================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            -------------------------

                                    FORM 20-F

      [ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
           SECURITIES EXCHANGE ACT OF 1934

                                       OR

      [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934
           For the fiscal year ended December 31, 2004

                                       OR

      [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934
           For the transition period from ________________ to ________________

Commission file number:  1-12796

                          TELEFONICA DE ARGENTINA S.A.
             (Exact name of Registrant as specified in its charter)
                          Telefonica of Argentina Inc.
                 (Translation of Registrant's name into English)
                              Republic of Argentina
                 (Jurisdiction of incorporation or organization)
                          Avenida Ingeniero Huergo 723
                       (C1107AOH) Buenos Aires, Argentina
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

<TABLE>
<S>                                                                  <C>
Title of each class                                                  Name of each exchange on which registered
----------------------------------------------------------------     -----------------------------------------
American Depositary Shares, Representing Class B Ordinary Shares     New York Stock Exchange
Class B Ordinary Shares, nominal value Ps.1.00                       New York Stock Exchange*
11 7/8% Notes due 2007                                               New York Stock Exchange
9 1/8% Notes due 2010                                                New York Stock Exchange
8.85% Notes due 2011                                                 New York Stock Exchange
8.85% Conversion Notes due 2011                                      New York Stock Exchange
</TABLE>
------------------------------

* Not for trading, but only in connection with the registration of American
Depositary Shares.

     Securities registered or to be registered pursuant to Section 12(g) of the
Act: None

     Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None

     The number of outstanding shares of each of the classes of capital or
common stock of the registrant as of the close of the period covered by the
annual report:

     Class A Ordinary Shares, nominal value Ps.1.00 per share: 1,091,847,170

     Class B Ordinary Shares, nominal value Ps.1.00 per share: 654,205,259

Indication by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                              [x] Yes    [ ] No

Indicate by check mark which financial statement item the registrant has elected
to follow.

                          [ ] Item 17    [x] Item 18


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<PAGE>


                               TABLE OF CONTENTS
                               -----------------

                                                                            Page
                                                                            ----

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS...............................ii
PRESENTATION OF FINANCIAL INFORMATION........................................iii

                                     PART I

ITEM 1.        IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...........1
ITEM 2.        OFFER STATISTICS AND EXPECTED TIMETABLE.........................1
ITEM 3.        KEY INFORMATION.................................................1
ITEM 4.        INFORMATION ON THE COMPANY.....................................20
ITEM 5.        OPERATING AND FINANCIAL REVIEW AND PROSPECTS...................50
ITEM 6.        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................83
ITEM 7.        MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............93
ITEM 8.        FINANCIAL INFORMATION..........................................98
ITEM 9.        THE OFFER AND LISTING.........................................102
ITEM 10.       ADDITIONAL INFORMATION........................................105
ITEM 11.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....116
ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES........119

                                     PART II

ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...............120
ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
               USE OF PROCEEDS...............................................120
ITEM 15.       CONTROLS AND PROCEDURES.......................................120
ITEM 16.       [RESERVED]....................................................121
ITEM 16A.      AUDIT COMMITTEE FINANCIAL EXPERT..............................121
ITEM 16B.      CODE OF ETHICS................................................121
ITEM 16C.      PRINCIPAL ACCOUNTANT FEES AND SERVICES........................121
ITEM 16D.      EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES....122
ITEM 16E.      PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
               AFFILIATED PURCHASERS.........................................123

                                    PART III
ITEM 17.       FINANCIAL STATEMENTS..........................................124
ITEM 18.       FINANCIAL STATEMENTS..........................................124
ITEM 19.       EXHIBITS......................................................124


                                       i
<PAGE>


                 FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

     This annual report on Form 20-F (the "Annual Report") contains certain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934. Certain information included in this Annual Report
contains information that is forward-looking and based largely on the
expectations of Telefonica de Argentina S.A. ("the Company", "we" or "us"). Such
forward-looking information is subject to risks and uncertainties that could
significantly affect both our expectations and actual results. Actual results
could differ materially from these forward-looking statements as a result of
foreseen and unforeseen factors. There can be no assurance that events
anticipated in any forward-looking statement will occur. Some of these
forward-looking statements include forward-looking phrases such as
"anticipates", "believes", "could", "estimates", "expects", "foresees",
"intends", "may", "should" or "will continue", or similar expressions or the
negatives thereof or other variations on these expressions, or similar
terminology, or discussions of strategy, plans or intentions. These statements
also include descriptions in connection with, among other things:

     o    the renegotiation of our tariffs/rates ("tariffs") with the Argentine
          government;

     o    anticipated revenues, capital expenditures, future cash flows and
          financing requirements;

     o    the economic and political developments in Argentina (including the
          effects of the devaluation and any future restrictions on payments
          abroad that may affect us);

     o    the effect of inflation and currency volatility on our financial
          condition and results of operations;

     o    the implementation of our business strategy;

     o    descriptions of new services and anticipated demand for services and
          other changes in rates and tariff regulations and charges for
          telecommunication services;

     o    descriptions of the expected effects of our competitive strategies and
          descriptions of the effect of the liberalization of the Argentine
          telecommunications industry; and

     o    the impact of actions taken by our competitors and other third
          parties, including courts and other governmental authorities.

     Such statements reflect our current views regarding future events and are
subject to certain risks, uncertainties and assumptions. Many factors could
cause the actual results, performance or achievements to be materially different
from any future results, performance or achievements that forward-looking
statements may express or imply, for example:

     o    the economic instability of Argentina;

     o    our tariff renegotiation process with the Argentine government;

     o    actions of creditors who did not participate in Argentina's recent
          debt exchange offer;

     o    changes in inflation;

     o    the devaluation and volatility of the Argentine peso;

     o    changes in financial and telecommunications regulation;

     o    revocation of our license to provide telecommunications services; and

     o    the outcome of pending legal claims against us.

     Some of these factors are discussed in more detail in this Annual Report,
including under Item 3: "Key Information--Risk Factors", Item 4: "Information on
the Company" and Item 5: "Operating and Financial Review and Prospects". If one
or more of these risks or uncertainties affects future events and circumstances,
or if

                                       ii
<PAGE>

underlying assumptions do not materialize, actual results may vary materially
from those described in this Annual Report as anticipated, believed, estimated
or expected. We have no plans to update any industry information or
forward-looking statements set out in this Annual Report and have no obligation
to update any such statements.


                      PRESENTATION OF FINANCIAL INFORMATION

     Our audited consolidated financial statements as of December 31, 2004 and
2003 and for the fiscal years ended December 31, 2004, 2003 and 2002, and the
notes thereto (the "Consolidated Annual Financial Statements") are set forth on
pages F-1 through F-72 of this Annual Report.

     Pistrelli Diaz y Asociados, Member Firm of Arthur Andersen ("Pistrelli"),
was engaged as our independent financial auditors until we replaced them with
Deloitte & Co. SRL ("Deloitte"), Member Firm of Deloitte Touche Tohmatsu, on
June 30, 2002. This decision was ratified at our shareholders' meeting on April
22, 2003. The Consolidated Annual Financial Statements included in this Annual
Report were audited by Deloitte. Deloitte's audit report dated February 14, 2005
is included therein.

     In this Annual Report, references to "$", "U.S.$", "U.S. dollars" and
"dollars" are to United States dollars and references to "Ps." or "pesos" are to
Argentine pesos. References to "euro" or "(euro)" are to the currency of the
European Economic and Monetary Union and references to "(Y)" or "yen" are to
Japanese yen. Percentages and some currency amounts in this Annual Report were
rounded for ease of presentation.

     Unless otherwise indicated, our balance sheets and income statements use
the exchange rate as of each relevant date or period-end quoted by Banco de la
Nacion Argentina ("Banco Nacion"). In the case of U.S. dollars, the Banco Nacion
quotes for such exchange rates were Ps.1.00 per U.S.$1.00 until December 23,
2001. From December 24, 2001 to January 10, 2002, the exchange market was
officially suspended. On January 10, 2002, the Argentine government established
a dual exchange rate system. The exchange rate in the free market began to float
for the first time since April 1991. On January 10, 2002, the free market rate
was Ps.1.70 per U.S.$1.00 while the official market rate was Ps.1.40 per
U.S.$1.00. On February 8, 2002, the Argentine government repealed the dual
exchange rate and since February 11, 2002, Argentina has had one freely floating
exchange rate for all transactions. As of December 31, 2004, the only exchange
market available was the free market and the quotation was Ps.2.98 per U.S.$1.00
and as of March 31, 2005 the exchange rate was Ps.2.92 per U.S. dollar. The
reader should not construe the translation of currency amounts in this Annual
Report to be representations that the peso amounts actually represent U.S.
dollar amounts or that any person could convert the peso amounts into U.S.
dollars at the rate indicated or at any other exchange rate. See Item 3: "Key
Information--Selected Financial Data-- Exchange Rate Information" and Item 8:
"Financial Information--Significant Changes" for information regarding recent
developments in exchange rates.

     Fiscal year-end change: On September 18, 2001, the shareholders held a
Special Shareholders' Meeting and approved an amendment to our bylaws to change
our fiscal year-end from September 30 to December 31 of each year. On September
14, 2001, the Comision Nacional de Comunicaciones (the "National Communications
Commission" or "CNC") issued Resolution No. 1,322 authorizing us to change our
fiscal year-end date. As a result, we had a three-month fiscal year ended
December 31, 2001.


                                      iii
<PAGE>


                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

     Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

     Not applicable.

ITEM 3.  KEY INFORMATION.

A. Selected Financial Data.

     The following tables set forth our selected consolidated financial and
operating information for the fiscal years ended December 31, 2004, 2003 and
2002, the three-month fiscal year ended December 31, 2001, the unaudited
three-month period ended December 31, 2000 and each of the fiscal years ended
September 30, 2001 and 2000 and should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Annual Financial
Statements and Item 5: "Operating and Financial Review and Prospects". The
financial information presented as of and for the three-month fiscal year ended
December 31, 2001 and the fiscal years ended September 30, 2001 and 2000, which
was derived from our audited financial statements that are not included in this
Annual Report, and the unaudited financial information as of and for the
three-month period ended December 31, 2000 have been included in the Selected
Consolidated Financial and Operating Information for comparative purposes.

     We maintain our financial books and records and publish our financial
statements in pesos and prepare our financial statements to conform to generally
accepted accounting principles in Argentina and Comision Nacional de Valores
(the National Securities Commission, or "CNV") rules. This Annual Report
sometimes refers to those professional accounting principles as "Argentine
GAAP". Argentine GAAP differs from generally accepted accounting principles in
the United States ("U.S. GAAP"). For example, one of the reasons why we have
larger accumulated losses under U.S. GAAP than under Argentine GAAP and our
shareholders' equity under U.S. GAAP was negative in 2004, 2003 and 2002 is
because of the elimination of inflation accounting under U.S. GAAP. Note 20 to
our Consolidated Annual Financial Statements provides a summary of this and
other significant differences between Argentine GAAP and U.S. GAAP as they
relate to us, including the impact of such differences on our net income and
shareholders' equity.

     According to generally accepted accounting principles applied by
Telefonica, S.A. ("Telefonica"), for purposes of its consolidated financial
statements for its own financial reporting, Argentina did not meet the
definition of a highly inflationary economy in 2004, 2003 and 2002. Therefore,
Telefonica incorporates, for consolidation purposes, our balances without
computing any adjustments for the inflation experienced during 2004, 2003 and
2002. In line with this, and for our own U.S. GAAP reconciliation, we have
elected not to use the alternative of maintaining the 2003 and 2002 inflation
adjustment that the Securities and Exchange Commission (the "SEC") permits for
countries such as Argentina, where local financial statements are presented
restated for inflation. In accordance with CNV rules, we have restated our
financial statements for inflation until February 28, 2003. Therefore, we have
included in our U.S. GAAP reconciliation an adjustment eliminating the effects
of the inflation during the fiscal years ended December 31, 2004, 2003 and 2002.

     As of December 31, 2003, our short-term debt amounted to U.S.$637 million.
At that time, we could not be certain that we would be able to meet our current
debt obligations at their maturity date. During 2004, as well as in prior
periods, we managed to gradually reduce our short-term indebtedness through a
combination of partial payments and short and long-term re-financing. As of
December 31, 2004, we have been granted new short-term loans from local
financial institutions in an amount of Ps.123 million. In addition, in May 2004,
October 2004 and February 2005, we issued negotiable obligations for Ps.163.3
million, Ps.200 million and Ps.250 million (see Note 12 to the Consolidated
Annual Financial Statements), respectively, and we expect to arrange for
additional placements in the future. Those placements, in conjunction with
internally-generated cash flows and possible re-financings options and/or other
financing alternatives that, in our opinion, will enable us to settle or
successfully refinance the remaining balance of our short-term indebtedness. See
Item 5: "Operating and Financial Review and


                                       1
<PAGE>


Prospects--Factors Affecting Our Consolidated Results of Operations--Effects on
Our Operations and Our Ability to Pay Our Short-Term Debt".

     The effective date of the Reorganization Transactions (as defined and
described in Item 4: "Information on the Company--Our Reorganization") was
February 1, 2001. As a result, the consolidated balance sheets as of September
30, 2000 included in the Selected Consolidated Financial and Operating
Information include the assets and liabilities of the spun-off businesses.

     Following our policy to present our interest in the income (loss) from
companies in which we have control or joint control and taking into account the
effects of the Reorganization Transactions, the income statements for the fiscal
years ended December 31, 2004, 2003 and 2002, the three-month fiscal year ended
December 31, 2001 and the fiscal years ended September 30, 2001 and 2000 and the
unaudited three-month period ended December 31, 2000 include:

     (1) the income (loss) from the businesses that were spun off, in the line
         "Net (loss)/income of spun-off businesses";

     (2) the income (loss) from businesses merged into us related to companies
         in which we had control before the merger described in Item 4:
         "Information on the Company", for years prior to such merger,
         incorporated line-by-line; and

     (3) the income (loss) from our interests held in E-Commerce Latina S.A. in
         the line "Income (loss) on equity investments" is not incorporated
         line-by-line because in the opinion of our management the income from
         this company is not material to our income (loss).

     We present these figures as originally reported in previous annual reports
on Form 20-F in pesos restated for inflation until February 28, 2003. See Note
2.2 to the Consolidated Annual Financial Statements.

Presentation of figures in constant Argentine pesos

     Our financial statements included the effects of inflation through August
31, 1995, utilizing the inflation restatement methodology as set by the
Federacion Argentina de Consejos Profesionales de Ciencias Economicas, the
Argentine Federation of Professional Councils in Economic Science ("FACPCE"). On
August 22, 1995, the Argentine government issued Decree No. 316/95 discontinuing
the requirement that financial information be restated for inflation for any
date or period after August 31, 1995. Effective September 1, 1995, as required
by rules issued by the CNV, we discontinued the restatement methodology,
maintaining the effects of inflation accounted for in the prior periods.

     As a result of the inflationary environment in Argentina (there was an
increase in the applicable index for restatement of financial statements
(wholesale prices) of 118.2% in the period January through December 31, 2002)
and the conditions created by the Public Emergency Law No. 25,561, Ley de
Emergencia Publica y Reforma del Regimen Cambiario (the "Public Emergency Law"),
the Consejo Profesional de Ciencias Economicas de la Ciudad Autonoma de Buenos
Aires, the Professional Council of Economic Sciences of the City of Buenos Aires
(the "CPCECABA"), reinstated inflation accounting in financial statements for
the fiscal years or interim periods ended on or after March 31, 2002 in
accordance with the Argentine professional accounting principles and provided
that all recorded amounts restated by changes in the general purchasing power
through August 31, 1995, as well as those arising between that date and December
31, 2001 are considered to be stated in currency as of December 31, 2001 (the
stability period).

     On July 16, 2002, the Argentine government issued Decree No. 1,269/02
repealing Decree No. 316/95, instructing the CNV, among others, to issue the
necessary regulations concerning the preparation of financial statements
prepared in constant currency. On July 25, 2002, under Resolution No. 415/02,
the CNV reinstated the requirement to submit financial statements in constant
currency. However, on March 25, 2003, the National Executive Power issued Decree
No. 664/03 repealing the provisions related to the inflation adjustment
established by Decree No. 1,269/02 and ordering the CNV, among others, to issue
any applicable regulations to ensure that balance sheets or financial statements
restated in constant currency are no longer accepted. Therefore, on April 8,


                                       2
<PAGE>


2003, Resolution No. 441/03 of the CNV set forth that from March 1, 2003, the
restatement of financial statements in constant currency should be discontinued.
On December 2, 2003, under Resolution CD No. 190/03 the CPCECABA discontinued
the application of the restatement of financial statements in constant currency
due to inflation as set forth in professional accounting principles from October
1, 2003, since the CPCECABA considered that the conditions related to the
application of the restatement for inflation continued until September 30, 2003.

     As required by Decree No. 316/95, our financial statements as of and for
the fiscal years ended September 30, 2001 and 2000, the three-month fiscal year
ended December 31, 2001 and the three-month period ended December 31, 2000 were
not restated to reflect changes in the Argentine wholesale price index published
by the Instituto Nacional de Estadistica y Censos, the Argentine Institute of
Statistics and Census ("INDEC") corresponding to periods between September 1995
and December 2001. However, for comparative purposes, figures presented in this
Annual Report corresponding to balance sheet data as of the three-month fiscal
year ended December 31, 2001, the three-month period ended December 31, 2000,
the fiscal years ended September 30, 2001 and 2000 and income statement and cash
flow data for the three-month fiscal year ended December 31, 2001, the
three-month period ended December 31, 2000, the fiscal year ended September 30,
2001 and 2000 are restated for inflation from January 1, 2002 to February 28,
2003 of 122.2%, based on the wholesale price index.

     The CPCECABA discontinued the application of the method that required
restatement into constant currency as of October 2003. However, in accordance
with the above-mentioned regulations, our financial statements as of December
31, 2004 and 2003 have been prepared recognizing the effects of variations in
the purchasing power of the Argentine peso until February 28, 2003 (restated
according to the changes in the Argentine wholesale price index published by
INDEC) in compliance with the regulations issued by the National Executive Power
and the CNV. Between January 1, 2003 and September 30, 2003, the wholesale price
index decreased by 1.4%. The effect of not restating figures until September 30,
2003 on our shareholders' equity as of December 31, 2004 and on our net loss for
the fiscal year ended December 31, 2004 is not significant. The shareholders'
equity as of December 31, 2003 and the net income for the fiscal year ended
December 31, 2003 would have amounted to Ps.2,628 million and Ps.305 million,
respectively, if they had been restated as of September 30, 2003. See Note 2.2
to the Consolidated Annual Financial Statements.


                                       3
<PAGE>


            SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

<TABLE>
                                                                                     Unaudited
                       Twelve-Month   Twelve-Month   Twelve-Month    Three-Month    Three-Month     Twelve-Month    Twelve-Month
                        Fiscal Year    Fiscal Year    Fiscal Year     Fiscal Year       Period       Fiscal Year    Fiscal Year
                           Ended          Ended          Ended          Ended           Ended          Ended          Ended
                       December 31,   December 31,   December 31,    December 31,    December 31,  September 30,    September 30,
                           2004           2003            2002           2001          2000(1)          2001          2000(1)
                       ------------------------------------------------------------------------------------------------------------
                         (in million of pesos except for per share amounts, share capital and operating information or as otherwise
                                 indicated; Argentine GAAP financial data is restated for inflation until February 28, 2003)
<S>                            <C>           <C>            <C>             <C>             <C>            <C>             <C>
OPERATIONS STATEMENT
  DATA:(2)
Argentine GAAP
  Net revenues.........        3,047         2,750          3,060           1,424           1,569          6,154           6,481
  Costs of services
   provided(3).........       (1,936)       (1,992)        (2,235)           (772)           (826)        (3,121)         (3,748)
  Gross profit.........        1,111           758            825             652             743          3,033           2,733
  Administrative
   expenses(3).........         (334)         (352)          (436)           (154)           (162)          (622)           (479)
  Selling expenses(3)..         (190)         (163)          (442)           (385)           (180)          (918)           (459)
  Subtotal.............          587           243            (53)            113             401          1,493           1,795
  Income (loss) on
   equity investments..           (1)           (3)             2              (9)             (2)            (4)             (4)
  Other expenses, net..         (137)          (71)          (153)            (52)            (65)          (249)           (331)
  Financial (loss)/
   income on assets....           46           (74)          (730)             15              11             64             106
  Financial (loss)/income
   on liabilities......         (508)          310         (2,528)            (80)            (75)          (331)           (365)
  Unusual items........           --            --             --              --              --            (15)             --
  Income tax...........            5            --             51             (20)           (125)          (335)           (444)
  Net (loss)/income
   from continuing
   operations..........           (8)          405         (3,411)            (33)            145            623             757
  Net (loss)/income of
   spun-off
   businesses..........           --            --             --              --             (77)           (59)             (2)
  Net (loss)/income....           (8)          405         (3,411)            (33)             68            564             755
  Earnings (losses)
   per share(2)(4).....       (0.005)         0.23          (1.95)          (0.02)           0.02           0.30(5)         0.35
  Earnings (loss)
   from continuing
   operations per
   share(2)(4)(6)......       (0.005)         0.23          (1.95)           (0.02)          0.07           0.33            0.35
U.S. GAAP
  Net (loss)/income....          677         1,043         (3,454)         (1,409)            (23)           201             339
  Number of
   shares(7)(8)........1,746,052,429 1,746,052,429  1,746,052,429   1,746,052,429   2,140,841,663  1,746,052,429   2,140,841,663
  Earnings (losses)
   per share(2)(4).....        0.388          0.60          (1.98)          (0.81)          (0.01)          0.11(5)         0.16
BALANCE SHEET DATA:
Argentine GAAP
  Cash and current
   investments.........          274           354            399             146             141(9)          69             855(9)
  Fixed assets.........        6,596         7,342          8,476           9,717(10)      10,266          9,890          10,435
  Total assets.........        7,524         8,312          9,628          11,818          14,021         12,259(9)       14,995
  Share capital(7)(8)..        1,746         1,746          1,746           1,746           2,141          1,746           2,141
  Short-term bank and
   financial debt......        1,209         1,982          3,294           2,511           2,874          2,575           3,526
  Long-term bank and
   financial debt......        2,500         2,553          2,963           1,808           1,938          1,872           2,232
  Total liabilities....        4,754         5,534          7,218           5,945(11)       6,521          5,983(11)       7,563
  Shareholders' equity
   (net assets)........        2,770         2,778          2,410           5,821(13)       7,500          6,183(13)       7,434(12)
  Net assets of
   spun-off business...           --            --             --              --           1,334             --           1,455
  Unappropriated
   losses/earnings.....       (3,153)       (3,145)        (3,513)           (102) (13)       231            615(13)       1,301(12)
U.S. GAAP
  Shareholders' equity.         (433)       (1,110)        (2,242)          1,212           3,306          2,771           3,329
OTHER FINANCIAL DATA:
Argentine GAAP
  Cash dividends paid..           --             --            --             329              --            329             658
  Cash dividends
   per share:
  in pesos.............           --             --            --            0.15(14)          --           0.15(14)        0.31
  in dollars(15).......           --             --            --            0.07              --           0.07            0.14
  Capital
   expenditures(16)....          387(18)       141            136(7)          210             136            850             950
  Depreciation and
   amortization(19)....        1,135         1,293          1,386             368             334          1,357           1,532
 CASH FLOW DATA:
 Argentine GAAP
  Cash flows from
   continuing
   operating
   activities..........        1,569         1,489          1,465             541             367          1,788           2,100
  Cash used in
   continuing
   investing
   activities..........         (387)(18)     (141)          (136)(17)       (210)           (136)          (926)           (949)
  Cash used in
   continuing
   financing
   activities..........       (1,270)       (1,393)        (1,077)           (253)           (991)        (1,693)           (138)
  Spun-off assets......           --            --             --              --              --           (145)            --
  Cash flows
   provided by
   spun-off
   businesses..........           --            --             --              --              55            162            (492)
  Increase (decrease)
   in cash and cash
   equivalents......             (88)          (45)           252              78            (705)          (814)            521
OPERATING INFORMATION:
 (unaudited)
  Lines installed......    4,615,470     4,570,739      4,561,447       4,555,122       4,472,821      4,535,112       4,389,094
  Lines in service.....    4,328,513     4,169,013      4,182,277       4,321,020       4,138,371      4,294,317       4,090,174
  Lines in service
   per 100 inhabitants
   (Southern
    Region)(20)........        25.10         24.40          24.70           25.80           24.90          25.60           24.60
  Number of employees..        8,757         8,736          8,998           9,410           9,856          9,680           9,984
  Lines in service
   per employee........        494.3         477.2          464.8           459.2           419.9          443.6           409.7
  Digitalization.......          100%          100%           100%            100%            100%           100%            100%
</TABLE>


                                       4
<PAGE>


----------
(1)  Figures do not include the effects of the accounting principles under
     Argentine GAAP applicable to us for fiscal years beginning on January 1,
     2003. See Note 2.3 to the Consolidated Annual Financial Statements.

(2)  See Note 2.1 to the Consolidated Annual Financial Statements for the basis
     of presentation of consolidated income statement amounts and presentation
     of financial information elsewhere in this Annual Report.

(3)  Includes depreciation and amortization.

(4)  Diluted earnings per share is the same as earnings per share, as there are
     no outstanding dilutive securities.

(5)  Calculated based on the weighted average number of shares outstanding
     during the year, taking into consideration the cancellation of 394,789,234
     class B ordinary shares (the "Class B Shares"). See Note 1.2 to the
     Consolidated Annual Financial Statements.

(6)  Unaudited.

(7)  Nominal amounts.

(8)  The Reorganization Transactions had the effect of reducing our capital
     stock by 394,789,234 Class B Shares. Share capital at Ps.1.00 per share is
     shown rounded to the nearest Ps.1 million.

(9)  Net of Ps.37 million and Ps.28 million (in pesos restated for inflation
     until February 28, 2003) corresponding to the spun-off business on December
     31, 2000 and September 30, 2000.

(10) Net of Ps.4 million transferred to inventories.

(11) As of December 31, 2001 and September 30, 2001, total liabilities after the
     effect of the accounting principles in Argentina applicable to us for
     fiscal years beginning on January 1, 2003 could amount to Ps.5,996 and
     Ps.6,079 respectively.

(12) Modified balances of Shareholders equity (net assets) and unappropriated
     losses/earnings by the effects of the accounting principles applicable to
     us for fiscal years beginning on January 1, 2003 at the beginning of fiscal
     year ended September 30, 2001, amounted to Ps.7,318 and Ps.1,185,
     respectively.

(13) The balances were modified to reflect the effects of the accounting
     principles applicable to us from January 1, 2003 of Ps.51 and Ps.96 million
     for the three-month fiscal year ended December 31, 2001 and the fiscal year
     ended September 30, 2001.

(14) Dividends per share were computed based on the number of shares outstanding
     before the capital stock reduction, since the related share exchange had
     not yet been completed as of the distribution date. See Note 1.2 to the
     Consolidated Annual Financial Statements.

(15) Cash dividends per share in U.S. dollars are translated into U.S. dollars
     from pesos using the exchange rate as of each payment date.

(16) Net of Ps.41 million, Ps.45 million, Ps.15 million, Ps.40 million, Ps.181
     million, and Ps.41 million financed by trade, bank and financial payables
     for the fiscal years ended December 31, 2004, 2003, 2002, September 30,
     2001 and 2000 and the three-month period ended December 31, 2000
     respectively (in pesos restated for inflation until February 28, 2003).

(17) Net of Ps.29 million of capitalized exchange difference in the fiscal year
     ended December 31, 2002.

(18) Net of Ps.9 million of transfers of inventories to fixed assets.

(19) Excludes amortization of deferred financing costs. Consolidated on the
     basis of presentation of consolidated income statement amounts. See Note
     2.1 to the Consolidated Annual Financial Statements.

(20) Southern Region is defined in Item 4: "Information on the Company--Our
     History and Development--Privatization of Argentina's Telecommunications
     System". As of December 31, 2004, there were approximately 17 million
     inhabitants in the Southern Region. Source: INDEC.


                                       5
<PAGE>


Exchange Rate Information

     The following table sets forth, for the periods indicated, the high, low,
average and period-end exchange rates for the purchase of U.S. dollars expressed
in nominal pesos per U.S. dollar. On March 31, 2005, the peso/U.S. dollar
exchange rate was Ps.2.92 to U.S.$1.00. The Federal Reserve Bank of New York
does not report a noon buying rate for pesos.

                             Nominal Exchange Rates

                                                     Exchange Rate
                                      ------------------------------------------
                                      High(1)     Low(2)   Average(3) Period End
                                      ------------------------------------------
Year Ended December 31, 2000.........  1.00        1.00       1.00       1.00
Year Ended December 31, 2001(4)......  1.00        1.00       1.00        N/A
Year Ended December 31, 2002(4)......  3.90        1.70       3.15       3.37
Year Ended December 31, 2003.........  3.35        2.76       2.95       2.93
Year Ended December 31, 2004.........  3.06        2.80       2.95       2.98
Month Ended October 31, 2004.........  2.98        2.96       2.97       2.97
Month Ended November 30, 2004........  2.97        2.93       2.95       2.95
Month Ended December 31, 2004........  2.99        2.94       2.97       2.98
Month Ended January 31, 2005.........  2.97        2.92       2.94       2.92
Month Ended February 28, 2005........  2.94        2.89       2.92       2.94
Month Ended March 31, 2005...........  2.96        2.91       2.92       2.92
Period Ended April 5, 2005...........  2.92        2.91       2.92       2.91

----------
(1)  The high rate shown was the highest month-end rate during the year or any
     shorter period, as noted.

(2)  The low rate shown was the lowest month-end rate during the year or any
     shorter period, as noted.

(3)  Average of the daily closing rate for year-end, month-end or period-end
     rates, as noted.

(4)  From December 24, 2001 through January 10, 2002, Banco Nacion did not
     publish an official exchange rate due to governmental suspension of the
     exchange market.

Source: Banco Nacion.

     Fluctuations  in the exchange rate between the peso and the U.S. dollar may
affect the U.S. dollar equivalent of the peso price of our outstanding notes and
our Class B Shares.

B. Capitalization and Indebtedness.

     Not applicable.

C. Reasons for the Offer and Use of Proceeds.

     Not applicable.

D. Risk Factors.

     The following discussion should be read together with the balance of this
Annual Report, including the Consolidated Annual Financial Statements.

Risks Factors Relating to Argentina

Overview

     We are an Argentine sociedad anonima (a corporation of limited liability)
and substantially all of our operations, facilities and customers are presently
located in Argentina. Accordingly, our financial condition and results of
operations depend to a significant extent on the macroeconomic and political
conditions of Argentina.


                                       6
<PAGE>


     The Argentine economy has experienced significant volatility in recent
decades, characterized by periods of low or negative growth and high and
variable levels of inflation and devaluation. In 1988, 1989 and 1990, the annual
inflation rates were approximately 388%, 4,924% and 1,344%, respectively, based
on the Argentine consumer price index and approximately 432%, 5,386% and 798%,
respectively, based on the Argentine wholesale price index. As a result of
inflationary pressures, the Argentine currency was devalued repeatedly during
the 1960s, 1970s and 1980s, and macroeconomic instability led to broad
fluctuations in the real exchange rate of the Argentine currency relative to the
U.S. dollar. To address these pressures, the Argentine government during this
period implemented various plans and utilized a number of exchange rate systems.
Prior to December 1989, the Argentine foreign exchange market was subject to
exchange controls.

     In April 1991, the Argentine government launched a plan aimed at
controlling inflation and restructuring the economy, enacting Law No. 23,928 and
its Regulatory Decree No. 529/91, known as the Convertibility Law. The
Convertibility Law fixed the exchange rate at one peso per U.S. dollar and
required that the Central Bank maintain reserves in gold and foreign currency at
least equivalent to the monetary base. Following the enactment of the
Convertibility Law, inflation declined steadily and the economy experienced
growth through most of the period from 1991 to 1997. In the fourth quarter of
1998, however, the Argentine economy entered into a recession that caused the
gross domestic product ("GDP") to decrease by 3.4% in 1999, 0.8% in 2000, 4.4%
in 2001 and 10.9% in 2002.

     In the second half of 2001, Argentina's recession worsened significantly,
precipitating the political and economic crisis described in greater detail
below.

     Beginning in December 2001, the Argentine government implemented a number
of monetary and currency-exchange control measures that included restrictions on
the free disposition of funds deposited with banks and tight restrictions on the
transfer of funds abroad, with certain exceptions for transfers related to
foreign trade and other authorized transactions, which were generally subject to
prior approval by the Central Bank, most of which as of the date of this Annual
Report are no longer applicable in connection with repayments made to foreign
creditors. In December 2001, the Argentine government declared an official
default on Argentina's foreign debt payments. On January 7, 2002, the Argentine
Congress enacted the Public Emergency Law, which introduced dramatic changes to
Argentina's economic model and amended the currency board that had pegged,
statutorily, the peso at parity with the U.S. dollar since the enactment of the
Convertibility Law in 1991. The Public Emergency Law empowered the Federal
Executive Branch of Argentina to implement, among other things, additional
monetary, financial and exchange measures to overcome the economic crisis, such
as determining the rate at which the peso was to be exchanged into foreign
currencies. Since January 2002, the Argentine government has implemented
measures, whether by decrees, Central Bank regulation or legislation passed by
the Argentine Congress, attempting to address the effects of amending the
Convertibility Law, recovering access to financing, reducing government
spending, restoring liquidity to the financial system, reducing unemployment,
and generally stimulating the economy.

     As detailed below, the Argentine economy has experienced a severe recession
and political and economic crisis, and the abandonment of the peso/U.S. dollar
parity has led to significant devaluation of the peso against major
international currencies. Argentine government actions concerning the economic
policy, including with respect to inflation, interest rates, price controls,
foreign exchange controls and taxes, have had and may continue to have a
material adverse effect on private sector entities including us. Although some
economic indicators of the Argentine economy stabilized in 2003 and 2004, we
cannot provide any assurance that future economic, social and political
developments in Argentina, over which we have no control, will not further
impair our business, financial condition, or results of operations or impair our
ability to make payments of principal and/or interest on our outstanding
indebtedness.

   Recent political and economic instability has hindered commercial and
   financial activities, from which Argentina has not fully recovered.

     By the second half of 1998, the Argentine economy entered into a recession
that caused the real GDP to decrease by 3.4% in 1999. Following his election in
October 1999, President Fernando De la Rua was confronted with the challenges of
dealing with Argentina's enduring recession and obtaining political consensus on
critical issues related to the economy, public sector spending, legal reforms
and social programs. However, real GDP contracted by 0.8% in 2000 and by 4.4% in
2001. As the recession caused tax revenues to drop, the public sector


                                       7
<PAGE>


relied increasingly on financing from local and, to a lesser extent, foreign
banks, effectively foreclosing private sector companies from bank financing. As
the public sector's creditworthiness deteriorated, interest rates reached record
highs, bringing the economy to a virtual standstill. The lack of confidence in
the country's economic future and its ability to sustain the peso's parity with
the U.S. dollar led to massive withdrawals of deposits and capital outflows.

     On December 1, 2001, the Argentine government effectively froze bank
deposits and introduced exchange controls restricting capital outflows. The
measures were perceived as further paralyzing the economy, for the benefit of
the banking sector, and caused a sharp rise in social discontent, ultimately
triggering public protests, outbreaks of violence and the looting of stores
throughout Argentina. On December 20, 2001, after declaring a state of emergency
and suspending civil liberties, President Fernando De la Rua tendered his
resignation to Congress. After a series of interim presidents, on January 1,
2002, Eduardo Duhalde, a Peronist senator who had lost the presidential election
to President De la Rua in 1999, was appointed by Congress at a joint session to
complete the remaining term of former President De la Rua until December 2003.

     During Duhalde's administration, a number of initiatives were undertaken,
including:

     o    ratifying the suspension of payment of certain of Argentina's
          sovereign debt declared by interim President Rodriguez Saa;

     o    amending the Convertibility Law, with the resulting devaluation and
          volatility of the peso;

     o    converting certain U.S. dollar-denominated loans from financial
          institutions into peso-denominated debts ("pesification") at a
          one-to-one exchange rate plus an adjustment for variations in consumer
          prices (Coeficiente de Estabilizacion de Referencia, "CER") or in
          salaries (Coeficiente de Variacion Salarial, "CVS") and U.S.
          dollar-denominated bank deposits into peso-denominated bank deposits
          at an exchange rate of Ps.1.40 per U.S.$1.00, as adjusted by CER;

     o    converting most U.S. dollar-denominated obligations with non-financial
          institutions into peso-denominated obligations, at a one-to-one
          exchange rate, plus an adjustment by CER or CVS, as the case may be,
          plus an equitable adjustment, in certain cases;

     o    restructuring the maturity and interest rates on bank deposits and
          maintaining restrictions on bank withdrawals;

     o    enacting an amendment to the Central Bank's charter to (1) allow it to
          print currency in excess of the amount of foreign reserves it holds,
          (2) make short-term advances to the federal government and (3) provide
          financial assistance to financial institutions with liquidity
          constraints or solvency problems;

     o    converting public service tariffs, including those of telephone
          services, which had been established in U.S. dollars, into pesos at a
          one-to-one exchange rate;

     o    freezing public service tariffs, including those of telephone
          services, and not permitting indexing of any kind;

     o    authorizing the federal government to renegotiate public service
          tariffs on a case-by-case basis;

     o    imposing restrictions on transfers of funds abroad subject to certain
          exceptions, most of which have been lifted; and

     o    requiring the deposit into the Argentine financial system of foreign
          currency earned from exports, subject to certain exceptions.

     Commercial and financial activities were virtually paralyzed in 2002,
further aggravating the economic recession that precipitated the above-mentioned
crisis.


                                       8
<PAGE>


     The recession in 2002, including a 10.9% decrease in real GDP, high
unemployment that preceded and that followed the devaluation of the peso and
high inflation has led to a reduction of wages in real terms and of disposable
income and has resulted in changes in consumer behavior across all class sectors
of the Argentine population. Such effects have resulted and may again result in
a decrease in the number of clients, the use of our services and the type of
products and services demanded, with a corresponding reduction in our revenues.
See "--Risk Factors Related to Us-- Our revenues have been in the past, and may
again be in the future, adversely affected by a decrease in the number of our
customers and usage of our services."

     Nestor Kirchner became the president of Argentina on May 25, 2003. Some
economic indicators of Argentina began to stabilize in 2003: (i) real GDP growth
during 2003 was 8.8% (Source: INDEC), (ii) inflation has stabilized and (iii)
the peso strengthened versus the U.S. dollar. As of December 31, 2003, the
exchange rate was Ps.2.93 per U.S. dollar compared to Ps.3.37 per U.S. dollar as
of December 31, 2002.

     During 2004, the Argentine economy continued to exhibit signs of stability.
Real GDP growth was 9.0% for the year. Both inflation and the peso nominal
exchange rate were stable during 2004, with variations of 6.1% and 1.7%,
respectively. As of December 31, 2004, the exchange rate was Ps.2.98 per U.S.
dollar compared to Ps.2.93 per U.S. dollar as of December 31, 2003. Furthermore,
the employment situation improved. The unemployment rate reached 12.1% during
the fourth quarter of 2004, which was a decrease of 26% from the levels it had
reached during the 2002 - 2003 period.

     Notwithstanding this continued stabilization, the Argentine economic and
social situation have quickly deteriorated in the past, and may quickly
deteriorate in the future, and we cannot assure you that the Argentine economy
will continue a sustained growth.

   The devaluation of the Argentine peso, the pesification and freezing of our
   tariffs, and the macroeconomic conditions prevailing in Argentina, have
   had, and may continue to have, a material adverse effect on our results of
   operations and financial condition.

     The Argentine government's economic policies and any future decrease in the
value of the peso against the U.S. dollar could adversely affect our financial
condition and results of operations. The peso has been subject to large
devaluations in the past and may be subject to significant fluctuations in the
future.

     The Public Emergency Law put an end to eleven years of U.S. dollar-peso
parity (Ps.1.00 per U.S. $1.00) and authorized the Argentine government to set
the exchange rate. After devaluing the peso, the Argentine government initially
established a dual exchange rate of Ps.1.40 per U.S. dollar for certain
transactions and a free-floating rate for all other transactions. This dual
system was later eliminated in favor of a single free-floating exchange rate for
all transactions. Since the devaluation of the peso, the Central Bank has
intervened at times in the market to support the value of the peso by buying and
selling U.S. dollars. The peso traded at Ps.3.37 per U.S. dollar on December 31,
2002 and at Ps.2.93 per U.S. dollar on December 31, 2003. In 2004, the peso
showed signs of stability. It traded at Ps.2.98 per U.S. dollar on December 31,
2004 and at Ps.2.92 per U.S. dollar on March 31, 2005. On June 25, 2002, the
peso had reached Ps.3.90 per U.S. dollar.

     Despite the relative stability during the past two years, we cannot assure
you that future polices adopted by the Argentine government will be able to
maintain the stability of the peso's value and therefore, the peso could be
subject to significant fluctuations and depreciations in the future, which could
materially and adversely affect our financial conditions and results of
operations. As most of the Argentine government's financial liabilities were
U.S. dollar-denominated, there was an increase in the amount in pesos of the
Argentine government's total debt as a result of the devaluation.
Peso-denominated tax revenues constitute the majority of its tax receipts and,
due to inflation, tax revenues have increased in nominal terms, but have
decreased in U.S. dollar terms due to devaluation. Therefore, the government's
ability to honor its foreign debt obligations has been materially and adversely
affected by the devaluation of the peso.

     We realize substantially all of our revenues in Argentina in pesos and, as
a result, the devaluation of the peso in 2002 and the pesification and freezing
of our tariffs have had a material adverse effect on our earnings, because our
indebtedness is largely denominated in or linked to foreign currency and
therefore the devaluation has significantly increased our debt in peso terms. In
addition, some portion of our expenses, including capital expenditures, is also


                                       9
<PAGE>


denominated in foreign currency. Furthermore, the devaluation of the peso has
had a material adverse effect on our financial condition, as our largely
peso-denominated assets have depreciated accordingly against our largely foreign
currency-denominated indebtedness. Any further depreciation of the peso against
the U.S. dollar will correspondingly increase the amount of our bank and
financial debt in pesos, with further adverse effects on our results of
operations and financial condition. As of December 31, 2004, our consolidated
bank and financial debt in foreign currency was the equivalent of U.S.$1,073
million.

     Given the economic situation in Argentina, it is impossible to predict
whether, and to what extent, the value of the peso may further depreciate or
appreciate against the U.S. dollar and how those uncertainties will affect
consumption of telephone services. Moreover, we cannot predict whether the
Argentine government will further modify its monetary policy and, if so, what
impact these changes could have on our results of operations and financial
condition.

   The Argentine economy may experience significant inflation and a substantial
   part of our revenues is not currently subject to indexing.

     On January 24, 2002, the Argentine government amended the charter of the
Central Bank to allow the Central Bank to print currency without having to
maintain a fixed and direct relationship to foreign currency and gold reserves.
This change allows the Central Bank to make short-term advances to the federal
government to cover its anticipated budget deficits and to provide assistance to
financial institutions with liquidity or solvency problems.

     There is considerable concern that if the Central Bank prints currency to
finance public sector spending or assist financial institutions in distress or
maintain the nominal U.S. dollar/peso exchange rate, significant inflation could
result. During 2003 the Argentine consumer price index increased by 3.7% and the
wholesale price index increased by 2.0%. During 2004, the Argentine consumer
price index increased 6.1% and the wholesale price index increased 7.9%. In the
past, inflation materially undermined the Argentine economy and the Argentine
government's ability to create conditions that would permit growth. Although in
2003 and 2004 there was a slowdown in the inflation indexes, we cannot assure
you that this situation will remain the same. See "Item 3. Key Information--A.
Selected Financial Data". During the first two months of 2005, consumer prices
increased 2.4%, equivalent to an annualized rate of 14.4%, a pace superior to
the 5% to 8% goal range established in the Monetary Program of the Central Bank
for 2005, and a rate superior to the 7.9% rate stipulated in the national budget
for 2005. The printing of money by the Central Bank (which intervenes in the
exchange market and maintains the price of the U.S. dollar high) and the
complete utilization of the industry's installed capacity (the current rate of
investment is not sufficient in the face of the increasing growth of demand) are
the principal generators of the most recent inflationary pressures.

     We derive most of our revenues from monthly basic charges, measured service
charges and other regulated charges. Prior to the enactment of the Public
Emergency Law, those revenues were linked to a rate per unit of usage expressed
in U.S. dollars and we also had the right to adjust that rate semiannually in
accordance with variations in the U.S. consumer price index. Currently, however,
the Public Emergency Law provides that, in agreements executed by the federal
government under public law regulations, including those related to public works
and services, which includes the basic telephone service offered by us,
indexation clauses based on foreign currency price indices or any other
indexation mechanism are annulled. In this regard, the law sets forth that the
prices and rates resulting from such provisions be established in pesos at a
rate of Ps.1.00 per U.S.$1.00. Any further inflation will result in further
decreases in our revenues in real terms and will adversely affect our results of
operations, provided that our tariffs do not keep pace with inflation. In
addition, any further inflation could result in further increases in our
expenses, including capital expenditures. The current mismatch between the
variables determining revenues and expenses has affected and may continue to
affect materially our results of operations.

     The process for the renegotiation of our tariffs with the Argentine
government formally began in early 2002. We cannot give you any assurance that
the outcome of these negotiations will be favorable to us. Although we have
adopted several initiatives to mitigate the current impact of this matter on our
financial position, and certain indicators of the Argentine economy are
currently showing favorable signals, the future operating conditions might not
continue to be stable because, in our management's opinion, the regulatory
framework in force has still not established the rules to allow reinstating the
balance of the variables that constitute our economic and financial equation. We
have described that, if as a result of the tariff re-negotiation, future rates
evolve at a pace that does not allow restoring our economic and financial
equation, such rate system could have an adverse impact on our


                                       10
<PAGE>


financial condition and future results. See "--Risk Factors Related to Us--In
January 2002, the Argentine government devalued the peso, pesified and froze our
tariffs and the current renegotiation of our tariffs may result in new tariffs
that may have an adverse impact on our future financial position and future
results of operations."

   The prolonged default on Argentina's public debt and the tightening
   relationship between the international financial community and the
   Argentine government may impose difficulties on Argentina's attempts to
   solve the problem of creditors who did not participate in Argentina's
   recent debt exchange offer.

     Due to the failure to meet fiscal deficit targets, on December 5, 2001, the
International Monetary Fund ("IMF") suspended further disbursements, originally
intended as financial support due to the prevailing economic difficulties of
Argentina. On December 23, 2001, interim President Rodriguez Saa declared the
suspension of debt payments on approximately U.S.$65.4 billion of Argentina's
sovereign debt (as of December 31, 2001, the total was approximately U.S.$144.5
billion). Consequently, the principal international rating agencies downgraded
the rating of Argentina's sovereign debt to "selective default".

     On January 24, 2003, the IMF approved an eight-month Stand-by Credit
Facility for Argentina of approximately U.S.$3.0 billion that was designed to
provide transitional financial support through the period prior to the
inauguration of a new government, which replaced Argentina's prior arrangements
with the IMF. On September 10, 2003, after the expiration of this transitional
agreement and three months after President Kirchner was elected, a long-term
agreement was executed for the 2003-2006 period which implied the refinancing of
liabilities for U.S.$21.6 billion and the establishment of a series of
quantitative and qualitative conditions to be met by the Argentine government,
in principle for the 2003-2004 period, including the renegotiation of the public
debt in default, the tax reform, the compensation to the financial system and
the adjustment of utility rates, among others.

     Under the agreement, the above-mentioned conditions were to be reviewed
every three months. The first review took place in January 2004, and was
approved by the IMF's Executive Committee on January 28, 2004. This approval
resulted in an additional disbursement of U.S.$358 million to Argentina. The
second review was approved on March 22, 2004, and resulted in another
disbursement of approximately U.S.$3,100 million. In August 2004, the IMF
announced the suspension of the third review and postponed disbursements to
Argentina totaling U.S.$728 million, in order to evaluate the implementation by
the Argentine government of the pending structural reforms related to public
utility contracts and the progress made in the renegotiation of the Argentine
sovereign debt.

     Also in August 2004, the Argentine government announced the suspension of
negotiations with the IMF until December 31, 2004, so as to focus all efforts on
the restructuring of its defaulted sovereign debt, but it also announced that
during such period it would continue to honor its obligations to the IMF. On
September 17, 2004 the IMF conceded Argentina a one-year grace period in the
repayment of an amount of principal of approximately U.S.$1,100 million,
initially scheduled to mature between September 20, 2004 and January 17, 2005.

     No assurance can be given that Argentina will honor its commitments to the
IMF nor that it will resolve its problems vis-a-vis the international financial
community. This raises continuous doubts on the possibilities of obtaining
long-term financing by the Argentine economy, both in the public and private
sectors, which could negatively affect us.

     The restructuring of the defaulted sovereign debt had been a goal of the
Argentine government during recent years. On March 17, 2004 a Decree was
published in the Official Gazette that provided for the creation of a syndicate
of commercial banks to act as dealer managers for the restructuring of the
government securities, in accordance with the commitment made to the IMF. On
November 1, 2004 the Argentine government filed with the United States
Securities and Exchange Commission ("SEC") (and later with the securities
commissions of Italy, Germany and Luxembourg) the terms of the new public debt
securities to be issued in order to restructure the defaulted debt. Sovereign
debt in default totaled approximately U.S.$100 billion, comprised of
approximately U.S.$81.1 billion of principal and U.S.$18.2 billion of unpaid
interest accrued before December 31, 2001.

     The new securities will be denominated in U.S. dollars, euros, Japanese
yens and Argentine pesos (indexed by CER). The securities will be governed by
the laws of New York and Argentina for the U.S. dollar bonds, England for the
euro bonds, Japan for the Japanese yen bonds and Argentina for the peso bonds
indexed by CER.


                                       11
<PAGE>


     After a process of renegotiation with creditors, on December 9, 2004,
Executive Decree No. 1735/04 was issued, approving the debt restructuring under
the terms and conditions set forth in the offering circular supplement attached
to such Decree, and approving the terms and conditions of the new securities to
be delivered in exchange for the eligible securities.

     On January 12, 2005, the Argentine government officially launched the debt
restructuring process and on March 18, 2005, officially announced that 76.15% of
bondholders had accepted the offer. The new bonds will be issued in April 2005.

     Pursuant to Law No. 26,017 approved by the National Executive Power on
February 10, 2005, the Argentine government is forbidden from reopening the
exchange process described above. Therefore, the Argentine government cannot
negotiate a different offer with those bondholders who did not tender their
bonds during the restructuring process or who did not declare in express
judicial form their opposition to tendering their bonds.

     Despite the results of the restructuring, it is impossible to predict the
effect that this will have on investor confidence or on the Argentine economy.
Moreover, there can be no assurance that the Argentine government will not
default on its obligations under these new bonds in the future. In addition, the
Argentine government must continue to honor principal and interest payments to
credit agencies including the International Monetary Fund (IMF) and World Bank
without subsequent new loans in order to avoid a default vis-a-vis such
agencies.

     Argentina will also have to withstand any legal actions that may be filed
by bondholders who did not accept the Argentine government's exchange offer. At
present, there are actions in the United States, Italy and Germany, and it is
impossible to determine what the outcome of these proceedings will be. A
judgment against the Argentine government in such pending cases could result in
a reduction in funding sources and investment capital, which could have a
significant effect on the Argentine government's capacity to implement reforms
and reinstate sustainable economic growth, all of which could adversely affect
us.

     All such events could also impair Argentina's capacity to maintain the
current economic recovery and could result in a recession, higher inflation,
unemployment and social discontent.

   The Argentine financial system is gradually recovering, but depends on the
   reversion of the cumulative losses of financial institutions and their
   ability to prevent future collapses that would frustrate economic growth.

     During the second half of 2001, a significant amount of deposits was
withdrawn from financial institutions as a result of increasing political
instability and uncertainty resulting in a run on the U.S. dollar reserves of
local banks. To stop such run, on December 1, 2001, the De la Rua administration
restricted the amount of cash that account holders could withdraw from banks and
introduced exchange controls restricting capital outflows. Although many of
these restrictions, known as the "corralito", are no longer in place, the
Duhalde administration subsequently implemented a schedule, known as the
"corralon", which stated how and when money in savings and checking accounts and
time deposits would become available, in an attempt to stop the continuing drain
on bank reserves.

     On February 4, 2002, pursuant to Emergency Decree No. 214/02, the Argentine
government converted all foreign-currency denominated bank deposits into
peso-denominated bank deposits at the exchange rate of Ps.1.40 per U.S. dollar
plus an adjustment to CER plus an interest rate of 2%. The Argentine government
also announced the conversion of most U.S. dollar-denominated debts with
Argentine financial institutions into peso-denominated debts at a one-to-one
exchange rate to be adjusted pursuant to the CER. In March 2002, the Argentine
government issued Decree No. 762/02 by which it replaced the CER, for certain
debts, with the CVS. Since January 2002, the Central Bank has been forced to
grant substantial financial aid to most of the banks in the Argentine financial
system. The corralito, the corralon and certain other measures, to a significant
extent, shielded banks from a further massive withdrawal of deposits, but they
also led to the paralysis of virtually all commercial and financial activities,
diminished spending and greatly increased social unrest, exacerbating the
already severe recession.

     Through Decree No. 739/03 dated March 28, 2003 the Argentine government
made an attempt to eliminate the corralon by giving depositors the option to be
reimbursed pursuant to a schedule for their deposits in pesos which were
originally denominated in U.S. dollars, at a Ps.1.40 per U.S.$1.00 exchange
rate, plus an adjustment to CER and accrued interest, and to receive a 10-year
U.S. dollar denominated bond to be issued by the Argentine


                                       12
<PAGE>


government to cover the difference between the amount in pesos to be received by
the depositors and the face amount of the original deposit made in U.S. dollars
at the exchange rate applicable on April 1, 2003, which was Ps.2.96 per U.S.
dollar.

     In a decision dated March 5, 2003, the Supreme Court of Argentina struck
down the mandatory conversion of U.S. dollar deposits held by the Province of
San Luis with Banco Nacion pursuant to Emergency Decree No. 214/02 on
constitutional grounds. Moreover, in a decision dated July 13, 2004, the Supreme
Court determined that if a depositor had accepted pesos as payment for his
original deposit in U.S. dollars at the exchange rate stipulated by the Public
Emergency Law (Ps.1.40 plus CER per U.S.$1) without reserving the right to claim
the difference between the amount received and the amount that would have been
received if the exchange rate applied had been the free market exchange rate,
then that depositor would be barred from filing such claim. Also, on October 27,
2004, the Supreme Court affirmed the constitutionality of the Public Emergency
Law and the pesification.

     Under Argentine law, the Supreme Court rulings are limited to the
particular facts and defendant in the case; however, lower courts tend to follow
the precedents set by the Supreme Court. There are also numerous other cases in
the Argentine judicial system challenging the constitutionality of the
pesification pursuant to the Public Emergency Law. The Supreme Court's decision
creates uncertainty as to the implications for the banking system as a whole,
including the need for the Argentine government to provide additional financial
assistance to the banks in the form of U.S. dollar-denominated bonds. This, in
turn, could add to the country's outstanding debt and is viewed with concern by
holders of Argentina's outstanding bonds.

     The recent relative stability of the exchange rate and inflation in
Argentina and the higher confidence, as compared to the 2001-2002 period, have
allowed a gradual accumulation of deposits. Interest rates have dropped for
certain periods of time, even to negative levels in real terms, due to the high
liquidity levels that financial institutions maintain and the fact that there
has been no increase in loans granted by these institutions. As a consequence,
the risks related to the Argentine financial system are no longer due to
liquidity problems but are due to its solvency and profitability. If the
relationship between the supply and the demand of credit remains mismatched due
to problems of profitability, then there is a risk that financial institutions
will collapse as a consequence of operating with negative margins during an
extended period of time. Thus, the size of the Argentine financial market and
the ability of private companies, including us, to obtain financing could be
reduced.

   Future exchange controls may prevent us from servicing our foreign currency-
   denominated debt obligations.

     Since early December 2001, the Argentine authorities implemented a number
of monetary and currency exchange control measures that included restrictions on
the withdrawal of funds deposited with banks and tight restrictions on transfers
abroad. Most restrictions in connection with repayments to foreign creditors
have been lifted. These regulations have been changing constantly since they
were first promulgated and we cannot assure you that they will not be put in
place again and if they are, whether they will be made stricter than they were
before.

Risk Factors Related to Us

   In January 2002, the Argentine government devalued the peso, pesified and
   froze our tariffs and the current renegotiation of our tariffs may result
   in new tariffs that may have an adverse impact on our future financial
   position and future results of operations.

     In January 2002, tariffs for basic telephone services and long-distance
services, which we charge our customers, were converted to pesos from U.S.
dollars and fixed at an exchange rate of Ps.1.00 per U.S.$1.00. Our tariffs were
also frozen, as indexation of any kind is not permitted under the Public
Emergency Law. The Public Emergency Law also authorized the Argentine government
to renegotiate its contracts related to public works and services. We are
currently, and have been since 2002, in the process of renegotiating our tariffs
with the Argentine government regarding the rates we may charge in the future.
According to the Public Emergency Law, the government must consider the
following factors when negotiating the new tariff regime:

     o    the effect of these tariffs on the competitiveness of the general
          economy and in the distribution of income,

     o    the quality of the services,


                                       13
<PAGE>


     o    the investment plans when such issues are included in the pertinent
          agreements,

     o    consumer protection and accessibility of the services,

     o    the security of the systems, and

     o    profitability of the company.

     The outcome of the tariff renegotiation is uncertain and therefore we
cannot assure you that the tariffs that result from the renegotiation will
maintain their value in U.S. dollars or constant pesos over time to compensate
for any past and future increases in inflation or increases in the peso/U.S.
dollar exchange rates. Inflation in terms of wholesale price index and consumer
price index for 2002 and 2003, on an accumulated basis, was 122% and 46%,
respectively, and devaluation during that time amounted to 193%. During 2004,
inflation in terms of wholesale price index was 7.9% and in terms of consumer
price index it was 6.1%. Moreover, the cumulative devaluation for the three
years ended December 2004 was 197.9%. Pursuant to the process established for
the renegotiations, we have submitted both an interim request for a tariff
increase and a comprehensive proposal regarding our tariff regime within the
time period established. Other than the deadline set forth in Law No. 25,792,
we do not know when the renegotiations will be concluded and whether they would
be concluded in a manner that will not have an adverse effect.

     On January 23, 2003, the Argentine government issued Emergency Decree No.
120/03 which established that the Argentine government may provide for interim
tariff increases or adjustments until the process of renegotiation of public
service contracts and licenses required under the Public Emergency Law is
completed. On January 29, 2003, the Argentine government issued Decree No.
146/03, which establishes a temporary tariff adjustment for the provision of
energy and gas services. However, such measure has been judicially challenged
and currently suspended by an injunction. We have requested the interim
adjustment of our tariffs, but no decision has been reached on such issue. We
cannot assure you that we will obtain the temporary adjustment of our tariffs,
or even if we obtain it, we cannot assure you that such adjustment will not be
judicially challenged. Pursuant to Resolution 93/04 issued on February 16, 2004,
the Secretary of Energy established energy service tariff adjustments applicable
for small industries, medium-sized businesses, large industries and large
commercial centers. These tariff increases are not applicable to family
residences and small businesses. The tariff increases are from 15% up to 35%
depending on the customer to whom the increase is applied. In addition, Decree
No. 181/2004 established tariff adjustments for gas services applicable for
industrial and large customers of 14% to 25%.

     On July 3, 2003, through Decree No. 311/03, a Renegotiation and Analysis of
Public Utility Agreements Commission was created, which is to be headed by the
Minister of Economy and the Minister of Production, National Planning, Public
Investment and Services. Such Commission will be in charge of the renegotiation
of the tariffs through the Renegotiation of Public Works and Services Agreements
Committee created by Decree No. 293/02.

     On October 21, 2003 Law No. 25,790 became effective, extending the term for
the renegotiation of the agreements for public works and utilities until
December 31, 2004. The term of the Law No. 25,790 has been further extended
until December 31, 2005 pursuant to Law No. 25,972. The National Executive Power
is responsible for submitting the proposals to the Argentine Congress, which
will have to approve such proposals within 60 calendar days counted from its
receipt. In the event such period expired without Congress having reached a
decision, the proposal shall be deemed accepted. If the proposal is rejected,
the National Executive Power shall resume the process of renegotiating the
relevant agreements.

     This law also established that the decisions made by the National Executive
Power during the renegotiation process shall not be limited by, or subject to,
the stipulations contained in the regulatory frameworks currently governing the
concession or licensing agreements for the respective public utilities.
Renegotiation agreements may cover partial aspects of concession or licensing
agreements, and may contain formulas to adjust such agreements or temporarily
amend them. The law also includes the possibility of agreements subject to
periodical reviews or subject to quality parameters applied to services
rendered. If there are temporary amendments, such amendments must be taken into
consideration in the final agreements reached with concessionaires or licensees.
The legal provisions do


                                       14
<PAGE>


not authorize licensees of public utilities contractors or concessionaires to
suspend or alter compliance with their duties.

     On March 8, 2005 the Ministry of Economy and the Ministry of Federal
Planification, Public Investment and Services, pursuant to resolutions No. 123
and No. 237, respectively, scheduled public audiences with electrical and gas
companies for tariffs increases. However, no telecommunications services
companies have been notified of a date for an audience.

     Under the legal framework described, on May 20, 2004, we, Telecom Argentina
S.A. and the Argentine government signed a Memorandum of Understanding (the
"Memorandum of Understanding") pursuant to which the government agreed to
maintain the General Tariff Structure currently in force for the Basic Telephony
Service until December 31, 2004, without waiving our rights to renegotiate our
contracts. The parties also ratified their intent to reach a final contractual
renegotiation before December 31, 2004, which did not happen. In addition,
pursuant to the provisions of the Transfer Contract, the parties agreed that any
new tax or charge, or any variation in those currently in force, subject to the
control of Regulatory Authorities as established in certain sub-sections of the
List of Conditions, (conditions to maintain our license to provide
telecommunication services, the "List of Conditions"), shall be itemized in the
bills issued to customers for services in the jurisdictions levied with the
respective tax or charge.

     With the objective of establishing mechanisms to enhance access to
telecommunications services, in the Memorandum of Understanding, an agreement
was reached to implement the measures necessary to develop the following
services:

     1.   virtual telephony cards for the beneficiaries of the Head of Household
          Plan (an unemployment plan) and for pensioners who do not have a
          telephone line and who meet the eligibility requirements set forth in
          the respective resolution;

     2.   internet access service in all its provincial centers at discount
          prices; and

     3.   inclusion of heads of household who own a telephone line and meet the
          respective eligibility requirements for registration in the program
          "Retirees, Pensioners and Low-Consumption Households".

     As stated in the Memorandum of Understanding, the Secretary of
Communications issued Resolutions No. 261 and No. 272 accepting proposed points
1 and 2 mentioned above. As of the date of issuance of this Annual Report, both
the Secretary of Communications and the CNC are analyzing the implementation of
the services described in paragraph 3 already mentioned. In the opinion of our
management, the application of the measures mentioned in sub-paragraphs 1, 2 and
3 will not have a significant impact on our results.

     Moreover, we have stated in Notes 1 and 10.1 to our Consolidated Annual
Financial Statements that the relationship between variables determining
revenues and expenses is currently mismatched as a result of the pesification
and freezing of our tariffs in the context of a potentially inflationary economy
and may continue to be mismatched depending upon the outcome of our pending
tariff renegotiation with the Argentine government. Our tariff renegotiation
proposal attempts to rebalance the relationship between variables determining
revenues and costs (including investments), to achieve the "economic and
financial equation", contemplated in the Transfer Contract.

     Recent fluctuations in the main macroeconomic variables, such as GDP
growth, the exchange rate and inflation rates have shown positive signs.
However, future negative economic developments may result in the adoption of
further measures by the Argentine government, including changes to measures
already adopted, which could adversely affect our operations. We cannot predict
what effect these developments and measures may have, or what effect any
future developments will have, on the value of our assets or our economic and
financial equation. See Item 4 - "Information on the Company - Regulatory
Matters" and Item 5 - "Factors Affecting Our Consolidated Results of
Operations".


                                       15
<PAGE>


   We are subject to tariff regulation and we could be subject to further
   adverse regulatory decisions.

     We are currently and will continue to be subject to tariff regulation in
areas of service where "effective competition" does not exist. Pursuant to our
license to provide telephone services, we had to decrease our rates by 4% (in
constant U.S. dollar terms) annually between 1997 and 1999. In connection with
this tariff reduction, we agreed to implement price cap reductions. The
Argentine government may also impose additional reductions.

     In addition, Decree No. 764/00 reduced, as of November 2000, the
interconnection fee rates for the origin and destination of calls in local areas
for those districts with more than 5,000 inhabitants or a telephone-set density
above 15 telephones for every 100 inhabitants, for the remaining districts, in
those areas included in the original license of independent operators, and for
transit within local areas. A 3% semiannual "price cap" reduction was applied
during the first two years after these rules and regulations became effective.

     The price cap system as applied to our and other regulated industries is
also subject to renegotiation as provided by the Public Emergency Law, although
no assurance can be given as to the results of any such renegotiation. We do not
know when the Secretary of Communications may determine that effective
competition exists in any particular area or in the case of any service, and
therefore we cannot assure you that we will not be subject to further reductions
of our tariffs.

     Tariff reductions of differing scopes and magnitudes may continue for a
number of years and may reduce revenues from basic and other services. While we
intend to continue to strive to control operating costs and improve
productivity, those efforts may not offset, in whole or in part, the decline in
operating margins that may result from mandatory tariff reductions.

     We are uncertain whether the evolution of the regulatory framework will
adversely affect the viability or general competitiveness of our
telecommunications business. We are not in a position to control the nature,
extent and timing of government action in this area. Future modifications of the
regulatory framework may have a material adverse effect on our business,
financial condition or results of operations. See Item 4: "Information on the
Company - Regulatory Matters - Rates".

   Access to the Argentine telecommunications market is now fully liberalized
   and as a result competition could have a material adverse effect on our
   results of operations.

     Since 1999, the Argentine government has issued a number of decrees
liberalizing the access to the telecommunications market. As a result, a number
of new operators have entered the market, including the southern region of
Argentina, where we are the incumbent provider of telecommunications services.
The new providers of local, domestic long-distance and international telephone
services are now direct competitors of wireline basic telephone service
providers. Although as a result of the liberalization we began to offer
telephone services in the northern region of Argentina, Telecom Argentina is the
incumbent provider of telecommunications services in the northern region. The
operators of data transmission networks and other growing companies providing
wireless services (including companies spun off from us) have also become direct
and indirect competitors to the extent those services may be substitutes for
wireline telephony.

     Since the liberalization of access to our market, competition has affected
our results of operations as we have lost customers of our long-distance service
to Telecom Argentina and other smaller competitors and have had to increase our
efforts in order to retain existing customers, to win back the customers we lost
and to acquire new customers. We may experience, as a result of the current
competitive environment, an additional loss of market share and additional
competition in prices to competitors in the southern region of Argentina beyond
that which has already taken place since October 1999. We may also experience a
loss of market share in the future as a result of the ability of a caller to
select a long-distance provider for each call and data or internet providers
entering the telecommunications market. In light of the range of regulatory,
business and economic uncertainties, as discussed in these "Risk Factors" and
elsewhere in this Annual Report, it is difficult for us to predict with
meaningful precision and accuracy our future market share in relevant geographic
areas and customer segments, the speed with which changes in our market share or
prevailing prices for services may occur, or the effects of competition. Those
effects could be material and adverse to our overall results of operations and
financial condition. See Item 4: "Information on the Company - Competition".


                                       16
<PAGE>


   Our revenues have been in the past, and may again be in the future, adversely
   affected by a decrease in the number of our customers and usage of our
   services.

     Our revenues depend on our ability to attract and retain customers.
However, the recession in 2002, unemployment and underemployment, coupled with
the rise of inflation in 2002, have led to a reduction of wages in real terms
and a reduction of disposable income in all class sectors of the Argentine
population, which resulted in a decrease in the number of customers that use our
services and in a reduction of usage per telephone line. For example, between
2001 and 2003, our lines in service decreased by approximately 152,000 lines
with a decrease in the domestic long-distance service of approximately 2% and in
the international long-distance service of approximately 37%. This reduction in
lines in service and usage of our services had a consequent reduction in our
revenues and cash inflows. During 2004, we experienced partial recovery with
increases in our lines in service, ADSL lines and in usage of our telephone
services. Despite this improvement, we cannot assure that this pace can be
sustained in the future or that future reductions in demand for our services
will not take place, which would negatively affect our cash flow and revenues.

   Our license is revocable under certain circumstances, and the revocation of
   our license would have a material and adverse effect on us.

     We are subject to a complex series of laws and regulations with respect to
the telecommunications services we provide. We provide telecommunications
services pursuant to a license that is subject to regulation by various
regulatory bodies. Our dissolution and the declaration of bankruptcy are events
that may lead to a revocation of our license under the List of Conditions. Our
dissolution will occur if our shareholders' equity according to Argentine GAAP
becomes negative for any future fiscal year end and the shareholders do not
recapitalize. In addition, our license is revocable if our parent, Compania
Internacional de Telecomunicaciones S.A. ("Cointel") ceases to own at least 51%
of our common stock represented in Class A Shares without regulatory approval.

     If any of these events occurs and we lose our license, we might not be able
to continue providing telecommunication services, which would have a material
adverse effect on our results of operations.

   The interests of our affiliates, as our equity owners and creditors, may
   conflict with the interests of the holders of our notes or shares.

     The Spanish telecommunications company Telefonica, through affiliates
including Cointel, beneficially owns 98% of our capital stock. Cointel, which is
almost 100% beneficially owned by Telefonica, owns 64.8% of our capital stock
and, therefore, controls us and can determine the outcome of any action
requiring shareholder approval. Actions within the control of Telefonica and its
affiliates include the election of the Board of Directors and, subject to the
requirements of Argentine laws, the payment of dividends. Our day-to-day
management and operations are the responsibility of Telefonica, as the operator
under a management contract (the "Management Contract") entered into between us
and Telefonica (formerly Telefonica de Espana S.A.) in connection with our
privatization in 1990. Affiliates of Telefonica are also involved in other
investments and operations in the Argentine communications and media sector,
some of which may involve or affect us.

     The interests of Telefonica and Cointel as our equity investors may
conflict with the interests of the holders of our debt or shares. Moreover,
Telefonica Internacional has made substantial extensions of credit to us and
represents our largest creditor. As of December 31, 2004, we owed approximately
U.S.$200 million of consolidated short-term debt to Telefonica Internacional.
The interests of Telefonica Internacional as our creditor and the creditor of
Cointel may conflict with the interests of the unaffiliated holders of our debt
or shares. All of the intercompany loans made to us and Cointel are short-term
in nature and as a result, Telefonica Internacional has the legal right to cause
us to pay it in full prior to the time we are required to make scheduled
payments on our long-term third-party debt obligations. Furthermore, Telefonica
Internacional may assign its rights under the loans without our consent.

     In the months of July, August and September 2004, Telefonica Internacional
agreed to refinance our debt owed to them in the amount of U.S.$150 million, now
payable in monthly installments maturing from January 2005 through December
2005. In addition, Telefonica Internacional advised us that, as of the date of
this Annual Report, it was still assessing other financing alternatives for us
including, if necessary, providing additional financing


                                       17
<PAGE>


assistance. However, we cannot assure you that Telefonica or its affiliates will
provide us with additional intercompany financing support.

     Apart from requirements of Argentine law that dividends must be paid out of
net earned profits arising from an approved financial statement, there are
currently no contractual restrictions on our ability to pay dividends. Under
Argentine law we will be able to resume paying dividends when we have new gains
and our legal reserve is restored with liquid and realized profits as required
by law, to the level that is equal to the percentage of share capital prior to
the absorption of losses. Telefonica, through Cointel, may exercise its control
over our ability to pay dividends (subject to requirements of Argentine law) or
to increase the amount or frequency of dividend payments in order to fund
expenditures or distributions by Cointel or for other purposes, including the
repayment of debt to related or unrelated parties. As a result, Telefonica
through Cointel has the legal right and voting power to cause us to pay cash
dividends to our shareholders in amounts and at times that may not be in the
interests of our creditors.

     Conflicts of interest between us, Telefonica and other of our affiliates
may also arise in connection with the negotiation and performance of duties and
the payment of fees under the Management Contract, as well as in connection with
other business activities. Telefonica, through affiliates, also has joint and
separate investments in the communications and media sector in Argentina,
including mobile cellular and PCS services following the effectiveness of the
spin-off of our wireless services business and data transmission business. These
businesses' operations became controlled by Telefonica Moviles, S.A.
("Telefonica Moviles") and Telefonica DataCorp S.A., respectively, each of which
is a subsidiary of Telefonica and independent of us. In some circumstances, our
interests may not be aligned with and may perhaps be adverse to the interests of
Telefonica or its affiliates with influence over Cointel's actions. We cannot
assure you that Telefonica or its affiliates will not limit or cause us to
forego business opportunities that other Telefonica affiliates may pursue, or
that the pursuit of opportunities by other affiliates will be in our interest.

   Technological advances and replacement of our equipment may require us to
   make significant expenditures to maintain and improve the competitiveness
   of the services we offer.

     The telecommunications industry is subject to continuous, rapid and
significant changes in technology and the related introduction of new products
and services. We cannot predict the effect of technological changes on our
business. New services and technological advances are likely to offer additional
opportunities to compete against us on the basis of cost, quality or
functionality. It may not be practicable or cost-effective for us to replace or
upgrade our installed technologies in response to competitors' actions.
Responding to such change may require us to devote substantial capital to the
development, procurement or implementation of new technologies, and may be
dependent upon the final cost in local currency of imported technology and our
ability to obtain additional financing. Should we need to make substantial
capital expenditures due to such technological changes in order to improve our
system or to compete with others in the market or to replace our equipment, no
assurance can be given that we will have the funds to make such capital
expenditures.

   We have a significant number of legal claims against us regarding obligations
   of our state-owned predecessor, Empresa Nacional de Telecomunicaciones
   ("ENTeL"); if we were to have to satisfy those claims in full without the
   benefit of timely and sufficient indemnification, the obligation to do so
   would represent a significant liability.

     As of December 31, 2004, the total amount of claims against us based upon
ENTel's alleged contractual and statutory obligations to former ENTel employees
(including accrued interest and legal expenses) was approximately Ps.54 million.
Court decisions have followed the precedent set by the Supreme Court of
Argentina in the area of joint and several liability in labor matters, under
which it upheld the provisions of the Work Contract Law No. 20,744, as amended,
and declared a decree derogating portions of that law unconstitutional. In the
Transfer Contract, under which ENTel was privatized by selling 60% of its common
stock to Cointel, ENTel agreed to indemnify us with respect to such claims.
Also, the Argentine government has assumed joint and several liability with
ENTel for such indemnity obligations and has authorized us to debit an account
of the Argentine government at Banco Nacion for any related amount payable by us
with respect to such indemnification. We believe that the Argentine government's
indemnification obligations should protect us from any material economic
consequences of the employees' claims. Under Debt Consolidation Law No. 23,982,
ENTel and the Argentine government may


                                       18
<PAGE>


discharge their indemnity obligations through the issuance of debt instruments
such as negotiable 16-year bearer bonds. We have not created any reserve for
such claims.

     As of December 31, 2004, we had paid Ps.6.9 million in cash for a number of
claims. We filed a claim against ENTel on December 16, 1999 seeking
indemnification and reimbursement in connection with these payments in
satisfaction of the labor claims. Our case has been argued in court; however, no
ruling has been issued. If we lose a material portion of the current claims and
the Argentine government fails to reimburse us timely and sufficiently for the
claims our results of operations may be adversely affected. See Item 8.
"Financial Information - Legal Proceedings."

   We employ a largely unionized labor force and could be subject to an
   organized labor action.

     As of December 31, 2004, approximately 77% of our employees were union
members. In the last months of 2004, certain unions of Argentine workers
organized work stoppages and strikes demanding salary increases in order to
recover the purchasing value lost of their salaries after the inflationary
period experienced in the country. From November 26 to December 6, 2004, the
unionized telephone workers exercised strike actions, aimed at obtaining salary
increases, which resulted in the total interruption of the customer service
lines, repair services, directory information and international call assistance
services. In addition, they took over our National Switching Boards, although
service was not discontinued and operations were not materially affected. After
the negotiations, we, the governmental enforcement authority and the unions
agreed on an increase in the basic salary fixed under the previous collective
bargaining agreement of up to approximately 20%, effective from January 2005,
and a single final payment of Ps.500 per unionized employee, which was granted
in December 2004. The new agreement has a duration of 12 months from January 1,
2005 unless external causes arise requiring a revision during such period.

     Despite this agreement, we cannot predict what actions our labor force or
their unions will take in the future. Strikes or other types of conflict with
the unions or unionized personnel may have a material adverse effect on our
ability to maintain ordinary service levels or otherwise operate our business in
the manner that customers expect. In such circumstances, we could face an
immediate reduction of revenues and possible damage to our reputation, with
potential adverse effect on our revenues in the long-term.

  The Argentine government has ordered salary increases to employees in the
  private sector, which have increased our expenses and adversely affected
  our results of operations.

     During 2002 and 2003, the Argentine government forced private sector
companies to increase salaries of unionized employees, which resulted in higher
expenses and adversely affected the operating results of private sector
companies, including us. We were required to increase the salaries of unionized
employees by an average of Ps.100 per employee in 2002 and up to an additional
Ps.100 per employee during 2003.

     In December 2004 the Argentine government announced executive Decree No.
2005/04 granting another increase in salaries of Ps.100 to private employees,
both unionized and non-unionized, effective January 1, 2005. However, it is
impossible to determine at this time whether we will be permitted by regulation
to conclude that we have already granted this required salary increase through
the privately negotiated salary increase we agreed to give our unionized
employees.

     In view of the events mentioned above, we can give no assurances that the
Argentine government will not adopt any further comparable measures or that such
measures will not adversely affect our expense and cost structure or our
results.

   A substantial portion of our assets may be immune from attachment by
   creditors, preventing creditors from obtaining the amount represented by a
   judgment against us.

     Under Argentine law, attachment prior to judgment or related to the
enforcement of judgments will not be ordered by courts of Argentina with respect
to property which is located in Argentina and determined by those courts to be
dedicated to the provision of essential public services. A substantial portion
of our assets may be considered to be dedicated to the provision of essential
public services. If an Argentine court were to


                                       19
<PAGE>


make such a determination with respect to certain of our assets, those assets
would not be subject to attachment or other legal process, possibly limiting the
ability of our creditors to obtain a judgment against our assets.

   We suffered a significant loss in 2002, which resulted in an elimination of
   our unappropriated earnings, and therefore we lost our ability to
   distribute dividends.

     The effect of the devaluation of the peso and the pesification and freezing
of our tariffs have eliminated unappropriated retained earnings and caused us to
carry accumulated losses. By the end of the fiscal year ended December 31, 2004,
such losses exceeded our reserves, including our reserve for future dividends
out of which cash dividends are distributed. As of the date of this Annual
Report, according to the Ley de Sociedades Comerciales No. 19,550 (the
"Companies Law"), we are unable to distribute dividends until the unappropriated
losses are absorbed and we restore our legal reserve with new gains to the level
that is equal to the percentage of share capital prior to the absorption of
losses.

   Because the Argentine standards for disclosure and accounting differ from
   those of the United States, information about us may not be as detailed or
   comprehensive as that of non-Argentine issuers, including that of U.S.
   companies.

     We are subject to the periodic reporting requirements of the Securities and
Exchange Act of 1934. However, the periodic disclosure required of foreign
issuers under the Exchange Act is more limited than the periodic disclosure
required of U.S. issuers. Publicly available information about issuers of
securities listed on the Buenos Aires Stock Exchange also provides less detail
in certain respects than the information that is regularly published by or about
listed companies in the United States or in some other countries. Furthermore,
there is a lower level of regulation of the Argentine securities markets and of
the activities of investors in such markets as compared with the securities
markets in the United States and certain other developed countries. We prepare
our financial statements in accordance with Argentine GAAP, which differs in
certain respects from U.S. GAAP.

ITEM 4.  INFORMATION ON THE COMPANY

Introduction

     Telefonica de Argentina S.A. is one of the largest companies in Argentina
in terms of net revenues. We have a non-expiring license to provide
telecommunications services in Argentina. We also provide other
telephone-related services such as international long-distance service, data
transmission and internet service and, through our subsidiary, publish telephone
directories. Our commercial name is Telefonica.

     Through September 30, 1999, we provided domestic and international
telephony services in the Southern Region (defined below) on an exclusive basis.
Commencing in October 1999, the Argentine government implemented a deregulation
plan introducing competition into the market. See "--Our History and
Development--Deregulation of Argentina's Telecommunications Sector".

     As of December 31, 2004, our telephone system included approximately 4.3
million lines in service.

A.   Our History and Development.

General

     We were organized in Argentina as a sociedad anonima on April 23, 1990,
under the name Sociedad Licenciataria Sur S.A. for a period of 99 years and
registered with the Registro Publico de Comercio (the "Public Registry of
Commerce") of Argentina on July 13, 1990. Our present name, Telefonica de
Argentina S.A., was registered with the Public Registry of Commerce on December
3, 1990.

     Our principal executive office is located at Avenida Ingeniero Huergo 723,
(C1107AOH) Buenos Aires, Argentina, and our telephone number is (5411)
4332-2066, facsimile number (5411) 4332-2066, e-mail: invest@telefonica.com.ar,
www.telefonica.com.ar.


                                       20
<PAGE>


Privatization of Argentina's Telecommunications System

     Prior to November 8, 1990 (the "Transfer Date"), Argentina's
telecommunications system was operated principally by ENTel, an enterprise
wholly owned by the Argentine government. Pursuant to State Reform Law No.
23,696 and a series of decrees regarding the privatization of ENTel, the
Argentine government:

     o    divided the ENTel telecommunications network into the southern half of
          Argentina, including most of the Province of Buenos Aires and more
          than half of the City of Buenos Aires (the "Southern Region"), and the
          balance of Argentina (the "Northern Region");

     o    granted licenses to provide basic telephone services in the Southern
          Region to us and in the Northern Region to Telecom;

     o    granted licenses to provide telex, data transmission and other
          non-basic, international telephone services to Telecomunicaciones
          Internacionales de Argentina Telintar S.A. ("Telintar") and Startel
          S.A. (companies 50%-owned by us and 50%-owned by Telecom); and

     o    caused ENTel to transfer substantially all of its assets, contracts
          and personnel to us, Telecom, Telintar and Startel.

     On the Transfer Date, the Argentine government licensed us to provide basic
telephone service in the Southern Region pursuant to Decree No. 2,344/90. That
same day, pursuant to an agreement (the "Transfer Contract") among the Argentine
government, ENTel, Cointel (formerly Compania de Inversiones en
Telecomunicaciones S.A.), and each of Telefonica Internacional Holding B.V.
("TIHBV"), Inversora Catalinas S.A. ("Inversora Catalinas"), Telefonica,
Citicorp and Citicorp Venture Capital S.A., the Argentine government sold 60% of
our capital stock to Cointel. As of the date of this Annual Report, Cointel owns
a 64.8% interest in us. Telefonica beneficially owns 98% of our capital stock.

     See Item 7: "Major Shareholders and Related Party Transactions".

     On April 15, 1992, we acquired the business of Compania Argentina de
Telefonos S.A. in the provinces of Mendoza and San Juan for U.S.$52.5 million
net of value-added tax. In this purchase, we acquired approximately 71 switches
and 118,000 telephone lines in service, added 1,000 employees to our payroll and
assumed certain liabilities.

Deregulation of Argentina's Telecommunications Sector

     Our license was granted for an unlimited period of time. Pursuant to the
license, we had the exclusive right to provide basic telephone services to the
Southern Region for a period of seven years. To maintain and extend the
exclusivity of the license, we had to meet certain qualitative and quantitative
operating objectives set forth in the List of Conditions. See "--Regulatory
Matters" for a discussion of the List of Conditions. On March 10, 1998, the
Argentine government issued Decree No. 264/98, which extended this period of
exclusivity until a date that the Secretary of Communications later set,
pursuant to Resolution No. 1686/99, as October 10, 1999. See "--Regulatory
Matters".

     On June 9, 2000, the Argentine government issued Decree No. 465/00, which
provided for the complete liberalization of access to the telecommunications
market as of November 9, 2000. In the context of that liberalization, we and
Telecom each signed license agreements with the regulatory authorities. Our
agreement is referred to in this Annual Report as the "License Agreement".

     Deregulation also influenced the organization of our then existing
subsidiaries and the services that we provided directly and indirectly. Until
April 1999, international services had been provided by Telintar, a company
previously owned jointly by us and Telecom. The Argentine government provided in
Decree No. 264/98 that in order to ensure effective competition at the end of
the period of transition to competition in the provision of basic telephone
services, we and Telecom would not be able to jointly own businesses. Therefore,
Telintar was dissolved, and the assets and liabilities related to Telintar's
business were spun off into two companies, effective May 1, 1999. One successor
to Telintar's operations, Telefonica Larga Distancia de Argentina S.A. ("TLDA"),
was merged into us


                                       21
<PAGE>


effective October 1, 1999. Telecom owned the other successor, Telecom
Internacional S.A., which merged into Telecom effective October 1, 1999. By
virtue of these mergers, both we and Telecom now hold licenses to provide
international long-distance services, as do other new licensees that have been
granted licenses as the telecommunications sector was opened to competition. See
"--Business Overview--Competition".

     Prior to increased competition in basic telephone services, we and our
subsidiaries had provided cellular services (including personal communications
services, or "PCS") in an environment of limited competition. In contrast, data
transmission and internet services were subject to full competition during that
time. As discussed below under "Our Reorganization", we no longer provide the
cellular, PCS, international data transmission and consulting services that were
rendered by Telefonica Comunicaciones Personales S.A. ("Telefonica
Comunicaciones Personales"), Telefonica Data Argentina S.A. ("Telefonica Data",
formerly Advance Telecomunicaciones S.A.) and TYSSA Telecomunicaciones y
Sistemas S.A. ("TYSSA") the latter of which was merged into Telefonica Data as
of June 30, 2003.

Telefonica Equity Exchange Offers

     In May 2000, our indirect parent, Telefonica, launched offers to exchange
shares and American Depositary Shares of Telefonica for shares and American
Depositary Shares of its subsidiaries in Brazil, Peru and Argentina. See below
"Our Reorganization".

     Upon the expiration of the Argentine exchange offer, shareholders
representing approximately 44% of our capital stock tendered their Class B
Shares and American Depositary Shares, or "ADSs", representing such shares in
exchange for Telefonica shares and ADSs. Consequently, Telefonica became the
beneficial owner of 203,841,901 Class B Shares (including 16,542,991 Class B
Shares previously held by TIHBV), and 76,040,977 ADSs (each representing ten
Class B Shares).

Our Reorganization

     Telefonica, which through its subsidiaries is our controlling shareholder,
completed a reorganization of its global businesses along business lines. In
the context of Telefonica's global reorganization plan, our Board of Directors
decided on January 30, 2001 to effect a reorganization of the businesses of our
subsidiaries (the "Reorganization Transactions"). The reorganization of those
businesses through certain spin-offs and consolidations were implemented through
a procedure under Argentine corporate law called escision-fusion, or
spin-off/merger.

     On January 25, 2001, Telefonica made capital contributions of our shares to
its subsidiaries to effect the Reorganization Transactions:

<TABLE>
Recipient Subsidiary Capital    Contribution by Telefonica
----------------------------    ------------------------------------------------------
<S>                             <C>
Recipient Subsidiary            Capital Contribution by Telefonica
Telefonica Moviles              323,050,945 Class B Shares (including 24,920,528 ADSs)
Telefonica DataCorp             63,524,218 Class B Shares (including 5,096,971 ADSs)
Telefonica Internacional        561,133,517 Class B Shares (including 45,023,478 ADSs)
</TABLE>

     In connection with the Reorganization Transactions, on January 30, 2001,
our board of directors, as well as the boards of directors of Cointel,
Telefonica Data, Telefonica Comunicaciones Personales and Telinver approved a
preliminary agreement (escision/fusion), for the spin-off/merger of specified
assets and liabilities of their companies into us prior to the Reorganization
Transactions as follows:

     o    Telinver's assets and liabilities relating to its equipment sales and
          point-of-sale network business;

     o    Telefonica Data's assets and liabilities relating to its internet
          access business (except for corporate customers);

     o    Telefonica Comunicaciones Personales' assets and liabilities relating
          to its data transmission business, including frequency band "B" user
          licenses;

     o    Telefonica Data's point-to-point lines located in the Southern Region
          of Argentina;


                                       22
<PAGE>


     o    Telefonica Data's 80% interest in the Starnet network;

     o    Telefonica Data's 100% of the IP (Internet Protocol) network; and

     o    Telefonica Data's 80% ownership interest in a satellite network.

     Additionally, a transfer of assets and liabilities from Telinver to us by
escision/fusion occurred effective February 1, 2001 as Telinver spun off its
participation in an online shopping portal and merged it into us.

     On March 30, 2001, at an extraordinary shareholders meeting, our
shareholders approved the Reorganization Transactions under which we spun off:

     o    our assets and liabilities related to the international data
          transmission business, including our international data transmission
          business, a portion of goodwill associated with the international data
          transmission business of Telefonica Data and our ownership interest in
          Telefonica Data;

     o    our consulting business (represented by our ownership interest in
          TYSSA, which was consolidated into Telefonica Data); and

     o    our assets and liabilities related to the mobile (cellular) and
          personal communications services of Telefonica Comunicaciones
          Personales, which was consolidated into Moviles Argentina.

     Shareholder approval of these transactions was obtained at the special
shareholders meeting of March 30, 2001, and, upon registration of these
transactions in the Public Registry of Commerce, these transactions became
effective on February 1, 2001.

     Pursuant to Resolution No. 16/01 dated January 4, 2001, the Secretary of
Communications authorized the transfer of our ownership of Telefonica Data,
Telefonica Comunicaciones Personales, TYSSA and Telinver to other Telefonica
affiliates, subject to certain conditions.

     After the completion of the spin-off/merger, and subject to regulatory and
shareholders' approval and adjustment for fractional shares and fractional ADSs,
our capital stock was reduced by the same percentage of our pre-spin-off total
capital stock to equal the percentage of our pre-spin-off shareholders' equity
represented by the assets and liabilities being spun off.

     On July 26, 2001, the CNV approved the public offerings by Telefonica Data
and Telefonica Moviles and consented to the reorganization. In addition, the
Buenos Aires Stock Exchange authorized the listing of Telefonica Data and
Telefonica Moviles. Telefonica Moviles and Telefonica Data issued ordinary
shares, referred to as the new shares, in proportion to the number of Class B
Shares or ADSs owned by each holder not affiliated with Telefonica (the
"Minority Shareholders"). Registration with the Public Registry of Commerce of
the Reorganization Transactions occurred on November 16, 2001 and the share
exchange was completed on December 12, 2001. All Class B Shares and ADSs that
holders surrendered as part of the exchange for and distribution of new shares
were cancelled.

     In the aggregate, the interests surrendered had a nominal value equal to
approximately 18.4% of our share capital, and Minority Shareholders experienced
a similar percentage reduction in their ownership of Class B Shares and ADSs.
Minority Shareholders were entitled to receive a number of new shares in the
spun-off entities proportionate to their respective equity interests in us,
adjusted for fractional shares and fractional ADSs. As a result, the Minority
Shareholders were entitled to receive 0.154105387 Moviles Argentina shares and
0.000303035 Telefonica Data shares for every Class B Share and 1.54105387
Moviles Argentina shares and 0.00303035 Telefonica Data shares for every ADS
owned on the record date for the exchange. Affiliates of Telefonica as a group
received the same exchange ratio of shares for surrendered Class B Shares.

     Minority Shareholders that owned Class B Shares had fractional interests in
Moviles Argentina and Telefonica Data shares and have received on December 12,
2001, the "Exchange Date", a payment in cash for their fractional interests. The
reference price used for the determination of the payment was the face value of
the shares of Telefonica Data and Telefonica Moviles.


                                       23
<PAGE>


     Minority Shareholders that owned ADSs representing ten Class B Shares each
were able to select whether to receive new ADSs and shares in the same
proportions listed above for each ADS timely made available to Citibank N.A., as
Depositary. In order to exercise their option to receive such shares, ADS
holders were required to designate a custodian account with Caja de Valores S.A.
("Caja de Valores") to receive such new shares. ADS holders that did not
exercise their option to receive Moviles Argentina and Telefonica Data shares in
due time were granted the opportunity to instruct the Depositary to deliver the
Moviles Argentina and Telefonica Data shares to a custodian account with Caja de
Valores, received new ADSs and, upon the Moviles Argentina and Telefonica Data
shares being sold in the market, received a pro rata share of the net proceeds
raised by the sale of the Telefonica Data and Moviles Argentina shares and a
fractional share of the new ADSs and the Telefonica Data and Moviles Argentina
shares.

     As a result of the cancellation of approximately 18.4% of our capital
stock, Cointel's percentage ownership of our capital stock increased to
approximately 64.8% from approximately 52.9%.

     In splitting up our business units, we remain primarily a wireline provider
of local, domestic long-distance and international telecommunications services,
as well as internet service and directory publishing. We continue to be owned by
Telefonica indirectly through Cointel, Telefonica Internacional and TIHBV, and
no longer have an equity interest in or control over TYSSA (currently merged
into Telefonica Data), Telefonica Comunicaciones Personales or Telefonica Data.
Telefonica indirectly controls the spun off entities, Moviles Argentina and
Telefonica Data, through Telefonica Moviles and Telefonica DataCorp.

B. Business Overview.

     We are a licensed supplier of telecommunication services in Argentina.

     Until 1999, we owned virtually all public exchanges, the network of local
telephone lines and the principal domestic long-distance telephone transmission
facilities in the Southern Region. In 1999, there was a liberalization of the
restrictions on competition in the market for telecommunications services in
Argentina. New competitors are operating in the Southern Region and throughout
Argentina. Also as a consequence of liberalization, we are expanding our
operations outside the Southern Region into the Northern Region. Currently, our
licenses permit us to provide local and domestic long-distance and international
services, international data transmission and domestic and international telex
services throughout Argentina. See above "--Deregulation of Argentina's
Telecommunications Sector".

     As of December 31, 2004, our telephone system had approximately 4.3 million
lines in service, or approximately 25.1 lines in service per 100 inhabitants of
the Southern Region. Our consolidated assets were approximately Ps.7,524 million
and our consolidated net sales revenues were approximately Ps.3,047 million for
the fiscal year ended on December 31, 2004. Based on historical net revenues, we
are one of the largest companies in Argentina. See below "--Revenues".

     Our telephone network includes installed telephones and switchboards, a
network of access lines connecting customers to exchanges, trunk lines
connecting exchanges and long-distance transmission equipment. The following
table provides, as of each indicated year, certain basic information relating to
the development of our domestic telephone system as of the dates indicated.

<TABLE>

                                      December 31,   December 31,   December 31,   December 31,   September 30,   September 30,
                                          2004           2003           2002           2001           2001            2000
                                      -----------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>            <C>            <C>            <C>
Lines installed(1).................     4,615,470      4,570,739      4,561,447      4,555,122      4,535,112      4,389,094
Lines in service(1)(2).............     4,328,513      4,168,825      4,182,277      4,321,020      4,294,317      4,090,174
Lines in service per 100
   inhabitants (Southern Region)...          25.1           24.4           24.7           25.8           25.6           24.6
Lines in service per employee......         494.3          477.2          464.8          459.2          443.6          409.7
Total pending applications.........        35,578         22,200         13,764         15,592         20,627         26,152
Percentage of lines connected to
   digital exchanges...............          100%           100%           100%           100%         100.0%         100.0%
Public telephones installed........       117,028        107,529        101,552        122,665        122,063        114,037
</TABLE>
----------
(1) Includes local lines, public lines and digital trunk access in service.

(2) Excludes presubscribed lines.


                                       24
<PAGE>


     As of December 31, 2004, approximately 50.9% of our lines in service were
in the greater Buenos Aires metropolitan area, including 21% of our lines in
service that were located within the City of Buenos Aires. Approximately 86% of
our lines in service as of December 31, 2004, were residential, with the
remainder being professional, commercial and governmental customers.

     The services that we provide are generally subject to regulation. The
relevant governmental regulatory authorities include the National Communications
Commission, the successor to the National Telecommunications Commission (the
"Comision Nacional de Telecomunicaciones"), and the Secretary of Communications
(the Secretaria de Comunicaciones), both of which currently regulate and control
telecommunications and telephone services in Argentina. This Annual Report
sometimes refers to any of the National Communications Commission, the National
Telecommunications Commission and the Secretary of Communications as the
"Telecommunications Regulatory Authority". See "--Regulatory Matters" below.

     On April 10, 2002, our Ordinary and Extraordinary Shareholders meetings
broadened our corporate purpose to enable us to engage in other types of
businesses not strictly related to telecommunications services, including:
purchasing equipment, infrastructure and telecommunications-related goods, as
well as rendering any type of service, such as consulting and accounting, human
resources and tax administration services. In view of the amendment to the
corporate purpose, it was necessary to obtain the corresponding authorization of
the Telecommunication Regulatory Authority. A request for approval of the change
has been made to the Secretary of Communications and is currently pending,
subject to administrative approval.

Business Strategy

     Our short-term strategy has been to continuously adapt our business plans
to address the challenges and risks presented by the Argentine economic crisis.
Therefore, the short-term strategy focuses on the renegotiation of tariffs, cost
controls and efficiency improvements, capital expenditures controls,
improvements in working capital and management of cash and liquidity.

     Because of the Argentine economic crisis, since 2002 we have taken certain
steps to moderate the effects of the imbalance between changes in revenues and
changes in costs caused by the significant increase in the prices of our usual
supplies and the cost of technology-related investments usually required by the
business that we develop, and the situation affecting service rates as described
in "--Regulatory Matters--Rates". Some of these measures include:

     o    Capital expenditures: We have implemented a plan to adapt our capital
          expenditures rapidly to the changing economic environment. To that end
          we only concentrated on those projects that are required to maintain
          the quality of our services in the short-term, generate cash flow in
          the short-term or which we deem to be high priority.

     o    Operating costs reduction: We renegotiated most of our supply
          contracts. The goals of these renegotiations were to (1) reduce costs
          (2) reduce, when possible, our exposure to inflation and devaluation,
          (3) adjust our costs to lower demand for services, (4) when possible,
          reduce the quality of service required to be provided and (5) in some
          cases, terminate such contracts.

     o    Increased collection rates: We have implemented new collection
          policies for collecting receivables, including disconnection policies
          tailored to each customer segment, among other initiatives.

     o    Customer segmentation: We enhanced the relationship with our customers
          by developing segmentation and different plans to attend to different
          customers' needs, principally involving broadband.


                                       25
<PAGE>


     o    Cash management and debt renegotiation : We implemented a series of
          actions to decrease our exchange rate risk on our current assets while
          managing our main accounts payable. In addition, we restructured a
          substantive portion of our debt which has resulted in the extension of
          the maturity profile of our debt.

     Although we have adopted these measures to mitigate the effects of changes
in our business and certain indicators of the Argentine economy are currently
showing favorable signals, our future operating conditions might not continue to
be stable because the current regulatory framework has still not established the
rules to allow reinstating the balance of the variables that constitute our
economic and financial equation. See Item 3: "Key Information" and "--Regulatory
Matters--Rates".

     During 2004, we also implemented the following policies and measures based
on:

     o    Revenues: We concentrated on developing and promoting certain products
          that we consider to have strategic importance. We principally focused
          on broadband services (our ADSL lines increased 172% to 188,840),
          basis telephone lines (our lines in service increased by approximately
          160,000 lines) and value added services.

     o    Capital Expenditures: We concentrated on capital expenditures related
          to our strategic products, such as broadband ("ADSL") and basic
          telephone services.

     o    Debt Strategy: We decreased total debt by Ps.1,397 million, partially
          with self-generated cash, and we took actions to decrease our foreign
          exchange risk mainly due to U.S. dollar variations against the peso.
          Pursuant to this goal, we refinanced and repaid part of our U.S.
          dollar denominated debt with the proceeds of the issuance of
          peso-denominated negotiable obligations and of peso-denominated loans
          with local banks.

     Also during 2004, Telefonica, S.A. developed the Programa Compromiso
Cliente (Customer Commitment Program). This program's goal is to improve
services to customers through innovations, better customer service, increased
efficiency and improved human resources. Consequently, as part of this strategy
we focused on our existing customers, sales of prepaid minute packages,
increasing consumption, promoting value added services and broadband services,
and competition management, both in long distance and in public telephones.

     Our current long-term business strategy is to maintain and enhance our
position in Argentina's competitive telecommunications market, mainly through
the enhancement of the quality of the services rendered to our clients. This
main objective will be achieved by the introduction of new and high quality
products and services to our current and future clients, the introduction of
service offerings in new geographic areas, improving and expanding services we
currently serve in the market, and our continuous development as a provider of
telecommunications services for corporate and residential customers, among
others.

     In the long-term, we intend to continue to solidify our position as the
leading provider of integrated telecommunication business solutions in Argentina
by providing a full range of high quality services including voice services,
value added services, broadband, dial-up internet access, and other
high-technology products for corporate users through different marketing
channels. We also intend to continue to invest substantial resources and efforts
into training and personnel development in order to offer better services to our
clients, and incentive programs to reduce costs and improve efficiency.

     We believe that the implementation of these short and long-term business
strategies will continue to have a beneficial effect on the competitiveness of
telecommunications activities mitigating the adverse effects of growing
competition and Argentina's economic and regulatory situation.

Revenues

     Our revenues are primarily derived from:

     o    measured service;

     o    domestic long-distance service;


                                       26
<PAGE>


     o    monthly basic charges;

     o    special services (including ADSL lines);

     o    installation charges;

     o    public phones;

     o    access charges;

     o    international long-distance service;

     o    direct lines; and

     o    publishing telephone directories.

     The following table sets forth our then-current month-end base rates (prior
to any applicable discounts) for various components of local service and for
domestic long-distance service. Pulses (as defined below) are still used to
calculate monthly basic charges, and charges for local and long-distance
services. These charges used to be denominated in U.S. dollars and converted to
pesos at the month-end exchange rates for the month indicated until the
enactment of the Public Emergency Law. Under certain circumstances, we may apply
discounts with respect to these rates. These amounts do not include value-added
taxes.

<TABLE>
                                                                       Telephone Rates
                                         ---------------------------------------------------------------------
                                         December       December        December      September      September
                                           2004           2003            2002           2001           2000
                                         ---------------------------------------------------------------------
                                                 (in pesos)(1)                      (in U.S. dollars)
                                         ---------------------------------------------------------------------
<S>                                           <C>           <C>            <C>             <C>            <C>
Residential:
Installation charge per line..........        150           150            150             150            150
Monthly basic charge(2)...............      13.23         13.23          13.23           13.23          13.23
Pulses
Month equivalent......................        282           282            282             282            282
Commercial:
Installation charge per line..........        150           150            150             150            150
Monthly basic charge(3)(4)............      30.20         30.20          30.20           30.20          30.20
Pulses
Month equivalent(4)...................        644           644            644             644            644
Prices:(5)
Price per pulse (nominal) in pesos....     0.0469        0.0469         0.0469          0.0469         0.0469
Price per pulse in U.S.$(6)...........      0.016         0.016         0.0139          0.0469         0.0469
Exchange Rate Ps.1.00/U.S.$1.00(6)....       2.98          2.93           3.37            1.00           1.00
</TABLE>
----------
(1)  As of the enactment of the Public Emergency Law.

(2)  Retirees and pensioners whose consumption is less than 300 pulses per
     two-month period, as well as residential customers whose consumption is
     less than 150 pulses per two-month period, have preferential tariffs.

(3)  Monthly basic charge for measured service in an area with more than 200,000
     telephones (applies to approximately 55% of our customer base).

(4)  Corresponds to the Province and City of Buenos Aires. For the rest of the
     Southern Region, monthly basic charges amounted to Ps.33.91 during
     September 2000 and Ps.27.3 during September 2001, December 2002, 2003 and
     2004. Pulses/month equivalents were Ps.723 for 2000, and Ps.582 for 2001,
     2002, 2003 and 2004.

(5)  Effective November 1, 1991, under the rate agreement, customers were billed
     in pesos at an exchange rate of the average of the closing bid and offer
     exchange rates quoted by Banco Nacion for wire transfers of U.S. dollars on
     the day before each bill was prepared. However, the Public Emergency Law,
     effective as of January 6, 2002, invalidated the clauses contained in
     contracts with the Argentine government under public law (including the
     provision of telecommunications services) providing for adjustments based
     on price indices that are applicable in other countries, as well as any
     other adjustment method and converted our rates at one peso to one U.S.
     dollar.

(6)  Banco Nacion's offered rate for the last day of the month for wire
     transfers of U.S. dollars.


                                       27
<PAGE>


     Our principal sources of revenues for the fiscal year ended December 31,
2004 were approximately 28% from local and domestic long-distance measured
services, approximately 24% from monthly basic charges, approximately 15% from
special services, approximately 13% from access charges, approximately 6% from
public phones and approximately 3% from international services.

     We formerly provided value-added telecommunications services through
Telefonica Data and Startel until such subsidiaries were spun off. We provided
PCS and cellular service through our former subsidiary Telefonica Comunicaciones
Personales until January 31, 2001, as Telefonica Comunicaciones Personales was
spun off on February 1, 2001.

     Operating revenue figures presented by category of services in this Annual
Report are derived from our accounting records, certain reports from our billing
systems and certain estimates made by our management. This breakdown is not
included in our Consolidated Annual Financial Statements.

     The table below shows our sales revenues broken down by category of
service.

<TABLE>
                                                                                                 Three-Months
                                     Twelve-Month   Twelve-Month  Twelve-Month   Three-Months      Unaudited      Twelve-Month
                                      Fiscal Year   Fiscal Year   Fiscal Year     Fiscal Year       Period        Fiscal Year
                                      December 31,  December 31,  December 31,    December 31,    December 31,   September 30,
                                          2004           2003         2002           2001             2000            2001
                                     -----------------------------------------------------------------------------------------
                                                (in millions of pesos restated for inflation until February 28, 2003)(1)
<S>                                        <C>            <C>          <C>             <C>             <C>           <C>
Basic telephone service
   Measured service ............           857            807          922             435             490           1,797
   Monthly basic charges(2) ....           719            666          823             376             374           1,492
Special services ...............           459            381          396             161             164             670
Installation charges ...........            45             32           40              26              31             123
Public phones ..................           188            180          224             101             117             487
Access charges .................           388            323          294             119             186             690
International long-distance
   service .....................           108            105           94              75              82             312
Direct lines ...................            84             83           86              57              55             178
Publishing of telephone
   directories .................            73             64           65              33               9             119
Other ..........................           126            109          116              41              61             286
Total(3) .......................         3,047          2,750        3,060           1,424           1,569           6,154
</TABLE>
----------
(1)  See "Presentation of Financial Information" in the initial pages of this
     Annual Report.

(2)  Includes monthly basic charges and charges for supplemental services.

(3)  We accrue our operating revenues for each financial reporting period based
     on pulses (defined below) and services consumed, whether or not charges for
     the pulses and services have been billed.

   Measured Service

     For measured service, we have two different billing cycles, one is a
two-month billing cycle and the other is a monthly billing cycle. Approximately
64% of our customers have a two-month billing cycle. Charges for local and
domestic long-distance measured service, which vary with the price per unit of
usage at the time of the call and the number of units that measure usage ("usage
units") that are tallied during a call. The number of usage units tallied for a
particular local call depends upon the day, the time of day and the duration of
the call. Historically, the only type of usage unit used to determine charges
for local calls had been the "pulse", a fixed value unit. A pulse is four
minutes during off-peak time and two minutes during peak time. Usage for
domestic long-distance calls is measured in variable value units denominated in
pesos per minute. A "communication unit" serves as the conversion factor that,
when multiplied by the then current price per pulse, determines the applicable
cost per second of a domestic long-distance call. The conversion value of a
communication unit applicable to a particular call varies depending


                                       28
<PAGE>


upon distance of the call and the frequency of pulses, according to the type of
telecommunications service giving rise to the charges and time of day and day of
the week of the call.

     Prior to the enactment on January 6, 2002 of the Public Emergency Law, the
price per pulse was adjustable on a semiannual basis based on changes in the
U.S. consumer price index, and was denominated in U.S. dollars.

   Domestic Long-Distance Service

     As indicated above, as of the Transfer Date, our domestic long-distance
service was provided principally through our microwave network, using analog
switching and transmission technology. We converted our microwave network to
digital switching and transmission technology. As of December 31, 2004, we had
constructed approximately 17,187 kilometers of an optical fiber network, of
which 5,305 kilometers are in the Northern Region, for domestic long-distance
transmission between major cities and another optical fiber network for
transmission between local exchanges.

     We estimate that, for the fiscal years ended December 31, 2004, 2003 and
2002, domestic long distance traffic represented approximately 40%, 41% and 40%,
respectively, of all measured service revenues.

   Monthly Basic Charges

     We bill a monthly basic charge to our customers, which is a fixed charge
based on the number of pulses that differs depending on the type of customer.
Prior to the Public Emergency Law, the price per pulse was adjustable on a
semiannual basis based on changes in the U.S. consumer price index and was
denominated in U.S. dollars. However, the Public Emergency Law prohibits the
indexation of our tariffs, and such tariffs are currently being renegotiated.

     As of December 31, 2004, approximately 71% of our monthly basic charges and
measured service revenues were generated by residential customers. The remainder
was comprised of professional, commercial and governmental customers.

   Special Services

     From 2001 to 2004, we significantly increased the offering of value-added
services, including (1) supplementary services (e.g., call waiting, call
forwarding) provided through digital switches and telephones, (2) special
services for companies (e.g., digital links between customers and digital trunk
access), (3) other services supported by an intelligent network (e.g., calling
cards, toll-free calling, voice messaging, collect calling, internet access and
internet traffic), and (4) prepaid cards.

     As part of the Reorganization Transactions, Telefonica Data transferred its
internet service access operations (including its internet service provider
("ISP") network and non-corporate ISP customers) to us. Telefonica Data also
transferred to us its 80% interest in the Starnet network and its 80% interest
in a satellite network. As of December 31, 2004, we provided services to
approximately 200,000 noncorporate ISP customers and had 188,840 ADSL lines.

   Installation Charges

     Revenues from installation charges consist primarily of fees for
installation of new phone lines. Pursuant to the provisions of Decree No.
264/98, the Secretary of Communications can approve limitations on the fixed
rate installation charges below U.S.$100 for (1) new, low-consumption customers,
(2) retirees, (3) students, and (4) residents of low-income suburbs, in
accordance with contractual arrangements established by regulation. On March 27,
1998, the Secretary of Communications issued Resolution No. 868/98, which
limited installation charges to U.S.$200 as of April 1, 1998, and to U.S.$150 as
of October 1, 1998. These amounts in U.S. dollars were converted into pesos by
virtue of the Public Emergency Law. In our opinion, the effect of the limits on
installation charges on our business, financial condition and results of
operations has not by itself been material.


                                       29
<PAGE>


   Public Phones

     As of December 31, 2004, we had 117,028 public telephones installed. Of
these, 11,756 are public telephones that we installed as of December 31, 2004 in
the Northern Region and 105,272 are public telephones installed as of December
31, 2004 in the Southern Region. We charge for each call a measured service and
an amount for usage measured by usage units. The majority of the public
telephones are operated by third parties who are billed for usage. We provide
commissions to individuals and small to medium-sized companies in the offering
of semi-public and public telephone services so as to increase the availability
of such services. We have installed modular telephones that permit placing
local, domestic long-distance, and international calls by direct dialing. These
modular telephones are connected to a centralized information management system.
In addition, they accept two forms of payment: coins and pre-paid cards.

   Access Charges

     Revenues from access charges through December 31, 2004 consist of fees
collected from other operators, such as (1) local and/or long-distance
providers, (2) cellular and PCS licensees, and (3) other minor providers of
telecommunication services related to interconnection services that primarily
include access, termination and long-distance transport of calls.
Interconnection charges are principally calculated on a per minute usage.

     As shown in the table below, as of November 8, 2000, Decree No. 764/00
lowered the connection fee rates for calls within local areas to (1) 1.1
Argentine cents per minute for those districts with more than 5,000 inhabitants
or more than 15 telephones for every 100 inhabitants, (2) 1.3 Argentine cents
per minute for the remaining districts and in those areas included in the
original license of independent operators, and (3) 0.3 Argentine cents per
minute for the connections within local areas. A 3% semiannual "price cap"
reduction was applied during the first two years that these rules and
regulations were in effect. As of April 2003, the interconnection fee rates for
the origin and destination in local areas with districts of more than 5,000
inhabitants and more than 15 telephones for every 100 inhabitants were
unchanged.

                            Interconnection Fee Rates
   (origination and termination--hundredths of pesos ("cents") per minute)(1)
--------------------------------------------------------------------------------
                                                               Transport Calls
                                                                Originating/
                        Higher Population   Other Areas and   Terminating in the
                          and Telephone    Original License         Same
Date of Effectiveness        Density             Areas           Local Area
--------------------------------------------------------------------------------
November 8, 2000........      1.100              1.300              0.300
May 8, 2001.............      1.067              1.261              0.291
November 8, 2001........      1.035              1.223              0.282
May 8, 2002.............      1.004              1.186              0.274
November 8, 2002........      0.974              1.151              0.266
----------
(1)  The Public Emergency Law established the pesification of these rates, which
     previously were in U.S. dollars.

     During 2003 and 2004, most of these fees were adjusted by CER as described
in Item 10: "Additional Information--Exchange Controls".

   International Long-Distance Service

     Revenues from our sales of international long-distance service since
October 1, 1999 have consisted of:

     o    amounts billed to our local service customers who have not
          presubscribed with another long distance provider and Telecom's local
          service customers (through a presubscription process) for outgoing
          telephone calls,

     o    amounts earned from foreign (non-Argentine) telecommunications
          carriers and administrations ("foreign carriers") for connection to
          the Argentine telephone network, net of the amounts paid to foreign
          carriers for the termination of outgoing calls from our network,


                                       30
<PAGE>
     o    international telex services, and

     o    international point-to-point leased circuits.

     Rates charged to our customers before the enactment of the Public Emergency
Law were set in foreign currency and varied depending on time of day and
destination. Different discount plans were applied to those rates considering
factors such as: total traffic, destination and the time of day when the call is
made. The pesification and freezing of the tariffs included those of
international long-distance calls irrespective of the charges we have to pay to
terminate a call in the country of destination.

     Telintar, until May 1, 1999, and TLDA, from May 1, 1999 through September
30, 1999, had provided international telephone service which we now provide. Our
revenues related to international long-distance telephone service and other
telecommunication services include charges that TLDA, Startel and Telefonica
Data have paid or pay us for access to and leasing of our network, the rendering
of administrative services and charges paid by cooperative and cellular
telephone companies.

     Currently, we are licensed to provide international services throughout
Argentina. Until September 30, 1999, we realized international service revenue
indirectly through TLDA (and prior to TLDA's succession, through Telintar). See
above "--Our Reorganization".

     We are connected to numerous worldwide submarine cable networks. This
access to the global network provides us with optical fiber connections to many
of the largest and most frequently called international destinations, including
Brazil, Uruguay, the United States, the United Kingdom, Venezuela, Germany,
France, Japan, Korea, Singapore, Portugal, Spain, Canada, Australia, Italy,
Switzerland, Taiwan and Hong Kong.

     Currently, we are a member of two joint ventures of telecommunications
companies organized to construct and operate submarine cable systems called
PANAMERICANO and ATLANTIS-2. PANAMERICANO went into operation in the first
quarter of 1999 and stretches north along the Pacific coast from Chile,
connecting all Latin American countries having a Pacific shoreline and providing
an alternative route to the United States. Operative on February 22, 2000,
ATLANTIS-2 offers routes to the United States, Africa and Europe, with moorings
in Argentina, Brazil, Dakar, the Canary Islands, Cape Verde and Portugal.

     In December 2002, we purchased an Indefeasible Right of Use (IRU) of
capacity from Emergia S.A. in its ring network for voice traffic and IPLs
(International Private Line), allowing us to be part of the Telefonica global
network, together with the other affiliates, thus improving quality and
services. By means of this network, all of Telefonica's subsidiaries are
interconnected and have more alternatives to route international traffic.

     Operating revenues from international long-distance telephone service have
included payments for calls carried by the Argentine international service
provider under bilateral agreements between Argentine and foreign carriers
covering virtually all international long-distance calls into or out of
Argentina. The agreements govern the payments to foreign carriers for the use of
such carriers' facilities in connecting international calls billed in Argentina
and the payments by the foreign carriers for the use of facilities of Argentine
carriers (us, and, prior to fiscal year 2000, TLDA and Telintar) in connecting
international calls billed abroad. The rates of payment under such agreements
are negotiated with each foreign carrier. The practice among carriers is for
payments due for the use of overseas networks to be recorded, collected and
forwarded by the carriers in the country from which the call is initiated.
Settlements among carriers are usually made on a net basis.

     Virtually all of the telephones in our service area are capable of
international direct dialing and almost all outgoing international calls are
made using international direct dialing rather than operator assistance.

   Direct Lines

     Direct lines are dedicated point-to-point leased lines for data
transmission. The bandwidth of direct lines varies depending on customer
requests from 9.6 kbps to 2,048 kbps. We collect fees from installation and
monthly charges. In addition, fees from installation are collected only once and
in case of specific installations. We collect additional one-time monthly
charges depending on: (i) type of line, (ii) bandwidth, (iii) distance between
points

                                       31
<PAGE>


leased; (iv) duration of the contract and (v) usage of the lines. Moreover, this
service is not regulated by Law No. 25,561.

   Telinver--Publishing of Telephone Directories

     The revenues of our almost wholly owned subsidiary Telinver are principally
derived from the publishing of telephone directories. Under the License
Agreement, we have the right to edit, publish, and sell advertisements in, as
well as the obligation to distribute, telephone directories in every local area
that we serve, which is principally comprised of the Southern Region. We conduct
this business through Telinver. Telinver also offers telephone booth
advertising.

     Telinver was organized in June 1992 and formed a union transitoria de
empresas ("UTE", analogous to a joint venture) with Meller Comunicaciones S.A.
and Meller S.A. The purpose of the UTE was to edit, publish, distribute and sell
advertising in telephone directories, including the Paginas Doradas. Telinver
owned an 80% interest in the UTE. As of October 8, 1997, the UTE was dissolved.
Telinver acquired the undivided 20% of the assets and liabilities of Meller
Comunicaciones S.A. and Meller S.A. in the UTE. In addition, all of the rights
and obligations of Meller Comunicaciones S.A. and Meller S.A. under the contract
with us relating to the editing, publication, distribution and sale of
advertising in telephone directories were assigned to Telinver. As consideration
in that transaction, Telinver paid Meller Comunicaciones S.A. and Meller S.A. a
total of Ps.18.6 million.

     On December 29, 2000, we made an irrevocable contribution to Telinver in
the amount of U.S.$17.1 million (equivalent to Ps.37.6 million of pesos restated
for inflation until February 28, 2003) through settlement of certain receivables
outstanding with Telinver. On June 28, 2001, we made a capital contribution of
Ps.79.6 million (in pesos restated for inflation until February 28, 2003) to
Telinver; simultaneously, Telinver distributed cash dividends in the amount of
Ps.69.5 million (in pesos restated for inflation until February 28, 2003). As of
December 31, 2004, Telinver's current liabilities in foreign currency exceeded
current assets in foreign currency by approximately U.S.$36.5 million and, in
addition, total liabilities exceeded total assets, so there was a negative
shareholders' equity in the amount of Ps.36 million, a condition which under
Argentine law required Telinver's dissolution because of the lack of sufficient
capital stock due to accumulated losses.

     After evaluating Telinver's financing needs in light of the Argentine
economic situation and the current difficulties in obtaining credit, on January
3, 2005, we assumed all of Telinver's debt in an amount of U.S.$39.2 million,
corresponding to Telinver's total indebtedness owed to Telefonica Internacional,
which expressly consented to the assignment by Telinver to us. In addition,
Telefonica Internacional agreed to reduce the interest rate of that debt from
LIBOR plus 9% to LIBOR plus 4.5%. In consideration for our assumption of the
debt, Telinver entered into two loan agreements in pesos with us in the amounts
of Ps.71.5 million and Ps.45 million, respectively.

     Subsequently, at Telinver's Extraordinary Shareholders' Meeting on February
14, 2005, we, as the controlling shareholder of Telinver, approved a capital
stock increase equivalent to Ps.71.5 million. These shares were given to us as
payment under the first loan agreement mentioned in the previous paragraph. See
Item 5: "Operating and Financial Review and Prospects--Liquidity and Capital
Resources".

     The remaining debt of Ps.45 million after the capitalization mentioned
above is to be repaid by Telinver in eight semi-annual installments at 11%
annual nominal interest rate.

   Other Sources of Revenues

     Other sources of revenues include other charges to affiliates, charges for
operator-assisted long-distance calls and other minor miscellaneous customer
charges.

     Pursuant to the Reorganization Transactions, we, as a successor of certain
activities of Telinver, began selling telephone equipment and accessories as of
January 1, 2001. We also derive revenues from the sale of telephone booth
terminals, cellular handsets, batteries, computers, related equipment, invoicing
service and collection, and network capacity. We sell equipment through direct
telemarketing and through retail stores, Teleshops and other showrooms.


                                       32
<PAGE>


   Other Services and Investments

     E-Commerce Latina

     On December 15, 1999, Telinver and Alto Palermo S.A. ("Alto Palermo"), the
owner of a number of shopping centers located throughout Argentina, entered into
an agreement under which Telinver became a shareholder of E-Commerce Latina S.A.
("E-Commerce Latina"). E-Commerce Latina owns 98% of Altocity.com S.A.
("Altocity"). Altocity engages in the business of selling via the internet a
variety of items, including music CDs, electronic appliances, computer hardware
and software and books. According to the agreement between Telinver and Alto
Palermo, they both agreed to each hold a 50% interest in E-Commerce Latina and,
subject to certain conditions, Telinver, and ourselves as successor of certain
activities of Telinver, would make capital contributions to E-Commerce Latina in
an amount up to U.S.$27 million. As of September 30, 2000 and 2001, Telinver,
and ourselves as successor of certain activities of Telinver, had made capital
contributions of Ps.22.2 million (in pesos restated for inflation until February
28, 2003) and U.S.$5 million to E-Commerce Latina, respectively. As part of the
Reorganization Transactions, Telinver transferred to us its 50% interest in
E-Commerce Latina, as of February 1, 2001. In addition, we and Alto Palermo
undertook to make a voluntary capital contribution to E-Commerce Latina for the
development of new business lines for a maximum of Ps.12 million, 75% of which
is to be contributed by us.

     Other Investments

     As of December 31, 2004, we had a 0.12% share in Intelsat Ltd. Intelsat
Ltd. owns and operates a global satellite system that provides voice/data and
video services via satellite. Under an agreement signed between us and Intelsat
U.K., the common shares held by us in Intelsat Ltd. were pledged as collateral
for the payment of the obligations arising in relation to utilized segment
capacity. We retain our voting and dividend rights on such shares as long as we
do not incur any event of default. In October 2004, at the Shareholders' Meeting
of Intelsat Ltd., the shareholders decided to sell 100% of Intelsat Ltd.'s
capital stock to "Zeus Holding Limited". In exchange for the sale, the
shareholders of Intelsat Ltd. received U.S.$18.75 per share. On January 28,
2005, Intelsat Ltd. announced the closing of the sale and made payments to its
shareholders according to the terms of the sale. We recognized the effects of
the sale of Intelsat Ltd. as of that date, which did not have a material impact
on our results of operations. Moreover, we changed the collateral in the pledge
agreement to a cash collateral in order to maintain the guarantee of payment of
liabilities arising in relation to the utilized segment capacity.

     On July 19, 2004, the Special Shareholders' Meeting of New Skies Satellites
N.V. ("New Skies") decided the liquidation of the company and the sale of 100%
of its assets to "The Blackstone Group" subsidiaries. Pursuant to this
transaction, we liquidated our 0.15% interest in New Skies. We accounted for the
liquidation and sale of the interest in New Skies in fiscal year 2004. It did
not have a significant impact on our results of operations.

     On December 26, 2002 we sold our 1.12% interest in TeleBrasil Sul Celular
Participacoes S.A. for U.S.$570,000.

     We may from time to time, and in connection with Telefonica Internacional
or our other affiliates, invest in or acquire other assets or equity interests
in telecommunications operations in or outside of Argentina.

   Collection and Termination Policies

     Our policies for past due accounts are as follows: once an account is past
due, we first make numerous recorded and personal calls to resolve the situation
followed by formal notifications. If that fails, we restrict the lines to
incoming calls and later completely block the lines. If the account remains past
due after 150 days we engage a collections agency and if the agency is
unsuccessful, the line is disconnected. Our termination policies are in
compliance with applicable government regulations.

     We collect customer payments through a number of different channels,
including banks, third-party collection channels and our own commercial offices
and automatic bank debits and credit cards.


                                       33
<PAGE>


   Management Contract

     On the Transfer Date, we entered into a Management Contract with Telefonica
as the operator. Under the Management Contract, Telefonica is responsible for
managing our business and for providing services, expertise and know-how with
respect to our entire range of activities. As required by the List of
Conditions, the Management Contract provides Telefonica with management powers
relating to our day-to-day operations. The basic terms and conditions of the
Management Contract and certain related agreements, as in effect on the date
hereof, are set forth below.

   Operator Responsibilities

     The responsibilities of Telefonica include (1) developing general policies;
(2) designing personnel and compensation structures; (3) supplying necessary
personnel; (4) selecting appropriate technology and expertise; and (5)
developing detailed action plans and budgets for our board of directors.

   Management Fee

     Under the Management Contract, Telefonica is entitled to receive an annual
management fee calculated as a percentage (the "Management Fee Percentage") of
our net income before deduction for, among other things, depreciation, financial
expenses, income tax and the management fee itself (the "gross margin"). The
valuation of each item included in the management fee formula is made in
accordance with Argentine GAAP and is subject to review by a recognized external
independent accounting firm designated by both us and Telefonica, with the
report of such firm being conclusive. Such agreement was automatically extended
until April 30, 2003 at Telefonica's option. The management fee amounted to
9% of the gross margin. In addition, on October 30, 2002, Telefonica notified us
that it was exercising its option to extend the term of the Management Contract
for an additional period of five years beginning April 30, 2003 pursuant to its
right under the Management Contract. To that end, on July 30, 2003, we entered
into a Supplement to the Management Contract pursuant to which the management
fee was established as 4% of the gross margin, applicable beginning May 1, 2003;
this was confirmed by the General Shareholder's Meeting held on April 19, 2004.
     During the fiscal years ended December 31, 2004, 2003 and 2002, management
fees were approximately Ps.68 million, Ps.86 million and Ps.126 million,
respectively (in pesos restated for inflation until February 28, 2003). In
addition to the management fee, we are obligated under the Management Contract
to cover the costs of personnel assigned to us.

   Duration

     The Management Contract originally had a seven-year term coinciding with
the period of exclusivity provided for in the List of Conditions. The contract
was automatically extended for an additional period coinciding with the
extension of the period of exclusivity of our license to provide
telecommunications services. As our license was exclusive until October 10, 1999
(see "--Competition" below), we and Telefonica continued to honor the terms of
the Management Contract until such date. At Telefonica's option, the Management
Contract was extended through April 30, 2008. Telefonica may terminate the
Management Contract due to:

     (1) a delay of more than three months in the payment of the management fee;

     (2) the failure by us to implement certain management decisions proposed by
Telefonica;

     (3) the revocation of our license due to any action or inaction of us or
Cointel; or

     (4) the development of an irreconcilable conflict with us regarding the
management of our business.

     In the event Telefonica terminates the Management Contract for any reason
other than point (4) above, we are liable for all damages suffered by Telefonica
as a result of such termination. If Telefonica terminates the Management
Contract based on an irreconcilable conflict concerning general policies, a plan
of action or the annual budget, it would be entitled to receive, as liquidated
damages for 20 quarters following termination, an amount equal to 45% of the
average quarterly management fee received during the preceding three years;
provided, however, that


                                       34
<PAGE>
payments for any remaining quarters after April 30, 2003 would be reduced to 33%
of the average quarterly management fee. We may terminate the Management
Contract due to the revocation of our license to provide telecommunications
services due to the action or inaction of Telefonica or the liquidation or
bankruptcy of Telefonica. See "--Regulatory Matters--Revocability of Our
License".

Capital Expenditures

     Pursuant to then applicable regulations, we had to meet certain minimum
annual standards regarding the expansion of our telephone system and improvement
to the quality of service in order to maintain the exclusivity of our original
license. The contract that now sets the terms of our non-exclusive license also
contains a number of operating standards. See below "--Regulatory
Matters--Service Requirements".

     The following table sets forth our capital expenditures.

<TABLE>
                                                                     Capital Expenditures(1)(2)
                                             ------------------------------------------------------------------------------
                                             Twelve-Month    Twelve-Month     Twelve-Month     Three-Month     Twelve-Month
                                             Fiscal Year      Fiscal Year     Fiscal Year      Fiscal Year     Fiscal Year
                                                Ended            Ended           Ended            Ended           Ended
                                             December 31,    December 31,     December 31,    December 31,    September 30,
                                                 2004            2003           2002(3)           2001             2001
                                             ------------------------------------------------------------------------------
                                                 (in millions of pesos restated for inflation until February 28, 2003)
<S>                                                <C>              <C>             <C>             <C>              <C>
Buildings, Land and Equipment............          10               2               4               33               77
Switching and Transmission...............         191              85              74               77              321
External Plant(4)........................          26               7              20               52              242
Telephone Equipment......................          24              17              14               24              106
Materials................................         109              21              10               --               61
Other....................................          77              54              29               24               83
   Total.................................         437             186             151              210              890
</TABLE>
----------
(1)  The allocation of work in progress and prepayments to vendors among items
     has been estimated.

(2)  See Note 2.2 of our Consolidated Annual Financial Statements and Item 3:
     "Key Information--Selected Financial Data".

(3)  Excludes Ps.29 million (in pesos restated for inflation until February 28,
     2003) in construction in process corresponding to capitalized exchange
     differences.

(4)  "External Plant" includes transmission lines and other transmission
     facilities (principally underground cables), but excludes real property not
     associated with transmission facilities, which is included under
     "Buildings, Land and Equipment".

     As of September 30, 2001, the net value of fixed assets and intangible
assets spun off effective February 1, 2001, as part of the Reorganization
Transactions, amounted to approximately Ps.1,979 million and Ps.812 million,
respectively, in pesos restated for inflation until February 28, 2003. We made
capital expenditures well in excess of the amounts needed to satisfy the minimum
qualitative and quantitative standards called for by the List of Conditions. The
requirements with respect to line installations extended through December 1996.

     In addition, we agreed, as part of our purchase of Compania Argentina de
Telefonos S.A., to install a significant number of digital lines and public
telephones and to provide the Province of Mendoza, its municipalities and its
provincially owned businesses with telephone service at a discount of 20%,
except for international calls, until June 30, 2005.

     For the fiscal year ending December 31, 2005, we expect to make capital
expenditures of approximately Ps.392 million. Estimates for capital expenditures
are preliminary and are based upon assumptions regarding commercial, technical
and economic factors such as rates for telecommunications services, exchange
rates, inflation, demand and availability of equipment and buildings. See
"--Business Strategy" and Item 5: "Operating and Financial Review and
Prospects--Liquidity and Capital Resources".

Competition

     Until the deregulation of the access to the Argentine telecommunications
market, we had been the only licensed provider of wireline public
telecommunications services and basic telephone services in the Southern Region,
where

                                       35
<PAGE>


we owned virtually all public exchanges, the network of local telephone lines
and the principal domestic long-distance telephone transmission facilities.
Telecom had been the only licensed supplier of such services in the Northern
Region. Since 1999, the Argentine government has issued a number of decrees
liberalizing the telecommunications market and awarded numerous licenses. As a
result, a number of new operators have entered the market. The new providers of
local, domestic long-distance and international telephone services are now our
direct competitors. The operators owning data transmission networks, few
providers of internet protocol (IP) telephony services and other companies
providing wireless services (including companies spun off from us in the
Reorganization Transactions) are our indirect competitors to the extent those
services may be substitutes for wireline telephony.

     The following table provides, as of January 1, 2005, the number of licenses
granted by the Secretary of Communications per service:

Type of license                                                  Quantity(1)
---------------                                                  -----------
PCS..........................................................            6
Basic telephone service......................................          280
Local telephony..............................................           92
Domestic long-distance.......................................          127
International long-distance..................................          127
Public telephone.............................................           85
Internet access..............................................           26
Data transmission service....................................          425
Value-added service..........................................          659
Cellular service.............................................            4
Other........................................................        1,152
                                                                     -----
   Total.....................................................        2,983
----------
(1)  Although there have been numerous licenses granted, most license holders
     have not entered the market or are not currently active. Many of these
     licenses have been granted for a specific geographic area.

     We are the incumbent operator in the Southern Region. The liberalization of
access to the telecommunications market has not yet materially affected our
market share. Changes in technology and the entrance of alternative operators
such as data, cable and internet service providers, could subject us to
significant competition and negatively affect our market share and revenues.

     Competition may be affected by changes in technology in the future. The
telecommunications industry is subject to continuous, rapid and significant
changes in technology and to the related introduction of new products and
services. Our network is digital and relatively new, which should help us
maintain our competitive position going forward. While we believe that in the
foreseeable future these changes will not materially affect the continued
efficacy of already implemented technologies and that we will be able to obtain
access to appropriate technologies on a timely basis, we cannot predict with
certainty the effect of technological changes on our business. New services and
technological advances may offer additional opportunities to compete against us
on the basis of cost, quality or functionality. It may not be practicable or
cost-effective for us to replace or upgrade our installed technologies in
response to competitors' actions. Responding to such change may require us to
devote substantial capital to the development, procurement or implementation of
new technologies, and may be dependent upon our ability to obtain additional
financing. Although we believe that, for the foreseeable future, existing and
developing technologies will not materially adversely affect the viability or
competitiveness of our telecommunications business, we can give no assurance as
to the nature and extent of the impact on us of technological change.

     Competition has and may continue to be affected by the business strategies
and alliances of our competitors and the general business and economic climate
in Argentina, including changes in demand, interest rates, inflation rates and
the peso/U.S. dollar exchange rate, which may affect us and our competitors
differently, not necessarily to our advantage. Additionally, a continuing trend
toward business combinations and reorganizations in the telecommunications
industry may create powerful new competitors. The consolidation of Telefonos de
Mexico S.A. ("Telmex") in Argentina led this company to be the third largest
telecommunication operator by its participation in


                                       36
<PAGE>

CTI, Telmex Argentina (formerly known as AT&T Latin America Argentine branch),
Techtel and Metrored (in some case, through America Moviles).

   Basic Telephone Services

     We are the incumbent provider of basic telephone services in the Southern
Region. However, other licensees currently providing local telephone services
include Telecom, Telmex and Impsat.

     Telefonica Moviles, a company owned by our indirect parent, Telefonica,
S.A., acquired the wireless communications assets of BellSouth in Latin America
from BellSouth Corporation, including Movicom BellSouth. See "Competition -
Indirect Competitors".

     We are now using our expanded fiber-optic network in the Northern Region to
carry long-distance traffic and a multiservice network to provide local service
in the three most important cities in the Northern Region where Telecom is the
incumbent provider. We have expanded and improved our network capacity by, among
other means: (1) the construction of fixed wireless networks equipped to provide
symmetric and asymmetric voice services in the Northern Region; (2) activating
new lines and focusing on achieving full capacity utilization on plant additions
and on existing network capacity; and (3) others, including the expansion of the
transmission network to accommodate current traffic (including local,
multiple-area, domestic long-distance, and submarine cable traffic). As of
December 31, 2004, we had built approximately 17,187 kilometers of an optical
fiber network, of which (1) 5,305 kilometers are in the Northern Region for
domestic long-distance transmission between major cities, and (2) 11,882
kilometers make up another optical fiber network for transmission between local
exchanges. The fiber-optic network currently extends to several of the larger
Northern cities in Argentina. We use supplemental leasing of circuits from other
providers to increase our ability to offer long-distance service in the Northern
Region.

   Domestic Long-Distance Service

     Our principal competitors in providing domestic long-distance telephone
services are Telecom, Telmex, CTI, I-Plan and Impsat. Our exposure to
competition has increased due to the presubscription process and is likely to
increase once carrier selection through dialing ("call by call") is fully
implemented. See "--Regulatory Matters--Regulations Related to Long-Distance
Services". As a consequence of the presubscription process, certain local
service customers opted for one of our competitors, and certain Telecom local
services customers opted for us or for one of the other competitors as their new
provider of long-distance services. As of December 31, 2004, the total number of
long-distance services customers gained (approximately 162,000 lines) was less
than customers lost (approximately 454,000 lines). We have focused on "win-back"
activities regarding those customers that opted for other providers. Customers
will be able in the near future to select their long-distance provider by
dialing a specific three-digit code number at the time they make a call. This
new system, when fully operative, will co-exist as an alternative for the
presubscription provider for the line that originates a long-distance call. As
of the date of this Annual Report, our networks and equipment are available to
provide the selection services, but no operator has asked us for
interconnection.

   International Long-Distance Service

     Domestically, we face competition mainly from Telecom, CTI, Techtel, Telmex
Argentina (formerly known as AT&T Latin America, Argentine Branch), Impsat and
I-Plan with regards to international service. Such competition is affected by
factors, including price, service, technical performance, marketing strategy and
functionality.

     The impact of the devaluation of the peso and the Public Emergency Law had
the effect of decreasing the value of rates in U.S. dollars for international
long-distance calls we bill to our clients. Settlement rates charged by third
parties continue to be denominated in U.S. dollars, and we have historically
experienced a larger number of minutes received as compared to minutes sent.
Average settlement rates of minutes received are lower as compared to those for
minutes sent.

   Public Telephone Service

     Our principal competitors for public telephone service are Telecom,
Telefonia Publica y Privada S.A. (formerly DAKOTA S.A.) and Telecentro S.A., a
cable television operator. As of December 31, 2004, we owned 117,028

                                       37
<PAGE>


public phones in Argentina. As of December 31, 2004 there were 85 licenses
granted to service providers, but there were only 14,815 public phones installed
in the Southern Region not belonging to us.

   Internet Access and Value-Added Services

     Currently, Telefonica Data, Telecom and other companies are licensed to
provide internet access and value-added services throughout Argentina. A number
of companies have obtained or expanded their internet access products and
services as a result of acquisitions and strategic investments in Argentina.
Similar acquisitions by our competitors may permit these competitors to devote
greater resources to the development and marketing of new competitive products
and services and to the marketing of existing competitive products and services.

     We believe that our ability to compete successfully in providing internet
access services depends on a number of factors, including: industry presence,
the ability to implement a rapid expansion strategy, the capacity, reliability
and security of our network infrastructure, provision of easy access to and
navigation on the internet, the pricing policies of competitors and suppliers,
the timing of the introduction of new products and services by us and our
competitors, our ability to support industry standards and industry and economic
trends.

     To that end, we are offering ADSL service, which we are capable of
providing through our own network. ADSL works by splitting an existing telephone
line signal in two, one signal for voice and the other for data. ADSL permits
internet access simultaneously with telephone usage and provides a fast internet
connection. During 2004, we focused on expanding this service and increased the
number of ADSL lines by 172%. As of December 31, 2004, we had 188,840 customers
subscribed to ADSL and held a broadband market share in the Southern Region of
approximately 81% according to internal estimates. We expect to continue
expanding our offering of this service in 2005.

     The main competition to ADSL service is cable-modem service, which also
offers broadband internet service.

   Indirect Competitors

     Wireless services have, since their inception, competed indirectly against
wireline local services that we provide because cellular and PCS are, in certain
cases, alternatives to those services, as well as to public telephone services.
We also face indirect competition from PCS providers such as Telefonica Unifon
(Telefonica Comunicaciones Personales), Movicom BellSouth, Telecom Personal,
CTI, and Nextel. Both Telefonica Unifon and Movicom BellSouth are affiliated to
us. PCS is a telecommunications service similar to cellular services. PCS may
not be limited to mobile services and may include fixed services; PCS licensees
may render these fixed services within the geographic areas that we serve. In
the past few years, these wireless alternatives have experienced rapid growth
and had approximately 13 million clients as of December 31, 2004, according to
internal estimates. This growth was accompanied with strong investments in
Global System for Mobile Communications ("GSM") networks.

     Furthermore, current available technology permits telephone calls and
internet access (which itself may be used to carry voice calls) via cable, and
it is reasonable to expect that we will face some amount of competition from
cable companies. Some cable companies have begun to provide such telephone
services through cable but this has not materially affected our revenues.

Regulatory Matters

   Introduction

     We operate in a regulated industry. The operation of telecommunications
systems in Argentina has been and is subject to laws and regulations.

     The provision of telecommunications services is regulated by the Secretary
of Communications and supervised by the National Communications Commission,
subject to the participation in certain cases of the Undersecretary of
Competition, Deregulation and Consumer's Defense (the Subsecretaria de la
Competencia, la Desregulacion y la Defensa del Consumidor). The Secretary of
Communications establishes the legal framework and policies. The National
Communications Commission enforces the legal framework and policies and
supervises the


                                       38
<PAGE>


telecommunications industry. The Undersecretary of Competition, Deregulation and
Consumer's Defense enforces and supervises competition and consumers' protection
regulations.

     The National Communications Commission has authority, among other things,
to:

     o    supervise regulatory compliance, including the achievement of the
          mandatory goals set forth by the List of Conditions;

     o    approve equipment to be installed on the user side of the network and
          at the operating interface between us and any independent operators
          and between us and the suppliers of competing services;

     o    propose to the Secretary of Communications the determination of
          technical and service standards and supervise compliance with such
          standards;

     o    resolve through administrative proceedings certain types of disputes
          between us and our customers and between us and other suppliers of
          telecommunications services; and

     o    approve changes to service requirements.

     In compliance with its mandate, the Secretary of Communications has issued
resolutions to regulate several aspects of telephone services, principally in
the areas of interconnection of the network, contracting procedures and
complaint procedures. It is customary that affected parties review and comment
upon such proposed regulations both before and after resolutions are approved.
In the ordinary course of our business, objections to certain of the resolutions
have been filed by us and are pending. The Secretary of Communications has from
time to time required opinions from interested parties, including us, other
providers of telecommunications services, consumer groups and other entities
related to the telecommunications industry regarding several issues, such as
those relating to the restructuring of rates, basic telephone service, service
quality, interconnection with other service providers and financial and
accounting information. These regulations issued by the Secretary of
Communications, together with the List of Conditions, the Transfer Contract and
the licenses granted to us to provide the telecommunications services described
herein and in the National Telecommunications Law No. 19,798, as amended, the
decrees establishing the National Communications Commission and certain other
laws and regulations, such as Decree No.764/00, provide the general legal
framework for our activities.

     During November 2003 a National Conference on Telecommunication Services
was held. The National Conference on Telecommunication Services was organized by
the Secretary of Communications and the Chairs of the Communications Committees
of the Senate and the Chamber of Deputies. The purpose of the Conference was to
give every party in the telecommunication industry the opportunity to give its
opinion in order to prepare a proposal for a new telecommunications law. The
proposed law has not been drafted at the time of this Annual Report.

     At present there are various other legislative initiatives with possible
effects for our industry. Some of these bills and regulations aim to:

     o    regulate the granting of concessions and licenses, and possibly revoke
          all such concessions and licenses;

     o    regulate tariffs and prohibit the automatic tariff adjustment;

     o    require certain investments as a condition to maintain concessions or
          licenses granted;

     o    restrict the ability to discontinue the supply of services to
          customers in arrears; and

     o    establish new municipal taxes.

     It is impossible to predict whether these proposed bills and regulations
will be enacted into laws or become part of the regulatory framework that
governs our activities. Similarly, we cannot tell whether these proposed laws
and, even, regulations will be changed, modified or amended in any way, or what
effect such change could have on our operations.


                                       39
<PAGE>


     Our Consolidated Annual Financial Statements only consider the actual
effects, or those foreseen by management, of laws and regulations enacted as of
the date of such financial statements. The effects of any new law or regulation
will be considered only after it has become effective and a part of the
regulatory framework applicable to our activities.

     Based upon information currently available, except in connection with
tariff renegotiation, where we are uncertain whether the evolution of such
regulatory framework will adversely affect our telecommunications business,
financial condition and future results of operations, we are not aware of any
other regulatory changes that might materially and adversely affect us.
Nevertheless, we are not in a position to control the nature, extent and timing
of government action in this area or to predict with any certainty the course of
such developments.

   Liberalization of Telecommunications Services

     Pursuant to our original license, we had the exclusive license to provide
basic telephone services to the Southern Region. On March 10, 1998, the
Argentine government issued Decree No. 264/98, which extended this period of
exclusivity until a date that the Secretary of Communications later set,
pursuant to Resolution No. 1686/99, as October 10, 1999. In addition, Decree No.
264/98 set forth both optional and mandatory operating conditions with respect
to the provision of basic telephone services that applied both during and as a
condition for the maintenance of exclusivity.

     Decree No. 264/98 also established a period of transition to competition in
the telecommunications industry and provided a schedule for other liberalization
of competition that included:

     o    the immediate opening to competition of public telephone services
          pursuant to regulations that were to be issued by the Secretary of
          Communications; and

     o    beginning June 21, 1998, the opening to competition of rural telephone
          services.

     The liberalization of domestic and international long-distance services
under Decree No. 264/98 began on November 8, 2000, when those entities, which
had obtained the licenses or had been granted those licenses under the terms of
the General Licensing Rules, were authorized to provide such services. On June
9, 2000, the Argentine government issued Decree No. 465/00, which provided for
the complete liberalization of access to the telecommunications market as of
November 9, 2000.

   Current Regulatory Environment

     On September 3, 2000, the Argentine government issued Decree No. 764/00,
which, in the context of the deregulation of the access to the
telecommunications market, approved the Rules for Licenses for
Telecommunications Services, the Rules for Interconnection, the Rules for
Universal Service and the Rules for the Administration, Management and Control
of the Radioelectric Spectrum. These rules constitute the current regulatory
framework applicable to us. The above-mentioned rules address, among other
issues, the requirements to obtain the licenses to render telecommunications
services; the conditions to establish tariffs and the providers' obligations;
the technical and economic aspects for interconnection to the networks of
different providers; the programs, administration and economic issues of
Universal Service; and the principles that will govern the management and
control of the radioelectric spectrum. On September 19, 2000, we filed a
petition against certain specific issues of Decree No. 764/00. There has not yet
been a ruling on these issues. As of the date of this Annual Report, the
Secretary of Communications has not yet issued the General Rules regarding
Restrictive Practices in Competition and Cross-Subsidies mandated by the
provisions of Decree No. 264/98.

     The Rules for General Licenses established that (1) a free-price regime
would be established for the new entrants, together with a fixed-rate regime for
the incumbent operators, except in the case where there is "effective
competition" for specific services and areas, (2) one license may serve for all
telecommunications services and (3) radio and television operators may receive
licenses to provide telecommunication services.

     The Rules for Management and Control of the Radioelectric Spectrum
established the procedure for the granting of a frequency license when there are
multiple bidders, or if frequencies are or may become scarce, and established
that licensees may operate the frequencies nationwide only when it is strictly
necessary.


                                       40
<PAGE>


   Rates

     The Transfer Contract provided that we could adjust our rates based on
changes in the Argentine consumer price index and fluctuations in Argentine
currency with respect to the U.S. dollar. However, since April 1, 1991, the
Convertibility Law and Decree No. 529/91 have prohibited, as a general matter,
indexation of amounts expressed in Argentine currency and, therefore, the
original tariff regime provided by the Transfer Contract was modified by the
Argentine government, resulting in a new rate agreement. This new tariff
agreement provided for our telephone tariffs to be denominated in U.S. dollars
and, at the election of Telecom and us, for the semiannual adjustment of the
U.S. dollar-denominated price per pulse in accordance with changes in the U.S.
consumer price index. These semiannual adjustments were applied from 1992 to
1999. However, the Argentine government, Telecom and we agreed that in 2000 and
2001, there were to be no regular semiannual April or October adjustments of our
tariffs.

     The Transfer Contract also contemplates the possibility of automatically
adjusting rates in view of extraordinary unforeseen events as therein defined,
or events or acts by the Argentine government that materially affect our
economic and financial equation contemplated in the Transfer Contract.

     In January 2002, the Public Emergency Law introduced significant changes to
the agreements executed by the Argentine government, including those regarding
public works and services, such as our rate agreements. This law mandates that
the prices and tariffs resulting from such agreements shall be converted into
pesos at a rate of one peso per U.S. dollar and frozen, not permitting
indexation of any kind. It also authorizes the Argentine government to
renegotiate the above-mentioned contracts, taking into account the following
criteria in relation to public utility services:

     o    the impact of the tariffs on the competitiveness of the economy and on
          the distribution of income;

     o    service quality and investment plans, when such issues are included in
          the pertinent agreements;

     o    the interest of users and the access to the services;

     o    the security of the systems; and

     o    the profitability of the companies affected thereby.

     On February 12, 2002, the Argentine government issued Decree No. 293/02,
which entrusts the Ministry of Economy with renegotiation of public services
agreements affected by the Public Emergency Law, including agreements governing
the provision of basic telephone services. Proposed agreements or
recommendations resulting from the renegotiation process and executed by the
Ministry of Economy were to be submitted to a special commission created within
the Argentine Congress for its consideration, although the commission's opinion
shall not be binding upon the parties. We fulfilled the filing of the
information required by the Argentine government, which included proposals as to
how to adjust our tariffs in light of the economic crisis.

     The original term of the renegotiation process was 120 days and was
extended for an additional 120 days by Decree No. 1839/02 dated September 16,
2002. Resolution No. 62/03 of the Ministry of Economy dated January 31, 2003,
further extended the above term another 60 business days.

     In order to assist public utility companies in the renegotiation process,
the Ministry of Economy issued procedural guidelines establishing a schedule
comprised of four phases:

     o    informal meetings with the relevant parties to discuss the
          renegotiation process;

     o    presentations by public utility companies explaining how they have
          been impacted by the crisis and submitting proposals for possible
          solutions;

     o    discussion and analysis of the proposals; and

     o    submission of proposed agreements to the Ministry of Economy for
          consideration.


                                       41
<PAGE>


     Pursuant to the process established for the renegotiations, we submitted a
proposal regarding our tariff regime. We proposed that the Argentine government
reinstate the tariff regime that was suspended in 1991 provided for under the
Transfer Contract, reinstating the peso-denominated tariffs indexed to the
monthly Argentine consumer price index. Under our proposal, if there were
significant differences between the Argentine consumer price index and the
variation of the U.S. dollar/peso exchange rate as stated in the Transfer
Contract, the tariffs would be adjusted by applying a formula equal to 40% of
the monthly variation in the exchange rate of the U.S. dollar and 60% of the
variation of the monthly consumer price index in Argentina. We also proposed
alternative approaches to achieve a tariff regime that would reflect current
prices while considering the present general situation of the consumer,
including a transitional tariff regime that would ease tariffs from the current
fixed tariffs to the tariffs calculated as described above in accordance with
the Transfer Contract. The relationship between variables determining revenues
and expenses is currently mismatched as a result of the pesification and
freezing of our rates within the context of a potentially inflationary economy
and may continue to be mismatched depending upon the outcome of our pending
tariff renegotiation with the Argentine government. Our tariff renegotiation
proposal attempts to achieve the relationship between variables determining
revenues and costs, i.e., the "economic and financial equation", contemplated in
the Transfer Contract.

     In the opinion of our management and legal counsel, the changes in the
Argentine economic model experienced since the beginning of 2002, including the
enactment of the Public Emergency Law, the depreciation of the Argentine peso
against the U.S. dollar, the increase of domestic prices and the pesification
and freezing of tariffs, constitute extraordinary economic events that modified
the economic and legal framework established by the Convertibility Law. Such
events have significantly changed our economic and financial equation
contemplated in the Transfer Contract and so justify an adjustment of the tariff
regime to reflect the currently prevailing circumstances, such adjustment being
fully in agreement with the principles set forth in the List of Conditions and
the Transfer Contract, so as to ensure a regular, continued and efficient
service supply. The Transfer Contract contemplates the possibility of
automatically adjusting tariffs in view of extraordinary unforeseen events as
therein defined, or events or acts by the Argentine government that materially
affect our economic and financial equation contemplated in the Transfer
Contract. The Transfer Contract also provides for our compensation from the
Argentine government when extraordinary events take place, including acts and
decisions by the Argentine government, such as a freeze on tariffs or price
controls, and the procedures to be followed to collect such compensation.

     Law No. 25,790 sets forth that the term to renegotiate the agreements for
public works and utilities is to be extended until December 31, 2004, term that
has been further extended until December 31, 2005 pursuant to Law No. 25,972.
The National Executive Power shall be responsible for submitting the
renegotiation proposals to National Congress, which will have to communicate its
decision within a period of 60 running days counted from the date of reception
of the proposal. In the event such period expires without Congress having
reached a solution, the proposal shall be deemed accepted. If the proposal is
rejected, the National Executive Power shall resume the process to renegotiate
the respective agreement. This rule establishes that the decisions adopted by
the National Executive Power in this re-negotiation process shall not be limited
to, or subject to, the stipulations contained in the above-mentioned regulatory
frameworks currently governing the concession or licensing agreements for the
respective public utilities. Renegotiation agreements may cover partial aspects
of concession or licensing agreements, contain formulas to adjust such
agreements or temporarily amend them and include the possibility of agreeing
upon periodical reviews, as well as the establishment of conditions that must be
met by the quality parameters applied to services. If there were temporary
amendments, they should be taken into consideration in the terms of the final
agreements reached with concessionaires or licensees. The legal provisions do
not authorize public utilities contractors or concessionaires to suspend or
alter compliance with their duties.

     Pursuant to Emergency Decree No. 120/03 issued by the Argentine government
on January 23, 2003, the Argentine government may provide for interim tariff
revisions or adjustments as may be deemed necessary or convenient for the
purposes of ensuring the continued availability, safety and quality of services
provided to users under these contracts until the process of renegotiation of
public service contracts and licenses required under the Public Emergency Law is
completed.

     On January 29, 2003, the Argentine government issued Decree No. 146/03,
which establishes a temporary tariff adjustment for the provision of energy and
gas services. However, such measure has been judicially challenged and


                                       42
<PAGE>

currently suspended by an injunction. We have requested the interim adjustment
of our tariffs, but no decision has been reached on such issue. We cannot assure
you that we will obtain the temporary adjustment of our tariffs, or even if we
obtain it, we cannot assure you that such adjustment will not be judicially
challenged.

     On July 3, 2003, through Decree No. 311/03 a Renegotiation and Analysis of
Public Utilities Agreements Commission was created, which is to be headed by the
Minister of Economy and the Minister of Production, National Planning, Public
Investment and Services. Such Commission will be in charge of the renegotiation
of the tariffs through the Renegotiation of Public Works and Services Agreements
Committee created by Decree No. 293/02.

     This law also established that the decisions made by the National Executive
Power during the renegotiation process shall not be limited by, or subject to,
the stipulations contained in the regulatory frameworks currently governing the
concession or licensing agreements for the respective public utilities.
Renegotiation agreements may cover certain aspects of concession or licensing
agreements, and may contain formulas to adjust such agreements or temporarily
amend them. The law also includes the possibility of agreements subject to
periodical reviews or subject to quality parameters applied to services
rendered. If there are temporary amendments, such amendments must be taken into
consideration in the final agreements reached with concessionaires or licensees.
The legal provisions do not authorize licensees of public utilities contractors
or concessionaires to suspend or alter compliance with their duties.

     Under the legal framework described, on May 20, 2004, we, Telecom Argentina
S.A. and the Argentine government signed a Memorandum of Understanding (the
"Memorandum of Understanding") pursuant to which we all agreed to maintain the
General Tariff Structure currently in force for the Basic Telephony Service
until December 31, 2004, without waiving our rights. The parties also ratified
their intent to reach a final contractual renegotiation before December 31,
2004, which did not happen. In addition, pursuant to the provisions of the
Transfer Contract, the parties agreed that any new tax or charge, or any
variation in those currently in force, subject to the control of Regulatory
Authorities as established in certain sub-sections of the List of Conditions,
shall be itemized in the bills issued to customers for services in the
jurisdictions levied with the respective tax or charge.

     With the objective of establishing mechanisms to enhance access to
telecommunications services, in the Memorandum of Understanding, an agreement
was reached to implement the measures necessary to develop the following
services:

     1.   virtual telephony cards for the beneficiaries of the Head of Household
          Plan and for pensioners who do not have a telephone line and who meet
          the eligibility requirements set forth in the respective resolution;

     2.   internet access service in all its provincial centers at discount
          prices; and

     3.   addition of the heads of household who own a telephone line and meet
          the respective eligibility requirements for registration in the
          Program "Retirees, Pensioners and Low-Consumption Households".

     As stated in the Memorandum of Understanding, the Secretary of
Communications issued Resolutions No. 261 and No. 272, dated November 12, 2004
and November 23, 2004, respectively.

     Pursuant to Resolution No. 261, the Secretary of Communications approved
our promotional offer to provide dial-up internet access service, as described
in sub-paragraph 2 above, at lower prices to customers in urban areas located
more than thirty kilometers away from our current hubs for the supply of low
cost internet (0610 internet) access service, in order to increase the number of
areas with access to the internet.

     Pursuant to Resolution No. 272, the Secretary of Communications accepted
the proposal to implement the "Virtual Telephony" service for the beneficiaries
of the Head of Household Plan mentioned in sub-paragraph 1 above, consisting in
the Value Added Voice Messaging Service that allows users to receive and store
messages. This service is available in the Buenos Aires Multiple Area, La Plata,
Mar del Plata, Mendoza, Bahia Blanca and Neuquen. As of the date of issuance of
this Annual Report, both the Secretary of Communications and the CNC are
analyzing the implementation of the services described in paragraph 3 already
mentioned. In the opinion of our

                                       43
<PAGE>


management, the application of the measures mentioned in sub-paragraphs 1, 2 and
3 will not have a significant impact on our results.

     During the final months of 2004 and the beginning of 2005, the Argentine
government reached letters of understanding with several providers of public
services, which established tariff adjustments of 15% to 30% and a new term for
their review. These agreements will be validated once they are signed as
Argentine decrees. As of the date of this Annual Report, however, there have not
been any letters of understanding or tariff adjustments for our
telecommunication services.

     On March 8, 2005 the Ministry of Economy and the Ministry of Federal
Planification, Public Investment and Services, pursuant to resolutions No. 123
and No. 237, respectively, scheduled public audiences with electrical and gas
companies for tariffs increases. However, no telecommunication services
companies have been notified of a date for an audience.

     According to the opinion of management and our legal counsel, under general
administrative law principles applicable to the Transfer Contract and List of
Conditions, future tariffs should be fixed at a level which is sufficiently fair
to cover service costs so as to preserve a regular, continued and efficient
public telephone service supply within the legal framework by which the Transfer
Contract is governed. Nevertheless, no assurance can be given that the Argentine
government will adopt this position. It is possible that such tariff regime will
not maintain the value of our tariffs in U.S. dollars or constant pesos over
time in accordance with any past and potential future increases in the general
price levels. If as a result of the renegotiation, future tariffs evolve at a
pace that does not allow restoration of our economic and financial equation that
both the List of Conditions and the Transfer Contract intend to preserve, such
tariff regime would have an adverse effect on our future financial position and
results of operations. As of the date of this Annual Report on Form 20-F, our
management is unable to foresee the final result of the renegotiation under the
Public Emergency Law or when or what tariff regime will be in effect in the
future. We do not know when the renegotiations will be concluded and whether
they will be concluded in a manner that would not have an adverse effect.

     The Ministry of Economy, by Resolution No. 72/03 issued in February 2003,
approved a method to calculate and transfer to our clients the impact of the tax
on bank checking account transactions introduced by Law No. 25,413 that is paid
by us on or after the effective date of such resolution. Resolution No. 72/03
explicitly referred to the Transfer Contract as a basis for approving such
method. We believe that the position that the Ministry of Economy took in
this resolution is consistent with our proposal and understanding of our rights
under the Transfer Contract. According to Resolution 72/03, any such tax paid
before that date should be included in the contract renegotiation required under
the Public Emergency Law.

   Rate Regulations

     Decree No. 764/00 establishes that providers of telephone services may
freely set rates and/or prices for their services, which shall be applied on a
nondiscriminatory basis. However, until the Secretary of Communications
determines that there is effective competition for telecommunications services,
the "dominant" providers in such areas, which includes us, must respect the
maximum tariffs established in the General Rate Structure. Below the values
established in such tariff structure, such providers may freely set their rates
by areas, routes, long-distance legs and/or customer groups. To determine the
existence of effective competition, the dominant providers must demonstrate that
other providers of the same service obtained 20% of the total revenues for such
service in the local area of the basic telephone service involved. Effective
competition will be considered to exist in the provision of national or
international long-distance services for calls originated in a local area
covered by basic telephone service when the customers in such area are able to
choose, through the dialing selection method, among more than two service
providers, if each of them offers more than one long-distance destination.

     In 2000, we filed a request to the effect that effective competition be
officially acknowledged in the Buenos Aires Multiple Area ("AMBA"). Pursuant to
Resolution of the Secretary of Communications No.304/03, the Secretary of
Communications asked that we revise the presentations submitted,
supplying additional information. We have complied with this request and no
resolution has yet been made in the case.


                                       44
<PAGE>


     For the areas and services for which effective competition has not been
declared to exist, tariff agreements established that the maximum tariff per
pulse had to be expressed in U.S. dollars in addition to a right for us to
choose whether to adjust such tariff from April 1 to October 1 of each year
based on the variation in the Consumer Price Index of the United States of
America. However, the Public Emergency and Exchange System Reform Law No.
25,561, dated January 6, 2002, provided that in the agreements executed by the
Federal Administration under public law regulations, including public works and
utilities, indexation clauses based on foreign countries' price indices and any
other indexation mechanisms could no longer be used. Law No. 25,561 also
established that the prices and tariffs resulting from such clauses are to be
denominated in pesos at the Ps.1 to U.S.$1 exchange rate. Furthermore, this Law
authorized the National Executive Power to renegotiate the above contracts
taking into account the following criteria in relation to public utilities: (a)
the impact of tariffs on the competitiveness of the economy and on distribution
of income; (b) service quality and investment plans, when such aspects are
contemplated in the contracts; (c) the interest of users and access to the
services; (d) the security of the systems comprised; and (e) the profitability
of the companies.

     Under the tariff regulation mechanism in effect known as Price Cap, to
which we are subject, tariff discounts have been applied based on a formula made
up by the U.S. Consumer Price Index and an efficiency factor. On October 4,
2001, the Federal Appellate Court on Administrative Contentious Matters of the
City of Buenos Aires, in relation to the complaint filed by Consumidores Libres
Cooperativa Limitada de Provision de Servicios Comunitarios ("Consumidores
Libres"), mentioned in Note 11.d to the Consolidated Annual Financial
Statements, awarded a precautionary measure ordering the National Government, us
and Telecom to refrain from applying the corrections set forth in Section 2 of
the Agreements approved by Decree No. 2,585/91 until final judgment is rendered
in the case, which meant that the rates could not be adjusted by the U.S.
Consumer Price Index.

     We, Telecom and the Secretary of Communications entered into agreements for
the application of the Price Cap for the 2000-2001, 2001-2002 and 2002-2003
periods. The Price Cap for the 2000-2001 period was established at 6.75%, of
which 6% was allocated to rate reductions attributable to discount plans that
were in effect in 2000 and the non-application of the semiannual adjustments to
the pulse of that year value, among other items. The remaining 0.75% was to be
applied as defined by the licensees. The Price Cap for the 2001-2002 period was
established at 5.6%, and would be allocated to the non-application of the
semiannual adjustments to the pulse value of 2001, plus the balance of the
non-computation of the pulse value not applied in the price cap for the previous
year. To date, the remaining amount has not been allocated to the services
contemplated in the agreement. The Price Cap for the 2002-2003 period was
established at an efficiency factor which could not exceed 5%, but its value was
not fixed. The above mentioned agreements require the approvals of the
Ministries of Economy and Federal Planning, Public Investment and Services,
which are still pending as of the date of issuance of this Annual Report.
Moreover, neither the effect of the reduction in rates previously implemented as
compared to the rate reduction adjustments established by the Secretary of
Communications nor the rate differences pending application under the referred
agreements, have been established. There was no Price Cap for the 2004 period.

     In the opinion of our management and our legal counsel, the resolution of
these issues related to the Price Cap and the complaint filed by Consumidores
Libres might exclusively affect the maximum tariffs for future services that we
are authorized to collect from our customers for services, areas or customers in
which effective competition has not been declared. As of December 31, 2004,
these maximum tariffs are the result of the application to the tariffs in force
as of November 7, 2000, the discounts applied as a result of the implementation
of the Price Cap corresponding to period 2000-2001 and to the advanced decreases
corresponding to the period 2001-2002, as established in the agreements
mentioned.

     Under the Price Cap mechanism currently in effect, the rate reduction
percentage and the services to which such reductions will eventually apply
depend on the final approval of the above rate agreements, and on the outcome of
the legal proceedings commenced by Consumidores Libres regarding the effective
rate system.

     Based on current rate regulation mechanisms, and considering our defense
against the above legal proceedings, in the opinion of our management and our
legal counsel, the outcome of these issues will not have a negative impact upon
our financial position or a significant adverse effect on our results of
operations.

     In addition, Decree No. 764/00 reduced, as of November 2000, the
interconnection charges for the origin and destination of calls in local areas
to 1.1 Argentine cents per minute for those districts with more than 5,000


                                       45
<PAGE>


inhabitants or a telephone-set density above 15 telephones for every 100
inhabitants, to 1.3 Argentine cents per minute for the remaining districts and
for those areas included in the original license of independent operators, and
to 0.30 cents per minute for the transit within local areas. A 3% semiannual
"price cap" reduction was applied during the first two years after these rules
and regulations became effective. By virtue of the Public Emergency Law, the
interconnection charges related to origin and destination of the calls were
pesified at the rate of Ps.1.00 per U.S. dollar, and during 2003 and 2004 most
of these private contracts were adjusted by CER.

   Tariff Restructuring

     The tariff restructuring granted by Decree No. 92/97, effective on February
1, 1997, established an increase in the price of the monthly basic charge and in
local service tariffs and a decrease in the tariffs for domestic and
international long-distance services and for domestic long-distance public phone
services. The net impact of the tariff restructuring was intended to be neutral
on revenues during the two years after it became effective.

     On December 1, 1999, the Secretary of Communications issued Resolution No.
4,269/99, which finally determined the excess revenue amount as Ps.18 million
rather than the preliminary amount of Ps.14 million for the two-year period
between February 1997 and February 1999, as previously determined by the
Secretary of Communications. As Resolution No. 18,968/99 similarly provided,
Resolution No. 4,269/99 states that the National Communications Commission will
determine the form and time of implementation of the corresponding tariff
reduction. We have filed an appeal for review and modification of Resolution No.
4,269/99, on the grounds that the calculation method used by the Secretary of
Communications to determine the impact of the tariff restructuring established
by Decree No. 92/97 was flawed. As of the date of this Annual Report, such
appeal has not been resolved and the National Communications Commission has not
determined the rules for its implementation.

     In the opinion of our management and legal counsel, the outcome of the
issues related to the tariff restructuring could only affect the maximum tariffs
for future services that we are authorized to charge our customers regarding
services, areas, or customers in which the Argentine government did not declare
the existence of actual competition. Therefore, in the opinion of our management
and legal counsel, the outcome of these issues will not have a negative impact
upon our financial position or a material adverse effect on our results of
operations.

   Service Requirements

     Pursuant to the List of Conditions and the License Agreement, we must
ensure continuity, reliability, nondiscrimination and universal service
provision. We also must provide, among other services, free emergency telephone
services, free telephone directories to all subscribers and operator-assisted
information. In addition, the List of Conditions sets forth certain mandatory
service objectives that we had to achieve and maintain. These include
requirements pertaining to network penetration (new residential and public
telephone lines, waiting-time standards for installation), network performance
(frequency of failure, repair time standards, percentage of call completion),
customer service (speed of operator's response, maintenance and information
service) and call efficiency (percentage of calls not "dropped" by the network).

     Additionally, the List of Conditions provides that we must

     o    comply with applicable regulations,

     o    meet standards established for the physical condition of the network,

     o    permit nondiscriminatory access to providers of competing services,

     o    maintain connections to all cities presently connected to our network,

     o    provide interconnection with international service operators and with
          other competing networks, as well as access to competing networks for
          their users, and

     o    provide equal access to telephone lines to suppliers of data and
          value-added services.


                                       46
<PAGE>


     In responding to consumer demand for new line installations and to meet the
average waiting time requirement, we performed line installations in excess of
those required in the List of Conditions. As of December 31, 2004, our backlog
of pending applications for service was 35,578 lines.

   Revocability of Our License

     Our license is revocable in the case of serious noncompliance with certain
obligations. The List of Conditions and the Transfer Contract set forth certain
obligations of which the following are still in effect:

     o    assets transferred to us for use in providing telecommunications
          services may not be sold, assigned, transferred or encumbered in any
          way without the approval of the Secretary of Communications;

     o    certain shareholders of Cointel are required to retain a specified
          interest in Cointel's common stock, and Cointel is required to own
          Class A Shares representing 51% of our total capital stock except if
          otherwise approved by the Secretary of Communications;

     o    we must provide a certain level of basic telephone services, and
          maintain our principal place of business in Argentina;

     o    we must maintain certain service quality standards; and

     o    we must avoid liquidation.

     In case of serious noncompliance with these obligations, our license could
be revoked in accordance with the procedures set forth in the List of
Conditions.

   Regulations Related to Long-Distance Services

     Resolution No. 2,724/98 of the Secretary of Communications became effective
on January 5, 1999, and sets forth the General Rules for Presubscription to
Long-Distance Services. Those rules grant customers located in the interior
cities of Argentina having more than 5,000 customers and customers located in
the greater Buenos Aires Metropolitan Area the right to select a provider of
long-distance services. Customers have been able to select a provider other than
their original provider at no additional cost since March 20, 2000. However,
customers cannot change their provider more frequently than once every two
months following the activation of a presubscription.

     On December 20, 2001, the Ministry of Economy issued the Carrier
Selection Rules for long-distance calls, which require carriers to make their
networks and equipment available to provide the selection services within 80
days following the publication of these rules. Accordingly, customers will be
able to opt for their long-distance provider by dialing a specific three-digit
code number. This new system will co-exist as an alternative for the
presubscription provider for the line that originates a long-distance call at
the time of making each call. On February 4, 2003, the Ministry of Economy
issued Resolution No. 75/03, compelling providers to make available the carrier
selection for fixed and mobile services within 120 days. As of the date of this
Annual Report, our networks and equipment are available to provide the selection
services, but no operator has asked us for such type of interconnection.

   Interconnection

     Decree No. 764/00 approved new Rules for National Interconnection and
established the interconnection standards and conditions with which telephone
service providers must comply without affecting preexisting agreements. These
Rules for National Interconnection establish that:

     o    several interconnection services are to be considered as essential
          facilities;

     o    charges for access are to be substantially reduced;

     o    clients are allowed to directly access to the Number Translation
          Services (internet service providers, call centers, etc.) whose
          providers are treated as "owners" of the calls; and


                                       47
<PAGE>


     o    number portability right would be implemented.

     Subsequently, we have entered into interconnection agreements with
different providers in accordance with previous rules established under Decree
No. 264/98 and 266/98.

     The Rules for National Interconnection set forth the basic principles to be
taken into account regarding interconnection among operators, who will be able
to agree on tariffs and service terms and conditions on a nondiscrimination
basis, provided that they comply with certain minimum obligations.

     Under these rules, operators are categorized as follows:

     o    operators with Dominant Power: those whose revenues are over 75% of
          the total revenues for services rendered in a specific area or for a
          specific service;

     o    operators with Significant Power: those whose revenues are over 25% of
          the total revenues for services rendered in a specific area or for a
          specific service; and

     o    all other operators.

     Operators with either Dominant or Significant Power must establish
cost-based interconnection rates and allow competitors the access to the
unbundled local loop (the latter not yet implemented).

     Operators with Dominant Power must also make a reference interconnection
offer for both local switching and superior levels (transit centers), keep
separate accounting records for interconnection services and provide those
network functions defined as essential facilities at long-run incremental costs.

     The Rules for National Interconnection also establish the obligation for
Dominant and Significant Power Operators to unbundle their local loops (physical
link and its capacity between the carrier's capacity and the clients'
facilities) and to allow competitors to use them on the basis of technical
reasonability. As of the date of this Annual Report, the working group in charge
of setting reference rates for this service has not been created.

   Regulations Affecting the Radioelectric Spectrum

     We do not have assigned radioelectric bands in certain areas. The Rules for
Management and Control of the Radioelectric Spectrum establish the procedure for
the granting of a frequency license when there are multiple bidders or if
frequencies are or may become scarce, and establish that licensees may operate
the frequencies nationwide only when it is strictly necessary. We have numerous
licenses to use various distinct radioelectric bands.

   Universal Service Funding

     Decree No. 764/00 approved the new Universal Service Rules and Regulations
to promote the access to telecommunications services by customers either located
in high-cost access or maintenance areas or with physical limitations or special
social needs. Such rules and regulations establish that the deficit for the
provision of these services will be through a "Universal Service Fund", to be
financed by all telecommunications providers (including us) through the payment
of 1% of total revenues for telecommunications services, net of any direct tax
applicable on them. The regulation adopts a "pay or play" mechanism for
compliance with the mandatory contribution to the Universal Service Fund,
although it also establishes a mechanism for exemption from contribution for
basic telephone service licensees that takes into consideration loss of revenues
and market share. Payment of contributions required to be made by service
providers may be substituted with the provisions of services, included in the
initial programs or in accordance with any of a number of programs that may be
approved by the Secretary of Communications with the participation of the
Secretary of Competition, Deregulation and Consumer's Defense. The obligations
in connection with this regulation became effective on January 1, 2001.
Nevertheless, as of the date of this Annual Report, the Secretary of
Communications has not yet ruled on the mechanism by which we should recover the
cost incurred for rendering these services.


                                       48
<PAGE>


C.   Organizational Structure.

     As of the date of this Annual Report, Telefonica owns, through affiliates,
approximately 98% of our outstanding shares. The remaining shares are owned by
holders not affiliated with Telefonica (the "Minority Shareholders"). Our
capital stock is held by the following affiliates of Telefonica:

     o    Cointel (holder of all our Class A Shares representing 62.5% of our
          capital stock and 40.2 million Class B Shares representing 2.3% of our
          capital stock),

     o    Telefonica Internacional, a Spanish company, and

     o    TIHBV, a Dutch company.

     Cointel's current shareholders consist of three affiliates of Telefonica,
which together beneficially own 100% of Cointel's common stock. One of these is
Telefonica Holding de Argentina S.A. ("Telefonica Holding"), which directly owns
50% of Cointel's stock. Telefonica Holding has advised us that as of December
31, 2004, the principal shareholder of Telefonica Holding is Telefonica
Internacional (with a 99.96% equity interest).

     The following chart illustrates our corporate structure reflecting the
common stock ownership of the group as of the date of this Annual Report.

              [OBJECT OMITTED ILLUSTRATING OUR CORPORATE STRUCTURE]

     Our only subsidiary is Telinver S.A., an Argentine sociedad anonima in
which we own almost a 100% equity interest and we also have a 50% equity
interest in E-Commerce Latina.

D.   Property, Plant and Equipment.

     Our principal properties consist of a transmission plant, including outside
plant and trunk lines, and exchange equipment. These properties have
historically been and continue to be located throughout the Southern Region,
principally in the province of Buenos Aires, but in connection with the
extension of our service area to the Northern Region, are also located to a
lesser extent in that region of Argentina. Of the net book value of our total
outside plant, property and equipment as of December 31, 2004:


                                       49
<PAGE>


     o    our outside plant, including external plant, transmission and
          switching equipment represented approximately 71.9%;

     o    construction in progress, materials and prepayment to vendors
          represented approximately 71.5%;

     o    land and buildings represented approximately 20.1%; and

     o    furniture, cars and office equipment represented approximately 0.5%.

     A substantial portion of our assets may be considered to be dedicated to
the provision of an essential public service, and, therefore, under Argentine
law, would not be subject to attachment, execution or other legal process.

     The Transfer Contract requires us to register title to all registrable
property that we acquired from ENTel prior to the second anniversary of the
Transfer Date. Although the period originally providing for the transfer of
title to this property lapsed on October 27, 1994, ENTel issued Resolution No.
96/94, extending indefinitely the period for the transfer of title. Under the
terms of this Resolution, ENTel must give 60 days' notice to us prior to
terminating the registration period. Under Resolution No. 96/94, we may claim
the same indemnity for real property not conveyed to us prior to the expiration
date set forth in the original Transfer Contract.

     As of December 31, 2004, this property had a book value of approximately
Ps.600 million (based on net book value at that date), but we had registered
property with a book value of approximately Ps.524 million in our name, in pesos
restated for inflation until February 28, 2003.

     The transfer of title to the assets of ENTel was suspended in December
1991. This was because ENTel disputed its contractual obligation to pay stamp
taxes on the transfer of assets located in the various Argentine provinces. We
subsequently elected to pay these taxes in order to expedite the registration
process. We, however, reserved the right to claim the stamp taxes from ENTel.
The actions for the transfer of title to the assets of ENTel have been resumed.

     We believe that registration of a major portion of the significant assets
acquired from ENTel will be satisfactorily completed, and that the final
resolution of this matter should not have a significant impact on our business,
financial condition or results of operations.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

     In addition to the management discussion below, you should carefully read
our consolidated financial statements and selected financial data included
elsewhere in this Annual Report for additional information about us.

     We prepare our financial statements in accordance with Argentine GAAP.
Argentine GAAP differ from U.S. GAAP. See Item 3: "Key Information--Selected
Financial Data" and Note 20 to our Consolidated Annual Financial Statements,
which describe the principal differences between Argentine GAAP and U.S. GAAP
that apply to us.

Introduction; Presentation of Financial Information

     We are a licensed supplier of wireline public telecommunications, basic
telephone and long-distance services in Argentina. Our most significant
affiliate is our almost wholly owned subsidiary Telinver, which publishes
telephone directories in Argentina.


                                       50
<PAGE>


Factors Affecting Our Consolidated Results of Operations

   Overview

     The Argentine economy had been mired in a severe economic recession that
began in the second half of 1998. Argentina's GDP has fallen every year since
then, culminating in a decrease in 2002. In 2002, the peso had devalued by
237.0% (having reached 290% as of June 25, 2002) and Argentina experienced a
rise in the wholesale price index of 118.0%. In 2003 the peso appreciated by
13.1%, the price index grew 3.7% and the GDP growth was 8.7%. In 2004 the peso
devalued against the U.S. dollar by 1.7%, the price index grew 6.1% and the GDP
growth was 9.0%.

                                                            December 31,
                                                   -----------------------------
                                                   2004         2003       2002
                                                   -----------------------------
Wholesale price index (annual % change)........     7.9         2.0       118.0
Consumer price index (annual % change).........     6.1         3.7        41.0
Gross domestic product (annual % change).......     9.0         8.7       (10.9)
Devaluation/(Appreciation) (annual % change)...     1.7       (13.1)      237.0
----------
Source: INDEC, Banco Nacion Argentina.

     Our results of operation and financial situation have been negatively
impacted by drastic political and economic changes that took place in Argentina
from 2002. Because of the recent political and economic instability in
Argentina, the following discussion may not be indicative of our current or
future results of operations, liquidity or capital resources and may not contain
all of the necessary information to help you understand the information
contained in this discussion with results from previous or future periods. In
particular, it may be difficult to discern trends from our historical financial
statements or in future periods due to the following factors:

     o    the volatility of the exchange rate; and

     o    the reintroduction of inflation accounting and its subsequent
          suspension.

     Accordingly, the following discussion should be read in conjunction with,
and is qualified in its entirety by, the risk factors contained in this Annual
Report. The most important factors affecting our results of operations were the
following:

     o    Pesification of our tariffs

          Prior to 2002, our tariffs were denominated in U.S. dollars and billed
          to the customer in pesos. The Public Emergency Law abolished
          dollar-based tariffs and converted all public service tariffs
          (including our tariffs) into pesos at a one-to-one exchange rate.

     o    Freezing of our tariffs

          Our dollar-denominated tariffs were semiannually adjusted in line with
          the U.S. consumer price index. The Public Emergency Law abolished
          automatic indexation and froze our tariffs and to this date this is
          still in effect.

     o    Devaluation

          The Public Emergency Law eliminated the U.S. dollar - peso parity.
          Soon after, the Argentine government permitted the peso to float
          freely against the U.S. dollar with a resulting decline in its value.
          The devaluation has had a material adverse impact on our results of
          operations as it was coupled with the pesification and freezing of our
          tariffs. In addition, major portions of our indebtedness are in
          U.S. dollars or other foreign currency. During 2002 we had a financial
          loss of Ps.2,471 million as a consequence of the 237% devaluation of
          the peso against the U.S. dollar, while during 2003 we had a financial
          gain of Ps.760 million as a consequence of the 13.1% appreciation of
          the peso against the U.S. dollar. During 2004, we had a financial loss
          of Ps.67 million as a consequence of the 1.7% devaluation of the peso
          against the U.S. dollar.


                                       51
<PAGE>


     o    Inflation and Inflation Accounting

          During 2002, Argentina experienced inflation of 41% and 118% measured
          in terms of the consumer price index and the wholesale price index,
          respectively. As a result of the high inflation, Argentine GAAP
          reintroduced inflation accounting. During 2003, Argentina experienced
          inflation of 3.7% and 2.0% measured in terms of the consumer price
          index and the wholesale price index, respectively; inflation
          accounting was suspended during 2003. During 2004, inflation measured
          in terms of consumer price index was 6.1% and inflation measured in
          terms of the wholesale price index was 7.9%. The most important
          impact of inflation on our results of operations was the incorporation
          into our financial statements of the effect of the exposure of our
          monetary assets and liabilities to inflation and the restatement in
          constant currency of the rest of our income statement accounts. The
          effect on our balance sheet and our shareholders' equity was the
          restatement of our non-monetary net assets in constant pesos.
          See "--Inflation Accounting" below.

     The pesification and freezing of our tariffs, the changes in the peso/U.S.
dollar exchange rate, inflation, inflation accounting and the partial recovery
of the economy are the main explanations for the variations in our results in
2004 in comparison to 2003 and in 2003 in comparison to 2002:

     o    Mandatory tariff renegotiation

          As of the date of issuance of this Annual Report, changes in main
          macroeconomic variables, such as growth of the economy and evolution
          of the exchange and inflation rates, show positive signs. Therefore,
          in the opinion of our management, there is greater certainty in the
          operating and economic environment due to, among other factors, a
          relative stabilization in the peso equivalent amounts of our foreign
          currency denominated debt, due to the financing already obtained and
          the gradual reduction of our short term debt. See Notes 2.3.g and 13
          to the Consolidated Annual Financial Statements.

          Although we have adopted the above mentioned measures to mitigate the
          effects of changes in our business resulting from the issue described
          in the above paragraphs, and although certain indicators of the
          Argentine economy are currently showing favorable signs, the future
          operating conditions and characteristics might not continue to be
          stable because the regulatory framework in force has still not
          established the rules to allow reinstating the balance of the
          variables that constitute our economic and financial equation. See
          Item 4: "Information on the Company--Regulatory Matters--Rates" and
          Item 3: "Key Information--Risk Factors."

     o    Recession in 2002, recovery in process in 2003 and 2004 and
          unemployment

          The recession in 2002, and the unemployment and underemployment,
          coupled with the rise of inflation primarily in 2002 has led to a
          reduction of wages in real terms and a reduction in disposable income
          of all class sectors of the Argentine population that has resulted in
          a decrease in the number of clients that use our services and in a
          reduction on the usage per telephone line during 2002. In 2002, our
          lines in service were reduced by 140,000 due to services
          disconnections. In 2002, we also experienced a decrease in
          long-distance traffic of 30% in comparison to the twelve-month period
          ended December 31, 2001. During 2003, the number of lines in service
          remained constant, and we experienced an increase in the traffic per
          line. During 2004, our lines in service increased by approximately
          159,000 lines. In addition, as of December 31, 2004, we had 188,840
          ADSL lines, representing an increase of approximately 119,000 lines
          from December 31, 2003. Furthermore, we experienced increases of
          approximately 7% in local services, 10% in domestic long distance
          services and 8% in international long distance services.


                                       52
<PAGE>


     In response to the negative events mentioned (in 2002 and partially in
2003), we attempted to manage our cash flow and balance sheet to achieve high
liquidity, while maintaining the quality of the services rendered. To that end
we made the following changes:

     o    Reduced our capital expenditures

          We implemented a plan to reduce our capital expenditures rapidly. To
          that end we only developed those projects that were necessary to
          maintain the quality of our services, generated cash flow in the near
          term and were deemed by us to be high priority.

     o    Reduced our operating costs

          We renegotiated most of our contracts especially those
          foreign-exchange linked contracts and eliminated discretionary costs.
          The goal of the renegotiations was to reduce costs, including, the
          reduction of the exposure of our costs to inflation and devaluation,
          and to adapt our costs to lower demand for our services. We have taken
          certain measures with respect to our suppliers' contracts, including,
          among others, adjustments to service quality, changing the timing of
          delivery and services and their outright cancellation.

     o    Implemented spending controls

          We implemented a series of spending controls and took certain actions
          in order to decrease and to prevent expenses.

     o    Increased our collection rates

          We implemented new plans and collection policies for collecting
          receivables, including disconnection policies tailored to each
          customer segment and tied our sales force's incentives to collections
          rather than sales. As a result, we reduced the amount of our accounts
          receivable and uncollectibles and, consequently, reduced the
          collection risks.

     o    Cash management and debt renegotiation

          We implemented a series of actions to decrease the exchange rate risk
          on our current assets while managing our main accounts payable. In
          addition, we restructured a substantial portion of our debt, improving
          our maturity profile. As part of that strategy in 2003, we offered to
          exchange new notes due in 2007 and cash for our then existing notes
          due in 2004 and to exchange new notes due in 2010 and cash for our
          then existing notes due in 2008. We also exchanged new notes due in
          2011 denominated in U.S. dollars and cash for the Series A and Series
          B notes of Cointel that were due in 2004. Under a simultaneous
          agreement with Telefonica Internacional, we transferred the Cointel
          notes to Telefonica Internacional for a reduction of our short-term
          debt with Telefonica Internacional in an amount equivalent to the
          value of the Cointel notes. Moreover, in May 2004, October 2004 and
          February 2005, we issued negotiable obligations for Ps.163.3 million,
          Ps.200 million and Ps.250 million, respectively, under the Ps.1.5
          billion program described below and during 2004 we obtained loans from
          local banks for an amount of Ps.120 million. See "--Liquidity and
          Capital Resources--Sources of Funds".

     Although we have adopted these measures to mitigate the effects of changes
in our business, and certain indicators of the Argentine economy are currently
showing favorable signs, the future operating conditions and characteristics
might not continue to be stable because the regulatory framework in force has
still not established the rules to allow reinstating the balance of the
variables that constitute our economic and financial equation. See Item 4:
"Information on the Company--Regulatory Matters--Rates".

   Effects on Our Operations and Our Ability to Pay Our Short-Term Debt

     Our short-term strategy has been to adapt our business plans to address the
challenges and risks presented by the Argentine economic crisis. Therefore the
short-term strategy has focused on the renegotiation of tariffs and, since early
2002, we have been taking certain steps to moderate the effects of the imbalance
between changes in revenues and costs caused by the significant increase in the
prices of supplies and the cost of technology-related investments usually
required by the business that we operate, and the situation affecting service
rates described in Note 10.1 to the Consolidated Annual Financial Statements .
Some of these measures include:

     o    capital expenditures controls;

     o    operating costs reduction;


                                       53
<PAGE>


     o    increased collection rates and;

     o    debt renegotiation, cash management and roll-over of short-term debt.

     The relationship between variables determining revenues and expenses is
currently mismatched as a result of the "pesification" and freezing of our
tariffs within the context of a potentially inflationary economy and may
continue to be mismatched depending upon the outcome of our pending tariff
renegotiation with the Argentine government. Our tariff renegotiation proposal
presented to the Argentine government attempts to rebalance the relationship
between variables determining revenues and costs (including investments), i.e.
to achieve the "economic and financial equation" contemplated in the Transfer
Contract (the "economic and financial equation"). See Note 10 to the
Consolidated Annual Financial Statements.

     As of the date of this Annual Report, changes in main macroeconomic
variables, such as growth of the economy and evolution of the exchange and
inflation rates, show positive signs. Therefore, in our management's opinion,
there is greater certainty in the operating and economic environment due to,
among other factors, a relative stabilization in the peso equivalent amounts of
its foreign currency denominated debt, due to the financing already obtained and
the gradual reduction of its short term debt See Notes 2.3.g and 13 to the
Consolidated Annual Financial Statements.

     Although we have adopted the above mentioned measures to mitigate the
effects of changes in our business resulting from the issue described in the
above paragraphs, and certain indicators of the Argentine economy are currently
showing favorable signs, the future operating conditions and characteristics
might not continue to be stable because the regulatory framework in force has
still not established the rules to allow reinstating the balance of the
variables that constitute our economic and financial equation.

     In estimating future revenues, we mainly use our internal business
forecasts and additionally any current information we may have regarding changes
in significant variables affecting such forecasts. We develop our forecasts
based on recent revenue data for existing products and services, planned timing
of new products and services, estimates of tariff increases and other industry
and macroeconomic factors.

     Fixed assets have been valued based on their recoverable value on the basis
of our best estimate of future cash flows of our telecommunication business,
considering current information and future telephone service rates estimates. We
have monitored the evolution of the variables that affect this business and,
from time to time, we have adjusted our forecasts based on the latest trends. As
explained in Note 1 to the Consolidated Annual Financial Statements, the main
macroeconomic variables have shown relative stabilization. In our opinion, based
on such forecasts and on the consideration of operating strategies available for
these scenarios, we believe we will obtain sufficient future cash flows to
recover the balances corresponding to fixed assets. Notwithstanding the
foregoing, as explained in Note 10.1 to the Consolidated Annual Financial
Statements, we will continue to monitor the situation and to assess the effect
of any new future developments.

     Our general financing policy is to cover future fund needs to continue our
investment plan and repay short and long-term debt mainly with funds generated
by operations plus, if it is necessary, with bank loans and/or access to capital
markets and possibly refinancing of indirect parent company loan.

     As of December 31, 2003, our short-term debt amounted to U.S.$637 million.
At that time, we could not be certain that we would be able to meet our current
debt obligations at their maturity date. During 2004, as well as in prior
periods, we managed to gradually reduce our short-term indebtedness through a
combination of partial payments and short and long-term re-financing. As of
December 31, 2004, we have been granted new short-term loans from local
financial institutions in an amount of Ps.123 million. In addition, in May 2004,
October 2004 and February 2005, we issued negotiable obligations for Ps.163.3
million, Ps.200 million and Ps.250 million (see Note 12 to the Consolidated
Annual Financial Statements), respectively, and we expect to arrange for
additional placements in the future. Those placements, in conjunction with
internally-generated cash flows and possible re-financings options and/or other
financing alternatives that, in our opinion, will enable us to settle or
successfully refinance the remaining balance of our short-term indebtedness.


                                       54
<PAGE>


     In turn, in the months of July, August and September, 2004, Telefonica
Internacional has re-financed liabilities in the amount of U.S.$150 million, now
payable, in monthly installments maturing from January through December 2005 and
had advised us that, as of the date of this Annual Report, it was still
assessing other financing alternatives for us including, if necessary, providing
additional financing.

   Effects on Our Results of Operations and Liquidity in Future Periods

     Although there have been macroeconomic improvements in Argentina since the
second half of 2003, including a deceleration of the inflation in wholesale
price index and increases in the value of the peso against the U.S. dollar, we
continue to operate in a very difficult and potentially volatile environment. In
particular, we expect that the combination of the following circumstances may
have an effect on our results of operations in future periods:

     o    the outcome of the renegotiations of our tariffs with the Argentine
          government;

     o    competition;

     o    how the government will regulate our business including tariffs; and

     o    the macroeconomic situation in Argentina, including inflation,
          exchange rate changes and unemployment.

     In particular, our results of operations are very susceptible to changes in
the peso/dollar exchange rate because our primary assets and revenues are
denominated in pesos while substantially all of our liabilities and main capital
expenditures are denominated in foreign currency.

     In addition to these circumstances, changes in Argentina may have other
unforeseen consequences that could negatively impact our results of operations
and financial position. We cannot assure you that other laws that negatively
affect our operations will not be introduced.

   Inflation Accounting

     As a result of the inflationary environment in Argentina (there was an
increase in the applicable index for restatement of financial statements
(wholesale prices) of 118% in the period January through December 31, 2002) and
the conditions created by the Public Emergency Law, the CPCECABA approved on
March 6, 2002, Resolution MD No. 3/2002 applicable to financial statements for
fiscal years or interim periods ending on or after March 31, 2002. Resolution MD
No. 3/2002 required the reinstatement of inflation accounting in financial
statements in accordance with the guidelines contained in Technical Resolution
No. 6 with the changes recently incorporated by Technical Resolution No. 19
issued by the FACPCE and adopted by Resolution CD No. 262/01 of the CPCECABA,
which provides that all recorded amounts be restated by changes in the general
purchasing power through August 31, 1995, as well as those arising between that
date and December 31, 2001 stated in currency as of December 31, 2001.

     On July 16, 2002, the Argentine government issued Decree No. 1,269/02
repealing Decree No. 316/95, instructing the CNV, among other regulatory
matters, to issue the necessary regulations for the delivery to such authorities
of balance sheets or financial statements prepared in constant currency. On July
25, 2002, under Resolution No. 415/02, the CNV reinstated the requirement to
submit financial statements in constant currency. However, on March 25, 2003,
the National Executive Power issued Decree No. 664/03 repealing the provisions
related to the inflation adjustment established by Decree No. 1,269/02 and
ordering the CNV, among others, to issue any applicable regulations to ensure
that no balance sheets or financial statements in constant currency are
accepted. Therefore, on April 8, 2003, Resolution No. 441/03 of the CNV set
forth that from March 1, 2003, the restatement of financial statements in
constant currency should be discontinued.

     On December 2, 2003, under Resolution CD No. 190/03 the CPCECABA
discontinued the application of the restatement for inflation into constant
currency set forth in Technical Resolution No. 6 from October 1, 2003,
considering that the conditions related to the application of the restatement
for inflation continued until September 30, 2003.


                                       55
<PAGE>


     In accordance with the above, our Consolidated Annual Financial Statements
as of December 31, 2004 and 2003 have been prepared recognizing the effects of
variations in the purchasing power of the Argentine peso until February 28, 2003
(restated according to the changes in the Argentine wholesale price index
published by INDEC) in compliance with the regulations issued by the National
Executive Power and the CNV (the accumulated effect between January 1, 2003 and
September 30, 2003 was a 1.4% decrease). The effect on our shareholders' equity
as of December 31, 2004 and on net loss for the fiscal year ended December 31,
2004 of not restating figures until September 30, 2003 is not significant. Our
shareholders' equity as of December 31, 2003 and the net income for the fiscal
year ended December 31, 2003 would have amounted to Ps.2,628 million and Ps.305
million, respectively, if they had been restated as of September 30, 2003.

Critical Accounting Policies

     This operating financial review and prospects is based upon our
Consolidated Annual Financial Statements, which have been prepared in accordance
with accounting principles generally accepted in Argentina, with amendments
approved by the CNV. The preparation of financial statements in accordance with
GAAP requires our management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of financial statements and the reported amounts of
revenues and expenses for each year. Ultimate results could differ from those
estimated if our estimates or assumptions used in those estimates do not
actually occur. See Item 4: "Information on the Company - Business Overview -
Regulatory Matters" and Notes 2.3.g, 2.3.k, 2.5, 10, 13 and 14 to the
Consolidated Annual Financial Statements.

     The financial statements include the effects derived from the economic and
exchange regulations known as of the date of issuance of such financial
statements. All the estimates made by our management have taken into account the
above-mentioned effects. The effects of additional economic regulations that
could be implemented by the Argentine government will be considered in the
financial statements when they become known by our management. See Note 2.5 to
the Consolidated Annual Financial Statements.

     We believe the following represents our critical accounting policies. Our
accounting policies are more fully described in Notes 2, 13 and 14 to our
Consolidated Annual Financial Statements. The most critical accounting policies
adopted in preparing the Consolidated Annual Financial Statements according to
Argentine GAAP relate to:

     o    the depreciable lives for each category of fixed assets.

               We believe that the accounting estimate related to the
               establishment of asset depreciable lives is a "critical
               accounting estimate" because: (1) it requires our management to
               make estimates about technology evolution and competitive uses of
               assets, and (2) the impact of changes in these estimates could be
               material to our financial position, as well as our results of
               operations. Management's estimates about technology and its
               future development require significant judgment because the
               timing and impact of technology advances are difficult to
               predict;

     o    the evaluation of fixed assets and finite life intangibles for
          impairment whenever indicators of impairment exist.

          Argentine GAAP and U.S. GAAP require that the recorded value of assets
          be evaluated for impairment against its recoverable value which for a
          long lived asset is generally defined as its economic use value. Under
          both accounting standards, if an impairment indicator is present, we
          must assess whether the carrying amount of the asset is recoverable by
          estimating the sum of the future cash inflows less the future cash
          outflows expected to be obtained from the asset, undiscounted and
          before interest charges. If the carrying amount is greater than the
          recoverable amount, an impairment charge must be recognized, based on
          the fair value of the asset. We use the expected cash flows method for
          tariff projections for the U.S. GAAP impairment test. We believe that
          the accounting estimate related to asset impairment is a "critical
          accounting estimate" because: (1) it requires our management to make
          estimates about future revenues and costs over the life of the asset;
          and (2) the impact of recognizing an impairment could be material to
          our financial position, as well as our results of operations.
          Management estimates about future revenues require significant
          judgment because actual revenues have fluctuated in the past and may
          continue to do so especially due to the pending tariff renegotiation.


                                       56
<PAGE>


          In estimating future revenues, we mainly use our internal business
          forecasts and any current information we may have regarding changes in
          significant variables affecting such forecasts.

          We develop our forecasts based on recent revenue data for existing
          products and services, planned timing of new products and services,
          the estimated tariff increases and other industry and macroeconomic
          factors.

          Fixed assets have been valued based on their recoverable value on the
          basis of management's best estimate of future cash flows of our
          telecommunications business, considering current information and
          future telephone service rates estimates. We have monitored the
          evolution of the variables that affect our business and, from time to
          time, we have adjusted our forecasts based on the latest trends. As
          explained in Note 1 to the Consolidated Annual Financial Statements,
          the main macroeconomic variables have shown relative stabilization.
          Management believes, based on forecasts of such trends and the
          operating strategies available for such scenarios, that we will obtain
          future cash flows enough to recover the balances corresponding to
          fixed assets as of December 31, 2004. Notwithstanding the foregoing,
          as explained in Note 10.1 to the Consolidated Annual Financial
          Statements, we will continue to monitor the situation forecasted and
          to assess the effects of any new future developments;

     o    the creation of reserves for contingencies assessed as likely by our
          management, based on our estimates and on the opinion of our legal
          counsel (see Note 11 to the Consolidated Annual Financial Statements
          with respect to unreserved contingencies). We record an estimated loss
          from a loss contingency when information available prior to issuance
          of our financial statements indicates that it is probable that an
          asset has been impaired or a liability has been incurred at the date
          of the financial statements and the amount of the loss can be
          reasonably estimated. Accounting contingencies require us to use our
          judgment, and while we believe that our accruals for these matters are
          adequate, if the actual loss from the loss contingency is different
          than the estimated loss, our results of operations will be impacted in
          the period the contingency is resolved;

     o    the creation of allowances, amounting to Ps.159 million set up to
          cover the estimated doubtful accounts based on our estimates regarding
          the terms and conditions of our possible future collection terms;

     o    the recoverability of deferred tax assets;

          Management assesses the recoverability of deferred tax assets on the
          basis of estimates of our future taxable income. The recoverability of
          deferred tax assets ultimately depends on our ability to generate
          sufficient taxable income during the periods in which such temporary
          differences are expected to become deductible or for the recovery of
          cumulative tax loss carry forwards. In making its assessment, our
          management considers the scheduled reversal of deferred tax
          liabilities, projected taxable income and tax planning strategy. This
          assessment is carried out on the basis of a series of internal
          projections which are updated to reflect the expected operating
          trends. In accordance with the applicable accounting standards, we
          recognize a deferred tax asset when future deductibility is more
          likely than not. Therefore, given the uncertainty related to the
          effect of the final outcome of the tariff renegotiation, the statutory
          limitation period applicable to tax loss carry forwards and other
          variables affecting future taxable income, we recorded an allowance
          against our net balance of deferred tax assets, the recoverability of
          which depends on the generation of future taxable income;

     In addition, we have made certain assumptions with respect to debt
obligations, tax credits and accounts receivable with all levels of the
Argentine government (federal, provincial and municipal governments and
governmental agencies) that they will be honored either through collection or by
delivery of alternative instruments, or by setting off against taxes owed or
future taxes payable. Our management reevaluated our holding of Patriotic Bonds,
considering the new developments affecting it and Argentine government's bonds
in comparable situation, then in default, because their recoverability was no
longer guaranteed due to the suspension of our ability to use the Patriotic
Bonds to pay taxes and the inclusion of that bond within the list of eligible
bonds for sovereign debt restructuring. On February 23, 2005, we decided to
accept the Argentine sovereign debt exchange offer mentioned above, by
tendering our Patriotic Bonds for the newly issued U.S. dollar discount bonds.
The new bonds have a nominal face value of approximately U.S.$8 million.


                                       57
<PAGE>


New Accounting Pronouncements under U.S. GAAP

     (a)  Consolidation of Variable Interest Entities

          In December 2003, the FASB issued a revision ("FIN 46R") to
          Interpretation No. 46, "Consolidation of Variable Interest Entities,
          an Interpretation of ARB No. 51" (the "Interpretation"). FIN 46R
          clarifies the application of ARB No. 51 "Consolidated Financial
          Statements", to certain entities in which equity investors do not have
          the characteristics of a controlling financial interest or do not have
          sufficient equity at risk for the entity to finance its activities
          without additional subordinated financial support. FIN 46R requires
          the consolidation of those entities, known as variable interest
          entities ("VIEs"), by the primary beneficiary of the entity. The
          primary beneficiary is the entity, if any, that will absorb a majority
          of the entity's expected losses, receives a majority of the entity's
          residual returns, or both.

          Among other changes, the revisions of FIN 46R (a) clarified some
          requirements of the original FIN 46, which was issued in January 2003,
          (b) eased some implementation problems, and (c) added new scope
          exceptions. FIN 46R deferred the effective date of the Interpretation
          for public companies, to the end of the first reporting period ending
          after March 15, 2004, except that all public companies must at a
          minimum apply the provisions of the Interpretation to entities that
          were previously considered "special-purpose entities" under the FASB
          literature prior to the issuance of FIN 46R by the end of the first
          reporting period ended after December 15, 2003. We do not currently
          have any interests that we believe fall within the scope of FIN 46 or
          FIN 46R.

     (b)  Accounting for Stock-Based Compensation

          In December 2004, the FASB issued Statement of Financial Accounting
          Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payments" or
          SFAS 123R. This statement eliminates the option to apply the intrinsic
          value measurement provisions of Accounting Principles Board ("APB")
          Opinion No. 25, "Accounting for Stock Issued to Employees" to stock
          compensation awards issued to employees. Rather, SFAS 123R requires
          companies to measure the cost of employee services received in
          exchange for an award of equity instruments based on the grant-date
          fair value of the award. That cost will be recognized over the period
          during which an employee is required to provide services in exchange
          for the award which is the requisite service period (usually the
          vesting period). SFAS 123R applies to all awards granted after the
          required effective date and to awards modified, repurchased, or
          cancelled after that date. SFAS 123R will be effective for the
          Company's fiscal year ending June 30, 2006. In the opinion of our
          management, the adoption of this rule will not have an impact on net
          income and shareholder's equity.

     (c)  Exchanges of Nonmonetary Assets

          In December 2004, the FASB issued Statement 153 "Exchanges of
          nonmonetary assets", that replaces the exception from fair value
          measurement in APB Opinion No. 29, "Accounting for Nonmonetary
          Transactions", for nonmonetary exchanges of similar productive assets
          with a general exception from fair value measurement for exchanges of
          nonmonetary assets that do not have commercial substance. A
          nonmonetary exchange has commercial substance if the future cash flows
          of the entity are expected to change significantly as a result of the
          exchange. In the opinion of our management, the adoption of this rule
          does not have an impact on net income and shareholders' equity.

A.   Operating Results.

     For a discussion of the manner in which we charge our customers for the
different services, see Item 4: "Information on the Company--Business Overview".

   Statistical Data

     The following table provides basic information relating to the development
of our domestic telephone system.


                                       58
<PAGE>


<TABLE>
                                                         December 31,       December 31,       December 31,
                                                             2004               2003               2002
                                                         --------------------------------------------------
<S>                                                        <C>                <C>                <C>
Lines installed(1)....................................     4,615,470          4,570,739          4,561,447
Lines in service(1)(2)................................     4,328,513          4,168,825          4,182,277
Lines in service per 100 inhabitants (Southern Region)          25.1               24.4               24.7
Lines in service per employee.........................         494.3              477.2              464.8
Total pending applications(3).........................        35,578             22,200             13,764
Percentage of lines connected to digital exchanges....          100%               100%               100%
Public telephones installed...........................       117,028            107,529            101,552
</TABLE>
----------
(1) Include local lines, public lines and digital trunk access user service.

(2) Exclude presubscribed lines.

(3) Backlog in lines requested by customers for which installation is pending.


Comparison of Results of Operations for the Years Ended December 31, 2004 and
2003.

   General Considerations

     All references made below to 2004 and 2003 are to our fiscal years ended
December 31, 2004 and December 31, 2003. The following discussion is based on
the amounts included in the Consolidated Annual Financial Statements (in pesos
restated for inflation until February 28, 2003). See Item 3: "Key
Information--Selected Financial Data".

   Net Revenues

     Total net revenues were Ps.3,047 million in 2004, a 10.8% increase from
Ps.2,750 million in 2003. The increase in revenues in 2004 was principally due
to an increase in the consumption of our services and an increase in the average
number of lines in service.

     Operating revenues presented by category of services in this Annual Report
are derived from our accounting records, certain reports from our billing
systems and certain estimates made by our management. This breakdown is not
included in our Consolidated Annual Financial Statements.

     The following table shows operating revenues in millions of pesos restated
for inflation until February 28, 2003, by category of services for the fiscal
years ended December 31, 2004 and 2003 net of any intercompany transactions.

<TABLE>
                                                            Fiscal Year Ended
                                            --------------------------------------------------
                                                  December 31,                December 31,
                                                      2004                       2003
                                            --------------------------------------------------
                                            (in millions of pesos restated for inflation until
                                                            February 28, 2003)
                                            --------------------------------------------------
<S>                                           <C>             <C>           <C>          <C>
Basic Telephone Service
   Measured service....................       857             28.1%         807          29.3%
   Monthly basic charges(1)............       719             23.6%         666          24.2%
Special services.......................       459             15.1%         380          13.9%
Installation charges...................        45              1.5%          32           1.2%
Public phones..........................       188              6.2%         180           6.6%
Access charges.........................       388             12.7%         323          11.7%
International long-distance service....       108              3.5%         105           3.8%
Direct Lines...........................        84              2.8%          83           3.0%
Publishing of telephone directories....        73              2.4%          64           2.3%
Other..................................       126              4.1%         110           4.0%
                                            --------------------------------------------------
Total..................................     3,047              100%       2,750           100%
                                            ==================================================
</TABLE>
----------
(1) Includes basic charges and charges for supplemental services.


                                       59
<PAGE>


   Basic Telephone Service

     Measured Service

     Measured service includes revenues that we collect from the traffic of
local and domestic long-distance calls made by our customers to other of our
customers over our network. Measured service also includes revenues that we
collect from local and long-distance calls made by our customers to customers of
other operators that are routed over our network as well as through other
operators' networks. In the case of the latter, we invoice and receive revenues
for the termination of those calls (included in Access charges, revenues), and
pay to the other operators the cost of using their network. See below "--Cost of
Services Provided, Administrative Expenses and Selling Expenses" and "--Fees and
Payments for Services".

     Measured service increased by Ps.50 million or 6.2% to Ps.857 million in
2004 from Ps.807 million in 2003. The increase was mainly due to a 6.6% increase
in the total average number of billable lines and an approximate 2.3% increase
in the average local and domestic long distance consumption by line. These
increases were partially offset by an approximate 30% increase in the commercial
discounts granted in 2004 compared to those granted in 2003.

     Monthly Basic Charges

     Monthly basic charges increased by Ps.53 million or 8% to Ps.719 million in
2004 from Ps.666 million in 2003. The variation was mainly due to a (1) an
increase in the average number of billable lines, which generated approximately
Ps.10 million, (2) an increase of Ps.16 million in revenues from supplementary
services, mainly due to an increase in lines in service of approximately 11%,
and (3) a reduction in the average number of lines out of service as compared to
last year.

   Special Services

     Special services include:

     o    supplementary services (for example, call waiting and call forwarding)
          provided through digital switches and telephones;

     o    special services for companies (for example, digital links between
          customers and digital trunk access);

     o    internet access including ADSL;

     o    other services such as calling cards, toll-free calling, voice
          messaging and collect calling; and

     o    prepaid cards.

     Special services increased by Ps.79 million or 20.8% to Ps.459 million in
2004 from Ps.380 million in 2003. The variation was mainly due to increases of:
(1) Ps.63 million in subscriptions billed due to an 82% rise in the number of
ADSL users; (2) Ps.4 million in prepaid cards; (3) Ps.4 million in services
provided to suppliers of audiotext and toll-free calls; and (4) approximately
Ps.10 million in services provided to other suppliers.

   Installation Charges

     Revenues from installation charges increased by Ps.13 million or 40.6% to
Ps.45 million in 2004 from Ps.32 million in 2003. The variation was due to (1) a
38% increase in line installations, partially offset by a drop in the average
price per installation, (2) a 2% increase in public telephone installations; and
(3) a 286% increase in ADSL installations.


                                       60
<PAGE>


   Public Phones

     Revenues from public phones increased by Ps.8 million or 4.4% to Ps.188
million in 2004 from Ps.180 million in 2003. The variation was due to a 9.4%
increase in the average number of lines for public telephony service,
principally due to an increase in the number of third-party owned phone booths,
partially offset by a decrease in the average traffic per public phone line.

   Access Charges

     We invoice and collect revenues resulting from call termination by other
operators originating calls through our network. We also pay to the other
operators the cost of using their networks for terminating the calls we
originate. See "--Fees and Payments for services".

     Revenues resulting from network access (interconnection) increased by Ps.65
million or 20.1% to Ps.388 million in 2004 from Ps.323 million in 2003. The
variation was due to a 27% increase in interconnection traffic, particularly
with mobile telephone companies, partially offset by the recognition of income
in 2003 related to pricing agreements executed with the operators. See Note
2.3.m) to the Consolidated Annual Financial Statements.

   International Long-Distance Service

     Operating revenues from international long-distance service depend on the
volume of traffic, the rates charged to our customers, charges to the other
Argentine telecommunications providers that place international calls through
our international network, and the agreed rates charged among foreign
telecommunications carriers and correspondents. Payments between carriers are
usually made on a net settlement basis. The contribution of net settlements from
foreign telecommunications carriers from international services amounted to a
loss of approximately Ps.28 million and a loss of Ps.26 million for fiscal years
ended December 31, 2004 and 2003, respectively.

     International long distance service revenues increased by Ps.3 million or
2.9% to Ps.108 million in 2004 from Ps.105 million in 2003. This variation was
mainly due to increases of approximately 7% in customers' outgoing traffic and
approximately 20% in incoming traffic from international carriers. These effects
were partially offset by a 7% and a 6% decrease in the price to customers and
foreign carriers' average price, respectively.

   Direct Lines

     Revenues from direct lines increased by Ps.1 million or 1.2% to Ps.84
million in 2004 from Ps.83 million in 2003. This was mainly due to an increase
in average prices which depend on the transmission capacity and the distance of
lines, offset by a 3.1% decrease in the number of direct digital lines in
service.

   Publishing of Telephone Directories/Yellow Pages

     Revenues from the publishing of telephone directories, which we conduct
through our almost wholly owned subsidiary, Telinver, increased by Ps.9 million
or 14.1% to Ps.73 million in 2004 from Ps.64 million in 2003. This was mainly
due to an increase in advertising sales.

   Other Revenues

     Other revenues increased by Ps.16 million or 14.5% to Ps.126 million in
2004 from Ps.110 million in 2003. This variation was mainly due to an increase
of approximately Ps.10 million in computer assistance services and invoicing and
collections services, and Ps.5 million from other services.

   Cost of Services Provided, Administrative and Selling Expenses

     Cost of services provided, administrative and selling expenses decreased by
1.9% to Ps.2,460 million in 2004 from Ps.2,507 million in 2003.


                                       61
<PAGE>


     The following table shows the breakdown of expenses for the fiscal years
ended December 31, 2004 and 2003, net of intercompany transactions. The amounts
as of December 31, 2003 have been restated in pesos restated for inflation until
February 28, 2003.

<TABLE>
                                                                       Fiscal Year Ended
                                                   -----------------------------------------------------
                                                         December 31,                  December 31,
                                                             2004                          2003
                                                   -----------------------------------------------------
                                                     (in millions of pesos restated for inflation until
                                                                  February 28, 2003)
                                                   -----------------------------------------------------
<S>                                                  <C>           <C>             <C>             <C>
Salaries and social security taxes.............      409           16.6%           359             14.3%
Depreciation and amortization of fixed assets
   and intangible assets(1)....................    1,135           46.1%         1,293             51.6%
Fees and payments for services.................      589           23.9%           508             20.3%
Material consumption and other.................       71            2.9%            58              2.3%
Management fee.................................       68            2.8%            86              3.4%
Allowance for doubtful accounts................      (40)          (1.6%)          (13)            (0.5%)
Sales costs....................................       24            1.0%            26              1.0%
Other..........................................      204            8.3%           190              7.6%
                                                   -----------------------------------------------------
Total..........................................    2,460            100%         2,507              100%
                                                   =====================================================
</TABLE>
----------
(1) Excluding amortization of deferred financing costs.

     Salaries and Social Security Taxes

     The principal components of labor costs were basic wages, overtime and
fringe benefits. We also incurred certain other related costs, including
contributions made to the national pension plan, health plans, family allowances
and additional pension contributions and life insurance premiums for employees
covered by collective bargaining agreements. Most of these contributions are
mandated by law.

     Salaries and social security taxes increased by 13.9% or Ps.50 million to
Ps.409 million in 2004 from Ps.359 million in 2003. The variation was mainly due
to salary increases granted to both unionized and non-unionized employees, both
those included and not included in the collective bargaining agreement, and
additional non-wage allowances granted in 2004 to unionized employees, including
the effect of the agreements between us and the unions, which represent the
employees governed by collective bargaining agreements that took place in
December 2004, slightly offset by a decrease in average headcount to 8,747 in
2004 from 8,867 in 2003.

     The productivity index measured as lines in service per employee increased
by 3.5% to 494.3 in 2004 from 477.2 in 2003.

     Depreciation and Amortization

     Total depreciation and amortization decreased by 12.2% to Ps.1,135 million
in 2004 from Ps.1,293 million in 2003. The decrease was mainly due to assets
that were no longer depreciated in 2004 because of the end of their useful
lives, mainly transmission, switching and radio equipment, partially offset by
the depreciation of investments in fixed assets applied during 2004.

     Fees and Payments for Services

     Fees and payments for services increased by 15.9%, or Ps.81 million, to
Ps.589 million in 2004 from Ps.508 million in 2003. This variation was mainly
due to increases in the following:

     o    fees for technical services and information technology of Ps.7 million
          mainly due to the increase in the hired capacity with services
          suppliers;

     o    commissions on points of sales outsourced of Ps.10 million mainly due
          to an increase in our activity;

     o    temporary personnel expenses of Ps.12 million, mainly due to an
          increase in the number of temporary employees hired and salary
          increases required by law;


                                       62
<PAGE>


     o    charges for interconnection with other operators of Ps.11 million as a
          result of renegotiation of contracts which as of June 2003 were still
          underway, and an increase in consumption during 2004;

     o    security, communication and traveling expenses in an amount of Ps.5
          million;

     o    network maintenance expenses of Ps.16 million, mainly due to an
          increase in charges for repairs as a consequence of cable theft, an
          increase in preventive maintenance and an increase in the prices
          charged by service providers;

     o    advertising expenses in an amount of Ps.28 million due to an increase
          in mass media advertisement and telemarketing campaigns, and an
          increase in the average cost of advertising.

     These increases were partially offset by a reduction:

     o    in property, plant and equipment maintenance and refurbishment
          expenses of Ps.5 million, mainly due to the completion of the
          refurbishment works at the new our headquarters in 2003, and

     o    consulting expenses in an amount of Ps.3 million.

     Material Consumption and Other Expenses

     Costs for material consumption and other expenses increased by 22.4% from
Ps.58 million in 2003 to Ps.71 million in 2004. The variation was mainly due to
an increase in the maintenance work carried out in our external plant resulting
from an increase in the average number of lines in service (approximately 3.83%
for lines in services and 172% for ADSL connections).

     Management Fee

     Management fees decreased by 20.9% to Ps.68 million in 2004 from Ps.86
million in 2003. This was mainly due to a decrease in the applicable rate (from
9% of gross margin to 4%) since May 2003 as described in Note 1 to the
Consolidated Annual Financial Statements, partially offset by an increase of
approximately 5% in the income considered for the calculation of management
fees. See Item 4: "Information on the Company--Business Overview--Management
Fee."

     Allowance for Doubtful Accounts

     The change in the charge of income for the allowance for doubtful accounts
can be summarized as follows:

     o    in 2004 the allowance for doubtful accounts was of Ps.65 million,
          compared to Ps.66 million in 2003, representing a decrease of Ps.1
          million; and

     o    a total recovery because of collection of past-due customers in 2004
          of Ps.105 million that includes Ps.20 million of collections of
          customers dropped out on December 31, 2003, compared to Ps.79 million
          in 2003, representing an increase of Ps.26 million.

     These variations resulted from the improved paying capacity of customers as
a result of the recovery of the macroeconomic environment in Argentina and the
new recoverability plans implemented by us.

     Sales Costs

     Sales costs decreased by 7.7% to Ps.24 million in 2004 from Ps.26 million
in 2003. The main cause for this variation was the charge to expenses for cost
of sale of equipment, telephone accessories and other supplies decreased by Ps.3
million from Ps.17 million in 2003 to Ps.14 million in 2004. This variation was
due to the lower number of ADSL modems sold, since they are provided on a
gratuitous loan contract basis since June 2004.


                                       63
<PAGE>


     Other

     The charge to income of other operating costs increased by 7.4% to Ps.204
million in 2004 from Ps.190 million in 2003. The variation was mainly due to an
increase in: (i) the tax on bank and checking account transactions, municipal
taxes and other taxes in an aggregate amount of Ps.16 million, resulting mainly
from an increase in bank transactions and an increase in revenues, taxable base
of certain rates; and (ii) transportation expenses of Ps.4 million. This
increase was partially offset by a Ps.9 million decrease in lease charges as a
result of the relocation to our new headquarters and the expiration of the
leases of vehicles.

     Other Expenses, Net

     Other expenses, net increased by 93.0% to Ps.137 million in 2004 from Ps.71
million in 2003. The variation was mainly due to an increase in the reserve for
contingencies as result of developments during 2004 of pending actions against
us, partially offset by a reduction in employee termination charges.

   Financial Gains and Losses

     Consolidated gross capitalized interest totaled Ps.8 million in both 2004
and 2003. See Note 2.3.g) to the Consolidated Annual Financial Statements. In
2004, net financial gains and losses amounted to a loss of Ps.462 million,
compared to a gain of Ps.236 million in 2003, a change in such charges of Ps.698
million. This change was mainly due to the Ps.827 million negative exchange
difference resulting from the effect of changes in the exchange rate experienced
in both fiscal years, from a gain of Ps.760 million in 2003 due to the
appreciation of the peso against foreign currencies and to a loss of Ps.67
million in 2004 due to the devaluation of the peso. In addition, interest and
financial charges decreased by Ps.86 million, to a loss of Ps.380 million in
2004 from a loss of Ps.466 million in 2003, mainly due to a decrease in the
average exchange rate in this year, a decrease in financial payables and a
decrease in the interest rate applied to our debt owed Telefonica Internacional,
partially offset by a decrease in the interest rate applied to customers for
payments in arrears.

   Net Income/(Loss)

     Net income/(loss) decreased from a net income of Ps.405 million in 2003 to
a net loss of Ps.8 million in 2004.

Comparison of Results of Operations for the Fiscal Years Ended December 31, 2003
and 2002.

   General Considerations

     All references made below to 2003 and 2002 are to our fiscal years ended
December 31, 2003 and December 31, 2002. The following discussion is based on
the inflation adjusted amounts included in the Consolidated Annual Financial
Statements (in pesos restated for inflation until February 28, 2003). Such
amounts have also been restated in accordance with Argentine GAAP to reflect the
impact of the Reorganization. See Item 3: "Key Information--Selected Financial
Data".

     Moreover, references to "real terms" or "constant terms" are to amounts
restated for inflation as described in "Item 3: Key Information--Selected
Consolidated Data" while references to "current terms" refers to historical
amounts, not restated for inflation.

   Net Revenues

     Total net revenues were Ps.2,750 million in 2003, a 10.1% decrease from
Ps.3,060 million in 2002. Our net revenues were affected by the pesification and
freezing of our tariffs.

     As a consequence of the inflationary conditions in Argentina, the
pesification and lack of indexation of public services rates as described in
Item 3: "Key Information--Risk Factors--Risks Relating to the Recent Economic
Crisis in Argentina--The devaluation of Argentine peso, the pesification of our
tariffs and the macroeconomic conditions prevailing in Argentina, have had, and
may continue to have, a material adverse effect on our results of operations and
financial condition", the decline in revenues in 2003 was principally due to the
drop of approximately 21.6% in prices measured in real terms partially offset by
an increase in the consumption of sundry


                                       64
<PAGE>


services such as measured services, public phones, access charges, a decrease in
discounts to customers and an increase in access charges due to
price-renegotiation with other operators.

     Operating revenues presented by category of services in this Annual Report
are derived from our accounting records, certain reports from our billing
systems and certain estimates made by our management. This breakdown is not
included in our Consolidated Annual Financial Statements.

     The following table shows operating revenues in millions of pesos restated
for inflation until February 28, 2003 by category of services for the years
ended December 31, 2003 and 2002 net of any intercompany transactions.

<TABLE>
                                                        Fiscal Year Ended
                                       --------------------------------------------------
                                              December 31,                 December 31,
                                                  2003                         2002
                                       --------------------------------------------------
                                       (in millions of pesos restated for inflation until
                                                       February 28, 2003)
                                       --------------------------------------------------
<S>                                      <C>           <C>             <C>          <C>
Basic Telephone Service
   Measured service..................    807           29.3%           922          30.2%
   Monthly basic charges(1)..........    666           24.2%           823          26.9%
Special services.....................    381           13.9%           396          12.9%
Installation charges.................     32            1.2%            40           1.3%
Public phones........................    180            6.6%           224           7.3%
Access charges.......................    323           11.7%           294           9.6%
International long-distance service..    105            3.8%            94           3.1%
Direct Lines.........................     83            3.0%            86           2.8%
Publishing of telephone directories..     64            2.3%            65           2.1%
Other................................    109            4.0%           116           3.8%
                                       --------------------------------------------------
Total................................  2,750            100%         3,060           100%
                                       ==================================================
</TABLE>
----------
(1) Includes monthly basic charges and charges for supplemental services.

   Basic Telephone Service

     Measured Service

     Measured service decreased by 12.5% to Ps.807 million in 2003 from Ps.922
million in 2002. The decline in revenues in 2003 was mainly due to a decrease in
rates measured in real terms of approximately 21.6% as a result of applying the
same rate per telephone pulse of Ps.0.0469 in each year in the inflationary
context previously described, partially offset by: (1) an increase of
approximately 1.40% in the total average number of billable lines, (2) a
decrease in commercial discounts in 2003 compared to 2002, (3) a 5.9% increase
in average local and national long-distance consumption per line that we
attribute to the recovering economy and (4) a decrease in the number of
customers who were disconnected mainly for non-payment as compared to 2002.

     Monthly Basic Charges

     Monthly basic charges, which include the monthly basic charges of measured
service lines and prepaid lines, decreased by 19.1% to Ps.666 million in 2003
from Ps.823 million in 2002. In 2003, the decrease was mainly due to the rate
reduction in real terms (net of discounts) of about 21.6% as a result of the
application in 2003 of the same rate applied in 2002.

   Special Services

     Special services decreased by 3.8% to Ps.381 million in 2003 from Ps.396
million in 2002. The change in 2003 was principally attributable to the effect
of inflation of 21.6%, which was almost fully offset by an increase of Ps.7
million in Digital Trunk Access services, an increase of Ps.25 million in
prepaid cards, and an increase of Ps.22 million in internet access and traffic
in current terms, mainly due to higher consumption.


                                       65
<PAGE>


   Installation Charges

     Revenues from installation charges, which consist primarily of fees for
installation of new phone lines, decreased by 20% to Ps.32 million in 2003 from
Ps.40 million in 2002. In 2003, the change was principally due to a decrease in
prices in real terms, partially offset by an increase in line installations.

   Public Phones

     Revenues for public phones decreased by 19.6% to Ps.180 million in 2003
from Ps.224 million in 2002. In 2003, the decrease was mainly due to a drop in
prices in real terms of about 21.6% slightly offset by a 5.2% increase in the
average number of lines of public telephony service and a 5.2% increase in
average consumption by line.

   Access Charges

     Access charges increased by 9.9% to Ps.323 million in 2003 from Ps.294
million in 2002. The decline in 2003 was due to an average increase in
interconnection consumption of approximately 5% and the renegotiation of prices
with other operators, offset by a decrease in charges of approximately 10.6% in
real terms. Revenues for 2003 include Ps.51 million of non-recurring amounts
relating to price renegotiation with other operators. See Note 2.4.m to the
Consolidated Annual Financial Statements.

   International Long-Distance Service

     Operating revenues from international long-distance service depend on the
volume of traffic, the rates charged to our customers, charges to the other
Argentine telecommunications providers that place international calls through
our international network, and the agreed rates charged among foreign
telecommunications carriers and correspondents. Payments between carriers are
usually made on a net settlement basis. The contribution of net settlements from
foreign telecommunications carriers from international services amounted to a
loss of approximately Ps.26 million and Ps.44 million for fiscal years ended
December 31, 2003 and 2002, respectively.

     International long-distance service revenues increased 11.7% to Ps.105
million in 2003 from Ps.94 million in 2002. These revenues include the gross
revenues charged to our customers net of the cost of termination charges since
we account for them on a net settlement basis. In 2003 the increase was mainly
due to: (1) a 37% increase in customer outgoing tariffs in pesos in real terms
mainly because of a decrease in discounts, (2) a 7.8% increase in incoming
traffic liquidated with other international carriers and (3) a decrease in the
outgoing traffic settled with other international carriers of approximately 8%.
All of these effects were partially offset by a 19.1% decrease in customers'
outgoing traffic.

   Direct lines

     Revenues from direct lines were Ps.83 million in 2003, a 3.5% decrease as
compared to Ps.86 million in 2002. In 2003, the decline was due to the 21.6%
price drop in real terms, partially offset by an increase in digital direct
lines of approximately 14%.

   Publishing of Telephone Directories/Yellow Pages

     Publishing of telephone directories, which we conduct through our almost
wholly owned subsidiary Telinver, decreased by 1.5% to Ps.64 million in 2003
from Ps.65 million. Revenues from the publishing of telephone directories
consist primarily of advertising sales. In 2003, the variation was mainly due to
a drop in the publishing prices in real terms, partially offset by an increase
in average amounts paid by advertisers.

   Other Revenues

     Other revenues decreased to Ps.109 million in 2003 from Ps.116 million in
2002, which represents a decrease of 6%. This decline was mainly due to the
price drop in real terms, offset by an 11.0% increase in invoicing services and
collection, network capacity and other services and a 12.0% increase in the sale
of fixed terminals.


                                       66
<PAGE>


   Cost of Services Provided, Administrative and Selling Expenses

     Cost of services provided, administrative and selling expenses decreased by
19.5% to Ps.2,507 million in 2003 from Ps.3,113 million in 2002.

     The following table shows the breakdown of expenses for the years ended
December 31, 2003 and 2002, net of intercompany transactions. The amounts as of
December 31, 2003 and 2002 have been restated in pesos restated for inflation
until February 28, 2003. The amounts in the following table have been
reclassified to facilitate the discussion of the results of operations.

<TABLE>
                                                                        Fiscal Year Ended
                                                   ------------------------------------------------------
                                                         December 31,                    December 31,
                                                             2003                           2002
                                                   ------------------------------------------------------
                                                    (in millions of pesos restated for inflation until
                                                                      February 28, 2003)
                                                   ------------------------------------------------------
<S>                                                  <C>          <C>                 <C>           <C>
Salaries and social security taxes.............      359          14.3%               431           13.8%
Depreciation and amortization(1)...............    1,293          51.6%             1,386           44.5%
Fees and payments for services.................      508          20.3%               566           18.2%
Material consumption and other.................       58           2.3%                85            2.7%
Management fee.................................       86           3.4%               126            4.1%
Allowance for doubtful accounts(3).............      (13)         -0.5%               232            7.5%
Sales costs(2).................................       26           1.0%                32            1.0%
Other..........................................      190           7.6%               255            8.2%
                                                   ------------------------------------------------------
Total(2).......................................    2,507           100%             3,113            100%
                                                   ======================================================
</TABLE>
----------
(1) Excluding amortization of deferred financing costs.

(2) Figures do not include  operating  expenses  amounting to Ps.20 million and
    Ps.22 million in 2003 and 2002.

(3) In 2003, net of Ps.79 million of doubtful account recovery.

     Salaries and Social Security Taxes

     Salaries and social security taxes decreased by 16.7% to Ps.359 million in
2003 from Ps.431 million in 2002. The decrease in 2003 was mainly due to a drop
in salaries in real terms. In current terms, salaries and social security taxes
increased by Ps.27 million, or 8.3%, to Ps.351 million in 2003 from Ps.324
million in 2002. The increase in 2003 in current terms was mainly due to salary
raises and non-remuneratory payments made to the employees for the reasons
mentioned below in "--Taxes--Increases in allowance salaries." These increases
were slightly offset by a decrease in our average headcount, to 8,867 in 2003
from 9,204 in 2002. The productivity index, measured as lines in service per
employee, grew from 464.8 in 2002 to 477.2 in 2003, which represents an increase
of 3% approximately.

     The principal components of labor costs were basic wages, overtime and
fringe benefits. We also incurred certain other related costs, including
contributions made to the national pension plan, health plans, family allowances
and additional pension contributions and life insurance premiums for employees
covered by collective bargaining agreements. Most of these contributions are
mandated by law.

     Depreciation and Amortization

     Total depreciation and amortization (excluding amortization of deferred
financing costs) decreased by 6.7% to Ps.1,293 million in 2003 from Ps.1,386
million in 2002. There was no material change in depreciation and amortization
in real terms because of the effect of the restatement of our assets for
inflation until February 28, 2003. The decrease in 2003 was mainly due to assets
that were no longer depreciated in 2003 including software and licenses, partly
offset by the depreciation generated by investments as a consequence of
increased activity during the second half of 2003.


                                       67
<PAGE>


     Fees and Payments for Services

     Fees and payments for services decreased by 10.2% to Ps.508 million in 2003
from Ps.566 million in 2002. In 2003 the change resulted mainly from the effect
of inflation in current amounts of approximately 20.5%. In current terms there
was an increase of 12.8% to Ps.502 million in 2003 from Ps.445 million in 2002.

     The increase in 2003 in current amount was due to:

     o    increase in fees for technical services and information technology and
          advice and consulting services of Ps.12 million due to the
          renegotiation of prices and the services provided pursuant to service
          agreements;

     o    increase in interconnection charges with other operators of Ps.26
          million as a consequence of the renegotiation of prices and increase
          in consumption, including Ps.15 million relating to non-recurrent
          expenses;

     o    increase in advertising charges of Ps.10 million for mass media
          advertising and telemarketing campaigns;

     o    increase of Ps.13 million in building maintenance costs, principally
          moving and refurbishment expenses, including the transfer of the
          corporate headquarters to our current address; and

     o    increase in security services, communication charges and traveling
          expenses of Ps.4 million.

     These increases were partially offset by a reduction in network maintenance
of Ps.6 million, lower expenses in 2003 due to a decrease in cable theft that
had a material impact in 2002 and a reduction in the cost of maintenance of
hardware and software of Ps.3 million.

     Material Consumption and Other Expenses

     Material consumption and other decreased by Ps.27 million to Ps.58 million
in 2003 from Ps.85 million in 2002. The main cause of the difference in 2003 is
the effect of the adjustment for inflation of 30.9%.

     Management Fee

     There was a decrease in the management fee of 31.7% to Ps.86 million in
2003 from Ps.126 million in 2002. The main cause of this decrease in 2003 is the
effect of the adjustment for inflation on current charges of 33% as compared to
2002 and a decrease in the applicable rate, from 9% to 4% since May 2003
partially offset by a 15.5% increase in income considered for fee calculation of
Ps.1,536 million in 2003 from Ps.1,333 million in 2002. See Item 4: "Information
on the Company--Business Overview--Management Fee."

     Allowance for Doubtful Accounts

     The charge to income for the allowance for doubtful accounts decreased by
105.6% to a net credit of Ps.13 million in 2003 from a Ps.232 million charge in
2002. The charge to income for the allowance for doubtful accounts, which was
Ps.232 million in 2002, reflected in 2003 a recovery of bad debts of Ps.13
million in excess of charges for increases in currently past due balances. This
recovery is due to the fact that in 2002, as a consequence of the crisis
suffered in Argentina, we had taken into account possible collection terms and
conditions resulting from debtors in arrears and the new recoverability policies
implemented by us at the end of 2002. In 2003, past due balances decreased due
to the gradually increasing stability of the economy, and we designed different
plans to manage overdue balances and collections, resulting in a decrease in the
charges for the fiscal year and recovery of reserved customers. The effect in
2003 can be summarized as follows: (1) charges for the allowance for
uncollectible debts amounted to Ps.66 million, representing a 71.6% decrease as
compared to Ps.232 million in 2002; and (2) a total recovery of Ps.79 million
was recorded in 2003 from collection of balances from debtors in arrears
previously reserved.


                                       68
<PAGE>


     Sales Costs

     Sales costs, primarily related to equipment sold, decreased by 18.7% to
Ps.26 million in 2003 from Ps.32 million in 2002. In 2003 the principal cause of
the reduction was the effect of the adjustment for inflation on charges in
current currency. The charge to expenses for cost of sale of equipment,
telephone accessories and other supplies increased by 100% in current terms to
Ps.16 million in 2003 as compared to Ps.8 million in 2002. This change mainly
results from the increase in ADSL modems sold by Ps.3 million and other
inventories of Ps.8 million, not offset by a reduction in sales of mobile
terminals.

     Other

     The charge to income of other operating costs decreased by 25.5% to Ps.190
million in 2003 from Ps.255 million in 2002. The variation in 2003 was mainly
due to the decrease in costs in real terms of approximately 21.6%. Particularly,
there was a reduction in cost of 7.7% in current terms from Ps.194 million in
2002 to Ps.179 million in 2003, mainly due to a Ps.17 million decrease in leases
related to the transfer of the corporate headquarters to our current address,
offset by an increase in taxes of Ps.6 million due to the higher activity and
increased cost of insurance of Ps.1 million.

     Other Expenses, Net

     Other expenses, net decreased by 53.6% to Ps.71 million in 2003 from Ps.153
million in 2002. In 2003 the decrease included Ps.20 million corresponding to
the effect of the adjustment for inflation on current charges. There was a
decrease in current terms of 46.6% to Ps.71 million in 2003 from Ps.133 million
in 2002. The change in current terms principally resulted from a reduction in
charges for contingencies, a decrease in fixed assets retired and in employee
termination charges.

   Financial Gains and Losses

     Consolidated gross capitalized interest totaled Ps.8 million in 2003 and
Ps.8 million in 2002. In 2003 and 2002, net financial gains and losses amounted
to a gain of Ps.236 million and a loss of Ps.3,258 million, respectively,
representing a variation in net financial charges of Ps.3,494 million. The
variation in 2003 was mainly due to the impact of the appreciation of the peso
on the net monetary position in foreign currency, which resulted in an exchange
difference charge that, net of the result from the monetary gain/loss, amounted
to a gain of Ps.760 million in 2003 as compared to a loss of Ps.2,471 million in
2002. In addition, interest charges, financial charges and inflation gain (loss)
on monthly accounts decreased by 32.2%, to a loss of Ps.466 million in 2003 from
a loss of Ps.688 million in 2002, mainly due to a decrease in the average
exchange rate, a decrease in financial payables and a decrease in the interest
rate applied to our debt owed to Telefonica Internacional.

   Income/(Loss) Before Income Tax and Net Income/(Loss) from Spun-off
   Businesses

     Income/(loss) before income tax and before income/(loss) from spun-off
businesses improved Ps.3,867 million to an income of Ps.405 million in 2003 as
compared to a loss of Ps.3,462 million in 2002. In 2003, the variation was
mainly due to the variation of holding and financial income/(loss).

   Net Income/(Loss)

     Net income/(loss) improved from a net loss of Ps.3,411 million in 2002 to a
net income of Ps.405 million in 2003, mainly due to the variation of holding and
financial income/(loss).

Taxes

     Income Tax and Minimum Presumed Income Tax: When there is taxable income,
we calculate the income tax charge by applying the legally stipulated tax rate
of 35% to the taxable income for the year.

     During 1999, Law No. 25,063 provided for the creation of a minimum presumed
income tax, in effect for ten fiscal years. This tax is supplementary to income
tax, because while the latter is levied on the year's taxable income, minimum
presumed income tax is a tax floor, calculated on the potential income from
certain productive assets at a


                                       69
<PAGE>


rate of 1% of the value of those assets as of the end of each fiscal year so
that our tax liability will be the higher of these two taxes. However, should
minimum presumed income tax be higher than income tax in any given fiscal year,
the excess may be considered as a prepayment on account of any excess of income
tax over minimum presumed income tax that may arise in any of the ten subsequent
fiscal years.

     Value-Added Tax: VAT does not have a direct impact on our results of
operations. VAT rates on revenues are 21%, 27%, 31.5% and 44.15%, depending on
the type and tax situation of the customer. The weighted average rate for
current customers is between 24% and 26% of revenues. Since April 10, 1995,
banks have been required to withhold, on behalf of the Argentine government, 8%
of VAT on the bills they collect on our behalf. The VAT actually deposited by us
is the net amount resulting from the amount billed to customers minus the sum of
the amounts withheld by banks and the amounts charged to us by our suppliers in
connection with the purchase of goods and services.

     Law No. 25,360 allows VAT credits generated by capital assets, depreciable
assets or real property acquired after November 1, 2000 to be offset against
other national taxes except social security, or their reimbursement to be
requested, provided that such credits cannot be offset against VAT obligations
arising out of business activities during a year, and on condition that the
property of reference is still part of the taxpayer's assets. Decree No. 493/01
established a 50% reduction of the capital goods VAT rate, and at the same time
revoked certain exemptions (leasing of commercial real property and others). Law
No. 25,717 as of January 10, 2003 suspended the possibility of compensation or
reimbursement for such VAT credits. Law No. 25,988 further extended that
suspension to December 31, 2005.

     Tax on Bank Checking Account Transactions

     Law No. 25,413 (published in the Official Gazette on March 26, 2001), as
amended and regulated, established, with certain exceptions, a tax levied on
debits and credits on bank accounts maintained at financial institutions located
in Argentina and on other transactions that are used as a substitute for the use
of checking bank accounts. The general tax rate is 0.6% for each debit and
credit; however, there are increased rates of 1.2% and reduced rates of 0.075%,
depending upon certain conditions. Local checking bank accounts are subject to
the 0.6% rate.

     However, Decree No. 534/04 established that 34% of the tax levied on
credits and debit on bank accounts may be taken as a tax credit on income tax,
tax on minimum presumed income or value added tax.

     Other Taxes: The tax assessed on us to finance the activities of the
Regulatory Authority is levied on total monthly revenues from us for the
provision of telecommunications services, net of any applicable tax on the
revenues at a rate of 0.5%. Amounts paid to other service providers for access
charges are deductible as soon as such service provider pays the tax.

     Decree No. 764/2000 approved the Rules for Universal Service which provide
a subsidy mechanism for certain customer categories and zones considered of
relatively high-cost for rendering basic telephone service, financed with a
special contribution called "investment contribution commitment" of 1% of the
revenues obtained from rendering the telecommunications services, net of any
applicable tax. The tax is already accruing but the mechanism for receiving the
tax amounts by the government and the assigning of subsidies has not yet been
implemented by the Argentine government.

     A "radioelectric rate" is also paid to the Regulatory Authority every four
months in relation to radioelectric stations. We also pay provincial stamp taxes
and other provincial and municipal taxes.

     Social Security Contributions

     As of July 1, 2001, Decree No. 814/01 increased to 16% the social security
contributions related to the following subsystems: retirement, family allowance,
employment fund and healthcare organization for retirees and pensioners.
Contributions related to the healthcare organizations system were kept at 5%. At
the same time, it provided that a percentage of such contributions, which varies
depending on the geographic area where the payroll-employee work is performed,
be calculated as a VAT credit. The net effect of both measures is zero with
respect to the tariffs effective through December 31, 2001.


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<PAGE>


     Law No. 25,453 raised, from August 1, 2001, the above rate from 16% to 20%
for companies in the commercial and services sector.

     Section 80 of Law No. 25,565 provided for an employer's contribution of 6%
to health plans and a 21% for the employers social security contributions
related to the following subsystems: retirement, family allowance, employment
fund and healthcare for retirees and pensioners. Decree No. 814/01 allowed a
certain percentage of the employer's contribution to be credited against VAT
monthly tax liability.

     Law No. 25,723, effective January 17, 2003, introduced changes to certain
provisions of Decree No. 814/01 that are applicable to January 2003 employer
contributions paid on or after February 1, 2003, reducing by 1.5% the available
value-added tax credit on social security contributions and food vouchers. This
change would not apply in geographical areas where the tax credit was over 7%
before the amendment.

     Following this amendment, value-added tax credits are no longer available
on contributions made in respect of employees in the City of Buenos Aires and
Greater Buenos Aires, while those for employees throughout the rest of the
province of Buenos Aires and most of the provinces have been reduced by 1.5%,
thus increasing net contributions.

     Increases in Allowance Salaries

     After the issuance of Decree No. 1273/02, Decrees No. 2,641/02 and 905/03
established the mandatory payment of a monthly non-remuneratory amount of Ps.200
until December 31, 2003 to all the employees falling within the scope of
collective bargaining agreements. Decree No. 392/03 increased by Ps.224 the
basic salary of employees governed by collective bargaining agreements. The
amount of Ps.224 was added to the basic salary of such employees in 8 monthly
installments of Ps.28 each from July 2003 to February 2004. This Ps.224 increase
qualifies as an integral part of the salary and is therefore subject to payments
to social security and contributions.

     In addition, Decree No. 2005/04 established the mandatory payment of a
monthly non-remuneratory amount of Ps.100 beginning on January 1, 2005 for all
private employees. It also established an additional monthly remuneratory
payment of Ps.60 starting on April 1, 2005 to employees falling under the scope
of collective bargaining agreements that we had been paying instead as Ps.50
per month in a non-remuneratory basis as permitted under Decree No. 1,347/03
until March 31, 2005.

      Turnover Tax

     The rate of the tax on gross revenues depends on the jurisdiction in which
revenue is generated and ranges from 2% to 6%. Operating revenues are shown net
of turnover tax in our financial statements.

     Province of Buenos Aires Turnover Tax

     Law No. 12,727 of the Province of Buenos Aires increased the turnover tax
rate by 30% as of July 1, 2001 for taxpayers who in 2000 paid more than
Ps.200,000 of such tax. In the case of telephone service, this means raising the
rate for the Buenos Aires Province to 4.55% from 3.5%.

     The above rate was passed on by us through the tariffs applied to customers
receiving service in the Province of Buenos Aires, under the tax stability rules
of the regulatory framework.

     The extension of the emergency increase into fiscal year 2002 has been
declared by the Revenue Bureau for the Province of Buenos Aires. Tax legislation
for 2003 has excluded telephone services from the scope of application of this
incremental emergency rate (which would have brought the tax rate up to 4.55%)
but simultaneously increased the tax rate to 4.60%.

   Contingencies

     We are presently facing various proceedings and claims in the areas of
labor, tax, regulatory compliance and other matters, all of which arise in the
ordinary course of business. Such matters are subject to many uncertainties, and
the outcome of individual matters is not predictable with assurance. If
information available prior to the

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<PAGE>


issuance of our financial statements, considered on the basis of the opinion of
our legal counsel, indicates that it is probable that an asset had been impaired
or a liability had been incurred at the date of our financial statements, and
the amount of the loss, or the range of probable loss can be reasonably
estimated, then such loss is accrued and charged to operations. As of December
31, 2004, the amount recorded as reserves for contingencies is Ps.271 million.

     The breakdown of the reserve for contingencies is as follows:

     Labor contingencies:

     The reserves for contingencies related to labor issues amounted to Ps.160
million and Ps.101 million as of December 31, 2004 and 2003, respectively. The
charge for 2004 is mainly due to:

     i) probable losses of Ps.64 million resulted from a significant increase of
claims brought by employees during the fiscal year 2004 and related to salary
differences. These claims and potential claims were considered probable taking
into account certain recent judgments of Appeals courts that were adverse to us;
and

     ii) new claims for alleged rights provided for in the labor law and related
costs which amounted to Ps.44 million, for which we considered it advisable to
reach settlement agreements. We intend to defend our rights vigorously in
whichever instances are necessary, should other similar material claims
eventually arise in the future.

     In addition, in the current fiscal year, the reserve for contingencies
decreased by approximately Ps.49 million, mainly due to payments related to the
above-mentioned matters.

     Charges for fiscal year 2003 were not material.

     Other matters assessed as probable to incur losses in the future, related
to:

     o    Joint and several liability with third parties

     o    Industrial labor accidents

     o    Illnesses

     o    Other severance payments

     Tax contingencies:

     The reserves for contingencies related to tax matters assessed as probable
to lose amounted to Ps.54 million and Ps.36 million as of December 31, 2004 and
2003, respectively. The charge for 2004 includes Ps.12 million corresponding to
new claims that were asserted in 2004 and potential other related claims
considered probable, by certain Municipalities for our joint liability with a
third party.

     These tax issues are related to:

     o    Municipal taxes

     o    Provincial taxes

     Civil, commercial and other contingencies:

     The reserve for contingencies related to civil, commercial, administrative,
regulatory compliance and other matters assessed as probable to lose as of
December 31, 2004 and 2003 amounts to Ps.57 million and Ps.85 million,
respectively. The main decrease of Ps.31 million corresponds to the payment for
a legal action concerning rescission of commercial agreements, for which an
arbitral decision was reached during the current year. This amount was fully
reserved as of December 31, 2003. The other matters relate to:

     o    Damages


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<PAGE>


     o    Regulatory compliance claims

     o    Other claims for rescission of commercial agreements

Results of Operations in Accordance with U.S. GAAP

     The main differences between net income calculated in accordance with U.S.
GAAP and with Argentine GAAP are described in Note 20.b to the Consolidated
Annual Financial Statements. Operating income in accordance with U.S. GAAP
amounted to an income of Ps.1,054 million in 2004, Ps.899 million in 2003 and
Ps.235 million in 2002. Income before income tax and minority interest in
accordance with U.S. GAAP amounted to an income of Ps.587 million in 2004,
Ps.1,078 million in 2003 and a loss of Ps.3,406 million in 2002. After income
tax charges in accordance with U.S. GAAP of a gain of Ps.90 million in 2004, a
loss of Ps.35 million in 2003, and a loss of Ps.48 million in 2002, net income
in accordance with U.S. GAAP amounted to a net income of Ps.677 million in 2004,
Ps.1,043 million in 2003 and a net loss of Ps.3,454 million in 2002.

     In 2004 in comparison with 2003, the net effect of U.S. GAAP adjustments
(not including deferred income tax) decreased to a gain of Ps.600 million in
2004 from a gain of Ps.673 million in 2003. This variation of Ps.73 million was
mainly due to:

     (a) a decrease in the charge of the reversal of inflation adjustment under
U.S. GAAP (the inflation adjustment corresponding to the effect on depreciation
and amortization) amounting to a loss of Ps.63 million;

     (b) a decrease of Ps.13 million in the current year deferred gain
corresponding to installation charges of new lines in prior years, whose
amortization period ended in 2003;

     (c) an increase of Ps.5 million in the amount of interest expense charged
for the full year in 2004 on the adjustment corresponding to the TASA-Cointel
exchange, in comparison to the adjustment including a charge for only 5 months
in 2003 (the issuance of the debt was in August 2003); and

     (d) an increase of Ps.10 million corresponding to the debt refinancing cost
related to the exchange of negotiable obligations described elsewhere in this
document, that are deferred under Argentine GAAP , and expensed under U.S. GAAP
in 2003 and 2002.

     In 2003 in comparison with 2002, the net effect of U.S. GAAP adjustments
(not including deferred income tax) increased to a gain of Ps.673 million from a
gain of Ps.30 million in 2002. This variation of Ps.643 million was mainly due
to:

     (a) the charge of the reversal of the inflation adjustment under U.S. GAAP
(the effect corresponds to the reversal of the charge of the inflation
adjustment in 2002 net of the effect reversed in 2003 corresponding to inflation
included in depreciation and amortization) amounting to a gain of Ps.1,988
million;

     (b) a loss of Ps.1,400 million corresponding to the reversal of the
devaluation effect charged in 2002, since this effect was recognized under U.S.
GAAP in fiscal year 2002;

     (c) the reversal in 2003 under U.S. GAAP of the effect on derivatives
instruments valued at fair value in 2002 amounting to Ps.30 million, since this
valuation criteria was considered under Argentine GAAP at the beginning of the
year 2003 as a result of a change in accounting principles in Argentina;

     (d) the charge to income in 2002 of capitalized exchange difference
amounting to Ps.12 million; and

     (e) a decrease of Ps.9 million in debt refinancing cost, which were
recognized as expense under U.S. GAAP in 2002 and deferred under Argentine GAAP.


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<PAGE>


B. Liquidity and Capital Resources.

Sources of Funds

     We finance our operations pursuant to a policy that combines the use of
internally generated funds with the use of financings obtained from
third-parties and shareholders. Our general financing policy has been to cover
our future cash needs to achieve our investment plan and repay our short and
long-term debt mainly with funds generated by the operations plus, if it is
necessary, with bank loans, access to the capital markets and possibly
refinancing Telefonica Internacional's loans. As of December 31, 2004, our
unconsolidated current assets are lower than our unconsolidated current
liabilities by Ps.1,150 million, and our unconsolidated financial and banking
debt totaled the equivalent of Ps.3,592 million, out of which Ps.2,500 million
are classified as non-current on our balance sheet and relate to agreements that
provide for acceleration after the implementation of certain steps of their
outstanding amounts, if other obligations are in default. Our unconsolidated
current liabilities include approximately U.S.$200 million of debt owed to
Telefonica Internacional. Additionally, in the months of July, August and
September 2004, we refinanced some of our debt to Telefonica Internacional in
the amount of U.S.$150 million, which is now payable in monthly installments
maturing from January through December 2005. Telefonica Internacional has
advised us that, as of the date of issuance of this Annual Report, it was still
assessing and analyzing other financing alternatives for us, including, if
necessary, providing additional financing.

     As part of our cash management and debt refinancing mentioned herein, at
our shareholders' meeting held on December 19, 2003, our shareholders approved
the creation of a global program for the issuance of negotiable obligations with
ordinary guarantees, not convertible into shares, for a maximum outstanding
amount at any time of Ps.1.5 billion or its equivalent in other currencies, in
various series and/or successive tranches, either cumulative or non-cumulative,
under Argentine law. This shareholders' meeting delegated to our Board of
Directors the power to set the remaining issue conditions and to decide to
request or not authorization to quote in the BCBA and/or other foreign exchange
markets.

     We succeeded in issuing three tranches of negotiable obligations under this
program. In May 2004 we issued a one year zero-coupon note in the amount of
Ps.163.3 million with an implicit yield of 8.05%. On October 28, 2004, we issued
the second tranche, consisting of Ps.200 million under two series of negotiable
obligations. That issue comprises Series A notes for an amount of Ps.134.8
million, with a 365-day term at an annual interest rate of 8.25%, and Series B
notes for an amount of Ps.65.1 million, with a 548-day term at a variable
interest rate coupon based on the BADLAR rate (defined as "the average interest
rate paid by private or public banks for deposits over Ps.1 million between 30
and 35 days") plus a spread of 240 basis points with a floor of 7% per annum and
a cap of 15% per annum. Finally, on February 2005, we issued the third tranche
consisting of Ps.250 million in two Series, the Fixed Rate Series for 365 days
for Ps.200 million at an 8% annual interest rate and the Variable Rate Series
for 730 days for Ps.50 million with a variable interest rate coupon based on the
Tasa Encuesta (interest rate reported by the Central Bank for time deposits in
pesos for up to 59 days, for amounts ranging from Ps.100,000 to Ps.499,999) plus
a spread of 250 basis points with a floor of 7% per annum and a cap of 15% per
annum.

     On January 3, 2005, we assumed Telinver's debt in an amount of U.S.$39.2
million, corresponding to Telinver's total indebtedness owed to Telefonica
Internacional, which expressly consented to the assignment by Telinver to us. In
addition, Telefonica Internacional agreed to reduce the interest rate of such
debt from LIBOR plus 9% to LIBOR plus 4.5%. In consideration for our assumption
of the debt, Telinver entered into two loan agreements in pesos with us in the
amounts of Ps.71.5 million and Ps.45 million, respectively.

     Subsequently, at Telinver's Extraordinary Shareholders' Meeting on February
14, 2005, we, as the controlling shareholder of Telinver, approved a capital
increase of Ps.71.5 million. We subscribed this increase through the
capitalization of the first loan agreement mentioned in the previous paragraph.

     The remaining debt of Ps.45 million after the capitalization mentioned
above is to be repaid by Telinver in eight semi-annual installments and at an
11% annual nominal interest rate.

     In light of the amount of our short-term indebtedness that came due in 2002
and was to come due in 2004, during 2002 and 2003 we implemented a strategy to
restructure our indebtedness, minimize the financial risks in meeting our
commitments and avoid defaulting on our debt. Actions taken to date have
included extending the

                                       74
<PAGE>


maturities of our short-term and long-term public debt for long-term debt and
paying a portion of our debt from available cash.

     We exchanged most of our notes due in 2002 for notes due 2006, which were
puttable during 2004 under certain conditions. Such conditions were not met;
thus none of the puts were exercised.

     As part of our strategy, in 2003 we offered to exchange new notes due in
2007 and cash for our then existing notes due in 2004 and to exchange new notes
due in 2010 and cash for our then existing notes due in 2008. We also exchanged
new notes due in 2011 denominated in U.S. dollars and cash for the Series A and
Series B notes of Cointel that were due in 2004. Under a simultaneous agreement
with Telefonica Internacional, we transferred the Cointel notes to Telefonica
Internacional for a reduction of our short-term debt with Telefonica
Internacional in an amount equivalent to the value of the Cointel notes.

     The benefits we obtained as a result of our debt renegotiation strategy
were as follows:

     o    Extension of maturities on our short and long-term debt. Through
          offers to exchange our notes due in 2004 (which had been totally
          repaid in November 2004) and 2008, we extended the maturities of the
          major portion of our short and long-term obligations by three years
          and two years and a half, respectively. The exchange of the 2004 notes
          which was accepted by 73% of the noteholders was the best available
          alternative to refinance such notes. The successful outcome of the
          offer to exchange notes due in 2004 enabled us to avoid an offer to
          purchase the notes due in 2006 (U.S.$71.4 million) as required under
          the original terms and conditions of such notes, and thus effectively
          maintaining the maturity of those notes at July 2006. In addition, we
          obtained acceptance of 66% in the exchange of the existing notes due
          2008.

     o    Exchange of a portion of our short-term intercompany debt for
          long-term debt with bondholders. We had agreed with Telefonica
          Internacional that once the offers to exchange Cointel's notes had
          been carried out, we would transfer to Telefonica Internacional all
          the Series A and Series B notes of Cointel we acquired in exchange for
          a reduction in our short-term debt to Telefonica Internacional. As a
          result of this transaction, we settled an amount equivalent to
          U.S.$174 million, by issuing long-term debt due in 2011 amounting to
          U.S.$148.1 million.

     o    Reduction in outstanding debt. The cash payments we made as part of
          the exchange offer amounted to U.S.$76.1 million and Ps.4.6 million
          and served to reduce our debt by an equivalent amount.

     o    Providing additional time during 2002 and 2003 until Argentina
          achieved economic and political stability. The successful outcome of
          these exchange offers has given us additional time to wait until the
          political and economic situation in Argentina stabilizes, which may
          provide opportunities to Argentine companies, including us, to regain
          access to capital markets and credit lines.

     Cash Provided by Operating Activities. Cash flow from operations was
Ps.1,569 million in the fiscal year ended December 31, 2004. Cash flow from
operating activities increased Ps.80 million from Ps.1,489 million in 2003 to
Ps.1,569 million in 2004 primarily as a result of the recovery of the
macroeconomic situation in Argentina, the improving cash management with regards
to collection policies and trade payables.

     Cash Flows from Continuing Investing Activities. In the fiscal year ended
December 31, 2004, we made capital expenditures of Ps.387 million, compared to
Ps.141 million in 2003 (net of Ps.41 million and Ps.45 million financed by trade
payables, respectively). We decreased substantially our capital expenditures in
2003 and 2002 as compared to historical levels in a response to the economic
crisis in Argentina whereby we focused on conserving cash resources in the face
of liquidity constraints. As a result, since 2002 we have reduced capital
expenses rapidly and invested only in those projects that generate cash flow in
the near term and those that were deemed to be high priority. However, we
increased our capital expenditures during 2004, focusing in expenditures related
to strategic products, such as broadband and valued added services. See
"--Overview".

     Cash Flows from Continuing Financing Activities. In the fiscal year ended
December 31, 2004, cash used in continuing financing activities was Ps.1,270
million, of which Ps.1,471 million represented a decrease in bank and financial
liabilities not being compensated with loans received for Ps.565 million.
Additionally, in 2004 we paid


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<PAGE>


interest in the amount of Ps.362 million. Our outstanding foreign currency
indebtedness was reduced from an equivalent of U.S.$1,543 million at the
beginning of 2004 to U.S.$1,073 million at the end of 2004. In addition, we paid
no dividends in 2004. Moreover, during 2003, we refinanced a portion of our
notes due in 2004 and 2008 for an aggregate principal amount of U.S.$409.7
million with the issuance of new notes due in 2007 and 2010 and we cancelled
part of our short-term debt held by Telefonica Internacional for an amount of
U.S.$174 million with the Cointel notes obtained through the exchange mentioned
above. In 2004 we cancelled U.S.$337 million of debt to Telefonica Internacional
with internal generated funds, new loans with local banks and the issuance of
negotiable obligations.

Investments in Fixed Assets and Capital Expenditures

     The following table contains a breakdown of our capital expenditures. See
also Item 5: "Information on the Company--Regulatory Matters--Rates".

<TABLE>
                                           Fiscal             Fiscal            Fiscal
                                         Year Ended         Year Ended         Year Ended
                                        December 31,       December 31,       December 31,
                                            2004               2003             2002(1)
                                        --------------------------------------------------
                                        (in millions of pesos restated for inflation until
                                                         February 28, 2003)
                                        --------------------------------------------------
<S>                                          <C>                 <C>                  <C>
Land, buildings and equipment........        10                  2                    4
Transmission and switching equipment.       191                 85                   74
External plant.......................        26                  7                   20
Telephone equipment..................        24                 17                   14
Materials............................       109                 21                   10
Other................................        77                 54                   29
                                         -------------------------------------------------
Total(2).............................       437(3)             186                  151
                                         =================================================
</TABLE>
----------
(1)  Exclude Ps.29 million of capitalized exchange difference.

(2)  In the fiscal year ended December 31, 2004 and 2003, includes Ps.41 million
     and Ps.45 million, respectively, financed by trade payables. For the fiscal
     year ended December 31, 2002, includes Ps.15 million financed by bank and
     financial payables.

(3)  Includes Ps.9 million of assets transferred from inventory.


     Our major network capacity expansion and/or enhancement projects in 2004
included:

     o    Basic telephone lines: a project of activation of newly installed
          lines in the southern region focusing on achieving full-capacity
          utilization on plant addition and existing network capacity. During
          fiscal year 2004, we invested Ps.54 million, installing approximately
          159,500 lines.

     o    ADSL: a high-speed local access service that allows customers a
          permanent broadband connection to access internet service providers.
          The aggregate cost of this project during fiscal year 2004 was
          approximately Ps.147 million. As of December 31, 2004, 2003 and 2002,
          we had approximately 188,840, 61,500 and 34,000 lines in service,
          respectively.

     o    Other: our additional capital expenditure projects include software
          development. During 2003, we were involved on ATIS Project, an
          invoicing and collecting software. We invested Ps.70 million in 2004
          in this project.

     We plan to continue those projects that are required to maintain the
quality of our services, generate cash flow in the near term and those that we
deemed to be high priority.

     For the fiscal year ending December 31, 2005, we expect to make capital
expenditures of approximately Ps.392 million. Estimates for capital expenditures
are preliminary and are based upon assumptions regarding commercial, technical
and economic factors such as rates for telecommunications services, exchange
rates, inflation, demand and availability of equipment and buildings. See Item
4: "Information on the Company--Business Strategy".


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<PAGE>


Dividends

     On October 23, 2001, March 12, 2001, July 21, 2000 and November 15, 1999,
the Board of Directors approved the use of the reserve for future dividends to
distribute dividends in the amount of Ps.329 million, on each date (in pesos
restated for inflation until February 28, 2003). No dividends were declared or
distributed during the fiscal years ended December 31, 2004, 2003 and 2002.

     Various shareholders' meetings authorized the setting aside of a reserve
for future dividends, that would be at the Board of Directors' disposal to pay
cash dividends, at the Board's discretion. However, as we have accumulated
losses, our Board of Directors would not currently be able to use the reserve to
pay cash dividends until such accumulated losses are absorbed.

Debt

     Our consolidated short-term indebtedness outstanding as of December 31,
2004 includes:

     o    banks and other financial institutions financing totaling the
          equivalent of U.S.$39 million;

     o    banks and other financial institutions financing totaling Ps.152
          million;

     o    zero coupon Letras del Sector Privado ("LESEP") Notes due May 2005
          totaling Ps.163.3 million (on March 30, 2005 we repurchased Ps.19.4
          million of these Notes);

     o    8.25% Notes due October 2005 totaling Ps.134.8 million; and

     o    U.S.$200 million in intercompany loans owed to Telefonica
          Internacional due through December 2005.

     We have outstanding as of December 31, 2004 the following long-term
indebtedness:

     o    9.875% Notes due 2006 totaling U.S.$71.4 million;

     o    BADLAR plus 2.40% Notes due April 2006 totaling Ps.65.2 million

     o    9.125% Notes due 2008 totaling U.S.$125.6 million;

     o    11.875% Notes due 2007 totaling U.S.$189.7 million;

     o    9.125% Notes due 2010 totaling U.S.$212.5 million;

     o    8.85% Notes due 2011 totaling U.S.$134.6 million;

     o    8.85% Notes due 2011 totaling U.S.$0.03 million, which were converted
          into U.S. dollars in August 2004; and

     o    banks and other financial institutions financing totaling the
          equivalent of U.S.$84 million.

     As of December 31, 2002, our consolidated debt in foreign currency was the
equivalent of U.S.$1,842 million or Ps.6,208 million at the exchange rate as of
that date. As of December 31, 2003 our consolidated debt in foreign currency had
decreased in terms of U.S. dollars to the equivalent of U.S.$1,543 million, and
decreased in terms of pesos to Ps.4,521 million. As of December 31, 2004 our
consolidated debt in foreign currency had decreased in terms of U.S. dollars to
the equivalent of U.S.$1,073 million, and decreased in terms of pesos to
Ps.3,196 million. As of December 31, 2004, unconsolidated current assets were
lower than our unconsolidated current liabilities in Ps.1,150 million. Our
unconsolidated current liabilities include U.S.$200 million (34%) of debt owed
to Telefonica Internacional.

     See Notes 12 and 13 of our Consolidated Annual Financial Statements.



                                       77
<PAGE>


     Our long-term debt from major financial institutions is in the amount of
Ps.236 million as of December 31, 2004. These funds were borrowed under terms
and conditions customary in these kind of transactions, which generally impose
limitations on granting security interests on our assets or on present or future
revenues, other than certain permitted encumbrances or unless certain
predetermined conditions are met.

     Additionally, we use other long-term bank credit lines to finance imports
from different commercial banks.

   Exchange of Notes

     On May 19, 2003 our Board of Directors approved offers to exchange the
outstanding notes issued by us and by Cointel for new notes issued by us plus a
cash payment. Our shareholders' meeting held on June 26, 2003 approved the
issuance of new notes to be issued pursuant to the exchange offers.

     Offer to exchange our notes

     Our notes included in the exchange offer were those issued in November 1994
for a principal amount of U.S.$300 million which were due in November 2004 and
those issued in May 1998 for a principal outstanding amount of U.S.$368.5
million due in May 2008.

     Holders of notes representing 73% of the aggregate amount of the notes
issued in November 1994, and holders of notes representing 66% of the aggregate
amount of the notes issued in May 1998, validly tendered their notes. Therefore,
on August 7, 2003 we issued new notes for an aggregate amount of U.S.$189.7
million due November 2007 at a nominal interest rate of 11.875% per annum and
for an aggregate amount of U.S.$220 million due November 2010 at a nominal
interest rate of 9.125% per annum, respectively.

     Offer to exchange Cointel's notes

     Cointel's 8.85% Series A notes due 2004 for U.S.$225 million and Series B
notes due 2004 for Ps.175 million, both issued in July 1997, were included in
this exchange offer.

     On August 7, 2003, we issued U.S.$148.1 million of 8.85% notes due 2011 in
exchange for Cointel's Series A and Series B notes. In addition, in exchange for
Cointel's Series B notes, we issued Ps.0.1 million of peso-denominated 10.375%
notes due 2011 which on August 1, 2004 were converted into U.S.
dollar-denominated notes and started to accrue interest at an annual rate of
8.85%. They now have an outstanding principal nominal amount of U.S.$0.03
million. Additionally, we transferred Cointel's notes acquired in this exchange
offer to Telefonica Internacional, thus reducing our short-term financial debt
with Telefonica Internacional in the amount of U.S.$174 million.

     Related Party Indebtedness

     As of December 31, 2004, we and our subsidiary, Telinver, owed
approximately Ps.595 million (approximately U.S.$200 million) to Telefonica
Internacional, which matures through December 2005 and accrues interest at one
month LIBOR plus 5% per annum for us and 9% per annum for Telinver. These
agreements under which such debt was issued established the usual commitments
for these kind of transactions, including (1) requiring such debt to be pari
passu with all of our other debt, (2) establishing that the creditor may
accelerate the term of our payable ("events of anticipate maturity") debt if
there are changes in our equity, economic and financial situation that due to
their adverse nature may affect our capacity to comply with the obligations
assumed in the agreements or if there are restrictions that may limit our
capacity to repay our debts, (3) giving this creditor the benefit of any
financial covenant we have with any other creditor, (4) allowing the creditor to
make assignments, and (5) including acceleration clauses that would be triggered
in the event of certain court or out of court proceedings being initiated in
connection with claims exceeding a certain percentage of our shareholders'
equity or one of our significant subsidiaries. We have obtained a waiver in
respect of proceedings of this nature that were pending against us as of March
31, 2005 subject to the condition that no other debt is accelerated on similar
grounds.

     On January 3, 2005, we assumed all of Telinver's debt in an amount of
U.S.$39.2 million, corresponding to Telinver's total indebtedness to Telefonica
Internacional, which expressly consented to the assignment by Telinver to us. In
addition, Telefonica Internacional agreed to reduce the interest rate of that
debt from LIBOR plus 9%


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<PAGE>


to LIBOR plus 4.5%. In consideration for our assumption of the debt, Telinver
entered into two loan agreements in pesos with us in the amounts of Ps.71.5
million and Ps.45 million, respectively. Subsequently, at Telinver's
Extraordinary Shareholders' Meeting on February 14, 2005, we, as the controlling
shareholder of Telinver, approved a capital stock increase equivalent to Ps.71.5
million. These shares were given to us as payment to the first loan agreement
mentioned in the previous paragraph. The remaining debt of Ps.45 million after
the capitalization mentioned above is to be repaid by Telinver in eight
semi-annual installments and at an 11% annual nominal interest rate. See Item 5:
"Operating and Financial Review and Prospects--Liquidity and Capital Resources".

     In the months of July, August and September of 2004, Telefonica
Internacional agreed to the refinancing of our debt owed to them in the amount
of U.S.$150 million, payable in monthly installments maturing from January 2005
through December 2005. In addition, Telefonica Internacional advised us that, it
was assessing other financing alternatives for us including, if necessary,
providing additional financing assistance.

     Telefonica Internacional has advised us that until March 20, 2005 or in the
case of debt maturing after that date, until the due date of such debt: (1) the
effects of the Public Emergency Law implemented in Argentina by Decree No.
1,570/01, Law No. 25,561, as supplemented and amended, in force shall not be
considered by the creditor as an event of anticipated maturity; and (2)
Telefonica Internacional shall not consider that, as of such date, loans have
become immediately due and payable in accordance with the agreements.

Exposure to Foreign Exchange Rates

     Our financial and bank payables in foreign currency as of December 31, 2004
amounted to approximately U.S.$980 million (approximately Ps.2,920 million),19
million euro (approximately Ps.78 million), and 6,807 billion Japanese yen
(approximately Ps.198 million). As of December 31, 2004, we also had the
equivalent of approximately Ps.156 million of trade and other payables
denominated in foreign currencies. Approximately Ps.358 million of our
receivables and investments are denominated in foreign currency.

   Hedging Policy

     An essential element of our exchange rate management policy is to minimize
the negative financial results due to variations in the exchange rates, while
still being able to maintain open currency positions (under strict risk
supervision) in the market. The primary objectives of our policy are: (i) to
secure our ability to make payments on our debt denominated in foreign currency
by hedging through derivative instruments, (ii) to cover our indebtedness in
foreign currency as disclosed in the balance sheet as it becomes due; and (iii)
to modify the composition of our financial indebtedness, or to refinance it by
issuing peso-denominated debt or entering into agreements to peso denominated
debts.

     During the fiscal years 2002 and 2003, we had been unable to hedge the
foreign exchange risk related to our foreign currency denominated debt due to
the lack of depth of the peso/dollar derivative market, the shortage of
appropriate counterparts or the high costs of such transactions. As of December
31, 2004 our U.S. dollar denominated debt was approximately U.S.$980 million. In
2003, the appreciation of the peso against the U.S. dollar resulted in a gain
equivalent to Ps.760 million. However, in 2004, the peso devalued against the
U.S. dollar resulting in a loss of Ps.67 million. As of December 31, 2004, we
had indebtedness in foreign currency in an amount equivalent to Ps.3,079
million and for the purpose of partially hedging our indebtedness in foreign
currency, we have deposits in U.S. dollars in the amount of U.S.$79 million.

     The main aspects of the hedging policy are:

     o    Identifying risks and applying our risk management objectives and
          strategies

     Since the Convertibility Law pegged the peso at a value of Ps.1.00 per
U.S.$1.00, exchange rates risks were mainly related to changes in the value of
the U.S. dollar in comparison with currencies other than the Argentine peso. In
January 2002, the Argentine government devalued the Argentine peso and currently
the peso/U.S. dollar exchange rate is determined by a free market with certain
controls.

     Until 2002, we did not hedge our U.S. dollar-denominated debt because under
the Convertibility Law the peso/U.S. dollar exchange rate was essentially fixed
at parity and we had our revenues stream linked to the U.S.


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<PAGE>


dollar because our rates were denominated in U.S. dollars and converted into
pesos at the end of each month. However, in some cases we hedged U.S. dollars
against yen and euros, as discussed below. Before the Convertibility Law,
according to the Transfer Contract, our rates were to be restated for inflation
in Argentina and in certain extraordinary circumstances, by a specific formula
which considered both the effect of the inflation and the variation in exchange
rates. Since the end of the Convertibility Law, almost all of our revenues are
stated in pesos but almost all of our debt was denominated in foreign currency
so we had and still have a mismatch between our revenues and our financial debt
in foreign currency.

     As a consequence of the above-mentioned, we have established a policy of
partially hedging our exposure to exchange rate risk because of the fluctuation
of the value of the peso against foreign currencies and its effects on our
ability to pay in the short term on our debt obligations denominated in foreign
currencies. We do not have, however, financial instruments for trading purposes.
Moreover, our policy does not include holding derivative financial instruments
to hedge our exposure to interest rate risk.

     o    Matching the main features (such as, notional value, maturity date and
          interest payment dates) of the underlying and the derivative.

     Another feature of our derivative strategy is the matching of the main
features (such as notional value, maturity date, and interest payment dates) of
the underlying security with its respective derivative. This matching is
especially sought for the foreign currency debt and derivatives hedging payments
in foreign currency. Even when a perfect hedge of the flows is sought, the lack
of depth of Argentina's derivative markets has led historically to imbalances
between the characteristics of the hedges and the underlying debts, though they
have not been significant with respect to the purpose of the hedge. We intend to
reduce these imbalances so long as this does not involve disproportionate
transaction costs. We achieve this by documenting the relationship between the
derivative and the hedged items. This process includes linking all derivatives
designated as hedges to specific assets and liabilities or to specific firm
commitments denominated in foreign currency.

     o    Valuating the derivatives using resources of the Telefonica Group

     We use internal valuations for derivatives instruments, which are verified
with independents parties' valuations (e.g. bank valuations).

     As part of our hedging policy, we held the following derivative
financial instruments:

     Swaps

     In September 1999, we entered into a foreign currency swap agreement with
Citibank N.A. to hedge the risk of fluctuations in the yen/U.S. dollar exchange
rate in connection with the loan granted by the Export-Import Bank of Japan
(currently the Japanese Bank of International Cooperation), which had a balance
of 6.7 billion Japanese yen as of December 31, 2004. The loan matures in
February 2011 and accrues interest at a rate of 2.3% per annum. The swap
agreement provides for a fixed exchange rate of 104.25 yen per U.S. dollar. The
interest rate paid to Citibank N.A. under the swap agreement during the term of
the loan is 7.98% per annum. As of December 31, 2004, the amount of the related
liability, taking into account the effect of the swap and the additional
interest accrued, amounts to U.S.$71 million.

     Additionally, in December 1999, we entered into a second foreign currency
swap agreement with Citibank N.A. to hedge the risk of fluctuations in the
euro/U.S. dollar exchange rate in connection with our net position of assets and
liabilities in euros, including the balance of the loan granted by the Instituto
Centrale Per il Credito a Medio Termine (the "Mediocredito Centrale"). The
Mediocredito Centrale loan matures in November 2014 and accrues interest at a
rate of 1.75% per annum. The swap agreement is in effect through November 2007
and provides for a fixed exchange rate of 0.998 euros per U.S. dollar. The
interest rate paid to Citibank N.A. during the term of the loan is 2.61% per
annum.

     The swap agreements with Citibank establish, among other typical provisions
for this type of transaction, the acceleration of payment upon the failure to
pay financial debts for amounts in excess of 2% of our shareholders' equity.


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<PAGE>


     Forward contracts

     During 2004 we used currency forward contracts to hedge against the risks
of fluctuation in the peso/U.S. dollar exchange rate. We entered into currency
forward contracts known as non-deliverable forwards ("NDF"), pursuant to which
monetary positions are offset. These instruments were used to cover firm
short-term payment commitments denominated in U.S. dollars. As of December 31,
2004, we have no NDFs outstanding.

     Call Spreads

     In September 2004, we entered into an agreement with Telefonica
Internacional for two new strategies of exchange rate options, known as "Call
Spreads", maturing in January and February 2005. These Call Spreads consist in
an acquisition of a call option and a sale of a call option with different
strike prices for a specific amount of currency.

     The strategy with the maturity date on January 2005 had a notional value of
U.S.$12 million and consisted in the acquisition of a call option at a strike
price of Ps.3.075 per U.S. dollar and the sale of a call option at a price of
Ps.3.50 per U.S. dollar. The strategy with the maturity date on February 2005
had a notional value of U.S.$12 million and consisted in the acquisition of a
call option at a strike price of Ps.3.09 per U.S. dollar and the sale of a call
option at a price of Ps.3.50 per U.S. dollar. In both cases, the options could
have been exercised only at their maturity. The goal of this strategy was to
hedge the exchange rate risk related to our commitments to pay principal on our
debt to Telefonica Internacional, denominated in U.S. dollars. We paid, as
premium, U.S.$0.4 million for each strategy. Upon maturity, the options were not
exercised because the exchange rates prevailing at those times were outside the
strike prices of the options.

      See Item 11: "Quantitative and Qualitative Disclosures About Market Risk"
for important information concerning exposure to foreign currency exchange rate
changes.

Credit Ratings

     On January 21, 2002, the Standard & Poor's credit rating agency downgraded
our foreign currency credit rating, and many other Argentine companies' ratings,
to "SD" or "selective default". This revision reflected Standard and Poor's view
that these companies, including us, will find it "impossible" to meet some of
their foreign currency obligations in a timely manner, due to sovereign-induced
constraints prevailing at that time. On May 30, 2002, Moody's downgraded our
long-term foreign currency debt ratings to "Ca" after the announcement of our
bond exchange.

     Although both Standard & Poor's and Fitch have lowered our foreign currency
credit ratings based on the increased refinancing risk after the devaluation of
the Argentine peso, the government-mandated pesification and freezing of our
tariffs, and the harsh macroeconomic conditions in Argentina, by the end of 2003
and the beginning of 2004, both agencies increased our ratings as a consequence
of our new maturity profile after the consummation of the exchange offers. In
addition, Standard and Poor's increased our rating once again in March 2005
based both on the strengthening of economic conditions in Argentina in 2003 and
2004, and on improvements in our operating and financial performance.

     Our notes are currently rated "B-" and "raBBB-" under Standard & Poor's
global and national scales, respectively. The notes are also currently rated
"BBB+" and "B-" by Fitch under its national and international scales,
respectively.

     Our notes issued during 2004 under our local program are rated "A2" for
short term debt by Fitch under its national scale and "BBB+" for the long term
debt. Both ratings reflect Fitch's view that we have an adequate capacity to
meet our obligations in a timely manner in comparison with other issuers of
Argentina.

C.   Research and Development, Patents and Licenses.

     We do not incur in any material research and development expenses. We hold
no material patents and do not license to others any of our intellectual
property. In connection with our provision of telecommunication services,

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<PAGE>


we plan to develop our infrastructure based upon present and projected future
demand of such services. We acquire the necessary technology, including
equipment, from third parties.

D.   Trend Information.

     See Item 5: "Operating and Financial Review and Prospects--Factors
Affecting Our Consolidated Results of Operations--Effects on Our Results of
Operations and Liquidity in Future Periods".

E.   Off-Balance Sheet Arrangements.

     In connection with the PCS licenses, TCP S.A. ("TCP") jointly with Telecom
Personal (with respect to the Metropolitan Area) and Miniphone (which
successors are TCP and Telecom Personal), were required to issue promissory
notes ("pagares") in favor of the Argentine government to evidence their
respective promises to pay the deferred purchase prices of their PCS licenses
and to perform their respective obligations under such licenses. In that
context, we provided, either to the Argentine government directly or to banks
as support for guarantees by such banks of certain of those pagares, guarantees
of payment of the outstanding balance of the pagares with maturity in June 2001
and performance guarantees in the amounts of approximately U.S.$22.5 million,
as well as approximately Ps.45 million guaranteed jointly with Telecom.

     TCP has informed us the duties arising from its PCS licenses have been
complied with. Although the CNC has completed the technical audit related to the
performance guarantees mentioned above, as of the date of this Annual Report,
TCP S.A. has not started the process to free itself from such performance
guarantees, thus we are still subject to them. The outstanding performance
guarantees denominated in foreign currency have been converted into pesos.

     We also signed an agreement with Intelsat U.K., a company registered under
the laws of England, by which the common shares we held in Intelsat Ltd. were
pledged as collateral for the payment of the obligations arising in relation to
segment capacity utilized. Because of the sale of all of Intelsat Ltd.'s shares
to Zeus Holding Limited, we changed the collateral under the pledge agreement
for a cash collateral in order to maintain the guarantee of payments resulting
from segment capacity utilized. In the opinion of our management the sale of
Intelsat Ltd.'s shares did not have a significant effect on our operations.
See Item 4: "Information on the Company -- Other Investments".

F.   Tabular Disclosure of Contractual Obligations.

     The following table represents a summary of our contractual obligations
and commercial commitments, which include those of our subsidiary:

<TABLE>
                                                    Payments due by period in millions of Ps.
                                               ---------------------------------------------------
                                                           less                             more
                                                          than 1       1-3        3-5      than 5
                                                Total      year       years      years      years
                                               ---------------------------------------------------
<S>                                             <C>        <C>        <C>         <C>       <C>
Contractual Obligations
Bank and Financial debt......................   4,659      1,398      1,351       662       1,248
Other long-term obligations(1)...............     712        657         41        16          (2)
Total contractual cash obligations...........   5,371      2,055      1,392       678       1,246

Commercial Commitments
Other commercial commitments(2)..............     151         69         71         8           3
                                               ---------------------------------------------------
Total commercial commitments.................     151         69         71        68           3
</TABLE>
---------
(1)  Includes $15 million in foreign currency liabilities as of December 31,
     2004.

(2)  Includes leases of satellites, vehicles, real property, the
     operation and maintainance of submarine cables and the baseline of IBM
     contract. See Note 9.1 to the Consolidated Annual Financial Statements.


     Bank and financial debt include principal and interest. A sizable portion
of these debts bears interest at variable rates. Consequently, we estimate
interest payable based on interest rates in effect at December 31, 2004. Actual


                                       82
<PAGE>

interest payments may significantly differ from these estimates on account of
interest rate fluctuations. In addition, approximately 86% of our obligations
are foreign-currency debt, and therefore principal and interest payments are
estimates based on exchange rates in effect at December 31, 2004. Actual foreign
currency debt payments may significantly differ from these estimates due to
exchange rate fluctuations.

   IBM Contract

     On March 27, 2000, our Board of Directors approved the outsourcing through
IBM of the operation and maintenance of the infrastructure of some of our
information systems. Telefonica Argentina, Telinver, TCP S.A. and TDA S.A.
executed a contract with IBM whereby we outsourced the operation and maintenance
of the information technology infrastructure for a term of six and a half years,
and we transferred to IBM the assets used to render the services outsourced
under the contract at a stated price.

     1. Service Price: Over the duration of the contract, we committed to pay
IBM a monthly charge as consideration for the base line services to be rendered
under the contract, and other charges for the use of additional resources. The
payment terms include decreasing monthly installments.

     2. Transfer of Equipment: The agreement stipulated that at the inception of
the contract, we would transfer to IBM at a fixed price, the assets that were
designated to provide the services at that date. Also, the agreement stipulated
that at contract expiration IBM shall transfer to us at a fixed price, the
assets that were designated to provide the services at that date.

     3. Renewal of the Agreement: Fifteen months before the expiration of the
agreement, the parties shall meet to discuss a possible extension. The parties
shall conduct negotiations for three months. If the parties do not agree to an
extension prior to twelve months before the expiration of the agreement, the
agreement shall be terminated on the termination date. To date, the negotiations
have not begun.

     The following is a summary of the primary contractual cash flows related to
the our agreement with IBM:

                                                      (in millions of U.S.
                                                            dollars)
                                                       -------------------
Assets acquired by IBM...........................             24.5
Baseline monthly installments
  (service fee total payments)...................           (218.6)
Repurchase of assets.............................            (14.9)
Refund (only if contract is renewed) ............              3.3

     As a result of the devaluation of the peso, we renegotiated the contract
originally denominated in dollars. On the basis of a supplementary contract
agreed upon by the parties, we undertook, among other obligations, to pay IBM
for the services rendered pursuant to the contract from January 2004 to December
2006 the amount of Ps.44.8 million and U.S.$35.8 million in monthly
installments. In addition, the referred agreement contemplates the possibility
of renegotiating the amount in pesos semiannually upon request by the
parties.


ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A.   Directors and Senior Management.

     Our management consists of a Board of Directors. Our bylaws (Estatutos
Sociales) provide for a Board of Directors consisting of no fewer than three
and no more than eight directors and an alternate director for each sitting
director. Our shareholders have currently fixed the number of directors and the
number of alternate directors at eight. Each alternate director may attend
meetings of the Board of Directors and vote in the absence of the director for
whom he or she is acting. Directors and alternate directors are elected at the
annual ordinary meeting of shareholders to serve one-year renewable terms.

     The Class A shareholders have the right to appoint up to six directors and
six alternate directors. The Class B shareholders have the right to appoint one
director and one alternate director unless there are six or more directors,


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<PAGE>


in which our Class B Shareholders shall be entitled to appoint two directors and
two alternate directors. The Board of Directors appoints a Secretary to the
Board of Directors.

     Three of the members of our Board of Directors are independent as defined
in Section 301 of the Sarbanes Oxley Act and Resolution No. 368 of the CNV. All
three are also members of the Audit Committee. The rest of the members of the
Board of Directors are not independent. Under such requirements a director is
not independent if any of the following apply:

     o    the director is also a director of the controlling shareholder or any
          other entity controlled by or related to the controlling shareholder
          of the issuer;

     o    the director is also a director of another entity, any of whose
          shareholders is also a shareholder of the issuer or its controlling
          entity or any other entity controlled by or related to the latter;

     o    the director provides, or belongs to a professional corporation or
          association which provides, professional services to or receives any
          form of remuneration or fees from the issuer or its controlling
          entity or any other entity controlled by or related to the latter;
          and

     o    the director provides, or belongs to a professional corporation or
          association which provides professional services to or receives any
          form of remuneration or fees from another entity, any of whose
          shareholders is also a shareholder or the issuer or its controlling
          entity or any other entity controlled by or related to the latter.

     The following is a list of the members of the Board of Directors and the
Secretary to the Board of Directors as of the date of this Annual Report:

<TABLE>
                                                                            Date of
                      Name                             Position           Appointment        Appointing Affiliate
-------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                        <C>           <C>
Mario Eduardo Vazquez                             Chairman                   2003          Telefonica Internacional
Jose Maria Alvarez Pallete                        Vice Chairman              2003          Telefonica Internacional
Juan Ignacio Lopez Basavilbaso                    Director                   2004          Telefonica Internacional
Guillermo Pablo Ansaldo                           Director                   2004          Telefonica Internacional
Jose Fernando de Almansa Moreno Barreda           Director                   2003          Telefonica Internacional
Alfredo Jorge MacLaughlin                         Director                   2002                 Independent
Guillermo Harteneck                               Director                   2001                 Independent
Luis Ramon Freixas Pinto                          Director                   2000                 Independent
Jaime Urquijo Chacon                              Alternate Director         2003          Telefonica Internacional
Carlos Fernandez Prida Mendez Nunez               Alternate Director         2003          Telefonica Internacional
Gaspar Arino Ortiz                                Alternate Director         1997          Telefonica Internacional
Javier Benjumea Llorente                          Alternate Director         1998          Telefonica Internacional
Juan Carlos Ros Brugueras                         Alternate Director         2004          Telefonica Internacional
Javier Delgado Martinez                           Alternate Director         2004          Telefonica Internacional
Manuel Echanove Pasquin(1)                        Alternate Director         2004          --
Juan Jorge Waehner(1)                             Alternate Director         2004          --
Manuel Alfredo Alvarez Tronge                     Secretary                  2002               Not applicable
</TABLE>

(1)  These directors were appointed by the Supervisory Committee.

     Set forth below are brief biographical descriptions of our directors.

     Mario Eduardo Vazquez, 69, is the President of Telefonica de Argentina
S.A. since June 6, 2003. He was born in Argentina, graduated as an accountant
and holds a degree in Economics. For 33 years, he practiced at Pistrelli, Diaz
y Asociados, the member firm of Arthur Andersen & Co. in Argentina, where he
was a associate partner for 23 years and in charge of Argentine operations for
over 20 years. He had an active participation in the reform of the Argentine
public administration, the deregulation of the economy and the privatisation of
YPF S.A. and the telephone, gas and water public utilities.



                                      84
<PAGE>


     Jose Maria Alvarez-Pallette Lopez, 40, is a member of our Board of
Directors and a Spanish citizen. He holds a degree in business administration
from the Universidad Complutense of Madrid; he also studied Business
Administration at the Universite Libre of Belgium. He joined Telefonica in
February 1999 as CFO of Telefonica Internacional. In September 1999, he became
Corporate Chief Financial Officer at Telefonica, S.A. Since July 2002, he has
been the Chief Executive Officer of Telefonica Internacional.

     Juan Ignacio Lopez Basavilbaso, 50, is our CFO and a member of our Board
of Directors and an Argentine citizen. He is an engineer and holds a business
postgraduate degree from the University of California at Berkeley. He joined
the Finance Department of Telefonica de Argentina in 1990, and was responsible
for financial planning and capital markets until the end of 1994. He later
served International Businesses Director of Telintar and acted as adviser to
the general manager of Multicanal. He was appointed Finance Director of
Telefonica de Argentina in April 1998, and since 1999 he has been our Chief
Financial Officer. Before joining us, he worked in the corporate banking
department of Citibank in Buenos Aires.

     Guillermo Pablo Ansaldo, 43, was appointed a member of our board of
directors in 2004. Until December 2004 he served as our CEO since 2000. He is
an Argentine citizen and obtained a degree in industrial engineering from
Universidad de Buenos Aires in 1986, and an MBA from Dartmouth College (Tuck
School) in 1989. Between 1989 and 2000, he was employed at McKinsey & Company
in Spain from 1989 to 1993 and in Argentina from 1993 to 2000. He became
partner in 1995.

     Jose Fernando De Almansa Moreno-Barreda, 56, is a member of our Board of
Directors and a Spanish citizen. He received a degree in law from the
University of Deusto (Bilbao, Spain). He joined the Spanish Diplomatic Corps,
and served from 1974 to 1992, as Embassy Secretary and Counsellor to the
Spanish Permanent Representation to NATO, in Brussels, Cultural Counsellor of
the Spanish Representation to Mexico, Minister-Counselor of the Spanish Embassy
in the Soviet Union, General Director of the National Commission for the 5th
Centennial of the Discovery of the Americas, Chief Director for Eastern
European Affairs, Atlantic Affairs Director and Deputy General Director for
Eastern European Affairs in the Spanish Foreign Affairs Ministry. From 1993 to
2002, Fernando de Almansa was appointed Chief of the Royal Household of Spain,
bearing the rank of Minister, by His Majesty King Juan Carlos I, and is
currently Personal Adviser to His Majesty the King. He is member of the Board
and President of the International Affairs Commission at Telefonica S.A.

     Alfredo Jorge MacLaughlin, 62, currently serves as a member of our Board
of Directors. He is an Argentine citizen and a lawyer who graduated from
Universidad de Buenos Aires. He studied Political Economy at Oxford University,
England. His track record includes an officer position in the Research and
Projects section of the United Nations Program for Development. He served as
Secretary of Economy of the City of Buenos Aires and as adviser to the
Argentine Ministry of Economy. He held director positions at Edenor,
Edesur, Banco Hipotecario Nacional, Telefonica and CTI. He is member of the
Buenos Aires Stock Exchange board of directors and General Manager and country
head of Deutsche Bank, Morgan Grenfell plc.

     Guillermo Harteneck, 75, is a member of our Board of Directors and an
Argentine citizen. He holds a degree in accountancy and business administration
from the School of Economics of the Universidad de Buenos Aires, as well as a
Master of Science in Economics from Baylor University, Texas. Until May 2000,
he served as chairman of the executive committee of IOSCO, the International
Securities Organization. During his extensive professional life, he held
positions as statutory auditor and director at many leading Argentine
companies. He is an associate professor at the School of Economics, Universidad
de Buenos Aires.

     Luis Ramon Freixas Pinto, 62, is a member of our Board of Directors. He is
Argentinean and earned his degree in civil engineering at the University of
Buenos Aires. He also completed a Program in Advanced Business Administration at
IAE, Austral University, an IESE affiliate - School of Economics at the
University of Narrava, Spain. In 1978, he joined Dragados y Construcciones where
he worked for one year. Later he joined Dragados y Construcciones Argentina
S.A., where he was in charge of the production, administration, HR and finance
areas as Vice President. In 1993, he became the General Manager of Autopistas
del Sol S.A, and he has been the Chairman of the Board of Directors since 2000.
He took part in different activities related to community issues and, at
present, he is a member of the Christian Businessmen Association where he
formerly was a Board member. He is the Chairman of Fundacion por Pilar, director
of Nuevo Millennium and a member of Adespa (Association of Argentine Utility
Companies).



                                      85
<PAGE>

     Jaime Urquijo Chacon, 73, is an alternate member of our Board of Directors,
a Spanish citizen and has an engineering degree from Madrid University. He
joined Energia e Industrias Aragonesas, S.A. in 1952, working in this company in
different positions of management and became chairman in 1972, a position he
held until retirement in 2002. He also served as vice chairman of Tabacalera,
S.A.

     Carlos Fernandez-Prida Mendez Nunez, 60, has been a member of our Board of
Directors since May 1997. He was the Board's Chairman from July 1998 to February
2002. He is Spanish and holds a Ph.D. in Engineering from the Polytechnic
University of Madrid and a Bachelor's Degree in Chemistry from the Universidad
Nacional de Educacion a Distancia - National Distance Education University of
Spain. He holds a diploma in Management and Business Administration from the
Escuela Superior de Administracion de Empresas - Higher Education School in
Business Administration of Madrid. He was engaged in teaching activities from
1968 to 1981 at the Escuela Tecnica Superior de Ingenieros de Montes - Higher
Education School in Engineering.

     Gaspar Arino Ortiz, 69, Spanish, founding partner of Arino y Asociados
Abogados. He earned his degree in Law at the University of Valencia and his PhD
in Law at the University of Madrid. Lecturer of Administrative Law at the
Universidad Autonoma de Madrid and President of the Regulation Study
Foundation. He practices law and is a member of the Bar Associations of Madrid,
Valencia, Barcelona and other cities in Spain.

     Javier Benjumea Llorente, 52, has been an alternate member of our Board of
Directors since 1998. Spanish, he holds a Bachelor's Degree in Economics and a
Master's Degree in Business Administration. He joined Abengoa, S.A. in 1980 as
Assistant to the President. In 1986 he was appointed Advisor Member and in
1991, President. He is the President of Focus-Abengoa Foundation Charity, a
member of the Managing Board and Managing Council of Fundacion Universitaria
Comillas-ICAI. He is Vice President of Compania Sevillana Endesa, and Advisor
of Air Liquide Espana, S.A., Estudios de Politica Exterior, S.A. and Diario
ABC, S.L. He is Numerary Member of the Academy of Social and Environmental
Sciences and Member of Prince Asturias Foundation Charity.

     Juan Carlos Ros Brugueras, 43, is an alternate member of our Board of
Directors and a Spanish citizen. He holds a law degree from Universidad Central
of Barcelona and was admitted to the Ilustre Colegio de Abogados de Barcelona
(the "Barcelona Bar") in 1985. Until 1989, he practiced law at a leading
Barcelona law office. From 1988 to 1990, he was resident partner of a Spanish
law office in London. Between 1990 and 1997, he was a partner at a leading
Barcelona law office and served as legal counsel and secretary to the board of
directors of several Spanish and foreign businesses and companies.

     Javier Delgado Martinez, 45, is an alternate member of our Board of
Directors since December 2004. Born in Spain, he has a degree in Business and
Economic Sciences from the Universidad de Zaragoza. He was Director of the
Financial Assets and Derivatives Department at Banesto and Banco Bilbao Vizcaya
S.A. He is currently the Chief Financial Officer at Telefonica Internacional,
S.A.

     Manuel Echanove Pasquin, 39, has been an alternate member of our Board of
Directors since December 2004. He is Spanish and holds a Bachelor's Degree in
Economics and Business from the Universidad Pontificia de Comillas. He was the
Commercial and Marketing Director of France Telecom/Global One; General Director
of Business and Professional and General Director of Business Strategy and
Development at Telefonica de Espana. At present, he is the General Commercial
Director of Telefonica Internacional.

     Juan Jorge Waehner, 43, joined us in 1998 and was recently appointed
General Manager. Prior to that, he was the Director of our Residential Business
Unit. Argentinean, he earned his degree in industrial engineering at the
University of Buenos Aires and his Master's Degree in Administration
Development and Strategy Administration at IAE and Harvard / IESE in Spain. He
worked for Telefonica Comunicaciones Personales S.A. (Unifon) as Commercial
Director. Formerly he worked for Motorola-BGH in the communications business
and for Siemens Group based in Germany and Spain holding managerial positions.

     Manuel Alfredo Alvarez Tronge, 47, is the Secretary of our Board of
Directors and is our General Counsel. He is an Argentine citizen and a lawyer
who graduated with Honors from Universidad de Buenos Aires. He is an expert in
corporate law, business and management, oil & gas and negotiation. He worked as
a lawyer at the Superintendencia de Seguros de la Nacion (the National
Superintendence of Insurance) and served as Counsel of the Ministry of Justice
of Peru and a Legal Manager of Perez Companc S.A. He is also a professor at
Austral, Saint
                                      86
<PAGE>


Andrews and Buenos Aires Universities, among others. He is the author of
publications and books including Tecnicas de Negociacion para Abogados and
Abogacia de Empresas y Cambio. He is a member of the American Corporate Counsel
Association of Washington, D.C., Founder and Director of Asociacion AIE Abogados
Internos de Empresas and Arbitrator at the American Arbitration Association
(AAA, New York). He is currently the President of the Comision de Derecho
Empresario del Colegio de Abogados de la Ciudad de Buenos Aires (Commission for
Business Law at the Lawyers Association of the City of Buenos Aires).

Audit Committee

     The Board of Directors appointed Alfredo Jorge MacLaughlin, Guillermo
Harteneck and Luis Ramon Freixas Pinto as members of the Audit Committee. See
Item 10: "Additional Information--Corporate Governance".

Supervisory Committee

     The Supervisory Committee is primarily responsible for controlling the
legality of our operations and reporting to the annual ordinary shareholders
meeting regarding the fairness of the financial information presented to the
shareholders by the Board of Directors. The members of the Supervisory
Committee are also authorized (1) to call ordinary or extraordinary
shareholders meetings, (2) to place items on the agenda for meetings of
shareholders or the Board of Directors, (3) to attend meetings of shareholders
or the Board of Directors, and (4) generally to monitor our affairs. Our bylaws
provide for a Supervisory Committee consisting of three members, known as
statutory auditors, and up to three alternate statutory auditors, who are
elected by a majority vote of the shareholders and serve one-year renewable
terms. See Item 10: "Additional Information--Memorandum and Articles of
Association--Corporate Governance--Supervisory Committee".

     The following table sets forth our statutory auditors and alternate
statutory auditors:

<TABLE>
               Name                            Affiliation                       Position                Profession
-------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                              <C>                                <C>
Santiago Carlos Lazzati              Estudio Lazzati y Asociados      Statutory Auditor                  Accountant
Edgardo Alejandro Sanguineti         Estudio Lazzati y Asociados      Statutory Auditor                  Accountant
Eduardo Luis Llanos                  Estudio Lazzati y Asociados      Statutory Auditor                  Accountant
Jorge Hector Martinez                Estudio Lazzati y Asociados      Alternate Statutory Auditor        Accountant
Roberto Anibal Oneto                 Estudio Lazzati y Asociados      Alternate Statutory Auditor        Accountant
Maria Cristina Sobbrero              Estudio Lazzati y Asociados      Alternate Statutory Auditor        Accountant
</TABLE>

Other Positions Held

     The following table lists positions that the members of the Board of
Directors, the Secretary to the Board of Directors and the members of our
Supervisory Committee hold in other companies, as of the date of this Annual
Report:

<TABLE>
Name                         Profession         Company                                              Position
-------------------------------------------------------------------------------------------------------------------
<S>                          <C>                <C>                                                  <C>
Mario Eduardo Vazquez        Accountant         Rio Compania de Seguros S.A.                         Chairman
                                                Camara Argentina de Comercio                         Director
                                                Portal Universia S.A                                 Director
                                                Central Puerto                                       Director
                                                Indra SI S.A.                                        Director
                                                Telefonica Holding de Argentina S.A.                 Vice Chairman
                                                Telefonica Data Argentina S.A.                       Chairman
                                                Compania Internacional de Telecomunicaciones S.A.    Vice Chairman
                                                Telefonica Moviles Argentina S.A.                    Chairman
                                                Telefonica Comunicaciones Personales S.A.            Chairman
                                                Telefonica Gestion de Servicios Compartidos          Vice Chairman
                                                Argentina S.A.
                                                Radio Servicios S.A.                                 Chairman
                                                Telinver S.A.                                        Chairman
                                                Terra Networks Argentina S.A.                        Vice Chairman
                                                Adquira Argentina S.A.                               Chairman
</TABLE>


                                      87
<PAGE>


<TABLE>
Name                         Profession         Company                                              Position
-------------------------------------------------------------------------------------------------------------------
<S>                          <C>                <C>                                                  <C>
                                                Fundacion Telefonica                                 Chairman
                                                Telefonica Internacional S.A.                        Director
                                                Telefonica S.A.                                      Director

Jose Fernando De Almansa     Attorney and
Moreno - Barreda             Spanish Diplomat   Telefonica S.A.                                      Director
                                                Telefonica Moviles S.A.                              Director
                                                Telefonica del Peru                                  Director
                                                Telecomunicaoes de Sao Paulo TELESP S.A.             Director
                                                BBVA Bancomer Mexico                                 Director

Jaime Urquijo Chacon         Engineer           Logistica S.A.                                       Director
                                                Quimigal S.A.                                        Director
                                                Fundacion Fondo Nacional para la Proteccion de la    Vice Chairman
                                                Naturaleza
                                                Fundacion Altadis                                    Vice Chairman

Carlos Fernandez-Prida       Engineer           Promotora de Negocios y Certificaciones S.A.         Chairman
Mendez Nunez                                    Unimusic S.L.                                        Director
                                                Terra Lycos S.A.                                     Director
                                                Invermay 3 Sicav S.A.

Gaspar Arino Ortiz           Attorney           Telefonica Moviles Argentina S.A.                    Director

Alfredo Jorge MacLaughlin    Attorney           Edesur                                               Director
                                                Buenos Aires Stock Exchange                          Director
                                                Argenclear S.A.                                      Director

Jose Maria Alvarez-Pallette  Business           Telefonica de Espana                                 Director
Lopez                        Administrator      Telefonica Moviles                                   Director
                                                Telefonica Data                                      Director
                                                Telefonica Internacional                             Director
                                                Telecomunicacoes de Sao Paulo TELESP S.A.            Director
                                                Telefonica Moviles Espana                            Director
                                                Compania Telefonica Chile Transmisiones Regionales   Director
                                                Compania Internacional de Telecomunicaciones S.A.    Chairman
                                                Telefonica CTC Chile                                 Director
                                                Telefonica de Peru                                   Director
                                                TPI; representative of Telefonica                    Director
                                                Telefonica Larga Distancia de Puerto Rico            Director
                                                Telefonica Holding de Argentina S.A.                 Chairman

Guillermo Harteneck          Public Accountant  Compania de Concesiones
                                                  de Infraestructura S.A.                            Director
Javier Benjumea Llorente     Economist          Inversion Corporativa S.A.                           Chairman
                                                Abengoa S.A.                                         Chairman
                                                Telefonica Internacional S.A.                        Director
                                                ABC                                                  Director
                                                Air Liquide Espana S.A.                              Director

Juan Ignacio Lopez           Engineer           Compania Internacional de Telecomunicaciones S.A.    Director
Basavilbaso                                     Telefonica Comunicaciones Personales S.A.            Director
                                                Radio Servicios S.A.                                 Director
                                                Telefonica Holding de Argentina S.A.                 Director/CFO
                                                Altocity.com                                         Director

Guillermo Pablo Ansaldo      Engineer           Telefonica Data Argentina S.A.                       Vice Chairman
                                                Altocity.com                                         Director

Juan Carlos Ros Brugueras    Attorney           Compania de Telecomunicaciones de Chile S.A. (CTC)   Director
                                                Telecomunicacoes de Sao Paulo S.A.                   Director
                                                Telefonica Larga Distancia de Puerto Rico Inc.       Director
                                                Telefonica del Peru S.A.                             Director

</TABLE>


                                      88
<PAGE>


<TABLE>
Name                         Profession         Company                                              Position
-------------------------------------------------------------------------------------------------------------------
<S>                          <C>                <C>                                                  <C>
Luis Ramon Freixas Pinto     Engineer           Dragados y Construcciones Argentina S.A.             Director
                                                Autopistas del Sol S.A.                              Chairman
                                                Marilauquen Sur S.A.                                 Director

Manuel Alfredo Alvarez
Tronge                       Attorney           Altocity.com                                         Director
                                                Adquira Argentina S.A.                               Director
                                                Telefonica Moviles Argentina S.A.                    Director

Edgardo Alejandro Sanguineti Accountant         Autopistas del Sol S.A.                              Director

Eduardo Luis Llanos          Accountant

Jorge Hector Martinez        Accountant         Alfombras Atlantida SACIF                            Vice Chairman
                                                Taftex S.A.                                          Director
                                                Alfonplan S.A.                                       Director
                                                Ganadera Argentina S.A.                              Director
                                                Asociacion de fabricantes de alfombras               Chairman
                                                Joarabi S.A.                                         Chairman
                                                Tuma S.A.                                            Chairman

Roberto Anibal Oneto         Accountant         Telefonica Data Argentina S.A.                       Director

Maria Cristina Sobbrero      Accountant
</TABLE>

Officers

     Our principal executive officers are:

     Mario Eduardo Vazquez, 69, currently serves as the Chairman of our Board
of Directors and President. See "--Directors and Senior Management" for
biographical information.

     Juan Jorge Waehner, 43, currently serves as our CEO. See "--Directors and
Senior Management".

     Juan Ignacio Lopez Basavilbaso, 50, currently serves as CFO and
Controller. See "--Directors and Senior Management" for biographical
information.

     Manuel Neira Montes, 56, joined us in 1991 as Assistant Director of
Corporate Internal Audit, and then on December 1, 2001 he was promoted to his
current position as Area Director. He is Spanish and in 1974 he graduated as a
Certified Public Accountant from the University of Buenos Aires. During his
years at Price Waterhouse (1969-1985), he was the firm's manager of the external
audit department. Between 1985 and 1991, he was the Resident Vice President of
Financial Control Area at Citicorp/Citibank Group.

     Rafael Pablo Berges, 40, joined us in 1998 as Human Resources Director. He
is Argentinean and holds a degree in Industrial Engineering from the School of
Engineering at the University of Buenos Aires. He earned an MBA at IDEA
(Instituto para el Desarrollo de los Empresarios de la Argentina - Argentine
Institute for Business Development). He pursued graduate courses in Business
Administration at the IESE University and Harvard University sponsored by
Telefonica. Before joining the Company, he worked for (i) Techint, where he
performed tasks related to industrial engineering and human resources; (ii)
Sheraton Hotel Buenos Aires, where he was the training manager and the Human
Resources Director in charge of monitoring the Latin American Region; and (iii)
Allergan, a pharmaceutical laboratory, as Human Resources Director for Latin
America.

     Fernando Luis Fronza, 41, joined us in 2000 as Strategy Director and
Wholesale Business Unit Director. He is Argentinean and earned his degree in
mechanical engineering at the National University of La Plata. He also earned an
MBA at Wharton School of Business, University of Pennsylvania. Before joining us
he worked for McKinsey & Company for several years as Main Associate and at
Siderca (Techint) as product engineer. At present, he is the Residential
Business Unit Director. Finally, he is a founding partner of Farmacity and a
Director there since mid-2001.



                                      89
<PAGE>


     Rodolfo Enrique Holzer, 40, has been the Company's Networks Director since
September 2000. He is Argentinean and holds a degree in Electronic Engineering
earned at the National University of La Plata. He joined the Company in 1992.
He was Assistant Manager of Works in the Province of Buenos Aires and, among
other positions, he was the Projects and Works Manager of the Province of
Buenos Aires. In 1997, he was appointed Network Access Manager and in 1999,
Access Network Director.

     Alejandro Lastra, 40, joined us in 2003 and since then he has been the
Legal Affairs Director. He is an attorney. In 1992 he pursued a graduate program
at the Southern Methodist University in Dallas, Texas. He also took other
programs at the Universities of Buenos Aires and Austral. In 1996 he was an
advisor of Estudio Perez Alati, Grondona, Benites, Arntsen & Martinez de Hoz
(law firm) and from 1997 to 2003 the Legal Manager of IBM Argentina S.A.

     Pablo David Lucena, 43, joined us in 1995. He was General Manager of
Telefonica Empresas Argentina. He is Director of our Department of Preferential
Business. He is an Argentine citizen and received a degree in engineering in
Universidad Nacional de Tucuman. He worked for IBM between 1987 and 1995 as
manager of business and services.

     Maria Fernanda Torquati, 39, joined the Company in the year 2000 and was
Business Operations Director until January 2005. She is currently Business
Operations and Information Systems Director. She is an Argentine citizen, has a
degree in Accounting from Universidad Nacional del Sur and a Master's Degree in
Business Administration from CEMA. She was Business Operations Manager for
Banco Hipotecario Nacional. Before that, between 1992 and 1998, she held a
position as Business Analyst in McKinsey & Company.

     Jose Luis Aiello Montes, 35, was recently appointed as Director of our
Strategy, Regulation and Wholesale Business Unit. He is Argentinean and earned
his degree in electronic engineering at the National University of La Plata. He
pursued graduate studies in Strategic Marketing (at Instituto Tecnologico
Buenos Aires - Buenos Aires Technological Institute) and in Economy (at
Torcuato Di Tella University). He joined the Company in 1995. He was promoted
to Networking Manager in 1998, Operators' Commercial Director in 2002, and
Commercial Director of the Wholesale Unit in 2002.

     Manuel Alfredo Alvarez Tronge Zinder. See "--Directors and Senior
Management" for biographical information.

     The following directors and principal executive officers have entered into
employment agreements with us: Manuel Alfredo Alvarez Tronge, Juan Ignacio
Lopez Basavilbaso, Juan Jorge Waehner, Fernando Luis Fronza, Rafael Pablo
Berges and Pablo David Lucena.

B.   Compensation.

     Argentine law provides that the aggregate annual compensation paid to all
directors (including those directors acting as executive officers) may not
exceed 5% of earnings for any fiscal year in which we do not pay any dividends
on earnings. This limitation increases in proportion to the amount of dividends
paid up to a maximum of 25% of earnings. Under Argentine law, the compensation
of the directors acting in an executive capacity, together with the
compensation of all other directors and the Supervisory Committee, requires the
approval of the shareholders.

     The total remuneration paid by us to our Board of Directors, Supervisory
Committee and principal executive officers during the fiscal year ended December
31, 2004 was approximately Ps.11.9 million, including amounts reserved to
provide for pension, retirement or similar benefits. The total remuneration paid
by us to our Directors, Alternate Directors and members of the Supervisory
Committee during the fiscal year ended December 31, 2004, was Ps.7.2 million.

Incentive Plan for Executives

     On February 14, 2005 the Board of Directors approved an incentive plan for
executives. This plan values certain corporate objectives for the years
2005-2008, which if achieved could result in a payment ranging from 50% to
200% of an executive's salary. The objectives are based mainly on corporate
efficiency and profitability. The

                                      90
<PAGE>


incentive will be paid in cash during year 2008. The Board of Directors assigned
the implementation of this plan to the Chairman. As of the date of this Annual
Report, the program is still in the implementation process. No participant has
been designated yet to participate in this program.

TIES Stock Purchase and Stock Option Program of Telefonica

     At the April 2000 ordinary shareholders meeting of Telefonica, its
shareholders approved a stock option plan called Telefonica Incentive Employee
Shares ("TIES"). The TIES program was launched on February 14, 2001 and the
subscription period ended on January 26, 2001. The TIES program was open to
approximately 80,000 employees of Telefonica and its affiliates, of whom
approximately 10,000 were our permanent employees, officers and directors on
April 7, 2000.

     Program participants were able to purchase a number of shares of
Telefonica, in proportion to their annual salaries, at five euros per share.

     Program participants were also granted 26 call options with an exercise
price of 5.00 euros each for each purchased Telefonica share. The value of the
call options granted at each expiration date depended upon the appreciation, if
any, of the stock price of Telefonica over the reference value established at
20.50 euros.

     The program ended in the last exercise date on February 15, 2005; however,
no participants exercised their options because the price of Telefonica shares
was below the reference value of 20.50 euros.

TOP Program

     On August 9, 2000, our Board of Directors approved an incentive program
(the "TOP Program") for executives, granting options to purchase shares of
Telefonica to 17 of our top executives, who must hold them for the program
term. During May 2001, each executive signed an incentive program agreement
and, as a prerequisite to receiving Telefonica stock options through the
program, purchased a pre-established number of Telefonica shares at market
price and assigned them to the TOP Program. On June 26, 2001, we entered into a
stock option agreement with Telefonica (the "Stock Option Agreement") pursuant
to which Telefonica granted 532,260 stock purchase options to us for our use in
operating the TOP Program. Under the terms of the Stock Option Agreement, we
agreed to immediately transfer our newly purchased Telefonica stock options to
the participating executives according to an agreed schedule. Under this
schedule, the participating executives were granted a number of Telefonica stock
options at a given strike price, currently equivalent to 13.9420 euros per
share, equal to ten times the number of shares purchased and assigned to the TOP
Program plus a number of Telefonica stock options at a different strike price,
currently equivalent to 20.9106 euros per share, equal to ten times the number
of shares purchased and assigned to the TOP Program.

     The TOP Program term was three years, during which time the options could
have been exercised no more than three times. The Telefonica shares purchased
by the participating executives as a prerequisite to receiving the options
under the TOP Program totaled 26,613, giving rise to the total of 532,260
purchased options. Our total coverage cost for the TOP Program was 4.49667
euros per option (2.4 million euros in total), which has been booked, based on
its linear accrual within the term of the TOP Program, under "Salaries and
Social Security Taxes". See Note 18 to the Consolidated Annual Financial
Statements.

     According to the terms of the Stock Option Agreement, the TOP Program was
offered by us on a one-time-only basis and was not to be repeated, and neither
the TOP Program nor the stock options delivered pursuant to the program would
have been granted on an annual basis.

     September 25, 2003 was the last exercise date for the TOP Program. There
were 17,481 shares involving a total amount of 349,620 options and 11
executives. No executives exercised their options.


                                      91
<PAGE>


C.   Board Practices.

     Our Board of Directors' duties and responsibilities are set forth by
Argentine law and our bylaws.

     Our Board of Directors is comprised of a minimum of three and a maximum of
eight Directors and Alternate Directors. The Directors and Alternate Directors
serve one-year renewable terms and are elected at the annual shareholders
meeting. The Board of Directors meets quarterly in compliance with Argentine
law and also holds meetings when called by any board member.

     We also have a Supervisory Committee that oversees our management. See
Item 6: "Directors, Senior Management and Employees--Directors and Senior
Management--Supervisory Committee".

D.   Employees.

     On December 31, 2004, we had 8,757 full-time employees, 490 temporary
employees and 52 trainees. Our subsidiary, Telinver, had 329 full-time
employees and 14 trainees as of December 31, 2004.

     The following table provides the number of our unionized, non-unionized,
temporary, and trainee employees for the fiscal years ended December 31, 2004,
2003, and 2002 (not including our subsidiary).

<TABLE>
                                          December 31,    December 31,    December 31,
                                              2004            2003            2002
                                          --------------------------------------------
<S>                                          <C>             <C>             <C>
Unionized................................    6,775           6,510           6,546
Non-unionized............................    1,982           2,226           2,452
                                          --------------------------------------------
                                             8,757           8,736           8,998
Temporary................................      490             524             587
Trainees.................................       52             598             884
                                          --------------------------------------------
Total Number of Employees................    9,299           9,858          10,469
Technical and Operations.................    5,360           5,608           5,784
Sales and Marketing......................      879             438             602
Financial and Administrative Support.....    1,278           1,687           2,011
Customer Service.........................    1,782           2,125           2,072
                                          --------------------------------------------
Total....................................    9,299           9,858          10,469
</TABLE>

     For the fiscal year ended December 31, 2004, the principal components of
labor costs were basic wages, overtime and fringe benefits. We also incurred
certain other related costs, including contributions made to the national
pension plan, health plans, family allowances and additional pension
contributions and life insurance premiums for employees covered by collective
bargaining agreements. Most of these contributions are mandated by law.

     On December 31, 2004, approximately 77% of our permanent employees were
union members. All middle and senior management positions are held by
non-unionized employees. Benefits under collective bargaining agreements
include benefits to employees who retire upon reaching the age of retirement or
who become disabled or who die prior to the age of retirement. We have
calculated our liability relating to such benefits at approximately Ps.24
million as of December 31, 2004.

     A three-year collective bargaining agreement with two unions, the
Federacion de Organizaciones del Personal de Supervision y Tecnicos Telefonicos
Argentinos ("FOPSTTA") and the Union de Personal Jerarquico de Empresas de
Telecomunicaciones ("UPJET"), became effective on January 1, 1998 and expired
on December 31, 2000. So long as no new agreement is executed, the current
agreement will continue in full force and effect. This agreement provides for
new labor policies such as flex-time variable work schedules and wage
adjustments based on our overall productivity. The terms of this agreement have
not increased our aggregate labor costs. It is expected that a new agreement
will be renewed and executed shortly with substantially the same terms as the
current one.

     Federacion de Obreros Especialistas y Empleados de los Servicios e
Industria de las Telecomunicaciones de la Republica de Argentina ("FOEESITRA")
is the union representing a majority of our unionized work force. As a
consequence of the secession of the Buenos Aires FOETRA Trade Union from
FOEESITRA, identical collective bargaining agreements must be negotiated and
executed with both of these unions. In recent negotiations, we sought new
provisions to eliminate or substantially reduce excessively burdensome salary
determinants, such as seniority, special location-based compensation and leaves
of absence. On June 26, 2001 and July 6, 2001, we signed

                                       92
<PAGE>

agreements with FOEESITRA and FOETRA. These agreements provide for new labor
policies such as flex-time variable work schedules, wage adjustments based on
overall productivity and personal days in accordance with the non-unionized
workers.

     On December 27, 2002 we signed an agreement with FOETRA Buenos Aires
regarding: (1) functional work cooperation, (2) temporary workers and (3) day
work for "telegestion del servicio 114" (technical assistance). The terms of
the agreements will not increase aggregate labor force costs.

     In March 2004, the Argentine National Congress approved a draft labor
reform law to replace Law No. 25,250. The law introduced the following
changes: (i) it revised the Employment Contract Law (Law No. 20,244); and (ii)
it amended the Collective Bargaining Agreements Law (Law No. 14,250). These
reforms entail a step back from the decentralization and deregulation of
collective bargaining agreements previously in place, as they reinstate the
subsistence of collective bargaining agreements after their expiration and the
prevalence of agreements reached between higher negotiating levels over
company-specific ones. The new law also promotes contracts for unspecified
terms, although labor cost reduction incentives are lower than those applicable
in the previous reform, and provides that probationary terms must not exceed
three months.

     From November 26 to December 6, 2004, the unionized telephone workers
exercised strike actions, aimed at obtaining salary increases, which resulted
in the total interruption of the customer service lines, repair services,
directory information and international call assistance services. In addition,
they took over our National Switching Boards, although service was not
discontinued and operations were not materially affected. After the
negotiations, we, the governmental enforcement authority and the unions agreed
on an increase in the basic fixed salary under the previous collective
bargaining agreement of up to approximately 20%, effective from January 2005,
and a single final payment of Ps.500 per unionized employee, which was granted
in December 2004. The new agreement has a duration of 12 months from January 1,
2005 unless external causes arise requiring a revision during such period.

E.   Share Ownership.

     As of the date of this Annual Report, no director or member of senior
management owns any of our capital stock.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A.   Major Shareholders.

     Our capital stock is comprised of two classes of common stock, with par
value Ps.1.00 per share: (1) Class A Shares representing approximately 62.5% of
our capital stock and (2) Class B Shares, which are publicly held and are
traded on the Buenos Aires Stock Exchange and (in the form of ADSs each
representing 10 Class B Shares) on the New York Stock Exchange, collectively
representing approximately 37.5% of our capital stock.

     As of the date of this Annual Report, the number of our outstanding shares
by class was as follows:

                       Class                      Amount
-----------------------------------------------------------
Class A....................................   1,091,847,170
Class B....................................     654,205,259

     The following table sets forth information as of the date of this Annual
Report with respect to affiliated shareholders known to us to own more than 5%
of any class of our ordinary shares:

<TABLE>
                                                                                    Approximate %   Approximate % of
Title of Class of                                                                        of        Total Outstanding
Shares                      Name of Owner          Jurisdiction     Amount Owned        Class            Shares
-------------------------------------------------------------------------------------------------------------------
<S>                   <C>                       <C>                 <C>                 <C>              <C>
Class A:...........   Cointel                   Argentina           1,091,847,170       100.00           62.53
Class B(1):........   Telefonica Internacional  Spain                 563,159,467        86.08           32.25
                      Cointel                   Argentina              40,200,000         6.14            2.30
                      TIHBV                     Netherlands            16,542,991         2.53            0.95
</TABLE>
---------
(1)  Including class B ordinary shares represented by ADSs.


                                      93
<PAGE>


     Telefonica, indirectly or directly, controls Cointel, Telefonica
Internacional, TIHBV and Telefonica Holding and therefore controls over 98% of
our capital stock including all Class A Shares. Cointel has advised us that,
through its ownership of the Class A Shares, it intends to maintain at least a
51% ownership interest in our capital stock and, therefore, to continue to
control us and to determine the outcome of any action requiring shareholder
approval. These actions include the election of up to six of the directors and
up to six alternate directors and, subject to the requirements of Argentine
law, the payment of dividends. Affiliates of Telefonica beneficially own 100%
of Cointel's common stock. Affiliates of Telefonica are involved in other
investments and operations in the Argentine communications and media sector,
some of which may involve or affect us.

     Under Argentine law, the protections afforded to minority shareholders and
the fiduciary duties of directors may, in some respects, be lower than in the
United States and certain other jurisdictions. On May 28, 2001, the Argentine
government issued Decree No. 677/01, which provides that any minority
shareholder who was a record holder on the effective date of the Decree may
demand that the controlling shareholder buy out the minority shareholders. The
controlling shareholder may file an acquisition statement or make a tender
offer for the minority shares. Such offers or statements may be carried out
through an exchange of the listed shares of controlling shareholders. Once the
acquisition has been completed, we would no longer have unaffiliated shares
outstanding and would file to delist those shares. However, our debt
obligations would still trade publicly.

     Holders of our Class A and Class B Shares have the same rights.

  Telefonica Equity Exchange Offer

     In 2000, Telefonica, which at the time owned a 50% indirect equity
interest in Cointel, launched an exchange offer for our shares. Telefonica
offered to exchange shares and ADSs of Telefonica for all of our Class B Shares
and ADSs not already directly or indirectly owned by Telefonica. As a result of
the exchange, Telefonica gained a direct interest of 44.2% in our capital stock,
in addition to the 0.8% interest that it held through TIHBV.

     By December 15, 2000, Telefonica also had acquired an 80.9% interest in
Telefonica Holding. Telefonica Holding owned the remaining 50% of Cointel not
already indirectly owned by Telefonica. On January 25, 2001, Telefonica made
capital contributions of our shares to Telefonica Moviles, Telefonica DataCorp
and Telefonica Internacional.

     As of February 28, 2001, Cointel owned all of our Class A Shares and
certain rights to an additional 40.2 million Class B Shares. Telefonica
Internacional owned approximately 561.1 million Class B Shares (including the
Class B Shares underlying the ADSs that Telefonica Internacional owns),
Telefonica DataCorp owned approximately 63.5 million Class B Shares (including
the Class B Shares underlying the ADSs that Telefonica DataCorp owns),
Telefonica Moviles owned approximately 323.0 million Class B Shares (including
the Class B Shares underlying the ADSs that Telefonica Moviles owns) and TIHBV
owned 16.5 million Class B Shares.

     In the context of the Reorganization Transactions, on December 12, 2001,
Telefonica Moviles and Telefonica DataCorp exchanged with Telefonica all of
their Class B Shares for ownership interests in Moviles Argentina and
Telefonica Data, respectively. Neither remains a shareholder of us. Cointel,
Telefonica Internacional and TIHBV did not participate in the exchange. The
resulting capital reduction gave Cointel, Telefonica Internacional and TIHBV a
higher percentage ownership.

  Telefonica Holding de Argentina S.A.

     Telefonica Holding de Argentina S.A. ("Telefonica Holding", formerly CEI
Citicorp Holdings Sociedad Anonima) is a holding company primarily engaged in
the telecommunications business ("Telecommunications Business") and the media,
programming and content distribution business ("Media Business") in Argentina,
through related companies and companies under the joint control of Telefonica
Holding, the Telefonica Internacional group.

                                      94
<PAGE>

     As of December 31, 2004, Telefonica Holding conducts its
telecommunications business through its 50.0% ownership of the outstanding
common stock of Cointel, which in turn, owns approximately 64.8% of our
outstanding capital stock.

  Depositary Shares

     In 1991, we offered and sold American Depositary Shares in the United
States to qualified institutional buyers ("QIBs") in reliance on, and subject
to restrictions imposed pursuant to, Rule 144A under the Securities Act, and
Global Depositary Shares ("GDSs") and, collectively with ADSs, (the "Prior
Offering Depositary Shares") outside Argentina and the United States in
reliance on Regulation S. Each Prior Offering Depositary Share represented
Class B Shares.

     In February 1994, we conducted a registered exchange offer permitting
holders to exchange their Prior Offering Depositary Shares for ADSs (each also
representing ten of our Class B Shares) registered under the Securities Act.
The ADSs offered in the Exchange Offer are identical to the Prior Offering
Depositary Shares, except (1) the ADSs are listed on the New York Stock
Exchange, and (2) the ADSs are not subject to resale restrictions. On March 8,
1994, American Depositary Receipts ("ADRs") evidencing the ADSs began trading
on the New York Stock Exchange. The ADRs are issued by Citibank, as Depositary,
pursuant to the terms of a deposit agreement. As of December 31, 2004,
approximately 50.6 million ADSs, representing approximately 77.3% of the total
number of issued and outstanding Class B Shares and approximately 28.97% of our
total shares, were outstanding. See Item 4: "Information on the Company--Our
History and Development--Our Reorganization".

B.   Related Party Transactions.

     Under the Management Contract, our indirect parent Telefonica manages our
business and provides services, expertise and know-how with respect to the
entire range of our business. Affiliates of Telefonica and Telefonica Holding
are also involved in other investments and operations in the communications and
media sector in Argentina and in other countries, some of which may involve or
impact us. Conflicts of interest between us, Telefonica and other affiliates may
therefore arise in connection with the negotiation and performance of duties and
the payment of fees under the Management Contract, as well as in connection with
other business activities. See Item 4: "Information on the Company--Management
Contract". During the fiscal year ended December 31, 2004, Telefonica received
fees pursuant to the Management Contract of Ps.68 million. See Item 5:
"Operating and Financial Review and Prospects".

     Our operations and balances with Telefonica and other direct and indirect
shareholders of Cointel and their respective affiliates are:

<TABLE>
                                                                                               December 31, 2004
                                                                                             ----------------------
                                                                                             (in millions of pesos)
                                                                                             ----------------------
<S>                                                                                                   <C>
Net income (loss) from goods and services
TCP S.A..................................................................................             140
TDA S.A..................................................................................              46
Atento Argentina S.A. ("Atento S.A.")....................................................             (20)
Telefonica Ingenieria de Seguridad S.A...................................................              (3)
Telefonica S.A. - Sucursal Argentina.....................................................              (6)
Pleyade Argentina S.A....................................................................               1
Telefonica del Brasil....................................................................               1
Telefonica Internacional Wholesales Services ("TIWS (Uruguay)")..........................               1
Telefonica Internacional Wholesales Services ("TIWS (Espana)")...........................               1
Telefonica Investigacion y Desarrollo S.A................................................              (1)
Emergia Argentina S.A....................................................................               4
T-Gestiona S.A...........................................................................               1
C.P.T. Telefonica Peru...................................................................              12
Television Federal S.A...................................................................              (3)
Communications Technologies Inc..........................................................              (1)
Terra Network Argentina S.A. ("Terra S.A.")..............................................              (1)
                                                                                             ----------------------
Total....................................................................................             172

                                      95
<PAGE>

Net financial charges
Telefonica Internacional.................................................................             (97)
Atento S.A...............................................................................               1
                                                                                             ----------------------
Total....................................................................................             (96)

Purchases of good and services
Telefonica Soluciones S.A.                                                                             16
Telefonica Ingenieria de Seguridad                                                                      1
TDA S.A..................................................................................               7
                                                                                             ----------------------
Total....................................................................................              24

Management Fee
Telefonica S.A. - Sucursal Argentina.....................................................             (68)

                                                                                                December 31, 2004
                                                                                             ----------------------
                                                                                             (in millions of pesos)
                                                                                             ----------------------
Assets
Trade Receivables
Communication Technologies Inc.                                                                         7
Telefonica Gestion de Servicios Compartidos Argentina, S.A. ("T-Gestiona S.A.") .........               5
TIWS (Espana) ...........................................................................               1
Television Federal S.A. .................................................................               2
C.P.T. Telefonica  Peru .................................................................               9
                                                                                             ----------------------
</TABLE>

<TABLE>
                                                                                                December 31, 2004
                                                                                             ----------------------
                                                                                             (in millions of pesos)
                                                                                             ----------------------
<S>                                                                                                   <C>
Total Trade Receivables..................................................................              24

Other Receivables
Telefonica Data Argentina ("TDA S.A.")...................................................              18
Atento S.A...............................................................................               4
Telefonica Media Argentina S.A. ("Temarsa S.A.").........................................               2
Telefonica Internacional                                                                                1
                                                                                             ----------------------
Total Other Receivables..................................................................              25
                                                                                             ----------------------
Total Assets.............................................................................              49
                                                                                             ======================
Liabilities
Trade Payables
Telefonica, S.A..........................................................................               2
CTC Mundo S.A.                                                                                          3
Telefonica S.A. - Sucursal Argentina(1)..................................................              70
Emergia S.A..............................................................................              65
Telefonica Servicios Audiovisuales........................................................              1
TCP S.A.                                                                                                1
Television Federal S.A....................................................................              1
Telefonica DATA USA.......................................................................              1
Telefonica Investigacion y Desarrollo S.A.................................................              4
Telefonica Soluciones S.A. ...............................................................             16
Telefonica Ingenieria de Seguridad........................................................              1
                                                                                             ----------------------
Total Trade Payables......................................................................             165
                                                                                             ----------------------
Bank and Financial Liabilities
Telefonica Internacional(2)...............................................................             595
                                                                                             ----------------------
Total Bank and Financial Liabilities......................................................             595
Other Payables
Telefonica................................................................................             11
Telefonica S.A. - Sucursal Argentina......................................................              2
Total Other Payables......................................................................             13
                                                                                             ----------------------
Total Liabilities.........................................................................             773
                                                                                             ======================
</TABLE>
---------
1    Corresponding to liabilities by management fee.
2    See Note 13 of our Consolidated Annual Financial Statements.

                                      96
<PAGE>

     All these trade receivables and trade payables are arm's-length transaction
entered in the ordinary course for services rendered. In the past, Telefonica
Holding, either directly or through affiliates, at various times, engaged in a
number of transactions with us.

     As of December 31, 2004, we and Telinver have borrowed a total of
approximately U.S.$200 million from our controlling company, Telefonica
Internacional. During 2002 and 2003, these obligations were rolled over. The
loan agreements provide that the creditor may accelerate the terms of our debt
if there are changes in our equity, economic and financial situation that, due
to their adverse nature, may affect our capacity to comply with the obligations
assumed in the agreements or if there are restrictions that may limit our
capacity to repay our debts.

     During 2004 we (not including Telinver) decreased our total debt with
related parties by approximately U.S.$337 million, including U.S.$33 million in
assignments. The payments were made with internally generated funds, loans from
banks and the issuance of bonds. As of December 31, 2004, our (not including
Telinver) total debt with related parties represented 18% of our total
financial debt in foreign currency. As of December 31, 2003 that share was 49%.

     After evaluating Telinver's financing needs in light of the Argentine
economic situation and the current difficulties in obtaining credit on January
3, 2005 we assumed all of Telinver's debt in an amount of U.S.$39.2 million,
corresponding to Telinver's total indebtedness to Telefonica Internacional,
which expressly consented to the assignment by Telinver to us. In addition,
Telefonica Internacional agreed to reduce the interest rate of that debt from
LIBOR plus 9% to LIBOR plus 4.5%. In consideration for our assumption of the
debt, Telinver entered into two loan agreements in pesos with us in the amounts
of Ps.71.5 million and Ps.45 million, respectively. Subsequently, at Telinver's
Extraordinary Shareholders' Meeting on February 14, 2005, we, as the
controlling shareholder of Telinver, approved a capital stock increase
equivalent to Ps.71.5 million. These shares were given to us as payment to the
first loan agreement mentioned in the previous paragraph. See Item 5:
"Operating and Financial Review and Prospects--Liquidity and Capital
Resources". The remaining Telinver debt after the capitalization mentioned
above is to be repaid in eight semi-annual installments at 11% annual nominal
interest rate.

     Telefonica Internacional has advised us that until March 20, 2005 or in
the case of debt maturing after that date, until the due date of such debt, it
has waived subject to certain conditions certain default covenants and that it
will not until that date accelerate our loan on the basis of the effects of the
Public Emergency Law. No member of the Board of Directors, or member of the
Supervisory Committee or any of the officers who report to Supervisory
Committee members, responsible for implementing our policy, has incurred any
material indebtedness owed to us.

     Additionally, the loan agreements currently in effect additionally contain
acceleration clauses that would be triggered in the event of certain court or
out-of-court proceedings being initiated in connection with claims exceeding a
certain percentage of our shareholders' equity or one of its significant
subsidiaries. We have obtained a waiver in respect of procedures of this nature
that were pending against us as of March 31, 2005, subject to a condition that
no other debt be accelerated on similar grounds.

C.   Interests of experts and counsel.

     Not applicable.


                                      97
<PAGE>


ITEM 8. FINANCIAL INFORMATION.

A.   Consolidated Statements and Other Financial Information.

     Our Consolidated Annual Financial Statements, which are set forth in the
accompanying Index to Consolidated Annual Financial Statements included in this
report, are filed as part of this Annual Report. See "Item 18. Financial
Statements" and pages F-1 to F-72.

Legal Proceedings

   Contingencies

     We are presently facing various proceedings and claims in the areas of
labor, tax, regulatory compliance and other matters, all of which arise in the
ordinary course of business. Such matters are subject to many uncertainties, and
the outcome of individual matters is not predictable with assurance. If
information available prior to the issuance of our financial statements,
considered on the basis of the opinion of our legal counsel, indicates that it
is probable that an asset had been impaired or a liability had been incurred at
the date of our financial statements, and the amount of the loss, or the range
of probable loss can be reasonably estimated, then such loss is accrued and
charged to operations. As of December 31, 2004, the amount recorded as reserves
for contingencies is Ps.271 million.

     The breakdown of the reserve for contingencies is as follows:

     Labor contingencies:

     The reserves for contingencies related to labor issues amounted to Ps.160
million and Ps.101 million as of December 31, 2004 and 2003, respectively. The
charge for 2004 is mainly due to:

     i) probable losses of Ps.64 million resulted from a significant increase of
claims brought by employees during the fiscal year 2004 and related to salary
differences. These claims and potential claims were considered probable taking
into account certain recent judgments of Appeals courts that were adverse to us;
and

     ii) new claims for alleged rights provided for in the labor law and related
costs which amounted to Ps.44 million, for which we considered it advisable to
reach settlement agreements. We intend to defend our rights vigorously in
whichever instances are necessary, should other similar material claims
eventually arise in the future.

     In addition, in the current fiscal year, the reserve for contingencies
decreased by approximately Ps.49 million, mainly due to payments related to the
above-mentioned matters.

     Charges for fiscal year 2003 were not material.

     Other matters assessed as probable to incur losses in the future, related
to:

     o    Joint and several liability with third parties

     o    Industrial labor accidents

     o    Illnesses

     o    Other severance payments

     Tax contingencies:

     The reserves for contingencies related to tax matters assessed as probable
to lose amounted to Ps.54 million and Ps.36 million as of December 31, 2004 and
2003, respectively. The charge for 2004 includes Ps.12 million corresponding to
new claims that were asserted in 2004 and potential other related claims
considered probable, by certain Municipalities for our joint liability with a
third party.


                                      98
<PAGE>


     These tax issues are related to:

     o    Municipal taxes

     o    Provincial taxes

     Civil, commercial and other contingencies:

     The reserve for contingencies related to civil, commercial, administrative,
regulatory compliance and other matters assessed as probable to lose as of
December 31, 2004 and 2003 amounts to Ps.57 million and Ps.85 million,
respectively. The main decrease of Ps.31 million corresponds to the payment for
a legal action concerning rescission of commercial agreements, for which an
arbitral decision was reached during the current year. This amount was fully
reserved as of December 31, 2003. The other matters relate to:

     o    Damages

     o    Regulatory compliance claims

     o    Other claims for rescission of commercial agreements

  Certain Labor Claims

     The Transfer Contract provides that ENTel and not us is liable for all
amounts owed in connection with claims based upon ENTel's contractual and
statutory obligations to former ENTel employees, whether or not such claims
were made prior to the Transfer Date, if the events giving rise to such claims
occurred prior to the Transfer Date. However, using a theory of successor
enterprise liability that they assert is based upon generally applicable
Argentine labor law, certain former employees of ENTel have brought claims
against us, arguing that neither the Transfer Contract nor any act of the
Argentine government can be raised as a defense to our joint and several
liability under allegedly applicable Argentine labor laws.

     In an attempt to clarify the issue of successor liability for labor
claims, Decree No. 1803/92, stated that various articles of the Work Contract
Law of Argentina, the basis for the former employees claims of joint and
several liability, would not be applicable to privatizations subject to State
Reform Law No. 23,696. However, the passage of this Decree did not resolve the
above claims as the Supreme Court of Argentina, in an unrelated case, upheld
the provisions of the law and declared Decree No. 1803/92 inapplicable.

     As of December 31, 2004, the amount of these labor claims including
accrued interest and legal expenses totaled approximately Ps.54 million. We
have not created any reserve for these claims because (1) pursuant to the
Transfer Contract, ENTel has agreed to indemnify us in respect of these claims
and (2) the Argentine government has assumed joint and several liability with
ENTel for the indemnity obligations and has authorized us to debit an account of
the Argentine government at Banco Nacion for any amount payable by us in respect
to the indemnification.

     Under Debt Consolidation Law No. 23,982, ENTel and the Argentine
government may discharge their indemnity obligations by the issuance of 16-year
Debt Consolidation Bonds. As of December 31, 2004, we have paid approximately
Ps.6.9 million to satisfy a number of claims. On December 16, 1999, we
initiated a claim for indemnification and reimbursement in connection with
these payments. The case is being argued in court, and no ruling has yet been
issued.

     Regardless of the number of rulings that have already been decided in our
favor, court decisions have followed the precedent set by the Supreme Court of
Justice in the area of joint liability in labor matters mentioned in the second
paragraph that we and our legal counsel consider will apply to our pending
cases. Notwithstanding the alternative instruments that may be used by the
Argentine government in the List of Conditions and in the Transfer Contract
considering the effect of the above described commitments, on the one hand, and
on the basis of the opinion of our legal counsel regarding the possible amount
for which existing claims may be resolved, on the other, in our opinion and our
legal counsel's opinion the outcome of the issue should not have a material
impact on our results of operations or financial position.




                                      99
<PAGE>


  Reimbursement of Value-Added Taxes Paid by Telintar

     On April 24, 1995, Telintar filed an application with the Administracion
Federal de Ingresos Publicos, formerly the Direccion General Impositiva (the
"Argentine Tax Authority"), for the reimbursement of approximately Ps.21.3
million arising from the modifications of certain prior positions originally
taken by Telintar with respect to the computation of VAT credits applicable to
certain transactions for the period January 1, 1993 through February 28, 1995.
Telintar also applied for the reimbursement of approximately Ps.5.9 million of
income and asset taxes. During the fiscal year ended September 30, 1997, the
AFIP-DGI accepted Telintar's position on the first claim and reimbursed Ps.20.7
million of principal and Ps.3.6 million of interest to the company. Since the
AFIP-DGI has still not given its opinion on the second claim, we, as a
successor in TLDA's business, have not recorded any amounts relating to the
latter claim mentioned in this paragraph. In this regard, should a decision be
passed sustaining Telintar's case, the successor companies will then agree on
the criterion to be followed for distributing the resulting proceeds between
them.

  Restitution of Services Affected by Stolen Cables

     Under Resolution 983/2002, the National Communications Commission imposed
a penalty on us consisting of a fine of Ps.680,000 for alleged breach of the
General Basic Telephone Service Rules, and further imposed on us several other
related obligations, mainly related to the restitution of those services
affected by stolen cables. We are in the process of appealing the penalty. In
our opinion and in the opinion of our legal advisers, the referred breach lacks
legal grounds for the sanction to be correct as: (1) theft of cables is an
event of force majeure that releases us from liability; (2) we have reinstated
more than 90% of the services affected by theft; (3) there are sufficient
public telephones installed and in operation in the affected areas to warrant
effective service supply, and certain steps have been taken with the security
forces to safeguard the integrity of the cables; and (4) we are reimbursing
customers for non-service days and have timely answered each of the National
Communications Commission's requests for information. The enforcement of these
fines against us may be subject to the renegotiation process provided for under
the Public Emergency Law.

  Fiber Optic Cables

     In December 2000, the Argentine Tax Authorities reviewed our income tax
returns for the fiscal years 1994 through 1999. They demanded adjustments due
to differences in the criterion used to calculate the depreciation of fiber
optic cables. Whereas we had applied a useful life of 15 years, the Argentine
Tax Authorities assessed our taxes based on a useful life of 20 years. Having
analyzed the issue, we appealed the assessment imposed by the Tax Authorities
in Argentina's Administrative Tax Court based on our position that there are
strong arguments against the Tax Authorities' assessment.

     However, in November 2004, the Argentine Administrative Tax Court entered
a judgment against us forcing us to amend the tax returns referred to above.
Additionally, the judgment repealed the penalties imposed by the Tax
Authorities on the grounds that there was enough evidence to support a finding
of excusable error in such tax returns. Given that judgment recently entered
against us, we were compelled to pay Ps.6 million, in addition to Ps.17 million
as punitive interest in December 2004. We charged these payments to expenses.
We believe this matter will not have any additional effects beyond these
payments.

     Notwithstanding the above paragraph, and although the final resolution is
subject to the contingencies inherent in any pending court judgment, we and our
legal counsel are of the opinion that there are legal grounds for a successful
appeal of the judgment entered against us and have presented an appeal to have
the judgment against us reviewed by the National Court of Appeals in
Administrative Matters. As of the date of this Annual Report, the court has not
ruled on this matter.

  Other Claims

     In October 1995, the Consumidores Libres Cooperativa Limitada de Provision
de Servicios Comunitarios (the "Free Consumers Cooperative") initiated a legal
action against Telecom, Telintar, the Argentine government and us to declare as
void, unlawful and unconstitutional all standards and rate agreements issued
since the Transfer Contract. The Free Consumers Cooperative's claim is to have
the tariffs of the basic telephone service reduced and


                                      100
<PAGE>


the amount supposedly collected in excess refunded, limiting them in such a way
that the licensees' rate of return should not exceed 16% per annum of the assets
as determined in the List of Conditions approved by Decree No. 62/90. Other
points of our contract have been called into question as well.

     After analyzing the claim, our legal counsel contested the allegations,
petitioning that such a claim should be dismissed on the grounds that it fails
to state a claim with a basis in law. The court of original jurisdiction ruled
in our favor, but this resolution was revoked by the Court of Appeals that held
the claim must not be dismissed, but rather must be substantiated at the court
of original jurisdiction. Through our legal counsel, we filed an appeal to the
Supreme Court of Argentina against the Court of Appeals' decision, which was
subsequently denied. An appeal of this denial filed with the Supreme Court of
Argentina is currently pending. None of these courts has yet ruled on the
substance of the claim.

     In this regard, on October 4, 2001, the Federal Appellate Court on
Administrative Matters of the City of Buenos Aires awarded an injunction
requested by the plaintiff that ordered the Argentine government, us and
Telecom to refrain from applying the corrections set forth in Section 2 of the
rate agreements approved by Decree No. 2,585/91 until final judgment is
rendered in the case, which meant that the tariffs could not be adjusted in
accordance with the U.S. consumer price index.

     In the opinion of management and our legal counsel, it is unlikely and
remote that the resolution of these issues would have a negative effect on the
results of our operations or our financial position.

     On July 29, 2003, we received a communication sent by the CNC requesting
us and Telefonica Larga Distancia de Argentina S.A. ("TLDA S.A."), a company
that was merged into us, to pay Ps.51 million, including principal and accrued
interest as of July 31, 2003, which, according to such note, would correspond
to savings, plus interest, obtained by such companies pursuant to reductions in
employers' social security contributions approved by Decree No. 1,520/98 and
supplementary provisions, applied to salaries of such companies' personnel from
April 1999 through June 2001. Pursuant to Resolution S.C. 18,771/99, those
savings were to be applied to the performance of programs or promotional
projects within the framework of the presidential initiative called
"argentin@internet.todos" to be managed by the International Telecommunications
Union (UIT). We, both with respect to our own operations as well as successor
of the rights and obligations of TLDA S.A., have recorded a liability related
to those savings for the outstanding principal, for an amount of Ps.21 million
(see Note 3.1.j to the Consolidated Annual Financial Statements), which, we
understand, is our total liability as of December 31, 2004. In the opinion of
our management and our legal counsel, we have solid ground to claim that this
liability should not be considered as delinquent and so we reported to the CNC
in a note dated August 13, 2003 challenging the assessment carried out by such
agency and requesting the remanding of proceedings.

     During the normal course of business, we are subject to miscellaneous other
labor, commercial, tax and regulatory claims. The outcomes of such individual
matters are impossible to predict with certainty. Based on our management's
assessment regarding the probable loss from such claims and the advice of legal
counsel, we have reserved Ps.267 million for contingencies as of December 31,
2004.

Dividend Policy

     The Board of Directors determines, subject to approval by a majority vote
of the shareholders, the timing and amount of any dividends. As our majority
shareholder, Cointel effectively controls the outcome of any decision
concerning dividends, subject to the availability of profits and the customary
legal restrictions contained in Argentine law. There can be no assurance as to
whether dividends will be declared or paid in the future.

     Under a shareholders' agreement dated as of April 21, 1997, Telefonica
Holding and Telefonica Internacional, who as of such date owned an 83.36%
equity interest in Cointel, had agreed to cause us, Cointel and our
subsidiaries to distribute to our respective shareholders the maximum portion
of our earnings for each fiscal year to the extent permitted by applicable laws
and any financial agreements and debt instruments to which they may be subject.
The distribution of these dividends was further contingent upon whether (1)
such distributions were advisable as a matter of prudent business judgment, (2)
sufficient funds were available and (3) there were any significant restrictions
on the ability of any of these companies to obtain funds in the financial
markets. See Item 10: "Additional Information--Taxation--Argentine
Taxation--Taxation of Dividends".



                                      101
<PAGE>


     In the past, our shareholders authorized the creation of a reserve for
future dividends, which would remain at the Board of Directors' disposal to be
used for paying cash dividends. Because we have accumulated losses, the Board
of Directors would not currently be able to use such reserve for paying cash
dividends until those losses are absorbed, according to the Companies Law.

     Apart from requirements of Argentine Law that dividends must be paid out
of net profits arising from an approved financial statement, there are
currently no contractual restrictions on our ability to pay dividends. Under
Argentine law we will be able to resume paying dividends when we have restored
our legal reserve to the level that is equal to the percentage of share capital
prior to the absorption of losses.

     The effect of the peso devaluation and pesification and freezing of our
tariffs on our shareholders' equity have completely offset unappropriated
retained earnings and the reserve for future dividends.

     The following table sets forth the amount of cash dividends paid since
January 1, 1994, for each of the years indicated.

<TABLE>
                                                                                          Banco
                                                %                                         Nacion
                                              Over                        Total Amount   Exchange
                      Payment Date           Capital       In Pesos(1)    In U.S.$(2)      Rate
-------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>             <C>              <C>
January 5, 1994...........................   3.750%       215,553,176      88,406,803      1.000
June 3, 1994..............................   4.100%       233,968,781      96,658,106      1.000
December 22, 1994.........................   4.800%       260,623,037     113,160,708      1.000
May 3, 1995...............................   5.150%       268,174,063     121,412,010      1.000
December 22, 1995.........................   5.150%       266,774,483     121,412,010      1.000
May 17, 1996..............................   5.150%       266,774,483     121,412,010      1.000
December 27, 1996                            5.150%       266,774,483     121,412,010      1.000
July 15, 1997.............................   5.440%       281,796,735     128,248,802      1.000
December 12, 1997.........................   5.750%       297,855,005     135,557,098      1.000
July 8, 1998..............................   7.000%       329,322,570     149,878,334      1.000
December 23, 1998.........................   7.000%       329,285,309     149,861,376      1.000
July 21, 1999.............................   7.000%       329,279,903     149,858,916      1.000
December 7, 1999..........................   7.000%       329,279,903     149,858,916      1.000
August 8, 2000............................   7.000%       329,279,903     149,858,916      1.000
March 29, 2001............................   7.000%       329,279,903     149,858,916      1.000
November 8, 2001..........................   7.000%       329,279,903     149,858,916      1.000
</TABLE>

---------
(1)  In pesos restated for inflation until February 28, 2003.
(2)  Calculated using the exchange rate as of the payment date (Ps.1.00 =
     U.S.$1.00).

B.   Significant Changes.

     No undisclosed significant change has occurred since the date of the
Consolidated Annual Financial Statements.

ITEM 9. THE OFFER AND LISTING.

A.   Offer and Listing Details.

ADSs Traded on the New York Stock Exchange

     The ADSs, each representing 10 of our Class B Shares, are listed on the
New York Stock Exchange under the trading symbol "TAR". The ADSs began trading
on the New York Stock Exchange on March 8, 1994, and Citibank acts as
depositary (the "Depositary"). The following table sets forth, for the calendar
periods indicated, the high and low closing sales prices (in U.S. dollars) of
the ADSs on the New York Stock Exchange:


                                      102
<PAGE>



                                                            High          Low
                                                           ---------------------
2000...................................................     49.31         28.25
2001...................................................     30.20          7.20
2002...................................................     14.00          1.80
2003...................................................     10.89          2.90
2004...................................................     12.83          6.21
2003:
First Quarter..........................................      6.70          2.90
Second Quarter.........................................     10.89          4.85
Third Quarter..........................................      9.89          7.00
Fourth Quarter.........................................      9.95          7.59
2004:
First Quarter..........................................     12.83          8.74
Second Quarter.........................................     10.90          7.42
Third Quarter..........................................      8.05          6.21
Fourth Quarter.........................................      8.80          6.94
Recent Six Months:
October 2004...........................................      8.24          7.15
November 2004..........................................      7.55          6.94
December 2004..........................................      8.80          7.21
January 2005...........................................      8.70          7.49
February 2005..........................................     11.24          7.30
March 2005 ............................................     11.38          8.38

     On March 31, 2005, the last reported sale price of the ADSs on the New York
Stock Exchange was U.S.$8.98 per ADS. The Depositary indicated that on December
31, 2004 there were approximately 50.6 million ADSs outstanding and
approximately 2,400 beneficial owners of ADSs. Such ADSs represented
approximately 28.97% of the total number of issued and outstanding Class B
Shares as of December 31, 2004.

Class B Shares Traded on the Buenos Aires Stock Market

     The Class B Shares are listed on the Buenos Aires Stock Exchange under the
trading symbol TEA2.BA. They began trading on the Buenos Aires Stock Exchange
on December 26, 1991.

     The following table sets forth, for the calendar periods indicated, the
high and low closing sales prices (in pesos) of the Class B Shares on Buenos
Aires Stock Exchange:

                                                            High          Low
                                                           ---------------------
2000...................................................      4.93         2.82
2001...................................................      2.70         0.70
2002...................................................      2.80         0.80
2003...................................................      3.05         1.20
2004...................................................      3.90         1.95
2003:
First Quarter..........................................      2.00         1.20
Second Quarter.........................................      3.05         1.49
Third Quarter..........................................      2.80         2.00
Fourth Quarter.........................................      2.91         2.23
2004:
First Quarter..........................................      3.90         2.70
Second Quarter.........................................      3.03         2.06
Third Quarter..........................................      2.38         1.95
Fourth Quarter.........................................      2.64         2.00
Recent Six Months:
October 2004...........................................      2.46         2.20
November 2004..........................................      2.25         2.00
December 2004..........................................      2.64         2.17
January 2005...........................................      2.59         2.20
February 2005..........................................      3.18         2.20
March 2005.............................................      3.35         2.50

     As of March 31, 2005, the last reported sale price of the Class B Shares
on the Buenos Aires Stock Exchange was Ps.2.55 per share. On December 31, 2004
there were approximately 3,000 holders of record of Class B Shares.


                                      103

<PAGE>


B.   Plan of Distribution.

     Not applicable.

C.   Markets.

The Buenos Aires Stock Market

     The Buenos Aires Stock Market, which is affiliated with the Buenos Aires
Stock Exchange, is the largest stock market in Argentina. The Buenos Aires
Stock Market is a corporation with 250 shareholder members authorized to trade
in the securities listed on the Buenos Aires Stock Exchange. Trading on the
Buenos Aires Stock Exchange is conducted by continuous open outcry, from 11:00
a.m. to 5:00 p.m. each business day. The Buenos Aires Stock Exchange also
operates an electronic market system from 9:30 a.m. to 6:00 p.m. each business
day, on which privately arranged trades are registered and made public.
Transactions on the Buenos Aires Stock Exchange are guaranteed by the Buenos
Aires Stock Market.

     To control price volatility, the Buenos Aires Stock Exchange operates a
system which suspends dealing in shares of a particular issuer for a half-hour,
or for the remainder of the day, when changes in the price of each issuer's
shares exceed 10%, or 15%, respectively, of that day's opening price. Investors
in the Argentine securities market are mostly individuals and companies.
Institutional investors, which represent a relatively small percentage of
trading activity, consist of a limited number of investment funds.

     Certain information regarding the Argentine equities market is set forth
in the table below:

<TABLE>
                                                                       Argentine Equities Market
                                                    ------------------------------------------------------------
                                                                              December 31,
                                                    ------------------------------------------------------------
                                                       2004       2003       2002      2001       2000      1999
                                                    ------------------------------------------------------------
<S>                                                   <C>        <C>        <C>       <C>        <C>        <C>
Market capitalization (U.S.$billions)............     231.7      184.5      103.3     192.5      165.8      83.9
As percentage of GDP(1)..........................     158.8%     144.6%     103.5%     71.6%      58.3%     29.6%
Annual volume (U.S.$millions)....................     4,792      2,994      1,312     4,192      9,679    12,687
Average daily trading volume (U.S.$millions).....      18.8       11.9        5.2      16.7       38.0      51.3
Number of listed companies.......................        76         80         83        87         92        91
</TABLE>
---------
(1)  GDP refers to the Gross Domestic Product of Argentina.

Source: Buenos Aires Stock Market

D.   Selling Shareholders.

     Not applicable.

E.   Dilution.

     Not applicable.

F.   Expense of the Issue.

     Not applicable.



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<PAGE>


ITEM 10. ADDITIONAL INFORMATION.

A.   Share Capital.

     Not applicable.

B. Memorandum and Articles of Association.

Register

     We are registered with the Argentine Public Registry of Commerce under
entry number 4535, Book 108 of Corporations.

Corporate Object and Purpose

     Section three of our bylaws states that our purpose is to provide, by
ourselves or through or in association with third parties, public
telecommunications services, excluding radio broadcasting services, in
accordance with the terms of our applicable licenses. To that end, we have the
legal capacity to acquire rights, incur obligations and generally to carry out
all acts that are not prohibited by law or our bylaws, including the incurrence
of public or private debts through the issuance of debentures and negotiable
obligations. Our purpose cannot be modified without prior authorization of the
telecommunication regulatory authorities.

     On April 10, 2002, at both ordinary and extraordinary shareholders
meetings, the corporate purpose was amended to allow us to be able to engage in
other types of businesses not strictly related to rendering telecommunications
services, including purchasing equipment, infrastructure, and
telecommunications-related goods, as well as rendering any type of services,
such as consulting and accounting, human resources and tax administration
services. As we have amended our corporate purpose, it was necessary to obtain
the authorization of the telecommunication regulatory authorities. Our request
with the Secretary of Communications is currently pending.

Corporate Governance

     We are principally governed by three separate bodies: the shareholders,
the Supervisory Committee, and the Board of Directors. Their roles are defined
by Argentine law and our bylaws, and may be described generally as follows:

     Shareholders Meetings and Voting Rights

     Shareholders meetings are called in such manner as prescribed by
applicable legislation, notwithstanding provisions for unanimous meetings.
First call and second call ordinary meetings and special class meetings may be
called simultaneously.

     Each common share entitles its holder to one vote. Under Argentine law,
meetings of shareholders must be held in a place that corresponds with the
jurisdiction of the company. Shareholders' resolutions subject to Argentine law
and the bylaws are binding on all of the shareholders, although shareholders
are given the right of withdrawal in connection with certain shareholder
decisions.

     Shareholders meetings can be ordinary and extraordinary. At ordinary
shareholders meetings, shareholders consider and resolve the following matters:

     (1)  approval of financial statements and other measures connected with
          the conduct of our business in accordance with the law or the bylaws,
          as submitted to the shareholders by the Board of Directors or the
          Supervisory Committee;

     (2) election or removal of directors or members of the Supervisory
         Committee, and stipulation of their remuneration;

     (3) establishing the responsibilities of the directors and members of the
         Supervisory Committee; and



                                      105
<PAGE>


     (4) approving increases in the corporate capital not exceeding five times
         the current amount.

     All other matters must be resolved at extraordinary meetings, such as
bylaw amendments and in particular:

     (1) increasing the corporate capital to over five times the current
         amount;

     (2) capital reduction and reimbursement;

     (3) redemption, reimbursement and writing down of shares;

     (4) our merger, transformation and dissolution; appointment, removal and
         remuneration of the liquidators; spin-off; and consideration of the
         accounts and further matters connected with conduct in our winding-up;

     (5) limitation or suspension of preferential rights in the subscription of
         new shares;

     (6) issuance of debentures and conversion of same into shares; and

     (7) issuance of negotiable instruments ("bonds").

     The chairman of the board or a person appointed at the meeting presides
over shareholders meetings. Shareholders meetings can be called by the Board of
Directors, the Supervisory Committee in certain circumstances specified by law,
or by shareholders representing at least 5% of the corporate capital.

     Shareholders may be represented by proxies at shareholders meetings. Our
directors, members of the Supervisory Committee, managers and employees cannot
act as proxies. The shareholders or proxies attending a shareholders meeting
must sign the Register of Attendance.

     Directors, statutory auditors and general managers are entitled and
obliged to attend, and to be heard at all meetings of shareholders. If they are
also shareholders, they cannot vote on decisions connected with their
undertakings, responsibility or removal.

     Quorum for an ordinary meeting of shareholders held on first notice
requires the presence of shareholders representing the majority of the shares
entitled to vote. On second notice, a meeting is considered duly constituted
regardless of the number of shareholders present. Resolutions are adopted by
majority of votes present, except when the bylaws require a higher number.

     An extraordinary meeting held on first notice is duly constituted with the
presence of shareholders representing sixty percent of the shares entitled to
vote, provided a greater quorum is not required by the bylaws. On second
notice, shareholders representing 30% of the shares entitled to vote are
required.

     Decisions are adopted by a majority of eligible votes present, unless a
greater number is stipulated in the bylaws, or required by law, such as
decisions regarding our transformation, extension or renewal; any anticipated
dissolution; the transfer of our domicile abroad; or a basic change of object
or the total or partial refunding of the capital. In such circumstances, a
majority vote of all eligible shares is necessary. This majority requirement
will also apply for a merger or spin-off, except with regard to the
incorporating company that will be governed by the rules for capital increases.

     When the meeting affects the rights of a class of shares, the consent or
ratification of the relevant class is required. The relevant class must hold a
special meeting governed by the rules for ordinary meetings of shareholders.

     Shareholder decisions may be voided by a court order when shareholders
meetings have been held in circumstances contrary to the law, our bylaws or
internal regulations.

     Certain Provisions Regarding Shareholder Rights

     As of the date of the filing of the Annual Report, our capital stock is
comprised of two classes of shares: Class A Shares representing at least 51% of
corporate capital, and Class B Shares representing the remainder. The transfer


                                      106
<PAGE>


of Class A Shares is subject to certain restrictions under applicable rules and
the provisions herein contained. Capital may be increased, without limitation
and without amending the bylaws, by a resolution at the annual shareholders
meeting. Each subscribed common share shall entitle its holder to one vote.

     Our bylaws do not contain any provisions relating to:

     o    redemption provisions;

     o    sinking funds; or

     o    liability for future capital calls by us.

     In addition to restrictions imposed by law, article nine of our bylaws
provides that any change in ownership of Class A Shares and of the rights
associated with them must be authorized by the relevant regulatory authorities.

     There are no restrictions under Argentine law or in our bylaws limiting
the rights of non-residents or non-Argentines to hold or vote our Class B
Shares.

     For information on shareholder rights on liquidation, see below
"--Dividends and Liquidation Rights".

     Supervisory Committee

     In accordance with the rules contained in Argentine Business Companies Act
No. 19,550, corporate supervision is entrusted to a Comision Fiscalizadora (a
Supervisory Committee). The election of its members, individually known as
sindicos (statutory auditors), and the organization and procedures of the
committee are regulated by our bylaws.

     The Supervisory Committee has certain general powers and duties,
notwithstanding any others as may be provided for under the Business Companies
Act or our bylaws:

     o    supervising our management, by an examination of its books and other
          documents whenever it may deem so convenient, but at least once every
          three months;

     o    verifying, in like manner and with like frequency as indicated above,
          our cash and securities, as well as our obligations and the
          performance thereof;

     o    receiving notice of and attending the meetings of the Board of
          Directors and shareholders. The Supervisory Committee may express its
          opinions at these meetings but is not allowed to vote;

     o    ensuring that our directors have posted the required performance
          bonds and that the same are maintained;

     o    submitting a written report on our economic and financial condition
          to the annual shareholders meeting;

     o    providing information within its scope of responsibility to any
          shareholders so requesting who are owners of at least 2% of our
          capital;

     o    calling the shareholders to an extraordinary meeting whenever it may
          deem necessary, and to annual or special class meetings if the board
          should fail to do so as required; and

     o    overseeing the management of our business for compliance with the
          law, our bylaws or internal regulation, and any resolutions adopted
          by the shareholders.

     The members of the Supervisory Committee are entitled to access
information and make administrative inquiries into facts or circumstances
relating to any fiscal year prior to the date of their appointment.

     The members of the Supervisory Committee are jointly liable for the
performance of their duties and obligations as imposed on them by law, the
bylaws, or our internal procedures. They are also jointly liable with the
directors for any damage occurring which would have been prevented had they
acted in compliance with the law, the bylaws, the


                                      107
<PAGE>


internal regulations, or the resolutions adopted by the shareholders. Our bylaws
provide that we shall be supervised by a Supervisory Committee of three members
and three alternate members elected by the shareholders to serve for a one-year
term and may be re-elected. Any vacancies in the Supervisory Committee shall be
filled by the alternate members in the order of their appointment. Any of its
members may act on behalf of the Supervisory Committee at Board of Directors or
shareholders meetings.

     Board of Directors

     The current Board of Directors is made up of eight directors and eight
alternate directors. The bylaws require that the Board of Directors shall
consist of three to eight directors. Members of the Board of Directors are
appointed by the general meeting of shareholders and are elected for a period
of one fiscal year, at the end of which they may be re-elected or replaced.

     Our bylaws require that after the number of directors has been determined
at the shareholders meeting, the Class A shareholders elect up to six directors
and up to six alternate directors. The Class B shareholders must elect one
director and one alternate director, unless the total number of directors is
equal to or higher than six, in which event the Class B shareholders shall
elect two directors and two alternate directors. Class A and Class B
shareholders meet at special class meetings to be called simultaneously with
the annual general meeting for these purposes. Any directors appointed to
office by the above procedure may only be removed from office by the
shareholder class they represent; provided that the shareholders may remove the
entire Board of Directors by majority vote of both share classes.

     Certain Powers of the Board of Directors

     Our bylaws provide that the Board of Directors shall have full power to
manage and dispose of our property, including such powers as under section 1881
of the Civil Code and Section 9 of Decree No. 5965/63 that must be vested under
a special power of attorney. The Board of Directors may, in our name and stead,
perform any acts that are in furtherance of our corporate purpose, including
banking transactions with Banco Nacion, Banco de la Provincia de Buenos Aires,
and other public or private banking entities.

     The compensation of the directors is set at the shareholders meeting.
Under Argentine corporate law, the maximum remuneration that members of a Board
of Directors can collect from a corporation, including wages and other
remuneration, cannot exceed 25% of corporate earnings. This percentage is
limited to 5% if no dividend is distributed. This limitation is increased in
proportion to any dividends paid. When one or more directors perform special
commissions or technical administrative functions and the small amount or
nonexistence of earnings make it necessary to exceed the percentage established,
the corporation cannot pay such sums without express approval at the
shareholders meeting.

     Our bylaws do not contain provisions relating to:

     o    a director's power to vote on a proposal, arrangement or contract in
          which the director is materially interested;

     o    the directors' power to vote on compensation to themselves or any
          members of their body;

     o    borrowing powers exercisable by the directors and how such borrowing
          powers can be varied;

     o    retirement or non-retirement of directors under an age limit
          requirement; or

     o    number of shares required for director's qualification.

Corporate governance framework

  Good Corporate Governance Practices

     In light of the significant conceptual and regulatory progress made in
modern corporate governance rules and standards, both in the United States and
in Argentina, and recognizing the need to be aligned with the worldwide


                                      108
<PAGE>


objectives of Telefonica and its worldwide subsidiaries ("Telefonica Group") in
the area of corporate governance, on December 17, 2002, our Board of Directors
resolved to create an Audit Committee to promote and support the development of
good corporate governance actions.

     The principal guiding policies for corporate governance of the Telefonica
Group are:

     (1)  maximization of our value in furtherance of the shareholders'
          interests,

     (2)  the material role of the Board of Directors or Management Committee
          in our conduct and management; and

     (3)  information transparency in our relationship with our employees,
          shareholders, investors and customers.

     Audit Committee

     The Audit and Control Committee was created as a transitional committee on
December 17, 2002, and was superseded by an Audit Committee created by our
Board of Directors on May 10, 2004 in accordance with the requirements and
provisions of Executive Decree No. 677/01, the Sarbanes Oxley Act and the rules
and regulations of the SEC.

     Our Board of Directors set forth (1) the structure of the committee and
the minimum requirements to qualify as a member of the committee; (2) the
planning of the main tasks to be performed and the necessary means for proper
functioning, and (3) the training plan for its members. In that sense, our
Board of Directors stated that the Audit Committee shall be formed by three or
more members of the Board of Directors, all of which shall be independent
directors in accordance with the criteria set forth by the CNV. According to
these criteria, a director will not be independent if among other cases, he or
she is at the same time a director or personnel of the controlling shareholder
or other company controlled by it or any other of its subsidiaries.

     Among others, the duties of the Audit Committee are as follows: (a) to
express an opinion on the proposal made by the Board of Directors regarding the
designation of external auditors to be hired by the Company and to oversee their
independence; (b) to supervise the operation of the Company's internal control,
administrative and accounting systems, as well as the reliability of the latter
and of any financial information or other significant events; (c) to supervise
the application of policies in relation to the Company's risk management
activities; (d) to supply the market with complete information about
transactions in which there are conflicts of interest with directors, officers
or controlling shareholders, (e) to express an opinion on the reasonableness of
the directors' fees and the stock option plans for directors and managers
proposed by the Board of Directors; (f) to express an opinion on regulatory
compliance issues and on the reasonableness of the terms and conditions of
issuance of shares or securities convertible into shares in the event of a
capital increase in which preemptive rights are excluded or restricted; (g) to
verify compliance with any applicable rules of conduct; and (h) to issue an
opinion, and the grounds for such opinion, in relation to transactions with
related parties.

     The Audit Committee started holding sessions on May 28, 2004. Its current
members are Alfredo Jorge MacLaughlin, Guillermo Harteneck and Luis Ramon
Freixas Pintos, who are all independent directors.

     On June 14, 2004, the Audit Committee approved its charter and on July 27,
2004 it approved its action plan for the 2004 fiscal year.

     Disclosure Committee

     On February 12, 2003, our Board approved the formation of a Disclosure
Committee with responsibility for receiving, classifying and reviewing all
corporate information in order to determine what should be released to the
markets and arranging it in accordance with the features, terms and scope set
forth in the local and foreign laws applicable to us. The Disclosure
Committee's functions and powers are governed by its internal regulations.



                                      109
<PAGE>


     Market Disclosure Rules

     (1)  Along with Telefonica and pursuant to our statutory obligations, we
          and Telefonica have assumed a commitment of transparency to our
          respective shareholders, investors and the market in general, with a
          view to positioning the Telefonica Group as a forerunner in
          transparency policies.

     (2) With this objective in mind, several internal rules were issued that
         set the basic principles for information disclosure control systems
         and processes aimed at ensuring that our material information is known
         by our top executives and management team, and also established the
         mechanisms for conducting periodical evaluations of the effectiveness
         of those processes and systems.

     Internal Rules of Conduct on Negotiable Securities

     We have established internal rules of conduct on negotiable securities for
the purpose of restricting the execution of transactions involving negotiable
securities of the Telefonica Group by the top management and other employees
with access to privileged information. These rules provide for (1) obligations
to disclose deals in which the relevant person has a personal interest, (2) the
prohibition to make deals using privileged information when the relevant person
has a personal interest and (3) dealing of confidential information.

     Rules on Registration, Reporting and Monitoring of Financial Information

     We approved rules on registration, reporting and monitoring of financial
information, aimed at (1) maintaining control levels that ensure that the
transactions and amounts included in our financial statements are adequately
reflected, (2) carrying out adequate processes that ensure that the financial
information is furnished and known by the relevant responsible members of the
organization, (3) defining and delimiting the responsibilities of each level
within the organization regarding the reliability of the information that is
publicly disclosed and applying such mechanisms as necessary to assure the
confidence of investors and other users of the information, (4) establishing
the mechanisms and principles necessary to maintain, to the extent permitted by
the applicable laws, uniform practices and criteria of the whole Telefonica
Group, (5) monitoring and ensuring that the transactions made among companies
of the Telefonica Group are adequately identified and reported, and (6)
maintaining adequate supervision of processes that ensure the permanent
effectiveness of the financial information registration, disclosure and
monitoring system, identifying and correcting any potential deficiency or
failure.

     The Whistleblower Hotline and Procedures to Protect the Whistleblower

     On November 10, 2004, the Board of Directors approved the Whistleblower
Hotline and Procedures to Protect the Whistleblower in accordance with Section
301 of the Sarbanes Oxley Act. It established procedures for the following:

     (i) the receipt, retention and treatment of complaints received by us
regarding accounting, internal auditing controls, or auditing matters;

     (ii) the confidential, anonymous submission by our employees of concerns
regarding questionable accounting or auditing matters.

     The basic guidelines for the Whistleblower Hotline and Procedures to
Protect the Whistleblower are:

     o    Access and operation: The whistleblower hotline will be operational
          24 hours a day and available for access through the Internet, mail,
          telephone or fax, and all issues will be treated as anonymous;

     o    Internal notice: All employees of Grupo Telefonica will be notified
          of the existence of the whistleblower hotline;

     o    Treatment of complaints: The corresponding area will keep a record of
          the complaints received and will report these complaints and the
          result of the investigations thereof to the Audit Committee;



                                      110
<PAGE>


     o    Protection of the employee issuing the complaint: Employees issuing
          complaints will be protected according to applicable rules. This
          protection will continue even when the investigation reveals no
          evidence of fraud or other misconduct, provided that the employee has
          acted in good faith. To that effect, all complaints received are
          presumed to be made in good faith unless evidence to the contrary.
          Human Resources will be notified in the event a complaint is not made
          in good faith, and will proceed according to employment regulations
          or internal rules in force; and

     o    External complaints: Whoever receives a complaint involving a fraud
          or any other misconduct by a shareholder, client or supplier must
          report it to the Internal Audit Corporate Manager in order to follow
          the corresponding procedures.

     Implementation is to be completed by July 31, 2005.

     In addition, we recognize the protection given to employees under Section
806 of the Sarbanes Oxley Act, which establishes whistleblower protection for
those employees who issue complaints or assist in the process of fraud
detection.

  Appointment of Independent Directors

     We currently have three members who meet the independence requirements
established by applicable laws.

  Dividends and Liquidation Rights

     In accordance with our bylaws, we are required to appropriate net realized
profits as follows: (1) 5% of such profits shall be set aside into a legal
reserve until such reserve equals 20% of outstanding capital stock; (2) payment
of the compensation of the Board of Directors and Supervisory Committee; (3)
payment of dividends on preferred shares, with priority given to the payment of
any preferred dividends standing in arrears; and (4) any remainder, in whole or
in part, (a) to the payment of an additional dividend on preferred shares, (b)
to the payment of an additional dividend on common shares, (c) to an optional
reserve fund, (d) to be carried forward or (e) as otherwise as the shareholders
may determine. Dividends must be paid within one year of their declaration.

     Our bylaws further provide that, upon our dissolution, the winding up of
our business shall be conducted by the Board of Directors or by one or more
liquidators appointed by the shareholders. The winding up shall proceed under
the supervision of the Supervisory Committee, where applicable. After all
liabilities have been satisfied and capital reimbursed, the balance shall be
distributed among shareholders.

C.   Material Contracts.

     Other than the contracts listed as exhibits under Item 19 of this Annual
Report, during the past two years we have not entered into any material
contracts other than contracts entered into in the ordinary course of business
and shareholder loans as described in Item 5: "Operating and Financial Review
and Prospects--Liquidity and Capital Resources".

D.   Exchange Controls.

     Since early December 2001, Argentine authorities implemented a number of
monetary and currency exchange control measures that mainly included
restrictions on the free use of funds deposited with banks and the tight
restriction of transferring funds abroad, with the exception of transfers
related to foreign trade and other authorized transactions. Later, the
Argentine government declared the official default on foreign debt payments. On
January 6, 2002, the Argentine Congress approved Law No. 25,561 on Public
Emergency and Exchange System Reform that introduced dramatic changes to the
economic model implemented until that date and that amended the Convertibility
Law (the currency board that pegged the Argentine peso at parity with the U.S.
dollar) approved in March 1991. The new law empowers the National Executive
Power to implement, among other things, additional monetary, financial and
exchange measures to overcome the economic crisis in the medium term.


                                       111
<PAGE>


     As a result of the above, since early 2002, the exchange rate with the U.S.
dollar has increased compared to the Argentine peso (the parity was originally
one peso per U.S. dollar). As of December 31, 2004, the exchange rate had
increased by 197.9% (Ps.2.98 per U.S. dollar).

     Other regulations were issued subsequently, amending some of the
above-mentioned regulations. The main aspects of such other regulations are:

     (a)  the Public Emergency and Exchange System Reform Law No. 25,561
          established the pesification of utility tariffs originally denominated
          in U.S. dollars at an exchange rate of U.S. $1 to Ps.1 and authorized
          the National Executive Power to renegotiate such agreements (See Note
          10.1 to the Consolidated Annual Financial Statements);

     (b)  an extension in the National Public Emergency situation until
          December 31, 2005; and

     (c)  suspension of dismissals without just cause until December 31, 2005
          and the establishment of penalties consisting of the payment of
          additional amounts equivalent to 80% of the termination pay set forth
          by labor regulations for employees dismissed without just cause,
          except in relation to personnel hired on or after January 1, 2003.
          This is how the Argentine government is proceeding with a stepwise
          reduction of the penalty formerly consisting of two times the
          applicable termination pay with the aim expressed in the law of fully
          eliminating this penalty if unemployment rates drop to less than 10%.

E.   Taxation.

U.S. Federal Income Taxation

     The following discussion is a summary of the material U.S. federal income
tax consequences of the acquisition, ownership and disposition of our preferred
shares or our ADSs by U.S. Holders, as defined below. This summary is based on
the Internal Revenue Code of 1986, as amended (referred to herein as the
"Code"), final, temporary and proposed Treasury regulations, administrative
pronouncements of the U.S. Internal Revenue Service (the "IRS") and judicial
decisions, all as currently in effect and all of which are subject to change
(possibly with retroactive effect), and to different interpretations. It is also
based in part on representations by the depositary and assumes that each
obligation under the Deposit Agreement and any related agreement will be
performed in accordance with its terms. This discussion deals only with
preferred shares and ADSs held as capital assets (generally, for investment
purposes). It does not discuss all of the tax consequences that may be relevant
to a U.S. Holder in light of the U.S. Holder's particular circumstances or to
U.S. Holders subject to special rules, such as financial institutions, insurance
companies, tax-exempt entities, dealers in securities or foreign currencies,
partnerships and other pass-through entities, investors liable for the
alternative minimum tax, persons who hold preferred shares or ADSs as part of an
integrated investment (including a hedge, straddle or conversion transaction),
persons whose functional currency is not the U.S. dollar or persons who actually
or constructively own (directly or indirectly) 10% or more of our voting stock
or persons who acquired preferred shares or ADSs pursuant to the exercise of any
employee stock option or otherwise as compensation. Holders of preferred shares
or ADSs should consult their own tax advisors with regard to the application of
the U.S. federal income tax laws to their particular situations as well as any
tax consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction.

     As used herein, the term "U.S. Holder" means a beneficial owner of
preferred shares or ADSs that is, for U.S. federal income tax purposes, (1) a
citizen or individual resident of the United States, (2) a corporation (or other
entity treated as a corporation for U.S. federal income tax purposes) organized
under the laws of the United States or of any political subdivision thereof or
(3) an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source. The U.S. federal income tax treatment of a
partner in a partnership that holds our preferred shares or ADSs will depend on
the status of the partner and the activities of the partnership. Partners in
such partnerships should consult their own tax advisors.

     THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS
INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. PROSPECTIVE PURCHASERS OF
PREFERRED SHARES OR ADSs ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH
RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING OR
DISPOSING OF

                                       112

<PAGE>


PREFERRED SHARES OR ADSs, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, NON-U.S. AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAWS.

   General

     In general, for U.S. federal income tax purposes, holders of American
depositary receipts evidencing ADSs will be treated as the beneficial owners of
the preferred shares represented by those ADSs. Deposits and withdrawals of
preferred shares in exchange for ADSs will not result in the realization of gain
or loss for U.S. federal income tax purposes.

     The U.S. Treasury Department has expressed concerns that parties to whom
depositary shares such as the ADSs are released may be taking actions that are
inconsistent with the claiming of foreign tax credits by U.S. Holders of the
ADSs or the U.S. Treasury. Such actions would also be inconsistent with the
claiming of the reduced rate of tax, described below, applicable to dividends
received by certain non-corporate holders. Accordingly, the analysis of the
creditability of Argentine taxes and the availability of the reduced tax rate
for dividends received by certain non-corporate holders, each described below,
could be affected by future actions taken by parties to whom the ADSs are
released.

   Taxation of Dividends

     Subject to the passive foreign investment company rules discussed below,
distributions made by us of cash or property generally will constitute a taxable
dividend to the extent paid out of our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles. The full amount
of any dividend paid in respect of our preferred shares or ADSs (including the
amount of any Argentine withholding taxes imposed on such dividend) will be
included in the gross income of a U.S. Holder, as ordinary income from sources
outside the United States, at the time that the dividend is received by the U.S.
Holder, in the case of our preferred shares, or by the depositary, in the case
of ADSs.

     The amount of income, including in respect of any dividend paid in pesos,
generally will be measured by reference to the spot rate for converting pesos
into U.S. dollars in effect on the date that the dividend is received by the
U.S. Holder, in the case of our preferred shares, or by the depositary, in the
case of ADSs. A U.S. Holder may recognize foreign currency gain or loss, which
would be treated as ordinary gain or loss, upon a subsequent conversion of pesos
into U.S. dollars. U.S. Holders should consult their own tax advisors regarding
the calculation and U.S. federal income tax treatment of foreign currency gain
or loss. The amount of any distribution of property other than cash will be the
fair market value of such property on the date of distribution.

     Subject to applicable limitations, and subject to the discussion above
regarding concerns expressed by the U.S. Treasury, the U.S. dollar amount of
dividends received by an individual prior to January 1, 2009 with respect to the
ADSs will be subject to taxation at a maximum rate of 15% if the dividends
represent "qualified dividend income." Dividends paid on the ADSs will be
treated as qualified dividend income if (i) the ADSs are readily tradable on an
established securities market in the United States and (ii) we were not in the
year prior to the year in which the dividend was paid, and are not in the year
in which the dividend is paid, a passive foreign investment company ("PFIC"),
foreign personal holding company ("FPHC") or foreign investment company ("FIC").
The ADSs are listed on the New York Stock Exchange, and may qualify as readily
tradable on an established securities market in the United States so long as
they are so listed. However, no assurances can be given that the ADSs will be or
remain readily tradable. Based on existing guidance, it is not entirely clear
whether dividends received with respect to the preferred shares will be treated
as qualified dividends, because the preferred shares are not themselves listed
on a United States exchange. In addition, the United States Treasury Department
has announced its intention to promulgate rules pursuant to which holders of
ADSs or preferred stock and intermediaries through whom such securities are held
will be permitted to rely on certifications from issuers to establish that
dividends are treated as qualified dividends. Because such procedures have not
yet been issued, we are not certain that we will be able to comply with them.
U.S. Holders of ADSs and preferred shares should consult their own tax advisors
regarding the availability of the reduced dividend tax rate in the light of
their own particular circumstances.

     Dividends paid by us will not be eligible for the dividends received
deduction allowed to corporations under the Code. The amount of a dividend will
include any amounts withheld by us or our paying agent in respect


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<PAGE>


of Argentine taxes. Dividends paid by us will be treated as foreign source
dividend income to you and will not be eligible for the dividends received
deduction generally allowed to U.S. corporations under the Code.

     Subject to certain limitations and restrictions, and subject to the
discussion above regarding concerns expressed by the U.S. Treasury, a U.S.
Holder will be entitled to a foreign tax credit against its U.S. federal income
tax liability, or a deduction in computing its U.S. federal taxable income, for
Argentine income taxes withheld by us. The limitation on foreign taxes eligible
for credit is determined separately with respect to specific classes of income.
The rules relating to the calculation of foreign tax credits and the applicable
limitations are complex. U.S. Holders should consult their own advisors
concerning the implications of the foreign tax credit rules in light of their
particular circumstances.

   Taxation of Capital Gains or Losses

     Upon a sale or other taxable disposition of preferred shares or ADSs, a
U.S. Holder will recognize capital gain or loss for U.S. federal income tax
purposes equal to the difference, if any, between the amount realized on the
sale or other taxable disposition and the U.S. Holder's adjusted tax basis in
the preferred shares or ADSs. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if the U.S. Holder's holding period in
the preferred shares or ADSs exceeds one year at the time of the sale or other
taxable disposition. Certain U.S. Holders (including individuals) may be
eligible for preferential rates of U.S. federal income tax in respect of
long-term capital gains. The deductibility of capital losses is subject to
limitations under the Code. Gain or loss derived from the sale or other
disposition of our preferred shares or ADSs generally will be treated as U.S.
source income or loss for foreign tax credit purposes.

   Passive Foreign Investment Company Rules

     We believe that we will not be considered a "passive foreign investment
company," or PFIC, for U.S. federal income tax purposes. However, because the
determination of whether the preferred shares or ADSs constitute shares of a
PFIC will be based upon the composition of our income and assets and the fair
market value of our assets (including entities in which we hold at least a 25%
interest), from time to time, there can be no assurance that the preferred
shares or ADSs will not be considered shares of a PFIC for any taxable year. If
we were treated as a PFIC for any taxable year during which a U.S. Holder held a
preferred share or ADS, certain adverse consequences could apply to the U.S.
Holder, including the imposition of higher amounts of tax than would otherwise
apply to a U.S. Holder and additional tax form filing requirements. U.S. Holders
are urged to consult their tax advisors regarding the consequences to them if we
were considered to be a PFIC, as well as the availability and advisability of
making an election to avoid the adverse United States federal income tax
consequences of PFIC status should we be classified as a PFIC for any taxable
year. Moreover, dividends on our ADSs would no longer be "qualified dividend
income" entitled to preferential rates of U.S. federal income tax, as described
above. Based on our operations and business plans, we do not believe that we are
currently a PFIC and do not expect to become a PFIC in the foreseeable future.

  Information Reporting and Backup Withholding

     Payment of dividends and sales proceeds that are made within the United
States or through certain U.S.-related financial intermediaries generally are
subject to information reporting and to backup withholding unless (i) you are a
corporation or other exempt recipient or (ii) in the case of backup withholding,
you provide a correct taxpayer identification number and certify that you are
not subject to backup withholding. Backup withholding is not an additional tax.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's U.S. federal income tax
liability, if any, and may entitle such U.S. Holder to a refund, provided that
the required information is furnished to the IRS in a timely manner.

     U.S. HOLDERS AND PROSPECTIVE PURCHASERS OF OUR PREFERRED SHARES OR ADSs
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE ARGENTINE, U.S. FEDERAL, STATE,
LOCAL AND OTHER TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION
OF OUR PREFERRED SHARES OR ADSs BASED UPON THEIR PARTICULAR CIRCUMSTANCES.



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<PAGE>


Argentine Taxation

     The following summary of certain Argentine tax matters is based upon the
tax laws of Argentina, and regulations thereunder, in effect as of the date of
this Annual Report, and is subject to any subsequent change in Argentine laws
and regulations which may come into effect after such date.

  Taxation of Dividends

     Dividends of cash, property or capital stock related to the Class B Shares
or ADSs are currently exempt as a general rule from Argentine withholding tax
or income tax. However, under Tax Law No. 25,063, a tax is applicable to the
amount of dividends distributed in excess of a company's "net taxable income"
accumulated at the end of the fiscal year immediately preceding the date of the
distribution of such dividends.

  Taxation of Capital Gains

     Under Argentine law, any gains obtained by a foreign resident by means of
a purchase, sale, exchange, conversion or other disposition of shares will not
be subject to Argentine income tax.

     The above exemption is not available in the case of Argentine resident
taxpayers falling under the provisions of Section 49(3) of the Argentine income
tax act (typically, any corporations or permanent establishments owned by a
foreign business that are subject to Argentine law). Any gains obtained by them
from a disposition of shares will therefore be taxable under Argentine law.

  Tax on Personal Assets (Individuals)

     Law No. 25,585 dated May 15, 2002 establishes that tax on personal assets
on shares issued by companies incorporated in Argentina owned by individuals or
undivided estates resident in Argentina or abroad shall be collected by the
Argentine company at the 0.5% rate and the Ps.102,300 nontaxable amount shall
not apply to this case.

     The law also includes a legal presumption that the shares of an Argentine
company that are owned by any foreign legal entity are deemed to be indirectly
owned by individuals or undivided estates and then taxed as described above.

     This provision does not apply in the case of shareholders resident in some
countries that have tax treaties with Argentina such as Spain or Chile which
establish that this kind of property is taxed only in the country where the
shareholder is resident.

     Finally, Law No. 25,721 dated January 17, 2003, has eliminated the existing
exemption to the Tax on Personal Assets for the holding of listed shares.

  Value-Added Tax

     The sale or disposition of ADSs or Class B Shares is not subject to
value-added tax.

  Other Taxes

     There are no federal inheritance or succession taxes applicable to the
ownership, transfer or disposition of ADSs or Class B Shares. There are no
federal stamp, issue, registration or similar taxes or duties payable solely as
a result of holding ADSs or Class B Shares.

  Deposit and Withdrawal of Class B Shares in Exchange for ADSs

     No Argentine tax is imposed on the deposit or withdrawal of Class B Shares
in exchange for ADSs.


                                      115
<PAGE>


  Tax Treaties

     Argentina has entered into tax treaties with several countries. There is
currently no income tax treaty or convention between Argentina and the United
States.

THE ABOVE SUMMARIES DO NOT CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX
CONSEQUENCES RELATING TO THE OWNERSHIP OF THE ADSs OR THE CLASS B SHARES.

F.   Dividends and Paying Agents.

     Not applicable.

G.   Statement by Experts.

     Not applicable.

H.   Documents on Display.

     We file annual reports on Form 20-F and furnish periodic reports on Form
6-K to the SEC pursuant to the rules and regulations of the SEC that apply to
foreign private issuers. Anyone may read and copy any of these reports at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Information on the operation of the public reference rooms
is available by calling 1-800-SEC-0330. Documents filed since October 1, 2002
can be found on the EDGAR system on the Security and Exchange Commission
website, www.sec.gov.

     Anyone may request a copy of these filings by writing or calling us at
Ingeniero Huergo 723, (C1107AOH) Buenos Aires, Argentina, attention: Investor
Relations Office, telephone 5411-4332-3890.

I.   Subsidiary Information.

     Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are exposed to market risk, including changes in interest rates and
foreign exchange rates in the normal course of our business.

     As of December 31, 2002, our consolidated total bank and financial debt in
foreign currency was the equivalent of U.S.$1,842 million. As of December 31,
2003, this amount had decreased to the equivalent of U.S.$1,543 million. And as
of December 31, 2004, it had decreased to the equivalent of U.S.$1,073 million.
The impact of foreign exchange rates during 2004 and 2003 on our net monetary
position in foreign currency, net of our exposure to inflation, amounted to a
loss of Ps.67 million and a gain of Ps.760 million, respectively. The variation
was mainly due to a devaluation of the peso by 1.7% during 2004, compared to an
appreciation of the peso by 13% during 2003. As of December 31, 2004,
consolidated current assets in foreign currency were lower than our consolidated
current liabilities in foreign currency by Ps.585 million. See Item 3: "Key
Figures--Presentation of figures in constant Argentine pesos". In May 2004,
October 2004 and February 2005, we issued negotiable obligations for Ps.163.3
million, Ps.200 million and Ps.250 million, respectively. These negotiable
obligations were issued in different series and tranches, with different
maturities and coupons. During 2004 we cancelled U.S.$337 million in loans with
Telefonica Internacional, partially with the issuance of negotiable obligations,
with self-generated funds and with loans granted by local banks. The amount of
indebtedness as a percentage of our total financial debt subject to variable
interest rates has decreased from 38% in 2003 to 18% in 2004. This is mainly due
to the cancellation of part of our debt owed to Telefonica Internacional. See
Item 5: "Operating and Financial Review and Prospects--Exchange of Notes". The
fair value of our debt in terms of U.S. dollars as of December 31, 2004
decreased by 14% compared to the fair value as of December 31, 2003, mainly due
to the payments made during 2004. In addition, the improvement in the Argentine
economic climate mentioned elsewhere in this Annual Report and in the market
perception of our risk resulted in an increase on the market prices of our
outstanding notes and, thus, a decrease in the implicit market rates we use to
discount our debt. See Item 5: "Operating and Financial Review and
Prospects--Credit Ratings". The decline in variable interest rates are reflected
in the lower spreads negotiated with our creditors,


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<PAGE>


which was partially offset by higher reference rates (LIBOR as of December 31,
2004 was 2.78% as compared to 1.22% as of December 2003).

     Set forth below is tabular information presented in our reporting
currency, Argentine pesos, with respect to our net debt defined as Debt
Obligations and the other instruments less Financial Assets (time deposits).
The table reflects principal and related exchange rates, broken out between
floating rate and fixed rate debts.

SENSITIVITY TO INTEREST RATES AND EXCHANGE RATES - NET DEBT (December 31, 2004)

<TABLE>
                                       MATURITY DATES
                               (in millions of pesos)(1)(2)                                   FAIR VALUE(3)
                           -----------------------------------                       ---------------------------
                                                                                      Under-
                                                                                      lying  Associated             Book
                            2005    2006   2007   2008   2009   Subsequent   TOTAL     Debt  Derivatives   TOTAL    Value
                           --------------------------------------------------------------------------------------------------------
<S>                        <C>     <C>    <C>    <C>    <C>     <C>          <C>      <C>     <C>          <C>      <C>
EUROPE.....................    2       2      3      8      8        37         60      61     (17)           44      60
EURO
Fixed Rate.................    8       8      8      8      8        37         78      61       -            61      78
  Average Interest
    Rate (%)............... 1.75    1.75   1.75   1.75   1.75      1.75
Swap Euros.................   (6)     (6)    (5)     -      -         -        (17)      -     (17)          (17)    (17)(4)
AMERICA....................  871     323    606    409     29     1,075      3,314   3,538      13         3,551   3,314
ARS                          405      65      0      0      0         0        470     483       -           483     470(8)
Fixed Rate.................  405       -      -      -      -         -        405     417       -           417     405(5)
  Average Interest
    Rate (%)............... 8.44
Floating Rate..............    0      65      0      0                          65      66                    66      65
  Average Interest
    Rate (%)............... 7.00    7.00

U.S.$......................  467     258    606    409     29     1,075      2,843   3,055      13         3,068   2,843(6)(7)(9)
Floating Rate..............  667       6      4      4      -         -        680     682       -           682     680
  Average Spread (%)(10)... 5.25    1.25   1.28   1.28      -
Fixed Rate................. (205)    248    598    405     29     1,075      2,150   2,373       -         2,373   2,150
  Average Interest
    Rate (%)(11)........... 3.34    9.72   9.74   8.98   8.95      8.98
Swap Euros.................    5       4      4      -      -         -         13       -      13            13      13 (4)
Exchange rate options (12)     0                                                 0               0             0       0
TOTAL......................  874     325    609    417     37     1,112      3,374   3,599      (4)        3,595   3,374
</TABLE>
---------
(1)  Exchange rate as of December 31, 2004: Ps.2.98 = U.S.$1.00.

(2)  Total may not sum due to rounding.

(3)  We calculate the fair value as follows:

     a)   Outstanding debt with related parties, bonds in pesos and financial
          debts with local banks: As it is short-term debt, and the interest
          rates have been settled recently, the fair value equals its carrying
          amounts.

     b)   U.S. dollar Bonds: The bonds are valued at market price as of
          December 31, 2004.

     c)   Other outstanding financial debt: We calculated the fair value
          considering the zero coupon curve implicit from the yield to maturity
          of our bonds due in 2006, 2007, 2008, 2010 and 2011.

     The market values indicated may not be indicative of a trend or of values
     in the mid-term future.

(4)  The net book value of Ps.4 million is included in Other receivables in the
     Consolidated Annual Financial Statements.

(5)  Net of Ps.6 million of balances with bank and mutual fund accounts.

(6)  Includes Ps.14 million corresponding to derivative financial instruments
     classified in other payables in the financial statements as of December
     31, 2004.

(7)  Excludes Ps.67 million of accrued interest included in bank and financial
     payables in the Consolidated Annual Financial Statements as of December
     31, 2004.

(8)  Excludes Ps.25 million corresponding to credit balances with banks.

(9)  Net of Ps.247 million of time deposits and treasury bills.

(10) It is the weighted average interest rate of the outstanding debt as of
     each date excluding six month U.S. Dollar LIBOR as of December 31, 2004
     (2.78%).

(11) It is the net average interest rate.

(12) Amount less than Ps.1 million. Corresponds to the Call Spreads with
     Telefonica Internacional.

     Exchange Rate Sensitivity. Since the Convertibility Law pegged the peso at
a value of Ps.1.00 per U.S.$1.00, exchange rates risks were mainly related to
changes in the value of the U.S. dollar in comparison with currencies

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<PAGE>


other than the Argentine peso. In January 2002, the Argentine government
devalued the Argentine peso and currently the peso/U.S. dollar exchange rate is
determined by a free market with certain controls. Until 2002, we did not hedge
our U.S. dollar-denominated debt because under the Convertibility Law the
peso/U.S. dollar exchange rate was essentially fixed at parity and we had our
revenues stream linked to the U.S. dollar because our rates were denominated in
U.S. dollars and converted into pesos at the end of each month. However, in some
cases we hedged U.S. dollars against yens and euros, as discussed below. Before
the Convertibility Law, according to the Transfer Contract, our rates were to be
adjusted for inflation in Argentina and in certain extraordinary circumstances,
by a specific formula which considers both the effect of the inflation and the
variation in exchange rates. Since the end of the Convertibility Law, almost all
of our revenues have been stated in pesos but almost all of our debt has been
denominated in foreign currency so we have a current mismatch between our
revenues and our financial debt in foreign currency. At present, we have adopted
the policy of hedging our exposure to exchange rate risk because of the
fluctuation of the value of the peso against foreign currencies and its effect
on our debt denominated in foreign currencies. We do not have, however,
financial instruments for trading purposes. See Item 10: "Additional
Information--Exchange Controls". Moreover, our policy does not include holding
derivative financial instruments to hedge our exposure to interest rate risk.

     See Item 3: "Key Information--Selected Financial Data--Exchange Rate
Information" and Item 4: "Information on the Company--Rates."

     We also use swap contracts to manage our exposure to exchange rate
fluctuations between currencies other than the U.S. dollar. We do not hold
derivative financial instruments for trading or other speculative purposes. As
discussed below, a swap arrangement hedged the related exposure to yen/U.S.
dollar exchange rate fluctuations associated with our incurrence of long-term,
yen-denominated debt and another swap hedged the net exposure to euro/U.S.
dollar exchange rate fluctuations associated with the net position of assets
and liabilities in euros, including the balance of loan and trade receivables.

     In September 1999, we entered into a foreign currency swap agreement with
Citibank N.A. to hedge the risk of fluctuations in the yen/U.S. dollar exchange
rate in connection with our 6.7 billion outstanding as of December 31, 2004
Japanese yen loan granted by the Export-Import Bank of Japan (currently, the
Japanese Bank of International Cooperation). The loan matures in February 2011
and accrues interest at a rate of 2.3% per annum. The swap agreement provides
for a fixed exchange rate of 104.25 yen per U.S. dollar. The interest rate paid
to Citibank N.A. under the swap agreement during the term of the loan is 7.98%
per annum. As of December 31, 2004, the amount of the related liability, taking
into account the effect of the swap and the additional interest accrued,
amounts to U.S.$71 million.

     Additionally, in December 1999, we entered into a second foreign currency
swap agreement with Citibank N.A. to hedge the risk of fluctuations in the
euro/U.S. dollar exchange rate in connection with our net position of assets
and liabilities in euros, including the balance of the loan granted by the
Mediocredito Centrale. The Mediocredito Centrale loan matures in November 2014
and accrues interest at a rate of 1.75% per annum. The swap agreement is in
effect through November 2007 and provides for a fixed-exchange rate of 0.998
euros per U.S. dollar. The interest rate paid to Citibank N.A. during the term
of the loan is 2.61% per annum.

     The swap agreements with Citibank establish typical provisions for these
types of transactions, including the acceleration of payment upon the failure
to pay financial debts for amounts in excess of 2% of our shareholders' equity.

     During 2004 we used currency forward contracts to hedge against the risks
of fluctuation in the peso/U.S. dollar exchange rate. We entered into NDFs,
pursuant to which monetary positions are offset. These instruments were used to
cover firm short-term payment commitments denominated in U.S. dollars. As of
December 31, 2004, we have no NDF's outstanding.

     In September 2004, we entered into an agreement with Telefonica
Internacional for two new strategies of exchange rate options, known as "Call
Spreads", maturing in January and February 2005. These Call Spreads consisted
of the acquisition of a call option and the sale of a call

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<PAGE>


option with different strike prices for a specific amount of currency. The
strategy with the maturity date on January 2005 had a notional value of U.S.$12
million and consisted in the acquisition of a call option at a strike price of
Ps.3.075 per U.S. dollar and the sale of a call option at a price of Ps.3.50 per
U.S. dollar. The strategy with the maturity date on February 2005 had a notional
value of U.S.$12 million and consisted in the acquisition of a call option at a
strike price of Ps.3.09 per U.S. dollar and the sale of a call option at a price
of Ps.3.50 per U.S. dollar. In both cases, the options could have been exercised
only at their maturity. The goal of this strategy was to hedge the exchange rate
risk related to our commitments to pay principal on our debt to Telefonica
Internacional, denominated in U.S. dollars. We paid, as premium, U.S.$0.4
million for each strategy. Upon maturity, the options were not exercised because
the exchange rates prevailing at those times were outside the strike prices of
the options. The cost of the premiums paid has been charged to the "holding
losses/gain from derivative instruments."

     We also had the equivalent of approximately Ps.152 million, as of December
31, 2004, of trade and other payables denominated in foreign currencies, of
which approximately Ps.118 million are U.S. dollar-denominated, as well as
approximately Ps.257 million in foreign-currency receivables and investments.

     Our results of operations are very susceptible to changes in the
peso/dollar exchange rate because our primary assets and revenues are
denominated in pesos while substantially all of our liabilities are denominated
in dollars. We estimate, based on the current composition of our balance sheet
and the fact that our revenues have been pesified and frozen, that for every
variation in the exchange rate of Ps.0.10 (plus or minus) against the peso
results in a variation, plus or minus, of approximately Ps.100 million in our
results considering our foreign currency exposure as of December 31, 2004.

     Interest Rate Sensitivity. We make interest payments under such debt
instruments periodically during the term of debt through maturity. The table
shown above does not reflect any prepayment or refinancing of indebtedness that
may occur from time to time. Weighted average variable rates in the table are
based on LIBOR as of December 31, 2004 (2.78%), which was lower than LIBOR as of
March 31, 2005 (3.40%) due to the increase in the prevailing interest rates
following the increase in U.S. rates by the U.S. Federal Reserve Board. As of
December 31, 2004, approximately 79% of our debt obligations had terms that
provide for fixed interest rates. Debt obligations with variable interest rates
are based mainly on LIBOR plus specified margins.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

A.   Debt Securities.

     Not applicable.

B.   Warrants and Rights.

     Not applicable.

C.   Other Securities.

     Not applicable.

D.   American Depositary Shares.

     Not applicable.


                                      119
<PAGE>


                                    PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

     No events required to be reported have occurred.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS.

Amendment to Certain Provisions of the Notes

     In connection with the exchange offers, we solicited proxies to amend our
notes. On July 22, 2003, a bondholder meeting was held in order to amend the
terms and conditions of our 9.125% notes due 2008. In such meeting
substantially all of the covenants and events of default, as well as certain
reporting requirements were eliminated. The covenants and events of default
that were deleted include the following:

     o    the limitation on mergers,

     o    the limitation on liens,

     o    the limitation on sale and leaseback transactions,

     o    the requirement to maintain our corporate existence and properties,

     o    the requirement that we maintain adequate insurance,

     o    the requirement that we maintain adequate books and records,

     o    the requirement that we comply with all applicable laws and material
          agreements,

     o    the requirement that we comply with the reporting requirements of the
          Exchange Act, and

     o    all events of default, including the cross-default provisions, except
          the event of default triggered by our failure to make a scheduled
          principal or interest payment on the notes, or pay any additional
          amounts due on such dates.

Reorganization Transactions

     An information statement, dated as of March 19, 2001, describing the
Reorganization Transactions, the distribution of Moviles Argentina and
Telefonica Data shares and the reduction in our capital stock has been filed
with the SEC in a report on Form 6-K dated March 22, 2001. See also Item 4:
"Information on the Company--Our History and Development--Our Reorganization".

E.   Use of Proceeds

     Not applicable.

ITEM 15. CONTROLS AND PROCEDURES.

     Our chairman and our chief financial officer are responsible of
establishing and maintaining our disclosure controls and procedures.

     Our chairman and our chief financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in the U.S.
Securities Exchange Act of 1934 under Rule 13a-15(e)) as of the end of the
period covered by this Form 20-F, have concluded that, as of such date, our
disclosure controls and procedures were effective.


                                      120
<PAGE>


     There were no significant changes in our internal controls over financial
reporting that occurred during the year ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

ITEM 16. [RESERVED].

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

     Our board of directors has determined that Mr. Guillermo Harteneck, member
of our Audit and Control Committee, meets the requirements of an "audit
committee financial expert", as defined by the SEC.

ITEM 16B. CODE OF ETHICS

     We follow the Rules of Conduct for the Financial and Accounting Departments
of the Telefonica Group in Argentina which are filed herein as Exhibit 11.1.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Deloitte acted as our independent auditor for the years 2004 and 2003. The
chart below sets forth the fees for services performed by Deloitte in the years
2004 and 2003 (including related expenses), and breaks down these amounts by
category of service in millions of pesos in historical amounts:

                                                            Total Fees
                                                   --------------------------
                                                      2004             2003
                                                   --------------------------
Audit Fees........................................  Ps.1.81          Ps.2.22
Audit-Related Fees................................  Ps.0.16          Ps.0.13
Tax Fees..........................................  Ps.0.05          Ps.0.02
All Other Fees....................................  Ps. -            Ps. -
Total.............................................  Ps.2.02          Ps.2.37

Audit Fees

     Audit fees are fees agreed upon with Deloitte for the years 2004 and 2003
(including related expenses) for the audit of our annual consolidated financial
statements and for the reviews of our quarterly financial statements submitted
on Form 6-K, including the review of our annual report on Form 20-F, other SEC
and CNV presentations (such as the offering circulars for the exchange offers
and the issuance of new bonds), certification of filings before governmental
offices.

Audit-Related Fees

     Audit-related fees in 2004 and 2003 include fees related to services not
required by any statute or regulation concerning financial accounting and
reporting standards.

Tax Fees

     Tax fees in 2004 and 2003 were related to services agreed-upon for tax
compliance.

Pre-Approval Policies and Procedures

     Our Board of Directors has established a policy of pre-approval of audit
and permissible non-audit services that shall ensure that the engagement of
external auditors preserves their capacity as independent professionals which
is inherent in the performance of their functions. In this respect, we
acknowledge that good corporate governance principles, which stand as the basis
of confidence of shareholders and other investors, include the maintenance of
the independence of the accounting auditing firms.


                                      121
<PAGE>


     Therefore, the Board has established the guidelines for a formal policy
which will establish the basis for the engagement of our external auditor to
provide audit services and permissible non-audit services. These guidelines
include:

     (1) Service categories: The services to be provided by the external
auditing firms shall be classified into the following categories:

     Permitted Services:

     o    External audit and related services: These services are inherent in
          the role of an independent auditor and include the review and
          interpretation of accounting principles and their application, the
          review of adequate support to financing, similar transactions and
          other services disclosed in our annual reports or financial
          statements on which the external auditors shall issue an opinion.
          These services shall be pre-approved by the Audit Committee or, until
          such Committee exists, by the current Audit and Control Commission on
          an annual basis.

     o    Taxes: Although these services are expressly permitted and do not
          have an adverse effect on the independence of external auditors, an
          assessment of the consulting firm ultimately engaged shall be made in
          each case.

     o    Services requiring specific approval: Other services requiring
          specific approvals are services which are specifically permitted and
          do not affect the independence of external auditors, but are not
          related to external audit services or services with regards to taxes.
          All such other services do require pre-approval by the Audit
          Committee (or by the Board) prior to engagement. This pre-approval
          shall be granted whenever the participation of an auditing firm is
          proposed for an audit job to be engaged by us for which the quoting
          of professional services is required. To this end, the Audit
          Committee shall pre-approve such services or pre-approval shall be
          required from the Director appointed for that purpose.

     Non-permitted Services: Non-permitted services are those services that may
not be provided by auditing firms as they are considered incompatible with the
role of an independent auditor.

     (2) Extension of the policy and approval intervals: This policy shall be
applied both to Telefonica de Argentina S.A. and its subsidiary Telinver and
any need to approve it on annual basis or at certain required intervals
required shall be determined in accordance with the changes introduced to
applicable regulations.

     (3) Responsibility: It was established that the responsibility for
ensuring that our external auditors are engaged only to provide such services
as may be compatible with the maintenance of their independence shall rest with
the Audit Committee or the Board of Directors.

     (4) Reporting Duties: Upon the implementation of this policy, Deloitte or
any other external auditing firm, as the case may be, shall report to us
annually regarding the services provided during the year, which shall qualify
under pre-approved categories, for assessment by our Board of the compliance
with the conditions of independence for the provision of services in accordance
with the policy defined herein, local regulations and applicable U.S.
legislation. We shall, in turn, prepare a detail of the fees paid to Deloitte &
Co. S.R.L. or to any other auditing firm, as the case may be, for auditing and
other services provided, for inclusion in the annual financial statements or
annual reports.

     (5) Delegation: The power to grant pre-approvals of permitted services
according to applicable regulations shall be granted to a Board member
fulfilling the independence requirements. These decisions shall be reported to
the Board during the first meeting convened after the granting of pre-approval.

     (6) Approval of services: External auditing and other related services and
tax services were pre-approved by the Board of Directors in detail.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     None.

                                       122
<PAGE>

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS

     None.

                                       123
<PAGE>

                                    PART III

ITEM 17. FINANCIAL STATEMENTS.

     The registrant has responded to Item 18 in lieu of responding to this
Item.

ITEM 18. FINANCIAL STATEMENTS.

Reports of Independent Public Accountants on the Consolidated Annual
Financial Statements as of December 31, 2004..............................  F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003..............  F-5

Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002..........................................  F-6

Consolidated Statement of Changes in Shareholders' Equity for the years
ended December 31, 2004, 2003 and 2002....................................  F-7

Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 2004, 2003 and 2002..........................................  F-8

Notes to Consolidated Annual Financial Statements for the years
ended December 31, 2004 2003 and 2002.....................................  F-9

ITEM 19. EXHIBITS.

Exhibit No.    Description
-------------------------------------------------------------------------------

1.1            English translation of the bylaws (Estatutos) of Telefonica de
               Argentina S.A., as amended, including the corporate charter.*

4.1            Management Contract, dated November 8, 1990, between Telefonica
               de Argentina S.A. and Telefonica de Espana S.A., together with
               an English summary thereof.**

4.2            System Operation and Maintenance Outsourcing Master Agreement
               dated June 26, 2000 by and between IBM Argentina S.A.,
               Telefonica de Argentina S.A., Telefonica Comunicaciones
               Personales S.A., Telinver S.A., Telefonica Data Argentina, and
               Telecomunicaciones y Sistemas.***

4.3            Preliminary Spin-off and Merger Agreement by and among
               Telefonica de Argentina S.A., Telefonica Data Argentina and
               Telefonica Moviles S.A. (English Translation).****

4.4            Telefonica S.A. Stock Option Agreement, dated June 26, 2001,
               between Telefonica S.A. and Telefonica de Argentina S.A.
               (English Translation).*

4.5            Agreement dated March 21, 2003 between IBM Argentina S.A.,
               Telefonica de Argentina S.A. and others (English
               Translation).*****

4.6            Extension of Management Contract, dated July 30, 2003.*******

4.7            Indenture dated August 7, 2003 among Telefonica de Argentina
               S.A., The Bank of New York, as trustee, co-registrar and
               principal agent, Banco Rio de la Plata S.A., as registrar and
               Argentine paying agent and The Bank of New York (Luxembourg)
               S.A., as Luxembourg paying agent and transfer agent in respect
               of our 11 7/8% Notes due 2007, 9 1/8% Notes due 2010, 8.85%
               Notes due 2011 and Conversion Notes due 2011.*******

4.8            Supplemental Indenture date August 7, 2003 among Telefonica de
               Argentina S.A., Deutsche Bank Trust Company Americas (successor
               to Bankers Trust Company), as trustee, co-registrar and
               principal paying agent, and Deutsche Bank S.A. (successor to
               Bankers Trust S.A.), as paying agent relating to the Indenture
               dated November 3, 1994 amount Telefonica de Argentina S.A.,
               Bankers Trust Company, as trustee, co-registrar and principal
               agent, and Bankers Trust S.A., as paying

                                      124
<PAGE>

Exhibit No.    Description
-------------------------------------------------------------------------------
               agent.*******

4.9            Preliminary Spin-off and Merger Agreement by and among
               Telefonica de Argentina S.A., Telefonica Data Argentina and
               Telefonica Moviles S.A. (English Translation).****

4.10           Telefonica S.A. Stock Option Agreement, dated June 26, 2001,
               between Telefonica S.A. and Telefonica de Argentina S.A.
               (English Translation).*

4.11           Agreement dated May 20, 2003 between Telefonica Internacional
               S.A. and Telefonica de Argentina S.A. (English
               Translation).******

8.1            List of Subsidiaries of Telefonica de Argentina S.A.

11.1           Rules of Conduct for the Financial and Accounting Departments
               of the Telefonica Group in Argentina (English Translation).

12.1           Section 302 Certification of the Chairman

12.2           Section 302 Certification of the Chief Financial Officer

13.1           Section 906 Certification of the Chairman

13.2           Section 906 Certification of the Chief Financial Officer

---------
*        Incorporated by reference to our annual report on Form 20-F for
         the fiscal year ended September 30, 2001.

**       Incorporated by reference to our Registration Statement on Form
         F-1 filed with the SEC on October 28, 1993 (Registration No.
         33-70982).

***      Incorporated by reference to our annual report on Form 20-F for
         the fiscal year ended September 30, 2000.

****     Incorporated by reference to Amendment No. 1 to our annual
         report on Form 20-F filed with the SEC on April 12, 2001
         (Commission File No. 1-12796).

*****    Incorporated by reference to our Annual Report on Form 20-F for
         the fiscal year ended December 31, 2002.

******   Incorporated by reference to our Registration Statement on Form
         F-4 filed with the SEC on May 22, 2003.

*******  Incorporated by reference to our Annual Report on Form 20-F for
         the fiscal year ended December 31, 2003.


                                      125
<PAGE>


                                   SIGNATURES

     The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

                                        TELEFONICA DE ARGENTINA S.A.


                                        By: /s/ Juan Ignacio Lopez Basavilbaso
                                           -------------------------------------
                                           Name: Juan Ignacio Lopez Basavilbaso
                                           Title: Chief Financial Officer

                                                            Dated April 6, 2005


                                      126
<PAGE>


                        Consolidated financial statements



      As of and for the fiscal years ended December 31, 2004, 2003 and 2002




<PAGE>


                          TELEFONICA DE ARGENTINA S.A.

           TABLE OF CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS


Table of Contents

Report of independent public accountants.

Consolidated Balance Sheets as of December 31, 2004 and 2003.

Consolidated Statements of Operations for the fiscal years ended December 31,
2004, 2003 and 2002.

Consolidated Statements of Changes in Shareholders' Equity for the fiscal years
ended December 31, 2004, 2003 and 2002.

Consolidated Statements of Cash Flows for the fiscal years ended December 31,
2004, 2003 and 2002.

Notes to Consolidated Financial Statements as of December 31, 2004, 2003 and
2002.


                                      F-1
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM



To the Board of Directors of
Telefonica de Argentina S.A.


1.   We have audited the accompanying consolidated balance sheets of Telefonica
     de Argentina S.A. (the "Company") ("Telefonica", an Argentine corporation)
     and its consolidated subsidiary, Telinver S.A., as of December 31, 2004 and
     2003 and the related consolidated statements of operations, changes in
     shareholders' equity and cash flows for the fiscal years ended December 31,
     2004, 2003 and 2002, prepared in accordance with generally accepted
     accounting principles applicable to consolidated financial statements in
     Argentina approved by the Professional Council of Economic Sciences of the
     City of Buenos Aires ("CPCECABA") in constant Argentine pesos, except for
     the matter mentioned in paragraph 5 of this report as required by the
     Comision Nacional de Valores ("CNV") accounting rules.

2.   The financial statements mentioned in paragraph 1 are the responsibility of
     the Company's management. Our responsibility is to express an opinion on
     the financial statements mentioned in paragraph 1 based on our audits.

3.   We conducted our audits in accordance with the standards of the Public
     Company Accounting Oversight Board (United States of America) (PCAOB
     auditing standards). Those standards require that we plan and perform the
     audit to obtain reasonable assurance about whether the financial statements
     are free of material misstatement. The Company is not required to have, nor
     were we engaged to perform, an audit of its internal control over financial
     reporting. An audit includes consideration of internal control over
     financial reporting as a basis for designing audit procedures that are
     appropriate in the circumstances, but not for the purpose of expressing an
     opinion on the effectiveness of the Company's internal control over
     financial reporting. Accordingly, we express no such opinion. An audit also
     includes examining, on a test basis, evidence supporting the amounts and
     disclosures in the financial statements, assessing the accounting
     principles used and significant estimates made by management, as well as
     evaluating the overall financial statement presentation. We believe that
     our audits provide a reasonable basis for our opinion.

4.   We did not audit the financial statements of the consolidated subsidiary,
     Telinver S.A. as of December 31, 2004 and 2003 and for the years ended
     December 31, 2004, 2003 and 2002 which statements show a negative
     shareholders' equity of $36 million, loss before income tax of $8 million
     and net loss of $2 million as of the year ended December 31, 2004. The
     financial statements of Telinver S.A. for those years were audited by other
     auditors who issued an unqualified audit report according to PCAOB auditing
     standards, dated April 4, 2005, which has been provided to us by the
     Company. Our opinion included in paragraph 7 of this report, with regard to
     the figures included in Telefonica's consolidated financial statements for
     Telinver S.A., is based on the report of such other auditors.

5.   As explained in note 2.2 to the accompanying consolidated financial
     statements, Decree No. 664/03 of the National Executive Power and General
     Resolution No. 441/03 of the CNV suspended the application of the method of
     inflation adjustment as from March 1, 2003. In accordance with generally
     accepted accounting principles in Argentina as promulgated by the CPCECABA,
     the requirement to restate the financial statements to reflect the effects
     of inflation was in effect until September 30, 2003. In compliance with the
     provisions of Decree No. 664/03 of the National Executive Power and General
     Resolution No. 441/03 of the CNV, the consolidated financial statements of
     the Company and its subsidiary have been restated for inflation through
     February 2003. The Company indicates in note 2.2 to the accompanying
     consolidated financial statements that, had the financial statements been
     restated for inflation in accordance with generally accepted accounting
     principles in Argentina as promulgated by the CPCECABA, the Company's
     shareholders' equity and net income for the fiscal year ended December 31,
     2003 would have amounted to approximately $2,628 million and $305 million,
     respectively. The Company states in note 2.2 that this effect as of and for
     the fiscal year ended December 31, 2004 is not significant.



                                      F-2


<PAGE>

6.   As described in note 10.1. to the accompanying consolidated financial
     statements, since the beginning of 2002 the Company has been unable to
     raise its regulated service rates due to the provisions of both the
     Economic Emergency Law No. 25,561 and the Renegotiation of Contracts
     Law No. 25,790. Note 1 to the consolidated financial statements
     describes that although the Company has adopted several initiatives to
     mitigate the current impact of this situation, and certain indicators of
     the Argentine economy are currently showing favorable signs, future
     operating conditions might not continue to be stable because, in the
     Company's Management opinion, the regulatory framework in force has still
     not established the rules to allow reinstating the balance of the variables
     that constitute the Company's economic and financial equation. The Company
     has described in such notes that, if as a result of the tariff
     re-negotiation, future rates evolve at a pace that does not allow restoring
     Telefonica's economic and financial equation, such rate system could have
     an adverse impact on the Company's financial condition and future results
     of operations.

7.   In our opinion, based on our audits and the report of the other auditors
     mentioned in paragraph 4, the consolidated financial statements mentioned
     in paragraph 1 present fairly, in all material respects, the consolidated
     financial position of Telefonica and its subsidiary as of December 31, 2004
     and 2003, and the results of their operations and their cash flows for the
     fiscal years ended December 31, 2004, 2003 and 2002 in conformity with
     professional generally accepted accounting principles in Argentina approved
     by the CPCECABA, except for the lack of restatement of the consolidated
     financial statements as of December 31, 2003 to reflect the effects of
     inflation until September 30, 2003 as described in paragraph 5 of this
     report.

8.   CNV and professional accounting principles generally accepted in Argentina
     followed by the Company (see paragraph 1 of this report) applicable to
     consolidated financial statements vary in certain significant respects from
     generally accepted accounting principles in the United States of America.
     The application of the latter would have affected the determination of net
     loss for the fiscal year ended December 31, 2004, net income for the fiscal
     year ended December 31, 2003 and net loss for the fiscal year ended
     December 31, 2002, and the determination of shareholders' equity and
     financial position at December 31, 2004 and 2003, to the extent summarized
     in note 20 to the financial statements.




Buenos Aires,
   April 5, 2005
                                           DELOITTE & Co. S.R.L.
                                           C.P.C.E.C.A.B.A. Vol. 1 - Fo 3



                                           ALBERTO LOPEZ CARNABUCCI
                                           (Partner)
                                           Certified Public Accountant - U.B.A.
                                           C.P.C.E.C.A.B.A. Vol. 212 - Fo 200


                                      F-3

<PAGE>


           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board ofDirectors and Shareholders
of Telinver S.A.

In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholders' deficit and of cash flows present fairly, in
all material respects, the financial position of Telinver S.A. at December 31,
2004 and 2003, and the results of its operations, changes in shareholders'
equity and cash flows for the years ended December 31, 2004, 2003 and 2002, in
conformity with accounting principles generally accepted in Argentina. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

Accounting principles generally accepted in Argentina vary in certain
significant respects from accounting principles generally accepted in the United
States of America and as allowed by Item 18 to Form 20-F. Information relating
to the nature and effect of such differences is presented in Note 13 to the
fmancial statements.


Price Waterhouse & Co. S.R.L.

By_________________________________ (Partner)
            Hector A. Lopez

Buenos Aires, Argentina
April 4, 2005


                                      F-4
<PAGE>


                          TELEFONICA DE ARGENTINA S.A.

          CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003

<TABLE>
(amounts stated in millions of Argentine Pesos, restated as described in note 2.2.)

                                                              December-04    December-03
                                                              --------------------------
<S>                                                           <C>            <C>
ASSETS
CURRENT ASSETS

Cash (note 3.1.a)                                                    15             18
Investments (note 21.c and 21.d)                                    259            336
Trade receivables (note 3.1.b)                                      324            249
Other receivables (note 3.1.c)                                       84            126
Inventories (note 3.1.d)                                              8             13
Other assets (note 3.1.e)                                             3              3
                                                              --------------------------
   Total current assets                                             693            745
                                                              --------------------------
NONCURRENT ASSETS

Trade receivables (note 3.1.b)                                        4             12
Other receivables (note 3.1.c)                                      163            116
Investments (note 21.c)                                               1             15
Fixed assets (note 21.a)                                          6,596          7,342
Intangible assets (note 21.b)                                        67             82
                                                              --------------------------
   Total noncurrent assets                                        6,831          7,567
                                                              --------------------------
   Total assets                                                   7,524          8,312
                                                              ==========================
LIABILITIES
CURRENT LIABILITIES

Trade payables (note 3.1.f)                                         424            417
Bank and financial payables (note 3.1.g)                          1,209          1,982
Payroll and social security taxes payable (note 3.1.h)               80             73
Taxes payable (note 3.1.i)                                           95             78
Other payables (note 3.1.j)                                          63             75
Reserves (note 21.e)                                                  4              3
                                                              --------------------------
     Total current liabilities                                    1,875          2,628
                                                              --------------------------
NONCURRENT LIABILITIES

Trade payables (note 3.1.f)                                          67             69
Bank and financial payables (note 3.1.g)                          2,500          2,553
Payroll and social security taxes payable (note 3.1.h)               16             19
Other payables (note 3.1.j)                                          29             46
Reserves (note 21.e)                                                267            219
                                                              --------------------------
     Total noncurrent liabilities                                 2,879          2,906
                                                              --------------------------
     Total liabilities                                            4,754          5,534

SHAREHOLDERS' EQUITY                                              2,770          2,778
                                                              --------------------------
     Total liabilities and shareholders' equity                   7,524          8,312
                                                              ==========================
</TABLE>

   The accompanying notes 1 to 21 are an integral part of these consolidated
                             financial statements.





                              MARIO EDUARDO VAZQUEZ
                                    Chairman




                                       F-5
<PAGE>


                          TELEFONICA DE ARGENTINA S.A.

           CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS
                     ENDED DECEMBER 31, 2004, 2003 AND 2002


<TABLE>
(amounts stated in millions of Argentine Pesos, restated as described in note 2.2.)

                                                              December-04   December-03   December-02
                                                              ---------------------------------------
<S>                                                           <C>           <C>           <C>
NET REVENUES (4)                                                   3,047        2,750          3,060

COST OF SERVICES PROVIDED (note 3.1.k)                            (1,936)      (1,992)        (2,235)
                                                              ---------------------------------------
Gross profit                                                       1,111          758            825

ADMINISTRATIVE EXPENSES (note 21.h)                                 (334)        (352)          (436)

SELLING EXPENSES (note 21.h)                                        (190)        (163)          (442)
                                                              ---------------------------------------
Subtotal                                                             587          243            (53)

LOSS ON EQUITY INVESTMENTS                                            (1)          (3)             2

HOLDING AND FINANCIAL INCOME/(LOSS) ON ASSETS (1)
       Exchange differences                                            5          (74)            99
       Interest and financial charges                                 32           59             (2)
       Holding gain from derivative instruments                        4            4              -
       Holding gain / (loss) from Patriotic Bond (note 21.e)           5          (60)             -
       Inflation loss on monetary accounts                             -           (3)          (810)
       Other (note 3.1.m)                                              -            -            (17)

HOLDING AND FINANCIAL INCOME / (LOSS) ON LIABILITIES (2)
       Exchange differences                                          (72)         834         (2,570)
       Interest and financial charges                               (412)        (525)          (686)
       Inflation gain on monetary accounts                             -            4            752
       Holding (losses) / gain from derivative instruments            (1)          23              -
       Other (note 3.1.m)                                            (23)         (26)           (24)

OTHER EXPENSES, NET (note 3.1.l and 21.h)                           (137)         (71)          (153)
                                                              ---------------------------------------
Net (Loss) / before Income Tax                                       (13)         405         (3,462)

INCOME TAX (note 2.3.k)                                                5            -             51
                                                              ---------------------------------------
Net (Loss) / Income                                                   (8)         405         (3,411)
                                                              ---------------------------------------

(Losses) / Earnings per share (3)                                 (0.005)        0.23          (1.95)
(Losses) / Earnings per ADS (3)                                    (0.05)        2.32         (19.54)
</TABLE>


     (1)  Mainly related to current investments, trade receivables, other
          receivables and inventories.
     (2)  Mainly related to trade, bank and financial and other payables.
     (3)  Diluted earnings per share and ADS are the same as earnings per share,
          as there are no outstanding options to purchase shares. Amounts
          expressed in Argentine Pesos (note 2.3.n).
     (4)  See note 2.3.m)



   The accompanying notes 1 to 21 are an integral part of these consolidated
                             financial statements.




                              MARIO EDUARDO VAZQUEZ
                                    Chairman


                                       F-6
<PAGE>


                          TELEFONICA DE ARGENTINA S.A.

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

           FOR THE FISCAL YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
(amounts stated in millions of Argentine Pesos, restated as described in note 2.2.)

                                                      SHAREHOLDERS' CONTRIBUTION         ACCUMULATED LOSSES (2)
                                            ---------------------------------------------------------------------------
                                                    CAPITAL STOCK (1)
                                            ------------------------------        Legal Reserve Accumulated
                             ACCOUNT                     Comprehensive                       for
                                            Outstanding  adjustment to                      Future
                                               shares    capital stock  Subtotal  Reserve  dividends  (Losses)   TOTAL
-----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>            <C>       <C>      <C>        <C>        <C>
Balance as of December 31, 2001                  1,746       2,135        3,881       416      1,626     (102)    5,821

Net loss for the fiscal year ended
  December 31, 2002                                  -           -            -         -          -   (3,411)   (3,411)
                                            ---------------------------------------------------------------------------
Balance as of December 31, 2002                  1,746       2,135        3,881       416      1,626   (3,513)    2,410

Transition adjustment for change in
  accounting principles (3)                          -           -            -         -          -      (37)      (37)

Net income for the fiscal year ended
  December 31, 2003                                  -           -            -         -          -       405      405
                                            ---------------------------------------------------------------------------
Balance as of December 31, 2003                  1,746       2,135        3,881       416      1,626   (3,145)    2,778

Net loss for the fiscal year ended
  December 31, 2004                                  -           -            -         -          -       (8)       (8)
                                            ---------------------------------------------------------------------------
Balance as of December 31, 2004                  1,746       2,135        3,881       416      1,626   (3,153)    2,770
                                            ===========================================================================
</TABLE>


     (1)  Includes 2,355 treasury shares.
     (2)  See note 4.
     (3)  Adjustment of balance at the beginning of the year of accumulated
          losses due to the application for the first time of the accounting
          rule for measuring derivative financial instruments.



   The accompanying notes 1 to 21 are an integral part of these consolidated
                             financial statements.





                              MARIO EDUARDO VAZQUEZ
                                    Chairman


                                       F-7
<PAGE>


                          TELEFONICA DE ARGENTINA S.A.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS (1)

           FOR THE FISCAL YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
(amounts stated in millions of Argentine Pesos, restated as described in note 2.2.)

                                                                             December-04    December-03   December-02
                                                                            -----------------------------------------
<S>                                                                                 <C>             <C>          <C>
               Cash and cash equivalents at end of year (7)                          266            354          399

               Cash and cash equivalents at beginning of year                        354            399          147
                                                                            -----------------------------------------
               Decrease in cash and cash equivalents                                (88)            (45)         252
                                                                            =========================================
               CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS

               Net (loss) / income for the fiscal year                               (8)            405       (3,411)
               Adjustments to reconcile net (loss)/income
                 for the fiscal year to net cash provided by operations:
                  Income Tax                                                         (5)              -          (51)
                  Exchange differences (2)                                            69          (806)        2,486
                  Inflation gain on monetary accounts (10)                             -            (1)           (1)
                  Fixed assets depreciation                                        1,127          1,285        1,351
                  Material consumption                                                56             35           60
                  Net book value of fixed assets retired                               -              -            6
                  Net book value of intangible assets retired                          -              -            8
                  Intangible assets amortization                                      17             24           42
                  Cost of services provided                                           49             46           54
                  Holding losses/(gains) derivative instruments                       (3)           (27)           -
                  Holding gain on Patriotic Bond                                      (5)             -            -
                  Increase in allowances and accruals  (3)                           192            189          317
                  Loss/(income) on equity investments                                  1              3           (2)
                  Holding losses in inventories                                        -              -            9
                  Interest Accrued (6)                                               324            403          689

               Changes in assets and liabilities:
                  Trade receivables                                                 (117)             4          284
                  Other receivables                                                   28              5            -
                  Inventories                                                        (49)           (44)         (39)
                  Current Investments                                                  5              -            -
                  Trade payables                                                     (32)           (26)        (190)
                  Payroll and social security taxes payable                            4             (8)          (7)
                  Taxes payable                                                       43             45         (137)
                  Other payables                                                     (17)             5          (44)
                  Reserves                                                           (80)            (2)           -
                  Collected interests                                                 14             29           41
                  Payment of tax on minimum presumed income                          (44)           (75)           -
                                                                            -----------------------------------------
               Cash flows originated by operating activities                       1,569          1,489        1,465
                                                                            -----------------------------------------
               Cash flows used in investing activities:
                   Fixed assets purchases (4) (8) (9)                               (387)         (141)         (136)
                                                                            -----------------------------------------
               Cash flows used in investing activities                              (387)         (141)         (136)
                                                                            -----------------------------------------
               Cash flows used in financing activities:
                   Loans obtained                                                    565             39            -
                   Loans paid                                                     (1,471)          (954)        (692)
                   Interest paid                                                    (362)          (462)        (372)
                   Increase in intangible assets (5)                                  (2)           (16)         (13)
                                                                            -----------------------------------------
               Cash flows used in financing activities                            (1,270)        (1,393)      (1,077)
                                                                            -----------------------------------------
               (Decrease)/Increase in cash and cash equivalents                      (88)           (45)         252
                                                                            =========================================
</TABLE>

     (1)  Cash and cash equivalents (current investments) with maturities not
          exceeding three months are considered to be cash and cash equivalents
          which totaled: (i) 15 and 251, respectively, as of December 31, 2004;
          (ii) 18 and 336, respectively, as of December 31, 2003 (cash at
          beginning of the fiscal year), and (iii) 46 and 353, respectively, as
          of December 31, 2002.
     (2)  In 2004, 2003 and 2002, net of 2, (46) and 15 million, respectively,
          corresponding to the exchange difference net of monetary gain (loss)
          originated by cash and cash equivalents in foreign currency.
     (3)  It does not include increases/decreases of allowances of deferred
          taxes.
     (4)  In 2004 and 2003, net of 41 and 45, respectively, financed by trade
          payables. In 2002, net of 15 financed by bank and financial payables.
     (5)  In 2003 and 2002 net of 3 and 12 million, respectively financed by
          trade payables.
     (6)  Net of other financial charges.
     (7)  In 2004, cash as of year-end does not include 8 million corresponding
          to Other Investments (see notes 2.3.b) and 18)
     (8)  In 2004, net of 9 million of transfers of inventories to fixed assets
     (9)  In 2002, net of 29 of capitalized exchange differences.
     (10) In 2002, net of (59) corresponding to monetary loss originated in
          local currency cash and cash equivalents.

   The accompanying notes 1 to 21 are an integral part of these consolidated
                             financial statements.


                              MARIO EDUARDO VAZQUEZ
                                    Chairman


                                       F-8
<PAGE>


                          TELEFONICA DE ARGENTINA S.A.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004, 2003
                                    AND 2002


     (amounts stated in millions of Argentine Pesos (except where expressly
  indicated that figures are stated in Argentine Pesos or some other currency)
                       restated as described in note 2.2)

1.   OPERATIONS OF THE COMPANY

Telefonica de Argentina S.A. ("Telefonica" or "the Company") has been granted a
license for an unlimited period of time to provide Basic Telephone Services to
the Southern Region of Argentina (the "Southern region license"), which was
exclusive until late 1999.

Additionally, the Company signed a license agreement with the Secretary of
Communications ("S.C.") for an unlimited period of time, to provide local and
domestic and international long-distance telephone services and telex services
in the Northern region of the country. The Company's obligations under this
license mainly relate to service quality and coverage of the areas to be
serviced.

On June 9, 2000, the National Executive Power issued Decree No. 465/00 which
provided the complete deregulation of the telecommunications market as from
November 9, 2000.

On September 3, 2000, the National Executive Power issued Decree No. 764/00
which, in the context of such deregulation, approved the Rules for Licenses for
Telecommunication Services, the Rules for Interconnection, the Rules for
Universal Service and the Rules for the Management and Control of Radioelectric
Spectrum. These rules constitute the current regulatory framework applicable to
the Company. On September 19, 2000, the Company filed a reconsideration petition
against certain specific issues of Decree No. 764/00. The Court has not as yet
ruled on this issue.

The Company's short-term strategy has been to adapt its business plans to
address the challenges and risks presented by the Argentine economic crisis.
Therefore the short-term strategy has focused on the renegotiation of tariffs
and, since early 2002, the Company has been taking certain steps to moderate the
effects of the imbalance between changes in revenues and costs caused by the
significant increase in the prices of supplies and the cost of
technology-related investments usually required by the business that the Company
operates, and the situation affecting service rates described in note 10.1. Some
of these measures include: i) capital expenditures controls, ii) operating costs
reduction, iii) increased collection rates and, iv) debt renegotiation, cash
management and roll-over of short-term debt.

The relationship between variables determining revenues and expenses is
currently mismatched as a result of the "pesification" and freezing of our
tariffs within the context of a potentially inflationary economy and may
continue to be mismatched depending upon the outcome of our pending tariff
renegotiation with the Argentine government. Our tariff renegotiation proposal
presented to the Argentine government attempts to rebalance the relationship
between variables determining revenues and costs (including investments), i.e.
to achieve the "economic and financial equation" contemplated in the Transfer
Contract (the "economic and financial equation"). (See note 10.).

As of the date of issuance of these financial statements, changes in main
macroeconomic variables, such as growth of the economy and evolution of the
exchange rate and inflation, show positive signs. Therefore, in the opinion of
the Company's Management, there is greater certainty in the operating and
economic environment due to, among other factors, a relative stabilization in
the Peso equivalent amounts of its foreign currency denominated debt, due to the
financing already obtained and the gradual reduction of its short term debt (See
notes 2.3.g) and 13).

Although the Company has adopted the above mentioned measures to mitigate the
effects of changes in its business resulting from the issue described in the
above paragraphs, and certain indicators of the Argentine economy are currently
showing favorable signals, the future operating conditions and characteristics
might not continue to be stable because the regulatory framework in force has
still not established the rules to allow reinstating the balance of the
variables that constitute the Company's


                                       F-9
<PAGE>


economic and financial equation.

Telefonica has signed a Management Agreement (the "Agreement") with its operator
and majority shareholder, Telefonica S.A. ("TESA", formerly known as Telefonica
de Espana S.A.). Under this Agreement, the complete management of Telefonica is
entrusted to the operator. Such agreement was automatically extended until April
2003 at TESA's option. On October 30, 2002, TESA notified the Company that it
intended to exercise the option to extend the duration of the Agreement for an
additional period of five years to be counted as from April 30, 2003. Until that
date the management fee amounted to 9% of the company's "gross margin", as
defined in the agreement. On July 30, 2003, the Company entered into a
Supplement to the Agreement, confirmed by the General Shareholders' Meeting held
on April 19, 2004, pursuant to which the management fee as from May 1, 2003 was
reduced to 4% of the gross margin.

On April 10, 2002, the Company's General Ordinary and Special Shareholders'
Meetings approved an amendment to the corporate purpose. The corporate purpose
was broadened for the Company to be able to engage in other types of businesses
not strictly related to rendering telecommunications services, including:
purchasing equipment, infrastructure, and telecommunications-related goods, as
well as rendering any type of services, such as consulting and accounting, human
resources and tax administration services. In view of the broadening of the
corporate purpose, it is necessary to obtain the related authorization of the
telecommunication regulatory authorities. The related request has been made to
the S.C. and is pending. Therefore, the changes to our corporate purpose are
subject to administrative approval by the S.C.


2.   SIGNIFICANT ACCOUNTING POLICIES

     2.1. Consolidated financial statements

     The consolidated financial statements of the Company have been prepared in
     accordance with Technical Resolution ("TR") No. 19 of the Argentine
     Federation of Professional Councils in Economic Sciences ("FACPCE")
     applicable to consolidated financial statements.

     In accordance with generally accepted accounting principles and current
     Argentine legislation, the presentation of the parent company's
     unconsolidated financial statements is mandatory. Consolidated financial
     statements are to be included as supplementary information to the
     unconsolidated financial statements. For the purpose of these financial
     statements, unconsolidated financial statements have been omitted since
     they are not required for SEC reporting purposes.

     The Company has consolidated its financial statements as of December 31,
     2004, 2003 and 2002 line by line, with the financial statements as of that
     date of Telinver S.A. ("Telinver"), a company in which Telefonica holds a
     controlling interest.

     Telinver's financial statements were prepared on the basis of valuation
     criteria consistent with those applied by the Company.

     Participation in the directly controlled subsidiary as of December 31, 2004
     is as follows:

<TABLE>
                                                                      Subscribed capital stock
                                                                   --------------------------------
                                                                     Amount in
                                                                     Argentine
             Company                Main Business                      Pesos        % of votes
            ---------------------------------------------------------------------------------------
            <S>        <C>                                          <C>              <C>
            Telinver   Commercial, investment and                   49,623,217       99.99999
                       telecommunications services supplied among
                       others.
</TABLE>

     2.2. Presentation of financial statements in constant Argentine Pesos

     Until the three-month period ended March 31, 2002, the Company's financial
     statements have been prepared recognizing the effects of changes in the
     purchasing power of money only through August 31, 1995, (maintaining the
     restatements recorded until that date), by the restatement of amounts to
     constant pesos, by means of the application of the restatement method in
     constant currency as set forth by FACPCE in effect as of that date.
     Effective September 1, 1995, for

                                       F-10
<PAGE>


     Argentine GAAP purposes, and considering the then current economic
     stability conditions, and according to the requirements of the National
     Securities Commission (Comision Nacional de Valores or "CNV"), the Company
     discontinued application of the restatement method. This accounting
     criterion was applied under Argentine GAAP until December 31, 2001.

     In 2002, as a result of the new inflationary conditions, and the changes to
     the Argentine economic model resulting from the enactment of the Public
     Emergency and Exchange System Reform Law, the Professional Council of
     Economic Sciences of the City of Buenos Aires "CPCECABA" approved the
     reinstatement of inflation accounting in financial statements for fiscal
     years or interim periods ended on March 31, 2002 in accordance with
     Argentine professional accounting principles, and provided that all
     recorded amounts restated by changes in the general purchasing power until
     the suspension of such adjustments and any other amounts originated in
     transactions during the stability period are to be considered stated in
     currency of December 2001.

     Decree No. 1,269/02 of the National Executive Power and later Resolution
     No. 415/02 of the CNV, reestablished the requirement of presentation of
     financial statements in constant currency. Nevertheless, in 2003, Decree
     No. 664/03 of the National Executive Power and the later Resolution No.
     441/03 of the CNV set forth again that as from March 1, 2003, the
     restatement of financial statements in constant currency should be
     discontinued.

     However, the CPCECABA discontinued the application of the method that
     required restatement into constant currency as from October 2003. In
     accordance with the above, the financial statements of the Company as of
     December 31, 2004 and 2003 have been prepared recognizing the effects of
     variations in the purchasing power of the Argentine peso until February 28,
     2003 (restated according to the changes in the Argentine wholesale price
     index published by the Argentine Institute of Statistics and Census
     ("INDEC")) in compliance with the regulations issued by the National
     Executive Power and the CNV (the accumulated effect between January 1, 2003
     and September 30, 2003 was a 1.4% decrease). The effect on the Company's
     shareholders' equity as of December 31, 2004 and on net loss for the fiscal
     year ended December 31, 2004 of not restating figures until September 30,
     2003 is not significant. The shareholders' equity as of December 31, 2003
     and the net income for the fiscal year ended December 31, 2003 would have
     amounted to 2,628 million Pesos and 305 million Pesos, respectively, if
     they had been restated as of September 30, 2003.

     2.3. Valuation methods

     The Company applied the valuation criteria established by professional
     accounting principles applicable to the Company and approved by the
     CPCECABA, which, in their application to the transactions and the balances
     included in these financial statements, and except for the matter mentioned
     in note 2.2 with respect to the corresponding amount as of December 31,
     2003, do not differ significantly from the valuation criteria established
     by CNV regulations.

     The preparation of financial statements in conformity with generally
     accepted accounting principles in Argentina requires Management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities, the disclosure of contingent assets and liabilities at the
     date of these financial statements and the reported amounts of revenues and
     expenses during each fiscal year.

     Among others, these financial statements reflect the effects of economic
     and foreign exchange regulations that were known as of the date of issuance
     of these financial statements. All management estimates have been made
     accordingly (see notes 2.3.g), 2.3.k), 2.5, 10, 13 and 14, among others,
     for material estimates concerning the effects of the crisis in Argentina
     and related economic and regulatory government actions). Some of these
     measures, which directly and indirectly affect the Company's business
     relationships, have been challenged in legal actions filed by third parties
     to which the Company is not party. The effects of any additional measures
     that could be taken by the Government and the implementation of those
     already adopted, as well as the effects of potential modifications
     resulting from such legal actions, will be accounted for when the Company's
     Management becomes aware of them.

     Final results may differ from those estimated by the Company's Management.
     Accordingly, the decisions that are to be made in reliance on these
     financial statements should consider the


                                      F-11
<PAGE>


     potential future development of such governmental actions, and the
     Company's financial statements should be read in light of these
     circumstances.

     The principal valuation methods are as follows:

     a)   Cash:

     Amounts in Argentine Pesos: stated at nominal value, including financial
     income/expense accrued through the end of each fiscal year.

     Amounts in foreign currency: stated at the exchange rate applicable to its
     settlement in effect at the end of each fiscal year, according to the
     intended use by the Company, including accrued financial income/expense, if
     applicable.

     b)   Current Investments:

     Investments in mutual funds: measured at their net realization value.

     Intelsat: Telefonica's interest in Intelsat Ltd. (formerly known as
     International Telecommunications Satellite Organization ("Intelsat")) as of
     December 31, 2004, was accounted for at the U.S. dollar amount of paid-in
     capital, stated at the exchange rate applicable to its settlement in effect
     at the end of each fiscal year, up to the limit of its interest valued by
     the equity method, determined on the basis of the latest available
     financial information (see note 18). As of December 31, 2003, this
     investment was recorded in Non-Current Investments.

     c)   Receivables and payables:

     Receivables and payables in local currency: at nominal value, plus the
     financial results accrued as of the end of each fiscal year, which does not
     significantly differ from the accounting measurement obtained by
     calculating the discounted value of the cash flows that would be derived
     from such assets and liabilities.

     Receivables and payables in foreign currency: valued at the exchange rates
     applicable to their settlement prevailing as of the end of each fiscal
     year, in accordance with the uses intended by the Company, plus, if
     applicable, the financial results accrued as of those dates, which do not
     differ significantly from the measurement of the discounted value based on
     the rate of the transaction.

     As long as Law No. 25,561 (Public Emergency and Exchange Regime Reform Law)
     is still in force, the interpretation of the CPCECABA has been that the
     discount rate to be used would be such as stated in the transaction, and in
     the absence of such rate or a representative rate for the transaction, the
     interest rate quoted by Banco de la Nacion Argentina for savings accounts
     will be taken into account. As of December 31, 2004 and 2003 this rate
     stood at approximately 1% nominal per annum. This criterion was not applied
     to current captions because the CPCECABA has interpreted that the low level
     of variation in the internal wholesale price index allows for considering
     the period as one of economic stability.

     Trade receivables: include services provided and settlements with foreign
     correspondents, both billed, and accrued but unbilled as of the end of each
     fiscal year, the latter being determined based upon information about
     actual consumption, subsequent billings and estimates using historical
     data.

     Trade receivables are disclosed net of the allowance for doubtful accounts,
     which has been assessed based on historical data and the estimated trend of
     collections. The Company includes as a receivable the portion accrued as of
     each year-end of the surcharge for late payment included in the invoices
     for payments until the "second due-date" of the invoice. For amounts that
     are past-due beyond the second due-date provided in the original invoice,
     the interest for late payment is recorded in the cases in which the Company
     estimates that it will be recovered.

     Prepaid services: Since baseline services committed to be rendered by IBM
     (IBM Argentina S.A.) over the duration of the contract will be received by
     the Company in uniform quantities over the duration of the contract, the
     baseline service total original cost of 218.9 million is accrued based on
     the straight line method over the duration of the contract. So, prepaid
     services balance included


                                       F-12
<PAGE>


     in Other Receivables (IBM agreement) relating to
     the baseline services received includes (see note 9.1):

     (a)  The balance of the decreasing monthly installments paid to IBM as of
          each year-end less the cost accrued on the straight line method basis
          over the term of the agreement as of each of those dates. Annual
          increases in service costs as agreed upon between the parties (see
          note 9.1) are accrued and recorded in the statement of operations by
          the Company as from the fiscal year in which such increases occur.

     (b)  Deferred gain: because of the interdependence of terms and the
          continued involvement by the Company in the assets transferred, the
          Company did not recognize any gain from the sale of the assets
          similarly to a sale and operating leaseback and, so, the gain is
          deferred and amortized ratably over the term of the services agreement
          as an adjustment to the cost accrued for the services mentioned in
          (a).

     "Patriotic Bond": In 2004 and 2003, this bond has been valued for at its
     estimated recoverable value, recording an allowance for impairment as a
     result of the Argentine Government's decision in 2003 to suspend the tender
     system for offsetting purposes against taxes and to include that bond on
     the list of eligible bonds for sovereign debt restructuring. The Company
     considered for the valuation of this bond the fair value of bonds in
     comparable situation. In 2002, and while it was being offset against taxes
     (see note 14) this bond was accounted for at face value in foreign
     currency, stated at the exchange rate applicable to its settlement
     prevailing as of the end of the year, in accordance with the uses intended
     by the Company plus the financial income accrued until that date, which did
     not differ significantly from the measurement at the discounted value based
     on the rate of the instrument.

     Tax Credit Certificates ("TCC"): As of December 31, 2003 were accounted for
     at face value in U.S. dollars pesified at the rate of $1.40=U.S.$ 1 plus
     the benchmark stabilization coefficient ("CER") and the financial income
     accrued until the end of the fiscal year, which do not differ significantly
     from the measurement at the discounted value based on the rate of the
     instrument (see note 14.).

     Universal Service contribution (see note 16): the Company calculates the
     charge for the Universal Service contribution, consisting in 1% of revenues
     from telecommunications services, net of automatic deductions (deductions
     not requiring regulatory approval) provided by the related Regulation and
     in accordance with Company's estimates of the amounts payable within each
     fiscal year, since the detailed rules of calculation and payment of this
     tax are still pending. If resulting in a balance payable to the Universal
     Service fund, such net amount is booked as liability. On the other hand,
     all deductions and subsidies that must first be approved by the regulatory
     entity will be booked by the Company as receivable in each year in which
     its reimbursement is approved by such entity.

     d)   Inventories:

     Raw materials related to paper for printing directories have been accounted
     for at replacement cost, which does not exceed their estimated realizable
     value.

     Costs related to directories in edition process have been accounted for at
     their production cost adjusted for inflation (see note 2.2.). This amount
     does not significantly differ from reproduction cost and does not exceed
     its estimated realizable value.

     Equipment and supplies for selling (including telephone accessories and
     prepaid cards) have been accounted for at the replacement cost up to the
     limit of their estimated realizable value.

     Inventories are accounted for net of the allowance for impairment in value
     and slow turnover, determined based on inventory recoverability analysis at
     the end of each fiscal year.

     e)   Other assets:

     Other assets include buildings no longer used in Company's operations and
     intended for sale. The carrying book value has been recorded based on its
     estimated realizable value.



                                      F-13
<PAGE>

     f) Noncurrent Investments:

     The 50% interest in E-Commerce as of December 31, 2004 and 2003 was
     accounted for by the equity method based on the financial statements as of
     December 31, 2004 and 2003, respectively, prepared in accordance with
     accounting principles consistent with those used by the Company.

     Other investments:

     New Skies Satellites: As of December 31, 2003 this interest was valued on
     the basis of the U.S. dollar amount of paid-in capital, stated at the
     exchange rate applicable for its settlement, prevailing at the end of the
     fiscal year, up to the limit of its interest valued by the equity method,
     determined in accordance with the latest financial information available.
     On July 19, 2004, the Special Shareholders' Meeting of New Skies Satellites
     N.V. decided the liquidation of the company and the sale of 100% of its
     assets to "The Blackstone Group" subsidiaries; the Company accounted for
     the liquidation and sale of its interest in New Skies Satellites N.V. in
     the current fiscal year, which has it had, a significant impact as a result
     of the transaction.

     g)   Fixed assets:

     The fixed assets received from Empresa Nacional de Telecomunicaciones
     ("ENTel") have been valued at their transfer price. Subsequent additions
     have been valued at cost. All figures have been restated as described in
     note 2.2 and depreciated by the straight-line method over their remaining
     useful lives. When the construction of work in process extends over time,
     its value includes the cost net of the effect of inflation, if applicable,
     of financing by third parties related to the investment during the
     construction period until such time as the asset is ready to be used for a
     productive purpose. Capitalized interest included in construction in
     process during the fiscal years ended December 31, 2004 and 2003 amounts to
     8 million pesos and capitalized interest and exchange difference net of the
     effect of inflation, if applicable, included in construction in process for
     the fiscal year ended December 31, 2002 totaled 37 million pesos (includes
     29 million pesos of capitalized exchange difference).

     For fixed assets whose operating condition warrants replacement earlier
     than the end of the useful life assigned by the Company to the fixed asset
     category, the Company calculates the depreciation charge based on the
     adjusted remaining useful life in accordance with the related assets
     replacement.

     Fixed assets relating to Telefonica de Argentina's telecommunications
     business were assessed for impairment based on their recoverable value on
     the basis of the Company Management's best estimate of future cash flows of
     its telecommunications business, considering current information and future
     telephone service rates estimates. The Company has monitored the evolution
     of the macroeconomic variables that affect its business and, from time to
     time, it has adjusted its projections based on the latest trends. As
     explained in note 1, the main macroeconomic variables have shown a relative
     stabilization. In the opinion of the Company's management, based on the
     preparation of projections based on such trends and the consideration of
     operating strategies available for possible scenarios, the Company will
     generate future cash flows sufficient to recover the balances corresponding
     to its fixed assets. Notwithstanding the foregoing, as explained in note
     10.1, the Company will continue to monitor the situation and will assess
     the effect of any new future developments.

     h)   Intangible assets:

     Trademarks and the license to use the logo were valued at acquisition cost
     restated as described in note 2.2, net of accumulated amortization which is
     calculated based on the remaining duration of the Telinver contract, until
     October 2007.

     The license related to the data transmission business, including the
     authorizations to use the "B"

                                      F-14
<PAGE>


     Band, restated in constant Argentine Pesos as stated in note 2.2, is
     amortized by the straight-line method over a 10-year term. Deferred
     expenses are incurred in connection with the issuance of negotiable
     obligations and have been restated as mentioned in note 2.2, were deferred
     and are being amortized by the straight-line method as from the issuance
     date to the maturity of such negotiable obligations. In addition, those
     expenses include the amount related to the "authorization fee" in
     connection with waivers granted by the holders of negotiable obligations
     which are amortized on a straight-line basis through maturity. The portion
     of expenses related to the Company's original part of the issuance of
     negotiable obligations that has been settled in the exchange offer of
     August 7, 2003 has been fully amortized in the previous year based on the
     number of bonds actually exchanged through the referred exchange offer (See
     note 12).

     The licenses to use links have been valued at the acquisition cost restated
     as indicated in note 2.2 and are amortized by the straight-line method over
     15 years, the term of the license.

     Goodwill reflects the acquisition costs of the continuing portion of the
     internet business that used to be operated by Telefonica Data Argentina
     S.A., Satlink S.A., Compuserve Argentina S.A. and Aki S.A., exceeding such
     business valuation calculated by the equity method based on financial
     statements of those companies as of the effective acquisition dates or as
     of dates at which such value was not materially different from the one that
     would have been determined as of the acquisition dates. The original
     amortization period was 10 years as from the respective acquisition dates.
     As of December 31, 2002, such goodwill has been valued at zero based on the
     estimate made by the Company of its recoverable value, due to the actual
     evolution of the customer portfolios acquired under each transaction. The
     loss resulting from the difference between the carrying amount and the
     recoverable value of the above mentioned goodwill amounted to 22 million
     pesos and has been included in the line "Intangible assets amortization" as
     of December 31, 2002.

     The goodwill generated by the capital contributions, restated as indicated
     in note 2.2, made with an issuance premium to E-Commerce Latina S.A. was
     being amortized by the straight-line method over a 10 year term. As of
     December 31, 2002, based on the evolution foreseen by the Company of the
     e-commerce business, the Company has valued such goodwill at zero,
     adjusting it to its estimated recoverable value. The loss that results from
     the difference between the carrying amount and its recoverable value
     amounted to 8 million pesos and has been included in the line "Net book
     value of intangible assets retired" (see note 3.1.m) as of December 31,
     2002.

     The assignment to Telinver of Meller Comunicaciones S.A.'s rights pursuant
     to the contract for publishing Telefonica's telephone directories and the
     non competition clause undertaken by Meller Comunicaciones S.A., have been
     valued at historical cost restated as described in note 2.2 and are
     amortized as from October 1, 1997 through September 30, and October 1,
     2007, respectively, according to the terms of the above-mentioned
     contracts.

     The non-competition clause has been valued at its acquisition cost and is
     depreciated by the application of the straight-line method in a 7-year
     period.

     i)   Reserves:

     During the normal course of business, Telefonica and Telinver are subject
     to several labor, commercial, tax and regulatory claims. While these
     actions are being contested, the outcome of such individual matters is not
     predictable with assurance. Charges have been recorded for contingencies
     where it is probable that the Company will incur a loss. The amount of loss
     is based on management's assessment of the likelihood of occurrence after
     consideration of legal counsel's opinion regarding the matter. As of
     December 31, 2004, the amount booked for such purpose is 271 million pesos.

     j)   Financial Instruments:

     Derivative financial instruments must be disclosed in the financial
     statements as either assets or liabilities at their fair value as of the
     date of the measurement. Should the financial instrument be


                                       F-15
<PAGE>


     intended to cover cash flow risks, the variation in fair value must be
     charged, according to the amendment introduced by the CPCECABA, to a
     specific account "Temporary differences in the measurement of derivative
     instruments intended as effective coverage" in the balance sheet and
     subsequently charged to the statement of operations for the year once the
     assets or liabilities covered have an impact on the income/loss for such
     year. If, instead, the financial instrument were to protect against the
     risk of changes in fair value, any variation in fair value must be directly
     charged to the statement of operations for the year. In both cases, the
     non-effective coverage portion of derivative instruments must be directly
     charged to the statement of operations for the period at the time such
     condition is known. At the time of the initial application of this rule at
     the beginning of the fiscal year 2003, the difference between the previous
     and current valuation of the derivative instruments not designated as
     hedges, as well as the ineffective portion of the hedges, were charged to
     "Unappropriated retained earning / Accumulated losses". Comparative figures
     for prior years have not been restated as required by the transition rule.

     The Company uses currency swaps, which, in the context of the
     Convertibility Law between the U.S. Dollar and the Argentine Peso, were
     intended to eliminate the variability in the cash flows of its debts
     denominated in Yen and in Euros and that currently reduce such variability
     in relation to the variations in the exchange rate between the yen/euro and
     the U.S. dollar so that, the Company has ensured a fixed exchange rate
     between the yen/euro and the U.S. dollar for these obligations. The
     principal criteria used by the Company to determine hedge effectiveness are
     i) notional amounts of swap contracts and hedge items, ii) currency of the
     swap contract and the hedge item, and iii) maturity of the hedge instrument
     and hedge item. As of December 31, 2004 and 2003 the hedge relationships
     were deemed ineffective because of the devaluation and freezing of our
     tariffs.

     In addition, as of December 31, 2004 and 2003, the Company uses, and has
     used during these years other financial instruments, such as currency
     forward contracts and call spreads, in order to eliminate fluctuation in
     the cash flows of its debts in U.S. Dollars with respect to the Peso. These
     contracts are designated as cash flow hedges or fair value hedges. The
     principal criteria used by the Company to determine hedge effectiveness are
     i) notional amounts of these contracts and the hedge items, ii) currency of
     the contracts and the hedge items, and iii) maturity of the hedge
     instruments and the hedge item. The Company deemed all hedge relationships
     to be effective.

     The Company values the covered obligations at each fiscal year end closing
     exchange rate and also recognizes separately the financial instruments at
     their estimated fair value.

     k)   Income tax and Tax on minimum presumed income:

     The Company records income tax by applying the deferred method. Deferred
     tax assets result mainly from the temporary differences arising principally
     from allowances and financial charges that are not yet deductible, for tax
     purposes and mainly from tax loss carryforwards of previous fiscal years.
     Deferred tax liabilities result mainly from temporary differences in the
     valuation of fixed assets for accounting and tax purposes basically due to
     different depreciation criteria and to the treatment of capitalized
     interest.

     On April 2, 2003, CPCECABA issued Resolution MD No. 11/2003 establishing
     that the effect of the inflation restatement of the original cost of assets
     must not be considered to be a temporary difference as it is not a
     different valuation basis.

     In order to book the above differences, the Company applied the liabilities
     method: the determination of net deferred tax assets or liabilities is
     based on temporary differences charged to the "Income tax" caption in the
     statement of operations.

     The Company's Management evaluates the recoverability of deferred tax
     assets based on estimates. Ultimately, the recoverability of deferred tax
     assets depends upon the Company's ability to generate enough taxable income
     during the periods in which these temporary differences are expected to be
     deductible.

     Considering their estimates, the Company's Management takes into account
     the reversal time period of deferred tax liabilities, projected taxable
     income and tax planning strategies. This assessment is based on a series of
     internal forecasts updated to reflect current trends. In


                                       F-16
<PAGE>


     accordance with accounting principles in force, the Company must recognize
     deferred tax assets when future deductibility is likely. Therefore,
     considering the legal statute of limitation periods applicable to tax loss
     carryforwards and the variables which affect the future taxable results,
     including the one related to the possible effect of the outcome of the
     pending tariff renegotiation (See note 1. and 10.1), Telefonica has booked
     a reserve for the balance of net deferred tax assets whose recovery depends
     upon the generation of future taxable income. Telinver has projected a
     taxable income for the fiscal year 2005 and given the fact that the
     variables affecting the future tax results of Telinver, mainly related to
     the evolution of the exchange rate, were reduced (see note 6.1), Telinver
     has decided to reverse partially the balance of the net tax assets reserve
     in an amount of 5 million pesos.

     Under the Public Emergency and Exchange System Reform Law No 25,561, as
     implemented by Decree No. 2,568/02, losses generated by the effect of the
     Argentine Peso devaluation on monetary assets and liabilities in foreign
     currency involved in the generation of Argentine-source income, existing as
     of January 6, 2002, valued at an exchange rate of $1.00 per U.S.$1.00,
     should be adjusted using an exchange rate of $1.40 per U.S.$1.00, and be
     carried forward five years as from the date of the enactment and used to
     offset income taxes at a proportion of 20% each year.

     The Company's foreign exchange tax loss as calculated by the above
     procedures and by application of a $1.40 exchange rate for the U.S. dollar
     was approximately 750 million pesos, which will be computed in equal parts
     in five years starting December 31, 2002. Approximately 150 million pesos
     were computed for the tax purposes in the fiscal year ended December 31,
     2004, while 300 million pesos will be carried forward and applied to offset
     taxes in equal amounts over the next two years.

     As of December 31, 2003 the Company and Telinver kept a tax loss
     carryforward of approximately 2,912 million pesos (1,019 million pesos at a
     35% tax rate), that could be applied to offset future income tax charges
     until 2007. The Company has estimated taxable income of approximately 432
     million pesos (428 million pesos corresponding to Telefonica) for the
     fiscal year ended December 31, 2004, and that will be offset against
     cumulative tax loss carryforwards existing at the beginning of the fiscal
     year.

                                                   Tax loss carryforwards
            Maturity year       Original year      (amounts in million pesos)
                                                             (1)
           ---------------------------------------------------------------------
                 2007                2002                            2,480
                                                                    ------
                                                                     2,480
                                                                    ======

          (1)    Net of 432 million pesos corresponding to estimated taxable
                 income for the fiscal year ended December, 31 2004.

     The following table presents the components of the Company's deferred tax
     balances:

<TABLE>
                                                   December 31, 2004         December 31, 2003
                                                   -------------------------------------------
<S>                                                           <C>                       <C>
          Deferred tax assets

          Income tax on tax loss carryforwards                   868  (1)                1,015
          Exchange differences deductible in
          future fiscal years                                    108                       162
          Allowance for doubtful accounts                         47                        73
          Accrual for contingencies and other
          non-deductible allowances and accruals                 162                       155
                                                   -------------------------------------------
                                                               1,185  (2)                1,405  (2)
          Allowance for deferred tax assets                   (1,051) (2)               (1,258) (2)
                                                   -------------------------------------------

          Subtotal                                               134                       147

          Deferred tax liabilities

          Fixed assets                                          (110)                     (122)
          Dismissal accrual for tax purposes                     (14)                      (13)


                                      F-17
<PAGE>


          Other liabilities                                      (5)                       (12)
                                                   -------------------------------------------

          Subtotal                                             (129)  (2)                 (147) (2)
          Total                                                   5                          -
</TABLE>

          (1)  Net of 151 million of income tax estimated for the fiscal year
               ended December 31, 2004, that offset previous years tax loss
               carryforwards
          (2)  As of December 31, 2004, the effect of discounting the balances
               of deferred tax assets, deferred tax liabilities and allowance
               for deferred tax assets in accordance with accounting rules of
               the CPCECABA would have resulted in a reduction of those balances
               of 9, 4 and 5 million pesos, respectively. As of December 31,
               2003, this effect on deferred tax assets, deferred tax
               liabilities and allowance for deferred tax assets would have
               resulted in a reduction of those balances of 34, 1 and 33 million
               pesos, respectively.


     The following is the reconciliation of the income tax that was charged to
     the statement of operations and the amount resulting from the application
     of the corresponding tax rate on net income before tax:

<TABLE>
                                                            December 31, 2004    December 31, 2003    December 31, 2002
                                                            -----------------------------------------------------------
<S>                                                                     <C>                  <C>               <C>
          Net (loss)/income before tax at
          statutory income tax rate                                      (3)                  142              (1,212)

          Permanent differences:

          Income on equity investments                                     -                    1                  (1)
          Non deductible expenses                                         12                   17                   -
          Inflation restatement effect                                   193                  242                (477)

          Reversal of allowance for deferred tax assets                 (207)                (402)              1,639
                                                            -----------------------------------------------------------
          Total                                                           (5)                    -                (51)
</TABLE>

     Additionally, the Company calculates the Tax on minimum presumed income by
     applying the effective tax rate of 1% on certain production assets valued
     according to the tax regulations in effect as of the end of the fiscal
     year. This tax is supplementary to the Income Tax. The Company's tax
     liabilities will be the higher of these two taxes. However, if the tax on
     minimum presumed income exceeds income tax during one fiscal year, such
     excess may be computed as prepayment of any income tax excess over the tax
     on minimum presumed income that may arise in the next ten fiscal years.

     The Company has determined a minimum presumed income tax charge for the
     fiscal year ended December 31, 2004 in the amount of 35 million pesos that
     was included in the caption "Other non-current receivables" as the
     Company's Management has estimated that such tax would be recoverable based
     on its tax projections and the terms for recovery established by the law
     (10 years). The amounts booked as tax on minimum presumed income credit
     have been measured at their discounted value, on the basis of the Company's
     tax projections.

     l)   Shareholders' equity accounts:

     Shareholders' equity accounts have been restated as described in note 2.2
     except for the "Capital stock - Outstanding shares" and "Irrevocable
     capital contribution for future subscriptions" accounts, which are stated
     at their original amounts. The adjustment required to restate these
     accounts in constant Argentine Pesos (see note 2.2) is included in the
     "Comprehensive adjustment to capital stock".

     m)   Revenue recognition:

     Revenues and expenses are credited or charged to income on an accrual
     basis. The Company recognizes income from fixed telephony services (local
     and long distance, prepaid cards and access to the network, among others)
     based on the use of the network. Charges for the installation of telephone
     lines or interconnection services are recognized as revenues when the
     service connection is made.

     The Company recognizes income from sales of equipment when they are
     delivered and accepted by its customers. For contracts where the Company
     provides customers with an indefeasible right


                                      F-18
<PAGE>


     to use network capacity, the Company recognizes revenue ratably over the
     term on stated life of the agreement. In addition, the effects of the
     adjustment of prices agreed upon with customers in relation to services
     rendered are recognized when all necessary conditions are met to consider
     them as revenues. Sales for the fiscal years ended on December 31, 2004 and
     2003 include approximately 5 million pesos and 51 million pesos,
     respectively, corresponding to the one time effect of this type of
     agreements.

     As of December 31, 2004, the Company had agreements with the following
     resellers or distributors:

     i)   Other operators of telecommunication services, such as (1) local
          and/or long-distance providers, (2) cellular and PCS licensees, and
          (3) other minor providers of telecommunication services related to
          interconnection services that primarily include access, termination
          and long-distance transport of calls. Interconnection charges are
          principally calculated on a per minute usage basis. Additionally these
          agreements usually include point-to-point leased circuits out of which
          the Company collects fees from installation and monthly charges. In
          addition, fees from installation are collected only once and in case
          of specific installations. The Company collects monthly charges
          depending on: (i) type of line, (ii) bandwidth, (iii) distance between
          points leased; (iv) duration of the contract and (v) usage of the
          lines.

     ii)  Resellers of prepaid cards. The Company sells prepaid cards to
          resellers. The Company charges the resellers the face value of the
          prepaid card less a wholesale discount of face value depending on the
          volume and product. Additionally the reseller has no right of return.
          The Company recognized revenue from prepaid cards based on the usage
          of the network.

     iii) Third parties operating public phones. The operator of the public
          phone charges its customers for each call based on usage units. The
          price per unit is set by the Company and the operator receives an
          average variable commission. The Company also charges the operator
          installation fees and monthly basic charges for its lines in service.

     iv)  Foreign (non-Argentine) telecommunications carriers and
          administrations ("foreign carriers") for calls carried by the Company
          covering virtually all international long-distance calls into or out
          of Argentina. The agreements govern the payments to foreign carriers
          for the use of such carriers' facilities in connecting international
          calls billed in Argentina and the payments by the foreign carriers for
          the use of facilities of Argentine carriers in connecting
          international calls billed abroad. The rates of payment under such
          agreements are negotiated with each foreign carrier. The practice
          among carriers is for payments due for the use of overseas networks to
          be recorded, collected and forwarded by the carriers in the country
          from which the call is initiated. Settlements among carriers are
          usually made on a net basis.

          The Company recognizes revenues and cost of sales for sales of
          advertisements in telephone directories when the directories are
          published and distributed. For the main telephone directories
          undergoing the process of edition and not yet published as of December
          31, 2004, the total amount of sales orders not yet recognized as
          revenues as of the that date, is 11.3 million pesos.

          Operations statement accounts have been presented as follows:

          -    As of December 31, 2004 and 2003 charges for the use,
               depreciation and amortization of non-monetary assets at
               historical cost (materials, inventory, fixed assets and
               intangible assets) have been stated based on the restated amounts
               of such assets (see note 2.2);

          -    As of December 31, 2003, those accumulating monetary transactions
               that have occurred throughout the fiscal year have been computed
               by applying the coefficients corresponding to the month of
               accrual to the original amounts; and

          -    As of December 31, 2003 financial income and expense, restated as
               described in note 2.2, are disclosed net of the monetary result
               generated by the effect of inflation on the assets and
               liabilities that generated them.


                                      F-19
<PAGE>


     n) Net earnings / loss per share:

     The Company calculates the net earnings per share on the basis of
     1,746,050,074 common shares (net of 2,355 common treasury shares) with a
     face value of $1 and with a vote per share.

     2.4. Financial instruments

     Hedging Policy

     An essential element of the exchange rate management policy is to minimize
the negative financial results due to variations in the exchange rates, while
still being able to maintain open currency positions (under strict risk
supervision). The primary objectives of the policy are: (i) to secure the
payments in foreign currency, hedging first the short term payments and then
hedging the long term ones, including through derivative instruments; (ii) to
cover the Company's indebtedness in foreign currency as disclosed in the balance
sheet as they become due and (iii) to modify the composition of the Company's
financial indebtedness, or to refinance it by issuing Peso-denominated debt or
entering into agreements to Peso denominated debts.

     During the fiscal years 2002 and 2003, the Company has been unable to hedge
the foreign exchange risk related to the foreign currency denominated debt due
to the lack of depth of the peso/dollar derivative market, the shortage of
appropriate counterparts or high costs of such transactions. As of December 31,
2004 the company U.S. dollar denominated debt was approximately U.S.$980
million. In 2003, the appreciation of the peso against the U.S. dollar resulted
in a gain equivalent to 760 million pesos. However, in 2004, the peso devalued
against the U.S. dollar resulting in a loss of 67 million pesos. As of December
31, 2004, the Company keeps indebtedness in foreign currency for an amount
equivalent to 3,079 million pesos and for the purpose of partially hedging its
indebtedness in foreign currency, the Company has deposits in U.S. Dollars in
the amount of U.S.$79 million.

The main aspects of the hedging policy of the Company are the following:

i.   Existence of a clearly identified risk and the risk management objectives
     and strategies.

     Since the Convertibility Law pegged the peso at a value of $1 per U.S.$1,
exchange rates risks were mainly related to changes in the value of the
peso/U.S. dollar in comparison with currencies other than the Argentine peso and
the U.S. dollar. In January 2002, the Argentine government devalued the
Argentine peso and currently the peso/U.S. dollar exchange rate is determined by
a free market with certain controls.

     Until 2002, The Company did not hedge its U.S. dollar-denominated debt
obligations because under the Convertibility Law the peso/U.S. dollar exchange
rate was essentially fixed at parity and the Company had revenues stream linked
to the U.S. dollar because rates were denominated in U.S. dollars and converted
into pesos at the end of each month. However, in some cases, the Company hedged
U.S. dollars against yen and euros (see "Financial Instruments - Swaps").
Before the Convertibility law, according to the Transfer Contract, the rates
were to be restated for inflation in Argentina and in certain extraordinary
circumstances, by a specific formula which considered both the effect of the
inflation and the variation in exchange rates. Since the end of the
Convertibility Law almost all of the Company's revenues are stated in pesos but
almost all of the Company's debt was denominated in foreign currency, so the
Company had and still has mismatch between revenues and its financial debt in
foreign currency.

     As a consequence of the above mentioned mismatch the Company established a
policy of partially hedging the Company's exposure to exchange rate risk because
of the fluctuation between the value of the peso against foreign currencies and
its effects on certain future short-term payments of the Company's debt
obligations denominated in foreign currencies.

     The Company does not have derivative contracts for trading purposes.
Moreover, the Company's policy does not include holding of derivative financial
instruments to hedge the exposure to interest rate risk.

ii.  Matching the main features (notional, maturity date, interest payment
     dates) of the underlying and one side of the derivative.

     Another feature of the Company's derivative strategy is the matching of the
main features (such as, notional

                                       F-20
<PAGE>


value, maturity date, and interest payment dates) of the underlying security
with its respective derivative. This matching is especially sought for the
foreign currency debt and derivatives hedging payments in foreign currency. Even
when a perfect hedge of the flows is sought, the lack of depth of the
Argentine's derivative markets has led historically to imbalances between the
characteristics of the hedges and the underlying debts, which however, have not
been significant with respect to the purpose of the hedge. The Company intends
to reduce those imbalances as mentioned below, as long as this does not involve
disproportionate transaction costs.

     The Company achieves this by documenting the relationship between hedging
instruments and hedged items. This process includes linking all derivatives
designated as hedges to specific assets and liabilities or to specific firm
commitments in foreign currency.

iii. Capacity to revalue derivative instruments at market prices.

     The Company uses internal valuations for the derivatives instruments which
are verified with independents parties' valuations (e.g. bank valuations).

     Prior to 2004 the Company has not had a fixed policy of entering into
financial instruments for managing its exposure to market risk. As of the date
of these financial statements, the Company has entered into the following
instruments, to manage the exposure to the risk of fluctuation of the exchange
rate of significant indebtedness denominated in currencies other than the United
States dollar.

     1.   Foreign currency swap agreement with Citibank N.A. to hedge the risk
          of fluctuations in the yen-U.S. dollar exchange rate, in connection
          with the loan amounting whose balance as of December was 6.7 billion
          Japanese yen granted by The Export Import Bank of Japan (currently the
          Japan Bank for International Cooperation) and maturing in February
          2011, which accrues interest at a rate of 2.3% per annum. Such swap
          agreement provides a fixed exchange rate of 104.25 yen per U.S.
          dollar. The interest rate to be paid to Citibank N.A. during the
          validity of the loan for the U.S. dollars received is 7.98% per annum.
          As of December 31, 2004, the related liability, taking into account
          the effect of the above-mentioned swap and the additional interest
          accrued, amounts to U.S.$71 million. The contract establishes, among
          other provisions for this type of transaction, certain events of
          default under which the creditor may accelerate payment terms. Events
          of default include failure to pay financial debts for amounts in
          excess of 2% of the Company's shareholders' equity.

     2.   During December 1999, the Company entered into a foreign currency swap
          agreement with Citibank N.A. to hedge the risk of fluctuations in the
          euro-U.S. dollar exchange, in connection with a portion of the net
          position of assets and liabilities in euros, including the balance of
          the loan granted by Istituto Centrale per il Credito a Medio Termine
          ("Mediocredito Centrale") which matures in November 2017, and accrues
          interest at a rate of 1.75% per annum. Such swap agreement has an
          8-year term until November 2007 and provides a fixed exchange rate of
          0.998 euro per U.S. dollar. The interest rate paid to Citibank N.A.
          during the validity of the loan for the U.S. dollars to be received is
          2.61% per annum.

     3.   The Company has used during 2004 currency forwards contracts to hedge
          against the risks of fluctuation in the dollar exchange rate. The
          Company has entered into currency forwards contracts, known as
          non-deliverable forwards ("NDF"), pursuant to which monetary positions
          are offset. These instruments were used to cover firm short-term
          payment commitments denominated in U.S. Dollars. As of December 31,
          2004 there are no NDF's currently outstanding.

     4.   Call Spreads: In September 2004 the Company entered into an agreement
          with TISA for two new strategies of exchange rate options, known as
          "Call Spreads", with maturities in January and February 2005. These
          Call Spreads consist of an acquisition of a call option and a sale
          of a call option with different strike prices for a specific amount
          of currency.

     The strategy with the maturity date on January 2005 had a notional value of
     U.S.$ 12 million and consisted of the acquisition of a call option at a
     strike price of $ 3.075 per U.S. Dollar and the sale of a call option at a
     price of $ 3.50 per U.S. Dollar. The strategy with the maturity date


                                       F-21
<PAGE>


     on February 2005 had a notional value of U.S.$ 12 million and consists in
     the acquisition of a call option at a strike price of $ 3.09 per U.S.
     Dollar and the sale of a call option at a strike price of $ 3.50 per U.S.
     Dollar. In both cases the options could have been exercised only upon their
     maturity. The goal of this strategy was to hedge the exchange rate risk
     related to the Company commitments to pay the principal of the loans to
     TISA denominated in U.S. Dollars. The Company has paid, as premiums, an
     amount of U.S.$ 0.40 for each strategy. Upon maturity, the options were not
     exercised because the exchange rate prevailing at those times were outside
     the strike prices of the options. The cost of the premium paid has been
     charged to the Statement of Operations.

     2.5. Law of Public Emergency - rules and regulations currently in force

     Starting in early December 2001, the national authorities implemented
     several monetary and foreign exchange control measures, announcing that the
     country would default on the payment of services of its sovereign debt, and
     enacting Law No. 25,561 of Public Emergency and Exchange System Reforms
     that implied a profound change in the economic model in force as of that
     time and amended the Convertibility law in force since May 1991(mainly due
     to the devaluation of the peso and the conversion to pesos of the
     obligations to deliver sums of money, both related and not related to the
     financial system).

     Other regulations were issued subsequently, amending some of the above
     mentioned regulations. The main aspects of such other regulations as of the
     approval of these financial statements are:

     a) the Public Emergency and Exchange System Reform Law No. 25,561
     established the pesification into Pesos of originally U.S.
     Dollar-denominated utility tariffs previously agreed upon in U.S. Dollars
     at the U.S.$1.00 to $1.00 exchange rate and authorized the National
     Executive Power to renegotiate agreements (See Note 10.1.);

     b) an extension in the National Public Emergency situation until December
     31, 2005;

     (c) suspension of dismissals without just cause until December 31, 2005 and
     the establishment of penalties consisting in the payment of an additional
     amount equivalent to 80% of the termination pay set forth by labour
     regulations if employees were to be dismissed without just cause, except in
     relation to personnel hired as from January 1, 2003. This is how the
     Argentine Government is proceeding with a stepwise reduction of the penalty
     formerly consisting in two times the applicable termination pay with the
     aim expressed in the law of fully eliminating this penalty if unemployment
     rates drop to less than 10%.

3.   DETAIL OF THE MAIN BALANCE SHEET AND STATEMENT OF OPERATIONS ACCOUNTS

     3.1  Breakdown of the main accounts

     Below is a breakdown of the main accounts (foreign currency balances are
     presented in note 21.g) (balances restated as described in note 2.2):

     a)   Cash:

                                           Current
                              --------------------------------------
                                  December 31,         December 31,
                                      2004                2003
                              --------------------------------------
            Bank                           15                   18
                              --------------------------------------
            Total                          15                   18
                              ======================================

                                      F-22
<PAGE>


     b)   Trade receivables:


<TABLE>
                                                              Current                        Noncurrent
                                                   ----------------------------------------------------------------
                                                     December 31,    December 31,     December 31,      December 31,
                                                         2004           2003               2004             2003
                                                   ----------------------------------------------------------------
<S>                                                         <C>               <C>              <C>               <C>
            Past Due (1)                                     168              178               14               20
            Current                                          305              287                -                -
                                                   ----------------------------------------------------------------
            Subtotal (3)                                     473              465               14               20
            Allowance for doubtful accounts (2)             (149)            (216)             (10)              (8)
                                                   ----------------------------------------------------------------
            Total                                            324              249                4               12
                                                   ================================================================
</TABLE>

          (1)  As a result of refinancing past-due trade receivables,
               approximately 7 million pesos of refinanced receivables are
               disclosed as current receivables as of December 31, 2004 and
               2003.
          (2)  See note 21.e).
          (3)  In 2004 and 2003, includes 24 million and 8 million,
               respectively, corresponding to related companies (see note
               15.3.).


     c)   Other receivables:

<TABLE>
                                                           Current                      Noncurrent
                                                -------------------------------------------------------------
                                                December 31,    December 31,     December 31,    December 31,
                                                    2004            2003             2004            2003
                                                -------------------------------------------------------------
<S>                                                       <C>             <C>              <C>             <C>
            Guarantee deposits                             3               3                -               -
            Prepayments to vendors                         3               2                -               -
            Related Companies receivables (1)             25              53                -               -
            Financial Prepayments                         10              11                -               -
            Financial Instruments (4)                      1               1                3               2
            Prepaid expenses                               1               -                -               1
            Prepaid services (5)                          14              15                -               1
            Tax credit certificates                        -              16                -               -
            Legal deposits                                 7               3                -               -
            Tax on Minimum Presumed Income                 -               -              126              89
            Patriotic Bond (2)                             -               -               84              82
            Other Tax Credits                              -               2                -               -
            Net Deferred tax asset (3)                     -               -            1,056           1,258
            Prepaid insurance                              3               3                -               -
            Granted Guarantees                             -               3                -               -
            Other                                         19              14                1               1
                                                -------------------------------------------------------------
            Subtotal                                      86             126            1,270           1,434
            Allowance for  impairment of
            Patriotic  Bond (note 21.e) (2)                -               -              (56)            (60)
            Allowance for deferred tax
            assets (note 21.e)                             -               -           (1,051)         (1,258)
            Allowance for Other
            receivables (note 21.e)                      (2)               -                -               -
                                                -------------------------------------------------------------
            Total                                         84             126              163             116
                                                =============================================================
</TABLE>

          (1)  See note 15.3.
          (2)  See notes 2.3.c) and 14.
          (3)  See note 2.3.k).
          (4)  See note 2.4. and 13.
          (5)  See note 9.

     d)   Inventories:
                                                             Current
                                                   ----------------------------
                                                    December 31,    December 31,
                                                        2004            2003
                                                   ----------------------------
            Raw materials and supplies                         1              1
            Directories in edition process                     2              2
            Telephone equipment and other equipment            8             17
                                                     --------------------------
            Subtotal                                          11             20
            Allowance for impairment in value and
            slow turnover (note 21.e)                         (3)            (7)
                                                     --------------------------
            Total                                              8             13
                                                     ==========================

                                      F-23
<PAGE>


     e)   Other assets:

                                                   Current
                                         ----------------------------
                                          December 31,    December 31,
                                              2004            2003
                                         ----------------------------

            Real property  intended
            for sale                                 3              3
                                         ----------------------------
            Total                                    3              3
                                         ============================


     f)   Trade payables:

<TABLE>
                                                              Current                        Noncurrent
                                                   ----------------------------------------------------------------
                                                     December 31,    December 31,     December 31,      December 31,
                                                         2004           2003               2004             2003
                                                   ----------------------------------------------------------------
<S>                                                           <C>             <C>              <C>               <C>
            Vendors, contractors and
            correspondents (2)                                296             291               2                 -
            Management fee (3)                                 70              76               -                 -
            Billing on account and behalf
            of cellular and
            audiotext companies                                53              44               -                 -
            Services collected in advance  (1)                  5               6              65                69
                                                   ----------------------------------------------------------------
            Total                                             424             417              67                69
                                                   ================================================================
</TABLE>

          (1)  In 2004 and 2003 include deferred revenues related to the sale of
               indefeasible rights to use network capacity, recognized by the
               straight line method during the life of the agreement. In 2004
               and 2003 includes 5 million, as current amount and, 60 million
               and 63 million as non-current amount, respectively, corresponding
               to related companies (see note 15.3.).
          (2)  In 2004 and 2003, includes 30 million and 15 million,
               respectively, corresponding to related companies (see note
               15.3.).
          (3)  See note 15.3.


     g)   Bank and financial payables:

<TABLE>
                                                              Current                        Noncurrent
                                                   ----------------------------------------------------------------
                                                     December 31,    December 31,     December 31,      December 31,
                                                         2004           2003               2004             2003
                                                   ----------------------------------------------------------------
<S>                                                           <C>             <C>            <C>              <C>
            Negotiable obligations (1)                        346             286            2,251            2,212
            Imports financing                                  15              20               13               27
            Long-term financing                                 8               8               70               71
            Foreign bank loans                                 93              78              166              243
            Local bank loans                                  123               -                -                -
            Related Company -
            Telefonica Internacional S.A.
            ("TISA") (2)                                      595           1,576                -                -
            Credit balances with banks                         29              14                -                -
                                                   ----------------------------------------------------------------
            Total                                           1,209           1,982            2,500            2,553
                                                   ================================================================
</TABLE>

          (1)  See note 12.
          (2)  See note 13 and note 15.3.

     h)   Payroll and social security taxes payable:

<TABLE>
                                                              Current                        Noncurrent
                                                   ----------------------------------------------------------------
                                                     December 31,    December 31,     December 31,      December 31,
                                                         2004           2003               2004             2003
                                                   ----------------------------------------------------------------
<S>                                                            <C>            <C>               <C>              <C>
            Vacation and bonus accrual                         48             44                 -                1
            Social security taxes payable                      15             14                 -                -
            Pre-retirement agreements and
            others (1)                                         15             13                16               18
            Other                                               2              2                 -                -
                                                   ----------------------------------------------------------------
            Total                                              80             73                16               19
                                                   ================================================================
</TABLE>

          (1)  Pre-retirement agreements mature through 2009, and do not have
               any adjustment clauses. This amount includes 7 related to
               benefits granted to employees included in such agreements, which
               are to be allocated by them to social security tax payments
               corresponding to the period between the date of the agreement and
               December 31, 2004 and are to be paid by the Company until the
               worker qualifies to obtain legal pension benefits.


                                      F-24
<PAGE>


     i)   Taxes payable:
                                                        Current
                                              ----------------------------
                                               December 31,    December 31,
                                                   2004            2003
                                              ----------------------------
            Turnover tax accrual (net of
            prepayment)                                 12              10
            Health and safety taxes                     24              20
            Value added Tax                             15              17
            Minimum presumed income tax
            (net of prepayment)                          9              10
            Other                                       35              21
                                              ----------------------------
            Total                                       95              78
                                              ============================


     j)   Other payables:

<TABLE>
                                                              Current                        Noncurrent
                                                   ----------------------------------------------------------------
                                                     December 31,    December 31,     December 31,      December 31,
                                                         2004           2003               2004             2003
                                                   ----------------------------------------------------------------
<S>                                                            <C>             <C>              <C>              <C>
            Financial Instruments (1)                          10              13                4               20
            International Telecommunication Union              21              21                -                -
            Related companies payables (2)                     13              25                -                -
            Other                                              19              16               25               26
                                                   ----------------------------------------------------------------
            Total                                              63              75               29               46
                                                   ================================================================
</TABLE>

          (1)  Foreign currency swaps agreements, forwards contracts and options
               (see note 13.).
          (2)  See note 15.3


     k)   Cost of services provided:

<TABLE>
                                                        --------------------------------------------
                                                         December 31,    December 31,    December 31,
                                                             2004            2003            2002
                                                        --------------------------------------------
<S>                                                            <C>            <C>             <C>
            Telecommunications services (note 21.h)        (1,887)        (1,946)         (2,181)
            Cost of services provided (note 21.f)             (49)           (46)            (54)
                                                        --------------------------------------------
            Total                                          (1,936)        (1,992)         (2,235)
                                                        ============================================
</TABLE>

     l)   Other expenses, net:

<TABLE>
                                                        ---------------------------------------------
                                                         December 31,    December 31,    December 31,
                                                             2004            2003            2002
                                                        ---------------------------------------------
<S>                                                           <C>             <C>             <C>
            Employee terminations (note 21.h)                  37             42              53
            Contingencies                                     103             34              87
            Net book value of fixed assets retired              -              -               6
            Miscellaneous, net                                 (3)            (5)              7
                                                        ---------------------------------------------
            Total (note 21.h)                                 137             71             153
                                                        =============================================
</TABLE>


                                      F-25
<PAGE>


     m)   Others:

                                                               ----------------
            Holding and financial income / (loss) on assets:   December 31,
            ------------------------------------------------       2002
                                                               ----------------
            Net book value of intangible assets retired                    (8)
            Holding losses in inventories                                  (9)
                                                               ----------------
            Total                                                         (17)
                                                               ================


<TABLE>
                                                                    ------------------------------------ -----------
            Holding and financial income/ (loss) on liabilities:     December 31,     December 31,     December 31,
            -----------------------------------------------------        2004             2003             2002
                                                                    ------------------------------------------------
<S>                                                                          <C>              <C>              <C>
            Tax on interests                                                   -                -              (17)
            Intangible assets amortization                                    (9)             (16)              (7)
            Tax on checking account credits and debits                       (14)             (10)               -
                                                                    ------------------------------------------------
            Total                                                            (23)             (26)             (24)
                                                                    ================================================
</TABLE>

     3.2  Aging of current investments, receivables and payables as of December
          31, 2004.

<TABLE>
                                               Assets                                         Liabilities
                              ----------------------------------------------------------------------------------------------------
                                                                                              Payroll and
                                                                                                Social
                                               Trade        Other                 Bank and     Security
                                Current     Receivables  Receivables    Trade     Financial     Taxes          Tax        Other
                              Investments       (a)           (c)      Payables   Payables     Payables      Payables    Payables
                              ----------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>           <C>        <C>         <C>           <C>           <C>        <C>
Past-Due:
Up to three months                    -          54            -          90            -            -             -        -
From three to six months              -          20            -           1            -            -             -        -
From six to nine months               -           7            1          (1)           -            -             -        -
From nine to twelve months            -           8            -           3            -            -             -        -
From one to two years                 -          26            6           -            -            -             -        -
From two to three years               -          20            7           3            -            -             -        -
Over three years                      -          47            -           -            -            -             -        -
At sight                             13           3           21           -           29            -            50       38
Current:
Up to three months                  246         263           33         312          299           56            36       19
From three to six months              -          19            6           8          331            8             9        1
From six to nine months               -          12            4           7          223           10             -        5
From nine to twelve months            -           8            6           1          327            6             -        -
From one to two years                 -           -           13           5          322            8             -       13
From two to three years               -           -            2           3          607            5             -       10
From three to four years              -           -          120           3          416            2             -        7
From four to five years               -           -            -           4           39            1             -        -
Over five years                       -           -           28          52        1,116            -             -       (3)
                              ----------------------------------------------------------------------------------------------------
Subtotal:                           259         487          247         491        3,709           96            95       90
Allowance for doubtful
accounts                              -        (159)           -           -            -            -             -        -
Benefits under the
Collective Labor
Agreements                            -           -            -           -            -            -             -        2
                              ----------------------------------------------------------------------------------------------------
Total                               259         328          247         491        3,709           96            95       92
                              ====================================================================================================
</TABLE>


                                      F-26
<PAGE>


<TABLE>
<S>                                 <C>        <C>          <C>          <C>        <C>            <C>          <C>      <C>
Percentage accruing interest
at fixed rate                        95%          3%           3%          -         79%             -             -       15%
Percentage accruing interest
at variable rate                      -          36% (b)       -           -         18%             -             -        -
Percentage accruing income at
     variable rate                    2%          -            -           -          -              -             -        -
Average interest rate in
foreign currency                      2%          -            1%(d)       -          9%             -             -        6%

Annual average interest rate
in local currency                     1%         26%           6%          -          8%             -             -        -
</TABLE>

     (a)  Trade receivables balances include 14 past-due classified as
          noncurrent taking into account Company's Management estimates
          regarding probable collection terms.

     (b)  Such percentage is related to the portion of receivables over which
          surcharges are applicable for being in arrears. The rate indicated is
          that corresponding to bills collected with such surcharges.

     (c)  Not including amounts corresponding to net deferred tax asset totally
          reserved.

     (d)  Does not include the interest accrued by the Patriotic Bond.


4.   RESERVE FOR FUTURE DIVIDENDS

Different Shareholders' Meetings authorized the setting aside of a Reserve for
future dividends, which was to be used for paying cash dividends, at the Board's
discretion. However, owing to the fact that the Company has accumulated losses,
the Board of Directors would not currently be able to utilize such reserve for
paying cash dividends until those losses are absorbed and there are liquid and
realized profits.


5.   REGISTRABLE ASSETS

On October 27, 1994, "ENTel in liquidation" issued Resolution No. 96/94 whereby
it undertakes to perform all necessary acts to accomplish the transfer of title
of registrable assets for such time as may be necessary, notifying Telefonica 60
days before the date that may be defined as the expiration of ENTel's
commitment. This resolution recognized that the licensee companies will be
entitled to claim the indemnity stipulated in the Transfer Contract for the real
property whose title had not been conveyed to them by the time of the expiration
of the above-mentioned period. As of December 31, 2004 these assets have a book
value of about 600 million pesos and approximately 524 million pesos (both
restated as described in note 2.2) of them have been registered in the Company's
name. In the Company's opinion, the registration of title of a major portion of
the most significant assets contributed by ENTel will be successfully completed.
Accordingly, in Company Management's opinion the final outcome of this matter
will not have a significant impact on the Company's results of operations and/or
its financial position.


6.   SUBSIDIARIES AND AFFILIATES

     6.1. Telinver

     Current liabilities in foreign currency of Telinver exceed current assets
     in foreign currency by approximately U.S.$ 36.5 million and, in addition,
     total liabilities exceed total assets, so there is a negative shareholders'
     equity in the amount of 36 million pesos as of December 31, 2004 and
     consequently Telinver falls under the conditions for mandatory dissolution
     caused by loss of company capital due to accumulated losses set forth in
     clause 5 of section 94 of the Law No. 19,550.

     On January 3, 2005, Telinver assigned to Telefonica, pursuant to three
     assignment agreements, an amount of U.S.$ 39 million corresponding to
     Telinver's total indebtedness to TISA, which in turn tendered its express
     consent to the assignments. In addition, pursuant to the agreements
     referred, Telefonica and TISA agreed to renegotiate the interest rate
     imposed on the indebtedness assigned in order to reduce the spread
     applicable from LIBOR plus 9% to LIBOR plus 4.5%. In consideration for the
     assignment, Telinver agreed with Telefonica that it shall repay two loan
     agreements in Pesos for an amount of 71 million pesos and 45 million pesos,
     respectively. The remaining debt after the capitalization mentioned in the
     following paragraph is to be repaid by Telinver in 8 semi-annual
     installments and at an 11% annual nominal interest rate.

     Subsequently, on February 14, 2005, Telinver's Extraordinary Shareholders'
     Meeting approved a capital increase of 71,519,163 pesos. The Company
     subscribed this increase through the capitalization of the first loan
     agreement mentioned in the previous paragraph.


                                       F-27
<PAGE>


     6.2. E-Commerce

     The Company holds together with Alto Palermo S.A. ("APSA") a 50% interest
     in E-Commerce for the development of an e-commerce shopping center.

     Additionally, the parties undertook to make a voluntary capital
     contribution for the development of new business lines for a maximum of 12
     million pesos, 75% of which is to be contributed by the Company.


7.   CAPITAL STOCK

The Capital stock of Telefonica is represented by :

                                         Subscribed and paid-in,
Classes of Shares (1)                  outstanding and authorized
---------------------                     for public offering (2)
                                       -----------------------------
Class A                                          1,091,847,170
Class B                                            654,205,259
                                       -----------------------------
Total                                            1,746,052,429
                                       =============================

(1)  All shares have equal voting rights.

(2)  Capital Stock as of December 31, 2001, 2002, 2003 and 2004.


8.   LIST OF CONDITIONS AND THE TRANSFER CONTRACT. EXCLUSIVITY AND MAINTENANCE
     OF THE LICENSE

The List of Conditions ("List") and the Transfer Contract established certain
obligations of which the following are still in effect:

     a)   The assets contributed to Telefonica used in providing
          telecommunications services may not be sold, assigned, transferred or
          encumbered in any way.

     b)   Certain shareholders of Telefonica's parent company are required to
          retain a specified interest in that company's common capital stock. In
          addition, Compania Internacional de Telecomunicaciones ("COINTEL"), is
          obliged to hold Series A shares representing 51% of Telefonica's total
          capital stock.

     c)   All or a substantial part of the provision of the telephone service is
          to be maintained, and Telefonica's main business and principal place
          of business in Argentina may not be changed.

     d)   In addition, Telefonica is to meet certain objectives related to the
          services provided. The most important of these objectives are
          efficiency and service quality. In addition, suppliers of data and
          added value services are to be given equal access to telephone lines.

In case of serious noncompliance with the provisions in a) through d),
Telefonica's license could be revoked once the procedures set forth in the List
of Conditions have been completed. Telefonica's license, however, would not be
revoked, should Telefonica have obtained prior Regulatory Authority approval for
any of the situations described above in a) and b).

In addition, Decree No. 264/98 set forth both optional and mandatory operating
conditions with respect to the provision of basic telephone services. Such
mandatory conditions include mainly permitting other providers to interconnect
to the company's network (including voice and data transmission service) and the
installation of a minimum number of new lines.

In the opinion of the Company's Management, the Company has met all of the
above-mentioned obligations.

Although the effectiveness of Decree No. 264/98 was subject to the conclusion of
certain legal proceedings, the Company believes that it is unlikely that the
outcome of those proceedings would significantly slow the trend towards
increasing competition.


                                       F-28
<PAGE>


9.   COMMITMENTS

     9.1  IBM-Telefonica Contract

     On March 27, 2000, the Company's Board of Directors approved the
     outsourcing through IBM of the operation and maintenance of the
     infrastructure of some of our information systems. Telefonica Argentina,
     Telinver, TCP S.A. and TDA S.A. executed a contract with IBM whereby we
     outsourced the operation and maintenance of the information technology
     infrastructure for a term of six and a half years, and we transferred to
     IBM the assets used to render the services outsourced under the contract at
     a stated price.

     1.   Service Price: Over the duration of the contract, we committed to pay
          IBM a monthly charge as consideration for the base line services to be
          rendered under the contract, and other charges for the use of
          additional resources. The payment terms include decreasing monthly
          installments.

     2.   Transfer of Equipment: The agreement stipulated that at the inception
          of the contract, we would transfer to IBM at a fixed price, the assets
          that were designated to provide the services at that date. Also, the
          agreement stipulated that at contract expiration IBM shall transfer to
          us at a fixed price, the assets that were designated to provide the
          services at that date.

     3.   Renewal of the Agreement: Fifteen months before the expiration of the
          agreement, the parties shall meet to discuss a possible extension. The
          parties shall conduct negotiations for three months. If the parties do
          not agree to an extension prior to twelve months before the expiration
          of the agreement, the agreement shall be terminated on the termination
          date. To date, the negotiations have not begun.

     The following is a summary of the primary contractual cash flows related to
     Company agreement with IBM:

                                                          (in millions of U.S.
                                                                dollars)
                                                          --------------------
     Assets acquired by IBM...........................             24.5
     Baseline monthly installments
       (service fee total payments)...................           (218.6)
     Repurchase of assets.............................            (14.9)
     Refund (only if contract is renewed) ............              3.3

     As a result of the devaluation of the peso, the Company renegotiated the
     contract originally denominated in dollars. On the basis of a supplementary
     contract agreed upon by the parties, the Company undertook, among other
     obligations, to pay IBM for the services rendered pursuant to the contract
     from January 2004 to December 2006 the amount of Ps.44.8 million and
     U.S.$35.8 million in monthly installments. In addition, the referred
     agreement contemplates the possibility of renegotiating the amount in pesos
     semiannually upon request by the parties.

     9.2  Other

     Telefonica signed contracts for lease of satellites, vehicles and real
     property and operation and maintenance of submarine cables, which include
     approximately 54 million pesos of future minimum rental payments as of
     December 31, 2004.

10.  RATES

     10.1 Rate regulations

     Decree No. 764/00, issued to de-regulate telecommunications services, sets
     forth that providers may freely establish the tariffs and/or the prices of
     the services supplied to objective categories of clients, which must be
     applied non-discriminatorily. However, if there were no effective
     competition, as it is the case with the services that generate a
     substantial part of the Company's income, historical providers shall


                                       F-29
<PAGE>


     respect the maximum tariffs laid down in the General Tariff Structure.
     Below the values established in such tariff structure, these providers may
     establish their tariffs freely. To determine the existence of effective
     competition, the historical providers shall demonstrate that another or
     other providers of the same service have obtained 20% of the total revenue
     for such service in the local area of the Basic Telephony Service involved.
     Additionally, in the case of national and international long distance
     services, effective competition shall be deemed to exist when customers in
     the area are able to choose through out the dialing selection method among
     more than two service providers offering more than one destination.

     In 2000, the Company filed a request to the effect that effective
     competition be officially acknowledged in the Buenos Aires Multiple Area
     ("AMBA"). Pursuant to Resolution SC No.304/03, the S.C. established that
     the Company should readjust the presentations submitted, supplying
     additional information. The Company has complied with this request and no
     resolution has yet been made in the case.

     For the areas and services for which effective competition has not been
     declared to exist, tariff agreements established that the maximum tariff
     per pulse should be expressed in U.S. Dollars in addition to a right for
     the Company to choose whether to adjust such tariff from April 1 to October
     1 of each year based on the variation in the Consumer Price Index of the
     United States of America. However, the Public Emergency and Exchange System
     Reform Law No. 25,561, dated January 6, 2002, provided that in the
     agreements executed by the Federal Administration under public law
     regulations, including public works and utilities, indexation clauses based
     on foreign countries' price indices and any other indexation mechanisms are
     annulled. Law No. 25,561 also established that the prices and tariffs
     resulting from such clauses are denominated in Pesos at the 1 peso to 1
     U.S. Dollar exchange rate. Furthermore, this Law authorized the National
     Executive Power to renegotiate the above contracts taking into account the
     following criteria in relation to public utilities: a) the impact of
     tariffs on the competitiveness of the economy and on distribution of
     income; (b) service quality and investment plans, when such aspects are
     contemplated in the contracts; (c) the interest of users and access to the
     services; (d) the security of the systems comprised; and (e) the
     profitability of the companies.

     The National Executive Power, by means of Decree No. 293/02, entrusted the
     Economy Ministry with the renegotiation of such agreements, including
     agreements that govern the provision of basic (fixed) telephony services.
     Decree No. 311/03 created a Renegotiation and Analysis of Public Utilities
     Agreements Unit, which shall be headed by the Ministers of Economy and
     Production, National Planning, Public Investment and Services. The referred
     Unit will be in charge of proceeding with the renegotiation process.

     Decree No. 120/03 authorized the Argentine Government to provide for
     interim tariff revisions or adjustments as may be deemed necessary or
     convenient for the purpose of ensuring the continued availability, safety
     and quality of services provided to users under these contracts until the
     conclusion of the renegotiation process.

     Law No. 25,790 sets forth that the term to renegotiate the agreements for
     public works and utilities is to be extended until December 31, 2004, term
     that has been further extended until December 31, 2005 pursuant to Law No.
     25,972. The National Executive Power shall be responsible for submitting
     the renegotiation proposals to National Congress, which will have to
     communicate its decision within a period of 60 running days counted from
     the date of reception of the proposal. In the event such period expires
     without Congress having reached a solution, the proposal shall be deemed
     accepted. If the proposal is rejected, the National Executive Power shall
     resume the process to renegotiate the respective agreement. This rule
     establishes that the decisions adopted by the National Executive Power in
     this re-negotiation process shall not be limited to, or subject to, the
     stipulations contained in the before mentioned regulatory frameworks
     currently governing the concession or licensing agreements for the
     respective public utilities. Renegotiation agreements may cover partial
     aspects of concession or licensing agreements, contain formulas to adjust
     such agreements or temporarily amend them and include the possibility of
     agreeing upon periodical reviews, as well as the establishment of
     conditions that must be met by the quality parameters applied to services.
     If there were temporary amendments, they should be taken into consideration
     in the terms of the final agreements reached with concessionaires or
     licensees. The legal provisions do not authorize public utilities
     contractors or concessionaires to suspend or alter compliance with their
     duties.

     Under the legal framework described, on May 20, 2004, the Company, Telecom
     Argentina S.A. and the Argentine Government signed a Memorandum of


                                       F-30
<PAGE>


     Understanding (the "Memorandum of Understanding") pursuant to which they
     agreed to maintain the General Tariff Structure currently in force for the
     Basic Telephony Service until December 31, 2004, without waiving the
     Company's rights to renegotiate the Company's contracts. The parties also
     ratified their intent to reach a final contractual renegotiation before
     December 31, 2004. However, this did not occur. In addition, pursuant to
     the provisions of the Transfer Contract, they agreed that any new tax or
     charge, or any variation in those currently in force, subject to the
     control of Regulatory Authorities as established in certain sub-sections of
     the List of Conditions (conditions to maintain the Company's license to
     provide telecommunications services, the "List of Conditions") shall be
     broken down in the bills issued to customers for services in the
     jurisdictions levied with the respective tax or charge.

     With the objective of establishing mechanisms to enhance access to
     telecommunications services, in the Memorandum of Understanding, an
     agreement was reached to implement the measures necessary to develop the
     following services:

     a) Virtual telephony cards for the beneficiaries of the Head of Household
     Plan and for pensioners who do not have a telephone line and who meet the
     eligibility requirements set forth in the respective resolution.

     b) Internet access service in all its provincial centers at discount
     prices.

     c) Addition of the Heads of Household who own a telephone line and meet the
     respective eligibility requirements for registration, to be registered for
     the Program "Retirees, Pensioners and Low-Consumption Households".

     As stated in this Memorandum of Understanding, the Secretary of
     Communications issued Resolutions No. 261 and No. 272, dated November 12,
     2004 and November 23, 2004, respectively.

     Pursuant to Resolution No. 261, the Secretary of Communications approved
     our promotional offer to provide dial-up internet access service, as
     described in sub-paragraph 2 above, at lower prices to customers in urban
     areas located more than thirty kilometers away from our current hubs for
     the supply of low-cost internet access service, in order to increase the
     number of areas with access to the internet.

     Pursuant to Resolution No. 272, the S.C. accepted the Company's proposal to
     implement the "Virtual Telephony" service for the beneficiaries of the Head
     of Household Plan mentioned in Sub-Paragraph a), consisting of the Value
     Added Voice Messaging Service, with a related telephone number, that allows
     users to receive and store messages, available in the Buenos Aires Multiple
     Area, La Plata, Mar del Plata, Mendoza, Bahia Blanca and Neuquen.

     As of the date of issuance of these financial statements, both the S.C. and
     the C.N.C. are analyzing the implementation of the services described in
     paragraph c) already mentioned.

     In the opinion of the Company's management, the application of the issues
     mentioned in sub-paragraphs a), b) and c) will not have a significant
     impact on the Company's future results.

     In the opinion of the Company's Management and its legal counsel, the deep
     changes in the Argentine economic model experienced since early 2002, are
     to be considered extraordinary events that significantly modified the
     economic and financial equation, therefore allowing the introduction of
     changes in the tariff regime to adapt it to the new situation, in full
     compliance with the principles established in the List of Conditions and
     the Transfer Contract, in order to maintain a regular, continuous and
     efficient supply of telephony services. The Transfer Contract contemplates
     the possibility of automatically adjusting the tariffs in the case of
     extraordinary and unforeseen events thereby defined or government actions
     or decisions that significantly affect the Transfer Contract's original
     financial equation. The Transfer Contract also establishes compensation
     on the part of the Argentine Government when there are extraordinary
     events, including actions and decisions of the Argentine Government such as
     a freezing on tariffs or price controls, as well as the procedures to be
     followed to collect such compensation.

     The Company filed the information required by the Argentine Government and
     it has proposed to reestablish the tariff regime stipulated in the Transfer
     Contract, which contemplates Peso-denominated tariffs whose intangibility
     is safeguarded by the application of the monthly Consumer Price Index in
     Argentina or, if there were significant differences between this index and
     the variation

                                       F-30
<PAGE>


     of the U.S. Dollar, by the result obtained from the application of a
     polynomial formula that considers 40% of the monthly variation of the price
     of the U.S. Dollar and 60% of the variation of the monthly Consumer Price
     Index in Argentina, which had been annulled with the enactment of the
     Convertibility Law and the issuance of Decree No. 2,585/91. The Company
     proposed different alternatives to achieve such objective, especially to
     handle the transition from current tariffs to those resulting from the
     application of the Transfer Contract.

     In the opinion of the Company's Management and its legal counsel, in
     accordance with the general principles of administrative law, as applicable
     to the Transfer Contract and to the List of Conditions, future tariffs
     should be established in such a level as to cover sufficiently the costs of
     the service in order to preserve a regular, continuous and efficient supply
     of the telephone public service within the legal framework governing the
     Transfer Contract. However, it cannot be assured that the Argentine
     Government shall adopt the Company's position with respect to the effect of
     the current situation in relation to such clauses in the Transfer Contract.
     It is possible that such tariff regime will not maintain the value of its
     tariffs in U.S. Dollars or in constant Pesos in connection with any
     previous increase or possible future increase in the general price level.
     If, as a result of the re-negotiation mentioned before, future rates evolve
     at a pace that do not allow restoring the economic and financial equation
     that both the List of Conditions and the Transfer Contract intend to
     preserve, such rate system could have an adverse impact on the Company's
     financial condition and future results. As of the date of issuance of these
     financial statements, the Company's Management cannot predict the final
     outcome of the renegotiation required by the Public Emergency Law or the
     tariff regime to be effective in the future or when such regime shall be
     implemented.

     In accordance with Resolution No. 72/03, in February 2003 the Ministry of
     Economy approved a methodology to calculate and transfer to the Company's
     customers the impact of the tax on checking account transactions imposed by
     Law No. 25,413 paid by the Company as from the date in which Resolution No.
     72/03 comes into force. Resolution No. 72/03 expressly refers to the
     Transfer Contract as the basis for the approval of such method. The Company
     considers that the position taken by the Ministry of Economy in this
     Resolution is consistent with the proposal submitted regarding its rights
     under the Transfer Contract. In accordance with Resolution No. 72/03, all
     taxes paid before that date are included in the contractual renegotiation
     imposed by the Public Emergency Law. Likewise, as the Memorandum of
     Understanding provides the pass-through to tariffs of any new tax or charge
     or any variation in those currently in force, by operation of the rules of
     the Transfer Contract and the List of Conditions, it implies the
     acknowledgment of the tariff provisions contained therein.

     10.2 Price Cap

     Under the tariff regulation mechanism in effect known as Price Cap, to
     which the Company is subject, tariff discounts have been applied based on a
     formula made up by the U.S. Consumer Price Index and an efficiency factor.
     On October 4, 2001, Court Room IV of the Federal Appellate Court on
     Administrative Contentious Matters of the City of Buenos Aires, in relation
     to the complaint filed by Consumidores Libres Cooperativa Limitada de
     Provision de Servicios Comunitarios ("Consumidores Libres") mentioned in
     note 11.d), awarded a precautionary measure ordering the National
     Government, the Company and Telecom Argentina S.A. ("Telecom S.A.") "to
     refrain from applying the corrections set forth in Section 2 of the
     Agreements approved by Decree No. 2,585/91 until final judgment is rendered
     in the case", which meant that the rates could not be adjusted by the U.S.
     Consumer Price Index.

     The Company, Telecom Argentina S.A. and the S.C. entered into agreements
     for the application of the Price Cap for the 2000-2001, 2001-2002 and
     2002-2003 periods. The Price Cap for the 2000-2001 period was established
     at 6.75%, of which 6% was allocated to rate reductions attributable to
     discount plans that were in effect in 2000 and the non-application of the
     semiannual adjustments to the pulse of that year value, among other items.
     The remaining 0.75% was to be applied as defined by the licensees. The
     Price Cap for the 2001-2002 period was established at 5.6%, and would be
     allocated to the non-application of the semiannual adjustments to the pulse
     value of 2001, plus the balance of the non-computation of the pulse value
     not applied in the price cap for the previous year. To date, the remaining
     amount has not been allocated to the services contemplated in the
     agreement. As concerns the Price Cap for the 2002-2003 period, was
     established in an efficiency factor which could not exceed 5%, but its
     value was not fixed. The above mentioned agreements


                                       F-32
<PAGE>


     require the approval of the Ministries of Economy and Federal Planning,
     Public Investment and Services, which are still pending as of the date of
     issuance of these financial statements. Moreover, neither the effect of the
     reduction in rates previously implemented as compared to the rate reduction
     adjustments established by the S.C. nor the rate differences pending
     application under the referred agreements, have been established.

     In the opinion of the Company's Management and its legal counsel, the
     resolution of these issues related to the Price Cap and the complaint filed
     by Consumidores Libres might exclusively affect the maximum tariffs for
     future services that the Company is authorized to collect its customers for
     services, areas or customers in which effective competition has not been
     declared. As of December 31, 2004, these maximum tariffs are the result of
     the application to the tariffs in force as of November 7, 2000, the
     discounts applied as a result of the implementation of the Price Cap
     corresponding to period 2000 - 2001 and to the advanced decreases
     corresponding to the period 2001-2002, as established in the agreements
     mentioned.

     Under the Price Cap mechanism currently in effect, the rate reduction
     percentage and the services to which such reductions will eventually apply
     depend on the final approval of the above rate agreements, and on the
     outcome of the legal proceedings commenced by Consumidores Libres regarding
     the effective rate system.

     Based on current rate regulation mechanisms, and considering the Company's
     defense against the above legal proceedings, in the opinion of the
     Company's Management and its legal counsel, the outcome of these issues
     will not have a negative impact upon the Company's financial position or a
     significant adverse effect on its results of operations.

     10.3 Tariff restructuring

     The tariff restructuring granted by Decree No. 92/97, effective on February
     1, 1997, established an increase in the price of the monthly basic charge
     and in domestic service rates, and a decrease in the rates for domestic
     long distance and international services and for the Company's local and
     domestic long distance public phone service for longer distances. The net
     impact of the rate restructuring was to be neutral on revenues during two
     years after its effectiveness. On December 1, 1999 the S.C. has issued
     Resolution No. 4,269/99, which established the S.C.'s final determination
     of the impact of the tariff restructuring as an excess in revenues of 18
     million pesos, in currency units of that date, (which had previously been
     provisionally determined by the S.C. in 14 million pesos). In accordance
     with Resolution No. 18,968/99, the S.C.'s Resolution No. 4,269/99 also
     states that the S.C. will determine the form and time of implementation of
     the future rate reduction to compensate such excess revenues. The Company
     has filed an appeal for revision of this resolution, on the grounds that
     the calculation method used by the S.C. to determine the impact of the
     tariff restructuring established by Decree 92/97 has defects and should be
     challenged. As of the date of these financial statements, such appeal has
     not been resolved.

     In the opinion of the Company's Management and its legal counsel, the
     outcome of these issues could exclusively affect the maximum rates for
     future services that the Company is authorized to charge its customers
     regarding services, areas, or customers in which the government did not
     declare the existence of effective competition. Therefore, in the opinion
     of the Company's Management and its legal counsel the outcome of these
     issues will not have a negative impact upon the Company's financial
     position or a significant adverse effect on its results of operations.

11.  LAWSUITS AND CLAIMS

     Contingencies

     The Company is presently facing various proceedings and claims in the areas
     of labour, tax, regulatory compliance and other matters, all of which arise
     in the ordinary course of business. Such matters are subject to many
     uncertainties, and the outcome of individual matters is not predictable
     with assurance. If information available prior to the issuance of our
     financial statements, considered on the basis of the opinion of the
     Company's legal counsel, indicates that it is probable that an asset had
     been impaired or a liability had been incurred at the date of our financial
     statements, and the amount of the loss, or the range of probable loss can
     be reasonably


                                       F-33
<PAGE>


     estimated, then such loss is accrued and charged to operations. As of
     December 31, 2004, the amount recorded as reserves for contingencies is Ps.
     271 million.

     The breakdown of the reserve for contingencies is as follows:

     Labour contingencies:

     The reserves for contingencies related to labour issues amounted to Ps. 160
     million and Ps. 101 million as of December 31, 2004 and 2003, respectively.
     The charge for 2004 is mainly due to:

     i)   probable losses of Ps. 64 million resulted from a significant increase
          of claims brought by employees during the fiscal year 2004 and related
          to salary differences. These claims and potential claims were
          considered probable taking into account certain recent judgments of
          Appeals courts that were adverse to the Company, and

     ii)  new claims for alleged rights provided for in the labour law and
          related costs which amounted to Ps. 44 million, for which the Company
          considered it advisable to reach settlement agreements. The Company
          intends to defend its rights vigorously in whichever instances are
          necessary, should other similar material claims eventually arise in
          the future.

     In addition, in the current fiscal year, the reserve for contingencies
     decreased by approximately Ps.49 million, mainly due to payments related to
     the above-mentioned matters.

     Charges for fiscal year 2003 were not material.

     Other matters assessed as probable to incur losses in the future, related
     to:

          o    Joint and several liability with third parties

          o    Industrial labour accidents

          o    Illnesses

          o    Other severance payments

     Tax contingencies:

     The reserves for contingencies related to tax matters assessed as probable
     to lose amounted to Ps. 54 million and Ps. 36 million as of December 31,
     2004 and 2003, respectively. The charge for 2004 includes Ps.12 million
     corresponding to new claims that were asserted in 2004 and potential other
     related claims considered probable, by certain Municipalities for joint
     liability of the Company with a third party.

     These tax issues are related to:

          o    Municipal taxes
          o    Provincial taxes

     Civil, commercial and other contingencies

     The reserve for contingencies related to civil, commercial, administrative,
     regulatory compliance and other matters assessed as probable to lose as of
     December 31, 2004 and 2003 amounts to Ps. 57 million and Ps. 85 million,
     respectively. The main decrease of Peso 31 million corresponds to the
     payment for a legal action concerning rescission of commercial agreements,
     for which an arbitral decision was reached during the current year. This
     amount was fully reserved as of December 31, 2003. The other matters relate
     to:

          o    Damages
          o    Regulatory compliance claims
          o    Other claims for rescission of commercial agreements



                                       F-34
<PAGE>


     a)   Labor lawsuits attributable to ENTel

     The Transfer Contract provides that ENTel and not Telefonica is liable for
     all amounts owing in connection with claims based upon ENTel's contractual
     and statutory obligations to former ENTel employees, whether or not such
     claims were made prior to the Transfer Date if the events giving rise to
     such claims occurred prior to the Transfer Date. However, using a theory of
     successor enterprise liability that they assert is based upon generally
     applicable Argentine labor law, certain former employees of ENTel have
     brought claims against Telefonica, arguing that neither the Transfer
     Contract nor any act of the National Executive Power can be raised as a
     defense to Telefonica's joint and several liability under allegedly
     applicable labor laws.

     In an attempt to clarify the issue of successor liability for labor claims,
     Decree No. 1,803/92 was issued by the National Executive Power. It states
     that various articles of the Work Contract Law of Argentina (the
     "Articles"), which are the basis for the foregoing claims of joint and
     several liability, would not be applicable to privatizations completed or
     to be completed under the State Reform Law. Although the issuance of Decree
     No. 1,803/92 should have been seen as favorable to the Company, it did not
     bring about a final solution to the above claims. In effect, in deciding a
     case brought before it, the Supreme Court of Justice upheld the provisions
     of the law and declared the Decree inapplicable.

     As of December 31, 2004, the claims filed against the Company including
     accrued interest and expenses with respect thereto totaled approximately 54
     million pesos (in original currency). The Company has not booked an accrual
     for possible adverse judgments in such legal actions since: (a) in the
     Transfer Contract, ENTel has agreed to indemnify the Company in respect of
     such claims and (b) the Argentine Government has agreed to be jointly and
     severally liable with ENTel in respect of such indemnity obligations and
     has therefore authorized the Company to debit an account of the Government
     at Banco Nacion Argentina for any amount payable by the Company. Under the
     Debt Consolidation Law, ENTel and the Argentine Government may discharge
     their above-described indemnity obligations by the issuance to the Company
     of 16-year bonds. As of December 31, 2004 the Company has paid
     approximately 6.9 million pesos (in original currency) in cash for the
     above-mentioned claims. The Company initiated a claim for indemnification
     and reimbursement in connection with this matter. The case is being argued
     in court, and no ruling has yet been issued.

     Court decisions have followed the precedent laid down by the Supreme Court
     of Justice in the area of joint liability in labor matters mentioned in the
     second paragraph, criterion that the Company and its legal counsel consider
     that will apply to pending cases. Notwithstanding this and the instruments
     that may be used by the Argentine Government to reimburse the amounts that
     would be paid, given the obligation incurred by the Argentine Government in
     the List of Conditions and in the Transfer Contract, on the one hand, and
     on the basis of the opinion of the Company's legal counsel regarding the
     possible amount for which existing claims may be resolved, on the other, in
     the opinion of the Company's Management and its legal counsel the final
     outcome of the issue should not have a material impact on the Company's
     results of operations or financial position.

     b)   International Telecommunication Union Liability

     On July 29, 2003, Telefonica received a communication sent by the National
     Communications Commission ("CNC") requesting Telefonica and Telefonica
     Larga Distancia de Argentina S.A. ("TLDA S.A.") a company currently merged
     with the Company, to deposit 51 million pesos (that includes principal and
     interest as of July 31, 2003), which, according to such note, corresponds
     to the savings obtained, plus interest, by such companies as reductions in
     employers' social security contributions approved by Decree No. 1,520/98
     and supplementary standards, that were applied to the salaries of such
     companies' personnel in the period April 1999 through June 2001. Pursuant
     to Resolution S.C. 18,771/99, these savings were to be applied to the
     execution of programs or promotional projects in the framework of the
     presidential initiative argentin@internet.todos, to be managed by the
     International Telecommunications Union (UIT). Telefonica both with respect
     to its own operations and as successor of the rights and obligations of
     TLDA S.A. has recorded a liability related to these savings for the
     outstanding principal, amounting to 21 million pesos (see note 3.1.j),
     which Telefonica understands is its total liability as of December 31,
     2004. In the opinion of the Company's Management and its legal counsel,
     Telefonica has solid grounds to hold that this liability should not be
     considered in delinquency and so was reported to the CNC in a note dated
     August 13, 2003 in which it challenges the settlement made by such agency
     and a remanding of proceedings.

                                       F-35
<PAGE>

     c)   Fiber Optic Cables

     In December 2000, the Company was served with an ex officio assessment
     imposed by the Argentine Tax Authorities in relation to Income Tax for the
     fiscal years 1994 through 1999. Such adjustment was due to differences in
     the criterion used to calculate the depreciation of fiber optic cables.
     Whereas the Company applies a useful life of 15 years, the Argentine Tax
     Authorities proceeded to the assessment based on a useful life of 20 years.
     Having analyzed the issue, the Company appealed the assessment imposed by
     the Tax Authorities Argentina's Administrative Tax Court based on the
     Company's opinion that there are strong arguments against the Tax
     Authorities' assessment.

     However, in November 2004 the Argentine Administrative Tax Court entered a
     judgment against the Company forcing it to amend the tax returns referred
     to above. Additionally, the judgment repealed the penalties imposed by the
     Tax Authorities on the grounds that there were admissible elements in
     support of the figure of excusable error. Given that judgment recently
     entered against the Company, the Company has been compelled to pay an
     amount of 6 million pesos, in addition to 17 million pesos as punitive
     interest in December 2004 which have been charged to the Statement of
     Operations as definitive payment. So, in the Company's opinion this matter
     will not have any additional effects beyond these payments.

     Notwithstanding the above paragraph, and although the final resolution is
     subject to the contingencies inherent in any pending court judgment, the
     Company and its legal counsel are of the opinion that there are legal
     grounds for a successful appeal of the judgment entered against the Company
     and they have presented an appeal to have the judgment against the Company
     reviewed by the National Court of Appeals in Administrative Matters. As of
     the date of issuance of these financial statements, the Court has not ruled
     on this matter.

     d)   Other

     Consumidores Libres initiated a legal action against the Company, Telecom
     Argentina S.A., Telintar Argentina S.A. ("Telintar S.A") and the Federal
     Government. The object of this action is to declare the nullity,
     unlawfulness and unconstitutionality of all standards and rate agreements
     issued since the Transfer Contract, the Cooperative's object being to have
     the rates of the basic telephone service reduced and the amount supposedly
     collected in excess refunded, limiting them in such a way that the
     Licensees' rate of return should not exceed 16% per annum on the assets as
     determined in point 12.3.2 of the List of Conditions approved by Decree No.
     62/90. Also, other points of the Company's contracting policy have been
     called into question.

     After analyzing the claim, the Company's legal counsel contested it,
     petitioning that it should be dismissed on the grounds that it fails to
     state a claim with a basis in law. The court of original jurisdiction ruled
     in the Company's favor, but this resolution was revoked by the Court of
     Appeals that resolved that the claim must not be dismissed but must be
     substantiated at the court of original jurisdiction. None of these courts
     have yet ruled on the substance of the claim. Through its legal counsel,
     the Company filed an appeal to the Supreme Court of Justice against the
     Appeal Court's resolution, which was denied. The Company subsequently filed
     an appeal of such denial with the Supreme Court of Justice and has also
     been rejected.

     In this scenario, on October 4, 2001, Court Room IV of the Federal
     Appellate Court on Administrative Contentious Matters of the City of Buenos
     Aires awarded a precautionary measure requested by the plaintiff ordering
     the Federal Government, the Company and Telecom Argentina S.A. "to refrain
     from applying the corrections set forth in Section 2 of the Agreements
     approved by Decree No. 2,585/91 until final judgment is rendered in the
     case", which meant that the rates could not be adjusted by the U.S.
     Consumer Price Index.

     The Company appealed such decision before the Argentine Supreme Court of
     Justice rejecting the arguments stated therein, which has been adversely
     determined as of the date of issuance of these financial statements.


                                       F-36
<PAGE>


     In the opinion of the Company's Management and its legal counsel, it is
     unlikely and remote that the resolution of this issue could have a negative
     effect on the results of the Company's operations or its financial
     position.

     12.  NEGOTIABLE OBLIGATIONS

As of December 31, 2004, there were nine negotiable obligations issues
outstanding:

<TABLE>
   ----------------------------------------------------------------------------------------------------------------------
        Issuance    Face Value (in    Term (in years)     Maturity Month/      Rate per annum (%)   Use of proceeds
       Month/Year     millions)                                 Year
   ----------------------------------------------------------------------------------------------------------------------
<S>                  <C>                     <C>               <C>                   <C>                   <C>
          05/98      U.S.$125.6              10                05/2008                9.125                 a)
   ----------------------------------------------------------------------------------------------------------------------
          06/02      U.S.$ 71.4               4                07/2006                9.875                 b)
   ----------------------------------------------------------------------------------------------------------------------
          08/03      U.S.$189.7               4                11/2007               11.875                 b)
   ----------------------------------------------------------------------------------------------------------------------
          08/03      U.S.$212.5 (d)           7                11/2010                9.125                 b)
   ----------------------------------------------------------------------------------------------------------------------
          08/03      U.S.$ 0.03 (c)           8                08/2011                 8.85                 b)
   ----------------------------------------------------------------------------------------------------------------------
          08/03      U.S.$134.6 (e)           8                08/2011                 8.85                 b)
   ----------------------------------------------------------------------------------------------------------------------
          05/04          $163.3 (f)           1                05/2005                 8.05                 b)
   ----------------------------------------------------------------------------------------------------------------------
          10/04          $134.8               1                10/2005                 8.25                 b)
   ----------------------------------------------------------------------------------------------------------------------
          10/04          $ 65.2               1.5              04/2006          Badlar + 2.40 (g)           b)
   ----------------------------------------------------------------------------------------------------------------------
</TABLE>

     a)   Financing of investments in fixed assets in Argentina.

     b)   Refinancing of liabilities.

     c)   On August 1, 2004 they were converted to U.S. dollars and started to
          accrue interest at a nominal rate of 8.85% per annum.

     d)   Net of U.S.$ 7.5 million repurchased during 2004.

     e)   Net of U.S.$ 13.5 million repurchased during 2004.

     f)   Correspond to bonds with zero coupon.

     g)   Corresponds to notes with a variable interest coupon based on the
          BADLAR rate (average interest rate paid by private or public banks
          for deposits over 1 million pesos between 30 and 35 days) + 2.4% with
          a nominal annual minimum of 7% and a nominal annual maximum of 15%.

The prospectuses related to the issuance of these negotiable obligations
describe the issuance conditions in detail. The main stipulations concern: a)
commitment of the Company not to create liens, except certain permitted liens,
over its present or future assets or revenues, unless the Company's commitments
under the negotiable obligations meet certain requirements; b) conditions for
the early redemption of the issuance and c) events of default whereby the note
holders could accelerate the due dates, such causes being, among others, failure
to pay on the securities, default on other debts in amounts equal to or
exceeding U.S.$ 20 million, attachments which in the aggregate exceed U.S.$ 10
million, etc. On July 22, 2003, the meetings of the Company's noteholders
approved the amendments to the terms and conditions of the notes issued in 1998
in order to delete substantially all the events of default and certain
information requirements other than those related to nonpayment of principal
and interest.

As of the date of issuance of these consolidated financial statements, in the
opinion of the Company's Management, the Company has met all obligations arising
from the agreements signed in connection with these issuances.

The Company issued negotiable obligations due in 2006 and 2008 under the
Company's Global Program, of up to U.S.$ 1.5 billion or its equivalent and the
commitments are those customary for this kind of transactions.



                                       F-37
<PAGE>

Issuance of Negotiable Obligations under the Program of December 2003

The shareholders' meeting held on December 19, 2003 approved the creation of a
global program (the "Program") for the issuance of simple negotiable obligations
not convertible into shares, denominated in pesos or in any other currency, with
ordinary guarantee, in various series and/or successive tranches, either
cumulative or non-cumulative, for a maximum outstanding amount of 1.5 billion
pesos or its equivalent amount in other currencies, and delegated to the Board
of Directors the power to set the remaining issue conditions and to decide to
request or not authorization to quote such securities on the CNV and/or other
foreign exchange markets.

On April 23, 2004, the Company's Board of Directors resolved to issue the LESEP
("Letras del Sector Privado") Class of Negotiable Obligations under the Program.
Such issue took place on May 7, 2004, for a nominal amount of 163.3 million
pesos, maturing in May 2005, with zero coupon and an annual 8.05% cut-off
return.

On October 28, 2004, the Company proceeded to issue the Second Class of
Negotiable Obligations for 200 million pesos under the above mentioned program.
The issue comprises a Series A for an amount of 134.8 million pesos, with a
365-day term and an 8.25% annual interest rate and a Series B for an amount of
65.1 million pesos, with a 548-day term and a variable annual interest rate
based on the BADLAR index plus 2.4% annual with a nominal 7% minimum per annum
and 15% maximum per annum.

In addition, on December 13, 2004, the Company's Board of Directors approved the
issuance of the Third Class of Negotiable Obligations under the Program for an
amount of up to 250 million pesos in one or more Series.

On February 11, 2005 the Company issued 250 million pesos of negotiable
obligations in two Series, the Fixed Rate Series at 365 days for 200 million
pesos with a 8% nominal interest rate coupon and the Variable Rate series at 730
days for 50 million pesos with a variable interest rate coupon based on the Tasa
Encuesta plus a spread of 2.5%, with a nominal annual minimum of 7% and a
nominal annual maximum of 15%. The proceeds are to be applied to the
re-financing of liabilities.

Offer to Exchange Negotiable Obligations

On May 20, 2002 the Board of Directors decided to launch an offer to exchange
the full amount of the issue made in July 1999 for a principal amount of
U.S.$100 million due July 1, 2002, hereinafter the "2002 Notes".

This exchange offer began on May 28, 2002, and for each U.S.$1,000 in principal
in circulation of the 2002 Notes, the Company offered to exchange:

     o    a principal amount of U.S.$ 850 for new notes to be issued at 9.875%,
          due July 1, 2006, hereinafter the "2006 Notes", plus
     o    U.S.$ 100 in cash for all 2002 Notes included in valid tenders until
          June 21, 2002, plus
     o    U.S.$ 50 in cash for all 2002 Notes in valid tenders made until June
          13, 2002 (a date subsequently extended to June 18, 2002) as Early
          Tender Fee.

Holders making valid tenders of their 2002 Notes comprised 83.971% of the
total value of the issue. As a result, the Company issued 2006 Notes for a total
amount of U.S.$71,375,350 and paid U.S.$12.6 million in cash (of which U.S.$4.1
million corresponded to the Early Tender Fee). Subsequently, on maturity of the
2002 Notes, the Company proceeded to redeem the notes that were not exchanged by
means of a payment of U.S.$ 16.03 million.

The 2006 Notes accrue interest as from July 1, 2002 at an annual rate of 9.875%
payable six-monthly on January 1 and July 1. The first interest payment date was
January 1, 2003. The 2006 Notes include a mandatory redemption right that can be
exercised by the holders after July 1, 2004 if by July 1, 2004 the total
outstanding principal amount corresponding to the issue made by the Company in
November 1994 (hereafter the 2004 Notes) plus any refinancing of such notes due
prior to July 1, 2006, were to exceed 30% of the total initial principal amount
of the 2004 Notes.

Furthermore, on June 21, 2002 a Meeting of Holders of 2008 Notes issued by the
Company was held at which approval was given for the waiver of the right to
demand accelerated maturity of the notes in the event of failure to pay any
other class of notes issued under the same program, through an amendment to
Section 11 of the program issue terms and conditions. In consideration for this
waiver the Company made a cash payment of U.S.$1 million.

On May 19, 2003, the Company's Board of Directors approved an offer to exchange
outstanding negotiable obligations issued by the Company and by COINTEL for new
negotiable obligations issued by the Company plus a cash payment:


                                       F-38
<PAGE>


a) Offer to Exchange the Company's Negotiable Obligations

The Company's negotiable obligations included in the exchange offer were the
original amounts of those issued in November 1994 and in May 1998. On August 7,
2003, the Company issued new notes for a total amount of U.S.$ 189.7 million due
in November 2007, and U.S.$ 220 million due in November 2010, respectively, and
the Company paid U.S.$ 52.1 million in cash. Additionally the Company paid U.S.$
12.5 million as interest accrued to that date.

b) Offer to Exchange COINTEL's Negotiable Obligations

On August 7, 2003, the Company issued negotiable obligations for U.S.$ 148.1
million due in August 2011, and paid in cash the amount of U.S.$ 24 million and
$4.6 million in exchange for COINTEL's negotiable obligations (Series A and
Series B). In addition, the Company issued $0.1 million of negotiable
obligations at 10.375% peso denominated notes due in August 2011 which on August
1, 2004 were converted into U.S. dollars and started to accrue interest at an
annual nominal rate of 8.85% for COINTEL's Class B notes. Additionally, the
Company transferred immediately COINTEL's notes which were acquired in this
exchange offer to TISA in exchange for an equivalent reduction (U.S.$ 174
million) in TASA's short-term financial debt to TISA.

13.  FINANCING

As of December 31, 2004, Telefonica's unconsolidated current assets are lower
than its unconsolidated current liabilities by 1,150 million pesos, the latter
including approximately 34% (U.S.$ 200 million) of debt owed to the Company's
indirect controlling company.

The Company's general financing policy is to cover future funds needs to
continue its investment plan and repay short and long-term debt mainly with
funds generated by the operations plus, if it is necessary, with bank loans
and/or access to capital markets and possibly refinancing of indirect parent
company loans.

As of December 31, 2003, the Company's short-term debt amounted to U.S.$ 637
million. At that time, the Company could not assure that it would be able to
meet its current debt obligations at their maturity date. During 2004, as well
as in prior periods, the Company managed to gradually reduce its short-term
indebtedness through a combination of partial payments and short and long-term
re-financing. As of December 31, 2004, the Company has been granted new
short-term loans from local financial institutions in an amount of 120 million
pesos. In addition, in May 2004, October 2004 and February 2005, the Company
issued negotiable obligations for 163.3 million pesos, 200 million pesos and 250
million pesos (see note 12.), respectively, and expects to arrange for
additional placements in the future. Those placements, in conjunction with
internally-generated cash flows and possible re-financing options and/or other
financing alternatives that the Company may consider will, in the opinion of
Management, enable the Company to settle or successfully refinance the remaining
balance of its short-term indebtedness.

In turn, in the months of July, August and September, 2004, TISA has re-financed
liabilities in the amount of U.S.$150 million, now payable, in monthly
installments maturing from January through December 2005 and has advised the
Company that, as of the date of issuance of these financial statements, it was
still assessing other financing alternatives for the Company including, if
necessary, providing additional financing.

     -Long-term bank financing

The Company has borrowed long term funds from major financial institutions in an
amount equivalent to 236 million pesos as of December 31, 2004. These funds have
been borrowed under terms and conditions customary in this kind of transactions,
which generally refer to the commitment not to encumber or grant security
interests on its assets or on present or future revenues, other than certain
permitted encumbrances or unless certain predetermined conditions are met.

Additionally, the Company uses other long-term bank credit lines to finance
imports from different commercial banks.


                                       F-39
<PAGE>


     - Other financing - Related Parties

As of December 31, 2004, Telefonica and its controlled company owed,
approximately 595 million pesos (about U.S.$ 200 million) to related parties,
which mature until December, 2005 and accrue interest at one-month LIBOR plus a
5% per annum for Telefonica and a 9% per annum for Telinver S.A. (see note 6.1.
related to the assignment of debt from Telinver S.A. to Telefonica). These
agreements established the usual commitments for these kind of transactions, as
well as clauses that establish that the creditor may accelerate the terms of the
Company's payables ("events of anticipated maturity") if there are changes in
the Company's equity, economic and financial situation that due to their adverse
nature may affect the Company's capacity to comply with the obligations assumed
in the agreements or if there are restrictions that may limit the capacity of
the Company to repay its debts.

The related party creditors have advised the Company that until March 20, 2005,
or in the case of debt maturing after that date, until the due date of the debt:
(i) the effects of the Public Emergency Law implemented in Argentina by Decree
No. 1,570/01, Law No. 25,561, as supplemented and amended, in force shall not be
considered by the creditors as an event of anticipated maturity; and (ii) the
creditors shall not consider that, as of such date, loans have become
immediately due and payable in accordance with the agreements.

Additionally, the loan agreements currently in effect additionally contain
acceleration clauses that would be triggered in the event of certain court or
out-of-court procedures being initiated in connection with claims exceeding a
certain percentage of the Company shareholders' equity or one of its significant
subsidiaries.

The Company has obtained a waiver in respect of procedures of this nature that
were pending against the Company as of February 14, 2005, subject to a condition
that no other debt be accelerated on similar grounds.

14.  PATRIOTIC BOND

In 2001, the Company signed a Patriotic Bond subscription commitment (bond
issued by the Argentine Government) for a total amount of U.S.$ 30 million,
which was completely paid in that month. This bond is denominated in U.S.
Dollars, is made out to bearer, and is negotiable in local and foreign stock
markets. The terms and conditions of the issue allow for the use of these
securities to pay national taxes in the event of default to pay the principal
and/or interest when due. Since January 2002 the National Government has not
honored the payment commitments related to the interest coupons of that bond,
the Company has proceeded to offset them against taxes. Although the Company has
used the overdue principal and interest to settle its tax liabilities, as from
October 2003 such offset feature has been suspended until completion of the
voluntary exchange of Argentine Sovereign Debt Securities (Decree No. 493/04).

The Company has valued and disclosed its Patriotic Bond holdings taking into
consideration what was said in the previous paragraph and the fact that the
Argentine Government included it in the list of bonds eligible for sovereign
debt restructuring (See Note 2.3.c).

Additionally, on February 23, 2005 the Company decided to accept the Argentine's
sovereign debt restructuring process by tendering the Company's the Patriotic
Bonds for the newly issued U.S.$ dollar discount bonds. The new bond has a
nominal face value of approximately U.S.$8 million.


15.  PARENT COMPANY AND COMPANIES RELATED TO THE PARENT COMPANY

     15.1. COINTEL

     COINTEL is the controlling shareholder of the Company, as it holds
     approximately 64.8% of the capital stock as of December 31, 2004. COINTEL,
     therefore, has the votes required to prevail in shareholders' meetings.
     COINTEL owns class A shares representing 62.5% and 40.2 million class B
     shares representing 2.3%.

     In addition, on December 15, 2000, TESA acquired the majority interest of
     the capital stock of COINTEL. Consequently, TESA indirectly controls 98% of
     the voting rights of the Company's outstanding shares.


                                       F-40
<PAGE>


     On May 28, 2001 the National Executive Power issued Decree No. 677/01 which
     provides that any minority shareholder (that verifies the tenancy of stock
     as of the date of the decree) may demand that TESA make a purchase offer to
     the Company's minority shareholders, in which case, the controlling
     shareholder could make an acquisition statement of the Company's capital
     stock owned by third parties or make a tender offer of such company's
     shares. Such acquisition offers or statements may be carried out by
     providing an exchange option for controlling shareholders' listed shares.
     Should any of the above mentioned transactions be conducted, once the
     acquisition has been completed and the procedure established has been met,
     the Company would be automatically left outside the share public trading
     and listing system. However, the Company's negotiable obligations would
     still remain inside such system.

     In 1997, some of the common shareholders of COINTEL, who, as of the date of
     issuance of the financial statements, owned an 83.36% equity interest in
     COINTEL executed an agreement to regulate certain corporate decisions such
     as the dividend policy or preferential rights held by some of them (members
     of the consortium, as defined in the Transfer Contract, and its affiliates)
     to provide goods and services under terms equal or more favorable than
     those offered by third parties. The Company made certain transactions with
     COINTEL shareholders and companies related thereto including the services
     rendered by TESA (the "operator") and those rendered by third parties
     related to the shareholders of COINTEL (see note 15.3).

     15.2. COMMITMENTS RELATED TO TCP S.A.

     In July 1999, the Company provided to the Argentine Government for the
     benefit to TCP S.A. performance guarantees under the PCS licenses
     obligations in the amounts of U.S.$22.5 million individually and $45
     million jointly with Telecom Argentina S.A. until December 31, 2001. As
     informed by TCP S.A., the duties arising from its PCS licenses have been
     complied with. Although the CNC has finished the technical review of the
     existing network, as of the date of issuance of these financial statements
     TCP S.A. has not started the release process in connection with the
     guaranties mentioned above, thus the Company is still subject to them. The
     outstanding performance guarantees denominated in foreign currency have
     been converted into pesos.

     15.3. OUTSTANDING BALANCES AND TRANSACTIONS WITH PARENT COMPANY AND RELATED
           COMPANIES (restated as described in note 2.2)

     During the years ended December 31, 2004, 2003 and 2002, the following
     transactions were made with the controlling shareholder of the Company and
     companies related to the parent, respectively in each of the following
     years:

<TABLE>
                                                                    December 31,        December 31,     December 31,
                                                                        2004                2003             2002
                                                                  ---------------------------------------------------
                                                                                       (Loss) / Income
<S>                                                                         <C>                 <C>              <C>
Management Fee
Telefonica S.A.- Sucursal Argentina                                         (68)                (86)             126

Net income (loss) from goods and services
TCP S.A.                                                                    140                 101              116
TDA S.A.                                                                     46                  38               32
Atento Argentina S.A. ("Atento S.A.")                                       (20)                (11)             (13)
Telefonica Ingenieria de Seguridad S.A.                                      (3)                 (4)              (4)
Telefonica Data USA                                                           -                  (1)              (3)
Telefonica S.A. - Sucursal Argentina                                         (6)                 (7)               -
Telefonica Procesos y Tecnologia de la Informacion                            -                  (3)              (1)
Terra Network Argentina S.A. ("Terra S.A.")                                  (1)                 (1)              (1)
Emergia Argentina S.A. ("Emergia S.A.")                                       4                   5                5
Telefonica Internacional Wholesales Services
 ("TIWS (Uruguay)"                                                            1                   2                -
Telefonica Sistemas S.A.                                                      -                   -               (1)
Adquira Argentina S.A. ("Adquira S.A.")                                       -                  (2)               -
Telefonica Gestion de Servicios Compartidos S.A.
 ("T-Gestiona S.A.")                                                          1                   -                -


                                       F-41
<PAGE>


C.P.T. Telefonica Peru                                                       12                  (1)              (7)
Television Federal S.A.                                                      (3)                 (4)              (1)
Communications Technologies Inc.                                             (1)                  -                -
Telefonica  Mundo                                                             -                  (2)               2
Telefonica Investigacion y Desarrollo                                        (1)                 (2)              (1)
Telefonica de Espana ("TESA")                                                 -                  (2)              (6)
Telefonica del Brasil                                                         1                   1                -
Telefonica Internacional Wholesales Services ("TIWS (Espana)")                1                   -                -
Pleyade S.A.                                                                                                       -
                                                                              1                   1                -
                                                                  ---------------------------------------------------
                                                                            172                 108              117
Net loss on financial charges
TCP S.A.                                                                      -                   -                2

Compania Internacional de Telecomunicaciones S.A. ("COINTEL")                 -                   -                2
Telefonica Holding de Argentina S.A.                                          -                   -                1
Atento                                                                        1                   1                -
TISA                                                                        (97)               (210)            (314)
                                                                  ---------------------------------------------------
                                                                            (96)               (209)            (309)
Purchases of good and services

Telefonica Procesos y Tecnologia de la Informacion S.A.                       -                   -               25
Telefonica Soluciones S.A.                                                   16                   -                -
Telefonica Ingenieria de Seguridad                                            1                   -                -
TDA S.A.                                                                      7                   7                -
                                                                  ---------------------------------------------------
                                                                             24                   7               25
</TABLE>


     Balances of Telefonica and Telinver with the Operator (TESA) and other
     COINTEL shareholders and related companies as of December 31, 2004 and 2003
     are:

                                      December 31, 2004   December 31, 2003
                                      -------------------------------------
    ASSETS

Trade receivables

CTC Mundo S.A.                                      -                     3
Emergia S.A.                                        -                     1
Katalyx Argentina S.A.                              -                     1
Communication Technologies Inc.                     7                     -
Adquira S.A.                                        -                     1
T-Gestiona S.A.                                     5                     -
TIWS (Espana)                                       1                     -
Television Federal S.A.                             2                     -
C.P.T. Telefonica  Peru                             9                     1
TIWS (Uruguay)                                      -                     1
                                      --------------------------------------
Total Trade receivables                            24                     8



                                       F-42

<PAGE>


Other receivables

TDA S.A.                                           18                    40
T-Gestiona S.A.                                     -                     4
Atento S.A.                                         4                     7
Telefonica Media Argentina S.A.
("Temarsa S.A.")                                    2                     2
TISA                                                1                     -
                                      --------------------------------------
Total Other receivables                            25                    53
TOTAL ASSETS                                       49                    61

    LIABILITIES                       December 31, 2004   December 31, 2003
                                      -------------------------------------

Trade Payables

TESA                                                2                     3
CTC Mundo S.A.                                      3                     -
Telefonica S.A. - Sucursal Argentina (1)           70                    76
Emergia S.A.                                       65                    68
Telefonica Procesos y Tecnologia de la
  Informacion                                       -                     4
Telefonica Servicios Audiovisuales                  1                     1
C.P.T. Telefonica Peru                              -                     1
TCP S.A.                                            1                     -
Television Federal S.A.                             1                     1
Telefonica DATA USA                                 1                     -
Telefonica Investigacion y Desarrollo S.A.          4                     5
Telefonica Soluciones S.A.                         16                     -
Telefonica Ingenieria de Seguridad                  1                     -
                                           --------------------------------
Total Trade Payables                              165                   159

Bank and Financial Liabilities
TISA (2)                                          595                 1,576
                                           --------------------------------
Total Bank and Financial Liabilities              595                 1,576


Other Payables
TESA                                               11                    10
TCP S.A.                                            -                    13
Telefonica S.A. - Sucursal Argentina                2                     2
                                           ------------------------------------
Total Other Payables                               13                    25

TOTAL LIABILITIES                                 773                 1,760

(1) Corresponding  to liabilities by management fee.

(2)  See note 13.


16.  RULES GOVERNING THE PROVISION OF BASIC TELEPHONE AND OTHER SERVICES

As from March 1992 and in compliance with its specific functions, the CNC,
formerly known as National Telecommunications Commission ("CNT"), and the S.C.
have regulated certain aspects related to the basic and international telephone
services such as the procedure to make claims, contracting billing and service
quality, some of which have been the object of appeals by the Company.



                                       F-43
<PAGE>


In the context of the transition to competition in telecommunications, the
National Executive Power has issued the Decree No. 764/00 which repealed, among
others, Resolutions No. 18,971/99 and No. 16,200/99 and approved the new
Universal Service rules and regulations to promote the access to
telecommunications services by customers either located in high-cost access or
maintenance areas, or with physical limitations or special social needs. Such
rules and regulations effective from January 1, 2001, establish that the deficit
for the provision of these services by the Company will be through a "Universal
Service Fund", to be financed by all telecommunications providers (including the
Company) through the payment of 1% of total revenues for telecommunications
services. As of the date of these financial statements, the S.C. has not yet
ruled on the mechanism by which the Company should recover the cost incurred for
rendering these services.

The supply of telecommunications services is governed by the regulations that
the National Legislative Power and the agencies under the National Executive
Power regulating such activities are empowered to issue. In addition, the
Company is subject to the rules and regulations inherent to any business
conducted at the National, Provincial and Municipal level according to the
respective rules and regulations in each jurisdiction. In particular,
telecommunications services are regulated by the S.C. and are supervised by the
C.N.C. subject to the involvement, in certain cases, of the National Commission
for the Defense of Competition and the Under Secretary of Consumers' Protection.
The S.C. establishes the legal framework and the policies applicable. The C.N.C.
applies the legal framework and the policies and supervises the
telecommunications industry. The National Commission for the Defense of
Competition enforces and supervises the regulations related to competition
issues and to the Under Secretary of Consumers' Protection applies and
supervises regulations related to competition and consumer protection.

Regulations governing the supply of telecommunications services enacted by the
National Legislative Power as laws are enacted after the following process:
submission of a bill, study and/or modification of such bill by the applicable
legislative commissions, a favorable vote by both Houses of the National
Congress and enactment of the bill into a law if no veto has been issued by the
National Executive Power. At present there are various legislative initiatives
of proposed legislation, including:

     o    bills aimed at regulating all public utilities, based on the
          definition of utilities proposed (which includes the activities
          subject to regulation carried out by the Company) and establishing the
          manner in which concessions are granted as well as the possibility of
          revoking such concessions, imposing regulations in the area of tariffs
          such as, for instance, the prohibition of automatic tariff adjustment
          imposing an obligation to make investments as a condition to maintain
          the concession granted,
     o    legislative bills aimed at regulating the utilities' ability to
          discontinue the supply of services to customers in arrears,
     o    legislative bills aimed at establishing new municipal taxes, to name a
          few.

The Company is unable to foresee if, in the future, the legislative bills or
other regulation to be proposed will be enacted into laws or in any other will
become part of the regulatory framework that governs the Company's activities.
Nor can the Company foresee if the original version of the proposals mentioned
and/or future projects shall be amended or not, or if there will be amendments
that may have a lesser or greater impact on the conditions and the framework in
which the Company currently operates.

The financial statements consider the effects derived, and foreseen by
Management derived from the regulations enacted as of the date of issuance of
the financial statements. The effects of any new regulation that may be issued
will be considered when they effectively come into force and become a part of
the regulatory framework applicable to the Company's activities.

17.  Stock purchase program

TESA approved a program whereby all Company employees who chose to participate
acquired a number of TESA shares, which number was based on their annual
compensation, for the equivalent of 5 euro per share. In addition, TESA granted
the participants 26 stock options for every TESA share purchased at a strike
price of 5 euro per option. The actual number of options eligible for exercise
depends on the appreciation, if any, of the stock price of TESA over the
reference value established at 20.50 euros, (originally 24.50 euros). The
program term is four years and participating employees may exercise the options
granted on three different occasions during such four-year term.



                                       F-44
<PAGE>



The benefits under this program are contingent on the participants continued
employment with the Telefonica group, i.e. they may not unilaterally and
voluntarily terminate their employment with the group before the exercise date
without losing the benefits under the program. Since the above benefits are
granted by TESA directly, this program does not involve any expenditure to the
Company. The options under the program corresponding to Telefonica and
Telinver's personnel as of December 31, 2004 and 2003 total 2,254,954 and
2,504,580 respectively, involving a total amount of shares of 86,729 and 96,330
as of those dates.

On February 15, 2005 this program expired and no participant exercised their
options because the price of TESA shares was below the reference value of 20.50
euros.

18.  RESTRICTED ASSETS

Pledged shares of INTELSAT

Under the agreement signed between the Company and Intelsat U.K., a company
registered under the laws of England, the common shares held by the Company in
Intelsat have been pledged as collateral for the payment of the obligations
arising in relation to segment capacity utilized. The Company retains its voting
and dividend rights on such shares as long as the Company does not incur in any
event of default.

In October 2004, the Shareholders' Meeting of Intelsat Ltd. decided to sell 100%
of its stock capital to "Zeus Holding Limited". In exchange for the sale, the
shareholders of Intelsat Ltd. received U.S.$ 18.75 per share. In addition, on
January 28, 2005, Intelsat informed that it has closed the transaction mentioned
and shall proceed to the payment due on the sale of such shares according to the
agreed conditions. The Company recognized the effects of the sale of Intelsat as
of such date, without resulting in any material impact on the Company's results.

As of the date of issuance of these financial statements, the Company changed
the pledge agreement to a cash collateral to maintain the guarantee of payment
of liabilities arising in relation to the service. In the opinion of the
Company's Management, the agreements mentioned in the preceding paragraphs will
not have a significant effect on the Company's operations.


19.  BUSINESS SEGMENT INFORMATION

On the basis of the nature, production process, distribution method and
differential regulations, for the purpose of the information requested by
Professional Accounting Principles, the Company has identified two reportable
segments: i) related to the Company's telecommunications activities, regulated
by the S.C. and the CNC, and derived from the use of the network and related
equipment: the supply of telecommunications services segment, which includes
Telefonica's operations and ii) the publication of telephone directories (Yellow
Pages) segment included in Telinver's operations.


<TABLE>
                                  Basic Telephony         Yellow Pages         Consolidation
                                      Services              Services           Adjustments /            Total
                                                                             Reclassifications
                                                                                    (1)
                                  Dec-04       Dec-03   Dec-04     Dec-03     Dec-04    Dec-03     Dec-04    Dec-03
                                --------------------------------------------------------------------------------------
<S>                                <C>         <C>         <C>        <C>       <C>       <C>      <C>       <C>
      Net revenues to
      unaffiliated customers       2,967       2,683        80         67        -          -      3,047     2,750
      Net intersegment
      revenues                        16          12         1          1      (17)       (13)         -         -
                                -------------------------------------------------------------------------------------
      Total Net Revenues           2,983       2,695        81         68      (17)       (13)     3,047     2,750

      Net (Loss) / Income             (5) (2)    394 (2)    (2)        11       (1)         -         (8)      405




                                       F-45
<PAGE>


      Depreciation and
      Amortization on fixed
      and intangible assets        1,140       1,304         4          5        -          -      1,144     1,309

      Investment on Fixed
      and Intangible Assets          439(3)      205         1          -       (1)         -        439(3)    205

      Total Assets                 7,416       8,209       123        114      (15)       (11)     7,524     8,312

      Total Liabilities            4,609 (2)   5,397 (2)   159        148      (14)       (11)     4,754     5,534

      Investments in equity
      method investees                 1           2         -          -        -          -          1         2
</TABLE>

     (1)  Corresponding to elimination of intersegment balances and operations.
     (2)  Net of the income and liabilities related to the Company's investment
          in Telinver.
     (3)  Includes 9 million of transfers from Inventory to Fixed assets.


20.  DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND U.S.
     GAAP

     a)   Accounting principles followed by the Company

     The consolidated financial statements have been prepared in accordance with
     Argentine GAAP (except for the matter mentioned in note 2.2), which differ
     from generally accepted accounting principles of the United States of
     America.

     Differences between generally accepted accounting principles followed by
     the Company (see note 2.3) and generally accepted accounting principles in
     the United States ("U.S. GAAP") and their effect on net income /loss and on
     shareholders' equity are set forth in b) and c) below.

     b)   Description of differences between Argentine and U.S. GAAP.

     1.   Restatement of financial statements for general price-level changes

     According to currently effective Argentine GAAP, inflation adjustment
     mechanism is to be applied if certain conditions, to be assessed by the
     CPCECABA, are met.

     In August 1995, according to the then effective requirements of Argentine
     GAAP, the method of restatement of amounts into constant pesos was
     discontinued, due to the low levels of inflation at that time. However,
     from January 2002 and until February 28, 2003, the increase in the consumer
     price index and in the wholesale price index was 43.6% and 119.7%,
     respectively, and therefore, inflation accounting was reinstated under
     Argentine GAAP as from January 1, 2002 (see note 2.2). Also, under
     Argentine GAAP, the period August 1995 through December 2001 is considered
     to be a "stability period", because of the low level of increase in general
     prices during that period. Accordingly, the financial statements have not
     been restated for the effects of inflation during such period.

     As described in note 2.2, in 2002 the National executive Power repealed the
     provisions related to inflation adjustments; therefore, the CNV under
     Resolution No. 441/03 set forth that as from March 31, 2003 the restatement
     of financial statements in constant currency should be discontinued. The
     Company has followed the provisions of the CNV and prepared the financial
     statements recognizing the effects of inflation until February 28, 2003
     (see note 2.2). In December 2003, the CPCECABA discontinued the application
     of the restatement for inflation as from October 2003. The effect on net
     income and shareholders' equity for the fiscal year ended December 31, 2003
     as if restatement of inflation had been applied for the period March
     through September 30, 2003 is included in note 2.2.

     In accordance with generally accepted accounting principles applied by the
     Telefonica Group for purposes of the group's consolidated financial
     statements, Argentina did not meet the definition of a highly inflationary
     economy in 2002 and 2003. So, Telefonica, S.A. incorporates, for
     consolidation purposes, our balances without computing any inflation
     adjustments for the inflation experienced during 2002 and 2003. Consistent
     with our ultimate parent

                                       F-46

<PAGE>


     company's policies, and for our own U.S. GAAP reconciliation, we have
     elected not to use the alternative of maintaining the 2002 and 2003
     inflation adjustment that the Securities and Exchange Commission provides
     for countries such as Argentina where local GAAP requires price-level
     adjustments. Therefore, we have included in our U.S. GAAP reconciliation an
     adjustment eliminating the effects of the restatement for inflation
     computed in the accompanying financial statements filed with the CNV for
     inflation during the fiscal years ended December 31, 2002 and for the
     period January - February 2003 (see c).

     2.   Restatement of financial statements for comparative purposes

     Under Argentine GAAP, amounts corresponding to prior fiscal years that are
     presented for comparative purposes are also restated for the inflation of
     the current year so as to allow for comparisons in constant Argentine pesos
     as described in note 2.2.

     For U.S. GAAP, amounts for prior fiscal years have been adjusted to
     eliminate such restatement and so are presented in nominal pesos (see c).

     3.   Capitalized interest

     Under Argentine GAAP, interest expense incurred on liabilities specifically
     identifiable to construction in progress is capitalized. For the portion of
     construction in progress not financed by specific liabilities, the Company
     assumes such expenditures are financed by any remaining liabilities (both
     interest and non-interest bearing) and shareholder's equity.

     Under U.S. GAAP, interest expense incurred on liabilities specifically
     identifiable to construction in progress is capitalized. For the portion of
     construction in progress not financed by specific liabilities, the
     capitalization rate applied to such excess is the weighted average of the
     rates applicable to other borrowings of the Company (see c).

     4.   Inventories

     Under Argentine GAAP, inventory is stated at the lower of either
     replacement/reproduction cost or estimated realizable value. Under U.S.
     GAAP, inventory is stated at the lower of cost or market. The Company
     determines cost principally on an average cost basis.

     5.   Income tax and tax on minimum presumed income

     Under Argentine GAAP, the Company records income tax by application of the
     deferred method, in accordance with the provisions of RT No. 17, as
     described in note 2.3.k).

     Deferred tax assets result mainly from the temporary differences arising
     from allowances and financial charges that are not yet deductible for tax
     purposes and from tax loss carryforwards. Deferred tax liabilities result
     mainly from temporary differences in the valuation of fixed assets for
     accounting and tax purposes basically due to different depreciation
     criteria and to the treatment of capitalized interest.

     Under U.S. GAAP, the Company records income taxes using the method required
     by Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting
     for Income Taxes". Accordingly, deferred tax assets and liabilities are
     recognized for the future tax consequences attributable to differences
     between the financial statement carrying amounts under U.S. GAAP of
     existing assets and liabilities and their respective tax bases. SFAS 109
     requires companies to record a valuation allowance for that component of
     net deferred tax assets, including tax credits arising from minimum
     presumed income tax (together "tax assets"), which does not meet the "more
     likely than not" criterion for realization, based on the assessment of
     evidence established in U.S. GAAP rules. Deferred tax assets and
     liabilities are measured using enacted tax rates expected to apply to
     taxable income in the years in which those temporary differences are
     expected to be recovered or settled. The effect on deferred tax assets and
     liabilities of a change in tax rates is recognized in income in the period
     that includes the enactment date (see c).

     In assessing the realizability of tax assets, management considers whether
     it is more likely than not that some portion or all of the tax assets will
     not be realized. The ultimate realization of tax assets is dependent upon
     the generation of future taxable income during the periods in which those
     temporary differences become deductible. Management considers all available
     evidence, both positive and negative including the scheduled reversal of



                                       F-47
<PAGE>


     deferred tax liabilities, projected future taxable income, and tax planning
     in making these assessments. In accordance with SFAS 109, the Company is
     required to continuously evaluate the recoverability of tax assets.

     The reserve under U.S. GAAP as of 2004 was partially reversed, with charge
     to the Income Tax line in the U.S. GAAP Income Statement, as a result of
     the greater uncertainty in the operating and economic environment
     prevailing during that year. The potential consequences of that environment
     and conditions during 2002 and 2003 had caused management to be of the
     opinion that as of those year-ends, there was uncertainty about whether the
     company would be able to continue as a going-concern due to its financial
     and operating conditions as of that date. The portion of the reserve that
     has been reversed relates to the tax credit of minimum presumed income tax,
     which has a statue of limitation for its use of 10 years, while such period
     for income tax carryforwards is 5 years.

     6.   Regulation

     Telefonica provides telephone services in Argentina and therefore is
     subject to regulatory control. Rates for services are tariff regulated.
     Although changes in rates for services are to be authorized and computed
     based on applicable regulations (see note 10.), there is no fixed rate of
     return. Accordingly, the requirements of U.S. GAAP related to a business
     whose rates are regulated on the basis of its actual costs are not
     applicable to these consolidated financial statements.

     7.   Comprehensive Income

     The Company has not reported separately comprehensive income because there
     are no material differences between its net income and comprehensive income
     as defined by SFAS 130.

     8.   Revenue Recognition

     Under Argentine GAAP, the Company accounts in income/expense for
     installation revenue and related costs at the installation date. For US
     GAAP, SEC Staff Accounting Bulletin (SAB) 104 "Revenue recognition", which
     supersedes SAB 101 "Revenue recognition in Financial Statements", requires
     that i) installation revenues are not included in income of the period when
     the installation takes place but are deferred and amortized during the
     period representing the possible duration of the relationship with the
     customer, and ii) related costs are not charged to expense but capitalized
     and depreciated in a similar period.

     Revenue Arrangements with Multiple Deliverables

     EITF 00-21 addresses certain aspects of the accounting by a vendor for
     arrangements under which it will perform multiple revenue-generating
     activities. Specifically, this Issue addresses how to determine whether an
     arrangement involving multiple deliverables contains more than one unit of
     accounting. In applying this Issue, separate contracts with the same entity
     or related parties that are entered into at or near the same time are
     presumed to have been negotiated as a package and should, therefore, be
     evaluated as a single arrangement in considering whether there are one or
     more units of accounting. That presumption may be overcome if there is
     sufficient evidence to the contrary. This Issue also addresses how
     arrangement consideration should be measured and allocated to the separate
     units of accounting in the arrangement. The guidance in this Issue is
     effective for revenue arrangements entered into in fiscal periods beginning
     after June 15, 2003. The Company did not enter in revenue arrangements with
     multiple deliverables that were not separated into different units of
     accounting.

     9.   Accounting for Derivative Instruments and Hedging Activities

     In June 1998, The Financial Accounting Standards Board issued SFAS 133,
     "Accounting for Derivative Instruments and Hedging Activities". This
     statement establishes accounting and reporting standards requiring that
     every derivative instrument be recorded in the balance sheet as either an
     asset or liability measured at its fair value. SFAS 133 requires that
     changes in the derivative's fair value be recognized currently in earnings
     unless specific hedge accounting criteria are met. Special accounting for
     qualifying hedges allows a derivative's gains and losses to offset related
     results on the hedged item in the operations statement, and requires that a
     company must formally document, designate, and assess the effectiveness of
     transactions that receive hedge accounting.

     Under Argentine GAAP, the Company applies RT No. 20 issued by the
     FACPCE which provides for fair value

                                       F-48
<PAGE>


     valuation of derivative instruments as from January 1, 2003. See note
     2.3.j).

     10.  Debt Refinancing Costs

     Under Argentine GAAP, material costs associated with the issuance of debt
     are deferred and charged to expense on a straight-line basis during the
     duration of the loan considering outstanding principal balances in the case
     of partially settled or restructured debt. However, U.S. GAAP EITF 96-19
     specifies (see note 12) that if new debt is issued in exchange for old
     debt, and the new debt is not deemed to have substantially different terms
     than the old debt, any costs incurred with third parties directly related
     to the exchange are expensed as incurred, and SFAS 15 specifies that if new
     debt is issued in exchanges for old debt in a "troubled debt
     restructuring", any costs incurred with third parties directly related to
     the exchange are expensed as incurred and expenses related to outstanding
     principal balances are charged to expenses based on new terms of debt (see
     note 12.a.) (see c).

     11.  Capitalized exchange difference

     Under Argentine GAAP, when construction of work in progress extends over
     time, its value includes the cost of financing (interest and foreign
     exchange difference) the investment by third parties during the
     construction period until such time as the asset is ready to be used for an
     economic purpose.

     Under U.S. GAAP, foreign exchange differences are expensed as incurred (see
     c).

     12.  Devaluation effect

     Under Argentine GAAP, the effects of the devaluation of the Argentine peso
     on the valuation in Argentine pesos of the assets and liabilities were
     recognized in the fiscal year ended December 31, 2002.

     Under U.S. GAAP, the exchange rate effective as of the date of reopening of
     the exchange market (January 11, 2002) was used for the valuation in
     Argentine pesos of foreign currency assets and liabilities as of December
     31, 2001 (see c).

     13.  Accounting measurement of certain receivables and payables at their
          discounted value

     Under Argentine GAAP certain assets and liabilities are to be measured in
     currency based on the calculation of their discounted value. Minimum
     presumed income tax credits have been valued following this criterion.
     Under U.S. GAAP tax credits are recorded at the amount effectively paid
     (see 5 above).

     14.  Exchange offer transaction

     As described in note 12, the Company exchanged new notes of the Company for
     outstanding COINTEL notes. Pursuant to an agreement with TISA, the COINTEL
     notes were simultaneously transferred to TISA in exchange for a reduction
     in the Company's debt with TISA.

     Under Argentine GAAP, the issuance of the new Company notes is to be
     recorded at the amount of money received and, if the transaction takes
     place between unrelated parties and the notes are non-interest bearing or
     the interest rate is much lower than applicable market rates, the notes are
     recorded at discounted value at market rates. Since, according to a
     pre-existing agreement, the new Company notes were to be transferred to,
     and accepted by, TISA at face value for the settlement of an equivalent
     amount of the Company's debt with TISA, and the new TASA notes were issued
     at the same interest rate as the COINTEL notes and such interest rate is
     not considered by the Company to be much lower than market, under Argentine
     GAAP, the amount for which the exchange of debt was accounted for was equal
     to face value.

     Under U.S. GAAP, the acquisition of the outstanding COINTEL notes was
     accounted for at fair value. The difference between the face value of the
     new notes issued by the Company and fair value was recorded as a discount
     on the new TASA notes and will be accreted as an additional interest
     expense from the issuance date through the maturity date of the new Company
     notes, using the effective interest rate method. The difference between: i)
     the book value of the amount of debt owed to TISA that was settled in
     exchange for the transfer of an equivalent face value amount of COINTEL
     notes, and ii) the fair value of the COINTEL notes delivered, was

                                       F-49
<PAGE>


     accounted for as a capital contribution by TISA under U.S. GAAP (see c).

     15.  Accounting for certain investments in Debt

     As described in notes 2.3.c) and 14, the Company holds a bond with the
     Argentine Government ("Patriotic Bond"), that has been valued at its
     estimated recoverable value, recording an allowance for impairment as a
     result of the Argentine Government's decision to suspend the tender system
     for offsetting purposes against taxes and to include that bond on the list
     of eligible bonds for sovereign debt restructuring.

     Under Argentine GAAP, a security is impaired if its carrying amount is
     greater than its estimated recoverable amount. Impairment should be
     assessed at each balance-sheet date and impairment losses (as defined)
     should be recognized in net profit or loss currently. The carrying amount
     of a security may be adjusted for subsequent recoveries in fair value not
     to exceed impairment losses that were previously recognized. Such
     recoveries in fair value should be recognized in net profit or loss
     currently.

     Under U.S. GAAP, for individual securities classified as either
     available-for-sale or held-to-maturity, an enterprise shall determine
     whether a decline in fair value below the amortized cost basis is other
     than temporary. If the decline in fair value is judged to be other than
     temporary, the cost basis of the individual security shall be written down
     to fair value as a new cost basis and the amount of the write-down shall be
     included in earnings (that is, accounted for as a realized loss). The new
     cost basis shall not be changed for subsequent recoveries in fair value.

     16.  New accounting pronouncements (U.S. GAAP)

          a)   Consolidation of Variable Interest Entities

          In December 2003, the FASB issued a revision ("FIN 46R") to
          Interpretation No. 46, "Consolidation of Variable Interest Entities,
          an Interpretation of ARB No. 51" (the "Interpretation"). FIN 46R
          clarifies the application of ARB No. 51 "Consolidated Financial
          Statements", to certain entities in which equity investors do not have
          the characteristics of a controlling financial interest or do not have
          sufficient equity at risk for the entity to finance its activities
          without additional subordinated financial support. FIN 46R requires
          the consolidation of those entities, known as variable interest
          entities ("VIEs"), by the primary beneficiary of the entity. The
          primary beneficiary is the entity, if any, that will absorb a majority
          of the entity's expected losses, receives a majority of the entity's
          residual returns, or both.

          Among other changes, the revisions of FIN 46R (a) clarified some
          requirements of the original FIN 46, which was issued in January 2003,
          (b) eased some implementation problems, and (c) added new scope
          exceptions. FIN 46R deferred the effective date of the Interpretation
          for public companies, to the end of the first reporting period ending
          after March 15, 2004, except that all public companies must at a
          minimum apply the provisions of the Interpretation to entities that
          were previously considered "special - purpose entities" under the FASB
          literature prior to the issuance of FIN 46R by the end of the first
          reporting period ended after December 15, 2003. The Company does not
          currently have any interests that it believes fall within the scope of
          FIN 46 or FIN 46R.

          b)   Accounting for Stock-Based Compensation

          In December 2004, the FASB issued Statement of Financial Accounting
          Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payments" or
          SFAS 123R. This statement eliminates the option to apply the intrinsic
          value measurement provisions of Accounting Principles Board ("APB")
          Opinion No. 25, "Accounting for Stock Issued to Employees" to stock
          compensation awards issued to employees. Rather, SFAS 123R requires
          companies to measure the cost of employee services received in
          exchange for an award of equity instruments based on the grant-date
          fair value of the award. That cost will be recognized over the period
          during which an employee is required to provide services in exchange
          for the award that is the requisite service period (usually the
          vesting period). SFAS 123R applies to all awards granted after the
          required effective date and to awards modified, repurchased, or
          cancelled after that date. SFAS 123R will be effective for the
          Company's fiscal year ending June 30, 2006. In the opinion of
          Company's management the adoption of this rule will not have an impact
          on net income and shareholder's equity.

          c)   Exchanges of nonmonetary assets



                                       F-50
<PAGE>


          In December 2004, the FASB issued Statement 153 "Exchanges of
          nonmonetary assets", that replaces the exception from fair value
          measurement in APB Opinion No. 29 "Accounting for Nonmonetary
          Transactions", for nonmonetary exchanges of similar productive assets
          with a general exception from fair value measurement for exchanges of
          nonmonetary assets that do not have commercial substance. A
          nonmonetary exchange has commercial substance if the future cash flows
          of the entity are expected to change significantly as a result of the
          exchange. In the opinion of the Company's Management the adoption of
          this rule does not have an impact on net income and shareholders'
          equity.

     c)   The following is a summary of the adjustments to net income/(loss) and
          shareholders' equity that would have been required had U.S. GAAP been
          applied instead of Argentine GAAP in the accompanying consolidated
          financial statements (amounts expressed in million of Argentine
          pesos):

<TABLE>
                                                                             Dec-31-04       Dec-31-03       Dec-31-02
                                                                             -----------------------------------------
<S>                                                                              <C>             <C>             <C>
  Net (loss) / income according to the consolidated financial
  statements, Argentine GAAP in constant pesos                                     (8)             405         (3,411)

  Reversal of inflation restatement (see b.2)                                                                      23


  U.S. GAAP adjustments

  Increase (decrease) due to:
  Reversal of inflation restatement and monetary results (see b.1)                595              658         (1,353)
  Capitalized interest (a) (b) (see b.3)                                           (1)              (1)            (2)
  Deferred Revenues (see b.8)                                                       9               22             16
  Deferred income tax (see b.5) (c)                                                85              (35)           (71)
  Devaluation effect (see b.13)                                                     -                -          1,400
  Debt refinancing costs (see b.10)                                                 6               (4)           (13)
  Capitalized exchange differences (see b.12)                                       2                2            (12)
  Effective-rate interest expense (see b.14)                                      (10)              (5)             -
  Reversal of Recovery of Impairment of Patriotic Bond (see b.15)                  (4)               -              -
  Discounted value of assets (see b.5 and 13)                                       3                -              -
  Other (d) (see b.4)                                                               -                1            (31)
                                                                             -----------------------------------------

  Net income / (loss) in accordance with U.S. GAAP                                677            1,043         (3,454)
                                                                             =========================================


                                                                                             Dec-31-04       Dec-31-03
                                                                             =========================================
</TABLE>


<TABLE>
<S>                                                                                             <C>             <C>
  Shareholders' equity, according to the consolidated financial statements,
  Argentine GAAP in constant pesos                                                               2,770          2,778


  U.S. GAAP adjustments
  Increase (decrease) due to:
  Reversal of inflation restatement and monetary results on (see b.1):

  --Fixed assets                                                                                (3,264)        (3,857)

  --Intangible assets                                                                              (22)           (26)

  --Trade payables                                                                                  37             39

   Capitalized interest (a) (b) (see b.3)                                                            3              4
   Deferred income tax and tax credits allowances (c) (see b.5)                                      -            (85)
   Deferred Revenues (see b.8)                                                                     (14)           (23)
   Capitalized exchange differences (see b.12)                                                      (8)           (10)
   Debt refinancing costs (see b.10)                                                               (11)           (17)
   Settlement of related-party debt (see b.14)                                                      76             86
   Reversal of Recovery of Impairment of Patriotic Bond (see b.15)                                  (4)             -
   Discounted value of assets (see b.5 and b.13)                                                     3              -
   Other (d) (see b.4)                                                                               1              1
                                                                                                 ---------------------
  Shareholders equity in accordance with U.S. GAAP                                                (433)        (1,110)
                                                                                                 ---------------------
</TABLE>


(a)  In the fiscal year ended December 31, 2004, December 31, 2003 and December
     31, 2002 there was no additional gross interest capitalized for U.S. GAAP
     purposes.
(b)  As of December 31, 2004 and 2003, the original value of the adjustment
     amounts to 33 and accumulated depreciation amounts to 30 and 29,
     respectively.
(c)  Deferred income tax adjustment according to U.S. GAAP:




                                       F-51
<PAGE>


<TABLE>
                                                       Dec-31-04       Dec-31-03      Dec-31-02
                                                       -----------------------------------------
<S>                                                          <C>            <C>             <C>
     U.S. GAAP adjustments to income:
        Capitalized interest                                  -              (1)             -
        Deferred revenues                                    (3)             (8)            (6)
        Debt refinancing costs                               (2)              1              5
        Capitalized exchange differences                     (2)             (1)             4
        Devaluation effect                                    -               -           (490)
        Effective-rate interest expense                       4               2              -
        Reversal of Recovery of Impairment of
        Patriotic Bond                                        1               -              -
        Other                                                 -              (1)            11
        Reversal of valuation allowance/valuation
        allowance                                            87             (27)           405
                                                       -----------------------------------------
        Total deferred income tax expense/income             85             (35)           (71)
                                                       -----------------------------------------
</TABLE>

(d)  In 2002, Other includes mainly: i) the adjustment for derivative
     instruments amounting to a loss of 30 and ii) the adjustment for
     inventories amounting to a loss of less than 1.  Additionally in 2002,
     2003 and 2004, includes certain other adjustments related to Telinver
     which either individually or in the aggregate do not exceed one million
     pesos.


<TABLE>
                                                                       Dec-31-04            Dec-31-03        Dec-31-02
                                                                   -----------------------------------------------------
<S>                                                                       <C>                    <C>               <C>
     (Loss) / Earnings per share (1):

     Amounts per consolidated financial statements in
     accordance with Argentine GAAP, in constant pesos (2)                (0.005)                0.23              (1.95)

     Reversal of inflation restatement                                         -                    -               0.01

     Amounts under U.S. GAAP (2)
     Net earning/(loss) per share                                          0.388                 0.60              (1.98)

     (Loss) / Earnings per ADS (1):

     Amounts per consolidated financial statements in
     accordance with Argentine GAAP, in constant pesos (2)                (0.046)                2.32             (19.54)
     Reversal of inflation restatement                                                                              0.13

     Amounts under U.S.GAAP (2)

     Net earning/(loss) per ADS                                             3.88                 5.97             (19.78)
                                                                   -----------------------------------------------------

     Number of shares subscribed, paid in and outstanding          1,746,052,429        1,746,052,429      1,746,052,429
                                                                   -----------------------------------------------------
</TABLE>

(1)  Diluted earnings per share and ADS is the same as earnings per share, as
     there are no outstanding options to purchase shares.
(2)  Amounts expressed in Argentine pesos.


                                      F-52
<PAGE>


     d)   Other significant U.S. GAAP disclosure requirements.

     The following represent additional financial statements disclosures
     required under U.S. GAAP.

     1)   Deferred income tax:

     The following table presents the components of the Company's deferred tax
     balance (based on a U.S. GAAP balance sheet)

<TABLE>
                                                                                   Dec-31-04        Dec-31-03
                                                                                   --------------------------
<S>                                                                                      <C>            <C>
          Deferred tax assets:
          Allowance for doubtful accounts                                                 47               73
          Contingencies and other nondeductible accruals and reserves                    155              155
          Income tax loss carryforward and tax credits                                   996            1,100
          Deferred Revenues                                                                5                8
          Debt refinancing costs                                                           4                6
          Foreign exchange loss deductible in future years                               108              162
          Reversal of Recovery of Impairment of Patriotic Bond                             1                -
          Derivative instruments                                                           6                9
                                                                                   --------------------------

                                                                                       1,322            1,513
                                                                                   --------------------------

          Valuation allowance                                                         (1,039)          (1,348)
                                                                                   --------------------------
                                                                                         283              165
                                                                                   --------------------------
</TABLE>


<TABLE>
                                                                                   Dec-31-04        Dec-31-03
                                                                                   --------------------------
<S>                                                                                      <C>             <C>
          Deferred tax liabilities:
          Differences between tax and book basis of assets                               103              113
          Capitalized interest                                                             1                1
          Tax provision for employee terminations                                         14               13
          Settlement of related party debt                                                27               30
          Other                                                                            5                8
                                                                                   --------------------------
                                                                                         150              165
                                                                                   --------------------------
          Net deferred taxes                                                             133                -
                                                                                   --------------------------
</TABLE>

                                      F-53
<PAGE>

<TABLE>
                                                                                   Dec-31-04        Dec-31-03        Dec-31-02
                                                                                   ------------------------------------------------
<S>                                                                                      <C>             <C>            <C>
     Income tax benefit (expense) at the statutory income tax rate in accordance
     with U.S.GAAP                                                                       205              377           (1,192)

     Permanent differences:
     Loss on equity investments                                                            -                1                -
     Reversal of allowance / allowance for deferred tax assets                          (309)(a)         (360)(a)        1,241(a)
     Non taxable earnings/Non deductible expenses                                         14               17               (2)
     Goodwill write-down                                                                   -                -                1
                                                                                   ------------------------------------------------

     Income tax (benefit) expense                                                        (90)              35               48
                                                                                   ------------------------------------------------
</TABLE>

(a)  Net of increases and reversals of valuation allowance.

     2)   Loans to directors and employees:

     Loans to the Company's directors and employees were as follows:

                                                         Dec-31-04   Dec-31-03
                                                         ----------------------

        Balance in Argentine pesos                               1           1


     There were no loans to individuals in excess of U.S.$ 100,000.

     3)   Disclosures about fair value of financial instruments:

     U.S. GAAP requires disclosure of the estimated fair value of Company's
     financial instruments (see note 3.1.b and 3.1.j for disclosure of fair
     value of financial instruments). The following methods and assumptions were
     used to estimate the fair value of each class of financial instruments.

     The carrying amounts of cash, cash equivalents, marketable securities and
     current receivables and payables are considered to approximate fair value
     due to their short maturity.

     The fair value estimated by the Company of other instruments are as
     follows:


                                                        Dec-31-04   Dec-31-03
                                                        -----------------------

      Negotiable obligations (quoted prices)                2,758       2,538

      Negotiable obligations (carrying amounts)             2,597       2,498

     4)   Operating Leases

     The following is a schedule by years of future minimum rental payments
     required under operating leases that have initial or remaining
     noncancelable lease terms in excess of one year as of December 31, 2004:

                                      F-54
<PAGE>

                Year ending December 31:
                    2005                                                 18
                    2006                                                 14
                    2007                                                 11
                    2008                                                  7
                    2009                                                  1
                    Later years                                           3
                                                                         ---
                Total minimum payments required                          54
                                                                         ===

h)   Balance sheet under U.S. GAAP. Condensed balance sheet determined under
     U.S. GAAP are presented as follows:

                                                     Dec-31-04       Dec-31-03
                                                    ---------------------------
                                                      Balance         Balance
                                                    Sheet under     Sheet under
                                                     U.S. Gaap       U.S. Gaap

              Cash                                          15              18

              Investments                                  259             336

              Trade receivables                            324             249

              Other receivables                             84             127

              Inventories                                    8              13

              Other assets                                   3               3
                                                    ---------------------------
              Current assets                               693             746

              Trade receivables                              4              12

              Other receivables                            162              31

              Investments                                    1              15

              Fixed assets                               3,441           3,479

              Intangible assets                             35              40
                                                    ---------------------------
              Non current assets                         3,643           3,577

              Total assets                               4,336           4,323
                                                    ---------------------------

              Trade payables                               466             425

              Bank and financial payables                1,209           1,982

              Payroll and social security taxes             80              73

              Taxes payable                                 95              78

              Other payables                                63              75

              Reserves                                       4               4
                                                    ---------------------------
              Current liabilities                        1,917           2,637

                                      F-55
<PAGE>

              Trade payables                               116              45

              Bank and financial payables                2,424           2,467

              Payroll and social security taxes             16              19

              Other payables                                29              46

              Reserves                                     267             219
                                                    ---------------------------
              Non current liabilities                    2,852           2,796

              Total liabilities                          4,769           5,433

              Shareholders' equity                        (433)         (1,110)
                                                    ---------------------------

              Total liabilities and
              shareholders' equity                       4,336           4,323
                                                    ---------------------------

i)   Statement of operations under U.S. GAAP

-  Other expenses, net

Under U.S. GAAP, certain items included in Other expenses, net, would have been
computed from the line subtotal.

Under U.S. GAAP, exchange differences generated by operating assets and
liabilities are classified as operating income.

Condensed consolidated statements of operations determined under U.S. GAAP are
presented as follows:

                                          Dec-31-04     Dec-31-03     Dec-31-02
                                          --------------------------------------
Net revenues                                  3,060         2,773         2,435
Cost of services provided                    (1,488)       (1,412)       (1,444)
                                          --------------------------------------
Gross profit                                  1,572         1,361           991
Administrative expenses                        (323)         (314)         (328)
Selling expenses                               (199)         (161)         (353)
Exchange differences, net                         4            13           (75)
                                          --------------------------------------

Operating Income                              1.054           899           235
Income / (loss) on equity investments            (1)           (2)            2
Other expenses, net                               -             -             -
Financial (loss) income on assets                46           (56)          214
Financial income (loss) on liabilities         (512)          237        (3,857)
                                            ------------------------------------
Income (loss) before income
  tax and minority interest                     587         1,078        (3,406)
Income tax                                       90           (35)          (48)
                                            ------------------------------------
Net income (loss) for the year                  677         1,043        (3,454)
                                            ------------------------------------

j)   Supplemental cash flows information

In the accompanying statement of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash and cash equivalents.

                                      F-56
<PAGE>

The following supplemental condensed statements of cash flow information
separately presents for the year 2002 the effect of inflation from operating,
investing and financing activities. Information for the year 2003 is not
presented because the effect of inflation was not significant. The Company
discontinued inflation adjustment from February 28, 2003.

                                                              December 31, 2002
                                                              ------------------
Cash and cash equivalents at end of year                                    397
Cash and cash equivalents at beginning of year                              145

                                                              ------------------
Subtotal                                                                    252
Reversal of inflation restatement of
 cash at beginning of year                                                   78
                                                              ------------------
Decrease in cash and cash equivalents                                       330
                                                              ------------------

CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS

Cash flows from operating activities                                        829
                                                              ------------------

Cash flows from investing activities:

Fixed assets purchases                                                     (133)
                                                              ------------------
Cash used in investing activities                                          (133)

                                                              ------------------

Cash flows from financing activities:

Net decrease in bank and financial liabilities                             (356)
Increase on intangible assets                                               (10)
                                                              ------------------
Cash used in financing activities                                          (366)
                                                              ------------------
Decrease in cash and cash equivalents                                       330
                                                              ------------------

k)   Business Segment Information

Under Argentine GAAP, segment information is to be disclosed considering
valuation criteria under Argentine GAAP (see note 19).

Under U.S. GAAP, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" that establishes the standards for
reporting operating segment information. This standard requires reporting
operating segment information based on the way that financial information
prepared by the entity is organized for senior management for making operating
decisions, evaluating performance and allocating resources. This financial
information is prepared by the Company in historical amounts (not considering
the restatement for inflation). Comparative information on earlier years on the
same basis of segmentation must also be presented.

The Company also prepares, for internal reporting purposes, limited financial
information (primarily revenues) based on its different markets including
residential, wholesale and corporate customers. The Company does not currently
allocate all relevant costs to such markets nor does management use such
information for making asset allocation decisions.

Accordingly, such markets are not deemed to be operating segments as defined in
SFAS No. 131. The Company is in the process of developing systems to allocate
all costs to these markets in order to measure their performance and make asset
allocation decisions. Accordingly, these markets may be deemed to be operating
segments in the future.

In accordance with SFAS No. 131, the Company has identified two reportable
segments: i) The basic Telephony Service segment, that includes the operations
of Telefonica de Argentina S.A. (local and long distance services) and ii) the
Yellow pages and Call Center segment, that includes the operations of Telinver.



                                      F-57
<PAGE>



<TABLE>
                                                                             Reconciliation
                                                  Basic                       to U.S. GAAP
                                                Telephony         Yellow      statement of
                                                 Services         Pages       operations(a)    Total(b)
                                                --------------------------------------------------------
<S>                                                 <C>            <C>             <C>             <C>
December 31, 2004
Basic telephone service
     Measured service                               857             -               -              857
     Monthly  basic charges                         719             -               -              719
Special services                                    459             -               -              459
Installation charges                                 45             -               2               47
Public phones                                       188             -               -              188
Access charges                                      388             -               -              388
International long-distance service                 108             -               -              108
Direct lines                                         84             -               -               84
Other                                               117             7              13              137
Publishing telephone directories                      -            73               -               73
                                                -------------------------------------------------------
Net revenues to unaffiliated customers            2,965            80              15            3,060
Net intersegment revenues                            16             1             (17)               -
                                                -------------------------------------------------------

Total Net Revenues                                2,981            81              (2)           3,060
Operating income                                  1,163            16            (125)           1,054
Financial income on assets                           44             2               -               46
Financial expense on liabilities                   (491)          (16)             (5)            (512)
Loss on Equity investments                           (1)            -               -               (1)
Income Tax                                            -             5              85               90
Depreciation and Amortization                       567             2              (6)             563
Capital expenditures                                437             1              (1)             437
Total Assets                                      4,142           112              82            4,336
Investments in equity method investees                1             -               -                1
</TABLE>

<TABLE>
                                                                             Reconciliation
                                                  Basic                       to U.S. GAAP
                                                Telephony         Yellow      statement of
                                                 Services         Pages       operations(a)   Total(b)
                                                -------------------------------------------------------
<S>                                                 <C>            <C>             <C>             <C>
December 31, 2003
Basic telephone service
     Measured service                               806             -               -              806
     Monthly  basic charges                         666             -               -              666
Special services                                    381             -               -              381
Installation charges                                 32             -              25               57
Public phones                                       180             -               -              180
Access charges                                      323             -               -              323
International long-distance service                 105             -               -              105
Direct lines                                         83             -               -               83
Other                                               105             -               -              105
Publishing telephone directories                      -            67               -               67
                                                -------------------------------------------------------
Net revenues to unaffiliated customers            2,681            67              25            2,773
Net intersegment revenues                            12             1            (13)                -
-                                               -------------------------------------------------------

Total Net Revenues                                2,693            68              12            2,773
Operating income                                    924            12             (37)             899
Financial income on assets                          (68)            1              11              (56)
Financial expense on liabilities                    262             4             (29)             237
Loss on Equity investments                           (2)            -               -               (2)
Income Tax                                            -             -             (35)             (35)
Depreciation and Amortization                       621             3               5              629
Capital expenditures                                184             -               -              184
Total Assets                                      4,340            97            (114)           4,323
Investments in equity method investees                2             -               -                2
</TABLE>


                                      F-58
<PAGE>

<TABLE>
                                                                            Reconciliation
                                                  Basic                      to U.S. GAAP
                                                Telephony        Yellow      statement of
                                                 Services        Pages       operations(a)    Total(b)
                                                ------------------------------------------------------
<S>                                                 <C>            <C>         <C>              <C>
December 31, 2002
Basic telephone service
     Measured service                               722             -               -              722
     Monthly  basic charges                         641             -               -              641
Special services                                    306             -               -              306
Installation charges                                 30             -              44               74
Public phones                                       174             -               -              174
Access charges                                      225             -               -              225
International long-distance service                  73             -               -               73
Direct lines                                         71             -               -               71
Other                                                93             -               -               93
Publishing telephone directories                      -            56               -               56
                                                ------------------------------------------------------
                                                  2,335            56              44            2,435
Net intersegment revenues                             9             1             (10)              -
                                                ------------------------------------------------------

Total Net Revenues                                2,344            57              34            2,435
Operating income                                    432            (2)           (195)             235
Financial income on assets                          293            10             (89)             214
Financial expense on liabilities                 (5,248)         (103)          1,494           (3,857)
Income on Equity investments                          2             -               -                2
Income Tax                                            -             -             (48)             (48)
Depreciation and Amortization                       638             3              29              670
Capital expenditures                                181             -               -              181
Total Assets                                      4,950            93             (71)           4,972
Investments in equity method investees                4             -               -                4
</TABLE>

(a)  Includes elimination of intersegment charges and the computation of U.S.
     GAAP adjustments.
(b)  Consolidated amounts in accordance with U.S. GAAP.
(c)  Includes elimination of spun-off businesses, elimination of intersegment
     charges and the computation of U.S. GAAP adjustments.


21.  OTHER FINANCIAL STATEMENT INFORMATION

The following tables present additional consolidated financial statement
disclosures required under Argentine GAAP

a)   Fixed assets
b)   Intangible assets
c)   Investments in shares, securities issued in series and holdings in other
     companies
d)   Other investments
e)   Allowances and accruals
f)   Cost of services provided
g)   Assets and liabilities in foreign currency
h)   Expenses incurred


                                       F-59
<PAGE>


a)   Fixed Assets

                          TELEFONICA DE ARGENTINA S.A.

                             AS OF DECEMBER 31, 2004

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)



<TABLE>
                                                                      Original value
                                       ----------------------------------------------------------------------------
                                         Amounts at                                                      Amounts at
                                         beginning        Increases         Net                          the end of
            Main account                   of year           (1)        retirements     Transfers          period
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>            <C>             <C>              <C>
 Land                                          117             -               -                -               117
 Buildings                                   1,740             -               -                -             1,740
 Switching equipment                         4,131             -               -               18             4,149
 Transmission equipment                      3,796             -               -               94             3,890
 Network installation                        7,543             -              (1)              17             7,559
 Telephones, switchboards and booths           626            24             (32)               8               626
 Furniture, software and office equipment    1,033             3               -               18             1,054
  Automobiles                                   27             6               -                -                33
 Construction in process                       215           293               -             (112)              396
 Materials                                      77           109(2)          (56)             (43)               87
 Prepayments to vendors                         10             2                -               -                12
                                       ----------------------------------------------------------------------------
 Total                                      19,315           437             (89)               -            19,663
                                       ============================================================================
</TABLE>

<TABLE>
                                                                              Depreciation
                                       ------------------------------------------------------------------------
                                                                                                                    Net book
                                        Accumulated                                                 Accumulated     value at
                                        at beginning    Useful life       For the                   at the end       the end
            Main account                  of year        (in years)       period      Retirements    of period      of perio
----------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>             <C>         <C>           <C>
 Land                                            -            -                -              -              -           117
 Buildings                                     495           50               40              -            535         1,205
 Switching equipment                         3,301           10              256              -          3,557           592
 Transmission equipment                      2,488           10              282              -          2,770         1,120
 Network installation                        4,091           15              436             (1)         4,526         3,033
 Telephones, switchboards and booths           609            5               44            (32)           621             5
 Furniture, software and office equipment      964          1 - 3             67              -          1,031            23
 Automobiles                                    25            5                2              -             27             6
 Construction in process                         -            -                -              -              -           396
 Materials                                       -            -                -              -              -            87
 Prepayments to vendors                          -            -                -              -              -            12
                                       -------------------------------------------------------------------------------------
 Total                                      11,973                          1,127           (33)        13,067         6,596
                                       =====================================================================================
</TABLE>

(1)  Capitalized interests in construction in process amounts to 8 million. See
     note 2.3.g).
(2)  Includes 9 million corresponding to assets transfered from inventories.


                                       F-60
<PAGE>


a)   Fixed Assets (Cont.)

                          TELEFONICA DE ARGENTINA S.A.

                             AS OF DECEMBER 31, 2003

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                                       Original value
                                       ----------------------------------------------------------------------------
                                          Amounts at                                                     Amounts at
                                          beginning        Increases         Net                         the end of
            Main account                    of year           (1)        retirements     Transfers          year
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>              <C>            <C>
 Land                                          117             -               -                -               117
 Buildings                                   1,738             -              (2)               4             1,740
 Switching equipment                         4,142             -             (25)              14             4,131
 Transmission equipment                      3,686             -              (3)             113             3,796
 Network installation                        7,537             -               -                6             7,543
 Telephones, switchboards and booths           626            17             (20)               3               626
 Furniture, software and office equipment    1,000            17               -               16             1,033
 Automobiles                                    32             2              (7)               -                27
 Construction in process                       229           130               -             (144)              215
 Materials                                     103            21             (35)             (12)               77
 Prepayments to vendors                         11            (1)              -               -                 10
                                       ----------------------------------------------------------------------------
 Total                                      19,221           186             (92)              -             19,315
                                       ============================================================================
</TABLE>

<TABLE>
                                                                              Depreciation
                                       ----------------------------------------------------------------------
                                                                                                                   Net book
                                        Accumulated                                               Accumulated       value at
                                        at beginning    Useful life     For the                   at the end        the end
            Main account                  of year        (in years)       year     Retirements      of year         of years
----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>              <C>         <C>            <C>              <C>
 Land                                            -           -                 -            -             -              117
 Buildings                                     452          50                45           (2)           495           1,245
 Switching equipment                         2,989          10               337          (25)         3,301             830
 Transmission equipment                      2,169          10               322           (3)         2,488           1,308
 Network installation                        3,655          15               436            -          4,091           3,452
 Telephones, switchboards and booths           587           5                42          (20)           609              17
 Furniture, software and office equipment      861         1 - 3             103            -            964              69
 Automobiles                                    32           5                 -           (7)            25               2
 Construction in process                         -           -                 -            -              -             215
 Materials                                       -           -                 -            -              -              77
 Prepayments to vendors                          -           -                 -            -              -              10
                                       -------------------------------------------------------------------------------------
 Total                                      10,745                          1,285         (57)        11,973           7,342
                                       =====================================================================================
</TABLE>

(1)  Capitalized interests in construction in process amounts to 8 million. See
     note 2.3.g).


                                       F-61
<PAGE>


a)   Fixed Assets (Cont.)


                          TELEFONICA DE ARGENTINA S.A.

                             AS OF DECEMBER 31, 2002

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                                       Original value
                                       ----------------------------------------------------------------------------
                                         Amounts at                                                      Amounts at
                                         beginning       Increases     Retirements                       the end of
            Main account                  of year         (1)(2)          (3)           Transfers           year
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>           <C>              <C>              <C>
 Land                                          119             1              (3)               -               117
 Buildings                                   1,733             1              (4)               8             1,738
 Switching equipment                         4,063             -               -               79             4,142
 Transmission equipment                      3,410             -               -              276             3,686
 Network installation                        7,319             -               -              218             7,537
 Telephones, switchboards and booths           624            11             (17)               8               626
 Furniture, software and office equipment      948            16               -               36             1,000
 Automobiles                                    47             -             (15)               -                32
 Construction in process                       756           127              (3)            (651)              229
 Materials                                     115            22             (60)              26               103
 Prepayments to vendors                          9             2               -                -                11
                                       ----------------------------------------------------------------------------
 Total                                      19,143           180            (102)               -            19,221
                                       ============================================================================
</TABLE>

<TABLE>
                                                                              Depreciation
                                       -----------------------------------------------------------------------
                                                                                                                    Net book
                                       Accumulated                                                Accumulated       value at
                                       at beginning    Useful life     For the     Retirements    at the end        the end
            Main account                 of year        (in years)       year          (3)          of year         of  year
----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>            <C>              <C>             <C>           <C>
 Land                                           -            -                 -           -              -              117
 Buildings                                     405          50                48          (1)            452           1,286
 Switching equipment                         2,636          10               353           -           2,989           1,153
 Transmission equipment                      1,856          10               313           -           2,169           1,517
 Network installation                        3,214          15               441           -           3,655           3,882
 Telephones, switchboards and booths           556           5                47         (16)            587              39
 Furniture, software and office equipment      712         1 - 3             149           -             861             139
 Automobiles                                    47           5                 -         (15)             32               -
 Construction in process                         -           -                 -           -               -             229
 Materials                                       -           -                 -           -               -             103
 Prepayments to vendors                          -           -                 -           -               -              11
                                       -------------------------------------------------------------------------------------
 Total                                       9,426                         1,351         (32)         10,745           8,476
                                       =====================================================================================
</TABLE>

(1)  Includes capitalized interests in construction in process amounts to 8. See
     note 2.3.g).
(2)  Includes 29 in construction in process corresponding to the capitalized
     exchange differences. See note 2.3.g).
(3)  Includes 3 of real property intended for sale. See notes 2.3.e) and 3.1.e).


                                       F-62
<PAGE>


b)   Intangible Assets

                          TELEFONICA DE ARGENTINA S.A.

                             AS OF DECEMBER 31, 2004

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)


<TABLE>
-----------------------------------------------------------------------------------------------
                                                                   Original cost
                                               ------------------------------------------------
                                               At beginning of                        At end of
             Main account                            year            Increases          period
-----------------------------------------------------------------------------------------------
<S>                                                   <C>                 <C>             <C>
Licenses to use the Logo and trademarks               50                  -               50
Assignment of rights                                  22                  -               22
No competition clause                                  5                  1                6
Deferred expenses                                     75                  1               76
License (Frequencies)                                 59                  -               59
                                               ------------------------------------------------
Total                                                211                  2              213
                                               ================================================
</TABLE>

<TABLE>
--------------------------------------------------------------------------------------------------------
                                                                  Amortization
                                                  ------------------------------------------
                                                  At beginning       For the       At end       Net book
                Main account                         of year          period      of period       value
--------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>           <C>           <C>
Licenses to use the Logo and trademarks                 16                3             19            31
Assignment of rights                                    14                2             16             6
No competition clause                                    3                1              4             2
Deferred expenses                                       45                9             54            22
License (Frequencies)                                   51                2             53             6
                                                  ------------------------------------------------------
Total                                                  129               17            146            67
                                                  ======================================================
</TABLE>


                                       F-63
<PAGE>


b)   Intangible Assets (cont.)

                          TELEFONICA DE ARGENTINA S.A.

                             AS OF DECEMBER 31, 2003

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
------------------------------------------------------------------------------------------------
                                                                   Original cost
                                                ------------------------------------------------
                                                At beginning of                        At end of
             Main account                             year            Increases          period
------------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>             <C>
Licenses to use the Logo and trademarks                 50                  -              50
Assignment of rights                                    22                  -              22
No competition clause                                    5                  -               5
Deferred expenses                                       56                 19              75
License (Frequencies)                                   59                  -              59
                                                ------------------------------------------------
Total                                                  192                 19             211
                                                ================================================
</TABLE>

<TABLE>
----------------------------------------------------------------------------------------------------------
                                                                          Amortization
                                                    ------------------------------------------------------
                                                    At beginning       For the       At end       Net book
                Main account                           of year          year        of year        value
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>         <C>           <C>
Licenses to use the Logo and trademarks                   12              4           16            34
Assignment of rights                                      12              2           14             8
No competition clause                                      3              -            3             2
Deferred expenses                                         29             16           45            30
License (Frequencies)                                     49              2           51             8
                                                    ------------------------------------------------------
Total                                                    105             24 (1)      129            82
                                                    ======================================================
</TABLE>

(1)  Includes 8 million corresponding to the total amortization of the portion
     of expenses related to the negotiable obligations exchanged on August 7,
     2003 (See note 12) as mentioned in note 2.3.h).


                                       F-64
<PAGE>


b)   Intangible Assets (cont.)

                          TELEFONICA DE ARGENTINA S.A.

                             AS OF DECEMBER 31, 2002

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)


<TABLE>
---------------------------------------------------------------------------------------------------------------
                                                                          Original cost
                                                 --------------------------------------------------------------
                                                 At beginning of
                Main account                          year            Increases      Decreases   At end of year
---------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>        <C>              <C>
Licenses to use the Logo and trademarks                 42                  8             -             50
Assignment of rights                                    22                  -             -             22
No competition clause                                    5                  -             -              5
Deferred expenses                                       39                 17             -             56
License (Frequencies) (1)                               70                  -           (11)            59
                                                 --------------------------------------------------------------
Total                                                  178                 25           (11)           192
                                                 ==============================================================
</TABLE>

<TABLE>
-----------------------------------------------------------------------------------------------------------------------
                                                                          Amortization
                                                   -------------------------------------------------------
                                                   At beginning       For the                     At end       Net book
                Main account                          of year           year       Decreases      of year       value
-----------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>           <C>          <C>           <C>
Licenses to use the Logo and trademarks                    9              3             -           12            38
Assignment of rights                                       9              3             -           12            10
No competition clause                                      2              1             -            3             2
Deferred expenses                                         22              7             -           29            27
License (Frequencies) (1)                                 24             28            (3)          49            10
                                                   --------------------------------------------------------------------
Total                                                     66             42            (3)         105            87
                                                   ====================================================================
</TABLE>

(1)  At end of year, original cost includes 46 corresponding to "Goodwill" which
     net book value amounts to zero (see note 2.3.h).


                                       F-65
<PAGE>

c)   Investments in shares, securities issued in series and holdings in other
     companies

                          TELEFONICA DE ARGENTINA S.A.

                        AS OF DECEMBER 31, 2004 AND 2003

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                                     2004                                     2003
                                     ------------------------------------------------------------------------------
                                                                   Number of     Inflation
                                     Class of    Face value of     shares or     adjusted      Book           Book
         Name and features            shares        shares         securities    cost (1)      Value          value
-------------------------------------------------------------------------------------------------------------------
<S>                                    <C>        <C>                <C>          <C>            <C>          <C>
Current assets: (1)

Other investments  (2)                   -            -                -            -             8            -
                                     ------------------------------------------------------------------------------
Total current                                                                                     8            -
                                     ------------------------------------------------------------------------------
Noncurrent assets: (3)

Other investments                        -            -                -            -             -           13
Subsidiaries and affiliates
   E-Commerce Latina S.A. (4)          Common       $1.0          12,000           33             1            2
                                     ------------------------------------------------------------------------------
Total noncurrent                                                                                  1           15
                                     ------------------------------------------------------------------------------
Total                                                                                             9           15
                                     ==============================================================================
</TABLE>

(1)  See note 2.3.b).
(2)  See note 18.
(3)  See note 2.3.f).
(4)  Financial Statements as of December 31, 2004 approved by E-Commerce Latina
     S.A.'s Board of Directors on February 2, 2005, with review report by
     Abelovich, Polano & Asociados dated February 2, 2005.


                                       F-66
<PAGE>

d)   Other investments

                          TELEFONICA DE ARGENTINA S.A.

                        AS OF DECEMBER 31, 2004 AND 2003

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

                                                     ------------------------
                                                     2004               2003
                                                     ------------------------
                     Main account and features              Book value
                                                     ------------------------
     Current investments:

        Foreign currency deposits (note 21.g)          247               330
        Local currency deposits                          -                 4
        Mutual funds                                     4                 2
                                                     ------------------------
     Total                                             251               336
                                                     ========================


                                       F-67
<PAGE>

e)   Allowance and accruals

                          TELEFONICA DE ARGENTINA S.A.

                        AS OF DECEMBER 31, 2004 AND 2003

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                                   December, 2004
---------------------------------------------------------------------------------------------------------
                                                  Balance at                                     Balance
                                                  beginning                                     at end of
                Account                            of year       Increases      Decreases        period
---------------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>           <C>                <C>
     Deducted from current assets:
     For doubtful accounts                              216          63(5)          (130)(1)          149
     For impairment in value and slow turnover            7           -               (4)               3
     For other receivables                                -           2                -                2
                                                  -------------------------------------------------------
                                                        223          65             (134)             154
     Deducted from noncurrent assets:
     For doubtful accounts                                8           2(5)             -               10
     For other receivables - Impairment of
     Patriotic Bond (6)                                  60           -               (4)(8)           56
     For other receivables
        - Deferred tax assets (3)                     1,258           -             (207)           1,051
                                                  -------------------------------------------------------
                                                      1,326           2             (211)           1,117
                                                  -------------------------------------------------------
        Total                                         1,549          67             (345)           1,271
                                                  =======================================================
     Included in current liabilities:
        Contingencies                                     3           4               (3)               4
                                                  -------------------------------------------------------
                                                          3           4               (3)               4
     Included in noncurrent liabilities:
        Contingencies                                   219         121              (73)             267
                                                  -------------------------------------------------------
        Total                                           222         125(4)           (76)             271
                                                  =======================================================

                                                                   December, 2003
---------------------------------------------------------------------------------------------------------
                                                  Balance at                                     Balance
                                                  beginning                   Decreases         at end of
                      Account                      of year      Increases        (2)               year
---------------------------------------------------------------------------------------------------------
     Deducted from current assets:
     For doubtful accounts                              380          66(5)        (230)(1)            216
     For impairment in value and slow turnover            7           -              -                  7
                                                  -------------------------------------------------------
                                                        387          66           (230)               223
     Deducted from noncurrent assets:
     For doubtful accounts                               25           -            (17)(1)              8
     For other receivables - Impairment of
     Patriotic Bond (6)                                   -          60              -                 60
     For other receivables - Deferred tax
     assets (3)                                       1,660           -           (402)             1,258
                                                  -------------------------------------------------------
                                                      1,685          60           (419)             1,326
                                                  -------------------------------------------------------
        Total                                         2,072         126           (649)             1,549
                                                  =======================================================
     Included in current liabilities:
        Contingencies                                     3(7)        3             (3)                 3
                                                  -------------------------------------------------------
                                                          3           3             (3)                 3
     Included in noncurrent liabilities:
        Contingencies                                   160          60             (1)               219
                                                  -------------------------------------------------------
        Total                                           163          63(4)          (4)               222
                                                  =======================================================

</TABLE>

(1)  In 2004 and 2003, includes 85 million and 79 million, respectively, of
     recovered doubtful accounts.
(2)  Include the monetary gain effect on balances.
(3)  See note 2.3.k).
(4)  In 2004 and 2003, includes 103 million and 34 million in Other expenses net
     and 22 million and 29 million in Financial income/loss on liabilities in
     the statement of operations.
(5)  Included in selling expenses in the statements of operations.
(6)  See notes 2.3.c) and 14.
(7)  In 2003, net of 1 million in Other receivables.
(8)  Includes a loss of 1 million disclosed under "holding and financial
     income/(loss) on assets - exchange differences" in the Statements of
     Operations.

                                       F-68
<PAGE>


e)   Allowance and accruals

                          TELEFONICA DE ARGENTINA S.A.

                             AS OF DECEMBER 31, 2002

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                                  December 31, 2002
---------------------------------------------------------------------------------------------------------
                                                  Balance at                                   Balance
                                                  beginning                    Decreases      at end of
                      Account                      of year       Increases        (1)            year
---------------------------------------------------------------------------------------------------------
     <S>                                               <C>          <C>            <C>                <C>
     Deducted from current assets:
     For doubtful accounts                              621         232            (473)              380
     For impairment in value and slow turnover           15           -              (8)                7
                                                  -------------------------------------------------------
                                                        636         232            (481)              387
     Deducted from noncurrent assets:
     For doubtful accounts                               93          -              (68)               25
     For other  receivables - Deferred tax
     assets (2)                                          21       1,639                -            1,660
                                                  -------------------------------------------------------
                                                        114       1,639             (68)            1,685
                                                  -------------------------------------------------------
        Total                                           750       1,871            (549)            2,072
                                                  =======================================================
     Included in current liabilities:
        Contingencies                                     6           3              (6)                3
                                                  -------------------------------------------------------
                                                          6           3              (6)                3
     Included in noncurrent liabilities:
        Contingencies                                   195          84            (119)              160
                                                  -------------------------------------------------------
        Total                                           201          87            (125)              163
                                                  =======================================================
</TABLE>

(1)  Includes the monetary gain effect on balances.
(2)  See note 2.3.k).


                                       F-69
<PAGE>


f)   Cost of services provided (1)

                          TELEFONICA DE ARGENTINA S.A.

              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                       December-04        December-03         December-02
                                                       ---------------------------------------------------
<S>                                                           <C>                 <C>                <C>
Inventories at beginning of year                              20                  22                 54

Purchases                                                     24                  24                 17

Transfers (2)                                                 (9)                  -                  -

Operating expenses (note 21.h)                                25                  20                 22

Holding (losses)/gains                                         -                   -                (17)

                                                       ---------------------------------------------------
      Subtotal                                                60                  66                 76

Inventories at end of period                                 (11)                (20)               (22)
                                                       ---------------------------------------------------
      Total (note 3.1.k)                                      49                  46                 54
==========================================================================================================
</TABLE>

(1)  Includes cost of telephone directories and telephone equipment.
(2)  Assets transfered to fixed assets.


                                       F-70
<PAGE>


g)   Assets and liabilities in foreign currency

                          TELEFONICA DE ARGENTINA S.A.

                        AS OF DECEMBER 31, 2004 AND 2003

                 (amounts stated in millions of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                      2004                                              2003
                               ------------------------------------------------------------------------------------------------
                                Amount in
                                  units of                                         Amount in units
                                  foreign                            Book value       of foreign                Book value
                                currency (2)              Exchange   in millions     currency (2)               in millions
                               (in millions)   Currency     rate      of pesos      (in millions)    Currency    of pesos
                               ------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>       <C>            <C>             <C>          <C>             <C>
ASSETS

Current assets
   Cash and Banks                     -         U.S.$     2.979000         1               -           -                -

   Investments
     Foreign currency deposits       83         U.S.$     2.979000       247             112          U.S.$           330
     Other investments                3         U.S.$     2.939000         8               -           -                -
   Trade receivables                 10         U.S.$     2.979000        31              11          U.S.$            33
                                      2         SDR        4.61015         9               2          SDR               8

   Other receivables
      Related Companies               3         U.S.$     2.979000         8              10          U.S.$            30
      Granted Guarantees              -            -             -         -               1          U.S.$             3
      Financial prepayments           4         U.S.$     2.979000        10               4          U.S.$            11
      Prepayment to vendors (1)       -         U.S.$     2.979000         1               3          U.S.$            10
                                      -            -             -         -               1          BRL               1
                                      3         EURO      4.059200        12               3          EURO             12
      Financial Instruments           -         U.S.$     2.979000         1               -          U.S.$             1
      Other                           -            -             -         -               1          U.S.$             2
                               ------------------------------------------------------------------------------------------------
     Total current assets                                                328                                          441
                               ------------------------------------------------------------------------------------------------
Noncurrent assets
  Investments
     Other investments                -            -             -         -               4          U.S.$            13

  Other receivables
      Patriotic Bond (3)             10         U.S.$     2.979000        28               8          U.S.$            22
      Financial Instruments           1         U.S.$     2.979000         3               1          U.S.$             2
      Other                           -            -             -         -               -          U.S.$             1
                               ------------------------------------------------------------------------------------------------
    Total noncurrent assets                                               31                                           38
                               ------------------------------------------------------------------------------------------------
    Total assets                                                         359                                          479
                               ================================================================================================

LIABILITIES

Current liabilities
   Trade payables                    39         U.S.$     2.979000       118              40          U.S.$           116
                                      1         SDR       4.611015         4               3          SDR              13
                                      2         EURO      4.059200         8               2          EURO              8
                                      -            -             -         -               -         (pound)            2

   Bank and financial payables      242         U.S.$     2.979000       721             658          U.S.$         1,930
                                      2         EURO      4.059200         8               2          EURO              8
                                  1,103         (Y)       0.029141        32           1,111          (Y)              30
  Other payables
      Related Companies               -            -             -         -               -          U.S.$             1
                                      3         EURO      4.059200        12               3          EURO             10
      Financial Instruments           3         U.S.$     2.979000        10               4          U.S.$            13
                               ------------------------------------------------------------------------------------------------
      Total current liabilities                                          913                                        2,131
                               ------------------------------------------------------------------------------------------------
Noncurrent liabilities
   Bank and financial payables      738         U.S.$     2.979000     2,199             784          U.S.$         2,298
                                     17         EURO      4.059200        70              19          EURO             71
                                  5,704         (Y)       0.029141       166           6,742          (Y)             184

   Other payables
     Financial Instruments            1         U.S.$     2.979000         4               7          U.S.$            20
                               ------------------------------------------------------------------------------------------------
     Total noncurrent liabilities                                      2,439                                       2,573

                               ------------------------------------------------------------------------------------------------
     Total liabilities                                                 3,352                                       4,704
                               ================================================================================================
</TABLE>

(1)  Includes 12 million and 10 million, in 2004 and 2003, respectively,
     corresponding to prepayment to vendors for purchases of fixed assets.
(2)  Includes figures less than 1 million in foreign currency.
(3)  See note 3.1.c)

U.S.$:     U.S. dollars        EURO:    European Currency
(Y):       Yens                SDR:     Special Drawing Rights
(pound):   Pounds              BRL:     Brazilian Reals


                                       F-71
<PAGE>


h) Expenses incurred

                          TELEFONICA DE ARGENTINA S.A.

              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                 (amounts stated in millons of Argentine Pesos,
                       restated as described in note 2.2)

<TABLE>
                                                                      2004                                        2003         2002
-----------------------------------------------------------------------------------------------------------------------------------
                                          OPERATING EXPENSES
----------------------------------------------------------------
           ACCOUNT                      TELECOMMU-   TELEPHONE    ADMINIS-    SELLING     OTHER
                                        NICATION    DIRECTORIES   TRATIVE     EXPENSES   EXPENSES
                                        SERVICES                  EXPENSES                 NET        TOTAL       TOTAL       TOTAL
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                        <C>           <C>         <C>         <C>         <C>       <C>          <C>         <C>
Salaries and social security taxes         289           10          58          52          -         409          359         431
Other Payroll expenses                       2            1           7           -          -          10            9           9
Fixed assets depreciation                1,054            -          61          12          -       1,127        1,285       1,351
Fees and payments for services             325            8         136          55          -         524          471         538
Advertising                                  -            2           -          63                     65           37          28
Directors' and statutory auditors'
  fees                                       -            -           7           -          -           7            4           3
Insurance                                    -            -          12           -          -          12           13          15
Material consumption and other
  expenditures                              60            -           4           7          -          71           58          85
Management fee                              61            -           7           -          -          68           86         126
Transportation                              16            1           -           1          -          18           14          17
Taxes                                       41            -           2          17          -          60           47          49
Rentals                                     34            2           4           1          -          41           50          87
Commissions                                  -            -           -          22          -          22           22          29
Allowance for doubtful accounts              -            -           -          65          -          65           66         232
Recovery of doubtful accounts (2)            -            -           -        (105)          -       (105)         (79)          -
Net book value of fixed
  assets retired                             -            -           -           -          -           -            -           6
Intangible assets amortization (1)           5            -           3           -          -           8            8          35
Employee terminations                        -            -           -           -         37          37           42          53
Tax on checking account credits
  and debits                                 -            -          32           -          -          32           29          46
Other                                        -            1           1           -        100         102           31          94
                                        -------------------------------------------------------------------------------------------
   Total December 31, 2004               1,887           25         334         190        137       2,573
                                        ===========================================================================================
   Total December 31, 2003               1,946           20         352         163         71                    2,552
                                        ===========================================================================================
   Total December 31, 2002               2,181           22         436         442        153                                3,234
                                        ===========================================================================================
</TABLE>

(1)  Not including 9 million, 16 million and 7 million in 2004, 2003 and 2002,
     respectively, corresponding to depreciation of deferred expenses, which are
     exposed in financial income in the statement of operations.
(2)  In 2004, includes 20 million corresponding to collections from customers
     written off as of December 31, 2003


                                       F-72