Telecom(TEO) - 2023 Q4 - Annual Report

Economic Environment - As of December 29, 2023, the Argentine Peso depreciated to P$808.45 per US$1.00, representing an appreciation of the U.S. Dollar of approximately 356.3% from P$177.16 per dollar at December 30, 2022[139]. - The average exchange rate for 2023 was P$295.29 per dollar, with a significant appreciation of 118% against the Argentine Peso following the new administration's assumption in December 2023[139]. - The inflation rate for January and February 2024 was reported at 20.6% and 13.2%, respectively, with an accumulated figure of 36.6% for the first two months of the year[139]. - Argentina's inflation rate reached 211.4% in 2023, with a monthly inflation peak of over 25% in December, significantly impacting the economy and Telecom's margins[164]. - The BCRA's "Relevamiento de Expectativas de Mercado" estimated an inflation rate of 227% for the year 2024, while the OECD projected inflation at 250.6%[139]. - The Argentine government has implemented measures to stabilize the Peso, including stronger exchange regulations and increased short-term interest rates[140]. - The Argentine government has limited access to international financing, which could hinder its ability to implement necessary reforms and sustain economic growth[178]. - Argentina's economy contracted during 2023, following growth in 2021 and 2022, indicating ongoing economic instability[171]. Company Financials - Telecom Argentina reported revenues of P$2,059,101 million and a net loss of P$249,687 million, with Adjusted EBITDA of P$579,396 million and total assets of P$5,477,603 million[317]. - As of December 31, 2023, Telecom Argentina's total indebtedness, including accrued interest, was P$2,128,069 million, representing a 45.6$111,339 million as of December 31, 2023, which could be adversely affected by any new default events[183]. - Telecom's outstanding borrowings contain restrictive covenants that may limit its ability to pursue business strategies and could result in defaults if breached[266]. Regulatory Environment - The telecommunications sector is subject to significant regulation, which may impose limitations on operations and affect financial performance[186]. - Regulatory changes, specifically Decree No. 690/20, have established price controls on essential ICT services, which may adversely affect the company's revenues and operating margins[213][215]. - The Argentine government has declared a public emergency in various sectors until December 31, 2025, which may lead to significant economic reforms and deregulation initiatives[158]. - The enforcement of the Law for the Promotion of Registered Labor and Prevention of Labor Fraud may have a material adverse effect on Telecom's operations and financial position[242]. Market Competition - Competition in the fixed and mobile telephony, cable television, and Internet sectors is increasing, potentially impacting market share and financial results[201]. - The company faces intense competition from established cable television and Internet service providers, which may lead to increased pressure on pricing and market share[206][208]. - The entry of new competitors into the market could further pressure pricing and market share for the company[209]. Operational Challenges - Telecom Argentina's ability to service its liabilities and pay dividends may be adversely affected by the continued devaluation of the Argentine Peso and foreign exchange restrictions[149]. - The company is highly exposed to risks associated with fluctuations in the Argentine Peso, which may impact its capital expenditure program and trade payables[150]. - The Argentine System of Imports (SIRA) has created significant delays and barriers for companies accessing foreign exchange, affecting their ability to meet obligations[144]. - Churn rates in mobile telephony, cable television, and Internet services significantly affect revenues, with any substantial increase potentially leading to material adverse effects[224]. - The company must invest in new technologies and network upgrades to remain competitive, which may require substantial capital expenditures[216][218]. Strategic Initiatives - Telecom Argentina aims to enhance its fixed and mobile networks while expanding broadband coverage and capacity, focusing on new business opportunities in the digital economy[332]. - The company is committed to becoming a significant player in the Latin American financial industry by developing monetizable products in the digital ecosystem, leveraging 5G technology[333]. - On April 24, 2023, Telecom Argentina entered a joint venture by acquiring 50% of OPH, which holds a 100% equity interest in Open Pass S.A.U., focusing on software development and digital wallet platform[322][323]. - Telecom Argentina was awarded Lot 2 in the 5G spectrum auction on October 24, 2023, with a winning bid of US$350 million[326]. - The company submitted two new tranches under the IDB loan totaling US$120 million (approximately P$42,012 million) on October 17, 2023, to finance the 5G spectrum acquisition[324]. Cybersecurity and Compliance - Telecom's insurance policy does not currently cover damages caused by cyberattacks, posing a risk to its business operations[248]. - The company has implemented new security measures to protect its operations and customer information amid the rise in cyber threats[247]. - Telecom's suppliers are contractually obliged to comply with laws and regulations, but non-compliance could adversely affect the company despite its monitoring efforts[261]. Investment and Ownership Structure - The company has a significant concentration of ownership, with CVH owning 28.16% of total capital stock and GC Dominio controlling 64.24% of CVH's voting stock[306]. - Telecom Argentina's status as a foreign private issuer allows it to follow alternate corporate governance standards, potentially limiting investor protections compared to U.S. companies[301]. - Holders of American Depositary Shares (ADSs) may face currency conversion costs and potential adverse effects from currency fluctuations[290]. Future Outlook - The potential for increased government intervention in private sector companies poses risks to Telecom's operations and financial condition[166]. - The ongoing geopolitical tensions, including conflicts in Ukraine and the Middle East, may further exacerbate economic challenges for Argentina[173]. - The company emphasizes innovation and diversification, exploring new business models such as IoT, cybersecurity, and smart home solutions[333].