In terms of innovation, to continue promoting the upgrade of the customer equipments that stimulated the use of value added services, Personal presented a commercial offer with a 30% discount for smartphones, available for those who want to upgrade the handset or port-in their number to Personal.

At the same time, and revalidating its quality commitment, the Company continued developing its reconversion plan of the mobile infrastructure to increase network capacity and thus improve customer experience.

Finally, with the aim of consolidating the association of its brand with music, Personal organized a new edition of the ‘Personal Fest Verano’, in the main touristic cities of the country with more than 160,000 fans attending the concerts and more than 400,000 visits to Personal’s web page.

Telecom Personal in Paraguay (‘Núcleo’)

As of March 31, 2014, Nucleo’s subscriber base reached 2.4 million clients (+3.3% vs. 1Q13). Prepaid and postpaid customers represented 80% and 20% (vs. 19% on postpaid in 1Q13), respectively.

Nucleo generated revenues from third parties equivalent to P$358 million during 1Q14 (+36.6% vs. 1Q13). VAS revenues amounted to P$190 million (+35.7% vs. 1Q13) representing 55.4% of 1Q14 service revenues (vs. 56.2% in 1Q13). Moreover, the level of mobile ARPU reached Gs.27.6 thousand in 1Q14 (equivalent to P$45.4).

Fixed Services (Voice, Data & Internet)

During 1Q14 revenues generated by fixed services amounted to P$1,965 million, +21.6% vs. 1Q13; with Data revenues (+49.8% vs. 1Q13) and Internet (+26.3% vs. 1Q13) growing the most in the segment.

Voice

Total revenues for this service reached P$907 million in 1Q14 (+11.4% vs. 1Q13). A portion of this line of business (mainly monthly charge and measured services), continued to be affected by frozen tariffs of regulated services enforced by the Argentine Government in 2002.

Revenues generated by measured services totaled P$359 million, an increase of P$30 million or +9.1% vs. 1Q13 mainly due to the higher penetration of flat rate packs of local and national long distance calls.

Monthly charges and supplementary services reached P$295 million, an increase of P$26 million or +9.7% vs. 1Q13 due to higher revenues in non-regulated supplementary services. The customer base surpassed 4.1 million lines in service.

As a result of these increases, the average monthly bill per user (ARBU) reached P$54.6 in 1Q14, +10.3% vs. 1Q13.

Fixed and mobile interconnection revenues reached P$149 million (+16.4% vs. 1Q13). Meanwhile, other revenues totaled P$104 million (+18.2% vs. 1Q13).

Data and Internet

Data revenues amounted to P$319 million (+P$106 million or +49.8% vs. 1Q13), where the focus was to strengthen the position of Telecom as an integrated ICT provider, with a more competitive offer.

During 1Q14, Telecom continued incorporating products and increasing value added services to complement the portfolio of services that are offered to customers, with the ‘Nube Argentina de Telecom’ and the state-of-the-art datacenter services. New products were launched: Hyperway Datacenter, an IP (VPN IP) connectivity service that offers a significant improvement in prices compared to standard IP data connectivity services and Firewall Aplicativo, a latest generation service for IT security that is made available as a Virtual/Dedicated Hosting and Housing service.

Revenues related to Internet totaled P$726 million (+P$151 million or +26.3% vs. 1Q13), mainly due to the increase in the customer base and to a commercial offer with higher speeds, where 10Mb was the most demanded offer (approximately 40% of net adds in the 1Q14). Thanks to the significant investments executed in the past, this offering was made available.

As of March 31, 2014, Telecom surpassed 1.7 million ADSL accesses (+5.4% vs. 1Q13). These connections represented 41.7% of Telecom’s fixed lines in service. In addition, ADSL ARPU reached P$138.0 in 1Q14, +20.1% when compared to 1Q13 and the monthly churn rate was 1.3% in 1Q14.

During 1Q14, Telecom continued to drive a strategy based on bundling, that combines high speed Internet navigation with local fixed and mobile calls. This strategy responded to customer needs to complement its communication requirements. In this sense, Arnet launched a new massive campaign following the ‘Conectate’ concept that was already developed in the past. By these means, Arnet, became a connection between people and the world, through the use of different devices and technologies.

Consolidated Operating Costs

Consolidated Operating Costs totaled P$6,099 million in 1Q14, an increase of P$1,141 million, or +23.0% vs. 1Q13 (including ‘Results on disposal of PP&E and write-down of PP&E’ that resulted in a gain of P$4 million in 1Q14). This increase is a consequence of higher labor costs, higher fees for services, maintenance and materials and supplies, taxes associated to revenues and higher costs of more sophisticated handsets.

The cost breakdown is as follows:

- Employee benefit expenses and severance payments totaled P$1,183 million (+36.3% vs. 1Q13), mainly affected by increases in salaries to the unionized employees due to the Collective Bargaining agreement signed in July, 2013, as well as increases in salaries to the non-unionized workforce, together with the social security contributions associated to such concepts. Total employees (including temporary employees) at the end of the period totaled 16,523.

- Interconnection costs and other telecommunication charges (including TLRD, Roaming, Interconnection, international settlement charges and lease of circuits) amounted to P$515 million, +6.4% vs. 1Q13. This increase resulted from higher costs related to lease of circuits, use of public network and international outbound calls.

- Fees for services, maintenance and materials and supplies amounted to P$755 million (+35.8% vs. 1Q13), mainly due to increases in technical maintenance; higher charges of licenses of systems, and higher fees for services, both in the fixed and mobile businesses. Moreover, for those costs denominated in US dollars, the FX effect had an impact in these concepts.

- Taxes and fees with regulatory authorities reached P$755 million (+25.4% vs. 1Q13), impacted mainly by a higher volume of revenues, a higher incidence in turnover taxes derived from increases in rates applied in several jurisdictions, higher municipal taxes, as well as higher bank debit and credit taxes and higher levies of the regulatory authority.

- Commissions (Commissions paid to agents, prepaid card commissions and others) totaled P$541 million (+7.8% vs. 1Q13), mainly due to the increase in commissions paid to commercial channels as well as collection fees, both associated to the increase in sales. Agent commissions capitalized as SAC amounted to P$133 million (+29.1% vs. 1Q13).

- Cost of handsets sold totaled P$775 million (+38.9% vs. 1Q13), due to an increase in the participation of high-end handsets, that resulted in higher unit prices, also impacted by higher FX. This was partially compensated by a lower number of handsets sold. Deferred costs from SAC amounted to P$31 million (-69.9% vs. 1Q13).

- Advertising amounted to P$164 million (+6.5% vs. 1Q13), mainly due to higher commercial expenses and campaigns in comparison to 1Q13.

- Depreciations and Amortizations reached P$739 million (+6.9% vs. 1Q13). PP&E depreciation amounted to P$538 million (+15.2% vs. 1Q13); Amortization of SAC and service connection costs totaled P$195 million (-11.0% vs. 1Q13); and amortization of other intangible assets reached P$6 million (+20.0% vs. 1Q13).

- Other Costs totaled P$676 million (+22.9% vs. 1Q13). This increase was mainly due to VAS costs that totaled P$191 million (+45.8% vs. 1Q13), related to the increase of sales of those services, especially in the mobile business. Bad debt expenses reached P$118 million (+26.9% vs. 1Q13) representing 1.9% of consolidated costs and 1.6% of consolidated revenues. Meanwhile charges related to lawsuits and other contingencies amounted to P$37 million in 1Q14 (-7.5% vs. 1Q13).

Consolidated Financial Results

Net Financial results resulted in a loss of P$32 million, a decrease of P$167 million or -123.7% vs. 1Q13. This was mainly due to losses for FX results of P$280 million in 1Q14 that were impacted by a higher devaluation in 1Q14 (23%) vs. 1Q13 (4%). This is compared to the gain of P$13 million in 1Q13, but was partially compensated by higher gains in net financial interest and on financial investments of P$190 million in 1Q14 (+P$74 million vs. 1Q13) based on a higher net financial position (Cash).

Consolidated Net Financial Position

As of March 31, 2014, Net Financial Position (Cash, Cash Equivalents and financial Investments minus Loans) totaled P$5,080 million in cash, an improvement of P$1,060 million when compared to the Net Financial Position as of March 31, 2013. This was thanks to the cash generation of the Group despite the cash dividend of P$1,000 million paid in 4Q13.

Capital Expenditures

During 1Q14, the Company invested P$1,062 million (+43.3% vs. 1Q13). Of this amount, P$396 million was allocated to Fixed Services and P$666 million to Mobile services. In relative terms, Capex reached 14.2% of consolidated revenues.

The main capital expenditures in the fixed business were associated to the network reconversion plan, that comprises of the replacement of copper connections with fiber optic in different points (FTTC or Fiber to the Cabinet, FTTB or Fiber to the Building and FTTH or Fiber to the Home) in order to improve internet access speeds and thus an augmented user experience.

In the mobile business, the plan of the technological reconversion of the network continues, where the objective is to increase capacity through the installation and reconfiguration of 6-sector sites and the replacement of 2G sites with 3G sites, to cope with the incremental demand of data traffic. It is expected to continue increasing the capacity and capillarity of the 3G network to optimize the use of the existing spectrum.

Other Relevant Matters

The Board of Directors of Personal, in its meeting held on April 23^th, 2014 resolved to distribute P$1,100 million (equivalent to P$3.54 per share) as cash dividends, partially applying the Reserve for Future Cash Dividends created by the General Ordinary and Extraordinary Unanimous Shareholders Meeting held the same day. Moreover, it resolved that this cash dividend distribution should be paid in two installments: the first one of P$600 million to be made available to its shareholders (Telecom Argentina and Nortel Inversora) as from May 8^th 2014 and the second one of P$500 million to be made available as from June 10^th, 2014.

The General Ordinary Shareholders’ Meeting of Telecom Argentina, on its meeting held on April 29^th, 2014 resolved to adjourn until May 21^st, 2014 the third item of the Agenda related to the Retained Earnings as of December 31^st, 2013.

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