================================================================================

                       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: 001-14828
                      TELEFONICA HOLDING DE ARGENTINA S.A.
             (Exact name of Registrant as specified in its charter)

                      Telefonica Holding 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: None

     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:

         30,427,328 Class A Ordinary Shares, par value Ps.1.00 per share

        374,302,032 Class B Ordinary Shares, par value Ps.1.00 per share

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

================================================================================


<PAGE>


                                Table of Contents
                                                                            Page
                                                                            ----
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS...............................ii
PRESENTATION OF FINANCIAL INFORMATION.........................................iv
PART I.........................................................................1
     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.......................................28
     ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................64
     ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.......................91
     ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS................98
     ITEM 8. FINANCIAL INFORMATION...........................................101
     ITEM 9. THE OFFER AND LISTING...........................................107
     ITEM 10. ADDITIONAL INFORMATION.........................................108
     ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....117
     ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........118
PART II......................................................................120
     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].....................................................120
     ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT..............................120
     ITEM 16B. CODE OF ETHICS................................................120
     ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES........................120
     ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES....122
     ITEM 16E. PURCHASES OF EQUITY SECURITIES BY
       THE ISSUER AND AFFILIATED PURCHASERS..................................122
PART III.....................................................................123
     ITEM 17. FINANCIAL STATEMENTS...........................................123
     ITEM 18. FINANCIAL STATEMENTS...........................................123
     ITEM 19. EXHIBITS.......................................................123


<PAGE>


                 FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
annual report on Form 20-F ("Annual Report") contains information that is
forward-looking and based largely on the expectations of Telefonica Holding de
Argentina S.A. ("Holding" or "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    our and Compania Internacional de Telecomunicaciones S.A.'s
          ("Cointel") ability to remain as going concerns and remain solvent;

     o    the renegotiation of Telefonica de Argentina S.A.'s ("Telefonica
          Argentina") tariffs with the Argentine government;

     o    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, Cointel or Telefonica Argentina;

     o    the effect of inflation and currency volatility on our, Cointel's and
          Telefonica Argentina's financial condition and results of operations;

     o    the implementation of our business strategy;

     o    descriptions of Telefonica Argentina's 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 Telefonica Argentina's
          competitive strategies and descriptions of the effect of the
          liberalization of the Argentine telecommunications industry; and

     o    the impact of actions taken by Telefonica Argentina's competitors and
          other third parties, including courts and other governmental
          authorities.

     Such statements reflect our and Telefonica Argentina's management 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    Telefonica Argentina's 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 regulations;

     o    revocation of Telefonica Argentina's license to provide
          telecommunications services;


                                       ii
<PAGE>


     o    our and Cointel's ability to pay or refinance our respective financial
          obligations owed to related and third parties when they become due;
          and

     o    the outcome of pending legal claims against Telefonica Argentina.

     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 affect future events and circumstances,
or if 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.


                                      iii
<PAGE>


                      PRESENTATION OF FINANCIAL INFORMATION

     This Form 20-F contains (1) audited Holding annual financial statements and
notes thereto of Holding as of December 31, 2004 and 2003 and for the fiscal
years ended December 31, 2004, 2003 and 2002 (the "Holding Annual Financial
Statements"); and (2) audited consolidated financial statements and notes
thereto of Cointel, our 50% owned company, as of December 31, 2004 and 2003 and
for the fiscal years ended December 31, 2004 and 2003, the three-month fiscal
year ended December 31, 2002 and the fiscal year ended September 30, 2002 and
the notes thereto (the "Cointel Consolidated Annual Financial Statements"). Both
the Holding Annual Financial Statements and the Cointel Consolidated Annual
Financial Statements are set forth on pages F-1 through F-152 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. Our and Cointel's financial statements included in this Annual Report
were audited by Deloitte. Deloitte's audit reports dated July 8, 2005 are
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 June 30, 2005 the exchange rate was Ps.2.89 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.

     In accordance with generally accepted accounting principles and current
legislation in Argentina, the presentation of the parent company's individual
financial statements is mandatory. Consolidated financial statements are to be
included as supplementary information to the individual financial statements.
Additionally, Resolucion Tecnica ("TR", Technical Resolution) No. 4,
"Consolidation of financial statements", modified by TR No. 19, requires that
companies having "Joint control" over other companies present supplementary
information of such companies following the proportional consolidation method.
Therefore, since we have "Joint control" over Cointel according to TR No. 5,
modified by TR No. 19, for local reporting purposes, we have consolidated (in
proportion to our equity interest in Cointel), line by line, our balance sheets
as of December 31, 2004, 2003 and 2002, and our statements of operations and
cash flows for the years ended on December 31, 2004, 2003 and 2002, with the
consolidated balance sheet, statements of operations and cash flows included in
the consolidated financial statements of Cointel and its subsidiaries,
Telefonica Argentina and Telinver S.A. ("Telinver"), as of such dates. For the
reasons explained in Note 2.2 to the Holding Annual Financial Statements, we
present the unconsolidated financial statements as of December 31, 2004 and 2003
and for the years ended December 31, 2004, 2003 and 2002. Presentation of the
proportional consolidated financial statements as of December 31, 2004, 2003 and
2002 is not required by the Securities and Exchange Commission of the United
States of America (the "SEC").

     For the reasons explained in Item 5: "Operating and Financial Review and
Prospects--Financial Periods Covered", our financial statements until the fiscal
year ended December 31, 2001 were prepared using the financial statements of
certain of our controlled companies and subsidiaries (including Cointel) for a
period of equal length


                                       iv
<PAGE>


ended on a date three months earlier, adjusted, if applicable, for any
significant events that took place during the three-month lag period.
Additionally, as of December 31, 2004 and 2003, we decided to value our
investment in AC Inversora S.A. ("ACISA") at nil, in order to adjust the amount
at which such investment is carried on our books to its recoverable value
pursuant to information available as of each balance sheet date. On the basis of
financial information available as of December 31, 2004 and 2003, Atlantida
Comunicaciones S.A. ("Atco") shareholders' equity was negative. Given that we
did not have a significant influence in Atco, as of December 31, 2004, we have
valued our investment in Atco at nil by the cost method, restated for inflation,
up to the limit of its estimated recoverable value. However, as of December 31,
2003, we had valued this investment by the equity method at nil up to the limit
of its recoverable value since we were under no obligation to make capital
contributions to revert its current negative shareholders' equity. See Note
2.5.b to the Holding Annual Financial Statements.

     In this Annual Report, references to "Section 33 Companies" refers to
companies that fall under the definition of "related parties" of Ley de
Sociedades Comerciales, No. 19,550 ("Companies Law").

     We and each of our companies prepare our respective financial statements in
accordance with generally accepted accounting principles in Argentina
("Argentine GAAP"), which differ in certain significant respects from generally
accepted accounting principles in the United States ("U.S. GAAP"). See Note 11
to the Holding Annual Financial Statements and Note 22 to the Cointel
Consolidated Annual Financial Statements.


                                       v
<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.

Introduction

     We are a holding company primarily engaged through subsidiaries in the
telecommunications business ("Telecommunications Business") and the media
business (the "Media Business") in Argentina. We control our subsidiary
companies, Cointel and Telefonica Argentina, jointly with Telefonica
Internacional S.A. ("TISA") and Telefonica Internacional Holding B.V. ("TIHBV")
(together with us, the "TISA Group"). Additionally, we own interests in Atco and
ACISA as passive investments, along with other partners that are affiliates of
Telefonica S.A. ("Telefonica").

A.   Selected Financial Data.

     The financial information set forth below should be read in conjunction
with, and is qualified in its entirety by reference to the Holding Annual
Financial Statements, the Cointel Consolidated Annual Financial Statements and
Item 5: "Operating and Financial Review and Prospects" included in this Annual
Report.

     Our balance sheet as of December 31, 2004 and 2003 and the statements of
operations information relating to our fiscal years ended December 31, 2004,
2003 and 2002 set forth below have been derived from the Holding Annual
Financial Statements. Our balance sheet data as of December 31, 2002, 2001 and
2000, and the financial data relating to our fiscal years ended December 31,
2001 and 2000 set forth below have been derived from our audited financial
statements as of and for the fiscal years ended on those dates, which have not
been included herein.

     We maintain our financial books and records and publish our financial
statements in pesos and prepare our financial statements to conform to the
Comision Nacional de Valores (the National Securities Commission or "CNV") rules
and generally accepted accounting principles in Argentina followed by us. This
Annual Report sometimes refers to those 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 is because
of the elimination of inflation accounting under U.S. GAAP. Note 11 to the
Holding 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/loss and
shareholders' equity.

     According to generally accepted accounting principles applied by
Telefonica, for purposes of its consolidated annual 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 SEC permits for
countries such as Argentina, where local accounting principles required
price-level adjustments. In accordance to 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, 2004, we carried accumulated losses amounting to
Ps.2,267 million and negative shareholders' equity amounting to Ps.1,112
million. Due to such situation, we were under the conditions for


                                       1
<PAGE>


dissolution due to the loss of our capital stock set forth in Item 5 of Section
94 of the Companies Law. See Item 3: "Key Information--Risk Factors--The
deterioration of the Argentine economy and the pesification and freezing of
Telefonica Argentina's tariffs have made it difficult for us and Cointel to
access the capital markets or obtain new third-party financing in amounts
sufficient to enable us and Cointel, together with internally generated funds,
to meet our respective debt obligations, corresponding mainly to a significant
amount of indebtedness owed to TISA" and Item 5: "Operating and Financial Review
and Prospects--Factors Affecting Our Results of Operations--Overview-- Effects
on our, Cointel's and Telefonica Argentina's operations, on our respective
abilities to pay our short-term debt obligations, and on our and Cointel's
ability to remain as going concerns".

     Our investment in Cointel as of December 31, 2004 and 2003, is valued by
the equity method of accounting, calculated taking into account Cointel's
shareholders' equity after deducting Cointel's preferred stock and unsettled
accumulated preferred dividends as of such dates, derived from the financial
statements of Cointel as of December 31, 2004 and 2003, respectively, restated
for inflation until February 28, 2003. In the first quarter of 2002, we
eliminated the three-month lag in computing our participation in Cointel's
equity that existed until 2001. The effect of the elimination of the three-month
lag and the above-mentioned alignment of periods gave rise to a Ps.41 million
(restated for inflation until February 28, 2003) decrease in unappropriated
earnings as of December 31, 2002, related to the loss on equity investment in
Cointel during the October-December 2001 period. Consequently, the equity
interest in Cointel was calculated considering our equity participation on
Cointel's income for the years ended December 31, 2004, 2003 and 2002, after
deducting Cointel's accrued preferred dividends as of such dates.

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

     Following Cointel's and Telefonica Argentina's policy to present their
interest in the income (loss) from companies in which they have control or joint
control and taking into account the effects of the Reorganization Transactions,
the Cointel consolidated income (loss) statements for the years ended December
31, 2004, 2003, 2002, 2001 and 2000 include:

(1)  the income (loss) from the businesses that were spun off, until the
     spin-off, in the line "Net (loss)/income of Telefonica Argentina's spun-off
     businesses";

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

(3)  the income (loss) from Telefonica Argentina's interests held in E-Commerce
     Latina S.A. in the line "(Loss) gain on equity investments" is not
     incorporated line-by-line because in the opinion of Telefonica Argentina's
     management the income from this company is not material to its income
     (loss).

     Cointel and Telefonica Argentina present these figures as originally
reported in previous annual reports in Form 20-F in pesos restated for inflation
until February 28, 2003. See Note 2.2 to the Cointel 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 forth 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.


                                       2
<PAGE>


     As a result of the inflationary environment in Argentina in 2002 (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 (the "PEN")
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, 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 of Consejo
Directivo ("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 as from October 1, 2003, since
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 December 31, 2001 and 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 our balance sheets as of December 31, 2001 and 2000 and
statements of operations and cash flow data for the fiscal years ended December
31, 2001 and 2000 are restated for inflation from January 1, 2002 to February
28, 2003 of 122.2% based on the wholesale price index.

     In accordance with the above, 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. The CPCECABA discontinued the application of the method that
required restatement into constant currency as from October 1, 2003. Between
January 1, 2003 and September 30, 2003, the wholesale price index decreased by
1.4%. See Note 2.3 to the Holding Annual Financial Statements.


                                       3
<PAGE>


                OUR SELECTED UNCONSOLIDATED FINANCIAL INFORMATION


<TABLE>
                                                                        Fiscal Year Ended December 31,
                                                       ----------------------------------------------------------------
                                                        2004          2003(1)       2002(2)       2001(2)(3)    2000(9)
                                                       ----------------------------------------------------------------
                                                            (in million of pesos; Argentine GAAP financial data is
                                                                restated for inflation until February 28, 2003)
<S>                                                        <C>             <C>       <C>             <C>           <C>
OPERATION STATEMENTS DATA:
Argentine GAAP
Equity interests in Section 33 Companies(6).......         (134)           98        (1,280)         (101)         (237)
Other income relating to equity interests in Section
   33 Companies and fees for services provided, net          33            40            57           116           145
General and Administrative expenses...............           (2)           (2)           (4)           (9)          (35)
Unrecoverable VAT and other taxes.................           --            --            --            (1)           (6)
Depreciation of intangible assets and deferred
   charges                                                   --            --            --            (1)          (99)
Other income and expenses, net....................           --            --            --            --            (6)
Financial (loss)/income on assets.................           --            --           (33)           68            41
Financial (loss)/income on liabilities............         (197)           81          (791)          (80)         (258)
Net income related to the Stock Exchange
   Agreement(10)..................................           --            --             --           --           101
Income tax and tax on minimum presumed income                --            --            (9)          (67)          (59)
                                                       ----------------------------------------------------------------
Net (loss)/ income for the year...................         (300)          217        (2,060)          (75)         (413)

U.S. GAAP
Equity interests in related parties and
   subsidiaries(5)................................          176           390        (1,386)         (538)         (112)
Net (loss)/ income(5).............................          (23)          456        (2,432)         (896) (4)     (103)
BALANCE SHEET DATA:
Argentine GAAP
Current assets....................................           27            27            33            27  (9)      930
Ownership interests in related parties(7).........          786           920           834         1,564  (9)    1,689
Intangible assets and deferred charges............           --            --            --           610  (9)      730
                                                       ----------------------------------------------------------------
Total assets......................................          813           947           867         2,228  (9)    3,364
                                                       ================================================================
Short-term bank and other financial debt..........        1,897 (8)     1,731  (8)    1,854  (8)       34  (9)    1,152
Long-term bank and other financial debt...........           22            22            25            --  (9)       --
                                                       ----------------------------------------------------------------
Total liabilities.................................        1,925         1,759         1,884         1,125  (9)    1,350
(Accumulated deficit)/Shareholders' equity........       (1,112)         (812)       (1,017)        1,103  (9)    2,014
                                                       ----------------------------------------------------------------
Total liabilities and shareholders' equity........          813           947           867         2,228  (9)    3,364
                                                       ================================================================
U.S. GAAP
(Accumulated deficit)/Shareholders' equity(5).....         (880)         (857)       (1,313)        1,172  (4)      942
OTHER FINANCIAL DATA:
Argentine GAAP
Cash dividends received from Telecommunications,
   Cable Television and Media Businesses..........           --             --             --             --        152
                                                       ----------------------------------------------------------------
Total cash dividends received.....................           --             --             --             --        152
                                                       ================================================================
</TABLE>


                                       4
<PAGE>


---------------------------------------
(1)  We have supplementally provided a summary of our balance sheet and our
     results of operations data according to generally accepted accounting
     principles for the fiscal year ended December 31, 2003 after applying
     Resolution CD No. 190/03 of CPCECABA to present the effect of the variation
     in the wholesale price index for the period March through September 2003
     below:

     Balance Sheet:
     Current assets...............................................         27
     Non current assets(a)........................................        858
                                                                    ----------
     Total assets.................................................        885
                                                                    ==========
     Current liabilities..........................................      1,737
     Non current liabilities......................................         22
                                                                    ----------
     Total liabilities............................................      1,759
                                                                    ==========
     Shareholders' Equity:
           Capital Stock, Reserves and Unappropriated
             losses of prior years................................     (1,008)
           Net income for the year(b).............................        134
                                                                    ----------
     Total Shareholders' Equity...................................       (874)
                                                                    ==========

     (a)  The effect of the application of the above mentioned resolution upon
          our non current asset is mainly due to the our equity interest in
          Cointel.

     (b)  The effect of the application of the above mentioned resolution upon
          our net income for the period is mainly due to our equity interest in
          Cointel and financial gains and losses.

(2)  The adjustments computed in the financial statements for the application of
     the new accounting principles applicable to us as from January 1, 2003
     effective in Argentina, which relate to the application of the deferred
     income tax method and related effects in the spun-off business and minority
     interest for the fiscal year ended December 31, 2001 are as follows:

     Statement of operations:

                                                           December    December
                                                           31, 2002    31, 2001
                                                          ----------------------
           Equity interests in Section 33 Companies......     17         (13)
           Income tax....................................     --         (67)
                                                          ----------------------
           Net income/(loss) of the year.................     17         (80)
                                                          ======================

     Shareholders' Equity:

                                                           December    December
                    Increase / (decrease)                  31, 2002    31, 2001
          ----------------------------------------------------------------------
          Balance at the beginning of the year............   (17)         71
          Effect of Telefonica Argentina's
              spun-off businesses.........................    --          (8)
          Net income/(loss) of the year...................    17         (80)
                                                          ----------------------
          Total...........................................    --         (17)
                                                          ======================

(3)  As a consequence of the disposal of our ownership interest in SHOSA and
     South Cable on December 15, 2000, balance sheet data as of December 31,
     2001 and 2000 corresponds to our unconsolidated financial information.
     Additionally, income statement data for the fiscal year ended December 31,
     2001 corresponds to our unconsolidated financial information. Income
     statement data for the fiscal year ended December 31, 2000 corresponds to
     our results consolidated with SHOSA and South Cable operations through
     December 15, 2000, the date of the disposition of these companies.

(4)  Our net loss under U.S. GAAP and total shareholders' equity for the year
     ended and as of December 31, 2001 includes Ps.919.4 million (loss)
     corresponding to the estimated effect of the devaluation on our net
     payables in foreign currency, which includes Ps.349.3 million related to
     our net position of assets and liabilities in foreign currency and Ps.570.1
     million, corresponding to the estimated effect of the devaluation on
     Cointel's and Telefonica Argentina's net payables in foreign currency as of
     December 31, 2001, calculated in proportion to our ownership interest in
     such companies.

(5)  Not adjusted for inflation.

(6)  In the years ended December 31, 2004, 2003, 2002 and 2001 includes Ps.39
     million, Ps.39 million, Ps.39 million and Ps.41 million, respectively,
     corresponding to goodwill depreciation related to the investments in
     Cointel and Torneos y Competencias S.A. ("TyC").


                                       5
<PAGE>


(7)  As of December 31, 2004, 2003 and 2002 includes Ps.492 million, Ps.531
     million and Ps.570 million, respectively, corresponding to the goodwill on
     Cointel.

(8)  As of December 31, 2004, 2003 and 2002 includes Ps.1,896, Ps.1,730 million
     and Ps.1,853 million, respectively, with Section 33 Companies.

(9)  Figures do not reflect the effect of the accounting principles applicable
     to us as from January 1, 2003 implemented by Argentine GAAP.

(10) See Item 4: "Information on the Company--Our History and Development--Stock
     Exchange Agreement Transactions".


                                       6
<PAGE>


<TABLE>
                                          COINTEL SELECTED CONSOLIDATED FINANCIAL INFORMATION

                                                                                                                        Twelve-
                                                                                                                        Month
                          Twelve-Month                    Three Month     Unaudited     Twelve-Month                    Fiscal
                          Fiscal Year     Twelve-Month      Fiscal       Three-Month       Fiscal         Fiscal      Year Ended
                             Ended         Fiscal Year    Year Ended     Period Ended    Year Ended     Year Ended     September
                          December 31,   Ended December  December 31,    December 31,   September 30,  September 30,      30,
                              2004         31, 2003(1)      2002(1)          2001           2002           2001         2000(5)
                         -------------------------------------------------------------------------------------------------------
                                               (in million of pesos, except for per share amounts, number of
                                             common shares 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:
Argentine GAAP
Net revenues                     3,047          2,750            624          1,424          3,859          6,154          6,498
Cost of services
  provided(2)                   (1,936)        (1,992)          (501)          (771)        (2,504)        (3,121)        (3,782)
Gross profit                     1,111            758            123            653          1,355          3,033          2,716
Administrative expenses(2)        (335)          (353)          (101)          (154)          (492)          (629)          (496)
Selling expenses(2)               (190)          (163)           (69)          (385)          (757)          (918)          (459)
Depreciation of goodwill
  on investment in
  Telefonica Argentina             (23)           (23)            (6)            (6)(7)        (23)(7)        (23)(7)        (31)(7)
Subtotal                           563            219            (53)           108             83          1,463          1,746
(Loss) gain on equity
  investments                       (1)            (3)             1             (9)            (8)            (4)            (9)
Other expenses, net               (137)           (71)           (51)           (52)          (154)          (249)          (329)
Financial income /(loss)
  on assets, net                    46            (74)            45             15           (750)          (106)           206
Financial (loss) income
  on liabilities, net             (664)           348            409           (106)        (3,320)          (479)          (500)
Unusual items                       --             --             --             --             --            (15)            --
Income tax                           5             --             --           (169)          (120)          (282)          (394)
Minority interest in
  subsidiaries                       4           (142)          (101)            12          1,314           (269)          (360)
Net (loss)/income from
  continuing operations           (184)           277            250           (201)        (2,955)            59            360
Net (loss)/income of
  Telefonica Argentina's
  spun-off businesses               --             --             --             --             --            (15)           (24)
                         -------------------------------------------------------------------------------------------------------
Net (loss)/income for
  the year                        (184)           277            250           (201)        (2,955)            44            336
                         =======================================================================================================
(Loss) earnings per share       (0.035)         0.052          0.047          0.038         (0.557)         0.008          0.063
U.S. GAAP
Net income/(loss) (3)              289            703            471         (1,228)        (4,545)            86            125
Dividends attributable
  to preferred
  shareholders(3)                   (2)            (2)            (1)            --             (2)            (3)            (3)
Increase in the carrying
  amount of preferred
  capital stock(3)                  (2)            (1)            (1)            --            (10)            --             --
Earning/(loss)
  attributable to common
  shareholders(3)                  285            700            469         (1,228)        (4,557)            83            122
Number of Common Shares  5,306,402,996  5,306,402,996  5,306,402,996  5,306,402,996  5,306,402,996  5,306,402,996  5,306,402,996
Earnings (loss) per
  share                          0.054          0.132          0.088         (0.231)        (0.859)         0.016          0.023
BALANCE SHEET DATA:
Argentine GAAP
Cash and current
  investments                      275            355            399            153            353             71(5)         858(4)
Fixed assets                     6,596          7,342          8,476          9,716          8,763          9,890(5)      10,435
Intangible assets and
  deferred charges(6)              367            405            433            478            434            492(5)         522
Net assets of spun-off
  businesses                        --             --             --             --             --             --(5)       1,454
                         --------------------------------------------------------------------------------------------------------
Total assets                     7,827          8,640          9,971         12,193         10,373         12,638(5)      15,724
                         ========================================================================================================
Short-term bank and
  financial debt                 2,663          3,283          3,687          2,683          4,073          2,929(5)      3,579
Long-term bank and
  financial debt                 2,500          2,553          3,902          2,712          4,253          2,776(5)      3,443
Shareholders' equity
  (Net Assets)                     639            823            570          3,073            320          3,275(5)      3,259
                         --------------------------------------------------------------------------------------------------------
Total liabilities and
  shareholders' equity           7,827          8,640          9,971         12,193         10,373         12,638        15,724
                         ========================================================================================================
U.S. GAAP
Total Assets(3)                  6,495          6,483          7,130          7,550          7,370          5,978         8,328
Shareholders' equity(3)            327             40           (663)         2,196         (1,133)         1,430         1,364
CASH FLOW DATA:
Argentine GAAP
Cash flows from
  continuing operating
  activities                     1,572          1,485            251            419            862          1,475         1,656
Cash (used in) continuing
  investing activities            (387)          (143)           (36)          (209)          (308)          (926)         (950)
Cash (used in) provided
  by continuing
  financing activities          (1,273)        (1,386)          (169)          (128)          (272)        (1,382)          192
Spun-off assets                     --             --             --             --             --           (145)           --
Cash flows provided by
  (used in) spun-off
  businesses                        --             --             --             --             --            162          (492)
(Decrease) Increase in
  cash and cash
  equivalents                      (88)           (44)            46             82            282           (816)          407
</TABLE>


                                       7
<PAGE>


----------
(1)  A summary of Cointel's consolidated balance sheet and consolidated results
     of operations data according to generally accepted accounting principles
     for the fiscal year ended December 31, 2003 after applying Resolution CD
     No. 190/03 of CPCECABA to present the effect of the variation in the
     wholesale price index for the period March through September 2003 is
     provided below:

                                                                    Twelve-Month
                                                                    Fiscal Year
                                                                       Ended
                                                                    December 31,
                                                                        2003
                                                                   -------------
     Balance Sheet:
     Current assets..............................................        747
     Noncurrent assets...........................................      7,735
                                                                   -------------
     Total assets................................................      8,482
                                                                   =============
     Current liabilities.........................................      3,933
     Noncurrent liabilities......................................      2,905
                                                                   -------------
     Total liabilities...........................................      6,838
                                                                   =============
     Minority interest in subsidiaries...........................        924
     Shareholders' equity:
         Capital Stock, reserves and Unappropriated
         losses of prior years...................................        535
         Net income(a)...........................................        185
                                                                   -------------
     Total Shareholders' Equity..................................        720
                                                                   =============

----------
(a)  The effect on income arising from applying the above- mentioned resolution
     was principally reflected in the financial results.

(2)  Includes depreciation and amortization.

(3)  Not adjusted for inflation.

(4)  Net of Ps.29 million, in pesos restated for inflation until February 28,
     2003, corresponding to spun-off businesses.

(5)  Figures do not reflect the effect of the accounting principles applicable
     to us as from October 1, 2002 implemented by Argentine GAAP.

(6)  Includes goodwill on investment in Telefonica Argentina.

(7)  Does not include Ps.3 million, Ps.29 million, Ps.6 million and Ps.6 million
     as of December 31, 2001, September 30, 2002, 2001 and 2000, respectively,
     of goodwill of Telefonica Argentina that is classified in "Cost of services
     provided".


                                       8
<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 July 12, 2005, the peso/U.S. dollar
exchange rate was Ps.2.87 to U.S.$1.00. The Federal Reserve Bank of New York
does not report a noon buying rate for pesos.

                             Nominal Exchange Rates

<TABLE>
                                                             Exchange Rate
                                             ------------------------------------------------
                                              High(1)      Low(2)     Average(3)  Period End
                                             ------------------------------------------------
<S>                                            <C>          <C>          <C>         <C>
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
Month Ended April 30, 2005.................    2.92         2.88         2.90        2.91
Month Ended May 31, 2005...................    2.90         2.88         2.89        2.88
Period Ended June 30, 2005.................    2.90         2.87         2.88        2.89
Period Ended July 12, 2005.................    2.89         2.87         2.88        2.87
</TABLE>

----------
(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 financial
statements of this Annual Report, including the Holding Annual Financial
Statements and the Cointel Consolidated Annual Financial Statements.

Risk Factors Relating to Argentina

   Overview

     We are an Argentine sociedad anonima (a corporation of limited liability)
and substantially all of our operations, facilities, companies, customers and
property are presently located in Argentina through our interest in Cointel and
our indirect interest in Telefonica Argentina. Accordingly, Telefonica
Argentina's, Cointel's and our


                                       9
<PAGE>


financial condition and results of operations depend to a significant
extent on the macroeconomic and political conditions of Argentina.

     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 subsidiaries' business, financial condition or results of operations,
or impair our, Cointel's or Telefonica Argentina's ability to make payments of
principal and/or interest on us, our subsidiaries or their 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


                                       10
<PAGE>


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 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.


                                       11
<PAGE>


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

     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 Telefonica Argentina's services
and the type of products and services demanded, with a possible corresponding
reduction in its revenues.

     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 also 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
   Telefonica Argentina's tariffs, and the macroeconomic conditions prevailing
   in Argentina, have had, and may continue to have, a material adverse effect
   on our, Cointel's and Telefonica Argentina's 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.2.87 per U.S. dollar on July 12, 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 policies 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, Cointel's and Telefonica Argentina's
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.

     Telefonica Argentina realizes substantially all of its revenues in
Argentina in pesos and, as a result, the devaluation of the peso in 2002 and the
pesification and freezing of its tariffs have had a material adverse effect on


                                       12
<PAGE>


its and 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, Cointel's
and Telefonica Argentina's expenses, including Telefonica Argentina's capital
expenditures, is also denominated in foreign currency. Furthermore, the
devaluation of the peso has had a material adverse effect on our, Cointel's and
Telefonica Argentina's 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, Cointel's and
Telefonica Argentina's bank and financial debt in pesos, with further adverse
effects on our results of operations and financial condition. As of December 31,
2004, our bank and financial debt in foreign currency was the equivalent of
U.S.$637 million and Cointel's consolidated bank and financial debt in foreign
currency was the equivalent of U.S.$1,561 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 our
result of operations. 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, Cointel's and Telefonica Argentina's results of
operations and financial condition.

   The Argentine economy may experience significant inflation and a
   substantial part of Telefonica Argentina's 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. During the first six months of
2005, consumer prices increased 6.1%, equivalent to an annual rate of 12.2%, 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 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) were the principal generators of the recent inflationary
pressures.

     Telefonica Argentina derives most of its 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 Telefonica Argentina 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 basic telephone services offered by Telefonica Argentina, 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. In addition, any further inflation will result in further
decreases in Telefonica Argentina's revenues in real terms and will adversely
affect Telefonica Argentina's results of operations, provided that Telefonica
Argentina's tariffs do not keep pace with inflation. In addition, any further
inflation could result in further increases in Telefonica Argentina's expenses,
including capital expenditures. The current mismatch between the variables
determining revenues and expenses has affected and may continue to affect
materially Telefonica Argentina's results of operations.

     The process for the renegotiation of Telefonica Argentina's 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


                                       13
<PAGE>


Telefonica Argentina and therefore to us. Although Telefonica Argentina has
adopted several initiatives to mitigate the current impact of this matter on its
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 Telefonica Argentina management's opinion, the
regulatory framework in force has still not established the rules to allow
reinstating the balance of the variables that constitute Telefonica Argentina's
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 Telefonica Argentina's economic and financial equation, such rate
system could have an adverse impact on our, Cointel's and Telefonica Argentina's
financial condition and future results. See "--In January 2002, the Argentine
government devalued the peso, pesified and froze Telefonica Argentina's tariffs
and the current renegotiation of Telefonica Argentina's tariffs may result in
new tariffs that may have an adverse impact on Telefonica Argentina's future
financial position and future results of operations".

   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 debt 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 to the Republic of Argentina 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 with 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


                                       14
<PAGE>


defaulted debt. Sovereign debt in default totaled approximately U.S.$102.5
billion, comprised of approximately U.S.$81.8 billion of principal and U.S.$20.7
billion of unpaid interest accrued before December 31, 2001.

     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, it officially announced that
76.15% of bondholders had accepted the offer. Finally, the new bonds were issued
in June 2005. They are denominated in U.S. dollars, euros, Japanese yen and
Argentine pesos (indexed by CER) and are 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.

     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
Telefonica Argentina, Cointel and therefore 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


                                       15
<PAGE>


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 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, 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 the 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 the servicing of our or our
   subsidiaries' 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

   The deterioration of the Argentine economy and the pesification and
   freezing of Telefonica Argentina's tariffs have made it difficult for us
   and Cointel to access the capital markets or obtain new third-party
   financing in amounts sufficient to enable us and Cointel, together with
   internally generated funds, to meet our respective debt obligations,
   corresponding mainly to a significant amount of indebtedness owed to TISA.

     We are a holding company with significant financial obligations but no
significant liquid assets, with a dependency on dividends and distributions from
our subsidiaries, on fees under the Telefonica Holding Advisory


                                       16
<PAGE>


Agreement paid to us in cash by Telefonica S.A., Sucursal Argentina ("TESA
Arg.") (the "Telefonica Holding Advisory Agreement"), on the proceeds from
disposing of ownership interests and other assets, and on various forms of
borrowing. We use our funds mainly to pay interest on our financial debt and
negotiable obligations.

     Our financial obligations are mainly intercompany loans. None of our
subsidiaries and none of our stockholders have any obligation to pay amounts due
from us to third parties or to make funds available therefore, whether in the
form of loans, dividends or otherwise under the Telefonica Holding Advisory
Agreement.

     Because we are a holding company, upon the liquidation or reorganization of
any subsidiary, or any of their subsidiaries, our right to participate directly
or indirectly, as the case may be, in any distribution of such a company's
assets (and thus the ability of the holders of outstanding debt securities
issued by us pursuant to the terms of the Indenture dated February 24, 1997
among us and the Bank of New York (the "1997 Indenture Notes") or other
creditors to benefit indirectly from such distribution) is subject to prior
claims of creditors of such subsidiaries and their subsidiaries, including trade
creditors.

     In light of the combination of macroeconomic and regulatory developments
that occurred in Argentina mainly during 2002, and the negative impact those
events had on our and Cointel's financial condition, we and Cointel can not
assure you that we or Cointel will be able to access the capital markets and new
third-party financing sources, both domestically and internationally, in amounts
sufficient to enable us or Cointel to meet our respective debt obligations.
Furthermore, we and Cointel are unable to determine whether the current
macroeconomic environment in Argentina will worsen in the short-term and further
harm our and Cointel's ability to meet our respective current and future debt
obligations.

     We had outstanding as of December 31, 2004 the following indebtedness:

     o    U.S.$637 million in short-term intercompany loans with TISA (including
          interest); and

     o    9.75% Notes due 2007 totaling approximately U.S.$8 million.

     Cointel had outstanding as of December 31, 2004 the following
unconsolidated indebtedness and preferred stock:

     o    Ps.42 million (originally in U.S. dollars and pesified by the Public
          Emergency Law, plus an adjustment for variations in consumer prices
          (Coeficiente de Estabilizacion de Referencia, "CER")) in preferred
          capital stock and Ps.9.6 million in accumulated unpaid but not due
          preferred dividends; and

     o    U.S.$488 million in short-term intercompany loans with TISA (including
          interest).

     Our and Cointel's debt with TISA matures through December 2005, subject to
TISA's right to immediately accelerate such indebtedness if, among other things:

     o    there are changes in Telefonica Argentina's, Cointel's or our equity
          or our economic and financial situation that, due to their adverse
          nature, may adversely affect our respective abilities to comply with
          our respective obligations under the loan agreements, including the
          ability to pay interest; and

     o    proceedings are commenced against us, Telefonica Argentina or Cointel
          which may result in an auction or attachment with a value greater than
          a certain percentage of our respective shareholders' equity.

     In connection with the loans with TISA, we and Cointel assumed certain
commitments, mainly involving limitations on the sale of assets, limitations on
liens of certain assets and limitations on us or any of our affiliates becoming
a party to a merger or spin-off transaction, with certain exceptions. The loan
provides for acceleration of principal and accrued interest: (1) upon our
defaulting on any of the commitments assumed under the loan, (2) in the event of
any change of control of us, (3) if we or our affiliates are unable to comply
with our obligations, (4) upon changes in our main business activity, (5) if we
or any of our affiliates lose the government licenses under which we operate our
businesses, (6) if there are changes in our equity, economic and financial
situation that due to their adverse nature may affect our ability to comply with
the obligations assumed in the agreement, and (7) if there are government
imposed restrictions that may limit the ability to repay our debts. On July 26,
2004, the loan agreement


                                       17
<PAGE>


was modified by eliminating the clause that stipulated its early termination in
case of restrictions that could limit our capacity to make payments to TISA
under the agreement.

     In relation to the loans mentioned above, TISA has advised us and Cointel
that until July 1, 2006 and December 31, 2005, respectively, that: (i) the
effects of the Public Emergency Law and Currency Exchange System Reform
implemented in Argentina by Decree No. 1,570/01, Law No. 25,561, as
supplemented and amended, in force shall not be considered as an event of
default; and (ii) it shall not consider that, until such date, an acceleration
event has occurred under the agreements with TISA. Additionally, some of the
loan agreements in effect include acceleration events in case certain judicial
or extra-judicial proceedings are filed for amounts in excess of certain net
equity percentages of us or a relevant affiliate of ours. We obtained a waiver
to all such acceleration events until July 1, 2006.

     Additionally, during the first quarter of fiscal year 2002, we received
loans from Telefonica Argentina for U.S.$5.8 million ("the Dollar Loans"). On
April 26, 2002, we entered into an assignment agreement with Telefonica
Argentina and TISA pursuant to which Telefonica Argentina assigned to TISA the
Dollar Loans in the amount of U.S.$5.8 million, which included principal amount
and accrued interest as of April 26, 2002. The terms of such loan are similar to
those of the loan mentioned in the previous paragraph. As of December 31, 2004,
the book value of such loan amounted to U.S.$7 million (equivalent to Ps.22
million as of December 31, 2004), corresponding to principal amount plus accrued
interests as of that date.

     As of December 31, 2004, our current unconsolidated assets were lower than
our current unconsolidated liabilities for an amount of Ps.1,876 million, the
latter including approximately Ps.1,896 million of debt owed to TISA.

     As of December 31, 2004, we also carried accumulated losses amounting to
Ps.2,267 million and negative shareholders' equity amounting to Ps.1,112
million. Under Argentine corporate law, if a corporation presents annual
financial statements that report negative shareholders' equity, the corporation
is required to commence dissolution proceedings unless its shareholders take
action (either by making a capital contribution or authorizing the issuance of
additional shares of the corporation) that increases capital stock.

     On December 16, 2004, the general and special Class B shareholders' meeting
resolved to increase the capital stock by Ps.2 million, from Ps.404,729,360 to
Ps.406,729,360, in accordance with the provisions of Resolution No. 466/04 of
the CNV, and to issue at par value, 2,000,000 common Class B shares of one peso
(Ps.1) face value each and entitled to one vote per share, which will have the
same rights to dividends, as from the beginning of the fiscal year in which the
shares are issued, and will rank pari passu with the remaining Class B shares
outstanding as of their issuance date. In addition, such shareholders' meeting
approved the application for public offering of the new shares to be issued as a
result of the capital increase and their listing on the Buenos Aires Stock
Exchange. As of the date of issuance of this Annual Report, such capital
increase is pending approval by the CNV and the Buenos Aires Stock Exchange and
pending registration by the Public Registry of Commerce.

     Due to our negative shareholders' equity situation, we are under the
conditions for dissolution due to the loss of our capital stock set forth in
Item 5 of Section 94 of the Companies Law. However, Decree No. 1,269/02 dated
July 16, 2002 had suspended the enforcement of Item 5 of Section 94 of the
Companies Law until December 10, 2003 and Decree 1,293/03 dated December 23,
2003 had suspended the enforcement of such provision of the Companies Law until
December 10, 2004. Furthermore, Decree No.540/05 dated May 30, 2005 further
extended that suspension until December 10, 2005, and we are in the process of
increasing our capital stock to avoid future dissolution proceedings under
Argentine corporate law.

     On December 28, 2004, the board of directors called a special shareholders'
meeting on February 15, 2005 to resolve upon the partial capitalization of the
loan held by TISA with us, for an amount of up to approximately Ps.2,046
million.

     On February 15, 2005, the special shareholders' meeting approved the
increase of the capital stock, for an amount of up to Ps.2,046 million, ratified
the capital stock increase of Ps.2 million approved by the shareholders' meeting
of December 16, 2004 and delegated to our board of directors the setting of the
final amount and other issuance conditions of such capital stock increase. The
capital increase can be subscribed with (i) the partial


                                       18
<PAGE>


capitalization of the loan held by TISA with us, (ii) the irrevocable capital
contributions of TISA for future share subscriptions of Ps.2 million or (iii)
cash. In this regard, in this special shareholders' meeting, TISA expressed its
intention to partially capitalize its loan for an amount of Ps.1,785 million. As
a result of this capital stock increase, we expect that we will no longer be
under the conditions of Item 5 of Section 94 of the Companies Law and,
consequently, with respect to this matter, we will be able to continue normal
operations. See Notes 8 and 10 to the Holding Annual Financial Statements.

     The increase of our capital stock is still not finalized. In addition,
despite the plans for capitalization mentioned above, we are under the
condition for mandatory capital stock reduction under Argentine law. According
to Section 206 of the Companies Law, if the accumulated losses exceed reserves
plus 50% of the capital stock at any year end, a company is required to reduce
its capital stock. However, Decree No 540/05 dated May 30, 2005 further
extended the enforcement of Section 206 of the Companies Law until December
10,2005.

     Cointel has also experienced economic difficulties resulting from the
recent Argentine economic crisis. Cointel's general financing policy is to cover
future fund needs to repay short-term debt, if possible depending on the
evolution of the economic situation, with bank loans and/or access to the
capital markets and TISA's loans, or alternatively, by refinancing its debt
obligations.

     We are evaluating Cointel's financing needs considering the Argentine
economic situation and the current difficulties in accessing credit, and we have
committed to use our best efforts to provide financing directly or indirectly,
subject to our fund availability, which depends on the development of the issues
affecting our financial situation.

     In addition, Telefonica has advised Cointel that, as of the date of
issuance of this Annual Report, it was still evaluating financing alternatives
for Cointel, including the possibility of refinancing the short-term TISA's
loans to Cointel and, if necessary, providing additional financing.

     As of December 31, 2004, Cointel's unconsolidated current assets are lower
than its current liabilities by Ps.1,459 million, the latter including
approximately Ps.1,454 million of debt owed to TISA. Consequently, Cointel's
ability to meet its short term liabilities will depend on TISA's continued
refinancing of the loans granted to Cointel, or on other financing from related
or unrelated parties, which to date are not available in sufficient amounts for
Cointel.

     Should no financing alternatives be available to Cointel or should Cointel
not succeed in obtaining additional refinancing, Cointel will not have
sufficient funds available to meet its current financial liabilities.

     Although Cointel will continue to use its best efforts to obtain additional
financing, which up to date has had favorable results evidenced by waivers
granted from creditors and short-term refinancing, as of the date of this Annual
Report it is not possible to predict what Telefonica Argentina's result of
future negotiations will be and, consequently, whether Cointel will be able to
pay its current liabilities in the normal course of business, maintain its
normal operations and remain as a going concern.

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

     Under Argentine law, the protections afforded to minority shareholders and
the fiduciary duties of directors may, in some respects, be less than in the
United States and certain other jurisdictions. Telefonica has advised us that it
intends to maintain its current beneficial ownership of Cointel, Telefonica
Argentina, Atco and ACISA and, therefore, to continue to participate in those
companies and to determine the outcome of any action requiring the approval of
their respective shareholders. Additionally, Telefonica may advise us to sell
and transfer our share equity interest in Atco and ACISA to an affiliate of
Telefonica. Actions within the control of Telefonica and its affiliates include
the election of our board of directors and the boards of directors of Cointel,
Telefonica Argentina, Atco and ACISA (as well as for TISA and TIHBV, each a
wholly owned subsidiary of Telefonica that together own the 50% of Cointel's
voting capital stock not owned by us) and, subject to the requirements of
Argentine laws, the


                                       19
<PAGE>


payment of dividends by those companies. Telefonica Argentina's day-to-day
management and operations are the responsibility of Telefonica, as the operator
under the Management Contract, as defined below. Affiliates of Telefonica are
also involved in other investments and operations in the Argentine
communications and media sector, some of which may involve or impact us,
Cointel, Telefonica Argentina, Atco, ACISA or their respective subsidiaries.

     The interest of Telefonica and TISA as our equity investors may conflict
with the interests of the holders of our notes or shares. Moreover, TISA has
made substantial extensions of credit to us and is our, Telefonica Argentina's
and Cointel's largest creditor. As of December 31, 2004, we owed approximately
U.S.$636 million in short-term debt to TISA. As of December 31, 2004, Cointel
owed approximately U.S.$688 million in consolidated short-term intercompany
loans with TISA. TISA's interests as our creditor and the creditor of Cointel
may conflict with the interests of the holders of our notes. All of the
intercompany loans made to us, Telefonica Argentina and Cointel are short-term
in nature, and as a result, must be paid in full prior to the time we are
required to make scheduled payments on our long-term third-party debt
obligations.

     Conflicts of interest among us, Telefonica, TISA, Cointel, Telefonica
Argentina, Atco and ACISA, and other affiliates of Telefonica Argentina may
therefore arise in connection with the negotiation and performance of duties
including those under the Telefonica Argentina Management Contract and the
Telefonica Holding Advisory Agreement, as well as in connection with other
business activities. Telefonica, through affiliates, also has other joint and
separate investments in the communications and media sector in Argentina,
including in mobile cellular services and personal communications services
("PCS"), following the spin-offs of Telefonica Argentina's wireless services
business and data transmission business, that are controlled by Telefonica
Moviles and Telefonica DataCorp, each a controlled subsidiary of Telefonica that
is independent of us, Cointel, Telefonica Argentina, Atco and ACISA. In some
circumstances, our interests and those of our subsidiaries may not be aligned
with and may perhaps be adverse to the interests of Telefonica or to its
affiliates. We cannot assure you that Telefonica or its affiliates will not
limit or cause us and our subsidiaries, and their subsidiaries, including
Telefonica Argentina, to forego business opportunities that other Telefonica
affiliates may pursue, or that the pursuit of opportunities by other affiliates
will be in our interest.

     Additionally, Telefonica may exercise its control over the payment of
dividends by us, Cointel, Telefonica Argentina, Atco and ACISA (subject to the
requirements of Argentine law) to determine the amount or frequency of dividend
payments in order to allocate capital, fund expenditures or distributions by us,
Cointel, Telefonica Argentina, Atco, ACISA and other Telefonica affiliates or
for other purposes.

     Aside from requirements of Argentine law which establishes that dividends
must be paid out of net earned liquid profits arising from approved financial
statements, there are currently no contractual restrictions on our, Cointel's
and Telefonica Argentina's ability to pay dividends. Under Argentine law we,
Cointel and Telefonica Argentina will be able to resume paying dividends when we
each have new accumulated gains and to the extent we have not consumed our legal
reserve to absorb accumulated losses. Telefonica and its subsidiaries, through
us, may exercise its control over Cointel's and Telefonica Argentina's 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 or for other purposes. As a result, Telefonica, through us, has
the legal right and voting power to cause us, Cointel and Telefonica Argentina
to pay cash dividends to its shareholders in amounts and at times that may not
be in the best interests of Telefonica Argentina's, Cointel's and our creditors.

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

   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.

     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


                                       20
<PAGE>


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. See Note 11 to the Holding Annual Financial
Statements.

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

     Our only significant source of cash revenues has been the cash dividends
paid to us by Cointel and the income under the Telefonica Holding Advisory
Agreement. Cointel paid to us cash and in kind dividends totaling Ps.1,452
million (in pesos restated for inflation until February 28, 2003) from January
1, 1994 through December 31, 2001. We did not receive any dividends during the
fiscal years ended December 31, 2004, 2003 and 2002. Atco and ACISA have never
paid dividends to us and we do not expect any in the near future. Cointel's
ability to pay dividends, while also meeting its debt service requirements,
similarly depends principally on Telefonica Argentina's payment of dividends to
its shareholders (including Cointel). The ability of Telefonica Argentina and
Cointel to pay dividends will also depend on applicable laws and, under certain
circumstances, restrictions contained in applicable agreements or debt
instruments. Under Argentine law, dividends can only be paid out of liquid and
realized profits reflected in annual audited and approved financial statements.
In addition, pursuant to the Companies Law, dividends cannot be paid until
losses from prior fiscal years have been absorbed. The declaration and payment
of dividends by companies require the affirmative vote of a majority of their
respective directors and of their shareholders represented at a shareholders
meeting.

     The effect of the devaluation of the peso and the pesification and freezing
of Telefonica Argentina's tariffs has eliminated our, Cointel's and Telefonica
Argentina's unappropriated retained earnings and and caused us, Cointel and
Telefonica Argentina to carry accumulated losses. As of December 31, 2004, such
losses exceeded our, Cointel's and Telefonica Argentina's reserves, including
the reserves for future dividends out of which cash dividends are distributed.
Under Argentine law, we, Telefonica Argentina and Cointel are unable to
distribute dividends until the unappropriated losses are absorbed and we,
Cointel and Telefonica Argentina restore our respective reserves with new gains
to a level equal to the percentage of share capital prior to such losses.
Neither of us can make dividend payments in 2005 based on our respective
financial statements ending December 31, 2004.

     Apart from these restrictions under Argentine law, there are currently no
contractual restrictions on our respective abilities to pay dividends. However,
at this time, it is impossible to predict when, or if, we, Cointel or Telefonica
Argentina will have enough gains after unappropriated or accumulated losses are
absorbed to enable us to resume paying dividends.

Risk Factors Related to the Telecommunication Business

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

     In January 2002, tariffs for basic telephone services and long-distance
services, which Telefonica Argentina charges its customers, were converted to
pesos from U.S. dollars and fixed at an exchange rate of Ps.1.00 per U.S.$1.00.
Telefonica Argentina's 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. Telefonica Argentina is currently, and has been since
2002, in the process of renegotiating its tariffs with the Argentine government
regarding the rates Telefonica Argentina 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,


                                       21
<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 Telefonica Argentina's 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, Telefonica Argentina has submitted both an interim
request for a tariff increase and a comprehensive proposal regarding Telefonica
Argentina's 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. Telefonica Argentina has requested the
interim adjustment of its tariffs, but no decision has been reached on such
issue. We cannot assure you that Telefonica Argentina will obtain the temporary
adjustment of its tariffs, or even if Telefonica Argentina 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


                                       22
<PAGE>


provisions do 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, Telefonica Argentina,
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
Telefonica Argentina's rights to renegotiate its 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 Telefonica Argentina's 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. Telefonica Argentina's
management believes that the application of the issues mentioned in
sub-paragraphs 1, 2 and 3 will not have a significant impact on its, and
therefore on our, results.

     Moreover, we have stated in Notes 2.5.b, and 4.a to the Holding Annual
Financial Statements that the relationship between variables determining
revenues and expenses is currently mismatched as a result of the pesification
and freezing of Telefonica Argentina's tariffs in the context of a potentially
inflationary economy and may continue to be mismatched depending upon the
outcome of Telefonica Argentina's pending tariff renegotiation with the
Argentine government. Its tariff renegotiation proposal 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.

     Recent fluctuations in the main macroeconomic variables, such as GDP
growth, the exchange rate and the inflation rates have shown positive signs
compared to 2002. 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 its operations. We
cannot predict what effect these developments and measures may have, or what
effect any future developments will have, on the value of Telefonica Argentina's
assets or Telefonica Argentina's economic and financial equation and,
consequently, on Cointel's and our economic and financial condition.


                                       23
<PAGE>


   Telefonica Argentina is subject to tariff regulation and Telefonica
   Argentina could be subject to further adverse regulatory decisions.

     Telefonica Argentina is currently and will continue to be subject to tariff
regulation in areas of service where "effective competition" does not exist.
Pursuant to Telefonica Argentina's license to provide telephone services,
Telefonica Argentina had to decrease its rates by 4% (in constant U.S. dollar
terms) annually between 1997 and 1999. In connection with this tariff reduction,
Telefonica Argentina 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 Telefonica Argentina 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. Telefonica Argentina does 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 its 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
Telefonica Argentina 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 Telefonica
Argentina's telecommunications business. Neither Telefonica Argentina nor are 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 Telefonica Argentina's business, financial condition or
results of operations and on us.

   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 Telefonica Argentina is 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
Telefonica Argentina 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 Telefonica Argentina), have also become direct and indirect competitors
to the extent those services may be substitutes for wireline telephony.

     Since the liberalization of access to Telefonica Argentina's market,
competition has affected Telefonica Argentina's results of operations as it has
lost customers of long-distance service to Telecom Argentina and other smaller
competitors and has had to increase its efforts in order to retain existing
customers, to win back the customers it lost and to acquire new customers.
Telefonica Argentina 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 Telefonica Argentina to predict with
meaningful precision and accuracy its future market share in relevant geographic
areas and customer segments, the speed with which changes in its market share or


                                       24
<PAGE>


prevailing prices for services may occur, or the effects of competition. Those
effects could be material and adverse to our and Telefonica Argentina's overall
results of operations and financial condition.

   Telefonica Argentina's revenues have been in the past, and may again be in
   the future, adversely affected by a decrease in the number of its customers
   and usage of its services.

     Telefonica Argentina's revenues depend on its 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, Telefonica Argentina's 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
its services had a consequent reduction in Telefonica Argentina's revenues and
cash inflows. During 2004, Telefonica Argentina experienced partial recovery
with increases in its lines in service, ADSL lines and in usage of its telephone
services. Despite this improvement, we cannot assure you that this pace can be
sustained in the future or that future reductions in demand for Telefonica
Argentina's services will not take place, which would negatively affect its cash
flow and revenues.

   Telefonica Argentina's license is revocable under certain circumstances,
   and the revocation of the license would have a material and adverse effect
   on us, Cointel and Telefonica Argentina.

     Telefonica Argentina is subject to a complex series of laws and regulations
with respect to the telecommunications services it provides. Telefonica
Argentina provides telecommunications services pursuant to a license that is
subject to regulation by various regulatory bodies. Its dissolution and the
declaration of bankruptcy are events that may lead to a revocation of its
license under the List of Conditions. Its dissolution will occur if its
shareholders' equity according to Argentine GAAP becomes negative for any future
fiscal year end and the shareholders do not recapitalize. In addition, its
license is revocable if Cointel ceases to own at least 51% of its common stock
represented in Class A Shares without regulatory approval.

     If any of these events occurs and Telefonica Argentina loses its license,
Telefonica Argentina might not be able to continue providing telecommunications
services, which would have a material adverse effect on its results of
operations.

   Technological advances and replacement of equipment may require Telefonica
   Argentina to make significant expenditures to maintain and improve the
   competitiveness of the services it offers.

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

   Telefonica Argentina has a significant number of legal claims against it
   regarding obligations of its state-owned predecessor, Empresa Nacional de
   Telecomunicaciones ("ENTeL"); if it 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 Telefonica
Argentina based upon ENTel's alleged contractual and statutory obligations to
former ENTel employees (including accrued interest and legal expenses)


                                       25
<PAGE>


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 Telefonica
Argentina with respect to such claims. Also, the Argentine government has
assumed joint and several liability with ENTel for such indemnity obligations
and has authorized Telefonica Argentina to debit an account of the Argentine
government at Banco Nacion for any related amount payable by it with respect to
such indemnification. Telefonica Argentina believes that the Argentine
government's indemnification obligations should protect it from any material
economic consequences of the employees' claims. Under Debt Consolidation Law No.
23,982, ENTel and the Argentine government may discharge their indemnity
obligations through the issuance of debt instruments such as negotiable 16-year
bearer bonds. Telefonica Argentina has not created any reserve for such claims.

     As of December 31, 2004, Telefonica Argentina had paid Ps.6.9 million in
cash for a number of claims. Telefonica Argentina filed a claim against ENTel on
December 16, 1999 seeking indemnification and reimbursement in connection with
these payments in satisfaction of the labor claims. Its case has been argued in
court; however, no ruling has been issued. If Telefonica Argentina loses a
material portion of the current claims and the Argentine government fails to
reimburse Telefonica Argentina timely and sufficiently for the claims our and
Telefonica Argentina's results of operations may be adversely affected.

   Telefonica Argentina employs a largely unionized labor force and could be
   subject to an organized labor action.

     As of December 31, 2004, approximately 77% of Telefonica Argentina's
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 of their salaries lost 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 Telefonica Argentina's
National Switching Boards, although service was not discontinued and operations
were not materially affected. After the negotiations, Telefonica Argentina, 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%, that become 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 Telefonica
Argentina's 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 Telefonica Argentina's ability to maintain ordinary
service levels or otherwise operate its business in the manner that customers
expect. In such circumstances, Telefonica Argentina could face an immediate
reduction of revenues and possible damage to its reputation, with potential
adverse effect on its revenues in the long term.

   The Argentine government has ordered salary increases to employees in the
   private sector, which have increased Telefonica Argentina's expenses and
   adversely affected its, and therefore 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 Telefonica Argentina. Telefonica Argentina was required to
increase the salaries of unionized employees by an average of Ps.100 per
employee in 2002 and up to an additional of 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 Telefonica Argentina will be
permitted by regulation to


                                       26
<PAGE>


conclude that Telefonica Argentina has already granted this required salary
increase through the privately negotiated salary increase Telefonica Argentina
agreed to give its 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 Telefonica Argentina's expense and cost
structure on its results.

   A substantial portion of Telefonica Argentina's assets may be immune from
   attachment by creditors, preventing creditors from obtaining the amount
   represented by a judgment against Telefonica Argentina .

     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 Telefonica Argentina's assets may be considered to be dedicated to the
provision of essential public services. If an Argentine court were to make such
a determination with respect to certain of its assets, those assets would not be
subject to attachment or other legal process, possibly limiting the ability of
Telefonica Argentina's creditors to obtain a judgment against its assets.


                                       27
<PAGE>


ITEM 4. INFORMATION ON THE COMPANY

Introduction

     We are a holding company primarily engaged through our companies in the
Telecommunication Business and the Media Business in Argentina. We control
Cointel and Telefonica Argentina jointly with TISA and Telefonica Internacional
Holding BV (together with us, the "TISA Group"). Additionally, we own interests
in Atco and ACISA as passive investments, along with other partners that are
affiliates of Telefonica.

A.   Our History and Development

     We were incorporated in Argentina as a sociedad anonima on March 5, 1976,
under the name SAFEX Sociedad Anonima, and were registered on October 25, 1976
in the Public Registry of Commerce for a period of 99 years. We changed our name
to Citicorp Venture Capital S.A. and later to Citicorp Equity Investments S.A.
and CEI Citicorp Holdings Sociedad Anonima. We adopted our current name,
Telefonica Holding de Argentina S.A., pursuant to a resolution of a
shareholders' meeting held on January 18, 2001, and the name change became
effective on April 18, 2001.

     Cointel was organized in Argentina as a sociedad anonima on October 1,
1990, for a period of 99 years, registered under the name Compania de
Inversiones en Telecomunicaciones S.A., by a consortium of Argentine and
international investors to acquire a controlling interest in the capital stock
of Telefonica Argentina as a first step in Argentina's privatization of its wire
line public telecommunications services and basic telephone services. Cointel
adopted its current name, Compania Internacional de Telecomunicaciones S.A.,
pursuant to a resolution of an extraordinary and ordinary shareholder's meeting
held on March 31, 1997.

     Telefonica Argentina was organized in Argentina as a sociedad anonima on
April 23, 1990, under the name Sociedad Licenciataria Sur S.A. for a term of 99
years. Its present name was registered on December 3, 1990.

     Our principal executive and registered office is located at Avenida
Ingeniero Huergo 723 (C1107AOH) Ciudad Autonoma de Buenos Aires, Argentina, and
our telephone number is (54-11) 4332-2066, e-mail: invest@telefonica.com.ar,
www.telefonica.com.ar.

     Stock Exchange Agreement Transactions

     On December 31, 1999, our then shareholders and Telefonica had entered into
a Framework Agreement contemplating the sale of up to all of our common shares
to Telefonica, subject to the execution of the final documentation.

     On April 11, 2000, several affiliates of Hicks, Muse, Tate & Furst,
Incorporated ("Hicks Muse"), including HMTF-Argentine Media Investments Ltd.
("HMTF"), Republica Holdings Ltd. ("Republica Holdings") and International
Investments Union Ltd. ("IIU" and together with HMTF, Republica Holdings and
such other affiliates, the "HMTF Affiliates") and International Equity
Investments, Inc., a subsidiary of Citibank, N.A. ("IEI" and, together with the
HMTF Affiliates, the "Participating Shareholders") entered into a Stock Exchange
Agreement (the "Stock Exchange Agreement") and certain related agreements with
Telefonica, a company organized under the laws of the Kingdom of Spain, relating
to the sale of up to all of our ordinary shares to Telefonica. The Participating
Shareholders owned as of April 11, 2000 approximately 91% of our capital stock.
HMTF, Republica Holdings and IIU transferred to AMI TESA Holdings, Ltd. ("ATH"),
an exempt limited company organized and existing under the laws of the Cayman
Islands and an affiliate of Hicks Muse, Class A ordinary shares of our ("Class A
Shares") and Class B ordinary shares of our ("Class B Shares") representing
approximately 67.7% of our capital stock and approximately 69.3% of our voting
power. IEI at the time controlled approximately 23.0% of our capital stock, and
approximately 23.2% of our voting power.

     Prior to the date of transfer of our shares from ATH and IEI to Telefonica
pursuant to the Stock Exchange Agreement on December 15, 2000 (the "Closing
Date") and as required under the Stock Exchange Agreement, ACH Acquisition Co.
("ACH"), an affiliate of ATH conducted a cash tender offer (the "Offer") to
purchase up to all of the outstanding Class B Shares not held by ATH or IEI, and
Class B Shares representing approximately 9.28% of our capital stock accepted
the Offer, with the tendered shares being transferred to ACH on December 14,
2000.


                                       28
<PAGE>


     On the Closing Date, ATH and IEI contributed to Telefonica shares of
Holding held or controlled by ATH and IEI representing 80.9% of our capital
stock, collectively representing 84.7% of our total voting shares, including
100% of the Class A Shares. The consideration paid to ATH and IEI for such
contribution was 88,944,644 ordinary shares issued by Telefonica, such amount
established on the Closing Date based on a valuation formula set forth in the
Stock Exchange Agreement. On June 29, 2001, Telefonica informed us that on May
8, 2001, it transferred to TISA, a wholly owned subsidiary of Telefonica, all of
Telefonica's 80.9% equity interest on us. Additionally, as a result of several
transactions described in Item 7: "Major Shareholders and Related Party
Transactions--Voluntary Capital Reduction", TISA's equity interest in us,
increased from 80.9% to 99.96%. Pursuant to the Stock Exchange Agreement of
Telefonica, as amended and the transactions contemplated thereby, we also
participated in the following transactions:

     (i)  On December 15, 2000, SHOSA redeemed the irrevocable capital
          contributions in it made by us, including: (a) SHOSA's 26.8% ownership
          interest in Atco, (b) SHOSA's 26.8% ownership interest in ACISA, (c)
          SHOSA's 20% ownership interest in TyC, (d) SHOSA's 60% ownership
          interest in South Cable, including irrevocable capital contributions
          and (e) Ps.97.4 million in cash.

     (ii) On December 15, 2000, we transferred to ACH our ownership interest in
          SHOSA, the then current principal asset of which was its ownership
          interest in Cablevision, representing 35.86% of the capital stock of
          such company. The SHOSA purchase price was U.S.$395.3 million in the
          form of a promissory note signed by ACH (the "ACH Promissory Note").

     (iii) On December 15, 2000, we sold to ACH our 100% ownership interest in
          South Cable for U.S.$123.8 million in cash. The principal assets of
          South Cable were the senior and subordinated loans to Cablevision
          extended in December 1998, and maturing in January 2003, which we and
          SHOSA earlier had contributed to South Cable.

     (iv) On December 15, 2000, we entered into an agreement with AMI Cable
          Holdings Ltd., a limited partnership organized and existing under the
          laws of the Cayman Islands ("AMICH"), under which we transferred to
          AMICH: (a) our 100% ownership interest in Forestal Nortena, (b) the
          right to collect from the Clarin Group shareholders and Clarin Group
          the balance of U.S.$18.6 million plus related interest, derived from
          the disposition of our indirect ownership interests in Compania de
          Inversiones en Cable S.A. ("Coinca") and Invercab S.A. in September
          1997, (c) the rights and obligations under the agreement between IATE
          S.A. ("IATE"), us and other parties and (d) other minor receivables.
          The total transfer price was U.S.$39.1 million in cash.

     (v)  In December 2000, we entered into an option contract to sell to ACH
          Holding's ownership interest in TyC for an effective sale price of
          U.S.$80.0 million. The option was exercised in May 2001, whereupon we
          transferred to ACH our ownership interest in TyC and assigned to ACH
          Holding's rights and obligations under the TyC shareholders'
          agreement.

     (vi) We paid off all of the financial liabilities other than certain
          obligations assumed by Telefonica under the Stock Exchange Agreement
          and the outstanding 1997 Indenture Notes. The most significant
          liabilities that have been satisfied include: (i) the indebtedness
          under the U.S.$169.2 million Term Loan Agreement dated November 4,
          1999 (the "Company Term Loan"), (ii) the indebtedness under the
          U.S.$30 million SHOSA Term Loan Agreement dated November 4, 1999 (the
          "SHOSA Term Loan") assumed by us and (iii) the outstanding
          indebtedness under the U.S.$70.8 million Financial Trust Notes
          guaranteed by us (the "Financial Trust Notes" and, together with us
          Term Loan and the SHOSA Term Loan, the "1999 Term Loan Agreements"),
          (iv) a loan agreement with Chase for U.S.$40 million, dated November
          28, 2000, which was used to repay the Class C Notes issued under a
          U.S.$400 million note program, and (v) the repayment of certain
          derivative contracts.

     (vii) The Participating Shareholders requested that our board of directors
          call a special shareholders' meeting to propose the delisting of our
          shares from the Buenos Aires Stock Exchange.

     (viii) We called a meeting of holders of Series A Notes, Series B Notes and
          Series C Notes (collectively the "Notes") to obtain an authorization
          to perform a voluntary capital reduction. See "--Voluntary Capital


                                       29
<PAGE>


          Reduction". On August 17, 2000, the holders of the Notes granted such
          authorization on condition that a majority of holders of each of such
          series authorized any such capital reduction and the indenture under
          which such series of Notes were issued be amended to provide that,
          upon a transfer of our shares to Telefonica, a "change of control"
          under such indenture be deemed to have occurred, obligating us to
          repurchase such Notes at a price equal to 101% of the principal amount
          thereof plus accrued and unpaid interest to the repurchase date. Upon
          the transfer of our shares to Telefonica on December 15, 2000, we
          granted to the note holders the right to request us to repurchase
          their Notes. We offered to repurchase the Notes at the above mentioned
          purchase price.

     Additionally, on October 12, 2001, our board of directors decided to make a
tender offer of the Series A and B Notes. As a consequence of the repurchases,
we had redeemed approximately 97% of such negotiable obligations for a face
value of Ps.485.5 million (historical amounts).

     Significant Changes in Ownership

     The following table sets forth certain information regarding ownership of
our outstanding capital stock as of December 31, 2004:

<TABLE>
                                    Class A
                                    Ordinary      Class B
                                     Shares      Ordinary
                                     (five        Shares        Total         % of
           Shareholder               votes)     (one vote)      Shares       Capital       Votes     % of Votes
----------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>           <C>             <C>       <C>           <C>
TISA..........................     30,427,328   374,128,147   404,555,475     99.957037 526,264,787   99.966970
Other minority shareholders...             --       173,885       173,885      0.042963     173,885    0.033030
                                 --------------------------------------------------------------------------------
   Total......................     30,427,328   374,302,032   404,729,360(1)     100.00 526,438,672      100.00
                                 ================================================================================
</TABLE>
----------
(1)  Not including 2,000,000 shares to be issued pending approval by the CNV and
     the Buenos Aires Stock Exchange.

     IEI had granted to the Republica Group an option, exercisable until January
31, 2003, to buy our shares representing 5.99% of capital stock (the "Option
Shares"). The purchase price was U.S.$4.40 per share plus an increase of 6% per
annum from the closing date of the sale from IEI to HMTF until the exercise
date. Republica Holdings and IIU assigned the option mentioned above to AMI LP,
which exercised such option subject to timely payment and the consummation of
the Stock Exchange Agreement, which occurred on December 15, 2000. In addition,
the parties to such option agreed that the option would apply to shares of ATH
and AMICH that IEI received in exchange for the Option Shares.

     Our current ownership reflects substantial consummation of the transactions
contemplated by the Stock Exchange Agreement, including a change of control of
us from the participating shareholders to Telefonica. On December 15, 2000,
pursuant to the Stock Exchange Agreement, ATH and IEI transferred to Telefonica
80.9% of our capital stock, representing 84.7% of our total votes, in exchange
for Telefonica common shares issued by Telefonica. Pursuant to the Stock
Exchange Agreement, the HMTF Affiliates made the following transfers of our
shares: (i) on May 2, 2000, HMTF contributed to ATH its ownership interest in
us, which, as of that date represented 40.4% of the capital stock and 47.4% of
the voting power of us and (ii) on April 25, 2000, Republica Holdings and IIU
contributed to ATH an amount of our Class B shares which represents 27.3% of the
capital stock and 21.9% of voting power. On the same date, the shares
contributed by Republica Holdings and IIU were transferred to Citibank, pursuant
to an escrow agreement.

     On June 29, 2001, Telefonica informed us that, on May 8, 2001, it
transferred to TISA, Telefonica's wholly owned subsidiary, all of Telefonica's
80.9% equity interest in us. Additionally, as a result of several transactions
described in Item 7: "Major Shareholders and Related Party
Transactions--Voluntary Capital Reduction", TISA's equity interest in us,
increased from 80.9% to 99.96%.

     Voluntary Capital Reduction

     On January 18, 2001, our general and special shareholders' meeting approved
(subject to the authorization of the Buenos Aires Stock Exchange) a voluntary
capital stock reduction proposed by our board of directors at their meetings
held on December 15, 2000, and January 10, 2001, through the redemption of
95,270,640 Class B shares of Holding. In consideration for the number of shares
delivered, the shareholders present in the redemption received


                                       30
<PAGE>


a proportional interest in the ACH Promissory Note. The redemption technical
accounting value amounted to about U.S.$4.15 per share plus interest accrued on
the face value of the ACH Promissory Note calculated from December 15, 2000
through the day immediately preceding the beginning date of the exercise share
redemption period, December 11, 2001 (the "Cutoff Date"), divided by the maximum
number of shares to be repurchased, in this case, 95,270,640 shares.
Additionally, our special shareholders' meeting delegated to our board of
directors the calculation of the final technical accounting value per share as
of the Cutoff Date under a formula approved at such shareholders' meeting. Our
voluntary capital stock reduction was subject to the approval by the Buenos
Aires Stock Exchange, as a condition precedent, and therefore would not be
effective until such approval was obtained. On July 20, 2001, the CNV advised to
us that, in order to continue the process of the voluntary capital stock
reduction, we had to obtain a new consent from the note holders, which was
obtained on November 12, 2001.

     On November 15, 2001, our stockholders ratified the terms of the capital
stock reduction approved on January 18, 2001, with certain amendments.

     On December 6, 2001, our board of directors set the date for the redemption
technical accounting value for our shares on December 11, 2001, at U.S.$4.486
per share. The only shareholder that took part in such reduction was ACH, who
participated with all its shares, 95,270,640 Class B common shares (the
"Shares").

     On January 11, 2002, our board of directors decided to make available all
necessary mechanisms for the effective cancellation of the shares received from
ACH and on March 31, 2004 the above-mentioned voluntary capital stock reduction
was filed with the Registry of Commerce.

     Plan for Recapitalization

     As of December 31, 2004, we had accumulated losses amounting to Ps.2,267
million and negative shareholders' equity amounting to Ps.1,112 million. Due to
such situation, we were under the conditions for dissolution due to the loss of
our capital stock set forth in Item 5 of Section 94 of the Companies Law.
However, Decree No. 1,269/02 dated July 16, 2002 suspended the enforcement of
Item 5 of Section 94 of the Companies Law until December 10, 2003 and Decree
1,293/03 dated December 23, 2003 suspended it further until December 10, 2004.
Furthermore, Decree No. 540/05 dated May 30, 2005 further extended that
suspension until December 10, 2005. On December 28, 2004, the board of
directors called a special shareholders' meeting on February 15, 2005, to
resolve upon the partial capitalization of the loan held by TISA with us, for
an amount of up to approximately Ps.2,046 million.

     On February 15, 2005, the special shareholders' meeting approved the
increase of the capital stock, for an amount of up to Ps.2,046 million, ratified
the capital stock increase of Ps.2 million approved by the shareholders' meeting
of December 16, 2004 and delegated to our board of directors the setting of the
final amount and other issuance conditions of such capital stock increase. The
capital increase can be subscribed with (i) the partial capitalization of the
loan held by TISA with us, (ii) the irrevocable capital contributions of TISA
for future share subscriptions of Ps.2 million or (iii) cash. In this regard, in
this special shareholders' meeting, TISA expressed its intention to partially
capitalize its loan for an amount of Ps.1,785 million. As a result of this
capital stock increase, we expect that we will no longer be under the conditions
of Item 5 of Section 94 of the Companies Law and, consequently, with respect to
this matter, we will be able to continue normal operations. See Notes 8 and 10
to the Holding Annual Financial Statements.

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 Telefonica Argentina and in the Northern Region to Telecom;


                                       31
<PAGE>


     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 Telefonica Argentina and 50%-owned by
          Telecom); and

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

     On the Transfer Date, the Argentine government licensed Telefonica
Argentina 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 Telefonica Argentina's capital stock to Cointel.

     As of the date of this Annual Report, Cointel owns a 64.83% interest in
Telefonica Argentina. Telefonica beneficially owns 98% of the capital stock of
Telefonica Argentina. See Item 7: "Major Shareholders and Related Party
Transactions".

     On April 15, 1992, Telefonica Argentina 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, Telefonica Argentina
acquired approximately 71 switches and 118,000 telephone lines in service, added
1,000 employees to its payroll and assumed certain liabilities.

Deregulation of Argentina's Telecommunications Sector

     Telefonica Argentina's license ("License") was granted for an unlimited
period of time. Pursuant to the License, Telefonica Argentina 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, Telefonica
Argentina 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 of 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, Telefonica
Argentina and Telecom each signed license agreements with the regulatory
authorities. Telefonica Argentina's agreement is referred to in this Annual
Report as the "License Agreement".

     Deregulation also influenced the organization of Telefonica Argentina's
then existing subsidiaries and the services that Telefonica Argentina provided
directly and indirectly. Until April 1999, international services had been
provided by Telintar, a company previously owned jointly by Telefonica Argentina
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, Telefonica Argentina
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 Telefonica Argentina 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 Telefonica Argentina 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, Telefonica
Argentina and its 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 "--Telefonica
Argentina's Reorganization", Telefonica Argentina no longer provides the
cellular, PCS, international data transmission and consulting services that are
rendered by Telefonica


                                       32
<PAGE>


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 ("ADSs") of Telefonica for shares and ADSs
of its subsidiaries in Brazil, Peru and Argentina. See below "-- Telefonica
Argentina's Reorganization".

     Upon the expiration of the Argentine exchange offer, shareholders
representing approximately 44% of Telefonica Argentina's capital stock tendered
their Class B Shares and 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) of
Telefonica Argentina.

Telefonica Argentina's Reorganization

     Telefonica, which through its subsidiaries is our, Cointel's and Telefonica
Argentina's controlling shareholder, has completed a reorganization of its
global businesses along business lines. In the context of Telefonica's global
reorganization plan, Telefonica Argentina's board of directors decided on
January 30, 2001 to effect a reorganization of the businesses of Telefonica
Argentina's 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 Telefonica
Argentina's shares to its subsidiaries to effect the Reorganization
Transactions:

<TABLE>
              Recipient Subsidiary                        Capital Contribution by Telefonica
              --------------------                        ----------------------------------
<S>                                           <C>
     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)
     TISA................................     561,133,517 Class B Shares (including 45,023,478 ADSs)
</TABLE>

     In connection with the Reorganization Transactions, on January 30, 2001,
Telefonica Argentina's 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 Telefonica Argentina
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;

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

     o    Telefonica Data's 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
Telefonica Argentina by escision/fusion occurred effective February 1, 2001 as
Telinver spun off its participation in an online shopping portal and merged it
into Telefonica Argentina.


                                       33
<PAGE>


     On March 30, 2001, at an extraordinary shareholders meeting, Telefonica
Argentina's shareholders approved the Reorganization Transactions under which
Telefonica Argentina spun off:

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

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

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

     Telefonica Argentina's 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 Telefonica Argentina's 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,
Telefonica Argentina's capital stock was reduced by the same percentage of its
pre-spin-off total capital stock to equal the percentage of its 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 Telefonica Argentina's share capital, and the 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 Telefonica Argentina, adjusted for fractional shares and fractional
ADSs. As a result, 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 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.

     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


                                       34
<PAGE>


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 Telefonica
Argentina's capital stock, Cointel's percentage ownership of Telefonica
Argentina's capital stock increased to approximately 64.8% from approximately
52.9%.

     In splitting up Telefonica Argentina's business units, Telefonica Argentina
remains primarily a wire line provider of local, domestic long-distance and
international telecommunications services, as well as internet services and
directory publishing. Telefonica Argentina continues to be owned by Telefonica
indirectly through us, TISA and TIHBV, and no longer has 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

     Telecommunications Business

     We conduct the Telecommunications Business through our direct 50.0%
ownership interest in Cointel, which as majority shareholder controls Telefonica
Argentina. Telefonica Argentina is a licensed supplier of telecommunication
services in Argentina and the largest communications company in Argentina based
on historical net revenues. Cointel owns 64.83% of Telefonica Argentina's
capital stock. TISA and Telefonica Internacional Holding BV ("TIHBV") own the
remaining 50.0% of Cointel.

     The only significant income we currently receive is due to the Telefonica
Holding Advisory Agreement. Fees under such agreement with TESA Arg. (net of
turnover tax) amounted to Ps.33 million for the fiscal year ended December 31,
2004.

     Until 1999, Telefonica Argentina 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, Telefonica Argentina is expanding its operations outside the
Southern Region into the Northern Region. Currently, its license permits
Telefonica Argentina 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, Telefonica Argentina's telephone system had
approximately 4.3 million lines in service, or approximately 25.1 lines in
service per 100 inhabitants of the Southern Region. Telefonica Argentina's
consolidated assets were approximately Ps.7,524 million and its consolidated net
sales revenues were approximately Ps.3,047 million for the fiscal year ended
December 31, 2004. Based on historical net revenues, Telefonica Argentina is one
of the largest companies in Argentina. See below "--Revenues".

     Telefonica Argentina's 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 Telefonica Argentina domestic
telephone system as of the dates indicated:

<TABLE>
                                                         December 31,                             September 30,
                                   ---------------------------------------------------------------------------------
                                        2004          2003          2002          2001          2001          2000
                                   ---------------------------------------------------------------------------------
<S>             <C>                 <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
</TABLE>


                                       35
<PAGE>


<TABLE>
                                                         December 31,                             September 30,
                                   ---------------------------------------------------------------------------------
                                        2004          2003          2002          2001          2001          2000
                                   ---------------------------------------------------------------------------------
<S>             <C>                 <C>           <C>           <C>           <C>           <C>           <C>
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%          100%
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.

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

     The services that Telefonica Argentina provides are generally subject to
regulation. The relevant governmental regulatory authorities include the
National Communications Commission (the "CNC"), 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 the telecommunications and telephone
services in Argentina. This Annual Report sometimes refers to either of the
National Communications Commission or the Secretary of Communications as the
"Telecommunications Regulatory Authority". See below "--Regulatory Matters".

     On April 10, 2002, Telefonica Argentina's ordinary and extraordinary
shareholders' meetings broadened its corporate purpose to enable Telefonica
Argentina 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 its corporate purpose, it was necessary for
Telefonica Argentina 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.

     Media Business

     We participate in the Media Business through (i) a 4.71% interest in Atco,
a holding company with direct and indirect interests in open-air broadcast
television stations and in radio stations and (ii) a 26.82% interest in ACISA, a
holding company which until July 4, 2002, had an indirect interest in broadcast
television companies. We consider our interests in Atco and ACISA to be passive
investments.

Atco

     In March 1998, we acquired (through Southtel Equity Corporation
("Southtel")) 30.0% of Atco's capital stock. The total price of the acquisition
amounted to Ps.214 million (in pesos restated for inflation until February 28,
2003). As a consequence of certain transactions, such ownership interest
decreased from 30% to 26.8%. On December 15, 2000, SHOSA reimbursed irrevocable
capital contributions to us, through the delivery of its ownership interest in
Atco, which was valued at Ps.255 million (in pesos restated for inflation until
February 28, 2003), related to the book value of such ownership interest as of
September 30, 2000.

     On April 19, 2000, the Comision Nacional de Defensa de la Competencia (the
National Commission for the Defense of Competition or "CNDC") approved the
consummation of the transactions described in the Atco Sale Agreement (an
agreement to sell our interest ownership in Atco to Telefonica de Contenidos
S.A. ("Telefonica Contenidos")), the Atco Option Agreement (the option of TyC to
make a capital contribution to Atco), and the ACISA Sale Agreement (the option
of TyC to make a capital contribution to ACISA). The CNDC resolution approving
the transactions mandated that Telefonica Contenidos (formerly Telefonica Media)
transfer to third parties within a term of eighteen months, either Channel 8 or
Channel 10, which are open-air television broadcasters


                                       36
<PAGE>


located in the city of Mar del Plata. At present, Channel 8 is indirectly
controlled by Atco, and ACISA owns a 50.0% interest in the company that controls
Channel 10. In accordance with Broadcasting Law No. 22,285 and the complementary
rules, a company cannot hold two broadcasting licenses in the same area, such
area as defined by the Comite Federal de Radiodifusion (the Broadcasting Federal
Commission, or "COMFER"), at the time such licenses are granted. COMFER has
issued a release stating that a company cannot own, directly or indirectly,
shares of two different licensed companies in the same area.

     On July 4, 2002, ACISA sold its ownership interest in Prime, the ACISA
media business of Telearte and Compania de Television del Atlantico S.A., to the
HFS media Group for U.S.$12 million. Consequently, Telefonica Contenidos is in
compliance with the Broadcasting Law and the COMFER release. In addition and in
accordance with this law, it gave up Channel 10 of Mar del Plata. On the basis
of financial information furnished by ACISA as of December 31, 2004, such
transaction did not modify our recoverable value of the investment in ACISA.

     Atco owns companies that own 100% of the capital stock of Television
Federal S.A.("Telefe"), the owner of the license and operator of Channel 11 of
Buenos Aires ("Channel 11"), the leading Argentine open-air television
broadcaster, and certain other television broadcasters in the interior of the
country.

     On December 27, 2004, the extraordinary shareholders' meeting of Atco
approved an increase to its capital stock and consequently, as of December 31,
2004, our ownership interest decreased from 26.8% to 4.71% due to our decision
not to participate in the capital increase. Other Telefonica subsidiaries
control the remaining 95.29%. The capital stock increase is pending registration
at the Registro Publico de Comercio.

ACISA

     In December 1998, SHOSA acquired its ownership interest in ACISA. On
December 15, 2000, SHOSA reimbursed us for irrevocable capital contributions
that we made, through the delivery of its ownership interest in ACISA, which was
valued at Ps.7,950 (in pesos restated for inflation until February 28, 2003)
related to the book value of such ownership interest as of September 30, 2000.
As of June 30, 2002, ACISA held indirect equity interest in licensed broadcast
television companies in Buenos Aires and other cities of the interior of
Argentina through Prime Argentina S.A. ("Prime"). As of December 31, 2004, our
ownership interest in ACISA amounted to 26.8% and other Telefonica subsidiaries
controlled the remaining 73.2%.

     Prime, a joint venture formed between ACISA and Prime Television Limited of
Australia, had a 99.99% ownership interest in Telearte, the owner of the license
and operator of Channel 9 of Buenos Aires ("Channel 9"), as well as interests in
television programming and distribution businesses and three television
broadcasting affiliates of Channel 9 based in the cities of Mar del Plata,
Parana and Resistencia (the "Prime Affiliates").

     On April 19, 2000, the CNDC approved the consummation of the transactions
described in the ACISA Sale Agreement. The CNDC resolution approving the
transactions mandated Telefonica Contenidos (formerly Telefonica Media) to
transfer to third parties within a term of eighteen months from the date of
notice of the acquisition of the shares, either Channel 8 or Channel 10, which
are open-air television broadcasters located in the city of Mar del Plata. On
July 4, 2002, ACISA sold its ownership interest in Prime to the HFS Media Group
for U.S.$12 million. Moreover, Telefonica Contenidos complied with the CNDC
resolution mentioned above. Consequently, Telefonica Contenidos no longer has an
indirect ownership interest in the licensed broadcast television companies
through ACISA as from the above-mentioned date. On the basis of the financial
information furnished by ACISA as of December 31, 2004, our equity interest in
it was negative. Consequently, we valued it by the equity method up to the limit
of the committed contributions and because of such investment in ACISA is nil.

Vigil and Temarsa

     On October 24, 2002, we acquired one common share of Vigil Corp S.A.
("Vigil") with nominal value of Ps.1, for an amount of Ps.1. Additionally, on
the same date, we acquired one common share of Telefonica Media Argentina S.A.
("Temarsa") with nominal value of Ps.1, for an amount of Ps.1. These
acquisitions represent less than 1% of the capital stock of such companies. See
Note 2.5.b to the Holding Annual Financial Statements.


                                       37
<PAGE>


     The final merger agreement between Temarsa, Vigil and Ambit S.A. was
executed on December 11, 2003. Under this agreement, Vigil and Ambit S.A. were
to be dissolved without liquidation and merged into Temarsa. As a result of the
merger, Temarsa's capital stock would have increased by $93,623,004 by the
issuance of 93,623,004 common, registered, non-endorsable shares of Ps.1 nominal
value each and entitled to one vote per share. Such shares were to be exchanged
for those held by the shareholders of the two taken-over companies at the
following ratio: for each share of Vigil, each shareholder would have received
0.00024 shares of Temarsa and for each share of Ambit S.A. each shareholder
would have received 0.58 shares of Temarsa. The Inspeccion General de Justicia
(the Argentine agency that regulates corporations, the "IGJ") did not approve
the merger, and Ambit, Vigil and Temarsa filed a judicial appeal against such
decision. As of the date of this Annual Report, the appeal was pending.

Business Strategy

     Telefonica Argentina's short-term strategy has been to continuously adapt
its business plans to address the challenges and risks presented by the
Argentine economic crisis. Therefore, its short-term strategy focuses on the
renegotiation of its 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, Telefonica Argentina
has 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 its usual supplies and the cost of technology-related investments
usually required by the business that it develops, and the situation affecting
service rates as described in "--Regulatory Matters--Rates". Some of these
measures include:

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

     o    Operating costs reduction: Telefonica Argentina renegotiated most of
          its supply contracts. The goals of these renegotiations were to (1)
          reduce costs, (2) reduce, when possible, its exposure to inflation and
          devaluation, (3) adjust its 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: Telefonica Argentina has implemented new
          collection policies for collecting receivables, including
          disconnection policies tailored to each customer segment, among other
          initiatives.

     o    Customer segmentation: Telefonica Argentina enhanced the relationship
          with its customers by developing segmentation and different plans to
          attend to different customers' needs, principally involving broadband
          services.

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

     Although Telefonica Argentina has adopted these measures to mitigate the
effects of changes in its business, and although certain indicators of the
Argentine economy are currently showings favorable signs, its 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 its economic and financial equation. See Item
3: "Key Information" and "--Regulatory Matters--Rates".

     During 2004 Telefonica Argentina implemented the following policies and
measures based on:

     o    Revenues: Telefonica Argentina concentrated on developing and
          promoting certain products that Telefonica Argentina considers to have
          strategic importance. Telefonica Argentina principally focused on
          broadband services (its ADSL lines increased 172% to 188,840) and
          value added services.


                                       38
<PAGE>


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

     o    Debt Strategy: Telefonica Argentina decreased its total debt by
          Ps.1,397 million, partially with self-generated cash. Telefonica
          Argentina took actions to decrease its foreign exchange risk mainly
          due to U.S. dollar variations against the peso. Pursuant to this goal,
          Telefonica Argentina refinanced and repaid part of its 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 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 Telefonica
Argentina focused on its 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.

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

     In the long term, Telefonica Argentina intends to continue to solidify its
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. Telefonica Argentina also intends to continue to invest
substantial resources and efforts into training and personnel development in
order to offer better services to its clients, and incentive programs to reduce
costs and improve efficiency.

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

Revenues

     Our principal source of funds derives from fees under the Telefonica
Holding Advisory Agreement. See Item 7: "Major Shareholders and Related Party
Transactions--Telefonica Holding Advisory Agreement".

     Telefonica Argentina's revenues are primarily derived from:

     o    measured service;

     o    domestic long-distance service;

     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


                                       39
<PAGE>


     o    publishing telephone directories.

     The following table sets forth Telefonica Argentina's 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,
Telefonica Argentina may apply discounts with respect to these rates. These
amounts do not include value-added taxes.

<TABLE>
                                             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/U.S.$1(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 Telefonica Argentina's 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 Telefonica Argentina's 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.

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

     Telefonica Argentina formerly provided value-added telecommunications
services through Telefonica Data and Startel until such subsidiaries were spun
off. Telefonica Argentina provided PCS and cellular service through its 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 Telefonica Argentina's accounting records, certain
reports from Telefonica Argentina's billing systems and certain estimates made
by Telefonica Argentina's management. This breakdown is not included in
Telefonica Argentina's consolidated annual financial statements.


                                       40
<PAGE>


     The table below shows Telefonica Argentina's sales revenues broken down by
category of service.
<TABLE>

                                         Twelve-     Twelve-     Twelve-      Three-       Three-
                                         Month       Month       Month        Month        Month
                                         Fiscal      Fiscal      Fiscal       Fiscal      Unaudited   Twelve-Month
                                          Year        Year        Year         Year        Period      Fiscal Year
                                        December    December    December     December     December    September 30,
                                        31, 2004    31, 2003    31, 2002     31, 2001     31, 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)  Telefonica Argentina accrued its 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, Telefonica Argentina has two different billing
cycles, one is a two-month billing cycle and the other is a monthly billing
cycle. Approximately 64% of Telefonica Argentina's 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 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, Telefonica Argentina's
domestic long-distance service was provided principally through its microwave
network, using analog switching and transmission technology. Telefonica
Argentina converted its microwave network to digital switching and transmission
technology. As of December 31, 2004, Telefonica Argentina 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.

     Telefonica Argentina estimates 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.


                                       41
<PAGE>


   Monthly Basic Charges

     Telefonica Argentina bills a monthly basic charge to its 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 Telefonica Argentina's tariffs, and such tariffs are
currently being renegotiated.

     As of December 31, 2004, approximately 71% of Telefonica Argentina's
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, Telefonica Argentina 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 Telefonica Argentina.
Telefonica Data also transferred to Telefonica Argentina its 80% interest in the
Starnet network and its 80% interest in a satellite network. As of December 31,
2004, Telefonica Argentina provided services to approximately 200,000
non-corporate ISP customers and had 188,840 ADSL lines.

   Installation Charges

     Telefonica Argentina's 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 Telefonica Argentina's opinion, the
effect of the limits on installation charges on its business, financial
condition and results of operations has not by itself been material.

   Public Phones

     As of December 31, 2004, Telefonica Argentina had 117,028 public telephones
installed. Of these, 11,756 are public telephones that Telefonica Argentina
installed as of December 31, 2004 in the Northern Region and 105,272 are public
telephones which Telefonica Argentina installed as of December 31, 2004 in the
Southern Region. Telefonica Argentina charges 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. Telefonica
Argentina provides 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. Telefonica Argentina has 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

     Telefonica Argentina's 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,


                                       42
<PAGE>


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.


<TABLE>
                                  Interconnection Fee Rates
          (origination and termination--hundredths of pesos ("cents") per minute)(1)

                                        Higher        Other Areas
                                    Population and   and Original      Transport Calls
                                       Telephone        License    Originating/Terminating
        Date of Effectiveness           Density          Areas     in the Same Local Area
-------------------------------------------------------------------------------------------
<S>                                      <C>             <C>              <C>
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
</TABLE>
----------
(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

     Telefonica Argentina's revenues from its sales of international
long-distance service since October 1, 1999 have consisted of:

     o    amounts billed to its 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 Telefonica
          Argentina's network,

     o    international telex services, and

     o    international point-to-point leased circuits.

     Rates charged to Telefonica Argentina's 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
Telefonica Argentina had 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 Telefonica
Argentina now provides. Telefonica Argentina's revenues related to international
long-distance telephone service and other telecommunication services include
charges that TLDA,


                                       43
<PAGE>


Startel and Telefonica Data have paid or pay Telefonica Argentina for access to
and leasing of its network, the rendering of administrative services and charges
paid by cooperative and cellular telephone companies.

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

     Telefonica Argentina is connected to numerous worldwide submarine cable
networks. This access to the global network provides Telefonica Argentina 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, Telefonica Argentina is 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, Telefonica Argentina 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 Telefonica Argentina 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 foreign carriers for the use of facilities of Argentine
carriers (Telefonica Argentina, 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 Telefonica Argentina's 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. Telefonica Argentina collects fees from
installation and monthly charges. In addition, fees from installation are
collected only once and in case of specific installations Telefonica Argentina
collects additional one-time 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. Moreover, this service is not regulated by
Law No. 25,561.

   Telinver--Publishing of Telephone Directories

     The revenues of Telefonica Argentina's wholly owned subsidiary Telinver are
principally derived from the publishing of telephone directories. Under the
License Agreement, Telefonica Argentina has the right to edit, publish, and sell
advertisements in, as well as the obligation to distribute, telephone
directories in every local area that Telefonica Argentina serves, which is
principally comprised of the Southern Region. Telefonica Argentina conducts this
business through Telinver. Telinver also offers telephone booth advertising.


                                       44
<PAGE>


     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 Telefonica Argentina 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, Telefonica Argentina 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, Telefonica
Argentina 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, Telefonica Argentina assumed all of Telinver's debt in an amount of
U.S.$39.2 million, corresponding to Telinver's total indebtedness owed to TISA,
which expressly consented to the assumption. In addition, TISA agreed to reduce
the interest rate of that debt from LIBOR plus 9% to LIBOR plus 4.5%. In
consideration for Telefonica Argentina's assumption of the debt, Telinver
entered into two loan agreements in pesos with Telefonica Argentina in the
amounts of Ps.71.5 million and Ps.45 million, respectively.

     Subsequently, at Telinver's extraordinary shareholders' meeting on February
14, 2005, Telefonica Argentina, as the controlling shareholder of Telinver,
approved a capital stock increase equivalent to Ps.71.5 million. These shares
were given to Telefonica Argentina 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 of Telinver's debt to Telefonica Argentina in an amount 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 Telefonica Argentina's revenues include other charges to
affiliates, charges for operator-assisted long-distance calls and other minor
miscellaneous customer charges.

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

   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,


                                       45
<PAGE>


Telinver, and Telefonica Argentina as successor of certain activities of
Telinver, were to 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
Telefonica Argentina, 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 Telefonica
Argentina its 50% interest in E-Commerce Latina, as of February 1, 2001. In
addition, Telefonica Argentina 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
Telefonica Argentina.

     Other Investments

     As of December 31, 2004, Telefonica Argentina 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
Telefonica Argentina and Intelsat U.K. Ltd., the common shares held by
Telefonica Argentina in Intelsat Ltd. were pledged as collateral for the payment
of the obligations arising in relation to utilized segment capacity. Telefonica
Argentina retains its voting and dividend rights on such shares as long as
Telefonica Argentina does not incur any event of default. In October 2004, at
the shareholders' meeting of Intelsat Ltd., its shareholders decided to sell
100% of its 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 sale. Telefonica Argentina recognized the
effects of the sale of Intelsat Ltd. as of that date, which did not have a
material impact on its results of operations.

     Moreover, Telefonica Argentina 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, Telefonica Argentina liquidated its 0.15% interest in New Skies.
Telefonica Argentina accounted for the liquidation and sale of the interest in
New Skies in fiscal year 2004. It did not have a significant impact on its
results of operations.

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

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

   Collection and Termination Policies

     Telefonica Argentina's policies for past due accounts are as follows: once
an account is past due, it first makes numerous recorded and personal calls to
resolve the situation, followed by formal notifications. If that fails, it
restricts the lines to incoming calls and later completely block the lines. If
the account remains past due after 150 days, it engages a collections agency and
if the agency is unsuccessful, the line is disconnected. Its termination
policies are in compliance with applicable government regulations.

     Telefonica Argentina collects customer payments through a number of
different channels, including banks, third-party collection channels, its own
commercial offices, automatic bank debits and credit cards.

Management Contract

     On the Transfer Date, Telefonica Argentina entered into a Management
Contract (the "Management Contract") with Telefonica as the operator. Under the
Management Contract, Telefonica is responsible for managing Telefonica
Argentina's business and for providing services, expertise and know-how with
respect to Telefonica Argentina's entire range of activities. As required by the
List of Conditions, the Management Contract provides Telefonica with management
powers relating to Telefonica Argentina's 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.


                                       46
<PAGE>


   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 Telefonica Argentina's 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
Telefonica Argentina's 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 Telefonica
Argentina 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 Telefonica Argentina 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, Telefonica
Argentina entered into a Supplement to the Management Contract pursuant to which
the management fee was established at 4% of the gross margin, applicable
beginning May 1, 2003. This was confirmed at 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, Telefonica Argentina is obligated under the
Management Contract to cover the costs of personnel assigned to Telefonica
Argentina.

   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 Telefonica Argentina's license to
provide telecommunications services. As Telefonica Argentina's license was
exclusive until October 10, 1999 (see "--Competition" below). Telefonica
Argentina 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 Telefonica Argentina to implement certain management
          decisions proposed by Telefonica;

     (3)  the revocation of Telefonica Argentina's license due to any action or
          inaction of Cointel or Telefonica Argentina; or

     (4)  the development of an irreconcilable conflict with Telefonica
          Argentina regarding the management of its business.

     In the event Telefonica terminates the Management Contract for any reason
other than point (4) above, Telefonica Argentina is 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 payments for any remaining
quarters after April 30, 2003 would be reduced to 33% of the average quarterly
management fee. Telefonica may terminate the Management Contract due to the
revocation of Telefonica Argentina's 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 Telefonica
Argentina's License".


                                       47
<PAGE>


Capital Expenditures

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

     The following table sets forth Telefonica Argentina's capital expenditures.

<TABLE>
                                                                        Capital Expenditures(1)
                                             ---------------------------------------------------------------------------
                                              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    December 31,   December 31,    September 30,
                                                  2004         31, 2003       2002(2)         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(3)........................            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)  Excludes Ps.29 million (in pesos restated for inflation until February 28,
     2003) in construction in process corresponding to capitalized exchange
     differences.

(3)  "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.
Telefonica Argentina 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, Telefonica Argentina agreed, as part of its 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, Telefonica Argentina expects
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, Telefonica Argentina had been the only licensed provider of wire line
public telecommunications services and basic telephone services in the Southern
Region, where it 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 direct competitors of Telefonica Argentina. The operators
owning data transmission networks, few providers of


                                       48
<PAGE>


internet protocol (IP) telephone services, and other companies providing
wireless services (including companies spun off from Telefonica Argentina in the
Reorganization Transactions) are Telefonica Argentina's indirect competitors to
the extent those services may be substitutes for wire line 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.

     Telefonica Argentina is the incumbent operator in the Southern Region. The
liberalization of access to the telecommunications market has not yet materially
affected Telefonica Argentina's market share. Changes in technology and the
entrance of alternative operators such as data, cable and internet service
providers could subject Telefonica Argentina to significant competition and
negatively affect its 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. Telefonica Argentina's network is digital and relatively new, which
should help it maintain its competitive position going forward. While Telefonica
Argentina believes that in the foreseeable future these changes will not
materially affect the continued efficacy of already implemented technologies and
that Telefonica Argentina will be able to obtain access to appropriate
technologies on a timely basis, neither we nor Telefonica Argentina can predict
with certainty the effect of technological changes on Telefonica Argentina's
business. New services and technological advances may offer additional
opportunities to compete against Telefonica Argentina on the basis of cost,
quality or functionality. It may not be practicable or cost-effective for
Telefonica Argentina to replace or upgrade its installed technologies in
response to competitors' actions. Responding to such change may require
Telefonica Argentina to devote substantial capital to the development,
procurement or implementation of new technologies, and may be dependent upon its
ability to obtain additional financing. Although Telefonica Argentina believes
that, for the foreseeable future, existing and developing technologies will not
materially adversely affect the viability or competitiveness of its
telecommunications business, it can give no assurance as to the nature and
extent of the impact on Telefonica Argentina of technological change.

     Competition has and may continue to be affected by the business strategies
and alliances of Telefonica Argentina's 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
Telefonica Argentina and its competitors differently, not necessarily to our or
its 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 CTI, Telmex Argentina (formerly known as AT&T Latin
America, Argentine branch), Techtel and Metrored (in some case, through America
Moviles).


                                       49
<PAGE>


   Basic Telephone Services

     Telefonica Argentina is 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 Telefonica, S.A., our indirect
parent, acquired the wireless communications assets of BellSouth in Latin
America from BellSouth Corporation, including Movicom BellSouth. See "--Indirect
Competitors".

     Telefonica Argentina is now using its 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. Telefonica Argentina has expanded and
improved its 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, Telefonica
Argentina 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. Telefonica Argentina uses supplemental leasing of circuits from
other providers to increase its ability to offer long-distance service in the
Northern Region.

   Domestic Long-Distance Service

     Telefonica Argentina's principal competitors in providing domestic
long-distance telephone services are Telecom, Telmex, CTI, I-Plan and Impsat.
Telefonica Argentina's exposure to competition has increased due to the
pre-subscription 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
pre-subscription process, certain local service customers opted for one of our
competitors, and certain Telecom local services customers opted for Telefonica
Argentina 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). Telefonica Argentina has
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 pre-subscription provider for the line that originates a
long-distance call. As of the date of this Annual Report, Telefonica Argentina's
networks and equipment are available to provide the selection services, but no
operator has asked Telefonica Argentina for interconnection.

   International Long-Distance Service

     Domestically, Telefonica Argentina faces competition mainly from Telecom,
CTI, Techtel, Telmex Argentina, 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 that Telefonica Argentina bills to its clients. Settlement
rates charged by third parties continue to be denominated in U.S. dollars, and
Telefonica Argentina has 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

     Telefonica Argentina's 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,


                                       50
<PAGE>


Telefonica Argentina owned 117,028 public phones in Argentina. As of the same
date, there were 85 licenses granted to service providers, but there were only
14,815 public phones installed in the Southern Region not belonging to
Telefonica Argentina.

   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 Telefonica Argentina's 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 and Telefonica Argentina believe that Telefonica Argentina's 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 Telefonica
Argentina's 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 Telefonica Argentina and its
competitors, Telefonica Argentina's ability to support industry standards, and
industry and economic trends.

     To that end, Telefonica Argentina is offering ADSL service, which it is
able to provide through its 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 Telefonica Argentina focused on expanding this service and
increased the number of ADSL lines by 172%. As of December 31, 2004, it had
188,840 customers subscribed to ADSL and held a broadband market share in the
Southern Region of approximately 81% according to internal estimates. Telefonica
Argentina expects to continue expanding the 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
wire line local services that Telefonica Argentina provides because cellular and
PCS are, in certain cases, alternatives to those services, as well as to public
telephone services. Telefonica Argentina also faces indirect competition from
PCS providers such as Telefonica Unifon (Telefonica Comunicaciones Personales),
Telecom Personal, CTI, Movicom BellSouth 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 Telefonica Argentina serves. 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 Telefonica Argentina will face some amount of
competition from cable companies.
 Some cable companies have begun to provide such telephone call services through
cable, but this has not materially affected our revenues.

Media Business

     We conduct the Media Business through our (i) 4.71% interest in Atco, a
holding company with direct and indirect interests in open-air broadcast
television stations and in radio stations and (ii) 26.82% interest in ACISA, a
holding company that until July 4, 2002, had an indirect interest in broadcast
television companies.

     On December 27, 2004, the extraordinary shareholders' meeting of Atco
approved an increase of its capital stock. We waived our subscription right to
acquire the new shares and Temarsa subscribed all the shares issued


                                       51
<PAGE>


through the capitalization of a loan held by that company. As of December 31,
2004 and as a result of such shareholders' decision our interest ownership in
Atco decreased from 26.8% to 4.71%. The capital stock increase is pending of
registration at the Registro Publico de Comercio.

Dispositions

     Since January 1, 2000, we have sold, directly or indirectly, the following
ownership interests:

<TABLE>
                                                               Percentage of
                                                  Number           Equity            Sale      Disposition
Name of Company                                 of Shares      Represented(2)      Price(1)       Year
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>                  <C>       <C>
PRIME........................................           0          100.0%           U.S.$12       2002
SHOSA(3).....................................  70,480,161          100.0%            Ps.869       2000
South Cable..................................      12,000          100.0%            Ps.272       2000
Forestal Nortena and other receivables (4)...  18,877,929          100.0%             Ps.86       2000
TyC..........................................  10,032,000           20.0%            Ps.176       2001
</TABLE>

----------
(1)  In millions. The peso amounts are restated for inflation until February 28,
     2003.

(2)  Covers both the Common and Preferred Shares sold.

(3)  On December 15, 2000, we sold our indirect ownership interest in
     Cablevision through the disposition of the ownership interest in SHOSA, the
     principal asset of which at the time was its ownership interest in
     Cablevision.

(4)  On December 15, 2000, we entered into an agreement with AMICH under which
     we transferred to AMICH: (a) our 100% ownership interest in Forestal
     Nortena, (b) the right to collect from the Clarin Group shareholders and
     Clarin Group the balance of U.S.$18.6 million plus related interest,
     derived from the disposition of our indirect ownership interests in Coinca
     and Invercab S.A. in September 1997, (c) the rights and obligations under
     the agreement subscribed between IATE, we and other parties mentioned below
     and (d) other minor receivables.

     As of June 30, 2002, ACISA held indirect equity interest in licensed
broadcast television companies in Buenos Aires and other cities of the interior
of Argentina through Prime Argentina S.A. (Holdings) ("Prime"). On July 4, 2002,
ACISA and Hannover Nominees Ltd. (together the Prime's shareholders) sold their
ownership interest in Prime for an amount of U.S.$12 million to Grupo H.F.S.
Media S.A. Consequently, we no longer have an indirect ownership interest in the
licensed broadcast television companies through ACISA as from the
above-mentioned date.

Regulatory Matters

   Introduction

     Telefonica Argentina operates 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 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 Telefonica Argentina and any
          independent operators and between Telefonica Argentina and the
          suppliers of competing services;


                                       52
<PAGE>


     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 Telefonica Argentina and its customers and between Telefonica
          Argentina 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 its business, objections to certain of the resolutions
have been filed by Telefonica Argentina and are pending. The Secretary of
Communications has from time to time required opinions from interested parties,
including Telefonica Argentina, 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 Telefonica Argentina 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 Telefonica
Argentina's 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 Telefonica Argentina's 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 Telefonica Argentina's activities. Similarly, Telefonica Argentina
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
Telefonica Argentina's operations.

     Our, Cointel's and Telefonica Argentina's 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 and Telefonica Argentina are uncertain whether
the evolution of such regulatory framework will adversely affect Telefonica
Argentina's telecommunications business, financial condition and future results
of operations, neither we nor Telefonica Argentina are aware of any other
regulatory changes that might materially and adversely affect


                                       53
<PAGE>


Telefonica Argentina. Nevertheless, neither we nor Telefonica Argentina are 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 Telefonica Argentina's original license, Telefonica Argentina
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 Telefonica Argentina. 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,
Telefonica Argentina 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.

Rates

     The Transfer Contract provided that Telefonica Argentina could adjust its
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


                                       54
<PAGE>


Contract was modified by the Argentine government, resulting in a new rate
agreement. This new tariff agreement provided for Telefonica Argentina's
telephone tariffs to be denominated in U.S. dollars and, at the election of
Telecom and Telefonica Argentina, 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 Telefonica Argentina agreed
that in 2000 and 2001 there were to be no regular semiannual April or October
adjustments of their 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 Telefonica
Argentina's economic and financial equation contemplated in Telefonica
Argentina's 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 Telefonica Argentina's 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. Telefonica Argentina fulfilled the filing
of the information required by the Argentine government, which included
proposals as to how to adjust Telefonica Argentina's 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.

     Pursuant to the process established for the renegotiations, Telefonica
Argentina submitted a proposal regarding its tariff regime. Telefonica Argentina
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 Telefonica Argentina's proposal, if there were significant


                                       55
<PAGE>


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. Telefonica Argentina 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 Telefonica
Argentina's revenues and expenses is currently mismatched as a result of the
pesification and freezing of Telefonica Argentina's rates within the context of
a potentially inflationary economy and may continue to be mismatched depending
upon the outcome of Telefonica Argentina's pending tariff renegotiation with the
Argentine government. Telefonica Argentina's tariff renegotiation proposal
attempts to achieve the relationship between variables determining revenues and
costs, i.e. the "economic and financial equation" contemplated in Telefonica
Argentina's Transfer Contract.

     In our and Telefonica Argentina's management's opinion and in the opinion
of Telefonica Argentina's 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 Telefonica Argentina's 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 Telefonica Argentina's economic and financial equation contemplated in
Telefonica Argentina's Transfer Contract. The Transfer Contract also provides
for Telefonica Argentina's compensation from the Argentine government to
Telefonica Argentina 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 currently
suspended by an injunction. Telefonica Argentina has requested the interim
adjustment of its tariffs, but no decision has been reached on such issue. We
cannot assure you that Telefonica Argentina will obtain the temporary


                                       56
<PAGE>


adjustment of its tariffs, or even if Telefonica Argentina obtains 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 holders of concessions or
licenses. 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, Telefonica Argentina,
Telecom Argentina S.A. and the Argentine government signed a Memorandum of
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 their 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 (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 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
Telefonica Argentina's 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 its 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 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.


                                       57
<PAGE>


     Pursuant to Resolution No. 73 of March 31, 2005, Telefonica Argentina and
Telecom Argentina S.A. were instructed to include the beneficiaries of the Head
of Household Plan who already own a telephone line in the customer category
"Retired, Pensioner and Households with Low Consumption" as long as they meet
the respective requirements for such category. For that purpose, Telefonica
Argentina is under the obligation to request the National Social Security
Authorities ("Anses") to supply it with the National Register of Beneficiaries
of the Head of Household Plan.

     In the opinion of Telefonica Argentina's management, the application of
the issues mentioned in subparagraphs a), b) and c) will not have a significant
impact on Telefonica Argentina's future results.

     During the final months of 2004 and the beginning of 2005, the Argentine
government signed 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
Planning, Public Investment and Services, pursuant to resolutions No. 123 and
No. 237, respectively, scheduled public audiences with electrical and gas
companies in order to analyze tariffs increases. However, no telecommunication
services companies have been notified of a date for a public audience.

     According to the opinion of our and Telefonica Argentina's management and
Telefonica Argentina's 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 Telefonica Argentina's 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 Telefonica Argentina's
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 and Telefonica Argentina's future financial position and results
of operations. As of the date of this Annual Report on Form 20-F, our and
Telefonica Argentina's management are 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. Telefonica Argentina does not know when the
renegotiations will be concluded or whether the results of such negotiations
will have an adverse effect on Telefonica Argentina.

     The Ministry of Economy, by Resolution No. 72/03 issued in February 2003,
approved a method to calculate and transfer to Telefonica Argentina's clients
the impact of the tax on bank checking account transactions introduced by Law
No. 25,413 that is paid by Telefonica Argentina 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. Telefonica Argentina believes
that the position that the Ministry of Economy took in this resolution is
consistent with Telefonica Argentina's proposal and understanding of Telefonica
Argentina's 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 Telefonica Argentina,
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, Telefonica Argentina filed a request to the effect that effective
competition be officially acknowledged in the Buenos Aires Multiple Area
("AMBA"). Pursuant to Resolution No. 304/03 of the Secretary of Communications,
the Secretary of Communications asked that Telefonica Argentina revise the
presentations


                                       58
<PAGE>


submitted,  supplying additional information.  Telefonica Argentina 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 had to be expressed in U.S. dollars in addition to a right for Telefonica
Argentina 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 Telefonica Argentina 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, 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.c of
Telefonica Argentina's consolidated annual financial statements, awarded a
precautionary measure ordering the National Government, Telefonica Argentina 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.

     Telefonica Argentina, Telecom S.A. 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 and Telefonica Argentina'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 Telefonica Argentina is authorized to collect
from 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 above.

     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 Telefonica
Argentina's defense against the above legal proceedings, in the opinion of our
and Telefonica Argentina's management and its legal counsel, the outcome of
these issues will not have a negative impact upon its financial position or a
significant adverse effect on its results of operations.


                                       59
<PAGE>


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

   Service Requirements

     Pursuant to the List of Conditions and the License Agreement, Telefonica
Argentina must ensure continuity, reliability, nondiscrimination and universal
service provision. Telefonica Argentina 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 Telefonica Argentina 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 Telefonica Argentina
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 its network,

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


                                       60
<PAGE>


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

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

   Revocability of Telefonica Argentina's License

     Telefonica Argentina's 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  Telefonica  Argentina  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    we and  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 Telefonica Argentina's total
          capital  stock  except  if  otherwise  approved  by the  Secretary  of
          Communications;

     o    Telefonica  Argentina must provide a certain level of basic  telephone
          services and maintain its principal place of business in Argentina;

     o    Telefonica  Argentina must maintain certain service quality standards;
          and

     o    Telefonica Argentina must avoid liquidation.

     In case of serious noncompliance with these obligations, Telefonica
Argentina's 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,
Telefonica Argentina's networks and equipment are available to provide the
selection services, but no operator has asked Telefonica Argentina 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;


                                       61
<PAGE>


     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

     o    number portability right would be implemented.

     Subsequently, Telefonica Argentina 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 non-discrimination
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

     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. Telefonica Argentina has numerous licenses to use various distinct
radioelectric bands. Telefonica Argentina does not have assigned radioelectric
bands in certain areas.

   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 Telefonica Argentina)
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.


                                       62
<PAGE>


Nevertheless, as of the date of this Annual Report, the Secretary of
Communications has not yet ruled on the mechanism by which Telefonica Argentina
should recover the cost incurred for rendering these services.

C.   Organizational Structure

     As of the date of this Annual Report, Telefonica (indirectly through TISA)
owns approximately 99.96% of our capital stock, representing 99.97% of the total
votes. Additionally, Telefonica beneficially owns, through us and other
affiliates, 100% of Cointel's common capital stock representing 100% of the
votes, approximately 98% of Telefonica Argentina's voting capital stock, 100% of
Atco's voting capital stock and 100% of ACISA's voting capital stock.

     The following is a list of our direct and indirect investees as of the date
of this Annual Report, not including our passive investments in ATCO and ACISA.

<TABLE>
                                                                                      Voting power
                                                                                        held if
                                                        Country of                     different
                                                      incorporation     Ownership    from ownership
Name                                                   or residence     interest        interest
----------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>             <C>
Compania Internacional de Telecomunicaciones S.A.....   Argentina         50.0%(1)       49.7%
Telefonica de Argentina S.A..........................   Argentina         32.4%(2)        N/A
Telinver S.A.........................................   Argentina         32.4%(2)        N/A
</TABLE>

----------
(1) Not considering the preferred stock.
(2) Indirect ownerships interest.

     We own a 50.0% direct interest in Cointel's common capital stock. Cointel
was organized by a consortium of Argentine and international investors to
acquire a controlling interest in the common stock of Telefonica Argentina as
the first step in Argentina's privatization of its fixed-link public
telecommunications services and basic telephone services. Cointel acquired 60.0%
of Telefonica Argentina's common stock on the Transfer Date.

     Cointel is a holding company whose business is conducted through its
controlling interest in Telefonica Argentina. Cointel's only substantial source
of cash revenues (other than the eventual disposition of Telefonica Argentina
common stock) is dividends and distributions paid on its Telefonica Argentina
common stock. Cointel owns all Telefonica Argentina Class A Shares, as well as
an additional Ps.40.2 million Telefonica Class B Shares, representing 62.5% and
2.3% of the outstanding Class A and Class B Shares, respectively.

     Pursuant to the Privatization Regulations and the bylaws of Cointel,
Cointel is required to own all of the Telefonica Argentina Class A Shares, TIHBV
is required to own at least 10% of the common stock of Cointel and Holding is
required to own at least 20% of the common stock of Cointel. Any transfer or
issuance of shares of Cointel which causes more than 49% of the common stock of
Cointel to be owned by entities which did not own Cointel's common stock on the
Transfer Date, any transfer which reduces TIHBV's or our ownership interest in
Cointel's common stock below the levels specified above and any transfer which
reduces Cointel's ownership below 51% of the capital stock of Telefonica
Argentina are subject to the prior consent of the Telecommunications Regulatory
Authority. Any violation of these requirements could result in the revocation of
the License. We expect Cointel to maintain its ownership interest in the
Telefonica Argentina Class A Shares and, therefore, to continue to control
Telefonica Argentina and to determine the outcome of any action requiring
shareholder approval, including the election of at least six of Telefonica
Argentina's eight directors and the payment of dividends.

D.   Property, Plant And Equipment

     Telefonica Argentina's 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 Telefonica Argentina's service area to the Northern
Region, are also located to a lesser extent in that region of Argentina. Of
Telefonica Argentina's net book value of its total outside plant, property and
equipment as of December 31, 2004:

     o    Telefonica Argentina's outside plant, including external plant,
          transmission and switching equipment represented approximately 71.9%;


                                       63
<PAGE>


     o    construction in progress, materials and prepayment to vendors
          represented approximately 7.5%;

     o    land and buildings represented approximately 20.1%; and

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

     A substantial portion of Telefonica Argentina's 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 Telefonica Argentina to register title to
all registrable property that it 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
Telefonica Argentina prior to terminating the registration period. Under
Resolution No. 96/94, Telefonica Argentina may claim the same indemnity for real
property not conveyed to Telefonica Argentina 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 Telefonica Argentina
had registered property with a book value of approximately Ps.524 million in its
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.
Telefonica Argentina subsequently elected to pay these taxes in order to
expedite the registration process. Telefonica Argentina, 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.

     Telefonica Argentina and 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
Telefonica Argentina's business, financial condition or results of operations.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

General

     In addition to the management discussion below, you should carefully read
our Holding Annual 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 11 to our Holding Annual Financial Statements, which
describe the principal differences between Argentine GAAP and U.S. GAAP that
apply to us.

Multiple Holding Company Structure

     We are a holding company primarily engaged, through related companies, in
the Telecommunications Business in Argentina.

     We conduct our Telecommunications Business through our 50.0% interest in
Cointel, which controls Telefonica Argentina through its ownership of 100% of
Telefonica Argentina's Class "A" shares and 40.2 million of Telefonica
Argentina's Class "B" shares, for a total of 64.8% of Telefonica Argentina's
capital stock.

     We participate in the Media Business through Atco and ACISA. As of December
31, 2004, we held a 4.71% ownership interest in Atco. Atco is a holding company
with a direct and indirect interest in broadcast television companies and in
radio stations. Likewise, we held a 26.8% ownership interest in ACISA. ACISA is
a holding company that until July 2002 held a direct and indirect interest in
broadcast television companies. We consider our


                                       64
<PAGE>


interests in Atco and ACISA to be passive investments. Therefore, Telefonica
Contenidos sets their business strategy.

     On April 11, 2000, certain of our shareholders as of such date and
Telefonica entered into a Stock Exchange Agreement, whereby, after certain
conditions precedent were met, on December 15, 2000, such shareholders
transferred to Telefonica 80.9% of our capital stock, representing 84.7% of our
total votes in exchange for Telefonica common shares issued. On June 29, 2001,
Telefonica informed us that, on May 8, 2001, it transferred to TISA,
Telefonica's wholly owned subsidiary, all of Telefonica's 80.9% equity interest
in us. Additionally, as a result of several transactions described in Item 4:
"Information on the Company--History and Development of the Company--Voluntary
Capital Reduction", TISA's equity interest in us, increased from 80.9% to
99.96%.

     Our income (loss) is affected by the items of consolidated income and
expenses of the companies owned directly and indirectly by us. Our net income
(loss) and such companies' net income (loss) are also affected by consolidated
income and expense items attributable to their respective activities (e.g.,
interest income, interest expense, general and administrative expenses, taxes).
Consequently, the analysis set forth below includes: (i) the discussion of our
results of operations taking into consideration our share in the net income
(loss) of holding companies and operating companies which we own, as well as the
income and expenses attributable to our operations, and (ii) a discussion of the
consolidated results of operations of Cointel which focuses on a discussion of
the results of operations of Telefonica Argentina plus Cointel's expenses. The
amounts in million of Argentine pesos contained in this Item 5 have been rounded
up or down in order to facilitate the footing of notes and tables in which they
are included. The effect of such rounding is not material.

Financial Periods Covered

     We and certain of our related companies (including Telefonica Argentina)
are subject to the reporting rules imposed by the CNV on companies subject to
its regulation. In general, such rules require that such companies report their
quarterly financial results within 42 days after the end of their fiscal
quarters and their annual financial results within 70 days after the end of
their fiscal years or, for both cases, two days following their approval by the
respective board of directors, whichever occurs first. Until the fiscal year
ended December 31, 2001, since our related companies tended to report their
financial statements as of the end of required filing terms, we valued our
interest in such investments under the equity method of accounting, using the
financial statements of such companies with a three-month lag with respect to
our financial statements closing date, adjusted for significant events occurred
in the three-month lag. As a result of the transactions described in Item 4:
"Information on the Company--Our History and Development--Stock Exchange
Agreement Transactions", we have sold our interests in such investments, other
than our interest in Cointel, Atco and ACISA, companies indirectly controlled by
Telefonica. Therefore, since we are able to obtain Cointel's financial
statements as of the date of issuance of our own financial statements, we have
eliminated the effect of the abovementioned three-month lag as of December 31,
2004, 2003 and 2002, and valued our investment in Cointel by the equity method,
calculated on the basis of Cointel's financial statements as of the date of the
Holding Annual Financial Statements.

   Cointel's fiscal year-end change

     On November 11, 2002, the General Ordinary and Extraordinary Cointel's
shareholders'meeting approved an amendment to Cointel's bylaws to change its
fiscal year-end from September 30 to December 31 of each year. On December 12,
2002 the CNV authorized the change. On January 21, 2003 the amendment was
registrated at the IGJ. Consequently, the financial information as of and for
the year ended on December 31, 2002 covers a twelve month-period between January
1, 2002 to December 31, 2002.

Factors Affecting Our 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


                                       65
<PAGE>


of 118.0%. In 2003 the peso appreciated by 13.1%, the price index grew 3.7% and
the GDP growth was 8.8%. 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%.

<TABLE>
                                                  December 31,    December 31,  December 31,
                                                      2004            2003          2002
                                                  ------------------------------------------
<S>                                                    <C>             <C>          <C>
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
</TABLE>
----------
Source: INDEC, Banco Nacion.

     Our results of operations 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 Telefonica Argentina's results of
operations and indirectly ours were the following:

     Pesification of Telefonica Argentina's tariffs

     Prior to 2002, the tariffs of Telefonica Argentina 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
Telefonica Argentina's tariffs) into pesos at a one-to-one exchange rate.

     Freezing of Telefonica Argentina's tariffs

     Dollar-denominated tariffs of Telefonica Argentina were semiannually
adjusted in line with the U.S. consumer price index. The Public Emergency Law
abolished automatic indexation and froze its tariffs; and to this date, this is
still in effect.

     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 and Cointel's and Telefonica Argentina's
operations, as it was coupled with the pesification and freezing of Telefonica
Argentina's tariffs. In addition, a major portion of our, Cointel's and
Telefonica Argentina's debt is either in U.S. dollars or another foreign
currency. During 2002 we had a financial loss of Ps.585 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.255 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.31 million as a consequence of the 1.7% devaluation of the peso
against the U.S. dollar.

     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; and inflation accounting was suspended during the final quarter of
2003. During 2004, inflation measured in terms of consumer price index was 6.1%
and inflation


                                       66
<PAGE>


measured in terms of the wholesale price index was 7.9%. The most important
impact of inflation on 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 Telefonica Argentina's 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 and Telefonica Argentina's results in 2004 in comparison to
2003 and in 2003 in comparison to 2002:

     Mandatory tariff renegotiation for Telefonica Argentina

     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
Telefonica Argentina'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 Telefonica Argentina's foreign currency
denominated debt, due to the financing already obtained and the gradual
reduction of Telefonica Argentina's short term debt.

     Although Telefonica Argentina 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 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 Telefonica Argentina's
economic and financial equation.

     Recession in 2002, recovery 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 Telefonica Argentina's services and in a reduction on the usage per
telephone line during 2002. In 2002, its lines in service were reduced by
140,000 due to services disconnections. In 2002, Telefonica Argentina also
experienced a decrease in long-distance traffic of 30% in comparison to the
twelve-month period ended December 31, 2001. During 2003, Telefonica Argentina's
number of lines in service remained constant, and it experienced an increase in
the traffic per line. During 2004, Telefonica Argentina's lines in service
increased by approximately 159,000 lines. In addition, as of December 31, 2004,
Telefonica Argentina had 188,840 ADSL lines, representing an increase of
approximately 119,000 lines from December 31, 2003. Furthermore, Telefonica
Argentina experienced increases of approximately 7% in local services, 10% in
domestic long distance services and 8% in international long distance services.

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

     Reduced its capital expenditures

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

     Reduced its operating costs

     Telefonica Argentina renegotiated most of its 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 its costs to inflation and devaluation and to adapt its costs to
lower demand for its services. Telefonica Argentina has taken certain measures
with respect to its suppliers' contracts, including, among others, adjustments
to service quality, changing the timing of delivery and services and their
outright cancellation.


                                       67
<PAGE>


     Implemented spending controls

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

     Increased its collection rates

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

     Cash management and debt renegotiation

     Telefonica Argentina implemented a series of actions to decrease the
exchange rate risk on its current assets while managing its main accounts
payable. In addition, Telefonica Argentina restructured a substantial portion of
its debt, improving its maturity profile. As part of that strategy, Telefonica
Argentina offered to exchange new notes due in 2007 and a cash payment for its
then existing notes due in 2004 and to exchange new notes due in 2010 and a cash
payment for its then existing notes due in 2008. Telefonica Argentina 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 TISA, Telefonica Argentina transferred the Cointel
notes to TISA for a reduction of Telefonica Argentina's short-term debt with
TISA in an amount equivalent to the value of the Cointel notes. Moreover, in May
2004, October 2004 and February 2005, Telefonica Argentina 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
Telefonica Argentina obtained loans from local banks for an amount of Ps.120
million.

     Although Telefonica Argentina has adopted these measures to mitigate the
effects of changes in its 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 variables that constitute Telefonica Argentina's economic and
financial equation. See Item 4: "Information on the Company--Regulatory
Matters--Rates".

     Effects on our, Cointel's and Telefonica Argentina's operations, on our
     respective abilities to pay our short-term debt obligations, and on our and
     Cointel's ability to remain as going concerns.

     Telefonica Argentina'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, Telefonica Argentina 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 it
operates, and the situation affecting service rates described in Note 4.a to the
Holding Annual Financial Statements. Some of these measures include:

     o    capital expenditures controls;

     o    operating costs reduction;

     o    increased collection rates and;

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

     The relationship between variables determining Telefonica Argentina's
revenues and expenses is currently mismatched as a result of the "pesification"
and freezing of its tariffs within the context of a potentially inflationary
economy and may continue to be mismatched depending upon the outcome of its
pending tariff renegotiation with the Argentine government. Telefonica
Argentina's 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 4.a to the Holding Annual Financial Statements.


                                       68
<PAGE>


     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 Telefonica Argentina
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.

     Although Telefonica Argentina 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 its economic and financial equation.

     In estimating future revenues, Telefonica Argentina mainly uses its
internal business forecasts and additionally any current information it may have
regarding changes in significant variables affecting such forecasts. Telefonica
Argentina develops its 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.

     Telefonica Argentina's fixed assets have been valued based on their
recoverable value on the basis of its management's best estimate of future cash
flows of its telecommunications business, considering current information and
future telephone service rates estimates. Telefonica Argentina has monitored the
evolution of the variables that affect its business and, from time to time, it
has adjusted its forecasts based on the latest trends. As explained in Note 4.a
to the Holding Annual Financial Statements, the main macroeconomic variables
have shown relative stabilization. In Telefonica Argentina's opinion, based on
such forecasts and on the consideration of operating strategies available for
these scenarios, Telefonica Argentina believes it will obtain sufficient future
cash flows to recover the balances corresponding to fixed assets.
Notwithstanding the foregoing, Telefonica Argentina will continue to monitor the
situation and to assess the effect of any new future developments.

     Telefonica Argentina's general financing policy is to cover future fund
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 loan.

     As of December 31, 2003, Telefonica Argentina's short-term debt amounted to
U.S.$637 million. At that time, Telefonica Argentina could not be certain that
it would be able to meet its current debt obligations at their maturity date.
During 2004, as well as in prior periods, Telefonica Argentina 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,
Telefonica Argentina has 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, Telefonica Argentina issued negotiable obligations for
Ps.163.3 million, Ps.200 million and Ps.250 million, respectively, and expects
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, in Telefonica Argentina's opinion,
will enable it 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 had advised
Telefonica Argentina that, as of the date of this Annual Report, it was still
assessing other financing alternatives for Telefonica Argentina including, if
necessary, providing additional financing.

     Historically, we have funded capital requirements principally through cash
dividends from Cointel, other income relating to related parties, proceeds from
disposing of our ownership interests and other assets, and different kind of
borrowings. Actually, and as a consequence of the situations described in the
Risk Factors, Cointel has no access to the capital markets in amounts sufficient
to pay its short-term obligations. See Item 3: "Key Information--Risk
Factors--The deterioration of the Argentine economy and the pesification and
freezing of Telefonica Argentina's tariffs have made it difficult for us and
Cointel to access the capital markets or obtain new third-party financing in
amounts sufficient to enable us and Cointel, together with internally generated
funds, to meet our respective debt obligations, corresponding mainly to a
significant amount of indebtedness owed to TISA". Cointel has significant
indebtedness with its shareholder, TISA, and for which Cointel assumed
certain commitments.


                                       69
<PAGE>


See Note 4.a) to the Holding Annual Financial Statements. As of December 31,
2004, Cointel's current assets are lower than its current liabilities by
Ps.1,459 million, the latter including Ps.1,454 million of debt owed to TISA.
Consequently, Cointel's ability to meet its short-term liabilities will depend
on TISA's continued refinancing of the loans granted to Cointel, or on other
financing from related or unrelated parties, which to date is not available in
sufficient amounts for Cointel. This situation gives rise to substantial doubt
about Cointel's ability to continue as a going concern. Cointel's plans
concerning these matters are also described in Note 4.a to the Holding Annual
Financial Statements. These financial statements as of December 31, 2004 and
2003 do not include any adjustments or reclassifications that might result from
the outcome of this uncertainty.

     As of December 31, 2004, we carried accumulated losses amounting to
Ps.2,267 million and negative shareholders' equity amounting to Ps.1,112
million. Due to such situation, we were under the conditions for dissolution due
to the loss of our capital stock set forth in Item 5 of Section 94 of the
Companies Law. However, Decree No. 1,269/02 dated July 16, 2002 had suspended
the enforcement of Item 5 of Section 94 of the Companies Law until December 10,
2003 and Decree 1,293/03 dated December 23, 2003 had suspended it further until
December 10, 2004. Furthermore, Decree No. 540/05 dated May 30, 2005 further
extended that suspension until December 10, 2005. On December 28, 2004, the
board of directors called a special shareholders' meeting on February 15, 2005,
to resolve upon the partial capitalization of the loan held by TISA with us,
for an amount of up to approximately Ps.2,046 million.

     On February 15, 2005 the special shareholders' meeting approved the
increase of the capital stock, for an amount of up to approximately Ps.2,046
million and ratified the capital stock increase of Ps.2 million approved by the
shareholders' meeting of December 16, 2004. The increase of capital stock can be
subscribed with (i) the partial capitalization of the loan held by TISA with us,
(ii) the irrevocable capital contributions of TISA for future share
subscriptions of Ps.2 millions or (iii) cash. In this regard, TISA gave notice
to us of its intention to capitalize its loan for an amount of approximately
Ps.1,785 million. As a result of this capital stock increase, we expect that we
will no longer be under the conditions of Item 5 of Section 94 of the Companies
Law and, consequently, with respect to this matter, we will be able to continue
normal operations.

     Despite the plans for capitalization mentioned above, we are under the
condition for mandatory capital stock reduction under Argentine law. According
to Section 206 of Companies Law, if the accumulated losses exceed reserves plus
50% of the capital stock at any year end, a company is required to reduce its
capital stock. However, Decree No. 540/05 dated May 30, 2005 further extended
the enforcement of Section 206 of the Companies Law until December 10, 2005.

   Media Business

     We look to Telefonica's global media affiliate, Telefonica Contenidos, to
set the business strategy for Atco and ACISA. We consider Atco and ACISA to be
passive investments.

     On the basis of the financial information furnished by Atco to us as of
December 31, 2004, Atco has negative shareholders' equity. Also, given that we
are under no obligation to make capital contributions to Atco for the purpose of
restoring the latter's negative shareholders' equity, we valued our investment
in Atco as of December 31, 2004 at nil, to adjust it to its estimated
recoverable value, and did not book any related liability. Additionally, as of
December 31, 2004, we decided to value the investment in ACISA at nil, to adjust
it to its recoverable value pursuant to information available as of such date.
See Note 2.5.b to the Holding Annual Financial Statements.

   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 Telefonica Argentina's tariffs
          with the Argentine government;

     o    competition;

     o    how the government will regulate Telefonica Argentina's business,
          including tariffs; and


                                       70
<PAGE>


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

     In particular, our results of operations are very susceptible to changes in
the peso/dollar exchange rate because Telefonica Argentina's primary assets and
revenues are denominated in pesos while substantially all of Telefonica
Argentina's liabilities and main capital expenditures are denominated in foreign
currency. Additionally, all of our and Cointel's indebtedness is denominated in
U.S. dollars.

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

   Inflation Accounting

     As a result of the inflationary environment in Argentina in 2002 (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 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
agencies, 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.

     In accordance with the above, 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 (the accumulated effect between January 1, 2003 and September 30,
2003 was a 1.4% decrease). See Note 2.2 to the Holding Annual Financial
Statements.

     In addition, our financial statements for the fiscal year ended December
31, 2002, are restated to recognize the effects of the changes in the currency
purchasing power for the period January 1, 2002 though February 28, 2003, based
on the wholesale price index.

Critical Accounting Policies

     This operating financial review and prospects is based upon Holding Annual
Financial Statements, which have been prepared in accordance with accounting
principles generally accepted in Argentina except for the computation of
inflation accounting through February 28, 2003, as required by the CNV. The
preparation of financial statements in accordance with generally accepted
accounting principles requires our management to make estimates and


                                       71
<PAGE>


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 do not actually occur.

     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 became known by our management.

     We believe the following represents our, Cointel's and Telefonica
Argentina's most relevant accounting policies. Our accounting policies are more
fully described in Notes 2.3, 2.4 and 2.5 to the Holding Annual Financial
Statements. The most critical accounting policies adopted in preparing the
financial statements according to Argentine GAAP relate to:

     o    the recoverability of the goodwill generated by our investment in
          Cointel and of the goodwill recorded by Cointel, based on our
          management's current estimates of future cash flows. See Note 2.5.b to
          the Holding Annual Financial Statements;

     o    the depreciable lives for each category of fixed assets. Telefonica
          Argentina believes that the accounting estimate related to the
          establishment of asset depreciable lives is a "critical accounting
          estimate" because: (1) it requires Telefonica Argentina's 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 its financial position, as well as to its results of
          operations. Telefonica Argentina's management 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 for fixed
assets is present, Telefonica Argentina 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, discounted
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. Telefonica Argentina uses the expected cash flow method in
accordance with accounting principles in Argentina. We, Cointel and Telefonica
Argentina believe that the accounting estimate related to asset impairment is a
"critical accounting estimate" because: (1) it requires Telefonica Argentina's
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
its financial position, as well as its results of operations. Telefonica
Argentina management's 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. In estimating future
revenues, Telefonica Argentina mainly uses its internal business forecasts and
any current information they may have regarding changes in significant variables
affecting such forecasts. Telefonica Argentina develops its 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.

     Telefonica Argentina's fixed assets have been valued based on their
recoverable value on the basis of Telefonica Argentina's management best
estimate of future cash flows of its telecommunications business, considering
current information and future telephone service rates estimates. Telefonica
Argentina has monitored the evolution of the macroeconomic variables that affect
its business and, from time to time, it has adjusted its forecasts based on the
latest trends. As explained in Note 4 to the Holding Annual Financial
Statements, the main macroeconomic variables have shown stabilization. In the
opinion of Telefonica Argentina's management based on the preparation of
projections based on such trends and the consideration of operating strategies
available for possible scenarios, Telefonica Argentina believes it will obtain
sufficient future cash flows to recover the balances corresponding to fixed
assets. Notwithstanding the foregoing, as explained in Note 4.a to the Holding
Annual


                                       72
<PAGE>


Financial Statements, Telefonica Argentina will continue monitoring the
situation forecasted and will assess the effect of any new future developments;

     o    the creation of reserves for contingencies in Telefonica Argentina
          assessed as likely by Telefonica Argentina's management, based on its
          estimates and on the opinion of its legal counsel (see Note 4.a to the
          Holding Annual Financial Statements with respect to unreserved
          contingencies);

     o    our, Cointel's and Telefonica Argentina's management assesses the
          recoverability of deferred tax assets on the basis of estimates. The
          recoverability of deferred tax assets ultimately depends on our,
          Cointel's and Telefonica Argentina's 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 carryforwards. In making the assessment, our, Cointel's and
          Telefonica Argentina's management consider 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
          operation trends. In accordance with the accounting principles in
          force, a deferred tax asset must be recognized when future
          deductibility is likely. Therefore, (1) considering the effects of
          economic and foreign exchange regulation carried out by the Argentine
          government in 2002, and (2) considering the statutory limitation
          periods applicable to tax loss carry forwards and the variables which
          affect the future taxable results including the related to the effect
          of the final outcome of the pending tariff renegotiation (see Note 4.a
          to the Holding Annual Financial Statements), we, Telefonica Argentina
          and Cointel have booked an allowance against its net balance of
          deferred tax assets, whose recovery depends on the generation of
          future taxable income;

     o    the creation of allowances in Telefonica Argentina, amounting to
          Ps.159 million set up to cover doubtful accounts based on Telefonica
          Argentina's estimates regarding the terms and conditions of their
          future collection; and

     In addition, Telefonica Argentina's management has 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 set off
     against taxes owed or future taxes payable. Telefonica Argentina's
     management has valued and disclosed its holding of Patriotic Bonds
     considering Argentine government's bonds in comparable situation, currently
     in default, because its recoverability was no longer guaranteed by the
     suspension of the tender regime on compensation against taxes and the
     inclusion of that bond within the list of eligible bonds for sovereign debt
     restructuring. On February 23, 2005 Telefonica Argentina decided to accept
     the Argentine sovereign debt exchange offer mentioned above by tendering
     its Patriotic Bonds for newly issued discount bonds. The new bonds have a
     nominal face value of approximately U.S.$8 million.

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


                                       73
<PAGE>


         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, Cointel and
         Telefonica Argentina do not currently have any interests that 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-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 fiscal years ending on or after June 30,
         2006. In the opinion of our and Telefonica Argentina's management, the
         adoption of this rule will not have an impact on its 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 and Telefonica Argentina's management,
         the adoption of this rule does not have an impact on its net income and
         shareholders' equity.

A.   Operating Results

Comparison of Results of Operations for the Years Ended December 31, 2004, 2003
and 2002.

     All references made below to 2004, 2003 and 2002 are to our fiscal years
ended December 31, 2004, 2003 and 2002. The following discussion is based on the
amounts included in the Holding Annual Financial Statements (in pesos restated
for inflation until February 28, 2003).

     The following discussion shows our results for the years ended December 31,
2004, 2003 and 2002. See Note 2.2 to our Holding Annual Financial Statements.
For a discussion of Cointel's results of operations for the three-month fiscal
year ended December 31, 2002 please see Form 6-K filed on April 14, 2003.

<TABLE>
                                                               2004       2003       2002
                                                             ------------------------------
                                                                  (in million of pesos
                                                                  restated for inflation
                                                                  until February 28, 2003)
<S>                                                          <C>        <C>         <C>
Equity interests in Section 33 Companies................        (134)       98      (1,280)
Other income related to equity interests
  in Section 33 Companies, net..........................          33        40          57
Administrative expenses.................................          (2)       (2)         (4)
Financial losses and gains, net.........................        (197)       81        (824)
Income tax and Tax on minimum presumed income...........           --       --          (9)
Net (loss) gain for the year............................        (300)      217      (2,060)
</TABLE>

   Equity interests in Section 33 Companies

     Our ownership interests in related parties for the years ended December 31,
2004, 2003 and 2002 reflects: (a) our equity in the net (loss) income of Cointel
for the fiscal year ended December 31, 2004, 2003 and for the twelve-month
period ended December 31, 2002 (which in turn reflects Cointel's equity in
Telefonica Argentina's net


                                       74
<PAGE>


income for the years ended December 31, 2004, 2003 and 2002), and (b)
depreciation of goodwill on investment in companies. See "--Financial Periods
Covered".

     Our equity in losses/income of ownership interests in related parties
decreased 30.6% to a loss of Ps.95 million in 2004 from a gain of Ps.137 million
in 2003 attributable to the Telecommunications Business. Our equity in
losses/income of ownership interests in related parties increased 89.0% to a
gain of Ps.137 million in 2003 from a loss of Ps.1,241 million in 2002. These
variations were principally due to the changes in Cointel's and Telefonica
Argentina's results for the same periods. See "--Telecommunications Business".

     Depreciation of goodwill on investment in companies amounted to Ps.39
million in 2004, 2003 and 2002.

   Other income related to equity interest in Section 33 Companies, net

     We recognized income under the Telefonica Holding Advisory Agreement with a
related company. Other income related to equity interest in Section 33
Companies, net decreased 17.5% to Ps.33 million in 2004 from Ps.40 million in
2003. The decrease was due to a decrease in Telefonica Argentina's operarting
revenues.

     Other income related to equity interest in Section 33 Companies, net
decreased 29.8% to Ps.40 million in 2003 from Ps.57 million in 2002, principally
due to the variation in Telefonica Argentina's operating income before
depreciation and amortization in such periods and the renegotiation of
Telefonica Argentina's Management Contract in 2003. See Item 4: "Information on
the Company--Management Contract".

     All of our cash flow in 2004, 2003 and 2002 was related to the Telefonica
Holding Advisory Agreement.

   Administrative Expenses

     Administrative expenses include: (i) legal and auditors' fees, (ii)
miscellaneous administrative expenses and (iii) tax on bank checking account
transactions. Administrative expenses were Ps.2 million in 2004 and in 2003.
Administrative expenses decreased 50.0% to Ps.2 million in 2003 from Ps.4
million in 2002. The decrease in administrative expenses was mainly due to a
decrease in the fees for professional services in 2004 and 2003 as compared to
2002.

   Financial Losses and Gains, Net

     Our financial losses and gains net, decreased 343.2% to a loss of Ps.197
million in 2004 from a gain of Ps.81 million in 2003. The variation in 2004 as
compared to 2003 was principally due to: (i) a decrease of Ps.286 million in
exchange differences on liabilities because of the depreciation of the peso
against the U.S. dollar, and (ii) a decrease of Ps.8 million in interest and
financial charges on liabilities which amounted to Ps.166 million in 2004, as
compared to Ps.174 million in 2003, mainly due to a decrease in the interest
rate applied to our debt owed to TISA.

     Our financial losses and gains net, increased 109.8% to a gain of Ps.81
million in 2003 from a loss of Ps.824 million in 2002. The variation in 2003 as
compared to 2002 was principally due to: (i) an increase of Ps.842 million in
exchange differences on liabilities because of the appreciation of the peso
against the U.S. dollar, which, net of the result from the monetary gain/loss,
amounted to a gain of Ps.255 million in 2003, as compared to a loss of Ps.587
million in 2002, and (ii) a decrease of Ps.32 million in the interest and
financial charges on liabilities which amounted to Ps.174 million in 2003, as
compared to Ps.206 million in 2002.

   Income Tax and Tax on Minimum presumed income.

     Our Income Tax and Tax on Minimum presumed income was nil in both 2004 and
2003.

     Our Income Tax and Tax on Minimum presumed income decreased 100% to nil in
2003 from Ps.9 million in 2002. The variation was principally due to the tax on
minimum presumed income charge of Ps.9 million in 2002, mainly corresponding to
amounts that had been estimated as recoverable by us and therefore capitalized
in previous fiscal years, but were not actually recoverable under Argentina GAAP
in 2002.


                                       75
<PAGE>


   Net (Loss) Gain for the year

     As a result of the factors discussed above, our net (loss) gain amounted to
a loss of Ps.300 from a gain of Ps.217 million in 2003, representing a decrease
of 238.2%. Our net (loss) gain amounted to a gain of Ps.217 million in 2003 from
a loss of Ps.2,060 million in 2002, representing a decrease of 110.5%.

Telecommunications Business

     The following discusses both, Cointel and Telefonica Argentina as Cointel's
consolidated financial information. Cointel changed its fiscal year end on
December 31, 2002. As a result, we discuss the results of operations for the
fiscal years ended December 31, 2004, 2003 and September 30, 2002.

Comparison of Cointel's Consolidated Results of Operations for the Fiscal Years
Ended December 31, 2004, 2003 and September 30, 2002.

   General Considerations

     All references made below to 2004, 2003 and 2002 are to Cointel's
consolidated fiscal years ended December 31, 2004, 2003 and September 30, 2002.
The following discussion is based on the amounts included in the Cointel
Consolidated Annual Financial Statements (in pesos restated for inflation until
February 28, 2003).

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

   Net Revenues

     Cointel's total consolidated net revenues increased by 10.8% or Ps.297
million to Ps.3,047 million in 2004 from Ps.2,750 million in 2003. The increase
in revenues in 2004 was principally due to an increase in the consumption of
miscellaneous services and an increase in the average lines in service.

      Net revenues decreased by 29% or Ps.1,109 million in 2003 from Ps.3,859
million in 2002. Cointel's consolidated net revenues were affected by the
pesification and freezing of Telefonica Argentina's tariffs. 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 and freezing of Telefonica Argentina's tariffs
and the macroeconomic conditions prevailing in Argentina", have had, and may
continue to have, a material adverse effect on our, Cointel's and Telefonica
Argentina's results of operations and financial condition.

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

     The following table shows Cointel's consolidated 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, 2003 and September 30,
2002, net of any intercompany transactions.


                                      December 31,   December 31,  September 30,
                                          2004          2003          2002
                                      ------------------------------------------
                                          (in millions of pesos restated for
                                           inflation until February 28, 2003)
Basic Telephone Service
   Measured service..................       857           807         1,171
   Monthly basic charges(1)..........       719           666         1,041
Special services.....................       459           380           479
Installation charges.................        45            32            61
Public phones........................       188           180           283


                                       76
<PAGE>



                                      December 31,   December 31,  September 30,
                                          2004          2003          2002
                                      ------------------------------------------
                                          (in millions of pesos restated for
                                           inflation until February 28, 2003)
Access charges.......................       388           323           365
International long-distance service..       108           105           146
Direct Lines.........................        84            83           123
Publishing of telephone directories..        73            64            59
Other................................       126           110           131
                                      ------------------------------------------
Total................................     3,047         2,750         3,859
                                      ==========================================
----------
(1) Includes basic charges and charges for supplemental services.

   Basic Telephone Service

     Measured Service

     Measured service includes revenues that are collected from the traffic
consisting of local and domestic long-distance calls made by Telefonica
Argentina's customers to other of its customers over its network. Measured
service also includes revenues that are collected from local and long-distance
calls made by its customers to customers of other operators that are routed over
its network as well as through other operators' networks. In the case of the
latter, Telefonica Argentina invoices and receives revenues for the termination
of those calls (included in Access charges, revenues), and pays to the other
operators the cost of using their network. See below, "--Cost of Services
Provided, Administrative 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.

     Measured service decreased by 31.1% to Ps.807 million in 2003 from Ps.1,171
million in 2002. This decrease was principally due to a decrease in rates
measured in real terms of approximately 36.5% 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) a decrease of approximately 0.22%
in the total average number of billable lines, (2) a decrease in commercial
discounts in 2003 compared to 2002, and (3) a 6.4% increase in average local and
national long-distance consumption per line.

     Monthly Basic Charges

     Monthly basic charges, which include the monthly basic charges of measured
service lines and prepaid lines, increased by 7.9% to Ps.719 million in 2004
from Ps.666 million in 2003. In 2004, the variation was mainly due to (1) an
increase in the average number of billable lines, which generated approximately
Ps.10 million in revenues, (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 which generated an increase in the monthly
basic service charge.

     Monthly basic charges decreased 36.0% to Ps.666 million in 2003 from
Ps.1,041 million in 2002. The decrease was mainly due to the rate reduction in
real terms (net of discounts) of about 36.5% as a result of the application in
2003 of the same rate applied in 2002.

   Special Services

     Special services include:

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


                                       77
<PAGE>


     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 in 2004 was mainly due to
increases of: (1) Ps.63 million in subscriptions billed due to an 82% rise in
the number of ADSL (broadband) 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 the services provided to other suppliers.

     Special services decreased 20.4% to Ps.380 million in 2003 from Ps.479
million in 2002. The variation in 2003 was mainly attributable to the effect of
inflation of 36.5%, partially offset by an increase of Ps.7 million in Digital
Trunk Access services, an increase of Ps.27 million in prepaid cards, and an
increase of Ps.13 million in internet access and traffic in current terms,
mainly due to higher consumption.

   Installation Charges

     Revenues from installation charges, which consist primarily of fees for
installation of new phone lines, increased 40.6% to Ps.45 million in 2004 from
Ps.32 million in 2003. In 2004, 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.

     Revenues from installation charges decreased 47.5% to Ps.32 million in 2003
from Ps.61 million in 2002. In 2003, the change was mainly due to a decrease in
prices in real terms, partially offset by an increase in line connections.

   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. In 2004, 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.

     Revenues for public phones decreased by 36.3% to Ps.180 million in 2003
from Ps.283 million in 2002. In 2003, the decrease was mainly due to a drop in
prices in real terms of about 36.5% slightly offset by a 2.6% increase in the
average number of lines of public telephony service and a 1.8% increase in the
average consumption by line.

   Access Charges

     Telefonica Argentina invoices and collects income resulting from call
termination of other operators' originating calls through its network, and pays
other operators the cost of using their networks for calls that Telefonica
Argentina originates. Revenues resulting from network access (interconnection)
increased by 20.1% to Ps.388 million in 2004 from Ps.323 million in 2003. In
2004, the variation mainly results from a 27% increase in interconnection
traffic, in particular with mobile telephone companies, partially offset by the
recognition of income in 2003 relating to pricing agreements executed with the
operators.

     Revenues resulting from network access (interconnection) decreased 11.5% to
Ps.323 million in 2003 from Ps.365 million in 2002. The decline in 2003 was due
to an average increase in interconnection consumption of approximately 6% and
the renegotiation of prices with other operators, offset by a decrease in
charges of approximately 11 % in real terms. Revenues for 2003 includes Ps.51
million of non-recurrent amounts relating to price renegotiation with other
operators.


                                       78
<PAGE>


   International Long-Distance Service

     Operating revenues from international long-distance service depend on the
volume of traffic, the rates charged to Telefonica Argentina's customers,
charges to the other Argentine telecommunications providers that place
international calls through Telefonica Argentina's 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 to Telefonica Argentina's total revenues from international services
amounted to losses of approximately Ps.28 million, Ps.26 million and Ps.33
million for fiscal years ended December 31, 2004, 2003 and 2002, 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. In 2004, the
variation was mainly due to increases of approximately 7% in customers' outgoing
traffic and an approximately 20% increase in incoming traffic from international
carriers. These effects were partially offset by a 7% and 6% decrease in the
price to customers and foreign carriers' average prices, respectively.

     International long-distance service revenues decreased by 28% to Ps.105
million in 2003 from Ps.146 million in 2002. In 2003 the change was mainly due
to: (1) an 0.1% increase in customer outgoing tariffs in pesos in real terms
mainly because of a decrease in discounts, (2) an 0.4% increase in the incoming
traffic liquidated with other international carriers and (3) a decrease in the
outgoing traffic liquidated with other international carriers of approximately
5.5%. All of these effects were partially offset by a 16.1% decrease in
customers' outgoing traffic.

   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. In 2004, the increase 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.

     Revenues from direct lines decreased 32.5% to Ps.83 million in 2003 from
Ps.123 million in 2002. In 2003, the decline was due to the 36.5% price drop in
real terms and a reduction of charges of 36% in current terms, and a decrease in
digital lines of approximately 11%.

   Publishing of Telephone Directories

     Revenues from the publishing of telephone directories, which Telefonica
Argentina conducts through its wholly owned subsidiary, Telinver, increased by
14.1% to Ps.73 million in 2004 from Ps.64 million in 2003. In 2004, the
variation was mainly due to an increase in advertising sales.

     Revenues from the publishing of telephone directories increased by 1% to
Ps.64 million in 2003 from Ps.59 million in 2002. 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 increased by Ps.16 million or 14.5% to Ps.126 million in
2004 from Ps.110 million in 2003 and decreased by 6% from Ps.131 million in
2002. In 2004, the variation was primarily 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.

     Other revenues decreased by 6% to Ps.110 million in 2003 from Ps.131
million in 2002. In 2003, the decline was mainly due to the price drop in real
terms and a 13% decrease in the sale of fixed terminals and other telephone
equipment. This decrease was partially offset by a 25% increase in invoicing
services and collections, network capacity and other services.


                                       79
<PAGE>


   Cost of Services Provided, Administrative and Selling Expenses

     Cost of services provided, administrative, selling expenses, depreciation
and amortization decreased by 1.9% to Ps.2,461 million in 2004 from Ps.2,508
million in 2003 and decreased by 33.2% in 2003 from Ps.3,753 million in 2002.
Costs of services provided, administrative and selling expenses, excluding
depreciation and amortization of Ps.1,135 million in 2004, Ps.1,293 million in
2003 and Ps.1,435 in 2002, amounted to Ps.1,326 million in 2004, Ps.1,215
million in 2003 and Ps.2,318 million 2002, representing an increase of 9.1% in
2004 and a decrease of 42.8% in 2003. In 2002, Telefonica Argentina made a
concerted effort to reduce its expenses in line with its reduced revenues.

     The following table shows the breakdown of expenses for Cointel's fiscal
years ended December 31, 2004, 2003 and September 30, 2002, net of intercompany
transactions. The amounts as of December 31, 2004, 2003 and September 30, 2002
have been restated for inflation until February 28, 2003.

<TABLE>
                                                           Fiscal Year      Fiscal Year      Fiscal Year
                                                              Ended            Ended            Ended
                                                           December 31,     December 31,     September 30,
                                                               2004             2003             2002
                                                           -----------------------------------------------
                                                                 (in millions of pesos restated for
                                                                  inflation until February 28, 2003)
<S>                                                             <C>              <C>              <C>
Salaries and social security taxes......................        409              359              547
Depreciation of fixed assets and intangible assets(1)...      1,135            1,293            1,435
Fees and payments for services..........................        590              509              754
Material consumption and other expenses.................         71               58              104
Management fee..........................................         68               86              147
Allowance for doubtful accounts.........................        (40)             (13)             472
Sales cost..............................................         24               26               21
Other...................................................        204              190              273
                                                           -----------------------------------------------
Total...................................................      2,461            2,508            3,753
                                                           ===============================================
</TABLE>

----------
(1) Excluding the portion corresponding to financial expenses and not including
    goodwill amortization.

     Salaries and Social Security Taxes

     The principal components of Telefonica Argentina's labor costs were basic
wages, overtime and fringe benefits. Telefonica Argentina 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 by Telefonica Argentina 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 Telefonica
Argentina and the unions, which represent the employees governed by collective
bargaining agreements, that took place in December 2004, slightly offset by a
decrease in Telefonica Argentina's 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.

     Salaries and social security taxes decreased by 34.4% to Ps.359 million in
2003 from Ps.547 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 Ps.22 million, or 6.7%, to Ps.348 million in 2003 from 326 in 2002.
The increase in 2003 in current terms was mainly due to salary raises and
non-remuneratory payments made to the employees. These increases were slightly
offset by a decrease in Telefonica Argentina's average headcount, to 8,867 in
2003 from 9,419 in 2002.


                                       80
<PAGE>


     Depreciation and Amortization of Assets

     Total depreciation and amortization (excluding the portion corresponding to
financial expenses) decreased by 12.2% to Ps.1,135 million in 2004 from Ps.1,293
in 2003. There was no material change in depreciation and amortization in real
terms because of the effect of the restatement of Telefonica Argentina's assets
for inflation until February 28, 2003. In 2004, the decrease was mainly due to
the 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.

     Total depreciation and amortization (excluding the portion corresponding to
financial expenses) decreased by 9.9% to Ps.1,293 in 2003 from Ps.1,435 million
in 2002. The decrease in 2003 was mainly due to assets that were no longer
depreciated during the years compared including software and licenses, partly
offset by the depreciation generated by investments as a consequence of
increased activity during the second half of 2003.

     Fees and Payments for Services

     Fees and payments for services increased by 15.9% or Ps.81 million, to
Ps.590 million in 2004 from Ps.509 million in 2003.

     In 2004, the variation was mainly due to increases in:

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

     o    commissions on points of sales outsourced of Ps.10 million mainly due
          to an increase in Telefonica Argentina's 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;

     o    charges for interconnection with other operators of Ps.11 million, due
          to 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 hired supplier's
          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 in:

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

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

     Fees and payments for services decreased by 32.5% to Ps.509 million in 2003
from Ps.754 million in 2002. In 2003 the change was mainly due to the effect of
inflation in real terms of approximately 36.5%. In current terms there was an
increase in Ps.41 million, or 9%, to 502 million in 2003 from Ps.461 in 2002 in
Telefonica Argentina. The increase in 2003 in current amounts was due to:

     o    increase in fees for technical services, information technology and
          advice and consulting services of Ps.17 million due to the
          renegotiation of prices and the services provided pursuant to service
          agreements;


                                       81
<PAGE>


     o    increase in interconnection charges with other operators of Ps.9
          million as a consequence of the renegotiations of prices and increases
          in consumption, including Ps.15 million relating to non-recurrent
          expenses;

     o    increase in advertising charges of Ps.8 million for mass media
          advertising and telemarketing campaigns;

     o    increase of Ps.14 million in building maintenance costs, principally
          moving and refurbishment expenses, including the transfer of
          Telefonica Argentina's corporate headquarters to the current address;
          and

     o    increase in security services, communication charges and traveling
          expenses Ps.3 million.

     These increases were partially offset by a reduction in:

     o    network maintenance of Ps.4 million due a decrease in cable theft that
          had a material impact in 2002;

     o    access charges in the Northern Region of Ps.2 million due to a lower
          presence of Telefonica Argentina in the Northern Region; and

     o    sales commissions of Ps.2 million.

     Material Consumption and Other Expenses

     Costs for material consumption and other expenses increased by 22.4% to
Ps.71 million in 2004 from Ps.58 million in 2003. In 2004, the variation was
mainly due to an increase in the maintenance work carried out in Telefonica
Argentina's 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).

     Costs for material consumption and other expenses decreased by 44.2% or
Ps.46 million to Ps.58 million in 2003 from Ps.104 million in 2002. The
variation in 2003 was mainly due to the effect of the inflation.

     Management Fee

     Management fees decreased by 20.9% to Ps.68 million in 2004 from Ps.86
million in 2003. In 2004, the variation was mainly due to a decrease in the
percentage applicable rate to determine the obligation (from 9% of gross margin
to 4%) since May 2003, partially offset by an increase of approximately 5% in
the income considered for the calculation of the management fee. See Item 4:
"Information on the Company--Business Overview--Management Fee."

     Management fees decreased by 41.5% to Ps.86 million in 2003 from Ps.147
million in 2002. The decrease was mainly due to the decrease of the percentage
used to determine the obligation, from 9% to 4% since May 2003, and a decrease
in the operating income before Telefonica Argentina's amortization and
depreciation of Ps.1,536 in 2003 from Ps.1,544 in 2002.

     Allowance for Doubtful Accounts

     In 2004, 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 an 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 that we had charged to doubful accounts 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 Telefonica Argentina.


                                       82
<PAGE>


     The effect in 2003 could be summarized as follows: charges for the
allowance for uncollectible receivables amounted to Ps.66 million, representing
a 86% decrease as compared to Ps.472 million in 2002. In addition, a total
recovery of Ps.79 million was recorded in 2003 from collection of balances from
debtors in arrears.

     Sales Cost

     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 that the charge to expenses for
cost of sale of equipment, telephone accessories and other supplies decreased
Ps.3 million, to Ps.14 million in 2004 from Ps.17 million in 2003. 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.

     Sales costs increased by 23.8% to Ps.26 million from Ps.21 million in 2002.
In 2003, the variation was due to the effect of the inflation adjustment on
charges in constant currency.

     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. In 2004, 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
Telefonica Argentina's 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 the new
Telefonica Argentina headquarters and the expiration of the leases of vehicles.

     The charge to income of other operating costs decreased by 30.4% to Ps.190
million in 2003 from Ps.273 million in 2002. In 2003, the variation was due to
the decrease in costs in real terms of approximately 36.5%, caused mainly by a
decrease in leases related to the transfer of the corporate headquarters to the
new Telefonica Argentina's building, offset by an increase in taxes due to the
higher activity, an increase in costs of transportation and increased cost of
insurance.

     Other Expenses, Net

     Other expenses, net increased 93% 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 a result of developments during 2004 of pending actions against
us, partially offset by a reduction in employee termination charges.

     Other expenses, net decreased 53.6% to Ps.71 million in 2003 from Ps.154
million in 2002. In 2003, in current terms, the variation was Ps.37 million,
from Ps.104 million in 2002 to Ps.67 million in 2003. The change in current
terms mainly resulted from a reduction in contingency charges, a decrease in
fixed assets retirement and in employee termination charges.

   Financial Gains and Losses

     In 2004 and 2003 interest capitalized totaled Ps.8 million in each fiscal
year. In 2004, net financial gains and losses amounted to a loss of Ps.618
million compared to a gain of Ps.274 million in 2003, a change in such charges
of Ps.892 million. This change was mainly due to a decrease of Ps.1,006 million
in net exchange differences on liabilities resulting from the depreciation of
the peso against the U.S. dollar, which amounted to loss of Ps.88 million in
2004, as compared to a gain of Ps.918 million in 2003. In addition, interest and
financial charges decreased by Ps.74 million to a loss of Ps.511 million in 2004
from a loss of Ps.585 million in 2003, mainly due to a decrease in the average
exchange rate in that year, a decrease in financial payables and a decrease in
the interest rate applied to the Cointel's and Telefonica Argentina's debt owed
to TISA, partially offset by a decrease in the interest rate applied to
Telefonica Argentina's accounts of customers in arrears.

     In 2003 interest capitalized totaled Ps.8 million, as compared to Ps.40
million in 2002, net of the effect of inflation. In 2003, net financial gains
and losses increased Ps.4,344 million to a gain of Ps.274 million in 2003 from a
loss of Ps.4,070 millions in 2002. This change was mainly due to an increase of
Ps 4,336 in net exchange differences on liabilities resulting from the
appreciation of the peso against the U.S. dollar, which amounted to a


                                       83
<PAGE>


gain of Ps.918 million in 2003, as compared to a loss of Ps 3,418 million in
2002. In addition, net interest and financial charges increased by Ps.82 million
to a loss of Ps.585 million in 2003 from a loss of Ps.503 million in 2002,
mainly due to an increase in the amount of interest rates.

   Income tax and Tax on minimum presumed income

     Income tax and Tax on minimum presumed income charges amounted to a gain of
Ps.5 million in 2004 and nil in 2003. In 2004, the variation was not material.

     Income tax and Tax on minimum presumed income charges amounted to nil in
2003 from a loss of Ps.120 million in 2002. The 2002 charge was mainly due to
reversal of the deferred tax liabilities of Telefonica Argentina in the
beginning of 2002 as a consequence of the principal effects of the devaluation
on the calculation of the deferred tax income.

   Net/(Loss) Income

     Cointel had a net loss of Ps.184 million in 2004 compared to a net income
of Ps.277 million, representing a 166.4% decrease. Cointel had a net income of
Ps.277 in 2003 compared to a net loss Ps.2,955 million in 2002, representing a
109.4% increase. These variations were mainly due to the factors discussed
above.

Taxes

   Income Tax

     Law No. 25,784, in effect for fiscal years current as of October 22, 2003,
modifies aspects related to transfer pricing, accrual of expenses by companies
residing in Argentina that benefit related companies residing abroad, "thin
capitalization" rules and aspects related to payments of interests to foreign
beneficiaries.

     Decree No. 916/04 regulated Law No. 25,784 in the aspects related to
transfer prices in international transactions and the rules on exiguous
capitalization. Concerning the latter, the new regulations establish that
interest paid to related companies will be treated as dividends in the
proportion in which the liabilities from financial transactions or other
transactions assimilated with those entities is two times higher than the net
shareholders' equity as shown in Telefonica Argentina's balance sheet for
commercial purposes. The regulations define debts with related companies that
are subject to the above mentioned treatment, including the cases in which the
creditor is resident of countries that have executed agreements with the
Republic of Argentina to avoid international double taxation.

   Value Added Tax

     Law No. 25,865, published in the Official Bulletin on January 19, 2004,
amended the regulations applicable to Value Added Tax and the Simplified Scheme
for Small Taxpayers (Monotributo), which introduces, among other the following
amendments: a) the category known as "unregistered liable parties" for VAT
purposes to be eliminated; and b) invoicing of the tax increase in the billing
of telecommunication services to persons under the Simplified Scheme to be
eliminated.

     Pursuant to Decree No. 806/04, this law shall come into force on July 1,
2004. The Administracion Federal de Ingresos Publicos (Federal Public Revenue
Administration) regulated the above mentioned rules and the re-registration of
taxpayers under General Resolutions No. 1,695, 1,697 and 1,699.

     Under General Resolution No. 1,730, the AFIP reduced, with respect to
transactions closed as from September 16, 2004, the withholding rates applicable
under General Resolution No. 3337 of the Direccion General Impositiva (Internal
Tax Revenue Office) from 5% to 3% and from 2.5% to 1.5%, and increased from
Ps.426 to Ps.710 and from Ps.852 to Ps.1,420, respectively, the minimum amount
for applying the withholding rate.


                                       84
<PAGE>


   Social Security Contributions

     Decree No. 491/04 published in the Official Bulletin on April 22, 2004
ordered a gradual increase in the maximum computable compensation for purposes
of determining social security contributions, increasing it to Ps.6,000 with
respect to contributions accrued until September 30, 2004; to Ps.8,000 from
October 1, 2004 to March 31, 2005; to Ps.10,000 from April 1, 2005 to September
30, 2005, and the elimination of such ceiling as from October 1, 2005.

   Royalties to be Paid to Municipalities for Public Space Occupancy

     In May 2004 the lower house of the National Congress passed a bill to
modify Section 39 of the National Telecommunications Law No. 19,798 suppressing
the exemption of any charges that may be imposed on the differential use of the
ground, underground and air space in the national, provincial or municipal
public utility for the set-up of telecommunications facilities and networks.

     This proposed legislation is now to be debated by the senate. Should such
bill become a law, the municipalities and the City of Buenos Aires would be
empowered, as soon as the law is enacted, to impose royalties on such use, in
accordance with the provisions of any applicable tax and tariff ordinances.

     Telefonica Argentina considers that if such were the case, such taxes shall
be transferable to the rates for telephony service in accordance with the tax
stability rules in force in the current regulatory regime.

Results of Operations in Accordance with U.S. GAAP

     Under U.S. GAAP we are reporting two segments: Holding and Basic Telephone
Service.

     The main differences between net (loss) income calculated in accordance
with U.S. GAAP and with Argentine GAAP are described in Note 11 to the Holding
Annual Financial Statements. Net (loss) income before extraordinary losses
calculated in accordance with U.S. GAAP amounts to a loss of Ps.23 million for
the fiscal year ended December 31, 2004, an income of Ps.456 million for the
fiscal year ended December 31, 2003 and a loss of Ps.2,432 million in December
31, 2002.

     U.S. GAAP adjustments to net (loss) income mainly relate to the following:

     Net (loss) income under U.S. GAAP for 2004 was affected by: (a) the
reversal of inflation restatement and monetary results on us and our affiliated
companies (see Note 11.b.1 to the Holding Annual Financial Statements) of Ps.220
million, (b) the adjustments on income of U.S. GAAP's goodwill depreciation
charge related to the investment in controlled companies representing an income
of Ps.18 million, and (c) the U.S. GAAP adjustments on the ownership interest in
related parties (Cointel) amounting to Ps.39 million.

     Net (loss) income under U.S. GAAP for 2003 was affected by: (a) the
reversal of inflation restatement and monetary results on us and our affiliated
companies (see Note 11.b.1 to the Holding Annual Financial Statements) of Ps.222
million and (b) the adjustments on income of U.S. GAAP's goodwill depreciation
charge related to the investment in controlled companies representing an income
of Ps.18 million. These effects were compensated by the U.S. GAAP adjustments on
the ownership interest in related parties (Cointel) amounting to Ps.1 million.

     As a consequence of the voluntary capital stock reduction mentioned in Note
7.2 to the Holding Annual Financial Statements and the acquisition by Telefonica
(and subsequent transfer to TISA), as of December 31, 2001, our principal
shareholder was TISA, which owned 99.96% of our capital stock. Under US GAAP,
and as substantially all of our common stock was acquired by Telefonica, the
purchase price was "pushed down" to the Holding Annual Financial Statements.
Push down accounting is not a generally accepted accounting principle under
Argentine GAAP. As a result of Telefonica's acquisition of the 80.9% equity
interest in us, which purchase price substantially amounted Ps.2.2 billion, and
the voluntary capital stock reduction, we booked an adjustment of Ps.1.6 billion
substantially corresponding to goodwill.


                                       85
<PAGE>


   Media Business

     We look to Telefonica's global media affiliate, Telefonica Contenidos, to
set the business strategy for Atco and ACISA. We consider our interests in Atco
and ACISA to be passive investments.

     On the basis of financial information furnished by Atco to us as of
December 31, 2004, Atco presents negative shareholders' equity. Also, given that
we are under no obligation to make capital contributions to Atco for the purpose
of restoring the latter's negative shareholders' equity, we valued our
investment in Atco as of December 31, 2004 at nil, to adjust it to its estimated
recoverable value, and did not book any related liability. Additionally, as of
December 31, 2004, we valued our investment in ACISA at nil. See Note 2.5.b to
the Holding Annual Financial Statements.

B.   Liquidity and Capital Resources.

     As of December 31, 2004, our total liabilities amounted to Ps.1,925
million, which consist of Ps.23 million in Negotiable Obligations (including
interests accrued as of that date), Ps.1,896 million of payables to Section 33
Companies and Ps.6 million in tax liabilities, other payables and short-term
accounts payable.

     Historically, we have funded our financing requirements principally through
cash dividends from Cointel, other income relating to Section 33 Companies,
proceeds from disposing of our ownership interests and other assets, and
different kind of borrowings.

     Our principal source of cash has traditionally been dividends paid to us by
Cointel, which paid to its shareholders an aggregate of Ps.1,452 million (at
historical values) in cash and in-kind dividends from January 1, 1994 through
December 31, 2001. Cointel did not pay dividends during the years ended December
31, 2004, 2003 and 2002. Cointel's principal source of cash revenues is the cash
dividends paid to it by Telefonica Argentina. Telefonica Argentina paid Cointel
an aggregate of Ps.1,190 million (at historical values) in cash dividends from
January 1, 1994 through December 31, 2001. Telefonica Argentina did not pay
dividends during the years ended December 31, 2004, 2003 and 2002.

     In 1997 we began receiving income under the agreement with TESA Arg.
mentioned in Note 5.c.(i) to the Holding Annual Financial Statements. During
2004 and 2003, we collected Ps.42 million and Ps.52 million, respectively.

     We use our funds mainly to pay interest on our financial debt and
Negotiable Obligations. During 2004, 2003 and 2002, we did not pay dividends.

     On February 12, 2001, we received a loan from TISA in the amount of
U.S.$530.1 million, which accrued interest at LIBOR plus a 2.25% per annum (the
"differential") for a term of one month, renewable automatically on a monthly
basis unless the parties notify in writing, at least three days before due date,
that they do not intend to renew the agreement. TISA is entitled to modify the
differential provided it notifies us of this decision at least three business
days before the end of each interest period. The funds disbursed by TISA were
used to partially repurchase our Negotiable Obligations (see Note 9 to the
Holding Annual Financial Statements). Subsequently, on February 14, 2001, we
made an early partial repayment to TISA of this loan for an amount of U.S.$37.9
million.

     On June 24, 2004, we and TISA entered into an amendment to the loan
agreement whereby they agreed that principal will mature semiannually and that
interest capitalization will continue being monthly, setting the differential
for the first interest period in 9% nominal per annum. Additionally, on July 26,
2004, we and TISA agreed that differential for the second interest period would
be 5.5% nominal per annum, which it has remained unchanged for the following
periods. On December 27, 2004 the loan agreement was amended and it was agreed
that capitalization of interest will be made on a six-month basis. As of
December 31, 2004 the outstanding principal related to TISA's loan, after the
interest capitalization mentioned above, amounted to U.S.$629 million
(equivalent to Ps.1,872 million as of December 31, 2004). As of December 31,
2004 the accrued non capitalized interests were U.S.$0.6 million (equivalent to
Ps.2 million as of December 31, 2004). In connection with the above mentioned
loan, we have assumed certain commitments, mainly involving limitations on the
sale of assets, limitations on liens of certain assets, limitations on us or any
of our affiliates becoming a party in merger or spin-off operations, with


                                       86
<PAGE>


certain exceptions. In addition, the loan shall forthwith become due and
payable: (1) upon our default on any of the commitments assumed under the loan
agreement, (2) in the event of any change in our controlling shareholder, (3) if
we or our affiliates are unable to comply with our respective obligations, (4)
changes in our main business activity, (5) if any of our affiliates loses the
government licenses obtained, and (6) if there are changes in our equity,
economic and financial situation that due to their adverse nature may affect our
ability to comply with the obligations assumed in the agreement or if there are
restrictions that may limit our ability to repay its debts. On July 26, 2004,
the loan agreement was modified by eliminating the clause that stipulated its
early termination in case of restrictions that could limit our capacity to make
payments to TISA under the agreement.

     Additionally, during the January-March 2002 quarter, we received loans from
Telefonica Argentina for U.S.$5.8 million (the "Dollar Loans"). On April 26,
2002, we entered into an assignment agreement with Telefonica Argentina and TISA
pursuant to which Telefonica Argentina assigned to TISA the Dollar Loans in the
amount of U.S.$5.8 million, which includes principal amount and accrued interest
as of April 26, 2002. The terms of such loan are similar to those of the loan
mentioned in the previous paragraph. As of December 31, 2004, the book value of
such loan amount to U.S.$7 million (equivalent to Ps.22 million as of December
31, 2004), corresponding to principal amount plus accrued interests as of that
date.

     In relation to the loans mentioned above, TISA has advised us that until
July 1, 2006 it shall not consider that an acceleration event has been verified
under the agreements with TISA. Additionally, some of the loan agreements in
effect include acceleration events in case certain judicial or extra-judicial
proceedings are filed for amounts in excess of certain net equity percentages of
us or a relevant affiliate of ours. We obtained a waiver in connection with
those proceedings as of the date of issuance of the accompanying financial
statements, covering until July 1, 2006.

     As of December 31, 2004, our current assets were lower than our current
liabilities of an amount of Ps.1,876 million, the latter including approximately
Ps.1,896 million of debt owed to our controlling company.

     As of the same date, we had accumulated losses amounting to Ps.2,267
million and negative shareholders' equity amounting to Ps.1,112 million. Due to
such situation, we were under the conditions for dissolution due to the loss of
our capital stock set forth in Item 5 of Section 94 of the Companies Law.
However, Decree No. 1,269/02 dated July 16, 2002 had suspended the enforcement
of Item 5 of Section 94 of the Companies Law until December 10, 2003 and Decree
1,293/03 dated December 23, 2003 had suspended the enforcement of such provision
of the Companies Law until December 10, 2004. Furthermore, Decree No 540/05
dated May 30, 2005 further extended that suspension until December 10, 2005.

     On December 28, 2004, the board of directors called a special shareholders'
meeting on February 15, 2005, to resolve upon the partial capitalization of the
loan held by TISA with us, for an amount of up to approximately Ps.2,046
million.

     On February 15, 2005 the special shareholders' meeting approved the
increase of the capital stock, for an amount of up to Ps.2,046 million, ratified
the capital stock increase of Ps.2 million approved by the shareholders' meeting
of December 16, 2004 and delegated to our board of directors the setting of the
final amount and other issuance conditions of such capital stock increase. The
capital increase can be subscribed with (i) the partial capitalization of the
loan held by TISA with us, (ii) the irrevocable capital contributions of TISA
for future share subscriptions of Ps.2 million or (iii) cash. In this regard, in
this special shareholders' meeting, TISA expressed its intention to partially
capitalize its loan for an amount of Ps.1,785 million. As a result of this
capital stock increase, we expect that we will no longer be under the conditions
of Item 5 of Section 94 of the Companies Law and, consequently, with respect to
this matter, we will be able to continue normal operations. See Notes 8 and 10
to the Holding Annual Financial Statements.

     We are also evaluating Cointel's financing needs taking into account the
Argentine economic situation and the current difficulties in accessing credit
and will make our best efforts to provide Cointel with such financing, directly
or indirectly, subject to our own fund availability, which depends on the
evolution of the issues affecting our financial situation. See Note 2.5.b to the
Holding Annual Financial Statements.


                                       87
<PAGE>


Foreign-Denominated Debt and Investments

     As of December 31, 2004, our total liabilities amount to Ps.1,925 million,
which consist of Ps.23 million in negotiable obligations (including interests as
of that date), Ps.1,896 million of payables to related parties and Ps.6 million
in tax liabilities, other payables and short-term accounts payable.

     As of December 31, 2004, our cash and cash equivalents amount to nil.

Debt

     We had outstanding as of December 31, 2004 the following indebtedness:

     o    U.S.$637 million in short-term intercompany loans with TISA (including
          interest); and

     o    9.75% Notes due 2007 totaling approximately U.S.$8 million.

     Cointel has outstanding as of December 2004 the following unconsolidated
indebtedness and preferred stock:

     o    Ps.42 million (originally in U.S. dollars and pesified by the Public
          Emergency Law, plus the adjustment of the CER) in preferred capital
          stock and Ps.9.6 million in accumulated unpaid but not due preferred
          dividends;

     o    U.S.$488 million in short-term intercompany loans with TISA (including
          interest).

     Telefonica Argentina and Telinver had outstanding as of December 31, 2004
the following short-term consolidated indebtedness:

     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 Sector Privado ("LESEP") Notes due May 2005
          totaling Ps.163.3 million. These notes were cancelled on May 6, 2005;

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

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

     Telefonica Argentina and Telinver had outstanding as of December 31, 2004
the following long-term consolidated 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    11.875% Notes due 2007 totaling U.S.$189.7 million;

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


                                       88
<PAGE>


     As of December 31, 2002, Telefonica Argentina's 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 Telefonica
Argentina's 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, Telefonica Argentina's
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 Telefonica Argentina's unconsolidated current liabilities in Ps.1,150
million. Telefonica Argentina's unconsolidated current liabilities include
U.S.$200 million (34%) of debt owed to TISA.

     Telefonica Argentina's 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 its assets
or on present or future revenues, other than certain permitted encumbrances or
unless certain predetermined conditions are met.

     Additionally, Telefonica Argentina uses other long-term bank credit lines
to finance imports from different commercial banks.

     Exchange of Notes

     On May 19, 2003, Telefonica Argentina's board of directors approved offers
to exchange the outstanding negotiable obligations issued by Telefonica
Argentina and by Cointel for new negotiable obligations issued by Telefonica
Argentina plus a cash payment. Telefonica Argentina shareholders' meeting held
on June 26, 2003 approved the issuance of new notes to be issued pursuant to the
exchange offers.

     Offer to Exchange Telefonica Argentina's Notes

     Telefonica Argentina's negotiable obligations 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 Telefonica Argentina 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
the exchange offer.

     On August 7, 2003, Telefonica Argentina 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, Telefonica Argentina 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 nominal rate of 8.85%. They now have an outstanding
principal nominal amount of U.S.$0.03 million. Additionally, Telefonica
Argentina transferred Cointel's notes acquired in this exchange offer to TISA,
thus reducing Telefonica Argentina's short-term financial debt with TISA in the
amount of U.S.$174 million.

   Related Party Indebtedness

     As of December 31, 2004, Cointel and Telefonica Argentina on a consolidated
basis owed approximately Ps.2.049 million (U.S.$688 million) to TISA, which
matures substantially in 2005. On an unconsolidated basis Cointel owed the
equivalent of Ps.1,454 million (approximately U.S.$488 million, of which
U.S.$475.6 corresponds to the principal amount and approximately U.S.$12.4
million relates to accrued interests). Cointel's principal debt includes two
loans that amounted to U.S.$103 million and U.S.$171.4 million, respectively
that were used in order


                                       89
<PAGE>


to cancel its negotiable obligations. These loans accrued interest at LIBOR plus
a 5.5% per annum for a term of six months.

     During 2004, most of Cointel's debt with TISA has been rolled over on a
semi-annual basis and the debt owed by Telefonica Argentina with TISA has been
rolled over on a monthly basis. These agreements established the usual
commitments for these kind of transactions, including (1) requiring that such
debt will be pari passu with all of Cointel's and Telefonica Argentina's other
debt, (2) establishing that the creditor may accelerate the debt if there are
changes in Cointel's or Telefonica Argentina's equity, economic and financial
situation that due to their adverse nature may affect Cointel's or Telefonica
Argentina's capacity to comply with the obligations assumed in the agreements or
if there are restrictions that may limit Telefonica Argentina's or Cointel's
capacity to repay Cointel's or Telefonica Argentina's debts, (3) giving this
creditor the benefit of any financial covenant Cointel or Telefonica Argentina
have with any other creditor, (4) a clause that allows the creditor to make
assignments, and (5) acceleration clauses that would be triggered in the event
of certain court or out-of-court proceedings being initiated against Cointel or
any of Cointel's material subsidiaries in connection with claims exceeding a
certain percentage of Cointel's shareholders' equity or one of its material
subsidiary. Cointel and Telefonica Argentina have obtained a waiver in respect
of procedures of this nature that were pending against them as of July 8, 2005,
subject to the condition that no other debt would be accelerated on similar
grounds.

     During the fiscal year ended December 31, 2004, Cointel and TISA executed
an amendment to certain loan agreements whereby they agreed that TISA could
determine, prior written notice, the conversion into principal of accrued
interests as of each due date. During the fiscal year ended December 31, 2004,
interests converted into principal under the above-mentioned loans amounted to
U.S.$18 million.

     TISA has advised Cointel in writing, that until December 31, 2005, it
waives certain covenant defaults subject to certain conditions and that it will
not accelerate Cointel's loans on the basis of the effects of the Public
Emergency Law. This waiver does not constitute a roll over through the date of
the waiver. Regarding the maximum term provided by the above-mentioned waiver,
as of December 31, 2004, Cointel has classified as current liabilities, maturing
in equal annual consecutive installments until April 30, 2007, a loan of
U.S.$4.5 million (equivalent of Ps.13.4 million at the exchange rate in effect
on December 31, 2004), whose original maturity date was noncurrent.

     On May 20, 2003, Telefonica Argentina and TISA entered into an agreement
whereby the former immediately assigned to TISA title to and all credit rights
arising from Cointel's notes acquired by Telefonica Argentina under the offer to
exchange Telefonica Argentina and Cointel notes upon consummation of the offer
to exchange Cointel's notes for Telefonica Argentina's new notes described in
Note 7.3.1.b to the Cointel Consolidated Annual Financial Statements, with the
notes being immediately and unconditionally accepted by TISA. Simultaneously
with this assignment, TISA settled a portion of Telefonica Argentina's financial
debt (principal) to TISA as of that date. Consequently, after the agreement
described above, TISA became the main holder of Cointel's negotiable
obligations. See Note 7.3.3 to the Cointel Consolidated Annual Financial
Statements. During the fiscal year ended December 2004, the mentioned negotiable
obligations were cancelled by Cointel.

   Capital Expenditures

     For a discussion of Telefonica Argentina's capital expenditures, see Item
4: "Information on the Company--Business Overview--Capital Expenditures".

   Exposure to Foreign Exchange Rates

     Cointel's consolidated foreign currency financial and bank payables as of
December 31, 2004 amounted to approximately U.S.$.1.5 billion (approximately
Ps.4.3 billion), 19 million euro (approximately Ps.77 million), and 6.8 billion
Japanese yen (approximately Ps.197 million).

     Telefonica Argentina 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,
Telefonica Argentina also had the equivalent of approximately Ps.156 million of
trade and other payables denominated in foreign currencies.


                                       90
<PAGE>


Approximately Ps.358 million of Telefonica Argentina's receivables and
investments are denominated in foreign currency.

   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.

     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
Telefonica Argentina's tariffs, and the harsh macroeconomic conditions in
Argentina, by the end of 2003 and the beginning of 2004, both agencies increased
our ratings due to the close link with Telefonica Argentina's credit quality and
the support that the controlling shareholder (TISA) had shown. 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 Telefonica Argentina's operating and financial performance.

     Our 9.75% Notes due 2007 are currently rated "B-" and "raBBB" under
Standard & Poor's global and national scales, respectively, and "BBB+" and "B-"
by Fitch under its national and international scales, respectively.

C.   Research and Development, Patents and Licenses.

     We do not incur 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, we plan
infrastructure development 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 Results of Operations--Effects on Our Results of Operations and
Liquidity in Future Periods."

E.   Off-balance sheets arrangements.

     As of the date of this Annual Report we have no off-balance sheets
arrangements.

F. Tabular disclosure of contractual obligations.

     The following table represents a summary of our contractual obligations:

<TABLE>
                                         Payments due by period in millions of Ps.(1)
                                      --------------------------------------------------
                                               less than      1-3       3-5    more than
                                      Total      1 year     years     years     5 years
                                      --------------------------------------------------
<S>                                   <C>         <C>          <C>     <C>     <C>
Contractual Obligations
Short-Term and Long-Term
  Debt Obligations(2)..............   1,916       1,894        22        --         --
Total..............................   1,916       1,894        22        --         --
</TABLE>
----------
(1) Figures do not include taxes and interest.

(2) Includes only bank and financial debt obligations.


ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.   Directors and Senior Management.

     Our policies are established by our board of directors, which may consist
of 3 to 11 members, and currently consists of 5 directors and 4 alternate
directors. In accordance with our Estatutos ("bylaws"), each director is elected
by the shareholders for one fiscal year (or until his successor is elected and
qualified). The shareholders may elect


                                       91
<PAGE>


alternate directors who replace the principal directors in the event that any
vacancies arise. We also have a Comision Fiscalizadora ("Supervisory
Committee"), which is responsible for monitoring our management, and which may
consist of three to five members known as statutory auditors (sindicos) as well
as three alternate statutory auditors appointed annually by the shareholders.

   Board of Directors

     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      Appointing
Name                                                 Position         Appointment    Affiliate
-----------------------------------------------------------------------------------------------
<S>                                              <C>                      <C>        <C>
Jose Maria Alvarez Pallete Lopez.........            Chairman             2002          TISA
Mario Eduardo Vazquez....................         Vice Chairman           2003          TISA
Juan Ignacio Lopez Basavilbaso...........            Director             2003          TISA
Victor Jose Diaz Bobillo.................            Director             2004      Independent
Ernesto Jaime Ferrer ....................            Director             2005      Independent
Juan Carlos Ros Brugueras................       Alternate Director        2001          TISA
Manuel Alfredo Alvarez Tronge............       Alternate Director        2002          TISA
Jaime Urquijo Chacon.....................       Alternate Director        2004          TISA
Carolina Sigwald.........................       Alternate Director        2004      Independent
</TABLE>

     The board of directors appoints the Secretary. Two of our appointed
Directors are "independent" as that term is defined under Section 301 of the
Sarbanes Oxley Act and Resolution No. 368 of the CNV. Under such resolution 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.

   Audit Committee

     The board of directors appointed Juan Ignacio Lopez Basavilbaso, Ernesto
Jaime Ferrer and Victor Jose Diaz Bobillo as members of the Audit Committee. See
Item 10: "Additional Information--Corporate Governance--Good Corporate
Governance Practices".

   Supervisory Committee

     The following table sets forth the statutory auditors and alternate
statutory auditors of the Supervisory Committee:

<TABLE>
Name                                   Affiliation                       Position              Profession
---------------------------------------------------------------------------------------------------------
<S>                           <C>                              <C>                             <C>
Santiago Lazzati...........   Estudio Lazzati y Sanguineti          Statutory Auditor          Accountant
Edgardo Sanguineti.........   Estudio Lazzati y Sanguineti          Statutory Auditor          Accountant
Eduardo Luis Llanos........    Estudio Llanos y Asociados           Statutory Auditor          Accountant
</TABLE>


                                       92
<PAGE>

<TABLE>
Name                                   Affiliation                       Position              Profession
---------------------------------------------------------------------------------------------------------
<S>                           <C>                              <C>                             <C>
Jorge Hector Martinez......   Estudio Lazzati y Sanguineti     Alternate Statutory Auditor     Accountant
Lorena Edith Ratto.........   Estudio Lazzati y Sanguineti     Alternate Statutory Auditor     Accountant
Maria Cristina Sobbrero....   Estudio Lazzati y Sanguineti     Alternate Statutory Auditor     Accountant
</TABLE>

Other Positions Held

     The following table lists the positions that the members of our board of
directors, the Secretary to the board of directors and the members of our
Supervisory Committee hold in other companies, as well as their professional
backgrounds as of the date of this Annual Report:

<TABLE>
 Name                                    Profession    Company                                              Position
-----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>                                               <C>
 Jose Maria Alvarez Pallete Lopez         Business     Telefonica S.A.                                      Director
                                       Administrator   Telefonica Moviles                                   Director
                                                       Telefonica Data                                      Director
                                                       Telefonica de Argentina S.A.                       Vice Chairman
                                                       Telefonica Internacional                             Chairman
                                                       Telecomunicacoes de Sao Paulo TELESP S.A.          Vice Chairman
                                                       Telefonica Moviles Espana                            Director
                                                       Compania Telefonica Chile Transmisiones              Chairman
                                                          Regionales
                                                       Compania Internacional de                            Chairman
                                                          Telecomunicaciones S.A.
                                                       Telefonica CTC Chile                                 Director
                                                       Telefonica de Peru                                 Vice Chairman
                                                       TPI, representative of Telefonica                    Director
                                                       Telefonica Larga Distancia de Puerto Rico            Director

 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 SA                                          Director
                                                       Telefonica de Argentina S.A.                         Chairman
                                                       Telefonica Data Argentina S.A.                       Chairman
                                                       Compania Internacional de                          Vice Chairman
                                                          Telecomunicaciones S.A.
                                                       Telefonica Moviles de Argentina S.A.                 Chairman
                                                       Telefonica Comunicaciones Personales S.A.            Director
                                                       Telefonica Gestion de Servicios                    Vice Chairman
                                                          Compartidos Argentina S.A.
                                                       Radio Servicios S.A.                                 Director
                                                       Telinver S.A.                                        Chairman
                                                       Terra Networks Argentina S.A.                      Vice Chairman
                                                       Adquira Argentina S.A.                               Chairman
                                                       Fundacion Telefonica                                 Chairman
                                                       Telefonica Internacional S.A.                      Vice Chairman
                                                       Telefonica S.A.                                    Vice Chairman

 Victor Jose Diaz Bobillo                 Attorney     Transportadora Gas del Sur. S.A.                     Director
 Juan Ignacio Lopez Basavilbaso           Engineer     Altocity.com S.A.                                    Director
                                                       Telefonica Comunicaciones Personales S.A.            Director

</TABLE>


                                       93
<PAGE>


<TABLE>
 Name                                    Profession    Company                                              Position
-----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>                                               <C>
                                                       Telefonica de Argentina S.A.                       Director/CFO
                                                       Compania Internacional de                            Director
                                                          Telecomunicaciones S.A.

 Juan Carlos Ros Brugueras                Attorney     Compania de Telecomunicaciones de Chile              Director
                                                          S.A.(C.T.C.)
                                                       Telecomunicacoes de Sao Paulo S.A.                   Director
                                                       Telefonica Larga Distancia de Puerto Rico            Director
                                                          Inc
                                                       Telefonica del Peru S.A.                             Director

 Manuel Alfredo Alvarez Tronge            Attorney     Adquira S.A.                                         Director
                                                       Altocity.com                                         Director
                                                       Telefonica Moviles Argentina S.A.                    Director

 Jaime Urquijo Chacon                     Engineer     Logistica S.A.                                       Director
                                                       Fundacion Fondo Nacional para la                   Vice Chairman
                                                          Proteccion de la Naturaleza
                                                       Fundacion Altadis                                  Vice Chairman
                                                       Quimigal S.A.                                        Director

 Carolina Sigwald                         Attorney     Transportadora Gas del Sur. S.A.                     Director
                                                       Supertap S.A.                                        Director
                                                       Heidrick & Struggles S.A.                            Director
</TABLE>

     Jose Maria Alvarez-Pallete Lopez, 41, is the Chairman 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 TISA. In September 1999, he became Corporate Chief
Financial Officer at Telefonica. Since July 2002, he has been the Chief
Executive Officer of TISA.

     Mario Eduardo Vazquez, 69, is our Vice-Chairman and the President of
Telefonica Argentina since June 6th, 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.

     Victor Jose Diaz Bobillo, 44, is a member of our board of directors.
Argentine, he obtained his law degree from the University of Buenos Aires in
1983. He is a partner in Diaz Bobillo, Richard & Sigwald. He is also the
President of Riviera Center S.A., a director of Argforus S.A., Laborum.com
Argentina S.A. and Graham Packaging Argentina S.A. He is also statutory auditor
of Gener Argentina S.A. and Energen S.A. He is a member of our and
Transportadora de Gas del Sur S.A.'s audit committees. He has served as
Vice-President of Central Puerto S.A. and as a director of Gassur S.A. and
Central Neuquen S.A.

     Ernesto Jaime Ferrer, 60, is a member of our board of directors and he is
Argentine. He is an electromechanical engineer and he obtained his degree at the
National University of Cuyo. He also holds a postgraduate degree from the
Harvard Business School. He started his professional career in Schlumberge, in
the petrol industry, and then in the IMPSA Group, where he was General Manager.
He also worked in Austral Lineas Aereas and Aerolineas Argentinas, air travel
companies, reaching the Direction of Strategic Planning. He was in charge of
the Executive Direction of Multimedios Telefe, Radio Continental and Produfe. He
was director of special projects for the Sociedad Comercial del Plata Group,
working for companies like SCP, CPC, Agar Cross, Aguas Argentinas, Aguas de
Cordoba, Ferroexpreso Pampeano and Millicom. He was also a member of the Consejo
de Administracion of IMPSA, Ferrocarriles BAP, Mesopotamico and Ferroexpreso
Pampeano, IMPSAT, Austral, Aguas Argentinas, Aguas de Cordoba and Aguas de Santa
Fe; Aguas del Illimani, in Bolivia; CPC, Agar Cross, Millicom and CTI. He is
executive director of IDEA and a member of the Executive Committee of the
Argentinean Institute for the Organizations Government.

     Juan Ignacio Lopez Basavilbaso, 50, is a member of Telefonica Argentina's
board of directors and he is an Argentine citizen. He is an engineer and holds a
business postgraduate degree from the University of California at Berkeley.


                                       94
<PAGE>


He joined the Finance Department of Telefonica 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 Argentina in April 1998, and since 1999 he has been Telefonica
Argentina's Chief Financial Officer. Before joining Telefonica Argentina, he
worked in the corporate banking department of Citibank in Buenos Aires.

     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.

     Manuel Alfredo Alvarez Tronge, 47, is an alternate member of our board of
directors. 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 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).

     Jaime Urquijo Chacon, 73, is an alternate member of our board of directors,
a Spanish citizen and has an engineering degree from Madrid University and has
studied Economic Business Administration and Genetics in the United States. 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.

     Carolina Sigwald, 37, is a member of our board of directors. She obtained
her law degree at the University of Buenos Aires in 1992. She started her
professional career that same year as a member of the legal department of
Central Puerto S.A., an electrical generation company, dedicating herself
principally to providing legal advice to the head of finance of the company. In
1996 she joined the corporate finance department of Chadbourne & Park LLP in New
York, where she specialized in capital markets and debt restructuring. From 1997
to 1998 she was a project attorney in the legal department of the International
Development Bank in Washington D.C., where she concentrated on financing
projects for Latinamerican companies. Since 1998 she has been a partner in Diaz
Bobillo, Richard & Sigwald, concentrating on corporate and financial law. She is
currently a director and member of our and Transportadora de Gas del Sur S.A.'s
audit committees, as well as a statutory auditor of Gener Argentina S.A.,
Energen S.A., TermoAndes S.A., and InterAndes S.A. and an alternate director of
Supertap S.A. and Heidrick and Struggles S.A.

     Presently, we do not have any executive officers, although the Presidente
(Chairman) of our board of directors has certain executive authority.

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.

     When the exercise of special technical or administrative duties or
functions on the part of one of the directors in the face of limited or
non-existent profits were to impose the need to exceed the pre-established
limits, such remuneration may only be made if it was approved by the annual
general meeting of shareholders.

     For the fiscal year ended December 31, 2004, there were no special
compensation plans paid to directors and executive officers.


                                       95
<PAGE>


     Presently, only our independent directors are compensated for their
services. We do not compensate our other directors. Pursuant to Law No. 19,550,
as amended, the compensation of the members of the board of directors and of the
Supervisory Committee of Argentine corporations (such as us) is determined by
the ordinary shareholders' meeting of any such corporation. As of the date
hereof, our meeting determined to pay Ps.160,000 to our independent directors
and Ps.72,000 to the Supervisory Committee for fiscal year 2004. Cointel's
shareholders meeting approved a payment of Ps.54,000 to the Supervisory
Committee. For additional information regarding compensation of the directors,
officers and employees of Telefonica Argentina, reference is made to Item 6:
"Directors, Senior Management and Employees-Compensation" and "Employees"
contained in the Annual Report on Form 20-F of Telefonica Argentina filed with
the Securities and Exchange Commission on April 7, 2005.

C.   Board Practices.

     Our board of directors' duties and responsibilities are set forth by
Argentine law and our bylaws.

     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 and an
Audit Committee. See Item 10: "Additional Information--Corporate Governance".

     The members of the board of directors of a company incorporated under
Argentine law have a general duty of loyalty and diligence in conducting a
company's affairs. The Argentine Companies Act No. 19,550 requires directors to
act within the standard of diligence of "a good businessman". Noncompliance by
members of a board of directors with such duties makes them subject to unlimited
joint liability for any resulting damage to the company. They are also liable on
the same terms for any infringement of the law, of the bylaws or the articles of
association of the company for any damages caused by abuse of power, willful
misconduct or gross negligence.

     Argentine law provides that the members of a board of directors cannot
enter into any contractual relationship with the company they serve in such
capacity, except on contracts entered into on an arm's-length basis and related
to the company's activities. Any contract between a company and a member of its
board of directors that does not comply with such conditions could only be
entered into with the approval of the board of directors or of the statutory
auditors in the event of a lack of quorum at the relevant board of directors
meeting. The company's shareholders must also be given notice of the contract.
Lack of compliance with these requirements renders the contract null and void,
unless ratified by a meeting of the company's shareholders. If the shareholders'
meeting fails to approve the relevant contract, the relevant members of the
board of directors (or, if relevant, the statutory auditors) are jointly liable
for any resulting damage to the company.

     The members of the board of directors have a duty of loyalty towards the
company. Any member of the board of directors having a conflict of interest with
the company on any particular matter must inform the board and the statutory
auditors of such conflict of interest and abstain from participating in the
discussion of or decisions on such matter. Failure to do so, gives rise to
unlimited joint and several liability of the directors to the company.

     Likewise, members of the board of directors are barred from participating
(on their own or on a third party's behalf) in an activity in competition with
the company's activities, except in case of express authorization by the
shareholders meeting. Failure to do so, gives rise to unlimited joint and
several liability of the director to the company.

     Also, in the case of companies subject to the public offer regime, such as
us and Telefonica Argentina, Decree No. 677/01 provides that a board should (i)
under no exception, cause to prevail the interest of the company and the
interest in common of the shareholders over any other interest, including the
interest of any controlling company; (ii) abstain from procuring any personal
benefit from the company except for their compensation for their duties as such;
(iii) organize and implement preventive systems and mechanisms to protect the
interest of the company, so as to reduce the risk that any permanent or
temporary conflict of interest occurs in connection with their personal
relationship with the company or in the relationship of other persons related to
the company and the company; (iv) procure adequate means to carry the activities
performed by the company and implement internal control


                                       96
<PAGE>


mechanisms in order to guarantee that their duties are performed prudently and
to prevent non-compliance of the duties imposed by the regulation issued by the
CNV or any other supervising authority; and (v) act within the standard of
diligence of a good businessman in preparing and divulging information for the
market and strive for the independent nature of the external auditors.

D.   Employees.

     Our and Cointel's Employees. Neither Cointel nor we have any employees. We
provided administrative services required by Cointel and managed Cointel's
day-to-day activities until December 15, 2000. Since then, Telefonica Argentina
provides such services to both Cointel and us. See Item 4: "Information on the
Company--Telefonica Argentina Management Contract" and Item 7: "Major
Shareholders and Related Party Transactions".

     Telefonica Argentina Employees. As of the Transfer Date, Telefonica
Argentina had 21,770 employees. Telefonica Argentina then instituted a program
designed to achieve productivity levels commensurate with that of similar
international telecommunications companies. Telefonica Argentina expects such
labor costs per line to decrease because it projects that the growth in the
number of lines in service will exceed the rate of increase in wages per
employee and because Telefonica Argentina estimates that the number of employees
will remain stable or decrease over time as a result of increased efficiencies
and technological advances.

     On December 31, 2004, Telefonica Argentina had 8,757 full-time employees,
490 temporary employees and 52 trainees. Telefonica Argentina's subsidiary,
Telinver, had 329 full-time employees and 14 trainees as of December 31, 2004.

     The following table provides the number of Telefonica Argentina's
unionized, non-unionized, temporary, and trainee employees for the fiscal years
ended December 31, 2004, 2003, and 2002 (not including Telinver).

                                       December 31,   December 31,  December 31,
                                            2004         2003          2002
                                       -----------------------------------------
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

     For the fiscal year ended December 31, 2004, the principal components of
labor costs were basic wages, overtime and fringe benefits. Telefonica Argentina
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 Telefonica Argentina's 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. Telefonica
Argentina has calculated its 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


                                       97
<PAGE>


agreement provides for new labor policies such as flex-time variable work
schedules and wage adjustments based on Telefonica Argentina's overall
productivity. The terms of this agreement have not increased Telefonica
Argentina's 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 Telefonica Argentina's 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, Telefonica
Argentina 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,
Telefonica Argentina signed 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, Telefonica Argentina 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 did 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 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 service, directory
information and international call assistance services. In addition, they took
over Telefonica Argentina's National Switching Boards, although service was not
discontinued and operations were not materially affected. After the
negotiations, Telefonica Argentina, the governmental enforcement authority and
the unions agreed upon an increase in the basic fixed salary under the previous
collective bargaining agreement of up to approximately 20%, effective as of
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 these incidents Telefonica Argentina's Management considers its
current relations with its work force to be stable and constructive. Since
privatization, Telefonica Argentina has not experienced a work stoppage that has
had a material effect on its operations.

E.   Share Ownership.

     As of the date of this Annual Report none of our Directors, Alternate
Directors, executive officers or statutory auditors owns any stock of our
company.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.   Major Shareholders.

     As of the date of this Annual Report, our principal shareholder is TISA,
which owns 99.96% of our capital stock.

     The following table sets forth certain information regarding ownership of
our outstanding class A shares and class B shares as of the date of this Annual
Report.


                                       98
<PAGE>


<TABLE>
                                   Class A          Class B
                                  Ordinary         Ordinary
                                Shares (five      Shares (one
Shareholder                        votes)            vote)       Total Shares   % of Capital      Votes     % of Votes
-----------------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>             <C>              <C>         <C>           <C>
TISA......................        30,427,328      374,128,147     404,555,475      99.957037   526,264,787   99.966970
Other minority
   shareholders...........                --          173,885         173,885       0.042963       173,885    0.033030
                                  -------------------------------------------------------------------------------------
   Total..................        30,427,328      374,302,032     404,729,360(1)  100.00       526,438,672  100.00
                                  =====================================================================================
</TABLE>
----------
(1) Not including 2,000,000 shares to be issued pending approval by the CNV and
    the Buenos Aires Stock Exchange.

     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 No. 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.

     On December 16, 2004, the general and special Class B shareholders' meeting
resolved to increase the capital stock by Ps.2 million, to 406,729,360, in
accordance with the provisions of Resolution No. 466/04 of the CNV, and to issue
at par value, 2,000,000 common, Class B shares of one peso (Ps.1) face value
each and entitled to one vote per share, which will have the same rights to
dividends, as from the beginning of the fiscal year in which the shares are
issued, and will rank pari passu with the remaining Class B shares outstanding
as of their issuance date. Pre-emptive subscription rights may be exercised
within the pre-emptive subscription period of 30 days counted since the date
designated by the board of directors, on a pro rata basis. Simultaneously, the
shareholders may exercise their accrual rights over the remaining unsubscribed
portion, in identical proportion as the subscription of the pre-emptive right
bearers over the total issue amount. In addition, we filed the application for
public offering of the new shares to be issued as a result of the capital
increase and their listing on the Buenos Aires Stock Exchange. As of the date of
issuance of these financial statements, such capital increase is pending
approval by the CNV and the Buenos Aires Stock Exchange and pending registration
by the Public Registry of Commerce. In addition, our shareholders approved
another capital increase of up to Ps.2,046 million on February 15, 2005. As of
the date of this Annual Report, we are also still waiting for the approval of
the CNV and the Buenos Aires Stock Exchange and the registration by the Public
Registry of Commerce. See Item 3: "Key Information--Risk Factors--The
deterioration of the Argentine economy and the pesification and freezing of
Telefonica Argentina's tariffs have made it difficult for us and Cointel to
access the capital markets or obtain new third-party financing in amounts
sufficient to enable us and Cointel, together with internally generated funds,
to meet our respective debt obligations, corresponding mainly to a significant
amount of indebtedness owed to TISA".

B.   Related Party Transactions.

     For more information regarding related party transactions, see Note 5 to
the Holding Annual Financial Statements.

     Stock Exchange Agreement

     As a result of the consummation of the Stock Exchange Agreement, on
December 15, 2000, ATH and IEI contributed to Telefonica shares of Holding
representing 80.9% of our capital stock and 84.7% of our total voting shares. On
June 29, 2001, Telefonica informed us that on May 8, 2001, it transferred to
TISA, Telefonica's wholly owned subsidiary, all of Telefonica's 80.9% equity
interest in us. Additionally, as a result of several transactions, TISA's equity
interest in us, increased from 80.9% to 99.96%. See Item 4: "Information on the
Company--History and Developments of the Company".

     Loan Agreement with TISA

     On February 12, 2001, we received a loan from TISA in the amount of
U.S.$530.1 million, which accrued interest at LIBOR plus a 2.25% per annum (the
"differential") for a term of one month, renewable automatically on a monthly
basis unless the parties notify in writing, at least three days before due date,
that they do not intend to renew the agreement. TISA is entitled to modify the
differential provided it notifies us of this decision at least three


                                       99
<PAGE>


business days before the end of each interest period. The funds borrowed from
TISA were used to partially repurchase our Notes (see Note 9 to the Holding
Annual Financial Statements). Subsequently, on February 14, 2001, we made an
early partial repayment to TISA of this loan for an amount of U.S.$37.9
million.

     On June 24, 2004, we and TISA entered into an amendment to the loan
agreement whereby they agreed that the due principal will be paid semi-annually
and that interest capitalization will continue being monthly, setting the
differential for the first period in 9% nominal per annum. Additionally, on
July 26, 2004, we and TISA agreed that the differential for the second period
would be 5.5% nominal per annum, which it has remained unchanged for the
following periods and the loan agreement was amended, eliminating the early
termination event triggered by the existence of restrictions that could limit
our ability to repay its debt with TISA. On December 27, 2004, the loan
agreement was amended, and it was agreed that the capitalization of interest
will be semi-annual. Additionally, during the January-March 2002 quarter, we
received loans from Telefonica Argentina for US$5.8 million ("the Dollar
Loans"). On April 26, 2002, we entered into an assignment agreement with
Telefonica Argentina and TISA pursuant to which Telefonica Argentina assigned
to TISA the Dollar Loans in the amount of US$5.8 million, which includes
principal amount and accrued interest as of April 26, 2002. On December 28,
2004, our Board of Directors resolved to call a Special Shareholders' Meeting
on February 15, 2005, in order to resolve upon the partial capitalization of
the loan held by TISA with us for an amount of up to approximately Ps.2,046
million. On February 15, 2005, due to the capital stock increase described in
Note 7.5 of the Holding Annual Financial Statements, we and TISA agreed to
amend the loan agreements in effect as of such date in order to provide for:
(i) the conversion to pesos of US$622.5 million (Ps.1,785 million) which shall
not accrue interest as from February 15, 2005 and shall not become due before
April 1, 2006, and (ii) ratify that the residual amount of TISA's credit for
US$20 million is subject to the same conditions as those agreed upon on
December 27, 2004. We believe that the capital stock increase will be completed
during the current fiscal year 2005.

     In obtaining the above-mentioned loan, we have assumed certain
commitments, mainly involving limitations on the sale of assets, limitations on
liens of certain assets, limitations on us or any of our affiliates becoming a
party in merger or spin-off operations, with certain exceptions. In addition,
the loan shall forthwith become due and payable: 1) upon our default on any of
the commitments assumed under the loan agreement, 2) in the event of any change
in our controlling shareholder, 3) if we or our affiliates are unable to comply
with their obligations, 4) changes in our main business activity, 5) if we or
any of our affiliates lose the government licenses obtained and 6) if there are
changes in our equity, economic and financial situation that due to their
adverse nature may affect our ability to comply with the obligations assumed in
the agreement or if there are restrictions that may limit our ability to repay
its debts. On June 17, 2005 we cancelled US$7 million. As of June 27, 2005, the
amount outstanding on this loan was U.S.$12.7 million, taking into account the
partial capitalization of this loan discussed in Item 4: "Information on the
Company--History and Development of the Company--Plan for Recapitalization".

     In relation to the loan of US$20 million mentioned above, TISA has
advised us that, until July 1, 2006, TISA shall not consider that an
acceleration event has been verified under our agreements with TISA.
Additionally, some of the loan agreements in effect include acceleration events
in case certain judicial or extra-judicial proceedings are filed for amounts in
excess of certain net equity percentages of us or a relevant affiliate. We
obtained a waiver in connection with those proceedings as of the date of
issuance of the this annual report until July 1, 2006.

     On June 17, 2005 we cancelled U.S.$7 million of the above mentioned loan.

     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.

     Telefonica Holding Advisory Agreement

     The only significant income we currently receive is due to the Telefonica
Holding Advisory Agreement dated April 24, 1997 pursuant to which we receive
fees (the "Telefonica Holding Advisory Fee") for the compliance of obligations
including financial advice to TESA Arg., as operator of Telefonica Argentina
(the "Telefonica Holding Advisory Agreement"). The amount of the Telefonica
Holding Advisory Fee will depend upon, among other things, the continuation or
modification in material respects or early termination of the Management
Contract, as well as upon the operating results of Telefonica Argentina, which
determine the amounts Telefonica receives under the Management Contract, that in
turn determine the amount of Telefonica Holding Advisory Fee payable to us. The
Management Contract provided that the Management Fee Percentage would be 9%
through April 30, 2003 and that, if the contract was extended beyond that date,
the Management Fee Percentage would be reduced to a negotiated amount ranging
between 1.5%


                                      100
<PAGE>


and 5.0%. On October 30, 2002 Telefonica notified Telefonica Argentina that it
had exercised its right to extend the term of the Management Contract for an
additional 5 years to be counted as from April 30, 2003 by virtue of the right
conferred by such agreement. On April 30, 2003 Telefonica Argentina and
Telefonica agreed upon a 60-day period during which the management fee would
not be payable while they negotiate the new percentage applicable to the 5-year
extension term, retroactively as from May 1, 2003. On July 30, 2003 Telefonica
entered into a Supplement Management agreement, which had been in force as of
such date pursuant to successive extension and in conformity with the clauses
of the original agreement, pursuant to which the management fees as from May 1,
2003 were agreed upon 4% of the gross margin. During the years ended December
31, 2004 and 2003, we did not receive any financial advice request and
performed our duties contained in such agreement for which we are entitled to
receive the relevant fees, which amounted to Ps.33 million and Ps.40 million
for such years, respectively, and were included in "Other income relating to
equity interests in Section 33 Companies, net" in the statements of operations.
As of the date of issuance of this Annual Report, TESA Arg. has not requested
any further services. If any such request is made by TESA Arg., we will use the
terms set forth in the agreement for adopting the necessary actions so as to
have optimum operating resources available for satisfying future specific
requests in the most efficient manner. The related receivables, which amount to
Ps.27 million as of December 31, 2004 and 2003, are included as "Other
receivables" in the balance sheets as of December 31, 2004 and 2003,
respectively.

     Other Related Party Contracts

     During the year ended December 31, 2004, Telefonica Argentina has provided
administrative services to us for Ps.0.1 million (in pesos restated for
inflation to February 28, 2003).

     Outstanding balances with related companies

     The outstanding balances with related companies as of December 31, 2004 are
listed below:

                                                                    2004
                                                             ------------------
                                                             (in million pesos)
Current receivables
Telefonica S.A. Sucursal Argentina ("TESA Arg.")(1)..........          27
                                                             ------------------
                                                                       27
                                                             ==================
Current payables
TISA(2)......................................................       1,896
                                                             ------------------
                                                                    1,896
                                                             ==================
---------
(1)  Accruing no interest.

(2)  With principal maturing on June 27, 2005 and semiannual interest
     capitalization, accruing interest at a nominal rate of 8.3125% per annum.
     See Note 5.c.(ii) to the Holding Annual Financial Statements.

C.   Interest of Experts and Counsel.

     Not Applicable.

ITEM 8. FINANCIAL INFORMATION

A.   Consolidated Statements and Other Financial Information.

     The Holding Annual Financial Statements and Cointel Consolidated Annual
Financial Statements which are set forth in the accompanying Index to the
Holding Annual Financial Statements included in this report, are filed as a part
of this Annual Report.

Legal Proceedings

     On June 24, 2004, and due to a claim brought by a minority shareholder, the
CNV issued a resolution that informed us of alleged infractions to certain
articles of the Companies Law, the Code of Commerce and the CNV rules, in
relation to: (i) the compensation we granted, between October 1, 1998 and
September 30, 2001, to one of our previous directors under an advisory contract,
and (ii) our accounting treatment, in the year ended December 31, 2000, of the
payment made by AMI Cable Holdings, Ltd. (a related company of


                                      101
<PAGE>


our previous shareholders) for the rescission of the above-mentioned advisory
contract. The sanction that could possibly correspond to us would consist of a
warning or fine of up to Ps.1.5 million, which could be raised up to five times
the amount of the greater of the benefit obtained or the damage caused. In the
opinion of our management, it is unlikely that we will be sanctioned.

     During the six-month period ended June 30, 2004, we, as co-defendant along
with Cointel, were sued by the Cointel preferred shareholder that holds 100% of
the outstanding preferred shares in relation with the pesification of its
preferred shares. On September 16, 2004 Cointel was notified of a legal action
filed by such preferred shareholder contesting the shareholders' meeting held on
April 19, 2004 that approved Cointel's financial statements for the fiscal year
ended December 31, 2003, insofar as they disclose as pesified the redemption
value of the preferred shares and related accumulated unpaid accrued dividends
in accordance with the regulations in force. In addition, Cointel has been
notified of a precautionary measure (specifically, an order to record the
existence of a pending action) in connection with the contestation filed in
court by such preferred shareholder. Our and Cointel's management and our
respective legal counsels consider that, based on the above-mentioned analysis
and in the light of the rules in force, it is unlikely that the determination of
this issue will have an adverse effect on Cointel.

Telefonica Argentina's Legal Proceedings

   Telefonica Argentina's Contingencies

     Telefonica Argentina is 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 Telefonica
Argentina's financial statements, considered on the basis of the opinion of
Telefonica Argentina's legal counsel, indicates that it is probable that an
asset had been impaired or a liability had been incurred at the date of its
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, Telefonica Argentina recorded Ps.271
million as reserves for contingencies.

     The breakdown of Telefonica Argentina's 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 resulting 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 likely to succeed
taking into account certain recent judgments of the court of appeals that were
adverse to Telefonica Argentina; and

     (ii) new claims for alleged rights provided for in the labor law and
related costs which amounted to Ps.44 million, for which Telefonica Argentina
considered it advisable to reach settlement agreements. Telefonica Argentina
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, Telefonica Argentina's 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 relate to:

     o    Joint and several liability with third parties


                                      102
<PAGE>


     o    Industrial labor accidents

     o    Illnesses

     o    Other severance payments

     Tax contingencies:

     Telefonica Argentina's reserves for contingencies related to tax matters
assessed as probable to lead to losses 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 its joint liability with a third party.

     These tax issues are related to:

     o    Municipal taxes

     o    Provincial taxes

     Civil, commercial and other contingencies:

     Telefonica Argetina's reserve for contingencies related to civil,
commercial, administrative, regulatory compliance and other matters assessed as
probable to lead to losses as of December 31, 2004 and 2003 amounted to Ps.57
million and Ps.85 million, respectively. The main decrease of Ps.31 million
corresponds to the payment in 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 Telefonica Argentina 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 Telefonica Argentina, arguing that neither the Transfer Contract
nor any act of the Argentine government can be raised as a defense to Telefonica
Argentina's 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. 1,803/92 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. 1,803/92 inapplicable.

     As of December 31, 2004, the amount of these labor claims including accrued
interest and legal expenses totaled approximately Ps.54 million. Telefonica
Argentina has not created any reserve for these claims because (1) pursuant to
the Transfer Contract, ENTel has agreed to indemnify Telefonica Argentina 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
Telefonica Argentina to debit an account of the Argentine government at Banco
Nacion for any amount payable by Telefonica Argentina in respect to the
indemnification.


                                      103
<PAGE>


     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, Telefonica Argentina has paid
approximately Ps.6.9 million to satisfy a number of claims. On December 16,
1999, Telefonica Argentina initiated a claim for indemnification and
reimbursement in connection with these payments. The case is being argued in
court, and no ruling has been issued yet.

     Regardless of the number of rulings that have already been decided in
Telefonica Argentina's 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 Telefonica Argentina and its legal
counsel consider will apply to its 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
Telefonica Argentina's legal counsel regarding the possible amount for which
existing claims may be resolved, on the other, in Telefonica Argentina's opinion
and its legal counsel's opinion the outcome of the issue should not have a
material impact on Telefonica Argentina's results of operations or financial
position.

   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, Telefonica
Argentina, as a successor in TLDA's business, has 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 Telefonica Argentina consisting of a fine of Ps.680,000 for alleged
breach of the General Basic Telephone Service Rules, and further imposed on
Telefonica Argentina several other related obligations, mainly related to the
restitution of those services affected by stolen cables. Telefonica Argentina is
in the process of appealing the penalty. In our and Telefonica Argentina's
opinion and in the opinion of its 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) Telefonica Argentina has
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) Telefonica
Argentina is reimbursing customers for non-service days and has timely answered
each of the National Communications Commission's requests for information. The
enforcement of these fines against Telefonica Argentina 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 Telefonica
Argentina's 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 Telefonica Argentina had applied a
useful life of 15 years, the Argentine Tax Authorities assessed its taxes based
on a useful life of 20 years. Having analyzed the issue, Telefonica Argentina
appealed the assessment imposed by the Tax Authorities in Argentina's
Administrative Tax Court based on its position that there are strong arguments
against the Tax Authorities' assessment.

     However, in November 2004, the Argentine Administrative Tax Court entered a
judgment against Telefonica Argentina forcing it to amend the tax returns
referred to above. Additionally, the judgment repealed the penalties


                                      104
<PAGE>


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 Telefonica Argentina, it was compelled to pay Ps.6
million, in addition to Ps.17 million as punitive interest in December 2004.
Telefonica Argentina charged these payments to expenses. Telefonica Argentina
believes 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, Telefonica
Argentina and its legal counsel are of the opinion that there are legal grounds
for a successful appeal of the judgment entered against it and have presented an
appeal to have the judgment against it 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 Telefonica
Argentina 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 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 Telefonica Argentina's contract have been called into question
as well.

     After analyzing the claim, Telefonica Argentina's 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 Telefonica Argentina's 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
its legal counsel, Telefonica Argentina 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, Telefonica
Argentina 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 Telefonica Argentina's management and legal counsel's opinion, it is
unlikely and remote that the resolution of these issues would have a negative
effect on the results of Telefonica Argentina's operations or Telefonica
Argentina's financial position.

     On July 29, 2003, Telefonica Argentina received a communication sent by the
CNC requesting it and Telefonica Larga Distancia de Argentina S.A. ("TLDA
S.A."), a company that was merged into Telefonica Argentina, 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 No. 18,771/99 of the Secretary of Communications,
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). Telefonica Argentina, both with respect to its own operations as
well as successor of the rights and obligations of TLDA S.A., has recorded a
liability related to those savings for the outstanding principal, for an amount
of Ps.21 million, which, it understands, is its total liability as of December
31, 2004. In the opinion of its management and its legal counsel, Telefonica
Argentina has solid ground to claim that this liability should not be considered
as delinquent and so Telefonica Argentina 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.


                                      105
<PAGE>


     During the normal course of business, Telefonica Argentina is subject to
miscellaneous other labor, commercial, tax and regulatory claims. The outcomes
of such individual matters are impossible to predict with certainty. Based on
management's assessment regarding the probable loss from such claims and the
advice of legal counsel, Telefonica Argentina has reserved Ps.267 million for
contingencies as of December 31, 2004.

Dividend Policy

     We expect to pay dividends in an amount up to 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 we may be subject. The
distribution of these dividends is also dependent upon whether (i) such
distribution is considered advisable as a matter of prudent business judgment,
(ii) sufficient funds are available and (iii) there exists any significant
restriction on our ability to obtain funds in the financial markets.

     As Telefonica, indirectly through TISA, is the beneficial owner of 99.96%
of our capital stock and can appoint the necessary number of directors to
prevail in our board of directors' decisions, Telefonica can recommend and
approve or disapprove the declaration, amount and payment of dividends, subject
to the availability of profits and the requirements of Argentine law. However,
there can be no assurance as to whether dividends will be declared in the future
or the amount thereof.

     Under a shareholders' agreement dated as of April 21, 1997, we and TISA,
who as of such date owned an 83.36% equity interest in Cointel, had agreed to
cause Cointel, Telefonica Argentina and their subsidiaries to distribute to
their respective shareholders the maximum portion of their 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 (i) such distribution
were advisable as a matter of prudent business judgment, (ii) sufficient funds
were available and (iii) there were any significant restrictions on the ability
of any of these companies to obtain funds in the financial markets.

     Telefonica Argentina's board of directors determines, subject to approval
by the majority vote of shareholders, the timing and amount of any dividends. As
its majority shareholder, Cointel effectively controls the outcome of any vote
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 in the future.

     As Telefonica is the beneficial owner of 100% of Cointel and can appoint
the necessary number of directors to prevail in Cointel's board of directors'
decisions, Telefonica can recommend and approve or disapprove the declaration,
amount and payment of dividends, subject to the availability of profits and the
requirements of Argentine law. However, there can be no assurance as to whether
dividends will be declared in the future or the amount thereof.

     As of December 31, 2004, we carry accumulated losses amounting to Ps.2,267
million and negative shareholders' equity amounting to Ps.1,112 million, so no
dividend can be distributed. See Item 3: "Key Information--Risk Factors-- We,
Cointel and Telefonica Argentina suffered a significant loss in 2002, which
resulted in an elimination of our, Cointel's and Telefonica Argentina's
unappropriated earnings, and therefore lost our, Cointel's and Telefonica
Argentina's ability to distribute dividends".

B.   Significant Changes

     Since January 1, 2003 the peso has strengthened against the U.S. dollar. On
July 12, 2005, the peso/U.S. dollar exchange rate was Ps.2.87 to U.S.$1.00,
which differs from the exchange rate of Ps.2.8 to U.S.$1.00 as of December 31,
2004, as published by Banco Nacion.

     On December 28, 2004, the board of directors called a special shareholders'
meeting on February 15, 2005, to resolve upon the partial capitalization of the
loan held by TISA with us, for an amount of up to approximately Ps.2,046
million.

     On February 15, 2005 the special shareholders' meeting approved the
increase of the capital stock, for an amount of up to Ps.2,046 million, ratified
the capital stock increase of Ps.2 million approved by the shareholders' meeting
of December 16, 2004 and delegated to our board of directors the setting of the
final amount and other


                                      106
<PAGE>


issuance conditions of such capital stock increase. The capital increase can be
subscribed with (i) the partial capitalization of the loan held by TISA with
us, (ii) the irrevocable capital contributions of TISA for future share
subscriptions of Ps.2 million or (iii) cash. In this regard, in this special
shareholders' meeting, TISA expressed its intention to partially capitalize its
loan for an amount of Ps.1,785 million. As a result of this capital stock
increase, we expect that we will no longer be under the conditions of Item 5 of
Section 94 of the Companies Law and, consequently, with respect to this matter,
we will be able to continue normal operations. See Notes 8 and 10 to the
Holding Annual Financial Statements.

     Despite the plans for capitalization mentioned above, we are under the
condition for mandatory capital stock reduction under Argentine law. According
to Section 206 of Companies Law, if the accumulated losses exceed reserves plus
50% of the capital stock at any year end, a company is required to reduce its
capital stock. However, Decree No. 540/05 dated May 30, 2005 extended the
enforcement of Section 206 of the Companies Law until December 10, 2005.

ITEM 9. THE OFFER AND LISTING

A.   Offer and Listing Details.

   9.75% Series B Notes due 2007

     On February 14, 1997, we issued U.S.$225,000,000 of our 9.75% Series B
Notes due 2007. The Series B Notes constitute obligaciones negociables under,
and were issued pursuant to and in accordance with the requirements of, the
Negotiable Obligations Law, as well as other applicable Argentine laws and
regulations. As of the date of this Annual Report we have U.S.$7.6 million
outstanding under these notes.

     The Series B Notes trade through the over the counter market in the United
States and are listed in Argentina on the Buenos Aires Stock Exchange. The
Series B Notes are not listed on any other securities exchange or quoted on any
automated inter-dealer quotation system in the United States or elsewhere.

B.   Plan of Distribution.

     Not applicable.

C.   Markets.

     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
                                                    ------------------------------------------------------
<S>                                                  <C>        <C>         <C>        <C>         <C>
Market capitalization (U.S.$ billions)........        231.7      184.5       103.3      192.5       165.8
As percentage of GDP(1).......................        158.8%     144.6%      103.5%      71.6%       58.3%
Annual volume (U.S.$ millions)................      4,792      2,994       1,312      4,192       9,679
Average daily trading volume (U.S.$ millions).         18.8       11.9         5.2       16.7        38.0
Number of listed companies....................         76         80          83         87          92
</TABLE>

---------
(1)  GDP refers to the Gross Domestic Product of Argentina.

     Source: Buenos Aires Stock Market


                                      107
<PAGE>


D.   Selling Shareholders.

     Not applicable.

E.   Dilution.

     Not applicable.

F.   Expense of the Issue.

     Not applicable.

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 and its
entry number is 6,133 of Corporations.

Corporate Objectives and Purposes of the Company

     Section three of our bylaws states that our sole purpose is to be engaged,
on our own account, or on third parties' account, or associated with third
parties, in Argentina, or abroad, in the active participation, either directly
or indirectly, in business through companies and enterprises, either through
direct shareholdings, controlled companies, partnership agreements, associations
or joint ventures or through any other means and under any other forms,
particularly, but not being limited to, telecommunications, communications
means, and power. To such effect, we may acquire or maintain interests in
another or other companies for higher amounts or its free reserves, or
equivalent to 50% of its capital stock and legal reserves, as well as to perform
any other acts authorized by the laws in force. All activities solely restricted
to financial entities or companies engaged in managing common investment funds
are excluded, pursuant to applicable laws and regulations.

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.


                                      108
<PAGE>


     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

     (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.


                                      109
<PAGE>


     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 8% of
corporate capital, and Class B Shares representing the remainder. The transfer
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 Class A and B share shall entitle its holder to
five and one vote respectively.

     Our bylaws do not contain any provisions relating to:

     o    redemption provisions;

     o    sinking funds; or

     o    liability for future capital calls by us.

     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.

     Supervisory Committee

     In accordance with the rules contained in Companies Law 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;


                                      110
<PAGE>


     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 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 6 directors and 3 alternate
directors. The bylaws require that the board of directors shall consist of
between 3 and 11 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.

     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.


                                      111
<PAGE>


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
objectives of Telefonica at the global level, our board of directors has
implemented the following Good Corporate Governance actions.

     The overriding principles of corporate governance at Grupo Telefonica are:

     (i)   The maximization of our value in the interest of its shareholders,

     (ii)  The crucial role of the board of directors in our management and
           administration, and

     (iii) Transparency of information in our relationships with employees,
           shareholders, investors and customers.

   Audit Committee

     Pursuant to the provisions set forth in the Regime of Transparency in
Public Offerings as approved by Decree No. 677/01, companies whose shares are
listed in stock exchanges are required to create an Audit Committee. The Audit
Committee is to hold sessions jointly with three or more members of the board of
directors, whose majority must be made up by independent directors according to
the criteria determined by the National Securities Commission.

     Pursuant to the above, our board of directors resolved to:

     1.   Create the Audit Committee as set forth in the Regime of Transparency
          in Public Offerings as approved by Decree No. 677/01 and General
          Resolution No. 400/02 of the National Securities Commission.

     2.   Designate Messrs. Juan Ignacio Lopez Basavilbaso, Ernesto Jaime Ferrer
          and Victor Jose Diaz Bobillo as members of the Audit Committee. Victor
          Jose Diaz Bosillo and Ernesto Jaime Ferrer are independent directors.

     3.   Determine that the Audit Committee is to start holding sessions on
          May 28, 2004.

     On June 14, 2004, the Audit Committee resolved to approve its Charter and
on July 27, 2004 it approved its Action Plan for the fiscal year.

     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.

     As a preliminary measure, on December 17, 2002, the board of directors had
created an Audit and Control Committee. It was an interim committee and its term
of office expired as soon as we, in accordance with the provisions set forth in
Decree No. 677/01, set up the current Audit Committee.


                                      112
<PAGE>


     Disclosure Committee

     The Disclosure Committee of Telefonica Argentina is responsible for
receiving, classifying and reviewing all corporate information in order to
determine which is to 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 sessions and powers are governed by
its internal regulations.

     Market Disclosure Rules

     (1) Along with Telefonica and pursuant to our statutory obligations,
Telefonica Argentina and we have assumed a commitment of transparency to its and
our 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, Cointel and Telefonica Argentina 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: a) obligations to disclose deals in which the relevant person
has a personal interest, b) the prohibition to make deals using privileged
information when the relevant person has a personal interest and c) dealing with
confidential information.

     Rules on Registration, Reporting and Monitoring of Financial Information

     We approved The Rules on Registration, Reporting and Monitoring of
Financial and Accounting 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 of Telefonica Argentina
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 the
          issuer regarding accounting, internal auditing controls, or auditing
          matters; and

     (ii) the confidential, anonymous submission by employees of the issuer of
          concerns regarding questionable accounting or auditing matters.

     The basic guidelines for the Whistleblower Hotline and Procedures to
Protect the Whistleblower are as follows:

     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.


                                      113
<PAGE>


     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.

     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.

     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, Telefonica Argentnia recognizes 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.

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
according to the priority of their respective equity interest and the proportion
of which their respective shares are to be paid.

     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 first to the preferred shareholders and then any remainder to the
common shareholders.

C.   Material Contracts

     Management Contract

     See "Item 7--Major Shareholders and Related Party Transactions--Related
Party Transactions--Telefonica Holding Advisory Agreement".

     Loan Agreement with TISA

     On February 12, 2001, we received a loan from TISA in the amount of
U.S.$530.1 million, which accrued interest at LIBOR plus a 2.25% per annum ("the
differential") for a term of one month, renewable automatically on a monthly
basis unless the parties notify in writing, at least three days before due date,
that they do not intend to renew the agreement. TISA is entitled to modify the
differential provided it notifies us of this decision at least three business
days before the end of each interest period. The funds borrowed from TISA were
used to partially repurchase our Negotiable Obligations. Subsequently, on
February 14, 2001, we made an early partial repayment to TISA of this loan for
an amount of U.S.$37.9 million.


                                      114
<PAGE>


     On June 24, 2004, we and TISA entered into an amendment to the loan
agreement whereby they agreed that the due principal will be paid semi-annually
and that interest capitalization will continue being monthly, setting the
differential for the first period in 9% nominal per annum. Additionally, on
July 26, 2004, we and TISA agreed that the differential for the second period
would be 5.5% nominal per annum, which it has remained unchanged for the
following periods and the loan agreement was amended, eliminating the early
termination event triggered by the existence of restrictions that could limit
our ability to repay its debt with TISA. On December 27, 2004, the loan
agreement was amended, and it was agreed that the capitalization of interest
will be semi-annual. Additionally, during the January-March 2002 quarter, we
received loans from Telefonica Argentina for US$5.8 million ("the Dollar
Loans"). On April 26, 2002, we entered into an assignment agreement with
Telefonica Argentina and TISA pursuant to which Telefonica Argentina assigned
to TISA the Dollar Loans in the amount of US$5.8 million, which includes
principal amount and accrued interest as of April 26, 2002. On December 28,
2004, our Board of Directors resolved to call a Special Shareholders' Meeting
on February 15, 2005, in order to resolve upon the partial capitalization of
the loan held by TISA with us for an amount of up to approximately Ps.2,046
million. On February 15, 2005, due to the capital stock increase described in
Note 7.5 of the Holding Annual Financial Statements, we and TISA agreed to
amend the loan agreements in effect as of such date in order to provide for:
(i) the conversion to pesos of US$622.5 million (Ps.1,785 million) which shall
not accrue interest as from February 15, 2005 and shall not become due before
April 1, 2006, and (ii) ratify that the residual amount of TISA's credit for
US$20 million is subject to the same conditions as those agreed upon on
December 27, 2004. We believe that the capital stock increase will be completed
during the current fiscal year 2005.

     In obtaining the above-mentioned loan, we have assumed certain
commitments, mainly involving limitations on the sale of assets, limitations on
liens of certain assets, limitations on us or any of our affiliates becoming a
party in merger or spin-off operations, with certain exceptions. In addition,
the loan shall forthwith become due and payable: 1) upon our default on any of
the commitments assumed under the loan agreement, 2) in the event of any change
in our controlling shareholder, 3) if we or our affiliates are unable to comply
with their obligations, 4) changes in our main business activity, 5) if we or
any of our affiliates lose the government licenses obtained and 6) if there are
changes in our equity, economic and financial situation that due to their
adverse nature may affect our ability to comply with the obligations assumed in
the agreement or if there are restrictions that may limit our ability to repay
its debts. As of June 27, 2005, the amount outstanding on this loan was
U.S.$12.7 million, taking into account the partial capitalization of this loan
discussed in Item 4: "Information on the Company--History and Development of
the Company--Plan for Recapitalization".

     In relation to the loan of US$20 million mentioned above, TISA has advised
us that, until July 1, 2006, TISA shall not consider that an acceleration event
has been verified under our agreements with TISA. Additionally, some of the
loan agreements in effect include acceleration events in case certain judicial
or extra-judicial proceedings are filed for amounts in excess of certain net
equity percentages of us or a relevant affiliate. We obtained a waiver in
connection with those proceedings as of the date of issuance of the this annual
report until July 1, 2006.

     On June 17, 2005 we cancelled U.S.$7 million of the above mentioned loan.

     As of December 31, 2004, our current assets are lower than current
liabilities for an amount of 1,876 million, the latter including approximately
Ps.1,896 million of debt owed to our controlling company.

     On December 28, 2004, the board of directors called a special shareholders'
meeting on February 15, 2005, to resolve upon the partial capitalization of the
loan held by TISA with us, for an amount of up to approximately Ps.2,046
million.

     On February 15, 2005 the special shareholders' meeting approved the
increase of the capital stock, for an amount of up to Ps.2,046 million, ratified
the capital stock increase of Ps.2 million approved by the shareholders' meeting
of December 16, 2004 and delegated to our board of directors the setting of the
final amount and other issuance conditions of such capital stock increase. The
capital increase can be subscribed with (i) the partial capitalization of the
loan held by TISA with us, (ii) the irrevocable capital contributions of TISA
for future share subscriptions of Ps.2 million or (iii) cash. In this regard, in
this special shareholders' meeting, TISA expressed its intention to partially
capitalize its loan for an amount of Ps.1,785 million. As a result of this
capital stock increase, we expect that we will no longer be under the conditions
of Item 5 of Section 94 of the Companies Law and, consequently, with respect to
this matter, we will be able to continue normal operations. See Notes 8 and 10
to the Holding Annual Financial Statements.


                                      115
<PAGE>


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.

     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 into pesos 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

     Not applicable.

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 Securities and Exchange Commission website,
www.sec.gov.

     Anyone may request a copy of these filings by writing or calling us at
Avenida Ingeniero Huergo 723, (C1107AOH) Buenos Aires, Argentina, attention:
Investor Relations Office, telephone 5411-4332-3890.


                                      116
<PAGE>


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 businesses.

     Our indebtedness increased in terms of pesos as of December 31, 2004 from
the end of the previous fiscal year due to the depreciation of the Argentine
peso. As of December 31, 2003, our total bank and financial debt in foreign
currency was the equivalent of U.S.$599 million. As of December 31, 2004, this
amount had increased to the equivalent of U.S.$645 million. The impact of
foreign exchange during 2004 on our net monetary position in foreign currency
amounted to a loss of Ps.31 million. See Item 3: "Key Information--Presentation
of figures in constant Argentine pesos". The amount of indebtedness subject to
variable rather than fixed interest rates has increased by U.S.$46.7 since last
year. Variable interest rate decrease reflected lower spreads (LIBOR as of
December 31, 2004 was 2.78%, compared to 1.22% as of December 31, 2003).

     Set forth below is tabular information presented in our reporting currency,
Argentine pesos, with respect to our net debt defined as Debt Obligations less
Financial Assets (checking accounts). The table reflects principal and related
exchange rates, broken down in floating rate and fixed rate debts.

SENSITIVITY TO INTEREST RATES AND EXCHANGE RATE

               Net Debt Obligations as of December 31, 2004(1)(2)

<TABLE>
                                               MATURITY DATES
                                             (millions of pesos)                               FAIR VALUE (3)
                        ---------------------------------------------------------------------------------------------------------
                                                                                        Underlying  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>
ARS(6)................      0      --       --    --      --         --            0         --         --          --         0
Fixed Rate(6).........      0      --       --    --      --         --            0         --         --          --         0
Interest Rate (%).....   2.52      --       --    --      --         --           --         --         --          --        --
U.S.$.................  1,894      --       22    --      --         --        1,916      1,919         --       1,919     1,916(4)
Floating Rate.........  1,894      --       --    --      --         --        1,894      1,896         --       1,896     1,894
Weighted Average
   Spread--Ref. Libor
   (%)(5).............   8.28
Fixed Rate............     --      --       22    --      --         --           22         23         --          23        22
Weighted Average
   Interest Rate (%)..   9.75    9.75     9.75
TOTAL.................  1,894      --       22    --      --         --        1,916      1,919         --       1,919     1,916
</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. As it is short term debt, and
          the interest rates have been settled recently, the fair value is
          equal to its carrying amount.

     b)   Bonds. The bonds are valued at par.

     The market values indicated may not be indicative of a trend or of values
     in the mid-term future.

(4)  Excludes Ps.3 million of accrued interest included in bank and financial
     payables in Holding Annual Financial Statements as of December 31, 2004.

(5)  Is the weighted average interest rate of the outstanding debt as of each
     date less six months U.S.$ LIBOR as of December 31, 2004 (2.78%).

(6)  Less than 1 million.

     Exchange Rate Sensitivity. While the Convertibility Law was in effect,
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. Since


                                      117
<PAGE>


the Convertibility Law pegged the peso at a value Ps.1.00 per U.S.$1.00, in
January 2002 the Argentine government devalued the Argentine peso and currently
the peso/dollar exchange rate is determined by a free market. Although all of
our debt is denominated in dollars, we followed until the year ended December
31, 2001 a policy of not using derivative financial instruments to hedge our
exposure to exchange rate fluctuations related to our indebtedness denominated
in U.S. dollars, given the existence of the Convertibility Law.

     On February 15, 2005, the special shareholders' meeting approved the
partial capitalization of our debt owed to TISA, which is denominated in U.S.
dollars. See Item 5: "Operating and Financial Review and Prospects--Liquidity
and Capital Resources". Once this is completed, our exposure to exchange rate
risk will be dramatically reduced.

     We do not hold derivative financial instruments for trading or other
speculative purposes.

     Interest Rate Sensitivity. We intend to make interest payments under the
remaining debt instruments after the capitalization periodically during the
term of debt through maturity. The table set forth above does not reflect any
prepayment or refinancing of indebtedness that may occur from time to time nor
our proposed plans for recapitalization. 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 July 12, 2005 (3.82%) due to the increase on prevailing interest
rates following significant increases in U.S. rates b the U.S. Federal Reserve
Board. The amounts of debt scheduled to be serviced in fiscal year 2005
corresponds to the TISA Loan. As of December 31, 2004, all of our debt
obligations had terms that provide for variable interest rates, except for the
outstanding 1997 Indenture Notes (maturing through 2007).

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

A.   Debt Securities.

     Not applicable.

B.   Warrants and Rights.

     Not applicable.


                                      118
<PAGE>


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.

     None.

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.

     There were no undisclosed 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. Juan Ignacio Lopez
Basavilbaso, member of our Audit 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 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. 0.447     Ps. 0.387

Audit-Related Fees................................    Ps. 0.019     Ps.    --
Tax Fees..........................................    Ps. 0.007     Ps. 0.006

All Other Fees....................................    Ps.    --     Ps.    --
Total.............................................    Ps. 0.473     Ps. 0.393

Audit Fees

     Audit fees are fees agreed upon with Deloitte, for the fiscal years 2004
and 2003 (including related expenses) for the audit of our annual financial
statements and for the reviews of our quarterly financial statements submitted
on Form 6-K, including the reviews of our annual report on Form 20-F.


                                      120
<PAGE>


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.

     Therefore, the Board has established the guidelines for a formal policy
which established 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 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. However, services related to the review of the annual
          taxes to be presented to the tax agencies are considered to be
          pre-approved. Pre-approval of all such services shall be provided by
          the Audit Committee prior to the engagement of the external auditors.

     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 to us and to our subsidiaries Cointel, Telefonica Argentina and Telinver
and any need to approve it on annual basis or at certain required intervals
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.


                                      121
<PAGE>


     (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 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 approved by the board of directors in detail.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

     None

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS.

     None


                                      122
<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

     The Index to the financial statements contained herein begins on page F-1.

ITEM 19. EXHIBITS

  Exhibit No.                             Description
  -----------                             -----------

      1.1        English translation of the Estatutos (bylaws) of Telefonica
                 Holdings de Argentina S.A. (the "Company"), as amended to date
                 of filing.(1)

      2.1        Form of Indenture dated as of February 24, 1997, between the
                 Company and The Bank of New York, as trustee, co-registrar,
                 paying agent and transfer agent, together with a Supplemental
                 Indenture dated as of December 19, 1997.(1)

      2.2        Indenture dated as of July 31, 1997, among Compania
                 Internacional de Telecomunicaciones S.A. ("Cointel"), The Bank
                 of New York and The Bank of New York S.A. (succeeded by Banco
                 Rio de la Plata S.A.), as registrar, paying agent and transfer
                 agent.(2)

      2.3        First Supplemental Indenture dated January 17, 2001, between
                 Cointel and The Bank of New York, as trustee, co-registrar,
                 paying agent and transfer agent.(3)

      2.4        Indenture dated as of November 3, 1994 among Telefonica de
                 Argentina S.A. ("TASA"), Bankers Trust Company, as trustee,
                 co-registrar and principal paying agent, The Chase Manhattan
                 Bank, N.A., as registrar and Bankers Trust S.A., Agente del
                 Mercado Abierto, as paying agent.(4)

      2.5        First Supplemental Indenture dated January 17, 2001, between
                 TASA and Bankers Trust Company.(5)

      4.1        Framework Agreement, dated April 21, 1997, between T.I.
                 Telefonica Internacional de Espana, S.A. and the Company,
                 together with a modification thereto dated January 8, 1998
                 (English Translation).(1)

      4.2        Shareholders' Agreement, dated April 21, 1997, between
                 Telefonica International Holding B.V., the Company and
                 Southtel Equity Corporation (English Translation)(1)

      4.3        Modification Agreement, dated April 24, 1997, among Telefonica
                 de Espana S.A. ("TESA"), Telefonica de Espana S.A., Sucursal
                 Argentina, Telefonica International Holding B.V., Teching
                 Compania Tecnica Internacional S.A.C.I. and Inversora
                 Catalinas S.A. (English Transaction).(1)

      4.4        Management Contract, dated November 8, 1990, between TASA and
                 TESA, with an English summary.(6)

      4.5        Financial Services Agreement, dated April 24, 1997, between
                 TESA and the Company (English Translation).(1)

      4.6        Loan Agreement dated February 12, 2001 between the Company and
                 Telefonica Internacional, S.A. (English Translation).(7)

      4.6.1      Amendment to the Loan Agreement dated February 12, 2001
                 between the Company and Telefonica Internacional, S.A., dated
                 January 11, 2002 (English Translation).(8)


                                      123
<PAGE>


  Exhibit No.                             Description
  -----------                             -----------

      8.1        List of Subsidiaries of Telefonica Holding 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.

---------
(a)  Compensatory plan or agreement.

(1)  Incorporated by reference to the Company's Registration Statement on Form
     F-4 (Registration No. 333-8280).

(2)  Incorporated by reference to the Registration Statement on Form F-4 of
     Compania Internacional de Telecomunicaciones S.A. (Registration No.
     333-8314).

(3)  Incorporated by reference to the Annual Report on Form 20-F of Compania
     Internacional de Telecomunicaciones S.A. for the year ended September 30,
     2002.

(4)  Incorporated by reference to the Registration Statement on Form F-4 of
     Telefonica de Argentina S.A. (Registration No. 33-84414).

(5)  Incorporated by reference to the Annual Report on Form 20-F of Telefonica
     de Argentina S.A. for the year ended September 30, 2001.

(6)  Incorporated by reference to the Registration Statement on Form F-1 of
     Telefonica de Argentina S.A. (Registration No. 33-70982).

(7)  Incorporated by reference to the Company's Annual Report on Form 20-F for
     the year ended December 31, 2000.

(8)  Incorporated by reference to the Company's Annual Report on Form 20-F for
     the year ended December 31, 2001.


                                      124
<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 HOLDING DE ARGENTINA S.A.


                                      By: /s/ Jose Maria Alvarez Pallete Lopez
                                         -------------------------------------
                                      Name:  Jose Maria Alvarez Pallete Lopez
                                      Title: Presidente (Chairman of the Board
                                             of Directors)
Dated: July 14, 2005


                                      125
<PAGE>


                        TELEFONICA HOLDING ARGENTINA S.A.
                  TABLE OF CONTENTS OF THE FINANCIAL STATEMENTS

Table of Contents

Report of Registered Public Accounting Firm................................F-3
Balance Sheets as of December 31, 2004 and 2003............................F-7
Statements of Operations for the years ended
  December 31, 2004, 2003 and 2002.........................................F-8
Statements of Changes in Shareholders' Equity for the
  years ended December 31, 2004, 2003 and 2002.............................F-9
Statements of Cash Flows for years ended
  December 31, 2004, 2003 and 2002.........................................F-10
Notes to the Financial Statements for the years ended
  December 31, 2004, 2003 and 2002.........................................F-11

                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.
           TABLE OF CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

Report of Registered Public Accounting Firm................................F-56
Consolidated Balance Sheets as of December 31, 2004 and 2003...............F-60
Consolidated Statements of Operations for the fiscal years ended
  December 31, 2004 and 2003, the three-month fiscal year ended
  December 31, 2002 and the fiscal year ended September 30, 2002...........F-61
Consolidated Statements of Changes in Shareholders' Equity
  for the fiscal years ended December 31, 2004 and 2003, the
  three-month fiscal year ended December 31, 2002 and the
  fiscal year ended September 30, 2002.....................................F-62
Consolidated Statements of Cash Flows for the fiscal years
  ended December 31, 2004 and 2003, the three-month
  fiscal year ended December 31, 2002 and the fiscal year
  ended September 30, 2002.................................................F-66
Notes to the Consolidated Financial Statements as of
  December 31, 2004, 2003 and 2002, and for the fiscal years
  ended December 31, 2004 and 2003, the three-month fiscal
  year ended December 31, 2002 and the fiscal year ended
  September 30, 2002.......................................................F-67



                                      F-1
<PAGE>



TELEFONICA HOLDING DE ARGENTINA S.A.

Financial Statements as of December 31, 2004 and 2003
and for the years ended December 31, 2004, 2003 and 2002


                                      F-2


<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors of
Telefonica Holding de Argentina S.A.


     1.   We have audited the accompanying balance sheets of Telefonica Holding
          de Argentina S.A. (the "Company", an Argentine corporation) as of
          December 31, 2004 and 2003, and the related 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
          accounting principles in Argentina, as adopted by the National
          Securities Commission ("CNV") applicable to the Company for the
          preparation of financial statements, which differ from the provisions
          of the generally accepted accounting principles approved by the
          Professional Council of Economic Sciences of the City of Buenos Aires,
          Argentina ("CPCECABA"), as described in paragraph 3 of this report.
          These financial statements are the responsibility of the Company's
          management. Our responsibility is to express an opinion on the
          financial statements based on our audits. We did not audit the
          financial statements of Telinver S.A., a consolidated subsidiary of
          Telefonica de Argentina S.A. ("Telefonica", a company over which the
          Company has indirect joint control), 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 $12 million (amount
          calculated considering the Company's indirect ownership interest in
          such company) and net loss of $0.6 million (amount calculated
          considering the Company's indirect ownership interest in such company)
          for the year ended December 31, 2004. The financial statements of
          Telinver S.A. were audited by other auditors who issued a report,
          which has been provided to us by the Company, dated April 4, 2005,
          expressing an unqualified opinion according to the standards of the
          Public Company Accounting Oversight Board of United States of America
          ("PCAOB GAAS"). Our opinion included in paragraph 5 of this report,
          with regard to Telinver S.A.'s figures, is based on the report of such
          other auditors.


     2.   We conducted our audits in accordance with PCAOB GAAS. 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.
          Our audit included consideration of internal control over financial
          reporting as a basis for designing audit procedures that are
          appropriate in the circumstances, but not for the purposes 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 and the report of
          other auditors, mentioned in paragraph 1, provide a reasonable basis
          for our opinion.


                                      F-3
<PAGE>

     3.   As explained in note 2.3 to the accompanying 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 for inflation adjustment as from March 1, 2003. In accordance
          with generally accepted accounting principles in Argentina as adopted
          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 financial statements of the Company have been restated for
          inflation through February 2003. The Company indicates in such note
          2.3 that had the financial statements been restated for inflation in
          accordance with generally accepted accounting principles in Argentina
          as adopted by the CPCECABA, the Company's negative shareholders'
          equity and net income for the fiscal year ended December 31, 2003
          would have amounted to approximately $874 million and $134 million,
          respectively. The Company states in note 2.3 that this effect as of
          and for the fiscal year ended December 31, 2004 is not significant.
          The financial statements for the fiscal year ended December 31, 2002,
          presented for comparative purposes, have been restated for inflation
          through February 2003.

     4.   As described in note 4.a) to the accompanying financial statements,
          since the beginning of 2002 Telefonica 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. Such note also describes that although Telefonica has adopted
          several measures 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 Telefonica's Management opinion, the regulatory
          framework in force has still not established the rules to allow
          reinstating the balance of the variables that constitute Telefonica's
          economic and financial equation. The Company has described in note
          4.a) that, if as a result of the Telefonica's tariff re-negotiation,
          future rates would evolve at a pace that would not allow restoring
          Telefonica's economic and financial equation, such rate system could
          have an adverse impact on Telefonica's financial condition and future
          results of operations and, consequently, on Compania Internacional de
          Telecomunicaciones S.A. ("Cointel", an Argentine corporation over
          which the Company has joint control) and the Company.

     5.   In our opinion, based on our audits and on the report of the other
          auditors mentioned in paragraph 1, the financial statements mentioned
          in paragraph 1 present fairly, in all material respects, the financial
          position of the Company as of December 31, 2004 and 2003, and the
          results of its operations and its cash flows for the fiscal years
          ended December 31, 2004, 2003 and 2002, in conformity with generally
          accepted accounting principles in Argentina approved by the CPCECABA,
          except for the lack of restatement of the financial statements to
          reflect the effects of inflation until September 30, 2003 as described
          in paragraph 3 of this report.

     6.   The financial statements referred to in paragraph 1 have been prepared
          assuming that the Company and Cointel will continue as going concerns.
          As described in note 8 to the accompanying financial statements, as of
          December 31, 2004, the Company had a negative shareholders' equity of
          $1,112 million, and it was under the conditions for dissolution due to
          the loss of its capital stock set forth in item 5 of section 94 of the
          Argentine Business Associations Law No. 19,550 ("LSC"). In this
          regard, as stated in such note 8, Decree No. 540/05 dated May 30,
          2005, resolved the extension of the suspension period for the
          application of item 5 of section 94 of the LSC up to December 10,
          2005. In addition, the Company states in note 10 that on February 15,
          2005, the Special Shareholders' Meeting approved an increase in the
          Company's capital stock for an amount of up to $2,046 million, having
          delegated in the Company's Board of Directors the setting of the final
          amount and other issuance conditions of such capital stock increase.
          In connection with such capital stock


                                      F-4
<PAGE>


          increase, in that meeting Telefonica Internacional, S.A. ("TISA",
          majority shareholder), expressed its intention to contribute the
          amount of $1,785 million corresponding partially to the loan held by
          TISA with the Company. As a result of this capital stock increase, the
          Company expects that it will no longer be under the conditions of item
          5 of section 94 of the LSC beyond the suspension period mentioned
          above and, consequently, with respect to this matter, it will be able
          to continue normal operations. Likewise, as explained in note 4.a) to
          the accompanying financial statements, as of December 31, 2004,
          Cointel's unconsolidated current assets are lower than its
          unconsolidated current liabilities by $1,459 million. The current
          liabilities include a 99.6% ($1,454 million) of debt owed to TISA.
          Consequently, as of the date of issuance of this report, Cointel's
          ability to meet its short term liabilities will depend on TISA's
          continued refinancing of the loans granted to Cointel, or on the
          obtainment of other financing from related or unrelated parties, which
          up to date are not available in sufficient amounts for Cointel. The
          above-mentioned uncertainty related to the financial situation of
          Cointel raises a substantial doubt about the ability of Cointel and,
          consequently, of the Company to continue as going concerns. The
          financial statements referred to in paragraph 1 of this report do not
          include any adjustments or reclassifications that might result from
          the outcome of such uncertainty.


     7.   CNV and accounting principles generally accepted in Argentina followed
          by the Company (see paragraph 1 of this report) 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) income for the fiscal years
          ended December 31, 2004, 2003 and 2002, and the determination of
          accumulated deficit and financial position as of December 31, 2004 and
          2003, to the extent summarized in note 11.



Buenos Aires, Argentina,
     July 8, 2005

            DELOITTE & Co. S.R.L.
          C.P.C.E.C.A.B.A. Vol. 1 - Fo. 3



          ALBERTO A. ALLEMAND
                  (Partner)
     Certified Public Accountant - U.B.A.
      C.P.C.E.C.A.B.A. Vol. 103 - Fo. 223


Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its
member firms, and their respective subsidiaries and affiliates. As a Swiss
Verein (association), neither Deloitte Touche Tohmatsu nor any of its member
firms has any liability for each other's act or omissions. Each of the
member firm is a separate and independent legal entity operating under the names
"Deloitte", "Deloitte & Touche", "Deloitte Touche Tohmatsu", or other related
names. Services are provided by the member firms or their subsidiaries or
affiliates and not by the Deloitte Touche Tohmatsu Verein.


                                      F-5
<PAGE>


                      TELEFONICA HOLDING DE ARGENTINA S.A.

                               Registered Address:
         Av. Ingeniero Huergo 723 - Ground floor, City of Buenos Aires


                         FISCAL YEARS No. 29 and No. 28

                       BEGINNING JANUARY 1, 2004 and 2003

              FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 AND 2003
            AND FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


Principal business of the Company: Direct or indirect participation in
     businesses related to the areas of telecommunications, media and energy.

Registration with the Public Registry of Commerce:

-    Of the articles of incorporation: October 25, 1976.
-    Of the last change to the bylaws: March 31, 2004 (1).

Registration number with the "Inspeccion General de Justicia" (the governmental
regulatory agency of corporations): 6,133.

Duration of the corporation: through October 24, 2075.

Fiscal year-end: December 31.

Controlling company:

     Name: Telefonica Internacional, S.A.

     Registered address: Av. Ingeniero Huergo 723 - Ground floor, Buenos Aires.

     Principal business: Holding Company.

     Controlling shareholding percentage of the Company's capital stock: 99.96%.
     (See Note 7.1.)

     Controlling shareholding percentage of the Company's total votes: 99.97%.

Capital structure:  See Note 7.1.



(1) See Note 7.2.


                                                     MARIO EDUARDO VAZQUEZ
                                                         Vicepresident
                                                      acting as Chairman


                                      F-6
<PAGE>


                      TELEFONICA HOLDING DE ARGENTINA S.A.

                                 BALANCE SHEETS

                        AS OF DECEMBER 31, 2004 AND 2003

                  Amounts stated in millions of Argentine pesos
                       restated as described in Note 2.3.

                                                   December            December
                                                     2004                2003
                                                  ------------------------------
CURRENT ASSETS

Other receivables (Note 3.1.)                           27                  27
                                                  ------------------------------
   Total current assets                                 27                  27
                                                  ------------------------------
NONCURRENT ASSETS

Other receivables (Note 3.1.)                            -                   -
Investments (Note 3.2.)                                786                 920
                                                  ------------------------------
   Total noncurrent assets                             786                 920
                                                  ------------------------------
   Total assets                                        813                 947
                                                  ==============================
CURRENT LIABILITIES

Financial payables (Note 3.4.)                       1,897               1,731
Accounts payable                                         1                   1
Taxes payable                                            2                   2
Other payables                                           3                   3
                                                  ------------------------------
    Total current liabilities                        1,903               1,737
                                                  ------------------------------
NONCURRENT LIABILITIES

Financial payables (Note 3.4.)                          22                  22
                                                  ------------------------------
    Total noncurrent liabilities                        22                  22
                                                  ------------------------------
    Total liabilities                                1,925               1,759

SHAREHOLDERS' EQUITY (per related statements)       (1,112)               (812)
                                                  ------------------------------
    Total liabilities and shareholders' equity         813                 947
                                                  ==============================


     The accompanying Notes 1. to 12. are an integral part of these financial
     statements.


                                                     MARIO EDUARDO VAZQUEZ
                                                         Vicepresident
                                                      acting as Chairman


                                      F-7
<PAGE>


                      TELEFONICA HOLDING DE ARGENTINA S.A.

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                 Amounts stated in millions of Argentine pesos,
                except for per share amounts which are stated in
               Argentine pesos, restated as described in Note 2.3.


<TABLE>
                                                                December     December     December
                                                                  2004         2003         2002
                                                              --------------------------------------
<S>                                                                <C>             <C>     <C>
Equity interests in Section 33 - Law 19,550 ("LSC")
  companies and related parties (Note 3.6.) (5)                    (134)           98      (1,280)

Other income relating to equity interests
  in Section 33 Law 19,550 companies and
  related parties, net (Notes
  2.5.g) and 5.c)(i)                                                 33            40          57

Administrative expenses (Note 12.4.)                                 (2)           (2)         (4)

Financial gains and losses
   On assets (4)
       Exchange differences (2)                                       -             -           2
       Inflation loss on monetary accounts                            -             -         (35)

   On liabilities (1)
       Exchange differences (2)                                     (31)          255        (587)
       Interest (2)                                                (166)         (174)       (206)
       Inflation gain on monetary accounts                            -             -           2
                                                              --------------------------------------
Net (loss) income for the year before
  income tax and tax on
  minimum presumed income                                          (300)          217      (2,051)

Income tax and tax on minimum presumed income (Note 2.5.e)            -             -          (9)
                                                              --------------------------------------
Net (loss) income for the year                                     (300)          217      (2,060)
                                                              ======================================
Net (loss) earnings per share for the year (Note 2.5.h) (3)       (0.74)         0.53       (5.09)
                                                              ======================================
</TABLE>

     (1)  Corresponds mainly to financial payables.
     (2)  In 2003 and 2002, includes inflation effects. See Note 2.3.
     (3)  Basic and diluted.
     (4)  In 2002, corresponds mainly to current investments and other
          receivables.
     (5)  Section 33 of Law 19,550 relates to the definition of related parties.

              The accompanying Notes 1. to 12. are an integral part
                         of these financial statements.


                                                     MARIO EDUARDO VAZQUEZ
                                                         Vicepresident
                                                      acting as Chairman


                                      F-8
<PAGE>


                      TELEFONICA HOLDING DE ARGENTINA S.A.

                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                  Amounts stated in millions of Argentine pesos
                       restated as described in Note 2.3.

<TABLE>
                                                                                                                  Retained
                             Shareholders' contributions                Non-capitalized contributions          earnings (losses)
                     ---------------------------------------------------------------------------------------------------------------
                          Outstanding capital
                                 stock         Comprehen-         Irrevocable
                        -----------------------   sive              Capital     Comprehensive
                                                 Adjust-            Contri-     Adjustment
                        Authorized  Pending of    ment    Premium   butions         to                               Unappro-
                           for    authorization    to       on       for        irrevocable                          priatted
                          public   for public    capital   share  future share    capital        Other       Legal   earnings
    Description          offering   offering      stock    issue  subscriptions contributions contributions reserve  (losses)  Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                    <C>       <C>         <C>           <C>         <C>         <C>      <C>     <C>
Balances as of
  December 31, 2001        405         -          484       172         2             2           19          71       (71)    1,084

Alignment of periods for
  valuation of Equity
  interests in
  Section 33 LSC
  companies and
  related parties (1)        -         -            -         -         -             -            -           -       (41)     (41)

Net loss for the
  fiscal year
  ended December
  31, 2002                   -         -            -         -         -             -            -           -    (2,060)  (2,060)
                        ------------------------------------------------------------------------------------------------------------
Balances as of
  December 31, 2002        405         -          484       172         2             2           19          71    (2,172)  (1,017)

Transition adjustment
  due to the application
  of the new accounting
  principles in
  Telefonica (2)             -         -            -         -         -             -            -           -       (12)     (12)

Net income for the
  fiscal year ended
  December 31, 2003          -         -            -         -         -             -            -           -       217       217
                        ------------------------------------------------------------------------------------------------------------
Balances as of
  December 31, 2003        405         -          484       172         2             2           19          71    (1,967)    (812)

Capitalization of
  irrevocable capital
  contribution according
  to the General and
  Special Class "B"
  Shareholders'
  Meeting dated
  December 16, 2004 (3)      -         2            2         -        (2)           (2)           -           -         -         -

Net loss for the
  year ended
  December 31, 2004          -         -            -         -         -             -            -           -      (300)    (300)
                        ------------------------------------------------------------------------------------------------------------
Balances as of
  December 31, 2004        405         2          486       172         -             -           19          71    (2,267)  (1,112)
                        ============================================================================================================
</TABLE>

     (1)  See Note 2.5.b).

     (2)  Adjustment of balance at the  beginning of the year of  unappropriated
          losses due to the  application  for the first  time of the  accounting
          rule for measuring derivative financial instruments in Telefonica (See
          Note 2.4).

     (3)  See Note 7.4.

                The accompanying Notes 1. to 12. are an integral
                      part of these financial statements.


                                                     MARIO EDUARDO VAZQUEZ
                                                         Vicepresident
                                                      acting as Chairman


                                      F-9
<PAGE>


                      TELEFONICA HOLDING DE ARGENTINA S.A.

                          STATEMENTS OF CASH FLOWS (1)

              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                  Amounts stated in millions of Argentine pesos
                       restated as described in Note 2.3.

<TABLE>
                                                          December     December     December
                                                            2004         2003         2002
                                                       ---------------------------------------
<S>                                                         <C>           <C>          <C>
CHANGES IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of year                      -            -            3
Cash and cash equivalents at beginning of year                -            3            3
                                                       ---------------------------------------
Decrease in cash and cash equivalents                         -           (3)           -
                                                       =======================================
Causes of changes in cash and cash equivalents

Cash flows from operating activities:

Net (loss) income for the year                             (300)         217       (2,060)

Adjustments to reconcile net (loss)
   income for the year to cash flows from
   operating activities:
   Income tax and tax on minimum presumed income              -            -            9
   Equity interests in Section 33 LSC
       companies and in related parties                     134          (98)       1,280
   Financial gains and losses                               197          (81)         814

Changes in assets and liabilities:
Other receivables (2)                                         -            3          (20)
Taxes payable                                                 -           (1)           -
Other payables                                                -            -           (2)
                                                       ---------------------------------------
     Total cash flows from operating activities              31           40           21
                                                       ---------------------------------------
Cash flows used in financing activities:
   Increase in financial payables                             -            -           16
   Payment of financial payables                              -            -          (14)
   Payment of interest                                      (31)         (43)         (23)
                                                       ---------------------------------------
     Total cash flows used in financing activities          (31)         (43)         (21)
                                                       ---------------------------------------
     Decrease in cash and cash equivalents                    -           (3)           -
                                                       =======================================
</TABLE>

     (1)  Cash and cash equivalents (current investments) with an original
          maturity not exceeding three months are considered to be cash and cash
          equivalents which totaled: (i) 3 million in cash and banks as of
          December 31, 2002 (cash at the beginning of 2003) and (ii) 1 million
          in cash and banks and 2 million in current investments as of December
          31, 2001 (cash at the beginning of 2003).
     (2)  In 2002, net of 9 million related to the charge disclosed in the
          caption "Income tax and tax on minimum presumed income" in the
          statement of operations.


              The accompanying Notes 1. to 12. are an integral part
                         of these financial statements.


                                                     MARIO EDUARDO VAZQUEZ
                                                         Vicepresident
                                                      acting as Chairman


                                      F-10
<PAGE>



                      TELEFONICA HOLDING DE ARGENTINA S.A.

                        NOTES TO THE FINANCIAL STATEMENTS

              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                 Amounts stated in Argentine pesos (except where
                   expressly indicated that figures are stated
              in other currency) restated as described in Note 2.3.


1.   BUSINESS OF THE COMPANY

     Telefonica Holding de Argentina S.A. ("the Company") is primarily engaged,
     through the joint-controlled companies (see Note 4.a) in the
     telecommunications business ("Telecommunications Business") in Argentina .

     As of December 31, 2004, the Company conducts its Telecommunications
     Business through its 50.0% interest in Compania Internacional de
     Telecomunicaciones S.A. ("Cointel") (see Note 4.a), which controls the
     outstanding capital stock of Telefonica de Argentina S.A. ("Telefonica")
     through its ownership interest in 100% of Telefonica's Class "A" shares
     (see Notes 4.a) and 6.2.a) and 40.2 million Class "B" shares of Telefonica
     which represents approximately 62.5% and 2.3%, respectively, of
     Telefonica's outstanding capital stock.

     Additionally, as of December 31, 2004, the Company holds a 4.71% ownership
     interest in Atlantida Comunicaciones S.A. ("Atco") (see Note 4.b). Atco is
     a holding company with a direct and indirect interest in broadcast
     television companies and in radio stations. Likewise, the Company holds a
     26.8% ownership interest in AC Inversora S.A. ("AC"). AC is a holding
     company, which until July 4, 2002, had indirect interest in broadcast
     television companies (see Note 4.c).

     As of December 31, 2004, as a result of several transactions described
     below in "Agreement between the Company's Former Principal Shareholders and
     Telefonica, S.A. ("TESA")" and in Note 7.2., Telefonica Internacional, S.A.
     ("TISA")'s equity interest in the Company amounts to 99.96%. (See Note
     7.1.).

     Agreement between the Company's Former Principal Shareholders and TESA

     On April 11, 2000, certain affiliates of Hicks, Muse, Tate & Furst, Inc.
     ("Hicks Muse"), including HMTF - Argentine Media Investments Ltd. ("HMTF"),
     Republica Holdings Ltd. ("Republica Holdings") and International
     Investments Union Ltd. ("IIU") ("HMTF Affiliates") and International Equity
     Investments, Inc. ("IEI"), a Citibank N.A. subsidiary, (together with HMTF
     Affiliates, the "Former Principal Shareholders" and from now on the
     "Participating Shareholders") and TESA ("the Parties") entered into a Stock
     Exchange Agreement (the "Stock Exchange Agreement", and from now on "the
     Contract") whereby, after certain precedent conditions were met, on
     December 15, 2000, the Participating Shareholders transferred to TESA 80.9%
     of the Company's capital stock, representing 84.7% of the Company's
     total votes, in exchange for TESA common shares issued. On June 29, 2001,
     TESA informed the Company that on May 8, 2001, it transferred to TISA,
     TESA's wholly owned subsidiary, all of TESA's 80.9% equity interest
     in the Company. Additionally, as a result of the capital stock reduction
     described in Note 7.2., TISA's equity interest in the Company,
     increased from 80.9% to 99.96%.


                                      F-11
<PAGE>


     As part of the Contract, and according to the transactions provided therein
     and in certain related agreements, Southtel Holdings S.A. ("Shosa"), a
     company previously controlled by the Company, redeemed to the Company
     irrevocable capital contributions, which included, among other: (a) Shosa's
     26.8% ownership interest in Atco (see Note 4.b), (b) Shosa's 26.8%
     ownership interest in AC and (c) Shosa's 20% ownership interest in Torneos
     y Competencias S.A. ("TyC"), including the net book value of the related
     goodwill as of September 30, 2000. On December 15, 2000, the Company
     transferred to ACH Acquisition Co. ("ACH") its ownership interest in Shosa,
     whose main asset as of that date was its ownership interest in Cablevision
     S.A. and its main liabilities were a loan of US$135.9 million made to Shosa
     by ACH, and other liabilities of approximately US$27 million. The Shosa
     selling price was US$395.3 million, and was collected through a promissory
     note issued by ACH (the "Promissory Note"). Additionally, as part of the
     Contract, and according to the transactions provided therein and in certain
     related agreements, the Company paid off its financial liabilities except
     for the amounts payable under the Negotiable Obligations for US$500 million
     issued on February 24, 1997, under the US$500 million Program (see Note 9.)
     and sold its ownership interests in related companies and in certain
     related assets, except for its ownership interests in Cointel, Atco and AC
     and the agreement described in Note 5.c.(i).

     As of the date of issuance of these financial statements, the Company is
     not aware of any fact that could have an adverse effect on the Company's
     business, financial conditions or results of operations, related with the
     transactions described previously in this note.


2.   BASIS OF PRESENTATION AND ACCOUNTING PRINCIPLES APPLIED

     2.1. Financial statements required in Argentina

          In accordance with generally accepted accounting principles and
          current legislation in Argentina, the presentation of the parent
          company's unconsolidated financial statements is mandatory.
          Proportional consolidated financial statements are to be included as
          supplementary information to the individual financial statements.
          Technical Resolution ("RT") No. 4 "Consolidation of financial
          statements", modified by RT No. 19, requires that companies having
          "Joint control" over investees present supplementary information of
          such companies following the proportional consolidation method.
          Therefore, since the Company has "Joint control" over Cointel (see
          Note 2.4.b)2.), for local reporting purposes, the Company should
          consolidate (in proportion to its equity interest in Cointel), line by
          line, their balance sheets as of December 31, 2004 and 2003, and their
          statements of operations and cash flows for the years ended on
          December 31, 2004, 2003 and 2002, with the consolidated balance sheet,
          statements of operations and cash flows included in the consolidated
          financial statements of Cointel and its subsidiaries Telefonica and
          Telinver S.A. ("Telinver") as of such dates. For the purpose of these
          financial statements and for the reasons explained in Note 2.2., the
          Company presents its unconsolidated financial statements as of
          December 31, 2004 and 2003 and for the years ended December 31, 2004,
          2003 and 2002. Presentation of the proportional consolidated financial
          statements as of December 31, 2004, 2003 and 2002 has been omitted,
          since it is not required by the Securities and Exchange Commission of
          the United States of America ("SEC").

     2.2. Basis of presentation

          The financial statements of the Company for the years ended December
          31, 2004, 2003 and 2002 have been prepared in accordance with
          generally accepted accounting principles in Argentina applicable to
          the Company adopted by the National Securities Commission in Argentina
          ("CNV") ("Argentine GAAP"), which except for the matter mentioned in
          Note 2.3. with respect to the amounts corresponding to December 31,
          2003, do not differ significantly from the provisions of the
          professional accounting principles approved by the Professional
          Council of Economic Sciences of the City of Buenos Aires ("CPCECABA")
          and are presented in constant Argentine pesos (see Note 2.3.). These
          financial statements also include certain additional disclosures in
          order to conform more closely to the form and content required by the
          SEC. A description of the significant differences between Argentine
          GAAP and generally accepted accounting principles in the United States
          of America ("US GAAP") is set forth in Note 11.


                                      F-12
<PAGE>


     2.3. Presentation of financial statement's in constant pesos

          Until the three-month period ended March 31, 2002, the Company's
          financial statements had been prepared recognizing the effects of
          changes in the purchasing power of money 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 stated in the
          generally accepted accounting principles set forth by the Argentine
          Federation of Professional Councils in Economic Sciences ("FACPCE") in
          effect as of that date. Effective September 1, 1995, for Argentine
          GAAP purposes, and considering the economic stability conditions as of
          such date and according to the requirements of the CNV, the Company
          had discontinued the application of the restatement method. This
          criterion was accepted 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 CPCECABA
          approved the reinstatement of inflation accounting in financial
          statements for fiscal years or interim periods ended on March 31, 2002
          in accordance with the 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 ("NEP") 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 NEP 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 and for the years ended December 31,
          2004, 2003 and 2002 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 Argentine Institute of Statistics
          and Census ("INDEC")) in compliance with the regulations issued by the
          NEP 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 the net loss for the year ended December 31, 2004 of not
          restating figures until September 30, 2003 is not significant.

          The negative shareholders' equity as of December 31, 2003 and the net
          income for the fiscal year ended December 31, 2003 would have amounted
          to 874 million and to 134 million, respectively.

          In addition, the financial statements of the Company for the fiscal
          year ended December 31, 2002, would have been restated to recognize
          the effects of the changes in the currency purchasing power for the
          period March though September 2003.

     2.4. Accounting principles applied

          The Governing Board of the FACPCE approved RTs Nos. 16, 17, 18, 19 and
          20, introducing changes in professional accounting principles related
          to valuation and disclosure. These resolutions were approved, with
          certain amendments, by CPCECABA. The provisions contained in these
          resolutions are applicable to the Company for years beginning on or
          after January 1, 2003. On January 14, 2003, the CNV approved, through
          Resolution No. 434/03, with certain amendments, the above-mentioned
          RTs to become effective for the years beginning on January 1, 2003
          permitting their early adoption.

          Therefore, the Company's financial statements have been prepared
          considering the accounting principles adopted by the CNV which, except
          for the matter mentioned in Note 2.3., do not differ from professional
          accounting principles approved by the CPCECABA. See Note 2.5.


                                      F-13
<PAGE>


          For purpose of the information requested by RT No. 18, the Company has
          identified that its most important operation segment is its indirect
          ownership interest in Telefonica.

          On February 5, 2003, the FACPCE approved RT No. 21, which replaces RTs
          Nos. 4 and 5 and indicates the information to be disclosed in the
          financial statements with respect to related parties. On February 19,
          2003, through Resolution MD No. 5/2003, the CPCECABA approved RT No.
          21 with some amendments. RT No. 21 is in force for the years beginning
          on or after April 1, 2003. However, it can be early adopted.

          The application of such standards in accordance with Resolution No.
          434/03 of CNV gave rise to the following change in valuation criteria
          in Telefonica, which has been booked by the Company in 2003 for an
          amount of 12 million (loss), as explained below:

          RT No. 20 sets forth the specific valuation and disclosure criteria to
          be applied to derivative financial instruments and hedging
          transactions. According to this standard, hedging derivative
          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 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 financial instruments
          must be directly charged to the statement of operations for the year
          at the time such condition is known. The transition rule for the
          initial application sets forth that the difference between the
          previous measurement and that resulting from this new rule to
          determine the valuation of the instruments not designated as for
          hedging purposes, as well as those with no effective hedging coverage
          as defined in the standard, should be charged to the balance of
          Unappropriated retained earnings/accumulated losses at the beginning
          of the year in which this standard applies for the first time.
          Comparative figures have not been restated as required by the
          transition rule that establishes not to correct accounting balances of
          the previous years in the first year of application.

     2.5. Valuation and presentation methods

          The Company applied the valuation criterion established in CNV
          regulations, which, in their application to the transactions and the
          balances included in these financial statements, except for the matter
          mentioned in Note 2.3. related to the figures as of December 31, 2003,
          do not differ significantly from the provisions of the professional
          accounting principles applicable to the Company and approved by
          CPCECABA.

          The preparation of financial statements in conformity with generally
          accepted accounting principles in Argentina requires the Company's
          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 the financial statements and the
          reported amounts of revenues and expenses of each year.

          Among other issues, these financial statements include the effects of
          economic and foreign exchange regulations known as of the date of
          issuance of these financial statements. All Management estimates have
          been made considering such regulations (among others, see Notes 2.7.,
          4.a) and 5.c.(ii)), based on 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 operations, 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
          implemented by the Argentine Government and the implementation of
          those already adopted, as well as the effect of potential
          modifications resulting from such legal actions, will be considered in
          the financial statements when they become known by the Company's
          Management.

          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 potential future
          development of such governmental actions, and the Company's financial
          statements should be read in light of those circumstances.


                                      F-14
<PAGE>


     The principal valuation methods used in the preparation of the financial
     statements are as follows:

     a)   Other receivables and payables (except financial payables)

          -    In local currency: at nominal value, plus, if applicable, the
               financial results accrued as of the end of each year

          -    In foreign currency: at nominal value converted at the exchange
               rates applicable to their settlement prevailing as of the end of
               each year, in accordance with the uses intended by the Company,
               plus, if applicable, the financial result accrued as of those
               dates, which do not differ significantly from the measurement at
               discounted value of the cash flows based on the rate of the
               transaction (see Note 12.3). Exchange differences have been
               charged to income/(loss) of each year (see Note 2.5.g).

               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 will 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.

     b)   Long-term investments

          -    Ownership interests in related parties valued by the equity
               method:

               The investment in Cointel as of December 31, 2004 and 2003, is
               valued by the equity method of accounting, calculated taking into
               account Cointel's shareholders' equity after deducting Cointel's
               preferred stock and unsettled accumulated preferred dividends as
               of such dates, calculated using the financial statements of
               Cointel as of December 31, 2004 and 2003, respectively, restated
               as described in Note 2.3. In the first quarter of 2002, the
               Company eliminated the three-month lag in computing its
               participation in Cointel's equity that existed until 2001. The
               effect of the elimination of the three-month lag and the above
               mentioned alignment of periods gave rise to a 41 million
               (restated as described in Note 2.3.) decrease in unappropriated
               earnings as of December 31, 2002, related to the loss on equity
               investment in Cointel during the October-December 2001 period.
               Consequently, the equity interest in Section 33 - LSC companies
               and related parties was calculated considering the Company's
               equity participation on Cointel's income for the years ended
               December 31, 2004, 2003 and 2002, after deducting Cointel's
               accrued preferred dividends as of such dates (see Note 2.3.).

               Additionally, the caption "Investments" includes the residual
               value of the goodwill on its investment in Cointel and its
               depreciation is disclosed under the caption "Equity interests in
               Section 33 - Law 19550 companies and related parties". The
               goodwill corresponds to the difference between the acquisition
               cost and the valuation by the equity method as of the purchase
               date of the shares concerned, which is being amortized over a
               period of 20 years. The goodwill is restated as explained in Note
               2.3.

               The analysis of the recoverability of the Company's booked value
               of the goodwill related to its investment in Cointel as of
               December 31, 2004, has been made on the basis of the Company's
               management best estimate of future cash flows of Cointel and
               Telefonica, considering current information and future telephone
               service tariffs estimates of Telefonica. The Company's, Cointel's
               and Telefonica's Management have monitored the evolution of the
               macroeconomic variables that affect their businesses and, from
               time to time, they have adjusted their projections based on the
               latest trends. As explained in Note 4.a), 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 Telefonica's
               operating strategies available for possible scenarios, the
               Company will obtain future cash flows enough to recover booked
               value of the goodwill, that as of December 31, 2004 amounts to
               492 million. Notwithstanding the foregoing, as explained in Note
               4.a)., the Company's, Cointel's and Telefonica's Management will
               continue to monitor the projected situation and will assess the
               effect of any new future developments.


                                      F-15
<PAGE>


               The accounting principles applied by Cointel to prepare its
               financial statements, which were used by the Company to determine
               its equity interest in such company are, if applicable, the same
               as those described in this Note.

               On the basis of information furnished by AC to the Company, as of
               December 31, 2004, the Company's equity interest in AC's is
               negative. Consequently, the Company valued its equity interest in
               AC by the equity method up to the limit of the committed
               contributions as of December 31, 2004, recording, consequently,
               such investment in AC at nil. See Note 4.c).

               Additionally, as of December 31, 2003, the Company valued its
               investment in Atco at nil due to its negative shareholders'
               equity and that the Company was under no obligation to make
               capital contributions for the purpose of revert such situation.
               Additionally, as of such date, the Company valued its investment
               in AC at nil, to adjust it to its estimated recoverable value
               pursuant to information available as of such date.

               -    Other investments valued at cost:

               Corresponds to the shareholding interest in Atco as of December
               31, 2004 valued at the historical cost restated by inflation up
               to the limit of its estimated recoverable value, due to the fact
               that as of such date the Company did not have a significant
               influence in Atco (see Note 4.b). Therefore, as Atco had a
               negative shareholders' equity as of such date, the Company has
               maintained its equity interest at nil.

               Additionally, includes one common share of $1 nominal value of
               Vigil Corp S.A. ("Vigil"), and one common share of $1 nominal
               value of Telefonica Media Argentina S.A. ("Temarsa"), valued at
               $1 each. (See Note 4.d). As of December 31, 2004 and 2003, given
               the fact that the Company does not have significant influence in
               such companies, the Company has valued such investments at
               historical cost restated as described in Note 2.3.

          c)   Intangible assets:

               Correspond to the issuance costs of Negotiable Obligations, which
               are being depreciated over the remaining life of the related
               financial payables (restated as explained in Note 2.3.) As of
               December 31, 2004, the original value and its accumulated
               depreciation amount to approximately 61 million, and the net book
               value amounts to approximately 0.2 million, which will be fully
               depreciated in February 2007. See Note 9.

          d)   Financial payables:

               In foreign currency: at nominal value plus interest accrued as of
               December 31, 2004 and 2003, respectively, payable on the
               different maturity dates, converted at the exchange rate in
               effect at the end of each year, calculated at the contractual
               interest rate in effect as of such dates (See Note 12.3.).
               Exchange differences have been charged to income/(loss) of each
               year (See Note 2.5.g).

          e)   Income tax and tax on minimum presumed income

               The Company records income tax by applying the deferred method.

               Deferred tax assets resulted mainly from the temporary
               differences arising from tax loss carryforwards and the tax
               treatment given in 2002 to exchange differences generated by
               financial payables in foreign currency.

               In order to book the above differences, the Company applied the
               liability method which sets forth the determination of net
               deferred tax assets or liabilities 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 years in which these
               temporary differences are expected to be deductible.


                                      F-16
<PAGE>


               In considering its estimate, the Company's Management takes into
               account the reversal time period of deferred tax assets,
               projected taxable income and tax planning strategies. This
               assessment is based on a series of internal forecasts updated to
               reflect the trends. In accordance with accounting principles in
               force, the Company must recognize deferred tax assets when future
               deductibility is likely. Therefore, due to the effects of
               economic and foreign exchange regulations carried out by the
               government in 2002, the probability of recovering deferred tax
               credits by the Company was significantly affected. Consequently
               the Company has booked a reserve for the balance of deferred tax
               assets whose recovery depends upon the generation of future
               taxable income.

               Under the Public Emergency and Exchange System Reform Law No
               25,561, as implemented by Decree No. 2,568/02, losses originated
               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 to US$1.00, should be
               adjusted using an exchange rate of $1.40 to US$1.00, and be
               carried forward five years as from the date of the enactment of
               such law 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 203 million (in historical
               currency), of which approximately 81 million were computed for
               tax purposes until December 31, 2003, while the remaining amount
               will be carried forward and applied for tax purposes in equal
               amounts until December 31, 2006, according to the related
               legislation.

               For the year ended December 31, 2004, the Company has estimated a
               tax loss carryforward of approximately 43 million. For the year
               ended December 31, 2003, the Company had determined the existence
               of a taxable income of approximately 64 million, however, during
               fiscal year 2004, the Company has increased such taxable income
               by 171 million, because in the fiscal year ended December 31,
               2004 Decree 916/04 implementing Law No. 25,784, was issued. This
               law introduces changes in the income tax law, and provides that
               the interest on debts incurred vis-a-vis with non residents that
               exercise corporate control will not be deductible in the
               proportion of the amount of liabilities that originates them
               which exceeds twice the amount of the shareholders' equity as of
               the fiscal year's closing date. Decree 916/04 published on July
               21, 2004 regulates such law and sets forth that the above
               mentioned change is to be considered for purposes of the
               determination of the tax for the fiscal periods ended as from the
               date of publication of law 25,784 (October 22, 2003). Therefore,
               the Company has filed a rectifying income tax return for fiscal
               year 2003 in order to give effect to such change.

               Additionally, as of December 31, 2003, the Company had an
               accumulated income tax loss carryforward of about 1,163 million
               that arises from its income tax returns filed up to fiscal year
               2003 (407 million at a 35% tax rate), before the inclusion of the
               tax loss carryforward for the year ended December 31, 2004
               mentioned in the above paragraph, that could be applied to offset
               future income taxes payable as follows:

                                                  Tax loss carryforward
                   Available until              (in millions of pesos in
                     fiscal year                    historical value)
                  --------------------------------------------------------
                         2004                              50 (1)
                         2005                             125 (1)
                         2007                             988 (2)
                  --------------------------------------------------------
                                                       1,163
                  =========================================================

               (1)  Corresponds to specific income tax loss carryforwards from
                    disposing of shares and derivative contracts.
               (2)  Corresponds to general income tax loss carryforwards.

               For each year in which such deduction arises, the tax benefit
               (effect of the current tax rate on the tax loss carryforward
               used) will only be effectively realized if income tax (net of the
               deduction) is equal to or exceeds the tax on minimum presumed
               income. However, it will be reduced by any excess of the latter
               over income tax, as the Company will have to pay the tax on
               minimum presumed income as a minimum.


                                      F-17
<PAGE>


               The following table presents the components of the Company's
               deferred tax assets (in millions of Argentine pesos):

<TABLE>
                                                                December 31,       December 31,
                                                                   2004                2003
                                                               ---------------------------------
<S>                                                                 <C>                 <C>
               Common income tax loss carryforwards                 361  (1)            406
               Specific income tax loss carryforwards                44                  61
               Exchange differences deductible
                   in future periods/fiscal years                    28                  43
                                                               ---------------------------------
               Subtotal deferred tax assets                         433  (2)            510  (2)
               Allowance for deferred tax assets                   (433) (2)           (510) (2)
                                                               ---------------------------------
               Total net deferred tax assets                          -                   -
                                                               =================================
</TABLE>

               (1)  Includes 15 million for the year originated by estimated tax
                    loss carryforwards.
               (2)  As of December 31 2004 and 2003, the effect of discounting
                    the balances of deferred tax assets and allowance for
                    deferred tax assets in accordance with accounting rules of
                    the CPCECABA is not significant for the Company's financial
                    statements.

               The following is the reconciliation of the income tax and tax on
               minimum presumed income as charged to the statement of operations
               (that has been nil for years ended December 31, 2004 and 2003),
               and the amount resulting from the application of the
               corresponding tax rate on pre-tax net income (in millions of
               Argentine pesos):

<TABLE>
                                                                December 31,       December 31,       December 31,
                                                                    2004               2003               2002
                                                               ---------------------------------------------------
<S>                                                                  <C>                <C>                <C>
              Net loss (income) before tax and tax on                105                (76)               721
                minimum presumed income at statutory income
                tax rate
              Permanent differences:
              (Loss) Income on equity investments                    (33)                48               (434)
              Non deductible interest                               (118)                 -                  -
              Goodwill depreciation                                  (13)               (13)               (13)
              Variation of allowance for deferred tax assets          77                 41                  -
              Inflation restatement effect                             -                  -                110
              Non-deductible expenses                                  -                  -                 (2)
              Allowance for deferred tax assets                        -                  -               (382)
              Expired tax loss carryfoward                           (18)                 -                  -
                                                               ---------------------------------------------------
              Income tax                                               -                  -                  -
              Tax on minimum presumed income                           -                  -                  9
                                                               ---------------------------------------------------
              Total income tax and tax on minimum presumed
                income                                                 -                  -                  9
                                                               ===================================================
</TABLE>

               The Company calculates the tax on minimum presumed income by
               applying the tax rate of 1% on certain assets valued according to
               the tax regulations in effect as of the end of the year. This tax
               is supplementary to Income Tax. The Company's tax liability 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.

               For the years ended December 31, 2004, 2003 and 2002, the Company
               has determined charges for the tax on minimum presumed income of
               0.3 million, 0.3 million and 0.2 million, respectively, which
               were included in the statement of operations of each year.
               Additionally, as of December 31, 2002, the Company's Management
               estimated that the accumulated tax on minimum presumed income as
               of December 31, 2001 of approximately 7.4 million (at historical
               value) was no longer recoverable and included it in the caption
               "Income tax and tax on minimum presumed income" of the statement
               of operations for the year ended December 31, 2002.


                                      F-18
<PAGE>


          f)   Shareholders' equity accounts

               -    Capital stock: disclosed at nominal value (see Note 7.1.).
                    The adjustment required to restate this account, as
                    described in Note 2.3., is included in "Comprehensive
                    adjustment to capital stock".

               -    Premium on share issue: this account discloses the
                    additional contribution made by the common shareholders, in
                    excess of face value of capital stock, restated in constant
                    Argentine pesos according to applicable CNV resolutions. See
                    Note 2.3.

               -    Irrevocable capital contributions for future share
                    subscriptions: as of December 31, 2003 and 2002 they are
                    disclosed at nominal value. The adjustment required to
                    restate this account in constant Argentine pesos, as
                    described in Note 2.3., is included in "Comprehensive
                    adjustment to irrevocable capital contributions".

               -    Other contributions: corresponds to amounts over which the
                    shareholders have rights according to their ownership
                    interests. They are restated according to applicable CNV
                    resolutions. See Note 2.3.

               -    Legal reserve and Unappropriated earnings (losses) : they
                    have been restated according to applicable CNV resolutions.
                    See Note 2.3.

          g)   Statement of operations accounts

               Statement of operations accounts are presented as follows:

               -    As of December 31, 2004, 2003 and 2002 charges for
                    depreciation of non-monetary assets (goodwill and issuance
                    cost of Negotiable Obligations) have been stated based on
                    the restated amounts of such assets, as described in Note
                    2.3.;

               -    Those accounts accumulating monetary transactions that have
                    occurred until February, 2003 (see Note 2.3.) have been
                    computed by applying the coefficients corresponding to the
                    month of accrual to the historical amounts;

               -    Accounts that include monetary transactions executed as from
                    March 1, 2003 were computed at their historical amounts.

               -    The financial income and expense recorded until February,
                    2003, restated as described in Note 2.3., are disclosed net
                    of the monetary result generated by the effect of inflation
                    on the assets and liabilities that generated them.

               -    "Equity interests in Section 33 LSC companies and related
                    parties" was calculated according to item b) of this note.

               -    Under the caption "Other income relating to equity interests
                    in Section 33 LSC companies and related parties, net" the
                    Company includes the amounts related to Telefonica S.A.
                    Sucursal Argentina ("TESA Arg.")'s agreement described in
                    Note 5.c.(i), for its compliance with the obligations agreed
                    therein, which are charged to income on an accrual basis
                    according to the provisions of the agreement.

          h)   Net (loss) earnings per share for the year:

               The Company calculates the net (loss) earnings per share on the
               weighted average of outstanding common shares during each year
               with a face value of $1 and with a vote per share (See Note 10).

     2.6. Amounts expressed in millions of Argentine pesos

          The amounts in millions of Argentine pesos contained in these
          financial statements have been rounded up or down in order to
          facilitate the footing of notes and exhibits in which they are
          included. The effect of such rounding is not material.


                                      F-19
<PAGE>


     2.7. 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 de-dollarization of most obligations not involving the
               financial system originally denominated in foreign currency and
               governed by Argentine law, as of January 6, 2002 at a $ 1 = US$ 1
               rate and subsequent adjustment through the benchmark
               stabilization coefficient ("CER"), or the CVS, depending on the
               nature of the obligation, plus an equitable adjustment of the
               price, that is to be agreed between the parties or, as the case
               may be, claimed at judicial courts. As from enactment of the
               Asymmetric Compensation Law, the Government established the
               elimination of the wage adjustment index ("CVS") as from April 1,
               2004, replacing for the annual interest rate agreed in the
               original contract, and if such interest is higher than average
               interest rates in the financial system, a rate set by the Banco
               Central de la Republica Argentina ("BCRA") will be applied.

          b)   the Public Emergency and Exchange System Reform Law No. 25,561
               established the "pesification" into Pesos of originally US
               Dollar-denominated utility tariffs previously agreed upon in US
               Dollars at the US$1.00 to $1.00 exchange rate and authorized the
               NEP to renegotiate agreements (see Note 4.a);

          c)   an extension in the National Public Emergency situation until
               December 31, 2005;

          d)   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 labor 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 100% of 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.   BREAKDOWN OF THE MAIN ACCOUNTS (Amounts stated in millions of Argentine
     pesos)

     The main accounts of the balance sheets as of December 31, 2004 and 2003
     and of the statement of operations for years ended December 31, 2004, 2003
     and 2002 were made up as follows (foreign currency balances are presented
     in Note 12.3.):

     3.1. Other receivables

<TABLE>
                                                      December 31, 2004          December 31, 2003
                                                    ------------------------------------------------
                                                    Current    Noncurrent      Current    Noncurrent
                                                    ------------------------------------------------
<S>                                                 <C>             <C>                     <C>
          Receivables from Section 33 LSC
            companies and related parties -
            TESA Arg. (1)                               27              -          27           -
          Deferred income tax assets (2)                 -            433           -         510
          Allowance for other receivables -
             deferred income tax assets (Note
             12.2.)                                      -           (433)          -        (510)
                                                    ------------------------------------------------
             Total                                      27              -          27           -
                                                    ================================================
</TABLE>

          (1)  Accruing no interest. See Note 5.c.(i).
          (2)  See Note 2.5.e).


                                      F-20
<PAGE>


     3.2. Noncurrent Investments
<TABLE>
                                                            December 31,        December 31,
                                                                2004                2003
                                                            --------------------------------
          <S>                                                     <C>                  <C>
          Investment in Cointel - shares (Note 12.1.)             294                  389
          Goodwill - Cointel (1)                                  492                  531
                                                            --------------------------------
             Total                                                786                  920
                                                            ================================
</TABLE>

          (1)  See Note 3.3.


     3.3. Goodwill on investment in Cointel:

<TABLE>
                                          Original value                    Depreciation
                                          ------------------------------------------------------------------------
                                           At beginning/    At beginning     For the     Accumulated      Net book
                                            end of year        of year        year     at end of year      value
                                          ------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>             <C>           <C>
         Year ended December 31,
           2004                                   804             273           39               312          492
                                          ========================================================================
         Year ended December 31,
           2003                                   804             234           39               273          531
                                          ========================================================================
         Year ended December 31,
           2002                                   804             195           39               234          570
                                          ========================================================================
</TABLE>

     3.4. Financial payables

<TABLE>
                                                       December 31, 2004            December 31, 2003
                                               ---------------------------------------------------------
                                                    Current      Noncurrent      Current      Noncurrent
                                               ---------------------------------------------------------
<S>                                                 <C>             <C>           <C>             <C>
          Accounts payable to Section 33 Law
            19550 companies and related
            parties - TISA                           1,896 (1)         -          1,730             -
          Negotiable Obligations                         -            22 (2)          -            22
          Interest accrued on Negotiable
            Obligations                                  1             -              1             -
                                               ---------------------------------------------------------
          Total                                      1,897            22          1,731            22
                                               =========================================================
</TABLE>

          (1)  With principal maturing on June 27, 2005 and semiannual interest
               capitalization, accruing interest at a nominal rate of 8.3125%
               per annum. See Note 5.c.(ii).
          (2)  Accrues interest at a nominal rate of 9.75% per annum. See Note
               9.


                                      F-21
<PAGE>


     3.5. Aging of assets and liabilities as of December 31, 2004:

<TABLE>
                                            Assets                             Liabilities
                                       -----------------------------------------------------------------------
                                             Other          Financial       Accounts     Taxes         Other
                                        receivables (1)    payables (2)     payable      payable      payables
                                       -----------------------------------------------------------------------
<S>                                             <C>         <C>                 <C>         <C>          <C>
           Without maturity date:               27               -               -           -           3
                                       -----------------------------------------------------------------------
           Maturing:
               Up to three months                -               1               1           2           -
               From three to six month           -           1,896 (3)           -           -           -
               More than two and up to
                 three years                     -              22               -           -           -
                                       -----------------------------------------------------------------------
               Subtotal                          -           1,919               1           2           -
                                       -----------------------------------------------------------------------
               Total                            27           1,919               1           2           3
                                       =======================================================================
</TABLE>

          (1)  Not including deferred tax assets and its related allowance.
          (2)  Accrue interest at a weighted average rate of 8.329%.
          (3)  Corresponds to the loans from TISA. See Note 5.c.(ii).

     3.6. Equity interests in Section 33 LSC companies and related parties -
          gain (loss)

<TABLE>
                                                                           (Loss) Gain
                                                         ---------------------------------------------------
                                                          December 31,      December 31,      December 31,
                                                              2004              2003              2002
                                                         ---------------------------------------------------
<S>                                                            <C>                <C>           <C>
          Equity interest - Cointel                            (95)               137           (1,241)
          Goodwill depreciation - Cointel (see Note 3.3.)      (39)               (39)             (39)
                                                         ---------------------------------------------------
                                                              (134)                98           (1,280)
                                                         ===================================================
</TABLE>


4.   OPERATIONS AND ACTIVITIES OF RELATED PARTIES

     a)   Cointel

     Cointel is a company organized under Argentine law by a group of investors
     made up of the Company, Telefonica International Holding B.V. and TISA, all
     of them TESA's subsidiaries. As of December 31, 2004, the Company's
     interest in Cointel amounts to 50.0% of the common capital stock,
     representing 49.84% of Cointel's total votes. Cointel controls the
     outstanding capital stock of Telefonica, through its ownership interest in
     100% of Telefonica's Class "A" shares (see Note 6.2.a), and 40.2 million
     Class "B" shares which represents 2.3% of Telefonica's outstanding capital
     stock, being the total shareholding of Cointel in Telefonica's capital
     stock 64.83%.

     On November 11, 2002, Cointel's Ordinary and Special Shareholders' Meeting
     approved the amendment of the fiscal year section of the Articles of
     Incorporation. This amendment consisted of changing Cointel's fiscal
     year-end from September 30 to December 31 of each year. On December 12,
     2002, the CNV approved such fiscal year-end change and on January 21, 2003
     this amendment was registered with the Public Registry of Commerce.

     Due to the recurrent cumulative losses recorded by Cointel as of December
     31, 2004, Cointel made an inquiry to the IGJ, the government regulatory
     agency of corporations, and ratified, with its legal counsel's opinion,
     the method of computing shareholders' equity accounts in order to
     determine whether Cointel qualifies under the event of mandatory capital
     stock reduction. According to the IGJ's accounting department, as stated
     in its opinion dated March 29, 2005, an event of mandatory capital
     reduction would occur when the total shareholders' equity, as compared to
     the capital stock, is smaller than 50% of the latter amount. Under such
     criterion, cumulative losses should be computed as follows: 50% against
     the outstanding capital stock, and 100% against the balance to the other
     shareholders' equity accounts.

     Therefore, as of the date of issuance of these financial statements,
     according to the IGJ's interpretation and based on the opinion of
     Cointel's counsel, Cointel does not qualify under the event of mandatory
     capital reduction.


                                      F-22
<PAGE>


     Cointel's general financing policy is to cover future fund needs to repay
     short-term debt, if possible depending on the evolution of the economic
     situation, with bank loans and/or access to the capital markets and TISA's
     loans, or alternatively, refinancing its debt obligations. The Company is
     evaluating Cointel's financing needs considering the Argentine economic
     situation and the current difficulties in accessing credit, and has
     commitmentted to use its best efforts to provide financing directly or
     indirectly, subject to the Company's own fund availability, which depends
     on the development of the issues affecting the Company's own financial
     situation. On the other hand, TESA has advised Cointel that, as of the date
     of issuance of these financial statements, it was still evaluating
     financing alternatives for such company, including the possibility of
     refinancing the long-term TISA's current loans to Cointel and, if
     necessary, providing additional financing.

     As of December 31, 2004, Cointel's current assets are lower than its
     current liabilities by 1,459 million. The current liabilities, include a
     99.6% (1,454 million) of debt owed to TISA. Consequently, Cointel's ability
     to meet its short term liabilities will depend on TISA's continued
     refinancing of the loans granted to Cointel, or on the obtainment of other
     financing from related or unrelated parties, which to date are not
     available in sufficient amounts for Cointel. Should no financing
     alternatives be available for Cointel or should Cointel not succeeds in
     obtaining refinancing, Cointel would not have sufficient funds available to
     meet its current liabilities as they become due disclosed on the balance
     sheet as of December 31, 2004. Although Cointel will continue to make its
     best effort to obtain such financing, which up to date has had favorable
     results evidenced by waivers granted from creditors and short-term
     refinancing, as of the date of issuance of these financial statements it is
     not possible to assure what the result of future negotiations will be and,
     consequently, whether Cointel will be able to pay its current liabilities
     in the normal course of business and maintain its normal operations.

     Following the retirement of all Cointel's debt securities, on September 14,
     2004 Cointel filed with the CNV an application for its withdrawal of the
     public offering system in connection with the issue of negotiable
     obligations. On November 11, 2004 the CNV allowed Cointel's request and
     withdrew the consent previously granted to Cointel for admission to the
     public offering system. Therefore, as from such date, Cointel is no longer
     subject to the CNV's control, and has become subject to the supervision of
     the General Superintendency of Corporations ("IGJ").

     Sociedad Licenciataria Sur S.A., nowadays Telefonica, was created in
     compliance with the provisions of the List of Conditions for the
     privatization of Empresa Nacional de Telecomunicaciones ("Entel").
     Telefonica 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, Telefonica signed a license agreement with the Secretary of
     Communications ("SC") 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. Telefonica's obligations
     under this license mainly relate to service quality and coverage of the
     areas to be serviced. On June 9, 2000, the NEP issued Decree No. 465/00,
     which provided the complete deregulation of the telecommunications market
     as from November 9, 2000.

     On September 3, 2000, the NEP 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 Telefonica. On September 19, 2000, Telefonica filed
     a reconsideration petition against certain specific issues of Decree No.
     764/00. The Court has not as yet ruled on this issue.

     Telefonica'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, Telefonica 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 Telefonica operates, and the situation affecting service rates
     described in this note. 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.


                                      F-23
<PAGE>


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

     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, Cointel's and Telefonica'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 the
     foreign currency denominated debt, due to the financing already obtained by
     Telefonica and the gradual reduction of the Telefonica's short term debt.

     Although Telefonica 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 Telefonica's economic and
     financial equation.

     Telefonica has signed a Management Agreement with its operator and majority
     shareholder, (TESA, formerly known as Telefonica de Espana S.A.), a Spanish
     company which indirectly controls the Company. 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 Telefonica 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 Telefonica's "gross margin", as defined in
     the Agreement. On July 30, 2003, Telefonica entered into a Supplement to
     the Agreement, confirmed by its 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.

     Telefonica's tariff

     o    Tariff system

          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 Telefonica's income, historical
          providers shall 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, Telefonica 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 Secretary of
          Communications established that Telefonica should readjust the
          presentations submitted, supplying additional information. Telefonica
          has complied with this request and no resolution has yet been made in
          the case.


                                      F-24
<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 should be expressed in US Dollars in addition to a
          right for Telefonica 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 to 1 US Dollar exchange
          rate. Furthermore, this Law authorized the NEP 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 NEP, 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 NEP 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 NEP 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, Telefonica,
          Telecom Argentina S.A. and the Argentine Government signed a
          Memorandum of 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 such companies' rights to renegotiate
          Telefonica'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 Telefonica's license to
          provide Telecommunication 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.


                                      F-25
<PAGE>


          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 Telefonica's promotional offer to provide dial-up internet
          access service, as described in sub-paragraph b) above, at lower
          prices to customers in urban areas located more than thirty
          kilometers away from Telefonica's 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 Secretary of Communications
          accepted Telefonica'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.

          Pursuant to Resolution No. 73, of March 31, 2005 Telefonica and
          Telecom Argentina S.A. were instructed to include the beneficiaries
          of the Head of Household Plan who already own a telephone line in the
          customer category "Retired, Pensioner and Households with Low
          Consumption" as long as they meet the respective requirements for
          such category. For that purpose, the Company is under the obligation
          to request the National Social Security Authorities (Anses) to supply
          it with the National Register of Beneficiaries of the Head of
          Household Plan.

          In the opinion of Telefonica's management, the application of the
          issues mentioned in subparagraphs a), b) and c) will not have a
          significant impact on Telefonica's future results.

          During the final months of 2004 and the beginning of 2005, the
          Argentine government signed letters of understanding with several
          providers of public utility services, which established tariff
          adjustments of 15% to 30% and a new term for their revision. These
          agreements will be validated once they are signed as Government
          decrees. As of the date of issuance of these financial statements,
          there have been no letters of understanding or tariff adjustments for
          the telecommunication services.

          On March 8, 2005 the Ministry of Economy and Federal Planning, Public
          Investment and Services, pursuant to Resolutions No. 123 and No. 237,
          respectively, scheduled public audiences with electricity and gas
          companies in order to analyze tariff increases. However, as of the
          date of issuance of these financial statements no telecommunication
          services companies have been notified of a date for a public
          audience.

          In the opinion of Telefonica'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.


                                     F-26
<PAGE>


          Telefonica 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 of the US Dollar, by
          the result obtained from the application of a polynomial formula that
          considers 40% of the monthly variation of the price of the US 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. Telefonica
          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.


                                      F-27
<PAGE>


          In the opinion of Telefonica'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
          Telefonica'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 US 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 Telefonica's financial condition and future results and,
          consequently, on Cointel's and the Company's. As of the date of
          issuance of these financial statements, Telefonica'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
          Telefonica's customers the impact of the tax on checking account
          transactions imposed by Law No. 25,413 paid by Telefonica 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. Telefonica 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.

     o    Price Cap

          Under the tariff regulation mechanism in effect known as Price Cap, to
          which Telefonica 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"), awarded a precautionary measure ordering the
          National Government, Telefonica 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.

          Telefonica, 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 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.


                                      F-28
<PAGE>


          In the opinion of Telefonica'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 Telefonica is authorized to collect
          from 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 Telefonica's defense against
          the above legal proceedings, in the opinion of Telefonica's Management
          and its legal counsel, the outcome of these issues will not have a
          negative impact upon Telefonica's financial position or a significant
          adverse effect on its results of operations.

     o    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 tariffs and a decrease in the
          rates for domestic long distance and international services and for
          Telefonica's local and domestic long distance public phone service for
          longer distances. The net impact of the tariff 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, in currency
          units of that date, (which had previously been provisionally
          determined by the S.C. in 14 million). 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
          tariff reduction. Telefonica to compensate such excess revenues 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 Telefonica's Management and its legal counsel, the
          outcome of these issues could exclusively affect the maximum rates for
          future services that Telefonica 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 Telefonica's Management and its legal counsel the outcome
          of these issues will not have a negative impact upon Telefonica's
          financial position or a significant adverse effect on the results of
          its operations.

          Financial operations of Telefonica

          Telefonica'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 TISA's loans (Cointel's shareholder). As of
          December 31, 2004, Telefonica's current assets are lower than its
          current liabilities in 1,150 million, the latter including
          approximately 34% (US$200 million) of debt owed to TISA (indirect
          controlling company of Telefonica). As of December 31, 2003,
          Telefonica's short-term debt amounted to US$ 637 million. At that
          time, Telefonica 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, Telefonica managed to gradually reduce its
          short-term indebtedness through a combination of partial payments and
          short and long-term refinancing. As of December 31, 2004, Telefonica
          has been granted new short-term loans from local financial
          institutions in an amount of 120 million.


                                      F-29
<PAGE>


          In addition, in May 2004, October 2004 and February 2005, Telefonica
          issued negotiable obligations for 163.3 million, 200 million and 250
          million, respectively, and expects 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 Telefonica, may consider
          will, in the opinion of the Management, enable Telefonica, 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 Telefonica's liabilities in the amount of
          US$150 million now payable in monthly installments maturing from
          January through December 2005 and has advised the Company, Cointel and
          Telefonica that, as of the date of issuance of these financial
          statements, it was still assessing other financing alternatives for
          such companies including, if necessary, providing additional
          financing.

          Telefonica's lawsuits and claims

          Telefonica is party to various lawsuits in the ordinary course of its
          business, and have made the allowances in the cases in which, taking
          into account Telefonica legal counsel's opinion, Telefonica's
          management evaluated as probable to incur a liability. In the
          Company's management opinion, and considering the allowances made by
          Telefonica, the litigation in which Telefonica is currently involved,
          individually and in the aggregate, would not have any material effect
          on the Company's financial position or results of operations.

     b)   Atco

     In March 1998, the Company acquired (through Southtel Equity Corporation
     ("Southtel")) 30.0% of Atco's capital stock. This company's corporate
     objective is to invest in the media business. The total price of the
     acquisition amounted to 214 million (restated as described in Note 2.3.).
     As a consequence of certain transactions, such ownership interest decreased
     from 30% to 26.8%. On December 15, 2000, Shosa (Southtel's successor
     company) reimbursed irrevocable capital contributions to the Company,
     through the delivery of its ownership interest in Atco, which was valued at
     255 million (restated as described in Note 2.3.), related to the book value
     of such ownership interest as of September 30, 2000.

     On December 27, 2004, the Special Shareholders' Meeting of Atco resolved to
     increase its capital stock from 309 million to 1,760 million. At that
     meeting, the Company waived its preemptive subscription right and accretion
     right over the new shares, and Temarsa subscribed all the shares issued
     through the capitalization of a loan held by that company with Atco. As of
     December 31, 2004, as a result of such shareholders' decision the Company's
     ownership interest in Atco has decreased to 4.71% from 26.8%.

     As of the issuance date of these financial statements, Atco owns mainly an
     ownership interest directly and indirectly of approximately 100% of the
     capital stock of: Television Federal S.A. - TELEFE ("Telefe"), owner and
     operator of Channel 11 of Buenos Aires, a broadcast television station and
     broadcast television companies in the interior of Argentina, in the cities
     of Salta, Cordoba, Neuquen, Tucuman, Rosario, Santa Fe, Bahia Blanca and
     Mar del Plata.

     The installation and operation of broadcast TV stations in Argentina is
     governed by the Broadcasting Law No. 22,285 and other regulations.
     Broadcast TV companies in Argentina have to obtain a license from the
     Comfer (Federal Committee that regulates broadcasters) to be able to
     broadcast the programming signal. Telefe holds a license to operate Channel
     11 of Buenos Aires, which expired in January 2005 on which such company
     obtained a renewal until 2015. In addition, the broadcast television
     companies in the interior of Argentina hold licenses, most of which were
     renewed in 1998 or formalities to extend such 10-year term are underway.


                                      F-30
<PAGE>


     c)   AC

     As of December 31, 2004, the Company's ownership interest in AC amounts to
     26.8% and other TESA's subsidiaries control the remaining 73.2%. As of June
     30, 2002, AC held indirect equity interest in licensed broadcast television
     companies in Buenos Aires and other cities of the interior of Argentina
     through Prime Argentina S.A. (Holdings) ("Prime"). On July 4, 2002, AC and
     Hannover Nominees Ltd. (together the Prime's shareholders) sold their
     ownership interest in Prime for an amount of US$12 million to Grupo H.F.S.
     Media S.A. Consequently, the Company does not longer have its indirect
     ownership interest in the licensed broadcast television companies through
     AC as from the above mentioned date. On the basis of information furnished
     by AC as of December 31, 2004, the ownership interest in such company is
     negative and, therefore, the Company has maintained its investment in AC
     valued at nil (see Note 2.5.b).

     d)   Other investments

     On October 24, 2002, the Company acquired one common share of $1 nominal
     value of Vigil, for an amount of $1. Additionally, on the same date, the
     Company acquired one common share of $1 nominal value of Temarsa, for an
     amount of $1. These acquisitions represent less than 1% of the capital
     stock of such companies (see Note 2.5.b).

     The final merger agreement between Temarsa, Vigil and Ambit S.A. was
     executed on December 11, 2003. Under this agreement, Vigil and Ambit S.A.
     are dissolved without liquidation and are merged into Temarsa. As a result
     of the merger, Temarsa's capital stock would increase at $93,623,004 by the
     issuance of 93,623,004 common, registered, non-endorsable shares of $1
     nominal value each and entitled to one vote per share. Such shares will be
     exchanged for those held by the shareholders of the two taken over
     companies at the following ratio: for each share of Vigil each shareholder
     will receive 0.00024 shares of Temarsa and for each share of Ambit S.A.
     each shareholder will receive 0.58 shares of Temarsa. The merger was
     disapproved by the IGJ, and Ambit, Vigil and Temarsa filed a judicial
     appeal against such decision. As of the date of these financial statements,
     the appeal was at the resolutive stage.

5.   OUTSTANDING BALANCES AND TRANSACTIONS WITH SECTION 33 LSC COMPANIES AND
     RELATED PARTIES

     a)   The transactions made with Section 33 LSC companies and related
          parties during the years ended December 31, 2004, 2003 and 2002
          (restated as described in Note 2.3. in millions of Argentine pesos),
          are as follows:

<TABLE>
                                                                     gain (loss)
                               ----------------------------------------------------------------------------------------
                                                                                  Other income relating to equity
                                                                               interests in Section 33 LSC companies
                                          Interest income (expenses)                  and related parties, net
                               ----------------------------------------------------------------------------------------
                                                December 31                                 December 31
                               ----------------------------------------------------------------------------------------
<S>                                  <C>              <C>            <C>           <C>            <C>         <C>
                 Company             2004             2003           2002          2004           2003        2002
           ------------------------------------------------------------------------------------------------------------
           TESA Arg. (1)                -                -             -             33 (3)         40 (3)      57 (3)
           TISA (2)                  (164)           (172)          (204)             -              -           -
           Telefonica (2)               -                -             1              -                          -
                               ----------------------------------------------------------------------------------------
                                     (164)           (172) (4)      (203) (4)        33             40 (4)      57 (4)
                               ========================================================================================
</TABLE>

(1)  See Note 5.c.(i).
(2)  See Note 5.c.(ii).
(3)  Net of turnover tax.
(4)  Net of inflation effects.


                                      F-31
<PAGE>


     b)   During the years ended December 31, 2004, 2003 and 2002, the Company
          did not collect any dividends from its investments in Section 33 LSC
          companies and related parties.


     c)   Additionally to the transactions mentioned in Note 1., the other
          related party transactions are the following:


          (i)  On April 24, 1997, the Company signed an agreement with TESA Arg.
               pursuant to which the Company committed to the compliance of
               obligations, of which the main effective are: i) to hold shares
               that allow it to control directly or indirectly at least 30% of
               Cointel's capital stock, and hold a direct and indirect equity
               interest not lower than 20%, ii) not to acquire directly or
               indirectly, Cointel's common shares that would result in a total
               shareholding in excess of 50% of Cointel's capital stock and
               votes and iii) to provide, at TESA Arg.'s request, economic and
               financial advisory services (obtaining and investing funds,
               assistance in analyzing investment projects, among others). The
               amount to be paid by TESA Arg. to the Company for such services
               equals one half of the management fee received by TESA Arg. from
               Telefonica after deducting taxes and certain expenses, and will
               be in effect so long as the Telefonica management contract is in
               effect. The Company's compensation for compliance with its
               obligations is indivisible and not fractionable and it cannot be
               reduced due to lack of compliance with any of its obligations
               because of reasons external to the Company. The Telefonica
               management contract with TESA provided for an annual management
               fee, which was calculated at 9% of Telefonica's "gross margin" as
               defined in such agreement, through April 30, 2003. On such date,
               if TESA agrees to renew such contract, at its sole discretion,
               for an additional five-year period, the annual management fee of
               TESA Arg. would be between 1.5% and 5.0%. On July 30, 2003,
               Telefonica entered into a Supplement to the Management Agreement
               with TESA, which had been in force as of that date pursuant to
               successive extensions and in conformity with the clauses of the
               original agreement, pursuant to which the management fee as from
               May 1, 2003 was agreed upon in 4% of the gross margin, as already
               described. During the years ended December 31, 2004, 2003 and
               2002, the Company did not receive any financial advice request
               and performed its duties contained in such agreement for which it
               is entitled to receive the relevant fees, which amounted to 33
               million, 40 million and 57 million for such years, respectively,
               and were included in "Other income relating to equity interests
               in Section 33 of the LSC companies and related parties, net" in
               the statements of operations. As of the date of issuance of these
               financial statements, TESA Arg. has not requested any further
               services. If any such request is made by TESA Arg., the Company
               will use the terms set forth in the agreement for adopting the
               necessary actions so as to have optimum operating resources
               available for satisfying future specific requests in the most
               efficient manner. The related receivables, which amount to 27
               million as of December 31, 2004 and 2003, are included as "Other
               receivables - Receivables from Section 33 of the LSC companies
               and related parties - TESA Arg." in the balance sheets as of
               December 31, 2004 and 2003, respectively.


          (ii) On February 12, 2001, the Company received a loan from TISA in
               the amount of US$530.1 million, which accrued interest at LIBOR
               plus a 2.25% per annum ("the differential") for a term of one
               month, renewable automatically on a monthly basis unless the
               parties notify in writing, at least three days before due date,
               that they do not intend to renew the agreement. TISA is entitled
               to modify the differential provided it notifies the Company of
               this decision at least three business days before the end of each
               interest period. The funds disbursed by TISA were used to
               partially repurchase the Company's Negotiable obligations (see
               Note 9.). Subsequently, on February 14, 2001, the Company made
               early partial repayment to TISA of this loan for an amount of
               US$37.9 million.


                                      F-32
<PAGE>


               On June 24, 2004, the Company and TISA entered into an amendment
               to the loan agreement whereby they agreed that the due for
               principal will be semiannual and that interest capitalization
               continues being monthly, setting the differential for the first
               period in 9% nominal per annum. Additionally, on July 26, 2004,
               the Company and TISA agreed that the differential for the second
               period would be 5.5% nominal per annum, which it has remained
               unchanged for the following periods and the loan agreement was
               amended, eliminating the early termination event triggered by
               the existence of restrictions that could limit the Company's
               ability to repay its debt with TISA. On December 27, 2004, the
               loan agreement was amended, and it was agreed that the
               capitalization of interest will be semi-annual. Additionally,
               during the January-March 2002 quarter, the Company received
               loans from Telefonica for US$5.8 million ("the Dollar loans").
               On April 26, 2002, the Company entered into an assignment
               agreement with Telefonica and TISA pursuant to which Telefonica
               assigned to TISA the Dollar Loans in the amount of US$5.8
               million, which includes principal amount and accrued interest as
               of April 26, 2002. On December 28, 2004, the Board of Directors
               resolved to call a Special Shareholders' Meeting to be held on
               February 15, 2005, in order to resolve upon the partial
               capitalization of the loan held by TISA with the Company, for an
               amount of up to approximately 2,046 million. On February 15,
               2005, due to the capital stock increase described in Note 7.5.,
               TISA and the Company agreed to amend the loan agreements in
               effect as of such date in order to provide for: (i) the
               conversion to pesos of US$ 622.5 million (1,785 million) which
               shall not accrue interest as from February 15, 2005 and shall
               not fall due before April 1, 2006, and (ii) ratify that the
               residual amount of TISA's credit for US$ 20 million is subject
               to the same conditions as those agreed upon on December 27,
               2004. The Company believes that the capital stock increase will
               be completed during the fiscal year 2005.

               In obtaining the above mentioned loan, the Company has assumed
               certain commitments, mainly involving limitations on the sale of
               assets, limitations on liens of certain assets, limitations on
               the Company or any of its affiliates becoming a party in merger
               or spin-off operations, with certain exceptions. In addition,
               the loan shall forthwith become due and payable: 1) upon the
               Company defaulting on any of the commitments assumed under the
               loan agreement, 2) in the event of any change in the Company's
               controlling shareholder, 3) if the Company or its affiliates are
               unable to comply with their obligations, 4) changes in the
               Company's main business activity, 5) if the Company or any of
               its affiliates lose the government licenses obtained and 6) if
               there are changes in the Company's equity, economic and
               financial situation that due to their adverse nature may affect
               the Company's ability to comply with the obligations assumed in
               the agreement or if there are restrictions that may limit the
               ability of the Company to repay its debts.

               In relation to the loan of US$20 million mentioned above, TISA
               has advised the Company that until July 1, 2006 TISA shall not
               consider that an acceleration event has been verified under the
               agreements with TISA. Additionally, some of the loan agreements
               in effect include acceleration events in case certain judicial
               or extra-judicial proceedings are filed for amounts in excess of
               certain net equity percentages of the Company or relevant
               affiliate. The Company obtained a waiver in connection with
               those proceedings as of the date of issuance of these
               financial statements, covering until July 1, 2006.

               On June 17, 2005 The Company cancelled US$7 million of the above
               mentioned loan.

               As of December 31, 2004 the Company's current assets are lower
               than its current liabilities by 1,876 million. The current
               liabilities include a 99.6% (1,896 million) of debt owed to the
               Company's controlling company.

               The Company is evaluating Cointel's financing needs considering
               the Argentine economic situation and the current difficulties to
               have access to credit and will make its best efforts to provide
               Cointel with such financing, directly or indirectly, subject to
               the Company's own fund availability, which depends on the
               evolution of the issues affecting the Company's financial
               situation.


                                      F-33
<PAGE>


6.   RESTRICTIONS, GRANTED GUARANTEES AND CURRENT ADMINISTRATIVE PROCEDURES

     6.1. Distribution of accumulated income restriction:

     In accordance with the LSC, the Company's bylaws and General Resolution No.
     368/01 of the CNV, 5% of the year's net income must be appropriated to a
     legal reserve, previous absorption of accumulated losses until such reserve
     equals 20% of adjusted capital stock.

     As of December 31, 2004, the Company carries accumulated losses in the
     amount of 2,267 million that includes a net loss for the year then ended in
     the amount of 300 million.

     6.2. Other restrictions

          a)   Through Cointel, the Company is a member of the Main Core of the
               Telefonica awardee Consortium. As of December 31, 2004, the
               Company holds a direct 50.0% interest in Cointel's common stock.
               Decree No. 62/90 of the NEP, as amended, provides that Regulatory
               Authorities (nowadays the SC) must approve in advance any
               transfer of the Company's 20% interest in the Main Core of
               Cointel (the same requirement applies to the 10% interest of TISA
               in Cointel). Cointel's common shareholders existing as of the
               takeover of Entel, as a group, may not reduce their total holding
               to less than 51.0% of the total capital stock (Class "A" shares)
               with voting rights of Telefonica without first obtaining approval
               from the regulatory authority.

          b)   With respect to the commitments and guarantees related to the
               issuance of negotiable obligations and other payables, see Notes
               5.c.(ii) and 9.

     6.3. Guarantees granted

          In connection with the disposing of companies in which the Company
          maintained ownership interests during the years ended December 31,
          1996 to 2001, the Company has agreed to indemnify the purchasers for
          any omitted liability at time of sale subject to the amounts and terms
          specified in each contract. As of December 31, 2004, the Company does
          not know of any circumstance that could generate future losses and
          consequently, that should be booked as of such date.

     6.4. Litigation

          As of December 31, 2004, the Company is not party to any legal
          proceedings initiated against it whose results might materially affect
          the Company's financial condition or the results of its operations
          and, consequently, should be booked as of December 31, 2004.

     6.5. Current administrative procedures

          On June 24, 2004, and due to a claim conducted by a minority
          shareholder, the CNV issued a resolution by means of it instructed a
          summary against the Company for possible infraction to certain
          articles of the LSC, the Code of Commerce and the CNV's rules (NT
          1997), in respect of the compensation granted by the Company, between
          October 1st , 1998 and September 30, 2001, to one of its previous
          directors under an advisory contract, and in respect of the accounting
          treatment given by the Company, in the year ended December 31, 2000,
          to the payment made by AMI CABLE HOLDINGS, Ltd., related company of
          the previous shareholders of the Company, for the rescission of the
          abovementioned advisory contract. The sanction that could possibly
          correspond to the Company would consist of a warning or fine of up to
          1.5 million, which could be raised up to five times the amount of the
          greater between the benefit obtained or the damage caused as a result
          of the illicit driving. In the opinion of the Company's Management, it
          is unlikely that this administrative sanction prospers.


                                      F-34
<PAGE>


7.   CAPITAL STOCK

     7.1. As of December 31, 2004 the Company's capital stock, after the
          voluntary capital stock reduction mentioned in section 7.2. of this
          note, which has been approved by the CNV's Resolution No. 14,060 and
          registered in the Public Registry of Commerce on March 31, 2004, and
          after the capital increase mentioned in section 7.4 of this note,
          which as of the date of these financial statements is pending approval
          by the CNV and the Buenos Aires Stock Exchange and pending
          registration by the Public Registry of Commerce, was comprised of:

                                                        Subscribed and paid in
                                                          (historical value)
                                                      --------------------------
           Common shares, face value $1:

           Class "A" shares (five votes per share)               30,427,328
           Class "B" shares (one vote per share)                374,302,032
                                                        -------------------
           Capital Stock authorized for public offer            404,729,360  (1)

           Common shares pending issuance and
           authorization for public
           offering, face value $1
           Class "B" shares (one vote per share)                  2,000,000  (1)
                                                        -------------------
           Total                                                406,729,360
                                                        ===================

          (1)  See Note 7.4.

           As a consequence of the transactions described in Note 1. and section
           7.2. of this note, as of December 31, 2004, the principal shareholder
           of the Company is TISA, which owns 99.96% of the Company's capital
           stock.

     7.2. On January 18, 2001, the Company's General and Special Shareholders'
          Meeting approved a voluntary capital stock reduction proposed by the
          Company's Board of Directors at their meetings held on December 15,
          2000, and January 10, 2001, through the redemption of 95,270,640
          Common Class "B" shares of the Company of 1 nominal value each. In
          consideration for the number of shares delivered, the shareholders,
          present in the redemption, would receive a proportional interest in
          the Promissory Note mentioned in Note 1. The only shareholder taking
          part in such reduction was ACH, who participated with all its shares,
          95,270,640 Common Class "B" shares ("the Shares"). The final amount of
          the reduction was allocated to proportionately reduce the capital
          stock and each shareholders' equity account by 19.05% and the
          difference between the book value of 19.05% of the Company's capital
          stock (calculated on the basis of the Company's shareholders' equity
          as of September 30, 2001, after deducting irrevocable capital
          contributions of 2 million (at historical value)) and the redemption
          value of such shares (calculated on the basis of a value of US$4.486
          per share) was allocated to reduce the balance of the reserve for
          future dividends account until the balance was exhausted and the
          remaining amount to unappropriated earnings. On December 7, 2001, the
          CNV informed the Company its decision to partially cancel the public
          bidding authorization granted to the Company for an amount of
          $95,270,640 (historical value), being $404,729,360 (historical value)
          the outstanding capital stock authorized for such bidding.
          Furthermore, as of such date, the Buenos Aires Stock Exchange granted
          its final approval to the voluntary capital stock reduction. On
          December 31, 2001, the Shares were effectively registered under the
          Company's name. On January 11, 2002, the Company's Board of Directors
          decided to make available all necessary mechanisms for the effective
          cancellation of the shares received from ACH and on March 31, 2004,
          the above-mentioned voluntary capital stock reduction was filed with
          the Registry of Commerce.


                                      F-35
<PAGE>

     7.3  On May 28, 2001, the NEP issued Decree No. 677/01 under which TISA
          could make a statement of acquisition of residual interests involving
          all of the Company's capital stock owned by third parties. Likewise,
          any minority shareholder may demand that TISA 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. Should any of the
          above transactions be conducted, once the acquisition has been
          completed and the procedure established has been met, the Company
          would be automatically delisted from the share public trading and
          listing system, through the fulfillment of certain formalities
          provided by the decree.

          On the other hand, on April 5, 2001, the Company filed an application
          with the Buenos Aires Stock Exchange for preliminary authorization of
          the delisting of its shares. However, prior to the conclusion of such
          procedure, on July 9, 2002, TISA initiated the related procedure with
          the CNV in order to make the statement of acquisition of residual
          interests, which affected the whole of the Company's capital stock
          owned by third parties, according to the provisions of Decree No.
          677/01 and general resolutions issued in connection with such decree.
          In view of a court action filed by a minority shareholder alleging
          the unconstitutionality of the residual participation regime, the
          National First Instance Court in Commercial Matters No. 26 of the
          City of Buenos Aires decided to declare as a preventive measure, the
          suspension of the proceedings, and ordered the inapplicability of the
          referred decree to the prosecuting minority shareholder until the
          case is finally adjudged. The CNV understands that the referred
          injunction prevents the acquisition of the residual interests
          relating to the shares held by any shareholders other than the one
          who filed the constitutional protection action. The Company answered
          the court action and requested its dismissal, claiming that the
          prerequisites for filing the action and declaring the
          unconstitutionality of Decree No. 677/01 have not been met. TISA, in
          turn, has answered the court action in the same way. Finally, on
          March 2004, the Court mentioned above declared the
          unconstitutionality of articles No. 29 and 30 of Decree 677/01
          relating to the acquisition of residual interests, so the delisting
          process is now discontinued. The Company and TISA have not appealed
          the Court's decision.

     7.4. On December 16, 2004, the General and Special Class B Shareholders'
          Meeting resolved to increase the capital stock by 2 million, to
          406,729,360, in accordance with the provisions of Resolution No.
          466/04 of the CNV, and to issue at par value, 2,000,000 Common, Class
          B shares of one peso ($ 1) face value each and entitled to one vote
          per share, which will have the same rights to dividends, as from the
          beginning of the fiscal year in which the shares are issued, and will
          rank pari passu with the remaining Class B shares outstanding as of
          their issuance date. Pre-emptive subscription rights may be exercised
          within the pre-emptive subscription period of 30 days counted since
          the date designated by the Board of Directors, pro rata the shares
          held by each shareholder. Simultaneously, the shareholders may
          exercise their accrual rights over the remaining unsubscribed
          portion, in identical proportion as the subscription of the
          pre-emptive right bears over the total issue amount. In addition,
          such shareholders' meeting approved the application for public
          offering of the new shares to be issued as a result of the capital
          increase and their listing on the Buenos Aires Stock Exchange. As of
          the date of issuance of these financial statements, such capital
          increase is pending approval by the CNV and the Buenos Aires Stock
          Exchange and pending registration by the Public Registry of Commerce.

     7.5. On February 15, 2005, the Special Shareholders' Meeting resolved to
          approve the capital stock increase for an amount of up to 2,046
          million, ratified the 2 million stock capital stock increase resolved
          upon by the shareholders' meeting dated December 16, 2004 and
          delegated to the Company's Board of Directors the setting of the
          final amount and other terms of issuance in connection with such
          capital increase. Therefore, at such Special Shareholders' Meeting,
          TISA expressed its intention to partially capitalize its loans with
          the Company for 1,785 million (see Note 5.c)ii) to the individual
          financial statements).

          As of the date of issuance of these financial statements, such
          capital stock increase is pending of approval by the CNV and the BCBA
          and is pending of registration with the RPC, as well as the Company's
          Board of Directors has not yet met in order to determine the final
          amount to be issued and other issuance conditions relating to the
          capital stock increase, including the setting of the beginning of the
          related preemptive subscription period.

8.   NEGATIVE SHAREHOLDERS' EQUITY

     As of December 31, 2004, the Company carried accumulated losses amounting
     to 2,267 million and negative shareholders' equity amounting to 1,112
     million. Due to such situation, the Company was under the conditions for
     dissolution due to the loss of its capital stock set forth in item 5 of
     Section 94 of the LSC. The decree No. 1,269/02 dated July 16, 2002 had
     suspended the enforcement of item 5 of Section 94 of the LSC until December
     10, 2003 and on December 23, 2003, the NEP issued Decree No. 1,293/03 which
     extended the suspension established by Decree No. 1,269/02 until December
     10, 2004.

     Decree No. 540/05 dated May 30, 2005 further extended enforcement of
     Section 206 and item 5 of Section 94 of LSC until December 10, 2005.


                                      F-36
<PAGE>


     In addition, as a result of the capital stock increase resolved upon by
     the Shareholders' Meeting referred to in Note 7.5, the Company expects
     that it will no longer be under the conditions of item 5 of section 94 of
     the Argentine Business Associations Law No. 19,550 beyond the suspension
     period mentioned above, and consequently, it will be able to continue the
     normal operations.

     Notwithstanding the statements of the preceding paragraph, the Company
     qualifies under the event of mandatory capital reduction set forth in
     Section 206 of the LSC when cumulative losses exceed reserves and 50% of
     the capital stock. However, Decree No 540/05 dated May 30, 2005 further
     extended the enforcement of Section 206 of the LSC until December 10, 2005.

     On April 10, 2002, the Company's General Shareholders' Meeting approved a
     resolution requiring that 5%, or 179,210 pesos, of the December 31, 2001,
     year-end realized earnings be set aside into the legal reserve. However,
     since the Company carried during 2002 accumulated losses exceeding such
     amount, the Company's Board had decided not to create such legal reserve.
     Such decision was approved by the Company's General Ordinary and Special
     Shareholders' Meeting of April 22, 2003.

9.   ISSUANCE OF NEGOTIABLE OBLIGATIONS NOT CONVERTIBLE INTO SHARES

     As of December 31, 2004 and 2003, the Company had outstanding US$ 7.6
     million in Series B Negotiable Obligations. As of such dates there were no
     unused lines of credit.

     The following chart details the situation of the original US$ 500 million
     program of Negotiable Obligations:

<TABLE>
                                             US$500 million program (1)
     -------------------------------------------------------------------------------------------------------
          Principal
           amount         Principal amount     Interest rate    Payment of interest        Situation as of
        (in millions)         repayment              %                                    December 31, 2004
     -------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>          <C>                     <C>
          Series A          February 2002          8.50         February and August     Totally repaid
           US$100                                                  of each year
          Series B          February 2007          9.75         February and August     Partially repaid (2)
           US$225                                                  of each year
          Series C          February 2007         11.25         February and August     Totally repaid
            $175                                                   of each year
</TABLE>

     (1)  It was partially cancelled up to the amount of US$17.1 million as
          approved by the General and Special Shareholders' Meeting held on
          November 2, 2001, at its adjournment of November 15, 2001.
     (2)  As a consequence of the repurchases and cancellations of Negotiable
          obligations made during the years 2001 and 2002, the balance of the
          Negotiable Obligations and of the US$500 million program as of
          December 31, 2004, amounts to US$7.6 million, which corresponds to
          Series B.

     The creation of these Programs and the Public Offerings of Negotiable
     Obligations were authorized by the CNV. The net proceeds from the issuance
     of the Negotiable obligations were used to refinance bank borrowings.

     After the repurchases and repayments of the Company's Negotiable
     Obligations, the Company has cancelled and repurchased approximately 98.5%
     of the Negotiable Obligations for a face value of 175 million and US$317.4
     million. In connection with this issuance, the Company has assumed certain
     commitments usually undertaken in transactions of this kind. The Prospectus
     related to the issuance of Negotiable obligations gives detailed
     information of the condition of issuance, which have been modified and/or
     eliminated according to the authorizations obtained from the Special
     Noteholders' Meeting held on November 12, 2001. The main effective
     commitments as of the issuance date of these financial statements, are
     among others: limitation on liens with certain exceptions, filings of
     financial statements and other communications and reports and maintenance
     of all government authorizations and approvals (see Note 5.c.(ii)).


                                      F-37
<PAGE>


     As of the issuance date of these financial statements, the Company has
     complied with all the commitments derived from the issuance of Negotiable
     Obligations and its amendments.

10.  SUBSEQUENT EVENTS

     On February 15, 2005, the Special Shareholders' Meeting approved an
     increase in the Company's capital stock for an amount of up to 2,046
     million, having delegated in the Company's Board of Directors the setting
     of the final amount and other issuance conditions of such capital stock
     increase. In connection with such capital stock increase, in that meeting
     Telefonica Internacional, S.A. ("TISA", majority shareholder), expressed
     its intention to contribute an amount of 1,785 million corresponding
     partially to the loan held by TISA with the Company.

11.  DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND US
     GAAP

     A)   Accounting principles followed by the Company

          These financial statements have been prepared in accordance with
          Argentine GAAP as stated in Note 2.5., which differ from generally
          accepted accounting principles of the United States of America.

          Differences between generally accepted accounting principles followed
          by the Company and US GAAP and their effect on net income/(loss) and
          on accumulated deficit are set forth in B), C) and D) below.

     B)   Description of differences between Argentine and US GAAP

          Differences between Argentine and US GAAP relate to the following
          items:

          1.   Restatement of financial statements for general price-level
               changes

               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 until February
               28, 2003, the increase in the consumer price index and in the
               wholesale price index (which is applicable for restatements of
               financial statements in constant pesos) was 43.6% and 119.7%,
               respectively, and therefore, inflation accounting was reinstated
               under Argentine GAAP as from January 1, 2002 (see Note 2.3.).
               Also, under Argentine GAAP, the period from 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 2.3., in 2002 the NEP 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 2.3.). 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 years ended December 31, 2004 and 2003 as if the inflation
               adjustment mechanism had been applied for the period March
               through September 30, 2003, is included in Note 2.3.


                                      F-38
<PAGE>


               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 2004, 2003 and
               2002. For that reason, TESA incorporates, for consolidation
               purposes, the Company's balances without computing any inflation
               adjustments for the inflation experienced during 2003 and 2002.
               Consistent with the Company's ultimate parent company's policies,
               and for the Company's own US GAAP reconciliation, the Company has
               elected not to use the alternative of maintaining the inflation
               adjustment in such years, that the SEC provides for countries
               such as Argentina where local generally accepted accounting
               principles may require price-level adjustments. Therefore, the
               Company has included in its US GAAP reconciliation an adjustment
               eliminating the effects of the restatement for inflation computed
               in the accompanying financial statements filed with the CNV for
               the fiscal years ended December 31, 2004, 2003 and 2002 (see D
               below).

          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
               inflation so as to allow for comparison in constant Argentine
               pesos as described in Note 2.3.

               For US GAAP, amounts for prior fiscal years have been adjusted to
               eliminate such restatement and so are presented in nominal pesos
               (see D).

          3.   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 2.5.e).

               Deferred tax assets result mainly from the temporary differences
               arising from exchange differences that are not yet deductible for
               tax purposes and from tax loss carryforwards.

               Under US 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 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 the tax on minimum
               presumed income (together "tax assets"), which does not meet the
               "more likely than not" criterion for realization, based on the
               assessment of evidence established in US 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 and tax loss carryforwards 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 D).

               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 and tax loss carryforwards become deductible.
               Management considers all available evidence, both positive and
               negative including 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 (see Note 2.5.e). Therefore due to
               the effects of the existing and expected economic conditions and
               foreign exchange regulations implemented by the government in
               2002, considering tax planning strategies and that the Company's
               income from its equity interest in Cointel is not subject to
               income tax, the Company has established a full valuation
               allowance against their net deferred tax assets under US GAAP in
               accordance with the provisions of SFAS 109. There are no
               differences applicable to the Company for this subject between
               Argentine GAAP and US GAAP for the years ended 2004, 2003 and
               2002.


                                      F-39
<PAGE>


          4.   Goodwill on investments in companies

               Under Argentine GAAP, goodwill arising from investments in
               controlled companies is based on the excess of the purchase price
               over the book value of the net assets acquired. Under US GAAP,
               goodwill is determined based on the excess of the purchase price
               over the fair value of assets acquired and liabilities assumed.

               Goodwill and identifiable intangible assets were evaluated for
               impairment when events or changes in circumstances indicated
               that, in management's judgment, the carrying value of such assets
               might not be recoverable.

               The Company early adopted SFAS 142 on October 1, 2001. SFAS 142
               requires that intangible assets with a finite useful life are
               amortized, and that intangible assets with indefinite useful
               lives and goodwill are not amortized, but are recognized at fair
               value and tested at least annually for impairment. Accordingly,
               under US GAAP, as from October 1, 2001, the Company stopped
               recording goodwill amortization. Under Argentine GAAP, the
               Company continues amortizing such goodwill.

               Goodwill arising as the difference between the cost of an
               investment and the amount of underlying equity in net assets of
               an equity method investee ("equity method goodwill") also ceased
               to be amortized on adoption of SFAS 142. However, in accordance
               with the provisions of APB Opinion 18, equity method goodwill
               continues to be reviewed for impairment together with the equity
               method investment, in the same manner as other long-term assets
               (see D).

          5.   Comprehensive Income

               The Company has not reported separately comprehensive income
               because there are no material differences between its net
               income/(loss) and comprehensive income as defined by SFAS No.
               130.

          6.   Devaluation effect

               Under Argentine GAAP, the effects of the devaluation of the
               Argentine peso on the valuation of the foreign currency assets
               and liabilities in Argentine pesos were recognized in the fiscal
               year ended December 31, 2002.

               Under US 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 D).

          7.   Push down accounting

               Under US GAAP, when substantially all of the common stock of a
               company is acquired, and after certain conditions are met, the
               purchase price is "pushed down" to the acquired assets and
               liabilities in the acquired company's financial statements. Push
               down accounting is not a generally accepted accounting principle
               under Argentine GAAP.

               As further explained in Note 1., TESA acquired 80.9% of the
               Company's capital stock, in exchange for TESA common shares
               issued. On June 29, 2001, TESA informed the Company that on May
               8, 2001, it transferred to TISA, all of TESA's 80.9% equity
               interest in the Company. As of December 31, 2001, and as a result
               of the voluntary capital stock reduction mentioned in Note 7.2.,
               TISA owned 99.96% of the Company's capital stock. As a result of
               TESA's acquisition of the 80.9% equity interest in the Company,
               which purchase price amounted 2.2 billion, and the voluntary
               capital stock reduction which increased TESA's ownership interest
               to 99.96%, the Company booked an adjustment of 1.6 billion
               corresponding substantially to goodwill (see B) 4 above and D)
               below).


                                      F-40
<PAGE>


          8.   New accounting pronouncements (US 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 have any interests that fall within the
               scope of 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
               fiscal years ending on or after 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

               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. This statement shall
               be applied for non-monetary asset exchanges occurring in fiscal
               periods beginning after June 15, 2005. In the opinion of the
               Company's Management the adoption of this rule will not have an
               impact on net income and shareholders' equity.


     C)   Additional significant differences between Argentine GAAP and US GAAP
          adopted by Cointel and its subsidiaries

          1.   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, Telefonica assumes such
               expenditures are financed by any remaining liabilities (both
               interest and non-interest bearing) and shareholders' equity.


                                      F-41
<PAGE>


               Under US 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
               the remaining interest bearing liabilities.

          2.   Inventories

               Under Argentine GAAP, inventory is stated at the lower of either
               the replacement/reproduction cost or the estimated realizable
               value. Under US GAAP, inventory is stated at the lower of cost or
               market. Telefonica determines cost principally on an average cost
               basis.

          3.   Costs associated with the issuance of debt

               Under Argentine GAAP, the costs associated with the issuance of
               Negotiable obligations may be charged to income at the time of
               issuance or deferred and amortized over the period the debt is
               outstanding. Under US GAAP, the costs associated with the
               issuance of debt securities are to be deferred and amortized over
               the period the related debt is outstanding. The deferred costs
               are to be amortized by the effective interest method or by the
               straight-line method if not materially different from the
               effective interest method.

          4.   Debt refinancing costs

               Under Argentine GAAP, material costs associated with the exchange
               of debt have been 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, under US GAAP, Emerging Issues
               Task Force ("EITF") 96-19 specifies 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 exchange for old debt in a "troubled debt
               restructuring", as defined in SFAS 15, 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.

          5.   Preferred stock

               Under US GAAP, in accordance with SFAS No. 150 "Accounting for
               Certain Financial Instruments with Characteristics of both
               Liabilities and Equity", mandatorily redeemable preferred stock
               is classified as a liability. Under Argentine GAAP, preferred
               shares have been classified as capital stock.

               In addition, under Argentine GAAP, any increase (decrease) in the
               carrying amount of preferred stock is recorded as an adjustment
               to common capital stock, as such increase (decrease) represents a
               redistribution of the total value of Cointel's capital stock
               between its common and preferred shareholders. Under US GAAP, the
               increases (decreases) in the carrying amount of preferred stock
               are recorded as charges against retained earnings or, in the
               absence of retained earnings, by charges against paid-in capital.

               Preferred dividends are recorded only if certain conditions are
               met.

          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
               4.a), there is no fixed rate of return. Accordingly, the
               requirements of US GAAP related to a business whose rates are
               regulated on the basis of its actual costs are not applicable to
               Telefonica.


                                      F-42
<PAGE>


          7.   Revenue recognition

               Under Argentine GAAP, Telefonica 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.

               Telefonica did not enter in revenue arrangements with multiple
               deliverables that were not separated into different units of
               accounting.


          8.   Accounting for derivative instruments and hedging activities

               In June 1998, the FASB 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 statement of operations, and requires that a
               company must formally document, designate, and assess the
               effectiveness of transactions that receive hedge accounting.

               Under Argentine GAAP, Cointel and Telefonica apply RT No. 20
               issued by the FACPCE which provides for fair value valuation of
               derivative instruments as from January 1, 2003.

          9.   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 US GAAP, foreign exchange differences are expensed as
               incurred.

          10.  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 US GAAP, tax credits are recorded
               at the amount effectively paid.


                                      F-43
<PAGE>


          11.  Accounting for certain investments in Debt.

               Telefonica 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.


     D)   The following is a summary of the adjustments to net (loss) income and
          accumulated deficit that would have been required, had US GAAP instead
          of Argentine GAAP been applied in the accompanying financial
          statements (amounts expressed in millions of Argentine pesos):

<TABLE>
                                                               2004            2003           2002
                                                            ------------------------------------------
<S>                                                             <C>                <C>      <C>
     Net (loss) income according to the
     financial statements, Argentine GAAP in constant pesos     (300)              217      (2,060)
     Reversal of inflation restatement (see B)2.)                  -                 -          14

     US GAAP adjustments - Increase (decrease) due to:
     -        Reversal of inflation restatement and
              monetary results (see B)1.) (a)                    220               222      (1,277)
     -        Depreciation of goodwill (see B)4.)                 18                18          18
     -        Effects of US GAAP adjustments on
              ownership interest in Cointel (see C)               39                (1)        524 (1)
     -        Devaluation effect (see B)6.)                        -                 -         349
                                                            ------------------------------------------
     Net (loss) income in accordance with US GAAP                (23)              456      (2,432)
                                                            ==========================================
</TABLE>

     (a)  Includes  reversal of inflation  restatement  and monetary  results on
          ownership interests in related parties.


<TABLE>
                                                                                    2004          2003
                                                                             ----------------------------
<S>                                                                               <C>              <C>
     Accumulated deficit according to the financial
     statements, Argentine GAAP in constant pesos                                 (1,112)          (812)

     US GAAP adjustments - Increase (decrease)

     -        Alignment of periods for valuation of
              Equity interests in Cointel (3)                                        (25)           (25)
     -        Reversal of inflation restatement
              and monetary results (see B)1.)
              -    Investment in Cointel                                          (1,131)        (1,330)
              -    Goodwill for investment in Cointel                               (268)          (289)
     -        Goodwill and intangible assets (see B).4)                               82             64
     -        Push down accounting (additional goodwill)
              (see B)7.)                                                           1,550          1,550
     -        Effect of US GAAP adjustments on ownership
              interest in Cointel (see C))                                            24            (15)
                                                                             ----------------------------
     Accumulated deficit in accordance with US GAAP                                 (880)          (857)
                                                                             ============================
</TABLE>


                                      F-44
<PAGE>


<TABLE>
     (Loss) earnings per share under USGAAP:
                                                                           2004             2003             2002
                                                                      -----------------------------------------------
<S>                                        <C>                           <C>                <C>             <C>
      Net (loss) earnings per share per financial
          statements in accordance with Argentine
          GAAP in constant Argentine pesos (2)                           (0.741)            0.534           (5.090)

      Reversal of inflation restatement                                                                      0.035
                                                                                                         ------------
      Comparative amounts as per historical
          financial statements                                                                              (5.055)
                                                                                                         ============
      Net (loss) earnings per share under US
          GAAP in Argentine pesos

      Net (loss) earnings per share under US
          GAAP in Argentine pesos (2)                                    (0.057)            1.127           (6.009)
                                                                      ===============================================
      Number of shares subscribed, paid in
          and outstanding

          Common                                                       406,729,360      404,729,360       404,729,360
</TABLE>

     (1)  In 2001, the Company included a loss of 570.1 million corresponding to
          the estimated effect of the devaluation on Cointel and Telefonica's
          net income (loss), calculated based on the Company's ownership
          interest in such companies, and consequently in 2002 the adjustment
          includes a gain of 570.1 million corresponding to such effect that is
          included in the 2002 net loss according to Argentine GAAP.
     (2)  Net (loss) earnings per share is calculated based on the average
          number of shares outstanding during the year. See Note B.6).
     (3)  Corresponds to the effect of the equity interest of the Company in the
          US GAAP adjustments in Cointel for the three-month period ended
          December 31, 2001. The historical amount of the equity interest of the
          Company in Cointel net loss for such period under Argentine GAAP
          amounted to a loss of 19 million. Such amount relates to the alignment
          of periods for valuation of Equity interests in related parties, as
          described in Note 2.5.b).

     E)   Other significant US GAAP disclosure requirements.

          The following represent additional financial statement disclosures
          required under US GAAP:

          1.   Disclosures about fair value of financial instruments:

               US GAAP requires disclosure of the estimated fair value of the
               Company's financial instruments. The following methods and
               assumptions were used to estimate the fair value of each class of
               financial instrument.

               As of December 31, 2004 and 2003, the carrying amounts of cash,
               short-term investments, receivables and current payables
               approximated their fair value.

               As of December 31, 2004 and 2003, the fair value of the loan from
               TISA is equal to its carrying amount, as they are short term
               debt, and the interest rates have been settled close to each
               year-end. As of December 31, 2004 and 2003, the fair value of
               Negotiable Obligations is at par.


          2.   There were no loans to the Company's directors in excess of
               US$100,000 as of December 31, 2004 and 2003. The Company does not
               have employees.

          3.   Deferred income taxes:

               The following table presents the components of the Company's
               deferred tax balance (based on a US GAAP balance sheet).

<TABLE>
                                                                                   December 31,
                                                                     -----------------------------------------
                                                                            2004                 2003
                                                                     -----------------------------------------
<S>                                                                            <C>                  <C>
                Deferred tax assets:
                  Common income tax loss carryforwards                         361 (2)              406
                  Specific income tax loss carryforwards (1)                    44                   61
                  Foreign currency exchange loss deductible in
                     future years                                               28                   43
                                                                     -----------------------------------------
                Subtotal deferred tax assets                                   433                  510
                  Allowance for deferred tax assets                           (433)                (510)
                                                                     -----------------------------------------
                Total net deferred tax assets                                    -                    -
                                                                     =========================================
</TABLE>

               (1)  Corresponds to losses from the sale of companies and from
                    financial contracts.
               (2)  Net of 15 million of tax loss carryforwards that offset the
                    tax payable with respect to the taxable income estimated for
                    the year ended December 31, 2004.


                                      F-45
<PAGE>


               The benefit (expense) for income taxes computed in accordance
               with US GAAP differs from that computed at the statutory tax rate
               as follow:

<TABLE>
                                                                                      December 31,
                                                                   ----------------------------------------------------
                                                                         2004              2003              2002
                                                                   ----------------------------------------------------
<S>                                                                          <C>            <C>                <C>
               Income tax (expense) benefit at the statutory
                   income tax rate in accordance with US GAAP                8              (160)              848
               Non deductible interest                                    (118)                -                 -
               Loss (income) on equity investments                          51               122              (499)
               Variation of allowance for deferred tax assets               77                38              (349)
               Expired tax loss carryfoward                                (18)                -                 -
                                                                   ----------------------------------------------------
               Income tax (expense) benefit                                  -                 -                 -
                                                                   ====================================================
</TABLE>

          4.   Statements of operations under US GAAP

               Under Argentine GAAP, the Company shows the income resulting from
               the TESA Arg. Agreement (see Note 5.c)(i)) as a whole amount
               under the caption "Other income relating to equity interests in
               Section 33 - Law 19,550 companies and related parties, net"
               considering that all amounts charged to TESA Arg. are originated
               by the same agreement. Under US GAAP, the related income
               resulting from services provided, if any, is recorded as Revenue,
               and the income attributable to the other obligations under the
               contract in periods when the company did not receive advisory
               requests from or provide significant services to TESA Arg. (see
               Note 5.c)(i)) is included in the caption "Equity interests in
               related parties" of the Statement of operations under US GAAP
               (see below). Under US GAAP, the condensed statements of
               operations for the years ended December 31, 2004, 2003 and 2002
               are supplementally provided as follows:

<TABLE>
                                                     December 31,    December 31,   December 31,
                                                         2004            2003           2002
                                                     -------------------------------------------
<S>                                                      <C>            <C>          <C>
               Equity interests in related parties       176            390          (1,386)
               Administrative expenses                    (2)            (2)             (3)
               Financial gains and losses
                 On assets                                 -              -               1
                 On liabilities                         (197)            68          (1,036)
               Tax on minimum presumed income              -              -              (8)
                                                     -------------------------------------------
               Net (loss) income for the year            (23)           456          (2,432)
                                                     ===========================================
</TABLE>

          F)   Statement of cash flows presentation

               In the accompanying statement of cash flows, the Company
               considers all highly liquid investments with an original maturity
               of three months or less to be cash and cash equivalents.


                                      F-46
<PAGE>


               The following supplemental condensed statement of cash flows is
               prepared in accordance with the SEC presentation requirements and
               following Argentine GAAP valuation policies, except for the
               effects of inflation accounting, which have been segregated.
               Information for the year 2004 and 2003 is not presented because
               the effect of inflation has not been significant:

                                                                    December 31,
                                                                        2002
                                                                   -------------

                   Cash and cash equivalents at end of year                 3
                   Cash and cash equivalents at beginning of year           3
                                                                   -------------
                   Subtotal                                                 -
                   Inflation loss on monetary accounts                      2
                                                                   -------------
                   Increase in cash and cash equivalents                    2
                                                                   =============
                   CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS

                   Cash flows from operating activities                    23
                                                                   -------------
                   Cash flows from financing activities:
                   Increase in payables to related parties                 16
                   Repayments of debts with related parties               (20)
                   Repayments of loans                                    (17)
                                                                   -------------
                   Total cash flows used in financing activities          (21)
                                                                   -------------
                   Total increase in cash and cash equivalents              2
                                                                   =============

          G)   Business Segment Information

               Under US GAAP, SFAS No.131, "Disclosures about Segments of an
               Enterprise and Related Information", establishes the standards
               for reporting operating segment information and for interim
               financial statements. 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
               and Telefonica in historical amounts (not considering the
               restatement for inflation). Comparative information for earlier
               years on the same basis of segmentation must also be presented.

               Until the fiscal year ended December 31, 2002, the Company's
               management considered the Holding segment separately. As from
               fiscal year 2003, the Company's management considers the holding
               information as part of Telecommunication business. Consequently,
               the Company have retroactively reflected such change in fiscal
               year 2002 business segment information.

               The Telecommunications business segment includes the following
               operations:

               -    Holding: Includes the Company's and Cointel's income,
                    expenses and assets in addition to Basic Telephone Services.

               -    Basic Telephone Services: includes the consolidated
                    operations of Telefonica and its subsidiary Telinver S.A.

               The information presented below is prepared based on the
               following criteria:

               -    Total assets: represents the Company' equity investment,
                    goodwill and receivables of each operating segment. All the
                    figures were prepared based on the Company's historical
                    financial statements.


                                      F-47
<PAGE>


               -    Statement of operations accounts: figures recomputed by
                    applying the Company's direct and indirect ownership
                    interest in its related companies to the respective
                    consolidated amounts as of each year/period as disclosed in
                    the statements of operations for the years ended December
                    31, 2004 and 2003 and the twelve-month period ended December
                    31, 2002, in historical Argentine pesos.

                                       Year ended December 31, 2004 (in millions
                                                 of Argentine Pesos)
                                       -----------------------------------------
                                              Telecommunications Business
                                       -----------------------------------------
                                          Holding   Basic Telephone
                                            (c)        Services      Total
                                       -----------------------------------------

     Total assets                           27           223          250

     (Loss) gain of the segment (a)       (246)          223          (23) (b)
     Net revenues                            -           991          991
     Interest income                         -            10           10
     Interest expense                     (232)         (134)        (366)
     Depreciation and intangible
        assets amortization                  -          (184)        (184)


                                       Year ended December 31, 2003 (in millions
                                                 of Argentine Pesos)
                                       -----------------------------------------
                                              Telecommunications Business
                                       -----------------------------------------
                                          Holding   Basic Telephone
                                            (c)        Services      Total
                                       -----------------------------------------

     Total assets                           28           241          269

     Gain of the segment (a)               117           322          439 (b)
     Net revenues                            -           895          895
     Interest income                         -            19           19
     Interest expense                     (235)         (171)        (406)
     Depreciation and intangible
        assets amortization                  -          (202)        (202)


                                       Year ended December 31, 2002 (in millions
                                                 of Argentine Pesos)
                                       -----------------------------------------
                                              Telecommunications Business
                                       -----------------------------------------
                                          Holding   Basic Telephone
                                            (c)        Services      Total
                                       -----------------------------------------

     Total assets                           33           259 (e)      292

     Loss of the segment (a)            (1,772)       (1,568)      (3,340) (b)
     Net revenues                            -           778          778
     Interest income                         -            40           40
     Interest expense                     (236)         (186)        (422)
     Depreciation and intangible
        assets amortization                  -          (231) (d)    (231)


     (a)  Includes the Company's equity in earnings of each operating segment
          plus the Company's and Cointel's income and expenses allocated to each
          segment. In 2004, 2003 and 2002, includes 33 million, 40 million and
          45 million, respectively, corresponding to other income relating to
          equity Section 33 - Law 19,550 companies and related parties, net.
     (b)  Relates to the Company's net income (loss) for the year.
     (c)  Includes the Company's and Cointel's income and expenses not allocated
          to any other segment.

     (d)  In 2002 includes  depreciation and intangible  assets  amortization of
          Basic Telephone Service and Cointel.

     (e)  As per  historical  values  the  investment  in  Cointel  amounts to a
          negative equity interest of 1,280 million.


                                      F-48
<PAGE>


12.  OTHER FINANCIAL STATEMENT INFORMATION

     The following tables present additional financial statement disclosures
     required under Argentine GAAP:

     1.   Investments in shares, bonds issued in series and holdings in other
          companies.
     2.   Allowances and reserves.
     3.   Foreign currency liabilities.
     4.   Administrative expenses.


                                      F-49
<PAGE>


12.1. INVESTMENTS IN SHARES, BONDS ISSUED IN SERIES AND HOLDINGS IN OTHER
      COMPANIES (stated in millions of Argentine pesos, restated as described in
      Note 2.3.)

<TABLE>
                                                                             2004                                            2003
                                  --------------------------------------------------------------------------------------------------
                                                Face                       Inflation       Value by           Book           Book
             Issuer                  Class      value      Quantity      adjusted cost   equity method       value          Value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>        <C>            <C>             <C>               <C>              <C>
NONCURRENT  INVESTMENTS (1)

Investments valued by the
   equity method:

Cointel - shares                   Common
                                   Class "A"     0.1     2,245,384,140
                                   Common
                                   Class "B"     0.1       407,817,358

                                           Total investment in Cointel       1,822             294             294             389

AC - shares                         Common        1              3,600           -               -               -               -

Other investments valued at
    cost
Atco - shares                       Common        1         82,824,771         255               -               -               -

Vigil - shares                      Common        1                  1           -               -               -               -

Temarsa - shares                    Common        1                  1           -               -               -               -

                                                                                                            ------------------------
Total noncurrent investments                                                                                    294            389
                                                                                                            ========================
</TABLE>

(1)  See Notes 2.5.b) and 4.


                                      F-50
<PAGE>


12.1. INVESTMENTS IN SHARES, BONDS ISSUED IN SERIES AND HOLDINGS IN OTHER
      COMPANIES (stated in millions of Argentine pesos, restated as described in
      Note 2.3.) (Contd.)






<TABLE>
                                       Information on the issuer
                  -------------------------------------------------------------------
                                                     Latest financial statements
                                     ------------------------------------------------
                                                Common
                                                capital                Shareholders'   Total % held
    Issuer          Main business    Date       stock (1)   Net loss      equity       of capital
----------------------------------------------------------------------------------------------------
<S>                 <C>             <C>           <C>        <C>           <C>          <C>
NONCURRENT
  INVESTMENTS

Cointel             Investments     12-31-04      531        (184)         639          50.0% (2)
</TABLE>


<TABLE>
                                      Financial statements used for valuation by the equity method
                               ------------------------------------------------------------------------
                                 Closing     Duration        Auditors'                Auditors' report
     Issuer          Year-end     date      of the year     report date     Scope         type (4)
-------------------------------------------------------------------------------------------------------
<S>                 <C>             <C>           <C>        <C>           <C>          <C>
NONCURRENT
  INVESTMENTS

Cointel               12-31     12-31-04      12months       04-01-05       Audit       Unqualified (3)
</TABLE>


(1)  Corresponds to face value.
(2)  Over common capital stock. As of December 31, 2004, preferred capital stock
     (over which the Company has no ownership interest) amounts to 42 million.
(3)  Includes an explanatory paragraph related to the uncertainty of Cointel's
     ability to pay its current liabilities and continue as a going concern.
(4)  Issued under standards of the Public Company Accounting Oversight Board of
     United States.


                                      F-51
<PAGE>


12.2. ALLOWANCES AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND
      2002 (stated in millions of Argentine pesos, restated as described in Note
      2.3.)

<TABLE>
                                                      2004                             2003        2002
-----------------------------------------------------------------------------------------------------------
                              Balances at                                Balances     Balance    Balances
                               beginning   Increase for   Decrease for   at end of   at end of   at end of
         Account                of year      the year       the year       year         year       year
-----------------------------------------------------------------------------------------------------------
<S>                              <C>             <C>          <C>            <C>         <C>        <C>
Deducted from noncurrent
   assets:

For other receivables
  -deferred tax assets           510               -          (77)           433         510        551
                               -----------------------------------------------------------------------------
Total 2004                       510               -          (77)          433
                               =============================================================================
Total 2003                       551               -          (41)                       510
                               =============================================================================
Total 2002                       169             474          (92) (1)                              551
                               =============================================================================
</TABLE>

(1)  Net of monetary gain (loss).


                                      F-52
<PAGE>


12.3. FOREIGN CURRENCY LIABILITIES


<TABLE>
                                                         2004                                  2003
                                     -----------------------------------------------------------------------------
                                       Amount in                                    Amount in
                                        foreign                                      foreign
                                      currency (in                 Book amount     currency (in     Book amount
                                      millions of     Exchange   (in millions of    millions of   (in millions of
                 Account                  US$)          rate          pesos)           US$)            pesos)
    ---------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>         <C>                <C>           <C>
    Current liabilities

       Financial payables                   637           2.979       1,897              591           1,731
       Other payables                         1           2.979           3                1               3
                                     -----------------------------------------------------------------------------
         Total current liabilities          638                       1,900              592           1,734
                                     -----------------------------------------------------------------------------

    Noncurrent liabilities

       Financial payables                     8           2.979          22                8              22
                                     -----------------------------------------------------------------------------
          Total noncurrent                    8                          22                8              22
          liabilities
                                     -----------------------------------------------------------------------------
         Total liabilities                  646                       1,922              600           1,756
                                     =============================================================================
</TABLE>

    US$: US dollars.


                                      F-53
<PAGE>


12.4. ADMINISTRATIVE EXPENSES FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND
      2002 (stated in millions of Argentine pesos, restated as described in Note
      2.3.)


                                            Administrative expenses
--------------------------------------------------------------------------
              Account                  2004          2003         2002
--------------------------------------------------------------------------
Fees for professional services,
    Office rental and Tax on
    minimum presumed income (1)          1              1            3
Others                                   1              1            1
                                     -------------------------------------
Total                                    2              2            4
                                     =====================================


(1)  Includes fees payables to the members of the Board of Directors and
     Supervisory Committed for 232,000 and 50,000 in 2004 and 2003,
     respectively.


                                      F-54
<PAGE>







COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

Consolidated Financial Statements as of December 31, 2004 and 2003
and for the fiscal years ended December 31, 2004 and 2003,
the three-month fiscal year ended December 31, 2002,
and the fiscal year ended September 30, 2002


                                      F-55
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors of
Compania Internacional de Telecomunicaciones S.A.


     1.   We have audited the accompanying consolidated balance sheets of
          Compania Internacional de Telecomunicaciones S.A. (the "Company", an
          Argentine corporation) and its consolidated subsidiaries 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 then ended and for the three-month fiscal year ended
          December 31, 2002 and the fiscal year ended September 30, 2002,
          prepared in accordance with accounting principles in Argentina, as
          adopted by the governmental regulatory agency of corporations
          applicable to the Company for the preparation of consolidated
          financial statements, which differ from the provisions of the
          generally accepted accounting principles as approved by the
          Professional Council of Economic Sciences of the City of Buenos Aires,
          Argentina ("CPCECABA"), as described in paragraph 3 of this report.
          The financial statements are the responsibility of the Company's
          management. Our responsibility is to express an opinion on the
          financial statements based on our audits. We did not audit the
          financial statements of Telinver S.A., a consolidated subsidiary of
          Telefonica de Argentina S.A. ("Telefonica"), a company controlled by
          Cointel, 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 $23 million (amount calculated considering the
          Company's indirect ownership interest in such company) and net loss of
          $1 million (amount calculated considering the Company's indirect
          ownership interest in such company) for the year ended December 31,
          2004. Also, we did not audit the financial statements of Telinver S.A.
          as of September 30, 2002 used to prepare Telefonica's consolidated
          financial statements as of such date. The financial statements of
          Telinver S.A. were audited by other auditors who issued their reports,
          which have been provided to us by the Company, dated April 4, 2005 and
          November 4, 2002, respectively, expressing an unqualified opinion
          according to the standards of the Public Company Accounting Oversight
          Board of United States of America ("PCAOB GAAS"). Our opinion included
          in paragraph 5 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.


     2.   We conducted our audits in accordance with PCAOB GAAS. 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 purposes 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


                                      F-56
<PAGE>


          well as evaluating the overall financial statement presentation. We
          believe that our audits and the report of the other auditors mentioned
          in paragraph 1, provide a reasonable basis for our opinion.

     3.   As explained in note 2.2 to the accompanying consolidated financial
          statements, the governmental regulatory agency suspended the
          application of the method for inflation adjustment as from March 1,
          2003. In accordance with generally accepted accounting principles in
          Argentina as approved 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 the
          governmental regulatory agency, the consolidated financial statements
          of the Company and its subsidiaries have been restated for inflation
          through February 2003. The Company indicates in such note 2.2 that had
          the financial statements been restated for inflation in accordance
          with generally accepted accounting principles in Argentina as approved
          by the CPCECABA, the Company's shareholders' equity and net income for
          the fiscal year ended December 31, 2003 would have amounted to
          approximately $720 million and $185 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. The financial statements
          for the fiscal year ended December 31, 2002, presented for comparative
          purposes, have been restated for inflation through February 2003.

     4.   As described in note 11.1 to the accompanying consolidated financial
          statements, since the beginning of 2002 Telefonica 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 6 to the consolidated financial statements
          describes that although Telefonica has adopted several measures 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
          Telefonica's Management opinion, the regulatory framework in force has
          still not established the rules to allow reinstating the balance of
          the variables that constitute Telefonica's economic and financial
          equation. The Company has described in note 11.1 that, if as a result
          of the tariff re-negotiation, future rates would evolve at a pace that
          would not allow restoring Telefonica's economic and financial
          equation, such rate system could have an adverse impact on
          Telefonica's financial condition and future results of operations and,
          consequently, on the Company.

     5.   In our opinion, based on our audits and on the report of the other
          auditors mentioned in paragraph 1, the consolidated financial
          statements mentioned in paragraph 1 present fairly, in all material
          respects, the consolidated financial position of the Company and its
          subsidiaries 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 and 2003, the three-month fiscal year ended December
          31, 2002 and the fiscal year ended September 30, 2002, in conformity
          with generally accepted accounting principles in Argentina as 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 3 of this report.

     6.   The consolidated financial statements referred to in paragraph 1 have
          been prepared assuming that the Company will continue as a going
          concern. As described in note 7 to the consolidated financial
          statements, as of December 31, 2004 the Company's unconsolidated
          current assets are lower than its unconsolidated current liabilities
          by $1,459 million. The current liabilities include 99.6% ($1,454
          million) of debt owed to Telefonica Internacional, S.A. ("TISA"), a
          shareholder of the Company. Therefore, the Company's ability to meet
          its short term liabilities will depend on TISA's continued
          refinancing of the loans granted to the Company, or on the obtaining
          of other financing from related or unrelated parties, which to date
          are not


                                      F-57
<PAGE>


          available in sufficient amounts. The uncertainty described above
          raises substantial doubt about the ability of the Company to continue
          as a going concern. Management's plans concerning these matters are
          also described in Note 7. The consolidated financial statements do not
          include any adjustments or reclassifications that might result from
          the outcome of this uncertainty.

     7.   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) income for the fiscal years ended December
          31, 2004 and 2003 and September 30, 2002 and for the three-month
          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 22.

     8.   As discussed in note 22.B)17 to the accompanying consolidated
          financial statements, in the year ended December 31, 2004, the Company
          applied the push-down accounting method in accordance with the
          Securities and Exchange Commission rules and retroactively restated
          all periods presented for the change.



Buenos Aires, Argentina,
     July 8, 2005

            DELOITTE & Co. S.R.L.
          C.P.C.E.C.A.B.A. Vol. 1 - Fo. 3



           ALBERTO A. ALLEMAND
               (Partner)
     Certified Public Accountant - U.B.A.
      C.P.C.E.C.A.B.A. Vol. 103 - Fo. 223

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its
member firms, and their respective subsidiaries and affiliates. As a Swiss
Verein (association), neither Deloitte Touche Tohmatsu nor any of its member
firms has any liability for each other's act or omissions. Each of the member
firm is a separate and independent legal entity operating under the names
"Deloitte", "Deloitte & Touche", "Deloitte Touche Tohmatsu", or other related
names. Services are provided by the member firms or their subsidiaries or
affiliates and not by the Deloitte Touche Tohmatsu Verein.


                                      F-58
<PAGE>


                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

    Registered Address: Av. Ingeniero Huergo 723 - Ground floor, Buenos Aires


       CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 AND 2003
           AND FOR THE FISCAL YEARS ENDED DECEMBER 31, 2004 AND 2003,
              THE THREE-MONTH FISCAL YEAR ENDED DECEMBER 31, 2002,
                AND THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 (1)





Principal Business:  Direct or indirect participation in businesses related to
                     the areas of telecommunications, media and energy.

Registration with the Public Registry of Commerce:

-    Of the articles of incorporation:  October 4, 1990.
-    Of the last change to the bylaws: January 21, 2003 (1).

Registration number with the "Inspeccion General de Justicia" ("IGJ" the
governmental regulatory agency of corporations): 1,528,250.

Duration of the corporation: through October 1, 2089.

Fiscal year-end: December 31 (1).

Capital structure: See Note 5.






(1) See Note 2.3.


                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-59
<PAGE>


                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 2004 AND 2003

Amounts stated in millions of Argentine pesos restated as described in Note 2.2.
                            (See Notes 2.3 and 2.4.)

<TABLE>
                                                                    2004            2003
                                                                 -------------------------
<S>                                                                 <C>             <C>
CURRENT ASSETS

Cash and banks (Note 3.1.a)                                            15              18
Investments (Notes 23.a) and b)                                       260             337
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                                               694             746
                                                                 -------------------------
NONCURRENT ASSETS

Trade receivables (Note 3.1.b)                                          4              12
Other receivables (Note 3.1.c)                                        163             117
Investments (Note 23.a)                                                 3              17
Fixed assets (Note 23.c)                                            6,596           7,342
Intangible assets (Note 23.d)                                          67              82
                                                                 -------------------------
   Subtotal noncurrent assets                                       6,833           7,570

Goodwill on investment in Telefonica (Note 3.1.k)                     300             323
                                                                 -------------------------
   Total noncurrent assets                                          7,133           7,893
                                                                 -------------------------
   Total assets                                                     7,827           8,639
                                                                 =========================
CURRENT LIABILITIES

Trade payables (Note 3.1.f)                                           425             418
Bank and other financial payables (Note 3.1.g)                      2,663           3,283
Payroll and social security taxes payable (Note 3.1.h)                 80              73
Taxes payable (Note 3.1.i)                                            100              80
Other payables (Note 3.1.j)                                            63              75
Reserves (Note 23.e)                                                    4               3
                                                                 -------------------------
    Total current liabilities                                       3,335           3,932
                                                                 -------------------------
NONCURRENT LIABILITIES

Trade payables (Note 3.1.f)                                            67              69
Bank and other 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 23.e)                                                  267             219
                                                                 -------------------------
    Total noncurrent liabilities                                    2,879           2,906
                                                                 -------------------------
    Total liabilities                                               6,214           6,838

MINORITY INTEREST IN SUBSIDIARIES                                     974             978
SHAREHOLDERS' EQUITY (per related statements)                         639             823
                                                                 -------------------------
    Total liabilities, minority interest in subsidiaries and
    shareholders' equity                                            7,827           8,639
                                                                 =========================
</TABLE>

               The accompanying Notes 1 to 23 are an integral part
                         of these financial statements.


                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-60
<PAGE>


                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE FISCAL YEARS ENDED DECEMBER 31, 2004 AND 2003, THE
                 THREE-MONTH FISCAL YEAR ENDED DECEMBER 31, 2002
                AND THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 (1)

   Amounts stated in millions of Argentine pesos, except for per share amounts
     which are stated in Argentine pesos, restated as described in Note 2.2.
                                 (See Note 2.4.)

<TABLE>
                                                                                         December 31,              September 30,
                                                                               -------------------------------------------------
                                                                                 2004         2003      2002 (6)        2002
                                                                               -------------------------------------------------
<S>                                                                               <C>         <C>          <C>          <C>
NET REVENUES (2)                                                                   3,047       2,750        624          3,859
COST OF SERVICES PROVIDED (Note 3.1.l)                                            (1,936)     (1,992)      (501)        (2,504)
                                                                               -------------------------------------------------
Gross profit                                                                       1,111         758        123          1,355

ADMINISTRATIVE EXPENSES (Note 23.h)                                                 (335)       (353)      (101)          (492)
SELLING EXPENSES (Note 23.h)                                                        (190)       (163)       (69)          (757)
DEPRECIATION OF GOODWILL ON INVESTMENT IN TELEFONICA (Note 3.1.k) (7)                (23)        (23)        (6)           (23)
                                                                               -------------------------------------------------
Subtotal                                                                             563         219        (53)            83

(LOSS) GAIN INCOME ON EQUITY INVESTMENTS                                              (1)         (3)         1             (8)
HOLDING AND FINANCIAL INCOME (LOSS) ON ASSETS (3)
    Exchange differences                                                               5         (74)       (15)           109
    Interest and financial income                                                     32          59          7             23
    Holding gain (loss) Patriotic Bond (Note 23.e)                                     5         (60)         -              -
    Inflation loss on monetary accounts                                                -          (3)        52           (864)
    Holding gains on financial instruments                                             4           4          -              -
    Other (Note 3.1.m)                                                                 -           -          1            (18)
HOLDING AND FINANCIAL INCOME (LOSS) ON LIABILITIES (4)
    Exchange differences                                                             (93)        992        618         (3,527)
    Interest and financial charges                                                  (543)       (644)      (192)          (526)
    Inflation gain (loss) on monetary accounts                                         -           4        (16)           769
    Holding (loss) gains on financial instruments                                     (1)         23          -              -
    Other (Note 3.1.m)                                                               (27)        (27)        (1)           (36)

OTHER EXPENSES, NET (Note 3.1.n)                                                    (137)        (71)       (51)          (154)
                                                                               -------------------------------------------------
(Loss) Income for the year before income tax and minority interest in
    subsidiaries                                                                    (193)        419        351         (4,149)

INCOME TAX (Note 2.5.m)                                                                5           -          -           (120)
MINORITY INTEREST IN SUBSIDIARIES                                                      4        (142)      (101)         1,314
                                                                               -------------------------------------------------
Net (loss) income for the year                                                      (184)        277        250         (2,955)
                                                                                ================================================

Net (loss) earnings per common share for the year (5)                             (0.035)     0.0528      0.047         (0.557)
                                                                                ================================================
</TABLE>

(1)  See Note 2.3.
(2)  See Note 2.5.o).
(3)  Mainly related to current investments, trade receivables, other receivables
     and inventories.
(4)  Mainly related to trade, bank and financial and other payables.
(5)  Basic and diluted. See Note 2.5.p).
(6)  Three-month fiscal year.
(7)  29 million as of September 30, 2002 were classified in "Cost of services
     provided - Depreciation of intangible assets".

              The accompanying Notes 1 to 23 are an integral part
                         of these financial statements.


                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-61
<PAGE>


                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 (a)

 Amounts stated in millions of Argentine pesos restated as described in
                                   Note 2.2.
                                 (See Note 2.4.)


<TABLE>

                                                                             Shareholders' contributions
                                                  ----------------------------------------------------------------------------------
                                                                 Common                            Preferred
                                                  -----------------------------------------------------------------------
                                                   Capital                            Capital
                                                    stock                              stock
                                                  ----------- Adjustment             -------   Adjustment Adjustment to
                                                     Face     to capital   Premium on   Face    to capital   redemption
                   Description                      value      stock       share issue  value     stock         value       Subtotal
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>            <C>       <C>        <C>         <C>         <C>
Balances as of December 31, 2003                     531        1,562          34        14         44          (18)        2,167
Adjustment to preferred stock's redemption value      -            (2)          -         -         -             2             -
(b)
Net loss for the fiscal year ended December 31,       -             -           -         -         -             -             -
2004
                                                  ----------------------------------------------------------------------------------
Balances as of December 31, 2004                     531        1,560          34        14         44          (16)        2,167
                                                  ==================================================================================
</TABLE>

<TABLE>
                                                             Retained earnings (losses)
                                                      ------------------------------------
                                                               Reserve for   Unappropriated
                                                        Legal    future         earnings
              Description                              reserve   dividends     (losses)      Total
---------------------------------------------------------------------------------------------------
<S>                                                     <C>        <C>         <C>             <C>
Balances as of December 31, 2003                        226        838         (2,408)         823
Adjustment to preferred stock's redemption value (b)      -          -              -            -
Net loss for the fiscal year ended December 31, 2004      -          -           (184)        (184)
                                                      ---------------------------------------------
Balances as of December 31, 2004                        226        838         (2,592)         639
                                                      =============================================
</TABLE>

(a) See Note 2.3.
(b) See Note 4.

             The accompanying Notes 1 to 23 are an integral part of
                          these financial statements.


                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-62
<PAGE>


                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 (a)

 Amounts stated in millions of Argentine pesos restated as described in
                                   Note 2.2.
                                 (See Note 2.4.)

<TABLE>
                                                                             Shareholders' contributions
                                                  ----------------------------------------------------------------------------------
                                                                 Common                            Preferred
                                                  -----------------------------------------------------------------------
                                                   Capital                             Capital
                                                    stock                               stock
                                                  ---------   Adjustment               -------  Adjustment  Adjustmetn to
                                                     Face     to capital   Premium on   Face    to capital  redemption
                   Description                      value       stock      share issue  value     stock        value      Subtotal
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>            <C>       <C>        <C>         <C>         <C>
Balances as of December 31, 2002                     531        1,563          34        14         44          (19)        2,167
Adjustment to preferred stock's redemption value      -            (1)          -         -         -             1             -
(b)
Transition adjustment for change in accounting
   principles in Telefonica (c)                       -             -           -         -         -             -             -
Net income for the fiscal year ended December         -             -           -         -         -             -             -
31, 2003
                                                  ----------------------------------------------------------------------------------
Balances as of December 31, 2003                     531        1,562          34        14         44          (18)        2,167
                                                  ==================================================================================
</TABLE>

<TABLE>
                                                          Retained earnings (losses)
                                                  ---------------------------------------
                                                               Reserve    Unappropriated
                                                    Legal     for future     earnings
                   Description                     reserve     dividends     (losses)      Total
-------------------------------------------------------------------------------------------------
<S>                                                   <C>        <C>        <C>             <C>
Balances as of December 31, 2002                      226        838        (2,661)         570
Adjustment to preferred stock's redemption value        -          -             -            -
(b)
Transition adjustment for change in accounting
   principles in Telefonica (c)                         -          -           (24)         (24)
Net income for the fiscal year ended December 31,       -          -           277          277
2003
                                                    ----------------------------------------------
Balances as of December 31, 2003                      226        838        (2,408)         823
                                                    ==============================================
</TABLE>

(a) See Note 2.3.
(b) See Note 4.
(c) See Note 2.4.1.



             The accompanying Notes 1 to 23 are an integral part of
                          these financial statements.

                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-63
<PAGE>


                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

           FOR THE THREE-MONTH FISCAL YEAR ENDED DECEMBER 31, 2002 (a)

Amounts stated in millions of Argentine pesos restated as described in Note 2.2.
                                 (See Note 2.4.)

<TABLE>
                                                                             Shareholders' contributions
                                                  ----------------------------------------------------------------------------------
                                                                 Common                            Preferred
                                                  -----------------------------------------------------------------------
                                                   Capital                             Capital
                                                    stock                               stock
                                                  -----------                          -------  Adjustment  Adjustment to
                                                     Face     Adjustment   Premium on   Face    to capital   redemption
                   Description                      value     to capital   share issue  value     stock         value      Subtotal
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>            <C>       <C>        <C>         <C>         <C>
Balances as of September 30, 2002                    531        1,564          34        14         44          (20)        2,167
Adjustment to preferred stock's redemption value      -            (1)          -         -          -            1             -
(b)
Net income for the three-month fiscal year ended
December 31, 2002                                     -             -           -         -          -            -             -
                                                  ---------------------------------------------------------------------------------
Balances as of December 31, 2002                     531        1,563          34        14         44          (19)        2,167
                                                  =================================================================================
</TABLE>

<TABLE>
                                                          Retained earnings (losses)
                                                  ---------------------------------------
                                                              Reserve for  Unappropriated
                                                    Legal        future      earnings
          Description                              reserve     dividends     (losses)      Total
------------------------------------------------------------------------------------------------
<S>                                                   <C>        <C>        <C>             <C>
Balances as of September 30, 2002                     226        838        (2,911)         320
Adjustment to preferred stock's redemption value        -          -             -            -
(b)
Net income for the three-month fiscal year ended
December 31, 2002                                       -          -           250          250
                                                    --------------------------------------------
Balances as of December 31, 2002                      226        838        (2,661)         570
                                                    ============================================
</TABLE>

(a) See Note 2.3.
(b) See Note 4.



             The accompanying Notes 1 to 23 are an integral part of
                          these financial statements.

                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-64
<PAGE>


                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 (a)

Amounts stated in millions of Argentine pesos restated as described in Note 2.2.
                                 (See Note 2.4.)

<TABLE>
                                                                             Shareholders' contributions
                                                  ----------------------------------------------------------------------------------
                                                                 Common                            Preferred
                                                  -----------------------------------------------------------------------
                                                   Capital                             Capital
                                                    stock                               stock
                                                   -------    Adjustment               -------  Adjustment   Adjustment
                                                     Face     to capital   Premium on   Face    to capital  to redemption
                   Description                      value        stock     share issue  value     stock        value       Subtotal
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>            <C>       <C>        <C>           <C>       <C>
Balances as of September 30, 2001                    531        1,542          34        14         44            2         2,167
Adjustment to preferred stock's redemption value      -            22           -         -         -           (22)            -
     (b)
Net loss for the fiscal year ended September 30,      -             -           -         -         -             -             -
2002
                                                  ----------------------------------------------------------------------------------
Balances as of September 30, 2002                    531        1,564          34        14         44          (20)        2,167
                                                  ==================================================================================
</TABLE>

<TABLE>
                                                        Retained earnings (losses)
                                                  ---------------------------------------
                                                              Reserve for  Unappropriated
                                                    Legal        future      earnings
                   Description                     Reserve     dividends     (losses)      Total
------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>            <C>       <C>
Balances as of September 30, 2001                     226        838            44        3,275
Adjustment to preferred stock's redemption value (b)    -          -             -            -
Net loss for fiscal year ended September 30, 2002       -          -        (2,955)      (2,955)
                                                    --------------------------------------------
Balances as of September 30, 2002                     226        838        (2,911)         320
                                                    ============================================
</TABLE>

(a) See Note 2.3.
(b) See Note 4.



             The accompanying Notes 1 to 23 are an integral part of
                          these financial statements.

                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-65
<PAGE>

                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
     FOR THE FISCAL YEARS ENDED DECEMBER 31, 2004 AND 2003, THE THREE-MONTH
                     FISCAL YEAR ENDED DECEMBER 31, 2002 (2)
                          AND FOR THE FISCAL YEAR ENDED
                               SEPTEMBER 30, 2002
                         Amounts stated in millions of
               Argentine pesos restated as described in Note 2.2.
                                 (See Note 2.4.)

<TABLE>
                                                                  December 31,          September 30,
                                                        ------------------------------- -------------
                                                          2004    2003          2002         2002
                                                        ---------------------------------------------
<S>                                                        <C>     <C>           <C>          <C>
CHANGES IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of year (9)               267     355           399          353
Cash and cash equivalents at beginning of year             355     399           353           71
                                                        ---------------------------------------------
(Decrease) Increase in cash and cash equivalents           (88)    (44)           46          282
                                                        =============================================
CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) for the year                            (184)    277           250       (2,955)
Adjustments to reconcile net income (loss) for the
  year to net cash provided by operating activities:
  Income tax                                                (5)      -             -          120
  Financial expenses (3) (4)                               549    (442)         (624)       3,286
  Fixed assets depreciation                              1,127   1,285           314        1,403
  Material consumption                                      56      35            10           65
  Net book value of fixed assets retired                     -       -             2            4
  Net book value of intangible assets retired                -       -             -            8
  Depreciation of intangible assets                         17      24             4           40
  Depreciation of goodwill on investment in Telefonica      23      23             6           23
  Cost of goods sold                                        49      46            29           23
  Holding gains in financial instruments                    (3)    (27)            -            -
  Holding gain on Patriotic Bond                            (5)      -             -            -
  Increase in allowances and reserves (5)                  192     189            58          542
  Loss / (Income) on equity investments                      1       3            (1)           8
  Holding (gain) losses on inventories                       -       -            (1)          10
  Minority interest in subsidiaries                         (4)    142           101       (1,314)
  Payment of dividends to minority shareholders              -       -             -         (116)
Changes in assets and liabilities:
  Trade receivables                                       (117)      4           141           55
  Other receivables                                         29       1            79          (57)
  Inventories                                              (49)    (44)            1          (24)
  Current investments                                        5       -             -            -
  Trade payables                                           (32)    (26)          (45)        (110)
  Payroll and social security taxes payable                  4      (8)           (9)           6
  Taxes payable                                             46      46           (76)        (131)
  Other payables                                           (17)      5            (8)         (14)
  Reserves (5)                                             (80)     (2)            -            -
  Collected interests                                       14      29            20           28
  Payment of tax on minimum presumed income                (44)    (75)            -          (38)
                                                        ---------------------------------------------
Total cash flows from operating activities               1,572   1,485           251          862
                                                        ---------------------------------------------
Cash flows used in investing activities:
  Purchases of fixed assets (7) (8) (10)                  (387)   (141)          (36)        (308)
  Subscription of financial trust certificates               -      (2)            -            -
                                                        ---------------------------------------------
Total cash flows used in investing activities             (387)   (143)          (36)        (308)
                                                        ---------------------------------------------
Cash flows (used in) provided by financing activities:
  Increase in bank and other financial payables            627     131            33          301
  Payment of bank and other financial payables          (1,471)   (954)            -         (267)
  Interest paid                                           (427)   (547)         (194)        (301)
  Increase in intangible assets (6)                         (2)    (16)           (8)          (5)
                                                        ---------------------------------------------
Total cash flows used in financing activities           (1,273) (1,386)         (169)        (272)
                                                        ---------------------------------------------
Total (decrease) increase in cash and cash equivalents     (88)    (44)           46          282
                                                        =============================================
</TABLE>


(1)  Cash and cash equivalents (current investments) with maturity not exceeding
     three months are considered to be cash and cash equivalents which totaled:
     (i) 15 million and 252 million, respectively, as of December 31, 2004, (ii)
     18 million and 337 million, respectively, as of December 31, 2003, (iii) 46
     million and 353 million, respectively, as of December 31, 2002, (iv) 61
     million and 292 million, respectively, as of September 30, 2002 and (v) 20
     million and 51 million, respectively, as of September 30, 2001.
(2)  See Note 2.3.
(3)  In December 2004 and 2003 and December and September 2002, net of 2million,
     (46) million, 18 million and 33 million corresponding to the exchange
     difference net of monetary gain (loss) originated by cash and cash
     equivalents in foreign currency as of the end of the fiscal year,
     respectively.
(4)  In December 2002 and September 2002, net of 3 million and 54 million,
     respectively, corresponding to monetary loss originated in local currency
     cash and cash equivalents.
(5)  Does not include charges in deferred tax assets allowance.
(6)  In December 2003 and December and September 2002, net of 3 million, 1
     million and 11 million, respectively, financed by trade payables.
(7)  In September 2002, net of 29 million of capitalized exchange differences.
(8)  In December 2004 and 2003 and September 2002, net of 41 million and 45
     million, respectively, financed by trade payables. In 2002, net of 15
     financed by bank and financial payables.
(9)  In 2004, cash as of the year-end does not include 8 million corresponding
     to Other investments (see Notes 2.5.f) and 17.).
(10) In 2004, net of 9 million of transfers of inventories to fixed assets.

             The accompanying Notes 1 to 23 are an integral part of
                          these financial statements.


                                                           MARIO EDUARDO VAZQUEZ
                                                                   Vicepresident


                                      F-66
<PAGE>



                COMPANIA INTERNACIONAL DE TELECOMUNICACIONES S.A.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
         AS OF DECEMBER 31, 2004 AND 2003 AND FOR THE FISCAL YEARS ENDED
     DECEMBER 31, 2004 AND 2003, THE THREE-MONTH FISCAL YEAR ENDED DECEMBER
     31, 2002 AND THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 (See Note 2.3.)

Amounts stated in Argentine pesos (except where expressly indicated that figures
     are stated in some other currency) restated as described in Note 2.2.


1.    CORPORATE OBJECTIVE

      Compania Internacional de Telecomunicaciones S.A. ("Cointel" or "the
      Company", indistinctly) controls Telefonica de Argentina S.A.
      ("Telefonica") which has a license for an unlimited period of time to
      provide Basic Telephone Services to the Southern Region of Argentina. The
      license was exclusive until late 1999. Additionally, Telefonica signed a
      contract with the Secretary of Communications ("SC") whereby Telefonica
      was granted a license for an unlimited period of time to provide local,
      domestic and international long-distance telephone services and telex
      services in the Northern Region of Argentina. Telefonica'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 provides for the total deregulation of the
      telecommunication market since 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.
      (See Note 6.).

      On April 10, 2002, Telefonica's General Ordinary and Special Shareholders'
      Meetings approved an amendment to the corporate purpose of Telefonica. The
      corporate purpose was broadened for Telefonica 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 SC and is pending. Therefore, the changes to Telefonica's
      corporate purpose are subject to administrative approval by the SC.

2.    SIGNIFICANT ACCOUNTING POLICIES

 2.1.  Consolidated financial statements


       Following the procedure established by Technical Resolution ("RT") No. 19
       of the Governance Board of the Argentine Federation of Professional
       Councils in Economic Sciences ("FACPCE") (see Note 2.4.), and the
       applicable standards of the IGJ, the Company has consolidated, line by
       line, its balance sheet as of December 31, 2004 and 2003 and its
       statements of operations and cash flows for the fiscal years ended on
       such dates, with the consolidated balance sheet, statements of operations
       and cash flows included in the consolidated financial statements of
       Telefonica and its subsidiary Telinver S.A. ("Telinver") as of and for
       the fiscal years mentioned above, prepared in accordance with accounting
       principles consistent to those used by the Company, with regard to
       material balances and transactions, companies in which Cointel holds
       sufficient votes to determine the corporate will whether directly or
       indirectly.


                                      F-67
<PAGE>


       As required by the Securities and Exchange Commission of the United
       States of America ("SEC"), the consolidated financial statements include
       as comparative information the consolidated balance sheet as of December
       31, 2003 and the statements of operations, changes in shareholders'
       equity and cash flows for the fiscal year ended December 31, 2003, for
       the three-month fiscal year ended December 31, 2002 and for the fiscal
       year ended September 30, 2002.

       For the presentation of comparative consolidated information as of
       December 31, 2002 the Company has consolidated, line by line, its
       statements of operations and cash flows for the three-month fiscal year
       ended December 31, 2002 by subtracting from the amounts corresponding to
       the consolidated statements of operations and cash flows included in the
       consolidated financial statements of Telefonica for the fiscal year ended
       December 31, 2002, the amounts corresponding to the consolidated
       statements of operations and cash flows included in the consolidated
       financial statements of Telefonica and Telinver for the nine-month period
       ended September 30, 2002 after computing the effects of the new
       accounting principles (see Note 2.4.). Moreover, due to Telefonica's
       fiscal year-end date change (see Note 2.7.) the Company has consolidated,
       line by line, its statements of operations and cash flows for the year
       ended September 30, 2002 using the consolidated statements of operations
       and cash flows included in the consolidated financial statements of
       Telefonica for the three-month fiscal year ended December 31, 2001, plus
       the consolidated statements of operations and cash flows included in the
       consolidated financial statements of Telefonica for the nine-month period
       ended September 30, 2002, after computing the effects of the new
       accounting principles (see Note 2.4.).

       The same disclosure criteria have been used in the preparation of
       supplementary information that disaggregates the data contained in the
       financial statements mentioned above.

       The comparative information described above has been restated as
       explained in Note 2.2.

       In accordance with generally accepted accounting principles in Argentina
       and current Argentine legislation, the presentation of the parent
       company's unconsolidated financial statements is required. 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.

       In addition, new accounting standards in Argentina (see Note 2.4.)
       require supplementally financial statements to be provided in investments
       in which there is joint control are consolidated by application of the
       proportional consolidation method. However, given that the assets,
       liabilities and operations of E-Commerce Latina S.A. ("ECL", related
       company) are not significant, Telefonica has decided not to include
       financial statements consolidated with that company as supplementary
       information. In Management's opinion, the non presentation of the Company
       and Telefonica's financial statements consolidated with ECL's financial
       statements as of December 31, 2004 and 2003 and for the fiscal years
       ended December 31, 2004 and 2003, the three-month fiscal year ended
       December 31, 2002 and the fiscal year ended September 30, 2002, does not
       constitute a material omission considering the Company's financial
       statements taken as a whole.

       As of December 31, 2004, the Company's controlling interest in its
       subsidiaries is as follows:

<TABLE>
                                                        Capital        % of capital
                                                         stock           stock and
             Company             Business                 (1)           % of votes     Shareholding
           ----------------------------------------------------------------------------------------
<S>                     <C>                          <C>                   <C>       <C>
           Telefonica   Telecommunications services  1,746,052,429 (2)      64.83      Direct

           Telinver     Commercial, investment and
                        telecommunications services,
                        among others                    49,623,217          64.83 (3)  Indirect

           (1) Total face value, in Argentine pesos.
           (2) Includes 2,355 treasury shares.
           (3) Telefonica's interest in Telinver amounts to 99.99%.
</TABLE>


                                      F-68
<PAGE>


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 the FACPCE in
       effect as of that date. Effective September 1, 1995, for Generally
       Accepted Accounting Principles in Argentina purposes, and considering the
       then current economic stability conditions and according to the
       requirements of National Securities Commission (Comision Nacional de
       Valores or "CNV"), the Company discontinued the application of the
       restatement method. This accounting criteria was applied under Argentine
       GAAP until December 31, 2001 and conforms to the requirements set forth
       by General Resolution No. 8/95 of the IGJ (see Note 21.).

       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 and Resolution No. 11/02 of the IGJ, 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 and 04/03
       of the IGJ 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 Argentine Institute of Statistics and Census
       ("INDEC")) in compliance with the regulations issued by the National
       Executive Power and the IGJ (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 the net loss for the 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 then ended, after applying the restatement of financial
       statements in constant currency to include the variation in the wholesale
       price index for the period March through September 2003, would have
       amounted to 720 million and 185 million, respectively.

       The financial statements as of December 31, 2002 and for the three-month
       fiscal year ended on such date and the fiscal year ended September 30,
       2002, presented for comparative purposes as described in Note 2.3., arise
       from the amounts included in the financial statements as of December 31,
       2002 filed with the SEC, restated in constant Argentine pesos of February
       28, 2003.

       In addition, balances as of and for the three-month fiscal year ended
       December 31, 2002, and for the fiscal year ended September 30, 2002
       presented for comparative purposes (see Note 2.3.) would have been
       restated to recognize the effects of the changes in the purchasing power
       of money for the period March through September 2003.


                                      F-69
<PAGE>


2.3.   Fiscal year-end change and comparative financial statements

       On November 11, 2002, the Company's Ordinary and Special Shareholders'
       Meeting, approved the amendment of the fiscal year section of the
       Articles of Incorporation. This amendment consisted of changing the
       Company's fiscal year-end from September 30 to December 31 of each year.
       On December 12, 2002, the CNV approved such fiscal year-end change and on
       January 21, 2003 this amendment was registered with the Public Registry
       of Commerce. Consequently, these financial statements correspond to the
       fiscal year ended December 31, 2004 and comparative information
       corresponding to the statements of operations, changes in shareholders'
       equity and cash flows for the fiscal year ended December 31, 2003, the
       three-month fiscal year ended December 31, 2002 and the fiscal year ended
       September 30, 2002 (See Note 2.1.).

2.4.   Accounting principles applied

       The Governing Board of the FACPCE approved RTs No. 16, 17, 18, 19 and 20,
       introducing changes in professional accounting principles related to
       valuation and disclosure. These resolutions were approved with certain
       amendments by CPCECABA. The provisions contained in these resolutions are
       applicable to the Company for fiscal years beginning on or after October
       1, 2002, except for RT No. 20 which is applicable for fiscal years
       beginning on or after January 1, 2003. On January 14, 2003, the CNV
       approved, through Resolution No. 434/03, with certain amendments, the
       above RTs to become effective for the fiscal years beginning on January
       1, 2003 permitting their early adoption.

       On June 13, 2003, in order to comply with the filing of its 2002 form
       20-F with the SEC, the Company issued its financial statements as of
       December 31, 2002 and 2001 and for the three-month fiscal year/period
       then ended and for the fiscal years ended September 30, 2002, 2001 and
       2000, giving effect to the new accounting principles mentioned above
       applicable to the Company.

       The Company's financial statements have been prepared in accordance with
       IGJ regulations, which except for the matter mentioned in Note 2.2. with
       respect to the amounts corresponding to December 31, 2003, do not differ
       significantly from the provisions of the professional accounting
       principles applicable to the Company and approved by the CPCECABA.

       For purposes of segment reporting required by RT No. 18, the Company has
       identified that its most significant activity derives from its ownership
       interest in Telefonica. Additionally, Telefonica's business segment
       information is disclosed in Note 16.

       On February 5, 2003, the FACPCE approved RT No. 21, which replaces RTs
       No. 4 and 5, and indicates the information to be disclosed in the
       financial statements with respect to related parties. On February 19,
       2003, Resolution MD No. 5/2003 of CPCECABA approved RT No. 21 with some
       amendments. RT No. 21, is in force for the fiscal years beginning on or
       after April 1, 2003. However, it can be early adopted.

       The application of such standards gave rise to the following change in
       valuation criteria, which has been recorded by the Company, in 2003 for
       an amount of 24 million (loss) related to derivative financial
       instruments and in 2002 for a net amount of 88 million (loss) related to
       deferred tax, as explained below:


                                      F-70
<PAGE>


       1.     Derivative financial instruments

       RT No. 20 sets forth the specific valuation and disclosure criteria to be
       applied to derivative financial instruments and hedging transactions.
       According to this standard, hedging 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
       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. The transition rule for the initial
       application sets forth that the difference between the previous
       measurement and that resulting from this new rule to determine the
       valuation of the instruments not designated as for hedging purposes, as
       well as those with no effective hedging coverage as defined in the
       standard, should be charged to the balance of "Unappropriated retained
       earnings/losses" at the beginning of the fiscal year in which this
       standard applies for the first time. Comparative figures have not been
       restated as required by the transition rule that establishes not to
       correct accounting balances of the previous years in the first year of
       application.

       2.     Deferred tax

       Until the above-mentioned rules changes, the Company determined its
       income tax expenses, in the event there was taxable income, as permitted,
       by applying the current 35% tax rate on the taxable income as of year-end
       without considering the effect of temporary differences between book and
       taxable income.

       RT No. 17 sets forth that income tax amounts should be booked by
       application of the deferred tax method, recognizing the effects of
       temporary differences. (See Note 2.5.m).

2.5.   Valuation methods

       The Company applied the valuation criterion established in IGJ
       regulations ("Argentine GAAP"), 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 amounts
       corresponding to December 31, 2003, do not differ significantly from the
       provisions of the professional accounting principles applicable to the
       Company and approved by the CPCECABA.

       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 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 estimates of the Company's
       and Telefonica's Management have been made accordingly (among others, see
       Notes 2.5.g), 2.5.i), 2.5.m), 4., 7., 11., 14. and 18. for material
       estimates concerning the effects of the economic crisis in Argentina and
       related economic and regulatory government actions). The effects of any
       additional actions that the Argentine government may undertake in the
       future will be reported in the financial statements as the Company's and
       Telefonica's Management become aware of them (see Note 18.).

       Final results may differ from those estimated by the Company's and
       Telefonica's Management. Accordingly, the decisions that are to be made
       in reliance on these financial statements should consider the potential
       future development of such governmental action, and the Company's
       financial statements should be read in light of these circumstances.


                                      F-71
<PAGE>


       The principal valuation methods used in the preparation of the
       consolidated financial statements are as follows:

       a)     Cash and banks:

              - Amounts in Argentine Pesos: stated at nominal value, including
              financial income/expense accrued through the end of each fiscal
              year, if applicable.

              - 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 realizable
              value at the end of the year.

              - 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 the 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 17.). As of December 31, 2003 this
              investment was recorded in Noncurrent Investments.

       c)     Receivables and payables (except bank and other financial
              payables):

              - Receivables and payables in local currency: at nominal value,
              plus the financial results accrued as of the end of each year, if
              any, which is not significantly different from the accounting
              measurement obtained by calculating the discounted value of the
              cash flows that would be derived from such assets and liabilities.
              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.

              - Receivables and payables in foreign currency: valued at the
              exchange rates applicable to their settlement prevailing as of the
              end of each year, in accordance with the uses intended by the
              Company, plus 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.

              Exchange differences have been charged to income of each year (see
              Note 2.5.o)

              - Trade receivables include services provided and settlements with
              foreign correspondents, both billed and services and settlements
              accrued but unbilled as of the end of each 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. Telefonica 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 Telefonica estimates that it is likely that it will be
              recovered.


                                      F-72
<PAGE>


              - 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 Telefonica 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 in Other Receivables (IBM agreement) relating to the
              baseline services received includes (see note 10.1):

              (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 10.1)
                     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, the bond was valued at its
              estimated recoverable value and Telefonica charged to income 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. In determining
              the amount of the allowance, Telefonica considered the fair values
              of comparable bonds (see Note 14).

              - Tax credit certificates ("TCC"): as of December 31,2003 were
              accounted for at face value in U.S. dollars pesified at the rate
              of $1.4=US$1, plus the benchmark stabilization coefficient ("CER")
              and the financial income accrued until the end of each year, which
              do not differ from the measurement at the discounted value based
              on the rate of the instrument.

              - Universal Service contribution (see Note 13.): Telefonica
              calculates the charge for the Universal Service contribution,
              consisting of 1% of revenues from telecommunications services, net
              of automatic deductions (deductions not requiring regulatory
              approval) provided by the related Regulation and in accordance
              with Telefonica's estimates of the amounts payable within each
              year, since the detailed rules of calculation and payment of this
              tax are still pending. If this calculation results 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
              Telefonica 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 has 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 sale (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 year.


                                      F-73
<PAGE>


       e)     Other assets:

              Other assets include buildings no longer used in Telefonica's
              operations and intended for sale. The carrying book value has been
              recorded based on its estimated realizable value.

       f)     Noncurrent investments:

              - Telefonica's 50% interest in ECL as of December 31, 2004 and
              2003 was accounted for by the equity method based on the financial
              statements as of such dates, prepared in accordance with
              accounting principles consistent with those used by the Company.

              - New Skies Satellites: Telefonica valued its interest 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 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; Telefonica accounted for to the liquidation
              and sale of its interest in New Skies Satellites N.V. in the
              current fiscal year without generating a significant impact to
              result from the transaction.

              - Financial trust: corresponds to the value of the certificates of
              participation subscribed by the Company in the financial trust
              called "Proyecto de Inversion y Desarrollo: Complejo Industrial
              Nacional de las Telecomunicaciones 2003" (see Note 19.). Such
              certificates were valued at the subscription value paid by the
              Company up to the limit of their recoverable value. They are
              expected to be recovered over a term in excess of one year.

       g)     Fixed assets:

              Fixed assets received from Empresa Nacional de Telecomunicaciones
              ("Entel") have been valued at their transfer price to Telefonica
              and 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 financial 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 for the fiscal years
              ended December 31, 2004 and 2003 amounts to 8 million. During the
              three-month fiscal year ended December 31, 2002 capitalized
              interest and exchange differences are not material due to the
              stabilization of exchange rate and to the decrease in construction
              in process. Capitalized interest and exchange difference net of
              the effect of inflation, if applicable, included in construction
              in process for the fiscal year ended September 30, 2002 totaled 40
              million (includes 29 million of capitalized exchange difference)
              (restated as indicated in Note 2.2.).

              For fixed assets whose operating condition warrants replacement
              earlier than the end of the useful life assigned by Telefonica to
              the fixed asset category, Telefonica calculates depreciation
              charge based on the adjusted remaining useful life in accordance
              with Telefonica's related assets replacement.

              Telefonica's fixed assets were assessed for impairment based on
              their recoverable value on the basis of Telefonica Management's
              best estimate of future cash flows of its telecommunications
              business, considering current information and future telephone
              service rates estimates. Telefonica 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 6.b), the main macroeconomic
              variables have shown a relative stabilization. In the opinion of
              Telefonica's Management, based on the preparation of projections
              based on such trends and the consideration of operating strategies
              available for possible scenarios, Telefonica will generate future
              cash flows sufficient to recover the balances corresponding to its
              fixed assets. Notwithstanding the foregoing, as explained in Note
              11., Telefonica will continue to monitor the situation and will
              assess the effect of any new future developments.


                                      F-74
<PAGE>


       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 depreciation 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" Band, restated as described in
              Note 2.2., is depreciated by the straight-line method over a
              10-year term.

              - Deferred expenses incurred in connection with the issuance of
              negotiable obligations, have been restated as mentioned in Note
              2.2., and are being depreciated 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 of Telefonica
              which are depreciated on a straight-line basis through maturity.
              The portion of expenses related to Telefonica's original issue of
              negotiable obligations that were settled in the exchange offer of
              August 7, 2003 have been fully amortized in the year based on the
              number of bonds actually exchanged through the exchange offer (see
              Note 7.3.1.).

              - Goodwill reflects the cost of acquisition by Telefonica of the
              continuing portion of the internet business that used to be
              operated by Telefonica Data de Argentina S.A. ("TDA 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 depreciation period was
              10 years as from the respective acquisition dates. As of September
              30, 2002, such goodwill has been valued at zero based on the
              estimate made by Telefonica 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 and has been included in the
              caption "Depreciation of intangible assets" as of September 30,
              2002.

              - The goodwill generated by the capital contributions, restated as
              indicated in Note 2.2, made by Telefonica with an issuance premium
              to ECL was being depreciated by the straight-line method over a 10
              year term. As of September 30, 2002, based on the evolution
              foreseen by Telefonica of the e-commerce business, Telefonica 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 and has been included in the account "Net book value of
              intangible assets retired" as of September 30, 2002 (see Note
              3.1.m).

              - The licenses to use links have been valued at the acquisition
              cost restated as indicated in Note 2.2. and are depreciated by the
              straight-line method over 15 years, the term of the license.

              - 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 depreciated as from
              October 1, 1997 through December 31, and October 1, 2007,
              respectively, according to the terms of the above-mentioned
              contracts.

       i)     Goodwill on investment in Telefonica:

              Goodwill on investment in Telefonica represents the excess of the
              investment cost over the investment valued by the equity method as
              of the purchase dates related to the increase in Telefonica's
              equity interest from 51.0% to 56.2% generated during the fiscal
              year ended September 30, 1998 as a consequence of the redemption
              of Telefonica's class C shares by such company. The Company
              depreciates this goodwill over a 240-month term by the
              straight-line method.


                                      F-75
<PAGE>


              As of September 30, 2002 the Company ceased to disclose the
              original goodwill value and its related accumulated amortization
              corresponding to the excess of the investment cost over its
              proportional equity value in connection with the purchase of the
              51% equity interest in Telefonica, amounting to 96 million
              (restated as described in Note 2.2.) because it was fully
              amortized as of that date.

              The recoverability analysis of the goodwill's booked value
              generated by the investment in Telefonica as of December 31, 2004,
              has been made on the basis of the Company's Management best
              estimate of Telefonica's future cash flows, considering current
              information and Telefonica's future service rates estimates. The
              Company's and Telefonica's Management have monitored the evolution
              of the macroeconomic variables that affect their businesses and,
              from time to time, they have adjusted their projections based on
              the latest trends. As explained in Note 6.b), 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
              Telefonica's operating strategies available for possible
              scenarios, Cointel will obtain future cash flows enough to recover
              the booked goodwill, that as of December 31, 2004 amounts to 300
              million (see Note 3.k). Notwithstanding the foregoing, as
              explained in Note 11., the Company's and Telefonica's Management
              will continue to monitor the projected situation and will assess
              the effect of any new future developments.

       j)     Bank and other financial payables:

              - In local currency: as of the end of the fiscal year ended on
              December 31, 2003, at nominal value plus interest accrued up to
              the year-end, payable on the respective maturity dates, calculated
              at the contractual interest rate in effect as of such dates.

              - In foreign currency: at nominal value plus interest accrued up
              to each year-end, payable on the respective maturity dates,
              converted at the exchange rate in effect at the end of each fiscal
              year calculated at the contractual interest rate in effect as of
              such dates. See Note 23.g).

       k)     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
              Telefonica will incur a loss. The amount of loss is based on
              Telefonica 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.

       l)     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 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 earnings /
              Accumulated losses". Comparative figures for prior years have not
              been restated as required by the transition rule.


                                      F-76
<PAGE>


              Telefonica 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,
              Telefonica has ensured a fixed exchange rate between the yen/euro
              and the U.S. dollar for these obligations. The principal criteria
              used by Telefonica 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, Telefonica 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 US Dollars
              with respect to the Peso. These contracts are designated as cash
              flow hedges or fair value hedges. The principal criteria used by
              Telefonica 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.

              Telefonica values the covered obligations at each fiscal year end
              closing exchange rate and also recognizes separately the financial
              instruments at their estimated fair value.

       m)     Income tax and Tax on minimum presumed income:

              The Company records income tax by application of the deferred
              method.

              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.

              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 which sets forth the determination of net
              deferred tax assets or liabilities based on temporary differences
              charged to the "Income tax" caption in the statement of
              operations.

              The Company's and Telefonica's Management evaluates the
              recoverability of deferred tax assets based on estimates.
              Ultimately, the recoverability of deferred tax assets depends upon
              the Company's and Telefonica'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 and Telefonica'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 latest trends. In accordance with
              accounting principles in force, the Company must recognize
              deferred income tax assets when future deductibility is likely.
              Therefore, considering the variables which affect future taxable
              results, including the uncertainty related to the possible effect
              of the final outcome of the tariff renegotiation (See Note 6.b)
              and 11.), and considering current tax strategies and that
              Company's income from its equity interest in Telefonica is not
              subject to income tax, the Company and Telefonica have booked a
              reserve for the balance of net deferred income tax assets whose
              recovery depends upon the generation of future taxable income. In
              addition, Telinver has decided to reverse partially the balance of
              the net tax asset reserve in an amount of 5 million, considering
              that the variables affecting the future tax results related to the
              evolution of the exchange rate were reduced.


                                      F-77
<PAGE>


              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 US$1.00, should be adjusted using an
              exchange rate of $1.40 per US$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 122 million, of which approximately
              54 million were computed for the tax purposes in the fiscal year
              ended December 31, 2004, while the remaining amount will be
              carried forward and applied proportionally to offset taxes until
              December 31, 2006, in accordance with the related legislation.

              Telefonica'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, which will be computed
              in equal parts in five years starting December 31, 2002.
              Approximately 150 million will be computed for the tax purposes in
              the fiscal year ended December 31, 2004, while 300 million will be
              carried forward and applied to offset taxes in equal amounts over
              the next two years.

              For the year ended December 31, 2004, Cointel has estimated the
              existence of income tax loss of 169 million. For the year ended
              December 31, 2003, the Company had determined taxable income in
              the income tax of approximately 3 million. Additionally, for the
              three-month fiscal year ended December 31, 2002, the Company
              determined a taxable income in the income tax of approximately 33
              million that was fully offset with tax loss carryforward existing
              at the beginning of such fiscal year. For the fiscal year ended
              September 30, 2002, Cointel estimated a taxable loss of
              approximately 795 million (historical value).

              As of December 31, 2003, the Company had an accumulated income tax
              loss carryforward of about 923 million (historical value),
              according to the respective tax returns filed, which can be used
              to offset eventual future taxes payable.

              Telefonica has estimated consolidated taxable income of
              approximately 432 million for the fiscal year ended December 31,
              2004 and that could be offset against cumulative tax loss
              carryforwards existing at the beginning of the fiscal year.
              Additionally, Telefonica has determined a taxable income in the
              income tax of approximately 814 million for the year ended
              December 31,2003, determined the existence of taxable loss for the
              three-month period ended December 31, 2002, and for the year ended
              September 30, 2002, determined a taxable income in the income tax
              of approximately 189 million (historical value).

              Additionally, as of December 31, 2003 Telefonica kept on a
              consolidated basis a tax loss carryforward of approximately 2,912
              million (1,019 million at a 35% tax rate) that could, in the
              particular case of each society, be applied to offset future
              income tax charges of the current year and subsequent years until
              2007.

              The consolidated tax loss carryforwards of Cointel, Telefonica and
              Telinver will mature as follows:

                                                Tax loss carryforward
                  Available until          (historical value, in millions)
               ------------------------   ----------------------------------

                        2004                               60
                        2005                               68
                        2006                              795
                        2007                            2,912
                                                    ---------
                                                        3,835
                                                    =========

              Every year in which offsetting occurs, the tax benefit will be
              realized if income tax (net of the offset) is equal to or exceeds
              the tax on minimum presumed income, but will be reduced by any
              excess of the latter over income tax.


                                      F-78
<PAGE>


              The following table presents the components of the Company's
              consolidated deferred tax balances (in millions of Argentine
              pesos):

                                                  December 31,     December 31,
                                                      2004              2003
                                                 ------------------------------
              Deferred tax assets
              Tax loss carryforwards                 1,222 (1)        1,320
              Exchange differences deductible
                in future years                        122              183
              Allowance for doubtful accounts           47               71
              Allowance for contingencies and
                other non-deductible allowances
                and accruals                          161              148
                                                 -------------------------------
                                                     1,552  (2)       1,722  (2)
              Allowance for deferred tax assets
               (Note 23.e)                          (1,422) (2)      (1,576) (2)
                                                 -------------------------------
              Subtotal                                 130              146
                                                 -------------------------------
              Deferred tax liabilities
              Fixed assets                            (106)            (121)
              Dismissal accrual for tax purposes       (14)             (13)
              Other liabilities                         (5)             (12)
                                                 -------------------------------
              Subtotal                                (125) (2)        (146) (2)
                                                 -------------------------------
              Total                                      5                -
                                                 ===============================

              (1)    Includes 59 million originated by Cointel's estimated tax
                     loss carryforward and is net of 151 million of income tax
                     estimated by Telefonica and Telinver for the year ended
                     December 31, 2004, that offset previous year 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 resulted in a reduction of
                     those balances of 9 million, 4 million and 5 million,
                     respectively. As of December 31, 2003, this effect on
                     deferred tax assets, deferred tax liabilities and allowance
                     for deferred tax assets resulted in a reduction of those
                     balances of 34 million, 1 million and 33 million,
                     respectively.

              The following is the reconciliation of the income tax as charged
              to the income statements for the fiscal years ended December 31,
              2004 and 2003 for the three-month fiscal year ended December 31,
              2002 and for the fiscal year ended September 30, 2002 and the
              amount resulting from the application of the corresponding tax
              rate on pre-tax net income (in millions of Argentine pesos):

<TABLE>
                                                            December 31,              September 30,
                                                   ------------------------------------------------
                                                    2004        2003       2002 (a)         2002
                                                   ------------------------------------------------
<S>                                                    <C>         <C>        <C>             <C>
              Net income (loss) before tax at
                statutory income tax rate              64          (97)       (88)            992
              Permanent differences:
              Income on equity investments              -           (1)        (1)             (4)
              Non taxable earnings                      -            -          1               1
              Non deductible expenses                 (16)         (17)         -               -
              Inflation restatement effect           (193)        (241)      (113)            668
              Reversal of allowance for
                deferred tax assets                   154          365        203               -
              Goodwill depreciation                    (8)          (8)        (1)             (4)
              Allowance for deferred tax
                assets (b)                              -            -          -          (2,144)
              Not used Tax loss carryforwards         (25)           -          -               -
              Effect of the discount of deferred
                assets and  liabilities                28           49          3             (85)
              Effect of minority interest               1          (50)         1             456
              Other                                     -            -         (5)              -
                                                   -----------------------------------------------
              Income tax benefit                        5            -          -            (120)
                                                   ===============================================
</TABLE>

              (a) Three-month fiscal year.
              (b) See Note 23.e).


                                      F-79
<PAGE>


              Additionally, the Company and Telefonica calculate 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 each year. This tax is
              supplementary to Income Tax. The Company's and Telefonica 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.

              For the fiscal years and the three-month fiscal year ended
              December 31, 2004, 2003 and 2002, respectively, the Company has
              determined a charge for the tax on minimum presumed income
              amounting to a loss of approximately 54,565 pesos, 13,070 pesos
              and 3,000 pesos, respectively, which were charged to income of
              each year. Additionally, in the consolidated statement of
              operations for the fiscal year ended September 30, 2002, the
              Company included 0.5 million corresponding to the accumulated
              balance of tax on minimum presumed income as of that date, on the
              basis of its recoverability analysis.

              Telefonica has determined a minimum presumed income tax charge for
              the year ended December 31, 2004 in the amount of 35 million that
              was included in the caption "Other non-current receivables", as
              Telefonica'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, based on Telefonica's tax projections.


       n)     Shareholders' equity accounts:

              -    Common capital stock: it has been presented at nominal value
                   and the adjustment required to restate as described in Note
                   2.2. is included in the "Adjustment to capital stock"
                   account. This account also absorbs any adjustment to the
                   redemption value (shortfall or excess) of the preferred
                   stock as explained in the following paragraph.

              -    Preferred capital stock: it has been presented at its
                   redemption value calculated in accordance with the issuance
                   conditions as explained in Note 4., through the following
                   items:

                   o    Face value of preferred shares.

                   o    Adjustment to capital stock: restatement of the
                        preferred shares as described in Note 2.2.

                   o    Adjustment to redemption value: it represents the
                        difference between the restated value of the preferred
                        shares as stated in Note 2.2. and their redemption
                        value.

                   Professional accounting standards set forth as a specific
                   rule that redeemable preferred stock are classified as
                   liabilities when their issuance conditions, directly or
                   indirectly, require that the issuer redeems them for a
                   determined or determinable amount, on a fixed or
                   determinable date. Based on the issuance conditions of the
                   Company's preferred stock and on their current status, the
                   Company has concluded that its preferred capital stock has
                   not met the conditions mentioned above. Accordingly, the
                   Company has continued to classify the preferred stock as a
                   component of shareholders' equity.

                   -    Premium on share issue: this account comprises the
                        additional contribution over the face value of capital
                        stock made by the Class B common shareholders, restated
                        as described in Note 2.2.

                   -    Legal reserve and unappropriated earnings: restated as
                        described in Note 2.2.

                   -    Reserve for future dividends: as of December 31, 2004
                        the Company has a reserve for future dividends of 838
                        million (restated as described in Note 2.2.). However,
                        as described in Note 6.c), the Board of Directors is
                        currently not able to utilize such reserve for paying
                        cash dividends.


                                      F-80
<PAGE>


     o)   Statement of operations accounts:

          Revenues and expenses are credited or charged to income on an accrual
          basis. Telefonica 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.

          Telefonica recognizes income from sales of equipment when they are
          delivered and accepted by its customers. For contracts where
          Telefonica provides customers with an indefeasible right to use
          network capacity, Telefonica 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 year ended on December 31,
          2004 and 2003 include approximately 5 million and 51 million,
          respectively, corresponding to the one time effect of this type of
          agreements.

          As of December 31, 2004, Telefonica 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 Telefonica collects
               fees from installation and monthly charges. In addition, fees
               from installation are collected only once and in case of specific
               installations. Telefonica 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. Telefonica sells prepaid cards to
               resellers. Telefonica 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. Telefonica 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 Telefonica and the operator receives
               an average variable commission. Telefonica 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
               Telefonica 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 to 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.

          Telinver 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 that date, is 11.3 million.

          Statement of operations accounts for the fiscal years ended December
          31, 2004 and 2003, the three-month fiscal year ended December 31, 2002
          and the fiscal year ended September 30, 2002 have been presented, as
          follows:

          -    charges for depreciation of non-monetary assets have been stated
               based on the restated amounts of such assets, as described in
               Note 2.2.;


                                      F-81
<PAGE>


          -    Those accumulating monetary transactions that have occurred until
               February, 2003 (see Note 2.2.) have been computed by applying the
               coefficients corresponding to the month of accrual to the
               historical amounts;

          -    Accounts that include monetary transactions executed as from
               March 1, 2003 were computed at their historical amounts.

          -    The financial income and expense occurred until February, 2003,
               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.


     p)   Net earnings (loss) per common share:

          The Company calculates the net (loss)/earnings per common share
          considering Cointel's net (loss) income of the year after deducting
          preferred dividends, on the basis of 5,306,402,996 common shares with
          a face value of $0.1 and with one vote per share.

2.6. Amounts expressed in millions of Argentine pesos

     The amounts in millions of Argentine pesos contained in these financial
     statements have been rounded up or down in order to facilitate the footing
     of notes and tables in which they are included. The effect of such rounding
     is not material.

2.7. Telefonica's fiscal year-end change

     On September 18, 2001, Telefonica's Special Shareholders' Meeting, approved
     the amendment of the fiscal year section of the Articles of Incorporation.
     This amendment consisted of changing Telefonica's fiscal year-end from
     September 30 to December 31. The Comision Nacional de Comunicaciones
     ("CNC") issued Resolution No. 1,322 whereby it authorized Telefonica to
     change its fiscal year-end date.

2.8. 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
     and; (ii) to cover Telefonica's indebtedness in foreign currency as
     disclosed in the balance sheet as they become due and (iii) to modify the
     composition of Telefonica'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, Telefonica 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, Telefonica U.S. dollar denominated debt was
     approximately US$980 million. In 2003, the appreciation of the peso against
     the U.S. dollar resulted in a gain equivalent to 760 million pesos.
     However, in 2004, the peso devalued against the U.S. dollar resulting in a
     loss of 67 million pesos. As of December 31, 2004, Telefonica keeps
     indebtedness in foreign currency for an amount equivalent to 3,079 million
     pesos and for the purpose of partially hedging its indebtedness in foreign
     currency, Telefonica has deposits in US Dollars in the amount of US$ 79
     million.


                                      F-82
<PAGE>


     The main aspects of the hedging policy of Telefonica are the following:


     i. Existence of clearly identified risk and our risk management objectives
     and strategies.

     Since the Convertibility Law pegged the peso at a value of $ 1 per US$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 US 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, Telefonica did not hedge our U.S. dollar-denominated debt
     obligations because under the Convertibility Law the peso/U.S. dollar
     exchange rate was essentially fixed at parity and Telefonica had 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 the month. However, in some
     cases Telefonica 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 adjusted 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 Telefonica's
     revenues stated in pesos but almost all of Telefonica's debt was
     denominated in foreign currency, so Telefonica had and still has mismatch
     between the revenues and the financial debt in foreign currency.

     As a consequence of the above mentioned mismatch Telefonica established a
     policy of partially hedging Telefonica'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
     Telefonica's debt obligations denominated in foreign currencies.

     Telefonica does not have derivative contracts for trading purposes.
     Moreover, Telefonica'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 Telefonica's 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 derivates
     hedging payments in foreign currency. Even when a perfect hedge of the
     flows is sought, the lack of depth of the Argentina'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. Telefonica intends to reduce
     those imbalances as mentioned below, as long as this does not involve
     disproportionate transaction costs.

     Telefonica 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 the derivatives instruments at market prices.

     Telefonica uses internal valuations for the derivatives instruments which
     are verified with independents parties' valuations (e.g. bank valuations).


                                      F-83
<PAGE>


     Prior to 2004, the Company and Telefonica have not had a fixed policy of
     entering into financial instruments for managing their exposure to market
     risk. As of the date of the issuance of these financial statements,
     Telefonica 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 U.S. 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 as of December 31,2004 to 6.742 million
          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 US$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 Telefonica's shareholders' equity.

     2.   During December 1999 Telefonica 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
          Telefonica's 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.   Telefonica has used currency forwards contracts to hedge against the
          risks of fluctuation in the dollar exchange rate. Telefonica 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 agreements currently outstanding.

     4.   Call Spreads: In September 2004 Telefonica entered into an agreement
          with TISA for two new strategies of exchange rate options, known as
          "Call Spread", with maturities in January and February 2005, and they
          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 US$ 12 million and consisted of the acquisition of a call
          option at a strike price of $ 3.075 per US Dollar and the sale of a
          call option at a price of $ 3.50 per US Dollar. The strategy with the
          maturity date on February 2005 had a notional value of US$ 12 million
          and consists of the acquisition of a call option at a strike price of
          $ 3.09 per US Dollar and the sale of a call option at a strike price
          of $ 3.50 per US 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 Telefonica commitments to pay
          the principal of the loans to TISA, denominated in US Dollars.

          Telefonica has paid, as premiums, an amount of US$ 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.


                                      F-84
<PAGE>


     2.9. Comparative financial statements

     Telefonica made minor disclosure reclassifications for certain revenues and
     expenses in its statement of operations for its fiscal year ended December
     31, 2002.

     The comparative information described above has been restated as explained
     in Note 2.2.


3.   BREAKDOWN OF THE MAIN ACCOUNTS AND AGING OF ASSETS AND LIABILITIES

     3.1  Breakdown of the main accounts

     As of the end of each fiscal year, the main accounts were made up as
     follows (foreign currency balances are presented in Note 23.g) (balances
     stated in millions of Argentine pesos restated as described in Note 2.2.):

     a)   Cash and banks:

                                                        December 31,
                                            ----------------------------------
                                                  2004               2003
                                            ----------------------------------

          Banks                                      15                  18
                                            ----------------------------------
             Total                                   15                  18
                                            ==================================
     b)   Trade receivables:

                                                 December 31,
                                   --------------------------------------------
                                           2004                  2003
                                   --------------------------------------------
                                   Current     Noncurrent  Current   Noncurrent
                                   --------------------------------------------

          Past due (1)               168           14           178        20
          Current                    305            -           287         -
                                   --------------------------------------------
             Subtotal (2)            473           14           465        20

          Allowance for doubtful
            accounts  (Note 23.e)   (149)         (10)         (216)       (8)
                                   --------------------------------------------
             Total                   324            4           249        12
                                   ============================================

     (1)  As a result of refinancing of past-due receivables, approximately 7
          million of refinced receivables are disclosed as current receivables
          as of December 31, 2004 and 2003.
     (2)  In 2004 and 2003 includes 24 million and 8 million, respectively,
          corresponding to related companies (see Note 9.2.2.).


                                      F-85
<PAGE>


c)       Other receivables:

<TABLE>
                                                                                     December 31,
                                                               ----------------------------------------------------------
                                                                          2004                          2003
                                                               ----------------------------------------------------------
                                                                 Current      Noncurrent      Current       Noncurrent
                                                               ----------------------------------------------------------
<S>                                                                    <C>                          <C>
          Guarantee deposits                                           3               -            3               -
          Prepayments to vendors                                       3               -            2               -
          Related companies (1)                                       25               -           53               1
          Financial prepayments                                       10               -           11               -
          Financial instruments (2)                                    1               3            1               2
          Prepaid expenses                                             1               -            -               1
          Prepaid services (3)                                        14               -           15               1
          Tax credit certificates                                      -               -           16               -
          Legal deposits                                               7               -            3               -
          Tax on minimum presumed income                               -             126            -              89
          Patriotic Bond (4)                                           -              84            -              82
          Net deferred income tax assets (5)                           -           1,427            -           1,576
          Prepaid insurance                                            3               -            3               -
          Granted Guarantees                                           -               -            3               -
          Other Tax Credits                                            -               -            2               -
          Other                                                       19               1           14               1
                                                               ----------------------------------------------------------
             Subtotal                                                 86           1,641          126           1,753
          Allowance for net deferred income tax assets (5)             -          (1,422)           -          (1,576)
          Allowance for impairment of Patriotic Bond (4)               -             (56)           -             (60)
          Allowance for other receivables (see Note 23.e))            (2)
                                                               ----------------------------------------------------------
             Total                                                    84             163          126             117
                                                               ==========================================================
</TABLE>

          (1) See Note 9.2.
          (2) See Note 2.8.
          (3) See Note 10.
          (4) See Notes 14., 2.5.c) and 23.e).
          (5) See Notes 2.5.m) and 23.e).

     d)   Inventories:

                                                           Current
                                             -----------------------------------
                                                        December 31,
                                             -----------------------------------
                                                    2004              2003
                                             -----------------------------------
          Raw materials and supplies                   1                  1
          Directories: edition in process              2                  2
          Telephone equipment and other
             equipment                                 8                 17
                                             -----------------------------------
             Subtotal                                 11                 20

          Allowance for impairment in value
             and slow turnover (1)                    (3)                (7)
                                             -----------------------------------
             Total                                     8                 13
                                             ===================================
           (1) See Note 23.e).

     e)   Other assets:
                                                           Current
                                             -----------------------------------
                                                        December 31,
                                             -----------------------------------
                                                    2004              2003
                                             -----------------------------------
          Real property intended for sale              3                   3
                                             -----------------------------------
                                                       3                   3
             Total                           ===================================


                                      F-86
<PAGE>


          f)   Trade payables:

<TABLE>
                                                                               December 31,
                                                    ----------------------------------------------------------------
                                                                  2004                               2003
                                                    ---------------------------------    ---------------------------
                                                        Current         Noncurrent         Current        Noncurrent
                                                    ----------------------------------------------------------------
<S>                                                          <C>                 <C>            <C>           <C>
          Vendors, contractors and correspondents (1)        296                 2              291              -
          Management fee (2)                                  70                 -               76              -
          Billing on account and behalf of cellular
             and audiotext companies                          53                 -               44              -
          Services collected in advance (3)                    5                65                6             69
          Other                                                1                 -                1              -
                                                    ----------------------------------------------------------------
             Total                                           425                67              418             69
                                                    ================================================================
</TABLE>

          (1)  In 2004 and 2003, includes 30 million and 15 million,
               respectively, corresponding to related companies (see Note
               9.2.2.).
          (2)  See Note 9.2.2.
          (3)  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 in current and 60 million and 63
               million in non current, respectively, corresponding to related
               companies (see Note 9.2.2.).

     g)   Bank and other financial payables:

<TABLE>
                                                                           December 31,
                                            -----------------------------------------------------------------------
                                                            2004                                  2003
                                            -----------------------------------------------------------------------
                                                 Current          Noncurrent           Current           Noncurrent
                                            -----------------------------------------------------------------------
<S>                                                  <C>                <C>                 <C>               <C>
          Bank loans and long-term financing         224                236                 86                314
          Imports financing                           15                 13                 20                 27
          Related company - Telefonica
             Internacional, S.A. ("TISA"):
            - Loans (1)                            2,049                  -              2,029                  -
            - Negotiable obligations (2)               -                  -                531                  -
          Negotiable obligations (3) (4)             346              2,251                603              2,212
          Credit balances with banks                  29                  -                 14                  -
                                            -----------------------------------------------------------------------
          Total                                    2,663              2,500              3,283              2,553
                                            =======================================================================
</TABLE>

          (1)  In 2004 and 2003, includes 1,454 million and 453 million,
               respectively, corresponding to the Company (see Note 9.2.), 478
               million and 1,461 million, respectively, corresponding to
               Telefonica and 117 million and 115 million, respectively,
               corresponding to Telinver (see Notes 9.2.2. and 2.8.).
          (2)  See Note 7.2.2.
          (3)  See issuance conditions and way of cancellation in Notes 7.2.2.
               and 7.3.1.
          (4)  In 2003 net of US$ 1 million bought by the Company (see Note
               7.2.2.).

     h)   Payroll and social security taxes payable:

<TABLE>
                                                                           December 31,
                                            -----------------------------------------------------------------------
                                                            2004                                  2003
                                            -----------------------------------------------------------------------
                                                 Current          Noncurrent           Current           Noncurrent
                                            -----------------------------------------------------------------------
<S>                                                <C>                                   <C>                  <C>
          Vacation and bonus accrual               48                   -                44                   1
          Social security taxes payable            15                   -                14                   -
          Pre-retirement agreements and
             others (1)                            15                  16                13                  18
          Other                                     2                   -                 2                   -
                                            -----------------------------------------------------------------------
             Total                                 80                  16                73                  19
                                            =======================================================================
</TABLE>

          (1)  Pre-retirement agreements mature through 2009, and do not have
               adjustment clauses. This amount includes 7 million 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 Telefonica until the
               worker qualifies to obtain legal pension benefits.


                                      F-87
<PAGE>


     i)   Taxes payable:
                                                              Current
                                                    ----------------------------
                                                            December 31,
                                                    ----------------------------
                                                      2004                2003
                                                    ----------------------------

          Turnover tax accrual (net of prepayment)      12                   10
          Health and safety taxes                       24                   20
          Value added tax                               15                   17
          Tax on minimum presumed income (net of
             prepayment)                                 9                   10
          Other                                         40                   23
                                                    ----------------------------
             Total                                     100                   80
                                                    ============================

     j)   Other payables:

<TABLE>
                                                                        December 31,
                                                  ----------------------------------------------------------
                                                           2004                             2003
                                                  ----------------------------------------------------------
                                                  Current       Noncurrent        Current         Noncurrent
                                                  ----------------------------------------------------------
<S>                                                    <C>             <C>            <C>               <C>
          Financial instruments (1)                    10              4              13                20
          International Telecommunications Union       21              -              21                 -
          Related companies (2)                        13              -              25                 -
          Other                                        19             25              16                26
                                                  ----------------------------------------------------------
             Total                                     63             29              75                46
                                                  ==========================================================
</TABLE>

          (1)  Foreign currency swaps agreements, forwards contracts and options
               (see Note 2.8.).
          (2)  See Note 9.2.2.

     k)   Goodwill on investment in Telefonica:

<TABLE>
                                        Original value                          Depreciation
                               ---------------------------------------------------------------
                                   At                        At                         At end   Net
                               beginning          At end  beginning            For the    of     book
                                of year  Decrease of year  of year   Decrease    year   year    value
                               ----------------------------------------------------------------------
<S>                                 <C>     <C>     <C>       <C>     <C>         <C>    <C>     <C>
    Fiscal year ended
      December 31, 2004             449        -    449       126        -         23     149     300
                               ======================================================================
    Fiscal year ended
      December 31, 2003             449        -    449       103        -         23     126     323
                               ======================================================================
    Three-month fiscal year
      ended December 31, 2002       449        -    449        97        -          6     103     346
                               ======================================================================
    Fiscal year ended
     September 30, 2002             545      (96)   449       170      (96)        23      97     352
                               ======================================================================
</TABLE>


                                      F-88
<PAGE>

l)   Cost of services provided:

                                          December 31,         September 30,
                                       -----------------------------------------
                                         2004       2003     2002 (3)     2002
                                       -----------------------------------------

     Telecommunications services (1)    (1,887)    (1,946)      (462)    (2,455)
     Cost of services provided (2)         (49)       (46)       (39)       (49)
                                       -----------------------------------------
        Total                           (1,936)    (1,992)      (501)    (2,504)
                                       =========================================

     (1)   Note 23.h).
     (2)   Note 23.f).
     (3)   Three-month fiscal year.


m)         Other:

<TABLE>
                                                             December 31,              September 30,
                                                        ------------------------------------------------
                                                          2004         2003        2002 (1)       2002
                                                        ------------------------------------------------
<S>                                                     <C>          <C>            <C>          <C>
     Holding and financial income (loss) on assets:
     Holding gains (losses) on inventories                     -           -             1          (10)
     Net book value of intangible assets retired               -           -             -           (8)
                                                        ------------------------------------------------
        Total                                                  -           -             1          (18)
                                                        ================================================

     Holding and financial loss on liabilities:
     Tax on interests                                          -           -             -          (27)
     Intangible assets depreciation                           (9)        (16)           (1)          (8)
     Tax on checking account credits and debits              (18)        (11)            -            -
     Other                                                     -           -             -           (1)
                                                        ------------------------------------------------
        Total                                                (27)        (27)           (1)         (36)
                                                        ================================================
</TABLE>

     (1)  Three-month fiscal year.


n)   Other expenses, net:

<TABLE>
                                                                       Income (loss)
                                               ---------------------------------------------------------
                                                       December 31,                   September 30,
                                               ---------------------------------------------------------
                                                     2004             2003        2002 (2)        2002
                                               ---------------------------------------------------------
<S>                                            <C>              <C>            <C>           <C>
     Employee terminations                           (37)             (42)           (17)          (85)
     Contingencies                                  (103)             (34)           (31)          (70)
     Net book value of fixed assets retired            -                -             (2)           (4)
     Miscellaneous, net                                3                5             (1)            5
                                               ---------------------------------------------------------
        Total (1)                                   (137)             (71)           (51)         (154)
                                               =========================================================
</TABLE>

     (1)   Note 23.h).
     (2)   Three-month fiscal year.


                                      F-89
<PAGE>


     3.2  AGING OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2004:

<TABLE>
                                                   Assets                                        Liabilities
                                    ----------------------------------------------------------------------------------------------
                                                                                                    Payroll
                                                                                       Bank and    and social
                                                    Trade        Other                   other      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

     Not Due:
     Up to three months                     247       263           33          313      1,564        56          41        19
     From three to six months                 -        19            6            8        507         8           9         1
     From six to nine months                  -        12            4            7        223        10           -         5
     From nine to twelve months               -         8            6            1        340         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                               260       487          247          492      5,163        96         100        90
     Allowance for doubtful
     accounts                                 -      (159)         -              -          -         -           -         -
     Benefits under the Collective                      -
        Labor Agreements                      -                    -              -          -         -           -         2
                                    ----------------------------------------------------------------------------------------------
        Total                               260       328          247          492      5,163        96         100        92
                                    ==============================================================================================

     Percentage accruing interest
        at fixed rate                      95%        3%         3%             -         57%          -           -        15%
     Percentage accruing interest
        at variable rate                    -        36% (b)       -            -         41%          -           -         -
     Percentage with variable
     return                                 2%        -            -            -          -           -           -         -
     Average interest rate in
        foreign currency                    2%        -          1% (d)         -          9%          -           -         6%
     Average interest rate in
        local currency                      1%       26%         6%             -          8%          -           -         -
</TABLE>

          (a)  Trade receivables balances includes 14 million past-due
               classified as non-current taking into account Telefonica's
               Management's 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.   PREFERRED SHARES

     As detailed in the Statement of changes in shareholders' equity and in Note
     5., the Company's capital stock is comprised of common and preferred shares
     issued under Argentine law. The main issuance clauses of the preferred
     shares related to dividend payments, preferences among the various classes
     of preferred shares, preferences of the latter over common shares and the
     redemption of preferred shares, and, as may be seen from the issuance
     minutes, are as follows:

     a)   Three different classes of preferred shares were issued: A, B and C.
          Each class accrues an annual preferred dividend at the rates
          established in the issuance clauses. Class C shares were amortized in
          two equal installments on April 30, 1996 and 1995.


                                      F-90
<PAGE>


     b)   The issuance conditions of preferred shares provided that the
          redemption value of preferred capital and the preferred dividends were
          established in U.S. dollars and until the closing of the three-month
          period ended on March 31, 2002, the Company valued them in accordance
          with such clauses. However, and according to the Company's and its
          legal advisors' final analysis, such redemption value and the
          preferred dividends have been affected by the conversion into pesos
          provided by the new legal framework in effect in Argentina,
          established by Decrees No. 214/02 and No. 320/02 (see Note 18.).
          Consequently, the redemption value of preferred capital and the
          preferred dividends have been converted into pesos at a one peso ($1)
          = one U.S. dollar (US$ 1) exchange rate, being applicable to such
          amounts the adjustment by the CER accrued until the redemption date.

          During the six-month period ended June 30, 2004, the Company had
          received a claim from the preferred shareholder that holds 100% of the
          outstanding preferred shares in relation with the pesification of its
          preferred shares. On September 16, 2004 Cointel has been notified of a
          legal action filed by such preferred shareholder contesting the
          shareholders' meeting held on April 19, 2004 that approved the
          financial statements for the fiscal year ended December 31, 2003 and
          possibly the previous meetings, and in particular the shareholders'
          decision approving the financial statements as of December 31, 2003,
          insofar as they disclose as pesified the redemption value of the
          preferred shares and related accumulated unpaid accrued dividends in
          accordance with the regulations described above. In addition, the
          Company has been notified of a precautionary measure (specifically, an
          order to record the existence of a pending action) in connection with
          the contestation filed in court by such preferred shareholder. The
          Company's Management and its legal counsel consider that, based on the
          above mentioned analysis and in the light of the rules in force, the
          chance that the determination of this issue could have an adverse
          effect on the Company is remote.

     c)   The first accrual period of preferred dividends started on November 8,
          1990 and ended on December 31, 1991. The Special Shareholders' Meeting
          held on June 29, 1998, resolved to modify the Company's year-end date.
          Such Meeting also established that the periods for accruing preferred
          dividends will be computed as from January 1 through December 31 each
          year, irrespective of the Company's year-end date.

     d)   Preferred dividends are cumulative. The issuance clauses of preferred
          stock state that such shares enjoy preference over common stock.
          Likewise, Class A preferred stock enjoys preference over Class B
          preferred stock. Dividend preferences include a priority order for
          voting and approval as well as for payment.

     e)   Preferred dividend payment dates are as follows:

          1.   Preferred dividends on Class A shares: the first date was April
               30, 1994 and thereafter dividends are paid on the 30th day of
               April in each year to and including 2003 (see item j) of this
               note).

          2.   Preferred dividends on Class B shares: the first date was April
               30, 1992 and thereafter dividends are paid on the 30th day of
               April in each year to and including 2007 (see item j) of this
               note).

          On each payment date any dividend accrued during the immediately
          preceding accrual period shall be paid.

     f)   Preferred capital amortization dates are as follows:

          1.   Class A shares of Preferred Stock: the first date was April 30,
               1997 and thereafter, amortizations are made on the 30th day of
               April in each year until and including 2003 (see item j) of this
               note), in installments equal to a seventh of the preferred
               capital of this type of stock. The Regular and Special
               Shareholders' Meeting held on March 31, 1997 voted an early
               redemption of Class A preferred shares for a total US$38,460,047
               (face value of 20,306,905 (historical value)).

          2.   Class B shares of Preferred Stock: beginning on April 30, 1998
               and thereafter, amortizations shall be made on the 30th day of
               April in each year until and including 2007 (see item j) of this
               note), in installments equal to a tenth of the preferred capital
               of this type of stock. The Regular and Special Shareholders'
               Meeting held on March 31, 1997 voted an early redemption of Class
               B preferred shares for a total US$37,848,336 (face value of
               19,983,921 (historical value)).


                                      F-91
<PAGE>


          The Special Shareholders' Meetings held on April 30, 2001, April 28,
          2000 and April 30, 1999 voted partial redemptions of Class A and B
          preferred shares for a total, in each redemption, US$1,640,000 (face
          value 865,920 in historical pesos) and US$4,030,000 (face value
          2,127,840 in historical pesos), respectively, as set forth in the
          issuance conditions of such shares. These reductions were registered
          in the Public Registry of Commerce on June 12, 2001, July 21, 2000 and
          September 10, 1999, respectively.

     g)   For the preferred capital stock fully amortized and to the extent that
          there shall be any preferred dividends unpaid, beneficial bonds shall
          be issued pursuant to Section 228 of LSC, as amended. Bondholders
          shall have the same preference as the holders of Preferred Stock.
          Amortization payments shall be made from liquid realized profits or
          free reserves.

     h)   If, for any reason, preferred capital amortization cannot be made on
          the appropriate date, such payments shall be made on the next
          succeeding amortization date and so on.

     i)   In the event of liquidation of the Company, for whatever reason, the
          holders of Preferred Stock shall collect first any preferred
          unamortized capital and then any preferred dividends accrued.

     j)   The Company, among other provisions detailed in the issuance
          conditions, has agreed:

          1.   Not to reduce its holding of shares of common stock of the
               controlled company to less than a majority thereof, without the
               prior consent of the holders of Preferred Stock in a Special
               Meeting of Preferred Shareholders.

          2.   To control decisions inside the Board of Directors and General
               Shareholders' Meetings of the controlled company.

          3.   To make no investment other than in shares of the controlled
               company and assets incidental to the holdings of such shares by
               the Company.

          4.   To incur no debt that shall cause all the debts of the Company to
               exceed at any time the amount of US$850 million.

          As of the date of issuance of these financial statements, the Company
          has met all obligations arising from the issuance conditions of
          preferred stock. However, as of the date of issuance of these
          financial statements, there are accumulated unpaid but not yet due
          preferred dividends and preferred capital stock that has not been
          redeemed as set forth in the original schedule, because, the Company
          did not have liquid realized profits or free reserves as stipulated by
          issuance conditions. Consequently, these unpaid amounts are to be
          considered not due.

     k)   The holders of Preferred Stock shall have no right to receive common
          stock dividends whether from capitalization of reserves, capital
          adjustments or otherwise.

     l)   The holders of Preferred Stock shall have no voting rights except as
          provided in clause 8 of the issuance conditions of each class of the
          preferred shares which mainly relate to: (i) the provisions of
          Sections 217 and 244 of the LSC as amended, (ii) if voluntary
          dissolution of the Company has been elected by the Company or if its
          dissolution is decided by the appropriate corporate body or authority
          and (iii) if there is any preferred capital unredeemed at the maturity
          date. In these cases the holders of Preferred Stock shall have one
          vote per share.

          The right to vote shall cease after the Company has complied with all
          its obligations, has ceased all acts that may prejudice preferred
          shareholders, after the delay is corrected or after the noncompliance
          is remedied or its effects are compensated.

     The detail of capital determined in accordance with the issuance clauses
     prevailing and the preferred dividends accumulated, unpaid but not yet due
     as of December 31, 2004 as established in the issuance clauses and current
     law, is as follows:


                                      F-92
<PAGE>


<TABLE>
                                  Capital stock (1)                         Amounts stated in millions of Argentine pesos
                        ------------------------------------------------------------------------------------------------------------
           Class of      Face value in    Redemption value in      Accumulated unpaid          Fourteenth       Total accumulated
           Preferred      millions of    millions of Argentine  dividends as of December   preferred dividend   unpaid but not due
             Stock      Argentine pesos        pesos (2)              31, 2004 (3)             period (4)      preferred dividends
        ----------------------------------------------------------------------------------------------------------------------------
<S>     <C>                      <C>              <C>                         <C>                      <C>                 <C>
              "A"                  2               5                           -                        -                   1 (5)
              "B"                 13              37                           7                        2                   9
                        ------------------------------------------------------------------------------------------------------------
                                  14 (5)          42                           7                        2                  10 (5)
                        ============================================================================================================
</TABLE>

     (1)  See Note 5.
     (2)  See item b) in this Note.
     (3)  It is related to the preferred dividends accrued during the
          twelve-month periods ended December 31, 2003, 2002 and 2001, which are
          unpaid as of December 31, 2004, plus the adjustment for the CER as of
          December 31, 2004.
     (4)  Preferred dividends have been calculated, as stated in the issuance
          conditions and considering the effects of Decree No. 214/02 and
          related laws.
     (5)  The figures in the chart may not sum due to the rounding into millions
          (see Note 5.)

     As of December 31, 2004 preferred stock restated for inflation as stated in
     Note 2.2. amounts to 58 million, while preferred capital stock determined
     in accordance with the issuance clauses and the legal framework mentioned
     above amounts to 42 million. The Company believes that the difference of 16
     million in the value of preferred stock represents a redistribution of the
     total value of the Company's capital stock between its common and preferred
     shareholders. The difference as of December 31, 2004 is comprised of an
     initial negative balance as of December 31, 2003 of 18 million (restated as
     described in Note 2.2.) and an increase of 2 million corresponding to the
     evolution of the preferred stock's balance, generated by the effect of
     Decree No. 214/02 and related laws during the year.

     The issuance provisions of the Company's preferred A and B shares provide
     that, should there be no liquid realized profits or free reserves, the
     Company will not partially amortize preferred capital or pay the respective
     preferred dividends. Should there be preferred un-amortized past due
     capital, the issuance provisions of preferred A and B stock provide that
     preferred stockholders would be entitled to one vote per share. Based on
     the situations described in Note 6.c) and according to the above-mentioned
     provisions, the Company did not amortize preferred stock or pay preferred
     dividends corresponding to the eleventh, twelfth and thirteenth period. For
     the above reasons this situation is not to be considered default.

     According to item 5.a of the preferred shares issuance conditions, the
     holders of Class A shares of Preferred Stock are entitled to one vote per
     share as from April 30, 2003, since the tenth dividend payment date for
     such kind of shares has taken place, and there is preferred capital
     unredeemed as of such date.


5.   CAPITAL STOCK

     Below is the Company's capital status as of December 31, 2004:

<TABLE>
                                                                           Subscribed, paid in, issued and
                                                                         registered with the Public Registry
                                                                                     of Commerce
                                                                             (historical Argentine pesos)
                                                                         --------------------------------------
<S>                                                                                 <C>
      Common shares, series "A" (Face value $0.10, one vote per share)               441,492,779.70
      Common shares, series "B" (Face value $0.10, one vote per share)                89,147,519.90
                                                                             -----------------------
             Subtotal                                                                530,640,299.60
                                                                             -----------------------

      Class "A" Preferred Shares (Face value $0.10 each) (1)                           1,731,840.00
      Class "B" Preferred Shares (Face value $0.10 each) (1)                          12,767,040.00
                                                                             -----------------------
             Subtotal                                                                 14,498,880.00
                                                                             -----------------------
             Total                                                                   545,139,179.60
                                                                             =======================
</TABLE>

     (1) See Note 4.


                                      F-93
<PAGE>


6.   LIST OF CONDITIONS AND THE TRANSFER CONTRACT - EXCLUSIVITY OF THE LICENSE -
     OTHER RESTRICTIONS


     a)   The license which the controlled company holds for providing the
          telecommunications service may be revoked upon the fail in complying
          certain obligations. The List of Conditions and the Transfer Contract
          set forth the principal obligations of the Company and Telefonica
          under the List of Conditions and the Transfer Contract, of which the
          following still in effect:

          1.   The assets contributed to Telefonica used in providing
               telecommunications services may not be sold, assigned,
               transferred or encumbered in any way without the authorization of
               the SC.

          2.   Telefonica Holding de Argentina S.A. ("THA") and TIHBV, as
               members of the Consortium which was awarded the shares of the
               controlled company, may under no circumstances reduce their
               investment in the Company to percentages below twenty and ten
               percent (20% and 10%), respectively, of the common shares with
               voting rights, without the prior authorization from the
               Regulatory Authority.

          3.   The Company may not reduce its investment, as a whole, below
               fifty-one percent (51%) of Telefonica's total capital with voting
               rights with Class A shares, without prior authorization by the
               Regulatory Authority.

          4.   Telefonica has to maintain all or a substantial part of the
               provision of the telephone service and Telefonica's main business
               and principal place of business in Argentina may not be changed.

          5.   Telefonica has to meet certain objectives related to the services
               provided. The most important of these objectives are efficiency
               and services quality. In addition, suppliers of data and value
               added services are to be given equal access to telephone lines.

          In addition, Decree No. 264/98 sets 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 Telefonica's network (including voice and
          data transmission services), and the installation of a minimum number
          of new lines.

          In the opinion of the Company's Management, the Company and Telefonica
          have met all of the above-mentioned obligations.

     b)   Telefonica signed a license agreement with the SC 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. Telefonica's obligations under the 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 Telefonica.
          On September 19, 2000, Telefonica filed a reconsideration petition
          against certain specific issues of Decree No. 764/00. The Court has
          not as yet ruled on this issue.

          Telefonica'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, Telefonica 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 Telefonica operates, and the
          situation affecting service rates described in Note 11. 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.


                                      F-94
<PAGE>


          The relationship between variables determining Telefonica's revenues
          and expenses is currently mismatched as a result of the "pesification"
          and freezing of Telefonica's tariffs within the context of a
          potentially inflationary economy and may continue to be mismatched
          depending upon the outcome of Telefonica's pending tariff
          renegotiation with the Argentine Government. Telefonica's tariff
          renegotiation proposal presented to the Argentine Government attempts
          to rebalance the relationship between variables determining
          Telefonica's revenues and costs (including investments), i.e. to
          achieve the "Telefonica's economic and financial equation"
          contemplated in the Transfer Contract (the "economic and financial
          equation") (See Note 11.).

          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 and Telefonica'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 consolidated debt, due to
          the financing already obtained by Telefonica and the gradual reduction
          of Telefonica's short term debt (See Note 7.1.).

          Although Telefonica 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 Telefonica's economic and financial
          equation.

     c)   Dividends:

          As of December 31, 2004, the Company carries accumulated losses of
          2,592 million and a reserve for future dividends of 838 million
          (restated as described in Note 2.2.). Consequently, the dividend
          distribution is restricted.

          In relation to the restrictions related to the dividends of preferred
          shareholders, see Note 4.


7.   FINANCIAL DEBT

     7.1.  Financing

          In prior years the Company has funded its working capital
          requirements, interest payments and amortization of debt out of
          dividends from Telefonica, external financing from financial
          institutions, from capital markets, additional issuances of equity
          securities, and loans from related companies.

          The Company general financing policy is to cover future fund needs to
          repay short-term debt, if possible depending on the evolution of the
          economic situation, with bank loans and/or access to capital markets
          and TISA's loans, or alternatively, by requiring the refinancing of
          its payables.

          Telefonica'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 TISA's loans.

          As of December 31, 2003, Telefonica's short-term debt amounted to US$
          637 million. At that time, Telefonica 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, Telefonica managed to
          gradually reduce its short-term indebtedness through a combination of
          partial payments and short and long-term re-financing.


                                      F-95
<PAGE>


          As of December 31, 2004 Telefonica agreed to new short-term loans with
          local financial entities for an amount of 120 million. In May and
          October, 2004 and February, 2005, Telefonica issued Negotiables
          Obligations for 163.3 million, 200 million and 250 million,
          respectively. (see Note 7.3.1.) 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 Telefonica may consider, in
          the opinion of Telefonica's Management, will enable Telefonica to
          settle or successfully refinance the remaining balance of its
          short-term indebtedness.

          As of December 31, 2004, Telefonica's unconsolidated current assets
          are lower than its unconsolidated current liabilities by 1,150
          million, the latter including approximately 34% (US$ 200 million) of
          debt owed to TISA.

          In turn, in the months of July, August and September, 2004, TISA has
          re-financed Telefonica's liabilities in the amount of US$150 million,
          now payable, in monthly installments maturing from January to December
          2005 and has advised the Company and Telefonica that, as of the date
          of issuance of these financial statements, it was still assessing
          other financing alternatives for the Company and Telefonica including,
          if necessary, providing additional financing.

          THA, a shareholder of the Company, is evaluating Cointel's financing
          needs considering the Argentine economic situation and the current
          difficulties to have access to credit, and has expressed its
          commitment to use its best efforts to provide financing directly or
          indirectly, subject to THA's own fund availability, which depends on
          the evolution of the issues affecting THA's own financial situation.

          On the other hand, Telefonica, S.A. ("TESA") (TISA's parent company)
          has advised the Company that, as of the date of issuance of these
          financial statements, it was still evaluating financing alternatives
          for the Company, including the possibility of refinancing or not over
          the long-term TISA's current loans to the Company and, if necessary,
          providing additional financing.

          As of December 31, 2004 Cointel's unconsolidated current assets are
          lower than its unconsolidated current liabilities by 1,459 million,
          the latter including approximately 99.6% (1,454 million) of debt owed
          to TISA. Consequently, the Company's ability to meet its short term
          liabilities will depend on TISA's continued refinancing of the loans
          granted to Cointel, or on the obtainment of other financing from
          related or unrelated parties, which to date is not available in
          sufficient amounts for the Company.

          Should no financing alternatives be available for Cointel or should
          Cointel not succeed in obtaining refinancing, Cointel would not have
          sufficient funds available to meet its current liabilities as they
          become due as of December 31, 2004.

          Although the Company will continue to make its best effort to obtain
          such financing, which up to date has had favorable results through
          obtaining waivers from creditors (see Note 9.2.) and short-term
          refinancing, as of the date of issuance of these financial statements
          it is not possible to assure what the result of such negotiations will
          be and, consequently, whether the Company will be able to settle its
          current liabilities in the normal course of business and maintain its
          normal operations.

     7.2. The Company

          7.2.1. Call option involving Telefonica Class B shares

               On March 6, 1998 the Company had granted Merrill Lynch
               International ("ML") a call option on 40.200,000 Telefonica Class
               B shares to be exercised on May 28, 2003, for an approximate
               value of US$6.2 per share adjusted for the dividend distributions
               made by Telefonica through that date. On June 30, 2000, the
               Company and ML amended certain conditions of this agreement,
               whereby ML had the right to require from Cointel, on May 28,
               2003, the delivery of capital stock of TESA instead of Telefonica
               shares, modifying the strike price of the call option for such
               TESA's shares, in proportion to the price offered for Telefonica
               shares in the TESA Tender Offer. If, on May 28, 2003, the market
               price of TESA ADRs would have been higher than US$102.79 (the
               exercise price), ML may have acquired from the Company 2.23
               million TESA ADRs at the exercise price. At the expiration date,
               May 28, 2003, the market price of TESA ADRs was lower than
               US$102.79, consequently ML did not exercise this call option.


                                      F-96
<PAGE>


          7.2.2. Negotiable obligations

               The Regular and Special Shareholders' Meeting held on March 31,
               1997, approved the creation of a Global Program for the issuance
               of Negotiable obligations (the "Program"). Such Negotiable
               obligations are nonconvertible into shares, for a maximum
               outstanding amount during the term of the Program of US$800
               million or its equivalent amount in other currencies, unsecured,
               to be issued in different successive classes, which could be
               accumulative or not; such bonds are to allow for early redemption
               in cash or in kind, in the latter case with securities of other
               companies. In addition, the above-mentioned Shareholders' Meeting
               delegated broad powers to the Board of Directors to determine the
               timing, features and other terms and conditions of the issuance.

               Under the Program, the Company's Board of Directors decided the
               issuance of two series of Negotiable obligations: "A" Series for
               US$225 million and "B" Series for 175 million; the maturity date
               is August 1, 2004, for both series. On July 3, 1997 the CNV
               approved the issuance. On July 24, 1997, the Company placed all
               of the issuance on the market. The net proceeds of this
               transaction which totaled approximately US$395 million were used
               to refinance bank debts maturing from January through September
               1998.

               The main terms and conditions of this issuance of Negotiable
               obligations were:

               a)   Face value: US$1 and $1 for the "A" and "B" Series,
                    respectively, bearer and registered, ordinary,
                    nonconvertible into shares.

               b)   The total amortization of the Negotiable obligations was to
                    take place in one single installment payable at seven years
                    for both series. Such amortization, as well as accrued
                    interest, was to be paid in U.S. dollars in the case of the
                    "A" Series, and in U.S. dollars or Argentine pesos in the
                    case of the "B" Series (at the discretion of the obligee).
                    The Company had the possibility of redeeming such
                    obligations for fiscal reasons, at 100% of their face value
                    plus interest accrued through the redemption date.

               c)   The securities accrued an annual interest of 8.85% and
                    10.375% on "A" Series and "B" Series, respectively, payable
                    half-yearly in arrears with due dates on February 1 and on
                    August 1 of each year and beginning on February 1, 1998.

               d)   This issuance did not constitute either a secured or a
                    subordinated debt of the Company, ranking pari-passu -with
                    no preferences- in respect of the Company's current and
                    future unsecured and unsubordinated debts.

               The agreement for this issuance gave a detailed description of
               its settled restrictions. The main stipulations concerned: a) a
               commitment of the Company not to encumber or grant real property
               rights, with certain exceptions, on its assets or present and
               future revenues unless the Company complied with certain
               requirements, b) conditions for the early redemption of the
               issuance, and c) causes of default that would allow obligees to
               consider such bonds as immediately due and payable, such causes
               being, among others, nonpayment of the Negotiable obligations,
               defaults in the payment of indebtedness of the Company or any
               material subsidiary aggregating US$20 million or more (see Note
               9.2.), the sale of all or a significant proportion of the
               Company's assets, the loss of control over Telefonica's corporate
               decisions and noncompliance with certain financial ratios. On
               July 4, 2003, the meeting of the Company's Series "A" noteholders
               approved the amendments to the terms and conditions of the notes
               issued in 1997 in order to delete substantially all the events of
               default other than those related to non-payment of principal and
               interest. On the other hand, on July 22, 2003, the meeting of the
               Company's Series "B" noteholders discussed the amendments to the
               terms and conditions of the notes issued in 1997 in order to
               delete substantially all the events of default other than those
               related to non-payment of principal and interest. Such Series "B"
               noteholders rejected the amendments mentioned above.


                                      F-97
<PAGE>


               During fiscal year 2003, the Company purchased Negotiable
               Obligations Series "A" for a nominal value of US$ 5,882,000, and
               on December 18, 2003 it redeemed part of such notes for US$
               4,882,000; therefore, as of December 31, 2003 it held own
               Negotiable Obligations for a nominal amount of US$ 1,000,000.

               Likewise, during the first semester of 2004 the Company purchased
               additional Series "A" Notes for a total nominal value of US$
               18,147,000, and on June 28 and March 23 and 31, 2004, the Company
               made three further prepayments with the total of the Series "A"
               Notes held by it for a nominal amount of US$ 5,023,000, US$
               7,450,000 and US$ 6,674,000, respectively. After the prepayments
               above-mentioned, the outstanding principal amount under such
               issue was US$ 200,971,000.

               On July 26, 2004, TISA granted a US$ 103,000,000 loan to Cointel
               in order to the Company to cancel the totality of the Series "B"
               Negotiable Obligations and the portion of the Series "A"
               Negotiable Obligations held by third parties plus interest
               thereon, both with maturity on August 1, 2004. The funds obtained
               were settled in the foreign exchange market between July 26 and
               28 and were applied to the cancellation of the mentioned
               Negotiable Obligations as of the maturity date.

               In addition, on July 27, 2004 the Company agreed with TISA the
               repurchase of the totality of the Series "A" Negotiable
               Obligations held by TISA in order to proceed to their
               cancellation, which occurred on that date. In connection with the
               referred repurchase, on July 28, 2004 Cointel borrowed a US$
               171,436,582 loan from TISA equivalent to the amount of principal
               plus interest accrued on such Negotiable Obligations as of that
               date. The loan did not imply the delivery of funds.

               Based on the above, as of the date of issuance of these financial
               statements, Cointel has cancelled the totality of debt for
               principal and interest related to the issues of the Negotiable
               Obligations above-mentioned (see Note 21.)

     7.3. Telefonica

          7.3.1. Negotiable obligations

               As of December 31, 2004, there are nine Negotiable obligations
               issues outstanding:

<TABLE>
                 Issuance        Face value        Term        Maturity       Rate per annum %   Use of proceeds
                month/year      (in million)    (in years)    month/year
               ---------------------------------------------------------------------------------------------------
<S>            <C>            <C>               <C>           <C>           <C>                  <C>
                  05/98         US$ 125.6           10         05/2008            9.125                (a)
                  06/02         US$  71.4            4         07/2006            9.875                (b)
                  08/03         US$ 189.7            4         11/2007           11.875                (b)
                  08/03         US$ 212.5 (c)        7         11/2010            9.125                (b)
                  08/03         US$  0.03 (d)        8         08/2011            8.85                 (b)
                  08/03         US$ 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 US$ 7.5 million repurchased during 2004.

               (e)  Net of US$ 13.5 million repurchased during 2004. These
                    notes were cancelled on May 6, 2005.

               (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%.


                                      F-98
<PAGE>


               The prospectuses related to the issuance of these Negotiable
               obligations describe the issuance conditions in detail. The main
               stipulations concern: a) commitment of Telefonica not to create
               liens, except certain permitted liens, over its present or future
               assets or revenues, unless Telefonica's commitments under the
               Negotiable obligations meet certain requirements; b) conditions
               for the early redemption of the issuance; and c) events of
               default whereby noteholders 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 US$20
               million, attachments which in the aggregate exceed US$10 million,
               among others. On July 22, 2003, the meetings of Telefonica'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 non-payment of principal and interest.

               Telefonica issued negotiable obligations due in 2006 and 2008
               under Telefonica's Global Program, of up to US$1.5 billion or its
               equivalent and the commitments are those customary for these kind
               of transactions.


               Issuance of Negotiable Obligations under the Program of December
               2003

               The shareholders' meeting of Telefonica 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 or its equivalent amount in other
               currencies, and delegated to Telefonica's 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,Telefonica'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 Telefonica placed 200 million by issuing the
               Second Tranche of Negotiable Obligations under the above
               mentioned program. The issuance comprises a Series A for an
               amount of 134.8 million, with a 365-day term and an 8.25% annual
               interest rate and a Series B for an amount of 65.2 million, 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 Telefonica Board of Directors
               approved the issuance of the third class of Negotiable
               Obligations under the Program for an amount of up to 250 million
               in one or two series.

               On May 19, 2003 Telefonica's Board of Directors approved to
               perform offers to exchange outstanding negotiable obligations
               issued by Telefonica and by the Company for new negotiable
               obligations issued by Telefonica plus a cash payment:

               On February 11, 2005 Telefonica 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.


                                      F-99
<PAGE>


               a) Offer to Exchange Telefonica's Negotiable Obligations

               Telefonica'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, Telefonica issued new notes for a total amount
               of US$189.7 million due in November 2007, and US$220 million due
               in November 2010, respectively, and Telefonica paid US$52.1
               million in cash. Additionally, Telefonica paid US$12.5 million as
               interest accrued to that date.


               b) Offer to Exchange the Company's Negotiable Obligations

               On August 7, 2003, Telefonica issued negotiable obligations for
               US$148.1 million due in August 2011 and paid in cash the amount
               of US$24 million and 4.6 million in exchange for the Company's
               negotiable obligations (Series A and Series B). In addition,
               Telefonica issued 0.1 million of negotiable obligations at
               10.375% peso denominated notes due in August 2011 which on August
               1, 2004 were converted into U.S. dollars and started to accrue
               interest at an annual nominal rate of 8.85% for the Company's
               Series B notes. Additionally, Telefonica transferred immediately
               the Company's notes which were acquired in this exchange offer to
               TISA in exchange for an equivalent reduction (US$ 174 million) in
               Telefonica's short-term financial debt to TISA.


          7.3.2. Long-term bank financing

               Telefonica has borrowed long term funds from major financial
               institutions in an amount equivalent to 236 million as of
               December 31, 2004. These funds have been borrowed under terms and
               conditions customary in this kind of transaction, 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, Telefonica uses other long-term bank credit lines
               to finance imports from different commercial banks.


          7.3.3. Other financing - Related Parties

               As of December 31, 2004, Telefonica and Telinver owed
               approximately 595 million (about US$200 million) to related
               parties, which matures until December, 2005. These loans accrued
               interests at one-month LIBOR plus 5% per annum for Telefonica and
               9% per annum for Telinver. (see Note 9.1.1. related to the
               assignment of debt from Telinver to Telefonica). These agreements
               established the usual commitments for this kind of transactions,
               as well as clauses that establish that the creditor may
               accelerate the terms of Telefonica's payables ("events of
               anticipated maturity") if there are changes in Telefonica's
               equity, economic and financial situation that due to their
               adverse nature may affect Telefonica's capacity to comply with
               the obligations assumed in the agreements or if there are
               restrictions that may limit the capacity of Telefonica to repay
               its debts.

               The related party creditors have advised Telefonica that
               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.


                                      F-100
<PAGE>


               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 shareholders' equity of Telefonica or
               one of its significant subsidiaries in accordance with the
               definition stipulated in such loan agreements. Telefonica has
               obtained a waiver in respect of procedures of this nature that
               were pending against Telefonica as of July 8, 2005, subject to a
               condition that no other debt be accelerated on similar grounds.

     As of the date of these financial statements, Telefonica has met all
     obligations arising from the issuance of the above-mentioned debt
     instruments.


8.   REGISTRABLE ASSETS OF TELEFONICA

     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 net book value of about
     600 million (restated as described in Note 2.2.), of which approximately
     524 million (restated as described in Note 2.2.) have been registered in
     Telefonica's name. In Telefonica's Management opinion, the registration of
     title of a major portion of the most significant assets contributed by
     ENTel will be successfully completed. Accordingly, in Telefonica's
     Management opinion, the final outcome of this matter will not have a
     significant impact on Telefonica's results of operations and/or its
     financial position.


9.   ACCOUNTS AND TRANSACTIONS WITH AFFILIATES AND RELATED COMPANIES

     9.1. Affiliates

          9.1.1. Telinver

               As of December 31, 2004, current liabilities in foreign currency
               of Telinver exceed current assets in foreign currency by
               approximately US$36.5 million and, in addition, total liabilities
               exceed total assets, so there is a negative shareholders' equity
               of 36 million as of December 31, 2004 and consequently Telinver
               falls under the conditions for mandatory dissolution caused by
               loss of company's capital stock due to accumulated losses set
               forth in clause 5 of Section 94 of the LSC.

               On January 3, 2005, Telinver assigned to Telefonica, pursuant to
               three assignment agreements, an amount of US$ 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.


                                      F-101
<PAGE>


               Subsequently, on February 14, 2005, Telinver's Extraordinary
               Shareholders' Meeting approved a capital increase of 71,519,163
               pesos. Telefonica subscribed this increase through the
               capitalization of the first loan agreement mentioned in the
               previous paragraph.

          9.1.2. ECL

               Telefonica holds together with Alto Palermo S.A. ("APSA") a 50%
               interest in ECL 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, 75% of which is to be contributed by
               Telefonica.

     9.2. Section 33 - Law No. 19,550 companies and related companies

               Section 33 - Law No. 19,550 companies of Cointel

               As of December 31, 2004, there are twenty nine outstanding loan
               agreements executed between TISA (as lender) and Cointel (as
               borrower), which accrued interest at six-month LIBOR plus between
               5.5% and 9% payable semiannually. The principal (except for the
               loan of US$4.5 million mentioned at the end of this note) had a
               semiannual repayment term, renewable automatically unless TISA
               notifies in writing its intention not to extend the contract at
               least three business days before expiration date.

               As of December 31, 2004, the book value of the outstanding loans
               amounts to US$488,058,175 (equivalent to 1,453,925,303 as of
               December 31, 2004) of which US$475,609,202 corresponds to the
               principal amount and US$12,448,973 to interests. Also, such
               amount includes a loan of US$ 17,493,691 with an amortization
               settled in equal annual consecutive installments until April 30,
               2007. The first three installments of such loan with maturity
               dates settled on October 30, 2002, April 30, 2003 and April 30,
               2004, respectively, were refinanced by TISA until April 29, 2005.
               As of December 31, 2004, the Company classified such loan as
               current, taking into account the maturity date of the waiver
               mentioned below in this note.

               On April 29, TISA rescheduled the three installments mentioned
               above and the installment which matured on April 30, 2005 until
               October 31, 2005.

               The outstanding principal amount owed to TISA includes two loans
               of US$ 103,000,000 and US$ 171,436,582, respectively, granted to
               Cointel in July 2004 and intended to the cancellation of
               Cointel's Negotiable Obligations. These loans have a six-month
               term and accrue interest at LIBOR plus 5.5% per annum.

               During year 2002, the Company and TISA executed an amendment to
               certain loan agreements whereby they agreed that TISA could
               determine, prior written notice, the conversion into principal of
               accrued interests as of each due date. During the year ended
               December 31, 2004, interests converted into principal under the
               above-mentioned loans amounted to US$ 18,020,345.


                                      F-102
<PAGE>


               In obtaining the above-mentioned loans, the Company has
               undertaken certain commitments, mainly involving restrictions on
               the sale of assets and on the encumbrance of certain assets, on
               the Company or any of its affiliates becoming a party to mergers
               or acquisitions, with certain exceptions. In addition, the loans
               shall forthwith become due and payable upon the Company
               defaulting on any of the obligations undertaken under the loan
               agreement, changes in the Company's controlling shareholders, the
               Company or its affiliates defaulting on their obligations in
               excess of euro 20 million, changes in the Company's main business
               activity and should the Company or any of its affiliates lose the
               government licenses obtained and should the Company's financial
               and economic position be altered in such a way that, based on the
               adverse nature thereof, could affect the Company's ability to
               meet the terms and conditions assumed on such agreement, and
               should there be any restrictions affecting its ability to settle
               the payables to TISA. TISA has advised the Company that until
               December 31, 2005: (i) the effects of the Public Emergency System
               implemented in Argentina by Decree No. 1,570/01, Law No. 25,561,
               as supplemented and amended, in force shall not be considered as
               an event of default as defined under the loan agreement; (ii)
               TISA shall not consider that, as of such date, loans have become
               immediately due and payable due to the restrictions affecting the
               Company's ability to settle the payables to TISA in connection
               with the loan agreements and (iii) shall not consider that debts
               have become due and payable for the Company's failure to meet
               certain financial ratios established in most of the contracts.
               Regarding the maximum term provided by the abovementioned waiver,
               as of December 31, 2004, the Company has classified as current
               liabilities, maturing in December 2005, a loan of US$ 4,502,132
               (equivalent to 13,411,851 at the exchange rate in effect at
               December 31, 2004), whose original maturity date was noncurrent.
               Additionally, some of the loan agreements in effect include
               acceleration events in case certain judicial or extra-judicial
               proceedings are filed for amounts in excess of certain net equity
               percentages of the Company or material subsidiary in accordance
               with the definition stipulated in such loan agreements. As of the
               date of issuance of these financial statements, the Company
               obtained a waiver in connection with those proceedings existing
               as of that date, subject to a condition that no other debt be
               accelerated on similar grounds, covering until July 1, 2006.
               With respect to the loan agreements renewed or executed as from
               July 26, 2004, TISA has agreed upon with the Company the
               elimination of those clauses that stipulated for their early
               termination in case of restrictions that could limit the
               Company's capacity to make payments to TISA under the agreements.

               During the years ended December 31, 2004 and 2003, the Company
               accrued interest related to loan agreements with companies
               relating to Section 33 of the LSC for an amount of 79,294,254 and
               39,538,429, respectively.

               Additionally, until October 29, 2004 and December 31, 2003, the
               Company maintained with TIHBV (one of the Company's shareholders)
               other receivables for 2,592,569 and 1,056,439, respectively. On
               October 29, 2004 and November 8, 2004, the Company, TISA and
               THIBV agreed to set off such receivable maintained by the Company
               with TIHBV with the interests owed to TISA related to the loans
               above mentioned in the present note.


                                      F-103
<PAGE>


               On May 20, 2003, Telefonica and TISA entered into an agreement
               whereby the former immediately assigned to TISA title to and all
               credit rights arising from the Company's negotiable obligations
               acquired by Telefonica under the Offer to Exchange
               Telefonica-Cointel's negotiable obligations upon consummation of
               the Offer to Exchange Cointel's notes for Telefonica's new notes
               as described in Note 7.3.1.b) ("Offer to Exchange of the
               Company's obligations"), with the notes being immediate and
               unconditionally accepted by TISA. Simultaneously with the
               assignment of credits mentioned above, TISA settled a portion of
               Telefonica's financial debt (principal) to TISA as of that date.
               Consequently, after the agreement described above, TISA become
               into the main holder of the Company's negotiable obligations,
               with US$164,288,000 and 30,893,000 corresponding to Class A and
               Class B, respectively (See Notes 7.1. and 7.2.2.). On July 27 and
               August 1, 2004, the Company cancelled the totality amount of
               principal plus interest accrued on such Class A and Class B
               negotiable obligations, respectively, with funds obtained from
               TISA's loans (See Note 7.2.2.). The accrued interests related to
               the mentioned negotiable obligations up to such dates amounted to
               26,261,357.

               During the years ended on December 31, 2004 and 2003, the Company
               received administrative services from Telefonica for an amount of
               173,222 and 126,993, respectively.


          9.2.1. Telefonica's commitments related to Telefonica Comunicaciones
                 Personales S.A. ("TCP")

               In July 1999, Telefonica provided to the Argentine Government for
               the benefit to TCP performance guarantees under the PCS licenses
               obligations in the amounts of US$22.5 million individually and
               $45 million jointly with Telecom Argentina S.A.("Telecom S.A.")
               until December 31, 2001. As informed by TCP, the duties arising
               from its PCS licenses have been complied with. Although the
               National Communications Commission ("CNC") has finished the
               technical review of the existing network, as of the date of
               issuance of these financial statements TCP has not started the
               release process in connection with the guarantees mentioned
               above, therefore Telefonica is still subject to them. The
               outstanding performance guarantees denominated in foreign
               currency have been converted into pesos.


          9.2.2. Telefonica's consolidated outstanding balances and transactions
                 with related companies

               In 1997, some of the common shareholders of the Company executed
               an agreement to regulate certain corporate decisions of
               Telefonica 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. Telefonica made certain transactions with the
               Company's shareholders and companies related thereto, including
               the services rendered by the operator, TESA, and those rendered
               by third parties related to the Company's shareholders.

               Telefonica maintains a Management Agreement the "Agreement" with
               its operator and majority shareholder, TESA (formerly 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 Telefonica 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
               Telefonica's "gross margin", as defined in the agreement. On July
               30, 2003, Telefonica entered into a Supplement to the Agreement,
               confirmed by its 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.


                                      F-104
<PAGE>


               During the years ended December 31, 2004, 2003, September 30,
               2002 and the three-month fiscal year ended December 31, 2002 the
               following transactions were made with the controlling shareholder
               of Telefonica and companies related to the parent, respectively
               in each of the following periods (in millions of Argentine
               pesos):

<TABLE>
                                                                                 December 31,
                                                                     -----------------------------------    September
                                                                          2004        2003     2002 (1)      30, 2002
                                                                     ------------------------------------------------
<S>                                                                        <C>         <C>        <C>         <C>
               Management Fee:
                   Telefonica S.A. - Sucursal Argentina                    (68)        (86)       (24)        (147)
                                                                     ================================================
               Net income (loss) from goods and services:
                   TCP                                                     140         101         24          137
                   TDA S.A.                                                 46          38          5           37
                   Atento                                                  (20)        (11)        (2)         (18)
                   Telefonica Ingenieria de Seguridad S.A.                  (3)         (4)        (1)          (5)
                   Telefonica Data USA                                       -          (1)        (1)          (2)
                   Emergia Argentina S.A. ("Emergia S.A.")                   4           5         (2)           7
                   Telefonica International Wholesale Services
                   America S.A. ("TIWS (Uruguay)")                           1           2          -            -
                   Adquira S.A.                                              -          (2)         -            -
                   C.P.T. Telefonica Peru S.A.                              12          (1)         -           (9)
                   T-Gestiona                                                1           -          1           (4)
                   Telefonica S.A. - Suc. Argentina                         (6)         (7)         -            -
                   TESA                                                      -          (2)        (1)          (5)
                   Television Federal S.A.                                  (3)         (4)         -           (3)
                   Telefonica Procesos y Tecnologia de la
                   Informacion S.A.                                          -          (3)        (1)           -
                   Telefonica Investigacion y Desarrollo S.A.               (1)         (2)        (1)          (2)
                   Terra Network Argentina S.A.                             (1)         (1)         -           (3)
                   CTC Mundo S.A.                                            -          (2)         1            1
                   Telefonica Sistemas S.A.                                  -           -         (1)           -
                   Pleyade Argentina S.A.                                    1           1          -            -
                   Telefonica del Brasil S.A.                                1           1         (1)           1
                   Intelsat Ltd.                                             -           -          -           (1)
                   Banco Republica S.A.                                      -           -          -           (3)
                   Communications Technologies Inc.                         (1)          -          -            -
                   Telefonica International Wholesale Services
                   ("TIWS (Espana)")                                         1           -          -            -
                                                                     ------------------------------------------------
               Total                                                       172         108         20          128
                                                                     ================================================

               Net financial charges
                   TISA                                                    (97)       (210)       (77)        (252)
                   TCP                                                       -           -          1            1
                   Atento                                                    1           1          -            -
                   Telefonica Holding de Argentina S.A.                      -           -          -            1
                   Cointel                                                   -           -          -            2
                   TESA                                                      -           -          -           (7)
                                                                     ------------------------------------------------
               Total                                                       (96)       (209)       (76)        (255)
                                                                     ================================================

               Purchases of goods and services
                   Telefonica Procesos y Tecnologia de la Informacion        -           -           25           11
                   TDA S.A.                                                  7           7            -            5
                   Telefonica Ingenieria de Seguridad                        1           -            -            1
                   Telefonica Soluciones S.A.                               16           -            -            1
                                                                     -----------------------------------   ----------
               Total                                                        24           7           25           18
                                                                     ================================================
</TABLE>

               (1)  Three-month fiscal year.


                                      F-105
<PAGE>


               Telefonica's and Telinver's consolidated balances with the
               Operator (TESA) and other of the Company's shareholders and other
               related companies as of December 31, 2004 and 2003 are (in
               millions of Argentine pesos):

<TABLE>
                                                                           December 31,      December 31,
                                                                               2004              2003
                                                                         --------------------------------

<S>                                                                      <C>                 <C>
               ASSETS
               Trade receivables
                   CTC Mundo S.A.                                                  -                   3
                   Emergia Argentina S.A.                                          -                   1
                   Katalyx Argentina S.A.                                          -                   1
                   Communication Technologies Inc.                                 7                   -
                   Adquira S.A.                                                    -                   1
                   T-Gestiona                                                      5                   -
                   TIWS (Espana)                                                   1                   -
                   Television Federal S.A.                                         2                   -
                   C.P.T. Telefonica Peru                                          9                   1
                   TIWS (Uruguay)                                                  -                   1
                                                                           -----------------------------
               Total Trade receivables                                            24                   8
                                                                           -----------------------------
               Other receivables
                   TDA                                                            18                  40
                   T-Gestiona                                                      -                   4
                   Telefonica Media Argentina S.A. ("TEMARSA")                     2                   2
                   TISA                                                            1                   -
                   Atento                                                          4                   7
                                                                           -----------------------------
               Total Other receivables                                            25                  53
                                                                           -----------------------------
               TOTAL ASSETS                                                       49                  61
                                                                           =============================

               LIABILITIES
               Trade Payables
                   TESA                                                            2                   3
                   CTC Mundo S.A.                                                  3                   -
                   Telefonica S.A. - Suc. Argentina (1)                           70                  76
                   Emergia Argentina S.A.                                         65                  68
                   Telefonica Procesos y Tecnologia de la Informacion              -                   4
                   Telefonica Servicios Audiovisuales                              1                   1
                   C.P.T. Telefonica Peru                                          -                   1
                   Television Federal S.A.                                         1                   1
                   Telefonica Data USA                                             1                   -
                   TCP                                                             1                   -
                   Telefonica Ingenieria de Seguridad                              1                   -
                   Telefonica Soluciones S.A.                                     16                   -
                   Telefonica Investigacion y Desarrollo S.A.                      4                   5
                                                                           -----------------------------
               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                                                             -                  13
                   Telefonica S.A. - Suc. Argentina                                2                   2
                                                                           -----------------------------
               Total Other payables                                               13                  25
                                                                           -----------------------------
               TOTAL LIABILITIES                                                 773               1,760
                                                                           =============================
</TABLE>

               (1)  Corresponding to liabilities by management fee.

               (2)  See Note 2.8.


                                      F-106
<PAGE>


10.  COMMITMENTS

     10.1. IBM - Telefonica Contract

          On March 27, 2000, Telefonica's Board of Directors approved the
          outsourcing through IBM of the operation and maintenance of the
          infrastructure of some of the Telefonica's information systems.
          Telefonica de Argentina S.A., Telinver, TCP S.A. and TDA executed a
          contract with IBM whereby such companies outsourced the operation and
          maintenance of the information technology infrastructure for a term of
          six and a half years, and they 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, the Companies
          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 included decreasing
          monthly installments.


          2. Transfer of Equipment: The agreement stipulated that at the
          inception of the contract, the Companies would transfer to IBM at a
          fixed price, the assets that were designated to provide the services
          at that date. In addition, the agreement stipulated that at contract
          expiration IBM shall transfer to Telefonica 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 Telefonica's agreement with IBM:

                                                                  Telefonica
                                                            (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, Telefonica 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.


                                     F-107
<PAGE>


     10.2. 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.


11.  TARIFF SYSTEM

     11.1. Tariff agreement

          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 Telefonica's income, historical
          providers shall 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, Telefonica 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 SC established
          that Telefonica should readjust the presentations submitted, supplying
          additional information. Telefonica 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 Telefonica 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 to U.S. dollar 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.

          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.


                                     F-108
<PAGE>


          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, Telefonica,
          Telecom S.A. and the Argentine Government signed a Memorandum of
          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 Telefonica's rights to renegotiate its 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 Telefonica's license to provide telecommunication 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 Telefonica's promotional offer to provide dial-up internet
          access service, as described in sub-paragraph b) above, at lower
          prices to customers in urban areas located more than thirty
          kilometers away from Telefonica's 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 Secretary of Communications
          accepted Telefonica'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.

          Pursuant to Resolution No. 73, of March 31, 2005 Telefonica and
          Telecom Argentina S.A. were instructed to include the beneficiaries
          of the Head of Household Plan who already own a telephone line in the
          customer category "Retired, Pensioner and Households with Low
          Consumption" as long as they meet the respective requirements for
          such category. For that purpose, the Company is under the obligation
          to request the National Social Security Authorities (Anses) to supply
          it with the National Register of Beneficiaries of the Head of
          Household Plan.

          In the opinion of Telefonica's management, the application of the
          issues mentioned in subparagraphs a), b) and c) will not have a
          significant impact on Telefonica's future results.

          During the final months of 2004 and the beginning of 2005, the
          Argentine government signed letters of understanding with several
          providers of public utility services, which established tariff
          adjustments of 15% to 30% and a new term for their revision. These
          agreements will be validated once they are signed as Argentine
          decrees. As of the date of issuance of these financial statements,
          however there have been no letters of understanding or tariff
          adjustments for the telecommunication services.

          On March 8, 2005 the Ministry of Economy and Federal Planning, Public
          Investment and Services, pursuant to Resolutions No. 123 and No. 237,
          respectively, scheduled public audiences with electricity and gas
          companies in order to analyze tariff increases. However, as of the
          date of issuance of these financial statements no telecommunication
          services companies have been notified of a date for a public
          audience.


                                     F-109
<PAGE>


          In the opinion of Telefonica'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.

          Telefonica 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 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. Telefonica
          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 Telefonica'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 given assured that the Argentine Government shall adopt
          Telefonica'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 shall 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 Telefonica's financial condition and future results, and
          consequently, on the Company. As of the date of issuance of these
          financial statements, Telefonica'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
          Telefonica's customers the impact of the tax on checking account
          transactions imposed by Law No. 25,413 paid by Telefonica as from the
          date in which Resolution No. 72/03 comes into force. Resolution No.
          72/03 expressly refers to the


                                     F-110
<PAGE>


          Transfer Contract as the basis for the approval of such method.
          Telefonica 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.


                                     F-111
<PAGE>


     11.2. Price Cap

          Under the tariff regulation mechanism in effect known as Price Cap, to
          which Telefonica 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 12.d), awarded a
          precautionary measure ordering the National Government, Telefonica and
          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.

          Telefonica, Telecom S.A. and the SC entered into agreements with 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 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 SC nor the rate differences pending
          application under the referred agreements, have been established.

          In the opinion of Telefonica'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 Telefonica is authorized to collect
          from 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 Telefonica's defense against
          the above legal proceedings, in the opinion of Telefonica's Management
          and its legal counsel, the outcome of these issues will not have a
          negative impact on Telefonica's financial position or a significant
          adverse effect on its results of operations.

     11.3. 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
          Telefonica'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 effectiveness. On December
          1, 1999 the SC has issued Resolution No. 4,269/99, which established
          the SC's final determination of the impact of the tariff restructuring
          as an excess in revenues of 18 million, in currency units of that
          date, (which had previously been provisionally determined by the SC in
          14 million). In accordance with Resolution No. 18,968/99, the SC's
          Resolution No. 4,269/99 also states that the SC will determine the
          form and time of implementation of the future rate reduction to
          compensate such excess revenues. Telefonica has filed an appeal for
          revision of this resolution, on the grounds that the calculation
          method used by the SC to determine the impact of the tariff
          restructuring established by Decree No.92/97 has defects and should be
          challenged. As of the date of these financial statements, such appeal
          has not been resolved.


                                     F-112
<PAGE>


          In the opinion of Telefonica's Management and its legal counsel, the
          outcome of these issues could exclusively affect the maximum rates for
          future services that Telefonica 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 Telefonica's Management and its legal counsel the outcome
          of these issues will not have a negative impact upon Telefonica's
          financial position or a significant adverse effect on its results of
          operations.


12.  LAWSUITS AND CLAIMS

     Contingencies

     Telefonica 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
     Telefonica'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 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 an potential claims were considered
     probable taking into account certain recent judgments of Appeals courts
     that were adverse to Telefonica, and

     ii) new claims for alleged rights provided for in the labour law and
     related costs which amounted to Ps. 44 million, for which Telefonica
     considered it advisable to reach settlement agreements. Telefonica 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 Telefonica with a third party.


                                     F-113
<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 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

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 Telefonica, 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 Telefonica including
     accrued interest and expenses with respect thereto totaled approximately 54
     million (in historical currency). Telefonica has not booked an accrual for
     possible adverse judgments in such legal actions since (a) in the Transfer
     Contract, ENTel has agreed to indemnify Telefonica 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 Telefonica to debit an account of the Government
     at Banco Nacion Argentina for any amount payable by Telefonica. Under the
     Debt Consolidation Law, ENTel and the Argentine Government may discharge
     their above-described indemnity obligations by the issuance to Telefonica
     of 16-year bonds. As of December 31, 2004 Telefonica has paid approximately
     6.9 million (in historical currency) in cash for the above-mentioned
     claims. Telefonica 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, criteria that Telefonica 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 Telefonica's legal counsel regarding the
     possible amount for which existing claims may be resolved, on the other, in
     the opinion of Telefonica's Management and its legal counsel the final
     outcome of the issue should not have a material impact on Telefonica's
     results of operations or financial position.


                                     F-114
<PAGE>


     b)   International Telecommunication Union Liability ("UIT")

          On July 29, 2003, Telefonica received a communication sent by the CNC
          requesting Telefonica and Telefonica Larga Distancia Argentina S.A.
          ("TLDA S.A.") to deposit 51 million (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
          through 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 SC No. 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 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 (see
          Note 3.1.j), which Telefonica understands is its total liability as of
          December 31, 2004.

          In the opinion of Telefonica'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.

     c)   Fiber Optics Cable

          In December 2000, Telefonica was served with an ex officio assessment
          imposed by the Argentine Tax Authorities in relation to Income Tax for
          the fiscal years 1994 through to 1999. Such adjustment was due to
          differences in the criterion used to calculate the depreciation of
          fiber optic cables: whereas Telefonica 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, Telefonica
          appealed the assessment imposed by the Tax Authorities Argentina's
          Administrative Tax Court based on Telefonica'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 Telefonica 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 Telefonica, Telefonica
          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 Telefonica'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, Telefonica and its legal counsel are of the opinion that
          there are legal grounds for a successful appeal of the judgment
          entered against Telefonica and they have presented an appeal to have
          the judgment against Telefonica 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 Telefonica,
          Telecom S.A., Telintar Argentina 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, Cooperative's objective 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 Telefonica's
          contracting policy have been called into question.

          After analyzing the claim, Telefonica'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 Telefonica'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, Telefonica filed an appeal to
          the Supreme Court of Justice against the Appeal Court's resolution,
          which was denied. Telefonica subsequently filed an appeal of such
          denial with the Supreme Court of Justice and a decision regarding such
          matter has been also rejected.


                                     F-115
<PAGE>


          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, Telefonica and 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 US consumer price index.

          Telefonica 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.

          In the opinion of Telefonica'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 its operations or financial
          position.


13.  RULES GOVERNING THE PROVISION OF BASIC TELEPHONE SERVICES

     As from March 1992, and in compliance with its specific functions, the CNC,
     formerly known as national Telecommunication Commission ("CNT"), and the SC
     have regulated certain aspects related to the supply of basic and
     international telephone services as well as the procedures to be followed
     in filing claims, contracting services, invoicing and service quality, some
     of which have been appealed by Telefonica.

     In the context of the transition to competition in telecommunications, the
     National Executive Power has issued the Decree No. 764/2000 which repealed,
     among others, Resolutions No. 18,971/99 and 16,200/99 and approved the
     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 will be financed through
     the payment by all telecommunications providers (including Telefonica) of
     1% of total revenues for telecommunications services net of taxes, the
     "Universal Service Fund". As of the date of these financial statements, the
     SC has not defined the mechanism through which Telefonica 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, Telefonica 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 SC and are
     supervised by the CNC subject to the involvement, in certain cases, of the
     National Commission of Defense of Competition, and the Sub-Secretary of the
     Consumer's Defense. The SC establishes the legal framework and the policies
     applicable. The CNC applies the legal framework and the policies and
     supervises the telecommunications industry. The National Commission of
     Defense of Competition applies and supervises regulations related to
     competition and the Sub-Secretary of the Consumer's Defense applies and
     supervises regulations related to consumer protection.

     The regulations governing the supply of telecommunications services issued
     by the National Legislative Power as laws are enacted after the following
     process: it begins with the 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
     some bills aimed at regulating all public utilities, based on the
     definition of utilities proposed (which includes the activities subject to
     regulation carried out by Telefonica) 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, bills aimed at regulating the ability to cut service to customers
     in arrears and bills aimed at imposing new municipal taxes, to name a few.


                                     F-116
<PAGE>


     Telefonica 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 Telefonica's
     activities. Nor can Telefonica 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 Telefonica 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 Telefonica's activities.


14.  PATRIOTIC BOND

     In 2001, Telefonica signed a Patriotic Bond subscription commitment (bond
     issued by the Argentine Government) for a total amount of US$ 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, Telefonica has proceeded to offset them against tax.
     Although Telefonica 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).

     Telefonica 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 such bond in the list of bonds eligible for
     sovereign debt restructuring (See Note 2.5.c).

     In addition, on February 23, 2005, Telefonica Argentina accepted the
     sovereign debt-restructuring proposal made by the Argentine Government
     exchanging its holdings of Patriotic Bonds for US$-denominated Discount
     Bonds. On June 2005, Telefonica Argentina received a nominal value of
     US$8.8 million and the payment related to the interest coupons for
     approximately US$0.3 million.


15.  STOCK PURCHASE PROGRAM

     TESA approved a program whereby all Telefonica 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.

     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 expenses to Telefonica. 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.


                                     F-117
<PAGE>


16.  TELEFONICA'S 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, Telefonica has identified two
     reportable segments: i) related to Telefonica's telecommunications
     activities, regulated by the SC and the CNC, and derived from the use of
     the network and related equipment: the supply of telecommunications
     services segment, which includes Telefonica de Argentina S.A.'s operations
     and ii) the publication of telephone directories (Yellow Pages) segment
     included in Telinver's operations.

<TABLE>
                                                                                           Consolidation
                                                                                            adjustments/
                                    Basic telephone services     Yellow pages services   reclassifications(1)        Total
                                    -----------------------------------------------------------------------------------------------
                                     12-31-04      12-31-03      12-31-04     12-31-03   12-31-04    12-31-03  12-31-04    12-31-03
                                    -----------------------------------------------------------------------------------------------
<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 for the
        year                               (5) (2)     394 (2)         (2)          11         (1)          -        (8)        405
     Depreciation of fixed assets
        and intangible assets           1,140        1,304              4            5          -           -     1,144       1,309

                                     12-31-04      12-31-03      12-31-04     12-31-03   12-31-04    12-31-03  12-31-04    12-31-03
                                    -----------------------------------------------------------------------------------------------

     Investment on fixed assets
        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 (loss) income and liabilities related to Telefonica's
           investment in Telinver.
     (3)   Includes 9 million of transfers from inventories to fixed assets.


17.  RESTRICTED ASSETS

     Pledged shares of INTELSAT

     Under the agreement signed between Telefonica and Intelsat U.K., a company
     registered under the laws of England, the common shares held by Telefonica
     in Intelsat have been pledged as collateral for the payment of the
     obligations arising in relation to segment capacity utilized. Telefonica
     retains its voting and dividend rights on such shares as long as Telefonica
     does not incur any event of default.

     In October 2004, the Shareholders' Meeting of Intelsat Ltd. decided to sell
     100% of its capital stock in Intelsat Ltd. to "Zeus Holding Limited". In
     exchange for the sale, the shareholders of Intelsat Ltd. received US$ 18.75
     per share. In addition, on January 28, 2005 Intelsat informed that has
     concluded the above mentioned transaction and that shall proceed to the
     payment due on the sale of such shares.

     As of the date of issuance of these financial statements, Telefonica
     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 Telefonica's Management the agreements mentioned in the
     preceding paragraphs will not have a significant effect on Telefonica's
     operations.


                                     F-118
<PAGE>


18.  LAW OF PUBLIC EMERGENCY - RULES AN 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 date of these financial statements are:

          a)   the pesification of the majority of the obligations not related
               to the financial system originally denominated in foreign
               currency and governed by the Argentine laws in force as of
               January 6, 2002 at a rate of 1 peso per U.S. dollar, subject to
               restatement by application of the CER or the wage adjustment
               index ("Coeficiente de Variacion de Salarios" - CVS-), depending
               on the nature of the obligation, plus an equitable readjustment
               of the price, which may be established by mutual agreement
               between the parties or by a judicial court upon request. With the
               passage of the Asymmetric Compensation Law, the Government
               eliminated the CVS index as from April 1, 2004, replacing for the
               annual interest rate originally agreed upon, and if the interest
               is higher than the average rates in effect in the financial
               system, the rate determined by the Banco Central de la Republica
               Argentina ("BCRA") will be applicable;

          b)   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 US$1.00 to $1.00 exchange rate and authorized the
               National Executive Power to renegotiate agreements (See Note
               11.);

          c)   an extension in the National Public Emergency situation until
               December 31, 2005;

          d)   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 labor 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 100% of the applicable termination pay with the aim
               expressed in the law of fully eliminating this penalty if
               unemployment rates drop to less than 10%.


19.  FINANCIAL TRUST

     On November 21, 2003 the Company subscribed certificates of participation
     for 1.500.000 in the trust called "Proyecto de Inversion y Desarrollo:
     Complejo Industrial Nacional de las Telecomunicaciones 2003" to be used for
     extending loans to finance projects related to the production of goods or
     the supply of services in the telecommunications industry. The Company is
     both trustor and beneficiary of the trust and Banco de Inversion y Comercio
     Exterior S.A. (BICE) acts as trustee.


20.  FINANCIAL POSITION

     Due to the recurrent cumulative losses recorded by Cointel as of December
     31, 2004, Cointel made an inquiry to the IGJ, the government regulatory
     agency of corporations, and ratified, with its legal counsel's opinion,
     the method of computing shareholders' equity accounts in order to
     determine whether Cointel qualifies under the event of mandatory capital
     stock reduction. According to the IGJ's accounting department, as stated
     in its opinion dated March 29, 2005, an event of mandatory capital
     reduction would occur when the total shareholders' equity, as compared to
     the capital stock, is smaller than 50% of the latter amount. Under such
     criterion, cumulative losses should be computed as follows: 50% against
     the outstanding capital stock, and 100% against the balance to the other
     shareholders' equity accounts.

     Therefore, as of the date of issuance of these financial statements,
     according to the IGJ's interpretation and based on the opinion of
     Cointel's counsel, Cointel does not qualify under the event of mandatory
     capital reduction.


                                     F-119
<PAGE>


21.  COINTEL'S WITHDRAWAL FROM PUBLIC OFFERING SYSTEM

     Following the retirement of all the debt securities mentioned in Note
     7.2.2. to the consolidated financial statements, on September 14, 2004
     Cointel filed with the CNV an application for its withdrawal of the public
     offering system in connection with the issue of negotiable obligations. On
     November 11, 2004 the CNV allowed Cointel's request and withdrew the
     consent previously granted to Cointel for admission to the public offering
     system. Therefore, as from such date, Cointel is no longer subject to the
     CNV's control, and has become subject to the supervision of the IGJ.


22.  DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND US
     GAAP

     A) Accounting principles followed by the Company

          The consolidated financial statements have been prepared in accordance
          with Argentine GAAP applicable to the Company's consolidated financial
          statements as stated in Note 2.5., which differ from generally
          accepted accounting principles of the United States of America.

          Differences between generally accepted accounting principles followed
          by the Company and US 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 US GAAP

          Differences between Argentine and US GAAP mainly relate to the
          following items:

          1.   Restatement of financial statements for general price-level
               changes

               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 until February
               28, 2003, the increase in the consumer price index and in the
               wholesale price index (which is applicable for restatements of
               financial statements in constant pesos) 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 from 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 and the IGJ under
               Resolution No. 04/03 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
               IGJ 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 years ended
               December 31, 2004 and 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 2004, 2003 and
               2002. For that reason, TESA incorporates, for consolidation
               purposes, our balances without computing any inflation
               adjustments for the inflation experienced during 2004, 2003 and
               2002. Consistent with our ultimate parent company's policies, and
               for our own US GAAP reconciliation, we have elected not to use
               the alternative of maintaining the inflation adjustment in such
               years, that the SEC provides for countries such as Argentina
               where local GAAP may require price-level adjustments. Therefore,
               we have included in our US GAAP reconciliation an adjustment
               eliminating the effects of the restatement for inflation computed
               in the accompanying financial statements during the fiscal years
               ended December 31, 2004 and 2003, the three-month fiscal year
               ended December 31, 2002 and the fiscal year ended September 30,
               2002 (see C).


                                     F-120
<PAGE>


          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
               inflation so as to allow for comparison in constant Argentine
               pesos as described in Note 2.2.

               For US 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 shareholders' equity.

               Under US 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
               the remaining interest bearing liabilities (see C).

          4.   Inventories

               Under Argentine GAAP, inventory is stated at the lower of either
               the replacement/reproduction cost or the estimated realizable
               value. Under US 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 and Telefonica record income
               tax by application of the deferred method, in accordance with the
               provisions of RT No. 17, as described in note 2.5.m).

               Deferred tax assets result mainly from the temporary differences
               arising from allowances and exchange differences generated in
               2002 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 US GAAP, the Company and Telefonica record 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 US 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 tax on minimum presumed income (together "tax
               assets"), which does not meet the "more likely than not"
               criterion for realization, based on the assessment of evidence
               established in US 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 and tax
               loss carryforwards 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 and tax loss carryforwards become deductible.
               Management considers all available evidence, both positive and
               negative including the scheduled reversal of deferred tax
               liabilities, projected future taxable income, and tax planning in
               making these assessments. In accordance with SFAS 109, the
               Company and Telefonica are required to continuously evaluate the
               recoverability of tax assets.


                                     F-121
<PAGE>


               The reserve under US GAAP as of 2004 was partially reversed, with
               change to the Income Tax line in the US GAAP Income Statement, as
               a result of the greater certainty 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
               years-ends, there was uncertainty about whether Telefonica 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 statute of limitation for its
               use of 10 years, while such period for income tax carryforwards
               is 5 years.

          6.   Costs associated with the issuance of debt

               Under Argentine GAAP, the costs associated with the issuance of
               the Company's Negotiable obligations may be charged to income at
               the time of issuance or deferred and amortized over the period
               the debt is outstanding. Under US GAAP, the costs associated with
               the issuance of debt securities are to be deferred and amortized
               over the period the related debt is outstanding. The deferred
               costs are to be amortized by the effective interest method or by
               the straight-line method if not materially different from the
               effective interest method.

          7.   Debt refinancing costs

               Under Argentine GAAP, material costs associated with the exchange
               of debt have been 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, under US GAAP, Emerging Issues
               Task Force ("EITF") 96-19 specifies (see Notes 7.2. and 7.3.1)
               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 exchange for old debt in a
               "troubled debt restructuring", as defined in SFAS 15, 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 Notes 7.2. and 7.3.1) (see C).

          8.   Goodwill on investment in controlled companies

               The differences mainly relate to the provisions of SFAS 142
               "Goodwill and Other Intangible Assets" that were required to be
               applied starting with fiscal years beginning after December 15,
               2001. Early application was permitted for companies with fiscal
               years beginning after March 15, 2001. The Company early adopted
               SFAS 142 in the fiscal year ended September 30, 2002. SFAS 142
               requires that intangible assets with a finite useful life are
               amortized, and that intangible assets with indefinite useful
               lives and goodwill are not amortized, but are recognized at fair
               value and tested for impairment. Accordingly, under US GAAP, as
               from October 1, 2001, the Company stopped recording goodwill
               amortization. Under Argentine GAAP, the Company continues
               amortizing such goodwill.

          9.   Preferred stock

               Under US GAAP, in accordance with SFAS No. 150 "Accounting for
               Certain Financial Instruments with Characteristics of both
               Liabilities and Equity", mandatorily redeemable preferred stock
               is classified as a liability. Under Argentine GAAP, preferred
               shares have been classified as capital stock.

               In addition, under Argentine GAAP, any increase (decrease) in the
               carrying amount of preferred stock is recorded as an adjustment
               to common capital stock, as such increase (decrease) represents a
               redistribution of the total value of the Company's capital stock
               between its common and preferred shareholders. Under US GAAP, the
               increases (decreases) in the carrying amount of preferred stock
               are recorded as charges against retained earnings or, in the
               absence of retained earnings, by charges against paid-in capital.

               Preferred dividends are recorded only if certain conditions are
               met (see Note 4.)


                                     F-122
<PAGE>


          10.  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
               11.), there is no fixed rate of return. Accordingly, the
               requirements of US GAAP related to a business whose rates are
               regulated on the basis of its actual costs are not applicable to
               these consolidated financial statements.

          11.  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.

          12.  Revenue recognition

               Under Argentine GAAP, Telefonica 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. Telefonica did not
               enter in revenue arrangements with multiple deliverables that
               were not separated into different units of accounting.

          13.  Accounting for derivative instruments and hedging activities

               In June 1998, the FASB 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 statement of operations, and requires that a
               company must formally document, designate, and assess the
               effectiveness of transactions that receive hedge accounting.

               Under Argentine GAAP, the Company and Telefonica apply RT No. 20
               issued by the FACPCE which provides for fair value valuation of
               derivative instruments as from January 1, 2003 (see Note 2.5.l).


                                     F-123
<PAGE>


          14.  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 US GAAP, foreign exchange differences are expensed as
               incurred (see C).

          15.  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 US GAAP, tax credits are recorded
               at the amount effectively paid (see 5. above).

          16.  Accounting for certain investments in Debt

               As described in notes 2.5.c) and 14, Telefonica 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 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.

               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.

          17.  Push down accounting

               Under US GAAP, when substantially all of the common stock of a
               company is acquired, and after certain conditions are met,
               provided no substantial public debt is outstanding, the purchase
               price is "pushed down" to the acquired assets and liabilities in
               the acquired company's financial statements to reflect the
               amounts paid for the common stock in excess of net book value.
               Push down accounting is not a generally accepted accounting
               principle under Argentine GAAP.

               Since the privatization of the Telecommunication services in
               Argentina in November 1990, TESA, the ultimate parent company of
               Cointel, has been engaged in several transactions which involved
               the acquisition of 50% of the Cointel's common stock, both
               directly and indirectly through subsidiaries. In addition,
               through the transactions described in the following paragraph,
               TESA increased its aggregate direct and indirect ownership
               interest in Cointel's common stock from 50% to 100%.

               In 2000, TESA acquired 80.9% of THA's capital stock, in exchange
               for TESA common shares issued. On June 29, 2001, TESA informed
               THA that on May 8, 2001, it transferred to TISA, all of TESA's
               80.9% equity interest in THA. As of December 31, 2001, and as a
               result of the voluntary capital stock reduction of THA, TISA
               owned 99.96% of THA's capital stock.

               Nevertheless, due to the existence in Cointel of significant
               public debt outstanding until its settlement in August 2004,
               push down accounting was not applicable at Cointel's level. In
               2004, as a result of the settlement of all of Cointel's
               outstanding public debt, the Company applied the push-down
               accounting method and retroactively restated all periods
               presented for the change. The primary effect of the adoption of
               the push-down accounting method was an increase to stockholder's
               equity to reflect the goodwill pushed down to Cointel net of
               accumulated amortization recorded through September 30, 2001,
               the date SFAS 142 was adopted by Cointel (see 8 above).


                                     F-124
<PAGE>


          18.  New accounting pronouncements (US 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 and Telefonica do not
                    currently have any interests that it believes fall within
                    the scope of FIN 46 or FIN 46R.


                                     F-125
<PAGE>


               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

                    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. This statement shall be applied for non-monetary
                    asset exchange occurring in fiscal periods beginning after
                    June 15, 2005. In the opinion of Telefonica's Management the
                    adoption of this rule will not have an impact on net income
                    and shareholders' equity.


     C)   The following is a summary of the adjustments to net (loss) income and
          shareholders' equity that would have been required had US GAAP been
          applied instead of Argentine GAAP in the accompanying consolidated
          financial statements (amounts expressed in million of Argentine
          pesos):

<TABLE>
                                                                                     December 31,                   September 30,
                                                                       -----------------------------------------------------------
                                                                           2004           2003        2002 (f)           2002
                                                                       -----------------------------------------------------------
<S>                                                                           <C>            <C>           <C>         <C>
          Net (loss) income according to the consolidated
             financial statements, Argentine GAAP in constant
             pesos                                                            (184)          277           250         (2,955)
          Reversal of inflation restatement (see B)2.)                                                      (1)           (20)
                                                                                                    ------------------------------
          Net loss Argentine GAAP (see B)2.) after reversal of
             inflation restatement                                                                         249         (2,975)

          US GAAP adjustments

          Income (loss) due to:
          Reversal of inflation restatement and monetary results (see
             B) 1.)                                                            607           660           324         (2,049)
          Goodwill on investment in Telefonica (see B)8.)                       10            10             3             10
          Cost associated with the issuance of debt (see B)6.)                   -            (2)            -             (2)
          Capitalized interest (a) (e) (see B)3.)                               (1)           (1)            -             (2)
          Deferred revenues (see B)12.)                                          9            22             3             19
          Deferred income tax (d) (see B)5.)                                    85           (37)          (11)           (60)
          Debt refinancing costs (see B)7.)                                      6            (4)            1            (14)
          Capitalized exchange differences (see B)14.)                           2             2             -            (12)
          Reversal of recovery of impairment of Patriotic Bond (see
             B)16.)                                                             (4)            -             -              -
          Discounted value of assets (see B)5. and 15.)                          3             -             -              -
          Minority interest (c)                                               (244)         (226)         (107)           578
          Other (b) (see B)4.)                                                   -             2             9            (38)
                                                                         ---------------------------------------------------------
          Net income (loss) in accordance with US GAAP                         289           703           471         (4,545)
                                                                         =========================================================
</TABLE>


                                     F-126
<PAGE>


<TABLE>
                                                                                                       December 31,
                                                                                              ----------------------------
                                                                                                   2004              2003
                                                                                              ----------------------------
<S>                                                                                                 <C>               <C>
          Shareholders' equity according to the consolidated financial statements,                  639               823
             Argentine GAAP in constant pesos

          US 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 and goodwill                                                    (187)             (203)
               - Trade payables                                                                      37                39
          Goodwill on investment in Telefonica (see B)8.)                                            26                16
          Push down accounting (additional goodwill) (see B)17.)                                  1,993             1,993
          Preferred stock (see B)9.)                                                                (42)              (40)
          Cost associated with the issuance of debt (see B)6.)                                        1                 1
          Capitalized interest (a) (e) (see B)3.)                                                     3                 4
          Deferred income tax and tax credit allowances (d) (see B)5.)                                -               (85)
          Deferred revenues (see B)12.)                                                             (14)              (23)
          Capitalized exchange differences (see B)14.)                                               (8)              (10)
          Debt refinancing costs (see B)7.)                                                         (11)              (17)
          Reversal of recovery of impairment of Patriotic Bond (see B)16.)                           (4)                -
          Discounted value of assets (see B)5. and 15.)                                               3                 -
          Minority interest (c)                                                                   1,154             1,398
          Other (b)                                                                                   1                 1
                                                                                              ----------------------------
          Shareholders' equity in accordance with US GAAP                                           327                40
                                                                                              ============================
</TABLE>

          (a)  In the fiscal years/ three-month fiscal year ended December 31,
               2004, 2003 and 2002 and the fiscal year ended September 30, 2002
               there was no additional gross interest capitalized for US GAAP
               purposes.
          (b)  On December 31, 2002 and September 30, 2002 Other includes
               mainly: i) the adjustments for derivative instruments amounting
               to a gain of 7 million and a loss of 36 million, respectively,
               and a reduction in shareholders' equity as of December 31, 2002
               of 38 million and ii) the adjustment for inventories amounting to
               a gain of 2 million and a loss of 2 million, respectively, and a
               reduction of 1 million of shareholders' equity as of December 31,
               2002. 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.
          (c)  Represents the net effect of the US GAAP adjustments on minority
               interest in the (loss) income and Shareholders' equity of the
               Company's consolidated subsidiaries.
          (d)  Deferred income tax adjustment according to US GAAP:


<TABLE>
                                                                               December 31,
                                                             -------------------------------------------------  September 30,
                                                                  2004            2003           2002 (a)           2002
                                                             -----------------------------------------------------------------
<S>                                                                                     <C>                               <C>
               U.S. GAAP adjustments to income:
               Cost associated with the issuance of debt               -                1               -                 1
               Capitalized interest                                    -                -               -                 1
               Deferred revenues                                      (3)              (8)             (1)               (7)
               Debt refinancing costs                                 (2)               1               -                 5
               Capitalized exchange differences                       (2)              (1)              -                 4
               Reversal of recovery of impairment of                   1                -               -
                  Patriotic Bond                                                                                          -
               Other                                                   -               (1)             (3)               13
               Reversal of valuation allowance/valuation
                  allowance                                           91              (29)             (7)              (77)
                                                             -----------------------------------------------------------------
               Total deferred income tax expense                      85              (37)            (11)              (60)
                                                             =================================================================
               (a)  Three-month fiscal year.
</TABLE>

          (e)  As of December 31, 2004 and 2003, the original value of the
               adjustment amounts to 33 million and the accumulated depreciation
               amounts to 30 million and 29 million, respectively.
          (f)  Three-month fiscal year.


                                     F-127
<PAGE>


     Earnings (loss) per share under US GAAP:

<TABLE>
                                                                                            December 31,
                                                                            ------------------------------------------    September
                                                                                2004           2003        2002 (d)       30, 2002
                                                                            --------------------------------------------------------
<S>                                                                              <C>            <C>            <C>         <C>
          Net income (loss) in accordance with US GAAP                           289            703            471         (4,545)

          Increase in the carrying amount of
            preferred capital stock (a)                                           (2)            (1)            (1)           (10)
          Dividends attributable to preferred shareholders (a)                    (2)            (2)            (1)            (2)
                                                                            --------------------------------------------------------
          Earnings (loss) attributable to common shareholders                    285            700            469         (4,557)
                                                                            ========================================================
          Earnings (loss) per share under US GAAP (b) (c)                      0.054          0.132          0.088         (0.859)
                                                                            ========================================================
</TABLE>

          (a)  Not recorded to net income (loss) for the year (see B).9).
          (b)  Diluted earnings (loss) per share is the same as earnings (loss)
               per share, as there are no outstanding options to purchase
               shares. Calculated based on a total number of common shares
               subscribed, paid in and outstanding of 5,306,402,996.
          (c)  Amounts expressed in Argentine pesos.
          (d)  Three-month fiscal year.

     D)   Other significant US GAAP disclosure requirements.

          The following represent additional financial statements disclosures
          required under US GAAP.

          1)   Deferred income taxes:

               The following table presents the components of the Company's
               deferred tax balance (based on a US GAAP balance sheet):

<TABLE>
                                                                                    December 31,
                                                                            ----------------------------
                                                                                2004            2003
                                                                            ----------------------------
<S>                                                                                 <C>              <C>
               Deferred tax assets:
               Allowance for doubtful accounts                                      47               73
               Contingencies and other non-deductible accruals and reserves        155              155
               Income tax loss carryforwards and tax credits (a)                 1,357            1,427
               Deferred revenues                                                     5                8
               Debt refinancing costs                                                4                6
               Foreign exchange loss deductible in future years (b)                123              186
               Reversal of recovery of impairment of Patriotic Bond                  1                -
               Derivative instruments                                                6                9
                                                                             --------------------------
                                                                                 1,698            1,864
                                                                             --------------------------
               Allowance for deferred tax assets                                (1,442)          (1,729)
                                                                             --------------------------
               Subtotal                                                            256              135
                                                                             ==========================
               Deferred tax liabilities:

               Fixed assets                                                       (103)            (113)
               Capitalized interest                                                 (1)              (1)
               Tax provision for employee terminations                             (14)             (13)
               Other                                                                (5)              (8)
                                                                             --------------------------
               Subtotal                                                           (123)            (135)
                                                                             --------------------------
               Total                                                               133                -
                                                                             ==========================
</TABLE>

               (a)  Relates to the Company's, Telefonica's and Telinver's net
                    operating tax loss carryforwards which expire through 2007
                    and Telefonica's tax credits.
               (b)  See Note 2.5.m).


                                     F-128
<PAGE>


               The benefit (expense) for income taxes computed in accordance
               with US GAAP differs from that computed at the statutory tax rate
               as follows:

<TABLE>
                                                                    December 31,                 September
                                                        ---------------------------------------------------
                                                          2004          2003        2002 (b)      30, 2002
                                                        ---------------------------------------------------
<S>                                                         <C>         <C>            <C>           <C>
              Income tax (expense) benefit at the
                 statutory income tax rate in
                 accordance with US GAAP                    (70)        (259)          (168)         1,551

              Permanent differences:
              Income on equity investments                    -           (1)             -             (2)
              Non-taxable earnings/non-deductible
                 expenses                                   (18)         (17)             -              2
              Goodwill write-down                             -            -              -             (1)
              Valuation allowance charge (a)                287          369            229         (2,328)
              Minority interest                             (84)        (129)           (72)           671
              Expired carryforwards                         (25)           -              -              -
              Other, net                                      -            -              -             (6)
                                                        ---------------------------------------------------
                  Income tax benefit (expense)               90          (37)           (11)          (113)
                                                        ===================================================
</TABLE>

               (a)  Net of increases and reversals of valuation allowance.
               (b)  Three-month fiscal year.


          2)   Loans to directors and employees:

               Loans to Telefonica's directors and employees were as follows:

                                                   December 31,
                                              ----------------------
                                               2004            2003
                                              ----------------------

               Balance (a)                        1                1
                                              ======================

               (a)  There were no loans to individuals in excess of US$100,000.


          3)   Disclosures about fair value of financial instruments:

               US GAAP requires disclosure of the estimated fair value of the
               Company's financial instruments (see Note 3.1.c) and 3.1.j) for
               disclosure of fair value of financial statements). The following
               methods and assumptions were used to estimate the fair value of
               each class of financial instruments.

               As of December 31, 2004 and 2003, 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. As of December 31, 2004 and 2003, the fair
               value of the loan from TISA is equal to its carrying amount, as
               they are short term debt, and the most of interest rates have
               been settled close to each year end.

               As of December 31, 2004 and 2003, the fair value estimated by the
               Company of other instruments are as follows:

<TABLE>
                                                                            December 31,
                                                                        ----------------------
                                                                         2004           2003
                                                                        ----------------------
<S>                                                                       <C>            <C>
               Telefonica's Negotiable obligations (quoted prices)        2,758          3,391
               Telefonica's Negotiable obligations (carrying amounts)     2,597          3,346

               Cointel's Preferred stock (fair value) (a)                    50             44
               Cointel's Preferred stock (carrying amount)                   42             40
</TABLE>

               (a)  Calculated using discount rates based on the yield of
                    Telefonica's bonds as of December 31, 2004 and 2003.


                                     F-129
<PAGE>


          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:

                       Year ending December 31:
                       2005                                           18
                       2006                                           14
                       2007                                           11
                       2008                                            7
                       2009                                            1
                       Later years                                     3
                                                                 --------
                       Total minimum payments required                54
                                                                 =======

     E)   Balance sheet under U.S. GAAP. Condensed consolidated balance sheets
          determined under US GAAP are presented as follows:

                                                    ----------------------------
                                                     Dec-31-04       Dec-31-03
                                                    ----------------------------

                                                      Balance         Balance
                                                    Sheet under     Sheet under
                                                     U.S. Gaap       U.S. Gaap

             Cash and banks                                   15              18
             Investments                                     260             337
             Trade receivables                               324             249
             Other receivables                                84             127
             Inventories                                       8              13
             Other assets                                      3               3
                                                    ----------------------------
             Total current assets                            694             747

             Trade receivables                                 4              12
             Other receivables                               162              32
             Investments                                       3              17
             Fixed assets                                  3,441           3,479
             Intangible assets                                35              40
                                                    ----------------------------
             Subtotal non current assets                   3,645           3,580

             Goodwill on investment in Telefonica            163             163

             Push down accounting (additional
               goodwill)                                   1,993           1,993
                                                    ----------------------------
             Total non current assets                      5,801           5,736

             Total assets                                  6,495           6,483
                                                    ----------------------------


                                     F-130
<PAGE>


                                                       ------------------------
                                                         Dec-31-04     Dec-31-03
                                                       ------------------------

                                                          Balance        Balance
                                                       Sheet under   Sheet under
                                                        U.S. Gaap       U.S.Gaap

             Trade payables                                 467          426
             Bank and financial payables                  2,663        3,283
             Payroll and social security taxes payables      80           73
             Taxes payable                                  100           80
             Other payables                                  63           75
             Reserves                                         4            4
                                                       -------------------------
             Current liabilities                          3,377        3,941

             Trade payables                                 116           45
             Bank and financial payables                  2,500        2,553
             Mandatorily redeemable preferred stock          42           40
             Payroll and social security taxes payable       16           19
             Other payables                                  29           46
             Reserves                                       267          219
                                                       -------------------------
             Non current liabilities                      2,970        2,922

             Total liabilities                            6,347        6,863

             Minority interest in subsidiaries             (179)        (420)

             Shareholders' equity                           327           40
                                                       -------------------------

             Total liabilities and shareholders' equity   6,495        6,483
                                                       -------------------------

F)   Statements of operations under US GAAP

     -    Other expenses, net

     Certain items included in "Other expenses, net" under Argentine GAAP would
     have been computed from the line "Subtotal" under US GAAP.

     -    Exchange differences, net

     Under US GAAP, exchange differences generated by operating assets and
     liabilities are classified as operating income.


                                     F-131
<PAGE>


          -    Condensed consolidated statements of operations determined under
               US GAAP are presented as follows:

<TABLE>
                                                                        December 31,
                                                        -------------------------------------------- September 30,
                                                             2004           2003         2002 (a)         2002
                                                        ----------------------------------------------------------
<S>                                                            <C>            <C>             <C>          <C>
              Net revenues                                     3,060          2,773           632          2,456
              Cost of services provided                       (1,488)        (1,412)         (376)        (1,434)
                                                        ----------------------------------------------------------
              Gross profit                                     1,572          1,361           256          1,022

              Administrative expenses                           (324)          (315)          (95)          (310)
              Selling expenses                                  (199)          (161)          (77)          (456)
              Exchange differences, net                            4             13            10            (85)
                                                        ----------------------------------------------------------
              Operating Income                                 1,053            898            94            171

              (Loss) /Income on equity investments                (1)            (2)            4             (6)
              Other expenses, net                                  -              -             -              -
              Financial (loss) income on assets                   46            (56)          (25)           311
              Financial income (loss) on liabilities            (658)           269           615         (6,825)
                                                        ----------------------------------------------------------
              Income (loss) before income tax and
                  minority interest                              440          1,109           688         (6,349)
              Income tax                                          90            (37)          (11)          (113)
              Minority interest                                 (241)          (369)         (206)         1,917
                                                        ----------------------------------------------------------
              Net income (loss) for the year                     289            703           471         (4,545)
                                                        ==========================================================
</TABLE>

             (a)  Three-month fiscal year.

G)   Statement of cash flows presentation

     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.

     The following supplemental condensed statements of cash flows for the
     three-month fiscal year and the fiscal year ended December 31, 2002 and
     September 30, 2002, respectively, are prepared in accordance with the SEC
     presentation requirements and following Argentine GAAP valuation policies,
     except for the effects of inflation accounting, which have been segregated.
     Information for the fiscal years ended December 31, 2004 and 2003 is not
     presented because the effect of inflation has not been significant.

<TABLE>
                                                                   December 31,     September 30,
                                                                     2002 (4)            2002
                                                                   ------------------------------
<S>                                                                        <C>               <C>
           Cash and cash equivalents at end of year                        397               351
           Cash and cash equivalents at beginning of year                  351                71
                                                                   ------------------------------
           Subtotal                                                         46               280
           Reversal of inflation restatement
             of cash at beginning of year                                   (5)               43
                                                                   ------------------------------
           Increase in cash and cash equivalents                            41               323
           CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS

           Cash flows from operating activities                            199               823

           Cash flows used in investing activities:
           Purchases of fixed assets (1) (2)                               (71)             (160)
                                                                   ------------------------------
           Total cash flows used in investing activities                   (71)             (160)

           Cash flows used in financing activities:
           Decrease in bank and other financial payables                   (81)             (538)
           Increase in bank and other financial payables                     -               202
           Increase in intangible assets (3)                                (6)               (4)
                                                                   ------------------------------
           Total cash flows used in financing activities                   (87)             (340)

                                                                   ------------------------------
           Total increase in cash and cash equivalents                      41               323
                                                                   ==============================
</TABLE>

     (1)  In September 30, 2002, net of 34 million, financed by trade and bank
          and financial payables.
     (2)  In September 30, 2002, net of 12 million of capitalized exchange
          differences.
     (3)  In December 31, 2002 and September 30, 2002, net of 1 million and 11
          million, respectively, financed by trade payables.
     (4)  Three-month fiscal year.


                                     F-132
<PAGE>


H)   Business Segment Information

     Under Argentine GAAP, segment information is to be disclosed considering
     valuation criteria under Argentine GAAP (see Note 16.)

     Under US GAAP, SFAS No. 131, "Disclosures about Segments of an Enterprise
     and Related Information" 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 and Telefonica in historical amounts (not
     considering the restatement for inflation). Comparative information for
     earlier years on the same basis of segmentation must also be presented.

     Telefonica prepares, for internal reporting purposes, limited financial
     information (primarily revenues) based on its different markets including
     residential, wholesale and corporate customers. Telefonica 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. Telefonica 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.

     Until the fiscal year ended December 31, 2002, the Company's Management
     considered the Holding segment separately. As from the fiscal year ended
     December 31, 2003, the Company's Management considers the Holding
     information as part of the Telecommunications business. Consequently, the
     Company has rectroactively reflected such change in the three-month fiscal
     year ended December 31, 2002 and the fiscal year ended September 30, 2002.

     In accordance with SFAS No. 131, and considering the situation mentioned in
     the paragraph above, the Company has identified three reportable segments:
     i) Telecommunication business, that includes the basic Telephony Service
     segment, which includes the operations of Telefonica (local and long
     distance services) and the Holding segment that includes Cointel's
     stand-alone operations, and ii) the Yellow Pages segment, that includes the
     operations of Telinver.

<TABLE>
                                                      Amounts in historical Argentine million pesos
                                              ------------------------------------------------------------
                                              Telecommunication business
                                              --------------------------           Reconciliation
                                                             Basic                 to US GAAP
                                                             Telephony    Yellow   statement of
                                                 Holding     Services     Pages    operations(a)  Total(b)
                                              ------------------------------------------------------------
 <S>                                            <C>                 <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           -        124
          Publishing telephone directories            -             -          73           -         73
                                                --------------------------------------------------------
          Net revenues to unaffiliated customers      -         2,965          80           2      3,047
          Net intersegment revenues                   -            16           1         (17)         -
                                                --------------------------------------------------------
          Total net revenues                          -         2,981          81         (15)      3,047
                                                --------------------------------------------------------

          Operating income                           (1)  (c)   1,163          16        (125)      1,053
          Financial(loss) income generated by
             assets                                   -            44           2           -         46
          Financial income (loss) generated by
            liabilities                            (156)         (481)        (16)         (5)      (658)
          Income (loss) on equity investments       364            (1)          -        (364)        (1)
          Income tax                                  -             -           5          85         90
          Depreciation                               10           567           2          (6)       573
          Capital expenditures                        -           437           1          (1)       437
          Total assets                              166         4,142         112       2,075      6,495
          Investments in equity method investees   (247)            1           -         247          1
</TABLE>


                                     F-133
<PAGE>


<TABLE>
                                                      Amounts in historical Argentine million pesos
                                              ------------------------------------------------------------
                                              Telecommunication business
                                              --------------------------           Reconciliation
                                                             Basic                 to US GAAP
                                                             Telephony    Yellow   statement of
                                                 Holding     Services     Pages    operations(a)  Total(b)
                                              ------------------------------------------------------------
 <S>                                            <C>                 <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                           (1) (c)      924          12         (37)       898
          Financial (loss) income generated by
            assets                                   -            (68)          1          11        (56)
          Financial income (loss) generated by
            liabilities                              29           262           4         (26)       269
          Income (loss) on equity investments       689            (2)          -        (689)        (2)
          Income tax                                  -             -           -         (37)       (37)
          Depreciation                               10           621           3          (5)       629
          Capital expenditures                        -           184           -           -        184
          Total assets                              150         4,340          97       1,896      6,483
          Investments in equity method investees   (681)            2           -         681          2
</TABLE>


 <TABLE>
                                                      Amounts in historical Argentine million pesos
                                              -------------------------------------------------------------
                                              Telecommunication business
                                              --------------------------           Reconciliation
                                                             Basic                 to US GAAP
                                                             Telephony    Yellow   statement of
                                                 Holding     Services     Pages    operations(a)  Total(b)
                                              ------------------------------------------------------------
 <S>                                            <C>                 <C>      <C>          <C>       <C>
          December 31, 2002 (d)

          Basic telephone service
                Measured service                      -           186           -           -        186
                Monthly basic charges                 -           157           -           -        157
          Special services                            -            77           -           -         77
          Installation charges                        -             6           -           9         15
          Public phones                               -            42           -           -         42
          Access charges                              -            50           -           -         50
          International long-distance service         -            23           -           -         23
          Direct lines                                -            20           -           -         20
          Other                                       -            27           -           -         27
          Publishing telephone directories            -             -          35           -         35
                                              --------------------------------------------------------------
          Net revenues to unaffiliated customers      -           588          35           9        632
          Net intersegment revenues                   -             4           -          (4)         -
                                              ---------------------------------------------------------------
          Total net revenues                          -           592          35           5        632
                                              --------------------------------------------------------------

          Operating income                            -   (c)     132           2         (40)        94
          Financial loss generated by assets          -           (35)          -          10        (25)
          Financial income generated by
          liabilities                                91           506          10           8        615
          Income (loss) on equity investments       367             4           -        (367)         4
          Income tax                                  -             -           -         (11)       (11)
          Depreciation                                2           147           1           3        153
          Capital expenditures                        -            99           -           -         99
          Total assets                              158         4,950          93       1,929      7,130
          Investments in equity method
          investees                              (1,346)            4           -       1,346          4
</TABLE>


                                     F-134
<PAGE>


<TABLE>
                                                      Amounts in historical Argentine million pesos
                                              --------------------------------------------------------------
                                              Telecommunication business
                                              --------------------------           Reconciliation
                                                             Basic                 to US GAAP
                                                             Telephony    Yellow   statement of
                                                 Holding     Services     Pages    operations(a)  Total(b)
                                              ------------------------------------------------------------
 <S>                                            <C>                 <C>      <C>          <C>       <C>
       September 30, 2002

       Basic telephone service
             Measured service                         -           734         -             -        734
             Monthly basic charges                    -           654         -             -        654
       Special services                               -           301         -             -        301
       Installation charges                           -            37         -            41         78
       Public phones                                  -           177         -             -        177
       Access charges                                 -           229         -             -        229
       International long-distance service            -            83         -             -         83
       Direct lines                                   -            76         -             -         76
       Other                                          -            89         -             -         89
       Publishing telephone directories               -             -        35             -         35
                                              --------------------------------------------------------------
       Net revenues to unaffiliated customers         -         2,380        35            41      2,456
       Net intersegment revenues                      -             7         2            (9)         -
                                              --------------------------------------------------------------
       Total net revenues                             -         2,387        37            32      2,456
                                              --------------------------------------------------------------

       Operating income                              (2)  (c)     355        (8)         (174)       171
       Financial loss generated by assets             3           335        10           (37)       311
       Financial income generated by
       liabilities                                 (945)       (5,789)     (113)           22     (6,825)
       Income (loss) on equity investments       (3,468)           (6)        -         3,468         (6)
       Income tax                                     -          (30)         -           (83)      (113)
       Depreciation                                  10           658         3            15        686
       Capital expenditures                           -           177         -             -        177
       Total assets                                 160         5,175        99         1,936      7,370
       Investments in equity method investees    (1,713)            4         -         1,713          4
</TABLE>


          (a)  Includes elimination of intersegment charges and the computation
               of US GAAP adjustments.
          (b)  Consolidated amounts in accordance with US GAAP.
          (c)  Corresponds to Cointel's administrative expenses.
          (d)  Three-month fiscal year.


23.  OTHER FINANCIAL STATEMENT INFORMATION

     The following tables present additional consolidated financial statement
     disclosures required under accounting principles in Argentina:

     a)   Investments in shares, bonds issued in series and holdings in other
          companies

     b)   Other investments

     c)   Fixed assets

     d)   Intangible assets

     e)   Allowances and reserves

     f)   Cost of services provided

     g)   Assets and liabilities in foreign currency

     h)   Expenses incurred


                                     F-135
<PAGE>


a) INVESTMENTS IN SHARES, BONDS ISSUED IN SERIES AND HOLDINGS IN OTHER COMPANIES
AS OF DECEMBER 31, 2004 AND 2003 (amounts stated in millions of Argentine pesos,
restated as described in Note 2.2.)

<TABLE>
                                                               December 31,
                                ------------------------------------------------------------------------------
                                                            2004                                        2003
                                ------------------------------------------------------------------------------
                                                                   Inflation    Value by
     Denomination and features                                      adjusted  equity method   Book        Book
           of securities         Class    Face value  Quantity        cost                    value      value
--------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>         <C>    <C>    <C>        <C>         <C>         <C>
Current (2)

Other investments (1)              -          -             -          -            -           8           -
                                                                                            -----------------
                                                                                                8           -
                                                                                            -----------------
Noncurrent (3)

Other investments                  -          -             -          -            -           -          13
Financial Trust (5)                -          -             -          -            -           1           2
Subsidiaries and affiliates
   ECL (4)                       Common      $1.0        12,000 (6)    33           1           2           2
                                                                                            -----------------
                                                                                                3          17
                                                                                            -----------------
                                                                                               11          17
                                                                                            =================
</TABLE>

(1)  See Note 17.
(2)  See Note 2.5.b).
(3)  See Note 2.5.f).
(4)  Financial Statements for the six-month period ended December 31, 2004
     approved by ECL's Board of Directors on February 2, 2005, with auditor
     report by Abelovich, Polano & Asociados dated February 2, 2005, without
     observations.
(5)  See Note 19.
(6)  In shares.


                                     F-136
<PAGE>


b)   OTHER INVESTMENTS AS OF DECEMBER 31, 2004 AND 2003 (amounts stated in
     millions of Argentine pesos, restated as described in Note 2.2.)

<TABLE>

                                                                               Book value
                                                                      ---------------------------
                                                                              December 31,
                                                                      ---------------------------
                     Main account and features                         2004               2003
     --------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>
     Current investments

        Foreign currency deposits (1)                                     247               330
        Local currency deposits                                             -                 4
        Mutual funds                                                        5                 3
                                                                      ---------------------------
     Total                                                                252               337
                                                                      ===========================
    (1) See Note 23.g).
</TABLE>


                                     F-137
<PAGE>


c)   FIXED ASSETS (amounts stated in millions of Argentine pesos, restated as
     described in Note 2.2.)


<TABLE>
                                                                   December 31, 2004
                                       ------------------------------------------------------------------------
                                                                     Original value
                                       ------------------------------------------------------------------------
                                         Amount at      Increases    Decreases       Transfers        Amount
                                         beginning      for the          for            for          at the end
            Main account                  of year        year (1)      the year       the year        of year
---------------------------------------------------------------------------------------------------------------
<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
 Prepayment to vendors                          10            2             -              -                12
                                       ------------------------------------------------------------------------
 Total 2004                                 19,315          437           (89)             -            19,663
                                       =======================================================================-
</TABLE>

<TABLE>

                                                                       December 31, 2004
                                       ----------------------------------------------------------------------------------
                                                                   Depreciation
                                       ------------------------------------------------------------------      Net book
                                        Accumulated                                           Accumulated     value as of
                                       at beginning     Useful life    For the                at the end       December
            Main account                  of year       (in years)      year     Retirements  of the year       31, 2004
-------------------------------------------------------------------------------------------------------------------------
<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
 Prepayment to vendors                           -            -             -         -               -            12
                                       -----------                     --------------------------------------------------
 Total 2004                                 11,973                      1,127       (33)         13,067         6,596
                                       ===========                     ==================================================
</TABLE>


(1)  Capitalized interests in construction in process amounts to 8 million. See
     Note 2.5.g).
(2)  Includes 9 million corresponding to assets transferred from inventories.


                                     F-138
<PAGE>


c) FIXED ASSETS (amounts stated in millions of Argentine pesos, restated as
described in Note 2.2.)

<TABLE>
                                                                   December 31, 2003
                                       -------------------------------------------------------------------------
                                                                     Original value
                                       -------------------------------------------------------------------------
                                         Amount at                                                     Amount
                                         beginning                                                   at the end
            Main account                  of year      Increases(1)   Decreases      Transfers        of 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
 Prepayment to vendors                        11             (1)            -              -                10
                                       -----------------------------------------------------------------------
 Total 2003                               19,221            186           (92)             -            19,315
                                       =======================================================================
</TABLE>

<TABLE>
                                                                       December 31, 2003
                                       ------------------------------------------------------------------------------
                                                                   Depreciation
                                       ----------------------------------------------------------------------
                                        Accumulated                                            Accumulated
                                       at beginning     Useful life    For the                at the end of   Net book
            Main account                  of year        (in years)     year    Retirements        year         value
----------------------------------------------------------------------------------------------------------------------
<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
 Prepayment to vendors                           -            -             -           -             -            10
                                          ---------------------------------------------------------------------------
 Total 2003                                 10,745                      1,285         (57)        11,973        7,342
                                          ===========================================================================
</TABLE>


(1)  Includes capitalized interests in construction in process amounting to 8
     million. See Note 2.5.g).


                                     F-139
<PAGE>


c)   FIXED ASSETS (amounts stated in millions of Argentine pesos, restated as
     described in Note 2.2.)

<TABLE>
                                                         December 31, 2002(1)
                                       -------------------------------------------------------
                                                            Original value
                                       -------------------------------------------------------
                                         Amount at                                    Amount
                                         beginning                   Net decreases  at the end
           Main account                   of year       Increases    and transfers    of year
----------------------------------------------------------------------------------------------
<S>                                          <C>             <C>          <C>            <C>
 Land                                        117              -             -            117
 Buildings                                 1,738              -             -          1,738
 Switching equipment                       4,157              -           (15)         4,142
 Transmission equipment                    3,670              -            16          3,686
 Network installation                      7,524              -            13          7,537
 Telephones, switchboards and booths         624              2             -            626
 Furniture, software and office
 equipment                                   985             15             -          1,000
 Automobiles                                  39              -            (7)            32
 Construction in process                     269             13           (53)           229
 Materials  (2)                               68              5            30            103
 Prepayment to vendors                        10              1             -             11
                                       -------------------------------------------------------
 Total 2002                               19,201             36           (16)        19,221
                                       =======================================================
</TABLE>


<TABLE>

                                                                     December 31, 2002(1)
                                       ---------------------------------------------------------------------------------
                                                                   Depreciation
                                       --------------------------------------------------------------------
            Main account                Accumulated                                             Accumulated
                                       at beginning     Useful life   For the                    at the end     Net book
                                         of year        (in years)      year     Retirements      of year        value
------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>           <C>        <C>              <C>         <C>
 Land                                          -              -             -              -               -         117
 Buildings                                   439             50            13              -             452       1,286
 Switching equipment                       2,906             10            83              -           2,989       1,153
 Transmission equipment                    2,092             10            77              -           2,169       1,517
 Network installation                      3,544             15           111              -           3,655       3,882
 Telephones, switchboards and booths         579              5             8              -             587          39
 Furniture, software and office
 equipment                                   839            1 - 3          22              -             861         139
 Automobiles                                  39              5             -             (7)             32           -
 Construction in process                       -              -             -              -               -         229
 Materials                                     -              -             -              -               -         103
 Prepayment to vendors                         -              -             -              -               -          11
                                       ---------                      --------------------------------------------------
 Total 2002                               10,438                          314             (7)         10,745       8,476
                                       =========                      ==================================================
</TABLE>


(1) Three-month fiscal year.
(2) "Net decreases and transfers" includes transfers for 38 million.


                                      F-140
<PAGE>


c) FIXED ASSETS (amounts stated in millions of Argentine pesos, restated as
described in Note 2.2.)

<TABLE>
                                                            September 30, 2002
                                       -------------------------------------------------------
                                                              Original value
                                       -------------------------------------------------------
                                                                       Net
                                                                    decreases
                                       Amount at                       and            Amount
                                       beginning      Increases     transfers       at the end
 Main account                           of year          (3)           (4)            of year
----------------------------------------------------------------------------------------------
<S>                                          <C>              <C>          <C>             <C>
 Land                                        119              1            (3)             117
 Buildings                                 1,732              4             2            1,738
 Switching equipment                       4,039              -           118            4,157
 Transmission equipment                    3,386              -           284            3,670
 Network installation                      7,280              -           244            7,524
 Telephones, switchboards and booths         625             22           (23)             624
 Furniture, software and office
 equipment                                   888             17            80              985
 Automobiles                                  60              -           (21)              39
 Construction in process                     719            278          (728)             269
 Materials (1)                               133             27           (92)              68
 Prepayment to vendors                         7              3             -               10
                                       -------------------------------------------------------
 Total 2002 (2)                           18,988            352          (139)          19,201
                                       =======================================================
</TABLE>

<TABLE>
                                                                      September 30, 2002
                                     -----------------------------------------------------------------------------------
                                                                   Depreciation
                                     ----------------------------------------------------------------------
            Main account               Accumulated                                             Accumulated
                                      at beginning     Useful life    For the                    at the end     Net book
                                         of year        (in years)      year     Retirements      of year        value
------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>           <C>        <C>              <C>         <C>

 Land                                          -              -            -           -               -          117
 Buildings                                   394             50            47          (2)            439       1,299
 Switching equipment                       2,545             10           361           -           2,906       1,251
 Transmission equipment                    1,783             10           309           -           2,092       1,578
 Network installation                      3,106             15           439          (1)          3,544       3,980
 Telephones, switchboards and booths         549              5            67         (37)            579          45
 Furniture, software and office              661            1 - 3                                     839
 equipment                                                                180          (2)                        146
 Automobiles                                  60              5             -         (21)             39           -
 Construction in process                       -              -             -           -               -         269
 Materials                                     -              -             -           -               -          68
 Prepayment to vendors                         -              -             -           -               -          10
                                     -----------                       -------------------------------------------------
 Total 2002                                9,098                        1,403         (63)         10,438       8,763
                                     ===========                       =================================================
</TABLE>

(1) "Net decreases and transfers" includes transfers for 24 million.
(2) Capitalized interests in construction in process amounts to 11 million.
    See Note 2.5.g).
(3) Includes 29 million in construction in process corresponding to the
    capitalized exchange differences. See Note 2.5.g).
(4) Includes 3 million of real property intended for sale.


                                      F-141
<PAGE>


d) INTANGIBLE ASSETS (amounts stated in millions of Argentine pesos, restated as
described in Note 2.2.)

                                                   December 31, 2004
                                     -------------------------------------------
                                                     Original value
                                     -------------------------------------------
                                          At            Increases
                                       beginning           for           At end
       Main account                     of year         the year        of year
--------------------------------------------------------------------------------
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
Licenses (Frequencies)                        59              -            59
                                            ------------------------------------
Total 2004                                   211              2           213
                                            ====================================


<TABLE>
                                                             December 31, 2004
                                     -------------------------------------------------------
                                                        Depreciation
                                     ------------------------------------------
                                     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                                  16              3            19             31
Assignment of rights                          14              2            16              6
No competition clause                          3              1             4              2
Deferred expenses                             45              9            54             22
Licenses (Frequencies)                        51              2            53              6
                                     -------------------------------------------------------
Total 2004                                   129             17           146             67
                                     =======================================================
</TABLE>


                                      F-142
<PAGE>


d) INTANGIBLE ASSETS (amounts stated in millions of Argentine pesos, restated as
described in Note 2.2.)

                                                   December 31, 2003
                                       -----------------------------------------
                                                     Original value
                                       -----------------------------------------
                                          At
                                       beginning                         At end
       Main account                     of year         Increases       of year
--------------------------------------------------------------------------------
Licenses to use the logo and trademarks       50              -               50
Assignment of rights                          22              -               22
No competition clause                          5              -                5
Deferred expenses                             56             19               75
Licenses (Frequencies) (1)                    59              -               59
                                       -----------------------------------------
Total 2003                                   192             19              211
                                       =========================================

<TABLE>
                                                             December 31, 2003
                                     -------------------------------------------------------
                                                        Depreciation
                                     ------------------------------------------
                                     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
Licenses (Frequencies) (1)                    49              2            51              8
                                     -------------------------------------------------------
Total 2003                                   105             24(2)        129             82
                                     =======================================================
</TABLE>

(1)  At end of  year,  original  value  includes  46  million  corresponding  to
     "Goodwill" which net book value amount to zero.
(2)  Includes 8 million  corresponding to the total  depreciation of the portion
     of expenses  related to the negotiable  obligations  exchanged on August 7,
     2003 (See Note 7.3.1. as mentioned in Note 2.5.h).


                                      F-143
<PAGE>


d) INTANGIBLE ASSETS (amounts stated in millions of Argentine pesos, restated as
described in Note 2.2.)

                                                   December 31, 2002(1)
                                       -----------------------------------------
                                                     Original value
                                       -----------------------------------------
                                          At
                                       beginning                         At end
       Main account                     of year         Increases       of year
--------------------------------------------------------------------------------
Licenses to use the logo and trademarks       42              8               50
Assignment of rights                          22              -               22
No competition clause                          5              -                5
Deferred expenses                             55              1               56
Licenses (Frequencies) (2)                    59              -               59
                                       -----------------------------------------
Total 2002                                   183              9              192
                                       =========================================

<TABLE>
                                                            December 31, 2002(1)
                                     -------------------------------------------------------
                                                        Depreciation
                                     ------------------------------------------
                                     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       11              1            12             38
Assignment of rights                          11              1            12             10
No competition clause                          2              1             3              2
Deferred expenses                             28              1            29             27
Licenses (Frequencies) (2)                    49              -            49             10
                                     -------------------------------------------------------
Total 2002                                   101              4           105             87
                                     =======================================================
</TABLE>

(1) Three-month fiscal year.
(2) At end of year, original value includes 46 million corresponding to
   "Goodwill" which net book value amount to zero.


                                      F-144
<PAGE>


d) INTANGIBLE ASSETS (amounts stated in millions of Argentine pesos, restated as
described in Note 2.2.)

                                                   September 30, 2002
                                       -----------------------------------------
                                                     Original value
                                       -----------------------------------------
                                          At
                                       beginning                          At end
       Main account                     of year       Increases(1)       of year
--------------------------------------------------------------------------------
Organization and preoperating expenses       163           (163)               -
Licenses to use the logo and trademarks       42              -               42
Assignment of rights                          22              -               22
No competition clause                          5              -                5
Deferred expenses                             39             16               55
Goodwill and Licenses (Frequencies)           70            (11)              59
                                       -----------------------------------------
Total 2002                                   341           (158)             183
                                       =========================================

<TABLE>
                                                                   September 30, 2002
                                     -------------------------------------------------------
                                                                Depreciation
                                     -----------------------------------------------------------------------
                                     At beginning         For the                       At end      Net book
         Main account                  of year              year     Retirements       of year        value
------------------------------------------------------------------------------------------------------------
<S>                                  <C>                <C>             <C>           <C>           <C>
Organization and preoperating expenses       163              -            (163)             -             -
Licenses to use the logo and trademarks        9              2               -             11            31
Assignment of rights                           9              2               -             11            11
No competition clause                          2              -               -              2             3
Deferred expenses                             20              8               -             28            27
Goodwill and Licenses (Frequencies)           21             28               -             49            10
                                     -----------------------------------------------------------------------
Total 2002                                   224             40            (163)           101            82
                                     =======================================================================
</TABLE>

(1) See Note 2.5.h).


                                      F-145
<PAGE>


e) ALLOWANCES AND RESERVES (amounts stated in millions of Argentine pesos,
restated as described in Note 2.2.)

<TABLE>
                                                                       December 31, 2004
                                                ----------------------------------------------------------------
                                                    Balances at                                        Balances
                                                     beginning                                         at end of
                    Account                           of year       Increases        Decreases          period
     -----------------------------------------------------------------------------------------------------------
     <S>                                        <C>               <C>                 <C>              <C>
     Deducted from current assets:

     For doubtful accounts                                  216            63            (130)(2)            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(4)            -                 10
     For other receivables - Impairment of
        Patriotic Bond (5)                                   60             -              (4)(6)             56
     For other receivables - Deferred
        tax assets (1)                                    1,576             -            (154)             1,422
                                                ----------------------------------------------------------------
                                                          1,644             2            (158)             1,488
                                                ----------------------------------------------------------------
        Total 2004                                        1,867            67            (292)             1,642
                                                ================================================================

     Included in current liabilities:

        Contingencies                                         3             4              (3)                 4
                                                ----------------------------------------------------------------
                                                              3             4              (3)                 4
     Included in noncurrent liabilities:

        Contingencies                                       219           121             (73)               267
                                                ----------------------------------------------------------------
        Total 2004                                          222           125(3)          (76)               271
                                                ================================================================
</TABLE>

(1)   See Note 2.5.m).
(2)   In 2004 include 85 million of recovered doubtful accounts.
(3)   In 2004 include 103 million in "Other expenses, net" and 22 million in
      "Financial income/loss on liabilities" in the consolidated statement
      of operations.
(4)   Included in "Selling expenses" in the consolidated statement of
      operations.
(5)   See Notes 2.5.c) and 14.
(6)   Net of a loss of 1 million disclosed under "Holding and financial
      income (loss) on assets - Exchange differences" in the consolidated
      statement of operations.


                                      F-146
<PAGE>


e) ALLOWANCES AND RESERVES (amounts stated in millions of Argentine pesos,
restated as described in Note 2.2.)

<TABLE>
                                                                        December 31, 2003
                                                ----------------------------------------------------------------
                                                    Balances at                                        Balances
                                                     beginning                                         at end of
                    Account                           of year       Increases        Decreases(2)       period
     -----------------------------------------------------------------------------------------------------------
     <S>                                        <C>               <C>                 <C>              <C>
     Deducted from current assets:

     For doubtful accounts                                  380             66(1)       (230)(3)             216
     For impairment in value and slow
        turnover                                              7              -              -                  7
                                                ----------------------------------------------------------------
                                                            387             66           (230)               223
     Deducted from noncurrent assets:

     For doubtful accounts                                   25              -            (17)(3)              8
     For other receivables - Impairment of
     Patriotic Bond (4)                                       -             60              -                 60
     For other receivables - deferred
        tax assets (5)                                    1,941              -           (365)             1,576
                                                ----------------------------------------------------------------
                                                          1,966             60           (382)             1,644
                                                ----------------------------------------------------------------
        Total 2003                                        2,353            126           (612)             1,867
                                                ================================================================

     Included in current liabilities:

        Contingencies                                         3(7)           3             (3)                 3
                                                ----------------------------------------------------------------
                                                              3(7)           3             (3)                 3
     Included in noncurrent liabilities:

        Contingencies                                       160             60             (1)               219
                                                ----------------------------------------------------------------
        Total 2003                                          163             63(6)         (4)                222
                                                ================================================================
</TABLE>

(1)   Included in Selling expenses in the consolidated statement of
      operations.
(2)   Include the monetary gain (loss) effect on balances.
(3)   Includes 79 million of recovered doubtful accounts.
(4)   See Notes 2.5.c) and 14.
(5)   See Note 2.5.m).
(6)   Includes 34 million in Other expenses, net and 29 million in Financial
      income/loss on liabilities in the consolidated statement of operations.
(7)   Net of 1 million in other receivables.


                                      F-147
<PAGE>


e) ALLOWANCES AND RESERVES (amounts stated in millions of Argentine pesos,
restated as described in Note 2.2.)

<TABLE>
                                                                      December 31, 2002(1)
                                                ----------------------------------------------------------------
                                                    Balances at                                        Balances
                                                     beginning                                         at end of
                    Account                           of year       Increases        Decreases(2)       period
     -----------------------------------------------------------------------------------------------------------
     <S>                                        <C>               <C>                 <C>              <C>
     Deducted from current assets:

     For doubtful accounts                                  355             27(3)         (2)                380
     For impairment in value and slow
        turnover                                              7              -             -                   7
                                                ----------------------------------------------------------------
                                                            362             27            (2)                387
     Deducted from noncurrent assets:

     For doubtful accounts                                   32              -            (7)                 25
     For other receivables - deferred
        tax assets (4)                                    2,144              -          (203)              1,941
                                                ----------------------------------------------------------------
                                                          2,176              -          (210)              1,966
                                                ----------------------------------------------------------------
        Total 2002                                        2,538             27          (212)              2,353
                                                ================================================================

     Included in current liabilities:

        Contingencies                                         2              1             -                   3
                                                ----------------------------------------------------------------
                                                              2              1             -                   3
     Included in noncurrent liabilities:

        Contingencies                                       128             30             2                 160
                                                ----------------------------------------------------------------
        Total 2002                                          130             31(5)          2                 163
                                                ================================================================
</TABLE>

(1) Three-month fiscal year.
(2) Include the monetary gain (loss) effect on balances.
(3) Included in Selling expenses in the consolidated statement of operations.
(4) See Note 2.5.m).
(5) Included  in  "Other  expenses,  net"  in  the  consolidated  statement  of
    operations.


                                      F-148
<PAGE>


e) ALLOWANCES AND RESERVES (amounts stated in millions of Argentine pesos,
restated as described in Note 2.2.)

<TABLE>
                                                                       September 30, 2002
                                                ----------------------------------------------------------------
                                                    Balances at                                        Balances
                                                     beginning                                         at end of
                    Account                           of year       Increases        Decreases(1)       period
     -----------------------------------------------------------------------------------------------------------
     <S>                                        <C>               <C>                 <C>              <C>
     Deducted from current assets:

     For doubtful accounts                                  536            380(2)       (561)                355
     For impairment in value and slow
        turnover                                             24              -           (17)                  7
                                                ----------------------------------------------------------------
                                                            560            380          (578)                362
     Deducted from noncurrent assets:

     For doubtful accounts                                    -             92(2)        (60)                 32
     For other receivables - deferred
        tax assets (3)                                        -          2,144             -               2,144
                                                ----------------------------------------------------------------
                                                              -          2,236           (60)              2,176
                                                ----------------------------------------------------------------
        Total 2002                                          560          2,616          (638)              2,538
                                                ================================================================

     Included in current liabilities:

        Contingencies                                         6              2            (6)                  2
                                                ----------------------------------------------------------------
                                                              6              2            (6)                  2
     Included in noncurrent liabilities:

        Contingencies                                       181             68          (121)                128
                                                ----------------------------------------------------------------
        Total 2002                                          187             70(4)       (127)                130
                                                ================================================================
</TABLE>

(1) Include the monetary gain (loss) effect on balances.
(2) Included in Selling expenses in the consolidated statement of operations.
(3) See Note 2.5.m).
(4) Included in "Other expenses, net" in the consolidated statement of
    operations.


                                      F-149
<PAGE>


f)  COST OF SERVICES PROVIDED (1) (amounts stated in millions of Argentine
pesos, restated as described in Note 2.2.)

<TABLE>
                                                     December 31,            September 30,
                                       ----------------------------------    -------------
                                          2004        2003       2002 (2)         2002
                                       ----------------------------------    -------------
<S>                                    <C>          <C>          <C>         <C>
Inventories at beginning of year             20          22           52              74

Purchases                                    24          24            -              23

Transfers (3)                                (9)          -            -               -

Operating expenses (Note 23.h)               25          20           10              28

Holding (loss)                                -           -           (1)            (24)
                                       ---------------------------------------------------
      Subtotal                               60          66           61             101

Inventories at end of the year              (11)        (20)         (22)            (52)
                                       ---------------------------------------------------
      Total (Note 3.1.l)                     49          46           39              49
                                       ===================================================
</TABLE>

(1) Includes cost of telephone directories and telephone equipment.
(2) Three-month fiscal year.
(3) Assets transferred to fixed assets.


                                      F-150
<PAGE>


g)  ASSETS AND LIABILITIES IN FOREIGN CURRENCY AS OF DECEMBER 31, 2004 AND 2003

<TABLE>
                                               December 31, 2004                              December 31, 2003
                              -----------------------------------------------------------------------------------------------
                                Amount in                                           Amount in
                                 foreign                            Book amount      foreign
                                currency               Exchange     (in million      currency                  Book amount
                              (in million)  Currency     rate       of Argentine   (in million)   Currency    (in million of
                                   (2)                                 pesos)          (2)                   Argentine pesos)
                              -----------------------------------------------------------------------------------------------
<S>                            <C>           <C>       <C>           <C>            <C>           <C>        <C>
ASSETS

Current assets
   Cash and banks                     -        US$       2.979              1              -          -                 -
   Investments                       83        US$       2.979            247            112         US$              330
                                      3        US$       2.939              8              -          -                 -

   Trade receivables                 10        US$       2.979             31             11         US$               33
                                      2        SDR      4.611015            9              2         SDR                8

   Other receivables (1)              7        US$       2.979             20             19         US$               57
                                      3       EURO       4.0592            12              3        EURO               12
                                      -        -           -                -              1         BRL                1
                                                                        -----                                       -----
     Total current assets                                                 328                                         441
                                                                        -----                                       -----
Noncurrent assets

  Investments                         -         -          -                -              4         US$               13

  Other receivables                  11        US$       2.979             31              9         US$               25
                                                                        -----                                       -----
    Total noncurrent assets                                                31                                          38
                                                                        -----                                       -----
    Total assets                                                          359                                         479
                                                                        =====                                       =====
LIABILITIES

Current liabilities

   Trade payables                    39       US$        2.979            118             40         US$              116
                                      1       SDR       4.611015            4              3         SDR               13
                                      2       EURO       4.0592             8              2        EURO                8
                                      -        -           -                -              -       (pound)              2

   Bank and other financial
   payables                         730       US$        2.979          2,175          1,040         US$            3,049
                                  1,103        (Y)      0.029141           32          1,111          (Y)              30
                                      2       EURO       4.0592             8              2         EURO               8

   Other payables                     3       US$        2.979             10              4          US$              14
                                      3       EURO       4.0592            12              3         EURO              10
                                                                        -----                                       -----
     Total current liabilities                                          2,367                                       3,250
                                                                        -----                                       -----
Noncurrent liabilities

   Bank and other financial
   payables                         738       US$        2.979          2,199            784         US$            2,298
                                  5,704        (Y)      0.029141          166          6,742          (Y)             184
                                     17       EURO       4.0592            70             19        EURO               71

   Other payables                     1       US$        2.979              4              7         US$               20
                                                                        -----                                       -----
     Total noncurrent
     liabilities                                                        2,439                                       2,573
                                                                        -----                                       -----
     Total liabilities                                                  4,806                                       5,823
                                                                        =====                                       =====
</TABLE>

(1) In 2004 and 2003, include 12 million and 10 million corresponding to
    prepayments of fixed assets purchase.
(2) Includes figures less than 1 million in foreign currency.


US$:      U.S. dollars
(Y):      Yens
EURO:     European Currency Units
SDR:      Special Drawing Rights
(pound):  Pounds
BRL:      Brazilian Reals


                                      F-151
<PAGE>


h) EXPENSES INCURRED (amounts stated in millions of Argentine pesos, restated as
described in Note 2.2.)

<TABLE>
                                                                                                 December    December      September
                                                            December 31, 2004                    31, 2003   31, 2002(3)     30, 2002
                                      ----------------------------------------------------------------------------------------------
                                                                                Other
                                       Operating    Administrative  Selling   expenses,
                Account               expenses(1)      expenses     expenses     net       Total    Total        Total         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>          <C>          <C>      <C>        <C>         <C>          <C>
Salaries, social security taxes and
   other payroll expenses                    302             65           52         -       419      368           87           547
Fixed assets depreciation                  1,054             61           12         -     1,127    1,285          314         1,403
Fees and payments for services               333            137           55         -       525      472          111           705
Advertising                                    2              -           63         -        65       37            9            49
Directors' and statutory auditors'
   fees                                        -              7            -         -         7        4            2             1
Insurance                                      -             12            -         -        12       13            4            15
Material consumption and other
   expenditures                               60              4            7         -        71       58           14           104
Management fee                                61              7            -         -        68       86           24           147
Transportation                                17              -            1         -        18       14            5            18
Taxes, charges and contributions              41              2           17         -        60       47           10            61
Rentals                                       36              4            1         -        41       50           18            95
Commissions                                    -              -           22         -        22       22            6            36
Charges for doubtful accounts                  -              -           65         -        65       66           27           472
Recovery of doubtful accounts (4)              -              -         (105)        -      (105)     (79)           -             -
Net book value of fixed assets retired         -              -            -         -         -        -            2             4
Depreciation of intangible assets  (2)         5              3            -         -         8        8            3            32
Employee terminations                          -              -            -        37        37       42           17            85
Tax on checking account debits and
   credits                                     -             32            -         -        32       29           10            44
Other                                          1              1            -       100       102       31           30            68
                                      ----------------------------------------------------------------------------------------------
   Total as of December 31, 2004           1,912            335          190       137     2,574
                                      ==========================================================
   Total as of December 31, 2003           1,966            353          163        71              2,553
                                      ================================================              =====
   Total as of December 31, 2002             472            101           69        51                             693
                                      ================================================                             ===
   Total as of September 30, 2002          2,483            492          757       154                                         3,886
                                      ================================================                                         =====
</TABLE>

(1)  Includes 25 million, 20 million, 10 million an d 28 million corresponding
     to cost of services provided as of December 31, 2 004, 2003 and 2002, and
     September 30, 2002, respectively.
(2)  Not including 9, 16, 1 and 8 corresponding to depreciation of deferred
     expenses, which are disclosed in financial inc ome/(loss) for the fiscal
     years ended December 31, 2004 and 2003, the th ree-month fiscal year ended
     December 31, 2002 and the fiscal year ended September 30, 2002.
(3)  Three-month fiscal year.
(4)  In 2004 includes 20 million corresponding to collections from customers
     written off as of December 31, 2003.


                                      F-152