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Edited Transcript of TECO24.BA earnings conference call or presentation 9-Mar-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Telecom Argentina SA Earnings Call

Buenos Aires Mar 9, 2017 (Thomson StreetEvents) -- Edited Transcript of Telecom Argentina SA earnings conference call or presentation Thursday, March 9, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Solange Barthe Dennin

Telecom Argentina SA - IR Manager

* German Vidal

Telecom Argentina SA - CEO

* Pedro Insussarry

Telecom Argentina SA - CFO

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Conference Call Participants

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* Ricardo Cavanagh

Itau BBA International, S.A. - Analyst

* Fernando Suarez

AR Partners - Analyst

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Presentation

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Operator [1]

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Good day everyone, and welcome to the Telecom Argentina TEO Fourth Quarter 2016 Earnings Conference Call. Today's call is being recorded. Participating on today's call, we have German Vidal, Chief Executive Officer; Mr. Ignacio Moran; Mr. Pedro Insussarry, Director of Finance and Ms. Solange Barthe Dennin, Investor Relations Manager.

At this time, I'd like to turn the conference over to Ms. Solange Barthe Dennin, please go ahead ma'am.

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Solange Barthe Dennin, Telecom Argentina SA - IR Manager [2]

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Thank you very much Dan. Good morning, on behalf of Telecom Argentina, I would like to thank everybody for participating on this conference call. As mentioned by our moderator, the participants of today's conference call are German Vidal, Chief Executive Officer; Ignacio Moran; Pedro Insussarry, Director of Finance acting as CFO, and myself, Solange Barthe Dennin, Manager of Investor Relations.

As we have publicly announced today, Ignacio Moran is participating on the call and his position as CFO is transitioning to Pedro Insussarry. German Vidal will address this issue in further remark. In relation to the conference call, the purpose of the call is to share with you the results of the fourth quarter results 2016 ending December 31, 2016.

We would like to remind all of those that have not received our press release or presentation that they can call our Investor Relation office to request the documents or download them from the Investor Relations section of our website located at www.telecom.com.ar. Additionally, this conference call and slide presentation is being broadcasted through the webcast feature available in such section and can also be replayed through these same channels.

Before we continue with the conference call, I would like to go over some safe harbor information and other details of the call, as we usually do in this type of events. We would like to clarify that during the conference call and Q&A session, we may produce certain forward looking statements about Telecom's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Telecom's actual results and operations to differ materially.

Such uncertainties include, but are not limited to, the effect of ongoing industry and economic regulation, possible changes in the demand for Telecom's products and services, and the effect of more general factors such as changes in general market or economic conditions in legislation or in regulations.

Our press release dated March 8, 2017 and copy of which has been included in a Form 6-K report furnished to the SEC, describes certain factors that may affect any forward-looking statements that we may produce during this session. Furthermore, we urge the audience of this conference call to read the disclaimer clause contained in slide 1 of the presentation.

The agenda for today's conference call, as seen in slide 2 is first to go over general market overview, then moving onto vision and strategy, which will be followed by the discussion of our business highlights and immediately after, we will go into the evolution of our financial figures. Finally, we will end the call with a Q&A session, as it's customary in our quarterly calls, with the financial community.

Having gone through these procedural matters, I will now go over a brief macroeconomic overview of the environment in which we operate. In 2016, the Argentine economy suffered a contraction that became more intense during the second and third quarter of the year. In general terms, the performance of most economic sectors was affected (inaudible) downsizes of different intensity.

Nonetheless, some relative improvements were observed towards the last month of the year in certain specific sectors, signaling the coming of an inflection point in the economic activity. Meanwhile, core inflation measures for fourth quarter 2016 continue to signal that inflation is heading towards lower levels.

Please refer to slide 3, where we included a summary of the current Argentine external front situation and FX rate evolution. Exchange rate experienced certain level of nominal depreciation during the last quarter of the year, in particular, after US elections. Continuing with its policy of low intervention on the FX market, the Argentine Central Bank allowed the market to establish really the exchange parity performing only specific operations. During this fourth quarter, responding to lower inflation rate indices the Central Bank is significantly did monetary tightening exercise during most part of the year due to specific seasonal factors that increased transactional demand.

As for international reserves, they experienced a notorious increase mainly explained by cash inflows generated through the government tax amnesty planned. In fact, preliminary official announcements establish that total asset declared reached $90 billion, of which $7 billion were cash and cash equivalents. This situation enabled to perform debt payments in foreign currency that include total cancellation of the repo agreement involving $5 billion contracted in January 2016. Finally, trade balance posted a surplus of $2.1 billion on 2016, representing an increase of $5 billion and preventing the 2015 trade deficit.

Turning to slide 4, we follow with an overview of domestic macroeconomic situation and inflation. Regarding inflation, the CPI experienced a very moderate decline in the year-over-year comparison reaching 77.6%. In particular, increases in gas tariffs came into effect in October and although they show moderate kicks, headline inflation register an increase in the month-over-month figures during the mentioned period.

Nevertheless, core inflation show a strong year-over-year decrease, reaching 32.4% and signaling that inflation trend is hitting to lower levels. In this sense, general economic consensus is expecting a strong reduction in inflation for 2017. As for the economic activity, 2016 closed with a weak performance as almost all sectors were affected, registering output decline.

However, aggregate indicators show some sign of reactivation during fourth quarter 2016, while improvements were observed in certain key sectors like agriculture, and to a lesser extent in industrial production and construction. In particular, industrial production closed past year with a decline in year-over-year comparison, registering a fall of 4.7%, but with a smoother rate of decline during the last quarter.

As for the fiscal front, although efforts of the National Authorities were set to reduce growth in public expenditures during 2016, expenses growth closed slightly over fiscal revenues growth. It is important to note that during December important tax inflows associated with government tax amnesty plan were registered, boosting revenues significantly. The general consensus is expecting that the fiscal deficit, currently at high levels, will gradually decline in following years.

Finally, aggregate household consumption figures show little signs of recovery during the last quarter of 2016, as families are being strongly affected by general prices increases. Although, retail sales continuing to register declines in volumes, but at more moderated rates, consumer confidence remains fairly stable as has in fact increases during the last quarter of the year in certain items, like durable goods particularly.

Finally, it is expected that during 2017 the situation will improve for consumers, as economic growth consolidates and inflation continues to decrease. In our standard and challenging macroeconomic context just described, Telecom Argentina has managed to achieve important level of revenues and profitability growth.

Having gone through this introduction of the macro environment, let me pass the call to German Vidal, who will go over the vision and strategy and business highlight session.

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German Vidal, Telecom Argentina SA - CEO [3]

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Thank you Solange. Good morning to everyone. We invite you to a quick review of our vision and strategy. Please refer to slide 6, where we want to share with you the business anchors that support our vision and review the strategic highways that we have mentioned on previous conference calls. There are three main business anchors that we have conceived as pillars of our strategy; gaining share in individuals, households and company segments; driving operational excellence and efficiency while transforming customer experience.

Each one of the highlights, what we are doing in terms of investment there are a few that are focused towards a customer-centric vision, working to offer convergent services. We're orienting our efforts to reach the customers' home or premises in order to gain share in a vertical manner and addressing the two main factors of growth for the future market that are; the management of new generation content and cloud services. These are the drivers that support the business anchors, mentioned before.

With respect to the strategic highways in slide 7, we will go over some achievements we have accomplished during the past year and some action plans that we are currently working with. As for our infrastructure and investment plan, we can mention that we already executed ARS1.4 billion of our 2016-2019 CapEx plan that contemplates investments for an amount of over ARS4000 million.

We implemented a virtualized core infrastructure, increased our 4G sites by 37% and reached a 4G penetration of 5.5 million customers. For coming actions, we foresee CapEx of more than ARS13 billion for 2017. In relation to the customer centric vision, we are working towards an integration of our operations and a revision of our business support processes. Additionally, our recently acquired convergent CRM system will contribute significantly in this sense, although we are still in the discovery phase of this project.

As for action items, we are integrating our charging/billing and other manager systems with convergent customer centric architecture. And we are also implementing a customer excellence process. We are working to change the manner of how we use the concept of the net promoter score, as we understand that we have a tremendous opportunity in cross-selling services when we look at the convergent market.

On the other hand, we are redefining the commercial offer and our bundling schemes to achieve the convergence of our services and enhance our cross-selling capabilities. In line with these, during the last quarter of the year, we launched the first convergent offer of our market that includes voice, fixed broadband and mobile Internet services. We intend to keep developing new convergent products and services to work on a new business plan, a new business development, and to generate the ability to provide media services and work towards video-on-demand offering the integrates home and mobility.

Continuing with the process on the strategic highways, as seen on slide 8, we are working on home convergence throughout a continuous rollout of its FTTx technology in order to provide better speeds in home connection, while integrating fixed and mobile field services. On this item, we plan to increase the number of neighborhoods covered with FTTH and stretching our current infrastructure of FTTC to be able to provide speeds of more than 100 megabits, to develop our ability to provide media services and work towards home plus mobile video-on-demand offering.

We also intend to gain visibility in the customer premises equipment and transform our current capabilities of maintenance, installation through our home advisor force. As for content management, we redefined our content strategy. We changed the business nature and client management in this segment, including double up team processes [taking churn] reduction, while we evolve to new generation content.

Our action plans include the re-launching of our personal store and perform a selection of value-added content with focus on a new generation concept. Finally, we have a new offer of cloud services for the enterprise segment through alliances with companies such as Microsoft, Micro Strategy, Oracle and others. Our projects include development of vertical platforms on an augmented ICT portfolio of services offer, especially for the small and medium company sector.

Turning to slide 9, we can see the new telecommunication convergent model, where the industry is heading. Our vision for Telecom Argentina pictures a leading company in solutions and convergent connectivity services with an agile structure and focus in its customers.

The new vision put the clients in the center of the organization with the aim of satisfying their needs in every step of their life, providing voice, data and multimedia services by means of a multiservice network over multiple accesses either being at home or on the move. This new vision requires cost optimization, processes simplification and to put together an integrated sales force and a convergent client base.

Let's move now to our business highlights. Please refer to slide 11 where we are summarizing some of the key achievements that the Company has reached during 2016. With respect to our business, we can underline that retail mobile revenues grew by 27% during the past year, reaching almost ARS26 billion, while mobile internet revenues have increased by 73% when compared to one year ago.

As a consequence of the later, browsing now represents 39% of the mobile revenue mix and it has achieved a sustainable growth during 2016, raising ARS3.3 billion. In addition, mobile Internet consumption is increasing notoriously as megabytes per user per month grew by 90%, reaching an average MBOU of over 1.2 gigabytes as of the fourth quarter.

Moving onto Fixed segment, it's worth to notice that retail fixed voice increased by 41%, achieving a total revenue of almost ARS4.7 billion. Average bill per user or ARBU is 48% higher totaling ARS112 per month in the fourth quarter. This is mostly explained by adjustments in monthly free prices that were implemented during 2016 in business and residential segments.

As for broadband and fixed data, we are registering a steady growth in revenues, which increased by 41% from past year figures. Six megabits and 10 megabits continue to be the most demanded speeds, increasing by 31% and 26% respectively. In turn, fixed data revenues were 64% higher on the year-over-year comparison.

As far as financials are concerned, consolidated revenues increased by 31% in the full-year comparison, while service revenue growth reached 30%, mainly driven by the growth in the mobile Internet and broadband and fixed data in Argentina, which increased by 73% and 41% respectively. Moreover, we are able to increase EBITDA by 33% year-over-year, continuing with the positive trend observed during the previous quarter and reaching a 27% margin for the full year.

In addition, it is important to bear in mind that dividends to shareholders improved significantly, reaching a total payout ratio of 59% and ARS2.06 total dividend per share for the year. Finally, Telecom Personal completed the issuance of two new series of notes for an amount of ARS722 million and almost $78 million and has received the disbursement of an IFC loan for $400 million, as we diversify our funding sources and improve our debt profile.

Let us now move to slide 12, where we can see a better picture of the described growth acceleration in the growth revenues, which can be explained through a combination of higher usage and price adjustments. Taking a quick look, we can verify that the actual revenue mix remains fairly stable, increasing the participation of broadband and fixed data together with retail fixed voice.

In particular, retail fixed voice increased by 41% mainly to price adjustments in the monthly fees for corporate and residential segments, while retail mobile achieved a growth of 27% year-over-year, mainly explained by an important expansion of mobile internet in Argentina, which grew by 73% compared to the previous year. In turn, broadband and fixed data growth of 41% is supported through price adjustments and upsell into ultra-broadband. We will go now into some detail of these in the following slide.

In slide 13, we can review the performance of fixed broadband and ICT services. We continued to register good results, as far as upselling to higher speed is concerned. Six megabit subscribers have increased by 31%, while ultra-broadband connections continuing to increase, adding 26% of clients. In this sense, it is encouraging to see that ultra-broadband subscribers now represent 36% of the total customer base. In addition, ARPU has increased by 31% to more than ARS300 per month.

These results are supported by the strategy of rebalancing our efforts in increasing penetration towards assuring revenue quality and customer post-sale satisfaction. Meanwhile, fixed data and ICT increased by 64% mainly due to the effect of the exchange rate variation in contracts that are set in dollars.

Turning to slide 14, we can observe the evolution of the voice fixed-line business. We can note that although lines in service have experienced a slight decrease, these connections remain low and lines in service continued to show a stable trend, achieving 3.9 million lines in the fourth quarter.

In the months of August 2015, February 2016 and September 2016, we have implemented certain monthly fee adjustments to business customers. In addition, residential tariff were increased during the month of May 2016. Moreover, during February of 2017, we are implementing an adjustment for business customers, raising the monthly fee to ARS140 or by 22%.

We also passed an adjustment in the monthly fee for the residential segment, which implies an increasing to ARS75 or 97%. Nevertheless, residential monthly fees remain low when compared to regional benchmarks even after the mentioned adjustments despite you could understand that this is a mature service of market we see the opportunity for home convergence over our client base of almost 4 million customers. These price increases mainly explain the ARPU growth of 48% year-on-year to more than ARS112 per month.

Moving on slide 15, we can verify that we continue to enhance our value proposition in the mobile business in Argentina. As we mentioned in the highlights, we continue to register an increase in the intensity of data usage as heavy users gain participation. This has boosted the consumption of mobile data, which as the fourth quarter has reached an average of more than 1.2 gigabytes per user per month, 90% higher than a year ago.

Complementary to these, frequent data users grew by 6% year-on-year, amounting to 9 million subscribers as of December 2016. In addition, the average amount of prepaid recharge has grown by 32%.

Additionally, it is worth to mention that Personal's network has achieved the fastest download speeds as of December 2016. All of these facts have contributed to significantly increase the browsing revenues and its participation in the mobile revenue mix, which now represent 39% of our total mobile services mix, up from 28% verified a year ago.

Please, go now to slide 16, where we have included a summary of our 4G rollout. Personal's 4G LTE network deployment advances rapidly and coverage has expanded throughout the country as 4Gs high speeds and now available in more than [750] locations, including all capital cities and Buenos Aires metropolitan area, reaching a coverage ratio of 85% of the population in such cities. More importantly, 4G customers total 5.5 million as the fourth quarter, which represents 28% of the customer base at an average of 10,000 new connections per day to the fastest 4G network of the country.

On slide 17, we present our consolidated CapEx figures where we continue to focus our efforts on the network deployment in order to improve capability and quality of service, in line with the strategic highway of executing an investment plan that allows us to develop our infrastructure that supports our business drivers.

During full year 2016, we have invested in PPE almost ARS11.4 billion, equivalent to 21% of consolidated revenues, which implies an increase of 45% over a year ago, without considering the spectrum payments. Investments in mobile access have reached 42% of total technical CapEx during 2016. In addition, we can see that the evolution of total new mobile sites, new 4G sites and fiber deployment registered important levels of growth.

Having gone through the business highlights, now I will pass the call to Pedro Insussarry, who will go over our financial performance.

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Pedro Insussarry, Telecom Argentina SA - CFO [4]

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Thank you German. Please turn to slide 19, where we can review our consolidated revenues and EBITDA. In the fiscal year 2016, consolidated revenues amounted to ARS53.2 billion with a 31% year-on-year growth. In turn, service revenues in Argentina grew at a solid pace of 30%, thanks to the strong performance of internet services both in mobile and fixed broadband, together with corporate ICT services and fixed voice.

We find interesting to remark that we observe -- when we observed the quarterly performance of service revenues coming from the operations in Argentina, we note that the growth rates of 2016 has remained at a steady 30%, on acceleration to that registered in 2015.

Moreover, EBITDA verified a positive evolution year-on-year, growing by 33% as we have concentrated in improving our revenue quality and profitability. EBITDA margin stood at 27% for the full year. But when we look at the quarterly performance, we can see that there is a consolidated trend in margins as the evolution improves when compared to the similar period of 2015, reaching 29% in the fourth quarter of 2016.

Please refer to slide 20, where we show the performance of EBITDA with a breakdown analysis of its different components. The Company has been taking some actions to gain operational efficiency and manage its cost structure. Despite increased cost of handsets, labor and other expenses that have negatively affected margins, relative savings were obtained in marketing and sales costs, fees for services, maintenance and materials interconnection costs and direct taxes. The final effect has been an expansion of margins of approximately 30 basis points.

Let's move on to slide 21, where we summarize the performance of our operating income that amounted to ARS7.8 billion with a 26% increase year-on-year. EBIT was mainly affected by the 42% growth in depreciation and amortization and write-down of PP&E, not only due to the important network deployment, but also due to the acquisition of 4G spectrum. Despite this impact, operating margins stood at 15% of consolidated revenues, maintaining levels of fiscal year 2015.

Meanwhile, net income attributable to Telecom Argentina reached more than [ARS3.9 billion], increasing by 17% mainly due to a very good operating performance observed during the fourth quarter of 2016, growing by 133% when compared to the fourth quarter of 2015. This quarterly improvement can be explained by the combination of a better generation of operating income, lower net financial losses and lower income taxes, which include other administrative recourse claim action at the tax authority as a result of the lack of application of the inflation adjustment in the determination of the income tax.

Please turn to slide 22, where we show the evolution of our net income. EBITDA expansion reached almost ARS3.6 billion. As we mentioned before, the increase in EBITDA and results of write down of PP&E of more than ARS1.9 billion impacted the growth of operating income. In addition, net financial results were negative by more than ARS1.1 billion, due to the depreciation of FX that took place during 2016, coupled with the rise in average interest rates, during this period. And more importantly, a significant change in our net financial position after higher dividend payments, when compared to same period of last year.

Meanwhile, a reduction in income tax expense of almost ARS0.1 billion was registered mainly explained by the expected recoveries in income tax related to the claims that we mentioned before. All of these generated a final expansion of almost ARS0.6 billion in our bottom line, which reached more than ARS4 billion.

Regarding our financial position, as you can see in slide 23, net debt amounted to almost ARS5.9 billion in fiscal year 2016. Net debt increase was mainly associated with higher interest payments, FX evaluation and dividend payments. In turn, operating free cash flow generation was strong, influenced by the Company's EBITDA increase and partially compensated by the increase in CapEx in line with our aggressive investment plans and by the evolution of working capital that continue to register an improvement over the past quarter figures.

Summarizing, free cash flow generation showed a positive trend over the past two quarters, thanks to actions taken mainly in inventories and receivables. In addition, during the last quarter of the year Telecom Personal completed the issuance of two series of notes for a total nominal value of ARS722 million and almost $78 million.

Lastly, on slide 24. We illustrate the financial strength and sound financial strategy that the Telecom Group currently has. We can observe that nonetheless the acquisitions and intense CapEx plan represents very low levels of leverage and high levels of interest coverage, as a result of the strong balance sheet and steady cash flow generation. Moreover, as part of its financial strategy, the Company seeks to amplify the options available for funding sources.

Finally through the IFC loan agreement and the issuance of Series 3 and 4 notes, the Company has successfully managed to extend the tenure and improve the profile of its financial debt. Having concluded with the presentation and before going to the Q&A session, let me pass the call back to German for the final remarks, German?

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German Vidal, Telecom Argentina SA - CEO [5]

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Thank you Pedro. Well, as we mentioned at the beginning of the call, Ignacio will be transitioning and leaving Telecom and the whole team would like to thank Ignacio. He is retiring for personal reasons after a year of great achievements and high impact in the transformation process of Telecom. So really we want to thank Ignacio, and we have no doubt that he is one of the top executive talents of Argentina.

But since one of the strengths of Telecom is our internal talent and our succession planning, we are proud to announce the promotion to Director of Pedro who will drive the success of the Company and this new process that we have begun last year in his new responsibility. Thank you.

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Pedro Insussarry, Telecom Argentina SA - CFO [6]

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So having concluded with the presentation, we are now open to answer any questions you may have. Thank you, German.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Ricardo Cavanagh, Itau.

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Ricardo Cavanagh, Itau BBA International, S.A. - Analyst [2]

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I wanted to ask a question on the comment that you placed at the end of the press release, regarding the amount of money that is going to be transferred for future dividend payments that -- well if not mistaken, it represents roughly like the equivalent of 15% of market cap. If you can shed some light on if that money is going to be distributed and an idea of timing?

And then, second question is on the number of clients that I see have been falling a bit in the quarter and just what is the trend there? What do you expect going forward and perhaps what is the reason? Thank you.

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Pedro Insussarry, Telecom Argentina SA - CFO [3]

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Okay, Ricardo, I'll take the first part of the question. It's important to remember the current Argentine regulation regarding retained -- basically non-distributed or retained earnings. As you may know, there is a regulation in place which can be a rule that obliges the companies to allocate all the balance of returned earnings or to give a specific allocation or to a specific reserve or to issuance of capital and other applications.

So basically at the end, when the Annual Shareholders Meeting resolves on the distribution of earnings -- allocation of earnings, the balance of returned earnings has to be zero by the end of the fiscal year. So, this is an important factor, understanding what the Board is proposing to shareholders that, by the way, we'll have to decide on this issue in our Annual Shareholders Meeting that will take place by the end of April.

The second factor which is important to mention is that, we had different reserves that the Board is proposing to the shareholders to basically withdraw or to release the reserves and to allocate those balances into the reserve for future dividends. So that also increases the proposed total amount of reserves for future dividends going forward.

Lastly, and just to take an example, as of the end of fiscal year 2015, the reserve for future dividends was approximately ARS6 billion and the shareholders decided to distribute only ARS2 billion. So in other words, what I'm trying to hint here and give you some sense is that, despite the Board is proposing this simplification of the reserves and basically consolidating everything into a reserve for future dividends, that doesn't mean that that shareholders will decide to distribute the entire balance of the reserve. And lastly, the decision of the allocation of the earnings is basically -- and a distribution of a cash dividend is obviously a decision of shareholders according to the corporation law in Argentina, okay?

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Ricardo Cavanagh, Itau BBA International, S.A. - Analyst [4]

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That's clear enough.

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Pedro Insussarry, Telecom Argentina SA - CFO [5]

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Okay, and your second question, Ricardo, was?

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Ricardo Cavanagh, Itau BBA International, S.A. - Analyst [6]

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Yes, number of clients. I see that it's quite an impressive deployment of 4G and -- all that you mentioned in terms of quality of service, and yet the number of clients has been falling a bit and perhaps is voluntarily, it is something that Telecom does on purpose. I want to understand which are those clients that are migrating elsewhere and if this comes from a Company decision to focus on a certain segment, if this is to increase competition and what do you expect going forward?

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German Vidal, Telecom Argentina SA - CEO [7]

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Thank you, Ricardo. As you mentioned -- those figures were part of our strategy. Last year was a year, as Solange mentioned at the beginning of the call, that the performance of the economy affected most of the industry sectors of Argentina and our sector was included. So our strategy was more on the quality of our revenue than in gaining market share at any cost. And in some specific segments, we have concentrated in value customers, such as in the prepaid segment or in the internet access, home access service.

And our strategy, as you also mentioned, taking care of the quality of our services, NPS and putting the client in the center of our organization is that we are going to be concentrated in gaining more services in the clients where we are today than gaining more new clients. We have a great opportunity selling dual play or triple play, and in the future quad play in the clients that we have today and our efforts are in that direction.

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Ricardo Cavanagh, Itau BBA International, S.A. - Analyst [8]

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Okay, thank you very much.

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Operator [9]

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(Operator Instructions) Fernando Suarez, AR Partners.

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Fernando Suarez, AR Partners - Analyst [10]

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Regarding your wireless business, I have one quick question. I was wondering, what's your guidance on data penetration per subscriber? And if I may, a second one, where do you see the data consumption by subscriber for the next year or the next quarter [on this]? Thank you.

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German Vidal, Telecom Argentina SA - CEO [11]

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Well, thank you for the question. What we are expecting is based on the last two years of growth of data traffic in our backbone and the data traffic in our backbone almost double every year and we understand that that will be the trend for the years to come. Also that traffic in our -- of data traffic in our network will double as we are pushing more 2G clients to 4G services and that depends on the speed of our deployment of our 4G LTE network that we will continue with high investments during this year and the next year and in the commercial offers to incentivate the new type of services that are leveraging the data traffic service.

We understand that Argentina, although the higher percentages of growth in data traffic has a lot of room for improvement as the average of data traffic of Argentina is at still under the average of the regions. So we see there a high opportunity and we want to be positioned as leaders in data traffic for our mobile clients.

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Fernando Suarez, AR Partners - Analyst [12]

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Okay, thanks and can I ask what would happen in the case of a new spectrum auction that the government is putting the rules on and how much time do you think you could wait for a new spectrum auction that the current 4G spectrum that you have is capable to support this growth for the next two years, let's say.

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German Vidal, Telecom Argentina SA - CEO [13]

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Well, you know that our traffic figures and studies and our calculation is determining that with the same base of clients and with the same pattern of traffic usage, our spectrum we will have a limit between 2019 and 2020. But with the new conversations that we are having and all the industry is having based on the new decree, we are very optimistic that we will access to more spectrum in the next coming months. So we don't see any issues there.

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Fernando Suarez, AR Partners - Analyst [14]

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Great. So thank you all and farewell to Ignacio and congratulations to Pedro.

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Operator [15]

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(Operator Instructions) And at this time, it appears there are no further questions.

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German Vidal, Telecom Argentina SA - CEO [16]

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Okay, thank you everybody for participating of our quarterly conference call. Thank you for your questions. And any further questions you may have, you can call our Investor Relations office, Solange and her team and we hope to meet soon and obviously in our following quarterly conference calls. Okay, thank you very much. Good day to everybody.

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Operator [17]

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And again, that will conclude today's conference. We thank you all for your participation.