Telecom Argentina (TEO) reported fourth-quarter earnings per ADS of 53 cents, missing the Zacks Consensus Estimate of 67 cents. However, reported net income from continuing operations more than tripled year-over-year to P$399 million (US$105 million), boosted by healthy growth from broadband and mobile segments. For 2009, net profit rose 46% year-over-year to P$1.4 billion (US$377 million). 

Consolidated revenue for the quarter increased 19% year-over-year to P$3.36 billion (US$885 million) as the company’s cellular business grew 22%, while the broadband business (Arnet) posted a healthier annualized growth of 36%. Broadband growth was fueled by significant service expansion, commercial promotions, innovation of service portfolio and improved network coverage. 

For 2009, revenue grew 15% year-over-year to PS$12.26 billion (US$3.3 billion). Wireless ARPU (average revenue per user) remained stable year-over-year at P$41 (US$11) while fixed voice ARPU grew 1% to P$40 (US$10.8). 

The company’s cellular telephony business achieved respectable growth in the quarter with revenue of P$2.25 billion (US$591 million), accounting for approximately 67% of the consolidated sales. Revenues from data transmission grew 33% year-over-year while fixed-line voice service revenues increased 7%. 

Total wireless subscribers in Argentina (“Telecom Personal”) reached 14.5 million, up 17% year-over-year. Roughly 69% of the customer base was prepaid and 31% was postpaid. Personal continues to expand its service portfolio (“Packs”) and smartphone range. Cellular subscribers at Nucleo (mobile subsidiary in Paraguay) reached roughly 1.8 million, down 1.1% year over year.
The company ended 2009 with 16.3 million total mobile customers, up 13% year over year. Aggregate fixed lines in service increased 2% to 4.4 million with broadband Internet customers growing 17% to 1.2 million. The carrier’s strategy to bundle fixed voice with broadband (“Pack Arnet”) is benefiting customer retention. 

Capital expenditure for 2009 was P$1.7 billion (US$456 million), up 6%, with the chunk of spending directed to boost broadband services, expand network coverage and capacity and launch value-added services. The company plans to spend more than P$2 billion (US$538 million) in 2010 as it expands 3G network deployments. 

Telecom Argentina continues to be benefited by the growing domestic wireless market (the largest in Latin America in terms of mobile penetration) coupled with increased penetration of value-added services. Through its Arnet Biz Plus service, the company is offering its customers access to premium value-added services.
In broadband Internet, “Arnet Recargable” (the first pure prepaid ADSL product) and the first converged fixed and mobile broadband Internet service “On-the-Go” (combining ADSL and 3G services) continue to boost revenue per user. 

Telecom Argentina is marketing its triple-play service (bundles voice, Internet and pay-TV services) in collaboration with leading satellite TV operator Direct TV (DTV). In the first phase of commercial deployment, the company is offering this service (called “SuperPack”) in the Salta province, northwest Argentina.
While Telecom Argentina’s prospects in wireless and broadband appear promising, we remain concerned about the inflationary impact on the company’s cost structure. Moreover, profitability of the company’s fixed telephony business continues to be affected by frozen tariffs.
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