Telecom Argentina SA Q4 FY2020 earnings call

Management Statement and Operational Highlights

• Network and EBITDA: Network performed well, EBITDA margin at 34.1% despite COVID-19. CapEx reduced by 37% to ARS 55 billion, focusing on infrastructure upgrades. EBITDA margin strong due to OpEx reduction (~9% real terms) and normalized collections/bad debt.
• Digital Transformation: Ongoing BSS Transformation project FAN with prepaid and postpaid customer migrations. Switch digital channel launched. Cloud foundation project for efficiency. Mi Negocio Personal e-commerce platform and fintech initiative via Micro Sistemas. Created Personal Smart Home for IoT services.
• Regulatory Events: 2020 had decrees suspending service interruptions for nonpayment, tariff freezes, and later price increases and universal service declarations. January 2021 price adjustments: mobile plans with 1GB+ data up 5-20%, broadband up 10-20%, pay TV up 20-25%, fixed voice up 5-20%.

Segment Performance

• Argentina: During fiscal year 2020, Telecom Argentina's revenues totaled $3.6 billion, with revenues in constant pesos decreasing 6.5% year-over-year. EBITDA was $1.2 billion, resulting in a 34.1% EBITDA margin. Mobile subscribers in Argentina amounted to 18.7 million, with postpaid subscribers increasing 4.1% and prepaid decreasing 4.8%. Broadband clients totaled around 4.2 million, pay TV clients 3.5 million, and fixed voice subscribers (excluding IP) 2.9 million. Revenue breakdown: mobile 38%, broadband 21%, pay TV 20%, fixed telephony and data 15%, equipment sales 6%.
• Paraguay (Núcleo): Núcleo generated $190 million in revenues and $83 million in EBITDA in fiscal year 2020. Revenue breakdown: browsing services 43%, voice almost 20%, data almost 10%, broadband 9%, TV service 7%, other services ~11%. As of December 31, 2020, mobile customers totaled 2.2 million, Billetera Personal clients over 310,000, fixed Internet services subscribers 135,000, Flow pay TV customers 23,000, and Personal HD 60,000.

Guidance

• CapEx plan for 2021: Minimum $350 million, potentially higher if economic conditions and price adjustments allow. Plan to deploy over 250 5G sites in 2021 but dependent on economic situation and customer device adoption.
• Pricing strategy: Aim to keep prices adjusted by inflation to sustain margins, focusing on cost control with most costs under control except possibly labor costs which may be affected by union negotiations.

Risks

• Regulatory Uncertainty: Ongoing legal challenges and appeals related to price regulations (e.g., ENACOM's decisions, court injunctions on decrees).
• Economic and COVID-19 Impact: Uncertainties from industry and economic regulation, potential changes in demand for products/services, and impact of general market/economic conditions and COVID-19 on operations and financial performance.

Q: Will you please comment more on the wallet initiative? What is the current size in users? What are the features currently enabled? Additionally, are the prices increases adopted by Telecom enough to sustain margins, perhaps, coupled with efficiency increases?

A: Roberto Nóbile mentioned the wallet project has an NBP product running, launching in mid-2021, with over 4 million prepaid wallets between brackets. Confident prices increases coupled with synergies will sustain margins as they've successfully integrated companies and are working on cost control.

Q: What percentage of mobile clients use over 1 gigabyte of data and what percentage of broadband clients have over 25 megabyte speeds? What were the drivers of mobile and broadband subscriber loss for the third quarter of 2020?

A: Roberto Nóbile stated over 95% of mobile postpaid customers use over 1 GB of data, almost 100% prepaid. Over 70% of broadband clients have over 25 MB speeds. Subscriber loss in third quarter 2020 due to pandemic-related government decree preventing disconnections, leading to customers with multiple overdue invoices, which were addressed post-pandemic with disconnections for non-payers.

Q: Can you please provide more details on the CapEx plan for this year, also on the perspective for 5G rollouts?

A: Roberto Nóbile said CapEx minimum $350 million, potentially up to $500 million, depending on economic conditions and price adjustments. 5G rollout: 5G DSS core ready, 50% of radios prepared, 10 sites deployed, plan to deploy over 250 sites in 2021 but dependent on economic situation and device adoption.