case of ADSs, the depositary’s) receipt of the dividend. The amount of the distribution will equal the U.S. dollar value of the pesosPesos received (including amounts withheld in respect of Argentine taxes), calculated by reference to the exchange rate in effect on the date such distribution is received (which, for holders of ADSs, will be the date such distribution is received by the depositary), whether or not the depositary or U.S. holder in fact converts any pesosPesos received into U.S. dollars. If the distribution is converted into U.S. dollars on the date of receipt, U.S. holders should not be required to recognize foreign currency gain or loss in respect of the dividend income. Any gains or losses resulting from the conversion of pesosPesos into U.S. dollars after the date on which the distribution is received will be treated as ordinary income or loss of the U.S. holder and will be U.S.-source income or loss for foreign tax credit purposes.

 

Subject to certain exceptions for short-term (60 days or less) and hedged positions, the U.S. dollar amount of dividends paid to certain individuals or other non-corporate U.S. holders will be taxable at the preferential rates if the dividends are “qualified dividends.”dividends”. Dividends paid on the ADSs are generally treated as “qualified dividends” if (1) the ADSs are readily tradable on a securities market in the United States (such as the NYSE, where our ADSs are currently traded) and (2) we were not, in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC. Based on our consolidated financial statements and relevant market data, we believe that Telecom Argentina was not a PFIC for U.S. federal income tax purposes with respect to our 20172020 taxable year. In addition, based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market data, we do not anticipate becoming a PFIC for our 20182021 taxable year or the foreseeable future, although there can be no assurance in this regard. If we were a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. holders of our ADSs could be subject to adverse U.S. federal income tax consequences. Based on existing guidance, it is not entirely clear whether dividends received with respect to the Class B Shares underlying ADSs will be treated as qualified dividends, because the Class B Shares underlying ADSs are not themselves listed on a U.S. exchange. U.S. holders should consult their tax advisors regarding the availability of the preferential dividend tax rates in light of their particular circumstances.

 

Distributions of additional shares in respect of ADSs or Class B Shares underlying ADSs that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

 

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TELECOM ARGENTINA S.A.

Sale or other disposition

 

Gain or loss realized by a U.S. holder on the sale or other disposition of ADSs or Class B Shares underlying ADSs will be subject to U.S. federal income tax as U.S.-source capital gain or loss, and will be long-term capital gain or loss if the U.S. holder has held the ADSs or Class B Shares underlying ADSs for more than one year. The amount of the gain or loss will be equal to the difference between the U.S. holder’s tax basis in those ADSs or Class B Shares and the amount realized on the disposition, in each case as determined in U.S. dollars. Long-term capital gains recognized by non-corporate taxpayers are subject to reduced tax rates. The deductibility of capital losses is subject to limitations. If an Argentine tax is withheld, or otherwise paid, on the sale or disposition of ADSs or Class B Shares underlying ADSs, a U.S. holder’s amount realized will include the gross amount of the proceeds of the sale or disposition before deduction of the Argentine tax. See “—Argentine Taxes—CapitalIncome Tax-Capital gains” for a description of when a disposition may be subject to taxation by Argentina.

 

PART I - ITEM 10 ADDITIONAL INFORMATIONTELECOM ARGENTINA S.A.


Foreign tax credit considerations

 

Dividend distributions with respect to ADSs or Class B shares generally will be treated as “passive category” income from sources outside the United States for purposes of determining a U.S. holder’s U.S. foreign tax credit limitation. Subject to the limitations and conditions provided in the Code and the applicable U.S. Treasury Regulations, a U.S. holder may be able to claim a foreign tax credit against its U.S. federal income tax liability in respect of any Argentine income taxes withheld at the appropriate rate applicable to the U.S. holder from a dividend paid to such U.S. holder if the tax is treated for U.S. federal income tax purposes as imposed on the U.S. holder. Alternatively, the U.S. holder may be able to deduct such Argentine income taxes from its U.S. federal taxable income, provided that the U.S. holder elects to deduct rather than credit all foreign income taxes for the relevant taxable year. The rules with respect to foreign tax credits are complex and involve the application of rules that depend on a U.S. holder’s particular circumstances. Accordingly, U.S. holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

 

Capital gains realized by a U.S. holder on the sale or other disposition of ADSs or Class B Shares underlying ADSs are generally exempt from tax under current Argentine law. However, if such tax is imposed in the future, it is possible that U.S. holders would be eligible to claim foreign tax credits in respect of such tax, subject to generally applicable restrictions under U.S. law. However, any gain realized on the sale or other disposition of ADSs or Class B Shares underlying ADSs will be treated as U.S. source income. Accordingly, even if foreign tax credits otherwise are available, an investor generally would not be able to use the foreign tax credit arising from any Argentine tax imposed on such disposition unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources.

 

In addition, amounts paid on account of the personal assets tax (as described in “—Argentine Taxes—Personal assets tax”) generally will not be treated as an income tax for U.S. federal income tax purposes and will consequently not be eligible for credit against a U.S. holder’s federal income tax liability. The rules governing foreign tax credits are complex, and U.S. holders should consult their tax advisors regarding the creditability and deductibility of foreign taxes in their particular circumstances.

 

Foreign financial asset reporting

 

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 on the last day of the taxable year or US$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders that fail to report the required information could be subject to substantial penalties. In addition, the statute of limitations for assessment of tax would be suspended, in whole or in part. Prospective investors are encouraged to consult with their own tax advisors regarding the possible application of these rules, including the application of the rules to their particular circumstances.

PART I - ITEM 10 ADDITIONAL INFORMATION

TELECOM ARGENTINA S.A.

Information reporting and backup withholding

 

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless the U.S. holder (1) provides a correct taxpayer identification number and certifies that it is not subject to backup withholding or (2) otherwise establishes an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the internal revenue service.

 

DOCUMENTS ON DISPLAY

 

You may request a copy of these filings by writing or telephoning the offices of Telecom Argentina at Alicia Moreau de Justo 50, (C1107AAB) Buenos Aires, Argentina. Telecom Argentina’s telephone number is 54-11-4968-4000. Our internet address is www.telecom.com.ar.https://institucional.telecom.com.ar.

 

Telecom Argentina maintains a website at www.telecom.com.ar.https://institucional.telecom.com.ar. The contents of the website are not part of this Annual Report.

 

PART I - ITEM 10 ADDITIONAL INFORMATION

TELECOM ARGENTINA S.A.


ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Summarized below are the financial instruments we held as of December 31, 2018,2020, that are sensitive to changes in foreign exchange rates and interest rate, if any. As a matter of policy, we may enter into forward exchange contracts, foreign currency swaps or other derivatives to manage the exposure attributed to foreign exchange rate and interest rate fluctuations associated with the principal amount of our liabilities in foreign currencies. We use these instruments to reduce risk by creating offsetting market exposures. The instruments we hold are not held for financial trading purposes. No foreign exchange forward or other derivatives for speculative purposes were outstanding during the reporting periods covered by this Annual Report.

 

We do not have any other material market risk exposure.

 

(a)       Foreign Exchange Rate Risk

 

Foreign exchange exposure arises from our funding operations and, to a lesser extent, our capital expenditures and expenses denominated in foreign currencies. The peso/Peso/U.S. dollar exchange rate is determined by a free market with certain controls. See “Item 10—Additional Information—Foreign Investment and Exchange Controls in Argentina.”Argentina”.

 

Our results of operations are sensitive to changes in the peso/Peso/dollar exchange rates because our primary assets are in Argentina and most of our revenues are denominated in pesosPesos (our functional currency) while some part of our liabilities are denominated in foreign currencies. However, Telecom Argentina as well as Telecom Argentina in its capacity of absorbing company of Personal and Núcleo had commercial debt nominated in U.S. dollars and Euros. Moreover, Núcleo’s bank overdrafts and Series 1 to 3 of Personal Notes are denominated in theirits functional currencies (pesos and guaraníes, respectively)(guaraníes) and accrue interest at a variable rate. In addition, Personal (entity absorbed by Telecom Argentina) maintains financial debt denominated in U.S. dollars at a variable rate and Series 4 of Notes is also denominated in U.S. dollars, but at a fixed rate, while Núcleo maintains guaraní denominated financial debt and accrues interest at a fixed rate. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Sources and Uses of Funds”.

 

Additionally, the Company has cash and cash equivalents, and investments denominated in U.S. dollars and Euros that are also sensitive to changes in peso/Peso/U.S. dollar exchange rates and contribute to reduce the exposure to commercial and financial obligations in foreign currency.

 

Actions taken by the Argentine government could cause future exchange rates to vary significantly from current or historical exchange rates. Fluctuations in exchange rates may adversely affect the value, translated or converted into U.S. dollars, of our net assets, earnings and any declared dividends. We cannot give any assurance that any future movements in the exchange rate of the pesoPeso against the U.S. dollar and other foreign currencies will not adversely affect our results of operations, financial condition and cash flows. However, we believe that a significant depreciation in the pesoPeso against major foreign currencies may have a material adverse impact on our capital expenditure program and in our operating expenses denominated in foreign currencies.

 

(b)       Sensitivity to Interest Rate Risk

 

Within its structure of financial debt, Telecom and its subsidiaries have bank overdrafts denominated in argentine pesosArgentine Pesos accruing interest at rates that are reset at maturity, notesNotes at fixed rates and foreign bankother financial entities loans denominated in Argentine Pesos, U.S. dollar and guaraníes that bear interest at a variable and fixed rate.

 

The Company has financial debts at variable rate, which amounts approximately to P$52,767100,366 million as of December 31, 2018.2020.

 

In order to reduce the effect of changes in interest rates, Telecom has NDF that amounts to US$440P$18,513 million (equivalent to P$16,588 million) as of December 31, 2018,2020, that convert variable raterates into fixed rate, thereforerates. Therefore, the net financial debt not hedged amounts to P$36,17981,853 million as of December 31, 2018.2020. Management believes that any variation of 10100 bps in the agreed interest rates would generate an impact on a financial resultresults of P$36819 million.

 

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.

 

PART I - ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TELECOM ARGENTINA S.A.


(c)       Sensitivity to Exchange Rates Risk

Net liability position in foreign currency of Telecom amounted to P$185,635 million as of December 31, 2020. In order to reduce the net liability position in foreign currency, Telecom has NDF as of December 31, 2020 amounting to US$117 million, therefore, the net liability not hedged amounts to US$2,088 million as of that date.

 

Based on the composition of the consolidated statement of financial position as of December 31, 2018,2020, which is a not hedged net liability position in foreign currency of P$73,106 million equivalent to US$1,939 million,2,088 million., Management estimates that everya variation in the US dollar exchange rate of $1 peso against the U.S. dollar and proportional variations for Euro and Guaraníes against the Argentine peso, plus or minus, would result in a variation of approximately P$1,939 million of the consolidated amounts of foreign currency position.

If we consider only the portion not covered by derivative financial instruments, the net liability position totaled P$66,848 million equivalent to approximately US$1,773 million, and a variation of the exchange rate of $1 peso10% as described in the previous paragraph, plus or minus, would generate a variation of approximately P$1,77317,571 million in the consolidated financial position in foreign currency.

 

This analysis is based on the assumption that this variation of the Argentine pesoPeso 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.

 

See Note 26 to our Consolidated Financial Statements for a description of financial risk management.

 

PART I - ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TELECOM ARGENTINA S.A.

138

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

American Depositary Shares

 

The ADSs are issued by the Depositary Fees and Charges

under the Deposit Agreement dated as of November 8, 1994, as amended, among Telecom Argentina, JPMorgan Chase Bank, N.A. (formerly Morgan Guaranty Trust Company of New York), as depositary for (the “Depositary”) and the registered holders from time to time of the ADSs (the “Depositary”)issued thereunder. The address of the Depositary’s principal executive office is 383 Madison Avenue, Floor 11, New York, New York 10179. Each ADS represents rights to five Class B Shares.

Depositary Fees and Charges

The Depositary collects its fees for delivery directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. The Depositary also collects taxes and governmental charges from the holders of ADSs. The Depositary collects these fees and charges by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees (after attempting by reasonable means to notify the holder prior to such sale).

 

Persons depositing or withdrawing shares must pay US$5.00 for each 100 ADSs or portion thereof for issuances of ADSs, including issuances resulting from a distribution, sale or exercise of shares or rights or other property. Investors depositing shares or holders withdrawing deposited securities are charged fees and expenses in connection with stock transfers, taxes and other governmental charges, cable, telex and facsimile transmission and delivery charges imposed at such person’s request, transfer or registration fees for the registration of transfer of ADSs on any applicable register in connection with the deposit or withdrawal of ADSs and the Depositary’s expenses in connection with the conversion of foreign currency.

 

The Depositary reimburses Telecom Argentina for certain expenses we incur in connection with the American depositary receipt program (the “ADR program”), subject to the agreement between us and the Depositary from time to time. These reimbursable expenses currently include listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders. For the year ended December 31, 2018,2020, the Depositary reimbursed Telecom Argentina approximately US$142.9 thousand (gross amount of withholding tax)128,367.14 in connection with the ADR program.

 

PART I - ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

TELECOM ARGENTINA S.A.


PART II

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

As of the date of this Annual Report, none of Telecom Argentina and its subsidiaries are in default on any outstanding indebtedness.

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

None.

ITEM 15.CONTROLS AND PROCEDURES

 

ITEM 15.CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

 

Telecom’s Management, with the participation of our chief executive and financial officers, evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 20182020 (the “Evaluation Date”). Based upon that evaluation, our chief executive and financial officers have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective.

 

Management’s Report on Internal Control over Financial Reporting

 

Telecom’s Management is responsible for establishing and maintaining adequate internal control over financial reporting for Telecom 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 IFRS as issued by the IASB.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;

  

·                  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 are being made only in accordance with authorizations of Management and directors of Telecom; and

·Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Telecom;

  

·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 are being made only in accordance with authorizations of Management and directors of Telecom; and

·                  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Telecom’s assets that could have a material effect on the financial statements.

·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Telecom’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.

 

Telecom’s Management conducted an evaluation of the effectiveness of Telecom’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 (the “COSO 2013”).COSO. Based on this evaluation, Telecom’s Management concluded that Telecom’s internal control over financial reporting was effective as of December 31, 2018.2020. The effectiveness of Telecom’s internal control over financial reporting as of December 31, 20182020 has been audited by PriceWaterhouse & Co. S.R.L., an independent registered public accounting firm, as stated in their report which is included herein.

 

Changes in Internal Control Over Financial Reporting

 

We completed the Merger on January 1, 2018. We have also been augmenting our company-wide controls to reflect the risks inherent in a business combination of the magnitude and complexity of the Merger.

Other than as described in the foregoing paragraph, thereThere were no other changes in our internal controls over financial reporting that occurred during the year ended December 31, 20182020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART IITELECOM ARGENTINA S.A.


ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT

 

ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT

On January 1st, 2018, as ratified on January 31, 2018 and April 25, 2018,28, 2020, the Board of Directors of Telecom Argentina appointed the members of the Audit Committee acting until this year´s Annual Shareholders´ Meeting and determined that Carlos Alejandro Harrison qualifies as Audit Committee financial expert. In conducting this evaluation, the Board of Directors took into account Mr. Harrison’s professional background and educational training.

 

As of the date of this Annual Report, the Board of Directors’ meeting for the appointment of the Audit Committee members for the fiscal year 20192021 has not yet been held. Therefore, as of the date of this Annual Report, Carlos Alejandro Harrison, Martín Hector D’Ambrosio and Germán Horacio Vidal remain members of the Audit Committee. See “Item 6—Directors, Senior Management and Employees—The Board of Directors.”Directors”.

 

ITEM 16B.

PART II

TELECOM ARGENTINA S.A.

CODE OF ETHICS

ITEM 16B.CODE OF ETHICS

 

On December 18, 2018, the Board of Directors of Telecom Argentina approved a new release of Code of Ethics and Conduct and Antifraud Policy. These documents provide, respectively: (i)This document provides the ethical principles to which Telecom Argentina S.A. and all members of the Board of Directors, the Supervisory Committee, the CEO, Managers and in general all those who work in the Company must abide and (ii) the framework for the prohibition of fraudulent practices. These updated versions incorporate the new ethic policy and alternative contact channels, managed by an internationally recognized firm that receives and assures that all complaints are properly recorded. Additionally, an Ethics Committee is created in order to follow the treatment of all cases and conclude on the result of the investigations.abide.

 

Adjustments made to regulations in recent years and in matters of corporate governance, organization and implementation of preventive measures aimed at reducing the risk of conflict of interest and corrupt practices, and that are applicable to Telecom Argentina S.A. as a company subject to regime of public offering both in Argentina and the United States, have been taken into account for the formulation and approval of the Code of Ethics and Conduct and the Policies. In turn, it has reflected changes occurred in the organizational structure of the Company with the purpose of defining the responsibilities in the management of this Code of Ethics and Conduct and associated policies.Conduct.

 

No waivers, express or implicit, have been granted to any senior officer or member of the Board of Directors of Telecom Argentina S.A. with respect to any provision of the Code of Ethics and Conduct.

On May 2017 Telecom Argentina approved a Third-Party Code of Ethics and Conduct in order to ensure that its business relationships with third parties meet the highest standards of ethics and integrity, governing relations with people we relate commercially.

 

The Code of Ethics and Conduct is available on our website at www.telecom.com.arhttps://institucional.telecom.com.ar/grupotelecom.html#en and the latest update was filed with the SEC on Form 6-K on December 18, 2018.November 8, 2019.

 

In addition, the Board of Directors of Telecom Argentina approved on December 18, 2018, the update of the anti-fraud policy (the “Anti-Fraud Policy”), this update was limited exclusively to the mention of the new ethic line website. The Anti-Fraud Policy aims to establish guidelines that promote a culture of transparency and prevention against any dishonest conduct or fraudulent acts and irregularities that could affect the interests of the Company.

ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table provides information on the aggregate fees for services rendered by our principal accountants (in millions of pesos)Pesos) for the years ended December 31, 20182020 and 2017.2019. Figures are not restated for inflation.

 

Services Rendered

 

2018

 

2017 (4)

 

 2020 2019 

Audit fees (1)

 

73.0

 

36.6

 

  120.4   122.0 

Audit related fees(2)

 

 

 

  3.4   - 

Tax fees (2)(3)

 

3.2

 

1.8

 

  7.1   6.4 

All other fees (3)(4)

 

33.1

 

0.3

 

  38.3   60.9 

Total

 

109.3

 

38.7

 

  169.2   189.3 

 


(1) Includes fees related to the integrated audit of the Consolidated Financial Statements as of December 31, 2018 and 2017, limited reviews of interim financial statements presented during 2018 and 2017, SEC filing reviews and other attestation services.

(2) Includes fees for permitted tax compliance and tax advisory services.

(3)Includes primarily fees paid for consulting services provided in connection with the review on technical and methodological issues regarding the SAP Central Finance and  S4 HANA SAP projects and  the review of human resources systems to be implemented by the Company.

(4)Correspond to fees of Telecom Argentina as of December 31, 2017.

PART II

(1)

TELECOM ARGENTINA S.A.

Includes fees related to the integrated audit of the Consolidated Financial Statements as of December 31, 2020 and 2019, limited reviews of interim financial statements presented during 2020 and 2019, SEC filing reviews and other attestation services.
(2)Includes fees billed for professional services rendered by the principal accountant and not included under the prior category, mainly in connection with assurance services over non-financial information. 
(3)Includes fees for permitted tax compliance and tax advisory services.
(4)Includes fees billed for products and services provided by the principal accountant, other than Audit Fees, Audit-Related Fees and Tax Fees. Primarily includes fees billed for assistance in the framework of Processes and the review on technical and methodological issues regarding the S4 HANA SAP and fees for consulting services provided in connection with the implementation of the software for human capital management.

Audit Committee Pre-approval Policies and Procedures

 

On March 22, 2004, Telecom Argentina’s Board of Directors approved policies and procedures relating to the pre-approval of auditors’ services and other permitted services (collectively, “Pre-Approval Procedures”) for the engagement of any service provided by external auditors to Telecom Argentina and its subsidiaries. Telecom Argentina’s Board of Directors performed Pre-Approval Procedures until April 2004. As of April 2004, the date on which the Audit Committee came into effect, Pre-Approval Procedures were performed by the Audit Committee. Consequently, since that date, all auditors’ services were pre-approved by the Audit Committee.

 

PART IITELECOM ARGENTINA S.A.


The Pre-Approval Procedures provide for services that require:

 

·                  specific pre-approval—to be approved on a case-by-case basis; and

·specific pre-approval—to be approved on a case-by-case basis; and

 

·                  general pre-approval—any category or general kind of service that come within the guidelines established to safeguard auditor independence and come within the maximum amounts set by the Audit Committee.

·general pre-approval—any category or general kind of service that come within the guidelines established to safeguard auditor independence and come within the maximum amounts set by the Audit Committee.

 

The Pre-Approval Procedures also provide for the following categorization of services:

 

“Prohibited services” are those services that external auditors are not allowed to provide based on prohibitions contained in the statutory rules of Argentina and the United States (i.e., bookkeeping; financial information system design and implementation; appraisal or valuation services, fairness opinions or contribution-in-kind reports; actuarial services; internal audit outsourcing services; management functions; broker/dealer, investment adviser, or investment banking services; or expert services unrelated to the audit).

 

“Permitted Services” include (i) audit services; (ii) audit-related services; (iii) tax services; and (iv) other services such as permitted internal control advice. Moreover, the services included in each category were also detailed, and, where appropriate, any limits imposed on the provision thereof to ensure external auditors’ independence.

 

The Pre-Approval Procedures also require pre-approval for the following services:

 

·                  Annual audit and quarterly reviews of Telecom Argentina’s financial statements: the Audit Committee is required to approve the terms for the engagement and remuneration of such services.

·                  Other “Audit Services”: the Audit Committee is required to define the services that will be subject to general pre-approval on an annual basis, setting the annual service fee amount, or the annual amount allocated to each individual service category, or to each service, within which fee caps the provision shall receive general pre-approval.

·                  “Audit-related Services” and “Tax Services”: the Audit Committee is required to define the categories or types of services that will receive general pre-approval, provided that they fall within the annual fee cap set for that service and establish the guidelines for prior engagement of these services.

·                  Other Permitted Services: are not subject to general pre-approval, and any other services require specific pre-approval by the Audit Committee for each service.

·                  Delegation: the Audit Committee may solely delegate the specific pre-approval of services with any of its members that qualify as an independent director. An independent director must immediately report to the Audit Committee after engaging any service by delegation. Under no circumstances may the authority to either approve or pre-approve services be delegated to the Management.

·                  Disclosure of overall billed fees: external auditors shall include in their audit reports the information about the relationship between the overall fees paid in respect of Audit Services and in respect of services other than Audit Services. In addition, the Audit Committee shall, on a yearly basis, prepare a report to the Board of Directors, which will be included in this Annual Report, providing a detailed account of all fees invoiced by external auditors to Telecom Argentina and to its subsidiaries, grouped into four categories, namely: audit fees, audit related fees, tax consultation fees and all other fees.

·Annual audit and quarterly reviews of Telecom Argentina’s financial statements: the Audit Committee is required to approve the terms for the engagement and remuneration of such services.

 

·Other “Audit Services”: the Audit Committee is required to define the services that will be subject to general pre-approval on an annual basis, setting the annual service fee amount, or the annual amount allocated to each individual service category, or to each service, within which fee caps the provision shall receive general pre-approval.

 

·“Audit-related Services” and “Tax Services”: the Audit Committee is required to define the categories or types of services that will receive general pre-approval, provided that they fall within the annual fee cap set for that service and establish the guidelines for prior engagement of these services.

 

PART II

TELECOM ARGENTINA S.A.

·
Other Permitted Services: are not subject to general pre-approval, and any other services require specific pre-approval by the Audit Committee for each service.

·                  Additional requirements: the Audit Committee is required to adopt additional measures to fulfill its supervisory obligations related to external auditors’ duties, in order to ensure the independence from the Company, such as the review of a formal written statement by the external auditors outlining all relations existing between them and Telecom Argentina, in accordance with Rule No. 1 of the Independence Standards Board, and discussions with the external auditors and the methods and procedures that have been designed to ensure their independence.

 

·Delegation: the Audit Committee may solely delegate the specific pre-approval of services with any of its members that qualify as an independent director. An independent director must immediately report to the Audit Committee after engaging any service by delegation. Under no circumstances may the authority to either approve or pre-approve services be delegated to the Management.

·                  Amendments: the Audit Committee has authority to amend the pre-approval procedures (the “Pre-Approval Procedures”),

·Disclosure of overall billed fees: external auditors shall include in their audit reports the information about the relationship between the overall fees paid in respect of Audit Services and in respect of services other than Audit Services. In addition, the Audit Committee shall, on a yearly basis, prepare a report to the Board of Directors, which will be included in this Annual Report, providing a detailed account of all fees invoiced by external auditors to Telecom Argentina and to its subsidiaries, grouped into four categories, namely: audit fees, audit related fees, tax consultation fees and all other fees.

·Additional requirements: the Audit Committee is required to adopt additional measures to fulfill its supervisory obligations related to external auditors’ duties, in order to ensure the independence from the Company, such as the review of a formal written statement by the external auditors outlining all relations existing between them and Telecom Argentina, in accordance with Rule No. 1 of the Independence Standards Board, and discussions with the external auditors and the methods and procedures that have been designed to ensure their independence.

·Amendments: the Audit Committee has authority to amend the Pre-Approval Procedures, rendering an account of any such amendment to the Board of Directors during the first meeting of the Board of Directors held after making the amendments.

PART IITELECOM ARGENTINA S.A.


 

If Telecom Argentina’s external auditors are to provide any service, the service must either be granted as general pre-approval or specific pre-approval under the Pre-Approval Procedures. The Pre-Approval Procedures require the Audit Committee to consider whether the services to be provided are consistent with the legal and professional rules in effect in Argentina and the United States relating to external auditors’ independence.

 

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable.

 

ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS

ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS

 

Not applicable.

 

ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

Not applicable.

 

ITEM 16G.CORPORATE GOVERNANCE

ITEM 16G.CORPORATE GOVERNANCE

 

Telecom Argentina’s corporate governance practices differ from corporate governance practices of U.S. companies. Telecom Argentina maintains a detailed description of the significant differences in corporate governance practices on its website at www.telecom.com.ar,https://institucional.telecom.com.ar/inversores/gobiernocorporativo.html, last updated in February 2018.2020.

 

The following is a summary of the material aspects in which Telecom Argentina’s corporate governance policies differ from those followed by U.S. companies under NYSE listing standards.

 

·                  Composition of the Board of Directors: The NYSE requires each Board of Directors to be composed of a majority of independent directors. Although this is not required under Argentine law, as of the date of this Annual Report, the eleven-member Board of Directors of Telecom Argentina has three regular directors and two alternate directors who qualify as “independent” according to SEC Rules.

·                  Annual Self-Evaluation of the Board of Directors: The NYSE requires the Boards of Directors of listed companies to conduct a self-evaluation at least annually, and report thereon, informing whether it and its committees are functioning effectively. Under Argentine law, the Board of Directors’ performance is evaluated at the Annual Ordinary Shareholders Meeting.

·                  Nominating/Corporate Governance Committee: NYSE listed companies are required to have a nominating/corporate governance committee. Neither Argentine law nor Telecom Argentina’s Bylaws require the creation of a nominating/corporate governance committee. In Argentina, it is unusual (though possible) for the Board of Directors to nominate new directors and the Board of Directors of Telecom Argentina refrains from making such proposals. Under Argentine law, the right to nominate and appoint directors is granted to shareholders. On certain occasions, the GCL delegates the right to designate directors to the Supervisory Committee.

·                  Compensation committee: NYSE listed companies are required to have a compensation committee composed entirely of independent directors. Neither Argentine law nor Telecom Argentina’s Bylaws require the creation of a Compensation committee. Telecom Argentina’s executive compensation matters are undertaken by Executive Committee and the Board of Directors. The compensation of the members of Telecom Argentina’s Board of Directors is determined by the shareholders at the Annual Ordinary Shareholders’ Meeting.

·Composition of the Board of Directors: The NYSE requires each Board of Directors to be composed of a majority of independent directors. Although this is not required under Argentine law, as of the date of this Annual Report, the eleven-member Board of Directors of Telecom Argentina has three regular directors and two alternate directors who qualify as “independent” according to SEC Rules.

 

·Annual Self-Evaluation of the Board of Directors: The NYSE requires the Boards of Directors of listed companies to conduct a self-evaluation at least annually, and report thereon, informing whether it and its committees are functioning effectively. Under Argentine law, the Board of Directors’ performance is evaluated at the Annual Ordinary Shareholders Meeting.

 

·Nominating/Corporate Governance Committee: NYSE listed companies are required to have a nominating/corporate governance committee. Neither Argentine law nor Telecom Argentina’s Bylaws require the creation of a nominating/corporate governance committee. In Argentina, it is unusual (though possible) for the Board of Directors to nominate new directors and the Board of Directors of Telecom Argentina refrains from making such proposals. Under Argentine law, the right to nominate and appoint directors is granted to shareholders. On certain occasions, the GCL delegates the right to designate directors to the Supervisory Committee.

 

·Compensation committee: NYSE listed companies are required to have a compensation committee composed entirely of independent directors. Neither Argentine law nor Telecom Argentina’s Bylaws require the creation of a Compensation committee. Telecom Argentina’s executive compensation matters are undertaken by Executive Committee and the Board of Directors. The compensation of the members of Telecom Argentina’s Board of Directors is determined by the shareholders at the Annual Ordinary Shareholders’ Meeting.

·Audit Committee hiring policies: The NYSE requires listed companies to have an Audit Committee which sets clear hiring policies for employees or former employees of the independent auditors. There is no such provision regarding the hiring of external auditors’ employees contained in Argentine law or Telecom Argentina’s bylaws.

PART II

TELECOM ARGENTINA S.A.

·                  Audit Committee hiring policies: The NYSE requires listed companies to have an Audit Committee which sets clear hiring policies for employees or former employees of the independent auditors. There is no such provision regarding the hiring of external auditors’ employees contained in Argentine law or Telecom Argentina’s bylaws.

 


According to the provisions of Annex IV, Title IV of CNV RulesResolution No. 797/19, Telecom Argentina prepares and submits to the CNV, on an annual basis, a report which indicates and details the CNV’s recommended corporate governance practices as set forth in the CNV public offer regime, explains the practices followed by Telecom Argentina, and the reasons for any variation from practices recommended by the CNV. Telecom Argentina’s 20182020 Corporate Governance Report was submitted to the CNV as part of the Statutory Annual Report dated March 7, 2019.__, 2021. Telecom Argentina’s Corporate Governance Reports submitted to the CNV can be accessed through the CNV’s website, www.cnv.gob.ar and Telecom Argentina’s website, www.telecom.com.ar.https://institucional.telecom.com.ar.

 

ITEM 16H.MINE SAFETY DISCLOSURE

ITEM 16H.MINE SAFETY DISCLOSURE

 

Not applicable.

 

PART II

TELECOM ARGENTINA S.A.


PART III

ITEM 17.FINANCIAL STATEMENTS

ITEM 17.FINANCIAL STATEMENTS

 

The Registrant has responded to Item 18 in lieu of responding to this Item.

ITEM 18.FINANCIAL STATEMENTS

ITEM 18.FINANCIAL STATEMENTS

 

Reference is made to pages F-1 through F-106.F-90.

 

The following financial statements are filed as part of this Annual Report:

 

Page

Telecom Argentina S.A.:

Report of Independent Registered Public Accounting Firm

F-1

F-2

Consolidated Statements of Financial Position

F-3

F-6

Consolidated Income Statements

F-4

F-7

Consolidated Statements of Comprehensive Income

F-5

F-8

Consolidated Statements of Changes in Equity

F-6

F-9

Consolidated Statements of Cash Flows

F-8

F-11

Glossary of Terms

F-9

F-12

Notes to the Consolidated Financial Statements

F-11

F-14

ITEM 19.EXHIBITS

ITEM 19.EXHIBITS

 

Exhibits:

 

1.1

EstatutosSociales (Bylaws) of Telecom Argentina, as amended and restated (English translation) (incorporated by reference to Telecom’s report on Form 6-K filed on December 28, 2018).

4.1

2.1

Deposit Agreement, dated November 8, 1994 (incorporated by reference to Telecom’s registration statement on Form F-6 (No. 333-07452)).

4.2

2.2

Form of Amendment No. 1 to Deposit Agreement, dated August 28, 1997 (incorporated by reference to Telecom’s registration statement on Form F-6 (No. 333-07452)).

4.3

2.3

Amended and Restated Indenture between Cablevisión S.A. as issuer, and Deutsche Bank Trust Company Americas, as trustee, paying agent, registrar and transfer agent, dated December 11, 2017.2017 (included as Exhibit 4.3 of the Form 20-F filed by Telecom Argentina on March 26, 2019 and incorporated by reference herein).

4.4

2.4

Supplemental Indenture to the Amended and Restated Indenture between Telecom Argentina S.A. (as successor to Cablevisión S.A.) as issuer, Deutsche Bank Trust Company Americas, as trustee, paying agent, registrar and transfer agent and Banco Comafi S.A. (as successor to Deutsche Bank S.A.), as Argentine registrar and transfer agent, Argentine paying agent and representative of the trustee in Argentina, dated July 12, 2018.2018 (included as Exhibit 4.4 of the Form 20-F filed by Telecom Argentina on March 26, 2019 and incorporated by reference herein).

8.1

2.5

List of Subsidiaries.

12.1

Certification of Carlos Moltini ofIndenture between Telecom Argentina S.A. pursuant to Section 302, as issuer, Citibank, N.A. as trustee, paying agent, registrar and transfer agent and Citibank, N.A. as Argentine registrar and transfer agent and representative of the Sarbanes-Oxleytrustee in Argentina, dated July 18, 2019 (included as Exhibit 2.5 of the Form 20-F filed by Telecom Argentina on March 18, 2020 and incorporated by reference herein).

2.6Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 2002.1934 (included as Exhibit 2.6 of the Form 20-F filed by Telecom Argentina on March 18, 2020 and incorporated by reference herein.

PART IIITELECOM ARGENTINA S.A.


3.1Voting Trust Agreement between Cablevisión Holding S.A., VLG S.A.U., Fintech Telecom LLC, Fintech Advisory, Inc., Mr. Héctor Horacio Magnetto, Mr. José Antonio Aranda, Mr. Lucio Rafael Pagliaro and Mr. David Manuel Martínez Guzmán, dated April 15, 2019 (previously filed as Exhibit 99.9 to Telecom’s Schedule 13D filed on April 16, 2019 and incorporated by reference herein).

12.2

4.1

Certification of Gabriel Blasi of Telecom Argentina S.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1

Certification of Carlos Moltini and Gabriel Blasi pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

15.1

Telecom Shareholders’ Agreement among VLG Argentina LLC, CVH, Fintech Telecom, LLC, Fintech Media, LLC and Fintech Advisory Inc., dated July 7, 2017 (previously filed as Exhibit 32 to Telecom’s Schedule 13D filed on July 10, 2017 and incorporated by reference herein).

PART III

TELECOM ARGENTINA S.A.

15.2

4.2

Preliminary Reorganization Agreement among Telecom, Nortel, Sofora and Personal, dated March 31, 2017 (included as Annex A of the registration statement on Form F-4 filed by Telecom on May 17, 2017 and incorporated by reference herein).

15.3

4.3

Preliminary Merger Agreement between Telecom and Cablevisión, dated June 30, 2017, and the related exhibits thereto (previously furnished on Form 6-K (File No. 001-13464) on August 28, 2017 and incorporated by reference herein).

15.4

4.4

Term Loan Agreement between Telecom Argentina and Citibank, N.A., HSBC México S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, JPMorgan Chase Bank, N.A. and Banco Santander, S.A, as lenders, Citigroup Global Markets Inc., HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, JPMorgan Chase Bank, N.A. and Banco Santander, S.A. as joint bookrunners and lead arrangers, Citibank N.A., as administrative agent, and the Branch of Citibank N.A., established in the Republic of Argentina, as onshore custody agent, dated February 2, 2018 (included as Exhibit 15.4 of the Form 20-F filed by Telecom Argentina on April 20, 2018 and incorporated by reference herein).

15.5

Amendment Agreement to the Term Loan Agreement, between Telecom Argentina and Citibank, N.A., HSBC México S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, JPMorgan Chase Bank, N.A., Banco Santander, S.A, Citigroup Global Markets Inc. and the Branch of Citibank N.A., established in the Republic of Argentina, dated October 8, 2018.

15.6

Syndicated Loan Agreement between Telecom Argentina and Citibank, N.A., HSBC México S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander, S.A., as lenders, Citibank N.A., HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander S.A., as joint bookrunners and lead arrangers, Citibank N.A., as administrative agent and the Branch of Citibank N.A., established in the Republic of Argentina, as onshore custody agent, dated October 8, 2018.2018 (included as Exhibit 15.6 of the Form 20-F filed by Telecom Argentina on March 26, 2019 and incorporated by reference herein).

15.7

4.5

Amendment Agreement to the Syndicated Loan Agreement between Telecom Argentina and Citibank, N.A., HSBC México S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander, S.A., as lenders, Citibank N.A., HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander S.A., as joint bookrunners and lead arrangers, Citibank N.A., as administrative agent and the Branch of Citibank N.A., established in the Republic of Argentina, as onshore custody agent, dated February 11, 2019.2019 (included as Exhibit 15.7 of the Form 20-F filed by Telecom Argentina on March 26, 2019 and incorporated by reference herein).

15.8

4.6

DB Loan Agreement between Telecom Argentina and Deutsche Bank AG, London Branch, as initial lender, sole book-runner and lead arranger and Deutsche Bank Trust Company Americas, as administrative agent, dated November 8, 2018.2018 (included as Exhibit 15.8 of the Form 20-F filed by Telecom Argentina on March 26, 2019 and incorporated by reference herein).

15.9

4.7

Lender Accession Agreement between Telecom Argentina and CPPIB Credit Investments Inc., Deutsche Bank AG, London Branch and Deutsche Bank Trust Company Americas, as sole book-runner and lead arranger, dated November 14, 2018 (included as Exhibit 15.9 of the Form 20-F filed by Telecom Argentina on March 26, 2019 and incorporated by reference herein).

15.10

4.8

Loan Agreement between Telecom Argentina and International Finance Corporation, dated March 4, 2019.2019 (included as Exhibit 15.10 of the Form 20-F filed by Telecom Argentina on March 26, 2019 and incorporated by reference herein).

101.INS

4.9
Amended and Restated Common Terms Agreement between Telecom Argentina and Inter-American Investment Corporation, dated February 4, 2020 (included as Exhibit 4.9 of the Form 20-F filed by Telecom Argentina on March 18, 2020 and incorporated by reference herein).
4.10Amended and Restated IDB Invest Loan Agreement between Telecom Argentina and Inter-American Investment Corporation, dated February 4, 2020 (included as Exhibit 4.10 of the Form 20-F filed by Telecom Argentina on March 18, 2020 and incorporated by reference herein).

 

PART IIITELECOM ARGENTINA S.A.


8.1List of Subsidiaries.
12.1Certification of Roberto D. Nobile of Telecom Argentina S.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2Certification of Gabriel Blasi of Telecom Argentina S.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1Certification of  Roberto D. Nobile and Gabriel Blasi pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

 

PART III

TELECOM ARGENTINA S.A.


SIGNATURE

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 

Telecom Argentina S.A.

By:

/s/ GABRIEL BLASI

Name:

Gabriel Blasi

Title:

Chief Financial Officer

Date: March 25, 2021 

 

Date:      March  26, 2019

TELECOM ARGENTINA S.A.

Consolidated Financial Statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018

 

 

 

 

 

 

 

 

Alicia Moreau de Justo 50

(1107) Ciudad Autónoma de Buenos Aires

Argentina

 

 

 

 

 

 

$: Argentine peso

US$: US dollar

$84.15 = US$1TELECOM ARGENTINA S.A.

Consolidated Financial Statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 20162020

 

F-1

 

Alicia Moreau de Justo 50

(1107) Ciudad Autónoma de Buenos Aires

Argentina

$: Argentine peso

US$: US dollar

$37.70 = US$1 as of December 31, 2018


Table of Contents

TELECOM ARGENTINA S.A.

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Telecom Argentina S.A.

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

 

We have audited the accompanying consolidated statements of financial position of Telecom Argentina S.A. and its subsidiaries (the “Company”) as of December 31, 20182020 and 2017,2019, and the related consolidated income statements, consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018,2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sCompany's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182020 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, 2018,2020, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO.

 

Basis for Opinions

 

The Company’sCompany's management is responsible for these consolidated 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 Overover Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

 

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

 

Dispute of SCI’s Resolution 50/10

 

As discussed inWe draw attention to Note 18.2.j.19.2.j. to the consolidated financial statements, which describes the Company has disputedsituation related to the fundamentals of Resolution 50/10 ofresolution issued by the Secretariat of HomelandDomestic Trade which provides for a mechanismof the Nation to calculate the monthly fee payable by the users of cable television subscriber fees.services. The outcome of this situation cannot be foreseen to date. Our opinion is not modified in respect of this matter.

F-2

TELECOM ARGENTINA S.A.

 

Definition and Limitations of Internal Control over Financial Reporting

 

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.

 

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.

 

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment – CGU in Argentina

As described in Notes 3.l), 3.v), 3.v.1) and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $ 251,908 million as of December 31, 2020, and the goodwill associated with the Argentinian business operations (“the Cash Generating Unit (CGU) in Argentina”) was $ 250,641 million as of December 31, 2020. Management conducts an impairment test as of December 31 of each year, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. Potential impairment is identified by comparing the recoverable value of the CGU in Argentina, which includes goodwill balance, to its carrying value. Recoverable value of the CGU is determined as the higher value between its fair value less costs of disposal and its value in use. Fair value less cost of disposal is calculated by management using the Company’s market capitalization value and value in use is estimated using a discounted cash flow model. The assessment of the recoverable value of the CGU in Argentina included significant judgments by management. As of December 31, 2020, the recoverable value of the CGU in Argentina was determined by management through the fair value less costs of disposal. To determine the fair value of the CGU in Argentina, the market capitalization value of the Company was adjusted for (i) the estimated fair value of other CGUs, (ii) the effect of the net liabilities not subject to this impairment test at their estimated fair value and (iii) estimated disposal costs in an orderly transaction.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the CGU in Argentina is a critical audit matter are there was significant judgment by management when developing the assessment of the recoverable value of the CGU in Argentina, which was determined using fair value less costs of disposal. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to assess the fair value less costs of disposal of the CGU in Argentina and to evaluate adjustments made by management to the Company’s market capitalization value, including the estimated fair value of other CGUs and the effect of the net liabilities not subject to the impairment test at their estimated fair value. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

F-3

TELECOM ARGENTINA S.A.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the determination of the fair value less cost of disposal for the CGU in Argentina. These procedures also included, among others, evaluating the appropriateness of the fair value less costs of disposal determination for the CGU in Argentina; testing the completeness, accuracy, and relevance of underlying data used in the estimate; and evaluating the adjustments to the Company’s market capitalization value made by management, including the estimated fair value of other CGUs and the estimated fair value for the net liabilities not subject to the impairment test. Evaluating management’ adjustments to Company’s market capitalization value to determine the fair value less costs of disposal of the CGU in Argentina involved evaluating whether the assumptions used by management were reasonable considering the consistency with: (i) valuation techniques generally used to determine fair values, (ii) external market data and (iii) evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the methodology used by management to determine the fair value less costs of disposal and the reasonableness of the fair value of the net liabilities not subject to the impairment test.

/s/ PRICE WATERHOUSE & CO. S.R.L.

(Partner)

(Partner)

/s/ Carlos Alberto Pace

Buenos Aires, Argentina

March 19, 201925, 2021

 

We have served as the Company’s auditor since 2006.2003.

 

F-1


F-4

Table of ContentsTELECOM ARGENTINA S.A.

 

TELECOM ARGENTINA S.A.

CONTENTS

 

Page

Consolidated Statements of Financial Position

F-3F-6

Consolidated Income Statements

F-4F-7

Consolidated Statements of Comprehensive Income

F-5F-8

Consolidated Statements of Changes in Equity

F-6F-9

Consolidated Statements of Cash Flows

F-8F-11

Glossary of terms

F-9F-12

Note 1 – Description of business and basis of preparation of the consolidated financial statements

F-11F-14

Note 2 – Regulatory framework

F-17F-19

Note 3 – Significant accounting policies

F-34F-28

Note 4 – Acquisition of companies and corporate reorganization processes

F-56

Note 5 – Cash and cash equivalents and Investments. Additional information on the consolidated statements of cash flows

F-65F-45

Note 5 – Trade receivables

F-48
Note 6 – TradeOther receivables

F-68F-49

Note 7 – Other receivablesInventories

F-69F-49

Note 8 – InventoriesGoodwill

F-69F-49

Note 9 – Goodwill

F-70

Note 10 – Property, plant and equipment

F-70F-49

Note 10 – Intangible assets

F-51
Note 11 – IntangibleRights of use assets

F-71F-52

Note 12 – Trade payables

F-72F-52

Note 13 – Financial debt

F-72F-53

Note 14 – Salaries and social security payables

F-76F-61

Note 15 – Deferred income tax assets/liabilities

F-77F-61

Note 16 – Taxes payables

F-78F-63

Note 17 – OtherLeases liabilities

F-79F-63

Note 18 – ProvisionsOther liabilities

F-80F-63

Note 19 – CommitmentsProvisions

F-90F-64

Note 20 – EquityPurchase commitments

F-90F-72

Note 21 – Financial instrumentsEquity

F-93F-72

Note 22 – RevenuesFinancial instruments

F-97F-74

Note 23 – Revenues

F-78
Note 24 – Operating expenses

F-97F-78

Note 2425 – Financial results, net

F-99F-80

Note 25 – Earnings per share

F-99

Note 26 – Financial risk management

F-99F-80

Note 27 – Balances and transactions with Companies under Section 33 - Law No. 19,550 and Related Parties

F-102F-83

Note 28 – Restrictions on distribution of profits

F-106F-86

Note 29 – Impact of Coronavirus in TelecomF-86
Note 30 – Subsequent events to December 31, 2020F-90

 

F-5

 

F-2


We face substantial and increasing competition in the Argentine fixed and mobile telephony, cable television and broadband businesses.Internet businesses.

Table of Contents

 

TELECOM ARGENTINA S.A.S.A

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In millions of Argentine pesos in current currency - Note 1.e)

 

As of December 31,

 As of December 31,

ASSETS

Note

2018

2017

Note20202019

Current Assets

 

 

 

  

Cash and cash equivalents

5

6,891

6,517

418,52734,827

Investments

5

1,371

162

46,542584

Trade receivables

6

17,415

2,588

518,95623,096

Other receivables

7

5,073

1,223

65,5166,249

Inventories

8

2,737

136

73,7224,373

Total current assets

 

33,487

10,626

 53,26369,129

Non-Current Assets

 

 

 

  

Trade receivables

6

61

-

559112

Other receivables

7

1,722

353

61,5992,291

Deferred income tax assets

15

78

66

15412399

Investments

5

5,595

735

42,1522,891

Goodwill

9

120,449

31,954

8251,908252,052

Property, plant and equipment

10

150,476

45,701

9320,863334,903

Intangible assets

11

59,870

4,635

10104,026112,388
Right of use assets1117,77212,932

Total non-current assets

 

338,251

83,444

 698,791717,968

TOTAL ASSETS

 

371,738

94,070

 752,054787,097

LIABILITIES

 

 

 

  

Current Liabilities

 

 

 

  

Trade payables

12

22,854

5,737

1239,35843,515

Financial debt

13

20,044

1,383

1341,60248,031

Salaries and social security payables

14

5,947

2,585

1414,33613,533

Taxes payables

16

2,319

2,743

163,7394,510

Dividends payables

27

-

6,021

Leases liabilities173,3363,593

Other liabilities

17

1,537

152

182,0622,252

Provisions

18

744

-

191,6171,622

Total current liabilities

 

53,445

18,621

 106,050117,056

Non-Current Liabilities

 

 

 

  

Trade payables

12

570

-

122,4483,206

Financial debt

13

59,268

14,626

13158,598158,897

Salaries and social security payables

14

347

-

148401,172

Deferred income tax liabilities

15

24,542

3,982

1579,67471,549

Taxes payables

16

26

4

16519
Leases liabilities176,9664,999

Other liabilities

17

1,159

198

181,1562,071

Provisions

18

3,468

1,611

197,4626,301

Total non-current liabilities

 

89,380

20,421

 257,149248,214

TOTAL LIABILITIES

 

142,825

39,042

 363,199365,270

EQUITY

 

 

 

  

Equity attributable to Controlling Company

 

225,686

54,182

 382,456415,335

Equity attributable to non-controlling interest

 

3,227

846

 6,3996,492

TOTAL EQUITY(See Consolidated Statements of Changes in Equity)

20

228,913

55,028

21388,855421,827

TOTAL LIABILITIES AND EQUITY

 

371,738

94,070

 752,054787,097

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-F-63


Table of ContentsTELECOM ARGENTINA S.A

 

TELECOM ARGENTINA S.A.

CONSOLIDATED INCOME STATEMENTS

(In millions of Argentine pesos in current currency, except per share data in Argentine pesos in current currency - Note 1.e)

 

 

For the years ended December 31,

 For the years ended December 31,

Note

2018

2017

2016

Note202020192018

Revenues

22

168,046

66,649

60,405

23301,596322,686351,948

Employee benefit expenses and severance payments

23

(30,048)

(11,665)

(10,603)

24(58,476)(63,348)(62,316)

Interconnection and transmission costs

 

(5,525)

(1,311)

(1,360)

 (11,254)(10,238)(11,572)

Fees for services, maintenance, materials and supplies

23

(16,261)

(7,254)

(7,912)

24(33,012)(36,223)(34,672)

Taxes and fees with the Regulatory Authority

23

(13,609)

(4,859)

(4,341)

24(23,020)(25,029)(28,502)

Commissions and advertising

 

(11,210)

(3,691)

(3,464)

 (17,252)(19,893)(23,477)

Cost of equipment and handsets

23

(9,667)

(493)

(882)

24(11,132)(14,634)(20,245)

Programming and content costs

 

(12,156)

(9,116)

(7,778)

 (20,169)(24,548)(25,458)

Bad debt expenses

6

(3,527)

(901)

(741)

 (10,805)(8,619)(7,387)

Other operating income and expenses

23

(9,675)

(3,246)

(3,125)

Depreciation, amortization and impairment of PP&E and Intangible assets

23

(35,111)

(9,804)

(7,883)

Other operating expenses24(13,588)(15,212)(20,263)
Depreciation, amortization and impairment of fixed assets24(82,594)(83,439)(73,535)

Operating income

 

21,257

14,309

12,316

 20,29421,50344,521

Earnings from associates

5

236

353

221

Earnings (losses) from associates4496(255)494

Debt financial expenses

24

(33,972)

(217)

(595)

25(24,698)(22,677)(71,150)

Other financial results, net

24

15,177

930

4,619

257,05515,42631,786

Income before income tax benefit (expense)

 

2,698

15,375

16,561

Income tax benefit (expense)

15

2,838

(5,516)

(6,015)

Net income for the year

 

5,536

9,859

10,546

Income before income tax (expense) benefit 3,14713,9975,651
Income tax (expense) benefit15(8,251)(19,290)5,943
Net (loss) income for the year (5,104)(5,293)11,594

 

 

 

  

Attributable to:

 

 

 

  

Controlling Company

 

5,294

9,731

10,457

 (5,715)(5,985)11,089

Non-controlling interest

 

242

128

89

 611692505

 

5,536

9,859

10,546

 (5,104)(5,293)11,594

 

 

 

  

Earnings per share attributable to Controlling Company - Basic and diluted

25

2.46

8.21

8.83

(Loss) earnings per share attributable to Controlling Company - Basic and diluted3.u(2.65)(2.78)5.15

 

See Note 2324 for additional information on operating expenses per function.

The accompanying notes are an integral part of these consolidated financial statements.

 

F-F-74


Table of ContentsTELECOM ARGENTINA S.A

 

TELECOM ARGENTINA S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions of Argentine pesos in current currency - Note 1.e)

 

For the years ended December 31,

For the years ended December 31,

2018

2017

2016

202020192018

 

 

Net income for the year

5,536

9,859

10,546

Net (loss) income for the year(5,104)(5,293)11,594

 

 

 

Other components of the Statements of Comprehensive Income (loss)

 

 

Other components of the Statements of Comprehensive Income 

Will be reclassified subsequently to profit or loss

 

 

 

Currency translation adjustments (no effect on Income Tax)

1,198

(713)

(1,567)

(1,665)(2,647)2,893

NDF effects classified as hedges

128

-

-

(272)(456)268

Income Tax effects on NDF classified as hedges

(36)

-

-

Income Tax effects on NDF classified as hedges and others21132(75)

Will not be reclassified subsequently to profit or loss

 

 

 

Actuarial results

38

-

-

1356479

Tax effect

(11)

-

-

(41)(20)(23)

Other components of the comprehensive income (loss), net of tax

1,317

(713)

(1,567)

Other components of the comprehensive (loss) / income, net of tax(1,822)(2,927)3,142

 

 

 

Total comprehensive income for the year

6,853

9,146

8,979

Total comprehensive (loss) / income for the year(6,926)(8,220)14,736

 

 

 

Attributable to:

 

 

 

Controlling Company

6,425

9,090

8,922

(7,200)(8,438)13,458

Non-controlling interest

428

56

57

2742181,278

6,853

9,146

8,979

(6,926)(8,220)14,736

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-F-85


Table of ContentsTELECOM ARGENTINA S.A.

 

TELECOM ARGENTINA S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In millions of Argentine pesos in current currency - Note 1.e)

 

 

Owners contribution

Reserves

 

 

 

 

 

 

 

Outstanding shares

Treasury shares

 

Treasury
shares
acquisition
cost

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital
nominal
value
(1)

Inflation
adjustment

Capital
nominal
value

Inflation
adjustment

 

Conntributed
Surplus

 

Legal
reserve

Special
reserve for
IFRS
implementation

Voluntary
reserve for
capital
investments

Facultative
(2)

Voluntary
reserve for
future
dividends
payments

 

Other
comprehensive
results

 

Other
deferred

 

Retained
earnings

 

 

Total

Equity
attributable
to non-
controlling
interest

Total Equity

Balances as of January 1, 2016

198

1,637

-

-

-

1,266

99

107

-

11,261

-

295

96

33,112

48,071

733

48,804

Capital reduction (3)

(1)

(1)

-

-

-

-

-

-

-

2

-

-

-

-

-

-

-

Facultative reserve constitution (4)

-

-

-

-

-

-

-

-

-

3,588

-

-

-

(3,588)

-

-

-

Dividends (4)

-

-

-

-

-

-

-

-

 

 

 

 

 

(1,563)

(1,563)

-

(1,563)

Surplus capitalization (5)

137

1,129

-

-

-

(1,266)

-

-

-

-

-

-

-

-

-

-

-

Facultative reserve partial reversal (5)

866

825

-

-

-

-

-

-

-

(1,691)

-

-

-

-

-

-

-

Facultative reserve partial reversal (6)

-

-

-

-

-

-

-

-

-

(1,464)

-

-

-

-

(1,464)

-

(1,464)

Share on reserve of Controlled companies

-

-

-

-

-

-

 

-

-

-

-

 

(83)

-

(83)

-

(83)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year

-

-

-

-

-

-

-

-

-

-

-

-

-

10,457

10,457

89

10,546

Other comprehensive loss

-

-

-

-

-

-

-

-

-

-

-

(1,535)

-

-

(1,535)

(32)

(1,567)

Total Comprehensive Income

-

-

-

-

-

-

-

-

-

-

-

(1,535)

-

10,457

8,922

57

8,979

Balances as of December 31, 2016

1,200

3,590

-

-

-

-

99

107

-

11,696

 

(1,240)

13

38,418

53,883

790

54,673

Legal and facultative reserve (7)

-

-

-

-

-

-

347

-

-

3,887

-

-

-

(4,234)

-

-

-

Dividends (7)

-

-

-

-

-

-

-

-

-

-

-

-

-

(2,770)

(2,770)

-

(2,770)

Facultative reserve partial reversal (8)

-

-

-

-

-

-

-

-

-

(6,021)

-

-

-

-

(6,021)

-

(6,021)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year

-

-

-

-

-

-

-

-

-

-

-

-

-

9,731

9,731

128

9,859

Other comprehensive loss

-

-

-

-

-

-

-

-

-

-

-

(641)

-

-

(641)

(72)

(713)

Total Comprehensive Income

-

-

-

-

-

-

-

-

-

-

-

(641)

-

9,731

9,090

56

9,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2017

1,200

3,590

-

-

-

-

446

107

-

9,562

-

(1,881)

13

41,145

54,182

846

55,028

 Owners contributionReservesOther comprehensive resultsOther deferredRetained earningsEquity attributable to controlling companyEquity attributable to non-controlling interestTotal Equity
 Outstanding sharesTreasury sharesInflation adjustment

Treasury shares acquisition cost

(1)

Capital nominal value
(1)
Capital nominal value
(1)


Contributed

Surplus

Legal reserveSpecial reserve for IFRS implementationVoluntary reserve for capital investmentsFacultative (2)Voluntary reserve for future dividends payments
Balances as of January 1, 20181,200-8,832--935223-20,026-(3,946)3286,175113,4771,772115,249
Incorporation of the Net Equity of the acquire (3)9691584,339(3,759)-3,8091,8206,912-46,943(662)(11)(807)139,5682,452142,020
Retained earnings adjustment (3)------------4949(44)5
Merger effect (3)(15)-(110)-266,701-----66211-267,2491,692268,941
Call option reserve (4)-----------(276)-(276)-(276)
Reserves constitution--------3,7065,614--(9,320)---
Dividends---------(29,555)--(30,810)(60,365)-(60,365)
Dividends to non-controlling shareholders (5)--------------(381)(381)
Increase in CV Berazategui shareholding-----------(501)-(501)(11)(512)
  Comprehensive income:                
   Net income for the year------------11,08911,08950511,594
   Other comprehensive income----------2,369--2,3697733,142
Total Comprehensive Income----------2,369-11,08913,4581,27814,736
                 
Balances as of December 31, 20182,1541593,061(3,759)266,7014,7442,0436,91223,73223,002(1,577)(745)56,376472,6596,758479,417
Resolutions of the Ordinary and Extraordinary Shareholders’ Meeting held on April 24, 2019:                
 - Reserves constitution-----557--30,82813,193--(44,578)---
 - Dividends---------(11,346)--(11,798)(23,144)-(23,144)
Dividends to non-controlling shareholders (5)--------------(356)(356)
Capital reduction-(15)(1,304)3,759--------(2,440)---
Irrevocable Call and Put Option on the shares of AVC Continente Audiovisual (6)-----------(154)-(154)-(154)
Increase in Tuves shareholding (7)-----------46-46(128)(82)
Resolutions of the Ordinary Shareholders’ Meeting held on October 10, 2019:                
 - Dividends--------(2,881)(22,722)---(25,603)-(25,603)
Adesol dividends-----------(31)-(31)-(31)
  Comprehensive income:                
   Net (loss) income for the year------------(5,985)(5,985)692(5,293)
   Other comprehensive loss----------(2,453)--(2,453)(474)(2,927)
Total Comprehensive (loss) income----------(2,453)-(5,985)(8,438)218(8,220)
                 
Balances as of December 31, 20192,154-91,757-266,7015,3012,0436,91251,6792,127(4,030)(884)(8,425)415,3356,492421,827
                           

(1) As of December 31, 2018 and 2019 total shares, were issued and fully paid. As of December 31, 2018, 15,221,373 were treasury shares.

(2) Corresponds to the Facultative Reserve to maintain the capital investments level and the current level of solvency.

(3) See Note 3.d.5.

(4) Call option reserve of non-controlling interest.

(5) Corresponds to non-controlling shareholders of Núcleo.

(6) See Note 3.d.1.b).

(7) See Note 3.d.1.a).

The accompanying notes are an integral part of these consolidated financial statements.

F-9

TELECOM ARGENTINA S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONT.)

(In millions of Argentine pesos in current currency - Note 1.e)]

 Owners contributionReservesOther
comprehensive
results
Other
deferred
Retained
earnings
Equity
attributable
to
controlling
company
Equity
attributable to
non-controlling
interest
Total
Equity
 
Outstanding
shares
Inflation
adjustment
 
Contributed
Surplus
Legal
reserve
Special
reserve
for IFRS
implementation
Voluntary
reserve for
capital
investments
Facultative
(2)
Voluntary
reserve
for future
dividends
payments
 
Capital
nominal
value
(1)
 
Balances as of January 1, 20202,15491,757266,7015,3012,0436,91251,6792,127(4,030)(884)(8,425)415,3356,492421,827 
Resolutions of the General Ordinary and Extraordinary Shareholders’ Meeting held on April 28, 2020:               
- Absorption of negative Retained earnings-----(2,439)(5,939)---8,378--- 
- Reserves reallocation--(13,751)--(4,473)13,7514,473------ 
Dividends to non-controlling shareholders (3)-------- ---(367)(367) 
Irrevocable Call and Put Option on the shares of AVC Continente Audiovisual valuation adjustment (4)---------34-34-34 
Resolutions of the General Extraordinary Shareholders’ Meeting held on November 13, 2020:               
 - Dividends (5)------(19,113)(6,600)---(25,713)-(25,713) 
  Comprehensive income:               
   Net (loss) income for the year----------(5,715)(5,715)611(5,104) 
   Other comprehensive loss--------(1,485)--(1,485)(337)(1,822) 
Total Comprehensive (loss) income--------(1,485)-(5,715)(7,200)274(6,926) 
                
Balances as of December 31, 20202,15491,757252,9505,3012,043-40,378-(5,515)(850)(5,762)382,4566,399388,855 

 

(1) As of December 31, 2017 and 2016,2020 total shares, (120,000), of $10,000 argentine peso of nominal value each, were issued and fully paid.

(2) Corresponds to the Facultative Reserve to maintain the capital investments level and the current level of solvency.

(3) As approved by the General Extraordinary Shareholders’ MeetingCorrespond to non-controlling shareholders of Cablevisión held on January 12, 2016.Núcleo.

(4) As approved by the General Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión held on April 20, 2016.See Note 3.d.1.b).

(5) Capitalization of Capital Surplus and Contributed Surplus and Facultative reserve partial reversal for its capitalization as approved by the General Extraordinary Shareholders’ Meeting of Cablevisión held on June 30, 2016.

(6) For future dividends payments approved by the General Extraordinary Shareholders’ Meeting of Cablevisión held on June 30, 2016.

(7) As approved by the Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión held on March 30, 2017.

(8) For future dividends payments approved by the General Extraordinary Shareholders’ Meeting of Cablevisión held on December 18, 2017.See Note 4.b).

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-10

F-6


Table of Contents

 

TELECOM ARGENTINA S.A.

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONT.)

(In millions of Argentine pesos in current currency - Note 1.e)

 

Owners contribution

Reserves

 

 

 

 

 

 

 

Outstanding shares

Treasury shares

 

Treasury
shares
acquisition
cost
(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital
nominal
value
(1)

Inflation
adjustment

Capital
nominal
value
(1) (2)

Inflation
adjustment
(2)

 

Conntributed
Surplus

 

Legal
reserve

Special
reserve for
IFRS
implementation

Voluntary
reserve for
capital
investments
(3)

Facultative
(3)

Voluntary
reserve for
future
dividends
payments

 

Other
comprehensive
results

 

Other
deferred

 

Retained
earnings

 

 

Total

Equity
attributable
to non-
controlling
interest

Total Equity

Balances as of January 1, 2018

1,200

3,590

-

-

-

-

446

107

-

9,562

-

(1,881)

13

41,145

54,182

846

55,028

Incorporation of the Net Equity of the acquiree (Note 1.a)

969

39,604

15

152

(1,795)

-

1,819

869

3,300

-

22,414

(316)

(5)

(384)

66,642

1,171

67,813

Retained earnings adjustment (Note 3.u and 3.v.)

-

-

-

-

-

-

-

-

-

-

-

-

-

24

24

(21)

3

Merger effect (Note 1.a)

(15)

(45)

-

-

-

127,343

-

-

-

-

-

316

5

-

127,604

808

128,412

Call option reserve (4)

-

-

-

-

-

-

-

-

-

-

-

-

(132)

-

(132)

-

(132)

Dividends (5)

-

-

-

-

-

-

-

-

-

-

(14,111)

-

-

(14,711)

(28,822)

-

(28,822)

Facultative reserve (6)

-

-

-

-

-

-

-

-

-

1,769

2,681

-

-

(4,450)

-

-

-

Increase in CV Berazategui shareholding (Note 3.d.6)

-

-

-

-

-

-

-

-

-

-

-

-

(237)

-

(237)

(5)

(242)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year

-

-

-

-

-

-

-

-

-

-

-

-

-

5,294

5,294

242

5,536

Other comprehensive income

-

-

-

-

-

-

-

-

-

-

-

1,131

-

-

1,131

186

1,317

Total Comprehensive Income

-

-

-

-

-

-

-

-

-

-

-

1,131

-

5,294

6,425

428

6,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of December 31, 2018

2,154

43,149

15

152

(1,795)

127,343

2,265

976

3,300

11,331

10,984

(750)

(356)

26,918

225,686

3,227

228,913

(1) As of December 31, 2018 total shares (2,168,909,384), of $1 argentine peso of nominal value each, were issued and fully paid. As of December 31, 2018, 15,221,373 were treasury shares.

(2) Corresponds to 15,221,373 shares of $1 argentine peso of nominal value each, equivalent to 0.70% of total capital. The treasury shares acquisition costs amounted to 1,795. See Note 20 to these consolidated financial statements.

(3) Correspond to the Facultative Reserves to maintain the capital investments level and the current level of solvency.

(4) Call option reserve of non-controlling interest (See Note 3 d.4 to the consolidated financial statements).

(5) As approved by the Company’s Board of Directors on January 31, 2018. Includes 14,711 of advanced dividends which were subsequently ratified by the General Ordinary Shareholders’ Meeting held on April 25, 2018.

(6) As approved by the General Ordinary Shareholders’ Meeting held on April 25, 2018.

The accompanying notes are an integral part of these consolidated financial statements.

F-7


Table of Contents

TELECOM ARGENTINA S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions of Argentine pesos in current currency – Note 1.e)

 

 

For the years ended December 31,

 For the years ended December 31,

Note

2018

2017

2016

Note202020192018

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES

 

 

 

  

Net income for the year

 

5,536

9,859

10,546

Net (loss) income for the year (5,104)(5,293)11,594

Adjustments to reconcile net income to net cash flows provided by operating activities

 

 

 

 

  

Allowances deducted from assets and provisions

 

3,622

874

735

Allowances deducted from assets 11,37213,5647,586

Depreciation of property, plant and equipment

10

27,643

9,698

7,719

2465,71163,95557,815

Amortization of intangible assets

11

5,378

106

164

2410,63711,25711,138

Earnings from associates

5.a

(236)

(353)

(221)

Impairment of PP&E and Intangible assets

23

2,090

-

-

Disposals of PP&E and consumption of materials

 

579

1,687

1,951

Amortization of rights of use assets245,8704,736204
(Earnings) losses from associates4.a(496)255(494)
Disposals of fixed assets and consumption of materials 6605661,213

Financial results and others

 

14,775

2,334

1,930

 25,68826,02935,097

Income tax (benefit) expense

15

(2,838)

5,516

6,015

158,25119,290(5,943)

Income tax paid

 

(5,935)

(4,365)

(1,698)

Income tax paid (*) (1,899)(2,374)(12,430)

Net (increase) decrease in assets

5.b

(4,997)

(1,113)

197

4.b(8,157)5,228(10,465)

Net increase (decrease) in liabilities

5.b

(3,191)

(1,435)

(1,354)

Net decrease in liabilities4.b(11,208)(25,671)(24,932)

Total cash flows provided by operating activities

 

42,426

22,808

25,984

 101,325111,54270,383

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES

 

 

 

 

  

Property, plant and equipment acquisitions

 

(39,574)

(19,116)

(19,404)

 (52,288)(66,940)(64,635)

Intangible asset acquisitions

 

(2,906)

(807)

(24)

 (2,072)(2,216)(6,087)

Acquisition in shareholdings

 

(244)

(33)

(4,040)

 -(83)(511)

Proceeds from dividends

5.b

56

-

41

4.b80252117

Cash incorporated by the merger

4.a

4,180

393

324

 -8,754

Proceeds from the sale of property, plant and equipment and intangible assets

 

6

13

16

 5313912

Investments not considered as cash and cash equivalents

 

7,197

2,467

(833)

 (28,914)7,87215,073

Total cash flows used in investing activities

 

(31,285)

(17,083)

(23,920)

 (83,141)(60,976)(47,277)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES

 

 

 

 

  

Proceeds from financial debt

5.b

27,769

1,264

15,305

4.b56,02879,65258,158

Payment of financial debt

5.b

(4,512)

(1,623)

(12,679)

4.b(65,393)(49,695)(9,449)

Payment of interests and related expenses

5.b

(3,724)

(1,292)

(1,834)

4.b(20,851)(10,746)(7,798)

Payment of cash dividends

5.b

(34,130)

(2,454)

(3,005)

Payments of leases liabilities (5,231)(4,936)-
Payment of dividends4.b(367)(48,368)(71,255)

Total cash flows used in financing activities

 

(14,597)

(4,105)

(2,213)

 (35,814)(34,093)(30,344)

 

 

 

 

  

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(3,456)

1,620

(149)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (17,630)16,473(7,238)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR

 

6,517

4,840

4,065

 34,82714,43213,649

NET FOREIGN EXCHANGE DIFFERENCES AND RECPAM ON CASH AND CASH EQUIVALENTS

 

3,830

57

924

   1,3303,9228,021

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

 

6,891

6,517

4,840

 18,52734,82714,432

 

(*)Years ended December 31,
 202020192018
  Corresponding to Controlling Company tax withholdings / advances(1,699)(2,294)(11,783)
  Corresponding to subsidiaries(200)(80)(647)
 (1,899)(2,374)(12,430)

 

See Note 5.b4.b for additional information on the consolidated statements of cash flows.

The accompanying notes are an integral part of these consolidated financial statements.

 

F-11

 

F-8


Table of ContentsTELECOM ARGENTINA S.A. 

 

TELECOM ARGENTINA S.A.

Glossary of terms

 

The following explanations are not technical definitions, but to assist the general reader to understand certain terms as used in these consolidated financial statements.

 

“Abono fijo”: Under the “Abono fijo” 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.

AFIP (Administración Federal de Ingresos Públicos): The Argentine federal tax authority

authority.

AMBA (Área Metropolitana de Buenos Aires): the Metropolitan Area of Buenos Aires.

 

ADSADS: Telecom Argentina’s American Depositary Share, listed on the New York Stock Exchange, each representing 5 Class B Shares.

 

BYMA (Bolsas y Mercados Argentinos): Buenos Aires Stock Exchange.

 

BCRA (Banco Central de la República Argentina): The Central Bank of Argentina.

 

Cablevisión:Company absorbed by Telecom since January 1, 2018, whose activities are continued by Telecom (Note 4.a).

Telecom. 

CAPEX: Capital expenditures.

COMFER (Comisión Federal de Radiodifusión): Argentine Commission of Broadcasting.

CNC (Comisión Nacional de Comunicaciones): The Argentine National Communications Commission.

 

CNDC (Comisión Nacional de Defensa de la Competencia): The Argentine Antitrust Commission.

 

CNV (Comisión Nacional de Valores): The Argentine National Securities Commission.

 

Company or Company/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.

 

CVH: Cablevisión Holding S.A., controlling company of Telecom since January 1, 2018 (Note 27.a).

 

DNU (Decreto de Necesidad y Urgencia): Decree of Urgency issued by the Argentine Government. 

ENACOM (Ente Nacional de Telecomunicaciones): The Telecommunications Regulatory Authority of Argentina.

 

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

Fund. 

Fintech: Fintech Telecom LCC, a Telecom shareholder

shareholder. 

Fixed assets: Includes PP&E, Intangible assets, Goodwill and Rights of use assets. 

IAS: International Accounting Standards.

 

IASB: International Accounting Standards Board.

 

IDEN:ICT services (Information and Communication Technology services):  Integrated Digital Enhanced Network

Services to transport and distribute signals or data, such as voice, text, video and images, provided or requested by third-party users, through telecommunications networks. 

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 No. 27,078.

 

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”.

 

NDF: Non-Deliverable Forward.

 

Nortel: Nortel Inversora S.A.

NYSE: New York Stock Exchange.

OCI: Other Comprehensive Income.

 

PCS (Personal Communications Service): A mobile communications service with systems that operate in a similar manner to cellular systems.

F-9


Table of Contents

TELECOM ARGENTINA S.A.

 

PEN: PEN (Poder Ejecutivo Ncional): National Executive Power.

 

PPP (Programa de Propiedad Participada): Share Ownership plan.

 

PP&E: Property, plant and equipment.

 

F-12

TELECOM ARGENTINA S.A. 

RECPAM (Resultado por exposición a los cambios en el poder adquisitivo de la moneda): Inflation Adjustment Gain (Loss)

 

Regulatory Authority:Previously, the SC and the CNC. Since the issuance of the Decree of Need and Urgency No.267/No. 267/15, the Regulatory Authority is the National Communications Agency (ENACOM).

 

RMB: Official currency of Popular Republic of China. 

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,No. 26 issued by the FACPCE, amended by RT29 and RT43.

 

SBT (Servicio básico telefónico): Basic telephone service.

SC (Secretaría de Comunicaciones): The Argentine Secretary of Communications.

 

SCMA (Servicio de Comunicaciones Móviles Avanzadas): Mobile Advanced Communications Service.

SEC: Securities and Exchange Commission of the United States of America.

 

SRCE (Servicio Radioeléctrico de Concentración de Enlaces): Radioelectric Radio-electric Service of Concentration of Links.

 

SRMC (Servicio de Radiocomunicaciones Móvil Celular): Cellular Mobile Radiocommunications Service.

 

SRS (Servicio de Radiodifusión por Suscripción por vínculo físico y/o radioeléctrico.): Subscription Broadcasting Service by physical and / or radioelectricradio-electric link.

 

SMS: Short message systems.

 

Sofora: Sofora Telecomunicaciones S.A.

STM (Servicio de Telefonía Móvil): Mobile Telephone Service.

 

SU: The availability of Basic telephone service, or access to the public telephone network via different alternatives, at an affordable price to people within a country or specified area.

 

Telecom: 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 Personal/Personal/Micro Sistemas/Telintar/Pem/CV Berazategui//Cable Imagen/ ÚltimaÚltima Milla/AVC Continente Audiovisual/Inter Radios: Names corresponding to limited companies or limited responsibility companies that are directly or indirectly controlled according to the definition of the General Corporations Law, or were controlled by the Company, directly or indirectly: Telecom Personal S.A., Micro Sistemas S.A.U., Telecomunicaciones Internacionales de Argentina Telintar S.A., Pem S.A., CV Berazategui S.A., Cable Imagen S.R.L., Última Milla S.A., AVC Continente Audiovisual S.A., Inter Radios S.A.U.

 

Telecom USA/Núcleo/Personal Envíos/Tuves Paraguay / Televisión Dirigida / Adesol: Names corresponding to foreign companies Telecom Argentina USA, Inc., Núcleo S.A., Personal Envíos S.A., Tuves Paraguay S.A., Televisión Dirigida S.A. y Adesol S.A., respectively, companies that are directly or indirectly controlled according to the definition of the General Corporations Law.

 

La Capital Cable/Ver TV/TSMA: Names corresponding to limited companies La Capital Cable S.A., Ver T.V. S.A. and Teledifusaora San Miguel Arcángel S.A., respectively, companies that are directly or indirectly associates according to the definition of the General Corporations Law. 

Telefónica: Telefónica de Argentina S.A.

 

TLRD (Terminación Llamada Red Destino):TMF Administration Trust / TMF Trust: Termination charges from third parties’ wireless networks.

Administration Trust – Telecom Argentina’s refinancing plan agreed with TMF Trust Co. 

UVA (Unidad de Valor Adquistivo): Purchasing Value Unit. 

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.

 

VAT: Value-Added TaxTax. 

VLG: VLG S.A.U. (formerly VLG Argentina LLC)LLC), a company that is a shareholder of the Company and controlled by CVH.

WAI: W de Argentina – Inversiones S.A.

 

In these Consolidated Financial Statements, unless otherwise stated, Argentine peso amounts are stated in millions.

 

F-10


F-13

Table of Contents

 

TELECOM ARGENTINA S.A.

 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

 

a)The Company and its Operations

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 all the southern regioncountry.

In November 2017, the Company merged between Telecom Personal S.A., so, since that date, it provides directly mobile telecommunications services. Additionally, as a consequence of the merger with Cablevisión S.A. (accounted for as a reverse acquisition), since January 1, 2018, the operations that Cablevisión developed as of December 31, 2017, which mainly consisted in the provision of cable television services through networks installed in different localities in Argentina and competing inUruguay, are developed by the previously exclusive northern region.Company.

 

TheTherefore, the Company mainly provides mainly fixed-line publicfixed and mobile telecommunicationtelephony services, international long-distance service,cable television services, data transmission and Internet services in Argentina and, through its subsidiaries, mobile telecommunicationsit also provides the mentioned services in ParaguayUruguay and Paraguay. Also, it provides international wholesaletelephony services in the United States of America.

As a consequence of the merger between the Company and Cablevisión (Note 4.a), Telecom Argentina, as surviving entity, develops, as from January 1, 2018, the operations of Cablevisión.

The core business of Cablevisión and some of its subsidiaries was the operation of the cable television networks installed in different regions of Argentina and Uruguay and the provision of telecommunication services and data transmission.

Cablevisión exploited cable television services through licenses original granted by the Federal Broadcasting Committee (COMFER) and telecommunication services through licenses granted by the SC.

 

Information on Telecom’s licenses and on the regulatory framework is described under Note 2.2 to these consolidated financial statements.

 

As of December 31, 2018,2020, the following are the subsidiaries included in the consolidation process and the respective equity interest owned by Telecom Argentina:

 

Company

Main Activity

Country

Telecom Argentina’sArgentina's
direct/indirect interest
in capital stock and
votes

Núcleo

Mobile telecommunications Services

Paraguay

67.50%

Personal Envíos

Mobile financial services

Paraguay

67.50%

Tuves Paraguay

TelecommunicationsDistribution of television and audio signals direct to home services

Paraguay

67.50%

Microsistemas

Micro Sistemas

Services related to the use of electronic payment media

Argentina

100.00%

Pem

Investment

Argentina

100.00%

CV Berazategui (a)

Cable Imagen

Closed-circuit television

Argentina

100.00%

Cable Imagen (b)

Closed-circuit television

Argentina

100.00%

Televisión Dirigida

Cable television services

Paraguay

100.00%

Adesol (c)

(a)

Holding

Uruguay

100.00%

Última Milla

Services for telecommunication

Argentina

100.00%

AVC Continente Audiovisual

Broadcasting services

Argentina

60.00%

Inter Radios

Broadcasting services

Argentina

100.00%

Telecom USA

Telecommunication services

USA

100.00%

Personal Smarthome S.A. (b)Security solutions and servicesArgentina100.00%


(a)Includes the 100% interest in Telemas S.A., which holds interests in the following special-purpose entities: Audomar S.A., Bersabel S.A., Dolfycor S.A., Reiford S.A., Space Energy S.A., Tracel S.A. and Visión Satelital S.A. (See Note 3 d.4) to these consolidated financial statements).
(b)Company started on December 30, 2020. See Note 3.d.1.e) to these consolidated financial statements.

 

(a)TheOn July 15, 2020 the Company owned 70% indirectly through Pem until April 4, 2018 when the remaining 30% was acquired directly (See Note 3.d.6).

(b)The data about the issuer arise from non-accounting information.

(c)Includes theentered into a trust agreement with TMF Trust Company (100% interest in the following special-purpose entities: Audomar S.A., Bersabel S.A., Dolfycor S.A., Reiford S.A., Space Energy S.A., Tracel S.A. and Visión Satelital S.A. See Note 3 d.4).

The information presented oncapital stock) until November 5, 2020, date in which its term was finalized. As a comparative basisresult, consolidated operations of the fiscal yearsCompany for the year ended December 31, 2017 and 2016 corresponds2020 includes those operations carried out by the Trust during its term. For further information, see Note 13 to thethese consolidated information of Cablevisión, due to the treatment of the “reverse acquisition” described under Note 1.c), therefore:financial statements.

 

i.NEXTEL Communications Argentina S.R.L. (“Nextel”) is included in the consolidation until it was merged into Cablevisión, effective as of October 1, 2017 (See Note 4.d), and

ii.Telecom USA, Núcleo, Personal Envíos, Tuves Paraguay and Microsistemas (subsidiaries of Telecom before its merger with Cablevisión) are not included in the consolidation of the comparative amounts.

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Table of Contents

TELECOM ARGENTINA S.A.

b)Segment information

b)Segment information

 

An operating segment is defined as a component of an entity or a Group 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 chief operating decision maker. In the case of the Company, the Executive Committee and the Chief Executive Officer (“CEO”) are responsible for controlling recourses and for the economic and financial performance of Telecom.

 

F-14

TELECOM ARGENTINA S.A.

The Executive Committee and the CEO have a strategic and operational vision of Telecom as a single business unit in Argentina, according to the current regulatory context of the converged ICT services industry (adding to the same segment both the activities related to the mobile services, internet services, cable television and fixed telephony services, services governed by the same regulatory framework of ICT services). To exercise its functions, both the Executive Committee and the CEO receive periodically the economic-financial information of Telecom Argentina and its subsidiaries (in historical values)current currency as of the date of each transaction), that is prepared as a single segment and evaluate the evolution of business as a unit of generation of results, administrating the resources in a unique way to achieve the objectives. Regarding to costs, they are not specifically appropriate to a type of service, considering that the Company has a single payroll and operating expenses that affect all services in general (non-specific). On the other hand, decisions on CAPEX affect all the types of services provided by Telecom in Argentina and not specifically to one of them. Based on what was previously described and under the current accounting principles (IFRS(provided by IFRS as issued by the IASB), it iswas defined that the Company has a single segment of operations in Argentina.

 

On the other hand, Telecom carries out its activities abroad (Paraguay, United States of America and Uruguay). These operations are not analyzed as a separate segment by the Executive Committee and the CEO, who analyze the consolidated information of companies in Argentina and abroad (in historical values)current currency as of the date of each transaction), taking into accountconsidering that the activities of foreign companies are not significant for Telecom. The operations that Telecom carriesOperations carried out abroad by Telecom do not meet the aggregation criteria established by the standard to be grouped within the “Services"Services rendered in Argentina”Argentina" segment, and considering that they do not exceed any of the quantitative thresholds identified in the standard to qualify as reportable segments, they are grouped within the category “Other"Other abroad segments”segments".

 

Presented below is the Segment financial information as it is analyzed by the Executive Committee and the CEO for the years ended December 31, 2018, 20172020, 2019 and 2016. The following tables include segment results presented to the chief operating decision maker in millions of nominal Argentine pesos, together with a reconciliation to such amounts on a price level adjusted basis restated in accordance with the provisions of IAS 29:2018.

 

q Consolidated Income Statement as of December 31, 2020

 Services
rendered in
Argentina
Services
rendered in
Argentina –
Inflation
restatement
Services
rendered in
Argentina
restated for
inflation
Other abroad
segments
Other
abroad
segments –
Inflation
restatement
Other abroad
segments
restated for
inflation
EliminationsTotal
Revenues 240,325                 41,484  281,809               18,183                   3,013              21,196  (1,409)          301,596  
Operating costs without depreciation, amortization and impairment of fixed assets (158,901)    (27,879)      (186,780)       (11,419)    (1,918)    (13,337)  1,409  (198,708)  
Adjusted EBITDA     81,424                 13,605                          95,029               6,764                       1,095                7,859  -          102,888  
Depreciation, amortization and impairment of fixed assets     (31,807)      (45,429)    (77,236)    (4,401)     (957)   (5,358)  -                    (82,594)  
Operating income    49,617                (31,824)        17,793               2,363                          138               2,501  -20,294  
         
  Earnings from associates       496
  Debt financial expenses       (24,698)
  Other financial results, net       7,055
Income before income tax expense       3,147
  Income tax expense       (8,251)
Net loss       (5,104)
         
Attributable to:        
Controlling Company       (5,715)
Non-controlling interest       611
        (5,104)

F-15

TELECOM ARGENTINA S.A. 

qConsolidated Income Statement as of December 31, 2019

 Services rendered in ArgentinaServices rendered in Argentina – Inflation restatementServices
rendered in Argentina
restated for inflation
Other abroad segmentsOther
abroad segments – Inflation restatement
Other abroad segments
restated for
inflation
EliminationsTotal
Revenues182,233120,352302,58512,9318,83621,767(1,666)322,686
Operating costs without depreciation, amortization and impairment of fixed assets(121,682)(82,631)(204,313)(8,946)(6,151)(15,097)1,666(217,744)
Adjusted EBITDA60,55137,72198,2723,9852,6856,670-104,942
Depreciation, amortization and impairment of fixed assets(26,024)(52,349)(78,373)(2,869)(2,197)(5,066)-(83,439)
Operating income34,527(14,628)19,8991,1164881,604-21,503
         
  Losses from associates       (255)
  Debt financial expenses       (22,677)
  Other financial results, net       15,426
Income before income tax expense       13,997
  Income tax expense       (19,290)
Net loss       (5,293)
         
Attributable to:        
Controlling Company       (5,985)
Non-controlling interest       692
        (5,293)

qConsolidated Income Statement as of December 31, 2018

 Services
rendered in
Argentina
Services
rendered in
Argentina –
Inflation
restatement
Services
rendered in
Argentina
restated for
inflation
Other abroad
segments
Other
abroad
segments –
Inflation
restatement
Other abroad
segments
restated for
inflation
EliminationsTotal
Revenues129,836203,168333,0047,89412,52420,418(1,474)351,948
Operating costs without depreciation, amortization and impairment of fixed assets(85,942)(135,420)(221,362)(5,414)(8,590)(14,004)1,474(233,892)
Adjusted EBITDA43,89467,748111,6422,4803,9346,414-118,056
Depreciation, amortization and impairment of fixed assets(20,416)(48,475)(68,891)(1,753)(2,891)(4,644)-(73,535)
Operating income23,47819,27342,7517271,0431,770-44,521
         
  Earnings from associates       494
  Debt financial expenses       (71,150)
  Other financial results, net       31,786
Income before income tax expense       5,651
  Income tax benefit       5,943
Net income       11,594
         
Attributable to:        
Controlling Company       11,089
Non-controlling interest       505
        11,594

 

 

Services
rendered in
Argentina

Services
rendered in
Argentina –
Inflation
restatement

Services
rendered in
Argentina
restated for
inflation

Other abroad
segments

Other
abroad
segments –
Inflation
restatement

Other abroad
segments
restated for
inflation

Eliminations

Total

Revenues

129,836

29,165

159,001

7,894

1,855

9,749

(704)

168,046

Operating costs without depreciation, amortization and impairment of PP&E

(85,942)

(19,753)

(105,695)

(5,414)

(1,273)

(6,687)

704

(111,678)

Depreciation, amortization and impairment of PP&E

(20,416)

(12,478)

(32,894)

(1,753)

(464)

(2,217)

-

(35,111)

Operating income

23,478

(3,066)

20,412

727

118

845

-

21,257

 

 

 

 

 

 

 

 

 

Earnings from associates

 

 

 

 

 

 

 

236

Debt financial expenses

 

 

 

 

 

 

 

(33,972)

Other financial results, net

 

 

 

 

 

 

 

15,117

Income before income tax expense

 

 

 

 

 

 

 

2,698

Income tax expense

 

 

 

 

 

 

 

2,838

Net income

 

 

 

 

 

 

 

5,536

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

Controlling Company

 

 

 

 

 

 

 

5,294

Non-controlling interest

 

 

 

 

 

 

 

242

 

 

 

 

 

 

 

 

5,536

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Table of Contents

TELECOM ARGENTINA S.A.

qConsolidated Income Statement as of December 31, 2017

 

Services
rendered in
Argentina

Services
rendered in
Argentina –
Inflation
restatement

Services
rendered in
Argentina
restated for
inflation

Other abroad
segments

Other
abroad
segments –
Inflation
restatement

Other abroad
segments
restated for
inflation

Eliminations

Total

Revenues

39,870

25,596

65,466

1,074

117

1.191

(8)

66,649

Operating costs without depreciation, amortization and impairment of PP&E

(25,082)

(16,673)

(41,755)

(711)

(78)

(789)

8

(42,536)

Depreciation, amortization and impairment of PP&E

(3,880)

(5,806)

(9,686)

(106)

(12)

(118)

-

(9,804)

Operating income

10,908

3,117

14,025

257

27

284

-

14,309

 

 

 

 

 

 

 

 

 

Earnings from associates

 

 

 

 

 

 

 

353

Debt financial expenses

 

 

 

 

 

 

 

(217)

Other financial results, net

 

 

 

 

 

 

 

930

Income before income tax expense

 

 

 

 

 

 

 

15,375

Income tax expense

 

 

 

 

 

 

 

(5,516)

Net income

 

 

 

 

 

 

 

9,859

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

Controlling Company

 

 

 

 

 

 

 

9,731

Non-controlling interest

 

 

 

 

 

 

 

128

 

 

 

 

 

 

 

 

9,859

qConsolidated Income Statement as of December 31, 2016

 

Services
rendered in
Argentina

Services
rendered in
Argentina –
Inflation
restatement

Services
rendered in
Argentina
restated for
inflation

Other abroad
segments

Other
abroad
segments –
Inflation
restatement

Other abroad
segments
restated for
inflation

Eliminations

Total

Revenues

29,726

29,804

59,530

819

62

881

(6)

60,405

Operating costs without depreciation, amortization and impairment of PP&E

(19,106)

(20,483)

(39,589)

(579)

(44)

(623)

6

(40,206)

Depreciation, amortization and impairment of PP&E

(2,519)

(5,285)

(7,804)

(73)

(6)

(79)

-

(7,883)

Operating income

8,101

4,036

12,137

167

12

179

-

12,316

 

 

 

 

 

 

 

 

 

Earnings from associates

 

 

 

 

 

 

 

221

Debt financial expenses

 

 

 

 

 

 

 

(595)

Other financial results, net

 

 

 

 

 

 

 

4,619

Income before income tax expense

 

 

 

 

 

 

 

16,561

Income tax expense

 

 

 

 

 

 

 

(6,015)

Net income

 

 

 

 

 

 

 

10,546

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

Controlling Company

 

 

 

 

 

 

 

10,457

Non-controlling interest

 

 

 

 

 

 

 

89

 

 

 

 

 

 

 

 

10,546

 

Additional information per geographical area required under IFRS 8 (Operating Segments) is disclosed below:

 

 As of December 31
 202020192018
Sales revenues from customers located in Argentina280,625300,957331,370
Sales revenues from foreign customers20,97121,72920,578
    
CAPEX corresponding to the segment “Services rendered in Argentina50,08582,20981,211
CAPEX corresponding to the segment “Other abroad segments”5,6476,9477,726
    
Fixed assets corresponding to the segment “Services rendered in Argentina”668,147685,122n/a
Fixed assets corresponding to the segment “Other abroad segments”26,42227,153n/a
    
Financial Debt corresponding to the segment “Services rendered in Argentina”194,487201,349n/a
Financial Debt corresponding to the segment “Other abroad segments”5,7135,579n/a
    

i)Sales revenues from customers located in Argentina amounted to $158,221, $64,891 and $58,783 during the years ended December 31, 2018, 2017 and 2016, respectively; while sales revenues from foreign customers amounted to $9,825, $1,758 and $1,622 for the years ended December 31, 2018, 2017 and 2016, respectively;

 

ii)F-16PP&E, Goodwill and Intangible assets corresponding to the segment “Services rendered in Argentina” amounted to $319,014 and $80,817 as of December 31, 2018 and 2017, respectively; while PP&E, Goodwill and Intangible Assets corresponding to the segment “Other abroad segments” amounted to $11,781 and $1,475 as of December 31, 2018 and 2017, respectively.

 

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TELECOM ARGENTINA S.A.

 

c)Basis of Presentation

c)Basis of Presentation

 

As required by the CNV, the Company’sthese 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 and RT 43)(and its amendments) of FACPCE as adopted by the CPCECABA. IFRS also includes the International Accounting Standards or “IAS”; the International Financial Reporting Interpretations Committee or “IFRIC”, the Standard Interpretations Committee or “SIC” and the conceptual framework modified in March 2018.framework.

 

The preparation of these consolidated financial statements in conformity with IFRS requires that the Company’sCompany's Management make estimates that affect the figures disclosed in the financial statements or its supplementary information. Actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where estimates are significant are disclosed under Note 3.w).3.v) to these consolidated financial statements.

 

These consolidated financial statements (except for the statement of cash flows) are prepared in current currency as of December 31, 2020 (see item e) and on an accrual basis of accounting.accounting (except for the consolidated statement of cash flows). Under this basis, the effects of transactions are recognized when they occur. Therefore, income and expenses are initially 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.

 

These consolidated financial statements as of December 31, 2018,2020, were approved by resolution of the Board of Directors’ meeting held on March 19, 2019.9, 2021.

 

Effect of the Merger between Telecom and Cablevisión under IFRS 3 (Business Combinations) on the Basis of Presentation

d)Consolidated Financial Statement Formats

 

According to the provisions of the final merger agreement executed between Telecom and Cablevisión in October 31, 2017 and effective as of January 1, 2018 (Note 4.a) and the shareholder agreement executed between Fintech and CVH in July 7, 2017 (Note 27.a), Telecom Argentina (surviving company for legal purposes) is deemed the acquiree for accounting purposes and Cablevisión (the absorbed company for legal purposes) is deemed the acquirer for accounting purposes, which qualifies as a “reverse acquisition” pursuant to IFRS 3.

The grounds used to determine that Cablevisión is to be considered the acquirer for accounting purposes under IFRS 3 in this merger were the following:

1)Relative voting rights in the surviving company (55% for the former shareholders of Cablevisión S.A. and 45% for the former shareholders of Telecom Argentina S.A.),

2)    the composition of the Board of Directors of the surviving company and other committees (Audit Committee, Supervisory Committee and Executive Committee),

3)The relative fair value allocated to Telecom Argentina and Cablevisión and

4)The composition of the key senior management of the surviving company.

Consequently, for the purposes of preparing these consolidated financial statements: i) the figures disclosed on a comparative basis as of December 31, 2017 and 2016 arise from the consolidated financial statements of Cablevisión as of the respective dates restated for inflation as indicated in Note 1.e); and ii) the consolidated information as of and for the year ended December 31, 2018 incorporates, based on the consolidated figures corresponding to Cablevisión, the effect of applying the acquisition method concerning Telecom Argentina to its fair value in accordance with IFRS 3 and the consolidated operations of Telecom Argentina as from January 1, 2018. Note 4.a) describes specific matters related to the accounting treatment of this merger.

Consistently, certain comparative information that arises from the consolidated financial statements of Cablevisión corresponding to the fiscal years ended December 31, 2017 and 2016 restated for inflation as indicated in Note 1.e), was adequated to ensure the uniform reporting criteria with those used for 2018 for help the comprehension of the users of these consolidated financial statements.

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TELECOM ARGENTINA S.A.

d)Consolidated 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 the “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 statements of financial position have been prepared by classifying assets and liabilities according to the “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 represents the way that the business is monitored by the Executive Committee and the CEO and, additionally, are in line with the usual presentation of expenses in the ICT services industry;

·the consolidated income statements have been prepared by classifying operating expenses by nature of expense as this form of presentation represents the way that the business is monitored by the Executive Committee and the CEO and, additionally, are in line with the usual presentation of expenses in the ICT services 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 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) income (loss) for the year, (ii) other comprehensive income (loss) for the year, and (iii) transactions with shareholders (owners and non-controlling interest), if applicable;

·the consolidated statements of changes in equity have been prepared showing separately (i) income (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.

·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 as issued by the IASB and in accordance with the accounting framework established by the CNV.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 Section 1 Chapter III Title IV of the CNV General Resolution No. 622/13. Such information is disclosed in Notes 5, 6, 7, 8, 10, 11, 18, 23 and 26 to these consolidated financial statements, as admitted by IFRS.included.

 

e)Measuring Unit - IAS 29 (Financial reporting in hyperinflationary economies)

e)Financial reporting in hyperinflationary economies

 

IAS 29 establishes the conditions under which an entity shall restatestate its financial statements if it is located in an economic environment considered hyperinflationary. This Standard requires that the financial statements of an entity that reports in the currency of a highly inflationary economy shall be stated in terms of the measuring unit current at the closing date of the latest reporting period regardless of whether they are based on a historical cost approach or a current cost approach. To this end,if it operates in general terms, the inflation rate must be computed in the non-monetary items as from the acquisition date or the revaluation date, as applicable. These requirements also comprise the comparative information of the financial statements.an economic environment considered “hyperinflationary”.

 

To determine the existence of a highly inflationary economy under the terms of IAS 29, the standard details a series of factors to consider, including a cumulative inflation rate over three years that is close to or exceeds 100%.

 

It is important to highlightThe macroeconomic events that have taken place in the country during 2018 and the three-year accumulated inflation rate as of December 31, 2018, that reached 147.8%. On, showed the other hand, the macroeconomic events that have taken place in the country during the year show that the country is complyingcompliance with the qualitative and quantitative factors provided for in IAS 29 to consider Argentina as a highly inflationary economy for accounting purposes. All this, consequently, originatesOn the need to apply the restatement for inflation of the financial statements in the terms of IAS 29 for the year ended December 31, 2018. Theother hand, FACPCE issued Resolution No. 539/18 datedon September 29, 2018 which definesdefined the need to restate the financial statements of Argentine companies for reporting periods ended after July 1, 2018, establishing specific issues in relation to the restatement for inflation such as, for example, the indexes to be used. This Resolution wasused (resolution approved on October 10, 2018, by the CPCECABA through Resolution No. 107/2018.18).

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TELECOM ARGENTINA S.A.

 

In addition, Law No. 27,468 (published in the Official Gazette on December 4, 2018) amended Section 10 of Law No. 23,928, as amended, providing that the repeal of all the laws and regulations that establish or authorize price indexation, currency restatement, cost variance and any other form of restatement of debts, taxes, prices or fees related to property, works or services does not apply to financial statements, which remain subject to Section 62 of the General Associations Law, as amended. In addition, it repealed Decree No. 1,269/2002,02, as amended, and delegated on the PEN, through its oversight agencies, the power to set the date as from which those regulations will come into effect in relation to the financial statements that are presented to them.

Therefore, through Resolution No. 777/18, (published in the Official Gazette on December 28, 2018), the CNV the local regulatory agency, established the method to restate financial statements in current currency to be applied by issuers subject to its oversight, in accordance with IAS 29 for years/periods ended since December 31, 2018. According to this, these consolidated financial statements are restated in terms of current currency as of December 31, 2018.2020.

 

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TELECOM ARGENTINA S.A.

In relation to the inflation index to be used, according to Resolution No. 539/18, it will bewas determined according to the Internal Wholesale Price Index (IWPI) until the year 2016, considering for the months of November and December 2015 the average variation of the Consumer Price Index (CPI) of the City of Buenos Aires, due to the fact that during those two months there were no IWPI measurements at national level.Aires. Then, from January 2017, the National Consumer Price Index (National CPI) will bewas considered.

The index as of December 31, 2018 amounts to 2,443.16. The tablestable below show the evolution of these indexesthe CPI in the last three years and as of December 31, 2018 according to official statistics (INDEC) and following the guidelines described inprovided by Resolution No. 539/18:18, as well as the devaluation of the argentine peso against the dollar for the same years:

 

 

As of December
31, 2015

As of December 
31, 2016

As of December 
31, 2017

As of December 
31, 2018

 

 

 

 

 

Variation in Prices

 

 

 

 

Annual

17.2%

34.6%

24.7%

47.6%

Accumulated 3 years

72.5%

102.2%

96.6%

147.8%

As a consequence of the aforementioned, these Financial Statements as of December 31, 2018 were restated in accordance with the provisions of IAS 29.

  As of December As of December As of December 
  31, 2018 31, 2019 31, 2020 
National Consumer Price Index (December 2016=100)  184.26  284.44  385.88 
           
Variation in Prices          
Annual  47.6%  53.8%  36.1% 
Accumulated 3 years  147.8%  183.2%  209.2% 
           
Banco Nación US$/$ exchange rate  37.70  59.89  84.15 
           
Variation in the exchange rate          
Annual  102.1%  58.9%  40.5% 
Accumulated 3 years  189.1%  276.9%  351.2% 

 

The Company restated all the non-monetary items in order to reflect the impact of the inflation restatement reporting in terms of the measuring unit current as of December 31, 2018.2019. Consequently, the main items restated were Property, Plant and Equipment, Intangible assets, Rights of Use Assets, Goodwill, Inventories, certain Investments in associates and the Equity items. Each item must be restated since the date of the initial recognition in the Company’sCompany's Equity or since the last revaluation. Monetary items have not been restated because they are stated in terms of the measuring unit current as of December 31, 2018.2020.

 

Comparative figures mustare also be presented in the current currency of December 31, 2018 and are restated using the general price index of the current year. Therefore, comparative figures for the previous reporting periods have been restated by applying a general price index, so that the resulting comparative financial statements are presented in terms of the current unit of measurement as of the closing date of the reporting period.

As far as results are concerned, there was an increase in Amortization and depreciation arising from the restatement of non-monetary assets, and an improvement in financial income and expense due to the positive result of the exposure to inflation from the excess of monetary liabilities over monetary assets, with the consequent impact on income tax.2020.

 

Restatement of the Income Statement and the Statement of Cash Flows

 

In the Income Statement, items shallmust be restated from the dates when the items of income and expense were originally recorded. To this end, theThe Company shall apply the variations in amonthly general price index.

Financial results related to foreign currency exchange and accrued interest are determined in real terms, excluding the inflationary effect contained therein.

 

The effect of inflation on the monetary position is included in the Income Statement under Other financial results, net.

 

The items of the Statement of Cash Flows must also be restated in terms of the measuring unit current at the closing date of the Statement of Financial Position.date. IAS 29 para 33 states that all items in the statement of cash flows are expressed in terms of the measuring unit current at the end of the reporting period. The gain arising from the restatement has an impact on the Income Statement and must be eliminated from the Statement of Cash Flows because it is not considered cash or cash equivalent.

 

Restatement of the Statement of Changes in Equity

 

All components of the Statement of Changes in Equity, except reserves and retained earnings, must be restated from the dates on which the items were contributed or otherwise arose.

 

As the book value of the equity of Telecom as of the date of the merger was stated at historical cost, the value of the Merger Surplus as of that date did not contemplate the effect of the inflation adjustment. Therefore, such value was determined again as the difference between the fair value of the consideration transferred and the book value of Telecom’s Equity restated for inflation to such date, modifying the initial value recognized for the Merger Surplus.

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TELECOM ARGENTINA S.A.

Investments in Foreign Companies

 

The subsidiaries, associates and companies under common control that use functional currencies other than the Argentine peso (mainly foreign companies with economies that are not considered to be hyperinflationary), must not restate for inflation their financial statements, in accordance with IAS 29.

 

Notwithstanding, and only for reporting and consolidation purposes, the comparative figures presented in Argentine pesos in the Income Statement corresponding to the current year and the previous year must be stated using the exchange rates at the transaction date. In addition, the initial items of the Statement of Changes in Equity must be reported at the closing rate without modifying theits total figureamount due to the fact that it is translated into the closing exchange rate, which implies that a translation adjustment is recognized against Retained Earnings and Other Comprehensive Results.

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TELECOM ARGENTINA S.A.

 

NOTE 2 – REGULATORY FRAMEWORK

 

a) Regulatory Authority

The activities of the Company that provides Information and Communication Technologies Services (“ICT”) are regulated by a set of rules and regulations that comprise the regulatory framework of the telecommunication sector.

 

UntilThe Regulatory Authority for ICT services in Argentina is ENACOM (National Communications Agency) which is currently under the issuancejurisdiction of the LAD, which was published in the Official Gazette on December 19, 2014 and has been in force since its publication, the telecommunication services provided by Telecom Argentina and its domestic subsidiaries were regulated by the CNC, a decentralized agency within the scopeSecretariat of the SC, which was alsoPublic Innovation under the scope of the Ministry of Federal Planning, Public Investment and Services. Subsequently, through the LAD it was 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 ICT in general, and in particular of the telecommunications, postal service and all those matters integrated to its field in accordance with the provisions of the LAD.

In relation to the exploitation of subscription broadcasting services by physical and/or radioelectric link that were originally awarded under the regime established by Law No. 22,285, the COMFER was the enforcement authority established by that law. Under Law No. 22,285, subscription broadcasting companies in Argentina required a non-exclusive license from the COMFER in order to operate. Other approvals were also required, including, for some services, authorization by municipal agencies.

The Audiovisual communication services Law (Law No. 26,522, “LSCA”) was passed and enacted on October 10, 2009. Law No. 26,522 provided for the replacement of the COMFER with the Audiovisual Communication Services Law Federal Enforcement Authority (“AFSCA”) as a decentralized and autonomous agency within the scope of the National Executive Branch, and vests the new agency with authority to enforce the law.

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 (“DNU No. 267/15” published in the Official Gazette on January 4, 2016). The DNU substantially amends Laws LSCA and LAD and also creates the ENACOM as a new regulatory authority of those laws. The ENACOM replaces the AFTIC and AFSCA. This new Authority acts as an autonomous agency within the scope of the Ministry of Communications.

Subsequently, and from Decree No. 632 of August 11, 2017 the ENACOM was within the scope of the Ministry of Modernization. On September 5, 2018, the PEN issued Decrees No. 801 and 802 through which the Law on Ministries was modified again and the organizational structure of the Public Administration, and it is established that the Ministry of the Chief of the Cabinet replaces of the Ministry of Modernization and the ENACOM continues within the scope. In addition, the Government created the office of Secretary of Modernization, who will act as Deputy Chief of Cabinet to assist the Chief of the Cabinet of Ministers inMinisters.

Micro Sistemas is registered as a PSP (Payment Service Providers that offer payment accounts) and is under the establishment of cross-cutting modernization policies for the administrationoversight of the National Government.BCRA and the “Financial Information Unit” (Unidad de Información Financiera or “UIF”) regulations for this type of operations.

 

On the other hand, the subsidiary Núcleo, with operations in the Republic of Paraguay, is supervised byunder the oversight of the CONATEL (such as TUVES), and Núcleo´s subsidiary Personal Envíos is supervised byunder the Bancooversight of the Central de la República delBank of the Republic of Paraguay.

 

Telecom USA, Telecom Argentina’s subsidiarywhich operates in the United States of America, is supervised byunder the oversight of the Federal Communications Commission (the “FCC”(“FCC”).

 

Finally, Adesol, is a subsidiary of the Company organizedcompany incorporated in the Oriental Republic of Uruguay, which is a related party of Bersabel S.A. and Satelital Visión S.A., twohas contractual relationships with several licensees that provide subscription broadcastingtelevision services in such country andthrough various systems, which are subject tounder the controloversight of the Communication Services Regulatory UnitAgency (“URSEC”), for its Spanish acronym).

 

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TELECOM ARGENTINA S.A.

b) Licenses

 

üUnder the Licencia Única Argentina Digital, the Company currently provides the following services:

üThe Company, under the unique Argentina Digital license, currently provides the following services:

Local fixed telephony,

Public telephony,

Domestic and international long-distance telephony,

Domestic and international point-to-point link services,

Value added, data transmission, videoconferencing, transportation of broadcasting signals, and Internet access,

STM, SRMC, PCS and SCMA, also called mobile communications services ("SCM", for its Spanish acronym),

SRS and

SRCE

 

·Local fixed telephony,

·Public telephony,

·Domestic and international long-distance telephony,

·Domestic and international point-to-point link services,

·VAS, data transmission, videoconferencing, transportation of audio and video signals and Internet access,

·     STM, SRMC, PCS and SCMA. These services are also denominated Mobile Advanced Communications Services (“SCM”),

·SRS,

·SRCE.

LicensesThe licenses for the provision ofrendering SCM services were originally granted to Personal and were subsequently transferred to Telecom sinceunder the Reorganization accordingreorganization with Personal pursuant to the terms of the ENACOM Resolution No. 4,545-E/2017.17. Such licenses have beenwere granted to providefor the provision of STM in the Northern Region of Argentina, of SRMC in the AMBA area, theand of PCS service and the SCMA throughout the national scope.country.

 

SRCE licenses and authorizations were transferredIn relation to the Company, within the framework of the merger with Cablevisión pursuant to the terms ofENACOM Resolution ENACOM No. 5,644-E/2017 (see point f) of this Note).

The Registry for17, the provision ofCompany also acquired licenses and authorizations to render SRCE services and the Registration to render Physical and/or Radioelectricand Radio-Electric Link Subscription Broadcasting Services and their respective area authorizations were transferred to the Company within the framework of the merger with Cablevisión pursuant to the terms of Resolution ENACOM No. 5,644-E/2017.corresponding authorizations.

 

üLicenses to Telecom Argentina’s subsidiaries

üLicenses held by subsidiaries in Paraguay

 

Núcleo has been granted holds a license to provide mobile telecommunication services (STM- STMC and PCS)PCS throughout Paraguay. In addition, Núcleo has been grantedholds a license for the installation and provisionexploitation of Internet and Datadata services throughout Paraguay. All these licenses have beenwere granted for renewable five-year periods. See additional information in Note 2.e), regarding the adjudication of the auction for 700 MHz band spectrum in Paraguay.

F-19

TELECOM ARGENTINA S.A.

 

Personal Envíos, a company controlled by Núcleo, is authorized by the Central Bank of the Republic of Paraguay to operate as an Electronic Payment Company (“EMPE”), for its Spanish acronym) through Resolution No. 6 issued on March 30, 2015, and its corporate purpose is restricted to such service.

 

Tuves Paraguay, a company controlled by Núcleo, has a license for the provision of services of distribution of digitaldirect-to-home subscription audio and television signals to homes (“DATDH”services ("DATDH"),. This license has been granted for the term of five years. The license was granted in March 2010 and renewed in March 2015 for a term of five years.renewable five-year periods.

 

c) Regulatory framework of the services providesprovided by the Company

 

Among the main rulesregulations that govern the services ofrendered by the Company, it is worth mentioning:the following stand out:

 

Law No. 27,078 – LAD and its amendments.

·The LAD, as amended by Decree of Need and Urgency No. 267/15 and Decree No. 1,340/16.

Law No. 19,798 to the extent it does not contradict the LAD.

·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, which regulated that process.

·The Privatization Regulations that regulates the process.

The Transfer Agreement.

·The Transfer Agreement.

·The Licenses for providing telecommunication services granted to the Company and the List of Conditions and their respective regulations.

·Law No. 22,285 and the different Bidding Terms and Conditions for the provision of Subscription Broadcasting Services during the term thereof.

The licenses for providing telecommunication services granted to the Company and the Bidding Terms and Conditions and their respective general rules. 

 

On the other hand, the exploitation of physical and/or radioelectricradio-electric link subscription broadcasting services licenses held by the Company, originally granted in due time under the regime of Law No. 22,285, are currently governed by the LAD as from the issue ofsince DNU No. 267/15.15 was issued.

 

The only service that could be considered under the purview of the LSCA is the registration of the signal METRO, as this signal is marketed to be broadcasted through other services that acquire it for such purpose, and therefore it has a registration number issued by ENACOM that must be renewed on an annual basis.

Likewise, the Company annually renews with the ENACOM its Certificate to operate as Advertising Agency, Direct Advertiser and Advertising Producer.

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TELECOM ARGENTINA S.A.

üLaw No. 27,078 – Argentine Digital Law (LAD)

üLaw No. 27,078 – Argentine Digital Law

 

Enacted in December 2014, the LAD maintained the single country-wide license scheme and the individual registration of the services to be provided,rendered but replaced the term telecommunicationsname telecommunication services forwith ICT Services.Services, and included several amendments to the regulatory services of these services.

 

The LAD, incorporated several modifications to the regulatory framework in force untilpassed on December 19, 2014, as regards telecommunications, among those that stand out:incorporated several changes to the telecommunication services regulatory framework.

 

·     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.

·     the amendments as regards Universal Service.

·     the declaration 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 possibility that the licensees of the ICT Services can supply audiovisual communication services (including the licensees included in the restrictions of the LSCA, among which was Telecom), with the exception of those provided through satellite link, in which case, the corresponding license must be requested from the proper authority.

On the other hand, Law No. 19,798, the Telecommunications Act (passed in 1972), and its amendments, will continueas amended, continues in effect only with respect to those provisions that do not contradict the provisions of the new LAD (including,(among them, for example, Section 39 of Law No. 19,798 referred toregarding the exemption from all taxes on the use of soil, subsoil and airspace for telecommunications services).

 

The LAD also revoked Decree No. 764/00, and its amendments,as amended, but provisions of the Decreedecree that do not contradict the LAD will remain in effect during the time it takes to the regulatory authorityRegulatory Authority to issue new licensing, interconnection services, universal serviceSU and spectrum regulations (see New Regulations in Note 2.f)item f) - “Other Rules” to this Note).

 

üDecree No. 267/15 – Amendments to the LAD

üDecree No. 267/15 – Amendments to the LAD

 

On January 4, 2016, DecreeDNU No. 267/15 was published in the Official Gazette, amendingwhich amended Law No. 26,522 (Audiovisual(“the Audiovisual Communication Services)Services”) and Law No. 27,078 (LAD). As mentioned above,, and created the ENACOM was created as the regulatory authority applicable ofEnforcement Authority for these laws.

The main amendments to the LAD consist of:

·The incorporation of Broadcasting Services provided by subscription (physical or radioelectric 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 (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, also states a 10 years extension from January 1, 2016, for the use of frequency spectrum to radioelectric link provided by subscription license holders.

·Decree No.267/15 replaced the LAD’s Section 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 (defined as any form of communication, primarily one-way, for the transmission of signals to be received by a determinable public, either by physical or by radio connection, for example, video cable and IPTV services) until January 1, 2018 (this term can be extended by 1 additional year). Also, replaces Section 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.

·In addition, shareholders of a 10% or more interest in companies that provide public services may not be holders of a subscription radio record. However, this will not apply in the following cases: (i) non-profit companies to whom the national, provincial or municipal State has granted the license, concession or permission to provide a public service (such as telecommunications cooperatives); (ii) those mentioned in section 94 (including the Company) who will be only able to provide the service after the expiration of the period specified therein.

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Section 28 of Decree No. 267/15 created, in the field of the Ministry of Communications, the Commission for the Elaboration of the Draft Law for the Reform, Updating and Unification of Laws LSCA and LAD. The Commission is responsible for the study of the reform of both laws under the principles set out herein.

Through Resolution No. 1,098-E/16 published on October 31, 2016, the Ministry of Communications extended for 180 days the deadline for the preparation of the draft reform of Laws LSCA and LAD.

Subsequently, through MIDMOD Resolution No. 490/2018, published in the Official Gazette on August 13, 2018, the deadline for the analysis and publication of the ICT Project Law was extended for 90 days.

Finally, the Secretariat of Modernization, which reports to the Chief of the Cabinet of Ministers, issued Resolution RESOL-2018-131-APN-SGM#JGM, whereby it provided for a 1-year extension, counted as from the date of publication, or 90 business days subsequent to the final enactment of the Bill for the Promotion of Deployment of Infrastructure and Competition of Information Technology and Communication Services (ITCS), whichever occurs first, for the review process conducted for the creation and publication of the final bill for the amendment, updating and unification of Laws Nos. 26,522 and 27,078, to be submitted to the National Executive Branch.

Furthermore, the Decree provides that the transfers of licenses and equity interests involving the loss of company control must be approved by the ENACOM, stating a new procedure provided by section 8 of Decree No. 267/15. Those transfers of licenses and equity interests or shares in licensees will be considered ad referendum of ENACOM approval.

Decree No. 267/15 repealed Section 15 and Section 48 (second paragraph) of the LAD thus revoking: (i) the essential and strategic nature of public ICT services to be provided on a competitive basis regarding the use and access to telecommunications networks for and between ICT Services licensees; and (ii) the Regulatory Authority’s power to regulate tariffs based on reasons of public interest.

On April 8, 2016, the ChamberHouse of Representatives voted in favor of the validity of DNU No. 267/15. According to this, itThus, such DNU acquired the status of Law.

Among the main amendments to the LAD related to the Subscription Broadcasting Service, the following stand out:

·The incorporation of Subscription Broadcasting Services (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 subscription television services (known as satellite TV) shall remain within the scope of Law No. 26,522. Furthermore, Decree No. 267/15 states that the ownership of a satellite subscription television license is incompatible with having any other kind of audiovisual communication or ICT Service license.

·Any subscription broadcasting license (such as cable television), granted before the application of DNU No. 267/15 will be considered, for all purposes, a Licencia Única Argentina Digital, with a registration for such service. Furthermore, the Decree provides for a 10-year extension counted as from January 1, 2016 for the use of spectrum frequencies by radio-electric link subscription broadcasting services licensees.

·DNU No. 267/15 replaced the LAD’s Section 95 of the LAD and provides several obligations for fixed telephony licensees granted by Decree No. 264/98 and mobile service providers with licenses granted by Decree No.1,461/93, which choose to provide subscription broadcasting services.

 

It should be noted that pursuant to Section 21 of DecreeDNU No. 267/15 and until the enactment of a law that will unify the fee regime provided under Lawsthe LSCA (Law of Audiovisual Communications Services) and the LAD, the physical link and radio-electric link subscription broadcasting services will continue to be subject only to the fee regime provided under LSCA. Therefore, they shall not be subject to the SU investment contribution or the payment of the Control, Oversight and Verification Fee provided under Sections 22 and 49 of the LAD.

 

üF-20Decree No. 1,340/16 - Amendments to DNU No. 267/15

 

TELECOM ARGENTINA S.A.

üDecree No. 1,340/16 - Amendments to DNU No. 267/15

Decree No. 1,340/16 issued by PEN and published in the Official Gazette on January 2, 2017 provides the rules for achieving a greater convergence of networks and services under competitive conditions,, promoting the deployment of next generation networks and the penetration of Broadband Internet access throughout the national territory, in accordance with the provisions of Lawsthe LSCA and LAD. This Decree complements to DNU No. 267/15, which has the status of Law.LAD.

 

Among the most relevant provisions, it establishes:

 

·Fixing the
·That a 15-year-term, as from the publication of the Decree, be fixed as differential condition pursuant to Section 45 of the Decree, as differential condition in the terms provided by section 45 of LAD, for the protection of last-mile fixed of new generation networks deployed by ICT licensees for Broadband regarding the regulations of open access to Broadband and infrastructure to be issued, notwithstanding the provisions of Section 56 of the LAD.

·That the Ministry of Communications or the ENACOM, as appropriate, shall establish the rules for the administration, management, and control of the radio spectrum.

·That ICT licensees and Satellite Link Subscription Broadcasting licensees that as of December 29, 2016 simultaneously provided both services, may retain ownership of both types of licenses.

This Decree also sets out some principles on interconnection matters contemplated in the Interconnection regulations, approved through Resolution No. 286/18 (see item f) - “Other Rules” to this Note).

üDecree No. 690/20 - Amendment to the LAD

On August 22, 2020, the PEN issued Decree No. 690/20 amending the LAD. Decree No. 690/20 declared ICT services (which includes fixed and mobile telephony services, cable television and Internet –as well as access to telecommunications networks for and between licensees as “Essential and Strategic Competition Public Services”, and empowered ENACOM to ensure accessibility.

Decree No. 690/20 further established that the prices of the Essential and Strategic Competition Public ICT Services, the prices of those services provided in accordance with the Universal Service and and the prices of those services determined by ENACOM for public interest reasons, shall be regulated by ENACOM.

Moreover, Decree No. 690/20 established that ENACOM is the agency responsible for the enactment of any regulation related to the ICT’s PBU.

Finally, the Decree No. 690/20 suspended any price increases or changes set or announced by the ICT’s licensees from July 31, 2020 to December 31, 2020.

Decree No. 690/20 has been ratified by the Argentine Congress under Law No. 26,122 and has been regulated through ENACOM Resolutions No. 1,466/20 and 1,467/20, both published in the Official Gazette on December 21, 2020.

Resolution No. 1,466/20 allowed ICT licensees providing Internet access services, subscription broadcasting services through physical, radio-electric or satellite link, fixed telephony services and mobile telecommunications services -in all cases in their different and respective modalities- to increase retail prices for services up to 5% during January 2021. In order to establish the percentages approved, licensees shall must consider the prices effective as of July 31, 2020 as the price of reference. Such Resolution also provides that ICT Services Licensees may request a higher increase on an exceptional basis in accordance with the provisions of Section 48 of the LAD.

Resolution No. 1,467/20 regulated the Compulsory Universal Telecommunication Service (“PBU”) provided by Decree No. 690/20 for the different services provided by ICT licensees, for Broadband regardingestablishing the regulationsprice and the characteristics of open accesseach service plan, namely:

·PBU-SBT: Compulsory Universal Provision of Basic Fixed Telephony Service;

·PBU-SCM: Compulsory Universal Provision of Basic Mobile Communication Service;

·PBU-I: Compulsory Universal Provision of Basic Internet Access Value Added Service;

·PBU-TP: Compulsory Universal Basic Provision of subscription television services by physical or radio-electric or satellite link.

Resolution No. 1,467/20 further determines the beneficiaries of this PBU. Licensees are under the obligation to Broadband and infrastructurereport on a monthly basis the number of customers subscribed to the different compulsory universal basic services. Finally, Resolution No. 1,467/20 also imposes different reporting obligations to be stated, notwithstandingfulfilled before the provisions of section 56 of LAD.

·ThatENACOM on the Ministry of Communications or ENACOM, as appropriate, shall establish the ruleslicensees that hold registration for the administration, management, and control of the radio spectrum.

·That Operators included in section 94 of the LAD (among them, Telecom Argentina), may register the Broadcasting Service by subscription broadcasting services by physical or radio connectionelectric link and on licensees of subscription television audiovisual communication services by satellite link.

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The Company has initiated legal proceedings before the Federal Court of Appeals on Administrative Litigation Matters challenging the constitutionality of Decree No. 690/20 and the aforementioned ENACOM Resolutions and requesting a preliminary injunction that would suspend its application. The preliminary injunction was denied on January 29, 2021 and the Company appealed the court’s decision. As of the date of this consolidated financial statements, the resolution of the mentioned appeal is still pending. The Company, with the assistance of its legal advisors, is analyzing the actions available to the Company in order to protect its legal rights.

Preliminary injunction requested by “Asociación Civil de Usuarios Bancarios Argentinos” (“ACUBA”)

On January 27, 2021, the Company was served with notice of a preliminary injunction granted by the Civil and Commercial Court No. 10 of Mar del Plata obtained by ACUBA in the aforementioned case, which ordered the Company to roll back the tariffs of broadcasting services subscriptions, Internet access services, fixed telephony services and mobile telecommunications services to those of December 2020, which could only be increased up to 5% as authorized by ENACOM, and maintain such tariffs until any modification is resolved. Telecom challenged the preliminary injunction for lack of jurisdiction, and requested that the resolution granting the preliminary injunction be declared nulled. Telecom further requested that the preliminary injunction be lifted. A decision from the court remains pending as of the enforcementdate of this Decree, setting January 1, 2018 as initial date for the provision of such service in the AMBA (and extended AMBA), and in the cities of Rosario (Santa Fe Province) and Córdoba (Córdoba Province).these consolidated financial statements. The Decree providesCompany argued that for the resta preliminary injunction obtained by a representative of the country, the initial date for the provisionindustry of the servicesProvince of these operators shall be determined byCórdoba from the ENACOM (see ENACOM Resolution No. E 5,641 E/ 2017 in Note 2.f)).

·That ICT’s licensees and Satellite Link Subscription Broadcasting licensees, who as of December 29, 2016 simultaneously provided both services, may retain ownership of both types of licenses.

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·That for the purposesfederal courts of the provisions of section 92 of LAD and section 2, paragraph g)province expressly suspended the application of Decree No. 798 issued on June 21, 2016, Ministry of Communications shall ensure the following principles on interconnection matters:690/20, Decree No. 311/20 and prohibited ENACOM from issuing any subsequent resolutions.

 

a)  until the interconnection prices determination systems provided by the National Interconnection Regulation are implemented, averages of regional Latin America prices shall be considered for similar functions and facilities, corrected by parameters which complyThe Company, with the conditionsassistance of its legal advisors, is analyzing the actions that may be necessary in order to protect its rights.

Preliminary injunction requested by a representative of the sector, as determined byindustry of the authorityProvince of application;Córdoba

 

b)  in accordance with section 46On February 2, 2021, the Company was informed by “Asociación Argentina de Televisión por Cable” (“ATVC”), that a preliminary injunction requested by a representative of LAD, the National Interconnection Regulation shall provide asymmetric interconnection rates for mobile services forcable television industry of the Province of Córdoba was granted ordering the suspension of Decree N° 690/20, of Decree N° 311/20 and of all measures adopted as a 3 years periodresult of those decrees. The court also ordered the PEN and the ENACOM to abstain from the effective service implementation, extendable forissuing or pursuing any subsequent measures based on such decrees, until a maximum of 18 months;final court decision is rendered.

 

c)ATVC also informed that, pursuant to the National Interconnection Regulation shall provide rules concerningcourt’s indications, the automatic national roaming service, forcing mobile services providers, for a maximum period of 3 years,regulatory authority should refrain from issuing regulations related to make such service available to other providers in areas where they do not have their own network coverage.Decree No. 690/20 or enforcing the regulations previously issued, which are generally suspended.

 

The temporary limitation provided in the previous paragraph shall not be enforceable in those cases in which mobile services are provided by cooperatives and small and medium-sized companies with exclusively regional coverage.

Mobile service providers shall freely enter into agreements to secure, among other issues, technical, economic, operational and legal conditions. Such agreements may not be discriminatory or may not establish technical conditions that prevent, delay or obstruct interconnection services.

The National Interconnection Regulation will enable ENACOM to define reference prices for a maximum period of 3 years, taking into consideration the costs of the assets involved subject to exploitation and a reasonable return rate to ensure speed, neutrality, non-discrimination and balanced competition between mobile service providers. Likewise, they shall not contain technical, interconnection, operational or other conditions that delay, obstruct or create barriers for the remaining mobile services providers to access the market.

d) Universal Service Regulation

 

·Decree No. 764/00

Decree No. 764/00

 

With respect to Universal Service Regulation, Annex III of Decree No. 764/00 required entities that receive revenues fromproviders of telecommunications services to contribute 1% of thesetheir total accrued revenues, (netnet of taxes)applicable taxes and charges, to the Universal Service Fiduciary Fund (the “SU Fund”).FFSU. The regulation also 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 FSU 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. Likewise, the regulation created a committee responsible for the administration of the SU Fund and the development of specific SU programs.

 

The SC issued Resolution No. 80/07, which stipulatedissued by the SC, provided that until the SU Fund was effectively implemented, telecommunication service providers mustwere required to open an account at Banco de la Nación Argentina to deposit monthly the corresponding amounts.amounts on a monthly basis. In August 2007, Resolution No. 2,713 of the former CNC was published, which provided details regarding the concepts that have been achieved and those that are deductibleoffset for the purpose of calculating the contribution obligation to the FFSU.

 

·Decree No. 558/08

·Amendments to the General Regulation of the Universal Service

 

Decree No. 558/08, published on April 4, 2008, introduced certain changes toAfter several decrees and laws which approved and amended the SU Fund regime, replacing the Annex IIIGeneral Regulation of the Decree No. 764/00.

Decree No. 558/08 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 FundUniversal Service (“RGSU”, 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 other undertakings made by telecommunication services providers and compensate providers for these undertakings.

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 auction.

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The Decree required telecommunications service providers to contribute 1% of their total 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.

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 be contributed into the SU Fund or for the development of new works of the SU, with the approval of the SC.

·Amendments of the LAD to the SU Regulation

The LAD introduced substantial modifications to the regulations of the SU issued by Decree No. 558/08. Among its provisions, the LAD provides for the creation of a new FFSU and that the investment contributions corresponding to the SU programs are managed through such fund, whose patrimony is the National State.

The licensees of ICT Services are obliged to make investment contributions to the SU Fund 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.

This law also establishes that by virtue of that set forth by Sections 11.1 and 11.2 of the Management Trust Agreement of the SU Fund of Decree No. 558/08, the resources therein foreseen in section 8 ofSpanish acronym), replacing Annex III of Decree No. 764/00, and its amendments shall be integrated toENACOM approved a new RGSU through Resolution No. 721/20, which replaced the SU Fund createdRGSU that had been approved by the LAD in the conditions determined by the regulatory authority.

The SU Funds shall be applied by means of specific programs defined by the regulatory authority who may entrust the execution of these plans directly to the entities included in Section 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.

On September 10, 2015 Telecom Argentina 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 SU Fund contribution, regulated by Decree No. 558/08 and related provisions, are in force. Additionally, Personal proceeded to deposit the corresponding contribution in the new SU Fund account reported through the Official Notice published by the AFTIC.

In its filings, Telecom Argentina 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 Sections 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 statements, the Company has not received any response to its filings.

ENACOM Resolution No. 2,642/16 approved the new SU Regulation, which was published on May 31, 2016, in the context of the new disposals established by the LAD.16.

 

The new regulation retainsRegulation maintains the obligation of contributingto contribute 1% of total incomerevenues, as provided in the previous Resolution. Among the most relevant matters, the new Regulation provides:

(i)That the ENACOM may consider that the monthly obligation of the Contributors has been partially settled for up to 30% of their contributions, based on the reporting of computable investments made in projects approved by the ENACOM;

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(ii)That the licensees may submit projects to the ENACOM for their review and assessment;

(iii)That the deployment of last mile fixed NGNs (Next Generation Network) for the provision of broadband Internet services of the Projects shall not fall within the scope of the protection described in section 3 of Decree No. 1,340/16, forcing us to give access to the last mile to other operator if they request so.

In addition, within the framework of the new RGSU, SU Programs have been approved providing for the deployment of fixed broadband, deployment of access networks to mobile communications services and services to public institutions, among others.

SU Fund - Impact on the Company with respect to its original license to provide SBT

According to the provisions of SC Resolution No. 80/07, No. 154/10 and CNC Resolution No. 2,713/07, Telecom filed its affidavits including the offset amounts related to the provision of ICT services net of taxes and fees, anticipating the possibility of granting exemptions, in which case the subjects liable for payment, must comply with the obligations established by the Regulatory Authority.that should be considered as SU services.

 

In accordance with ENACOM Resolution No. 6,981-E/16 issued on October 19, 2016, the FFSU and the FFSU Investment Contribution Settlement and Interest Report forms were approved and are in force since January 1, 2017, being operationally implemented since March 2017.

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On May 4, 2017, ENACOM Resolution No. 2,884/17 was published in the Official Gazette. This Resolution amends the Form of the FFSU contributions, adding, within the possible deductions, the “Discount Annex. SC Resolution No. 154/10 Section 1, Sub-section B) i), second paragraph”. Such Resolution allows deducting, until the regulatory authority expresses its opinion, any amounts that eventually may correspond to SU Initial Programs or other than those provided for in Annex III of Decree No. 764/00, in accordance with the provisions of Section 2 of Decree No. 558/08 and Section 6 of Annex III of Decree No. 764/00, replaced by Decree No. 558/08.

·SU Fund in Telecom Argentina in relation to its original license for the provision of the SBT

SeveralHowever, several years after the market’s liberalization and the effectiveness of the SU regulations, subsequentlywhich were replaced bywith Decree No. 558/08 and by the LAD, incumbent operators have still not received any set-offsoffsets for providing services as required bywith the characteristics set forth under the SU regime.

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, the Company has filed its monthly calculations since July 2007SU affidavits related to the services associated with its original license to render SBT, which estimatedresulted in a receivable of $3,998 (unaudited) being both theapproximately $13,229 (unaudited amount). The programs and the valuation methodology that originatesused to estimate this receivable are pending of approval by the Regulatory Authority. This receivable has not yet been recorded in these consolidated financial statements as of December 31, 20182020 since it is subject to the approval of the SU programs,Programs and the review of those affidavits by the Regulatory Authority and the availabilityconfirmation of funds inthe existence of enough contributions to the SU Trust so as to compensate the incumbent operators.

 

On April 8, 2011, the SC issued Resolution No. 43/11, notifying Telecom Argentinathrough which it notified the Company that investments associated with “High-Cost Areas” – amounting to approximately $3,849 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.Program (which amounted to approximately $13,512, included in the mentioned receivable).

 

Telecom Argentina was notified ofAdditionally, through SC Resolutions No. 53, 54, 59, 60, 61, 62, 69 and 70/12, pursuant to whichthe Company was notified that: the “Special Information 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 argentin@internet.todos”, 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 “,(SSPLD)” (which amounted to approximately $1,541, included in the mentioned receivable), respectively, did not qualify as an Initial Indicative Program,SU Programs, pursuant to the terms of Section 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 Section 2 of Decree No. 558/08.

 

Telecom Argentina’sThe Company’s Management, with the advice of its legal counsel,, has filed appeals against SC Resolutions aforementionedthe above mentioned resolutions, presenting the legal arguments based on which such resolutions should be revoked. The deductions that were objected by the SC Resolutions amount to approximately $1,194 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 Argentinaordered the Company to deposit approximately $208. Telecom Argentina$208. The Company has filed a recourse refusing the CNC’s requestorder on the grounds that the appeals against the SC Resolutions are still pending of resolution.resolution.

On November 28, 2019, the ENACOM notified Telecom that the appeals filed by the Company against the above-mentioned resolutions had been rejected, taking them to superior body for substantiation. As of the date of these consolidated financial statements, the appeal review body has not yet issued a decision.

 

Although it cannot be assured that these issues will be favorably resolved at the administrative stage, Telecom Argentina’sthe Company’s Management, with the assistance of its legal advisors, considers that it has strongsolid legal and de facto arguments to support the position of Telecom Argentina.

 

·SU Fund in Telecom Argentina in relation to the SCM originated in Personal

FFSU - Impact on the Company with respect to the SCM originally provided by 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 has filed its calculationsaffidavits since July 2007 and deposited the correspondent contributions of approximately $112 into an account held under their name at the Banco de la Nación Argentina in January 2011.corresponding contributions.

 

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 contributeonly allocate to investment projects under this program exclusively the amounts corresponding to their pendingoutstanding investment contribution obligations of investment contributions born underarising from Annex III of Decree No. 764/00 before the effective date of Decree No. 558/08.

 

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On July 5, 2012, the SC issued Resolution No. 50/12 pursuant to which it notified that the services referred todeclared by the SCM 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 requestrequests relating to the installation of radio-bases and/or investment in the infrastructure development in various localities, did not constitute items that maycould be discounted from the amount of SU contributions to the SU pursuant to the last part of Section 3 of Resolution No. 80/07, or Section 2 of Decree No. 558/08. It also provided that certain amounts already deducted wouldcould be used for investment projects within the framework of the Program ofcreated under SC Resolution No. 9/11, or deposited in the SU Fund, as applicable.

 

Personal has filed an administrative actionappeal against SC Resolution No. 50/12 requesting its nullity. As of the date of issuance of these consolidated financial statements,, this matterappeal is still pending.pending of resolution.

 

On October 1, 2012, respondingin response to an SC’s requirement,the order issued by the SC, Personal deposited under protest approximately $23 in the SU Fund,amount corresponding to the assessment of the SU services provided by Personal since the issuanceeffectiveness 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 theirits monthly affidavits.

 

Telecom Argentina’sThe Company’s Management cannot assure that this issue wouldwill be favorably resolved in its favor at the administrative stage.

 

·FFSU –SU Fund in Telecom Argentina in relation to the services originated in Cablevisión

FFSU - Impact on the Company with respect to the services originally provided by Cablevisión

 

Cablevisión was not able to meethas complied with its investment contribution obligations during the period in which its license was revoked, but made the corresponding payment as soon as the revocation was declared null and void, for which no amount is owed by it on such account.

obligations. The Regulatory Authority has not yet to decide on the approval ofapproved the Project submittedfiled by Cablevisión on June 21, 2011, within the framework of SC Resolution No. 9/11, in order to meetfulfill the SU contribution obligation to the SU for the amounts accrued betweensince January 2001 anduntil the effective dateeffectiveness of Decree No. 558/08.

 

e)Spectrum

SSC Resolution No. 38/14pectrum

 

On October 31, 2014, the Public auction process approved byTrough Resolution SC Resolution No. 38/N° 79/14 for the awarding ofand Resolutions SC N °80/14, 81/14, 82/14 and 83/14, Personal was awarded Lots 2, 5, 6 and 8 and the remaining frequencies of the Personal Communication Services (PCS), of and the SRMC, as well as those of the new spectrum for the SCMA, which were carried out. Personal presented its economic bids and was awarded Lots 2, 5, 6 and 8offered through a Public auction process approved by SC Resolution SC N° 79/14 (SCMA) and Resolutions SC N °80/14, 81/14, 82/14 and 83/14 (PCS and SRMC).

ThroughNo. 38/14. In addition, through SC Resolution No. 25/15, issued on June 11, 2015, Personal was assignedawarded with the rest ofremaining Frequency Bands which composedformed Lot No. 8. Personal stated that such Lot formed a unique8, and comprehensive block for purposes of complying with the obligations undertaken in connection with the deployment of the SCMA, also expressing that the Federal Government has the obligation to cause the awarded bands to be free from occupants and interferences.thus completed said Lot.

 

The Auction Terms and Conditions also established demanding coverage and network deployment obligations, demanding significant investments by the Company.

The Auction Terms and Conditions provided authorizations forauthorized the use of the auctioned frequency bands for a period of fifteen (15)15 years as from the notificationaward of said frequencies. Upon expiration, the award. After this deadline the Regulatory Authorityregulatory authority could extend the terms of use upon formal request of the awarded operator (which price and conditions would be set forth by the Regulatory Authority). Subsequently, in Decree No. 1,340/16, it was established that the term of authorizations for the use of frequencies of the SCMA, as well as the corresponding deployment obligations, will be computed from the actual migration of the services currently operating in such bands in the area of Area II (AMBA)authority). On August 30, 2018, the Resolution No. 528/18 was issued, in which it was stated that on February 27, 2018, the effective migration of such services has been verified.

 

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f) Regulations of Refarming with Financial Compensation and Shared Use of FrequenciesOther relevant regulatory matters

 

üRegulatory situation in Uruguay

On January 31, 2017, Resolution of the Ministry of Communications 171-E 2017 was issued, approving the “Regulations of Refarming with Financial Compensation and Shared Use of Frequencies” (Reglamento de Refarming con Compensación Económica y Uso Compartido de Frecuencias) and modifies the spectrum cap, setting it in 140 MHz per provider for each area and/or operating location.

Uruguayan Audiovisual Communication Services Law

 

On the other hand, ENACOM Resolution No. 1,033-E/17, issued on February 20, 2017 provided to allocate the frequency bands between 905-915 MHz, and 950-960 MHz to the Mobile Service with primary status, for the provision of SCMA, and throughout ENACOM Resolution No. 1,034-E/17, also issued on February 20, 2017, allocated the frequency band between 2,500-2,690 MHz to the Mobile Service with primary status, for the provision of SCMA in addition to current services when their coexistence is possible.

On March 7, 2017 ENACOM Resolution No. 1,299-E/17 was published in the Official Gazette. This Resolution approved the Refarming Project with Financial Compensation and Shared Use of Frequencies to Nextel Communications Argentina SRL (“Nextel”), currently Telecom since the merger with Cablevisión S.A. –See Note 32 to our Consolidated Financial Statements, to provide the Advanced Mobile Communications Service, granting this company the registration for the provision of such service, and authorizing it to:

·Use frequencies between 905-915 MHz and 950-960 MHz in accordance with the provisions of ENACOM Resolution No. 1,033-E/17 and channels 7 to 10, and 7’ to 10’ in FDD mode, provided in the Annex of Resolution No. 1,034-E/17, for the provision of the Advanced Mobile Communications Service in locations and areas described in the Project approved by the Resolution.

·Use frequencies between 2,550-2,560 MHz, and between 2,670-2,680 MHz exclusively for migrating users from pre-existing services, for a 2-year period, term in which it should additionally resolve the final destination of those users. Once the migration is completed, or the 2-year term expires, whichever occurs last, Nextel may use channels 11 and 12, and the corresponding 11’ and 12’ in FDD mode, provided in the Annex to Resolution No. 1,034-E/17, for the provision of the Advanced Mobile Communications Service in locations and areas described in the Project hereby approved.

The implementation of the Project is subject to the issuance of the agreement specifying the terms, conditions, goals, obligations and other issues inherent to the provision of Advanced Mobile Communications Service.

ENACOM Resolution No. 3,687-E/17 call for the on-demand frequency allocation

ENACOM Resolution No. 3,687-E/17, published in the Official Gazette on May 12, 2017, provided the call for the on-demand frequency allocation of the 2,500 to 2,690 MHz radio spectrum, stating the procedure, obligations and compensations to be fulfilled by the Mobile Communications Service providers who qualify to participate, in accordance with the provisions of Section 4 of Decree No. 1,340/17. According to the characteristics of the 2,500 to 2,690 MHz band, the authorization of use of the frequency channels that compose each Lot must be issued by each locality.

On May 24, 2017, Personal filed to ENACOM the Envelope with its On-demand Allocation Request, according to the provisions of Resolution No. 3,687-E/17.

On July 5, 2017, ENACOM notified Personal of its Resolution No. 5,478-E/17 through which the frequencies included in Lot A were assigned to Telefónica Móviles Argentina S.A., the frequencies included in Lot B were assigned to América Móvil S.A. and the frequencies included in Lot C were assigned to Personal (all of them stated in Annex I of ENACOM Resolution No. 3,687 E/17), in the locations detailed in the respective Annexes (attached to Resolution No. 5,478-E/17) as requested by each provider. The Resolution provides that the enforcement of its provisions will be operative, within the Departments of San Rafael, General Alvear and Malargüe, of the Province of Mendoza, once the judicial decision ordered by the Federal Court of San Rafael in the legal process entitled “CABLE TELEVISORA COLOR S.A. c/ PEN AND OTHER S/ AMPARO Ley 19,986-File No. 5,472/17” had been revoked.

The spectrum allocation will last 15 years since CABA plus other 13 areas are free of interference over a total of 18 provincial capitals plus Rosario, Mar del Plata and Bahia Blanca and will demand payment of up to approximately US$55.9 million. The conditions for the spectrum allocation include certain obligations regarding the service launch by localities, penalty clauses for non-compliance with the deadlines established by localities (which would involve the frequency return plus a fine equivalent to 15% of the spectrum value of the locality involved) and certain guarantees required, among them, the deployment.

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Spectrum in 700 MHz Band licenses (Paraguay)

On September 2017 the public consultation process was started for the auction of 700 MHZ band spectrum. The list of conditions was issued on October 30, 2017 and in December of the same year the prequalification of offerers was done being Núcleo one of the prequalified and having to pay a deposit of US$15 million in December 2017. The process finished on January 4, 2018 with the simultaneous auction of 7 sub-bands of 5 + 5 MHz each one, Núcleo was awarded with two of them for an amount of US$12 million for each sub-band subject to the compliance with certain conditions provided by CONATEL’s resolution.

On February 27, 2018 the auction’s price was cancelled for the remaining US$9 million in compliance with CONATEL’s resolution.

On March 6, 2018, by Resolution No. 375/2018, CONATEL decided to grant the license for the provision of “Cellular Mobile Telephony and Internet Access and Data Transmission Services” in the 700 MHz frequency band, with coverage national, for a period of 5 years, renewable for an equal period.

f)OTHER RELEVANT REGULATORY MATTERS

üENACOM RESOLUTION NO. 5,641-E/17

Through this Resolution, published on December 22, 2017, the ENACOM decided:

·To extend until January 1, 2019 the term for the Licensees referred to in Section 94 of Law No. 27,078 to start providing subscription broadcasting services by means of physical or radio-electric link in those locations in Argentina that do not fall within the scope of the second paragraph of Section 5 of Decree No. 1,340/16, which have less than 80,000 inhabitants. To extend until January 1, 2019 the term for the Licensees referred to in Section 94 of LAD to start providing subscription broadcasting services by means of physical or radio-electric link in those locations in Argentina that do not fall within the scope of the second paragraph of Section 5 of Decree No. 1,340/16, which have more than 80,000 inhabitants and where those services are rendered only by Cooperatives and Small-and-Medium Sized Companies.

·To provide that in all those locations in Argentina that do not fall within the scope of the second paragraph of Section 5 of Decree No. 1,340/16, whatever the size of their population, where the Subscription Broadcasting Service by means of physical or radio-electric link is rendered by, at least, a licensee that has more than 700,000 subscribers nationwide, the Licensees mentioned in Section 94 of LAD may start providing services as from January 1, 2018.

·The Licensees mentioned in Section 94 of LAD (among them, Telecom) that are authorized to provide Subscription Broadcasting Service by means of physical or radio-electric link may not make an integrated offering to provide said service with the rest of the services that they are currently providing in those locations until January 1, 2019.

·To provide that in those locations in Argentina where subscription broadcasting services by means of physical or radio-electric link are not provided, the Licensees mentioned in Section 94 of LAD may, as from January 1, 2018, request authorization to provide services in the respective coverage areas, subject to an evaluation by the ENACOM.

üGRID OF SIGNALS OF PHYSICAL AND/OR RADIOELECTRIC LINK BROADCASTING SERVICES

The General Rules approved by Resolution ENACOM No. 1,394/16 order providers of both types of services (physical and radio-electric link) to guarantee their compliance with a programming grid in each Coverage Area.

Later, by means of Resolution No. 5,160/2017, the ENACOM provided that the inclusion of broadcast television signals within the coverage area by the holders of a physical or radioelectric link subscription television registry will be subject to the conditions agreed upon with the holder of the broadcast television service and its retransmission will be mandatory only if they are delivered by its holders free of charge. In addition, the Resolution sets forth that the retransmission of cable news signals will only be mandatory for 24-hour news signals provided that they broadcast live programming during 12 of those 24 hours.

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üREGULATORY MATTERS IN URUGUAY

·Migration of services

Adesol S.A. is a subsidiary of the Company organized in the Oriental Republic of Uruguay, which is contractually related to Bersabel S.A. and Satelital Visión S.A., two licensees that provide subscription television services in such country and are subject to the control of the Communication Services Regulatory Unit (“URSEC”).

On January 11, 2018, Decree No. 387/017 dated December 28, 2017 was published in the Official Gazette. The Decree provides that all the subscription television services provided through the Codified UHF system shall be migrated to the TDH Satellite system without it entailing any changes to the original authorizations to operate or in the rest of the conditions established in the respective licenses. Such authorizations shall not undergo any changes in the authorized service areas for 18 months.

On February 9, 2018, Bersabel S.A. and Visión Satelital S.A., two of the licensees contractually linked to Adesol who use UHF systems coded for the provision of their services, submitted to the URSEC the migration plan relating to their subscribers. In view of the foregoing, as well as the contractual relationship that binds Adesol to the provision of said services, the Company’s subsidiary is, at the date of issuance of these consolidated financial statements, executing the technical plan for migration presented.

·Audiovisual Communications Law of Uruguay

On January 14, 2015, Law No. 19,307 was published in the Official Gazette of the Republic of Uruguay which regulates the provision ofon January 14, 2015. This Law governs radio, television, and other audiovisual communication services (hereinafter, the “Audiovisual Communications Law”). Section 202 of suchthis law provides that the National Executive Branch shall issue theits implementing regulations for this law within a 120-day term, counted as from the day following the publication of this lawthe Audiovisual Communications Law in the Official Gazette. As of the date of issuance of these consolidated financial statements, onlyDecrees No. 45/015 and No. 160/19 has been issued. Decree No. 45/015 has been issued, and the implementing regulations for most of the sections of this law are still pending. Such Decree provides that the concession for the use and allocation of the radio-electric spectrum for non-satellite audiovisual communication services shall be granted for a term of 15 years.years, while Decree No. 160/19 regulates several provisions of the Audiovisual Communications Services Law.

 

Section 54 of the Audiovisual Communications Law sets forthprovides that an individual or legal entity cannot be allocated the full or partial ownership of more than six6 authorizations or licenses to providerender television services to subscribers inthroughout the national territory of the Oriental Republic of Uruguay, whichUruguay. Such limit is reduced to three3 if one of the authorizations or licenses includes the districtdepartment of Montevideo. Section 189 of this law sets forthprovides that shouldin the cases where such limits bewere exceeded as of the comingentry into force of the Law, the owners of those audiovisual communication services shall have to transfer the necessary authorizations or licenses so as not to exceed suchthe limits mentioned above within a term of 4 years as from the comingdate of entry into effectforce of the Audiovisual Communications Law.

 

The subsidiary

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Adesol is analyzing the possible impact on its business that could be derived from the change in the regulatory framework and the eventualany possible legal actions it may bringthat can be taken in order to safeguardprotect its rights and those of its shareholders.shareholders’ rights. That company is also monitoring the different unconstitutionality claims filed by other companies against certain sections of the above-mentioned law to consider ifwhether the decisions to be issuedrendered by the Supreme Court of Uruguay in those proceedings may be favorable to the position of Adesol in the future. As ofOn April 7, 2016, 28 unconstitutionality claims had beenwere brought against the above-mentionedabove mentioned law. As of the date of issuance of these consolidated financial statements, the Supreme Court of Uruguay has issued 28 decisions, whereby it declared the unconstitutionality of SectionSections 39 subsectionsub-section 3, Section 55, Section 56 subsectionsub-section 1, Section 60 paragraph60-point C, Section 98 subsectionsub-section 2, Section 117 subsectionsub-section 2, Section 143 and Section 149 subsectionsub-section 2 of Law No. 19,307. It should be notedis noteworthy that in some of these judgmentsthe decisions rendered in this respect by the Supreme Court dismissed the unconstitutionality claim filed by the claimant with respect to Section 54 of that Law.

 

üNEW GENERAL RULESBased on the above-mentioned analysis, the companies AUDOMAR S.A., DOLFYCOR S.A., REIFORD S.A., SPACE ENERGY TECH S.A., TRACEL S.A., BERSABEL S.A., and VISION SATELITAL S.A., together with the majority shareholder of those companies, brought on November 22, 2019 an unconstitutionality claim against Sections 54 and 189 of Law No. 19,307. On October 15, 2020, the Supreme Court of Uruguay provided the lack of passive legitimation of the Legislative Body and rejected the mentioned unconstitutionality claim.

 

New General Rules Governing ICT Services LicensesOn the other hand, in April 2020 the Executive Branch of Uruguay forwarded to the Uruguayan Congress an audiovisual communications bill, which, if approved, would abolish the current Audiovisual Communications Law (Law No. 19,307) and its regulating decrees would also lapse. As of the date of these consolidated financial statements, the mentioned audiovisual communications bill is still under review of the Uruguayan Congress.

·Migration of Services

On January 11, 2018, Decree No. 387/017 dated December 28, 2017 was published in the Official Gazette. The Decree provides that all subscription television services provided through the Codified UHF System shall be migrated to the TDH Satellite system, without it entailing any changes to the original authorizations to operate or to the rest of the conditions established in the respective licenses. Those authorizations shall remain unchanged in the authorized service areas for a term of 18 months.

On February 9, 2018, Bersabel S.A. and Visión Satelital S.A., two of the licensees that use Codified UHF systems to provide services and have contractual relationships with Adesol, filed the migration plan for their subscribers with the URSEC, which was completed on July 11, 2019.

üOther rules

·General Rules Governing ICT Service Licenses

 

On January 2, 2018, the Ministry of Modernization issued Resolution No. 697/2017,17, whereby it approved the new General Rules Governing ICT servicesService Licenses. This Resolution repealed the General Rules approved throughpursuant to Annex I of Decree No. 764/2000,00, as from the date itthe resolution became effective (February 1, 2018), and it also repealed ENACOM Resolutions No. 2,483/201616 and No. 1,394/201616 (except for Section 12 of its Annex I, which will remain in effect). The Company has made presentations appealing tofiled an appeal against some aspects of thissuch Resolution, appeal which, to date, is still pending of resolution.

 

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New General Rules Governing ICT Services Customers

·General Rules Governing ICT Service Customers

 

On January 4, 2018, the Ministry of Modernization issued Resolution No. 733/2017,17, whereby it approved the new General Rules Governing ICT ServicesService Customers. This Resolution became effective on March 5, 2018, repealing SC Resolutions No.490/No. 490/1997, and Annexes I and III of SC Resolution No. 10,059/1999 and its supplementing regulations. Annex II of SC Resolution No. 10,059/1999 shall remain in effect, asto the extent applicable, until the enactment of the penalty regime provided under SectionSections 63 of the LAD. Such New General Rules repealed the general rules governing mobile and basic telephony servicesservice customers, thus becoming the only general rules that govern ICT servicesService customers, including Internet access services and subscription broadcasting services.

 

The Company has made a presentation tofiling with the Ministry of Modernization in relationregarding some regulations that infringe its right to some disposals that affect their rights in the marketing ofsell its services under their responsibility (such as the 180-day period during which prepaid credit can be used,credit; Section 56, which provides for compensation in favor of the customer, and Section 79, which establishes the obligation to replace any channels eliminated from the programming grid with other channels of similar quality).quality.)

 

MINMODThrough Resolution No. 363/2018,18, published in the Official Gazette on June 27, 2018, the Ministry of Modernization provided for amendments to the General Rules. Some of those amendments were related to the provisions challenged by Telecom in its filing. As of the date of issuance of these consolidated financial statements, this appeal is still pending of resolution. Subsequently, through Resolutions Nos. 1,150/19 and 1,522/19, the appeal filed bySecretariat of Modernization introduced amendments, among which, the Companymost relevant is pending resolution.the term of 30 business days to report in advance material changes in the services rendered to customers.

 

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·Number Portability Regulation

 

On April 4, 2018, the Ministry of Modernization issued Resolution No. 203/2018,E-203/18, whereby it approved the new General Rules Governing Number Portability Regulation, including fixthe portability of fixed telephony service lines. Through such Resolution, such Ministry also approved the implementation schedule for the portability of these services and approves the schedule of implementation of such services. Thisrevoked SC Resolutions Nos. 98/10, 67/11 and 21/13 and Resolution repeals Resolutions N° SC 98/2010, SC 67/2011 y SC 21/2013 andNo. E-170/17 issued by the Ministry of Communications Resolution E-170/2017, and its supplementingsupplementary regulations. Through Resolution No. 401/2018,18, published on July 11, 2018, the Ministry of Modernization decided to extend for ninety (90) business days the term for the implementation of “Stage 1” provided under the implementation schedule for fixed telephony service number portability. Said Resolution also provided that the ENACOM shall determine the way in which the Committee on Number Portabilitynumber portability committee will be constituted and implemented.

 

Through Resolution No. 4,950/18 of4,950 issued on August 14, 2018, the Board of the ENACOM decided to delegate todelegated on the ownerhead of the first operational level of the National DirectorateAdministration of Planning and Convergence of that Agency, the powers to: (i) approve the Processes and TechnicalOperational and OperationalTechnical Specifications of the Number Portability, (ii) approve the specification modelBidding Terms for the selection of the Database Administrator offor the Contract Databasecontract to be heldexecuted between the Portable ServiceServices Providers and the Database Administrator and propose the modifications pertinentany relevant changes to the Committee on Number Portability Committee, and (iii) intervene withon a binding characterbasis in the procedure of contractingto procure the Administratorservices of the Database.Database Administrator.

 

ThisThrough such Resolution, the ENACOM also providedset out that the Committee on Number Portability Committee shall be composed of two representatives, a holderone permanent and anone alternate, and approved the work schedule in order to carry outproperly implement the correctNumber Portability. As of the date of these consolidated financial statements, the representatives of such Committee have not been appointed yet.

On December 31, 2020, the ENACOM issued Resolution No. 1,509/20, whereby it replaced the work schedule for the implementation of Number Portability that had been approved as an Annex to Resolution No. 4,950/18. In addition, the ENACOM approved the new model of the Bidding Terms and Conditions for the selection of the centralized Number Portability.Portability Database Administrator for the Mobile Communication Service and the Fixed Telephony Service, and also approved the Network Technical Specifications.

 

Regulations Regarding New Interconnections and AccessesThis resolution is subject to the approval of ENACOM's Board. As of the date of these consolidated financial statements, that resolution has not been approved by ENACOM’s Board.

·General Rules Governing Interconnection and Access

 

On May 18, 2018, theMinistry of Modernization Resolution No. 286/18 of the Ministry of Modernization was published in the Official Gazette, approvingGazette. Such Resolution approves the new interconnectionGeneral Rules Governing Interconnection and access regulations,Access, effective as offrom July 3, 2018, repealing the oneGeneral Rules that had been approved byunder Decree No. 764/00.

 

AccordingPursuant to the new Regulation,General Rules, the interconnection and access terms, conditions and prices of interconnection and access may be freely setestablished by mutual agreement between the parties. These agreements cannot be discriminatory or set technical conditions that prevent, delay or hinder interconnection. Notwithstanding the foregoing, within 60 working days from the effective date,The ENACOM will set provisional interconnection charges, in accordance with the provisions ofas established under Decree No. 1,340/16.

 

In addition, the providers of ICT service providersServices will be obligedhave the obligation to provide interconnection at the request of another provider of ICT service provider, underServices, on no less favorable technical and economic conditions no less favorable than those grantedapplied by the requested ICT Service provider to themselvesitself or to third parties. Also,parties, granting the same quality of services, as the one provided must be guaranteed.

Transparencytransparency in compensation and must be guaranteed andrefrain from charging the requesting ICT Service Providers of Services must not pay for functions or services that they doare not need for the provision ofneeded to render their services.

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Finally, the following are considered Essential Facilities: a) Origination or Local Termination; b) Co-location; c) Local Transit Service; d) Port; e) Signaling Function; f) Loop and Local Customer Sub-loop; g) the Transportation Service (LD), when there is no substitute offer for contracting; and h) any other function or network element that the authority determines as such, ex officio or at the request of a party. These facilities must be provided separately and respecting the charges that the authority establishes. For this purpose, ENACOM will establish reference values, which will function as maximum values, and lower values, which may be agreed between the parties.

From the entry into force of the regulation, on July 4, 2018, Telecom had a period of 90 business days to present the Reference Offer to ENACOM, presentation that was duly made.

 

On August 14, 2018, ENACOM issued Resolution No. 4,952/18, establishing a provisional charge equivalent to US$0.0108 per minute of communication, without considering the different taxes and charges that may be applicable for the origination services or local termination in the mobile communications service networks. Likewise, it is established that for the purposes of applying the fixed charge, the unit of measurement will be the second. Through ENACOM Resolution No. 1,161/201818 dated November 27, 2018, the ENACOM set the same charge for SRCE network termination.

 

On thisthat same date, ENACOM Resolution No. 1,160/201818 was also published in the Official Gazette, wherebyGazette. Pursuant to such Resolution, the ENACOM set: (i) a provisional charge equivalent to forty-five ten-thousandths US dollars (US$ 0.0045) for local origination or termination services over fixed telephony service networks per minute of communication (ii) a provisional charge equivalent to ten ten-thousandths US dollars (US$ 0,0010)0.0010) for local transit service per minute of communication (iii) a provisional charge equivalent to twenty-seven ten-thousandths US dollars (US$ 0,0027)0.0027) for long distance transport service per minute of communication (iv) the second as the measuring unit for the purposes of applying the charges set under this Resolution.

 

Telecom filed an appeal with the ENACOM challenging those charges with the respective legal grounds to request the review of the above-mentioned Resolution by that agency. As of the date of issuance of these consolidated financial statements, such this appeal is still pending of resolution.

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·Quality Rules for ICT Services.

ThroughPursuant to Resolution No. 580/18,4,266/19, published in the Official Gazette on October 8, 2019, the ENACOM decided, on a provisional and exceptional basis, that the reference exchange rate applicable to the interconnection charges in effect established under ENACOM Resolutions Nos. 4,952/18, 1,160/18 and 1,161/18, for calls made as from August 1, 2019, will be of forty-five pesos and twenty-five cents ($45.25) per US dollar. In subsequent months, the exchange rate to be applied may not exceed six percent (6%) of the exchange rate established for the previous month and in no case may it exceed the selling exchange rate set by Banco de la Nación Argentina on the last business day of the month in which the services are rendered. This Resolution was applicable to services provided up to and including December 31, 2019.

Pursuant to Resolution No. 1,510/20, published in the Official Gazette on December 29, 2020, the ENACOM decided, on a provisional and exceptional basis, that the reference exchange rate applicable to the interconnection charges for calls made as from January 1, 2021, will be of eighty-three pesos and thirty-six cents ($83.36) per US dollar. This Resolution will be applicable to services provided up to and including June 30, 2021 and is subject to the approval of ENACOM's Board. As of the date of these consolidated financial statements, this resolution has not been approved by ENACOM’s Board.

·Quality Rules for ICT Services

Through Resolution No. 580/2018, published in the Official Gazette on September 6, 2018, the Ministry of Modernization approved the Quality Rules for ICT Services, which came into forceeffect on January 4, 2019.

 

This Resolution repeals Resolution No. 5/2013 issued by the former SC and Resolution No. 3,797/2013 issued by the former CNC. In addition, theThe ENACOM iswas instructed to issue the implementing regulations within a term of 90 calendar days, whichdays. Although the term has already expired, as of the date of issuance of these consolidated financial statements, are still pending of resolution.the implementing regulations have not been issued.

 

Likewise, the Company is still analyzing the impact of the new rules issued on its operations.

·National Rules for Contingencies.

·National Rules for Contingencies

 

Through Resolution No. 51/18, published in the Official Gazette on November 6, 2018, the Secretariat of Modernization approved the National Rules for Contingencies and ordered the ENACOM to issue the implementing procedures or Contingency Plan (for emergency situations) within a term of 90 calendar days as from its publication in the Official Gazette.

 

AlthoughEven though the term has expired, as of the date of issuance of these consolidated financial statements, such procedure has not been issued.issued yet.

 

·International Roaming Regulations between Argentina and Chile

·Single Desk System.

On August 31, 2020, ENACOM Resolution No. 927/20 was published in the Official Gazette. In such resolution, the International Roaming Regulations between Chile and Argentina was approved. Under those Regulations, it was established, among other things, that Argentina's mobile communications service providers, including Virtual Mobile Operators, shall offer customers who use international Roaming services with Chile the same prices that they offer in their own country for voice communications, messaging and mobile data while they stay in that country.

 

·Infrastructure Sharing Regulation

Through Decree No. 997/2018, published on November 6, 2018,

On December 16, 2020, the Chief of the Cabinet of Ministers - Secretariat of Modernization established a single desk system for the installation of antenna support structures of any kind for rendering SCMA services in order to expedite the granting of authorizations and permits for the construction and installation of structures for the deployment of mobile services.

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·Implementation of the Online Proceedings (“IOP”) Platform for noticesPublic Innovation issued by the ENACOM.

Through Resolution No. 4,703/18, published on July 24, 2018, the ENACOM provided for the use of the IOP Platform for requests and notices. In view of the legal and operating implications of this implementation, on August 8, 2018, Telecom filed with the ENACOM an appeal against said resolution, which, to date, is still pending resolution.

·Implementation of the Rules for the Registration of SCM Customers.

On December 2, 2016, the ENACOM published Resolution No. 8,507 - E/2016,105/20, whereby it approved the Rules forPassive Infrastructure Sharing Regulation and established the Registrationterms and Validationprocedures regarding the access, availability and shared use of passive infrastructure owned by, controlled by or otherwise available to an ICT Services Licensee.

Among the most relevant provisions of the IdentityRegulation is the obligation to grant access to other ICT Services Licensees to available passive infrastructure; to reserve capacity in the installation of new ducts and shelters for providing access to other ICT Services Licensees; the Account Holder Users of Mobile Communication Services.prohibition to agree on exclusive use; among other obligations.

 

Through Resolution No. 466/2018, published in the Official Gazette on October 19, 2018, the ENACOM extended until October 31, 2018 the term for the registration and validation of all the preexisting prepaid customers.

The Company has conducted all the necessary actions and implementations required to fulfill the guidelines for the registration of its customers, as ordered by said regulations.

CONSULTATION DOCUMENT UNDER THE PROCEDURE FOR THE “GENERAL RULES GOVERNING PUBLIC HEARINGS AND CONSULTATION DOCUMENTS FOR COMMUNICATIONS” AND THE “GENERAL RULES FOR THE PARTICIPATORY DEVELOPMENT OF RULES”

·Procedure for the Public Consultation on Allocation of Shared-Use Frequency Bands

Through Resolution No. 2/18, the SETIC ordered the beginning of the procedure provided under Article 44 et seq of the General Rules Governing Public Hearings and Consultation Documents for Communications, with respect to the document “Public Consultation on Allocation of Shared-Use Frequency Bands.”

Telecom submitted its opinions and observations about the Document under consultation on January 10, 2019.

·Public consultation procedure on Infrastructure Sharing

Through Resolution of the SETIC No. 18/18, it was declared the opening of the procedure provided for in Article 44 and following of the General Rules of Public Hearings and Consultation Documents for Communications, regarding the document “Public Consultation on Infrastructure Sharing”.

On October 8, 2018, Telecom presented its opinions and observations on the document in consultation.

On January 29, 2019, Resolution-2019-3-APN-STIYC # JGM is published in the Official Gazette, which establishes the opening of the procedure settled in Article No. 44 et seq of the General Rules Governing Public Hearings and Consultation Documents for Communications, “The Regulation of Infrastructure Sharing”. As of the date of issuance of these consolidated financial statements, the Company is analyzingevaluating the document in order to present pertinent opinions and observations.impact of the obligations imposed under this new Regulation.

 

·Procedure for the Public Consultation on Update of the Main Signaling Plan.

Through Resolution No. 2/18, the SETIC ordered the beginning of the procedure provided under Article 44 et seq of the General Rules Governing Public Hearings and Consultation Documents for Communications, with respect to the document “Public Consultation on Update of the Main Signaling Plan.”

·Subscription Television Services Regulation

 

On January 10, 2019, Telecom submitted its opinions and observations about the Document under consultation.

·Procedure for Public Consultation on the Most Beneficial Conditions for Network Access and Use

ThroughDecember 24, 2020, ENACOM Resolution No. 4/18,1,491/20 was published in the Official Gazette, on December 18, 2018,whereby said agency approved the Secretariat“General Regulation of Modernization ordered the beginning of the procedure provided under Article 44 et seq of the General Rules Governing Public HearingsSubscription Television Services by Physical and/or Radio-electric and Consultation Documents for Communications, with respect to the document “Public Consultation on the Most Beneficial Conditions for Network Access and Use.”

The Company submitted its opinions and observations about the Document under consultation.

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üDECREE NO. 1,060/2017 - DEVELOPMENT OF MOBILE COMMUNICATION SERVICES NETWORKS

This Decree, published in the Official Gazette on December 21, 2017,Satellite Link”. Among other aspects, it provides for the facilitationarrangement of signals in programming grids so that the signals that correspond to the same genre are arranged consecutively; the obligation to submit an annual affidavit describing the programming grid, the inclusion of signals of broadcast television Licensees; the list of mandatory signals, and, in case of disagreement to include mandatory signals in the programming grid, be it broadcast television signals or those included in the Public Registry of Signals, any of the development of mobile communication services networks, establishing, among other provisions,parties may make a filing with the ENACOM. In addition, said Resolution provides that the jurisdictions and agencies comprised in subsections a) and b)commercialization of Section 8 of Law No. 24,156 shall ensure TIC services and independent operators of passive infrastructure multipleone or shared access, for consideration, to passive infrastructures for the deployment of networks under neutral, unbiased, transparent, fair and non-discriminatory conditions, without the possibility of granting any exclusiveness or preference whatsoever, in fact or in law, provided that such access does not compromise the continuity and security of the services provided by its holder.

The Decree also provides, among other issues, that:

1) The Ministry of Modernization:

a.    shall issue comprehensive general rules with supplementary regulations for infrastructure sharing;

b.    shall develop, within a term of 180 days, a multi-year spectrum plan in order to maximize and    increase the radioelectric resources for the deployment of next-generation mobile networks and SCM in order to support traffic growth and improve service quality;

c.    shall issue supplementary or clarifying regulations relating to Section 29 of LAD, establishing efficient procedures and avoiding distortions in competition;

d.    shall identify radioelectric spectrum frequency bands for the development of new services and wireless applications and issue regulations allowing for their shared and unauthorized use.

2) The frequencies that are allocated and authorized to SRCE may only be used to provide those services. The ENACOM may allocate frequencies to provide SCM and demand the return of the frequencies and migration of services pursuant to Section 28 and 30 of LAD, and its regulations, or, at the request of the interested party, apply Section 4, subsection b) of Decree No. 1,340 dated December 30, 2016, and its regulations, establishing an economic compensation in favor of the National Government.

3) SBT licensees may provide this service through the use of radioelectric spectrum frequencies using those allocated for the provision of 4G mobile services, notwithstanding the provision of fixed telephone service pursuant to Section 2, subsection a) of the PCS General Rules approved as an annex to Section 1 of Decree No. 266 dated March 10, 1998, through the execution of agreements with the licensees of those frequencies, which shall be reported to the ENACOM.

4) Delegate on the Ministry of Modernization the power to issue the penalty rules provided under Section 63 of LAD, which shall repeal the current rules approved under Decree No. 1,185 dated June 22, 1990, as amended and supplemented.

üREGISTRATIONS AND AUTHORIZATIONS TO USE THE SPECTRUM THAT ARE NOW HELD BY THE COMPANY AS A RESULT OF CORPORATE REORGANIZATIONS OF TELECOM AND MERGER BY ABSORTION OF CABLEVISION (NOTES 4.f) AND 4.a) RESPECTIVELY):

1)Personal:

On November 24, 2017, Telecom Argentina and Personal were served with ENACOM Resolution No. 4,545-E/2017, whereby that agency decided:

(i) to authorize Telecom Personal to transfer in favor of Telecom Argentina the registrations of Mobile Telephone Services, Cellular Mobile Radiocommunications Services; Personal Communications Services Area I, II, III, and Mobile Advanced Communications Services, as well as the resources, permits and frequencies granted in its name;

(ii) to revoke the licenses granted to Personal to render Data Transmission, Value Added and National and International Long-Distance Telephone Services;

(iii) to authorize the transaction reported by Telecom whereby the controlling companies Sofora Telecomunicaciones S.A. and Nortel Inversora S.A. are dissolved without liquidation pursuant to the Bidding Terms and Conditions approved under Decree No. 62/1990.

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2)Cablevisión:

On December 22, 2017, the Company and Cablevisión S.A. were served with ENACOM Resolution No. 5,644-E/2017, whereby that agency decided, among other things, to authorize Cablevisión S.A. to transfer in favor of Telecom Argentina:

(i)The Registration of physical and/or radioelectric link broadcasting services, including the permits/frequencies required to provide radioelectric link broadcasting services, as well as the area authorizations to provide those services (via physical and radioelectric link), which may operate in Area II, defined as provided under Decree No. 1,461/93, as amended, and the city of Rosario, Province of Santa Fe, and the city of Córdoba, Province of Córdoba, as from January 1, 2018, as provided under Section 5 of National Decree No. 1,340/2016, and in the rest of the areas authorized on the dates and in the modalities provided by ENACOM Resolution No. 5641/2017 dated December 20, 2017;

(ii)The Radioelectric Service of Concentration of Links (“SRCE”); and;

(iii)The authorizations and permits to use frequencies and allocations of numbering and sign-posting resources to provide the above-mentioned services held by Cablevisión S.A., pursuant to effective regulations, and the agreement executed by Nextel Communications Argentina S.R.L., on April 12, 2017 (IF-2017-08818737-APN-ENACOM#MCO), whereby Telecom Argentina, in its capacity as absorbing company of Cablevisión S.A., shall, within a term of two years as from the date on which the merger is approved by the CNDC and the ENACOM or any agency that may substitute them in the future, return the radioelectric spectrum that exceeds the limit set under Section 5 of Resolution No. 171-E/17 issued by the Ministry of Communications and/or any regulation that may repeal it in the future. To those effects, the Company shall file with the ENACOM, no later than one year in advance upon the expiration of the two-year term, a proposal to conform to that limit. The ENACOM may accept the proposal, reject it and/or request a new filing with any changes it may deem appropriate.

In addition, through that Resolution, the ENACOM authorized the change of corporate control, pursuant to Section 33 of the LGS, in Telecom Argentina once the merger became effective and the shareholders agreement dated July 7, 2017 became effective, as a result of which CVH became the legal controlling company of Telecom Argentina as surviving company of Cablevisión.

Such Resolution also approved:

(i)The relinquishment of the services registrations that are currently non-operative that had been requested by Cablevisión S.A. People Notice service (“SAP”), Community Repeater (“SRC”), Public Telephony (“STP”), Location of Vehicles (“SLV”) and Alarm by radioelectric link (“SAVR”) and by Telecom (SRC); and

(ii)The revocation of the licenses and registrations granted to Cablevisión S.A., now held by   Telecom.

In addition, the Resolution provides that:

(i)Telecom shall comply with Section 95 of Law No. 27,078, which provides for the conditions under which it may operate the physical and/or radioelectric link subscription television service, transcribed below:

a.The Company shall create a business unit to provide the audiovisual communication service and manage it separately from the public utility business unit;

b.It shall keep separate accounting records and bill the licensed services separately;

c.It shall not conduct anti-competitive practices such as tie-in practices and cross subsidies with funds from public utilities to licensed services;

d.It shall provide - when requested- to the competitors in licensed services access to its own support infrastructure, especially, posts, masts and ducts under market conditions. In the absence of agreement between the parties, the ENACOM shall intervene;

e.It shall not conduct anti-competitive practices concerning the rights to broadcast contents over its networks and facilitate a growing percentage to be established by the ENACOM to the distribution of contents from independent third parties; and

f.It shall respect the professional competences and job classifications of the workers in the different activities it is engaged in.

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(ii)Telecom is declared to be an operator with a significant position in the retail market of Fixed Internet Access market in the locations detailed in the Report prepared by the National Directorate for the Development of Competition in Networks and Services of the ENACOM. As a result, it decided that:

a.Telecom shall, within 60 days as from the date the Resolution was issued, offer the Fixed Internet Access service in those locations at a price thatseveral signals may not be higher thanconditional on the lowestacquisition of other signals. In the event licensees offer a package of signals, they must include a breakdown of the price offered by the company in Area II for that service. If a similar service is not provided in that Area, it shall apply the lowest price offered at national level by the licensee for a similar service.

b.Telecom shall, within 60 days as from the date the Resolution was issued, report to the ENACOM and publish in its institutional website all the business plans, promotions and discounts for the Retail Internet Access service. Telecom shall ensure to other providers, under transparent, non-discriminatory and cost-oriented conditions, access to its own support infrastructure, especially, posts, masts and ducts.of each of them.

 

As of the date of issuance of these consolidated financial statements, the Company has complied with such provisions.is evaluating the impact of these regulations.

 

All the provisions mentioned above shall be in effect for a term of 2 years as from the notice of the authorization granted by ENACOM, or until it has been verified that there is effective competition in all or in some of the locations involved. The ENACOM may extend or revoke that term.

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With regard to the provision of Quadruple Play services, Section 7 of Decree No. 1,340 shall apply:

SECTION 7 - The providers of Information Technology and Communications Services that make joint service offerings shall detail the price of each of those services, including the breakdown of those prices and discounts or benefits applied to each service or product for the above-mentioned offerings. Pursuant to Section 2, subsection i) of Law No. 25,156 and to Section 1,099 of the Civil and Commercial Code of Argentina, those providers may not subject, in any way and under any condition, the purchase of any service to the purchase of another service, thus preventing the customer from purchasing any service separately or individually.

On June 29, 2018, the Secretary of Commerce issued Resolution No. 374/18, whereby it authorized the merger transaction in the terms of paragraph a) of Article 13 of Law No. 25,156. (For more information, see Note 4.a).

ü“ENACOM RESOLUTIONS NO. 840/18, NO. 1,196/18 AND NO. 4,353/18 – NEW REGIME FOR RADIOELECTRIC SPECTRUM FEES”

On February 27, 2018, Resolutions Nos. 840/18 and No. 1,196/18 were published in the Official Gazette. Through these Resolutions, the ENACOM updated the value of the Radioelectric Spectrum Fee per Unit and, in addition, it established a new regime for mobile communications services, which substantially increases the amounts to be paid in this regard.

In accordance with the provisions of Resolution No. 4,353/18, published in the Official Gazette on May 24, 2018, the new Regime for Radio-electric Rights and Tariffs will not have an impact until August 31, 2018. This Resolution suspends the effects of Resolutions No. 840/18 and No. 1,196/18, from its publication until August 31, 2018. During this period, the Radioelectric Rights corresponding to the Mobile Communications Services (SRMC, STM, PCS and SCMA) that are accrued will be paid in accordance with the regime prior to the one established by Resolutions No. 840/18 and No. 1,196/18. The affidavits corresponding to the Mobile Communications Services (SRMC, STM, PCS and SCMA), which expire in the months of April and May 2018, that had not been prepared in accordance with the provisions of Resolution ENACOM No. 840/2018, must be submitted rectified and pay the resulting differences on October 10, 2018.

As of the date of issuance of these consolidated financial statements Telecom has submitted the rectifying affidavits corresponding to the months of March and April 2018 (due in April and May), and has paid (under protest) the respective amounts. It also started to comply with, as from September 2018, the filing and payment (under protest) of the corresponding affidavits.

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üCompre Argentino (Buy Argentine Act)

 

üBUY ARGENTINE ACT

AccordingPursuant to the provisions of Article 1 of Law No. 27,437, which is regulated by Decree No.800/2018 and Resolution No. 91/2018 of the Secretariat of Industry, Telecom Argentina -Argentina- in its capacity as a public fixed telephonetelephony service licensee -licensee-, and theirits respective direct subcontractors, in the procurement of provisions and public works and services, shall give preference to the purchaseacquisition or lease domesticof goods and services.of national origin, under the terms of such law.

 

Article 2 of the mentionedThe law provides that the preference established in Article 1shall be given to domestic goods or services will applyof national origin when forthe price of identical or similar goods, or services, under cash payment terms, the priceconditions, is equal to or lower than the price of importedforeign goods or services, increased by 15% when the offering of the good or services is carried outofferors qualify as micro, small and medium-sized enterprises – (MSMEs), and by companies qualified as Micro and SME, and 8% when the offering of the good or services is carried out byfor any other companies. ForIn the comparison, purposes, the price of importedforeign goods shall include currentcontemplate applicable import duties and all the taxes and all expenses required for itstheir nationalization.

 

Article 5 of the mentionedThe law establishessets out that a good is considered to be of national origin when it has been produced or extracted in Argentina,the Argentine territory, provided that the cost of nationalized imported raw materials, inputs or imported materialssupplies does not exceed 40% of its gross value of production.production value.

 

RelatingThe procurement of services is subject to services acquisitions, Law No. 18,875, applies, which providessets out the obligation to hire onlycontract exclusively the services of domestic companies, consultantsconsulting firms and domestic professionals, as defined in the mentioned Law.such law. Any exceptions mustexception shall have to be previously approved by the competent Ministry.ministry.

 

Additionally,Through Resolution No. 2,350/04, of the former CNC approvesapproved the “Procedure for the accomplishmentfulfillment of the Buy Argentine Act”, which includes the obligation to submit semiannualfile semi-annual affidavits related toregarding the compliance with the Act.fulfillment of these rules.

 

The regulatory body establishesrules provide for economic, administrative and criminal sanctions for the alleged breach offailure to fulfill the obligations of Buy Argentine Act.established under the Compre Argentino regime.

 

It is worth mentioning that this Act provides to Telecom Argentina less operational flexibility related to, among other matters, authorizations management prior to acquisitions, investment of time in the assembly of the required presentations with respect to the obligation to inform the semiannual affidavits of compliance of the Buy Argentine Act and associated administrative expenses.

 

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

 

These consolidated financial statements have been prepared by applying the criteria for the restatement criteria of financial statements establishedset forth in IAS 29. For more information, see Note 1.e).

 

a)Going Concern

a)Going Concern

 

The consolidated financial statements as of December 31, 20182020, 2019 and 20172018 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 from the end of the reporting period)months).

 

b)   Foreign Currency Translation

b)Foreign Currency Translation

 

Items included in the financial statements of each of the entities of TelecomCompany’s subsidiaries 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’s companiesCompany’s subsidiaries located in Argentina. The functional currency for the Company’s foreign subsidiaries of Telecom is the respective legal currency of each country.

 

The financial statementsassets and liabilities of the Company’s foreign subsidiaries are translated using the exchange rates in effect at the reporting date; for assets and liabilitiesdate, while income and expenses are translated at the average exchange rates for the year. ExchangeTranslation differences resulting from the application of this method are recognized inunder Other Comprehensive Income. The cash flows of foreign consolidated subsidiaries expressed in foreign currencies included in the consolidated financial statements are translated at the average exchange rates for each year.

 

c)Foreign Currency Transactions

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. 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 are recognized in the consolidated income statement and are included in Debt financial costs and Other financial results, net.

 

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d)Consolidation

d)Consolidation

 

These consolidated financial statements include the consolidation of the assets, liabilities, results and cash flows of Telecom Argentina and its subsidiaries (controlled companies, item d.1), as well as the consolidation in its financial statements of the assets, liabilities and results under joint control, according to the percentage of its interest in the arrangements of the companiesagreements and joint ventures (“Interests in joint operations,” pointitem d.2) jointly controlled by it; and, the interest owned by the Company in associates is recognized in one item (companies in which it exercises significant influence, seeitem d.3) Investments"Investments in Associates.Associates") Finally,. These consolidated financial statements include the consolidation of Telecom and its subsidiaries on a line-by-line basis and the structured entities with the specifications mentioned in pointitem d.4) are included in these consolidated financial statements..

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d.1) Control

 

Control exists when the investor has substantive power over the investee; has 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 as from the date on which control is transferred to the controlling company. They shouldcompany and shall be deconsolidated from the date that control ceases.

 

In the preparation of these consolidated financial statements, assets, liabilities, revenues and expenses of the consolidated subsidiaries are consolidated on a line-by-line basis. Non-controlling interests in the equity and in the profit (loss) for the periodyear 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 between Telecom and its subsidiaries have been eliminated in the preparation of these consolidated financial statements.

 

FinancialThe subsidiaries’ financial statements of controlled companies are forcover the same periodperiods and hasare prepared as of the same closing date of the parent’s financial statements and are made usingin accordance with the same accounting policies as those of the Company.Parent.

 

Note 1.a) details the consolidated subsidiaries, together with the interest percentages held directly or indirectly in each subsidiary’s capital stock and votes, main activity and country of origin as of December 31, 2018.2020.

 

The Company considers any transactions executed with non-controlling companiesshareholders that do not result in a loss of control, as transactions among shareholders. A change in the equity interests held by the Company is considered as an adjustment in the book value of controlling interests and non-controlling interests to reflect the changes in its relative interests. The differences between the amount for which non-controlling interests isare adjusted and the fair value of the consideration paid or received and attributed to the shareholders of the controlling company will be directly recognized in equity under a specific reserve“Other deferred” in the equity attributed to the parent company.

 

d.1.a) Accounting treatment of the acquisition of the remaining equity interest (30%) in the controlled company Tuves

On September 4, 2019, Núcleo acquired the 30% remaining equity interest in Tuves Paraguay, which previously belonged to TU VES Chile.

This operation represents a transaction between controlling and non-controlling shareholders in the consolidated financial statements. Therefore, the Company recorded a $128 adjustment to the non-controlling interest balance as of December 31, 2019 and the difference arising from the purchase price of $46 was recorded in “Other deferred” under Equity attributable to controlling shareholders as of that date, as provided under IFRS 10.

d.1.b) Offer for Irrevocable Call and Put Option on the Shares of AVC Continente Audiovisual

On September 25, 2019, Telecom and the non-controlling shareholders of AVC Continente Audiovisual (the “Assignors”) executed an Offer for an Irrevocable Call and Put Option on all the shares of AVC Continente Audiovisual held by the Assignors.

The Assignors are the holders of 497,479 common shares with nominal value of $1 each, representing 40% of the capital stock. The call option, which can be exercised since October 1, 2019 until September 30, 2024, conveys to Telecom the right, but not the obligation, to purchase the shares from the Assignors. On the other hand, the put option conveys to the Assignors the right, but not the obligation, to sell the shares to Telecom. The call and put options include, together with the shares, the assignment and transfer of all the equity and political rights inherent to them.

If the option is exercised, Telecom agreed to pay the Assignors US$720,000 and the equivalent amount in Argentine pesos of 45,536 average cable TV subscription fees within the terms and subject to the provisions set forth in the agreement.

This transaction has an impact on the Company's consolidated financial statements. Accordingly, a call option liability has been initially recognized with an offsetting entry in “Other deferred” under Equity Attributable to Controlling Shareholders. As of December 31, 2020, Telecom owed the equivalent to 22,768 average cable TV subscription fees (approximately $39).

d.1.c) Purchase of a share of PEM. Merger between Telecom, Última Milla, CV Berazategui and the split away assets of PEM

On June 27, 2019, the Company acquired a registered non-endorsable common share, with nominal value of $1 and entitled to one vote per share, representing 0.00000738% of the capital stock and votes of PEM for a total amount of $10,000 (ten thousand Argentine pesos). Upon this acquisition, Telecom became the direct holder of 100% of the capital stock of PEM.

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TELECOM ARGENTINA S.A.

On October 1, 2019, the Company merged between Última Milla and CV Berazategui (the “Absorbed Companies”) and the split away assets of PEM (the “Corporate Reorganization”), thus generating the corresponding operating, accounting and tax effects, unifying the operations of the mentioned companies and Telecom Argentina, enhancing efficiency, synergy and streamlining costs and optimizing the use of the companies’ technical, administrative and financial structures.

The Absorbed Companies were dissolved without liquidation and PEM split away a portion of its assets and its capital stock was reduced pro rata as of October 1, 2019.

Such Corporate Reorganization was carried out in accordance with the provisions of Sections 82 and 83 of the General Associations Law, with the provisions of Section 77 and related Sections of Income Tax Law No. 20,628, as amended and supplemented, with CNV Rules, with the Listing Rules and other provisions issued by the BYMA, with IGJ Rules and with other applicable laws and regulations. The Corporate Reorganization was approved by the shareholders at the General Extraordinary Shareholders’ Meeting and the Special Shareholders’ Meetings of Class “A” and Class “D” shares of Telecom Argentina held on October 24, 2019 and the respective Shareholders’ Meetings of Última Milla, CV Berazategui and PEM held on the same date.

As a result of the Corporate Reorganization, as of October 1, 2019, Telecom Argentina assumed all the existing activities, receivables, property and all the rights and obligations of Última Milla, CV Berazategui and the split away assets of PEM, as well as any that may come into existence or arise due to prior or subsequent acts or activities. On November 25, 2019, the Final Merger Agreement was subscribed and on November 29, 2019, the CNV was requested for administrative authorization, which was provided by resolution issued on February 19, 2020.

d.1.d) Irrevocable contribution in cash to Micro Sistemas

On November 10, 2020, Telecom made an irrevocable contribution in cash for the future subscription of shares of Micro Sistemas, for a total amount of $60. The Unanimous General Extraordinary Shareholders’ Meeting of Micro Sistemas held on December 21, 2020 decided to increase the capital stock by $60 through the capitalization of such irrevocable contributions paid in cash by Telecom and issue, representing such increase, a total of 60,000,000 non-endorsable, registered common shares, with nominal value of $1 Argentine peso each and entitled to one vote per share, to be delivered to Telecom.

on January 11, 2021, Telecom made an irrevocable contribution in cash for the future subscription of shares of Micro Sistemas, for a total amount of $62. The Unanimous General Extraordinary Shareholders’ Meeting of Micro Sistemas held on January 19, 2021 decided to increase the capital stock by $62 through the capitalization of such irrevocable contributions paid in cash by Telecom and issue, representing such increase, a total of 62,000,000 non-endorsable, registered common shares, with nominal value of $1 Argentine peso each and entitled to one vote per share, to be delivered to Telecom.

d.1.e) Incorporation of Personal Smarthome S.A.

On December 30, 2020, Telecom and PEM incorporated a new company, Personal Smarthome S.A, and they hold a 90% and 10% interest in the capital stock of that company, respectively. Telecom and PEM subscribed 90,000 and 10,000 registered common shares with nominal value of $1 Argentine each and entitled to five (5) votes per share. Finally, on that date, the shareholders paid in cash 25% of their respective subscriptions.

The registration of Personal Smarthome S.A. in the IGJ is still pending and it is a dormant entity as of December 31, 2020.

Personal Smarthome S.A. provides services, solutions and/or goods that allow and/or contribute to automation, monitoring, security, digital interconnection and home automation (IoT) for the integration of technology in the design of homes, buildings, cities and/or public or private entities.

d.2) Interests in Joint Operations

 

A joint operation is a contractual arrangement whereby two or more companies undertake an economic activity that is subject to joint control, i.e., when the financial strategy and the operating decisions related to the company’s activities require the unanimous consent of the parties sharing control.

 

In the cases of joint business arrangements executed through Uniones Transitorias de Empresas (“UTE”("UTE"), considered joint operations under IFRS 11, the Company recognizes in its financial statements on a line-by-line basis the assets, liabilities and net income subject to joint control in proportion to its share in such arrangements.

Telecom upon absorbing the operations of Cablevisión, holds a 50% share in the UTE Ertach – Cablevisión.

The UTE Ertach – CablevisiónTelecom Argentina, which is engaged in the provision of data transmission services and the order channels required to integrate the public administration agencies of the Province of Buenos Aires and itsthe municipal agencies in a single provincial data communication provincial network.

The UTE was created in April 2005 by the Board of Directors of Prima (absorbed by Cablevisión in 2016) and currently has an agreement in effect with the Ministry of the Chief of the Cabinet of MinistersChief of the Province of Buenos Aires, which was approved underpursuant to Decree No. 2017-166-E-GDEBA-GPBA,2017-166-E-GDEBA-GPBA. The UTE agreement term is equivalent to the time that providesis necessary for the data transmission services for the Single Provincial Data Communication Network implemented under the original Bid for a termfulfillment of 24 months since May 1, 2017.its purpose.

 

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On April 26, 2019, the UTE was noticed, through a registered letter sent by the Ministry of the Cabinet Chief, of the decision to expand and extend the agreement for six months as from May 1, 2019.

As of the date of these consolidated financial statements, the contractual term and the extensions thereof have expired. The Telecommunications Administration of the Province of Buenos Aires initiated the “termination of services phase” pursuant to the above-mentioned agreement, and the services that the UTE is committed to provide within the agreement conditions could be extended for a period of 18 months since the signing of the new agreement with the next suppliers. This involves the continuity of the UTE’s operations until the Government of the Province of Buenos Aires provides for a new service supplier.

In view of the above, and since the above-mentioned agreement provided for the continuation of the services after the expiration of the above-mentioned terms, and having the parties to define the new conditions applicable to the continuity of the requested services, the UTE is still under the obligation to continue providing services regardless of the new terms that finally be agreed.

d.3) Investments in Associates

 

An associate is an entity over which the Company has significant influence, without exercising control, generally accompanied by equity holdings of between 20% and 50% of voting rights.

 

The associates’ assets and liabilities and net income are disclosed in the consolidated financial statements using the equity method. Under the equity method, the investment in an associate is to be initially recorded at cost and the book value will be increased or decreased to recognize the investor’s share in the statement of income for the year or in other comprehensive income obtained by the associate, after the acquisition date. The distribution of dividends distributions received from the associate will also reduce the book value of the investment.

 

The Company’sCompany's investment in associates includes the goodwill identified at the time of the acquisition, net of any impairment losses. Goodwill is the excessFor more information on impairment of the acquisition cost over the Company’s share in the net fair value of the associate’s identifiablefixed assets, and liabilities (including contingent ones) measured at the acquisition date. Goodwill is included in the book value of the investment and tested for impairment as part of the investment.see item l) to this Note.

 

Unrealized gains or losses on transactions between the Company (and its subsidiaries) and the associates are eliminated considering the Company’s interest held in the associates.

 

IfThe associates’ financial statements cover the same periods and are prepared as of the same closing date as those of the Company’s. Adjustments were made, where necessary, adjustments are made, to the associates’ financial statements so that their accounting policies are in line with those used by the Company.

 

d.4) Consolidation of structured entities

 

The Company, through one of its subsidiaries located in Uruguay, has executed certain agreements with other companies for the purpose of rendering on behalf of and by order of such companiescompanies’ certain installation services, collections, administration of subscribers, marketing and technical assistance, financial and general business advising, with respect to cable television services in Uruguay. In accordance with IFRS 10 “Consolidated Financial Statements”, these consolidated financial statements include the assets, liabilities and results of these companies. Since the Company does not hold an equity interest in these companies, the offsetting entry of the net effect of the consolidation of the assets, liabilities and results of these companies is disclosed under the line items “Equity attributable to non-controlling interests” and “Net Income attributable to non-controlling interests”.

 

Call Option Agreement of Adesol

On December 22, 2016, Adesol S.A. entered into a call option agreement (the “Call Option Agreement”) with the majority shareholder of the special purpose entities, whereby, Adesol has the right to exercise, until December 31, 2021, the irrevocable call option on the shares of those companies (the “Call Option”). If it exercises the Call Option, the purchase price has been preliminarily established in the amount of $128, subject to an eventual adjustment in case certain circumstances provided under the Call Option Agreement occur.

In addition to the execution of the Call Option Agreement, Adesol S.A. paid to the grantor of the call option an option premium the amount of $45 (the amount restated to current currency of December 31, 2018 amounts to $83). If Adesol S.A. does not exercise the Call Option, the seller shall irrevocably retain the amount paid by Adesol S.A., and the agreement will be terminated.

If it exercises the Call Option, the assignment, sale and transfer of the shares to Adesol shall be subject, as condition precedent, to the approval by the Communication Services Regulatory Agency of the Republic of Uruguay.

In addition, on December 28, 2017, the parties executed an amendment to the Option Agreement and the Seller sent a notice to Adesol, whereby: (i) the Call Option Period was extended for two additional years, thus the expiration date is December 31, 2023; (ii) the Purchase Price of the Shares was set precisely and definitively US$ 5,011,747 and $45; (iii) Adesol undertook to pay, within ten business days as from December 30, 2017, a Supplement to the Option Premium in the amount of US$ 4,500,000; and (iv) in the event that Adesol S.A. has paid the Seller the Supplement to the Option Premium and Adesol S.A. does not exercise the Call Option within the Call Option Period, the Seller undertakes to return to Adesol S.A., within ten business days as from the expiration of the Call Option Period, the amount of US$ 2,500,000 received as partial payment of the Supplement to the Call Option Premium. In view of the above, on January 16, 2018, Adesol S.A. paid to the Seller the Supplement to the Call Option Premium. Such amount was allocated under “Other deferred” in the statement of changes in equity and amounts to $91 at the exchange rate prevailing at the time of its payment (the amount restated to current currency of December 31, 2018 amounts to $132).

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d.5) Business Combinations

 

The Company applies the acquisition method of accounting for business combinations. The consideration for each acquisition is measured at fair value (on the date of exchange) of the assets given the liabilities incurred or assumed, and the equity instruments issued by the Company in exchange for the control of the acquired company. The costs related to the acquisition are expensed as incurred.

The consideration for the acquisition, if any, includes any asset or liability arising from a contingent consideration arrangement, measured at fair value at the acquisition date. Subsequent changes to such fair value, identified during the measurement period, are adjusted against the acquisition cost.(acquisition cost).

 

The identifiable assets and the liabilities and contingent liabilitiesassumed of the acquired company that meet the conditions for recognition under IFRS 3 are recognized at fair value at the acquisition date, except for certain particular cases provided by such standard.

 

Any excess between: a) the sum of the acquisition cost over the Company’s share in theconsideration transferred, plus non-controlling interests (valued at fair value or at their proportional participation on identifiable net assets), plus acquisition-date fair value of the acquired’sacquirer’s previously held equity interest in the acquiree (if any) and b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities and contingent liabilities measured atassumed determined on the acquisition date, is recognized as goodwill. Any excess ofOtherwise, the Company’s share in the net fair value of the identifiable assets, liabilities and contingent liabilities over the acquisition cost, after its measurement at fair value,gain is immediately recognized in the income statement.

 

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d.6) Accounting treatment forSpecific matters relating to the acquisition of the remaining shareholding (30%) of the subsidiary CV Berazategui

On April 4, 2018, the Company acquired shares representing 30% of the capital stockmerger between Telecom Argentina and votes of CV Berazategui for a total amount of US$ 8,968,000, equivalent to $181 at the date of the transaction.Cablevisión

 

The remaining 70%merger between Telecom Argentina and Cablevisión was accounted for as a reverse acquisition. Consequently, the assets and liabilities of Cablevisión were recognized and measured in these consolidated financial statements at book value before the merger, while the identifiable assets and liabilities of Telecom Argentina were recognized at fair value as of the capital stockeffective date of the merger (January 1, 2018). The goodwill obtained under the acquisition method was measured as the excess of the fair value of the consideration paid over the fair value of the net identifiable assets and votesliabilities of CV Berazategui are owned by Pem, a companyTelecom Argentina. The retained earnings and other balances of shareholders’ equity recognized in the financial statements of the combined entity correspond to the sum of the respective balances of the individual financial statements of Telecom Argentina and Cablevisión immediately before the Merger, excluding Other Comprehensive Income and the Cost from the increase in the interest held in the companies controlled by Telecom Argentina. In addition, share capital of Telecom was maintained as of before the merger and then the shares of Telecom issued according to the exchange ratio were added, recording the contribution surplus as mentioned in item t) of this Note.

 

This operation represents a transaction between the controlling and non-controlling shareholders in the consolidated financial statements. For this reason, the non-controlling interest of $5, which represents 30%The total book value of the equity valuemost important items transferred to Telecom as a result of CV Berazategui, was adjusted and the difference between the purchase price of $181 and the non-controlling interest was recorded in “Other deferred” within Net Equity attributable to controlling shareholders as of December 31, 2018, in accordance with IFRS 10 (the amount restated to current currency of December 31, 2018 amounts to $237).Merger are detailed below:

 

-Goodwill amounting to $184,445;
-Property, plant and equipment amounting to $194,015;
-Intangible assets measured at fair amounting to $124,256;
-Deferred income tax liabilities amounting to $51,758.

e)Revenues

e)Revenues

 

Revenues are recognized (net of discounts and returns) to the extent the sales agreement has commercial substance, provided it is considered probable that economic benefits will flow to the Company and their amount can be measured reliably.

 

Revenues are stated net of discounts and returns (such as handset returns). The Company discloses its revenues into two large groups: Servicesservices and equipment.equipment (which mainly includes handsets sales). Revenues from sales of services are recognized overat the time services are rendered to the customers. Revenues from sales of equipment are recognized at the point in time when the control is transferred and the performance obligation is performed.

 

Revenues from transactions that include more than one item have been recognized separately to the extent they have commercial substance on their own.

The sale prices identified in the different sales transactions are net prices of discounts (list price less discounts or bonifications if applicable). In those cases, in which the payment is delayed overdeferred in time, such as for example in construction contracts, the effect of the time value of money must be withdrawn.

Financed sales are recognized at the value of future income discounted at a market rate assessed at the beginning of the transaction.

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The main performance obligations of Telecom and its subsidiaries are the following:

-Mobile Services

Telecom provides mobile services in Argentina and Paraguay through wireless networks.

Services revenues consist of monthly basic fees, airtime usage charges, roaming, TLRD, CPP charges (as from October 1 these charges were no longer recognized as CPP and began to be recognized as a call termination charge), charges for VAS (among them, call waiting, voicemail, SMS and multimedia) and other services.

Basic fees are generally billed monthly in advance, disclosed net of trade receivables until services are rendered.

Revenues from the sale of prepaid calling cards are recognized in the period during which traffic is used, or when the card expires, whichever occurs first. Remaining unused traffic for unexpired calling cards is shown as “Deferred revenue on prepaid calling cards” under Other liabilities.

Revenues from sales of mobile equipment consist mainly of the sale of handsets to customers and own agents.

Generally, in cases of combined sales, the handset is sold with a discount in the price, but not when the handset is sold separately. In connection with mobile telephony service, it is generally offered at the same selling price, without any discount in case it is offered together with a handset. In those cases of combined sales, IFRS 15 (Revenue from Contracts with Customers), adopted by Telecom as from January 1, 2018, requires to allocate the selling price to each performance obligation according to its proportional standalone selling price for the agreed-upon stipulated contractual term.

Taking into consideration that the customer pays for the handset the price net of the discount and that, under the application of the method detailed in the previous paragraph, the discount applied to the handset is assigned between handset sale revenues and service revenues, a contractual asset will be initially recognized. The contract of individuals is a contract for an indeterminate period and the payment of the handset is net of discounts. In such cases, the contractual asset will be reversed within a period of one month. In the case of large customers, the contractual asset will decrease to the extent service revenues are recognized, and will be fully derecognized in the 24th month, that is the stipulated contractual term for this type of customers. The method used provides a faithful representation of the transfer of goods or services in mobile services contracts in which more than one good or service is offered.

-Internet Services

Internet revenues mainly consist of monthly fees received from residential and corporate customers for data transmission (including private networks, dedicated lines, broadcasting signal transport and videoconferencing services) and Internet services (mainly high-speed subscriptions - broadband).

accounted for. Non-refundable up-front connection fees (revenues at a point in time), generated at the beginning of the relationship with the customers, are deferred and charged to income over the term of the contract or, in the case of indefined period contracts, over the average period of the customer relationship.

-Cable Television Services

Cable Television Services comprise the operation of cable television networks installed in different locations of Argentina and Uruguay. In addition, Tuves holds a license for the provision of DATH services in Paraguay.

Cable television basic fees are billed in advance and are recognized as revenues when services are provided.

Revenues from the installation (“one-time” revenues) non-refundable of these services are deferred and charged to income in the estimated average term of the relationship with the customer.

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-Fixed Telephony and Data services

Domestic fixed telephony services revenues mainly consist of monthly fees, measured service and monthly fees for additional services (among others, call waiting, itemized billing and voicemail).

Basic fees are generally billed monthly in advance, disclosed net of trade receivables, and are recognized as revenues when services are provided.

Non-refundable up-front connection fees for fixed telephony and data services (one-time revenues), generated at the beginning of the relationship with the customers, are deferred and charged to income over the term of the contract or, in the case of indefinite period contracts, over the average period of the customer relationship.

 

ReconnectionMonthly fees charged to customers when resumingpaid in advance are disclosed net of trade receivables until the 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.is rendered.

 

Revenues on construction contracts are recognized based on the stage of completion (percentage of completion method). ThisSuch method provides a faithfulan accurate representation of the transfer of assetsgoods in construction contracts given thatbecause revenues are recognized to the extent ofbased on the progress of the construction. When the outcome of a construction contract can be estimated reliably, the revenues and costs associated with the construction contract are recognized as revenues 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 revenues, the expected losses are immediately recognized as expenses.

 

As of December 31, 2018In relation to revenues from construction contracts, were recognized for $160 and cost of construction contracts were recognized for $155. In relation to construction contracts; $322 of deferred revenues and $537 of inventories were recognized as of December 31, 2018.2020, the Company recognized revenues from construction contracts in the amount of $691 and expenses from construction contracts in the amount of $535. Additionally, as of December 31, 2020, the Company recorded $1,255 under Inventories.

 

The main performance obligations of Telecom and its subsidiaries are:

-Mobile Services

Telecom provides mobile services in Argentina and Paraguay. Service revenues mainly consist of monthly basic fees, revenues on prepaid calling cards, airtime usage charges, roaming and interconnection charges, VAS charges, and other services.

-Internet Services

Internet service 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 (mainly high-speed subscriptions - broadband-).

-Cable Television Services

The cable television services provided by Telecom comprise the operation of television networks installed in different locations of Argentina and Uruguay. In addition, Tuves holds a license for the provision of DATDH services in Paraguay. Cable television services mainly consist of monthly fees and certain variable consumption fees related to on demand services.

f)F-32

Financial InstrumentsTELECOM ARGENTINA S.A.

-Fixed Telephony and Data Services

Mainly consist of voice services monthly fees, measured service and monthly fees for additional services (among them, call waiting, itemized billing and voicemail), interconnection services, capacity leases and data services, among others.

-Other Services Revenues

Other services revenues consist of, among others, revenues from claim’s management retribution, administrative revenues and others.

f)Financial Instruments

 

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.

 

f.1) Financial Assets

 

Upon initial recognition, inIn accordance with IFRS 9, financial assets, after their initial recognition, are subsequently measured at either amortized cost (initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount), fair value with changes in other comprehensive income or fair value through profit or loss (fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, in in the principal or most advantageous market), on the basis of:

 

(a) the Company’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.

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 valuedcost (for example, short-term investments at their amortized cost.

Investmentscost, investments in mutual funds are carried at fair value. Gains and losses are included in Other Financial Results, net - Interest and Gains on investments.

Investments in Government Bonds were valued at amortized cost or at fair value dependingwith an impact on the business model established by the Company´s Management.Other Financial Results).

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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.

 

As mentioned in section e) Revenues,Sometimes, mobile telephony customer pays for the handset the price net of the discount. Such discount is allocated between handset sale revenues and service revenues, generating, initially, the recognition of a contractual asset. Contractual assets, originated by the application of IFRS 15, either current or non-current, are initially recognized at fair value and subsequently measured at amortized cost, less allowances for doubtful accounts,bad debts, if any.

Investments

 

GovernmentSecurities and Bonds include the Bonds issued by National, Provincial and Municipal Governments. Depending on the business model adopted by Management, Securities and Bonds may be valued at amortized cost or at fair value and its results are recognized under Other Financial Results,financial results, net - InterestGains (losses) on operations with notes and Gains on other investments.

Time deposits are valued at amortized cost.bonds.

 

Investments in mutual funds are carried at fair value. Gains and losses are included in Other Financial Results net - Interest and Gains on investments.

Those National, Provincial and Municipal Governments bonds denominated in foreign currency whose initial intention is to keep them until their maturity, are measured at amortized cost and bear an interest in foreign currency. In this particular case, 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 Internal Rate of Return (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 Other financial results, net - Foreign currency exchange gain (loss).Interest and gains on investments.

 

Other investmentsThe share in Government Bonds are valuedthe trust “Complejo Industrial de las Telecomunicaciones 2003” was recognized at fair value.

 

The 2003 telecommunications fund was recordedOther investments are valued at fair value.their amortized cost.

 

Impairment of Financial Assets

 

At the time of initial recognition of financial assets (and at each closing), the Company estimates the expected losses, to be generated by the assets, with an early recognition of a provision, pursuant to IFRS 9.

 

With regard toRegarding trade receivables, and using the simplified approach provided by such standard, the Company measures the allowance for doubtful accounts for an amount equal to the lifetime expected credit losses.

 

The expected losses to be recognized are calculated based on a percentage of uncollectibilityun-collectability per maturity ranges of each financial credit. For such purposes, the Company analyzes the performance of the financial assets grouped by type of market. Such historical percentage must contemplate the future collectibilitycollectability expectations regarding those creditsfinancial assets and, therefore, those estimated changes in performance.

 

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TELECOM ARGENTINA S.A.

Derecognition of Financial Assets

 

The Company derecognizes a financial asset when the contractual rights to the cash flows of such assets expire or when it transfers the financial asset and, therefore, all the risks and benefits inherent to the ownership of the financial asset are transferred to another entity. If the Company retains substantially all the risks and benefits inherent to the ownership of the transferred asset, it will continue to recognize it and will recognize a liability for the amounts received.

 

f.2) Financial Liabilities

 

Financial liabilities comprise trade payables (excluding Derivatives, if applicable), financial debt, salaries and social security payables (see pointitem n) below)to this Note), Dividends payable and certain liabilities included in Other Liabilities.

 

Financial liabilities are initially recognized at fair value and subsequently measured, generally, at amortized cost. Amortized cost represents

In case of loan renegotiations, in which the initial amount netexchange between an existing borrower and lender of principal repayments made, adjusted bydebt instruments were under substantially different terms or in cases of a substantial modification of the amortizationconditions of any differences betweenan existing financial liability, considering both quantitative and qualitative factors, we have to recognize a cancellation of the initial amountoriginal liability and recognition of the maturity amount usingnew liability. Otherwise, the effective interest method.original liability do not have to be canceled, but was considered refinanced, modifying its valuation in relation to the new terms and conditions.

 

Derecognition of Financial Liabilities

 

The Company shall derecognize a financial liability (or part of it) when it has been extinguished, i.e., when the obligation specified in the corresponding agreement is discharged, cancelledcanceled or expires.

 

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f.3) Derivatives

 

Derivatives are used by Telecom and its subsidiaries to manage itstheir exposure to exchange rate and 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 Accountinghedge accounting if and only if all of the following conditions are met:

 

a) The hedging relation consists only of hedging instruments and eligible hedged items;

b) The hedging relation and the risk management strategy and purpose are formally designated and documented since its inception; and

c) theThe hedge is expected to fulfill the efficacy requirements described inunder Note 21.c22.c – Hedge Accounting.

 

When a derivative financial instrument is designated as a cash flow hedge, the effective portion of any gain or loss on the derivative financial instrument is recognized directly in Other Comprehensive Income. 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 immediately recognized in the consolidated income statement. 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 the 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 is reclassified to the carrying amount of such asset or liability.

 

If Hedge Accountinghedge accounting is not appropriate, gains or losses arising from the fair value measurement of derivative financial instruments are immediately recognized in the consolidated income statement.

 

For additional information about derivatives operations duringinstruments, see Note 22 to these consolidated financial statements.

f.4) Receivables and payables valued at amortized cost

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 discount rate used to determine the discounted cash flows of long-term receivables ranged between 29% and 40% for the year 2019, while for the year 2020 it was in 29%. The discount rates of receivables denominated in Guaraníes were of 12.4% and 11.85% for the years ended December 31, 20182020 and 2017,2019, respectively.

Measurement of the fair value of certain financial instruments: If there is a quoted market price available for an instrument in an active market, the fair value is calculated based on that price.

If there is not a quoted market price available for a financial instrument, its fair value is estimated based on the price established in recent transactions involving the same or similar instruments and, if not, based on valuation techniques regularly used in financial markets. The Company uses its judgment to select a variety of methods and makes assumptions based on market conditions at closing. For more information on the determination of those values, see Note 21.22 to these consolidated financial statements.

 

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g)Inventories

 

Inventories are measured at the lower of the restated for inflation cost and net realizable value. The cost is determined under the weighted average price method. The net realizable value represents the estimated selling price in the ordinary course of business less the applicable variable selling expenses.sale costs. In addition, the Company estimates and records allowances for obsolete and slow-moving inventories.

 

The value of inventories does not exceed its recoverable value at the end of the year.

 

h)PP&E

h)PP&E

 

PP&E is statedmeasured at restated acquisition or construction cost.cost, plus every cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by Management, all restated for inflation. 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.

 

The other subsequent costsexpenditures are recognized as expenses for the period in which they arewere incurred. When a tangible fixed assetPP&E 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 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 assets in the Depreciation, amortization and impairment of PP&E and Intangible assets item line.

The accounting estimates for dismantling costs, including discount rates, and the dates in which such costs are expected to be incurred are reviewed on an annual basis. Changes in the above liability are recognized as an increase or decrease of the cost of the related asset and are depreciated prospectively.

In addition, PP&E costs include those related to the installation that allows the customer to connect to the service, in Fixed network and transportation. Those costs comprise labor costs and the materials required to install wiring.

 

Borrowing costs attributable to the acquisition or construction of certain capital assets are capitalized as part of the cost of these assets until they are ready for their intended use or sale, under IAS 23 (“Borrowing Costs”.) The assets in respect of which borrowing costs are capitalized are those that necessarily take a substantial period of time to get ready for their intended use (qualifying assets under IAS 23).

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The value of PP&E does not exceed its recoverable value estimated at the end of the year.23.)

 

Depreciation of PP&E owned is calculated on a straight-line basis over the ranges of estimated useful lives of each class of assets. The ranges of the estimated useful lives of the main classes of PP&E are the following:

 

Estimated Useful Life (in years)

Real Estate

5 - 50

Fixed Network and Transportation

5 – 10

4 - 20

Mobile Network Access

3 – 7

Tower and Pole

10 – 20

Switching Equipment

52 – 7

Computer Equipment

3 – 5

Vehicles

5

Goods lent to customers at no cost

2 – 4

Power Equipment and Installations

2 – 12

Machinery, diverse equipment and tools

5 – 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 income statement in the corresponding period.

 

i)Intangible Assets

i)Intangible Assets

 

Intangible assets are recognized if and only if 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 are valued at their restated for inflation cost, less accumulated amortization (in the case of intangible assets with a finite useful life are stated at restated cost, less accumulated amortizationlife) and impairment losses, if any.

Intangible assets with an indefinite useful life are stated at restated cost, less accumulated impairment losses, if any.

 

Intangible assets comprise the following:

 

- Incremental Costs from the Acquisition of Contracts

 

Certain direct incremental costs incurred for the acquisition of new subscribers are capitalized as intangible assets to the extent the conditions for the recognition of an intangible asset are met, pursuant to IFRS 15, i.e. provided the Company expects to recover those costs and provided they are costs that the Company would not have incurred if the contract had not been successfully obtained.

 

Subsequently, saidsuch assets will be amortized under the straight-line method over the contractual relationship of the related transferred service. TheseThose costs are amortized over a periodterm of two years.

 

- 3G/4G licenses

 

As described in Note 2.e Spectrum, itIt includes 3G and 4G frequencies awarded by the SC to Personal in November 2014 and June 2015. In accordance with Section 12 of the Auction Terms and Conditions, they were granted for a period of 15 years as from the date of awarding notification.

 

Consequently, the Company’sThe Company's management has concluded that the 3G and 4G licenses have a finite useful life and, therefore, they are amortized under the straight-line method over 180 months as from their award.

 

Pursuant to Section 4.d) of PEN Decree No. 1,340/16 and Resolution No. 528/2018, which is described in Note 2.e), the remaining useful life of the frequencies included in Lot 8 of the auction was re-estimated. In consequence, the 700Mhz bands will finish amortizing in January 2033.

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TELECOM ARGENTINA S.A.

 

In addition, the licenses that had been previously awarded to Nextel whoseare also included. The term of their useful life is calculated as from the beginning of the provisionrendering of the Advanced Mobile Communication Services SCMA or upon expiration of the 18-month term provided under Section 10.1, subsection a), Annex I, of Decree No. 764/200000 for the beginning of the provision of the Services, whatever occurs first. These licenses are amortized under the straight-line method over 180 months.

 

- PCS license (Argentina)

The Company’s Management, based on an analysis of the relevant characteristics of this license, has considered that the license havinghas an indefinite useful life sincebecause there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.Company. Therefore, this license is subject to a recoverability assessment, at least on an annual basis.

 

No impairment losses have been recorded for those intangible assets for any of the three years presented.

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- Núcleo´s licensescleo Licenses

 

The renewals of PCS license islicenses are amortized under the straight-line method over 60 months, ending its amortization in fiscal year 2017.

On June 2017, Núcleo required the renovation of that license. Finally, and after that the CONATEL issued, according to the Telecommunication law, resolutions of precarious extensions in the second quarter 2018, the PCS license was renewed for approximately $64, which amortizes in 60 months.

 

The 700 MHz- band spectrum licenses acquired by Núcleo during the first quarter of 2018 for US$24 million are amortized over a term of 10 years.

 

- SRCE License

SRCE License has indefinite useful life. At the endThe Internet and data transmission licenses are amortized over a term of the year, no impairment losses have been recognized on these intangible assets.5 years.

 

- SRCE License

The SRCE license has an indefinite useful life.

- Customer relationshipPortfolio

ItCustomer portfolio comprises mainly contracts with Telecom’s and Tuves Paraguay’s customers that were incorporated as a result of the merger between Telecom and Cablevisión (see Note 4.a)).n. They are amortized over the estimated term of the relationship with the acquired customers: forcustomers. For fixed-telephony customercustomers such term was estimated at 10 years, foryears. For mobile telephony customers in Argentina, it was estimated at 6 years and for mobile telephony customers in Paraguay, it was estimated at 5 years.

- Brands

 

It includes the Brandbrand Cablevisión, which is amortized over 50 years, and the Brandbrand Flow, which is amortized over 3 years.fully amortized. In addition, as a result ofafter the Merger described under Note 4.a),merger between Telecom and Cablevisión, the Company incorporated the brands ofowned by Telecom, (“Telecom”, “ARNET” and “Personal”, both in Argentina and in Paraguay) which are not amortized because they are considered to have been considered ofan indefinite useful life.

 

- Other

 

It"Other" includes Exclusivity Rights, Rightsexclusivity rights and software rights of Use,use, among others. The average useful life is estimated at 5 and 285-28 years.

 

j)Goodwill
j)Rights of use assets and liabilities

IFRS 16 provides that the lessee recognizes a right of use asset and a liability at present value of the unpaid lease installments at such date, with respect to those contracts that meet the definition of leases. Accordingly, the rights of use assets must include in their initial cost payments made for such leases, initial costs and assets retirement obligation costs. 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 to have 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.

Telecom maintains several contracts that fall under the definition of leases in accordance with IFRS 16, which can be summarized as follows: a) sites leases (for antenna placement); b) real estate leases (for commercial offices and others); c) poles leases (for wiring layout); d) dark fiber rights of use (for data transmission) and e) space leases (for colocalization of antennas).

The average useful life is estimated at 1-6 years.

k)Goodwill

Goodwill is recognized as a difference betweenwhen the fair value of the consideration paid and the amount of the non-controlling interest and the fair value of the previous interest, if any, lessexceed the fair value of the net assets identified in each business combination. Goodwill has indefinite useful life and its recoverable value must be assessed at least once a year.

 

No impairment losses have been recorded for goodwill at year-end.F-36

 

k)Leases

Finance Leases

Leases that transfer substantially all the risks and benefits incidental to ownership of the leased asset are classified as finance leases. All other leases are classified as operating.

As of December 31, 2018 Telecom and its subsidiaries do not have current financial lease agreements or residual value of fixed assets acquired by financial leases.

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, among others, under various non-cancellable operating leases. Rental expenses are included under Interconnection and transmission costs and Other operating income and expenses items lines in the consolidated income statement during the term of the lease.

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l)Impairment of PP&E, Intangible Assets and Goodwillfixed assets

 

The Company assesses whether there are any indicators of impairment in the value of the assets that are subject to amortization. Bothamortization, contemplating both internal and external factors are considered for this purpose.factors. Internal factors include, among others, obsolescence or physical damage of the asset, and significant changes in the extent to which, or manner in which, an asset is used or expected to be used and internal reports that may indicate that the economic performance of the asset is, or will be, worse than expected. External sources include, among others, the market value of the asset, significant changes in the legal, economic, technological or marketsmarket environment, 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 Telecomthe Company over market capitalization.

Intangible assets with an indefinite useful life and goodwill are not subject to amortization and are tested for impairment at least annually, at closing date of every year, or more frequently if events or circumstances indicate that they might be impaired.

 

The carrying value of an asset is considered impaired by the Company when it is higher than its recoverable amount.value, which is the higher of the fair value (less direct selling costs) and its value in use. In that event,this case, a loss shall be immediately recognized in the consolidated statement of income.

 

To assess impairment losses, the Company groups the assets into cash-generating units, which represent the smallest group of assets that generates independent cash inflows of the cash flows derived from other assets or groups of assets. The recoverableCompany has defined, according to the characteristics of the services provided and its fixed assets that the Argentinian operations comprise a single cash-generating unit (CGU) and each of the Company’s foreign operations represent a separate CGU. According to this, the net book value of an asset is the higher of its fair value (less selling costs) or its value in use. In calculating the value in use of an asset, 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.

IntangibleCGU includes goodwill, intangible assets with an indefinite useful life and goodwill are not subject to amortization and are tested at least annually for impairment. Theassets with a defined useful life (PP&E, intangible assets withand rights of use assets).

In 2018, an indefinite useful life held byimpairment of Arnet brand was registered for $3,401, as a result of the Company's decision to discontinue its use, encompassing all broadband customers under the Fibertel brand, and other fixed assets were impaired for $978. During 2019, an impairment of spectrum was registered for $2,917, incorporated to the Company as a result of December 31, 2018 are the PCS license inmerger between Telecom Argentina and Cablevisión, and other fixed assets were impaired for $573. During 2020, an impairment for minor assets was registered for $376. Except for the brands acquired withabove mentioned, no other significant impairments have been identified as a result of the business combination (see Note 4.a) and the SRCE license. The intangible asset with indefinite useful life held by the Company as of December 31, 2017 is the SRCE license. Its recoverable amount is determined based on the value in use, which is estimated using discounted net cash flows projections.evaluation realized.

 

For the years presented, the Company estimates that thereThe possible reversal of PP&E, intangible assets and rights of use assets impairment losses is no indication of impairment of the assets that are subject to amortization, with the exception of, mainly, the impairment recognizedreviewed for the brand Arnet for $1,623. The Company decided, in the fourth quarterissuance of 2018, to discontinue the use of the trademark Arnet for the commercialization of its broadband product during the year 2019. The customers that currently use said brand will now use said service under the brand Fibertel. This will allow the Company to simplify its brand portfolio completing the alignment of products, and to establish a better and more direct communication with our customers.

all consolidated financial statements. The net effects of the constitution and recovery of the above-mentioned impairments are recorded under “Impairment of PP&E”fixed assets”, which is described underin Note 23.24 to these consolidated financial statements.

 

m)Other LiabilitiesFor further information on recoverability of goodwill analysis, see item v.1) – “Recoverability of Goodwill” to this Note.

m)Other Liabilities

 

Pension Benefits

Pension benefits shown under Other liabilities represent accrued 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 at the time of retirement due to retirement age or disability. 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.as amended. 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’sthe best estimate made by the Company’s Management of the 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:the following:

 

2018

2017

202020192018

Discount Rate (1)

6.4%-15.2%

4.6%-9.2%

6.3% - 12.7%6.4% - 15.0%6.4%-15.2%

Projected increase rate in compensation

10.0%-31.2%

8.0% - 16.3%

22.1% - 50.9%10.0% - 48.3%10.0%-31.2%

 

1)Represents estimates of real interest rate rather than nominal rate.

1)Represents real discount rates.

 

Additional information on pension benefits is provided in Note 17.

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Deferred revenues on prepaid calling cardscredit

 

Revenues from unused traffic and data packs for unexpired calling cardsprepaid credits are deferred and recognized as revenue when the minutes and the data are used by customers or when the cardsuch credit expires, whichever happens first. For more information, see Note 3.e) Revenues – Mobile services.

 

Deferred revenues on connection fees

 

Non-refundable up-front connection or installation fees for fixed telephony, data, cable and Internet services are deferred over the term of the contract, or in the case of indefinite period contracts, over the average period of customer relationship. For more information, see Note 3.e) Revenues – Fixed Telephony and Data services, Internet services and Cable television services.

 

Deferred Revenues related to Customer Loyalty Programs

 

The fair value of the award credits regarding the Company and Núcleo’sCompany’s customer loyalty program is accounted for as deferred revenue and recognized as revenue until the award credits are redeemed or expire, whichever occurs first.

 

Deferred Revenues on International Capacity Leases

 

Under certain network capacity purchase agreements, the Company sells excess purchased capacity to other carriers. Revenues are deferred and recognized as services are provided.

 

Government grants for the acquisition of PP&E

 

Government grants for the acquisition of PP&E must be 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 as deferred income or as a reduction of the carrying amount of related asset. The Company in relation to subsidies received by its subsidiaries, elected as an accounting policy 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 are recognized at the cost incurred in the construction of the engaged infrastructure and the government grant was accounted for as deferred income in Other liabilities - Other 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

n)Salaries and Social Security Payables

 

IncludeThese include unpaid salaries, vacation and bonuses and itstheir related social security contributions, as well as termination benefits. See Note f.2) for a description of the accounting policies regarding the measurement of financial liabilities.benefits, and are valued at amortized cost.

 

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 the legal mandatory retirement age or upon the decease of the beneficiary, whichever occurs first.

 

o)Taxes PayableThe Company and its subsidiaries do not have stock option plans for their employees.

 

o)Taxes Payable

Includes mainly: Income Tax, Other National Taxes, Provincial Taxes and Municipal Taxes.

The main taxes that representhave an expenseimpact on net income for the Company are the following:

 

Income Tax

The Company and its subsidiaries record income taxes in accordance with IAS 12.

 

Income tax (national tax) is 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.in which case they will also be recognized under such items. The income tax expense for the period/year comprises current and deferred tax.

 

IfIn addition, if the income tax payments and withholdings in Argentina exceed the amount to paypayable for the current tax, the excess shall be recognized as a tax credit, only if it is recoverable.

 

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As per Argentinean Tax Law,the countries in which Telecom operates through its subsidiaries, income taxes payables have beenare computed on a separate return basis, (i.e.i.e., the Company is not allowed to prepare a consolidated income tax return).return.

 

The Company records income taxes in accordance with IAS 12. Deferred taxes are recognized using the liability method, which provides for the assessment of net deferred tax assets or liabilities based on temporary differences. Temporary differences arise when the tax base of an asset or liability differs from theirits carrying amountsamount in the statement of financial position whoseand its reversal in the future reversal affects tax results.will have an impact on taxable income. The deferred tax asset / liability is disclosed under a separate item of the Consolidated Financial Statements.consolidated financial statements.

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A deferred income tax asset or liability is recognized on those differences, except for those differences related to investments in foreign subsidiaries abroad that generate a deferred income tax liability due to thea difference in the income tax rates, only in those casesexcept where the timing of the reversal of the temporary difference is controlled by the Company and it is not probable that the temporary difference will not reverse in the foreseeable future.

 

Deferred tax assets relating to unused tax carryforwardsloss carry forwards are recognized to the extent that it is probable that future taxable income will be available against which they can be utilized. Tax loss carryforwards may be computed against future taxable income for a maximum of 5 years. Deferred tax assets that may arise 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 sufficientenough to apply those temporary differences.

 

A deferred tax asset shall be subjected to a recoverability test at the end of every reporting period. The company shall reduce the carrying amount of the deferred tax asset if it is probable that future taxable income will not be available before its prescription that allows applying the tax deductions of the deferred tax asset. This reduction could be reversed in future periods, to the extent that the Company recovers the expectation of enough future taxable income to apply these deductions.

 

The legalstatutory income tax rate in force in the Argentine RepublicArgentina for the current period isfiscal years 2018, 2019 and 2020 was 30% (years beginning on January 1, 2018, pursuant to December 31, 2019, inclusive) establishedLaw No. 27,430, as amended by Law No. 27,430 of December 29, 2017. This law establishes that from January 1, 2020 onward, the legal rate will be 25%27,541 (Social Solidarity and Production Reactivation Law). The current legal rate for years ended December 31, 2017 and 2016 was 35%.

For the determination of the deferred tax as of December 31, 2018, the Company has considered, accordingAccording to the guidelines of IAS 12, the moments in which the temporary differences will be reversed in order to apply the corresponding rate based on the provisions by Law No. 27,430.

The collection of dividends from the investment in a foreign company is achieved by the income tax at the general tax rate. Likewise, the Argentine legislation allows computing as a tax credit the sums paid for analogous taxes abroad.

In Uruguay,mentioned laws, the statutory income tax rate isfor fiscal year 2021 will be 25%.

In addition, Law No. 27,430, amended by Law No. 27,541, establishes a withholding tax regime on distributed dividends at a rate of 7% for distributions of profits generated during fiscal years beginning on or after January 1, 2018 up to and including December 31, 2020, and at a rate of 13% for profits generated during fiscal years beginning on or after January 1, 2021.

The new withholding tax regime applies to shareholders who are Argentine resident individuals and to nonresident shareholders.

Additionally, the Law repeals the “equalization tax” (i.e., 35% withholding on dividend distributions exceeding accumulated taxable income) for distributions of profits generated during fiscal years beginning on or after January 1, 2018.

Cash dividends received from a foreign subsidiary are computed on the statutory income tax rate under the application of the “world rate” principle. However, as per Argentinian Tax Law, income taxes paid abroad may be recognized as tax credits, both the income tax paid abroad by the subsidiary and the withholding tax on cash dividends.

The statutory income tax rate in Uruguay was 25% for theall years presented.

 

The statutory income tax rate in Paraguay was 10% for theall years presented. As per Paraguayan TaxPursuant to Law No. 125/91, until December 31, 2019, dividends paid arewere computed with an additional income tax rate of 5%, representing an effective tax rate of 15%14.5%. In addition,Pursuant to the tax reform provided under Law No. 6,380/19 and effective as from January 1, 2020, the additional rate is revoked and an 8% tax rate is established on dividends and earnings when the recipient of the profits is an individual or legal entity resident in Paraguay, and 15% when the beneficiary of these profits is a nonresident. Transitorily, dividends distributed during 2020 will be subject to a 5% rate for residents and 10% for non-residents. Telecom Argentina recognized a deferred tax liability is recognized in Telecom Argentina due toarising from the effect of the difference in the profitincome tax rates between Argentina and Paraguay on Núcleothe accumulated profits because it is probable that these accumulated resultsprofits will flow asin the form of dividends and generate a future payment ofsubject to income tax in Telecom Argentina in accordance with the Argentine law principle of “worldwide income”.tax.

 

The statutory income tax rate inIn the United States of America, the statutory tax rate until fiscal year 2017 was 39.5% (34% Federal Tax and 5.5% for the year ended December 31, 2017.State of Florida). Since January 1, 2018, a new Income Tax Law is applicable in the United States, which modifies the federal flat federal rate to 21% changing. Likewise, the statutory tax rate for the State of Florida was reduced from 5.5% to 4.458% for fiscal years 2019 to 2021, and for fiscal year 2022, this rate returns to be 5.5%.

Therefore, for fiscal year 2018 the total legal statutory tax rate was 26.5% while for fiscal years 2019, 2020 and 2021 the total legal statutory tax rate is 25.458%.

Income Tax Inflation Adjustment

Laws No. 27,430, 27,468 and 27,541 introduced several amendments to the income tax rateinflation adjustments provided by the Income Tax Law.

According to this provisions, and effective as from 39.5%fiscal years beginning on or after January 1, 2018, the inflation adjustment procedure set out in Title VI of the income tax law shall be applicable in fiscal years in which the variation of IPC price index, accumulated in the 36 months immediately preceding the end of the relevant fiscal year, is higher than 100%.

In the first, second and third year as from its effectiveness, this procedure is applicable as long as the variation of the IPC, calculated from the beginning to 26.5%.the end of each year, is higher than 55%, 30% and 15%, for the first, second and third year of application, respectively.

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According to the above mentioned, the Company applies the income tax inflation adjustment set out in Title VI of the income tax law since fiscal year 2019, as since that year the variation of the IPC required was verified.

Likewise, it was provided that in order to calculate income tax inflation adjustments corresponding to the first and second fiscal year beginning as from January 1, 2019, one-sixth of the income tax inflation adjustment shall be computed in that fiscal year, and the remaining five-sixths shall be computed in equal parts, in the five immediately following fiscal years.

Notwithstanding the aforementioned, it was established, in general, the update of the cost of several assets -in case of disposal- and the update of computable depreciation of fixed assets, to all acquisitions or investments made in fiscal years beginning on January 1, 2018 based on changes in the CPI.

 

Other National Taxes

Tax on Minimum Presumed Incomeassets

 

In Argentina, the tax on minimum presumed incomeassets (impuesto a la ganancia mínima presunta) is, effective until the fiscal year ended December 31, 2018, was supplementary to income tax. The Company assessesassessed this tax at the effective rate of 1% on the taxable assets at year-end. The Company’s tax liability for each year will bewas equal to the higher of the tax on minimum presumed incomeassets assessment or the income tax liability assessed at the legally effective rate on the estimated taxable income for the year. However, if the tax on minimum presumed income exceedsassets exceeded the income tax liability in any given fiscal year, the excess maycould be creditable against any excess of income tax liability over the tax on minimum presumed incomeassets in any of the following ten fiscal years.

Notwithstanding the provisions of the law, pursuant to AFIP Instruction No. 2/2017, companies shall not beIn 2018, Telecom was subject to taxthe Tax on minimum presumed income as long as they recognized accounting and tax losses in the relevant fiscal period.

In addition, Law No. 27,260 establishes that tax on minimum presumed income will lose its effectiveness as from fiscal years beginning on or after January 1, 2019.

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During fiscal year 2018 Telecom is subject to tax on minimum presumed income tax since itassets because has recognized accounting gains but incomeprofits and tax losses.

As of December 31, 2018, theThe tax on minimum presumed incomeassets balance has been capitalized in the consolidated financial statements becausesince we estimate that the amounts paid and to be paid for this tax will be recoverable within the statute of limitations, based on the Telecom and its subsidiaries’ current business plans.

Personal Assets, Shares and Equity Interests

Declaration as Fulfilled Taxpayer

Argentine companies shall remit the taxes applicable to their shareholders who are Argentine individuals and non-resident individuals. Such tax is calculated under the equity method on the shares according to the last financial statements of the Argentine entity prepared in accordance with effective local professional accounting standards and without considering the effect arising from the changes in the purchasing power of the currency.

In accordance with the Law, Argentine companies are entitled to request the refund of such tax paid to their shareholders.

 

Pursuant to Law No. 27,260, Argentine companies that have properly fulfilled their tax obligations during the two fiscal year periods prior to the 2016 fiscal year and have compliedcomply with other requirements may qualify for an exemption from the personal assets tax for the 2016, 2017 and 2018 fiscal years. The request for this tax exemption should be filed before March 31, 2017.

Telecom Argentina and Cablevisión have already filed this request related to the payment of thepersonal assets tax on personal property as substitute taxpayer– on behalf of Shareholders. The Company’s Management believes thattaxpayer. Notwithstanding the requirements to obtain said exemptions were duly fulfilled. However,above, it cannot be assured that in the future the companies will satisfy such requirements and maintain the referred exemption.

Pursuant to Law No. 27,541, the rate applicable as from fiscal year 2019 for this tax is 0.50%.

Tax Authoritieson Bank Credits and Debits

Pursuant to Law No. 27,432, the National Executive Branch may establish that the percentage of the tax rate on bank credit and debits that to date was not creditable against income tax, be gradually reduced by up to 20% per year as from January 1, 2018. The National Executive Branch may provide that, by 2022, it be fully creditable against income tax. On May 7, 2018, Decree No. 409/18 was issued, which provided that, for transactions subject to the general tax rate, up to 33% of the taxes payable arising from both credited and debited amounts and the other taxable events subject to this tax may be creditable against income tax. In the case of transactions subject to a lower rate, only 20% may be creditable against income tax.

These provisions are applicable to advance payments and balances of income tax returns corresponding to fiscal periods beginning on or after January 1, 2018, for the tax credits arising from taxable events executed as from that date.

Internal Taxes

Law No. 27,430 provides for an increase in the effective internal tax rate applicable to mobile telephony services from 4.16% to 5.26%, effective for taxable events executed as from March 1, 2018 (Consumption Internal Tax).

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In addition, pursuant to Decree No. 979/17, as from November 15, 2017, for fiscal year 2018, the effective internal tax rate on the sale of imported mobile phones and other wireless network equipment was reduced from 20.48% to 11.73%. Such rate, pursuant to Law No. 27,430, would decrease gradually until its complete phase out as from January 1, 2024 (for 2019 the rate was 9.89% and for 2020 the rate is 7.53%.) In the case of goods manufactured in the province of Tierra del Fuego, the rate is set at 0% as from November 15, 2017. Notwithstanding the foregoing, the National Budget Law for the year 2021 (Law No. 27,591), effective as from January 1, 2021, revoked the gradual decrease of tax rates established under Law No. 27,430 and the provisions of Decree No. 979/17, and sets up an effective tax rate of 20.48% on the sale of imported mobile phones and other wireless network equipment. In the case of goods manufactured in the province of Tierra del Fuego, the rate was set at 7.009% as from January 1, 2021. This tax shall be applicable until December 31, 2025.

Export Duties

The National Budget Law for fiscal year 2019 (Law No. 27,467, published in the Official Gazette on December 4, 2018) granted the Executive Branch, until December 31, 2020, the power to apply export duties on services rendered in Argentina that are effectively used or exploited abroad, with a rate of up to 30% of the value of those services.

Decree No. 1,201/18 provided that such services are subject to an export duty of 12% with a cap of $4 Argentine pesos for each dollar of the taxable value of the above-mentioned transaction.

Law No. 27,541 amended the foregoing and granted the Executive Branch, until December 31, 2021, the power to apply export duties on services rendered in Argentina that are effectively used or exploited abroad, with a rate of up to 5% of the value of those services. Decree No. 99/19 published on December 28, 2019 establishes, effective as from January 1, 2020, an export duty of 5% on the above-mentioned services.

Social Security

Law No. 27,430 gradually reduces the percentage of employers’ social security contributions paid by large companies from 21% to 19.5% by 2022. In addition, the law establishes an incremental amount of the non-taxable base that shall be restated for inflation annually in accordance with the consumer price index. However, Law No. 27,541 set the percentage of employers’ social security contributions paid by large companies at 20.4% and the non-taxable base at $7,003.68.

In addition, the National Budget Law for the year 2019 (Law No. 27,467) provides that entities that provide broadcast television or physical link and/or radio-electric link subscription television services, audio broadcasting, cable television signals, newspaper, magazine or periodical publishing companies or companies engaged in digital journalism, and the distributors of those publishing companies, may all allocate employer’s contributions on the payroll for the personnel engaged in such activities as a tax credit on VAT. These contributions must have been accrued in the fiscal period and effectively paid at the moment of submitting the VAT return. As provided above, where the salaries that give rise to the employer’s contributions which may be allocated as a tax credit on VAT are indistinctly related to other activities outside the scope of this benefit, they will be subject to the apportionment procedure.

During 2018, the Company has applied a regime similar to the one provided under Law No. 27,467, based on final court decisions allowing its application.

VAT and Internal Taxes – Preliminary Injunction

On June 10, 2020, the Company brought a claim before the National Court of First Instance on Federal Administrative Matters No. 11 of the City of Buenos Aires to request a preliminary injunction ordering the suspension of the payment of VAT and Consumption Internal Taxes on all those services billed to the users that fall within the scope of Decree No. 311/20 (see Note 29 to these consolidated financial statements), and related regulations, until those bills have been effectively settled in whole or in part by the customers, provided those amounts have not challengebeen effectively paid to the National Tax Authority in order to avoid any distorting consequences arising from the intrinsic complexities of taxes settlement. On July 15, 2020, the National Court of First Instance on Federal Administrative Matters No. 11 of the City of Buenos Aires denied the request for the preliminary injunction filed by the Company, who filed an appeal before Chamber I of the Court of Appeals on Federal Administrative Matters against such decision. On December 23, 2020, said situation.Court of Appeals revoked the first instance judgment and granted the preliminary injunction requested by the Company for 6 months or until the exceptional legal grounds that gave rise to the request for injunction have ceased, whichever occurs first.

As the preliminary injunction was granted to the Company on December 23, 2020 and the provisions of Decree No. 311/20 were in force until December 31, 2020, the Company did not apply the preliminary injunction provisions.

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Provincial Taxes: Taxes

Turnover Tax

 

This tax is levied on companies based in Argentina for the activities carried out in each province of the country. Rates differ depending on the jurisdiction where revenues are earned for tax purposesbusiness is carried out and on the nature of revenuessuch business (for example, sale of services andor equipment).

 

Regarding this tax, on January 2, 2018, Law No. 27,429 - “Tax Consensus” was published in the Official Gazette. Such Law approves the Tax Consensus signed between the National Executive Branch and the representatives of the Provinces and the Autonomous City of Buenos Aires, which provides that the rates shall not exceed certain limits, among other issues. For the communications sector, the maximum rate effective for 2019 is 4% and 6.5% for mobile telephony. Cable television activities are exempt in some jurisdictions. However, on December 17, 2019, a new fiscal consensus was signed and approved by Law No. 27,542, published in the Official Gazette on February 12, 2020, whereby the gradual reduction of the rates provided under Law No. 27,429 was suspended until December 31, 2020. Likewise, on December 4, 2020 a new fiscal consensus was signed, which established again the suspension until December 31, 2021 of the gradual rates reduction provided by Law No. 27,429.

Other taxesTaxes and leviesCharges

 

Since the beginning of 2001, telecommunication servicesservice companies have been required to make a SU contribution to fund SU requirements (Note 2.d)requirements. For more information, see Note 2.d – Universal Service Regulation). 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. 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.

 

Audiovisual Communication Services Law No. 26,522 established a tax on audiovisual communication services. According to the law, the holders of those services must pay a tax proportional to the amount of gross revenues from the sale of traditional and non-traditional advertising, programs, signals, contents, subscriptions and any other item that arises from the exploitation. In the case of cable operators, the tax rate varies between 2% and 5% based on the number of inhabitants in the area where the service is rendered. In the case of licensees, permit holders, authorized entities and owners of the registered title of signals who are registered VAT payers and are also subject to the tax established by Law No. 26,522, 100% of the amounts effectively paid under the tax established by the new law may be creditable against VAT.

 

In addition, the Company makes paymentspays for copyrights to several institutions such as AADI-CAPIF, SADAIC, ARGENTORES. Those rights are calculated on similar bases as those indicated in the previous paragraph and the rates range between 0.1% and 1%.

Tax Reform and Consensus on - Laws No. 27,429, 27,430, 27,432, 27,467 and amendments

1.Tax Reform

On December 29, 2017, the PEN issued Law No. 27,430 - ruled through Regulatory Decree No. 1170/2018, which establishes a comprehensive reform of the tax system effective as from 2018. Some of the changes implemented by this law were modified by other regulations during 2018.

Among other things, were introduced modifications to income tax (both corporate and individual matters), Value Added Tax (“VAT”), excise taxes, employer’ social security contributions, the tax procedure regime and the criminal tax regime.

The main changes that have an impact on corporate income tax are the following:

Income tax

·Changes to corporate income tax rate and withholding on distributed dividends

The Law No. 27,430 reduced the corporate income tax rate from 35% to 30% for fiscal years beginning on or after January 1, 2018 up to and including December 31, 2019, and to 25% for fiscal years beginning on or after January 1, 2020.

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In addition, it was established a withholding tax regime on distributed dividends at a rate of 7% for distributions of profits generated during fiscal years beginning on or after January 1, 2018, and at a rate of 13% for those beginning on or after January 1, 2020. The earnings generated in fiscal years ended on or before December 31, 2017 do not fall within the withholding provision at the time of distribution. The withholding only applies to those shareholders that are individuals residing in Argentina and non-resident individuals.

Additionally, the Law repeals the “equalization tax” (i.e., 35% withholding on dividend distributions exceeding accumulated taxable income) for distributions of profits generated during fiscal years beginning on or after January 1, 2018.

·Gain/Loss on purchase-sale of shares.

The Law maintains the 15% capital gains tax rate for Argentine resident individuals or foreign beneficiaries (in the case of foreign beneficiaries, it is calculated on the presumed net gain equal to 90% of the sale price). In the case of local legal entities, the Law establishes a general rate of 30% for fiscal years ended December 31, 2018 and 2019, and 25% for the following years.

In the case of individuals and undivided estates residing in Argentina, however, the results derived from transfers of shares are exempted from income tax to the extent that the transfer consists in a public placement authorized by the CNV or if the transactions were carried out in markets authorized by that agency under segments that guarantee price/time priority and by crossing of offers (such as the shares of Telecom Argentina) or carried out through a public tender offering and/or exchange authorized by the CNV. Decree No. 1,170/2018 provides that the conversion process whereby individuals or undivided estates residing in Argentina cease to be holders of non-exempted ADRs to become holders of the underlying exempted shares will be deemed a taxable transfer of ADRs at the fair value as of the conversion date.

The foregoing exemption will also be applicable to foreign beneficiaries to the extent that such beneficiaries, or, in its case, depositors, do not reside in, and the funds do not come from, non-cooperative jurisdictions. In the case of foreign beneficiaries, the exemption will also be applicable, among other things, to income from depositary receipts or certificates issued abroad when those shares, were issued by entities domiciled in Argentina (ADRs).

·Assets - Tax Revaluation (optional)

The Law No. 27,430 established the revaluation, on a general basis of the cost of several assets -in case of transfers- and the revaluation of the depreciation of property, plant and equipment, for all the acquisitions or investments made as from January 1, 2018 based on the variation of the IWPI. However, Law No. 27,468, published on December 4, 2018, provides that the adjustment must be made based on the variation of the CPI.

In addition, an optional regime for the revaluation for tax purposes of assets located in Argentina that generate taxable income was established. In the case of the Company, the revaluation option is applicable to assets existing as of December 31, 2017. Pursuant to the Law, the new tax value of the assets will be determined by applying a “revaluation factor,” set forth in the Law, according to the calendar year of the asset’s acquisition or construction, on the tax value originally assessed, each year or period since the asset’s acquisition or construction. In the case of real estate or movable property subject to amortization, the value may be assessed by an appraiser under certain conditions.

The Law imposes a one-time special tax on the amount of the revaluation. Such tax is not deductible from income tax. The applicable rate will vary depending on the type of assets:

· Real estate (qualifying as property, plant and equipment) 8%

· Real estate (qualifying as inventories): 15%

· Shares, quotas and other participations owned by resident individuals: 5%

· All other assets: 10%

The option must be exercised on all the taxpayer’s assets that integrate the same category of assets. Once the option is exercised, the taxpayer is able to calculate the amortization and cost in the income tax over the revalued assets. Likewise, such revaluation was updated since January 1, 2018 on the base of the variation of the CPI as provided by Law No. 27,468.

The law requires taxpayers that opt for the special asset revaluation regime to waive any judicial or administrative claims for the purpose of requesting the application, for tax purposes, of adjustments of any kind, with respect to the period of the option and those in which depreciation of the revaluation amount is computed. Any taxpayers that have filed such claims with respect to fiscal years closed before the Law becomes effective, required to withdraw such claims and rights invoked. (See Note 15).

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p)Provisions

 

The Company has conducted analyses and calculations in order to assess the convenience of opting for the application of the asset revaluation regime and decided not to join the regime.

·Inflation Adjustment

Notwithstanding the above-mentioned regime, Law No. 27,430 and its amendment and Law No. 27,468 provide that, effective as from fiscal years beginning on or after January 1, 2018, the inflation adjustment procedure set out in Title VI of the income tax law shall be applicable in fiscal years in which the variation of the accumulated CPI in the 36 months immediately preceding the end of the relevant fiscal year, is higher than 100%.

In the first, second and third year as from its effectiveness, this procedure shall be applicable as long as the accumulated variation of the CPI, calculated from the beginning of the first year to the end of each year, is 55%, 35% and 15% higher, respectively. Likewise, it is foreseen that the restatement for positive or negative inflation, depending on the case, corresponding to the first, second and third fiscal year beginning on January 1, 2018 that must be calculated in order to verify the anticipated assumptions, should be recognized one third in that fiscal period and the remaining two thirds, in equal parts, in the next two immediate fiscal periods.

Internal Taxes and Tax Collection ENARD

The Law No. 27,430 also provides for an increase in the effective internal tax rate applicable to mobile telephone services from 4.16% to 5.26% in force for the taxable events ocurred as of March 1, 2018. Likewise, such law repeals collection at source of the charge imposed for the benefit of the ENARD from the aforementioned date.

In addition, pursuant to Decree No. 979/2017, as from November 15, 2017, for the year ended December 31, 2018, the effective tax rate (for internal taxes) on the sale of imported mobile phones and other wireless network equipment is reduced from 20.48% to 11.73%. Such rate, pursuant to Law No. 27,430, will decrease gradually until its complete phase out as from January 1, 2024 (for the year 2019 the rate will be 9.89%). In the case of goods manufactured in Tierra del Fuego, the rate is set at 0% as from November 15, 2017.

Tax on deposits to and withdrawals from bank accounts

Pursuant to Law No. 27,432, the PEN may establish that the percentage of the tax rate on bank credit and debits that, to date may not be creditable against income tax, be gradually reduced up to 20% per year as from January 1, 2018. The PEN may provide that, by 2022, it be fully creditable against income tax. On May 7, 2018, Decree 409/2018 was published. It established that for transactions reached at the general tax rate, it can be computed as an advance payment up to 33% of the tax originated in both the accredited amounts and the debited and for the other taxable events achieved by the tax. In the case of operations taxed at a reduced rate, the computation as credit of the tax will be 20%.

These provisions are applicable to advances and balances of income tax corresponding to fiscal periods beginning on or after January 1, 2018, for tax credits originated in taxable events that occurred since that date.

Social Security

Law No. 27,430 gradually reduces the percentage of employers’ contributions to be paid by large companies from 21% to reach 19.5% in 2022.

It establishes a non-taxable base for calculating employers’ contributions of 2,400 Argentine pesos for 2018, which will increase since January 2019 until reaching 12,000 Argentine pesos in 2022, based on the variations of the CPI. Pursuant to the provisions of RESOL-2018-3-APN-SESS#MSYDS the non-taxable base for 2019 will be 7,003.68 Argentine pesos. In addition, employer contributions that result in payment on account of VAT are gradually eliminated.

Additionally, the National Budget Law for the year 2019, Law No. 27,467, provides that entities that provide broadcast television or physical link and/or radio electric link subscription television services, audio broadcasting, cable television signals, newspaper, magazine or periodical publishing companies or companies engaged in digital journalism, and the distributors of those publishing companies, may all calculate employer’s contributions paid in connection with the personnel engaged in said activities as tax credit on VAT. These contributions must have been accrued in the fiscal period and effectively paid at the moment of submitting the VAT return. As provided above, where the salaries that give rise to the contributions which may be calculated as tax credit on VAT are indistinctly related to other activities outside the scope of this benefit, they will be subject to the apportionment procedure. During 2018, the Company has applied a regime similar to that provided under Law No. 27,467, based on final court decisions allowing its application.

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·Export duties

The Law No. 27,467, granted to the PEN, until December 31, 2020, the power to apply export duties on the services carried out in Argentina whose utilization or effective exploitation is carried out abroad, with a rate of up to 30% of the value of such services. In this sense, Decree No. 1201/2018 established that such services are subject to an export duty at a rate of 12% with a with a maximum limit of $ 4 for each dollar of taxable value of said operation payable on a monthly basis according to the transactions billed.

This duty is applicable on export of services rendered and invoiced since January 1, 2019 until December 31, 2020, including services originated in contracts or transactions initiated before that date.

Tax Consensus

On the other hand, on January 2, 2018, Law No. 27,429 - “Tax Consensus” was published in the Official Gazette. Said Law approves the Tax Consensus signed between the National Executive Branch and the representatives of the Provinces and the Autonomous City of Buenos Aires.

The tax consensus seeks to harmonize the tax structures of the different jurisdictions to promote employment, investment and economic growth and to promote uniform policies. In this sense, both the National State and the Provinces and the Autonomous City of Buenos Aires agree to comply with certain commitments. Among the commitments undertaken by the Provinces, the most relevant are, with respect to Turnover Tax, the immediate elimination of differential treatments based on the place of business or the location of the taxpayer’s establishment or the location where goods are manufactured and the establishment of exemptions and the application of tax rates that shall not exceed those set forth for each activity and period in the Annex to the Consensus (in the case of communications 5% in 2018, which will decrease to 3% by 2022, and in the case of mobile telephony 7% in 2018 decreasing to reach 5% in 2022).

It was also ordered the repeal of all payroll taxes

As to stamp tax rates, it was agreed for certain activities and contracts, the establishment of a maximum stamp tax rate of 0.75% as from January 1, 2019, with a gradual decrease until its complete phase out as from January 1, 2022. However, this point was postponed for a year through Law No. 27,469 “2018 Tax consensus” published in the Official Gazette on December 4, 2018.

p)Provisions

Telecom records provisions when it has a present, legal or constructive obligation, 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 accountconsidering the risks associated with the obligation. The increase in the provision due to the passage of time is recognized as finance expenses. For more information, see Note 18.19 to these consolidated financial statements.

 

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.exists. The accounting estimates for dismantling costs, including discount rates, and the dates inon which such costs are expected to be incurred are reviewed annually, at each financial year-end.

 

q)Dividends

q)Dividends

 

Dividends payable are reported as a change in equity in the year in which they are approved by the Shareholders’ Meeting.

 

r)Debt Financial Costs and Other Financial Results, netFor non-cash assets dividends, dividends payable must be valued at the fair value of the assets to be delivered.

r)Debt Financial Costs and Other Financial Results, net

 

Debt Financial costs and other financial results, net, are recorded as incurred and include, among others:may include:

 

·Interest accrued on the related financial assets and liabilities using the effective interest rate method;

·interest accrued on the related financial assets and liabilities using the effective interest rate method;

·Financial discounts on assets and debt;

·financial discounts on debt;

·Changes in fair value of derivatives and other financial instruments measured at fair value through profit or loss;

·changes in fair value of derivatives and other financial instruments measured at fair value through profit or loss;

·Results from Notes and bonds;

·results from operations with notes and bonds;

·Risk of doubtful government bonds results;

·gains and losses on foreign exchange and financial instruments; and

·interest on provisions.

·Financial debt renegotiation results;

 

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·Gains and losses on foreign exchange and financial instruments;

s)Acquisition of Treasury Shares

·Interest on provisions;

·Financial expenses on pension benefits;

·Bank taxes and related expenses; and

·RECPAM.

s)Acquisition of Treasury Shares

 

In connection with the Treasury Shares Acquisition Process described in Note 20 d) to these consolidated financial statements, the Company has applied the guidance set forth in IAS 32 must by applied, 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

t)Merger Surplus

Due to the treasury shares are sold, the account “Treasury shares acquisition cost” shall be cancelledmerger between Telecom Argentina (surviving entity and accounting acquired) and Cablevisión (absorbed entity), a merger surplus was generated, which mainly reflects the difference between the net realizablefair value of the treasury shares soldconsideration transferred and its acquisition cost shall be recorded, if positive, within Equity under the “Treasury shares negotiation premium” caption. If such difference is negative,book value of the resulting amount shall be recorded within Equity underequity of Telecom Argentina as of the “Treasury shares negotiation discount” caption.effective date of the merger.

 

t)Earnings per Share

u)Net Earnings per Share

 

Basic earnings per share are calculated by dividing the net income or loss(loss) attributable to owners of the Parent by the weighted average number of ordinary shares outstanding during the year (for more information, see Note 25).

u)Adoption of IFRS 15 (Revenue from Contracts with Customers)

As from January 1, 2018, the Company adopted IFRS 15 (Revenue from Contracts with Customers.) The Company opted for the modified retrospective application of IFRS 15, as provided under such standard. Though the application is retrospective, the accumulated impact of the initial application is recognized as an adjustment to retained earnings initial balance of the year of initial application (only for contracts that are not completed contracts as of the date of initial application).

The allocation of the transaction price among different performance obligations required by IFRS 15 is one of the main issues that telecommunications companies have to assess, mainly because of the great variety of plans they offer to their customers by combining different services and equipment, mainly in mobile telephony contracts. 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 standard requires assigning the total selling price to each performance obligation proportionally to its standalone selling price, being the main performance obligations of those contracts the handset and the service revenues, considering an estimated service term which varies depending on the contract’s enforceability according to the type of customers (currently 24 months for large customers and indeterminate term for individuals).

These amendments introduced by the standard initially generated an early recognition of handset sales revenues with impact on retained earnings of $808, attributable to Telecom due to the partial retroactive application of the standard, against the recognition of an IFRS 15 contractual assets of $1,153 and deferred income tax liability of $345 as of January 1, 2018. Such increase is due to the fact that the discounts given to the customer on handsets is assigned between the sale of handsets and the services. Before the application of this standard, said discount was allocated to the sale of handsets.

Additionally, this standard generated a reassignment of revenues, increasing equipment sales revenues $588 and reducing the recognition of services revenues $483, generating a net increase in revenues of $105 and a deferred income tax of $32 ($73 of net income, Argentine pesos 0.02 per share) for the year ended December 31, 2018. The contractual asset as of December 31, 2018 amounts to $85, which is disclosed under current and non-current trade receivables will decrease as the revenue from services is recognized until the end of the stipulated contractual term.

year. On the other hand, diluted earnings per share is computed by dividing the capitalizationnet income (loss) for the year by the weighted average number of handset subsidies occasionally granted by Telecomcommon shares issued and its subsidiaries to new postpaid subscribers was discontinued in lightdilutive potential common shares at the closing of the interpretations ofyear. Since the new standard maintainingCompany has no dilutive potential common stock outstanding, diluted earnings per share and basic earnings per share are the capitalization of the commissions paid for the acquisition of postpaid and “Abono fijo” customers in the mobile telephony and Internet segment as incremental costs of obtaining contracts under IFRS 15, because these costs are necessary to obtain new contracts with customers and only if they continue satisfying the capitalization conditions under the IFRS.same.

 

The decrease inFor the residual value of the capitalized handset subsidies generated an effect on Retained Earnings as of January 1, 2018 in the amount of $90 (corresponds to lower retained earnings of $125 net of income tax of $35), of which $83 is attributable to controlling shareholders (that corresponds to $117, net of income tax for $34) and $7 to non-controlling interest (that corresponds to $8, net of income tax for $1). The non-capitalization of handset subsidies as from the yearyears ended December 31, 2018 generated an increase in2020 and 2019 the Costweighted average number of equipment and handsets of approximately $145 and a decrease in amortization of approximately $143 for year ended December 31, 2018 (impact of a loss of $2, which net of income tax of $1, would amountshares outstanding amounted to $1).2,153,688,011.

 

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v)Adoption of the Amendments to IFRS 9 “Financial Instruments”

As from January 1, 2018, the Company adopted the amendments to IFRS 9, which basically incorporate requirements related to the recognition of expected credit losses of financial assets, as follows:

·In the case of trade receivables, the allowance for doubtful accounts must be measured in an amount equal to the lifetime expected credit losses.

·For the rest of the financial instruments, the expected credit losses for the next 12 months must be recognized (lifetime expected losses over the contractual payments of the financial instrument of which the default is estimated in the next 12 months), except the case of significant increase in the financial instrument’s credit risk so the lifetime expected credit losses must be recorded, i.e. The expected credit losses for the full term of the financial instrument.

Expected credit losses related to trade receivables generated an effect on Retained Earnings as of January 1, 2018 in the amount of $489 (an increase in the allowance of $982 - of which $245 correspond to previously existing receivables in Cablevisión, net of income tax of $260), which at closing currency amounts to $722, of which $701 is attributable to controlling shareholders ($956, net of income tax of $255) and $21 to non-controlling shareholders ($25, net of income tax of $4).

On the other hand, the effect of applying that standard for year ended December 31, 2018 generated an increase in bad debts expenses of $496, net of the tax effect of $149, amounted to a net loss of $347 (net loss attributable to controlling company amounted to approximately $348, Argentine pesos 0.16 per share).

w)Use of Estimates

v)Use of Estimates

 

The preparation of consolidated financial statements and related disclosures in conformity with IFRS requires the Company's 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 amountmeasurement of assets and liabilities and disclosure of contingent assets and liabilities at the date of issuance of these consolidated financial statements as well as the amountmeasurement of revenues and costs during the year. Actual results could differ, even significantly, from those estimates owing tobecause of possible changes in the factors considered in the determination of such estimates. Estimates are reviewed periodically.

 

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The most important accounting estimates which require a high degreesignificant subjectivity, that could affect the valuation of subjective assumptionsassets and judgmentsliabilities, are addressed below:

 

Item or Account

Estimates

v.1)
Recoverability of Goodwill

As indicated in section l) of this Note, the Company monitors goodwill allocated to a cash generating unit (CGU) and, to determine its recoverable value, considers the higher value between its fair value less costs of disposal and its value in use.

CGU of ArgentinaGoodwillPP&EIntangible AssetsRight of use assetsTotal
Balances as of December 31, 2020251,105303,78497,31516,492668,696

For fiscal year 2020, the recoverable value of the Argentinian CGU, which includes goodwill, was determined using fair value less costs of disposal, which was calculated on the basis of Telecom's market capitalization value. Estimated disposal costs includes, among others, legal and consulting fees that could be directly related to the disposal of the CGU.

As of December 31, 2020, the capitalization value of the Company amounted to $423,523 based on the share price of $196.65 (the source of the share price is BYMA 12/30/2020, level 1 in the fair value hierarchy in accordance with IFRS 13). To determine the fair value of the Argentinean CGU, the capitalization value was adjusted for (i) the estimated fair value of other CGUs (which value is not significant in relation to Company’s total market capitalization), (ii) the effect of the net liabilities not subject to this impairment test at their estimated fair value and (iii) estimated disposal costs in an orderly transaction of 0.04%.

As a result of the above-mentioned calculation, fair value less cost of disposal of the Argentinian CGU exceeds book value of the CGU of Argentina by approximately 4%. Consequently, while management concluded that it was not necessary to determine a control premium for the Argentinian CGU to demonstrate the recoverability of the carrying value of the CGU, any such control premium is estimated by management to be between 10% and 30% for this type of industry.

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The Company has considered the following sensitivity analysis of the recoverability test: Keeping the fair value of the net liabilities stable and not considering the Control Premium effect, Telecom share price should decrease to $184.22 (6.32%) to equalize the Fair Value of the CGU and the Book Value of the CGU.

For fiscal year 2019, the Company estimated the Recoverable Value of the CGU using a discounted cash flow model (Value in Use). These calculations required the use of significant judgment and estimates.

The cash flows used corresponded to the business plan approved by the Company's Management and Company’s Management additional estimations to cover a period of 5 years. In order to determine the residual value of the cash-generating unit, the Company considered a normalized constant cash flow taking into consideration a long-term growth rate of 3.5%.

For the preparation of such cash flows, the Company considered the current market situation in which Telecom operated in 2019. Likewise, the Company's Management estimated the future behavior of certain assumptions that are sensitive in the determination of the value in use, among them, the operating result, the discount rate and certain macroeconomic variables such as projected inflation and exchange rates.

In relation to the aforementioned assumptions, the Company's Management determined the estimated operating result based on past performance and market development expectations (including demand projections, prices and costs). Real cash flows could be different from those used for the value in use determination.

Cash flows were discounted at a discount rate (WACC) of 10.89%, which reflected the specific risks related to the industry and the country in which the Company operates.

For the years presented in these consolidated financial statements, the test results were satisfactory. Therefore, no recoverability problems were observed and, accordingly, no impairment has been recorded for the assets detailed above, except for those specifically identified in Note 3.l) to this Note.

Revenues

Revenue recognition is influenced by estimates on:

· the expected duration of the relationship with the customer for deferred IFRS 15 contractual assets and revenues regarding upfront connection fees;

· traffic and consumption measures.

v.2)

Useful lives and residual value (non-amortizable) of PP&E and Intangible assets

PP&E and intangible assets, except for indefinite useful life intangibles,

PP&E and intangible assets with definite useful lives 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 and the residual value of its PP&E and amortizable intangible assets.

 

Recoverability of PP&E and intangible assets with finite useful life

At 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 judgments concerning the validation of impairment indicators, expected cash flows and applicable discount rates. Estimated cash flows are based on 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 and discount rates, among others.

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 l) of this note and the adjustment for inflation recognized since 2018. For this reason, the recovery test of the total fixed assets was carried out estimating the value in use of the assets. 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/or assumptions and could require future adjustments to the recorded assets.

Recoverability of Intangible assets with indefinite useful life and goodwill

v.3)

Telecom determined that the Company’s PCS license, SRCE license and the brands acquired through the business combination described in Note 4.a) meet the definition of indefinite-lived intangible assets for the years presented, therefore they are subject to the evaluation of their recoverability, at least annually. In addition, the Company records goodwill that is not amortized and that should be tested for impairment on an annual basis. The recoverability assessment of an indefinite-lived intangible asset and goodwill requires our Management to make assumptions about the future cash flows expected to be derived from such asset.

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, among others. The discount rate used to determine the discounted cash flow is an annual real US dollar rate of approximately 9.66%.

Except for the specifically mentioned in point l of this Note, there has been no recognition of impairment of PP&E and Intangible Assets.

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, brands, SRCE license and Goodwill.

Income Tax:Tax recoverability assessment of deferred tax assets and other tax receivables

Deferred income tax measuring

Income taxes (current and deferred) are calculated in Telecom and its subsidiaries 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 conservative tax planning.

On the other hand, the recoverability assessment of the tax receivable related to the actions of recourse filed by the Company in connection with income tax inflation adjustment (Note 15 to these consolidated financial statements), is based on the existing legal arguments and future behavior of Tax Courts and the National Tax Authority in revising the claims filed by the Company.

For the measurement of deferred tax, the fiscal year of future reversals of temporary differences that originate deferred asset/liability has been estimated applying the income tax rate of each reversal period. The actual moment of the future taxable revenues and deductions may differ from those estimated, and may produce an impact on the Company’s projections and on conservative tax planning.

Additionally, by Law No. 27,430, the corporate income tax rate for argentine companies decreases as detailed under Note 3.o). Therefore, for the measuring of deferred tax, the fiscal year of future reversals of temporary differences that originate deferred tax/liability has been estimated, applying the income tax rate of each reversal period. The actual moment of the future income and tax deductions may differ from the estimated, and may produce impact in future income.

 

The recoverability assessment of the tax receivable related to the actions of recourse filed by the Company’s related to income tax inflation adjustment (Note 15) is based on the existing legal arguments on this matter
v.4)Provisions

·Provisions for lawsuits and the behavior of the National Tax Authority in revising the actions of recourse filed by the Company.

Receivables and payables valued at amortized cost

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 discount rate used to determine the discounted cash flow of long-term receivables is in a range of 29-40% for the year 2018. Adittionally, to discount long-term receivables in U.S. dollars it was used an approximate annual rate in dollars of 8.32% for the year 2018 and 13% for the year 2017. The discount rates for accounts receivables in Guaraníes were 9% and 9.8% for the years 2018 and 2017and the discount rates in Guaraníes for financial debt were 8.32 and 8.83% for the years 2018 and 2017, respectively.

Measurement of the fair value of certain financial instruments

The fair value of a financial instrument is the amount at which the instrument could be purchased or sold in an orderly transaction between market participants and duly informed, based on mutual independence. If there is a quoted market price available for an instrument in an active market, the fair value is calculated based on that price.

If there is not a quoted market price available for a financial instrument, its fair value is estimated based on the price established in recent transactions involving the same or similar instruments and, if not, based on valuation techniques regularly used in financial markets. The Company uses its judgment to select a variety of methods and makes assumptions based on market conditions at closing. For more information on the determination of those values, see Note 21.

Provisions

other contingencies:The Company is subject to proceedings, lawsuits and other claims related to labor, civil, tax, regulatory and other matters.commercial. 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 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 tribunalcourt decisions or changes in its method of resolving such matters, such as changes in settlement strategy.

 

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Allowance for Doubtful Accounts

·Allowance for Bad Debts: The recoverability of trade receivables is measured by considering the aging of the accounts receivable balances, un-subscription of customers, historical write-offs, public sector and corporate customer creditworthiness and changes in the customer payment terms, as well as the estimates regarding future performance, assessing the expected credit loss in accordance with IFRS 9. If the financial condition of the customers were to deteriorate, the actual write-offs could be different from expected.

The recoverability of trade receivables is measured by considering the aging of the accounts receivable balances, the unsubscribe, historical write-offs, public sector and corporate customer creditworthiness and changes in the customer payment terms, as well as the estimates regarding future performance, determining the expected credit loss according to the guidelines of IFRS 9. If the financial condition of the customers were to deteriorate, the actual write-offs could differ than expected.

Business Combinations

In connection with the accounting treatment of the business combination referred to in Note 4.a), the Company has identified the assets and liabilities of the acquiree and the estimation of their fair value as of the date of the business combination. With regard to those assets that are subject to amortization or depreciation, the Company made an estimation of their useful lives.

Any change in the estimates made by the Company may affect the valuation of the identified assets and liabilities and could generate an impact in results of operations.

 

In the absence of aan accounting Standard or an Accounting Interpretation that specifically applies to a particular transaction, the Company’s Management 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 viewin order to providingprovide financial statements whichthat faithfully represent the financial position, the results of operations and the cash flows of Telecom and its subsidiaries, reflect the economic substance of the transactions, beare neutral, beare prepared on a prudent basis and beare complete in all material respects.aspects.

 

x)w)   New Standards and Interpretations issued by the IASB not in force

 

IFRS 16 (Leases)

In January 2016, IFRS 16 was issued, which replaces IAS 17, IFRIC 14 and SIC 15 and 27. This standard establishes the criteria for recognition and valuation of leases for lessees and lessors. The changes incorporated 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 benefitsAs of the identified assets and

b)must have the rightdate to direct the use of the identified asset.

The standard allows to exclude short-term contracts (less than 12 months) and those in which the underlying asset has low value

The application of IFRS 16 will increase assets and liabilities and will generate a decrease in operating costs. In addition, there will be an increase in the balance of amortization and financial results generated by the adjustment of lease liabilities. It will also change the presentation of the income statement and the statement of cash flows.

The standard is effective for the years beginning on or after January 1, 2019. The approximate impact of this standard implementation at such date would be an increase in non-current assets by initial recognition of rights of use and current and non-current trade payables for $3.6 billion. Likewise, as a consequence of this initial recognition, there would be an approximate impact on the Statement of income for the year 2019 of: decrease in operating leases of $1.6 billion, increase in amortizations of $1.3 billion and increase in financial expenses of $0.3 billion.

IFRIC 23 (Uncertainty over Income Tax Treatments)

On October 2017, IASB issued IFRIC 23. In case of uncertainty over tax treatments, this IFRIC provides that: (i) if uncertain tax treatments must be assessed separately; (ii) the assumptions used by the tax authority over the tax treatments (the company will have to assess if it’s probable that the tax authority will accept the uncertain tax treatment assuming that the taxation authority is going to assess such uncertain tax treatment); (iii) how a company measures the tax income (loss), the tax bases, taxes and fiscal credits not deducted and tax rates (assessment of the probability of occurrence); and (iv) how the changes in facts and circumstances are considered.

The new standard is effective for fiscal years beginning on or after January 1, 2019. The Company and its subsidiaries do not expect impacts on the application of this interpretation on their consolidated statements of financial position, results of operations or cash flows.

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TELECOM ARGENTINA S.A.

NOTE 4 – ACQUISITION OF COMPANIES AND CORPORATE REORGANIZATION PROCESSES

a)   Merger between Telecom Argentina (absorbing company for legal purposes) and Cablevisión (absorbed company for legal purposes)

On June 30, 2017, the Boards of Directors of Telecom Argentina S.A. and Cablevisión S.A. approved a pre-merger commitment whereby Telecom Argentina S.A., in its capacity as absorbing company, absorbed Cablevisión S.A., pursuant to the provisions of Sections 82 and 83 of the General Corporations Law No. 19,550 and subject to corporate and regulatory approvals (the “Merger”). The Ordinary and Extraordinary Shareholders’ Meeting of Telecom Argentina S.A. and the Extraordinary Shareholders’ Meeting of Cablevisión S.A. held on August 31, 2017 approved the pre-merger commitment and, in the case of Cablevisión S.A., its consequent dissolution on the Effective Date of the Merger and, in the case of Telecom Argentina S.A., the amendment of the Bylaws and the increase of its capital stock.

The purpose of the Merger was for the Company, in its capacity as surviving company under the merger, to offer in an efficient manner, in line with the national and international trend, technological products for media and telecommunications that converge the different separate or independent modalities in which voice, data, sound and video transmission wired and wireless services are provided, into a single product or a series of products to be provided to users as a whole, for its own benefit and for the benefit of the users and consumers of those multiple individual services. Both companies understood that their respective operating and technical structures were highly complementary and could be optimized through a structural consolidation, achieving synergies and efficiencies in the development of convergence products along with the demand of the market.

Pursuant to Section 83, subsection c) of the LGS, the parties have set the following exchange ratio: 1 common share of Cablevisión S.A. (either a Class A Share of Cablevisión S.A. or a Class B Share of Cablevisión S.A.) for each 9,871.07005 new shares of Telecom Argentina S.A. (the “Exchange Ratio”). This Exchange Ratio was deemed reasonable, from a financial standpoint, by the independent professional appraisers J.P Morgan Securities LLC and Lion Tree Advisors LLC.

On October 31, 2017, the parties subscribed the Final Merger Agreement pursuant to Section 83, subsection 4) of the LGS, subject to the regulatory authorization from the ENACOM requested by Telecom Argentina S.A. and Cablevisión S.A. on September 6, 2017. This authorization was granted through ENACOM Resolution No. 5,644-E/2017, notified to the Company on December 22, 2017.

Having all the conditions to which the Merger was subject been met under the terms of Section Seven of the Pre-Merger Commitment and the Final Merger Agreement, on January 1, 2018, the parties signed the Minutes regarding the Transfer of Operations of Cablevisión S.A. to Telecom Argentina S.A.

As a result, the Effective Date of the Merger is January 1, 2018 with the consequent change of control in the Company, being Cablevisión Holding S.A. the new controlling company.

On August 22, 2018, through Resolution RESFC 2018-19688-APN-DIR-CNV 2018, CNV conformed the Merger, the amendment of the bylaw of Telecom Argentina and its increase in capital stock as a result thereof. The Merger, the amendment of the bylaw and the increase of capital stock of Telecom Argentina were registered before the General Board of Corporations on August 30, 2018 under No. 16,345, L° 91, Tº Share Corporations.

In addition, on July 7, 2017, Cablevisión Holding S.A. accepted an offer for a call option granted by Fintech Advisory Inc. for the acquisition of an equity interest of 13.51% in Telecom Argentina (which represents approximately 6% of Telecom Argentina’s post-merger capital stock) for US$ 634,275,282 (the “Option”). The maximum term to exercise the Option was one year as from July 7, 2017. Likewise, CVH had to pay to Fintech Advisory Inc., within a term of thirty days as from July 7, 2017, an option premium of US$ 3,000,000, which was settled on July 2017.

On October 5, 2017, Cablevisión Holding S.A. made a prepayment of the aggregate exercise price under the Option for US$ 634,275,282. On December 27, 2017, Cablevisión Holding S.A. exercised the Option, choosing to receive, an additional equity interest in VLG of 21.55% (which represents an indirect interest of approximately 6% in Telecom as of the Merger Effective Date).

In addition, within the framework of the option agreement, its price was finally established at US$ 628,008,363.

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Under the Pre-Merger Commitment and the Final Merger Agreement and the notice received from Fintech Telecom LLC (“Fintech Telecom”) and Fintech Media LLC (“Fintech Media”) on December 29, 2017 informing about a corporate reorganization process whereby Fintech Telecom absorbed Fintech Media and VLG Argentina Escindida LLC (a company spun off from VLG) under a merger by acquisition process effective as of the Effective Date of the Merger, the shares which issuance was decided upon by the Board of Directors of Telecom Argentina on the Effective Date of the Merger as a consequence of the Merger were delivered: i) to Fintech Telecom LLC: 342,861,748 Class “A” shares; ii) to Cablevisión Holding S.A.: 406,757,183 Class “D” shares; and iii) to VLG: 434,909,475 Class “D” shares.

According to the resolutions of the Ordinary and Extraordinary and Special General Class “C” Shareholders’ Meetings held on December 15, 2011 and in compliance with the court order (as informed in the notice served on December 19, 2018), 23,882 Class “C” shares were converted into the same number of Class “B” shares on December 28, 2018.

Consequently, the capital stock of Telecom Argentina as of December 31, 2018 is now composed as follows:

 

Outstanding Shares

Treasury Stock

Total Capital Stock

Class of Shares

 

 

 

Class “A”

683,856,600

-

683,856,600

Class “B”

627,953,887

15,221,373

643,175,260

Class “C”

210,866

-

210,866

Class “D”

841,666,658

-

841,666,658

Total

2,153,688,011

15,221,373

2,168,909,384

Fintech, controlling company of Telecom Argentina until December 31, 2017, a limited liability company incorporated in Delaware (United States of America), is a company fully and directly controlled by Fintech Advisory Inc. and its core business is the holding, directly and indirectly, of the interest in Telecom Argentina. Fintech Advisory Inc. is a company incorporated in Delaware (United States of America) fully controlled by Mr. David Martínez. Fintech Advisory Inc. is a company engaged in investing and managing equity interests and corporate and government debt securities, mainly in emerging markets.

CVH, controlling company of Telecom Argentina as from January 1, 2018, is an Argentine sociedad anónima, a corporation with limited liability incorporated in Argentina, which is mainly engaged in investing in businesses and stock companies existing or to be created, which are mainly engaged in rendering Information Technology and Communication Services (“ICT Services”) and Audiovisual Communication Services. Its controlling shareholder is GC Dominio S.A.

As from the Effective Date of the Merger, (i) all the assets and liabilities, including the assets subject to registration, licenses, rights and obligations that belong to Cablevisión S.A. are deemed to have been incorporated to the equity of Telecom Argentina S.A., (ii) Telecom Argentina S.A. continued with the operations of Cablevisión S.A., thus generating the corresponding operating, accounting and tax effects, (iii) the management and representation of Cablevisión S.A. was taken over by the management and representatives of Telecom Argentina S.A., iv) Cablevisión S.A. was dissolved without liquidation.

The Merger, the capital stock increase as a result of the Merger, and the amendment of the Bylaws of Telecom Argentina were administratively conformed by the CNV and later registered in the Public Registry of Commerce under the IGJ on August 30, 2018.

Resolution No. 374/2018 issued by the Secretary of Commerce - Approval of the merger between Telecom and Cablevisión

On June 29, 2018, through Resolution No. 374/2018, the Secretary of Commerce authorized under the terms of paragraph a), Article 13 of Law No. 25,156 the merger transaction whereby Telecom absorbed Cablevisión. In said resolution, as part of the approval of the merger, the Secretary of Commerce also (i) approved the assignment of 143,464 residential subscribers of the Internet service rendered by Telecom under the brand ARNET to Universo Net S.A. (the aforementioned assignment was completed during the third quarter of 2018), (ii) accepted the conduct undertaking filed by Telecom, Cablevisión, Cablevisión Holding and Fintech, whereby Telecom undertook to limit the integrated marketing of subscription television services by physical link with the mobile communications service until certain conditions are fulfilled, and (iii) accepted the conduct undertaking filed by Telecom, Cablevisión, Cablevisión Holding and Fintech, whereby Telecom undertook to offer the possibility that any current or new Internet service provider may provide the retail broadband service by leveraging the use of its copper network under ADSL technology under the terms described in said resolution.

The Merger was accounted for under the acquisition method, as described under IFRS 3 and as a reverse acquisition whereby Cablevisión (acquirer for accounting purposes) absorbs Telecom (acquiree for accounting purposes.)

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Specific matters relating to the merger between Telecom Argentina and Cablevisión

Taking into consideration the information disclosed under Note 1.c), the merger between Telecom Argentina and Cablevisión was accounted for under the acquisition method, as described under IFRS 3 and as a reverse acquisition whereby Cablevisión (acquirer for accounting purposes) absorbs Telecom (acquiree for accounting purposes). Consequently, the assets and liabilities of Cablevisión S.A. were recognized and measured inprepare these consolidated financial statements, at book value before the merger, whileCompany has not applied the identifiable assetsfollowing new standards and liabilities of Telecom Argentina S.A. were recognized at fair value as of the effective date of the merger (January 1, 2018). The goodwill obtained under the acquisition method was measured as the excess of the fair value of the consideration paid over the fair value of the net identifiable assets and liabilities of Telecom Argentina S.A. The retained earnings and other balances of shareholders’ equity recognized in the financial statements of the combined entity correspondamendments to the sumexisting ones which application is mandatory for periods beginning after December 31, 2020.

Standards and amendmentsMandatory application date for years beginning on or after
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16Interest rate benchmark reform (Phase II)January 1, 2021
Amendments to IAS 37Onerous contracts – Cost of fulfilling a contractJanuary 1, 2022
Amendments to IFRS 3Reference to the Conceptual FrameworkJanuary 1, 2022
Amendments to IAS 16Property, plant and equipment – Proceeds before intended useJanuary 1, 2022
Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41Annual Improvements – 2018 to 2020 CycleJanuary 1, 2022
Amendments to IAS 1Classification of liabilities as current or non-currentJanuary 1, 2023

Although Management is analyzing the potential impacts of the respective balances of the individual financial statements of Telecom Argentina S.A.such standards, and Cablevisión S.A. immediately before the Merger, excluding Other Comprehensive Income and the Cost from the increase in the interest held in the companies controlled by Telecom Argentina S.A., as approved by the shareholders at the Ordinary and Extraordinary Shareholders’ Meeting of Telecom Argentina and the Extraordinary Shareholders’ Meeting of Cablevisión held on August 31, 2017. In addition, share capital of Telecom was maintained as of before the merger and then the shares of Telecom issued according to the exchange ratio were added topreliminary analysis performed, the Capital Stock of Telecom beforementioned standards will have no significant impact in the merger, and recorded the contribution surplus as mentioned in following paragraphs.Company’s consolidated financial statements.

 

Since the Merger between Telecom and Cablevisión was a business combination carried out through an exchange of interests in equity, the consideration was determined based on the fair value of the shares of Telecom as of the effective date of the merger. The consideration amounted, restated to current currency of December 31, 2018, amounts to $194,435, was calculated based on a) the market price of the ADR of Telecom on the New York Stock Exchange (NYSE) on the last business day before the effective date of the transaction (January 1, 2018) of US$ 36.63 per ADR and b) the equivalent outstanding ADR (193,831,921) as of the effective date, translated to Argentine pesos at the exchange rate prevailing on December 29, 2017, (last market day of 2017).

Pursuant to IFRS 3, the acquired net identifiable assets were measured at fair value, which value amounted to $108,324. Of this amount, $1,958 corresponded to the non-controlling interest (valued as the proportionate share in the recognized amounts of the acquiree’s identifiable net assets), measuring the net identifiable assets under the equity method. The allocation of the purchase price of the acquired net assets attributable to controlling shareholders generated a goodwill with a value which amounts to $88,072.

The total fair value of the most important items transferred and the main adjustments to the book value as a result of the purchase price allocation are detailed below:

·The total fair value of the item Property, plant and equipment amounts to $92,637. Of this amount, $50,504 was the fair value adjustment allocated to buildings and automobiles based on the comparative market analysis and the adjusted estimated replacement cost to reflect the deterioration due to use of the telecommunications fixed assets;

·The total value of the item Intangible Assets measured at fair value amounts to $59,329. Of this amount, $22,046 was the fair value adjustment allocated to Licenses and corresponds to the amount paid in excess of the book value under the comparative market value method, $13,701 was the fair value adjustment allocated to customer relationship under the discounted cash flows method and $13,029 was the fair value adjustment allocated to Brands based on royalties on gross revenues.

The total value of the item Deferred income tax liabilities amounts to $24,716 mainly includes the effects of the fair value adjustments and was recognized using a rate between 25% and 30% on the temporary differences of the adjustments incorporated, taking into consideration the estimated time of reversal of each difference.

In addition, the Company will disclose the new capital stock and generate the corresponding merger contribution surplus for $127,343 which will reflect mainly the difference between the fair value of the consideration transferred and the book value of the equity of Telecom Argentina before the effective date of the Merger.

The identifiable assets and liabilities of Telecom Argentina S.A. (acquiree for accounting purposes) incorporated on the Effective Date of the Merger and the impact of the purchase price allocation recorded in the consolidated statement of income for the year ended December 31, 2018, both considering the effect of the current currency restatement (See Note 1.e), are the following:

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The identifiable assets and liabilities of Telecom Argentina (acquiree for accounting purposes) incorporated on the Effective Date of the Merger and the impact of the purchase price allocation recorded in the consolidated statement of income for the year ended December 31, 2018, considering the effect of the current currency restatement (see Note 1.e), are the following:

Total consolidated
identified assets net in
current currency

ASSETS

Cash and cash equivalents

4,180

Trade receivables

12,013

Other current assets

10,044

Total current assets

26,237

Deferred income tax assets

3

Investments

3,927

Goodwill

88,072

Property, plant and equipment

92,637

Intangible assets

59,329

Other Non-current assets

636

Total non-current assets

244,604

TOTAL ASSETS

270,841

LIABILITIES

Total current liabilities

32,470

Deferred income tax liabilities

24,716

Other non-current liabilities

17,262

Total non-current liabilities

41,978

TOTAL LIABILITIES

74,448

Capital nominal value — Outstanding shares

954

Inflation adjustment — Outstanding shares

39,559

Capital nominal value - Treasury shares

15

Inflation adjustment — Treasury shares

152

Treasury shares acquisition cost

(1,795)

Contributed Surplus

127,343

Legal reserve

1,819

Special reserve for IFRS implementation

869

Voluntary reserve for capital investments

3,300

Reserve for future investments

22,414

Other comprehensive results

-

Equity attributable to non-controlling interest

-

Retained earnings

(195)

Equity Attribuibled to Telecom Argentina

194,435

Non-controlling interest

1,958

TOTAL EQUITY

196,393

TOTAL LIABILITIES AND EQUITY

270,841

Impact of the purchase price allocation recognized in the consolidated
results

Year ended
December 31, 2018

Revenues

(30)

Operating costs without depreciation and amortization

(187)

Depreciation, amortization and impairment of PP&E and Intangible assets

(11,414)

Operating loss

(11,631)

Financial results, net

35

Loss before income tax expense

(11,596)

Income tax

3,479

Net loss for the year

(8,117)

Attribuibled to controlling Company

(8,044)

Non-controlling interest

(73)

Total revenues related to the business of the acquiree company amount to $88,020 for the year ended December 31, 2018. Disclosure of the profit or loss of the acquiree since the acquisition date included in the consolidated statement of comprehensive income for the year ended December 31, 2018 is not disclosed because costs are not specifically appropriated to a type of service, considering that the Company has a single payroll and operating expenses that affect all services in general (non-specific allocation between acquirer and acquiree).

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b)Acquisition of Nextel

On September 10, 2015, the Board of Directors of Cablevisión approved the assignment of the rights and obligations held by Grupo Clarín S.A. (“Grupo Clarín”) under an offer it had submitted to NII Mercosur Telecom, S.L.U. and NII Mercosur Móviles, S.L.U. (hereinafter, the “Sellers”) for the acquisition of 49% of the capital stock of NEXTEL and an option to acquire, together with its subsidiary Televisión Dirigida S.A., subject to certain conditions -among them, the regulatory approvals- 51% of the remaining capital stock. The price of the transaction was US$ 165 million (out of this amount, US$ 80 million accounts for 49% and US$ 85 million accounts for 51%) plus the right to collect an additional amount of up to US$ 13 million subject to the fulfillment of certain conditions. The offer submitted by Grupo Clarín was subject to the acceptance of the Sellers. On September 11, 2015, the Sellers accepted the offer submitted by Grupo Clarín and, on the same date, the Sellers accepted the assignment of the rights under such offer in favor of Cablevisión, offering Cablevisión the acquisition of 49 % of the capital stock of NEXTEL and the option to acquire the remaining 51%. In order to guarantee the rights and obligations under the offer, the capital stock owned by NII Mercosur Móviles, S.L.U. was pledged (subject to registration with the Public Registry of Commerce). The transaction was completed on September 14, 2015, upon payment by Cablevisión and its subsidiary of an aggregate US$ 159 million. The companies undertook to create a guarantee fund with the US$6 million balance to cover any potential liabilities of NEXTEL (this fund was set up on October 7, 2015). In addition, upon the fulfillment of certain conditions precedent, on October 1, 2015, Cablevisión paid to the Sellers the additional amount of US$12.73 million. On June 3, 2016, the assignment of 49% of the capital stock of NEXTEL in favor of Cablevisión was registered with the IGJ. Under the terms of the offer, NEXTEL would continue to be controlled and operated by the Sellers until the option to acquire the remaining 51% of the capital stock had been exercised.

As of December 31, 2015, the call option was not legally exercisable and uncertainties remained regarding the obtainment of the required regulatory authorization. As of December 31, 2015, Cablevisión did not have control over NEXTEL taking into consideration the elements provided under IFRS 10. Therefore, it did not consolidate NEXTEL as of such date. In January 2016, the regulatory framework changed and the regulatory authorization of the transaction was no longer necessary.

Subsequently, on January 27, 2016, Cablevisión and its subsidiary Televisión Dirigida S.A. decided to exercise the option to acquire the remaining 51% of the capital stock and votes of NEXTEL, and, consequently, Cablevisión became the holder of 51.4% of the capital stock and votes of NEXTEL and Televisión Dirigida S.A. became the holder of the remaining 48.6%. To such effect, on the same date, NEXTEL’s management took notice of the release of the pledge that had been set up to guarantee the rights and obligations under the offer. On July 26, 2016, the IGJ registered the assignment of the remaining 51% of the capital stock.

On June 30, 2016, Cablevisión’s subsidiary Televisión Dirigida S.A. transferred to Cablevisión 392,774,929 membership interests with nominal value of peso 1 each and entitled to a vote per membership interest, representing 48.5% of the capital stock of NEXTEL. Televisión Dirigida S.A. also transferred to Pem 1,000,000 membership interests with nominal value of peso 1 each and entitled to one vote per membership interest, representing 0.1% of the capital stock. As a result of these transactions, the shareholders of NEXTEL hold the following interests: i) - Cablevisión became the holder of 809,236,480 membership interests with nominal value of $1 and entitled to one vote per membership interest, representing 99.9% of the capital stock and votes; ii) PEM S.A. became the holder of 1,000,000 membership interests with nominal value of $1 and entitled to one vote per membership interest, representing 0.1% of the capital stock and votes. Those transactions were registered with the IGJ on November 25, 2016.

On December 28, 2016, PEM S.A. transferred to Cablevisión 1,000,000 membership interests with nominal value of peso 1 each and entitled to one vote per membership interest, representing 0.1% of the capital stock and votes of NEXTEL. As a result of the assignment of the membership interests described above, Cablevisión became the holder of 810,236,480 membership interests with nominal value of $1 and entitled to one vote per membership interest, representing 100% of the capital stock and votes of NEXTEL. Said transfer was registered with the IGJ on March 27, 2017.

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c)Acquisition of companies, holders of radioelectric spectrum in the 900 Mhz and 2.5 Ghz bands

In June 2016, Cablevisión, with its subsidiary NEXTEL, acquired 100% (97% owned by NEXTEL and the remaining 3% owned by Cablevisión) of the capital stock of Fibercomm S.A. and Gridley Investments S.A. both owners of 100% of the capital stock of Trixco S.A., holder of licenses for the use of the radioelectric spectrum in 900 Mh bands. NEXTEL acquired 100% of the capital stock of WX Telecommunications LLC (in accordance with the LGS, WX Telecommunications S.A.U.) and Greenmax Telecommunications LLC (in accordance with the LGS, Greenmax Telecommunications S.A.U), which are the controlling companies of Skyonline Argentina S.A., Netizen S.A., Infotel S.A. and Callbi S.A., among the most important subsidiaries. The latter render wireless telecommunications services and hold licenses for the use of the radioelectric spectrum in the 2.5 Ghz bands. The aggregate price for those transactions was US$ 138.2 million, equivalent to $3,978 in current currency as of December 31, 2018.

During the year ended December 31, 2016, Cablevisión completed the process of allocating the acquisition cost of 100% (97% to Nextel and the remaining 3% to Cablevisión) of the capital stock of Fibercomm S.A. and Gridley Investments S.A., both owners of 100% of the capital stock of Trixco S.A., and calculated goodwill from this acquisition in the amount of $1,475.9 in current currency as of December 31, 2018, included under Goodwill in the consolidated statement of financial position, taking into consideration that the valuation of the identifiable assets, liabilities and contingent liabilities at the interest percentage acquired is lower than the acquisition cost.

d)Corporate Reorganization of Cablevisión

d.1) On March 31, 2017, Cablevisión’s Board of Directors approved the Pre-Merger Commitment executed among Cablevisión, Nextel, Greenmax Telecommunications S.A.U., WX Telecommunications S.A.U., Gridley Investments S.A., Trixco S.A., Fibercomm S.A., Netizen S.A, Eritown Corporation Argentina S.A., Skyonline de Argentina S.A., Infotel Argentina S.A., Nextwave Argentina S.A. and Callbi S.A., whereby, as of the merger date, Cablevisión, in its capacity as absorbing company, will continue with the operations of Nextel, Greenmax Telecommunications S.A.U., WX Telecommunications S.A.U., Gridley Investments S.A., Trixco S.A., Fibercomm S.A., Netizen S.A, Eritown Corporation Argentina S.A., Skyonline de Argentina S.A., Infotel Argentina S.A., Nextwave Argentina S.A. and Callbi S.A. (the “Absorbed Companies”) thus generating the corresponding operating, accounting and tax effects. That merger was approved by the shareholders of Cablevisión at the Extraordinary Shareholders’ Meeting held on May 17, 2017. On July 11, 2017, the public deed related to the merger was issued.

On September 18, 2017, the ENACOM authorized, under Resolution No. 2017-1734 APN ENACOM# MM, the transfer of the registrations, numbering and sign-posting resources, authorizations and frequency use permits granted to Nextel, Trixco S.A., Callbi S.A., Infotel Argentina S.A., Skyonline de Argentina S.A., Netizen S.A. and Eritown Corporation Argentina S.A. in favor of Cablevisión.

As a result of the above-mentioned corporate reorganization process, the Absorbed Companies were dissolved without liquidation and Cablevisión assumed all the activities, receivables, property and all the rights and obligations of the above-mentioned companies, existing as of the first day of October 2017, or any that may exist or arise due to previous or subsequent acts or activities.

On December 1, 2017, the CNV issued Resolution RESFC-2017-19134-APN-DIR#CNV, whereby it granted the administrative approval of the above-mentioned merger and, on February 23, 2018, the merger was registered with the IGJ under No. 3,469, Book 88 Volume of Stock Companies.

d.2) On August 16, 2016, the Board of Directors of Cablevisión approved the Pre-Merger Commitment executed between Cablevisión, Copetonas Video Cable S.A., Dorrego Televisión S.A., Fintelco S.A., Indio Rico Cable Color S.A., Primera Red Interactiva de Medios Argentinos (PRIMA) S.A. (“Prima”), Cable Video Sur S.A., Wolves Televisión S.A. and Tres Arroyos Televisora Color S.A., whereby, on the effective date of the merger -October 1, 2016- (“Effective Date of the Merger”), Cablevisión, as absorbing company, continued with the operations of Copetonas Video Cable S.A., Dorrego Televisión S.A., Fintelco S.A., Indio Rico Cable Color S.A., Prima, Cable Video Sur S.A., Wolves Televisión S.A. and Tres Arroyos Televisora Color S.A. (the “Absorbed Companies”), thus generating the corresponding operating, accounting and tax effects. As a result of the above-mentioned corporate reorganization process, the Absorbed Companies were dissolved without liquidation. That merger was approved by the shareholders of Cablevisión at the Extraordinary Shareholders’ Meeting held on September 27, 2016, and on April 20, 2017 it was registered with the Public Registry of Commerce.

In addition, at the Extraordinary Shareholders’ Meeting held on September 27, 2016, the shareholders also unanimously approved: (i) the amendment of Section Three of the Bylaws in order to conform the core business of Cablevisión to the new regulatory framework of LAD and LSCA, and (ii) the amendment of Sections Nine and Ten of the Bylaws in order to eliminate the Executive Committee. Both amendments of the Bylaws were registered with the Public Registry of Commerce.

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Cablevisión made a filing with the ENACOM in order to inform that Agency of the corporate reorganization to be implemented, so that it would consequently register under the name of the absorbing company, the “Area Authorizations” required to exploit Cable Television Services corresponding to Copetonas Video Cable S.A., Dorrego Televisión S.A., Indio Rico Cable Color S.A., Cable Video Sur S.A., and Tres Arroyos Televisora Color S.A. The license for Wolves Televisión S.A. was abandoned because Cablevisión already has an Area Authorization in the jurisdiction where Wolves Televisión S.A. exploited the cable television service.

In addition, Prima and Cablevisión made a filing with the ENACOM in order to request that Agency to register the license that had been granted to Prima in favor of Cablevisión as a consequence of the corporate reorganization process. On August 25, 2017, the ENACOM authorized, through Resolution No. 2017-339 APN ENACOM# MM, the transfer of the registrations of national and international long-distance telephony services, as well as the numbering and signposting resources, frequencies and radioelectric authorizations granted to it in favor of Cablevisión.

e)Corporate Reorganization of the Shareholders of Cablevisión

At the Extraordinary Shareholders’ Meetings of CV B Holding S.A., Vistone S.A. and Southtel Holdings S.A. –“The Direct Shareholders of Cablevisión”- held on September 28, 2016, the shareholders approved the Pre-Merger Commitment executed between Grupo Clarín, the Direct Shareholders of Cablevisión and Compañía Latinoamericana de Cable S.A. (“CLC”), whereby, on the Effective Date of the Merger - October 1, 2016- Grupo Clarín, as absorbing company, continued with the operations of the “Direct Shareholders of Cablevisión” and CLC, thus generating the corresponding operating, accounting and tax effects. As a result of the above-mentioned corporate reorganization process, the Direct Shareholders of Cablevisión were dissolved without liquidation and Grupo Clarín assumed all the activities, receivables, property and all the rights and obligations of the above-mentioned companies, existing on the Effective Date of the Merger, or any that may exist or arise due to previous or subsequent acts or activities.

Upon executing the corresponding Final Merger Agreement, Cablevisión notified the ENACOM of the change of shareholder structure in Cablevisión, which did not entail a change of control pursuant to Section 13 of Law No. 27,078 and, therefore, an authorization is not required.

On September 28, 2016, the shareholders of Grupo Clarín approved the merger by absorption of the Direct Shareholders of Cablevisión and CLC. In addition, at such Shareholders’ Meeting, the shareholders of Grupo Clarín S.A. approved the partial spin-off for the creation of a new company domiciled in the City of Buenos Aires under the name Cablevisión Holding S.A. The equity subject to the spin-off comprises the direct (upon the execution of the merger) and indirect equity interests of Grupo Clarín in Cablevisión and in GCSA Equity, LLC.

On April 27, 2017, both corporate reorganization processes (merger and spin-off-incorporation) were registered with the IGJ and, as from May 1, 2017, the controlling company of Cablevisión (directly and indirectly) was Cablevisión Holding S.A.

f)Corporate Reorganization of Telecom Argentina

f.1) Redemption of the shares of Sofora

In March 2017, WAI offered Sofora and, Sofora, with the consent of Fintech, its controlling shareholder, accepted an offer to redeem in two tranches all of the 140,704,640 shares issued by Sofora held by WAI pursuant to Sections 223 and 228 of the LGS. As a result of the redemption, Sofora agreed to pay to WAI an amount equal to the nominal value of the shares issued by Sofora, equivalent to $141 and issue in the name of WAI one or more dividend certificates (Class “A” “Bono de Goce”) which will serve as proof of the rights of WAI to collect dividends for a total amount of up to US$ 470 million less the amounts paid to redeem the shares of Sofora held by WAI (equivalent to US$ 8,683,596).

Subsequently, Dividend Certificates were issued in two tranches for a total of US$ 461,316,404 (the first tranche on May 23, 2017 for US$ 245,036,017, and the second tranche on June 22, 2017 for US$ 216,280,387), together with the respective agreed-upon stock redemption.

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The main general terms and conditions of the dividend certificates (Class “A” “Bono de Goce”) provided that: (i) they will only grant rights to collect declared dividends at the sole discretion of Sofora for up to the maximum amount provided under the respective bond; (ii) they will be entitled to collect the amount of dividends provided for in the respective bond in preference to the other shareholders of Sofora; (iii) all the payments under those bonds shall be made with realized and liquid profits of Sofora; (iv) the maximum amount of dividends receivable under those bonds shall increase on June 1 of each year for an amount equivalent to 2% per annum applied to the outstanding balance as of May 31 of each year; (v) they may be redeemed by Sofora at any time after 36 months counted as from the date of issuance or after payment of 60% of its value at the time of issuance, whichever occurs later; and (vi) in the event Sofora is absorbed by another company that continues with the activities of Sofora, the preference under the dividend certificates (Class “A” “Bono de Goce”) will be maintained only with respect to those shares of the surviving company received by the shareholders of Sofora under the exchange ratio provided for under said merger so that this preference does not affect the other shareholders of the absorbing company, i.e., in the case of the reorganization mentioned in point f.2) of this note (the “Reorganization of Telecom Group”) the preference of the dividend certificates (Class “A” “Bono de Goce”) will only be verified with respect to Class A shares of Telecom Argentina received by Fintech and will not affect Class B shares or Class C shares of Telecom Argentina.

Taking into consideration that the Reorganization of Telecom Group, described in the following point, has entered into effect, Telecom Argentina assumed all the rights and obligations of Sofora as issuer of the Class A Exchange Bonds. Under no circumstance the rights to collect dividends under the dividend certificates (Class “A” “Bono de Goce”) shall affect the rights to collect dividends that belong to the holders of Class B Shares or Class C Shares or any other class of shares of Telecom Argentina.

The dividend certificates (Class “A” “Bono de Goce”) have been paid in full through the dividends in respect of which they were entitled to collect.

f.2) Corporate Reorganization of the Telecom Group

On March 31, 2017, each of the Boards of Directors of Sofora, Personal and Nortel and Telecom Argentina approved a pre-merger commitment, whereby Telecom Argentina would absorb Nortel, Sofora and Personal in accordance with the provisions of sections 82 and 83 of the LGS.

The General Ordinary and Extraordinary Shareholders’ Meetings of Telecom Argentina and Telecom Personal held on May 23, 2017, and the General Extraordinary Shareholders’ Meetings of Nortel and Sofora held on May 22, 2017 approved the Reorganization of Telecom Group.

In addition, at the above-mentioned General Ordinary and Extraordinary Shareholders’ Meeting of Telecom Argentina, the shareholders approved:

i.the conversion of up to 161,039,447 Class A Shares, with nominal value of $1 and entitled to one vote per share into the same number of Class B Shares, with nominal value of $1 and entitled to one vote per share to be delivered to the holders of Preferred Class “B” Shares of Nortel, as explained in Section 4th of the related pre-merger commitment (the conversion was effective on December 15, 2017); and

ii.the amendment of the following sections of the Bylaws:

a.Section 4: to establish a dynamic conversion procedure for the shares representing capital stock from one Class to the other with equal political and equity rights; and

b.Section 5: to allow the total or partial redemption of fully-paid shares in accordance with the provisions of Section 223 of LGS and allow the issuance of bonds given in exchange for redeemed shares according to the provisions of Section 228 on the mentioned Law.

iii.The elimination of Section 9 of the Bylaws, which includes limitations for transferring Class “A” Shares, which is effective since the authorization by the ENACOM of the dissolution of Nortel under the Reorganization of the Telecom Group and the distribution to holders of Nortel’s Class “B” Preferred Shares of a portion of Class “A” Shares of Telecom Argentina through its conversion to Class “B” Shares in accordance with the provisions of the corresponding pre-merger commitment.

On March 21, 2018, the amendment of the Bylaws mentioned in points ii) and iii) was registered with the IGJ.

At the Shareholders’ Meetings of Telecom Personal, Nortel and Sofora, the shareholders approved the dissolution without liquidation of the respective companies pursuant to Section 94, subsection 7 of the LGS as a consequence of its incorporation to Telecom Argentina under the Reorganization of Grupo Telecom.

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The companies involved in the Reorganization requested the ENACOM the following authorizations provided under the pre-merger commitment.

a)ENACOM authorization for releasing the shares that comprised the second redemption tranche of Sofora’s common shares (owned by WAI representing 15% of Sofora’s capital stock) of the allocation to the main core of shares of the investment consortium for the acquisition, in the process of privatization of ENTel, of the Sociedad Licenciataria Norte (currently Telecom Argentina) pursuant to the provisions of Decree No. 62/90 issued on January 5, 1990 and the terms of such privatization and Resolution No. 111/2003 issued by the SC on December 10, 2003.

b)ENACOM authorization for the dissolution of Nortel as a result of the Reorganization of the Telecom Group and the distribution to the holders of Nortel’s Class “B” Preferred Shares of a portion of Telecom Argentina’s Class “A” Shares through its conversion to Telecom Argentina’s Class “B” Shares pursuant to the corresponding pre-merger commitment.

c)ENACOM authorization for the transfer to Telecom Argentina, as a result of the Reorganization of the Telecom Group, of all licenses for the provision of ICT Services and the registrations of ICT Services, together with the corresponding permissions for the use of frequencies, which were granted or awarded to Telecom Personal.

On June 16, 2017, the ENACOM Authorization referred to in a) above was granted through Resolution No. RESOL-2017-5120-APN-ENACOM # MCO.

Since the Reorganization of the Telecom Group was approved at all the General and Special shareholders’ meetings of the companies involved, and since the term for the opposition of creditors in accordance with the applicable regulations has expired, on November 13, 2017, Telecom Argentina, Nortel, Sofora, and Telecom Personal executed the final merger agreement which was filed with the Argentine regulatory authorities in accordance with the respective applicable regulations.

On November 24, 2017, the Company, Personal, Nortel and Sofora were served with Resolution No. 2017-4545-APN-ENACOM#MM, whereby the ENACOM granted the authorizations mentioned in sections b) and c) mentioned above.

The effective date of the reorganization of Telecom Group began at 00.00 hs of December 1, 2017, date on which the Chairmen of the Boards of Directors of the companies that were part of the Telecom Group signed the Minutes regarding the Transfer of Operations.

As a consequence of the reorganization and with effect as of the date thereof: (i) all the equities of Sofora, Personal and Nortel were fully transferred to Telecom Argentina at the book values of such items in the respective special-purpose unconsolidated financial statements. According to this, Telecom Argentina acquired all rights, obligations and responsibilities of any nature of Personal, Sofora and Nortel; (ii) Telecom Argentina is the surviving company of all the activities developed by Personal, Sofora and Nortel; (iii) Personal, Sofora and Nortel were dissolved without liquidation. On March 21, 2018, the Reorganization and the dissolution without liquidation of each of the absorbed companies was registered with the IGJ.

As a consequence of the Reorganization of Telecom Group:

·A portion of the Class A Shares issued by Telecom Argentina was distributed to Fintech as the only holder of the common shares of Sofora;

·The remaining Class A Shares issued by Telecom Argentina were converted to Class B Shares of Telecom Argentina;

·All Class B Shares issued by Telecom Argentina held by Nortel (including Class B Shares as a result of the conversion mentioned above) were distributed to the holders of Nortel Class B Preferred Shares.

Telecom Argentina did not issue any new Class B Shares or Class A Shares in connection with the Reorganization of Telecom Group.

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NOTE 54 – CASH AND CASH EQUIVALENTS AND INVESTMENTS. ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS

a)Cash and cash equivalents and Investments

 

a)Cash and cash equivalents and Investments

Cash and cash equivalents and investments consist of the following:

 

As of December 31,

As of December 31,

Cash and cash equivalents

2018

2017

20202019

Cash and Banks

1,878

5,121

4,6452,339

Time deposits

4,953

32

3,546957

Mutual funds

60

1,354

Other investments at fair value

-

10

Mutual funds (a)8,79731,531
Government bonds at fair value1,539-

Total cash and cash equivalents

6,891

6,517

18,52734,827

Investments

 

 

 

Current

 

 

 

Government bonds at fair value

727

50

5,054404

Government bonds at amortized cost

519

3

126180

Mutual funds

2

109

Other investments at amortized cost

123

-

Mutual funds (a)1,44287
Allowance for credit risk (b)(80)(87)

Total current investments

1,371

162

6,542584

Non- current

 

 

 

Government bonds at amortized cost

4,627

-

3422,692

Investments in associates (*)

967

735

Investments in associates (c)2,0261,531

2003 Telecommunications Fund

1

-

1
Allowance for credit risk (b)(217)(1,333)

Total non-current investments

5,595

735

2,1522,891
Total investments8,6943,475

 

(*)
(a)As of December 31, 2020, includes $194 in Cash and cash equivalents which availability is restricted between 30 and 60 days, according to contractual provisions and $1,372 in Investments in guarantee of financial operations.
(b)Constituted following the expected credit losses parameters provided by IFRS 9 as a consequence of a significant increase in these financial instruments’ credit risk.
(c)Information on Investments in associates is detailed below:

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TELECOM ARGENTINA S.A.

 

Financial position information:

CompaniesMain activityCountryPercentage of capital
stock owned and
voting rights
Valuation as of 12.31.2020Valuation as of 12.31.2019
Ver TV. (1)Cable television stationArgentina49.001,219847
TSMA(1) (2) (3)Cable television stationArgentina50.10454344
La Capital Cable (1)(2)Closed-circuit televisionArgentina50.00348334
Other minor investments in associates at equity method (4)   56
Total   2,0261,531

 

Companies

Main activity

Country

Percentage
of capital
stock owned
and
voting rights

Valuation as of
12.31.2018

Valuation as
of 12.31.2017

Ver T.V. S.A. (1)

Cable televisión station

Argentina

49.00

592

428

Teledifusora San Miguel Arcángel S.A. (1) (2) (3)

Cable televisión station

Argentina

50.10

226

161

La Capital Cable S.A. (2)

Closed-circuit television

Argentina

50.00

143

137

Other minor investments in associates at equity method

 

 

 

6

9

Total

 

 

 

967

735

(1)Data about the issuer arise from extra-accounting information.

(2)Direct and indirect interest.

(3)
(1)Data about the issuer arise from extra-accounting information.
(2)Direct and indirect interest.
(3)Despite owning a percentage higher than a 50% of interest, the Company does not have the control in accordance with the requirements of IFRS.
(4)The variation is included in Other financial results, net – RECPAM.

Earnings (losses) information:

 Years ended December 31,
 202020192018
Ver TV372(223)297
TSMA110(59)151
La Capital Cable142746
Total496(255)494

Movements in the allowance of current credit risk are as follows:

 December 31,
 20202019
At the beginning of the fiscal year(87)-
Additions – Exchange differences(50)-
Additions – Risk of doubtful government bonds results(16)(1,552)
Reclassifications(503)-
Uses (includes RECPAM)5761,465
At the end of the year(80)(87)

Movements in the allowance of non-current credit risk are as follows:

 December 31,
 20202019
At the beginning of the fiscal year(1,333)-
Additions – Exchange differences(220)-
Additions – Risk of doubtful government bonds results(42)(1,945)
Reclassifications503-
Uses (includes RECPAM)875612
At the end of the year(217)(1,333)

Restructuring of Government Bonds

In April 2020, the PEN, through Decree No. 391/20 and the Government of the Province of Buenos Aires, established a restructuring of certain National and Provincial Government Bonds issued under foreign law through the invitation to lenders to exchange those bonds for others, subject to new issuance conditions.

Furthermore, the exchange offer for the restructuring of foreign currency-denominated government bonds issued under argentine law was approved in August 2020.

In May, July and August 2020, the Company submitted several exchange offers of its bonds portfolio that could be exchanged, in accordance with the requirements of IFRS.established conditions and procedures provided to each case.

 

Earnings information:The exchange of the National and Provincial Bonds issued under foreign and argentine laws took place in early September 2020. As of the date of these consolidated financial statements, the exchange of the Province of Buenos Aires Government Bonds was still pending.

 

 

Years ended December 31,

 

2018

2017

2016

Ver T.V. S.A.

142

247

120

Teledifusora San Miguel Arcángel S.A.

72

68

55

La Capital Cable S.A.

22

38

46

Total

236

353

221

b)Additional information on the consolidated statements of cash flows

b)Additional information on the consolidated statements of cash flows

 

The Company applies the indirect method to reconcile the net income for the year with the cash flows generated by its operations.

 

For purposes of the consolidated 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). Bank overdrafts are disclosed in the consolidated statement of financial position as financial debts and its flows in the cash flow statements as proceed and payment of financial debt, because they are part of the short-term financial structure of Telecom and its subsidiaries.

 

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Changes in assets/liabilities components:

 

December 31,

Net decrease (increase) in assets

2018

2017

2016

Trade receivables

(4,092)

(406)

(164)

Other receivables

(894)

(737)

346

Inventories

(11)

30

15

 

(4,997)

(1,113)

197

Net increase (decrease) in liabilities

 

 

 

Trade payables

885

363

598

Salaries and social security payables

283

362

(98)

Taxes payables

(2,030)

(1,425)

(1,606)

Other liabilities and Provisions

(2,329)

(735)

(248)

 

(3,191)

(1,435)

(1,354)

 December 31,
Net (increase) decrease in assets202020192018
Trade receivables(7,313)4,441(8,570)
Other receivables(647)154(1,872)
Inventories(197)633(23)
 (8,157)5,228(10,465)
Net decrease in liabilities   
Trade payables(7,019)(23,095)(16,393)
Salaries and social security payables4761,733592
Taxes payables1,1351,339(4,253)
Other liabilities and provisions(5,800)(5,648)(4,878)
 (11,208)(25,671)(24,932)

 

Main non-cash operating transactions

Offsetting of dividends receivable with financial debt

5

12

-

Main Financing activities components

 

The following table presents the main financing activities components:

 

Bank overdrafts

2,176

-

-

Bank loans

25,593

1,229

15,305

By purchase of equipment

-

-

-

Companies under section 33 - Law No. 19,550 and related parties

-

35

-

Total financial debt proceeds

27,769

1,264

15,305

Notes

(3,905)

-

-

Bank loans

(335)

(1,622)

(12,679)

By purchase of equipment

(272)

-

-

Companies under section 33 - Law No. 19,550 and related parties

-

(1)

-

Total payment of debt

(4,512)

(1,623)

(12,679)

Bank overdrafts

(94)

-

-

Notes - Interests and related expenses

(1,509)

-

-

Bank loans - Interests and related expenses

(2,388)

(1,264)

(1,890)

By NDF, purchase of equipment and others

267

(27)

56

Companies under section 33 - Law No. 19,550 and related parties

-

(1)

-

Total payment of interest and related expenses

(3,724)

(1,292)

(1,834)

Bank overdrafts-10,9254,558
Notes28,07530,660-
Bank and other financial entities loans24,83036,72353,600
Loans for purchase of equipment3,1231,344-
Total financial debt proceeds56,02879,65258,158
Bank overdrafts(6,908)(1)-
Notes(9,621)(4,162)(8,178)
Bank and other financial entities loans(46,624)(45,532)(701)
Loans for purchase of equipment(2,240)-(570)
Total payment of debt(65,393)(49,695)(9,449)
Bank overdrafts(3,967)(1,321)(197)
Notes(5,701)(1,537)(3,161)
Bank and other financial entities loans(9,038)(9,699)(5,000)
By NDF, purchase of equipment and others(2,145)1,811560
Total payment of interest and related expenses(20,851)(10,746)(7,798)

 

Main non-cash operating transactions

Main non-cash operating transactions and that were eliminated from the consolidated statement of cash flows are the following:

PP&E and intangible assets acquisition financed with accounts payable19,65220,92218,906
Dividends payment with investments not considered as cash and cash equivalents25,713--
Accounts payable payment with CDB loan proceeds249--
Other receivables offset with income tax liabilities26--
Trade receivables offset with government bonds468--

Cash dividends collected

Brief information on cash dividends collected by the Company is provided below:

YearCompanyCash Dividends Collected
Currency of the transaction dateCurrent currency as of December 31, 2020
2020Ver TV5057
 TSMA2123
  7180
2019Ver TV97172
 TSMA4172
 La Capital Cable58
  143252
2018Ver TV1856
 TSMA823
 La Capital Cable1538
  41117

Cash and non-cash assets dividends from the Company and its subsidiaries

Non-cash assets dividends

 

On January 31, 2018,Telecom Argentina’s General Extraordinary Shareholders’ Meeting held on November 13, 2020 resolved to distribute non- cash assets dividends as follows: i) Global Bonds of the BoardArgentine Republic amortizable in US dollars maturing on July 9, 2030 (the “2030 Global Bonds”), for a nominal value of DirectorsUS$157,642,897, and ii) Global Bonds of Telecom Argentina approved:the Argentine Republic amortizable in US dollars maturing on July 9, 2035 (the “2035 Global Bonds”) for a nominal value of US$271,896,177.

 

1.Consequently, and considering that the reversalvaluation of 9,729,418,019the mentioned non-cash assets dividends was $24,723,374,678 Argentine pesos as of the date of the transaction, of the “Reserve for future cash dividends” of Telecom Argentina($25,713 in current currency as of December 31, 2017, and its distribution as cash dividends in two installments: i) 2,863,000,000 Argentine pesos on February 15, 2018 and ii) 6,866,418,019 Argentine pesos on April 30, 2018, being2020), the Board empowered“Voluntary Reserve for Future Cash Dividends” amounting to make such payment on an earlier date if it deemed it convenient;

2.the distribution of 5,640,728,444 Argentine pesos, as of the date of the transaction, as advance cash dividends under the provisions of Section 224, 2nd paragraph of the General Corporations Law, corresponding to the net profit (liquid and realized) of the period ranging from January 1, 2017 to September 30, 2017 as it arises from the special-purpose unconsolidated financial statements of Telecom Argentina as of September 30, 2017, which were settled on February 15, 2018; and

3.the distribution of 4,502,777,155 Argentine pesos, as of the date of the transaction, as distribution of interim cash dividends under the provisions of Section 224, 2nd paragraph of the General Corporations Law, corresponding to the net profit (liquid and realized) of the period ranging from January 1, 2017 to September 30, 2017 as it arises from the special-purpose unconsolidated financial statements of Cablevisión S.A.-absorbed by Telecom Argentina- as of September 30, 2017, which were settled on February 15, 2018.

Dividends mentioned in items 2 and 3 above, were subsequently ratified by the Ordinary General Shareholers Meeting of April 25, 2018.

In conclusion, the dividends distribution aforementioned in items 1, 2 and 3, for a total of $19,873, as of the date of the transaction, (approximately $28,822$6,600 in current currency of December 31, 2018) was paid on February 15, 2018 for $13,007 and on March 21, 2018 $6,866 (approximately $27,927 in current currency of December 31, 2018).

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Payment by Telecom of the dividends declared by Cablevisión S.A.

·Fiscal Year 2018

On January 8, 2018, Telecom Argentina, as surviving company of Cablevisión S.A. paid the dividends declared by Cablevisión S.A. on December 18, 2017 for 4,077,790,056 Argentine pesos, as of the date of the transaction, (approximately $6,021 in current currency of December 31, 2018).

·Fiscal Year 2017

On March 30, 2017, the Ordinary and Extraordinary Annual General Shareholders Meeting of Cablevisión decided to allocate the sum of 1,600,000,000 Argentine pesos, as of the date of the transaction (approximately $2,603 in current currency of December 31, 2018), to the distribution of cash dividends payable in pesos or US dollars in two installments of 800,000,000 Argentine pesos. As of December 31, 2017, all distributed cash dividends were cancelled.

Cash dividends from associates

·Fiscal Year 2018

Dividends paid by Núcleo

In May 2018, Núcleo paid dividends to the non-controlling shareholders for a total of $161, as of the date of the transaction, (approximately $182 in current currency of December 31, 2018). These dividends were approved at the Ordinary General Shareholders Meeting of Núcleo at its meeting held on April 24, 2018.

Dividends collected from Ver T.V.

During the first half of 2018, dividends were collected from Ver T.V. for $19, as of the date of the transaction. These dividends were declared during year 2017, and as of December 31, 2017, they were pending collection.

Dividends collected from Teledifusora San Miguel Arcángel

During2020 was fully withdraw and the first half“Voluntary Reserve to maintain the Company’s level of 2018, dividends were collected from Teledifusora San Miguel Arcángel for $8, asinvestments in capital assets and the current level of the date of the transaction. These dividends were declared during year 2017, andsolvency” was partially withdraw in $19,113 in current currency as of December 31, 2017, they were pending collection.2020.

 

Dividends collected from La Capital CableF-47

 

In June 2018, dividends were collected from La Capital Cable for $15, as of the date of the transaction, of which $5 were offset with financial debt with the company. These dividends were approved at the Ordinary Annual General Shareholders Meeting of June 14, 2018.

In conclusion, during 2018 a total of $41 of dividends (approximately $56 in current currency of December 31, 2018) were collected from associates.

·Fiscal year 2017

Dividends paid by CV Berazategui

During the first half of 2017, CV Berazategui paid dividends to non-controlling interests for a total of $6, as of the date of the transaction. These dividends were approved by the Ordinary General Shareholders Meeting at its meeting held on April 25, 2017.

Dividends collected from Ver T.V.

In February 2017, Ver T.V. approved dividends for $77, as of the date of the transaction, of which $38 corresponded to Cablevisión according to its interests. Such dividends were collected during the first quarter of 2017.

During fiscal year ended December 31, 2017, Ver T.V. approved dividends for $198, as of the date of the transaction, of which $97 correspond to the Company according to its interests. As of December 31, 2017, $32 of such dividends were collected.

Dividends collected from La Capital Cable

In May 2017, La Capital Cable voted dividends for $21, as of the date of the transaction, of which $10 corresponded to Cablevisión according to its shareholdings. Such dividends were collected during the second quarter of 2017, of which $8 were offset with financial debt with said company.

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Dividends collected from Teledifusora San Miguel Arcángel

In June 2017, Teledifusora San Miguel Arcángel approved dividends for $24, as of the date of the transaction, of which $12 corresponded to Cablevisión according to its interests. As of December 31, 2017, such dividends were collected.

In August 2017, Teledifusora San Miguel Arcángel approved dividends for $69, as of the date of the transaction, of which $34 corresponded to the Company according to its interests. As of December 31, 2017, $7 of such dividends were collected.

In conclusion, during 2017 a total of $99 of dividends (approximately $149 in current currency of December 31,2018) were collected from associates.

 

 

TELECOM ARGENTINA S.A.

Brief information on cash dividends of the Company and its subsidiaries is provided below:

YearCompanyDistribution monthDistributed amountPayment monthAmount paid in
current currency
as of December 31, 2020

Currency of the

transaction date

Current currency as

of December 31,

2020

2020NúcleoApril 2020295367May 2020191
 NúcleoApril 2020--October 2020176
   295367 367
2019TelecomApril 20196,30011,798May 201911,072
 TelecomAugust 20197,04511,346August 201911,346
 TelecomOctober 2019(1)   17,38725,603October 201925,603
 NúcleoApril 2019197356May 2019347
   30,92949,103 48,368
2018TelecomDecember 2017-    -    January 201812,386
 TelecomJanuary 2018(2)   13,00739,508February 201838,580
 TelecomJanuary 20186,86620,857March 201819,909
 NúcleoApril 2018135381March 2018380
   20,00860,746 71,255

(1)The General Ordinary Shareholders’ Meeting held on October 10, 2019 resolved to distribute US$300 million in cash dividends to be paid in US dollars (freely available) equivalent to $17,387 according to the exchange rate of BCRA Com “A” 3,500 issued on October 9, 2019 ($57.9).
(2)Includes $5,641 and $4,503 of anticipated cash dividends pursuant to Section 224, 2nd paragraph of the LGS related to the net income (liquid and realized) of the period January 1st, 2017 and September 30, 2017 arising from the Telecom Argentina’s and Cablevision’s stand-alone basis financial statements as of September 30, 2017, respectively, that were subsequently ratified by the General Ordinary Shareholders’ Meeting held on April 25, 2018.

Additional information required by IAS 7

 

Balances
as of
December
31, 2017

Incorporation
by merger
(Note 4.a)

 

Cash
Flows
(a)

 

Accrued
interests

Exchange
differences
and
currency
translation
adjustments
and Others
(b)

Balances
as of
December
31, 2018

Balances
as of December 31, 2019

 

Cash
Flows

 

Accrued

interest

Exchange

differences,

currency

translation

adjustments
and others

Balances
as of December 31, 2020

Bank overdrafts

-

199

2,176

-

(99)

2,276

13,219(6,908)-(2,358)3,953

Bank loans – principal

287

12,097

25,258

-

9,563

47,205

Securities’ caution - principal419(313)-(106)-
Bank and other financial entities loans – principal95,552(21,481)-(*)    6,99281,063

Notes – principal

13,767

3,186

(3,905)

-

5,783

18,831

55,17118,454-(3,303)70,322

NDF

-

25

(44)

119

-

100

510(1,831)-1,848527

By purchase of equipment

1,943

-

(256)

35

357

2,079

Companies under section 33 - Law No. 19,550 and related parties

6

-

-

-

(6)

-

Accrued interests and related expenses

6

2,597

(4,100)

4,395

5,923

8,821

Loans for purchase of equipment5,705883-286,616
Accrued interest and related expenses36,352(19,195)13,9746,58837,719

Total current and non-current financial debt (Note 13)

16,009

18,104

19,129

4,549

21,521

79,312

206,928(30,391)13,9749,689200,200

 

(a)Correspond to $27,769(*) Includes $249 of debt proceeds, $4,512 of principal payments, $3,724 of interest and related expenses payments and (404)loans with the CDB Bank (Note 13) that were reclassified to Other receivables.do not represent cash movement.

(b)Includes (5) that were offset with dividends receivable.

 Balances as of December 31, 2018

 

Cash Flows

 

Accrued interest

Exchange
differences,
currency
translation
adjustments

and others

Balances
as of December 31, 2019
Bank overdrafts4,76610,924-(2,471)13,219
Securities’ caution - principal-419--419
Bank and other financial entities loans – principal98,863(9,228)-5,91795,552
Notes – principal33,66926,498-(4,996)55,171
NDF209(1,195)-1,496510
Loans for purchase of equipment4,3541,344-75,705
Accrued interest and related expenses24,247(12,721)15,1099,71736,352
Total current and non-current financial debt (Note 13)166,10816,04115,1099,670206,928

 

NOTE 65 – TRADE RECEIVABLES

 

Trade receivables consist of the following:

As of December 31,

As of December 31,

Current Trade receivables

2018

2017

20202019

Ordinary receivables

19,910

3,242

28,83529,280

Contractual asset IFRS 15 (Note 3.u)

62

-

Contractual asset IFRS 1546164

Companies under section 33 - Law No. 19,550 and related parties (Note 27.c)

92

59

165186

Allowance for doubtful accounts

(2,649)

(713)

(10,090)(6,534)

17,415

2,588

18,95623,096

Non-current trade receivables

 

 

 

Ordinary receivables

38

-

5372

Contractual asset IFRS 15 (Note 3.u)

23

-

Contractual asset IFRS 15640

61

-

59112

Total trade receivables, net

17,476

2,588

19,01523,208

 

Movements in the allowance for current doubtful accounts are as follows:

 

Years ended December 31,

Years ended December 31,

2018

2017

20202019

At the beginning of the fiscal year

(713)

(512)

(6,534)(5,547)

IFRS 9 retained earnings adjustment (Note 3.v)

(245)

-

Additions – Bad debt expenses

(3,527)

(901)

(10,805)(8,619)

Uses and Currency translation adjustments

1,836

700

Uses and Currency translation adjustments (includes RECPAM)7,2497,632

At the end of the year

(2,649)

(713)

(10,090)(6,534)

 

F-68


Table of Contents

 

F-48

TELECOM ARGENTINA S.A.

 

NOTE 76 – OTHER RECEIVABLES

Other receivables consist of the following:

 

As of December 31,

Current other receivables

2018

2017

  Prepaid expenses

1,437

603

  Tax credits

1,363

127

  Advances to suppliers

103

41

  Settlement Pendings accounts

217

-

  Guarantee deposits

24

112

  Expenditure reimbursement

109

-

  Financial NDF (Note 21)

750

-

  Restricted funds (Note 18)

63

27

  Companies under section 33 - Law No. 19,550 and related parties (Note 27.c)

144

174

  Receivables from sale of customer relationship

72

-

  Other

806

139

Subtotal

5,088

1,223

  Allowance for current other receivables

(15)

-

 

5,073

1,223

Non-current other receivables

 

 

  Prepaid expenses

450

45

  Advances to suppliers

71

244

  Tax credits

703

61

  Restricted funds (Note 18)

92

-

  Financial NDF (Note 21)

45

-

  Regulatory Credits (Núcleo)

156

-

  Guarantee deposits

46

-

  Credit of indemnity for Tuves Paraguay acquisition

55

-

  Receivables from sale of customer relationship

113

-

  Other

3

3

Subtotal

1,734

353

  Allowance for non-current other receivables

(12)

-

Total other receivables

1,722

353

 

6,795

1,576

  As of December 31,
 Current other receivables20202019
   Prepaid expenses1,5451,600
   Tax credits2,7722,583
   Financial NDF (Note 22)2222
   Companies under section 33 - Law No. 19,550 and related parties (Note 27.c)150157
   Receivables from sale of customer relationship2831
   Other1,3521,707
   Allowance for current other receivables(333)(51)
  5,5166,249
Non-current other receivables  
  Prepaid expenses166297
  Tax credits8591,170
  Regulatory receivables (Núcleo)267283
  Receivables from sale of customer relationship4185
  Other266456
 1,5992,291
Total other receivables, net7,1158,540
    

 

Movements in the Allowanceallowance for current other receivables are as follows:

 

Years ended December 31,

2018

2017

At the beginning of the year

-

-

Increases

(18)

-

Decreases

3

-

At the end of the year

(15)

-

Movements in the Allowance for non-current other receivables are as follows:

Years ended December 31,

2018

2017

At the beginning of the year

-

-

Increases

(12)

-

At the end of the year

(12)

-

 Years ended December 31,
 20202019
At the beginning of the year(51)(37)
Increases(297)(26)
Decreases (includes RECPAM)1512
At the end of the year(333)(51)

 

NOTE 8 –7– INVENTORIES

 

Inventories consist of the following:

As of December 31,

As of December 31,

2018

2017

20202019

Mobile handsets and others

2,254

-

2,7213,160

Radio equipment and others

64

189

Fixed telephones and equipment

15

-

Inventories for construction projects

537

-

1,2551,530

Subtotal

2,870

189

3,9764,690

Allowance for obsolescence of inventories

(133)

(53)

(254)(317)

2,737

136

Total inventories3,7224,373

 

Movements in the allowance for obsolescence of inventories are as follows:

Years ended December 31,

Years ended December 31,

2018

2017

20202019

At the beginning of the year

(53)

-

(317)(279)

Additions

(82)

(70)

(17)(178)

Decreases

2

17

Decreases (includes RECPAM)80140

At the end of the year

(133)

(53)

(254)(317)

 

F-69


Table of ContentsNOTE 8 – GOODWILL

 

TELECOM ARGENTINA S.A.

 As of December 31,
 20202019
   Argentina250,641250,641
   Abroad (1)1,2671,411
Total goodwill251,908252,052

 

NOTE 9 – GOODWILL

 

As of December 31,

 

2018

2017

Argentina business (1)

119,678

31,273

Uruguay business (2)

771

681

 

120,449

31,954

(1)Includes $88,068 corresponding to the Merger between Telecom and Cablevisión (See Note 4.a)), $31,606 from Cablevisión and $4 corresponding to the goodwill of Tuves Paraguay as of December 31, 2018.

(2)Telemas S.A. goodwill, indirect subsidiary throughout its participation in Adesol. The increase in the amounts with respect to balance as of December 31, 2017 corresponds to currency translation adjustments.

(1)The decrease in the amounts with respect to balance as of December 31, 2019 corresponds to temporary currency translation adjustments.

 

NOTE 109 – PROPERTY, PLANT AND EQUIPMENT

 As of December 31,
 20202019
PP&E before allowances and impairment324,279338,044
Valuation allowance for obsolescence and impairment of materials(2,604)(2,049)
Impairment of PP&E(812)(1,092)
 320,863334,903

 

 

As of December 31,

 

2018

2017

PP&E before allowances and impairment

151,168

45,885

Valuation allowance for obsolecense and impairment of materials

(359)

(184)

Impairment of PP&E

(333)

-

 

150,476

45,701

F-49

 

TELECOM ARGENTINA S.A.

Movements in the valuation allowance for materialsobsolescence and impairment of materials are as follows:

Years ended December 31,

Years ended December 31,

2018

2017

20202019

At the beginning of the year

(184)

(153)

(2,049)(753)

Additions

(175)

(31)

(562)(1,296)
Currency translation adjustments7-

At the end of the year

(359)

(184)

(2,604)(2,049)

 

Movements in the impairment of PP&E are as follows:

Years ended December 31,

2018

2017

At the beginning of the year

-

-

Additions

(333)

-

At the end of the year

(333)

-

 Years ended December 31,
 20202019
At the beginning of the year(1,092)(697)
Additions(901)(395)
Uses1,181-
At the end of the year(812)(1,092)

 

Details on the nature and movements of PP&E as of December 31, 20182020 are as follows:

 

Gross value as of
December 31, 2017

Incorporation by
merger
(Note 4.a)

 

 

CAPEX

Currency
translation
adjustments

 

Transfers and
reclassifications

 

 

Decreases

Gross value as
of December 31,
2018

Gross value as of
December 31, 2019

 

CAPEX

Currency
translation
adjustments

 

Transfers and
reclassifications

 

Decreases

Gross value as of
December 31, 2020

Real estate

2,990

19,387

6

167

219

(9)

22,760

48,9916(191)1,830(213)50,423

Switching equipment

-

3,700

223

798

384

(2)

5,103

11,784435(802)835(10)12,242

Fixed network and transportation

35,676

30,493

5,408

674

15,187

(3,840)

83,598

193,7859,760(1,142)15,953(5,905)212,451

Mobile network access

4

11,317

12

836

4,825

(312)

16,682

42,3131(458)1,850(73)43,633

Tower and pole

207

4,494

43

273

384

(3)

5,398

12,365-(219)427(67)12,506

Power equipment and Installations

-

5,472

-

233

705

-

6,410

15,289295(226)1,088-16,446

Computer equipment

4,767

6,264

1,158

1,249

2,211

(4)

15,645

47,4532,738(1,236)11,169(158)59,966

Goods lent to customers at no cost

5,282

223

5,010

361

4

(3,396)

7,484

21,3485,480(328)11,523(8,910)29,113

Vehicles

1,477

1,187

376

21

-

(74)

2,987

6,55149(24)-(15)6,561

Machinery, diverse equipment and tools

3,946

226

194

12

98

-

4,476

8,356566(51)465-9,336

Other

259

473

5

42

83

1

863

1,658132(35)291-2,046

Construction in progress

10,377

5,818

24,138

95

(23,144)

(38)

17,246

48,61313,851(93)(23,450)(197)38,724

Materials

6,982

3,582

3,001

25

(956)

(41)

12,593

28,85120,128(106)(21,981)-26,892

Total

71,967

92,636

39,574

4,786

-

(7,718)

201,245

487,35753,441(4,911)-(15,548)520,339

 

 

Accumulated
depreciation as of
December 31, 2017

 

Depreciation

Currency
translation
adjustments

 

Decrease and
reclassifications

 

Accumulated
depreciation as of
December 31, 2018

 

Net carrying value
as of December 31,
2018

Real estate

(1,087)

(966)

(178)

3

(2,228)

 

20,532

Switching equipment

-

(1,032)

(681)

-

(1,713)

 

3,390

Fixed network and transportation

(15,959)

(12,450)

(657)

4,018

(25,048)

 

58,550

Mobile network access

-

(2,763)

(548)

48

(3,263)

 

13,419

Tower and pole

(18)

(832)

(145)

3

(992)

 

4,406

Power equipment and Installations

-

(1,062)

(156)

-

(1,218)

 

5,192

Computer equipment

(2,830)

(3,809)

(1,128)

3

(7,764)

 

7,881

Goods lent to customers at no cost

(1,234)

(3,886)

(296)

3,397

(2,019)

 

5,465

Vehicles

(1,085)

(428)

(20)

33

(1,500)

 

1,487

Machinery, diverse equipment and tools

(3,656)

(266)

(15)

-

(3,937)

 

539

Other

(213)

(149)

(33)

-

(395)

 

468

Construction in progress

-

-

-

-

-

 

17,246

Materials

-

-

-

-

-

 

12,593

Total

(26,082)

(27,643)

(3,857)

7,505

(50,077)

 

151,168

F-70


Table of Contents

TELECOM ARGENTINA S.A.

 Accumulated depreciation
as of December 31, 2019

 

Depreciation

Currency translation
adjustments

 

 

Decrease and
reclassifica-tions

Accumulated depreciation
as of December 31, 2020
 Net carrying value as of
December 31, 2020
Real estate(6,629)(2,169)156116(8,526) 41,897
Switching equipment(6,159)(2,450)7437(7,859) 4,383
Fixed network and transportation(71,273)(29,408)4945,864(94,323) 118,128
Mobile network access(14,061)(5,787)64340(19,165) 24,468
Tower and pole(3,558)(1,061)15631(4,432) 8,074
Power equipment and Installations(4,875)(2,204)170-(6,909) 9,537
Computer equipment(25,126)(9,805)1,123135(33,673) 26,293
Goods lent to customers at no cost(5,978)(11,180)2838,910(7,965) 21,148
Vehicles(4,013)(760)199(4,745) 1,816
Machinery, diverse equipment and tools(6,772)(605)31-(7,346) 1,990
Other(869)(282)322(1,117) 929
Construction in progress----- 38,724
Materials----- 26,892
Total(149,313)(65,711)3,85015,114(196,060) 324,279

 

Details on the nature and movements of PP&E as of December 31, 20172019 are as follows:

 

Gross value as of
December 31, 2016

 

 

CAPEX

Currency
translation
adjustments

 

Transfers and
reclassifications

 

 

Decreases

Gross value as
of December 31,
2017

Gross value as of
December 31, 2018

 

CAPEX

Currency translation
adjustments

 

Transfers and
reclassifications

 

Decreases

Gross value as of
December 31, 2019

Real estate

2,864

227

(2)

22

(121)

2,990

47,66829(19)1,442(129)48,991
Switching equipment10,689471320334(30)11,784

Fixed network and transportation

30,317

4,027

(177)

4,793

(3,284)

35,676

175,4329,875(359)18,570(9,733)193,785

Mobile network access

3

1

-

-

-

4

34,593231337,700(136)42,313

Tower and pole

208

-

-

(1)

207

10,883-271,470(15)12,365
Power equipment and Installations13,42356451,766(1)15,289

Computer equipment

3,577

574

(4)

616

4

4,767

32,7671,21257512,992(93)47,453

Goods lent to customers at no cost

4,035

845

-

3,192

(2,790)

5,282

15,6763,35315910,947(8,787)21,348

Vehicles

1,384

195

(1)

2

(103)

1,477

6,250329(5)-(23)6,551

Machinery, diverse equipment and tools

3,805

22

(2)

120

1

3,946

9,375352(25)643(1,989)8,356

Other

260

4

(6)

1

-

259

1,8085-105(260)1,658

Construction in progress

6,879

2,169

-

1,329

-

10,377

36,11836,342(90)(23,687)(70)48,613

Materials

7,532

11,052

(9)

(10,075)

(1,518)

6,982

26,37534,897(139)(32,282)-28,851

Total

60,864

19,116

(201)

-

(7,812)

71,967

421,05786,944622-(21,266)487,357

 

Accumulated
depreciation as of
December 31, 2016

 

Depreciation

Currency
translation
adjustments

 

Decrease and
reclassifications

 

Accumulated
depreciation as of
December 31, 2017

 

Net carrying value
as of December 31,
2017

Accumulated depreciation
as of December 31, 2018

 

Depreciation

Currency translation
adjustments

 

 

Decrease and
reclassifica-tions

Accumulated depreciation
as of December 31, 2019
 Net carrying value as of
December 31, 2019

Real estate

(1,067)

(22)

1

1

(1,087)

 

1,903

(4,670)(2,007)(1)49(6,629) 42,362
Switching equipment(3,589)(2,227)(362)19(6,159) 5,625

Fixed network and transportation

(13,786)

(5,517)

86

3,258

(15,959)

 

19,717

(52,453)(28,566)239,723(71,273) 122,512

Mobile network access

-

-

-

-

-

 

4

(6,834)(7,026)(238)37(14,061) 28,252

Tower and pole

-

(19)

-

1

(18)

 

189

(1,995)(1,499)(72)8(3,558) 8,807
Power equipment and Installations(2,551)(2,248)(76)-(4,875) 10,414

Computer equipment

(2,002)

(831)

3

-

(2,830)

 

1,937

(16,263)(8,294)(647)78(25,126) 22,327

Goods lent to customers at no cost

(1,045)

(2,979)

-

2,790

(1,234)

 

4,048

(4,231)(10,374)(158)8,785(5,978) 15,370

Vehicles

(1,033)

(134)

2

80

(1,085)

 

392

(3,144)(885)124(4,013) 2,538

Machinery, diverse equipment and tools

(3,473)

(184)

1

-

(3,656)

 

290

(8,244)(524)71,989(6,772) 1,584

Other

(206)

(12)

5

-

(213)

 

46

(824)(305)-260(869) 789

Construction in progress

-

-

-

-

-

 

10,377

--- 48,613

Materials

-

-

-

-

-

 

6,982

--- 28,851

Total

(22,612)

(9,698)

98

6,130

(26,082)

 

45,885

(104,798)(63,955)(1,512)20,952(149,313) 338,044

F-50

TELECOM ARGENTINA S.A.

 

NOTE 1110 – INTANGIBLE ASSETS

 

As of December 31,

As of December 31,

2018

2017

20202019

Intangible assets before impairment

61,493

4,635

Intangible assets110,262118,705

Impairment

(1,623)

-

(6,236)(6,317)

59,870

4,635

104,026112,388

 

Movements in the impairment of Intangible assets are as follows:

 

Years ended December 31,

2018

2018

At the beginning of the year

-

-

Additions

(1,623)

-

At the end of the year

(1,623)

-

 Years ended December 31,
 20202019
At the beginning of the year(6,317)(3,400)
Additions(215)(2,917)
Decreses296-
At the end of the year(6,236)(6,317)

 

IntangibleDetails on the nature and movements of intangible assets consist as of December 31, 2018 of the following:2020 are as follows:

 

Gross value as of
December 31, 2017

Incorporation by
merger
(Note 4.a)

 

 

CAPEX

Currency translation
adjustments


 

 

Decreases

Gross value as of
December 31,
2018

Gross value as of
December 31, 2019

 

CAPEX

Currency translation adjustments



 

Decreases

Gross value as of
December 31, 2020

3G/4G licenses

3,635

17,713

-

-

-

21,348

46,564-46,564

PCS license (Argentina)

-

10,538

-

-

-

10,538

22,070-22,070

Núcleo´s licenses

-

-

844

33

-

877

5,413-(78)-5,335

SRCE license

879

-

-

-

879

Customer relationship

-

15,771

-

73

(609)

15,235

29,497-(20)(21)29,456

Brands

249

13,030

-

-

-

13,279

27,811-27,811

Incremental Cost from the adquisition of contracts

-

-

1,348

7

-

1,355

Incremental Cost from the acquisitions of contracts5,0211,764(15)(1,538)5,232

Other

890

2,277

714

14

-

3,895

3,351527(4)-3,874

Total

5,653

(*) 59,329

2,906

127

(609)

67,406

139,7272,291(117)(1,559)140,342

 

 

 

Accumulated amortization as of December 31, 2019

 

Amortization

Currency translation adjustments

 

 

Decreases

Accumulated amortization as of December 31, 2020 Net carrying value as of December 31, 2020
3G/4G licenses(5,838)(3,183)--(9,021) 37,543
PCS license (Argentina)----- 22,070
Núcleo´s licenses(380)(175)6-(549) 4,786
Customer relationship(9,510)(4,676)421(14,161) 15,295
Brands(207)(9)--(216) 27,595
Incremental Cost from the acquisitions of contracts(2,879)(2,217)31,538(3,555) 1,677
Other(2,208)(377)7-(2,578) 1,296
Total(21,022)(10,637)201,559(30,080) 110,262

 

(*) Includes $(125) Retained earnings adjustment. Note 3.u).

 

 

 

Accumulated
amortization as of
December 31,
2017

Amortization

Currency
translation
adjustments



 

Decreases

Accumulated
amortization as of
December 31,
2018

 

Net carrying
value as of
December 31,
2018

3G/4G licenses

-

(1,196)

-

-

(1,196)

 

20,152

PCS license (Argentina)

-

-

-

-

-

 

10,538

Núcleo´s licenses

-

(70)

(4)

-

(74)

 

803

SRCE license

(72)

-

-

-

(72)

 

807

Customer relationship

-

(3,574)

8

494

(3,072)

 

12,163

Brands

(89)

(5)

-

-

(94)

 

13,185

Incremental Cost from the adquisition of contracts

-

(378)

(15)

-

(393)

 

962

Other

(857)

(155)

-

-

(1,012)

 

2,883

Total

(1,018)

(5,378)

(11)

494

(5,913)

 

61,493

F-71


TableDetails on the nature and movements of Contents

TELECOM ARGENTINA S.A.

Intangibleintangible assets consist as of December 31, 20172019 are as follows:

 Gross value as of December 31, 2018

 

CAPEX

Currency translation adjustments

 

 

Decreases

Gross value as of December 31, 2019
3G/4G licenses46,55014--46,564
PCS license (Argentina)22,070---22,070
Núcleo´s licenses5,4425(34)-5,413
Customer relationship31,906-7(2,416)29,497
Brands27,811---27,811
Incremental Cost from the acquisitions of contracts2,8372,192(8)-5,021
Other3,4261-(76)3,351
Total140,0422,212(35)(2,492)139,727

 

 

 

Accumulated amortization as of December 31, 2018

 

Amortization

Currency translation adjustments

 

 

Decreases

Accumulated amortization as of December 31, 2019 Net carrying value as of December 31, 2019
3G/4G licenses(2,655)(3,183)--(5,838) 40,726
PCS license (Argentina)----- 22,070
Núcleo´s licenses(154)(188)(38)-(380) 5,033
Customer relationship(6,437)(5,467)(22)2,416(9,510) 19,987
Brands(196)(11)--(207) 27,604
Incremental Cost from the acquisitions of contracts(822)(2,057)--(2,879) 2,142
Other(1,919)(351)(3)65(2,208) 1,143
Total(12,183)(11,257)(63)2,481(21,022) 118,705

F-51

TELECOM ARGENTINA S.A.

NOTE 11 – RIGHT OF USE ASSETS

Details on the nature and movements of Right of use assets as of December 31, 2020 are as follows:

 Gross value as of
December 31,
2019

 

Increases

Currency translation
adjustments

 

 

Decreases

Gross value as of
December 31, 2020
Leases rights of use (a)     
 - Sites11,9765,094(80)(307)16,683
 - Real estate and others3,4431,794(19)(92)5,126
 - Poles8121,797(18)-2,591
Indefeasible right of use1,12772(9)-1,190
Asset Retirement Obligation4562,2611(69)2,649
Total17,81411,018(125)(468)28,239

(a) For the determination of the following:previously informed amounts, real discount rates were used amounting to 11% (average in Argentine pesos) and 6.4% (in US dollars)

 

 

Gross value as
of December
31, 2016

 

 

CAPEX

Gross value
as of
December
31, 2017

Accumulated
amortization
as of
December
31, 2016

Amortization

Accumulated
amortization
as of
December 31,
2017

 

Net carrying value as of
December 31, 2017

3G/4G licenses

3,635

-

3,635

-

-

-

 

3,635

SRCE license

72

807

879

(57)

(15)

(72)

 

807

Brands

249

-

249

(83)

(6)

(89)

 

160

Other

890

-

890

(772)

(85)

(857)

 

33

Total

4,846

807

5,653

(912)

(106)

(1,018)

 

4,635

 

 

 

Accumulated
amortization as of
December 31,
2019

 

Amortization

Currency translation
adjustments

 

 

Decreases

Accumulated
amortization as
of December 31,
2020
 Net carrying
value as of
December 31,
2020
Leases rights of use       
 - Sites(2,972)(3,773)22139(6,584) 10,099
 - Real estate and others(963)(1,233)558(2,133) 2,993
 - Poles(517)(673)3-(1,187) 1,404
Indefeasible right of use(315)(128)5-(438) 752
Asset Retirement Obligation(115)(63)152(125) 2,524
Total(4,882)(5,870)36249(10,467) 17,772

Details on the nature and movements of Right of use assets as of December 31, 2019 are as follows:

 Gross value as of
December 31,
2018
Incorporation
by adoption of
IFRS 16

 

Increases

Currency translation
adjustments

 

 

Decreases

Gross value as of
December 31, 2019
Leases rights of use (b)      
 - Sites-6,6445,481(41)(108)11,976
 - Real estate and others-2,1031,573(14)(219)3,443
 - Poles-634188(10)-812
Indefeasible right of use1,145--(8)(10)1,127
Asset Retirement Obligation417-789(48)456
Total1,5629,3817,320(64)(385)17,814

(b) For the determination of the previously informed amounts, real discount rates were used amounting to 11% (average in Argentine pesos) and between 5% and 7% (in US dollars)

 

 

 

Accumulated
amortization as of
December 31,
2018

 

Amortization

Currency translation
adjustments

 

 

Decreases

Accumulated
amortization as
of December 31,
2019
 Net carrying
value as of
December 31,
2019
Leases rights of use       
 - Sites-(2,984)(18)30(2,972) 9,004
 - Real estate and others-(1,053)(5)95(963) 2,480
 - Poles-(515)(2)-(517) 295
Indefeasible right of use(203)(116)(6)10(315) 812
Asset Retirement Obligation(80)(68)(15)48(115) 341
Total(283)(4,736)(46)183(4,882) 12,932

 

NOTE 12 – TRADE PAYABLES

 As of December 31,
Current20202019
  Suppliers and commercial accruals38,44542,315
  Companies under sect. 33 – Law No. 19,550 and Related Parties (Note 27.c)9131,200
 39,35843,515
Non-current  
  Suppliers and commercial accruals2,4483,206
 2,4483,206
Total trade payables41,80646,721

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TELECOM ARGENTINA S.A.

 

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,

Current

2018

2017

  Suppliers and commercial accruals

22,286

5,299

  Companies under sect. 33 – Law No. 19,550 and Related Parties (Note 27.c)

568

438

 

22,854

5,737

Non-current

 

 

  Suppliers and commercial accruals

570

-

 

570

-

Total trade payables

23,424

5,737

NOTE 13 – FINANCIAL DEBT

 As of December 31,
Current20202019
  Bank overdrafts – principal3,95313,219
  Securities’ caution - principal-419
  Bank and other financial entities loans – principal7,61818,379
  Notes – principal13,789-
  NDF (Note 22)516491
  Loans for purchase of equipment2,4562,042
  Accrued interest and related expenses13,27013,481
 41,60248,031
Non-current  
  Notes – principal56,53355,171
  Bank and other financial entities loans – principal73,44577,173
  NDF (– Note  22)1119
  Loans for purchase of equipment4,1603,663
  Accrued interest and related expenses24,44922,871
 158,598158,897
Total financial debt200,200206,928

Most of the bank and other financing entities loans subscribed by the Company contain standard compliance ratios for this kind of agreements. As of December 31, 2020, Telecom has complied with them.

 

Financial debt consistsThe main bank and other financing entities loans agreements, which are effective as of the following:date of these consolidated financial statements, are detailed below:

 

As of December 31,

Current

2018

2017

  Bank overdrafts – principal

2,276

-

  Bank loans – principal

12,945

77

  By purchase of equipment

1,048

1,257

  NDF

100

-

  Accrued interest and related expenses

3,675

43

  Companies under sect. 33 – Law No. 19,550 and Related Parties (Note 27.c)

-

6

 

20,044

1,383

Non-current

 

 

  Notes – principal

18,831

13,767

  Bank loans – principal

34,260

210

  By purchase of equipment

1,031

686

  Accrued interest and related expenses

5,146

(37)

 

59,268

14,626

Total financial debt

79,312

16,009

 

Telecom Argentina

Global Programs for the issuance of Notes

On December 28, 2017, Telecom Argentina held an Ordinary Shareholders’ Meeting that approved a Notes Global Program for a maximum outstanding amount of US$3,000 million or its equivalent in other currencies. The delegation of powers in the Board of Directors was also approved to determine and modify the terms and conditions of the Program as well as to establish the issuance opportunities. On April 19, 2018, the CNV approved the mentioned Program, through Resolution No. 19,481.

Within the mentioned Program, Telecom Argentina issued several series of Notes in Argentine pesos and in US dollars, which are described below:

·Series I in US dollars

In July 2019, the Company informed CNV about the renewal of the period of placement of Notes for an amount of nominal value of US$300 million, that can be increased to US$500 million, whose funds were used to the refinancing of liabilities, including the use of up to US$250 million to refinance Series “A” Notes maturing in 2021 (See “Series 5 Notes – Foreign currency financial debt renegotiation”).

The amount of the Notes finally issued and its main characteristics are detailed below:

Issuance date: July 18, 2019.

Amount involved: US$400 million (approximately $17,148 as of the date of issuance).

Maturity Date: July 18, 2026.

Amortization: Principal will be paid in one installment at maturity date.

Interest rate: It bears interest semiannually from its issuance date until its maturity date at a fixed annual rate of 8.00%.

Interest Payment Date: Interest will be paid semiannually since issuance date. The last interest payment date will be the maturity date.

The Company received a disbursement for a total amount of US$392.36 million (since US$2.4 million corresponding to debt issuance expenses and US$5.24 million that corresponded to issuance under par were deducted from the initial disbursement) equivalent to $16,820 as of the date of the disbursement collection. From this disbursement, the Company used US$34.2 million to repurchase Series “A” Notes maturing in 2021 (See “Series 5 Notes – Foreign currency financial debt renegotiation”) and US$100 million to the partial prepayment of the Term Loan, which were paid in July 25, 2019.

As of December 31, 2020, an amount of US$406.7 million of the mentioned Notes remained unpaid (equivalent to $34,221).

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TELECOM ARGENTINA S.A.

·Series 3 and 4 in Argentine Pesos

On January 23, 2020, the Company informed CNV about the renewal of the period of placement of Notes in two series for a total amount of nominal value of $1,500, that can be increased to $5,000. The amount of the Notes finally issued and its main characteristics are detailed below:

üSeries 3

Issuance date: January 31, 2020.

Amount involved: $3,196,524,154 Argentine pesos.

Maturity Date: January 31, 2021.

Amortization: Principal will be paid in one installment at maturity date.

Interest rate and Payment Date: Interest is payable in a quarterly basis from its issuance date until its maturity date at a variable annual rate (Badlar plus spread of 4.75%). The last interest payment date will be on maturity date.

üSeries 4

Issuance date: January 31, 2020.

Amount involved: $1,200,229,180 Argentine pesos.

Maturity Date: July 31, 2021.

Amortization: Principal will be paid in one installment at maturity date.

Interest rate and Payment Date: Interest is payable on a quarterly basis from its issuance date until its maturity date at a variable annual rate (Badlar plus spread of 5.25%). The last interest payment date will be on maturity date.

The Company received a disbursement for a total amount of $4,374, since $23 corresponding to debt issuance expenses were deducted from the initial disbursement (amounts in currency of the transaction date).

During November and December 2020, the Company repurchased approximately $86.0 (principal nominal value) of Series 3 Notes. These operations were carried out at the market value of each repurchase date, which did not significantly differ from their accounting valuation on that date.

As of December 31, 2020, an amount of $3,303 of Series 3 Notes and $1,274 of Series 4 Notes remained unpaid.

During January 2021, the Company repurchased approximately $150.0 (principal nominal value) of Series 3 Notes. These operations were carried out at the market value of each repurchase date, which did not significantly differ from their accounting valuation on that date.

On maturity date of Series 3 Notes, the Company paid $3,249 of Series 3 Notes ($2,961 of principal and $288 of accrued interest).

·Series 5 Notes – Foreign currency financial debt renegotiation

Within the framework of continuous optimization of terms, rates and structure of its financial debt, on August 6, 2020, the Company has refinanced part of its financial debt through the issuance of Series 5 Notes, which main characteristics are detailed below:

a) Series 5 Notes

Issuance date: August 6, 2020.

Amount involved: US$388.9 million (approximately $28,273 as of the date of issuance), of which US$253.5 million correspond to instruments to be subscribed in kind through the exchange of Series “A” Notes as described in item b) below and US$135.4 million correspond to instruments to be integrated in cash.

Maturity Date: August 6, 2025.

Amortization: Principal will be settled as follows: 3% on February 6, 2023, 30% on August 6, 2023, 33% on August 6, 2024 and 34% on August 6, 2025.

Interest rate and Payment Date: Interest is payable on a semiannually basis from its issuance date until the maturity date, at an annual fixed rate of 8.50%. The last interest payment date will be on maturity date.

Integration Options: Series 5 Notes may be integrated, at the investor's choice, in cash (US$) or in non - cash assets through the exchange of Series “A” Notes with maturity date in 2021. Net cash proceeds of Series 5 Notes were applied to the cancellation of the loan with Deutsche Bank AG, London Branch, mentioned in item c) below. Series “A” Notes delivered for the non – cash assets subscription of Series 5 Notes have been settled by the Company.

As of December 31, 2020, an amount of US$413.8 million of the mentioned Notes remained unpaid (equivalent to $34,818).

F-54

b)Outstanding Series “A” Notes at fixed annual rate maturing in 2021

On April 20, 2016, at the Annual General Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión, the shareholders of Cablevisión approved, among other matters, the extension of the authorization of the Global Program for the Issuance of Notes, which had been granted at the Annual General Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión on April 28, 2014, increasing the maximum amount of the outstanding Notes that may be issued under this Program from a nominal value outstanding at any time of US$500 million (or its equivalent in other currencies) to US$1,000 million (or its equivalent in other currencies), delegating broad powers to the Board of Directors.

On June 1, 2016, the Board of Directors of Cablevisión authorized the issuance of Series “A” Notes for a nominal value of US$500 million at fixed annual nominal interest rate of 6.50%, interest payable semi-annually, maturing in June 2021.

As a result of the merger between Telecom Argentina and Cablevisión, Series “A” Notes were assumed by the Company in January 1, 2018.

For this purpose, Telecom Argentina, as successor of Cablevisión, the Deutsche Bank Trust Company Americas, as Trustee and Banco Comafi S.A., as trustee representative in Argentina, signed a supplement to the Trust Agreement formalizing the absorption of the Series “A” Notes by Telecom Argentina.

On July 10, 2019, Telecom made an offer to repurchase Series “A” Notes for an amount of up to US$200 million, under certain terms and conditions. Total consideration offered for each US$1,000 of nominal value in accordance with the offer amounted to US$997.50 plus accrued interest. The purchase offer ended on August 9, 2019. As a result of the offer, Telecom canceled a total amount of US$34.2 million of Series “A” Notes (US$30.4 million on July 25, 2019 and US$3.8 million on August 14, 2019).

Additionally, and until December 31, 2019, the Company repurchased approximately US$0.5 million (nominal value) of the Series “A” Notes. These transactions were executed at the quoted market price prevailing on each repurchase date, which did not significantly differ from the book value as of that date.

On July 7, 2020, the Company started the public offering placement process of Series 5 Notes, with the purpose of refinancing Series “A” Notes and the loan with Deutsche Bank AG, London Branch mentioned in point c) below, jointly with a request for consent for the amendment of certain terms and conditions of Series “A” Notes. Series “A” Notes holders’, who chose to deliver these Notes for the subscription in kind of Series 5 Notes, received for each US$1,000 of Series “A” Notes delivered to the Company: i) US$700 of principal of Series 5 Notes; and ii) US$320 in cash (see “Agreement with the TMF Trust Company” to this Note). According to the offer, the nominal value of Series “A” Notes delivered to the Company for the integration in non – cash assets of Series 5 Notes amounted to US$362.2 million, representing approximately 77.74% of total outstanding Series “A” Notes, which were settled and retired.

As a result, the remaining nominal value of outstanding Series “A” Notes amounts to US$103.4 million, equivalent to $8,704.

c) Deutsche Bank Loan

On November 8, 2018, the Company acknowledged the acceptance by Deutsche Bank AG, London Branch, as organizer of a syndicate of banks, of a loan facility for an amount of up to US$200 million (which might be increased up to US$300 million). On November 14, 2018 the Company acknowledged the acceptance of the extension of the loan offer by Deutsche Bank AG, London Branch, for US$100 million.

The Deutsche Bank Loan has a term of 42 months counted from the date of the initial borrowing and will accrue compensatory interest at an initial rate per annum equivalent to LIBO plus 4.5% that will be payable quarterly, in arrears. The principal will be payable in six consecutive semi-annual equal installments equivalent to 12.5% of the disbursed amount with a final payment on the maturity date equivalent to 25% of the initial borrowing.

The proceeds from the Deutsche Bank Loan were used by the Company only to partially prepay the Syndicated Loan.

On August 6, 2020, the Company fully settled the bank loan with Deutsche Bank AG, London Branch, which it total outstanding principal amounted to US$187.5 million, including interest accrued at that date and related expenses, with cash obtained from the subscription of Series 5 Notes previously mentioned and the payment in cash made by the Trust (see “Agreement with the TMF Trust Company” to this Note).

As a result of this financial debt renegotiation, the Company recorded a loss of $2,669, that is included in “Financial debt renegotiation results” item, included in Other financial results, net.

F-55

·Series 6 and 7 in Argentine Pesos

On December 2, 2020, the Company offered a Notes subscription in two series for a total amount of nominal value of $1,500, that can be increased to $10,000. The amount of the Notes finally issued and its main characteristics are detailed below:

üSeries 6

Issuance date: December 10, 2020.

Amount involved: $1,928,950,000 Argentine pesos.

Maturity Date: December 10, 2021.

Amortization: Principal will be paid in one installment at maturity date.

Interest rate and Payment Date: Interest is payable on a quarterly basis from its issuance date until its maturity date at a variable annual rate (Badlar plus spread of 2.25%). The last interest payment date will be on maturity date.

üSeries 7

Issuance date: December 10, 2020.

Amount involved: $125,248,683 UVA, equivalent to $7,786,710,622 Argentine pesos as of the date of issuance.

Maturity Date: December 10, 2023.

Amortization: Principal will be paid in one installment at maturity date.

Interest rate and Payment Date: Interest is payable on a quarterly basis from its issuance date until its maturity date at a 3% fixed annual rate. The last interest payment date will be on maturity date.

The Company received a disbursement for a total amount of $9,671, since $45 corresponding to debt issuance expenses were deducted from the initial disbursement (amount corresponding to the transaction date).

As of December 31, 2020, an amount of $1,957 of Series 6 Notes and $8,015 of Series 7 Notes remained unpaid.

Bank and other financing entities loans

 

IFC and IIC loansInternational Finance Corporation (“IFC”) loan

 

On July 5, 2016, Personal, company merged by absorption into Telecom, accepted an offer from the International Finance Corporation (IFC)IFC (member of the World Bank Group) for the assessment and transfer of funds for purposes of financing investment needs, work capital and debt refinancing.

On October 5, 2016 Personal and the IFC signed the loan agreement (“IFC Loan”) for an amount of US$400 million and for a six-year period, payable in 8 equal half-yearlysemiannual installments since the 30th month, with a 6 month LIBOR + 400bp. This loan will bewas used to deploy the 4G network and refinance short-term financial liabilities. The loan terms include standard commitments and limitations for this type of financial transactions.

 

On October 26, 2016 Personal received the loan proceeds for an amount of US$392.5 million, net of expenses of US$7.5 million.

F-72


Table of Contents

TELECOM ARGENTINA S.A.

On April 7, 2017, Personal and the Inter-American Investment Corporation (“IIC”), a member of the Inter-American Development Bank (“IDB”) Group, signed a loan agreement (“IIC Loan”) for an amount of US$100 million maturing in September 2022, payable in 8 equal half-yearly installments since the 24th month, with a 6 month LIBOR + 400bp. The funds of this loan will be allocated to deploy the 4G network and for financing working capital and other financial needs. The loan terms include standard commitments and covenants for this type of financial transactions. On September 18, 2017 Personal received the loan funds, net of issuance expenses for US $ 1.8 million.

On October 30, 2018, within the framework of its permanent optimization policy for the term, rate and structure of its financial liabilities Telecom Argentina has accepted a proposal from the International Finance Corporation (IFC) for the evaluation and mobilization of funds with for the purpose of financing investment needs, working capital and refinancing of liabilities. On March 4, 2019 The Company signed a new loan agreement with IFC for a total amount of up to US$450 million, as requested in a timely manner by the Company in one or more disbursements (the “Loan”"Loan"). The Loan will consistconsisted of a tranche “A”, a tranche “B-1”, a tranche “B-2”, a tranche “B-3” and a tranche “B-4” which will accrue compensatory interest payables semiannually for periods that are due at an annual rate equal to LIBOR plus the following margins: 4.85 percentage points in the case of Tranche A, Tranche B-2 and Tranche B-4, and 4.60 percentage points in the case of Tranche B-1 and Tranche B-3. Likewise, the capitalprincipal will be payable as follows: Tranche A, Tranche B-2, and Tranche B-4 in eight consecutive semi-annual equal installments from February 2021 and final maturity in August 2024 and Tranche B-1 and Tranche B-3 in six consecutive semi-annual equal installments from February 2021 and final maturity in August 2023. The proceeds from the loan will bewere used to finance capital investments for 2019.

 

Syndicated Loan

At its meeting held on January 31, 2018, the Board of Directors ofOn March 18, 2019, the Company approvedreceived a disbursement for a total amount of US$290 million (US$285.5 million were received, because US$4.5 million corresponding to debt issuance expenses were deducted from the execution of a syndicatedinitial disbursement) in relation to the loan agreement that the Company signed with several banksIFC for a total amount of up to a totalUS$450 million on March 4, 2019. The disbursement of US$1,000290 million is divided into two tranches: a) a disbursement of US$160 million, which will accrue compensatoryaccrues interest payable semiannually for periods that are due at an annual rate equal to LIBO plus 4.85 percentage points, which will be cancelled in 8 consecutive semiannual equal installments from February 2021 with maturity date in August 2024 and b) a disbursement of US$130 million, which accrues interest payable semiannually for periods that are due at an annual rate equal to LIBO plus 4.60 percentage points, which will be cancelled in 6 consecutive semiannual equal installments from February 2021 with maturity date in August 2023.

F-56

On April 25, 2019, an additional disbursement was received for a total amount of US$20 million which accrues interest payable semiannually for periods that are due at an annual rate equal to LIBO plus 4.85 percentage points, which will be cancelled in 8 consecutive semiannual equal installments from February 2021 and final maturity in August 2024.

On September 22, 2020, the Company refinanced those loans and agreed to change the amortization schedule of all principal maturities that would take place during the last quarter of 2020 and 2021, by deferring the 85% of them for a term ranging between 24 and 48 months, and pre-paying the remaining 15% jointly with accrued interest and other related expenses (see “Agreement with the TMF Trust Company” to this Note). As a result of this renegotiation, the Company recognized a loss of $525 that is included in “Financial debt renegotiation results” item, within Other financial results, net.

As of December 31, 2020, an amount of US$487.3 million of these agreements remained unpaid (equivalent to $41,006).

Inter-American Development Bank (“IDB”) Loan

On April 7, 2017, Personal and IIC (member of the IDB Group), signed a loan agreement for an amount of US$100 million maturing in September 2022, payable in 8 equal semiannual installments since the 24th month, with a 6 month LIBOR + 400bp. The funds of this loan were allocated to deploy the 4G network and for each periodfinancing working capital and other financial needs. The loan terms include standard commitments and covenants for this type of financial transactions.

On the other hand, on May 29, 2019 the Company subscribed a loan agreement with the Inter-American Development Bank (IDB Invest) for a total amount of up to US$300 million. On June 7, 2019, a disbursement for a total amount of US$75 million was received (US$74.15 million were received, because US$0.85 million corresponding to debt issuance expenses, that were deducted from the initial disbursement). This debt accrues interest accrualof LIBOR plus 4.90 percentage points, which will be cancelled in 10 consecutive semiannual equal installments from November 2021 with maturity date in May 2026.

Likewise, on July 11, 2019, an applicable margin.additional disbursement was received for a total amount of US$25 million (US$24.55 million were received, because US$0.45 million corresponding to debt issuance expenses were deducted from the initial disbursement) which accrues interest payable semiannually for periods that are due at an annual rate equal to LIBO plus 4.60 percentage points, which will be cancelled in 6 consecutive semiannual equal installments from May 2021 and final maturity in November 2023.

 

On February 2, 2018,4, 2020 the Company and IDB Invest executed a supplement to the original loan agreement for a total amount of US$125 million, consisting of the following: i) a first tranche of US$50 million maturing on November 15, 2023 bearing interest at LIBOR plus 4.6%, payable in 8 consecutive semiannual installments since May 2020, and ii) a second tranche of US$75 million maturing on November 15, 2022 bearing interest at LIBOR plus a variable spread of 7% to 7.75%, payable in 6 consecutive semiannual installments since May 2020. The Company received a disbursement for a total amount of US$123.4 million, since US$1.6 million, corresponding to debt issuance expenses, were deducted from the initial disbursement.

On April 7, 2020, the Company received a new disbursement for a total amount of US$25 million maturing on November 15, 2022. The Company received US$24.6 million since US$0.4 million corresponding to debt issuance expenses were deducted.

On September 22, 2020, the Company refinanced those loans and agreed to change the amortization schedule of all principal maturities that would take place during the last quarter of 2020 and 2021, by deferring 85% of them for a term ranging between 24 and 66 months, and pre-paying the remaining 15% jointly with accrued interest and other related expenses (see “Agreement with the TMF Trust Company” to this Note). As a result of this renegotiation, the Company recognized a loss of $250 that is included in “Financial debt renegotiation results” item, within Other financial results, net.

As of December 31, 2020, an amount of US$288.9 million of these agreements remained unpaid (equivalent to $24,314).

Agreement with TMF Trust Company

To be able to meet the requirements arising from the renegotiation of financial debts carried out by the Company, which involves significant payments in cash, on July 15, 2020 the Company entered into a term loantrust agreement with Citibank, N.A., HSBC México, S.A., Multiple Banking Institution, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, JPMorgan Chase Bank, N.A. y Banco Santander, S.A.TMF Trust Company (Uruguay), in hisits capacity as a lender, Citigroup Global Markets Inc., HSBC México, S.A., Multiple Banking Institution, Grupo Financiero HSBC, Industrial and Commercial Banktrustee, for the provision of China Limited, JPMorgan Chase Bank, N.A. y Santander Investment Securities Inc. as organizers, Citibank N.A. as an administrative agentfunds and the Branchadministration of Citibank N.A. in Argentina, asthose payments.

F-57

According to the above-mentioned, by the end of July 2020, the Company disbursed to the Trust a local custodian agent for an aggregate principaltotal amount of US$1,000 million (the “Original Loan”). On February 9 and March 9, 2018, the Company borrowed US$650 million and US$350 million, respectively, under this agreement, that matures in February 2019. The proceeds273 million. As of the Loans were used to finance capital expenditures, working capital and other general corporate purposes. The Loan bear interest at an annual rate equivalent to LIBOR plusdate of these consolidated financial statements, the Trust has made the following margins: 1.25 percentage points duringpayments in cash:

a.An amount of US$120.2 million to the holders of Series “A” Notes to pay the cash consideration for refinancing the Series “A” Notes, including accrued interest at the date of settlement and related expenses.
b.An amount of US$62.4 million as a partial payment of the settlement of the loan with Deutsche Bank loan AG, including accrued interest at the date of settlement and related expenses.
c.An amount of US$30.9 million in accordance with the terms of the amendments of the loans signed with IFC, including accrued interest, prepayment premiums and other amounts due.
d.An amount of US$13.4 million in accordance with the terms of the amendments of the loans signed with IDB, including accrued interest, prepayment premiums and other amounts due.

On November 5, 2020, the first four months, 1.50 percentage points, duringTrust Administration Committee notified the following two months, 1.75 percentage points duringTrustee that the following three monthstrust ended, since the purpose of the Trust was fulfilled, its purpose was finished and 2.25 percentage points duringpending expenses in charge of the last three months priorTrust were paid. Also, according to its contractual terms, the Trustee was instructed to proceed to transfer the remaining Trust Assets in accordance with the instructions provided by the Trust Administration Committee, after deducting a minimum amount to face future termination and settlement expenses of the Trust. On that date, the Trust transferred, as remaining Trust Assets, 45.5 million Treasury Bonds of the United States to the maturity date. Interest is payable quarterly or semiannually, at the Company’s option. The Company is permitted to make voluntary prepayments at any time without premium or penalty. The Company is required to make prepayments under the Loans (without payment of a premium)subsidiary Televisión Dirigida in compliance with net cash proceeds from bilateral or syndicated bank financings in excess of US$500 million, or underwritten offerings or private placements of any non-Peso denominated debt securities of the Company governed by a law other than the laws of Argentina with a tenor of at least three years. The Company is also required to prepay the Original Loans upon the occurrence of a change of control, at each lender’s option.pre-existing obligations.

 

Subsequently, onTerm Loan

On October 8, 2018, the Company entered into a new agreement with Citibank, N.A., HSBC Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander, S.A., in its capacity as lenders, Citibank, N.A., HSBC Mexico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Industrial and Commercial Bank of China Limited, Dubai (DIFC) Branch, JPMorgan Chase Bank, N.A. and Banco Santander, S.A. as organizers, Citibank N.A. as an administrative agent and the Citibank N.A. branch established in Argentina, as agent of local custody, for an aggregate principal amount of US$500 million (which can be increased, in accordance with the terms and conditions thereof) and to 48 months of term (the “Loan”"Loan").

 

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TELECOM ARGENTINA S.A.

TheOn October 17, 2018, the Company requested a disbursement of US$500 million on October 17, 2018. The funds were used to partially pre-pay the Original Loan.

million. The disbursed capital will accrueprincipal accrues compensatory interest at an annual rate equivalent to LIBORLIBO plus the following margin: 4.50 percentage points during the first year after the disbursement, 5.00 percentage points, during the second year and 5.25 percentage points from the date that is two years after the disbursement and until the expirationmaturity date; and will be payable quarterly in arrears.

 

Additionally,The partial pre-payment of “Term Loan” paid by Telecom during 2019 and 2020 were as follows:

üOn March 25, 2019, Telecom paid US$101.4 million (US$100 million of principal and US$1.4 million of interest);
üOn July 25, 2019, Telecom paid US$100.15 million (US$100 million of principal and US$0.15 million of interest);
üOn December 9, 2019, Telecom paid US$50.5 million (US$50 million of principal and US$0.5 million of interest);
üOn February 12, 2020, Telecom paid US$50.3 million (US$50 million of principal and US$0.3 million of interest); and
üOn March 30, 2020, Telecom paid US$60.8 million (US$60 million of principal and US$0.8 million of interest).

As of December 31, 2020, an amount of US$140.6 million remained unpaid (equivalent to $11,831).

.

Finnvera

On May 7, 2019, the Company submitted a proposal for an export credit line for a total amount of up to US$96 million to the following entities: (i) Banco Santander, S.A. and JPMorgan Chase Bank, N.A., London Branch, as initial lenders, lead coordinators and guarantors of residual risk, (ii) JPMorgan Chase Bank, N.A., London Branch, as a financing agent and ECA bank, (iii) Banco Santander, S.A. as a bank of documentation and (iv) Banco Santander Río S.A. as a local custody agent, which was accepted on the same date.

The line of credit is guaranteed by Finnvera plc, the official export credit agency of Finland, which granted a bond in accordance with the provisionsfavor of the loan,lenders subject to certain terms and conditions.

The funds received will be used to finance up to 85% of the value of certain imported goods and services, the value of certain national goods and services and the total payment of the Finnvera surplus equivalent to 7.82% of the total amount committed by the lenders under the line of credit.

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On May 23, 2019, a disbursement for a total amount of US$36 million (US$30.6 million was received because US$2.8 million corresponding to debt issuance expenses and US$2.6 million corresponding to the payment of the first installment were deducted from the initial disbursement). This debt accrues interest at a rate equivalent to LIBO plus 1.04 percentage points payable semiannually in 13 consecutive semiannual equal installments from November 2019 with maturity date in November 2025.

On October 25, 2019, the Company made an additional paymentreceived a second disbursement for a total amount of US$ 10011.1 million of the Original Loan, (as a condition precedent(US$ 6.4 million were received, because US$4.7 million corresponding to the execution of thetotal premium amount committed for tranche “B” were deducted). This loan accrues an interest rate equivalent to LIBO plus 1.04 percentage points payable in 14 consecutive semiannual installments from May 2020 with maturity date in November 2026.

On December 20, 2019, the Company and the remaining partiesreceived a third disbursement for a total amount of the Original Loan had agreed to a mandatory pre-cancellation amountUS$15.3 million. This loan accrues an interest rate equivalent to at leastLIBO plus 1.04 percentage points payable in 13 consecutive semiannual installments from November 2020 with maturity date in November 2026.

On March 5, 2020, the Company received a fourth disbursement for a total amount of US$ 100 million)10.5 million. This loan accrues an interest rate equivalent to LIBO plus 1.04 percentage points payable in 13 consecutive semiannual installments from November 2020 with maturity date in November 2026.

On June 18, 2020, the Company received a disbursement for a total amount of US$6.8 million. This loan will be payable in 13 consecutive semiannual installments from November 2020 with maturity date in November 2026 and accrues an interest rate equivalent to LIBO plus 1.04%.

 

Subsequently,On November 7, 2020, the Company received a disbursement for a total amount of US$8.5 million. This loan will be payable in 12 consecutive semiannual installments from May 2021 with maturity date in November 2018,2026 and accrues an interest rate equivalent to LIBO plus 1.04%.

On December 18, 2020, the Company used all the fundsreceived a disbursement for a total amount of US$7.7 million. This loan will be payable in 12 consecutive semiannual installments from Deutsche Bank Loan forMay 2021 with maturity date in November 2026 and accrues an interest rate equivalent to LIBO plus 1.04%.

As of December 31, 2020, an amount of US$ 30070.4 million remained unpaid (equivalent to prepay this Original Loan. The balance owed by the Company of US $ 100 million was canceled on February 11, 2019, with its own funds.$5,926).

 

DeutscheChina Development Bank Shenzhen Branch (“CDB”) Loan

 

On November 8, 2018,December 14, 2020, the Company acknowledgedagreed with CDB a compromised line of credit of up to RMB 700 million (equivalent to approximately US$100 million), that can be increased to RMB 1,400 million, structured in several tranches. The increase in the acceptanceamount will be subject to the granting of insurance by Deutsche Bank AG, London Branch, as organizerthe China Export & Credit Insurance Corporation.

The proceeds from the loan will be used by the Company to finance its investment plan related to the acquisition of telecommunications equipment.

On December 24, 2020, the Company subscribed a syndicatefirst tranche for a total of banks,RMB 19.6 million bearing an annual interest rate of 6.8% payable semi-annually. The principal will be cancelled in 11 semi-annual and consecutive installments from May 2023 to December 2027.

As of December 31, 2020, an amount of RMB 16.8 million remained unpaid (equivalent to $217).

Banco Macro Loan

On March 16, 2020 the Company subscribed a loan facilityagreement with Banco Macro S.A for a total amount of $4,000. Total principal will be settled by one payment at maturity date, which will be on September 16, 2021. The loan bears interest that will be paid in a quarterly basis from its issuance date until its maturity date at a variable annual rate equivalent to Badlar plus spread of 6.75%.

As of December 31, 2020, an amount of $4,045 remained unpaid.

Banco ICBC Loan

As a result of the merge between Telecom Argentina and Cablevisión, the Company assumed a loan agreement with ICBC S.A. for import financing for an amount of up to US$2005.2 million (which might be increased up to US$300 million). On November 14, 2018 the Company acknowledged the acceptance of the extension of the loan offer by Deutsche Bank AG, London Branch, for US$100 million.

The Deutsche Bank Loan has a term of 42 months counted from the date of the initial borrowing and will accrue compensatorythat accrues interest at an initialannual rate per annumof 6% and has semiannual interest maturities. The principal is amortized in 8 semi-annual installments from July 2018 maturing in January 2022.

As of December 31, 2020, an amount of US$1.97 million remained unpaid (equivalent to $166).

On the other hand, on April 13, 2020 the Company subscribed a loan agreement with Banco ICBC S.A for a total amount of $975. Total principal will be settled by one payment at maturity date, which will be on April 13, 2021. The loan bears interest in a monthly basis from its issuance date until its maturity date at a variable annual rate equivalent to LIBORBadlar plus 4.5% that will be payable quarterly, in arrears. The capital will be payable in six consecutive semi-annual equal installments equivalent to 12.5%spread of the disbursed amount with a final payment on the maturity date equivalent to 25% of the initial borrowing.9.75%.

 

As of December 31, 2020, an amount of $991 remained unpaid.

The proceeds from the Deutsche Bank Loan were used by the Company only to partially prepay the Syndicated LoanF-59.

TELECOM ARGENTINA S.A.

 

Banco Galicia Loan

On May 4, 2020 the Company subscribed a loan agreement with Banco Galicia S.A for a total amount of $2,000. Total principal will be settled by one payment at maturity date, which will be on April 29, 2021. The loan bears interest that will be paid in a quarterly basis from its issuance date until its maturity date at a variable annual rate equivalent to Badlar plus spread of 7.75%.

As of December 31, 2020, an amount of $2,129 remained unpaid.

Other bank loans

 

As of December 31, 2018,2020, the Company mantains othercancelled the following bank loans for:

 

a)US$4.5 million in    On January 7, 2020 the Company proceeded to the total cancellation of a loan agreement with the Bank ICBC for financing imports, accruing interest at an annual rateBanco Macro, by paying US$4.6 million (US$4.4 million of 6.0%, due in January 2022,principal and US$0.2 million of interest).

 

b)US$3.2 million in    On February 6, 2020 the Company proceeded to the total cancellation of a loan agreement with the BankBanco Itaú for financing imports, accruing interest at an annual rateby paying US$1.08 million (US$1.07 million of 5.0%, due in February 2020, principal and US$0.01 million of interest).

 

c)US$10.0 million in     On June 18, 2020 the Company proceeded to the total cancellation of a loan agreement with the Bank MacroBanco Galicia, by paying US$8.97 million (US$8.43 million of principal and US$0.54 million of interest).

Loans for financing imports accruing interest at an annual ratepurchase of 6.2%, due in August, 2019.equipment

 

NúcleoCisco Systems Capital Corporation

 

The Company has debt agreements with Cisco Systems Capital Corporation related to purchase equipment financing, amounting to US$83.1 million (of which US$33.6 million were received during 2020). Such agreements have an average maturity term of fifty months with partial repayments and accrue an average annual interest of 4%.

As of December 31, 2020, an amount of US$83.5 million remained unpaid (equivalent to $7,027).

Núcleo

Global Programs for the issuance of Notes

The Extraordinary Shareholders’ Meeting of Núcleo held on April 24, 2018 amended its bylaws in order to adapt them to the regulations of the securities market, becoming Núcleo in a Public Limited Company (SAE).

On January 4, 2019, Núcleo requested the National Securities Commission and the Stock and Products Exchange of Asunción to register the Global Issuance Program that foresees the issuance of Notes for an amount of up to 500,000,000,000 of Guaraníes (approximately $3,200 as of such date) under the conditions that are defined by the Board of Directors in each series.

On February 5, 2019, the National Securities Commission of Paraguay authorized the Program, under Resolution N° 11E/19.

Under such Program, Núcleo issued the following table showsSeries of Notes:

Series I

Issuance date: March 12, 2019.

Amount involved: 120,000,000,000 of Guaraníes (approximately $841 as of the outstandingdate of issuance).

Maturity Date: 60 months from its issuance date.

Amortization: Principal will be paid in one installment at maturity date (March 11, 2024).

Interest rate: It bears interest from its issuance date until its maturity date at a fixed annual rate of 9.00%.

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

Issuance date: March 28, 2019.

Amount involved: 30,000,000,000 of Guaraníes (approximately $210 as of the date of issuance).

Maturity Date: 60 months from its issuance date.

Amortization: Principal will paid in one installment at maturity date (March 26, 2024).

Interest rate: It bears interest from its issuance date until its maturity date at a fixed annual rate of 9.00%.

Interest Payment Date: Interest will be paid quarterly in arrears since issuance date. The last interest payment date will be the maturity date.

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TELECOM ARGENTINA S.A.

Series III

Issuance date: March 12, 2020.

Amount involved: 100,000,000,000 of Guaraníes (approximately $948 as of the date of issuance).

Maturity Date: March 11, 2025

Amortization: Principal will be paid in one installment at maturity date.

Interest rate: It bears interest from its issuance date until its maturity date at a fixed annual rate of 8.75%.

Interest Payment Date: Interest will be paid quarterly in arrears since issuance date. The last interest payment date will be at the maturity date.

As of December 31, 2020, an amount of Guaraníes 250,532,000,000 of Notes remained unpaid (equivalent to $3,005).

Bank Loans

As of December 31, 2020, Núcleo maintains loans with different local financingfinancial entities in Paraguayfor Guaraníes 225,600,000,000, equivalent to $2,707, which accrue interest at an average rate of 8.2% and their main terms ashave an average repayment term of December 31, 2018:4 years.

Principal nominal value (in
millions of Guaraníes)

Maturity

Amortization term

Rate (%)

Book value
(in millions of Argentine pesos)

 

 

 

 

Current

Non-current

40,000

December 2019

Semi-annually

8.75

253

-

308,000

February 2024

Semi-annually

8.20-9

158

1,793

348,000

 

 

 

411

1,793

 

The terms and conditions of Núcleo’s loans provide for certain events of default which are considered standard for these kinds of operations.

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TELECOM ARGENTINA S.A.

Global Programs for the issuance of Notes

Cablevisión

On April 20, 2016, at the Annual General Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión, the shareholders of Cablevisión approved, among other matters: i) the extension of the authorization of the Global Program for the Issuance of Notes (the “Program”), which had been granted at the Annual General Ordinary and Extraordinary Shareholders’ Meeting of Cablevisión on April 28, 2014, increasing the maximum amount of the outstanding notes that may be issued under this Program from a nominal value outstanding at any time of US$ 500,000,000 (or its equivalent in other currencies) to US$ 1,000,000,000 (or its equivalent in other currencies). The Shareholders’ Meeting renewed the delegation on the Board of Directors of the broadest powers in connection with the Program. The Board of Directors may subdelegate all or some powers interchangeably to one or more directors or managers of the Company; and ii) the extension of the authorization of the Short-Term Debt Securities (“VCPs”) program under the terms that had been originally approved.

On June 1, 2016, pursuant to its delegated powers, the Board of Directors of Cablevisión authorized the issuance of Class A Notes for a nominal value of US$ 500,000,000 (the “Class A Notes”), at a fixed annual nominal interest rate of 6.50%, interest payable semi-annually, with maturity in June 2021. Proceeds will be used for:

(i)The settlement of the outstanding debt as of that date;

(ii)The investment in fixed assets and other capital expenditures with the balance of the net proceeds (approximately US$ 89,100,000).

On October 30, 2017, within the framework of the merger between Cablevision and Telecom Argentina (Note 4.a), Cablevision called for an Extraordinary Noteholders’ Meeting in order to request its holders of Class A Notes, the amendment and/or removal of certain clauses (or parts there of) of the Indenture Agreement executed on June 15, 2016 between Cablevision, Deutsche Bank Trust Company Americas, Deutsche Bank S.A. and Deutsche Bank Luxembourg S.A.

On December 11, 2017, the holders of Class “A” Notes held an Extraordinary Noteholders’ Meeting with a quorum of 81.8621626 % of the total capital and votes under the Notes. At that Shareholders’ Meeting, the shareholders unanimously decided to approve the amendment and/or removal of certain clauses (or parts thereof) of the Indenture Agreement executed on June 15, 2016 between the Company, Deutsche Bank Trust Company Americas, Deutsche Bank S.A. and Deutsche Bank Luxembourg S.A.

As a result of the amendment of the Indenture referred to above, the Company’s covenants under the Notes include: (i) limitation on the issuance of guarantees by the Company and its subsidiaries; (ii) merger by acquisition and consolidation, (iii) limitation on incurring debt above certain approved ratios, and (iv) limitation on the issuance and sale of significant subsidiaries’ shares with certain exceptions, among others, certain clauses that restricted sales of assets under certain conditions, certain payments and related party transactions under certain circumstances and the distribution of dividends, were eliminated.

Cablevision Notes were assumed by the Company on January 1, 2018 due to the merger (Note 4.a).

For this purpose, Telecom Argentina, as successor of Cablevisión, the Deutsche Bank Trust Company Americas, as Trustee and Banco Comafi S.A., as trustee representative in Argentina, have signed a supplement to the Trust Agreement formalizing the absorption of the Notes of Cablevisión by Telecom Argentina.

Until December 31, 2018, the Company had repurchased approximately US$0.5 million (nominal value) of the Notes issued by Cablevisión. These transactions were executed at the quoted market price prevailing on each repurchase date, which did not significantly differ from the book value as of that date.

Telecom Argentina

On December 28, 2017, Telecom Argentina held an Ordinary Shareholders’ Meeting that approved a Notes Global Program for a maximum outstanding amount of US$3,000 million or its equivalent in other currencies. The delegation of powers in the Board of Directors was also approved to determine and modify the terms and conditions of the Program as well as to establish the issuance opportunities.

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TELECOM ARGENTINA S.A.

Under the aforementioned program, Telecom Argentina submitted a prospectus for the issuance of Notes to the CNV that was approved on April 24, 2018. Subsequently, on April 25, 2018, the CNV approved the prospectus supplement corresponding to the Notes. Class 1 for a nominal value of up to US$ 500,000,000 (extendable up to US$ 1,000,000,000). This supplement was extended several times, finally expiring on August 3, 2018.

In accordance with the provisions governing the placement mechanism of the Notes provided in the Prospectus Supplement, Telecom Argentina decided to temporarily suspend, until further notice, the period of placement of the Notes. Telecom Argentina will publish a complementary notice to the Prospectus Supplement, announcing the date on which the Offer Period will be resumed and the Award Date.

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.

Personal’s Ordinary Shareholders’ Meeting held on May 26, 2016 authorized to extend the due date and expand the Program’s maximum circulation amount up to US$1,000 million or its equivalent in other currencies.On October 20, 2016, the CNV authorized the extension and expansion of the mentioned Program through Resolution No. 18,277.

Under such Program, Personal issued four Series of Notes. The net proceeds obtained were used for debt refinancing.

Personal Notes were assumed by the Company on December 1, 2017 due to the Reorganization, Note 4.f.2).

As of the date of issuance of these consolidated financial statements, Telecom has canceled all Series issued on their respective expiration dates.

Loans for purchase of equipment

As of December 31, 2018, the Company has debt agreements corresponding to financing for the purchase of equipment of Cisco Systems, the which amounts to approximately US$57.3 million. Such contracts have an average maturity term of between 36 and 49 months with partial repayments and accrue an average annual interest of 4.81%.

 

NOTE 14 – 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.

The compensations policies for Directors and Managers of Telecom and its subsidiaries and its subsidiaries have a scheme that includes fixed and variable components. While fixed compensations are dependent upon the level of responsibility required for the position and its market competitiveness, variable compensations are driven by the goals established on an annual basis and also by the fulfillment of long and medium term goals.

The Company and its subsidiaries have no stock option plans for their employees.

Salaries and social security payables consist of the following:

As of December 31,

As of December 31,

Current

2018

2017

20202019

Salaries, annual complementary salaries, vacation and bonuses

4,371

1,677

Social security payables

1,280

907

Salaries, annual complementary salaries, vacation, bonuses and their
social security payables
13,63412,552

Termination benefits

296

1

702981

5,947

2,585

14,33613,533

Non-current

 

 

 

Termination benefits

347

-

8401,172

347

-

8401,172

Total salaries and social security payables

6,294

2,585

15,17614,705

 

Compensation for the Key Managers of Telecom for the years ended December 31, 20182020, 2019 and 20172018 are shown in Note 27.e).

 

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TELECOM ARGENTINA S.A.

NOTE 15 – DEFERRED INCOME TAX ASSETS/LIABILITIES

 

Deferred Income tax assets and liabilities, net and the actions for recourse tax receivable of Telecom are presented below:

 As of December 31,
 20202019
Tax carryforward(11,467)(11,695)
Allowance for doubtful accounts(2,909)(2,061)
Provisions(1,472)(2,082)
PP&E and Intangible assets74,10470,687
Cash dividends from foreign companies588701
Income tax inflation adjustment effect21,34016,808
Other deferred tax liabilities (assets), net(40)(23)
Total deferred tax liabilities, net80,14472,335
Actions for recourse tax receivable(882)(1,185)
Total deferred tax liability, net(*)  79,26271,150
   
Net deferred tax assets(412)(399)
 Net deferred tax liabilities79,67471,549

 

 

As of December 31,

 

2018

2017

Tax carryforward

(2,866)

(4)

Allowance for doubtful accounts

(925)

(269)

Provisions

(1,062)

(396)

Inventory

(153)

-

Pension and termination benefits

(235)

-

PP&E and Intangible assets

29,788

4,690

Cash dividends from foreign companies

418

-

Mobile handsets financed sales

169

-

Other deferred tax liabilities (assets), net

148

(105)

Total deferred tax liabilities, net

25,282

3,916

Actions for recourse tax receivable

(818)

-

Total deferred tax liability, net

24,464

3,916

 

 

 

Net deferred tax assets

(78)

(66)

Net deferred tax liabilities

24,542

3,982

(*) Includes $82 of currency translation adjustments on foreign subsidiaries’ initial balances.

 

As of December 31, 2018,2020, the Company and some subsidiaries have a cumulative Tax carryforward of approximately $9,554, which$45,866, that calculated considering statutory income tax rate, represent a deferred tax asset of approximately $2,866. Telecom and its subsidiaries estimate that non-recoverable cumulative Tax carryforward amounted to $0.4 as of that date.$11,467. 

 

Following, theThe detail of the maturities of estimated Taxtax carryforward is disclosed:

 

Company

Tax carryforward
generation year

 

Tax carryforward amount
as of 12.31.2018

 

Tax carryforward
expiration year

Tax carryforward
generation year
Tax carryforward amount
as of 12.31.2020
Tax carryforward
expiration year

Inter Radios

2015

 

8

 

2020

201732022

Pem

2016

 

1

 

2021

Inter Radios

2017

 

1

 

2022

201822023
Telemás (*)20194482024
Micro Sistemas2020202025

Telecom Argentina

2018

 

9,540

 

2023

201821,3682023

Inter Radios

2018

 

4

 

2023

Telecom Argentina201919,2752024
Telecom Argentina20204,7502025

 

 

9,554

 

 

 45,866 

(*) This company is consolidated in the financial statements of Adesol. 

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TELECOM ARGENTINA S.A.

 

Income tax benefit (expense) consists of the following:

 

Years ended December 31,

 

2018

2017

2016

 

 

Profit (loss)

 

Current tax expense

-

(4,819)

(4,405)

Deferred tax benefit

2,838

(697)

(1,610)

Income tax benefit (expense)

2,838

(5,516)

(6,015)

Income tax benefit (expense) differed from the amounts computed by applying the Company’s statutory income tax rate to pre-tax income as a result of the following:

 

 

Years ended December 31,

 

2018

2017

2016

 

 

Profit (loss)

 

Pre-tax income

2,698

15,375

16,561

Non-taxable items - Earnings from associates

(236)

(353)

(221)

Non-taxable items – Other

29

(114)

(57)

Subtotal

2,491

14,908

16,283

Weighted statutory income tax rate (*)

 

 

 

Income tax expense at weighted statutory tax rate

(747)

(5,218)

(5,699)

Tax carryforward prescription

-

33

31

Changes in tax rates

-

(272)

(45)

Actions for recourse

44

-

-

Income tax on cash dividends of foreign companies

(64)

-

-

Inflation effect

3,605

(59)

(302)

Income tax benefit (expense)

2,838

(5,516)

(6,015)

(*) 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 2017, is 30% for the years 2018-2019 and will be 25% for the year 2020 and onwards (see Note 3.o). In Paraguay is 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 2017 and 2016 and 26.5% for 2018 onwards.

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TELECOM ARGENTINA S.A.

 Years ended December 31,
 202020192018
 Profit (loss)
Pre-tax income3,14713,9975,651
Non-taxable items – (Earnings) losses from associates(496)255(494)
Non-taxable items – Costs valuation differences of foreign investments(6,570)(14,353)-
Non-taxable items – Other(1,501)(1,081)(580)
Restatement in current currency of Equity, goodwill and other62,18799,30775,459
Subtotal56,76798,12580,036
Weighted statutory income tax rate24.59%26.14%25.37%
Income tax expense at weighted statutory tax rate(13,958)(25,655)(20,303)
Deferred tax liability restatement in current currency and other20,69827,02326,287
Income tax inflation adjustment(14,842)(20,685)-
Actions for recourse127192
Income tax on cash dividends of foreign companies(161)(44)(133)
Income tax (expense) benefit(8,251)(19,290)5,943
    
Current tax expense(241)(218)-
Deferred tax (expense) benefit(8,010)(19,072)5,943
Income tax (expense) benefit(8,251)(19,290)5,943

 

Income tax - Actions for recourse filed with the Tax Authority

 

Section 10 of Law No. 23,928 and Section 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 determined its income tax obligations in accordance to those provisions, without taking into accountconsidering 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 verdict in the “Candy”"Candy" case July 3, 2009 in which it stated that particularly for 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 criterion to the 2010, 20112011. 2012 and 20122014 fiscal years in the cases brought by “Distribuidora Gas del Centro” (10/14/14, 06/02/15, 10/04/16 and 06/25/19), among others, enabling the application of income tax inflation adjustment for periods not affected by a severe economic crisis such as 2002.

 

According to the above-mentioned new legal background that the Company took knowledge during 2015, and after making the respective assessments, Telecom Argentina filed during 2015 2016, 2017 and 2018to 2020 actions for recourse with the AFIP to claim the full tax overpaid for fiscal years 2009, 2010, 2011, 2012, 2013, 2014 and 20132015 for a total amount of $722approximately $1,261 plus interest, under the argument that the lack of application of the income tax inflation adjustment is confiscatory.

 

AsOn September 24, 2019 Telecom was notified of the date of issuance of these consolidated financial statements,resolutions dated September 12, 2019 and August 30, 2019 in which the AFIP has rejected the actions for recourse corresponding to fiscal years 2009 and 2010 respectively. Also, on November 11, 2019 Telecom was notified of the resolutions dated October 29, 2019 in which the AFIP has rejected the actions for recourse corresponding to fiscal years 2011 and 2012. According to this, on October 15, 2019 and on December 3, 2019, Telecom filed are pendingfour actions for recourse before the National Court of resolution byFirst Instance, since the Tax Authority. However, the Company’sCompany's Management, with the assessmentassistance of its tax advisor, considersadvisors, understands that the arguments presented in those recourse actionsby the Company follow the same criteria as the one establishedthose considered by the Argentine Supreme Court of Justice jurisprudence mentioned above,Argentina in similar precedents, among others, which should allowothers. Therefore, the Company toshould obtain a favorable resolution of actions of recourse filed.to such claims.

 

Consequently, the income tax determined in excess qualifies as a tax credit in compliance with IAS 12 and the Company recorded a non-current tax credit of $818$882 as of December 31, 2018.2020. For the measurement and update of the tax credit, the Company has estimated the amount of the tax determined in excess for the years 2009-2017 weighting the likelihood of certain variables according to the jurisprudential antecedents known until such date.as of the date of these consolidated financial statements. The Company’s Management will assess Tax Authority’s resolutions related to actions of recourse filed as well as the jurisprudence evolution in order to, at least annually, remeasure the tax credit recorded.

 

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TELECOM ARGENTINA S.A.

NOTE 16 –TAXES PAYABLES

 

Taxes payables consist of the following:

As of December 31,

As of December 31,

Current

2018

2017

20202019

Income tax (*)

12

2,122

6648

Other national taxes

676

475

2,8873,491

Provincial taxes

1,451

34

407409

Municipal taxes

180

112

379562

2,319

2,743

3,7394,510

Non- current

 

 

  

Other national taxes

-

4

Provincial taxes

26

-

519

26

4

519

Total taxes payables

2,345

2,747

3,7444,529

 

(*) Include 2 corresponding to Tax Regularization Regime - Law No. 26,476The breakdown is as of December 31, 2018.follows:

 

 As of December 31,
 20202019
Núcleo568
Adesol738
AVC Continente Audiovisual21
Cable Imagen11
 (a)        6648

Information on the composition of Income tax benefit (expense) included in the consolidated financial statements is disclosed Note 15.

(a)Includes $9 corresponding to currency translation adjustments of initial foreign subsidiaries balances.

 

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TELECOM ARGENTINA S.A.

 As of December 31,
Current20202019
Argentina3,0683,194
Abroad268399
 3,3363,593
Non- current  
Argentina6,1194,107
Abroad847892
 6,9664,999
Total lease liabilities10,3028,592

 

NOTE 1718 – OTHER LIABILITIES

 

Other liabilities consist of the following:

·revenues received from connection fees for fixed telephony, cable television, data and Internet, nonrefundable;

·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;

·the advanced collection of construction projects;

·deferred revenue from government subsidies for the acquisition of PP&E;

·pension benefits; and

·any liability not included in the other liability items.

 

As of December 31,

Current

2018

2017

  Deferred revenues on prepaid calling cards

710

30

  Deferred revenues on connection fees and international capacity leases

76

117

  Deferred revenues on construction projects

322

-

  Mobile customer loyalty programs

173

-

  Compensation for directors and members of the Supervisory Committee

47

-

  Companies under sect. 33 – Law No. 19,550 and Related Parties (Note 27.c)

-

4

  Other (*)

209

1

 

1,537

152

Non-current

 

 

  Deferred revenues on connection fees and international capacity leases

254

198

  Pension benefits (Note 3.m)

245

-

  Mobile customer loyalty programs

280

-

  Other (*)

380

-

 

1,159

198

Total other liabilities

2,696

350

(*) Includes deferred revenue from subsidiaries for government subsidies for the acquisition of PP&E.

 As of December 31,
Current20202019
  Deferred revenues on prepaid credit1,112967
  Deferred revenues on connection fees and international capacity leases409423
  Deferred revenues on construction projects-50
  Customer loyalty programs4391
  Compensation for directors and members of the Supervisory Committee14105
  Companies under sect. 33 – Law No. 19,550 and Related Parties (Note 27.c)33
  Other520313
 2,0622,252
Non-current  
  Deferred revenues on connection fees and international capacity leases400517
  Pension benefits (Note 3.m)422446
  Mobile customer loyalty programs-641
  Other334467
 1,1562,071
Total other liabilities3,2184,323

 

Movements in the pension benefits are as follows:

 

Years ended December 31,

2018

2017

At the beginning of the year

-

-

Incorporation by merger (Note 4.a)

316

-

Service cost (*)

23

-

Interest cost (**)

72

-

Payments (***)

(166)

-

At the end of the year

245

-

 Years ended December 31,
 20202019
At the beginning of the year446512
Service cost (*)3639
Interest cost (**)236182
Actuarial results (***)(135)(64)
Uses (****)(161)(223)
At the end of the year422446

 

(*) Included in Employee benefit expenses and severance payments.

(**) Included in Other Financial expenses, net.

(***) Included in Other comprehensive income.

(****) Include (158) corresponding to RECPAM.RECPAM and ($1) and ($2) paid as of December 31, 2020 and 2019, respectively.

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NOTE 1819 – PROVISIONS

 

Telecom and its subsidiaries are parties 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 achieved 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.

 

Provisions consist of the following:

 

 

 

Balances
as of
December
31, 2017

 

Incorporation
by merger
(Note 4.a)

 

Additions

 

 

Reclassifications

Decreases

 

Balances
as of
December
31, 2018

 

 

 

 

Capital

 

Interest
(i)

Current

 

 

 

 

 

 

 

Provisions

-

599

402

-

1,745

(2,002)

744

Total current provisions

-

599

402

-

1,745

(2,002)

744

Non- Current

 

 

 

 

 

 

 

Provisions

1,263

1,854

864

732

(1,741)

-

2,972

Asset retirement obligations

348

547

48

(128)

(4)

(315)

496

Total non-current provisions

1,611

2,401

912

604

(1,745)

(315)

3,468

 

 

 

 

 

 

 

 

Total provisions

1,611

3,000

(ii) 1,314

604

-

(2,317)

4,212

 

 

Balances as
of
December
31, 2019

Additions


 Decreases (iii)

 

Balances
as of
December 31, 2020

 

 

 

 

Capital

(i)

 

Interest
(ii)

Reclassifica-tions
Current      
Provisions1,6222,299-1,093(3,397)1,617
Total current provisions1,6222,299-1,093(3,397)1,617
Non- Current      
Provisions5,440711672(1,093)(1,250)4,480
Asset retirement obligations8612,261244-(384)2,982
Total non-current provisions6,3012,972916(1,093)(1,634)7,462
       
Total provisions7,9235,271916-(iv) (5,031)9,079

(i)$3,003 charged to Other operating expenses, $2,261 charged to Rights of use assets and $7 charged to Other comprehensive income.
(ii)Charged to finance costs, net - Other interests, net and other investments results.
(iii)Includes RECPAM.
(iv)Includes ($3,014) of provisions payments and ($113) reclassified to other receivables.

 

(i)Charged to finance costs, net, interest for provisions line item.

 

 

Balances as
of
December
31, 2018

Additions


 Decreases (iii)

 

Balances
as of
December 31, 2019

 

 

 

 

Capital

(i)

 

Interest
(ii)

Reclassifica-tions
Current      
Provisions1,557321-   1,374(1,630)1,622
Total current provisions1,557321-   1,374(1,630)1,622
Non- Current      
Provisions6,2241,5992,157(1,374)(3,166)5,440
Asset retirement obligations1,03975259-  (512)861
Total non-current provisions7,2631,6742,416(1,374)(3,678)6,301
       
Total provisions8,8201,9952,416-   (viii)  (5,308)7,923

(ii)Charged $1,254 to Other operating income and expenses and $60 to currency translation adjustments.

(i)$1,751 charged to Other operating expenses, $75 charged to Rights of use assets, $176 reclassified from accounts payable and ($7) charged to Other comprehensive income.
(ii)Charged to finance costs, net - Other interests, net and other investments results.
(iii)Includes RECPAM.
(iv)Includes ($1,362) of provisions payments.

 

 

Balances

as of
December
31, 2016

Additions

Decreases

 

 

Balances

as of
December
31, 2017

 

 

 

 

Capital

 

Interest
(iii)

Non- Current

 

 

 

 

 

Provisions

1,073

348

78

(236)

1,263

Asset retirement obligations

337

11

-

-

348

Total non-current provisions

1,410

359

78

(236)

1,611

 

 

 

 

 

 

Total provisions

1,410

(iv)  359

78

(v)  (236)

1,611

(iii)Charged to finance costs, net, interest for provisions line item.

(iv)Charged to Other operating income and expenses.

(v)Include 90 corresponding to RECPAM.

1.Probable Contingent liabilities

1.Probable Contingent liabilities

 

Below is a summary of the most significant claims and legal actions for which the Company, based on the advice of its legal counsel and the judicial background for each claim, has recorded provisions, have been established:that considered enough:

 

a)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.

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TELECOM ARGENTINA S.A.

 

SaidSuch 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.

 

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 “Parota 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 “Parota, César c/ Estado Nacional”, as a result of a complaint filed against Telefónica, 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, 2018, 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 issuance of these consolidated financial statements.

 

Federación Argentina de las Telecomunicaciones and others against Telecom Argentina S.A. in relation to worker shareholding participation

 

Additionally, onIn 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 unspecifiedundetermined 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.the Company.

 

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In June 2013, theThe Company filed its answer to the claim, arguing that the labor courts lack of jurisdiction. OnIn October 30, 2013, the judge rejected the lack of jurisdiction plea, established a ten yearten-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.

 

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TELECOM ARGENTINA S.A.

In 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.

 

OnIn December 20, 2017, the Court of First Instance on Labor Matters No. 19 dismissed the claim on the grounds that the claimant lacks of active legitimization because it is an individual claim, not a collective one. The claimant filed an appeal, which is pending before Chamber 7 of the Court of Appeals. In June 2019, the Court of Appeals revoked the decision rendered by the Court of First Instance and ordered that the file be submitted to the Court of First Instance for the initiation of discovery proceedings.

 

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.

 

b)Former sales representative claims of Personal and Nextel

Former sales representatives of Personal and Nextel 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. The Company´s Management 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 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.

 

The Company’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 the Company’s results and financial position.

c)Regulator’s Penalty Activities

c)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 has generated to Telecom Argentina.

 

In determiningOn March 3, 2021, the provisions“Sanctions Regime applicable to ICT Services” was approved through ENACOM Resolution No. 221/21. The mentioned Resolution, among others, provides: (i) the penalty reference unit as the PBU-SBT value effective as of the date of payment, (ii) a maximum penalty equivalent to 50,000 PBU-SBT and a minimum penalty equivalent to 50 PBU-SBT, (iii) the publication of the penalties imposed in media and/or institutional website; and (iv) the possibility of imposing daily penalties for regulatory charges and sanctions,every day of non-compliance. As of the Telecom Argentina’s Management, withdate of these consolidated financial statements, the assessmentCompany is analyzing the impact 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.this new regulation.

 

Telecom Argentina has recorded 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, 2018. 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 $62 as of December 31, 2018.

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d)Task Solutions against/ Telecom Personal S.A. S/ Ordinario and Task Solutions against/Telecom Argentina S.A. S/ Ordinario

 

Task Solutions S.A., a company whose main activity was the contact center, promoted a lawsuitlawsuits against Telecom Argentina and Telecom Personal, claiming thea total amount of 408,721,835 Argentine pesos$408,721,835 for damages and losses suffered during the contractual relationship between those companies, as well as the non-renewal of the relationship between them. Task Solutions S.A. maintains that its only contractual relationship was with the defendant companies and that the non-renewal of their relationship caused its cessation of payments. OnIn August 27, 2018, the claims wereCompany answered the facts andclaims denying the compensation claimed were denied and the Company requestedrequesting the unconstitutionality of the punitive damages claimed. The

On the other hand, the Company reproved the amounts already paid to third parties in relation to labor items. Likewise, a claim was made for the amounts that eventually will have to be paid for that same concept in the future. Such estimation may be modified in relation to the proof that is produced in the case.

 

As ofIn December 31, 2018, theTask Solutions was declared bankrupt.

The Company’s Management, with the assistanceadvice of its legal advisors, has established provisionscounsel, believes that it considers sufficient to cover the risks arising from the judgments indicated, taking into account thehas strong arguments and jurisprudential background available at the date of issuance of these consolidated financial statements.for its defense.

 

2.Possible Contingencies

2.Possible Contingencies

 

In addition to the possible contingencies related to regulatory matters described in Note 2 d) and in the last paragraph of section “Regulator’s Penalty Activities” previously mentioned, is, a summary of the most significant claims and legal actions for which no provisions have been established is detailed below, although it cannot be ensured the final outcome of these lawsuits:

 

a.RadioelectricRadio-electric Spectrum Fees

 

In October 2016 Personal modified the criteria used for the statement of some of its commercial plans (“Abono fijo”) for purposes of paying the radioelectricradio-electric spectrum fees (derecho de uso de espectro radioeléctrico or “DER”), taking into accountconsidering certain changes in such plans’ composition. This meant a reduction in the amount of fees paid by Personal.

 

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TELECOM ARGENTINA S.A.

In March 2017, the ENACOM demanded Personal to rectify its statements related to October 2016, requiring that such plans’ statements continue to be prepared based on the previous criteria. Personal’sA similar demand took place in September 2018, for subsequent periods. The Company’s Management believesconsiders that it has strong legal arguments to defend its position, which are actually confirmed by Resolution ENACOM No. 840/18. On August 15, 2017, Personal received18 and, as a note for the differences owed, and on August 31, 2017consequence presented, the corresponding administrative note.notes. In August 2017, Personal received the notice of charge for the differences in the amounts owed in connection with the payment made in October 2016. Notwithstanding the grounds disclosed in its response, in April 2019, ENACOM imposed a sanction on the Company due to the non-compliance alleged for that period. The Company filed the corresponding administrative response. However, itthe company cannot be assuredassure that suchits arguments will be accepted by the ENACOM.

 

The difference resulting since October 2016, from both sets of liquidation criteria is of approximately $717 plus interestsinterest as of December 31, 2018.2019.

 

On February 27, 2018, Resolutions Nos. 840/18 and No. 1,196/18 were published in the Official Gazette. Through these Resolutions, the ENACOM updated the value of the RadioelectricRadio-electric Spectrum Fee per Unit and, in addition, it established a new regime for mobile communications services, which substantially increasesincreased the amounts to be paid in this regard.

 

As of the date of issuance of these consolidated financial statementsOpportunely, Telecom has submitted the rectifying affidavits corresponding to the months of March and April 2018 (due in April and May 2018), and has paid (under protest) the respective amounts. It also started to comply with, as from September 2018, the filing and payment (under protest) of the corresponding affidavits.

 

Through Resolution ENACOM No. 4,266/19 issued on October 8, 2019, the basis for calculating the Radio-electric Spectrum Fees corresponding to the Mobile Communications Services (SRMC, STM, PCS and SCMA) was modified based on the Affidavits that expires after the date of issuance of the Resolution. Such modification represents a reduction in the applicable rate for payment of DER for these services.

b.“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.

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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 Section 52 bis of Law No. 24,240.

 

Personal responded in a timely manner, arguingdismissed the grounds by which the lawsuit should be dismissed,claim with particular emphasis on the regulatory framework that explicitly endorses Personal’sits practices, now challenged by the plaintiff in disregard of such regulations.

 

This claim is at a preliminary stage as of the date of issuance of these consolidated financial statements. However, the judge has ordered the accumulation of this claim with two other similar claims against Telefónica Móviles Argentina S.A. and AMX Argentina S.A. So, the three legal actions will continue within the Federal Civil and Commercial Court No. 9.

 

In connection with this lawsuit,On the other hand, the Secretariat of Commerce canceled the registration of CONSUMIDORES FINANCIEROS ASOCIACIÓN CIVIL PARA SU DEFENSA,“Consumidores Financieros Asociación Civil para su defensa”, therefore, the Company is awaiting the resolution of the intervening court.

 

The plaintiffs are seeking damages for unspecifiedundetermined amounts. Although the Company believes there are strong defenses according to which the claim should not succeed, in the absence of jurisprudence on the matter, the Company’s Management (with the advice of its legal counsel) has classified the claim as possible until a judgment is rendered.

 

c.Lawsuit against Personal“Proconsumer” lawsuit 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 to certain customers – Abono Fijo - of an amount of a period of two months since the alleged inconsistencies of the plaintiff.

 

The Company’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.

The Company answered the complaint and made a proposal that was rejected by the Supreme Court of Justice of the Nation, which ordered that the case continued in commercial courts. The cause was open to trial and the parties are producing the evidence offered.

 

The Company’s Management considers that there are strong arguments forsettlement agreement reached by the favorable resolution of thisparties to put an end to the lawsuit but, in the event it is resolved unfavorably, it would not have a significant impactwas confirmed on Telecom’s results and financial position.October 8, 2020.

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TELECOM ARGENTINA S.A.

 

d.Proceedings related to value added services - Mobile contents

 

OnIn 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 punitive damages to Personal.

 

This claim is substantially similar to other claims made by athe consumer association (Proconsumer) where collective representation of customers is also invoked. As of the date of issuance of these consolidated financial statements, this claim with undetermined amounts is at preliminary stage since the demand notifications of everyone involved have not yet been finalized.

 

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, Telecom believes to have strong arguments for its defense in these lawsuits.defense. However, given the absence of jurisprudential precedents, the final outcome of these claims cannot be assured.

 

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e.Claims of some Content Providers to the Company

 

In the framework of the general reorganization of the content business started out by Personal in 2016, and given the expiration of agreements with content providers, some of the latter have been notified that such agreements will not be renewed.

 

By virtue of that communication, four of thosesome companies initiatedrequired and obtained in court, precautionary measurespreliminary injunctions against Personal, in order to avoid that the duly notified decision of not renewing the agreements, be effective, and thus, forcing Personal to refrain from disconnecting or interrupting the contractual relationship onrelationship. As of the scheduled dates.date of these consolidated financial statements, there are no preliminary injunctions in force.

 

OnIn February 24, 2017, the ENACOM notified Personal the Resolution 2017-1122-APN-ENACOM # MCO (Resolution No. 1,122), which set out that Mobile Operators providers of audiotext and mass calling Value Added Services may receive, in every respect, a percentage that should not exceed 40% of the services invoiced on behalf and to the order those providers. In addition, the Resolution setsset forth a 30-day period to file under the ENACOM the interconnection contracts or the addenda to the existing ones, that ensure adjustments to the contracts already in force and with relation to the services rendered by the members of CAVAM.

 

On March 22, 2017, Personal’s Management, with the assistance of its legal advisors and due to its solid grounds, filed an administrative appeal againstIn July 2019, ENACOM provided through Resolution No. 1,122 before the former Ministry of Communications. In addition, Personal has brought legal actions2019-2540-APN-ENACOM#JGM to safeguard its rights.

On the other hand, it should be noted that the Company has renewed the commercial agreements with mostterminate Resolution No. 1,122/17 of the providersRegister of these contents, which are still in force.

On September 29, 2017, the ENACOM notified Personal with ENACOMNational Communications Entity and Resolution No. 2,408/17, whereby it rejected the reconsideration appeals filed by Movistar and Claro against Resolution No. 1,122, and the suspension of the effects of said resolution requested by Personal, Movistar and Claro. In addition, in the same act, it rejected the reconsideration appeal filed by Personal against ENACOM Note No. 29/17 (in connection with the supplier MOVICLIPS). The appeal filed by Personal against Resolution No. 1,122 with the former Ministry of Communications is still pending resolution.184-SC / 1997.

 

f.“Asociación por la Defensa de Usuarios y Consumidores against/Telecom Personal S.A.” claim

 

In 2008 the “Asociación por la Defensa de Usuarios y Consumidores” sued Personal, seeking damages for unspecifiedundetermined amounts, claiming the billing of calls to the automatic answering machine and the collection system called “send"send to end”end" in collective representation of an undetermined number of Personal customers. The claim is currently about to dictate sentence.render judgment.

 

In 2015 the Company took knowledge of an adverse court ruling in a similar trial, promoted by the same consumersconsumer’s association against other mobile operator. Currently it is pending of judgment.

 

The Company’sCompany's Management, with the advice of its legal counsel, believes that it has strong arguments for its defense, but given the new jurisprudential precedent,defense. However, the outcome of this claim cannot be ensured.

 

g.Claims by Trade Unions for Union Contributions and Payments

 

The unions FOEESITRA, SITRATEL, SILUJANTEL, SOEESIT, FOETRA, SUTTACH and the Union of telephony workers and employees of Tucumán (Sindicato de Obreros y Empleados Telefónicos de Tucumán) filed 7 legal actions against Telecom Argentina claiming the union contributions and payments set forth in the respective Collective Bargaining Agreements (“CBA”) corresponding to the third party employees rendering services to Telecom Argentina,the Company, for the not prescribed term of 5 years, plus the damages caused by the lack of payment of such items. The items claimed are the Special Fund and the Solidarity Contribution.

 

The unions mentioned sustain that Telecom Argentina is jointly liable for the payment of the above-mentioned contributions and payments, based on the provisions of sections 29 and 30 of the Labor Contract Law and the nonperformance of the CBA as to its obligation to inform the Union on the hiring of third parties.

All claims were answered and procedural terms are suspended. answered.

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In all cases, new hearings were appointed in the termsaction brought by FOEESITRA, the judge of art. 80 andfirst instance rejected the summons to third parties requestedmade by Telecom. An appeal has been filed against that decision.

In the action brought by FOETRA, the Court of Appeals revoked the decision rendered by the court of first instance that had declared the incompetence. The judge of first instance must render a new suspensiondecision on the exceptions filed by Telecom.

The other claims have been suspended at the request of terms as a result of possible extrajudicial negotiations. the parties.

The suitslawsuits are for an undetermined amount.

 

AlthoughThe Company's Management, with the Company’s management considersadvice of its legal counsel, believes that there areit has strong arguments for these actions to be decided on its favor, as there is no case law infavorite results, but since the matter, no assurance can be given onlack of jurisprudential precedent, the final outcome of these claims.this claim cannot be ensured.

 

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h.Asociación por la Defensa de Usuarios y Consumidores v. Cablevisión on expedited summary proceeding:

 

TELECOM ARGENTINA S.A.

h.Claim for damages between Supercanal Holding S.A. and Cablevisión

Multicanal has filed several legal actions seeking the nullity of: i) all the ordinary shareholders’ meetings held by Supercanal Holding S.A. from the year 2000 until February 2018; and ii) the sureties granted by Supercanal S.A. securing bank loans granted exclusively for the benefit of the controlling group of Supercanal Holding S.A. (Grupo Uno S.A. and its affiliates). In addition, a legal action was filed seeking the dissolution and liquidation of Supercanal Holding S.A. together with a legal action seeking the removal of all the members of the Board of Directors and the Supervisory Committee and the dissolution of Supercanal Capital N.V. Supercanal Holding S.A. On March 29, 2000 Supercanal Holding S.A. filed for concurso preventivo (judicial restructuring proceedings) with National Court of First Instance on Commercial Matters No. 20, Clerk’s Office No. 40, and the proceedings began on March 27, 2001.

Upon the revocation of an injunction initially granted in favor of Multicanal S.A. in the case entitled “Multicanal S.A. c/Supercanal Holding S.A. s/sumario”, where it sought to nullify the January 25, 2000 Extraordinary Shareholders’ Meeting of Supercanal Holding S.A. where it was resolved to reduce the capital stock of Supercanal Holding S.A. to 12,000 Argentine pesos and a subsequent increase thereof to 83,012,000 Argentine pesos, Multicanal S.A. was notified on December 12, 2001 of the filing by Supercanal Holding S.A. of a claim for the damages allegedly caused to it by the issue of the injunction that was subsequently revoked. The alleged damage is that the suspension of the effects of the meeting of January 25, 2000 would have led Supercanal Holding S.A. to suspend payments. Multicanal S.A. answered to such claim by denying all liability on the grounds that Supercanal Holding S.A.’s inability to pay its obligations when due had begun before the date of the suspension of the shareholders meeting according to documentation provided by the plaintiff itself. Furthermore, the suspension of the meeting did not prevent the capitalization of Supercanal Holding S.A. through other alternative means. Based on the factual and legal findings of the case, Cablevisión, as Multicanal’s continuing company considers that the claim should be rejected in its entirety, and that the legal costs should be borne by the plaintiff. The case is in the discovery period. In addition, the court of First Instance has dismissed Supercanal Holding S.A.’s request that it be allowed to sue without paying court fees or costs and that decision has been confirmed by the National Court of Appeals.

On June 15, 2018, Telecom Argentina, Grupo Clarín, Supercanal and América TV executed a settlement agreement in order to terminate the claims existing among the parties. Those companies executed a framework agreement whereby, among other issues, América TV expressly waived its claim for the exhibition of its signals “América TV” and “A24” in Cablevisión’s (now Telecom Argentina’s) programming grid, waiving its right to bring any claims in that regard and recognizing that it has nothing to claim against Telecom Argentina for any other cause as of the date of the agreement. In addition, a share transfer agreement was executed whereby Telecom Argentina -in its capacity as successor of Cablevisión-absorbing company of Multicanal- assigned in favor of Supercablecanal S.A. the shares- and all the rights inherent to them- it holds and owns in Supercanal and Supercanal Holding S.A. as of the date of execution of the agreement. Pursuant to the settlement agreement, the parties have agreed that all costs of the proceedings shall be borne by Supercanal S.A.

i.Asociación por la Defensa de Usuarios y Consumidores v. Cablevisión on expedited summary proceeding:

On November 29, 2018 the Company was notified of a lawsuit initiated by the Asociación por la Defensa de Usuarios y Consumidores, requesting that the defendant 1) cease to prevent customers to rescind Internet and cable TV services at the time of request; 2) reimburse to each user the amounts collected for the period of 5 years and until Cablevisión fulfills the request mentioned in 1); and 3) pay punitive damages for each of the affected customers.

 

OnIn December 19, 2018, the Company filed a response. In its plea, it requested the extension of the period of the statutes of limitation (biennial term) and the declaration of the lack of standing to sue of the association. Likewise, the Company argued that the class to be represented had not been established and that it had not contravened the Antitrust Law and gave a detailed description of the termination procedure used by Cablevisión highlighting its compliance with ArticlesSections 10 ter and 10 quater of saidsuch law. It also challenged the application of the punitive damages claimed by the plaintiff and the Company also produced documentary evidence. It requested that the claim be rejected in its entirety, and that the legal costs be borne by the plaintiff.

 

The probabilitylawsuit is for an undetermined amount.

The Company, with the advice of occurrenceits legal counsel, considers that it has strong arguments for its defense. However, the outcome of this claim cannot be ensured.

i.Claim “Unión de Usuarios y Consumidores y otro c/Telecom Argentina S.A.”

On September 3, 2019, Telecom (as surviving company of Cablevisión) was notified of a lawsuit initiated by “Unión de Consumidores y Consumidores” and “Consumidores Libres Cooperativa Ltda. de Provisión de Servicios de Acción Comunitaria”, pending before the Commercial Court of First Instance No. 9, Secretariat No. 17, for undetermined amounts.

In the class action, the claimants requested the Company to credit to its subscribers the increases of September and October 2018, January 2019 and the increases that may be made for as long as the claim remains pending for Internet services, subscription broadcasting services, other technology information and communication services and other supplementary services (all of those services provided under the brands Cablevisión and Fibertel), plus interest until the date of the lawsuit has been deemed as possibleeffective restitution. The claimants allege that the Company infringed certain provisions set forth under the TIC and Communication Services Customers Regulation and Law No. 24,240 related to the terms and the amount has still not been set yet.way in which subscribers shall be notified of changes in the prices of those services.

 

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TableThe Company, based on the advice of Contentsits legal counsel, considers that it has strong arguments for its defense. However, the final outcome of this claim cannot be assured.

 

TELECOM ARGENTINA S.A.

j.Resolution No. 50/10 and subsequent ones of the Secretariat of Domestic Trade of the Nation (“SCI”)

 

SCI Resolution No. 50/10 approved certain rules for the sale ofto commercialize pay television services. These rules provide that cable television operators must apply a formula to calculate their monthly subscription prices. The price arising from the application of the formula was to be informed to the Office of Business Loyalty (Dirección de Lealtad Comercial) between March 8 and March 22, 2010,, having cable television operators to adjust such amount semi-annually and informinforming the result of such adjustment to such Office.

Even though as of the date of issuance of these consolidated financial statements, the The Company cannot assure the actual impact of the application of this formula, given the vagueness of the variables provided byfiled an administrative appeal against Resolution No. 50/10 to calculate the monthly subscription prices, the Company believes that such Resolution is arbitrary and bluntly disregards its freedom to contract, which is part of the freedom of industry and trade, and therefore it has filed the pertinent administrative claims and will proceed to file the necessary legal actions requesting the suspension of the Resolution’sits effects and ultimately the nullification thereof.its nullification.

 

Even though the Company and/or some of its subsidiaries, like other companies in the industry, have strong constitutional arguments to support their position, it cannot be assured that the final outcome of this issue will be favorable. Therefore, the Company may be forced to modify the price of its pay television subscription, which could significantly affect the revenues of its core business. This creates a general scenario of uncertainty regarding the Company’s business that could significantly affect the recoverability of its relevant assets. Notwithstanding the foregoing, it should be noted that as of the date of issuance of these consolidated financial statements,Additionally, according to the decision issued on August 1, 2011 in rejudicial cause “LA CAPITAL CABLE S.A. c/V. Ministerio de Economía-Secretaría de Comercio Interior de la Nación”, the Federal Court of Appeals of the City of Mar del Plata has ordered the SCI to suspend the application of Resolution No. 50/10 with respect to all cable television licensees represented by “ATVC. The preliminary injunction ordered by the Argentine Cable Television Association (“ATVC”). Upon beingCourt of Mar del Plata was notified to the SCI and the Ministry of Economy on September 12, 2011 such decisionand became fully effective and may not be disregarded by the SCI.effective. The National Government filed an appeal against the decision issued by the Federal Court of Appeals of Mar del Plata to have the case brought before the Supreme Court.Plata. Such appeal was dismissed, for which the National Government filed a direct appeal to the Supreme Court, which haswas also been dismissed.

 

On June 1, 2010, the SCI imposed a $5 fine on Cablevisión alleging that it had failed to comply with the information regime set forth by Resolution No. 50/10 and invoking the Consumer Defense Law to impose such penalty. The fine was appealed and submitted to the Federal Court of Appeals on Administrative Matters, Chamber No. 5, which decided to reduce the fine to $0.3. The Company appealed this decision by filing an extraordinary appeal with the Supreme Court of Argentina.

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OnNotwithstanding the foregoing, between March 10, 2011 SCI Resolution No. 36/11 wasand October 2014 successive resolutions were published in the Official Gazette. This resolution falls within the framework of SCI Resolution 50/10. Resolution No. 36/11 sets forth the parameters to be applied to the services to be provided by Cablevisión to its subscribers. The Company believes that Resolution No. 36/11 is illegal and arbitrary, since it is groundedGazette based on Resolution 50/10 whichthat regulated the Company believes is absolutely nullprices that Cablevision should charge in monthly basis fees to users. These resolutions were challenged and void. Sincesuspended due to the applicationaforementioned injunction. However, each Resolution had a valid period of Resolution No. 50/10 has been suspended,three to six months, with the application of Resolution No. 36/11, which falls within the framework of the former, is also suspended. Subsequently, the SCI issued Resolutions No. 65/11, 92/11, 123/11, 141/11, 10/11, 25/12, 97/12, 161/12, 29/13, 61/13, 104/13, 1/14, 43/14 and 93/14 pursuant to which it extended the effectiveness of Resolution No. 36/11 up to and including September 2014, and adjusted the cable television subscription price to 152 Argentine pesos. The Company believes, however, that given the terms under which the Federal Court of the City of Mar del Plata granted the preliminary injunction, which ordered the SCI to suspend the application of Resolution No. 50/10 with respect to all cable television licensees represented by ATVC (among them, the Company and its subsidiaries), and also given the fact that Resolutions No. 36/11, 65/11, 92/11, 123/11, 141/11, 10/11, 25/12, 97/12, 161/12, 29/13, 61/13, 104/13, 1/14, 43/14 and 93/14 limit to apply Resolution No. 50/10, the Company continues to believe to be protected by the preliminary injunction, and therefore the normal operation thereof will not be affected.last one expiring in October 2014.

 

OnIn September 23, 2014, the Court issued a decision in rejudicial cause “Municipalidad de Berazategui c/V. Cablevisión” ordering the remission of the cases relating to these resolutions to the jurisdiction of the Federal Court of Mar del Plata, that had issued the decision on the collective action in favor of ATVC.

 

Currently, all the claims relatingjudicial causes related to this matterissue are pending beforeprocessed in the Federal Justice of Mar del Plata.

In April 2019, La Capital Cable S.A. was notified of the resolution issued by the Federal Court No. 2 of Mar del Plata in which declared the unconstitutionality of certain sections of a law on which the SCI was based for the issuance of Resolution No. 50/10 and the successive resolutions. The declaration of unconstitutionality means that these resolutions are not applicable to La Capital Cable and the companies grouped by ATVC. However, the National Government filed an appeal against that resolution.

On December 26, 2019, the Federal Court of Mar del Plata. The judge has not yet ordered discovery proceedings in respectPlata rejected the grievances of the main claim, “La Capital Cable v. National Government s/ Ordinary Proceeding”.

Decisions madeand confirmed the decision rendered by the court of first instance which declared the unconstitutionality of the sections of the law based on which the basis of these consolidated financial statements shall consider the potential impact that the above-mentioned resolutions might have on the Company and its subsidiaries,SCI issued Resolution No. 50/10 and the Company’s consolidated financial statements should be read in light of such circumstances.

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subsequent resolutions. The Company´s Management,National Government filed an extraordinary appeal, which was granted on March 1, 2021. The Company, with the assistance of its legal advisors, considersis analyzing the potential impacts related to this new appeal.

These consolidated financial statements should be read considering the circumstances described and the decisions made based on these consolidated financial statements should consider the potential impact that it has strong arguments forsuch circumstances may have on the Company and its defense.subsidiaries.

 

k.Resolution No. 16,765 of the CNV

 

On March 16,In 2012, CNV issued Resolution No. 16,765 whereby it ordered the conduction of a preliminary investigation (sumario) against Cablevisión, its directors and members of the Supervisory Committee for an alleged failure to comply with its reporting duties. The CNV considers that this deprived investors of the possibility to become fully aware of the decision issued by the Supreme Court of Argentina in re “Recurso de Hecho deducido por el Estado Nacional Ministerio de Economía y Producción en la causa Multicanal S.A. y otro c/ CONADECO Dto. 527-05” (which as of this date has been resolved) and that a series of issues relating to the information required by the CNV regarding the Extraordinary Meeting of Class 1 and 2 Noteholders held on April 23, 2010 would not have been disclosed.

 

OnIn April 4, 2012, the Company filed a response requesting that its defenses be sustained and that all charges against it be dismissed. The discovery stage has been closed and the legal brief has been submitted. The case was remitted to the Legal Management.

 

The Company and its legal advisors believe that the Company has strong arguments in its favor. Nevertheless, the Company cannot assure that the outcome of the preliminary investigation proceeding will be favorable.

 

l.Resolution No. 17,769 of the CNV

 

OnIn August 28, 2015, Cablevisión was served notice of Resolution No. 17,769 dated August 13, 2015 whereby the CNV the conduction of a preliminary investigation (sumario) against Cablevisión and its directors, members of the Supervisory Committee and the Head of Market Relations for an alleged delay in the submission of the required documentation relating to the registration of the authorities appointed in the General Meeting of Shareholders of Cablevisión held on April 30, 2000 and the update of the particulars of its registered office in the Autopista de Información Financiera.

 

OnIn January 20, 2016, the preliminary hearing was held pursuant to Section 138 of Law No. 26,831 and Section 8, Subsection b.1. of Section II, Chapter II, Title III of the Regulations (amended text of 2013).

 

The Company and its advisors believe that same has strong arguments in its favor on this matter, but no assurance can be given that the outcome of the preliminary investigation proceeding will be favorable.

 

m.Additional rate for the “Impuesto a la Renta Comercial, Industrial o de Servicios” (Tax on Commercial, Industrial or Services Revenues or “IRACIS”)

 

OnIn April 5, 2017, a subsidiary of the Company received a notice from the Under-Secretary of Taxes of the Republic of Paraguay, whereby that subsidiary was informed that it had failed to determine the additional IRACIS rate on the retained earnings of the companies merged in 2014.

 

The Company´s subsidiary considers that it has strong arguments to support its position, but no assurance can be given on the final outcome of this claim.

 

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Remote ContingenciesTELECOM ARGENTINA S.A.

3.Remote Contingencies

 

Telecom 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 and/or disclosed additional information in these financial statements related to the resolution of these issues.

 

4.Contingency Asset

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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 $269,$182, of which $211some are included in PP&E 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 the 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, the 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. The proposal considered that if the advertising compensation was not realized in one year, AFA would pay to Telecom the agreed amount. The Company analyzed the quality of the assets offered by the 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). The AFA rejected the claim but agreed to resume negotiations for a closing agreement which then was suspended by the AFA electoral process.

 

In January 2016 both parties resumed conciliatory negotiations, while the Company reserved its right to exercise legal claims on the amounts due.

 

In June 2016 the Company initiated a compulsory pre-judicial mediation procedure. The first audience, held on July 12, 2016, was attended by both parties. A second audience was held on August 3, 2016 and a third and the last one was held on August 23, 2016, which resulted in no agreement between the parties.

 

In February 2018, the Company initiated a new mandatory prejudicial mediation procedure which was finished without agreement. On December 19, 2018, a claim was brought against AFA for 353,477,495 Argentine pesos.

 

Nowadays, the legal proceeding is at discovery phase.

The Company’s Management with the assistance of its external advisor believes that they have strong legal arguments for claiming and are evaluating the actions to be followed for recovering the investments and expenses made.

 

It is worth mentioning that, for the impairment recorded bypurpose to comply with accounting standards, the Company has recorded an allowance arising from the uncertainties related to the recoverable value of assets recognized byrelated to the AFA Plus Project (Works in Progress and Materials amounting to $211) have been only recorded for the purpose to comply with accounting standards and in no way involves giving up or limiting theits rights given to the Company as a genuine creditor for the AFA Plus Project agreement.agreement entered into with AFA.

 

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NOTE 19 – COMMITMENTSTELECOM ARGENTINA S.A.

 

a)Purchase commitmentsNOTE 20 – PURCHASE COMMITMENTS

 

The Company has entered into various purchase orderscommitments amounting in the aggregate to approximately $41,107$62,269 as of December 31, 20182020 (of which $9,926$21,365 corresponds to PP&E commitments), primarily related to the supply of switching equipment, external wiring, infrastructure agreements, inventory and other service agreements.

It should be noted that $3.6 billion correspond to contracts that qualify as leases under IFRS 16 (Note 3.x)).

 

b)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.37/14, No. 38/14 and its amendments and supplementary regulations.

The terms will be counted as stipulated in this respect by Section 4 d) of Decree No. 1,340/16 (see Note 2.e).

NOTE 2021 – EQUITY

 

Equity includes:

As of December 31,

As of December 31,

2018

2017

20202019

Equity attributable to Controlling Company

225,686

54,182

382,456415,335

Equity attributable to non-controlling interest

3,227

846

6,3996,492

Total equity (*)

228,913

55,028

388,855421,827

 

(*) Additional information is given in the consolidated statements of changes in equity.

 

(a)Capital Stock

(a)Capital Stock

 

As of December 31, 2018,2020 and 2019, the total capital stock of Telecom Argentina amounted to $2,169,$2,153,688,011 Argentine pesos, represented by the same number of common book-entry shares with nominal value of $1 peso, of which 2,153,688,011 are entitled to one vote per share, since 15,221,373 are treasury shares that were acquired by the Company.as detailed below:

 

Class of SharesTotal
          Class “A”  683,856,600
          Class “B”   628,058,019
          Class “C”          106,734
          Class “D”   841,666,658
Total2,153,688,011

All

As of the Class B Shares and Class C Shares and 340,994,852 Class A Sharesdate of these consolidated financial statements, all the shares of Telecom Argentina are authorized by the CNV for public offering granted by the CNV. offering.

Class B Shares are listed and traded on the leading companiescompanies’ panel of the BYMA and the NYSE.

Each American Depositary ShareShares (ADS) representsrepresenting 5 Class B“B” shares of the Company and isare traded on the NYSE under the ticker symbol TEO.

 

(b)Provisions of the Telecom Ordinary and Extraordinary Shareholders’ meeting

As of December 31, 2017, the total capital stock

The Ordinary and Extraordinary Shareholders’ meeting of Telecom Argentina amounted to $984, represented byheld on April 28, 2020 decided, among other issues, the same number of common book-entry shares with nominal value of $1 peso, of which 969,159,605 are entitled to one vote per share, since 15,221,373 are treasury shares that were acquired by the Company.following:

 

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Directors’ proposal expressed in current currency of March 31, 2020 TELECOM ARGENTINA S.A.

Pursuant tousing the Pre-Merger Commitment and the Final Merger Agreement, mentioned in Note 4.a)National Consumer Price Index (National CPI), Telecom Argentina issued, effective as of January 1, 2018, 342,861,748 Class A Shares and 841,666,658 Class D, all of them common book-entry shares, with nominal value of $1 peso and entitled to one vote per shares, which have been fully paid in. The Merger, the consequent increase in the capital stock and the modificationprovided by CNV Resolution No. 777/18, consisting of the company bylaws were registered with the Public Registry of Commerce under the IGJ on August 30, 2018. For more information, see Note 4.a) to the consolidated financial statements.

These consolidated financial statements were prepared taking into consideration the provisions of IFRS 3 (Business Combinations). As a consequencefollowing absorption of the foregoing and as explained in the Basis of Presentation (Note 1.a), the shareholders’ equity$6,633,713,897 Argentine pesos negative Retained earnings as of December 31, 2017 and 2016 and its evolution2019 ($8,378 in the statement of changes in equity for the years ended December 31, 2017 and 2016 presented as comparative information arise from the information reported by Cablevisión (acquirer for accounting purposes).

The capital stock of Cablevisióncurrent currency as of December 31, 2017 and 2016 amounted to $1,200 represented by 120,000 common book-entry shares with nominal value of 10,0002020): (i) $1,931,029,240 Argentine pesos and entitled to one vote per share, as decided at the General Extraordinary Shareholders’ Meeting held on June 30, 2016.

The breakdown of the capital stock of Cablevisión($2,439 in current currency as of December 31, 2017 was2020) from the “Voluntary Reserve for capital investments”; (ii) $4,702,684,657 Argentine pesos ($5,939 in current currency as follows:of December 31, 2020) from the “Facultative Reserve to maintain the capital investments level and the current level of solvency”; and (iii) $10,887,950,778 Argentine pesos ($13,751 in current currency as of December 31, 2020) to be reclassified from the “Facultative Reserve to maintain the capital investments level and the current level of solvency” to “Contributed surplus”;

 

Shareholders

Number of Shares

Equity Interest

CVH (1) (3)

34,425

28.7

VLG (1)

61,581

51.3

Fintech Media LLC (2) 

17,212

14.3

CVH (2)

6,782

5.7

Total

120,000

100.0

(b)To approve the reversal of the “Voluntary Reserve for capital investments” ($3,541,443,368 Argentine pesos expressed in current currency of April 30, 2020 using the National Consumer Price Index -National CPI- published at such date and $4,473 in current currency as of December 31, 2020), increasing the “Voluntary reserve for future dividends payments” in such amount.

 

(1)Class A shares.

(2)Class B shares.

(3)CVH held a 50% equity interest in VLG.

The dissolution of Cablevisión, due to the Merger, was registered in the Public Registry of Commerce in charge of IGJ on August 30, 2018 under No. 16346, L° 91 T° of Stock Companies.

(b) Share Ownership Plan

(c)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.

 

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As required by the executive committee of PPP, the Annual Shareholders 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. That delegation does not include 4,593,274 Class “C” shares of the Fund of Guarantee and Repurchase, that were affected by an injunction measure recorded in file “Garcí"Garcías de Vicchi, Amerinda y otros c/ Sindicación de Accionistas Clase C del Programa de Propiedad Participada s/nulidad de acto jurídico (“Garcias de Vicchi”)", with respect to which the Annual Shareholders Meetings considered that there were legal impediments to approve that delegation of faculties for their conversion to Class “B”. As of December 31, 2011, the 41,339,464 Class “C”"C" shares had been converted to Class “B” in eleven tranches.

 

With the injunction measure issued in the case Garcías de Vicchi having been revoked, the Board of Directors of the Company convened the Ordinary and Extraordinary General Meeting and the Special Meeting of Class “C” Shares,shares, that were held on December 15, 2011, and approved 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. As of December 31, 2016, 4,382,4082020, 4,486,540 Class “C” shares have already beenwere converted into Class “B”"B” shares in 1113 tranches.

 

As of the date of issuance of these consolidated financial statements, 210,866106,734 Class “C” shares are still pending to be converted into Class “B” shares.

 

(c) Capital Market Act - Law No. 26,831 and amendments

(d)Capital Market Act - Law No. 26,831 and amendments

 

On December 28, 2012 the new Capital Market Law (Law No. 26,831) was published in the Official Gazette. 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.

 

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Productive Financing Law

 

On May 11, 2018, Productive Financing Law No. 27,440 was published in the Official Gazette. This law established several amendments to the Capital Markets Law No. 26,831 regarding the extent of the powers of the CNV; the exercise of preemptive rights on shares offered through public offering in the case of capital increases; private placements; public tender offers; the jurisdiction of the federal commercial courts of appeals to review the resolutions issued or sanctions imposed by the CNV, among other amendments.

 

With regard to public tender offers, under the previous regime, the offeror was obliged to formulate a “fair” price to be fixed by weighing the results of different company valuation methods, with a minimum floor related to the average market price for the six-month period immediately preceding the date of the agreement. Pursuant to the amendments introduced by Law No. 27,440 to the Capital Markets Law, the obligation is objective and consists in offering the higher of two existing prices: the price that the offeror would have paid or agreed during the 12 months immediately preceding the first day of the public tender offer period, and the average price of the securities subject to the offer during the semester immediately preceding the date of the announcement of the transaction under which the change of control is agreed upon.

 

On December 28, 2018, CNV General Resolution No. 779/201818 was published in the Official Gazette, pursuant to which the regulatory framework applicable to the Public Tender Offers is regulated.

 

(d) Acquisition of Treasury Shares

(e)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, onOn 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.solvency.

 

According to the offer made onmentioned Program, the Company acquired, between May 28, 2013 and November 7,5, 2013, by Fintech for the acquisition of the controlling interest of the Telecom Italia Group in Telecom Argentina, Telecom Argentina suspended the acquisition of15,221, 373 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.shares.

 

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 should sell its treasury shares within three years of the date of acquisition, although the Company´s Shareholders’ Meetings provides an extension. 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. No restrictions applyapplied to Retained Earnings as a result of the creation of a specific reserve for such purposes named “Voluntary Reserve for Capital Investments”, which as of December 31, 2018 amounts to $461 (in current currency on the transaction date).

 

The Company’s Shareholders’ Meeting held on April 29, 2016 approved a three-year extension to the term established in Section 67 of Law No. 26,831 for the disposal of the treasury shares.

 

AsPursuant to Section 67 of December 31, 2018 the Company ownsCapital Markets Law No. 26,831, between May 28, 2019 and November 5, 2019, Telecom Argentina reduced its capital stock in three tranches by the operation of law for a total nominal value of $15,221,373, through the total cancellation of 15,221,373 Class “B” ordinary shares with nominal value of $1 Argentine peso each and entitled to 1 vote per share, held as treasury shares, representing 0.70% of its total capital. The acquisition cost of these shares in the market amounted to $461 (in current currency on the transaction date).shares.

 

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(e) Law No. 27,260 of “Historical Repair to Retired and Pensioned”TELECOM ARGENTINA S.A.

 

All tranches of capital reduction were opportunely registered in the IGJ.

As a consequence of the capital reductions mentioned in the previous paragraphs, the Company recognized in 2019 a decrease in its treasury shares of $15, a decrease in the Inflation Adjustment of $1,034 and a decrease in the Treasury Shares Acquisition Cost of $3,759, with an offsetting entry in Retained earnings of $2,440.

As of the date of these consolidated financial statements, the Company does not hold treasury shares.

(f)Law No. 27,260 of “Historical Repair to Retired and Pensioned”

On July 22, 2016, Law No. 27,260 of “Historic Reparation for Retired Persons and Pensioners”, abolishing Law No. 27,181 on “Declaration"Declaration of public interest of the protection of the social participations of the National State that make up the investment portfolio of the “Sustainability Guarantee Fund of the Argentine Pension Integrated System”System" in its Section 35, was published in the Official Gazette. In addition, Section 30 of Law No. 27,260 provides that the transfer of shares of public corporations authorized by the CNV that are part of the FGS is banned without a previous and express authorization of the Federal Congress if, as a result of such transfer, the FGS’s holding of the above referred securities becomes less than 7% of the aggregate assets of the FGS. The following exceptions apply: “1. Tender offers addressed to all holders of such assets at a fair price authorized by the CNV, pursuant to the terms of Chapters II, III and IV of Title III of Law No. 26,831. 2. Swaps of shares for other shares of the same or another corporation as a result of a merger, split or other corporate reorganization.”

 

(f) Decree No. 894/2016: exercise of corporate, political and economic rights by the ANSES

(g)Decree No. 894/16: exercise of corporate, political and economic rights by the ANSES

 

On July 28, 2016, Decree No. 894/201616 was published in the Official Gazette, providing that in those corporations which shares are part of the Sustainability Guarantee Fund of the Argentine Pension Integrated System’ portfolio, the corporate, political and economic rights corresponding to such shares shall not be exercised by the Secretary of Economic Politics and Development Planning, but shall instead be exercised by the Federal Management of Social Security (“ANSES”).

In addition, Decree No. 894/2016 provides that the Directors appointed by ANSES shall have the functions, duties and powers provided in the LGS, the Capital Market Law No. 26,831 and their complementary regulations, all other rules applicable to corporations in which they act as directors, and their bylaws and internal regulations, and that they shall be exposed to all the liabilities applicable under such rules, not being subject to the provisions of Decree No. 1,278/2012 and No.196/2015 (the latter in connection with its delimitation of responsibility).

 

NOTE 2122FINANCIAL INSTRUMENTS

 

a)Categories of financial assets and financial liabilities

 

The following tables set out, for financial assets and liabilities as of December 31, 20182020 and 2017,2019, the supplementary disclosures on financial instruments required by IFRS 7 and the detail of gains and losses established by IFRS 9.

 

 

Fair value

 

 Fair value 

As of December 31, 2018

Amortized
cost

accounted
through profit
or loss

accounted
through other
comprehensive
Income

Total

As of December 31, 2020Amortized costaccounted through profit or lossaccounted through other comprehensive IncomeTotal

Assets

 

 

 

 

  

Cash and cash equivalents (1)

6,831

60

-

6,891

8,19110,336-18,527

Investments

5,269

729

-

5,998

1716,496-6,667

Trade receivables

17,476

-

-

17,476

19,015-19,015

Other receivables (2)

1,302

657

138

2,097

Other receivables (1)1,4752-1,477

Total

30,878

1,446

138

32,462

28,85216,834-45,686

Liabilities

 

 

 

 

 

Trade payables

23,424

-

-

23,424

41,806-41,806

Financial debt

79,312

-

-

79,312

199,673170357200,200

Salaries and social security payables

6,294

-

-

6,294

15,176-15,176

Other liabilities and dividends payables (2)

348

-

-

348

Leases liabilities10,302-10,302
Other liabilities (1)475-475

Total

109,378

-

-

109,378

267,432170357267,959

 

(1) Includes 1,878 as of December 31, 2018, corresponding to Cash and banks, which were measured asOnly includes financial assets at amortized cost byand liabilities according to the Company.scope of IFRS 7.

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  Fair value 
As of December 31, 2019Amortized costaccounted through profit or lossaccounted through other comprehensive IncomeTotal
Assets    
Cash and cash equivalents3,29631,531-34,827
Investments1,452491-1,943
Trade receivables23,208--23,208
Other receivables (2)1,918222-2,140
Total29,87432,244-62,118
Liabilities    
Trade payables46,721--46,721
Financial debt206,418329181206,928
Salaries and social security payables14,705--14,705
Leases liabilities8,592--8,592
Other liabilities (2)396--396
Total276,832329181277,342

(2) Only includes financial assets and liabilities according to the scope of IFRS 7.

 

 

 

Fair value

 

As of December 31, 2017

Amortized
cost

accounted
through profit
or loss

accounted
through other
comprehensive
Income

Total

Assets

 

 

 

 

Cash and cash equivalents (1)

5,153

1,364

-

6,517

Investments

3

159

-

162

Trade receivables

2,588

-

-

2,588

Other receivables (2) 

428

-

-

428

Total

8,172

1,523

-

9,695

 

 

 

 

 

Liabilities

 

 

 

 

Trade payables

5,737

-

-

5,737

Financial debt

16,009

-

-

16,009

Salaries and social security payables

2,585

-

-

2,585

Other liabilities (2)

6,026

-

-

6,026

Total

30,357

-

-

30,357

(1) Includes 5,120 as of December 31, 2017, 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.

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Gains and losses by category – Year 20182020

 

 

Net gain/(loss)

 

 

Of which interest

 

Net gain/(loss)

 

 

Of which interest

Financial assets at amortized cost

7,544

 

1,863

9,300 1,306

Financial liabilities at amortized cost

(41,540)

 

(6,307)

(30,250) (18,388)

Financial assets at fair value through profit or loss

2,237

 

1,019

351 388

Financial liabilities at fair value through profit or loss

(229)

 

-

Financial liabilities at amortized cost through profit or loss(1,486) -

Total

(31,988)

 

(3,425)

(22,085) (16,694)

 

Gains and losses by category – Year 20172019

 

 

Net gain/(loss)

 

 

Of which interest

 

Net gain/(loss)

 

 

Of which interest

Financial assets at amortized cost

(285)

 

201

10,103 890

Financial liabilities at amortized cost

(1,229)

 

(2,185)

(27,021) (18,653)

Financial assets at fair value through profit or loss

265

 

-

3,540 1,315
Financial liabilities at fair value through profit or loss(1,620) -

Total

(1,249)

 

(1,984)

(14,998) (16,448)

 

b)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 Telecom are classified according to the three levels set out in IFRS 7:

 

-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 (e.g. as prices) or indirectly (e.g. derived from prices).

-       Level 3: Fair value determined by unobservable inputs where the reporting entity is required to develop its own assumptions.

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 (e.g. as prices) or indirectly (e.g. 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 September 30, 2018December 31, 2020 and 2017,2019, their inputs, valuation techniques and the level of hierarchy are listed below:

 

Mutual Funds: These investments are included in Cash and cash equivalents and Investments. Telecom and its subsidiaries have other short-term investments amounting to $62$8,797 and $1,463$31,531 as of December 31, 20182020 and 2017,2019, 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, 20182020 and 20172019 Telecom and its subsidiaries have Government bonds in an amount of $727$6,593 and $50,$404, respectively. 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.

 

Other investments: These investments are included in Cash and Cash equivalents. The Company has other investments at fair value in an amount of $10 as of December 31, 2017. Fair Value was determined using information from active markets, valuing each investment 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)rates and interest rates swap): The fair value of Telecom’s and its subsidiaries NDF contracts, disclosed in the chapter “Hedge Accounting” was determined by information obtained in the most representative financial institutions in Argentina,Argentina. According to this, the derivative financial instruments’ valuation was classified as Level 2.

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During the years ended December 31, 20182020 and 2017,2019, 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 oreven if they are 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, investments at amortized cost, 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.

 

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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, 20182020 and 20172019 are as follows:

 

Cash and banks

Carrying amounts approximate its fair value.

Time deposits and Other investments at amortized cost (included in Cash and cash equivalents)

 

Telecom and its subsidiaries consider 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. The carrying amount reported in the statement of financial position approximates fair value.

 

Current and non-current Investments valued at amortized cost

 

As of December 31, 2018,2020, fair value of such investments valued at amortized cost amounts to $4,310$176 and its carrying value amounts to $5,183.$171. As of December 31, 20172019, fair value of thosesuch investments approximates fair value.amounted to $1,443 and its carrying value amounted to $1,452.

Trade receivables

 

Carrying amounts are considered to approximate fair value due to the short term nature of these accountstrade 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 and Leases liabilities

 

The carrying amount of accounts payable and leases liabilities 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 and leases liabilities have been discounted.

Financial Debt

 

As of December 31, 2018, loans’2020, fair value amounts to $78,787 and its carrying value amounts to $79,312. of financial debt is as follows:

 Carrying ValueFair Value
   
Notes95,29788,290
Other financial debts104,90398,403
 200,200186,693

As of December 31, 2017 loans’2019, fair value amounts to $11,459 ($16,918 restated for comparative purposes), and its carrying value amounts to $10,844 ($16,010 restated for comparative purposes).of financial debt is as follows:

 

 Carrying ValueFair Value
   
Notes72,93871,339
Other financial debts133,990132,054
 206,928203,393

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.

 

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Hedge accountingTELECOM ARGENTINA S.A.

c)Hedge accounting

 

Telecom and its subsidiaries believe that a hedging relationship qualifies for hedge accounting if all of the following conditions established by the IFRS 9 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 and its subsidiaries 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) theThe economic relationship between the hedged item and the hedging instrument;
(ii) theThe effect of credit risk is not predominant in respect of changes of value coming from this economic relationship, and

(iii) theThe coverage ratio of the hedging relationship is the same as the one provided by the amount of the hedged item that really covers the entity and the amount of the hedging instrument that the entity actually uses to cover that amount of the hedged item.

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During years 20172019 and 20182020

 

·LIBOR Hedges

·LIBOR Hedges

 

During year ended December 31, 2017, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of LIBOR from the IFC loan amounting to US$400 million and from the IIC loan amounting to US$100 million. The mentioned agreements effective from March 15, 2017 hedge ana total amount ifof US$300 million, while those effective from September 15, 2017 hedge the outstanding US$100440 million. Such NDF allow fixing the variable rate all along the loan term in a range between 2.087%2.085% and 2.4525% nominal annual rate (resulting in a weight average of 2.2258%).rate.

 

As of December 31, 2018, Telecom recognized a receivable of $137, which is included in other receivables ($98 current and $39 non-current). Additionally, during the year ended December 31, 2018, Telecom recognizes gains of $3$13 related to those contracts, that are included in Debt financial expenses – Interests on debts in Financial results.

During year ended December 31, 2017, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of LIBOR from the International Finance Corporation loan amounting to US$100 million. The agreements hedge an amount of US$40 million and were agreed in two tranches of US$20 million each one, both of them starting on March 15, 2018 and fixing the variable rate all along the term of the loan to 2.1325% and 2.085% nominal annual rate, respectively.financial debt.

 

As of December 31, 2018,2019, Telecom recognized a receivableliability of $18,$189, which is included in other receivablesFinancial Debt ($12170 current and $6$19 non-current). Additionally, during the year ended December 31, 2018,2019, Telecom recognizes gains of $4$82 related to those contracts, that are included in Debt financial expenses – Interests on debts in Financial results.financial debt.

 

·Exchange rate Hedges

DuringAs of December 31, 2020, Telecom recognized a liability of $461, which is included in other Financial Debt ($450 current and $11 non-current). Additionally, during the year ended December 31, 2017,2020, Telecom Argentina entered into several NDF agreementsrecognizes a loss of $293 related to hedge the fluctuation of the exchange rate from the International Finance Corporation loan amounting to US$53.5 million fixing the average exchange ratethose contracts, that are included in 18.30 Argentine pesos/US$, expiring between February and April 2018. During first half of 2018, some NDF agreements expire, recognizing a gain of $77 including in Other Financial results, netDebt financial expensesOther Foreign currency exchange gains (losses).Interests on financial debt.

·Exchange rate Hedges

 

During year ended December 31, 2018, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio (International Finance Corporation, Syndicated, Deustche Bank and Notes Series IV) amounting to US$306 million fixing the average exchange rate in 36.58 Argentine pesos/US$, expiring between June 2018 and May 2019. During 2018, Telecom recognized gains related to these agreements of $1,039 that are included in Foreign currency exchange gains in Financial Results, net.certain commercial obligations. As of December 31, 2018, Telecom maintains NDF agreements for a total of US$166 million for those that has recognized a receivableloss of $640, which is included in Other receivables current and a liability of $100 which is included in Financial Debt current.

On the other hand, during 2017, Telecom Argentina entered into agreements (NDF) to hedge exchange rate fluctuations of certain commercial obligations for an amount of US$6.3 million, with an average exchange rate of 18.94 Argentine pesos/US$, maturing in March and August 2018. For such agreements, Telecom has recognized gains of $22$319, that are included in Other Financialfinancial results, net - Other Foreign currency exchange gains (losses).differences.

 

InAlso, during year ended December 31, 2018, Telecom recognized gains for $2,338 related to NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio, that are included in Debt financial expenses – Interests on financial debt.

During year ended December 31, 2019, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate of certain commercial obligations for an amount offrom its loan portfolio amounting to US$118499 million fixing the average exchange rate in 39.3352.50 Argentine pesos/US$, expiring between AugustMarch 2019 and October 2018. ForApril 2020. During 2019, Telecom recognized gains related to these NDF agreements has recognized losses of $152$972 that are included in Other Financial results, netDebt financial expenses Other Foreign currency exchange gains (losses).losses on financial debts. As of December 31, 2019, Telecom maintained NDF agreements for a total of US$46.5 million for those that has recognized a receivable of $222, which is included in current Other receivables and a liability of $321 which is included in current Financial Debt.

 

During year ended December 31, 2020, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio amounting to US$477 million fixing the average exchange rate in 87.54 Argentine pesos/US$, expiring between February 2020 and February 2021. During 2020, Telecom recognized a loss related to these agreements of $1,523 that are included Debt financial expenses – Foreign currency exchange losses on financial debts. As of December 31, 2020, Telecom maintained NDF agreements for a total of US$117 million for those that has recognized a receivable of $2, which is included in current Other receivables and a liability of $66 which is included in current Financial Debt.

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TELECOM ARGENTINA S.A.

Offsetting of financial assets and financial liabilities in scope of IFRS 7

 

The information required by the amendment to IFRS 7 as of December 31, 2018 of Telecom2020 and its subsidiaries2019 is as follows:

 

As of December 31, 2018

As of December 31, 2020

Trade
receivables

Other
receivables
(1)

Trade
payables

Other
liabilities
(1)

Trade receivables

Other receivables

Trade payables

Other liabilities

Current and noncurrent assets (liabilities) - Gross value

18,729

2,128

(24,665)

(379)

19,9021,567(42,693)(565)

Offsetting

(1,251)

(31)

1,251

31

(887)(90)88790

Current and noncurrent assets (liabilities) – Booked value

17,478

2,097

(23,414)

(348)

19,0151,477(41,806)(475)

 

(1)Includes financial assets and financial liabilities according to IFRS 7.

 

As of December 31, 2017, Offsetting of financial assets and financial liabilities did not exist.

 As of December 31, 2019
 Trade receivables

Other receivables

Trade payables

Other liabilities

Current and noncurrent assets (liabilities) - Gross value23,4262,209(46,939)(465)
Offsetting(218)(69)21869
Current and noncurrent assets (liabilities) – Booked value23,2082,140(46,721)(396)

 

Telecom and its subsidiaries offset the financial assets and liabilities to the extent that such offsetting is provided by offsetting agreements and provided that Telecom 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, CPPcarriers and Roaming (being offsetting a standard practice in the telecommunications industry at the international level that Telecom and its subsidiaries applies regularly). Offsetting is also applied to transactions with agents.

 

NOTE 2223 – REVENUES

 

Revenues include:

Years ended December 31,

Years ended December 31,

2018

2017

2016

202020192018

Mobile Services

57,776

4,274

7,736

113,348111,901121,003

Internet Services

37,742

19,354

13,789

64,23371,67779,045

Cable Television Services

36,067

39,914

36,929

59,58267,26275,538

Fixed and Data Services

23,149

1,897

996

45,59751,13748,482

Other services revenues

478

835

712

1,2341,0531,000

Subtotal Services revenues

155,212

66,274

60,162

283,994303,030325,068

Equipment revenues

12,834

375

243

17,60219,65626,880

Total Revenues

168,046

66,649

60,405

301,596322,686351,948

 

NOTE 2324 – OPERATING EXPENSES

 

Operating expenses disclosed by nature of expense amounted to $146,789, $52,340$281,302, $301,183 and $48,089$307,427 for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. The main components of the operating expenses are the following:

 

 

Years ended December 31,

 

2018

2017

2016

Employee benefit expenses and severance payments

 

Profit (loss)

 

Salaries, Social security expenses and benefits

(27,026)

(10,817)

(10,007)

Severance indemnities and termination benefits

(2,273)

(362)

(186)

Other employee expenses

(749)

(486)

(410)

 

(30,048)

(11,665)

(10,603)

 

 

 

 

Fees for services, maintenance, materials and supplies

 

 

 

Maintenance and materials

(8,533)

(4,300)

(5,271)

Fees for services

(7,629)

(2,930)

(2,619)

Directors and Supervisory Committee’s fees

(99)

(24)

(22)

 

(16,261)

(7,254)

(7,912)

Taxes and fees with the Regulatory Authority

 

 

 

Turnover tax

(7,361)

(2,157)

(1,218)

Municipal taxes

(1,811)

(1,026)

(838)

Other taxes and fees

(4,437)

(1,676)

(2,285)

 

(13,609)

(4,859)

(4,341)

 Years ended December 31,
 202020192018
Employee benefit expenses and severance paymentsProfit (loss)
Salaries, Social security expenses and benefits(54,388)(54,831)(55,986)
Severance indemnities(2,485)(7,015)(4,761)
Other employee expenses(1,603)(1,502)(1,569)
 (58,476)(63,348)(62,316)
    
Fees for services, maintenance, materials and supplies   
Maintenance and materials(18,824)(21,182)(18,488)
Fees for services(14,055)(14,865)(15,977)
Directors and Supervisory Committee’s fees(133)(176)(207)
 (33,012)(36,223)(34,672)
Taxes and fees with the Regulatory Authority   
Turnover tax(10,929)(11,625)(15,417)
Municipal taxes(3,132)(3,344)(3,793)
Other taxes and fees(8,959)(10,060)(9,292)
 (23,020)(25,029)(28,502)

 

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Years ended December 31,

 

2018

2017

2016

Cost of equipment and handsets

 

Profit (loss)

 

Inventory balance at the beginning of the year

(189)

(515)

(9)

Plus:

 

 

 

     Incorporation by merger (Note 4.a)

(2,739)

(232)

(47)

     Purchases

(9,608)

(285)

(1,341)

     Other

(20)

350

-

Less:

 

 

 

Inventory balance at the end of the year

2,889

189

515

 

(9,667)

(493)

(882)

Other operating income and expenses

 

 

 

Provisions

(1,254)

(359)

(348)

Rentals and internet capacity

(3,321)

(1,121)

(862)

Other

(5,100)

(1,766)

(1,915)

 

(9,675)

(3,246)

(3,125)

Depreciation, amortization and impairment of PP&E and Intangible assets

 

 

 

Depreciation of PP&E

(27,643)

(9,698)

(7,719)

Amortization of intangible assets

(5,378)

(106)

(164)

Impairment of PP&E

(467)

-

-

Impairment of Intangible assets

(1,623)

-

-

 

(35,111)

(9,804)

(7,883)

TELECOM ARGENTINA S.A.

 Years ended December 31,
 202020192018
Cost of equipment and handsetsProfit (loss)
Inventory balance at the beginning of the year(4,690)(6,011)(396)
Plus:   
     Incorporation by merger--(5,737)
     Purchases(11,734)(14,263)(20,123)
     Other1,316950-
Less:   
Inventory balance at the end of the year3,9764,6906,011
 (11,132)(14,634)(20,245)
Other operating expenses   
Provisions(3,003)(1,751)(2,626)
Rentals and internet capacity(2,002)(2,712)(6,955)
Energy, water and other services(5,420)(6,683)(6,157)
Other(3,163)(4,066)(4,525)
 (13,588)(15,212)(20,263)
Depreciation, amortization and impairment of fixed assets   
Depreciation of PP&E(65,711)(63,955)(57,815)
Amortization of intangible assets(10,637)(11,257)(11,138)
Amortization of Rights of use assets(5,870)(4,736)(204)
Impairment of fixed assets(376)(3,491)(4,378)
 (82,594)(83,439)(73,535)

 

Operating expenses, disclosed per function are as follows:

 

Concept

Operating
costs

Commercialization
costs

Administration
costs

Total
12.31.2018

Total
12.31.2017

Total
12.31.2016

Operating costsCommercialization costsAdministration costsTotal
12.31.2020
Total
12.31.2019
Total
12.31.2018

Employee benefit expenses and severance payments

(16,724)

(4,241)

(9,083)

(30,048)

(11,665)

(10,603)

(33,214)(9,511)(15,751)(58,476)(63,348)(62,316)

Interconnection costs and other telecommunication charges

(5,478)

(11)

(36)

(5,525)

(1,311)

(1,360)

(11,254)-(11,254)(10,238)(11,572)

Fees for services, maintenance, materials and supplies

(8,548)

(2,796)

(4,917)

(16,261)

(7,254)

(7,912)

(15,181)(8,076)(9,755)(33,012)(36,223)(34,672)

Taxes and fees with the Regulatory Authority

(13,420)

(23)

(166)

(13,609)

(4,859)

(4,341)

(22,770)(74)(176)(23,020)(25,029)(28,502)

Commissions and advertising

(229)

(1,451)

(9,530)

(11,210)

(3,691)

(3,464)

-(3,420)(13,832)(17,252)(19,893)(23,477)

Cost of equipment and handsets

(9,667)

-

-

(9,667)

(493)

(882)

(11,132)-(11,132)(14,634)(20,245)

Programming and content costs

(12,149)

-

(7)

(12,156)

(9,116)

(7,778)

(20,169)-(20,169)(24,548)(25,458)

Bad debt expenses

(2)

-

(3,525)

(3,527)

(901)

(741)

-(10,805)(10,805)(8,619)(7,387)

Other operating income and expenses

(6,668)

(1,141)

(1,866)

(9,675)

(3,246)

(3,125)

Depreciation, amortization and impairment of PP&E and Intangible assets

(27,306)

(2,545)

(5,260)

(35,111)

(9,804)

(7,883)

Other operating expenses(7,903)(1,179)(4,506)(13,588)(15,212)(20,263)
Depreciation, amortization and impairment of fixed assets(66,445)(8,798)(7,351)(82,594)(83,439)(73,535)
Total as of 12.31.2020(188,068)(31,058)(62,176)(281,302)-
Total as of 12.31.2019(205,716)(26,401)(69,066)-(301,183)-

Total as of 12.31.2018

(100,191)

(12,208)

(34,390)

(146,789)

-

(209,834)(25,567)(72,026)-(307,427)

Total as of 12.31.2017

(34,316)

(7,953)

(10,071)

-

(52,340)

-

Total as of 12.31.2016

(31,584)

(8,089)

(8,416)

-

(48,089)

Operating leases

 

Future minimum lease payments from of non-cancellable operating lease agreements of Telecom and its subsidiaries as of December 31, 2018, 20172020, 2019 and 20162018 in current currency on the transaction date are as follows:

 

 

Less than 1
year

1-5 years

More than 5
years

Total

2016

430

455

26

911

2017

467

391

25

883

2018

1,754

2,286

479

4,519

 Less than 1 year1-5 yearsMore than 5 yearsTotal
20182,3883,1126526,152
201959218043815
2020226962324

 

Further information is provided in Note 3.k)3.j) to these consolidated financial statements.

 

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NOTE 2425 – FINANCIAL RESULTS, NET

 

 

Years ended December 31,

 

2018

2017

2016

 

 

Profit (loss)

 

Interests on debts (*)

(4,542)

(1,138)

(1,736)

Foreign currency exchange losses on debts (**)

(29,620)

780

1,086

Other financial expenses on debts

190

141

55

Total Debt financial expenses

(33,972)

(217)

(595)

Interests and gains on investments

1,898

353

409

 

Taxes and bank expenses

(1,646)

(745)

(733)

 

Other Foreign currency exchange gains (losses) (***)

1,402

(476)

(665)

 

Financial discounts on assets, debts and other

7

16

55

 

Gains (losses) on operations with notes and bonds

780

(43)

(11)

 

Interests on provisions

(604)

(78)

(77)

 

Financial expenses on pension benefits

(72)

-

-

 

RECPAM

13,403

1,907

5,547

 

Other

9

(4)

94

 

Total other financial results, net

15,177

930

4,619

Total financial results, net

(18,795)

713

4,024

 Years ended December 31,
 202020192018
 Profit (loss)
Interests on financial debt (*)(14,368)(14,628)(9,115)
Foreign currency exchange losses on financial debts (**)(6,886)(8,049)(62,035)
Financial debt renegotiation results(3,444)--
Total Debt financial expenses(24,698)(22,677)(71,150)
Gains (losses) on operations with notes and bonds (***)993(50)1,634
Risk of doubtful government bonds results(58)(3,497)-
Other exchange differences4,9379,9372,937
Other interests, net and other investments results(1,355)1,4532,710
Other taxes and bank expenses(2,730)(2,960)(3,447)
Financial expenses on pension benefits(236)(182)(151)
Financial discounts on assets, debts and others(94)38032
RECPAM5,59810,34528,071
Total other financial results, net7,05515,42631,786
Total financial results, net(17,643)(7,251)(39,364)

 

(*) Includes 7($293), $82 and $13 corresponding to net income(loss) gains generated by NDF in the years ended December 31, 2020, 2019 and 2018, respectively.

(**) Includes ($1,523), $972 and $2,338 corresponding to net (loss) gains generated by NDF in the years ended December 31, 2020, 2019 and 2018, respectively.

(***) Includes $666 corresponding to the result related to the decrease in financial assets at amortized cost in the year ended December 31, 2018.2020.

(**)   Includes 1,116 corresponding to net income generated by NDF in the year ended December 31, 2018.

(***) Includes (130)($737) and ($693) corresponding to net losses generated by NDFleases liabilities in the year ended December 31, 2018.

NOTE 25 – EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net income (loss) attributable to owners of the Parent by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing the net income (loss) for the year by the weighted average number of common shares issued and dilutive potential common shares at the closing of the year. Since the Company has no dilutive potential common stock outstanding, there are no dilutive earnings per share amounts.

For the year ended December 31, 2018 the weighted average number of shares outstanding amounted to 2,153,688,011 due to the changes caused by the Treasury Shares Acquisition Process that began in May 2013, as described in Note 20.d) to these consolidated financial statements.

For the years ended December 31, 20172020 and 2016, the Company has divided the net income attributable to the shareholders of the Controlling Company of each period based on 1,184,528,406 ordinary shares, which arise as a result of multiply 120,000 ordinary shares of Cablevisión outstanding for such years (see Note 1.c)) by the exchange ratio established in the pre-merger commitment (1 ordinary share of Cablevisión for each 9,871.07005 new shares of Telecom Argentina).2019, respectively.

 

NOTE 26 – FINANCIAL RISK MANAGEMENT

 

Financial risk factors

 

Telecom and its subsidiaries are exposed to the following financial risks in the ordinary course of its business operations:

 

·  marketMarket risk: stemming from change in exchange rates and interest rates in connection with financial assets that have been originated and financial liabilities that have been assumed;

·  creditCredit risk: representing the risk of the non-fulfillment of the obligations undertaken by the counterpart with regard toregarding the operations of Telecom;

·  liquidityLiquidity risk: connected with the need to meet short-term financial commitments.

 

These financial risks are managed by:

 

·  theThe definition of guidelines for directing operations;

·  theThe activity of the Board of Directors and Management which monitors the level of exposure to mentioned risks consistently with prefixed general objectives;

·  theThe identification of the most suitable financial instruments, including derivatives, to reach prefixed objectives;

·  theThe monitoring of the results achieved.

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The policies to manage and the sensitivity analyses of the above financial risks by Telecom are described below.

 

Market risk

 

One of the main Telecom’s market risks is its exposure to changes in foreign currency exchange rates in the markets in which it operates principally Argentina, Uruguay and Paraguay.operates.

 

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’s exposure to exchange variation risks is related mainly to its operating activities.

 

Telecom has great part of its commercial debt nominated in US$ and euro.other currencies. Additionally, holds part of its financial debt is denominated in US$ at variable rate..

 

The financial risk management policies of Telecom 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 (Seerates. For more information, see Note 21).22 to these consolidated financial statements.

 

Additionally, Telecom and its subsidiaries have cash and cash equivalents and investments mostly denominated in foreign currency that are also sensitive to changes in peso/dollar exchange rates and contribute to reduce the exposure to trade payables in foreign currency.

 

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TELECOM ARGENTINA S.A.

Financial assets and liabilities denominated in foreign currencies

Financial assets and liabilities denominated in foreign currencies as of December 31, 20182020 and 2017,2019, are the following:

 

2018

2017

20202019

In equivalent millions of Argentine pesos

In equivalent millions of Argentine pesos

Assets

17,111

3,058

20,64442,816

Liabilities

(90,217)

(11,131)

(206,279)(230,242)

Assets (Liabilities) Net

(73,106)

(8,073)

Liabilities Net(185,635)(187,426)

 

In order to reduce this net position in foreign currency Telecom has NDF as of December 31, 20182020 amounting to US$166117 million, therefore, the net liability not hedged amounts to US$1,7732,088 million as of that date.

 

Exchange rate risk – Sensitivity analysis

 

Based on the composition of the consolidated statement of financial position as of December 31, 2018,2020, which is a not hedged net liability position in foreign currency of $73,106 equivalent to US$1,9392,088 million, Management estimates that everya variation in the U.S. dollar exchange rate of $1 peso against the U.S. dollar and proportional variations for Euro and Guaraníes against the Argentine peso,approximately 10%, plus or minus, would result in a variation of approximately $1,939$17,571 of the consolidated amounts of foreign currency position.

If we consider only the portion not covered by derivative financial instruments, the net liability position totaled $66,848 equivalent to approximately US$1,773 million, and a variation of the exchange rate of 1 peso as described in the previous paragraph, would generate a variation of approximately $1,773 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, Telecom and its subsidiaries have bank overdrafts denominated in argentineArgentine pesos accruing interest at rates that are reset at maturity, notes at fixed rates and foreign bank loans and with other financial entities denominated in Argentine pesos, U.S. dollar and guaraníGuaraníes that bear interest at afixed and variable and fixed rate (Note 13).rates. For further information, see Note 13 to these consolidated financial statemnets.

 

The Company has financial debts at variable rate, which amounts approximately to $52,767$100,366 as of December 31, 2018.

2020. In order to reduce the effect of changes in interest rates, Telecom has NDF that amounts to US$440 million$18,513 as of December 31, 2018,2020, that convert variable raterates into fixed rate, thereforerates. Therefore, the net financial debt not hedged amounts to $36,179$81,853 as of December 31, 2018.Management2020. Management believes that any variation of 10100 bps in the agreed interest rates would become in thea following resultsresult of $36.$819.

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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’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.affect to our debtors.

 

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’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.

 

Date due

 

Cash and cash
equivalents

 

Investments

 

Trade
receivables, net

 

Other
receivables, net

 

Total

 

Cash and cash equivalents

 

Investments

 

Trade receivables, net

 

Other receivables, net

 

Total

Total due

-

7,287

-

7,287

-9,657219,678

Total not due

6,891

5,998

10,189

2,988

26,066

18,5276,6679,3581,45636,008

Total as of December 31, 2018

6,891

5,998

17,476

2,988

33,353

Total as of December 31, 202018,5276,66719,0151,47745,686

 

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); and (ii) on credit positions that do not present such characteristics, by customer segment considering the aging of the accounts receivable balances, expected credit losses, customer creditworthiness and changes in the customer payment terms. Total overdue balances not covered by the allowance for doubtful accounts amount to $7,278$9,657 as of December 31, 20182020 ($1,52111,272 as of December 31, 2017)2019).

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TELECOM ARGENTINA S.A.

 

Regarding the credit risk relating to the asset included in the “Net financial debt or asset”, it should be noted that Telecom 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 madeIn order to minimize credit risk, Telecom also pursues a diversification policy for its investments of liquidity with leading high-credit-quality banking and financial institutions and generally for short-term periods. Consequently, there are no significant positions with any one single counterpart.

 

Telecom serves a wide range of customers, including residential customers, businesses and governmental agencies. As such, Telecom’s account receivables are not subject to significant concentration of credit risk.

 

In order to minimize credit risk, Telecom 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 Telecom and its subsidiaries have no funds to accomplish its obligations of any nature (labor, commercial, fiscal and financial, among others).

 

Telecom and its subsidiaries’ working capital breakdown and their main variations are disclosed below:

 

 

2018

2017

Variation

Trade receivables

17,415

2,588

14,827

Other receivables (not considering financial NDF)

4,323

1,223

3,100

Inventories

2,737

136

2,601

Current liabilities (not considering financial debt)

(33,401)

(17,238)

(16,163)

Operative working capital

(8,926)

(13,291)

4,365

Over revenues

5.3%

19.9%

 

 

 

 

 

Cash and cash equivalents

6,891

6,517

374

Financial NDF

750

-

750

Investments

1,371

162

1,209

Current financial debt

(20,044)

(1,383)

(18,661)

Net Current financial (liabilitiy) asset

(11,032)

5,296

(16,328)

 

 

 

 

Negative operating working capital (current assets – current liabilities)

(19,958)

(7,995)

(11,963)

Liquidity rate

0.63

0.57

0.06

 

 

 

 

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 20202019Variation
Trade receivables18,95623,096(4,140)
Other receivables (not considering financial NDF)5,5146,027(513)
Inventories3,7224,373(651)
Current liabilities (not considering financial debt)(64,448)(69,025)4,577
Operative working capital(36,256)(35,529)(727)
Over revenues12.0%11.0% 
    
Cash and cash equivalents18,52734,827(16,300)
Financial NDF2222(220)
Investments6,5425845,958
Current financial debt(41,602)(48,031)6,429
Net Current financial (liability) asset(16,531)(12,398)(4,133)
    
Negative operating working capital (current assets – current liabilities)(52,787)(47,927)(4,860)
Liquidity rate0.500.59(0.09)

 

Telecom and its subsidiaries have 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 $8,296$52,787 as of December 31, 2018 (decreasing $4,3652020 (increasing $4,860 vs. December 31, 2017) mainly due to the dividend payments of Cablevision on January, 2018, declared in December, 2017.2019).

 

During years ended December 31, 20172020 and 2018,2019, Telecom continued obtaining funds tofrom the financial market (See Note 13), used to pay its investments, operative working capital, and other corporative expenses and refinancing part of its financial debts in the framework of its permanent policy of optimizing the term, rate and structure of its financial debts.

Telecom has an excellent credit rating. The Companyrating and has several financing sources and several offers from first-class international institutions to diversify its current funding structure, which includes accessing to domestic and international capital market and obtaining competitive bank loans in what relates to terms and financial costs. For further information on bank loans agreements, bank loans payments and bank loans restructured, see Note 13 to these consolidated financial statements.

 

The Company’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.

 

Telecom manages its cash and cash equivalents and its financial assets trying to match the term of investments with those of its obligations. Cash and cash equivalents position is invested in highly liquid short-term instruments.

 

Telecom maintains a liquidity policy that includes cash through its normal course of business. Telecom and its subsidiaries have consolidated cash and cash equivalents amounting to $6,891$18,527 (equivalent to US$183220 million) as of December 31, 20182020 (as of December 31, 20172019 amounted to US$236429 million). Telecom has bank credits and a program of Notes (See Note 13) that allow to finance its short-term obligations and an investment plan in addition to the operative cash flow for the next years (see Note 13).years.

 

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.

 

Maturity Date

 

Trade
payables

 

Financial
Debt

Salaries and
social security
payables

 

Other liabilities

 

 

Total

 

Trade payables

 

Financial

Debt

Salaries and social security payablesLeases liabilities

 

Other liabilities

 

 

Total

Due

2,149

-

-

-

2,149

2,816-2,816

January 2019 thru December 2019

20,709

21,917

5,953

341

48,920

January 2020 thru December 2020

278

17,336

182

7

17,803

January 2021 thru December 2021

170

34,289

116

-

34,575

36,54244,77414,3583,59542399,692

January 2022 and thereafter

253

18,743

92

-

19,088

January 2022 thru December 20221,77453,3134072,3935257,939
January 2023 thru December 202339853,4242701,735-55,827
January 2024 and thereafter27688,8472593,614-92,996

23,559

92,285

6,343

348

122,535

41,806240,35815,29411,337475309,270

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TELECOM ARGENTINA S.A.

 

Capital management

 

The primary objective of Telecom’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.

 

Telecom manages its capital structure and makes adjustments considering the business evolution and changes in the macroeconomic conditions. In relation to the merger, there has been an increase in capital in relation to the size of the merger Company, amounting to $2,169.

 

To maintain or adjust the capital structure, the company may adjust the dividend payment to shareholders and the level of indebtedness.

 

The company does not have to comply with regulatory capital adequacy requirements.

 

NOTE 27 - BALANCES AND TRANSACTIONS WITH COMPANIES UNDER SECTION 33 - LAW No. 19,550 AND RELATED PARTIES

a)Controlling Company

 

a)Controlling Company

As of December 31,

On January 1, 2018, Cablevisión was merged with and into Telecom Argentina (surviving entity), which was approved by the CNV (and registered in the IGJ under No. 16,345, Book 91, Tome “Corporations”). Since such date, CVH is the controlling company of Telecom, Argentina, holding directly and indirectly 38.81%28.16% of the total capital stock of the Company uponas of December 31, 2020. Additionally, and as mentioned below, both VLG S.A.U. and Fintech Telecom, LLC, contributed to the effectiveness of the Merger described under Note 4.a on January 1, 2018 and the effectiveness of the shareholder agreement signed on July 7, 2017 mentioned in this note. The change of control was authorized under ENACOM Resolution No. 5,644-E/2017.

Until November 30, 2017 Nortel was the holder of the 54.74%Voting Trust (see below), shares representing 10.92% of the total capital stock of the Company whereby it exercised control ofso the Company under the provisions of Section 33 of LGS. As of that date, Nortel held all of the Class “A” shares (51% of total capital stock of the Company) and 7.64% of the Class “B” shares (3.74% of total capital stock of the Company).

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As a result of the Company’s Treasury Shares Acquisition Process described in Note 20.d), Nortel’s equity interest in Telecom Argentina amountedsubject to 55.60% of the Company’s outstanding shares as of November 30, 2017. It is important to mention that 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 belonged to Sofora until November 30, 2017 and represented 78.38% of the capital stock of Nortel.

Sofora’s capital stock consisted of common stock shares, with nominal value of $1 peso each and entitled to one vote per share. As of November 30, 2017, Sofora’s total shares were held by Fintech, as a result of the total redemption of Sofora’s shares held by WAI during the fiscal year 2017 (see Note 4 f.1.). As of December 31, 2018, Fintech owns all Class “A” shares (31.53%agreement represent 21.84% of the total capital stock of the Company) and ADRs that represent rights over 186,999,612 Class “B” shares representing 8.62% of the total capital stock of the Company.Company (the “Shares in Trust”).

 

As informed in the Voting Trust Agreement, the trustee appointed by CVH must vote the Shares in Trust as instructed or voted by CVH with respect to all issues except in respect of certain matters subject to veto under the Shareholders´ Agreement.

Shareholders’ Agreement: Fintech - CVH

 

On July 7, 2017 CVH, VLG, Fintech Media LLC (merged to date with Fintech Telecom LLC), Fintech Advisory Inc., GC Dominio S.A. (all of them direct or indirect shareholders of Cablevisión S.A.) and Fintech Telecom LLC (direct or indirect shareholder of Telecom Argentina) entered into a shareholdersshareholders’ agreement that governs the exercise of their rights as shareholders of the Company. The Shareholders´ Agreement establishes basically:

·the representation in the corporate bodies, provided that subject to the fulfillment of certain conditions and as long as CVH holds a certain percentage of Telecom Shares, CVH shall be entitled to designate the majority of the directors, members of the Executive Committee, Audit Committee, Supervisory Committee, CEO and any other Key Employee (other than the CFO and the Internal Auditor). CVH shall also be entitled to nominate the Chairman of the Board of Directors and Fintech to nominate de Vice chairman of the Board of Directors.

·a scheme of supermajorities and required votes for the approval by the Shareholders´ Meetings or Board of Directors´ Meetings, respectively, of certain matters such as: i) the approval of the Business Plan and the Annual Budget of Telecom Argentina; ii) amendments of the bylaws, iii) changes in Independent Auditors, iv) the creation of committees of the Board of Directors, v) hiring of Key Employees as defined in the Shareholders´ Agreement (Key employees will be proposed by CVH, except for the CFO and the internal auditor); vi) merger of Telecom or any other controlled entity, vii) acquisitions of certain assets, viii) sale of certain assets, ix) capital increases; x) incurrence of indebtedness over certain limits, xi) capital investments not contemplated in the Business Plan and the Annual Budget above certain amounts; xii) related party transactions, xiii) contracts that may impose restrictions to the distribution of dividends; xiv) new lines of business or discontinuing existing lines of business; xv) contracting for significant amounts not contemplated in the Business Plan and the Annual Budget, among others.

Voting trust pursuant to the Shareholders’ Agreement between Fintech and CVH

In accordance with the Shareholders´ Agreement, on April 15, 2019, a Voting Trust Agreement (the "Trust Agreement") was regularized, under which Fintech Telecom LLC and VLG S.A.U. (i) each contributed with 235,177,350 shares of Telecom in a voting trust (the "Voting Trust") which, when added to the shares that CVH holds (directly and indirectly) in Telecom, exceed fifty percent (50%) of the outstanding shares, and (ii) CVH and Fintech Telecom LLC each appointed a co-trustee. The shares contributed to the Voting Trust will be voted by the co-trustee of CVH in accordance with the vote of CVH or following the instructions of CVH, except in respect of certain matters subject to veto under the Shareholders´ Agreement, in which case will be voted by the co-trustee of Fintech Telecom LLC in accordance with the vote of Fintech Telecom LLC or following the instructions of Fintech Telecom LLC.

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TELECOM ARGENTINA S.A.

 

·the representation in the corporate bodies, provided that subject to the fulfillment of certain conditions and as long as CVH holds a certain percentage of Telecom Shares, CVH shall be entitled to designate the majority of the directors, members of the Executive Committee, Audit Committee, Supervisory Committee, CEO and any other Key Employee (other than the CFO and the Internal Auditor). CVH shall also be entitled to nominate the Chairman of the Board of Directors and Fintech to nominate de Vice chairman of the Board of Directors.

·a scheme of supermajorities and required votes for the approval by the Shareholders´ Meetings or Board of Directors´ Meetings, respectively, of certain matters such as: i) the approval of the Business Plan and the Annual Budget of Telecom Argentina; ii) amendments of the bylaws, iii) changes in Independent Auditors, iv) the creation of committees of the Board of Directors, v) hiring of Key Employees as defined in the Shareholders´ Agreement (Key employees will be proposed by CVH, except for the CFO and the internal auditor); vi) merger of Telecom or any other controlled entity, vii) acquisitions of certain assets, viii) sale of certain assets, ix) capital increases; x) incurrence of indebtedness over certain limits, xi) capital investments not contemplated in the Business Plan and the Annual Budget above certain amounts; xii) related party transactions, xiii) contracts that may impose restrictions to the distribution of dividends; xiv) new lines of business or discontinuing existing lines of business; xv) contracting for significant amounts not contemplated in the Business Plan and the Annual Budget, among others.

Public Tender Offer due to change of control

 

On June 21, 2018, CVH informed the Company that it was informed that CVH (or the “Offeror”) of the promotionpromoting and formulation offormulating a Mandatory Public Tender Offer (“PTO”)mandatory public tender offer due to a change of control (“PTO”) for all the Class “B” common sharesB Shares issued by Telecom Argentina listed on Bolsas y Mercados Argentinos S.A. (“BYMA”)BYMA (including theoutstanding Class “C” common shares issued byC Shares of Telecom Argentina that weremight be converted into Class “B” common shares withinB Shares before the stipulated term) which CVH was obliged to perform because CVH had effectively obtainedexpiration deadline) (the “PTO Shares”) at a controlling interestprice of $110.85 Argentine pesos per PTO Share (previously deducting the items detailed in the Company. CVH attached a copy of the public announcement of the PTO, pursuant to applicable regulations, which was published in Diario Clarín on June 23, 24 and 25 and in BYMA’s Daily Bulletin on June 21, 2018 (the “PTO Announcement”)OPA announcement).

 

In said PTO Announcement,Pursuant to public releases published by CVH, informed that, notwithstanding the fact that Fintech Telecom LLC is not obliged under the applicable standards to promote, formulate or launch a PTO and that it has not takenas part in the determination or formulation of any of the terms and conditions ofadministrative process to authorize the PTO, as provided under the agreement executed between the shareholders of Telecom Argentina, Fintech Telecom LLC has undertaken with regard to CVH to pay and acquire 50% of the shares that will be acquired under the PTO (notwithstanding CVH’s right to acquire by itself the first 43,073,760 Class “B” shares).

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The price offered in the PTO Announcement for the Class “B” common shares issued by Telecom Argentina that are listed on BYMA (including the Class “C” common shares issued by Telecom Argentina that were converted into Class “B” common shares within the stipulated term) and that are not directly or indirectly held by CVH or Fintech Telecom LLC (the “Shares”, or in singular, the “Share”) tendered by their holders for its acquisition during the Offer Reception Period is 110.85 Argentine Pesos per Share (less any cash dividend per share as may be payable by Telecom Argentina from the date of the PTO Announcement to the date of actual payment of the PTO price and other expenses such as fees for transfer, rights, fees, commissions, taxes, rates or contributions) (the “PTO Price”), which will be paid in pesos in Argentina.

On July 5, 2018, the Board of Directors of Telecom Argentina, in compliance with the provisions of article 3 c), Chapter II, Title III of the Rules of the CNV expressed its disagreement with the opinionprice announced by CVH, and took the position that the Priceprice per PTO Share should be US$4.8658 payable in Argentine pesos at the foreign exchange rate in effect on the business day immediate prior to the settlement of the OPA has been fixed inPTO. CVH considered the mandatory terms foreseen inCNV’s position unfounded and initiated the current legal regime in accordance with Article 88, section I of the Capital Markets Law and issued the Board Report set forth in said Rules.

On September 21, 2018, the Company received a communication from CVH informing the issuance of the resolution dated September 20, 2018, in the case ofproceeding “Cablevisión Holding S.A. against/National Securities Commissionc/ Comisión Nacional de Valores s/Precautionary Measures” Expte. Medidas Cautelares” (File. No. 7998/2018 in process18) in the Federal Civil and Commercial Court No. 3, pursuant to which, as an interim precautionary measure, the CNV must refrain from issuing and ruling on the authorization of the PTO promoted and formulated by CVH on the June 21, 2018, until the precautionary measure requested is resolved once the provisions of art. 4 of the Law No. 26,854.

3. On November 28,1, 2018, CVH notified the Company of the decision issued on November 27, 2018 in re “Cablevisión Holding S.A. v. Comisión Nacional de Valores on Injunctions” File 7,998/2018, pending before Federal Civil and Commercial Court No. 3 whereby the Court deemed accepted (as a requirement of admissibility) the bond required under the decision rendered on November 1, 2018, which had granted the request filed by CVH. It ordered, asconfirmed a preliminary injunction obtained by CVH and ordered the CNV to refrainabstain for six months from issuing any decision onwith respect to the authorization of the PTO submitted and formulatedpromoted by CVH on June 21, 2018.

 

On June 10, 2019 CVH informed Telecom that on such date CVH was served with notice of a preliminary injunction rendered on May 9, 2019 in the case “Burgueño Daniel v. Executive Branch - CNV on (Autonomous) Preliminary Injunction” (File No. 89537/18) pending before the Court of Appeals on Administrative Litigation Matters No. 1, Secretariat No. 1, suspending the process relating to the PTO, until the CNV resolves on the applicability of Resolution No. 779/18 or the expiration of the term contemplated in section 5 of Law No. 26,854 governing injunctions. This preliminary injunction was extended by several succeeding court decisions, being the last one the court decision rendered on May 15, 2020, which extended the mentioned preliminary injunction for six months.

On July 6, 2020 CVH informed Telecom that on such date CVH was served with notice of a decision rendered on July 3, 2020 by the Chamber V of the Federal Court of Appeals on Administrative Litigation Matters in re “Burgueño Daniel v. Executive Branch - CNV on (Autonomous) Preliminary Injunction” (File No. 89537/18), whereby said Court decided to interrupt the judicial recess period only to consider the appeal filed by the CNV on May 26, 2020, dismiss such appeal and, consequently, confirm the extension of the preliminary injunction granted thereunder.

On the other hand, on July 19, 2019, CVH was served with notice of a resolution rendered on the same date by the Chamber I of the Federal Civil and Commercial Court of Appeals in re “Cablevisión Holding S.A. v. Argentine Securities Commission on Injunctions” (File No. 7998/18), lifting the preliminary injunction granted to CVH whereby the CNV was ordered to abstain from issuing any decision with respect to the authorization of the PTO. The resolution also provided that an appeal by CVH to CNV’s decision with respect to the PTO would have a suspensive effect. CVH filed a federal extraordinary proceeding against the Federal Civil and Commercial Court of Appeal’s decision, which was dismissed on December 26, 2019. However, as explained above, the PTO remained at the time subject to the preliminary injunction obtained by a shareholder of CVH – Daniel Burgueño – in the separate legal proceedings mentioned in the previous paragraphs.

On November 26, 2019, CVH was served with a notice of a proceeding initiated by a shareholder of CVH, Mr. Daniel Burgueño, in re “Burgueño, Daniel Fernando v. EN-CNV s/ Proceso de Conocimiento” (File No. 33763/19), pending before the National First Instance Court on Federal Administrative Litigation Matters No. 1, Secretariat No. 1. Mr. Burgueño seeks the court to rule that CVH is not required to conduct the PTO as a result of the change of control in Telecom in light of paragraph k) of Section 32 of Resolution CNV No. 779/18, regulating Law No. 26,831 (as amended by Law No. 27,440).

On December 27, 2019, CVH informed Telecom that on such date CVH was served with notice of the first instance court’s decision in re “Burgueño, Daniel Fernando v. EN-CNV s/ Proceso de Conocimiento” (File No. 33763/19) ruling in favor of the complaint brought by Mr. Burgueño, confirming that CVH’s does not have the obligation to conduct the PTO according to Resolution CNV No. 779/18, specifically Section 32, paragraph k), and ordering the CNV to deem the proceedings initiated in connection with the PTO concluded, and also ordered CVH to cease with the PTO.

On September 8, 2020 CVH informed Telecom that on such date CVH was served with notice of a decision rendered by the Chamber V of the Federal Court of Appeals on Administrative Litigation Matters in re “Burgueño Daniel Fernando v. EN - CNV s/ Proceso de Conocimiento” (File. No. 33763/19), rejecting the appeal filed by the CNV of the decision rendered by the court of first instance mentioned in the prior paragraph.

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TELECOM ARGENTINA S.A.

Finally, on October 29, 2020, CVH informed Telecom that on such date CVH was served with notice of the judgment of Chamber V of the Federal Court of Appeals on Administrative Litigation Matters issued in re “Burgueño Daniel Fernando v. EN - CNV s/ Proceso de Conocimiento” (File. No. 33763/19) dismissing the extraordinary appeal filed by the CNV against the first instance judgment rendered on September 8, 2020 mentioned in the prior paragraph.

As of the date of issuance of these consolidated financial statements, resolution dated November 1, 2018 which conferring the precautionary measuredecision rendered by Chamber V of Federal Court of Appeals on Administrative Litigation Matters issued on September 8, 2020 in re “Burgueño Daniel Fernando v. EN - CNV s/ Proceso de Conocimiento” (File. No. 33763/19) is not final, since the CNV can still not enforceable.initiate further appeal directly before the Supreme Court of Justice.

 

b)Related Parties

b)Related Parties

 

For the purposes of these consolidated financial statements, related parties are those individuals or legal entities which are related (into Telecom in terms of IAS 24) to Fintech Telecom LLC and CVH, except companies under sect. 33 of the LGS.

For the years presented, Telecom and Cablevision has not conducted any transactions with Key Managers and/or persons related to them, except the mentioned in e) below.

c)Balances with Companies under section 33 - Law No. 19,550 and Related Parties

·Companies under section 33 - Law No. 19,550 – Controlling companies24.

 

CURRENT LIABILITIES

c)

Type of related partyBalances with Companies under section 33 - Law No. 19,550 and Related Parties

As of December 31,

Dividends payables

2018

2017

CVH

Controlling company

-

2,067

VLG

Shareholder

-

3,090

Fintech Media LLC

Shareholder

-

864

-

6,021

 

·Companies under section 33 - Law No. 19,550 – Associates

·Companies under section 33 - Law No. 19,550 – Associates

 

CURRENT ASSETS

 

Type of related party

As of December 31,

Other receivables (1)

 

 

2018

2017

La Capital Cable S.A.

 

Associate

78

34

Teledifusora San Miguel Arcángel S.A.

 

Associate

19

40

Ver T.V. S.A.

 

Associate

47

100

 

 

 

144

174

CURRENT LIABILITIES

 

 

 

 

Trade payables

 

 

 

 

Televisora Privada del Oeste S.A.(2)

 

Associate

3

-

 

 

 

3

-

Financial Debt

 

 

 

 

La Capital Cable S.A.

 

Associate

-

6

 

 

 

-

6

CURRENT ASSETS  As of December 31,
Trade receivables  20202019
Ver TV  2-
   2-
Other receivables    
La Capital Cable  10549
TSMA  330
Ver TV  1078
   118157
CURRENT LIABILITIES    
Other liabilities    
Televisora Privada del Oeste S.A.  33
   33

·Related parties

CURRENT ASSETS  As of December 31,
Trade receivables  20202019
Other Related parties  163186
   163186
Other receivables    
Other related parties  32-
   32-
CURRENT LIABILITIES    
Trade payables    
Other Related parties  9131,200
   9131,200

d)Transactions with Companies under section 33 - Law No. 19,550 and related parties

·Companies under section 33 - Law No. 19,550– Associates

 TransactionYears ended December 31,
  202020192018
  Profit (loss)
  Revenues
La Capital CableServices revenues and other revenues4468101
Ver TVServices revenues1--
  4568101
  Operating costs
La Capital CableFees for services(53)(53)(50)
  (53)(53)(50)
  Financial results
Ver TVInterests33--
La Capital CableInterests15--
  48--

·Related Parties

  TransactionYears ended December 31,
   202020192018
   Profit (loss)
   Revenues
Other Related parties. Services and advertising revenues212225260
   212225260
   Operating costs
Other Related parties Programming costs(3,178)(3,320)(3,374)
Other Related parties Editing and distribution of magazines(751)(946)(1,168)
Other Related parties Advisory services(481)(457)(493)
Other Related parties Advertising purchases(495)(636)(837)
Other Related parties Other purchases and commissions(153)(117)(229)
   (5,058)(5,476)(6,101)

 

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·Related parties

CURRENT ASSETS

 

Type of related party

As of December 31,

Trade receivables

 

 

2018

2017

Other Related parties

 

Related party

92

59

 

 

 

92

59

CURRENT LIABILITIES

 

 

 

 

Trade payables

 

 

 

 

Other Related parties

 

Related party

565

438

 

 

 

565

438

 

(1)Include 65 and 134 as of December 31, 2018 and as of December 31, 2017, respectively corresponding to dividends receivable.

(2)Associate Company throughout PEM.

d)Transactions with Companies under section 33 - Law No. 19,550 and related parties

·Companies under section 33 - Law No. 19,550– Controlling companies

 

Transaction

Type of related party

Years ended December 31,

 

 

 

2018

      2017

2016

 

 

 

 

Profit (loss)

 

 

 

 

 

Revenues

 

Grupo Clarín S.A. (1)

Other services revenues

Controlling company

-

-

3

 

 

 

-

-

3

 

 

 

Operating costs

Grupo Clarín S.A. (1)

Advisory services

Controlling company

-

-

(95)

CVH

Advisory services

Controlling company

-

(99)

-

 

 

 

-

(99)

(95)

 

 

 

Finance results

 

 

 

 

 

 

Grupo Clarín S.A. (1)

Interests on loans granted

Controlling company

-

-

713

CVH

Interests on loans granted

Controlling company

-

20

-

 

 

 

-

20

713

(1)It ceased to be Cablevisión´s controlling company as of May 1, 2017. Note 4.e).

·Companies under section 33 - Law No. 19,550– Associates

 

Transaction

Type of related party

Years ended December 31,

 

 

 

2018

      2017

2016

 

 

 

 

Profit (loss)

 

 

 

 

 

Revenues

 

La Capital Cable S.A.

Services revenues

Associate

11

12

12

La Capital Cable S.A.

Other revenues

Associate

37

29

41

 

 

 

48

41

53

 

 

 

Operating costs

La Capital Cable S.A.

Fees for services

Associate

(24)

(19)

(12)

 

 

 

(24)

(19)

(12)

 

 

 

Finance results

La Capital Cable S.A.

Interests on debt

Associate

-

(1)

(2)

 

 

 

-

(1)

(2)

·Related Parties (2)

 

Transaction

Type of related party

Years ended December 31,

 

 

 

2018

      2017

2016

 

 

 

 

Profit (loss)

 

 

 

 

 

Revenues

 

Other Related parties

Advertising sales

Related Party

36

50

3

Other Related parties

Services revenues

Related Party

88

59

39

 

 

 

124

109

42

 

 

 

Operating costs

Other Related parties

Programming costs

Related Party

(1,611)

(1,614)

(1,480)

Other Related parties

Editing and distribution of magazines

Related Party

(558)

(363)

(407)

Other Related parties

Advisory services

Related Party

(235)

(356)

(236)

Other Related parties

Advertising purchases

Related Party

(400)

(166)

(131)

Other Related parties

Other purchases

Related Party

(109)

(23)

(37)

 

 

 

(2,913)

(2,522)

(2,291)

(2)Includes mainly operations with the following related parties through the Grupo Clarín S.A.: Arte Radiotelevisivo Argentino S.A., Arte Gráfico Editorial Argentino S.A., Unir S.A., Impripost S.A., Tele Red Imagen S.A., GC Gestión Compartida S.A. y Compañía De Medios DigitalesTELECOM ARGENTINA S.A.

 

The transactions discussed above were made on terms no less favorable to Telecom than would have been obtained from unaffiliated third parties. The Board of Directors approvedWhen Telecom’s transactions representingrepresented more than 1% of theits total shareholders’ equity, of the Company, after beingthey were approved by the Audit Committee in compliance withaccording to Law No. 26,831.26,831, the Bylaws and the Executive Committees’ Faculties and Performance Regulation.

 

Cablevisión agreements with its shareholders

e)Key Managers

 

On June 28, 2008, CablevisiónCompensation for Directors and Grupo Clarín executed a supplementary agreement to the technical assistance agreement, effective as of September 26, 2006, whereby they amended the volume of the services rendered by Grupo ClarínKey Managers includes fixed and the mechanism used to determine that company’s annual fee.

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On January 6, 2017variable compensation, retention plans, social security contribution, and, January 5, 2016 respectively, the agreements were amended, setting Grupo Clarín’s annual fees. On April 30, 2017 the contract was terminated as a consequence of the change of controlling company (See Note 4.e).

On May 1, 2017 Cablevisión and Cablevisión Holding S.A., entered into a contract for advisory services and technical assistance under which the parties set the volume of services to be received from Cablevisión Holding S.A. and the way in which the annual fee shall be determined.

On the occasion of the merger described in Note 4.a), the contracts for advisory services and technical assistance subscribed between Cablevisión and CVH have been left without effects.

e)Key Managers

some cases, accrued severance compensation. Compensation for Directors and Key Managers of Telecom Argentina for the year ended December 31, 2018, and for Directors and Key Managers of Cablevisión for the years ended December 31, 20172020, 2019 and 2016, including social security contribution,2018 amounted to $1,454, $800 and $324, $77 and $65, respectively (both in(in current currency onof the transaction date), and waswere recorded as expenses under the line item Employee“Employee benefits expenses and severance payments.

payments”. As of December 31, 2018,2020, an amount of $157$1,132 remained unpaid.

 

Telecom Argentina has recorded a provision of $86, $110 and $83 for the fees of its Board of Directors’ members for the year ended December 31, 2018 (in current currency on the transaction date). The fees to the Board of Directors of Cablevisión for years ended December 31, 20172020, 2019 and 2016 amounted to approximately $13 and $10,2018, respectively (in current currency onof the transaction date).

 

The members and alternate members of the Board of Directors do not hold executive positions in the Company or Company’s subsidiaries.

f)Amendment of the Telecom Argentina’s Bylaws

The Extraordinary General Meeting and the Special Meetings of the Class “A” and Class “D” Shares held on October 10, 2019 approved the amendment of sections 4, 5 and 6 of the Bylaws, so that the shares Class "A" and Class "D", currently book-entry, may be represented in a cardboard or in book-entry form, as determined by a special meeting of Class "A" or Class "D" shares. The delegation of powers to the Board of Directors was approved to determine the time, terms and condition of issuance of the securities representing the cardboard shares, in the event that this was resolved in the future by the respective Special Meetings of Class “A” and Class "D" shares.

Afterwards, General Extraordinary Shareholders’ Meeting and Class “A” and Class “D” Shares Special Shareholders’ Meetings held on December 11, 2020 approved the amendment of section 10 of the Company´s Bylaws so as to establish a minimum prior notice for any call to Board Meetings of 5 calendar days, except in the event of urgency, in which case the Meeting may be called with a prior notice of 1 day, and to establish new notification procedures to calls for such Meetings.

As of the date of this consolidated financial statements, the registration of both amendments in the IGJ is still pending.

 

NOTE 28 – 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 yearsyears’ 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).

 

NOTE 29 – IMPACT OF CORONAVIRUS IN TELECOM

By the end of December 2019, the World Health Organization (WHO) received a report of pneumonia cases originated in Wuhan, Province of Hubei, China. The report was related to the outbreak of a new virus called Coronavirus (“Covid-19”), which soon spread to several provinces of China and then to other countries. The outbreak and spread of Covid-19 generated several consequences on businesses and economic activities at a global level.

Given the extent of the Covid-19 spread, several governments in the world have implemented drastic measures to restrict the movement of the population and to content the spread, including, among other things, controls at airports and other transport hubs, suspension of visas, border closure and the ban to travel to and from certain parts of the world, closure of public and private institutions, suspension of sports events, restrictions on museums and tourist attractions, extension of vacations, and finally, the mandatory isolation of the population together with the suspension of non-essential commercial activities with a high degree of compliance. On March 11, 2020, the WHO declared Covid-19 a global pandemic.

In Argentina, the National Government set-forth several measures intended to reduce the movement of the population and imposed the Mandatory and Preventive Social Isolation from March 20, 2020, which only allowed the movement of individuals involved in the provision/production of essential services and products, among them, the provision of telecommunication, fixed and mobile Internet and digital services. Such isolation has been modified and extended through different stages and geographical regions and will be extended as deemed necessary according to the epidemiological situation of each city.

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On November 9, 2020, the National Government ordered the Mandatory and Preventive Social Distancing for all persons who reside or transit in urban centers and in districts and departments of the Argentine provinces that do not have a sustained community transmission of the virus and they positively verify certain epidemiological and sanitary parameters. The locations where these parameters were not met continued with the Mandatory and Preventive Social Isolation. During the effectiveness of the Mandatory and Preventive Social Distancing, several services and activities are still declared “essential” as they had been defined during the effectiveness of the Mandatory and Preventive Social Isolation. The services provided by Telecom fall within this category.

On the other hand, Argentina is one of the countries selected by the WHO that are participating in the “Solidarity Trials” in order to generate rigorous data throughout the world to find the most effective treatments for hospitalized COVID-19 patients and evaluate the efficacy of vaccines. Argentina has also been selected as part of the countries where clinical trials are being conducted for, at least, three of the COVID-19 vaccines, and the Government has announced that another vaccine will be produced in the national territory.

Telecom provides services that are critical for society as it connects people, homes, companies and governments. The infrastructure deployed contributes to providing, through the capacity of fixed and mobile networks, essential services for the coordination of the security forces and the health ecosystem where communications at healthcare centers and new field hospitals have been strengthened and enhanced. Additionally, we have facilitated the communication between students and teachers through virtual educational platforms, so that they have pedagogical continuity through different applications, boosting the access to information for all the population. In the same way, services offered by Telecom allow people to continue being informed and entertained, with content, such as series, movies and recitals, and gaming availability provided through different platforms, which strengthened our customers’ accompaniment.

In economic terms, the services rendered by the Company favor the continuity of the activities of large, medium-and-small sized companies that are still operating, many of them remotely, boosted by online platforms so that sellers and consumers can connect and sustain consumption; cooperate with the productive processes through the implementation of home office as one of the most disruptive tools given its massive and immediate application, contributing to sustaining the economy of the country. Also, services provided by the Company, in this context of isolation, enable people to stay connected with their loved ones, entertain themselves, work and stay informed from their homes.

Due to the investments in infrastructure made over the last years, Telecom has equipment and systems that enable its networks to work efficiently even with the higher use of the fixed and mobile connectivity recorded since the beginning of the Mandatory and Preventive Social Isolation, that is reflected in the 50% increase of Internet services at home, the 70% increase in voice mobile services and 30% increase in mobile data services, considering that mobile and fixed networks complement each other and that customers uses them alternatively, also showing a 75% increase in upstream.

üExternal initiatives implemented by Telecom related to the health emergency

The COVID-19 pandemic has driven joint actions by domestic companies that gave essential support to face the health emergency, reflected in the donation of funds, services, supplies and products and other kind of assistance.

Telecom received a recognition of the NYSE for the social value initiatives implemented as part of its permanent commitment to its community in response to the COVID-19 emergency. The most relevant initiatives were the following:

·connectivity for field hospitals;
·discount in the service for more than 500 hospitals and health centers throughout the country, to “Cruz Roja Argentina” (Argentine Red Cross) and “Banco de Alimentos” (Food Bank Foundation);
·services extension for emergency lines;
·discount in mobile data services for the use of more than 2,900 educational platforms;
·discount services for the use of more than 11,000 educational institutions;
·incorporation of own educational content through the program “Nuestro Lugar” (www.nuestrolugar.com.ar) with e-citizenship proposals for children, families and teachers;
·increase in pedagogical contents in the Flow entertainment platform, with access to Flow App extended to all the cable television customer base;
·benefits to enable customers to take further advantage of connection possibilities and access to valuable information and educational and entertainment content;
·support for the solidarity initiative “Seamos Uno” (Let Us Be One) for the delivery of food and personal care products to families in need, among many other initiatives; and
·provision of communication tools to transmit health information to citizens, in alliance efforts with municipalities and provincial governments throughout the country.

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üInternal initiatives implemented by Telecom related to the health emergency

The Company implemented a series of initiatives to ensure the continuity of its operations, safeguarding the health and the wellness of all the employees and of those that are part of the value chain. The main initiatives adopted by the Company comprise:

·the Crisis Committee, composed of members of top Management, started to perform its duties periodically together with the assessment of sanitary experts, to address the different scenarios that may arise and for quick decision-making;
·Home office for more than 70% of employees (including those working in commercial areas and call centers), even before to the Mandatory and Preventive Social Isolation pronouncement, with virtual private network access so that they can work with the same tools and security levels they have in their working places at our offices. Therefore, working teams are provided with web and mobile applications for (i) administrative and human resources tasks, (ii) access to e-learning training and (iii) communication and collaborative workspaces, virtual rooms and access to files and documentation from anywhere, in a collaborative and safe way;
·enhancement of cleaning and disinfection at working places and environments for those tasks that cannot be performed remotely, including the vans used for providing technical support, and provision of hand washing and sanitizing methods and the distribution of personal care kits in accordance with the protocol established by the Superintendence of Labor Risks;
·the early performance of the tasks planned for 2020 and the initiation of works to ensure the capacity of networks required to continue operating;
·expansion of the capacity for international outgoing Internet traffic by 40%;
·we entered into agreements to enhance the links with international suppliers and IP networks;
·early execution in public thoroughfare of infrastructure works on residential fixed data networks, strengthening of data centers and hubs and increase of the capacity of Flow's content distribution network;
·expansion of the capacity of the mobile network in certain smaller cities in the provinces where there is only one network, and the continuation of preventive maintenance tasks in all the networks;
·since the first day of the mandatory isolation, the Company launched a campaign promoting all the digital communication channels and encouraging customers to request support through those channels. In order to handle that new flow of customers, Telecom enhanced digital support by implementing special microsites identified as “I pay from home”;
·in compliance with current regulations of each locality, Telecom progressively opened commercial offices in cities which were evolving their mandatory isolation stage;
·technical support was focused on preventive maintenance and repairs in public thoroughfare and on Telecom's own infrastructure, giving priority to critical cases such as hospitals and security forces, among others;
·in the case of new installations and repairs that have to be made inside our customers’ homes, Telecom provided technical teams with personal care and safety kits, which include special protective gear such as coveralls, gloves, face masks and special goggles, hand sanitizer and training for the proper and safe use of those elements;
·since the beginning of this health situation, several initiatives were developed through the corporate program “Nos Acompañamos” (We Are in Company) intended for all Company employees, for the purpose of taking care of psychological, biological and social wellness, and focused on the work-life balance;
·continuation of ongoing communication with trade unions to agree on working protocols that allow the Company to continue providing services and, at the same time, safeguard the health of its employees; and
·ongoing communication with our strategic partners and other international operators from the countries with greater spread of the pandemic in order to understand and foresee the potential impacts on our operations.

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üRegulatory Matters

·Prohibition to disconnect services in case of arrears or non-payment

On March 24, 2020, the PEN issued Decree No. 311/20, whereby it provided, for the individuals included in section 3, the temporary suspension of the right to disconnect services deemed essential for the development of daily life, such as electricity, water and gas supply, fixed or mobile telephony, Internet and radio electric link or satellite link subscription television, among others, in order to guarantee the access to those essentials services in case of arrears or failure to pay up to three consecutive or alternate invoices maturing since March 1, 2020. On June 18, 2020, the PEN issued Decree No. 543/20 which provided the extension of such temporary suspension in case of arrears or failure to pay up to six consecutive or alternate invoices maturing since March 1, 2020. On September 20, 2020, the PEN issued Decree No. 756/20, which provided the extension of such temporary suspension in case of arrears or failure to pay up to seven consecutive or alternate invoices.

The Decree No. 311/20 also established that, in the case of fixed or mobile telephony, Internet and cable television services, by radio-electric link or satellite link, operators were forced to maintain a reduced service, as established in the regulations, for a period of one hundred eighty (180) calendar days, which was extended with each extension of Decree No. 311/20. Likewise, it established that, if users who had a prepaid mobile service or Internet service did not pay the corresponding recharge to access consumption, operators should provide a reduced service in the terms provided by the regulations. This obligation would apply until April 30, 2020. This obligation was successively extended though different decrees, setting its final expiration date on December 31, 2020, throughout the Decree No. 756/20.

·Telecommunication industry agreement with ENACOM

In May 2020, the Company, together with other companies of the telecommunication industry, entered into an agreement with ENACOM, which was effective until August 31, 2020. This agreement, among other issues, provided: (i) for the suspension of increases in prices of mobile and fixed telephony, Internet and cable television services from May 1, 2020 to August 31, 2020, to ease the situation of users affected by the quarantine, (ii) the creation of inclusive plans for mobile and fixed telephony and mobile and fixed Internet for users who request such benefit, establishing a fixed price until September 30, 2020, (iii) for the extension of the benefit of “reduced service” ensuring connectivity for users of the prepaid mobile service or Internet service, maintaining the price until October 31, 2020, (iv) that during the term of this agreement employers would not dismiss employees without cause, and (v) that, in the case of salary increases as a result of trade union agreements, this agreement will be renegotiated and the effects of such agreement would be immediately suspended.

Although the mentioned agreement, on August 22, 2020, the PEN issued Decree No. 690/2020, amending the LAD. For more information on Decree No. 690/2020, see Note 2 to these consolidated financial statements.

üMain Accounting Impacts

As of the date of these consolidated financial statements, the Company has not experienced any significant impacts on its results as a consequence of the pandemic. Despite the several difficulties that caused a slowdown or complexities in our operations; such as the increased Internet data traffic, the increase in mobile voice service, the decrease in the collection of service fees, and mainly the inconveniences to make repairs and installations inside our customers’ homes; among others, the operations are still in place and are expected to continue in spite of the difficulties.

In accordance with IAS 36, the Company’s Management has assessed during 2020 if there were indicators of impairment of the recoverable value of its fixed assets. Even though the pandemic could have a significant impact in the economic activity in Argentina, what could be an impairment trigger, according to mentioned assessment, no negative impacts have been identified in the capacity of generation of future cash flows of the Company as a consequence of the pandemic, as the volume of operations is expected to remain stable.

On the other hand, the implementation of measures aimed at reducing the movement of people included, initially, the closure of in-person collection channels, affecting the collections of the Company since March 20, 2020. However, this situation was gradually regularized during the second quarter of 2020 as in-person collection channels reopened and digital channels were strengthened through the implementation of “I pay from home”. The Company’s Management estimates that the deterioration of the economic situation of the country represents an increase in trade receivables credit risk at the end of the reporting period. These consolidated financial statements include an increase in the allowance for doubtful accounts as a consequence of the application of the expected credit losses of IFRS 9. For further information on the breakdown and maturity dates of trade receivables, see Notes 5 and 26, respectively, to these consolidated financial statements.

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-Liquidity Risk

The negative effects generated on the collection of service fees mentioned above does not represent a liquidity risk regarding the fulfillment of short-term financial obligations, since the Company has been working long strengthening its liquidity. Telecom and its subsidiaries have enough liquidity, bank credit lines and a notes program that allow them to finance their short-term obligations and the investment plan in addition to the projected operating cash flows.

However, the Company implemented measures that allowed it to have the highest possible liquidity to face the volatility of the context with greater uncertainty, offset the potential decrease in cash flows and fulfill its obligations.

The ultimate effects of Covid-19 and its impact on the global and local economy are still unknown. Governments may issue stricter measures, which cannot be predicted at this stage. The Company’s Management will continue to develop actions that minimize the potential impairment on its results, as a result of these situations, maintaining a level of service and customer satisfaction, and seeking to maximize the precautions in social management in this context.

The Company's Board of Directors and the Crisis Committee continue monitoring the evolution of the situation and taking the necessary measures to preserve human life and the sustainability of Telecom's businesses.

NOTE 30 – SUBSEQUENT EVENTS TO DECEMBER 31, 2020

1)Global Programs for the issuance of Notes

Telecom Argentina

In connection with the Notes Global Program for a maximum outstanding amount of US$3,000 million or its equivalent in other currencies, the Company announced on January 14, 2021, the subscription of new series of notes for a total nominal value determined in UVA equivalent for up to $1,500, that could be increased to $12,000. The amount of the Notes finally issued and its main characteristics are detailed below:

Series 8 Notes

Issuance date: January 20, 2021.

Amount involved: 133,628,950 UVA (equivalent to $8,708,598,672 Argentine pesos as of the date of issuance).

Maturity Date: January 20, 2025.

Amortization: Principal will be paid in one installment at maturity date.

Interest rate and Payment Date: Interest is payable on a quarterly basis from its issuance date until its maturity date at an annual fixed rate of 4.00%. The last interest payment date will be on maturity date.

2)Cash dividends collected from associates

During February 2021 cash dividends were collected form Ver TV and TSMA in an amount of $157 ($156 directly and $1 indirectly through the subsidiary Inter Radios).

 

 

 

 

Alejandro UrricelquiCarlos Moltini

Chairman of the Board of Directors

 

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